##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2002

OR

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

Commission File Number: 001-14162

GLENBOROUGH REALTY TRUST INCORPORATED

---

(Exact name of registrant as specified in its charter)


|                                                                           |  |                                     
|-------------------------------------------------------------------------- |  | ------------------------------------
|Maryland                                                                   |  | 94-3211970                          
|                                                                           |  |                                     
|(State or other jurisdiction
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)                          

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

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

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

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

Yes   [X]   No   [   ]

As of November 5, 2002, 27,710,580 shares of Common Stock ($.001 par value) and
10,097,800 shares of 7.75% Series A Convertible Preferred Stock ($.001 par
value, $25.00 per share liquidation preference) were outstanding.





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TABLE OF CONTENTS



|                              |                                                                                               |                                                |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- |  |  |  |  |  | 
|Part I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | CONSOLIDATED BALANCE SHEETS                   
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME             
|                              |                                                                                               | CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
|                              |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS         
|                              |                                                                                               | Notes to Consolidated Financial Statements    
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                              | Item 3. Qualitative and Quantitative Information about Market Risk                           
|                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION   
|                              | Item 1. Legal Proceedings                                                                    
|                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   
|EXHIBIT INDEX                
|EXHIBIT 12.01                



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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 September 30, 2002 and
December 31, 2001                     |  |          | 3    | 
|              |  |                                                                                         |  |    | Consolidated Statements of Income for the nine months
ended September 30, 2002 and 2001     |  |          | 4    | 
|              |  |                                                                                         |  |    | Consolidated Statements of Income for the three months
ended September 30, 2002 and 2001    |  |          | 5    | 
|              |  |                                                                                         |  |    | Consolidated Statement of Stockholders Equity for the
nine months ended September 30, 2002 |  |          | 6    | 
|              |  |                                                                                         |  |    | Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 |  |          | 7-8  | 
|              |  |                                                                                         |  |    | Notes to Consolidated Financial Statements                                                  |  |          | 9-20 | 
|Item 2.       |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations   |  |    | 21-29                                                                                       | 
|Item 3.       |  | Qualitative and Quantitative Information About Market Risk                              |  |    | 29                                                                                          | 
|Item 4.       |  | Controls and Procedures                                                                 |  |    | 30                                                                                          | 
|PART II       |  | OTHER INFORMATION                                                                       |  |    |                                                                                             | 
|Item 1.       |  | Legal Proceedings                                                                       |  |    | 30                                                                                          | 
|Item 4.       |  | Submission of Matters to a Vote of Security Holders                                     |  |    | 30                                                                                          | 
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                        |  |    | 30                                                                                          | 
|SIGNATURES    |  |                                                                                         |  |    | 31                                                                                          | 
|EXHIBIT INDEX |  |                                                                                         |  | 34 |                                                                                            

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)

|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |              |         |           |           | 
|--------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------- | ------------ | ------------------------------------------ | ------- | ------------- | --------- | ------------ | ------- | --------- | --------- | 
|                                        |                                                                                                                                                        |                            |              |                                            |         | September 30, |           | December 31,
|                                        |                                                                                                                                                        |                            |              |                                            |         | 2002          |           | 2001        
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|ASSETS                                  |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        | Rental properties, gross                                                                                                                               |                            | $            | 1,434,896                                  |         |               | $         | 1,338,022    |        
|                                        | Accumulated depreciation                                                                                                                               |                            |              | (175,146                                   | )       |               |           | (146,198     | )      
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        | Rental properties, net                                                                                                                                 |                            |              | 1,259,750                                  |         |               |           | 1,191,824    |        
|                                        | Investments in land and development                                                                                                                    |                            |              | 101,704                                    |         |               |           | 98,105       |        
|                                        | Investments in unconsolidated operating joint ventures                                                                                                 |                            |              | 8,730                                      |         |               |           | 8,089        |        
|                                        | Mortgage loans receivable                                                                                                                              |                            |              | 41,380                                     |         |               |           | 39,061       |        
|                                        | Cash and cash equivalents                                                                                                                              |                            |              | 2,046                                      |         |               |           | 4,410        |        
|                                        | Other assets                                                                                                                                           |                            |              | 52,305                                     |         |               |           | 46,914       |        
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        |                                                                                                                                                        |                            | TOTAL ASSETS |                                            | $       | 1,465,915     |           |              | $       | 1,388,403 |          
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|LIABILITIES AND STOCKHOLDERS EQUITY    |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|Liabilities:                            |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        | Mortgage loans                                                                                                                                         |                            | $            | 633,631                                    |         |               | $         | 588,420      |        
|                                        | Unsecured bank line                                                                                                                                    |                            |              | 106,606                                    |         |               |           | 64,594       |        
|                                        | Other liabilities                                                                                                                                      |                            |              | 24,113                                     |         |               |           | 22,730       |        
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        |                                                                                                                                                        | Total liabilities          |              |                                            | 764,350 |               |           |              | 675,744 |          
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|Commitments and contingencies (Note 14) |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|Minority interest                       |                                                                                                                                                        |                            | 64,230       |                                            |         |               | 66,509    |             
|Stockholders Equity:                   |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        | Common stock, $0.001 par value, 27,710,580 and 26,938,804
shares issued and outstanding at September 30, 2002 and
December 31, 2001, respectively      |                            |              | 28                                         |         |               |           | 27           |        
|                                        | Preferred stock, $0.001 par value, $25.00 liquidation
preference, 10,097,800 shares issued and outstanding at
September 30, 2002 and December 31, 2001 |                            |              | 10                                         |         |               |           | 10           |        
|                                        | Additional paid-in capital                                                                                                                             |                            |              | 772,499                                    |         |               |           | 762,050      |        
|                                        | Deferred compensation                                                                                                                                  |                            |              | (1,077                                     | )       |               |           | (945         | )      
|                                        | Distributions in excess of accumulated earnings                                                                                                        |                            |              | (134,125                                   | )       |               |           | (114,992     | )      
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        |                                                                                                                                                        | Total stockholders equity |              |                                            | 637,335 |               |           |              | 646,150 |          
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |             
|                                        |                                                                                                                                                        |                            |              | TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY |         | $             | 1,465,915 |              |         | $         | 1,388,403 | 
|                                        |                                                                                                                                                        |                            |              |                                            |         |               |           |              |        

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 INCOME
For the nine months ended September 30, 2002 and 2001
(in thousands, except share and per share amounts)
(Unaudited)

|                                                                                                                            |                                                               |                |            |         |         |   |            |         |         |  | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------- | ---------- | ------- | ------- | - | ---------- | ------- | ------- |  | 
|                                                                                                                            |                                                               |                |            |         | 2002    |   | 2001      
|                                                                                                                            |                                                               |                |            |         |         |   |           
|REVENUE                                                                                                                     |                                                               |                |            |         |         |   |            |        
|                                                                                                                            | Rental revenue                                                |                | $          | 143,470 |         |   | $          | 134,909 |        
|                                                                                                                            | Fees and reimbursements from affiliates                       |                |            | 2,715   |         |   |            | 5,301   |        
|                                                                                                                            | Interest and other income                                     |                |            | 4,379   |         |   |            | 3,379   |        
|                                                                                                                            | Equity in earnings of unconsolidated
operating joint ventures |                |            | 223     |         |   |            | 89      |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|                                                                                                                            |                                                               | Total revenue  |            |         | 150,787 |   |            |         | 143,678 | 
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|EXPENSES                                                                                                                    |                                                               |                |            |         |         |   |            |        
|                                                                                                                            | Property operating expenses                                   |                |            | 43,239  |         |   |            | 39,866  |        
|                                                                                                                            | General and administrative                                    |                |            | 7,830   |         |   |            | 8,425   |        
|                                                                                                                            | Depreciation and amortization                                 |                |            | 37,776  |         |   |            | 33,257  |        
|                                                                                                                            | Interest expense                                              |                |            | 28,186  |         |   |            | 26,515  |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|                                                                                                                            |                                                               | Total expenses |            |         | 117,031 |   |            |         | 108,063 | 
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Income before gain (loss) on sales of real
estate assets, minority interest,
discontinued operations and extraordinary
item |                                                               |                | 33,756     |         |         |   | 35,615     |        
|Net gain (loss) on sales of real estate assets                                                                              |                                                               |                |           |         |         |   | 2,883      |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Income before minority interest, discontinued
operations and extraordinary item                                             |                                                               |                | 33,756     |         |         |   | 38,498     |        
|Minority interest                                                                                                           |                                                               |                | (1,803     | )       |         |   | (2,214     | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Income before discontinued operations and
extraordinary item                                                                |                                                               |                | 31,953     |         |         |   | 36,284     |        
|Discontinued operations (including net loss
on sales of $443 in 2002)                                                       |                                                               |                | (42        | )       |         |   | (357       | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Income before extraordinary item                                                                                            |                                                               |                | 31,911     |         |         |   | 35,927     |        
|Loss on early extinguishment of debt                                                                                        |                                                               |                | (892       | )       |         |   | (1,707     | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Net income                                                                                                                  |                                                               |                | 31,019     |         |         |   | 34,220     |        
|Preferred dividends                                                                                                         |                                                               |                | (14,673    | )       |         |   | (14,673    | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 16,346     |         |         | $ | 19,547     |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Basic Per Share Data:                                                                                                       |                                                               |                |            |         |         |   |            |        
|Income available to Common Stockholders
before extraordinary item and discontinued
operations                               |                                                               | $              | 0.63       |         |         | $ | 0.80       |        
|Extraordinary item                                                                                                          |                                                               |                | (0.03      | )       |         |   | (0.06      | )      
|Discontinued operations                                                                                                     |                                                               |                |           |         |         |   | (0.01      | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 0.60       |         |         | $ | 0.73       |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Basic weighted average shares outstanding                                                                                   |                                                               |                | 27,454,649 |         |         |   | 26,988,659 |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Diluted Per Share Data:                                                                                                     |                                                               |                |            |         |         |   |            |        
|Income available to Common Stockholders
before extraordinary item and discontinued
operations                               |                                                               | $              | 0.62       |         |         | $ | 0.78       |        
|Extraordinary item                                                                                                          |                                                               |                | (0.03      | )       |         |   | (0.06      | )      
|Discontinued operations                                                                                                     |                                                               |                |           |         |         |   | (0.01      | )      
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 0.59       |         |         | $ | 0.71       |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        
|Diluted weighted average shares outstanding                                                                                 |                                                               |                | 30,971,050 |         |         |   | 30,509,773 |        
|                                                                                                                            |                                                               |                |            |         |         |   |            |         |        

