10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2005

OR

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

Commission file number 1-14162

GLENBOROUGH REALTY TRUST INCORPORATED

(Exact name of Registrant as specified in its charter)

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

400 South El Camino Real, Suite 1100 San Mateo, California 94402-1708

(Address of principal executive offices)

(650) 343-9300

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common Stock, $.001 par value	New York Stock Exchange
7  3/4% Series A Convertible Preferred Stock, $.001 par value	New York Stock Exchange

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933, as amended.    ¨  Yes    x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act of 1934, as amended.    ¨  Yes    x  No

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.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer  x    Accelerated Filer  ¨    Non-accelerated filer  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

As of June 30, 2005 the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $707,201,000. The aggregate market value was computed with reference to the closing price on the New York Stock Exchange on such date. This calculation does not reflect a determination that persons are affiliates for any other purpose.

As of March 2, 2006, 32,349,435 shares of Common Stock ($.001 par value) and 3,740,807 shares of 7 ³/4% Series A Convertible Preferred Stock ($.001 par value, $25 per share liquidation value) were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Portions of the Registrant’s definitive proxy statement to be issued in conjunction with the Registrant’s annual stockholder’s meeting to be held on May 4, 2006.

TABLE OF CONTENTS

		Page No.
	PART I
Item 1	Business	3-4
Item 1A.	Risk Factors	5-11
Item 1B.	Unresolved SEC Staff Comments	12
Item 2	Properties	12-16
Item 3	Legal Proceedings	16
Item 4	Submission of Matters to a Vote of Security Holders	17
	PART II
Item 5	Market for Registrant’s Common Stock and Preferred Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities	18-19
Item 6	Selected Financial Data	20-23
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24-40
Item 7A.	Qualitative and Quantitative Disclosures About Market Risk	40
Item 8	Financial Statements and Supplementary Data	40
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
Item 9A.	Controls and Procedures	41
Item 9B.	Other Information	41
	PART III
Item 10	Directors and Executive Officers of the Registrant	42
Item 11	Executive Compensation	42
Item 12	Security Ownership of Certain Beneficial Owners and Management	42
Item 13	Certain Relationships and Related Transactions	42
Item 14	Principal Accountant Fees and Services	42
	PART IV
Item 15	Exhibits, Financial Statements, Schedules and Reports on Form 8-K	43

2

PART I

Item 1. Business

Company Profile

Glenborough Realty Trust Incorporated is a self-administered Real Estate Investment Trust (REIT) with a nationwide portfolio of 48 primarily office properties, including four joint ventures, as of December 31, 2005. We focus on owning and managing high-quality, multi-tenant office properties with strong demand attributes located in supply constrained locations within large diverse markets. Our portfolio encompasses approximately 9 million square feet focused in the following markets: Washington D.C., Southern California, Boston, Northern New Jersey and San Francisco.

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

Portfolio Management

We are a full-service real estate organization and we perform all property management, leasing, construction supervision, accounting, finance, acquisition and disposition activities for our portfolio with a staff of approximately 96 employees. We are managed by the following four executive officers who have experience in the real estate industry ranging from 17 to 34 years:

• Andrew Batinovich, President and Chief Executive Officer

• Michael Steele, Executive Vice President and Chief Operating Officer

• Brian Peay, Executive Vice President and Chief Financial Officer

• Sandra Boyle, Executive Vice President, Project Management

We perform all portfolio management activities, including on-site property management, lease negotiations and construction supervision of tenant improvements, property renovations and capital expenditures. We directly manage these activities from 15 management offices located throughout our portfolio. All of our management offices are networked with our corporate office and have access to our accounting and lease management system, the Internet and our email system.

Our Strategy

High Quality – High Demand Portfolio

Our definition of a high quality multi-tenant office building is one that includes certain supply and demand characteristics. On the supply side, we concentrate on supply constrained markets with significant barriers to entry. These barriers may include a lack of land for future development or restrictive zoning like height restrictions or floor area ratio restrictions. They may have a political climate where additional developments are discouraged. Furthermore, we seek to buy assets within these markets at below replacement cost and below replacement rent. On the demand side, these assets are located in large dynamic markets, preferably 24-hour cities or sub-cities. The specific locations within these markets must have transportation advantages like train stations, freeway off-ramps or high visibility intersections. These locations have the advantages of nearby demand generators like executive and worker housing or mega employers like the federal government, a large university or other dominant employer.

Geographic and Tenant Diversification

The benefit of a national real estate portfolio without undue geographic concentration protects us from local and regional economic weakness. Currently, 42% of our total net operating income, or NOI (defined as rental revenue less property operating expenses, including discontinued operations), comes from Washington D.C. and Southern California markets. Similarly, tenant diversification is just as important. Other than the federal government, which represents approximately 4.5%, our next largest tenant makes up less than 3.0% of our total revenues. With approximately 635 tenants, our investors are protected from an over concentration on any one tenant or industry.

3

Conservative Capital Structure

One of our key goals is to maintain strong financial ratios with a conservative capital structure. As of December 31, 2005, our ratio of debt to gross book value was approximately 52%. This low leverage allows us to maintain strong coverage ratios. Furthermore, our overall cost of debt is low and the majority of our debt is at fixed rates of interest. As of December 31, 2005, floating rate debt as a percentage of all debt had decreased to 13% from 19% at the end of 2004. Our goal is to maintain financial flexibility through each business cycle. Achieving and conserving sufficient liquidity to take advantage of opportunities is a key focus.

Competition

For Tenants

Our properties compete for tenants with similar properties located in their markets. We believe that characteristics influencing the competitiveness of a real estate project include the geographic location of the property, the professionalism of the property manager, the maintenance and appearance of the property and rental rates, in addition to external factors such as general economic circumstances, trends, and the existence of new competing properties in the area in which our properties are located.

Additional competitive factors with respect to commercial properties include the ease of access to the property, the adequacy of related facilities, such as parking, and the ability to provide rent concessions and additional tenant improvements commensurate with local market conditions. Such competition may lead to rent concessions that could adversely affect our cash flow. Although we believe our properties are competitive with comparable properties as to those factors within our control, over-building and other external factors could adversely affect our ability to attract and retain tenants.

For Acquisitions of Real Estate

We experience competition when attempting to acquire equity interests in desirable real estate, including competition from domestic and foreign financial institutions, other REITs, life insurance companies, pension funds, trust funds, partnerships and individual investors.

For Capital

We compete with other investors and owners for debt and equity financing. Our ability to attract debt and equity capital at favorable rates is impacted in part by our positioning in the marketplace relative to similar investments. Factors impacting this include, among other things, the perceived quality of our portfolio and the risk adjustment that sources of capital give to the returns they expect from their investments.

Working Capital

Our practice is to maintain cash reserves for normal repairs, replacements, improvements, working capital and other contingencies, while minimizing interest expense. Cash on hand is kept to a minimum by using available funds to reduce the outstanding balance on our unsecured bank line of credit and drawing on the line of credit when necessary.

Availability of Reports on Website

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

Code of Ethics

We have adopted a code of business conduct and ethics, or Code of Conduct, as well as corporate governance guidelines. The Code of Conduct has been designed to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The Code of Conduct is available on our website (www.glenborough.com), as is our corporate governance guidelines document. To the extent required by law, any amendments to, or waivers from, any provision of the Code of Conduct will be promptly disclosed publicly. To the extent permitted by such requirements, we intend to make such public disclosure by posting the relevant material on our website in accordance with SEC rules.

4

Item 1A. Risk Factors

We have identified a number of risk factors, which could adversely affect our stock value, asset value, or cash flow available to pay debt service or dividends.

Market Fluctuations in Rental Rates and Occupancy Could Adversely Affect Our Operations

Our portfolio of leases turns over continuously, with the number and value of expiring leases varying from year to year. Our 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 (including sublease space offered by tenants who have vacated space in competing buildings prior to the expiration of their lease term), and the level of improvements which may be required at the property. We cannot assure you that the rental rates we obtain in the future will be equal to or greater than those obtained under existing contractual commitments. If we cannot lease all or substantially all of the expiring space at our properties promptly, or if the rental rates are significantly lower than expected, then our results of operations and financial condition could be negatively impacted.

Tenants’ Defaults Could Adversely Affect Our Operations

Our ability to manage our assets is subject to federal bankruptcy laws and state laws that limit creditors’ rights and remedies available to real property owners to collect delinquent rents. If a tenant becomes insolvent or bankrupt, we cannot be sure that we could recover the premises from the tenant promptly or from a trustee or debtor-in-possession in any bankruptcy proceeding relating to that tenant. We also cannot be sure that we would receive rent in the proceeding sufficient to cover our expenses with respect to the premises. If a tenant becomes bankrupt, the federal bankruptcy code will apply, which in some instances may restrict the amount and recoverability of our claims against the tenant. A tenant’s default on its obligations to us could adversely affect our results of operations and financial condition.

We May Suffer Adverse Consequences If Our Revenues Decline Since Our Operating Costs Do Not Necessarily Decline In Proportion To Our Revenue

We earn a significant portion of our income from renting our properties. Our operating costs, however, do not necessarily fluctuate in relation to changes in our rental revenue. This means that our costs will not necessarily decline even if our revenues do. Our operating costs could also increase while our revenues do not. If our operating costs increase but our rental revenues do not, we may be forced to borrow to cover our costs, we may incur losses and we may not have cash available for distributions to our shareholders.

Our Cash Flow May Be Insufficient for Debt Service Requirements

As of December 31, 2005, we had approximately $811.5 million of total indebtedness, approximately $106.6 million of which is subject to variable interest rates and approximately $704.9 million of which is subject to fixed interest rates. Further, we intend to incur indebtedness in the future, including through borrowings under our unsecured bank line of credit, to finance property acquisitions, retirement of debt and stock repurchases. As a result, we expect to be subject to the risks associated with debt financing including the risk that:

• interest rates may increase;

• our cash flow may be insufficient to meet required payments on our debt; and

• we may be unable to refinance or repay the debt as it comes due.

Debt Restrictions May Affect Our Operations and Negatively Affect Our Ability to Repay Indebtedness at Maturity

Our current $180 million unsecured bank line of credit contains provisions that restrict the amount of distributions we can make. These provisions provide that distributions may not exceed 95% of funds from operations for any fiscal quarter. If we cannot obtain acceptable financing to repay indebtedness at maturity, we may have to sell properties to repay indebtedness or properties may be foreclosed upon, which could adversely affect our results of operations, financial condition and ability to service debt. Also, as of December 31, 2005, approximately $704.9 million of our total indebtedness included secured mortgages with cross-collateralization provisions. In the event of a default, the holders of this indebtedness may seek to foreclose upon properties which are not the primary collateral for their loan. This may, in turn, accelerate other indebtedness secured by these properties. Foreclosure of properties would cause us to lose income and asset value.

Fluctuations in Interest Rates May Adversely Affect Our Operations

As of December 31, 2005, we had approximately $106.6 million of variable interest rate indebtedness. Accordingly, an increase in interest rates would result in an increase in interest payments we make to service the debt which would adversely affect our net income and results of operations.

5

Limitations on Property Sales and Tax Indemnifications

The Internal Revenue Code and individual agreements with sellers of properties limit our ability to sell some of our properties. Twenty-two of the properties in our portfolio were acquired on terms and conditions under which they can be disposed of only in a “like-kind exchange” or other non-taxable transaction for limited periods of time. The agreed upon time periods for these restrictions on dispositions vary from transaction to transaction. In the event we were to dispose of one of these properties through a taxable transaction during the restriction period, we would be required to indemnify the contributor of such property for all direct and indirect adverse tax consequences. Real estate investments are relatively illiquid and, therefore, will tend to limit our ability to vary our portfolio quickly in response to changes in economic or other conditions.

We May Be Unable To Complete Acquisitions and Successfully Operate Acquired Properties

We continue to evaluate the market of available properties and may acquire office and other properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be exposed to the following significant risks:

• potential inability to acquire a desired property because of competition from other real estate investors with significant capital, including both publicly traded REITs and institutional investment funds;

• even if we are able to acquire a desired property, competition from other potential acquirers may significantly increase the purchase price;

• even if we enter into agreements for the acquisition of office properties, these agreements are subject to customary conditions to closing, including completion of due diligence investigation to our satisfaction;

• we may be unable to finance the acquisition at all or on favorable terms;

• we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations and, as a result, our results of operations and financial condition could be adversely affected;

• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

• we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we cannot finance property acquisitions on favorable terms, or operate acquired properties to meet our financial expectations, our financial condition, results of operations, cash flow, per share trading price of series A preferred stock and ability to satisfy our debt service obligations and to pay dividends to you could be adversely affected.

Dependence on Executive Officers

We depend on the efforts of Andrew Batinovich, our President and Chief Executive Officer, and Michael Steele, our Executive Vice President and Chief Operating Officer, as well as our other executive officers. The loss of the services of any of them could have an adverse effect on our results of operations and financial condition. Both Andrew Batinovich and Michael Steele have entered into employment agreements with us, as have some of the other executive officers.

Potential Liability Due to Environmental Matters

Under federal, state and local laws relating to protection of the environment, or Environmental Laws, a current or previous owner or operator of real estate may be liable for contamination resulting from the presence or discharge of petroleum products or other hazardous or toxic substances on the property. These owners may be required to investigate and clean-up the contamination on the property as well as the contamination which has migrated from the property. Environmental Laws typically impose liability and clean-up responsibility without regard to whether the owner or operator knew of, or was responsible for, the presence of the contamination. This liability may be joint and several unless the harm is divisible and there is a reasonable basis for allocation of responsibility. In addition, the owner or operator of a property may be subject to claims by third parties based on personal injury, property damage and/or other costs, including investigation and clean-up costs, resulting from environmental contamination. Environmental Laws may also impose restrictions on the manner in which a property may be used or transferred or in which businesses may be operated. These restrictions may require expenditures. Under the Environmental Laws,

6

any person who arranges for the transportation, disposal or treatment of hazardous or toxic substances may also be liable for the costs of investigation or clean-up of those substances at the disposal or treatment facility, whether or not the facility is or ever was owned or operated by that person.

Our tenants generally are required by their leases to operate in compliance with all applicable Environmental Laws, and to indemnify us against any environmental liability arising from their activities on the properties. However, we could be subject to environmental liability relating to our management of the properties or strict liability by virtue of our ownership interest in the properties. Also, tenants may not satisfy their indemnification obligations under the leases. We are also subject to the risk that:

• any environmental assessments of our properties, properties being considered for acquisition, or the properties owned by the partnerships managed by us may not have revealed all potential environmental liabilities,

• any prior owner or prior or current operator of these properties may have created an environmental condition not known to us, or

• an environmental condition may otherwise exist as to any one or more of these properties.

Any one of these conditions could have an adverse effect on our results of operations and financial condition or ability to service debt, either directly (with respect to our properties), or indirectly (with respect to properties owned by partnerships we manage). Moreover, future environmental laws, ordinances or regulations may have an adverse effect on our results of operations, financial condition and ability to service debt. Also, the current environmental condition of those properties may be affected by tenants and occupants of the properties, by the condition of land or operations in the vicinity of the properties (such as the presence of underground storage tanks), or by third parties unrelated to us.

We are not aware of any current liabilities related to environmental matters that are material to us. However, the foregoing risk factor is provided because such risks are inherent to real estate ownership.

Environmental Assessments and Potential Liability Due to Asbestos-Containing Materials

Environmental Laws also govern the presence, maintenance and removal of asbestos-containing building materials. These laws require that asbestos-containing building materials be properly managed and maintained and that those who may come into contact with asbestos-containing building materials be adequately informed and trained. They also require that special precautions, including removal or other abatement, be undertaken in the event asbestos-containing building materials are disturbed during renovation or demolition of a building. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements. They also may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

All of the properties that we presently own have been subject to Phase I environmental assessments by independent environmental consultants. Some of the Phase I environmental assessments recommended further investigations in the form of Phase II environmental assessments, including soil and groundwater sampling. We have completed all of these investigations or are in the process of completing them. Some of our properties have been found to contain asbestos-containing building materials. We believe that these materials have been adequately contained and we have implemented an asbestos-containing building materials operations and maintenance program for the properties found to contain asbestos-containing building materials.

Some, but not all, of the properties owned by partnerships we manage have been subject to Phase I environmental assessments by independent environmental consultants. We determine on a case-by-case basis whether to obtain Phase I environmental assessments on these properties and whether to undertake further investigation or remediation. Some of these properties contain asbestos-containing building materials. In each case, we believe that these materials have been adequately contained and we have implemented an asbestos-containing building materials operations and maintenance program for the properties found to contain asbestos-containing building materials.

We are not aware of any current liabilities related to asbestos-containing materials that are material to us. However, the foregoing risk factor is provided because such risks are inherent to real estate ownership.

Potential Environmental Liability Resulting From Underground Storage Tanks

Some of our properties, as well as properties that we previously owned, are leased or have been leased to owners or operators of businesses that use, store or otherwise handle petroleum products or other hazardous or toxic substances. These businesses include dry cleaners that operate on-site dry cleaning plants and auto care centers.

7

Some of these properties contain, or may have contained, underground storage tanks for the storage of petroleum products and other hazardous or toxic substances. These operations create a potential for the release of those substances. Some of our properties are adjacent to or near other properties that have contained or currently contain underground storage tanks used to store petroleum products or other hazardous or toxic substances. A few of our properties have been contaminated with these substances from on-site operations or operations on adjacent or nearby properties. In addition, some properties are on, or are adjacent to or near other properties upon which others, including former owners or tenants of the properties, have engaged or may engage in activities that may release petroleum products or other hazardous or toxic substances.

Environmental Liabilities May Adversely Affect Operating Costs and Ability to Borrow

The obligation to pay for the cost of complying with existing Environmental Laws as well as the cost of complying with future legislation may affect our operating costs. In addition, the presence of petroleum products or other hazardous or toxic substances at any of our properties, or the failure to remediate those properties properly, may adversely affect our ability to borrow by using those properties as collateral. The cost of defending against claims of liability and the cost of complying with Environmental Laws, including investigation or clean-up of contaminated property, could materially adversely affect our results of operations and financial condition.

General Risks of Ownership of Real Estate

We are subject to risks generally incidental to the ownership of real estate. These risks include:

• changes in general economic or local conditions;

• changes in supply of or demand for similar or competing properties in an area;

• the impact of environmental protection laws;

• changes in interest rates and availability of financing which may render the sale or financing of a property difficult or unattractive;

• changes in tax, real estate and zoning laws; and

• the creation of mechanics’ liens or similar encumbrances placed on the property by a lessee or other parties without our knowledge and consent.

Should any of these events occur, our results of operations and financial condition could be adversely affected.

General Risks Associated With Management and Leasing Contracts

We are subject to the risks generally associated with the property management and leasing businesses. These risks include the risk that:

• management contracts or service agreements may be terminated;

• contracts will not be renewed upon expiration or will not be renewed on terms consistent with current terms; and

• leasing activity generally may decline.

Uninsured Losses May Adversely Affect Operations

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

Potential Liability Under the Americans With Disabilities Act

All of our properties are required to be in compliance with the Americans With Disabilities Act. The Americans With Disabilities Act generally requires that places of public accommodation be made accessible to people with disabilities to the extent readily achievable. Compliance with the Americans With Disabilities Act requirements could require removal of access barriers. Non-compliance could result in imposition of fines by the federal government, an award of damages to private litigants and/or a court order to remove access barriers. Because of the limited history of the Americans With Disabilities Act, the impact of its application to our properties, including the

8

extent and timing of required renovations, is uncertain. Pursuant to lease agreements with tenants in certain of the “single-tenant” properties, the tenants are obligated to comply with the Americans With Disabilities Act provisions. If our costs are greater than anticipated or tenants are unable to meet their obligations, our results of operations and financial condition could be adversely affected.

Development Alliances May Adversely Affect Operations

We may, from time to time, enter into alliances with selected developers for the purpose of developing new projects in which these developers have, in the opinion of management, significant expertise or experience. These projects generally require various governmental and other approvals, the receipt of which cannot be assured. These development activities also may entail certain risks, including the risk that:

• management may expend funds on and devote time to projects which may not come to fruition;

• construction costs of a project may exceed original estimates, possibly making the project uneconomical;

• occupancy rates and rents at a completed project may be less than anticipated; and

• expenses at a completed development may be higher than anticipated.

In addition, the partners in development alliances may have significant control over the operation of the alliance project. Therefore, these investments may, under certain circumstances, involve risks such as the possibility that the partner might:

• become bankrupt;

• have economic or business interests or goals that are inconsistent with our business interest or goals; or

• be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.

Consequently, actions by a partner in a development alliance might subject property owned by the alliance to additional risk. Although we will seek to maintain sufficient control of any alliance to permit our objectives to be achieved, we may be unable to take action without the approval of our development alliance partners. Conversely, our development alliance partners could take actions binding on the alliance without our consent. In addition, should a partner in a development alliance become bankrupt, we could become liable for the partner’s share of the project’s liabilities. These risks may result in a development project adversely affecting our results of operations and financial condition.

Joint Investments Could Be Adversely Affected By Our Lack Of Sole Decision-Making Authority and Reliance Upon a Co-Venturer’s Financial Condition

We co-invest with third parties through partnerships, joint ventures, co-tenancies or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a property, partnership, joint venture, co-tenancy or other entity. Therefore, we will not be in a position to exercise sole decision-making authority regarding that property, partnership, joint venture or other entity.

Investments in partnerships, joint ventures, or other entities may involve risks not present were a third party not involved, including the possibility that our partners, co-tenants or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, our partners or co-venturers might at any time have economic or other business interests or goals which are inconsistent with our business interests or goals. These investments may also have the potential risk of impasses on decisions such as a sale, because neither we nor the partner, co-tenant or co-venturer would have full control over the partnership or joint venture. Consequently, actions by such partner, co-tenant or co-venturer might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in specific circumstances be liable for the actions of our third-party partners, co-tenants or co-venturers. As of December 31, 2005 we were participating in four unconsolidated joint ventures encompassing four properties and had an aggregate basis in the joint ventures totaling approximately $12 million. As of December 31, 2005, our share of joint venture debt totaled $22.8 million.

Material Tax Risks

Since 1996, we have operated as a REIT under the Internal Revenue Code. However, we may not be able to maintain our status as a REIT. To qualify as a REIT, we must satisfy numerous requirements (some on an annual and quarterly basis) established under highly technical and complex Internal Revenue Code provisions. Only limited judicial or administrative interpretation exists for these provisions and involves the determination of various factual matters and circumstances not entirely within our control. We receive non-qualifying management fee income and, as a result, we may approach the income test limits imposed by the Internal Revenue Code. There is a risk that we may not satisfy these tests. Even if we continue to qualify as a REIT, we will be subject to certain federal, state and local taxes on our income and property.

9

Our Failure To Qualify as a REIT Would Be Costly

We believe we have operated in a manner to qualify as a REIT for federal income tax purposes and intend to continue to so operate. Many of these requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of factual matters and circumstances. These matters, some of which may not be totally within our control, can affect our qualification as a REIT. For example, to qualify as a REIT, at least 95% of our gross income must come from designated sources that are listed in the REIT tax laws. We are also required to distribute to shareholder at least 90% of our REIT taxable income excluding capital gains. The fact that we hold our assets through the operating partnership and its subsidiaries further complicates the application of the REIT requirements. Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue Service, which we refer to as the IRS, might make changes to the tax laws and regulations, and the courts might issue new rulings that make it more difficult, or impossible for us to remain qualified as a REIT.

If we fail to qualify as a REIT, we would be subject to federal income tax at regular corporate rates. Also, unless the IRS grants us relief under specific statutory provisions, we would remain disqualified as a REIT for four years following the year we first failed to qualify. If we failed to qualify as a REIT, we would have to pay significant income taxes and would therefore have less money available for investments or for distributions to shareholders. This would likely have a significant adverse effect on the value of our securities. In addition, the REIT tax laws would no longer require us to make any distributions to shareholders.

New Tax Legislation Reduces Tax Rates For Dividends Paid By Non-REIT Corporations

Under legislation recently enacted, the maximum tax rate on dividends to individuals has generally been reduced from 38.6% to 15% (from January 1, 2003 through December 31, 2008). The reduction in rates on dividends is generally not applicable to dividends paid by a REIT except in limited circumstances that we do not contemplate. Although this legislation will not adversely affect the taxation of REITs or dividends paid by REITs , the favorable treatment of regular corporate dividends could cause investors who are individuals to consider stock of non-REIT corporations that pay dividends as relatively more attractive than stocks of REITs. It is not possible to predict whether such a change in perceived relative value will occur or what the effect, if any, this legislation will have on the market price of our stock.

Possible Changes in Tax Laws; Effect on the Market Value of Real Estate Investments

Income tax treatment of REITs may be modified by legislative, judicial or administrative action at any time. These changes may be applied to past as well as future operations. Legislation, regulations, administrative interpretations or court decisions may significantly change the tax laws with respect to (1) the qualification as a REIT or (2) the federal and state income tax consequences of this qualification. In addition, the changes might also indirectly affect the market value of all real estate investments, and consequently our ability to realize our investment objectives.

Our Indebtedness Restrictions May Adversely Affect Our Ability to Incur Indebtedness

Our organizational documents limit our ability to incur additional debt if the total debt, including the additional debt, would exceed 50% of the “Borrowing Base.” This could limit our ability to incur debt to fund new acquisitions, capital improvements to existing properties, or dividends. This debt limitation in our Charter can only be amended by an affirmative vote of the majority of all outstanding stock entitled to vote on such amendment. The term “Borrowing Base” is defined as the greater of Fair Market Value or Total Market Capitalization. Fair Market Value is based upon the value of our assets as determined by an independent appraiser. Total Market Capitalization is the sum of the market value of our outstanding capital stock, including shares issuable on exercise of redemption options by holders of units of the limited partnership, plus debt. An exception is made for refinancings and borrowings required to make distributions to maintain our status as a REIT. In light of these debt restrictions, it should be noted that a change in the value of our common stock could affect the Borrowing Base, and therefore our ability to incur additional indebtedness, even though such change in the common stock’s value is unrelated to our liquidity.

To Maintain Our REIT Status, We may be Forced to Borrow Funds During Unfavorable Market Conditions

In order to maintain our REIT status, we may need to borrow funds on a short-term basis to meet the REIT distribution requirements, even if the then prevailing market conditions are not favorable for these borrowings. To qualify as REIT, we generally must distribute to our stockholders at least 90% of our net taxable income each year, excluding capital gains. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our

10

capital gain net income and 100% of our undistributed income from prior years. We may need short-term debt or long-term debt, proceeds from asset sales, creation of joint ventures or sale of common stock to fund required distributions as a result of differences in timing between the actual receipt of income and the recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments.

