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 March 31, 1997

                                       OR

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

                         Commission File Number: 1-14162


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

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

            400 South El Camino Real,
        Suite 1100 San Mateo, California
                 (415) 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

        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 May 15,  1997,  13,194,692  shares of Common  Stock ($.001 par value) were
outstanding.



                                  Page 1 of 35
<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, 1996):

               Consolidated Balance Sheets at March 31, 1997 and
               December 31, 1996                                               4

               Consolidated Statements of Operations for the three months
               ended March 31, 1997 and 1996                                   5

               Consolidated Statements of Stockholders' Equity for the
               three months ended March 31, 1997 and 1996                      6

               Consolidated Statements of Cash Flows for the three months
               ended March 31, 1997 and 1996                                 7-8

               Notes to Consolidated Financial Statements                   9-16

            Consolidated Financial Statements of Glenborough Hotel Group
            (Unaudited):


               Consolidated Balance Sheets at March 31, 1997 and 1996         17

               Consolidated Statements of Income for the three months
               ended March 31, 1997 and 1996                                  18

               Consolidated Statements of Stockholders' Equity for the
               three months ended March 31, 1997 and 1996                     19

               Consolidated Statements of Cash Flows for the three months
               ended March 31, 1997 and 1996                                  20

               Notes to Consolidated Financial Statements                  21-23

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

               Glenborough Realty Trust Incorporated                       24-28

               Glenborough Hotel Group                                     29-30



                                  Page 2 of 35
<PAGE>

PART II     OTHER INFORMATION

Item 1.     Legal Proceedings                                              31-32

Item 6.     Exhibits and Reports on Form 8-K                                  33

SIGNATURES                                                                    34

EXHIBIT INDEX                                                                 35


                                  Page 3 of 35
<PAGE>

Part I.     FINANCIAL INFORMATION

Item 1.     Financial Statements
<TABLE>
<CAPTION>

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

                                                                               March 31,           December 31,
                                                                                 1997                  1996
                                                                             (Unaudited)            (Audited)
                                                                            --------------         -------------
ASSETS
     <S>                                                                    <C>                    <C>
     Rental property, net of accumulated depreciation of
       $30,251 and $28,784 in 1997 and 1996, respectively                   $    173,316           $    161,945
     Investments in Associated Companies and Glenborough
       Partners                                                                    6,864                  7,350
     Investment in management contract, net                                          289                    322
     Mortgage loans receivable, net of provision for loss of
       $863 in 1996                                                                3,454                  9,905
     Cash and cash equivalents                                                    42,603                  1,355
     Other assets                                                                  7,916                  4,643
                                                                            -------------          -------------

         TOTAL ASSETS                                                       $    234,442           $    185,520
                                                                            =============          =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
     Mortgage loans                                                         $     59,007           $     54,584
     Secured bank line                                                                 -                 21,307
     Other liabilities                                                             3,353                  3,198
                                                                            -------------          -------------
       Total liabilities                                                          62,360                 79,089
                                                                            -------------          -------------

Minority interest                                                                  8,856                  8,831

Stockholders' Equity:
     Common stock, 13,161,553 and 9,661,553 shares issued
       and outstanding at March 31, 1997, and
       December 31, 1996, respectively                                                13                     10
     Additional paid-in capital                                                  172,257                105,952
     Deferred compensation                                                          (352)                  (399)
     Retained earnings (deficit)                                                  (8,692)                (7,963)
                                                                            -------------          -------------
       Total stockholders' equity                                                163,226                 97,600
                                                                            -------------          -------------

           TOTAL LIABILITIES AND STOCKHOLDERS'
              EQUITY                                                        $    234,442           $    185,520
                                                                            =============          =============
</TABLE>
          See accompanying notes to consolidated financial statements


                                  Page 4 of 35
<PAGE>

<TABLE>
<CAPTION>

                                       GLENBOROUGH REALTY TRUST INCORPORATED
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                 For the three months ended March 31, 1997 and 1996
                                      (in thousands, except per share amounts)
                                                    (Unaudited)

                                                                                1997                        1996
                                                                           --------------              -------------
REVENUE
<S>                                                                        <C>                         <C>         
     Rental revenue                                                        $       7,907               $      3,589
     Fees and reimbursements from affiliate                                          187                         66
     Interest and other income                                                       344                        191
     Equity in earnings of Associated Companies                                      145                        425
     Gain on collection of mortgage loan receivable                                  154                          -
                                                                           -------------               ------------
       Total revenue                                                               8,737                      4,271
                                                                           -------------               ------------

EXPENSES
     Property operating expenses                                                   2,382                      1,017
     General and administrative                                                      651                        281
     Depreciation and amortization                                                 1,537                        897
     Interest expense                                                              1,573                        722
     Consolidation costs                                                               -                      6,082
     Litigation costs                                                                  -                      1,155
                                                                           --------------             -------------
       Total expenses                                                              6,143                     10,154
                                                                           -------------              -------------

Income (loss) from operations before minority interest                             2,594                     (5,883)

Minority interest                                                                   (231)                      (101)
                                                                           -------------              -------------
Net income (loss)                                                          $       2,363               $     (5,984)
                                                                           =============              =============
Primary earnings per share                                                 $        0.23               $      (1.04)
                                                                           =============              =============
Primary weighted average shares outstanding                                   10,256,129                  5,753,709
                                                                           =============              =============
</TABLE>

          See accompanying notes to consolidated financial statements



                                  Page 5 of 35
<PAGE>

<TABLE>
<CAPTION>

                                               GLENBOROUGH REALTY TRUST INCORPORATED
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                         For the three months ended March 31, 1997 and 1996
                                                           (in thousands)
                                                            (Unaudited)




                                                    Common Stock           Additional       Deferred       Retained
                                                               Par           Paid-in         Compen-       Earnings
                                                 Shares       Value          Capital         sation        (Deficit)       Total
                                              ------------- ------------- -------------- -------------- ------------- ------------

<S>                                                <C>     <C>          <C>              <C>           <C>           <C>        
Balance at December 31, 1996                       9,662   $       10   $    105,952     $     (399)   $   (7,963)   $    97,600

Issuance of common stock, net of offering
    costs of $4,567                                3,500            3         66,305              -             -         66,308

Amortization of deferred compensation                  -            -              -             47             -             47

Distributions                                          -            -              -              -        (3,092)        (3,092)

Net income                                             -            -              -              -         2,363          2,363
                                              -----------------------------------------------------------------------------------

Balance at March 31, 1997                         13,162   $       13   $    172,257     $     (352)   $   (8,692)   $   163,226
                                              ===================================================================================
</TABLE>
<TABLE>
<CAPTION>



                                                    Common Stock          Additional      Deferred        Retained
                                                               Par         Paid-in         Compen-        Earnings
                                                 Shares       Value        Capital         sation         (Deficit)       Total
                                              -----------------------------------------------------------------------------------

<S>                                                <C>     <C>          <C>            <C>             <C>          <C>        
Balance at December 31, 1995                       5,754   $        6   $     55,622   $          -    $    (7,963) $    55,628

Net loss                                               -            -              -              -         (5,984)      (5,984)
                                              -----------------------------------------------------------------------------------

Balance at March 31, 1996                          5,754   $        6   $     55,622   $          -    $    (5,984) $    49,644
                                              ===================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements


                                  Page 6 of 35
<PAGE>

<TABLE>
<CAPTION>

                                       GLENBOROUGH REALTY TRUST INCORPORATED
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 For the three months ended March 31, 1997 and 1996
                                                   (in thousands)
                                                    (Unaudited)


                                                                            1997                         1996
                                                                       --------------              --------------
Cash flows from operating activities:
<S>                                                                    <C>                         <C>            
     Net income (loss)                                                 $        2,363              $       (5,984)
     Adjustments to reconcile net income (loss)
       to net cash provided by (used for) operating
       activities:
         Depreciation and amortization                                          1,537                         897
         Amortization of loan fees, included in
           interest expense                                                        64                          36
         Minority interest in income from operations                              231                         101
         Equity in earnings of Associated
           Companies                                                             (145)                       (425)
         Gain on collection of mortgage loan receivable                          (154)                          -
         Amortization of deferred compensation                                     47                           -
         Consolidation costs                                                        -                       6,082
         Litigation costs                                                           -                       1,155
         Changes in certain assets and liabilities, net                        (3,219)                     (2,169)
                                                                       --------------             ---------------

           Net cash provided by (used for) operating
                activities                                                        724                        (307)
                                                                       --------------             ---------------

