SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


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

                For the quarterly period ended September 30, 1998

                                       OR

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

                        Commission File Number: 001-14162


                      GLENBOROUGH REALTY TRUST INCORPORATED
             (Exact name of registrant as specified in its charter)

                       Maryland                           94-3211970
                       --------                           ----------
            (State or other jurisdiction              (I.R.S. Employer
           of incorporation or organization)          Identification No.)

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

                Securities registered under Section 12(b) of the Act:

                                                         Name of Exchange
                 Title of each class:                  on which registered:
                 --------------------                  --------------------
             Common Stock, $.001 par value            New York Stock Exchange
    7.75% Series A Convertible Preferred Stock,       New York Stock Exchange
              $.001 par value
     
       Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                   Yes X No
                                      ---  ---

As of November 13, 1998, 31,737,286 shares of Common Stock ($.001 par value) and
11,500,000  shares of 7.75%  Series A  Convertible  Preferred  Stock  ($.001 par
value) were outstanding.




                                       1
<PAGE>

                                      INDEX
                      GLENBOROUGH REALTY TRUST INCORPORATED

                                                                   Page No.
PART I               FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements of Glenborough Realty Trust 
         Incorporated(Unaudited except for the Consolidated Balance Sheet 
         at December 31, 1997):

            Consolidated Balance Sheets at September 30, 1998 
            and December 31, 1997                                            3
       
            Consolidated Statements of Operations for the nine months 
            ended September 30, 1998 and 1997                                4

            Consolidated Statements of Operations for the three months 
            ended September 30, 1998 and 1997                                5

            Consolidated Statement of Stockholders' Equity for the nine 
            months ended September 30, 1998                                  6

            Consolidated Statements of Cash Flows for the nine months
            ended September 30, 1998 and 1997                              7-8

            Notes to Consolidated Financial Statements 9-22

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       23-31

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings                                               32-33

Item 2.  Changes in Securities                                           33-34

Item 4.  Submission of Matters to a Vote of Security Holders             34-35

Item 5.  Other Information                                                  35

Item 6.  Exhibits and Reports on Form 8-K                                   36

SIGNATURES                                                                  37

EXHIBIT INDEX                                                               38




                                       2
<PAGE>


Part I.           FINANCIAL INFORMATION

Item 1.           Financial Statements

                      GLENBOROUGH REALTY TRUST INCORPORATED
                           CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>

                                                                  September 30,         December 31,
                                                                      1998                  1997
                                                                  (Unaudited)            (Audited)
                                                                 --------------         -------------
ASSETS
     Rental property, net of accumulated depreciation of
<S>                                                              <C>                    <C>         
       $73,878 and $41,213 in 1998 and 1997, respectively        $   1,754,260          $    825,218
     Investments in Associated Companies                                11,438                10,948
     Mortgage loans receivable                                          40,582                 3,692
     Cash and cash equivalents                                           7,381                 5,070
     Other assets                                                       92,780                20,846
                                                                 ---------------        -------------

         TOTAL ASSETS                                            $   1,906,441          $    865,774
                                                                 ===============        =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Mortgage loans                                              $     492,394          $    148,139
     Unsecured senior notes                                            150,000                    --
     Unsecured loan                                                    147,710                    --
     Unsecured bank line                                               145,140                80,160
     Other liabilities                                                  31,984                11,091
                                                                 ---------------        -------------
       Total liabilities                                               967,228               239,390
                                                                 ---------------        -------------

Commitments and contingencies                                               --                    --

Minority interest                                                      100,603                46,261

Stockholders' Equity:
     Common stock, 31,737,286 and 31,547,256 shares issued
       and outstanding at September 30, 1998 and
       December 31, 1997, respectively                                      32                    31
     Preferred stock, 11,500,000 shares issued and outstanding
       at September 30, 1998                                                11                    --
     Additional paid-in capital                                        864,660               593,702
     Deferred compensation                                                (204)                 (210)
     Retained earnings (deficit)                                       (25,889)              (13,400)
                                                                 ---------------        -------------
       Total stockholders' equity                                      838,610               580,123
                                                                 ---------------        -------------

           TOTAL LIABILITIES AND STOCKHOLDERS'
              EQUITY                                             $   1,906,441          $    865,774
                                                                 ===============        =============
</TABLE>
      
       See aacinoabtubg notes to consolidated financial statements


                                       3
<PAGE>



                      GLENBOROUGH REALTY TRUST INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  For the nine months ended September 30, 1998
                    and 1997 (in thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                               1998                        1997
                                                           --------------              -------------
REVENUE
<S>                                                        <C>                         <C>         
     Rental revenue                                        $     162,903               $     35,899
     Fees and reimbursements from affiliates                       2,452                        572
     Interest and other income                                     2,007                      1,167
     Equity in earnings of Associated Companies                    1,690                      1,942
     Net gain on sales of rental properties                        1,901                        555
     Gain on collection of mortgage loan receivable                   --                        652
                                                           --------------              -------------
       Total revenue                                             170,953                     40,787
                                                           --------------              -------------

EXPENSES
     Property operating expenses                                  53,035                     11,282
     General and administrative                                    8,197                      2,031
     Depreciation and amortization                                35,252                      8,867
     Interest expense                                             35,916                      6,416
                                                           --------------              -------------
       Total expenses                                            132,400                     28,596
                                                           --------------              -------------

Income from operations before minority interest                   38,553                     12,191

   Minority interest                                              (1,909)                      (689)
                                                           ---------------             -------------

Net income                                                        36,644                     11,502
                                                           --------------              -------------

Preferred dividends                                              (15,050)                        --
                                                           --------------              -------------

Net income available to Common Stockholders                $      21,594                $    11,502
                                                                                       =============
                                                           ==============

Basic Earnings Per Share Data:

Net income available to Common Stockholders                $        0.68               $       0.81
                                                           ==============              =============

Basic weighted average shares outstanding                     31,634,138                 14,258,627
                                                           ==============              =============

Diluted Earnings Per Share Data:

Net income available to Common Stockholders                $        0.67               $       0.79
                                                           ==============              =============

Diluted weighted average shares outstanding                   35,114,838                 15,505,886
                                                           ==============              =============
</TABLE>

            See accompanying notes to consolidated financial statements

                                       4
<PAGE>


                      GLENBOROUGH REALTY TRUST INCORPORATED
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  For the three months ended September 30, 1998
                    and 1997 (in thousands, except per share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                 1998                        1997
                                                             --------------              -------------
REVENUE
<S>                                                          <C>                         <C>         
     Rental revenue                                          $      65,321               $     16,208
     Fees and reimbursements from affiliates                         1,220                        205
     Interest and other income                                       1,404                        554
     Equity in earnings of Associated Companies                        629                      1,339
     Reduction in gain on prior quarter sales of rental
        properties                                                    (238)                       (15)
                                                             --------------              -------------
       Total revenue                                                68,336                     18,291
                                                             --------------              -------------

EXPENSES
     Property operating expenses                                    22,446                      5,237
     General and administrative                                      3,372                        657
     Depreciation and amortization                                  14,309                      4,823
     Interest expense                                               17,064                      2,616
                                                             --------------              -------------
       Total expenses                                               57,191                     13,333
                                                             --------------              -------------

Income from operations before minority interest                     11,145                      4,958

   Minority interest                                                  (635)                       (60)
                                                             ---------------             -------------

Net income                                                   $      10,510               $      4,898
                                                             --------------              -------------

Preferred dividends                                                 (5,570)                        --
                                                             --------------              -------------

Net income available to Common Stockholders                  $       4,940                $     4,898
                                                             ==============              =============
Basic Earnings Per Share Data:

Net income available to Common Stockholders                  $        0.16               $       0.25
                                                             ==============              =============

Basic weighted average shares outstanding                       31,703,963                 19,395,779
                                                             ==============              =============

Diluted Earnings Per Share Data:

Net income available to Common Stockholders                  $        0.15                $      0.24
                                                             ==============              =============

Diluted weighted average shares outstanding                     36,261,228                 21,132,947
                                                             ==============              =============
</TABLE>

               See accompanying notes to consolidated financial statements


                                       5
<PAGE>


                      GLENBOROUGH REALTY TRUST INCORPORATED
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  For the nine months ended September 30, 1998
                                 (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                           Common Stock        Preferred Stock
                                       --------------------- ---------------------
                                                                                   Additional     Deferred      Retained
                                                   Par                  Par Value    Paid-in    Compen-sation   Earnings
                                         Shares     Value      Shares                Capital                   (Deficit)      Total
                                       --------------------- ------------------------------------------------ ----------------------
<S>                                      <C>        <C>       <C>        <C>     <C>            <C>        <C>          <C>        
Balance at December 31, 1997             31,547     $  31         --     $  --   $   593,702    $  (210)   $  (13,400)  $   580,123

Issuance of preferred stock, net of
    offering costs of $13,639                --        --     11,500        11       273,850         --            --       273,861

Issuance of common stock related to
    acquisitions                            136         1         --        --         3,389         --            --         3,390

Exercise of stock options                    17        --         --        --           138         --            --           138

Conversion of Operating Partnership
    units into common stock
                                             35        --         --        --            --         --            --            --

Amortization of deferred compensation
                                             --        --         --        --            --         68            --            68

Issuance of common stock to director
                                              2        --         --        --            62        (62)           --            --

Unrealized gain on marketable
    securities                               --        --         --        --            --         --           155           155

Adjustment to fair value of minority
    interest                                 --        --         --        --        (6,481)        --            --        (6,481)

Distributions                                --        --         --        --            --         --       (49,288)      (49,288)

Net income                                   --        --         --        --            --         --        36,644        36,644
                                       --------------------- ------------------------------------------------ ----------------------

Balance at September 30, 1998            31,737     $  32     11,500     $  11   $   864,660    $  (204)   $  (25,889)  $   838,610
                                       ===================== ================================================ ======================

</TABLE>

            See accompanying notes to consolidated financial statements

                                       6
<PAGE>


                      GLENBOROUGH REALTY TRUST INCORPORATED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the nine months ended September 30, 1998 and 1997
                                 (in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                            1998                        1997
                                                                       ---------------             ---------------
Cash flows from operating activities:
<S>                                                                    <C>                         <C>           
     Net income                                                        $       36,644              $       11,502
     Adjustments to reconcile net income
       to net cash provided by operating
       activities:
         Depreciation and amortization                                         35,252                       8,867
         Amortization of loan fees, included in
           interest expense                                                       998                         174
         Minority interest in income from operations                            1,909                         689
         Equity in earnings of Associated
           Companies                                                           (1,690)                     (1,942)
         Gain on collection of mortgage loan receivable
                                                                                   --                        (652)
         Net gain on sales of rental properties                                (1,901)                       (555)
         Amortization of deferred compensation                                     68                         142
         Changes in certain assets and liabilities, net                        (4,603)                       (913)
                                                                       ---------------             ---------------

           Net cash provided by operating activities                           66,677                      17,312
                                                                       ---------------             ---------------

Cash flows from investing activities:
     Net proceeds from sales of rental properties                              39,247                      11,873
     Additions to rental property                                            (589,480)                   (393,534)
     Additions to mortgage loans receivable                                   (37,397)                     (2,420)
     Principal receipts on mortgage loans receivable                              507                       9,355
     Distributions from Associated Companies                                    1,200                       1,725
     Other investments (included in other assets)                             (47,943)                         --
                                                                       ---------------             ---------------

           Net cash used for investing activities                            (633,866)                   (373,001)
                                                                       ---------------             ---------------
</TABLE>










                                    continued

               See accompanying notes to consolidated financial statements

                                       7

<PAGE>


                      GLENBOROUGH REALTY TRUST INCORPORATED
                CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
              For the nine months ended September 30, 1998 and 1997
                                 (in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                            1998                      1997
                                                                       ---------------            --------------
Cash flows from financing activities:
<S>                                                                    <C>                        <C>          
     Proceeds from borrowings                                          $     425,350              $     369,540
     Repayment of borrowings                                                (227,281)                  (212,910)
     Proceeds from issuance of Series A Redeemable Notes
                                                                             150,000                          --
     Distributions to minority interest holders                               (3,280)                      (952)
     Distributions                                                           (49,288)                   (13,770)
     Exercise of stock options                                                   138                         --
     Proceeds from issuance of preferred stock, net of
         offering costs                                                      273,861                    215,196
                                                                       ---------------            --------------

