10-K 1 a2071473z10-k.txt 10-K -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) ~~/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR ~~/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NO. 1-11918 ------------------------ TRINET CORPORATE REALTY TRUST, INC. (Exact name of registrant as specified in its charter) MARYLAND 94-3175659 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 1114 AVENUE OF THE AMERICAS, 27TH FLOOR 10036 NEW YORK, NY (Zip code) (Address of principal executive offices)

Registrant's telephone number, including area code: (212) 930-9400 ------------------------ Securities registered pursuant to Section 12 of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days. 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. Yes / / The aggregate market value of the voting stock held by non-affiliates of the Registrant is $-0-. As of March 15, 2002, there were 100 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: NONE THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS I (1) AND OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS

2 PART I ITEM 1. BUSINESS EXPLANATORY NOTE FOR PURPOSES OF THE "SAFE HARBOR PROVISIONS" OF SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which involve certain risks and uncertainties. Forward-looking statements are included with respect to, among other things, the Company's current business plan, business strategy and portfolio management. The Company's actual results or outcomes may differ materially from those anticipated. Important factors that the Company believes might cause such differences are discussed in the cautionary statements presented under the caption "Factors That May Affect the Company's Business Strategy" in Item 1 of this Form 10-K or otherwise accompany the forward-looking statements contained in this Form 10-K. In assessing all forward-looking statements, readers are urged to read carefully all cautionary statements contained in this Form 10-K. OVERVIEW TriNet Corporate Realty Trust, Inc. (the "Company") is a wholly-owned subsidiary of iStar Financial Inc. (together with its predecessor, "iStar Financial"), a New York Stock Exchange listed commercial finance company (NYSE: SFI), which specializes in providing private and corporate real estate owners with structured mortgage, corporate and lease financing. The Company provides capital to major corporations and real estate owners nationwide by structuring purchase/leaseback transactions and acquiring corporate tenant lease assets subject to existing long-term leases to creditworthy customers occupying office and industrial facilities. As of December 31, 2001, the Company's investments consisted of 119 facilities, comprising 13.6 million square feet in 22 states, and which were 97% leased. The five largest customers collectively accounted for approximately 22.2% of the Company's annualized lease revenue, and the Company's largest single customer accounted for approximately 5.7% of the Company's annualized lease revenue. On November 4, 1999, iStar Financial, a Maryland corporation, acquired all of the Company's outstanding capital stock through a merger of the Company with and into a wholly-owned subsidiary of iStar Financial, with the Company surviving as a wholly-owned subsidiary of iStar Financial. Pursuant to the merger, each issued and outstanding share of common stock of the Company was converted into 1.15 shares of common stock of iStar Financial. Each issued and outstanding share of Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the Company was converted into a share of Series B, Series C and Series D (respectively) Cumulative Redeemable Preferred Stock of iStar Financial. The iStar Financial preferred stock issued to the Company's former preferred stockholders have substantially the same terms as the Company's preferred stock, except that the new shares of Series B, C and D preferred stock have additional voting rights not associated with the Company's preferred stock. The merger was structured as a tax-free reorganization under federal tax law. On November 4, 1999, shares of iStar Financial's single class of common stock began trading on the New York Stock Exchange under the symbol "SFI." Prior to the merger, the Company elected to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). iStar Financial has elected to be taxed as a REIT under the Code and the Company is presently treated as a qualified REIT subsidiary. The Company is engaged in a competitive business. In originating and acquiring assets, the Company competes with public and private companies, including finance companies, mortgage banks, pension funds, savings and loan associations, insurance companies, institutional investors, investment banking firms and other lenders and industry participants, as well as individual investors. Existing industry participants and 3 potential new entrants compete with the Company for the available supply of investments suitable for origination or acquisition, as well as for debt and equity capital. Certain of the Company's competitors are larger than the Company, have longer operating histories, may have access to greater capital and other resources, may have management personnel with more experience than the officers of the Company, and may have advantages over the Company in conducting certain businesses and providing certain services. INVESTMENTS AND DISPOSITIONS INVESTMENTS--During 2001, the Company acquired an office facility in Harrisburg, Pennsylvania for a total purchase price of $26.8 million. The facility was simultaneously leased back to the customer with an initial term of 15 years. In addition to the 15-year bondable lease, the customer posted a letter of credit of approximately $2.8 million as additional collateral for its lease obligations to the Company. DISPOSITIONS--During 2001, the Company disposed of four corporate tenant lease assets for total proceeds of $26.3 million, and recognized a net gain of approximately $1.1 million. ITEM 2. PROPERTIES The Company's maintains an office at One Embarcadero Center San Francisco, CA 94111. Its telephone number, general facsimile number and e-mail address are (415) 391-4300, (415) 391-6259 and istarfinancial.com, respectively. The lease for the Company's office space expires in March 2008. See Item 8--"Schedule III--Corporate Tenant Lease Assets and Accumulated Depreciation" for a detailed listing of corporate tenant lease facilities held for investment. LEASE EXPIRATIONS As of December 31, 2001, lease expirations on the Company's corporate tenant lease assets, including facilities owned by the Company's joint ventures, are as follows:

