Glenborough Realty Trust (NYSE:GLB)(GLB PrA) reported the following
results for the second quarter ended June 30, 2005: NET INCOME
(LOSS) AVAILABLE TO COMMON STOCKHOLDERS For the second quarter of
2005, the Company had net income available to common stockholders
of $11.8 million, or $0.33 per diluted common share, as compared
with $8.1 million or $0.26 per share for the second quarter of
2004. The second quarter of 2005 included a $9.3 million gain on
sale, or $0.24 per diluted common share, as compared with a $12.4
million gain on sale, or $0.39 per diluted common share, for the
second quarter of 2004. Year-to-date 2005, the Company had a net
loss available to common stockholders of ($32.8) million or ($0.92)
per diluted common share as compared with net income available to
common stockholders of $8.0 million or $0.26 per diluted common
share for the same period in 2004. FUNDS FROM OPERATIONS (FFO) For
the second quarter of 2005, FFO was $17.5 million or $0.45 per
diluted common share. In comparison, the second quarter 2004 FFO
was $12.1 million or $0.35 per diluted common share. Included in
the second quarter of 2004 were charges of approximately $6.5
million, or $0.19 per diluted common share associated with the
redemption of preferred stock. The charges were approximately $3.5
million for the non-cash write-off of original issuance costs, $2.4
million for the premium paid to redeem the preferred stock and $0.6
million for the stub period dividends paid to the redeemed
preferred stockholders. Excluding these charges, FFO for the second
quarter of 2004 was $18.6 million or $0.53 per diluted common
share. Year-to-date 2005, FFO was ($32.5) million or ($0.83) per
diluted common share as compared with $27.6 million or $0.83 per
diluted common share for the same period in 2004. Included in 2005
are impairment charges of approximately $58.2 million, or $1.49 per
diluted common share; charges of approximately $3.1 million, or
$0.08 per diluted common share related to losses on early
extinguishment of debt; and charges of approximately $5.9 million,
or $0.15 per diluted common share associated with the redemption of
preferred stock. Excluding these charges, FFO was $34.7 million or
$0.89 per diluted common share. Included in year-to-date 2004 FFO
were charges of approximately $8.0 million, or $0.24 per diluted
common share associated with the redemption of preferred stock.
Excluding these charges, FFO was $35.6 million or $1.07 per diluted
common share. RESTATEMENT OF PRIOR RESULTS The Company has
determined that a correction is required in the accounting
treatment for the timing of recording its preferred stock
dividends. The Company's historical accounting has been to record
preferred stock dividends in the period in which they are paid,
rather than the period in which they are declared. In the past, in
management's opinion, this timing difference did not have a
material impact on the Company's financial statements. However, due
to the Company's preferred stock redemption in the first quarter of
2005, the Company anticipates that the timing difference will have
a material impact on its financial statements by the end of 2005.
Therefore, the Company believes that it is now appropriate to
record preferred stock dividends when declared and restate its
financial statements. The correction will require a restatement of
the Company's financial statements for 2002, 2003, 2004 (including
all interim periods for 2004) and the first quarter of 2005. The
restatement will result in a non-cash increase of $0.04 per diluted
common share in net income available to common shareholders and FFO
in 2004 and in 2005. The restatement has no impact on the Company's
previously reported cash flows, net operating income or common
dividends. The restatement does not have an adverse impact on any
covenants associated with its unsecured bank line of credit. The
financial data presented herein reflects this restatement. The
Company will file an amended Form 10-K for 2004 and an amended Form
10-Q for the first quarter of 2005 reflecting this restatement as
soon as is practicable. The impact of the restatement on the
financial data included herein is summarized on the attached
exhibits. PROPERTY DISPOSITIONS During the first quarter, the
Company decided to dispose of assets in its non-core markets and
had accordingly reduced the intended holding period of 21 non-core
assets to two years or less. In the second quarter of 2005, the
Company sold four of these properties for a total consideration of
approximately $30.5 million and recognized gains on sale of $9.3
million. Year-to-date, the Company has sold 7 assets for total
consideration of $126.6 million and recognized gains on sale of
$26.6 million. The Company has acquired one asset for a total
purchase price of $71.7 million. PROPERTY ACQUISITIONS -- CAPITOL
PLACE III The Company announced the pending acquisition of Capitol
Place III in Washington D.C. Capitol Place III consists of a
12-story, Class "A-" office building totaling 212,779 square feet,
located in Washington, D.C.'s Capitol Hill district. The building
is three blocks from the U.S. Capitol building, one block from
Union Station, and is part of Capitol Place, one of the largest
projects in the District of Columbia. Capitol Place is a one
million square foot mixed-use project, located on nearly an entire
city block bounded by New Jersey Avenue, F Street, and First
Street, N.W. The Capitol Place project is composed of four
buildings -- three office buildings and a full service, 264-room
Washington Court Hotel-situated around a central atrium. The
purchase price is approximately $70 million or $329/SF. Andrew
Batinovich, President and CEO commented, "We continue to build our
presence in our top market, Washington D.C., which is projected to
increase to 27% of our portfolio's net operating income with high
quality assets in prime locations like Capitol Place III. We have
been successful at redeploying capital from our dispositions in the
Midwest to further focus in our top markets." Since the Capitol
Place office buildings and the Washington Court Hotel were
developed at the same time, the hotel overlay zone allowed the
adjacent buildings (including Capitol Place III), to increase the
building height from 90 feet (the standard in the District of
Columbia) to 130 feet, a full four floors higher than the standard
office building in the area. This allows for spectacular views of
the U.S. Capitol and downtown Washington, D.C. The project also
includes a two-level underground parking garage. The project is
100% leased to 8 tenants. The building's major tenant is the
Association of American Railroads ("AAR") which leases 135,202
square feet or 67% of the net rentable area through November, 2010.
