EXCEL LEGACY CORP, S-11/A, 1998-08-13

EXCEL LEGACY CORP
S-11/A, 1998-08-13
REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998

REGISTRATION NO. 333-55715

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO

FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXCEL LEGACY CORPORATION
(Exact name of registrant as specified in its governing instruments)

16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices, including zip code)
------------------------
GARY B. SABIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXCEL LEGACY CORPORATION
16955 VIA DEL CAMPO, SUITE 100
SAN DIEGO, CALIFORNIA 92127
(Name and address of agent for service)
------------------------
COPIES TO:

SCOTT N. WOLFE, ESQ.
Latham & Watkins
701 "B" Street, Suite 2100
San Diego, California 92101
(619) 236-1234

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At such
time or times after the registration statement becomes effective as the Selling
Holders (as hereinafter defined) may determine.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. /X/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement of the same offering. / / ______

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PRICE PER SHARE(1) PRICE REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
Series A Preferred Stock, par value
$0.01 per share.................... 21,281,000 $5.00(1) $106,405,000 $31,390
Common Stock, par value $0.01 per
share.............................. 21,281,000(2) (2) (2) (2)
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended
("Securities Act").

(2) Pursuant to Rule 416 under the Securities Act, the shares of Common Stock
being registered hereunder include the number of shares of Common Stock
issuable upon conversion of the Series A Preferred Stock plus such
indeterminate number of additional shares as may become issuable upon
conversion of the Series A Preferred Stock as a result of adjustments in the
conversion price thereof. Pursuant to Rule 457(i) under the Securities Act,
no registration fee is required for the Common Stock issuable upon
conversion of the Series A Preferred Stock because no additional
consideration will be required in connection with the issuance of such
Common Stock.

(3) Previously paid.

------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED AUGUST 13, 1998

EXCEL LEGACY CORPORATION

21,281,000 Shares of Series A Preferred Stock
21,281,000 Shares of Common Stock
------------------

This Prospectus relates to one or more offerings from time to time by the
Selling Holders (as hereinafter defined) of the Series A Liquidating Preference
Convertible Preferred Stock due 2005, par value $0.01 per share ("Series A
Preferred Stock"), of Excel Legacy Corporation, a Delaware corporation ("Legacy"
or the "Company"), and the shares of common stock, par value $0.01 per share
("Common Stock"), of the Company issuable upon conversion of the Series A
Preferred Stock. The Series A Preferred Stock was issued and sold on March 31,
1998 to persons reasonably believed by the Company to be "qualified
institutional buyers" as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act").

The Series A Preferred Stock is convertible into Common Stock in the manner
described herein, at the option of the holder, at any time prior to the
redemption of the Series A Preferred Stock by the Company as provided by the
Certificate of Designations, Preferences and Relative, Participating, Optional
and Other Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of the Series A Preferred Stock (the "Certificate of
Designation"). The Series A Preferred Stock also is convertible into Common
Stock by the Company if the closing price of the Common Stock on the OTC
Bulletin Board is equal to or greater than certain price milestones for 30
consecutive trading days. On May 18, 1998, pursuant to the Certificate of
Designation, the Company sent notice to the Selling Holders that it had
exercised its right to convert all of the outstanding shares of Series A
Preferred Stock into Common Stock. The Company has fixed August 18, 1998 as the
date on which all of the outstanding shares of Series A Preferred Stock shall be
automatically converted into shares of the Company's Common Stock, at the rate
of one share of Common Stock for each outstanding share of Series A Preferred
Stock, subject to adjustment in accordance with standard anti-dilution
provisions set forth in the Certificate of Designation. All holders of record of
the Series A Preferred Stock on July 28, 1998 (the record date for such
mandatory conversion) will receive instructions from the Company's transfer
agent as to the procedure by which such holders shall return all certificates
representing shares of Series A Preferred Stock and receive from the Company
certificates representing shares of Common Stock. See "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK--Series A Preferred Stock--CONVERSION RIGHTS."

The last reported sale price of the Common Stock, which is quoted under the
symbol "XLCY" on the OTC Bulletin Board, on August 11, 1998 was $4.125 per
share.

------------------------

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS, INCLUDING:

- Risks related to the recent formation of the Company and its limited
operating history.

- Risks related to the Company's reliance on a limited number of major
tenants and on the ability of such tenants to make rental payments.

- Property management risks including nonrenewal of space or inability to
relet space.

- Real estate development risks including the failure to complete
development projects and risks inherent in construction and development.

- Risks affecting the real estate market generally, including economic and
other conditions affecting the value of the Company's properties, the
relative illiquidity of real estate and potential liabilities for unknown
or future environmental and other problems.

- Risks related to the Company's dependence on its executive officers and
other key personnel, and the influence of such personnel over the Company.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

The date of the Prospectus is , 1998.
<PAGE>
The Series A Preferred Stock and the Common Stock issuable upon conversion
of the Series A Preferred Stock (collectively, the "Offered Securities") may be
offered and sold from time to time by the holders named herein or by their
transferees, pledgees, donees or their successors (collectively, the "Selling
Holders") pursuant to this Prospectus. The Offered Securities may be sold by the
Selling Holders from time to time directly to purchasers or through agents,
underwriters or dealers. See "SELLING HOLDERS" and "PLAN OF DISTRIBUTION." If
required, the names of any such agents or underwriters involved in the sale of
the Offered Securities and the applicable agent's commission, dealer's purchase
price or underwriter's discount, if any, will be set forth in an accompanying
supplement to this Prospectus (each, a "Prospectus Supplement"). The Selling
Holders will receive all of the net proceeds from the sale of the Offered
Securities and will pay all underwriting discounts and selling commissions, if
any, applicable to any such sale. No portion of the net proceeds of this
offering will be received by the Company. The Company is responsible for payment
of all other expenses incident to the offer and sale of the Offered Securities.
The Selling Holders and any broker-dealers, agents or underwriters which
participate in the distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Offered Securities
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. See "PLAN OF DISTRIBUTION" for a description of
indemnification arrangements among the Company and the Selling Holders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING, WITHOUT LIMITATION, STATEMENTS UNDER THE CAPTIONS "THE COMPANY,"
"POLICIES WITH RESPECT TO CERTAIN ACTIVITIES," "BUSINESS AND PROPERTIES" AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." THESE FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES, AND AS SUCH MAY INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES
AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING
STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS
PROSPECTUS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD
THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH
STATEMENT IS BASED. INFORMATION ON FACTORS THAT COULD AFFECT THE FINANCIAL
RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS IS INCLUDED IN THE
SECTION HEREIN ENTITLED "RISK FACTORS."
<PAGE>
TABLE OF CONTENTS

<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................. 1
PROSPECTUS SUMMARY.................................................................... 2
The Company......................................................................... 2
Recent Developments................................................................. 3
The Offering........................................................................ 3
RISK FACTORS.......................................................................... 5
Recently Formed Entity; Lack of Independent Operating History....................... 5
Reliance on Major Tenants........................................................... 5
Control by Executive Officers and Directors......................................... 5
Difficulty of Locating Suitable Investments; Competition............................ 5
Acquisition, Development, Construction and Renovation Activities.................... 5
Operating Risks..................................................................... 6
Dependence on Rental Income from Real Property...................................... 7
Potential Adverse Consequences of Debt Financing.................................... 7
Equity Investments in and with Third Parties........................................ 8
Illiquidity of Real Estate Investments.............................................. 8
No Public Market for Series A Preferred Stock; Limited Market for Common Stock...... 8
Disadvantages of Investments in Debt Instruments.................................... 9
Limited Remedies Upon Default of Mortgage Loans..................................... 9
Disadvantages of Investments in Commercial Mortgage-Backed Securities............... 10
Limitations on Remedies Upon Default................................................ 10
Third-Party Bankruptcy Risks........................................................ 10
Costs of Compliance with the Investment Company Act................................. 11
Uninsured Losses.................................................................... 11
Potential Environmental Liability Related to the Properties......................... 11
Changes in Policies Without Stockholder Approval.................................... 12
Hedging Policies/Risks.............................................................. 12
Dividend Policy..................................................................... 12
Certain Anti-Takeover Features Affecting a Change in Control of the Company......... 12
Dependence on Key Personnel......................................................... 13
Costs of Compliance with the Americans with Disabilities Act and Similar Laws....... 13
Noncompliance with Other Laws....................................................... 13
Possible Conflicts with Excel....................................................... 13
Failure of Excel to Qualify as a REIT Would Allow Excel to Compete with the
Company........................................................................... 14
Absence of Future Funding Commitments; Need for Future Capital...................... 15
Dilution............................................................................ 15
Shares Eligible for Future Sale..................................................... 15
SELLING HOLDERS....................................................................... 17
PLAN OF DISTRIBUTION.................................................................. 18
USE OF PROCEEDS....................................................................... 18
RATIO OF EARNINGS TO FIXED CHARGES.................................................... 19
PRICE RANGE OF COMMON STOCK........................................................... 19
DIVIDEND POLICY....................................................................... 19
THE COMPANY........................................................................... 20
General............................................................................. 20
Business Strategy................................................................... 21
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........................................... 22
Investment Policies................................................................. 22
</TABLE>

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<TABLE>
<S> <C>
Proactive Asset Management.......................................................... 24
Financing Policies.................................................................. 24
Policies With Respect to Other Activities........................................... 25
SELECTED FINANCIAL DATA............................................................... 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 27
Nature of Business.................................................................. 27
Liquidity and Capital Resources..................................................... 27
Results of Operations for the Excel Legacy Corporation Asset Group.................. 27
Results of Operations for the Company............................................... 28
BUSINESS AND PROPERTIES............................................................... 30
Properties.......................................................................... 30
Notes Receivable.................................................................... 41
Other Investments................................................................... 43
Principal Tenants................................................................... 43
Employees........................................................................... 44
Corporate Headquarters.............................................................. 44
Legal Proceedings................................................................... 44
MANAGEMENT............................................................................ 45
Board of Directors.................................................................. 45
Committees of the Board of Directors................................................ 46
Compensation of the Board of Directors.............................................. 46
Executive Officers.................................................................. 47
Executive Officer Compensation...................................................... 48
Legacy Stock Option Plan............................................................ 48
Indemnification Agreements.......................................................... 50
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................................................... 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 53
Interests Related to Excel.......................................................... 53
Private Placements.................................................................. 53
Other Matters....................................................................... 53
RELATIONSHIPS BETWEEN THE COMPANY AND EXCEL........................................... 54
Distribution Agreement.............................................................. 54
Administrative Services Agreement................................................... 54
Tax Sharing Agreement............................................................... 55
Transitional Services Agreement..................................................... 55
Intercompany Agreement.............................................................. 55
Policies and Procedures for Addressing Conflicts.................................... 56
THE EXCEL MERGER...................................................................... 57
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK............................................ 58
General............................................................................. 58
Common Stock........................................................................ 58
Series A Preferred Stock............................................................ 59
CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CHARTER AND BYLAWS............ 61
Issuance of Additional Shares of Preferred Stock.................................... 61
Business Combinations............................................................... 61
Limitation of Liability and Indemnification......................................... 61
SHARES ELIGIBLE FOR FUTURE SALE....................................................... 63
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS............................... 65
</TABLE>

<PAGE>
<TABLE>
<S> <C>
Common Stock and Series A Preferred Stock Generally................................. 65
Series A Preferred Stock............................................................ 67
Backup Withholding.................................................................. 67
EXPERTS............................................................................... 68
LEGAL MATTERS......................................................................... 68
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
</TABLE>

iii

<PAGE>
AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and at 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of
such materials also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. They are also available through the Commission's World Wide Web site
(http://www.sec.gov).

The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-11 under the Securities
Act with respect to the securities offered by this Prospectus (the "Registration
Statement"). This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered by
this Prospectus, reference is made to the Registration Statement, including the
exhibits thereto, and the financial statements and notes thereto filed or
incorporated by reference as a part thereof, which are on file at the offices of
the Commission and may be obtained upon payment of the fee prescribed by the
Commission, or may be examined without charge at the offices of the Commission.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete, and, in each such instance, are
qualified in all respects by reference to the applicable documents filed with
the Commission. The Registration Statement and the exhibits thereto filed by the
Company with the Commission may be inspected and copied at the locations
described above.

1
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES TO LEGACY OR THE COMPANY IN THIS
PROSPECTUS INCLUDE THE COMPANY AND THOSE ENTITIES OWNED OR CONTROLLED BY THE
COMPANY, UNLESS THE CONTEXT INDICATES OTHERWISE.