Cash flows from investing activities:
     Additions to rental property                                              (8,226)                        (27)
     Additions to mortgage loans receivable                                      (250)                          -
     Principal receipts on mortgage loans receivable                            6,855                          14
     Investments in Associated Companies                                            -                        (389)
     Distributions from Associated Companies and
         Glenborough Partners                                                     631                           -
                                                                       --------------             ---------------

           Net cash used for investing activities                                (990)                       (402)
                                                                       --------------             ---------------








                                                     continued

                            See accompanying notes to consolidated financial statements
</TABLE>



                                  Page 7 of 35
<PAGE>

<TABLE>
<CAPTION>

                                       GLENBOROUGH REALTY TRUST INCORPORATED
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS -continued
                                 For the three months ended March 31, 1997 and 1996
                                                   (in thousands)
                                                    (Unaudited)


                                                                            1997                       1996
                                                                       -------------             --------------
Cash flows from financing activities:
<S>                                                                    <C>                        <C>          
     Proceeds from borrowings                                          $      10,700              $           -
     Repayment of borrowings                                                 (32,196)                       (69)
     Payment of investor notes                                                     -                     (2,483)
     Distributions to minority interest holders                                 (206)                         -
     Distributions                                                            (3,092)                         -
     Proceeds from issuance of stock, net of offering costs
                                                                              66,308                          -
                                                                       -------------             --------------

         Net cash provided by (used for) financing
           activities                                                         41,514                     (2,552)
                                                                       -------------             --------------

Net increase (decrease) in cash and cash equivalents                          41,248                     (3,261)

Cash and cash equivalents at beginning of period                               1,355                      4,587
                                                                       -------------             --------------

Cash and cash equivalents at end of period                             $      42,603              $       1,326
                                                                       =============             ==============

Supplemental disclosure of cash flow information:

     Cash paid for interest                                            $       1,467              $         509
                                                                       =============             ==============

Supplemental disclosure of Non-Cash Investing and Financing
     Activities:

     Acquisition of real estate through assumption of first
         trust deed note payable                                       $       4,612              $           -
                                                                       =============             ==============

                            See accompanying notes to consolidated financial statements
</TABLE>


                                  Page 8 of 35
<PAGE>

                      GLENBOROUGH REALTY TRUST INCORPORATED

                   Notes to Consolidated Financial Statements
                                 March 31, 1997


Note 1.      ORGANIZATION

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

Subsequent  to the  Consolidation  on December 31, 1995,  and through  March 31,
1997, the following  Common Stock  transactions  occurred:  (i) 35,000 shares of
Common Stock were issued to officers and directors as stock  compensation;  (ii)
3,666,000  shares were issued in a public equity offering in October 1996; (iii)
206,844  shares were issued in connection  with the  acquisition  of the TRP and
Carlsberg  Properties;  and (iv) 3,500,000 shares were issued in a public equity
offering in March 1997,  resulting  in total  shares of Common  Stock issued and
outstanding  at March 31, 1997,  of  13,161,553.  In addition,  fully  converted
shares issued and outstanding  (including  644,120 Operating  Partnership Units)
totaled 13,805,673 at March 31, 1997.

To maintain the Company's  qualification as a REIT, no more than 50% in value of
the outstanding shares of the Company may be owned,  directly or indirectly,  by
five or fewer  individuals  (defined  to  include  certain  entities),  applying
certain  constructive  ownership rules. To help ensure that the Company will not
fail this test,  the Company's  Articles of  Incorporation  provides 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 a
93.32% limited partner interest, is Glenborough Properties, L.P. (the "Operating
Partnership").  As of March 31, 1997,  the Operating  Partnership,  directly and
through  various  subsidiaries  in  which  it and the  Company  own  100% of the
ownership interests,  controls a total of 55 real estate projects and 2 mortgage
loans receivable.

The Company also holds 100% of the non-voting  preferred  stock of the following
three Associated Companies (the "Associated Companies"):

     Glenborough  Corporation (formerly known as Glenborough Realty Corporation)
     ("GC") is the general partner of eight  partnerships and provides asset and
     property  management services for these eight partnerships (the "Controlled
     Partnerships"). It also provides property management services for a limited
     portfolio of property owned by unaffiliated third parties.

     Glenborough  Inland  Realty  Corporation   ("GIRC")  provides   partnership
     administration,  asset  management,  property  management  and  development
     services under a long term contract to an additional  group of unaffiliated
     partnerships which include six public partnerships.

     Glenborough  Hotel Group ("GHG")  leases the five Country Suites By Carlson
     hotels owned by the Company and operates them for its own account.  It also
     operates  two  Country  Suites By Carlson  hotels  owned by the  Controlled
     Partnerships, and two resort condominium hotels.

Note 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis  of  Presentation
The  accompanying   financial  statements  present  the  consolidated  financial
position of the Company as of March 31, 1997,  and  December  31, 1996,  and the
consolidated results of operations and cash flows of the Company for the

                                  Page 9 of 35
<PAGE>

three  months  ended March 31,  1997 and 1996.  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 March 31, 1997, and for the period then ended.

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.

Investments  in Real Estate
In March 1995,  the Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for Impairment of
Long-Lived  Assets and Long-Lived Assets to be Disposed Of." The Company adopted
SFAS 121 in the fourth quarter of 1995.  SFAS 121 requires that an evaluation of
an individual  property for possible  impairment be performed whenever events or
changes in  circumstances  indicate that an impairment may have occurred.  There
was no impact from the initial adoption of SFAS 121.

Rental Property
Rental  properties  are stated at cost unless  circumstances  indicate that cost
cannot be  recovered,  in which  case,  the  carrying  value of the  property is
reduced to estimated  fair value.  Estimated  fair value:  (i) is based upon the
Company's plans for the continued  operation of each property;  (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,  and (iii) does not purport, for a specific property, to represent the
current  sales price that the Company  could obtain from third  parties for such
property.  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.

Investment in Management Contract
Investment  in  management  contract is recorded at cost and is  amortized  on a
straight-line basis over the term of the contract.

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

                                 Page 10 of 35
<PAGE>

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.

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.

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

Minority Interest
Minority  interest  represents  the  5.68%  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 leases.

For the three months ended March 31, 1997, 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,
refinance, leasing and construction supervision of real estate.

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.

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

Earnings Per Share
In March 1997,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  No. 128 (SFAS No. 128),  "Earnings Per Share."
SFAS No. 128 requires the  disclosure  of basic  earnings per share and

                                 Page 11 of 35
<PAGE>

modifies existing guidance for computing fully 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, and early adoption is not permitted.  The Company  intends to
adopt SFAS No. 128 during the quarter and year ended  December 31, 1997. Had the
provisions of SFAS No. 128 been applied to the  Company's  results of operations
for the quarters ended March 31, 1997 and 1996, the Company's basic earnings per
share would not have been materially different than amounts already reported.

Reference to 1996 Audited Financial Statements
These  unaudited  financial  statements  should be read in conjunction  with the
Notes  to  Consolidated  Financial  Statements  included  in  the  1996  audited
financial statements.

Note 3.      RENTAL PROPERTY

In  February  1997,  the  Company  acquired  a  163-suite  hotel  Property  (the
"Scottsdale  Hotel"),  which began  operations in January 1996 and is located in
Scottsdale,  Arizona. The total acquisition cost,  including  capitalized costs,
was approximately  $12.1 million,  which consisted of approximately $4.6 million
of mortgage debt assumed, and the balance in cash. The cash portion was financed
through  advances  under  the  Company's  Line of  Credit.  As with  four of the
Company's other hotel Properties,  the Scottsdale Hotel is marketed as a Country
Suites by Carlson.

Note 4.      INVESTMENTS IN ASSOCIATED COMPANIES AND GLENBOROUGH PARTNERS

The Company's  investments in the  Associated  Companies are accounted for using
the equity method as the Company has significant ownership interests through its
100%  preferred  stock  ownership  but does not own any  voting  interests.  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.

The Company's  investment in Glenborough  Partners ("GP") is accounted for using
the cost method as the Company holds only a 3.97% limited partner interest.

As of  March  31,  1997,  the  Company  had  the  following  investments  in the
Associated Companies and GP (in thousands):
<TABLE>
<CAPTION>

                                              GC           GIRC            GHG          GP         Total
                                           ------          -----          -----        ----        -----
<S>                                     <C>            <C>            <C>         <C>          <C>      
Investment at December 31, 1996         $   1,386      $   3,875      $   1,504   $     585    $   7,350

Distributions                                (200)          (403)           (16)        (12)        (631)

Equity in earnings (loss)                    (111)           120            136           -          145
                                           ------          -----          -----        ----        -----
Investment at March 31, 1997            $   1,075      $   3,592      $   1,624   $     573    $   6,864
                                           ======          =====          =====        ====        =====
</TABLE>

Note 5.      INVESTMENT IN MANAGEMENT CONTRACT, NET

Investment in management  contract included in the Company's balance sheet as of
March 31,  1997,  represents  the  unamortized  portion of the asset  management
agreement for the Glenborough Institutional Fund I partnership.  The contract is
being amortized on a straight-line basis over eleven years.

