SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

                                   
             [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                      For the year ended December 31, 1998

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 1-14162

                          GLENBOROUGH PROPERTIES, L.P.
             (Exact name of Registrant as specified in its charter)

              California                                      94-3231041
     (State or other jurisdiction                          (I.R.S. Employer
   of incorporation or organization)                      Identification No.)

         400 South El Camino Real,                            94402-1708
   Suite 1100 San Mateo, California - (650) 343-9300           (Zip Code)
       (Address of principal executive offices
                and telephone number)

      Securities  registered  pursuant to Section  12(b) of the Act:  None
        Securities  registered  pursuant to Section 12(g) of the Act:

                      Units of Limited Partnership Interest
                                (Title of class)

    Indicate  by check mark  whether  the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]

State the aggregate market value of the voting stock held by  non-affiliates  of
the Partnership. Not applicable.

No market for the Limited Partnership Units exists and therefore, a market value
for such Units cannot be determined.

                      DOCUMENTS INCORPORATED BY REFERENCE:

EXHIBITS:The index of exhibits is contained in Part IV herein on page number 73.




                                  Page 1 of 73
<PAGE>






                                TABLE OF CONTENTS



                                                                       Page No.
                           PART I

Item  1       Business                                                    3
Item  2       Properties                                                  6
Item  3       Legal Proceedings                                          12
Item  4       Submission of Matters to a Vote of Security Holders        14

                           PART II

Item  5       Market for Partnership's Common Equity and 
                Related Partner Matters                                  15
Item  6       Selected Financial Data                                    15
Item  7       Management's Discussion and Analysis of 
                Financial Condition and Results of Operations            18
Item  8       Financial Statements and Supplementary Data                34
Item  9       Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure                   34

                           PART III

Item 10       Directors and Executive Officers of the Company            35
Item 11       Executive Compensation                                     35
Item 12       Security Ownership of Certain Beneficial Owners
                and Management                                           35
Item 13       Certain Relationships and Related Transactions             35

                           PART IV

Item 14       Exhibits, Financial Statements, Schedules and
                Reports on Form 8-K                                      36




                                  Page 2 of 73
<PAGE>



                                     PART I

Item 1.       Business

General Development and Description of Business

Glenborough  Properties,  L.P., a California Limited Partnership (the "Operating
Partnership"),  is engaged  primarily in the ownership,  operation,  management,
leasing,   acquisition,   expansion   and   development   of  various  types  of
income-producing properties. As of December 31, 1998, the Operating Partnership,
directly   and   through   various   subsidiaries,   owned  and   operated   186
income-producing  properties  (the  "Properties,"  and each a  "Property").  The
Properties are comprised of 54 office Properties,  49 office/flex Properties, 30
industrial Properties,  13 retail Properties,  37 multi-family  Properties and 3
hotel Properties, located in 24 states.

The Operating Partnership was organized in the State of California on August 23,
1995.  The  Operating   Partnership  is  the  primary  operating  subsidiary  of
Glenborough Realty Trust Incorporated (the "Company"),  a self-administered  and
self-managed  real estate  investment trust ("REIT").  On December 31, 1995, the
Company completed a consolidation  (the  "Consolidation")  in which eight public
limited   partnerships  (the   "Partnerships,"   collectively  with  Glenborough
Corporation  (defined below), the "GRT Predecessor  Entities"),  merged with and
into the  Company.  The Company (i) issued  5,753,709  shares (the  "Shares") of
$.001 par value  Common  Stock to the  Partnerships  in exchange  for  3,979,376
Operating  Partnership  units; and (ii) merged with Glenborough  Corporation,  a
California Corporation, with the Company being the surviving entity. The Company
then  transferred  certain  real  estate  and  related  assets to the  Operating
Partnership in exchange for a sole general partner  interest of 1% and a limited
partnership  interest  of 85.37%  (87.25%  limited  partnership  interest  as of
December 31, 1998). The Operating Partnership also acquired interests in certain
warehouse   distribution   facilities  from  GPA,  Ltd.,  a  California  limited
partnership ("GPA"). The Operating  Partnership  commenced operations on January
1,  1996.  The  Operating  Partnership  operates  the  assets  acquired  in  the
Consolidation  and in subsequent  acquisitions and intends to continue to invest
in income-producing property directly and through joint ventures.

Effective  April 1, 1998, the Company  contributed to the Operating  Partnership
the  majority  of its  assets,  including  100% of its shares of the  non-voting
preferred  stock  of  Glenborough   Corporation   (formerly  Glenborough  Realty
Corporation),  as  well  as all  of the  Company's  tangible  personal  property
including  furniture  and  fixtures,  all cash and  investments,  and a property
management contract.  As part of that transaction,  the Company also agreed to a
substantial  reduction  in the  asset  management  fees  paid  by the  Operating
Partnership  to the  Company.  In return,  the  Operating  Partnership  canceled
certain  obligations  of the Company to the  Operating  Partnership,  and issued
2,248,869 units of partnership interest in the Operating  Partnership  ("Units")
to the Company.  The contribution of 100% of the shares of non-voting  preferred
stock in Glenborough  Corporation has been accounted for as a reorganization  of
entities under common  control,  similar to a pooling of interests.  All periods
have been  restated  to give  effect to this  transaction  as if it  occurred on
December 31, 1995.

As a result of this  transaction,  the only assets of the Company  that were not
contributed  to the  Operating  Partnership  are (i) its  shares  of  non-voting
preferred stock in Glenborough  Hotel Group,  (ii) its shares of common stock in
twelve  qualified  REIT  subsidiaries,  which  produce  dividends  that  are not
material  to the  Company  and (iii) a 4.05%  limited  partnership  interest  in
Glenborough Partners.

Since the  Consolidation,  and  consistent  with its  strategy  for growth,  the
Operating Partnership has completed the following transactions:

     -Acquired  20  properties  in  1996,  90  properties  in  1997  and  69
     properties in 1998. In addition, the Operating Partnership has acquired
     two  properties  subsequent  to December 31, 1998.  The total  acquired
     properties  consist  of an  aggregate  of  approximately  15.7  million
     rentable  square  feet of office,  office/flex,  industrial  and retail
     space,  9,638 multi-family units and 227 hotel suites and had aggregate
     acquisition costs,  including  capitalized costs, of approximately $1.8
     billion.
     -From  January 1, 1996 to the date of this filing,  sold 35  properties
     which  were  comprised  of  one  office  property,   seven  office/flex
     properties,  six  industrial  properties,  17  retail  properties,  one
     multi-family


                                  Page 3 of 73
<PAGE>

     property and three hotel properties,  to redeploy capital into properties
     the Operating Partnership believes have characteristics  more  suited to 
     its overall growth strategy and operating goals.
     -Issued $150 million of  unsecured  7.625%  Series A Senior Notes which
     mature on March 15, 2005. Entered into 4 development alliances to which
     the Operating Partnership has made advances of approximately $33 million
     and a loan of $35 million as of December 31, 1998.
     
The Associated Company

Glenborough   Corporation.   Glenborough   Corporation   ("GC"),   a  California
corporation,   serves  as  general   partner  of  various  real  estate  limited
partnerships  (the  "Managed  Partnerships")  for  whom it  provides  asset  and
property management services.  It also provides property management services for
a limited portfolio of property owned by unaffiliated third parties.

The Operating  Partnership owns 100% of the 38,000 shares  (representing  95% of
total outstanding shares) of non-voting preferred stock of GC. Four individuals,
including  Sandra L.  Boyle  and  Frank E.  Austin,  executive  officers  of the
Company,  own the 2,000 shares  (representing 5% of total outstanding shares) of
voting common stock of GC.

The Operating  Partnership,  through its ownership of preferred  stock of GC, is
entitled to receive  cumulative,  preferred annual dividends of $1.58 per share,
which GC must pay before it pays any dividends  with respect to the common stock
of GC. Once GC pays the required cumulative preferred dividend,  it will pay any
additional  dividends in equal amounts per share on both the preferred stock and
the common stock at 95% and 5%,  respectively.  Through the preferred stock, the
Operating  Partnership is also entitled to receive a preferred liquidation equal
to $159.24 per share plus all  cumulative  and unpaid  dividends.  The preferred
stock is subject to redemption at the option of GC after  December 31, 2005, for
a redemption price of $159.24 per share. As the holder of preferred stock of GC,
the  Operating  Partnership  has no voting power with respect to the election of
the directors of GC; all power to elect directors of GC is held by the owners of
the common stock of GC.

This  structure  is  intended  to  provide  the  Operating  Partnership  with  a
significant  portion  of the  economic  benefits  of the  operations  of GC. The
Operating  Partnership accounts for the financial results of GC using the equity
method.

Employees

The Operating Partnership has no employees.

Competition

For Tenants
The  Operating  Partnership's   properties  compete  for  tenants  with  similar
properties located in their markets.  Management  believes that  characteristics
influencing the  competitiveness of a real estate project include the geographic
location of the property,  the  professionalism  of the property manager and the
maintenance and appearance of the property, in addition to external factors such
as general economic  circumstances,  trends,  and the existence of new competing
properties in the general area in which the Operating  Partnership's  Properties
are located.

Additional competitive factors with respect to commercial properties include the
ease of access to the  property,  the  adequacy of related  facilities,  such as
parking,  and the ability to provide  rent  concessions  and  additional  tenant
improvements  commensurate  with local market  conditions.  Such competition may
lead to rent concessions that could adversely affect the Operating Partnership's
cash flow.  Although  the  Operating  Partnership  believes its


                                  Page 4 of 73
<PAGE>

Properties are competitive with comparable properties as to those factors within
the Operating  Partnership's  control,  over-building and other external factors
could adversely  affect the ability of the Operating  Partnership to attract and
retain tenants.

For Acquisitions of Real Estate
The Operating  Partnership  experiences  competition  when attempting to acquire
equity interests in desirable real estate,  including  competition from domestic
and foreign  financial  institutions,  other REITs,  life  insurance  companies,
pension funds, trust funds,  partnerships and individual investors. In competing
for such acquisitions,  the Operating Partnership and the Company have not given
value guarantees in connection with Operating Partnership units or the Company's
stock issued in such acquisitions.

For Capital
The Operating Partnership and the Company compete with other REITs and investors
and owners for debt and equity  financing.  The  Operating  Partnership  and the
Company's  ability to  attract  debt and equity  capital at  favorable  rates is
impacted in part by their  positioning  in the  marketplace  relative to similar
investments.  Factors impacting this include,  among other things, the perceived
quality of the Operating Partnership's portfolio and the risk adjustment sources
of capital give to the returns they expect from their investments.  In competing
for capital,  the Company has not entered into any forward equity commitments or
other  arrangements  which would subject the Company to risks tied to changes in
the market value of its equity securities.

Working Capital

The  Operating  Partnership's  practice is to maintain  cash reserves for normal
repairs,  replacements,  improvements,  working capital and other  contingencies
while minimizing interest expense.  Available cash is kept to a minimum by using
available funds to reduce the outstanding balance on the Operating Partnership's
unsecured line of credit and drawing on it when necessary.

Other Factors

The Operating  Partnership's  ability to achieve operational and capital targets
is impacted by economic  conditions in the markets in which its  Properties  are
located and by broader factors such as prevailing interest rates and the general
availability  of capital at  favorable  rates,  both debt and  equity,  for real
estate investments.  Local economic downturns may adversely effect the occupancy
and rental rates of the Operating Partnership's  Properties. A lack of available
capital  may hinder the  Operating  Partnership's  acquisition  and  development
program  or  cause  it to look to other  types  of  transactions,  such as asset
redeployments, to generate needed liquidity.

Compliance with laws and  regulations  regarding the discharge of materials into
the environment,  or otherwise relating to the protection of the environment, is
not expected to have any material effect upon the capital expenditures, earnings
and competitive position of the Operating Partnership.

The Properties have each been subject to Phase I Environmental  Assessments and,
where such an assessment  indicated it was  appropriate,  Phase II Environmental
Assessments  (collectively,  the  "Environmental  Reports") have been conducted.
These reports have not indicated any significant environmental issues.

In the event that  pre-existing  environmental  conditions  not disclosed in the
Environmental Reports which require remediation are subsequently discovered, the
cost of remediation will be borne by the Operating Partnership. Additionally, no
assurances can be given that (i) future laws,  ordinances,  or regulations  will
not impose any material environmental liability,  (ii) the current environmental
condition of the  Properties has not been or will not be affected by tenants and
occupants of the  Properties,  by the condition of properties in the vicinity of
the  Properties or by third parties  unrelated to the Operating  Partnership  or
(iii)  that the  Operating  Partnership  will not  otherwise  incur  significant
liabilities associated with costs of remediation relating to the Properties.





                                  Page 5 of 73
<PAGE>



Item 2.       Properties

The Location and Type of the Operating Partnership's Properties

The Operating  Partnership's  186  Properties  are  diversified by type (office,
office/flex, industrial, retail, multi-family and hotel) and are located in four
geographic  regions and 24 states within the United  States  comprising 35 local
markets.  The  following  table  sets forth the  location,  type and size of the
Properties (by rentable  square feet and/or units) along with average  occupancy
as of December 31, 1998.
<TABLE>
<CAPTION>

                  Office       Office/Flex     Industrial       Retail      Multi-Family
                  Square          Square         Square         Square         Units       Hotel Rooms       No. of
Region            Footage        Footage         Footage       Footage                                     Properties
-------------   ------------   -------------   ------------  ------------  -------------  -------------  -------------
<S>               <C>            <C>             <C>          <C>               <C>             <C>           <C>
West                885,857      2,051,831       1,427,744      394,222           958           283            58
Midwest           1,877,099        872,596       1,067,884      377,157           670            --            36
East              2,759,270        845,510         945,220       45,546         1,385            --            46
South             1,478,883        790,582         657,232      422,240         6,340           132            46
                ------------   -------------   ------------  ------------  -------------  -------------  -------------

Total             7,001,109      4,560,519       4,098,080    1,239,165         9,353           415           186
                ============   =============   ============  ============  =============  =============  =============

No. of Properties
                         54             49              30           13            37             3

Average Occupancy
                        92%            90%             98%          94%           93%           57%
</TABLE>

For the years ended December 31, 1998, 1997 and 1996, no tenant  contributed 10%
or more of the total rental  revenue of the Operating  Partnership.  The largest
tenant's  annual rent was  approximately  1.9% of total rental  revenues for the
year ended  December  31, 1998. A complete  listing of  Properties  owned by the
Operating  Partnership  at December 31, 1998 is included as part of Schedule III
in Item 14.

Office Properties

The Operating  Partnership owns 54 office  Properties with total rentable square
footage of  7,001,109.  The office  Properties  range in size from 14,255 square
feet to 570,151  square feet, and have lease terms ranging from one to 35 years.
The office  leases  generally  require  the tenant to  reimburse  the  Operating
Partnership  for  increases  in  building  operating  costs over a base  amount.
Certain of the leases  provide for rent increases that are either fixed or based
on a consumer  price  index  ("CPI").  As of  December  31,  1998,  the  average
occupancy of the office Properties was 92%.

The following table sets forth,  for the periods  specified,  the total rentable
area, average occupancy,  average effective base rent per leased square foot and
total effective annual base rent.
<TABLE>
<CAPTION>

                                              Office Properties
                                        Historical Rent and Occupancy
                                                                     Average Effective       Total Effective
                       Total Rentable       Average Occupancy          Base Rent per         Annual Base Rent
Year                   Area (Sq. Ft.)                                Leased Sq. Ft.(1)(3)      ($000s)(2) (3)
------------------    -----------------    --------------------     --------------------    -------------------
<S>                        <C>                       <C>                <C>                    <C>       
1998                       7,001,109                 92%                $   16.04              $  103,314
1997                       2,921,361                 93                     15.81                  42,954
1996                         641,923                 94                     13.19                   7,918
1995                         106,076                 97                     11.91                   1,228
1994                         105,770                 88                     11.44                   1,065
</TABLE>

                                  Page 6 of 73
<PAGE>

 (1)Total  Effective  Annual Base Rent  divided by Average  Occupancy  in square
    feet.  As used  herein,  "Effective  Base  Rent"  represents  base rent less
    concessions.
(2) Total  Effective  Annual Base Rent  adjusted for any free rent given for the
period.
(3) In any given year, base rents are presented on an annualized  basis based on
    results since the  acquisition  for properties that were acquired during the
    year.

The following table sets forth the contractual  lease expirations for leases for
the office Properties as of December 31, 1998.
<TABLE>
<CAPTION>

                                              Office Properties (5)
                                                Lease Expirations
                                                                                             Percentage of Total
                         Number of           Rentable Square         Annual Base Rent         Annual Base Rent
Expiration Year       Expiring Leases      Footage Subject to         Under Expiring           Represented by
                                             Expiring Leases          Leases ($000s)         Expiring Leases (1)
------------------    -----------------    --------------------     --------------------    ----------------------
<S>                          <C>                  <C>                   <C>                         <C>
1999 (4)                     234                  1,114,169             $    15,678                 14.7%
2000                         144                  1,064,151                  18,451                 17.3
2001                         166                    960,697                  16,588                 15.6
2002                         100                    978,477                  18,129                 17.0
2003                          81                    406,689                   7,825                  7.4
Thereafter                   113                  1,695,936                  29,783                 28.0
                      =================    ====================     ====================    ======================
Total                        838                  6,220,119 (2)         $   106,454 (3)            100.0%
                      =================    ====================     ====================    ======================
</TABLE>

(1) Annual base rent expiring  during each period,  divided by total annual base
    rent (both adjusted for contractual increases).
(2) This  figure is based on square  footage  actually  leased  (which  excludes
    vacant space),  which  accounts for the  difference  between this figure and
    "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This  figure is based on square  footage  actually  leased and  incorporates
    contractual rent increases  arising after 1998, and thus differs from "Total
    Effective Annual Base Rent" in the preceding  table,  which is based on 1998
    rents.
(4) Includes  leases that have initial terms of less than one year.  (5) Numbers
exclude the corporate headquarters building.

Office/Flex Properties

The Operating Partnership owns 49 office/flex  Properties  aggregating 4,560,519
square feet. The office/flex Properties are designed for a combination of office
and  warehouse  uses  with  greater  than  10% of the  rentable  square  footage
containing office finish.  The office/flex  Properties range in size from 27,414
square feet to 300,894  square feet, and have lease terms ranging from one to 23
years.  Most of the  office/flex  leases are  "triple  net"  leases  whereby the
tenants are  required to pay their pro rata share of the  Properties'  operating
costs, common area maintenance,  property taxes,  insurance,  and non-structural
repairs.  Some of the leases are  "industrial  gross" leases  whereby the tenant
pays as additional rent its pro rata share of common area maintenance and repair
costs and its share of the increase in taxes and insurance over a specified base
year cost.  Certain of these leases call for fixed or CPI-based rent  increases.
As of December 31, 1998, the average occupancy of the office/flex Properties was
90%.

The following table sets forth,  for the periods  specified,  the total rentable
area, average occupancy,  average effective base rent per leased square foot and
total effective annual base rent.




                                  Page 7 of 73
<PAGE>


<TABLE>
<CAPTION>

                                            Office/Flex Properties
                                        Historical Rent and Occupancy
                                                                     Average Effective       Total Effective
                       Total Rentable       Average Occupancy          Base Rent per         Annual Base Rent
Year (4)               Area (Sq. Ft.)                               Leased Sq. Ft. (1)(3)     ($000s)(2) (3)
------------------    -----------------    --------------------     --------------------    -------------------
<S>                        <C>                       <C>                <C>                    <C> 
1998                       4,560,519                 90%                $    7.61              $   31,235
1997                       3,523,695                 91                      7.17                  22,991
1996                         247,506                 96                      5.50                   1,307
</TABLE>

(1) Total  Effective  Annual Base Rent  divided by Average  Occupancy  in square
    feet.  As used  herein,  "Effective  Base  Rent"  represents  base rent less
    concessions.
(2) Total  Effective  Annual Base Rent  adjusted for any free rent given for the
period.
(3) In any given year, base rents are presented on an annualized  basis based on
    results since the  acquisition  for properties that were acquired during the
    year.
(4) Prior to 1996,  Properties  currently  classified as Office/Flex  Properties
    were included in Industrial  Properties.  See  Industrial  Properties  table
    below.

The following table sets forth the contractual  lease expirations for leases for
the office/flex Properties as of December 31, 1998.
<TABLE>
<CAPTION>

                                             Office/Flex Properties
                                                Lease Expirations
                                                                                             Percentage of Total
                         Number of           Rentable Square         Annual Base Rent         Annual Base Rent
Expiration Year       Expiring Leases      Footage Subject to         Under Expiring           Represented by
                                             Expiring Leases          Leases ($000s)         Expiring Leases (1)
------------------    -----------------    --------------------     --------------------    ----------------------
<S>                          <C>                    <C>                 <C>                         <C>  
1999                         188                    915,672             $     6,565                 20.6%
2000                         105                    641,225                   4,714                 14.8
2001                         102                    677,313                   4,928                 15.5
2002                          32                    417,161                   3,447                 10.9
2003                          46                    480,707                   4,488                 14.1
Thereafter                    29                    833,279                   7,674                 24.1
                      =================    ====================     ====================    ======================
Total                        502                  3,965,357 (2)         $    31,816 (3)            100.0%
                      =================    ====================     ====================    ======================
</TABLE>

(1) Annual base rent expiring  during each period,  divided by total annual base
    rent (both adjusted for contractual increases).
(2) This  figure is based on square  footage  actually  leased  (which  excludes
    vacant space),  which  accounts for the  difference  between this figure and
    "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This  figure is based on square  footage  actually  leased and  incorporates
    contractual rent increases  arising after 1998, and thus differs from "Total
    Effective Annual Base Rent" in the preceding  table,  which is based on 1998
    rents.

Industrial Properties

The Operating  Partnership owns 30 industrial  Properties  aggregating 4,098,080
square feet. The industrial Properties are designed for warehouse,  distribution
and light  manufacturing,  ranging in size from  32,500  square  feet to 474,426
square feet.  As of December  31, 1998,  16 of the  industrial  Properties  were
leased to multiple tenants, 14 were leased to single tenants,  and all 14 of the
single-tenant  Properties  are  adaptable in design to  multi-tenant  use. As of
December 31, 1998, the average occupancy of the industrial Properties was 98%.

Four of the single-tenant Properties are leased to two tenants having five years
remaining  on leases  whose  original  terms  were 20 years.  The terms of these
leases include rent increases  every three years based on all or a percentage


                                  Page 8 of 73
<PAGE>
of the change in the CPI. Under these leases the tenants are required to pay for
all of the  Properties'  operating  costs,  such  as  common  area  maintenance,
property taxes,  insurance,  and all repairs including structural repairs.  Each
lease gives the respective tenant a purchase option exercisable on March 1, 2002
for an amount equal to the greater of the appraised value or a specified minimum
price. Management believes, based on discussions with both tenants, that neither
tenant has any present intention to exercise any option to purchase.

The remaining  industrial  Properties have leases whose terms range from 1 to 25
years.  Most of the leases are  "triple  net"  leases  whereby  the  tenants are
required to pay their pro rata share of the Properties'  operating costs, common
area maintenance, property taxes, insurance, and non-structural repairs. Some of
the leases are  "industrial  gross" leases whereby the tenant pays as additional
rent its pro rata share of common  area  maintenance  and  repair  costs and its
share of the increase in taxes and  insurance  over a specified  base year cost.
Certain of these leases call for fixed or CPI-based rent increases.

The following table sets forth,  for the periods  specified,  the total rentable
area, average occupancy,  average effective base rent per leased square foot and
total effective annual base rent for the industrial Properties.
<TABLE>
<CAPTION>

                                            Industrial Properties
                                        Historical Rent and Occupancy
                                                                     Average Effective       Total Effective
                       Total Rentable       Average Occupancy          Base Rent per         Annual Base Rent
Year (4)               Area (Sq. Ft.)                                Leased Sq. Ft.(1)(3)     ($000s)(2) (3)
------------------    -----------------    --------------------     --------------------    -------------------
<S>                        <C>                       <C>                <C>                    <C>       
1998                       4,098,080                 98%                $    3.91              $   15,703
1997                       3,533,510                 97                      3.36                  11,516
1996                       1,778,862                 99                      2.41                   4,244
1995                       1,491,827                100                      2.29                   3,405
1994                       1,491,827                100                      2.29                   3,401
</TABLE>

(1) Total  Effective  Annual Base Rent  divided by Average  Occupancy  in square
feet. (2) Total Effective  Annual Base Rent adjusted for any free rent given for
the period.
(3) In any given year, base rents are presented on an annualized  basis based on
    results since the  acquisition  for properties that were acquired during the
    year.
(4) Prior to 1996,  Properties  currently  classified as Office/Flex  Properties
    were included in Industrial Properties.

The following table sets forth the contractual  lease expirations for leases for
the industrial Properties as of December 31, 1998.
<TABLE>
<CAPTION>

                                              Industrial Properties
                                                Lease Expirations
                                                                                             Percentage of Total
                         Number of           Rentable Square         Annual Base Rent         Annual Base Rent
Expiration Year       Expiring Leases      Footage Subject to         Under Expiring           Represented by
                                             Expiring Leases          Leases ($000s)         Expiring Leases (1)
------------------    -----------------    --------------------     --------------------    ----------------------
<S>                           <C>                   <C>                 <C>                         <C>  
1999                          23                    411,592             $     1,830                 10.7%
2000                          20                    402,674                   1,700                 10.0
2001                          19                    394,519                   1,708                 10.0
2002                          17                    555,261                   2,369                 13.9
2003                           5                    214,275                   1,005                  5.9
Thereafter                    12                  1,946,599                   8,428                 49.5
                      =================    ====================     ====================    ======================
Total                         96                  3,924,920 (2)         $    17,040 (3)            100.0%
                      =================    ====================     ====================    ======================
</TABLE>

 (1) Annual base rent expiring  during each period, divided by total annual base
     rent (both  adjusted  for  contractual  increases).
 (2) This figure is based on square footage actually leased (which excludes
     vacant space), which accounts for the difference  between this figure and 
    "Total Rentable Area" in the preceding table (which includes vacant space).

                                  Page 9 of 73
<PAGE>

 (3) This figure is based on square footage actually leased (which excludes 
     vacant space) and incorporates contractual rent increases arising after 
     1998, and thus differs from "Total Effective Annual Base Rent" in the
     preceding  table,  which is based on 1998 rents.

Retail Properties

The Operating  Partnership owns 13 retail  Properties with total rentable square
footage of 1,239,165.  The leases for the retail  Properties  have terms ranging
from one to 40 years.  Eleven of the retail Properties,  representing  1,156,079
square feet or 93% of the total rentable area, are anchored  community  shopping
centers.   The  anchor  tenants  of  these  centers  are  national  or  regional
supermarkets and drug stores.  As of December 31, 1998, the average occupancy of
the retail Properties was 94%.

The leases for the retail  Properties  generally include fixed or CPI-based rent
increases and some include  provisions for the payment of additional  rent based
on a  percentage  of the  tenants'  gross sales that exceed  specified  amounts.
Retail tenants also typically pay as additional rent their pro rata share of the
Properties'  operating costs including common area maintenance,  property taxes,
insurance and  non-structural  repairs.  Some leases contain options to renew at
market rates or specified rates.

The following table sets forth,  for the periods  specified,  the total rentable
area, average occupancy,  average effective base rent per leased square foot and
total effective annual base rent for the retail Properties.

<TABLE>
<CAPTION>
                                              Retail Properties
                                        Historical Rent and Occupancy
                                                                     Average Effective       Total Effective
                       Total Rentable       Average Occupancy          Base Rent per         Annual Base Rent
Year                   Area (Sq. Ft.)                                Leased Sq. Ft.(1)(3)      ($000s)(2) (3)
------------------    -----------------    --------------------     --------------------    -------------------
<S>                        <C>                       <C>                <C>                    <C>       
1998                       1,239,165                 94%                $    8.75              $   10,192
1997                         979,088                 96                      7.98                   7,501
1996                         630,700                 96                      7.82 (4)               4,726
1995                         285,658                 95                     10.76                   2,915
1994                         285,722                 94                     10.76                   2,890
</TABLE>

(1) Total  Effective  Annual Base Rent  divided by Average  Occupancy  in square
feet. (2) Total Effective  Annual Base Rent adjusted for any free rent given for
the period.
(3) In any given year, base rents are presented on an annualized  basis based on
    results since the  acquisition  for properties that were acquired during the
    year.
(4) Average  effective base rent per leased square foot declined in 1996 due to 
    the  acquisition of properties with lower base rents.

The following table sets forth the contractual  lease expirations for the retail
Properties as of December 31, 1998.
<TABLE>
<CAPTION>

                                                Retail Properties
                                                Lease Expirations
                                                                                             Percentage of Total
                         Number of           Rentable Square         Annual Base Rent         Annual Base Rent
Expiration Year       Expiring Leases      Footage Subject to         Under Expiring           Represented by
                                             Expiring Leases          Leases ($000s)         Expiring Leases (1)
------------------    -----------------    --------------------     --------------------    ----------------------
<S>                           <C>                   <C>                 <C>                         <C>  
1999                          69                    151,979             $     1,898                 17.4%
2000                          37                     72,344                     918                  8.4
2001                          63                    165,263                   1,792                 16.5
2002                          15                     26,301                     359                  3.3
2003                          23                    109,795                     993                  9.1
Thereafter                    49                    632,678                   4,930                 45.3
                      =================    ====================     ====================    ======================
Total                        256                  1,158,360 (2)         $    10,890 (3)            100.0%
                      =================    ====================     ====================    ======================
</TABLE>

                                 Page 10 of 73
<PAGE>

(1) Annual base rent expiring  during each period,  divided by total annual base
    rent (both adjusted for contractual increases).
(2) This  figure is based on square  footage  actually  leased  (which  excludes
    vacant space),  which  accounts for the  difference  between this figure and
    "Total Rentable Area" in the preceding table (which includes vacant space).
(3) This  figure is based on square  footage  actually  leased  (which  excludes
    vacant space) and  incorporates  contractual  rent  increases  arising after
    1998,  and thus  differs  from  "Total  Effective  Annual  Base Rent" in the
    preceding table which is based on 1998 rents.

