SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement |_| Confidential, For Use of the
|X| Definitive proxy statement Commission Only (as permitted by Rule
|_| Definitive additional materials 14a-6(e)(2))
|_| Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
Glenborough Realty Trust Incorporated
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction.
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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Notice of Annual Meeting of Stockholders
Time:
Friday, May 5, 2000
10:00 a.m. (Pacific Daylight Time)
Place:
Hotel Sofitel
223 Twin Dolphin Drive
Redwood City, California
Purpose:
o To elect two Class II Directors for terms ending in 2003.
o To conduct other business properly raised before the Annual Meeting
and any postponement or adjournment of the Annual Meeting.
Record Date:
You can vote if you are a stockholder of record at the close of business
on February 29, 2000.
San Mateo, California Robert Batinovich
April 5, 2000 Chairman and Chief Executive Officer
Your vote is important. Please complete, sign, date, and return your proxy
promptly in the enclosed envelope.
<PAGE>
GLENBOROUGH
REALTY TRUST INCORPORATED
400 South El Camino Real, 11th Floor
San Mateo, California 94402-1708
PROXY STATEMENT
1999 FINANCIAL INFORMATION
ATTACHED AS APPENDIX A
These proxy materials are delivered in connection with the
solicitation by the Board of Directors of Glenborough Realty Trust
Incorporated, of proxies to be voted at our Annual Meeting of Stockholders
to be held May 5, 2000. On April 5, 2000 we commenced mailing of this Proxy
Statement and the enclosed form of proxy to stockholders entitled to vote
at the meeting.
Stockholders who may vote
Stockholders of Glenborough at the close of business on February 29,
2000 may vote at the meeting. As of that date, there were 30,511,503 shares
of common stock outstanding and entitled to vote. Holders of Common Stock
are entitled to one vote for each share of Common Stock so held.
How to vote
You may vote by proxy or in person at the meeting. To vote by proxy,
please complete, sign, date, and return your proxy card in the postage-paid
envelope provided.
How proxies work
Giving your proxy means that you authorize us to vote your shares at
the meeting in the manner you direct. If you sign, date, and return the
enclosed proxy card but do not specify how the proxy should be voted, we
will vote your shares in favor of the nominees for directors designated
below.
How to revoke a proxy
You may revoke your proxy before it is voted by (a) submitting a new
proxy with a later date, or (b) filing a written notice of revocation with
Glenborough's Corporate Secretary, or (c) voting in person at the meeting.
Required vote
In order to carry on the business of the meeting, we must have a
quorum. A quorum requires the presence, in person or by proxy, of the
holders of a majority of the votes entitled to be cast at the meeting. We
count abstentions and broker "non-votes" as present and entitled to vote
for purposes of determining a quorum. A broker non-vote occurs if you hold
shares in "street name" and fail to provide voting instructions to your
broker for those shares. Under those circumstances, your broker may be
authorized to vote for you on some routine items but is prohibited from
voting on other items. Those items for which your broker cannot vote result
in broker non-votes.
The affirmative vote of a plurality of shares present in person or
represented by proxy is necessary for the election of each director
nominee. Abstentions and broker non-votes are not counted for this purpose.
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Costs of proxy solicitation
We will pay the expenses of soliciting proxies. In addition to
solicitation by mail; our officers may solicit proxies in person or by
telephone.
Stockholder proposals for next year
Glenborough's Bylaws provide that the Annual Meeting of Stockholders
is to be held on the first Friday in May of each year, or on such other day
within the month of May as the Board may designate.
The deadline for stockholder proposals to be included in the Proxy
Statement for next year's Annual Meeting of Stockholders is December 4,
2000. If you intend to submit such a proposal, it must be received by the
Corporate Secretary at Glenborough's principal office, 400 South El Camino
Real, San Mateo, California 94402-1708, no later than that date.
If you intend to bring a matter before next year's annual meeting
other than by submitting a proposal to be included in our Proxy Statement,
you must give timely notice according to Glenborough's Bylaws. To be
timely, your notice must be received by Glenborough's Corporate Secretary
at 400 South El Camino Real, San Mateo, California 94402-1708, on or after
February 2, 2001 and on or before March 6, 2001.
For each matter you intend to bring before the meeting, your notice
must include a brief description of the business you wish to be considered,
any material interest you have in that business, and the reasons for
conducting that business at the meeting. The notice must also include your
name and address and the number of shares of Glenborough Common stock that
you own.
Securities ownership of certain beneficial owners
The following table provides information about the only known
beneficial owners of more than five percent of Glenborough's outstanding
common stock, based solely on the most recent Schedule 13G received by
Glenborough and our records.
Percentage of Shares of
Common Stock Outstanding
Name and Business Address Amount and Nature of Percentage of Shares and Operating
of Beneficial Owner Beneficial Ownership Outstanding(1) Partnership Units(2)
- ------------------------- -------------------- -------------------- -------------------------
<S> <C> <C> <C>
Franklin Resources, Inc.
and affiliates (3) 6,130,182 17.8% 14.5%
FMR Corp. (4) 3,906,370 12.6% 9.3%
Robert Batinovich (5) 1,792,321 5.8% 4.2%
___________________________
(1) Assumes that Glenborough's Series A Convertible Preferred Stock beneficially
owned by the person, directly or indirectly, are exchanged for or converted into
shares of Glenborough's Common Stock, and that none of the Series A Convertible
Preferred Stock held by other persons are so converted.
(2) Assumes the exchange of all outstanding Operating Partnership Units for
shares of Common Stock. Assumes that none of the shares of Series A Convertible
Preferred Stock held by other persons are converted into shares of Common Stock,
and assumes that none of the options held by other persons are exercised.
(3) Franklin Resources, Inc. ("FRI"), 777 Mariners Island Boulevard, P. O. Box
7777, San Mateo, CA 94403-7777. The securities are beneficially owned by one or
more open or closed-end investment companies or other managed accounts which are
advised by direct and indirect investment advisor subsidiaries (the "Adviser
Subsidiaries") of FRI. Such advisory contracts grant to such Adviser
Subsidiaries all investment and/or voting power over the securities owned by
such advisory clients. Therefore, such Adviser Subsidiaries may be deemed to be
the beneficial owner of these securities. Charles B. Johnson and Rupert H.
Johnson (the "Principal Shareholders") each own in excess of 10% of the
outstanding Common Stock of FRI and are the principal shareholders of FRI. FRI
and the Principal Shareholders may be deemed to be the beneficial owner of
securities held by persons and entities advised by FRI subsidiaries. FRI, the
Principal Shareholders and each of the Adviser Subsidiaries disclaim any
economic interest or beneficial ownership in any of the securities. The figure
shown includes 3,339,482 shares of Common Stock that would result upon the
conversion of 4,385,400 shares of Convertible Preferred Stock. Franklin
Advisers, Inc. has sole power to vote or to direct the vote, as well as sole
power to dispose or to direct the disposition, of 6,063,538 shares. Franklin
Management, Inc. has sole power to dispose or to direct the disposition, of
66,644 shares.
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<TABLE>
<CAPTION>
(4) Fidelity Management & Research Company ("Fidelity"), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp. ("FMR") and
an investment adviser registered under Section 203 of the Investment Advisers
Act of 1940 (the "Investment Act"), is the beneficial owner of 2,778,670 shares
or 8.9% of such Common Stock as a result of acting as investment adviser to
various investment companies. The ownership of one investment company, Fidelity
Dividend Growth Fund, amounted to 1,740,500 shares or 5.6% of such Common Stock.
Edward C. Johnson 3d, FMR, through its control of Fidelity, and the Funds each
has sole power to dispose of the 2,778,670 shares owned by the Funds. Neither
FMR nor Edward C. Johnson 3d, Chairman of FMR, has the sole power to vote or
direct the voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds' Boards of Trustees. Fidelity carries out the
voting of the shares under written guidelines established by the Funds' Boards
of Trustees. Fidelity Management Trust Company ("Fidelity Trust"), 82 Devonshire
Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR and a bank
as defined in Section 3(a)(6) of the Securities Exchange Act of 1934, is the
beneficial owner of 1,127,700 shares or 3.6% of such Common Stock as a result of
its serving as investment manager of the institutional account(s). Edward C.
Johnson 3d and FMR, through its control of Fidelity Trust, each has sole
dispositive power over 1,127,700 shares of Common Stock owned by the
institutional account(s) as reported above.
(5) See footnotes (5), (6) and (7) for table below.
Securities ownership of Directors and executive officers
The following table states the number of shares of Glenborough's
common stock beneficially owned, as of February 29, 2000, by each current
Director, each executive officer named in the "Summary Compensation Table"
and by all Directors and executive officers as a group.
Amount and Percentage of Shares of
Nature of Percentage of Common Stock Outstanding
Name and Business Address of Beneficial Shares and Operating
Beneficial Owner(4) Ownership(1)(6) Outstanding(2) Partnership Units(3)
- ------------------------------ --------------- -------------- ------------------------
<S> <C> <C> <C>
Robert Batinovich (5)(7) 1,792,321 5.8% 4.2%
Andrew Batinovich (7) 612,817 2.0% 1.4%
Sandra L. Boyle (7) 53,297 * *
Stephen R. Saul 25,439 * *
Daniel Levin 3,000 * *
Patrick Foley 44,128 * *
Richard A. Magnuson 25,000 * *
Laura Wallace 26,200 * *
Richard C. Blum 16,000 * *
All directors and executive officers
as a group (12 persons) 2,665,687 8.6% 6.2%
- -------------------------------------------
* less than 1.0%
(1) Certain of the officers hold or control limited partnership interests in
Glenborough Partners, a California limited partnership ("Partners"), which holds
an interest in Glenborough Properties, L.P., a California limited partnership
(the "Operating Partnership"), in which Glenborough holds an interest both as
general partner and as limited partner. Such officers, through their interest in
Partners, share indirectly, with Glenborough, in the net income or loss and any
distributions of the Operating Partnership. Certain of the officers beneficially
own a portion of the equity securities (in the form of common stock) of
Glenborough Corporation ("GC"), in which Glenborough also holds an equity
interest (in the form of non-voting preferred stock); GC holds a small interest
in the Operating Partnership. Pursuant to the partnership agreement of the
Operating Partnership, Partners and GC hold certain redemption rights under
which their respective interests in the Operating Partnership could at some
point be redeemed in exchange for shares of Glenborough's Common Stock.