Note 6.      MORTGAGE LOANS RECEIVABLE

The Company held a first  mortgage  loan with a principal  balance of $7,563,000
and a carrying  value of $6,700,000  at December 31, 1996,  secured by an office
and research complex in Eatontown, New Jersey. The loan had an

                                 Page 12 of 35
<PAGE>

original maturity date of November 1, 1996 with interest only payable monthly at
the fixed rate of eight percent (8%) per annum.  In 1995, due to the uncertainty
surrounding  the  borrower's  ability  to payoff  the note  receivable  upon its
November 1996 maturity,  the Company  recorded a $863,000 loss provision on this
mortgage  loan  receivable to reduce its carrying  value to the  estimated  fair
value of the underlying  property.  The terms of the note were  renegotiated  in
December 1996 with the maturity date extended to February 1, 1997.  The interest
rate continued at 8% per annum. The borrower had the right to payoff the loan at
a discount between January 10 and January 31, 1997. The discounted payoff was i)
$6,863,000  in cash and ii) a note for  $500,000  payable  over a term of twelve
years at six percent (6%) interest  amortized over twenty-five years. On January
28,  1997,  the  borrower  paid  off the  note at the  above  discounted  terms,
resulting in a gain to the Company of $154,000  ($163,000 net of $9,000 in legal
costs) which has been  recognized  in the  Company's  Consolidated  Statement of
Operations  for the three  months  ended March 31,  1997.  The  additional  gain
associated  with the $500,000  note  receivable  will be recorded as income when
cash is received.  As of March 31, 1997, the balance of the new note  receivable
was  $498,553.  As this  new  note  receivable  is not  secured  by the  Hovpark
property,  it is included in Other Assets in the Company's  Consolidated Balance
Sheet as of March 31, 1997.

At March 31,  1997,  the  Company  held a first  mortgage  loan in the amount of
$511,000 secured by an industrial property in Los Angeles, California. The terms
of the note include  interest  accruing at eight  percent (8%) per annum for the
first  twenty-four  months  (ended June 1996) and at nine percent (9%) per annum
for the next sixty months until the note matures in June 2001.  Monthly payments
of  principal  and  interest,  computed  based  on a  thirty  year  amortization
schedule, commenced January 1995 and continue until maturity.

In 1996,  the  Operating  Partnership  entered into a Loan  Agreement and Option
Agreement with Carlsberg Properties,  LTD. ("the Borrower"). The loan amount was
$3,600,000,  of which  $2,694,000  was  initially  disbursed to the Borrower and
$906,000 was held by the Operating Partnership as leasing and interest reserves.
During  the three  months  ended  March 31,  1997,  $249,000  of  reserves  were
disbursed to the borrower which resulted in an outstanding  balance at March 31,
1997,  of  $2,943,000.  The loan is  secured  by a 48,000  square  foot  medical
building in Phoenix,  Arizona (the "Grunow  Building"),  and matures on November
19, 1999, with interest only payable monthly at the fixed rate of eleven percent
(11%) per annum  calculated on the full amount of the loan. The Option Agreement
provides the Operating Partnership the option to purchase the Grunow Building on
either the second or third anniversary of the closing date of November 19, 1996,
for the greater of i) the then  outstanding loan balance plus $50,000 or ii) the
value of the Secured Property as defined in the Option Agreement.

Note 7.      SECURED LIABILITIES

The Company had the  following  mortgage  loans,  bank lines,  and notes payable
outstanding as of March 31, 1997, and December 31, 1996 (in thousands):

                                                            1997         1996
                                                         ----------   ----------

Secured$50,000,000  line  of  credit  with a bank  with
variable  interest rates of LIBOR plus 2.375% and prime
rate plus 0.50% (7.88% and 9.00%, respectively at March
31,  1997),   monthly  interest  only  payments  and  a
maturity  date of July  14,  1998,  with an  option  to
extend for 10  years.The  line is  secured by  nineteen
properties  with an  aggregate  net  carrying  value of
$60,286 and $67,118 at March 31, 1997, and December 31,
1996, respectively.                                       $      -      $ 21,307

Secured loan with a bank with variable  interest  rates
of LIBOR plus  2.375% and prime rate plus 0.50%  (7.88%
and 9.00%,  respectively  at March 31,  1997),  monthly
interest  only payments and a maturity date of July 14,
1998.  The loan is  secured by ten  properties  with an
aggregate  net  carrying  value of $8,050 and $8,112 at
March 31, 1997,  and  December 31, 1996,  respectively.      6,120         6,120

                                 Page 13 of 35
<PAGE>

                                                            1997         1996
                                                         ----------   ----------

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 $38,913 and  $39,298 at March 31, 1997 and  December
31, 1996, respectively.                                   $ 19,671      $ 19,744

Secured loans with various lenders, bearing interest at
fixed  rates  between  7.75% and  9.25%,  with  monthly
principal and interest payments ranging between $13 and
$62 and maturing at various  dates  through  January 1,
2006.  These  loans are secured by  properties  with an
aggregate net carrying  value of $30,316 and $30,441 at
March 31, 1997,  and  December 31, 1996,  respectively.     17,523        17,581

Secured loans with various banks,  bearing  interest at
variable  rates  (ranging  between  7.87%  and 8.18% at
March  31,  1997),   monthly   principal  and  interest
payments  ranging  between $15 and $46 and  maturing at
various dates through August 15, 2015.  These loans are
secured by  properties  with an aggregate  net carrying
value of  $18,901  and  $6,975 at March 31,  1997,  and
December 31, 1996, respectively.                             8,389         3,807

Secured  loan with an  investment  company with a fixed
interest rate of 7.50%,  monthly principal and interest
payments  of $55 and a maturity  date of March 1, 2021.
The loan is secured by a Housing and Urban  Development
property with a net carrying value of $9,440 and $9,491
at March 31, 1997, and December 31, 1996, respectively.      7,304         7,332
                                                           -------        ------

Total                                                   $   59,007     $  75,891
                                                           =======        ======

The December 31, 1996,  outstanding  balance of $21,307,000  on the  $50,000,000
line of  credit  was paid  down  with  proceeds  from the  March  1997  Offering
discussed below.

The required  principal  payments on the Company's  debt for the next five years
and thereafter, as of March 31, 1997, are as follows (in thousands):

                 Year Ending
                 December 31,
                 ------------
                     1997                   $     717
                     1998                      14,534
                     1999                       2,363
                     2000                       3,086
                     2001                       1,128
                     Thereafter                37,179
                                               ------
                     Total                  $  59,007
                                               ======

Note 8.      RELATED PARTY TRANSACTIONS

Fee and  reimbursement  income  earned by the Company from related  partnerships
totaled  $187,000 and $66,000 for the three  months  ended March 31,  1997,  and
1996,  respectively,  and  consisted  of  property  management  fees  and  asset
management fees for the three months ended March 31, 1997, and asset  management
fees for the three months ended March 31, 1996.

                                 Page 14 of 35
<PAGE>

Note 9.      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. The Plan provides for options to purchase shares of the Company's
Common  Stock  ("Stock")  and for the sale or bonus  grant of Stock to  eligible
individuals.  The number of shares of Stock reserved for issuance under the Plan
equals ten percent of the  outstanding  shares of Stock as of each December 31st
for the ensuing  twelve month  period  (199,567 as of December  31,  1996).  The
Company  accounts  for the  fair  value  of the  options  and  bonus  grants  in
accordance with APB Opinion No. 25. As of March 31, 1997, 35,000 shares of bonus
grants have been  issued  under the Plan.  The fair value of the shares  granted
have been  recorded  as  deferred  compensation  in the  accompanying  financial
statements and will be charged to earnings  ratably over the respective  vesting
periods which range from 2 to 5 years. As of March 31, 1997,  836,000 options to
purchase  shares of Stock have been granted.  The exercise  price of each option
granted is equal to the per-share fair market value of the Stock on the date the
option is granted. To date all options granted have been at 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. At the Company's annual meeting of  stockholders,  which is to be held on
May 15, 1997, the stockholders will vote upon certain amendments to the Plan.

