===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-12566
---------------
G & L REALTY CORP.
(Exact name of Registrant as specified in its charter)
Maryland 95-4449388
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
439 N. Bedford Drive
Beverly Hills, California 90210
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (310)273-9930
---------------
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 .
--- ---
The number of shares outstanding of the Registrant's Common Stock as of
November 12, 1999 was 2,846,700 shares.
================================================================================
G&L REALTY CORP.
INDEX
Page
Part I Financial Information Number
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 (unaudited) and
December 31, 1998.................................................................. 3
Condensed Consolidated Statements of Operations for the Three and Nine Month Periods
Ended September 30, 1999 and 1998 (unaudited)...................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended
September 30, 1999 and 1998 (unaudited)............................................ 5-6
Notes to Condensed Consolidated Financial Statements (unaudited)..................... 7-18
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 19-25
Item 3 Quantitative and Qualitative Disclosures about Market Risk........................... 26
Part II Other Information
Item 1 Legal Proceedings.................................................................... 27
Item 2 Changes in Securities................................................................ 27
Item 3 Defaults Upon Senior Securities...................................................... 27
Item 4 Submission of Matters to a Vote of Security Holders.................................. 27-28
Item 5 Other Information.................................................................... 28
Item 6 Exhibits and Reports on Form 8-K..................................................... 29-33
Signature .................................................................................. 34
Page 2
G&L REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
1999 1998
-----------------------------------
(Unaudited)
ASSETS
------
Rental properties (Note 3):
Land $ 33,799 $ 35,059
Building and improvements, net 146,284 142,531
Projects under development 1,550 9,161
-------- --------
Total rental properties 181,633 186,751
Cash and cash equivalents 7,313 1,379
Restricted cash 8,590 4,007
Tenant rent and reimbursements receivable, net 2,412 2,050
Unbilled rent receivable, net 2,203 1,892
Other receivables, net 214 208
Mortgage loans and notes receivable, net 15,615 12,101
Investments in unconsolidated affiliates (Note 6) 9,724 7,469
Deferred charges and other assets, net (Note 4) 5,134 3,642
-------- --------
TOTAL ASSETS $232,838 $219,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Notes payable $160,961 $134,880
Accounts payable and other liabilities 4,383 2,296
Distributions payable 597 1,768
Tenant security deposits 1,269 1,270
-------- --------
Total liabilities 167,210 140,214
-------- --------
Commitments and Contingencies (Note 8) --- ---
Minority interest in consolidated affiliates (2,098) (2,033)
Minority interest in Operating Partnership 200 1,734
STOCKHOLDERS' EQUITY (Note 5):
Preferred shares - $.01 par value, 10,000,000 shares authorized,
liquidation preference of $25.00 per share
. Series A Preferred - 1,495,000 shares issued and outstanding as of
September 30, 1999 and December 31, 1998 15 15
. Series B Preferred - 1,380,000 shares issued and outstanding as of
September 30, 1999 and December 31, 1998 14 14
Common shares - $.01 par value, 50,000,000 shares authorized, 3,846,700
and 3,995,000 shares issued and outstanding as of September 30, 1999
and December 31, 1998, respectively 38 40
Additional paid-in capital 88,027 91,709
Distributions in excess of net income (20,568) (12,194)
-------- --------
Total stockholders' equity 67,526 79,584
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $232,838 $219,499
======== ========
See accompanying notes to Condensed Consolidated Financial Statements
Page 3
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------------
REVENUES:
Rental $ 7,237 $6,386 $21,213 $18,381
Tenant reimbursements 335 219 945 557
Parking 313 378 851 1,111
Interest, loan fees and related income 833 1,095 2,128 3,418
Other 65 33 355 204
-----------------------------------------------------------------
Total revenues 8,783 8,111 25,492 23,671
-----------------------------------------------------------------
EXPENSES:
Property operations 1,951 1,628 5,617 4,545
Depreciation and amortization 1,473 1,213 4,208 3,356
Interest 3,315 2,210 8,827 6,219
General and administrative 857 545 2,314 1,968
Impairment of long-lived assets 6,400 --- 6,400 ---
-----------------------------------------------------------------
Total expenses 13,996 5,596 27,366 16,088
-----------------------------------------------------------------
(Loss) income from operations (5,213) 2,515 (1,874) 7,583
Equity in (loss) earnings of unconsolidated
affiliates 23 43 (247) 196
Minority interest in consolidated affiliates (46) (46) (135) (161)
Minority interest in Operating Partnership 986 (78) 1,072 (221)
-----------------------------------------------------------------
Net (loss) income $(4,250) $2,434 $(1,184) $ 7,397
=================================================================
Per share data:
Basic $ (1.56) $ 0.15 $ (1.68) $ 0.48
=================================================================
Fully diluted $ (1.56) $ 0.15 $ (1.68) $ 0.48
=================================================================
Weighted average shares outstanding:
Basic 3,889 4,090 3,934 4,112
=================================================================
Fully diluted 3,898 4,125 3,946 4,162
=================================================================
See accompanying notes to Condensed Consolidated Financial Statements
Page 4
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Month Periods Ended September 30,
1999 1998
--------------------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,184) $ 7,397
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 4,208 3,356
Amortization of deferred loan costs 257 139
Impairment of long-lived assets 6,400 ---
Minority interests (937) 382
Equity in loss (income) from unconsolidated affiliates 247 (196)
Unbilled rent receivable, net (311) (332)
Allowance for doubtful notes and accounts receivable 101 ---
(Increase) decrease in:
Other receivables (116) 498
Tenant rent and reimbursements receivable (463) (390)
Prepaid expense and other assets 101 (82)
Accrued interest receivable and loan fees (906) (1,120)
Increase (decrease) in:
Accounts payable and other liabilities 2,087 (363)
Tenant security deposits (1) 150
--------------- --------------
Net cash provided by operating activities 9,483 9,439
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of rental properties --- (21,926)
Additions to rental properties (2,894) (1,220)
Pre-acquisition costs (850) (326)
Construction-in-progress (4,425) (3,410)
Leasing commissions (408) (401)
Investment in notes and bonds receivable (net) (2,709) (5,531)
Investment in marketable securities --- (1,222)
Principal reductions received on notes receivable 101 4,571
Contributions to unconsolidated affiliates (1,017) (2,517)
Disposition of real estate assets 295 ---
Distributions from unconsolidated affiliates 236 ---
--------------- --------------
Net cash used in investing activities (11,671) (31,982)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 47,030 31,507
Repayment of notes payable (20,949) (8,729)
Deferred financing costs (778) (478)
(Increase) decrease in restricted cash (4,583) 3,095
Purchase of common stock and partnership units (1,684) (1,124)
Minority interest contribution --- 196
Distributions (10,914) (11,020)
--------------- --------------
Net cash provided by financing activities 8,122 13,447
--------------- --------------
See accompanying notes to Condensed Consolidated Financial Statements
Page 5
G&L REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended September 30,
1999 1998
-------------------------------
(Unaudited)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,934 (9,096)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,379 13,609
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,313 $ 4,513
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for interest 9,738 $ 6,770
========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Distributions declared not yet paid $ 559 $ 1,776
========= ==========
Transfers from projects under development to building $11,262 ---
========= ==========
Preferred distributions due to minority partner $ 21 ---
========= ==========
The Company acquired an interest in an unconsolidated affiliate
for the following non-cash consideration (Note 1):
Land 947
Construction in progress 775
---------
$ 1,722
=========
The Company exchanged its interest in land and construction in progress
for the following non-cash consideration (Note 1):
Investment in unconsolidated affiliates $ 1,722
=========
See accompanying notes to Condensed Consolidated Financial Statements
Page 6
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
G&L Realty Corp. (the "Company") was formed as a Maryland corporation to
continue the ownership, management, acquisition and development activities
previously conducted by G&L Development, a California general partnership, the
Company's predecessor. All of the Company's assets are held by, and all of its
operations are conducted through, the following entities:
G&L Realty Partnership, L.P., a Delaware limited partnership
(the "Operating Partnership")
G&L Realty Financing Partnership II, L.P., a Delaware limited
partnership (the "Realty Financing Partnership")*
G&L Medical Partnership, L.P., a Delaware limited partnership
(the "Medical Partnership")*
G&L Gardens, LLC, an Arizona limited liability company
("Maryland Gardens")*
435 North Roxbury Drive, Ltd., a California limited partnership
(the "Roxbury Partnership")
GL/PHP, LLC, a Delaware limited liability company ("GL/PHP")*
G&L Hampden, LLC, a Delaware limited liability company
("Hampden")*
G&L Valencia, LLC, a California limited liability company
("Valencia")
G&L Tustin, LLC, a California limited liability company
("Tustin")*
G&L Holy Cross, LLC, a California limited liability company
("Holy Cross")*
G&L Burbank, LLC, a California limited liability company
("Burbank")*
GLH Pacific Gardens, LLC, a California limited liability company
("Pacific Gardens")
G&L Hoquiam, LLC, a California limited liability company
("Hoquiam")
G&L Lyon, LLC, a California limited liability company ("Lyon")
G&L Coronado (1998), LLC, a California limited liability company
("Coronado")
* The Realty Financing Partnership, the Medical Partnership, Maryland
Gardens, GL/PHP, Hampden, Tustin, Holy Cross, and Burbank are herein
collectively referred to as the "Financing Entities" and individually as
a "Financing Entity."
