##### Table of Contents

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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, 2004



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



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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 3, 2004, 31,918,478 shares of Common Stock ($.001 par value) and 6,850,300
shares of 7.75% Series A Convertible Preferred Stock ($.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, 2004 and December 31, 2003                      |  | 3       
|              |  |                                                                                         
|              |  | Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003 |  | 4       
|              |  |                                                                                         
|              |  | Consolidated Statement of Stockholders Equity for the three months ended March 31, 2004 |  | 5       
|              |  |                                                                                         
|              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003 |  | 6-7     
|              |  |                                                                                         
|              |  | Notes to Consolidated Financial Statements                                               |  | 8-27    
|              |  |                                                                                         
|Item 2.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations    |  | 28-39   
|              |  |                                                                                         
|Item 3.       |  | Quantitative and Qualitative Disclosures About Market Risk                               |  | 39      
|              |  |                                                                                         
|Item 4.       |  | Controls and Procedures                                                                  |  | 40      
|              |  |                                                                                         
|PART II       |  | OTHER INFORMATION                                                                        |  |         
|              |  |                                                                                         
|Item 1.       |  | Legal Proceedings                                                                        |  | 41      
|              |  |                                                                                         
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                      |  | 41      
|              |  |                                                                                         
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                         |  | 41      
|              | 
|SIGNATURES    |  | 42                                                                                      
|              | 
|EXHIBIT INDEX |  | 43                                                                                      



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 31,2004 |           |   | December 31,2003 |  
|ASSETS                                                                                                                                                                                        |  |               |           |   |                  |   |           |  
|Rental properties, gross                                                                                                                                                                      |  | $             | 1,407,802 |   |                  | $ | 1,402,183 |  
|Accumulated depreciation and amortization                                                                                                                                                     |  |               | (202,017  | ) |                  |   | (188,721  | )
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|Rental properties, net                                                                                                                                                                        |  |               | 1,205,785 |   |                  |   | 1,213,462 |  
|                                                                                                                                                                                              |  |              
|Investments in land and development                                                                                                                                                           |  |               | 131,313   |   |                  |   | 67,493    |  
|Investments in unconsolidated operating joint ventures                                                                                                                                        |  |               | 12,179    |   |                  |   | 12,211    |  
|Mortgage loans receivable                                                                                                                                                                     |  |               | 26,258    |   |                  |   | 40,323    |  
|Leasing and financing costs (net of accumulated amortization of $16,470 and $14,858 as of March 31, 2004 and December 31, 2003,
respectively)                                                 |  |               | 26,872    |   |                  |   | 26,603    |  
|Cash and cash equivalents                                                                                                                                                                     |  |               | 6,549     |   |                  |   | 18,992    |  
|Other assets                                                                                                                                                                                  |  |               | 27,623    |   |                  |   | 26,155    |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|TOTAL ASSETS                                                                                                                                                                                  |  | $             | 1,436,579 |   |                  | $ | 1,405,239 |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                          |  |               |           |   |                  |   |           |  
|Liabilities:                                                                                                                                                                                  |  |               |           |   |                  |   |           |  
|Mortgage loans                                                                                                                                                                                |  | $             | 684,323   |   |                  | $ | 649,325   |  
|Unsecured bank line of credit                                                                                                                                                                 |  |               | 18,197    |   |                  |   | 89,941    |  
|Other liabilities                                                                                                                                                                             |  |               | 31,416    |   |                  |   | 37,159    |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|Total liabilities                                                                                                                                                                             |  |               | 733,936   |   |                  |   | 776,425   |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|Commitments and contingencies (Note 17)                                                                                                                                                       |  |               |           |   |                  |   |           |  
|                                                                                                                                                                                              |  |              
|Minority interest                                                                                                                                                                             |  |               | 38,770    |   |                  |   | 36,969    |  
|                                                                                                                                                                                              |  |              
|Stockholders Equity:                                                                                                                                                                         |  |               |           |   |                  |   |           |  
|Common stock, $0.001 par value, 188,000,000 shares authorized, 31,897,311 and 27,847,477 shares issued and outstanding at March 31, 2004 and
December 31, 2003, respectively                  |  |               | 32        |   |                  |   | 28        |  
|Preferred stock, $0.001 par value, 12,000,000 shares authorized, $25.00 liquidation preference, 9,956,300 shares issued and outstanding at
March 31, 2004 and December 31, 2003, respectively |  |               | 10        |   |                  |   | 10        |  
|Additional paid-in capital                                                                                                                                                                    |  |               | 863,553   |   |                  |   | 779,627   |  
|Deferred compensation                                                                                                                                                                         |  |               | (5,010    | ) |                  |   | (2,977    | )
|Distributions in excess of accumulated earnings                                                                                                                                               |  |               | (194,712  | ) |                  |   | (184,843  | )
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|Total stockholders equity                                                                                                                                                                    |  |               | 663,873   |   |                  |   | 591,845   |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                    |  | $             | 1,436,579 |   |                  | $ | 1,405,239 |  
|                                                                                                                                                                                              |  |               |           |   |                  |   |           |  



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, 2004 and 2003

(in thousands, except share and per share amounts)

(Unaudited)



|                                                                                                                 |  |      |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                                                                 |  | 2004 |            |   | 2003 |  
|REVENUE                                                                                                          |  |      |            |   |      |   |            |  
|Rental revenue                                                                                                   |  | $    | 47,594     |   |      | $ | 41,808     |  
|Fees and reimbursements from affiliates                                                                          |  |      | 829        |   |      |   | 806        |  
|Interest and other income                                                                                        |  |      | 832        |   |      |   | 808        |  
|Equity in earnings of unconsolidated operating joint ventures                                                    |  |      | 188        |   |      |   | 123        |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Total revenue                                                                                                    |  |      | 49,443     |   |      |   | 43,545     |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|EXPENSES                                                                                                         |  |      |            |   |      |   |            |  
|Property operating expenses                                                                                      |  |      | 17,219     |   |      |   | 14,576     |  
|General and administrative                                                                                       |  |      | 2,172      |   |      |   | 3,785      |  
|Depreciation and amortization                                                                                    |  |      | 15,056     |   |      |   | 12,069     |  
|Interest expense                                                                                                 |  |      | 9,246      |   |      |   | 7,863      |  
|Loss on early extinguishment of debt                                                                             |  |      | 85         |   |      |   |           |  
|Provision for impairment of real estate assets                                                                   |  |      |           |   |      |   | 2,272      |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Total expenses                                                                                                   |  |      | 43,778     |   |      |   | 40,565     |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Income before minority interest, discontinued operations and cumulative effect of change in accounting principle |  |      | 5,665      |   |      |   | 2,980      |  
|Minority interest                                                                                                |  |      | 12         |   |      |   | (613       | )
|                                                                                                                 |  |      |            |   |      |   |            |  
|Income before discontinued operations and cumulative effect of change in accounting principle                    |  |      | 5,677      |   |      |   | 2,367      |  
|Discontinued operations (including gain on sales of $120 and $4,450 in 2004 and 2003, respectively)              |  |      | (65        | ) |      |   | 8,287      |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Income before cumulative effect of change in accounting principle                                                |  |      | 5,612      |   |      |   | 10,654     |  
|Cumulative effect of change in accounting principle (Note 16)                                                    |  |      | (912       | ) |      |   |           |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Net income                                                                                                       |  |      | 4,700      |   |      |   | 10,654     |  
|Preferred dividends                                                                                              |  |      | (4,823     | ) |      |   | (4,891     | )
|Discount on preferred stock repurchases                                                                          |  |      |           |   |      |   | 17         |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                               |  | $    | (123       | ) |      | $ | 5,780      |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Basic Per Share Data:                                                                                            |  |      |            |   |      |   |            |  
|Continuing operations                                                                                            |  | $    | 0.03       |   |      | $ | (0.06      | )
|Discontinued operations                                                                                          |  |      |           |   |      |   | 0.27       |  
|Cumulative effect of change in accounting principle                                                              |  |      | (0.03      | ) |      |   |           |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                               |  | $    |           |   |      | $ | 0.21       |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Basic weighted average shares outstanding                                                                        |  |      | 28,564,399 |   |      |   | 27,639,046 |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Diluted Per Share Data:                                                                                          |  |      |            |   |      |   |            |  
|Continuing operations                                                                                            |  | $    | 0.03       |   |      | $ | (0.06      | )
|Discontinued operations                                                                                          |  |      |           |   |      |   | 0.27       |  
|Cumulative effect of change in accounting principle                                                              |  |      | (0.03      | ) |      |   |           |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Net income (loss) available to Common Stockholders                                                               |  | $    |           |   |      | $ | 0.21       |  
|                                                                                                                 |  |      |            |   |      |   |            |  
|Diluted weighted average shares outstanding                                                                      |  |      | 31,899,526 |   |      |   | 27,639,046 |  
|                                                                                                                 |  |      |            |   |      |   |            |  



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, 2004

(in thousands)

(Unaudited)



|                                                                     |  |              |  |                |    |        |       |          |   |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  
|-------------------------------------------------------------------- |  | ------------ |  | -------------- | -- | ------ | ----- | -------- | - | ------------------------ |  | - | --------------------- | - |  | -------------------------------------------- | ------ | - | ----- | - | -------- | - |  | - | ------- | -
|                                                                     |  | Common Stock |  | PreferredStock |    |        |       |          |   |                          |  |   |                       |   |  |                                             
|                                                                     |  | Shares       |  | ParValue       |    | Shares |       | ParValue |   | AdditionalPaid-inCapital |  |   | DeferredCompen-sation |   |  | Distributionsin excess ofaccumulatedearnings |        |   | Total |  
|Balance at December 31, 2003                                         |  | 27,847       |  | $              | 28 |        | 9,956 |          | $ | 10                       |  | $ | 779,627               |   |  | $                                            | (2,977 | ) |       | $ | (184,843 | ) |  | $ | 591,845 |  
|Exercise of stock options                                            |  | 40           |  |                |   |        |      |          |   |                         |  |   | 732                   |   |  |                                              |       |   |       |   |         |   |  |   | 732     |  
|Issuance of common stock, net of offering costs of $1,326            |  | 3,910        |  |                | 4  |        |      |          |   |                         |  |   | 81,562                |   |  |                                              |       |   |       |   |         |   |  |   | 81,566  |  
|Issuance of restricted common stock to officer                       |  | 100          |  |                |   |        |      |          |   |                         |  |   | 2,228                 |   |  |                                              | (2,228 | ) |       |   |         |   |  |   |        |  
|Amortization of deferred compensation                                |  |             |  |                |   |        |      |          |   |                         |  |   |                      |   |  |                                              | 195    |   |       |   |         |   |  |   | 195     |  
|Reallocation of limited partners interests in Operating Partnership |  |             |  |                |   |        |      |          |   |                         |  |   | (596                  | ) |  |                                              |       |   |       |   |         |   |  |   | (596    | )
|Dividends paid to common and preferred stockholders                  |  |             |  |                |   |        |      |          |   |                         |  |   |                      |   |  |                                              |       |   |       |   | (14,569  | ) |  |   | (14,569 | )
|Net income                                                           |  |             |  |                |   |        |      |          |   |                         |  |   |                      |   |  |                                              |       |   |       |   | 4,700    |   |  |   | 4,700   |  
|                                                                     |  |              |  |                |    |        |       |          |   |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  
|Balance at March 31, 2004                                            |  | 31,897       |  | $              | 32 |        | 9,956 |          | $ | 10                       |  | $ | 863,553               |   |  | $                                            | (5,010 | ) |       | $ | (194,712 | ) |  | $ | 663,873 |  
|                                                                     |  |              |  |                |    |        |       |          |   |                          |  |   |                       |   |  |                                              |        |   |       |   |          |   |  |   |         |  



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, 2004 and 2003

(in thousands)