Limitation on Ownership of Common Stock And Stockholder’s Rights Plan May Preclude Acquisition of Control

Provisions of our Charter are designed to assist us in maintaining our qualification as a REIT under the Internal Revenue Code by preventing concentrated ownership in our common and preferred stock which might jeopardize our REIT qualification. Among other things, these provisions provide that:

• any transfer or acquisition of our common or preferred stock that would result in our disqualification as a REIT under the Internal Revenue Code will be void; and

• if any person attempts to acquire shares of our common or preferred stock that after the acquisition would cause the person to own an amount of common stock and preferred stock in excess of a predetermined limit, such acquisitions would be void.

Ownership is determined by operation of certain attribution rules set out in the Internal Revenue Code. Pursuant to Board action, the limit currently is 9.9% of the value of the outstanding shares of common stock and preferred stock. We refer to this limitation as the “Ownership Limitation.” The common stock or preferred stock the transfer of which would cause any person to violate the Ownership Limitation, is referred to as the Excess Shares. A transfer that would violate the Ownership Limitation will be void and the common stock or preferred stock subject to the transfer will automatically be transferred to an unaffiliated trustee for the benefit of a charitable organization designated by the Board of Directors until sold by the trustee to a third party or purchased by us. This limitation on the ownership of common stock and preferred stock may preclude the acquisition of control of us by a third party without the consent of the Board of Directors. In general, the Board of Directors may waive the Ownership Limitation for any person. In this circumstance, the Ownership Limitation will be proportionally and automatically reduced with regard to all other persons such that no five persons may own more than 50% of the value of the common stock and preferred stock. Certain other provisions contained in our Charter and Bylaws may also have the effect of discouraging a third party from making an acquisition proposal and may thereby inhibit a change in control of us even if a change in control would be in the best interests of the stockholders.

In addition, in July 1998, the Board of Directors adopted a stockholder rights plan. Under the plan, we declared a dividend of rights on our common stock. The rights issued under the plan will be triggered, with certain exceptions, if and when any person or group acquires, or commences a tender offer to acquire, 15% or more of our shares. The rights plan is intended to prevent abusive hostile takeover attempts by requiring a potential acquirer to negotiate the terms of an acquisition with the Board of Directors. However, it could have the effect of deterring or preventing an acquisition of us, even if a majority of our stockholders would be in favor of such acquisition, and could also have the effect of making it more difficult for a person or group to gain control of us or to change existing management.

Risks of Litigation

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

Uncertainty Due to the Board of Directors’ Ability to Change Investment Policies

The Board of Directors may change our investment policies without a vote of the stockholders. If our investment policies change, the risks and potential rewards of an investment in the shares may also change. In addition, the methods of implementing our investment policies may vary as new investment techniques are developed.

Effect of Market Interest Rates on Price of Common Stock

The annual yield on the price paid for shares of our common stock from our distributions may influence the market price of the shares of our common stock in public markets. An increase in market interest rates may lead prospective purchasers of our common stock to seek a higher annual yield from their investments. This may adversely affect the market price of our common stock.

Shares Available for Future Sale

We cannot predict the effect, if any, that future sales of shares of our common stock or future conversions or exercises of securities for future sales will have on the market price of our common stock. Sales of substantial amounts of our common stock, or the perception that substantial sales could occur, may adversely affect the prevailing market price for our common stock.

11

Item 1B. Unresolved SEC Staff Comments

None.

Item 2. Properties

Our Portfolio

Our 48 properties, including properties owned through joint ventures, consist primarily of high-quality, multi-tenant office properties concentrated in the following five markets: Washington D.C., Southern California, Boston, Northern New Jersey and San Francisco.

The following table sets forth the market, location, year built, square footage, average occupancy, total effective annual base rent and average effective base rent per leased square foot of our properties for the year ended December 31, 2005:

Market/Property	Location	Year Built	Square Footage	Average Occupancy		Total Effective Annual Base Rent ($000s) (1)		Average Effective Base Rent per Leased Square Foot (2)
WASHINGTON D.C.
1100 17th Street	Washington D.C.	1963	146,472	96	%	$	4,295	$	30.64
Capitol Place III	Washington D.C.	1985	208,138	100	%		7,323		35.18
1525 Wilson	Arlington, VA	1987	313,843	96	%		8,498		28.15
Quincy Crossing	Arlington, VA	2002	110,899	95	%		3,316		31.53
700 South Washington	Alexandria, VA	1989	59,652	98	%		1,688		28.96
King Street Station II	Alexandria, VA	1988	131,327	88	%		3,524		30.48
2000 Corporate Ridge (10% JV)	McLean, VA	1985	255,980	100	%		6,572		25.67
Metro Place II	Merrifield, VA	1999	237,227	99	%		6,978		29.71
Montgomery Executive Center	Gaithersburg, MD	1983	119,679	93	%		2,542		22.72
Subtotal/Weighted Average			1,583,217	97	%	$	44,736	$	29.20
SOUTHERN CALIFORNIA
First Financial Plaza	Encino	1986	222,535	95	%	$	5,647	$	26.72
Centerstone Plaza	Irvine	1989	157,579	98	%		4,375		28.30
Newport Plaza	Newport Beach	2000	107,473	100	%		3,214		29.91
610 West Ash	San Diego	1986	177,490	88	%		4,291		27.57
Aventine	San Diego	1990	239,997	94	%		7,811		34.62
Tierrasanta Research Park	San Diego	1985	104,234	100	%		1,355		13.00
Subtotal/Weighted Average			1,009,308	95	%	$	26,693	$	27.84
NORTHERN NEW JERSEY
Fox Hollow Business Qtrs I	Branchburg	1987	42,600	100	%	$	528	$	12.39
CenterPointe at Bridgewater	Bridgewater	1998	326,640	87	%		6,755		23.90
Frontier Executive Quarters	Bridgewater	1981	264,879	100	%		4,541		17.14
Vreeland Business Center (3)	Florham Park	1985	133,090	100	%		799		6.00
Gatehall I	Parsippanny	1983	113,469	74	%		1,792		21.26
25 Independence	Warren	1989	106,879	91	%		2,603		26.90
Cottontail Distribution Center	Franklin Township	1989	229,352	87	%		984		4.91
Subtotal/Weighted Average			1,216,909	90	%	$	18,002	$	16.30

(continued)

12

Market/Property	Location	Year Built	Square Footage	Average Occupancy		Total Effective Annual Base Rent ($000s) (1)		Average Effective Base Rent per Leased Square Foot (2)
BOSTON
99 Summer Street	Boston	1987	272,614	95	%	$	8,746	$	33.62
Hartwood Building	Lexington	1985	52,721	100	%		1,153		21.87
313 Boston Post Road	Marlborough	1985	75,277	90	%		1,393		20.54
Marlborough Corporate Place	Marlborough	1986	570,421	71	%		7,707		18.95
Westford Corporate Center	Westford	1986	164,829	58	%		1,514		15.82
Flanders Research Park	Westborough	1980	105,500	100	%		1,071		10.15
Subtotal/Weighted Average			1,241,362	82	%	$	21,584	$	21.83
SAN FRANCISCO
Creekside Business Park	Dublin	1998	171,077	68	%	$	1,620	$	13.93
33 New Montgomery	San Francisco	1986	234,012	93	%		7,408		33.87
Rincon Center (10% JV)	San Francisco	1988	757,250	95	%		19,643		27.30
101 Ellsworth (10% JV)	San Francisco	2002	86,115	77	%		1,980		29.86
400 South El Camino	San Mateo	1973	145,867	97	%		4,191		29.49
Rollins Road	Burlingame	1950	255,185	100	%		2,131		8.35
Subtotal/Weighted Average			1,649,506	92	%	$	36,973	$	24.36
TAMPA
Grand Regency Business Center	Brandon	1998	48,551	100	%	$	769	$	15.84
Park Place	Clearwater	1985	166,612	94	%		2,826		18.09
University Center	Tampa	1996/2002	145,333	100	%		920		6.33
Oakview Center	Temple Terrace	1997	79,393	100	%		1,195		15.05
Subtotal/Weighted Average			439,889	97	%	$	5,710	$	13.29
DENVER
Gateway Park	Aurora	1997-2002	302,520	94	%	$	5,211	$	18.36
Westminster Center	Westminster	2002	65,707	100	%		445		6.78
Gateway Office Park Retail (50% JV)	Denver	2001	12,000	94	%		203		17.98
Subtotal/Weighted Average			380,227	94	%	$	5,859	$	16.24
ALL OTHERS
Capitol Center (3)	Des Moines, IA	1983	165,127	83	%	$	1,723	$	12.52
J.I. Case - Kansas City	Kansas City, KS	1951	199,750	100	%		478		2.39
Citibank Office Park	Las Vegas, NV	1987	148,343	95	%		3,092		21.92
Thousand Oaks (3)	Memphis, TN	1988	422,363	55	%		3,599		15.54
Valley Forge Corporate Center	Norristown, PA	1984	118,380	100	%		2,013		17.01
One Pacific Place	Omaha, NE	1988	128,392	96	%		2,169		17.53
Osram Building (3)	Westfield, IN	1990	45,265	90	%		431		10.61
Subtotal/Weighted Average			1,227,620	79	%	$	13,505	$	13.61
TOTAL			8,748,038	90	%	$	173,062	$	21.95

⁽¹⁾ Total effective annual base rent represents total base rent, excluding straight-line rents and concessions, recognized during the year ended December 31, 2005. These amounts have been annualized for properties acquired during 2005. Total effective annual base rent is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows or rental revenue as a measure of liquidity or operating performance. We consider total effective annual base rent to be an appropriate supplemental measure because it helps both investors and management to understand the operations of our properties on a cash basis.

⁽²⁾ Average effective base rent per leased square foot represents total effective annual base rent as computed above, divided by average occupancy in square feet during the year ended December 31, 2005.

⁽³⁾ Property was held for sale as of December 31, 2005, with all related revenue and expenses presented as discontinued operations in the accompanying consolidated statements of income. This property was sold in January 2006.

13

Acquisition and Disposition Activity

During the year ended December 31, 2005, we acquired three office properties for a total purchase price of approximately $217 million and sold seventeen non-core properties for a total consideration of approximately $308 million. One of our key strategic goals is to improve the quality, location, size and future growth potential of our assets through active portfolio management.

The following table summarizes our acquisition activity during 2005:

Property	Market	Date of Purchase	Square Footage	Purchase Price ($000’s)
Metro Place II	Washington, D.C.	02/01/05	237,227	$	71,700
33 New Montgomery	San Francisco, CA	08/11/05	234,012		75,000
Capitol Place III	Washington, D.C.	08/16/05	208,138		70,000
Total			679,377	$	216,700

The following table summarizes our disposition activity during 2005:

Property	Type	Location	Date of Sale	Square Footage	Sales Price ($000’s)
Rockwall I & II	Office	Rockville, MD	01/18/05	342,739	$	76,750
Leawood Office Building	Office	Leawood, KS	02/09/05	92,787		7,290
Park 100 Industrial	Industrial	Indianapolis, IN	04/26/05	102,400		2,680
Lake Point Business Park	Industrial	Orlando, FL	04/28/05	134,360		13,100
Oakbrook International	Office	Oak Brook, IL	05/12/05	98,431		11,500
Fairfield Business Quarters	Office	Fairfield, NJ	06/01/05	42,792		3,250
Woodlands Tech	Office	St. Louis, MO	08/01/05	98,037		8,400
Bryant Lake	Office	Eden Prairie, MN	09/27/05	171,359		14,400
Columbia Center	Office	Rosemont, IL	09/28/05	146,530		14,768
University Club Tower	Office	St. Louis, MO	09/29/05	272,443		40,100
Oakbrook Terrace	Office	Oakbrook Terrace, IL	10/07/05	232,052		25,684
Navistar Chicago	Industrial	Chicago, IL	10/19/05	474,426		15,600
Northglenn Business Center	Office	Northglenn, CO	11/15/05	65,000		6,850
Riverview Office Tower	Office	Bloomington, MN	11/29/05	227,129		20,150
Embassy Plaza	Office	Schaumburg, IL	12/01/05	136,766		11,400
Woodlands Plaza	Office	St. Louis, MO	12/14/05	81,853		8,000
Palms Business Center IV & North	Office	Las Vegas, NV	12/15/05	129,501		27,750
Total				2,848,605	$	307,672

In connection with the above dispositions, we recognized a total net gain on sales of approximately $86 million.

Tenants

As of December 31, 2005, we had approximately 635 leases (excluding joint ventures). Our properties are leased to government services and local and national companies engaged in a variety of businesses including financial services, health care, insurance and real estate.

Our office leases generally require the tenant to reimburse us for increases in building operating costs over a base amount. Our few remaining industrial leases are typically “triple net” leases which require tenants to pay their pro rata share of operating costs, common area maintenance, property taxes, insurance and non-structural repairs. Certain of the leases provide for rent increases that are either fixed or based on a consumer price index.

14

Other than the United States government, which represented approximately 4.5%, no other tenant represented more than 3.0% of our total revenues (including discontinued operations) for the year ended December 31, 2005. The following table represents our ten largest tenants as of December 31, 2005, ranked by annualized rent:

Tenant Name	Number of Leases	Weighted Avg Lease Expiration	Square Footage	Total Effective Annual Base Rent (1) ($000’s)		Rent as a % of total revenues (2)
US Government	21	03/20/10	341,860	$	7,699	4.53	%
Association of American Railroads	1	11/30/10	147,699		5,081	2.99	%
Boeing Company	2	09/15/09	153,693		3,726	2.19	%
Computer Associates International, Inc.	2	08/31/07	142,402		2,986	1.76	%
Phillips-Van Heusen Corp.	1	09/30/20	153,286		2,477	1.46	%
Accenture Ltd.	1	11/30/09	49,682		1,607	0.94	%
Ortho-McNeil Pharmaceutical	1	03/31/08	50,960		1,527	0.89	%
L-3 Communications Corporation	2	02/02/09	41,784		1,354	0.79	%
Thomas & Betts Corporation	1	01/01/07	71,028		1,332	0.78	%
Verizon Communications Inc.	1	05/31/07	72,880		1,312	0.77	%
	33	10/09/10	1,225,274	$	29,101	17.10	%

⁽¹⁾ Total effective annual base rent represents total base rent, excluding straight-line rents and concessions, recognized during the year ended December 31, 2005. These amounts have been annualized for properties acquired during 2005. Total effective annual base rent is not a measure of operating results or cash flows from operating activities as measured by U.S. generally accepted accounting principles, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows or rental revenue as a measure of liquidity or operating performance. We consider total effective annual base rent to be an appropriate supplemental measure because it helps both investors and management to understand the operations of our properties on a cash basis.

⁽²⁾ Rent as a % of total revenues represents total effective annual base rent as computed above, divided by total revenues, including interest and other income, equity in earnings of unconsolidated joint ventures and revenue in discontinued operations, for the year ended December 31, 2005.

15

Lease Expirations

The following table represents the total contractual lease expirations, by market, for our properties (excluding joint ventures) as of December 31, 2005:

Annual Base Rent Expiring (1)	2006 (2)			2007			2008			2009			2010			2011 and thereafter			Total
Washington D.C.	$	3,252,694		$	2,428,071		$	2,648,742		$	12,509,359		$	10,738,241		$	11,290,610		$	42,867,717
Southern California		2,328,618			6,281,358			6,511,493			6,126,746			2,942,999			5,519,240			29,710,454
Boston		1,627,238			5,768,767			4,613,605			3,978,455			2,415,207			5,658,969			24,062,241
Northern New Jersey		1,640,804			1,542,127			3,562,380			2,820,987			2,210,909			9,444,929			21,222,136
San Francisco		2,689,357			3,915,832			615,456			751,580			2,002,060			7,878,818			17,853,103
Tampa		819,508			3,238,282			907,001			311,338			1,483,548			338,432			7,098,109
Denver		279,264			652,587			1,209,964			1,921,059			35,851			2,177,816			6,276,541
Las Vegas		727,112			949,146			225,068			485,019			481,683			734,690			3,602,718
Omaha		110,055			325,780			239,034			1,085,477			1,780,722			478,173			4,019,241
Memphis		541,119			329,851			275,168			89,515			430,048			1,890,542			3,556,243
Philadelphia		—			1,348,280			—			—			—			887,250			2,235,530
Indianapolis		—			—			—			—			—			245,042			245,042
Kansas City		—			469,416			—			—			—			—			469,416
Total	$	14,015,769		$	27,249,497		$	20,807,911		$	30,079,535		$	24,521,268		$	46,544,511		$	163,218,491
Percentage of total annual rent (3)		8.6	%		16.7	%		12.7	%		18.4	%		15.0	%		28.5	%		100.0	%
Annual Square Footage Expiring (4)	2006 (2)			2007			2008			2009			2010			2011 and thereafter			Total
Washington D.C.		111,043			104,836			99,010			385,910			291,644			303,481			1,295,924
Southern California		82,829			215,897			239,658			182,930			89,705			163,990			975,009
Boston		80,435			268,684			193,495			166,401			105,270			232,113			1,046,398
Northern New Jersey		165,424			84,951			145,786			273,057			97,526			348,370			1,115,114
San Francisco		70,907			126,775			17,046			24,573			72,321			422,708			734,330
Tampa		65,838			190,326			47,225			24,264			78,384			18,879			424,916
Denver		12,473			75,240			67,629			96,665			1,554			109,191			362,752
Las Vegas		32,023			39,069			8,918			18,732			17,939			25,207			141,888
Omaha		6,742			21,409			13,752			55,170			132,258			24,939			254,270
Memphis		30,346			17,379			31,169			5,175			24,946			146,980			255,995
Philadelphia		—			72,880			—			—			—			45,500			118,380
Indianapolis		—			—			—			—			—			25,393			25,393
Kansas City		—			199,750			—			—			—			—			199,750
Total		658,060			1,417,196			863,688			1,232,877			911,547			1,866,751			6,950,119
Percentage of total square footage		9.5	%		20.4	%		12.4	%		17.7	%		13.1	%		26.9	%		100.0	%
Number of leases (5)		116			118			112			84			85			120			635
Percentage of total number of leases		18.3	%		18.6	%		17.6	%		13.2	%		13.4	%		18.9	%		100.0	%

⁽¹⁾ This figure is based on square footage leased as of December 31, 2005, and incorporates contractual rent increases arising after 2005.

⁽²⁾ Includes leases that have initial terms of less than one year.

⁽³⁾ Annual base rent expiring during each period, divided by total annual base rent (both adjusted for contractual increases).

⁽⁴⁾ This figure is based on square footage leased (which excludes vacant and amenity space), which accounts for the difference between this figure and “Square Footage” on prior pages (which includes vacant and amenity space).

⁽⁵⁾ Excluding leases at joint venture properties.

Item 3. Legal Proceedings

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

16

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

We did not submit any matters to a vote of security holders in the fourth quarter of the year ended December 31, 2005.

17

PART II

Item 5. Market for Registrant’s Common Stock and Preferred Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Market Information

Our Common Stock ($0.001 par value) is traded on the NYSE under the symbol “GLB” and our 7  ³/4% Series A Convertible Preferred Stock ($0.001 par value, $25.00 per share liquidation value) is traded on the NYSE under the symbol “GLB Pr A”. On December 31, 2005, the closing price of our Common Stock was $18.10 and the closing price of our Preferred Stock was $25.20. On March 2, 2006, the last reported sales price per share of our Common Stock was $19.18 and the last reported sale price of our Preferred Stock was $25.10. The following table sets forth the high and low closing prices per share of our Common Stock and Preferred Stock for the periods indicated, as reported on the NYSE composite tape.

	Common Stock				Preferred Stock
Quarterly Period	High		Low		High		Low
2004
First Quarter	$	22.54	$	18.70	$	25.85	$	24.76
Second Quarter		22.34		17.80		25.56		23.85
Third Quarter		21.01		17.88		25.44		24.03
Fourth Quarter		22.57		20.39		25.76		25.00
2005
First Quarter	$	20.66	$	19.00	$	25.95	$	25.11
Second Quarter		21.19		19.03		25.80		25.18
Third Quarter		21.43		18.95		25.83		25.10
Fourth Quarter		19.81		17.78		25.90		25.09
2006
First Quarter (1)	$	19.68	$	18.30	$	25.34	$	25.03

⁽¹⁾ High and low stock closing prices through March 2, 2006.

Holders

As of March 2, 2006, the approximate number of holders of record of the shares of our Common Stock was 3,685 and the approximate number of holders of record of the shares of our Preferred Stock was 30.

Distributions

Since we elected to qualify as a REIT in 1996, we have paid regular quarterly distributions to holders of our Common and Preferred Stock. During the years ended December 31, 2004 and 2005, we declared the following quarterly distributions:

	Common Stock				Preferred Stock
Quarterly Period	Distributions Per share		Total Distributions		Distributions Per share		Total Distributions
2004
First Quarter	$	0.35	$	11,164,059	$	0.48	$	4,822,583
Second Quarter	$	0.35	$	11,173,501	$	0.48	$	3,886,524
Third Quarter	$	0.35	$	11,179,277	$	0.48	$	3,318,126
Fourth Quarter	$	0.35	$	12,611,594	$	0.48	$	3,318,126
2005
First Quarter	$	0.35	$	12,617,876	$	0.48	$	1,811,677
Second Quarter	$	0.35	$	12,676,824	$	0.48	$	1,811,697
Third Quarter	$	0.35	$	12,680,908	$	0.48	$	1,811,697
Fourth Quarter	$	0.35	$	11,798,640	$	0.48	$	1,811,697

We expect the first quarter 2006 common stock dividend, which is subject to Board approval and will be declared in mid March and paid in April, will be $0.35 per share consistent with the fourth quarter 2005 dividend. Commencing in the second quarter of 2006, we expect to reduce the common stock dividend from $0.35/share to $0.275/common share (annualized from $1.40 to $1.10). The second quarter dividend will be paid to common shareholders of record on July 1, 2006.

18

Federal income tax law requires that a REIT distribute annually at least 90% of its REIT taxable income. Our future distributions will be at the discretion of our Board of Directors and will depend upon our actual Funds from Operations (as defined beginning on page 19), our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Internal Revenue Code, applicable legal restrictions and such other factors as the Board of Directors deems relevant. We intend to continue our policy of paying quarterly distributions, but we cannot assure you that distributions will continue or be paid at any specific level.

Equity Compensation Plan Information

The following table sets forth information regarding our equity compensation plans as of December 31, 2005:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under plans (excluding securities listed in column A)
Equity compensation plans approved by security holders	2,531,701	$	23.46	306,184
Equity compensation plans not approved by security holders	0		N/A	0

Issuer Purchases of Equity Securities

Period	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1, 2005 – October 31, 2005	1,087,100	$	18.83	1,087,100	718,084
November 1, 2005 – November 30, 2005	1,238,600		18.84	1,238,600	3,479,484
December 1, 2005 – December 31, 2005	200,200		19.06	200,200	3,279,284
Total	2,525,900	$	18.87	2,525,900	3,279,284

(a) None of the shares listed below were purchased other than through a publicly announced plan or program. All shares were purchased through open market transactions.

(b) On February 8, 1999, the Board of Directors authorized a plan to repurchase up to 3,100,000 shares of common stock over a period of up to two years. The number of shares was increased to 6,200,000 on November 4, 1999, increased to 8,200,000 and extended indefinitely on December 29, 2000, and further increased to 12,210,700 on November 8, 2005.

19

Item 6. Selected Financial Data

Set forth below is selected financial data. Consolidated balance sheet and operating data is presented as of and for each of the five years ended December 31, 2005 (dollars in thousands).

The data set forth below should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements, including the notes thereto, included in Item 15. “Exhibits, Financial Statements, Schedules and Reports on Form 8-K.”

	2005			2004			2003			2002			2001
Operating Data:
Rental revenue	$	158,078		$	140,207		$	124,164		$	98,804		$	89,510
Fees and reimbursements, including from related parties		4,792			4,046			3,616			3,672			6,627
Total operating revenue		162,870			144,253			127,780			102,476			96,137
Property operating expenses		54,376			46,726			38,779			28,516			25,880
General and administrative		15,080			11,545			12,368			11,685			10,888
Depreciation and amortization		51,026			44,476			35,992			27,198			23,261
Provision for impairment of real estate assets		7,829			3,752			2,852			—			—
Total operating expenses		128,311			106,499			89,991			67,399			60,029
Interest and other income		2,614			2,597			3,556			5,510			5,216
Interest expense		37,708			29,760			26,004			22,172			20,646
Loss on early extinguishment of debt		4,725			2,035			294			9,399			1,539
Provision for impairment of non-real estate assets		—			—			5,746			—			—
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		(4,801	)		9,361			9,905			7,519			17,232
Discontinued operations		4,263			20,445			22,426			12,083			26,642
Net income		520			28,222			31,069			21,274			43,343
Net income (loss) available to common stockholders		(12,632	)		6,977			11,901			1,710			23,779
Basic income (loss) per share:
Income (loss) from continuing operations	$	(0.47	)	$	(0.35	)	$	(0.30	)	$	(0.33	)	$	(0.01	)
Net Income (loss) available to Common Stockholders		(0.36	)		0.22			0.43			0.06			0.88
Diluted income (loss) per share (1):
Income (loss) from continuing operations	$	(0.47	)	$	(0.35	)	$	(0.30	)	$	(0.33	)	$	—
Net Income (loss) available to Common Stockholders		(0.36	)		0.22			0.43			0.06			0.87
Distributions (2)		1.40			1.40			1.56			1.72			1.69

20

	2005			2004			2003			2002			2001
Balance Sheet Data:
Rental properties, gross	$	1,296,057		$	1,367,310		$	1,402,183		$	1,433,536		$	1,338,022
Accumulated depreciation		(186,449	)		(220,229	)		(188,721	)		(186,082	)		(146,249	)
Rental properties, net		1,109,608			1,147,081			1,213,462			1,247,454			1,191,773
Investments in land and development		51,750			147,435			67,493			78,529			98,105
Investments in unconsolidated joint ventures		12,040			12,014			12,211			7,822			7,076
Mortgage loans receivable		11,231			12,872			40,323			41,813			39,061
Total assets		1,346,130			1,431,145			1,402,429			1,430,165			1,384,208
Total debt (5)		811,539			719,390			739,266			734,917			653,014
Stockholders’ equity		447,644			625,437			574,670			610,637			644,729
Other Data:
Cash flow provided by (used for):
Operating activities		57,653			67,359			73,550			89,126			79,719
Investing activities		121,267			(32,605	)		(24,231	)		(95,598	)		(74,372	)
Financing activities		(180,299	)		(48,778	)		(35,600	)		7,335			(103,132	)
FFO available to Common Stockholders (3)		(42,277	)		56,142			55,543			48,050			72,404
Debt to total market capitalization (4)		51.7	%		41.8	%		46.1	%		47.8	%		43.9	%

⁽¹⁾ Diluted amounts include the effects of all classes of securities outstanding at year-end, including units of Operating Partnership interests and options to purchase our stock, excluding those that are anti-dilutive.