The Company, as the sole general partner and as owner of an approximately
86% ownership interest, controls the Operating Partnership. The Company controls
the Financing Entities through wholly owned subsidiaries incorporated either in
the State of Delaware or the State of California (collectively, the
"Subsidiaries" and individually, a "Subsidiary"). Each Subsidiary either (i)
owns, as sole general partner or sole managing member, a 1% ownership interest
in its related Financing Entity or (ii) owns no interest and acts as the manager
of the Financing Entity. The remaining 99% ownership interest in each Financing
Entity, which is owned 1% by a Subsidiary, is owned by the Operating
Partnership, acting as sole limited partner or member. Financing Entities in
which a Subsidiary owns no interest are 100% owned by the Operating Partnership.
References in these condensed consolidated financial statements to the
Company include its operations, assets and liabilities including the operations,
assets and liabilities of the Operating Partnership, the Subsidiaries, the
Financing Entities, the Roxbury Partnership (in which the Operating Partnership
owns a 61.75% partnership interest and is the sole general partner), Valencia
(in which the Operating Partnership owns an 80% membership interest and is the
sole managing member), Pacific Gardens (in which the Operating Partnership owns
a 93% membership interest and is a co-managing member) and Hoquiam, Lyon and
Coronado (in which the Operating Partnership owns a 100% interest).
In addition to the Subsidiaries, the Company also owns interests in various
unconsolidated affiliates. Although the Company's investment represents a
significant portion of the capital of such unconsolidated affiliates and the
Company exercises significant influence over the activities of these entities,
the Company does not have the requisite level of voting
Page 7
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
control to include the assets, liabilities and operating activities of these
entities in the condensed consolidated financial statements of the Company. The
entities in which the Company has unconsolidated financial interests are as
follows:
. GLN Capital Co., LLC ("GLN"), a Delaware limited liability company formed
in 1996. GLN is owned 49.9% by the Operating Partnership and 50.1% by an
affiliate of Nomura Asset Capital Corp. ("Nomura"). The purpose of GLN is
to fund loans to the senior care industry.
. Valley Convalescent, LLC ("Valley Convalescent") is a California limited
liability company formed by the Company, through the Operating
Partnership, and Continuum Health Incorporated, a Delaware corporation
("Continuum"). Both the Operating Partnership and Continuum hold a 50%
ownership interest in Valley Convalescent. Continuum is the managing
member of Valley Convalescent, which was formed for the purpose of
acquiring the Valley Convalescent Center located in El Centro,
California.
. G&L - Grabel, San Pedro, LLC ("San Pedro") is a California limited
liability company, formed on March 10, 1998 by the Company through the
Operating Partnership, and Gary Grabel, an experienced MOB manager. The
Company and Gary Grabel contributed to San Pedro 84% and 16% of the
equity, respectively. However, the initial ownership interests of the
parties will be adjusted to 50% as each partner receives a return of its
initial capital contribution through preferred distributions. San Pedro
was formed for the purpose of acquiring four MOBs located at 1360 West
6/th/ St. in San Pedro, California.
. G&L Penasquitos, LLC ("Penasquitos LLC") is a California limited
liability company, formed by the Company on April 24, 1998, through the
Operating Partnership, and Parsons House, LLC, a California limited
liability company ("Parsons"). The Company and Parsons contributed to
Penasquitos LLC 75% and 25% of the equity, respectively. However, the
initial ownership interests of the parties will be adjusted to 50% as
each partner receives a return of its initial capital contribution
through preferred distributions. Penasquitos LLC was formed for the
purpose of acquiring and converting a building located in Rancho
Penasquitos, California into a senior care facility.
. G&L Penasquitos, Inc. ("Penasquitos Inc.") is a California corporation
formed on April 21, 1998 by the Company, through the Operating
Partnership, and Parsons House, LLC, a California limited liability
company. The Company owns 75% of the total equity in Penasquitos Inc. in
the form of non-voting preferred stock. Parsons holds 25% of the total
equity and all of the voting common stock. Penasquitos Inc. was formed
for the purpose of operating a senior care facility to be built in Rancho
Penasquitos, California.
. GLH Pacific Gardens Corp. ("Pacific Gardens Corp.") is a California
corporation formed on June 25, 1998 by the Company, through the Operating
Partnership, and ASL Santa Monica, Inc., a California corporation
("ASL"). The Company owns 93% of the total equity in Pacific Gardens
Corp. in the form of non-voting preferred stock. ASL holds 7% of the
total equity in the form of common stock. Pacific Gardens Corp. was
formed for the purpose of operating a senior care facility located in
Santa Monica, California, which was purchased by the Company.
. G&L Parsons on Eagle Run, LLC ("Eagle Run") is a California limited
liability company, formed on December 29, 1998, through the Operating
Partnership and Parsons. The Company and Parsons each contributed 50% of
the total equity in Eagle Run. Eagle Run was formed for the purpose of
acquiring a vacant piece of land in Omaha, Nebraska upon which the
members intend to develop a senior care facility.
. G&L Parsons on Eagle Run, Inc. ("Eagle Run Inc.") is a California
corporation formed on December 20, 1998 by the Company, through the
Operating Partnership, and Parsons. Eagle Run Inc. was formed for the
purpose of operating the senior care facility to be constructed in Omaha,
Nebraska on the land acquired by Eagle Run.
. Lakeview Associates, LLC ("Lakeview") is a California limited liability
company, formed on September 2, 1999 by the Company, through the
Operating Partnership and D.D.&F. ("Prestige"), an Oregon general
partnership. The Company and Prestige each contributed 50% of the total
equity of Lakeview. The Company contributed land and construction in
progress in exchange for 50% of the equity of Lakeview and a $1.4 million
note receivable. Prestige contributed $250,000 for a 50% interest in
Lakeview. Lakeview was formed for the purpose of developing a two story,
80 unit, 92 bed assisted living facility in Yorba Linda, California.
Page 8
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
GLN, Valley Convalescent, San Pedro, Penasquitos Inc., Penasquitos LLC, Pacific
Gardens Corp., Eagle Run and Eagle Run Inc. are herein collectively referred to
as the "Unconsolidated Affiliates" and individually as "Unconsolidated
Affiliate."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company is a self-managed real estate investment trust
("REIT") that acquires, develops, manages, finances and leases health care
properties. The Company's business currently consists of investments in
healthcare properties and in debt obligations secured by healthcare properties.
Investments in healthcare property consists of acquisitions, made either
directly or through joint ventures, in MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate third party acquisitions.
Basis of Presentation - The accompanying condensed consolidated
financial statements include the accounts of the Company. The interests in the
Roxbury Partnership, Valencia and Pacific Gardens not owned by the Company have
been reflected as minority interests. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The information presented as of and for the nine month periods ended
September 30, 1999 and 1998 has not been audited by independent accountants, but
includes all adjustments (consisting of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair presentation of the results
for such periods. The results of operations for the nine months ended September
30, 1999 are not necessarily indicative of results that might be expected for
the full fiscal year.
Certain information and footnote disclosures normally included in
annual financial statements have been omitted. The Company believes that the
disclosures included in these condensed consolidated financial statements are
adequate for a fair presentation and conform to reporting requirements
established by the Securities and Exchange Commission ("SEC"). The condensed
consolidated financial statements as presented herein should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K as filed with the SEC.
Page 9
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
3. BUILDINGS AND IMPROVEMENTS
Buildings and improvements consist of the following:
September 30, December 31,
1999 1998
------------------------------
(in thousands)
Buildings and improvements.............................. $158,750 $152,618
Tenant improvements..................................... 7,384 5,846
Furniture, fixtures and equipment....................... 2,664 2,560
-------- --------
168,798 161,024
Less accumulated depreciation and amortization.......... (22,514) (18,493)
-------- --------
Total.............................................. $146,284 $142,531
======== ========
Rental property is recorded at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the assets as follows:
Buildings and improvements.............. 40 years
Tenant improvements..................... Life of lease
Furniture, fixtures and equipment....... 5 to 7 years
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations and all external costs directly related to
acquisitions are capitalized.
Impairment loss - In September 1999, the Company recorded a non-cash
accounting charge related to the impairment of six New Jersey medical office
buildings owned by the Company as required by SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The fair market value of these buildings were calculated on the basis of
discounted estimated future cash flows and resulted in a write down of the
carrying value of these buildings of $6.4 million. The impairment loss had no
impact on the Company's 1999 cash flow. The decline in value relates to the loss
of rental revenue on these buildings due to the bankruptcy of the former tenant
in November 1998. See Note 8 for further discussion.
4. DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consist of the following:
September 30, December 31,
1999 1998
------------------------------
(in thousands)
Deferred financing costs................................ $ 3,236 $2,558
Pre-acquisition costs................................... 900 49
Leasing commissions..................................... 1,680 1,272
Prepaid expense and other assets........................ 376 478
------- ------
6,192 4,357
Less accumulated amortization........................... (1,058) (715)
------- ------
Total.............................................. $ 5,134 $3,642
======= ======
Page 10
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
5. STOCKHOLDERS' EQUITY
Distributions in excess of net income-- The Company has elected to be
treated, for federal income tax purposes, as a REIT. As such, the Company is
required to distribute annually, in the form of distributions to its
stockholders, at least 95% of its taxable income. In reporting periods in which
distributions exceed net income, stockholders' equity will be reduced by the
distributions in excess of net income in such period and will be increased by
the excess of net income over distributions in reporting periods in which net
income exceeds distributions. For tax reporting purposes, a portion of the
dividends declared represents a return of capital. The following table
reconciles net income and distributions in excess of net income for the nine
months ended September 30, 1999 and for the year ended December 31, 1998:
September 30, December 31,
1999 1998
------------------------------
(in thousands)
Distributions in excess of net income
at beginning of period................................ $(12,194) $ (2,802)
Net (loss) income during period......................... (1,184) 4,343
Minority interest adjustment............................ 1,781 ---
Less: Distributions declared............................ (8,971) (13,735)
-------- --------
Distributions in excess of net income................... $(20,568) $(12,194)
======== ========
Earnings per share--Basic earnings per share is computed by dividing
net income less preferred stock dividends by the weighted average number of
common shares outstanding during each period. Fully diluted earnings per share
is computed by dividing net income less preferred stock dividends by the
weighted average number of common shares outstanding during each year plus the
incremental shares that would have been outstanding upon the assumed exercise of
dilutive stock options. The treasury stock method is used to determine the
number of incremental common equivalent shares resulting from options to
purchase shares of common stock granted under the Company's 1993 Stock Incentive
Plan, as amended. As of September 30, 1999 and 1998 there were approximately
213,500 and 233,500 stock options outstanding with weighted average exercise
prices of $14.49 and $14.61, respectively. For the nine months ended September
30, 1999, the incremental shares that would have been outstanding upon the
assumed exercise of stock options would have been anti-dilutive and, therefore,
were not considered in the computation of fully diluted earnings per share. The
following table reconciles the numerator and denominator of the basic and fully
diluted per share computations for net income for the three and nine months
ended September 30, 1999 and 1998:
Page 11
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Three months ended September 30, Nine months ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------------------------
(in thousands) (in thousands)
Numerator:
- ----------
Net (loss) income $(4,250) $ 2,434 $(1,184) $ 7,397
Preferred stock dividends (1,803) (1,803) (5,409) (5,578)
------- ------- ------- -------
Net (loss) income available to common
stockholders $(6,053) $ 631 $(6,593) $ 1,819
======= ======= ======= =======
Denominator:
- ------------
Weighted average shares - basic 3,889 4,090 3,934 4,112
Dilutive effect of stock options 9 35 12 50
------- ------- ------- -------
Weighted average shares - fully diluted 3,898 4,125 3,946 4,162
======= ======= ======= =======
Per share:
- ----------
Basic $ (1.56) $ 0.15 $ (1.68) $ 0.48
Dilutive effect of stock options --- --- --- ---
------- ------- ------- -------
Fully diluted $ (1.56) $ 0.15 $ (1.68) $ 0.48
======= ======= ======= =======
On September 27, 1999, the Board of Directors reduced the Company's
quarterly Common Stock dividend to $0.125 per share from $0.39 per share.
At various times during the nine months ended September 30, 1999 the
Company repurchased a total of 148,200 shares of the Company's Common Stock at
an average price of approximately $11.28 per share.
Page 12
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company has investments in various unconsolidated affiliates as described in
Note 1. The following table provides a summary of the Company's investment in
each of these entities as of September 30, 1999. (In thousands).
Pacific
Valley San Penasquitos Penasquitos Gardens
GLN Convalescent Pedro LLC Inc. Corp.
-------------------------------------------------------------------------------------------------
Opening balance at beginning
of period..................... $708 $ 76 $1,165 $1,229 $ 270 $(149)
Equity in earnings (loss) of
affiliates.................... 54 (25) 216 40 (277) (163)
Cash contributions............... 9 312 --- 125 113 ---
Cash distributions............... --- (6) (197) --- --- ---
------ -------- -------- -------- ------- -------
Equity, before inter-company
adjustments................... 771 357 1,184 1,394 106 (312)
------ -------- -------- -------- ------- -------
Intercompany transactions:
Receivable, net............... 58 3,376 (27) 213 (1) 110
------ -------- -------- -------- ------- -------
Investment in unconsolidated
affiliates.................... $829 $3,733 $1,157 $1,607 $ 105 $(202)
====== ======== ======== ======== ======= =======
Eagle Run Eagle Run Lakeview
Inc. LLC Associates Total
-----------------------------------------------------
Opening balance at beginning
of period.......................... $150 $650 $ --- $4,099
Equity in earnings (loss) of
affiliates......................... (91) (1) --- (247)
Cash contributions.................... --- 5 250 814
Cash distributions.................... --- --- --- (203)
------- ------ -------- --------
Equity, before inter-company
adjustments........................ 59 654 250 4,463
------- ------ -------- --------
Intercompany transactions:
Receivable, net.................... --- 47 1,485 5,261
------- ------ -------- --------
Investment in unconsolidated
affiliates......................... $ 59 $701 $1,735 $9,724
======= ====== ======== ========
Page 13
G & L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(Unaudited)
Following is a summary of the condensed financial information of each of the
unconsolidated affiliates as of and for the nine months ended September 30,
1999. (In thousands).
Pacific
Valley San Penasquitos Penasquitos Gardens
GLN Convalescent Pedro LLC Inc. Corp.
--------------------------------------------------------------------------------------------
Financial Position:
- ------------------
Land........................... $ --- $ 382 $ 1,882 $ 641 $ --- $ ---
Buildings...................... --- 2,649 4,326 6,551 --- ---
Notes receivable, net.......... 1,572 --- --- --- --- ---
Other assets................... 31 864 311 746 --- ---
Notes payable.................. --- (2,799) (4,833) (6,047) --- ---
Other liabilities.............. (72) (430) (251) (332) (10) (349)
------ ------- ------- ------- ----- -------
Net assets............................ $1,500 $ 666 $ 1,435 $ 1,559 $ (10) $ (349)
====== ======= ======= ======= ===== =======
Partner's equity:
- ----------------
G&L Realty Partnership, L.P.... $ 771 $ 357 $ 1,184 $ 1,394 $ 106 $ (312)
Others......................... 729 309 251 165 (116) (37)
------ ------- ------- ------- ----- -------
Total equity.......................... $1,500 $ 666 $ 1,435 $ 1,559 $ (10) $ (349)
====== ======= ======= ======= ===== =======
Operations:
- ----------
Revenues....................... $ 109 $ 318 $ 874 $ 425 $ 190 $ 1,371
Expenses....................... --- (369) (658) (340) (560) (1,546)
------ ------- ------- ------- ----- -------
Net income (loss)..................... $ 109 $ (51) $ 216 $ 85 $(370) $ (175)
====== ======= ======= ======= ===== =======
Allocation of net income (loss):
- ------------------------------
G&L Realty Partnership, L.P.... $ 54 $ (25) $ 216 $ 40 $(277) $ (163)
Others......................... 55 (26) --- 45 (93) (12)
------ ------- ------- ------- ----- -------
Net income (loss)..................... $ 109 $ (51) $ 216 $ 85 $(370) $ (175)
====== ======= ======= ======= ===== =======
Eagle Run Eagle Run Lakeview
Inc. LLC Associates Total
-----------------------------------------------------
Financial Position:
- ------------------
Land........................... $ --- $ --- $ 947 $ 3,852
Buildings...................... --- --- --- 13,526
Notes receivable, net.......... --- --- --- 1,572
Other assets................... 144 5,570 996 8,631
Notes payable.................. --- (4,081) (1,443) (19,203)
Other liabilities.............. (114) (191) --- (1,649)
----- ------- ------- --------
Net assets............................ $ 130 $ 1,298 $ 500 $ 6,729
===== ======= ======= ========
Partner's equity:
- ----------------
G&L Realty Partnership, L.P.... $ 59 $ 654 $ 250 $ 4,463
Others......................... 71 644 250 2,266
----- ------- ------- --------
Total equity.......................... $ 130 $ 1,298 $ 500 $ 6,729
===== ======= ======= ========
Operations:
- ----------
Revenues....................... $ --- $ --- $ --- $ 3,287
Expenses....................... (170) (2) --- (3,645)
----- ------- ------- --------
Net income (loss)..................... $(170) $ (2) $ --- $ (358)
===== ======= ======= ========
Allocation of net income (loss):
- ------------------------------
G&L Realty Partnership, L.P.... $ (91) $ (1) $ --- $ (247)
Others......................... (79) (1) --- (111)
----- ------- ------- --------
Net income (loss)..................... $(170) $ (2) $ --- $ (358)
===== ======= ======= ========
Page 14
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7. SEGMENT INFORMATION
The Company's business currently consists of investments in healthcare
properties and in debt obligations secured by healthcare properties. Investments
in healthcare properties consist of acquisitions, made either directly or
indirectly through joint ventures, of MOBs or senior care facilities which are
leased to healthcare providers. The Company's lending activities consist of
providing short-term secured loans to facilitate acquisitions of MOBs or senior
care facilities by third parties. The tables on the following pages reconcile
the Company's income and expense activity for the nine months ended September
30, 1999 and 1998 and balance sheet data as of September 30, 1999 for these
segments.