After relocating various back-office operations to Pueblo,
Colorado, AAR successfully sublet approximately 75% of their space
to 13 tenants; AAR continues to occupy the other 25% of the space.
PROPERTY ACQUISITIONS -- 33 NEW MONTGOMERY The Company also
announced the pending acquisition of 33 New Montgomery a 20-story,
Class "A" office tower located in the San Francisco Financial
District. The building, totaling 241,794 rentable square feet, is
located at the corner of Market and New Montgomery streets adjacent
to the Montgomery Street BART Station offering exceptional access
to San Francisco's multi-modal transportation system. The building
is also located within two blocks of the Transbay Terminal.
Additionally the property is located within 1/2 mile of Interstate
80 and Highway 101 offering access to the East Bay, Oakland and the
Peninsula. The purchase price is $75 million or $310/SF.
Constructed in 1986, the property's highly efficient "L" shaped
floor plates provide up to 12 corner offices per floor with
panoramic bay and city views. The average floor size in the
building is approximately 12,500 square feet which can accommodate
either single or multi-tenant users. The building has ground level
retail space offering tenants on site amenities including full
service banking, ATMs and two food establishments. The property's
prominent location provides outstanding access to a wealth of
amenities, including the Moscone Convention Center, San Francisco
Shopping Center, Union Square, the Sheraton Palace Hotel, Crocker
Galleria Mall, and many other government, retail, cultural, and
recreational amenities. The property's distinguishing design
feature is a 45 foot high signature clock tower situated at the top
of the building. 33 New Montgomery has a two-story granite and
marble lobby and the building features state-of the-art building
systems. The property is 92% leased to a diversified roster of 31
tenants with no single tenant leasing more than 10% of the net
rentable area (the average tenant size is 7,000 SF). Historically,
the property has consistently outperformed the submarket's
occupancy level. The tenant base consists primarily of prominent
professional service oriented companies in the insurance,
government, finance and legal sectors. Andrew Batinovich, President
and CEO commented, "33 New Montgomery is a well located, pedestrian
friendly, mass transit oriented property located in San Francisco's
Financial District. Historically well leased, the acquisition
presents the opportunity to acquire a Class A office building on
Market Street at a significant discount to replacement cost."
PORTFOLIO PERFORMANCE Overall portfolio occupancy increased from
87.6% to 88.3% during the second quarter. Same store office net
operating income declined by 1.8% as compared with the second
quarter of 2004. The Company's largest markets are Washington, D.C.
(21% of net operating income), Southern California (19%), Northern
New Jersey (13%), Boston (12%) and San Francisco (7%). Additional
details on the portfolio can be found in the Company's Supplemental
Report which is available at www.glenborough.com. BALANCE SHEET AND
OPERATING RATIOS At quarter-end, Glenborough had $772.3 million of
debt with a 46% ratio of debt to total market capitalization.
Glenborough's key operating ratios remain strong, with 3.2 times
interest coverage and 2.4 times fixed charge coverage. Floating
rate debt as a percentage of all debt was 16% at quarter-end as
compared to 19% at the end of 2004. DIVIDENDS On June 15th, the
Board of Directors declared a dividend of $0.35 per share of common
stock for the second quarter of 2005. This dividend was paid on
July 15, 2005 to stockholders of record on July 1, 2005.