(2) Assumes that all Operating Partnership Units and Glenborough's Series A
Convertible Preferred Stock beneficially owned by the person, directly or
indirectly, are exchanged for or converted into shares of Glenborough's Common
Stock, that none of the Operating Partnership Units or Series A Convertible
Preferred Stock held by other persons are so exchanged or converted, that all
stock options exercisable within 60 days of the Record Date owned by the person
are exercised and that no stock options held by other persons are exercised.
(3) Assumes that all Operating Partnership Units and Glenborough's Series A
Convertible Preferred Stock, including those beneficially owned by the person,
directly or indirectly, are exchanged for or converted into shares of
Glenborough's Common Stock, that all stock options exercisable within 60 days of
the Record Date owned by the person are exercised and that no stock options held
by other persons are exercised.
(4) The business address of such person is 400 South El Camino Real, Suite 1100,
San Mateo, California 94402-1708.
(5) Excludes (i) 2,653 shares of Glenborough's Common Stock that may be issued
upon the redemption of Partners' interest in the Operating Partnership, which
represents Angela Batinovich's portion of all shares of Glenborough's Common
Stock that may be issued to Partners upon such redemption, (ii) 519 shares of
Glenborough's Common Stock which represents Angela Batinovich's portion of all
shares of Glenborough's Common Stock that is owned by Partners, (iii) 91 shares
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<TABLE>
<CAPTION>
of Glenborough's Common Stock that would be acquired by a trust as to which
Angela Batinovich is sole beneficiary and an independent third party is trustee,
which represents such trust's portion of all shares of Glenborough's Common
Stock that would be acquired by Partners upon conversion of shares of
Glenborough's Series A Convertible Preferred Stock that is owned by Partners,
(iv) 6,905 shares of Glenborough's Common Stock which represents such trust's
portion of all shares of Glenborough's Common Stock that would be acquired by
such trust upon conversion of shares of Glenborough's Series A Convertible
Preferred Stock that are owned by such trust, and (v) 111,857 shares of the
Company's Common Stock held by S.S. Rainbow, a California limited partnership
("S.S. Rainbow") in which Robert Batinovich's adult son, Andrew Batinovich, is
general partner, and his daughter, Angela Batinovich, is a limited partner.
(6) Includes shares of Common Stock issuable pursuant to options exercisable
within 60 days of the Record Date, as shown in the following table:
Name Number of Shares Name Number of Shares
- -------------------- -------------------- --------------------------- -------------------
<S> <C> <C> <C>
Robert Batinovich 450,000 Patrick Foley 18,000
Andrew Batinovich 286,757 Richard C. Blum 11,000
Sandra L. Boyle 39,414 Richard Magnuson 18,000
Stephen Saul 14,414 Laura Wallace 18,000
Daniel Levin 0 All directors and
executive officers as a 878,332
group
(7) The breakdown of the amount shown as beneficial ownership is set forth in the table below.
All Directors
and Executive
Robert Andrew Sandra L. Officers
Batinovich Batinovich Boyle as a Group
-------------------------------------------------------
<S> <C> <C> <C> <C>
The number of shares of Glenborough's Common Stock owned 1,089,435 206,892 13,000 1,412,269
directly by the officer
The number of shares of Glenborough's Common Stock that may 69,166 0 0 69,166
be issued upon:
o redemption of the officer's interest in the
Operating Partnership.
o redemption of Partners' interest in the Operating 143,182 5,945 356 149,975
Partnership, which represents the officer's portion of
all shares of Glenborough's Common Stock that may be
issued to Partners upon such redemption.
o redemption of GC's interest in the Operating 0 0 446 1,149
Partnership, which represents the officer's portion of
all shares of Glenborough's Common Stock that may be
issued to GC upon such redemption.
The number of shares of Glenborough's Common Stock which 28,019 1,163 70 29,348
represents the officer's portion of all shares of
Glenborough's Common Stock that is owned by Partners.
Includes the indicated number of shares of Glenborough's 0 56,488 0 56,488
Common Stock beneficially held by Andrew Batinovich through
S.S. Rainbow, in which Andrew Batinovich is sole general
partner and his sister, Angela Batinovich, is a limited
partner.
Includes the indicated number of shares of Glenborough's 0 55,369 0 55,369
Common Stock beneficially held by Angela Batinovich through
S.S. Rainbow.
The number of shares of Glenborough's Common Stock which 4,905 204 12 5,138
represents the officer's portion of all shares of
Glenborough's Common Stock that would be acquired by
Partners upon conversion of the shares of Glenborough's
Series A Convertible Preferred Stock that are owned by
Partners.
The number of shares of Glenborough's Common Stock that 7,615 0 0 8,453
would be acquired by the officer upon conversion of shares
of Glenborough's Series A Convertible Preferred Stock that
are owned by the officer.
</TABLE>
<PAGE>
Section 16(a) beneficial ownership reporting compliance.
Section 16(a) of the Securities Exchange Act of 1934 requires
Glenborough's directors and executive officers to file with the Securities
and Exchange Commission (SEC) and the New York Stock Exchange reports of
ownership and changes in ownership of Glenborough Common Stock and other
equity securities of Glenborough. Directors and executive officers are
required by SEC regulations to furnish Glenborough with copies of all
Section 16(a) reports they file.
To Glenborough's knowledge, based solely on review of the copies of
such reports furnished to Glenborough and written representations by our
directors and executive officers that no other reports were required,
during 1999 all Section 16(a) filing requirements applicable to our
directors and executive officers were complied with.
I. ELECTION OF DIRECTORS
(Item 1 on Proxy Card)
Glenborough's Board of Directors is divided into three classes, with
the term of office of each class ending in successive years. The terms of
the Directors of Class II expire with this meeting. Each of the two
nominees for Class II, if elected, will serve three years until the 2003
Annual Meeting and until a successor has been elected and qualified. The
Directors in Class I will continue in office until the 2002 meeting and the
Directors in Class III will continue in office until the 2001 meeting.
The persons named in the accompanying proxy will vote your shares for
the election of the nominees named below as Directors of Class II unless
you direct otherwise. Each nominee has consented to be named and to
continue to serve if elected. If any of the nominees become unavailable for
election for any reason, the proxies will be voted for the other nominees
and for any substitutes. The affirmative vote of a plurality of the shares
of Common Stock present or represented to vote at the Annual Meeting is
necessary to elect each Class II director nominee. Abstentions and broker
non-votes will not be counted as votes cast and will have no effect on the
result of the vote.
Nominees for Director
The following information is given with respect to the nominees for
election
Class II - Nominees to serve three years until 2003 Annual Meeting
Robert Batinovich has served as Glenborough's Chairman and Chief
Executive Officer since Glenborough began operations on December 31, 1995.
Mr. Batinovich also served as Glenborough's President from inception
through September 1997. He also was the founder of Glenborough Corporation
and certain of its affiliates, and has been engaged in real estate
investment and management, and corporate finance, since 1970. He served as
President, Chief Executive Officer and Chairman of Glenborough Corporation
from its formation in 1978 until its consolidation and merger with
Glenborough (the "Consolidation") on December 31, 1995. Mr. Batinovich
served as a member of the California Public Utilities Commission from 1975
to 1979, serving as its President the last three years. He is a member of
the Board of Directors of the Farr Company, a publicly held company that
manufactures industrial filters. Mr. Batinovich's business background
includes seven years as an executive with Norris Industries, and managing
and/or owning manufacturing, vending and service companies and a national
bank, and providing investment consulting to businesses and individuals. He
has served on a number of governmental commissions and participated in a
variety of policy research efforts sponsored by government bodies and
universities.
Patrick Foley has served as director of Glenborough since January 11,
1996. He is a private business consultant, having retired in December 1999
after eleven years as Chairman and Chief Executive Officer of DHL
Corporation, Inc., and its major subsidiary, DHL Airways. Prior to joining
DHL, Mr. Foley was associated with the Hyatt Hotels Corporation ("Hyatt")
for 26 years in a variety of capacities: from 1962 to 1972; as Executive
Vice President for Operations, from 1972 to 1978; as President, from 1978
to 1984; as Chairman from 1984 to 1988; as Vice Chairman and later Chief
Executive Officer of Braniff Airlines, a Hyatt subsidiary, from 1984 to
1988. Mr. Foley currently is a member of the boards of directors of
Continental Airlines, Inc., Foundation Health Systems, Inc., Del Monte
Foods Company, EventSource.com and Flextronics International Ltd.
<PAGE>
Directors continuing in office
The following information is given with respect to the Directors who
are not nominees for election at the Annual Meeting.
Class I - Serving until 2002 meeting
Richard C. Blum was elected a director of Glenborough in January 1998.
Mr. Blum is Chairman and President of Richard C. Blum & Associates, Inc.,
which is a general partner of BLUM Capital Partners, L.P. (formerly Richard
C. Blum & Associates, L.P.), a merchant banking and long-term strategic
equity investment management firm which acts as general partner for various
investment partnerships and provides investment advisory services. Mr. Blum
also serves as a director of the Shaklee Corporation (nutritional household
and personal care products), URS Corporation (architectural and engineering
services), CB Richard Ellis Services, Inc. (real estate services),
Northwest Airlines, Playtex Products, Inc. (personal and household
products), and Korea First Bank (banking). He is also a director of KFB
Newbridge Advisors, Co., KFB Newbridge Control Corp. and KFB Co-Investment
I. Co., as well as co-Chairman of Newbridge Capital, an investment
management firm that invests in Asia and Latin America..
Richard A. Magnuson has served as a director of Glenborough since
January 11, 1996. In 1999 he became Executive Managing Director at CB
Richard Ellis Investors where he is responsible for international and
venture capital investments. Before joining CB Richard Ellis Investors, Mr.
Magnuson joined Nomura Securities International Inc. in 1994, where he
served most recently as Deputy Managing Director of the private equity
group in London, England. Mr. Magnuson is a member of the Urban Land
Institute, the National Association of Real Estate Investment Trusts, and
the International Council of Shopping Centers.
Class III - Serving until 2001 meeting
Andrew Batinovich has served as a director, Executive Vice President,
Chief Operating Officer and Chief Financial Officer of Glenborough since
Glenborough began operations on December 31, 1995 until September 1997 when
he became President and Chief Operating Officer of Glenborough. He also
served as a director of Glenborough Corporation prior to the Consolidation,
was employed by Glenborough Corporation from 1983 until the Consolidation
and functioned as its Chief Operating Officer and Chief Financial Officer
since 1987. Mr. Batinovich holds a California real estate broker's license
and is a Member of the National Advisory Council of Building Owners and
Managers Association ("BOMA") International. Prior to joining Glenborough,
Mr. Batinovich was a lending officer with the International Banking Group
and the Corporate Real Estate Division of Security Pacific National Bank.