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

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##### Table of Contents



GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended September 30, 2002 and 2001
(in thousands, except share and per share amounts)
(Unaudited)

|                                                                                                                            |                                                               |                |               |        |        |        |            |        |        |        | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------- | ------------- | ------ | ------ | ------ | ---------- | ------ | ------ | ------ | 
|                                                                                                                            |                                                               |                |               |        | 2002   |        | 2001      
|                                                                                                                            |                                                               |                |               |        |        |        |           
|REVENUE                                                                                                                     |                                                               |                |               |        |        |        |            |       
|                                                                                                                            | Rental revenue                                                |                | $             | 49,486 |        |        | $          | 47,038 |       
|                                                                                                                            | Fees and reimbursements from affiliates                       |                |               | 832    |        |        |            | 1,785  |       
|                                                                                                                            | Interest and other income                                     |                |               | 776    |        |        |            | 628    |       
|                                                                                                                            | Equity in earnings of unconsolidated
operating joint ventures |                |               | 100    |        |        |            | 38     |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|                                                                                                                            |                                                               |                | Total revenue |        |        | 51,194 |            |        |        | 49,489 | 
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|EXPENSES                                                                                                                    |                                                               |                |               |        |        |        |            |       
|                                                                                                                            | Property operating expenses                                   |                |               | 15,201 |        |        |            | 13,678 |       
|                                                                                                                            | General and administrative                                    |                |               | 2,319  |        |        |            | 2,374  |       
|                                                                                                                            | Depreciation and amortization                                 |                |               | 13,076 |        |        |            | 11,573 |       
|                                                                                                                            | Interest expense                                              |                |               | 9,695  |        |        |            | 9,337  |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|                                                                                                                            |                                                               | Total expenses |               |        | 40,291 |        |            |        | 36,962 |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Income before gain (loss) on sales of real
estate assets, minority interest,
discontinued operations and extraordinary
item |                                                               |                | 10,903        |        |        |        | 12,527     |       
|Net gain (loss) on sales of real estate assets                                                                              |                                                               |                |              |        |        |        | 3,007      |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Income before minority interest, discontinued
operations and extraordinary item                                             |                                                               |                | 10,903        |        |        |        | 15,534     |       
|Minority interest                                                                                                           |                                                               |                | (400          | )      |        |        | (996       | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Income before discontinued operations and
extraordinary item                                                                |                                                               |                | 10,503        |        |        |        | 14,538     |       
|Discontinued operations (including net loss
on sales of $1,866 in 2002)                                                     |                                                               |                | (1,892        | )      |        |        | (177       | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Income before extraordinary item                                                                                            |                                                               |                | 8,611         |        |        |        | 14,361     |       
|Loss on early extinguishment of debt                                                                                        |                                                               |                |              |        |        |        | (682       | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Net income                                                                                                                  |                                                               |                | 8,611         |        |        |        | 13,679     |       
|Preferred dividends                                                                                                         |                                                               |                | (4,891        | )      |        |        | (4,891     | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 3,720         |        |        | $      | 8,788      |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Basic Per Share Data:                                                                                                       |                                                               |                |               |        |        |        |            |       
|Income available to Common Stockholders
before extraordinary item and discontinued
operations                               |                                                               | $              | 0.20          |        |        | $      | 0.36       |       
|Extraordinary item                                                                                                          |                                                               |                |              |        |        |        | (0.02      | )     
|Discontinued operations                                                                                                     |                                                               |                | (0.07         | )      |        |        | (0.01      | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 0.13          |        |        | $      | 0.33       |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Basic weighted average shares outstanding                                                                                   |                                                               |                | 27,710,517    |        |        |        | 26,984,208 |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Diluted Per Share Data:                                                                                                     |                                                               |                |               |        |        |        |            |       
|Income available to Common Stockholders
before extraordinary item and discontinued
operations                               |                                                               | $              | 0.19          |        |        | $      | 0.35       |       
|Extraordinary item                                                                                                          |                                                               |                |              |        |        |        | (0.02      | )     
|Discontinued operations                                                                                                     |                                                               |                | (0.06         | )      |        |        | (0.01      | )     
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Net income available to Common Stockholders                                                                                 |                                                               | $              | 0.13          |        |        | $      | 0.32       |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       
|Diluted weighted average shares outstanding                                                                                 |                                                               |                | 31,174,544    |        |        |        | 30,588,078 |       
|                                                                                                                            |                                                               |                |               |        |        |        |            |        |       

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 STATEMENT OF STOCKHOLDERS EQUITY
For the nine months ended September 30, 2002
(in thousands)
(Unaudited)

|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |         |  |            |         |          |  |          |        |   |  |   |          |   |  |   |         |  
|----------------------------------------------------------- |  | ------------ | ------ | --------------- |  | ------ | -- | ----- |  | ------- | ------ | ------ |  | --------- | -- | ------- |  | ---------- | ------- | -------- |  | -------- | ------ | - |  | - | -------- | - |  | - | ------- | -
|                                                            |  | Common Stock |        | Preferred Stock |  |        |    |       |  |         |        |        |  |           |    |         |  |            |         |         
|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |         |  |            |         |         
|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |         |  | Additional |         | Deferred |  | Retained |        |   |  |  
|                                                            |  |              |        |                 |  | Par    |    |       |  |         |        | Par    |  | Paid-in   |    | Compen- |  | Earnings   |         |          |  |         
|                                                            |  | Shares       |        | Value           |  | Shares |    | Value |  | Capital |        | sation |  | (Deficit) |    | Total  
|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |        
|Balance at December 31, 2001                                |  |              | 26,939 |                 |  | $      | 27 |       |  |         | 10,098 |        |  | $         | 10 |         |  | $          | 762,050 |          |  | $        | (945   | ) |  | $ | (114,992 | ) |  | $ | 646,150 |  
|Exercise of stock options                                   |  |              | 791    |                 |  |        | 1  |       |  |         |       |        |  |           |   |         |  |            | 10,737  |          |  |          |       |   |  |   |         |   |  |   | 10,738  |  
|Conversion of Operating
Partnership units into
common stock |  |              |       |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            | 109     |          |  |          |       |   |  |   |         |   |  |   | 109     |  
|Issuance of common stock to
officers                        |  |              | 13     |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            | 277     |          |  |          | (277   | ) |  |   |         |   |  |   |        |  
|Common stock repurchases                                    |  |              | (32    | )               |  |        |   |       |  |         |       |        |  |           |   |         |  |            | (674    | )        |  |          |       |   |  |   |         |   |  |   | (674    | )
|Amortization of deferred
compensation                       |  |              |       |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            |        |          |  |          | 145    |   |  |   |         |   |  |   | 145     |  
|Unrealized loss on
marketable securities                    |  |              |       |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            |        |          |  |          |       |   |  |   | (157     | ) |  |   | (157    | )
|Dividends                                                   |  |              |       |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            |        |          |  |          |       |   |  |   | (49,995  | ) |  |   | (49,995 | )
|Net income                                                  |  |              |       |                 |  |        |   |       |  |         |       |        |  |           |   |         |  |            |        |          |  |          |       |   |  |   | 31,019   |   |  |   | 31,019  |  
|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |         |  |            |         |          |  |          |        |   |  |   |          |   |  |   |         |  
|Balance at September 30, 2002                               |  |              | 27,711 |                 |  | $      | 28 |       |  |         | 10,098 |        |  | $         | 10 |         |  | $          | 772,499 |          |  | $        | (1,077 | ) |  | $ | (134,125 | ) |  | $ | 637,335 |  
|                                                            |  |              |        |                 |  |        |    |       |  |         |        |        |  |           |    |         |  |            |         |          |  |          |        |   |  |   |          |   |  |   |         |  

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

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GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2002 and 2001
(in thousands)
(Unaudited)

|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |          |          |         |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------- | -------- | ------ | -------- | ------- | -------- | -------- | ------- | -
|                                                 |                                                                                   |                                                                                              |                                           |          | 2002   |          | 2001   
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |        
|Cash flows from operating activities:            |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|                                                 | Net income                                                                        |                                                                                              | $                                         | 31,019   |        |          | $       | 34,220   |         
|                                                 | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                                              |                                           |          |        |          |         |          |         
|                                                 |                                                                                   | Depreciation and amortization (including
discontinued operations)                            |                                           |          | 38,553 |          |         |          | 34,879   |        
|                                                 |                                                                                   | Amortization of loan fees, included in
interest expense (including discontinued
operations)  |                                           |          | 1,584  |          |         |          | 1,143    |        
|                                                 |                                                                                   | Accrued interest on mortgage loans receivable                                                |                                           |          | (2,319 | )        |         |          | (2,541   | )      
|                                                 |                                                                                   | Minority interest in income from operations                                                  |                                           |          | 1,803  |          |         |          | 2,214    |        
|                                                 |                                                                                   | Equity in earnings of unconsolidated operating
joint ventures                                |                                           |          | (223   | )        |         |          | (89      | )      
|                                                 |                                                                                   | Net (gain) loss on sales of real estate assets
(included in discontinued operations in 2002) |                                           |          | 443    |          |         |          | (2,883   | )      
|                                                 |                                                                                   | Loss on early extinguishment of debt                                                         |                                           |          | 892    |          |         |          | 1,707    |        
|                                                 |                                                                                   | Amortization of deferred compensation                                                        |                                           |          | 145    |          |         |          | 156      |        
|                                                 |                                                                                   | Changes in certain assets and liabilities, net                                               |                                           |          | (5,405 | )        |         |          | (12,369  | )      
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|                                                 |                                                                                   |                                                                                              | Net cash provided by operating activities |          |        | 66,492   |         |          |          | 56,437  |  
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|Cash flows from investing activities:            |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|                                                 | Net proceeds from sales of rental property                                        |                                                                                              |                                           | 50,194   |        |          |         | 69,329   |         
|                                                 | Acquisitions of rental property                                                   |                                                                                              |                                           | (125,216 | )      |          |         | (51,575  | )       
|                                                 | Payments for capital and tenant improvements                                      |                                                                                              |                                           | (20,133  | )      |          |         | (16,506  | )       
|                                                 | Investments in land and development                                               |                                                                                              |                                           | (17,205  | )      |          |         | (30,593  | )       
|                                                 | Investments in unconsolidated operating joint ventures                            |                                                                                              |                                           |         |        |          |         | (86      | )       
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|                                                 |                                                                                   |                                                                                              | Net cash used for investing activities    |          |        | (112,360 | )       |          |          | (29,431 | )
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|Cash flows from financing activities:            |                                                                                   |                                                                                              |                                           |          |        |          |         |         
|                                                 | Proceeds from borrowings                                                          |                                                                                              |                                           | 180,261  |        |          |         | 292,333  |         
|                                                 | Repayment of borrowings                                                           |                                                                                              |                                           | (92,070  | )      |          |         | (358,815 | )       
|                                                 | Prepayment penalties on loan payoffs                                              |                                                                                              |                                           | (799     | )      |          |         | (844     | )       
|                                                 | Distributions to minority interest holders                                        |                                                                                              |                                           | (3,984   | )      |          |         | (3,846   | )       
|                                                 | Dividends paid to common and preferred stockholders                               |                                                                                              |                                           | (49,995  | )      |          |         | (48,677  | )       
|                                                 | Contributions from minority interest holders                                      |                                                                                              |                                           | 27       |        |          |         | 110      |         
|                                                 | Exercise of stock options                                                         |                                                                                              |                                           | 10,738   |        |          |         | 267      |         
|                                                 | Repurchases of common stock                                                       |                                                                                              |                                           | (674     | )      |          |         | (749     | )       
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |          |         
|                                                 |                                                                                   | Net cash provided by/(used for) financing activities                                         |                                           |          | 43,504 |          |         |          | (120,221 | )      
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |          |         
|Net decrease in cash and cash equivalents        |                                                                                   |                                                                                              | (2,364                                    | )        |        |          | (93,215 | )       
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                                              | 4,410                                     |          |        |          | 102,195 |         
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |          |         
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                                            | 2,046                                     |          |        | $        | 8,980   |         
|                                                 |                                                                                   |                                                                                              |                                           |          |        |          |         |          |         

continued

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

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GLENBOROUGH REALTY TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS  continued
For the nine months ended September 30, 2002 and 2001
(in thousands)
(Unaudited)

|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|                                                                        |                                                                                                                     |  | 2002 |        | 2001
|                                                                        |                                                                                                                     |  |      |        |     
|Supplemental disclosure of cash flow information:                       |                                                                                                                     |  |      |        |      |  |   |       
|                                                                        | Cash paid for interest (net of capitalized interest
of $2,919 and $3,619 in 2002 and 2001, respectively)            |  | $    | 26,837 |      |  | $ | 28,200 |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|Supplemental disclosure of Non-Cash Investing and Financing
Activities: |                                                                                                                     |  |      |        |      |  |   |       
|                                                                        | Assumption of mortgage loans in acquisition of real
estate                                                          |  | $    | 3,882  |      |  | $ | 82,203 |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Transfer of real estate assets from investments in
land and development and unconsolidated operating
joint ventures |  | $    | 9,414  |      |  | $ | 39,250 |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Acquisition of joint venture from development alliance                                                              |  | $    | 427    |      |  | $ |       |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Disposition of real estate involving buyers
assumption of mortgage loans                                           |  | $    | 4,850  |      |  | $ | 4,248  |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Note receivable from sale of investment in development                                                              |  | $    | 3,775  |      |  | $ |       |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Conversion of Operating Partnership units into common
stock, at market value on date of issuance                    |  | $    | 109    |      |  | $ | (1,135 | )
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  
|                                                                        | Unrealized loss on marketable securities                                                                            |  | $    | (157   | )    |  | $ |       |  
|                                                                        |                                                                                                                     |  |      |        |      |  |   |        |  

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

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

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 of 1986, as amended (the
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 September 30, 2002, 27,710,580 shares of Common Stock and 10,097,800
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 3,068,463 shares of Common Stock issuable upon redemption of
3,068,463 partnership units in the Operating Partnership (as defined below),
there would be 30,779,043 shares of Common Stock outstanding as of September
30, 2002. In 1999 and 2000, the Companys Board of Directors authorized the
repurchase of up to approximately 8.2 million shares of common stock and
approximately 1.7 million shares of preferred stock. As of September 30, 2002,
6,179,316 shares of Common Stock and 1,402,200 shares of Preferred Stock have
been repurchased at a total cost of approximately $124 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. Except in certain instances relating to the preservation
of the Companys status as a REIT, the 73/4% Series A Convertible Preferred
Stock is not redeemable prior to January 16, 2003. On and after January 16,
2003, the Series A Preferred Stock may be redeemed at the option of the
Company, in whole or in part, initially at 103.88% of the liquidation
preference per share, and thereafter at prices declining to 100% of the
liquidation preference on and after January 16, 2008, plus in each case
accumulated, accrued and unpaid dividends, if any, to the redemption date.