1999 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 1999
Property Debt
Investments Obligations Other Total
------------------------------------------------------
(In thousands)
Revenue:
Rents, tenant reimbursements and parking........ $23,009 $ --- $ --- $23,009
Interest, loan fees and related revenues........ 240 1,783 105 2,128
Other........................................... 355 --- --- 355
------- ------ -------- -------
Total revenues................................ 23,604 1,783 105 25,492
------- ------ -------- -------
Expenses:
Property operations............................. 5,617 --- --- 5,617
Depreciation and amortization................... 4,208 --- --- 4,208
Interest........................................ --- --- 8,827 8,827
General and administrative...................... --- --- 2,314 2,314
Impairment of long-lived assets................. --- --- 6,400 6,400
------- ------ -------- -------
Total expenses................................ 9,825 --- 17,541 27,366
------- ------ -------- -------
Income (loss) from operations before
minority interests.............................. $13,779 $1,783 $(17,436) $(1,874)
======= ====== ======== =======
1998 Reconciliation of Reportable Segment Information
For the nine months ended September 30, 1998
Property Debt
Investments Obligations Other Total
------------------------------------------------------
(In thousands)
Revenue:
Rents, tenant reimbursements and parking....... $20,049 $ --- $ --- $20,049
Interest, loan fees and related revenues....... 140 2,499 779 3,418
Other.......................................... 185 4 15 204
------- ------- ------ -------
Total revenues............................... 20,374 2,503 794 23,671
------- ------- ------ -------
Expenses:
Property operations............................ 4,494 51 --- 4,545
Depreciation and amortization.................. 3,356 --- --- 3,356
Interest....................................... --- --- 6,219 6,219
General and administrative..................... --- --- 1,968 1,968
------- ------- ------- -------
Total expenses............................... 7,850 51 8,187 16,088
------- ------- ------- -------
Income (loss) from operations before
minority interests............................. $12,524 $2,452 $(7,393) $ 7,583
======= ======= ======= =======
Page 15
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
1999 Reconciliation of Reportable Segment Information
As of September 30, 1999
Property Debt
Investments Obligations Other Total
---------------------------------------------------
(In thousands)
Rental properties............................. $181,633 $ --- $ --- $181,633
Mortgage loans and bonds receivable, net...... --- 15,615 --- 15,615
Other assets.................................. 25,084 829 9,677 35,590
-------- ------- ------ --------
Total assets............................. $206,717 $16,444 $9,677 $232,838
======== ======= ====== ========
Other assets:
Cash and cash equivalents................... $ --- $ --- $7,313 $ 7,313
Restricted cash............................. 8,590 --- --- 8,590
Tenant rent and reimbursements receivable,
net....................................... 2,412 --- --- 2,412
Unbilled rent receivable, net............... 2,203 --- --- 2,203
Other receivables, net...................... 214 --- --- 214
Investment in unconsolidated affiliates..... 8,895 829 --- 9,724
Investment in marketable securities......... --- --- --- ---
Deferred financing costs, net............... --- --- 2,364 2,364
Pre-acquisition costs....................... 900 --- --- 900
Deferred lease costs, net................... 1,494 --- --- 1,494
Prepaid expense and other................... 376 --- --- 376
-------- ------- ------ --------
Total other assets....................... $ 25,084 $ 829 $9,677 $ 35,590
======== ======= ====== ========
Capital Expenditures
--------------------
Purchases of real estate assets............. $ --- $ --- $ --- $ ---
Additions to rental properties.............. 2,808 --- 103 2,911
-------- ------- ------ --------
Total capital expenditures............... $ 2,808 $ --- $ 103 $ 2,911
======== ======= ====== ========
8. COMMITMENTS AND CONTINGENCIES
Except as discussed below, neither the Company, any of its consolidated or
unconsolidated affiliates, nor any of the assets within their respective
portfolios of MOBs, senior care facilities, parking facilities, and retail space
is currently a party to any material litigation.
In November 1998, the previous tenant of six MOBs located in New Jersey and
owned by GL/PHP, LLC ("GL/PHP"), a wholly owned subsidiary of the Company,
Pinnacle Health Enterprises, LLC ("Pinnacle"), a subsidiary of PHP Healthcare
Corporation ("PHP"), filed a Chapter 7 bankruptcy petition. Subsequently, PHP
filed a Chapter 7 bankruptcy petition. In December 1998, the Commissioner of the
New Jersey Department of Banking and Insurance (the "Commissioner") took over
the operations of Pinnacle. Pinnacle paid administrative rent through the
bankruptcy proceeding through March 5, 1999. It then elected to terminate the
lease. The Commissioner continued to occupy and lease certain of the buildings
through March 31, 1999. The Commissioner vacated the buildings as of March 31,
1999. GL/PHP has leased one of the buildings, a portion of an additional
building and has a lease proposal for a third building. GL/PHP is attempting to
restructure the loan in order to attempt to preserve its investment in the MOBs.
On May 5, 1999, GL/PHP presented a loan-restructuring plan to Amresco
Management, Inc. ("Amresco"), the loan servicer, in regards to the mortgage
secured by the six MOBs. GL/PHP has been in default on this loan since May 1999.
On May 10, 1999, Amresco rejected the Company's restructuring plan. The Company
has since continued to negotiate with Amresco in seeking an acceptable
resolution of the current problems. On July 6, 1999, Amresco served GL/PHP with
a complaint commencing a judicial foreclosure and requesting the appointment of
a receiver in the Superior Court of New Jersey Chancery Division Bergen County.
On September 15, 1999, the Superior Court ruled in Amresco's favor and appointed
Page 16
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
a receiver for these buildings. A hearing is scheduled for December 17, 1999 in
the Superior Court for a summary judgement motion. If the Court grants the
motion, title to the buildings will transfer to Amresco early next year. A non-
cash impairment loss of $6.4 million was recorded in September 1999 to reflect
the decline in value of these buildings as a result of the loss of current and
future rental revenue as a result of the Pinnacle and PHP bankruptcies. See Note
3 for further discussion of the $6.4 million impairment loss.
The Company has been informed by Tokai Bank of California that as of June
30, 1999 the Company was in default on its $4.6 million unsecured line of credit
due to a loan covenant violation. Tokai Bank has informed the Company that it
has waived the loan covenant for each of these periods. The loan covenant
requires that the Company maintain a ratio of EBITDA less distributions to debt
service of at least 1.20 to 1.0. While the Company may not meet the requirements
of this loan covenant at the end of 1999, the Company believes that the
reduction in the Common Stock dividend will allow the Company to comply with the
loan covenant in the future.
9. RELATED PARTY TRANSACTIONS
On May 4, 1999, the Company sold a vacant parcel of real property for $1.6
million to the Craig Corporation, whose president is S. Craig Tompkins, a
director of the Company. The Company had the option to repurchase the property
beginning on November 15, 1999 and ending on December 3, 1999 for $1.8 million
plus any costs incurred by the Craig Corporation with respect to the property.
The option was exercised early on November 2, 1999 for $1.76 million.
On December 31, 1998, the Company acquired a property in Coronado,
California from a company owned by Daniel M. Gottlieb and Steven D. Lebowitz,
both directors and officers of the Company, in exchange for the assumption of
$7.5 million in mortgage debt and the issuance of $2.0 million of Operating
Partnership Units. In the third quarter of 1999, Messrs. Gottlieb and Lebowitz
returned approximately $110,000 worth of Operating Partnership Units, including
any dividends paid on the Operating Partnership Units, in full satisfaction of
outstanding debts relating to the property prior to its acquisition by the
Company.
10. SUBSEQUENT EVENTS
On October 1, 1999, the Company made a tender offer for up to 1.0 million
shares, or approximately 26%, of its outstanding Common Stock at a purchase
price of $10.50 per share. The purpose of the offer was to provide liquidity for
those stockholders whose investment objectives may be inconsistent with the
Company's new dividend policy. The offer expired on October 29, 1999. On
November 4, 1999, the Company announced that 2,047,756 shares of Common Stock
had been validly tendered and that the Company would repurchase 1.0 million
shares, or approximately 48.7% of the shares tendered. The transaction is
expected to cost the Company approximately $10.9 million including offering
fees, and will be financed with existing cash balances and proceeds from the
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts and discussed below.
On October 1, 1999, the Company sold a 50% tenants-in-common interest in a
23,000 square foot medical office building the Company is currently constructing
in Aliso Viejo, California to Triad/SCP Partners, LLC, whose President is Joseph
D. Carroll, a former officer of the Company, for $2.85 million. The purchase
price consisted of $1.05 million in cash and the assumption of $1.8 million in
mortgage debt.
On October 22, 1999, the Company obtained a $4.2 million loan secured by
the 23,000 square foot medical office building discussed above. The loan bears
interest at a rate equal to LIBOR plus 3.40% and is due on November 1, 2002. The
lender escrowed $0.6 million to be used for tenant improvements. The building is
expected to open in the first quarter of 2000.
On October 26, 1999, Hoag Memorial Hospital Presbyterian ("Hoag") exercised
its option to purchase for $9.6 million the Company's 33,000 square foot medical
office building located in Aliso Viejo, California. The building is 100% leased
to Hoag. The Company expects to recognize a gain on the sale of the building of
$2.0 million to $2.5 million. The building is currently encumbered by a $5.5
million loan.
Page 17
G&L REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
On November 2, 1999, the Company closed the second and final phase of a
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts at an interest rate of LIBOR plus 2.75%. The
loan is due in three years. The first portion of the loan closed on October 4,
1999 and was used to repay a $6.0 million loan secured by the three facilities.
On November 11, 1999, Lenox Healthcare, Inc. ("Lenox"), the manager of
three skilled nursing facilities located in Massachusetts and owned by the
Company, filed a Chapter 11 petition under the U.S. Bankruptcy Code. While this
petition has had no financial impact on the Company to date, it could affect the
ability of Lenox to make rental payments to the Company in the future. The
Company is currently negotiating to replace the manager before the end of the
year.
Page 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Unaudited Condensed Consolidated Financial Statements and Notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1998 Annual
Report on Form 10-K as previously filed with the SEC.
Information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, as amended.