Note 10.     PUBLIC STOCK OFFERING

In March 1997,  the Company  completed  the "March 1997  Offering"  of 3,500,000
shares of Common Stock.  The 3,500,000  shares were sold at a per share price of
$20.25  for  total  proceeds  of  $70,875,000  (net  of 6%  underwriting  fee of
$3,920,000).  This additional  capital was used to acquire the Scottsdale  Hotel
and the Lennar,  Riverview and Ellis & Lane Properties  (discussed below) and to
repay the  outstanding  balance  under the  Company's  Line of Credit with Wells
Fargo. In addition,  approximately  $647,000 in other costs had been incurred as
of March 31, 1997, in connection with the offering.

Note 11.     DECLARATION OF DIVIDENDS

On April 22, 1997, the Company's Board of Directors  declared a dividend for the
first  quarter  of $0.32  per share or  $4,222,301  payable  on May 13,  1997 to
stockholders  of record at the close of business on May 2, 1997.  Such  dividend
will be made from the Company's  cash reserves at March 31, 1997,  combined with
the dividends received from the Associated Companies.

Note 12.     SUBSEQUENT EVENTS

On April 8, 1997,  the Company  acquired from two limited  partnerships  and one
limited liability company managed by affiliates of Lennar Partners,  a portfolio
of three properties,  aggregating approximately 282,000 square feet (the "Lennar
Properties").  The total  acquisition  cost,  including  capitalized  costs, was
approximately  $23.2  million,  which was paid in cash from the  proceeds of the
Company's  March  1997  Offering.  The Lennar  Properties  consist of one office
building located in Virginia,  and one R&D building and one industrial  building
both located in Massachusetts.

On April 14, 1997,  the Company  acquired from a private seller a 227,000 square
foot, 15-story office building located in Bloomington, Minnesota (the "Riverview
Property").  The  total  acquisition  cost,  including  capitalized  costs,  was
approximately  $20.5 million,  of which  approximately $16.3 million was paid in
cash from the proceeds of the Company's March 1997 Offering, and the balance was
paid in cash from  borrowings  under the Company's  existing line of credit (the
"Line of Credit").

On April 18,  1997,  the  Company  acquired  from seven  partnerships  and their
general  partner,  a  Southern  California  syndicator,  a  portfolio  of eleven
Properties,   aggregating  approximately  522,000  square  feet,  together  with
associated  management  interests  (the  "Ellis & Lane  Properties").  The total
acquisition cost, including  capitalized costs, was approximately $22.2 million,
which  consisted of (i)  approximately  $12.8  million of mortgage debt assumed,
(ii)

                                 Page 15 of 35
<PAGE>

approximately  $6.7  million in the form of  approximately  352,000  partnership
units in the  Operating  Partnership  (based  on an  agreed  per  unit  value of
$19.075),  (iii)  approximately  $633,000  in the form of  approximately  33,000
shares of common  Stock of the  Company  (based on an agreed per share  value of
$19.075),  and (iv) the balance in cash.  The cash portion was paid in part from
proceeds of the March 1997 Offering and in part from advances  under the Line of
Credit.  Of the $12.8  million of  mortgage  debt  assumed  in the  acquisition,
approximately  $8.9  million was paid off on May 1, 1997,  through a draw on the
Line of  Credit.  The Ellis & Lane  Properties  consist  of one  office  and ten
industrial properties, all located in Southern California.

On April 29, 1997, the Company acquired from two partnerships formed and managed
by affiliates of CIGNA, a portfolio of six Properties, aggregating approximately
616,000 square feet and 224  multi-family  units (the "CIGNA  Properties").  The
total acquisition cost,  including  capitalized  costs, was approximately  $45.4
million,  which was paid entirely in cash from the proceeds of a new $40 million
unsecured  loan from  Wells  Fargo Bank  (discussed  below) and a draw under the
existing  Line of Credit.  The CIGNA  Properties  are located in four states and
consist of two office properties,  two industrial properties,  a shopping center
and a multi-family property.

In April 1997, the Operating  Partnership  entered into a $40 million  unsecured
loan with Wells Fargo Bank (the "Unsecured Loan"). The Unsecured Loan has a term
of three  months  (extendible  to six  months at the  Company's  option),  bears
interest at a variable annual rate equal to 175 basis points above 30-day LIBOR,
is unsecured  and is  guaranteed  by the Company.  Required  payments  under the
Unsecured  Loan are  monthly,  interest  only.  Management  is  currently in the
process of obtaining new financing to pay off this unsecured loan.

Note 13.     PENDING ACQUISITIONS

In April 1997,  the Company  entered into a definitive  agreement with five real
estate  funds  organized by  affiliates  of T. Rowe Price to acquire the T. Rowe
Price  Properties,  a  portfolio  of 27  properties,  aggregating  approximately
2,888,000 square feet. The total acquisition cost, including  capitalized costs,
is  expected  to be up to  approximately  $146.8  million.  The  T.  Rowe  Price
Properties consist of five office  properties,  nineteen  industrial  properties
(including  eight  office/industrial  complexes)  and  three  retail  properties
located  in  12  states.   These   acquisitions  are  subject  to  a  number  of
contingencies,  including  approval of the acquisition by a majority in interest
of the voting power of the limited partners of each of the selling partnerships,
satisfactory  completion of title and  environmental due diligence and customary
closing  conditions.  Accordingly,  there can be no assurance that any or all of
these acquisitions will be completed.




                                 Page 16 of 35
<PAGE>

<TABLE>
<CAPTION>

                                             GLENBOROUGH HOTEL GROUP
                                           CONSOLIDATED BALANCE SHEETS
                                       (in thousands, except share amounts)
 
                                                                              March 31,             December 31,
                                                                                1997                    1996
                                                                             (Unaudited)              (Audited)
                                                                             ----------             ------------
ASSETS
<S>                                                                          <C>                     <C>     
Cash                                                                         $  1,123                $    461
Accounts receivable                                                               519                     247
Investments in management contracts, net                                          411                     430
Rental property and equipment, net of
   accumulated depreciation of $116 and $111
   in 1997 and 1996, respectively                                                 201                     170
Investment in Atlantic Pacific Assurance Company, Limited                         755                     755
Prepaid expenses                                                                  137                     156
Other assets                                                                        6                      36
                                                                                -----                   -----
     TOTAL ASSETS                                                            $  3,152                $  2,255
                                                                                =====                   =====

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Accrued lease expense                                                     $    640                $    285
   Mortgage loan                                                                   55                      61
   Other liabilities                                                              796                     407
                                                                                -----                   -----
     Total liabilities                                                          1,491                     753
                                                                                -----                   -----

Stockholders' Equity:
   Common stock (1,000 shares authorized,
     issued and outstanding)                                                       20                      20
   Non-voting preferred stock (50 shares
     authorized, issued and outstanding)                                            -                       -
   Additional paid-in capital                                                   1,568                   1,568
   Retained earnings                                                               73                     (86)
                                                                                -----                   -----
     Total stockholders' equity                                                 1,661                   1,502
                                                                                -----                   -----
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                              $  3,152                $  2,255
                                                                                =====                   =====



                           See accompanying notes to consolidated financial statements
</TABLE>




                                 Page 17 of 35
<PAGE>

<TABLE>
<CAPTION>

                                             GLENBOROUGH HOTEL GROUP
                                        CONSOLIDATED STATEMENTS OF INCOME
                                For the three months ended March 31, 1997 and 1996
                                                  (in thousands)
                                                   (Unaudited)

                                                                                   1997                   1996
                                                                                 --------               --------
REVENUE
<S>                                                                          <C>                     <C>      
     Hotel revenue                                                           $     2,918             $   1,915
     Fees and reimbursements                                                         567                   550
     Other revenue                                                                     -                    79
                                                                                   -----                 -----
             Total revenue                                                         3,485                 2,544
                                                                                   -----                 -----
EXPENSES
     Leased Hotel Properties:
        Room expenses                                                                637                   576
        Lease payments to an affiliate                                             1,048                   683
        Sales and marketing                                                          272                   185
        Property general and administrative                                          232                   163
        Other operating expenses                                                     286                   190

     Managed Hotel Properties:
        Salaries and benefits                                                        400                   401

     Other Expenses:
        General and administrative                                                   270                   231
        Depreciation and amortization                                                 24                    25
        Interest expense                                                               1                     1
                                                                                   -----                 -----
             Total expenses                                                        3,170                 2,455
                                                                                   -----                 -----
Income from operations before provision
     for income taxes                                                                315                    89
 