(Unaudited)



|                                                                                                                     |  |      |          |   |      |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                                                                                                     |  | 2004 |          |   | 2003 |  
|Cash flows from operating activities:                                                                                |  |      |          |   |      |   |         |  
|Net income                                                                                                           |  | $    | 4,700    |   |      | $ | 10,654  |  
|Adjustments to reconcile net income to net cash provided by operating activities:                                    |  |      |          |   |      |   |         |  
|Depreciation and amortization (including discontinued operations)                                                    |  |      | 15,057   |   |      |   | 14,293  |  
|Amortization of loan fees, included in interest expense (including discontinued operations)                          |  |      | 799      |   |      |   | 803     |  
|Accrued interest on mortgage loans receivable                                                                        |  |      | (556     | ) |      |   | (735    | )
|Minority interest in income (loss) from operations                                                                   |  |      | (12      | ) |      |   | 613     |  
|Equity in earnings of unconsolidated operating joint ventures                                                        |  |      | (188     | ) |      |   | (123    | )
|Gain on sales of real estate assets                                                                                  |  |      | (120     | ) |      |   | (4,450  | )
|Loss on early extinguishment of debt                                                                                 |  |      | 85       |   |      |   |        |  
|Provision for impairment of real estate assets                                                                       |  |      |         |   |      |   | 2,272   |  
|Cumulative effect of change in accounting principle                                                                  |  |      | 912      |   |      |   |        |  
|Amortization of deferred compensation                                                                                |  |      | 195      |   |      |   | 201     |  
|Changes in certain assets and liabilities, net                                                                       |  |      | (9,584   | ) |      |   | (2,561  | )
|                                                                                                                     |  |      |          |   |      |   |         |  
|Net cash provided by operating activities                                                                            |  |      | 11,288   |   |      |   | 20,967  |  
|                                                                                                                     |  |      |          |   |      |   |         |  
|Cash flows from investing activities:                                                                                |  |      |          |   |      |   |         |  
|Net proceeds from sales of rental properties                                                                         |  |      | 1,232    |   |      |   | 77,979  |  
|Acquisitions of rental properties                                                                                    |  |      |         |   |      |   | (69,508 | )
|Payments for capital and tenant improvements                                                                         |  |      | (7,401   | ) |      |   | (9,562  | )
|Investments in land and development                                                                                  |  |      | (18,410  | ) |      |   | (3,890  | )
|Distributions from unconsolidated operating joint ventures                                                           |  |      | 220      |   |      |   |        |  
|Principal payments from mortgage loans receivable                                                                    |  |      | 14,621   |   |      |   |        |  
|                                                                                                                     |  |      |          |   |      |   |         |  
|Net cash used for investing activities                                                                               |  |      | (9,738   | ) |      |   | (4,981  | )
|                                                                                                                     |  |      |          |   |      |   |         |  
|Cash flows from financing activities:                                                                                |  |      |          |   |      |   |         |  
|Proceeds from borrowings                                                                                             |  |      | 32,676   |   |      |   | 93,569  |  
|Repayment of borrowings                                                                                              |  |      | (114,422 | ) |      |   | (84,209 | )
|Distributions to minority interest holders                                                                           |  |      | (1,051   | ) |      |   | (1,295  | )
|Dividends paid to common and preferred stockholders                                                                  |  |      | (14,569  | ) |      |   | (16,899 | )
|Contributions from minority interest holders                                                                         |  |      | 40       |   |      |   |        |  
|Proceeds from issuance of common stock, net of offering costs                                                        |  |      | 81,566   |   |      |   |        |  
|Exercise of stock options                                                                                            |  |      | 732      |   |      |   | 40      |  
|Repurchases of common stock                                                                                          |  |      |         |   |      |   | (2,300  | )
|Repurchases of preferred stock                                                                                       |  |      |         |   |      |   | (108    | )
|                                                                                                                     |  |      |          |   |      |   |         |  
|Net cash used for financing activities                                                                               |  |      | (15,028  | ) |      |   | (11,202 | )
|                                                                                                                     |  |      |          |   |      |   |         |  
|Net (decrease) increase in cash and cash equivalents                                                                 |  |      | (13,478  | ) |      |   | 4,784   |  
|                                                                                                                     |  |     
|Cash and cash equivalents at Marina Shores on January 1, 2004 (see Note 16)                                          |  |      | 1,035    |   |      |   |        |  
|                                                                                                                     |  |     
|Cash and cash equivalents at beginning of period, including $244 at properties held for sale as of December 31, 2002 |  |      | 18,992   |   |      |   | 5,273   |  
|                                                                                                                     |  |      |          |   |      |   |         |  
|Cash and cash equivalents at end of period                                                                           |  | $    | 6,549    |   |      | $ | 10,057  |  
|                                                                                                                     |  |      |          |   |      |   |         |  



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, 2004 and 2003

(in thousands)

(Unaudited)



|                                                                                                       |  |      |         |   |      |   |      
|------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | -----
|                                                                                                       |  | 2004 |         |   | 2003
|Supplemental disclosure of cash flow information:                                                      |  |      |         |   |      |   |      
|Cash paid for interest (net of capitalized interest of $747 and $1,084 in 2004 and 2003, respectively) |  | $    | 7,296   |   |      | $ | 8,336
|                                                                                                       |  |      |         |   |      |   |      
|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    | ) |      |   |     
|                                                                                                       |  |      |         |   |      |   |      
|                                                                                                       |  | $    |        |   |      | $ |     
|                                                                                                       |  |      |         |   |      |   |      
|Reclassification of real estate assets from investments in land and development                        |  | $    |        |   |      | $ | 4,768
|                                                                                                       |  |      |         |   |      |   |      
|Reallocation of limited partners interests in Operating Partnership                                   |  | $    | 596     |   |      | $ | 97   
|                                                                                                       |  |      |         |   |      |   |      



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



7



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(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, 2004, 31,897,311 shares of Common Stock and 9,956,300 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 34,899,268 shares of Common
Stock outstanding as of March 31, 2004. 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, 2004, 6,394,816 shares of
Common Stock and 1,543,700 shares of Preferred Stock 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.



On March 19, 2004, the Company announced that it will partially redeem its Preferred Stock. The Company will redeem, on a pro rata basis, as to record holders, 3,106,000
shares of Preferred Stock, representing approximately 31.2% of the total number of outstanding shares. The redemption date of the Preferred Stock will be April 30, 2004 (the Redemption Date) and the redemption price will be $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 the Redemption Date, without interest. The dividend payment due on April 15, 2004 of $0.484375 per share on the
Preferred Stock will be made in the usual manner to shareholders of record on March 25, 2004. This redemption will be funded with proceeds from the Companys March 2004 common stock offering (as discussed in Note 18).



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 90.40% limited partner interest at March 31, 2004, 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, 2004, the Operating Partnership, directly and through the
subsidiaries in which it and the Company own 100% of the ownership interests, controls a portfolio of 65 real estate projects.



8



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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, 2004
and December 31, 2003, and the consolidated results of operations and cash flows of the Company and its subsidiaries for the three months ended March 31, 2004 and 2003. 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, 2004 and December 31, 2003, and the results of operations and cash flows of
the Company for the three months ended March 31, 2004 and 2003.



Use of
Estimates



The preparation of financial statements in conformity with
accounting principles generally accepted in the United States 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 5 and 7 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 16). There are other alliances which are VIEs, but of which the Company is not the primary
beneficiary.



Stock Based Compensation



The Company has an employee stock incentive plan and it accounts for stock options and bonus
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 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
6 years, and have a maximum term of 10 years.



As of March 31, 2004, 366,241
shares of bonus grants were outstanding under the Plan. The fair 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
316,241 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



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



respective vesting periods that range from 5 to 10 years. As a result, additional compensation expense of $194,502
and $201,249 was recognized during the three months ended March 31, 2004 and 2003, respectively, on 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 amortization method of the deferred compensation for this grant will be finalized during the quarter ended June 30, 2004.



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 and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands except for per share amounts).



|                                                   |  |                    |      |   |               |   |       |  
|-------------------------------------------------- |  | ------------------ | ---- | - | ------------- | - | ----- | -
|                                                   |  | Three months ended |     
|                                                   |  | March 31,2004      |      |   | March 31,2003 |  
|Net income (loss) available to Common Stockholders |  |                    |      |   |               |   |       |  
|As reported                                        |  | $                  | (123 | ) |               | $ | 5,780 |  
|SFAS No. 123 Adjustment                            |  |                    | 117  |   |               |   | (19   | )
|                                                   |  |                    |      |   |               |   |       |  
|Pro forma                                          |  | $                  | (6   | ) |               | $ | 5,761 |  
|                                                   |  |                    |      |   |               |   |       |  
|Basic earnings (loss) per share                    |  |                    |      |   |               |   |       |  
|As reported                                        |  | $                  |     |   |               | $ | 0.21  |  
|SFAS No. 123 Adjustment                            |  |                    |     |   |               |   |      |  
|                                                   |  |                    |      |   |               |   |       |  
|Pro forma                                          |  | $                  |     |   |               | $ | 0.21  |  
|                                                   |  |                    |      |   |               |   |       |  
|Diluted earnings (loss) per share                  |  |                    |      |   |               |   |       |  
|As reported                                        |  | $                  |     |   |               | $ | 0.21  |  
|SFAS No. 123 Adjustment                            |  |                    |     |   |               |   |      |  
|                                                   |  |                    |      |   |               |   |       |  
|Pro forma                                          |  | $                  |     |   |               | $ | 0.21  |  
|                                                   |  |                    |      |   |               |   |       |  



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



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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.



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 an interest 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, an 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 5 for further discussion.



11



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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 6 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 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 7 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, 2004 and
December 31, 2003, would be approximately $693,985 and $666,033 (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, 2004 and December 31, 2003, the Company was not a party to any open interest
rate protection agreements other than the interest rate cap contract entered into in December 2001 as discussed in Note 9.



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 8.60% and 9.73% limited partner interests in the Operating Partnership not held by the Company at March 31,
2004 and December 31, 2003, respectively. 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.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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 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 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 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. Differences between estimated and actual amounts are recognized in the subsequent year.



For the three months ended March 31, 2004 and 2003, no tenants represented 10% or more of
rental revenue of the Company.



Fee and reimbursement revenue consists of
property management fees, asset management fees, and transaction fees from the acquisition, disposition, refinancing, leasing and construction supervision of real estate for unconsolidated affiliates.



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 considered 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.



Reference to 2003 Audited Financial Statements



These unaudited financial statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the 2003 audited consolidated financial
statements.



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



Note 3. RENTAL PROPERTIES



The cost and accumulated depreciation of rental properties, by market, as of March 31, 2004 and December 31, 2003, are as follows (in
thousands):



|                    |  |                      |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  
|------------------- |  | -------------------- | ------- | ------------------------- | - | ---------- |  | ----------------------- | --------- |  | ---------------- | -------- | - |  | - | --------- | -
|                    |  | As of March 31, 2004 |        
|                    |  | Land                 |         | Buildings & Improve-ments |   | Total Cost |  | AccumulatedDepreciation |           |  | NetRecordedValue |         
|Washington D.C.     |  | $                    | 33,663  |                           | $ | 220,546    |  | $                       | 254,209   |  | $                | (23,996  | ) |  | $ | 230,213   | *
|Southern California |  |                      | 39,780  |                           |   | 189,426    |  |                         | 229,206   |  |                  | (20,068  | ) |  |   | 209,138   | *
|Boston              |  |                      | 22,751  |                           |   | 162,318    |  |                         | 185,069   |  |                  | (25,305  | ) |  |   | 159,764   | *
|Northern New Jersey |  |                      | 26,137  |                           |   | 145,517    |  |                         | 171,654   |  |                  | (29,457  | ) |  |   | 142,197   |  
|San Francisco       |  |                      | 36,051  |                           |   | 83,784     |  |                         | 119,835   |  |                  | (11,910  | ) |  |   | 107,925   |  
|Chicago             |  |                      | 2,746   |                           |   | 103,326    |  |                         | 106,072   |  |                  | (25,317  | ) |  |   | 80,755    |  
|Tampa/Orlando       |  |                      | 8,286   |                           |   | 41,062     |  |                         | 49,348    |  |                  | (9,746   | ) |  |   | 39,602    |  
|St. Louis           |  |                      | 7,192   |                           |   | 28,043     |  |                         | 35,235    |  |                  | (6,159   | ) |  |   | 29,076    |  
|Minneapolis         |  |                      | 6,129   |                           |   | 30,560     |  |                         | 36,689    |  |                  | (7,127   | ) |  |   | 29,562    |  
|Denver              |  |                      | 4,654   |                           |   | 38,290     |  |                         | 42,944    |  |                  | (5,023   | ) |  |   | 37,921    |  
|Las Vegas           |  |                      | 7,746   |                           |   | 33,442     |  |                         | 41,188    |  |                  | (7,458   | ) |  |   | 33,730    |  
|Omaha               |  |                      | 1,534   |                           |   | 35,286     |  |                         | 36,820    |  |                  | (7,724   | ) |  |   | 29,096    |  
|Indianapolis        |  |                      | 691     |                           |   | 6,272      |  |                         | 6,963     |  |                  | (2,529   | ) |  |   | 4,434     |  
|Others              |  |                      | 13,612  |                           |   | 78,958     |  |                         | 92,570    |  |                  | (20,198  | ) |  |   | 72,372    |  
|                    |  |                      |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  
|Total               |  | $                    | 210,972 |                           | $ | 1,196,830  |  | $                       | 1,407,802 |  | $                | (202,017 | ) |  | $ | 1,205,785 |  
|                    |  |                      |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  

