##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended March 31, 2005



OR



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



Commission File Number: 001-14162



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GLENBOROUGH REALTY TRUST INCORPORATED

(Exact name of registrant as specified in its charter)



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



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



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



|                                                            |  |                                      
|----------------------------------------------------------- |  | -------------------------------------
|Title of each class:                                        |  | Name of Exchange on which registered:
|Common Stock, $.001 par value                               |  | New York Stock Exchange              
|7.75% Series A Convertible Preferred 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 ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Act).    Yes  x    No ̈



As of May 5, 2005, 36,054,663 shares of Common Stock ($.001 par value) and 3,740,807
shares of 7.75% Series A Convertible Preferred Stock ($.001 par value, $25.00 per share liquidation preference) were outstanding.



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##### Table of Contents

INDEX

GLENBOROUGH REALTY TRUST INCORPORATED



|              |  |                                                                                          |  |         
|------------- |  | ---------------------------------------------------------------------------------------- |  | --------
|              |  |                                                                                          |  | Page No.
|PART I        |  | FINANCIAL INFORMATION                                                                    |  |         
|              |  |                                                                                         
|Item 1.       |  | Consolidated Financial Statements of Glenborough Realty Trust Incorporated (Unaudited):  |  |         
|              |  |                                                                                         
|              |  | Consolidated Balance Sheets at March 31, 2005 and December 31, 2004                      |  | 3       
|              |  |                                                                                         
|              |  | Consolidated Statements of Operations for the three months ended March 31, 2005 and 2004 |  | 4       
|              |  |                                                                                         
|              |  | Consolidated Statement of Stockholders Equity for the three months ended March 31, 2005 |  | 5       
|              |  |                                                                                         
|              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004 |  | 6-7     
|              |  |                                                                                         
|              |  | Notes to Consolidated Financial Statements                                               |  | 8-30    
|              |  |                                                                                         
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 31-44   
|              |  |                                                                                         
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 44      
|              |  |                                                                                         
|Item 4.       |  | Controls and Procedures                                                                  |  | 45      
|              |  |                                                                                         
|PART II       |  | OTHER INFORMATION                                                                        |  |         
|              |  |                                                                                         
|Item 1.       |  | Legal Proceedings                                                                        |  | 46      
|              |  |                                                                                         
|Item 2.       |  | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities         |  | 46      
|              |  |                                                                                         
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                      |  | 46      
|              |  |                                                                                         
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                         |  | 46      
|              | 
|SIGNATURES    |  | 47                                                                                      
|              | 
|EXHIBIT INDEX |  | 48                                                                                      



2



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##### Table of Contents

Part I. FINANCIAL INFORMATION



Item 1. Financial Statements



GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

(unaudited)



|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ---------------- | - | --------- | -
|                                                                                                                                                                                                            |  | March 31,2005 |           |   | December 31,2004 |  
|ASSETS                                                                                                                                                                                                      |  |               |           |   |                  |   |           |  
|Rental properties, gross                                                                                                                                                                                    |  | $             | 1,371,855 |   |                  | $ | 1,358,769 |  
|Accumulated depreciation and amortization                                                                                                                                                                   |  |               | (226,394  | ) |                  |   | (218,209  | )
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Rental properties, net                                                                                                                                                                                      |  |               | 1,145,461 |   |                  |   | 1,140,560 |  
|                                                                                                                                                                                                            |  |              
|Properties held for sale (net of accumulated depreciation and amortization of $2,132 and $10,926 as of March 31, 2005 and December 31, 2004,
respectively)                                                  |  |               | 6,552     |   |                  |   | 63,928    |  
|Investments in land and development                                                                                                                                                                         |  |               | 132,728   |   |                  |   | 147,435   |  
|Investments in unconsolidated operating joint ventures                                                                                                                                                      |  |               | 11,875    |   |                  |   | 12,014    |  
|Mortgage loans receivable                                                                                                                                                                                   |  |               | 20,220    |   |                  |   | 12,872    |  
|Leasing and financing costs (net of accumulated amortization of $16,875 and $17,814 as of March 31, 2005 and December 31, 2004,
respectively)                                                               |  |               | 29,033    |   |                  |   | 24,319    |  
|Cash and cash equivalents                                                                                                                                                                                   |  |               | 3,757     |   |                  |   | 6,003     |  
|Other assets                                                                                                                                                                                                |  |               | 30,418    |   |                  |   | 25,970    |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                                                                                                                                |  | $             | 1,380,044 |   |                  | $ | 1,433,101 |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                        |  |               |           |   |                  |   |           |  
|Liabilities:                                                                                                                                                                                                |  |               |           |   |                  |   |           |  
|Mortgage loans                                                                                                                                                                                              |  | $             | 698,835   |   |                  | $ | 654,748   |  
|Unsecured bank line of credit                                                                                                                                                                               |  |               | 101,889   |   |                  |   | 21,320    |  
|Obligations associated with properties held for sale                                                                                                                                                        |  |               | 126       |   |                  |   | 43,380    |  
|Other liabilities                                                                                                                                                                                           |  |               | 34,353    |   |                  |   | 31,202    |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                                           |  |               | 835,203   |   |                  |   | 750,650   |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Minority Interest                                                                                                                                                                                           |  |               | 34,501    |   |                  |   | 39,124    |  
|                                                                                                                                                                                                            |  |              
|Stockholders Equity:                                                                                                                                                                                       |  |               |           |   |                  |   |           |  
|Common stock, $0.001 par value, 188,000,000 shares authorized, 36,047,738 and 36,033,126 shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively                                |  |               | 36        |   |                  |   | 36        |  
|Preferred stock, $0.001 par value, 12,000,000 shares authorized, $25.00 liquidation preference, 3,740,807 and 6,850,325 shares issued and
outstanding at March 31, 2005 and December 31, 2004, respectively |  |               | 4         |   |                  |   | 7         |  
|Additional paid-in capital                                                                                                                                                                                  |  |               | 796,098   |   |                  |   | 870,622   |  
|Deferred compensation                                                                                                                                                                                       |  |               | (3,834    | ) |                  |   | (4,056    | )
|Distributions in excess of accumulated earnings                                                                                                                                                             |  |               | (281,964  | ) |                  |   | (223,282  | )
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                                  |  |               | 510,340   |   |                  |   | 643,327   |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                  |  | $             | 1,380,044 |   |                  | $ | 1,433,101 |  
|                                                                                                                                                                                                            |  |               |           |   |                  |   |           |  



The accompanying notes
are an integral part of these consolidated financial statements



3



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31, 2005 and 2004

(in thousands, except share and per share amounts)

(unaudited)



|                                                                                                                        |  |      |            |   |      |   |            |  
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                        |  | 2005 |            |   | 2004 |  
|OPERATING REVENUE                                                                                                       |  |      |            |   |      |   |            |  
|Rental revenue                                                                                                          |  | $    | 46,483     |   |      | $ | 43,026     |  
|Fees and reimbursements, including from related parties                                                                 |  |      | 1,095      |   |      |   | 829        |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Total operating revenue                                                                                                 |  |      | 47,578     |   |      |   | 43,855     |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|OPERATING EXPENSES                                                                                                      |  |      |            |   |      |   |            |  
|Property operating expenses                                                                                             |  |      | 17,475     |   |      |   | 15,865     |  
|General and administrative                                                                                              |  |      | 3,285      |   |      |   | 2,172      |  
|Depreciation and amortization                                                                                           |  |      | 15,479     |   |      |   | 13,611     |  
|Provision for impairment of real estate assets                                                                          |  |      | 54,410     |   |      |   |           |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Total operating expenses                                                                                                |  |      | 90,649     |   |      |   | 31,648     |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Interest and other income                                                                                               |  |      | 1,030      |   |      |   | 832        |  
|Equity in earnings of unconsolidated operating joint ventures                                                           |  |      | 134        |   |      |   | 188        |  
|Interest expense                                                                                                        |  |      | (9,321     | ) |      |   | (8,153     | )
|Loss on early extinguishment of debt                                                                                    |  |      | (561       | ) |      |   | (85        | )
|                                                                                                                        |  |      |            |   |      |   |            |  
|Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle |  |      | (51,789    | ) |      |   | 4,989      |  
|Minority interest                                                                                                       |  |      | 3,836      |   |      |   | 12         |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Income (loss) before discontinued operations and cumulative effect of change in accounting principle                    |  |      | (47,953    | ) |      |   | 5,001      |  
|Discontinued operations (including gain on sales of $17,320 and $120 in 2005 and 2004, respectively)                    |  |      | 11,107     |   |      |   | 611        |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Income (loss) before cumulative effect of change in accounting principle                                                |  |      | (36,846    | ) |      |   | 5,612      |  
|Cumulative effect of change in accounting principle (Note 15)                                                           |  |      |           |   |      |   | (912       | )
|                                                                                                                        |  |      |            |   |      |   |            |  
|Net income (loss)                                                                                                       |  |      | (36,846    | ) |      |   | 4,700      |  
|Preferred dividends                                                                                                     |  |      | (1,812     | ) |      |   | (4,823     | )
|Dividends paid on redeemed preferred stock                                                                              |  |      | (2,102     | ) |      |   |           |  
|Premium and write-off of original issuance costs on preferred stock redemption                                          |  |      | (5,309     | ) |      |   |           |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                                      |  | $    | (46,069    | ) |      | $ | (123       | )
|                                                                                                                        |  |      |            |   |      |   |            |  
|Basic Per Share Data:                                                                                                   |  |      |            |   |      |   |            |  
|Continuing operations                                                                                                   |  | $    | (1.57      | ) |      | $ | 0.01       |  
|Discontinued operations                                                                                                 |  |      | 0.29       |   |      |   | 0.02       |  
|Cumulative effect of change in accounting principle                                                                     |  |      |           |   |      |   | (0.03      | )
|                                                                                                                        |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                                      |  | $    | (1.28      | ) |      | $ |           |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Basic weighted average shares outstanding                                                                               |  |      | 35,928,962 |   |      |   | 28,564,399 |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Diluted Per Share Data:                                                                                                 |  |      |            |   |      |   |            |  
|Continuing operations                                                                                                   |  | $    | (1.57      | ) |      | $ | 0.01       |  
|Discontinued operations                                                                                                 |  |      | 0.29       |   |      |   | 0.02       |  
|Cumulative effect of change in accounting principle                                                                     |  |      |           |   |      |   | (0.03      | )
|                                                                                                                        |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                                      |  | $    | (1.28      | ) |      | $ |           |  
|                                                                                                                        |  |      |            |   |      |   |            |  
|Diluted weighted average shares outstanding                                                                             |  |      | 35,928,962 |   |      |   | 31,899,526 |  
|                                                                                                                        |  |      |            |   |      |   |            |  



The accompanying notes
are an integral part of these consolidated financial statements



4



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

For the three months ended March 31, 2005

(in thousands)

(unaudited)



|                                                                               |  |              |  |                 |    |        |        |   |          |   |    |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  
|------------------------------------------------------------------------------ |  | ------------ |  | --------------- | -- | ------ | ------ | - | -------- | - | -- | ------------------------ |  | - | --------------------- | - |  | -------------------------------------------- | ------ | - | ----- | - | -------- | - |  | - | ------- | -
|                                                                               |  | Common Stock |  | Preferred Stock |    |        |        |   |          |   |    |                          |  |   |                       |   | 
|                                                                               |  | Shares       |  | ParValue        |    | Shares |        |   | ParValue |   |    | AdditionalPaid-inCapital |  |   | DeferredCompen-sation |   |  | Distributionsin excess ofaccumulatedearnings |        |   | Total |  
|Balance at December 31, 2004                                                   |  | 36,033       |  | $               | 36 |        | 6,850  |   |          | $ | 7  |                          |  | $ | 870,622               |   |  | $                                            | (4,056 | ) |       | $ | (223,282 | ) |  | $ | 643,327 |  
|Exercise of stock options                                                      |  | 5            |  |                 |   |        |       |   |          |   |   |                          |  |   | 12                    |   |  |                                              |       |   |       |   |         |   |  |   | 12      |  
|Offering costs incurred related to December 2004 common stock offering         |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   | (158                  | ) |  |                                              |       |   |       |   |         |   |  |   | (158    | )
|Mark-to-market of performance-based restricted common stock grant              |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   | (108                  | ) |  |                                              | 108    |   |       |   |         |   |  |   |        |  
|Issuance of restricted common stock                                            |  | 10           |  |                 |   |        |       |   |          |   |   |                          |  |   | 206                   |   |  |                                              | (206   | ) |       |   |         |   |  |   |        |  
|Amortization of deferred compensation on restricted common stock grants        |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   |                      |   |  |                                              | 320    |   |       |   |         |   |  |   | 320     |  
|Preferred stock redemption                                                     |  |             |  |                 |   |        | (3,109 | ) |          |   | (3 | )                        |  |   | (77,745               | ) |  |                                              |       |   |       |   |         |   |  |   | (77,748 | )
|Premium and write-off of original issuance costs on preferred stock redemption |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   | 3,452                 |   |  |                                              |       |   |       |   | (5,309   | ) |  |   | (1,857  | )
|Reallocation of limited partners interests in Operating Partnership           |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   | (183                  | ) |  |                                              |       |   |       |   |         |   |  |   | (183    | )
|Dividends paid to common and preferred stockholders                            |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   |                      |   |  |                                              |       |   |       |   | (14,425  | ) |  |   | (14,425 | )
|Dividends paid on redeemed preferred stock                                     |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   |                      |   |  |                                              |       |   |       |   | (2,102   | ) |  |   | (2,102  | )
|Net loss                                                                       |  |             |  |                 |   |        |       |   |          |   |   |                          |  |   |                      |   |  |                                              |       |   |       |   | (36,846  | ) |  |   | (36,846 | )
|                                                                               |  |              |  |                 |    |        |        |   |          |   |    |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  
|Balance at March 31, 2005                                                      |  | 36,048       |  | $               | 36 |        | 3,741  |   |          | $ | 4  |                          |  | $ | 796,098               |   |  | $                                            | (3,834 | ) |       | $ | (281,964 | ) |  | $ | 510,340 |  
|                                                                               |  |              |  |                 |    |        |        |   |          |   |    |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements



5



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2005 and 2004

(in thousands)

(unaudited)



|                                                                                            |  |      |         |   |      |   |          |  
|------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | -------- | -
|                                                                                            |  | 2005 |         |   | 2004 |  
|Cash flows from operating activities:                                                       |  |      |         |   |      |   |          |  
|Net income (loss)                                                                           |  | $    | (36,846 | ) |      | $ | 4,700    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:    |  |      |         |   |      |   |          |  
|Depreciation and amortization (including discontinued operations)                           |  |      | 15,842  |   |      |   | 15,057   |  
|Amortization of loan fees, included in interest expense (including discontinued operations) |  |      | 657     |   |      |   | 799      |  
|Accrued interest on mortgage loans receivable                                               |  |      | (348    | ) |      |   | (556     | )
|Minority interest in income from operations                                                 |  |      | (3,836  | ) |      |   | (12      | )
|Equity in earnings of unconsolidated operating joint ventures                               |  |      | (134    | ) |      |   | (188     | )
|Gain on sales of real estate assets (included in discontinued operations)                   |  |      | (17,320 | ) |      |   | (120     | )
|Loss on early extinguishment of debt (including discontinued operations)                    |  |      | 2,939   |   |      |   | 85       |  
|Provision for impairment of real estate assets (including discontinued operations)          |  |      | 58,236  |   |      |   |         |  
|Cumulative effect of change in accounting principle                                         |  |      |        |   |      |   | 912      |  
|Amortization of deferred compensation                                                       |  |      | 320     |   |      |   | 195      |  
|Increase in other assets                                                                    |  |      | (10,163 | ) |      |   | (2,894   | )
|Increase/(decrease) in other liabilities                                                    |  |      | 2,199   |   |      |   | (5,945   | )
|                                                                                            |  |      |         |   |      |   |          |  
|Net cash provided by operating activities                                                   |  |      | 11,546  |   |      |   | 12,033   |  
|                                                                                            |  |      |         |   |      |   |          |  
|Cash flows from investing activities:                                                       |  |      |         |   |      |   |          |  
|Net proceeds from sales of real estate assets                                               |  |      | 85,635  |   |      |   | 1,232    |  
|Acquisitions of rental properties                                                           |  |      | (32,452 | ) |      |   |         |  
|Payments for capital and tenant improvements                                                |  |      | (5,609  | ) |      |   | (7,401   | )
|Investments in land and development                                                         |  |      | (2,621  | ) |      |   | (18,410  | )
|Distributions from unconsolidated operating joint ventures                                  |  |      | 273     |   |      |   | 220      |  
|Principal payments from mortgage loans receivable                                           |  |      |        |   |      |   | 14,621   |  
|                                                                                            |  |      |         |   |      |   |          |  
|Net cash provided by/(used for) investing activities                                        |  |      | 45,226  |   |      |   | (9,738   | )
|                                                                                            |  |      |         |   |      |   |          |  
|Cash flows from financing activities:                                                       |  |      |         |   |      |   |          |  
|Proceeds from borrowings                                                                    |  |      | 132,977 |   |      |   | 32,676   |  
|Repayment of borrowings                                                                     |  |      | (91,034 | ) |      |   | (114,422 | )
|Payment of deferred financing costs                                                         |  |      | (1,098  | ) |      |   | (745     | )
|Prepayment penalties on loan payoffs                                                        |  |      | (2,615  | ) |      |   |         |  
|Contributions from minority interest holders                                                |  |      | 80      |   |      |   | 40       |  
|Distributions to minority interest holders                                                  |  |      | (1,050  | ) |      |   | (1,051   | )
|Dividends paid to common and preferred stockholders                                         |  |      | (14,425 | ) |      |   | (14,569  | )
|Proceeds from issuance of common stock, net of offering costs                               |  |      | (158    | ) |      |   | 81,566   |  
|Preferred stock redemption                                                                  |  |      | (77,748 | ) |      |   |         |  
|Dividends paid on redeemed preferred stock                                                  |  |      | (2,102  | ) |      |   |         |  
|Premium on preferred stock redemption                                                       |  |      | (1,857  | ) |      |   |         |  
|Exercise of stock options                                                                   |  |      | 12      |   |      |   | 732      |  
|                                                                                            |  |      |         |   |      |   |          |  
|Net cash used for financing activities                                                      |  |      | (59,018 | ) |      |   | (15,773  | )
|                                                                                            |  |      |         |   |      |   |          |  



continued



The accompanying notes are an integral part of these consolidated financial
statements



6



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

For the three months ended
March 31, 2005 and 2004

(in thousands)

(unaudited)



|                                                                                                       |  |      |        |   |      |   |         |  
|------------------------------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------- | -
|                                                                                                       |  | 2005 |        |   | 2004 |  
|Net decrease in cash and cash equivalents                                                              |  | $    | (2,246 | ) |      | $ | (13,478 | )
|Cash and cash equivalents at Marina Shores on January 1, 2004 (see below)                              |  |      |       |   |      |   | 1,035   |  
|Cash and cash equivalents at beginning of period                                                       |  |      | 6,003  |   |      |   | 18,992  |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                                             |  | $    | 3,757  |   |      | $ | 6,549   |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                                      |  |      |        |   |      |   |         |  
|Cash paid for interest (net of capitalized interest of $1,086 and $747 in 2005 and 2004, respectively) |  | $    | 8,527  |   |      | $ | 7,296   |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Supplemental disclosure of non-cash investing and financing activities:                                |  |      |        |   |      |   |         |  
|                                                                                                       |  |     
|Non-cash components of consolidation of Marina Shores:                                                 |  |      |        |   |      |   |         |  
|Investments in land and development                                                                    |  | $    |       |   |      | $ | 46,322  |  
|Cash and cash equivalents                                                                              |  |      |       |   |      |   | 1,035   |  
|Mortgage loans payable                                                                                 |  |      |       |   |      |   | (45,000 | )
|Minority interest                                                                                      |  |      |       |   |      |   | (2,228  | )
|Other assets and liabilities, net                                                                      |  |      |       |   |      |   | (129    | )
|                                                                                                       |  |      |        |   |      |   |         |  
|Total                                                                                                  |  | $    |       |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Assumption of mortgage loan in acquisition of real estate                                              |  | $    | 39,391 |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Mortgage loan receivable related to disposition of investment in land and development                  |  | $    | 7,000  |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Write-off of original issuance costs on preferred stock redemption                                     |  | $    | 3,452  |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Reallocation of limited partners interests in Operating Partnership                                   |  | $    | 183    |   |      | $ | 596     |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Mark-to-market of performance-based restricted common stock grant:                                     |  |      |        |   |      |   |         |  
|Additional paid-in capital                                                                             |  | $    | (108   | ) |      | $ |        |  
|Deferred compensation                                                                                  |  |      | 108    |   |      |   |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Total                                                                                                  |  | $    |       |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Issuance of restricted common stock:                                                                   |  |      |        |   |      |   |         |  
|Additional paid-in capital                                                                             |  | $    | (206   | ) |      | $ |        |  
|Deferred compensation                                                                                  |  |      | 206    |   |      |   |        |  
|                                                                                                       |  |      |        |   |      |   |         |  
|Total                                                                                                  |  | $    |       |   |      | $ |        |  
|                                                                                                       |  |      |        |   |      |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



Note 1.
ORGANIZATION



Glenborough Realty Trust Incorporated (the
Company) was incorporated in the State of Maryland on August 26, 1994. The Company commenced operations on January 1, 1996. The Company has elected to qualify as a real estate investment trust (REIT) under the Internal
Revenue Code. The common and preferred stock of the Company (the Common Stock and the Preferred Stock, respectively) are listed on the New York Stock Exchange (NYSE) under the trading symbols GLB and
GLB Pr A, respectively.