Laura Wallace has served as a director of Glenborough since January
11, 1996. She is also Chief Investment Officer of the Public Employees
Retirement System of Nevada, a position she has held since 1985. The Public
Employees Retirement System comprises 80,000 active members, 40,000
inactive members, and 20,000 benefit recipients, with an investment
portfolio of $12.6 billion. Prior to joining the Public Employees
Retirement System, Ms. Wallace served from 1977 to 1980 as Manager of the
Beaverton, Oregon office of Safeco Title Insurance Company, and from 1975
to 1977 as Senior Assistant Manager of the Beaverton office of Household
Finance Corporation. Ms. Wallace is a member of the National Association of
State Investment Officers, of which she is past chairman; a member of the
executive board of the National Conference of Public Employee Retirement
Systems; past member of the Editorial Board of the Institutional Real
Estate Letter; and serves as guest lecturer at the University of Nevada.
Board meetings and committees
During 1999, the Board held four meetings. The Board has two standing
committees: the Audit Committee and the Compensation Committee. The Board
does not presently have a separate nominating committee, the function of
which is handled by the Board as a whole. All directors attended at least
75% of the meetings of the Board and Board committees on which they served
during 1999.
The Audit Committee. The Audit Committee, which consists of Laura
Wallace and Richard A. Magnuson, both of whom are independent in accordance
with applicable rules of the New York Stock Exchange, met twice in 1999.
The Audit Committee (i) reviews with Glenborough's independent accountants
the annual reports received from such auditors; (ii) reviews with the
independent auditors the scope of the succeeding annual audit; (iii)
<PAGE>
nominates the independent auditors to be selected each year by the Board;
(iv) reviews consulting services rendered by Glenborough's independent
auditors and evaluates the possible effect on the auditors' independence of
performing such services; (v) ascertains the existence of adequate internal
accounting and control systems; and (vi) reviews with management and
Glenborough's independent auditors current and emerging accounting and
financial reporting requirements and practices affecting Glenborough.
The Compensation Committee. The Compensation Committee, which consists
of Patrick Foley, Laura Wallace and Richard C. Blum, met twice in 1999. The
Compensation Committee (i) reviews Glenborough's compensation philosophy
and programs and determines compensation for Glenborough's executive
officers; (ii) administers Glenborough's 1996 Stock Incentive Plan; (iii)
takes all independent action required under the federal securities laws and
the Internal Revenue Code on all matters pertaining to compensation
programs and policies, including employee incentive and benefits programs;
and (iv) reports to the Board concerning its actions.
Compensation of Directors
Annual retainer. Independent, non-employee directors are each paid
$20,000 annually, plus $500 for each committee meeting attended, except
that the chairman of each committee receives $1,000 for each meeting
attended. Glenborough also reimburses these directors for travel expenses
incurred in connection with their activities on Glenborough's behalf.
Stock options. On November 4, 1999, each independent non-employee
director was granted an option to purchase 11,000 shares of Glenborough
Common Stock at an option price equal to 100% of the fair market value on
that date. The options expire ten years from the date of grant.
Thirty-three and one-third percent of the shares subject to the option
become exercisable on November 4, 2002, and an additional thirty-three and
one-third percent become exercisable on November 4 of each of the two
succeeding years.
Restricted stock grants. On November 1, 1999, Richard C. Blum was
granted 3,000 shares of restricted common stock of Glenborough, which
became fully vested on January 26, 2000.
Compensation Committee report on executive compensation
The Compensation Committee, which is composed of independent,
non-employee directors and has the principal responsibilities described
above, has furnished the following report on executive compensation.
Executive Compensation Philosophy
The Compensation Committee believes that the primary goal of
Glenborough's executive compensation program should be related to creating
stockholder value. The executive compensation policies of the Compensation
Committee are designed to provide incentives to create stockholder value by
attracting, retaining and motivating executive talent that contributes to
Glenborough's long-term success, by rewarding the achievement of
Glenborough's short-term and long-term strategic goals, by linking
executive officer compensation and stockholder interests through grants of
awards under the Stock Incentive Plan and by recognizing individual
contributions to Company performance. The Committee evaluates the
performance of Glenborough and compares it to real estate investment trusts
and real estate companies of similar size engaged in activities similar to
those of Glenborough. The compensation of Glenborough's named executive
officers in 1999 consisted of base salaries, bonuses, stock options and
certain benefits.
The Compensation Committee reviews the available competitive data,
evaluates the particular needs of Glenborough, and evaluates each
executive's performance to arrive at a decision regarding compensation
programs. The Compensation Committee has retained the services of an
independent compensation consultant (the Compensation Consultant) to assist
the Compensation Committee in its evaluation of the key elements of
Glenborough's compensation program. The Compensation Consultant provides
advice to the Compensation Committee with respect to competitive
compensation in the market in which Glenborough competes for executive
talent and the reasonableness of the current and proposed compensation
levels.
<PAGE>
1999 Executive Compensation
For services performed in 1999, executive compensation consisted of
base salary, bonuses and grants of stock options and restricted stock under
the Stock Incentive Plan. The stock options vest over time.
Base Salary and Bonuses. Base salaries and bonuses for Glenborough's
executive officers (other than the Chief Executive Officer and the
President and Chief Operating Officer) are determined primarily on the
basis of the executive officer's responsibility, qualification and
experience, as well as the general salary practices of peer companies among
which Glenborough competes for executive talent. The Committee reviews the
base salaries of these executive officers annually in accordance with
certain criteria determined primarily on the basis of growth in revenues
and funds from operations per share of Common Stock and on the basis of
certain other factors which include (i) individual performance, (ii) the
functions performed by the executive officer and (iii) changes in the
compensation peer group in which Glenborough competes for executive talent.
The weight that the Compensation Committee places on such factors may vary
from individual to individual and necessarily involves subjective
determinations of individual performance.
Employment Agreements. On January 1, 1998, Glenborough entered into
employment agreements with Robert Batinovich, Glenborough's Chief Executive
Officer, and Andrew Batinovich, Glenborough's President and Chief Operating
Officer. Pursuant to the terms of those employment agreements, Robert
Batinovich receives an aggregate annual base salary of $480,000, and Andrew
Batinovich receives $325,000, which was increased from $300,000 effective
January 1, 1999. Each is eligible to participate in Glenborough's employee
benefit plans and executive compensation programs, including stock options.
Also, under the employment agreements, each of Robert Batinovich and Andrew
Batinovich is entitled to annual contingent bonuses based on the attainment
of certain criteria tied to Glenborough's performance. Each agreement
terminates on December 31, 2002, and thereafter may be extended in one year
increments. The employment agreements also provide for certain payments of
base salary, compensation and benefits upon termination without cause and
upon a change of control of Glenborough.
Long-Term Incentive Compensation Awards. The Stock Incentive Plan
provides for grants to key executives and employees of Glenborough of (i)
shares of Common Stock of Glenborough, (ii) options or stock appreciation
rights ("SARs") or similar rights, or (iii) any other security with the
value derived from the value of the Common Stock of Glenborough or other
securities issued by a related entity. The Compensation Committee may make
grants under the Stock Incentive Plan based on a number of factors,
including (a) the executive officer's or key employee's position in
Glenborough, (b) his or her performance and responsibilities, (c) the
extent to which he or she already holds an equity stake in Glenborough, and
(d) contributions and anticipated contributions to the success of
Glenborough's financial performance. In addition, the size, frequency, and
type of long-term incentive grants are generally determined on the basis of
past granting practices, fair market value of Glenborough's stock, tax
consequences of the grant to the individual and Glenborough, accounting
impact, and the number of shares available for issuance. However, the plan
does not provide any formulaic method for weighing these factors, and a
decision to grant an award is based primarily upon the Compensation
Committee's evaluation of the past as well as the future anticipated
performance and responsibilities of each individual. The Compensation
Committee may also consult with the Compensation Consultant with respect to
long-term incentives and other compensation awards.
Deductibility of Compensation
Section 162(m) of the Internal Revenue Code denies a deduction for
compensation in excess of $1 million paid to certain executive officers,
unless certain performance, disclosure, and stockholder approval
requirements are met. Option grants under Glenborough's Stock Incentive
Plan are intended to qualify as "performance-based" compensation not
subject to the Section 162(m) deduction limitation. In addition, the
Committee believes that a substantial portion of the compensation program
would be exempted from the $1 million deduction limitation.
<PAGE>
<TABLE>
<CAPTION>
Chief Executive Officer Compensation
Salary, Insurance and Bonus. The compensation of Robert Batinovich,
Glenborough's Chief Executive Officer, for fiscal 1999 was determined
pursuant to the terms of a previously negotiated employment agreement with
Glenborough. In 1999, Mr. Batinovich received an annual base salary of
$480,000 and an aggregate of approximately $26,085 in health insurance and
other benefits. Mr. Batinovich did not receive a bonus, because his
entitlement to a bonus was contingent upon the attainment of certain
performance thresholds set forth in the employment agreements, which were
not met.
Long-Term Incentive Awards. Consistent with the Compensation
Committee's policy with respect to long-term incentive compensation awards
described above, Mr. Batinovich was granted options to purchase 150,000
shares of Common Stock, with an exercise price of $12.00 per share.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Patrick Foley
Laura Wallace
Richard C. Blum
Executive Officers
The following table sets forth certain information as of the Record
Date with respect to the executive officers, including their ages.
Term
Name Age Expires Principal Position
- ------------------ ----- --------- -------------------------------------------------------------
<S> <C> <C> <C>
Robert Batinovich 63 2000 Chairman and Chief Executive Officer
Andrew Batinovich 41 2001 Director, President and Chief Operating Officer
Sandra L. Boyle 51 -- Executive Vice President
Stephen R. Saul 46 -- Executive Vice President and Chief Financial Officer
Frank E. Austin 52 -- Senior Vice President, General Counsel and Secretary
Terri Garnick 39 -- Senior Vice President, Chief Accounting Officer and Treasurer
Steven F. Hallsey 48 -- Senior Vice President, Commercial Property Management
Richard C. Blum 64 2002 Director
Patrick Foley 68 2000 Director
Richard A. Magnuson 42 2002 Director
Laura Wallace 46 2001 Director
- --------------------------------------------------------------------------------
Biographical information concerning directors is set forth above under
the caption "I. Election of Directors." Biographical information concerning
the executive officers is set forth below.