THE COMPANY

On March 31, 1998 (the "Spin-off Date"), Excel Realty Trust, Inc. ("Excel"),
a Maryland corporation and a self-administered, self-managed real estate
investment trust ("REIT"), effected a spin-off of the Company through a special
dividend to the holders of common stock of Excel of all of the outstanding
Common Stock of the Company held by Excel (the "Spin-off"). Excel acquires, owns
and manages neighborhood and community shopping centers and other retail and
commercial properties. The Board of Directors of Excel determined that it was in
the best interests of Excel and its stockholders to organize the Company to
pursue opportunities available to those investors that are not restricted by the
Federal income tax laws governing REITs or influenced by public market
perception with regard to REIT securities, to transfer to the Company certain
real properties, notes receivable and related assets and liabilities, and to
spin-off the Company to the Excel stockholders. See "THE COMPANY--General."

In connection with the Spin-off, Excel transferred to the Company ten single
tenant properties, a property under development and a note receivable, and the
assets described below in exchange for a sufficient number of shares of Common
Stock of the Company to effect the Spin-off, a note payable from the Company to
Excel in the amount of approximately $26.4 million (which was repaid by the
Company in April 1998), and the assumption by the Company of indebtedness on the
properties in the amount of approximately $36.4 million. Also in connection with
the Spin-off, ERT Development Corporation ("EDV"), a Delaware corporation of
which Excel owns 100% of the outstanding preferred shares, transferred to the
Company four notes receivable, a leasehold interest in a parcel of land, an
office building and a single tenant property, in exchange for the cancellation
by Excel of approximately $38.1 million of EDV's outstanding indebtedness to
Excel. See "THE COMPANY--General"; "BUSINESS AND PROPERTIES--Properties" and
"BUSINESS AND PROPERTIES--Notes."

The Company currently does not intend to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). Consequently, the
Company has the flexibility to respond quickly to opportunities without the
structural limitations inherent in REITs and to operate, when deemed
advantageous by management, on a more highly leveraged basis than most REITs. By
not qualifying as a REIT under the Code (which would require the Company to
distribute each year at least 95.0% of its net taxable income, excluding capital
gains), the Company has the ability and currently intends to retain for
reinvestment its cash flow generated from operations and to sell properties
without the substantial income tax penalties which may be imposed on REITs in
such transactions. In addition, unlike investors in opportunity funds, the
Company's stockholders have voting rights and are expected to have enhanced
liquidity through their ability to sell or margin their stock. The Company also
hopes to attract a broader range of investors because there will be no
stipulated investment minimum. However, unlike REITs and opportunity funds, the
Company is subject to corporate level taxation.

2
<PAGE>
operating companies, including defaulted debt at a discount to the value of the
underlying asset securing the debt. Further, the Company will be able to manage
the timing of asset dispositions without regard to the minimum hold periods
required of REITs while also acquiring properties using substantial, yet
prudent, leverage to increase returns on what otherwise might be less attractive
investments. Subject to the provisions of the Intercompany Agreement (as
hereinafter defined), pursuant to which the Company must provide Excel with
rights to participate in certain transactions (see "RELATIONSHIP BETWEEN THE
COMPANY AND EXCEL--Intercompany Agreement"), the Company does not intend to
limit its investments in the areas described above to certain sectors of the
real estate market or certain types of properties. See "POLICIES WITH RESPECT TO
CERTAIN ACTIVITIES."

RECENT DEVELOPMENTS

On May 14, 1998, Excel entered into an Agreement and Plan of Merger (the
"Merger Agreement") with New Plan Realty Trust, a Massachusetts business trust
("New Plan"), pursuant to which a wholly-owned subsidiary of Excel will merge
(the "Excel Merger") with and into New Plan, with New Plan surviving as a
wholly-owned subsidiary of Excel. The Merger Agreement calls for Excel to
declare a 20% stock dividend prior to the Excel Merger and subsequently to issue
one share of its common stock for each outstanding share of New Plan. The Excel
Merger is subject to customary closing conditions including the approval of the
Excel Merger by the shareholders of Excel and New Plan. In connection with the
Excel Merger, the Company and Excel amended the Administrative Services
Agreement (as hereinafter defined) and the Intercompany Agreement entered into
by the Company and Excel in connection with the Spin-off. In addition, the
Company agreed, subject to the successful completion of the Excel Merger, to
make available for purchase by the surviving corporation in the Excel Merger, at
its option, an amount of shares of Common Stock of the Company representing
between 5.0% and 9.8% of the outstanding shares of Common Stock on a fully
diluted basis, at certain agreed upon terms. In the event the surviving
corporation elects to purchase such shares of Common Stock, the Company has
agreed to amend the Intercompany Agreement to require the Company to present any
proposed acquisition by the Company of apartments (other than multi-use projects
with a residential component) to the surviving corporation in the same fashion
as it provides notice of proposed acquisitions of neighborhood and community
shopping centers, power centers, malls or other conventional retail properties.
See "RELATIONSHIP BETWEEN THE COMPANY AND EXCEL--Intercompany Agreement." The
Company has also agreed that, subject to certain terms and conditions, the
surviving corporation in the Excel Merger shall have the right to designate a
nominee to the Board of Directors of the Company for so long as it owns 5.0% or
more of the outstanding Common Stock of the Company on a fully diluted basis and
shall have certain registration rights with respect to such shares of Common
Stock. See "RELATIONSHIP BETWEEN THE COMPANY AND EXCEL" and "THE EXCEL MERGER."

THE OFFERING

<TABLE>
<S> <C>
Securities Offered.............. 21,281,000 shares of Series A Preferred Stock or the
shares of Common Stock into which the Series A Preferred
Stock is convertible.

Dividends....................... Holders of Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of
Directors, cumulative cash dividends payable in an amount
per share equal to the cash dividends, if any, on the
shares of Common Stock into which the Series A Preferred
Stock is convertible.

Conversion Rights............... Holders of the Series A Preferred Stock have the right,
exercisable at any time and from time to time, to convert
all or any of the Series A Preferred Stock into Common
Stock, on a one-for-one
</TABLE>

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<TABLE>
<S> <C>
basis, subject to adjustment in certain circumstances. The
Series A Preferred Stock also is convertible into Common
Stock by the Company if the closing price of the Common
Stock on the OTC Bulletin Board is equal to or greater
than certain price milestones for 30 consecutive trading
days. Such price milestones were met for the requisite
period in the third quarter of the Company's 1998 fiscal
year. On May 18, 1998, the Company exercised its right to
convert all of the outstanding shares of Series A
Preferred Stock into Common Stock, which conversion will
take place automatically on August 18, 1998. The Company
has fixed July 28, 1998 as the record date for such
mandatory conversion.

Liquidation Preference.......... $5.00 per share (the "Liquidation Preference"), plus a
premium equivalent to a 7.0% annual total return on the
Series A Preferred Stock from the date of issuance and any
accrued and unpaid dividends.

Redemption...................... The Series A Preferred Stock may not be redeemed by the
Company prior to March 31, 2005. On March 31, 2005, the
Company would be required to redeem all outstanding shares
of Series A Preferred Stock for cash at a per share price
equal to the Liquidation Preference, plus any accrued and
unpaid dividends to such date. However, as noted above,
the Company has exercised its right to convert all of the
outstanding shares of the Series A Preferred Stock into
Common Stock, which conversion will take place
automatically on August 18, 1998.

Voting Rights................... Except as otherwise required by law, the holders of the
Series A Preferred Stock are entitled to vote with the
Common Stock on all matters submitted for the approval of
the stockholders of the Company. In addition, certain
changes that would be materially adverse to the rights of
holders of the Series A Preferred Stock cannot be made
without the affirmative vote of two-thirds of the shares
of the Series A Preferred Stock.

Ranking......................... The Series A Preferred Stock ranks senior to the Common
Stock with respect to the payment of dividends and amounts
payable upon liquidation, dissolution or winding up of the
Company. However, as noted above, the Company has
exercised its right to convert all of the outstanding
shares of the Series A Preferred Stock into Common Stock,
which conversion will take place automatically on August
18, 1998.

Use of Proceeds................. The Selling Holders will receive all of the proceeds from
the sale of the Offered Securities.
</TABLE>

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<PAGE>
RISK FACTORS

PROSPECTIVE PURCHASERS OF THE OFFERED SECURITIES SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS.

RECENTLY FORMED ENTITY; LACK OF INDEPENDENT OPERATING HISTORY

It should be noted that the Company is a recently-formed entity with no
prior operating history. There can be no assurance that the Company will not
encounter financial, managerial or other difficulties as a result of its lack of
operating history or inability to rely on the financial and other resources of
Excel. Currently the Company has no external source of financing and the Company
has not received any commitment with respect to any funds needed in the future.
The Company expects to be able to access capital markets or to seek other
financing, but there can be no assurance that it will be able to do so at all or
in amounts or on terms acceptable to the Company.

RELIANCE ON MAJOR TENANTS

As of March 31, 1998, the Company's largest tenants were AMC Multi-Cinema,
Inc. ("AMC"), Wal-Mart Stores, Inc. ("Wal-Mart") and Lowe's Home Centers, Inc.
("Lowe's"), which accounted for approximately 45.2%, 34.2% and 11.1% of the
Company's total revenue as of such date, respectively. See "BUSINESS AND
PROPERTIES--Principal Tenants." The financial position of the Company may be
adversely affected by financial difficulties experienced by any of such tenants,
or any other major tenant of the Company, including a bankruptcy, insolvency or
general downturn in the business of any such tenant, or in the event any such
tenant does not renew its leases as they expire.

CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS

As of August 11, 1998, the executive officers and directors of the Company
beneficially owned or had the right to acquire an aggregate of 11,032,859
shares, or approximately 33.0%, of the outstanding Common Stock. See "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." Such persons have
substantial influence over the Company and on the outcome of matters submitted
to the Company's stockholders for approval. In addition, such ownership could
discourage acquisition of the Common Stock by potential investors, and could
have an anti-takeover effect, possibly depressing the trading price of the
Common Stock.

DIFFICULTY OF LOCATING SUITABLE INVESTMENTS; COMPETITION

Identifying, completing and realizing on real estate investments has from
time to time been highly competitive, and involves a high degree of uncertainty.
The Company competes for investments with many public and private real estate
investment vehicles, including financial institutions (such as mortgage banks,
pension funds and REITs) and other institutional investors, as well as
individuals. There can be no assurance that the Company will be able to locate
and complete investments which satisfy the Company's rate of return objective or
realize upon their value or that it will be able to fully invest its available
capital.

Many of those with whom the Company competes for investments are far larger
than the Company, may have greater financial resources than the Company and may
have management personnel with more experience than the officers of the Company.

ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES

ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL EXPENDITURES
MAY EXCEED ESTIMATES. The Company intends to acquire existing properties to the
extent that they can be acquired on advantageous terms and meet the Company's
investment criteria. Acquisitions of properties entail general investment risks
associated with any real estate investment, including the risk that investments
will fail to perform as

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expected, that estimates of the cost of improvements to bring an acquired
property up to standards established for the intended market position may prove
inaccurate and the occupancy rates and rents achieved may be less than
anticipated.

UNCERTAINTY OF CASH FLOW FROM DEVELOPMENT, CONSTRUCTION AND RENOVATION
ACTIVITIES. The Company also intends to pursue the selective development,
construction and renovation of properties for its own account or the account of,
or through, entities in which it owns an equity interest as opportunities arise,
including without limitation long-term, higher-risk, mixed-use retail
entertainment projects. Risks associated with the Company's development,
construction and renovation activities include the risks that: the Company may
abandon development opportunities after expending resources to determine
feasibility; construction and renovation costs of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; and development, construction,
renovation and lease-up may not be completed on schedule (including risks beyond
the control of the Company, such as weather or labor conditions or material
shortages) resulting in increased debt service expense and construction costs.
Development, construction and renovation activities also are subject to risks
relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations. These risks could result in substantial unanticipated delays
or expenses and, under certain circumstances, could prevent completion of
development, construction and renovation activities once undertaken, any of
which could adversely affect the financial condition and results of operations
of the Company. Properties under development or acquired for development may
generate little or no cash flow from the date of acquisition through the date of
completion of development and may experience operating deficits after the date
of completion. In addition, new development and renovation activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.

Any properties developed and renovated by the Company will be subject to the
risks associated with the ownership and operation of real estate described
elsewhere in this section entitled "RISK FACTORS."

OPERATING RISKS

POTENTIAL INCREASES IN OPERATING COSTS. If the properties of the Company,
the properties of those entities in which it invests or the properties of those
entities to which it will lend (collectively, the "Properties") do not generate
revenue sufficient to meet operating expenses, including debt service and
capital expenditures, the financial condition and results of operations of the
Company may be adversely affected. The Properties are subject to operating risks
common to the particular property type, any and all of which may adversely
affect occupancy or rental rates. Such properties are subject to increases in
operating expenses such as cleaning; electricity; heating, ventilation and
air-conditioning; elevator repair and maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping, repairs
and maintenance.

DEPENDENCE ON REAL ESTATE CONDITIONS. The Company's financial condition and
results of operations also may be adversely affected by a number of other
factors, including international and domestic general economic climate and local
real estate conditions (such as oversupply of or reduced demand for space and
changes in market rental rates); the perceptions of prospective tenants of the
safety, convenience and attractiveness of the Properties; the ability of the
owner to provide adequate management, maintenance and insurance; energy and
supply shortages; the ability to collect on a timely basis all rent from tenants
and interest from borrowers; the expense of periodically renovating, repairing
and reletting spaces; and increasing operating costs (including real estate
taxes and utilities) which may not be passed through to tenants.