As of March 31, 2005, 36,047,738 shares of
Common Stock and 3,740,807 shares of Preferred Stock were issued and outstanding. Common and preferred shares authorized are 188,000,000 and 12,000,000, respectively. Assuming the issuance of 3,001,957 shares of Common Stock issuable upon redemption
of 3,001,957 partnership units in the Operating Partnership (as defined below), there would be 39,049,695 shares of Common Stock outstanding as of March 31, 2005. In 1999 and 2000, the Companys Board of Directors authorized the repurchase of
up to 8,210,700 shares of Common Stock and 3,450,000 shares of Preferred Stock. As of March 31, 2005, 6,394,816 shares of Common Stock and 1,543,700 shares of Preferred Stock (excluding the redemptions discussed in Note 19) have been repurchased at
a total cost of approximately $131 million.



The Companys Preferred Stock
has a $25.00 per share liquidation preference and is convertible at any time at the option of the holder thereof into shares of Common Stock at an initial conversion price of $32.83 per share of Common Stock (equivalent to a conversion rate of
0.7615 shares of Common Stock for each share of Series A Convertible Preferred Stock), subject to adjustment in certain circumstances. As of January 16, 2003, the Series A Preferred Stock may be redeemed at the option of the Company, in whole or in
part, initially at 103.88% of the liquidation preference per share, and thereafter at prices declining to 100% of the liquidation preference on and after January 16, 2008, plus in each case accumulated, accrued and unpaid dividends, if any, to the
redemption date.



To maintain the Companys qualification as a REIT, no
more than 50% of the 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 provide for certain restrictions on the transfer of the Common Stock to prevent further concentration of stock ownership.



The Company, through its majority owned subsidiaries, is engaged primarily in the ownership,
operation, management, leasing, acquisition, expansion and development of various income-producing properties. The Companys principal consolidated subsidiary, in which it holds a 1% general partner interest and a 91.31% limited partner
interest at March 31, 2005, is Glenborough Properties, L.P. (the Operating Partnership). Each of the holders of the remaining interests in the Operating Partnership (OP Units) has the option to redeem its OP Units and to
receive, at the option of the Company, in exchange for each OP Unit, either (i) one share of common stock of the Company, or (ii) cash equal to the fair market value of one share of common stock of the Company. As of March 31, 2005, the Operating
Partnership, directly and through the subsidiaries in which it and the Company own 100% of the ownership interests, controls a portfolio of 61 real estate projects.



Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



The accompanying financial statements present the consolidated financial position of the Company and its subsidiaries as of March 31, 2005 and December 31, 2004, and the
consolidated results of operations and cash flows of the Company and its subsidiaries for the three months ended March 31, 2005 and 2004. All significant 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 of the Company as of March 31, 2005 and December 31, 2004, and the results of operations and cash flows of the Company for the three
months ended March 31, 2005 and 2004.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



Use of Estimates



The preparation of financial statements in conformity with U.S. 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.



Variable Interest Entities



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51, which addresses consolidation by business enterprises of variable interest entities (VIEs) either: (1) that do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of
proposed modifications to FIN 46 (FIN 46 Revised) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created after January 31, 2003, but prior to January 1, 2004, may be accounted for either based
on FIN 46 or FIN 46 Revised. However, FIN 46 Revised must be applied no later than the first quarter of fiscal 2004. VIEs created after January 1, 2004 must be accounted for under FIN 46 Revised. Special Purpose Entities (SPEs) created
prior to February 1, 2003 may be accounted for under FIN 46 or FIN 46 Reviseds provisions no later than the fourth quarter of fiscal 2003. Non-SPEs created prior to February 1, 2003, should be accounted for under FIN 46 Reviseds
provisions no later than the first quarter of fiscal 2004. The Company has not entered into any arrangements which are considered SPEs. FIN 46 Revised may be applied prospectively with a cumulative-effect adjustment as of the date on which it is
first applied or by restating previously issued financial statements for one or more years with a cumulative-effect adjustment as of the beginning of the first year restated. The disclosure requirements of FIN 46 Revised are effective for all
financial statements initially issued after December 31, 2003. Certain of the entities through which and with which the Company conducts business, including those described in Notes 6 and 8 have been deemed to be VIEs under the provisions of FIN 46
Revised. In accordance with FIN 46 Revised, the Company began consolidating the entity known as Marina Shores, effective January 1, 2004, as the Company is deemed to be the primary beneficiary as defined by FIN 46 Revised (see Note 15). There are
other alliances which are VIEs, but the Company is not the primary beneficiary of them.



Stock Based Compensation



The Company has an employee stock
incentive plan and it accounts for stock options and stock grants (restricted shares of common stock) in the plan under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. For incentive stock options, no stock-based employee compensation cost is reflected in net income (loss) as all options granted under the plan have an exercise price equal to the market value of the underlying common stock
on the date of grant. The options vest over periods between 1 and 7 years, and have a maximum term of 10 years.



As of March 31, 2005 and December 31, 2004, 386,241 and 376,241 shares of stock grants were outstanding under the Plan, respectively. The intrinsic value of the shares
granted has been recorded as deferred compensation, with an offsetting entry to additional paid-in-capital, in the accompanying financial statements. The vesting of 336,241 of these shares is time-based and the deferred compensation related to these
shares is being amortized to general and administrative expense ratably over the respective vesting periods that range from 1 to 10 years. As a result, additional compensation expense of $273,902 and $194,502 was recognized during the three months
ended March 31, 2005 and 2004, respectively, in the accompanying consolidated statements of operations. The vesting of 50,000 of these shares, which were granted on March 30, 2004, is based on achieving annual performance metrics over a ten-year
period. The Company accounts for these shares under the recognition and measurement principles of FASB Interpretation No. 28. As a result, additional compensation expense of $46,278 was recognized during the three months ended March 31, 2005, in the
accompanying consolidated statement of operations.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



As permitted by Statement of Financial Accounting Standards No. 123 Accounting for Stock-based Compensation (SFAS 123), the
Company has not changed its method of accounting for stock options but has provided the additional required disclosures. Had compensation cost for the Companys stock-based compensation plans been determined based on the fair value at the grant
dates for awards under those plans, consistent with the method of SFAS No. 123, the Companys net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below (in thousands except for per share
amounts).



|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|-------------------------------------------------- |  | ----------------------- |  | -------------------------------- | ------- | - | -------------------------------- | - | ---- | -
|                                                   |  |                         |  | Three monthsended March 31, 2005 |         |   | Three monthsended March 31, 2004 |  
|Net income (loss) available to Common Stockholders |  | As reported             |  | $                                | (46,069 | ) |                                  | $ | (123 | )
|                                                   |  | SFAS No. 123 Adjustment |  |                                  | (7      | ) |                                  |   | (59  | )
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|                                                   |  | Pro forma               |  | $                                | (46,076 | ) |                                  | $ | (182 | )
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|Basic earnings (loss) per share                    |  | As reported             |  | $                                | (1.28   | ) |                                  | $ |     |  
|                                                   |  | SFAS No. 123 Adjustment |  |                                  |        |   |                                  |   |     |  
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|                                                   |  | Pro forma               |  | $                                | (1.28   | ) |                                  | $ |     |  
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|Diluted earnings (loss) per share                  |  | As reported             |  | $                                | (1.28   | ) |                                  | $ |     |  
|                                                   |  | SFAS No. 123 Adjustment |  |                                  |        |   |                                  |   |     |  
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  
|                                                   |  | Pro forma               |  | $                                | (1.28   | ) |                                  | $ |     |  
|                                                   |  |                         |  |                                  |         |   |                                  |   |      |  



There were no stock options granted
during the three months ended March 31, 2005 and 2004.



Rental Properties



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



Purchase accounting is applied
to the assets and liabilities related to real estate properties acquired by the Company subsequent to June 30, 2001, the effective date of Statement of Financial Accounting Standards No. 141, Business Combinations, whereby the fair value of
the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other
value of at-market in-place leases and value of tenant relationships, based in each case on their fair values.



The fair value of the tangible assets (which includes land, building and tenant improvements) of an acquired property is determined by valuing the property as if it were vacant, and the as-if-vacant value
is then allocated to land, building and tenant improvements based on managements determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by
independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating
carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute
similar leases including leasing commissions, legal and other related costs.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market
in-place lease values are recorded based on the present value (using a discount rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and
(ii) managements estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values (included in rental
properties, gross in the accompanying consolidated balance sheet) are amortized as a reduction of rental revenue over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values (included in other
liabilities in the accompanying consolidated balance sheet) are amortized as an increase to rental revenue over the initial term and any fixed rate renewal periods in the respective leases.



The aggregate value of other acquired intangible assets, consisting of in-place leases and
tenant relationships (if any), is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as-if-vacant, determined as set
forth above. This aggregate value is allocated between at-market in-place lease values and tenant relationships (if any) based on managements evaluation of the specific characteristics of each tenants lease. Should future acquisitions of
properties result in allocating material amounts to the value of tenant relationships, this amount would be separately allocated and amortized over the estimated life of the relationship. The value of at-market in-place leases exclusive of the value
of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that
lease would be written off.



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 |  | 5 to 40 years                      
|Tenant improvements        |  | Term of the related lease          
|Furniture and equipment    |  | 5 to 7 years                       
|Acquired in-place leases   |  | Remaining term of the related lease



Expenditures for maintenance and
repairs are charged to operations as incurred. Maintenance expenditures include planned major maintenance activities such as painting, paving, HVAC and roofing repair costs. The Company expenses costs as incurred and does not accrue in advance of
planned major maintenance activities. Significant renovations or betterments that extend the economic useful lives of assets are capitalized.



Investments in Land and Development



The Company, through mezzanine loans and equity contributions, invests in various development alliances with projects currently under development. The interest on
advances and other direct project costs incurred by the Company are capitalized to the investments during the period in which the projects are under development. See Note 6 for further discussion.



Investments in Unconsolidated Operating Joint Ventures



The Companys investments in operating joint ventures are accounted for using the
equity method. The Company does not hold a controlling interest in any operating joint venture. See Note 7 for further discussion.



Mortgage Loans Receivable



The Company monitors the recoverability of its mortgage loans receivable through ongoing contact with the borrowers to ensure timely receipt of interest and principal
payments, and where appropriate, obtains financial information concerning the operation of the properties. Interest on mortgage loans receivable is recognized as



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



revenue as it accrues during the period the loan is outstanding. Mortgage loans receivable will be evaluated for impairment if it becomes
evident that the borrower is unable to meet its debt service obligations in a timely manner and cannot satisfy its payments using sources other than the operations of the property securing the loan. If it is concluded that such circumstances exist,
then such loan will be considered to be impaired and its recorded amount will be reduced to the estimated 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 its mortgage loans receivable will be different than the recorded amounts. See Note 8 for further discussion.



Cash and Cash Equivalents



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



Fair Value of Financial Instruments



For certain financial instruments, including cash and cash equivalents, accounts receivable (included in other assets), accounts payable and accrued liabilities (included in other liabilities), and the unsecured bank line of credit, the
recorded amounts approximate fair value due to the relatively short maturity period. Based on interest rates that the Company would be able to obtain for mortgage loans to third parties with similar terms, the carrying value of the Companys
mortgage loans receivable approximates fair value. Based on interest rates available to the Company for debt with comparable maturities and other terms, the estimated fair value of the Companys secured mortgage loans as of March 31, 2005 and
December 31, 2004, would be approximately $706,727 and $711,864 (in thousands), respectively.



Derivative Financial Instruments



The
Company may use derivative financial instruments in the event that it believes such instruments will be an effective hedge against fluctuations in interest rates on a specific borrowing. Derivative financial instruments such as forward rate
agreements or interest rate swaps may be used in this capacity. To the extent such instruments do not qualify as hedges, they will be accounted for on a mark-to-market basis and recorded in earnings each period as appropriate.



At March 31, 2005 and December 31, 2004, the Company was not a party to any derivative
financial instruments.



Leasing and Financing Costs



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.



Minority
Interest



Minority interest represents the 7.69% limited partner interests
in the Operating Partnership not held by the Company at March 31, 2005 and December 31, 2004. The Company periodically adjusts the carrying value of minority interest to reflect its share of the book value of the Operating Partnership. Such
adjustments are recorded to stockholders equity as a reallocation of limited partnership interest in the Operating Partnership.



Revenues



The Company recognizes rental revenue on a straight-line basis at amounts that it believes it will collect on a tenant by tenant basis. The estimation process may result in higher or lower levels from period to period
as the Companys collection experience and the credit quality of the Companys tenants change. Actual amounts collected could be lower or higher than the amounts recognized on a straight-line basis if specific tenants are unable to pay
rent that the Company has previously recognized as revenue, or if other tenants pay rent whom the Company previously estimated would not. Rental revenue also includes the amortization of above or below market in-place leases recognized in accordance
with SFAS No. 141 as discussed under the previous Rental Properties accounting policy.



The Companys portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. The Companys ability to re-lease the space to existing or new tenants at
rates equal to or greater



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



than those realized historically is impacted by, among other things, the economic conditions of the market in which a property is located,
the availability of competing space, and the level of improvements which may be required at the property. No assurance can be given that the rental rates that the Company will obtain in the future will be equal to or greater than those obtained
under existing contractual commitments.



Reimbursements from tenants for real
estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenses are incurred. Generally, differences between estimated and actual amounts are recognized in the subsequent year. However, where
actual expenses are significantly less than estimates, the Company will accrue the amounts estimated to be due to tenants in the same period.



For the three months ended March 31, 2005 and 2004, no one tenant represented 10% or more of rental revenue of the Company.



Fee and reimbursement revenue consists of fees for property management and asset management,
and transaction fees for acquisition, disposition, refinancing, leasing and construction supervision services from related parties and third parties.



Sales of Real Estate



The Company recognizes sales of real estate when a contract has been executed, a closing has occurred, the buyers initial and continuing investment is adequate to demonstrate a commitment to pay for the property
and the Company does not have a substantial continuing involvement in the property. Each property is deemed a separately identifiable component of the Company and is reported in discontinued operations when the operations and cash flows of the
property have been (or will be) eliminated from the ongoing operations of the Company as a result of a disposal transaction. Interest expense associated with a mortgage loan is classified as a component of discontinued operations if that loan is
directly secured by a property classified as a discontinued operation.