Provision for income taxes                                                          (136)                  (40)
                                                                                   -----                 -----
Net income                                                                   $       179             $      49
                                                                                   =====                 =====





                           See accompanying notes to consolidated financial statements
</TABLE>




                                 Page 18 of 35
<PAGE>

<TABLE>
<CAPTION>

                                                  GLENBOROUGH HOTEL GROUP
                                      CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                     For the three months ended March 31, 1997 and 1996
                                               (in thousands, except shares)
                                                        (Unaudited)


                                                                                        Addi-
                                        Preferred Stock          Common Stock           tional      Retained
                                                   Par                      Par        Paid-in      Earnings
                                      Shares       Value      Shares       Value       Capital      (Deficit)      Total
                                      ------       -----      ------       -----       -------      --------      -------
BALANCE at
<S>                                       <C>    <C>           <C>       <C>         <C>           <C>          <C>      
 December 31, 1996                        50     $     -       1,000     $    20     $   1,568     $     (86)   $   1,502

Dividends                                  -           -           -           -             -           (20)         (20)

Net income                                 -           -           -           -             -           179          179
                                      ------       -----      ------       -----       -------      --------      -------
BALANCE at
 March 31, 1997                           50     $     -       1,000     $    20     $   1,568     $      73    $   1,661
                                      ======       =====      ======       =====       =======      ========      =======



                                                                                        Addi-
                                       Preferred Stock           Common Stock           tional      Retained
                                                    Par                     Par        Paid-in      Earnings
                                      Shares       Value      Shares       Value       Capital      (Deficit)       Total
                                      ------       -----      ------       -----       -------      --------        -----
BALANCE at
 December 31, 1995                        50     $     -       1,000     $    20     $   1,368     $       -    $   1,388

Dividends                                  -           -           -           -           200             -          200

Net income                                 -           -           -           -             -            49           49
                                      ------       -----      ------       -----       -------      --------        -----
BALANCE at
 March 31, 1996                           50     $     -       1,000     $    20     $   1,568     $      49    $   1,637
                                      ======       =====      ======       =====       =======      ========        =====

                                See accompanying notes to consolidated financial statements
</TABLE>



                                 Page 19 of 35
<PAGE>

<TABLE>
<CAPTION>

                                            GLENBOROUGH HOTEL GROUP
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                               For the three months ended March 31, 1997 and 1996
                                                (in thousands)
                                                  (Unaudited)

                                                                                    1997                 1996
                                                                                   ------               ------
Cash flows from operating activities:
<S>                                                                             <C>                   <C>    
   Net income                                                                   $    179              $    49
   Adjustments to reconcile net income to net cash
      provided by operating activities:
         Depreciation and amortization                                                24                   25
         Changes in certain assets and liabilities                                   521                  292
                                                                                   -----                -----
         Net cash provided by operating activities                                   724                  366
                                                                                   -----                -----
Cash flows from investing activities:
   Additions to equipment                                                            (36)                   -
                                                                                   -----                -----
         Net cash used for investing activities                                      (36)                   -
                                                                                   -----                -----
 
Cash flows from financing activities:
   Dividends                                                                         (20)                   -
   Capital contributions                                                               -                  200
   Repayment of borrowings                                                            (6)                  (5)
                                                                                   -----                -----
         Net cash provided by (used for) financing activities                        (26)                 195
                                                                                   -----                -----
   Net increase in cash                                                              662                  561

   Cash at beginning of period                                                       461                   33
                                                                                   -----                -----
   Cash at end of period                                                        $  1,123             $    594
                                                                                   =====                =====
Supplemental disclosure of cash flow information:

         Cash paid for interest                                                 $      1             $      1
                                                                                   =====                =====



                          See accompanying notes to consolidated financial statements
</TABLE>




                                 Page 20 of 35
<PAGE>

                             GLENBOROUGH HOTEL GROUP

                   Notes to Consolidated Financial Statements
                                 March 31, 1997


Note 1.      ORGANIZATION
 
Glenborough  Hotel  Group  ("GHG")  was  organized  in the  State of  Nevada  on
September 23, 1991. As of March 31, 1997, GHG operates hotel properties owned by
Glenborough  Realty Trust  Incorporated  ("GLB") under five separate  percentage
leases and  manages  three  hotel  properties  owned by two  partnerships  whose
managing  general  partner is Glenborough  Corporation.  GLB owns 100% of the 50
shares of non-voting  preferred  stock of GHG and three  individuals,  including
Terri Garnick, an executive officer of GLB, each own 33 1/3% of the 1,000 shares
of voting common stock of GHG.

GHG also  owns  approximately  80% of the  common  stock of Resort  Group,  Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort condominium hotel properties and owns six units at one of the properties.
GHG receives 100% of the earnings of RGI and  consolidates  its operations  with
its own.

GHG also owns 94% of the outstanding  common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic  Pacific  Assurance
Company,  Limited ("APAC"),  a Bermuda  corporation formed to underwrite certain
insurable  risks  of  certain  of GLB's  predecessor  partnerships  and  related
entities.  APAC  no  longer  underwrites  any  business  and is  expected  to be
liquidated  in 1997.  GHG  accounts  for its  investment  in APAC using the cost
method due to its anticipated liquidation.

In the opinion of management,  the accompanying  unaudited financial  statements
contain  all  adjustments  (consisting  only of normal  accruals)  necessary  to
present  fairly,  the financial  position and results of operations of GHG as of
March 31, 1997, and for the period then ended.

Note 2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of  Presentation  - The  accompanying  financial  statements  present  the
consolidated financial position of GHG and RGI as of March 31, 1997 and 1996 and
the  consolidated  results of  operations  and cash flows of GHG and RGI for the
three  months  ended March 31,  1997 and 1996.  All  intercompany  transactions,
receivables and payables have been eliminated in the consolidation.

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.

Rental  Property - Rental  properties  are stated at cost  unless  circumstances
indicate that cost cannot be recovered, in which case, the carrying value of the
property is reduced to estimated fair value.

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

Investments in Management  Contracts - Investments  in management  contracts are
recorded at cost and are amortized on a straight-line basis over the term of the
contracts.

Cash Equivalents - GHG 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.

Income  Taxes -  Provision  for income  taxes is based on  financial  accounting
income.


                                 Page 21 of 35
<PAGE>

Note 3.      INVESTMENTS IN MANAGEMENT CONTRACTS, NET
 
Investments  in management  contracts  reflects the  unamortized  portion of the
management  contracts RGI holds with the two beachfront resort condominium hotel
properties  for both  management of the homeowners  associations  and the rental
pool programs.

Note 4.      RENTAL PROPERTY

Rental property and equipment  represents the six condominium  hotel units owned
by RGI as well as furniture  and fixtures in GHG's  corporate  offices.  The six
units owned by RGI participate in a resort rental program on an "at will" basis,
whereby there is no fixed term of participation.  Such  participation  generated
approximately  $3,000  and  $1,000 of cash flow  after  deductions  for  capital
reserves for the three months ended March 31, 1997 and 1996, respectively.

Note 5.      MORTGAGE LOAN
 
Mortgage loan of $55,000 at March 31, 1997,  represents  the debt secured by the
six  condominium  hotel  units  owned by RGI.  Such debt bears  interest  at 7%,
payable in monthly  installments of principal and interest totaling $2,304,  and
matures June 30, 1999.

Note 6.      THE PERCENTAGE LEASES
 
GHG is leasing the five hotels owned by GLB for a term of five years pursuant to
individual  percentage leases ("Percentage Leases") which provide for rent equal
to the  greater  of the Base  Rent (as  defined  in the  lease)  or a  specified
percentage of room revenues (the  "Percentage  Rent").  Each hotel is separately
leased to GHG (the "lessee").  The lessee's  ability to make rent payments will,
to a large  degree,  depend  on its  ability  to  generate  cash  flow  from the
operations  of  the  hotels.  Each  Percentage  Lease  contains  the  provisions
described below.

Each  Percentage  Lease has a  non-cancelable  term of five  years,  subject  to
earlier  termination upon the occurrence of certain  contingencies  described in
the Percentage  Lease.  The lessee under the Percentage  Lease has one five-year
renewal option at the then current fair market rent.

During the term of each  Percentage  Lease,  the lessee is  obligated to pay the
greater  of Base  Rent or  Percentage  Rent.  Base Rent is  required  to be paid
monthly  in  advance.   Percentage  Rent  is  calculated  by  multiplying  fixed
percentages  by room  revenues  for  each of the  five  hotels;  the  applicable
percentage changes when revenue exceeds a specified threshold, and the threshold
may be adjusted  annually in accordance with changes in the applicable  Consumer
Price Index. Percentage Rent is due quarterly.