         Net cash provided by financing activities                           569,500                    357,104
                                                                       ---------------            --------------

Net increase in cash and cash equivalents                                      2,311                      1,415

Cash and cash equivalents at beginning of period                               5,070                      1,355
                                                                       ---------------            --------------

Cash and cash equivalents at end of period                             $       7,381              $       2,770
                                                                       ===============            ==============

Supplemental disclosure of cash flow information:

     Cash paid for interest (net of capitalized interest of
         $724 in 1998)                                                 $      30,691              $       5,695
                                                                       ===============            ==============

Supplemental disclosure of Non-Cash Investing and Financing
     Activities:

     Acquisition of real estate through assumption of first
         trust deed notes payable                                      $     358,876              $      24,924
                                                                       ===============            ==============

     Acquisition of real estate through issuance of shares
         of common stock and Operating Partnership units
                                                                       $      52,621              $      28,078
                                                                       ===============            ==============

     Unrealized gain on marketable securities                          $         155              $          --
                                                                       ===============            ==============
</TABLE>

            See accompanying notes to consolidated financial statements

                                       8
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED

                   Notes to Consolidated Financial Statements
                               September 30, 1998

Note 1.      ORGANIZATION

Glenborough Realty Trust Incorporated (the "Company") was organized in the State
of  Maryland  on August 26,  1994.  The Company has elected to qualify as a real
estate  investment  trust ("REIT")  under the Internal  Revenue Code of 1986, as
amended (the "Code").  The Company completed a consolidation with certain public
California limited partnerships and other entities (the "Consolidation") engaged
in real estate activities  through an exchange of assets for 5,753,709 shares of
Common Stock of the Company.  The  Consolidation  occurred on December 31, 1995,
and the Company commenced operations on January 1, 1996.

Subsequent to the  Consolidation on December 31, 1995, and through September 30,
1998, the following  Common Stock  transactions  occurred:  (i) 37,000 shares of
Common Stock were issued to officers and directors as stock  compensation;  (ii)
25,446,000  shares were issued in four separate public equity  offerings;  (iii)
448,172 shares were issued in connection with various acquisitions;  (iv) 17,407
shares were issued in connection  with the exercise of employee  stock  options;
(v) 35,057  shares  were issued in  connection  with the  exchange of  Operating
Partnership units and (vi) 59 shares were retired,  resulting in total shares of
Common  Stock issued and  outstanding  at September  30,  1998,  of  31,737,286.
Assuming  the  issuance  of  4,233,739  shares of  Common  Stock  issuable  upon
redemption of 4,233,739  partnership units in the Operating  Partnership,  there
were 35,971,025 shares of Common Stock outstanding as of September 30, 1998.

In January 1998, the Company completed a public offering of 11,500,000 shares of
7.75%  Series A  Convertible  Preferred  Stock (the  "January  1998  Convertible
Preferred Stock Offering"). The shares are convertible at any time at the option
of the holder thereof into shares of Common Stock at an initial conversion price
of $32.83 per share of Common Stock  (equivalent to a conversion  rate of 0.7615
shares of Common Stock for each share of Series A Convertible  Preferred Stock),
subject to adjustment in certain circumstances. Shares of Preferred Stock issued
and outstanding at September 30, 1998 totaled 11,500,000.

In July 1998, the Company's Board of Directors adopted a stockholder rights plan
which is intended to protect the Company's stockholders in the event of coercive
or unfair takeover tactics,  or an unsolicited attempt to acquire control of the
Company in a  transaction  the Board of  Directors  believes  is not in the best
interests of the  stockholders.  Under the plan, the Company declared a dividend
of  Rights  on its  Common  Stock.  The  rights  issued  under  the plan will be
triggered, with certain exceptions, if and when any person or group acquires, or
commences a tender offer to acquire, 15% or more of the Company's shares.

To maintain the Company's  qualification as a REIT, no more than 50% in value of
the  outstanding  shares  of stock of the  Company  may be  owned,  directly  or
indirectly,  by five or fewer individuals (defined to include certain entities),
applying certain  constructive  ownership rules. To help ensure that the Company
will not fail this test,  the Company's  Articles of  Incorporation  provide for
certain  restrictions  on the  transfer of the Common  Stock to prevent  further
concentration of stock ownership.

The  Company,  through  several  subsidiaries,   is  engaged  primarily  in  the
ownership,   operation,   management,   leasing,   acquisition,   expansion  and
development  of  various  income-producing   properties.   The  Company's  major
consolidated subsidiary,  in which it holds a 1% general partner interest and an
87.2% limited partner interest at September 30, 1998, is Glenborough Properties,
L.P. (the  "Operating  Partnership").  As of September  30, 1998,  the Operating
Partnership,  directly  and  through  various  subsidiaries  in which it and the
Company own 100% of the ownership interests, controls a total of 190 real estate
projects.

As of  September  30,  1998,  the  Company  also  holds  100% of the  non-voting
preferred  stock of the  following two  Associated  Companies  (the  "Associated
Companies"):

     Glenborough  Corporation  ("GC") is the  general  partner of  several  real
     estate  limited  partnerships  and provides  asset and property  management
     services  for these  partnerships  (the  "Managed  Partnerships").  It also
     provides partnership administration,  asset management, property management
     and development services under a long



                                       9
<PAGE>
                         GLENBOROUGH REALTY TRUST INCORPORATED   

                      Notes to Consolidated Financial Statements 
                                  September 30, 1998             
    
     term contract to a group of unaffiliated partnerships which include several
     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").
     The  services  to the  Rancon  Partnerships  were  previously  provided  by
     Glenborough Inland Realty Corporation  ("GIRC"), a California  corporation,
     which merged with GC effective  June 30, 1997.  GC also  provides  property
     management  services  for a limited  portfolio  of property  owned by other
     unaffiliated third parties.  In the merger between GC and GIRC, the Company
     received preferred stock of GC in exchange for its preferred stock of GIRC,
     on a one-for-one  basis.  Following the merger,  the Company holds the same
     preferences with respect to dividends and liquidation distributions paid by
     GC as it previously held with respect to GC and GIRC combined.

     Glenborough Hotel Group ("GHG"),  through June 1998, leased the six Country
     Suites by Carlson hotels owned by the Company and operated them for its own
     account.  In June 1998, as discussed  further below, two of the hotels were
     sold and the other four hotels were leased to other operators. Three of the
     four  remaining  hotels are in  contract to be sold to those  operators  in
     December  1998. GHG also operated one other Country Suites by Carlson hotel
     through June 30, 1998, and two resort  condominium hotels through April 30,
     1998, under separate contracts.

Note 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The  accompanying   financial  statements  present  the  consolidated  financial
position of the Company as of September 30, 1998, and December 31, 1997, and the
consolidated  results of  operations  and cash flows of the Company for the nine
months  ended  September  30,  1998 and  1997.  All  intercompany  transactions,
receivables and payables have been eliminated in consolidation.

In the opinion of management,  the accompanying  unaudited financial  statements
contain all  adjustments  (consisting  of only  normal  accruals)  necessary  to
present  fairly the financial  position and results of operations of the Company
as of September 30, 1998, and for the period then ended.

Reclassification
Certain  1997  balances  have been  reclassified  to conform to the current year
presentation.

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

New Accounting Pronouncements
In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 131 (SFAS 131),  "Disclosures about Segments
of an Enterprise and Related Information," which will be effective for financial
statements  issued for fiscal years  beginning after December 15, 1997. SFAS 131
will require the Company to report certain financial and descriptive information
about its reportable  operating segments,  segments for which separate financial
information is available  that is evaluated  regularly by management in deciding
how to allocate resources and in assessing performance. For these segments, SFAS
131 will require the Company to report profit and loss, certain specific revenue
and expense items and assets. It also requires  disclosures about each segment's
products and services,  geographic areas of operation and major  customers.  The
Company  will  adopt  the  disclosures  required  by SFAS  131 in the  financial
statements for the year ended December 31, 1998.

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


                                       10
<PAGE>

                        GLENBOROUGH REALTY TRUST INCORPORATED   
                                                                
                     Notes to Consolidated Financial Statements 
                                 September 30, 1998             


Company's  plans  for the  continued  operation  of each  property;  and (ii) is
computed using estimated sales price, as determined by prevailing  market values
for comparable  properties and/or the use of capitalization  rates multiplied by
annualized  rental  income  based  upon  the  age,  construction  and use of the
building.  The  fulfillment  of the  Company's  plans  related  to  each  of its
properties  is  dependent  upon,  among other  things,  the presence of economic
conditions  which will  enable the  Company to  continue to hold and operate the
properties  prior to their eventual sale. Due to  uncertainties  inherent in the
valuation process and in the economy,  it is reasonably possible that the actual
results  of  operating  and  disposing  of the  Company's  properties  could  be
materially different than current expectations.

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

The useful lives are as follows:

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

Investments in Associated Companies
The Company's  investments in the  Associated  Companies are accounted for using
the equity method, as discussed further in Note 4.

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

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

Marketable Securities
The Company records its marketable  securities at fair value.  Unrealized  gains
and losses on securities are reported as a separate  component of  stockholders'
equity and realized gains and losses are included in net income. As of September
30, 1998,  marketable  securities with a fair value of approximately  $4,133,000
were included in other assets on the accompanying consolidated balance sheet.

Fair Value of Financial Instruments
Statement of Financial  Accounting  Standards No. 107 requires  disclosure about
fair value for all financial instruments. Based on the borrowing rates currently
available to the Company,  the carrying amount of debt  approximates fair value.
Cash and cash equivalents  consist of demand  deposits,  certificates of deposit
and short-term investments with financial  institutions.  The carrying amount of
cash and cash  equivalents  as well as the mortgage notes  receivable  described
above approximates fair value.


                                       11
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                                   
                   Notes to Consolidated Financial Statements
                               September 30, 1998

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

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

Minority Interest
Minority  interest  represents  the  11.8%  limited  partner  interests  in  the
Operating Partnership not held by the Company.

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

For the nine months ended September 30, 1998, no tenants represented 10% or more
of rental revenue of the Company.

Fees and reimbursement  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.

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

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

The Company  recognizes  contingent  rental  income after the related  target is
achieved,  consistent with EITF 98-9, "Accounting for Contingent Rent in Interim
Financial Periods."

Income Taxes
The  Company  has made an  election  to be taxed as a REIT  under  Sections  856
through 860 of the Code. As a REIT, the Company generally will not be subject to
Federal  income tax to the extent that it  distributes  at least 95% of its REIT
taxable  income  to  its  stockholders.   REITs  are  subject  to  a  number  of
organizational and operational requirements.  If the Company fails to qualify as
a REIT in any taxable  year,  the Company will be subject to Federal  income tax
(including  any  applicable  alternative  minimum tax) on its taxable  income at
regular  corporate  tax rates.  Even if the Company  qualifies for taxation as a
REIT,  the Company may be subject to certain state and local taxes on its income
and property and to Federal income and excise taxes on its undistributed income.

Earnings Per Share
In 1997,  the  Company  adopted  the  disclosure  requirements  of SFAS No. 128,
"Earnings  per Share." SFAS 128 requires the  disclosure  of basic  earnings per
share and modified  existing  guidance for computing diluted earnings per share.
Earnings per share for all prior periods presented have been restated to conform
to the new standard. For additional required disclosures, see Note 9.



                                      12

<PAGE>
                        GLENBOROUGH REALTY TRUST INCORPORATED    
                                                                 
                     Notes to Consolidated Financial Statements  
                                 September 30, 1998              
                                                                 

Reference to 1997 Audited Financial Statements
These  unaudited  financial  statements  should be read in conjunction  with the
Notes  to  Consolidated  Financial  Statements  included  in  the  1997  audited
financial statements.