Sandra L. Boyle has served as Executive Vice President of Glenborough
ince September 1997, prior to which she served as Senior Vice President of
lenborough since it began operations on December 31, 1995. Ms. Boyle has
een associated with Glenborough Corporation or its affiliated entities
ince 1984. She was originally responsible for residential marketing. Her
esponsibilities were gradually expanded to include residential leasing and
anagement in 1985, and commercial leasing and management in 1987. She was
lected Vice President of Glenborough Corporation in 1989. She currently
upervises asset management, property management and management information
ervices for Glenborough. Ms. Boyle holds a California real estate broker's
icense and a CPM designation, is a past President of BOMA San Francisco,
nd is a member of the National Advisory and Finance Committee of BOMA
nternational, and the Board of Directors of BOMA San Francisco and BOMA
California.
</TABLE>
<PAGE>
Stephen R. Saul has served as Vice President of Glenborough since May
1996 and became Glenborough's Executive Vice President and Chief Financial
Officer in September 1997. He has served as Manager of Real Estate Finance
since joining Glenborough Corporation in April 1995. From 1991 to 1995, Mr.
Saul served as President of KSA Financial Corporation, a company which was
based in Sacramento, California and which originated equity and debt
financing for real estate projects in Northern California; he also served
five years with Security Pacific National Bank and five years with the
development company of Harrington and Kulakoff. Mr. Saul has a B.A. in
Architecture and Urban Studies from Stanford University and an M.B.A. from
Harvard University.
Frank E. Austin has served as Senior Vice President, General Counsel
and Secretary of Glenborough since Glenborough began operations on December
31, 1995. Mr. Austin also served as a Vice President of Glenborough
Corporation from 1985 until the completion of the Consolidation. He is a
member of the State Bar of California. Prior to joining Glenborough, Mr.
Austin served for three years as committee counsel in the California State
Senate, three years with the law firm of Neumiller & Beardslee, and four
years at State Savings and Loan Association and American Savings and Loan
Association.
Terri Garnick has served as Senior Vice President, Chief Accounting
fficer and Treasurer of Glenborough since Glenborough began operations on
ecember 31, 1995. Ms. Garnick joined Glenborough Corporation in 1989, and
etween that time and the completion of the Consolidation was responsible
or property management, accounting, financial statements, audits, SEC
eports, and tax returns for partnerships under management of Glenborough
orporation and its affiliates. Prior to joining Glenborough Corporation in
989, Ms. Garnick was a controller at August Financial Corporation from
986 to 1989 and was a Senior Accountant at Deloitte Haskins & Sells from
1983 to 1986.
Steven F. Hallsey joined Glenborough on January 12, 1998, as Senior
Vice President of Commercial Property Management. Prior to joining
Glenborough, Mr. Hallsey served for three years as President and Chief
Operating Officer of Western National Group, a national property management
firm based in Irvine, California; and for two years as President of the
Harbor Group of Norfolk, Virginia, which owned and operated a regional
portfolio of commercial and multifamily properties. He also served four
years as a Senior Vice President of Balcor Property Management and six
years as Senior Executive Vice President of Clark Financial Corporation, a
regional property management firm based in Salt Lake City, Utah. Mr.
Hallsey serves on the boards of directors of the National Multi Housing
Counsel and the California Apartment Association, and is the founder of the
South Coast Apartment Association.
Transactions with related parties
Glenborough acquired from Glenborough Partners, a California limited
partnership ("Partners"), an option (the "Option") to acquire all of
Partners' rights under a Lease with Option to Purchase Agreement (the
"Lease/Option"), to lease and acquire certain undeveloped real property
located in Burlingame, California (the "Property"). Glenborough paid
approximately $533,000 for such acquisition, with the intention of using
the option period to evaluate the desirability of developing the Property
as a Company investment. Upon expiration of the option period in 1999, the
independent members of Glenborough's Board of Directors concluded that
proceeding with the development of the Property would have required that
Glenborough incur substantial debt, and accordingly on February 1, 1999
elected (Robert Batinovich and Andrew Batinovich abstaining) not to proceed
with the development and not to exercise the Option, in return for
Partners' Agreement to (i) reimburse Glenborough for $2,309,000 of
predevelopment costs, $462,000 to be paid in cash with the balance of
$1,847,000 in a promissory note bearing interest at 10% and due on the
earlier of sale, refinance or March 31, 2002. The note also contains a
participation in profits realized by Partners from the development and sale
of the property. Robert Batinovich and Andrew Batinovich own, in aggregate,
approximately 22% of the partnership interests in Partners.
Summary compensation table
The following table reflects all compensation received by those
persons who were, as of December 31, 1999, the chief executive officer and
the four other most highly compensated executive officers of Glenborough
(collectively, the Named Officers).
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term Compensation
---------------------------- --------------------------------
Restricted Securities All other
Name and stock underlying compen-
Principal Position Year Salary ($) Bonus ($) award(s) ($) Options/SARs(#) sation ($)(4)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert Batinovich 1999 480,000 0 150,000(1) 26,085
Chairman and 1998 480,000 480,000 - 800,000(5) 25,401
Chief Executive Officer 1997 250,000 150,000 - 450,000(3) 16,354
Andrew Batinovich 1999 325,000 0 150,000(1) 12,724
Director, President and 1998 300,000 300,000 - 380,000(6) 12,705
Chief Operating Officer 1997 200,000 50,000 - 80,000(3) 4,330
Sandra L. Boyle 1999 230,000 92,000 200,063(7b) 50,000(1) 13,492
Executive Vice 1998 220,000 104,500 - 35,000(2) 13,145
President 1997 190,000 76,000 - 59,400(7a) 12,795
Stephen R. Saul 1999 200,000 75,000 125,039(8b) 50,000(1) 12,683
Executive Vice President 1998 175,000 42,750 - 35,000(2) 12,405
and Chief Financial Officer 1997 149,000 56,000 - 45,000(8a) 10,181
Daniel Levin 1999 208,000 83,000 30,000(1) 12,382
Vice President 1998 157,000 71,250 - 85,000(9) 60,405
- ---------------------------------
(1) Represents stock options granted in November 1999 at an exercise price of $12.00.
(2) Represents stock options granted in October 1998 at an exercise price of $21.625.
(3) Represents stock options granted in October 1997 at an exercise price of $27.50.
(4) Amounts shown comprise the components as shown in the following table:
Health and life insurance premiums Contributions by Glenborough to Relocation
paid by Glenborough defined contribution allowance
retirement plan
----------------------------------- ----------------------------------- -----------
1997 1998 1999 1997 1998 1999 1998
----------------------------------- ----------------------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Batinovich 16,354 17,401 18,085 0 8,000 8,000 0
Andrew Batinovich 4,330 4,705 4,724 0 8,000 8,000 0
Sandra L. Boyle 4,739 5,145 5,492 8,056 8,000 8,000 0
Stephen R. Saul 3,811 4,405 4,683 6,370 8,000 8,000 0
Daniel Levin 0 2,405 4,382 0 8,000 8,000 50,000
(5) Comprises stock options granted in October 1998, as follows: 100,000 options
at an exercise price of $21.625; 233,333 options at an exercise price of $27.03;
233,333 options at an exercise price of $32.44; and 233,334 options at an
exercise price of $37.84.
(6) Comprises stock options granted in October 1998, as follows: 80,000 options
at an exercise price of $21.625; 100,000 options at an exercise price of $27.03;
100,000 options at an exercise price of $32.44; and 100,000 options at an
exercise price of $37.84.
(7a) Comprises stock options as follows: 15,000 options granted in September
1997 at an exercise price of $30.00, 15,000 options granted in September 1997 at
an exercise price of $26.00, and 29,400 options granted in October 1997 at an
exercise price of $27.50.
(7b) Represents the fair market value of 11,000 shares of restricted stock on
the date of grant (May 18, 1999), based upon the closing price of Glenborough's
Common Stock of $18.1875. Dividends are paid on the restricted stock. Ten
percent of the restricted stock vests one year after grant and an additional ten
percent vests each year thereafter. At December 31, 1999, the officer held a
total of 16,000 shares of restricted stock with an aggregate fair market value
of $214,000, based on the closing price of Glenborough's Common Stock of $13.375
per share.
(8a) Comprises stock options granted in 1997 as follows: (i) 10,000 options
issued in March at an exercise price of $20.25; (ii) 10,000 options issued in
September at an exercise price of $26.00; (iii) 10,000 options issued in
September at an exercise price of $28.00; and (iv) 15,000 options issued in
October at an exercise price of $27.50
(8b) Represents the fair market value of 6,875 shares of restricted stock on the
date of grant (May 18, 1999), based upon the closing price of Glenborough's
Common Stock of $18.1875. At December 31, 1999, the aggregate fair market value
of the restricted stock was $91,953, based on the closing price of Glenborough's
Common Stock of $13.375 per share. Dividends are paid on the restricted stock.
Ten percent of the restricted stock vests one year after grant and an additional
ten percent vests each year thereafter.
(9) Comprises (i) 28,000 incentive stock options granted in March 1998 at an
exercise price of $28.375, and (ii) 57,000 stock options as follows: 47,000
options granted in March 1998 at an exercise price of $28.375, of which 15,000
were re-priced at $21.625 in October 1998, and 10,000 options granted in October
1998 at an exercise price of $21.625.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Option grants
The following table summarizes options granted during fiscal 1999 to
the Named Officers.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Option Grants for Option Term(1)
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Grant Options/SARs Employees in Price Per Expiration
Name Date Granted(2) Fiscal Year Share ($/Sh) Date 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C> <C>
Robert Batinovich 11/4/99 150,000 13.5% $12.00 11/4/09 1,132,010 2,868,736
Andrew Batinovich 11/4/99 150,000 13.5% 12.00 11/4/09 1,132,010 2,868,736
Sandra L. Boyle 11/4/99 50,000 4.5% 12.00 11/4/09 377,337 956,245
Stephen R. Saul 11/4/99 50,000 4.5% 12.00 11/4/09 377,337 956,245
Daniel Levin 11/4/99 30,000 2.7% 12.00 11/4/09 226,402 573,747
______________
(1) Potential realizable value is determined by applying an amount equal to the
fair market value on the date of grant to the stated annual appreciation rate
compounded annually for the remaining term of the option, subtracting the
exercise price at the end of the period and multiplying the remaining number by
the number of shares subject to the option. Actual gains, if any, on stock
option exercise and Common Stock holdings are dependent upon a number of
factors, including the future performance of the Common Stock, overall stock
market conditions, and the timing of option exercises, if any. The amounts
reflected in this table do not represent our estimate or projections of
Glenborough's future stock prices.