⁽²⁾ Historical distributions per common share for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 consist of distributions declared for the periods then ended.

⁽³⁾ Funds from Operations, or FFO, as defined and calculated on the following pages.

⁽⁴⁾ Debt to total market capitalization is calculated as total debt at period end divided by total debt plus the market value of our outstanding common stock and convertible Operating Partnership units (based upon the closing prices of the common stock in the table below) plus the liquidation value of our outstanding preferred stock based on the liquidation preference per share of $25.00 for all periods presented.

December 31,	Price Per Share of Common Stock
2005	$	18.10
2004		21.28
2003		19.95
2002		17.82
2001		19.40

⁽⁵⁾ Including amounts for properties classified as held for sale.

Funds from Operations

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

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

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

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

21

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

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

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

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

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

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

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

22

The following table sets forth our reconciliation of net income to funds from operations (FFO) for each of the five years ended December 31, 2005 (in thousands).

	For the Year Ended December 31,
	2005			2004			2003			2002			2001
Net Income	$	520		$	28,222		$	31,069		$	21,274		$	43,343
Cumulative effect of change in accounting principle		—			912			—			—			—
Real estate depreciation and amortization, net of minority interest (1)		52,329			55,926			50,667			47,169			41,914
Preferred dividends		(7,247	)		(13,272	)		(19,422	)		(19,564	)		(19,564	)
Dividends paid on redeemed preferred stock		(596	)		(2,073	)		—			—			—
(Premium)/discount and write-off of original issuance costs on preferred stock redemption		(5,309	)		(5,900	)		254			—			—
Net gain on sale from discontinued operations, net of minority interest		(79,361	)		(13,164	)		(12,816	)		(6,156	)		(649	)
Adjustment for SFAS No. 13 rents (2)		—			—			—			—			(2,363	)
Loss on early extinguishment of debt (2)		—			—			—			—			1,732
Adjustment to reflect FFO of unconsolidated operating JV’s (3)		713			714			430			444			602
Adjustment to reflect FFO of minority interest (4)		(3,326	)		4,777			5,361			4,883			7,389
FFO available to Common Stockholders	$	(42,277	)	$	56,142		$	55,543		$	48,050		$	72,404

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

⁽²⁾ Prior to 2002, these items were excluded from the calculation of FFO.

⁽³⁾ Represents the adjustments to FFO required to reflect the FFO of the unconsolidated joint ventures allocable to us. Our investments in the joint ventures are accounted for using the equity method of accounting.

⁽⁴⁾ Represents the minority interest holders’ share of real estate depreciation and amortization and gain/loss on sales from discontinued operations.

23

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our results of operations, liquidity and capital resources, and financial condition should be read in conjunction with the selected financial data in Item 6 and the Consolidated Financial Statements, including the notes thereto, included in Item 15.

Results of Operations

Overview

During 2005, we redeemed 3.1 million shares of preferred stock from the proceeds of a secondary offer completed in late 2004. This year we acquired three office properties for a total purchase price of approximately $217 million and sold seventeen non-core properties for total consideration of approximately $308 million. We also repurchased and retired 2.5 million shares of common stock at an average price of $18.87 per share in 2005. Our floating rate debt decreased from 19% of total debt at the end of 2004 to 13% at the end of 2005.

Portfolio Performance

Total portfolio occupancy (excluding joint ventures) increased from 87.2% at December 31, 2004 to 90.2% at December 31, 2005. Net operating income (adjusted for discontinued operations) decreased 3.2% from $124.6 million for the year ended December 31, 2004 to $120.6 million for the year ended December 31, 2005. This decrease primarily resulted from property dispositions and the bankruptcy of a large tenant in the Boston market as discussed further below under Rental Revenue. This decrease was partially offset by property acquisitions and increases in occupancy and rental rates.

Lease Maturities

Our leases range in term from one month to 25 years. The weighted average term of our leases in place as of December 31, 2005 is approximately 7.3 years. See Item 2 above for a table which details our contractual lease expirations, by market, for our properties as of December 31, 2005. Based upon the strength of the national leasing market, we anticipate that lease rollover will affect our rental revenues with changes in portfolio occupancy and changes in rental rates upon lease renewal. In 2005, we had approximately 654,000 square feet of new leasing production at an average rent of $18.94 per square foot. We also renewed approximately 982,000 square feet of office leases which expired in 2005 at an average rent per square foot of $18.51. This represented an increase in effective rents from renewals (annualized rents net of concessions) of 1.8% during 2005.

Non-Core Asset Dispositions

In March 2005, after an in-depth review of our portfolio on an asset by asset basis, we decided to dispose of assets in our non-core markets, as well as certain non-core assets in core markets. Accordingly, we reduced the intended holding period of 21 assets to two years or less. Based on our analysis of the discounted cash flows of each asset over the next two years, we determined that nine of the assets were impaired due primarily to higher vacancy and lower rental rates in the respective markets. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was $49,312,000. When combined with impairment charges of $8,924,000 recognized on two additional assets sold during the first quarter of 2005, additional impairments of $1,009,000 recognized on two assets during the third quarter of 2005, and additional impairments of $35,068,000 recognized on three assets during the fourth quarter of 2005, the total impairment charge recognized during the year ended December 31, 2005, was $94,313,000. As of December 31, 2005, seventeen of the 21 assets have been sold, as well as one other office property, for an aggregate gain on sale of $86,018,000 and a reversal of an impairment charge of $1,331,000.

Comparison of the year ended December 31, 2005 to the year ended December 31, 2004.

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

24

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

	2005									2004
(In thousands)	As Reported			Discontinued Operations			Adjusted			As Reported			Discontinued Operations			Adjusted
OPERATING REVENUE
Rental revenue	$	158,078		$	31,473		$	189,551		$	140,207		$	51,571		$	191,778
Fees and reimbursements, including from related parties		4,792			—			4,792			4,046			—			4,046
Total operating revenue		162,870			31,473			194,343			144,253			51,571			195,824
OPERATING EXPENSES
Property operating expenses		54,376			14,558			68,934			46,726			20,462			67,188
General and administrative		15,080			8			15,088			11,545			40			11,585
Depreciation and amortization		51,026			6,978			58,004			44,476			18,171			62,647
Provision for impairment of real estate assets		7,829			86,484			94,313			3,752			—			3,752
Total operating expenses		128,311			108,028			236,339			106,499			38,673			145,172
Interest and other income		2,614			—			2,614			2,597			2			2,599
Equity in earnings of unconsolidated operating JV’s		459			—			459			805			—			805
Interest expense		(37,708	)		(3,253	)		(40,961	)		(29,760	)		(6,842	)		(36,602	)
Loss on early extinguishment of debt		(4,725	)		(3,278	)		(8,003	)		(2,035	)		(40	)		(2,075	)
Income (loss) before gain on sales of real estate assets, minority interest, discontinued operations and cumulative effect of change in accounting principle		(4,801	)		(83,086	)		(87,887	)		9,361			6,018			15,379
Reversal of provision for impairment of real estate assets		—			1,331			1,331			—			—			—
Gain on sales of real estate assets		—			86,018			86,018			—			14,427			14,427
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting		(4,801	)		4,263			(538	)		9,361			20,445			29,806
Minority interest (1)		1,058			—			1,058			(672	)		—			(672	)
Income (loss) before discontinued operations and cumulative effect of change in accounting principle		(3,743	)		4,263			520			8,689			20,445			29,134
Discontinued operations		4,263			(4,263	)		—			20,445			(20,445	)		—
Income before cumulative effect of change in accounting principle		520			—			520			29,134			—			29,134
Cumulative effect of change in accounting principle		—			—			—			(912	)		—			(912	)
Net income		520			—			520			28,222			—			28,222
Preferred dividends		(7,247	)		—			(7,247	)		(13,272	)		—			(13,272	)
Dividends paid on redeemed preferred stock		(596	)		—			(596	)		(2,073	)		—			(2,073	)
(Premium)/discount and write-off of original issuance costs on redemption		(5,309	)		—			(5,309	)		(5,900	)		—			(5,900	)
Net income (loss) available to Common Stockholders	$	(12,632	)	$	—		$	(12,632	)	$	6,977		$	—		$	6,977

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

25

Net Operating Income, Following is a table of net operating income by market, for comparative purposes, presenting the results for the years ended December 31, 2005 and 2004 (in thousands). The data set forth below should be read in conjunction with “Note 16. Segment Information” in our consolidated financial statements included in Item 15 of Part IV:

	2005		% of Total		2004		% of Total
Washington D.C.	$	28,153	23.3	%	$	26,115	21.0	%
Southern California		23,008	19.1	%		23,016	18.5	%
Boston		13,522	11.2	%		17,576	14.1	%
Northern New Jersey		15,455	12.8	%		15,925	12.8	%
San Francisco		8,780	7.3	%		7,035	5.6	%
Chicago		4,346	3.6	%		6,926	5.6	%
St. Louis		3,310	2.7	%		5,032	4.0	%
Tampa/Orlando		5,555	4.6	%		4,941	4.0	%
Denver		4,107	3.4	%		3,414	2.7	%
Minneapolis		2,717	2.3	%		3,248	2.6	%
All others		11,664	9.7	%		11,362	9.1	%
Total Net Operating Income	$	120,617	100.0	%	$	124,590	100.0	%

Rental Revenue. Rental revenue decreased $2,227,000 or 1% to $189,551,000 for the year ended December 31, 2005 from $191,778,000 for the year ended December 31, 2004. This change primarily resulted from property dispositions and the bankruptcy of Axiowave Networks, Inc., a tenant at Marlborough Corporate Place, an office property located in Marlborough, Massachusetts, which defaulted on its lease obligation in December 2004. Axiowave’s lease encompassed approximately 100,000 square feet at Marlborough Corporate Place and accounted for approximately $2.9 million of annual revenues. This decrease was offset by property acquisitions and increases in occupancy and rental rates. Following is a table of rental revenue by market, for comparative purposes, presenting the results for the years ended December 31, 2005 and 2004 (in thousands):

	2005		2004
Washington D.C.	$	38,288	$	35,977
Southern California		34,187		33,514
Boston		25,745		28,791
Northern New Jersey		24,135		24,500
San Francisco		13,012		10,177
Chicago		9,289		12,724
St. Louis		6,061		8,147
Tampa/Orlando		8,157		7,573
Denver		6,697		5,585
Minneapolis		5,209		5,711
All others		18,771		19,079
Total Rental Revenue	$	189,551	$	191,778

Fees and Reimbursements, Including From Related Parties. Fees and reimbursements, including from related parties, consist primarily of property management and asset management fees paid to us under property and asset management agreements with the unconsolidated joint ventures and the Rancon Partnerships. This revenue increased $746,000 to $4,792,000 for the year ended December 31, 2005, from $4,046,000 for the year ended December 31, 2004, primarily due to increased financing, lease consulting, development and other fees.

26

Property Operating Expenses. Property operating expenses increased $1,746,000, or 3%, to $68,934,000 for the year ended December 31, 2005, from $67,188,000 for the year ended December 31, 2004, primarily due to property acquisitions and increased property taxes and utility costs, offset by dispositions. Following is a table of property operating expenses by market, for comparative purposes, presenting the results for the years ended December 31, 2005 and 2004 (in thousands):

	2005		2004
Washington D.C.	$	10,135	$	9,862
Southern California		11,179		10,498
Boston		12,223		11,215
Northern New Jersey		8,680		8,575
San Francisco		4,232		3,142
Chicago		4,943		5,798
St. Louis		2,751		3,115
Tampa/Orlando		2,602		2,632
Denver		2,590		2,171
Minneapolis		2,492		2,463
All others		7,107		7,717
Total Property Operating Expenses	$	68,934	$	67,188

General and Administrative Expenses. General and administrative expenses increased $3,503,000 to $15,088,000 for the year ended December 31, 2005, from $11,585,000 for the year ended December 31, 2004. This increase is primarily due to higher professional fees related to Sarbanes-Oxley 404 compliance and the restatement of prior year financials, increases in state franchise taxes and increases in incentive compensation costs.

Depreciation and Amortization. Depreciation and amortization decreased $4,643,000 to $58,004,000 for the year ended December 31, 2005, from $62,647,000 for the year ended December 31, 2004. This decrease is primarily due to property dispositions and ceasing depreciation of assets held for sale, partially offset by depreciation and amortization associated with acquisitions.

Provision for Impairment of Real Estate Assets. In connection with our decision in March 2005 to dispose of assets in its non-core markets and certain non-core assets in core markets, we reduced the intended holding period of 21 assets to two years or less in March 2005. Prior to that decision there were no impairment indicators and the cash flows of the properties were sufficient to recover the carrying value of the asset over the previous intended holding period. Based on our analysis of the discounted cash flows of each asset over the next two years, we determined that nine of the assets were impaired. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was approximately $49.3 million. When combined with impairment charges recognized on two additional assets sold during the first quarter of 2005 (as discussed in Notes 5 and 6) and additional impairments recognized during the third and fourth quarter of 2005, the total impairment charge recognized during the year ended December 31, 2005, was approximately $94.3 million ($86.5 million of which is included in discontinued operations). During the fourth quarter, we classified a development project as held for sale and recorded impairment charges of $32.3 million relating to the difference between the basis of the project and the estimated net proceeds expected to be realized upon sale. Prior to that date, we intended to hold the development project and there were no impairment indicators. We also recorded a provision for impairment of $375,000 to reduce the carrying value of a 50% owned development joint venture which is developing a residential project in San Mateo, California, from approximately $779,000 to its estimated fair value of $404,000, due to lower than anticipated sales values based on changes in market conditions. In addition, we concluded that a note receivable of $3.6 million secured by real estate was impaired and recorded an allowance for loan losses of $2.3 million. We measure the impairment of the loan based upon the excess of the recorded investment amount over the current estimated fair value of the collateral, as reduced by selling costs. In connection with the dispositions of Columbia Centre II and Embassy Plaza, an additional provision for impairment of real estate assets of $234,000 was recognized due to higher than anticipated costs to sell the properties. In the fourth quarter of 2004, due to the adverse outcome of an initiative for the zoning and precise plan for a mixed use project known as Marina Shores in Redwood City, California, we decided to abandon an option to acquire an additional nearby parcel of land known as Pete’s Harbor. As a result, we recorded a provision for impairment to write off our basis in the option of $3,752,000 which consisted of previously paid option payments and predevelopment costs.

Interest and Other Income. Interest and other income increased an insignificant $15,000 to $2,614,000 for the year ended December 31, 2005, from $2,599,000 for the year ended December 31, 2004.

Interest Expense. Interest expense increased $4,359,000 to $40,961,000 for the year ended December 31, 2005, from $36,602,000 for the year ended December 31, 2004. This increase is primarily due to an increase in interest rates and changes in the mix of floating-rate debt and fixed-rate debt.

27

Loss on Early Extinguishment of Debt. During the years ended December 31, 2005 and 2004, we recorded losses on early extinguishment of debt of $8,003,000 and $2,075,000, respectively, which consisted primarily of write-off of unamortized original financing costs in connection with various loan modifications and payoffs.

Reversal of provision for impairment of real estate assets. During 2005, in connection with the disposition of one asset, we reversed approximately $1.3 million of the provision for impairment previously recognized on this asset.

Gain on sales of real estate assets. The gain on sales of real estate assets of $86,018,000 during the year ended December 31, 2005, resulted from the sale of seventeen non-core properties. The gain on sales of real estate assets of $14,427,000 during the year ended December 31, 2004, resulted from the sale of four office properties and one industrial property.

Cumulative Effect of Change in Accounting Principle. In accordance with FIN 46 Revised, we began consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary beneficiary as defined by FIN 46 Revised. The implementation of this change has been accounted for as a change in accounting principle and applied cumulatively as of January 1, 2004. The cumulative effect of the change in accounting principle resulted in a one-time non-cash reduction to our net income of $912,000, or approximately $0.03 per share, which represents the elimination of intercompany fee income recognized, slightly offset by additions to capitalized interest on this development project as if Marina Shores had been consolidated at the inception of our investment.

Charges associated with the redemption of preferred stock. In January 2005, we redeemed approximately 3.1 million shares of our outstanding 7 ³/4% Series A Convertible Preferred Stock. In connection with this redemption, during the year ended December 31, 2005, we incurred $596,000 for the stub period dividends declared and paid to the redeemed preferred shareholders, as well as a charge of $5,309,000, which consisted of $3,452,000 for the non-cash write-off of original issuance costs of the preferred shares, $1,812,000 for the premium paid to redeem the preferred shares and $45,000 in other miscellaneous costs. In April 2004, we redeemed approximately 3.1 million shares of our outstanding 7 ³/4% Series A Convertible Preferred Stock. In connection with this redemption, during the year ended December 31, 2005, we incurred charges of $2,073,000 for the stub period and final dividends declared and paid to the redeemed preferred shareholders, as well as a charge of $5,900,000, which consisted of $3,448,000 for the non-cash write-off of original issuance costs of the preferred shares, $2,407,000 for the premium paid to redeem the preferred shares and $45,000 in other miscellaneous costs.

Comparison of the year ended December 31, 2004 to the year ended December 31, 2003.

As discussed above, we generally reinvest the proceeds from property dispositions into the acquisition of new properties, therefore, we believe that it is necessary to discuss our results of operations after discontinued operations have been added back to the respective revenue and expense line items to provide a representation of the balances that management uses to evaluate the results of operations for the periods presented.

28

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

	2004									2003
(In thousands)	As Reported			Discontinued Operations			Adjusted			As Reported			Discontinued Operations			Adjusted
OPERATING REVENUE
Rental revenue	$	140,207		$	51,571		$	191,778		$	124,164		$	74,473		$	198,637
Fees and reimbursements, including from related parties		4,046			—			4,046			3,616			—			3,616
Total operating revenue		144,253			51,571			195,824			127,780			74,473			202,253
OPERATING EXPENSES
Property operating expenses		46,726			20,462			67,188			38,779			27,120			65,899
General and administrative		11,545			40			11,585			12,368			6			12,374
Depreciation and amortization		44,476			18,171			62,647			35,992			21,567			57,559
Provision for impairment of real estate assets		3,752			—			3,752			2,852			—			2,852
Total operating expenses		106,499			38,673			145,172			89,991			48,693			138,684
Interest and other income		2,597			2			2,599			3,556			16			3,572
Equity in earnings of unconsolidated operating JV’s		805			—			805			604			—			604
Interest expense		(29,760	)		(6,842	)		(36,602	)		(26,004	)		(11,987	)		(37,991	)
Loss on early extinguishment of debt		(2,035	)		(40	)		(2,075	)		(294	)		(5,587	)		(5,881	)
Provision for impairment of non-real estate assets		—			—			—			(5,746	)		—			(5,746	)
Income before gain on sales of real estate assets, minority interest, discontinued operations and cumulative effect of change in accounting principle		9,361			6,018			15,379			9,905			8,222			18,127
Gain on sales of real estate assets		—			14,427			14,427			—			14,204			14,204
Income before minority interest, discontinued operations and cumulative effect of change in accounting principle		9,361			20,445			29,806			9,905			22,426			32,331
Minority interest (1)		(672	)		—			(672	)		(1,262	)		—			(1,262	)
Income before discontinued operations and cumulative effect of change in accounting principle		8,689			20,445			29,134			8,643			22,426			31,069
Discontinued operations		20,445			(20,445	)		—			22,426			(22,426	)		—
Income before cumulative effect of change in accounting principle		29,134			—			29,134			31,069			—			31,069
Cumulative effect of change in accounting principle		(912	)		—			(912	)		—			—			—
Net income		28,222			—			28,222			31,069			—			31,069
Preferred dividends		(13,272	)		—			(13,272	)		(19,422	)		—			(19,422	)
Dividends paid on redeemed preferred stock		(2,073	)		—			(2,073	)		—			—			—
(Premium)/discount and writeoff of original issuance costs on redemption		(5,900	)		—			(5,900	)		254			—			254
Net income available to Common Stockholders	$	6,977		$	—		$	6,977		$	11,901		$	—		$	11,901

⁽¹⁾ Includes minority interest’s share of discontinued operations, preferred dividends and premium/discount and writeoff of original issuance costs on preferred stock redemptions.

29

Net Operating Income, Following is a table of net operating income by market, for comparative purposes, presenting the results for the years ended December 31, 2004 and 2003 (in thousands). The data set forth below should be read in conjunction with “Note 16. Segment Information” in our consolidated financial statements included in Item 15 of Part IV:

	2004		% of Total		2003		% of Total
Washington D.C.	$	26,115	21.0	%	$	24,349	18.3	%
Southern California		23,016	18.5	%		21,610	16.3	%
Boston		17,576	14.1	%		17,043	12.8	%
Northern New Jersey		15,925	12.8	%		16,557	12.5	%
San Francisco		7,035	5.6	%		7,893	6.0	%
Chicago		6,926	5.6	%		6,228	4.7	%
St. Louis		5,032	4.0	%		4,737	3.6	%
Tampa/Orlando		4,941	4.0	%		6,293	4.7	%
Denver		3,414	2.7	%		5,837	4.4	%
Minneapolis		3,248	2.6	%		3,496	2.6	%
All others		11,362	9.1	%		18,695	14.1	%
Total Net Operating Income	$	124,590	100.0	%	$	132,738	100.0	%

Rental Revenue. Rental revenue decreased $6,859,000 to $191,778,000 for the year ended December 31, 2004 from $198,637,000 for the year ended December 31, 2003. This change primarily resulted from property dispositions and lower occupancy, partially offset by property acquisitions and increases in rental rates. Following is a table of rental revenue by market, for comparative purposes, presenting the results for the years ended December 31, 2004 and 2003 (in thousands):

	2004		2003
Washington D.C.	$	35,977	$	33,444
Southern California		33,514		31,561
Boston		28,791		26,387
Northern New Jersey		24,500		24,145
San Francisco		10,177		10,642
Chicago		12,724		12,003
St. Louis		8,147		7,831
Tampa/Orlando		7,573		8,653
Denver		5,585		8,926
Minneapolis		5,711		6,075
All others		19,079		28,970
Total Rental Revenue	$	191,778	$	198,637

Fees and Reimbursements, Including From Related Parties. Fees and reimbursements, including from related parties, consist primarily of property management and asset management fees paid to us under property and asset management agreements with the unconsolidated joint ventures and the Rancon Partnerships. This revenue increased $430,000 to $4,046,000 for the year ended December 31, 2004, from $3,616,000 for the year ended December 31, 2003, primarily due to disposition, financing and other fees from the Rancon Partnerships.

30

Property Operating Expenses. Property operating expenses increased $1,289,000, or 2%, to $67,188,000 for the year ended December 31, 2004, from $65,899,000 for the year ended December 31, 2003, primarily due to increases in utilities, cleaning and repair and maintenance costs, partially offset by property dispositions and decreases in property taxes and administrative costs. Following is a table of property operating expenses by market, for comparative purposes, presenting the results for the years ended December 31, 2004 and 2003 (in thousands):

	2004		2003
Washington D.C.	$	9,862	$	9,095
Southern California		10,498		9,951
Boston		11,215		9,344
Northern New Jersey		8,575		7,588
San Francisco		3,142		2,749
Chicago		5,798		5,775
St. Louis		3,115		3,094
Tampa/Orlando		2,632		2,360
Denver		2,171		3,089
Minneapolis		2,463		2,579
All others		7,717		10,275
Total Property Operating Expenses	$	67,188	$	65,899

General and Administrative Expenses. General and administrative expenses decreased $789,000 to $11,585,000 for the year ended December 31, 2004, from $12,374,000 for the year ended December 31, 2003. This decrease is primarily due to staff reductions in 2003 and a decrease in travel expense in 2004, partially offset by professional fees and outside services related to Sarbanes-Oxley 404 compliance, as well as higher incentive compensation costs.

Depreciation and Amortization. Depreciation and amortization increased $5,088,000 to $62,647,000 for the year ended December 31, 2004, from $57,559,000 for the year ended December 31, 2003. This increase is primarily due to property acquisitions, net of dispositions, depreciation of capital improvements, and amortization of at-market in-place leases we recorded in accordance with SFAS No. 141. See complete description of our accounting policy regarding recognition and amortization of at-market in-place leases in Note 2 of our consolidated financial statements.

Provision for Impairment of Real Estate Assets. In the fourth quarter of 2004, due to the adverse outcome of an initiative for the zoning and precise plan for a mixed use project known as Marina Shores in Redwood City, California, we decided to abandon an option to acquire an additional nearby parcel of land known as Pete’s Harbor. As a result, we recorded a provision for impairment to write off our basis in the option of $3,752,000 which consisted of previously paid option payments and predevelopment costs. Separately, in the first quarter of 2003, we recorded a provision for impairment of approximately $2,272,000 to provide for a decrease in the carrying value of our 10% owned development joint venture which owns an office property located in San Mateo, California, to an estimated fair value of zero due to decreased leasing activity and lower than anticipated market rents. In addition, in the third quarter of 2003, we recorded a provision for impairment of $580,000 to reduce the carrying value of our 50% owned development joint venture, which is developing a residential project at Gateway Business Park in Aurora, Colorado, from approximately $1,125,000 to an estimated fair value of $545,000, due to lower than anticipated values.

Interest and Other Income. Interest and other income decreased $973,000 to $2,599,000 for the year ended December 31, 2004, from $3,572,000 for the year ended December 31, 2003. This decrease was primarily due to principal payments received on our mortgage loan receivable secured by land at Gateway Park in Colorado.

Interest Expense. Interest expense decreased $1,389,000 to $36,602,000 for the year ended December 31, 2004, from $37,991,000 for the year ended December 31, 2003. This decrease is primarily due to a decrease in the average outstanding balance on the unsecured bank line of credit, as well as other debt paid off in connection with property sales and refinancings, offset by increases in variable interest rates and new debt.

Loss on Early Extinguishment of Debt. During the year ended December 31, 2004, we recorded losses on early extinguishment of debt of $2,075,000 which consisted primarily of write-off of unamortized original financing costs in connection with various loan modifications and payoffs. During the year ended December 31, 2003, we recorded losses on early extinguishment of debt $5,881,000, which consisted primarily of prepayment penalties as well as the write-off of unamortized original financing costs. Losses related to loan payoffs in connection with property sales have been included in discontinued operations.