---

|* | Includes at market and above market rate in-place leases, net of accumulated amortization, of $6,438 in Washington D.C., $8,218 in Southern California, and $6,500 in Boston.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                    |  |                         |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  
|------------------- |  | ----------------------- | ------- | ------------------------- | - | ---------- |  | ----------------------- | --------- |  | ---------------- | -------- | - |  | - | --------- | -
|                    |  | As of December 31, 2003 |        
|                    |  | Land                    |         | Buildings & Improve-ments |   | Total Cost |  | AccumulatedDepreciation |           |  | NetRecordedValue |         
|Washington D.C.     |  | $                       | 33,663  |                           | $ | 219,608    |  | $                       | 253,271   |  | $                | (21,327  | ) |  | $ | 231,944   | *
|Southern California |  |                         | 39,780  |                           |   | 189,081    |  |                         | 228,861   |  |                  | (17,617  | ) |  |   | 211,244   | *
|Boston              |  |                         | 22,751  |                           |   | 161,038    |  |                         | 183,789   |  |                  | (23,804  | ) |  |   | 159,985   | *
|Northern New Jersey |  |                         | 26,137  |                           |   | 144,666    |  |                         | 170,803   |  |                  | (27,995  | ) |  |   | 142,808   |  
|San Francisco       |  |                         | 36,051  |                           |   | 83,195     |  |                         | 119,246   |  |                  | (11,056  | ) |  |   | 108,190   |  
|Chicago             |  |                         | 2,746   |                           |   | 102,814    |  |                         | 105,560   |  |                  | (24,152  | ) |  |   | 81,408    |  
|Tampa/Orlando       |  |                         | 8,286   |                           |   | 41,016     |  |                         | 49,302    |  |                  | (9,272   | ) |  |   | 40,030    |  
|St. Louis           |  |                         | 7,192   |                           |   | 27,746     |  |                         | 34,938    |  |                  | (5,870   | ) |  |   | 29,068    |  
|Minneapolis         |  |                         | 6,129   |                           |   | 30,629     |  |                         | 36,758    |  |                  | (6,821   | ) |  |   | 29,937    |  
|Denver              |  |                         | 4,654   |                           |   | 37,919     |  |                         | 42,573    |  |                  | (4,651   | ) |  |   | 37,922    |  
|Las Vegas           |  |                         | 7,746   |                           |   | 33,269     |  |                         | 41,015    |  |                  | (7,070   | ) |  |   | 33,945    |  
|Omaha               |  |                         | 1,534   |                           |   | 34,601     |  |                         | 36,135    |  |                  | (7,304   | ) |  |   | 28,831    |  
|Indianapolis        |  |                         | 691     |                           |   | 6,440      |  |                         | 7,131     |  |                  | (2,274   | ) |  |   | 4,857     |  
|Others              |  |                         | 13,612  |                           |   | 79,189     |  |                         | 92,801    |  |                  | (19,508  | ) |  |   | 73,293    |  
|                    |  |                         |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  
|Total               |  | $                       | 210,972 |                           | $ | 1,191,211  |  | $                       | 1,402,183 |  | $                | (188,721 | ) |  | $ | 1,213,462 |  
|                    |  |                         |         |                           |   |            |  |                         |           |  |                  |          |   |  |   |           |  

---

|* | Includes at market and above market rate in-place leases, net of accumulated amortization, of $7,074 in Washington D.C., $9,083 in Southern California, and $6,949 in Boston.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



Note 4. DISPOSITIONS OF RENTAL PROPERTIES



During the three months ended March 31, 2004, the Company sold one 30,000 square foot office building located in Norristown, Pennsylvania,
for a sales price of $1.1 million. This sale generated a loss of approximately $22,000. In addition, the Company received $142,000 in cash related to the settlement of contingencies from prior period dispositions. Overall, this resulted in a gain on
sale of approximately $120,000.



In accordance with SFAS 144 Accounting
for the Impairment or Disposal of Long Lived Assets, the gain or loss 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. There were no properties classified as held for sale at March 31, 2004 and December 31, 2003.



Below is a summary of the results of operations of sold properties through their respective disposition dates (dollars in thousands):



|                                                  |  |                              |      |   |      |   |       
|------------------------------------------------- |  | ---------------------------- | ---- | - | ---- | - | ------
|                                                  |  | Three months ended March 31,
|                                                  |  | 2004                         |      |   | 2003
|Rental revenue                                    |  | $                            | (92  | ) |      | $ | 10,847
|Interest and other income                         |  |                              | 1    |   |      |   | 2     
|                                                  |  |                              |      |   |      |   |       
|Total Revenue                                     |  |                              | (91  | ) |      |   | 10,849
|                                                  |  |                              |      |   |      |   |       
|Property operating expenses                       |  |                              | 93   |   |      |   | 2,867 
|Depreciation and amortization                     |  |                              | 1    |   |      |   | 2,224 
|Interest expense                                  |  |                              |     |   |      |   | 1,921 
|                                                  |  |                              |      |   |      |   |       
|Total expenses                                    |  |                              | 94   |   |      |   | 7,012 
|                                                  |  |                              |      |   |      |   |       
|Income (loss) before gain on sales of real estate |  |                              | (185 | ) |      |   | 3,837 
|Gain on sales of real estate                      |  |                              | 120  |   |      |   | 4,450 
|                                                  |  |                              |      |   |      |   |       
|Discontinued operations                           |  | $                            | (65  | ) |      | $ | 8,287 
|                                                  |  |                              |      |   |      |   |       



Note 5. INVESTMENTS IN LAND AND
DEVELOPMENT



The Companys investments in land and development
increased from $67,493,000 at December 31, 2003, to $131,313,000 at March 31, 2004. This increase is primarily due to the consolidation of the entity known as Marina Shores, effective January 1, 2004, in accordance with FIN 46 Revised. See Note 16
for further discussion. In addition, in February 2004, the Company acquired an undivided 50% tenancy in common interest in approximately 160 acres of the land at Gateway Park for a total purchase price of $16.8 million. This land had been part of
the security for the mortgage loan receivable discussed in Note 7.



15



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



As of March 31, 2004, the Company had investments in the following properties under development and land held for
development:



Properties Under Development

As of March 31, 2004



|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      
|------ |  | -------------------- |  | ----------------------------------------------------------- |  | ------ |  | ------------- |  | ---------------- | ---- |  | ------------------------- | -----
|Market |  | Properties           |  | Description                                                 |  | City   |  | SquareFootage |  | EconomicInterest |      |  | InvestmentBalance($000s)
|Denver |  | Three Gateway Center |  | Third office building constructed at Gateway Park (4-story) |  | Denver |  | 80,258        |  | 50               | %(1) |  | $                         | 1,490
|       |  |                      |  |                                                             |  |       
|Denver |  | Gateway Office Five  |  | Fifth office building constructed at Gateway Park (1-story) |  | Denver |  | 62,972        |  | 50               | %(1) |  |                           | 763  
|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      
|TOTAL  |  |                      |  |                                                             |  |        |  | 143,230       |  |                  |      |  | $                         | 2,253
|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      



Land Held for
Development

As of March 31, 2004



|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|----------------------------------------------------------------------- |  | -------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | ------------------- | - | ---------------- | ---- |  | ------------------------- | ------- | ---
|Market                                                                  |  | Properties                 |  | Description                                                                                                                           |  | City                   |  | ProposedSq. Footage |   | EconomicInterest |      |  | InvestmentBalance($000s) |        
|Boston                                                                  |  | Marlborough CorporatePlace |  | Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place                        |  | Marlborough            |  | 235,000             |   | 100              | %    |  | $                         | 5,095   |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal - Boston          |  |                                                                                                                                       |  |                        |  | 235,000             |   |                  |      |  |                           | 5,095   |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                       
|Denver                                                                  |  | Gateway Park               |  | 1,200 acre mixed-use park near Denver International Airport; approximately 465 acres undeveloped                                      |  | Denver                 |  | 5,000,000           |   | 50               | %(2) |  |                           | 45,560  | (2)
|                                                                        |  |                            |  |                                                                                                                                       |  |                       
|                                                                        |  | Lima Street                |  | 19.5 acres of undeveloped land in Englewood, Colorado zoned for office use                                                            |  | Denver                 |  | 120,000             |   | 100              | %    |  |                           | 4,750   |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal - Denver          |  |                                                                                                                                       |  |                        |  | 5,120,000           |   |                  |      |  |                           | 50,310  |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                       
|San Francisco                                                           |  | Marina Shores              |  | Mixed-use waterfront community, which could include 150,000 office square feet, 25,000 retail square feet and 1,930 multifamily
units |  | RedwoodCity            |  | 300,000             |   | 50               | %(3) |  |                           | 77,679  |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                       
|                                                                        |  | Eden Shores                |  | 27 acres zoned for the construction of a 600,000 square foot office campus                                                            |  | Hayward                |  | 600,000             |   | 100              | %    |  |                           | 16,443  |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal -San Francisco    |  |                                                                                                                                       |  |                        |  | 900,000             |   |                  |      |  |                           | 94,122  |    
|                                                                        |  |                            |  | Other land not currently under development                                                                                            |  | NewJersey/SanFrancisco |  |                     |   |                  |      |  |                           | 5,791   |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|TOTAL                                                                   |  |                            |  |                                                                                                                                       |  |                        |  | 6,255,000           |   |                  |      |  | $                         | 155,318 |    
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|TOTAL INVESTMENTS IN LAND AND DEVELOPMENT AND MORTGAGE LOANS RECEIVABLE |  |                            |  | 6,398,229                                                                                                                             |  |                        |  |                     | $ | 157,571          |     
|                                                                        |  |                            |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    

---

|(1) | Interest in the form of mezzanine loans.
|--- | ----------------------------------------

|(2) | Interest in the form of a mortgage loan receivable, mezzanine loans and equity. The
investment balance includes $26,258 representing the balance of the mortgage loan receivable at March 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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 16 for further discussion.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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 $4.8 million in debt guarantees; however, some of
the loans were not fully drawn as of March 31, 2004. 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 above, 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 $91.9 million and $50.7 million, respectively, at March 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 6. 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 (losses). Distributions are recorded as a reduction of the Companys investment.



The Companys investments in unconsolidated operating joint ventures consist of the following as of March 31, 2004 and December 31, 2003 (dollars in thousands):



|                     |  |                   |  |                   |  |                      |  |              |  |              |        |               |   |       
|-------------------- |  | ----------------- |  | ----------------- |  | -------------------- |  | ------------ |  | ------------ | ------ | ------------- | - | ------
|Joint Venture        |  | OwnershipInterest |  | Property Location |  | Square Footage/Units |  | PropertyType |  | Mar. 31,2004 |        | Dec. 31, 2003
|Rincon Center I & II |  | 10%               |  | San Francisco, CA |  | 741,103 sf           |  | Mixed-Use    |  | $            | 4,086  |               | $ | 4,119 
|2000 Corporate Ridge |  | 10%               |  | McLean, VA        |  | 255,980 sf           |  | Office       |  |              | 2,911  |               |   | 2,895 
|Gateway Retail I     |  | 50%               |  | Denver, CO        |  | 12,000 sf            |  | Retail       |  |              | 410    |               |   | 424   
|Lakecrest Apartments |  | 27%               |  | Aurora, CO        |  | 440 units            |  | Residential  |  |              | 4,772  |               |   | 4,773 
|                     |  |                   |  |                   |  |                      |  |              |  |              |        |               |   |       
|                     |  |                   |  |                   |  |                      |  |              |  | $            | 12,179 |               | $ | 12,211
|                     |  |                   |  |                   |  |                      |  |              |  |              |        |               |   |       



Note 7. MORTGAGE LOANS RECEIVABLE



The Company holds a first mortgage of approximately $26.3 million,
including accrued interest, at March 31, 2004, secured by a 50% interest in 305 acres of land at Gateway Park in Aurora, Colorado. The loan was originally funded in June 1998, bears a fixed interest rate of 6.5% and has a maturity date of July 2007.
Periodic payments of interest and principal are received on the loan from proceeds of land parcel sales in the project. Gateway 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.



