SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-14162
GLENBOROUGH REALTY TRUST INCORPORATED
(Exact name of Registrant as specified in its charter)
Maryland 94-3211970
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, 94402-1708
Suite 1100 San Mateo, California - (650) 343-9300 (Zip Code)
(Address of principal executive offices
and telephone number)
Securities registered under Section 12(b) of the Act:
Name of Exchange
Title of each class: on which registered:
Common Stock, $.001 par value New York Stock Exchange
7-3/4% Series A Convertible Preferred Stock, New York Stock Exchange
$.001 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K [ X ]
As of February 28, 2000, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was $419,650,589. The aggregate market value was
computed with reference to the closing price on the New York Stock Exchange on
such date. This calculation does not reflect a determination that persons are
affiliates for any other purpose. As of February 28, 2000, 30,256,503 shares of
Common Stock ($.001 par value) and 11,236,300 shares of 7-3/4% Series A
Convertible Preferred Stock ($.001 par value, $25 per share liquidation value)
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III: Portions of the Registrant's definitive proxy statement to be
issued in conjunction with the Registrant's annual stockholder's meeting to be
held on May 5, 2000. EXHIBITS: The index of exhibits is contained in Part IV
herein on page number 75.
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TABLE OF CONTENTS
<S> <C> <C>
Page No.
PART I
Item 1 Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters 14
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8 Financial Statements and Supplementary Data 35
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 36
PART III
Item 10 Directors and Executive Officers of the Registrant 36
Item 11 Executive Compensation 36
Item 12 Security Ownership of Certain Beneficial Owners and Management 36
Item 13 Certain Relationships and Related Transactions 36
PART IV
Item 14 Exhibits, Financial Statements, Schedules and Reports on Form 8-K 37
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PART I
Item 1. Business
General Development and Description of Business
Glenborough Realty Trust Incorporated (the "Company") is a self-administered and
self-managed real estate investment trust ("REIT") engaged primarily in the
ownership, operation, management, leasing, acquisition, expansion and
development of various types of income-producing properties. As of December 31,
1999, the Company owned and operated 161 income-producing properties (the
"Properties," and each a "Property"). The Properties are comprised of 51 office
Properties, 37 office/flex Properties, 24 industrial Properties, 10 retail
Properties, 38 multifamily Properties and 1 hotel Property, located in 22
states. The Company was incorporated in the State of Maryland on August 26,
1994. On December 31, 1995, the Company completed a consolidation (the
"Consolidation") in which Glenborough Corporation, a California corporation, and
eight public limited partnerships (the "Partnerships") collectively, the "GRT
Predecessor Entities", merged with and into the Company. The Company (i) issued
5,753,709 shares (the "Shares") of $.001 par value Common Stock of the Company
to the Partnerships in exchange for the net assets of the Partnerships; (ii)
merged with Glenborough Corporation, with the Company being the surviving
entity; (iii) acquired an interest in three companies (the "Associated
Companies"), two of which merged on June 30, 1997, and the remaining two of
which merged on September 30, 1999, that provide asset and property management
services, as well as other services; and (iv) through a subsidiary operating
partnership, Glenborough Properties, L.P. (the "Operating Partnership"),
acquired interests in certain warehouse distribution facilities from GPA, Ltd.,
a California limited partnership ("GPA"). A portion of the Company's operations
are conducted through the Operating Partnership, of which the Company is the
sole general partner, and in which the Company holds a 88.50% limited partner
interest at December 31, 1999. The Company operates the assets acquired in the
Consolidation and in subsequent acquisitions (see further discussion below) and
intends to continue to invest in income-producing property directly and through
joint ventures. The Company has elected to qualify as a REIT under the Internal
Revenue Code of 1986, as amended. The common and preferred stock of the Company
(the "Common Stock" and the "Preferred Stock", respectively) are listed on the
New York Stock Exchange ("NYSE") under the trading symbols "GLB" and "GLB Pr A",
respectively. Since the Consolidation, and consistent with its strategy for
growth, the Company has completed the following transactions:
Acquired 20 properties in 1996, 90 properties in 1997, 69 properties in
1998 and 10 properties in 1999. The total acquired Properties consist
of an aggregate of approximately 16.5 million rentable square feet of
office, office/flex, industrial and retail space, 9,830 multifamily units
and 227 hotel suites and aggregate acquisition costs, including
third party expenditures incurred for the purpose of these transactions,
of approximately $1.9 billion.
From January 1, 1996 to the date of this filing, sold 63 properties which
were comprised of nine office properties, 15 office/flex properties, 13
industrial properties, 19 retail properties, two multifamily properties and
five hotel properties, to redeploy capital into properties the Company
believes have characteristics more suited to its overall growth strategy
and operating goals.
Completed four offerings of Common Stock in October 1996, March 1997,
July 1997 and October 1997 (respectively, the "October 1996 Offering,"
the "March 1997 Offering," the "July 1997 Offering," and the "October 1997
Offering"), resulting in aggregate gross proceeds of approximately $562
million.
Completed an offering of 7-3/4% Series A Convertible Preferred Stock
(the "January 1998 Convertible Preferred Stock Offering") for total
gross proceeds of $287.5 million. Issued $150 million of unsecured 7.625%
Senior Notes which mature on March 15, 2005. In the second, third and
fourth quarters of 1999, $58.9 million of the Senior Notes were
retired at a discount which resulted in a net gain on early extinguishment
of debt of approximately $3.1 million.
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Entered into 4 development alliances in 1998 through which two properties
were acquired in 1999. The Company currently has 3 development alliances to
which it has made advances of approximately $33 million and a loan of $36.4
million as of December 31, 1999.
The Company's principal business objective is to achieve a stable and
increasing source of cash flow available for distribution to stockholders. By
achieving this objective, the Company will seek to raise stockholder value over
time.
The Associated Companies
Prior to September 30, 1999, the Operating Partnership held 100% of the
non-voting preferred stock of the following associated companies (the
"Associated Companies"):
Glenborough Corporation ("GC") is the general partner of several real
estate limited partnerships and provides asset and property management
services for these partnerships (the "Managed Partnerships"). It also
provides partnership administration, asset management, property
management and development services to a group of unaffiliated partnerships
which include three public partnerships sponsored by Rancon Financial
Corporation, an unaffiliated corporation which has significant real estate
assets in the Inland Empire region of Southern California (the "Rancon
Partnerships").
Glenborough Hotel Group ("GHG") owns an approximate 36% limited partner
interest in a real estate joint venture.
Effective September 30, 1999, GHG merged with GC. In the merger, the
Operating Partnership received preferred stock of GC in exchange for its
preferred stock of GHG. The merger was accounted for as a reorganization of
entities under common control.
Following the merger, the Operating Partnership owns 100% of the 47,500
shares (representing 95% of total outstanding shares) of non-voting preferred
stock of GC. Six individuals, including Sandra Boyle, Frank Austin and Terri
Garnick, executive officers of the Company, own the 2,500 shares (representing
5% of total outstanding shares) of voting common stock of GC. The Operating
Partnership and GC intend that the Operating Partnership's interest in GC
complies with REIT qualification standards.
The Operating Partnership, through its ownership of preferred stock of GC,
is entitled to receive cumulative, preferred annual dividends of $1.896 per
share, which GC must pay before it pays any dividends with respect to the
common stock of GC. Once GC pays the required cumulative preferred dividend,
it will pay any additional dividends in equal amounts per share on both the
preferred stock and the common stock at 95% and 5%, respectively. Through the
preferred stock, the Operating Partnership is also entitled to receive a
preferred liquidation value of $169.49 per share plus all cumulative and unpaid
dividends. The preferred stock is subject to redemption at the option of GC
after December 31, 2005, for a redemption price of $169.49 per share. As the
holder of preferred stock of GC, the Operating Partnership has no voting
power with respect to the election of the directors of GC; all power to elect
directors of GC is held by the owners of the common stock of GC.
This structure is intended to provide the Operating Partnership with a
significant portion of the economic benefits of the operations of GC. The
Operating Partnership accounts for the financial results of GC using the
equity method.
Employees
As of December 31, 1999, the Company and the Associated Companies had
approximately 460 full-time employees.
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Competition
For Tenants
The Company's Properties compete for tenants with similar properties
located in their markets. Management believes that characteristics
influencing the competitiveness of a real estate project include the
geographic location of the property, the professionalism of the
property manager and the maintenance and appearance of the property,
in addition to external factors such as general economic
circumstances, trends, and the existence of new competing properties
in the general area in which the Company's properties are located.
Additional competitive factors with respect to commercial properties
include the ease of access to the property, the adequacy of related
facilities, such as parking, and the ability to provide rent
concessions and additional tenant improvements commensurate with local
market conditions. Such competition may lead to rent concessions that
could adversely affect the Company's cash flow. Although the Company
believes its Properties are competitive with comparable properties as
to those factors within the Company's control, over-building and other
external factors could adversely affect the ability of the Company to
attract and retain tenants.
For Acquisitions of Real Estate
The Company experiences competition
when attempting to acquire equity interests in desirable real estate,
including competition from domestic and foreign financial
institutions, other REITs, life insurance companies, pension funds,
trust funds, partnerships and individual investors. In competing for
such acquisitions, the Company has not given value guarantees in
connection with Operating Partnership units or stock issued in such
acquisitions.
For Capital
The Company competes with other REITs and investors and owners for
debt and equity financing. The Company's ability to attract debt and
equity capital at favorable rates is impacted in part by its
positioning in the marketplace relative to similar investments.
Factors impacting this include, among other things, the perceived
quality of the Company's portfolio and the risk adjustment sources of
capital give to the returns they expect from their investments. In
competing for capital, the Company has not entered into any forward
equity commitments or other arrangements which would subject the
Company to risks tied to changes in the market value of its equity
securities.
Working Capital
The Company's practice is to maintain cash reserves for normal
repairs, replacements, improvements, working capital and other
contingencies while minimizing interest expense. Available cash is
kept to a minimum by using available funds to reduce the outstanding
balance on the Company's unsecured line of credit and drawing on it
when necessary.
Other Factors
The Company's ability to achieve operational and capital targets is
impacted by economic conditions in the markets in which its Properties
are located and by broader factors such as prevailing interest rates
and the general availability of capital at favorable rates, both debt
and equity, for real estate investments. Local economic downturns may
adversely affect the occupancy and rental rates of the Company's
Properties. A lack of available capital may hinder the Company's
acquisition and development program or cause it to look to other types
of transactions, such as asset redeployments, to generate needed
liquidity.
Compliance with laws and regulations regarding the discharge of
materials into the environment, or otherwise relating to the
protection of the environment, is not expected to have any material
effect upon the capital expenditures, earnings and competitive
position of the Company.
The Properties have each been subject to Phase I Environmental
Assessments and, where such an assessment indicated it was
appropriate, Phase II Environmental Assessments (collectively, the
"Environmental Reports") have been conducted. These reports have not
indicated any significant environmental issues.
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In the event that pre-existing environmental conditions not disclosed
in the Environmental Reports which require remediation are
subsequently discovered, the cost of remediation will be borne by the
Company. Additionally, no assurances can be given that (i) future
laws, ordinances, or regulations will not impose any material
environmental liability, (ii) the current environmental condition of
the Properties has not been or will not be affected by tenants and
occupants of the Properties, by the condition of properties in the
vicinity of the Properties or by third parties unrelated to the
Company or (iii) that the Company will not otherwise incur significant
liabilities associated with costs of remediation relating to the
Properties.
Item 2. Properties
The Location and Type of the Company's Properties
The Company's 161 Properties are diversified by type (office,
office/flex, industrial, retail, multifamily and hotel) and are
located in four geographic regions and 22 states within the United
States comprising 32 local markets. The following table sets forth the
location, type and size of the Properties (by rentable square feet
and/or units) along with average occupancy for the year ended December
31, 1999.
<S> <C> <C> <C> <C> <C> <C> <C>
Office Office/Flex Industrial Retail Multi-family
Square Square Square Square Units Hotel Rooms No. of
Region Footage Footage Footage Footage Properties
- ------------------ ------------ ------------- ------------ ------------- ------------- ------------- -------------
Northwest 984,737 1,043,163 931,831 162,126 - - 26
Midwest 2,965,165 643,202 1,248,046 377,157 670 - 46
Southeast 2,398,159 1,140,640 581,889 388,714 2,399 - 45
Southwest 511,930 892,014 623,064 - 6,469 227 44
------------ ------------- ------------ ------------- ------------- ------------- -------------
Total 6,859,991 3,719,019 3,384,830 927,997 9,538 227 161
============ ============= ============ ============= ============= ============= =============
No. of Properties 51 37 24 10 38 1
Average Occupancy 91% 88% 99% 90% 93% n/a
For the years ended December 31, 1999, 1998 and 1997, no tenant
contributed 10% or more of the total rental revenue of the Company.
The largest tenant's annual rent was approximately 1.7% of total
rental revenues for the year ended December 31, 1999. A complete
listing of Properties owned by the Company at December 31, 1999 is
included as part of Schedule III in Item 14.
Office Properties
The Company owns 51 office Properties with total rentable square
footage of 6,859,991. The office Properties range in size from 14,255
square feet to 570,421 square feet, and have lease terms ranging from
one to 31 years. The office leases generally require the tenant to
reimburse the Company for increases in building operating costs over a
base amount. Certain of the leases provide for rent increases that are
either fixed or based on a consumer price index ("CPI"). For the year
ended December 31, 1999, the average occupancy of the office
Properties was 91%.
The following table sets forth, for the periods specified, the total
rentable area, average occupancy, average effective base rent per
leased square foot and total effective annual base rent.
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Office Properties
Historical Rent and Occupancy
Average Effective Total Effective
Total Rentable Average Occupancy Base Rent per Annual Base Rent
Year Area (Sq. Ft.) Leased Sq. Ft.(1) ($000s)(2) (3)
(3)
- ------------------ ----------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
1999 6,859,991 91% $ 16.78 $ 104,751
1998 7,001,109 92 16.04 103,314
1997 2,921,361 93 15.81 42,954
1996 641,923 94 13.19 7,918
1995 106,076 97 11.91 1,228
(1)Total Effective Annual Base Rent divided by Average Occupancy in square feet. As used herein, "Effective Base Rent"
represents base rent less concessions.
(2)Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3)In any given year, base rents are presented on an annualized basis based on results since the acquisition for properties
that were acquired during the year.
The following table sets forth the contractual lease expirations for leases for the office Properties as of
December 31, 1999.
Office Properties (5)
Lease Expirations
Percentage of Total
Number of Rentable Square Annual Base Rent Annual Base Rent
Expiration Year Expiring Leases Footage Subject to Under Expiring Represented by
Expiring Leases Leases ($000s) Expiring Leases (1)
- ------------------ ----------------- -------------------- -------------------- ----------------------
<C> <C> <C> <C> <C> <C>
2000 (4) 234 977,686 $ 17,976 16.0%
2001 154 923,446 16,060 14.3
2002 139 1,061,241 20,504 18.3
2003 74 417,586 8,082 7.2
2004 83 622,923 11,944 10.6
Thereafter 120 1,973,830 37,603 33.6
================= ==================== ==================== ======================
Total 804 5,976,712(2) $ 112,169(3) 100.0%
================= ==================== ==================== ======================
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for
contractual increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased and incorporates contractual rent increases arising
after 1999, and thus differs from "Total Effective Annual Base Rent" in the preceding table, which is based
on 1999 rents.
(4) Includes leases that have initial terms of less than one year.
(5) Numbers exclude the corporate headquarters building.
Office/Flex Properties
The Company owns 37 office/flex Properties aggregating 3,719,019 square feet. The office/flex Properties are
designed for a combination of office and warehouse uses with greater than 10% of the rentable square footage
containing office finish. The office/flex Properties range in size from 35,385 square feet to 278,580 square
feet, and have lease terms ranging from one to 13 years. Most of the office/flex leases are "triple net" leases
whereby the tenants are required to pay their pro rata share of the Properties' operating costs, common area
maintenance, property taxes, insurance, and non-structural repairs. Some of the leases are "industrial gross"
leases whereby the tenant pays as additional rent its pro rata share of common area maintenance and repair costs
and its share of the increase in taxes and insurance over a specified base year cost. Certain of these leases
call for fixed or CPI-based rent increases. For the year ended December 31, 1999, the average occupancy of the
office/flex Properties was 88%.
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The following table sets forth, for the periods specified, the total rentable area, average occupancy, average
effective base rent per leased square foot and total effective annual base rent.
Office/Flex Properties
Historical Rent and Occupancy
Average Effective Total Effective
Total Rentable Average Occupancy Base Rent per Annual Base Rent
Year (4) Area (Sq. Ft.) Leased Sq. Ft. (1) ($000s)(2) (3)
(3)
- ------------------ ----------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
1999 3,719,019 88% $ 8.30 $ 27,164
1998 4,560,519 90 7.61 31,235
1997 3,523,695 91 7.17 22,991
1996 247,506 96 5.50 1,307
(1) Total Effective Annual Base Rent divided by Average Occupancy in square feet. As used herein, "Effective Base
Rent" represents base rent less concessions.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) In any given year, base rents are presented on an annualized basis based on results since the acquisition for
properties that were acquired during the year.
(4) Prior to 1996, Properties currently classified as office/flex Properties were included in industrial
Properties. See industrial Properties table below.
The following table sets forth the contractual lease expirations for leases for the office/flex Properties as of
December 31, 1999.
Office/Flex Properties
Lease Expirations
Percentage of Total
Number of Rentable Square Annual Base Rent Annual Base Rent
Expiration Year Expiring Leases Footage Subject to Under Expiring Represented by
Expiring Leases Leases ($000s) Expiring Leases (1)
- ------------------ ----------------- -------------------- -------------------- ----------------------
<C> <C> <C> <C> <C>
2000 141 687,119 $ 6,046 20.8%
2001 77 485,322 3,640 12.5
2002 68 539,674 4,720 16.2
2003 38 464,493 4,362 15.0
2004 33 373,798 3,278 11.3
Thereafter 23 697,498 7,045 24.2
================= ==================== ==================== ======================
Total 380 3,247,904(2) $ 29,091(3) 100.0%
================= ==================== ==================== ======================
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for
contractual increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased and incorporates contractual rent increases arising
after 1999, and thus differs from "Total Effective Annual Base Rent" in the preceding table, which is based
on 1999 rents.
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Industrial Properties
The Company owns 24 industrial Properties aggregating 3,384,830 square
feet. The industrial Properties are designed for warehouse,
distribution and light manufacturing, ranging in size from 32,500
square feet to 474,426 square feet. As of December 31, 1999, 8 of the
industrial Properties were leased to multiple tenants, 16 were leased
to single tenants, and all 16 of the single-tenant Properties are
adaptable in design to multi-tenant use. For the year ended December
31, 1999, the average occupancy of the industrial Properties was 99%.
The industrial Properties have leases whose terms range from 1 to 15
years. Most of the leases are "triple net" leases whereby the tenants
are required to pay their pro rata share of the Properties' operating
costs, common area maintenance, property taxes, insurance, and
non-structural repairs. Some of the leases are "industrial gross"
leases whereby the tenant pays as additional rent its pro rata share
of common area maintenance and repair costs and its share of the
increase in taxes and insurance over a specified base year cost.
Certain of these leases call for fixed or CPI-based rent increases.
The following table sets forth, for the periods specified, the total
rentable area, average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the
industrial Properties.
Industrial Properties
Historical Rent and Occupancy
Average Effective Total Effective
Total Rentable Average Occupancy Base Rent per Annual Base Rent
Year (4) Area (Sq. Ft.) Leased Sq. Ft.(1) ($000s)(2) (3)
(3)
- ------------------ ----------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
1999 3,384,830 99% $ 4.17 $ 13,974
1998 4,098,080 98 3.91 15,703
1997 3,533,510 97 3.36 11,516
1996 1,778,862 99 2.41 4,244
1995 1,491,827 100 2.29 3,405
(1) Total Effective Annual Base Rent divided by Average Occupancy in square feet.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) In any given year, base rents are presented on an annualized basis based on results since the acquisition for
properties that were acquired during the year.
(4) Prior to 1996, Properties currently classified as office/flex Properties were included in industrial
Properties.
The following table sets forth the contractual lease expirations for leases for the industrial Properties as of
December 31, 1999.
Industrial Properties
Lease Expirations
Percentage of Total
Number of Rentable Square Annual Base Rent Annual Base Rent
Expiration Year Expiring Leases Footage Subject to Under Expiring Represented by
Expiring Leases Leases ($000s) Expiring Leases (1)
- ------------------ ----------------- -------------------- -------------------- ----------------------
<C> <C> <C> <C> <C>
2000 10 195,472 $ 971 6.7%
2001 10 321,069 1,450 9.9
2002 19 580,751 2,820 19.3
2003 4 118,569 511 3.5
2004 12 1,692,910 6,508 44.6
Thereafter 6 293,374 2,329 16.0
================= ==================== ==================== ======================
Total 61 3,202,145(2) $ 14,589(3) 100.0%
================= ==================== ==================== ======================
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(1) Annual base rent expiring during each period, divided by total
annual base rent (both adjusted for contractual increases).