Additionally, the Board of Directors declared a dividend of
$0.484375 per share on the Company's 7.75% Series A Convertible
Preferred Stock. This dividend was paid on July 15, 2005 to
stockholders of record on June 24, 2005 and represented an
annualized dividend of $1.9375 per share of Preferred Stock. FUNDS
FROM OPERATIONS GUIDANCE Historically, the Company's FFO guidance
has not included the effect of future acquisitions and
dispositions. Due to the potential volume of $200 to $300 million
of sale activity this year, the uncertainty of timing of asset
sales and the timing and ability to reinvest sale proceeds, it is
not meaningful to confirm previously reported 2005 guidance or to
provide updated guidance at this time. The Company will announce,
as appropriate, the completion of significant investment activity
and expects to resume providing earnings guidance later this year.
CONFERENCE CALL Glenborough will host a conference call to discuss
these matters on Tuesday, August 9th, 2005 at 1:30 p.m. Eastern
Time (10:30 a.m. Pacific Time). Interested parties can listen to
the call by calling 1-800-967-7134, confirmation number 5314525
preferably 5-10 minutes before the scheduled time. In addition, a
replay of the call will be available until Friday, August 12th 2005
at 5:00 p.m. Pacific Time at 1-888-203-1112, confirmation number
5314525. Glenborough is a REIT which is focused on owning high
quality, multi-tenant office properties concentrated in Washington
D.C., Southern California, Boston, Northern New Jersey, and
Northern California. The Company has a portfolio of 57 properties
encompassing approximately 10 million square feet as of June 30,
2005. -0- *T SUMMARY FINANCIAL DATA (unaudited; in thousands,
except per share data) QUARTER ENDED YEAR TO DATE
------------------- -------------------- Jun 30 Jun 30 Jun 30 Jun
30 05 04 05 04 ------------------- --------- ---------- (As (As
restated) restated) Net income (loss) $13,653 $17,874 $(23,309)
$22,574 Net income (loss) available to Common Stockholders 11,841
8,079 (32,838) 7,956 Funds from operations (FFO) 17,482 12,104
(32,543) 27,641 Per diluted common share Net income (loss)
available to Common Stockholders $ 0.33 $ 0.26 $ (0.92) $ 0.26
Funds from operations (FFO) 0.45 0.35 (0.83) 0.83 Dividends
declared per common share outstanding $ 0.35 $ 0.35 $ 0.70 $ 0.70
Payout ratio Dividend payout ratio (FFO) 77.8% 100.0% N/A 84.3%
Excluding One-Time Charges Funds from operations (FFO) $ 0.45 $
0.53 $ 0.89 $ 1.07 Dividend payout ratio (FFO) 77.8% 66.0% 78.7%
65.4% GLENBOROUGH REALTY TRUST Consolidated Statements of
Operations (unaudited, in thousands, except share and per share
amounts) For the Three Months For the Six Months Ended Ended
--------------------------------------------------- Jun 30 Jun 30
Jun 30 Jun 30 '05 '04 '05 '04
--------------------------------------------------- (As (As
restated) restated) Operating Revenue Rental revenue $ 40,556 $
38,302 $ 79,969 $ 74,728 Fees and reimbursements, including from
related parties 1,359 1,032 2,454 1,861 ----------- -----------
----------- ----------- Total operating revenue 41,915 39,334
82,423 76,589 ----------- ----------- ----------- -----------
Operating Expenses Property operating expenses 13,305 12,493 27,570
25,377 General and administrative 3,925 3,999 7,210 6,170
Depreciation and amortization 12,990 12,240 26,181 23,751 Provision
for impairment of real estate assets - - 29,810 - -----------
----------- ----------- ----------- Total operating expenses 30,220
28,732 90,771 55,298 ----------- ----------- -----------
----------- Interest and other income 615 638 1,645 1,469 Equity in
earnings of unconsolidated operating joint ventures 169 249 302 437
Interest expense (9,724) (8,104) (18,922) (16,122) Loss on early
extinguishment of debt - - (561) (85) ----------- -----------
----------- ----------- Income (loss) before minority interest,
discontinued operations and cumulative effect of change in
accounting principle 2,755 3,385 (25,884) 6,990 Minority interest
(994) (799) 2,727 (787) ----------- ----------- -----------
----------- Income (loss) before discontinued operations and
cumulative effect of change in accounting principle 1,761 2,586
(23,157) 6,203 Discontinued operations: Net operating income 3,889
7,626 8,249 14,276 General and administrative - (11) - (12)
Depreciation and amortization (1,116) (3,559) (3,768) (7,105)
Provision for impairment of real estate assets - - (28,426) -
Interest expense (55) (1,176) (323) (2,404) Loss on early
extinguishment of debt (135) - (2,513) - Gain on sales of real
estate assets 9,309 12,408 26,629 12,528 ----------- -----------