These statements can be identified by the use of forward-looking terminology
such as "believe," "may," "will," "expect," "anticipate," "estimate" or
"continue" or the negative thereof or other comparable terminology. Any one
factor or combination of factors could cause the Company's actual operating
performance or financial results to differ substantially from those anticipated
by management. Factors influencing the Company's operating performance and
financial results include, but are not limited to, changes in the general
economy, the supply of, and demand for, healthcare related real estate in
markets in which the Company has investments, the availability of financing,
governmental regulations concerning, but not limited to, new construction and
development, environmental issues, healthcare services and government
participation in the financing thereof, and other risks and unforeseen
circumstances affecting the Company's investments which may be discussed
elsewhere in this Quarterly Report on Form 10-Q and the Company's 1998 Annual
Report on Form 10-K as previously filed with the SEC.
Results of Operations
- ---------------------
Comparison of the Nine-Month Period Ended September 30, 1999 versus the
Nine-Month Period Ended September 30, 1998.
Total revenues increased by $1.8 million, or 8%, from $23.7 million for the
nine months ended September 30, 1998, to $25.5 million for the same period in
1999. Rents, tenant reimbursements and parking revenues increased an aggregate
$3.0 million, or 15%, from a combined total of $20.0 million for the nine months
ended September 30, 1998, to $23.0 million for the same period in 1999. The
purchase of two senior care facilities located in Santa Monica, California and
Hoquiam, Washington during June and August 1998, respectively, accounted for
$1.0 million of this increase. The purchase of a 49,000 square foot MOB in
Valencia, California and a 40,000 square foot office and retail complex in
Coronado, California in December 1998 accounted for an additional $1.4 million
increase. In addition, recently completed construction projects in Valencia and
Aliso Viejo accounted for $0.6 million of this increase. Interest, loan fees and
related revenues derived from loans secured by senior care facilities decreased
approximately $1.3 million, or 38%, from $3.4 million in the first three
quarters of 1998, to $2.1 million for the same period in 1999. This decrease was
partially due to the repayment during 1998 of seven outstanding loans,
representing a total decrease of $0.5 million in interest and loan fee income.
An additional $0.6 million of this decrease was due to the loss of interest,
during the first three quarters of 1999, on non-performing loans for which the
Company had previously reserved approximately $2.8 million in December 1998.
Furthermore, interest earned on cash on hand decreased during the first three
quarters of 1999 by approximately $0.2 million as the Company had an average of
approximately $11 million in cash on hand during the first three quarters of
1998, and only $7 million during the first three quarters of 1999. Other income
increased by $0.2 million, or 100%, from $0.2 million during the first three
quarters of 1998, to $0.4 million for the same period in 1999. This increase was
due to the sale of a parcel of land located in Tustin, California by the Company
for a gain of $0.2 million.
Total expenses increased by $11.3 million, or 71%, from $16.0 million for
the nine months ended September 30, 1998, to $27.3 million for the same period
in 1999. Of this increase, $6.4 million was due to the impairment of the
Company's six MOBs located in New Jersey. Property operating expenses increased
by $1.1 million, or 24%, from $4.5 million for the nine months ended June 30,
1998, to $5.6 million for the same period in 1999. Property acquisitions and
completed development projects by the Company during 1998 and 1999 accounted for
$0.8 million of this increase. The remaining $0.3 million increase was due to
costs related to new management personnel. Depreciation and amortization
increased $0.9 million, or 27%, from $3.3 million for the nine months ended
September 30, 1998, to $4.2 million for the same period in 1999. This increase
was attributable to property acquisitions made by the Company during 1998 and
new building developments completed during 1999. Interest expense increased $2.6
million, or 42%, from $6.2 million for
Page 19
the nine months ended September 30, 1998, to $8.8 million for the same period in
1999. This increase was mainly due to interest incurred on borrowings of $84.0
million made by the Company subsequent to March 31, 1998. In addition, general
and administrative expenses increased by $0.3 million, or 15%, from $2.0 million
for the nine months ended September 30, 1998, to $2.3 million for the same
period in 1999. This increase was related to the Company's addition of new
management personnel
Equity in earnings of unconsolidated affiliates decreased $0.4 million, or
200%, from $0.2 million for the nine months ended September 30, 1998 to $(0.2)
million for the same period in 1999. This decrease was primarily the result of
start-up losses associated with the Company's 75% investment in Penasquitos Inc.
In March 1999, Rancho Penasquitos, an assisted living facility operated by
Penasquitos Inc., commenced operations. The facility is currently in the process
of leasing its units. However, during this lease-up phase, the facility is
operating with a deficit. The Company expects the facility to reach stabilized
occupancy by the end of 1999, at which time the facility will produce positive
income for the Company.
Net income decreased $8.6 million, or 116%, from $7.4 million for the nine
months ended September 30, 1998 to $(1.2) million for the same period in 1999.
This decrease was primarily due to the $6.4 million impairment of long-lived
assets, the $2.6 million increase in interest expense, the $2.0 million increase
in property operating expenses and depreciation as well as the $1.3 million
decrease in interest income. These amounts were offset by a $3.0 million
increase in rents, tenant reimbursements and parking revenues.
Comparison of the Three-Month Period Ended September 30, 1999 versus the
Three-Month Period Ended September 30, 1998.
Total revenues increased by $0.7 million, or 9%, from $8.1 million in the
three months ended September 30, 1998, to $8.8 million for the same period in
1999. Rents, tenant reimbursements and parking revenues increased an aggregate
$0.9 million, or 13%, from a combined total of $7.0 million during the third
quarter of 1998, to $7.9 million for the same period in 1999. The purchase of a
senior care facility located in Santa Monica, California in June of 1998
accounted for $0.1 million of this increase. The purchase of a 49,000 square
foot MOB in Valencia, California and a 40,000 square foot office and retail
complex in Coronado, California in December 1998 accounted for an additional
$0.6 million increase. In addition, recently completed construction projects in
Valencia and Aliso Viejo accounted for $0.2 million of this increase. Interest,
loan fees and related revenues derived from loans secured by senior care
facilities decreased approximately $0.2 million, or 18%, from $1.1 million in
the third quarter of 1998, to $0.9 million for the same period in 1999. This
decrease was partially due to the repayment during 1998 of five outstanding
loans, representing a total decrease of $0.1 million in interest and loan fee
income. An additional $0.3 million of this decrease was due to the loss of
interest, during the third quarter of 1999, on non-performing loans for which
the Company had previously reserved approximately $2.8 million in December 1998.
These decreases were offset by an increase in interest and loan fee income
relating to the refinancing of one of the Company's notes receivable.
Total expenses increased by $8.4 million, or 150%, from $5.6 million for
the three months ended September 30, 1998, to $14.0 million for the same period
in 1999. Of this increase, $6.4 million was due to the impairment of the
Company's six MOBs located in New Jersey. Property operating expenses increased
by $0.3 million, or 19%, from $1.6 million for the three months ended September
30, 1998, to $1.9 million for the same period in 1999. Property acquisitions and
completed development projects by the Company during the second half of 1998 and
during 1999 accounted for this increase. Depreciation and amortization increased
$0.3 million, or 25%, from $1.2 million for the three months ended September 30,
1998, to $1.5 million for the same period in 1999. This increase was
attributable to property acquisitions made by the Company during 1998 and new
building developments completed during 1999. Interest expense increased $1.1
million, or 50%, from $2.2 million for the three months ended September 30,
1998, to $3.3 million for the same period in 1999. This increase was mainly due
to interest incurred on borrowings of $84.0 million made by the Company
subsequent to March 31, 1998. General and administrative expenses increased by
$0.3 million, or 60%, from $0.5 million for the three months ended September 30,
1998, to $0.8 million for the same period in 1999. This increase was related to
the Company's addition of new management personnel.
Net income decreased $6.7 million, or 279%, from $2.4 million for the three
months ended September 30, 1998 to $(4.3) million for the same period in 1999.
This decrease was primarily due to the $6.4 million impairment of long-lived
assets, the $1.1 million increase in interest expense, the $0.6 million increase
in
Page 20
property operating expenses and depreciation as well as the $0.2 million
decrease in interest income. These amounts were offset by a $0.9 million
increase in rents, tenant reimbursements and parking revenues.
Liquidity and Capital Resources
- -------------------------------
As of September 30, 1999, the Company's net investment in real estate
assets totaled approximately $181.6 million, $9.7 million in joint ventures and
$15.6 million invested in notes receivable. Debt outstanding as of September 30,
1999 totaled $161.0 million.
The Company obtains its liquidity from multiple internal and external
sources. Internally, funds are derived from the operation of MOBs and Senior
Care Facilities and senior care lending activities. These funds primarily
consist of Funds from Operations ("FFO" - see discussion below of FFO). The
Company's external sources of capital consist of various secured loans and lines
of credit as well as access to public equity markets. During the third quarter
of 1999, the Company refinanced the $1.4 million short-term loan with a long-
term $1.4 million loan at an interest rate of 7.375%. Also, during the third
quarter, the Company obtained a $10 million long-term loan secured by one of its
properties at an interest rate of 6.85%, of which $5 million was used to repay a
short-term loan secured by the property and an additional $2.5 million was
escrowed by the lender until the Company meets certain occupancy thresholds at
the collateralized property. Finally, during the third quarter of 1999, the
Company obtained a $7.5 million short-term loan secured by three of its
properties at an interest rate of prime plus 0.75%. In July 1999, the Company
also repaid the outstanding balance of $1.2 million on one of its lines of
credit. In August 1999, the Company refinanced its existing $8.5 million
mortgage on one of its senior care facilities with an $11.4 million long-term
HUD loan at an interest rate of 8%. During the fourth quarter of 1999, the
Company obtained a $4.2 million loan secured by a 23,000 square foot medical
office building at a rate of LIBOR plus 3.40%. The loan is due on November 1,
2002. The Company also obtained a $13.92 million loan secured by three skilled
nursing facilities located in Massachusetts at an interest rate of LIBOR plus
2.75%. The loan is due in three years. All of the Company's secured loans as of
September 30, 1999 bear interest at fixed rates ranging from 6.75% to 8.98%,
except for an $8.5 million loan which bears interest at LIBOR plus 2.35%, a $5.5
million loan which bears interest at LIBOR plus 3.0% and a $7.5 million loan
which bears interest at prime plus 0.75%. The Company's ability to expand its
MOB, Senior Care Facility and senior care lending operations requires continued
access to capital to fund new investments.