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 an
89.02% limited partner interest at September 30, 2002, 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 September 30, 2002, the Operating Partnership, directly and
through the subsidiaries in which it and the Company own 100% of the ownership
interests, controls a portfolio of 79 real estate projects.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying financial statements present the consolidated financial
position of the Company and its subsidiaries as of September 30, 2002 and
December 31, 2001, and the consolidated results of operations and cash flows of
the Company and its subsidiaries for the nine months ended September 30, 2002
and 2001. 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 and results of operations of the Company
as of September 30, 2002, and for the period then ended.

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

Reclassifications

Certain prior year balances have been reclassified to conform to the current
year presentation, with no effect on consolidated results of operations.

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.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 141, Business Combinations. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001, use the purchase method of
accounting. The pooling-of-interests method of accounting is prohibited except
for transactions initiated before July 1, 2001. This standard did not have a
material impact on the Companys consolidated financial position or results of
operations.

In June 2001, the FASB approved for issuance SFAS No. 142, Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142 were effective January 1,
2002, for the Company. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives will not be amortized but will be tested for impairment
annually using a fair value approach, except in certain circumstances, and
whenever there is an impairment indicator. Other intangible assets will
continue to be valued and amortized over their estimated lives. This standard
did not have a material impact on the Companys consolidated financial position
or results of operations.

In June 2001, the FASB approved for issuance SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred and that the associated asset retirement costs be
capitalized as part of the carrying value of the related long-lived asset. SFAS
No. 143 will be effective January 1, 2003 for the Company. Management does not
expect this standard to have a material impact on the Companys consolidated
financial position or results of operations.

In August 2001, the FASB approved for issuance SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 broadens the
presentation of discontinued operations to include more transactions and
eliminates the need to accrue for future operating losses. Additionally, SFAS
No. 144 prohibits the retroactive classification of assets as held for sale and
requires revisions to the depreciable lives of long-lived assets to be
abandoned. The Company adopted SFAS No. 144 on January 1, 2002. See Note 4 for
further discussion.

In May 2002, the FASB approved for issuance SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 requires gains and losses from extinguishment of debt
to be classified as an extraordinary item only if the criteria in APB No. 30
have been met. Further, lease modifications with economic effects similar to
sale-leaseback transactions must be accounted for in the same manner as
sale-leaseback transactions. While the technical corrections to existing
pronouncements are not substantive in nature, in some instances they may change
accounting practice. SFAS No. 145 will be effective January 1, 2003 for the
Company. Management is currently assessing the impact of this new standard on
the Companys consolidated financial position and results of operations.

In June 2002, the FASB approved for issuance SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS 146 addresses
accounting and reporting for costs associated with exit and disposal activities
and supercedes Emerging Issues Task Force Issue No. 94-3 (EITF 94-3),
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred, as
defined by the Statement. Under EITF 94-3, an exit cost was recognized at the
date an entity committed to an exit plan. Additionally, SFAS 146 provides that
exit and disposal costs should be measured at fair value and that the

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

associated liability will be adjusted for changes in estimated cash flows. The
provisions of SFAS 146 are effective for exit and disposal activities that are
initiated after December 31, 2002.

Rental Properties

Rental properties are stated at cost, net of accumulated depreciation, unless
circumstances indicate that cost, net of accumulated depreciation, cannot be
recovered, in which case, the carrying value of the property is reduced to
estimated fair value. Estimated fair value: (i) is based upon the Companys
plans for the continued operation of each property; 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.

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             

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.

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 a maturity of three months or less at the time of investment to
be cash equivalents.

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

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), 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, the carrying value of the Companys notes
payable approximates fair value.

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 September 30, 2002, 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.

Deferred Financing and Other Fees

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

Minority Interest

Minority interest represents the 9.98% and 10.23% limited partner interests in
the Operating Partnership not held by the Company at September 30, 2002 and
December 31, 2001, respectively.

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.

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 nine months ended September 30, 2002 and 2001, 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.

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

Sales of Real Estate

The Company recognizes sales of real estate when a contract is in place, a
closing has taken place, the buyers 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 the disposal transaction and the property will not have any
significant continuing involvement in the operations of the Company after the
disposal transaction.

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 of 1986, as amended (the
Code). A real estate investment trust is generally not subject to federal
income tax on that portion of its real estate investment trust taxable income
(Taxable Income) that is distributed to its stockholders, provided that at
least 90% of Taxable Income is distributed and other requirements are met.

Reference to 2001 Audited Financial Statements

These unaudited financial statements should be read in conjunction with the
Notes to Consolidated Financial Statements included in the 2001 audited
financial statements.

Note 3. ACQUISITIONS OF RENTAL PROPERTY

In the third quarter of 2002, the Company acquired the Aventine, a 240,000
square foot multi-tenant office building located in La Jolla, California. The
total acquisition cost of approximately $75 million was funded with a new $50
million dollar loan (as discussed in Note 9) and draws on the Credit Facility
(as defined in Note 9).

In the third quarter of 2002, from one of its development alliances, the
Company acquired Gateway Office Four, a 63,000 square foot office property
located in Denver, Colorado. The total acquisition cost of approximately $5.6
million was funded with proceeds from a tax-deferred exchange, a draw on the
Credit Facility (as defined in Note 9) and the assumption of approximately $3.9
million in debt (as discussed in Note 9).

In the second quarter of 2002, the Company placed in service a 65,000
build-to-suit office property, located in Westminster, Colorado, that it had
independently developed for a tenant. This tenant occupies 100% of the
building. The building cost of approximately $8.8 million was reclassified from
Investments in Land and Development.

In the first quarter of 2002, the Company acquired First Financial Plaza, a
six-story, 223,000 square foot multi-tenant office building located in Encino,
California. The total acquisition cost of approximately $47.6 million was
funded with a new $32.55 million loan (as discussed in Note 9) and the
remainder in cash.

Note 4. DISPOSITIONS OF RENTAL PROPERTY

In the second and third quarters of 2002, the Company sold four properties,
including one multifamily, one retail and two industrial. These assets were
sold for an aggregate sales price of $56.3 million and generated a net loss of
approximately $443,000.

The four properties sold in 2002 were:

|                          |  |             |  |                  |  |         |  |          |   |               |  |           
|------------------------- |  | ----------- |  | ---------------- |  | ------- |  | -------- | - | ------------- |  | ----------
|                          |  |             |  |                  |  | Date of |  | Building |   | Total Square 
|Property                  |  | Type        |  | Location         |  | Sale    |  | Count    |   | Footage/Units
|                          |  |             |  |                  |  |         |  |          |   |              
|Springs of Indian Creek   |  | Multifamily |  | Carrollton, TX   |  | 4/25/02 |  |          | 1 |               |  | 519 units 
|Cross Creek Retail Centre |  | Retail      |  | Indianapolis, IN |  | 5/16/02 |  |          | 1 |               |  | 76,908 sf 
|Southworth-Milton         |  | Industrial  |  | Milford, MA      |  | 6/6/02  |  |          | 1 |               |  | 146,125 sf
|Winnetka Industrial       |  |             |  |                  |  |         |  |          |   |               |  |           
|Center                    |  | Industrial  |  | Crystal, MN      |  | 8/14/02 |  |          | 1 |               |  | 188,260 sf

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

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 gain/(loss) on sales of real
estate for properties sold subsequent to December 31, 2001 are reflected in the
consolidated statements of operations as Discontinued operations for all
periods presented. Below is a summary of the results of operations of these
properties through their respective disposition dates (dollars in thousands):

|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  
|------------------------------------------------------------ |  | ------------------ | ------ | ----------------- |  | ------- | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                             |  | Three months ended |        | Nine months ended
|                                                             |  | September 30,      |        | September 30,    
|                                                             |  |                    |        |                  
|                                                             |  | 2002(1)            |        | 2001              |  | 2002(1) |       | 2001
|                                                             |  |                    |        |                   |  |         |       |     
|Rental revenue                                               |  | $                  | 76     |                   |  | $       | 1,701 |      |  | $ | 3,069 |   |  | $ | 5,444 |  
|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  
|Property operating expenses                                  |  |                    | 74     |                   |  |         | 868   |      |  |   | 1,364 |   |  |   | 2,476 |  
|Depreciation and amortization                                |  |                    | 28     |                   |  |         | 492   |      |  |   | 777   |   |  |   | 1,622 |  
|Interest expense                                             |  |                    |       |                   |  |         | 518   |      |  |   | 527   |   |  |   | 1,703 |  
|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  
|Total expenses                                               |  |                    | 102    |                   |  |         | 1,878 |      |  |   | 2,668 |   |  |   | 5,801 |  
|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  
|Income/(loss) before net gain (loss)
on sales of real estate |  |                    | (26    | )                 |  |         | (177  | )    |  |   | 401   |   |  |   | (357  | )
|Net gain (loss) on sales of real estate                      |  |                    | (1,866 | )                 |  |         |      |      |  |   | (443  | ) |  |   |      |  
|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  
|Discontinued operations                                      |  | $                  | (1,892 | )                 |  | $       | (177  | )    |  | $ | (42   | ) |  | $ | (357  | )
|                                                             |  |                    |        |                   |  |         |       |      |  |   |       |   |  |   |       |  



---

|(1) Reflects 2002 operations through date of sale.
|--------------------------------------------------

Note 5. INVESTMENTS IN LAND AND DEVELOPMENT

The Company is independently developing approximately 371,000 square feet of
commercial property in California, New Jersey and Maryland. As of September 30,
2002, the Company had invested approximately $37.4 million in these projects.
Additionally, the Company has approximately 119 acres of land with a book value
of approximately $24.5 million as of September 30, 2002. This land has
potential for future development of approximately 1,355,000 square feet of
office space. The Company is obligated to fund approximately $2.1 million to
these developments in 2002. The loans secured by certain of these development
properties contain recourse provisions to the Company in the aggregate amount
of $25.9 million; however, some of the loans were not fully drawn as of
September 30, 2002.

The Company is currently involved in a number of alliances for the development
of approximately 933,000 square feet of commercial and mixed-use properties in
California and Colorado. The alliances grant the Company certain rights to
purchase the properties upon completion of development. As of September 30,
2002, the Company had invested approximately $39.8 million in these alliances.
In addition, the Company has acquired properties from them aggregating
approximately $119.8 million since 1999. 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 these alliances, the Company has provided
an aggregate of $36.7 million in debt guarantees; however, some of the loans
were not fully drawn as of September 30, 2002.