Provision for impairment of non-real estate assets. In the second and fourth quarters of 2003, we recorded impairment charges totaling $5,746,000 relating to anticipated losses on the disposition of our leased aircraft in the first quarter of 2004.

31

Gain on sales of real estate assets. The gain on sales of real estate assets of $14,427,000 during the year ended December 31, 2004, resulted from the sale of four office properties and one industrial property. The gain on sales of real estate assets of $14,204,000 during the year ended December 31, 2003, resulted from the sale of eight office properties, eight industrial properties and one multifamily property.

Cumulative Effect of Change in Accounting Principle. In accordance with FIN 46 Revised, we began consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary beneficiary as defined by FIN 46 Revised. The implementation of this change has been accounted for as a change in accounting principle and applied cumulatively as of January 1, 2004. The cumulative effect of the change in accounting principle resulted in a one-time non-cash reduction to our net income of $912,000, or approximately $0.03 per share, which represents the elimination of intercompany fee income recognized, slightly offset by additions to capitalized interest on this development project as if Marina Shores had been consolidated at the inception of our investment.

Liquidity and Capital Resources

Cash Flows

For the year ended December 31, 2005, cash provided by operating activities was $57,653,000 as compared to $67,359,000 for the same period in 2004. This change is primarily due to an increase in cash paid for deposits and impounds, partially offset by a decrease in net operating income from the rental properties (as discussed above) and increases in general and administrative expenses (as discussed above). In 2005, investing activities provided cash of $121,267,000 as compared to cash used for investing activities in 2004 in the amount of $32,605,000. This change is primarily due to significantly higher proceeds from property sales in 2005, offset somewhat by funds used for acquisition of properties, and a decrease in funds used for investments in land and development in 2005 over 2004. Cash used for financing activities was $180,299,000 for the year ended December 31, 2005, as compared to $48,778,000 for the same period in 2004. This change is due to several factors, including repurchases of common stock in 2005 that did not occur in 2004 and the inclusion in 2004 cash used for financing activities of proceeds from issuance of common stock and an increase in cash used for the repayment of debt, partially offset by an increase in proceeds from new debt.

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

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

Contractual Obligations

At December 31, 2005, we had contractual obligations as follows (in thousands):

	Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years		Total
Secured mortgage loans	$	214,271	$	117,536	$	198,881	$	174,182	$	704,870
Unsecured bank line of credit		—		106,669		—		—		106,669
Interest on indebtedness (1)		39,733		51,706		29,672		24,832		145,943
Total	$	254,004	$	275,911	$	228,553	$	199,014	$	957,482

(1) For variable rate loans, this represents estimated interest expense based on outstanding balances and interest rates at December 31, 2005.

32

Financial Condition

Investments in Land and Development

Our investments in land and development decreased from $147,435,000 at December 31, 2004 to $51,750,000 at December 31, 2005. The decrease is due to the classification of a development project as held for sale in connection with our decision to sell a majority interest of the asset to our joint venture partner. Further, an impairment charge of $32.3 million was recorded relating to the difference between the basis of the project and the estimated net proceeds expected to be realized upon sale. In addition, the decrease is attributable to the March 28, 2005 disposition of approximately 27 acres of land held for development, known as Eden Shores located in Hayward, California. Finally, on January 31, 2005, we sold our interest in the Gateway Office Five development project located in Denver, Colorado, which was in the form of a mezzanine loan.

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

Market	Properties	Description	City	Proposed Square Footage	Economic Interest		Investment Balance at December 31, 2005			Investment Balance at December 31, 2004
Denver	Gateway Office Five	Fifth office building constructed at Gateway Park (1-story)	Denver	—	—	(1)		—	(1)	$	835
TOTAL PROPERTIES UNDER DEVELOPMENT				—				—		$	835
Boston	Marlborough Corporate Place	Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place	Marlborough	235,000	100	%	$	5,248		$	5,170
	Subtotal - Boston			235,000				5,248			5,170
Denver	Gateway Park	1,200 acre mixed-use park near Denver International Airport; approximately 442 acres undeveloped	Denver	1,200 acres	50	%(2)		35,994	(2)		34,636	(2)
	Lima Street	19.5 acres of undeveloped land in Englewood, Colorado, zoned for office use	Denver	120,000	100	%		4,750			4,750
	Subtotal - Denver			120,000				40,744			39,386
San Francisco	Marina Shores	33.2 acre mixed-use waterfront community which could include office, retail and multifamily units; currently in entitlement process	Redwood City	33.2 acres	50	%(3)		—	(3)		79,548
	Eden Shores	27 acres zoned for the construction of a 600,000 square foot office park	Hayward	—	—	(4)		—	(4)		16,530
	Subtotal - San Francisco			—				—			96,078
		Other land held for development	New Jersey/San Francisco					5,758			5,966
TOTAL LAND HELD FOR DEVELOPMENT				355,000			$	51,750		$	146,600
TOTAL INVESTMENTS IN LAND AND DEVELOPMENT				355,000			$	51,750		$	147,435

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

⁽²⁾ Interest in the form of mezzanine loans and equity. In addition, we hold a mortgage loan receivable secured by the land with a balance of $11,231 and $12,872 at December 31, 2005 and December 31, 2004, respectively (see Note 8 for further discussion).

⁽³⁾ Interest in the form of equity and mezzanine loans. We consolidated this entity on January 1, 2004, pursuant to FIN 46 Revised. See Note 18 for further discussion. This property was classified as held for sale at December 31, 2005.

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

We have no further contractual obligations for the future funding of these developments; however, we will likely be funding a portion of their working capital needs until such time as other financing is obtained. Under our

33

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

Certain of the alliances with which we conduct business have been deemed to be VIEs as defined by FIN 46 Revised; however, other than Marina Shores as discussed in Note 18, none of these VIEs are required to be consolidated as we are not deemed to be the primary beneficiary as defined by FIN 46 Revised. The total assets and liabilities of such entities were approximately $97.6 million and $60.0 million, respectively, at December 31, 2005, and $92.8 million and $54.5 million, respectively, at December 31, 2004. Our maximum exposure to loss is equal to our investments in these arrangements, plus the related debt guarantees, as described above.

Investments in Unconsolidated Joint Ventures

Investments in unconsolidated joint ventures varied only slightly from $12,014,000 at December 31, 2004 to $12,040,000 at December 31, 2005. This increase was primarily due to our equity interests in the joint ventures’ earnings in excess of cash distributions received from the joint ventures.

Mortgage Loans Receivable

Mortgage loans receivable consists primarily of a first mortgage secured by a 50% interest in 152 acres of land at December 31, 2005 and 2004 at Gateway Business Park in Aurora, Colorado (as noted in above table). Periodic payments of interest and principal are received from proceeds of land parcel sales in the project. The balance of mortgage loans receivable decreased from $12,872,000 at December 31, 2004, to $11,231,000 at December 31, 2005, due to principal payments received of $3,080,000, partially offset by monthly interest accruals totaling $1,439,000. The borrowing entities in this loan arrangement have been deemed to be VIEs, but we are not deemed to be the primary beneficiary as defined by FIN 46 Revised. Our maximum exposure to loss is equal to the recorded amount of our loan, including accrued interest.

As discussed in Investments in Land and Development, in connection with the disposition of approximately 27 acres of land held for development, known as Eden Shores located in Hayward, California, we received a first mortgage loan receivable of $7 million, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a maturity date of March 28, 2007. On June 28, 2005, this mortgage loan receivable was sold to a bank for approximately $6.98 million which was the outstanding principal balance on that date. We did not recognize any gain or loss on this transaction (Note 8).

Mortgage Loans and Unsecured Bank Line

At December 31, 2005, our total indebtedness included fixed-rate debt of $704,870,000 and floating-rate debt of $106,669,000.

During the year ended December 31, 2005, mortgage loans payable increased from $698,070,000 to $704,870,000 (including amounts related to properties classified as held for sale). This increase resulted from new mortgage loans obtained totaling $218,000,000 and mortgage loans assumed in connection with acquisitions of $74,114,000, offset by $8,738,000 of scheduled principal amortization, $204,246,000 paid off in connection with property sales, and $72,330,000 of loan payoffs in connection with new financings.

Outstanding borrowings under our unsecured bank line of credit increased from $21,320,000 at December 31, 2004, to $106,669,000 at December 31, 2005. The increase was due to draws totaling $299,383,000 for the January 2005 preferred stock redemption, new financings, property acquisitions, common stock repurchases and development advances, offset by pay downs totaling $214,034,000 generated from the proceeds from property sales, new financings, the sale of the Eden Shores mortgage loan receivable and cash flow from operations. The unsecured bank line of credit requires us, among other things, to be in compliance with certain financial and operating covenants. We have been in compliance during all of 2005 and remain in compliance at December 31, 2005.

34

During the last two years the following transactions occurred (dollars in thousands):

	December 31, 2005			December 31, 2004
Balance at beginning of year	$	698,070		$	649,325
Repayments and scheduled principal amortization (a)		(240,158	)		(108,825	)
New borrowings and refinancings (b)		218,000			108,696
Assumed through property acquisitions (see Note 4 — Acquisitions of rental properties)		74,114			21,049
Assumed through consolidation of Marina Shores (c)		—			45,000
Repaid upon sale of properties (see Note 5 — Dispositions of rental properties)		(45,156	)		—
Disposition of real estate involving buyer’s assumption of mortgage loan		—			(17,175	)
Balance at end of year	$	704,870		$	698,070

(a) During 2005, we repaid mortgage debt and unencumbered the following properties: Montgomery Executive Center, Newport Plaza, Westford Corporate Center, Oakbrook Terrace Corp, Columbia Centre II, Embassy Plaza, Woodlands Plaza, Woodlands Tech, Park Place, Lake Point Business Park, Riverview Office Tower and Capitol Center.

During 2004, we repaid mortgage debt and unencumbered the following properties: 700 South Washington, 90 Libbey Parkway, Hartwood Building and 1525 Wilson.,

(b) During 2005, we obtained three new mortgage loans encumbering the following properties: King Street Station II, 400 South El Camino, Gateway Park and University Center. In addition, we refinanced and expanded four existing mortgage loans.

During 2004, we obtained three new mortgage loans encumbering the following properties: Capitol Center and 1525 Wilson.

(c) In accordance with FIN 46 Revised, we began consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary beneficiary as defined by FIN 46 Revised. Marina Shores has total debt of $45 million consisting of two loans, with a $30 million loan bearing interest at the fixed rate of 6.32%, and a $15 million loan bearing interest at the fixed rate of 8.32%. Both loans require monthly interest-only payments and mature on February 15, 2007.

Some of our properties are held in limited partnerships and limited liability companies in order to facilitate financing. All such entities are owned 100% directly or indirectly by us.

Equity and Debt Offerings

On December 16, 2004, we completed the sale of 4,000,000 shares of common stock in an offering underwritten by Goldman, Sachs & Co. The 4,000,000 shares were sold at a per share price of $20.80, resulting in proceeds, net of offering costs, of approximately $82 million. We used the net proceeds to redeem a portion of the outstanding shares of our Preferred Stock on January 28, 2005 (as discussed below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under our unsecured bank line of credit.

On March 19, 2004, we completed the sale of 3,910,000 shares of common stock (including the exercise of the over allotment of 510,000 shares) in an offering underwritten by Goldman, Sachs & Co. The 3,910,000 shares were sold at a per share price of $21.20, resulting in proceeds, net of offering costs, of approximately $81.3 million. We used the net proceeds to redeem a portion of the outstanding shares of our Preferred Stock on April 30, 2004 (as discussed below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under our unsecured bank line of credit.

Preferred Stock Redemptions

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

35

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

Stock Repurchases

In 1999, our Board of Directors authorized the repurchase of up to 6.2 million shares of our outstanding Common Stock. This represented approximately 20% of our total outstanding Common Stock. In December 2000, the repurchase authorization was increased to approximately 8.2 million shares, representing approximately 26% of Common Stock outstanding when the repurchase program began. In November 2005, the repurchase authorization was increased to approximately 12.2 million shares, representing approximately 38% of Common Stock outstanding when the repurchase program began. As of December 31, 2005, 8,920,716 common shares have been repurchased at an average price per share of $17.32 and a total cost of approximately $154.5 million; this represents approximately 74% of the expanded repurchase authorization and approximately 28% of Common Stock outstanding when the repurchase program began. In addition, during 1999, we announced that our Board of Directors had approved the repurchase of up to 15% of its Preferred Stock, or 1,725,000 shares. In May 2000, the Preferred Stock repurchase authorization was increased to 3,450,000 shares, representing approximately 30% of Preferred Stock outstanding when the repurchase program began. As of December 31, 2005, 1,543,700 preferred shares have been repurchased at an average price per share of $15.72 and a total cost of approximately $24.2 million; this represents approximately 45% of the expanded repurchase authorization and approximately 13% of Preferred Stock outstanding when the repurchase program began. We intend to make future stock repurchases from time to time in the open market or otherwise and the timing will depend on market conditions and other factors. Subsequent to December 31, 2005, 1.8 million shares of our Common Stock have been repurchased at a total cost of approximately $34.3 million.

Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

Revenue recognized on a straight-line basis

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

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

Our rental properties are generally carried at the lower of depreciated cost or estimated fair value. Estimated fair value: (i) is based upon our 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 our plans related to each of our properties is dependent upon, among other things, the presence of economic conditions which will enable us 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 our properties could be materially different than current expectations.

We review our properties for impairment quarterly and whenever events or changes in circumstances indicate that the carrying value of a property may not be recoverable. Impairment is recognized when estimated expected future

36

cash flows (undiscounted and without interest) is less than the carrying amount of the property. The estimate of expected future net cash flows is inherently uncertain and relies on assumptions regarding current and future market conditions. These estimates could be impacted by significant changes in occupancy, lease termination or move-out by significant customers, or significant decreases in base rent at the property. If impairment analysis assumptions change, then an adjustment to the carrying amount of our long-lived assets could occur in the future period in which estimates change.

Depreciation is computed on a straight line basis over the expected useful life of the assets. Determination of the estimated useful life of an asset requires assumptions regarding the probable period over which the asset will be utilized. Changes in the expected life of the assets would impact depreciation and amortization recorded in the consolidated financial statements.

We account for the acquisition of real estate in accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, whereby the fair value of the real estate acquired is allocated to the acquired tangible assets and identified intangible assets. The estimate of fair value is inherently uncertain and relies on assumptions regarding cash flows and current and future market conditions. These estimates could be impacted by significant changes in future cash flows which would impact the allocation among assets acquired and the resulting depreciation and amortization.

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

Property dispositions

We report real estate dispositions under Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which requires us to separately report assets held for sale as discontinued operations if the operations and cash flows of the property have been (or will be) eliminated from our ongoing operations as a result of the disposition. Amounts included in discontinued operations include operating results of the property and the related gain or loss upon sale. Results of prior periods are included in discontinued operations to conform to that presentation. Sales of real estate are recognized when a contract has been executed, initial and continuing investment is adequate to demonstrate a commitment to pay for the property and we do not have substantial continuing involvement in the property.

Our status as a real estate investment trust

We have elected to be taxed as a REIT under Sections 856 to 860 of the Internal Revenue Code. A real estate investment trust generally is not subject to federal income tax on that portion of its real estate investment trust taxable income that is distributed to its stockholders, provided that at least 90% of real estate investment trust taxable income is distributed and other requirements are met. We believe that we have complied with all requirements to qualify as a REIT for each of the years in the three-year period ended December 31, 2005. Also, we do not believe that the sales of properties during the current year will violate any REIT rules or result in the characterization of us as a dealer. Accordingly, no provision for income taxes is included in our consolidated financial statements.

Our variable interest entities under FIN 46 Revised

Certain of the entities through which and with which we conduct business have been deemed to be VIEs under the provisions of FIN 46 Revised. In accordance with FIN 46 Revised, we began consolidating the entity known as Marina Shores, effective January 1, 2004, as we are deemed to be the primary beneficiary as defined by FIN 46 Revised. We have other alliances which are VIEs, but we are not the primary beneficiary of them. Accordingly, the alliances are not consolidated but are accounted for under the equity method of accounting.

New Accounting Pronouncements

In April 2005, the FASB issued FASB Interpretation 47, “Accounting for Conditional Asset Retirement Obligations” which states that companies must recognize a liability for the fair value of a legal obligation to perform asset-retirement activities that are conditional on a future event if the amount can be reasonably estimated. This Interpretation clarifies that conditional obligations meet the definition of an asset-retirement obligation in SFAS No. 143, “Accounting for Asset Retirement Obligations”, and therefore, should be recognized if their fair value is reasonably estimable. The Interpretation provides additional guidance to evaluate whether fair value is reasonably

37

estimable. Companies must adopt this Interpretation no later than the end of the fiscal year ending after December 15, 2005. The adoption of Interpretation 47 did not have a material impact on our financial position, net earnings or cash flows.

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

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-Monetary Assets an amendment of APB No. 29”. This Statement amends APB Opinion No. 29, “Accounting for Non-Monetary Transactions” to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. That exception required that some non-monetary exchanges be recorded on a carryover basis versus this Statement, which requires that an entity record a non-monetary exchange at fair value and recognize any gain or loss if the transaction has commercial substance. This Statement is effective for our fiscal year beginning January 1, 2006. We anticipate that the adoption of SFAS No. 153 will not have a material impact on our financial position, net earnings or cash flows.

In June 2005, the Emerging Issues Task Force (“EITF”) issued EITF 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights”. Under this consensus, a sole general partner is presumed to control a limited partnership (or similar entity) and should consolidate that entity unless the limited partners possess kick-out rights or other substantive participating rights as described in EITF 96-16, “Investor’s Accounting for an Investee When the Investor has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights”. As of June 29, 2005, this consensus was effective immediately for all new or modified agreements, and effective beginning in the first reporting period that ends after December 15, 2005 for all existing agreements. We did not modify any agreements subsequent to June 29, 2005. We do not believe that there will be a material impact on our financial position, results of operations or cash flows, upon adopting the consensus for existing agreements.

Inflation

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

Forward-Looking Statements; Factors That May Affect Operating Results

This Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our expectations, hopes, intentions, beliefs and strategies regarding the future. These forward-looking statements include statements relating to:

• Our intention to refinance the Capitol Place III loan at a more favorable interest rate after the expiration of a lock-out period;

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

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

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

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

38

• Our anticipation that the adoption of SFAS No. 123R will not have a material impact on our financial position, net earnings or cash flows;

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

• Our belief that the adoption of EITF 04-5 will not have a material impact on our financial position, results of operations or cash flows;

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

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

• Our expectation that changes in market interest rates will not have a material impact on the performance or fair value of our mortgage loans receivable; and

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

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

• our inability to obtain new financing for Capitol Place III at an interest rate more favorable than the currently existing rate;

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

• the unanticipated effect of any future impairment charges associated with asset dispositions or market conditions;

• an unexpected inability to collect or access capital;

• the availability and creditworthiness of prospective tenants and our ability to execute lease deals with them;

• market fluctuations in rental rates, concessions and occupancy;

• reduced demand for office space;

• failure of market conditions and occupancy levels to improve in certain geographic areas;

• defaults or non-renewal of leases by customers;

• increased interest rates and operating costs;

• our failure to obtain necessary outside financing;

• changes in market conditions render the repurchase of our stock imprudent;

• our inadvertent or technical failure to have met all requirements to qualify as a REIT;

• the adoption of SFAS No. 123R has an unanticipated, negative impact on our financial position;

39

• the unpredictability of changes in accounting rules;

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

• the unpredictability of both the frequency and final outcome of litigation.

The forward-looking statements in this Annual Report on Form 10-K are subject to additional risks and uncertainties further discussed under “Risk Factors” above and in our amended Form 10-Q’s filed for the periods ended March 31, 2005, June 30, 2005 and September 30, 2005. We assume no obligation to update or supplement any forward-looking statement.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk

Interest Rates

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

It is our policy to manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the extent that reasonably favorable rates are obtainable with such arrangements. In order to maximize financial flexibility when selling properties and minimize potential prepayment penalties on fixed rate loans, we have also entered into several variable rate debt arrangements. Approximately 13% at December 31, 2005 and 19% at December 31, 2004 of our outstanding debt, including amounts borrowed under our unsecured bank line of credit, were subject to variable rates. In addition, the average interest rate on our debt increased from 5.55% at December 31, 2004 to 5.70% at December 31, 2005. We review interest rate exposure in the portfolio continually in an effort to minimize the risk of interest rate fluctuations. We do not have any other material market-sensitive financial instruments. It is not our policy to engage in hedging activities for speculative or trading purposes.

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

	Expected Maturity Date
	2006			2007			2008			2009			2010			Thereafter			Total			Fair Value
							(in thousands)
Secured Fixed	$	214,271		$	10,601		$	106,935		$	193,270		$	5,611		$	174,182		$	704,870		$	704,035
Average interest rate		5.70	%		6.71	%		6.12	%		5.48	%		5.79	%		5.44	%		5.80	%
Unsecured Variable	$	—		$	106,669		$	—		$	—		$	—		$	—		$	106,669		$	106,669
Average interest rate		—			5.58	%		—			—			—			—			5.58	%

A change of 1/8% in the index rate to which our variable rate debt is tied would change the annual interest we incurred by approximately $133,000, based upon the balances outstanding on variable rate instruments at December 31, 2005.

Item 8. Financial Statements and Supplementary Data

The response to this item is submitted as a separate section of this Form 10-K. See Item 15.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

40

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of December 31, 2005. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective, at the reasonable assurance level, as of December 31, 2005, to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and are also effective to ensure that information required to be disclosed in the reports that we file under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive and Chief Financial Officers to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2005.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In making its assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Management has concluded that, as of December 31, 2005, our internal control over financial reporting was effective based on these criteria.

Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has issued an audit report on our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, which is included herein.

Changes in Internal Control Over Financial Reporting

Except as discussed below, there were no changes in internal control over financial reporting during our fourth quarter ended December 31, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We previously reported a material weakness related to maintaining adequate policies and procedures regarding the selection of proper accounting policies and the monitoring and review of accounting practices that have a continuing impact on our financial statements. This material weakness was remediated as of December 31, 2005. Specifically, we amortized fees paid for an unsecured line of credit obtained in prior periods over an incorrect term and did not appropriately account for these fees upon a modification to the unsecured line of credit. During the fourth quarter, we implemented a control whereby the Disclosure Committee meets on a quarterly basis to discuss complex and significant transactions in order to provide reasonable assurance that such transactions are reflected accurately and in accordance with generally accepted accounting principles in our consolidated financial statements. In addition, we implemented a control whereby the Disclosure Committee monitors significant transactions, the appropriate accounting for those transactions under generally accepted accounting principles and the impact of new standards on the Company’s financial reporting.

The previously reported material weakness related to maintaining effective controls over the presentation and disclosure of continuing and discontinued operations was remediated. During the fourth quarter, we implemented a control whereby all properties held for sale were reviewed to ensure that they have been properly included in discontinued operations in accordance with generally accepted accounting principles. In addition, we implemented a control whereby the Disclosure Committee reviews all properties on a quarterly basis in ensuring that properties are disclosed and accounted for within continuing and discontinued operations, as appropriate.

Item 9B. Other Information

None.

41

PART III

Item 10. Directors and Executive Officers of the Registrant

The information required by Item 10 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006. Information relating to our Board of Directors, including the independence of the audit committee and audit committee financial expert, will be incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006.

Item 11. Executive Compensation

The information required by Item 11 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by Item 12 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006.

Item 13. Certain Relationships and Related Transactions

The information required by Item 13 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is incorporated by reference from our definitive proxy statement for our annual stockholders’ meeting to be held on May 4, 2006.

42

PART IV

Item 15. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

Index to Financial Statements and Schedules

				Page No.
(a)	(1	)	Financial Statements
			Reports of Independent Registered Public Accounting Firms	44-45
			Consolidated Balance Sheets as of December 31, 2005 and 2004	46
			Consolidated Statements of Income for the years ended December 31, 2005, 2004 and 2003	47
			Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003	48
			Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003	49-50
			Notes to Consolidated Financial Statements	51-82
	(2)		Financial Statement Schedules
			Schedule III - Real Estate and Accumulated Depreciation	83-86
			Schedule IV - Mortgage Loans Receivable, Secured by Real Estate	87-88
	(3)		Exhibits to Financial Statements
			The Exhibit Index attached hereto is hereby incorporated by reference to this Item.	90-91

43

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Glenborough Realty Trust Incorporated:

We have completed an integrated audit of Glenborough Realty Trust Incorporated’s 2005 consolidated financial statements and of its internal control over financial reporting as of December 31, 2005 in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audit, are presented below.