Tenant Improvements and Leasing Commissions

The following table  summarizes by year the capitalized  tenant  improvement and
leasing  commission  expenditures  incurred  in the  renewal  or  re-leasing  of
previously occupied space since January 1, 1994.
<TABLE>
<CAPTION>

                               Capitalized Tenant Improvements and Leasing Commissions

                                                   1998             1997         1996           1995           1994
                                                   ----             ----         ----           ----           ----
<S>                                             <C>               <C>          <C>             <C>           <C>
Office Properties
Square footage renewed or re-leased               579,904         174,354        39,706          79,745       18,384
Capitalized tenant improvements and
    commissions ($000s)                         $   4,263         $   850      $    617 (1)    $    468      $    58
    Average per square foot of renewed or
    re-leased space                             $    7.35         $  4.87      $  15.54 (1)    $   5.87      $  3.18

Office/Flex Properties
Square footage renewed or re-leased               876,490         138,658         9,000              (2)          (2)
Capitalized tenant improvements and
    commissions ($000s)                         $   3,232         $   418      $     23              (2)          (2)
    Average per square foot of renewed or
    re-leased space                             $    3.69         $  3.01      $   2.56              (2)          (2)

Industrial Properties
Square footage renewed or re-leased               307,896         198,055        60,000         141,523       89,000
Capitalized tenant improvements and
    commissions ($000s)                         $     370         $   235      $     51        $    114      $    60
    Average per square foot of renewed or
    re-leased space                             $    1.20         $  1.19      $   0.85        $   0.81      $  0.67

Retail Properties
Square footage renewed or re-leased                45,894          12,080        32,998          33,294       46,833
Capitalized tenant improvements and 
    commissions ($000s)                         $     283         $    42      $     83        $     98      $    59
    Average per square foot of renewed or
    re-leased space                             $    6.16 (3)     $  3.51      $   2.53        $   2.94      $  1.25

All Properties
Square footage renewed or re-leased             1,810,184         523,147       141,704         254,562      154,217
Capitalized tenant improvements and
    commissions ($000s)                         $   8,148         $ 1,545      $    774        $    680      $   177
    Average per square foot of renewed or
    re-leased space                             $    4.50         $  2.95      $   5.46        $   2.67      $  1.14
</TABLE>

(1) The significant  increase in capitalized tenant improvements and commissions
    in  1996  over  the  previous  years  is  primarily  the  result  of  tenant
    improvements  provided in connection with a lease extension of space for the
    principal  tenant  of one  property.  The lease  was  extended  10 years and
    expires in 2010.

                                 Page 11 of 73
<PAGE>

(2) Prior to 1996,  Properties  currently  classified as Office/Flex  Properties
    were included in Industrial Properties.
(3) The significant  increase in capitalized tenant improvements and commissions
    in 1998 over the previous  years is primarily  the result of accrued  tenant
    improvements  to be provided to a tenant who will not occupy  until  January
    1999.  The square  footage  for this  tenant is not  included  in the square
    footage renewed or re-leased as this tenant does not yet occupy the space.

Multi-Family Properties

The Operating  Partnership owns 37 multi-family  Properties,  aggregating  9,353
units.  All of  the  units  are  rented  to  residential  tenants  on  either  a
month-to-month  basis or for terms of one year or less. As of December 31, 1998,
the multi-family Properties were approximately 93% leased.

The following table sets forth, for the periods specified,  total units, average
occupancy,  monthly  average  effective  base rent per unit and total  effective
annual base rent for the multi-family Properties.
<TABLE>
<CAPTION>

                                           Multi-Family Properties
                                        Historical Rent and Occupancy
                                                                     Average Effective       Total Effective
                                            Average Occupancy          Base Rent per         Annual Base Rent
Year                    Total Units                                 Leased Unit (1) (3)       ($000s)(2) (3)
------------------    -----------------    --------------------     --------------------    -------------------
<S>                         <C>                     <C>                 <C>                    <C>       
1998                        9,353                   93%                 $     618              $   64,507
1997                        2,251                   95                        619                  15,884
1996                          642                   94                        598 (4)               4,328
1995                          104                   94                        630                     739
1994                          104                   98                        632                     774
</TABLE>

(1) Total Effective Annual Base Rent divided by average occupied unit. (2) Total
Effective Annual Base Rent adjusted for any free rent given for the period.
(3) In any given year, base rents are presented on an annualized  basis based on
    results since the  acquisition  for properties that were acquired during the
    year.
(4) Average  effective  monthly base rent per unit declined in 1996 due to the 
    acquisition of properties with lower base rents.

Hotel Properties

Through June 1998,  the Operating  Partnership  leased the six Country Suites by
Carlson  hotels that it owned to  Glenborough  Hotel Group  ("GHG") who operated
them for its own  account.  In June 1998,  two of the  hotels  were sold and the
other four hotels were leased to other  operators.  In December 1998, one of the
four  hotels  was  sold to one of the  operators  and two  other  hotels  are in
contract to be sold to the other operator in March 1999. The buyer has an option
to extend the  closing of the sale to June 1999 and it is  anticipated  that the
buyer will exercise that option.  These leases terminate upon the closing of the
sales of the properties.

Item 3.       Legal Proceedings

Blumberg.  The Company  settled a class action  complaint  filed on February 21,
1995 in  connection  with the  Consolidation.  Certain  parties  objected to the
settlement,  but the  settlement  has been  approved  (or review  denied) by the
Superior  Court of the  State of  California  in and for San Mateo  County,  the
California state court of appeals,  and the California  Supreme Court. In August
1998 the  objecting  parties  filed a  petition  for writ of  certiorari  in the
Supreme Court of the United States.  The Company and the  co-defendants  filed a
brief in opposition to the petition.  The Supreme Court of the United States has
not yet granted or denied the petition.

                                 Page 12 of 73
<PAGE>

The plaintiff in the case is Anthony E. Blumberg,  an investor in Equitec B, one
of the Partnerships included in the Consolidation,  on behalf of himself and all
others (the  "Blumberg  Action")  similarly  situated.  The  defendants  are GC,
Glenborough Realty Corporation ("GRC"), Robert Batinovich,  the Partnerships and
the Company.

The complaint  alleged  breaches by the  defendants of their  fiduciary duty and
duty of good  faith and fair  dealing  to  investors  in the  Partnerships.  The
complaint  sought  injunctive  relief and  compensatory  damages.  The complaint
alleged that the valuation of Glenborough Corporation was excessive and was done
without appraisal of Glenborough Corporation's business or assets. The complaint
further  alleged that the interest  rate for the Notes to be issued to investors
in lieu of shares of Common  Stock,  if they so elected was too low for the risk
involved  and that the Notes would  likely  sell,  if at all,  at a  substantial
discount  from  their  face  value  (as a  matter  entirely  distinct  from  the
litigation and subsequent settlement, the Company, as it had the option to, paid
in full the amounts due plus interest in lieu of issuing Notes).

On October 9, 1995 the parties  entered  into an agreement to settle the action.
The defendants,  in entering into the settlement agreement,  did not acknowledge
any fault, liability or wrongdoing of any kind and continue to deny all material
allegations  asserted in the litigation.  Pursuant to the settlement  agreement,
the  defendants  will be released from all claims,  known or unknown,  that have
been,  could have been,  or in the future might be asserted,  relating to, among
other  things,  the  Consolidation,  the  acquisition  of the  Company's  shares
pursuant  to  the  Consolidation,  any  misrepresentation  or  omission  in  the
Registration  Statement on Form S-4,  filed by the Company on September 1, 1994,
as  amended,   or  the   prospectus   contained   therein   ("Prospectus/Consent
Solicitation  Statement"),  or the subject matter of the lawsuit. In return, the
defendants agreed to the following:  (a) the inclusion of additional or expanded
disclosure  in the  Prospectus  Consent  Solicitation  Statement,  and  (b)  the
placement of certain  restrictions on the sale of the stock by certain  insiders
and the granting of stock options to certain insiders following  consummation of
the Consolidation.  Plaintiff's counsel indicated that it would request that the
court award it $850,000 in attorneys'  fees,  costs and  expenses.  In addition,
plaintiffs'  counsel indicated it would request the court for an award of $5,000
payable to Anthony  E.  Blumberg  as the class  representative.  The  defendants
agreed not to oppose such requests.

On October 11, 1995,  the court  certified the class for purposes of settlement,
and scheduled a hearing to determine  whether it should  approve the  settlement
and class counsel's  application  for fees. A notice of the proposed  settlement
was  distributed  to the members of the class on November 15,  1995.  The notice
specified that, in order to be heard at the hearing,  any class member objecting
to the proposed  settlement  must, by December 15, 1995, file a notice of intent
to appear, and a detailed statement of the grounds for their objection.

Objections  were received from a small number of class  members.  The objections
reiterated the claims in the original Blumberg complaint,  and asserted that the
settlement agreement did not adequately compensate the class for releasing those
claims.  One of the  objections  was filed by the same law firm that brought the
BEJ Action described below.

At a hearing on January 17, 1996, the court heard the arguments of the objectors
seeking to overturn the  settlement,  as well as the arguments of the plaintiffs
and the defendants in defense of the settlement. The court granted all parties a
period of time in which to file additional pleadings. On June 4, 1996, the court
granted approval of the settlement,  finding it fundamentally fair, adequate and
reasonable to the respective parties to the settlement.  However,  the objectors
gave  notice of their  intent to appeal the June 4 decision.  All parties  filed
their  briefs and a hearing was held on February 3, 1998.  On February 17, 1998,
the  Court of  Appeals  rejected  the  objectors'  contentions  and  upheld  the
settlement. The objectors filed with the California Supreme Court a petition for
review,  which was denied on May 21,  1998.  On August 18, 1998,  the  objectors
filed a  petition  for writ of  certiorari  in the  Supreme  Court of the United
States. On September 18, 1998, the Company and the  co-defendants  filed a brief
in opposition  to the petition.  The Supreme Court has not yet granted or denied
the petition.

BEJ Equity  Partners.  On  December 1, 1995,  a second  class  action  complaint
relating  to the  Consolidation  was  filed in  Federal  District  Court for the
Northern  District of California  (the "BEJ Action").  The plaintiffs in the BEJ
Action have  voluntarily  stayed the action  pending  resolution of the Blumberg
Action.

The  plaintiffs  in the BEJ  Action  are BEJ  Equity  Partners,  J/B  Investment
Partners,  Jesse B.  Small  and Sean  O'Reilly  as  custodian  f/b/o  Jordan  K.
O'Reilly,  who as a group  held  limited  partner  interests  in  certain of the
Partnerships  included

                                 Page 13 of 73
<PAGE>

in the Consolidation known as Outlook Properties Fund IV, Glenborough All Suites
Hotels,  L.P.,  Glenborough  Pension  Investors,   Equitec  Income  Real  Estate
Investors-Equity  Fund 4,  Equitec  Income Real  Estate  Investors C and Equitec
Mortgage  Investors  Fund IV, on behalf of themselves  and all others  similarly
situated.  The defendants are GRC, GC, the Company, GPA, Ltd., Robert Batinovich
and Andrew Batinovich. The Partnerships are named as nominal defendants.

This action  alleges the same  disclosure  violations  and breaches of fiduciary
duty as were alleged in the Blumberg  Action.  The complaint  sought  injunctive
relief, which was denied at a hearing on December 22, 1995. At that hearing, the
court  also  deferred  all  further  proceedings  in this case  until  after the
scheduled  January 17, 1996 hearing in the Blumberg  Action.  Following  several
stipulated  extensions of time for the Company to respond to the complaint,  the
Company  filed a motion  to  dismiss  the  case.  Plaintiffs  in the BEJ  Action
voluntarily  stayed the action pending  resolution of the Blumberg Action;  such
plaintiffs can revive their lawsuit.

It is  management's  position  that the BEJ Action,  and the  objections  to the
settlement of the Blumberg Action,  are without merit, and management intends to
pursue  a  vigorous  defense  in both  matters.  In view  of the  denial  of the
objector's  petition for review in the Blumberg Action,  among other things, the
Company believes that it is very unlikely that this litigation would result in a
liability that would exceed the accrued liability by a material amount. However,
given the inherent  uncertainties of litigation,  there can be no assurance that
the ultimate  outcome in these two legal  proceedings  will be in the  Company's
favor.

Certain other claims and lawsuits have arisen against the Operating  Partnership
and the Company in their normal course of business.  The  Operating  Partnership
and the Company  believe  that such other  claims and  lawsuits  will not have a
material  adverse  effect  on  the  Operating  Partnership's  or  the  Company's
financial position, cash flow or results of operations.

Item 4.       Submission of Matters to a Vote of Security Holders

None




                                 Page 14 of 73
<PAGE>


                                     PART II

Item 5.       Market for Partnership's Common Equity and Related Partner Matters

(a)  Market Information

There is no  established  trading  market for the Units issued by the  Operating
Partnership.

Holders

As of December 31, 1998, there were 100 holders of Operating Partnership Units.

Distributions

Since its  organization,  the Operating  Partnership has paid regular  quarterly
distributions to holders of its Units. During the years ended December 31, 1996,
1997  and  1998,  the  Operating   Partnership  paid  the  following   quarterly
distributions:

                             Distributions             Total
Quarterly Period               Per Unit            Distributions
------------------------    ----------------    --------------------
1996
First Quarter                  $   0.30            $   1,194,000
Second Quarter                 $   0.30            $   1,201,000
Third Quarter                  $   0.30            $   2,346,000
Fourth Quarter                 $   0.32            $   2,511,000
1997
First Quarter                  $   0.32            $   3,744,000
Second Quarter                 $   0.32            $   6,076,000
Third Quarter                  $   0.32            $   9,903,000
Fourth Quarter                 $   0.42            $  13,210,000
1998
First Quarter                  $   0.42            $  17,122,000
Second Quarter                 $   0.42            $  20,130,000     (1)
Third Quarter                  $   0.42            $  20,650,000     (2)
Fourth Quarter                 $   0.42            $  20,607,000     (2)

(1) Total distributions  include a preferred partner interest  distribution paid
to the  Company  of  $3,910,000.  (2) Total  distributions  include a  preferred
partner interest distribution paid to the Company of $5,570,000.

The Operating Partnership intends to pay regular quarterly  distributions to its
Unit holders.  Future distributions by the Operating  Partnership will be at the
discretion  of  management  and will  depend upon the actual  operations  of the
Operating Partnership, its financial condition, capital requirements, applicable
legal  restrictions  and such other factors as management  deems  relevant.  The
Operating  Partnership  intends  to  continue  its  policy of  paying  quarterly
distributions, but there can be no assurance that distributions will continue or
be paid at any specific level.

(b) Recent Sales of Unregistered Securities

Sales of unregistered  securities by the Operating  Partnership  during 1998 are
described in the Operating  Partnership's  Quarterly Report on Form 10-Q for the
quarter ended September 30, 1998.

Item 6.       Selected Financial Data

Set forth below are selected financial data for:

         Glenborough  Properties,  L.P.:  Consolidated  balance  sheet  data  is
         presented as of December 31, 1998,  1997,  1996 and 1995.  Consolidated
         operating data is presented for the years ended December 31, 1998, 1997
         and 1996, and As Adjusted consolidated  operating data is presented for
         the years 


                                 Page 15 of 73
<PAGE>

         ended  December  31,  1995 and 1994.  The As  Adjusted  data
         assumes the Consolidation and related transactions  occurred on January
         1,  1994,  in  order  to  present  the   operations  of  the  Operating
         Partnership  for  those  periods  as if the  Consolidation  had been in
         effect for those  periods.  As Adjusted  data is  presented  to provide
         amounts which are comparable to the consolidated  results of operations
         of the  Operating  Partnership  for the years ended  December 31, 1998,
         1997 and 1996.

         The GRT Predecessor Entities:  Combined operating data is presented for
         the years ended December 31, 1995 and 1994. Combined balance sheet data
         is presented as of December 31, 1994.

This selected  financial data should be read in  conjunction  with the financial
statements  of  Glenborough  Properties,  L.P.,  including  the  notes  thereto,
included in Item 14.
<TABLE>
<CAPTION>
                                                          As of and for the Year Ended December 31,
                                    ---------------------------------------------------------------------------------------
                                    Historical   Historical   Historical  As Adjusted   Historical  As Adjusted  Historical
                                       1998         1997         1996        1995          1995        1994         1994
                                    ------------ ----------- ----------- ------------- ----------- ------------ ------------
                                                            (In thousands, except per share data)
Operating Data:
<S>                                  <C>          <C>         <C>         <C>            <C>         <C>          <C>     
 Rental Revenue.........             $  227,956   $  61,393   $  17,943   $  13,495      $ 15,454    $ 12,867     $ 13,797
 Fees and reimbursements                  2,802         719         311          --        16,019          --       13,327
 Interest and other income                4,557       1,627       1,070         982         2,698       1,109        3,557
 Equity in earnings of
     Glenborough Corporation              1,533       1,687       1,571          --            --          --           --
 Total Revenues(1)......                241,644      66,917      21,216      14,477        34,171      13,976       30,681
 Property operating expenses             75,426      20,904       5,735       4,624         8,576       4,188        6,782
 General and administrative              10,682       4,002       1,490         983        15,947         954       13,454
 Interest expense.......                 53,289       9,668       3,913       2,767         2,129       2,767        1,140
 Depreciation and
   amortization.........                 50,169      14,829       4,583       3,654         4,762       3,442        4,041
 Income (loss) from operations
   before extraordinary items and
   Preferred Partner Interest            47,755      17,514      (1,742)      1,586           524      (5,145)       1,580
   Distributions........
 Net income (loss) before
   Preferred Partner Interest            46,355      16,671      (1,928)      1,586           524      (5,145)       1,580
   Distributions(2)
 Net income (loss) allocable to
   general and limited partners          25,735      16,671      (1,928)      1,586           524      (5,145)       1,580
 Per Unit (3):
 Net income (loss) before
   extraordinary items allocable
   to general and limited partners         0.78        0.92      (0.24)        0.40            --       (1.29)          --
 Net income (loss) allocable to
   general and limited partners            0.74        0.88      (0.27)        0.40            --       (1.29)          --

Balance Sheet Data:
 Net investment in real estate       $1,742,439   $ 825,218   $ 161,945          --      $ 77,574          --     $ 63,994
 Mortgage loans receivable, net          42,420       3,692       9,905          --         7,216          --       19,953
 Total assets...........              1,876,246     864,450     183,335          --        95,801          --      117,321
 Total debt.............                922,097     228,299      75,891          --        33,685          --       17,906
 Partners' equity.......                925,228     623,884     104,128          --        57,592          --       80,558

Other Data:
 Distributions per unit
   (excluding Preferred Partner
   Interest Distributions) (4)        $    1.68  $     1.38   $    1.22   $    1.20      $     --    $   1.20     $     --
 Preferred Partner Interest              20,620          --          --          --            --          --           --
   Distributions
 EBIDA(5)...............                150,740      40,520      13,670          --         9,291          --       10,269
 Ratios:
 Ratio of Earnings to Fixed                1.86        2.81        0.55          --          1.41          --         2.58
  Charges (6)
 Ratio of Earnings to Fixed
  Charges and Preferred Partner
  Interest Distributions(7)                1.35        2.81        0.55          --          1.41          --         2.58
 Annual Service Charge Coverage            2.31        4.29        3.67          --            --          --           --
(8)
 Debt to Total Assets (9)                 48.9%       27.0%       39.0%          --            --          --           --
 Secured Debt to Total Assets (10)        36.5%       16.7%       37.3%          --            --          --           --
 Total Unencumbered Assets to
  Unsecured Debt (11)                    283.0%      632.9%          --          --            --          --           --
 Cash flow provided by (used for):
   Operating activities.              $  77,068  $   19,570   $   5,163          --      $(10,608)         --    $  22,426
   Investing activities.               (614,043)   (569,373)    (61,974)         --         8,656          --       (1,947)
   Financing activities.                537,324     552,688      57,458          --       (17,390)         --       (2,745)
</TABLE>

                                 Page 16 of 73
<PAGE>

(1) Certain  revenues which are included in the historical  combined amounts for
    1995 and prior are not  included on an adjusted  basis.  These  revenues are
    included  in  the  financial  statements  of the  unconsolidated  Associated
    Companies,  on an as adjusted  basis,  from which the Operating  Partnership
    receives  lease  payments  and the  Company  and the  Operating  Partnership
    receive dividends.

(2) Historical   1996  and  as  adjusted  1994  net  losses  reflect  $7,237  of
    Consolidation   and  litigation   costs  incurred  in  connection  with  the
    Consolidation.  As adjusted 1994 data give effect to the  Consolidation  and
    related  transactions  as if such  transactions  had  occurred on January 1,
    1994,  whereas historical 1996 data reflect such transactions in the periods
    they were expensed.  The Consolidation and litigation costs were expensed on
    January 1, 1996, the Operating Partnership's first day of operations.

(3) As adjusted net income per unit is based upon as adjusted  weighted  average
    units outstanding of 3,979,376 for 1995 and 1994.

(4) Historical  distributions  per unit for the years ended  December  31, 1998,
    1997 and 1996 consist of distributions  declared for the periods then ended.
    As adjusted  distributions per unit for each of the years ended December 31,
    1995 and 1994 are based on $0.30 per unit per quarter.

(5) EBIDA  is  computed  as  income   (loss)  before   minority   interests  and
    extraordinary  items plus interest  expense,  depreciation and amortization,
    gains  (losses) on  disposal of  properties  and loss  provisions.  In 1996,
    consolidation  and  litigation  costs  were also added back to net income to
    determine EBIDA. The Operating  Partnership believes that in addition to net
    income  and  cash  flows,  EBIDA  is  a  useful  measure  of  the  financial
    performance  of an equity REIT  because,  together  with net income and cash
    flows,  EBIDA provides  investors  with an additional  basis to evaluate the
    ability  of a REIT to  incur  and  service  debt  and to fund  acquisitions,
    developments  and other  capital  expenditures.  To  evaluate  EBIDA and the
    trends it depicts, the components of EBIDA, such as rental revenues,  rental
    expenses, real estate taxes and general and administrative expenses,  should
    be  considered.  See  "Management's  Discussion  and  Analysis of  Financial
    Condition  and Results of  Operations."  Excluded  from EBIDA are  financing
    costs such as interest as well as  depreciation  and  amortization,  each of
    which can  significantly  affect  the  Operating  Partnership's  results  of
    operations  and  liquidity  and  should  be  considered  in  evaluating  the
    Operating  Partnership's  operating  performance.  Further,  EBIDA  does not
    represent net income or cash flows from  operating,  financing and investing
    activities as defined by generally accepted  accounting  principles and does
    not  necessarily  indicate that cash flows will be sufficient to fund all of
    the Operating  Partnership's  cash needs.  It should not be considered as an
    alternative  to net income as an indicator of the Operating  Partnership  's
    operating  performance  or as an  alternative  to cash flows as a measure of
    liquidity.  Further, EBIDA as disclosed by other REITs may not be comparable
    to the Operating  Partnership's  calculation of EBIDA.  The following  table
    reconciles  net income (loss) of the Operating  Partnership to EBIDA for the
    periods presented (in thousands):
<TABLE>
<CAPTION>
                                              The Operating Partnership         GRT Predecessor Entities
                                         -----------------------------------    ------------------------
                                                         For the Year Ended December 31,
                                         ---------------------------------------------------------------
                                         Historical   Historical  Historical     Historical  Historical
                                            1998         1997        1996           1995        1994
                                         ----------- ----------- -----------    ----------- ------------

           <S>                            <C>         <C>         <C>            <C>         <C>
           Net income (loss) before
              Preferred Partner           $  46,355   $  16,671   $  (1,928)     $     524   $   1,580
              Interest Distributions
           Extraordinary items.....           1,400         843         186             --          --
           Interest expense........          53,289       9,668       3,913          2,129       1,140
           Depreciation and                  50,169      14,829       4,583          4,762       4,041
           amortization
           Gains (losses) on disposal
              of properties and
              collection of mortage          (4,796)     (1,491)       (321)            --          --
              loan receivable......
           Loss on interest rate
              protection agreement.           4,323          --          --             --          --
           Consolidation and                     --          --       7,237             --          --
           litigation costs
           Loss provisions.........              --          --          --          1,876       3,508
                                         =========== =========== ===========    =========== ============
           EBIDA...................       $ 150,740   $  40,520   $  13,670      $   9,291   $  10,269
                                         =========== =========== ===========    =========== ============
</TABLE>

(6) The ratio of earnings to fixed charges is computed as net income (loss) from
    operations,  before  extraordinary  items,  plus  fixed  charges  (excluding
    capitalized  interest)  divided by fixed charges.  Fixed charges  consist of
    interest costs including amortization of deferred financing costs.

(7) The ratio of  earnings  to fixed  charges  and  Preferred  Partner  Interest
    Distributions  is computed  as net income  (loss)  from  operations,  before
    extraordinary  items, plus fixed charges  (excluding  capitalized  interest)
    divided by fixed  charges plus  Preferred  Partner  Interest  Distributions.
    Fixed charges consist of interest costs  including  amortization of deferred
    financing costs.

(8) The annual  service  charge  coverage is computed as EBIDA divided by annual
    service  charge.  Annual  Service  Charge for any period means the aggregate
    interest expense for such period and the amortization  during such period of
    any original  issue discount of, debt of the Operating  Partnership  and its
    subsidiaries.

(9) Debt to total assets is computed as debt divided by total assets.

(10) Secured  debt to total assets is computed as secured debt divided by total
assets.

(11) Total unencumbered assets to unsecured debt is computed as total 
     unencumbered assets divided by unsecured debt.

                                 Page 17 of 73
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

The following  discussion and analysis of the financial condition and results of
operations of the Operating  Partnership  should be read in conjunction with the
selected financial data in Item 6 and the Consolidated  Financial  Statements of
Glenborough Properties, L.P., including the notes thereto, included in Item 14.

Results of Operations

Comparison  of the year ended  December 31, 1998 to the year ended  December 31,
1997.

Following is a table of net operating  income by property type, for  comparative
purposes, presenting the results for the years ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>

                                               Results of Operations by Property Type
                                           For the Years Ended December 31, 1998 and 1997
                                                           (in thousands)

                                   Office/                               Multi-                 Property    Eliminating   Total
                        Office       Flex     Industrial    Retail       Family      Hotel        Total      Entry(1)    Reported

1998
<S>                    <C>          <C>          <C>          <C>         <C>          <C>        <C>           <C>       <C>     
Rental Revenue         $117,746     $36,987      $16,104      $12,072     $40,865      $4,182     $227,956          --    $227,956
Operating Expenses       44,775      10,898        3,609        3,840      17,235         967       81,324     ($5,898)     75,426
Net Operating Income     72,971      26,089       12,495        8,232      23,630       3,215      146,632       5,898     152,530
   Percentage of
    Total NOI               50%         18%           8%           6%         16%          2%         100%


1997
Rental Revenue         $ 25,071     $10,354      $ 7,320      $ 7,224     $ 5,536      $5,980     $ 61,485        ($92)   $ 61,393
Operating Expenses        9,986       3,062        1,459        2,183       2,309       1,894       20,893          11      20,904
Net Operating Income     15,085       7,292        5,861        5,041       3,227       4,086       40,592        (103)     40,489
   Percentage of
    Total NOI               37%         18%          15%          12%          8%         10%         100%
</TABLE>


(1)  Eliminating entry represents internal market level property management fees
     included  in  operating   expenses  to  provide   comparison   to  industry
     performance.

Rental Revenue. Rental revenue increased $166,563,000,  or 271%, to $227,956,000
for the year  ended  December  31,  1998,  from  $61,393,000  for the year ended
December 31,  1997.  The  increase  included  growth in revenue from the office,
office/flex,  industrial,  retail and  multi-family  Properties of  $92,675,000,
$26,633,000,   $8,784,000,  $4,848,000  and  $35,329,000,   respectively.  These
increases  were  partially  offset by a $1,798,000  decrease in revenue from the
hotel  Properties  due to the 1998 sales of two hotels.  Rental  revenue for the
year ended December 31, 1998,  included  $17,404,000 of rental revenue generated
from  the  acquisition  of 20  properties  in 1996  (the  "1996  Acquisitions"),
$96,130,000 of rental revenue generated from the acquisition of 90 properties in
1997 (the "1997 Acquisitions") and $104,254,000 of rental revenue generated from
the acquisition of 69 properties in 1998 (the "1998 Acquisitions").

Fees and Reimbursements.  Fees and reimbursements  revenue consists primarily of
property  management fees,  asset management fees and lease  commissions paid to
the Operating Partnership under property and asset management  agreements.  This
revenue increased $2,083,000, or 290%, to $2,802,000 for the year ended December
31,  1998,  from  $719,000  for the year ended  December  31,  1997.  The change
consists  primarily of increased lease commissions from an affiliated entity and
fees resulting from the sale of managed properties.