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.

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

The Companys investments in unconsolidated operating joint ventures consist of
the following as of September 30, 2002 and December 31, 2001 (dollars in
thousands):

|                     |  |           |     |          |  |                           |  |          |         |      |  |           |  |   |       |  |  |   |       | 
|-------------------- |  | --------- | --- | -------- |  | ------------------------- |  | -------- | ------- | ---- |  | --------- |  | - | ----- |  |  | - | ----- | 
|                     |  | Ownership |     | Property |  | Square                    |  | Property |         |      |  |           |  |   |       | 
|Joint Venture        |  | Interest  |     | Location |  | Footage                   |  | Type     |         | 2002 |  | 2001     
|                     |  |           |     |          |  |                           |  |          |         |      |  |          
|Rincon Center I & II |  |           | 10% |          |  | San Francisco,
California |  |          | 741,000 |      |  | Mixed-Use |  | $ | 4,139 |  |  | $ | 4,045 | 
|2000 Corporate Ridge |  |           | 10% |          |  | McLean, Virginia          |  |          | 256,000 |      |  | Office    |  |   | 4,165 |  |  |   | 4,044 | 
|Gateway Retail I     |  |           | 50% |          |  | Denver, Colorado          |  |          | 11,000  |      |  | Retail    |  |   | 426   |  |  |   |      | 
|                     |  |           |     |          |  |                           |  |          |         |      |  |           |  |   |       |  |  |   |       | 
|                     |  |           |     |          |  |                           |  |          |         |      |  |           |  | $ | 8,730 |  |  | $ | 8,089 | 
|                     |  |           |     |          |  |                           |  |          |         |      |  |           |  |   |       |  |  |   |       | 

During the first quarter of 2002, Gateway Retail I, an 11,000 square foot
retail property partially owned through one of the Companys development
alliances, commenced operations and was reclassified from Investments in Land
and Development. This property is being accounted for using the equity method.

Note 7. MORTGAGE LOANS RECEIVABLE

The Company holds a first mortgage of approximately $41.4 million, including
accrued interest, at September 30, 2002, secured by land at Gateway Park in
Aurora, Colorado. The loan bears interest at a fixed rate of 13% and matures
in July 2005. 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 and,
thus, through this arrangement, the Company could acquire up to 5 million
square feet of office and industrial space over the next ten years.

Note 8. OTHER ASSETS

As of September 30, 2002 and December 31, 2001, other assets on the
consolidated balance sheets consist of the following (in thousands):

|                                          |  |      |        |      |  |   |        | 
|----------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                          |  | 2002 |        | 2001
|                                          |  |      |        |     
|Accounts receivable, net                  |  | $    | 2,575  |      |  | $ | 3,011  | 
|Straight-line rent receivable, net        |  |      | 6,199  |      |  |   | 2,395  | 
|Prepaid expenses                          |  |      | 3,855  |      |  |   | 4,188  | 
|Impound accounts                          |  |      | 3,871  |      |  |   | 4,901  | 
|Note receivable                           |  |      | 3,775  |      |  |   |       | 
|Deferred leasing and financing costs, net |  |      | 24,246 |      |  |   | 22,983 | 
|Investment in management contracts        |  |      | 2,508  |      |  |   | 2,963  | 
|Corporate office fixed assets, net        |  |      | 2,741  |      |  |   | 2,936  | 
|Marketable securities, at fair value      |  |      | 2,305  |      |  |   | 3,157  | 
|Other                                     |  |      | 230    |      |  |   | 380    | 
|                                          |  |      |        |      |  |   |        | 
|Total other assets                        |  | $    | 52,305 |      |  | $ | 46,914 | 
|                                          |  |      |        |      |  |   |        | 

Note 9. SECURED AND UNSECURED LIABILITIES

The Company had the following mortgage loans and bank lines outstanding as of
September 30, 2002 and December 31, 2001 (dollars in thousands):

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |  |   |         | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | 2002 |         | 2001
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |     
|Secured loans with various lenders, bearing
interest at fixed rates between 6.77% and 8.14%,
with monthly principal and interest payments
ranging between $19 and $345 and maturing at
various dates through July 1, 2008. These loans are
secured by properties with an aggregate net
carrying value of $384,290 and $403,982 at
September 30, 2002 and December 31, 2001,
respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | $    | 252,212 |      |  | $ | 267,728 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Secured loans with various lenders, bearing
interest at variable rates ranging between 3.81%
and 4.31% at September 30, 2002, and 4.12% and
4.37% at December 31, 2001, and maturing at various
dates through August 27, 2004. These loans are
secured by properties with an aggregate net
carrying value of $258,613 and $158,069 at
September 30, 2002 and December 31, 2001,
respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      | 161,533 |      |  |   | 99,247  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Secured loan with an insurance company, net of
unamortized discount of $1,878 and $2,110 at
September 30, 2002 and December 31, 2001,
respectively. The loan has a fixed interest rate of
6.125%, a November 10, 2008 maturity date, and
requires monthly principal and interest payments of
$754. This loan is secured by properties with an
aggregate net carrying value of $209,677 and
$210,928 at September 30, 2002 and December 31,
2001, respectively                                                                                                                                                                                                                                                                                                                                                                                                                |  |      | 115,061 |      |  |   | 116,133 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Secured loan with an insurance company, net of
unamortized discount of $854 and $959 at September
30, 2002 and December 31, 2001, respectively. The
loan has both a fixed rate and a variable rate
component. The fixed rate component of $52,325
bears interest at 6.125%, matures on November 10,
2008, and requires monthly principal and interest
payments of $343. An additional variable rate
financing of $52,500 was entered into in December
2001 and bears interest at a floating rate of
30-day LIBOR plus 3.25% (5.06% and 5.12% at
September 30, 2002 and December 31, 2001,
respectively), matures on December 11, 2004, and
requires monthly interest-only payments. The loans
are cross-collateralized and are secured by
properties with an aggregate net carrying value of
$166,925 and $167,563 at September 30, 2002 and
December 31, 2001, respectively |  |      | 104,825 |      |  |   | 105,312 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |  |   |         | 
|Total mortgage loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |      | 633,631 |      |  |   | 588,420 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |  |   |         | 
|Unsecured $180,000 line of credit with a group of
commercial banks (Credit Facility) with a
variable interest rate of 30-day LIBOR plus 1.525%
at September 30, 2002 and 30-day LIBOR plus 1.625%
at December 31, 2001 (3.34% and 3.50% at September
30, 2002 and December 31, 2001, respectively),
monthly interest only payments and a maturity date
of September 19, 2005, with one one-year extension
option                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |      | 106,606 |      |  |   | 64,594  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |  |   |         | 
|Total secured and unsecured liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  | $    | 740,237 |      |  | $ | 653,014 | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |      |         |      |  |   |         | 

In the third quarter of 2002, in order to finance the acquisition of the
Aventine (as discussed in Note 3), the Company obtained a $50 million loan.
The loan has an initial maturity date of August 27, 2004, with a one-year

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

extension option, and bears interest at the floating rate of 30-day LIBOR plus
2%. The interest rate on this loan at September 30, 2002, was 3.81%.

In the third quarter of 2002, in connection with the acquisition of Gateway
Office Four (as discussed in Note 3), the Company assumed a $3.9 million loan.
The loan has an initial maturity date of April 1, 2003, with three 6-month
extension options, and bears interest at the floating rate of 30-day LIBOR plus
2%. The interest rate on this loan at September 30, 2002, was 3.81%.

In the second quarter of 2002, related to the sale of three properties (as
discussed in Note 4), approximately $37.1 million of the Companys mortgage
loans were paid off or assumed by the buyer. In connection with the payoffs and
assumptions, the Company recognized a net loss on early extinguishment of debt
of $892,000. This loss consists of the write-off of unamortized original
issuance costs and prepayment penalties and is included in the net loss on
early extinguishment of debt in the Companys consolidated statement of income
for the nine months ended September 30, 2002, as discussed in Note 10 below.

In the first quarter of 2002, in connection with the acquisition of First
Financial Plaza (as discussed in Note 3), the Company obtained a $32.55 million
loan. The loan has an initial maturity date of March 31, 2004, with a one-year
extension option, and bears interest at the floating rate of 30-day LIBOR plus
2.25%. The interest rate on this loan at September 30, 2002, was 4.06%.

In the fourth quarter of 2001, the Company closed a $52.5 million secured loan
with an insurance company (Secured Financing). The Secured Financing bears
interest at a floating rate of 30-day LIBOR plus 3.25% (5.06% and 5.12% at
September 30, 2002 and December 31, 2001, respectively) and has an initial
maturity of December 11, 2004, with two one-year extension options. In
connection with the Secured Financing, the Company entered into an interest
rate cap agreement to hedge increases in 30-day LIBOR rates above a specified
level. The agreement is for 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 September 30, 2002 and December 31, 2001, the 30-day LIBOR rate
was 1.81% and 1.87%, respectively. The Company paid a $594,000 fee at the
inception of the cap agreement which is being amortized as additional interest
expense over the life of the agreement.

Outstanding borrowings under the Credit Facility increased from $64,594,000 at
December 31, 2001, to $106,606,000 at September 30, 2002. The increase was due
to draws totaling $93,112,000 for the acquisition of properties (as discussed
in Note 3), stock repurchases and development advances, offset by pay downs
totaling $51,100,000 generated from the sales of properties, proceeds of stock
option exercises and cash flow from operations. In September 2002, the
maturity date on the Credit Facility was extended from June 2003 to September
2005, with one one-year extension option. The extended term carries an
interest rate structure that is approximately 10 basis points below the
previous rate. The Credit Facility requires, among other things, the Company
to be in compliance with certain financial covenants and ratios. The Company
has been in compliance during the first nine months of 2002 and remains in
compliance at September 30, 2002.

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 September 30, 2002, are as follows (in thousands).
Included in the year ending December 31, 2005, is the Credit Facility balance
of $106,606 which has an initial maturity of September 19, 2005.

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

|             |  |   |         | 
|------------ |  | - | ------- | 
|Year Ending  |  |   |         | 
|December 31,
|2002         |  | $ | 44,292  | 
|2003         |  |   | 76,886  | 
|2004         |  |   | 144,590 | 
|2005         |  |   | 131,310 | 
|2006         |  |   | 106,502 | 
|Thereafter   |  |   | 236,657 | 
|             |  |   |         | 
|Total        |  | $ | 740,237 | 
|             |  |   |        

Note 10. LOSS ON EARLY EXTINGUISHMENT OF DEBT

In connection with various loan payoffs related to property sales, the Company
recorded a loss on early extinguishment of debt of $892,000 for the nine months
ended September 30, 2002. This loss consists of the write-off of unamortized
original issuance costs and prepayment penalties and is included in the loss on
early extinguishment of debt in the Companys consolidated statement of income
for the nine months ended September 30, 2002.

In connection with various loan payoffs, the Company recorded a loss on early
extinguishment of debt of $1,707,000 for the nine months ended September 30,
2001. This loss consists of the write-off of unamortized original issuance
costs and prepayment penalties.

Note 11. RELATED PARTY TRANSACTIONS

Fee and reimbursement income earned by the Company from related parties totaled
$2,715,000 and $5,301,000 for the nine months ended September 30, 2002 and
2001, respectively, and consisted of property management fees, asset management
fees and other fee income.