Note 3.   INVESTMENTS IN REAL ESTATE

In August  1998,  the Company  acquired a 85,765  square  foot  office  building
located in northern New Jersey  ("Executive  Place") from a German  partnership.
The total acquisition cost, including capitalized costs, was approximately $12.4
million which was paid entirely in cash.  The cash portion was financed  through
advances under the Acquisition Credit Facility (as defined in Note 7).

In August 1998, the Company sold one of three buildings  (totaling 85,548 square
feet) from a 187,843 square foot office/flex property for $1,700,000. No gain or
loss was  recognized  upon the sale and the  Company  received  net  proceeds of
approximately  $1,687,000.  The remaining buildings totaling 102,295 square feet
are still included in the Company's office/flex portfolio.

In July 1998,  the Company  acquired a portfolio of ten  properties  (the "Pauls
Portfolio")  from  The  Pauls   Corporation,   a  premier   national   developer
headquartered  in Denver,  Colorado.  The Pauls Portfolio  properties  aggregate
1,128,785  square feet located in Aurora,  Colorado,  and consist of one office,
four  office/flex and five industrial  buildings.  The total  acquisition  cost,
including  capitalized costs, was approximately $54.9 million,  comprising:  (i)
approximately  $41.3  million of net  assumed  debt;  (ii)  approximately  $11.3
million  of equity in the form of  423,843  partnership  units in the  Operating
Partnership  (based  on an  agreed  per unit  value of  $26.556);  and (iii) the
balance in cash. The cash portion was financed through advances under the Bridge
Loan  from a  commercial  bank  as  discussed  in Note  7.  In  addition  to the
acquisition  of  the  Pauls  Portfolio,  the  Company  has  entered  into a loan
agreement and a development alliance with The Pauls Corporation. See Notes 5 and
6 for further discussion.

In June 1998, the Company  acquired a portfolio of multi-family  properties (the
"Galesi Portfolio") from the Galesi Group, a privately owned company. The Galesi
Portfolio  includes 21 properties with 6,536 units located primarily in Houston,
Austin,  Dallas and San Antonio.  Four  properties are located outside of Texas:
two in  Atlanta,  one in  Nashville  and  one in  Colorado  Springs.  The  total
acquisition cost, including capitalized costs, was approximately $275.8 million,
comprising:  (i) approximately  $169.4 million of net assumed debt (including an
unamortized  premium totaling  approximately  $3.1 million,  which results in an
effective interest rate on these instruments of 6.75%); (ii) approximately $21.2
million  of equity in the form of  806,393  partnership  units in the  Operating
Partnership  (based  on an agreed  per unit  value of  $26.2315);  and (iii) the
balance in cash.  The cash portion was financed  through  advances  under a $150
million Bridge Loan from a commercial bank as discussed in Note 7.

In June 1998, the Company  acquired a 133,090 square foot office  property and a
229,352  square foot  industrial  property,  both located in northern New Jersey
(the "Donau/Gruppe Portfolio") from a German partnership.  The total acquisition
cost,  including  capitalized costs, was approximately $28.5 million,  which was
comprised of: (i)  approximately  $10.5  million of assumed  debt;  and (ii) the
balance in cash.  The cash portion was financed  through  advances  under a $150
million Bridge Loan from a commercial bank.

In June 1998, the Company  acquired a 263,610 square foot  office/flex  property
located in  Indianapolis,  Indiana (the "Covance  Property") from Eaton & Lauth.
The total acquisition cost, including capitalized costs, was approximately $16.5
million,  comprising:  (i)  approximately  $4  million  of equity in the form of
161,492  partnership units in the Operating  Partnership (based on an agreed per
unit value of  $25.00);  (ii)  approximately  $220,000  of equity in the form of
8,802 shares of Common Stock of the Company  (based on an agreed per share value
of $25.00); and (iii) the balance in cash. The cash portion was financed through
advances under the Acquisition Credit Facility.

In June 1998,  the  Company  sold two hotel  properties  for  $6,100,000.  After
accounting for closing costs,  the sales  generated a net gain of  approximately
$73,000  and net  proceeds of  approximately  $2,327,000.  The Company  received
consideration  in cash for one of the hotels with a selling price of $1,900,000.
In  conjunction  with  the  sale 


                                       13
<PAGE>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                                            
                   Notes to Consolidated Financial Statements
                               September 30, 1998

of the other hotel with a selling price of$4,200,000, the Company agreed to loan
$3,600,000 to the buyer for a term of six months at a fixed  interest rate of 9%
(see Note 5). As the buyer  contributed  cash  (approximately  $600,000)  to the
purchase of this hotel, the historical operations of the hotel are sufficient to
service  the  loan  and the  Company  has no  other  continuing  obligations  or
involvement with this property,  the Company  recognized the sale under the full
accrual  method of  accounting.  The net book value of the two hotel  properties
aggregated to  $5,642,000 on the date of sale.  Net income earned by the Company
from the two hotels totaled $426,000 in the nine months ended September 30, 1997
and $275,000 during the period from January 1, 1998 to the date of sale. No debt
was secured by these properties prior to the sale.

In May 1998, the Company  acquired a 125,507  square foot office  building and a
5.45 acre parcel of land located in Omaha,  Nebraska  ("One and Three  Pacific")
from Shorenstein Company, L.P. The total acquisition cost, including capitalized
costs,  was  approximately  $20.1  million  which  was  paid  entirely  in cash,
including  cash  from  borrowings  under the  Acquisition  Credit  Facility  and
proceeds from the sales of two office/flex properties as discussed below.

In April 1998, the Company  acquired a portfolio of three office  properties and
four retail properties  aggregating  417,745 square feet and three  multi-family
properties containing 670 units (the "Eaton & Lauth Portfolio") from a number of
partnerships in which affiliates of Eaton & Lauth serve as general partners. The
total acquisition cost,  including  capitalized  costs, was approximately  $68.7
million,  comprising:  (i) approximately $32.0 million of net assumed debt; (ii)
approximately  $15.9 million of equity which consisted of (a) approximately $3.2
million in the form of 126,764  shares of Common Stock of the Company  (based on
an agreed per share value of $25.00); and (b) approximately $12.7 million in the
form of 506,788  partnership  units in the  Operating  Partnership  (based on an
agreed  per unit  value of  $25.00);  and (iii) the  balance  in cash.  The cash
portion was financed through advances under the Acquisition Credit Facility. The
Eaton & Lauth Portfolio properties are located in Indiana.

In April 1998, the Company sold an office/flex property for $3,600,000. The sale
generated a net gain of  approximately  $449,000 and net proceeds  after closing
costs of  approximately  $1,571,000.  The proceeds from the sale were  deposited
into a deferred  exchange account and were applied to the acquisition of One and
Three Pacific on a  tax-deferred  basis pursuant to Section 1031 of the Internal
Revenue Code.

In March 1998, the Company  acquired a portfolio of seven  properties  (the "BGK
Portfolio") from BGK Development. The BGK Portfolio properties aggregate 515,445
net rentable  square  feet,  located in Boston,  Massachusetts  and Kansas City,
Kansas, and consist of four office properties, two industrial properties and one
office/flex  property.  The total acquisition cost, including capitalized costs,
was approximately $50.2 million, comprised of (i) approximately $13.3 million in
assumption of debt; and (ii) the balance in cash, including cash from borrowings
under the Acquisition Credit Facility.

In March 1998, the Company  acquired a 15-story office  property  located in San
Mateo, California ("400 El Camino Real"), which contains 139,109 square feet and
currently houses the Company's  corporate  headquarters in approximately  45,000
square feet, from Prudential Insurance Company of America. The total acquisition
cost, including  capitalized costs, was approximately $34.7 million and was paid
in cash, including cash from borrowings under the Acquisition Credit Facility.

In March 1998, the Company sold an office/flex property for $1,368,000. The sale
generated a net gain of approximately $106,000 and net proceeds of approximately
$696,000.  The proceeds from the sale were  deposited  into a deferred  exchange
account  and were  applied  to the  acquisition  of One and Three  Pacific  on a
tax-deferred basis pursuant to Section 1031 of the Internal Revenue Code.

In February  1998,  the Company  acquired a 161,468  square foot office  complex
("Capitol  Center")  located in Des Moines,  Iowa. The total  acquisition  cost,
including  capitalized costs, was approximately $12.3 million,  comprising:  (i)
$116,000 in the form of 3,874  partnership  units in the  Operating  Partnership
(based on an agreed per unit value of $30.00) and (ii) the balance in cash.



                                       14
<PAGE>

                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                               
                   Notes to Consolidated Financial Statements
                               September 30, 1998

In February 1998, the Company sold an industrial property for $930,000. The sale
generated a net gain of approximately $246,000 and net proceeds of approximately
$359,000.  The proceeds from the sale were  deposited  into a deferred  exchange
account  and  were  applied  to  the  acquisition  of 400 El  Camino  Real  on a
tax-deferred basis pursuant to Section 1031 of the Internal Revenue Code.

In 1997, the Company issued  approximately  $14.1 million in the form of 433,362
partnership units in the Operating Partnership and 72,564 shares of Common Stock
(based on an agreed per unit and per share value of $27.896, respectively, which
was equal to the average closing price of the Company's Common Stock for the ten
business days preceding the closing) and paid approximately  $200,000 in cash to
acquire all of the limited partnership  interests of GRC Airport  Associates,  a
California limited  partnership  ("GRCAA").  GRCAA's sole asset consisted of one
industrial  property  ("Skypark") that was subject to a binding sales agreement.
By virtue of interests held directly or indirectly in GRCAA,  Robert  Batinovich
received  consideration of approximately $2.2 million and GC (as defined in Note
1) received  consideration of  approximately  $1.7 million for the GRCAA limited
partnership  interests  in the  form  of  partnership  units  in  the  Operating
Partnership.  Consistent with the Company's Board of Directors' policy,  neither
Robert  Batinovich  nor  Andrew  Batinovich  voted  when the Board of  Directors
considered and acted to approve this transaction.  In February 1998, the sale of
the  Skypark  property  was  completed  for a price of $22  million.  This  sale
generated a net gain of approximately  $83,000 and net proceeds of approximately
$14.1 million.  The proceeds from the sale of the property were deposited into a
deferred  exchange  account and were applied to the acquisition of 400 El Camino
Real on a tax-deferred  basis  pursuant to Section 1031 of the Internal  Revenue
Code.

In  January  1998,  the  Company  acquired a  portfolio  of 13  suburban  office
properties and one  office/flex  property (the "Windsor  Portfolio")  located in
eight states.  The Company  acquired the Windsor  Portfolio  from Windsor Realty
Fund II, L.P., of which Windsor  Advisor,  LLC is the general partner and DuPont
Pension Fund Investments and Gid/S&S Limited  Partnership are limited  partners,
and other  entities  affiliated  with  Windsor  Realty Fund II, L.P. The Windsor
Portfolio  properties  aggregate  3,383,240 net rentable square feet, located in
the eastern  and  mid-western  United  States and are  concentrated  in suburban
Washington,  D.C., Chicago,  Atlanta, Boston,  Philadelphia,  Tampa, Florida and
Cary, North Carolina.  The total acquisition cost, including  capitalized costs,
was approximately $423.2 million,  comprised of (i) approximately $167.2 million
in assumption of debt;  (ii) $150.0  million in borrowings  under a $150 million
loan agreement with a commercial bank (the "Interim Loan" as defined in Note 7);
and  (iii)  the  balance  in cash,  including  cash  from  borrowings  under the
Acquisition  Credit Facility.  Subsequent to the acquisition,  approximately $68
million of the assumed  debt was paid off with  proceeds  from the January  1998
Convertible Preferred Stock Offering (as defined in Note 1).

In January 1998,  the Company sold a  multi-family  property for $4.95  million.
This sale  generated a net gain of  approximately  $944,000  and net proceeds of
approximately  $2.1 million.  The proceeds from the sale were  deposited  into a
deferred  exchange  account and were applied to the acquisition of 400 El Camino
Real on a tax-deferred  basis  pursuant to Section 1031 of the Internal  Revenue
Code.