(2) This figure is based on square footage actually leased (which
excludes vacant space), which accounts for the difference between this
figure and "Total Rentable Area" in the preceding table (which
includes vacant space).
(3) This figure is based on square footage actually leased (which
excludes vacant space) and incorporates contractual rent increases
arising after 1999, and thus differs from "Total Effective Annual Base
Rent" in the preceding table, which is based on 1999 rents.
Retail Properties
The Company owns 10 retail Properties with total rentable square
footage of 927,997. The leases for the retail Properties have terms
ranging from one to 28 years. Eight of the retail Properties,
representing 832,286 square feet or 90% of the total rentable area,
are anchored community shopping centers. The anchor tenants of these
centers are national or regional hardware stores, supermarkets and
drug stores. For the year ended December 31, 1999, the average
occupancy of the retail Properties was 90%.
The leases for the retail Properties generally include fixed or
CPI-based rent increases and some include provisions for the payment
of additional rent based on a percentage of the tenants' gross sales
that exceed specified amounts. Retail tenants also typically pay as
additional rent their pro rata share of the Properties' operating
costs including common area maintenance, property taxes, insurance and
non-structural repairs. Some leases contain options to renew at market
rates or specified rates.
The following table sets forth, for the periods specified, the total
rentable area, average occupancy, average effective base rent per
leased square foot and total effective annual base rent for the retail
properties.
Retail Properties
Historical Rent and Occupancy
Average Effective Total Effective
Total Rentable Average Occupancy Base Rent per Annual Base Rent
Year Area (Sq. Ft.) Leased Sq. Ft.(1) ($000s)(2) (3)
(3)
- ------------------ ----------------- -------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
1999 927,997 90% $ 9.68 $ 8,085
1998 1,239,165 94 8.75 10,192
1997 979,088 96 7.98 7,501
1996 630,700 96 7.82 (4) 4,726
1995 285,658 95 10.76 2,915
(1) Total Effective Annual Base Rent divided by Average Occupancy in square feet.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the period.
(3) In any given year, base rents are presented on an annualized basis based on results since the acquisition for
properties that were acquired during the year.
(4) Average effective base rent per leased square foot declined in 1996 due to the acquisition of properties with
lower base rents.
The following table sets forth the contractual lease expirations for the retail Properties as of December 31,
1999.
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Retail Properties
Lease Expirations
Percentage of Total
Number of Rentable Square Annual Base Rent Annual Base Rent
Expiration Year Expiring Leases Footage Subject to Under Expiring Represented by
Expiring Leases Leases ($000s) Expiring Leases (1)
- ------------------ ----------------- -------------------- -------------------- ----------------------
<C> <C> <C> <C> <C>
2000 42 81,410 $ 1,133 13.1%
2001 42 91,157 1,105 12.8
2002 19 30,875 433 5.0
2003 21 60,426 757 8.8
2004 33 148,628 1,408 16.3
Thereafter 39 417,038 3,801 44.0
================= ==================== ==================== ======================
Total 196 829,534(2) $ 8,637(3) 100.0%
================= ==================== ==================== ======================
(1) Annual base rent expiring during each period, divided by total annual base rent (both adjusted for
contractual increases).
(2) This figure is based on square footage actually leased (which excludes vacant space), which accounts for the
difference between this figure and "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This figure is based on square footage actually leased (which excludes vacant space) and incorporates
contractual rent increases arising after 1999, and thus differs from "Total Effective Annual Base Rent" in
the preceding table which is based on 1999 rents.
Tenant Improvements and Leasing Commissions
The following table summarizes by year the capitalized tenant improvement and leasing commission expenditures
incurred in the renewal or re-leasing of previously occupied space since January 1, 1995.
Capitalized Tenant Improvements and Leasing Commissions
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Office Properties
Square footage renewed or re-leased 1,627,615 579,904 174,354 39,706 79,745
Capitalized tenant improvements and
commissions ($000s) $11,353 $4,263 $ 850 $ 617 $ 468
Average per square foot of renewed or
re-leased space $6.98 $7.35 $ 4.87 $ 15.54 (1) $ 5.87
Office/Flex Properties
Square footage renewed or re-leased 872,066 876,490 138,658 9,000 (2)
Capitalized tenant improvements and
commissions ($000s) $2,675 $3,232 $ 418 $ 23 (2)
Average per square foot of renewed or
re-leased space $3.07 $3.69 $ 3.01 $ 2.56 (2)
continued
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Capitalized Tenant Improvements and Leasing Commissions - continued
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Industrial Properties
Square footage renewed or re-leased 457,561 307,896 198,055 60,000 141,523
Capitalized tenant improvements and
commissions ($000s) $840 $370 $ 235 $ 51 $ 114
Average per square foot of renewed or
re-leased space $1.84 $1.20 $ 1.19 $ 0.85 $ 0.81
Retail Properties
Square footage renewed or re-leased 113,858 45,894 12,080 32,998 33,294
Capitalized tenant improvements and
commissions ($000s) $522 $283 $ 42 $ 83 $ 98
Average per square foot of renewed or
re-leased space $4.58 $6.16 $ 3.51 $ 2.53 $ 2.94
All Properties
Square footage renewed or re-leased 3,071,100 1,810,184 523,147 141,704 254,562
Capitalized tenant improvements and
commissions ($000s) $15,390 $8,148 $1,545 $774 $ 680
Average per square foot of renewed or
re-leased space $5.01 $4.50 $ 2.95 $5.46 $ 2.67
(1) The significant cost of capitalized tenant improvements and commissions per square foot renewed or re-leased
in 1996 relative to the other years presented is primarily the result of tenant improvements provided in
connection with a lease extension of space for the principal tenant of one property. The lease was extended
10 years and expires in 2010.
(2) Prior to 1996, Properties currently classified as office/flex Properties were included in industrial
Properties.
Multifamily Properties
The Company owns 38 multifamily Properties, aggregating 9,538 units. All of the units are rented to residential
tenants on either a month-to-month basis or for terms of one year or less. For the year ended December 31, 1999,
the multifamily Properties were approximately 93% leased.
The following table sets forth, for the periods specified, total units, average occupancy, monthly average
effective base rent per unit and total effective annual base rent for the multifamily Properties.
Multifamily Properties
Historical Rent and Occupancy
Average Effective Total Effective
Average Occupancy Base Rent per Annual Base Rent
Year Total Units Leased Unit (1) (3) ($000s)(2) (3)
- ------------------ ----------------- -------------------- -------------------- -------------------
<C> <C> <C> <C> <C>
1999 9,538 93% $ 640 $ 68,124
1998 9,353 93 618 64,507
1997 2,251 95 619 15,884
1996 642 94 598 (4) 4,328
1995 104 94 630 739
</TABLE>
12
<PAGE>
(1) Total Effective Annual Base Rent divided by average occupied unit.
(2) Total Effective Annual Base Rent adjusted for any free rent given for the
period.
(3) In any given year, base rents are presented on an annualized basis based
on results since the acquisition for properties that were acquired during
the year.
(4) Average effective monthly base rent per unit declined in 1996 due to the
acquisition of properties with lower base rents.
Hotel Properties
Through June 1998, the Company leased to GHG six Country Suites by
Carlson hotels that it owned. In 1998, three of the hotels were sold
and the other three hotels were leased to two other hotel operators.
In 1999, two of the hotels were sold to one of the hotel operators.
The leases terminated upon the sales of the properties. Currently, the
Company owns one 227 room hotel located in Scottsdale, Arizona.
Item 3. Legal Proceedings
Blumberg. On July 24, 1999, the Supreme Court of the United States
denied a petition for a writ of certiorari to review the Company's
settlement of a class action complaint originally filed on February
21, 1995 in connection with the Consolidation. No further appeals are
possible in this case, and the settlement amount was paid in full in
1995. Under the settlement, the Company agreed to pay $855,000 to
settle certain claims by Anthony E. Blumberg, and others (the
"Blumberg Action"), that the Company and others had, among other
things, breached their fiduciary duty and duty of good faith and fair
dealing to investors in the Partnerships involved in the
Consolidation. Certain parties objected to the settlement, but the
settlement was approved (or review denied) by the Superior Court of
the State of California in and for San Mateo County, the California
state court of appeals, the California Supreme Court and the Supreme
Court of the United States.
BEJ Equity Partners. On December 1, 1995, a second class action
complaint relating to the Consolidation was filed in Federal District
Court for the Northern District of California (the "BEJ Action"). The
plaintiffs in the BEJ Action voluntarily stayed the action pending
resolution of the Blumberg Action. Following the resolution of the
Blumberg Action, the Company filed a motion to dismiss the BEJ Action
in January 2000. As of the date of this report, the plaintiffs had
failed to file a timely responsive pleading, so the defendants intend
to move for final dismissal.
The plaintiffs in the BEJ Action are BEJ Equity Partners and others,
who as a group held limited partner interests in certain of the
Partnerships included in the Consolidation, on behalf of themselves
and all others similarly situated. The defendants are the Company and
other Glenborough entities involved in the Consolidation, as well as
Robert Batinovich and Andrew Batinovich. The Partnerships are named as
nominal defendants.
This action alleges certain disclosure violations and substantially
the same breaches of fiduciary duty as were alleged in the Blumberg
Action. The complaint sought injunctive relief, which was denied at a
hearing on December 22, 1995. At that hearing, the court also deferred
all further proceedings in this case until after the scheduled January
17, 1996 hearing in the Blumberg Action. Following several stipulated
extensions of time for the Company to respond to the complaint, the
Company filed a motion to dismiss the case. Plaintiffs in the BEJ
Action voluntarily stayed the action pending resolution of the
Blumberg Action; such plaintiffs can revive their lawsuit.
It is management's position that the BEJ Action is without merit, and
management intends to pursue a vigorous defense. However, given the
inherent uncertainties of litigation, there can be no assurance that
the ultimate outcome in the BEJ Action will be in the Company's favor.
Certain other claims and lawsuits have arisen against the Company in
its normal course of business. The Company believes that such other
claims and lawsuits will not have a material adverse effect on the
Company's financial position, cash flow or results of operations.
13
<PAGE>
<TABLE>
<CAPTION>
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of security holders
in the fourth quarter of the year ended December 31, 1999.
PART II
Item 5. Market for Registrant's Common Stock and Preferred Stock and
Related Stockholder Matters
(a) Market Information
On January 31, 1996, the Company's Common Stock began trading on the
NYSE at $12.00 per share under the symbol "GLB". On January 28, 1998,
the Company's 7-3/4% Series A Convertible Preferred Stock began
trading on the NYSE at $25.00 per share under the symbol "GLB Pr A".
On December 31, 1999, the closing prices of the Company's Common and
Preferred Stock were $13.38 and $14.00, respectively. On February 28,
2000, the last reported sales prices per share of the Company's Common
Stock and Preferred Stock on the NYSE were $14.87 and $15.38,
respectively. The following table sets forth the high and low closing
prices per share of the Company's Common Stock and Preferred Stock for
the periods indicated, as reported on the NYSE composite tape.
Common Stock Preferred Stock
Quarterly Period High Low High Low
1998
<S> <C> <C> <C> <C>
First Quarter $ 31.75 $ 26.13 $ 27.00 $ 25.50
Second Quarter 31.88 25.56 26.88 24.00
Third Quarter 27.94 20.63 25.44 19.88
Fourth Quarter 21.81 18.75 20.25 17.00
1999
First Quarter $ 19.88 $ 16.50 $ 18.63 $ 16.25
Second Quarter 19.38 16.00 19.75 16.75
Third Quarter 18.19 16.00 20.50 16.06
Fourth Quarter 15.94 11.81 16.63 13.13
2000
First Quarter (1) $ 14.87 $ 12.94 $ 15.94 $ 13.94
(1)High and low stock closing prices through February 28, 2000.
Holders
The approximate number of holders of record of the shares of the
Company's Common Stock and Preferred Stock were 4,200 and 50,
respectively, as of February 28, 2000.
Distributions
Since the Consolidation, the Company has paid regular quarterly
distributions to holders of its Common and Preferred Stock. During the
years ended December 31, 1998 and 1999 the Company declared and/or
paid the following quarterly distributions:
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------------------------- ----------------------------------------
Distributions Total Distributions Total
Quarterly Period Per share Distributions Per share Distributions
- ------------------------ ---------------- -------------------- --------------- --------------------
1998
<S> <C> <C> <C> <C>
First Quarter $ 0.42 $ 13,251,000 $ 0.34 (1) $ 3,910,000 (1)
Second Quarter $ 0.42 $ 13,308,000 $ 0.48 $ 5,570,312
Third Quarter $ 0.42 $ 13,330,000 $ 0.48 $ 5,570,313
Fourth Quarter $ 0.42 $ 13,339,000 $ 0.48 $ 5,570,313
1999
First Quarter $ 0.42 $ 13,339,000 $ 0.48 $ 5,570,313
Second Quarter $ 0.42 $ 13,310,000 $ 0.48 $ 5,570,313
Third Quarter $ 0.42 $ 13,292,000 $ 0.48 $ 5,570,313
Fourth Quarter $ 0.42 $ 12,865,000 $ 0.48 $ 5,570,313
(1) The Company's Preferred Stock did not begin trading on the NYSE until
January 28, 1998.
The Company intends to declare regular quarterly distributions to its
stockholders. Federal income tax law requires that a REIT distribute
annually at least 95% of its REIT taxable income. Future distributions
by the Company will be at the discretion of the Board of Directors and
will depend upon the actual Funds from Operations of the Company, its
financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code,
applicable legal restrictions and such other factors as the Board of
Directors deems relevant. The Company intends to continue its policy
of paying quarterly distributions, but there can be no assurance that
distributions will continue or be paid at any specific level.
Item 6. 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 in Item 14.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Historical Historical Historical Historical As Adjusted Historical
1999 1998 1997 1996 1995 1995
------------ ----------- ----------- ------------- ------------- -----------
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 52,949 48,552 21,330 (1,131) 4,077 524
extraordinary items..
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
capitalization(8).... 54.7% 47.5% 18.5% 29.5% -- --
Ratio of Earnings to Fixed
Charges (9) 1.75 1.87 3.21 0.71 -- 1.41
Ratio of Earnings to Fixed
Charges and Preferred
Dividends(10) 1.31 1.36 3.21 0.71 -- 1.41
(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.
(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.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
(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):
GRT
Predecessor
The Company Entities
----------------------------------------------- -------------
For the Year Ended December 31,
----------------------------------------------------------------
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 58,295 50,194 14,873 4,575 4,762
amortization
Net gain (loss) on sales of
real estate assets... (9,013) (4,796) (1,491) (321) --
Loss on sale of mortgage
loan receivable 1,229 -- -- -- --
Loss on interest rate
protection agreement. -- 4,323 -- -- --
Consolidation and -- -- -- 7,237 --
litigation costs
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.
(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.
</TABLE>
17
<PAGE>
(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):
18
<PAGE>
<TABLE>
<CAPTION>
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
preferred dividends $ 13,236 $ 16,892 $ 12,325 $ 10,496 $ 52,949
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
JV's (2) - - - 788 788
Adjustment to reflect FFO of Associated
Companies (1) 253 2,170 135 163 2,721
-------------- ------------- ------------- -------------- ---------------
FFO $ 21,515 $ 21,825 $ 21,357 $ 19,350 $ 84,047
============== ============= ============= ============== ===============
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
outstanding 36,098,374 35,984,107 35,274,940 34,726,581 35,522,627
============== ============= ============= ============== ===============
(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.
Item 7. 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 in Item 6 and the Consolidated
Financial Statements of Glenborough Realty Trust Incorporated,
including the notes thereto, included in Item 14.
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.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Results of Operations by Property Type
For the Years Ended December 31, 1999 and 1998
(in thousands)
Office/ Multi- Hotel and Property Eliminating Total
Office Flex Industrial Retail family 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 NOI 46% 16% 9% 5% 23% 1% 100%
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 NOI 50% 18% 8% 6% 16% 2% 100%
(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.
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.
</TABLE>
20
<PAGE>
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 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.
21
<PAGE>
<TABLE>
<CAPTION>
Results of Operations by Property Type
For the Years Ended December 31, 1998 and 1997
(in thousands)
Office/ Multi- Hotel and Property Eliminating Total
Office Flex Industrial Retail family 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 NOI 50% 18% 8% 6% 16% 2% 100%
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 NOI 37% 18% 15% 12% 8% 10% 100%
(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
</TABLE>
22
<PAGE>
partially 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.
23
<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.
24
<PAGE>
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 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
25
<PAGE>
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.
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 Report on Form 10-K 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
26
<PAGE>
could differ materially from those stated or implied in such forward
looking statements. Some of the factors that could cause actual
results to differ materially are set forth below.
The Limited Availability of and Competition for Real Estate Acquisitions
May Restrict the Company's Ability to Grow
The Company's growth depends, in part, upon acquisitions. The Company
cannot be sure that properties will be available for acquisition or,
if available, that it will be able to purchase those properties on
favorable terms. The unavailability of such acquisitions could limit
the Company's growth. Furthermore, the Company faces competition from
several other businesses, individuals, fiduciary accounts and plans
and entities in the acquisition, operation and sale of properties.
Some of the Company's competitors are larger than it is and have
greater financial resources than it does. This competition could cause
the cost of properties it wishes to purchase to rise. If the Company
is unable to continue to grow through acquisitions, then its results
of operations and financial condition could be negatively impacted.
Competition for Tenants Could Adversely Affect the Company's Operations
When space becomes available at the Company's properties, the leases
may not be renewed, the space may not be leased or re-leased, or the
terms of the renewal or re-lease (including the cost of required
renovations or concessions to tenants) may be less favorable to it
than the prior lease. The Company has established annual property
budgets that include estimates of costs for renovation and re-leasing
expenses. The Company believes that these estimates are reasonable in
light of each property's situation; however, no assurance can be given
that these estimates will sufficiently cover these expenses. If the
Company cannot lease all or substantially all of the space at its
properties promptly, if the rental rates are significantly lower than
expected, or if the Company's reserves for these purposes prove
inadequate, then the Company's results of operations and financial
condition could be negatively impacted.
Tenants' Defaults Could Adversely Affect the Company's Operations
The Company's ability to manage its assets is subject to federal
bankruptcy laws and state laws that limit creditors' rights and
remedies available to real property owners to collect delinquent
rents. If a tenant becomes insolvent or bankrupt, the Company cannot
be sure that it could recover the premises from the tenant promptly or
from a trustee or debtor-in-possession in any bankruptcy proceeding
relating to that tenant. The Company also cannot be sure that it would
receive rent in the proceeding sufficient to cover its expenses with
respect to the premises. If a tenant becomes bankrupt, the federal
bankruptcy code will apply, which in some instances may restrict the
amount and recoverability of the Company's claims against the tenant.
A tenant's default on its obligations to the Company could adversely
affect its results of operations and financial condition.
Cash Flow May Be Insufficient for Debt Service Requirements
The Company intends to incur indebtedness in the future, including
through borrowings under its Credit Facility, to finance property
acquisitions, retirement of debt and stock repurchases. As a result,
the Company expects to be subject to the following risks associated
with debt financing including:
that interest rates may increase;
that the Company's cash flow may be insufficient to meet required payments
on its debt; and
that the Company may be unable to refinance or repay the debt as it comes due.
Debt Restrictions May Affect Operations and Negatively Affect the Company's
Ability to Repay Indebtedness at Maturity
The Company's current $142.5 million unsecured Credit Facility
contains provisions that restrict the amount of distributions it can
make. These provisions provide that distributions may not exceed 90%
of funds from operations for any fiscal quarter. If the Company cannot
obtain acceptable financing to repay indebtedness at maturity, it may
have to sell properties to repay indebtedness or properties may be
foreclosed upon, which could adversely affect its results of
operations, financial condition and ability to service debt. Also, as
of December 31, 1999, approximately $470.4 million of the Company's
total indebtedness included secured mortgages with
cross-collateralization provisions. In the event of a default, the
holders of this indebtedness may seek to foreclose upon properties
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<PAGE>
which are not the primary collateral for their loan. This may, in
turn, accelerate other indebtedness secured by these properties.
Foreclosure of properties would cause a loss to the Company of income
and asset value.
Fluctuations in Interest Rates May Adversely Affect the Company's Operations
As of December 31, 1999, the Company had approximately $250.6 million
of variable interest rate indebtedness. Accordingly, an increase in
interest rates will adversely affect the Company's net income and
results of operations.
Management of Newly Acquired Properties Could Be Difficult
Since the Consolidation on December 31, 1995, and through December 31,
1999, the Company acquired approximately $1.9 billion in properties.
To manage these new properties effectively, the Company has sought to
successfully apply its experience managing its existing portfolio to
expanded markets and to an increased number of properties. The
assimilation of these properties is a continuing process whose success
cannot be assured indefinitely. Should the Company encounter future
difficulties in managing these newly acquired properties, this could
adversely affect its results of operations and financial condition.