FIXED COSTS DO NOT VARY WITH REVENUES. Certain significant expenditures
associated with investments in real estate (such as mortgage payments, real
estate taxes, insurance and maintenance costs) are generally not reduced when
circumstances cause a reduction in rental revenues from the investment. While

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commercial tenants are often obligated to pay a portion of these escalating
costs, there can be no assurance that they will agree to pay such costs or that
the portion that they agree to pay will fully cover such costs. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
To the extent rents cannot be increased or costs controlled, the cash flow of
the Company and its financial condition may be adversely affected.

DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY

The Company's cash flow, results of operations and value of its assets would
be adversely affected if a significant number of tenants of the Properties
failed to meet their lease obligations or if the Company or the owner of a
Property were unable to lease a significant amount of space on economically
favorable terms. In the event of a default by a lessee, the owner may experience
delays in enforcing its rights as lessor and may incur substantial costs in
protecting its investment. The bankruptcy or insolvency of a major tenant may
have an adverse effect on a property. At any time, a tenant also may seek
protection under the bankruptcy laws, which could result in rejection and
termination of such tenant's lease and thereby cause a reduction in the cash
flow of the property. If a tenant rejects its lease, the owner's claim for
breach of the lease would (absent collateral securing the claim) be treated as a
general unsecured claim. Generally, the amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
rejection, plus the greater of one year's lease payments or 15.0% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments). No assurance can be given that the Properties
will not experience significant tenant defaults in the future.

POTENTIAL ADVERSE CONSEQUENCES OF DEBT FINANCING

USE OF LEVERAGE COULD ADVERSELY AFFECT THE COMPANY. Some of the Company's
real estate equity investments may utilize a leveraged capital structure, in
which case a third party lender would be entitled to cash flow generated by such
investments prior to the Company receiving a return. As a result of such
leverage, the Company would be subject to the risks normally associated with
debt financing, including the risk that cash flow from operations and
investments will be insufficient to meet required payments of principal and
interest, the risk that existing debt (which in most cases will not have been
fully amortized at maturity) will not be able to be refinanced or that the terms
of such refinancings will not be as favorable to the Company, and the risk that
necessary capital expenditures for such purposes as renovations and other
improvements will not be able to be financed on favorable terms or at all. While
such leverage may increase returns or the funds available for investment by the
Company, it also will increase the risk of loss on a leveraged investment. If
the Company defaults on secured indebtedness, the lender may foreclose and the
Company could lose its entire investment in the security for such loan. Because
the Company may engage in portfolio financings where several investments are
cross-collateralized, multiple investments may be subject to the risk of loss.
As a result, the Company could lose its interests in performing investments in
the event such investments are cross-collateralized with poorly performing or
nonperforming investments. In addition, recourse debt, which the Company
reserves the right to obtain, may subject other assets of the Company to risk of
loss.

INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY; FORECLOSURES. The
Company anticipates that only a portion of the principal of the Company's
indebtedness outstanding from time to time will be repaid prior to maturity.
However, the Company may not have sufficient funds to repay such indebtedness at
maturity; it may therefore be necessary for the Company to refinance debt
through additional debt financing or equity offerings. If the Company is unable
to refinance this indebtedness on acceptable terms, the Company may be forced to
dispose of properties or other assets upon disadvantageous terms, which could
result in losses to the Company and adversely affect the amount of cash
available for further investment.

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RISING INTEREST RATES COULD INCREASE THE COMPANY'S INTEREST EXPENSE. The
Company may incur indebtedness in the future that bears interest at a variable
rate or may be required to refinance its debt at higher rates. Accordingly,
increases in interest rates could increase the Company's interest expense and
adversely affect the financial condition and results of operations of the
Company.

RESTRICTIVE COVENANTS COULD ADVERSELY AFFECT THE COMPANY'S
BORROWINGS. Various credit facilities or other debt obligations may require the
Company to comply with a number of financial and other covenants on an ongoing
basis. Failure to comply with such covenants may limit the Company's ability to
borrow funds or may cause a default under its then-existing indebtedness.

NO LIMITATION ON DEBT. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness the Company may incur. The
Company also has the ability to use a more highly leveraged business strategy
than typically used by REITs. Accordingly, the Company could become highly
leveraged, resulting in an increase in debt service that could increase the risk
of default on the Company's indebtedness.

EQUITY INVESTMENTS IN AND WITH THIRD PARTIES

DEPENDENCE ON THIRD PARTIES. The Company may invest in shares of REITs or
other entities that invest in real estate assets, including debt instruments and
equity interests. In such cases, the Company will be relying on the assets,
investments and management of the REIT or other entity in which it is investing.
Such entities and their properties will be subject to the other risks affecting
the ownership and operation of real estate and investment in debt set forth in
this section entitled "RISK FACTORS."

POTENTIAL LACK OF CONTROL OF MANAGEMENT. The Company also may co-invest
with third parties through partnerships, joint ventures or other entities,
acquiring non-controlling interests in or sharing responsibility for managing
the affairs of a property, partnership, joint venture or other entity and,
therefore, will not be in a position to exercise sole decision-making authority
regarding the property, partnership, joint venture or other entity.

POTENTIAL CONFLICTS AND INCREASED BANKRUPTCY, LIABILITY AND OTHER
RISKS. Investments in partnerships, joint ventures or other entities may, under
certain circumstances, involve risks not present were a third party not
involved, including the possibility that the Company's partners or co-venturers
might become bankrupt or otherwise fail to fund their share of required capital
contributions, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of the Company and contrary to the Company's policies or
objectives. Such investments also may have the potential risk of impasse on
decisions, such as a sale, because neither the Company nor the partner or
co-venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, the Company may in certain circumstances be liable for the actions of
its third-party partners or co-venturers.

ILLIQUIDITY OF REAL ESTATE INVESTMENTS

Equity and debt investments in real estate may be relatively illiquid. Such
illiquidity limits the ability of the Company to modify its portfolio in
response to changes in economic or other conditions and may have a material
adverse effect on the Company. Illiquidity may result from the absence of an
established market for the investments as well as legal or contractual
restrictions on their resale by the Company.

NO PUBLIC MARKET FOR SERIES A PREFERRED STOCK; LIMITED PUBLIC MARKET FOR COMMON
STOCK

There has been no public market for the Series A Preferred Stock and the
Company has no intention to create nor can any prediction be made as to the
future existence of a public market for the Series A

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Preferred Stock. The Company has exercised its right to convert all of the
outstanding shares of Series A Preferred Stock into Common Stock, which
conversion will take place automatically on August 18, 1998. The Common Stock
has traded on the OTC Bulletin Board only since the Spin-off and there can be no
assurance that an active trading market will be sustained. The Company currently
intends to apply for listing of the Common Stock on the New York Stock Exchange,
although no assurances can be given that such listing will be obtained. In the
absence of a public trading market, an investor may be unable to liquidate his
investment in the Company. Prices at which the Series A Preferred Stock or the
Common Stock may trade cannot be predicted. The prices at which the Series A
Preferred Stock and the Common Stock trade will be determined by the marketplace
and may be influenced by many factors, including, among others, the success of
the Company's business, the depth and liquidity of the market for the Offered
Securities, investor perception of the Company and its assets, the Company's
dividend policy, and general economic and market conditions. Such prices also
may be affected by certain provisions of the Amended and Restated Certificate of
Incorporation of the Company (the "Company Certificate") and the Amended and
Restated Bylaws of the Company (the "Company Bylaws"), which may have an
anti-takeover effect. See "--Certain Anti-Takeover Features Affecting a Change
in Control of the Company" and "CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS."

DISADVANTAGES OF INVESTMENTS IN DEBT INSTRUMENTS

DEPENDENCE ON BORROWERS TO PRESERVE VALUE OF COLLATERAL; POSSIBILITY OF
NONPAYMENT. The Company may originate debt investments and may acquire
performing or nonperforming debt investments. In general, debt instruments carry
the risk that borrowers may not be able to make debt service payments or to pay
principal when due, the risk that the value of any collateral may be less than
the amounts owed, the risk that interest rates payable on the debt instruments
may be lower than the Company's cost of funds, and the risk that the collateral
may be mismanaged or otherwise decline in value during periods in which the
Company is seeking to obtain control of the underlying real estate. The Company
is also dependent on the ability of the borrowers to operate successfully their
properties. Such borrowers and their properties will be subject to the other
risks affecting the ownership and operation of real estate set forth in this
section entitled "RISK FACTORS." Some of the loans may be structured so that all
or a substantial portion of the principal will not be paid until maturity, which
increases the risk of default at that time.

UNRATED DEBT INSTRUMENTS. It is anticipated that a substantial portion of
the debt in which the Company invests will not be rated by any
nationally-recognized rating agency. Generally, the value of unrated classes is
more subject to fluctuation due to economic conditions than rated classes. The
Company's acquisition of credit supported classes of securitizations (which
generally are expected to be first loss classes) which are unrated at the time
of acquisition and which have lower ratings may increase the risk of nonpayment
or of a significant delay in payments on these classes. Should rated assets be
downgraded, it may adversely affect their value and may adversely affect the
Company.

LIMITED REMEDIES UPON DEFAULT OF MORTGAGE LOANS

To the extent the Company invests in mortgage loans, such mortgage loans may
or may not be recourse obligations of the borrower and generally will not be
insured or guaranteed by governmental agencies or otherwise. In the event of a
default under such obligations, the Company may have to foreclose its mortgage
or protect its interest by acquiring title to a property and thereafter making
substantial improvements or repairs in order to maximize the property's
investment potential. Borrowers may contest enforcement of foreclosure or other
remedies, seek bankruptcy protection against such enforcement and/ or bring
claims for lender liability in response to actions to enforce mortgage
obligations. Relatively high "loan-to-value" ratios and declines in the value of
the property may prevent the Company from realizing an amount equal to its
mortgage loan upon foreclosure.

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The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole authority to
declare a default under the mortgage or to control the property or any
foreclosure.

Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of control
over the collateral and any related foreclosure proceeding. In the event of a
default on a senior mortgage, the Company may make payments to prevent
foreclosure on the senior mortgage without necessarily improving the Company's
position with respect to the subject real property. In such event, the Company
would be entitled to share in the proceeds only after satisfaction of the
amounts due to the holder of the senior mortgage.

DISADVANTAGES OF INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES

INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES SUBJECT TO REAL ESTATE
RISKS APPLICABLE TO UNDERLYING PROPERTIES. As noted above, the Company may seek
to invest in real estate-related debt instruments, which may include commercial
mortgage-backed securities. Many of the risks of investing in commercial
mortgage-backed securities reflect the risks of investing directly in the real
estate securing the underlying mortgage loans. This may be especially true in
the case of commercial mortgage securities secured by, or evidencing an interest
in, a single commercial mortgage loan or a relatively small or less diverse pool
of commercial mortgage loans. See "--Disadvantages of Investments in Debt
Instruments" and "--Limited Remedies Upon Default of Mortgage Loans."

CREDIT SUPPORT FOR COMMERCIAL MORTGAGE-BACKED SECURITIES MAY PROVE
INADEQUATE. The risks of investing in commercial mortgage-backed securities
include risks that the existing credit support will prove to be inadequate,
either because of unanticipated levels of losses or, if such credit support is
provided by a third party, because of difficulties experienced by such provider.
Delays or difficulties encountered in servicing commercial mortgage-backed
securities may cause greater losses and, therefore, greater resort to credit
support than was originally anticipated, and may cause a rating agency to
downgrade a security.

SUBORDINATED SECURITIES MAY NOT BE REPAID UPON DEFAULT. The Company may
acquire subordinated tranches of commercial mortgage-backed securities
issuances. In general, subordinated tranches of commercial mortgage-backed
securities are entitled to receive repayment of principal only after all
principal payments have been made on more senior tranches and also have
subordinated rights as to receipt of interest distributions. In addition, an
active secondary market for such subordinated securities is not as well
developed as the market for certain other mortgage-backed securities.
Accordingly, such subordinated commercial mortgage-backed securities may have
limited marketability and there can be no assurance that a more efficient
secondary market will develop.

LIMITATIONS ON REMEDIES UPON DEFAULT

Although the Company will have certain contractual remedies upon the default
by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or collecting rents generated therefrom, certain legal
requirements (including the risks of lender liability) may limit the ability of
the Company to effectively exercise such remedies.

The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
provisions.

THIRD-PARTY BANKRUPTCY RISKS

Investments made in assets operating in workout modes or under Chapter 11 of
the Bankruptcy Code could be subordinated or disallowed, and the Company could
be liable to third parties in such circumstances. Furthermore, distributions
made to the Company in respect of such investments could be recovered if any
such distribution is found to be a fraudulent conveyance or preferential
payment.