The Company has entered into a definitive agreement to sell the Shannon Crossing
retail  property for $9.3 million.  The property is currently  undergoing a $6.2
million renovation and expansion.  As of the date of this filing,  approximately
$3.5 million of the project  budget for the  renovation  and  expansion has been
funded.  The Company  anticipates  that the sale of Shannon Crossing will not be
completed until the first quarter of 1999.

The Company has entered  into three  short-term  lease  agreements  on the hotel
properties located in Arlington, Texas, Tucson, Arizona and Ontario, California,
with  three  prospective  purchasers  of  these  properties.  These  prospective
purchasers  have entered into purchase  agreements  for these  properties,  with
closing  dates of December 30, 1998.  These leases all terminate on that closing
date  for the sale of the  properties.  The net book  value of the  three  hotel
properties  aggregates  to  $12,772,000  at September 30, 1998.  The  properties
secure, in part, a loan to the Company with an outstanding  principal balance of
$19,203,000  at September  30, 1998.  Net income  earned by the Company from the
three hotels totaled  $665,000 and $1,102,000 in the nine months ended September
30, 1998 and 1997, respectively.


                                       15
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                                 
                   Notes to Consolidated Financial Statements
                               September 30, 1998

The Company 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 the resolution of litigation  relating to the proposed
acquisition,  to which  neither the Company nor the Operating  Partnership  is a
party, and customary closing conditions.  Although the Company is still pursuing
this acquisition,  because of the litigation  contingency,  the Company does not
currently believe the acquisition is probable.

Note 4.   INVESTMENTS IN ASSOCIATED COMPANIES

The Company accounts for its investments in the Associated Companies (as defined
in Note 1) using the equity  method as a  substantial  portion  of the  economic
benefits of the  Associated  Companies flow to the Company by virtue of its 100%
non-voting preferred stock interest in each of the Associated  Companies,  which
interests   constitute   substantially   all   of  the   Associated   Companies'
capitalization.  Two of the holders of the voting  common  stock of  Glenborough
Corporation  and one of the holders of the voting  common  stock of  Glenborough
Hotel Group are  officers  of the  Company;  however,  the Company has no direct
voting or management  control of either  Glenborough  Corporation or Glenborough
Hotel Group.  The Company records  earnings on its investments in the Associated
Companies 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 the Associated Companies are recorded as a reduction
of the Company's investments.

As of  September  30, 1998,  the Company had the  following  investments  in the
Associated Companies (in thousands):

                                        GC             GHG            Total
Investment at December 31, 1997    $   8,519      $   2,429       $  10,948

Distributions                         (1,005)          (195)         (1,200)

Equity in earnings (loss)              1,889           (199)          1,690
                                   ---------      ----------      ---------

Investment at September 30, 1998   $   9,403      $   2,035       $  11,438
                                   =========      =========       =========

With the  termination of all leasing  contracts by June 30, 1998, the operations
of GHG have been substantially  reduced and lease income paid by GHG to GLB will
be zero in the future.

Note 5.   MORTGAGE LOANS RECEIVABLE

The  Company's  mortgage  loans  receivable  consist of the  following as of
September  30, 1998,  and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                     1998                   1997
                                                                                ---------------        ---------------
Note secured by an industrial property in Los Angeles, CA, with a fixed
interestrate of 9% and a maturity date of June 2001. This note was paid off
<S>     <C>                                                                        <C>                    <C>        
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  September  30,  1998,  the
Partnership is committed to additional advances totaling $454 for tenant
improvements and other leasing costs.                                                    3,396                  3,185
</TABLE>


                                       16
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                                  
                   Notes to Consolidated Financial Statements
                               September 30, 1998

<TABLE>
<CAPTION>
                                                                                     1998                   1997
                                                                                ---------------        ---------------
Note secured by a hotel property in Dallas,  TX, with a fixed interest rate of
<C>                                                                                <C>                    <C>                     
9%, monthly interest-only payments and a maturity date of December 1998                  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)                           33,586                     --
                                                                                ---------------        ---------------

Total                                                                              $    40,582            $     3,692
                                                                                ===============        ===============
</TABLE>

In July 1998, concurrent with the acquisition of the Pauls Portfolio (as defined
in Note 3), the  Company  entered  into a  development  alliance  with The Pauls
Corporation (see Note 6). In addition to this development alliance, the Company
has loaned  approximately $34 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.  In this  arrangement  the Company has
certain rights under certain conditions and subject to certain  contingencies to
purchase the properties upon completion of development  and, thus,  through this
arrangement,  the Company could acquire up to 2.9 million square feet of office,
office/flex, industrial and multi-family properties over the next five years.

Note 6.   DEVELOPMENT ALLIANCES AND OTHER ASSETS

The Company 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 September 30, 1998, the Company has advanced  approximately $29
million under these commitments.  Under these development alliances, the Company
has certain  rights to purchase the  properties  upon  completion of development
and, thus, through these alliances,  the Company could acquire an additional 1.4
million square feet of commercial  properties and 2,050  multi-family units over
the next five years.

As  of  September  30,  1998,  the  Company  had  investments  of  approximately
$20,100,000  in securities  of a private  REIT.  As of September  30, 1998,  the
Company's   ownership  interest  was  24.47%.  The  Company  accounts  for  this
investment  using the equity method.  Also, as of September 30, 1998 the Company
had  investments  in marketable  securities  with a fair value of  approximately
$4,133,000.

Note 7.   SECURED AND UNSECURED LIABILITIES

The Company had the following  mortgage loans,  bank lines,  unsecured notes and
notes  payable  outstanding  as of  September  30,  1998,  and December 31, 1997
(dollars in thousands):
<TABLE>
<CAPTION>

                                                                                            1998          1997
                                                                                         ---------       -------
Unsecured  $250,000 line of credit with a bank  ("Acquisition  Credit Facility")
with a variable  interest  rate ranging  between LIBOR plus 1.10% and LIBOR plus
1.30%  (6.84%  and  7.07%  at   September   30,  1998  and  December  31,  1997,
respectively),  monthly  interest  only payments and a maturity date of December
<C>                                                                                      <C>            <C>     
22, 2000, with one option to extend for 10 years                                         $ 145,140      $ 80,160

Unsecured loan with a bank ("$150 Million Bridge Loan") with a variable interest
rate of LIBOR plus 1.3% (6.93% at September  30,  1998),  monthly  interest only
payments  and a  maturity  date of  December  31,  1998.  See below for  further
discussion.                                                                                147,710            --


                                       17
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                                  
                   Notes to Consolidated Financial Statements
                               September 30, 1998

                                                                                            1998           1997
                                                                                         ---------        ------
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 $110,433
and $111,372 at September 30, 1998 and December 31, 1997, respectively.                  $ 59,128        $ 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
$149 and a  maturity  date of  January  1,  2006.  The loan is  secured  by nine
properties  with an  aggregate  net  carrying  value of $38,549  and  $37,711 at
September 30, 1998 and December 31, 1997, respectively. 19,203 19,444

Secured  loans with various  lenders,  bearing  interest at fixed rates  between
6.95% and 9.25%  (approximately  $168,962 of these loans include an  unamortized
premium of  approximately  $2,764 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  $449,810  and  $66,353  at  September   30,  1998  and  December  31,  1997,
respectively. 263,613 30,519

Secured  loans with  various  banks  bearing  interest  at  variable  rates
(ranging between 6.75% and 8.50% at September 30, 1998),  monthly  principal and
interest  payments  ranging  between $4 and $773 and  maturing at various  dates
through May 1, 2017. These loans are secured by properties with an aggregate net
carrying  value of $189,185 and $17,246 at  September  30, 1998 and December 31,
1997, respectively.                                                                         120,076         7,806

Secured loans with various lenders, bearing interest at fixed rates between
7.25% and 7.85%, with monthly principal and interest payments ranging between $5
and $55 and maturing at various dates through  December 1, 2030. These loans are
secured by  multi-family  properties  with an aggregate  net  carrying  value of
$41,673 and $41,862 at September  30, 1998 and December 31, 1997,  respectively.
                                                                                             30,374        30,646

Unsecured  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                                                                                    $  935,244     $ 228,299
                                                                                          =========      ========
</TABLE>

In January  1998,  the  Company  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 the  Windsor  Portfolio  as  discussed  in Note 3. The
Interim Loan was paid off in March 1998 with  proceeds  from the $150 million of
unsecured Senior Notes as discussed below.


                                       18
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                                             
                   Notes to Consolidated Financial Statements
                               September 30, 1998

In March 1998, the Operating Partnership issued $150 million of unsecured 7 5/8%
Series A Redeemable  Notes (the "Notes") in an unregistered  144A offering.  The
Notes  mature on March 15, 2005,  unless  previously  redeemed.  Interest on the
Notes will be 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 will be general unsecured and  unsubordinated  obligations of the
Operating  Partnership,  and will rank pari passu with all other  unsecured  and
unsubordinated  indebtedness of the Operating  Partnership.  However,  the Notes
will be 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 September
30, 1998,  such secured  arrangements  and  mortgages  aggregated  approximately
$492.4 million.

In May 1998, the Company 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
will be registered  under the Securities  Act, and therefore will not be subject
to  certain  transfer  restrictions,  registration  rights and  related  special
interest provisions applicable to the Old Notes.

In June  1998,  the  Company  obtained  a $150  million  unsecured  loan  from a
commercial  bank (the "Bridge  Loan") which bears interest at a variable rate of
LIBOR plus 1.3%, and has a maturity date of December 31, 1998. As of the date of
this filing,  approximately  $147.7 million has been drawn under the Bridge Loan
to fund acquisitions, including the Galesi Portfolio, the Donau/Gruppe Portfolio
and the  Pauls  Portfolio  (as  discussed  in Note 3),  and to fund  development
advances.  The Company paid off the loan on October 30, 1998, with proceeds from
the new $247 million loan discussed in Note 13.

Some of the Company'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 Company in  accordance  with
Generally Accepted Accounting Principles ("GAAP").

The required  principal  payments on the Company's  debt for the next five years
and thereafter, as of September 30, 1998, are as follows (in thousands):

              Year Ending
             December 31,
             ------------
               1998                  $  152,521
               1999                     124,531
               2000                     208,375
               2001                      13,677
               2002                      12,402
               Thereafter               423,738
                                      ---------
               Total                 $  935,244
                                      =========

Note 8.   RELATED PARTY TRANSACTIONS

Fee and reimbursement  income earned by the Company from related parties totaled
$2,452,000  and $572,000 for the nine months ended  September 30, 1998 and 1997,
respectively,  and consisted of property  management fees, asset management fees
and other fee income. In addition, for the nine months ended September 30, 1998,
the Company paid GC property management fees and salary reimbursements  totaling
$940,000 for  management of a portfolio of residential  properties  owned by the
Company.