17



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



In February 2004, the Company acquired an undivided 50% tenancy in common interest in approximately 160 acres of the
land at Gateway Park for a total purchase price of $16.8 million. This land had been part of the security for the mortgage loan receivable. In connection with this acquisition, the 160 acres were released as security and the Company received a $14.3
million payment on the mortgage loan receivable which was applied first to accrued interest and then to principal.



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.



Note 8. OTHER ASSETS



As of March 31, 2004 and December 31, 2003, other assets on the consolidated balance sheets consists of the following (in thousands):



|                                   |  |      |        |      |   |       
|---------------------------------- |  | ---- | ------ | ---- | - | ------
|                                   |  | 2004 |        | 2003
|Accounts receivable, net           |  | $    | 3,378  |      | $ | 3,055 
|Straight-line rent receivable, net |  |      | 12,536 |      |   | 11,130
|Prepaid expenses                   |  |      | 3,773  |      |   | 1,309 
|Impound accounts                   |  |      | 2,194  |      |   | 4,627 
|Notes receivable                   |  |      | 3,671  |      |   | 3,724 
|Investment in management contracts |  |      | 1,597  |      |   | 1,749 
|Corporate office fixed assets, net |  |      | 367    |      |   | 454   
|Other                              |  |      | 107    |      |   | 107   
|                                   |  |      |        |      |   |       
|Total other assets                 |  | $    | 27,623 |      | $ | 26,155
|                                   |  |      |        |      |   |       



Note 9. SECURED AND UNSECURED LOANS



The Company had the following mortgage loans and unsecured bank line of
credit outstanding as of March 31, 2004 and December 31, 2003 (dollars in thousands):



|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |         |      |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2004 |         | 2003
|Secured loans with various lenders, bearing interest at fixed rates between 4.57% and 8.13% at March 31, 2004 and December 31, 2003, with monthly principal and interest payments ranging between
$29 and $292 and maturing at various dates through December 1, 2013. These loans are secured by properties with an aggregate net carrying value of $403,921 and $406,206 at March 31, 2004 and December 31, 2003, respectively. |  | $    | 296,694 |      | $ | 297,327
|                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |     
|Secured loans with various lenders, bearing interest at variable rates ranging between 3.09% and 6.09% at March 31, 2004, and 3.12% and 3.47% at December 31, 2003, and maturing at various dates
through January 31, 2006. These loans are secured by properties with an aggregate net carrying value of $255,311 and $186,826 at March 31, 2004 and December 31, 2003, respectively.                                            |  |      | 165,985 |      |   | 129,641



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | 2004 |         | 2003
|Secured loan with an insurance company, net of unamortized discount of $1,415 and $1,492 at March 31, 2004 and December 31, 2003, respectively. The loan has two fixed rate components. The fixed
rate component of $44,297 bears interest at 6.13%, matures on November 10, 2008, and requires monthly principal and interest payments of $296. The fixed rate component of $90,991 bears interest at 5.91%, matures on November 10, 2008, and requires
monthly principal and interest payments of $595. The two components are cross-collateralized and are secured by properties with an aggregate net carrying value of $191,424 and $193,578 at March 31, 2004 and December 31, 2003,
respectively.                                                                                                           |  | $    | 135,288 |      | $ | 135,813
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |     
|Secured loan with an insurance company, net of unamortized discount of $644 and $679 at March 31, 2004 and December 31, 2003, respectively. The loan has both a
fixed rate and a variable rate component. The fixed rate component of $51,255 bears interest at 6.13%, matures on November 10, 2008, and requires monthly principal and interest payments of $343. The variable rate component of $35,101 bears interest
at a floating rate of 30-day LIBOR plus 3.25%, with a floor of 5% (5% at March 31, 2004 and December 31, 2003), matures on December 11, 2004, and requires monthly interest-only payments. The two components are cross-collateralized and are secured by
properties with an aggregate net carrying value of $140,061 and $140,137 at March 31, 2004 and December 31, 2003, respectively. |  |      | 86,356  |      |   | 86,544 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |         |      |   |        
|Total mortgage loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |      | 684,323 |      |   | 649,325
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |         |      |   |        
|Unsecured $180,000 line of credit with a group of commercial banks, with a variable interest rate of 30-day LIBOR plus 1.75% at March 31, 2004 and 30-day LIBOR
plus 1.525% at December 31, 2003 (2.84% and 2.65%, respectively), monthly interest only payments and a maturity date of March 26, 2007, with one one-year extension option. In March 2004, the maturity date was extended and certain terms were
modified. See below for further discussion.                                                                                                                                                                                                                                                                                                                                                       |  |      | 18,197  |      |   | 89,941 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |         |      |   |        
|Total secured and unsecured loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $    | 702,520 |      | $ | 739,266
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |      |         |      |   |        



At March 31, 2004, the Companys
indebtedness included fixed-rate debt of $483,237,000 and floating-rate debt of $219,283,000, and the Companys ratio of total debt to gross book assets was approximately 43%.



During the three months ended March 31, 2004, mortgage loans payable increased from $649,325,000 to $684,323,000. This increase resulted
from the consolidation of Marina Shores debt in the amount of $45,000,000 in accordance with FIN 46 Revised (discussed below) and $601,000 of draws on a construction loan, offset by loan payoffs of $1,346,000 due to scheduled principal
amortization and a $9,257,000 paydown on a floating-rate loan (discussed below).



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 floating rate of 30-day LIBOR plus 3.00%, and a $15 million loan bearing interest at the floating rate of 30-day LIBOR plus 5.00%. Both loans require
monthly interest-only payments and mature on November 15, 2004. The interest rates on these loans at March 31, 2004 were 4.09% and 6.09%, respectively.



19



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



In February 2004, the Company made a paydown of approximately $9,257,000 on a floating-rate loan which was secured by
a cross-collateralized pool of seven properties. This loan bears interest at the floating rate of 30-day LIBOR plus 2.00%, requires monthly interest-only payments, and has a maturity date of December 5, 2005. The interest rate on this loan at March
31, 2004, was 3.09%. As a result of the paydown, one of the properties securing the loan, a 56,348 square foot office property located in Alexandria, Virginia, was released from the collateral pool. All other terms of the loan remain the same. In
connection with this paydown, the Company recognized a loss on early extinguishment of debt which is discussed in further detail in Note 11.



Outstanding borrowings under the Companys unsecured bank line of credit decreased from $89,941,000 at December 31, 2003, to $18,197,000 at March 31, 2004. The
decrease was due to pay downs totaling $103,819,000 generated from the proceeds of a common stock offering (see Note 18), a paydown received on the mortgage loan receivable (see Note 7), proceeds from a property sale and cash flow from operations,
offset by draws totaling $32,075,000 for the acquisition of land at Gateway Park (see Note 7), disposition of the corporate aircraft and development advances. In March 2004, the unsecured bank line of credit was modified to extend the maturity date
from September 2005 to March 2007, with one one-year extension option. The unsecured bank line of credit requires the Company, among other things, to be in compliance with certain financial and operating covenants. The Company has been in compliance
during all of 2004 and remains in compliance at March 31, 2004.



At March 31,
2004, the Company was not a party to any open interest rate protection agreements other than an interest rate cap contract entered into in December 2001 which will expire in December 2004. In connection with a 2001 secured financing, the Company
entered into an interest rate cap agreement (caplets) to hedge increases in 30-day LIBOR rates above a specified level. The agreement expires over a term concurrent with the secured financing, is indexed to a 30-day LIBOR rate, is for a notional
amount equal to the maximum amount available on the secured financing, and caps 30-day LIBOR to a maximum of 6%. As of March 31, 2004 and December 31, 2003, the 30-day LIBOR rate was 1.09% and 1.12%, respectively. The Company paid a $594,000 fee at
the inception of this cap agreement of which $357,000 has been charged to earnings as of March 31, 2004. The remaining $237,000 will be charged to earnings during the remainder of 2004. No further payments are required under this cap agreement.



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, 2004, are as follows (in thousands). Included in the
year ending December 31, 2007, is the unsecured bank line of credit balance of $18,197 which has an initial maturity of March 26, 2007.



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ending December 31, |  |  
|2004                     |  | $ | 108,948
|2005                     |  |   | 54,939 
|2006                     |  |   | 135,149
|2007                     |  |   | 26,380 
|2008                     |  |   | 289,333
|Thereafter               |  |   | 87,771 
|                         |  |   |        
|Total                    |  | $ | 702,520
|                         |  |   |        



20



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##### Table of Contents

GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



Note 10. OTHER LIABILITIES



As of March 31, 2004 and December 31, 2003, other liabilities on the consolidated balance sheets consists of the following (in thousands):



|                                                                       |  |      |        |      |   |       
|---------------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                                       |  | 2004 |        | 2003
|Accounts payable and accrued liabilities                               |  | $    | 3,484  |      | $ | 4,559 
|Aircraft lease buyout                                                  |  |      |       |      |   | 5,747 
|SFAS No. 141 below market rate leases, net of accumulated amortization |  |      | 4,910  |      |   | 5,402 
|Unsecured note payable                                                 |  |      | 2,609  |      |   | 2,575 
|Accrued retirement benefits                                            |  |      | 5,124  |      |   | 5,081 
|Interest payable                                                       |  |      | 2,730  |      |   | 1,545 
|Security deposits                                                      |  |      | 6,887  |      |   | 6,393 
|Property taxes payable                                                 |  |      | 818    |      |   | 1,084 
|Prepaid rents                                                          |  |      | 4,632  |      |   | 4,528 
|Deferred income                                                        |  |      | 222    |      |   | 245   
|                                                                       |  |      |        |      |   |       
|Total other liabilities                                                |  | $    | 31,416 |      | $ | 37,159
|                                                                       |  |      |        |      |   |       



Note 11. LOSS ON EARLY
EXTINGUISHMENT OF DEBT



In connection with a loan paydown (see Note 9),
the Company recorded a loss on early extinguishment of debt of $85,000 for the three months ended March 31, 2004, which consisted of the writeoff of unamortized original financing costs.



Note 12. RELATED PARTY TRANSACTIONS



Fee and reimbursement income earned by the Company from related parties totaled $829,000 and $806,000 for the three months ended March 31, 2004 and 2003, respectively,
and consisted of property management fees, asset management fees and other fee income.



Note 13. 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,
|                                                      |  | 2004                         |            |   | 2003
|Net income available to common Stockholders  Basic   |  | $                            | (123       | ) |      | $ | 5,780     
|Minority interest                                     |  |                              | (12        | ) |      |   |          
|                                                      |  |                              |            |   |      |   |           
|Net income available to common Stockholders  Diluted |  | $                            | (135       | ) |      | $ | 5,780     
|                                                      |  |                              |            |   |      |   |           
|Weighted average shares:                              |  |                              |            |   |      |   |           
|Basic                                                 |  |                              | 28,564,399 |   |      |   | 27,639,046
|Stock options and restricted stock                    |  |                              | 333,170    |   |      |   |          
|Convertible Operating Partnership Units               |  |                              | 3,001,957  |   |      |   |          
|                                                      |  |                              |            |   |      |   |           
|Diluted                                               |  |                              | 31,899,526 |   |      |   | 27,639,046
|                                                      |  |                              |            |   |      |   |           
|Basic earnings per share                              |  | $                            | 0.00       |   |      | $ | 0.21      
|Diluted earnings per share                            |  | $                            | 0.00       |   |      | $ | 0.21      



21



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



Options to purchase 2,628,907 shares of the Companys common stock were not included in the computation of
diluted earnings per share for the three months ended March 31, 2004, because their exercise prices were greater than the average market price of the Companys common stock of $20.53. Options to purchase 3,187,743 shares of the Companys
common stock and 3,012,024 convertible operating partnership units have been excluded from the computation of diluted earnings per share for the three months ended March 31, 2003, as they are anti-dilutive. The preferred stock has been excluded from
the calculation of diluted earnings per share as it is anti-dilutive in all periods presented.



Note 14. SEGMENT INFORMATION



The
Company owns and operates office and industrial properties throughout the United States and manages its business by geographic markets. Office properties now represent approximately 95% of the Companys portfolio by net operating income and
consist primarily of multi-tenant suburban office buildings. The remaining industrial properties are 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. As of March 31, 2004 and 2003, the Companys largest markets are Washington D.C., Southern California, Boston, Northern New Jersey, San Francisco,
Chicago, Tampa/Orlando, St. Louis, Minneapolis, Denver, Las Vegas, Omaha and Indianapolis. Each of these markets represents a reportable segment that requires the Company to employ varying management strategies.