(2) Reflects options that have a ten year term.
Option exercises and fiscal year-end values
The Named Officers did not exercise any options in 1999. The following
table summarizes the value of outstanding options at December 31, 1999, for
the Named Officers.
Year-end Option Values
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options at Year-End Options at Year-End(1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Robert Batinovich 450,000 950,000 $0 $206,250
Andrew Batinovich 286,757 573,243 0 206,250
Sandra L. Boyle 39,414 179,986 0 68,750
Stephen R. Saul 14,414 155,586 0 68,750
Daniel Levin 0 115,000 0 41,250
- -------------------------------------------
(1) Based on the closing price of Glenborough's Common Stock as reported on the
New York Stock Exchange on December 31, 1999 of $13.375 per share, minus the
applicable exercise prices per share, multiplied by the number of shares
underlying the options.
</TABLE>
<PAGE>
Performance graph
The graph below compares the yearly percentage change in the
cumulative total stockholder return for Glenborough's Common Stock (GLB)
from January 1, 1996 through December 31, 1999 to: (i) the cumulative total
return on the Russell 2000 Index (Russell 2000), and (ii) the following
five other real estate investment trusts selected by Glenborough which
Glenborough believes are comparable in size and engaged in activities
similar to those of Glenborough (the Custom Peer Group): Colonial
Properties Trust, Cousins Properties Incorporated, Vornado Realty Trust,
Highwoods Properties, Inc. and Brandywine Realty Trust. The graph assumes
that the value of the investment in Glenborough's common stock was $100 at
January 31, 1996 and that all dividends were reinvested.
Total Return Performance
(GRAPHIC OMITTED)
(Graphic of line chart shwoing Glenborough, Russell 2000 Index and
Custom Peer Group performance)
Sources: Bloomberg and FactSet Research Systems, Inc.
Compensation committee interlocks and insider participation
Messrs. Foley and Blum and Ms. Wallace, each of whom is an independent
director, served on the Compensation Committee of the Board during 1999. No
interlocking relationship presently exists between any member of the
Compensation Committee and any member of the board of directors or
compensation committee of any other corporation.
Relationships among directors or executive officers
Robert Batinovich, Glenborough's Chairman and Chief Executive Officer,
is the father of Andrew Batinovich, Glenborough's director, President and
Chief Operating Officer. There are no other family relationships among any
directors and executive officers of Glenborough.
Independent Auditors
Arthur Andersen LLP served as Glenborough's independent public
accountants for 1999, and the Board has selected Arthur Andersen LLP to
serve as independent auditors of Glenborough for the fiscal year ending
December 31, 2000. A representative of Arthur Andersen LLP is expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if the representative desires to do so and will be available to
respond to appropriate questions from stockholders.
<PAGE>
II. OTHER MATTERS TO COME BEFORE THE MEETING
No other matters are intended to be brought before the meeting by
Glenborough nor does Glenborough know of any matters to be brought before
the meeting by others. If, however, any other matters properly come before
the meeting, the persons named in the proxy will vote the shares
represented thereby in accordance with the judgment of management on any
such matter.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS, WHETHER OR NOT
THEY EXPECT TO ATTEND THE MEETING IN PERSON, ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED
FOR THAT PURPOSE. BY RETURNING YOUR PROXY PROMPTLY YOU CAN HELP GLENBOROUGH
AVOID THE EXPENSE OF FOLLOW-UP MAILINGS TO ENSURE A QUORUM SO THAT THE MEETING
CAN BE HELD. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE A PRIOR PROXY AND
VOTE THEIR PROXY IN PERSON AS SET FORTH IN THIS PROXY STATEMENT.
By Order of the Board of Directors
Robert Batinovich
Chairman and Chief Executive Officer
San Mateo, California
April 5, 2000
GLENBOROUGH
REALTY TRUST INCORPORATED
APPENDIX A
TO PROXY STATEMENT
1999 FINANCIAL INFORMATION
Index
Page
Selected Financial Data 1
Funds from Operations 3
Management's Discussion and Analysis of Financial
Condition and Results of Operations 4
Report of Independent Public Accountants 12
Consolidated Balance Sheets 13
Consolidated Statements of Operations 14
Consolidated Statements of Stockholders Equity 15
Consolidated Statements of Cash Flows 16
Notes to Consolidated Financial Statements 18
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
Set forth below are selected financial data for:
Glenborough Realty Trust Incorporated: Consolidated balance sheet data
is presented as of December 31, 1999, 1998, 1997, 1996 and 1995.
Consolidated operating data is presented for the years ended December 31,
1999, 1998, 1997 and 1996, and As Adjusted consolidated operating data is
presented for the year ended December 31, 1995. The As Adjusted data
assumes the Consolidation and related transactions occurred on January 1,
1995, in order to present the operations of the Company for that period as
if the Consolidation had been in effect for that period. As Adjusted data
is presented to provide amounts which are comparable to the consolidated
results of operations of the Company for the years ended December 31, 1999,
1998, 1997 and 1996.
The GRT Predecessor Entities: Combined operating data is presented for
the year ended December 31, 1995.
This selected financial data should be read in conjunction with the financial
statements of Glenborough Realty Trust Incorporated, including the notes
thereto, included on the following pages.
As of and for the Year Ended December 31,
Historical Historical Historical Historical As Adjusted Historical
1999 1998 1997 1996 1995 1995
------------- ------------- ------------- ------------- ------------- -------------
[in thousands, except per share data]
Operating Data:
<S> <C> <C> <C> <C> <C> <C>
Rental Revenue $ 255,339 $ 227,956 $ 61,393 $ 17,943 $ 13,495 $ 15,454
Fees and reimbursements 3,312 2,802 719 311 260 16,019
Interest and other income 6,404 4,607 1,802 1,080 982 2,698
Equity in earnings of
Associated Companies 1,222 1,314 2,743 1,598 1,691 --
Equity in loss of joint ventures (310) -- -- -- -- --
Total Revenues(1) 274,980 241,475 68,148 21,253 16,428 34,171
Property operating expenses 88,037 74,079 18,958 5,266 4,084 8,576
General and administrative 9,688 11,038 3,319 1,393 983 15,947
Interest expense 64,782 53,289 9,668 3,913 2,767 2,129
Depreciation and
Amortization 58,295 50,194 14,873 4,575 3,654 4,762
Income (loss) from operations
before minority interest and
extraordinary items 52,949 48,552 21,330 (1,131) 4,077 524
Net income (loss) allocable to
common shareholders(2) 50,286 44,602 19,368 (1,609) 3,796 524
Diluted amounts per common
share(3):
Net income (loss) before
extraordinary item $ 0.86 $ 0.79 $ 1.09 $ (0.21) $ 0.66 --
Net income (loss) 0.89 0.75 1.05 (0.24) 0.66 --
Distributions(4) 1.68 1.68 1.38 1.22 1.20 --
Balance Sheet Data:
Rental properties, net $1,647,366 $1,742,439 $ 825,218 $ 161,945 -- $ 77,574
Mortgage loans receivable, net 37,582 42,420 3,692 9,905 -- 7,465
Total assets 1,794,604 1,879,016 865,774 185,520 -- 105,740
Total debt 897,358 922,097 228,299 75,891 -- 36,168
Stockholders' equity 784,334 828,533 580,123 97,600 -- 55,628
Other Data:
EBIDA(5) $ 168,242 $ 151,562 $ 44,380 $ 14,273 $ -- $ 9,291
Cash flow provided by (used for):
Operating activities 93,293 87,482 24,359 4,702 4,656 (10,608)
Investing activities 82,871 (613,840) (569,242) (61,833) 3,263 8,656
Financing activities (174,039) 525,645 548,598 (53,899) (7,933) (17,390)
FFO(6) 84,047 79,920 36,087 11,491 9,638 7,162
CAD(7) 66,576 68,357 32,335 10,497 8,856 3,237
Debt to total market 54.7% 47.5% 18.5% 29.5% -- --
capitalization(8)
Ratio of Earnings to Fixed 1.75 1.87 3.21 0.71 -- 1.41
Charges(9)
Ratio of Earnings to Fixed
Charges and Preferred 1.31 1.36 3.21 0.71 -- 1.41
Dividends(10)
(1) Certain revenues which are included in the historical combined amounts for
1995 are not included on an adjusted basis. These revenues are included in two
unconsolidated Associated Companies, GHG and GC, on an as adjusted basis, from
which the Company receives lease payments and dividends.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(2) Historical 1996 net loss reflects $7,237 of Consolidation and litigation
costs incurred in connection with the Consolidation. The Consolidation and
litigation costs were expensed on January 1, 1996, the Company's first day of
operations.
(3) Diluted amounts include the effects of all classes of securities outstanding
at year-end, including units of Operating Partnership interests and options to
purchase stock of the Company. As adjusted net income per share is based upon as
adjusted weighted average shares outstanding of 5,753,709 for 1995.
(4) Historical distributions per common share for the years ended December 31,
1999, 1998, 1997 and 1996 consist of distributions declared for the periods then
ended. As adjusted distributions per common share for the year ended December
31, 1995 are based on $0.30 per unit per quarter.
(5) EBIDA is computed as income (loss) before minority interests and
extraordinary items plus interest expense, depreciation and amortization, gains
(losses) on disposal of properties and loss provisions. In 1996, consolidation
and litigation costs were also added back to net income to determine EBIDA. The
Company believes that in addition to net income and cash flows, EBIDA is a
useful measure of the financial performance of an equity REIT because, together
with net income and cash flows, EBIDA provides investors with an additional
basis to evaluate the ability of a REIT to incur and service debt and to fund
acquisitions, developments and other capital expenditures. To evaluate EBIDA and
the trends it depicts, the components of EBIDA, such as rental revenues, rental
expenses, real estate taxes and general and administrative expenses, should be
considered. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Excluded from EBIDA are financing costs such as interest
as well as depreciation and amortization, each of which can significantly affect
a REIT's results of operations and liquidity and should be considered in
evaluating a REIT's operating performance. Further, EBIDA does not represent net
income or cash flows from operating, financing and investing activities as
defined by generally accepted accounting principles and does not necessarily
indicate that cash flows will be sufficient to fund all of the Company's cash
needs. It should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Further, EBIDA as disclosed by other REITs may
not be comparable to the Company's calculation of EBIDA. The following table
reconciles net income (loss) of the Company to EBIDA for the periods presented
(in thousands):
For the Year Ended December 31,
---------------------------------------------------------------------------
GRT
The Company Predecessor
Entities
-------------------------------------------------------- -------------
Historical Historical Historical Historical Historical
1999 1998 1997 1996 1995
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 50,286 $ 44,602 $ 19,368 $ (1,609) $ 524
Extraordinary item. (984) 1,400 843 186 --
Minority interest 3,647 2,550 1,119 292 --
Interest expense 64,782 53,289 9,668 3,913 2,129
Depreciation and amortization 58,295 50,194 14,873 4,575 4,762
Net (gain) loss on sales of real (9,013) (4,796) (1,491) (321) --
estate assets
Loss on sale of mortgage loan 1,229 -- -- -- --
receivable
Loss on interest rate protection -- 4,323 -- -- --
agreement
Consolidation and litigation costs -- -- -- 7,237 --
Loss provisions -- -- -- -- 1,876
------------- ------------- ------------- -------------- -------------
EBIDA $ 168,242 $ 151,562 $ 44,380 $ 14,273 $ 9,291
============= ============= ============= ============== =============
(6) 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. In 1996, consolidation and litigation costs were also added back to
net income to determine FFO. The Company believes that FFO is a 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.