                                 Page 18 of 73
<PAGE>

Interest and Other Income.  Interest and other income increased  $2,930,000,  or
180%, to $4,557,000  for the year ended December 31, 1998,  from  $1,627,000 for
the year ended  December 31, 1997.  This increase is primarily due to $1,749,000
of interest income on a mortgage loan receivable secured by Gateway Center which
originated on June 30, 1998.  In addition,  in 1998,  the Operating  Partnership
invested approximately $20 million in the securities of a private REIT which was
accounted  for using the  equity  method.  In 1998,  the  Operating  Partnership
recognized  approximately  $990,000 as equity in the  earnings  of this  private
REIT.

Equity in Earnings of Glenborough Corporation. Equity in earnings of Glenborough
Corporation decreased $154,000, or 9%, to $1,533,000 for the year ended December
31, 1998, from $1,687,000 for the year ended December 31, 1997. This decrease is
due to a  reduction  in the number of managed  properties  upon the sale of such
properties.

Net Gain on Sales of Real  Estate  Assets.  The net gain on sales of real estate
assets of $4,796,000 during the year ended December 31, 1998,  resulted from the
sales of one  office  property,  two  office/flex  properties,  four  industrial
properties,  one  multi-family  property  and three  hotel  properties  from the
Operating  Partnership's  portfolio.  This net gain was offset by a $3.1 million
loss on the sale of the Operating Partnership's  investment in the securities of
a private REIT.  The net gain on sales of real estate assets of $839,000  during
the  year  ended  December  31,  1997,  resulted  from the  sales  of 16  retail
properties from the Operating Partnership's portfolio.

Gain on  Collection  of Mortgage  Loan  Receivable.  The gain on  collection  of
mortgage  loan  receivable of $652,000  during the year ended  December 31, 1997
resulted  from the  collection  of a mortgage  loan  receivable  which had a net
carrying  value of  $6,700,000.  The payoff amount  totaled  $6,863,000,  plus a
$500,000  note  receivable,  which,  net of legal  costs,  resulted in a gain of
$652,000.

Property Operating Expenses.  Property operating expenses increased $54,522,000,
or 261%, to $75,426,000 for the year ended December 31, 1998,  from  $20,904,000
for the year ended  December  31,  1997.  This  increase  primarily  consists of
$22,750,000  attributable to the 1997 Acquisitions and $31,997,000  attributable
to the 1998 Acquisitions.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $6,680,000,  or 167%, to $10,682,000  for the year ended December 31,
1998,  from  $4,002,000  for the year ended  December 31, 1997.  The increase is
primarily due to increased  salary and overhead  costs  resulting  from the 1997
Acquisitions and 1998 Acquisitions.  As a percentage of rental revenue,  general
and  administrative  expenses  actually  decreased  from 6.5% for the year ended
December 31, 1997 to 4.7% for the year ended December 31, 1998.

Depreciation  and   Amortization.   Depreciation   and  amortization   increased
$35,340,000,  or 238%, to $50,169,000 for the year ended December 31, 1998, from
$14,829,000  for the year ended December 31, 1997. The increase is primarily due
to depreciation and amortization  associated with the 1997 Acquisitions and 1998
Acquisitions.

Interest  Expense.   Interest  expense  increased   $43,621,000,   or  451%,  to
$53,289,000  for the year ended December 31, 1998,  from $9,668,000 for the year
ended  December  31, 1997.  Substantially  all of the increase was the result of
higher average  borrowings  during the year ended December 31, 1998, as compared
to the year ended  December 31, 1997, due to new debt and the assumption of debt
related to the 1997 Acquisitions and 1998 Acquisitions.

Loss  on  Interest  Rate  Protection  Agreement.   During  1998,  the  Operating
Partnership  entered  into a  forward  interest  rate  agreement  to lock in the
risk-free  interest component of a portion of a secured mortgage to be issued in
October 1998. The 10-year Treasury rates decreased during the term of the hedge.
During the fourth quarter of 1998, the Operating Partnership recorded an expense
for its payment of  $4,323,000  to  terminate a portion of the forward  interest
rate  agreement in connection  with a reduction in the amount of the mortgage to
be issued.  The Operating  Partnership's  payment of $6,244,000 in settlement of
the remaining  portion of the forward  interest rate  agreement  will offset the
reduced financing costs of the $248.8 million mortgage issued in October 1998.

Loss on Early  Extinguishment  of Debt. Loss on early  extinguishment of debt of
$1,400,000  during the year ended  December  31,  1998,  consists of  prepayment
penalties  and the write-off of  unamortized  loan fees upon the early payoff of
debt.  Various loans were paid-off early when more favorable terms were obtained
through new financing


                                 Page 19 of 73
<PAGE>

(discussed  below)  and  upon  the  sale of one of the  hotels.  Loss  on  early
extinguishment  of debt of $843,000  during the year ended  December  31,  1997,
resulted  from the write-off of  unamortized  loan fees related to a $50 million
secured line of credit which was replaced with a $250 million  unsecured line of
credit (the "Credit Facility") from a commercial bank.

Comparison  of the year ended  December 31, 1997 to the year ended  December 31,
1996.

Following is a table of net operating  income by property type, for  comparative
purposes, presenting the results for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>

                                               Results of Operations by Property Type
                                           For the Years Ended December 31, 1997 and 1996
                                                           (in thousands)

                                   Office/                               Multi-                 Property    Eliminating   Total
                        Office       Flex     Industrial    Retail       Family      Hotel        Total       Entry      Reported

1997
<S>                     <C>         <C>           <C>          <C>         <C>         <C>         <C>            <C>      <C>    
Rental Revenue          $25,071     $10,354       $7,320       $7,224      $5,536      $5,980      $61,485        ($92)    $61,393
Operating Expenses        9,986       3,062        1,459        2,183       2,309       1,894       20,893          11      20,904
Net Operating Income     15,085       7,292        5,861        5,041       3,227       4,086       40,592        (103)     40,489
   Percentage of
    Total NOI               37%         18%          15%          12%          8%         10%         100%


1996
Rental Revenue          $ 3,905     $   769       $3,491       $3,746      $1,519      $4,513      $17,943                 $17,943
Operating Expenses        1,697         275          469          991         601       1,698        5,731           4       5,735
Net Operating Income      2,208         494        3,022        2,755         918       2,815       12,212          (4)     12,208
   Percentage of
     Total NOI              18%          4%          25%          23%          7%         23%         100%
</TABLE>

Rental Revenue.  Rental revenue increased  $43,450,000,  or 242%, to $61,393,000
for the year  ended  December  31,  1997,  from  $17,943,000  for the year ended
December 31,  1996.  The  increase  included  growth in revenue from the office,
office/flex,   industrial,   retail,   multi-family   and  hotel  Properties  of
$21,166,000,  $9,585,000,  $3,829,000,  $3,478,000,  $4,017,000 and  $1,467,000,
respectively.  Of the rental  revenue  for the year  ended  December  31,  1997,
$48,030,000  represents  rental  revenue  generated  from the  acquisition of 20
properties  in  1996  (the  "1996  Acquisitions")  and  the  acquisition  of  90
properties  during the year ended  December 31, 1997 (the "1997  Acquisitions").
The  increase  in rental  revenue  for the year ended  December  31,  1997,  was
partially offset by a decrease in revenue due to the 1996 sale of two industrial
properties and the 1997 sales of sixteen retail properties.

Fees and Reimbursements.  Fees and reimbursements  revenue consists primarily of
property  management fees,  asset management fees and lease  commissions paid to
the Operating Partnership under property and asset management  agreements.  This
revenue increased $408,000, or 131%, to $719,000 for the year ended December 31,
1997, from $311,000 for the year ended December 31, 1996. The increase primarily
consisted of increases in asset management fees of $131,000, property management
fees of $257,000 and lease commissions of $20,000.  The Operating  Partnership's
contract was expanded to include asset management fees in 1997.

Interest and Other Income.  Interest and other income,  which consists primarily
of  interest  on cash  investments  and  mortgage  loans  receivable,  increased
$557,000,  or 52%, to  $1,627,000  for the year ended  December 31,  1997,  from
$1,070,000  for the year ended December 31, 1996. The increase was primarily due
to an increase in interest  income as a result of higher  invested cash balances
and interest income from the Grunow mortgage loan  receivable.  This increase is
partially  offset by a  reduction  in  interest  income due to the payoff of the
Hovpark mortgage loan receivable in January 1997.


                                 Page 20 of 73
<PAGE>


Equity in Earnings of Glenborough Corporation. Equity in earnings of Glenborough
Corporation increased $116,000, or 7%, to $1,687,000 for the year ended December
31, 1997, from $1,571,000 for the year ended December 31, 1996, due to increased
transaction fees earned by GC.

Net Gain on  Sales  of  Rental  Properties.  The net  gain on  sales  of  rental
properties of $839,000  during the year ended  December 31, 1997,  resulted from
the  sales of  sixteen  retail  properties.  The net  gain on  sales  of  rental
properties of $321,000  during the year ended  December 31, 1996,  resulted from
the  sale  of two  self-storage  facilities  from  the  Operating  Partnership's
industrial portfolio.

Gain on  Collection  of Mortgage  Loan  Receivable.  The gain on  collection  of
mortgage  loan  receivable of $652,000  during the year ended  December 31, 1997
resulted from the collection of the Hovpark mortgage loan receivable which had a
net carrying value of $6,700,000.  The payoff amount totaled $6,863,000 in cash,
plus a $500,000 note receivable,  which, net of legal costs,  resulted in a gain
of $652,000.

Property Operating Expenses.  Property operating expenses increased $15,169,000,
or 264%, to $20,904,000  for the year ended December 31, 1997,  from  $5,735,000
for the  year  ended  December  31,  1996.  This  increase  represents  property
operating   expenses   attributable  to  the  1996  Acquisitions  and  the  1997
Acquisitions.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $2,512,000,  or 169%, to $4,002,000  for the year ended  December 31,
1997,  from  $1,490,000  for the year ended  December 31, 1996.  The increase is
primarily due to increased  salary and overhead  costs  resulting  from the 1996
Acquisitions  and the 1997  Acquisitions.  As a  percentage  of rental  revenue,
general and  administrative  expenses actually  decreased from 8.3% for the year
ended December 31, 1996 to 6.5% for the year ended December 31, 1997.

Depreciation  and   Amortization.   Depreciation   and  amortization   increased
$10,246,000,  or 224%, to $14,829,000 for the year ended December 31, 1997, from
$4,583,000  for the year ended  December 31, 1996. The increase is primarily due
to depreciation and amortization  associated with the 1996  Acquisitions and the
1997 Acquisitions.

Interest Expense.  Interest expense increased $5,755,000, or 147%, to $9,668,000
for the year  ended  December  31,  1997,  from  $3,913,000  for the year  ended
December  31, 1996.  Substantially  all of the increase was the result of higher
average  borrowings  during the year ended December 31, 1997, as compared to the
year ended December 31, 1996, due to new debt and the assumption of debt related
to the 1996 Acquisitions and the 1997 Acquisitions.

Consolidation Costs. Consolidation costs in 1996 consist of the costs associated
with  preparing,  printing  and  mailing  the  Prospectus/Consent   Solicitation
Statement and other documents related to the Consolidation,  and all other costs
incurred in the forwarding of the  Prospectus/Consent  Solicitation Statement to
investors.

Litigation  Costs.  Litigation  costs  consist  of the legal  fees  incurred  in
connection  with  defending  two class action  complaints  filed by investors in
certain of the GRT  Predecessor  Entities as well as an accrual for the proposed
settlement in one case.

Loss on early  extinguishment  of debt. Loss on early  extinguishment of debt of
$843,000 during the year ended December 31, 1997, resulted from the write-off of
unamortized  loan fees related to a $50 million secured line of credit which was
replaced  with  a new  $250  million  unsecured  line  of  credit  (the  "Credit
Facility")  from a  commercial  bank.  Loss on early  extinguishment  of debt of
$186,000 during the year ended December 31, 1996, resulted from the write-off of
unamortized loan fees related to a $10,000,000 line of credit from Imperial Bank
which was paid-off with proceeds from a $50 million  secured line of credit from
a commercial bank.





 
                                 Page 21 of 73
<PAGE>


Liquidity and Capital Resources

Cash Flows

For the year ended  December 31,  1998,  cash  provided by operating  activities
increased by $68,278 to $88,129 as compared to $19,851 in 1997.  The increase is
primarily due to an increase in net income (before depreciation and amortization
and net gain on sales of real estate  assets and  collection  of  mortgage  loan
receivable) of $63,061,000 due to the 1997  Acquisitions and 1998  Acquisitions.
Cash used for investing  activities increased by $44,670,000 to $614,043,000 for
the year ended  December  31, 1998,  as compared to  $569,373,000  in 1997.  The
increase is primarily due to the 1998  Acquisitions,  investments in development
and additions to mortgage loans  receivable.  This increase was partially offset
by the  collection of a mortgage  loan  receivable in 1997 and the proceeds from
the 1998 sales of real estate  assets.  Cash  provided by  financing  activities
decreased  by $26,144 to  $526,263  for the year ended  December  31,  1998,  as
compared  to  $552,407  in  1997. This change was primarily due to a decrease in
contributions  from the Company of the net proceeds  from the issuance of stock.
In 1998,  the Company  completed  one offering of Preferred  Stock (as discussed
below) as compared to three  offerings of Common Stock in 1997.  The majority of
this decrease is offset by an increase in proceeds from new debt.

The Operating Partnership expects to meets its short-term liquidity requirements
generally  through its working  capital,  its Credit Facility (as defined below)
and cash generated by operations.  The Operating  Partnership  believes that its
cash generated by operations will be adequate to meet operating requirements and
to make  distributions in both the short and the long-term.  In addition to cash
generated  by  operations,  the Credit  Facility  provides  for working  capital
advances.  However,  there can be no assurance that the Operating  Partnership's
results of  operations  will not fluctuate in the future and at times affect (i)
its  ability  to meet its  operating  requirements  and (ii) the  amount  of its
distributions.

The  Operating  Partnership's  principal  sources of funding  for  acquisitions,
development,  expansion and renovation of properties include an unsecured Credit
Facility,  permanent  secured debt financing,  public  unsecured debt financing,
contributions  from the Company,  privately  placed  financing,  the issuance of
Operating Partnership units and cash flow provided by operations.

Mortgage Loans Receivable
Mortgage loans  receivable  increased  from  $3,692,000 at December 31, 1997, to
$42,420,000 at December 31, 1998. This increase was primarily due to a loan made
by the Operating  Partnership under a development  alliance (as discussed below)
which had an outstanding  balance (including accrued interest) of $35,336,000 at
December 31, 1998,  and a $3,600,000  loan made by the Operating  Partnership to
the buyer of one of the hotel properties.

Secured and Unsecured Financing
Mortgage  loans payable  increased  from  $148,139,000  at December 31, 1997, to
$708,578,000 at December 31, 1998. This increase resulted from the assumption of
mortgage loans totaling approximately $358.9 million in connection with the 1998
Acquisitions  and new financing of  approximately  $248.8  million (as discussed
below).  These  increases were partially  offset by the payoff of  approximately
$42.1 million of mortgage loans in connection  with 1998 sales of properties and
refinancing  of debt, and scheduled  principal  payments of  approximately  $6.5
million on other mortgage debt.

The  Operating  Partnership  has an  unsecured  line  of  credit  provided  by a
commercial bank (the "Credit Facility"). Outstanding borrowings under the Credit
Facility  decreased  from  $80,160,000  at December 31, 1997, to  $63,519,000 at
December 31, 1998. The $80,160,000 balance outstanding at December 31, 1997, was
paid off in  January  1998  with  proceeds  from the  January  1998  Convertible
Preferred Stock Offering  (discussed below). In December 1998, due in part to an
overall slowing of acquisition  activity,  the Operating Partnership reduced its
Credit Facility from $250 million to $100 million.  As part of the modification,
certain  covenants  that  relate  to  the  Operating  Partnership's  development
activity  were changed and the interest rate was modified to LIBOR plus 1.38% to
1.75%.  This rate is an increase  over the previous  rate of LIBOR plus 1.10% to
1.30% which was a direct result of increased credit spreads in the market.


                                 Page 22 of 73
<PAGE>

In January  1998,  the Operating  Partnership  closed a $150 million loan with a
commercial  bank (the  "Interim  Loan").  The  Interim  Loan had a term of three
months with interest at LIBOR plus 1.75%. The purpose of the Interim Loan was to
fund  acquisitions.  The Interim  Loan was paid off in March 1998 with  proceeds
from  the   issuance  of  $150  million  of  unsecured  Series  A  Senior  Notes
(discussed below).

In June 1998, the Operating  Partnership  obtained a $150 million unsecured loan
from a commercial bank (the "Bridge Loan") which had a variable interest rate of
LIBOR plus 1.3%, and a maturity date of December 31, 1998.  Approximately $147.7
million  was drawn under the Bridge Loan to fund  acquisitions  and  development
activities.  The  Operating  Partnership  paid off this loan on October 30, 1998
with proceeds from the $248.8 million financing discussed below.

In October 1998, the Operating  Partnership obtained $248.8 million of financing
which  has a term  of ten  years,  bears  interest  at a fixed  rate  of  6.125%
(effective interest rate of 6.50%) and is secured by 35 properties. The proceeds
were used to retire the $150  million  Bridge Loan which had a December 31, 1998
maturity  date,  to pay off four  mortgage  loans and to reduce the  outstanding
balance of the Credit Facility.

At December 31, 1998, the Operating  Partnership's  total indebtedness  included
fixed-rate   debt   of   $733,348,000   (including   $390,461,000   subject   to
cross-collateralization)   and   floating-rate   indebtedness   of  $188,749,000
(including $114,950,000 subject to cross-collateralization).  Approximately  61%
of the Operating  Partnership's  total assets,  comprising  114  properties,  is
encumbered by debt at December 31, 1998.

It is the Operating  Partnership's policy to manage its exposure to fluctuations
in market  interest rates through the use of fixed rate debt  instruments to the
extent  possible.  At December  31,  1998,  approximately  20% of the  Operating
Partnership's  outstanding  debt,  including  amounts  borrowed under the Credit
Facility,  were subject to variable rates.  The Operating  Partnership may, from
time to time, enter into interest rate protection  agreements  intended to hedge
the cost of new borrowings that are reasonably assured of completion.  It is not
the  Operating   Partnership's  policy  to  engage  in  hedging  activities  for
previously outstanding debt instruments or for speculative purposes. At December
31, 1998,  the Operating  Partnership  was not a party to any open interest rate
protection agreements.

Equity and Debt Offerings
In January 1998, the Company completed a public offering of 11,500,000 shares of
7 3/4% Series A  Convertible  Preferred  Stock (the  "January  1998  Convertible
Preferred Stock Offering" or the "January 1998 Offering"). The 11,500,000 shares
were sold at a per share price of $25.00 for net proceeds of approximately  $276
million,  which were  contributed to the Operating  Partnership and then used to
repay the outstanding balance under the Operating Partnership's Credit Facility,
to fund  certain  subsequent  property  acquisitions  and for general  corporate
purposes.

In March 1998, the Operating Partnership issued $150 million of unsecured 7.625%
Series A Senior Notes (the "Notes") in an unregistered 144A offering.  The Notes
mature on March 15, 2005, unless previously  redeemed.  Interest on the Notes is
payable  semiannually  on March 15 and  September 15,  commencing  September 15,
1998. The Operating  Partnership  used the net proceeds of the offering to repay
the  outstanding  balance  under the Interim  Loan.  In May 1998,  the Operating
Partnership  filed a  registration  statement  with the  Securities and Exchange
Commission (the "SEC") to exchange all  outstanding  Notes (the "Old Notes") for
Notes  which have been  registered  under the  Securities  Act of 1933 (the "New
Notes").  The form and term of the New Notes are substantially  identical to the
Old Notes in all  material  respects,  except that the New Notes are  registered
under the  Securities  Act, and  therefore  are not subject to certain  transfer
restrictions,  registration  rights  and  related  special  interest  provisions
applicable to the Old Notes.

In  January  1999,  the  Operating  Partnership  and the  Company  filed a shelf
registration  statement  with  the SEC (the  "January  1999  Shelf  Registration
Statement")  to  register  $300  million  of debt  securities  of the  Operating
Partnership  and to  carry  forward  the  remaining  $801.2  million  in  equity
securities of the Company from a previously filed shelf  registration  statement
of the  Company.  The January  1999 Shelf  Registration  Statement  was declared
effective by the SEC on January 25, 1999.  Therefore,  the Operating Partnership
and  the  Company  have  the  capacity   pursuant  to  the


                                 Page 23 of 73
<PAGE>

January  1999 Shelf  Registration  Statement to issue up to $300 million in debt
securities and $801.2 million in equity securities, respectively.

Development Alliances
The Operating  Partnership  has formed 4  development  alliances to which it has
committed  approximately  $42 million for the development of  approximately  1.4
million square feet of office, office/flex and distribution properties and 2,050
multi-family units in North Carolina,  Colorado,  Texas, New Jersey,  Kansas and
Michigan.  As of December  31,  1998,  the  Operating  Partnership  has advanced
approximately  $33 million.  Under these  development  alliances,  the Operating
Partnership  has certain  rights to purchase the properties  upon  completion of
development and, thus, through these alliances,  the Operating Partnership could
acquire an additional 1.4 million square feet of commercial properties and 2,050
multi-family  units  over  the next  five  years.  In  addition,  the  Operating
Partnership  has loaned  approximately  $35 million  under  another  development
alliance to continue the build-out of a 1,200 acre master-planned development in
Denver, Colorado.

Inflation
Substantially  all of the  leases  at the  office/flex,  industrial  and  retail
Properties  provide  for  pass-through  to tenants of certain  operating  costs,
including real estate taxes,  common area maintenance  expenses,  and insurance.
Leases at the multi-family  properties  generally provide for an initial term of
one  month or one year and allow for rent  adjustments  at the time of  renewal.
Leases at the  office  Properties  typically  provide  for rent  adjustment  and
pass-through of certain operating  expenses during the term of the lease. All of
these  provisions may permit the Operating  Partnership to increase rental rates
or other charges to tenants in response to rising prices and therefore, serve to
reduce the Operating Partnership's exposure to the adverse effects of inflation.

Forward Looking Statements; Factors That May Affect Operating Results
This Report on Form 10-K contains forward looking  statements within the meaning
of Section 27A of the  Securities  Act of 1933 and Section 21E of the Securities
and  Exchange  Act  of  1934,   including  statements  regarding  the  Operating
Partnership's expectations,  hopes, intentions, beliefs and strategies regarding
the future.  Forward looking statements include statements  regarding  potential
acquisitions,  the  anticipated  performance  of future  acquisitions,  recently
completed  acquisitions and existing  properties,  and statements  regarding the
Operating  Partnership's  financing  activities.  All forward looking statements
included in this  document are based on  information  available to the Operating
Partnership  on the date  hereof.  It is  important  to note that the  Operating
Partnership's  actual  results  could  differ  materially  from those  stated or
implied in such forward looking statements. Some of the factors that could cause
actual results to differ materially are set forth below.

The Limited  Availability of and Competition  for Real Estate  Acquisitions  May
Restrict Our Ability to Grow Our growth depends, in part, upon acquisitions.  We
cannot  be sure  that  properties  will be  available  for  acquisition  or,  if
available, that we will be able to purchase those properties on favorable terms.
The unavailability of such acquisitions could limit our growth.  Furthermore, we
face competition from several other businesses,  individuals, fiduciary accounts
and plans and entities in the  acquisition,  operation  and sale of  properties.
Some of our  competitors  are  larger  than we are and  have  greater  financial
resources  than we do. This  competition  could cause the cost of  properties we
wish to  purchase  to  rise.  If we are  unable  to  continue  to  grow  through
acquisitions,  then our results of operations and financial  condition  could be
negatively impacted.

Competition for Tenants Could Adversely Affect Our Operations
When space becomes  available at our properties,  the leases may not be renewed,
the  space  may not be  leased or  re-leased,  or the  terms of the  renewal  or
re-lease (including the cost of required  renovations or concessions to tenants)
may be less  favorable to us than the prior lease.  We have  established  annual
property  budgets that include  estimates of costs for renovation and re-leasing
expenses.  We  believe  that these  estimates  are  reasonable  in light of each
property's  situation;  however,  no assurance can be given that these estimates
will sufficiently cover these expenses.  If we cannot lease all or substantially
all  of  the  space  at  our  properties  promptly,  if  the  rental  rates  are
significantly  lower than expected,  or if our reserves for these purposes prove
inadequate,  then our results of  operations  and financial  condition  could be
negatively impacted.


                                 Page 24 of 73
<PAGE>

Tenants' Defaults Could Adversely Affect Our Operations
Our ability to manage our assets is subject to federal bankruptcy laws and state
laws that limit creditors' rights and remedies available to real property owners
to collect  delinquent  rents.  If a tenant  becomes  insolvent or bankrupt,  we
cannot be sure that we could  recover the premises  from the tenant  promptly or
from a trustee or  debtor-in-possession in any bankruptcy proceeding relating to
that tenant. We also cannot be sure that we would receive rent in the proceeding
sufficient  to cover our  expenses  with  respect to the  premises.  If a tenant
becomes  bankrupt,  the  federal  bankruptcy  code  will  apply,  which  in some
instances may restrict the amount and  recoverability  of our claims against the
tenant.  A tenant's  default on its obligations to us could adversely affect our
results of operations and financial condition.

Cash Flow May Be Insufficient for Debt Service Requirements
We intend to incur  indebtedness  in the future,  including  through  borrowings
under our Credit Facility,  to finance property  acquisitions.  As a result,  we
expect to be subject  to the  following  risks  associated  with debt  financing
including:

        - that interest rates may increase;
        - that our cash flow may be  insufficient  to meet required  payments on
        - our debt;  and that we may be unable to refinance or repay the debt as
          it comes due.

Debt  Restrictions  May Affect  Operations and Negatively  Affect Our Ability to
Repay  Indebtedness  at  Maturity  Our current  $100  million  unsecured  Credit
Facility  contains  provisions  that  restrict the amount of  distributions  the
Company can make. These provisions provide that distributions may not exceed the
lesser of (i) 90% of funds from  operations or (ii) the minimum  amount that the
Company  must  distribute  to its  stockholders  in order to avoid  federal  tax
liability  and  remain  qualified  as a REIT.  If we  cannot  obtain  acceptable
financing to repay  indebtedness at maturity,  we may have to sell properties to
repay  indebtedness or properties may be foreclosed  upon, which could adversely
affect our results of  operations,  financial  condition  and ability to service
debt. Also, as of December 31, 1998,  approximately  $505.4 million of our total
indebtedness included secured mortgages with cross-collateralization provisions.
In the  event  of a  default,  the  holders  of this  indebtedness  may  seek to
foreclose upon properties  which are not the primary  collateral for their loan.
This may, in turn,  accelerate other  indebtedness  secured by these properties.
Foreclosure of properties would cause a loss to us of income and asset value.

Fluctuations in Interest Rates May Adversely Affect Our Operations
As of  December  31,  1998,  we had  approximately  $188.7  million of  variable
interest  rate  indebtedness.  Accordingly,  an increase in interest  rates will
adversely affect our net income and results of operations.

Management of Newly Acquired Properties Could Be Difficult
Since the  Consolidation on December 31, 1995, and through December 31, 1998, we
acquired  approximately  $1.8  billion  in  properties.   To  manage  these  new
properties  effectively,  we have sought to  successfully  apply our  experience
managing our existing  portfolio to expanded  markets and to an increased number
of properties.  The  assimilation  of these  properties is a continuing  process
whose  success  cannot  be  assured  indefinitely.  Should we  encounter  future
difficulties in managing these newly acquired  properties,  this could adversely
affect our results of operations and financial condition.

Acquisitions Could Adversely Affect Operations
Consistent with our growth strategy,  we are continually pursuing and evaluating
potential  acquisition  opportunities.   From  time  to  time  we  are  actively
considering the possible acquisition of specific  properties,  which may include
properties managed by GC or owned by affiliated parties. It is possible that one
or more of such possible  future  acquisitions,  if completed,  could  adversely
affect our results of operations and financial condition.


                                 Page 25 of 73
<PAGE>

Assumption of General Partner Liabilities May Adversely Affect Operations
We and our  predecessors  have  acquired  a number of  properties  by  acquiring
interests in partnerships  that own the properties or by first acquiring general
partnership  interests and acquiring  properties from the partnership at a later
date. We may pursue  acquisitions in this manner in the future. When we use this
acquisition technique, a subsidiary of the Company may become a general partner.
As a general  partner,  such subsidiary  would become  generally  liable for the
debts and obligations of the  partnership,  including debts and obligations that
may be contingent or unknown at the time of the  acquisition.  In addition,  the
Company's subsidiary assumes obligations under the partnership agreements, which
may include  obligations to make future  contributions  for the benefit of other
partners.  We undertake  detailed due diligence  reviews to ascertain the nature
and extent of  obligations  that the  subsidiary  will  assume when it becomes a
general  partner,  but we cannot be sure the obligations  assumed may exceed our
estimates. Also, we cannot be sure that the assumed liabilities will not have an
adverse  effect on our results of operations or financial  condition and ability
to service debt. In addition, GC or another subsidiary may enter into management
agreements  pursuant  to which it assumes  certain  obligations  as a manager of
properties.  These  obligations may have an adverse effect on such  subsidiary's
results of operations or financial  condition,  which could adversely affect our
results of operations and financial conditions.