Acquisitions Could Adversely Affect Operations
Consistent with the Company's growth strategy, the Company is
continually pursuing and evaluating potential acquisition
opportunities. From time to time the Company is actively considering
the possible acquisition of specific properties, which may include
properties managed by GC or owned by affiliated parties. It is
possible that one or more of such possible future acquisitions, if
completed, could adversely affect the Company's results of operations
and financial condition.
Potential Adverse Consequences of Transactions Involving Conflicts of Interest
The Company has acquired, and from time to time may acquire,
properties from partnerships that Robert Batinovich, the Company's
Chairman and Chief Executive Officer, and Andrew Batinovich, the
Company's President and Chief Operating Officer, control, and in which
they and members of their families have substantial interests. These
transactions involve or will involve conflicts of interest. These
transactions also may provide substantial economic benefits to those
individuals such as:
payments or issuances of partnership units in the Operating Partnership,
relief or deferral of tax liabilities,
relief of primary or secondary liability for debt, and
reduction in exposure to other property-related liabilities.
The Company's policy provides that interested directors may not vote
with regard to transactions in which they have a substantial interest.
These transactions may only be completed if they are approved by a
majority of the disinterested directors, with the interested directors
abstaining. Despite this policy and the presence of appraisals or
fairness opinions or review by parties who have no interest in the
transactions, the transactions will not be the product of arm's-length
negotiation. These transactions may not be as favorable to the Company
as transactions that it negotiates with unrelated parties and they
could result in undue benefit to Robert and Andrew Batinovich and
members of their families. None of these parties has guaranteed that
any properties acquired from entities they control or in which they
have a significant interest will be as profitable as other investments
made by the Company or will not result in losses.
Dependence on Executive Officers
The Company depends on the efforts of Robert Batinovich, its Chief
Executive Officer and Andrew Batinovich, its President and Chief
Operating Officer, and of its other executive officers. The loss of
the services of any of them could have an adverse effect on the
Company's results of operations and financial condition. Both Robert
and Andrew Batinovich have entered into employment agreements with the
Company.
Potential Liability Due to Environmental Matters
Under federal, state and local laws relating to protection of the
environment ("Environmental Laws"), a current or previous owner or
operator of real estate may be liable for contamination resulting from
the presence or discharge of petroleum products or other hazardous or
toxic substances on the property. These owners may be required to
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<PAGE>
investigate and clean-up the contamination on the property as well as
the contamination which has migrated from the property. Environmental
Laws typically impose liability and clean-up responsibility without
regard to whether the owner or operator knew of, or was responsible
for, the presence of the contamination. This liability may be joint
and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or
operator of a property may be subject to claims by third parties based
on personal injury, property damage and/or other costs, including
investigation and clean-up costs, resulting from environmental
contamination. Environmental Laws may also impose restrictions on the
manner in which a property may be used or transferred or in which
businesses may be operated. These restrictions may require
expenditures. Under the Environmental Laws, any person who arranges
for the transportation, disposal or treatment of hazardous or toxic
substances may also be liable for the costs of investigation or
clean-up of those substances at the disposal or treatment facility,
whether or not the facility is or ever was owned or operated by that
person.
Tenants of the Company's properties generally are required by their
leases to operate in compliance with all applicable Environmental
Laws, and to indemnify the Company against any environmental liability
arising from their activities on the properties. However, the Company
could be subject to environmental liability relating to its management
of the properties or strict liability by virtue of its ownership
interest in the properties. Also tenants may not satisfy their
indemnification obligations under the leases. The Company is also
subject to the risk that:
any environmental assessments of its properties, properties being
considered for acquisition, or the properties owned by the partnerships
managed by GC may not have revealed all potential environmental
liabilities,
any prior owner or prior or current operator of such properties
may have created an environmental condition not known to the Company, or
an environmental condition may otherwise exist as to any one or more of
such properties.
Any one of these conditions could have an adverse effect on the
Company's results of operations and financial condition or ability to
service debt, either directly (with respect to its properties), or
indirectly (with respect to properties owned by partnerships managed
by GC). Any condition adversely affecting the financial condition of
GC could adversely affect the Company by diminishing the value of its
interest in GC. Moreover, future environmental laws, ordinances or
regulations may have an adverse effect on the Company's results of
operations, financial condition and ability to service debt. Also, the
current environmental condition of those properties may be affected by
tenants and occupants of the properties, by the condition of land or
operations in the vicinity of the properties (such as the presence of
underground storage tanks), or by third parties unrelated to the
Company.
Environmental Assessments and Potential Liability Due to
Asbestos-Containing Materials Environmental Laws also govern the
presence, maintenance and removal of asbestos-containing building
materials. These laws require that asbestos-containing building
materials be properly managed and maintained and that those who may
come into contact with asbestos-containing building materials be
adequately informed and trained. They also require that special
precautions, including removal or other abatement, be undertaken in
the event asbestos-containing building materials is disturbed during
renovation or demolition of a building. These laws may impose fines
and penalties on building owners or operators for failure to comply
with these requirements. They also may allow third parties to seek
recovery from owners or operators for personal injury associated with
exposure to asbestos fibers.
All of the properties that the Company presently owns have been
subject to Phase I environmental assessments by independent
environmental consultants. Some of the Phase I environmental
assessments recommended further investigations in the form of Phase II
environmental assessments, including soil and groundwater sampling.
The Company has completed all of these investigations or is in the
process of completing them. Certain of the Company's properties have
been found to contain asbestos-containing building materials. The
Company believes that these materials have been adequately contained
and it has implemented an asbestos-containing building materials
operations and maintenance program for the properties found to contain
asbestos-containing building materials.
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<PAGE>
Some, but not all, of the properties owned by partnerships managed by
GC have been subject to Phase I environmental assessments by
independent environmental consultants. GC determines on a case-by-case
basis whether to obtain Phase I environmental assessments on these
properties and whether to undertake further investigation or
remediation. Certain of these properties contain asbestos-containing
building materials. In each case GC believes that these materials have
been adequately contained and has implemented an asbestos-containing
building materials operations and maintenance program has been
implemented for the properties found to contain asbestos-containing
building materials.
Potential Environmental Liability Resulting From Underground Storage Tanks
Some of the Company's properties, as well as properties that it has
previously owned, are leased or have been leased to owners or
operators of businesses that use, store or otherwise handle petroleum
products or other hazardous or toxic substances. These businesses
include dry cleaners that operate on-site dry cleaning plants and auto
care centers. Some of these properties contain, or may have contained,
underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a
potential for the release of those substances. Some of the Company's
properties are adjacent to or near other properties that have
contained or currently contain underground storage tanks used to store
petroleum products or other hazardous or toxic substances. Several of
the Company's properties have been contaminated with these substances
from on-site operations or operations on adjacent or nearby
properties. In addition, certain of the Company's properties are on,
or are adjacent to or near other properties upon which others,
including former owners or tenants of the properties, have engaged or
may engage in activities that may release petroleum products or other
hazardous or toxic substances.
Environmental Liabilities May Adversely Affect Operating Costs and Ability to
Borrow
The obligation to pay for the cost of complying with existing
Environmental Laws as well as the cost of complying with future
legislation may affect the Company's operating costs. In addition, the
presence of petroleum products or other hazardous or toxic substances
at any of the Company's properties, or the failure to remediate those
properties properly, may adversely affect its ability to borrow by
using those properties as collateral. The cost of defending against
claims of liability and the cost of complying with Environmental Laws,
including investigation or clean-up of contaminated property, could
materially adversely affect the Company's results of operations and
financial condition.
General Risks of Ownership of Real Estate
The Company is subject to risks generally incidental to the ownership of real
estate. These risks include:
changes in general economic or local conditions;
changes in supply of or demand for similar or competing properties in an
area;
the impact of environmental protection laws;
changes in interest rates and availability of financing which may render
the sale or financing of a property difficult or unattractive;
changes in tax, real estate and zoning laws; and
the creation of mechanics' liens or similar encumbrances placed on the
property by a lessee or other parties without the Company's knowledge and
consent.
Should any of these events occur, the Company's results of operations
and financial condition could be adversely affected.
General Risks Associated With Management, Leasing and Brokerage Contracts
The Company is subject to the risks generally associated with the
property management, leasing and brokerage businesses. These risks
include the risk that:
management contracts or service agreements may be terminated;
contracts will not be renewed upon expiration or will not be renewed on
terms consistent with current terms; and
leasing and brokerage activity generally may decline.
30
<PAGE>
In addition, the Company's acquisition of properties from partnerships
managed by GC or another subsidiary could result in a decrease in
revenues to such subsidiary and a corresponding decrease in dividends
received by the Company from such subsidiary. Each of these
developments could have an adverse effect on the Company's results of
operations and financial condition.
To maintain the Company's status as a REIT while realizing income from
GC's third-party management business, the capital stock of GC is
divided into two classes. All of the voting common stock of GC,
representing 5% of GC's total equity, is held by individual
stockholders. Nonvoting preferred stock representing the remaining
equity of GC is held entirely by the Operating Partnership. Although
the Operating Partnership holds a majority of the equity interest in
GC, it is not able to elect GC's directors.
Uninsured Losses May Adversely Affect Operations
The Company, or in certain instances, tenants of the properties, carry
comprehensive liability, fire and extended coverage with respect to
the properties. This coverage has policy specification and insured
limits customarily carried for similar properties. However, certain
types of losses (such as from earthquakes and floods) may be either
uninsurable or not economically insurable. Further, certain of the
properties are located in areas that are subject to earthquake
activity and floods. Should a property sustain damage as a result of
an earthquake or flood, the Company may incur losses due to insurance
deductibles, co-payments on insured losses or uninsured losses. Should
an uninsured loss occur, the Company could lose some or all of its
capital investment, cash flow and anticipated profits related to one
or more properties. This could have an adverse effect on the Company's
results of operations and financial condition.
Illiquidity of Real Estate May Limit Our Ability to Vary the Company's Portfolio
Real estate investments are relatively illiquid and, therefore, will
tend to limit the Company's ability to vary its portfolio promptly in
response to changes in economic or other conditions. In addition, the
Internal Revenue Code of 1986, as amended (the "Code"), and individual
agreements with sellers of properties place limits on the Company's
ability to sell properties. Fifty-five of the Company's properties
were acquired on terms and conditions under which they can be disposed
of only in a like-kind exchange or other non-taxable transaction. The
agreed upon time periods for these restrictions on dispositions vary
from transaction to transaction.
Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of the Company's properties were required
to be in compliance with the Americans With Disabilities Act. The
Americans With Disabilities Act generally requires that places of
public accommodation be made accessible to people with disabilities to
the extent readily achievable. Compliance with the Americans With
Disabilities Act requirements could require removal of access
barriers. Non-compliance could result in imposition of fines by the
federal government, an award of damages to private litigants and/or a
court order to remove access barriers. Because of the limited history
of the Americans With Disabilities Act, the impact of its application
to the Company's properties, including the extent and timing of
required renovations, is uncertain. Pursuant to lease agreements with
tenants in certain of the "single-tenant" properties, the tenants are
obligated to comply with the Americans With Disabilities Act
provisions. If the Company's costs are greater than anticipated or
tenants are unable to meet their obligations, the Company's results of
operations and financial condition could be adversely affected.
Development Alliances May Adversely Affect Operations
The Company may, from time to time, enter into alliances with selected
developers for the purpose of developing new projects in which these
developers have, in the opinion of management, significant expertise
or experience. These projects generally require various governmental
and other approvals, the receipt of which cannot be assured. These
development activities also may entail certain risks, including the
risk that:
management may expend funds on and devote time to projects which may not
come to fruition;
construction costs of a project may exceed original estimates, possibly
making the project uneconomical;
31
<PAGE>
occupancy rates and rents at a completed project may be less than
anticipated; and
expenses at a completed development may be higher than anticipated.
In addition, the partners in development alliances may have
significant control over the operation of the alliance project.
Therefore, these investments may, under certain circumstances, involve
risks such as the possibility that the partner might:
become bankrupt;
have economic or business interests or goals that are inconsistent with
the Company's business interest or goals; or
be in a position to take action contrary to the Company's instructions
or requests or contrary to its policies or objectives.
Consequently, actions by a partner in a development alliance might
subject property owned by the alliance to additional risk. Although
the Company will seek to maintain sufficient control of any alliance
to permit its objectives to be achieved, the Company may be unable to
take action without the approval of its development alliance partners.
Conversely, the Company's development alliance partners could take
actions binding on the alliance without the Company's consent. In
addition, should a partner in a development alliance become bankrupt
the Company could become liable for the partner's share of the
project's liabilities. These risks may result in a development project
adversely affecting the Company's results of operations and financial
condition.
Material Tax Risks
Since 1996, the Company has operated as a REIT under the Code.
However, the Company may not be able to maintain its status as a REIT.
To qualify as a REIT the Company must satisfy numerous requirements
(some on an annual and quarterly basis) established under highly
technical and complex Code provisions. Only limited judicial or
administrative interpretation exists for these provisions and involves
the determination of various factual matters and circumstances not
entirely within the Company's control. The Company receives
nonqualifying management fee income and owns nonqualifying preferred
stock in certain subsidiaries. As a result, the Company may approach
the income and asset test limits imposed by the Code. There is a risk
that the Company may not satisfy these tests. In order to avoid
exceeding the asset test limit, for example, the Company may have to
reduce its interest in its subsidiaries. The Company is relying on the
opinion of its tax counsel regarding its ability to qualify as a REIT.
This legal opinion, however, is not binding on the Internal Revenue
Service ("IRS").
Consequences of Failure to Qualify as a REIT
If the Company fails to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax on its taxable income
at corporate rates. In addition, the Company also may be disqualified
from treatment as a REIT for the four taxable years following the year
in which the Company failed to qualify. This would reduce the
Company's net earnings available for investment or distribution to
stockholders because of the additional tax liability. In addition, the
Company would no longer be required to make distributions to
stockholders.
Even if the Company continues to qualify as a REIT, it will be subject to
certain federal, state and local taxes on its income and property.
Possible Changes in Tax Laws; Effect on the Market Value of Real Estate
Investments
Income tax treatment of REITs may be modified by legislative, judicial
or administrative action at any time. These changes may be applied to
past as well as future operations. Legislation, regulations,
administrative interpretations or court decisions may significantly
change the tax laws with respect to (1) the qualification as a REIT or
(2) the federal income tax consequences of this qualification. In
addition, the changes might also indirectly affect the market value of
all real estate investments, and consequently the Company's ability to
realize its investment objectives.
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<PAGE>
Additional Capital Requirements; Possible Adverse Effects on Holders of Equity
The Company's ability to continue its growth pattern established in
1996-1999, which was funded largely through the raising of equity
capital, depends in large part upon its ability to raise additional
capital in the future on satisfactory terms. If the Company raises
additional capital through the issuance of additional equity
securities, or securities convertible into or exercisable for equity
securities, the interests of holders of the Company's shares of Common
Stock could be diluted. Likewise, the Company's Board of Directors is
authorized to issue Preferred Stock and to determine the rights of the
Preferred Stock. Accordingly, the Board of Directors may authorize the
issuance of Preferred Stock with rights which may dilute or otherwise
adversely affect the interests of holders of the Company's shares of
Common Stock. If the Company raises additional capital through debt
financing, it will be subject to the risks described below, among
others.
The Company's Indebtedness Restrictions May Adversely Affect its Ability to
Incur Indebtedness
The Company's organizational documents limit its ability to incur
additional debt if the total debt, including the additional debt,
would exceed 50% of the "Borrowing Base." This debt limitation in the
Company's Charter can only be amended by an affirmative vote of the
majority of all outstanding stock entitled to vote on such amendment.
The term "Borrowing Base" is defined as the greater of Fair Market
Value or Total Market Capitalization. Fair Market Value is based upon
the value of the Company's assets as determined by an independent
appraiser. Total Market Capitalization is the sum of the market value
of the Company's outstanding capital stock, including shares issuable
on exercise of redemption options by holders of units of the limited
partnership, plus debt. An exception is made for refinancings and
borrowings required to make distributions to maintain the Company's
status as a REIT. In light of these debt restrictions, it should be
noted that a change in the value of the Company's common stock could
affect the Borrowing Base, and therefore its ability to incur
additional indebtedness, even though such change in the common stock's
value is unrelated to the Company's liquidity.
Limitation on Ownership of Common Stock And Stockholder's Rights Plan May
Preclude Acquisition of Control
Provisions of the Company's Charter are designed to assist the Company
in maintaining its qualification as a REIT under the Code by
preventing concentrated ownership of the Company which might
jeopardize REIT qualification. Among other things, these provisions
provide that:
any transfer or acquisition of the Company's common or preferred stock
that would result in its disqualification as a REIT under the Code
will be void; and
if any person attempts to acquire shares of the Company's common or
preferred stock that after the acquisition would cause the person to
own an amount of common stock and preferred stock in excess of a
predetermined limit, such acquisitions would be void.
Ownership is determined by operation of certain attribution rules set
out in the Code. Pursuant to Board action, the limit currently is 9.9%
of the value of the outstanding shares of common stock and preferred
stock (the "Ownership Limitation"). The common stock or preferred
stock the transfer of which would cause any person to violate the
Ownership Limitation, is referred to as the "Excess Shares." A
transfer that would violate the Ownership Limitation will be void and
the common stock or preferred stock subject to the transfer will
automatically be transferred to an unaffiliated trustee for the
benefit of a charitable organization designated by the Board of
Directors until sold by the trustee to a third party or purchased by
the Company. This limitation on the ownership of common stock and
preferred stock may preclude the acquisition of control of the Company
by a third party without the consent of the Board of Directors. If the
Board of Directors waives the Ownership Limitation for any person, the
Ownership Limitation will be proportionally and automatically reduced
with regard to all other persons such that no five persons may own
more than 50% of the value of the common stock and preferred stock.
Certain other provisions contained in the Company's Charter and Bylaws
may also have the effect of discouraging a third party from making an
acquisition proposal for the Company and may thereby inhibit a change
in control in the Company even if a change in control would be in the
best interests of the stockholders.
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In addition, in July 1998, the Board of Directors adopted a
stockholder rights plan. Under the plan, the Company declared a
dividend of rights on its common stock. The rights issued under the
plan will be triggered, with certain exceptions, if and when any
person or group acquires, or commences a tender offer to acquire, 15%
or more of the Company's shares. The rights plan is intended to
prevent abusive hostile takeover attempts by requiring a potential
acquirer to negotiate the terms of an acquisition with the Board of
Directors. However, it could have the effect of deterring or
preventing an acquisition of the Company, even if a majority of the
Company's stockholders would be in favor of such acquisition, and
could also have the effect of making it more difficult for a person or
group to gain control of the Company or to change existing management.
Losses Relating to Consolidation
The Company was created through the merger of eight partnerships and a
corporation (the "Consolidation"). Prior to the completion of the
Consolidation, two lawsuits were filed in 1995 contesting the fairness
of the Consolidation, one in California State court and one in federal
court. The complaints in both actions alleged, among other things,
breaches by the defendants of fiduciary duties and inadequate
disclosures. The State court action was settled over the objection of
certain parties, and the settlement was approved (or review denied) by
the Superior Court of the State of California in and for San Mateo
County, the California state court of appeals, the California Supreme
Court and the Supreme Court of the United States. In the federal
action, the court in December of 1995 deferred all further proceedings
pending a ruling in the State court action. Following the final
resolution of the State court action, the defendants in January 2000
filed a motion to dismiss the federal court action. As of the date of
this report, the plaintiffs had failed to file a timely responsive
pleading, so the defendants intend to move for final dismissal. The
Company believes that it is very unlikely that this litigation would
result in a liability that would exceed the accrued liability by a
material amount. However, given the inherent uncertainties of
litigation, there can be no assurance that the ultimate outcomes of
these actions will be favorable to the Company.
From time to time the Company is involved in other litigation arising
out of its business activities. Certain other claims and lawsuits have
arisen against the Company in its normal course of business. It is
possible that this litigation and the other litigation previously
described could result in significant losses in excess of amounts
reserved, which could have an adverse effect on the Company's results
of operations and financial condition.
Uncertainty Due to the Board of Directors' Ability to Change Investment Policies
The Board of Directors may change the Company's investment policies
without a vote of the stockholders. If the Company's investment
policies change, the risks and potential rewards of an investment in
the shares may also change. In addition, the methods of implementing
the Company's investment policies may vary as new investment
techniques are developed.
Effect of Market Interest Rates on Price of Common Stock
The annual yield on the price paid for shares of the Company's common
stock from distributions by the Company may influence the market price
of the shares of its common stock in public markets. An increase in
market interest rates may lead prospective purchasers of the Company's
common stock to seek a higher annual yield from their investments.
This may adversely affect the market price of the Company's common
stock.
Shares Available for Future Sale
The Company cannot predict the effect, if any, that future sales of
shares of its common stock or future conversions or exercises of
securities for future sales will have on the market price of its
common stock. Sales of substantial amounts of the Company's common
stock, or the perception that such sales could occur, may adversely
affect the prevailing market price for the Company's common stock.
Item 7A. 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.