Note 12. EARNINGS PER SHARE

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

|                                                      |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|----------------------------------------------------- |  | ------------------ | ---------- | ----------------- |  | ---- | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                                      |  | Three months ended |            | Nine months ended
|                                                      |  | September 30,      |            | September 30,    
|                                                      |  |                    |            |                  
|                                                      |  | 2002               |            | 2001              |  | 2002 |            | 2001
|                                                      |  |                    |            |                   |  |      |            |     
|Net income available to common
Stockholders  Basic   |  | $                  | 3,720      |                   |  | $    | 8,788      |      |  | $ | 16,346     |  |  | $ | 19,547     | 
|Minority interest                                     |  |                    | 400        |                   |  |      | 996        |      |  |   | 1,803      |  |  |   | 2,214      | 
|                                                      |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|Net income available to common
Stockholders  Diluted |  | $                  | 4,120      |                   |  | $    | 9,784      |      |  | $ | 18,149     |  |  | $ | 21,761     | 
|                                                      |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|Weighted average shares:                              |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|Basic                                                 |  |                    | 27,710,517 |                   |  |      | 26,984,208 |      |  |   | 27,454,649 |  |  |   | 26,988,659 | 
|Stock options                                         |  |                    | 395,564    |                   |  |      | 531,137    |      |  |   | 447,938    |  |  |   | 448,294    | 
|Convertible Operating Partnership Units               |  |                    | 3,068,463  |                   |  |      | 3,072,733  |      |  |   | 3,068,463  |  |  |   | 3,072,820  | 
|                                                      |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|Diluted                                               |  |                    | 31,174,544 |                   |  |      | 30,588,078 |      |  |   | 30,971,050 |  |  |   | 30,509,773 | 
|                                                      |  |                    |            |                   |  |      |            |      |  |   |            |  |  |   |            | 
|Basic earnings per share                              |  | $                  | 0.13       |                   |  | $    | 0.33       |      |  | $ | 0.60       |  |  | $ | 0.73       | 
|Diluted earnings per share                            |  | $                  | 0.13       |                   |  | $    | 0.32       |      |  | $ | 0.59       |  |  | $ | 0.71       | 

The preferred stock has been excluded from the calculation of diluted earnings
per share as it is anti-dilutive in all periods presented. Options to purchase
2,936,513 and 2,884,139 shares of the Companys common stock were not included
in the computation of diluted earnings per share for the three and nine months
ended September 30, 2002

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

because their exercise prices were greater than the average market price of the
Companys common stock of $20.39 and $21.15 per share, respectively. Options
to purchase 3,197,049 and 3,279,892 shares of the Companys common stock for
the three and nine months ended September 30, 2001 were not included in the
computation of diluted earnings per share because their exercise prices were
greater than the average market price of the Companys common stock of $19.48
and $18.52 per share, respectively.

Note 13. SEGMENT INFORMATION

During the nine months ended September 30, 2002 and 2001, the Company owned a
portfolio of properties comprised primarily of two product types: office and
industrial. Each of these product types represents a reportable segment with
distinct uses and tenant types that require the Company to employ different
management strategies. Each segment contains properties located in various
regions and markets within the United States. The office portfolio consists
primarily of suburban office buildings. The industrial portfolio consists of
properties designed for warehouse, distribution and light manufacturing for
single-tenant or multi-tenant use.

The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
of its property types based on net operating income derived by subtracting
rental expenses and real estate taxes (operating expenses) from rental
revenues. Significant information used by the Company for its reportable
segments (excluding discontinued operations) as of and for the nine months
ended September 30, 2002 and 2001 is as follows (in thousands):

|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|--------------------------- |  | ------ | ------- | ---------- |  | ----- | ------- | ----- |  | - | ------ |  |  | - | --------- | 
|                            |  | Office |         | Industrial |  | Other |         | Total
|                            |  |        |         |            |  |       |         |      
|2002                        |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Rental revenue              |  | $      | 113,320 |            |  | $     | 27,616  |       |  | $ | 2,534  |  |  | $ | 143,470   | 
|Property operating expenses |  |        | 39,845  |            |  |       | 6,139   |       |  |   | 1,575  |  |  |   | 47,559    | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Net operating income (NOI)  |  | $      | 73,475  |            |  | $     | 21,477  |       |  | $ | 959    |  |  | $ | 95,911    | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Rental properties, net      |  | $      | 976,874 |            |  | $     | 263,781 |       |  | $ | 19,095 |  |  | $ | 1,259,750 | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|2001                        |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Rental revenue              |  | $      | 102,643 |            |  | $     | 27,907  |       |  | $ | 4,359  |  |  | $ | 134,909   | 
|Property operating expenses |  |        | 36,300  |            |  |       | 5,940   |       |  |   | 1,598  |  |  |   | 43,838    | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Net operating income (NOI)  |  | $      | 73,475  |            |  | $     | 21,477  |       |  | $ | 959    |  |  | $ | 95,911    | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 
|Rental properties, net      |  | $      | 802,867 |            |  | $     | 287,639 |       |  | $ | 88,831 |  |  | $ | 1,179,337 | 
|                            |  |        |         |            |  |       |         |       |  |   |        |  |  |   |           | 

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

|                                      |  |      |         |      |  |   |         | 
|------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                      |  | 2002 |         | 2001
|                                      |  |      |         |     
|Revenues                              |  |      |         |      |  |   |         | 
|Total revenue for reportable segments |  | $    | 143,470 |      |  | $ | 134,909 | 
|Other
revenue (1)                     |  |      | 7,317   |      |  |   | 8,769   | 
|                                      |  |      |         |      |  |   |         | 
|Total consolidated revenues           |  | $    | 150,787 |      |  | $ | 143,678 | 
|                                      |  |      |         |      |  |   |         | 

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GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements
September 30, 2002

|                                                                                                                            |                                     |   |        |         |      |   |        |         |  
|--------------------------------------------------------------------------------------------------------------------------- | ----------------------------------- | - | ------ | ------- | ---- | - | ------ | ------- | -
|                                                                                                                            |                                     |   | 2002   |         | 2001
|                                                                                                                            |                                     |   |        |         |     
|Net Income                                                                                                                  |                                     |   |        |         |      |   |        |        
|NOI for reportable segments                                                                                                 |                                     | $ | 95,911 |         |      | $ | 91,071 |        
|Elimination of internal property management fees                                                                            |                                     |   | 4,320  |         |      |   | 3,972  |        
|Unallocated amounts:                                                                                                        |                                     |   |        |         |      |   |        |        
|                                                                                                                            | Other revenue(1)                    |   |        | 7,317   |      |   |        | 8,769   |  
|                                                                                                                            | General and administrative expenses |   |        | (7,830  | )    |   |        | (8,425  | )
|                                                                                                                            | Depreciation and amortization       |   |        | (37,776 | )    |   |        | (33,257 | )
|                                                                                                                            | Interest expense                    |   |        | (28,186 | )    |   |        | (26,515 | )
|                                                                                                                            |                                     |   |        |         |      |   |        |        
|Income before gain (loss) on sales of real estate
assets, minority interest, discontinued
operations and extraordinary item |                                     | $ | 33,756 |         |      | $ | 35,615 |        
|                                                                                                                            |                                     |   |        |         |      |   |        |        



---

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

Note 14. 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
comprehensive liability, fire and extended coverage with respect to the
properties. This coverage has policy specification and insured limits
customarily carried for similar properties. However, certain types of losses
(such as from earthquakes and floods) may be either uninsurable or not
economically insurable. Further, certain of the properties are located in areas
that are subject to earthquake activity and floods. Should a property sustain
damage as a result of an earthquake or flood, the Company may incur losses due
to insurance deductibles, co-payments on insured losses or uninsured losses. In
addition, although the Companys existing policies of insurance covering
property damage do not exclude coverage for acts of terrorism, it is possible
that such an exclusion could be imposed by an insurance carrier either during
the current policy term upon satisfaction of certain notice requirements, or
upon future policy renewal, in which case any losses from 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.

Litigation

Certain claims and lawsuits have arisen against the Company in its normal
course of business. 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 15. SUBSEQUENT EVENTS

In October and November of 2002, the Company sold two industrial properties for
an aggregate sales price of $7.1 million. The net proceeds from the sales were
used to pay down the Companys Credit Facility.

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

Background

Glenborough Realty Trust Incorporated (the Company) is a self-administered
and self-managed real estate investment trust (REIT) with a portfolio of 79
primarily office and industrial properties, including 3 operating joint
ventures, as of September 30, 2002. The portfolio encompasses approximately 14
million square feet in 17 metropolitan markets. The Company is currently
focusing on high-quality multi-tenant office properties in the following core
markets: Northern New Jersey, Washington D.C., Boston, Northern California,
Chicago, Southern California and Denver. The Company also participates in
several alliances to develop property for both its own portfolio and for sale
to third parties.

The Company was incorporated in the State of Maryland on August 26, 1994 and
commenced operations on January 1, 1996. The Company elected to qualify as a
REIT under the Internal Revenue Code of 1986, as amended. The common and
preferred stock of the Company (the Common Stock and the Preferred Stock,
respectively) are listed on the New York Stock Exchange (NYSE) under the
trading symbols GLB and GLB Pr A, respectively.

Results of Operations

Comparison of the nine months ended September 30, 2002 to the nine months ended
September 30, 2001.

Rental Revenue. Rental revenue increased $8,561,000, or 6%, to $143,470,000 for
the nine months ended September 30, 2002 from $134,909,000 for the nine months
ended September 30, 2001. This change primarily resulted from property
acquisitions, net of dispositions and an increase in straight-line rents.

Fees and Reimbursements from Affiliates. Fees and reimbursements from
affiliates consist primarily of property management fees, asset management fees
and lease commissions paid to the Company under property and asset management
agreements with the unconsolidated operating and development joint ventures and
the Rancon Partnerships. This revenue decreased $2,586,000, or 49%, to
$2,715,000 for the nine months ended September 30, 2002, from $5,301,000 for
the nine months ended September 30, 2001, primarily due to higher development
and acquisition fees from several development projects, a financing fee and
distributions from the Rancon Partnerships, and property management, asset
management and leasing fees from a joint venture, received in the first nine
months of 2001.

Interest and Other Income. Interest and other income increased $1,000,000, or
30%, to $4,379,000 for the nine months ended September 30, 2002, from
$3,379,000 for the nine months ended September 30, 2001. The increase was
primarily due to interest income earned from the sale of a development project
mezzanine loan in the first quarter of 2002 and interest income earned on a
note receivable which arose out of that sale, offset by interest income earned
on escrow deposits in the first nine months of 2001.

Equity in Earnings of Unconsolidated Operating Joint Ventures.Equity in
earnings of unconsolidated operating joint ventures increased $134,000, or
151%, to $223,000 for the nine months ended September 30, 2002, from $89,000
for the nine months ended September 30, 2001, due to increases in net operating
income at two joint ventures in the first nine months of 2002 and startup
losses recognized during the first six months of 2001 for a development joint
venture which was later sold in 2001.

Property Operating Expenses. Property operating expenses increased $3,373,000,
or 8%, to $43,239,000 for the nine months ended September 30, 2002, from
$39,866,000 for the nine months ended September 30, 2001, primarily due to
property acquisitions, net of dispositions, partially offset by reductions in
snow removal and utility expenses in the first quarter of 2002 as compared to
the same period in 2001.

General and Administrative Expenses. General and administrative expenses
decreased $595,000, or 7%, to $7,830,000 for the nine months ended September
30, 2002, from $8,425,000 for the nine months ended September 30, 2001. The
decrease was primarily due to reductions in incentive compensation and travel
costs during the nine months ended September 30, 2002.

Depreciation and Amortization. Depreciation and amortization increased
$4,519,000, or 14%, to $37,776,000 for the nine months ended September 30,
2002, from $33,257,000 for the nine months ended September 30, 2001. This
increase is due to property acquisitions, net of dispositions and depreciation
of capital improvements.

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Interest Expense. Interest expense increased $1,671,000, or 6%, to $28,186,000
for the nine months ended September 30, 2002, from $26,515,000 for the nine
months ended September 30, 2001. This increase is primarily due to an increase
in debt as a result of property acquisitions offset by decreases in variable
interest rates.