----------- ----------- Discontinued operations 11,892 15,288 (152)
17,283 ----------- ----------- ----------- ----------- Income
(loss) before cumulative effect of change in accounting principle
13,653 17,874 (23,309) 23,486 Cumulative effect of change in
accounting principle - - - (912) ----------- -----------
----------- ----------- Net income (loss) 13,653 17,874 (23,309)
22,574 Preferred dividends (1,812) (3,318) (3,624) (6,636)
Dividends paid on redeemed preferred stock - (568) (596) (2,073)
Premium and writeoff of original issuance costs on preferred stock
redemption - (5,909) (5,309) (5,909) ----------- -----------
----------- ----------- Net income (loss) available to Common
Stockholders $ 11,841 $ 8,079 $ (32,838) $ 7,956 ===========
=========== =========== =========== Net income (loss) available to
Common Stockholders per diluted common share $ 0.33 $ 0.26 $ (0.92)
$ 0.26 =========== =========== =========== =========== Diluted
weighted average shares outstanding 39,159,087 31,662,622
35,870,534 30,114,060 =========== =========== ===========
=========== GLENBOROUGH REALTY TRUST Reconciliation of Net Income
(Loss) to FFO (unaudited, in thousands, except share and per share
amounts) For the Three Months For the Six Months Ended Ended
--------------------------------------------------- Jun 30 Jun 30
Jun 30 Jun 30 '05 '04 '05 '04
--------------------------------------------------- (As (As
restated) restated) Net income (loss) $ 13,653 $ 17,874 $ (23,309)
$ 22,574 Cumulative effect of change in accounting principle - - -
912 Real estate depreciation and amortization, net of minority
interest 12,724 14,082 27,047 27,476 Preferred dividends (1,812)
(3,318) (3,624) (6,636) Dividends paid on redeemed preferred stock
- (568) (596) (2,073) Premium and writeoff of original issuance
costs on preferred stock redemption - (5,909) (5,309) (5,909) Gain
on sale from discontinued operations, net of minority interest
(8,598) (11,305) (24,587) (11,414) Adjustment to reflect FFO of
unconsolidated operating joint ventures 178 178 357 357 Adjustment
to reflect FFO of minority interest 1,337 1,070 (2,522) 2,354
----------- ----------- ----------- ----------- Funds from
operations available to Common Stockholders and OP Unitholders
(FFO) $ 17,482 $ 12,104 $ (32,543) $ 27,641 =========== ===========
=========== =========== FFO per diluted common share $ 0.45 $ 0.35
$ (0.83) $ 0.83 =========== =========== =========== ===========
Diluted weighted average common shares and OP units outstanding for
calculation of FFO 39,159,087 34,897,007 39,096,165 33,399,172
=========== =========== =========== =========== GLENBOROUGH REALTY
TRUST Consolidated Balance Sheets (unaudited, in thousands, except
share amounts) June December 30, 31, 2005 2004 ----------
---------- (As restated) ASSETS Rental properties, gross $1,205,652
$1,367,310 Accumulated depreciation and amortization (193,199)
(220,229) ---------- ---------- Rental properties, net 1,012,453
1,147,081 Properties held for sale (net of accumulated depreciation
and amortization of $40,889 and $8,864 as of June 30, 2005 and
December 31, 2004, respectively) 119,886 57,327 Investments in land
and development 134,372 147,435 Investments in unconsolidated
operating joint ventures 11,936 12,014 Mortgage loans receivable
11,073 12,872 Leasing and financing costs (net of accumulated
amortization of $15,746 and $17,856 as of June 30, 2005 and
December 31, 2004, respectively) 26,659 24,403 Straight-line rent
receivable (net of allowances of $176 and $528 as of June 30, 2005
and December 31, 2004, respectively) 16,344 15,764 Cash and cash
equivalents 4,832 6,003 Other assets 15,229 10,202 ----------
---------- TOTAL ASSETS $1,352,784 $1,433,101 ========== ==========
LIABILITIES Mortgage loans $ 728,151 $ 654,748 Unsecured bank line
of credit 44,119 21,320 Obligations associated with properties held
for sale 2,848 43,300 Other liabilities 32,865 34,600 ----------
---------- Total liabilities 807,983 753,968 ---------- ----------
MINORITY INTEREST 34,718 39,336 STOCKHOLDERS' EQUITY Common stock,
$0.001 par value, 188,000,000 shares authorized, 36,216,166 and
36,033,126 shares issued and outstanding at June 30, 2005 and
December 31, 2004, respectively 36 36 Preferred stock, $0.001 par
value, 12,000,000 shares authorized, $25.00 liquidation preference,
3,740,277 and 6,850,325 shares issued and outstanding at June 30,
2005 and December 31, 2004, respectively 4 7 Additional paid-in
capital 798,575 870,622 Deferred compensation (3,653) (4,056)
Distributions in excess of accumulated earnings (284,879) (226,812)
---------- ---------- Total stockholders' equity 510,083 639,797