The Company declared a quarterly distribution payable to holders of the
Company's Common Stock for the first and second quarter of 1999 in the amount of
$0.39 per common share, which was paid on April 15 and July 15, 1999 to
stockholders of record on March 31 and June 30, respectively. For the third
quarter of 1999, the Company declared a distribution payable to holders of the
Company's Common Stock in the amount of $0.125 per common share, which was paid
on October 15, 1999 to stockholders of record on September 30. The Company also
paid monthly dividends totaling $0.6 million to holders of the Company's
Preferred Stock on the fifteenth day of each month during the first, second and
third quarters to stockholders of record on the first day of each month. The
Company distributed dividends of $4.1 million to holders of the Company's Common
Stock during the first nine months of 1999 while the Company's FFO was $(3.7)
million for the same period. However, excluding the $6.4 million non-cash
impairment loss, the Company's FFO for the first nine months of 1999 was $2.7
million. Furthermore, during the third quarter of 1999, the Company's FFO was
$0.8 million, excluding the $6.4 million non-cash impairment loss, and the
Company distributed $0.6 million to the holders of its Common Stock. Although
the Company's FFO in the third quarter of 1999 exceeded the amount of
distributions to holders of its Common Stock, the Company can offer no
assurances that the reduced Common Stock dividend will allow the Company to
consistently produce a level of FFO at least equal to the current level of
distributions in the future. However, the Company believes that the reduced
Common Stock dividend rate will benefit stockholders in the future by allowing
the Company to preserve its cash flow to invest in new acquisition and
development projects, thereby increasing the Company's revenues and cash flow.
In order to maximize its cash flow in the future, the Company expects to pay a
Common Stock dividend in the amount which approximates the minimum dividend
required to maintain its status as a real estate investment trust. This may
result in fluctuations in total dividends from year to year or even quarter to
quarter depending upon variations in the Company's taxable income resulting from
such factors as sales of properties or adjustments to reserves. The dividends
paid to the Company's preferred stockholders remain unchanged.
Page 21
On October 1, 1999, the Company made a tender offer for up to 1.0 million
shares, or approximately 26%, of its outstanding Common Stock at a purchase
price of $10.50 per share. The purpose of the offer was to provide liquidity for
those stockholders whose investment objectives may be inconsistent with the
Company's new dividend policy. The offer expired on October 29, 1999. On
November 4, 1999, the Company announced that 2,047,756 shares of Common Stock
had been validly tendered and that the Company would repurchase 1.0 million
shares, or approximately 48.7% of the shares tendered. The transaction is
expected to cost the Company approximately $10.9 million including offering
fees, and will be financed with existing cash balances and proceeds from the
$13.92 million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts.
In general, the Company expects to continue meeting its short-term
liquidity requirements through its working capital, cash flow provided by
operations and, if necessary, from its lines of credit. The Company considers
its ability to generate cash to be good and expects to continue meeting all
operating requirements as well as providing sufficient funds to maintain
stockholder distributions in accordance with REIT requirements. Long-term
liquidity requirements such as refinancing mortgages, financing acquisitions and
financing capital improvements will be accomplished through long-term
borrowings, the sale of assets, the issuance of debt securities and the offering
of additional equity securities.
The Company has been informed by Tokai Bank of California that as of June
30, 1999 the Company was in default on its $4.6 million unsecured line of credit
due to a loan covenant violation. Tokai Bank has informed the Company that it
has waived the loan covenant for each of these periods. The loan covenant
requires that the Company maintain a ratio of EBITDA less distributions to debt
service of at least 1.20 to 1.0. While the Company may not meet the requirements
of this covenant at the end of 1999, the Company believes that the reduction in
the Common Stock dividend will allow the Company to comply with the loan
covenant in the future.
Historical Cash Flows
- ---------------------
The Company's net cash from operating activities increased $0.04 million,
or 0.4%, from $9.44 million for the nine months ended September 30, 1998 to
$9.48 million for the same period in 1999. Changes include an $8.6 million
decrease in net income for the first three quarters of 1999 compared to the same
period in 1998 and a decrease in minority interests of $1.3 million. These
decreases were offset by an increase of $6.4 million in impairment of assets, a
$0.9 million increase in depreciation and amortization and an increase of $2.5
million in accounts payable and other liabilities.
Net cash used in investing activities decreased $20.3 million, or 63%, from
$32.0 million for the nine months ended September 30, 1998 to $11.7 million for
the same period in 1999. The decrease was primarily due to a $21.9 million
decrease in rental property acquisitions, a $2.8 million decrease in investments
in notes and bonds receivable, a $1.5 million decrease in contributions to
unconsolidated affiliates and a $1.2 million decrease in investments in
marketable securities. These decreases were offset by a $1.0 million increase in
expenditures on construction in progress, a $1.7 million increase in additions
to rental properties and a $4.5 million decrease in principal payments on notes
receivable.
Cash flows provided by financing activities decreased $5.3 million, or 40%,
from $13.4 million for the nine months ended September 30, 1998, to $8.1 million
for the same period in 1999. The decrease was due primarily to a $7.7 million
increase in restricted cash, a $0.6 million increase in purchases of the
Company's common stock, a $12.2 million increase in notes payable repayments and
a $0.3 million increase in financing costs. These were offset by an increase in
notes payable proceeds of $15.5 million.
Year 2000 Readiness Disclosure
- ------------------------------
The information provided below contains Year 2000 statements and is a Year
2000 Readiness Disclosure pursuant to Pub.L.No.105-271.
Many computers, software programs and other equipment which utilize
microprocessors (collectively referred to as "Systems" and individually as a
"System"), process date sensitive data in the normal course of operations. Some
of these Systems use a 2-digit field to designate the year. As the year 2000
approaches,
Page 22
these Systems may not be capable of distinguishing between events occurring in
the year 1900 and the year 2000, and therefore these Systems may become
inoperable or produce information that is unreliable.
Information Technology Systems
The Company's critical information technology Systems consist of its
Windows NT operating systems and related Windows software as well as its
accounting, property management and fixed assets software. The Company relies on
third party vendors for its computer hardware and software. Based upon
management's communications with the Company's Systems vendors and an outside
consultant, management believes that the Company's hardware and software Systems
are Year 2000 compliant and that the Company's internal computer hardware and
software Systems will not be materially impacted by this issue. In October 1999,
the Company upgraded its accounting and property management software to the next
version which has been deemed Year 2000 compliant by the vendor.
Non-Information Technology Systems
The Company's critical non-information technology building Systems consist
of utilities, security and elevators. The Company has not yet determined whether
all of these Systems are Year 2000 compliant. The Company relies on third party
vendors to service most of these Systems and is currently in communication with
these vendors to determine if these Systems are or will be Year 2000 compliant
by December 31, 1999. The Company's property managers have contacted the
Company's vendors and made inquiries about the Year 2000 readiness of these
Systems. Most of the Company's vendors have confirmed in writing that these
Systems are Year 2000 compliant. The Company has also received confirmation in
writing from certain vendors that the Systems will be Year 2000 compliant by
December 31, 1999. The Company is still following up with those vendors who have
only verbally confirmed Year 2000 compliance or who have not responded to the
Company's inquiries. In January 1999, the Company made inquiries of all of its
tenants concerning their Year 2000 compliance and what impact non-compliance
would have on the Company. Through November 12, 1999, the Company had received
approximately 68 responses, representing 17% of its tenants. None of these
responses indicated that the Company would suffer any negative impact due to
Year 2000 non-compliance.
Risks
While the Company does not expect Year 2000 issues related to the Company's
internal Systems to have a serious impact on the Company's operations, the
Company receives most of its revenues in the form of rental payments. If any of
the Company's tenants suffer a severe disruption of their business due to a Year
2000 problem, it could affect the ability of those tenants to pay their rent. If
multiple tenants were to suffer a severe disruption of their business, the
Company can provide no assurance that its operations would not be materially
affected.
Costs
The cost to the Company to make its internal Systems Year 2000 compliant is
not anticipated to be material to the Company's financial position. However,
management is not able to adequately assess the extent to which the Company is
vulnerable to System failures of any of its tenants or other companies providing
utilities or other services to its properties. Management plans to continue
conversations with other companies with which the Company does significant
business to minimize, to the extent possible, the potential impact of Year 2000
compliance failures. A contingency plan has not been developed for dealing with
the "most reasonably likely worst case scenario" because the Company is unable
at this time to identify such a scenario. The Company will continue to evaluate
these and other potential areas of risk and develop contingency plans, as
appropriate.