Income Taxes



The Company has elected to be taxed as a real
estate investment trust under Sections 856 to 860 of the Internal Revenue Code. A real estate investment trust is generally not subject to federal income tax on that portion of its taxable income that is distributed to its stockholders, provided
that at least 90% of taxable income is distributed. 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.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



Note 3. RENTAL PROPERTIES



The cost and accumulated depreciation of rental properties, by market, as of March 31, 2005 and December 31, 2004, are as follows (in thousands):



|                         |  |                      |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  
|------------------------ |  | -------------------- | ------- | - | ------------------------ | - | --------- | ---------- |  | - | ------------------------ | - |  | ------------------ | -------- | - |  | - | --------- | -
|                         |  | As of March 31, 2005 |        
|                         |  | Land                 |         |   | Buildings & Improvements |   |           | Total Cost |  |   | Accumulated Depreciation |   |  | Net Recorded Value |         
|Southern California      |  | $                    | 39,780  |   |                          | $ | 190,833   |            |  | $ | 230,613                  |   |  | $                  | (28,301  | ) |  | $ | 202,312   | *
|Washington D.C.          |  |                      | 39,126  |   |                          |   | 237,031   |            |  |   | 276,157                  |   |  |                    | (20,939  | ) |  |   | 255,218   | *
|Northern New Jersey      |  |                      | 26,133  |   |                          |   | 145,331   |            |  |   | 171,464                  |   |  |                    | (34,391  | ) |  |   | 137,073   |  
|Boston                   |  |                      | 21,237  |   |                          |   | 154,299   |            |  |   | 175,536                  |   |  |                    | (28,702  | ) |  |   | 146,834   | *
|San Francisco            |  |                      | 36,051  |   |                          |   | 83,743    |            |  |   | 119,794                  |   |  |                    | (14,510  | ) |  |   | 105,284   |  
|Chicago                  |  |                      | 2,746   |   |                          |   | 87,508    |            |  |   | 90,254                   |   |  |                    | (28,262  | ) |  |   | 61,992    |  
|Tampa/Orlando            |  |                      | 9,150   |   |                          |   | 47,586    |            |  |   | 56,736                   |   |  |                    | (11,389  | ) |  |   | 45,347    | *
|St. Louis                |  |                      | 7,192   |   |                          |   | 29,124    |            |  |   | 36,316                   |   |  |                    | (6,938   | ) |  |   | 29,378    |  
|Denver                   |  |                      | 6,222   |   |                          |   | 42,417    |            |  |   | 48,639                   |   |  |                    | (6,548   | ) |  |   | 42,091    | *
|Minneapolis              |  |                      | 6,129   |   |                          |   | 27,930    |            |  |   | 34,059                   |   |  |                    | (8,155   | ) |  |   | 25,904    |  
|Las Vegas                |  |                      | 7,746   |   |                          |   | 33,789    |            |  |   | 41,535                   |   |  |                    | (8,710   | ) |  |   | 32,825    |  
|All others               |  |                      | 14,713  |   |                          |   | 84,838    |            |  |   | 99,551                   |   |  |                    | (31,640  | ) |  |   | 67,911    |  
|Properties held for sale |  |                      | (1,772  | ) |                          |   | (7,027    | )          |  |   | (8,799                   | ) |  |                    | 2,091    |   |  |   | (6,708    | )
|                         |  |                      |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  
|Total                    |  | $                    | 214,453 |   |                          | $ | 1,157,402 |            |  | $ | 1,371,855                |   |  | $                  | (226,394 | ) |  | $ | 1,145,461 |  
|                         |  |                      |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  

---

|* | Includes acquisition costs allocated to at-market and above-market rate in-place leases, net of accumulated amortization, of $4,880 in Southern California, $11,639 in Washington
D.C., $4,887 in Boston, $587 in Tampa/Orlando, and $1,164 in Denver.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                         |  |                         |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  
|------------------------ |  | ----------------------- | ------- | - | ------------------------ | - | --------- | ---------- |  | - | ------------------------ | - |  | ------------------ | -------- | - |  | - | --------- | -
|                         |  | As of December 31, 2004 |        
|                         |  | Land                    |         |   | Buildings & Improvements |   |           | Total Cost |  |   | Accumulated Depreciation |   |  | Net Recorded Value |         
|Southern California      |  | $                       | 39,780  |   |                          | $ | 189,952   |            |  | $ | 229,732                  |   |  | $                  | (26,020  | ) |  | $ | 203,712   | *
|Washington D.C.          |  |                         | 40,877  |   |                          |   | 224,996   |            |  |   | 265,873                  |   |  |                    | (26,179  | ) |  |   | 239,694   | *
|Northern New Jersey      |  |                         | 26,133  |   |                          |   | 145,828   |            |  |   | 171,961                  |   |  |                    | (33,051  | ) |  |   | 138,910   |  
|Boston                   |  |                         | 21,237  |   |                          |   | 154,258   |            |  |   | 175,495                  |   |  |                    | (27,654  | ) |  |   | 147,841   | *
|San Francisco            |  |                         | 36,051  |   |                          |   | 84,239    |            |  |   | 120,290                  |   |  |                    | (14,164  | ) |  |   | 106,126   |  
|Chicago                  |  |                         | 2,746   |   |                          |   | 103,456   |            |  |   | 106,202                  |   |  |                    | (27,722  | ) |  |   | 78,480    |  
|Tampa/Orlando            |  |                         | 9,150   |   |                          |   | 47,390    |            |  |   | 56,540                   |   |  |                    | (10,938  | ) |  |   | 45,602    | *
|St. Louis                |  |                         | 7,192   |   |                          |   | 29,030    |            |  |   | 36,222                   |   |  |                    | (6,827   | ) |  |   | 29,395    |  
|Denver                   |  |                         | 6,222   |   |                          |   | 45,505    |            |  |   | 51,727                   |   |  |                    | (6,090   | ) |  |   | 45,637    | *
|Minneapolis              |  |                         | 6,129   |   |                          |   | 31,686    |            |  |   | 37,815                   |   |  |                    | (8,168   | ) |  |   | 29,647    |  
|Las Vegas                |  |                         | 7,746   |   |                          |   | 33,695    |            |  |   | 41,441                   |   |  |                    | (8,387   | ) |  |   | 33,054    |  
|All others               |  |                         | 15,837  |   |                          |   | 121,597   |            |  |   | 137,434                  |   |  |                    | (32,944  | ) |  |   | 104,490   |  
|Properties held for sale |  |                         | (8,593  | ) |                          |   | (63,370   | )          |  |   | (71,963                  | ) |  |                    | 9,935    |   |  |   | (62,028   | )
|                         |  |                         |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  
|Total                    |  | $                       | 210,507 |   |                          | $ | 1,148,262 |            |  | $ | 1,358,769                |   |  | $                  | (218,209 | ) |  | $ | 1,140,560 |  
|                         |  |                         |         |   |                          |   |           |            |  |   |                          |   |  |                    |          |   |  |   |           |  

---

|* | Includes acquisition costs allocated to at-market and above-market rate in-place leases, net of accumulated amortization, of $5,627 in Southern California, $7,287 in Washington
D.C., $5,244 in Boston, $621 in Tampa/Orlando, and $1,230 in Denver.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



NOTE 4. ACQUISITION OF RENTAL PROPERTY



On February 1, 2005, the Company acquired Metro Place II in Merrifield, VA, for a purchase price of $71.7 million. The property consists of a 234,466 square foot,
ten-story Class A multi-tenant office building and a six-level parking garage. Completed in 1999, the property is 100% leased primarily to defense industry tenants, and is not subject to any lease expirations until 2009. The purchase
price was funded with the 1031 tax deferred exchange proceeds from the sale of Rockwall I & II (as discussed in Note 5) and the assumption of a $39.4 million mortgage from a life insurance company. SFAS No. 141 requires the acquirer to allocate
a portion of the acquisition costs to intangible assets and liabilities in applying the purchase method of accounting. In accordance with SFAS No. 141, intangible assets related to at-market and above-market rate in-place leases recognized in this
transaction amounted to approximately $5.3 million. Liabilities related to below-market rate in-place leases amounted to approximately $1.0 million.



NOTE 5. DISPOSITIONS OF RENTAL PROPERTIES



On January 18, 2005, the Company completed the sale of Rockwall I and II, a 343,000 square foot office complex located in Rockville, MD, for a sale price of $76.75
million. The gain on sale recognized was approximately $17.3 million. Approximately $3 million of additional gain on sale has been deferred pending resolution of sale contingencies which the Company anticipates will be resolved during the second
quarter of 2005. In connection with the sale of Rockwall, the Company paid off a mortgage loan of $43.3 million and recognized a loss on early extinguishment of debt of $2.4 million which primarily consisted of a prepayment penalty in connection
with the loan payoff. The Company used the proceeds of this sale to acquire Metro Place II in a 1031 tax deferred exchange (as discussed in Note 4).



On February 9, 2005, the Company entered into a contract to sell a 93,000 square foot office building in Leawood, Kansas, for a sale price of $7.3 million. On the same
day, the Company recognized an impairment charge of approximately $3.8 million and the sale was completed. The proceeds from this disposition were used to pay down the Companys unsecured bank line of credit.



In accordance with SFAS 144 Accounting for the Impairment or Disposal of Long Lived
Assets, the gain on sale and the related operating results from these sold properties are classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. In addition, real estate
properties classified as held for sale are presented separately on the consolidated balance sheet with the related results from operations classified as discontinued operations in the accompanying consolidated statements of operations for all
periods presented. As of March 31, 2005, there were two properties, Lake Point Business Park and Park 100 Industrial, classified as held for sale. These two properties were sold in April 2005. See Note 20 for further discussion. Rockwall I and II
was classified as held for sale at December 31, 2004, and was sold in January 2005 as discussed above.



15



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



The major classes of assets and liabilities of the two properties classified as held for sale at March 31, 2005, and their related balances
at December 31, 2004, as well as the assets and liabilities of Rockwall I and II at December 31, 2004, are as follows (dollars in thousands):



|                                                     |  |               |        |   |                  |   |        |  
|---------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                     |  | March 31,2005 |        |   | December 31,2004 |  
|ASSETS                                               |  |               |        |   |                  |   |        |  
|Rental properties, gross                             |  | $             | 8,799  |   |                  | $ | 71,963 |  
|Accumulated depreciation                             |  |               | (2,091 | ) |                  |   | (9,935 | )
|                                                     |  |               |        |   |                  |   |        |  
|Rental properties, net                               |  |               | 6,708  |   |                  |   | 62,028 |  
|                                                     |  |              
|Leasing and financing costs, net                     |  |               | 88     |   |                  |   | 932    |  
|Other assets                                         |  |               | (244   | ) |                  |   | 968    |  
|                                                     |  |               |        |   |                  |   |        |  
|Properties held for sale                             |  | $             | 6,552  |   |                  | $ | 63,928 |  
|                                                     |  |               |        |   |                  |   |        |  
|LIABILITIES                                          |  |               |        |   |                  |   |        |  
|Notes payable                                        |  | $             |       |   |                  | $ | 43,322 |  
|Other liabilities                                    |  |               | 126    |   |                  |   | 58     |  
|                                                     |  |               |        |   |                  |   |        |  
|Obligations associated with properties held for sale |  | $             | 126    |   |                  | $ | 43,380 |  
|                                                     |  |               |        |   |                  |   |        |  



Below is a summary of the results of
operations of: (i) sold properties through their respective disposition dates and (ii) properties held for sale through the current reporting period (dollars in thousands):



|                                                         |  |                              |        |   |      |   |      
|-------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | -----
|                                                         |  | Three months ended March 31,
|                                                         |  | 2005                         |        |   | 2004
|Total rental revenue                                     |  | $                            | 866    |   |      | $ | 4,477
|                                                         |  |                              |        |   |      |   |      
|Property operating expenses                              |  |                              | 366    |   |      |   | 1,448
|Depreciation and amortization                            |  |                              | 363    |   |      |   | 1,446
|Provision for impairment of real estate assets           |  |                              | 3,826  |   |      |   |     
|Interest expense                                         |  |                              | 146    |   |      |   | 1,092
|Loss on early extinguishment of debt                     |  |                              | 2,378  |   |      |   |     
|                                                         |  |                              |        |   |      |   |      
|Total expenses                                           |  |                              | 7,079  |   |      |   | 3,986
|                                                         |  |                              |        |   |      |   |      
|Income (loss) before gain on sales of real estate assets |  |                              | (6,213 | ) |      |   | 491  
|Gain on sales of real estate assets                      |  |                              | 17,320 |   |      |   | 120  
|                                                         |  |                              |        |   |      |   |      
|Discontinued operations                                  |  | $                            | 11,107 |   |      | $ | 611  
|                                                         |  |                              |        |   |      |   |      



NOTE 6. INVESTMENTS IN LAND AND
DEVELOPMENT



The Companys investments in land and development
decreased from $147,435,000 at December 31, 2004, to $132,728,000 at March 31, 2005. This decrease is primarily due to the disposition of approximately 28 acres of land held for development, known as Eden Shores located in Hayward, California. On
March 25, 2005, the Company entered into a contract to sell Eden Shores to an unaffiliated third party which owns land adjacent to this parcel for a sale price of $12 million. At that time, the Company recognized an impairment charge of
approximately $5.1 million which is included in the provision for impairment of real estate assets in the accompanying consolidated statement of operations for the three months ended March 31, 2005. On March 28, 2005, the sale was completed. The
Company received $5 million in cash and a $7 million first mortgage loan receivable, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a
maturity date of March 28, 2007.



16



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



In addition, on January 31, 2005, the Company sold its interest in the Gateway Office Five development project located in Denver, Colorado,
which was in the form of a mezzanine loan with a net basis of approximately $835,000 as of December 31, 2004 (see table below). In connection with this sale, the mezzanine loan principal balance and accrued interest was paid off in full. In
addition, the Company received a $430,000 fee to terminate its acquisition rights for this property. This fee in included in interest and other income on the accompanying consolidated statement of operations for the three months ended March 31,
2005.



As of March 31, 2005 and December 31, 2004, the Company had investments
in the following properties under development and land held for development. The investment descriptions are as of March 31, 2005 (dollars in thousands).



|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|----------------------------------------- |  | --------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ |  | ----------------------- | - | ----------------- | ---- |  | ------------------------------------ | ------- | --- | --------------------------------------- | - | ------ | ---
|Market                                    |  | Properties                  |  | Description                                                                                                                         |  | City                     |  | Proposed Square Footage |   | Economic Interest |      |  | Investment Balance at March 31, 2005 |         |     | Investment Balance at December 31, 2004 |  
|Denver                                    |  | Gateway Office Five         |  | Fifth office building constructed at Gateway Park (1-story)                                                                         |  | Denver                   |  |                        |   |                  | (1)  |  |                                      |        | (1) |                                         | $ | 835    |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|TOTAL PROPERTIES UNDER DEVELOPMENT        |  |                             |  |                                                                                                                                    |  |                          |  |                         |   |                  |      |  | $                                    | 835     |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|Boston                                    |  | Marlborough Corporate Place |  | Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place                      |  | Marlborough              |  | 235,000                 |   | 100               | %    |  | $                                    | 5,192   |     |                                         | $ | 5,170  |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|                                          |  | Subtotal - Boston           |  |                                                                                                                                     |  |                          |  | 235,000                 |   |                   |      |  |                                      | 5,192   |     |                                         |   | 5,170  |    
|                                          |  |                             |  |                                                                                                                                     |  |                          | 
|Denver                                    |  | Gateway Park                |  | 1,200 acre mixed-use park near Denver International Airport; approximately 442 acres undeveloped                                    |  | Denver                   |  | to bedetermined         |   | 50                | %(2) |  |                                      | 35,202  | (2) |                                         |   | 34,636 | (2)
|                                          |  |                             |  |                                                                                                                                     |  |                          | 
|                                          |  | Lima Street                 |  | 19.5 acres of undeveloped land in Englewood, Colorado, zoned for office use                                                         |  | Denver                   |  | 120,000                 |   | 100               | %    |  |                                      | 4,750   |     |                                         |   | 4,750  |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|                                          |  | Subtotal - Denver           |  |                                                                                                                                     |  |                          |  | 120,000                 |   |                   |      |  |                                      | 39,952  |     |                                         |   | 39,386 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          | 
|San Francisco                             |  | Marina Shores               |  | 33.2 acre mixed-use waterfront community which could include office, retail and multifamily units; currently in entitlement process |  | Redwood City             |  | to bedetermined         |   | 50                | %(3) |  |                                      | 81,553  |     |                                         |   | 79,548 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          | 
|                                          |  | Eden Shores                 |  | 27 acres zoned for the construction of a 600,000 square foot office park                                                            |  | Hayward                  |  |                        |   |                  | (4)  |  |                                      |        | (4) |                                         |   | 16,530 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|                                          |  | Subtotal - San Francisco    |  |                                                                                                                                     |  |                          |  |                        |   |                   |      |  |                                      | 81,553  |     |                                         |   | 96,078 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          | 
|                                          |  |                             |  | Other land not currently under development                                                                                          |  | New Jersey/San Francisco |  |                         |   |                   |      |  |                                      | 6,031   |     |                                         |   | 5,966  |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|TOTAL LAND HELD FOR DEVELOPMENT           |  |                             |  | 355,000                                                                                                                             |  |                          |  |                         | $ | 132,728           |      |  | $                                    | 146,600 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    
|TOTAL INVESTMENTS IN LAND AND DEVELOPMENT |  |                             |  | 355,000                                                                                                                             |  |                          |  |                         | $ | 132,728           |      |  | $                                    | 147,435 |    
|                                          |  |                             |  |                                                                                                                                     |  |                          |  |                         |   |                   |      |  |                                      |         |     |                                         |   |        |    

---

|(1) | Interest previously held in the form of a mezzanine loan. In the first quarter of 2005, the
mezzanine loan was paid off in full. See above for further discussion.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest in the form of mezzanine loans and equity. In addition, the Company holds a mortgage loan receivable secured by the land with a balance of $13,220 and
$12,872 at March 31, 2005 and December 31, 2004, respectively (see Note 8 for further discussion).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



|(3) | Interest in the form of equity and mezzanine loans. The Company consolidated this entity on January 1, 2004, pursuant to FIN 46 Revised. See Note 15 for further
discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | In the first quarter of 2005, the Company sold this property to an unaffiliated third party.
See above for further discussion.
|--- | ------------------------------------------------------------------------------------------------------------------------------



The Company has no further
contractual obligations for the future funding of these developments; however, the Company will likely be funding a portion of their working capital needs until such time as other financing is obtained. Under its development alliances, the Company
has provided an aggregate of approximately $2.5 million in debt guarantees; however, some of the loans were not fully drawn as of March 31, 2005. These guarantees will remain in place until such time as the related development financing has been
replaced or repaid, the terms of which vary from less than 1 year to up to 2 years. The Company would be required to perform under these guarantees in the event that the proceeds generated by the sale, refinance or additional capital contribution by
partners of the development project were insufficient to repay the full amount of the related debt financing. There is currently no recorded liability for any amounts that may become payable under these guarantees, nor is there a liability for the
Companys obligation to stand-ready to fund such guarantees which were all originally issued prior to 2003. In the event that the Company must make payments under one of these guarantees, its only recourse is to the limited
liability companies that own the properties. No estimate of the amount that could be recovered by the Company in such an event can be made at this time.



Certain of the alliances with which the Company conducts business have been deemed to be VIEs as defined by FIN 46 Revised, however, other than Marina Shores as discussed
in Note 15, none of these VIEs are required to be consolidated as the Company is not deemed to be the primary beneficiary as defined by FIN 46 Revised. The total assets and liabilities of such entities were approximately $87.4 million and $50.9
million, respectively, at March 31, 2005, and $92.8 million and $54.5 million, respectively, at December 31, 2004. The Companys maximum exposure to loss is equal to its investments in these arrangements, plus the related debt guarantees, as
described above.



NOTE 7. INVESTMENTS IN UNCONSOLIDATED OPERATING JOINT
VENTURES



The Companys investments in unconsolidated operating joint
ventures are accounted for using the equity method. The Company records earnings on its investments equal to its ownership interest in the ventures earnings and losses. Distributions are recorded as a reduction of the Companys
investment.



The Companys investments in unconsolidated operating joint
ventures consisted of the following as of March 31, 2005 and December 31, 2004 (dollars in thousands):



|                     |  |                    |   |  |                   |  |                      |       |  |               |  |                    |        |               |   |       
|-------------------- |  | ------------------ | - |  | ----------------- |  | -------------------- | ----- |  | ------------- |  | ------------------ | ------ | ------------- | - | ------
|                     |  |                    |   |  |                   |  |                      |       |  |               |  | Investment Balance
|Joint Venture        |  | Ownership Interest |   |  | Property Location |  | Square Footage/Units |       |  | Property Type |  | Mar. 31, 2005      |        | Dec. 31, 2004
|Rincon Center I & II |  | 10                 | % |  | San Francisco, CA |  | 741,103              | sf    |  | Mixed-Use     |  | $                  | 4,094  |               | $ | 4,158 
|2000 Corporate Ridge |  | 10                 | % |  | McLean, VA        |  | 255,980              | sf    |  | Office        |  |                    | 3,058  |               |   | 3,018 
|Gateway Retail I     |  | 50                 | % |  | Denver, CO        |  | 12,000               | sf    |  | Retail        |  |                    | 408    |               |   | 406   
|Lakecrest Apartments |  | 27                 | % |  | Aurora, CO        |  | 440                  | units |  | Residential   |  |                    | 4,315  |               |   | 4,432 
|                     |  |                    |   |  |                   |  |                      |       |  |               |  |                    |        |               |   |       
|                     |  |                    |   |  |                   |  |                      |       |  |               |  | $                  | 11,875 |               | $ | 12,014
|                     |  |                    |   |  |                   |  |                      |       |  |               |  |                    |        |               |   |       



NOTE 8. MORTGAGE LOANS RECEIVABLE



The Company holds a first mortgage of approximately $13.2 million,
including accrued interest, at March 31, 2005, secured by a 50% interest in 152 acres of land at Gateway Business Park in Aurora, Colorado. The loan was originally funded in June 1998, had a fixed interest rate of 6.5% and a maturity date of July
2007. In July 2004, the loan agreement was amended to increase the interest rate to 9.0%. Periodic payments of interest and principal are received on the loan from proceeds of land parcel sales in the project. Gateway Business Park is a development
project where the Company and the Pauls Corporation have an alliance and where the Company has also acquired property. In this arrangement, the Company has rights under certain conditions and subject to certain contingencies to purchase the
properties upon completion of development. No loan loss reserves have been recorded related to this loan. The borrowing entities in this loan arrangement have been deemed to be VIEs, but the Company is not deemed to be the primary beneficiary as
defined by FIN 46 Revised. The Companys maximum exposure to loss is equal to the recorded amount of its loan, including accrued interest.