Net Gain on Sales of Real Estate Assets.Beginning in 2002, gains and losses on
sales of real estate assets are included as a component of discontinued
operations. The net gain on sales of real estate assets of $2,883,000 during
the nine months ended September 30, 2001, primarily resulted from the sale of
four office, two industrial and four retail properties from the Companys
portfolio in 2001.

Discontinued Operations.Beginning in 2002, gains and losses on sales of real
estate assets are included as a component of discontinued operations. The
results of discontinued operations increased $315,000 to a loss of $42,000 for
the nine months ended September 30, 2002, from a loss of $357,000 for the nine
months ended September 30, 2001. 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
subsequent to December 31, 2001 are reflected in the consolidated statements of
operations as Discontinued operations for all periods presented. The results
of properties sold in periods prior to 2002 are included in continuing
operations.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of
$892,000 during the nine months ended September 30, 2002, consists of losses
due to the writeoff of unamortized original issuance costs and prepayment
penalties in connection with loan payoffs due to property sales in the second
quarter of 2002. Loss on early extinguishment of debt of $1,707,000 during the
nine months ended September 30, 2001, consists of losses due to the writeoff of
unamortized original issuance costs in connection with the pay off of an
unsecured term loan and prepayment penalties on the refinancing of other debt.

Comparison of the three months ended September 30, 2002 to the three months
ended September 30, 2001.

Rental Revenue. Rental revenue increased $2,448,000, or 5%, to $49,486,000 for
the three months ended September 30, 2002 from $47,038,000 for the three months
ended September 30, 2001. This change primarily resulted from property
acquisitions, net of dispositions and an increase in straight-line rents.

Fees and Reimbursements from Affiliates. Fees and reimbursements from
affiliates consist primarily of property management fees, asset management fees
and lease commissions paid to the Company under property and asset management
agreements with the unconsolidated operating and development joint ventures and
the Rancon Partnerships. This revenue decreased $953,000, or 53%, to $832,000
for the three months ended September 30, 2002, from $1,785,000 for the three
months ended September 30, 2001, primarily due to development and acquisition
fees received from several development projects in the third quarter of 2001.

Interest and Other Income. Interest and other income increased $148,000, or
24%, to $776,000 for the three months ended September 30, 2002, from $628,000
for the three months ended September 30, 2001. The increase was primarily due
to interest income earned on a note receivable which arose out of the sale of a
development project mezzanine loan in the first quarter of 2002 and interest
income earned on a development project mezzanine loan in the third quarter of
2002.

Equity in Earnings of Unconsolidated Operating Joint Ventures.Equity in
earnings of unconsolidated operating joint ventures increased $62,000, or 163%,
to $100,000 for the three months ended September 30, 2002, from $38,000 for the
three months ended September 30, 2001, due to increases in net operating income
at two joint ventures.

Property Operating Expenses. Property operating expenses increased $1,523,000,
or 11%, to $15,201,000 for the three months ended September 30, 2002, from
$13,678,000 for the three months ended September 30, 2001, primarily due to
property acquisitions, net of dispositions.

General and Administrative Expenses. General and administrative expenses did
not change significantly with a decrease of $55,000, or 2%, to $2,319,000 for
the three months ended September 30, 2002, from $2,374,000 for the three months
ended September 30, 2001.

Depreciation and Amortization. Depreciation and amortization increased
$1,503,000, or 13%, to $13,076,000 for the three months ended September 30,
2002, from $11,573,000 for the three months ended September 30, 2001. This
increase is due to property acquisitions, net of dispositions and depreciation
of capital improvements.

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Interest Expense. Interest expense increased $358,000, or 4%, to $9,695,000
for the three months ended September 30, 2002, from $9,337,000 for the three
months ended September 30, 2001. This increase is primarily due to an increase
in debt as a result of property acquisitions offset by decreases in variable
interest rates.

Net Gain on Sales of Real Estate Assets.Beginning in 2002, gains and losses
on sales of real estate assets are included as a component of discontinued
operations. The net gain on sales of real estate assets of $3,007,000 during
the three months ended September 30, 2001, primarily resulted from the sale of
three office and one industrial property from the Companys portfolio in the
third quarter of 2001.

Discontinued Operations.Beginning in 2002, gains and losses on sales of real
estate assets are included as a component of discontinued operations. The
results of discontinued operations decreased $1,715,000 to a loss of $1,892,000
for the three months ended September 30, 2002, from a loss of $177,000 for the
three months ended September 30, 2001. 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
subsequent to December 31, 2001 are reflected in the consolidated statements of
operations as Discontinued operations for all periods presented. The results
of properties sold in periods prior to 2002 are included in continuing
operations.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt of
$682,000 during the three months ended September 30, 2001, consists of losses
due to prepayment penalties in connection with various debt refinancings.

Liquidity and Capital Resources

Cash Flows

For the nine months ended September 30, 2002, cash provided by operating
activities was $66,492,000 as compared to $56,437,000 for the same period in
2001. The increase is primarily due to timing of payments and changes in
receivables and other assets and deduction of the net gain on sale of real
estate assets during the nine months ended September 30, 2001. Cash used for
investing activities was $112,360,000 for the nine months ended September 30,
2002, as compared to $29,431,000 for the same period in 2001. The change is
primarily due to an increase in cash used for real estate acquisitions. Cash
provided by financing activities was $43,504,000 for the nine months ended
September 30, 2002, as compared to $120,221,000 of cash used for financing
activities for the same period in 2001. The change was primarily due to a
decrease in cash used for the repayment of debt and an increase in proceeds
from the exercise of stock options, offset by a decrease in proceeds from new
debt.

The Company expects to meet its short-term liquidity requirements generally
through its working capital, its Credit Facility (as defined below) and cash
generated by operations. The Company believes that its cash generated by
operations will be adequate to meet operating requirements and to make
distributions in accordance with REIT requirements in both the short and the
long-term. In addition to cash generated by operations, the Credit Facility
provides for working capital advances. However, there can be no assurance that
the Companys results of operations will not fluctuate in the future and at
times affect its ability to meet its operating requirements and the amount of
its distributions. If significant decreases in occupancy or rental rates
occurred at the Companys properties, this could have an adverse impact on the
Companys operating cash flows. Similarly, increases in interest rates could
have an adverse impact on the Companys operating cash flows.

The Companys principal sources of funding for acquisitions, development,
expansion and renovation of properties and stock repurchases include the
unsecured Credit Facility, 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

The Company is independently developing approximately 371,000 square feet of
commercial property in California, New Jersey and Maryland. As of September 30,
2002, the Company had invested approximately $37.4 million in these projects.
Additionally, the Company has approximately 119 acres of land with a book value
of approximately $24.5 million as of September 30, 2002. This land has
potential for future development of approximately 1,355,000 square feet of
office space. The Company is obligated to fund approximately $2.1 million to
these developments in 2002. The loans secured by certain of these development
properties contain recourse provisions to the Company in the aggregate amount
of $25.9 million; however, some of the loans were not fully drawn as of
September 30, 2002.

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The Company is currently involved in a number of alliances for the development
of approximately 933,000 square feet of commercial and mixed-use properties in
California and Colorado. The alliances grant the Company certain rights to
purchase the properties upon completion of development. As of September 30,
2002, the Company had invested approximately $39.8 million in these alliances.
In addition, the Company has acquired properties from them aggregating
approximately $119.8 million since 1999. 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 these alliances, the Company has provided
an aggregate of $36.7 million in debt guarantees; however, some of the loans
were not fully drawn as of September 30, 2002.

Investments in Unconsolidated Operating Joint Ventures

Investments in unconsolidated operating joint ventures increased from
$8,089,000 at December 31, 2001, to $8,730,000 at September 30, 2002. This
increase was primarily due to the completion of an 11,000 square foot retail
property, partially owned through one of the Companys development alliances,
which was placed in service upon commencement of operations in the first
quarter of 2002. In addition, the increase was also due to the Companys equity
interests in the joint ventures earnings during the first nine months of 2002.

Mortgage Loans Receivable

Mortgage loans receivable increased from $39,061,000 at December 31, 2001, to
$41,380,000 at September 30, 2002. This increase was due to accrued interest on
a loan made by the Company under a development alliance, net of repayments.

Secured and Unsecured Financing

Mortgage loans payable increased from $588,420,000 at December 31, 2001, to
$633,631,000 at September 30, 2002. This increase resulted from $86,432,000 in
new mortgage loans in connection with property acquisitions (discussed below)
and $4,598,000 of draws on construction loans, offset by loan payoffs of
$37,074,000 due to property sales (discussed below) and decreases of $8,745,000
due to scheduled principal payments on other debt.

In the third quarter of 2002, in order to finance the acquisition of the
Aventine, a 240,000 square foot multi-tenant office building located in La
Jolla, California, the Company obtained a $50 million loan. The loan has an
initial maturity date of August 27, 2004, with a one-year extension option, and
bears interest at the floating rate of 30-day LIBOR plus 2%. The interest rate
on this loan at September 30, 2002, was 3.81%.

In the third quarter of 2002, in connection with the acquisition of Gateway
Office Four, a 63,000 square foot office property located in Denver, Colorado,
the Company assumed a $3.9 million loan. The loan has an initial maturity date
of April 1, 2003, with three 6-month extension options, and bears interest at
the floating rate of 30-day LIBOR plus 2%. The interest rate on this loan at
September 30, 2002, was 3.81%.

In the second quarter of 2002, related to the sale of three properties,
approximately $37.1 million of the Companys mortgage loans were paid off or
assumed by the buyer. In connection with the payoffs and assumptions, the
Company recognized a net loss on early extinguishment of debt of $892,000 for
the nine months ended September 30, 2002.

In the first quarter of 2002, in connection with the acquisition of First
Financial Plaza, a 223,000 square foot multi-tenant office building located in
Encino, California, the Company obtained a $32.55 million loan. The loan has an
initial maturity date of March 31, 2004, with a one-year extension option, and
bears interest at the floating rate of 30-day LIBOR plus 2.25%. The interest
rate on this loan at September 30, 2002, was 4.06%.

In the fourth quarter of 2001, the Company closed a $52.5 million secured loan
with an insurance company (Secured Financing). The Secured Financing bears
interest at a floating rate of 30-day LIBOR plus 3.25% (5.06% and 5.12% at
September 30, 2002 and December 31, 2001, respectively) and has an initial
maturity of December 11, 2004, with two one-year extension options. In
connection with the Secured Financing, the Company entered into an interest
rate cap agreement to hedge increases in 30-day LIBOR rates above a specified
level. The agreement is for 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 September 30, 2002 and December 31, 2001, the 30-day LIBOR rate
was 1.81% and 1.87%, respectively. The Company paid a $594,000 fee at the
inception of the cap agreement which is being amortized as additional interest
expense over the life of the agreement.

Outstanding borrowings under the Credit Facility increased from $64,594,000 at
December 31, 2001, to $106,606,000 at September 30, 2002. The increase was due
to draws totaling $93,112,000 for property acquisitions (as discussed above),
stock

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repurchases and development advances, offset by pay downs totaling $51,100,000
generated from sales of properties, proceeds of stock option exercises and cash
flow from operations. In September 2002, the maturity date on the Credit
Facility was extended from June 2003 to September 2005, with one one-year
extension option. The extended term carries an interest rate structure that is
approximately 10 basis points below the previous rate. The Credit Facility
requires, among other things, the Company to be in compliance with certain
financial covenants and ratios. The Company has been in compliance during the
first nine months of 2002 and remains in compliance at September 30, 2002.

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.

At September 30, 2002, the Companys total indebtedness included fixed-rate
debt of $419,598,000 and floating-rate debt of $320,639,000. The Companys
ratio of total debt to gross book assets was approximately 45% at September 30,
2002.

At September 30, 2002, approximately 43% of the Companys outstanding debt,
including amounts borrowed under the Credit Facility, was subject to variable
rates. The Company may, from time to time, enter into interest rate protection
agreements intended to hedge the cost of new borrowings. It is not the
Companys policy to engage in hedging activities for speculative purposes. At
September 30, 2002, 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 above.