EXPLANATORY NOTE: ------------------------------ (1) Reflects annualized GAAP operating lease income for leases in place at December 31, 2001. The operating lease income includes the Company's pro-rata share from facilities owned by the Company's joint ventures. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material litigation or legal proceedings, or to the best of its knowledge, any threatened litigation or legal proceedings which, in the opinion of management, individually or in the aggregate, would have a material adverse effect on its results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Omitted pursuant to General Instruction I(2)(c) of Form 10-K. 5 PART II ITEM 6. SELECTED FINANCIAL DATA Omitted pursuant to General Instruction I(2)(a) of Form 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. Unless otherwise defined in this report, or unless the context otherwise requires, the capitalized words or phrases referred to in this section have the meanings ascribed to them in such financial statements and the notes thereto. GENERAL As a wholly-owned subsidiary of iStar Financial, the Company specializes in providing investment capital to major corporations and real estate owners nationwide by structuring purchase/leaseback transactions and acquiring corporate tenant lease assets subject to existing long-term leases to creditworthy customers occupying office and industrial facilities. The Company uses its corporate credit and real estate underwriting expertise to structure investments that it believes will generate attractive risk-adjusted returns. As of December 31, 2001, the Company's portfolio consisted of 119 facilities principally subject to net leases to approximately 136 customers, comprising 13.6 million square feet in 22 states. Of the 119 total facilities, there are 20 facilities held in three joint venture partnerships. On November 3, 1999, consistent with previously announced terms, the Company's shareholders and the shareholders of iStar Financial approved the merger of the Company with a wholly-owned subsidiary of iStar Financial. In the merger, each issued and outstanding share of the Company's common stock was converted into 1.15 shares of common stock of iStar Financial. Each issued and outstanding share of Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the Company was converted into a share of Series B, Series C and Series D (respectively) Cumulative Redeemable Preferred Stock of iStar Financial. The iStar Financial preferred stock issued to the Company's former preferred stockholders have substantially the same terms as the Company's preferred stock, except that the new shares of Series B, C and D preferred stock have additional voting rights not associated with the Company's preferred stock. The holders of iStar Financial's Series A Preferred Stock received Series A Preferred Stock in the Incorporation Merger with the same rights and preferences as existed prior to the merger. The merger was structured as a tax-free reorganization under federal tax law. These transactions were consummated as of November 4, 1999, at which time iStar Financial's single class of common shares began trading on the New York Stock Exchange under the symbol "SFI." The merger was accounted for as a purchase of the Company by iStar Financial and the balance sheet of the Company on November 4, 1999 was adjusted to reflect the purchase price as required by Accounting Principles Board Opinion 16 ("APB 16"), "Accounting for Business Combinations." The purchase price was approximately $1.5 billion, which included the assumption of the outstanding preferred stock, debt and other liabilities of the Company. This purchase price was allocated to the assets and liabilities of the Company based on their relative fair values and resulted in no allocation to goodwill. In July 2001, the Company disposed of 18 corporate tenant lease assets by transferring them to iStar Financial at their respective carrying amounts. Additionally, in July 2001, iStar Financial contributed cash of $97.0 million to the Company, which was used to pay off the Company's unsecured revolving credit facility. In November 2001, the Company disposed of one corporate tenant lease asset by transferring it to iStar Financial at its respective carrying amount. 6 RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000 INTEREST INCOME--Interest income increased to $8.8 million for the 12 months ended December 31, 2001 from $8.3 million for the same period in 2000. The increase is primarily due to $7.2 million of interest income earned in 2001 on newly-originated loan investments. This increase was partially offset by a $5.4 million reduction of interest income and discount amortization from a loan transferred to the parent for cash in the first quarter of 2001. Additionally, interest income decreased by $1.2 million due to the exercise of a convertible mortgage option in the third quarter of 2000, and by $460,000 of interest earned on cash and cash equivalents in 2001 as compared to 2000. OPERATING LEASE INCOME--Operating lease income increased $2.2 million to $173.2 million for the 12 months ended December 31, 2001 from $171.0 million for the same period in 2000. Of this increase, $11.1 million was attributable to new corporate tenant lease assets and $6.0 million to additional operating lease income from existing corporate tenant lease assets owned in both periods. In addition, joint venture income contributed $4.4 million to the increase. These increases were partially offset by a $7.0 million decrease in operating lease income resulting from asset dispositions made in 2000 and 2001 and a $12.3 million decrease from the assets transferred to iStar Financial in July 2001. OTHER INCOME--Other income consists primarily of lease termination fees, project management fees, dividend income, unamortized loan discounts, financial advisory fees, earnest deposit forfeitures and credit enhancement fees. During the year ended December 31, 2001, other income included lease termination fees of $1.5 million (or 50.4% of other income), project management fees of $729,000 (25.5%) and dividend income of $625,000 (21.9%). During the year ended December 31, 2000, other income consisted of $3.6 million (70.6%) resulting from the recognition of unamortized loan discounts upon the conversion of two loans, lease termination fees of $417,000 (8.2%), financial advisory fees of $363,000 (7.1%), earnest deposit forfeitures of $351,000 (6.9%) and dividend income of $251,000 (4.9%). INTEREST EXPENSE--For the 12 months ended December 31, 2001, interest expense decreased by $7.1 million to $45.5 million from $52.6 million for the same period in 2000. This decrease is primarily the result of the repayment of revolving debt, term debt and unsecured corporate debt in 2001, as well as lower rates on variable-rate debt obligations. This decrease was partially offset by new secured term debt obtained in 2001 and the amortization of associated loan costs. OPERATING COSTS-CORPORATE TENANT LEASE ASSETS--For the 12 months ended December 31, 2001, operating costs were comparable to the same period in 2000. Such operating costs represent unreimbursed operating expenses associated with corporate tenant lease assets. DEPRECIATION AND AMORTIZATION--Depreciation and amortization decreased $1.4 million to $27.4 million for the 12 months ended December 31, 2001 from $28.8 million for the same period in 2000. This decrease is primarily the result of the transfer of corporate tenant lease assets to iStar Financial and corporate tenant lease dispositions, which accounted for $2.4 million and $1.1 million of the decrease, respectively. These decreases were partially offset by additional depreciation from new corporate tenant lease assets and from depreciation on improvements of existing corporate tenant lease assets that accounted for an increase of $1.1 million and $1.0 million, respectively. GENERAL AND ADMINISTRATIVE--For the 12 months ended December 31, 2001, general and administrative expenses decreased by $1.6 million to $7.6 million, compared to $9.2 million for the same period in 2000. This decrease is primarily a result of a reduction in personnel-related expenses and equipment-leasing expenses in 2001 as compared to 2000. 