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 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, 2004 and 2003 is as follows (in thousands):



|                            |  |                                  |         |                                  |   |        
|--------------------------- |  | -------------------------------- | ------- | -------------------------------- | - | -------
|                            |  | Three MonthsEnded March 31, 2004 |         | Three MonthsEnded March 31, 2003
|Washington, D.C.            |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 8,500   |                                  | $ | 7,815  
|Property operating expenses |  |                                  | 2,368   |                                  |   | 2,117  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 6,132   |                                  | $ | 5,698  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 230,213 |                                  | $ | 228,805
|                            |  |                                  |         |                                  |   |        
|Southern California         |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 8,196   |                                  | $ | 8,068  
|Property operating expenses |  |                                  | 2,622   |                                  |   | 2,427  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 5,574   |                                  | $ | 5,641  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 209,138 |                                  | $ | 190,878
|                            |  |                                  |         |                                  |   |        
|Boston                      |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 7,775   |                                  | $ | 5,455  
|Property operating expenses |  |                                  | 3,027   |                                  |   | 2,015  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 4,748   |                                  | $ | 3,440  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 159,764 |                                  | $ | 93,129 
|                            |  |                                  |         |                                  |   |        



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



|                            |  |                                  |         |                                  |   |        
|--------------------------- |  | -------------------------------- | ------- | -------------------------------- | - | -------
|                            |  | Three MonthsEnded March 31, 2004 |         | Three MonthsEnded March 31, 2003
|Northern New Jersey         |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 6,175   |                                  | $ | 5,796  
|Property operating expenses |  |                                  | 2,330   |                                  |   | 2,030  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 3,845   |                                  | $ | 3,766  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 142,197 |                                  | $ | 141,592
|                            |  |                                  |         |                                  |   |        
|San Francisco               |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 2,621   |                                  | $ | 3,074  
|Property operating expenses |  |                                  | 942     |                                  |   | 639    
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 1,679   |                                  | $ | 2,435  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 107,925 |                                  | $ | 109,320
|                            |  |                                  |         |                                  |   |        
|Chicago                     |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 3,104   |                                  | $ | 2,694  
|Property operating expenses |  |                                  | 1,485   |                                  |   | 1,502  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 1,619   |                                  | $ | 1,192  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 80,755  |                                  | $ | 83,888 
|                            |  |                                  |         |                                  |   |        
|Tampa/Orlando               |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 1,878   |                                  | $ | 2,197  
|Property operating expenses |  |                                  | 673     |                                  |   | 683    
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 1,205   |                                  | $ | 1,514  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 39,602  |                                  | $ | 40,743 
|                            |  |                                  |         |                                  |   |        
|St. Louis                   |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 2,017   |                                  | $ | 1,926  
|Property operating expenses |  |                                  | 781     |                                  |   | 874    
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 1,236   |                                  | $ | 1,052  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 29,076  |                                  | $ | 29,155 
|                            |  |                                  |         |                                  |   |        
|Minneapolis                 |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 1,447   |                                  | $ | 1,466  
|Property operating expenses |  |                                  | 637     |                                  |   | 655    
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 810     |                                  | $ | 811    
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 29,562  |                                  | $ | 29,682 
|                            |  |                                  |         |                                  |   |        
|Denver                      |  |                                  |         |                                  |   |        
|Rental revenue              |  | $                                | 1,183   |                                  | $ | 3,129  
|Property operating expenses |  |                                  | 491     |                                  |   | 1,111  
|                            |  |                                  |         |                                  |   |        
|Net operating income        |  | $                                | 692     |                                  | $ | 2,018  
|                            |  |                                  |         |                                  |   |        
|Rental properties, net      |  | $                                | 37,921  |                                  | $ | 90,201 
|                            |  |                                  |         |                                  |   |        



23



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



|                            |  |                                  |           |   |                                  |   |           |  
|--------------------------- |  | -------------------------------- | --------- | - | -------------------------------- | - | --------- | -
|                            |  | Three MonthsEnded March 31, 2004 |           |   | Three MonthsEnded March 31, 2003 |  
|Las Vegas                   |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 1,073     |   |                                  | $ | 1,694     |  
|Property operating expenses |  |                                  | 248       |   |                                  |   | 402       |  
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 825       |   |                                  | $ | 1,292     |  
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  | $                                | 33,730    |   |                                  | $ | 59,778    |  
|                            |  |                                  |           |   |                                  |   |           |  
|Omaha                       |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 1,503     |   |                                  | $ | 1,424     |  
|Property operating expenses |  |                                  | 568       |   |                                  |   | 572       |  
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 935       |   |                                  | $ | 852       |  
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  | $                                | 29,096    |   |                                  | $ | 29,370    |  
|                            |  |                                  |           |   |                                  |   |           |  
|Indianapolis                |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 224       |   |                                  | $ | 2,802     |  
|Property operating expenses |  |                                  | 45        |   |                                  |   | 42        |  
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 179       |   |                                  | $ | 2,760     |  
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  | $                                | 4,434     |   |                                  | $ | 4,857     |  
|                            |  |                                  |           |   |                                  |   |           |  
|All Others                  |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 1,806     |   |                                  | $ | 5,115     |  
|Property operating expenses |  |                                  | 1,095     |   |                                  |   | 2,374     |  
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 711       |   |                                  | $ | 2,741     |  
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  | $                                | 72,372    |   |                                  | $ | 118,359   |  
|                            |  |                                  |           |   |                                  |   |           |  
|Discontinued Operations     |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 92        |   |                                  | $ | (10,847   | )
|Property operating expenses |  |                                  | (93       | ) |                                  |   | (2,867    | )
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 185       |   |                                  | $ | (7,980    | )
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  |                                  |          |   |                                  |   |          |  
|                            |  |                                  |           |   |                                  |   |           |  
|Total                       |  |                                  |           |   |                                  |   |           |  
|Rental revenue              |  | $                                | 47,594    |   |                                  | $ | 41,808    |  
|Property operating expenses |  |                                  | 17,219    |   |                                  |   | 14,576    |  
|                            |  |                                  |           |   |                                  |   |           |  
|Net operating income        |  | $                                | 30,375    |   |                                  | $ | 27,232    |  
|                            |  |                                  |           |   |                                  |   |           |  
|Rental properties, net      |  | $                                | 1,205,785 |   |                                  | $ | 1,249,757 |  
|                            |  |                                  |           |   |                                  |   |           |  



24



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



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



|                                                                                                                 |  |                                 |         |   |                                  |   |         |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | -------------------------------- | - | ------- | -
|                                                                                                                 |  | Three MonthsEndedMarch 31, 2004 |         |   | Three MonthsEnded March 31, 2003 |  
|Revenues                                                                                                         |  |                                 |         |   |                                  |   |         |  
|Total revenue for reportable segments                                                                            |  | $                               | 47,594  |   |                                  | $ | 41,808  |  
|Other revenue(1)                                                                                                 |  |                                 | 1,849   |   |                                  |   | 1,737   |  
|                                                                                                                 |  |                                 |         |   |                                  |   |         |  
|Total consolidated revenues                                                                                      |  | $                               | 49,443  |   |                                  | $ | 43,545  |  
|                                                                                                                 |  |                                 |         |   |                                  |   |         |  
|Net Income                                                                                                       |  |                                 |         |   |                                  |   |         |  
|NOI for reportable segments                                                                                      |  | $                               | 30,375  |   |                                  | $ | 27,232  |  
|Unallocated amounts:                                                                                             |  |                                 |         |   |                                  |   |         |  
|Other revenue(1)                                                                                                 |  |                                 | 1,849   |   |                                  |   | 1,737   |  
|General and administrative expenses                                                                              |  |                                 | (2,172  | ) |                                  |   | (3,785  | )
|Depreciation and amortization                                                                                    |  |                                 | (15,056 | ) |                                  |   | (12,069 | )
|Interest expense                                                                                                 |  |                                 | (9,246  | ) |                                  |   | (7,863  | )
|Loss on early extinguishment of debt                                                                             |  |                                 | (85     | ) |                                  |   |        |  
|Provision for impairment of real estate assets                                                                   |  |                                 |        |   |                                  |   | (2,272  | )
|                                                                                                                 |  |                                 |         |   |                                  |   |         |  
|Income before minority interest, discontinued operations and cumulative effect of change in accounting principle |  | $                               | 5,665   |   |                                  | $ | 2,980   |  
|                                                                                                                 |  |                                 |         |   |                                  |   |         |  

---

|(1) | Other revenue includes fee income, interest and other income and equity in earnings of unconsolidated operating joint ventures.
|--- | -------------------------------------------------------------------------------------------------------------------------------



Note 15. PROVISION FOR IMPAIRMENT OF REAL ESTATE ASSETS



In the first quarter of 2003, the Company recorded a provision for impairment of
approximately $2,272,000 to provide for a decrease in the carrying value of a 10% owned development joint venture which owns an office property located in San Mateo, California, to its estimated fair value of zero due to decreased leasing activity
and lower than anticipated market rents.



Note 16. CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE



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 has been accounted for as a change in
accounting principle and applied cumulatively as of January 1, 2004. The effect of the change on the Companys consolidated balance sheet and statement of operations as of and for the three months ended March 31, 2004, is detailed in the table
below. All intercompany transactions, receivables and payables have been eliminated in consolidation.



25



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



|                                                    |  |                               |        |  
|--------------------------------------------------- |  | ----------------------------- | ------ | -
|                                                    |  | As ofMarch 31, 2004(in 000s) |       
|Balance Sheet                                       |  |                               |        |  
|Investments in land and development                 |  | $                             | 45,422 |  
|Cash and cash equivalents                           |  |                               | 1,035  |  
|Other assets                                        |  |                               | 76     |  
|                                                    |  |                               |        |  
|Total assets                                        |  | $                             | 46,533 |  
|                                                    |  |                               |        |  
|Mortgage loans(1)                                   |  | $                             | 45,000 |  
|Other liabilities                                   |  |                               | 162    |  
|                                                    |  |                               |        |  
|Total liabilities                                   |  |                               | 45,162 |  
|Minority interest                                   |  |                               | 2,268  |  
|Stockholders equity                                |  |                               | (897   | )
|                                                    |  |                               |        |  
|Total liabilities and stockholders equity          |  | $                             | 46,533 |  
|                                                    |  |                               |        |  
|Statement of Operations                             |  |                               |        |  
|Fees and reimbursements from affiliates             |  | $                             | (20    | )
|                                                    |  |                               |        |  
|Interest expense                                    |  |                               | (35    | )
|Cumulative effect of change in accounting principle |  |                               | 912    |  
|                                                    |  |                               |        |  
|Total expenses                                      |  |                               | 877    |  
|                                                    |  |                               |        |  
|Net loss                                            |  | $                             | (897   | )
|                                                    |  |                               |        |  

---

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



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, which represents 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 the Companys investment.



Note 17. 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.



26



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GLENBOROUGH REALTY TRUST INCORPORATED



Notes to Consolidated Financial Statements

(Unaudited)



Tax indemnifications



Twenty-three 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 18. COMMON STOCK OFFERING



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 $81.6 million. The Company intends to use the net proceeds to redeem a portion of the outstanding shares of its Preferred Stock (as discussed in Note 1). 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.



Note 19. SUBSEQUENT EVENTS



Acquisition



In April 2004, the Company acquired 1100 17thStreet in Washington, D.C., for a
purchase price of $37.5 million. This property is a 142,000 square foot, 12-story multi-tenant office building located in the heart of Washington, D.C.s central business district, within three blocks of the White House, Treasury Department and
a prestigious mix of law firms, major corporations and trade associations. The purchase price was funded with the assumption of a $21 million loan from a life insurance company and a draw on the Companys unsecured bank line of credit. The new
loan bears a floating interest rate of 30-day LIBOR plus 1.75%, with a floor of 3.5%, and matures on July 1, 2007.



Financing Transactions



In April 2004, the Company closed a new $40 million loan which is secured by three office properties located in Illinois and Iowa. The loan has a maturity date of April 1, 2005, with two one-year extension options,
and bears interest at the floating rate of 30-day LIBOR plus 2.00%. The proceeds from this loan were used to payoff a $35.1 million floating rate loan which was secured by a cross-collateralized pool of seven properties, had a maturity date of
December 2004, and had a floating interest rate of LIBOR plus 3.25% with a floor of 5%.



Preferred Stock Redemption



On April 30, 2004 (the
Redemption Date), the Company redeemed 3,106,000 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 the Redemption Date, 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 in Note 18).