                                       19
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                           
                   Notes to Consolidated Financial Statements
                               September 30, 1998

Note 9.   EARNINGS PER SHARE

In March 1997,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 128 (SFAS 128),  "Earnings Per Share." SFAS
No.  128  requires  the  disclosure  of basic  earnings  per share and  modifies
existing  guidance  for  computing  diluted  earnings  per share.  Under the new
standard,  basic earnings per share is computed as earnings  divided by weighted
average  shares,  excluding  the  dilutive  effects of stock  options  and other
potentially dilutive securities.  The effective date of SFAS No. 128 is December
15, 1997.  Earnings per share for all prior periods presented have been restated
to conform to the new  standard as follows (in  thousands,  except for  weighted
average shares and per share amounts):
<TABLE>
<CAPTION>
                                                            Three months ended                    Nine months ended
                                                               September 30,                        September 30,
                                                      --------------------------------     --------------------------------
                                                          1998              1997               1998              1997
                                                      -------------     --------------     --------------    --------------
Net income available to common
<S>                                                   <C>               <C>                <C>               <C>         
     stockholders - Basic                             $      4,940      $      4,898       $     21,594      $     11,502
 Minority interest                                             635                60              1,909               689
                                                      -------------     --------------     --------------    --------------
Net income available to common
     stockholders - Diluted                           $      5,575      $      4,958       $     23,503      $     12,191
                                                      -------------     --------------     --------------    --------------

Weighted average shares:
             Basic                                      31,703,963        19,395,779         31,634,138        14,258,627
     Stock options                                         325,661           341,374            346,666           254,360
Convertible Operating Partnership Units                  4,231,604         1,395,794          3,134,034           992,899
                                                      -------------     --------------     --------------    -------------
           Diluted                                      36,261,228        21,132,947         35,114,838        15,505,886
                                                      -------------     --------------     --------------    -------------

Basic earnings per share                              $       0.16      $       0.25       $       0.68      $      0.81
Diluted earnings per share                            $       0.15      $       0.24       $       0.67      $      0.79
</TABLE>

Note 10.  STOCK COMPENSATION PLAN

In May 1996, the Company  adopted an employee stock  incentive plan (the "Plan")
to provide  incentives to attract and retain high quality executive officers and
key employees.  Certain amendments to the Plan were ratified and approved by the
stockholders   of  the  Company  at  the  Company's   1997  Annual   Meeting  of
Stockholders.  The Plan,  as  amended,  provides  for the grant of (i) shares of
Common Stock of the Company, (ii) options, stock appreciation rights ("SARs") or
similar  rights with an exercise or conversion  privilege at a fixed or variable
price related to the Common Stock and/or the passage of time,  the occurrence of
one or more  events,  or the  satisfaction  of  performance  criteria  or  other
conditions, or (iii) any other security with the value derived from the value of
the Common Stock of the Company or other securities  issued by a related entity.
Such awards include,  without  limitation,  options,  SARs,  sales or bonuses of
restricted  stock,  dividend  equivalent  rights ("DERs"),  Performance Units or
Preference  Shares.  The total number of shares of Common Stock  available under
the Plan is equal to the  greater  of  1,140,000  shares or 8% of the  number of
shares  outstanding  determined  as of the day  immediately  following  the most
recent issuance of shares of Common Stock or securities  convertible into shares
of Common Stock;  provided that the maximum aggregate number of shares of Common
Stock available for issuance under the Plan may not be reduced.  For purposes of
calculating  the number of shares of Common Stock  available under the Plan, all
classes  of  securities  of the  Company  and  its  related  entities  that  are
convertible  presently  or in the future by the  security  holder into shares of
Common Stock or which may  presently or in the future be exchanged for shares of
Common Stock pursuant to redemption  rights or otherwise,  shall be deemed to be
outstanding shares of Common Stock. Notwithstanding the foregoing, the aggregate
number of shares  as to which  incentive  stock  options,  one type of  security
available under the Plan, may be granted under the Plan may not exceed 1,140,000
shares.  The Company accounts for the fair value of the options and bonus grants
in accordance  with APB Opinion No. 25. As of September 30, 1998,  37,000 shares

                                       20
            
<PAGE>
                      GLENBOROUGH REALTY TRUST INCORPORATED
                                           
                   Notes to Consolidated Financial Statements
                               September 30, 1998

of bonus  grants have been issued  under the Plan.  The fair value of the shares
granted  have  been  recorded  as  deferred  compensation  in  the  accompanying
financial statements and will be charged to earnings ratably over the respective
vesting  periods  that  range  from 2 to 5  years.  As of  September  30,  1998,
2,623,243  options to  purchase  shares of Common  Stock were  outstanding.  The
exercise price of each  incentive  stock option granted is greater than or equal
to the per-share fair market value of the Common Stock on the date the option is
granted.  To date,  all incentive  stock  options  granted have been at exercise
prices  equal to or higher than the fair market value of the shares on the grant
date, and as such, no compensation  expense has been recognized as accounted for
under APB Opinion No. 25. The options vest over  periods  between 1 and 6 years,
and have a maximum term of 10 years.

Note 11.  DISTRIBUTIONS
                                    Common Stock           Preferred Stock
                              ----------------------    --------------------
Distributions per share:
First Quarter                       $    0.42             $     0.340 (1)
Second Quarter                           0.42                   0.485
Third Quarter                            0.42                   0.485

                              ======================    =====================
Year-to-Date Total                  $    1.26             $     1.310
                              ======================    =====================
 
(1)  Distribution was prorated for the number of days the stock was outstanding
     during the first quarter of 1998.

Note 12.  PUBLIC STOCK OFFERING

In January 1998, the Company completed a public offering of 11,500,000 shares of
7.75%  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  shares are
convertible  at any time at the option of the  holders  thereof  into  shares of
Common Stock at an initial  conversion price of $32.83 per share of Common Stock
(equivalent to a conversion rate of 0.7615 shares of Common Stock for each share
of Series A  Convertible  Preferred  Stock),  subject to  adjustment  in certain
circumstances.  Except in certain instances  relating to the preservation of the
Company's  status as a REIT, the 7.75% Series A Convertible  Preferred  Stock is
not  redeemable  prior to January 16, 2003. On and after  January 16, 2003,  the
Series A Preferred Stock may be redeemed at the option of the Company,  in whole
or in part,  initially at 103.88% of the liquidation  preference per share,  and
thereafter  at prices  declining to 100% of the  liquidation  preference  on and
after  January  16,  2008,  plus in each case  accumulated,  accrued  and unpaid
dividends,  if any, to the redemption date. A portion of this additional capital
was used to repay the outstanding balance under the Company's Acquisition Credit
Facility (as defined in Note 7). The  remaining  proceeds  were used to fund the
acquisitions   discussed  in  Note  3  and  for  general   corporate   purposes.
Approximately  $927,000 in other costs have been incurred in connection with the
January 1998 Convertible Preferred Stock Offering.

Note 13.  SUBSEQUENT EVENTS

In October 1998,  the Company  obtained a $248.8 million loan from Goldman Sachs
Mortgage  Corporation  which has a term of ten years,  bears interest at a fixed
rate of 6.125% and is secured by 36 properties. The proceeds were used to retire
the Company's  $150 million  Bridge Loan maturing  December 31, 1998, to pay off
four mortgage loans and to pay down the Acquisition Credit Facility.

In November 1998, the Company sold an industrial property for $4.7 million.
The sale generated a net gain of approximately  $2.3 million and net proceeds of
approximately $4.67 million.




                                       21
<PAGE>

Item 2.       Management's Discussion and Analysis of Financial Condition and 
              Results of Operations

GLENBOROUGH REALTY TRUST INCORPORATED

Background

Glenborough Realty Trust Incorporated (the "Company") is a self-administered and
self-managed  real estate  investment  trust ("REIT")  engaged  primarily in the
ownership,  operation,  management,  leasing and acquisition of various types of
income-producing  properties.  As of September  30, 1998,  the Company owned and
operated  190   income-producing   properties  (the  "Properties,"  and  each  a
"Property").   The  Properties  are  comprised  of  55  office  Properties,   49
office/flex  Properties,  32 industrial  Properties,  13 retail  Properties,  37
multi-family Properties and 4 hotel Properties, located in 24 states.

The Company was  incorporated  in the State of Maryland on August 26,  1994.  On
December 31, 1995, the Company completed a consolidation  (the  "Consolidation")
in which Glenborough  Corporation  ("GC"), a California  corporation,  and eight
public  limited  partnerships  (the  "Partnerships")  merged  with  and into the
Company. The Company (i) issued 5,753,709 shares (the "Shares") of the $.001 par
value  Common Stock of the Company to the  Partnerships  in exchange for the net
assets of the Partnerships;  (ii) merged with Glenborough Corporation,  with the
Company  being  the  surviving  entity;  (iii)  acquired  an  interest  in three
companies (the  "Associated  Companies"),  two of which merged on June 30, 1997,
that provide asset and property management services,  as well as other services;
and (iv) through a subsidiary  operating  partnership,  Glenborough  Properties,
L.P. (the  "Operating  Partnership"),  acquired  interests in certain  warehouse
distribution  facilities  from  GPA,  Ltd.,  a  California  limited  partnership
("GPA").  A portion  of the  Company's  operations  are  conducted  through  the
Operating Partnership,  of which the Company is the sole general partner, and in
which the Company holds a 87.2% limited partner  interest.  The Company operates
the assets acquired in the  Consolidation  and in subsequent  acquisitions  (see
further  discussion below) and intends to invest in income property directly and
through  joint  ventures.  In addition,  the  Associated  Companies  may acquire
general partner interests in other real estate limited partnerships. The Company
has elected to qualify as a REIT under the  Internal  Revenue  Code of 1986,  as
amended.  The common and preferred  stock of the Company (the "Common Stock" and
the "Preferred  Stock",  respectively) are listed on the New York Stock Exchange
("NYSE") under the trading symbols "GLB" and "GLB Pr A", respectively.

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

      *  Acquired 20  properties  in the third and fourth  quarters of 1996, 90
         properties  in 1997 and 69  properties  in  1998.  The  total  acquired
         Properties  consist  of an  aggregate  of  approximately  15.7  million
         rentable square feet, 9,353 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 four industrial
         properties,  16 retail  properties,  two  office/flex  properties,  one
         multi-family property and two hotel properties to redeploy capital into
         properties the Company believes have characteristics more suited to its
         overall growth strategy and operating goals.
      *  Entered into a $250 million unsecured line of credit (the "Acquisition
         Credit Facility") with a commercial bank which replaced its $50 million
         secured  line of  credit  and  closed  a $150  million  unsecured  loan
         agreement (the "Interim Loan") with a commercial bank.
      *  Completed four offerings of Common Stock in October 1996,  March 1997,
         July 1997 and October 1997 (respectively,  the "October 1996 Offering,"
         the "March 1997  Offering," the "July 1997  Offering," and the "October
         1997 Offering"), resulting in aggregate gross proceeds of approximately
         $562 million.
      *  Completed an offering of 7.75% Series A  Convertible  Preferred  Stock
         (the "January 1998  Convertible  Preferred  Stock  Offering") for total
         gross proceeds of approximately $287.5 million.
      *  Issued  $150  million  of the  Company's  unsecured  7 5/8%  Series  A
         Redeemable Notes which are due on March 15, 2005.
      *  Paid off the Interim Loan  with  proceeds  from  the  issuance  of $150
         million  of 7 5/8% unsecured Senior Notes.



                                       22
<PAGE>

      *  Closed a $150 million unsecured loan agreement (the "Bridge Loan") with
         a commercial bank.
      *  Entered into 4 development alliances  to  which  the  Company  has made
         advances to date of approximately $29 million and a loan of $34 million
      *  Paid off the Bridge Loan and four  mortgage  loans,  and paid down the
         balance of the Acquisition  Credit Facility with proceeds from a $248.8
         million secured loan from Goldman Sachs Mortgage Corporation.

The  Company's  principal  business  objectives  are to  achieve  a  stable  and
increasing  source of cash flow available for distribution to  stockholders.  By
achieving these  objectives,  the Company will seek to raise  stockholder  value
over time.

Results of Operations

Comparison of the nine months ended  September 30, 1998 to the nine months ended
September 30, 1997.

Rental Revenue. Rental revenue increased $127,004,000,  or 354%, to $162,903,000
for the nine months ended  September  30, 1998,  from  $35,899,000  for the nine
months ended  September 30, 1997. The increase  included  growth in revenue from
the office,  industrial,  office/flex,  retail and  multi-family  Properties  of
$73,438,000, $7,200,000, $22,830,000, $3,955,000 and $20,675,000,  respectively.
Rental  revenue  for  the  nine  months  ended  September  30,  1998,   included
$13,063,000 of rental revenue generated from the acquisition of 20 properties in
the third and fourth quarters of 1996 (the "1996 Acquisitions"),  $72,261,000 of
rental  revenue  generated  from the  acquisition  of 90 properties in 1997 (the
"1997  Acquisitions")  and  $69,882,000  of rental  revenue  generated  from the
acquisition  of 69  properties  during the nine months ended  September 30, 1998
(the "1998 Acquisitions"). These increases were partially offset by a $1,083,000
decrease  in  revenue  from the hotel  Properties  due to the 1998  sales of two
hotels.