The table below sets forth the annual Base Rent and the Percentage Rent formulas
for each of the five hotels.
<TABLE>
<CAPTION>

                                               Hotel Lease Rent Provisions
 
                                            Percentage Rent
                                        incurred for the three
                       Initial Annual        months ended                        Annual Percentage
Hotel                     Base Rent         March 31, 1997                         Rent Formulas
-----                  --------------   ---------------------- ---------------------------------------------------------
<S>                     <C>                 <C>                <C>
Ontario, CA             $   240,000         $    88,000        24% of the first  $1,575,000 of room revenue plus 40%
                                                               of room revenue above $1,575,000 and 5% of other revenue


                                                        continued
</TABLE>

                                 Page 22 of 35
<PAGE>

<TABLE>
<CAPTION>

                                         Hotel Lease Rent Provisions - continued
 
                                            Percentage Rent
                                        incurred for the three
                       Initial Annual        months ended                        Annual Percentage
Hotel                     Base Rent         March 31, 1997                         Rent Formulas                   
-----                  --------------   ---------------------  ---------------------------------------------------------
<S>                     <C>                 <C>                <C>
Arlington, TX           $   360,000         $    49,000        27% of the first  $1,600,000 of room revenue plus 42%
                                                               of room revenue above $1,600,000 and 5% of other revenue

Tucson, AZ              $   600,000         $   296,000        40% of the first  $1,350,000 of room revenue plus 46%
                                                               of room revenue above $1,350,000 and 5% of other revenue

San Antonio, TX         $   312,000         $         0        33% of the first  $1,200,000 of room revenue plus 40%
                                                               of room revenue above $1,200,000 and 5% of other revenue

Scottsdale, AZ          $   360,000         $   207,000        45% of the first $3,200,000 of room revenue plus 60%
                                                               of room revenue above $3,200,000 and 5% of other revenue
</TABLE>

Other than real estate and personal property taxes, casualty insurance,  a fixed
capital  improvement  allowance and  maintenance  of  underground  utilities and
structural elements,  which are the responsibility of GLB, the Percentage Leases
require the lessees to pay rent,  insurance,  salaries,  utilities and all other
operating costs incurred in the operation of the Hotels.

Note 7.      DECLARATION OF DIVIDENDS
 
The board of directors of GHG declared the following dividends (in thousands):
<TABLE>
<CAPTION>

                                             Preferred Stock      Common Stock           Total
                                               -----------         ----------         -----------
<S>                                           <C>                <C>                 <C>         
April, 1997                                   $         39       $         10        $         49
                                               -----------         ----------         -----------
Total paid from 1997 earnings                 $         39       $         10        $         49
                                               ===========         ==========         ===========
</TABLE>


                                 Page 23 of 35
<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 March  31,  1997,  the  Company  owned  and
operated  55   income-producing   properties  (the   "Properties,"  and  each  a
"Property") and held two mortgage loans receivable. The Properties are comprised
of 14 industrial Properties,  21 retail Properties, 3 multi-family Properties, 6
hotel Properties and 11 office Properties, located in 17 states. Included in the
55 income-producing Properties are three Properties in which the Company holds a
participating  first mortgage  interest,  not fee title.  These three Properties
consist of one retail Property,  one industrial  Property and one hotel Property
which are each owned by AFP  Partners.  In  accordance  with GAAP,  the  Company
accounts for these properties as though it holds fee title as substantially  all
risks and rewards of ownership have been  transferred to the Company as a result
of the terms of the mortgages.

The Company was  incorporated  in the State of Maryland on August 26,  1994.  On
December 31, 1995, the Company completed a consolidation  (the  "Consolidation")
in which Glenborough  Corporation,  a California  corporation  ("GC"), and eight
public  limited  partnerships  (the  "Partnerships")   collectively,   the  "GRT
Predecessor Entities",  merged with and into the Company. The Company (i) issued
5,753,709  shares  (the  "Shares")  of 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")  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 93.32%  limited  partner  interest as of March 31,
1997.  The Company  operates  the assets  acquired in the  Consolidation  and in
subsequent  acquisitions  and  intends  to invest in  income-producing  property
directly and through joint ventures.  In addition,  the Associated Companies may
acquire general partner interests in other real estate limited partnerships. The
Company expects to qualify as a REIT under the Internal Revenue Code of 1986, as
amended.

The  Company  seeks to  achieve  sustainable  long-term  growth  in  Funds  from
Operations primarily through the following strategies:  (i) acquiring portfolios
or  individual  properties  on  attractive  terms  often from public and private
partnerships;   (ii)  acquiring  properties  from  entities  controlled  by  the
Associated  Companies;  (iii)  improving  the  performance  of Properties in the
Company's  portfolio;  and  (iv)  constantly  reviewing  the  Company's  current
portfolio for opportunities to redeploy capital from certain existing Properties
into other  properties  which the Company  believes  have  characteristics  more
suited to its overall growth strategy and operating goals.

Consistent  with the  Company's  strategy  for growth,  the Company  acquired 21
properties  in the third and  fourth  quarter of 1996 and the  Scottsdale  Hotel
Property in February 1997 and such acquired  Properties  consist of an aggregate
of approximately  1.4 million  rentable square feet, 538 multi-family  units and
227 hotel suites and had  aggregate  acquisition  costs,  including  capitalized
costs, of  approximately  $105.5 million.  In addition,  the Company has entered
into a definitive  agreement to acquire 27 properties in 12 states,  aggregating
approximately  2.9 million  rentable square feet. There can be no assurance that
any or all of these acquisitions will be completed.

Results of Operations

Comparison  of the three  months  ended March 31, 1997 to the three months ended
March 31, 1996.

Rental Revenues.  Rental revenues increased  $4,318,000,  or 120%, to $7,907,000
for the three months ended March 31, 1997,  from $3,589,000 for the three months
ended March 31, 1996. The increase  included growth in revenues from the office,
industrial,  retail, multi-family and hotel Properties of $1,985,000,  $433,000,
$639,000,  $936,000 and $326,000,  respectively.  Of this  increase,  $4,069,000
represents rental revenues  generated from the

                                 Page 24 of 35
<PAGE>

acquisition of 21 properties (the "1996  Acquisitions")  in the third and fourth
quarters of 1996, and $237,000  represents  rental  revenues  generated from the
acquisition of the Scottsdale Hotel in February 1997.

Fees and Reimbursements.  Fees and reimbursements  revenue consists primarily of
property  management  fees and asset  management  fees paid to the  Company by a
controlled  partnership.  This revenue increased $121,000,  or 183%, to $187,000
for the three  months  ended March 31,  1997,  from $66,000 for the three months
ended  March 31,  1996.  The  increase  consisted  of an  increase  in the asset
management  fees of $55,000 and property  management  fees of $76,000;  in 1996,
such fees were paid to GC, an Associated  Company,  and during the first quarter
of 1997, they were paid to the Company.

Interest  and Other  Income.  Interest and other  income  consists  primarily of
interest  on  mortgage  loans  receivable  and  increased  $153,000,  or 80%, to
$344,000 for the three months ended March 31, 1997,  from $191,000 for the three
months ended March 31, 1996.  The increase was  primarily  due to a $50,000 loan
fee  received for the  extension of the Hovpark  mortgage  loan  receivable  and
$99,000 of interest  income on the  Carlsberg  Properties,  Ltd.  mortgage  loan
receivable,  both of which were received during the three months ended March 31,
1997. The Carlsberg  Properties,  Ltd.  mortgage loan  receivable  originated on
November 19, 1996.

Equity in Earnings of Associated  Companies.  Equity in earnings from Associated
Companies  decreased  $280,000,  or 66%, to $145,000  for the three months ended
March 31, 1997,  from  $425,000 for the three months ended March 31, 1996.  This
decrease is primarily due to GC's  write-off of the  unamortized  balance of its
investment in a management contract.

Gain on  Collection  of Mortgage  Loan  Receivable.  The gain on  collection  of
mortgage  loan  receivable  of $154,000  during the three months ended March 31,
1997, resulted from the collection of the Hovpark mortgage loan receivable which
had a net carrying  value of $6,700,000.  The payoff amount totaled  $6,863,000,
which, net of legal costs, resulted in a gain of $154,000.