27



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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 and self-managed real estate investment trust, or REIT, with a nationwide portfolio of 65 primarily office properties, including 4 operating joint ventures,
as of March 31, 2004. 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: Washington D.C., Southern California, Boston, Northern New Jersey 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 Composition



During 2003, we substantially completed our conversion to a focused office REIT. As a result, based on net operating income, the composition of our portfolio changed from 84% office and 16% industrial at March 31,
2003, to 95% office and 5% industrial at March 31, 2004. Rental revenues, both in aggregate and on a per square foot basis, differ substantially between the two product types and the changes in our portfolio composition affected overall rental
revenues and property operating expenses.



Portfolio Occupancy



Total portfolio same store occupancy increased from 87.2% at March 31,
2003 to 88.9% at March 31, 2004. Same store office occupancy increased from 87.0% at March 31, 2003, to 87.9% at March 31, 2004.



Same Store Results



Same store net operating income for the office properties increased 5.8% from $21,409,000 for the three months ended March 31, 2003, to $22,660,000 for the three months ended March 31, 2004. Revenues increased 3.3%,
and expenses were flat with a 0.2% decrease. Revenue per occupied square foot increased 2.2% from $22.38 at March 31, 2003 to $22.87 at March 31, 2004. Average rent per occupied square foot increased 1% from $18.49 at March 31, 2003 to $18.67 at
March 31, 2004. Revenue per occupied square foot is calculated as annualized rental revenue for the current period, divided by occupied square feet as of the end of the current period. Average rent per occupied square foot is calculated as total
annualized revenues to be earned per year during the term of a lease, before concessions, divided by the leased square footage.



Lease Maturities



Based upon the strength of the national leasing market, lease rollover will affect our rental revenues with changes in portfolio occupancy and changes in rental rates upon lease renewal. In the first quarter of 2004,
we had approximately 62,000 square feet of new office leasing production at an average rent of $18.97 per square foot. We also renewed approximately 168,000 square feet of office leases at an average rent per square foot of $23.97. This represented
an increase in effective rents from renewals (annualized rents net of concessions) of 3.5% during the first quarter of 2004.



28



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Comparison of the three months ended March 31, 2004 to the three months ended March 31, 2003.



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 and gains and losses 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 feel 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.



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 years results which follows is based on
the Adjusted column amounts.



|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---------------------- | - | ---- | -------- |  | - | ---------- | - |  | ---------------------- | ------ | - | -------- | - | ------ | - |  | - | ------ | -
|                                                                                                                                                      |  | 2004       |        |   | 2003                   |  
|                                                                                                                                                      |  | AsReported |        |   | DiscontinuedOperations |   |      | Adjusted |  |   | AsReported |   |  | DiscontinuedOperations |        |   | Adjusted |  
|REVENUE                                                                                                                                               |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Rental revenue                                                                                                                                        |  | $          | 47,594 |   |                        | $ | (92  | )        |  | $ | 47,502     |   |  | $                      | 41,808 |   |          | $ | 10,847 |   |  | $ | 52,655 |  
|Fees and reimbursements from affiliates                                                                                                               |  |            | 829    |   |                        |   |     |          |  |   | 829        |   |  |                        | 806    |   |          |   |       |   |  |   | 806    |  
|Interest and other income                                                                                                                             |  |            | 832    |   |                        |   | 1    |          |  |   | 833        |   |  |                        | 808    |   |          |   | 2      |   |  |   | 810    |  
|Equity in earnings of unconsolidated operating JVs                                                                                                   |  |            | 188    |   |                        |   |     |          |  |   | 188        |   |  |                        | 123    |   |          |   |       |   |  |   | 123    |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Total revenue                                                                                                                                         |  |            | 49,443 |   |                        |   | (91  | )        |  |   | 49,352     |   |  |                        | 43,545 |   |          |   | 10,849 |   |  |   | 54,394 |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|EXPENSES                                                                                                                                              |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Property operating expenses                                                                                                                           |  |            | 17,219 |   |                        |   | 93   |          |  |   | 17,312     |   |  |                        | 14,576 |   |          |   | 2,867  |   |  |   | 17,443 |  
|General and administrative                                                                                                                            |  |            | 2,172  |   |                        |   |     |          |  |   | 2,172      |   |  |                        | 3,785  |   |          |   |       |   |  |   | 3,785  |  
|Depreciation and amortization                                                                                                                         |  |            | 15,056 |   |                        |   | 1    |          |  |   | 15,057     |   |  |                        | 12,069 |   |          |   | 2,224  |   |  |   | 14,293 |  
|Interest expense                                                                                                                                      |  |            | 9,246  |   |                        |   |     |          |  |   | 9,246      |   |  |                        | 7,863  |   |          |   | 1,921  |   |  |   | 9,784  |  
|Loss on early extinguishment of debt                                                                                                                  |  |            | 85     |   |                        |   |     |          |  |   | 85         |   |  |                        |       |   |          |   |       |   |  |   |       |  
|Provision for impairment of real estate assets                                                                                                        |  |            |       |   |                        |   |     |          |  |   |           |   |  |                        | 2,272  |   |          |   |       |   |  |   | 2,272  |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Total expenses                                                                                                                                        |  |            | 43,778 |   |                        |   | 94   |          |  |   | 43,872     |   |  |                        | 40,565 |   |          |   | 7,012  |   |  |   | 47,577 |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income before gain on sales of real estate assets, minority interest, discontinued operations and cumulative effect of change in accounting
principle |  |            | 5,665  |   |                        |   | (185 | )        |  |   | 5,480      |   |  |                        | 2,980  |   |          |   | 3,837  |   |  |   | 6,817  |  
|Gain on sales of real estate assets                                                                                                                   |  |            |       |   |                        |   | 120  |          |  |   | 120        |   |  |                        |       |   |          |   | 4,450  |   |  |   | 4,450  |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income before minority interests, discontinued operations and cumulative effect of change in accounting principle                                     |  |            | 5,665  |   |                        |   | (65  | )        |  |   | 5,600      |   |  |                        | 2,980  |   |          |   | 8,287  |   |  |   | 11,267 |  
|Minority interest(1)                                                                                                                                  |  |            | 12     |   |                        |   |     |          |  |   | 12         |   |  |                        | (613   | ) |          |   |       |   |  |   | (613   | )
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income before discontinued operations and cumulative effect of change in accounting principle                                                         |  |            | 5,677  |   |                        |   | (65  | )        |  |   | 5,612      |   |  |                        | 2,367  |   |          |   | 8,287  |   |  |   | 10,654 |  
|Discontinued operations                                                                                                                               |  |            | (65    | ) |                        |   | 65   |          |  |   |           |   |  |                        | 8,287  |   |          |   | (8,287 | ) |  |   |       |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Income before cumulative effect of change in accounting principle                                                                                     |  |            | 5,612  |   |                        |   |     |          |  |   | 5,612      |   |  |                        | 10,654 |   |          |   |       |   |  |   | 10,654 |  
|Cumulative effect of change in accounting principle                                                                                                   |  |            | (912   | ) |                        |   |     |          |  |   | (912       | ) |  |                        |       |   |          |   |       |   |  |   |       |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Net income                                                                                                                                            |  |            | 4,700  |   |                        |   |     |          |  |   | 4,700      |   |  |                        | 10,654 |   |          |   |       |   |  |   | 10,654 |  
|Preferred dividends                                                                                                                                   |  |            | (4,823 | ) |                        |   |     |          |  |   | (4,823     | ) |  |                        | (4,891 | ) |          |   |       |   |  |   | (4,891 | )
|Discount on preferred stock repurchases                                                                                                               |  |            |       |   |                        |   |     |          |  |   |           |   |  |                        | 17     |   |          |   |       |   |  |   | 17     |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  
|Net income (loss) available to Common Stockholders                                                                                                    |  | $          | (123   | ) |                        | $ |     |          |  | $ | (123       | ) |  | $                      | 5,780  |   |          | $ |       |   |  | $ | 5,780  |  
|                                                                                                                                                      |  |            |        |   |                        |   |      |          |  |   |            |   |  |                        |        |   |          |   |        |   |  |   |        |  

---

|(1) | Includes minority interests share of discontinued operations, preferred dividends and discount on preferred stock repurchases.
|--- | -------------------------------------------------------------------------------------------------------------------------------



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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 quarters ended March 31, 2004 and 2003:



|                           |  |      |        |           |       |   |      |   |           |  |       |  
|-------------------------- |  | ---- | ------ | --------- | ----- | - | ---- | - | --------- |  | ----- | -
|                           |  | 2004 |        | % ofTotal |       |   | 2003 |   | % ofTotal | 
|Washington D.C.            |  | $    | 6,132  |           | 20.3  | % |      | $ | 5,698     |  | 16.2  | %
|Southern California        |  |      | 5,574  |           | 18.5  | % |      |   | 5,641     |  | 16.0  | %
|Boston                     |  |      | 4,748  |           | 15.7  | % |      |   | 3,440     |  | 9.8   | %
|Northern New Jersey        |  |      | 3,845  |           | 12.7  | % |      |   | 3,766     |  | 10.7  | %
|San Francisco              |  |      | 1,679  |           | 5.6   | % |      |   | 2,435     |  | 6.9   | %
|Chicago                    |  |      | 1,619  |           | 5.4   | % |      |   | 1,192     |  | 3.4   | %
|Tampa/Orlando              |  |      | 1,205  |           | 4.0   | % |      |   | 1,514     |  | 4.3   | %
|St. Louis                  |  |      | 1,236  |           | 4.1   | % |      |   | 1,052     |  | 3.0   | %
|Minneapolis                |  |      | 810    |           | 2.7   | % |      |   | 811       |  | 2.3   | %
|Denver                     |  |      | 692    |           | 2.3   | % |      |   | 2,018     |  | 5.7   | %
|All others                 |  |      | 2,650  |           | 8.7   | % |      |   | 7,645     |  | 21.7  | %
|                           |  |      |        |           |       |   |      |   |           |  |       |  
|Total Net Operating Income |  | $    | 30,190 |           | 100.0 | % |      | $ | 35,212    |  | 100.0 | %
|                           |  |      |        |           |       |   |      |   |           |  |       |  



Rental Revenue. Rental revenue
decreased $5,153,000 to $47,502,000 for the three months ended March 31, 2004, from $52,655,000 for the three months ended March 31, 2003. This change was primarily a result of property dispositions. See further discussion of factors affecting
rental revenue in Portfolio Composition previously presented. Following is a table of rental revenue by market, for comparative purposes, presenting the results for the quarters ended March 31, 2004 and 2003 (in thousands):



|                     |  |      |        |      |   |       
|-------------------- |  | ---- | ------ | ---- | - | ------
|                     |  | 2004 |        | 2003
|Washington D.C.      |  | $    | 8,500  |      | $ | 7,815 
|Southern California  |  |      | 8,196  |      |   | 8,068 
|Boston               |  |      | 7,775  |      |   | 5,455 
|Northern New Jersey  |  |      | 6,175  |      |   | 5,796 
|San Francisco        |  |      | 2,621  |      |   | 3,074 
|Chicago              |  |      | 3,104  |      |   | 2,694 
|Tampa/Orlando        |  |      | 1,878  |      |   | 2,197 
|St. Louis            |  |      | 2,017  |      |   | 1,926 
|Minneapolis          |  |      | 1,447  |      |   | 1,466 
|Denver               |  |      | 1,183  |      |   | 3,129 
|All others           |  |      | 4,606  |      |   | 11,035
|                     |  |      |        |      |   |       
|Total Rental Revenue |  | $    | 47,502 |      | $ | 52,655
|                     |  |      |        |      |   |       



Property Operating Expenses.
Property operating expenses decreased $131,000 to $17,312,000 for the three months ended March 31, 2004, from $17,443,000 for the three months ended March 31, 2003, primarily due to lower snow removal costs, slightly offset by higher 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, 2004 and 2003:



|                                  |  |      |        |      |   |       
|--------------------------------- |  | ---- | ------ | ---- | - | ------
|                                  |  | 2004 |        | 2003
|Washington D.C.                   |  | $    | 2,368  |      | $ | 2,117 
|Southern California               |  |      | 2,622  |      |   | 2,427 
|Boston                            |  |      | 3,027  |      |   | 2,015 
|Northern New Jersey               |  |      | 2,330  |      |   | 2,030 
|San Francisco                     |  |      | 942    |      |   | 639   
|Chicago                           |  |      | 1,485  |      |   | 1,502 
|Tampa/Orlando                     |  |      | 673    |      |   | 683   
|St. Louis                         |  |      | 781    |      |   | 874   
|Minneapolis                       |  |      | 637    |      |   | 655   
|Denver                            |  |      | 491    |      |   | 1,111 
|All others                        |  |      | 1,956  |      |   | 3,390 
|                                  |  |      |        |      |   |       
|Total Property Operating Expenses |  | $    | 17,312 |      | $ | 17,443
|                                  |  |      |        |      |   |       



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General and Administrative Expenses. General and administrative expenses decreased $1,613,000 to $2,172,000 for
the three months ended March 31, 2004, from $3,785,000 for the three months ended March 31, 2003. This decrease is primarily due to staff reductions, lower incentive compensation costs, and decreased travel expenses during the three months ended
March 31, 2004. General and administrative expenses as a percentage of total revenues decreased significantly to 4% for the three months ended March 31, 2004 from 7% for the three months ended March 31, 2003.