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<TABLE>
<CAPTION>
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
-------------------------------------------------------------------------
Fair
2000 2001 2002 2003 2004 Thereafter Total 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 rate 6.83% 7.93% 7.46% 7.64% 7.38% 6.80% 6.94%
Secured Variable $ 41,402 $ 7,100 $ - $ - $ 97,600 $ - $ 146,102 $ 146,102
Average interest rate 8.41% 8.50% - - 6.53% - 7.16%
Unsecured Fixed $ - $ - $ - $ - $ - $ 91,150 $ 91,150 $ 91,150
Average interest rate - - - - - 7.63% 7.63%
Unsecured Variable $ 70,628 $ - $ 33,865 $ - $ - $ - $ 104,493 $ 104,493
Average interest rate 7.75% - 8.25% - - - 7.91%
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.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this Form 10-K.
See Item 14.
</TABLE>
35
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 5, 2000.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 5, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 5, 2000.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated by reference from the
Company's definitive proxy statement for its annual stockholders' meeting to be
held on May 5, 2000.
36
<PAGE>
<TABLE>
<CAPTION>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
Page No.
<S> <C> <C> <C>
(a) (1) Financial Statements
Report of Independent Public Accountants 38
Consolidated Balance Sheets at December 31, 1999 and 1998 39
Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 40
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999,
1998 and 1997 41
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 42
Notes to Consolidated Financial Statements 44
(2) Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation 64
Schedule IV - Mortgage Loans Receivable, Secured by Real Estate 72
(3) Exhibits to Financial Statements
The Exhibit Index attached hereto is hereby incorporated by reference to this Item. 75
(b) Reports on Form 8-K (incorporated herein by reference)
On October 26, 1999, the Company filed a report on Form 8-K with respect to
Supplemental Information for the quarter ended September 30, 1999.
On January 26, 2000, the Company filed a report on Form 8-K with respect to
Supplemental Information for the quarter ended December 31, 1999.
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
GLENBOROUGH REALTY TRUST INCORPORATED:
We have audited the accompanying consolidated balance sheets of GLENBOROUGH
REALTY TRUST INCORPORATED, as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1999, 1998 and 1997. These consolidated financial
statements and the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
GLENBOROUGH REALTY TRUST INCORPORATED, as of December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1999, 1998 and 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedules
listed in the index to financial statements and schedules are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
March 1, 2000
38
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
As of December 31, 1999 and 1998
(in thousands, except share amounts)
1999 1998
-------------- ---------------
ASSETS
<S> <C> <C>
Rental properties, gross $ 1,761,536 $ 1,793,530
Accumulated depreciation (114,170) (72,951)
-------------- ---------------
Rental properties, net 1,647,366 1,720,579
Rental properties held for sale, gross - 31,778
Accumulated depreciation - (9,918)
-------------- ---------------
Rental properties held for sale, net - 21,860
Investments in Development 33,298 35,131
Investments in Associated Companies 9,404 8,807
Mortgage loans receivable 37,582 42,420
Cash and cash equivalents 6,482 4,357
Other assets 60,472 45,862
-------------- ---------------
TOTAL ASSETS $ 1,794,604 $ 1,879,016
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage loans $ 701,715 $ 708,578
Unsecured term debt 125,015 150,000
Unsecured bank line 70,628 63,519
Other liabilities 30,625 28,921
-------------- ---------------
Total liabilities 927,983 951,018
-------------- ---------------
Commitments and contingencies - -
Minority interest 82,287 99,465
Stockholders' Equity:
Common stock, 30,820,646 and 31,758,915 shares issued
and outstanding at December 31, 1999 and 1998, respectively
31 32
Preferred stock, 11,330,000 and 11,500,000 shares issued
and outstanding at December 31, 1999 and 1998, respectively
11 11
Additional paid-in capital 846,693 865,692
Deferred compensation (613) (181)
Retained earnings (deficit) (61,788) (37,021)
-------------- ---------------
Total stockholders' equity 784,334 828,533
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 1,794,604 $ 1,879,016
============== ===============
See accompanying notes to consolitated financial statements
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts)
1999 1998 1997
---------------- ---------------- ---------------
REVENUE
<S> <C> <C> <C>
Rental revenue $ 255,339 $ 227,956 $ 61,393
Fees and reimbursements from affiliates 3,312 2,802 719
Interest and other income 6,404 4,607 1,802
Equity in earnings of Associated Companies 1,222 1,314 2,743
Equity in loss of joint ventures (310) - -
Net gain on sales of real estate assets and repayment
of notes receivable 9,013 4,796 1,491
---------------- ---------------- ---------------
Total revenue 274,980 241,475 68,148
---------------- ---------------- ---------------
EXPENSES
Property operating expenses 88,037 74,079 18,958
General and administrative 9,688 11,038 3,319
Depreciation and amortization 58,295 50,194 14,873
Interest expense 64,782 53,289 9,668
Loss on sale of mortgage loan receivable 1,229 - -
Loss on interest rate protection agreement - 4,323 -
---------------- ---------------- ---------------
Total expenses 222,031 192,923 46,818
---------------- ---------------- ---------------
Income from operations before minority interest and
extraordinary item 52,949 48,552 21,330
Minority interest (3,647) (2,550) (1,119)
---------------- ---------------- ---------------
Net income before extraordinary item 49,302 46,002 20,211
Extraordinary item:
Net gain (loss) on early extinguishment of debt 984 (1,400) (843)
---------------- ---------------- ---------------
Net income 50,286 44,602 19,368
Preferred dividends (22,280) (20,620) -
================ ================ ===============
Net income available to Common Stockholders $ 28,006 $ 23,982 $ 19,368
================ ================ ===============
Basic Per Share Data:
Net income before extraordinary item $ 0.86 $ 0.80 $ 1.12
Extraordinary item 0.03 (0.04) (0.04)
---------------- ---------------- ---------------
Net income available to Common Stockholders $ 0.89 $ 0.76 $ 1.08
================ ================ ===============
Basic weighted average shares outstanding 31,346,568 31,661,810 17,982,817
================ ================ ===============
Diluted Per Share Data:
Net income before extraordinary item $ 0.86 $ 0.79 $ 1.09
Extraordinary item 0.03 (0.04) (0.04)
---------------- ---------------- ---------------
Net income available to Common Stockholders $ 0.89 $ 0.75 $ 1.05
================ ================ ===============
Diluted weighted average shares outstanding 35,522,627 35,576,210 19,517,543
================ ================ ===============
See accompanying notes to consolidated financial statements
</TABLE>
40
<PAGE>
<TABLE>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
(in thousands)
Common Stock Preferred Stock
--------------------- ---------------------
Additional Deferred Retained
Par Par Paid-in Compen- Earnings
Shares Value Shares Value Capital sation (Deficit) Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 9,662 $ 10 - $ - $ 106,915 $ (399) $ (8,926) $ 97,600
Amortization of deferred compensation
- - - - - 189 - 189
Issuance of common stock, net of
offering costs of $28,785 21,780 21 - - 482,491 - - 482,512
Issuance of common stock related to
acquisitions 105 - - - 2,655 - - 2,655
Adjustment to fair value of minority
interest - - - - 1,641 - - 1,641
Distributions - - - - - - (23,842) (23,842)
Net income - - - - - - 19,368 19,368
--------------------- ------------------------------------------------ ----------------------
Balance at December 31, 1997 31,547 31 - - 593,702 (210) (13,400) 580,123
--------------------- ------------------------------------------------ ----------------------
Issuance of preferred stock, net of
offering costs of $12,813 - - 11,500 11 274,676 - - 274,687
Issuance of common stock related to
acquisitions 136 1 - - 3,389 - - 3,390
Exercise of stock options 22 - - - 344 - - 344
Conversion of Operating Partnership
units into common stock 52 - - - - - - -
Amortization of deferred compensation - - - - - 91 - 91
Issuance of common stock to directors 2 - - - 62 (62) - -
Unrealized loss on marketable
securities - - - - - - (34) (34)
Adjustment to fair value of minority
interest - - - - (6,481) - - (6,481)
Distributions - - - - - - (68,189) (68,189)
Net income - - - - - - 44,602 44,602
---------------------------------------------------------------------- ----------------------
Balance at December 31, 1998 31,759 32 11,500 11 865,692 (181) (37,021) 828,533
---------------------------------------------------------------------- ----------------------
Exercise of stock options 85 - - - 1,275 - - 1,275
Conversion of Operating Partnership
units into common stock 607 1 - - 8,821 - - 8,822
Issuance of common stock to directors 30 - - - 550 (550) - -
Common and preferred stock repurchases
(1,660) (2) (170) - (29,645) - - (29,647)
Amortization of deferred compensation
- - - - - 118 - 118
Unrealized gain on marketable
securities - - - - - - 34 34
Distributions - - - - - - (75,087) (75,087)
Net income - - - - - - 50,286 50,286
---------------------------------------------------------------------- ----------------------
Balance at December 31, 1999 30,821 $ 31 11,330 $ 11 $ 846,693 $ (613) $ (61,788) $ 784,334
====================================================================== ======================
See accompanying notes to consolidated financial statements
</TABLE>
41
<PAGE>
<TABLE>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
--------------- --------------- --------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 50,286 $ 44,602 $ 19,368
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 58,295 50,194 14,873
Amortization of loan fees, included in
interest expense 2,035 1,563 221
Minority interest in income from operations 3,647 2,550 1,119
Equity in earnings of Associated Companies (1,222) (1,314) (2,743)
Net gain on sales of real estate assets and
repayment of notes receivable (9,013) (4,796) (1,491)
Loss on sale of mortgage loan receivable 1,229 - -
(Gain) loss on early extinguishment of debt (984) 1,400 843
Amortization of deferred compensation 118 91 189
Changes in certain assets and liabilities, net (11,098) (6,808) (8,020)
--------------- --------------- --------------
Net cash provided by operating activities 93,293 87,482 24,359
--------------- --------------- --------------
Cash flows from investing activities:
Net proceeds from sales of real estate assets 144,846 73,339 12,950
Additions to real estate assets (51,824) (626,161) (586,965)
Investments in development (9,606) (25,745) -
Investments in joint ventures (5,679) - -
Additions to mortgage loans receivable (2,936) (39,613) (1,855)
Principal receipts on mortgage loans receivable 4,396 885 8,068
Reductions in principal on mortgage loans receivable 2,149 - -
Payments from affiliates 900 - -
Investments in Associated Companies - - (3,700)
Distributions from Associated Companies 625 3,455 2,260
--------------- --------------- --------------
Net cash provided by (used for) investing
activities 82,871 (613,840) (569,242)
--------------- --------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 342,348 696,618 467,689
Repayment of borrowings (347,427) (511,696) (375,909)
Payments into lender impound accounts, net (690) (11,061) (281)
Proceeds from issuance of Senior Notes - 150,000 -
Retirement of Senior Notes (less gain on retirement of
$3,115 in 1999) (55,735) - -
Prepayment penalties on loan payoffs (2,026) - -
Distributions to minority interest holders (7,050) (5,058) (1,571)
Distributions to stockholders (75,087) (68,189) (23,842)
Exercise of stock options 1,275 344 -
Repurchases of common stock (27,129) - -
Repurchases of preferred stock (2,518) - -
Proceeds from issuance of stock, net of offering costs - 274,687 482,512
--------------- --------------- --------------
Net cash provided by (used for) financing
activities (174,039) 525,645 548,598
--------------- --------------- --------------
continued
See accompanying notes to consolitated financial statements
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
For the years ended December 31, 1999, 1998 and 1997
(in thousands)
1999 1998 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $ 2,125 $ (713) $ 3,715
Cash and cash equivalents at beginning of year 4,357 5,070 1,355
--------------- --------------- --------------
Cash and cash equivalents at end of year $ 6,482 $ 4,357 $ 5,070
=============== =============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of
$2,675 and $1,108 in 1999 and 1998, respectively) $ 63,316 $ 46,608 $ 9,373
=============== =============== ==============
Supplemental disclosure of Non-Cash Investing and Financing
Activities:
Acquisition of real estate through assumption of first
trust deed notes payable $ 39,275 $ 358,876 $ 60,628
=============== =============== ==============
Acquisition of real estate through issuance of shares
of common stock and Operating Partnership units $ - $ 52,621 $ 42,177
=============== =============== ==============
Conversion of Operating Partnership units into common
stock, at current market value of common stock $ 8,822 $ - $ -
=============== =============== ==============
See accompanying notes to consolidated financial statements
</TABLE>
43
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 1. ORGANIZATION
Glenborough Realty Trust Incorporated (the "Company") was organized in the State
of Maryland on August 26, 1994. The Company has elected to qualify as a real
estate investment trust ("REIT") under the Internal Revenue Code of 1986, as
amended (the "Code"). The Company completed a consolidation with certain public
California limited partnerships and other entities (the "Consolidation") engaged
in real estate activities (the "GRT Predecessor Entities") through an exchange
of assets of the GRT Predecessor Entities for 5,753,709 shares of Common Stock
of the Company. The Consolidation occurred on December 31, 1995, and the Company
commenced operations on January 1, 1996.
Subsequent to the Consolidation on December 31, 1995, and through December 31,
1999, the following Common Stock transactions occurred: (i) 70,250 shares of
Common Stock were issued to officers and directors as stock compensation; (ii)
25,446,000 shares were issued in four separate public equity offerings; (iii)
453,507 shares were issued in connection with various acquisitions; (iv) 107,414
shares were issued in connection with the exercise of employee stock options;
(v) 650,041 shares were issued in connection with the exchange of Operating
Partnership units; (vi) 1,660,216 shares were repurchased by the Company (see
discussion below) and (vii) 59 shares were retired, resulting in total shares of
Common Stock issued and outstanding at December 31, 1999, of 30,820,646.
Assuming the issuance of 3,615,126 shares of Common Stock issuable upon
redemption of 3,615,126 partnership units in the Operating Partnership, there
would be 34,435,772 shares of Common Stock outstanding as of December 31, 1999.
In January 1998, the Company completed a public offering of 11,500,000 shares of
7-3/4% Series A Convertible Preferred Stock (the "January 1998 Convertible
Preferred Stock Offering"). The shares are convertible at any time at the option
of the holder thereof into shares of Common Stock at an initial conversion price
of $32.83 per share of Common Stock (equivalent to a conversion rate of 0.7615
shares of Common Stock for each share of Series A Convertible Preferred Stock),
subject to adjustment in certain circumstances. Except in certain instances
relating to the preservation of the Company's status as a REIT, the 7-3/4%
Series A Convertible Preferred Stock is not redeemable prior to January 16,
2003. On and after January 16, 2003, the Series A Preferred Stock may be
redeemed at the option of the Company, in whole or in part, initially at 103.88%
of the liquidation preference per share, and thereafter at prices declining to
100% of the liquidation preference on and after January 16, 2008, plus in each
case accumulated, accrued and unpaid dividends, if any, to the redemption date.
Shares of Preferred Stock issued and outstanding at December 31, 1999 totaled
11,330,000. In December 1999, the Company repurchased 170,000 shares of
Preferred Stock (see discussion below).
In July 1998, the Company's Board of Directors adopted a stockholder rights plan
which is intended to protect the Company's stockholders in the event of coercive
or unfair takeover tactics, or an unsolicited attempt to acquire control of the
Company in a transaction the Board of Directors believes is not in the best
interests of the stockholders. Under the plan, the Company declared a dividend
of Rights on its Common Stock. The rights issued under the plan will be
triggered, with certain exceptions, if and when any person or group acquires, or
commences a tender offer to acquire, 15% or more of the Company's shares.
In 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. See discussion of 1999 repurchases above.
44
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
To maintain the Company's qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned, directly or indirectly, by
five or fewer individuals (defined to include certain entities), applying
certain constructive ownership rules. To help ensure that the Company will not
fail this test, the Company's Articles of Incorporation provide for certain
restrictions on the transfer of the Common Stock to prevent further
concentration of stock ownership.
The Company, through its majority owned subsidiaries, is engaged primarily in
the ownership, operation, management, leasing, acquisition, expansion and
development of various income-producing properties. The Company's major
consolidated subsidiary, in which it holds a 1% general partner interest and a
88.50% limited partner interest at December 31, 1999, is Glenborough Properties,
L.P. (the "Operating Partnership"). Each of the holders of the remaining
interests in the Operating Partnership ("OP Units") has the option to redeem its
OP Units and to receive, at the option of the Company, in exchange for each OP
Unit, either (i) one share of common stock of the Company, or (ii) cash equal to
the fair market value of one share of common stock of the Company. As of
December 31, 1999, the Operating Partnership, directly and through various
subsidiaries in which it and the Company own 100% of the ownership interests,
controls a total of 161 real estate projects.
Prior to September 30, 1999, the Operating Partnership held 100% of the
non-voting preferred stock of the following associated companies (the
"Associated Companies"):
Glenborough Corporation ("GC") is the general partner of several real
estate limited partnerships and provides asset and property management
services for these partnerships (the "Managed Partnerships"). It also
provides partnership administration, asset management, property
management and development services to a group of unaffiliated
partnerships, which include three public partnerships sponsored by
Rancon Financial Corporation, an unaffiliated corporation which has
significant real estate assets in the Inland Empire region of Southern
California (the "Rancon Partnerships").
Glenborough Hotel Group ("GHG") owns an approximate 36% limited partner
interest in a real estate joint venture.
Effective September 30, 1999, GHG merged with GC. In the merger, the Operating
Partnership received preferred stock of GC in exchange for its preferred stock
of GHG. The merger was accounted for as a reorganization of entities under
common control.
Following the merger, the Operating Partnership owns 100% of the 47,500 shares
(representing 95% of total outstanding shares) of non-voting preferred stock of
GC. Six individuals, including Sandra Boyle, Frank Austin and Terri Garnick,
executive officers of the Company, own the 2,500 shares (representing 5% of
total outstanding shares) of voting common stock of GC. The Operating
Partnership and GC intend that the Operating Partnership's interest in GC
complies with REIT qualification standards.
The Operating Partnership, through its ownership of preferred stock of GC, is
entitled to receive cumulative, preferred annual dividends of $1.896 per share,
which GC must pay before it pays any dividends with respect to the common stock
of GC. Once GC pays the required cumulative preferred dividend, it will pay any
additional dividends in equal amounts per share on both the preferred stock and
the common stock at 95% and 5%, respectively. Through the preferred stock, the
Operating Partnership is also entitled to receive a preferred liquidation value
of $169.49 per share plus all cumulative and unpaid dividends. The preferred
stock is subject to redemption at the option of GC after December 31, 2005, for
a redemption price of $169.49 per share. As the holder of preferred stock of GC,
the Operating Partnership has no voting power with respect to the election of
the directors of GC; all power to elect directors of GC is held by the owners of
the common stock of GC.
This structure is intended to provide the Operating Partnership with a
significant portion of the economic benefits of the operations of GC. The
Operating Partnership accounts for the financial results of GC using the equity
method.
45
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the consolidated financial
position of the Company as of December 31, 1999 and 1998, and the consolidated
results of operations and cash flows of the Company for the years ended December
31, 1999, 1998 and 1997. All intercompany transactions, receivables and payables
have been eliminated in consolidation.
Reclassification
Certain prior year balances have been reclassified to conform with the current
year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the results of operations during the reporting period. Actual results could
differ from those estimates.
New Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No.
133 was originally effective for fiscal years beginning after June 15, 1999,
with early adoption permitted. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133" was issued
which, among other thing, deferred the final implementation to fiscal years
beginning after June 15, 2000. SFAS No. 133 provides comprehensive guidelines
for the recognition and measurement of derivatives and hedging activities and
specifically requires all derivatives to be recorded on the balance sheet at
fair value. Management is evaluating the effects, if any, that this
pronouncement will have on the Company's consolidated financial position,
results of operations and financial statement position.
Rental Properties
Rental properties are stated at cost unless circumstances indicate that cost
cannot be recovered, in which case, the carrying value of the property is
reduced to estimated fair value. Estimated fair value: (i) is based upon the
Company's plans for the continued operation of each property; and (ii) is
computed using estimated sales price, as determined by prevailing market values
for comparable properties and/or the use of capitalization rates multiplied by
annualized rental income based upon the age, construction and use of the
building. The fulfillment of the Company's plans related to each of its
properties is dependent upon, among other things, the presence of economic
conditions which will enable the Company to continue to hold and operate the
properties prior to their eventual sale. Due to uncertainties inherent in the
valuation process and in the economy, it is reasonably possible that the actual
results of operating and disposing of the Company's properties could be
materially different than current expectations.
Depreciation is provided using the straight line method over the useful lives of
the respective assets.
The useful lives are as follow:
Buildings and Improvements 10 to 40 years
Tenant Improvements Term of the related lease
Furniture and Equipment 5 to 7 years
Real Estate Held for Sale
Real estate held for sale consists of rental properties that are under contract
to be disposed of. The fulfillment of the Company's plans to dispose of property
is dependent upon, among other things, the presence of economic conditions which
will enable the Company to hold the property for eventual sale. The Company
discontinues depreciation of rental property once it is classified as held for
sale.
46
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Investments in Development
The Company, through mezzanine loans and equity contributions, invests in
various development alliances with projects currently under development. The
interest on advances and other direct project costs incurred by the Company are
capitalized to the investment during the period in which the projects are under
development. See Note 6 for further discussion.