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Bankruptcy laws, including the automatic stay imposed upon the filing of a
bankruptcy petition, may delay the ability of the Company to realize on
collateral for loan positions held by it or may adversely affect the priority of
such loans through doctrines such as equitable subordination or may result in a
restructure of the debt through principles such as the "cramdown" provisions of
the bankruptcy laws.

COSTS OF COMPLIANCE WITH THE INVESTMENT COMPANY ACT

The Company is currently not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), since
management believes that the Company either is not within the definition of
"investment company" thereunder or, alternatively, is excluded from regulation
under the Investment Company Act by one or more exemptions. In the future, the
Company will seek to continue to conduct its operations so as to avoid
registration under the Investment Company Act. Therefore, the assets that the
Company may acquire or sell may be limited by the provisions of the Investment
Company Act. If the Company were to become an investment company under the
Investment Company Act and if it failed to qualify for an exemption thereunder,
it would be unable to conduct its business as presently conducted which could
have a material adverse effect on the Company and the market price for the
Offered Securities.

UNINSURED LOSSES

The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the properties that it owns, with
policy specifications, insured limits and deductibles customarily carried for
similar properties. There are, however, certain types of losses (such as losses
arising from acts of war or relating to pollution) that are not generally
insured because they are either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose its capital invested in a property, as well as the
anticipated future revenue from such property and would continue to be obligated
on any mortgage indebtedness or other obligations related to the property. Any
such loss would adversely affect the financial condition and results of
operations of the Company.

With respect to those properties in which the Company holds an interest
through a mortgage, as well as those properties owned by entities to whom the
Company makes unsecured loans, the borrowers will most likely be obligated to
maintain insurance on such properties and to arrange for the Company to be
covered as a named insured on such policies. The face amount and scope of such
insurance coverage may be less comprehensive than the Company would carry if it
held the fee interest in such property. Accordingly in such circumstances, or in
the event that the borrowers fail to maintain required coverage, uninsured or
underinsured losses may occur, which could have an adverse impact on the
Company's cash flow or financial condition.

POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES

Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/or the aggregate assets of the owner.
The presence of such substances, or the failure to properly remediate such
substances, may adversely affect the owner's ability to sell or rent such
property or to borrow using such property as collateral. Persons who arrange for
the disposal or treatment of hazardous or toxic substances also may be liable
for the costs of removal or remediation of such substances at a disposal or
treatment facility, whether or not such facility is owned or operated by such
persons. Certain environmental laws govern the removal, encapsulation or
disturbance of asbestos-containing materials ("ACMs") when such materials are in
poor condition, or in

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the event of renovation or demolition. Such laws impose liability for release of
ACMs into the air and third parties may seek recovery from owners or operators
of real properties for personal injury associated with ACMs. The operation and
subsequent removal of certain underground storage tanks also are regulated by
Federal and state laws. In connection with the ownership (direct or indirect),
operation, management and development of real properties, the Company may be
considered an owner or operator of such properties or as having arranged for the
disposal or treatment of hazardous or toxic substances, and, therefore,
potentially liable for removal or remediation costs, as well as certain other
related costs, including governmental fines and injuries to persons and
property.

CHANGES IN POLICIES WITHOUT STOCKHOLDER APPROVAL

The investment, financing, borrowing and distribution policies of the
Company and its policies with respect to all other activities, growth, debt,
capitalization and operations, will be determined by the Company's Board of
Directors. Although it has no present intention to do so, the Board of Directors
may amend or revise these policies at any time and from time to time at its
discretion without a vote of the stockholders of the Company. A change in these
policies could adversely affect the Company's financial condition, results of
operations and the market price of the Offered Securities.

HEDGING POLICIES/RISKS

In connection with the financing of certain real estate investments, the
Company may employ hedging techniques designed to protect the Company against
adverse movements in currency and/or interest rates. While such transactions may
reduce certain risks, such transactions themselves may entail certain other
risks. Thus, while the Company may benefit from the use of these hedging
mechanisms generally, unanticipated changes in interest rates, securities
prices, or currency exchange rates may result in a poorer overall performance
for the Company than if it had not entered into such hedging transactions. See
"POLICIES WITH RESPECT TO CERTAIN ACTIVITIES--Financing Policies."

DIVIDEND POLICY

The future payment of dividends by the Company will depend on decisions that
will be made by the Company's Board of Directors from time to time based on the
results of operations and financial condition of the Company and such other
business considerations as the Board of Directors considers relevant. The
Company presently anticipates that it will retain all available funds for use in
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. See "DIVIDEND POLICY."

In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many companies and which
have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations and general economic
conditions may adversely affect the market price of the Offered Securities.

CERTAIN ANTI-TAKEOVER FEATURES AFFECTING A CHANGE IN CONTROL OF THE COMPANY

Certain provisions of the Company Certificate and the Company Bylaws, along
with certain provisions of Delaware statutory law, could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. Such provisions include Article Fourth of the Company Certificate which
authorizes the Company's Board of Directors to issue additional shares of
preferred stock of the Company, in one or more series, and to establish the
rights and preferences (including the convertibility of such shares of preferred
stock into shares of Common Stock) of any series of preferred stock so issued.
Such provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the then
current market value of the Common Stock. Such provisions also may inhibit
fluctuations in the market price of the Common Stock that could result from
takeover

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attempts. See "CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CHARTER
AND BYLAWS--Issuance of Additional Shares of Preferred Stock."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive officers and other
key personnel. While the Company believes that it could find replacements for
these persons, the loss of their services could have a temporary adverse effect
on the operations of the Company. None of the Company's executive officers or
other key personnel has an employment agreement with the Company. There can be
no assurance that the Company will be able to retain these persons or to attract
suitable replacements or additional personnel if required. The Company has not
obtained key-man insurance for any of its executive officers or other key
personnel.

COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS

Under the Americans with Disabilities Act of 1980 (the "ADA"), places of
public accommodations and commercial facilities are required to meet certain
Federal requirements related to access and use by disabled persons. Compliance
with ADA requirements could require both structural and non-structural changes
to the properties in which the Company invests and noncompliance could result in
the imposition of fines by the United States government or an award of damages
to private litigants. Although management of the Company believes that its
properties are substantially in compliance with present requirements of the ADA,
the Company may incur additional costs of compliance in the future. A number of
additional Federal, state and local laws exist which impose further burdens or
restrictions on owners with respect to access by disabled persons and may
require modifications to properties in which the Company invests, or restrict
certain further renovations thereof, with respect to access by disabled persons.
Final regulations under the ADA have not yet been promulgated and the ultimate
amount of the cost of compliance with the ADA or other such laws is not
currently ascertainable. While such costs are not expected to have a material
effect on the Company, they could be substantial. If required changes involve
greater expense than the Company currently anticipates, the Company's financial
condition and results of operations could be adversely affected.

NONCOMPLIANCE WITH OTHER LAWS

Real estate properties also are subject to various Federal, state and local
regulatory requirements, such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that its properties are currently in material
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's results of
operations.

POSSIBLE CONFLICTS WITH EXCEL

The Company's Board of Directors consists of Gary B. Sabin, who is currently
Chairman, President and Chief Executive Officer of Excel and who serves in the
same positions with the Company, Richard B. Muir, who is currently Executive
Vice President and Secretary of Excel and who serves in the same positions with
the Company, Kelly D. Burt, who is currently Executive Vice
President--Development of the Company and who is not affiliated with Excel, John
H. Wilmot and Robert E. Parsons, Jr., who are currently directors of Excel, and
Richard J. Nordlund and Robert S. Talbott, who are not affiliated with Excel.
The executive officers of the Company include Mr. Sabin, Mr. Muir, Mr. Burt,
Graham R. Bullick, who is currently Senior Vice President--Capital Markets of
Excel and who serves in the same position with the Company, Ronald H. Sabin, who
is currently Senior Vice President--Asset Management of Excel and who serves in
the same position with the Company, David A. Lund, who is currently Chief
Financial

13
<PAGE>
Officer of Excel and who serves in the same position with the Company, S. Eric
Ottesen, who is currently Senior Vice President, General Counsel and Assistant
Secretary of Excel and who serves in the same positions with the Company, and
Mark T. Burton, who is currently Senior Vice President--Acquisitions of Excel
and who serves in the same position with the Company. See "MANAGEMENT." Other
than Mr. Burt, none of the members of management of the Company is committed to
spending a particular amount of time on the Company's affairs, nor do any of
them devote his full time to the Company. As a result of these dual roles, there
is the potential for a lack of management attention to the Company which could
have an adverse effect on the Company. Other than Mr. Burt, the members of
senior management of the Company do not receive a salary from the Company, but
instead receive payment from Excel based upon the amount of time spent on
Company matters pursuant to the Transitional Services Agreement (as hereinafter
defined). See "RELATIONSHIP BETWEEN THE COMPANY AND EXCEL--Transitional Services
Agreement."

The Company and Excel have entered into certain agreements providing for (i)
the orderly separation of the Company and Excel, (ii) the sharing of certain
facilities and services, and (iii) the allocation of certain tax and other
liabilities. Because the management of both the Company and Excel are largely
the same, conflicts may arise with respect to the operation and effect of these
agreements and relationships which could have an adverse effect on the Company
if not properly resolved. More specifically, members of the boards of directors
and senior management of the Company and Excel may be presented with conflicts
of interest with respect to certain matters affecting the Company and Excel,
such as the determination of which company may take advantage of potential
business opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on the Company's right to engage in certain activities or make
certain investments unless Excel was first offered the opportunity and declined
to pursue such activities or investments (as described below). In this regard,
the Company and Excel have adopted policies and procedures the Company believes
to be appropriate to be followed by the board of directors of each company to
address potential conflicts. Such procedures include requiring the persons
serving as directors of both companies to abstain from voting as directors with
respect to matters that present a significant conflict of interest between the
companies. In addition, the Company Certificate contains a specific purpose
clause which identifies at the outset which types of opportunities will be
pursued by the Company. This clause provides that the Company's purpose includes
performing the Intercompany Agreement, which prohibits the Company from engaging
in certain activities or making certain investments unless Excel was first
offered the opportunity and declined to pursue such activities or investments.
See "RELATIONSHIP BETWEEN THE COMPANY AND EXCEL-- Intercompany Agreement";
"--Policies and Procedures for Addressing Conflicts" and "THE EXCEL MERGER."

FAILURE OF EXCEL TO QUALIFY AS A REIT WOULD ALLOW EXCEL TO COMPETE WITH THE
COMPANY

The Company and Excel have entered into the Intercompany Agreement to
provide each other with rights to participate in certain transactions. See
"RELATIONSHIP BETWEEN THE COMPANY AND EXCEL--Intercompany Agreement." The
Intercompany Agreement prohibits the Company from engaging in certain activities
or making certain investments unless Excel was first offered the opportunity and
declined to pursue such activities and investments. As a REIT, Excel is required
to focus principally on investments in certain real estate assets and is
prevented from owning certain assets and conducting certain activities that
would be inconsistent with its status as a REIT. If Excel in the future should
fail to qualify as a REIT, it would thereafter have the ability to participate
in a broader range of investments and activities that are presented to it by the
Company under the Intercompany Agreement. As a result, Excel's ability to engage
in non-REIT activities could (i) significantly restrict the opportunities the
Company may pursue,

14
<PAGE>
and/or (ii) allow Excel to compete with the Company for non-REIT investments.
Accordingly, if Excel should fail to qualify as a REIT, that failure could have
a material adverse effect on the Company.

ABSENCE OF FUTURE FUNDING COMMITMENTS; NEED FOR FUTURE CAPITAL

The success of the Company's business strategy is dependent upon being able
to obtain significant amounts of equity capital and proceeds from borrowings on
terms financially advantageous to the Company. Currently the Company has no
external source of financing and the Company has not received any commitment
with respect to any funds needed in the future. The Company expects to be able
to access capital markets or to seek other financing, but there can be no
assurance that it will be able to do so at all or in amounts or on terms
acceptable to the Company. Failure to obtain such financing could result in the
delay or abandonment of some or all of the Company's acquisition and development
plans and could have a material adverse effect on the Company. In the absence of
such financing, there can be no assurance that the Company will have sufficient
working capital to finance future acquisitions or to pursue additional
opportunities. Excel currently is not obligated to provide any additional funds
to the Company or to assist it in obtaining additional financing.

DILUTION

The Company may from time to time raise additional capital from the issuance
and sale of equity securities. Any such issuances may significantly dilute the
interests of the existing holders of Company securities, including the Common
Stock and Series A Preferred Stock.