Funds from Operations
- ---------------------
Industry analysts generally consider FFO to be an appropriate measure of
the performance of a REIT. The Company's financial statements use the concept of
FFO as defined by the Board of Governors of the National Association of Real
Estate Investment Trusts ("NAREIT"). FFO is calculated to include the minority
interests' share of income from the Operating Partnership since the Operating
Partnership's net
Page 23
income is allocated proportionately among all owners of Operating Partnership
units. The number of Operating Partnership units held by the Company is
identical to the number of outstanding shares of the Company's Common Stock, and
owners of Operating Partnership units may, at their discretion, convert their
units into shares of Common Stock on a one-for-one basis.
The Company believes that in order to facilitate a clear understanding of
the operating results of the Company, FFO should be examined in conjunction with
the Company's net income as presented in this Form 10-Q, the Selected Financial
Data and Consolidated Financial Statements and Notes thereto included in the
Company's 1998 Annual Report on Form 10-K and the additional data presented
below. The table on the following page presents an analysis of FFO and
additional data for the three and nine month periods ended September 30, 1999
and 1998.
Page 24
G&L REALTY CORP.
FUNDS FROM OPERATIONS AND ADDITIONAL DATA
(Unaudited)
For the Three Month For the Nine Month
Periods Ended September 30, Periods Ended September 30,
1999 1998 1999 1998
-----------------------------------------------------------
(in thousands) (in thousands)
Funds from Operations/(1)/
- --------------------------
Net (loss)/income.................................. $(4,250) $ 2,434 $ (1,184) $ 7,397
Minority interest in Operating Partnership......... (986) 78 (1,072) 221
----------------------------------------------------------
Income for Operating Partnership................... (5,236) 2,512 (2,256) 7,618
Depreciation of real estate assets................. 1,301 1,057 3,702 2,988
Amortization of deferred lease costs............... 69 42 186 112
Depreciation from unconsolidated affiliates........ 47 39 147 52
Adjustment for minority interest in consolidated
affiliates......................................... (14) (19) (64) (42)
Dividends on preferred stock....................... (1,803) (1,803) (5,409) (5,578)
----------------------------------------------------------
Funds from Operations/(1)/......................... $(5,636) $ 1,828 $ (3,694) $ 5,150
==========================================================
Weighted average shares outstanding/(2)/
- ----------------------------------------
Basic.............................................. 4,514 4,588 4,559 4,610
==========================================================
Fully diluted...................................... 4,523 4,623 4,571 4,660
==========================================================
Additional Data
- ---------------
Cash flows:
- -----------
Operating activities............................ $ 4,616 $ 3,505 $ 9,483 $ 9,439
Investing activities............................ (4,281) (6,180) (11,671) (31,982)
Financing activities............................ 5,093 (3,487) 8,122 13,447
Capital expenditures
- --------------------
Building improvements........................... $ 595 $ 236 $ 1,270 $ 330
Tenant improvements............................. 620 224 1,538 666
Furniture, fixtures & equipment................. --- 109 103 224
Leasing commissions............................. 55 112 408 401
Depreciation and amortization
- -----------------------------
Depreciation of real estate assets.............. $ 1,301 $ 1,057 $ 3,702 $ 2,988
Depreciation of non-real estate assets.......... 103 114 320 256
Amortization of deferred lease costs............ 69 42 186 112
Amortization of capitalized financing costs..... 134 53 257 139
Accrued rent in excess of billed rent........... $ 159 $ 169 $ 311 $ 351
1) Funds from operations ("FFO") represents net income (computed in accordance
with generally accepted accounting principles, consistently applied
("GAAP")), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation of real property, less preferred stock dividends
paid to holders of preferred stock during the period and after adjustments
for consolidated and unconsolidated entities in which the Company holds a
partial interest. FFO should not be considered as an alternative to net
income or any other indicator developed in compliance with GAAP, including
measures of liquidity such as cash flows from operations, investing and
financing activities. FFO is helpful in evaluating the performance of a real
estate portfolio considering the fact that historical cost accounting assumes
that the value of real estate diminishes predictably over time. FFO is only
one of a range of indicators which should be considered in determining a
company's operating performance. The methods of calculating FFO among
different companies are subject to variation, and FFO therefore may be an
invalid measure for purposes of comparing companies. Also, the elimination of
depreciation and gains and losses on sales of property may not be a true
indication of an entity's ability to recover its investment in properties.
The Company implemented NAREIT's new method of calculating FFO effective as
of the NAREIT-suggested adoption date of January 1, 1996. FFO has been
restated for all prior periods under the new method.
2) Assumes that all outstanding Operating Partnership units have been converted
to common stock.
Page 25
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's market risk as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 filed on April 9, 1999.
Page 26
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Neither the Company or any of its consolidated or unconsolidated
affiliates nor any of the assets within their portfolios of MOBs,
senior care facilities, parking facilities, and retail space is
currently a party to any material litigation, except as discussed in
Note 8 to the Consolidated Financial Statements.
Item 2 Changes in Securities.
None.
Item 3 Defaults Upon Senior Securities.
As discussed in Note 8 to the Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources, GL/PHP
defaulted on the $15.5 million loan, which is secured by the six
MOBs in New Jersey. The six MOBs were previously occupied by
Pinnacle, a subsidiary of PHP, both of which filed a Chapter 7
bankruptcy petition. The amount in default is $15.5 million and the
total arrearage as of the date of this report is $0.7 million.
As discussed in Note 8 to the Consolidated Financial Statements and
in Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources, the
Company has been informed by Tokai Bank of California that as of
June 30, 1999 the Company was in default on its $4.6 million
unsecured line of credit due to a loan covenant violation.
Item 4 Submission of Matters to a Vote of Security Holders.
On August 31, 1999 the Company held its 1999 Annual Meeting of
Stockholders. The only items of business conducted were the election of
directors, a vote upon a proposal to adopt an amendment to the Charter
which would give the Board of Directors the authority (i) to waive the
ownership limitation under the Charter for any person(s), and (ii) to
decrease the ownership limit under the Charter for all other persons,
and the ratification of the appointment of the Company's independent
accountants.
The six directors elected at the Annual Meeting, to serve for the
term ending at the next Annual Meeting of Stockholders or until their
successors are duly elected and qualified or until they resign or are
removed, were the following:
Name Votes For Votes Withheld
Daniel M. Gottlieb 3,715,669 86,489
Steven D. Lebowitz 3,717,623 84,535
Richard L. Lesher 3,714,975 87,183
Leslie D. Michelson 3,718,048 84,110
Charles P. Reilly 3,676,965 125,193
S. Craig Tompkins 3,717,948 84,210
The voting for the proposal to adopt an amendment to the Charter which
would give the Board of Directors the authority (i) to waive the
ownership limitation under the Charter for any person(s), and (ii) to
decrease the ownership limit under the Charter for all other persons was
as follows:
Page 27
Votes For Votes Against Votes Abstained Broker Non-Votes
2,645,028 205,638 68,926 882,566
The voting for the ratification of the appointment by the Board of
Directors of Deloitte & Touche, LLP as independent accountants for the
Company for the year ending December 31, 1999 was as follows:
Votes For Votes Against Votes Abstained Broker Non-Votes
3,761,601 22,484 18,073 0
Item 5 Other Information.
On October 1, 1999, the Company made a tender offer for up to 1.0
million shares, or approximately 26%, of its outstanding Common Stock at
a purchase price of $10.50 per share. The purpose of the offer was to
provide liquidity for those stockholders whose investment objectives may
be inconsistent with the Company's new dividend policy. The offer
expired on October 29, 1999. On November 4, 1999, the Company announced
that 2,047,756 shares of Common Stock had been validly tendered and that
the Company would repurchase 1.0 million shares, or approximately 48.7%
of the shares tendered. The transaction is expected to cost the Company
approximately $10.9 million including offering fees, and will be
financed with existing cash balances and proceeds from the $13.92
million loan secured by a first trust deed against three skilled nursing
facilities located in Massachusetts.
The Company has also filed an Issuer Tender Offer Statement on
Schedule 13E-4 and Amendment No. 1 to Schedule 13E-4 with the Securities
and Exchange Commission, which includes additional information relating
to the tender offer.
Page 28
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
3.1 (1) Amended and Restated Articles of Incorporation of G&L Realty Corp.
3.2 (3) Amended and Restated Bylaws of G&L Realty Corp.
10.1 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Daniel M. Gottlieb.
10.2 (c) (2) Executive Employment Agreement between G&L Realty Corp. and Steven D. Lebowitz.
10.3 (2) Agreement of Limited Partnership of G&L Realty Partnership, L.P.
10.4 (c) (1) 1993 Employee Stock Incentive Plan
10.5 (1) Form of Indemnity Agreement between G&L Realty Corp. and directors and certain officers.
10.8.2 (2) Option Notice with respect to Sherman Oaks Medical Plaza.
10.9.2 (1) Agreement for Purchase and Sale of Limited Partnership Interests (435 North Roxbury Drive, Ltd.)
between the Selling Partner (as defined therein) and G&L Development, dated as of October 29, 1993.
10.11 (1) Agreement for Transfer of Partnership Interests and Other Assets by and between G&L Realty Corp. and
Reese Milner, Helen Milner and Milner Development Corp., dated as of October 29, 1993.
10.12 (1) Nomura Commitment Letter with respect to the Acquisition Facility.
10.12.2 (3) Amended and Restated Mortgage Loan Agreement dated as of January 11, 1995 among G&L Financing
Partnership, L.P., Nomura Asset Capital Corporation and Bankers Trust Company of New York.