Potential Adverse Consequences of Transactions Involving Conflicts of Interest
We  have  acquired,  and  from  time  to  time  may  acquire,   properties  from
partnerships that Robert  Batinovich,  our Chairman and Chief Executive Officer,
and Andrew Batinovich,  our President and Chief Operating Officer,  control, and
in which they and members of their families have  substantial  interests.  These
transactions  involve or will involve conflicts of interest.  These transactions
also may provide substantial economic benefits to those individuals such as:
         
        - payments  or  issuances  of   partnership   units  in  the   Operating
          Partnership,  relief or deferral of tax liabilities, relief of primary
          or secondary  liability  for debt,  and reduction in exposure to other
          property-related liabilities.

Our  policy  provides  that  interested  directors  may not vote with  regard to
transactions in which they have a substantial  interest.  These transactions may
only be  completed  if they are  approved  by a  majority  of the  disinterested
directors, with the interested directors abstaining. Despite this policy and the
presence of  appraisals  or  fairness  opinions or review by parties who have no
interest  in the  transactions,  the  transactions  will not be the  product  of
arm's-length  negotiation.  These  transactions may not be as favorable to us as
transactions  that we negotiate with unrelated  parties and they could result in
undue  benefit to Robert and Andrew  Batinovich  and members of their  families.
None of these parties has guaranteed that any properties  acquired from entities
they control or in which they have a significant  interest will be as profitable
as other investments made by us or will not result in losses.

Dependence on Executive Officers
We depend on the efforts of Robert  Batinovich,  our Chief Executive Officer and
Andrew Batinovich,  our President and Chief Operating Officer,  and of our other
executive  officers.  The  loss of the  services  of any of them  could  have an
adverse effect on our results of operations and financial condition. Both Robert
and Andrew Batinovich have entered into employment agreements with the Company.

Potential Liability Due to Environmental Matters
Under  federal,  state and local laws relating to protection of the  environment
("Environmental  Laws"),  a current or previous owner or operator of real estate
may be liable for  contamination  resulting  from the  presence or  discharge of
petroleum products or other hazardous or toxic substances on the property. These
owners may be required to  investigate  and  clean-up the  contamination  on the
property as well as the  contamination  which has  migrated  from the  property.
Environmental  Laws  typically  impose  liability  and  clean-up  responsibility
without regard to whether the owner or operator knew of, or was responsible for,
the  presence  of the  contamination.  This  liability  may be joint and several
unless the harm is divisible and there is a reasonable  basis for  allocation of
responsibility.  In addition, the owner or operator of a property may be subject
to claims by third  parties  based on personal  injury,  property



                                 Page 26 of 73
<PAGE>

damage and/or other costs, including investigation and clean-up costs, resulting
from   environmental   contamination.   Environmental   Laws  may  also   impose
restrictions  on the manner in which a property may be used or transferred or in
which businesses may be operated.  These restrictions may require  expenditures.
Under the  Environmental  Laws, any person who arranges for the  transportation,
disposal or treatment of  hazardous or toxic  substances  may also be liable for
the costs of  investigation  or clean-up of those  substances at the disposal or
treatment facility, whether or not the facility is or ever was owned or operated
by that person.

Tenants of our  properties  generally are required by their leases to operate in
compliance with all applicable  Environmental  Laws, and to indemnify us against
any  environmental  liability  arising from their  activities on the properties.
However,  we  could  be  subject  to  environmental  liability  relating  to our
management  of the  properties  or strict  liability by virtue of our  ownership
interest in the properties.  Also tenants may not satisfy their  indemnification
obligations under the leases. We are also subject to the risk that:

       - any  environmental  assessments of our  properties,  properties   being
         considered for acquisition, or the properties owned by the partnerships
         managed  by GC  may  not  have  revealed  all  potential  environmental
         liabilities,
       - any prior owner or prior or current  operator of  such  properties may 
         have  created  an  environmental condition not known to us, or
       - an  environmental  condition  may otherwise exist as to any one or more
         of such properties.

Any one of these  conditions  could  have an  adverse  effect on our  results of
operations and financial  condition or ability to service debt,  either directly
(with  respect to our  properties),  or  indirectly  (with respect to properties
owned by  partnerships  managed by GC). Any  condition  adversely  affecting the
financial  condition of GC could adversely affect us by diminishing the value of
our  interest  in  GC.  Moreover,   future  environmental  laws,  ordinances  or
regulations  may have an adverse effect on our results of operations,  financial
condition and ability to service debt. Also, the current environmental condition
of those  properties may be affected by tenants and occupants of the properties,
by the condition of land or operations in the vicinity of the  properties  (such
as the presence of underground  storage tanks), or by third parties unrelated to
us.

Environmental Assessments and Potential Liability Due to Asbestos-Containing
     Materials
Environmental  Laws  also  govern  the  presence,  maintenance  and  removal  of
asbestos-containing    building    materials.    These   laws    require    that
asbestos-containing  building  materials be properly  managed and maintained and
that those who may come into contact with asbestos-containing building materials
be adequately informed and trained.  They also require that special precautions,
including   removal   or  other   abatement,   be   undertaken   in  the   event
asbestos-containing   building  materials  is  disturbed  during  renovation  or
demolition of a building.  These laws may impose fines and penalties on building
owners or operators for failure to comply with these requirements. They also may
allow third  parties to seek  recovery  from owners or  operators  for  personal
injury associated with exposure to asbestos fibers.

All of the  properties  that we  presently  own  have  been  subject  to Phase I
environmental assessments by independent environmental consultants.  Some of the
Phase I environmental assessments recommended further investigations in the form
of Phase II environmental assessments,  including soil and groundwater sampling.
We  have  completed  all of  these  investigations  or are  in  the  process  of
completing  them.   Certain  of  our  properties  have  been  found  to  contain
asbestos-containing  building  materials.  We believe that these  materials have
been  adequately  contained  and  we  have  implemented  an  asbestos-containing
building materials  operations and maintenance  program for the properties found
to contain asbestos-containing building materials.

Some, but not all, of the properties  owned by  partnerships  managed by GC have
been subject to Phase I environmental  assessments by independent  environmental
consultants.  GC  determines on a  case-by-case  basis whether to obtain Phase I
environmental  assessments on these properties and whether to undertake  further
investigation   or   remediation.    Certain   of   these   properties   contain
asbestos-containing  building  materials.  In each case GC  believes  that these
materials   have   been   adequately    contained   and   has   implemented   an
asbestos-containing 


                                 Page 27 of 73
<PAGE>

building materials  operations and maintenance  program has been implemented for
the properties found to contain asbestos-containing building materials.

Potential Environmental Liability Resulting From Underground Storage Tanks
Some of our properties, as well as properties that we have previously owned, are
leased or have been leased to owners or operators of businesses  that use, store
or otherwise handle petroleum  products or other hazardous or toxic  substances.
These  businesses  include dry cleaners that operate on-site dry cleaning plants
and auto care centers.  Some of these properties contain, or may have contained,
underground  storage  tanks for the  storage  of  petroleum  products  and other
hazardous  or toxic  substances.  These  operations  create a potential  for the
release of those  substances.  Some of our  properties  are  adjacent to or near
other properties that have contained or currently  contain  underground  storage
tanks used to store petroleum  products or other hazardous or toxic  substances.
Several of our properties  have been  contaminated  with these  substances  from
on-site operations or operations on adjacent or nearby properties.  In addition,
certain of our  properties  are on, or are adjacent to or near other  properties
upon which others,  including  former owners or tenants of the properties,  have
engaged or may engage in activities that may release petroleum products or other
hazardous or toxic substances.

Environmental Liabilities May Adversely Affect Operating Costs and Ability to 
     Borrow
The obligation to pay for the cost of complying with existing Environmental Laws
as  well as the  cost of  complying  with  future  legislation  may  affect  our
operating  costs.  In  addition,  the  presence of  petroleum  products or other
hazardous  or toxic  substances  at any of our  properties,  or the  failure  to
remediate those properties properly,  may adversely affect our ability to borrow
by using those properties as collateral. The cost of defending against claims of
liability  and  the  cost  of  complying  with  Environmental  Laws,   including
investigation or clean-up of contaminated  property,  could materially adversely
affect our results of operations and financial condition.

General Risks of Ownership of Real Estate
We are subject to risks  generally  incidental  to the ownership of real estate.
These risks include:

       -  changes in general economic or local conditions;
       -  changes in supply of or demand for similar or competing properties in 
          an area
       -  the impact of environmental protection laws;
       -  changes in interest rates  and  availability of financing which may 
          render the sale or  financing of a property difficult or unattractive;
       -  changes in tax, real estate and zoning laws; and
       -  the creation of mechanics' liens or similar encumbrances placed on the
          property  by a lessee  or  other  parties  without  our  knowledge and
          consent.

Should any of these  events  occur,  our  results of  operations  and  financial
condition could be adversely affected.

General Risks Associated With Management, Leasing and Brokerage Contracts
We are subject to the risks generally  associated with the property  management,
leasing and brokerage businesses. These risks include the risk that:

       -  management contracts or service agreements may be terminated;
       -  contracts  will not be renewed upon  expiration or will not be renewed
          on terms  consistent  with current terms; and
       -  leasing and brokerage activity generally may decline.

In addition,  our acquisition of properties from  partnerships  managed by GC or
another subsidiary could result in a decrease in revenues to such subsidiary and
a corresponding decrease in dividends received by us from such subsidiary.  Each
of these  developments could have an adverse effect on our results of operations
and financial condition.

                                 Page 28 of 73
<PAGE>

Uninsured Losses May Adversely Affect Operations
We, or in certain  instances,  tenants of the  properties,  carry  comprehensive
liability,  fire and  extended  coverage  with respect to the  properties.  This
coverage has policy  specification  and insured limits  customarily  carried for
similar properties.  However,  certain types of losses (such as from earthquakes
and floods) may be either  uninsurable or not economically  insurable.  Further,
certain of the  properties  are located in areas that are subject to  earthquake
activity  and  floods.  Should a  property  sustain  damage  as a  result  of an
earthquake  or  flood,  we  may  incur  losses  due  to  insurance  deductibles,
co-payments  on insured  losses or uninsured  losses.  Should an uninsured  loss
occur,  we could  lose  some or all of our  capital  investment,  cash  flow and
anticipated  profits  related  to one or more  properties.  This  could  have an
adverse effect on our results of operations and financial condition.

Illiquidity of Real Estate May Limit Our Ability to Vary Our Portfolio
Real estate  investments are relatively  illiquid and,  therefore,  will tend to
limit our  ability to vary our  portfolio  promptly  in  response  to changes in
economic or other conditions. In addition, the Internal Revenue Code of 1986, as
amended (the "Code"), and individual agreements with sellers of properties place
limits on our ability to sell  properties.  Eighty-five of our  properties  were
acquired on terms and  conditions  under which they can be disposed of only in a
like-kind  exchange  or other  non-taxable  transaction.  The  agreed  upon time
periods  for  these  restrictions  on  dispositions  vary  from  transaction  to
transaction.

Potential Liability Under the Americans With Disabilities Act
As of January 26, 1992, all of our properties  were required to be in compliance
with the Americans With  Disabilities  Act. The Americans With  Disabilities Act
generally  requires that places of public  accommodation  be made  accessible to
people with disabilities to the extent readily  achievable.  Compliance with the
Americans With  Disabilities  Act  requirements  could require removal of access
barriers.  Non-compliance  could  result in  imposition  of fines by the federal
government,  an award of damages to private  litigants  and/or a court  order to
remove access  barriers.  Because of the limited  history of the Americans  With
Disabilities Act, the impact of its application to our properties, including the
extent and timing of  required  renovations,  is  uncertain.  Pursuant  to lease
agreements  with  tenants  in  certain of the  "single-tenant"  properties,  the
tenants  are  obligated  to comply  with the  Americans  With  Disabilities  Act
provisions.  If our costs are greater than  anticipated or tenants are unable to
meet their obligations,  our results of operations and financial condition could
be adversely affected.

Development Alliances May Adversely Affect Operations
We may, from time to time, enter into alliances with selected developers for the
purpose of  developing  new  projects in which  these  developers  have,  in the
opinion of  management,  significant  expertise or  experience.  These  projects
generally require various governmental and other approvals, the receipt of which
cannot be assured.  These development  activities also may entail certain risks,
including the risk that:

       -  management  may expend funds on and devote time to projects  which may
          not come to  fruition;
       -  construction  costs of a  project  may  exceed original estimates, 
          possibly making the project uneconomical;
       -  occupancy  rates and  rents at a  completed  project  may be less than
          anticipated;
       -  and  expenses at a completed  development  may be higher than 
          anticipated.

In addition,  the partners in development alliances may have significant control
over the operation of the alliance  project.  Therefore,  these investments may,
under  certain  circumstances,  involve risks such as the  possibility  that the
partner might:

       -  become bankrupt;
       -  have economic or business  interests or goals that are inconsistent  
          with our business interest or goals;  or
       -  be in a position to take action  contrary to our  instructions or 
          requests or contrary to our policies or objectives.

Consequently,  actions  by a partner in a  development  alliance  might  subject
property  owned by the  alliance to  additional  risk.  Although we will seek to
maintain  sufficient  control of any  alliance  to permit our  objectives  to be
achieved,  we  may  be  unable  to  take  action  without  the  approval  of our
development  alliance partners.  Conversely,


                                 Page 29 of 73
<PAGE>

our  development  alliance  partners could take actions  binding on the alliance
without our consent.  In addition,  should a partner in a  development  alliance
become  bankrupt we could become liable for the partner's share of the project's
liabilities. These risks may result in a development project adversely affecting
our results of operations and financial condition.

Material Tax Risks
Since  1996,  the Company has  operated as a REIT under the Code.  However,  the
Company may not be able to maintain its status as a REIT.  To qualify as a REIT,
the Company must satisfy numerous  requirements (some on an annual and quarterly
basis)  established  under highly  technical and complex Code  provisions.  Only
limited judicial or  administrative  interpretation  exists for these provisions
and involves the  determination of various factual matters and circumstances not
entirely  within the  Company's  control.  The  Company  receives  nonqualifying
management  fee  income  and  owns  nonqualifying  preferred  stock  in  certain
subsidiaries.  As a result,  it may  approach  the income and asset test  limits
imposed by the Code.  There is a risk that the  Company  may not  satisfy  these
tests.  In order to avoid  exceeding  the asset test  limit,  for  example,  the
Company  may have to reduce its  interest  in its  subsidiaries.  The Company is
relying on the opinion of its tax counsel  regarding its ability to qualify as a
REIT.  This legal  opinion,  however,  is not  binding on the  Internal  Revenue
Service ("IRS").

Consequences of Failure to Qualify as a REIT
If the Company fails to qualify as a REIT in any taxable year, the Company would
be subject to federal  income tax on its taxable income at corporate  rates.  In
addition,  the Company also may be disqualified from treatment as a REIT for the
four taxable years  following  the year in which the Company  failed to qualify.
This would reduce its net earnings  available for investment or  distribution to
stockholders because of the additional tax liability.  In addition,  the Company
would no longer be required to make distributions to stockholders.

Even if the  Company  continues  to  qualify  as a REIT,  it will be  subject to
certain federal, state and local taxes on its income and property.

Possible Changes in Tax Laws; Effect on the Market Value of Real Estate 
     Investments
Income tax  treatment  of REITs may be  modified  by  legislative,  judicial  or
administrative  action at any time. These changes may be applied to past as well
as future operations. Legislation,  regulations,  administrative interpretations
or court decisions may significantly change the tax laws with respect to (1) the
qualification  as a REIT or (2) the  federal  income  tax  consequences  of this
qualification.  In addition, the changes might also indirectly affect the market
value of all real estate investments, and consequently, the Company's ability to
realize its investment objectives.

Additional Capital Requirements; Possible Adverse Effects on Holders of Equity
Our ability to continue our growth pattern  established in 1996-1998,  which was
funded largely through the raising of equity capital, depends in large part upon
our ability to raise additional capital in the future on satisfactory  terms. If
we  raise  additional   capital  through  the  issuance  of  additional   equity
securities, or securities convertible into or exercisable for equity securities,
the  interests  of  holders of the  Company's  shares of Common  Stock  could be
diluted.  Likewise,  the  Company's  Board of Directors is  authorized  to issue
Preferred Stock and to determine the rights of the Preferred Stock. Accordingly,
the Board of Directors may authorize the issuance of Preferred Stock with rights
which may dilute or otherwise  adversely  affect the interests of holders of the
Company's  shares of Common Stock. If we raise  additional  capital through debt
financing, we will be subject to the risks described below, among others.

Our Indebtedness Restrictions May Adversely Affect Our Ability to Incur 
     Indebtedness
The Company's  organizational  documents  limit our ability to incur  additional
debt if the total debt,  including the additional  debt, would exceed 50% of the
"Borrowing  Base." This debt  limitation  in the  Company's  Charter can only be
amended by an affirmative vote of the majority of all outstanding stock entitled
to vote on such amendment.  The term "Borrowing  Base" is defined as the greater
of Fair Market Value or Total Market Capitalization.  Fair Market Value is based
upon the value of our assets as determined by an  independent  appraiser.  Total
Market  Capitalization  is  the  sum  of  the  market  value  of  the  Company's
outstanding  capital stock,  including shares issuable on exercise of redemption
options by holders of Operating  Partnership  units,  plus debt. An exception is
made for


                                 Page 30 of 73
<PAGE>

refinancings  and  borrowings  required to make  distributions  to maintain  the
Company's  status as a REIT. In light of these debt  restrictions,  it should be
noted that a change in the value of the Company's  common stock could affect the
Borrowing Base, and therefore our ability to incur additional indebtedness, even
though such change in the common stock's value is unrelated to our liquidity.

Limitation  on  Ownership  of Common  Stock And  Stockholder's  Rights  Plan May
Preclude Acquisition of Control Provisions of the Company's Charter are designed
to  assist  it in  maintaining  its  qualification  as a REIT  under the Code by
preventing  concentrated  ownership of the Company which might  jeopardize  REIT
qualification. Among other things, these provisions provide that:

       - any transfer or acquisition of the Company's common or preferred stock
         that would result in its disqualification as a REIT under the Code will
         be void; and
       - if any person  attempts to acquire  shares of the Company's  common or
         preferred  stock that after the  acquisition  would cause the person to
         own an  amount  of  common  stock  and  preferred  stock in excess of a
         predetermined limit, such acquisitions would be void.

Ownership is determined by operation of certain attribution rules set out in the
Code.  Pursuant to Board action, the limit currently is 9.9% of the value of the
outstanding   shares  of  common  stock  and  preferred  stock  (the  "Ownership
Limitation").  The common stock or  preferred  stock the transfer of which would
cause any person to violate  the  Ownership  Limitation,  is  referred to as the
"Excess Shares." A transfer that would violate the Ownership  Limitation will be
void and the  common  stock or  preferred  stock  subject to the  transfer  will
automatically  be  transferred to an  unaffiliated  trustee for the benefit of a
charitable  organization  designated by the Board of Directors until sold by the
trustee to a third party or  purchased by the Company.  This  limitation  on the
ownership of common stock and preferred  stock may preclude the  acquisition  of
control of the  Company by a third  party  without  the  consent of the Board of
Directors.  If the Board of Directors  waives the Ownership  Limitation  for any
person,  the  Ownership  Limitation  will be  proportionally  and  automatically
reduced with regard to all other  persons such that no five persons may own more
than 50% of the value of the common stock and  preferred  stock.  Certain  other
provisions  contained  in the  Company's  Charter  and  Bylaws may also have the
effect of discouraging a third party from making an acquisition proposal for the
Company  and may thereby  inhibit a change in control in the  Company  even if a
change in control would be in the best interests of the stockholders.

In addition,  in July 1998, the Board of Directors adopted a stockholder  rights
plan.  Under the plan,  the Company  declared a dividend of rights on its common
stock.  The  rights  issued  under  the plan  will be  triggered,  with  certain
exceptions,  if and when any person or group  acquires,  or  commences  a tender
offer to  acquire,  15% or more of the  Company's  shares.  The  rights  plan is
intended to prevent abusive hostile  takeover  attempts by requiring a potential
acquirer to negotiate the terms of an  acquisition  with the Board of Directors.
However,  it could have the effect of deterring or preventing an  acquisition of
the Company,  even if a majority of our  stockholders  would be in favor of such
acquisition,  and could also have the effect of making it more  difficult  for a
person or group to gain control of the Company or to change existing management.

Losses Relating to Consolidation
The  Company  was  created  through  the  merger  of  eight  partnerships  and a
corporation (the "Consolidation"). Prior to the Consolidation, two lawsuits were
filed in 1995  contesting the fairness of the  Consolidation,  one in California
State court and one in federal court.  The Company has been named as a defendant
in each of the suits.  The  complaints  in both  actions  alleged,  among  other
things,   breaches  by  the  defendants  of  fiduciary   duties  and  inadequate
disclosures. The California State court action was settled and, upon appeal, the
settlement  was affirmed by the State Court of Appeals on February 17, 1998. The
objectors  petitioned the California Supreme Court for review,  which was denied
on May 21, 1998. On August 18, 1998, the objectors  filed with the United States
Supreme  Court a petition for writ of  certiorari.  On September  18, 1998,  the
defendants  filed a brief in opposition to the  objectors'  petition for writ of
certiorari, and on September 25, 1998, the objectors filed a reply in support of
their  petition.  The  United  States  Supreme  Court  has not yet  ruled on the
petition for writ of certiorari.  Pursuant to the terms of the settlement in the
California  State court action,  pending  appeal,  we have paid one-third of the

                                 Page 31 of 73
<PAGE>

$855,000  settlement  amount  and the  remaining  two-thirds  are being  held in
escrow. In the federal court action,  the court in December of 1995 deferred all
further  proceedings  pending a ruling in the California State court action. The
federal court action has been  voluntarily  stayed  pending final outcome of the
California  State court  action.  We believe that it is very  unlikely that this
litigation  would result in a liability that would exceed our accrued  liability
by a material amount.  However,  given the inherent uncertainties of litigation,
we cannot be sure that the ultimate  outcomes of these actions will be favorable
to us.

From time to time,  the  Operating  Partnership  and the Company are involved in
other litigation arising out of their business activities.  Certain other claims
and lawsuits have arisen  against the Operating  Partnership  and the Company in
their normal  course of business.  It is possible that this  litigation  and the
other  litigation  previously  described  could result in significant  losses in
excess of amounts reserved,  which could have an adverse effect on their results
of operations and financial condition.

Uncertainty Due to the Board of Directors' Ability to Change Investment Policies
The Board of Directors may change the Company's  investment  policies  without a
vote of the stockholders. If the Company's investment policies change, the risks
and  potential  rewards  of an  investment  in its shares  may also  change.  In
addition, the methods of implementing the Company's investment policies may vary
as new investment techniques are developed.

Effect of Market Interest Rates on Price of Common Stock
The annual yield on the price paid for shares of the Company's common stock from
distributions by the Company may influence the market price of the shares of the
Company's  common stock in public markets.  An increase in market interest rates
may lead  prospective  purchasers of the Company's common stock to seek a higher
annual yield from their investments.  This may adversely affect the market price
of the Company's common stock.

Shares Available for Future Sale
The Company  cannot  predict the effect,  if any, that future sales of shares of
its common stock or future  conversions  or exercises of  securities  for future
sales will have on the market  price of the  Company's  common  stock.  Sales of
substantial  amounts of the Company's  common stock, or the perception that such
sales could occur,  may  adversely  affect the  prevailing  market price for the
Company's common stock.

Impact of Year 2000 Compliance Costs on Operations
State of Readiness.  We use a number of computer software programs and operating
systems across our entire  organization.  These  programs and systems  primarily
comprise (i)  information  technology  systems ("IT  Systems")  (i.e.,  software
programs and computer operating  systems) that serve our management  operations,
and (ii) embedded systems such as devices used to control, monitor or assist the
operation  of equipment  and  machinery  systems  (e.g.,  HVAC,  fire safety and
security)  at our  properties  ("Property  Systems").  To the  extent  that  our
software  applications  contain  source  code that is  unable  to  appropriately
interpret  the  upcoming  calendar  year  "2000"  and  beyond,   some  level  of
modification or replacement of these applications will be necessary.

       - IT  Systems.  Employing  a  team  made  up of  internal  personnel  and
         third-party  consultants,  we have completed our  identification  of IT
         Systems,  including  hardware  components,  that are not yet Year  2000
         compliant.  To the best of our knowledge based on available information
         and a reasonable level of inquiry and investigation,  we have completed
         such upgrading of such systems that we believe are called for under the
         circumstances,  and in accordance with prevailing industry practice. We
         have commenced a testing  program which we anticipate will be completed
         during 1999.  In addition,  we are currently  communicating  with third
         parties  with  whom  we do  significant  business,  such  as  financial
         institutions,  tenants and vendors,  to determine  their  readiness for
         Year 2000 compliance.

       - Property Systems.  Employing a team made  up of internal  personnel and
         third-party  consultants,  we have also completed our identification of
         Property Systems, including hardware components,  that are not yet Year
         2000  compliant.  We have commenced such upgrading of such systems that
         we believe are called for under the  circumstances,  based on available
         information and a reasonable level of inquiry and


                                 Page 32 of 73
<PAGE>

         investigation,  and in accordance  with prevailing  industry  practice.
         Upon completion of such  upgrading,  we will initiate a testing program
         which we anticipate  will be completed  during 1999. To the best of our
         knowledge,  there are no Property  Systems,  the failure of which would
         have a material effect on our operations.

Costs of Addressing Our Year 2000 Issues.  Given the  information  known at this
time about our systems that are non-compliant,  coupled with our ongoing, normal
course-of-business efforts to upgrade or replace critical systems, as necessary,
we do not expect Year 2000 compliance  costs to have any material adverse impact
on our liquidity or ongoing results of operations.  The costs of such assessment
and remediation will be paid as an operating expense.

Risks of Our Year 2000 Issues.  In light of our assessment and upgrading efforts
to date,  and  assuming  completion  of the planned,  normal  course-of-business
upgrades and  subsequent  testing,  we believe that any residual  Year 2000 risk
will be limited to non-critical business applications and support hardware,  and
to short-term  interruptions  affecting Property Systems which, if they occur at
all, will not be material to our overall operations.  We believe that all of our
systems will be Year 2000  compliant  and that  compliance  will not  materially
adversely  affect our future  liquidity or results of  operations  or ability to
service debt, but we cannot give absolute assurance that this is the case.

Our Contingency Plans. We are currently developing our contingency plans for all
operations to address the most reasonably likely worst case scenarios  regarding
Year 2000 compliance.  Such plans,  however, will recognize material limitations
on our  ability  to plan for  major  regional  or  industrial  failures  such as
regional power outages or regional or industrial  communications  breakdowns. We
expect such contingency plans to be completed during 1999.

Item 7A.      Qualitative and Quantitative Information About Market Risk

Interest Rates
The  Operating  Partnership's  primary  market  risk  exposure  is to changes in
interest rates  obtainable on its mortgage loans  receivable and its secured and
unsecured borrowings. The Operating Partnership does not believe that changes in
market  interest  rates will have a material  impact on the  performance or fair
value of its portfolio of mortgage loans receivable.

It is the Operating  Partnership's policy to manage its exposure to fluctuations
in market  interest rates for its borrowings  through the use of fixed rate debt
instruments to the extent that  reasonably  favorable  rates are obtainable with
such  arrangements.  Approximately  20% and 38% of the  Operating  Partnership's
outstanding  debt,  including  amounts borrowed under the Credit Facility,  were
subject to  variable  rates at  December  31,  1998 and 1997,  respectively.  In
addition,  the  average  interest  rate  on  the  Operating  Partnership's  debt
decreased  from 7.49% at December 31, 1997 to 7.08% at December  31,  1998.  The
Operating  Partnership reviews interest rate exposure in the portfolio quarterly
in an effort to minimize the risk of interest rate  fluctuations.  The Operating
Partnership  does  not  have  any  other  material  market-sensitive   financial
instruments.  It is not the Operating  Partnership's policy to engage in hedging
activities for previously  outstanding  debt  instruments or for  speculative or
trading purposes.

The  Operating  Partnership  may enter into forward  interest  rate, or similar,
agreements  to hedge  specific  anticipated  debt  issuances  where  managements
believes  the risk of adverse  changes in market rates is  significant.  Under a
forward interest rate agreement, if the referenced interest rate increases,  the
Operating  Partnership  is entitled to a receipt in  settlement of the agreement
that economically  would offset the higher financing cost of the debt issued. If
the referenced interest rate decreases,  the Operating Partnership makes payment
in  settlement of the  agreement,  creating an expense that  economically  would
offset the reduced  financing cost of the debt issued. At December 31, 1998, the
Operating  Partnership  was not a party to any forward  interest rate or similar
agreements.

The table below provides information about the Operating Partnership's financial
instruments   that  are  sensitive  to  changes  in  interest  rates.  For  debt
obligations,  the table  presents  principal  cash  flows and  related  weighted
average  interest rates by expected  maturity dates.  Weighted  average variable
rates are based on rates in effect at the reporting date.