7 GAIN ON SALE OF CORPORATE TENANT LEASE ASSETS--During 2001, the Company disposed of four corporate tenant lease assets for total proceeds of $26.3 million and recognized net gains of $1.1 million. During 2000, the Company disposed of 14 corporate tenant lease assets, including six assets held in joint venture partnerships, for total proceeds of $256.7 million, and recognized net gains of $2.9 million. EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT--During the 12 months ended December 31, 2001 and 2000, the Company or its joint ventures prepaid debt obligations of $133.0 million and $24.5 million, respectively. These transactions resulted in an extraordinary loss on early extinguishment of debt resulting from prepayment penalties and the expense associated with remaining unamortized deferred financing costs of $1.6 million and $705,000 for the 12 months ended December 31, 2001 and 2000, respectively. YEAR ENDED DECEMBER 31, 2000 COMPARED TO COMBINED PRE- AND POST-MERGER PERIODS FOR 1999 Omitted pursuant to General Instruction I(2)(a) of Form 10-K. CRITICAL ACCOUNTING POLICIES The Company's Consolidated Financial Statements include the accounts of the Company and all majority-owned and controlled subsidiaries. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. The Company does not believe that there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. The Company's accounting policies are described in Note 3 to the Company's Consolidated Financial Statements. Management believes the more significant of these to be as follows: REVENUE RECOGNITION--The most significant sources of the Company's revenue come from its lending operations and its corporate tenant lease operations. For its lending operations, the Company reflects income using the effective yield method, which recognizes periodic income over the expected term of the investment on a constant yield basis. For corporate tenant lease assets, the Company recognizes income on the straight-line method, which effectively recognizes contractual lease payments to be received by the Company evenly over the term of the lease. Management believes the Company's revenue recognition policies are appropriate to reflect the substance of the underlying transactions. IMPAIRMENT OF LONG-LIVED ASSETS--Corporate tenant lease assets represent "long-lived" assets for accounting purposes. The Company periodically reviews long-lived assets to be held and used in its leasing operations for impairment in value whenever any events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. In management's opinion, based on this analysis, corporate tenant assets to be held and used are not carried at amounts in excess of their estimated recoverable amounts. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS--The Company has historically utilized derivative financial instruments only as a means to help to manage its interest rate risk exposure on a portion of its variable-rate debt obligations (i.e., as cash flow hedges). The instruments utilized are generally either pay-fixed swaps or LIBOR-based interest rate caps which are widely used in the industry and generally major financial institutions. The Company's accounting policies generally reflect these instruments at their fair value with unrealized changes in fair value reflected in other comprehensive income. Realized effects on the Company's cash flows are generally recognized currently in income. 8 LIQUIDITY AND CAPITAL RESOURCES Omitted pursuant to General Instruction I(2)(a) of Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISKS Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. In pursuing its business plan, the primary market risk to which the Company is exposed is interest rate risk. The Company's operating results will depend in part on the interest expense incurred in connection with its variable-rate interest bearing liabilities. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond the control of the Company. As more fully discussed in Note 3 to the Company's Consolidated Financial Statements, the Company hedges to limit the effects of changes in interest rates on its operations by engaging in interest rate caps and swaps. While a REIT, or its qualified REIT subsidiary, may freely utilize certain types of derivative instruments to hedge interest rate risk on its liabilities, the use of derivatives for other purposes could generate income which is not qualified income for purposes of maintaining REIT status. As a qualified REIT subsidiary, the Company may only engage in such instruments to hedge such risk on a limited basis and does not enter into derivative contracts for speculative purposes. There can be no assurance that the Company's profitability will not be adversely affected during any period as a result of changing interest rates. In addition, hedging transactions using derivative instruments involve certain additional risks such as counterparty credit risk, legal enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract. With regard to loss of basis in a hedging contract, indices upon which contracts are based may be more or less variable than the indices upon which the hedged liabilities are based, thereby making the hedge less effective. The counterparties to these contractual arrangements are major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company is potentially exposed to credit loss in the event of nonperformance by these counterparties. However, because of their high credit ratings, the Company does not anticipate that any of the counterparties will fail to meet their obligations. There can be no assurance that the Company will be able to adequately protect against the foregoing risks and that the Company will ultimately realize an economic benefit from any hedging contract it enters into which exceeds the related costs incurred in connection with engaging in such hedges. The following table quantifies the potential changes in net investment income and net fair value of financial instruments should interest rates increase or decrease 100 or 200 basis points, assuming no change in the shape of the yield curve (i.e., relative interest rates). Net investment income is calculated as revenue from loans and other lending investments and operating leases (as of December 31, 2001), less related interest expense and operating costs on corporate tenant lease assets, for the year ended December 31, 2001. Net fair value of financial instruments is calculated as the sum of the value of derivative instruments and the present value of cash in-flows generated from interest-earning assets, less cash out-flows in respect of interest-bearing liabilities as of December 31, 2001. The base interest rate scenario assumes interest rates as of December 31, 2001. Actual results could differ significantly from those estimated in the table. 9 ESTIMATED PERCENTAGE CHANGE IN