10.16 (1) Investment Banking and Financial Advisory Agreement between G&L Development and Gruntal & Co.,
Incorporated.
10.17 (1) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Milner Investment Corporation.
10.18 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.19 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.20 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II, Helen Milner and John Milner, as Trustees of the Milner Trust.
10.21 (2) Security Agreement dated as of December 16, 1993 by and between Daniel M. Gottlieb, Steven D.
Lebowitz and Reese L. Milner, II.
10.22 (4) Amended and Restated Mortgage Loan Agreement by and between G&L Realty Financing Partnership II,
L.P., as Borrower, and Nomura Asset Capital Corporation, as Lender, dated as of October 31, 1995.
Page 29
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
10.24 (4) Property Management Agreement between G&L Realty Financing Partnership II, L.P., as owner, and G&L
Realty Partnership, L.P., as agent, made August 10, 1995
10.25 (5) Commitment Letter between G&L Realty Partnership, L. P. and Nomura Asset Capital Corporation, dated
as of September 29, 1995.
10.30 (6) Mortgage Loan Agreement dated as of May 24, 1996 by and between G&L Medical Partnership, L.P. as
Borrower and Nomura Asset Capital Corporation as Lender.
10.38 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
partnership, and Property Acquisition Trust I, a Delaware business trust, for the purpose of
creating a Limited Liability Company to be named GLN Capital Co., LLC, dated as of November 25,
1996.
10.39 (7) Limited Liability Company Agreement by and between G&L Realty Partnership, L.P., a Delaware limited
partnership, and PHP Healthcare Corporation, a Delaware corporation, for the purpose of creating a
Limited Liability Company to be named GL/PHP, LLC, dated as of February 26, 1997.
10.40 (7) First Amendment To Limited Liability Company Agreement entered into as of March 31, 1997 by and
between G&L Realty Partnership, L.P., a Delaware limited partnership, and Property Acquisition Trust
I, a Delaware business trust, for the purpose of amending that certain Limited Liability Company
Agreement of GLN Capital Co., LLC dated as of November 25, 1996.
10.41 (7) Bond Purchase Agreement dated as of March 31, 1997 by and between GLN Capital Co., LLC (as Buyer)
and G&L Realty Partnership, L.P. (as Seller).
10.42 (8) Option Agreement, dated February 28, 1997, by and among G&L Realty Partnership, L.P., GLN Capital
Co., LLC and PHP Healthcare Corporation
10.44 (9) Loan and Security Agreement by GLN Capital Co., LLC, a Delaware limited liability Company, and G&L
Realty Partnership, L.P., a Delaware limited partnership, dated as of June 1, 1997.
10.45 (10) First Amendment to GL/PHP, LLC Limited Liability Company Agreement by and among G&L Realty
Partnership, L.P., a Delaware limited partnership (the "Retiring Manager"), G&L Realty Partnership,
L.P., a Delaware limited partnership ("G&L Member"), and G&L Management Delaware Corp., a Delaware
corporation ("Manager Member"), made as of August 15, 1997.
10.46 (10) Lease Agreement between GL/PHP, a Delaware limited liability company (the "Landlord") and Pinnacle
Health Enterprises, LLC, a Delaware limited liability company wholly owned by PHP Healthcare
Corporation, a Delaware corporation (the "Tenant"), dated August 15, 1997
10.47 (10) Guaranty of Lease by PHP Healthcare Corporation, a Delaware corporation (the "Guarantor"), dated
February 15, 1997.
Page 30
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
10.48 (10) Non-Negotiable 8.5% Note Due July 31, 2007 in which G&L Realty Partnership, L.P., a Delaware limited
partnership (the "Maker"), promises to pay to PHP Healthcare Corporation (the "Payee") the principal
sum of $2,000,000.00, dated August 15, 1997.
10.49 (10) Mortgage Note in which GL/PHP, LLC a Delaware limited liability company (the "Maker") promises to
pay to the order of Nomura Asset Capital Corporation, a Delaware corporation, the principal sum of
$16,000,000.00, dated August 15, 1997.
10.50 (10) Mortgage, Assignment of Leases and Rents and Security Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Mortgagor") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Mortgagee"), dated August 15, 1997.
10.51 (10) Assignment of Leases and Rents by GL/PHP, LLC a Delaware limited liability company (the "Assignor")
to Nomura Asset Capital Corporation, a Delaware corporation (the "Assignee"), dated August 15, 1997.
10.52 (10) Environmental and Hazardous Substance Indemnification Agreement by GL/PHP, LLC a Delaware limited
liability company (the "Borrower") to Nomura Asset Capital Corporation, a Delaware corporation (the
"Lender"), dated August 15, 1997.
10.53 (11) Purchase and Sale Agreement, dated October 1, 1997, by and between Hampden Nursing Homes, Inc. and
G&L Senior Care, LLC.
10.54 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Holding
Group, Inc.
10.55 (11) Loan Commitment, dated October 23, 1997, by and between G&L Realty Partnership, L.P. and Iatros
Health Network, Inc.
10.56 (11) Lease and Agreement, dated October 1, 1997, by and between G&L Hampden, LLC and Hampden Nursing
Homes, Inc.
10.57 (11) Guaranty of Lease, dated October 1, 1997, by Iatros Health Network, Inc.
10.58 (11) Limited Liability Company Agreement of G&L Hampden, LLC.
10.59 (11) Loan Agreement by and between Nomura Asset Capital Corporation and G&L Hampden, LLC.
10.60 (11) Promissory Note in the amount of $6,000,000.00 given by G&L Hampden, LLC in favor of Nomura Asset
Capital Corporation.
10.61 (11) Form of Mortgage, Assignment of Rents, Security Agreement and Fixture Filing for each of the 3
Hampden Properties.
10.62 (12) Operating Agreement of AV Medical Associates, LLC, dated as of September 25, 1997.
10.63 (12) Real Estate Lease by and between AV Medical Associates, LLC and Hoag Memorial Hospital Presbyterian.
Page 31
(c) Exhibits - (continued from previous page)
Exhibit No. Note Description
----------- ---- ----------------------------------------------------------------------------------------------------
10.64 (12) Assignment of Purchase Agreement and Development Management Agreement by and between G&L Realty
Partnership, L.P., Centrium Associates LLC and M&Z Aliso Associates, LLC.
10.68 (12) Promissory Note in the Amount of $2,799,490.00 given by Valley Convalescent, LLC in favor of G&L
Realty Partnership, L.P.
10.69 (12) Deed of Trust, Security Agreement, Fixture Filing with Assignment of Rents and Agreements, dated as
of August 29, 1997, by and between Valley Convalescent, LLC and G&L Realty Partnership, L.P.
10.70 (12) Assignment of Leases and Rents, dated as of August 29, 1997, by and between Valley Convalescent, LLC
and G&L Realty Partnership, L.P.
10.77 (13) Agreement for Transfer of Property by and among G&L Coronado, LLC as Transferor and G&L Realty
Partnership, L.P. as Operating Partnership dated as of December 30, 1998.
10.78 (13) Tenant Estoppel and Real Estate Lease between G&L Coronado, LLC as Landlord and Coronado Managers
Corp. as Tenant dated December 1, 1998.
10.79 (13) Guaranty of Lease between Steven D. Lebowitz and Daniel M. Gottlieb (collectively "Guarantor") in
favor of G&L Coronado, LLC ("Landlord").
10.80 (14) Promissory Note in the Amount of $2,000,000 given by G&L Realty Corporation in favor of Reese L.
Milner, as Trustee of The Milner Trust.
10.81 Loan Agreement in the amount of $13.92 million between G&L Hampden, LLC, as Borrower, and GMAC
Commercial Mortgage Corporation, as Lender.
11 Computation of Per Share Earnings
21 List of Subsidiaries
27 Financial Data Schedule
Page 32
1) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference
2) Previously filed as an exhibit of like number to the Registrant's
Registration Statement on Form S-11 and amendments thereto (File No. 33-
68984) and incorporated herein by reference.
3) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated herein by
reference.
4) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 and incorporated herein by
reference.
5) Previously filed as Exhibits 10.1 (with respect to Exhibit 10.22), 10.2
(with respect to Exhibit 10.23), and 10.3 (with respect to Exhibit 10.24) to
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1995 and incorporated herein by reference.
6) Previously filed as an exhibit of like number to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
7) Previously filed as an exhibit of like number to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996 and incorporated
herein by reference.
8) Filed as an exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by reference.
9) Filed as an exhibit to the Company's Registration Statement on Form S-11 and
amendments thereto (File No. 333-24911) and incorporated herein by
reference.
10) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 and incorporated herein by reference.
11) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as of
August 15, 1997) and incorporated herein by reference.
12) Filed as an exhibit to the Company's Current Report on Form 8-K (filed as of
October 28, 1997) and incorporated herein by reference.
13) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
of November 5, 1997) for the quarter ended September 30, 1997 and
incorporated herein by reference.
14) Filed as an exhibit to the Company's Annual Report on Form 10-K (filed as of
April 9, 1999) for the year ended December 31, 1998 and incorporated herein
by reference.
14) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q (filed as
of May 17, 1999) for the quarter ended March 31, 1999 and incorporated
herein by reference.
c) Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
A report on Form 8-K dated October 26, 1999, was filed with the Securities
and Exchange Commission for the purpose of announcing the Company's results
for the third quarter ended September 30, 1999.
Page 33
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
G&L REALTY CORP.
Date: November 12, 1999 By: /s/ David E. Hamer
--------------------------
David E. Hamer
Chief Accounting Officer
Page 34