18



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



As discussed in Note 6, in connection with the Companys disposition of approximately 28 acres of land held for development, known as
Eden Shores located in Hayward, California, the Company holds a first mortgage loan receivable of $7 million, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of
approximately $59,000, and a maturity date of March 28, 2007.



NOTE 9. OTHER
ASSETS



As of March 31, 2005 and December 31, 2004, other assets on the
consolidated balance sheets consist of the following (in thousands):



|                                                                                                                           |  |      |        |      |   |       
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                                                                           |  | 2005 |        | 2004
|Accounts receivable, net of allowances of $332 and $1,422 as of March 31, 2005 and December 31, 2004, respectively         |  | $    | 3,049  |      | $ | 2,931 
|Straight-line rent receivable, net of allowances of $178 and $528 as of March 31, 2005 and December 31, 2004, respectively |  |      | 17,008 |      |   | 15,705
|Prepaid expenses                                                                                                           |  |      | 4,543  |      |   | 1,239 
|Impound accounts                                                                                                           |  |      | 990    |      |   | 1,047 
|Notes receivable                                                                                                           |  |      | 3,594  |      |   | 3,605 
|Investment in management contracts, net of accumulated amortization                                                        |  |      | 1,012  |      |   | 1,156 
|Other                                                                                                                      |  |      | 222    |      |   | 287   
|                                                                                                                           |  |      |        |      |   |       
|Total other assets                                                                                                         |  | $    | 30,418 |      | $ | 25,970
|                                                                                                                           |  |      |        |      |   |       



NOTE 10. SECURED AND UNSECURED
LOANS



The Company had the following mortgage loans and unsecured bank
line of credit outstanding as of March 31, 2005 and December 31, 2004 (dollars in thousands):



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 2005 |         | 2004
|Secured loans with various lenders, bearing interest at fixed rates between 4.73% and 8.13% at March 31, 2005, and 4.99% and 8.13% at December
31, 2004, with monthly principal and interest payments ranging between $28 and $235 and maturing at various dates through December 1, 2013. These loans are secured by properties with an aggregate net carrying value of $567,928 and $497,782 at March
31, 2005 and December 31, 2004, respectively. One of these loans includes an unamortized premium of $1,117 and $1,190 at March 31, 2005 and December 31, 2004, respectively. |  | $    | 381,123 |      | $ | 345,992
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |     
|Secured loans with various lenders, bearing interest at variable rates ranging between 4.87% and 6.12% at March 31, 2005, and between 4.15%
and 5.65% at December 31, 2004, and maturing at various dates through November 10, 2008. These loans are secured by properties with an aggregate net carrying value of $85,841 and $161,541 at March 31, 2005 and December 31, 2004,
respectively.                                                                                                                                                                                       |  |      | 83,703  |      |   | 116,978





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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |         |      |   |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | 2005 |         | 2004
|Secured loan with an insurance company, net of unamortized discount of $439 and $467 at March 31, 2005 and December 31, 2004, respectively.
The loan has two fixed rate components. The fixed rate component of $43,621 at March 31, 2005 bears interest at 6.13%, matures on February 11, 2009, and requires monthly principal and interest payments of $296. The fixed rate component of $139,910
at March 31, 2005 bears interest at 5.91%, matures on February 11, 2009, and requires monthly principal and interest payments of $923. The two components are cross-collateralized and are secured by properties with an aggregate net carrying value of
$233,765 and $237,406 at March 31, 2005 and December 31, 2004, respectively. |  | $    | 183,531 |      | $ | 184,412
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |     
|Secured loan with an insurance company, net of unamortized discount of $503 and $538 at March 31, 2005 and December 31, 2004, respectively.
The loan bears a fixed interest rate at 6.13%, matures on November 10, 2008, and requires monthly principal and interest payments of $343. This loan is secured by a cross-collateralized pool of properties with an aggregate net carrying value of
$107,167 and $108,228 at March 31, 2005 and December 31, 2004, respectively.                                                                                                                                                                                                                                                             |  |      | 50,478  |      |   | 50,688 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |         |      |   |        
|Total mortgage loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |      | 698,835 |      |   | 698,070
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |     
|Unsecured $180,000 line of credit with a group of commercial banks, with a variable interest rate of 30-day LIBOR plus 1.525% and 1.750% at
March 31, 2005 and December 31, 2004 (4.40% and 4.15%, respectively), monthly interest only payments and a maturity date of March 26, 2007, with one one-year extension option.                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 101,889 |      |   | 21,320 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |         |      |   |        
|Total secured and unsecured loans before adjustment for properties held for sale                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  | $    | 800,724 |      | $ | 719,390
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |      |         |      |   |        



Mortgage loans on the consolidated
balance sheets as of March 31, 2005 and December 31, 2004 are presented net of properties classified as held for sale. The following table reconciles total mortgage loans from the table above to the amounts presented on the consolidated balance
sheets:



|                                                            |  |                |         |                   |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | ----------------- | - | ------- | -
|                                                            |  | March 31, 2005 |         | December 31, 2004 |  
|Total mortgage loans                                        |  | $              | 698,835 |                   | $ | 698,070 |  
|Mortgage loans related to properties held for sale (Note 5) |  |                |        |                   |   | (43,322 | )
|                                                            |  |                |         |                   |   |         |  
|Total mortgage loans adjusted for properties held for sale  |  | $              | 698,835 |                   | $ | 654,748 |  
|                                                            |  |                |         |                   |   |         |  



At March 31, 2005 and December 31,
2004, the Companys indebtedness included fixed-rate debt of $615,132,000 and $581,092,000, respectively, and floating-rate debt of $185,592,000 and $138,298,000, respectively.



In accordance with FIN 46 Revised, the Company began consolidating the entity known as Marina Shores, effective January 1, 2004, as the
Company is deemed to be the primary beneficiary as defined by FIN 46 Revised. Marina Shores has total debt of $45 million consisting of two loans, with a $30 million loan bearing interest at the fixed rate of 6.11%, and a $15 million loan bearing
interest at the fixed rate of 8.11%. Both loans require monthly interest-only payments and mature on February 15, 2006.



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



In the first quarter of 2005, in connection with the acquisition of Metro Place II, an office property located in Merrifield, Virginia (as
discussed in Note 4), the Company assumed a $39.4 million mortgage loan with an insurance company. The loan bears interest at the fixed rate of 5.06% and matures on May 1, 2010.



In the first quarter of 2005, the Company refinanced a floating-rate loan which was secured by 1100 17thStreet, an office property located in Washington, D.C. The new loan is a $29 million, 4.73% fixed-rate loan with a maturity date of March 1, 2010 and
is secured by the same property. The previous loan had a balance of approximately $20.3 million at the time of the refinance, had a floating interest rate of 30-day LIBOR plus 1.75% with a 3.5% floor, and a maturity date of July 1, 2007. The excess
loan proceeds were used to pay down the Companys unsecured bank line of credit. In connection with this transaction, the Company recognized a loss on early extinguishment of debt of approximately $0.5 million which consisted of a prepayment
penalty and the write-off of unamortized original financing costs.



In the
first quarter of 2005, in connection with the disposition of Rockwall I & II, an office complex located in Rockville, Maryland (as discussed in Note 5), the Company paid off a mortgage loan of $43.3 million which had a fixed interest rate of
6.77% and a maturity date of October 1, 2006. In connection with this payoff, the Company recognized a loss on early extinguishment of debt of approximately $2.4 million which primarily consisted of a prepayment penalty in connection with the loan
payoff, as well as the write-off of unamortized original financing costs.



In
the first quarter of 2005, the Company refinanced a floating-rate construction loan secured by an office property located in Bridgewater, New Jersey. The previous loan had a balance of approximately $12.8 million at the time of the refinance, had a
floating interest rate of 30-date LIBOR plus 2.45% and a maturity date of January 5, 2005. The outstanding balance was reduced to $10.8 million with a fixed interest rate of 5.19% and a maturity date of January 5, 2006.



At March 31, 2005 and December 31, 2004, the Company was not a party to any open interest
rate protection agreements. Some of the Companys properties are held in limited partnerships and limited liability companies in order to facilitate financing. All such entities are owned 100% directly or indirectly by the Company.



The required principal payments on the Companys debt for the next five years and
thereafter, as of March 31, 2005, are as follows (in thousands). Included in the year ending December 31, 2007, is the unsecured bank line of credit balance of $101,889 which has an initial maturity of March 26, 2007.



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ending December 31, |  |  
|2005                     |  | $ | 60,068 
|2006                     |  |   | 134,669
|2007                     |  |   | 112,504
|2008                     |  |   | 143,967
|2009                     |  |   | 202,250
|Thereafter               |  |   | 147,266
|                         |  |   |        
|Total                    |  | $ | 800,724
|                         |  |   |        



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



NOTE 11. OTHER LIABILITIES



As of March 31, 2005 and December 31, 2004, other liabilities on the consolidated balance sheets consist of the following (in thousands):



|                                                                       |  |      |        |      |   |       
|---------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                       |  | 2005 |        | 2004
|Accounts payable and accrued liabilities                               |  | $    | 2,697  |      | $ | 3,863 
|SFAS No. 141 below market rate leases, net of accumulated amortization |  |      | 5,426  |      |   | 4,952 
|Unsecured note payable                                                 |  |      | 2,744  |      |   | 2,710 
|Accrued retirement benefits                                            |  |      | 5,347  |      |   | 5,292 
|Interest payable                                                       |  |      | 2,281  |      |   | 1,953 
|Security deposits                                                      |  |      | 6,791  |      |   | 6,413 
|Property taxes payable                                                 |  |      | 2,125  |      |   | 1,474 
|Prepaid rents                                                          |  |      | 3,851  |      |   | 4,295 
|Deferred gain on sale (see Note 5)                                     |  |      | 2,960  |      |   |      
|Deferred income                                                        |  |      | 131    |      |   | 250   
|                                                                       |  |      |        |      |   |       
|Total other liabilities                                                |  | $    | 34,353 |      | $ | 31,202
|                                                                       |  |      |        |      |   |       



NOTE 12. RELATED PARTY TRANSACTIONS



Fee and reimbursement income earned by the Company from related parties
totaled approximately $122,000 and $829,000 for the three months ended March 31, 2005 and 2004, respectively, and consisted of property management, asset management and other fee income.



NOTE 13. PROVISION FOR IMPAIRMENT OF REAL ESTATE ASSETS



In connection with the Companys decision in March 2005 to dispose of assets in its non-core markets and certain non-core assets in
core markets, the Company has reduced the intended holding period of 21 assets to two years or less. Based on the Companys analysis of the future undiscounted cash flows of each asset over the next two years, the Company determined that nine
of the assets were impaired. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was approximately $49.3 million. When combined with impairment charges
recognized on two additional assets sold during the first quarter of 2005 (as discussed in Notes 5 and 6), the total impairment charge recognized during the three months ended March 31, 2005, was approximately $58.2 million ($3.8 million of which is
included in discontinued operations). The remaining twelve assets are expected to generate gains on sale.



Following is a list of the 11 assets for which an impairment charge was recorded during the first quarter of 2005:



|                                     |  |              |  |               
|------------------------------------ |  | ------------ |  | --------------
|Property                             |  | Market       |  | Square Footage
|Oakbrook Terrace Corp Center III     |  | Chicago      |  | 232,052       
|Columbia Centre II                   |  | Chicago      |  | 150,133       
|Embassy Plaza                        |  | Chicago      |  | 140,744       
|Riverview Office Tower               |  | Minneapolis  |  | 227,129       
|Osram Building                       |  | Indianapolis |  | 45,265        
|Capitol Center                       |  | Des Moines   |  | 165,127       
|Thousand Oaks                        |  | Memphis      |  | 420,177       
|Northglenn Business Center           |  | Denver       |  | 65,000        
|Fairfield Business Quarters          |  | New Jersey   |  | 42,792        
|Leawood Office Building (see Note 5) |  | Kansas City  |  | 92,787        
|Eden Shores (see Note 6)             |  | Hayward      |  | 27.94 acres   



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



NOTE 14. LOSS ON EARLY EXTINGUISHMENT OF DEBT



In connection with various loan payoffs (as discussed in Note 10), including those related to properties classified as discontinued
operations, the Company recorded aggregate losses on early extinguishment of debt of $2,939,000 and $85,000 during the three months ended March 31, 2005 and 2004, consisting of prepayment penalties and write-offs of unamortized original financing
costs. Of these total losses, $2,378,000 has been included in discontinued operations for the three months ended March 31, 2005, as it was related to a loan payoff in connection with a property sale.



NOTE 15. CONSOLIDATION UNDER FIN 46 REVISED



In accordance with FIN 46 Revised, the Company began consolidating the entity known as
Marina Shores, effective January 1, 2004, as the Company is deemed to be the primary beneficiary as defined by FIN 46 Revised. The implementation of this change was accounted for as a change in accounting principle and applied cumulatively as of
January 1, 2004. The effect of this change on the Companys consolidated balance sheet as of March 31, 2005 and December 31, 2004, and the Companys consolidated statements of operations for the three months ended March 31, 2005 and 2004,
is detailed in the table below. All intercompany transactions, receivables and payables have been eliminated in consolidation.



|                                                        |  |                                   |        |   |                                    |   |        |  
|------------------------------------------------------- |  | --------------------------------- | ------ | - | ---------------------------------- | - | ------ | -
|                                                        |  | As ofMarch 31, 2005(in 000s)     |        |   | As of December 31, 2004 (in 000s) |  
|Balance Sheet                                           |  |                                   |        |   |                                    |   |        |  
|Investments in land and development                     |  | $                                 | 46,083 |   |                                    | $ | 46,087 |  
|Cash and cash equivalents                               |  |                                   | 1,021  |   |                                    |   | 570    |  
|Other assets                                            |  |                                   | 90     |   |                                    |   | 105    |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|Total assets                                            |  | $                                 | 47,194 |   |                                    | $ | 46,762 |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|Mortgage loans(1)                                       |  | $                                 | 45,000 |   |                                    | $ | 45,000 |  
|Other liabilities                                       |  |                                   | 479    |   |                                    |   | 151    |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|Total liabilities                                       |  |                                   | 45,479 |   |                                    |   | 45,151 |  
|                                                        |  |                                  
|Minority interest                                       |  |                                   | 2,531  |   |                                    |   | 2,451  |  
|Stockholders equity                                    |  |                                   | (816   | ) |                                    |   | (840   | )
|                                                        |  |                                   |        |   |                                    |   |        |  
|Total liabilities and stockholders equity              |  | $                                 | 47,194 |   |                                    | $ | 46,762 |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|                                                        |  |                                  
|                                                        |  | Three Months Ended March 31, 2005 |        |   | Three Months Ended March 31, 2004  |  
|Statements of Operations                                |  |                                   |        |   |                                    |   |        |  
|Fees and reimbursements, including from related parties |  | $                                 | (20    | ) |                                    | $ | (20    | )
|                                                        |  |                                   |        |   |                                    |   |        |  
|Interest expense                                        |  |                                   | (45    | ) |                                    |   | (35    | )
|Cumulative effect of change in accounting principle     |  |                                   |       |   |                                    |   | 912    |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|Total expenses                                          |  |                                   | (45    | ) |                                    |   | 877    |  
|                                                        |  |                                   |        |   |                                    |   |        |  
|Net income (loss)                                       |  | $                                 | 25     |   |                                    | $ | (897   | )
|                                                        |  |                                   |        |   |                                    |   |        |  

---

|(1) | Contains a recourse provision to the Company in the amount of $30 million.
|--- | --------------------------------------------------------------------------



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



The cumulative effect of the change in accounting principle resulted in a one-time non-cash reduction to the Companys net income of
$912,000, or approximately $0.03 per share, during the three months ended March 31, 2004, which represented the elimination of intercompany fee income recognized, partially offset by additions to capitalized interest on this development project as
if Marina Shores had been consolidated at the inception of the Companys investment.



NOTE 16. EARNINGS PER SHARE



Earnings
per share are as follows (in thousands, except for weighted average shares and per share amounts):



|                                                             |  |                              |            |   |      |   |            |  
|------------------------------------------------------------ |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                             |  | Three months ended March 31, |           
|                                                             |  | 2005                         |            |   | 2004 |  
|Net income (loss) available to Common Stockholders  Basic   |  | $                            | (46,069    | ) |      | $ | (123       | )
|Minority interest                                            |  |                              |           |   |      |   | (12        | )
|                                                             |  |                              |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders  Diluted |  | $                            | (46,069    | ) |      | $ | (135       | )
|                                                             |  |                              |            |   |      |   |            |  
|Weighted average shares:                                     |  |                              |            |   |      |   |            |  
|Basic                                                        |  |                              | 35,928,962 |   |      |   | 28,564,399 |  
|Stock options and restricted stock                           |  |                              |           |   |      |   | 333,170    |  
|Convertible Operating Partnership Units                      |  |                              |           |   |      |   | 3,001,957  |  
|                                                             |  |                              |            |   |      |   |            |  
|Diluted                                                      |  |                              | 35,928,962 |   |      |   | 31,899,526 |  
|                                                             |  |                              |            |   |      |   |            |  
|Basic earnings (loss) per share                              |  | $                            | (1.28      | ) |      | $ | 0.00       |  
|Diluted earnings (loss) per share                            |  | $                            | (1.28      | ) |      | $ | 0.00       |  



For the three months ended March 31,
2005, 243,450 options to purchase shares of the Companys common stock and 3,001,957 convertible operating partnership units have been excluded from the computation of diluted earnings per share as they are anti-dilutive. For the three months
ended March 31, 2005 and 2004, options to purchase shares of the Companys common stock of 2,514,584 and 2,628,907, respectively, have been excluded from the computation of diluted earnings per share as their exercise prices were greater than
the average market price of the Companys common stock of $19.68 and $20.53 for the three months ended March 31, 2005 and 2004, respectively. The preferred stock has been excluded from the computation of diluted earnings per share as it is
anti-dilutive in all periods presented.



NOTE 17. SEGMENT INFORMATION



The Company owns and operates primarily office properties throughout the
United States and manages its business by geographic markets. During the three months ended March 31, 2005, office properties represented approximately 95% of the Companys portfolio by net operating income and consist primarily of multi-tenant
office buildings. The remaining 5% of the Companys portfolio consists primarily of industrial properties designed for warehouse, distribution and light manufacturing for single-tenant or multi-tenant use. The Companys geographic markets
are managed separately as each market requires different operating, pricing and leasing strategies. Each represents a reportable segment. As of March 31, 2005, the Companys largest markets are Southern California, Washington D.C., Northern New
Jersey, Boston and San Francisco.