Equity Offerings

In January 1999, the Company filed a shelf registration statement with the SEC
(the January 1999 Shelf Registration Statement) to carry forward the
remaining $801.2 million in equity securities of the Company from a November
1997 shelf registration statement (declared effective by the SEC on December
18, 1997). The January 1999 Shelf Registration Statement was declared effective
by the SEC on January 25, 1999. Therefore, the Company has the capacity
pursuant to the January 1999 Shelf Registration Statement to issue up to $801.2
million in equity securities. The Company currently has no plans to issue
equity under this shelf registration.

Stock Repurchases

In 1999, the Companys Board of Directors authorized the Company to repurchase
up to 6.2 million shares of its outstanding Common Stock. This represented
approximately 20% of the Companys total outstanding Common Stock. In
connection with the sale of 36 multifamily properties 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 September 30, 2002, 6,179,316 common shares have been
repurchased for a total cost of approximately $103,045,000; this represents
approximately 75% of the expanded repurchase authorization and approximately
20% of Common Stock outstanding when the repurchase program began. In addition,
during 1999, the Company announced that its 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 September 30, 2002, 1,402,200 preferred shares
have been repurchased for a total cost of approximately $21,037,000; this
represents approximately 41% of the expanded repurchase authorization and
approximately 12% of Preferred Stock outstanding when the repurchase program
began. 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.

Critical Accounting Policies

Revenue recognized on a straight-line basis

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.

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

The Companys 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 the Companys share of
undistributed income or loss arising from the investment, and the mortgage
loans receivable include accrued interest. In addition, under the Companys
long-term development program, some interest, payroll

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and general and administrative costs incurred in connection with this program
may be capitalized. The actual value of the Companys portfolio of property,
investments in development and other investments could be significantly higher
or lower than their carrying amounts.

The Companys status as a real estate investment trust (REIT)

The Company has elected to be taxed as a real estate investment trust under
Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the
Code). A real estate investment trust is generally not subject to federal
income tax on that portion of its real estate investment trust taxable income
(Taxable Income) that is distributed to its stockholders, provided that at
least 90% of Taxable Income is distributed and other requirements are met.
Management believes that the Company has complied with all requirements to
qualify as a REIT for the nine months ended September 30, 2002 and 2001.
Accordingly, no provision for income taxes is included in its consolidated
financial statements.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 141, Business Combinations. SFAS No. 141 requires that all
business combinations initiated after June 30, 2001, use the purchase method of
accounting. The pooling-of-interests method of accounting is prohibited except
for transactions initiated before July 1, 2001. This standard did not have a
material impact on the Companys consolidated financial position or results of
operations.

In June 2001, the FASB approved for issuance SFAS No. 142, Goodwill and Other
Intangible Assets. The provisions of SFAS No. 142 were effective January 1,
2002, for the Company. Under SFAS No. 142, goodwill and intangible assets with
indefinite lives will not be amortized but will be tested for impairment
annually using a fair value approach, except in certain circumstances, and
whenever there is an impairment indicator. Other intangible assets will
continue to be valued and amortized over their estimated lives. This standard
did not have a material impact on the Companys consolidated financial position
or results of operations.

In June 2001, the FASB approved for issuance SFAS No. 143, Accounting for
Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred and that the associated asset retirement costs be
capitalized as part of the carrying value of the related long-lived asset. SFAS
No. 143 will be effective January 1, 2003 for the Company. Management does not
expect this standard to have a material impact on the Companys consolidated
financial position or results of operations.

In August 2001, the FASB approved for issuance SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 broadens the
presentation of discontinued operations to include more transactions and
eliminates the need to accrue for future operating losses. Additionally, SFAS
No. 144 prohibits the retroactive classification of assets as held for sale and
requires revisions to the depreciable lives of long-lived assets to be
abandoned. In accordance with SFAS No. 144, effective for financial statements
issued for fiscal years beginning after December 15, 2001, the net income and
gains and losses on sales of real estate for properties sold subsequent to
December 31, 2001 are reflected in the consolidated statements of operations as
Discontinued operations for all periods presented.

In May 2002, the FASB approved for issuance SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS 145 requires gains and losses from
extinguishment of debt to be classified as an extraordinary item only if the
criteria in APB No. 30 have been met. Further, lease modifications with
economic effects similar to sale-leaseback transactions must be accounted for
in the same manner as sale-leaseback transactions. While the technical
corrections to existing pronouncements are not substantive in nature, in some
instances they may change accounting practice. SFAS No. 145 will be effective
January 1, 2003 for the Company. Management is currently assessing the impact
of this new standard on the Companys consolidated financial position and
results of operations.

In June 2002, the FASB approved for issuance SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS 146 addresses
accounting and reporting for costs associated with exit and disposal
activities and supercedes Emerging Issues Task Force Issue No. 94-3 (EITF
94-3), Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is
incurred, as defined by the Statement. Under EITF 94-3, an exit cost was
recognized at the date an entity committed to an exit plan. Additionally,
SFAS 146 provides that exit and disposal costs should be measured at fair
value and that the associated liability will be adjusted for changes in
estimated cash flows. The provisions of SFAS 146 are effective for exit and
disposal activities that are initiated after December 31, 2002.

26



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##### Table of Contents



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

Funds from Operations and Cash Available for Distribution

Funds from Operations (FFO), as defined by NAREIT, represents net income
excluding gains (or losses) from sales of property, plus depreciation and
amortization, 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. The Company believes that FFO
is helpful to investors as a measure of performance of an equity REIT because,
along with cash flow from operating activities, FFO provides investors with an
indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. FFO does not represent net income or
cash flows from operations as defined by GAAP, and should not be considered as
an alternative to net income (determined in accordance with GAAP) as an
indicator of the Companys operating performance or as an alternative to cash
flows from operating, investing and financing activities (determined in
accordance with GAAP) as a measure of liquidity. FFO does not necessarily
indicate that cash flows will be sufficient to fund all of the Companys cash
needs including principal amortization, capital improvements and distributions
to stockholders. Further, FFO as disclosed by other REITs may not be comparable
to the Companys calculation of FFO. The Company calculates FFO in accordance
with the White Paper on FFO approved by the Board of Governors of NAREIT in
October 1999.

Cash available for distribution (CAD) represents net income (loss) before
minority interests and extraordinary items, adjusted for depreciation and
amortization, including amortization of deferred financing costs, and gains
(losses) from the sale of properties, less lease commissions and recurring
capital expenditures, and less straight-line rents for periods beginning after
2001. CAD should not be considered an alternative to net income (computed in
accordance with GAAP) as a measure of the Companys financial performance or as
an alternative to cash flow from operating activities (computed in accordance
with GAAP) as a measure of the Companys liquidity, nor is it necessarily
indicative of sufficient cash flow to fund all of the Companys cash needs.
Further, CAD as disclosed by other REITs may not be comparable to the Companys
calculation of CAD.

The following table sets forth the Companys calculation of FFO and CAD for the
three months ended March 31, June 30 and September 30, 2002, and the nine
months ended September 30, 2002 (in thousands, except weighted average shares
and per share amounts):

|                                                                                                                            |  |           |        |          |  |           |        |      |  |   |        |   |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------ | -------- |  | --------- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                                                                                                            |  | March 31, |        | June 30, |  | Sept. 30, |        | YTD 
|                                                                                                                            |  | 2002      |        | 2002     |  | 2002      |        | 2002
|                                                                                                                            |  |           |        |          |  |           |        |     
|Income before gain (loss) on sales of real estate
assets, minority interest, discontinued operations
and extraordinary item |  | $         | 11,069 |          |  | $         | 11,784 |      |  | $ | 10,903 |   |  | $ | 33,756  |  
|Preferred dividends                                                                                                         |  |           | (4,891 | )        |  |           | (4,891 | )    |  |   | (4,891 | ) |  |   | (14,673 | )
|Depreciation and amortization (1)                                                                                           |  |           | 11,579 |          |  |           | 12,477 |      |  |   | 12,741 |   |  |   | 36,797  |  
|Net income (loss) from discontinued operations                                                                              |  |           | 273    |          |  |           | 1,577  |      |  |   | (1,892 | ) |  |   | (42     | )
|Deduct net (gain) loss on sales of real estate assets                                                                       |  |           |       |          |  |           | (1,423 | )    |  |   | 1,866  |   |  |   | 443     |  
|Depreciation and amortization from discontinued
operations                                                                  |  |           | 498    |          |  |           | 251    |      |  |   | 28     |   |  |   | 777     |  
|Adjustment to reflect FFO of Unconsolidated
Operating Joint Ventures (2)                                                    |  |           | 102    |          |  |           | 100    |      |  |   | 116    |   |  |   | 318     |  
|                                                                                                                            |  |           |        |          |  |           |        |      |  |   |        |   |  |   |         |  
|FFO                                                                                                                         |  | $         | 18,630 |          |  | $         | 19,875 |      |  | $ | 18,871 |   |  | $ | 57,376  |  
|                                                                                                                            |  |           |        |          |  |           |        |      |  |   |        |   |  |   |         |  

27



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##### Table of Contents



|                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|------------------------------------------- |  | --------- | ---------- | -------- |  | --------- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                            |  | March 31, |            | June 30, |  | Sept. 30, |            | YTD 
|                                            |  | 2002      |            | 2002     |  | 2002      |            | 2002
|                                            |  |           |            |          |  |           |            |     
|Amortization of deferred financing fees     |  |           | 484        |          |  |           | 509        |      |  |   | 591        |   |  |   | 1,584      |  
|Adjustment for straight line rents          |  |           | (772       | )        |  |           | (1,532     | )    |  |   | (1,515     | ) |  |   | (3,819     | )
|Capital expenditures                        |  |           | (4,392     | )        |  |           | (4,315     | )    |  |   | (3,641     | ) |  |   | (12,348    | )
|                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|CAD                                         |  | $         | 13,950     |          |  | $         | 14,537     |      |  | $ | 14,306     |   |  | $ | 42,793     |  
|                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|Distributions per share (3)                 |  | $         | 0.43       |          |  | $         | 0.43       |      |  | $ | 0.43       |   |  | $ | 1.29       |  
|                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average shares outstanding |  |           | 30,540,254 |          |  |           | 31,250,154 |      |  |   | 31,174,544 |   |  |   | 30,971,050 |  
|                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  



---

|(1) |  | Excludes non-real estate depreciation and amortization.                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Reflects the adjustments to FFO required to reflect the FFO of the
unconsolidated operating joint ventures allocable to the Company. The
Companys investments in the joint ventures are accounted for using the
equity method of accounting.
|   
|   
|   
|   
|(3) |  | The distributions for the three months ended September 30, 2002, were
paid on October 15, 2002.                                                                                                                                              