Depreciation and Amortization. Depreciation and amortization increased $764,000 to
$15,057,000 for the three months ended March 31, 2004, from $14,293,000 for the three months ended March 31, 2003. 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.



Interest Expense. Interest expense decreased $538,000 to $9,246,000 for
the three months ended March 31, 2004, from $9,784,000 for the three months ended March 31, 2003. This decrease is primarily due to debt paid off in connection with property sales, refinancings and the Companys common stock offering, and
decreases in variable interest rates, partially offset by new debt obtained in connection with property acquisitions and decreased capitalization of interest to investments in development.



Loss on Early Extinguishment of Debt. During the first three month ended March 31,
2004 we recorded a loss on early extinguishment of debt of $85,000 due to the writeoff of unamortized original financing costs in connection with a loan paydown.



Provision for impairment of real estate assets.In the first quarter of 2003, we recorded a provision for impairment of approximately
$2,272,000 to provide for a decrease in the carrying value of our 10% owned development joint venture which owns an office property located in San Mateo, California, to its estimated fair value of zero due to decreased leasing activity and lower
than anticipated market rents.



Gain on sales of real estate assets.The
gain on sales of real estate assets of $120,000 during the three months ended March 31, 2004, resulted from the sale of one office property, which generated a loss of approximately $22,000, offset by the receipt of $142,000 in cash related to the
settlement of contingencies from prior period dispositions. Overall, this resulted in a gain on sale of approximately $120,000. The gain on sales of real estate assets of $4,450,000 during the three months ended March 31, 2003, resulted from the
sale of seven properties, including two office, four industrial and one multifamily.



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 has been 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, or approximately $0.03 per share, which represents 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.



Liquidity and
Capital Resources



Cash Flows



For the three months ended March 31, 2004, cash provided by operating activities was
$11,288,000 as compared to $20,967,000 for the same period in 2003. As a result of our 2003 property acquisition and disposition activity, our portfolio composition changed from 84% office and 16% industrial at March 31, 2003 to 95% office and 5%
industrial at March 31, 2004. Rental revenues, both in aggregate and on a per square foot basis, differ substantially between the two product types and the changes in the portfolio composition effected overall rental revenues. In addition, property
operating expenses as a percentage of total revenues are higher for office properties as compared to industrial properties. Cash used for investing activities was $9,738,000 for the three months ended March 31, 2004, as compared to $4,981,000 for
the same period in 2003. 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, 2003, as compared to higher investments in land and development,
offset by principal payments on mortgage loan receivables received during the three months ended March 31, 2004. Cash used for financing activities was $15,028,000 for the three months ended March 31, 2004, as compared to $11,202,000 for the same
period in 2003. This change is primarily due to an increase in cash used for the repayment of debt, decrease in proceeds from borrowings, offset by proceeds from issuance of common stock.



31



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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 believe 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 and distribution requirements. 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 an 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 increased from $67,493,000 at December 31, 2003, to $131,313,000 at March 31, 2004. This increase is primarily due to the
consolidation of the entity known as Marina Shores, effective January 1, 2004, in accordance with FIN 46 Revised. In addition, in February 2004, the Company acquired an undivided 50% tenancy in common interest in approximately 160 acres of the land
at Gateway Park for a total purchase price of $16.8 million. This land had been part of the security for the mortgage loan receivable discussed below.



As of March 31, 2004, we had investments in the following properties under development and land held for development:



Properties Under Development

As of March 31, 2004



|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      
|------ |  | -------------------- |  | ----------------------------------------------------------- |  | ------ |  | ------------- |  | ---------------- | ---- |  | ------------------------- | -----
|Market |  | Properties           |  | Description                                                 |  | City   |  | SquareFootage |  | EconomicInterest |      |  | InvestmentBalance($000s)
|Denver |  | Three Gateway Center |  | Third office building constructed at Gateway Park (4-story) |  | Denver |  | 80,258        |  | 50               | %(1) |  | $                         | 1,490
|Denver |  | Gateway Office Five  |  | Fifth office building constructed at Gateway Park (1-story) |  | Denver |  | 62,972        |  | 50               | %(1) |  |                           | 763  
|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      
|TOTAL  |  |                      |  |                                                             |  |        |  | 143,230       |  |                  |      |  | $                         | 2,253
|       |  |                      |  |                                                             |  |        |  |               |  |                  |      |  |                           |      



continued



32



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Land Held for Development

As of March 31, 2004



|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|----------------------------------------------------------------------- |  | ----------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- |  | ------------------- | - | ---------------- | ---- |  | ------------------------- | ------- | ---
|Market                                                                  |  | Properties                          |  | Description                                                                                                                           |  | City                   |  | ProposedSq. Footage |   | EconomicInterest |      |  | InvestmentBalance($000s) |        
|Boston                                                                  |  | Marlborough CorporatePlace          |  | Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place                        |  | Marlborough            |  | 235,000             |   | 100              | %    |  | $                         | 5,095   |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal - Boston                   |  |                                                                                                                                       |  |                        |  | 235,000             |   |                  |      |  |                           | 5,095   |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                       
|Denver                                                                  |  | Gateway Park                        |  | 1,200 acre mixed-use park near Denver International Airport; approximately 465 acres undeveloped                                      |  | Denver                 |  | 5,000,000           |   | 50               | %(2) |  |                           | 45,560  | (2)
|                                                                        |  |                                     |  |                                                                                                                                       |  |                       
|                                                                        |  | Lima Street                         |  | 19.5 acres of undeveloped land in Englewood, Colorado zoned for office use                                                            |  | Denver                 |  | 120,000             |   | 100              | %    |  |                           | 4,750   |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal - Denver                   |  |                                                                                                                                       |  |                        |  | 5,120,000           |   |                  |      |  |                           | 50,310  |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                       
|San Francisco                                                           |  | Marina Shores                       |  | Mixed-use waterfront community, which could include 150,000 office square feet, 25,000 retail square feet and 1,930 multifamily
units |  | RedwoodCity            |  | 300,000             |   | 50               | %(3) |  |                           | 77,679  |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                       
|                                                                        |  | Eden Shores                         |  | 27 acres zoned for the construction of a 600,000 square foot office campus                                                            |  | Hayward                |  | 600,000             |   | 100              | %    |  |                           | 16,443  |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|                                                                        |  | Subtotal -            San Francisco |  |                                                                                                                                       |  |                        |  | 900,000             |   |                  |      |  |                           | 94,122  |    
|                                                                        |  |                                     |  | Other land not currently under development                                                                                            |  | NewJersey/SanFrancisco |  |                     |   |                  |      |  |                           | 5,791   |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|TOTAL                                                                   |  |                                     |  |                                                                                                                                       |  |                        |  | 6,255,000           |   |                  |      |  | $                         | 155,318 |    
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    
|TOTAL INVESTMENTS IN LAND AND DEVELOPMENT AND MORTGAGE LOANS RECEIVABLE |  |                                     |  | 6,398,229                                                                                                                             |  |                        |  |                     | $ | 157,571          |     
|                                                                        |  |                                     |  |                                                                                                                                       |  |                        |  |                     |   |                  |      |  |                           |         |    

---

|(1) | Interest in the form of mezzanine loans.
|--- | ----------------------------------------

|(2) | Interest in the form of a mortgage loan receivable, mezzanine loans and equity. The investment balance includes $26,258 representing the balance of the mortgage loan receivable at
March 31, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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 $4.8 million in debt guarantees; however,
some of the loans were not fully drawn as of March 31, 2004. 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.



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 as discussed above, 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 $91.9 million and $50.7 million, respectively, at March 31, 2004. Our maximum exposure to loss is equal to our investments in these arrangements, plus the related debt guarantees, as
described above.



33



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##### Table of Contents

Investments in Unconsolidated Operating Joint Ventures



Investments in unconsolidated operating joint ventures decreased from $12,211,000 at
December 31, 2003 to $12,179,000 at March 31, 2004. This decrease was primarily due to cash distributions received from the joint ventures, offset by our equity interests in the joint ventures earnings.



Mortgage Loans Receivable



Mortgage loans receivable decreased from $40,323,000 at December 31, 2003, to $26,258,000 at
March 31, 2004. We hold a first mortgage secured by a 50% interest in 305 acres of land at Gateway Park in Aurora, Colorado (as noted in above table). 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, 2004, the decrease in mortgage loans receivable resulted from principal and interest payments totaling approximately $14.6 million, partially offset by monthly interest accruals.



In February 2004, we acquired an undivided 50% tenancy in common interest in
approximately 160 acres of land at Gateway Park for a total purchase price of $16.8 million. This land had been part of the security for the above noted mortgage loan receivable. In connection with this acquisition, the 160 acres was released as
security and we received a $14.3 million payment on our mortgage loan receivable which was applied first to accrued interest and then to principal.



The borrowing entities in this loan arrangement have been deemed to be VIEs, but we are not deemed to be the primary beneficiary as defined by FIN 46 Revised. Our maximum
exposure to loss is equal to the recorded amount of our loan, including accrued interest.



Mortgage Loans and Unsecured Bank Line of Credit



At March 31, 2004, our indebtedness included fixed-rate debt of $483,237,000 and floating-rate debt of $219,283,000, and our ratio of total debt to gross book assets was approximately 43%.



During the three months ended March 31, 2004, mortgage loans payable increased from
$649,325,000 to $684,323,000. This increase is primarily due to the consolidation of Marina Shores debt in the amount of $45,000,000 in accordance with FIN 46 Revised (discussed below) and $601,000 of draws on a construction loan, offset by
loan payoffs of $1,346,000 due to scheduled principal amortization and a $9,257,000 paydown on a floating-rate loan (discussed below).



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 floating rate of 30-day LIBOR plus 3.00%, and a $15 million loan bearing interest at the floating rate of
30-day LIBOR plus 5.00%. Both loans require monthly interest-only payments and mature on November 15, 2004. The interest rates on these loans at March 31, 2004 were 4.09% and 6.09%, respectively.



In February 2004, we made a paydown of approximately $9,257,000 on a floating-rate loan which
was secured by a cross-collateralized pool of seven properties. This loan bears interest at the floating rate of 30-day LIBOR plus 2.00%, requires monthly interest-only payments, and has a maturity date of December 5, 2005. The interest rate on this
loan at March 31, 2004, was 3.09%. As a result of the paydown, one of the properties securing the loan, a 56,348 square foot office property located in Alexandria, Virginia, was released from the collateral pool. All other terms of the loan remain
the same. In connection with this paydown, we recognized a loss on early extinguishment of debt of approximately $85,000 which consisted of the writeoff of unamortized original financing costs.



Outstanding borrowings under our unsecured bank line of credit decreased from $89,941,000 at
December 31, 2003, to $18,197,000 at March 31, 2004. The decrease was due to pay downs totaling $103,819,000 generated from the proceeds of a common stock offering (discussed below), a paydown received on the mortgage loan receivable, proceeds from
a property sale and cash flow from operations, offset by draws totaling $32,075,000 for the acquisition of land at Gateway Park, disposition of the corporate aircraft and development advances. In March 2004, the unsecured bank line of credit was
modified to extend the maturity date from September 2005 to March 2007, with one one-year extension option. 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 2004 and remain in compliance at March 31, 2004.



34



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##### Table of Contents

At March 31, 2004, we were not a party to any open interest rate protection agreements other than an interest rate cap
contract entered into in December 2001 which will expire in December 2004. In connection with a 2001 secured financing, we entered into an interest rate cap agreement (caplets) to hedge increases in 30-day LIBOR rates above a specified level. The
agreement expires over a term concurrent with the secured financing, is indexed to a 30-day LIBOR rate, is for a notional amount equal to the maximum amount available on the secured financing, and caps 30-day LIBOR to a maximum of 6%. As of March
31, 2004 and December 31, 2003, the 30-day LIBOR rate was 1.09% and 1.12%, respectively. We paid a $594,000 fee at the inception of this cap agreement of which $357,000 has been charged to earnings as of March 31, 2004. The remaining $237,000 will
be charged to earnings during the remainder of 2004. No further payments are required under this cap agreement.