EXPLANATORY NOTE: ------------------------------ (1) Amounts exclude fair values of non-financial invesments, primarily CTL assets and certain forms of corporate finance investments. 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Index to Financial Statements

All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Financial statements of four companies or joint ventures accounted for under the equity method have been omitted because the Company's proportionate share of the income from continuing operations before income taxes is less than 20% of the respective consolidated amount and the investments in and advances to each company are less than 20% of consolidated total assets. 11 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholder of TriNet Corporate Realty Trust, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of TriNet Corporate Realty Trust, Inc. and its subsidiaries (the "Company") at December 31, 2001 and 2000, and the results of their operations and their cash flows for the years ended December 31, 2001 and 2000, and for the periods November 4, 1999 to December 31, 1999 and January 1, 1999 to November 3, 1999 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents 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 schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, NY March 1, 2002 12 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

------------------------ * RECLASSIFIED TO CONFORM TO 2001 PRESENTATION. The accompanying notes are an integral part of the financial statements. 13 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)

-------------------------- * RECLASSIFIED TO CONFORM TO 2001 PRESENTATION. The accompanying notes are an integral part of the financial statements. 14 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (IN THOUSANDS)

The accompanying notes are an integral part of the financial statements. 15 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)

---------------------------------- * RECLASSIFIED TO CONFORM TO 2001 PRESENTATION. The accompanying notes are an integral part of the financial statements. 16 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--BUSINESS AND ORGANIZATION BUSINESS--TriNet Corporate Realty Trust, Inc., a Maryland Corporation (the "Company"), is a wholly-owned subsidiary of iStar Financial Inc., a Maryland Corporation ("iStar Financial"). iStar Financial and its subsidiaries provide structured financing to private and corporate owners of real estate nationwide, including senior and junior mortgage debt, corporate mezzanine and subordinated capital, and corporate net lease financing. The Company typically provides capital by structuring purchase/leaseback transactions and acquiring corporate tenant lease assets subject to existing long-term net leases to creditworthy customers occupying office and industrial facilities. As of December 31, 2001, the Company's portfolio consisted of 119 facilities principally subject to net leases to approximately 136 customers, comprising 13.6 million square feet in 22 states. Of the 119 total facilities, there are 20 facilities held in three unconsolidated joint ventures. ORGANIZATION--The Company became a wholly-owned subsidiary of iStar Financial through a merger on November 4, 1999. As a wholly-owned subsidiary of iStar Financial, a real estate investment trust ("REIT"), the Company operates as a qualified real estate investment trust subsidiary ("QRS") under the Internal Revenue Code of 1986, as amended (the "Code"). MERGER TRANSACTION--On November 3, 1999, the Company's shareholders and the shareholders of iStar Financial approved the merger of the Company with a wholly-owned subsidiary of iStar Financial. The shareholders of iStar Financial also approved: (1) the acquisition by iStar Financial, through a merger and contribution of interests, of 100% of the ownership interests in its external advisor; and (2) the change in form of its organization from a business trust to a corporation ("Incorporation Merger"). Pursuant to the merger, the Company merged with and into a subsidiary of iStar Financial, with the Company surviving as a wholly-owned subsidiary of iStar Financial. In the merger, each issued and outstanding share of the Company's common stock was converted into 1.15 shares of common stock of iStar Financial. Each issued and outstanding share of Series A, Series B and Series C Cumulative Redeemable Preferred Stock of the Company was converted into a share of Series B, Series C and Series D (respectively) Cumulative Redeemable Preferred Stock of iStar Financial. The iStar Financial preferred stock issued to the Company's former preferred shareholders has substantially the same terms as the Company's preferred stock, except that the new shares of Series B, C and D preferred stock have additional voting rights not associated with the Company's preferred stock. The holders of iStar Financial's Series A Preferred Shares received Series A Preferred Shares in the Incorporation Merger with the same rights and preferences as existed prior to the merger. The merger was structured as a tax-free reorganization under federal tax law. These transactions were consummated as of November 4, 1999, at which time iStar Financial's single class of common shares began trading on the New York Stock Exchange under the symbol "SFI." NOTE 2--BASIS OF PRESENTATION The accompanying audited Consolidated Financial Statements have been prepared in conformity with generally accepted accounting principles ("GAAP") for complete financial statements. The Consolidated Financial Statements include the accounts of the Company, its wholly-owned subsidiary corporations and partnerships, and its majority-owned and controlled partnership. The Company has an investment in TriNet Management Operating Company, Inc. ("TMOC"), a taxable noncontrolled subsidiary that has a $2.0 million investment in a real estate company based in Mexico. The Company owns 95% of the outstanding voting and non-voting common stock (representing 1% voting power and 95% of the economic interest) in TMOC. The other two owners of TMOC stock are executives of the Company, who own a combined 5% of the outstanding voting and non-voting common stock (representing 99% voting 17 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2--BASIS OF PRESENTATION (CONTINUED) power and 5% economic interest) in TMOC. As of December 31, 2001, there have never been any distributions to the common shareholders, nor does the Company expect to make any in the future. At any time, the Company has the election to acquire all of the common stock of TMOC at fair market value, which the Company believes to be nominal. TMOC was formed as a taxable corporation for the purpose of maintaining compliance with REIT provisions of the Code and is accounted for under the equity method for financial statement purposes. If TMOC was consolidated with the Company for financial statement purposes, it would have no material impact on the Company's operations. As of December 31, 2001, this corporation had no debt obligations. Certain other investments in partnerships or joint ventures which the Company does not control are also accounted for under the equity method. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, the accompanying Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company's consolidated financial position at December 31, 2001 and December 31, 2000 and the results of its operations, changes in shareholder's equity and its cash flows for the year ended December 31, 2001, the year ended December 2000 and the periods November 4, 1999 to December 31, 1999 and January 1, 1999 to November 3, 1999. Such operating results are not necessarily indicative of the results that may be expected for any other interim periods or the entire year. The merger was accounted for as a purchase of the Company by iStar Financial and the balance sheet of the Company on November 4, 1999 was adjusted to reflect the purchase price as required by Accounting Principles Board Opinion 16 ("APB 16"), "Accounting for Business Combinations." The purchase price was approximately $1.5 billion, which included the assumption of the outstanding preferred stock, debt and other liabilities of the Company. This purchase price was allocated to the net assets of the Company based on their relative fair values and resulted in no allocation to goodwill. The Company's consolidated results of operations for the period January 1, 1999 to November 3, 1999 reflect the historical operating results prior to the merger. The Company's consolidated results of operations for the years ended December 31, 2001 and 2000 and for the period November 4, 1999 through December 31, 1999 reflect the operations of the Company after the merger and the impact of the required APB 16 purchase accounting adjustments, as previously described. In general, the recognition of straight-line operating lease revenue, depreciation, interest income and interest expense have been impacted by the new cost basis of the assets and liabilities on the balance sheet. NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES LOANS AND OTHER LENDING INVESTMENTS, NET--Loans and Other Lending Investments includes corporate/ partnership loans. Management considers its investments in this category to be either held-to-maturity or available-for-sale. Items classified as held-to-maturity are reflected at amortized historical cost, while items classified as available-for-sale are reported at fair value, with unrealized gains and losses included in other comprehensive income. CORPORATE TENANT LEASE ASSETS AND DEPRECIATION--Corporate tenant lease assets are generally recorded at cost less accumulated depreciation. On November 4, 1999, the effective date of the merger, adjustments 18 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) were made to increase the book value of corporate tenant lease assets in the aggregate to reflect iStar Financial's purchase price and to eliminate prior period accumulated depreciation. Certain improvements and replacements are capitalized when they extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and maintenance items are expensed as incurred. Depreciation is computed using the straight line method of cost recovery over estimated useful lives of 40.0 years for buildings, five years for furniture and equipment, the shorter of the remaining lease term or expected life for tenant improvements and the remaining life of the building for building improvements. Corporate tenant lease assets to be disposed of are reported at the lower of their carrying amount or fair value less cost to sell. The Company also periodically reviews long-lived assets to be held and used for an impairment in value whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. In accordance with management's opinion, corporate tenant lease assets to be held and used are not carried at amounts in excess of their estimated recoverable amounts. CAPITALIZED INTEREST--The Company capitalizes interest costs incurred during the land development or construction period on qualified development projects, including investments in joint ventures accounted for under the equity method. Interest capitalized was approximately $1.0 million and $513,000 during the 12-month periods ended December 31, 2001 and 2000, respectively. CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all cash held in banks or invested in money market funds with original maturity terms of less than 90 days. RESTRICTED CASH--Restricted cash represents amounts required to be maintained in escrow under certain of the Company's debt obligations and leasing transactions. NON-CASH ACTIVITY--The following schedule summarizes the significant non-cash activity for the combined pre- and post-merger periods for 1999. During the period from November 4, 1999 to December 31, 1999, the Company had non-cash activity including: (1) the impact to the Company's financial position resulting from the merger; and (2) the consolidation of an asset which was an unconsolidated joint venture prior to the merger. Impact on assets (increase) decrease: Loans and other lending investments....................... $ 9,703 Corporate tenant lease assets............................. (187,773) Deferred operating lease income receivable................ 29,643 Loan costs................................................ 10,913 Other assets.............................................. 1,833 Impact on liabilities and equity increase (decrease): Debt obligations.......................................... 56,932 Accounts payable, accrued expenses and other liabilities............................................. (3,373) Shareholder's equity...................................... 85,851 --------- Net cash impact of merger transaction....................... $ 3,729 =========