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company
evaluates performance based upon net operating income of the combined properties which represents rental revenue less property operating expenses in each segment. Significant information used by the Company for its reportable segments (including
discontinued operations) as of and for the three months ended March 31, 2005 and 2004, is as follows (in thousands):



|                                               |  |                                  |        |                                  |   |      
|---------------------------------------------- |  | -------------------------------- | ------ | -------------------------------- | - | -----
|                                               |  | Three MonthsEnded March 31, 2005 |        | Three MonthsEnded March 31, 2004
|Southern California                            |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 8,693  |                                  | $ | 8,196
|Property operating expenses                    |  |                                  | 2,752  |                                  |   | 2,622
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 5,941  |                                  | $ | 5,574
|                                               |  |                                  |        |                                  |   |      
|Washington D.C.                                |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 8,004  |                                  | $ | 8,500
|Property operating expenses                    |  |                                  | 2,295  |                                  |   | 2,368
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 5,709  |                                  | $ | 6,132
|                                               |  |                                  |        |                                  |   |      
|Northern New Jersey                            |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 5,881  |                                  | $ | 6,175
|Property operating expenses                    |  |                                  | 2,464  |                                  |   | 2,330
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 3,417  |                                  | $ | 3,845
|                                               |  |                                  |        |                                  |   |      
|Provision for impairment of real estate assets |  | $                                | 836    |                                  | $ |     
|                                               |  |                                  |        |                                  |   |      
|Boston                                         |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 6,479  |                                  | $ | 7,775
|Property operating expenses                    |  |                                  | 3,158  |                                  |   | 3,027
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 3,321  |                                  | $ | 4,748
|                                               |  |                                  |        |                                  |   |      
|San Francisco                                  |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 2,475  |                                  | $ | 2,621
|Property operating expenses                    |  |                                  | 729    |                                  |   | 942  
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 1,746  |                                  | $ | 1,679
|                                               |  |                                  |        |                                  |   |      
|Chicago                                        |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 3,093  |                                  | $ | 3,104
|Property operating expenses                    |  |                                  | 1,586  |                                  |   | 1,485
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 1,507  |                                  | $ | 1,619
|                                               |  |                                  |        |                                  |   |      
|Provision for impairment of real estate assets |  | $                                | 15,988 |                                  | $ |     
|                                               |  |                                  |        |                                  |   |      
|Tampa/Orlando                                  |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 2,352  |                                  | $ | 1,878
|Property operating expenses                    |  |                                  | 755    |                                  |   | 673  
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 1,597  |                                  | $ | 1,205
|                                               |  |                                  |        |                                  |   |      
|St. Louis                                      |  |                                  |        |                                  |   |      
|Rental revenue                                 |  | $                                | 2,002  |                                  | $ | 2,017
|Property operating expenses                    |  |                                  | 838    |                                  |   | 781  
|                                               |  |                                  |        |                                  |   |      
|Net operating income                           |  | $                                | 1,164  |                                  | $ | 1,236
|                                               |  |                                  |        |                                  |   |      



continued



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



|                                               |  |                                  |        |   |                                  |   |        |  
|---------------------------------------------- |  | -------------------------------- | ------ | - | -------------------------------- | - | ------ | -
|                                               |  | Three MonthsEnded March 31, 2005 |        |   | Three MonthsEnded March 31, 2004 |  
|Denver                                         |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | 1,693  |   |                                  | $ | 1,183  |  
|Property operating expenses                    |  |                                  | 638    |   |                                  |   | 491    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | 1,055  |   |                                  | $ | 692    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Provision for impairment of real estate assets |  | $                                | 3,136  |   |                                  | $ |       |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Minneapolis                                    |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | 1,621  |   |                                  | $ | 1,447  |  
|Property operating expenses                    |  |                                  | 687    |   |                                  |   | 637    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | 934    |   |                                  | $ | 810    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Provision for impairment of real estate assets |  | $                                | 3,597  |   |                                  | $ |       |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Las Vegas                                      |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | 1,284  |   |                                  | $ | 1,073  |  
|Property operating expenses                    |  |                                  | 304    |   |                                  |   | 248    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | 980    |   |                                  | $ | 825    |  
|                                               |  |                                  |        |   |                                  |   |        |  
|All Others                                     |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | 3,772  |   |                                  | $ | 3,534  |  
|Property operating expenses                    |  |                                  | 1,635  |   |                                  |   | 1,709  |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | 2,137  |   |                                  | $ | 1,825  |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Provision for impairment of real estate assets |  | $                                | 34,679 |   |                                  | $ |       |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Discontinued Operations                        |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | (866   | ) |                                  | $ | (4,477 | )
|Property operating expenses                    |  |                                  | (366   | ) |                                  |   | (1,448 | )
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | (500   | ) |                                  | $ | (3,029 | )
|                                               |  |                                  |        |   |                                  |   |        |  
|Provision for impairment of real estate assets |  | $                                | (3,826 | ) |                                  | $ |       |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Total                                          |  |                                  |        |   |                                  |   |        |  
|Rental revenue                                 |  | $                                | 46,483 |   |                                  | $ | 43,026 |  
|Property operating expenses                    |  |                                  | 17,475 |   |                                  |   | 15,865 |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Net operating income                           |  | $                                | 29,008 |   |                                  | $ | 27,161 |  
|                                               |  |                                  |        |   |                                  |   |        |  
|Provision for impairment of real estate assets |  | $                                | 54,410 |   |                                  | $ |       |  
|                                               |  |                                  |        |   |                                  |   |        |  



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



The following is a reconciliation of segment revenues and net operating income to total operating revenue and income (loss) before minority
interest, discontinued operations and cumulative effect of change in accounting principle for the periods presented above (in thousands):



|                                                                                                                        |  |                                  |         |   |                                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | -------------------------------- | - | ------- | -
|                                                                                                                        |  | Three MonthsEnded March 31, 2005 |         |   | Three MonthsEnded March 31, 2004 |  
|Revenues                                                                                                                |  |                                  |         |   |                                  |   |         |  
|Rental revenue for reportable segments                                                                                  |  | $                                | 46,483  |   |                                  | $ | 43,026  |  
|Fees and reimbursements, including from related parties                                                                 |  |                                  | 1,095   |   |                                  |   | 829     |  
|                                                                                                                        |  |                                  |         |   |                                  |   |         |  
|Total operating revenue                                                                                                 |  | $                                | 47,578  |   |                                  | $ | 43,855  |  
|                                                                                                                        |  |                                  |         |   |                                  |   |         |  
|Net Operating Income                                                                                                    |  |                                  |         |   |                                  |   |         |  
|Net operating income for reportable segments                                                                            |  | $                                | 29,008  |   |                                  | $ | 27,161  |  
|Provision for impairment of real estate assets for reportable segments                                                  |  |                                  | (54,410 | ) |                                  |   |        |  
|Unallocated amounts:                                                                                                    |  |                                  |         |   |                                  |   |         |  
|Fees and reimbursements, including from related parties                                                                 |  |                                  | 1,095   |   |                                  |   | 829     |  
|Interest and other income                                                                                               |  |                                  | 1,030   |   |                                  |   | 832     |  
|Equity in earnings of unconsolidated operating joint ventures                                                           |  |                                  | 134     |   |                                  |   | 188     |  
|General and administrative                                                                                              |  |                                  | (3,285  | ) |                                  |   | (2,172  | )
|Depreciation and amortization                                                                                           |  |                                  | (15,479 | ) |                                  |   | (13,611 | )
|Interest expense                                                                                                        |  |                                  | (9,321  | ) |                                  |   | (8,153  | )
|Loss on early extinguishment of debt                                                                                    |  |                                  | (561    | ) |                                  |   | (85     | )
|                                                                                                                        |  |                                  |         |   |                                  |   |         |  
|Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle |  | $                                | (51,789 | ) |                                  | $ | 4,989   |  
|                                                                                                                        |  |                                  |         |   |                                  |   |         |  



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



The following is a reconciliation of segment assets to total assets for the periods presented on the consolidated balance sheets (in
thousands):



|                                                       |  |                     |           |   |                        |   |           |  
|------------------------------------------------------ |  | ------------------- | --------- | - | ---------------------- | - | --------- | -
|                                                       |  | As of March 31,2005 |           |   | As of December 31,2004 |  
|Southern California                                    |  | $                   | 202,312   |   |                        | $ | 203,712   |  
|Washington D.C.                                        |  |                     | 255,218   |   |                        |   | 239,694   |  
|Northern New Jersey                                    |  |                     | 137,073   |   |                        |   | 138,910   |  
|Boston                                                 |  |                     | 146,834   |   |                        |   | 147,841   |  
|San Francisco                                          |  |                     | 105,284   |   |                        |   | 106,126   |  
|Chicago                                                |  |                     | 61,992    |   |                        |   | 78,480    |  
|Tampa/Orlando                                          |  |                     | 45,347    |   |                        |   | 45,602    |  
|St. Louis                                              |  |                     | 29,378    |   |                        |   | 29,395    |  
|Denver                                                 |  |                     | 42,091    |   |                        |   | 45,637    |  
|Minneapolis                                            |  |                     | 25,904    |   |                        |   | 29,647    |  
|Las Vegas                                              |  |                     | 32,825    |   |                        |   | 33,054    |  
|All others                                             |  |                     | 67,911    |   |                        |   | 104,490   |  
|Properties held for sale                               |  |                     | (6,708    | ) |                        |   | (62,028   | )
|                                                       |  |                     |           |   |                        |   |           |  
|Total rental properties, net, for reportable segments  |  | $                   | 1,145,461 |   |                        | $ | 1,140,560 |  
|                                                       |  |                    
|Unallocated amounts:                                   |  |                     |           |   |                        |   |           |  
|Properties held for sale                               |  |                     | 6,552     |   |                        |   | 63,928    |  
|Investments in land and development                    |  |                     | 132,728   |   |                        |   | 147,435   |  
|Investments in unconsolidated operating joint ventures |  |                     | 11,875    |   |                        |   | 12,014    |  
|Mortgage loans receivable                              |  |                     | 20,220    |   |                        |   | 12,872    |  
|Leasing and financing costs, net                       |  |                     | 29,033    |   |                        |   | 24,319    |  
|Cash and cash equivalents                              |  |                     | 3,757     |   |                        |   | 6,003     |  
|Other assets                                           |  |                     | 30,418    |   |                        |   | 25,970    |  
|                                                       |  |                     |           |   |                        |   |           |  
|Total Assets                                           |  | $                   | 1,380,044 |   |                        | $ | 1,433,101 |  
|                                                       |  |                     |           |   |                        |   |           |  



NOTE 18. COMMITMENTS AND
CONTINGENCIES



Environmental Matters



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



General Uninsured Losses



The Company, or in certain instances, tenants of the properties, carry property and
liability insurance with respect to the properties. This coverage has policy specification and insured limits customarily carried for similar properties. However, certain types of losses (such as from earthquakes and floods) may be either
uninsurable or not economically insurable. Further, certain of the properties are located in areas that are subject to earthquake activity and floods. Should a property sustain damage as a result of an earthquake or flood, the Company may incur
losses due to insurance deductibles, co-payments on insured losses or uninsured losses. Additionally, the Company has elected to obtain insurance coverage for certified acts of terrorism as defined in the Terrorism Risk Insurance Act of
2002; however, our policies of insurance may not provide coverage for other acts of terrorism. Any losses from such other acts of terrorism might be uninsured. Should an uninsured loss occur, the Company could lose some or all of its capital
investment, cash flow and anticipated profits related to one or more properties.



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



Tax indemnifications



Twenty-two of the properties in the Companys portfolio were acquired on terms and conditions under which they can be disposed of only in a like-kind
exchange or other non-taxable transaction for limited periods of time. The agreed upon time periods for these restrictions on dispositions vary from transaction to transaction. In the event the Company was to dispose of one of these properties
through a taxable transaction during the restriction period, the Company would be required to indemnify the contributor of such property for all direct and indirect adverse tax consequences. The tax indemnifications granted to the contributors will
not affect the way the Company conducts their business, including when and under what circumstances the Company may sell such restricted properties or interests in them during the restriction period. The Company has no intentions to sell or
otherwise dispose of the properties or interests therein in taxable transactions during the restriction period.



Litigation



Certain claims and lawsuits have arisen against the Company in its normal course of business. Based on advice from legal counsel, the Company believes that such claims and lawsuits will not have a material adverse
effect on the Companys financial position, cash flow or results of operations.



NOTE 19. EQUITY TRANSACTIONS



Common Stock Offerings



On December 16, 2004, the Company completed the sale of 4,000,000 shares
of common stock in an offering underwritten by Goldman, Sachs & Co. The 4,000,000 shares were sold at a per share price of $20.80, resulting in proceeds, net of offering costs, of approximately $81.8 million. Approximately $158,000 of offering
costs were paid during the three months ended March 31, 2005. The Company used the net proceeds to redeem a portion of the outstanding shares of its Preferred Stock on January 28, 2005 (as discussed below). In the interim, prior to the redemption,
the proceeds were used to repay a portion of the amounts outstanding under the Companys unsecured bank line of credit.



On March 19, 2004, the Company completed the sale of 3,910,000 shares of common stock (including the exercise of the over allotment of 510,000 shares) in an offering
underwritten by Goldman, Sachs & Co. The 3,910,000 shares were sold at a per share price of $21.20, resulting in proceeds, net of offering costs, of approximately $81.3 million. The Company used the net proceeds to redeem a portion of the
outstanding shares of its Preferred Stock in April 2004 (as discussed below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under the Companys unsecured bank line of credit.



Preferred Stock Redemptions



On January 28, 2005, the Company redeemed approximately 3.1 million shares of Preferred
Stock, representing approximately 45.4% of the total number of outstanding shares. The redemption price was $25.5825 per share of Preferred Stock plus $0.1916 per share in accrued and unpaid dividends for the period from December 24, 2004 through
and including January 28, 2005, without interest. This redemption was funded with proceeds from the December 2004 common stock offering which had temporarily been used to pay down the Companys unsecured bank line of credit as discussed above.



On April 30, 2004, the Company redeemed approximately 3.1 million shares of
Preferred Stock, representing approximately 31.2% of the total number of outstanding shares. The redemption price was $25.775 per share of Preferred Stock plus $0.183 per share in accrued and unpaid dividends for the period from March 26, 2004
through and including April 30, 2004, without interest. This redemption was funded with proceeds from the Companys March 2004 common stock offering which had temporarily been used to pay down the Companys unsecured bank line of credit as
discussed above.



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

March 31, 2005 and 2004

(unaudited)



NOTE 20. SUBSEQUENT EVENTS



On April 25, 2005, the Company completed the sale of Park 100 Industrial, a 102,400 square foot industrial property located in Indianapolis, Indiana, for a sale price of
$2.68 million. The Company expects to recognize a gain on sale in this transaction of approximately $1.9 million. In addition, on April 27, 2005, the Company completed the sale of Lake Point Business Park, a 134,360 square foot industrial property
located in Orlando, Florida, for a sale price of $13.1 million. The Company expects to recognize a gain on sale in this transaction of approximately $6.5 million. The proceeds from these dispositions were used to pay down the Companys
unsecured bank line of credit. These two properties are included in the 21 assets which the Company has decided to dispose of over the next two years as discussed in Note 13.



30



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##### Table of Contents



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



Background



Glenborough Realty Trust Incorporated is a self-administered Real Estate Investment Trust (REIT) with a nationwide portfolio of 61 primarily office properties, including 4 operating joint ventures, as of March 31,
2005. We focus on owning and managing high-quality, multi-tenant office properties with strong demand attributes located in supply constrained locations within large diverse markets. Our portfolio encompasses approximately 11 million square feet
with the largest concentrations in the following markets: Southern California, Washington D.C., Northern New Jersey, Boston and San Francisco.



We were incorporated in the State of Maryland on August 26, 1994. On December 31, 1995, we completed a consolidation in which Glenborough Corporation, a California
corporation, and eight public limited partnerships (the GRT Predecessor Entities) merged with and into us. We elected to qualify as a REIT under the Internal Revenue Code. Our Common Stock and Preferred Stock are listed on the New York
Stock Exchange, or NYSE, under the trading symbols GLB and GLB Pr A. Our Common Stock is included in the S&P SmallCap 600 Index and we are a member of the National Association of Real Estate Investment Trusts (NAREIT).



Availability of Reports on Website



On our website (www.glenborough.com), we make available, free of charge, our (i)
annual report on Form 10-K, (ii) quarterly reports on Form 10-Q, (iii) current reports on Form 8-K, and (iv) all amendments to those reports. Those reports are available on our website the same day they are filed with or furnished to the Securities
and Exchange Commission (SEC). All such reports are available on our website via hyperlink with the SECs EDGAR system, and reports filed within the prior 12 months are also posted directly on the website in PDF format.



Results of Operations



Overview



Portfolio Performance



Overall portfolio occupancy (excluding joint ventures) increased from 87.2% at December 31, 2004 to 87.6% at March 31, 2005. Net operating income (adjusted for discontinued operations and defined as rental revenue
less property operating expenses) decreased 2.3% from $30,190,000 for the three months ended March 31, 2004, to $29,508,000 for the three months ended March 31, 2005.



Lease Maturities



Based upon the strength of the national leasing market, we anticipate that lease rollover will affect our rental revenues with changes in portfolio occupancy and changes
in rental rates upon lease renewal. During the three months ended March 31, 2005, we had approximately 216,000 square feet of new office leases at an average rent of $19.32 per square foot. We also renewed approximately 369,000 square feet of office
leases which expired in 2005 at an average rent per square foot of $24.06. This represented a decrease in effective rents from renewals (annualized rents net of concessions) of 8.2% during the first quarter of 2005.



Non-Core Asset Dispositions



After an in-depth review of our portfolio on an asset by asset basis, we have decided to
dispose of assets in our non-core markets, as well as certain non-core assets in core markets. Accordingly, we have reduced the intended holding period of 21 assets to two years or less. Based on our analysis of the future undiscounted cash flows of
each asset over the next two years, we determined that nine of the assets were impaired. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was
approximately $49.3 million. When combined with impairment charges of approximately $8.9 million recognized on two additional assets sold during the first quarter of 2005, the total impairment charge recognized during the three months ended March
31, 2005, was approximately $58.2 million. The remaining twelve assets are expected to generate gains on sale.



Comparison of the three months ended March 31, 2005 to the three months ended March 31, 2004.



In accordance with SFAS 144 Accounting for the Impairment or Disposal of Long Lived Assets, effective for financial statements issued for fiscal years
beginning after December 15, 2001, net income (loss) and gains on sales of real estate for properties sold or classified as held for sale subsequent to December 31, 2001 are reflected in the consolidated statements of operations as
Discontinued Operations for all periods presented. As we generally reinvest the proceeds from property dispositions into the acquisition of new properties, we believe that it is necessary to discuss our results of operations after
discontinued operations have been added back to the respective revenue and expense line items to provide a representation of the balances that management uses to evaluate the results of operations for the periods presented.