Investments in Associated Companies
The Company's investments in the Associated Companies are accounted for using
the equity method, as discussed further in Note 4.
Mortgage Loans Receivable
The Company monitors the recoverability of its loans and notes receivable
through ongoing contact with the borrowers to ensure timely receipt of interest
and principal payments, and where appropriate, obtains financial information
concerning the operation of the properties. Interest on mortgage loans is
recognized as revenue as it accrues during the period the loan is outstanding.
Mortgage loans receivable will be evaluated for impairment if it becomes evident
that the borrower is unable to meet its debt service obligations in a timely
manner and cannot satisfy its payments using sources other than the operations
of the property securing the loan. If it is concluded that such circumstances
exist, then such loan will be considered to be impaired and its recorded amount
will be reduced to the fair value of the collateral securing it. Interest income
will also cease to accrue under such circumstances. Due to uncertainties
inherent in the valuation process, it is reasonably possible that the amount
ultimately realized from the Company's collection on these receivables will be
different than the recorded amounts.
Cash Equivalents
The Company considers short-term investments (including certificates of deposit)
with a maturity of three months or less at the time of investment to be cash
equivalents.
Marketable Securities
The Company records its marketable securities at fair value. Unrealized gains
and losses on securities are reported as a separate component of stockholders'
equity and realized gains and losses are included in net income. As of December
31, 1999, the Company did not hold any marketable securities. As of December 31,
1998, marketable securities with a fair value of approximately $2,639,000 were
included in other assets on the accompanying consolidated balance sheet.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 requires disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Company, the carrying amount of debt approximates fair value.
Certain assumed debt instruments have been recorded at a premium based upon the
stated rate on the instrument and the then available borrowing rates for the
Company. Cash and cash equivalents consist of demand deposits and certificates
of deposit with financial institutions. The carrying amount of cash and cash
equivalents as well as the mortgage loans receivable described above,
approximates fair value.
Derivative Financial Instruments
The Company may use derivative financial instruments in the event that it
believes such instruments will be an effective hedge against fluctuations in
interest rates on a specific anticipated borrowing. Derivative financial
instruments such as forward rate agreements or interest rate swaps may be used
in this capacity. To the extent such instruments do not qualify as hedges, they
will be accounted for on a mark-to-market basis and recorded in earnings each
period as appropriate. The cost of terminated instruments not qualifying as
hedges will be recorded in earnings in the period they are terminated.
Instruments which qualify as hedges upon obtaining the related debt will be
recorded as a premium or discount on the related debt principal and amortized
into earnings over the life of the debt instrument. If the hedged instrument is
retired early, the unamortized discount or premium will be included as a
component of the calculation of gain or loss on retirement.
47
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
At December 31, 1999 and 1998, the Company was not a party to any open interest
rate protection agreements other than the interest rate cap contract entered
into in August 1999 as discussed in Note 7 below.
Deferred Financing and Other Fees
Fees paid in connection with the financing and leasing of the Company's
properties are amortized over the term of the related notes payable or leases
and are included in other assets.
Minority Interest
Minority interest represents the 10.50% limited partner interests in the
Operating Partnership not held by the Company.
Revenues
All leases are classified as operating leases. Rental revenue is recognized as
earned over the terms of the related leases.
For the years ended December 31, 1999, 1998 and 1997, no tenants represented 10%
or more of rental revenue of the Company.
Fees and reimbursements revenue consists of property management fees, overhead
administration fees, and transaction fees from the acquisition, disposition,
refinancing, leasing and construction supervision of real estate for
unconsolidated affiliates.
Revenues are recognized only after the Company is contractually entitled to
receive payment, after the services for which the fee is received have been
provided, and after the ability and timing of payments are reasonably assured
and predictable.
Scheduled rent increases are based primarily on the Consumer Price Index or a
similar factor. Material incentives paid, if any, by the Company to a tenant are
amortized as a reduction of rental income over the life of the related lease.
The Company's portfolio of leases turns over continuously, with the number and
value of expiring leases varying from year to year. The Company's ability to
release the space to existing or new tenants at rates equal to or greater than
those realized historically is impacted by, among other things, the economic
conditions of the market in which a property is located, the availability of
competing space, and the level of improvements which may be required at the
property. No assurance can be given that the rental rates that the Company will
obtain in the future will be equal to or greater than those obtained under
existing contractual commitments.
Income Taxes
The Company has made an election to be taxed as a REIT under Sections 856
through 860 of the Code. As a REIT, the Company generally will not be subject to
Federal income tax to the extent that it distributes at least 95% of its REIT
taxable income to its shareholders. REITs are subject to a number of
organizational and operational requirements. If the Company fails to qualify as
a REIT in any taxable year, the Company will be subject to Federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate tax rates. Even if the Company qualifies for taxation as a
REIT, the Company may be subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.
For the years ended December 31, 1999, 1998 and 1997, 24%, 22% and 0%,
respectively, of the dividends paid to common stockholders represented a return
of capital for income tax purposes. For the years ended December 31, 1999 and
1998, none of the dividends paid to preferred stockholders represented a return
of capital for income tax purposes.
Note 3. RENTAL PROPERTY
The cost and accumulated depreciation of rental property as of December 31, 1999
and 1998 are as follows (in thousands):
48
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Buildings
and Net
Improve- Accumulated Recorded
1999: Land ments Total Cost Depreciation Value
------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Office properties $ 101,974 $ 763,922 $ 865,896 $ (54,886) $ 811,010
Office/Flex properties 48,205 222,838 271,043 (17,295) 253,748
Industrial properties 25,652 96,810 122,462 (10,625) 111,837
Retail properties 15,188 62,440 77,628 (7,130) 70,498
Multifamily properties 47,299 369,859 417,158 (22,420) 394,738
Hotel properties and
other - 7,349 7,349 (1,814) 5,535
------------- --------------- --------------- --------------- ---------------
Total $ 238,318 $ 1,523,218 $ 1,761,536 $ (114,170) $ 1,647,366
============= =============== =============== =============== ===============
Buildings
and Net
Improve- Accumulated Recorded
1998: Land ments Total Cost Depreciation Value
------------- --------------- --------------- --------------- ---------------
Office properties $ 92,166 $ 773,018 $ 865,184 $ (35,318) $ 829,866
Office/Flex properties 54,167 251,714 305,881 (11,443) 294,438
Industrial properties 21,329 115,451 136,780 (10,217) 126,563
Retail properties 20,524 72,654 93,178 (8,369) 84,809
Multifamily properties 46,590 350,011 396,601 (8,796) 387,805
Hotel properties 2,756 24,928 27,684 (8,726) 18,958
============= =============== =============== =============== ===============
Total $ 237,532 $ 1,587,776 $ 1,825,308 $ (82,869) $ 1,742,439
============= =============== =============== =============== ===============
Acquisitions
In the fourth quarter of 1999, through one of its development alliances, the
Company acquired Chase Monroe Phase II, a 96-unit addition to the Company's
existing 120-unit multifamily complex in the Charlotte, North Carolina area. The
total acquisition cost, including third party expenditures incurred for the
purpose of this transaction, was approximately $5 million in cash, including a
$4.4 million advance under the Credit Facility. The development pipeline also
produced Bridgewater II, an 84,000 square foot office building in Northern New
Jersey. The acquisition was structured through an exchange of interests in other
development projects with the same development alliance and involved the
assumption of $10 million in debt. There was no cash involved in the
transaction.
In the third quarter of 1999, the Company acquired all of the real estate assets
of Prudential-Bache/Equitec Real Estate Partnership, a California limited
partnership (the "Pru Bache Portfolio") in which the managing general partner
was Prudential-Bache Properties, Inc., and in which GC and Robert Batinovich,
Chief Executive Officer of the Company served as co-general partners since March
1994. Neither GC nor Robert Batinovich held a material equity or economic
interest in the Pru-Bache Portfolio. The acquisition was unanimously approved by
the Company's independent directors, with Robert Batinovich and Andrew
Batinovich abstaining. The total acquisition cost, including third party
expenditures incurred for the purpose of the transaction, was approximately
$49.1 million, which consisted of (i) approximately $15.2 million of assumed
debt and (ii) the balance in cash, including approximately $21.4 million of
proceeds from the sales of real estate assets and an $11.2 million advance under
the Credit Facility. The Pru-Bache Portfolio consists of four office buildings
and one office/flex property, aggregating 550,592 total square feet and located
in Rockville, Maryland, Memphis, Tennessee, Sacramento, California and Seattle,
Washington.
In the second quarter of 1999, the Company expanded its existing holdings near
Los Angeles International Airport by purchasing a 41,709 square foot industrial
building plus additional land which is the second phase of the project purchased
in the first quarter (see below). This second phase has been leased on a long
term triple net basis to the tenant currently occupying phase one of the
project. The total acquisition cost, including third party expenditures incurred
for the purpose of the transaction, was approximately $5.6 million.
</TABLE>
49
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
In the first quarter of 1999, the Company acquired a 285 unit multifamily
property ("Springs of Indian Creek") located in Carrolton, Texas. The property
is the first phase of a two-phase project comprising a total of 519 units. The
234 unit second phase of the project is currently under construction through one
of the Company's development alliances and is expected to be completed in the
first quarter of the year 2000. The total acquisition cost, including third
party expenditures incurred for the purpose of the transaction, was
approximately $20.8 million comprising: (i) approximately $14.1 million in
assumption of debt and (ii) the balance in cash. In addition, the Company
acquired a 1.45-acre parcel containing 34,500 square feet of industrial
buildings in Los Angeles, California, near the Los Angeles International
Airport. This property is the first phase of a two-phase project. The total
acquisition cost, including third party expenditures incurred for the purpose of
the transaction, was approximately $3.1 million, which was paid entirely in
cash. The property has been leased to a single tenant under a 15-year triple-net
lease.
Dispositions
In the fourth quarter of 1999, the Company sold eight properties, including one
office, two office/flex, five industrial and one building from an office/flex
property. The assets were sold for an aggregate sales price of approximately
$28,697,000 and generated an aggregate net gain of approximately $2,291,000.
In the third quarter of 1999, the Company sold five properties, including two
office, two office/flex and one hotel. The assets were sold for an aggregate
sales price of approximately $19,865,000 and generated an aggregate net loss of
approximately $371,000.
In the second quarter of 1999, the Company sold fourteen properties, including
five office, four office/flex, one retail, two industrial, one multifamily and
one hotel. The assets were sold for an aggregate sales price of approximately
$109,135,000 and generated an aggregate net gain of approximately $5,742,000.
In the first quarter of 1999, the Company sold seven properties, including five
office/flex properties and two retail properties, and a partial interest in a
REIT. These assets were sold for an aggregate sales price of approximately $27.3
million and generated an aggregate net gain of approximately $1,351,000.
These transactions are reflected as the net gain on sales of real estate assets
on the accompanying consolidated statement of income for the year ended December
31, 1999.
The Company leases its commercial and industrial property under non-cancelable
operating lease agreements. Future minimum rents to be received as of December
31, 1999 are as follows (in thousands):
Year Ending
December 31,
2000 $ 173,142
2001 134,000
2002 110,945
2003 89,334
2004 66,933
Thereafter 211,580
----------
$ 785,934
Note 4. INVESTMENTS IN ASSOCIATED COMPANIES
The Company accounts for its investment in GC (as defined in Note 1) using the
equity method as a substantial portion of the economic benefits flow to the
Company by virtue of its 100% non-voting preferred stock interest in GC, which
interest constitutes substantially all of GC's capitalization. Three of the
50
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
holders of the voting common stock of GC are officers of the Company; however,
the Company has no direct voting or management control of GC. The Company
records earnings on its investment in GC equal to its cash flow preference, to
the extent of earnings, plus its pro rata share of remaining earnings, based on
cash flow allocation percentages. Distributions received from GC are recorded as
a reduction of the Company's investments.
As of December 31, 1999 and 1998, the Company had the following investments in
the Associated Companies (in thousands):
GC (1)
Investment at December 31, 1997 $ 10,948
Distributions (3,455)
Equity in earnings 1,314
--------
Investment at December 31, 1998 8,807
Distributions (625)
Equity in earnings (loss) 1,222
--------
Investment at December 31, 1999 $ 9,404
========
Summary condensed balance sheet information as of December 31, 1999 and 1998,
and the condensed statements of income for the years then ended are as follows
(in thousands):
Balance Sheets
GC (1)
As of December 31,
1999 1998
------------ ------------
Investments in management contracts, net $ 3,468 $ 6,332
Investment in real estate joint venture 4,512 4,050
Other assets 8,011 2,647
============ ============
Total assets $ 15,991 $ 13,029
============ ============
Notes payable $ 6,025 $ 3,525
Other liabilities 287 453
------------ ------------
Total liabilities 6,312 3,978
Common stockholders 275 244
Preferred stockholder 9,404 8,807
------------ ------------
Stockholders' equity 9,679 9,051
============ ============
Total liabilities and stockholders' equity $ 15,991 $ 13,029
============ ============
Statements of Income
GC (1)
For the year ended
December 31,
1999 1998
------------ ------------
Revenue $ 8,528 $ 19,942
Expenses 7,247 18,550
============ ============
Net income (loss) $ 1,281 $ 1,392
============ ============
============ ============
Net income allocable to the Company $ 1,222 $ 1,314
============ ============
(1) All amounts presented for GC represent combined amounts for GC and GHG due
to the September 30, 1999 merger, as previously discussed in Note 1.
51
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 5. MORTGAGE LOANS RECEIVABLE
The Company's mortgage loans receivable consist of the following as of December
31, 1999 and 1998 (dollars in thousands):
1999 1998
--------------- ---------------
<S> <C> <C>
Note secured by an office property in Phoenix, AZ, with a fixed interest rate
of 7% (until May 31, 2000, at which time the rate shall change to a fixed
rate of 9%) and a maturity date of May 2001. This note was sold in November
1999 (see below for further discussion). $ - $ 3,484
Note secured by a hotel property in Dallas, TX, with a fixed interest rate of
9%, monthly interest-only payments and a maturity date of March 2000. The
principal amount of this loan was reduced in September 1999 and it was paid
off in December 1999 (see below for further discussion). - 3,600
Note secured by a hotel property in Arlington, TX, with a fixed interest rate
of 9%, monthly interest-only payments and a maturity date of March 2000.
(see below for further discussion). 1,141 -
Note secured by Gateway Park land located in Aurora, CO, with a stated fixed
interest rate of 13%, quarterly interest-only payments and a maturity date of
July 2005 (see below for further discussion). 36,441 35,336
--------------- ---------------
Total $ 37,582 $ 42,420
=============== ===============
In November 1999, a note secured by an office property in Phoenix, Arizona was
sold to a third party at a discount of $1,229,000 and the proceeds of the sale
were invested in the repurchase of preferred stock. This discount is recorded as
a loss on sale of mortgage loan receivable on the accompanying consolidated
statement of income for the year ended December 31, 1999.
In September 1999, the Company sold a hotel property in Arlington, Texas, to a
third party for a sale price of $2.1 million, of which $1.14 million was
represented by a note receivable secured by the hotel property. This note was
paid off in January 2000.
In 1998, the Company sold a hotel property in Dallas, Texas, to a third party
for a sale price of $4.2 million, of which $3.6 million was represented by a
note receivable secured by the hotel property. In September 1999, the loan
agreement was modified to reduce the sale price of the hotel by $1.6 million
and, thus, the principal amount of the note receivable was also reduced by $1.6
million. In addition, the maturity date of the note was extended to March 2000.
This note was paid off in December 1999.
In 1998, the Company entered into a development alliance with The Pauls
Corporation (see Note 6). In addition to this development alliance, the Company
loaned approximately $34 million ($36.4 million, including accrued interest, at
December 31, 1999), secured by a First Mortgage, to continue the build-out of
Gateway Park. In this arrangement, the Company has rights under certain
conditions and subject to certain contingencies to purchase the properties upon
completion of development and, thus, through this arrangement, the Company could
acquire up to 2.2 million square feet of office, office/flex and industrial
space and 1,600 multifamily units over the next ten years.
Contractually due principal payments of the mortgage loans receivable are as
follows (in thousands):
</TABLE>
52
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Year Ending
December 31,
2000 $ 1,141
2001 -
2002 -
2003 -
2004 -
Thereafter 36,441
Total $ 37,582
Note 6. INVESTMENTS IN DEVELOPMENT AND OTHER ASSETS
The Company currently has 3 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 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 June 1999, the Company entered into a joint venture in which it sold a 90%
interest in Rockwall I & II, a 340,252 square foot office complex located in
Rockville, Maryland. The Company maintains a 10% interest in the asset along
with a contract for property management and asset management services under
which the Company is entitled to receive property management fees of 3% of cash
receipts and an annual asset management fee of $350,000. The proceeds from the
sale were used to paydown the Credit Facility (discussed below), to reduce other
secured debt and to repurchase stock. The value of this 10% interest is
approximately $1.4 million and is included in Other Assets on the accompanying
consolidated balance sheet as of December 31, 1999. This investment is accounted
for using the equity method.
In April 1999, the Company also purchased a 10% interest in a joint venture
holding the fee simple title to the land under Rincon Center I & II in San
Francisco, California. The land was purchased from the United States Post Office
for a purchase price of $80.5 million. The land has a triple net ground lease
with a remaining term of 51 years with minimum 30% rental increases every six
years. In October 1999, the joint venture purchased the leasehold improvements
comprising Rincon Center I & II. Occupying a full city block near the waterfront
in the Financial District, Rincon Center I & II contains approximately 700,000
square feet which includes commercial office and retail space, 320 multifamily
units and 381 subterranean parking spaces. The Company took over management and
leasing of the project on November 1, 1999 and is now entitled to receive
property management fees of 1.75% of cash receipts. The book value of this 10%
interest is approximately $4.2 million and is included in Other Assets on the
accompanying consolidated balance sheet as of December 31, 1999. This investment
is accounted for using the equity method.
As of December 31, 1999 and 1998, other assets on the consolidated balance
sheets consists of the following (in thousands):
1999 1998
------------ ------------
Accounts receivable $ 3,856 $ 1,960
Prepaid expenses 8,164 8,157
Impound accounts 12,970 12,280
Deferred costs 20,867 13,120
Investment in joint ventures 5,679 -
Corporate office fixed assets 4,726 4,259
Marketable securities - 2,639
Related party receivable (Note 9) 1,847 -
Other 2,363 3,447
------------ ------------
Total other assets $ 60,472 $ 45,862
============ ============
53
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Note 7. SECURED AND UNSECURED LIABILITIES
The Company had the following mortgage loans, bank lines, and notes payable
outstanding as of December 31, 1999 and 1998 (in thousands):
1999 1998
<S> <C> <C>
Secured loans with various lenders, net of unamortized discount of
$5,515 and $6,140 at December 31, 1999 and 1998, respectively, with
a fixed interest rate of 6.125%, monthly principal and interest
payments ranging between $296 and $458, and a maturity date of
November 10, 2008. These loans are secured by 35 properties with an
aggregate net carrying value of $400,980 and $408,439 at December
31, 1999 and 1998, respectively. $232,735 $234,871
Secured loan with an investment bank with a fixed interest rate of
7.57% and a maturity date of January 1, 2006. This loan was paid
off in March 1999 with the proceeds from a $26 million loan
discussed below. - 13,220
Secured loans with various lenders, bearing interest at fixed rates
between 6.95% and 9.25% (approximately $52,602 of these loans
include an unamortized premium of approximately $285 which reduces
the effective interest rate on those instruments to 6.75%), with
monthly principal and interest payments ranging between $8 and $371
and maturing at various dates through December 1, 2030. These loans
are secured by properties with an aggregate net carrying value of
$547,264 and $576,633 at December 31, 1999 and 1998, respectively. 322,878 335,257
Secured loans with various banks bearing interest at variable rates
ranging between 6.53% and 8.52% at December 31, 1999 and 7.25% and
8.18% at December 31, 1998, monthly principal and interest payments
ranging between $4 and $790 and maturing at various dates through
August 30, 2004. These loans are secured by properties with an
aggregate net carrying value of $224,526 and $179,438 at December
31, 1999 and 1998, respectively. 146,102 125,230
Unsecured $142,500 line of credit with a bank ("Credit Facility")
with a variable interest rate of LIBOR plus 1.625% (7.753% and
7.401% at December 31, 1999 and 1998, respectively), monthly
interest only payments and a maturity date of December 22, 2000,
with one option to extend for 10 years. 70,628 63,519
Unsecured $125,000 term loan with a bank with a variable interest
rate of LIBOR plus 1.75% (8.25% at December 31, 1999), monthly
interest only payments and a maturity date of June 10, 2002. See
below for further discussion. 33,865 -
Unsecured Senior Notes with a fixed interest rate of 7.625%,
interest payable semiannually on March 15 and September 15, and a
maturity date of March 15, 2005. Approximately $58,850 of the notes
were retired in 1999 as discussed below. 91,150 150,000
---------- ---------
Total $ 897,358 $ 922,097
</TABLE>
54
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
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 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 remained
unchanged. Subsequent to December 31, 1999, the maturity date was extended to
June 2002.