Fees and Reimbursements.  Fees and reimbursements  revenue consists primarily of
property  management fees,  asset management fees and lease  commissions paid to
the  Company  under  property  and asset  management  agreements.  This  revenue
increased $1,880,000, or 329%, to $2,452,000 for the nine months ended September
30, 1998, from $572,000 for the nine months ended September 30, 1997. The change
consisted  primarily of increased lease  commissions from the managed  portfolio
and a one-time  asset  management  fee from the sale of properties  owned by the
Managed Partnerships.

Interest and Other Income. Interest and other income increased $840,000, or 72%,
to $2,007,000 for the nine months ended  September 30, 1998, from $1,167,000 for
the nine months ended  September 30, 1997. The increase  primarily  consisted of
interest income on a mortgage loan receivable secured by land located in Aurora,
Colorado which originated on June 30, 1998.

Equity in Earnings of Associated  Companies.  Equity in earnings from Associated
Companies  decreased  $252,000,  or 13%, to $1,690,000 for the nine months ended
September  30, 1998,  from  $1,942,000  for the nine months ended  September 30,
1997. The decrease is primarily due to a decrease in earnings from GHG resulting
from the June 30, 1998 cancellation of GHG's hotel leases with the Company.  The
Company  cancelled the leases with GHG when it sold two of its hotels and leased
the other four hotels to another operator.  This decrease is partially offset by
transaction  fees  earned by GC  related  to the  disposition  of several of the
managed properties.

Net Gain on  Sales  of  Rental  Properties.  The net  gain on  sales  of  rental
properties  of  $1,901,000  during the nine months  ended  September  30,  1998,
resulted from the sales of one multi-family property, two industrial properties,
two office/flex  properties and two hotel  properties.  The net gain on sales of
rental  properties of $555,000  during the nine months ended September 30, 1997,
resulted from the sales of 15 retail properties from the Company's portfolio.

Gain on  Collection  of Mortgage  Loan  Receivable.  The gain on  collection  of
mortgage loan  receivable of $652,000 during the nine months ended September 30,
1997 resulted from the collection of a mortgage loan receivable  which


                                       23
<PAGE>


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 $41,753,000,
or 370%,  to  $53,035,000  for the nine months ended  September  30, 1998,  from
$11,282,000  for the nine months ended  September  30, 1997.  Of this  increase,
$42,528,000  represents increases in property operating expenses attributable to
the 1997  Acquisitions  and the 1998  Acquisitions.  This  increase is partially
offset by  decreases  in property  operating  expenses  due to the 1997 and 1998
sales of properties.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased $6,166,000, or 304%, to $8,197,000 for the nine months ended September
30, 1998,  from  $2,031,000  for the nine months ended  September 30, 1997.  The
increase is primarily due to increased  salary and overhead costs resulting from
the 1997 Acquisitions and 1998 Acquisitions.

Depreciation  and   Amortization.   Depreciation   and  amortization   increased
$26,385,000,  or 298%, to  $35,252,000  for the nine months ended  September 30,
1998, from $8,867,000 for the nine months ended September 30, 1997. The increase
is primarily  due to  depreciation  and  amortization  associated  with the 1997
Acquisitions and 1998 Acquisitions.

Interest  Expense.   Interest  expense  increased   $29,500,000,   or  460%,  to
$35,916,000  for the nine months ended  September 30, 1998,  from $6,416,000 for
the nine months ended September 30, 1997.  Substantially all of the increase was
the result of higher average  borrowings  during the nine months ended September
30, 1998, as compared to the nine months ended  September  30, 1997,  due to new
debt  and the  assumption  of debt  related  to the 1997  Acquisitions  and 1998
Acquisitions.

Net Income and Earnings Per Share (EPS).  Net income increased  $25,142,000,  or
219%,  to  $36,644,000  for the nine  months  ended  September  30,  1998,  from
$11,502,000  for the nine months ended  September 30, 1997.  However,  Basic EPS
decreased $0.13 per share and Diluted EPS decreased $0.12 per share for the nine
months ended  September 30, 1998, from the nine months ended September 30, 1997.
The  decreases  in Basic and  Diluted  EPS are due to a  decrease  in Net Income
Available  to  Common  Stockholders  resulting  from the  dividends  payable  to
preferred  stockholders in 1998. There were no preferred stock dividends paid in
1997 as there was no preferred stock outstanding until January 1998.

Comparison  of the three  months  ended  September  30, 1998 to the three months
ended September 30, 1997.

Rental Revenue.  Rental revenue increased  $49,113,000,  or 303%, to $65,321,000
for the three months ended  September 30, 1998,  from  $16,208,000 for the three
months ended  September 30, 1997. The increase  included  growth in revenue from
the office,  industrial,  office/flex,  retail and  multi-family  Properties  of
$23,710,000,  $2,868,000, $7,052,000, $1,570,000 and $14,779,000,  respectively.
Rental  revenue  for  the  three  months  ended  September  30,  1998,  included
$4,294,000 of rental revenue  generated from the acquisition of 20 properties in
the third and fourth quarters of 1996 (the "1996 Acquisitions"),  $23,546,000 of
rental  revenue  generated  from the  acquisition  of 90 properties in 1997 (the
"1997  Acquisitions")  and  $35,286,000  of rental  revenue  generated  from the
acquisition  of 69  properties  during the nine months ended  September 30, 1998
(the "1998 Acquisitions").  These increases were partially offset by an $856,000
decrease  in  revenue  from the hotel  Properties  due to the 1998  sales of two
hotels.

Fees and Reimbursements.  Fees and reimbursements  revenue consists primarily of
property  management fees,  asset management fees and lease  commissions paid to
the  Company  under  property  and asset  management  agreements.  This  revenue
increased  $1,015,000,  or  495%,  to  $1,220,000  for the  three  months  ended
September 30, 1998, from $205,000 for the three months ended September 30, 1997.
The increase was primarily due to an asset management fee from GC related to the
liquidation of one of the managed partnerships.



                                       24
<PAGE>



Interest and Other  Income.  Interest and other income  increased  $850,000,  or
153%, to $1,404,000 for the three months ended September 30, 1998, from $554,000
for the three months ended September 30, 1997. The increase primarily  consisted
of interest  income on a mortgage  loan  receivable  secured by land  located in
Aurora, Colorado which originated on June 30, 1998.

Equity in Earnings of Associated  Companies.  Equity in earnings from Associated
Companies  decreased  $710,000,  or 53%, to $629,000  for the three months ended
September 30, 1998,  from  $1,339,000  for the three months ended  September 30,
1997. The decrease is primarily due to a decrease in earnings from GHG resulting
from the June 30, 1998 cancellation of GHG's hotel leases with the Company.  The
Company  cancelled the leases with GHG when it sold two of its hotels and leased
the other four hotels to another operator.  This decrease is partially offset by
transaction  fees  earned by GC  related  to the  disposition  of several of the
managed properties.

Reduction in Gain on Prior Quarter Sales of Rental Properties.  The reduction in
gain on prior  quarter sales of rental  properties of $238,000  during the three
months ended September 30, 1998,  consists of additional costs from the sales of
one multi-family property, two industrial properties, two office/flex properties
and two hotel properties from the Company's portfolio.  The reduction in gain on
prior  quarter  sales of rental  properties  of $15,000  during the three months
ended  September  30, 1997,  consists of  additional  costs from the sales of 15
retail properties from the Company's portfolio.

Property Operating Expenses.  Property operating expenses increased $17,209,000,
or 329%, to  $22,446,000  for the three months ended  September  30, 1998,  from
$5,237,000  for the three months ended  September  30, 1997.  Of this  increase,
$17,643,000  represents increases in property operating expenses attributable to
the 1997  Acquisitions  and the 1998  Acquisitions.  This  increase is partially
offset by  decreases  in property  operating  expenses  due to the 1997 and 1998
sales of properties.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $2,715,000,  or  413%,  to  $3,372,000  for the  three  months  ended
September 30, 1998, from $657,000 for the three months ended September 30, 1997.
The increase is primarily due to increased  salary and overhead costs  resulting
from the 1997 Acquisitions and 1998 Acquisitions.

Depreciation  and   Amortization.   Depreciation   and  amortization   increased
$9,486,000,  or 197%, to  $14,309,000  for the three months ended  September 30,
1998,  from  $4,823,000  for the three months  ended  September  30,  1997.  The
increase is primarily due to depreciation and  amortization  associated with the
1997 Acquisitions and 1998 Acquisitions.

Interest  Expense.   Interest  expense  increased   $14,448,000,   or  552%,  to
$17,064,000  for the three months ended  September 30, 1998, from $2,616,000 for
the three months ended September 30, 1997. Substantially all of the increase was
the result of higher average  borrowings during the three months ended September
30, 1998, as compared to the three months ended  September 30, 1997,  due to new
debt  and the  assumption  of debt  related  to the 1997  Acquisitions  and 1998
Acquisitions.

Net Income and Earnings Per Share (EPS).  Net income  increased  $5,612,000,  or
115%,  to  $10,510,000  for the three months  ended  September  30,  1998,  from
$4,898,000 for the three months ended  September 30, 1997.  However,  both Basic
EPS and  Diluted  EPS  decreased  $0.09 per share,  respectively,  for the three
months ended September 30, 1998, from the three months ended September 30, 1997.
The  decreases  in Basic and  Diluted  EPS are due to a  decrease  in Net Income
Available  to  Common  Stockholders  resulting  from the  dividends  payable  to
preferred  stockholders in 1998. There were no preferred stock dividends paid in
1997 as there was no preferred stock outstanding until January 1998.

Liquidity and Capital Resources

For the nine months  ended  September  30,  1998,  cash  provided  by  operating
activities  increased by  $49,365,000  to $66,677,000 as compared to $17,312,000
for the same period in 1997. The increase is primarily due to an increase



                                       25
<PAGE>

in netincome of $52,877,000  (before  depreciation  and  amortization,  minority
interest and net gain on sales of rental  properties  and collection of mortgage
loan receivable) due to the 1997 Acquisitions and 1998  Acquisitions.  Cash used
for investing  activities increased by $260,865,000 to $633,866,000 for the nine
months ended September 30, 1998, as compared to $373,001,000 for the same period
in 1997.  The increase is primarily due to the 1998  Acquisitions,  additions to
mortgage  loans  receivable and other  investments.  This increase was partially
offset by the collection of a mortgage loan  receivable in 1997 and the proceeds
from the  1998  sales of  properties.  Cash  provided  by  financing  activities
increased by $212,396,000  to  $569,500,000  for the nine months ended September
30, 1998, as compared to $357,104,000 for the same period in 1997. This increase
was  primarily  due to the  net  proceeds  from  the  January  1998  Convertible
Preferred Stock Offering (as defined  below),  the net proceeds from an issuance
of Notes (as defined  below) and the proceeds  from new debt.  This increase was
partially offset by increased  distributions  to stockholders  resulting from an
increase in the number of shares of common stock outstanding and the issuance of
preferred stock in January 1998.

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

The  Company's  principal  sources of  funding  for  acquisitions,  development,
expansion and renovation of properties  include an unsecured  Acquisition Credit
Facility,  permanent  secured debt financing,  public  unsecured debt financing,
public and private equity and debt issuances,  the issuance of partnership units
in the Operating Partnership and cash flow provided by operations.

Mortgage  loans payable  increased  from  $148,139,000  at December 31, 1997, to
$492,394,000  at September 30, 1998. This increase  primarily  resulted from the
assumption of mortgage loans totaling  $358,876,000  in connection with the 1998
Acquisitions  and new debt of $2,000,000.  These increases were partially offset
by the payoff of $12,854,000 of mortgage loans in connection  with 1998 sales of
properties  and scheduled  principal  payments of  $3,767,000 on other  mortgage
debt.

The Company has a $250,000,000 unsecured line of credit provided by a commercial
bank (the  "Acquisition  Credit  Facility").  Outstanding  borrowings  under the
Acquisition  Credit Facility increased from $80,160,000 at December 31, 1997, to
$145,140,000  at September 30, 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.  The $145,140,000 balance outstanding
at  September  30,  1998  consists  of draws for 1998  Acquisitions  and working
capital.  As of September  30, 1998,  borrowings  under the  Acquisition  Credit
Facility bear interest at an annual rate of LIBOR plus 1.25%.