                                 Page 33 of 73
<PAGE>


<TABLE>
<CAPTION>

                                                  Expected Maturity Date
                         -------------------------------------------------------------------------
                                                                                                                   Fair 
                            1999        2000        2001         2002        2003     Thereafter      Total        Value
                            ----        ----        ----         ----        ----     ----------      -----       ------
                                                      (in thousands)

<S>                      <C>         <C>         <C>          <C>         <C>         <C>          <C>          <C>       
Secured Fixed            $   11,775  $   63,174  $  15,857    $   14,748  $  38,365   $   439,429  $  583,348   $  583,348
Average interest rate         7.33%       6.89%      7.92%         7.47%      7.64%         6.86%       6.97%

Secured Variable         $  115,074  $    9,484  $      24    $       26  $      28   $       594  $  125,230   $  125,230
Average interest rate         6.75%       7.45%      7.26%         7.26%      7.26%         7.26%       6.81%

Unsecured Fixed          $       --  $      --   $      --    $       --  $      --   $   150,000  $  150,000   $  150,000
Average interest rate            --         --          --            --         --         7.63%       7.63%

Unsecured Variable       $       --  $   63,519  $      --    $       --  $      --   $        --  $   63,519   $   63,519
Average interest rate            --       7.40%         --            --         --            --       7.40%
</TABLE>

The Operating  Partnership  believes that the interest  rates given in the table
for fixed rate borrowings  approximate the rates the Operating Partnership could
currently  obtain for  instruments  of similar terms and maturities and that the
fair values of such instruments approximate carrying value at December 31, 1998.

Item 8.       Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. 
See Item 14.

Item 9.       Changes in and Disagreements with Accountants on Accounting and 
              Financial Disclosure

None.





                                 Page 34 of 73
<PAGE>


                                    PART III

Item 10.      Directors and Executive Officers of the Company

The  information  required  by Item 10 is  incorporated  by  reference  from the
Company's definitive proxy statement for its annual stockholders'  meeting to be
held on May 7, 1999.

Item 11.      Executive Compensation

The  information  required  by Item 11 is  incorporated  by  reference  from the
Company's definitive proxy statement for its annual stockholders'  meeting to be
held on May 7, 1999.

Item 12.      Security Ownership of Certain Beneficial Owners and Management

The  information  required  by Item 12 is  incorporated  by  reference  from the
Company's definitive proxy statement for its annual stockholders'  meeting to be
held on May 7, 1999.

Item 13.      Certain Relationships and Related Transactions

The  information  required  by Item 13 is  incorporated  by  reference  from the
Company's definitive proxy statement for its annual stockholders'  meeting to be
held on May 7, 1999.





                                 Page 35 of 76
<PAGE>



                                     PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

                                                                       Page No.
(a) (1) Financial Statements

        Report of Independent Public Accountants                            37

        Consolidated Balance Sheets at December 31, 1998 and 1997           38

        Consolidated Statements of Operations for the years ended
          December 31, 1998, 1997 and 1996                                  39

        Consolidated Statements of Partners' Equity for the years
          ended December 31, 1998, 1997 and 1996                            40

        Consolidated Statements of Cash Flows for the years ended
          December 31, 1998, 1997 and 1996                                  41

        Notes to Consolidated Financial Statements                          43

    (2) Financial Statement Schedules

        Schedule III - Real Estate and Accumulated Depreciation             59

        Schedule IV - Mortgage Loans Receivable, Secured by Real Estate     69

    (3) Exhibits to Financial Statements

        The Exhibit Index attached hereto is hereby incorporated
          by reference to this Item.                                        73


(b) Reports on Form 8-K (incorporated herein by reference)

            On October 27,  1998,  the Company  filed a report on Form 8-K
            with respect to Supplemental Information for the quarter ended
            September 30, 1998.

            On January 27,  1999,  the Company  filed a report on Form 8-K
            with respect to Supplemental Information for the quarter ended
            December 31, 1998.




                                 Page 36 of 73
<PAGE>










                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Partners of GLENBOROUGH PROPERTIES, L.P.:


We  have  audited  the  accompanying  consolidated  balance  sheets  GLENBOROUGH
PROPERTIES, L.P., as of December 31, 1998 and 1997, and the related consolidated
statements of  operations,  partners'  equity and cash flows for the years ended
December 31, 1998, 1997 and 1996. These  consolidated  financial  statements and
the  schedules  referred  to  below  are  the  responsibility  of the  Operating
Partnership's  management.  Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  consolidated  financial  position of  GLENBOROUGH
PROPERTIES, L.P., as of December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for the years ended December 31, 1998, 1997
and 1996, in conformity with generally accepted accounting principles.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
consolidated  financial statements taken as a whole. The accompanying  schedules
listed in the index to financial  statements and schedules are presented for the
purpose of complying with the Securities and Exchange Commission's rules and are
not a  required  part of the  basic  consolidated  financial  statements.  These
schedules have been subjected to the auditing  procedures  applied in our audits
of the basic consolidated  financial  statements and, in our opinion, are fairly
stated in all material respects in relation to the basic consolidated  financial
statements taken as a whole.



ARTHUR ANDERSEN LLP



San Francisco, California
March 15, 1999





                                 Page 37 of 73
<PAGE>


<TABLE>
<CAPTION>

                                           GLENBOROUGH PROPERTIES, L.P.
                                            CONSOLIDATED BALANCE SHEETS
                                         As of December 31, 1998 and 1997
                                        (in thousands, except unit amounts)


                                                                                 1998                   1997
                                                                            ---------------        ---------------
<S>                                                                          <C>                    <C>
ASSETS
     Rental property, net of accumulated depreciation of
       $72,951 and $40,349 in 1998 and 1997, respectively                    $  1,720,579           $    799,501
     Real estate held for sale, net of accumulated depreciation
       of $9,918 and $864 in 1998 and 1997, respectively                           21,860                 25,717
     Investments in Development                                                    35,131                  7,251
     Investment in Glenborough Corporation                                          6,800                  8,519
     Mortgage loans receivable                                                     42,420                  3,692
     Cash and cash equivalents                                                      4,019                  3,670
     Other assets                                                                  45,437                 16,100
                                                                            ---------------        ---------------

         TOTAL ASSETS                                                        $  1,876,246           $    864,450
                                                                            ===============        ===============

LIABILITIES AND PARTNERS' EQUITY
Liabilities:
     Mortgage loans                                                          $    708,578           $    148,139
     Unsecured Series A Senior Notes                                              150,000                     --
     Unsecured bank line                                                           63,519                 80,160
     Other liabilities                                                             28,921                 12,267
                                                                            ---------------        ---------------
       Total liabilities                                                          951,018                240,566
                                                                            ---------------        ---------------

Commitments and contingencies                                                          --                     --

Partners' Equity:
     General partner, 359,090 and 337,018 units issued and
       outstanding at December 31, 1998 and 1997, respectively                      9,046                  6,239
     Limited partners, 35,549,914 and 33,364,801 units issued
       and outstanding at December 31, 1998 and 1997, respectively
                                                                                  916,182                617,645
                                                                            ---------------        ---------------
       Total partners' equity                                                     925,228                623,884
                                                                            ---------------        ---------------

           TOTAL LIABILITIES AND PARTNERS'
              EQUITY                                                         $  1,876,246           $    864,450
                                                                            ===============        ===============
                            See accompanying notes to consolidated financial statements
</TABLE>




                                 Page 38 of 73
<PAGE>



<TABLE>
<CAPTION>

                                              GLENBOROUGH PROPERTIES, L.P.
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                  For the years ended December 31, 1998, 1997 and 1996
                                        (in thousands, except per share amounts)

                                                                       1998              1997               1996
                                                                  ----------------  ----------------   ----------------
<S>                                                               <C>               <C>                <C>
REVENUE
       Rental revenue                                             $     227,956     $      61,393      $     17,943
       Fees and reimbursements from affiliates                            2,802               719               311
       Interest and other income                                          4,557             1,627             1,070
       Equity in earnings of Glenborough Corporation                      1,533             1,687             1,571
       Net gain on sales of real estate assets                            4,796               839               321
       Gain on collection of mortgage loan receivable                        --               652                --
                                                                  ----------------  ----------------   ----------------
         Total revenue                                                  241,644            66,917            21,216
                                                                  ----------------  ----------------   ----------------

EXPENSES
       Property operating expenses, including $1,347, $3,028
         and $769 paid to the Company in 1998, 1997 and
         1996, respectively                                              75,426            20,904             5,735
       General and administrative, including $1,815, $3,382
         and $1,120 paid to an affiliate in 1998, 1997 and
         1996, respectively                                              10,682             4,002             1,490
       Depreciation and amortization                                     50,169            14,829             4,583
       Interest expense                                                  53,289             9,668             3,913
       Loss on interest rate protection agreement                         4,323                --                --
       Consolidation costs                                                   --                --             6,082
       Litigation costs                                                      --                --             1,155
                                                                  ----------------  ----------------   ----------------
         Total expenses                                                 193,889            49,403            22,958
                                                                  ----------------  ----------------   ----------------

Income (loss) from operations before extraordinary item                  47,755            17,514            (1,742)
Extraordinary item:
Loss on early extinguishment of debt                                     (1,400)             (843)             (186)
                                                                  ----------------  ----------------   ----------------
Net income (loss)                                                        46,355            16,671            (1,928)
Preferred partner interest distributions                                (20,620)               --                --
                                                                  ================  ================   ================
Net income (loss) available to general and limited partners
                                                                  $      25,735     $      16,671      $     (1,928)
                                                                  ================  ================   ================

Per Partnership Unit Data:
Net income (loss) available to general and limited partners
       before extraordinary item                                  $        0.78      $       0.92       $     (0.24)
Extraordinary item                                                        (0.04)            (0.04)            (0.03)
                                                                  ----------------  ----------------   ----------------
Net income (loss) available to general and limited partners
                                                                  $        0.74      $       0.88       $     (0.27)
                                                                  ================  ================   ================
Weighted average number of partnership units outstanding
                                                                     34,968,596        19,025,314         7,104,648
                                                                  ================  ================   ================
                              See accompanying notes to consolidated financial statements

</TABLE>





                                 Page 39 of 73
<PAGE>


<TABLE>
<CAPTION>

                                             GLENBOROUGH PROPERTIES, L.P.
                                      CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
                                 For the years ended December 31, 1998, 1997 and 1996
                                                    (in thousands)


                                                          General            Limited Partners
                                                          Partner                                        Total
                                                     -------------------    -------------------    ------------------

<S>                                                      <C>                  <C>                      <C>        
Balance at December 31, 1995                             $     618            $      61,237            $    61,855

Contributions                                                  511                   50,594                 51,105

Distributions                                                  (69)                  (6,835)                (6,904)

Net loss                                                       (19)                  (1,909)                (1,928)
                                                     -------------------    -------------------    ------------------

Balance at December 31, 1996                                 1,041                  103,087                104,128

Contributions                                                5,283                  523,010                528,293

Distributions                                                 (252)                 (24,956)               (25,208)

Net income                                                     167                   16,504                 16,671
                                                     -------------------    -------------------    ------------------

Balance at December 31, 1997                                 6,239                  617,645                623,884

Contributions                                                3,316                  328,241                331,557

Distributions                                                 (765)                 (75,769)               (76,534)

Unrealized loss on marketable securities                        (1)                     (33)                   (34)

Net income                                                     257                   46,098                 46,355
                                                     -------------------    -------------------    ------------------

Balance at December 31, 1998                             $   9,046            $     916,182            $   925,228
                                                     ===================    ===================    ==================



                         See accompanying notes to consolidated financial statements
</TABLE>




                                 Page 40 of 73
<PAGE>



<TABLE>
<CAPTION>

                                             GLENBOROUGH PROPERTIES, L.P.
                                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For the years ended December 31, 1998, 1997 and 1996
                                                    (in thousands)

                                                                       1998               1997                 1996
                                                                  ---------------    ---------------     --------------
<S>                                                               <C>                <C>                 <C>
Cash flows from operating activities:
     Net income (loss)                                            $      46,355      $      16,671       $     (1,928)
     Adjustments to reconcile net income (loss) to
       net cash provided by operating activities:
         Depreciation and amortization                                   50,169             14,829              4,583
         Amortization of loan fees, included in
           interest expense                                               1,563                221                193
         Equity in earnings of Glenborough Corporation
                                                                         (1,533)            (1,687)            (1,571)
         Net gain on sales of real estate assets                         (4,796)              (839)              (321)
         Gain on collection of mortgage loan receivable
                                                                             --               (652)                --
         Loss on early extinguishment of debt                             1,400                843                186
         Consolidation costs                                                 --                 --              6,082
         Litigation costs                                                    --                 --              1,155
         Changes in certain assets and liabilities, net                 ( 5,029)            (9,535)            (2,652)
                                                                  ---------------    ---------------     --------------
           Net cash provided by operating activities                     88,129             19,851              5,727
                                                                  ---------------    ---------------     --------------

Cash flows from investing activities:
     Net proceeds from sales of real estate assets                       73,339             12,950              2,882
     Additions to real estate assets                                   (626,161)          (586,965)           (62,286)
     Investments in Development                                         (25,745)                --                 --
     Additions to mortgage loans receivable                             (39,613)            (1,855)            (2,694)
     Principal receipts on mortgage loans receivable                        885              8,068                  4
     Investments in Glenborough Corporation                                  --             (3,700)            (1,690)
     Distributions from Glenborough Corporation                           3,252              2,129              1,810
                                                                  ---------------    ---------------     --------------
           Net cash used for investing activities                      (614,043)          (569,373)           (61,974)
                                                                  ---------------    ---------------     --------------

Cash flows from financing activities:
     Proceeds from borrowings                                           696,618            467,689             52,599
     Payments into lender impound accounts, net                         (11,061)              (281)              (564)
     Repayment of borrowings                                           (511,696)          (375,909)           (35,593)
     Proceeds from issuance of Series A Senior Notes                    150,000                 --                 --
     Partner contributions                                              278,936            486,116             47,356
     Partner distributions                                              (76,534)           (25,208)            (6,904)
                                                                  ---------------    ---------------     --------------
         Net cash provided by financing activities                      526,263            552,407             56,894
                                                                  ---------------    ---------------     --------------


                                                    continued

                             See accompanying notes to consolidated financial statements
</TABLE>







                                 Page 41 of 73
<PAGE>




<TABLE>
<CAPTION>

                                             GLENBOROUGH PROPERTIES, L.P.
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS-continued
                                 For the years ended December 31, 1998, 1997 and 1996
                                                    (in thousands)

                                                                       1998               1997                 1996
                                                                  ---------------    ---------------     --------------

<S>                                                               <C>                <C>                 <C>         
Net increase in cash and cash equivalents                         $         349      $       2,885       $        647

Cash and cash equivalents at beginning of period                          3,670                785                138
                                                                  ---------------    ---------------     --------------

Cash and cash equivalents at end of period                        $       4,019      $       3,670       $        785
                                                                  ===============    ===============     ==============

Supplemental disclosure of cash flow information:

     Cash paid for interest (net of capitalized interest of
         $1,108 in 1998)                                          $      46,608      $       9,373       $      3,270
                                                                  ===============    ===============     ==============

Supplemental disclosure of Non-Cash Investing and Financing
     Activities:

     Acquisition of real estate through assumption of first
         trust deed notes payable                                 $     358,876      $      60,628       $     25,200
                                                                  ===============    ===============     ==============

     Acquisition of real estate through issuance of shares
         of common stock and Operating Partnership units
                                                                  $      52,621      $      42,177       $      3,749
                                                                  ===============    ===============     ==============

     Unrealized loss on marketable securities                     $         (34)     $          --       $         --
                                                                  ===============    ===============     ==============

                            See accompanying notes to consolidated financial statements
</TABLE>



                                 Page 42 of 73
<PAGE>



                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997



Note 1.      ORGANIZATION

Glenborough  Properties,  L.P., a California Limited Partnership (the "Operating
Partnership")  was organized in the State of California on August 23, 1995.  The
Operating  Partnership is the primary operating subsidiary of Glenborough Realty
Trust Incorporated (the "Company"),  a  self-administered  and self-managed real
estate investment trust ("REIT").  On December 31, 1995, the Company completed a
consolidation (the  "Consolidation") in which eight public limited  partnerships
(the "Partnerships,"  collectively with Glenborough Corporation (defined below),
the "GRT Predecessor  Entities"),  merged with and into the Company. The Company
(i) issued  5,753,709  shares (the  "Shares") of $.001 par value Common Stock to
the Partnerships in exchange for 3,979,376 Operating Partnership units; and (ii)
merged with Glenborough Corporation, a California Corporation,  with the Company
being the surviving entity. The Company then transferred certain real estate and
related  assets to the  Operating  Partnership  in exchange  for a sole  general
partner  interest of 1% and a limited  partnership  interest  of 85.37%  (87.25%
limited partnership interest as of December 31, 1998). The Operating Partnership
also acquired interests in certain warehouse  distribution  facilities from GPA,
Ltd.,  a California  limited  partnership  ("GPA").  The  Operating  Partnership
commenced operations on January 1, 1996.

The Operating Partnership, through several subsidiaries, is engaged primarily in
the  ownership,  operation,  management,  leasing,  acquisition,  expansion  and
development of various types of income-producing  properties. As of December 31,
1998, the Operating  Partnership,  directly and through various  subsidiaries in
which  it owns  99% of the  ownership  interests,  controls  a total of 186 real
estate projects.

Effective  April 1, 1998, the Company  contributed to the Operating  Partnership
the  majority  of its  assets,  including  100% of its shares of the  non-voting
preferred  stock  of  Glenborough  Corporation  ("GC"),  as  well  as all of the
Company's tangible personal property including furniture and fixtures,  all cash
and  investments,   and  a  property  management  contract.   As  part  of  that
transaction,  the Company  also agreed to a  substantial  reduction in the asset
management fees paid by the Operating Partnership to the Company. In return, the
Operating  Partnership  canceled  certain  obligations  of  the  Company  to the
Operating Partnership, and issued 2,248,869 units of partnership interest in the
Operating  Partnership to the Company. The contribution of 100% of the shares of
non-voting  preferred stock in GC has been accounted for as a reorganization  of
entities under common  control,  similar to a pooling of interests.  All periods
have been  restated  to give  effect to the  transaction  as if it  occurred  on
December 31, 1995.

As a result of this  transaction,  the only assets of the Company  that were not
contributed  to the  Operating  Partnership  are (i) its  shares  of  non-voting
preferred stock in Glenborough  Hotel Group,  (ii) its shares of common stock in
twelve  qualified  REIT  subsidiaries,  which  produce  dividends  that  are not
material  to the  Company,  and (iii) a 4.05%  limited  partnership  interest in
Glenborough Partners.

As of December 31, 1998,  resulting from the transaction  discussed  above,  the
Operating  Partnership holds 100% of the non-voting preferred stock of GC. GC is
the general  partner of several real estate  limited  partnerships  and provides
asset and property  management  services for these  partnerships  (the  "Managed
Partnerships").  It also provides partnership administration,  asset management,
property  management  and  development  services  to  a  group  of  unaffiliated
partnerships  which  include  three  public  partnerships  sponsored  by  Rancon
Financial  Corporation,  an unaffiliated  corporation which has significant real
estate assets in the Inland Empire  region of Southern  California  (the "Rancon
Partnerships").

Note 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The  accompanying   financial  statements  present  the  consolidated  financial
position of the Operating  Partnership and its majority owned subsidiaries as of
December 31, 1998 and 1997, and the consolidated  results of operations and cash
flows of the Operating  Partnership  for the years ended December 31, 1998, 1997
and 1996.  All  intercompany  transactions,  receivables  and payables have been
eliminated in consolidation.

Reclassification
Certain prior year balances have been  reclassified  to conform with the current
year presentation.

                                 Page 43 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


Use of Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the results of operations  during the  reporting  period.  Actual  results could
differ from those estimates.

New Accounting Pronouncements
Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS No.
133 is effective  for fiscal  years  beginning  after June 15,  1999,  and early
adoption is permitted.  SFAS No. 133 provides  comprehensive  guidelines for the
recognition  and   measurement  of  derivatives   and  hedging   activities  and
specifically  requires all  derivatives  to be recorded on the balance  sheet at
fair  value.   Management  is  evaluating   the  effects,   if  any,  that  this
pronouncement will have on the Operating  Partnership's  consolidated  financial
position, results of operations and financial statement position.

Investments in Real Estate
Investments in real estate are stated at cost unless circumstances indicate that
cost cannot be recovered,  in which case,  the carrying value of the property is
reduced to estimated  fair value.  Estimated  fair value:  (i) is based upon the
Operating  Partnership's plans for the continued operation of each property; and
(ii) is computed using estimated sales price, as determined by prevailing market
values  for  comparable  properties  and/or  the  use  of  capitalization  rates
multiplied by annualized rental income based upon the age,  construction and use
of the building. The fulfillment of the Operating Partnership's plans related to
each of its properties is dependent  upon,  among other things,  the presence of
economic  conditions which will enable the Operating  Partnership to continue to
hold  and  operate  the  properties   prior  to  their  eventual  sale.  Due  to
uncertainties  inherent  in the  valuation  process  and in the  economy,  it is
reasonably  possible  that the actual  results of operating and disposing of the
Operating  Partnership's  properties could be materially  different than current
expectations.

Depreciation is provided using the straight line method over the useful lives of
the respective assets.

The useful lives are as follow:

           Buildings and Improvements               10 to 40 years
           Tenant Improvements                      Term of the related lease
           Furniture and Equipment                  5 to 7 years

Investment in Glenborough Corporation
The Operating  Partnership's  investment in Glenborough Corporation is accounted
for using the equity method, as discussed further in Note 4.

Mortgage Loans Receivable
The Operating  Partnership  monitors the  recoverability  of its loans and notes
receivable  through  ongoing contact with the borrowers to ensure timely receipt
of interest and principal  payments,  and where  appropriate,  obtains financial
information  concerning  the operation of the  properties.  Interest on mortgage
loans is  recognized  as  revenue  as it  accrues  during the period the loan is
outstanding.  Mortgage loans  receivable  will be evaluated for impairment if it
becomes evident that the borrower is unable to meet its debt service obligations
in a timely manner and cannot  satisfy its payments using sources other than the
operations  of the  property  securing the loan.  If it is  concluded  that such
circumstances  exist,  then such loan will be  considered to be impaired and its
recorded amount will be reduced to the fair value of the collateral securing it.
Interest  income  will also  cease to accrue  under such  circumstances.  Due to
uncertainties  inherent in the valuation process, it is reasonably possible that
the amount ultimately  realized from the Operating  Partnership's  collection on
these receivables will be different than the recorded amounts.





                                 Page 44 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


Cash Equivalents
The  Operating   Partnership   considers   short-term   investments   (including
certificates  of deposit) with a maturity of three months or less at the time of
investment to be cash equivalents.

Marketable Securities
The  Operating  Partnership  records its  marketable  securities  at fair value.
Unrealized  gains and losses on securities are reported as a separate  component
of  stockholders'  equity and  realized  gains and losses  are  included  in net
income.  As of December 31,  1998,  marketable  securities  with a fair value of
approximately  $2,639,000  were  included  in other  assets on the  accompanying
consolidated balance sheet.

Fair Value of Financial Instruments
Statement of Financial  Accounting  Standards No. 107 requires  disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Operating Partnership, the carrying amount of debt approximates
fair value.  Certain  assumed debt  instruments  have been recorded at a premium
based upon the stated rate on the instrument  and the then  available  borrowing
rates for the Operating Partnership. Cash and cash equivalents consist of demand
deposits and certificates of deposit with financial  institutions.  The carrying
amount of cash and cash  equivalents  as well as the mortgage  loans  receivable
described above, approximates fair value.

Derivative Financial Instruments
The Operating  Partnership may use derivative financial instruments in the event
that  it  believes  such   instruments   will  be  an  effective  hedge  against
fluctuations in interest rates on a specific anticipated  borrowing.  Derivative
financial instruments such as forward rate agreements or interest rate swaps may
be used in this  capacity.  To the extent  such  instruments  do not  qualify as
hedges,  they will be accounted  for on a  mark-to-market  basis and recorded in
earnings  each period as  appropriate.  The cost of terminated  instruments  not
qualifying  as hedges  will be  recorded  in  earnings  in the  period  they are
terminated.  Instruments which qualify as hedges upon obtaining the related debt
will be recorded as a premium or discount  on the  related  debt  principal  and
amortized  into  earnings  over the life of the debt  instrument.  If the hedged
instrument  is retired  early,  the  unamortized  discount  or  premium  will be
included as a component of the calculation of gain or loss on retirement.

At December  31, 1998,  the  Operating  Partnership  was not a party to any open
interest rate protection agreements.

Deferred Financing and Other Fees
Fees  paid in  connection  with  the  financing  and  leasing  of the  Operating
Partnership's  properties  are  amortized  over  the term of the  related  notes
payable or leases and are included in other assets.

Investments in Development Alliances
The Operating  Partnership,  through  mezzanine loans and equity  contributions,
invests  in  various   development   alliances  with  projects  currently  under
development. The interest on advances and other direct project costs incurred by
the Operating Partnership are capitalized to the investment since such funds are
used for development purposes. See Note 6 for further discussion.

Revenues
All leases are classified as operating  leases.  Rental revenue is recognized as
earned over the terms of the related leases.

For the years ended December 31, 1998, 1997 and 1996, no tenants represented 10%
or more of rental revenue of the Operating Partnership.

Fees and reimbursements  revenue consists of property  management fees, overhead
administration  fees, and transaction  fees from the  acquisition,  disposition,
refinancing,  leasing  and  construction  supervision  of  real  estate  for  an
unconsolidated affiliate.

                                 Page 45 of 73
<PAGE>
                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


Revenues are recognized  only after the Operating  Partnership is  contractually
entitled to receive  payment,  after the  services for which the fee is received
have been provided,  and after the ability and timing of payments are reasonably
assured and predictable.

Scheduled  rent  increases are based  primarily on the Consumer Price Index or a
similar factor.  Material incentives paid, if any, by the Operating  Partnership
to a tenant are  amortized as a reduction of rental  income over the life of the
related lease.

Net Income Per Partnership Unit
Net income per partnership  unit is calculated using the weighted average number
of  partnership  units  outstanding  during  the  period.  No effect on per unit
amounts has been attributed to a potential  conversion of the Preferred  Partner
Interest   (see  Note  12)  into  limited   partner   units  as  the  impact  is
anti-dilutive.  No  other  potentially  dilutive  securities  of  the  Operating
Partnership exist.

Income Taxes
No provision  for income  taxes is included in the  Consolidated  Statements  of
Operations for the years ended December 31, 1998, 1997 and 1996 as the Operating
Partnership's  results of operations are allocated to the partners for inclusion
in their respective income tax returns.

Note 3.   INVESTMENTS IN REAL ESTATE

The cost and accumulated  depreciation of real estate investments as of December
31, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>

                                               Buildings
                                                  and                                                   Net Recorded
                                              Improvements                           Accumulated           Value
1998:                           Land                              Total Cost         Depreciation
                            -------------    ---------------    ---------------     ---------------    ---------------
<S>                         <C>              <C>                 <C>                 <C>                 <C>        
Office properties           $    92,166      $     773,018       $   865,184         $   (35,318)        $   829,866
Office/Flex properties           54,167            251,714           305,881             (11,443)            294,438
Industrial properties            21,329            115,451           136,780             (10,217)            126,563
Retail properties                20,524             72,654            93,178              (8,369)             84,809
Multi-family properties          46,590            350,011           396,601              (8,796)            387,805
Hotel properties                  2,756             24,928            27,684              (8,726)             18,958
                            =============    ===============    ===============     ===============    ===============
Total                       $   237,532      $   1,587,776       $ 1,825,308         $   (82,869)        $ 1,742,439
                            =============    ===============    ===============     ===============    ===============

1997:
Office properties           $    62,442      $     282,129       $   344,571         $    (9,310)        $   335,261
Office/Flex properties           46,496            163,606           210,102              (3,274)            206,828
Industrial properties            20,903             88,802           109,705              (7,503)            102,202
Retail properties                16,687             50,447            67,134              (5,845)             61,289
Multi-family properties          19,512             71,288            90,800              (1,780)             89,020
Hotel properties                  5,587             38,532            44,119             (13,501)             30,618
                            =============    ===============    ===============     ===============    ===============
Total                       $   171,627      $     694,804       $   866,431         $   (41,213)        $   825,218
                            =============    ===============    ===============     ===============    ===============
</TABLE>

In the first quarter of 1998, the Operating  Partnership  acquired 22 properties
which  consisted of  approximately  4.2 million  rentable square feet of office,
office/flex and industrial space and had aggregate acquisition costs,  including
capitalized costs, of approximately  $520.4 million. In addition,  the Operating
Partnership  sold four  properties  to  redeploy  capital  into  properties  the
Operating  Partnership  believes have characteristics more suited to its overall
growth  strategy  and  operating  goals.   The  sold  properties   included  one
office/flex property,  two industrial properties and one multi-family  property.
These  properties  were sold for an  aggregate  sales price of  $29,248,000  and
generated an aggregate net gain of approximately $1,374,000.

                                 Page 46 of 73
<PAGE>
                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


In the second quarter of 1998, the Operating  Partnership acquired 35 properties
which  consisted of  approximately  1.2 million  rentable square feet of office,
office/flex,  industrial and retail space and 7,206  multi-family  units and had
aggregate  acquisition  costs,  including  capitalized  costs, of  approximately
$410.9 million.  In addition,  the Operating  Partnership sold three properties,
including one office/flex  property and two hotel  properties.  These properties
were  sold  for an  aggregate  sales  price of $9.7  million  and  generated  an
aggregate net gain of approximately $552,000.

In the  third  quarter  of  1998,  the  Operating  Partnership  acquired  eleven
properties which consisted of approximately  1.2 million rentable square feet of
office,  office/flex and industrial space and had aggregate  acquisition  costs,
including  capitalized costs, of approximately $67.3 million.  In addition,  the
Operating  Partnership sold one of three buildings from an office/flex property.
This building was sold for $1.7 million and no gain or loss was recognized  upon
the sale.