19 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION--The Company's revenue recognition policies are as follows: LOANS AND OTHER LENDING INVESTMENTS: The Company classifies loans and other lending investments as either held-to-maturity or available-for-sale. The Company reflects held-to-maturity investments at amortized cost less acquisition premiums or discounts, deferred loan fees and undisbursed loan funds. Items reflected as available-for-sale are reported at fair value, with unrealized gains and losses included in other comprehensive income. On occasion, the Company may acquire loans at either premiums or discounts based on the credit characteristics of such loans. These premiums or discounts are recognized as yield adjustments over the lives of the related loans. If loans that were acquired at a premium or discount are prepaid, the Company immediately recognizes the unamortized premium or discount as a decrease or increase in the prepayment gain or loss, respectively. Loan origination or exit fees, as well as direct loan origination costs, are also deferred and recognized over the lives of the related loans as a yield adjustment. Interest income is recognized using the effective interest method applied on a loan-by-loan basis. LEASING INVESTMENTS: Operating lease revenue is recognized on the straight-line method of accounting from the later of the date of the origination of the lease or the date of acquisition of the facility subject to existing leases. Accordingly, contractual lease payment increases are recognized evenly over the term of the lease. The cumulative difference between lease revenue recognized under this method and contractual lease payment terms is recorded as deferred operating lease income receivable on the balance sheet. For purposes of calculating the average lease rates over the remaining lives of the leases, the term of all leases in place at the time of the merger was adjusted to reflect a new start date beginning November 4, 1999, the effective date of the merger. INCOME TAXES--The Company is taxed as a QRS under the Code. As a QRS, the Company is included in the consolidated tax return of iStar Financial. Accordingly, no provision has been made for federal income taxes in the accompanying Consolidated Financial Statements. Prior to the merger, the Company was taxed as a REIT under the Code. INTEREST RATE RISK MANAGEMENT--The Company has entered into various interest rate protection agreements that, together with a swap agreement, fix the interest rate on a portion of the Company's LIBOR-based borrowings. The related cost of these agreements is amortized over their respective lives and such amortization is recorded as interest expense. The Company enters into interest rate risk management arrangements with financial institutions meeting certain minimum financial criteria, and the related credit risk of non-performance by counterparties is not considered to be significant. CREDIT RISK CONCENTRATION--The Company underwrites the credit of prospective customers and may require them to provide some form of additional credit support such as corporate guarantees, letters of credit and/or cash security deposits. Although the Company's assets are geographically diverse and its customers operate in a variety of industries, to the extent the Company has a significant concentration of operating lease revenue from any single customer, the inability of that customer to make its payments could have an adverse effect on the Company. RECLASSIFICATIONS--Certain prior year amounts have been reclassified in the Consolidated Financial Statements and the related notes to conform to the 2001 presentation. 20 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. CHANGE IN ACCOUNTING PRINCIPLE--In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." On June 23, 1999, the FASB voted to defer the effectiveness of SFAS No. 133 for one year. SFAS No. 133 is now effective for fiscal years beginning after June 15, 2000, but earlier application is permitted as of the beginning of any fiscal quarter subsequent to June 15, 1998. SFAS No. 133 establishes accounting and reporting standards for derivative financial instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as: (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; (2) a hedge of the exposure to variable cash flows of a forecasted transaction; or (3) in certain circumstances, a hedge of a foreign currency exposure. The Company adopted this pronouncement, as amended by Statement of Financial Accounting Standards No. 137 "Accounting for Derivative Instruments and Hedging Activities-deferral of the Effective Date of FASB Statement No. 133" and Statement of Financial Accounting Standards No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities-an Amendment of FASB Statement No. 133," on January 1, 2001. Because the Company has primarily used derivatives as cash flow hedges of interest rate risk only, the adoption of SFAS No. 133 did not have a material financial impact on the financial position and results of operations of the Company. However, should the Company change its current use of such derivatives, the adoption and continued application of SFAS No. 133 could have a more significant effect on the Company prospectively. Upon adoption, the Company recognized a charge to net income of approximately $269,000 and an additional charge of $1.5 million to other comprehensive income, representing the cumulative effect of change in accounting principle. OTHER NEW ACCOUNTING STANDARDS--In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial Statements." In June 2000, the SEC staff amended SAB 101 to provide registrants with additional time to implement SAB 101. The Company has adopted SAB 101, as required, in the fourth quarter of fiscal 2000. The adoption of SAB 101 did not have a material financial impact on the financial position or results of operations of the Company. In September 2000, the FASB issued Statement of Financial Accounting Standards No. 140 ("SFAS No. 140"), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement is applicable for transfers of assets and extinguishments of liabilities occurring after March 31, 2001. The Company adopted the provisions of this statement as required for all transactions entered into on or after April 1, 2001. The adoption of SFAS No. 140 did not have a significant impact on the Company. In July 2001, the SEC released Staff Accounting Bulletin No. 102. ("SAB 102"), "Selected Loan Loss Allowance and Documentation Issues." SAB 102 summarizes certain of the SEC's views on the development, documentation and application of a systematic methodology for determining allowances for 21 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) loan and lease losses. Adoption of SAB 102 by the Company did not have a significant impact on the Company. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS No. 141"), "Business Combinations" and Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also addresses the initial recognition and measurement of goodwill and other intangible assets acquired in business combinations and requires intangible assets to be recognized apart from goodwill if certain tests are met. The Company does not believe the adoption of SFAS No. 141 will have a significant effect on the Company's financial position or results of operations. SFAS No. 142 requires that goodwill not be amortized but instead be measured for impairment at least annually, or when events indicate that there may be an impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. Early application is permitted for companies with fiscal years beginning after March 15, 2001. The Company will adopt the provisions of this statement on January 1, 2002, as required, and it does not believe the adoption of SFAS No. 142 will have a significant impact on the Company. In October 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides new guidance on the recognition of impairment losses on long-lived assets to be held and used or to be disposed of and also broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. The Company is currently evaluating this statement to assess its impact on the financial statements. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, and must be applied at the beginning of a fiscal year. The Company will adopt the provisions of this statement on January 1, 2002, as required. The Company does not believe the adoption of SFAS No. 144 will have a significant impact on the Company. NOTE 4--LOANS AND OTHER LENDING INVESTMENTS During the second quarter of 2001, the Company originated a $75.0 million term preferred investment in a publicly-traded real estate customer. The Company's investment carries an initial current yield of 10.5%, with annual increases of 0.50% in each of the next two years. In addition, the Company's investment is convertible into the customer's common stock at a strike price of $25.00 per share. The investment is callable by the customer between months 13 and 30 of the term at a yield maintenance premium, and after month 30, at a premium sufficient to generate a 14.62% internal rate of return on the Company's investment. The investment is putable by the Company to the customer for cash after five years. Such investment is classified as available-for-sale and reported at fair value, with unrealized gains and losses reported in other comprehensive income. NOTE 5--CORPORATE TENANT LEASE ASSETS During 2001, the Company acquired an office facility in Harrisburg, Pennsylvania for a total purchase price of $26.8 million. The facility was simultaneously leased back to the customer with an initial term of 15 years. In addition to the 15-year bondable lease, the customer posted a letter of credit of approximately $2.8 million as additional collateral for its lease obligation to the Company. 22 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--CORPORATE TENANT LEASE ASSETS (CONTINUED) In July 2001, the Company disposed of 18 corporate tenant lease assets by transferring them to iStar Financial at their respective carrying amounts. Additionally, in November 2001, the Company disposed of one corporate tenant lease asset by transferring it to iStar Financial at its respective carrying amount. The Company's investments in corporate tenant lease assets, at cost, were as follows (in thousands):

The Company's CTL assets are leased to customers with initial term expiration dates from 2002 to 2023. Future operating lease payments under non-cancelable leases, excluding customer reimbursements of expenses, in effect at December 31, 2001, are approximately as follows (in thousands):