Property Operating Expenses.  Property operating expenses increased  $1,365,000,
or 134%,  to  $2,382,000  for the  three  months  ended  March  31,  1997,  from
$1,017,000  for the  three  months  ended  March  31,  1996.  Of this  increase,
$1,456,000  represents the property operating expenses of the 1996 Acquisitions,
offset in part by the reduction in expenses  resulting  from the sale of the All
American Self Storage industrial properties which were sold in June 1996.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  $370,000,  or 132%,  to $651,000 for the three months ended March 31,
1997,  from $281,000 for the three months ended March 31, 1996.  The increase is
primarily due to increased  overhead costs resulting from the 1996  Acquisitions
and the growth of the Company.

Depreciation and Amortization. Depreciation and amortization increased $640,000,
or 71%, to $1,537,000  for the three months ended March 31, 1997,  from $897,000
for the three  months ended March 31,  1996.  The  increase is primarily  due to
depreciation and amortization associated with the 1996 acquisitions.

Interest Expense.  Interest expense increased  $851,000,  or 118%, to $1,573,000
for the three months ended March 31,  1997,  from  $722,000 for the three months
ended March 31, 1996. Substantially all of the increase was the result of higher
average  borrowings  during the three months ended March 31, 1997 as compared to
the three  months  ended March 31,  1996.  The  increased  borrowings  primarily
resulted from new debt and assumption of debt related to the 1996 Acquisitions.

Consolidation Costs. Consolidation costs during the three months ended March 31,
1996, consisted of the costs associated with preparing, printing and mailing the
Prospectus/Consent  Solicitation  Statement and other  documents  related to the
Consolidation,   and  all  other  costs   incurred  in  the  forwarding  of  the
Prospectus/Solicitation Statement to investors.

Litigation Costs. Litigation costs during the three months ended March 31, 1996,
consisted of the legal fees  incurred in  connection  with  defending  two class
action  complaints  filed by investors in certain of the  Company's  predecessor
entities, as well as an accrual for the proposed settlement in one case.

                                 Page 25 of 35
<PAGE>

Liquidity and Capital Resources

For the three months ended March 31, 1997, cash provided by operating activities
increased by  $1,031,000,  or 336%, to $724,000 as compared to $307,000 used for
operating  activities for the same period in 1996. The increase is primarily due
to the  increase in net income  resulting  from the 1996 and 1997  acquisitions.
Cash used for investing activities  increased by $588,000,  or 146%, to $990,000
for the three months ended March 31, 1997,  as compared to $402,000 for the same
period  in  1996.  The  increase  is  primarily  due to the  acquisition  of the
Scottsdale  Hotel in February  1997.  This  increase is partially  offset by the
collection of the Hovpark mortgage loan  receivable.  Cash provided by financing
activities  increased by  $44,066,000,  or 1727%,  to $41,514,000  for the three
months  ended  March 31,  1997,  as compared to  $2,552,000  used for  financing
activities  for the same period in 1996.  This  increase is primarily due to the
net proceeds from the March 1997 Offering (as defined below) which are partially
offset by the repayment of the outstanding  balance under the Line of Credit (as
defined below).

The Company  expects to meets its short-term  liquidity  requirements  generally
through its  working  capital,  its Line of Credit (as  defined  below) and cash
generated  by  operations.  As of March 31,  1997,  the  Company had no material
commitments  for  capital  improvements  other than  certain  expansion  related
improvements  estimated at  approximately  $1,750,000  at its existing  shopping
center in Tampa,  Florida.  Other planned capital improvements consist of tenant
improvements,  expenditures  necessary to lease and maintain the  Properties and
expenditures  for furniture and fixtures and building  improvements at the hotel
Properties.

The  Company's  principal  sources of  funding  for  acquisitions,  development,
expansion and  renovation of properties are a secured Line of Credit (as defined
below),  permanent  secured debt financings,  public equity and privately placed
financing,  the issuance of partnership  units in the Operating  Partnership and
cash flow provided by operations.

Mortgage loans  receivable  decreased  from  $9,905,000 at December 31, 1996, to
$3,454,000  at March 31, 1997.  This decrease was primarily due to the payoff of
the  Hovpark  mortgage  loan  receivable  which  had a  net  carrying  value  of
$6,700,000.  This decrease is partially  offset by draws on the Grunow  mortgage
loan receivable leasing and interest reserves by the borrower of $249,000.

Mortgage  loans  payable  increased  from  $54,584,000  at December 31, 1996, to
$59,007,000 at March 31, 1997.  This increase  resulted from the assumption of a
$4,612,000  mortgage loan in connection  with the  acquisition of the Scottsdale
Hotel in February 1997,  partially offset by scheduled principal  payments.  The
Company has a  $50,000,000  secured line of credit  provided by Wells Fargo Bank
(the  "Line  of  Credit").  Outstanding  borrowings  under  the  Line of  Credit
decreased from $21,307,000 at December 31, 1996, to $0 at March 31, 1997, due to
the paydown of the Line of Credit from the net proceeds of the Company's  equity
offering  in March  1997.  Borrowings  under the Line of Credit  currently  bear
interest at an annual rate of LIBOR plus 1.75%.

In October 1996,  the Company  completed a public  equity  offering of 3,666,000
shares of Common  Stock at an  offering  price of  $13.875  per  share.  The net
proceeds  from the  offering of  approximately  $47.8  million were used to fund
certain of the 1996 Acquisitions and to repay outstanding indebtedness.

In March 1997,  the  Company  completed a public  equity  offering of  3,500,000
shares of Common Stock at an offering price of $20.25 per share (the "March 1997
Offering").  The net proceeds from the offering of  approximately  $66.3 million
were  used  to  fund  certain  1997   acquisitions  and  to  repay   outstanding
indebtedness.

In January 1997, the Company filed a shelf registration  statement (the "January
1997 Shelf Registration  Statement") with the Securities and Exchange Commission
to  register  $250.0  million  of equity  securities.  The  January  1997  Shelf
Registration  Statement was declared  effective by the  Securities  and Exchange
Commission  on  February  25,  1997.  After the  completion  of the  March  1997
Offering,  the Company  has the  capacity  pursuant  to the  January  1997 Shelf
Registration  Statement to issue up to  approximately  $179.1  million in equity
securities.

In May 1997,  the Company  filed a shelf  registration  statement to register an
additional  $350.0  million  of equity  securities  of the  Company.  This shelf
registration has not yet been declared  effective by the Securities and Exchange
Commission.

                                 Page 26 of 35
<PAGE>

At March 31, 1997, the Company's total indebtedness  included fixed-rate debt of
$44,498,000,  or 75% of the Company's aggregate indebtedness,  and floating-rate
indebtedness of $14,509,000, or 25% of the Company's aggregate indebtedness.

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 permit
the Company to increase  rental rates or other charges to tenants in response to
rising prices and  therefore,  serve to minimize the  Company's  exposure to the
adverse effects of inflation.

Funds from Operations and Cash Available for Distribution

The Company  believes  that funds from  operations  ("FFO") is a measure of cash
flow which,  when  considered in  conjunction  with other  measures of operating
performance,  affects the value of equity REITs such as the  Company.  FFO means
income (loss) from operations before minority interests and extraordinary  items
plus depreciation and amortization,  except  amortization of deferred  financing
costs and loss provisions.

FFO is not necessarily  indicative of cash flow available to fund cash needs and
is not the same as cash flow from  operations as defined by GAAP, and should not
be  considered  as an  alternative  to net income  (loss) as an indicator of the
Company's  operating  performance,  or as an  alternative  to  cash  flows  from
operating,  investing  and  financing  activities  as a measure of  liquidity or
ability to make distributions. Management generally considers FFO to be a useful
financial  performance  measure of the operating  performance  of an equity REIT
because, 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 and other capital expenditures.  FFO does not represent net
income or cash flows from operations as defined by GAAP and 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.  FFO  also  does  not  represent  cash  flows  generated  from
operating,  investing  or  financing  activities  as  defined  by  GAAP.  FFO as
disclosed by other REITs may not be comparable to the Company's  calculation  of
FFO.

Cash available for distribution  ("CAD")  represents net income (loss) (computed
in  accordance  with  GAAP),  excluding  extraordinary  gains or  losses or loss
provisions,   plus  depreciation  and  amortization  including  amortization  of
deferred financing costs, less lease commissions and capital  expenditures.  CAD
should  not be  considered  an  alternative  to net  income as a measure  of the
Company's  financial  performance  or 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.