---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$1,352,784 $1,433,101 ========== ========== The impact of the
restatement on the financial data included herein is summarized
below (dollars in thousands): Consolidated Statements of Three
months ended Six months ended Operations: June 30, 2004 June 30,
2004
----------------------------------------------------------------------
Previously As Previously As Reported Restated Reported Restated
------------------ ------------------ Minority Interest $ 667 $ 799
$ 655 $ 787 Preferred dividends $3,318 $3,318 $8,141 $6,636
Dividends paid on redeemed preferred stock $2,073 $ 568 $2,073
$2,073 Net income available to Common Stockholders $6,706 $8,079
$6,583 $7,956 Diluted earnings per share $ 0.21 $ 0.26 $ 0.22 $
0.26 Funds from Operations (FFO): Three months ended Six months
ended June 30, 2004 June 30, 2004
----------------------------------------------------------------------
Previously As Previously As Reported Restated Reported Restated
------------------ ------------------ FFO $10,599 $12,104 $26,136
$27,641 FFO per diluted share $ 0.30 $ 0.35 $ 0.78 $ 0.83
Consolidated Balance Sheet: As of December 31, 2004
----------------------------------------------------------------------
Previously As Reported Restated --------------------- Other
liabilities $ 31,282 $ 34,600 Total liabilities $ 750,650 $ 753,968
Minority interest $ 39,124 $ 39,336 Distributions in excess of
accumulated earnings $(223,282)$(226,812) Total stockholders'
equity $ 643,327 $ 639,797 *T FORWARD LOOKING STATEMENTS: Certain
statements in this press release are forward-looking statements
within the meaning of federal securities laws, including Mr.
Batinovich's statement that the Washington D.C. market will
increase to 27% of our portfolio's net operating income. Because
these forward looking statements involve risk and uncertainty,
there are important factors that could cause our actual results to
differ materially from those stated or implied in the
forward-looking statements. Those important factors include: -- The
failure of the economy to continue its expansion; -- The failure of
the office market to grow with a growing economy; -- Downward
changes in market rental rates for office space; -- Our inability
to locate suitable buyers for our listed assets who are ready,
willing and able to close transactions at the sales price we
anticipate; -- Increased costs of financing cause a reduction in
demand for commercial properties and therefore a reduction in the
market value of the listed assets; -- Lower than expected retention
of existing tenants negatively affects the value of the listed
assets; -- Changes in market rental rates for office space
negatively affect the value of the listed assets; -- The effect of
any future impairment charges associated with asset disposition or
market conditions; and -- Our inability to locate and acquire
suitable property at reasonable prices in our core markets. Given
these uncertainties, readers are cautioned not to place undue
reliance on such statements. All forward-looking statements are
based on information available to us on the date hereof and we
assume no obligation to update or supplement any forward
looking-statement. Additional information concerning factors that
could cause results to differ can be found in our filings with the
SEC including our report on Form 10-K for the year ended December
31, 2004 and our quarterly report on Form 10-Q for the period ended
March 31, 2005. Funds from Operations, or FFO, as defined by
National Association of Real Estate Investment Trusts, represents
net income (loss) (including income and loss from discontinued
operations) excluding minority interest and extraordinary items,
adjusted for real estate related depreciation and amortization and
gains from the disposal of properties. We believe that FFO is a
widely used measure of the operating performance of equity REITs
which provides a relevant basis for comparison among other REITs.
FFO is not meant to represent a comprehensive system of financial
reporting and does not present, nor does Glenborough intend it to
present, a complete picture of its financial condition and
operating performance. Glenborough believes that net earnings
computed under GAAP remains the primary measure of performance and
that FFO is only meaningful when it is used in conjunction with net
earnings computed under GAAP. Further, Glenborough believes that
its consolidated financial statements, prepared in accordance with
GAAP, provide the most meaningful picture of its financial
condition and its operating performance.
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