The Company receives reimbursements from customers for certain facility operating expenses including common area costs, insurance and real estate taxes. The Company is subject to expansion option agreements with two existing customers which could require the Company to fund and to construct up to 39,800 square feet of additional adjacent space on which the Company would receive additional operating lease income under the terms of the option agreements. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES--At December 31, 2001, the Company had investments in four joint ventures: (1) TriNet Sunnyvale Partners, L.P. ("Sunnyvale"), whose external partners are John D. O'Donnell, Trustee, John W. Hopkins, and Donald S. Grant; (2) Corporate Technology Centre Associates LLC ("CTC I"), whose external member is Corporate Technology Centre Partners LLC; (3) Sierra Land Ventures ("Sierra"), whose external joint venture partner is Sierra-LC Land, Ltd.; and (4) TriNet Milpitas Associates, LLC ("Milpitas"), whose external member is The Prudential Insurance Company of America. These ventures were formed for the purpose of operating, acquiring and, in certain cases, developing corporate tenant lease facilities. The Company previously had an equity investment in CTC II. The corporate tenant lease assets held in that joint venture were sold for approximately $66.0 million in September 2000. In connection with the CTC II sale, the Company's note 23 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 5--CORPORATE TENANT LEASE ASSETS (CONTINUED) receivable from the venture was modified to mature on December 31, 2001, on which date it was repaid in full. At December 31, 2001, the ventures comprised 20 net leased facilities. Additionally, 17.7 acres of land are held for sale. The Company's combined investment in these joint ventures at December 31, 2001 was $54.9 million. The joint ventures' carrying value for the 20 facilities owned at December 31, 2001 was $292.0 million. The joint ventures' carrying value of the land held for sale was $7.7 million. In the aggregate, the joint ventures had total assets of $339.3 million and total liabilities of $244.1 million as of December 31, 2001, and net income of $15.7 million for the 12 months ended December 31, 2001. The Company accounts for these investments under the equity method because the Company's joint venture partners have certain participating rights which limit the Company's control. The Company's ownership percentages, its investments in and advances to unconsolidated joint ventures, its respective income and the Company's pro rata share of its ventures' third-party non-recourse debt as of December 31, 2001 are presented below (in thousands):

EXPLANATORY NOTE: ------------------------------ (1) Maturity date reflects a one-year extension at the venture's option. Effective September 29, 2000, iStar Sunnyvale Partners, LP (the entity which is controlled by Sunnyvale) entered into an interest rate cap agreement limiting the venture's exposure to interest rate movements on its $24.0 million LIBOR-based mortgage loan to an interest rate of 9.0% through November 9, 2003. Currently, the limited partners of Sunnyvale have the option to convert their partnership interest into cash; however, the Company may elect to deliver 297,728 shares of common stock of iStar Financial in lieu of cash. Additionally, commencing in February 2002, subject to acceleration under certain circumstances, the venture interest held by the external member of Milpitas may be converted into 984,476 shares of common stock of iStar Financial. Income generated from the above joint venture investments is included in Operating Lease Income in the Consolidated Statements of Operations. 24 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--DEBT OBLIGATIONS As of December 31, 2001 and 2000, the Company has debt obligations under various arrangements with financial institutions as follows (in thousands):

EXPLANATORY NOTES: ------------------------------ (1) On July 27, 2001, the Company replaced this facility with a new $300.0 million revolving credit facility at iStar Financial. (2) Maturity date reflects two one-year extensions at the Company's option. (3) Maturity date reflects a one-year extension at the Company's option. (4) The notes are callable by the Company at any time for an amount equal to the total of principal outstanding, accrued interest and the applicable make-whole prepayment premium. (5) Subject to mandatory tender on March 1, 2003 to either the dealer or the Company. The initial coupon of 6.75% applies to the first five-year term through the mandatory tender date. If tendered to the dealer, the notes must be remarketed. The rates reset to then-prevailing market rates upon remarketing. (6) As part of the accounting for the merger these fixed-rate obligations were considered to have stated interest rates which were below the then-prevailing market rates at which the Company could issue new debt obligations and, accordingly, the Company ascribed a market discount to each obligation. Such discounts are amortized as an adjustment to interest expense using the effective interest method over the related term of the obligations. As adjusted, the effective annual interest rates on these obligations were 8.81%, 8.75%, 9.51% and 9.04% for the 6.75% Dealer Remarketable Securities, 7.30% Notes, 7.70% Notes and 7.95% Notes, respectively. On May 15, 2001, the Company repaid its $100.0 million 7.30% unsecured notes. These notes were senior unsecured obligations of the Company and ranked equally with the Company's other senior unsecured and unsubordinated indebtedness. 25 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6--DEBT OBLIGATIONS (CONTINUED) On June 14, 2001, the Company closed $193.0 million of term loan financing secured by 15 corporate tenant lease assets. The floating-rate loan bears interest at LIBOR + 1.85% (not to exceed 10.00%) and has two one-year extensions at the Company's option. The Company used these proceeds to repay a $77.8 million secured term loan maturing in June 2001 and to pay down a portion of its revolving credit facilities. On July 6, 2001, the Company financed a $75.0 million structured finance asset with a $50.0 million term loan bearing interest at LIBOR + 2.50%. The loan has a maturity of July 2006, including a one-year extension at the Company's option. On July 27, 2001, the Company repaid the unsecured revolving credit facility. iStar Financial replaced this subsidiary facility with a $300.0 million revolving credit facility with a group of leading financial institutions. The 30-day LIBOR rate as of December 31, 2001 was 1.87%. The Company has entered into an interest rate swap agreement which, together with an existing LIBOR interest rate cap agreement struck at 7.75%, effectively fixes the interest rate on $75.0 million of the Company's LIBOR-based borrowings at 5.58% plus the applicable margin through December 1, 2004. The actual borrowing cost to the Company with respect to indebtedness covered by the protection agreements will depend upon the applicable margin over LIBOR for such indebtedness, which will be determined by the terms of the relevant debt instruments. The Company has also entered into a LIBOR interest rate cap struck at 7.75% in the notional amount of $35.0 million, which expires in December 2004. During the years ended December 31, 2001 and 2000, the Company incurred an extraordinary loss of approximately $1.6 million and $0.7 million, respectively, as a result of the early retirement of certain debt obligations. As of December 31, 2001, future expected/scheduled maturities of outstanding long-term debt obligations are as follows (in thousands)(1): 2002........................................................ $ 12,672 2003........................................................ -- 2004........................................................ -- 2005........................................................ 3,506 2006........................................................ 293,000 Thereafter.................................................. 264,641 -------- Total principal maturities.................................. 573,819 Net unamortized debt discounts.............................. (15,424) -------- Total debt obligations...................................... 558,395 ========