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, 2004, are as follows (in thousands). Included in the year ending December 31, 2007, is the unsecured bank line of credit balance of $18,197 which has an initial maturity of March 26, 2007.



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ending December 31, |  |  
|2004                     |  | $ | 108,948
|2005                     |  |   | 54,939 
|2006                     |  |   | 135,149
|2007                     |  |   | 26,380 
|2008                     |  |   | 289,333
|Thereafter               |  |   | 87,771 
|                         |  |   |        
|Total                    |  | $ | 702,520
|                         |  |   |        



Equity and Debt Offerings



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 $801.2 million of capacity in
equity securities remaining on the 1997 Registration Statement. In January 1999, we filed a shelf registration statement with the SEC (the 1999 Registration Statement) which registered the issuance of up to $300 million of debt
securities of Glenborough Properties, L.P, which may be guaranteed by us. The 1999 Registration Statement was declared effective by the SEC on January 25, 1999. There is currently $300 million of capacity of debt securities remaining on the 1999
Registration Statement.



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 $81.6 million. We intend to use the net proceeds to redeem a portion of the outstanding shares of our Preferred Stock. 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.



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, 2004, 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, 2004, 1,543,700 preferred shares have been repurchased at an average price per share of $15.72 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. No repurchases of Common Stock or Preferred Stock were made during the three months ended March 31, 2004. Future stock repurchases will be made from time to time in the open
market or otherwise and the timing will depend on market conditions and other factors.



35



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##### Table of Contents

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 years ended December 31, 2003
and 2002. Accordingly, no provision for income taxes is included in our consolidated financial statements.



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. All of 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, or FFO, as defined by NAREIT, represents net income (loss)
(including discontinued operations) before minority interest and extraordinary items, adjusted for real estate-related depreciation and amortization and gains from the disposal of properties, and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. We believe that FFO is a widely used measure of the operating performance of equity REITs which provides a relevant
basis for comparison among other REITs. Together with net income and cash flows, FFO provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt, to pay distributions, and to fund acquisitions,
developments and other capital expenditures. FFO does not represent net income or cash flows from operations as defined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our
operating performance or as an alternative to cash flows from operating, investing and financing activities (determined in accordance with GAAP) as a measure of liquidity. FFO does not necessarily indicate that cash flows will be sufficient to fund
all of our cash needs including principal amortization, capital improvements and dividends to stockholders. Further, FFO as disclosed by other REITs may not be comparable to our calculation of FFO. We calculate FFO in accordance with the White Paper
on FFO approved by the Board of Governors of NAREIT in October 1999, as amended.



Adjusted Funds from Operations, or AFFO, represents net income (loss) (including discontinued operations) before minority interest and extraordinary items, adjusted for depreciation and amortization including amortization of deferred
financing costs and gains from the disposal of properties or asset impairments, less lease commissions and recurring and/or non-income producing capital expenditures, consisting of tenant improvements and certain capital expenditures intended to
extend the useful life of the property, plus non cash losses on early extinguishment of debt and less straight-line rents pursuant to SFAS No. 13 and rental revenue adjustments generated by leases acquired pursuant to SFAS No. 141. We believe that
AFFO is a measure of the operating performance of equity REITs which, together with FFO, net income, and cash flows, provides investors with an additional basis to evaluate the ability of a REIT to incur and service debt, to pay distributions, and
to fund acquisitions, developments and other capital expenditures. AFFO should not be considered an alternative to net income (computed in accordance with GAAP) as a measure of our operating performance or as an alternative to cash flow from
operating activities (computed in accordance with GAAP) as a measure of our liquidity, nor is it necessarily indicative of sufficient cash flow to fund all of our cash needs. Further, AFFO as disclosed by other REITs may not be comparable to our
calculation of AFFO.



36



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##### Table of Contents

The following table sets forth our calculation of FFO and AFFO for the three months ended March 31, 2004 and 2003 (in
thousands, except weighted average shares and per share amounts):



|                                                                                                                 |  |               |            |   |               |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ------------- | - | ---------- | -
|                                                                                                                 |  | March 31,2004 |            |   | March 31,2003 |  
|Income before minority interest, discontinued operations and cumulative effect of change in accounting principle |  | $             | 5,665      |   |               | $ | 2,980      |  
|Preferred dividends                                                                                              |  |               | (4,823     | ) |               |   | (4,891     | )
|Real estate depreciation and amortization(1)                                                                     |  |               | 14,700     |   |               |   | 11,725     |  
|Income (loss) from discontinued operations                                                                       |  |               | (65        | ) |               |   | 8,287      |  
|(Gain) loss on sale from discontinued operations                                                                 |  |               | (120       | ) |               |   | (4,450     | )
|Depreciation and amortization from discontinued operations                                                       |  |               | 1          |   |               |   | 2,224      |  
|Discount on preferred stock repurchases                                                                          |  |               |           |   |               |   | 17         |  
|Adjustment to reflect FFO of unconsolidated operating JVs(2)                                                    |  |               | 179        |   |               |   | 116        |  
|                                                                                                                 |  |               |            |   |               |   |            |  
|FFO                                                                                                              |  | $             | 15,537     |   |               | $ | 16,008     |  
|                                                                                                                 |  |               |            |   |               |   |            |  
|Amortization of deferred financing fees                                                                          |  |               | 799        |   |               |   | 803        |  
|Non-real estate depreciation                                                                                     |  |               | 356        |   |               |   | 344        |  
|Adjustment for SFAS No.13 rents(3)                                                                               |  |               | (1,405     | ) |               |   | (1,590     | )
|Adjustment for SFAS No.141 rents(4)                                                                              |  |               | (171       | ) |               |   | (329       | )
|Non-cash loss on early extinguishment of debt                                                                    |  |               | 85         |   |               |   |           |  
|Provision for impairment of real estate assets                                                                   |  |               |           |   |               |   | 2,272      |  
|Capital reserve                                                                                                  |  |               | (4,065     | ) |               |   | (5,877     | )
|                                                                                                                 |  |               |            |   |               |   |            |  
|AFFO                                                                                                             |  | $             | 11,136     |   |               | $ | 11,631     |  
|                                                                                                                 |  |               |            |   |               |   |            |  
|Distributions per share(5)                                                                                       |  | $             | 0.35       |   |               | $ | 0.43       |  
|                                                                                                                 |  |               |            |   |               |   |            |  
|Diluted weighted average shares outstanding                                                                      |  |               | 31,899,526 |   |               |   | 30,768,653 |  
|                                                                                                                 |  |               |            |   |               |   |            |  

---

|(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) | Amortization of straight-line rent pursuant to SFAS No.13.
|--- | ----------------------------------------------------------

|(4) | Amortization of acquired above and below market rate leases pursuant to SFAS No.141.
|--- | ------------------------------------------------------------------------------------

|(5) | The distributions for the three months ended March 31, 2004, were paid on April 15, 2004.
|--- | -----------------------------------------------------------------------------------------



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



| | Our belief 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 statements regarding potential future development;
|- | ------------------------------------------------------



| | Our expectation to continue our policy of managing our exposure to fluctuations in market interest rates through the use of fixed rate debt instruments to the extent possible;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | Our expectation 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 certain provisions of the leases of our properties 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;
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Our belief that the 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;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Our statements regarding our entering 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;
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All forward-looking statements
included in this document are based on information available to us on the date hereof. It is important to note that our actual results could differ materially from those stated or implied in such forward-looking statements. The following factors,
among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:



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



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



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



| | availability and creditworthiness of prospective tenants;
|- | ---------------------------------------------------------



| | interpretations of lease provisions regarding recovery of expenses differing from ours prevail;
|- | -----------------------------------------------------------------------------------------------



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



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



| | difficulties in identifying properties to acquire and in effecting acquisitions;
|- | --------------------------------------------------------------------------------



| | our failure to successfully integrate acquired properties and operations;
|- | -------------------------------------------------------------------------



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



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



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



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



| | unanticipated difficulties with joint venture partners; and
|- | -----------------------------------------------------------



| | risks and uncertainties affecting property development and construction (including construction delays, cost overruns, our inability to obtain necessary permits and public
opposition to these activities);
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 Operation - Risk Factors of our
Annual Report on Form 10-K for the year ended December 31, 2003. We assume no obligation to update any forward looking-statement or statements.



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##### Table of Contents

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. We do not believe that changes in market interest rates will 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 31% at March 31, 2004, and 35% at December 31, 2003, of our outstanding debt, including amounts borrowed under our unsecured bank line of
credit, were subject to variable rates. In addition, the average interest rate on our debt increased from 4.91% at December 31, 2003, to 5.16% at March 31, 2004. 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, 2004, we were not a party to any forward interest rate or similar agreements other than the interest rate cap contract entered into in December 2001 as discussed in Mortgage Loans and Unsecured Bank Line of
Credit above.



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 |         |   |      |   |        |     
|                      |  | 2004                   |         |   | 2005 |   |        | 2006 |  |   | 2007   |   |  | 2008 |        |   | Thereafter |   |         | Total |  |   | Fair Value
|                      |  | (in thousands)         |         |   |      |   |        |     
|Secured Fixed         |  | $                      | 6,847   |   |      | $ | 6,734  |      |  | $ | 84,369 |   |  | $    | 8,183  |   |            | $ | 289,333 |       |  | $ | 87,771     |   |  | $ | 483,237 |   |  | $ | 492,899
|Average interest rate |  |                        | 6.51    | % |      |   | 5.92   | %    |  |   | 6.72   | % |  |      | 6.08   | % |            |   | 5.57    | %     |  |   | 5.44       | % |  |   | 5.77    | % |  |   |        
|Secured Variable      |  | $                      | 102,101 |   |      | $ | 48,205 |      |  | $ | 50,780 |   |  | $    |       |   |            | $ |        |       |  | $ |           |   |  | $ | 201,086 |   |  | $ | 201,086
|Average interest rate |  |                        | 4.48    | % |      |   | 3.17   | %    |  |   | 3.34   | % |  |      |       |   |            |   |        |       |  |   |           |   |  |   | 3.88    | % |  |   |        
|Unsecured Variable    |  | $                      |        |   |      | $ |       |      |  | $ |       |   |  | $    | 18,197 |   |            | $ |        |       |  | $ |           |   |  | $ | 18,197  |   |  | $ | 18,197 
|Average interest rate |  |                        |        |   |      |   |       |      |  |   |       |   |  |      | 2.84   | % |            |   |        |       |  |   |           |   |  |   | 2.84    | % |  |   |        



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 $274,000, based upon the balances outstanding on variable rate instruments at March 31, 2004.



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##### Table of Contents

Item 4. Controls and Procedures



As of the end of
the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls
and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in this
report. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is 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 4. Submission of Matters to a Vote of Security Holders



There were no matters submitted to a vote of security holders during the quarter ended March 31, 2004.



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 January 28, 2004, we furnished a report on Form 8-K with respect to our press release, announcing results of operations for the quarter ended December
31, 2003 (not incorporated herein by reference).



On March 8,
2004, we filed a report on Form 8-K with respect to our public offering of Common Stock (incorporated herein by reference).



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##### Table of Contents

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 7, 2004 |  |                                       |  |                                            |  | /s/ Andrew Batinovich                          
|                  |  |                                       |  |                                            |  | Andrew Batinovich                              
|                  |  |                                       |  |                                            |  | Director, President and Chief Executive Officer
|                  |  |                                       | 
|Date: May 7, 2004 |  |                                       |  |                                            |  | /s/ Stephen Saul                               
|                  |  |                                       |  |                                            |  | Stephen Saul                                   
|                  |  |                                       |  |                                            |  | Chief Financial Officer                        
|                  |  |                                       |  |                                            |  | (Principal Financial Officer)                  
|                  |  |                                       | 
|Date: May 7, 2004 |  |                                       |  |                                            |  | /s/ Brian Peay                                 
|                  |  |                                       |  |                                            |  | Brian Peay                                     
|                  |  |                                       |  |                                            |  | Senior Vice President,                         
|                  |  |                                       |  |                                            |  | Finance and Accounting                         
|                  |  |                                       |  |                                            |  | (Principal Accounting Officer)                 



42



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##### Table of Contents

EXHIBIT INDEX



|            |  |                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Title                                                                                                                         
|            | 
|11.01       |  | Statement re: Computation of Earnings Per Share is shown in Note 13 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.                                                                



43