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
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
premium 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 (as discussed above), 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, as discussed in Note 8 below.
Some of the Company's properties are held in limited partnerships and limited
liability companies in order to facilitate financing. Such limited partnerships
and limited liability companies are included in the consolidated financial
statements of the Company in accordance with Generally Accepted Accounting
Principles ("GAAP").
The required principal payments on the Company's debt for the next five years
and thereafter, as of December 31, 1999, are as follows (in thousands):
55
<PAGE>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Year Ending
December 31,
2000 $ 102,843 (1)
2001 22,535
2002 118,794 (1)
2003 37,849
2004 125,391
Thereafter 489,946
----------
Total $ 897,358
(1) Subsequent to December 31, 1999, the maturity date on the Credit Facility
was extended from December 2000 to June 2002. The payment schedule has been
updated for this subsequent event and reflects a June 2002 payoff.
Note 8. NET GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT
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 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 writeoff 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. 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 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.
Note 9. RELATED PARTY TRANSACTIONS
Fee and reimbursement income earned by the Company from related entities totaled
$3,312,000, $2,802,000 and $719,000 for the years ended December 31, 1999, 1998
and 1997, respectively, and consisted of property management fees, asset
management fees and other fee income. In addition, the Company paid GC property
management fees and salary reimbursements totaling $1,572,000 and $1,273,000 for
the years ended December 31, 1999 and 1998, respectively, for management of a
portfolio of residential properties owned by the Company, which is included in
property operating expenses and general and administrative expenses on the
accompanying consolidated statements of income.
In 1998, the Company acquired from a Managed Partnership an option to purchase
all of its rights under a Lease with Option to Purchase Agreement, for certain
undeveloped land located in Burlingame, California. Upon expiration of the
option period, the independent members of the Company's Board of Directors
concluded that proceeding with the development of the property would have
required that the Company incur substantial debt. Accordingly, on February 1,
1999, the Company elected not to proceed with the development and not to
exercise the option in return for the Managed Partnership's agreement to
reimburse the Company for $2,309,000 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 the Managed
Partnership from the development and sale of the property. The principal balance
of the note is included in Other Assets on the accompanying consolidated balance
sheet as of December 31, 1999.
Note 10. EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
56
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
No. 128 requires the disclosure of basic earnings per share and modifies
existing guidance for computing diluted earnings per share. Basic earnings per
share is computed as earnings divided by weighted average shares, excluding the
dilutive effects of stock options and other potentially dilutive securities.
Earnings per share are as follows (in thousands, except for weighted average
shares and per share amounts):
Years ended
December 31,
--------------------------------------------------
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Net income available to common
Stockholders - Basic $ 28,006 $ 23,982 $ 19,368
Minority interest 3,647 2,550 1,119
============= ============== =============
Net income available to common
Stockholders - Diluted $ 31,653 $ 26,532 $ 20,487
============= ============== =============
Weighted average shares:
Basic 31,346,568 31,661,810 17,982,817
Stock options 95,026 503,730 281,365
Convertible Operating Partnership Units 4,081,033 3,410,670 1,253,361
============= ============== =============
Diluted 35,522,627 35,576,210 19,517,543
============= ============== =============
Basic earnings per share $ 0.89 $ 0.76 $ 1.08
Diluted earnings per share $ 0.89 $ 0.75 $ 1.05
Note 11. STOCK COMPENSATION PLAN
In May 1996, the Company adopted an employee stock incentive plan (the "Plan")
to provide incentives to attract and retain high quality executive officers and
key employees. Certain amendments to the Plan were ratified and approved by the
stockholders of the Company at the Company's 1997 Annual Meeting of
Stockholders. The Plan, as amended, provides for the grant of (i) shares of
Common Stock of the Company, (ii) options, stock appreciation rights ("SARs") or
similar rights with an exercise or conversion privilege at a fixed or variable
price related to the Common Stock and/or the passage of time, the occurrence of
one or more events, or the satisfaction of performance criteria or other
conditions, or (iii) any other security with the value derived from the value of
the Common Stock of the Company or other securities issued by a related entity.
Such awards include, without limitation, options, SARs, sales or bonuses of
restricted stock, dividend equivalent rights ("DERs"), Performance Units or
Preference Shares. The total number of shares of Common Stock available under
the Plan is equal to the greater of 1,140,000 shares or 8% of the number of
shares outstanding determined as of the day immediately following the most
recent issuance of shares of Common Stock or securities convertible into shares
of Common Stock; provided that the maximum aggregate number of shares of Common
Stock available for issuance under the Plan may not be reduced. For purposes of
calculating the number of shares of Common Stock available under the Plan, all
classes of securities of the Company and its related entities that are
convertible presently or in the future by the security holder into shares of
Common Stock or which may presently or in the future be exchanged for shares of
Common Stock pursuant to redemption rights or otherwise, shall be deemed to be
outstanding shares of Common Stock. Notwithstanding the foregoing, the aggregate
number of shares as to which incentive stock options, one type of security
available under the Plan, may be granted under the Plan may not exceed 1,140,000
shares. In May 1999, the Company's stockholders approved the grant of 700,000
non-qualified stock options to Robert Batinovich and 300,000 non-qualified
options to Andrew Batinovich, outside the Plan. The Company accounts for the
fair value of the options and bonus grants in accordance with APB Opinion No.
25. As of December 31, 1999, 70,250 shares of bonus grants have been issued
under the Plan. The fair value of the shares granted have been recorded as
deferred compensation in the accompanying financial statements and will be
charged to earnings ratably over the respective vesting periods that range from
2 to 5 years. As of December 31, 1999, 3,406,786 options to purchase shares of
Common Stock were outstanding under the Plan and 1,177,000 options were
outstanding outside the Plan, including the 1,000,000 stock options granted to
Robert Batinovich and Andrew Batinovich as described above. The exercise price
</TABLE>
57
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
of each incentive stock option granted is greater than or equal to the per-share
fair market value of the Common Stock on the date the option is granted and, as
such, no compensation expense has been recognized. The options vest over periods
between 1 and 6 years, and have a maximum term of 10 years.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123). As permitted by SFAS 123, the Company has not changed its method of
accounting for stock options but has provided the additional required
disclosures. Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value at the grant dates for awards
under those plans, consistent with the method of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands except for per share amounts).
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net income (loss) As reported 28,006 23,982 19,368
SFAS No. 123 Adjustment (2,380) (1,537) (1,947)
---------------- ---------------- ----------------
Pro forma 25,626 22,445 17,421
Basic earnings per share As reported 0.89 0.76 1.08
SFAS No. 123 Adjustment (0.07) (0.05) (0.11)
---------------- ---------------- ----------------
Pro forma 0.82 0.71 0.97
Diluted earnings per share As reported 0.89 0.75 1.05
SFAS No. 123 Adjustment (0.07) (0.05) (0.10)
---------------- ---------------- ----------------
Pro forma 0.82 0.70 0.95
A summary of the status of the Company's stock option plan as of December 31,
1999, 1998 and 1997, and changes during the years then ended is presented in the
table below:
1999 1998 1997
------------------------------ ---------------------------- -----------------------------
Weighted Weighted Weighted
Shares Avg Shares Avg Shares Avg
Exercise Exercise Exercise
Price Price Price
------------- ------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 3,787,293 $ 24.75 1,708,200 $ 21.03 796,000 $ 15.00
Granted 1,112,000 $ 13.07 2,170,500 $ 27.61 912,200 $ 26.29
Exercised (85,007) $ 15.00 (22,407) $ 15.35 - $ -
Forfeited/Cancelled (230,500) $ 24.18 (69,000) $ 23.25 - $ -
------------- ------------- ------------ ------------ ------------ -------------
Outstanding at end of
year 4,583,786 $ 22.13 3,787,293 $ 24.75 1,708,200 $ 21.03
Exercisable at end of
year 1,152,831 $ 21.69 1,149,343 $ 18.92 356,000 $ 27.29
The following table summarizes information about stock options outstanding at December 31, 1999:
</TABLE>
58
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------- --------------------------------------
Number Weighted-average Weighted- Number Weighted-
Outstanding at remaining average Exercisable at average
12/31/99 contractual life exercise price 12/31/99 exercise price
----------------- --------------------- ----------------- ----------------- ------------------
Range of Exercise Prices
<S> <C> <C> <C> <C> <C>
$11.35 to $15.14 1,610,086 8.1 years $ 13.29 497,832 $ 15.00
$15.14 to $18.92 201,500 6.4 years $ 18.05 20,000 $ 17.00
$18.92 to $22.70 834,600 7.4 years $ 21.49 47,000 $ 20.31
$22.70 to $26.49 102,400 7.3 years $ 25.60 13,999 $ 24.74
$26.49 to $30.27 1,168,533 8.1 years $ 27.73 574,000 $ 27.70
$30.27 to $34.06 333,333 8.8 years $ 32.44 0 $ 0.00
$34.06 to $37.84 333,334 8.8 years $ 37.84 0 $ 0.00
----------------- --------------------- ----------------- ----------------- ------------------
4,583,786 $ 22.13 1,152,831 $ 21.69
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during 1999, 1998 and 1997, respectively: expected
dividend yield of 10.22%, 6.57% and 5.28%, expected volatility of 29.93%, 29.78%
and 27.90% and weighted average risk-free interest rate of 6.44%, 4.61% and
5.74%. Expected lives of 10, 7, 5 and 2 years were used in each of 1999, 1998
and 1997. Based on these assumptions, the weighted average fair value of options
granted would be calculated as $1.33 in 1999, $3.90 in 1998 and $4.52 in 1997.
Compensation cost has been adjusted by 4.54% and 2.00% in 1999 and 1998,
respectively, to account for assumed forfeitures based on historical experience
and management expectations.
Note 12. COMMITMENTS AND CONTINGENCIES
Environmental Matters. The Company follows a policy of monitoring its properties
for the presence of hazardous or toxic substances. The Company is not aware of
any environmental liability with respect to the properties that would have a
material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability could have an adverse effect on the Company's results of operations
and cash flow.
General Uninsured Losses. The Company carries comprehensive liability, fire,
flood, extended coverage and rental loss insurance with policy specifications,
limits and deductibles customarily carried for similar properties. There are,
however, certain types of extraordinary losses which may be either uninsurable,
or not economically insurable. Further, certain of the properties are located in
areas that are subject to earthquake activity. Should a property sustain damage
as a result of an earthquake, the Company may incur losses due to insurance
deductibles, co-payments on insured losses or uninsured losses. Should an
uninsured loss occur, the Company could lose its investment in, and anticipated
profits and cash flows from, a property.
Litigation. Prior to the completion of the Consolidation, two lawsuits were
filed in 1995 contesting the fairness of the Consolidation, one in California
State court and one in federal court. The complaints in both actions alleged,
among other things, breaches by the defendants of fiduciary duties and
inadequate disclosures. The State court action was settled over the objection of
certain parties, and the settlement was approved (or review denied) by the
Superior Court of the State of California in and for San Mateo County, the
California state court of appeals, the California Supreme Court and the Supreme
Court of the United States. In the federal action, the court in December of 1995
deferred all further proceedings pending a ruling in the State court action.
Following the final resolution of the State court action, the defendants in
January 2000 filed a motion to dismiss the federal court action. As of the date
of this report, the plaintiffs had failed to file a timely responsive pleading,
so the defendants intend to move for final dismissal. The Company believes that
it is very unlikely that this litigation would result in a liability that would
exceed the accrued liability by a material amount. However, given the inherent
uncertainties of litigation, there can be no assurance that the ultimate
outcomes of these actions will be favorable to the Company.
</TABLE>
59
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Certain other claims and lawsuits have arisen against the Company in its normal
course of business. The Company believes that such other claims and lawsuits
will not have a material adverse effect on the Company's financial position,
cash flow or results of operations.
Note 13. SEGMENT INFORMATION
The Company owns a diverse portfolio of properties comprising six product types:
office, office/flex, industrial, retail, multifamily and hotels. Each of these
product types represents a reportable segment with distinct uses and tenant
types which require the Company to employ different management strategies. Each
segment contains properties located in various regions and markets within the
United States. The office portfolio consists primarily of suburban office
buildings. The office/flex portfolio consists of properties designed for a
combination of office and warehouse uses. The industrial portfolio consists of
properties designed for warehouse, distribution and light manufacturing for
single-tenant or multi-tenant use. The retail portfolio consists primarily of
community shopping centers anchored with national or regional supermarkets or
drug stores. The properties in the multifamily portfolio are apartment buildings
with units rented to residential tenants on either a month-by-month basis or for
terms of one year or less. The Company's hotel operations are from three limited
service "all-suite" properties leased to and operated by third parties. As of
December 31, 1999, two of these hotel properties have been sold with only one
remaining in the Company's portfolio.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance of
its property types based on net operating income derived by subtracting rental
expenses and real estate taxes (operating expenses) from rental revenues.
Significant information used by the Company for its reportable segments as of
and for the years ended December 31, 1999 and 1998 is as follows (in thousands):
Multi- Hotel and
1999 Office Office/Flex Industrial Retail family Other Total
----------- ------------- ----------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenue $ 120,135 $ 35,772 $ 18,694 $ 11,182 $ 68,144 $ 1,412 $ 255,339
Property operating expenses 46,840 10,184 4,445 3,640 30,570 420 96,099
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 73,295 $ 25,588 $ 14,249 $ 7,542 $ 37,574 $ 992 $ 159,240
=========== ============= =========== =========== ============ ============ =============
Real estate assets, net $ 811,010 $ 253,748 $ 111,837 $ 70,498 $ 394,738 $ 5,535 $1,647,366
=========== ============= =========== =========== ============ ============ =============
1998
Rental revenue $ 117,746 $ 36,987 $ 16,104 $ 12,072 $ 40,865 $ 4,182 $ 227,956
Property operating expenses 44,775 10,898 3,609 3,840 17,235 967 81,324
=========== ============= =========== =========== ============ ============ =============
Net operating income (NOI) $ 72,971 $ 26,089 $ 12,495 $ 8,232 $ 23,630 $ 3,215 $ 146,632
=========== ============= =========== =========== ============ ============ =============
Real estate assets, net $ 829,866 $ 294,438 $ 126,563 $ 84,809 $ 387,805 $ 18,958 $1,742,439
=========== ============= =========== =========== ============ ============ =============
The following is a reconciliation of segment revenues, income and assets to
consolidated revenues, income and assets for the periods presented above (in
thousands):
</TABLE>
60
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<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
1999 1998
---------------- ----------------
Revenues
<S> <C> <C>
Total revenue for reportable segments $ 255,339 $ 227,956
Other revenue (1) 19,641 13,519
================ ================
Total consolidated revenues $ 274,980 $ 241,475
================ ================
Net Income
NOI for reportable segments $ 159,240 $ 146,632
Elimination of internal property management fees 8,062 7,245
Unallocated amounts:
Other revenue (1) 19,641 13,519
General and administrative expenses (9,688) (11,038)
Depreciation and amortization (58,295) (50,194)
Interest expense (64,782) (53,289)
Loss on sale of mortgage loan receivable (1,229) -
Loss on interest rate protection agreement - (4,323)
================ ================
Income from operations before minority interest and
extraordinary item $ 52,949 $ 48,552
================ ================
Assets
Total assets for reportable segments $ 1,647,366 $ 1,742,439
Investments in Development 33,298 35,131
Investments in Associated Companies 9,404 8,807
Mortgage loans receivable 37,582 42,420
Cash and cash equivalents 6,482 4,357
Other assets 60,472 45,862
================ ================
Total consolidated assets $ 1,794,604 $ 1,879,016
================ ================
(1) Other revenue includes fee income, interest and other income, equity in
earnings of Associated Companies, equity in earnings of joint ventures and net
gains on sales of real estate assets.
Note 14. SUBSEQUENT EVENTS
On February 18, 2000, the Company formed a limited liability company (the "LLC")
with an independent third party and contributed its interest in the office
property known as 2000 Corporate Ridge, located in McLean, Virginia. The Company
retains a 10% interest in the LLC. Consideration received for this contribution
included $20.6 million in debt assumption by the LLC and $14.7 million in cash,
which approximates the carrying value of the portion of the property now held by
a third party. Cash proceeds to the Company were funded by the capital
contributions of the third party to the LLC. The LLC agreement provides for,
among other things, a 3% annual management fee to the Company for property
management services, certain asset management fees and certain additional
distributions in excess of its 10% interest, if available, upon the ultimate
sale of the property by the LLC. The Company will account for its interest in
the LLC under the equity method.
In February 2000, the Company entered into sale negotiations and on February 24,
2000, sold its interest in the office/flex property known as Columbia Warehouse,
located in Columbia, Maryland, to an independent third party for all cash
consideration of $1,640,000. This resulted in a loss on sale, to be recognized
in the first quarter of 2000, of approximately $430,000.
Note 15. UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following represents an unaudited summary of quarterly results of operations
for the years ended December 31, 1999 and 1998 (in thousands, except for
weighted average shares and per share amounts):
</TABLE>
61
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Quarter Ended
--------------------------------------------------------------------
March 31, June 30, 1999 Sept 30, Dec 31,
1999 1999 1999
--------------- --------------- --------------- ---------------
REVENUE
<S> <C> <C> <C> <C>
Rental revenue $ 64,641 $ 64,552 $ 62,934 $ 63,212
Fees and reimbursements from affiliates 1,131 743 618 820
Interest and other income 1,659 1,721 1,677 1,347
Equity in earnings (loss) of Associated
Companies 309 (874) 1,777 10
Equity in earnings (loss) of joint ventures - 57 102 (469)
Net gain (loss) on sales of real estate assets 1,351 5,742 (371) 2,291
--------------- --------------- --------------- ---------------
Total revenue 69,091 71,941 66,737 67,211
--------------- --------------- --------------- ---------------
EXPENSES
Property operating expenses 22,001 21,860 22,145 22,031
General and administrative 2,222 2,551 2,281 2,634
Depreciation and amortization 15,092 14,220 14,266 14,717
Interest expense 16,540 16,418 15,720 16,104
Loss on sale of mortgage loan receivable - - - 1,229
--------------- --------------- --------------- ---------------
Total expenses 55,855 55,049 54,412 56,715
--------------- --------------- --------------- ---------------
Income from operations before minority interest and
extraordinary item 13,236 16,892 12,325 10,496
Minority interest (667) (1,529) (888) (563)
--------------- --------------- --------------- ---------------
Net income before extraordinary item 12,569 15,363 11,437 9,933
Extraordinary item:
Gain (loss) on early extinguishment of debt (1,991) 1,688 740 547
--------------- --------------- --------------- ---------------
Net income 10,578 17,051 12,177 10,480
Preferred dividends (5,570) (5,570) (5,570) (5,570)
=============== =============== =============== ===============
Net income available to Common Stockholders $ 5,008 $ 11,481 $ 6,607 $ 4,910
=============== =============== =============== ===============
Basic Per Share Data:
Net income before extraordinary item $ 0.22 $ 0.31 $ 0.19 $ 0.14
Extraordinary item (0.06) 0.05 0.02 0.02
--------------- --------------- --------------- ---------------
Net income available to Common Stockholders $ 0.16 $ 0.36 $ 0.21 $ 0.16
=============== =============== =============== ===============
Basic weighted average shares outstanding 31,764,834 31,664,269 31,020,822 30,948,894
=============== =============== =============== ===============
Diluted Per Share Data:
Net income before extraordinary item $ 0.21 $ 0.31 $ 0.19 $ 0.14
Extraordinary item (0.05) 0.05 0.02 0.02
--------------- --------------- --------------- ---------------
Net income available to Common Stockholders $ 0.16 $ 0.36 $ 0.21 $ 0.16
=============== =============== =============== ===============
Diluted weighted average shares outstanding 36,098,374 35,984,107 35,274,940 34,726,581
=============== =============== =============== ===============
Per share amounts do not necessarily sum to per share amounts for the year as
weighted average shares outstanding are measured for each period presented,
rather than solely for the entire year.