EXPLANATORY NOTE: ------------------------------ (1) Assumes exercise of extensions to the extent such extensions are at the Company's option. 26 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 7--DIVIDENDS As described in Note 3, prior to the merger with iStar Financial, the Company qualified as a REIT for federal income tax purposes. Subsequent to the merger, the Company will be included as a QRS in iStar Financial's consolidated tax return. For the year ended December 31, 1999, total dividends declared by the Company aggregated $48.8 million, or $1.95 per common share. The Company also declared dividends aggregating $3.5 million, $2.2 million and $6.0 million on its Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, respectively for the year ended December 31, 1999. In the merger, each issued and outstanding share of Series A, Series B, and Series C Cumulative Redeemable Preferred Stock of the Company was converted into a share of Series B, Series C and Series D (respectively) Cumulative Redeemable Preferred Stock of iStar Financial. Subsequent to the merger, the Company no longer paid preferred dividends. NOTE 8--STOCK OPTION PLANS AND EMPLOYEE BENEFITS IMPACT OF MERGER--The Company's stock incentive plans were terminated effective with the merger, at which time each holder of a stock option, with the exception of the Company's directors and certain senior executives described below, elected to receive one of the following for each stock option: (1) cash equal to the difference between the market price and the exercise price of the stock option, whether vested or unvested; or (2) a number of options to purchase iStar Financial common stock on substantially the same terms, in each case giving effect to the 1.15 exchange ratio. Unvested options were exchanged for unvested iStar Financial options and resumed the same vesting schedules. Certain senior executives of the Company elected to receive one of the following for each stock option: (1) cash equal to the difference between the market price and the exercise price of the stock option, whether vested or unvested; or (2) a number of options to purchase iStar Financial common stock on substantially the same terms, in each case giving effect to the 1.15 exchange ratio, except that both vested and unvested stock options were exchanged for vested iStar Financial options. The Company's directors received a number of iStar Financial options to purchase iStar Financial common stock vested substantially the same as their options in the Company, in each case giving effect to the 1.15 exchange ratio for their options in the Company. Also as a result of the merger, the Company terminated its dividend equivalent rights program. The program called for immediate vesting of all dividend equivalent rights upon a change of control of 50% or more of the Company's voting common stock. Coincident with the merger, all dividend equivalent rights were vested and amounts due to employees of approximately $8.3 million were paid by the Company. Such payments were included as part of the purchase price paid by iStar Financial to acquire the Company for financial reporting purposes. STOCK OPTION PLANS PRE-MERGER--The Company established the 1993 Stock Incentive Plan (the "1993 Stock Plan") for the purpose of encouraging and enabling the Company's officers, employees and directors to acquire a proprietary interest in the Company. The 1993 Stock Plan provided for administration by the Compensation Committee (the "Committee") of the Board of Directors. A maximum of 500,000 common shares were reserved for issuance under the 1993 Stock Plan. The 1993 Stock Plan authorized: (1) the grant of stock options that qualified as incentive stock options ("ISOs") under Section 422 of the Code; (2) the grant of stock options that do not so qualify ("Non-Qualified Options"); and (3) grants of shares contingent upon the attainment of performance goals or subject to other restrictions. Options granted 27 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED) under the 1993 Stock Plan vested ratably over four years for employees and after one year for non-employee directors. In addition, in connection with the Company's initial public offering, options were granted separately from the 1993 Stock Plan to executive officers to purchase an aggregate of 290,000 shares at the initial offering price of $24.25 per share. Options granted in connection with the initial public offering vested ratably over three years. During 1995, the Company adopted the 1995 Stock Incentive Plan (the "1995 Stock Plan"). The 1995 Stock Plan provided for the issuance of, or grant of options to purchase, up to 1,000,000 shares of common stock. Options under the 1995 Stock Plan were ISOs or Non-Qualified Options. Options granted under the 1995 Stock Plan vested ratably over four years for employees and after one year for non-employee directors. During 1997, the Company adopted the 1997 Stock Incentive Plan (the "1997 Stock Plan"). The 1997 Stock Plan provided for the issuance of, or grant of options to purchase, up to 800,000 shares of common stock. Options under the 1997 Stock Plan were ISOs or Non-Qualified Options. No options were granted under the 1997 plan. Also during 1997, the Company adopted the dividend equivalent rights program as part of its long-term incentive compensation plans. Dividend equivalent rights were issued to employees and directors in conjunction with options grants to purchase Company stock and vested in equal annual installments over a period of four years for employees and one year for directors. Dividend equivalent rights expired after five years or when the underlying stock option was exercised, forfeited or canceled. Payments on the dividend equivalent rights units awarded accrued and accumulated in amounts equal to the dividends declared and paid on the underlying options, and the actual payments on vested dividend equivalent rights were made in annual installments on the vesting dates. Dividend equivalent rights units were issued in tandem with all options granted to directors and officers of the Company in 1997 and employees in 1998 (with the exception of two grants in December 1998 in the aggregate amount of 130,000 options). Changes during 1999 (pre merger) in options outstanding for the combined plans were as follows:

The Company applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Accordingly, no compensation expense was recognized for its stock-based compensation plans. Had compensation costs for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting 28 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8--STOCK OPTION PLANS AND EMPLOYEE BENEFITS (CONTINUED) Standards No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per common share would have been reduced by approximately $557,000, or $0.02 per common share, for the period from January 1, 1999 to November 3, 1999. The fair value of the options granted during 1999 (pre-merger) was estimated at $2.31 per share on the date of grant using the Black-Scholes option pricing model with the following assumptions, which are based on historical performance: dividend yield of 10.0%, volatility of 25.0%, risk free interest rate of 5.5%, actual forfeitures, and an expected life of approximately five years. Effective January 1, 1994, the Company implemented the TriNet Corporate Realty Trust, Inc. Savings and Retirement Plan (the "401(k) Plan"), which is a voluntary, defined contribution plan. All employees are eligible to participate in the 401(k) Plan following completion of six months of continuous services with the Company. Each participant may contribute on a pretax basis between 2% and 15% of such participant's compensation. At the discretion of the Board of Directors, the Company may make matching contributions on the participant's behalf up to 50% of the first 10% of the participant's annual contribution. The Company made contributions of approximately $160,000, $199,000 and $210,000, to the 401(k) Plan for the years ended December 31, 2001, 2000 and 1999, respectively. NOTE 9--EARNINGS PER SHARE The basic and diluted earnings per share calculations are based on the following weighted average shares outstanding during the periods indicated (in thousands):

For the period January 1, 1999 to November 3, 1999, certain CTL asset joint venture interests held by the Company's joint venture partners were convertible into a maximum of 1,357,043 common shares, on an as-converted basis. For the period presented, these were not assumed converted into common shares since they were antidilutive to earnings per share. As discussed in Note 5, joint venture interests representing 350,746 common shares were converted to shares in iStar Financial on November 22, 1999. The remaining joint venture interests outstanding would also be converted to iStar Financial shares if the conversion rights are exercised. Earnings per share is not calculated for the period November 4, 1999 through December 31, 1999, for the year ended December 31, 2000 or for the year ended December 31, 2001 since all 100 shares outstanding are held by iStar Financial. 29 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10--COMPREHENSIVE INCOME In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income" effective for fiscal years beginning after December 15, 1997. The statement changes the reporting of certain items currently reported as changes in the shareholders' equity section of the balance sheet and establishes standards for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. SFAS No. 130 requires that all components of comprehensive income shall be reported in the financial statements in the period in which they are recognized. Furthermore, a total amount for comprehensive income shall be displayed in the financial statements. The Company has adopted this standard effective January 1, 1998. Total comprehensive income was $91.2 million and $83.1 million for the years ended December 31, 2001 and 2000, respectively, and $11.7 million and $55.6 million for the periods November 4, 1999 to December 31, 1999 and January 1, 1999 to November 3, 1999, respectively. The primary component of comprehensive income other than net income was the adoption and continued application of SFAS No. 133. For the year ended December 31, 2001, the change in the fair market value of the Company's interest rate swaps was $(3.5) million and was recorded as a reduction to other comprehensive income. The reconciliation to other comprehensive income is as follows (in thousands):