In October, 1999, NAREIT issued an update, 'White Paper on FFO-October 1999' to
clarify its definition of FFO. The clarification is effective January 1, 2000
and requires restatement for all periods presented in financial statements or
tables. FFO, as clarified by NAREIT, represents "net income excluding gains (or
losses) from sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect FFO
on the same basis.' The Company will report using the clarified definition in
periods beginning after January 1, 2000.
(7) 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
(8)Debt to total market capitalization is calculated as total debt at period end
divided by total debt plus the market value of the Company's outstanding common
stock and convertible units, based upon the closing prices of the Common Stock
of $13.375, $20.375, 29.625 and $17.625 on December 31, 1999, 1998, 1997 and
1996, respectively, plus the liquidation value of the Company's outstanding
Preferred Stock based on the liquidation preference per share of $25.00 on
December 31, 1999 and 1998, respectively.
(9) The ratio of earnings to fixed charges is computed as net income (loss) from
operations, before minority interest and extraordinary items, plus fixed charges
(excluding capitalized interest) divided by fixed charges. Fixed charges consist
of interest costs including amortization of deferred financing costs.
(10) The ratio of earnings to fixed charges and preferred dividends is computed
as net income (loss) from operations, before minority interest and extraordinary
items, plus fixed charges (excluding capitalized interest) and preferred
dividends, divided by fixed charges. Fixed charges consist of interest costs
including amortization of deferred financing costs.
Funds from Operations
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 a 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.
In October, 1999, NAREIT issued an update, 'White Paper on FFO-October 1999' to
clarify its definition of FFO. The clarification is effective January 1, 2000
and requires restatement for all periods presented in financial statements or
tables. FFO, as clarified by NAREIT, represents "net income excluding gains (or
losses) from sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect FFO
on the same basis." The Company will report using the clarified definition in
periods beginning after January 1, 2000.
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, June 30, September 30 and December 31, 1999 and the
year ended December 31, 1999 (dollars in thousands):
March 31, June 30, Sept 30, Dec 31, Year to Date
1999 1999 1999 1999 1999
------------ ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Income from operations before minority
interest, extraordinary items and $ 13,236 $ 16,892 $ 12,325 $ 10,496 $ 52,949
preferred dividends
Depreciation and amortization 14,947 14,075 14,096 14,535 57,653
Preferred dividends (5,570) (5,570) (5,570) (5,570) (22,280)
Net (gain) loss on sales of real estate assets (1,351) (5,742) 371 (2,291) (9,013)
Loss on sale of mortgage loan receivable - - - 1,229 1,229
Adjustment to reflect FFO of unconsolidated - - - 788 788
JV's (2)
Adjustment to reflect FFO of Associated 253 2,170 135 163 2,721
Companies (1)
------------ ------------ ------------- ------------- -------------
FFO $ 21,515 $ 21,825 $ 21,357 $ 19,350 $ 84,047
============ ============ ============= ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Amortization of deferred financing fees 485 508 477 564 2,034
Capital reserve (surplus)/deficit (1,269) 994 550 - 275
Capital expenditures (2,769) (5,392) (5,592) (6,027) (19,780)
------------ ------------ ------------- ------------- -------------
CAD $ 17,962 $ 17,935 $ 16,792 $ 13,887 $ 66,576
============ ============ ============= ============= =============
============ ============ =============
Distributions per share (3) $ 0.42 $ 0.42 $ 0.42 $ 0.42 $ 1.68
============ ============ ============= ============= =============
============ ============ =============
Diluted weighted average common shares 36,098,374 35,984,107 35,274,940 34,726,581 35,522,627
outstanding
============ ============ ============= ============= =============
(1) Reflects the adjustments to FFO required to reflect the FFO of the
Associated Companies allocable to the Company. The Company's investments in the
Associated Companies are accounted for using the equity method of accounting.
(2) Reflects the adjustments to FFO required to reflect the FFO of the
unconsolidated joint ventures allocable to the Company. The Company's
investments in the joint ventures are accounted for using the equity method of
accounting.
(3) The distributions for the three months ended December 31, 1999, were paid on
January 18, 2000.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis of the financial condition and results of
operations of the Company should be read in conjunction with the selected
financial data contained on the preceding pages and the Consolidated Financial
Statements of Glenborough Realty Trust Incorporated, including the notes
thereto, included on the following pages.
Results of Operations
Comparison of the year ended December 31, 1999 to the year ended December 31,
1998.
Following is a table of net operating income by property type, for comparative
purposes, presenting the results for the years ended December 31, 1999 and 1998.
Results of Operations by Property Type
For the Years Ended December 31, 1999 and 1998
(in thousands)
Office/ Multi- Hotel Property Eliminating Total
Office Flex Industrial Retail family and Other Total Entry(1) Reported
1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue $120,135 $35,772 $18,694 $11,182 $68,144 $1,412 $255,339 - $255,339
Operating Expenses 46,840 10,184 4,445 3,640 30,570 420 96,099 ($8,062) 88,037
Net Operating Income 73,295 25,588 14,249 7,542 37,574 992 159,240 8,062 167,302
Percentage of Total 46% 16% 9% 5% 23% 1% 100%
NOI
1998
Rental Revenue $117,746 $36,987 $16,104 $12,072 $40,865 $4,182 $227,956 - $227,956
Operating Expenses 44,775 10,898 3,609 3,840 17,235 967 81,324 ($7,245) 74,079
Net Operating Income 72,971 26,089 12,495 8,232 23,630 3,215 146,632 7,245 153,877
Percentage of Total 50% 18% 8% 6% 16% 2% 100%
NOI
(1) Eliminating entry represents internal market level property management fees
included in operating expenses to provide comparison to industry performance.
Rental Revenue. Rental revenue increased $27,383,000, or 12%, to $255,339,000
for the year ended December 31, 1999, from $227,956,000 for the year ended
December 31, 1998. The increase included growth in revenue from the office,
industrial, and multifamily Properties of $2,389,000, $2,590,000 and
$27,279,000, respectively. These increases were partially offset by decreases in
revenue from the office/flex, retail and hotel Properties of $1,215,000,
$890,000 and $2,770,000, respectively, due to the 1998 and 1999 sales of 13
office/flex, three retail and five hotel properties. Excluding properties that
have been sold, rental revenue for the year ended December 31, 1999, included
$16,504,000 generated from the 1996 Acquisitions, $86,695,000 generated from the
1997 Acquisitions, $132,370,000 generated from the 1998 Acquisitions and
$6,958,000 generated from the 1999 Acquisitions. In addition, $12,812,000 of
rental revenue was generated from 36 properties that were sold in 1999.
</TABLE>
<PAGE>
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 $510,000, or 18%, to
$3,312,000 for the year ended December 31, 1999, from $2,802,000 for the year
ended December 31, 1998. The change consists primarily of increased transaction
fees from GC, which were generated from the disposition of a property and
development fees paid by an affiliated entity, and fees earned for the
management of two properties in which the Company owns a 10% interest. These
management fees did not occur in 1998.
Interest and Other Income. Interest and other income increased $1,487,000 or
32%, to $6,094,000 for the year ended December 31, 1999, from $4,607,000 for the
year ended December 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 and invested cash balances.
Equity in Earnings of Associated Companies. Equity in earnings of Associated
Companies decreased $92,000, or 7%, to $1,222,000 for the year ended December
31, 1999, from $1,314,000 for the year ended December 31, 1998. The decrease is
primarily due to a decrease in earnings from GC resulting from a provision to
reduce the carrying value of management contracts with certain of the Managed
Partnerships. This decrease is also due to a decrease in earnings from GHG
resulting from the cancellation of GHG's hotel leases with the Company.
Net Gain on Sales of Real Estate Assets and Repayment of Notes Receivable. The
net gain on sales of real estate assets and repayment of notes receivable of
$9,013,000 during the year ended December 31, 1999, resulted from the sales of
eight office properties, 13 office/flex properties, three retail properties,
seven industrial properties, one multifamily property, two hotel properties, a
small interest in real estate securities from the Company's portfolio, and a
reduction in the purchase price of a hotel sold in 1998 for which the Company
received full payment on all seller financing in 1999. The net gain on sales of
real estate assets and repayment of notes receivable of $4,796,000 during the
year ended December 31, 1998, resulted from the sales of one office property,
two office/flex properties, four industrial properties, one multifamily property
and three hotel properties from the Company's portfolio.
Property Operating Expenses. Property operating expenses increased $13,958,000,
or 19%, to $88,037,000 for the year ended December 31, 1999, from $74,079,000
for the year ended December 31, 1998. This increase represents increases in
property operating expenses attributable to the 1998 Acquisitions and the 1999
Acquisitions offset by decreases in property operating expenses due to the 1998
and 1999 sales of properties.
General and Administrative Expenses. General and administrative expenses
decreased $1,350,000, or 12%, to $9,688,000 for the year ended December 31,
1999, from $11,038,000 for the year ended December 31, 1998. The decrease is
primarily due to a reduction in staff and overhead expenses in response to a
decrease in acquisition and marketing activities since mid-1998 and a reduction
in the number of properties owned. As a percentage of rental revenue, general
and administrative expenses decreased from 4.8% for the year ended December 31,
1998 to 3.8% for the year ended December 31, 1999.
Depreciation and Amortization. Depreciation and amortization increased
$8,101,000, or 16%, to $58,295,000 for the year ended December 31, 1999, from
$50,194,000 for the year ended December 31, 1998. The increase is primarily due
to depreciation and amortization associated with the 1998 Acquisitions and 1999
Acquisitions.