Consolidated financial statements and financial statement schedules

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Glenborough Realty Trust Incorporated and its subsidiaries at December 31, 2005 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)(2) present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Internal control over financial reporting

Also, in our opinion, management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2005 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the COSO. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/    PricewaterhouseCoopers LLP

San Francisco, California

March 23, 2006

44

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Glenborough Realty Trust Incorporated:

We have audited the accompanying consolidated balance sheet of Glenborough Realty Trust Incorporated and subsidiaries as of December 31, 2004 and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2004. In connection with our audits of the consolidated financial statements, we have also audited the 2004 and 2003 information in the accompanying financial statement schedules listed in the index to financial statements and schedules. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glenborough Realty Trust Incorporated and subsidiaries as of December 31, 2004 and results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the 2004 and 2003 information in the related financial statement schedules when considered in relation to the 2004 and 2003 consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

San Francisco, California

March 15, 2005, except as to note 21

        which is as of December 16, 2005 and

        note 5 which is as of March 23, 2006

45

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED BALANCE SHEETS

As of December 31, 2005 and 2004

(in thousands, except share amounts)

	2005			2004
ASSETS
Rental properties, gross	$	1,296,057		$	1,367,310
Accumulated depreciation and amortization		(186,449	)		(220,229	)
Rental properties, net		1,109,608			1,147,081
Properties held for sale		103,548			57,327
Investments in land and development		51,750			147,435
Investments in unconsolidated joint ventures		12,040			12,014
Mortgage loans receivable		11,231			12,872
Leasing and financing costs (net of accumulated amortization of $17,664 and $19,812 as of December 31, 2005 and 2004, respectively)		22,929			22,447
Straight-line rent receivable (net of allowances of $0 and $532 as of December 31, 2005 and December 31, 2004, respectively)		16,874			15,764
Cash and cash equivalents		3,661			6,003
Other assets, net		14,489			10,202
TOTAL ASSETS	$	1,346,130		$	1,431,145
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Mortgage loans	$	659,870		$	654,748
Unsecured bank line of credit		106,669			21,320
Accrued common and preferred stock dividends		13,610			15,931
Obligations associated with properties held for sale		45,855			43,300
Other liabilities		41,276			31,282
Total liabilities		867,280			766,581
Commitments and contingencies (Note 19)
Minority interest		31,206			39,127
Stockholders’ Equity:
Common stock, $0.001 par value, 188,000,000 shares authorized, 33,710,400 and 36,033,126 shares issued and outstanding at December 31, 2005 and 2004, respectively		34			36
Convertible preferred stock, $0.001 par value, 12,000,000 shares authorized, $25.00 liquidation preference, 3,740,277 and 6,850,325 shares issued and outstanding at December 31, 2005 and 2004, respectively		4			7
Additional paid-in capital		754,050			870,622
Deferred compensation		(2,867	)		(4,056	)
Distributions in excess of accumulated earnings		(303,577	)		(241,172	)
Total stockholders’ equity		447,644			625,437
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,346,130		$	1,431,145

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

46

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2005, 2004 and 2003

(in thousands, except share and per share amounts)

	2005			2004			2003
OPERATING REVENUE
Rental revenue	$	158,078		$	140,207		$	124,164
Fees and reimbursements, including from related parties		4,792			4,046			3,616
Total operating revenue		162,870			144,253			127,780
OPERATING EXPENSES
Property operating expenses		54,376			46,726			38,779
General and administrative		15,080			11,545			12,368
Depreciation and amortization		51,026			44,476			35,992
Provision for impairment of real estate assets		7,829			3,752			2,852
Total operating expenses		128,311			106,499			89,991
Interest and other income		2,614			2,597			3,556
Equity in earnings of unconsolidated joint ventures		459			805			604
Interest expense		(37,708	)		(29,760	)		(26,004	)
Loss on early extinguishment of debt		(4,725	)		(2,035	)		(294	)
Provision for impairment of non-real estate assets		—			—			(5,746	)
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		(4,801	)		9,361			9,905
Minority interest (including share of discontinued operations)		1,058			(672	)		(1,262	)
Income (loss) before discontinued operations and cumulative effect of change in accounting principle		(3,743	)		8,689			8,643
Discontinued operations (including net gain on sales of $86,018, $14,427 and $14,204 in 2005, 2004 and 2003 respectively, and reversal of provision for impairment of $1,331, $0 and $0 in 2005, 2004 and 2003 respectively)		4,263			20,445			22,426
Income before cumulative effect of change in accounting principle		520			29,134			31,069
Cumulative effect of change in accounting principle (see Note 18)		—			(912	)		—
Net income		520			28,222			31,069
Preferred dividends		(7,247	)		(13,272	)		(19,422	)
Dividends declared on redeemed preferred stock		(596	)		(2,073	)		—
(Premium)/discount and write-off of original issuance costs on preferred stock redemption and repurchases		(5,309	)		(5,900	)		254
Net income (loss) available to Common Stockholders	$	(12,632	)	$	6,977		$	11,901
Basic Income (Loss) Per Share Data:
Continuing operations	$	(0.47	)	$	(0.35	)	$	(0.30	)
Discontinued operations		0.11			0.60			0.73
Cumulative effect of change in accounting principle		—			(0.03	)		—
Net income (loss) available to Common Stockholders	$	(0.36	)	$	0.22		$	0.43
Basic weighted average shares outstanding		35,541,377			31,167,080			27,608,267
Diluted Income (Loss) Per Share Data:
Continuing operations	$	(0.47	)	$	(0.35	)	$	(0.30	)
Discontinued operations		0.11			0.60			0.73
Cumulative effect of change in accounting principle		—			(0.03	)		—
Net income (loss) available to Common Stockholders	$	(0.36	)	$	0.22		$	0.43
Diluted weighted average shares outstanding		35,541,377			31,167,080			27,608,267
Dividends declared per common share outstanding	$	1.40		$	1.40		$	1.56
Dividends declared per preferred share outstanding	$	1.92		$	1.92		$	1.92

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

47

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2005, 2004 and 2003

(in thousands)

	Common Stock					Preferred Stock
	Shares		Par Value			Shares		Par Value			Additional paid-in capital			Deferred compensation			Distributions in excess of accumulated earnings			Total
Balance at December 31, 2002	27,928		$	28		10,098		$	10		$	785,051		$	(3,897	)	$	(170,556	)	$	610,636
Exercise of stock options	125			—		—			—			1,660			—			—			1,660
Conversion of Operating Partnership units into common stock	10			—		—			—			200			—			—			200
Common and preferred stock repurchases	(216	)		—		(142	)		—			(6,957	)		—			—			(6,957	)
Amortization of deferred compensation	—			—		—			—			—			920			—			920
Accelerated vesting of stock options	—			—		—			—			122			—			—			122
Discount on preferred stock repurchases	—			—		—			—			(254	)		—			254			—
Reallocation of limited partners’ interests in Operating Partnership	—			—		—			—			(195	)		—			—			(195	)
Dividends declared on common and preferred stock	—			—		—			—			—			—			(62,785	)		(62,785	)
Net income	—			—		—			—			—			—			31,069			31,069
Balance at December 31, 2003	27,847		$	28		9,956		$	10		$	779,627		$	(2,977	)	$	(202,018	)	$	574,670
Exercise of stock options	160			—		—			—			2,780			—			—			2,780
Issuance of common stock, net of offering costs of $2,815	7,910			8		—			—			163,275			—			—			163,283
Issuance of restricted common stock to officer	100			—		—			—			2,174			(2,174	)		—			—
Issuance of restricted common stock to directors	10			—		—			—			226			(226	)		—			—
Conversion of preferred stock to common stock	6			—		(8	)		—			—			—			—			—
Preferred stock redemption	—			—		(3,098	)		(3	)		(77,456	)		—			—			(77,459	)
Premium and write-off of original issuance costs on preferred stock redemption	—			—		—			—			3,439			—			(5,900	)		(2,461	)
Amortization of deferred compensation	—			—		—			—			—			1,321			—			1,321
Reallocation of limited partners’ interests in Operating Partnership	—			—		—			—			(3,443	)		—			—			(3,443	)
Dividends declared on common and preferred stock	—			—		—			—			—			—			(59,403	)		(59,403	)
Dividends declared on redeemed preferred stock	—			—		—			—			—			—			(2,073	)		(2,073	)
Net income	—			—		—			—			—			—			28,222			28,222
Balance at December 31, 2004	36,033		$	36		6,850		$	7		$	870,622		$	(4,056	)	$	(241,172	)	$	625,437
Exercise of stock options	178			—		—			—			2,603			—			—			2,603
Conversion of Operating Partnership units into common stock	9			—		—			—			—			—			—			—
Offering costs incurred related to December 2004 common stock offering	—			—		—			—			(174	)		—			—			(174	)
Mark-to-market of performance-based restricted common stock grant	—			—		—			—			(159	)		159			—			—
Issuance of restricted common stock	16			—		—			—			261			(261	)		—			—
Amortization of deferred compensation on restricted common stock grants	—			—		—			—			—			1,291			—			1,291
Common stock repurchases	(2,526	)		(2	)	—			—			(47,697	)		—			—			(47,699	)
Preferred stock redemption	—			—		(3,110	)		(3	)		(77,745	)		—			—			(77,748	)
Premium and write-off of original issuance costs on preferred stock redemption	—			—		—			—			3,452			—			(5,309	)		(1,857	)
Reallocation of limited partners’ interests in Operating Partnership	—			—		—			—			2,887			—			—			2,887
Dividends declared to common and preferred stockholders	—			—		—			—			—			—			(57,020	)		(57,020	)
Dividends declared on redeemed preferred stock	—			—		—			—			—			—			(596	)		(596	)
Net income	—			—		—			—			—			—			520			520
Balance at December 31, 2005	33,710		$	34		3,740		$	4		$	754,050		$	(2,867	)	$	(303,577	)	$	447,644

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

48

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended December 31, 2005, 2004 and 2003

(in thousands)

	2005			2004			2003
Cash flows from operating activities:
Net income	$	520		$	28,222		$	31,069
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including discontinued operations)		58,004			62,647			57,559
Amortization of loan fees, included in interest expense (including discontinued operations)		2,494			2,169			2,592
Accrued interest on mortgage loans receivable		(1,304	)		(1,802	)		(2,871	)
Minority interest		(1,058	)		672			1,262
Equity in earnings of unconsolidated joint ventures		(459	)		(805	)		(604	)
Distributions of earnings from unconsolidated joint ventures		433			—			—
Net gain on sales of real estate assets		(86,018	)		(14,427	)		(14,204	)
Loss on early extinguishment of debt (including discontinued operations)		8,003			2,075			5,881
Provision for impairment of real estate assets (including discontinued operations)		94,313			3,752			2,852
Reversal of provision for impairment of real estate assets (including discontinued operations)		(1,331	)		—			—
Provision for impairment of non-real estate assets		—			—			5,746
Cumulative effect of change in accounting principle		—			912			—
Amortization of deferred compensation		1,291			1,321			920
Accelerated vesting of stock options		—			—			122
(Increase)/decrease in other assets		(19,427	)		(9,560	)		(15,123	)
Increase/(decrease) in other liabilities		2,192			(7,817	)		(1,651	)
Net cash provided by operating activities		57,653			67,359			73,550
Cash flows from investing activities:
Net proceeds from sales of rental properties		303,314			33,993			203,116
Acquisitions of rental properties		(157,902	)		(30,828	)		(194,605	)
Payments for capital and tenant improvements		(25,212	)		(26,291	)		(29,536	)
Investments in land and development		(8,878	)		(39,734	)		(10,059	)
Investments in unconsolidated joint ventures		—			—			(75	)
Distributions from unconsolidated joint ventures		—			1,002			2,742
Buyout of minority interest in consolidated subsidiary		—			—			(175	)
Additions to mortgage loans receivable		—			—			(2,720	)
Principal payments from mortgage loans receivable		9,945			29,253			7,081
Net cash provided by (used for) investing activities		121,267			(32,605	)		(24,231	)
Cash flows from financing activities:
Proceeds from borrowings		517,383			308,969			303,399
Repayment of borrowings		(499,348	)		(377,719	)		(256,647	)
Payment of deferred financing costs		(3,242	)		(2,076	)		(1,890	)
Prepayment penalties on loan payoffs		(6,304	)		—			(5,110	)
Contributions from minority interest holders		220			222			—
Distributions to minority interest holders		(4,197	)		(4,203	)		(4,938	)
Dividends paid to common and preferred stockholders		(59,340	)		(58,041	)		(65,117	)
Proceeds from issuance of common stock, net of offering costs		(174	)		163,283			—
Preferred stock redemption		(77,748	)		(77,459	)		—
Dividends paid on redeemed preferred stock		(596	)		(2,073	)		—
Premium and costs related to preferred stock redemption		(1,857	)		(2,461	)		—
Exercise of stock options		2,603			2,780			1,660
Repurchases of common stock		(47,699	)		—			(3,419	)
Repurchases of preferred stock		—			—			(3,538	)
Net cash used for financing activities		(180,299	)		(48,778	)		(35,600	)

continued

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

49

GLENBOROUGH REALTY TRUST INCORPORATED

CONSOLIDATED STATEMENTS OF CASH FLOWS –continued

For the years ended December 31, 2005, 2004 and 2003

(in thousands)

	2005			2004			2003
Net (decrease) increase in cash and cash equivalents	$	(1,379	)	$	(14,024	)	$	13,719
Cash and cash equivalents at Marina Shores on January 1, 2004 (see Note 18)		—			1,035			—
Cash and cash equivalents at beginning of year		6,003			18,992			5,273
Cash and cash equivalents at end of year before adjustment for properties held for sale		4,624			6,003			18,992
Cash and cash equivalents at properties held for sale		(963	)		—			—
Cash and cash equivalents at end of year	$	3,661		$	6,003		$	18,992
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $4,634, $3,572 and $3,119 in 2005, 2004 and 2003, respectively)	$	38,401		$	34,177		$	35,387
Supplemental disclosure of non-cash investing and financing activities:
Non-cash components of consolidation of Marina Shores:
Investments in land and development	$	—		$	46,322		$	—
Cash and cash equivalents		—			1,035			—
Mortgage loans payable		—			(45,000	)		—
Minority interest		—			(2,228	)		—
Other assets and liabilities, net		—			(129	)		—
Total	$	—		$	—		$	—
Reclassification of real estate assets from investments in land and development and unconsolidated joint ventures to rental properties	$	—		$	1,450		$	18,084
Acquisition of investment in operating joint venture:
Exchange of related note receivable	$	—		$	—		$	3,775
Issuance of note payable, net of discount		—			—			2,518
Total	$	—		$	—		$	6,293
Assumption of mortgage loans in acquisition of real estate	$	74,114		$	21,049		$	18,815
Disposition of real estate involving buyer’s assumption of mortgage loans	$	—		$	17,175		$	61,218
Note receivable from sale of investment in development	$	(7,000	)	$	—		$	—
Write-off of original issuance costs on preferred stock redemption	$	3,452		$	3,439		$	—
Reallocation of limited partners’ interests in Operating Partnership	$	2,887		$	(3,443	)	$	(195	)
Conversion of Operating Partnership units into common stock, at market value on date of issuance	$	—		$	—		$	200
Issuance of restricted stock:
Additional paid-in capital	$	(261	)	$	(2,400	)	$	—
Deferred compensation		261			2,400			—
Total	$	—		$	—		$	—
Retirement of fully depreciated assets:
Rental properties, gross	$	(13,573	)	$	(9,427	)	$	—
Accumulated depreciation		13,573			9,427			—
Total	$	—		$	—		$	—
Common and preferred stock dividends declared but not yet paid	$	13,610		$	15,931		$	14,569

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

50

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 1. ORGANIZATION

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

As of December 31, 2005, 33,710,400 shares of Common Stock and 3,740,277 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 2,993,030 shares of Common Stock issuable upon redemption of 2,993,030 partnership units in the Operating Partnership (as defined below), there would be 36,703,430 shares of Common Stock outstanding as of December 31, 2005. As of November 8, 2005, the Company’s Board of Directors authorized the repurchase of up to 12,210,700 shares of Common Stock and 3,450,000 shares of Preferred Stock. As of December 31, 2005, 8,920,716 shares of Common Stock and 1,543,700 shares of Preferred Stock (excluding the redemptions discussed in Note 20) have been repurchased at a total cost of approximately $178.7 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 Preferred Stock), subject to adjustment in certain circumstances. As of January 16, 2003, the Series A Preferred Stock may be redeemed at the option of the Company, in whole or in part, initially at 103.88% of the liquidation preference per share, and thereafter at prices declining to 100% of the liquidation preference on and after January 16, 2008, plus in each case accumulated, accrued and unpaid dividends, if any, to the redemption date.

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

The Company, through its majority owned subsidiaries, is engaged primarily in the ownership, operation, management, leasing, acquisition, expansion and development of various income-producing properties. The Company’s principal consolidated subsidiary, in which it holds a 1% general partner interest and a 91.26% limited partner interest at December 31, 2005, is Glenborough Properties, L.P. (the “Operating Partnership”). Each of the holders of the remaining interests in the Operating Partnership (“OP Units”) has the option to redeem its OP Units and to receive, at the option of the Company, in exchange for each OP Unit, either (i) one share of common stock of the Company, or (ii) cash equal to the fair market value of one share of common stock of the Company. As of December 31, 2005, the Operating Partnership, directly and through the subsidiaries in which it and the Company own 100% of the ownership interests, controls a portfolio of 48 real estate projects.

Any references to the number of buildings, square footage, customers and occupancy stated in the financial statement footnotes are unaudited.

51

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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 December 31, 2005 and 2004, and the consolidated results of operations and cash flows of the Company and its subsidiaries for the years ended December 31, 2005, 2004 and 2003. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

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

Variable Interest Entities

The Company has not entered into any arrangements which are considered SPEs. Certain of the entities through which and with which the Company conducts business, including those described in Notes 6 and 8 have been deemed to be VIEs under the provisions of FIN 46 Revised. In accordance with FIN 46 Revised, the Company began consolidating the entity known as Marina Shores, effective January 1, 2004, as the Company is deemed to be the primary beneficiary as defined by FIN 46 Revised (see Note 18). The Company has other alliances which are VIEs, but the Company is not the primary beneficiary of them. Accordingly, the alliances are accounted for under the equity method of accounting.

Stock Based Compensation

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

As of December 31, 2005, 391,541 shares of stock grants were outstanding under the Plan. The intrinsic value of the shares granted has been recorded as deferred compensation, with an offsetting entry to additional paid-in-capital, in the accompanying financial statements. The vesting of 341,541 of these shares is time-based and the deferred compensation related to these shares is being amortized to general and administrative expense ratably over the respective vesting periods that range from 1 to 10 years. As a result, additional compensation expense of $1,128,340, $861,258 and $920,439 was recognized during the years ended December 31, 2005, 2004 and 2003, respectively, in the accompanying consolidated statements of operations. The vesting of 50,000 of these shares, which were granted on March 30, 2004, is based on achieving annual performance metrics over a ten-year period. The Company amortizes the compensation cost on an accelerated basis under the recognition and measurement principles of FASB Interpretation No. 28. As a result, additional compensation expense of $162,269 and $233,732 was recognized during the years ended December 31, 2005 and 2004, respectively, in the accompanying consolidated statements of operations. Dividends paid on unvested stock grants have been recorded as dividends in the accompanying consolidated balance sheets.

52

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

As permitted by Statement of Financial Accounting Standards No. 123 “Accounting for Stock-based Compensation” (SFAS 123), the Company has not changed its method of accounting for stock options but has provided the additional required disclosures. Had compensation cost for the Company’s stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans, consistent with the method of SFAS No. 123, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation, an amendment of SFAS No. 123”, the Company’s net income (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below (in thousands except for per share amounts):

		2005			2004			2003
Net income (loss) available to Common Stockholders	As reported	$	(12,632	)	$	6,977		$	11,901
	SFAS No. 123 Adj.		(50	)		(102	)		(693	)
	Pro forma	$	(12,682	)	$	6,875		$	11,208
Basic earnings (loss) per share	As reported	$	(0.36	)	$	0.22		$	0.43
	SFAS No. 123 Adj.		—			—			(0.03	)
	Pro forma	$	(0.36	)	$	0.22		$	0.40
Diluted earnings (loss) per share	As reported	$	(0.36	)	$	0.22		$	0.43
	SFAS No. 123 Adj.		—			—			(0.03	)
	Pro forma	$	(0.36	)	$	0.22		$	0.40

There were no stock options granted during the years ended December 31, 2005, 2004 and 2003. Effective January 1, 2006, the Company will adopt FAS 123 (R) with regard to stock based compensation. See new accounting pronouncements on page 37 of this document.

Rental Properties

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

Purchase accounting is applied to the assets and liabilities related to real estate properties acquired by the Company whereby the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, the value of at-market, in-place leases and the value of tenant relationships, based in each case on their fair values.

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

53

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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

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

Depreciation is provided using the straight line method over the useful lives of the respective assets. The useful lives are as follows:

Buildings and improvements	5 to 40 years
Tenant improvements	Lesser of the initial term of the related lease or the asset’s life
Furniture and equipment	5 to 7 years
Acquired in-place leases	Remaining term of the related lease

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

Investments in Land and Development

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

Investments in Unconsolidated Joint Ventures

The Company’s investments in joint ventures (which are not variable interest entities or which are variable interest entities in which the Company is not the primary beneficiary) are accounted for using the equity method. The Company does not hold a controlling interest in any joint venture. See Note 7 for further discussion.

Mortgage Loans Receivable

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

54

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

under such circumstances. Due to uncertainties inherent in the valuation process, it is reasonably possible that the amount ultimately realized from the Company’s collection on its mortgage loans receivable will be different than the recorded amounts. See Note 8 for further discussion.

Cash Equivalents

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

Fair Value of Financial Instruments

For certain financial instruments, including cash and cash equivalents, accounts receivable (included in other assets), accounts payable and accrued liabilities (included in other liabilities), and the unsecured bank line of credit, the recorded amounts approximate fair value due to the relatively short maturity periods. Based on interest rates that the Company would be able to obtain for mortgage loans to third parties with similar terms, the carrying value of the Company’s mortgage loans receivable approximates fair value. Based on interest rates available to the Company for debt with comparable maturities and other terms, the estimated fair value of the Company’s collateralized mortgage loans as of December 31, 2005 and December 31, 2004, would be approximately $704,035 and $711,864 (in thousands), respectively.

Derivative Financial Instruments

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

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

Leasing and Financing Costs

Fees paid in connection with the financing and leasing of the Company’s properties are amortized on a straight-line basis over the term of the related notes payable or leases, which for financing costs, approximates the effective interest method.

Minority Interest

Minority interest represents the 7.74% and 7.69% limited partner interests in the Operating Partnership not held by the Company at December 31, 2005 and 2004, respectively. The Company periodically adjusts the carrying value of minority interest to reflect its share of the book value of the Operating Partnership. Such adjustments are recorded to stockholders’ equity as a reallocation of limited partnership interest in the Operating Partnership.

Revenues

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

Reimbursements from tenants for real estate taxes and other recoverable operating expenses are recognized as revenue in the period the applicable expenses are incurred.

For the years ended December 31, 2005, 2004 and 2003, no one tenant represented 10% or more of rental revenue of the Company.

55

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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

Sales of Real Estate

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

Income Taxes

The Company has elected to be taxed as a real estate investment trust under Sections 856 to 860 of the Internal Revenue Code. A real estate investment trust is generally not subject to federal income tax on that portion of its taxable income that is distributed to its stockholders, provided that at least 90% of taxable income is distributed. REITs are subject to a number of organizational and operational requirements. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property and to federal income and excise taxes on its undistributed income. The following information was provided to shareholders regarding the content of distributions. For the years ended December 31, 2005, 2004 and 2003, approximately 80%, 63% and 85%, respectively, of the distributions paid to common stockholders represented a return of capital for income tax purposes. For the years ended December 31, 2005, 2004 and 2003, none of the distributions paid to preferred stockholders represented a return of capital for income tax purposes. The Company has generally elected to distribute all of its taxable capital gain. For the years ended December 31, 2005, 2004 and 2003, approximately 0%, 0.2% and 0%, respectively, of the distributions paid to common stockholders and approximately 0%, 1% and 0%, respectively, of the distributions paid to preferred stockholders represents a dividend taxable as long-term capital gain, in addition to the unrecaptured Section 1250 gain set forth below. Approximately 0%, 1% and 0% of the distributions paid to common stockholders and 0%, 2% and 0% of the distributions paid to preferred stockholders represents a dividend taxable as unrecaptured Section 1250 gain for the years ended December 31, 2005, 2004 and 2003, respectively. The portion of the distributions other than return of capital, long-term capital gain and unrecaptured Section 1250 gain is taxable as ordinary dividend income. The distributions above do not include those made as a result of the preferred stock redemptions, including amounts intended to simulate accrued, but undeclared and unpaid dividends.

56

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 3. RENTAL PROPERTIES

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

	As of December 31, 2005
	Land			Buildings & Improvements			Total Cost			Accumulated Depreciation			Net Recorded Value
Washington D.C.	$	47,895		$	312,351		$	360,246		$	(26,170	)	$	334,076	*
Southern California		39,780			191,289			231,069			(33,422	)		197,647	*
Northern New Jersey		25,321			143,420			168,741			(37,325	)		131,416
Boston		21,237			156,816			178,053			(33,850	)		144,203	*
San Francisco		47,429			152,288			199,717			(18,173	)		181,544
Tampa/Orlando		7,805			41,448			49,253			(10,534	)		38,719	*
Denver		4,887			40,900			45,787			(6,892	)		38,895	*
Las Vegas		4,628			22,451			27,079			(6,746	)		20,333
All others		14,286			87,382			101,668			(34,219	)		67,449
Properties held for sale		(12,374	)		(53,182	)		(65,556	)		20,882			(44,674	)
Total	$	200,894		$	1,095,163		$	1,296,057		$	(186,449	)	$	1,109,608

* Includes acquisition costs allocated to at-market and above-market rate in-place leases, net of accumulated amortization, of $13,502 in Washington D.C., $2,814 in Southern California, $3,814 in Boston, $5,415 in San Francisco, $486 in Tampa/Orlando, and $966 in Denver.

	As of December 31, 2004
	Land			Buildings & Improvements			Total Cost			Accumulated Depreciation			Net Recorded Value
Washington D.C.	$	40,877		$	224,996		$	265,873		$	(26,179	)	$	239,694	*
Southern California		39,780			189,952			229,732			(26,020	)		203,712	*
Northern New Jersey		26,133			145,828			171,961			(33,051	)		138,910
Boston		21,237			154,258			175,495			(27,654	)		147,841	*
San Francisco		36,051			84,239			120,290			(14,164	)		106,126
Chicago		2,746			103,456			106,202			(27,722	)		78,480
St. Louis		7,192			29,030			36,222			(6,827	)		29,395
Tampa/Orlando		9,150			47,390			56,540			(10,938	)		45,602	*
Denver		6,222			45,505			51,727			(6,090	)		45,637	*
Minneapolis		6,129			31,686			37,815			(8,168	)		29,647
Las Vegas		7,746			33,695			41,441			(8,387	)		33,054
All others		15,837			121,597			137,434			(32,945	)		104,489
Properties held for sale		(6,822	)		(56,600	)		(63,422	)		7,916			(55,506	)
Total	$	212,278		$	1,155,032		$	1,367,310		$	(220,229	)	$	1,147,081

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

The expected amortization for intangible assets for 2006-2010 is as follows:

(In thousands)	Amortization
2006	$	5,208
2007		4,682
2008		3,828
2009		1,659
2010		366

57

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

The Company leases its commercial and industrial property under non-cancelable operating lease agreements. Future minimum rents to be received as of December 31, 2005 are as follows (in thousands):

Year Ending December 31,
2006	$	139,033
2007		118,703
2008		97,154
2009		75,082
2010		52,367
Thereafter		130,052
	$	612,391

Note 4. ACQUISITIONS OF RENTAL PROPERTIES

In third quarter of 2005, the Company acquired Capitol Place III in Washington, D.C., for a purchase price of $70 million. The property consists of a 208,138 square foot, 12-story, Class “A” office building located in Washington, D.C.’s Capitol Hill district. The property is 100% leased to 8 tenants. The building’s major tenant is the Association of American Railroads (“AAR”) who leases 135,202 square feet or 69% of the net rentable area through November, 2010. After relocating various back-office operations to Pueblo, Colorado, AAR successfully sublet approximately 75% of their space to 13 tenants; AAR continues to occupy the other 25%. The purchase price was funded with the assumption of a $34.7 million mortgage loan, an expansion and refinance of an existing loan (as discussed in Note 10) and a draw on the Company’s unsecured bank line of credit (as defined in Note 10). SFAS No. 141 requires the acquirer to allocate a portion of the acquisition costs to intangible assets and liabilities in applying the purchase method of accounting. In accordance with SFAS No. 141, intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $4.7 million. Liabilities related to below-market rate in-place leases amounted to approximately $4.1 million.