SHARES ELIGIBLE FOR FUTURE SALE

The 23,412,580 shares of Common Stock of the Company distributed to Excel
stockholders in the Spin-off are freely transferable, except for the shares
distributed to persons who may be deemed to be "affiliates" of the Company under
the Securities Act. Such affiliates are permitted to sell their shares of Common
Stock pursuant to Rule 144 under the Securities Act beginning 90 days after the
Spin-off, subject to certain volume limitations, manner of sale limitations,
notice requirements and the availability of current public information about the
Company. In addition, upon consummation of the Spin-off, (i) 9,195,224 shares of
Common Stock were purchased by certain of the Company's officers in a private
placement, (ii) 21,281,000 shares of Series A Preferred Stock were purchased by
the Selling Holders, which shares are convertible, on a one-for-one basis, by
the holders thereof at any time and by the Company under certain circumstances
(which conversion right has been exercised and will take effect on August 18,
1998 as described herein) into shares of Common Stock, and (iii) options to
purchase 3,100,000 shares of Common Stock were granted to the Company's
executive officers under the 1998 Stock Option Plan of Excel Legacy Corporation
(the "Legacy Stock Option Plan"). In May 1998, the Company issued to Mr. Burt
850,000 shares of Common Stock and options to purchase 300,000 shares of Common
Stock under the Legacy Stock Option Plan. See "MANAGEMENT--Legacy Stock Option
Plan"; "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" and "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK--Series A Preferred Stock." Shares of Common Stock
issued to Mr. Burt and issued in the private placement to the Company's officers
described in clause (i) above may be sold only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Rule 144. Shares of Series A Preferred Stock issued in the private placement
described in clause (ii) above and the Common Stock issuable upon conversion of
the Series A Preferred Stock will be freely transferable without restriction
immediately upon the effectiveness of the Registration Statement of which this
Prospectus is a part, subject, in the case of sales by affiliates, to compliance
with Rule 144. Shares issued pursuant to the exercise of options granted under
the Legacy Stock Option Plan will be freely transferable without restriction,
subject, in the case of sales by affiliates, to compliance with Rule 144.

15
<PAGE>

The Company is unable to estimate the number of shares of Series A Preferred
Stock or Common Stock, as applicable, that may be sold in the future by its
stockholders or the effect, if any, that sales of shares of Series A Preferred
Stock or Common Stock by such stockholders will have on the market price of the
Series A Preferred Stock and/or Common Stock prevailing from time to time. Sales
of substantial amounts of Series A Preferred Stock or Common Stock, or the
prospect of such sales, could adversely affect the market price of the Series A
Preferred Stock and/or Common Stock. The Company has exercised its right to
convert all of the outstanding shares of the Series A Preferred Stock into
Common Stock, which conversion will take place automatically on August 18, 1998.
See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK--Series A Preferred
Stock--CONVERSION RIGHTS."

16
<PAGE>
SELLING HOLDERS

The Series A Preferred Stock was originally issued and sold by the Company
to four holders reasonably believed by the Company to be "qualified
institutional buyers" as defined in Rule 144A under the Securities Act. The
Selling Holders may from time to time offer and sell pursuant to this Prospectus
any or all of the Series A Preferred Stock and shares of Common Stock issued
upon conversion thereof. The term "Selling Holder" includes the holders listed
below and the beneficial owners of the Series A Preferred Stock and their
transferees, pledgees, donees or other successors.

The following table sets forth information with respect to the Selling
Holders of the Series A Preferred Stock and the respective number of shares of
Series A Preferred Stock beneficially owned by each Selling Holder that may be
offered pursuant to this Prospectus. Such information has been obtained from the
Selling Holders and the Company's transfer agent.

<TABLE>
<CAPTION>
NUMBER OF SHARES OF
SERIES A PREFERRED
SELLING HOLDERS STOCK
- ---------------------------------------------------------------------- ----------------------
<S> <C>
Allstate Insurance Company............................................ 2,000,000
The Northwestern Mutual Life Insurance Company........................ 2,000,000
BancBoston Capital Inc................................................ 2,681,000
Longleaf Partners Realty Fund......................................... 14,600,000
</TABLE>

None of the Selling Holders has, or within the past three years has had, any
position, office or other material relationship with the Company or any of its
predecessors or affiliates, other than as set forth in "CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS--Private Placements." From time to time, certain
broker-dealers and their affiliates in the ordinary course of business may have
acquired or disposed of, or may in the future acquire or dispose of certain
securities of the Company or its affiliates, for their own accounts or for the
accounts of others. Because the Selling Holders may, pursuant to this
Prospectus, offer all or some portion of the Series A Preferred Stock or the
Common Stock issuable upon conversion of the Series A Preferred Stock, no
estimate can be given as to the amount of the Series A Preferred Stock or the
Common Stock issuable upon conversion of the Series A Preferred Stock that will
be held by the Selling Holders upon termination of any such sale. See "PLAN OF
DISTRIBUTION."

17
<PAGE>
PLAN OF DISTRIBUTION

The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker-dealers or
agents, which may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders, and any
underwriters, broker-dealers or agents that participate in the distribution of
Offered Securities, may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker-dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.

The Offered Securities may be sold from time to time in one or more
transactions at fixed prices (which may be changed), at prevailing market prices
at the time of sale, at varying prices determined at the time of sale or at
negotiated prices. The sale of the Offered Securities may be effected in
transactions (which may involve block transactions) (i) on any national
securities exchange or quotation service on which the Offered Securities may be
listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii)
in transactions other than on such exchanges or in the over-the-counter market
or (iv) through the writing of options. At the time a particular offering of the
Offered Securities is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of Offered
Securities being offered and the terms of the offering, including the name or
names of any underwriters, broker-dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed or paid to broker-
dealers. In addition, any of the Offered Securities which qualify for sale under
Rule 144 may be sold pursuant to Rule 144 rather than pursuant to this
Prospectus.

To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.

The Selling Holders will be subject to applicable provisions of the Exchange
Act and the rules and regulations thereunder, which provisions may limit the
timing of purchases and sales of any of the Offered Securities by the Selling
Holders. The foregoing may affect the marketability of such securities.

Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement") dated as of March 31, 1998, by and among the Company and the Selling
Holders, the Company shall bear all reasonable fees and expenses customarily
borne by issuers in a non-underwritten offering by selling security holders or
in an underwritten offering, as the case may be, incurred in connection with the
performance of its obligations under the Registration Rights Agreement;
provided, however, that the Selling Holders will pay all underwriting discounts
and selling commissions, if any. The Selling Holders and any underwriters,
broker-dealers or agents to or through whom the Offered Securities may be sold
will be indemnified by the Company against certain civil liabilities, including
certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.

USE OF PROCEEDS

The Selling Holders will receive all of the proceeds from any sale of the
Offered Securities. The Company will not receive any of the proceeds from the
sale of the Offered Securities. See "SELLING HOLDERS" and "PLAN OF
DISTRIBUTION."

18
<PAGE>

RATIO OF EARNINGS TO FIXED CHARGES

The Company was recently formed and had no earnings for any periods prior to
the three months ended April 30, 1998. Accordingly, the Company is unable to
compute any ratios of earnings to combined fixed charges and preferred stock
dividends for these periods. The ratio of earnings to fixed charges was 3.80 for
the three months ended April 30, 1998. There were no preferred stock dividends
through April 30, 1998.

For purposes of computing this ratio, earnings have been calculated by
adding fixed charges to income (loss) before real estate sales, income taxes and
extraordinary items. Fixed charges consist of interest costs, whether expensed
or capitalized, the interest component of rental expense, and amortization and
write-off of debt discounts and issue costs, whether expensed or capitalized.

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the OTC Bulletin Board under the symbol
"XLCY." The following table sets forth for the period indicated the high and low
reported sale prices per share for the Common Stock as reported by the OTC
Bulletin Board.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1998
Third Quarter (commencing March 31)..................................... $ 5.8750 $ 4.8750
Fourth Quarter (through August 11)...................................... 5.3125 4.1250
</TABLE>

The number of stockholders of record of the Common Stock on August 11, 1998
was 1,316. On August 11, 1998, the last reported sale price of the Common Stock
as reported by the OTC Bulletin Board was $4.125 per share.

DIVIDEND POLICY

The Company presently intends to retain future earnings to finance the
growth and development of its business; and, therefore, the Company does not
currently anticipate paying any cash dividends. Any future determination
relating to dividend policy will be made at the discretion of the Company's
Board of Directors. Such determinations will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
prospects of the Company, possible loan or financing covenant restrictions, and
such other factors as the Board of Directors may deem relevant. See "RISK
FACTORS--Dividend Policy."

19
<PAGE>
THE COMPANY

GENERAL

On March 31, 1998, Excel effected a spin-off of the Company through a
special dividend to the holders of common stock of Excel of all of the
outstanding Common Stock of the Company held by Excel. The Board of Directors of
Excel determined that it was in the best interests of Excel and its stockholders
to organize the Company to pursue opportunities available to those investors
that are not restricted by the Federal income tax laws governing REITs or
influenced by public market perception with regard to REIT securities, to
transfer to the Company certain real properties, notes receivable and related
assets and liabilities, and to spin-off the Company to the Excel stockholders.

To a large extent, public REITs, including Excel, manage their property
portfolios with consideration to both public market perceptions and tax laws.
Because investors are seeking a consistent and growing income stream from their
REIT investments, REITs are under constant pressure to (i) grow funds from
operations ("FFO"), and (ii) maintain a low leverage ratio (debt to total
capitalization, one measure used to determine the relative risk of that cash
flow stream, as rising interest rates can diminish FFO and impact dividends). As
a result, REITs have generally been hesitant to participate in long-term,
higher-risk development projects or to bring their leverage ratios to above
40.0%. In addition, the tax laws governing REITs include limitations on (i) the
types of assets that REITs may own and the time period that real estate may be
held, restricting REITs from investing in operating companies and equity and
debt securities, and participating in short-term trading opportunities, and (ii)
the ability of REITs to retain earnings, requiring REITs to distribute 95.0% of
net taxable income, excluding capital gains, each year. Further, because gains
on the sales of properties are not included in the calculation of FFO, REITs are
dissuaded from buying distressed assets which may have substantial long-term
appreciation potential but lack immediate cash flow.

In connection with the Spin-off, Excel transferred to the Company ten single
tenant properties owned by Excel with a March 31, 1998 book value of
approximately $45.7 million, a property under development with a book value of
approximately $14.4 million and a note receivable in the amount of approximately
$1.1 million and certain assets of EDV described below in exchange for
23,412,580 shares of Common Stock of the Company in order to effect the
Spin-off, a note payable from the Company to Excel in the amount of
approximately $26.4 million (which was repaid by the Company in April 1998), and
the assumption by the Company of indebtedness on the transferred properties in
the amount of approximately $36.4 million. Also in connection with the Spin-off,
EDV transferred to the Company four notes receivable, a leasehold interest in a
parcel of land, an office building and a single tenant property, in exchange for
the cancellation by Excel of approximately $38.1 million of EDV's outstanding
indebtedness to Excel. See "BUSINESS AND PROPERTIES--Properties" and "BUSINESS
AND PROPERTIES-- Notes."

The Company currently does not intend to qualify as a REIT under the Code.
Consequently, the Company has the flexibility to respond quickly to
opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. By not qualifying as a REIT under the Code (which would
require the Company to distribute each year at least 95.0% of its net taxable
income, excluding capital gains), the Company has the ability and currently
intends to retain for reinvestment its cash flow generated from operations and
to sell properties without the substantial income tax penalties which may be
imposed on REITs in such transactions. In addition, the Company differs from
real estate opportunity funds that are typically structured as private
partnerships. In that regard, the business of the Company is conducted without
the payment of acquisition, disposition or management fees to general partners
which should result in additional cash flow being available for reinvestment. In
addition, unlike investors in opportunity funds, the Company's stockholders have
voting rights and are expected to have enhanced liquidity through their ability
to sell or margin their stock. The Company also hopes to attract a broader range
of investors

20
<PAGE>
because there will be no stipulated investment minimum. However, unlike REITs
and opportunity funds, the Company is subject to corporate level taxation.

In connection with the Spin-off, the Company and Excel entered into the
Intercompany Agreement to provide each other with rights to participate in
certain transactions. In addition, the Company Certificate contains a specific
purpose clause which identifies at the outset which types of opportunities will
be pursued by the Company. This clause provides that the Company's purpose
includes performing the Intercompany Agreement, which prohibits, for so long as
the Intercompany Agreement remains in effect, the Company from engaging in
certain activities or making certain investments unless Excel was first offered
the opportunity and declined to pursue such activities or investments. See "RISK
FACTORS-- Possible Conflicts with Excel"; "RELATIONSHIP BETWEEN THE COMPANY AND
EXCEL-- Intercompany Agreement" and "THE EXCEL MERGER."

The Company was incorporated under the laws of Delaware on November 17,
1997. The Company's executive offices are located at 16955 Via Del Campo, Suite
100, San Diego, California 92127, and its telephone number is (619) 485-9400.