In January 1998, the Company  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 Senior Notes (discussed below).

In March 1998,  the  Operating  Partnership,  as to which the Company is general
partner,  issued $150 million of unsecured 7 5/8% Series A Redeemable 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 Company 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 will be  



                                       26
<PAGE>


registered  under the  Securities  Act,  and  therefore  will not be  subject to
certain transfer restrictions,  registration rights and related special interest
provisions applicable to the Old Notes.

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

In October 1998,  the Company  obtained a $248.8 million loan from Goldman Sachs
Mortgage  Corporation  which has a term of ten years,  bears interest at a fixed
rate of 6.125% and is secured by 36 properties. The proceeds were used to retire
the Company's  $150 million  Bridge Loan maturing  December 31, 1998, to pay off
four mortgage loans and to pay down the Acquisition Credit Facility.

At September 30, 1998, the Company's total indebtedness included fixed-rate debt
of $522,318,000 (including $168,578,000 subject to cross-collateralization)  and
floating-rate  indebtedness of $412,926,000  (including  $115,286,000 subject to
cross-collateralization).  Approximately  43.5% of the  Company's  total assets,
comprising 84 properties, is encumbered by debt at September 30, 1998.

In January 1997 and May 1997,  the Company filed shelf  registration  statements
with the SEC to register $250 million and $350 million,  respectively, of equity
securities  of the  Company.  In  November  1997,  the  Company  filed  a  shelf
registration  statement  with the SEC to  register an  additional  $1 billion of
equity  securities  of  the  Company  (the  "November  1997  Shelf  Registration
Statement").  The  November  1997  Shelf  Registration  Statement  was  declared
effective  by the SEC on December 18, 1997.  After the  completion  of the March
1997, July 1997,  October 1997 and January 1998  Offerings,  the Company has the
capacity pursuant to the November 1997 Shelf Registration  Statement to issue up
to approximately $801.2 million in equity securities.

In January 1998, the Company completed a public offering of 11,500,000 shares of
7.75%  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 used to repay the  outstanding  balance under the Company's
Acquisition Credit Facility,  to fund certain subsequent  property  acquisitions
and for general  corporate  purposes.  The shares are convertible at any time at
the  option of the  holder  thereof  into  shares of Common  Stock at an initial
conversion price of $32.83 per share of Common Stock (equivalent to a conversion
rate of 0.7615  shares of Common  Stock for each  share of Series A  Convertible
Preferred Stock), subject to adjustment in certain circumstances.

The  Company  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 September 30, 1998, the Company has advanced  approximately $29
million.  Under these development  alliances,  the Company has certain rights to
purchase the properties upon completion of development and, thus,  through these
alliances,  the Company 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  Company  has loaned  approximately  $34  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  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  Company to  increase  rental  rates or other  charges to tenants in
response to rising prices and therefore,  serve to reduce the Company's exposure
to the adverse effects of inflation.




                                       27
<PAGE>

Funds from Operations and Cash Available for Distribution

Funds from Operations  ("FFO"),  as defined by NAREIT,  represents income (loss)
before  minority  interests and  extraordinary  items,  adjusted for real estate
related  depreciation  and  amortization and gains (losses) from the disposal of
properties.  The  Company  believes  that FFO is an  important  and widely  used
measure of the financial  performance  of equity REITs which provides a relevant
basis for comparison among other REITs. Together with net income and cash flows,
FFO provides  investors  with an  additional  basis to evaluate the ability of a
REIT to incur and service debt and to fund acquisitions,  developments and other
capital  expenditures.  FFO does not  represent  net  income or cash  flows from
operations as defined by GAAP, and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indicator of the Company's
operating  performance  or as an  alternative  to  cash  flows  from  operating,
investing and financing  activities  (determined  in accordance  with GAAP) as a
measure of liquidity.  FFO does not necessarily indicate that cash flows will be
sufficient  to  fund  all  of  the  Company's  cash  needs  including  principal
amortization,  capital improvements and distributions to stockholders.  Further,
FFO as  disclosed  by  other  REITs  may  not  be  comparable  to the  Company's
calculation  of FFO. The Company  calculates  FFO in  accordance  with the White
Paper on FFO approved by the Board of Governors of NAREIT in March 1995.

Cash Available for Distribution ("CAD") represents income (loss) before minority
interests and  extraordinary  items,  adjusted for depreciation and amortization
including  amortization of deferred  financing costs and gains (losses) from the
disposal  of  properties,   less  lease   commissions   and  recurring   capital
expenditures, consisting of tenant improvements and normal expenditures intended
to extend the useful life of the property  such as roof and parking lot repairs.
CAD  should  not be  considered  an  alternative  to  net  income  (computed  in
accordance with GAAP) as a measure of the Company's financial  performance or as
an alternative to cash flow from  operating  activities  (computed in accordance
with  GAAP) as a  measure  of the  Company's  liquidity,  nor is it  necessarily
indicative  of  sufficient  cash flow to fund all of the  Company's  cash needs.
Further,  CAD as disclosed by other REITs may not be comparable to the Company's
calculation of CAD.

The following table sets forth the Company's  calculation of FFO and CAD for the
three  months  ended March 31, June 30, and  September  30, 1998 (in  thousands,
except weighted average shares and per share amounts):
<TABLE>
<CAPTION>
                                                       March 31,         June 30,         September 30,          YTD
                                                          1998             1998               1998               1998
                                                      -------------    -------------     ----------------    -------------
<S>                                                   <C>              <C>               <C>                 <C>        
Net income before minority interest                   $    12,891      $    14,517       $      11,145       $    38,553
Preferred dividend requirement                             (3,910)          (5,570)             (5,570)          (15,050)
Net gain on sales of rental properties                     (1,446)            (693)                238            (1,901)
Depreciation and amortization                              10,009           10,934              14,309            35,252
Loss on sale of marketable securities (1)                      --               --                  12                12
Adjustment to reflect FFO of Associated Companies
                                                          (2) 210              173               1,163             1,546
                                                      -------------    -------------     ----------------    -------------

FFO                                                   $    17,754      $    19,361       $      21,297       $    58,412
                                                      =============    =============     ================    =============

Amortization of deferred financing fees                       418              174                 406               998
Capital reserve                                              (983)            (330)                (69)             (983)
Capital expenditures                                       (1,227)          (2,870)             (3,789)           (8,285)
                                                      -------------    -------------     ----------------    -------------

CAD                                                   $    15,962      $    16,335       $      17,845       $    50,142
                                                      =============    =============     ================    =============


Distributions per share (3)                           $      0.42      $      0.42       $        0.42       $      1.26
                                                      =============    =============     ================    =============


Diluted weighted average shares outst                  34,372,364        34,868,905          36,261,228        35,114,838
                                                      =============    =============     ================    =============
</TABLE>
(1) Loss on sale of  marketable  securities  is included in other income in
    the accompanying consolidated financial statements of the Company.

                                       28
<PAGE>


(2) Reflects  the  adjustments  to  FFO  required  to  reflect  the  FFO  of the
    Associated Companies allocable to the Company. The Company's  investments in
    the  Associated  Companies  are  accounted  for using the  equity  method of
    accounting.

(3) The  distributions  for the three months ended September 30, 1998, were paid
    on October 9, 1998.

Forward Looking Statements; Factors That May Affect Operating Results

This Report on Form 10-Q contains forward looking  statements within the meaning
of Section 27A of the  Securities  Act of 1933 and Section 21E of the Securities
and  Exchange  Act  of  1934,   including  statements  regarding  the  Company's
expectations,  hopes,  intentions,  beliefs and strategies  regarding the future
including the Company's anticipated timing of the sale of Shannon Crossing,  the
Company's  belief that cash  generated  by  operations  will be adequate to meet
operating requirements and to make distributions,  the Company's expectations as
to the  timing  of  the  completion  of the  development  projects  through  its
development alliances and the acquisition by the Company of properties developed
through its  development  alliances.  There can be no assurance  that the actual
outcomes  or  results  will  be  consistent  with  such   expectations,   hopes,
intentions,   beliefs  and  strategies.   Forward  looking   statements  include
statements  regarding  potential  acquisitions,  the anticipated  performance of
future  acquisitions,  recently completed  acquisitions and existing properties,
and statements regarding the Company's financing activities. All forward looking
statements  included in this document are based on information  available to the
Company on the date hereof.  It is important to note that the  Company's  actual
results  could  differ   materially   from  those  stated  or  implied  in  such
forward-looking statements.

Factors which may cause the Company's results to differ include the inability to
complete  anticipated  future  acquisitions,  defaults or non-renewal of leases,
increased  interest rates and  operational  costs,  failure to obtain  necessary
outside  financing,  difficulties  in  identifying  properties to acquire and in
effecting  acquisitions,  failure to qualify as a real estate  investment  trust
under the Internal  Revenue  Code of 1986,  environmental  uncertainties,  risks
related to natural  disasters,  financial market  fluctuations,  changes in real
estate and zoning laws,  increases in real  property tax rates and other factors
discussed under the caption "Forward Looking Statements; Factors That May Affect
Operating  Results" in the  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations"  section of the Company's  Annual Report on
Form 10-K for the year ended December 31, 1997, and other risk factors set forth
in the Company's other Securities and Exchange  Commission filings. In addition,
past performance of the Company's Common Stock is not necessarily  indicative of
results that will be obtained in the future from an  investment in the Company's
Common Stock.  Furthermore,  the Company makes distributions to stockholders if,
as and when  declared by its Board of  Directors,  and  expects to continue  its
policy of paying  quarterly  distributions,  however,  there can be no assurance
that distributions will continue or be paid at any specific level.

Impact of Year 2000 Compliance Costs on Operations

The  Company's  State of  Readiness.  The Company  utilizes a number of computer
software  programs  and  operating  systems  across  its  entire   organization,
including   applications   used  in  financial   business  systems  and  various
administrative functions. To the extent that the Company's 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
such  applications will be necessary.  The Company  currently  believes that its
"Year 2000" issues are limited to  information  technology  ("IT") systems (i.e.
software programs and computer operating  systems).  There are no non-IT systems
(i.e.  embedded  systems such as devices used to control,  monitor or assist the
operation  of  equipment  and  machinery),  the  failure  of which  would have a
material effect on the Company's operations.

The Company,  employing a team made up of internal  personnel  has completed its
identification  of IT  systems  that are not yet  Year  2000  compliant  and has
commenced modification or replacement of such systems as necessary.  The Company
is currently  communicating  with third  parties  with whom it does  significant
business,  such as  financial  institutions  and  vendors,  to  determine  their
readiness  for  Year  2000  compliance.  The  Company  has  also  completed  its
assessment  of the  Year  2000  compliance  issues  presented  by  its  hardware
components.




                                       29
<PAGE>



Costs of Addressing the Company's Year 2000 Issues.  Given the information known
at this time about the Company's  systems that are  non-compliant,  coupled with
the Company's ongoing, normal  course-of-business  efforts to upgrade or replace
critical systems, as necessary,  management does not expect Year 2000 compliance
costs to have any material adverse impact on the Company's  liquidity or ongoing
results of operations. The costs of such assessment and remediation will be paid
out of the Company's general and administrative expenses.

Risks of the Company's  Year 2000 Issues.  In light of the Company's  assessment
and  remediation  efforts to date,  and the planned,  normal  course-of-business
upgrades,  management  believes  that any residual  Year 2000 risk is limited to
non-critical  business  applications and support  hardware.  No assurance can be
given, however, that all of the Company's systems will be Year 2000 compliant or
that compliance will not have a material  adverse effect on the Company's future
liquidity or results of operations or ability to service debt.