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##### Table of Contents

Following is a table which reconciles our results of operations reported in accordance with GAAP to our results of
operations with discontinued operations added back to each respective revenue and expense line item. The comparative discussion of the two periods results which follows is based on the Adjusted column amounts.



|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------- | ------- | - | --------------------------------- | - | ------- | -------- |  | - | ---------- | - |  | ---------------------- | ------ | - | -------- | - | ------ | - |  | - | ------ | -
|                                                                                                                                                             |  | Three Months Ended March 31, 2005 |         |   | Three Months Ended March 31, 2004 |  
|                                                                                                                                                             |  | AsReported                        |         |   | DiscontinuedOperations            |   |         | Adjusted |  |   | AsReported |   |  | DiscontinuedOperations |        |   | Adjusted |  
|OPERATING REVENUE                                                                                                                                            |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Rental revenue                                                                                                                                               |  | $                                 | 46,483  |   |                                   | $ | 866     |          |  | $ | 47,349     |   |  | $                      | 43,026 |   |          | $ | 4,477  |   |  | $ | 47,503 |  
|Fees and reimbursements, including from related parties                                                                                                      |  |                                   | 1,095   |   |                                   |   |        |          |  |   | 1,095      |   |  |                        | 829    |   |          |   |       |   |  |   | 829    |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Total operating revenue                                                                                                                                      |  |                                   | 47,578  |   |                                   |   | 866     |          |  |   | 48,444     |   |  |                        | 43,855 |   |          |   | 4,477  |   |  |   | 48,332 |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|OPERATING EXPENSES                                                                                                                                           |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Property operating expenses                                                                                                                                  |  |                                   | 17,475  |   |                                   |   | 366     |          |  |   | 17,841     |   |  |                        | 15,865 |   |          |   | 1,448  |   |  |   | 17,313 |  
|General and administrative                                                                                                                                   |  |                                   | 3,285   |   |                                   |   |        |          |  |   | 3,285      |   |  |                        | 2,172  |   |          |   |       |   |  |   | 2,172  |  
|Depreciation and amortization                                                                                                                                |  |                                   | 15,479  |   |                                   |   | 363     |          |  |   | 15,842     |   |  |                        | 13,611 |   |          |   | 1,446  |   |  |   | 15,057 |  
|Provision for impairment of real estate assets                                                                                                               |  |                                   | 54,410  |   |                                   |   | 3,826   |          |  |   | 58,236     |   |  |                        |       |   |          |   |       |   |  |   |       |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Total operating expenses                                                                                                                                     |  |                                   | 90,649  |   |                                   |   | 4,555   |          |  |   | 95,204     |   |  |                        | 31,648 |   |          |   | 2,894  |   |  |   | 34,542 |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Interest and other income                                                                                                                                    |  |                                   | 1,030   |   |                                   |   |        |          |  |   | 1,030      |   |  |                        | 832    |   |          |   |       |   |  |   | 832    |  
|Equity in earnings of unconsolidated operating JVs                                                                                                          |  |                                   | 134     |   |                                   |   |        |          |  |   | 134        |   |  |                        | 188    |   |          |   |       |   |  |   | 188    |  
|Interest expense                                                                                                                                             |  |                                   | (9,321  | ) |                                   |   | (146    | )        |  |   | (9,467     | ) |  |                        | (8,153 | ) |          |   | (1,092 | ) |  |   | (9,245 | )
|Loss on early extinguishment of debt                                                                                                                         |  |                                   | (561    | ) |                                   |   | (2,378  | )        |  |   | (2,939     | ) |  |                        | (85    | ) |          |   |       |   |  |   | (85    | )
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income (loss) before gain on sales of real estate assets, minority interest, discontinued operations and cumulative effect of change in
accounting principle |  |                                   | (51,789 | ) |                                   |   | (6,213  | )        |  |   | (58,002    | ) |  |                        | 4,989  |   |          |   | 491    |   |  |   | 5,480  |  
|Gain on sales of real estate assets                                                                                                                          |  |                                   |        |   |                                   |   | 17,320  |          |  |   | 17,320     |   |  |                        |       |   |          |   | 120    |   |  |   | 120    |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle                                      |  |                                   | (51,789 | ) |                                   |   | 11,107  |          |  |   | (40,682    | ) |  |                        | 4,989  |   |          |   | 611    |   |  |   | 5,600  |  
|Minority interest(1)                                                                                                                                         |  |                                   | 3,836   |   |                                   |   |        |          |  |   | 3,836      |   |  |                        | 12     |   |          |   |       |   |  |   | 12     |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income (loss) before discontinued operations and cumulative effect of change in accounting principle                                                         |  |                                   | (47,953 | ) |                                   |   | 11,107  |          |  |   | (36,846    | ) |  |                        | 5,001  |   |          |   | 611    |   |  |   | 5,612  |  
|Discontinued operations                                                                                                                                      |  |                                   | 11,107  |   |                                   |   | (11,107 | )        |  |   |           |   |  |                        | 611    |   |          |   | (611   | ) |  |   |       |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income (loss) before cumulative effect of change in accounting principle                                                                                     |  |                                   | (36,846 | ) |                                   |   |        |          |  |   | (36,846    | ) |  |                        | 5,612  |   |          |   |       |   |  |   | 5,612  |  
|Cumulative effect of change in accounting principle                                                                                                          |  |                                   |        |   |                                   |   |        |          |  |   |           |   |  |                        | (912   | ) |          |   |       |   |  |   | (912   | )
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Net income (loss)                                                                                                                                            |  |                                   | (36,846 | ) |                                   |   |        |          |  |   | (36,846    | ) |  |                        | 4,700  |   |          |   |       |   |  |   | 4,700  |  
|Preferred dividends                                                                                                                                          |  |                                   | (1,812  | ) |                                   |   |        |          |  |   | (1,812     | ) |  |                        | (4,823 | ) |          |   |       |   |  |   | (4,823 | )
|Dividends paid on redeemed preferred stock                                                                                                                   |  |                                   | (2,102  | ) |                                   |   |        |          |  |   | (2,102     | ) |  |                        |       |   |          |   |       |   |  |   |       |  
|Premium and write-off of original issuance costs on preferred stock redemption                                                                               |  |                                   | (5,309  | ) |                                   |   |        |          |  |   | (5,309     | ) |  |                        |       |   |          |   |       |   |  |   |       |  
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Net income (loss) available to Common Stockholders                                                                                                           |  | $                                 | (46,069 | ) |                                   | $ |        |          |  | $ | (46,069    | ) |  | $                      | (123   | ) |          | $ |       |   |  | $ | (123   | )
|                                                                                                                                                             |  |                                   |         |   |                                   |   |         |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  

---

|(1) | Includes minority interests share of discontinued operations, preferred dividends and premium and write-off of original issuance costs on preferred stock
redemptions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Net Operating Income. Following is a table of net operating income by market, for comparative purposes, presenting
the results for the three months ended March 31, 2005 and 2004 (in thousands). The data set forth below should be read in conjunction with Note 17. Segment Information in our consolidated financial statements included in Item 1.



|                           |  |      |        |           |       |   |      |   |           |  |       |  
|-------------------------- |  | ---- | ------ | --------- | ----- | - | ---- | - | --------- |  | ----- | -
|                           |  | 2005 |        | % ofTotal |       |   | 2004 |   | % ofTotal | 
|Southern California        |  | $    | 5,941  |           | 20.1  | % |      | $ | 5,574     |  | 18.5  | %
|Washington D.C.            |  |      | 5,709  |           | 19.4  | % |      |   | 6,132     |  | 20.3  | %
|Northern New Jersey        |  |      | 3,417  |           | 11.6  | % |      |   | 3,845     |  | 12.7  | %
|Boston                     |  |      | 3,321  |           | 11.3  | % |      |   | 4,748     |  | 15.7  | %
|San Francisco              |  |      | 1,746  |           | 5.9   | % |      |   | 1,679     |  | 5.6   | %
|Chicago                    |  |      | 1,507  |           | 5.1   | % |      |   | 1,619     |  | 5.4   | %
|Tampa/Orlando              |  |      | 1,597  |           | 5.4   | % |      |   | 1,205     |  | 4.0   | %
|St. Louis                  |  |      | 1,164  |           | 3.9   | % |      |   | 1,236     |  | 4.1   | %
|Denver                     |  |      | 1,055  |           | 3.6   | % |      |   | 692       |  | 2.3   | %
|Minneapolis                |  |      | 934    |           | 3.2   | % |      |   | 810       |  | 2.7   | %
|Las Vegas                  |  |      | 980    |           | 3.3   | % |      |   | 825       |  | 2.7   | %
|All others                 |  |      | 2,137  |           | 7.2   | % |      |   | 1,825     |  | 6.0   | %
|                           |  |      |        |           |       |   |      |   |           |  |       |  
|Total Net Operating Income |  | $    | 29,508 |           | 100.0 | % |      | $ | 30,190    |  | 100.0 | %
|                           |  |      |        |           |       |   |      |   |           |  |       |  



Rental Revenue. Rental revenue
was basically flat with a slight decrease of $154,000 to $47,349,000 for the three months ended March 31, 2005, from $47,503,000 for the three months ended March 31, 2004. This change primarily resulted from the bankruptcy of Axiowave Networks,
Inc., a tenant at Marlborough Corporate Place, an office property located in Marlborough, Massachusetts, which defaulted on its lease obligation in December 2004. Axiowaves lease encompassed approximately 100,000 square feet at Marlborough
Corporate Place and accounted for approximately $2.9 million of annual revenues. This decrease was almost entirely offset by increases in occupancy and rental rates. Following is a table of rental revenue by market, for comparative purposes,
presenting the results for the three months ended March 31, 2005 and 2004 (in thousands):



|                     |  |      |        |      |   |       
|-------------------- |  | ---- | ------ | ---- | - | ------
|                     |  | 2005 |        | 2004
|Southern California  |  | $    | 8,693  |      | $ | 8,196 
|Washington D.C.      |  |      | 8,004  |      |   | 8,500 
|Northern New Jersey  |  |      | 5,881  |      |   | 6,175 
|Boston               |  |      | 6,479  |      |   | 7,775 
|San Francisco        |  |      | 2,475  |      |   | 2,621 
|Chicago              |  |      | 3,093  |      |   | 3,104 
|Tampa/Orlando        |  |      | 2,352  |      |   | 1,878 
|St. Louis            |  |      | 2,002  |      |   | 2,017 
|Denver               |  |      | 1,693  |      |   | 1,183 
|Minneapolis          |  |      | 1,621  |      |   | 1,447 
|Las Vegas            |  |      | 1,284  |      |   | 1,073 
|All others           |  |      | 3,772  |      |   | 3,534 
|                     |  |      |        |      |   |       
|Total Rental Revenue |  | $    | 47,349 |      | $ | 47,503
|                     |  |      |        |      |   |       



Fees and Reimbursements, Including
From Related Parties. Fees and reimbursements, including from related parties, consist primarily of property management and asset management fees paid to us under property and asset management agreements with the unconsolidated operating joint
ventures and the Rancon Partnerships. This revenue increased $266,000 to $1,095,000 for the three months ended March 31, 2005, from $829,000 for the three months ended March 31, 2004, primarily due to disposition, lease consulting and other fees
from the Rancon Partnerships.



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Property Operating Expenses. Property operating expenses increased $528,000 to $17,841,000 for the three months
ended March 31, 2005, from $17,313,000 for the three months ended March 31, 2004. This was primarily due to increased snow removal and utility costs. Following is a table of property operating expenses by market, for comparative purposes, presenting
the results for the three months ended March 31, 2005 and 2004 (in thousands):



|                                  |  |      |        |      |   |       
|--------------------------------- |  | ---- | ------ | ---- | - | ------
|                                  |  | 2005 |        | 2004
|Southern California               |  | $    | 2,752  |      | $ | 2,622 
|Washington D.C.                   |  |      | 2,295  |      |   | 2,368 
|Northern New Jersey               |  |      | 2,464  |      |   | 2,330 
|Boston                            |  |      | 3,158  |      |   | 3,027 
|San Francisco                     |  |      | 729    |      |   | 942   
|Chicago                           |  |      | 1,586  |      |   | 1,485 
|Tampa/Orlando                     |  |      | 755    |      |   | 673   
|St. Louis                         |  |      | 838    |      |   | 781   
|Denver                            |  |      | 638    |      |   | 491   
|Minneapolis                       |  |      | 687    |      |   | 637   
|Las Vegas                         |  |      | 304    |      |   | 248   
|All others                        |  |      | 1,635  |      |   | 1,709 
|                                  |  |      |        |      |   |       
|Total Property Operating Expenses |  | $    | 17,841 |      | $ | 17,313
|                                  |  |      |        |      |   |       



General and Administrative
Expenses. General and administrative expenses increased $1,113,000 to $3,285,000 for the three months ended March 31, 2005, from $2,172,000 for the three months ended March 31, 2004. This increase is primarily due to increases in incentive
compensation costs, higher professional fees related to Sarbanes-Oxley 404 compliance and increases in state franchise taxes.



Depreciation and Amortization. Depreciation and amortization increased $785,000 to $15,842,000 for the three months ended March 31, 2005, from $15,057,000 for the
three months ended March 31, 2004. This increase is primarily due to property acquisitions, net of dispositions, depreciation of capital improvements, and amortization of at-market in-place leases we recorded in accordance with SFAS No. 141. See
complete description of our accounting policy regarding recognition and amortization of at-market in-place leases in Note 2 of our consolidated financial statements.



Provision for impairment of real estate assets.In connection with our decision in March 2005 to dispose of assets in our non-core
markets and certain non-core assets in core markets, we have reduced the intended holding period of 21 assets to two years or less. Based on our analysis of the future undiscounted cash flows of each asset over the next two years, we determined that
nine of the assets were impaired. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was $49,312,000. When combined with impairment charges of $8,924,000
recognized on two additional assets sold during the first quarter of 2005, the total impairment charge recognized during the three months ended March 31, 2005, was $58,236,000. The remaining twelve assets are expected to generate gains on sale.



Interest and Other Income. Interest and other income increased $198,000
to $1,030,000 for the three months ended March 31, 2005, from $832,000 for the three months ended March 31, 2004, primarily due to a fee we received to terminate our acquisition rights to the Gateway Office Five development project in the first
quarter of 2005 (see below under Investments in Land and Development), partially offset by reduced interest income resulting from principal payments received in 2004 on our mortgage loan receivable secured by land at Gateway Business Park in
Colorado.



Interest Expense. Interest expense increased $222,000 to
$9,467,000 for the three months ended March 31, 2005, from $9,245,000 for the three months ended March 31, 2004. This increase is primarily due to increases in outstanding debt, conversion of floating-rate debt to fixed-rate debt and increases in
variable interest rates.



Loss on Early Extinguishment of Debt. During
the three months ended March 31, 2005, we recorded losses on early extinguishment of debt of $2,939,000 which consisted primarily of prepayment penalties and the write-off of unamortized original financing costs in connection with a loan payoff
related to the sale of Rockwall I and II, as discussed below, as well as a loan refinance. During the three months ended March 31, 2004, in connection with a loan payoff, we recorded a loss on early extinguishment of debt of $85,000 which consisted
of the write-off of unamortized original financing costs.



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Gain on sales of real estate assets.The gain on sales of real estate assets of $17,320,000 during the three
months ended March 31, 2005, resulted from the sale of Rockwall I and II, an office complex located in Rockville, Maryland. The gain on sales of real estate assets of $120,000 during the three months ended March 31, 2004, resulted primarily from the
receipt of cash related to the settlement of contingencies from prior period dispositions.



Cumulative Effect of Change in Accounting Principle.In accordance with FIN 46 Revised, we began consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary
beneficiary as defined by FIN 46 Revised. The implementation of this change was accounted for as a change in accounting principle and applied cumulatively as of January 1, 2004. The cumulative effect of the change in accounting principle resulted in
a one-time non-cash reduction to our net income of $912,000 for the three months ended March 31, 2004, which represented the elimination of intercompany fee income recognized, slightly offset by additions to capitalized interest on this development
project as if Marina Shores had been consolidated at the inception of our investment.



Charges associated with the redemption of preferred stock. In January 2005, we redeemed approximately 3.1 million shares of our outstanding 73⁄4% Series A Convertible Preferred Stock. In connection with this redemption, during the
three months ended March 31, 2005, we incurred $2,102,000 for the final dividends paid to the redeemed preferred shareholders, as well as a charge of $5,309,000, which consisted of $3,452,000 for the non-cash write-off of original issuance costs of
the preferred shares, $1,812,000 for the premium paid to redeem the preferred shares and $45,000 in other miscellaneous costs.



Liquidity and Capital Resources



Cash Flows



For the three months ended March 31, 2005, cash provided by operating activities was $11,546,000 as compared to $12,033,000 for the same period in 2004. This change is primarily due to cash paid for lease commissions
and increases in snow removal and utility costs, partially offset by increases in rental rates and occupancy, as well as decreased lease concessions. Cash provided by investing activities was $45,226,000 for the three months ended March 31, 2005, as
compared to cash used for investing activities of $9,738,000 for the same period in 2004. This change is primarily due to higher proceeds from property sales, offset by funds used for acquisition of properties during the three months ended March 31,
2005, as compared to higher investments in land and development, offset by principal payments on mortgage loans receivable received during the three months ended March 31, 2004. Cash used for financing activities was $59,018,000 for the three months
ended March 31, 2005, as compared to $15,773,000 for the same period in 2004. This change is due primarily to an increase in borrowings, net of repayments, offset by the costs of the preferred stock redemption in 2005, as compared to cash received
from the issuance of common stock in 2004.



We expect to meet our short-term
liquidity requirements generally through our working capital, our unsecured bank line of credit (as discussed below) and cash generated by operations. We anticipate that cash generated by our operations will be adequate to meet our operating
requirements and to make distributions in accordance with REIT requirements in both the short and the long-term. In addition to cash generated by operations, the unsecured bank line of credit provides for working capital advances. However, there can
be no assurance that our results of operations will not fluctuate in the future and at times affect our ability to meet our operating requirements and the amount of our distributions. If significant decreases in occupancy or rental rates occurred at
our properties, this could have an adverse impact on our operating cash flows. Similarly, increases in interest rates could have a significant adverse impact on our operating cash flows.



Our principal sources of funding for acquisitions, expansion and renovation of properties, development and stock repurchases include the
unsecured bank line of credit, permanent secured debt financing, public and private equity and debt issuances, the issuance of partnership units in the Operating Partnership, proceeds from property sales and cash flow provided by operations.



Investments in Land and Development



Our investments in land and development decreased from $147,435,000 at December 31, 2004, to
$132,728,000 at March 31, 2005. This decrease is primarily due to the disposition of approximately 28 acres of land held for development, known as Eden Shores located in Hayward, California. On March 25, 2005, we entered into a contract to sell Eden
Shores to an unaffiliated third party which owns land adjacent to this parcel for a sale price of $12 million. At that time, we recognized an impairment charge of approximately $5.1 million. On March 28, 2005, the sale was completed. We received $5
million in cash and a $7 million first mortgage loan receivable, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a maturity date of March
28, 2007.