Interest Expense. Interest expense increased $11,493,000, or 22%, to $64,782,000
for the year ended December 31, 1999, from $53,289,000 for the year ended
December 31, 1998. Substantially all of the increase was the result of higher
average borrowings during the year ended December 31, 1999, as compared to the
year ended December 31, 1998, due to new debt and the assumption of debt related
to the 1998 Acquisitions and 1999 Acquisitions.
Loss on Sale of Mortgage Loan Receivable. During 1999, a note secured by an
office property in Phoenix, Arizona was sold to a third-party at a discount of
$1,229,000. The proceeds of the sale were invested in the repurchase of
preferred stock.
Net Gain (Loss) on Early Extinguishment of Debt. Net gain on early
extinguishment of debt of $984,000 during the year ended December 31, 1999,
consists of $3,115,000 of net gains on retirement of Senior Notes at a discount,
offset by $2,026,000 of losses due to prepayment penalties and $105,000 of
losses due to the write-off of unamortized loan fees upon the early payoff of
four loans. These loans were paid-off early when more favorable terms were
obtained through new financing (discussed below) and upon the sale of the
properties securing the loans. Net loss on early extinguishment of debt of
$1,400,000 during the year ended December 31, 1998, consisted of prepayment
<PAGE>
<TABLE>
<CAPTION>
penalties and the write-off of unamortized loan fees upon the early payoff of
debt. Various loans were paid-off early when more favorable terms were obtained
through new financing and upon the sale of one of the hotels.
Comparison of the year ended December 31, 1998 to the year ended December 31,
1997.
Following is a table of net operating income by property type, for comparative
purposes, presenting the results for the years ended December 31, 1998 and 1997.
Results of Operations by Property Type
For the Years Ended December 31, 1998 and 1997
(in thousands)
Office/ Multi- Hotel Property Eliminating Total
Office Flex Industrial Retail family and Other Total Entry(1) Reported
1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental Revenue $117,746 $36,987 $16,104 $12,072 $40,865 $4,182 $227,956 - $227,956
Operating Expenses 44,775 10,898 3,609 3,840 17,235 967 81,324 ($7,245) 74,079
Net Operating Income 72,971 26,089 12,495 8,232 23,630 3,215 146,632 7,245 153,877
Percentage of Total 50% 18% 8% 6% 16% 2% 100%
NOI
1997
Rental Revenue $25,071 $10,354 $7,320 $7,224 $5,536 $5,980 $61,485 ($92) $61,393
Operating Expenses 9,986 3,062 1,459 2,183 2,309 1,894 20,893 (1,935) 18,958
Net Operating Income 15,085 7,292 5,861 5,041 3,227 4,086 40,592 1,843 42,435
Percentage of Total 37% 18% 15% 12% 8% 10% 100%
NOI
(1) Eliminating entry represents internal market level property management fees
included in operating expenses to provide comparison to industry performance.
Rental Revenue. Rental revenue increased $166,563,000, or 271%, to $227,956,000
for the year ended December 31, 1998, from $61,393,000 for the year ended
December 31, 1997. The increase included growth in revenue from the office,
office/flex, industrial, retail and multifamily Properties of $92,675,000,
$26,633,000, $8,784,000, $4,848,000 and $35,329,000, respectively. These
increases were partially offset by a $1,798,000 decrease in revenue from the
hotel Properties due to the 1998 sales of two hotels. Rental revenue for the
year ended December 31, 1998, included $17,404,000 of rental revenue generated
from the acquisition of 20 properties in 1996, $96,130,000 of rental revenue
generated from the acquisition of 90 properties in 1997 and $104,254,000 of
rental revenue generated from the acquisition of 69 properties in 1998.
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 $2,083,000, or 290%, to
$2,802,000 for the year ended December 31, 1998, from $719,000 for the year
ended December 31, 1997. The change consisted primarily of increased lease
commissions from an affiliated entity and fees resulting from the sale of
managed properties.
Interest and Other Income. Interest and other income increased $2,805,000, or
156%, to $4,607,000 for the year ended December 31, 1998, from $1,802,000 for
the year ended December 31, 1997. This increase was primarily due to $1,749,000
of interest income on a mortgage loan receivable secured by Gateway Center which
originated on June 30, 1998. In addition, in 1998, the Company invested
approximately $20 million in the securities of a private REIT which was
accounted for using the equity method. In 1998, the Company recognized
approximately $990,000 as equity in the earnings of this private REIT.
Equity in Earnings of Associated Companies. Equity in earnings of Associated
Companies decreased $1,429,000, or 52%, to $1,314,000 for the year ended
December 31, 1998, from $2,743,000 for the year ended December 31, 1997. The
decrease was primarily due to a decrease in earnings from GHG resulting from the
June 30, 1998 cancellation of GHG's hotel leases with the Company. The Company
cancelled the leases with GHG when it sold two of its hotels and leased the
other four hotels to other operators. In December 1998, one of the remaining
four hotels was sold to one of the operators and two other hotels were in
contract to be sold to another operator in 1999. This decrease was partially
</TABLE>
<PAGE>
offset by transaction fees earned by GC related to the disposition of several
properties under its management.
Net Gain on Sales of Real Estate Assets and Repayment of Notes Receivable. The
net gain on sales of real estate assets and repayment of notes receivable of
$4,796,000 during the year ended December 31, 1998, resulted from the sales of
one office property, two office/flex properties, four industrial properties, one
multifamily property and three hotel properties from the Company's portfolio.
This net gain was partially offset by a $3.1 million loss on the sale of the
Company's investment in the securities of a private REIT. The net gain on sales
of real estate assets and repayment of notes receivable of $1,491,000 during the
year ended December 31, 1997, resulted from the sales of 16 retail properties
from the Company's portfolio, which resulted in a net gain of $839,000, and the
collection of a mortgage loan receivable which had a net carrying value of
$6,700,000. The payoff amount totaled $6,863,000, plus a $500,000 note
receivable, which, net of legal costs, resulted in a gain of $652,000.
Property Operating Expenses. Property operating expenses increased $55,121,000,
or 291%, to $74,079,000 for the year ended December 31, 1998, from $18,958,000
for the year ended December 31, 1997. This increase primarily consisted of
$22,750,000 attributable to the 1997 Acquisitions and $31,997,000 attributable
to the 1998 Acquisitions.
General and Administrative Expenses. General and administrative expenses
increased $7,719,000, or 233%, to $11,038,000 for the year ended December 31,
1998, from $3,319,000 for the year ended December 31, 1997. The increase was
primarily due to increased salary and overhead costs resulting from the 1997
Acquisitions and 1998 Acquisitions. As a percentage of rental revenue, general
and administrative expenses actually decreased from 5.4% for the year ended
December 31, 1997 to 4.8% for the year ended December 31, 1998.
Depreciation and Amortization. Depreciation and amortization increased
$35,321,000, or 237%, to $50,194,000 for the year ended December 31, 1998, from
$14,873,000 for the year ended December 31, 1997. The increase was primarily due
to depreciation and amortization associated with the 1997 Acquisitions and 1998
Acquisitions.
Interest Expense. Interest expense increased $43,621,000, or 451%, to
$53,289,000 for the year ended December 31, 1998, from $9,668,000 for the year
ended December 31, 1997. Substantially all of the increase was the result of
higher average borrowings during the year ended December 31, 1998, as compared
to the year ended December 31, 1997, due to new debt and the assumption of debt
related to the 1997 Acquisitions and 1998 Acquisitions.
Loss on Interest Rate Protection Agreement. During 1998, the Company entered
into a forward interest rate agreement to lock in the risk-free interest
component of a portion of a secured mortgage to be issued in October 1998. The
10-year Treasury rates decreased during the term of the hedge. During the fourth
quarter of 1998, the Company recorded an expense for its payment of $4,323,000
to terminate a portion of the forward interest rate agreement in connection with
a reduction in the amount of the mortgage to be issued. The Company's payment of
$6,244,000 in settlement of the remaining portion of the forward interest rate
agreement has offset the reduced financing costs of the $248.8 million mortgage
issued in October 1998.
Net Loss on Early Extinguishment of Debt. Net loss on early extinguishment of
debt of $1,400,000 during the year ended December 31, 1998, consisted of
prepayment penalties and the write-off of unamortized loan fees upon the early
payoff of debt. Various loans were paid-off early when more favorable terms were
obtained through new financing (discussed below) and upon the sale of one of the
hotels. Net loss on early extinguishment of debt of $843,000 during the year
ended December 31, 1997, resulted from the write-off of unamortized loan fees
related to a $50 million secured line of credit which was replaced with a $250
million unsecured line of credit (the "Credit Facility') from a commercial bank.
Net Income and Earnings Per Share (EPS). Net income increased $25,234,000, or
130%, to $44,602,000 for the year ended December 31, 1998, from $19,368,000 for
the year ended December 31, 1997. However, Basic EPS decreased $0.32 per share
and Diluted EPS decreased $0.30 per share for the year ended December 31, 1998,
from the year ended December 31, 1997. The decreases in Basic and Diluted EPS
were due to a decrease in Net Income Available to Common Stockholders resulting
from the dividends payable to preferred stockholders in 1998. There were no
preferred stock dividends paid in 1997 as there was no preferred stock
outstanding until January 1998.
<PAGE>
Liquidity and Capital Resources
Cash Flows
For the year ended December 31, 1999, cash provided by operating activities
increased by $5,811,000 to $93,293,000 as compared to $87,482,000 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, loss
on sale of mortgage loan receivable and net gain on early extinguishment of
debt) of $9,510,000 due to the 1998 Acquisitions and 1999 Acquisitions, offset
by an increase in cash used for other assets and liabilities. Cash from
investing activities increased by $696,711,000 to $82,871,000 for the year ended
December 31, 1999, as compared to $613,840,000 of cash used for investing
activities for the same period in 1998. The change is primarily due to decreased
property acquisitions and increased property dispositions from 1998 to 1999.
During the year ended December 31, 1998, the Company acquired 69 properties as
compared to ten properties during the year ended December 31, 1999 and disposed
of 34 properties in 1999 as compared to 11 in 1998. In addition, cash used for
investments in development and mortgage loans receivable decreased significantly
during the year ended December 31, 1999 as compared to the same period in 1998.