The  Company's  Contingency  Plan.  The  Company  is  currently  developing  its
contingency plan for all operations to address the most reasonable  likely worst
case  scenarios   regarding  Year  2000  compliance.   Management  expects  such
contingency plan to be completed by the end of the year. Risk Factors

Stockholders or potential stockholders should read the "Risk Factors" section of
the Company's  latest annual report on Form 10-K/A filed with the Securities and
Exchange  Commission  ("SEC") in conjunction  with this quarterly report on Form
10-Q to better  understand  the  factors  affecting  the  Company's  results  of
operations and the Company's common stock share price. The fact that some of the
risk factors may be the same or similar to the Company's past filings means only
that the risks are present in multiple  periods.  The Company believes that many
of the risks  detailed here and in the  Company's  other SEC filings are part of
doing  business  in the real estate  industry  and will likely be present in all
periods  reported.  The fact that certain risks are endemic to the industry does
not lessen the significance of the risk.
















                                       30
<PAGE>
PART II. OTHER INFORMATION

Item 1.       Legal Proceedings

Blumberg.  On February 17, 1998, the California  state court of appeals affirmed
the Company's  settlement of a class action complaint filed on February 21, 1995
in the Superior  Court of the State of California in and for San Mateo County in
connection  with the  Consolidation.  The plaintiff 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  (formerly   known  as  Glenborough   Realty   Corporation),
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 GC was excessive and was done without appraisal of
GC'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.

                                       31
<PAGE>

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  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 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 Company in its normal
course of  business.  The Company  believes  that such other claims and lawsuits
will not have a material  adverse  effect on the Company's  financial  position,
cash flow or results of operations.

Item 2.  Changes in Securities

(a)   Rights of Holders of Registered Securities

On July 7, 1998, the Company's Board of Directors  adopted a Stockholder  Rights
Plan and pursuant  thereto  declared a dividend of one preferred  share purchase
right for each  outstanding  share of the  Company's  Common  Stock.  A Form 8-A
relating to such plan was filed with the Securities  and Exchange  Commission on
July 16, 1998. Said Form 8-A is incorporated herein by reference.

(c)   Sales of Unregistered Securities

In February  1998,  the Company  acquired  the  Capitol  Center  property in Des
Moines,  Iowa, for a total acquisition  cost,  including  capitalized  costs, of
approximately  $12.3 million.  In connection with this acquisition,  Glenborough
Properties, L.P., a California limited partnership (the "Operating Partnership,"
as  to  which  the  Company  is  general  partner),  issued  to  Hubbell  Realty
Corporation, the seller of the Capitol Center Property, 3,874 units ("Units") of
partnership  interest in Glenborough  Properties,  L.P. (with an agreed upon per
Unit value of $30.00,  or an aggregate value of $116,000) as partial payment for
the Capitol  Center  Property.  The Units are  redeemable  for cash,  or, at the
election  of the  Company,  for  shares  of  Common  Stock of the  Company  on a
one-for-one  basis.  The Units  were  issued  by the  Operating  Partnership  in
reliance on the  exemption  provided by Section  4(2) of the  Securities  Act of
1933, as amended.

In April 1998,  the Company  acquired the Eaton & Lauth  portfolio of properties
for a total  acquisition  cost,  including  capitalized  costs, of approximately
$68.7  million.  In  connection  with  this  acquisition,  the  Company  and the
Operating  Partnership issued approximately $15.9 million in the form of 506,788
partnership units in the Operating  Partnership and 126,764  unregistered shares
of Common Stock of the Company  (based on an agreed



                                       32
<PAGE>

per unit and per share valueof  $25.00) as partial payment for the Eaton & Lauth
portfolio.  The  Units are  redeemable  for cash,  or,  at the  election  of the
Company,  for shares of Common Stock of the Company on a one-for-one  basis. The
Units and shares were  issued by the  Operating  Partnership  and the Company in
reliance on the  exemption  provided by Section  4(2) of the  Securities  Act of
1933, as amended.

In June 1998, the Company acquired the Covance Property for a total  acquisition
cost, including capitalized costs, of approximately $16.5 million. In connection
with  this  acquisition,  the  Company  and  the  Operating  Partnership  issued
approximately  $4  million  in the  form of  161,492  partnership  units  in the
Operating  Partnership  and 8,802  unregistered  shares  of Common  Stock of the
Company  (based on an agreed per unit and per share  value of $25.00) as partial
payment for the Covance Property.  The Units are redeemable for cash, or, at the
election  of the  Company,  for  shares  of  Common  Stock of the  Company  on a
one-for-one basis. The Units and shares were issued by the Operating Partnership
and the  Company in reliance on the  exemption  provided by Section  4(2) of the
Securities Act of 1933, as amended.

In June 1998, the Company acquired the Galesi Portfolio for a total  acquisition
cost,   including   capitalized  costs,  of  approximately  $275.8  million.  In
connection with this acquisition, the Operating Partnership issued approximately
$21.2  million  in the  form  of  806,393  partnership  units  in the  Operating
Partnership  (based on an agreed per unit value of $26.2315) as partial  payment
for the Galesi Portfolio. The Units are redeemable for cash, or, at the election
of the  Company,  for shares of Common  Stock of the  Company  on a  one-for-one
basis.  The Units were issued by the  Operating  Partnership  in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933, as amended.

In July 1998, the Company  acquired the Pauls Portfolio for a total  acquisition
cost, including capitalized costs, of approximately $54.9 million. In connection
with this acquisition,  the Operating  Partnership  issued  approximately  $11.3
million in the form of 423,843  partnership  units in the Operating  Partnership
(based on an agreed per unit value of $26.556) as partial  payment for the Pauls
Portfolio.  The  Units are  redeemable  for cash,  or,  at the  election  of the
Company,  for shares of Common Stock of the Company on a one-for-one  basis. The
Units were issued by the  Operating  Partnership  in  reliance on the  exemption
provided by Section 4(2) of the Securities Act of 1933, as amended.

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

There were no matters submitted to a vote of security holders during the quarter
ended September 30, 1998.

Item 5:  Other Information

Any  stockholder  proposal  submitted  with respect to the Company's 1999 Annual
Meeting of Stockholders, which proposal is submitted outside the requirements of
Rule  14a-8  under  the  Securities  Exchange  Act of 1934,  will be  considered
untimely for  purposes of Rule 14a-4 and 14a-5 if notice  thereof is received by
the Company after March 1, 1999.











                                       33
<PAGE>




Item 6.           Exhibits and Reports on Form 8-K

         (a)      Exhibits:

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

         (b)      Reports on Form 8-K:

                  On July 10, 1998,  the Company filed a report on Form 8-K with
                  respect to its adoption of a stockholder rights plan.

                  On July 15, 1998,  the Company filed a report on Form 8-K with
                  respect  to the  acquisition  of  the  Galesi  Portfolio,  the
                  Donau/Gruppe Portfolio,  the Pauls Portfolio and One and Three
                  Pacific and the Bridge Loan.

                  On July 22, 1998,  the Company filed a report on Form 8-K with
                  respect to Supplemental Information as of June 30, 1998.

                  On August 13, 1998,  the Company  filed a report on Form 8-K/A
                  amending the Form 8-K filed on July 15, 1998.

                  On September  10, 1998,  the Company filed two reports on Form
                  8-K/A amending reports on Form 8-K filed on April 29, 1998 and
                  May 15, 1998, respectively.

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


















                                       34
<PAGE>

                                   SIGNATURES

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


                      GLENBOROUGH REALTY TRUST INCORPORATED




                           By: Glenborough Realty Trust Incorporated,



      Date:  November 13, 1998                 _____________________________
                                               Andrew Batinovich
                                               Director, President
                                               and Chief Operating Officer
                                               (Principal Operating Officer)





      Date: November 13, 1998                  _____________________________
                                               Stephen Saul
                                               Executive Vice President
                                               and Chief Financial Officer
                                               (Principal Financial Officer)





      Date: November 13, 1998                  ______________________________
                                               Terri Garnick
                                               Senior Vice President,
                                               Chief Accounting Officer,
                                               Treasurer
                                               (Principal Accounting Officer)






                                       35
<PAGE>


                                  EXHIBIT INDEX



Exhibit No.                        Exhibit Title
            --------------------------------------------------------------------

11.1        Statement re:  Computation of Per Share Earnings is shown in Note
            9 of the Consolidated Financial Statements of the Company in Item 1.

12.1        Computation of Ratios.

27.1        Financial Data Schedule.





                                       36
<PAGE>
Exhibit 12.1

GLENBOROUGH REALTY TRUST  INCORPORATED 
Computation of Ratios
For the five years ended December 31, 1997
and the three months ended March 31, June 30, and September 30, 1998

                                             GRT Predecessor Entities, 
                                                       Combined
                                             ---------------------------------- 
                                                    Year Ended December 31,     
                                             -----------------------------------
                                               1993         1994         1995   
                                             ----------   ----------   -------- 
EARNINGS, AS DEFINED

Net Income (Loss) before Preferred
   Dividends                                    4,418        1,580           524
Extraordinary and non-recurring items          (2,274)          --            --
Federal & State income taxes                       24          176           357
Minority Interest                                   5           43            --
Fixed Charges                                   1,301        1,140         2,129
                                             ----------   ----------   ---------
                                                3,474        2,939         3,010
                                             ----------   ----------   ---------
FIXED CHARGES AND PREFERRED DIVIDENDS, AS
   DEFINED

Interest Expense                                1,301        1,140         2,129
Capitalized Interest                               --           --            --
Preferred Dividends                                --           --            --
                                             ----------   ----------   ---------
                                                1,301        1,140         2,129
RATIO OF EARNINGS TO FIXED CHARGES               2.67         2.58          1.41
                                             ----------   ----------   ---------

RATIO OF EARNINGS TO FIXED CHARGES AND
   PREFERRED DIVIDENDS
                                                 2.67         2.58          1.41
                                             ----------   ----------   ---------
<TABLE>
<CAPTION>
                                                                                 The Company                                      
                                             ------------------------------------------------------------------------------------ 
                                                                        Three Months      Three          Three       Nine Months  
                                                                                         Months         Months                    
                                                                        Ended March    Ended June        Ended          Ended     
                                                                            31,            30,         September      September   
                                              Year Ended December 31,                                     30,            30,      
                                             -------------------------  ------------   ------------   ------------  ------------- 
                                                1996          1997          1998          1998           1998           1998      
                                             -----------   -----------  -------------  ------------   ------------  ------------- 
EARNINGS, AS DEFINED                                                                                                              
                                                                                                                                  
Net Income (Loss) before Preferred                                                                                                
<S>                                             <C>           <C>           <C>            <C>            <C>            <C>      
   Dividends                                    (1,609)       19,368        12,213         13,921         10,510         36,644   
Extraordinary and non-recurring items              186           843            --             --             --             --   
Federal & State income taxes                        --            --            --             --             --             --   
Minority Interest                                  292         1,119           678            596            635          1,909   
Fixed Charges                                    3,913         9,668         9,145          9,707         17,064         35,916   
                                             -----------   -----------  -------------  ------------   ------------   ------------ 
                                                                                                                                  
                                                 2,782        30,998        22,036         24,224         28,209         74,469   
                                             -----------   -----------  -------------  ------------   ------------   ------------ 
                                                                                                                                  
FIXED CHARGES AND PREFERRED DIVIDENDS, AS                                                                                         
   DEFINED                                                                                                                        
                                                                                                                                  
Interest Expense                                 3,913         9,668         9,145          9,707         17,064         35,916   
Capitalized Interest                                --            --            --            131            593            724   
Preferred Dividends                                 --            --         3,910          5,570          5,570         15,050   
                                             -----------   -----------  -------------  ------------   ------------   ------------ 
                                                 3,913         9,668        13,055         15,408         23,227         51,690   
RATIO OF EARNINGS TO FIXED CHARGES                0.71  (1)     3.21          2.41           2.46           1.60           2.03    
                                             -----------   -----------  -------------  ------------   ------------   ------------ 
RATIO OF EARNINGS TO FIXED CHARGES AND                                                                                            
   PREFERRED DIVIDENDS                                                                                                            
                                                  0.71  (1)     3.21          1.69           1.57           1.21           1.44    
                                             -----------   -----------  -------------  ------------   ------------   ------------ 
</TABLE>

(1) For the twelve months ended December 31, 1996, earnings were insufficient to
cover fixed charges and fixed charges plus preferred dividends by $1,131.


                                     37