In addition, on January 31, 2005, we sold our interest in the
Gateway Office Five development project located in Denver, Colorado, which was in the form of a mezzanine loan with a net basis of approximately $835,000 as of December 31, 2004



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##### Table of Contents

(see table below). In connection with this sale, the mezzanine loan principal balance and accrued interest was paid off
in full. In addition, we received a $430,000 fee to terminate our acquisition rights for this property. This fee is included in interest and other income on the consolidated statement of operations for the three months ended March 31, 2005.



As of March 31, 2005 and December 31, 2004, we had investments in the
following properties under development and land held for development. The investment descriptions are as of March 31, 2005 (dollars in thousands).



|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|----------------------------------------- |  | --------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- |  | --------------------- | - | ---------------- | ---- |  | --------------------------------- | ------- | --- | ------------------------------------ | - | ------ | ---
|Market                                    |  | Properties                  |  | Description                                                                                                                         |  | City                    |  | ProposedSquareFootage |   | EconomicInterest |      |  | InvestmentBalance atMarch 31,2005 |         |     | InvestmentBalance atDecember 31,2004 |  
|Denver                                    |  | Gateway Office Five         |  | Fifth office building constructed at Gateway Park (1-story)                                                                         |  | Denver                  |  |                      |   |                 | (1)  |  |                                   |        | (1) |                                      | $ | 835    |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|TOTAL PROPERTIES UNDER DEVELOPMENT        |  |                             |  |                                                                                                                                    |  |                         |  |                       |   |                 |      |  | $                                 | 835     |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|Boston                                    |  | Marlborough Corporate Place |  | Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place                      |  | Marlborough             |  | 235,000               |   | 100              | %    |  | $                                 | 5,192   |     |                                      | $ | 5,170  |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|                                          |  | Subtotal - Boston           |  |                                                                                                                                     |  |                         |  | 235,000               |   |                  |      |  |                                   | 5,192   |     |                                      |   | 5,170  |    
|                                          |  |                             |  |                                                                                                                                     |  |                         | 
|Denver                                    |  | Gateway Park                |  | 1,200 acre mixed-use park near Denver International Airport; approximately 442 acres undeveloped                                    |  | Denver                  |  | to bedetermined       |   | 50               | %(2) |  |                                   | 35,202  | (2) |                                      |   | 34,636 | (2)
|                                          |  | Lima Street                 |  | 19.5 acres of undeveloped land in Englewood, Colorado, zoned for office use                                                         |  | Denver                  |  | 120,000               |   | 100              | %    |  |                                   | 4,750   |     |                                      |   | 4,750  |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|                                          |  | Subtotal - Denver           |  |                                                                                                                                     |  |                         |  | 120,000               |   |                  |      |  |                                   | 39,952  |     |                                      |   | 39,386 |    
|                                          |  |                             |  |                                                                                                                                     |  |                         | 
|San Francisco                             |  | Marina Shores               |  | 33.2 acre mixed-use waterfront community which could include office, retail and multifamily units; currently in entitlement process |  | RedwoodCity             |  | to bedetermined       |   | 50               | %(3) |  |                                   | 81,553  |     |                                      |   | 79,548 |    
|                                          |  | Eden Shores                 |  | 27 acres zoned for the construction of a 600,000 square foot office park                                                            |  | Hayward                 |  |                      |   |                 | (4)  |  |                                   |        | (4) |                                      |   | 16,530 |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|                                          |  | Subtotal -San Francisco     |  |                                                                                                                                     |  |                         |  |                      |   |                  |      |  |                                   | 81,553  |     |                                      |   | 96,078 |    
|                                          |  |                             |  | Other land not currently under development                                                                                          |  | New Jersey/SanFrancisco |  |                       |   |                  |      |  |                                   | 6,031   |     |                                      |   | 5,966  |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|TOTAL LAND HELD FOR DEVELOPMENT           |  |                             |  | 355,000                                                                                                                             |  |                         |  |                       | $ | 132,728          |      |  | $                                 | 146,600 |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    
|TOTAL INVESTMENTS IN LAND AND DEVELOPMENT |  |                             |  | 355,000                                                                                                                             |  |                         |  |                       | $ | 132,728          |      |  | $                                 | 147,435 |    
|                                          |  |                             |  |                                                                                                                                     |  |                         |  |                       |   |                  |      |  |                                   |         |     |                                      |   |        |    

---

|(1) | Interest previously held in the form of a mezzanine loan. In the first quarter of 2005, the
mezzanine loan was paid off in full. See above for further discussion.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Interest in the form of mezzanine loans and equity. In addition, we hold a mortgage loan receivable secured by the land with a balance of $13,220 and $12,872 at
March 31, 2005 and December 31, 2004, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Interest in the form of equity and mezzanine loans. We consolidated this entity on January 1, 2004, pursuant to FIN 46 Revised.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(4) | In the first quarter of 2005, we sold this property to an unaffiliated third party. See above
for further discussion.
|--- | ---------------------------------------------------------------------------------------------------------------------



We have no further contractual
obligations for the future funding of these developments; however, we will likely be funding a portion of their working capital needs until such time as other financing is obtained. Under our development alliances, we have provided an aggregate of
approximately $2.5 million in debt guarantees; however, some of the loans were not fully drawn as of March 31, 2005. These guarantees will remain in place until such time as the related development financing has been replaced or repaid, the terms of
which vary from less than 1 year to up to 2 years. We would be required to perform under these guarantees in the event that the proceeds generated by the sale, refinance or additional capital contribution by partners of the development project were
insufficient to repay the full amount of the related debt financing. There is currently no recorded liability for any amounts that may become payable under these guarantees, nor is there a liability for our obligation to stand-ready to
fund such guarantees which were all originally issued prior to 2003. In the event that we must make payments under one of these guarantees, our only recourse is to the limited liability companies that own the properties. No estimate of the amount
that could be recovered by us in such an event can be made at this time.



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Certain of the alliances with which we conduct business have been deemed to be VIEs as defined by FIN 46 Revised,
however, other than Marina Shores, none of these VIEs are required to be consolidated as we are not deemed to be the primary beneficiary as defined by FIN 46 Revised. The total assets and liabilities of such entities were approximately $87.4 million
and $50.9 million, respectively, at March 31, 2005, and $92.8 million and $54.5 million, respectively, at December 31, 2004. Our maximum exposure to loss is equal to our investments in these arrangements, plus the related debt guarantees, as
described above.



Investments in Unconsolidated Operating Joint Ventures



Investments in unconsolidated operating joint ventures decreased from
$12,014,000 at December 31, 2004 to $11,875,000 at March 31, 2005. This decrease was primarily due to cash distributions received from the joint ventures in excess of our equity interests in the joint ventures earnings.



Mortgage Loans Receivable



Mortgage loans receivable increased from $12,872,000 at December 31, 2004, to $20,220,000 at
March 31, 2005. As discussed in Investments in Land and Development, in connection with the Companys disposition of approximately 28 acres of land held for development, known as Eden Shores located in Hayward, California, the Company
received a first mortgage loan receivable of $7 million, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a maturity date of March 28, 2007.



In addition, we hold a first mortgage of approximately $13.2 million,
including accrued interest, at March 31, 2005, secured by a 50% interest in 152 acres of land at Gateway Business Park in Aurora, Colorado. Periodic payments of interest and principal are received on the loan from proceeds of land parcel sales in
the project. During the three months ended March 31, 2005, the balance of this mortgage loan receivable increased $348,000 due to monthly interest accruals. The borrowing entities in this loan arrangement have been deemed to be VIEs, but the Company
is not deemed to be the primary beneficiary as defined by FIN 46 Revised. The Companys maximum exposure to loss is equal to the recorded amount of its loan, including accrued interest.



Mortgage Loans and Unsecured Bank Line of Credit



At March 31, 2005 and December 31, 2004, our indebtedness included fixed-rate debt of
$615,132,000 and $581,092,000, respectively, and floating-rate debt of $185,592,000 and $138,298,000, respectively.



During the three months ended March 31, 2005, mortgage loans payable increased from $698,070,000 to $698,835,000. This increase resulted from a new mortgage loan of
$29,000,000 and a mortgage loan assumed in connection with an acquisition of $39,391,000, offset by $1,974,000 of scheduled principal amortization, $43,322,000 paid off in connection with a property sale, and $22,330,000 of loan payoffs in
connection with new financings.



In accordance with FIN 46 Revised, we began
consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary beneficiary as defined by FIN 46 Revised. Marina Shores has total debt of $45 million consisting of two loans, with a $30 million loan
bearing interest at the fixed rate of 6.11%, and a $15 million loan bearing interest at the fixed rate of 8.11%. Both loans require monthly interest-only payments and mature on February 15, 2006.



In the first quarter of 2005, in connection with the acquisition of Metro Place II, an office
property located in Merrifield, Virginia, we assumed a $39.4 million mortgage loan with an insurance company. The loan bears interest at the fixed rate of 5.06% and matures on May 1, 2010.



In the first quarter of 2005, we refinanced a floating-rate loan which was secured by 1100
17thStreet, an office property located in Washington, D.C. The new loan is a $29 million, 4.73% fixed-rate loan
with a maturity date of March 1, 2010 and is secured by the same property. The previous loan had a balance of approximately $20.3 million at the time of the refinance, had a floating interest rate of 30-day LIBOR plus 1.75% with a 3.5% floor, and a
maturity date of July 1, 2007. The excess loan proceeds were used to pay down our unsecured bank line of credit. In connection with this transaction, we recognized a loss on early extinguishment of debt of approximately $0.5 million which consisted
of a prepayment penalty and the write-off of unamortized original financing costs.



In the first quarter of 2005, in connection with the disposition of Rockwall I & II, an office complex located in Rockville, Maryland, we paid off a mortgage loan of $43.3 million which had a fixed interest rate of 6.77% and a maturity
date of October 1, 2006.



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In connection with this payoff, we recognized a loss on early extinguishment of debt of approximately $2.4 million which
primarily consisted of a prepayment penalty in connection with the loan payoff, as well as the write-off of unamortized original financing costs.



In the first quarter of 2005, we refinanced a floating-rate construction loan secured by an office property located in Bridgewater, New Jersey. The previous loan had a
balance of approximately $12.8 million at the time of the refinance, had a floating interest rate of 30-date LIBOR plus 2.45% and a maturity date of January 5, 2005. The outstanding balance was reduced to $10.8 million with a fixed interest rate of
5.19% and a maturity date of January 5, 2006.



Outstanding borrowings under our
unsecured bank line of credit increased from $21,320,000 at December 31, 2004, to $101,889,000 at March 31, 2005. The increase was due to draws totaling $103,978,000 for the January 2005 preferred stock redemption, new financings and development
advances, offset by pay downs totaling $23,409,000 generated from the proceeds from property sales, new financings and cash flow from operations. The unsecured bank line of credit requires us, among other things, to be in compliance with certain
financial and operating covenants. We have been in compliance during all of 2005 and remain in compliance at March 31, 2005.



At March 31, 2005 and December 31, 2004, we were not a party to any open interest rate protection agreements. Some of our properties are held in limited partnerships and
limited liability companies in order to facilitate financing. All such entities are owned 100% directly or indirectly by us.



The required principal payments on our debt for the next five years and thereafter, as of March 31, 2005, are as follows (in thousands). Included in the year ending
December 31, 2007, is the unsecured bank line of credit balance of $101,889 which has an initial maturity of March 26, 2007.



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ending December 31, |  |  
|2005                     |  | $ | 60,068 
|2006                     |  |   | 134,669
|2007                     |  |   | 112,504
|2008                     |  |   | 143,967
|2009                     |  |   | 202,250
|Thereafter               |  |   | 147,266
|                         |  |   |        
|Total                    |  | $ | 800,724
|                         |  |   |        



Registration Statement



In November 1997, we filed a shelf registration statement with the SEC
(the 1997 Registration Statement) which registered the issuance of up to $1.0 billion of our equity securities. The 1997 Registration Statement was declared effective on December 18, 1997. There is currently $635.1 million of capacity in
equity securities remaining on the 1997 Registration Statement.



Common
Stock Offerings



On December 16, 2004, we completed the sale of 4,000,000
shares of common stock in an offering underwritten by Goldman, Sachs & Co. The 4,000,000 shares were sold at a per share price of $20.80, resulting in proceeds, net of offering costs, of approximately $81.8 million. Approximately $158,000 of
offering costs were paid during the three months ended March 31, 2005. We used the net proceeds to redeem a portion of the outstanding shares of our Preferred Stock on January 28, 2005 (as discussed below). In the interim, prior to the redemption,
the proceeds were used to repay a portion of the amounts outstanding under our unsecured bank line of credit.



On March 19, 2004, we completed the sale of 3,910,000 shares of common stock (including the exercise of the over allotment of 510,000 shares) in an offering underwritten by Goldman, Sachs & Co. The 3,910,000
shares were sold at a per share price of $21.20, resulting in proceeds, net of offering costs, of approximately $81.3 million. We used the net proceeds to redeem a portion of the outstanding shares of our Preferred Stock in April 2004 (as discussed
below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under our unsecured bank line of credit.



Preferred Stock Redemptions



On January 28, 2005, we redeemed approximately 3.1 million shares of Preferred Stock, representing approximately 45.4% of the total number of outstanding shares. The
redemption price was $25.5825 per share of Preferred Stock plus $0.1916 per share in accrued and unpaid dividends for the period from December 24, 2004 through and including January 28, 2005, without interest. This redemption was funded with
proceeds from the December 2004 common stock offering which had temporarily been used to pay down our unsecured bank line of credit as discussed above.



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On April 30, 2004, we redeemed approximately 3.1 million shares of Preferred Stock, representing approximately 31.2% of
the total number of outstanding shares. The redemption price was $25.775 per share of Preferred Stock plus $0.183 per share in accrued and unpaid dividends for the period from March 26, 2004 through and including April 30, 2004, without interest.
This redemption was funded with proceeds from the March 2004 common stock offering which had temporarily been used to pay down our unsecured bank line of credit as discussed above.



Stock Repurchases



In 1999, our Board of Directors authorized the repurchase of up to 6.2 million shares of our outstanding Common Stock. This represented approximately 20% of our total
outstanding Common Stock. In December 2000, the repurchase authorization was increased to approximately 8.2 million shares, representing approximately 26% of Common Stock outstanding when the repurchase program began. As of March 31, 2005, 6,394,816
common shares have been repurchased at an average price per share of $16.60 and a total cost of approximately $106.8 million; this represents approximately 78% of the expanded repurchase authorization and approximately 20% of Common Stock
outstanding when the repurchase program began. In addition, during 1999, we announced that our Board of Directors had approved the repurchase of up to 15% of its Preferred Stock, or 1,725,000 shares. In May 2000, the Preferred Stock repurchase
authorization was increased to 3,450,000 shares, representing approximately 30% of Preferred Stock outstanding when the repurchase program began. As of March 31, 2005, 1,543,700 preferred shares have been repurchased at an average price per share of
$15.69 and a total cost of approximately $24.2 million; this represents approximately 45% of the expanded repurchase authorization and approximately 13% of Preferred Stock outstanding when the repurchase program began. We intend to make future stock
repurchases from time to time in the open market or otherwise and the timing will depend on market conditions and other factors.



Critical Accounting Policies



Revenue recognized on a straight-line basis



We recognize rental revenue on a straight-line basis at amounts that we believe we will collect on a tenant-by-tenant basis. The estimation process may result in higher
or lower levels from period to period as our collection experience and the credit quality of our tenants changes. Actual amounts collected could be lower or higher than the amounts recognized on a straight-line basis if specific tenants are unable
to pay rent that we have previously recognized as revenue, or if other tenants remain whom we previously believed would not.



Carrying value of rental properties, investments in development and other investment assets



Our rental properties, investments in development and other investment assets such as operating joint ventures and mortgage loans receivable
are generally carried at the lower of cost or estimated fair value. Certain development and operating joint ventures include our share of undistributed income or loss arising from the investment, and the mortgage loans receivable include accrued
interest. In addition, some interest, payroll and general and administrative costs incurred in connection with our development activities may be capitalized. The actual value of our portfolio of property, investments in development and other
investments could be significantly higher or lower than their carrying amounts.



Our status as a real estate investment trust



We have elected
to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code. A real estate investment trust generally is not subject to federal income tax on that portion of its real estate investment trust taxable income that is distributed to its
stockholders, provided that at least 90% of real estate investment trust taxable income is distributed and other requirements are met. We believe that we have complied with all requirements to qualify as a REIT for the three months ended March 31,
2005, and for the years ended December 31, 2004 and 2003. Accordingly, no provision for income taxes is included in our consolidated financial statements.



Accounting Pronouncements Issued But Not Yet Adopted



In April 2005, the FASB issued FASB Interpretation 47, Accounting for Conditional Asset Retirement Obligations which states that companies must
recognize a liability for the fair value of a legal obligation to perform asset-retirement activities that are conditional on a future event if the amount can be reasonably estimated. This Interpretation clarifies that conditional obligations meet
the definition of an asset-retirement obligation in SFAS No. 143, Accounting for Asset Retirement Obligations, and therefore, should be recognized if their fair value is reasonably estimable. The Interpretation provides additional
guidance to evaluate whether fair value is reasonably estimable. Companies must adopt this Interpretation no later than the end of the fiscal year ending after December 15, 2005. We anticipate that the adoption of Interpretation 47 will not have a
material impact on our financial position, net earnings or cash flows.



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In December 2004, the FASB issued SFAS No. 123 revised 2004, Share-Based Payment. This Statement is a
revision of SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB No. 25, Accounting for Stock Issued to Employees. The Statement requires companies to recognize in the income statement the
grant-date fair value of stock options and other equity based compensation issued to employees. This Statement is effective as of the beginning of the first annual period that commences after June 15, 2005. We anticipate that the adoption of SFAS
No. 123 revised 2004 will not have a material impact on our financial position, net earnings or cash flows.



In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-Monetary Assets an amendment of APB No. 29. This Statement amends APB Opinion No. 29, Accounting for Non-Monetary
Transactions to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. That exception required
that some non-monetary exchanges be recorded on a carryover basis versus this Statement, which requires that an entity record a non-monetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. This
Statement is effective for fiscal years beginning after June 15, 2005. We anticipate that the adoption of SFAS No. 153 will not have a material impact on our financial position, net earnings or cash flows.



In November 2004, the FASB issued EITF Issue No. 03-13, Applying the Conditions in
Paragraph 42 of FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations (EITF No. 03-13). This issue assists in the development of a model for evaluating
(a) which cash flows are to be considered in determining whether cash flows have been or will be eliminated and (b) what types of continuing involvement constitute significant continuing involvement. The guidance in this issue should be applied to a
component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. Previously reported operating results related to disposal transactions initiated within an enterprises
fiscal year that includes the date that this consensus was ratified (November 30, 2004) may be reclassified. The adoption of EITF No. 03-13 on January 1, 2005, had no impact on our financial position, net earnings or cash flows.



Inflation



Leases at the office properties typically provide for rent adjustment and pass-through of certain operating expenses during the term of the
lease. Substantially all of the leases at the industrial properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. We anticipate that these provisions may
permit us to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce our exposure to the adverse effects of inflation.