In the fourth quarter of 1998, the Operating  Partnership  sold four properties,
including one office property, two industrial properties and one hotel property.
These  properties  were sold for an aggregate  sales price of $16.7  million and
generated an aggregate net gain of approximately $6.4 million.

The Operating  Partnership has entered into short-term  lease  agreements on the
hotel properties located in Arlington, Texas, and Ontario,  California, with two
prospective  purchasers of these properties.  These prospective  purchasers have
entered into purchase agreements for these properties,  with anticipated closing
dates of March 30, 1999. These leases terminate on the closing date for the sale
of the properties.  The net book value of the two hotel properties aggregates to
$7,956,000 at December 31, 1998. The properties  secure,  in part, a loan to the
Operating  Partnership with an outstanding  principal  balance of $13,220,000 at
December 31, 1998. Net income earned by the Operating  Partnership  from the two
hotels totaled  $429,000,  $598,000 and $485,000 in the years ended December 31,
1998, 1997 and 1996, respectively.

The Operating Partnership has entered into a definitive agreement to acquire all
of the real estate assets of Prudential-Bache/Equitec Real Estate Partnership, a
California  limited  partnership  in  which  the  managing  general  partner  is
Prudential-Bache  Properties,  Inc., and in which GC and Robert  Batinovich have
served as  co-general  partners  since  March  1994,  but do not hold a material
equity or economic interest (the "Pru-Bache  Portfolio").  The total acquisition
cost,  including  capitalized  costs,  is  expected  to be  approximately  $49.9
million, which is to be paid entirely in cash. The Pru-Bache Portfolio comprises
four  office  buildings  aggregating  405,825  square  feet and one  office/flex
property  containing 121,645 square feet. This acquisition is subject to certain
contingencies,  including  customary  closing  conditions  and the resolution of
litigation relating to the proposed acquisition,  to which neither the Operating
Partnership nor the Company is a party.

The Operating  Partnership  leases its commercial and industrial  property under
non-cancelable  operating lease agreements.  Future minimum rents to be received
as of December 31, 1998 are as follows (in thousands):

              Year Ending
             December 31,
             ------------
                1999                           $  144,106
                2000                              120,681
                2001                               99,952
                2002                               76,651
                2003                               56,473
                Thereafter                        140,058
                                               ----------
                                               $  637,921
                                               ==========

Note 4.   INVESTMENT IN GLENBOROUGH CORPORATION

The  Operating  Partnership  accounts for its  investment in GC using the equity
method as a substantial  portion of GC's economic benefits flow to the Operating
Partnership  by virtue of its 100%  non-voting  preferred  stock interest in GC,
which interest constitutes substantially all of GC's capitalization.  Two of the
holders of the voting  common


                                 Page 47 of 73
<PAGE>
                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


stock of GC are officers of the Company;  however, the Operating Partnership has
no direct voting or management control of GC. The Operating  Partnership records
earnings  on its  investment  in GC equal to its cash  flow  preference,  to the
extent of earnings, plus its pro rata share of remaining earnings, based on cash
flow allocation  percentages.  Distributions  received from GC are recorded as a
reduction of the Operating Partnership's investment.

As of December 31, 1998 and 1997,  the Operating  Partnership  had the following
investment in GC (in thousands):

Investment at December 31, 1996         $   5,261
Contributions                               3,700
Distributions                              (2,129)
Equity in earnings                          1,687
                                        ---------
Investment at December 31, 1997             8,519
Distributions                              (3,252)
Equity in earnings                          1,533
                                        ---------
Investment at December 31, 1998         $   6,800
                                        =========

GC's summary  condensed  balance sheet  information  as of December 31, 1998 and
1997, and the condensed statements of operations for the years then ended are as
follows (in thousands):

                                                   Balance Sheets
                                                 As of December 31,
                                                1998            1997
                                             -----------     -----------
Investments in management contracts, net     $   6,332       $   8,108
Investment in real estate joint venture          2,025              --
Other assets                                     2,329           3,631
                                             ===========     ===========
Total assets                                 $  10,686       $  11,739
                                             ===========     ===========

Notes payable                                $   3,525       $   1,483
Other liabilities                                  368           1,764
                                             -----------     -----------
Total liabilities                                3,893           3,247

Stockholders' equity                             6,793           8,492
                                             ===========     ===========
Total liabilities and stockholders' equity   $  10,686       $  11,739
                                             ===========     ===========

                                              Statements of Operations
                                                 For the year ended
                                                    December 31,
                                                1998          1997 (1)
                                             -----------     -----------
Revenue                                      $  12,549       $  15,105
Expenses                                        10,939          13,331
                                             ===========     ===========
Net income (loss)                            $   1,610       $   1,774
                                             ===========     ===========

 (1)Included  in  revenues  for the year  ended  December  31,  1997 is a fee of
    approximately  $1.7 million earned in connection  with the  disposition of a
    managed property owned by a related party.

Note 5.   MORTGAGE LOANS RECEIVABLE

The Operating  Partnership's  mortgage loans receivable consist of the following
as of December 31, 1998 and 1997 (dollars in thousands):




                                 Page 48 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>

                                                                                     1998                   1997
                                                                                ---------------        ---------------
<S>                                                                                <C>                    <C>
Note secured by an industrial property in Los Angeles, CA, with a fixed interest
rate of 9% and a maturity date of June 2001. This note was paid off
in June 1998.                                                                      $        --            $       507

Note secured by an office property in Phoenix, AZ, with a fixed interest rate of
11% and a  maturity  date  of  November  1999.  As of  December  31,  1998,  the
Partnership is committed to additional advances totaling $366 for tenant
improvements and other leasing costs.                                                    3,484                  3,185

Note secured by a hotel  property in Dallas,  TX, with a fixed  interest rate of
9%, monthly interest-only payments and a maturity date of March 31, 1999,
with an option to extend for 3 months.                                                   3,600                     --

Note  secured by Gateway  Park land  located in Aurora,  CO, with a stated fixed
interest rate of 13%, quarterly interest-only payments and a maturity date of
July 2005 (see below for further discussion).                                           35,336                     --
                                                                                ---------------        ---------------

Total                                                                              $    42,420            $     3,692
                                                                                ===============        ===============
</TABLE>

In July 1998, the Operating Partnership entered into a development alliance with
The Pauls  Corporation (see Note 6). In addition to this  development  alliance,
the Operating  Partnership has loaned  approximately $35 million to continue the
build-out of Gateway  Park.  These  advances  were made in the form of a secured
loan and accordingly, are recorded as a mortgage loan receivable.

Contractually  due principal  payments of the mortgage  loans  receivable are as
follows (in thousands):

              Year Ending
             December 31,
             ------------
                1999                      $    7,084
                2000                              --
                2001                              --
                2002                              --
                2003                              --
                Thereafter                    35,336
                                          ----------
                Total                     $   42,420
                                          ==========

Note 6.   DEVELOPMENT ALLIANCES AND OTHER ASSETS

The Operating  Partnership  has formed 4  development  alliances to which it has
committed  a  total  of  approximately   $42  million  for  the  development  of
approximately  1.4 million square feet of office,  office/flex and  distribution
properties and 2,050 multi-family units in North Carolina,  Colorado, Texas, New
Jersey,  Kansas and Michigan. As of December 31, 1998, the Operating Partnership
has advanced  approximately  $33 million  under these  commitments.  Under these
development alliances,  the Operating Partnership has certain rights to purchase
the  properties  upon  completion  of  development  and,  thus,   through  these
alliances,  the Operating  Partnership  could acquire an additional  1.4 million
square feet of commercial  properties and 2,050 multi-family units over the next
five years.

In December  1998,  the Operating  Partnership  sold its investment in a private
REIT for $17.4  million.  At the time of sale, the Operating  Partnership  had a
book value in this  investment of $20.5 million which  resulted in a net loss of
$3.1 million.  In addition,  in 1998, the Operating  Partnership sold marketable
securities  which resulted in total


                                 Page 49 of 73
<PAGE>

                         GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


realized losses of approximately $325,000.  These losses are included in the net
gain on sales of real estate assets on the accompanying  consolidated  statement
of operations for the year ended December 31, 1998.

Note 7.   SECURED AND UNSECURED LIABILITIES

The Operating  Partnership  had the following  mortgage loans,  bank lines,  and
notes payable outstanding as of December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>

                                                                                            1998           1997
                                                                                         ---------      ---------
<S>                                                                                     <C>              <C>
Secured loans with various lenders,  net of unamortized discount of $6,140, with
a fixed interest rate of 6.125%, monthly principal and interest payments ranging
between $296 and $458, and a maturity date of November 10, 2008. These loans are
secured by 35  properties  with an aggregate  net carrying  value of $408,439 at
December 31, 1998. See below for further discussion.                                    $  234,871       $     --

Secured loan with a bank with a fixed interest rate of 7.50%,  monthly principal
and interest  payments of $443 and a maturity date of October 1, 2022.  The loan
is secured by ten  properties  with an aggregate net carrying  value of $110,129
and $111,372 at December 31, 1998 and 1997, respectively.                                   58,942         59,724

Secured  loan  with an  investment  bank  with a fixed  interest  rate of 7.57%,
monthly  principal (based upon a 25-year  amortization) and interest payments of
$103 and a maturity  date of January 1, 2006.  The loan is secured by properties
with an aggregate net carrying value of $33,506 and $37,711 at December 31, 1998
and 1997, respectively. In December 1998, a portion of this loan was paid off in
connection  with the sales of two  properties  which  secured  the loan.  13,220
19,444

Secured  loans with various  lenders,  bearing  interest at fixed rates  between
6.95% and 9.25%  (approximately  $53,469 of these loans  include an  unamortized
premium of approximately $602 which reduces the effective interest rate on those
instruments  to 6.75%),  with monthly  principal and interest  payments  ranging
between $8 and $371 and maturing at various dates through October 1, 2010. These
loans are secured by properties with an aggregate net carrying value of
$447,444 and $66,353 at December 31, 1998 and 1997, respectively.                          261,938         30,519

Secured  loans with various  banks  bearing  interest at variable  rates ranging
between  7.25% and 8.18% at December 31, 1998  (approximately  $114,950 of these
loans include an unamortized  premium of approximately  $1,750 which reduces the
effective  interest rate on those  instruments to 6.75%),  monthly principal and
interest  payments  ranging  between $4 and $790 and  maturing at various  dates
through May 1, 2017. These loans are secured by properties with an aggregate net
carrying value of $179,438 and $17,246 at December 31, 1998 and
1997, respectively.                                                                        125,230          7,806
</TABLE>





                                 Page 50 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>

                                                                                            1998           1997
                                                                                         ---------      ---------
<S>                                                                                     <C>              <C>
Secured loans with an investment  bank,  bearing interest at fixed rates between
7.60% and 7.85%,  with monthly  principal and interest  payments ranging between
$11 and $22 and a maturity date of December 1, 2030.  These loans are secured by
multi-family  properties  with an aggregate  net  carrying  value of $19,060 and
$41,862 at December  31, 1998 and 1997,  respectively.  In 1998,  three of these
loans which had outstanding  balances totaling $16,136 at December 31, 1997 were
paid off with proceeds from the new $248.8 million loan discussed below.                $   14,377       $ 30,646

Unsecured  $100,000  line  of  credit  with a bank  ("Credit  Facility")  with a
variable  interest  rate of LIBOR plus  1.625%  (7.401% at December  31,  1998),
monthly  interest only  payments and a maturity date of December 22, 2000,  with
one option to extend for 10 years. See below for further discussion.                        63,519         80,160

Unsecured   Series  A  Senior  Notes  with  a  fixed  interest  rate of  7.625%,
interest payable semiannually on March 15 and September 15, commencing September
15, 1998, and a maturity date of March 15,
2005. See below for further discussion.                                                    150,000             --
                                                                                          ---------     ---------

Total                                                                                   $  922,097       $228,299
                                                                                         =========      =========
</TABLE>

In January 1998, the Operating  Partnership closed a $150 million loan agreement
with a  commercial  bank (the  "Interim  Loan").  The Interim Loan had a term of
three months with interest at LIBOR plus 1.75%.  The purpose of the Interim Loan
was to fund the  acquisition  of  properties as discussed in Note 3. The Interim
Loan was paid off in March 1998 with proceeds from the $150 million of unsecured
Series A Senior Notes as discussed below.

In March 1998, the Operating Partnership issued $150 million of unsecured 7.625%
Series A Senior Notes (the "Notes") in an unregistered 144A offering.  The Notes
mature on March 15, 2005, unless previously  redeemed.  Interest on the Notes is
payable  semiannually  on March 15 and  September 15,  commencing  September 15,
1998.  The  Notes may be  redeemed  at any time at the  option of the  Operating
Partnership,  in whole or in part, at a redemption price equal to the sum of (i)
the principal  amount of the Notes being  redeemed plus accrued  interest to the
redemption date and (ii) the Make-Whole  Amount,  as defined,  if any. The Notes
are  general   unsecured  and   unsubordinated   obligations  of  the  Operating
Partnership,  and rank pari passu with all other  unsecured  and  unsubordinated
indebtedness of the Operating  Partnership.  However,  the Notes are effectively
subordinated to secured borrowing  arrangements  that the Operating  Partnership
has and from time to time may enter into with various  banks and other  lenders,
and to the prior claims of each secured mortgage lender to any specific property
which  secures any lender's  mortgage.  As of December  31,  1998,  such secured
arrangements and mortgages aggregated approximately $708.6 million.

In May 1998 (declared  effective in November  1998),  the Operating  Partnership
filed a registration  statement with the Securities and Exchange Commission (the
"SEC") to exchange all outstanding  Notes (the "Old Notes") for Notes which have
been registered under the Securities Act of 1933 (the "New Notes"). The form and
term of the New  Notes  are  substantially  identical  to the Old  Notes  in all
material respects, except that the New Notes are registered under the Securities
Act,  and   therefore  are  not  subject  to  certain   transfer   restrictions,
registration  rights and related special interest  provisions  applicable to the
Old Notes.

In June 1998, the Operating  Partnership  obtained a $150 million unsecured loan
from a commercial bank (the "Bridge Loan") which had a variable interest rate of
LIBOR plus 1.3%, and a maturity date of December 31, 1998.  Approximately $147.7
million was drawn under the Bridge Loan to fund  acquisitions  (as  discussed in
Note 3), and


                                 Page 51 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


to fund  development  advances.  The Operating  Partnership paid off the loan on
October 30, 1998,  with  proceeds  from the new $248.8  million  loan  discussed
below.

In October 1998, the Operating  Partnership obtained $248.8 million of financing
which has a term of ten years,  bears interest at a fixed rate of 6.125% and was
secured  by 36  properties.  The  proceeds  were  used to retire  the  Operating
Partnership's  $150 million  Bridge Loan maturing  December 31, 1998, to pay off
four  mortgage  loans  and to  reduce  the  outstanding  balance  of the  Credit
Facility.  In December  1998,  approximately  $7.4 million of this financing was
paid  off  and  one  multi-family  property  was  released  as  security.   This
multi-family  property  was then used as security  for the new $7.5 million loan
discussed below.

In connection  with obtaining the $248.8 million of financing  discussed  above,
the Operating  Partnership  entered into an interest rate  protection  agreement
intended to hedge against  potential  increases in the  risk-free  interest rate
prior to closing the loan. The Operating Partnership elected to reduce the final
loan amount and the risk-free  interest  rate that the interest rate  protection
agreement was intended to hedge declined during the period of the agreement.  As
a result of these factors, the Operating Partnership was required to terminate a
portion of the protection agreement at a loss of $4,323,000,  which was recorded
as an operating  expense in the fourth quarter of 1998.  The $6,244,000  cost of
the remaining  portion of the protection  agreement,  which was terminated  upon
closing  of the  loan,  has  been  recorded  as a  discount  on the  outstanding
principal  amount  of the loan  and will be  amortized  as  additional  interest
expense over the remaining life.

In December 1998, the Operating  Partnership obtained a $7.5 million loan from a
bank which is secured by a multi-family  property,  bears interest at a variable
rate of prime minus 0.50% (7.25% at December  31, 1998) and has a maturity  date
of December 22,2000.

In December 1998, due in part to an overall slowing of acquisition activity, the
Operating  Partnership  reduced its Credit  Facility  from $250  million to $100
million.  As part of the  modification,  certain  covenants  that  relate to the
Operating Partnership's  development activity were changed and the interest rate
was  modified to LIBOR plus 1.38% to 1.75%.  This rate is an  increase  over the
previous  rate of LIBOR plus 1.10% to 1.30%  which was a direct  result of rates
obtainable in the market.

Some of the Operating Partnership's  properties are held in limited partnerships
and limited liability  companies in order to provide bankruptcy remote borrowers
for certain lenders.  Such limited  partnerships and limited liability companies
are  included  in  the  consolidated   financial  statements  of  the  Operating
Partnership  in  accordance  with  Generally  Accepted   Accounting   Principles
("GAAP").

The required principal payments on the Operating Partnership's debt for the next
five  years  and  thereafter,  as of  December  31,  1998,  are as  follows  (in
thousands):

              Year Ending
             December 31,
             ------------
               1999                  $  126,849
               2000                     136,177
               2001                      15,881
               2002                      14,774
               2003                      38,393
               Thereafter               590,023
                                      ---------
               Total                 $  922,097
                                      =========

Note 8.   RELATED PARTY TRANSACTIONS

Fee and  reimbursement  income earned by the Operating  Partnership from related
entities totaled $2,802,000,  $719,000 and $311,000 for the years ended December
31, 1998,  1997 and 1996,  respectively,  and  consisted of property  management
fees, asset management fees and other fee income.

                                 Page 52 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


For the year ended December 31, 1998, the Operating Partnership paid the Company
property and asset  management fees of $1,347,000 and $1,815,000,  respectively,
which are included in property operating expenses and general and administrative
expenses on the accompanying  consolidated statement of operations. In addition,
for the year ended December 31, 1998, the Operating Partnership paid GC property
management fees and salary reimbursements  totaling $1,273,000 for management of
a portfolio of residential  properties owned by the Operating  Partnership which
is included  in property  operating  expenses on the  accompanying  consolidated
statement of  operations.  For the years ended  December 31, 1997 and 1996,  the
Operating  Partnership  paid the  Company  property  management  fees and  asset
management  fees totaling  $6,410,000 and  $1,889,000,  respectively,  which are
included in property operating expenses and general and administrative  expenses
on the accompanying consolidated statements of operations.

Note 9.   CONSOLIDATION AND LITIGATION COSTS

The  consolidation  costs included in the Operating  Partnership's  December 31,
1996 consolidated  statement of operations  included  accounting fees as well as
the costs of mailing and printing the Prospectus/Consent Solicitation Statement,
any supplements  thereto or other documents  related to the  Consolidation,  the
costs  of  the  Information   Agent,   investor   brochure,   telephone   calls,
broker-dealer fact sheets, printing,  postage, travel, meetings, legal and other
fees related to the solicitation of consents,  as well as reimbursement of costs
incurred by brokers and banks in forwarding the Prospectus/Consent  Solicitation
Statement to Investors.

The litigation costs included in the Operating  Partnership's  December 31, 1996
consolidated  statement  of  operations  included  the legal  fees  incurred  in
connection  with  defending  two class action  complaints  filed by investors in
certain of the GRT Predecessor  Entities as well as an accrual for the amount of
the  settlement  that the  plaintiff's  counsel  in one case was  requesting  be
awarded by the court (see Note 10).

Note 10.  COMMITMENTS AND CONTINGENCIES

Environmental  Matters. The Operating Partnership follows a policy of monitoring
its properties for the presence of hazardous or toxic substances.  The Operating
Partnership  is not aware of any  environmental  liability  with  respect to the
properties  that  would  have  a  material   adverse  effect  on  the  Operating
Partnership's  business,  assets  or  results  of  operations.  There  can be no
assurance  that such a material  environmental  liability  does not  exist.  The
existence of any such  material  environmental  liability  could have an adverse
effect on the Operating Partnership's results of operations and cash flow.

General  Uninsured  Losses.  The  Operating  Partnership  carries  comprehensive
liability,  fire, flood, extended coverage and rental loss insurance with policy
specifications,   limits  and  deductibles   customarily   carried  for  similar
properties.  There are, however, certain types of extraordinary losses which may
be either uninsurable,  or not economically insurable.  Further,  certain of the
properties are located in areas that are subject to earthquake activity.  Should
a  property  sustain  damage  as  a  result  of  an  earthquake,  the  Operating
Partnership  may incur  losses  due to  insurance  deductibles,  co-payments  on
insured  losses  or  uninsured  losses.  Should an  uninsured  loss  occur,  the
Operating  Partnership could lose its investment in, and anticipated profits and
cash flows from, a property.

Litigation.  Prior to the  completion  of the  Consolidation,  two lawsuits were
filed in 1995  contesting the fairness of the  Consolidation,  one in California
State court and one in federal court.  The  complaints in both actions  alleged,
among  other  things,  breaches  by  the  defendants  of  fiduciary  duties  and
inadequate disclosures. The State court action was settled and, upon appeal, the
settlement  was affirmed by the State court on February 17, 1998.  The objectors
filed with the California Supreme Court a petition for review,  which was denied
on May 21, 1998. On August 18, 1998, the objectors  filed a petition for writ of
certiorari in the Supreme Court of the United States. On September 18, 1998, the
Company and the co-defendants  filed a brief in opposition to the petition.  The
Supreme Court has not yet granted or denied the petition.  Pursuant to the terms
of the  settlement in the State court action,  pending  appeal,  the Company has
paid one-third of the $855,000 settlement amount and the remaining two-thirds is
being held in escrow.  In the  federal  action,  the court in  December  of 1995
deferred  all further  proceedings  pending a ruling in the State court  action.
Following the State court  decision  approving the  settlement,  the  defendants
filed a motion to dismiss the federal  court action.  The Operating  Partnership
and the Company  believe that it is very  unlikely  that this


                                 Page 53 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


litigation  would result in a liability that would exceed the accrued  liability
by a material amount.  However,  given the inherent uncertainties of litigation,
there can be no assurance  that the ultimate  outcomes of these  actions will be
favorable to the Operating Partnership and the Company.

Note 11.  SEGMENT INFORMATION

The Operating  Partnership owns a diverse portfolio of properties comprising six
product types: office, office/flex, industrial, retail, multi-family and hotels.
Each of these product types  represents a reportable  segment with distinct uses
and tenant types which require the  Operating  Partnership  to employ  different
management  strategies.  Each  segment  contains  properties  located in various
regions and markets  within the United  States.  The office  portfolio  consists
primarily of suburban office buildings.  The office/flex  portfolio  consists of
properties  designed  for a  combination  of  office  and  warehouse  uses.  The
industrial portfolio consists of properties designed for warehouse, distribution
and light  manufacturing  for  single-tenant  or  multi-tenant  use.  The retail
portfolio  consists  primarily  of  community  shopping  centers  anchored  with
national  or  regional  supermarkets  or  drug  stores.  The  properties  in the
multi-family  portfolio are apartment buildings with units rented to residential
tenants on either a  month-by-month  basis or for terms of one year or less. The
Operating   Partnership's  hotel  operations  are  limited  service  "all-suite"
properties leased to and operated by third parties.

The accounting  policies of the segments are the same as those  described in the
summary of significant  accounting policies. The Operating Partnership evaluates
performance  of its  property  types based on net  operating  income  derived by
subtracting  rental  expenses and real estate taxes  (operating  expenses)  from
rental revenues.  Significant  information used by the Operating Partnership for
its reportable segments as of and for the years ended December 31, 1998 and 1997
is as follows (in thousands):
<TABLE>
<CAPTION>

1998                             Office     Office/Flex    Industrial     Retail     Multi-family     Hotel         Total
----
                               -----------  -------------  -----------  -----------  ------------ ------------  -------------
<S>                            <C>           <C>            <C>          <C>          <C>           <C>          <C>
Rental revenue                 $  117,746    $   36,987     $  16,104    $  12,072    $  40,865     $   4,182    $   227,956
Property operating expenses        44,775        10,898         3,609        3,840       17,235           967         81,324
                               ===========  =============  ===========  ===========  ============ ============  =============
Net operating income (NOI)     $   72,971    $   26,089     $  12,495    $   8,232    $  23,630     $   3,215    $   146,632
                               ===========  =============  ===========  ===========  ============ ============  =============

Real estate assets, net        $  829,866    $  294,438     $ 126,563    $  84,809    $ 387,805     $  18,958    $ 1,742,439
                               ===========  =============  ===========  ===========  ============ ============  =============

1997
Rental revenue                 $   25,071    $   10,354     $   7,320    $   7,224    $   5,536     $   5,980    $    61,485
Property operating expenses         9,986         3,062         1,459        2,183        2,309         1,894         20,893
                               ===========  =============  ===========  ===========  ============ ============  =============
Net operating income (NOI)     $   15,085    $    7,292     $   5,861    $   5,041    $   3,227     $   4,086    $    40,592
                               ===========  =============  ===========  ===========  ============ ============  =============

Real estate assets, net        $  335,261    $  206,828     $ 102,202    $  61,289    $  89,020     $  30,618    $   825,218
                               ===========  =============  ===========  ===========  ============ ============  =============
</TABLE>

The  following is a  reconciliation  of segment  revenues,  income and assets to
consolidated  revenues,  income and assets for the periods  presented  above (in
thousands):

                                                1998                 1997
                                          ----------------     ----------------
Revenues
Total revenue for reportable segments       $    227,956         $    61,485
Elimination of internal property 
  management fees                                     --                 (92)
Other revenue (1)                                 13,688               5,524
                                          ================     ================
Total consolidated revenues                 $    241,644         $    66,917
                                          ================     ================





                                 Page 54 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997



                                                  1998                 1997
                                            ---------------      ---------------
Net Income
NOI for reportable segments                   $    146,632         $    40,592
Elimination of internal property
  management fees                                    5,898                (103)
Unallocated amounts:
   Other revenue (1)                                13,688               5,524
   General and administrative expenses             (10,682)             (4,002)
   Depreciation and amortization                   (50,169)            (14,829)
   Interest expense                                (53,289)             (9,668)
   Loss on interest rate protection
     agreement                                      (4,323)                 --
                                            ================     ===============
Income from operations before 
  extraordinary item                          $     47,755         $    17,514
                                            ================     ===============

Assets
Total assets for reportable segments          $  1,742,439         $   825,218
Investments in Development                          35,131               7,251
Investment in Glenborough Corporation                6,800               8,519
Mortgage loans receivable                           42,420               3,692
Cash and cash equivalents                            4,019               3,670
Other assets                                        45,437              16,100
                                            ================     ===============
Total consolidated assets                     $  1,876,246         $   864,450
                                            ================     ===============

(1) Other  revenue  includes fee income,  interest and other  income,  equity in
earnings of  Glenborough  Corporation,  net gains on sales of real estate assets
and a gain on collection of mortgage loan receivable.

Note 12.  PUBLIC STOCK OFFERING

In January 1998, the Company completed a public offering of 11,500,000 shares of
7 3/4% Series A  Convertible  Preferred  Stock (the  "January  1998  Convertible
Preferred Stock Offering"). The 11,500,000 shares were sold at a per share price
of $25.00 for net proceeds of approximately $276 million.  The proceeds from the
January 1998  Convertible  Preferred  Stock  Offering  were  contributed  to the
Operating  Partnership  for which the Company  received a Preferred  Partnership
Interest,  which  is  entitled  to a  priority  distribution  sufficient  to pay
dividends to the holders of the Company's Series A Convertible  Preferred Stock.
A portion of this additional  capital was used to repay the outstanding  balance
under the Operating  Partnership's Credit Facility.  The remaining proceeds were
used to fund the acquisitions discussed in Note 3 and for working capital.

Following  are  unaudited  pro forma  statements  of operations of the Operating
Partnership for each of the years ended December 31, 1998 and 1997 giving effect
to  the  equity  and  debt  offerings,   property   acquisitions   and  property
dispositions (including those discussed in Note 3) completed in 1997 and 1998 as
if they had been completed on January 1, 1997 (in thousands  except for weighted
average units and per unit amounts):




                                 Page 55 of 73
<PAGE>


                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


<TABLE>
<CAPTION>

                                                           1998                 1997
                                                        (Unaudited)          (Unaudited)
                                                      ----------------     ----------------
<S>                                                     <C>                  <C>
REVENUE
Rental revenue                                          $   257,927          $   233,352
Equity in earnings of Glenborough Corporation                 1,428                  966
Fees, interest and other income                               9,187                5,979
                                                      ----------------     ----------------
   Total Revenue                                            268,542              240,297
                                                      ----------------     ----------------

OPERATING EXPENSES
Property operating expenses                                  86,231               83,138
General and administrative                                   11,266                7,373
Depreciation and amortization                                52,499               48,293
Interest expense                                             63,935               62,298
Loss on interest rate protection agreement                    4,323                    -
                                                      ----------------     ----------------
   Total Operating Expenses                                 218,254              201,102
                                                      ----------------     ----------------

Net income before preferred partner interest
   distributions                                             50,288               39,195
Preferred partner interest distributions                    (22,281)             (22,281)
                                                      ----------------     ----------------
Net income available to general and limited
   partners                                             $    28,007          $   16,914
                                                      ================     ================
Net income per unit                                     $      0.78          $     0.47
                                                      ================     ================
Weighted average number of partnership units
   outstanding                                           35,909,004           35,909,004
                                                      ================     ================
</TABLE>


Note 13.  SUBSEQUENT EVENTS

In February 1999,  the Operating  Partnership  acquired a 285 unit  multi-family
property  ("Springs of Indian Creek") located in Carrolton,  Texas. The property
is the first phase of a two phase project  comprising a total of 519 units.  The
234 unit second phase of the project is currently under construction through one
of the  Operating  Partnership's  development  alliances  and is  expected to be
completed  in the  first  quarter  of next  year.  The total  acquisition  cost,
including   capitalized  costs  of  Phase  I  was  approximately  $20.8  million
comprising:  (i) approximately  $14.1 million in assumption of debt and (ii) the
balance in cash.