In third quarter of 2005, the Company acquired 33 New Montgomery in San Francisco, CA, for a purchase price of $75 million. The property consists of a 234,012 square foot, 20-story, Class “A” office tower located in the San Francisco Financial District. Constructed in 1986, the property is 94% leased to a diversified roster of 31 tenants with no single tenant leasing more than 10% of the net rentable area (the average tenant size is 7,000 SF). The tenant base consists primarily of prominent professional service oriented companies in the insurance, government, finance and legal sectors. The purchase price was funded with a new $50 million mortgage loan and a draw on the Company’s unsecured bank line of credit (as defined in Note 10). The acquisition was structured as a “reverse” 1031 tax-deferred exchange such that net proceeds received from future sale of five relinquished properties will be used to pay off the $50 million mortgage loan. Intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $6.1 million. Liabilities related to below-market rate in-place leases amounted to approximately $3.5 million.

In first quarter of 2005, the Company acquired Metro Place II in Merrifield, VA, for a purchase price of $71.7 million. The property consists of a 237,227 square foot, ten-story, Class “A” multi-tenant office building and a six-level parking garage. Completed in 1999, the property is 99% leased primarily to defense industry tenants, and is not subject to any lease expirations until 2009. The purchase price was funded with the 1031 tax deferred exchange proceeds from the sale of Rockwall I & II (as discussed in Note 5) and the assumption of a $39.4 million mortgage from a life insurance company (for which fair value approximated carrying value). Intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $5.3 million. Liabilities related to below-market rate in-place leases amounted to approximately $1.0 million.

In the fourth quarter of 2004, the Company acquired University Business Center IV, a 48,000 square foot, single-story multi-tenant office building, built in 2002 and located within the University Business Center Park in Tampa, Florida. This acquisition increases the Company’s presence in the University Business Center to three office buildings totaling 145,333 square feet. The total acquisition cost of approximately $6.5 million was funded using a draw from the Company’s unsecured bank line of credit. SFAS No. 141 requires the acquirer to allocate a portion of the acquisition costs to intangible assets and liabilities in applying the purchase method of accounting. In accordance with SFAS No. 141, intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $621,000. Liabilities related to below-market rate in-place leases amounted to approximately $47,000.

58

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

In third quarter of 2004, the Company acquired Three Gateway Center, an 80,000 square foot, 4-story office building located at Gateway Business Park in Denver, Colorado. This acquisition increases the Company’s presence at Gateway Business Park to four office buildings totaling 302,520 square feet. The total acquisition cost of approximately $8.5 million was funded using a draw from the Company’s unsecured bank line of credit. In accordance with SFAS No. 141, intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $1.3 million. Liabilities related to below-market rate in-place leases amounted to approximately $96,000.

In second quarter of 2004, the Company acquired 1100 17^th Street, a 143,000 square foot, 12-story multi-tenant office building located in Washington, D.C. The total acquisition cost of approximately $38.2 million was funded using 1031 tax-deferred exchange proceeds from the sale of an office building, along with the assumption of a $21 million loan from a life insurance company. The assumed loan bears a floating interest rate of 30-day LIBOR plus 1.75%, with a floor of 3.5%, and matures on July 1, 2007. In accordance with SFAS No. 141, intangible assets related to at-market and above-market rate in-place leases recognized in this transaction amounted to approximately $3.2 million. Liabilities related to below-market rate in-place leases amounted to approximately $1.6 million.

In 2003, the Company acquired four properties for total consideration of approximately $206 million.

The following table presents the purchase price allocation for the above 2005 acquisitions (dollars in thousands):

Rental properties, gross	$	236,394
Other assets		4,137
Assumption of mortgage loans		(74,114	)
Other liabilities		(8,515	)
Cash paid for acquisitions	$	157,902

The following tables present the unaudited, pro forma information as if the acquisitions during the year ended December 31, 2005 had been consummated on at the beginning of each period presented (dollars in thousands):

	December 31, 2005 Actual			December 31, 2005 Pro-Forma			December 31, 2004 Actual			December 31, 2004 Pro-Forma (unaudited)
Revenues	$	162,870		$	173,440		$	144,253		$	169,548
Income before cumulative effect of change in accounting principle		520			2,031			29,134			31,641
Cumulative effect of change in accounting principle (see Note 18)		—			—			(912	)		(912	)
Net Income		520			2,031			28,222			30,729
Net income (loss) available to Common Stockholders	$	(12,632	)	$	(11,121	)	$	6,977		$	9,484
Basic and diluted earnings (loss) per share	$	(0.36	)	$	(0.31	)	$	0.22		$	0.30

59

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 5. DISPOSITIONS OF RENTAL PROPERTIES

In 2005, the Company sold 17 properties for an aggregate sales price of approximately $307.7 million which generated a total net gain of approximately $87.3 million. The 17 properties sold were:

Property	Market	Date of Sale	Square Footage	Sales Price ($000’s)
Rockwall I and II	Washington D.C.	1/18/05	342,739	$	76,750
Leawood Office Building	Kansas City	2/9/05	92,787	$	7,290
Park 100 Industrial	Indianapolis	4/26/05	102,400	$	2,680
Lake Point Business Park	Tampa/Orlando	4/28/05	134,360	$	13,100
Oak Brook International Center	Chicago	5/12/05	98,431	$	11,500
Fairfield Business Quarters	New Jersey	6/1/05	42,792	$	3,250
Woodlands Tech	St. Louis	8/1/05	98,037	$	8,400
Bryant Lake	Minneapolis	9/27/05	171,359	$	14,400
Columbia Centre II	Chicago	9/28/05	146,530	$	14,768
University Club Tower	St. Louis	9/29/05	272,443	$	40,100
Oakbrook Terrace Corp Ctr III	Chicago	10/7/05	232,052	$	25,684
Navistar-Chicago	Chicago	10/19/05	474,426	$	15,600
Northglenn Business Center	Denver	11/15/05	65,000	$	6,850
Riverview Office Tower	Minneapolis	11/29/05	227,129	$	20,150
Embassy Plaza	Chicago	12/1/05	136,766	$	11,400
Woodlands Plaza	St. Louis	12/14/05	81,853	$	8,000
Palms Business Center IV & North	Las Vegas	12/15/05	129,501	$	27,750

During the fourth quarter of 2005, the Company completed the sales of seven properties for an aggregate sales price of $115.4 million and recognized an aggregate gain on sale of approximately $33.1 million on six of the properties, Oakbrook Terrace Corp Ctr III, Navistar-Chicago, Northglenn Business Center, Riverview Office Tower, Woodlands Plaza and Palm Business Center IV & North. In connection with the fourth quarter sale of Embassy Plaza, an additional provision for impairment of real estate assets of $94,000 was recognized due to higher than anticipated costs to sell the property. The proceeds from these dispositions were used to pay down mortgage loans collateralized by four of the properties (see Note 10) and to pay down the Company’s unsecured bank line of credit.

During the third quarter of 2005, the Company completed the sales of four properties for an aggregate sales price of $77.7 million and recognized an aggregate gain on sale of approximately $25.6 million on three of the properties, Woodlands Tech, Bryant Lake and University Club Tower. In addition, some of the contingencies related to the first quarter sale of Rockwall I and II (discussed below) were resolved and approximately $2 million of the deferred gain on sale was recognized. In connection with the third quarter sale of Columbia Centre II, an additional provision for impairment of real estate assets of $139,000 was recognized due to higher than anticipated costs to sell the property. The proceeds from these dispositions were used to pay down mortgage loans collateralized by two of the properties (see Note 10) and to pay down the Company’s unsecured bank line of credit.

During the second quarter of 2005, the Company completed the sales of four properties for an aggregate sales price of $30.53 million. The Company recognized an aggregate gain on sale of approximately $9.1 million on three of the properties, Park 100 Industrial, Lake Point Business Park and Oak Brook International Center. During the first quarter of 2005, in connection with the Company’s decision to reduce the intended holding period for the Fairfield Business Quarters property (see Note 17), the Company recognized an impairment charge of approximately $0.8 million to reduce the carrying value of this property to its estimated fair value (calculated by discounting estimated future cash flows and sales proceeds). Upon the completion of the sale of this property during the second quarter of 2005, the Company recognized a gain on sale of approximately $0.2 million due to an increase in actual versus estimated sales proceeds. The proceeds from these dispositions were used to payoff two mortgage loans collateralized by two of the properties (see Note 10) and to pay down the Company’s unsecured bank line of credit.

60

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

On February 9, 2005, the Company entered into a contract to sell a 92,787 square foot office building in Leawood, Kansas, for a sale price of $7.29 million. On the same day, the Company recognized an impairment charge of approximately $3.8 million and the sale was completed. The proceeds from this disposition were used to pay down the Company’s unsecured bank line of credit.

On January 18, 2005, the Company completed the sale of Rockwall I and II, a 342,739 square foot office complex located in Rockville, MD, for a sale price of $76.75 million. The gain on sale recognized was approximately $17.3 million. Approximately $3 million of additional gain on sale was deferred pending resolution of sale contingencies. As discussed above, approximately $2 million of the deferred gain was recognized during the third quarter of 2005. In connection with the sale of Rockwall, the Company paid off a mortgage loan of $43.3 million and recognized a loss on early extinguishment of debt of $2.4 million which primarily consisted of a prepayment penalty in connection with the loan payoff. The Company used the proceeds of this sale to acquire Metro Place II in a 1031 tax deferred exchange (as discussed in Note 4).

In 2004, the Company sold five properties for an aggregate sales price of approximately $52 million which generated a total net gain of approximately $14.4 million.

In 2003, the Company sold 17 properties for an aggregate sales price of $284 million which generated a total net gain on sale of $14.2 million.

In accordance with SFAS 144 “Accounting for the Impairment or Disposal of Long Lived Assets,” the gain on sale and the related operating results from these sold properties are classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. In addition, real estate properties classified as held for sale are presented separately on the consolidated balance sheet at the lower of carrying amount or fair value less estimated costs to sell, and such properties are no longer depreciated. The related results from operations of properties held for sale are classified as discontinued operations in the accompanying consolidated statements of operations for all periods presented. As of December 31, 2005, there were five assets classified as held for sale which were as follows:

Property	Market	Square Footage
Capitol Center	Des Moines	165,127 sf
Osram Building	Indianapolis	45,265 sf
Thousand Oaks	Memphis	422,363 sf
Vreeland Business Center	New Jersey	133,090 sf
Marina Shores	San Francisco	to be determined

In January 2006, the Capitol Center, Osram Building, Vreeland Business Center and Thousand Oaks properties were sold. See Note 22 for further discussion.

The major classes of assets and liabilities of the five assets classified as held for sale at December 31, 2005, as well as the assets and liabilities of Rockwall I and II which was classified as held for sale at December 31, 2004, are as follows (dollars in thousands):

	December 31, 2005		December 31, 2004
ASSETS
Rental properties, net	$	44,674	$	55,506
Leasing and financing costs, net		1,920		849
Straight-line rent receivable, net		1,809		338
Investments in land and development		54,000		—
Other assets		1,145		634
Properties held for sale	$	103,548	$	57,327
LIABILITIES
Notes payable	$	45,000	$	43,322
Other liabilities		855		(22	)
Obligations associated with properties held for sale	$	45,855	$	43,300

61

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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

	Years ended December 31,
	2005			2004			2003
Total rental revenue	$	31,473		$	51,571		$	74,473
Property operating expenses		14,558			20,462			27,120
General and administrative		8			40			6
Depreciation and amortization		6,978			18,171			21,567
Provision for impairment of real estate assets		86,484			—			—
Total operating expenses		108,028			38,673			48,693
Interest and other income		—			2			16
Interest expense		(3,253	)		(6,842	)		(11,987	)
Loss on early extinguishment of debt		(3,278	)		(40	)		(5,587	)
Income (loss) before gain on sales of real estate assets		(83,086	)		6,018			8,222
Gain on sales of real estate assets		86,018			14,427			14,204
Reversal of provision for impairment		1,331			—			—
Discontinued operations	$	4,263		$	20,445		$	22,426

Note 6. INVESTMENTS IN LAND AND DEVELOPMENT

The Company’s investments in land and development decreased from $147,435,000 at December 31, 2004 to $51,750,000 at December 31, 2005. The decrease is due to the classification of a development project as held for sale in December 2005 in connection with the Company’s decision to sell a majority interest of the asset to our joint venture partner. Further, an impairment charge of $32.3 million was recorded relating to the difference between the basis of the project and the estimated net proceeds expected to be realized upon sale.

In addition, on March 28, 2005, the Company disposed of approximately 27 acres of land held for development, known as Eden Shores located in Hayward, California. The Company entered into a contract to sell Eden Shores to an unaffiliated third party which owns land adjacent to this parcel for a sale price of $12 million. At that time, the Company recognized an impairment charge of approximately $5.1 million which is included in the provision for impairment of real estate assets in the accompanying consolidated statement of operations for the year ended December 31, 2005. The Company received $5 million in cash and a $7 million first mortgage loan receivable, collateralized by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a maturity date of March 28, 2007. On June 28, 2005, this mortgage loan receivable was sold to a bank for approximately $6.98 million which was the outstanding principal balance on that date. The Company did not recognize any gain or loss on this transaction (Note 8).

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

62

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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

Market	Properties	Description	City	Proposed Square Footage	Economic Interest		Investment Balance at December 31, 2005			Investment Balance at December 31, 2004
Denver	Gateway Office Five	Fifth office building constructed at Gateway Park (1-story)	Denver	—	—	(1)		—	(1)	$	835
TOTAL PROPERTIES UNDER DEVELOPMENT				—				—		$	835
Boston	Marlborough Corporate Place	Three office buildings to be constructed as the eighth, ninth, and tenth phases of Marlborough Corporate Place	Marlborough	235,000	100	%	$	5,248		$	5,170
	Subtotal - Boston			235,000				5,248			5,170
Denver	Gateway Park	1,200 acre mixed-use park near Denver International Airport; approximately 442 acres undeveloped	Denver	1,200 acres	50	%(2)		35,994	(2)		34,636	(2)
	Lima Street	19.5 acres of undeveloped land in Englewood, Colorado, zoned for office use	Denver	120,000	100	%		4,750			4,750
	Subtotal - Denver			120,000				40,744			39,386
San Francisco	Marina Shores	33.2 acre mixed-use waterfront community which could include office, retail and multifamily units; currently in entitlement process	Redwood City	33.2 acres	50	%(3)		—	(3)		79,548
	Eden Shores	27 acres zoned for the construction of a 600,000 square foot office park	Hayward	—	—	(4)		—	(4)		16,530
	Subtotal - San Francisco			—				—			96,078
		Other land held for development	New Jersey/San Francisco					5,758			5,966
TOTAL LAND HELD FOR DEVELOPMENT				355,000			$	51,750		$	146,600
TOTAL INVESTMENTS IN LAND AND DEVELOPMENT				355,000			$	51,750		$	147,435

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

⁽²⁾ Interest in the form of mezzanine loans and equity. In addition, the Company holds a mortgage loan receivable secured by the land with a balance of $11,231 and $12,872 at December 31, 2005 and December 31, 2004, respectively (see Note 8 for further discussion).

⁽³⁾ Interest in the form of equity and mezzanine loans. The Company consolidated this entity on January 1, 2004, pursuant to FIN 46 Revised. See Note 18 for further discussion. This property was classified as held for sale at December 31, 2005.

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

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

63

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

liability companies that own the properties. No estimate of the amount that could be recovered by the Company in such an event can be made at this time. Performance under the guarantees would result in a contribution to the venture and an increase in the Company’s effective ownership percentages.

Certain of the alliances with which the Company conducts business have been deemed to be VIEs as defined by FIN 46 Revised; however, other than Marina Shores as discussed in Note 18, none of these VIEs are required to be consolidated as the Company is not deemed to be the primary beneficiary as defined by FIN 46 Revised. The total assets and liabilities of such entities were approximately $97.6 million and $60.0 million, respectively, at December 31, 2005, and $92.8 million and $54.5 million, respectively, at December 31, 2004. The Company’s maximum exposure to loss is equal to its investments in these arrangements, plus the related debt guarantees, as described above.

Note 7. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES

The Company’s investments in unconsolidated joint ventures are accounted for using the equity method as the Company exercises significant influence through ownership percentages or management contracts. The Company records earnings on its investments equal to its ownership interest in the venture’s earnings and losses. Distributions are recorded as a reduction of the Company’s investment.

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

					Investment Balance
Joint Venture	Ownership Interest	Property Location	Square Footage/ Units	Property Type	Dec 31, 2005		Dec 31, 2004
Rincon Center I & II	10%	San Francisco, CA	757,250 sf	Mixed-Use	$	4,304	$	4,158
2000 Corporate Ridge	10%	McLean, VA	255,980 sf	Office		3,174		3,018
Gateway Retail I	50%	Denver, CO	12,000 sf	Retail		444		406
Lakecrest Apartments	27%	Aurora, CO	440 units	Residential		4,118		4,432
					$	12,040	$	12,014

Note 8. MORTGAGE LOANS RECEIVABLE

The Company holds a first mortgage collateralized by a 50% interest in 152 acres of land at Gateway Business Park in Aurora, Colorado. The balance of this mortgage loan receivable decreased from $12,872,000 at December 31, 2004, to $11,231,000 at December 31, 2005, due to principal payments received of $3,080,000, partially offset by monthly interest accruals totaling $1,439,000. The loan was originally funded in June 1998, had a fixed interest rate of 6.5% and a maturity date of July 2007. In July 2004, the loan agreement was amended to increase the interest rate to 9.0%. Periodic payments of interest and principal are received on the loan from proceeds of land parcel sales in the project. Gateway Business Park is a development project where the Company and the Pauls Corporation have an alliance and where the Company has also acquired property. In this arrangement, the Company has rights under certain conditions and subject to certain contingencies to purchase the properties upon completion of development. No loan loss reserves have been recorded related to this loan. The borrowing entities in this loan arrangement have been deemed to be VIEs, but the Company is not deemed to be the primary beneficiary as defined by FIN 46 Revised as the borrower bears the majority of the risk of loss. The Company’s maximum exposure to loss is equal to the recorded amount of its loan, including accrued interest.

As discussed in Note 6, in connection with the Company’s disposition of approximately 27 acres of land held for development, known as Eden Shores located in Hayward, California, the Company held a first mortgage loan receivable of $7 million, secured by the land, with a fixed interest rate of 8%, a 20-year amortization requiring monthly principal and interest payments of approximately $59,000, and a maturity date of March 28, 2007. On June 28, 2005, this mortgage loan receivable was sold to a bank for approximately $6.98 million which was the outstanding principal balance on that date. The Company did not recognize any gain or loss on this transaction.

64

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 9. OTHER ASSETS

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

	2005		2004
Accounts receivable, net of allowances of $36 and $1,422 as of December 31, 2005 and 2004, respectively	$	2,670	$	2,858
Prepaid expenses and deposits		4,070		1,249
Impound accounts (restricted cash)		5,720		1,047
Notes receivable		1,288		3,605
Investment in management contracts, net of accumulated amortization		578		1,156
Other		163		287
Total other assets	$	14,489	$	10,202

Note 10. MORTGAGE LOANS AND UNSECURED BANK LINE OF CREDIT

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

	2005		2004
Loans with various lenders, bearing interest at fixed rates between 4.73% and 8.32% at December 31, 2005, and 4.99% and 8.13% at December 31, 2004, with monthly principal and interest payments ranging between $47 and $329 and maturing at various dates through December 1, 2013. These loans are collateralized by properties with an aggregate net carrying value of $737,499 and $497,782 at December 31, 2005 and December 31, 2004, respectively. One of these loans includes an unamortized premium of $896 and $1,190 at December 31, 2005 and December 31, 2004, respectively.	$	536,047	$	345,992
Loans with various lenders, bearing interest at variable rates ranging between 4.15% and 5.65% at December 31, 2004, and scheduled to mature at various dates through November 10, 2008. These loans are collateralized by properties with an aggregate net carrying value of $161,541 at December 31, 2004.		—		116,978
Loan with an insurance company, net of unamortized discount of $255 and $467 at December 31, 2005 and December 31, 2004, respectively. The loan has two fixed rate components. The fixed rate component of $30,948 at December 31, 2005 bears interest at 6.13%, matures on February 11, 2009, and requires monthly principal and interest payments of $231. The fixed rate component of $137,875 at December 31, 2005 bears interest at 5.91%, matures on February 11, 2009, and requires monthly principal and interest payments of $923. The two components are cross-collateralized by properties with an aggregate net carrying value of $217,514 and $237,406 at December 31, 2005 and December 31, 2004, respectively.		168,823		184,412

continued

65

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

	2005		2004
Loan with an insurance company, net of unamortized discount of $538 at December 31, 2004. The loan bore interest at a fixed rate of 6.13%, was scheduled to mature on November 10, 2008, and required monthly principal and interest payments of $343. This loan was cross-collateralized by a pool of properties with an aggregate net carrying value of $108,228 at December 31, 2004, respectively.		—		50,688
Total mortgage loans		704,870		698,070
Unsecured $180,000 line of credit with a group of commercial banks, with a variable interest rate of 30-day LIBOR plus 1.20% at December 31, 2005 and 30-day LIBOR plus 1.75% at December 31, 2004 (5.59% and 4.15%, respectively), monthly interest only payments and a maturity date of March 26, 2007, with one one-year extension option.		106,669		21,320
Total mortgage loans and unsecured bank line of credit before adjustment for properties held for sale	$	811,539	$	719,390

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

	December 31, 2005			December 31, 2004
Total mortgage loans	$	704,870		$	698,070
Mortgage loans related to properties held for sale (Note 5)		(45,000	)		(43,322	)
Total mortgage loans adjusted for properties held for sale	$	659,870		$	654,748

At December 31, 2005 and December 31, 2004, the Company’s indebtedness included fixed-rate debt of $704,870,000 and $581,092,000, respectively, and floating-rate debt of $106,669,000 and $138,298,000, respectively.

Outstanding borrowings under the Company’s unsecured bank line of credit increased from $21,320,000 at December 31, 2004, to $106,669,000 at December 31, 2005. The increase was due to draws totaling $299,383,000 for the January 2005 preferred stock redemption, new financings, property acquisitions, common stock repurchases and development advances, offset by pay downs totaling $214,034,000 generated from the proceeds from property sales, new financings, the sale of the Eden Shores mortgage loan receivable and cash flow from operations. The unsecured bank line of credit requires the Company, among other things, to be in compliance with certain financial and operating covenants. The Company has been in compliance during all of 2005 and remains in compliance at December 31, 2005.

66

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

During the last two years the following mortgage loan transactions occurred (dollars in thousands):

	December 31, 2005			December 31, 2004
Balance at beginning of year	$	698,070		$	649,325
Repayments and scheduled principal amortization (a)		(240,158	)		(108,825	)
New borrowings and refinancings (b)		218,000			108,696
Assumed through property acquisitions (see Note 4 — Acquisitions of rental properties)		74,114			21,049
Assumed through consolidation of Marina Shores (c)		—			45,000
Repaid upon sale of properties (see Note 5 — Dispositions of rental properties)		(45,156	)		—
Disposition of real estate involving buyer’s assumption of mortgage loan		—			(17,175	)
Balance at end of year	$	704,870		$	698,070

(a) During 2005, the Company repaid mortgage debt and unencumbered the following properties: Montgomery Executive Center, Newport Plaza, Westford Corporate Center, Oakbrook Terrace Corp, Columbia Centre II, Embassy Plaza, Woodlands Plaza, Woodlands Tech, Park Place, Lake Point Business Park, Riverview Office Tower and Capitol Center.

During 2004, the Company repaid mortgage debt and unencumbered the following properties: 700 South Washington, 90 Libbey Parkway, Hartwood Building and 1525 Wilson.

(b) During 2005, the Company obtained three new mortgage loans encumbering the following properties:

King Street Station II, 400 South El Camino, Gateway Park and University Center. In addition, the Company refinanced and expanded four existing mortgage loans.

During 2004, the Company obtained three new mortgage loans encumbering the following properties: Capitol Center and 1525 Wilson,

(c) In accordance with FIN 46 Revised, the Company began consolidating the entity known as Marina Shores, effective January 1, 2004, as the Company is deemed to be the primary beneficiary as defined by FIN 46 Revised. Marina Shores has total debt of $45 million consisting of two loans, with a $30 million loan bearing interest at the fixed rate of 6.32%, and a $15 million loan bearing interest at the fixed rate of 8.32%. Both loans require monthly interest-only payments and mature on February 15, 2007.

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

The required principal payments on the Company’s debt for the next five years and thereafter, as of December 31, 2005, are as follows (in thousands). Included in the year ending December 31, 2007, is the unsecured bank line of credit balance of $106,669 which has an initial maturity of March 26, 2007.

Year Ending December 31,
2006	$	214,271
2007		117,270
2008		106,935
2009		193,270
2010		5,611
Thereafter		174,182
Total	$	811,539

67

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 11. OTHER LIABILITIES

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

	2005		2004
Accounts payable and accrued liabilities	$	7,718	$	3,869
SFAS No. 141 below market rate leases, net of accumulated amortization		10,809		4,952
Unsecured note payable		2,846		2,710
Accrued retirement benefits		5,321		5,292
Interest payable		2,210		1,953
Security deposits		5,928		6,487
Property taxes payable		1,459		1,474
Prepaid rents		3,949		4,295
Deferred gain on sale (see Note 5)		1,000		—
Deferred income		36		250
Total other liabilities	$	41,276	$	31,282

Note 12. LOSSES ON EARLY EXTINGUISHMENT OF DEBT

In connection with various loan payoffs (see Note 10), including those related to properties classified as discontinued operations, the Company recorded aggregate losses on early extinguishment of debt of $8,003,000, $2,075,000 and $5,881,000 during the years ended December 31, 2005, 2004 and 2003, respectively, consisting of the write-off of unamortized original financing costs and prepayment penalties. Of these total losses, $3,278,000, $40,000 and $5,587,000 have been included in discontinued operations for the years ended December 31, 2005, 2004 and 2003, respectively, as they are related to loan payoffs in connection with property sales.