BUSINESS STRATEGY

In addition to the properties it received through the Spin-off, the Company
intends to pursue a variety of real estate related activities, including (i)
developing long-term, mixed-use development/entertainment projects that have the
potential for substantial capital gains but which may take three to five years
to fully develop, (ii) acquiring single tenant properties that can be highly
leveraged with fixed rate debt that amortizes over the term of the property's
tenant leases, (iii) purchasing portfolios of properties on a wholesale basis,
then selling the properties individually on a retail basis, (iv) investing in
properties requiring significant restructuring or redevelopment in order to
create substantial value, such as changing the use, tenant mix or focus of a
property, and (v) acquiring debt or equity securities in real estate operating
companies, including defaulted debt at a discount to the value of the underlying
asset securing the debt. Further, the Company will be able to manage the timing
of asset dispositions without regard to the minimum hold periods required of
REITs while also acquiring properties using substantial, yet prudent, leverage
to increase returns on what otherwise might be less attractive investments.
Subject to the provisions of the Intercompany Agreement, pursuant to which the
Company must provide Excel with rights to participate in certain transactions
(see "RELATIONSHIP BETWEEN THE COMPANY AND EXCEL--Intercompany Agreement" and
"THE EXCEL MERGER"), the Company does not intend to limit its investments in the
areas described above to certain sectors of the real estate market or certain
types of properties. See "POLICIES WITH RESPECT TO CERTAIN ACTIVITIES."

21
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

THE FOLLOWING IS A DISCUSSION OF CERTAIN INVESTMENT, FINANCING AND OTHER
POLICIES OF THE COMPANY. THESE POLICES HAVE BEEN DETERMINED BY THE COMPANY'S
BOARD OF DIRECTORS AND GENERALLY MAY BE AMENDED OR REVISED FROM TIME TO TIME BY
THE BOARD OF DIRECTORS WITHOUT A VOTE OF THE STOCKHOLDERS.

INVESTMENT POLICIES

INVESTMENTS IN REAL ESTATE

The Company intends to acquire, develop, own and manage a variety of real
estate related assets that offer return opportunities that are not generally
available to publicly traded REITs. As opportunities emerge and in response to
changes in market, real estate and general economic conditions, the Company may
in the future retract from, discontinue or expand its real estate related
business and activities.

DEVELOPMENT. The Company may from time to time undertake directly or
through joint venture financing long-term, large development projects that have
the potential for substantial gains but which may take three to five years to
fully develop, with particular emphasis on mixed-use retail entertainment
projects. To the extent the Company provides joint venture financing, the
developer will often bear the substantial portion of the economic risks
associated with the construction, development and initial rent-up of properties.
Under this financing method, the Company either may purchase the undeveloped
property and lease such property back to the developer or make a subordinated
loan to the developer and, upon completion, the Company would have the option to
purchase the development. The Company believes that these financing and
development activities will give the Company opportunities to purchase
properties at capitalization rates slightly above those which might otherwise be
available after completion of development. Since substantial value appreciation
from these investments is not immediately realized, many REITs substantially
limit their development activity. The Company believes that such investments
represent high return opportunities that are underutilized by REITs. For a
detailed discussion of the risks associated with these activities and
investments, see "RISK FACTORS--Acquisition, Development, Construction and
Renovation Activities."

ACQUIRING SINGLE TENANT PROPERTIES. The Company may from time to time seek
to acquire single tenant properties which can be highly leveraged with fixed
rate debt that amortizes over the term of the property's tenant leases, the
profits from which can be enhanced significantly when property-specific leverage
that carries an interest rate below the capitalization rate on the property is
utilized. Initially, the Company will seek to apply this business strategy to
retail and office properties. As opportunities arise, the Company may seek to
acquire other types of commercial properties, including industrial properties.
For a detailed discussion of the risks associated with these types of activities
and investments, see "RISK FACTORS--Potential Adverse Consequences of Debt
Financing."

PURCHASING PORTFOLIOS OF PROPERTIES ON A WHOLESALE BASIS. The Company may
from time to time seek to purchase portfolios of properties on a wholesale
basis, then sell such properties individually on a retail basis. The tax
regulations governing REITs discourage such short-term trading activity, causing
a REIT to lose its REIT status if it were to engage excessively in these
activities. Thus, the Company believes that there are abundant short-term
trading opportunities in the real estate markets that are not appropriate for
REITs and are therefore passed over by REITs in favor of other investments.

RESTRUCTURING AND REDEVELOPMENT IN ORDER TO CREATE SUBSTANTIAL VALUE. The
Company may from time to time engage in selective restructuring and development
activities such as changing the use, tenant mix or focus of a property, as
opportunities arise and when justified by expected returns. The Company believes
that appropriate, well-located properties which are currently underperforming
can be acquired on advantageous terms and repositioned through such selective
restructuring and development activities with the expectation of achieving
enhanced returns that are greater than returns which could be achieved by
acquiring a stabilized property. The Company also believes that these types of
properties are not attractive

22
<PAGE>
acquisition candidates for REITs because the properties have no or limited cash
flow as a result of required rehabilitation or not being substantially leased.
As a result, a REIT that is heavily dependent upon long-term restructuring or
redevelopment activities may have difficulty covering its mandatory dividends.
The Company also may acquire land for speculation, future development or
subdivision. For a detailed discussion of the risks associated with these
activities and investments, see "RISK FACTORS--Acquisition, Development,
Construction and Renovation Activities."

INVESTMENTS IN REAL ESTATE MORTGAGES

While the Company will emphasize equity real estate investment in properties
and the restructure and redevelopment of real estate properties, the Company may
invest in mortgages and other types of real estate interests. The Company may
invest in first or junior mortgages that may or may not by insured by a
governmental agency. The Company also may invest in participating or convertible
mortgages if the Company concludes that it may benefit from the cash flow and/or
any appreciation in the value of the property. Such mortgages may be similar to
equity participations. In addition, the Company may make mortgage loans or
participate in such loans.

SECURITIES OF OR INTERESTS IN ENTITIES PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES AND OTHER ISSUERS

The Company may from time to time acquire real estate related equity
securities or make loans that constitute, or invest in, real estate related
senior, junior or otherwise subordinated debt securities, which debt securities
may be unsecured or secured by liens on real estate or the economic benefits
thereof. Some of the entities in which the Company may invest may be start-up
companies or companies in need of additional capital. These investments may
contain options to acquire, or be convertible into the right to acquire, all or
a portion of the underlying real estate, or contain the right to participate in
the cash flow and economic return which may be derived from the real estate. In
determining whether to make a loan, the Company will consider whether the
borrower is willing to grant to the Company the right to acquire some or all of
the underlying real estate securing such loan, or the right to participate in
the cash flow and economic return which may be derived from such real estate.
Only if a borrower is willing to grant one or more such rights to the Company,
and the Company has satisfied itself after reasonable due diligence that the
risks associated with the proposed loan are acceptable, will the Company be
willing to make the loan.

Debt investments may include debt that is acquired at a discount, mezzanine
financing, commercial mortgage-backed securities, secured and unsecured lines of
credit, distressed loans, and loans previously made by foreign and other
financial institutions. In some cases the Company may only acquire a
participating interest in a debt security. The Company believes that there are
opportunities to acquire real estate debt securities, especially in the low or
below investment grade tranches, at significant returns as a result of
inefficiencies in pricing, while utilizing management's real estate expertise to
analyze the underlying properties and thereby effectively minimizing risk. The
Company also may provide credit enhancement or guarantees of the obligations of
others involved in real estate related activities, and may invest in
participating or convertible mortgages if the Company concludes that it may
benefit from the cash flow and/or any appreciation in the value of the property.
Such mortgages may be similar to equity participations. In addition, the Company
may make mortgage loans or participate in such loans and contemporaneously or
otherwise obtain related property purchase options.

Equity investments may include development projects directly or through
joint ventures (as described above), as well as the purchase of general or
limited partnership interests in limited partnerships, shares in publicly traded
or privately held corporations or interests in other entities that own real
estate, make real estate related loans, invest in real estate related debt
instruments or provide services or products to the real estate industry. The
Company intends to engage in active real estate businesses, which may include
land subdivisions, property sales and other businesses considered ineligible or
impractical investments for REITs. The Company also may hold real estate or
interests therein for investment. The Company may purchase substantially leased,
mostly unleased or vacant properties of any type or geographic location. The

23
<PAGE>

Company intends to renovate and re-lease the mostly unleased or vacant
properties. The Company also may purchase leasehold positions and sublease the
property.

In addition, the Company may in the future invest in retail, residential,
hotel and other types of properties and manage and lease properties owned by it
or in which it has an equity or debt investment. The activities described above
often do not generate immediate cash flow, and cash flow generated may be
nonrecurring. These investments may be subject to existing debt financing and
any such financing will have a priority over the equity interests of the
Company. For a detailed discussion of the risks associated with these types of
activities and investments, see "RISK FACTORS--Disadvantages of Investments in
Debt Instruments"; "--Limited Remedies Upon Default of Mortgage Loans";
"--Disadvantages of Investments in Commercial Mortgage-Backed Securities" and
"--Limitations on Remedies Upon Default."

PROACTIVE ASSET MANAGEMENT

Using real estate information management systems, commercially available
databases and spreadsheets and analyses provided by outside vendors, all of
which are available on a wide area network, the Company's management will
regularly monitor and evaluate each portfolio asset to identify properties which
can be sold or exchanged for optimal sales prices (or exchange values) given
prevailing market conditions and the particular characteristics of each
property. Through this strategy, the Company will seek to continually update its
core property portfolio by disposing of properties which have limited
appreciation potential and redeploy capital into newer properties or properties
where its aggressive management techniques may maximize property values. The
Company may engage from time to time in like-kind property exchanges (I.E., Code
Section 1031 exchanges) which will allow the Company to dispose of properties
and redeploy proceeds in a tax efficient manner. In addition to value
enhancement, the Company also will focus on the efficient management of cash and
maintaining strong operational cost controls.

The Company may utilize the experience of Excel and its nine regional
offices to provide property management for those assets acquired or developed.
By leveraging this franchise, the Company will have access to professional
management that emphasizes maintaining or creating high occupancy rates and
monitoring the physical condition of properties and the financial condition of
tenants.

FINANCING POLICIES

The Company will seek to finance its investments through both public and
private secured and unsecured debt financings, as well as public and private
placements of its equity securities. The equity securities will include both
common and preferred equity issuances of the Company. The Company does not have
a policy limiting the number or amount of mortgages that may be placed on any
particular property, but mortgage financing instruments usually limit additional
indebtedness on such properties. There are currently no restrictions on the
amount of debt that the Company may incur. See "RISK FACTORS--Potential Adverse
Consequences of Debt Financing."

The Company may seek variable rate financing from time to time if such
financing appears advantageous in light of then-prevailing market conditions. In
such case, the Company will consider hedging against interest rate risk through
interest rate protection agreements, interest rate swaps or other means. See
"RISK FACTORS--Hedging Policies/Risks."

The Company does not plan to distribute dividends for the foreseeable
future, which will permit it to accumulate for reinvestment cash flow from
investments, disposition of investments and other business activities. See "RISK
FACTORS--Dividend Policy" and "DIVIDEND POLICY."

24
<PAGE>
POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company does not intend to qualify as a REIT, but it may, from time to
time, invest in REITs and sell properties or entities to REITs for cash and/or
securities. Further, it may spin-off to its common stockholders shares of its
subsidiaries or shares of other entities it has acquired through the sale of its
properties, investments or otherwise. These spin-offs may involve the formation
of new entities and may be taxable or non-taxable, depending upon the facts and
circumstances.

The Company has not engaged in trading, underwriting or agency distribution
or sale of securities for other issuers and does not intend to do so. The
Company has no intention to repurchase shares of its capital stock from the
Company's stockholders, although it may do so in the future.

The Company is required to file reports and other information with the
Commission pursuant to the Exchange Act. In addition to applicable legal
requirements and the rules of the Commission, the Company will provide to its
stockholders annual reports containing audited financial statements with a
report thereon by the Company's independent certified public accountants.

The Company's policies with respect to all of the above activities may be
reviewed and modified from time to time by the Company's directors without
notice to or vote of its stockholders. See "RISK FACTORS--Changes in Policies
Without Stockholder Approval."