The following table sets forth the Companys calculation of FFO and CAD for the
three months ended March 31, June 30 and September 30, 2001, and the nine
months ended September 30, 2001 (in thousands, except weighted average shares
and per share amounts):

|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------- |  | --------- | ---------- | -------- |  | --------- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                            |  | March 31, |            | June 30, |  | Sept. 30, |            | YTD 
|                                                                                                                            |  | 2001      |            | 2001     |  | 2001      |            | 2001
|                                                                                                                            |  |           |            |          |  |           |            |     
|Income before gain (loss) on sales of real
estate assets, minority interest,
discontinued operations and extraordinary
item |  | $         | 11,232     |          |  | $         | 11,856     |      |  | $ | 12,527     |   |  | $ | 35,615     |  
|Preferred dividends                                                                                                         |  |           | (4,891     | )        |  |           | (4,891     | )    |  |   | (4,891     | ) |  |   | (14,673    | )
|Depreciation and amortization (1)                                                                                           |  |           | 10,231     |          |  |           | 10,835     |      |  |   | 11,258     |   |  |   | 32,324     |  
|Net income (loss) from discontinued operations                                                                              |  |           | 96         |          |  |           | (276       | )    |  |   | (177       | ) |  |   | (357       | )
|Depreciation and amortization from
discontinued operations                                                                  |  |           | 348        |          |  |           | 782        |      |  |   | 492        |   |  |   | 1,622      |  
|Adjustment for straight-line rents                                                                                          |  |           |           |          |  |           | (793       | )    |  |   | (777       | ) |  |   | (1,570     | )
|Adjustment to reflect FFO of Unconsolidated
Operating Joint Ventures (2)                                                    |  |           | 247        |          |  |           | 158        |      |  |   | 96         |   |  |   | 501        |  
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|FFO                                                                                                                         |  | $         | 17,263     |          |  | $         | 17,671     |      |  | $ | 18,528     |   |  | $ | 53,462     |  
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|Amortization of deferred financing fees                                                                                     |  |           | 387        |          |  |           | 347        |      |  |   | 409        |   |  |   | 1,143      |  
|Capital expenditures                                                                                                        |  |           | (2,966     | )        |  |           | (2,924     | )    |  |   | (5,260     | ) |  |   | (11,150    | )
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|CAD                                                                                                                         |  | $         | 14,684     |          |  | $         | 15,094     |      |  | $ | 13,677     |   |  | $ | 43,455     |  
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|Distributions per share                                                                                                     |  | $         | 0.42       |          |  | $         | 0.42       |      |  | $ | 0.42       |   |  | $ | 1.26       |  
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  
|Diluted weighted average shares outstanding                                                                                 |  |           | 30,476,401 |          |  |           | 30,467,322 |      |  |   | 30,588,078 |   |  |   | 30,509,773 |  
|                                                                                                                            |  |           |            |          |  |           |            |      |  |   |            |   |  |   |            |  



---

|(1) |  | Excludes non-real estate depreciation and amortization.                                                                                                                                                                                      
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Reflects the adjustments to FFO required to reflect the FFO of the
unconsolidated operating joint ventures allocable to the Company. The
Companys investments in the joint ventures are accounted for using the
equity method of accounting.

Forward Looking Statements; Factors That May Affect Operating Results

This Report on Form 10-Q contains forward looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
and Exchange Act of 1934, including statements regarding the Companys
expectations, hopes, intentions, beliefs and strategies regarding the future
including the Companys belief that cash generated by operations will be
adequate to meet operating requirements and to make distributions, the
Companys expectations as to the timing of the completion of the development
projects through its development alliances and the acquisition by the Company
of properties developed through its development alliances. There can be no
assurance that the actual outcomes or results will be consistent with such
expectations, hopes, intentions, beliefs and strategies. Forward looking
statements include statements regarding potential acquisitions, the anticipated
performance of future acquisitions, recently completed acquisitions and
existing properties, and statements regarding the Companys financing
activities. All forward looking statements included in this

28



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##### Table of Contents



document are based on information available to the Company on the date hereof.
It is important to note that the Companys actual results could differ
materially from those stated or implied in such forward-looking statements.

Factors which may cause the Companys results to differ include the inability
to complete anticipated future acquisitions, defaults or non-renewal of leases,
increased interest rates and operational costs, failure to obtain necessary
outside financing, difficulties in identifying properties to acquire and in
effecting acquisitions, failure to qualify as a real estate investment trust
under the Internal Revenue Code of 1986, environmental uncertainties, risks
related to natural disasters, financial market fluctuations, changes in real
estate and zoning laws, increases in real property tax rates and other factors
discussed under the caption Forward Looking Statements; Factors That May
Affect Operating Results in the Managements Discussion and Analysis of
Financial Condition and Results of Operations section of the Companys Annual
Report on Form 10-K for the year ended December 31, 2001, and other risk
factors set forth in the Companys other Securities and Exchange Commission
filings. In addition, past performance of the Companys Common Stock is not
necessarily indicative of results that will be obtained in the future from an
investment in the Companys Common Stock. Furthermore, the Company makes
distributions to stockholders if, as, and when declared by its Board of
Directors, and expects to continue its policy of paying quarterly
distributions; however, there can be no assurance that distributions will
continue or be paid at any specific level.

Risk Factors

Stockholders or potential stockholders should read the Risk Factors section
of the Companys 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 the Companys results of
operations and the Companys common stock share price. The fact that some of
the risk factors may be the same or similar to the Companys past filings means
only that the risks are present in multiple periods. The Company believes that
many of the risks detailed here and in the Companys other SEC filings are part
of doing business in the real estate industry and will likely be present in all
periods reported. The fact that certain risks are endemic to the industry does
not lessen the significance of the risk.




Item 3. Qualitative and Quantitative Information about Market Risk

Interest Rates

The Companys primary market risk exposure is to changes in interest rates
obtainable on its secured and unsecured borrowings. The Company does not
believe that changes in market interest rates will have a material impact on
the performance or fair value of its mortgage loan receivable.

It is the Companys policy to manage its exposure to fluctuations in market
interest rates for its borrowings through the use of fixed rate debt
instruments to the extent that reasonably favorable rates are obtainable with
such arrangements. In order to maximize financial flexibility when selling
properties and minimize potential prepayment penalties on fixed rate loans, the
Company has also entered into variable rate debt arrangements. Approximately
43% and 33% of the Companys outstanding debt, including amounts borrowed under
the Credit Facility, were subject to variable rates at September 30, 2002 and
December 31, 2001, respectively. In addition, the average interest rate on the
Companys debt decreased from 5.95% at December 31, 2001 to 5.56% at September
30, 2002. The Company reviews interest rate exposure in the portfolio
continually in an effort to minimize the risk of interest rate fluctuations.
The Company does not have any other material market-sensitive financial
instruments. It is not the Companys policy to engage in hedging activities for
speculative or trading purposes.

The Company may enter into forward interest rate, or similar, agreements to
hedge specific anticipated debt issuances where management believes the risk of
adverse changes in market rates is significant. Under a forward interest rate
agreement, if the referenced interest rate increases, the Company is entitled
to a receipt in settlement of the agreement that economically would offset the
higher financing cost of the debt issued. If the referenced interest rate
decreases, the Company makes payment in settlement of the agreement, creating
an expense that economically would offset the reduced financing cost of the
debt issued. At September 30, 2002, the Company was 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 above.

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

29



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##### Table of Contents



|                      |  |                        |        |      |  |      |        |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  |      |         | 
|--------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | ---------- |  | ----- | ------- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | ---- | ------- | 
|                      |  | Expected Maturity Date |        |      |  |      |        |      |  |     
|                      |  |                        |        |      |  |      |        |      |  |     
|                      |  |                        |        |      |  |      |        |      |  |      |         |            |  |       |         |       |  |   |         |   |  |   |         |   |  |   |         |   |  | Fair
|                      |  | 2002                   |        | 2003 |  | 2004 |        | 2005 |  | 2006 |         | Thereafter |  | Total |         | Value
|                      |  |                        |        |      |  |      |        |      |  |      |         |            |  |       |         |      
|                      |  | (in thousands)         |        |      |  |      |        |      |  |     
|Secured Fixed         |  | $                      | 6,152  |      |  | $    | 36,043 |      |  | $    | 9,540   |            |  | $     | 24,704  |       |  | $ | 106,502 |   |  | $ | 236,657 |   |  | $ | 419,598 |   |  | $    | 419,598 | 
|Average interest rate |  |                        | 7.63   | %    |  |      | 7.63   | %    |  |      | 7.06    | %          |  |       | 7.12    | %     |  |   | 6.82    | % |  |   | 6.53    | % |  |   | 6.76    | % |  |      |         | 
|Secured Variable      |  | $                      | 38,140 |      |  | $    | 40,843 |      |  | $    | 135,050 |            |  | $     |        |       |  | $ |        |   |  | $ |        |   |  | $ | 214,033 |   |  | $    | 214,033 | 
|Average interest rate |  |                        | 4.20   | %    |  |      | 4.23   | %    |  |      | 4.36    | %          |  |       |        |       |  |   |        |   |  |   |        |   |  |   | 4.30    | % |  |      |         | 
|Unsecured Variable    |  | $                      |       |      |  | $    |       |      |  | $    |        |            |  | $     | 106,606 |       |  | $ |        |   |  | $ |        |   |  | $ | 106,606 |   |  | $    | 106,606 | 
|Average interest rate |  |                        |       |      |  |      |       |      |  |      |        |            |  |       | 3.34    | %     |  |   |        |   |  |   |        |   |  |   | 3.34    | % |  |      |         | 

The Company believes that the interest rates given in the table for fixed rate
borrowings approximate the rates the Company could currently obtain for
instruments of similar terms and maturities and that the fair values of such
instruments approximate carrying value at September 30, 2002.

A change of 1/8% in the index rate to which the Companys variable rate debt is
tied would change the annual interest incurred by the Company by approximately
$401,000, based upon the balances outstanding on variable rate instruments at
September 30, 2002.




Item 4. Controls and Procedures



| | (a) |  | Evaluation of disclosure controls and procedures. The
Companys chief executive officer and chief financial officer, after
evaluating the effectiveness of the Companys disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-14(c) and 15-d-14(c)) as of a date (the Evaluation Date)
within 90 days before the filing date of this quarterly report, have
concluded that as of the Evaluation Date, the Companys disclosure
controls and procedures were effective and designed to ensure that
material information relating to the Company and its consolidated
subsidiaries would be made known to them by others within those
entities.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Changes in internal controls. There were no significant
changes in the Companys internal controls or in other factors that
could significantly affect those controls subsequent to the
Evaluation Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Certain claims and lawsuits have arisen against the Company in its normal
course of business. 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.




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

There were no matters submitted to a vote of security holders during the quarter ended September 30, 2002.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits:                                                                                                      
| | --- |  | ---------------------------------------------------------------------------------------------------------------
|
| |     |  | The Exhibit Index attached hereto is hereby incorporated by
reference to this item.                            
|
| | (b) |  | Reports on Form 8-K:                                                                                           
|
| |     |  | On July 19, 2002, the Company filed a report on Form 8-K/A with
respect to the change in certifying accountant.

30



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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: November 8, 2002 |  |                                       |  | /s/ Andrew Batinovich                                            
|                       |  |                                       |  |                                                                  
|                       |  |                                       |  | Andrew Batinovich
Director, President and
Chief Operating Officer

|                       |  |  |  |                                                                   
|---------------------- |  |  |  | ------------------------------------------------------------------
|Date: November 8, 2002 |  |  |  | /s/ Stephen Saul                                                  
|                       |  |  |  |                                                                   
|                       |  |  |  | Stephen Saul
Chief Financial Officer
(Principal Financial Officer)

|                       |  |  |  |                                                                                 
|---------------------- |  |  |  | --------------------------------------------------------------------------------
|Date: November 8, 2002 |  |  |  | /s/ Brian Peay                                                                  
|                       |  |  |  |                                                                                 
|                       |  |  |  | Brian Peay
Vice President,
Finance and Accounting
(Principal Accounting Officer)

31



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##### Table of Contents



I, ROBERT BATINOVICH, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of
Glenborough Realty Trust Incorporated;                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 8, 2002

|                                     |  | 
|------------------------------------ |  | 
|/s/ Robert Batinovich                |  | 
|                                     |  | 
|Chairman and Chief Executive Officer |  | 

32



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##### Table of Contents



I, STEPHEN R. SAUL, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of
Glenborough Realty Trust Incorporated;                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     



| | a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the
Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 8, 2002

|                                                     |  | 
|---------------------------------------------------- |  | 
|/s/ Stephen R. Saul                                  |  | 
|                                                     |  | 
|Executive Vice President and
Chief Financial Officer |  | 

33



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##### Table of Contents






EXHIBIT INDEX

|            |  |                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Title                                                                                                                         
|            |  |                                                                                                                                       
|11.01       |  | Statement re: Computation of Per Share Earnings is shown in Note 12 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.                     

34