Cash from financing activities decreased by $699,684,000 to $174,039,000 of cash
used for financing activities for the year ended December 31, 1999, as compared
to $525,645,000 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, a decrease in the proceeds from new debt and an increase in
cash used for the retirement of Senior Notes and repurchases of common and
preferred stock, offset by a decrease in the repayment of other debt. In 1998,
the Company completed one offering of Preferred Stock; there have been no
offerings in 1999. In addition, in 1998, the Company issued $150,000,000 of
unsecured 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 and stock repurchases 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 decreased from $42,420,000 at December 31, 1998, to
$37,582,000 at December 31, 1999. This decrease was primarily due to the payoff
of two loans totaling $4.3 million and a $1.6 million decrease in a loan secured
by a hotel property resulting from a subsequent adjustment to the sales price,
offset by a $1,141,000 loan made by the Company to the buyer of one of the hotel
properties and accrued interest on a loan made by the Company under a
development alliance.
Secured and Unsecured Financing
Mortgage loans payable decreased from $708,578,000 at December 31, 1998, to
$701,715,000 at December 31, 1999. This decrease resulted from the payoff of
approximately $167,438,000 of mortgage loans in connection with 1999 sales of
properties and refinancing of debt, and scheduled principal payments of
approximately $9,500,000. This decrease is partially offset by $39,275,000 of
new mortgage loans in connection with 1999 Acquisitions and new financing of
$130,800,000 (as discussed below).
In March 1999, the Company obtained a $26 million loan from a commercial bank.
The loan was non-recourse and was secured by seven properties and had 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. This loan was paid off in June 1999 with
proceeds generated from the sales of four properties.
In August 1999, the Company closed a $97.6 million secured financing with a
commercial bank ("Secured Financing'). The proceeds from this financing,
combined with proceeds from a new $7.2 million mortgage and a draw on the Credit
Facility, were used to retire a $113.2 million mortgage which would have matured
<PAGE>
in December of 1999. The new financing is a revolving line of credit maturing in
five years with a five-year extension option, and bears interest at a floating
rate equal to 75 basis points over the rate for 90-day mortgage backed
securities credit-enhanced by FNMA. The December 31, 1999 interest rate on this
loan was 6.53%.
In connection with the Secured Financing, the Company entered into an interest
rate cap agreement to hedge increases in interest rates above a specified level
of 11.21%. The agreement is for a term concurrent with the Secured Financing
instrument, is indexed to a 90-day LIBOR rate, and is for a notional amount
equal to the maximum amount available on the Secured Financing loan. As of
December 31, 1999, the 90-day LIBOR rate was 6.00125%. The Company paid a fee at
the inception of the cap agreement, which is being amortized as additional
interest expense over the life of the agreement.
In November 1999, through the acquisition of a property through one of the
Company's development alliances, the Company assumed a $10 million loan from a
commercial bank. This loan is secured by one office property, has a maturity
date of June 30, 2000 and bears interest at a floating rate of LIBOR plus 2.50%
(the December 31, 1999 interest rate on this loan was 8.32%).
In December 1999, the Company obtained an unsecured term loan from a commercial
bank whereby, until December 9, 2000, the Company can borrow the lesser of $125
million or the then Loan Availability (as defined). Any unborrowed amounts from
the loan at December 9, 2000 will be cancelled. At December 31, 1999,
$33,865,000 was outstanding on the loan. This loan has a maturity date of June
10, 2002 and bears interest at a floating rate of LIBOR plus 1.75%. The December
31, 1999 interest rate on this loan was 8.25%.
In the second, third and fourth quarters of 1999, the Company retired
approximately $58.9 million of unsecured Senior Notes at a discount. As a result
of these transactions, a net gain on early extinguishment of debt of
approximately $3.1 million was recorded which is included in the net gain on
early extinguishment of debt on the accompanying consolidated statement of
income for the year ended December 31, 1999.
In connection with the loan payoffs discussed above and the payoff of other
mortgage debt, the Company recorded a net gain on early extinguishment of debt
of $984,000 for the year ended December 31, 1999. This gain consists of
$3,115,000 of net gains on retirement of Senior Notes (as discussed above)
offset by $2,026,000 of losses due to prepayment penalties and $105,000 of
losses due to the write-off of unamortized loan fees upon the early payoff of
four loans. These loans were paid-off early when more favorable terms were
obtained through new financing (discussed above) and upon the sale of the
properties securing the loans.
The Company has an unsecured line of credit provided by a group of commercial
banks (the "Credit Facility'). Outstanding borrowings under the Credit Facility
increased from $63,519,000 at December 31, 1998, to $70,628,000 at December 31,
1999. The increase was due to draws of $177,683,000 for acquisitions, stock
repurchases, purchases of the Company's Senior Notes, and debt refinancing,
offset by pay downs of $170,574,000 generated from proceeds from the sales of
properties and cash from operations. In June 1999, in order to increase the
Company's financial flexibility, the Credit Facility was modified to increase
the commitment from $100 million to $142.5 million. The interest rate, monthly
payments and maturity date of December 2000, remained unchanged. Subsequent to
December 31, 1999, the maturity date was extended to June 2002.
At December 31, 1999, the Company's total indebtedness included fixed-rate debt
of $646,763,000 and floating-rate indebtedness of $250,595,000. Approximately
65% of the Company's total assets, comprising 102 properties, is encumbered by
debt at December 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 December 31, 1999, approximately 28% 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 December 31, 1999, the Company was not a party to any
open interest rate protection agreements other than the interest rate cap
contract associated with the Secured Financing discussed above.
<PAGE>
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.
Stock Repurchases
In February 1999, the Company's Board of Directors authorized the Company to
repurchase up to 3.1 million shares of its outstanding Common Stock. This
represented approximately 10% of the Company's total outstanding Common Stock.
In November 1999, the Company announced that its Board of Directors had doubled
the size of the repurchase authorization under the Company's common stock
repurchase plan. The repurchase plan was increased to 6.2 million shares, or
approximately 20% 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 December 31,
1999, 1,660,216 shares, representing approximately 27% of the expanded
repurchase authorization, have been repurchased. In addition, during the third
quarter, the Company announced that its Board of Directors had approved an
expansion of the stock repurchase program to include preferred stock as well as
common stock. The Company is authorized to repurchase up to 15% of its preferred
stock, or 1,725,000 shares. In December 1999, the Company repurchased 170,000
shares of preferred stock.
Development Alliances
The Company currently has 3 development alliances for the development of
approximately 885,000 square feet of office, office/flex and distribution
properties and 1,614 multifamily units in Colorado, Texas, New Jersey, Kansas
and Michigan. As of December 31, 1999, the Company has an investment in these
development projects of approximately $33 million. 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 $36.4 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
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.
Forward Looking Statements; Factors That May Affect Operating Results
This Annual Report contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities and
Exchange Act of 1934, including statements regarding the Company's expectations,
hopes, intentions, beliefs and strategies regarding the future. Forward looking
statements include statements regarding potential acquisitions, the anticipated
performance of future acquisitions, recently completed acquisitions and existing
properties, and statements regarding the Company's financing activities. All
forward looking statements included in this document are based on information
available to the Company on the date hereof. It is important to note that the
Company's actual results could differ materially from those stated or implied in
such forward looking statements. A more detailed discussion of factors that
could cause actual results to differ materially are set forth in the Company's
reports filed with the Securities and Exchange Commission.
<PAGE>
<TABLE>
<CAPTION>
Qualitative and Quantitative Information About Market Risk
Interest Rates
The Company's primary market risk exposure is to changes in interest rates
obtainable on its mortgage loans receivable and its secured and unsecured
borrowings. The Company does not believe that changes in market interest rates
will have a material impact on the performance or fair value of its portfolio of
mortgage loans receivable.
It is the Company's policy to manage its exposure to fluctuations in market
interest rates for its borrowings through the use of fixed rate debt instruments
to the extent that reasonably favorable rates are obtainable with such
arrangements. In order to maximize financial flexibility when selling properties
and minimize potential prepayment penalties on fixed rate loans, the Company has
also entered into variable rate debt arrangements. Approximately 28% and 20% of
the Company's outstanding debt, including amounts borrowed under the Credit
Facility, were subject to variable rates at December 31, 1999 and 1998,
respectively. In addition, the average interest rate on the Company's debt
increased from 7.08% at December 31, 1998 to 7.16% at December 31, 1999. The
Company reviews interest rate exposure in the portfolio quarterly in an effort
to minimize the risk of interest rate fluctuations. The Company does not have
any other material market-sensitive financial instruments. It is not the
Company's policy to engage in hedging activities for previously outstanding debt
instruments or for speculative or trading purposes.
The Company may enter into forward interest rate, or similar, agreements to
hedge specific anticipated debt issuances where management believes the risk of
adverse changes in market rates is significant. Under a forward interest rate
agreement, if the referenced interest rate increases, the Company is entitled to
a receipt in settlement of the agreement that economically would offset the
higher financing cost of the debt issued. If the referenced interest rate
decreases, the Company makes payment in settlement of the agreement, creating an
expense that economically would offset the reduced financing cost of the debt
issued. At December 31, 1999, the Company was not a party to any forward
interest rate or similar agreements other than the interest rate cap contract
associated with the Secured Financing loan discussed above.
The table below provides information about the Company's financial instruments
that are sensitive to changes in interest rates. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. Weighted average variable rates are based on rates in
effect at the reporting date.
Expected Maturity Date
-------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Secured Fixed $ 61,441 $ 15,435 $ 14,301 $ 37,849 $ 27,791 $ 398,796 $ 555,613 $ 555,613
Average interest 6.83% 7.93% 7.46% 7.64% 7.38% 6.80% 6.94%
rate
Secured Variable $ 41,402 $ 7,100 $ - $ - $ 97,600 $ - $ 146,102 $ 146,102
Average interest 8.41% 8.50% - - 6.53% - 7.16%
rate
Unsecured Fixed $ - $ - $ - $ - $ - $ 91,150 $ 91,150 $ 91,150
Average interest - - - - - 7.63% 7.63%
rate
Unsecured Variable $ 70,628 $ - $ 33,865 $ - $ - $ - $ 104,493 $ 104,493
Average interest 7.75% - 8.25% - - - 7.91%
rate
The Company believes that the interest rates given in the table for fixed rate
borrowings approximate the rates the Company could currently obtain for
instruments of similar terms and maturities and that the fair values of such
instruments approximate carrying value at December 31, 1999.
A change of 1/8% in the index rate to which the Company's variable rate debt is
tied would change the annual interest incurred by the Company by $313,000, based
upon the balances outstanding on variable rate instruments at December 31, 1999.
</TABLE>