The following table sets forth the Company's  calculation of FFO and CAD for the
three months ended March 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>

                                                                                    March 31,
                                                                                      1997
                                                                                   ----------
          <S>                                                                    <C>         
          Net income (loss) before minority interest                             $      2,594
          Gain on collection of mortgage loan receivable                                 (154)
          Depreciation and amortization                                                 1,537
          Adjustment to reflect FFO of Associated
              Companies (1)                                                               623
                                                                                   ----------
          FFO                                                                    $      4,600
                                                                                   ==========

          Amortization of deferred financing fees                                          64
          Capital reserve                                                                (110)
          Capital expenditures                                                           (421)
                                                                                   ----------
          CAD                                                                    $      4,133
                                                                                   ==========

                                 Page 27 of 35
<PAGE>

          Distributions per share (2)                                            $       0.32
                                                                                   ==========
          Fully diluted weighted average
              shares outstanding                                                   10,935,951
                                                                                   ==========
</TABLE>

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

(2) The  distributions  for the three months ended March 31, 1997,  were paid on
May 13, 1997.

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.
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,  and the
Company assumes no obligation to update any such forward looking statements.  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  defaults or  non-renewal of
leases,  increased  interest  rates  and  operation  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, 1996.  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.


                                 Page 28 of 35
<PAGE>

GLENBOROUGH HOTEL GROUP

Background

Glenborough  Hotel  Group  ("GHG")  was  organized  in the  state of  Nevada  on
September 23, 1991. As of March 31, 1997, GHG operates hotel properties owned by
the  Company  under five  separate  percentage  leases and  manages  three hotel
properties  owned  by  two  partnerships   whose  managing  general  partner  is
Glenborough  Corporation.  The Company owns 100% of the 50 shares of  non-voting
preferred  stock of GHG and  three  individuals,  including  Terri  Garnick,  an
executive officer of the Company, each own 33 1/3% of the 1,000 shares of voting
common stock of GHG.

In January 1997, due to the  insufficient  cash flow of one of the managed hotel
properties  in  relation  to the debt  service  requirements,  the  owner of the
property, a California limited partnership owned by an affiliate, stopped making
debt service payments.  As a result, in April 1997, the lender foreclosed on the
property, and GHG is no longer managing this hotel.

GHG also  owns  approximately  80% of the  common  stock of Resort  Group,  Inc.
("RGI"). RGI manages homeowners associations and rental pools for two beachfront
resort  condominium  hotel  properties  and owns six rental  units at one of the
properties.  GHG  receives  100% of the earnings of RGI and  consolidates  their
operations with its own.

GHG also owns 94% of the outstanding  common stock of Atlantic Pacific Holdings,
Ltd., the sole owner of 100% of the common stock of Atlantic  Pacific  Assurance
Company,  Limited  ("APAC").  APAC was formed to  underwrite  certain  insurable
risks,  however,  it no longer  underwrites  any  business and is expected to be
liquidated in June 1997.  GHG accounts for its investment in APAC using the cost
method due to its anticipated liquidation.

Liquidity and Capital Resources

GHG's primary  source of funding is the cash  generated by the operations of the
five hotels  leased from the Company and fees  received for (i)  managing  three
hotels (through March 31, 1997) owned by two  partnerships and (ii) managing the
homeowners  associations  and  rental  pools for the  resort  condominium  hotel
properties as discussed above.

The  boards  of  directors  of GHG  declared  and paid the  following  quarterly
dividends for the three months ended March 31, 1997:

                                                               1st Quarter
                                                               -----------
           Preferred dividends to the Company                   $   7,500
           Additional dividends to the Company                     30,938
           Total dividends to the Company                          38,438
           Dividends to others                                     10,312
                                                                 --------
           Total dividends                                      $  48,750
                                                                 ========

Results of Operations

Hotel  revenue,  which  represents  the revenue earned on the five hotels leased
from the Company,  increased  $1,003,000,  or 52%, to  $2,918,000  for the three
months ended March 31, 1997,  from  $1,915,000  for the three months ended March
31, 1996.  This increase is primarily due to the  acquisition of the San Antonio
Hotel in August 1996 and the  acquisition  of the  Scottsdale  Hotel in February
1997.

Fee revenue and salary reimbursements of $567,000 represents the fees earned for
managing three hotels and two resort  condominium  hotels. The increase from the
three months ended March 31, 1996, to the three months ended March 31, 1997, was
not significant.

The primary expenses associated with the leased hotels are room expenses,  lease
payments, sales and marketing and other operating expenses, including utilities,
maintenance  and insurance.  All leased hotel expenses  increased from the three
months  ended March 31, 1996,  to the three months ended March 31, 1997,  due to
the acquisition of two hotels as discussed above.

                                 Page 29 of 35
<PAGE>

The only direct expenses incurred in connection with the management of the three
hotels and two resort  condominium  hotel  properties  are salaries and benefits
which remained constant from the three months ended March 31, 1996, to the three
months ended March 31, 1997.

General and  administrative  costs represent the overhead costs  associated with
administering   the   business  of  GHG.   Such  costs   primarily   consist  of
administrative  salaries and benefits,  rent,  legal fees and  accounting  fees.
These costs  increased  $39,000,  or 17%, to $270,000 for the three months ended
March 31, 1997,  from  $231,000  for the three months ended March 31, 1996.  The
increase is primarily due to higher salaries and benefits  related to the growth
of GHG.


                                 Page 30 of 35
<PAGE>

PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings

Blumberg.  On February  21,  1995,  a class  action  complaint  was filed 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, 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,  and filed  their
opening  brief with the court of appeals on November 15,  1996.  The Company and
the other defendants filed their answering brief on January 17, 1997.

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 the California  limited  partnerships  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.

                                 Page 31 of 35
<PAGE>

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. The Company has since  withdrawn its
motion to dismiss the case, and the plaintiffs  have agreed to take the case off
calendar pending final resolution of the Blumberg action.

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.  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.


                                 Page 32 of 35
<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 February 5, 1997,  the Company  filed a report on Form
                  8-K to provide certain additional ownership and operation
                  information  concerning  the Company  and the  properties
                  owned or managed by it as of December 31, 1996.

                  On February 24, 1997,  the Company  filed reports on Form
                  8-K/A,  Amendment No. 2, with respect to the acquisitions
                  of the UCT, TRP and Carlsberg Properties.

                  On March 19, 1997, the Company filed a report on Form 8-K
                  with respect to the  acquisition of the Scottsdale  Hotel
                  and with respect to the March 1997 public offering.

                  On April 23, 1997, the Company filed a report on Form 8-K
                  with respect to the acquisition of the Lennar  Properties
                  and the Riverview Property.

                  On April 24, 1997, the Company filed a report on Form 8-K
                  to announce the  declaration  of dividends and funds from
                  operations  for the first  quarter of 1997 and to provide
                  certain additional operation  information  concerning the
                  Company.

                  On April 25, 1997, the Company filed a report on Form 8-K
                  to provide  certain  additional  ownership  and operation
                  information  concerning  the Company  and the  properties
                  owned or managed by it as of March 31, 1997.

                  On May 2, 1997,  the  Company  filed a report on Form 8-K
                  with  respect  to the  acquisition  of the  Ellis  & Lane
                  Properties and the CIGNA Properties.

                  On May 14,  1997,  the  Company  filed a  report  on Form
                  8-K/A,  Amendment No. 1, with respect to the acquisitions
                  of the Lennar Properties and the Riverview Property.

                  On May 14,  1997,  the  Company  filed a  report  on Form
                  8-K/A,  Amendment No. 1, with respect to the acquisitions
                  of the E&L Properties and the CIGNA Properties.


                                 Page 33 of 35
<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:  May 15, 1997                      /s/ Andrew Batinovich
                                         -----------------------------------
                                         Andrew Batinovich
                                         Director, Executive Vice President,
                                         Chief Operating Officer
                                         and Chief Financial Officer
                                         (Principal Financial Officer)
 
 


 
Date:  May 15, 1997                      /s/ Terri Garnick
                                         -----------------------------------
                                         Terri Garnick
                                         Senior Vice President,
                                         Chief Accounting Officer,
                                         Treasurer
                                         (Principal Accounting Officer)


                                 Page 34 of 35
<PAGE>

                                  EXHIBIT INDEX



Exhibit No.                              Exhibit Title
-----------          ----------------------------------------------------
10.1                 Lease Agreement relating to the Scottsdale Hotel (1)

12.1                 Statement re Computation of Ratios(2)

27.1                 Financial Data Schedule



                  (1)      Incorporated by reference to the identically numbered
                           Exhibit to the Company's Current Report on Form
                           8-K which was filed on March 19, 1997.

                  (2)      Incorporated by reference to the identically numbered
                           Exhibit to the Company's Registration Statement on
                           Form S-3 filed with the Securities and Exchange 
                           Commission on May 9, 1997.





                                 Page 35 of 35
<PAGE>