As of December 31, 2001 and 2000, accumulated other comprehensive income reflected in the Company's equity on the balance sheet is comprised of the following:

30 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--FAIR VALUES OF FINANCIAL INSTRUMENTS SFAS No. 107, "Disclosures About Fair Value of Financial Instruments" ("SFAS No.107"), requires the disclosure of the estimated fair values of financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices, if available, are utilized as estimates of the fair values of financial instruments. Because no quoted market prices exist for a significant part of the Company's financial instruments, the fair values of such instruments have been derived based on management's assumptions, the amount and timing of future cash flows and estimated discount rates. The estimation methods for individual classifications of financial instruments are described more fully below. Different assumptions could significantly affect these estimates. Accordingly, the net realizable values could be materially different from the estimates presented below. The provisions of SFAS No. 107 do not require the disclosure of the fair value of non-financial instruments, including intangible assets or the Company's corporate tenant lease assets. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the Company as an operating business. SHORT-TERM FINANCIAL INSTRUMENTS--The carrying values of short-term financial instruments including cash and cash equivalents and short-term investments approximate the fair values of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities, or have an average maturity of less than 90 days and carry interest rates which approximate market. LOANS AND OTHER LENDING INVESTMENTS--For the Company's interests in loans and other lending investments, the fair values were estimated by discounting the future contractual cash flows (excluding participation interests in the sale or refinancing proceeds of the underlying collateral) using estimated current market rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. MARKETABLE SECURITIES--Securities held for investment, securities available for sale, loans held for sale, trading account instruments, long-term debt and trust preferred securities traded actively in the secondary market have been valued using quoted market prices. OTHER FINANCIAL INSTRUMENTS--The carrying value of other financial instruments including, restricted cash, accrued interest receivable, accounts payable, accrued expenses and other liabilities approximate the fair values of the instruments. DEBT OBLIGATIONS--A portion of the Company's existing debt obligations bear interest at fixed margins over LIBOR. Such margins or spreads may be higher or lower than those at which the Company could currently replace the related financing arrangements. Other obligations of the Company bear interest at fixed rates, which may differ from prevailing market interest rates. As a result, the fair values of the Company's debt obligations were estimated by discounting current debt balances from December 31, 2001 and 2000 to maturity using estimated current market rates at which the Company could enter into similar financing arrangements. INTEREST RATE PROTECTION AGREEMENTS--The fair value of interest rate protection agreements such as interest rate caps, floors, collars and swaps used for hedging purposes is the estimated amount the 31 TRINET CORPORATE REALTY TRUST, INC. (A WHOLLY-OWNED SUBSIDIARY OF ISTAR FINANCIAL INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 11--FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) Company would receive or pay to terminate these agreements at the reporting date, taking into account current interest rates and current creditworthiness of the respective counterparties. The book and fair values of financial instruments as of December 31, 2001 and 2000 were (in thousands):

NOTE 12--QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following table sets forth the selected quarterly financial data for the Company (in thousands, except per share amounts).

32 TRINET CORPORATE REALTY TRUST, INC. SCHEDULE III--CORPORATE TENANT LEASE ASSETS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)

33 TRINET CORPORATE REALTY TRUST, INC. SCHEDULE III--CORPORATE TENANT LEASE ASSETS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)

34 TRINET CORPORATE REALTY TRUST, INC. SCHEDULE III--CORPORATE TENANT LEASE ASSETS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)

35 TRINET CORPORATE REALTY TRUST, INC. SCHEDULE III--CORPORATE TENANT LEASE ASSETS AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001 (DOLLARS IN THOUSANDS)

36 TRINET CORPORATE REALTY TRUST, INC. NOTES TO SCHEDULE III DECEMBER 31, 2001 (DOLLARS IN THOUSANDS) 1. RECONCILIATION OF CORPORATE TENANT LEASE ASSETS: The following table reconciles Corporate Tenant Lease Assets from January 1, 1999 to December 31, 2001:

EXPLANATORY NOTE: ------------------------------ (1) Occurred prior to the Company's acquisition by iStar Financial Inc. 2. RECONCILIATION OF ACCUMULATED DEPRECIATION: The following table reconciles Accumulated Depreciation from January 1, 1999 to December 31, 2001:

37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 11. EXECUTIVE COMPENSATION Omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Omitted pursuant to General Instruction I(2)(c) of Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to General Instruction I(2)(c) of Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K (a) and (d) Financial Statements and Schedules--See Index to Financial Statements and Schedules included in Item 8. (b) Reports on Form 8-K None. (c) Exhibits--see index on following page. 38 INDEX TO EXHIBITS

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15 OF THE SECURITIES AND EXCHANGE ACT OF 1934 BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT No annual report covering the registrant's last fiscal year has been sent to security holders, nor has any proxy soliciting material been sent to security holders. 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TriNet Corporate Realty Trust, Inc. REGISTRANT Date: March 26, 2002 /s/ JAY SUGARMAN --------------------------------------------- CHAIRMAN OF THE BOARD DIRECTOR

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 26, 2002 ------------------------------------------- Jay Sugarman CHIEF EXECUTIVE OFFICER AND DIRECTOR Date: March 26, 2002 ------------------------------------------- Spencer B. Haber PRESIDENT, CHIEF FINANCIAL OFFICER, DIRECTOR AND SECRETARY (EXECUTIVE VICE PRESIDENT-FINANCE) Date: March 26, 2002 ------------------------------------------- Willis Andersen Jr. DIRECTOR Date: March 26, 2002 ------------------------------------------- Betsy Cohen DIRECTOR Date: March 26, 2002 ------------------------------------------- Jeffrey G. Dishner DIRECTOR Date: March 26, 2002 ------------------------------------------- Andrew L. Farkas DIRECTOR

41 Date: March 26, 2002 ------------------------------------------- Madison F. Grose DIRECTOR Date: March 26, 2002 ------------------------------------------- Robert W. Holman, Jr. DIRECTOR Date: March 26, 2002 ------------------------------------------- Robin Josephs DIRECTOR Date: March 26, 2002 ------------------------------------------- Merrick R. Kleeman DIRECTOR Date: March 26, 2002 ------------------------------------------- H. Cabot Lodge III DIRECTOR Date: March 26, 2002 ------------------------------------------- Matthew J. Lustig DIRECTOR Date: March 26, 2002 ------------------------------------------- William M. Matthes DIRECTOR Date: March 26, 2002 ------------------------------------------- John G. McDonald DIRECTOR Date: March 26, 2002 ------------------------------------------- Stephen B. Oresman DIRECTOR Date: March 26, 2002 ------------------------------------------- George R. Puskar DIRECTOR Date: March 26, 2002 ------------------------------------------- Barry S. Sternlicht DIRECTOR

TRINET CORPORATE REALTY TRUST INC 10-K