25
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS)

The following table sets forth selected financial data for the real estate
assets transferred from Excel and EDV to the Company and other assets (the
"Excel Legacy Corporation Asset Group") and should be read in conjunction with
the Combined Financial Statements of the Excel Legacy Corporation Asset Group
included elsewhere in this document. The financial data of the Excel Legacy
Corporation Asset Group as of and for the nine months ended April 30, 1998 and
1997, in the opinion of management, include all normal recurring adjustments for
a fair statement of the results for the interim periods. The financial data for
the each of the three years ended July 31, 1997, 1996 and 1995 and as of July
31, 1997 and 1996 are derived from the Excel Legacy Corporation Asset Group's
financial statements for similar periods, which are included elsewhere in this
Prospectus and have been audited by PricewaterhouseCoopers LLP. All of the other
financial data is unaudited.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED APRIL 30, YEAR ENDED JULY 31,
--------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
---------- --------- --------- --------- --------- --------- ---------
OPERATING DATA:
Total revenue............................ $ 6,822 $ 4,504 $ 6,395 $ 5,032 $ 5,897 $ 5,348 $ 2,064
Total operating expenses................. 3,871 3,312 4,565 4,513 4,603 4,034 1,806
Income before income taxes............... 2,951 1,192 1,830 519 1,294 1,314 258
Provision for income taxes............... 1,174 474 729 207 515 523 103
Net income............................... 1,777 718 1,101 312 779 791 155

BALANCE SHEET DATA (AT END OF PERIOD):
Real estate after accumulated
depreciation........................... $ 130,211 $ 60,591 $ 60,350 $ 61,048 $ 56,184 $ 57,191 $ 43,466
Total assets............................. 156,427 82,302 83,687 62,169 59,388 59,012 43,466
Mortgages payable........................ 36,283 35,564 35,115 36,754 38,224 39,590 36,351
Total liabilities........................ 51,709 35,795 35,343 37,007 38,485 39,915 36,600
Investment by Excel Realty Trust, Inc.... 104,718 47,416 48,344 25,162 20,903 19,097 6,866
</TABLE>

26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

NATURE OF BUSINESS

The Company was formed on November 17, 1997 and has a limited operating
history. The Company was organized to create and realize value by identifying
and making opportunistic real estate investments through the direct acquisition,
rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in such real estate businesses.

LIQUIDITY AND CAPITAL RESOURCES

In connection with the formation and capitalization of the Company, the
Company received approximately $11.1 million in cash and approximately $10.9
million in notes receivable from the sale of Common Stock to certain officers
and employees of the Company. In addition, the Company sold 21,281,000 shares of
Series A Preferred Stock for total net proceeds (after a placement fee of $2.4
million) of approximately $104.0 million. See "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS." At April 30, 1998, the Company had $40.0 million of cash
remaining after the cash requirements of the Spin-off, and real estate and other
investments made prior to April 30, 1998.

At April 30, 1998, the total debt of the Company consisted of the following:
(1) $26.0 million in mortgages on eight properties leased to Wal-Mart. These
mortgages are self-amortizing with the rent being paid by Wal-Mart directly to
the mortgage holders. The mortgages will be entirely repaid when the initial
terms of the leases with Wal-Mart expire. (2) $7.7 million in mortgages on two
properties leased to Lowe's. These mortgages are also self-amortizing over the
term of the leases with Lowe's and will be repaid when the leases expire. (3) A
$2.6 million mortgage securing an office building in Scottsdale, Arizona,
monthly payments on which are approximately $25,000 with a balloon payment in
the year 2006.

The Company has provided to AMC letters of credit on the construction of the
properties leased to AMC of which $14.6 million was outstanding at April 30,
1998. In May 1998 the Company borrowed approximately $37.0 million secured by
the two properties leased to AMC. These mortgages mature in the year 2018 with
fixed interest rates of 7.4% and 7.5% respectively and are fully amortizing over
the lease terms of 20 years.

The Company anticipates that cash flow from operations will be adequate to
meet the current cash requirements of its operating properties. The Company
expects to meet its long-term liquidity requirements, such as property
acquisitions and development, mortgage debt maturities, and other investment
opportunities, through the most advantageous sources of capital available to the
Company at the time, which may include the sale of common stock, preferred stock
or debt securities through public offerings or private placements, entering into
joint venture arrangements with financial partners, the incurrence of
indebtedness through secured or unsecured borrowings and the reinvestment of
proceeds from the disposition of assets.

In June 1998, the Company funded the initial approximately $20.0 million of
capital required to fund a joint venture, Millennia Car Wash, LLC which was
formed to acquire car wash properties. See "BUSINESS AND PROPERTIES--Other
Investments." The Company may also purchase additional assets and make such
capital expenditures from time to time in the future. Any such expenditures will
be contingent upon securing adequate funding on terms acceptable to the Company.
The Company is not aware of any material unfavorable trends in either capital
resources or the outlook for long-term cash generation.

RESULTS OF OPERATIONS FOR THE EXCEL LEGACY CORPORATION ASSET GROUP

The results of operations for the Excel Legacy Corporation Asset Group are
set forth below. See Excel Legacy Corporation Asset Group financial statements
at pages F-7 through F-16.

27
<PAGE>
COMPARISON OF THE YEAR ENDED JULY 31, 1997 TO THE YEAR ENDED JULY 31, 1996.

There was no change in rental revenue between the years ended July 31, 1997
and 1996.

INTEREST REVENUE for the year ended July 31, 1997 was approximately $1.5
million, an increase of 1435.0% over interest revenue of $95,000 for the year
ended July 31, 1996. The increase is primarily attributable to additional loans
made on the Los Arcos and First Street projects during the year.

INTEREST EXPENSE for the year ended July 31, 1997 was approximately $2.9
million, a decrease of 6.0% over interest expense of approximately $3.1 million
for the year ended July 31, 1996. The decrease is primarily attributable to
recurring principal payments on the mortgages on those properties occupied by
Wal-Mart and Lowe's.

ADMINISTRATIVE EXPENSES for the year ended July 31, 1997 were $799,000, an
increase of 42.0% over administrative expenses of $563,000 for the year ended
July 31, 1996. The increase is primarily attributable to salary and wage
expense.

THE PROVISION FOR INCOME TAXES for the year ended July 31, 1997 was
$729,000, an increase of 252.0% over income tax expense of $207,000 in the
comparable period in 1996. The increase is attributable to the increase in
income before taxes during the year.

COMPARISON OF THE YEAR ENDED JULY 31, 1996 TO THE YEAR ENDED JULY 31, 1995.

RENTAL REVENUE for the year ended July 31, 1996 was approximately $4.9
million, a decrease of 16.0% over rental revenue of approximately $5.9 million
for the year ended July 31, 1995. The decrease is attributable to the
reclassification of the Scottsdale Galleria from real estate to real estate
under development. As a result of the reclassification, costs to develop the
property, net of incidental revenues earned, are capitalized to the basis of the
property rather than recognized as revenue and expense.

INTEREST REVENUE for the year ended July 31, 1996 was $95,000, an increase
of 100.0% over interest revenue for the year ended July 31, 1995. The increase
is attributable to the initiation of the Los Arcos and First Street notes
receivable during the year.

INTEREST EXPENSE for the year ended July 31, 1996 was approximately $3.1
million, a decrease of 3.0% over interest expense of approximately $3.2 million
for the year ended July 31, 1995. The decrease is primarily attributable to
recurring principal payments on the mortgages on those properties occupied by
Wal-Mart and Lowe's.

ADMINISTRATIVE EXPENSES for the year ended July 31, 1996 were $563,000, an
increase of 3.0% over administrative expenses of $548,000 for the year ended
July 31, 1995. The increase is primarily attributable to salary and wage
expenses.

THE PROVISION FOR INCOME TAXES for the year ended July 31, 1996 was
$207,000, a decrease of 60.0% over income tax expense of $515,000 in the
comparable period in 1995. The decrease is attributable to the decrease in
income before taxes during the year.

RESULTS OF OPERATIONS FOR THE COMPANY

The results of operations for the Company are as set forth below. The
following discussion should be read in conjunction with the Financial Statements
and the Notes thereto. As the Company was not formed until November 17, 1997,
comparison results with 1997 are not provided. The results of operations for the
period from inception to April 30, 1998 are the same as the results of
operations for the three months ended April 30, 1998 as there were no
operational results prior to January 31, 1998.

28
<PAGE>

THREE MONTHS ENDED APRIL 30, 1998

RENTAL REVENUE was $1.0 million during the period. Ten single tenant
properties owned by the Company accounted for $0.4 million of rental revenue.
Additionally, construction on two properties leased to AMC was completed on
March 20, 1998 and April 3, 1998 and accounted for $0.5 million of revenue. The
remaining $0.1 million of rental revenue was attributable to three properties
located in Scottsdale, Arizona. The ten single tenant properties and three
properties located in Scottsdale, Arizona were acquired on March 31, 1998 and
reflect one month of operations.

INTEREST REVENUE was $0.3 million and primarily related to interest earned
on the Company's outstanding notes receivable which were acquired on March 31,
1998.

INTEREST EXPENSE was $0.3 million and primarily related to the $36.3 million
of mortgage debt outstanding at April 30, 1998 in addition to certain advances
made by Excel which were repaid in April 1998. The mortgage debt was assumed on
March 31, 1998.

DEPRECIATION EXPENSE totaled $0.3 million and related to the $88.1 million
of buildings and the $1.8 million of leasehold interests held by the Company at
April 30, 1998.

PROPERTY OPERATING EXPENSES were $0.1 million and primarily related to the
three properties located in Scottsdale, Arizona.

GENERAL AND ADMINISTRATIVE EXPENSES were $0.1 million in the three months
ended April 30, 1998. The general and administrative expenses include certain
costs charged to the Company in April 1998 by Excel pursuant to certain
agreements providing for the sharing of certain facilities and services.

THE PROVISION FOR INCOME TAXES was $0.2 million, all of which is current
expense.

29
<PAGE>

BUSINESS AND PROPERTIES

PROPERTIES

ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED HEREIN
THAT ADDRESS ACTIVITIES, EVENTS OR DEVELOPMENTS THAT THE COMPANY EXPECTS,
BELIEVES OR ANTICIPATES WILL OR MAY OCCUR IN THE FUTURE, INCLUDING SUCH MATTERS
AS EXPANSION AND OTHER DEVELOPMENT TRENDS OF THE REAL ESTATE INDUSTRY, BUSINESS
STRATEGIES, EXPANSION AND GROWTH OF THE COMPANY'S OPERATIONS AND OTHER SUCH
MATTERS ARE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE BASED ON CERTAIN
ASSUMPTIONS AND ANALYSES MADE BY THE COMPANY IN LIGHT OF ITS EXPERIENCE AND ITS
PERCEPTION OF HISTORICAL TRENDS, CURRENT CONDITIONS, EXPECTED FUTURE
DEVELOPMENTS AND OTHER FACTORS IT BELIEVES ARE APPROPRIATE. SUCH STATEMENTS ARE
SUBJECT TO A NUMBER OF ASSUMPTIONS, RISKS AND UNCERTAINTIES, INCLUDING GENERAL
ECONOMIC AND BUSINESS CONDITIONS, THE BUSINESS OPPORTUNITIES THAT MAY BE
PRESENTED TO AND PURSUED BY THE COMPANY, CHANGES IN LAWS OR REGULATIONS AND
OTHER FACTORS, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. SUCH
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ACTUAL RESULTS OR
DEVELOPMENTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING
STATEMENTS. See "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."

The table below sets forth certain pertinent information regarding the
properties owned by the Company. All information is presented as of March 31,
1998, unless otherwise indicated.

<TABLE>
<CAPTION>
TOTAL BASE
YEAR GLA RENTAL RENT PER LEASE
TENANT BUILT (SQ. FT) INCOME SQ. FT. EXPIRATION
--------- ----- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arizona
Scottsdale Galleria..................... (1) (1) (1) (1) (1) (1)
Scottsdale City Centre.................. (2) 1982 64,262 $1,087,190 $ 16.15 (3)
Scottsdale Towers (4)................... (4) (4) (4) (4) (4)
Brio Land............................... Brio 1975 3,700 104,314 28.19 2002
Grand Canyon............................ (5) (5) (5) (5) (5) (5)
California
Desert Fashion Plaza.................... (6) 1967 290,000 110,355 2.63 (7)
Rancho Bernardo......................... (8) (8) (8) (8) (8) (8)
San Diego............................... (9) (9) (9) (9) (9) (9)
Colorado
Brighton................................ Wal-Mart 1992 94,220 343,021 3.64 2008
Highlands Ranch......................... AMC 1998 110,000 2,413,000 21.94 2018
Telluride............................... (10) (10) (10) (10) (10) (10)
Westminster............................. AMC 1998 110,000 2,520,000 22.91 2018
Illinois
Orland Hills............................ Wal-Mart 1992 114,513 824,075 7.20 2009
Indiana
Decatur................................. Wal-Mart 1992 72,200 324,200 4.49 2009
Terre Haute............................. Lowe's 1993 104,259 557,786 5.36 2013
Wabash.................................. Wal-Mart 1992 93,465 374,604 4.01 2008
Michigan
Big Rapids.............................. Wal-Mart 1992 91,440 337,628 3.69 2008
Ohio
Middletown.............................. Lowe's 1993 126,400 650,000 5.14 2013
Pennsylvania
Wyomissing.............................. Wal-Mart 1992 115,092 679,668 5.91 2008
Texas
Temple.................................. Wal-Mart 1992 110,580 629,771 5.70 2008
Wisconsin
Berlin.................................. Wal-Mart 1992 59,097 218,017 3.69 2009
Winnipeg, Canada
Newport Centre.......................... (11) 1970 156,884 936,000 5.96 (12)
--------- ---------- ----------
Total................................. 1,716,112 $12,109,629 $ 7.05
--------- ---------- ----------
--------- ---------- ----------
</TABLE>

- ------------------------------

(1) Property is currently being redeveloped.