</TABLE>
62
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
Quarter Ended
--------------------------------------------------------------------
March 31, June 30, 1998 Sept 30, Dec 31,
1998 1998 1998
--------------- --------------- --------------- ---------------
REVENUE
<S> <C> <C> <C> <C>
Rental revenue $ 45,963 $ 51,619 $ 65,321 $ 65,053
Fees and reimbursements from affiliates 473 759 1,220 350
Interest and other income 357 246 1,416 2,588
Equity in earnings (loss) of Associated
Companies 352 709 629 (376)
Net gain (reduction in prior quarter gain) on
sales of real estate assets 1,446 693 (250) 2,907
--------------- --------------- --------------- ---------------
Total revenue 48,591 54,026 68,336 70,522
--------------- --------------- --------------- ---------------
EXPENSES
Property operating expenses 14,324 16,265 22,446 21,044
General and administrative 2,222 2,603 3,372 2,841
Depreciation and amortization 10,009 10,934 14,309 14,942
Interest expense 9,145 9,707 17,064 17,373
Loss on interest rate protection agreement - - - 4,323
--------------- --------------- --------------- ---------------
Total expenses 35,700 39,509 57,191 60,523
--------------- --------------- --------------- ---------------
Income from operations before minority interest and
extraordinary item 12,891 14,517 11,145 9,999
Minority interest (678) (596) (635) (641)
--------------- --------------- --------------- ---------------
Net income before extraordinary item 12,213 13,921 10,510 9,358
Extraordinary item:
Loss on early extinguishment of debt - - - (1,400)
--------------- --------------- --------------- ---------------
Net income 12,213 13,921 10,510 7,958
Preferred dividends (3,910) (5,570) (5,570) (5,570)
=============== =============== =============== ===============
Net income available to Common Stockholders $ 8,303 $ 8,351 $ 4,940 $ 2,388
=============== =============== =============== ===============
Basic Per Share Data:
Net income before extraordinary item $ 0.26 $ 0.26 $ 0.16 $ 0.12
Extraordinary item - - - (0.04)
--------------- --------------- --------------- ---------------
Net income available to Common Stockholders $ 0.26 $ 0.26 $ 0.16 $ 0.08
=============== =============== =============== ===============
Basic weighted average shares outstanding 31,548,706 31,648,041 31,703,963 31,743,924
=============== =============== =============== ===============
Diluted Per Share Data:
Net income before extraordinary item $ 0.26 $ 0.26 $ 0.15 $ 0.12
Extraordinary item - - - (0.04)
--------------- --------------- --------------- ---------------
Net income available to Common Stockholders $ 0.26 $ 0.26 $ 0.15 $ 0.08
=============== =============== =============== ===============
Diluted weighted average shares outstanding 34,372,364 34,868,905 36,261,228 36,191,009
=============== =============== =============== ===============
Per share amounts do not necessarily sum to per share amounts for the year as
weighted average shares outstanding are measured for each period presented,
rather than solely for the entire year.
</TABLE>
63
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<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Costs Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- ----------------------------------------------------------------------------------------------------
Office Properties:
<S> <C> <C> <C> <C>
Tradewinds Financial, AZ $ - $ 304 $ 1,214 $ 47
Vintage Pointe, AZ 2,044 738 2,950 248
400 South El Camino Real, CA (8) 4,000 30,549 3,996
Centerstone Plaza, CA (6) 6,077 24,265 315
Gateway Professional Center, CA - 459 4,339 26
Park Plaza, CA - 971 6,226 149
University Tech Center, CA (2) - 2,086 8,046 539
Warner Village Medical, CA - 558 2,232 338
One Gateway Center, CO (9) 470 9,498 (25)
Buschwood III, FL (8) 1,479 5,890 470
Park Place, FL (8) 1,895 12,982 585
Temple Terrace Bus. Center, FL - 1,788 6,949 27
Ashford Perimeter, GA 20,923 1,174 42,227 398
Powers Ferry Landing East, GA 18,548 2,744 40,600 1,532
Capitol Center, IA (8) - 11,981 650
Columbia Center II, IL - 208 20,329 345
Embassy Plaza, IL - 436 15,680 1,343
Oak Brook International, IL (8) 757 11,126 560
Oakbrook Terrace, IL 19,095 552 37,635 275
Crosspoint Four, IN - 394 2,847 58
Meridian Park, IN - 1,296 5,906 860
The Osram Building, IN - 264 4,515 20
Leawood Office Building, KS 4,222 1,124 10,300 138
Blue Ridge Office Building, MA 2,862 734 5,877 296
Bronx Park I, MA - 916 9,104 370
Marlborough Corporate Place, MA - 5,655 55,908 1,064
The Hartwood Building, MA 2,518 527 5,426 121
Westford Corporate Center, MA (6) 2,091 8,310 305
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Office Properties:
<S> <C> <C> <C> <C> <C> <C>
Tradewinds Financial, AZ $ 304 $ 1,261 $ 1,565 $ 158 11/96 1-30 yrs.
Vintage Pointe, AZ 738 3,198 3,936 456 11/96 1-30 yrs.
400 South El Camino Real, CA 4,000 34,545 38,545 3,182 3/98 1-30 yrs.
Centerstone Plaza, CA 6,077 24,580 30,657 2,094 7/97 1-30 yrs.
Gateway Professional Center, CA 459 4,365 4,824 61 7/99 1-30 yrs.
Park Plaza, CA 971 6,375 7,346 94 7/99 1-30 yrs.
University Tech Center, CA (2) 2,086 8,585 10,671 778 6/97 1-30 yrs.
Warner Village Medical, CA 558 2,570 3,128 341 10/96 1-30 yrs.
One Gateway Center, CO 470 9,473 9,943 500 7/98 1-30 yrs.
Buschwood III, FL 1,479 6,360 7,839 541 9/97 1-30 yrs.
Park Place, FL 1,895 13,567 15,462 985 1/98 1-30 yrs.
Temple Terrace Bus. Center, FL 1,788 6,976 8,764 523 12/97 1-30 yrs.
Ashford Perimeter, GA 1,174 42,625 43,799 2,871 1/98 1-30 yrs.
Powers Ferry Landing East, GA 2,744 42,132 44,876 2,852 1/98 1-30 yrs.
Capitol Center, IA 500 12,131 12,631 810 2/98 1-30 yrs.
Columbia Center II, IL 208 20,674 20,882 1,458 1/98 1-30 yrs.
Embassy Plaza, IL 436 17,023 17,459 1,141 1/98 1-30 yrs.
Oak Brook International, IL 757 11,686 12,443 830 1/98 1-30 yrs.
Oakbrook Terrace, IL 552 37,910 38,462 2,529 1/98 1-30 yrs.
Crosspoint Four, IN 394 2,905 3,299 169 4/98 1-30 yrs.
Meridian Park, IN 1,296 6,766 8,062 428 4/98 1-30 yrs.
The Osram Building, IN 264 4,535 4,799 264 4/98 1-30 yrs.
Leawood Office Building, KS 1,124 10,438 11,562 674 3/98 1-30 yrs.
Blue Ridge Office Building, MA 734 6,173 6,907 279 3/98 1-30 yrs.
Bronx Park I, MA 916 9,474 10,390 688 3/98 1-30 yrs.
Marlborough Corporate Place, MA 5,655 56,972 62,627 3,834 1/98 1-30 yrs.
The Hartwood Building, MA 527 5,547 6,074 369 3/98 1-30 yrs.
Westford Corporate Center, MA 2,091 8,615 10,706 786 4/97 1-30 yrs.
(continued)
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- -----------------------------------------------------------------------------------------------------
Office Properties continued:
<S> <C> <C> <C> <C>
Montgomery Exec. Center, MD $ (8) $1,928 $ 7,676 $ 524
Montrose Office Park, MD 15,175 3,871 20,360 72
Riverview Office Tower, MN (6) 4,095 16,333 1,467
University Club Tower, MO - 4,087 14,519 2,735
Woodlands Plaza, MO (6) 1,114 4,426 527
Edinburgh Center, NC (8) 984 14,232 520
One & Three Pacific Place, NE (8) 1,985 18,014 640
25 Independence Blvd., NJ (8) 4,547 18,141 313
Bridgewater II, NJ 10,000 7,309 12,570 -
Bridgewater Exec. Quarters, NJ 4,370 2,075 7,337 21
Executive Place, NJ - 944 11,347 39
Frontier Exec. Quarters I, NJ (8) 4,200 33,892 257
Frontier Exec. Quarters II, NJ (8) 631 5,091 92
Gatehall, NJ - 1,865 7,427 682
Morristown Medical Offices, NJ - 518 1,832 6
Vreeland Business Ctr., NJ - 1,863 8,714 49
Citibank Park, NV (8) 4,628 18,442 1,121
Poplar Towers, TN - 1,688 3,787 181
Thousand Oaks, TN - 9,741 40,355 1,789
2000 Corporate Ridge, VA 20,605 909 41,096 362
700 South Washington, VA (6) 1,981 7,894 581
Cameron Run, VA 10,034 414 18,964 279
Globe Building, WA - 375 1,501 279
- -----------------------------------------------------------------------------------------------------
Office Total 101,449 736,861 27,586
- -----------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Office Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Montgomery Exec. Center, MD $ 1,928 $ 8,200 $ 10,128 $ 760 9/97 1-30 yrs.
Montrose Office Park, MD 3,871 20,432 24,303 340 7/99 1-30 yrs.
Riverview Office Tower, MN 4,095 17,800 21,895 1,726 4/97 1-30 yrs.
University Club Tower, MO 4,087 17,254 21,341 2,324 7/96 1-40 yrs.
Woodlands Plaza, MO 1,114 4,953 6,067 548 4/97 1-30 yrs.
Edinburgh Center, NC 984 14,752 15,736 1,077 1/98 1-30 yrs.
One & Three Pacific Place, NE 1,985 18,654 20,639 1,106 5/98 1-30 yrs.
25 Independence Blvd., NJ 4,547 18,454 23,001 1,528 9/97 1-30 yrs.
Bridgewater II, NJ 7,309 12,570 19,879 131 12/99 1-30 yrs.
Bridgewater Exec. Quarters, NJ 2,075 7,358 9,433 614 9/97 1-30 yrs.
Executive Place, NJ 944 11,386 12,330 569 8/98 1-30 yrs.
Frontier Exec. Quarters I, NJ 4,200 34,149 38,349 2,861 9/97 1-30 yrs.
Frontier Exec. Quarters II, NJ 631 5,183 5,814 435 9/97 1-30 yrs.
Gatehall, NJ 1,865 8,109 9,974 697 9/97 1-30 yrs.
Morristown Medical Offices, NJ 518 1,838 2,356 154 9/97 1-30 yrs.
Vreeland Business Ctr., NJ 1,863 8,763 10,626 511 6/98 1-30 yrs.
Citibank Park, NV 4,628 19,563 24,191 1,549 9/97 1-30 yrs.
Poplar Towers, TN 1,688 3,968 5,656 61 7/99 1-30 yrs.
Thousand Oaks, TN 9,741 42,144 51,885 3,103 12/97 1-30 yrs.
2000 Corporate Ridge, VA 909 41,458 42,367 2,783 1/98 1-30 yrs.
700 South Washington, VA 1,981 8,475 10,456 754 4/97 1-30 yrs.
Cameron Run, VA 439 19,218 19,657 1,311 1/98 1-30 yrs.
Globe Building, WA 375 1,780 2,155 249 10/96 1-30 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Office Total 101,974 763,922 865,896 54,886
- -----------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- -------------------------------------------------------------------------------------------------------
Office/Flex Properties:
<S> <C> <C> <C> <C>
Baseline Business Park, AZ $ - $ 886 $ 3,527 $ 388
Hoover Industrial, AZ - 322 1,290 170
Magnolia Industrial, AZ - 322 1,241 229
Scripps Terrace, CA - 678 2,685 104
Tierrasanta Research Park, CA (8) 1,303 5,189 773
Gateway Eight, CO (9) 442 3,870 30
Gateway Four, CO (10) 523 3,517 (106)
Gateway One, CO 2,376 402 3,608 32
Gateway Six, CO (10) 568 5,040 310
Northglenn Bus. Center, CO - 1,335 3,354 156
Fingerhut Business Center, FL - 1,188 3,282 10
Grand Regency Business Ctr., FL - 1,120 4,302 1,082
Lake Point Business Park, FL (6) 1,344 5,343 340
Primeco Business Center, FL - 950 3,418 12
Oakbrook Corners, GA (8) 1,057 4,209 176
The Business Park, GA (8) 1,485 5,912 599
Covance Business Center, IN - 1,405 15,109 -
Park 100 - Building 42, IN (5) - 712 3,286 (488)
Canton Business Center, MA 3,291 796 6,758 73
Fisher-Pierce, MA (6) 718 2,860 123
Columbia Warehouse, MD - 393 1,565 22
Germantown Business Center, MD (8) 1,442 5,753 23
Bryant Lake Business Center, MN (8) 1,907 7,531 878
Winnetka Industrial Center, MN - 1,189 4,737 188
Woodlands Tech Center, MO (6) 949 3,773 364
Fairfield Business Quarters, NJ 2,675 817 3,479 67
Fox Hollow Bus. Quarters, NJ - 1,576 2,358 126
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Baseline Business Park, AZ $ 886 $ 3,915 $ 4,801 $ 358 9/97 1-30 yrs.
Hoover Industrial, AZ 322 1,460 1,782 175 10/96 1-30 yrs.
Magnolia Industrial, AZ 322 1,470 1,792 162 6/97 1-30 yrs.
Scripps Terrace, CA 678 2,789 3,467 242 9/97 1-30 yrs.
Tierrasanta Research Park, CA 1,303 5,962 7,265 625 9/97 1-30 yrs.
Gateway Eight, CO 442 3,900 4,342 195 7/98 1-30 yrs.
Gateway Four, CO 523 3,411 3,934 174 7/98 1-30 yrs.
Gateway One, CO 402 3,640 4,042 182 7/98 1-30 yrs.
Gateway Six, CO 568 5,350 5,918 329 7/98 1-30 yrs.
Northglenn Bus. Center, CO 1,335 3,510 4,845 256 12/97 1-30 yrs.
Fingerhut Business Center, FL 1,188 3,292 4,480 247 12/97 1-30 yrs.
Grand Regency Business Ctr., FL 1,120 5,384 6,504 537 12/97 1-30 yrs.
Lake Point Business Park, FL 1,344 5,683 7,027 577 4/97 1-30 yrs.
Primeco Business Center, FL 950 3,430 4,380 257 12/97 1-30 yrs.
Oakbrook Corners, GA 1,057 4,385 5,442 384 9/97 1-30 yrs.
The Business Park, GA 1,485 6,511 7,996 596 9/97 1-30 yrs.
Covance Business Center, IN 1,405 15,109 16,514 797 7/98 1-30 yrs.
Park 100 - Building 42, IN (5) 712 2,798 3,510 901 10/86 5-25 yrs.
Canton Business Center, MA 796 6,831 7,627 460 3/98 1-30 yrs.
Fisher-Pierce, MA 718 2,983 3,701 269 4/97 1-30 yrs.
Columbia Warehouse, MD 393 1,587 1,980 119 10/97 1-30 yrs.
Germantown Business Center, MD 1,442 5,776 7,218 481 9/97 1-30 yrs.
Bryant Lake Business Center, MN 1,907 8,409 10,316 664 11/97 1-30 yrs.
Winnetka Industrial Center, MN 1,189 4,925 6,114 411 9/97 1-30 yrs.
Woodlands Tech Center, MO 949 4,137 5,086 481 4/97 1-30 yrs.
Fairfield Business Quarters, NJ 817 3,546 4,363 295 9/97 1-30 yrs.
Fox Hollow Bus. Quarters, NJ 1,576 2,484 4,060 228 9/97 1-30 yrs.
(continued)
</TABLE>
66
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- -----------------------------------------------------------------------------------------------------
Office/Flex Properties continued:
<S> <C> <C> <C> <C>
Palms Business Center III, NV $ (8) $ 3,984 $ 10,207 $ 109
Palms Business Center IV, NV (8) 627 3,272 20
Palms Business Center North, NV (8) 2,492 7,067 192
Palms Business Center South, NV (8) 4,134 9,610 368
Post Palms Business Center, NV - 2,522 9,453 136
Clark Avenue, PA - 649 2,584 59
Lehigh Valley Exec. Campus, PA - 1,748 12,826 415
Valley Forge Corporate Center, PA - 2,614 34,805 (1,376)
Kent Business Park, WA (8) 1,211 4,822 89
Totem Valley Business Center, WA - 2,504 5,262 132
- -----------------------------------------------------------------------------------------------------
Office/Flex Total 48,314 216,904 5,825
- -----------------------------------------------------------------------------------------------------
Industrial Properties:
Fairmont Commerce Center, AZ - 735 2,928 177
Fifth Street Industrial, AZ - 654 2,522 183
Bellanca Airport Park I, CA - 8,687 - -
Coronado Industrial, CA (8) 711 2,831 46
East Anaheim Industrial, CA (8) 1,480 3,282 36
Springdale Commerce Center, CA (8) 1,030 4,101 89
Gateway Nine, CO 4,694 612 4,941 11
Gateway Seven, CO (10) 638 5,143 213
Gateway Ten, CO (9) 524 4,762 36
Gateway Three, CO (10) 508 4,704 39
Gateway Two, CO 3,831 561 4,425 (202)
Atlantic Industrial, GA - 634 3,866 (1,091)
Navistar International, IL (5) - 793 10,941 (4,122)
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- ------------------------------------------------------------------------------------------------------------------------
Office/Flex Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Palms Business Center III, NV $ 3,984 $ 10,316 $ 14,300 $ 780 10/97 1-30 yrs.
Palms Business Center IV, NV 627 3,292 3,919 247 10/97 1-30 yrs.
Palms Business Center North, NV 2,492 7,259 9,751 553 10/97 1-30 yrs.
Palms Business Center South, NV 4,134 9,978 14,112 764 10/97 1-30 yrs.
Post Palms Business Center, NV 2,522 9,589 12,111 731 10/97 1-30 yrs.
Clark Avenue, PA 649 2,643 3,292 223 9/97 1-30 yrs.
Lehigh Valley Exec. Campus, PA 1,748 13,241 14,989 906 1/98 1-30 yrs.
Valley Forge Corporate Center, PA 2,505 33,538 36,043 2,180 1/98 1-30 yrs.
Kent Business Park, WA 1,211 4,911 6,122 417 9/97 1-30 yrs.
Totem Valley Business Center, WA 2,504 5,394 7,898 92 7/99 1-30 yrs.
- ------------------------------------------------------------------------------------------------------------------------
Office/Flex Total 48,205 222,838 271,043 17,295
- ------------------------------------------------------------------------------------------------------------------------
Industrial Properties:
Fairmont Commerce Center, AZ 735 3,105 3,840 244 10/97 1-30 yrs.
Fifth Street Industrial, AZ 654 2,705 3,359 248 6/97 1-30 yrs.
Bellanca Airport Park I, CA 8,687 - 8,687 - 2/99 n/a
Coronado Industrial, CA 711 2,877 3,588 244 9/97 1-30 yrs.
East Anaheim Industrial, CA 1,480 3,318 4,798 251 10/97 1-30 yrs.
Springdale Commerce Center, CA 1,030 4,190 5,220 360 9/97 1-30 yrs.
Gateway Nine, CO 612 4,952 5,564 323 7/98 1-30 yrs.
Gateway Seven, CO 638 5,356 5,994 290 7/98 1-30 yrs.
Gateway Ten, CO 524 4,798 5,322 240 7/98 1-30 yrs.
Gateway Three, CO 508 4,743 5,251 237 7/98 1-30 yrs.
Gateway Two, CO 561 4,223 4,784 217 7/98 1-30 yrs.
Atlantic Industrial, GA 634 2,775 3,409 276 9/97 1-30 yrs.
Navistar International, IL (5) 793 6,819 7,612 2,188 3/84 40 yrs.
(continued)
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- -------------------------------------------------------------------------------------------------------
Industrial Properties continued:
<S> <C> <C> <C> <C>
Park 100 - Building 46, IN (5) $ - $ - $ - $ 212
J.I. Case Equip. Corp., KS (5) - 236 3,264 (1,241)
Flanders Industrial Park, MA - 738 5,634 209
Forest Street Business Center, MA - 227 1,801 39
Southworth-Milton, MA (6) 1,922 7,652 80
Navistar International, MD (5) - 356 4,911 (1,879)
Cottontail Distribution Center, NJ 8,407 1,616 16,278 74
Eatontown Industrial, NJ - 765 1,963 30
Jencraft Industrial, NJ (8) 1,326 4,975 56
J.I. Case Equip. Corp., TN (5) - 187 2,583 (988)
Sea Tac II, WA (5) - 712 1,474 (178)
- -------------------------------------------------------------------------------------------------------
Industrial Total 25,652 104,981 (8,171)
- -------------------------------------------------------------------------------------------------------
Retail Properties:
Sonora Plaza, CA 4,811 1,948 7,781 176
Piedmont Plaza, FL - 1,317 5,233 85
River Run Shopping Ctr., FL - 1,428 5,687 203
Westwood Plaza, FL (5) - 2,599 5,110 2,755
Westbrook Commons, IL (8) 3,067 12,213 718
Broad Ripple Retail Center, IN - 542 3,876 128
Cross Creek Retail Center, IN 4,973 1,516 4,351 201
Geist Retail Centre, IN 4,316 1,012 4,828 194
Woodfield Centre, IN - 765 4,685 232
Goshen Plaza, MD - 994 3,958 26
- -------------------------------------------------------------------------------------------------------
Retail Total 15,188 57,722 4,718
- -------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -----------------------------------------------------------------------------------------------------------------------
Industrial Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Park 100 - Building 46, IN (5) $ - $ 212 $ 212 $ 174 10/86 5-25 yrs.
J.I. Case Equip. Corp., KS (5) 236 2,023 2,259 639 3/84 40 yrs.
Flanders Industrial Park, MA 738 5,843 6,581 399 3/98 1-30 yrs.
Forest Street Business Center, MA 227 1,840 2,067 117 3/98 1-30 yrs.