Note 13. RELATED PARTY TRANSACTIONS

Fee and reimbursement income earned by the Company from related parties totaled $787,000, $4,046,926 and $3,530,212 for the years ended December 31, 2005, 2004 and 2003, respectively, and consisted of property management, asset management and other fee income. The decrease in fee and reimbursement income from related parties is due to an amendment of management agreement with Rancon. Under the new contract, Rancon ceased to be a related party in January 2005. During the year ended December 31, 2005, the Company received $150,000 from a board member for providing assistance in a property sale.

68

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 14. EARNINGS PER SHARE

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

	Years ended December 31,
	2005			2004		2003
Net income (loss) available to Common Stockholders – Basic	$	(12,632	)	$	6,977	$	11,901
Minority interest		—			—		—
Net income available to Common Stockholders – Diluted	$	(12,632	)	$	6,977	$	11,901
Weighted average shares:
Basic		35,541,377			31,167,080		27,608,267
Stock options and restricted stock		—			—		—
Convertible Operating Partnership Units		—			—		—
Diluted		35,541,377			31,167,080		27,608,267
Basic earnings per share	$	(0.36	)	$	0.22	$	0.43
Diluted earnings per share	$	(0.36	)	$	0.22	$	0.43

For the years ended December 31, 2005, 2004 and 2003, options to purchase shares of the Company’s common stock of 2,531,701, 2,766,034 and 3,021,034, respectively, and convertible operating partnership units of 2,995,465, 3,001,957 and 3,008,815, respectively, have been excluded from the computation of diluted earnings per share as they are anti-dilutive or have no impact. The preferred stock has been excluded from the calculation of diluted earnings per share as it is anti-dilutive in all periods presented.

Note 15. STOCK COMPENSATION PLAN

In May 1996, the Company adopted an employee stock incentive plan (the “Plan”) to provide incentives to attract and retain high quality executive officers and key employees. Certain amendments to the Plan were ratified and approved by the stockholders of the Company at the Company’s 1997 Annual Meeting of Stockholders. The Plan, as amended, provides for the grant of (i) shares of Common Stock of the Company, (ii) options, stock appreciation rights (“SARs”) or similar rights with an exercise or conversion privilege at a fixed or variable price related to the Common Stock and/or the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or (iii) any other security with the value derived from the value of the Common Stock of the Company or other securities issued by a related entity. Such awards include, without limitation, options, SARs, sales or bonuses of restricted stock, dividend equivalent rights (“DERs”), Performance Units or Preference Shares. The total number of shares of Common Stock available under the Plan is equal to the greater of 1,140,000 shares or 8% of the number of shares outstanding determined as of the day immediately following the most recent issuance of shares of Common Stock or securities convertible into shares of Common Stock; provided that the maximum aggregate number of shares of Common Stock available for issuance under the Plan may not be reduced. For purposes of calculating the number of shares of Common Stock available under the Plan, all classes of securities of the Company and its related entities that are convertible presently or in the future by the security holder into shares of Common Stock or which may presently or in the future be exchanged for shares of Common Stock pursuant to redemption rights or otherwise, shall be deemed to be outstanding shares of Common Stock. Notwithstanding the foregoing, the aggregate number of shares as to which incentive stock options, one type of security available under the Plan, may be granted under the Plan may not exceed 1,140,000 shares. In May 1999, the Company’s stockholders approved the grant of 700,000 non-qualified stock options to Robert Batinovich, Chairman of the Company, and 300,000 non-qualified stock options to Andrew Batinovich, President and CEO of the Company, outside the Plan, at exercise prices ranging from $27.03 to $37.84. As of December 31, 2005, 2,531,701 options to purchase shares of Common Stock, including the 1,000,000 of stock options granted to Robert Batinovich and Andrew Batinovich as described above, and 376,241 shares of bonus grants were outstanding under the Plan. The intrinsic value of the bonus grants has been recorded as deferred compensation, with an offsetting entry to additional paid-in-capital, in the accompanying financial statements. See Note 2 for further discussion of the Company’s policies related to its accounting for stock based compensation.

69

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

A summary of the status of the Company’s stock option plan as of December 31, 2005, 2004 and 2003, and changes during the years then ended are presented in the table below:

	2005				2004				2003
	Shares		Weighted Avg Exercise Price		Shares		Weighted Avg Exercise Price		Shares		Weighted Avg Exercise Price
Outstanding at beginning of year	2,766,034		$	22.88	3,021,034		$	22.44	3,223,743		$	22.03
Granted	—			—	—			—	—			—
Exercised	(178,668	)	$	14.85	(159,837	)	$	16.34	(125,212	)	$	14.17
Forfeited/Canceled	(55,665	)	$	21.30	(95,163	)	$	19.45	(77,497	)	$	18.54
Outstanding at end of year	2,531,701		$	23.46	2,766,034		$	22.88	3,021,034		$	22.44
Exercisable at end of year	2,410,212		$	23.75	2,425,420		$	23.65	2,282,633		$	24.35

The following table summarizes information about stock options outstanding at December 31, 2005:

	OPTIONS OUTSTANDING				OPTIONS EXERCISABLE
	Number Outstanding at 12/31/05	Weighted-average remaining contractual life	Weighted-average exercise price		Number Exercisable at 12/31/05	Weighted-average exercise price
Range of Exercise Prices
$11.35 to $15.14	299,604	1.7 years	$	13.78	299,604	$	13.78
$15.14 to $18.92	840,997	3.9 years	$	17.11	722,841	$	17.02
$18.92 to $22.70	376,100	2.7 years	$	21.45	372,767	$	21.46
$22.70 to $26.49	15,000	1.9 years	$	25.00	15,000	$	25.00
$26.49 to $30.27	333,333	2.8 years	$	27.03	333,333	$	27.03
$30.27 to $34.06	333,333	2.8 years	$	32.44	333,333	$	32.44
$34.06 to $37.84	333,334	2.8 years	$	37.84	333,334	$	37.84
	2,531,701	3.0 years	$	23.46	2,410,212	$	23.75

Note 16. SEGMENT INFORMATION

The Company owns and operates primarily office properties throughout the United States and manages its business by geographic markets. Office properties represent approximately 97% of the Company’s portfolio by net operating income and consist primarily of multi-tenant office buildings. The remaining 3% of the Company’s portfolio consists of industrial properties designed for warehouse, distribution and light manufacturing for single-tenant or multi-tenant use. The Company’s geographic markets are managed separately as each market requires different operating, pricing and leasing strategies. Each represents a reportable segment. As of December 31, 2005, the Company’s largest markets are Washington D.C., Southern California, Boston, Northern New Jersey and San Francisco.

70

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based upon net operating income of the combined properties which represents rental revenue less property operating expenses in each segment. Significant information used by the Company for its reportable segments (including discontinued operations) as of and for the years ended December 31, 2005, 2004, and 2003 is as follows (in thousands):

	2005		2004		2003
Washington D.C.
Rental revenue	$	38,288	$	35,977	$	33,444
Property operating expense		10,135		9,862		9,095
Net operating income	$	28,153	$	26,115	$	24,349
Rental properties, net	$	334,076	$	239,694	$	231,944
Total expenditures for additions	$	162,462	$	43,862	$	117,062
Southern California
Rental revenue	$	34,187	$	33,514	$	31,561
Property operating expense		11,179		10,498		9,951
Net operating income	$	23,008	$	23,016	$	21,610
Rental properties, net	$	197,647	$	203,712	$	211,244
Total expenditures for additions	$	3,477	$	2,219	$	36,403
Boston
Rental revenue	$	25,745	$	28,791	$	26,387
Property operating expense		12,223		11,215		9,344
Net operating income	$	13,522	$	17,576	$	17,043
Rental properties, net	$	144,203	$	147,841	$	159,985
Total expenditures for additions	$	3,806	$	4,507	$	71,734
Northern New Jersey
Rental revenue	$	24,135	$	24,500	$	24,145
Property operating expense		8,680		8,575		7,588
Net operating income	$	15,455	$	15,925	$	16,557
Rental properties, net	$	131,416	$	138,910	$	142,808
Total expenditures for additions	$	2,057	$	2,403	$	16,431

continued

71

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

	2005		2004		2003
San Francisco
Rental revenue	$	13,012	$	10,177	$	10,642
Property operating expense		4,232		3,142		2,749
Net operating income	$	8,780	$	7,035	$	7,893
Rental properties, net	$	181,544	$	106,126	$	108,190
Total expenditures for additions	$	80,417	$	1,416	$	1,576
Chicago
Rental revenue	$	9,289	$	12,724	$	12,003
Property operating expense		4,943		5,798		5,775
Net operating income	$	4,346	$	6,926	$	6,228
Rental properties, net	$	—	$	78,480	$	81,408
Total expenditures for additions	$	609	$	1,740	$	1,486
St. Louis
Rental revenue	$	6,061	$	8,147	$	7,831
Property operating expense		2,751		3,115		3,094
Net operating income	$	3,310	$	5,032	$	4,737
Rental properties, net	$	—	$	29,395	$	29,068
Total expenditures for additions	$	761	$	1,632	$	1,530
Tampa/Orlando
Rental revenue	$	8,157	$	7,573	$	8,653
Property operating expense		2,602		2,632		2,360
Net operating income	$	5,555	$	4,941	$	6,293
Rental properties, net	$	38,719	$	45,602	$	40,030
Total expenditures for additions	$	1,180	$	7,541	$	910
Denver
Rental revenue	$	6,697	$	5,585	$	8,926
Property operating expense		2,590		2,171		3,089
Net operating income	$	4,107	$	3,414	$	5,837
Rental properties, net	$	38,895	$	45,637	$	37,922
Total expenditures for additions	$	1,482	$	9,390	$	2,397

continued

72

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

	2005			2004			2003
Minneapolis
Rental revenue	$	5,209		$	5,711		$	6,075
Property operating expense		2,492			2,463			2,579
Net operating income	$	2,717		$	3,248		$	3,496
Rental properties, net	$	—		$	29,647		$	29,937
Total expenditures for additions	$	1,044		$	1,367		$	1,545
Las Vegas
Rental revenue	$	5,080		$	5,041		$	5,240
Property operating expense		1,246			1,095			1,350
Net operating income	$	3,834		$	3,946		$	3,890
Rental properties, net	$	20,333		$	33,054		$	33,945
Total expenditures for additions	$	625		$	721		$	271
All Others
Rental revenue	$	13,691		$	14,038		$	23,730
Property operating expense		5,861			6,622			8,925
Net operating income	$	7,830		$	7,416		$	14,805
Rental properties, net	$	67,449		$	104,489		$	106,981
Total expenditures for additions	$	3,852		$	5,096		$	15,832
Discontinued Operations
Rental revenue	$	(31,473	)	$	(51,571	)	$	(74,473	)
Property operating expenses		(14,558	)		(20,462	)		(27,120	)
Net operating income	$	(16,915	)	$	(31,109	)	$	(47,353	)
Rental properties, net	$	(44,674	)	$	(55,506	)	$	(57,374	)
Total expenditures for additions	$	—		$	—		$	—
Total
Rental revenue	$	158,078		$	140,207		$	124,164
Property operating expenses		54,376			46,726			38,779
Net operating income	$	103,702		$	93,481		$	85,385
Rental properties, net	$	1,109,608		$	1,147,081		$	1,156,088
Total expenditures for additions (1)	$	261,772		$	81,894		$	267,177

⁽¹⁾ Total expenditures for additions include impounds, below market leases and assumption of mortgage loans.

73

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

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

	2005			2004			2003
Revenues
Rental revenue for reportable segments	$	158,078		$	140,207		$	124,164
Fees and reimbursements, including from related parties		4,792			4,046			3,616
Total operating revenue	$	162,870		$	144,253		$	127,780
Net Operating Income
Net operating income for reportable segments	$	103,702		$	93,481		$	85,385
Unallocated amounts:
Fees and reimbursements, including from related parties		4,792			4,046			3,616
Interest and other income		2,614			2,597			3,556
Equity in earnings of unconsolidated joint ventures		459			805			604
General and administrative		(15,080	)		(11,545	)		(12,368	)
Depreciation and amortization		(51,026	)		(44,476	)		(35,992	)
Interest expense		(37,708	)		(29,760	)		(26,004	)
Loss on early extinguishment of debt		(4,725	)		(2,035	)		(294	)
Provision for impairment of real estate assets		(7,829	)		(3,752	)		(2,852	)
Provision for impairment of non-real estate assets		—			—			(5,746	)
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle	$	(4,801	)	$	9,361		$	9,905

The following is a reconciliation of segment assets to total assets for the periods presented above (in thousands):

	2005		2004
Rental Properties, net, for reportable segments	$	1,109,608	$	1,147,081
Unallocated amounts:
Properties held for sale		103,548		57,327
Investments in land and development		51,750		147,435
Investments in unconsolidated joint ventures		12,040		12,014
Mortgage loans receivable		11,231		12,872
Leasing and financing costs, net		22,929		22,447
Straight-line rent receivable, net		16,874		15,764
Cash and cash equivalents		3,661		6,003
Other assets		14,489		10,202
Total Assets	$	1,346,130	$	1,431,145

Note 17. PROVISIONS FOR IMPAIRMENT OF ASSETS

Provision for Impairment of Real Estate Assets

In connection with the Company’s decision in March 2005 to dispose of assets in its non-core markets and certain non-core assets in core markets, the Company reduced the intended holding period of 21 assets to two years or less in March 2005. Prior to that decision there were no impairment indicators and the cash flows of the properties were sufficient to recover the carrying value of the asset over the previous intended holding period. Based on the Company’s analysis of the discounted cash flows of each asset over the next two years, the Company determined that nine of the assets were impaired. The difference between the estimated fair value (calculated by discounting estimated future cash flows and sales proceeds) and the net book value was approximately $49.3 million. When combined with impairment charges recognized on two additional assets sold during the first quarter of 2005 (as discussed in Notes 5 and 6) and additional impairments recognized during the third and fourth quarter of 2005, the total impairment charge recognized during the year ended December 31, 2005, was approximately $94.3 million ($86.5 million of which is included in discontinued operations). During the fourth quarter, the Company classified a development project as held for sale and recorded impairment charges of $32.3 million relating to the difference between the basis of the project and the estimated net proceeds expected to be realized upon sale. Prior to that date, the Company intended to hold the development project and there were no impairment indicators. The Company

74

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

also recorded a provision for impairment of $375,000 to reduce the carrying value of a 50% owned development joint venture which is developing a residential project in San Mateo, California, from approximately $779,000 to its estimated fair value of $404,000, due to lower than anticipated sales values based on changes in market conditions. In addition, the Company concluded that a note receivable of $3.6 million collateralized by real estate was impaired and recorded an allowance for loan losses of $2.3 million. The Company measures the impairment of the loan based upon the excess of the recorded investment amount over the current estimated fair value of the collateral, as reduced by selling costs. In connection with the dispositions of Columbia Centre II and Embassy Plaza, an additional provision for impairment of real estate assets of $234,000 was recognized due to higher than anticipated costs to sell the properties.

Following is a list of the 14 assets for which an impairment charge was recorded during the year ended December 31, 2005:

Property	Market	Square Footage
Oakbrook Terrace Corp Center III (see Note 5)	Chicago	232,052
Columbia Centre II (see Note 5)	Chicago	146,530
Embassy Plaza (see Note 5)	Chicago	136,766
Riverview Office Tower (see Note 5)	Minneapolis	227,129
Osram Building (see Note 22)	Indianapolis	45,265
Capitol Center (see Note 22)	Des Moines	165,127
Thousand Oaks (see Note 22)	Memphis	422,363
Northglenn Business Center (see Note 5)	Denver	65,000
Fairfield Business Quarters (see Note 5)	New Jersey	42,792
Leawood Office Building (see Note 5)	Kansas City	92,787
Executive Place Note	New Jersey	85,765
Bellevue (Note 6)	San Francisco	0.31 acres
Peninsula Marina (Note 6)	San Francisco	33.2 acres
Eden Shores (see Note 6)	Hayward	27 acres

In the fourth quarter of 2004, due to the adverse outcome of an initiative for the zoning and precise plan for a mixed use project known as Marina Shores Village in Redwood City, California, the Company decided to abandon an option to acquire an additional nearby parcel of land known as Pete’s Harbor. As a result, the Company recorded a provision for impairment of $3,752,000 relating to previously paid option payments and predevelopment costs.

In the first quarter of 2003, the Company recorded a provision for impairment of approximately $2,272,000 to provide for a decrease in the carrying value of a 10% owned development joint venture which owns an office property located in San Mateo, California, to an estimated fair value of zero due to decreased leasing activity and lower than anticipated market rents. In addition, in the third quarter of 2003, the Company recorded a provision for impairment of $580,000 to reduce the carrying value of a 50% owned development joint venture, which is developing a residential project at Gateway Business Park in Aurora, Colorado, from approximately $1,125,000 to an estimated fair value of $545,000, due to lower than anticipated values.

Provision for Impairment of Non-Real Estate Assets

In the second and fourth quarters of 2003, the Company recorded impairment charges of approximately $3.9 million and $1.8 million, respectively, relating to anticipated losses on the disposition of the Company’s leased aircraft which was disposed of in January 2004.

75

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

NOTE 18. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

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

	As of December 31, 2004 (in 000’s)
Balance Sheet
Investments in land and development	$	46,087
Cash and cash equivalents		570
Other assets		105
Total assets	$	46,762
Mortgage loans (1)	$	45,000
Other liabilities		151
Total liabilities		45,151
Minority interest		2,451
Stockholders’ equity		(840	)
Total liabilities and stockholders’ equity	$	46,762
	Year Ended December 31, 2004
Statement of Operations
Fees and reimbursements, including from related parties	$	(80	)
Interest expense		(152	)
Cumulative effect of change in accounting principle		912
Total expenses		760
Net loss	$	(840	)

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

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

76

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 19. COMMITMENTS AND CONTINGENCIES

Environmental Matters

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

General Uninsured Losses

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

Tax indemnifications

Twenty-two of the properties in the Company’s portfolio were acquired on terms and conditions under which they can be disposed of only in a “like-kind exchange” or other non-taxable transaction for limited periods of time. The agreed upon time periods for these restrictions on dispositions vary from transaction to transaction. In the event the Company was to dispose of one of these properties through a taxable transaction during the restriction period, the Company would be required to indemnify the contributor of such property for all direct and indirect adverse tax consequences. The Company has no intentions to sell or otherwise dispose of the properties or interests therein in taxable transactions during the restriction period.

Litigation

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

NOTE 20. EQUITY TRANSACTIONS

Stock Repurchases

As of December 31, 2005, the Company’s Board of Directors authorized the repurchase of 12,210,700 shares of common stock. During the year ended December 31, 2005, the Company repurchased 2,525,900 shares at an average cost of $18.87 per share, bringing the total repurchases through December 31, 2005 to 8,920,716 shares at an average cost of $17.32 per share.

Common Stock Offerings

On December 16, 2004, the Company completed the sale of 4,000,000 shares of common stock in an offering underwritten by Goldman, Sachs & Co. The 4,000,000 shares were sold at a per share price of $20.80, resulting in proceeds, net of offering costs, of approximately $81.8 million. Approximately $174,000 of offering costs were paid during year ended December 31, 2005. The Company used the net proceeds to redeem a portion of the outstanding shares of its Preferred Stock on January 28, 2005 (as discussed below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under the Company’s unsecured bank line of credit.

On March 19, 2004, the Company completed the sale of 3,910,000 shares of common stock (including the exercise of the over allotment of 510,000 shares) in an offering underwritten by Goldman, Sachs & Co. The 3,910,000 shares were sold at a per share price of $21.20, resulting in proceeds, net of offering costs, of approximately $81.3 million.

77

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

The Company used the net proceeds to redeem a portion of the outstanding shares of its Preferred Stock in April 2004 (as discussed below). In the interim, prior to the redemption, the proceeds were used to repay a portion of the amounts outstanding under the Company’s unsecured bank line of credit.

Preferred Stock Redemptions

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

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

Note 21. RESTATEMENT

The Company determined that a correction of errors was required to its consolidated financial statements as of December 31, 2004 and each of the years in the two year period ended December 31, 2004 (including the interim period for 2004). These errors did not have any impact on net cash flows from operating, investing, or financing activities in the consolidated statement of cash flows for all periods presented. The consolidated financial statements and accompanying footnotes presented herein reflect the restatement adjustments which were included in the Company’s Amended December 31, 2004 Form 10-K/A filed on December 19, 2005.

Note 22. SUBSEQUENT EVENTS

Acquisition

On March 1, 2006, the Company acquired Chatham Executive Center located in Chatham, NJ, for a purchase price of $17.3 million. The property consists of a 63,346 square foot, three-story multi-tenant office building. The property is 85% leased and is situated at a full four way interchange. The purchase price was funded with using a draw from the Company’s unsecured bank line of credit.

Dispositions

On January 5, 2006, the Company completed the sale of Thousand Oaks, a 422,000 square foot office complex located in Memphis, TN, for a sales price of $28.6 million. In connection with the sale of Thousand Oaks, the Company paid down the unsecured bank line of credit of $27.7 million. Thousand Oaks was classified as Property Held for Sale on the accompanying consolidated balance sheets as of December 31, 2005.

On January 12, 2006, the Company completed the sale of Capitol Center, a 165,000 square foot office complex located in Des Moines, IA, for a sales price of $11.3 million. The proceeds from this disposition were used to pay the loan obtained in connection with the acquisition of 33 New Montgomery. Capitol Center was classified as Property Held for Sale on the accompanying consolidated balance sheets as of December 31, 2005.

On January 17, 2006, the Company completed the sale of Osram Building, a 45,000 square foot office complex located in Westfield, IN, for a sales price of $2.0 million. The proceeds from this disposition were used to pay down the loan obtained in connection with the acquisition of 33 New Montgomery. Osram Building was classified as Property Held for Sale on the accompanying consolidated balance sheets as of December 31, 2005.

On January 31, 2006, the Company completed the sale of Vreeland Business Center, a 133,000 square foot office complex located in Florham Park, for a sale price of $14.8 million. In connection with the sale of Vreeland Business Center, the Company paid down the unsecured bank line of credit of $14.3 million. Vreeland Business Center was classified as Property Held for Sale on the accompanying consolidated balance sheets as of December 31, 2005.

78

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

The aggregate gain on the four sales above is expected to be approximately $6.8 million.

Stock Repurchases

Subsequent to December 31, 2005, 1.8 million shares of the Company’s Common Stock have been repurchased at a total cost of approximately $34.3 million.

79

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

Note 23. UNAUDITED QUARTERLY RESULTS OF OPERATIONS

The following represents an unaudited summary of quarterly results of operations for the years ended December 31, 2005 and 2004 (in thousands, except for weighted average shares and per share amounts):

	Quarter Ended
	March 31, 2005			March 31, 2005			March 31, 2005 (1)			June 30, 2005			June 30, 2005			June 30, 2005 (1)
	Previously Reported (2)			As restated			As restated and updated for disc ops (1)			Previously Reported (2)			As restated			As restated and updated for disc ops (1)
OPERATING REVENUE
Rental revenue	$	46,483		$	46,483		$	37,274		$	40,556		$	40,556		$	38,192
Fees and reimbursements, including from related parties		1,095			1,095			1,095			1,359			1,359			1,359
Total operating revenue		47,578			47,578			38,369			41,915			41,915			39,551
OPERATING EXPENSES
Property operating expenses		17,475			17,475			13,226			13,305			13,305			12,309
General and administrative		3,285			3,285			3,285			3,925			3,925			3,925
Depreciation and amortization		15,479			15,479			12,003			12,990			12,990			12,059
Provision for impairment of real estate assets		54,410			54,410			5,097			—			—			—
Total operating expenses		90,649			90,649			33,611			30,220			30,220			28,293
Interest and other income		1,030			1,030			1,030			615			615			615
Equity in earnings of unconsolidated joint ventures		134			134			134			169			169			169
Interest expense		(9,321	)		(9,172	)		(8,135	)		(9,724	)		(9,575	)		(8,684	)
Loss on early extinguishment of debt		(561	)		(561	)		(561	)		—			—			—
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		(51,789	)		(51,640	)		(2,774	)		2,755			2,904			3,358
Minority interest		3,836			3,710			3,710			(994	)		(1,005	)		(1,005	)
Income (loss) before discontinued operations and cumulative effect of change in accounting principle		(47,953	)		(47,930	)		936			1,761			1,899			2,353
Discontinued operations		11,107			11,107			(37,759	)		11,892			11,892			11,438
Net income (loss)		(36,846	)		(36,823	)		(36,823	)		13,653			13,791			13,791
Preferred dividends		(1,812	)		(1,812	)		(1,812	)		(1,812	)		(1,812	)		(1,812	)
Dividends paid on redeemed preferred stock		(2,102	)		(596	)		(596	)		—			—			—
(Premium)/discount and write-off of original issuance costs on preferred stock redemption and repurchases		(5,309	)		(5,309	)		(5,309	)		—			—			—
Net income (loss) available to Common Stockholders	$	(46,069	)	$	(44,540	)	$	(44,540	)	$	11,841		$	11,979		$	11,979
Basic Income (Loss) Per Share Data (4):
Continuing operations	$	(1.57	)	$	(1.53	)	$	(0.27	)	$	0.02		$	0.03		$	0.04
Discontinued operations		0.29			0.29			(0.97	)		0.31			0.30			0.29
Net income (loss) available to Common Stockholders	$	(1.28	)	$	(1.24	)	$	(1.24	)	$	0.33		$	0.33		$	0.33
Basic weighted average shares outstanding		35,928,962			35,928,962			35,928,962			35,921,157			35,921,157			35,921,157
Diluted Income (Loss) Per Share Data (4):
Continuing operations	$	(1.57	)	$	(1.53	)	$	(0.27	)	$	0.02		$	0.03		$	0.04
Discontinued operations		0.29			0.29			(0.97	)		0.31			0.30			0.29
Net income (loss) available to Common Stockholders	$	(1.28	)	$	(1.24	)	$	(1.24	)	$	0.33		$	0.33		$	0.33
Diluted weighted average shares outstanding		35,928,962			35,928,962			35,928,962			39,159,087			39,159,087			39,159,087