In  February  1999,  the  Operating  Partnership  acquired  a  1.45-acre  parcel
containing   34,500  square  feet  of  industrial   buildings  in  Los  Angeles,
California,  near the Los Angeles  International  Airport. The total acquisition
cost,  including  capitalized costs, was approximately  $3.1 million,  which was
paid  entirely in cash.  The  property was part of a  tax-deferred  Section 1031
exchange  involving the sale of an office/flex  property as discussed below. The
property has been leased to Dollar Rent-a-Car under a 15-year triple-net lease.

In January and February 1999,  the Operating  Partnership  sold six  properties,
including five office/flex properties and one retail property.  These properties
were sold for an  aggregate  sales  price of  approximately  $15.9  million  and
generated an aggregate net gain of approximately  $364,000.  Approximately  $2.4
million of the net proceeds were deposited into a deferred  exchange account and
were applied to the acquisition of land discussed above on a tax-deferred  basis
pursuant to Section 1031 of the Internal Revenue Code.

In February 1999, the Company  contributed to the Operating  Partnership 100% of
its shares of the  non-voting  preferred  stock of Glenborough  Hotel Group.  In
return, the Operating Partnership issued 67,797 units of partnership interest to
the  Company.  As a result of this  transaction,  the only assets of the Company
that were not  contributed  to the Operating  Partnership  are (i) its shares of
common stock in twelve qualified REIT subsidiaries, which produce dividends that
are not material to the Company and (ii) a 4.05% limited partnership interest in
Glenborough


                                 Page 56 of 73
<PAGE>

                          GLENBOROUGH PROPERTIES, L.P.

                   Notes to Consolidated Financial Statements
                           December 31, 1998 and 1997


Partners. This transaction will be accounted for as a reorganization of entities
under common control, similar to a pooling of interests.  Beginning in 1999, all
periods  presented will be restated to give effect to this  transaction as if it
occurred  on  December  31,  1995.  The  effect  of  this   restatement  on  the
consolidated  financial  statements  of the Operating  Partnership  would be (i)
Investment in Glenborough  Hotel Group for the years ended December 31, 1998 and
1997 of $2,007,000  and  $2,429,000,  respectively,  and (ii) Equity in earnings
(loss) of Glenborough  Hotel Group for the years ended  December 31, 1998,  1997
and 1996 of $(219,000), $1,056,000 and $528,000, respectively.

Note 14.  UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following represents an unaudited summary of quarterly results of operations
for the year ended December 31, 1998 (in thousands,  except for weighted average
units and per unit amounts):
<TABLE>
<CAPTION>

                                                                                  Quarter Ended
                                                    --------------------------------------------------------------------
                                                        March 31,         June 30,        Sept 30,          Dec 31,
                                                          1998             1998            1998               1998
                                                     --------------   --------------  --------------   --------------
<S>                                                   <C>              <C>             <C>              <C>
REVENUE
   Rental revenue                                     $     45,963     $     51,619    $     65,321     $     65,053
   Fees and reimbursements from affiliates                     473              759           1,220              350
   Interest and other income                                   307              246           1,416            2,588
   Equity in earnings (loss) of Glenborough
      Corporation                                              111              740           1,038             (356)
   Net gain (reduction in prior quarter gain) on
      sales of real estate assets                            1,446              693            (250)           2,907
                                                     --------------   --------------  --------------   --------------
   Total revenue                                            48,300           54,057          68,745           70,542
                                                     --------------   --------------  --------------   --------------

EXPENSES
   Property operating expenses                              15,671           16,265          22,446           21,044
   General and administrative                                1,866            2,603           3,372            2,841
   Depreciation and amortization                             9,984           10,934          14,309           14,942
   Interest expense                                          9,145            9,707          17,064           17,373
   Loss on interest rate protection agreement                   --               --              --            4,323
                                                     --------------   --------------  --------------   --------------
     Total expenses                                         36,666           39,509          57,191           60,523
                                                     --------------   --------------  --------------   --------------

Income from operations before extraordinary item            11,634           14,548          11,554           10,019
Extraordinary item:
Loss on early extinguishment of debt                            --               --              --           (1,400)
                                                     --------------   --------------  --------------   --------------
Net income                                                  11,634           14,548          11,554            8,619
Preferred partner interest distributions                    (3,910)          (5,570)         (5,570)          (5,570)
                                                     --------------   --------------  --------------  ---------------
Net income after preferred partner interest
    distributions                                     $      7,724     $      8,978    $      5,984     $      3,049
                                                     ==============   ==============  ==============   ==============

Per Partnership Unit Data:
Net income after preferred partner interest
    distributions and before extraordinary item       $       0.23     $       0.26    $       0.17     $       0.12
Extraordinary item                                              --               --              --            (0.04)
                                                     ---------------   -------------  --------------   --------------
Net income after preferred partner interest
    distributions                                     $       0.23     $       0.26    $       0.17     $       0.08
                                                     ===============   =============  ==============   ==============
Weighted average number of partnership units
    outstanding                                         33,703,270       34,365,125      35,864,869       35,907,054
                                                     ===============   =============  ==============   ==============
</TABLE>


Per unit  amounts do not  necessarily  sum to per unit  amounts  for the year as
weighted  average  units  outstanding  are measured  for each period  presented,
rather than solely for the entire year.

                                 Page 57 of 73
<PAGE>


<TABLE>
<CAPTION>

                              GLENBOROUGH PROPERTIES, L.P.
                       SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                          December 31, 1998
                                           (in thousands)


           COLUMN A                COLUMN B               COLUMN C               COLUMN D    

                                                                        Costs Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to           
                                                       Company (1)             Acquisition (4)         
                                                               Buildings                               
                                                                  and                                  
     Description                 Encumbrances      Land      Improvements     Improvements             
-------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>           <C>              <C> 
    Tradewinds Financial, AZ        $    -       $   304       $  1,214         $     47               
    Vintage Pointe, AZ               2,067           738          2,950              213               
    400 South El Camino Real, CA        (8)        4,000         30,549            3,355               
    Academy Prof. Center, CA             -           481          1,866              100               
    Centerstone Plaza, CA               (6)        6,077         24,265              214               
    Dallidet Prof. Center, CA            -           677          2,703               51               
    University Tech Center, CA (2)       -         2,086          8,046              469               
    Warner Village Medical, CA           -           558          2,232              207               
    One Gateway Center, CO              (9)          470          9,498              195               
    Buschwood III, FL                   (8)        1,479          5,890              184               
    Park Place, FL                      (8)        1,895         12,982              266               
    Temple Terrace Bus. Center, FL       -         1,788          6,949               24               
    Ashford Perimeter, GA           21,369         1,174         42,227              158               
    Powers Ferry Landing East, GA   18,896         2,744         40,600               92               
    Capitol Center, IA                  (8)            -         11,981               72               
    Columbia Center II, IL               -           208         20,329              237               
    Embassy Plaza, IL                    -           436         15,680              457               
    Oak Brook International, IL         (8)          757         11,126              315               
    Oakbrook Terrace, IL            19,420           552         37,635              154               
    Crosspoint Four, IN                  -           394          2,847               56               
    Meridian Park, IN                    -         1,296          5,906              117               
    The Osram Building, IN               -           264          4,515               12               
    Leawood Office Building, KS      4,299         1,124         10,300               59               
    Blue Ridge Office Building, MA   2,996          734           5,877              164                 
    Bronx Park I, MA                     -           916          9,104              275               
    Marlborough Corporate Place, MA      -         5,655         55,908              368                 
    The Hartwood Building, MA        2,557           527          5,426               94               
    Westford Corporate Center, MA       (6)        2,091          8,310               55               
    Montgomery Exec. Center, MD         (8)        1,928          7,676              422               
                                           (continued)

</TABLE>
<TABLE>
<CAPTION>

                                       GLENBOROUGH PROPERTIES, L.P.
                               SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                  December 31, 1998
                                                   (in thousands)


                                                    COLUMN E                 COLUMN F        COLUMN G          COLUMN H

                                   
                                              Gross Amount Carried
                                              at December 31, 1998      
                                                    Buildings                                   (1)             Life
                                                       and         (3)      Accumulated       Date           Depreciated
     Description                         Land     Improvements    Total    Depreciation     Acquired            Over
------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>         <C>          <C>         <C>             <C>               <C>
Office Properties:
    Tradewinds Financial, AZ          $   304     $  1,261     $   1,565   $    110           11/96          1-30 yrs.
    Vintage Pointe, AZ                    738        3,163         3,901        301           11/96          1-30 yrs.
    400 South El Camino Real, CA        4,000       33,904        37,904      1,536            3/98          1-30 yrs.
    Academy Prof. Center, CA              481        1,966         2,447        115            4/97          1-30 yrs.
    Centerstone Plaza, CA               6,077       24,479        30,556      1,242            7/97          1-30 yrs.
    Dallidet Prof. Center, CA             677        2,754         3,431        237           11/96          1-30 yrs.
    University Tech Center, CA (2)      2,086        8,515        10,601        444            6/97          1-30 yrs.
    Warner Village Medical, CA            558        2,439         2,997        202           10/96          1-30 yrs.
    One Gateway Center, CO                470        9,693        10,163        162            7/98          1-30 yrs.
    Buschwood III, FL                   1,479        6,074         7,553        302            9/97          1-30 yrs.
    Park Place, FL                      1,895       13,248        15,143        451            1/98          1-30 yrs.
    Temple Terrace Bus. Center, FL      1,788        6,973         8,761        290           12/97          1-30 yrs.
    Ashford Perimeter, GA               1,174       42,385        43,559      1,416            1/98          1-30 yrs.
    Powers Ferry Landing East, GA       2,744       40,692        43,436      1,367            1/98          1-30 yrs.
    Capitol Center, IA                      -       12,053        12,053        401            2/98          1-30 yrs.
    Columbia Center II, IL                208       20,566        20,774        707            1/98          1-30 yrs.
    Embassy Plaza, IL                     436       16,137        16,573        532            1/98          1-30 yrs.
    Oak Brook International, IL           757       11,441        12,198        399            1/98          1-30 yrs.
    Oakbrook Terrace, IL                  552       37,789        38,341      1,246            1/98          1-30 yrs.
    Crosspoint Four, IN                   394        2,903         3,297         71            4/98          1-30 yrs.
    Meridian Park, IN                   1,296        6,023         7,319        145            4/98          1-30 yrs.
    The Osram Building, IN                264        4,527         4,791        113            4/98          1-30 yrs.
    Leawood Office Building, KS         1,124       10,359        11,483        318            3/98          1-30 yrs.
    Blue Ridge Office Building, MA        734        6,041         6,775        222            3/98          1-30 yrs.
    Bronx Park I, MA                      916        9,379        10,295        299            3/98          1-30 yrs.
    Marlborough Corporate Place, MA     5,655       56,276        61,931      1,884            1/98          1-30 yrs.
    The Hartwood Building, MA             527        5,520         6,047        184            3/98          1-30 yrs.
    Westford Corporate Center, MA       2,091        8,365        10,456        488            4/97          1-30 yrs.
    Montgomery Exec. Center, MD         1,928        8,098        10,026        428            9/97          1-30 yrs.
                                              (continued)
</TABLE>





                                 Page 58 of 73
<PAGE>


<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                            SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                               December 31, 1998
                                               (in thousands)


           COLUMN A                COLUMN B               COLUMN C               COLUMN D            

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to         
                                                       Company (1)            Acquisition (4)       
                                                               Buildings                             
                                                                  and                                
     Description                  Encumbrances      Land      Improvements     Improvements           
-----------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>                <C>    
Office Properties continued:
   Rockwall I & II, MD              $    -       $   807      $  47,259          $   263             
   Bond Street Building, MI              -           716          2,147              311             
   Riverview Office Tower, MN           (6)        4,095         16,333            1,254             
   University Club Tower, MO             -         4,087         14,519            2,535             
   Woodlands Plaza, MO                  (6)        1,114          4,426              448             
   Edinburgh Center, NC                 (8)          984         14,232              167             
   One & Three Pacific Place, NE        (8)        1,985         18,014               65             
   One Professional Square, NE           -           285          1,142              230             
   Regency Westpointe, NE (5)           (7)          530          3,147              864             
   25 Independence Blvd., NJ            (8)        4,547         18,141               51             
   Bridgewater Exec. Quarters, NJ    4,433         2,075          7,337               20             
   Executive Place, NJ                   -           944         11,347               27             
   Frontier Exec. Quarters I, NJ        (8)        4,200         33,892              242             
   Frontier Exec. Quarters II, NJ       (8)          631          5,091               65             
   Gatehall, NJ                          -         1,865          7,427              495             
   Morristown Medical Offices, NJ        -           518          1,832                6             
   Vreeland Business Ctr., NJ            -         1,863          8,714               39             
   Citibank Park, NV                    (8)        4,628         18,442              865             
   Thousand Oaks, TN                     -         9,741         40,355              962             
   Post Oak Place, TX                    -           396          1,579               85             
   4500 Plaza, UT (5)                  788         1,123          4,606              838             
   2000 Corporate Ridge, VA         20,994           909         41,096              229             
   700 South Washington, VA             (6)        1,981          7,894               53             
   Cameron Run, VA                  10,194           414         18,964              231             
   Globe Building, WA                    -           375          1,501              213             
-----------------------------------------------------------------------------------------------------
         Office Total                             92,166        754,028           18,990             
-----------------------------------------------------------------------------------------------------
                                     (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)


                                                   COLUMN E                 COLUMN F        COLUMN G          COLUMN H
                                   
                                             Gross Amount Carried
                                             at December 31, 1998      
                                                   Buildings                                  (1)              Life
                                                      and         (3)      Accumulated       Date           Depreciated
     Description                        Land     Improvements    Total    Depreciation     Acquired            Over
-----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>        <C>           <C>          <C>              <C>             <C>
Office Properties continued:
   Rockwall I & II, MD               $   807    $  47,522     $  48,329    $ 1,610            1/98          1-30 yrs.
   Bond Street Building, MI              716        2,458         3,174        198            9/96          1-40 yrs.
   Riverview Office Tower, MN          4,095       17,587        21,682      1,059            4/97          1-30 yrs.
   University Club Tower, MO           4,087       17,054        21,141      1,492            7/96          1-40 yrs.
   Woodlands Plaza, MO                 1,114        4,874         5,988        353            4/97          1-30 yrs.
   Edinburgh Center, NC                  984       14,399        15,383        486            1/98          1-30 yrs.
   One & Three Pacific Place, NE       1,985       18,079        20,064        452            5/98          1-30 yrs.
   One Professional Square, NE           285        1,372         1,657        126           10/96          1-30 yrs.
   Regency Westpointe, NE (5)            530        4,011         4,541      1,679            6/87          1-30 yrs.
   25 Independence Blvd., NJ           4,547       18,192        22,739        909            9/97          1-30 yrs.
   Bridgewater Exec. Quarters, NJ      2,075        7,357         9,432        368            9/97          1-30 yrs.
   Executive Place, NJ                   944       11,374        12,318        190            8/98          1-30 yrs.
   Frontier Exec. Quarters I, NJ       4,200       34,134        38,334      1,702            9/97          1-30 yrs.
   Frontier Exec. Quarters II, NJ        631        5,156         5,787        256            9/97          1-30 yrs.
   Gatehall, NJ                        1,865        7,922         9,787        388            9/97          1-30 yrs.
   Morristown Medical Offices, NJ        518        1,838         2,356         92            9/97          1-30 yrs.
   Vreeland Business Ctr., NJ          1,863        8,753        10,616        218            6/98          1-30 yrs.
   Citibank Park, NV                   4,628       19,307        23,935        824            9/97          1-30 yrs.
   Thousand Oaks, TN                   9,741       41,317        51,058      1,746           12/97          1-30 yrs.
   Post Oak Place, TX                    396        1,664         2,060         89            9/97          1-30 yrs.
   4500 Plaza, UT (5)                  1,123        5,444         6,567      2,817            3/86          1-30 yrs.
   2000 Corporate Ridge, VA              909       41,325        42,234      1,377            1/98          1-30 yrs.
   700 South Washington, VA            1,981        7,947         9,928        465            4/97          1-30 yrs.
   Cameron Run, VA                       414       19,195        19,609        648            1/98          1-30 yrs.
   Globe Building, WA                    375        1,714         2,089        162           10/96          1-30 yrs.
-----------------------------------------------------------------------------------------------------------------------
         Office Total                 92,166      773,018       865,184     35,318
-----------------------------------------------------------------------------------------------------------------------
                                              (continued)
</TABLE>





                                 Page 59 of 73
<PAGE>
 
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)


           COLUMN A                COLUMN B               COLUMN C               COLUMN D             

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to          
                                                       Company (1)             Acquisition (4)        
                                                               Buildings                              
                                                                  and                                 
     Description                 Encumbrances      Land      Improvements     Improvements            
------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>                <C>  
Office/Flex Properties:
   Baseline Business Park, AZ      $     -       $   886       $  3,527           $  190              
   Hoover Industrial, AZ                 -           322          1,290               80              
   Magnolia Industrial, AZ               -           322          1,241              151              
   Chatsworth Ind. Park, CA            795           264          1,014               62              
   Dominguez Industrial, CA              -           697          2,662              137              
   Dunn Way Industrial, CA               -           427          1,601              227              
   Glassell Industrial Center, CA    1,278           704          2,630              228              
   Kraemer Industrial Park, CA       1,442           401          1,537              106              
   Monroe Industrial, CA               713           282          1,101              105              
   Rancho Bernardo, CA                   -           518          2,072               55              
   Scripps Terrace, CA                   -           678          2,685               73              
   Tierrasanta Research Park, CA        (8)        1,303          5,189              727              
   Upland Industrial, CA                 -           155            576               81              
   Gateway Eight, CO                    (9)          442          3,870               30              
   Gateway Four, CO                    (10)          523          3,517               28              
   Gateway One, CO                   2,416           402          3,608               27              
   Gateway Six, CO                     (10)          568          5,040              129              
   Northglenn Bus. Center, CO            -         1,335          3,354               37              
   Valley Business Park, CO              -         1,764          7,027              134              
   Cypress Creek Bus. Center, FL         -           876          3,490              525              
   Fingerhut Business Center, FL         -         1,188          3,282               10              
   Grand Regency Business Ctr., FL       -         1,120          4,302            1,082              
   Lake Point Business Park, FL         (6)        1,344          5,343              244              
   Newport Business Center, FL           -           654          2,604              171              
   Primeco Business Center, FL           -           950          3,418               12              
   Oakbrook Corners, GA                 (8)        1,057          4,209               98              
   The Business Park, GA                (8)        1,485          5,912              375              
   Covance Business Center, IN           -         1,405         15,109                -              
   Park 100 - Building 42, IN (5)        -           712          3,286             (522)             
                                         (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

                                                COLUMN E                COLUMN F        COLUMN G          COLUMN H

                                  
                                          Gross Amount Carried
                                          at December 31, 1998      
                                                Buildings                                  (1)              Life
                                                   and         (3)      Accumulated       Date           Depreciated
     Description                     Land     Improvements    Total    Depreciation     Acquired            Over
--------------------------------------------------------------------------------------------------------------------
<S>                                <C>         <C>          <C>          <C>              <C>            <C> 
   Baseline Business Park, AZ      $  886      $ 3,717      $  4,603     $  193            9/97          1-30 yrs.
   Hoover Industrial, AZ              322        1,370         1,692        114           10/96          1-30 yrs.
   Magnolia Industrial, AZ            322        1,392         1,714         82            6/97          1-30 yrs.
   Chatsworth Ind. Park, CA           264        1,076         1,340         62            4/97          1-30 yrs.
   Dominguez Industrial, CA           697        2,799         3,496        166            4/97          1-30 yrs.
   Dunn Way Industrial, CA            427        1,828         2,255        112            4/97          1-30 yrs.
   Glassell Industrial Center, CA     704        2,858         3,562        166            4/97          1-30 yrs.
   Kraemer Industrial Park, CA        401        1,643         2,044         99            4/97          1-30 yrs.
   Monroe Industrial, CA              282        1,206         1,488         72            4/97          1-30 yrs.
   Rancho Bernardo, CA                518        2,127         2,645        189           10/96          1-30 yrs.
   Scripps Terrace, CA                678        2,758         3,436        137            9/97          1-30 yrs.
   Tierrasanta Research Park, CA    1,303        5,916         7,219        342            9/97          1-30 yrs.
   Upland Industrial, CA              155          657           812         41            4/97          1-30 yrs.
   Gateway Eight, CO                  442        3,900         4,342         65            7/98          1-30 yrs.
   Gateway Four, CO                   523        3,545         4,068         59            7/98          1-30 yrs.
   Gateway One, CO                    402        3,635         4,037         60            7/98          1-30 yrs.
   Gateway Six, CO                    568        5,169         5,737         97            7/98          1-30 yrs.
   Northglenn Bus. Center, CO       1,335        3,391         4,726        141           12/97          1-30 yrs.
   Valley Business Park, CO         1,764        7,161         8,925        357            9/97          1-30 yrs.
   Cypress Creek Bus. Center, FL      876        4,015         4,891        210            9/97          1-30 yrs.
   Fingerhut Business Center, FL    1,188        3,292         4,480        137           12/97          1-30 yrs.
   Grand Regency Business Ctr., FL  1,120        5,384         6,504        286           12/97          1-30 yrs.
   Lake Point Business Park, FL     1,344        5,587         6,931        345            4/97          1-30 yrs.
   Newport Business Center, FL        654        2,775         3,429        142            9/97          1-30 yrs.
   Primeco Business Center, FL        950        3,430         4,380        143           12/97          1-30 yrs.
   Oakbrook Corners, GA             1,057        4,307         5,364        219            9/97          1-30 yrs.
   The Business Park, GA            1,485        6,287         7,772        323            9/97          1-30 yrs.
   Covance Business Center, IN      1,405       15,109        16,514        294            7/98          1-30 yrs.
   Park 100 - Building 42, IN (5)     712        2,764         3,476        773           10/86          5-25 yrs.
                                        (continued)
</TABLE>





                                 Page 60 of 73
<PAGE>



<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

           COLUMN A                  COLUMN B              COLUMN C               COLUMN D              

                                                                           Cost Capitalized (Reduced)
                                                     Initial Cost to            Subsequent to           
                                                       Company (1)              Acquisition (4)         
                                                                 Buildings                               
                                                                    and                                  
     Description                    Encumbrances      Land      Improvements     Improvements             
-------------------------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>                <C>   
Office/Flex Properties continued:
   Canton Business Center, MA        $ 3,318        $  796       $  6,758            $  29               
   Fisher-Pierce, MA                      (6)          718          2,860              115               
   Columbia Warehouse, MD                  -           393          1,565                9               
   Germantown Business Center, MD         (8)        1,442          5,753               17               
   Bryant Lake Business Center, MN        (8)        1,907          7,531              751               
   Riverview Industrial Park, MN           -           841          3,348              213               
   Winnetka Industrial Center, MN          -         1,189          4,737               87               
   Woodlands Tech Center, MO              (6)          949          3,773              431               
   Fairfield Business Quarters, NJ     2,794           817          3,479               67               
   Fox Hollow Bus. Quarters, NJ            -         1,576          2,358              119               
   Palms Business Center III, NV          (8)        3,984         10,207               73               
   Palms Business Center IV, NV           (8)          627          3,272               15               
   Palms Business Center North, NV        (8)        2,492          7,067               43               
   Palms Business Center South, NV        (8)        4,134          9,610              133               
   Post Palms Business Center, NV          -         2,522          9,453               65               
   Clark Avenue, PA                        -           649          2,584               20               
   Lehigh Valley Exec. Campus, PA          -         1,748         12,826              210               
   Valley Forge Corporate Center, PA       -         2,614         34,805              126               
   Walnut Creek Bus. Center, TX        1,371           774          3,093              140               
   Kent Business Park, WA                 (8)        1,211          4,822               52               
-------------------------------------------------------------------------------------------------------
         Office/Flex Total                          54,167        244,397            7,317               
-------------------------------------------------------------------------------------------------------
Industrial Properties:
   Fairmont Commerce Center, AZ            -           735          2,928               21               
   Fifth Street Industrial, AZ             -           654          2,522               86               
   Benicia Industrial Park, CA (5)        (7)          978          4,787              203               
   Coronado Industrial, CA                (8)          711          2,831               41               
   East Anaheim Industrial, CA            (8)        1,480          3,282               23               
                                            (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

                                                 COLUMN E                 COLUMN F        COLUMN G          COLUMN H

                                    
                                            Gross Amount Carried
                                            at  December 31, 1998      
                                                  Buildings                                  (1)              Life
                                                     and         (3)      Accumulated       Date           Depreciated
     Description                       Land     Improvements    Total    Depreciation     Acquired            Over
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>          <C>          <C>              <C>            <C>
Office/Flex Properties continued:
   Canton Business Center, MA        $  796      $ 6,787      $  7,583     $  233            3/98          1-30 yrs.
   Fisher-Pierce, MA                    718        2,975         3,693        168            4/97          1-30 yrs.
   Columbia Warehouse, MD               393        1,574         1,967         65           10/97          1-30 yrs.
   Germantown Business Center, MD     1,442        5,770         7,212        288            9/97          1-30 yrs.
   Bryant Lake Business Center, MN    1,907        8,282        10,189        344           11/97          1-30 yrs.
   Riverview Industrial Park, MN        841        3,561         4,402        171            9/97          1-30 yrs.
   Winnetka Industrial Center, MN     1,189        4,824         6,013        238            9/97          1-30 yrs.
   Woodlands Tech Center, MO            949        4,204         5,153        289            4/97          1-30 yrs.
   Fairfield Business Quarters, NJ      817        3,546         4,363        174            9/97          1-30 yrs.
   Fox Hollow Bus. Quarters, NJ       1,576        2,477         4,053        127            9/97          1-30 yrs.
   Palms Business Center III, NV      3,984       10,280        14,264        429           10/97          1-30 yrs.
   Palms Business Center IV, NV         627        3,287         3,914        137           10/97          1-30 yrs.
   Palms Business Center North, NV    2,492        7,110         9,602        297           10/97          1-30 yrs.
   Palms Business Center South, NV    4,134        9,743        13,877        410           10/97          1-30 yrs.
   Post Palms Business Center, NV     2,522        9,518        12,040        399           10/97          1-30 yrs.
   Clark Avenue, PA                     649        2,604         3,253        130            9/97          1-30 yrs.
   Lehigh Valley Exec. Campus, PA     1,748       13,036        14,784        436            1/98          1-30 yrs.
   Valley Forge Corporate Center, PA  2,614       34,931        37,545      1,173            1/98          1-30 yrs.
   Walnut Creek Bus. Center, TX         774        3,233         4,007        262           10/96          1-30 yrs.
   Kent Business Park, WA             1,211        4,874         6,085        247            9/97          1-30 yrs.
----------------------------------------------------------------------------------------------------------------------
         Office/Flex Total           54,167      251,714       305,881     11,443
----------------------------------------------------------------------------------------------------------------------
Industrial Properties:
   Fairmont Commerce Center, AZ         735        2,949         3,684        123           10/97          1-30 yrs.
   Fifth Street Industrial, AZ          654        2,608         3,262        153            6/97          1-30 yrs.
   Benicia Industrial Park, CA (5)      978        4,990         5,968      2,034            7/86          1-30 yrs.
   Coronado Industrial, CA              711        2,872         3,583        143            9/97          1-30 yrs.
   East Anaheim Industrial, CA        1,480        3,305         4,785        138           10/97          1-30 yrs.
                                              (continued)
</TABLE>





                                 Page 61 of 73
<PAGE>



<TABLE>
<CAPTION>
                                      GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

           COLUMN A                COLUMN B               COLUMN C               COLUMN D            

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to         
                                                        Company (1)            Acquisition (4)       
                                                               Buildings                             
                                                                  and                                
     Description                  Encumbrances      Land      Improvements     Improvements           
-----------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>           <C>               <C>  
Industrial Properties continued:
   Springdale Commerce Center, CA       (8)      $ 1,030       $  4,101          $    74             
   Gateway Nine, CO                 $4,764612      4,941            214              612             
   Gateway Seven, CO                   (10)          638          5,143              183             
   Gateway Ten, CO                      (9)          524          4,762               36             
   Gateway Three, CO                   (10)          508          4,704               38             
   Gateway Two, CO                   3,890           561          4,425               35             
   Burnham Industrial Warehouse, FL      -           594          2,366               10             
   Atlantic Industrial, GA               -           634          3,866           (1,278)            
   Bonnie Lane Business Center, IL       -           738          2,938               20             
   Glenn Avenue Business Center, IL      -           565          2,250               10             
   Navistar International, IL (5)       (7)          793         10,941           (4,122)            
   Wood Dale Business Center, IL         -           603          2,403               38             
   Park 100 - Building 46, IN (5)        -             -              -              211             
   J.I. Case Equip. Corp., KS (5)        -           236          3,264           (1,250)            
   Flanders Industrial Park, MA          -           738          5,634              193             
   Forest Street Business Center, MA     -           227          1,801               27             
   Southworth-Milton, MA                (6)        1,922          7,652               78             
   Navistar International, MD (5)       (7)          356          4,911           (1,879)            
   Cottontail Distribution Center, NJ9,782         1,616         16,278               68             
   Eatontown Industrial, NJ              -           765          1,963               19             
   Jencraft Industrial, NJ              (8)        1,326          4,975               14             
   J.I. Case Equip. Corp., TN (5)        -           187          2,583             (988)            
   Mercantile I, TX                      -           783          3,133              192             
   Quaker Industrial, TX                 -           103            412               42             
   Sea Tac II, WA (5)                    -           712          1,474             (178)            
-----------------------------------------------------------------------------------------------------
         Industrial Total                         21,329        123,270           (7,819)            
-----------------------------------------------------------------------------------------------------
                                        (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