Funds from Operations



Funds from operations is a non-GAAP measure that is commonly used in the real estate industry. The most directly comparable GAAP measure to funds from operations is net
income (loss). Although the National Association of Real Estate Investment Trusts (NAREIT) has published a definition of funds from operations, modifications to the NAREIT calculation of funds from operations are common among REITs, as
companies seek to provide financial measures that meaningfully reflect their business. Funds from operations, as defined by NAREIT, is presented by us as a supplemental financial measure. Funds from operations is not used by us as, nor should it be
considered to be, an alternative to net income (loss) computed under GAAP, as an indicator of our operating performance or as an alternative to cash from operating activities computed under GAAP as an indicator of our ability to fund our cash needs.



Funds from operations is not meant to represent a comprehensive system of
financial reporting and does not present, nor do we intend it to present, a complete picture of our financial condition and operating performance. We believe that net income (loss) computed under GAAP remains the primary measure of operating
performance and that funds from operations is only meaningful when it is used in conjunction with net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the
most meaningful picture of our financial condition and our operating performance.



40



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NAREITs funds from operations measure adjusts net income (loss) computed under GAAP to exclude historical cost
depreciation and gains and losses from the sales of previously depreciated properties. We agree that these two NAREIT adjustments are useful to investors for the following reasons:



(a) historical cost accounting for real estate assets in accordance with GAAP assumes, through depreciation charges, that the value of real
estate assets diminishes predictably over time. NAREIT stated in its White Paper on Funds from Operations since real estate asset values have historically risen or fallen with market conditions, many industry investors have considered
presentations of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. Consequently, NAREITs definition of funds from operations reflects the fact that real estate values, as an
asset class, generally fluctuate over time to reflect market conditions.



(b)
REITs were created as a legal form of organization in order to encourage public ownership of real estate as an asset class through investment in firms that were in the business of long-term ownership and management of real estate. The exclusion, in
NAREITs definition of funds from operations, of gains and losses from the sales of previously depreciated operating real estate assets allows investors and analysts to readily identify the operating results of the long-term assets that form
the core of a REITs activities and assists in comparing those operating results between periods.



At the same time that NAREIT created and defined its funds from operations concept for the REIT industry, it also recognized that management of each of its member companies has the responsibility and authority
to publish financial information that it regards as useful to the financial community. We believe that financial analysts, potential investors and shareholders who review our operating results are best served by the NAREIT defined funds from
operations measure used together with, but not as a substitute for, net income (loss) computed under GAAP and cash from operating activities computed under GAAP.



Investors analyses of the performance of real estate companies tend to be centered on understanding the asset value created by real
estate investment decisions and understanding current operating returns that are being generated by those same investment decisions. The adjustments to net income (loss) computed under GAAP that are included in arriving at the NAREIT defined funds
from operations measure are helpful to management in making real estate investment decisions and evaluating our current operating performance. We believe that these adjustments are also helpful to industry analysts, potential investors and
shareholders in their understanding and evaluation of our performance on the key measures of valuation and current operating returns generated on real estate investments.



While we believe that the NAREIT defined funds from operations measure is an important supplemental measure, it should not be used alone
because it excludes significant economic components of net income (loss) computed under GAAP and is, therefore, limited as an analytical tool. Some of these limitations are:



| |  |  | Depreciation and amortization of real estate assets are economic costs that are excluded from funds from operations. Funds from operations is limited as it does not reflect the cash
requirements that may be necessary for future replacements of the real estate assets. Further, the amortization of capital expenditures and leasing costs necessary to maintain the operating performance of real estate properties are not reflected in
funds from operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Gains or losses from property dispositions, if any, represent changes in the value of the disposed properties. Funds from operations, by excluding these gains and losses, does not
capture realized changes in the value of disposed properties arising from changes in market conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We compensate for these limitations by using our funds from operations measure only in conjunction with net income (loss) computed under GAAP. To further compensate, we
reconcile the funds from operations measure to net income (loss) computed under GAAP in our financial reports. Additionally, we provide investors with our complete financial statements prepared under GAAP, our definition of funds from operations
which includes a discussion of the limitations of using the non-GAAP measure and a reconciliation of our GAAP measure (net income (loss)) to our non-GAAP measure so that investors can appropriately incorporate the measure and its limitations into
their analyses.



41



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##### Table of Contents

The following table sets forth our reconciliation of net income (loss) to funds from operations (FFO) for the three
months ended March 31, 2005 and 2004 (in thousands, except weighted average shares and per share amounts):



|                                                                                     |  |                    |            |   |               |   |            |  
|------------------------------------------------------------------------------------ |  | ------------------ | ---------- | - | ------------- | - | ---------- | -
|                                                                                     |  | Three Months Ended |           
|                                                                                     |  | March 31,2005      |            |   | March 31,2004 |  
|Net income (loss)                                                                    |  | $                  | (36,846    | ) |               | $ | 4,700      |  
|Cumulative effect of change in accounting principle                                  |  |                    |           |   |               |   | 912        |  
|Real estate depreciation and amortization, net of minority interest(1)               |  |                    | 14,323     |   |               |   | 13,394     |  
|Preferred dividends                                                                  |  |                    | (1,812     | ) |               |   | (4,823     | )
|Dividends paid on redeemed preferred stock                                           |  |                    | (2,102     | ) |               |   |           |  
|Premium and write-off of original issuance costs on preferred stock redemption       |  |                    | (5,309     | ) |               |   |           |  
|Gain on sale from discontinued operations, net of minority interest                  |  |                    | (15,988    | ) |               |   | (109       | )
|Adjustment to reflect FFO of unconsolidated operating joint ventures(2)              |  |                    | 178        |   |               |   | 179        |  
|Adjustment to reflect FFO of minority interest(3)                                    |  |                    | (3,975     | ) |               |   | 1,284      |  
|                                                                                     |  |                    |            |   |               |   |            |  
|FFO available to Common Stockholders                                                 |  | $                  | (51,531    | ) |               | $ | 15,537     |  
|                                                                                     |  |                    |            |   |               |   |            |  
|Diluted Per Share Data:                                                              |  |                    |            |   |               |   |            |  
|FFO available to Common Stockholders                                                 |  | $                  | (1.32      | ) |               | $ | 0.49       |  
|                                                                                     |  |                    |            |   |               |   |            |  
|Reconciliation of diluted weighted average shares:                                   |  |                    |            |   |               |   |            |  
|Diluted weighted average shares outstanding for calculation of EPS                   |  |                    | 35,928,962 |   |               |   | 31,899,526 |  
|Stock options and restricted stock(4)                                                |  |                    | 249,393    |   |               |   |           |  
|Convertible Operating Partnership Units(4)                                           |  |                    | 3,001,957  |   |               |   |           |  
|                                                                                     |  |                    |            |   |               |   |            |  
|Diluted weighted average shares outstanding for calculation of FFO per diluted share |  |                    | 39,180,312 |   |               |   | 31,899,526 |  
|                                                                                     |  |                    |            |   |               |   |            |  

---

|(1) | Excludes non-real estate depreciation and amortization.
|--- | -------------------------------------------------------

|(2) | Represents the adjustments to FFO required to reflect the FFO of the unconsolidated operating joint ventures allocable to us. Our investments in the joint ventures
are accounted for using the equity method of accounting.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Represents the minority interest holders share of real estate depreciation and amortization and gain on sales from discontinued operations.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(4) | For the three months ended March 31, 2005, options to purchase shares of our common stock and convertible operating partnership units were anti-dilutive for the
purpose of calculating diluted earnings per share and were excluded from the computation of diluted earnings per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 our expectations, hopes, intentions, beliefs and strategies regarding the
future. These forward looking statements include statements relating to:



| |  | Our expectation to receive approximately $3 million of deferred gain on sale of Rockwall I and II in the second quarter of 2005;
|- |  | --------------------------------------------------------------------------------------------------------------------------------



| |  | Our expectation that the remaining twelve assets for which the intended holding period was reduced will generate gains on sale;
|- |  | -------------------------------------------------------------------------------------------------------------------------------



| |  | Our belief that claims and lawsuits which have arisen against us in our normal course of business will not have a material adverse effect on our financial position, cash flow or
results of operations;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our intention to continue our policy of paying quarterly distributions;
|- |  | -----------------------------------------------------------------------



| |  | Our anticipation that lease rollover will affect our rental revenues with changes in portfolio occupancy and changes in rental rates upon lease renewal;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our expectation to meet our short-term liquidity requirements generally through our working capital, our unsecured bank line of credit and cash generated by operations;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Our anticipation that cash generated by our operations will be adequate to meet our operating requirements and to make distributions in accordance with REIT requirements in both the
short and the long-term;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our intention to make future stock repurchases from time to time in the open market or otherwise depending on market conditions and other factors;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our belief that we complied with all requirements to qualify as a REIT and, as a result, our exclusion of income taxes from our consolidated financial statements;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our anticipation that the adoption of FASB Interpretation 47 will not have a material impact on our financial position, net earnings or cash flows;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our anticipation that the adoption of SFAS No. 123 revised 2004 will not have a material impact on our financial position, net earnings or cash flows;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our anticipation that the adoption of SFAS No. 153 will not have a material impact on our financial position, net earnings or cash flows;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | Our anticipation that certain provisions of our lease documents may permit us to increase rental rates or other charges to tenants in response to rising prices and therefore, serve
to reduce our exposure to the adverse effects of inflation; and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Our expectation that changes in market interest rates obtainable on our secured and unsecured borrowings will not have a material impact on the performance or fair value of our
mortgage loans receivable.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All forward-looking statements
included in this document are based on information available to us on the date hereof. Because these forward looking statements involve risk and uncertainty, there are important factors that could cause our actual results to differ materially from
those stated or implied in the forward-looking statements. Those important factors include:



| |  | our inability to resolve sale contingencies related to Rockwall I and II promptly and in accordance with our expectations;
|- |  | --------------------------------------------------------------------------------------------------------------------------



| |  | our inability to locate suitable buyers for the listed assets who are ready, willing and able to close transactions at the sales prices we anticipate;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | increased costs of financing cause a reduction in demand for commercial properties and, therefore, a reduction in the market value of the listed assets;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | the unpredictability of both the frequency and final outcome of litigation;
|- |  | ---------------------------------------------------------------------------



| |  | an unexpected inability to collect or access capital;
|- |  | -----------------------------------------------------



| |  | availability and creditworthiness of prospective tenants and our ability to execute lease deals with them;
|- |  | ----------------------------------------------------------------------------------------------------------



| |  | defaults or non-renewal of leases by customers;
|- |  | -----------------------------------------------



| |  | market fluctuations in rental rates, concessions and occupancy;
|- |  | ---------------------------------------------------------------



| |  | reduced demand for office space;
|- |  | --------------------------------



| |  | failure of market conditions and occupancy levels to improve in certain geographic areas;
|- |  | -----------------------------------------------------------------------------------------



| |  | increased interest rates and operating costs;
|- |  | ---------------------------------------------



| |  | our failure to obtain necessary outside financing;
|- |  | --------------------------------------------------



| |  | our inadvertent or technical failure to have met all requirements to qualify as a REIT;
|- |  | ---------------------------------------------------------------------------------------



| |  | the impact of FASB Interpretation 47 differs from the impact we anticipate;
|- |  | ---------------------------------------------------------------------------



| |  | the adoption of SFAS No. 123 revised 2004 has an unanticipated, negative impact on our financial position;
|- |  | ----------------------------------------------------------------------------------------------------------



| |  | an interpretation of fair value differing from ours prevails in the application of SFAS No. 153;
|- |  | ------------------------------------------------------------------------------------------------



| |  | the unpredictability of changes in accounting rules;
|- |  | ----------------------------------------------------



| |  | an interpretation of lease provisions differing from ours prevails in a dispute regarding recovery of expenses; and
|- |  | -------------------------------------------------------------------------------------------------------------------



| |  | continuing threat of terrorist attacks.
|- |  | ---------------------------------------



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The forward-looking statements in this quarterly report on Form 10-Q are subject to additional risks and uncertainties
further discussed under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2004. We assume no
obligation to update or supplement any forward looking-statement.



Risk
Factors



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



Item 3. Quantitative and Qualitative Disclosures about Market Risk



Interest Rates



We are exposed to
changes in interest rates obtainable on our secured and unsecured borrowings. Our expectation is that changes in market interest rates will not have a material impact on the performance or fair value of our mortgage loans receivable.



It is our policy to manage our exposure to fluctuations in market interest rates for our
borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. In order to maximize financial flexibility when selling properties and minimize potential prepayment
penalties on fixed rate loans, we have also entered into several variable rate debt arrangements. Approximately 23% at March 31, 2005 and 19% at December 31, 2004 of our outstanding debt, including amounts borrowed under our unsecured bank line of
credit, were subject to variable rates. The average interest rate on our debt decreased from 5.55% at December 31, 2004 to 5.45% at March 31, 2005. We review interest rate exposure in the portfolio continually in an effort to minimize the risk of
interest rate fluctuations. We do not have any other material market-sensitive financial instruments. It is not our policy to engage in hedging activities for speculative or trading purposes.



We may enter into forward interest rate, or similar, agreements to hedge specific anticipated
debt issuances where we believe the risk of adverse changes in market rates is significant. Under a forward interest rate agreement, if the referenced interest rate increases, we are entitled to a receipt in settlement of the agreement that
economically would offset the higher financing cost of the debt issued. If the referenced interest rate decreases, we make payment in settlement of the agreement, creating an expense that economically would offset the reduced financing cost of the
debt issued. At March 31, 2005, we were not a party to any forward interest rate or similar agreements.



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##### Table of Contents

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



|                      |  |                        |        |   |       |   |        |            |  |   |         |   |  |      |         |   |            |   |         |   |  |   |         |   |  |   |         |   |  |   |        
|--------------------- |  | ---------------------- | ------ | - | ----- | - | ------ | ---------- |  | - | ------- | - |  | ---- | ------- | - | ---------- | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | -------
|                      |  | Expected Maturity Date |        |   | Total |   |        | Fair Value
|                      |  | 2005                   |        |   | 2006  |   |        | 2007       |  |   | 2008    |   |  | 2009 |         |   | Thereafter |   |         |  
|                      |  | (in thousands)         |        |   |       |   |        |           
|Secured Fixed         |  | $                      | 28,365 |   |       | $ | 99,669 |            |  | $ | 10,615  |   |  | $    | 126,967 |   |            | $ | 202,250 |   |  | $ | 147,266 |   |  | $ | 615,132 |   |  | $ | 623,024
|Average interest rate |  |                        | 5.17   | % |       |   | 6.53   | %          |  |   | 5.96    | % |  |      | 5.48    | % |            |   | 5.78    | % |  |   | 5.22    | % |  |   | 5.68    | % |  |   |        
|                      |  |                        |        |   |       |   |        |           
|Secured Variable      |  | $                      | 31,703 |   |       | $ | 35,000 |            |  | $ |        |   |  | $    | 17,000  |   |            | $ |        |   |  | $ |        |   |  | $ | 83,703  |   |  | $ | 83,703 
|Average interest rate |  |                        | 4.87   | % |       |   | 4.87   | %          |  |   |        |   |  |      | 6.12    | % |            |   |        |   |  |   |        |   |  |   | 5.12    | % |  |   |        
|                      |  |                        |        |   |       |   |        |           
|Unsecured Variable    |  | $                      |       |   |       | $ |       |            |  | $ | 101,889 |   |  | $    |        |   |            | $ |        |   |  | $ |        |   |  | $ | 101,889 |   |  | $ | 101,889
|Average interest rate |  |                        |       |   |       |   |       |            |  |   | 4.40    | % |  |      |        |   |            |   |        |   |  |   |        |   |  |   | 4.40    | % |  |   |        



A change of 1/8% in the index rate to
which our variable rate debt is tied would change the annual interest we incurred by approximately $232,000, based upon the balances outstanding on variable rate instruments at March 31, 2005.



Item 4. Controls and Procedures



Evaluation of
Disclosure Controls and Procedures



An evaluation was carried out under
the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange
Act of 1934, as amended). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were, to the best of their knowledge, effective as of March 31, 2005, to ensure
that information required to be disclosed in reports that are filed and submitted under the Securities Exchange Act are recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms. Subsequent to March 31, 2005, there were no significant changes in our disclosure controls or in other factors that could significantly affect these controls, including any corrective actions with regard to significant deficiencies and
material weaknesses.



Changes in Internal Control Over Financial Reporting



There were no changes in our internal control over financial reporting
identified in connection with our evaluation of internal control over financial reporting during our first quarter ended March 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.





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##### Table of Contents

PART II. OTHER INFORMATION



Item 1. Legal Proceedings



Certain claims and
lawsuits have arisen against us in our normal course of business. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flow or results of operations.



Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities



|                               |  |                                |  |                             |         |                                                                             |           |                                                                            |  
|------------------------------ |  | ------------------------------ |  | --------------------------- | ------- | --------------------------------------------------------------------------- | --------- | -------------------------------------------------------------------------- | -
|Period                         |  | Total Number ofShares Redeemed |  | Average Price Paidper Share |         | Total Number ofShares Redeemed asPart of PubliclyAnnounced Plans orPrograms |           | Maximum Number ofShares that May YetBe Redeemed Underthe Plans or Programs
|January 1  January 31, 2005   |  | 3,109,518                      |  | $                           | 25.5825 |                                                                             | 3,109,518 |                                                                            | 
|February 1  February 28, 2005 |  |                               |  |                             |        |                                                                             |          |                                                                            | 
|March 1  March 31, 2005       |  |                               |  |                             |        |                                                                             |          |                                                                            | 



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



At our annual meeting, held on May 4, 2005, in Redwood City, California, the following persons were duly elected by majority vote of the holders of our common stock to serve as Class I directors:



|                    |  |            |  |               
|------------------- |  | ---------- |  | --------------
|                    |  | Votes For  |  | Votes Withheld
|Richard C. Blum     |  | 19,085,589 |  | 12,731,592    
|Richard A. Magnuson |  | 29,799,238 |  | 2,017,943     



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 1, 2005, we furnished a report on Form 8-K with respect to our press release, announcing results of operations for the quarter and the full
year ended December 31, 2004 (not incorporated herein by reference).



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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 10, 2005 |  |                                            |  | /s/ Andrew Batinovich       
|                   |  |                                            |  | Andrew Batinovich           
|                   |  |                                            |  | Director, President and     
|                   |  |                                            |  | Chief Executive Officer     
|                   |  |                                           
|Date: May 10, 2005 |  |                                            |  | /s/ Stephen Saul            
|                   |  |                                            |  | Stephen Saul                
|                   |  |                                            |  | Executive Vice President and
|                   |  |                                            |  | Chief Financial Officer     
|                   |  |                                           
|Date: May 10, 2005 |  |                                            |  | /s/ Terri Garnick           
|                   |  |                                            |  | Terri Garnick               
|                   |  |                                            |  | Chief Accounting Officer    



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EXHIBIT INDEX



|            |  |                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Title                                                                                                                         
|11.01       |  | Statement re: Computation of Earnings Per Share is shown in Note 16 of the Consolidated Financial Statements of the Company in Item 1.
|            | 
|12.01       |  | Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends.                     
|            | 
|31.01       |  | Section 302 Certification of Andrew Batinovich, Chief Executive Officer.                                                              
|            | 
|31.02       |  | Section 302 Certification of Stephen R. Saul, Chief Financial Officer.                                                                
|            | 
|32.01       |  | Section 906 Certification of Andrew Batinovich, Chief Executive Officer.                                                              
|            | 
|32.02       |  | Section 906 Certification of Stephen R. Saul, Chief Financial Officer.                                                                



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