Southworth-Milton, MA 1,922 7,732 9,654 708 4/97 1-30 yrs.
Navistar International, MD (5) 356 3,032 3,388 960 3/84 40 yrs.
Cottontail Distribution Center, NJ 1,616 16,352 17,968 954 6/98 1-30 yrs.
Eatontown Industrial, NJ 765 1,993 2,758 167 9/97 1-30 yrs.
Jencraft Industrial, NJ 1,326 5,031 6,357 419 9/97 1-30 yrs.
J.I. Case Equip. Corp., TN (5) 187 1,595 1,782 506 3/84 40 yrs.
Sea Tac II, WA (5) 712 1,296 2,008 464 2/86 5-25 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Industrial Total 25,652 96,810 122,462 10,625
- -----------------------------------------------------------------------------------------------------------------------
Retail Properties:
Sonora Plaza, CA 1,948 7,957 9,905 927 11/96 1-30 yrs.
Piedmont Plaza, FL 1,317 5,318 6,635 356 4/97 1-30 yrs.
River Run Shopping Ctr., FL 1,428 5,890 7,318 338 9/97 1-30 yrs.
Westwood Plaza, FL (5) 2,599 7,865 10,464 3,032 1/88 1-30 yrs.
Westbrook Commons, IL 3,067 12,931 15,998 1,070 9/97 1-30 yrs.
Broad Ripple Retail Center, IN 542 4,004 4,546 231 4/98 1-30 yrs.
Cross Creek Retail Center, IN 1,516 4,552 6,068 266 4/98 1-30 yrs.
Geist Retail Centre, IN 1,012 5,022 6,034 291 4/98 1-30 yrs.
Woodfield Centre, IN 765 4,917 5,682 286 4/98 1-30 yrs.
Goshen Plaza, MD 994 3,984 4,978 333 9/97 1-30 yrs.
- -----------------------------------------------------------------------------------------------------------------------
Retail Total 15,188 62,440 77,628 7,130
- -----------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- ------------------------------------------------------------------------------------------------------
Multifamily Properties:
<S> <C> <C> <C> <C>
Overlook Apartments, AZ $ (6) $ 2,274 $ 9,036 $ 295
Stone Ridge at Vinings, GA (11) 1,881 16,942 855
Woodmere Trace, GA 7,183 1,002 9,029 73
Crosscreek Apartments, IN 6,215 701 9,042 99
Harcourt Club Apartments, IN 3,756 437 5,389 191
Island Club Apartments, IN 11,958 713 15,596 219
Arrowood Crossing I & II, NC (8) 1,837 7,222 413
The Chase (Commonwealth), NC 3,143 784 3,083 43
The Chase (Monroe), NC (8) 1,033 4,062 264
The Chase Monroe II, NC 380 4,689 22
Sabal Point I, II & III, NC (8) 3,714 14,602 757
Sharonridge I & II, NC 1,731 527 2,071 (22)
The Courtyard, NC 1,572 438 1,723 35
The Landing on Farmhurst, NC 3,085 841 3,306 30
The Oaks, NC 2,272 644 2,649 (51)
Wendover Glen, NC 2,461 597 2,346 35
Willow Glen, NC (8) 823 3,236 160
Sahara Gardens, NV (8) 1,872 7,500 766
Villas De Mission, NV (8) 1,924 7,695 375
Player's Club of Brentwood, TN (8) 800 7,205 285
Bandera Crossing, TX (11) 675 6,077 207
Bear Creek Crossing, TX (11) 627 5,650 80
Cypress Creek Apartments, TX (11) 732 6,591 361
The Hollows, TX (11) 1,390 12,518 187
Hunterwood, TX (11) 563 5,067 73
Hunter's Chase, TX (11) 2,094 18,857 287
Jefferson Creek, TX (7) 1,889 17,017 171
Jefferson Place, TX (7) 2,620 23,598 226
La Costa, TX (7) 2,826 25,453 201
(continued)
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- ----------------------------------------------------------------------------------------------------------------------
Multifamily Properties:
<S> <C> <C> <C> <C> <C> <C>
Overlook Apartments, AZ $ 2,274 $ 9,331 $ 11,605 $ 875 4/97 1-30 yrs.
Stone Ridge at Vinings, GA 1,881 17,797 19,678 954 6/98 1-30 yrs.
Woodmere Trace, GA 1,002 9,102 10,104 499 6/98 1-30 yrs.
Crosscreek Apartments, IN 701 9,141 9,842 567 4/98 1-30 yrs.
Harcourt Club Apartments, IN 437 5,580 6,017 349 4/98 1-30 yrs.
Island Club Apartments, IN 713 15,815 16,528 981 4/98 1-30 yrs.
Arrowood Crossing I & II, NC 1,837 7,635 9,472 621 12/97 1-30 yrs.
The Chase (Commonwealth), NC 753 3,157 3,910 271 12/97 1-30 yrs.
The Chase (Monroe), NC 1,033 4,326 5,359 354 12/97 1-30 yrs.
The Chase Monroe II, NC 380 4,711 5,091 39 10/99 1-30 yrs.
Sabal Point I, II & III, NC 3,714 15,359 19,073 1,225 12/97 1-30 yrs.
Sharonridge I & II, NC 494 2,082 2,576 176 12/97 1-30 yrs.
The Courtyard, NC 422 1,774 2,196 148 12/97 1-30 yrs.
The Landing on Farmhurst, NC 819 3,358 4,177 263 12/97 1-30 yrs.
The Oaks, NC 600 2,642 3,242 221 12/97 1-30 yrs.
Wendover Glen, NC 561 2,417 2,978 210 12/97 1-30 yrs.
Willow Glen, NC 823 3,396 4,219 282 12/97 1-30 yrs.
Sahara Gardens, NV 1,872 8,266 10,138 933 10/96 1-30 yrs.
Villas De Mission, NV 1,924 8,070 9,994 976 10/96 1-30 yrs.
Player's Club of Brentwood, TN 800 7,490 8,290 419 6/98 1-30 yrs.
Bandera Crossing, TX 675 6,284 6,959 338 6/98 1-30 yrs.
Bear Creek Crossing, TX 627 5,730 6,357 331 6/98 1-30 yrs.
Cypress Creek Apartments, TX 732 6,952 7,684 401 6/98 1-30 yrs.
The Hollows, TX 1,390 12,705 14,095 715 6/98 1-30 yrs.
Hunterwood, TX 563 5,140 5,703 280 6/98 1-30 yrs.
Hunter's Chase, TX 2,094 19,144 21,238 1,042 6/98 1-30 yrs.
Jefferson Creek, TX 1,889 17,188 19,077 912 6/98 1-30 yrs.
Jefferson Place, TX 2,620 23,824 26,444 1,280 6/98 1-30 yrs.
La Costa, TX 2,826 25,654 28,480 1,383 6/98 1-30 yrs.
(continued)
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Cost Capitalized (Reduced)
Initial Cost to Subsequent to
Company (1) Acquisition (4)
Buildings
and
Description Encumbrances Land Improvements Improvements
- ---------------------------------------------------------------------------------------------------
Multifamily Properties continued:
<S> <C> <C> <C> <C>
Longspur, TX $ (11) $ 1,240 $ 11,165 $ 157
North Park Crossing, TX (11) 1,147 10,332 286
Silver Vale Crossing, TX (11) 1,111 10,006 349
Springs of Indian Creek, TX 14,100 1,493 19,359 11
The Park at Woodlake, TX (8) 1,676 15,100 636
Vista Crossing, TX (11) 737 6,643 115
Walnut Creek Crossing, TX (11) 1,286 11,586 140
Willow Brook Crossing, TX (11) 716 6,448 200
Wind River Crossing, TX (11) 1,437 12,939 317
- ---------------------------------------------------------------------------------------------------
Multifamily Total 47,481 360,829 8,848
- ---------------------------------------------------------------------------------------------------
Hotel Properties and Other:
Country Inn & Suites by Carlson:
Scottsdale, AZ 4,035 - 12,117 185
Miscellaneous Investments - - - (4,953)
- ---------------------------------------------------------------------------------------------------
Hotel and Other Total - 12,117 (4,768)
- ---------------------------------------------------------------------------------------------------
Combined Total $ 231,281 $ 238,084 $ 1,489,414 $ 34,038
===================================================================================================
(1) Initial cost and date acquired by GRT Predecessor Entities, where applicable.
(2) The Company holds a participating first mortgage interest in the property.
In accordance with GAAP, the Company is accounting for the property as though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is $1,634,765.
(4) Bracketed amounts represent reductions to carrying value.
(5) Initial Cost represents original book value carried forward from the financial statements of the
GRT Predecessor Entities.
(6) Cross collateralized loan secured by ten properties - $58,059.
(7) Cross collateralized loan secured by three properties - $52,602.
(8) Cross collateralized loans secured by 35 properties - $232,735.
(9) Cross collateralized loan secured by three properties - $15,361.
(10) Cross collateralized loan secured by four properties - $14,077.
(11) Cross collateralized loan secured by 14 properties - $97,600.
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Gross Amount Carried
at December 31, 1999
Buildings (1) Life
and (3) Accumulated Date Depreciated
Description Land Improvements Total Depreciation Acquired Over
- -------------------------------------------------------------------------------------------------------------------------
Multifamily Properties continued:
<S> <C> <C> <C> <C> <C> <C>
Longspur, TX $ 1,240 $ 11,322 $ 12,562 $ 625 6/98 1-30 yrs.
North Park Crossing, TX 1,147 10,618 11,765 592 6/98 1-30 yrs.
Silver Vale Crossing, TX 1,111 10,355 11,466 564 6/98 1-30 yrs.
Springs of Indian Creek, TX 1,493 19,370 20,863 592 2/99 1-30 yrs.
The Park at Woodlake, TX 1,676 15,736 17,412 876 6/98 1-30 yrs.
Vista Crossing, TX 737 6,758 7,495 377 6/98 1-30 yrs.
Walnut Creek Crossing, TX 1,286 11,726 13,012 646 6/98 1-30 yrs.
Willow Brook Crossing, TX 716 6,648 7,364 373 6/98 1-30 yrs.
Wind River Crossing, TX 1,437 13,256 14,693 730 6/98 1-30 yrs.
- -------------------------------------------------------------------------------------------------------------------------
Multifamily Total 47,299 369,859 417,158 22,420
- -------------------------------------------------------------------------------------------------------------------------
Hotel Properties and Other:
Country Inn & Suites by Carlson:
Scottsdale, AZ - 12,302 12,302 1,814 2/97 3-30 yrs.
Miscellaneous Investments - (4,953) (4,953) -
- -------------------------------------------------------------------------------------------------------------------------
Hotel and Other Total - 7,349 7,349 1,814
- -------------------------------------------------------------------------------------------------------------------------
Combined Total $ 238,318 $1,523,218 $ 1,761,536 $ 114,170
=========================================================================================================================
(1) Initial cost and date acquired by GRT Predecessor Entities, where applicable.
(2) The Company holds a participating first mortgage interest in the property.
In accordance with GAAP, the Company is accounting for the property as though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is $1,634,765.
(4) Bracketed amounts represent reductions to carrying value.
(5) Initial Cost represents original book value carried forward from the financial statements of the
GRT Predecessor Entities.
(6) Cross collateralized loan secured by ten properties - $58,059.
(7) Cross collateralized loan secured by three properties - $52,602.
(8) Cross collateralized loans secured by 35 properties - $232,735.
(9) Cross collateralized loan secured by three properties - $15,361.
(10) Cross collateralized loan secured by four properties - $14,077.
(11) Cross collateralized loan secured by 14 properties - $97,600.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(in thousands)
Reconciliation of gross amount at which real estate was carried for the years ended December 31:
1999 1998 1997
----------------- ---------------- -----------------
Rental Property:
<S> <C> <C> <C>
Balance at beginning of year $ 1,825,308 $ 866,431 $ 190,729
Additions during year:
Property acquisitions and
additions 124,726 1,013,170 690,214
Retirements/sales (183,545) (54,293) (14,512)
Miscellaneous (4,953) - -
----------------- ---------------- -----------------
Balance at end of year $ 1,761,536 $ 1,825,308 $ 866,431
================= ================ =================
Accumulated Depreciation:
Balance at beginning of year $ 82,869 $ 41,213 $ 28,784
Additions during year:
Depreciation 56,004 49,450 14,496
Acquisitions - - 443
Retirements/sales (24,703) (7,794) (2,510)
----------------- ---------------- -----------------
Balance at end of year $ 114,170 $ 82,869 $ 41,213
================= ================ =================
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE
December 31, 1999
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D
Description of Loan and
Securing Property Current Periodic
Interest Rate Maturity Date Payment Terms
<S> <C> <C> <C>
First Mortgage Loan Quarterly
Secured by land located interest-only
in Aurora, Colorado 13% 7/1/05 payments
First Mortgage Loan Monthly
secured by land located interest-only
in Arlington, Texas 9% 3/31/00 payments
</TABLE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE
December 31, 1999
(in thousands)
COLUMN A COLUMN E COLUMN F COLUMN G COLUMN H
Carrying
Amount, Principal Amount of
Description of Loan and including Loans Subject to
Securing Property accrued Delinquent
Prior Liens Face Amount interest Principal or Interest
First Mortgage Loan
<S> <C> <C> <C> <C>
Secured by land located
in Aurora, Colorado None $ 34,349 $ 36,441 None
First Mortgage Loan
secured by land located
in Arlington, Texas None $ 1,690 $ 1,141 None
--------------- ---------------
Total $ 36,039 $ 37,582
=============== ===============
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH REALTY TRUST INCORPORATED
SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE
December 31, 1999
(in thousands)
The following is a summary of changes in the carrying amount of mortgage loans
for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997
------------------- ------------------ ------------------
<S> <C> <C> <C>
Balance at beginning of year $ 42,420 $ 3,692 $ 9,905
Additions during year:
New mortgage loans 1,141 39,613 1,855
Interest accruals 1,296
Deductions during year:
Collections of principal (4,396) (885) (8,068)
Reduction in principal (1,600) - -
Loss on sale (1,229) - -
------------------- ------------------ ------------------
Balance at end of year $ 37,582 $ 42,420 $ 3,692
=================== ================== ==================
</TABLE>
73
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH REALTY TRUST INCORPORATED
By: Glenborough Realty Trust Incorporated,
Date: March 1, 2000 /s/ Robert Batinovich
Robert Batinovich
Chairman of the Board
and Chief Executive Officer
Date: March 1, 2000 /s/ Andrew Batinovich
Andrew Batinovich
Director, President and
Chief Operating Officer
Date: March 1, 2000 /s/ Stephen Saul
Stephen Saul
Chief Financial Officer
(Principal Financial Officer)
Date: March 1, 2000 /s/ Terri Garnick
Terri Garnick
Senior Vice President,
Chief Accounting Officer,
Treasurer
(Principal Accounting Officer)
Date: March 1, 2000 /s/ Laura Wallace
Laura Wallace
Director
74
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
3.01 Articles of Amendment and Restatement of Articles of Incorporation of
the Company are incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
3.02 Amended Bylaws of the Company are incorporated herein by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998.
3.03 The Company's Form of Articles Supplementary relating to the 7-3/4%
Series A Convertible Preferred Stock is incorporated herein by
reference to Exhibit 3.03 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
3.04 Articles Supplementary of the Series B Preferred Stock (relating to the
Rights Plan) are incorporated herein by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998.
4.01 Form of Common Stock Certificate of the Company is incorporated herein by
reference to Exhibit 4.02 to the Company's Registration Statement on
Form S-4 (Registration No. 33-83506), which became effective
October 26, 1995.
4.02 Form of 7-3/4% Series A Convertible Preferred Stock Certificate of the
Company is incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form 8-A which was filed on
January 22, 1998.
10.01 Form of Indemnification Agreement for existing Officers and Directors of
the Company is incorporated herein by reference to Exhibit 10.02
to the Company's Registration Statement on Form S-4 (Registration
No. 33-83506), which became effective October 26, 1995.
10.02* Stock Incentive Plan of the Company (amended and restated as of March 20,
1997) is incorporated herein by reference to Exhibit 4.0 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
10.03* Employment Agreement between the Company and Robert Batinovich is
incorporated herein by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
10.04* Employment Agreement between the Company and Andrew Batinovich is
incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
10.05 Rights Agreement, dated as of July 20, 1998, between the Company and the
Registrar and Transfer Company, together with Exhibit A Form of
Rights Certificate; Exhibit B Summary of Rights to Purchase Preferred
Stock; and Exhibit C Form of Articles Supplementary of the Series B
Preferred Stock are incorporated herein by reference to Exhibit 1 to the
Company's Form 8-A, filed on July 16, 1998.
10.06 Registration Agreement between the Company and GPA, Ltd. is incorporated
herein by reference to Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
10.07 Indemnification Agreement for Glenborough Realty Corporation and the
Company, with Robert Batinovich as indemnitor is incorporated
herein by reference to Exhibit 10.31 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
75
<PAGE>
EXHIBIT INDEX - continued
Exhibit
Number Exhibit Title
11.01 Statement re: Computation of Per Share Earnings is shown in Note 10 of the
Consolidated Financial Statements of the Company in Item 14.
12.01 Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to
Fixed Charges and Preferred Dividends
21.01 Significant Subsidiaries of the Registrant
23.01 Consent of Arthur Andersen LLP, independent public accountants
27.01 Financial Data Schedule
* Indicates management contract or compensatory plan or arrangement.
76
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12.01
GLENBOROUGH REALTY TRUST INCORPORATED
Computation of Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Fixed Charges and Preferred Dividends
For the five years ended December 31, 1999 (dollars in thousands)
GRT
Predecessor
Entities, The Company
Combined
-------------- --------------------------------------------------------
Twelve Months Ended December 31,
------------------------------------------------------------------------
1995 1996 1997 1998 1999
-------------- ----------- ----------- ------------ -----------
EARNINGS, AS DEFINED
<S> <C> <C> <C> <C> <C>
Net Income (Loss) before Preferred Dividends(2) $ 524 $ (1,609) $ 19,368 $ 44,602 $ 50,286
Extraordinary items - 186 843 1,400 (984)
Federal & State income taxes 357 - - - -
Minority Interest - 292 1,119 2,550 3,647
Fixed Charges 2,129 3,913 9,668 53,289 64,782
-------------- ----------- ----------- ------------ -----------
$ 3,010 $ 2,782 $ 30,998 $ 101,841 $ 117,731
-------------- ----------- ----------- ------------ -----------
FIXED CHARGES AND PREFERRED DIVIDENDS, AS DEFINED
Interest Expense $ 2,129 $ 3,913 $ 9,668 $ 53,289 $ 64,782
Capitalized Interest - - - 1,108 2,675
Preferred Dividends - - - 20,620 22,280
-------------- ----------- ----------- ------------ -----------
$ 2,129 $ 3,913 $ 9,668 $ 75,017 $ 89,737
RATIO OF EARNINGS TO FIXED CHARGES (3)
1.41 0.71 (1) 3.21 1.87 1.75
-------------- ----------- ----------- ------------ -----------
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
DIVIDENDS (3)
1.41 0.71 (1) 3.21 1.36 1.31
-------------- ----------- ----------- ------------ -----------
(1) For the twelve months ended December 31, 1996, earnings were insufficient
to cover fixed charges by $1,131.
(2) Net Income (Loss) before Preferred Dividends includes depreciation and
amortization expense as a deduction.
(3) Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges
and Preferred Dividends includes depreciation and amortization expense
as a deduction from earnings.
</TABLE>
77
<PAGE>
Exhibit 21.01
SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT
Glenborough Properties, L.P., a California Limited Partnership
78
<PAGE>
Exhibit 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 1, 2000 on the financial statements of Glenborough Realty
Trust Incorporated included in this Form 10-K, into the Company's previously
filed Registration Statement File Nos. 333-27677, 333-28601, 333-34329,
333-40959, 333-49845, 001-14162, 333-61319, 333-08806, 333-67839, 333-70463,
333-78579, 333-79401 and 333-80461.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Francisco, California
March 1, 2000
79
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000929454
<NAME> GLENBOROUGH REALTY TRUST INCORPORATED
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.000
<CASH> 6,482
<SECURITIES> 0
<RECEIVABLES> 3,856
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,338
<PP&E> 1,761,536
<DEPRECIATION> 114,170
<TOTAL-ASSETS> 1,794,604
<CURRENT-LIABILITIES> 23,673
<BONDS> 0
0
11
<COMMON> 31
<OTHER-SE> 784,292
<TOTAL-LIABILITY-AND-EQUITY> 1,794,604
<SALES> 0
<TOTAL-REVENUES> 274,980
<CGS> 0
<TOTAL-COSTS> 88,037
<OTHER-EXPENSES> 71,630
<LOSS-PROVISION> 1,229
<INTEREST-EXPENSE> 64,782
<INCOME-PRETAX> 49,302
<INCOME-TAX> 0
<INCOME-CONTINUING> 49,302
<DISCONTINUED> 0
<EXTRAORDINARY> 984
<CHANGES> 0
<NET-INCOME> 50,286
<EPS-BASIC> 0.89
<EPS-DILUTED> 0.89
</TABLE>