                                                   COLUMN E                 COLUMN F        COLUMN G          COLUMN H

                                    
                                             Gross Amount Carried
                                             at December 31, 1998      
                                                   Buildings                                  (1)              Life
                                                      and         (3)      Accumulated       Date           Depreciated
     Description                 Enc    Land     Improvements    Total    Depreciation     Acquired            Over
-----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>          <C>          <C>         <C>    <C>
Industrial Properties continued:
   Springdale Commerce Center, CA    $ 1,030      $ 4,175      $  5,205     $  206            9/97          1-30 yrs.
   Gateway Nine, CO                      612        5,155         5,767        103            7/98          1-30 yrs.
   Gateway Seven, CO                     638        5,326         5,964         88            7/98          1-30 yrs.   
   Gateway Ten, CO                       524        4,798         5,322         80            7/98          1-30 yrs.
   Gateway Three, CO                     508        4,742         5,250         79            7/98          1-30 yrs.
   Gateway Two, CO                       561        4,460         5,021         74            7/98          1-30 yrs.
   Burnham Industrial Warehouse, FL      594        2,376         2,970        119            9/97          1-30 yrs.
   Atlantic Industrial, GA               634        2,588         3,222        120            9/97          1-30 yrs.
   Bonnie Lane Business Center, IL       738        2,958         3,696        148            9/97          1-30 yrs.
   Glenn Avenue Business Center, IL      565        2,260         2,825        113            9/97          1-30 yrs.
   Navistar International, IL (5)        793        6,819         7,612      2,040            3/84            50 yrs.
   Wood Dale Business Center, IL         603        2,441         3,044        121            9/97          1-30 yrs.
   Park 100 - Building 46, IN (5)          -          211           211        135           10/86          5-25 yrs.
   J.I. Case Equip. Corp., KS (5)        236        2,014         2,250        598            3/84            50 yrs.
   Flanders Industrial Park, MA          738        5,827         6,565        204            3/98          1-30 yrs.
   Forest Street Business Center, MA     227        1,828         2,055         56            3/98          1-30 yrs.
   Southworth-Milton, MA               1,922        7,730         9,652        449            4/97          1-30 yrs.
   Navistar International, MD (5)        356        3,032         3,388        899            3/84            50 yrs.
   Cottontail Distribution Center, NJ  1,616       16,346        17,962        409            6/98          1-30 yrs.
   Eatontown Industrial, NJ              765        1,982         2,747         98            9/97          1-30 yrs.
   Jencraft Industrial, NJ             1,326        4,989         6,315        249            9/97          1-30 yrs.
   J.I. Case Equip. Corp., TN (5)        187        1,595         1,782        474            3/84            50 yrs.
   Mercantile I, TX                      783        3,325         4,108        328           10/96          1-30 yrs.
   Quaker Industrial, TX                 103          454           557         45           10/96          1-30 yrs.
   Sea Tac II, WA (5)                    712        1,296         2,008        391            2/86          5-25 yrs.
-----------------------------------------------------------------------------------------------------------------------
         Industrial Total             21,329      115,451       136,780     10,217
-----------------------------------------------------------------------------------------------------------------------

                                                (continued)
</TABLE>





                                 Page 62 of 73
<PAGE>


<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

           COLUMN A                COLUMN B               COLUMN C               COLUMN D             

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to          
                                                        Company (1)            Acquisition (4)        
                                                               Buildings                              
                                                                  and                                 
     Description                 Encumbrances      Land      Improvements     Improvements            
------------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>               <C>   
Retail Properties:
   Park Center, CA (5)             $     -       $ 1,748       $  3,296           $ (502)             
   Sonora Plaza, CA                  4,891         1,948          7,781               68              
   Piedmont Plaza, FL                    -         1,317          5,233               70              
   River Run Shopping Ctr., FL           -         1,428          5,687               53              
   Westwood Plaza, FL (5)               (7)        2,599          5,110            2,745              
   Shannon Crossing, GA (5)             (7)        2,487          2,075              360              
   Westbrook Commons, IL                (8)        3,067         12,213              495              
   Broad Ripple Retail Center, IN        -           542          3,876              123              
   Cross Creek Retail Center, IN     5,019         1,516          4,351              144              
   Geist Retail Centre, IN           4,366         1,012          4,828              182              
   Woodfield Centre, IN                  -           765          4,685              187              
   Goshen Plaza, MD                      -           994          3,958               26              
   Auburn North, WA                      -         1,100          4,397            1,213              
------------------------------------------------------------------------------------------------------
        Retail Total                              20,523         67,490            5,164              
------------------------------------------------------------------------------------------------------
Multi-Family Properties:
   Overlook Apartments, AZ              (6)        2,274          9,036              181              
   Aspen Ridge, CO                   7,500           983          8,853               55              
   Stone Ridge at Vinings, GA          (11)        1,881         16,942               55              
   Woodmere Trace, GA                  (11)        1,002          9,029               25              
   Crosscreek Apartments, IN         6,287           701          9,042               41              
   Harcourt Club Apartments, IN      3,800           437          5,389               62               
   Island Club Apartments, IN       12,097           713         15,596               81              
   Arrowood Crossing I & II, NC         (8)        1,837          7,222              430              
   The Chase (Commonwealth), NC      3,167           784          3,083              163              
   The Chase (Monroe), NC               (8)        1,033          4,062              117              
   Sabal Point I, II & III, NC          (8)        3,714         14,602              583              
   Sharonridge I & II, NC            1,744           527          2,071               57              
   The Courtyard, NC                 1,584           438          1,723               85              
                                     (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

                                                   COLUMN E                COLUMN F        COLUMN G          COLUMN H
                                 
                                            Gross Amount Carried
                                            at December 31, 1998      
                                                  Buildings                                  (1)              Life
                                                     and         (3)      Accumulated       Date           Depreciated
     Description                       Land     Improvements    Total    Depreciation     Acquired            Over
----------------------------------------------------------------------------------------------------------------------
<S>                                 <C>          <C>          <C>         <C>               <C>            <C>
Retail Properties:
   Park Center, CA (5)              $ 1,748      $ 2,794      $  4,542    $   750            9/86          5-25 yrs.
   Sonora Plaza, CA                   1,948        7,849         9,797        652           11/96          1-30 yrs.
   Piedmont Plaza, FL                 1,317        5,303         6,620        311            4/97          1-30 yrs.
   River Run Shopping Ctr., FL        1,428        5,740         7,168        289            9/97          1-30 yrs.
   Westwood Plaza, FL (5)             2,599        7,855        10,454      2,918            1/88          1-30 yrs.
   Shannon Crossing, GA (5)           2,487        2,435         4,922      1,766           10/88          1-30 yrs.
   Westbrook Commons, IL              3,067       12,708        15,775        621            9/97          1-30 yrs.
   Broad Ripple Retail Center, IN       542        3,999         4,541         97            4/98          1-30 yrs.
   Cross Creek Retail Center, IN      1,516        4,495         6,011        111            4/98          1-30 yrs.
   Geist Retail Centre, IN            1,012        5,010         6,022        124            4/98          1-30 yrs.
   Woodfield Centre, IN                 765        4,872         5,637        118            4/98          1-30 yrs.
   Goshen Plaza, MD                     994        3,984         4,978        199            9/97          1-30 yrs.
   Auburn North, WA                   1,100        5,610         6,710        413           10/96          1-30 yrs.
----------------------------------------------------------------------------------------------------------------------
        Retail Total                 20,523       72,654        93,177      8,369
----------------------------------------------------------------------------------------------------------------------
Multi-Family Properties:
   Overlook Apartments, AZ            2,274        9,217        11,491        544            4/97          1-30 yrs.
   Aspen Ridge, CO                      983        8,908         9,891        152            6/98          1-30 yrs.
   Stone Ridge at Vinings, GA         1,881       16,997        18,878        288            6/98          1-30 yrs.
   Woodmere Trace, GA                 1,002        9,054        10,056        154            6/98          1-30 yrs.
   Crosscreek Apartments, IN            701        9,083         9,784        228            4/98          1-30 yrs.
   Harcourt Club Apartments, IN         437        5,451         5,888        136            4/98          1-30 yrs.
   Island Club Apartments, IN           713       15,677        16,390        393            4/98          1-30 yrs.
   Arrowood Crossing I & II, NC        1,837       7,652         9,489        316           12/97          1-30 yrs.
   The Chase (Commonwealth), NC        784         3,246         4,030        136           12/97          1-30 yrs.
   The Chase (Monroe), NC             1,033        4,179         5,212        177           12/97          1-30 yrs.
   Sabal Point I, II & III, NC        3,714       15,185        18,899        634           12/97          1-30 yrs.
   Sharonridge I & II, NC               527        2,128         2,655         90           12/97          1-30 yrs.
   The Courtyard, NC                    438        1,808         2,246         76           12/97          1-30 yrs.
                                                    (continued)
</TABLE>




                                 Page 63 of 73
<PAGE>



<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

          COLUMN A                COLUMN B               COLUMN C               COLUMN D              

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to          
                                                       Company (1)             Acquisition (4)        
                                                               Buildings                              
                                                                  and                                 
     Description                 Encumbrances      Land      Improvements     Improvements            
------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>          <C>                 <C>  
Multi-Family Properties continued:
   The Landing on Farmhurst, NC    $ 3,109        $  841       $  3,306            $ 105              
   The Oaks, NC                      2,292           644          2,649              123              
   Wendover Glen, NC                 2,480           597          2,346              186              
   Willow Glen, NC                      (8)          823          3,236              150              
   Sahara Gardens, NV                   (8)        1,872          7,500              580              
   Villas De Mission, NV                (8)        1,924          7,695              282              
   Player's Club of Brentwood, TN       (8)          800          7,205               52              
   Bandera Crossing, TX                (11)          675          6,077               12              
   Bear Creek Crossing, TX             (11)          627          5,650               17              
   Cypress Creek Apartments, TX        (11)          732          6,591              214              
   The Hollows, TX                     (11)        1,390         12,518               35              
   Hunterwood, TX                      (11)          563          5,067               27              
   Hunter's Chase, TX                  (11)        2,094         18,857               46              
   Jefferson Creek, TX                 (12)        1,889         17,017               35              
   Jefferson Place, TX                 (12)        2,620         23,598               46              
   La Costa, TX                        (12)        2,826         25,453               56              
   Longspur, TX                        (11)        1,240         11,165               46              
   North Park Crossing, TX             (11)        1,147         10,332               25              
   Silver Vale Crossing, TX            (11)        1,111         10,006               33              
   The Park at Woodlake, TX             (8)        1,676         15,100              138              
   Vista Crossing, TX                  (11)          737          6,643               16              
   Walnut Creek Crossing, TX           (11)        1,286         11,586               20              
   Willow Brook Crossing, TX           (11)          716          6,448              126              
   Wind River Crossing, TX             (11)        1,437         12,939               72              
------------------------------------------------------------------------------------------------------
        Multi-family Total                        46,591        345,634            4,377              
------------------------------------------------------------------------------------------------------
                                              (continued)
</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

                                                  COLUMN E                 COLUMN F        COLUMN G          COLUMN H

                                   
                                            Gross Amount Carried
                                            at December 31, 1998      
                                                  Buildings                                  (1)             Life
                                                     and         (3)       Accumulated       Date         Depreciated
     Description                       Land     Improvements    Total     Depreciation     Acquired           Over
----------------------------------------------------------------------------------------------------------------------
<S>                                  <C>         <C>          <C>            <C>            <C>            <C>
Multi-Family Properties continued:
   The Landing on Farmhurst, NC      $  841      $ 3,411      $  4,252       $  142         12/97          1-30 yrs.
   The Oaks, NC                         644        2,772         3,416          115         12/97          1-30 yrs.
   Wendover Glen, NC                    597        2,532         3,129          108         12/97          1-30 yrs.
   Willow Glen, NC                      823        3,386         4,209          142         12/97          1-30 yrs.
   Sahara Gardens, NV                 1,872        8,080         9,952          654         10/96          1-30 yrs.
   Villas De Mission, NV              1,924        7,977         9,901          674         10/96          1-30 yrs.
   Player's Club of Brentwood, TN       800        7,257         8,057          122          6/98          1-30 yrs.
   Bandera Crossing, TX                 675        6,089         6,764          104          6/98          1-30 yrs.
   Bear Creek Crossing, TX              627        5,667         6,294           98          6/98          1-30 yrs.
   Cypress Creek Apartments, TX         732        6,805         7,537          116          6/98          1-30 yrs.
   The Hollows, TX                    1,390       12,553        13,943          216          6/98          1-30 yrs.
   Hunterwood, TX                       563        5,094         5,657           87          6/98          1-30 yrs.
   Hunter's Chase, TX                 2,094       18,903        20,997          322          6/98          1-30 yrs.
   Jefferson Creek, TX                1,889       17,052        18,941          288          6/98          1-30 yrs.
   Jefferson Place, TX                2,620       23,644        26,264          401          6/98          1-30 yrs.
   La Costa, TX                       2,826       25,509        28,335          432          6/98          1-30 yrs.
   Longspur, TX                       1,240       11,211        12,451          192          6/98          1-30 yrs.
   North Park Crossing, TX            1,147       10,357        11,504          178          6/98          1-30 yrs.
   Silver Vale Crossing, TX           1,111       10,039        11,150          172          6/98          1-30 yrs.
   The Park at Woodlake, TX           1,676       15,238        16,914          262          6/98          1-30 yrs.
   Vista Crossing, TX                   737        6,659         7,396          114          6/98          1-30 yrs.
   Walnut Creek Crossing, TX          1,286       11,606        12,892          198          6/98          1-30 yrs.
   Willow Brook Crossing, TX            716        6,574         7,290          112          6/98          1-30 yrs.
   Wind River Crossing, TX            1,437       13,011        14,448          223          6/98          1-30 yrs.
----------------------------------------------------------------------------------------------------------------------
        Multi-family Total           46,591      350,011       396,602        8,796
----------------------------------------------------------------------------------------------------------------------
                                             (continued)
</TABLE>




                                 Page 64 of 73
<PAGE>


<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

          COLUMN A                COLUMN B               COLUMN C               COLUMN D           

                                                                        Cost Capitalized (Reduced)
                                                     Initial Cost to           Subsequent to       
                                                       Company (1)             Acquisition (4)     
                                                               Buildings                           
                                                                  and                              
     Description                 Encumbrances      Land      Improvements     Improvements         
---------------------------------------------------------------------------------------------------
<S>                            <C>             <C>         <C>                  <C>  
Hotel Properties:
   Country Inn & Suites by Carlson:
     Scottsdale, AZ            $     4,255     $       -   $     12,117         $     82           
   Country Suites by Carlson:
     Ontario, CA (5)                    (7)        1,145          5,576              518           
     Arlington, TX (5)                  (7)        1,611          5,346            1,289           
---------------------------------------------------------------------------------------------------
        Hotel Total                                2,756         23,039            1,889           
---------------------------------------------------------------------------------------------------
        Combined Total         $   228,299     $ 237,532   $  1,557,858         $ 29,918           
===================================================================================================


(1) Initial cost and date acquired by GRT Predecessor Entities, where applicable.
(2) The Company holds a participating first mortgage interest in the property. 
    In accordance with GAAP, the Company is accounting for the property as
    though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is  $1,704,942.
(4) Bracketed amounts represent reductions to carrying value in prior years.
(5) Initial Cost represents original book value carried forward from the 
    financial statements of the GRT Predecessor Entities.
(6) Cross collateralized loan secured by ten properties - $58,942.
(7) Cross collateralized loan secured by eight properties - $13,220.
(8) Cross collateralized loans secured by 35 properties - $234,871.
(9) Cross collateralized loan secured by three properties - $15,650.
(10) Cross collateralized loan secured by four properties - $14,309.
(11) Cross collateralized loan secured by 15 properties - $114,950.
(12) Cross collateralized loan secured by three properties - $53,469.


</TABLE>
<TABLE>
<CAPTION>
                                     GLENBOROUGH PROPERTIES, L.P.
                             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                                December 31, 1998
                                                 (in thousands)

          COLUMN A                              COLUMN E              COLUMN F        COLUMN G          COLUMN H

                               
                                          Gross Amount Carried
                                          at December 31, 1998      
                                                Buildings                                  (1)              Life
                                                   and         (3)      Accumulated       Date           Depreciated
     Description                     Land     Improvements    Total    Depreciation     Acquired            Over
--------------------------------------------------------------------------------------------------------------------
<S>                            <C>           <C>         <C>            <C>               <C>            <C>
Hotel Properties:
   Country Inn & Suites by Carlson:
     Scottsdale, AZ            $        -    $  12,199   $    12,199    $   1,197          2/97          3-30 yrs.
   Country Suites by Carlson:
     Ontario, CA (5)                1,145        6,094         7,239        3,470         11/86          5-30 yrs.
     Arlington, TX (5)              1,611        6,635         8,246        4,059         12/86          5-30 yrs.
--------------------------------------------------------------------------------------------------------------------
        Hotel Total                 2,756       24,928        27,684        8,726
--------------------------------------------------------------------------------------------------------------------
        Combined Total         $  237,532  $ 1,587,776   $ 1,825,308    $  82,869
====================================================================================================================


(1) Initial cost and date acquired by GRT Predecessor Entities, where applicable.
(2) The Company holds a participating first mortgage interest in the property.
    In accordance with GAAP, the Company is accounting for the property as
    though it holds fee title.
(3) The aggregate cost for Federal income tax purposes is  $1,704,942.
(4) Bracketed amounts represent reductions to carrying value in prior years.
(5) Initial Cost represents original book value carried forward from the 
    financial statements of the GRT Predecessor Entities.
(6) Cross collateralized loan secured by ten properties - $58,942.
(7) Cross collateralized loan secured by eight properties - $13,220.
(8) Cross collateralized loans secured by 35 properties - $234,871.
(9) Cross collateralized loan secured by three properties - $15,650.
(10) Cross collateralized loan secured by four properties - $14,309.
(11) Cross collateralized loan secured by 15 properties - $114,950.
(12) Cross collateralized loan secured by three properties - $53,469.
</TABLE>



                                 Page 65 of 73
<PAGE>




                          GLENBOROUGH PROPERTIES, L.P.
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 1998
                                 (in thousands)


Reconciliation  of gross  amount at which real  estate was carried for the years
ended December 31:

                                          1998           1997            1996
                                      -----------     ----------     ----------

Investments in real estate:

Balance at beginning of year          $   866,431     $  190,729     $  102,451

Additions during year:
Property acquisitions                     999,091        687,523         89,653
Improvements                               14,079          2,691          1,572

Retirements/sales                         (54,293)       (14,512)        (2,947)
                                      -----------     ----------     ----------

Balance at end of year                $ 1,825,308     $  866,431     $  190,729
                                      ===========     ===========     ==========

Accumulated Depreciation:

Balance at beginning of year          $    41,213     $   28,784     $   24,877

Additions during year:
Depreciation                               49,450         14,496          4,305
Acquisitions                                   --            443             --

Retirements/sales                          (7,794)        (2,510)          (398)
                                      -----------     ----------     ----------

Balance at end of year                $    82,869     $   41,213     $   28,784
                                      ===========     ==========     ==========









                                 Page 66 of 73
<PAGE>


<TABLE>
<CAPTION>

                                                    GLENBOROUGH PROPERTIES, L.P.
                                  SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

                                                         December 31, 1998
                                                           (in thousands)

      COLUMN A             COLUMN B    COLUMN C      COLUMN D          COLUMN E     COLUMN F     COLUMN G          COLUMN H
                                                                                                               Principal Amount of
                            Current                                                                             Loans Subject to
 Description of Loan       Interest   Maturity                         Periodic        Face       Carrying         Delinquent
 and Securing Property       Rate        Date      Payment Terms      Prior Liens    Amount        Amount    Principal or Interest
 --------------------      --------   --------     -------------      ----------     ------      ---------   ---------------------

<S>                           <C>      <C>         <C>                    <C>        <C>         <C>                 <C>
First Mortgage Loan                                  Quarterly
Secured by land located                            interest-only
in Aurora, Colorado           13%       7/1/05        payments            None       $ 34,349    $  35,336           None

First Mortgage Loan
Secured by a hotel                                    Monthly
property located in                                interest-only
Dallas, Texas                 9%       3/31/99        payments            None          3,600        3,600           None

First Mortgage Loan
Secured by a medical                                  Monthly
building in Phoenix,                               interest-only
Arizona                       11%      11/19/99       payments            None          3,850        3,484 (1)       None
                                                                                     --------    ---------

                                                                          Total      $ 41,799    $  42,420
                                                                                     ========    =========
</TABLE>

(1) The loan amount is $3,850,000,  of which $2,694,000 was initially  disbursed
    to the borrower and $1,156,000 was held  by  the  Operating  Partnership  as
    leasing  and interest reserves.  As of December 31,  1998,  $790,000 of the 
    leasing and  interest reserves have been drawn by the borrower.














                                 Page 67 of 73
<PAGE>





72

                          GLENBOROUGH PROPERTIES, L.P.
         SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

                                December 31, 1998
                                 (in thousands)


The following is a summary of changes in the carrying  amount of mortgage  loans
for the years ended December 31, 1998, 1997 and 1996 (in thousands):

                                   1998           1997           1996
                                ---------       --------       --------
Balance at beginning of year    $   3,692       $  9,905       $  7,465

Additions during year:
   New mortgage loans              39,613          1,855          2,694

Deductions during year:
   Collections of principal          (885)        (8,068)          (254)
                                ---------       --------       --------

Balance at end of year          $  42,420       $  3,692       $  9,905
                                =========      =========       ========





































                                 Page 68 of 73
<PAGE>




                                   SIGNATURES


Pursuant to the  requirements of Section l3 or l5(d) of the Securities  Exchange
Act of l934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                             GLENBOROUGH PROPERTIES, L.P.,
                                           a California Limited Partnership




                                      By: Glenborough Realty Trust Incorporated,
                                                  its General Partner



      Date: March 16, 1999                     ____________________________
                                               Andrew Batinovich
                                               Director, President and
                                               Chief Operating Officer





      Date: March 16, 1999                     _____________________________
                                               Stephen Saul
                                               Chief Financial Officer
                                               (Principal Financial Officer)





      Date: March 16, 1999                     _____________________________
                                               Terri Garnick
                                               Senior Vice President,
                                               Chief Accounting Officer,
                                               Treasurer
                                               (Principal Accounting Officer)














                                 Page 69 of 73
<PAGE>




                                  EXHIBIT INDEX


Exhibit
Number                            Exhibit Title

3.01     Articles of  Amendment  and  Restatement  of Articles of  Incorporation
         of the Company are  incorporated  herein by  reference  to Exhibit 3.1 
         to the Company's Quarterly Report on Form 10-Q for the quarter ended 
         March 31, 1998.

3.02     Amended Bylaws of the Company are incorporated herein by reference to 
         Exhibit 3.1 to the  Company's Quarterly Report on Form 10-Q for the 
         quarter ended June 30, 1998.

3.03     The  Company's  Form of Articles  Supplementary  relating to the 7 3/4%
         Series  A  Convertible   Preferred  Stock  is  incorporated  herein  by
         reference to Exhibit 3.03 to the  Company's  Annual Report on Form 10-K
         for the year ended December 31, 1997.

3.04     Articles Supplementary of the Series B Preferred Stock (relating  to 
         the Rights Plan) are  incorporated  herein by reference to Exhibit 3.2
         to the Company's Quarterly Report on Form 10-Q for the quarter ended  
         June 30, 1998.

4.01     Form of Common Stock Certificate of the Company is incorporated  herein
         by reference to Exhibit 4.02 to the Company's  Registration  Statement 
         on Form S-4 (Registration No. 33-83506), which became effective October
         26, 1995.

4.02     Form of 73/4% Series A Convertible Preferred  Stock  Certificate of the
         Company is  incorporated  herein by reference to Exhibit 4.1 to the 
         Company's Registration Statement on Form 8-A which was filed on January
         22, 1998.

10.01    Form of Indemnification Agreement for existing  Officers and Directors 
         of the Company is incorporated  herein by reference to Exhibit 10.02 to
         the Company's Registration Statement on Form S-4 (Registration No.
         33-83506), which became effective October 26, 1995.

10.02*   Stock Incentive Plan of the Company (amended and restated as of March 
         20, 1997) is  incorporated  herein by reference to Exhibit 4.0 to the 
         Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
         1997.

10.03*   Employment Agreement between the Company and Robert Batinovich is 
         incorporated  herein by reference to Exhibit 10.1 to the Company's
         Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

10.04*   Employment  Agreement between the Company and Andrew Batinovich is 
         incorporated  herein by reference to Exhibit 10.2 to the Company's 
         Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.

10.05    Rights  Agreement,  dated as of July 20, 1998,  between the Company and
         the  Registrar  and Transfer  Company,  together with Exhibit A Form of
         Rights  Certificate;  Exhibit B Summary of Rights to Purchase Preferred
         Stock;  and  Exhibit C Form of Articles  Supplementary  of the Series B
         Preferred  Stock are  incorporated  herein by reference to Exhibit 1 to
         the Company's Form 8-A, filed on July 16, 1998.

10.06    Registration Agreement between the Company and GPA, Ltd.is incorporated
         herein by reference to Exhibit 10.27 to the Company's Annual Report on 
         Form 10-K for the year ended December 31, 1995.

10.07    Indemnification  Agreement for Glenborough  Realty  Corporation and the
         Company, with Robert Batinovich as indemnitor is incorporated herein by
         reference to Exhibit 10.31 to the Company's  Annual Report on Form 10-K
         for the year ended December 31, 1995.



                                 Page 70 of 73
<PAGE>


                            EXHIBIT INDEX - continued


Exhibit
Number                          Exhibit Title

12.01    Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings
         to Fixed Charges and Preferred Partner Interest Distributions

23.01    Consent of Arthur Andersen LLP, independent public accountants

27.01    Financial Data Schedule

*        Indicates management contract or compensatory plan or arrangement.





                                 Page 71 of 73
<PAGE>




Exhibit 12.1

GLENBOROUGH PROPERTIES, L.P.
Computation of Ratio of Earnings to Fixed Charges
and  Ratio  of  Earnings  to  Fixed  Charges  and  Preferred   Partner  Interest
Distributions For the five years ended December 31, 1998
<TABLE>
<CAPTION>

                                                        GRT Predecessor
                                                           Entities,
                                                            Combined                    The Operating Partnership
                                                    -------------------------   ------------------------------------------

                                                                      Twelve Months Ended December 31,
                                                    ----------------------------------------------------------------------
                                                       1994          1995          1996           1997            1998
                                                    -----------   ------------  ------------   ------------    -----------
<S>                                                  <C>           <C>           <C>            <C>            <C>
EARNINGS, AS DEFINED

Net Income (Loss) before Preferred Partner
   Interest Distributions                            $   1,580     $     524     $  (1,928)     $  16,671      $   46,355
Extraordinary items                                         --            --           186            843           1,400
Federal & State income taxes                               176           357            --             --              --
Minority Interest                                           43            --            --             --              --
Fixed Charges                                            1,140         2,129         3,913          9,668          53,289
                                                    -----------   ------------  ------------   ------------    -----------

                                                     $   2,939     $   3,010     $   2,171      $  27,182      $  101,044
                                                    -----------   ------------  ------------   ------------    -----------

FIXED CHARGES AND PREFERRED PARTNER INTEREST
   DISTRIBUTIONS, AS DEFINED

Interest Expense                                     $   1,140     $   2,129     $   3,913      $   9,668      $   53,289
Capitalized Interest                                        --            --            --             --           1,108
Preferred Partner Interest Distributions                    --            --            --             --          20,620
                                                    -----------   ------------  ------------   ------------    -----------
                                                     $   1,140     $   2,129     $   3,913      $   9,668      $   75,017

RATIO OF EARNINGS TO FIXED CHARGES                        2.58          1.41          0.55  (1)      2.81            1.86
                                                    -----------   ------------  ------------   ------------    -----------

RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
   PARTNER INTEREST DISTRIBUTIONS
                                                          2.58          1.41          0.55  (1)      2.81            1.35
                                                    -----------   ------------  ------------   ------------    -----------
</TABLE>

(1) For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges by $1,742.




                                 Page 72 of 73
<PAGE>



Exhibit 23.1

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report  dated  March  15,  1999  on  the  financial  statements  of  Glenborough
Properties,  L.P.  included in this Form 10-K, into the Operating  Partnership's
previously filed Registration Statement File No. 333-70463.


                                                       /s/ ARTHUR ANDERSEN LLP
                                                       ARTHUR ANDERSEN LLP

San Francisco, California
March 15, 1999




                                 Page 73 of 73
<PAGE>