80

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

	Quarter Ended
	Sept 30, 2005 (1)			Dec 31, 2005 (1)
OPERATING REVENUE
Rental revenue	$	40,018		$	42,594
Fees and reimbursements, including from related parties		849			1,489
Total operating revenue		40,867			44,083
OPERATING EXPENSES
Property operating expenses		13,803			15,038
General and administrative		3,424			4,446
Depreciation and amortization		13,382			13,582
Provision for impairment of real estate assets		63			2,669
Total operating expenses		30,672			35,735
Interest and other income		455			514
Equity in earnings of unconsolidated joint ventures		6			150
Interest expense		(10,225	)		(10,664	)
Loss on early extinguishment of debt		(127	)		(4,037	)
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		304			(5,689	)
Minority interest		(2,240	)		593
Loss before discontinued operations and cumulative effect of change in accounting principle		(1,936	)		(5,096	)
Discontinued operations		30,559			25
Net income (loss)		28,623			(5,071	)
Preferred dividends		(1,812	)		(1,811	)
Dividends paid on redeemed preferred stock		—			—
(Premium)/discount and write-off of original issuance costs on preferred stock redemption and repurchases		—			—
Net income (loss) available to Common Stockholders	$	26,811		$	(6,882	)
Basic Income (Loss) Per Share Data (4):
Continuing operations	$	(0.04	)	$	(0.20	)
Discontinued operations		0.78			—
Net income (loss) available to Common Stockholders	$	0.74		$	(0.20	)
Basic weighted average shares outstanding		36,003,636			34,431,536
Diluted Income (Loss) Per Share Data (4):
Continuing operations	$	(0.04	)	$	(0.20	)
Discontinued operations		0.78			—
Net income (loss) available to Common Stockholders	$	0.74		$	(0.20	)
Diluted weighted average shares outstanding		36,003,636			34,431,536

81

GLENBOROUGH REALTY TRUST INCORPORATED

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

	Quarter Ended
	March 31, 2004 (1)			June 30, 2004 (1) (3)			Sept 30, 2004 (1)			Dec 31, 2004 (1)
	(As restated)			(As restated)			(As restated)			(As restated)
OPERATING REVENUE
Rental revenue	$	34,021		$	36,175		$	36,022		$	33,989
Fees and reimbursements, including from related parties		829			1,032			757			1,428
Total operating revenue		34,850			37,207			36,779			35,417
OPERATING EXPENSES
Property operating expenses		11,850			11,439			11,550			11,887
General and administrative		2,171			3,999			3,006			2,369
Depreciation and amortization		10,459			11,124			11,507			11,386
Provision for impairment of real estate assets		—			—			—			3,752
Total operating expenses		24,480			26,562			26,063			29,394
Interest and other income		831			638			567			561
Equity in earnings of unconsolidated joint ventures		188			249			158			210
Interest expense		(7,398	)		(7,017	)		(7,638	)		(7,707	)
Loss on early extinguishment of debt		(85	)		—			(1,950	)		—
Income (loss) before minority interest, discontinued operations and cumulative effect of change in accounting principle		3,906			4,515			1,853			(913	)
Minority interest		(3	)		(833	)		(42	)		206
Income (loss) before discontinued operations and cumulative effect of change in accounting principle		3,903			3,682			1,811			(707	)
Discontinued operations		1,865			14,543			2,044			1,993
Income before cumulative effect of change in accounting principle		5,768			18,225			3,855			1,286
Cumulative effect of change in accounting principle		(912	)		—			—			—
Net income		4,856			18,225			3,855			1,286
Preferred dividends		(3,318	)		(3,318	)		(3,318	)		(3,318	)
Dividends paid on redeemed preferred stock		(1,505	)		(568	)		—			—
(Premium)/discount and write-off of original issuance costs on preferred stock redemption and repurchases		—			(5,909	)		9			—
Net income (loss) available to Common Stockholders	$	33		$	8,430		$	546		$	(2,032	)
Basic Income (Loss) Per Share Data (4):
Continuing operations	$	(0.03	)	$	(0.15	)	$	(0.04	)	$	(0.12	)
Discontinued operations		0.06			0.42			0.06			0.06
Cumulative effect of change in accounting principle		(0.03	)		—			—			—
Net income (loss) available to Common Stockholders	$	—		$	0.27		$	0.02		$	(0.06	)
Basic weighted average shares outstanding		28,564,399			31,662,622			31,682,728			32,745,311
Diluted Income (Loss) Per Share Data (4):
Continuing operations	$	0.03		$	(0.15	)	$	(0.04	)	$	(0.12	)
Discontinued operations		0.06			0.42			0.06			0.06
Cumulative effect of change in accounting principle		(0.03	)		—			—			—
Net income (loss) available to Common Stockholders	$	—		$	0.27		$	0.02		$	(0.06	)
Diluted weighted average shares outstanding		28,564,399			31,662,622			31,682,728			32,745,311

⁽¹⁾ Amounts have been updated for discontinued operations for properties sold or which became held for sale subsequent to the quarter shown.

⁽²⁾ Amounts were previously reported in the Original 10-Q filed on May 10, 2005 for the quarter ended March 31, 2005 and on August 15, 2005 for the quarter ended June 30, 2005.

⁽³⁾ Amounts were previously reported in the Original 10-Q filed on August 15, 2005. Amounts previously reported include the restatement to accrue common and preferred stock dividends which increased net income available to common stockholders by $1,373,000 for the three months ended June 30, 2004.

⁽⁴⁾ Quarterly per share amounts do not necessarily sum to per share amounts for the year as weighted average shares outstanding are measured for each period presented, rather than solely for the entire year.

82

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2005

(in thousands)

COLUMN A	COLUMN B			COLUMN C				COLUMN D		COLUMN E						COLUMN F		COLUMN G	COLUMN H
				Initial Cost to Company (1)				Costs Capitalized/ (Reduced) Subsequent to Acquisition (3)		Gross Amount Carried at December 31, 2005
Description	Encumbrances (9)			Land		Buildings and Improvements		Improvements		Land		Buildings and Improve. (7)		Total (2)		Accum. Deprec. (8)		Date Acquired (1)	Life Deprec. Over
Washington DC:
1100 17th Street	$	28,627		$	9,519	$	30,269	$	569	$	9,519	$	30,838	$	40,357	$	2,632	4/04	1-30 yrs.
1525 Wilson			(6)		12,254		60,122		72		12,254		60,194		72,448		5,728	1/03	1-30 yrs.
Capitol Place III		33,935			8,770		76,312		91		8,770		76,403		85,173		1,387	8/05	1-30 yrs.
Quincy Crossing		21,386			4,153		29,961		858		4,153		30,819		34,972		2,681	10/03	1-30 yrs.
700 South Washington		—			1,981		7,894		1,182		1,981		9,076		11,057		2,766	4/97	1-30 yrs.
King Street Station II			(5)		4,220		23,181		3,426		4,220		26,607		30,827		4,847	10/01	1-30 yrs.
Metro Place		46,452			5,070		67,792		526		5,070		68,318		73,388		3,297	2/05	1-30 yrs.
Montgomery Executive Center					1,928		7,676		2,420		1,928		10,096		12,024		2,832	9/97	1-30 yrs.
Washington DC Total		130,400			47,895		303,207		9,144		47,895		312,351		360,246		26,170
Southern California:
First Financial Plaza		31,419			9,551		37,532		660		9,551		38,192		47,743		4,869	3/02	1-30 yrs.
Centerstone Plaza		26,462			6,077		24,265		2,077		6,077		26,342		32,419		7,744	7/97	1-30 yrs.
Newport Plaza		—			3,981		22,177		1,344		3,981		23,521		27,502		4,331	10/01	1-30 yrs.
610 West Ash		22,053			4,528		30,028		1,654		4,528		31,682		36,210		3,253	12/03	1-30 yrs.
Aventine		50,000			14,340		61,228		3,630		14,340		64,858		79,198		10,950	8/02	1-30 yrs.
Tierrasanta Research Park			(6)		1,303		5,189		1,505		1,303		6,694		7,997		2,275	9/97	1-30 yrs.
Southern California Total		129,934			39,780		180,419		10,870		39,780		191,289		231,069		33,422
Boston:
99 Summer Street		44,719			13,574		56,021		4,779		13,574		60,800		74,374		7,868	7/03	1-30 yrs.
Hartwood Building		—			527		5,426		737		527		6,163		6,690		1,532	3/98	1-30 yrs.
313 Boston Post Road			(6)		916		9,104		1,771		916		10,875		11,791		2,790	3/98	1-30 yrs.
Marlborough Corporate Place			(6)		3,390		55,908		4,623		3,390		60,531		63,921		16,807	1/98	1-30 yrs.
Westford Corporate Center		—			2,091		8,310		2,698		2,091		11,008		13,099		2,985	4/97	1-30 yrs.
Flanders Research Park		—			739		5,634		1,805		739		7,439		8,178		1,868	3/98	1-30 yrs.
Boston Total		44,719			21,237		140,403		16,413		21,237		156,816		178,053		33,850

continued

83

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2005

(in thousands)

COLUMN A	COLUMN B			COLUMN C				COLUMN D		COLUMN E						COLUMN F		COLUMN G	COLUMN H
				Initial Cost to Company (1)				Costs Capitalized/ (Reduced) Subsequent to Acquisition (3)		Gross Amount Carried at December 31, 2005
Description	Encumbrances (9)			Land		Buildings and Improvements		Improvements		Land		Buildings and Improve. (7)		Total (2)		Accum. Deprec. (8)		Date Acquired (1)	Life Deprec. Over
Northern New Jersey:
Fox Hollow Business Qtrs I	$	—		$	1,576	$	2,358	$	640	$	1,576	$	2,998	$	4,574	$	849	9/97	1-30 yrs.
CenterPointe at Bridgewater		10,800			9,023		29,032		15,749		9,023		44,781		53,804		9,877	9/97	1-30 yrs.
Frontier Executive Quarters			(6)		4,831		38,983		1,113		4,831		40,096		44,927		11,429	9/97	1-30 yrs.
Vreeland Business Center		—			1,863		8,714		238		1,863		8,952		10,815		2,288	6/98	1-30 yrs.
Gatehall I		7,584			1,865		7,427		2,520		1,865		9,947		11,812		2,909	9/97	1-30 yrs.
25 Independence			(6)		4,547		18,141		2,011		4,547		20,152		24,699		5,735	9/97	1-30 yrs.
Cottontail Distribution Center		—			1,616		16,278		216		1,616		16,494		18,110		4,238	6/98	1-30 yrs.
Northern New Jersey Total		18,384			25,321		120,933		22,487		25,321		143,420		168,741		37,325
San Francisco:
33 New Montgomery		20,190			11,378		67,076		268		11,378		67,344		78,722		1,712	8/05	1-30 yrs.
Creekside Business Park		—			4,591		23,790		2,458		4,591		26,248		30,839		4,065	3/01	1-30 yrs.
400 South El Camino			(5)		4,000		30,549		8,116		4,000		38,665		42,665		9,873	3/98	1-30 yrs.
Rollins Road		22,000			27,460		18,984		1,047		27,460		20,031		47,491		2,523	11/00	1-30 yrs.
San Francisco Total		42,190			47,429		140,399		11,889		47,429		152,288		199,717		18,173
Tampa/Orlando:
Grand Regency Business Center		—			1,120		4,302		1,101		1,120		5,403		6,523		2,045	12/97	1-30 yrs.
Park Place		—			1,895		12,982		3,015		1,895		15,997		17,892		4,383	1/98	1-30 yrs.
University Center		13,172			3,002		12,331		701		3,002		13,032		16,034		2,179	various	1-30 yrs.
Oakview Center		—			1,788		6,949		67		1,788		7,016		8,804		1,927	12/97	1-30 yrs.
Tampa/Orlando Total		13,172			7,805		36,564		4,884		7,805		41,448		49,253		10,534
Denver:
Gateway Park		26,764			3,696		30,274		2,882		3,696		33,156		36,852		5,937	various	1-30 yrs.
Northglenn Business Center		—			—		—		96		—		96		96		—	12/97	1-30 yrs.
Westminster Center		—			1,191		7,630		18		1,191		7,648		8,839		955	4/02	1-30 yrs.
Denver Total		26,764			4,887		37,904		2,996		4,887		40,900		45,787		6,892

continued

84

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2005

(in thousands)

COLUMN A	COLUMN B			COLUMN C						COLUMN D			COLUMN E									COLUMN F			COLUMN G	COLUMN H
				Initial Cost to Company (1)						Costs Capitalized/ (Reduced) Subsequent to Acquisition (3)			Gross Amount Carried at December 31, 2005
Description	Encumbrances (9)			Land			Buildings and Improvements			Improvements			Land			Buildings and Improve. (7)			Total (2)			Accum. Deprec. (8)			Date Acquired (1)	Life Deprec. Over
Las Vegas:
Citibank Office Park			(6)		4,628			18,442			4,009			4,628			22,451			27,079			6,746		9/97	1-30 yrs.
Las Vegas Total		—			4,628			18,442			4,009			4,628			22,451			27,079			6,746
Omaha:
One Pacific Place			(6)		1,034			18,014			3,212			1,034			21,226			22,260			6,098		5/98	1-30 yrs.
Capitol Center		—			500			11,981			1,466			500			13,447			13,947			3,794		2/98	1-30 yrs.
Omaha Total		—			1,534			29,995			4,678			1,534			34,673			36,207			9,892
Indianapolis:
Osram Building		—			264			4,515			(1,670	)		264			2,845			3,109			1,122		4/98	1-30 yrs.
Indianapolis Total		—			264			4,515			(1,670	)		264			2,845			3,109			1,122
All Others:
Valley Forge Corporate Center		—			2,505			23,184			2,209			2,505			25,393			27,898			8,643		1/98	1-30 yrs.
J.I. Case - Kansas City (4)		—			236			3,264			(1,197	)		236			2,067			2,303			884		3/84	1-30 yrs.
Thousand Oaks		—			9,747			40,355			(12,417	)		9,747			27,938			37,685			13,678		12/97	1-30 yrs.
Miscellaneous investments		—			—			—			(5,534	)		—			(5,534	)		(5,534	)		—
All Others Total		—			12,488			66,803			(16,939	)		12,488			49,864			62,352			23,205
Property held for sale		—			(12,374	)		(227,058	)		173,876			(12,374	)		(53,182	)		(65,556	)		(20,882	)
Combined Total	$	405,563		$	200,894		$	852,526		$	242,637		$	200,894		$	1,095,163		$	1,296,057		$	186,449

(1) Initial cost and date acquired by GRT Predecessor Entities, where applicable.

(2) The aggregate cost for Federal income tax purposes is $1,249,929,824.

(3) Bracketed amounts represent reductions to carrying value.

(4) Initial cost represents original book value carried forward from the financial statements of the GRT Predecessor Entities.

(5) Cross collateralized loans collateralized by two properties - $58,000

(6) Cross collateralized loan collateralized by eight properties - $168,823.

(7) Includes at market and above market rate in-place leases of $3,185 for 1100 17th Street, $4,747 for Capitol Place, $2,298 for Quincy Crossing, $2,416 for King Street Station II, $5,317 for Metro Place, $2,086 for Newport Plaza, $2,625 for 610 West Ash, $4,728 for Aventine, $7,271 for 99 Summer Street, $621 for University Center, $6,147 for 33 New Montgomery and $1,318 for Gateway Park.

(8) Includes accumulated amortization on at market and above market rate in-place leases of $998 for 1100 17th Street, $325 for Capitol Place, $580 for Quincy Crossing, $1,531 for King Street Station II, $1,026 for Metro Place, $1,270 for Newport Plaza, $1,215 for 610 West Ash, $4,140 for Aventine, $3,457 for 99 Summer Street, $136 for University Center, $732 for 33 New Montgomery and $351 for Gateway Park.

(9) Excludes $45 million encumbrance related to the Marina Shores development project, consolidated pursuant to FIN 46 Revised. See Note 18 for further discussion.

85

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE III – REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2005

(in thousands)

Reconciliation of gross amount at which real estate was carried for the years ended December 31:

	2005			2004			2003
Rental Property:
Balance at beginning of year	$	1,367,310		$	1,339,287		$	1,372,599
Add back prior year adjustment for properties held for sale		63,422			62,896			60,937
Additions during year:
Property acquisitions and additions		261,772			81,894			267,177
Retirements/sales		(280,807	)		(53,345	)		(298,530	)
Provisions for impairment		(50,084	)		—			—
Balance at end of year before adjustment for property held for sale		1,361,613			1,430,732			1,402,183
Property held for sale (Note 5)		(65,556	)		(63,422	)		(62,896	)
Balance at year end	$	1,296,057		$	1,367,310		$	1,339,287
Accumulated Depreciation:
Balance at beginning of year	$	220,229		$	183,199		$	182,875
Add back prior year adjustment for properties held for sale		7,916			5,522			3,207
Additions during year:
Depreciation		40,169			47,508			42,559
Retirements/sales		(60,983	)		(8,084	)		(39,920	)
Balance at end of year before adjustment for property held for sale		207,331			228,145			188,721
Property held for sale (Note 5)		(20,882	)		(7,916	)		(5,522	)
Balance at end of year	$	186,449		$	220,229		$	183,199

See accompanying independent registered public accounting firms’ reports.

86

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

December 31, 2005

(in thousands)

COLUMN A	COLUMN B		COLUMN C	COLUMN D	COLUMN E	COLUMN F		COLUMN G		COLUMN H
Description of Loan and Securing Property	Current Interest Rate		Maturity Date	Periodic Payment Terms	Prior Liens	Face Amount		Carrying Amount, including accrued interest (2)		Principal Amount of Loans Subject to Delinquent Principal or Interest
First mortgage loan collateralized by land located in Aurora, Colorado	9.0	%(1)	7/1/07	Periodic interest and principal payments from proceeds of land parcel sales in the project	None	$	15,978	$	11,231	None

⁽¹⁾ In July 2004, the loan was modified to increase the interest rate to 9.0%. See Note 8 for further discussion.

⁽²⁾ The aggregate cost for Federal income tax purposes is $21,328.

(continued)

87

GLENBOROUGH REALTY TRUST INCORPORATED

SCHEDULE IV - MORTGAGE LOANS RECEIVABLE, SECURED BY REAL ESTATE

December 31, 2005

(in thousands)

The following is a summary of changes in the carrying amount of mortgage loans receivable for the years ended December 31, 2005, 2004 and 2003:

	2005			2004			2003
Balance at beginning of year	$	12,872		$	40,323		$	41,813
Additions during year:
Additional advances		7,000			—			2,720
Interest accruals		1,439			1,802			2,871
Deductions during year:
Collections of principal		(9,945	)		(27,041	)		(3,426	)
Collections of accrued interest		(135	)		(2,212	)		(3,655	)
Balance at end of year	$	11,231		$	12,872		$	40,323

See accompanying independent registered public accounting firms’ reports.

88

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, 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: March 28, 2006		/s/ Andrew Batinovich
		Andrew Batinovich
		President,
		Chief Executive Officer and Director
Date: March 28, 2006		/s/ Brian Peay
		Brian Peay
		Executive Vice President and
		Chief Financial Officer
Date: March 28, 2006		/s/ Alvin Fong
		Alvin Fong
		Chief Accounting Officer
Date: March 28, 2006		/s/ Robert Batinovich
		Robert Batinovich
		Chairman of the Board of Directors
Date: March 28, 2006		/s/ Patrick Foley
		Patrick Foley
		Director
Date: March 28, 2006		/s/ Keith Locker
		Keith Locker
		Director

89

EXHIBIT INDEX

Exhibit Number	Exhibit Title
3.01	Articles of Amendment and Restatement of Articles of Incorporation of the Company are incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
3.02	Amended Bylaws of the Company are incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
3.03	The Company’s Form of Articles Supplementary relating to the 7  3/4% Series A Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.03 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997.
3.04	Articles Supplementary of the Series B Preferred Stock (relating to the Rights Plan) are incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
4.01	Form of Common Stock Certificate of the Company is incorporated herein by reference to Exhibit 4.02 to the Company’s Registration Statement on Form S-4 (Registration No. 33-83506), which became effective October 26, 1995.
4.02	Form of 7  3/4% Series A Convertible Preferred Stock Certificate of the Company is incorporated herein by reference to Exhibit D to the Company’s Registration Statement on Form 8-A which was filed on January 22, 1998.
10.01	Form of Indemnification Agreement for existing Officers and Directors of the Company is incorporated herein by reference to Exhibit 10.02 to the Company’s Registration Statement on Form S-4 (Registration No. 33-83506), which became effective October 26, 1995.
10.02*	Stock Incentive Plan of the Company (amended and restated as of March 20, 1997) is incorporated herein by reference to Exhibit 4.0 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
10.03*	Employment Agreement between the Company and Michael Steele is incorporated herein by reference to Exhibit 10.05 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.
10.04	Registration Agreement between the Company and GPA, Ltd. is incorporated herein by reference to Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1995.
10.05*	Amended and Restated Employment Agreement dated May 7, 2003, between Robert Batinovich and Glenborough Realty Trust Incorporated is incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
10.06*	Amended and Restated Employment Agreement dated May 7, 2003, between Andrew Batinovich and Glenborough Realty Trust Incorporated is incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
10.07*	Employment Agreement dated May 7, 2003, between Sandra L. Boyle and Glenborough Realty Trust Incorporated is incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
10.08*	Letter Agreement dated May 7, 2003, between Robert Batinovich and Glenborough Realty Trust Incorporated, relating to supplemental retirement benefits, is incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
10.09*	Letter Agreement dated May 7, 2003, between Andrew Batinovich and Glenborough Realty Trust Incorporated, relating to supplemental retirement benefits, is incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
10.10*	Letter Agreement dated May 7, 2003, between Sandra L. Boyle and Glenborough Realty Trust Incorporated, relating to supplemental retirement benefits, is incorporated herein by reference to Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.

90

EXHIBIT INDEX—continued

Exhibit Number	Exhibit Title
11.01	Statement re: Computation of Per Share Earnings is shown in Note 14 of the Consolidated Financial Statements of the Company in Item 15.
12.01	Computation of Ratio of Earnings to Fixed Charges and Ratio of Earnings to Fixed Charges and Preferred Dividends
21.01	Significant Subsidiaries of the Registrant
23.01	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
23.02	Consent of KPMG LLP, Independent Registered Public Accounting Firm
31.01	Section 302 Certification of Andrew Batinovich, Chief Executive Officer
31.02	Section 302 Certification of Brian Peay, Chief Financial Officer
32.01	Section 906 Certification of Andrew Batinovich, Chief Executive Officer
32.02	Section 906 Certification of Brian Peay, Chief Financial Officer

* Indicates management contract or compensatory plan or arrangement.

91

EX-12.01

EXHIBIT 12.01

GLENBOROUGH REALTY TRUST INCORPORATED

Computation of Ratio of Earnings to Fixed Charges

and Ratio of Earnings to Fixed Charges and Preferred Dividends

For the five years ended December 31, 2005

(dollars in thousands)

	2001			2002			2003			2004			2005
EARNINGS (LOSS), AS DEFINED
Net Income (1)	$	43,343		$	21,274		$	31,069		$	28,222		$	520
Gain on Sales of Real Estate Assets		(723	)		(6,865	)		(14,204	)		(14,427	)		(87,349	)
Minority Interest		2,684			155			1,262			672			(1,058	)
Interest Expense (2)		38,116			39,311			37,991			36,602			40,961
	$	83,420		$	53,875		$	56,118		$	51,069			(46,926	)
FIXED CHARGES AND PREFERRED DIVIDENDS, AS DEFINED
Interest Expense (2)	$	38,116		$	39,311		$	37,991		$	36,602		$	40,961
Capitalized Interest		4,573			3,939			3,119			3,572			4,634
Fixed Charges		42,689			43,250			41,110			40,174			45,595
Preferred Dividends		19,564			19,564			19,422			15,345			7,843
Fixed Charges and Preferred Dividends	$	62,253		$	62,814		$	60,532		$	55,519		$	53,438
RATIO OF EARNINGS TO FIXED CHARGES (1)		1.95			1.25			1.37			1.27			—	(6)
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS (1)		1.34			—	(3)		—	(4)		—	(5)		—	(6)

⁽¹⁾ Includes depreciation and amortization expense as a deduction.

⁽²⁾ Includes interest expense from discontinued operations.

⁽³⁾ For the year ended December 31, 2002, earnings were insufficient to cover fixed charges and preferred dividends by $8,939.

⁽⁴⁾ For the year ended December 31, 2003, earnings were insufficient to cover fixed charges and preferred dividends by $4,414.

⁽⁵⁾ For the year ended December 31, 2004, earnings were insufficient to cover fixed charges and preferred dividends by $4,450.

⁽⁶⁾ For the year ended December 31, 2005, earnings were insufficient to cover fixed charges by $92,521 and fixed charges and preferred dividends by $100,364.

EX-21.01

EXHIBIT 21.01

SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT

Glenborough Properties, L.P., a California Limited Partnership

EX-23.01

EXHIBIT 23.01

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-27677, 333-79401, and 333-80461) of Glenborough Realty Trust Incorporated of our report dated March 23, 2006 relating to the financial statements, financial statement schedules, management’s assessment of the effectiveness of internal control over financial reporting and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

San Francisco, CA

March 28, 2006

EX-23.02

EXHIBIT 23.02

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Glenborough Realty Trust Incorporated:

We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-19279, 333-26815, 333-28601, 333-40959, 333-49845, 333-61319, 333-67839, 333-70463, and 333-78579) and the registration statements on Form S-8 (Nos. 333-27677, 333-79401, and 333-80461) of Glenborough Realty Trust Incorporated of our report dated March 15, 2005, except as to note 21 which is as of December 16, 2005 and note 5 which is as of March 23, 2006, with respect to the consolidated balance sheet of Glenborough Realty Trust Incorporated and subsidiaries as of December 31, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2004, and all related 2004 and 2003 information in the financial statement schedules, which report appears in the December 31, 2005, annual report on Form 10-K of Glenborough Realty Trust Incorporated.

/s/ KPMG LLP

San Francisco, California

March 28, 2006

EX-31.01

EXHIBIT 31.01

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, ANDREW BATINOVICH, certify that:

1. I have reviewed this annual report on Form 10-K of Glenborough Realty Trust Incorporated (the “registrant”);

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2006

/s/ Andrew Batinovich

Andrew Batinovich

President and Chief Executive Officer

EX-31.02

EXHIBIT 31.02

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, BRIAN PEAY, certify that:

1. I have reviewed this annual report on Form 10-K of Glenborough Realty Trust Incorporated (the “registrant”);

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2006

/s/ Brian Peay

Brian Peay

Executive Vice President and Chief Financial Officer

EX-32.01

EXHIBIT 32.01

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Annual Report of Glenborough Realty Trust Incorporated (the “Company”) on Form 10-K for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Andrew Batinovich, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: March 28, 2006	/s/ Andrew Batinovich
	Andrew Batinovich
	Chief Executive Officer
	Glenborough Realty Trust Incorporated

EX-32.02

EXHIBIT 32.02

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the accompanying Annual Report of Glenborough Realty Trust Incorporated (the “Company”) on Form 10-K for the period ended December 31, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Brian Peay, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.

Date: March 28, 2006	/s/ Brian Peay
	Brian Peay
	Chief Financial Officer
	Glenborough Realty Trust Incorporated