(2) Set forth below is a list of the tenants of the Scottsdale City Centre, in
each case followed by their approximate annual rent and square footage of
gross leasable area ("GLA"): Allied Waste Industries, Inc. ($96,000, 7,400
sq. ft.); American Airlines ($800, 450

30
<PAGE>
sq. ft.); American Nortel Communications ($1,800, 1,150 sq. ft.); Arizona
Subway Development ($2,400, 1,700 sq. ft.); BGNETLLC ($5,400, 3,500 sq.
ft.); CIC Systems, Inc. ($1,700, 1,100 sq. ft.); CLS International Travel
($1,800, 1,400 sq. ft.); Commerce International ($6,300, 4,300 sq. ft.);
Designlin Advertising Ltd. ($1,700, 1,500 sq. ft.); Duke Energy Trading &
Marketing ($830, 480 sq. ft.); Grand Canyon Title Agency ($2,400, 1,700 sq.
ft.); Greater Phoenix Enterprise ($4,400, 3,000 sq. ft.); Dr. Kevin Harris,
D.D.S. ($2,200, 1,500 sq. ft.); Idea Man, Inc. ($3,700, 2,700 sq. ft.);
Intercell Corporation ($6,100, 4,000 sq. ft.); Margrave, Celmins & Verber
($4,900, 3,800 sq. ft.); MBA Insurance Agency of Arizona, Inc. ($5,000,
3,300 sq. ft.); National Scientific Corporation ($3,300, 2,100 sq. ft.);
Noranda Properties ($2,000, 1,500 sq. ft.); Powers Unlimited ($1,700, 950
sq. ft.); RAS Management, Inc. ($96,000, 6,800 sq. ft.); Shurwest, Inc.
($4,000, 2,800 sq. ft.); Sports Tour Classics, Inc. ($4,700, 3,000 sq. ft.);
Trust Realty Advisors, Inc. (1,000, 600 sq. ft.); and VR Business
Brokers/Roth & Associates, Inc. ($2,300, 1,600 sq. ft.).

(3) Lease terms average two years. Eight leases expire in 1998, representing
approximately 13,500 square feet of GLA and approximately $214,000 in annual
rental income. Three leases expire in 1999, representing approximately
13,500 square feet of GLA and approximately $190,000 in annual rental
income. One lease expires in 2000, representing approximately 3,000 square
feet of GLA and approximately $56,000 in annual rental income. Six leases
expire in 2001, representing approximately 16,300 square feet of GLA and
approximately $200,000 in annual rental income. One lease expires in 2002,
representing approximately 3,300 square feet of GLA and approximately
$60,000 in annual rental income. One lease expires in 2003, representing
approximately 3,800 square feet of GLA and approximately $60,000 in annual
rental income. As of March 31, 1998, 14,743 square feet of GLA representing
20% of total GLA in Desert Fashion Plaza was vacant.

(4) Property consists of 3.6 acres of land and is currently being redeveloped.

(5) Property consists of 6.5 acres of land and is currently being redeveloped.

(6) Property was purchased in May 1998 and information presented here is as of
May 1998. Set forth below is a list of the tenants of Desert Fashion Plaza,
in each case followed by their approximate annual rent and square footage of
GLA: Saks Fifth Avenue ($167,400, 50,168 sq. ft.); The P'Nut Gallery
($12,000, 2,975 sq. ft.); Fun in the Sun Candy ($10,800, 671 sq. ft.); La
Mariposa ($28,128, 1,172 sq. ft.); Ann Taylor ($52,563, 2,503 sq. ft.);
Benjamin St. John ($6,000, 989 sq. ft.); Hyatt Regency Suites ($39,001,
2,889 sq. ft.); Don Vicent's ($36,000, 3,100 sq. ft.); Avalon Bay ($6,000,
984 sq. ft.); Hamburger Hamlet ($145,075, 8,273 sq. ft.); California Pizza
Kitchen ($118,072, 7,095 sq. ft.); Aussie Outfitters ($30,000, 2,179 sq.
ft.); Sharper Image ($61,848, 3,438 sq. ft.); Ted Land Shoes ($34,740, 3,600
sq. ft.); Savvy Shoes ($30,000, 3,110 sq. ft.); Dani C. ($18,000, 763 sq.
ft.); Metropolitan Theatres ($702,000, 42,543 sq. ft.); BBI ($15,700, 785
sq. ft.); Victoria's Secret ($16,947, 4,998 sq. ft.); The Alley ($32,000,
5,894 sq. ft.); and Trilussa Restaurant ($82,368, 9,564 sq. ft.).

(7) Lease terms average eleven years. Eight leases expire in 1998, representing
approximately 19,256 square feet of GLA and approximately $193,500 in annual
rental income. One lease expires in 1999, representing approximately 3,438
square feet of GLA and approximately $61,848 in annual rental income. No
leases expire in 2000. One lease expires in 2001, representing approximately
1,172 square feet of GLA and approximately $28,128 in annual rental income.
Two leases expire in 2002, representing approximately 6,710 square feet of
GLA and approximately $64,740 in annual rental income. As of May 28, 1998,
14,743 square feet of GLA representing 8% of total GLA in Desert Fashion
Plaza was vacant.

(8) Property consists of 11.1 acres of land and is to be redeveloped commencing
in September 1998.

(9) Property consists of two parcels of vacant land of 11.1 acres and 27,000
square feet, respectively. The Company is currently exploring development
plans for the property.

(10) Property consists of 0.25 acres of land and is currently being redeveloped.

(11) Property was purchased in May 1998 and information is presented as of May
1998. Set forth below is a list of the tenants of Newport Centre, in each
case followed by their approximate annual rent and square footage of GLA:
Bank of Montreal ($102,509, 27,983 sq. ft.); Rich McJannet ($3,636, 606 sq.
ft.); Guld Pullan ($1,362, 227 sq. ft.); Cantel ($95,241, 9,708 sq. ft.);
Cadillac Fairview ($125,573, 5,581 sq. ft.); Telespectrum ($87,534, 10,943
sq. ft.); Pullan, Guld Kamerloch ($28,359, 3,151 sq. ft.); Serge Radchuk
($3,934, 660 sq. ft.); Western Economic Diversity ($43,987, 5,526 sq. ft.);
Viewcall ($30,000, 6,000 sq. ft.); MPIC ($90,868, 11,430 sq. ft.); Financial
Collection ($25,541, 3,675 sq. ft.); Standard Life ($67,947, 6,177 sq. ft.);
Enterprise Property Group ($49,406, 7,109 sq. ft.); Asia Pacific ($7,061,
1,545 sq. ft.); Canadian Liver Foundation ($38,024, 4,753 sq. ft.); Winnipeg
Downtown ($12,672, 2,112 sq. ft.); MB Society of Seniors ($23,634, 4,297 sq.
ft.); Southport Law Group ($14,010, 2,335 sq. ft.); El Coredo ($12,796,
1,551 sq. ft.); Aetna Health Management ($12,615, 1,682 sq. ft.); Dowhan &
Dowhan ($10,568, 1,321 sq. ft.); Kravetsky, Hoeppner ($7,704, 994 sq. ft.);
and Sunridge Storage ($2,925, 585 sq. ft.).

(12) Lease terms average four years. Nine leases expire in 1998, representing
approximately 34,656 square feet of GLA and approximately $128,300 in annual
rental income. Eight leases expire in 1999, representing approximately
25,224 square feet of GLA and approximately $187,585 in annual rental
income. Nine leases expire in 2000, representing approximately 20,708 square
feet of GLA and approximately $154,466 in annual rental income. Five leases
expire in 2001, representing approximately 11,723 square feet of GLA and
approximately $42,615 in annual rental income. Two leases expire in 2002,
representing approximately 7,682 square feet of GLA and approximately
$42,615 in annual rental income. As of May 28, 1998, 22,732 square feet of
GLA representing 15% of total GLA in Newport Center was vacant.

31
<PAGE>
SCOTTSDALE GALLERIA

The Company acquired the Scottsdale Galleria (the "Scottsdale Galleria")
from Excel in connection with the Spin-off. The Scottsdale Galleria is situated
on approximately 6.3 acres and consists of (i) an enclosed shopping mall
contained in two separate buildings, and (ii) a multi-level parking garage. The
buildings and the parking garage are connected by a pedestrian bridge. The main
building (the "Atrium") is a four level building with a transparent glass roof
and has approximately 414,768 square feet of GLA. The smaller building contains
the "5th Avenue Shops" and has approximately 105,713 square feet of GLA.

The Scottsdale Galleria is located in the designated Waterfront
Redevelopment District, a high priority project for the City of Scottsdale which
will utilize the Arizona Canal as the main focal point with landscaped banks,
benches, walkways, bridges and stores lining the canal banks similar to San
Antonio's "Riverwalk." Other major points of interest in the area include the
Center for Performing Arts, Scottsdale Civic Center, Scottsdale Memorial
Hospital, Stetson Square, Scottsdale Fashion Square, Camelview Plaza and
Scottsdale Stadium (spring training home to the San Francisco Giants and their
affiliated Triple A farm club). The area is typified by single family
residences, hotels, commercial and multi-family uses and is going through a
growth and renovation cycle, of which the Waterfront Redevelopment District is
an integral part, with the older retail uses being remodeled as well as new
growth in the retail and apartment segments of the market. The City of
Scottsdale has issued a request for proposals ("RFP") for the redevelopment of
this area. Excel was granted the RFP and the right to redevelop this area, which
was transferred to the Company along with the Scottsdale Galleria.

Excel purchased the Scottsdale Galleria for approximately $11.0 million in
connection with a foreclosure of the property. The estimated fair market value
of the Scottsdale Galleria as of March 31, 1998 was approximately $25.0 million.
The Scottsdale Galleria has been the subject of various development plans since
the acquisition of the property, none of which has been financially feasible. In
connection with these previous development activities, most of the existing
tenant improvements and interior common area improvements were removed and sold.
Therefore, the majority of the Scottsdale Galleria's interior will need to be
re-improved in connection with any redevelopment of the property.

SCOTTSDALE CITY CENTRE

The Company acquired the Scottsdale City Centre, a 64,262 square foot office
building situated on approximately 2.5 acres in Scottsdale, Arizona (the "City
Centre"), from EDV in connection with the Spin-off. The City Centre originally
was purchased as an expansion site for the RFP associated with the Waterfront
Redevelopment District and the Scottsdale Galleria.

The purchase price for the City Centre was approximately $7.9 million of
which approximately $5.3 was paid in cash. The Company has assumed a loan with
approximately $2.6 million in outstanding principal (the "City Centre Loan").
The City Centre Loan bears interest at the rate of 8.125% per annum and matures
in February 2006. Any prepayment during the fourth through eighth years of the
City Centre Loan must be accompanied by a prepayment premium equal to a
percentage of the amount being prepaid, which percentage equals 5.0% in the
fourth year and decreases by 1.0% each year thereafter to a minimum 1.0%
prepayment premium. No prepayment premium must be paid during the final three
months of the loan. The Company also may prepay up to 10.0% (on a non-cumulative
basis) of the outstanding principal balance of the loan each year on the due
date of any monthly payment without incurring a prepayment premium. The City
Centre Loan must be repaid if the City Centre is sold.

The City Centre Loan is non-recourse and repayment of the loan by the
Company is secured by a first mortgage on the City Centre and an assignment of
the Company's rights in the leases in effect for the tenants of the City Centre.

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SCOTTSDALE TOWERS

The Company acquired approximately 3.6 acres of vacant land located in
Scottsdale, Arizona (the "Scottsdale Towers") from EDV in connection with the
Spin-off. EDV purchased the property in March 1998 for approximately $3.6
million as an expansion site for the RFP associated with the Waterfront
Redevelopment District and the Scottsdale Galleria. The Scottsdale Towers are
located in three sections, which are adjacent to the Scottsdale Galleria and the
Brio Land.

BRIO LAND

The Company acquired approximately 0.5 acres of land located in Scottsdale,
Arizona (the "Brio Land") from EDV in connection with the Spin-off. EDV purchase
the Brio Land in November 1997 as an expansion site for the RFP associated with
the Waterfront Redevelopment District and the Scottsdale Galleria. The Brio Land
currently contains a 3,700 square foot building which is leased to the Brio
Restaurant. The Brio Restaurant's annual rent is approximately $104,000, under a
lease that expires in May 2002. The seller originally entered into a purchase
contract to sell the Brio Land to Emerald Equities, L.L.C. for approximately
$1.6 million. EDV subsequently acquired Emerald Equities' interest in the
purchase contract for $100,000. The total purchase price paid by EDV for the
Brio Land thus totaled approximately $1.6 million, all of which was paid in
cash.

GRAND CANYON PROPERTY

The Company acquired a leasehold interest in approximately 6.5 acres of land
located in Tusayan, Arizona at the entrance to Grand Canyon National Park on the
South Rim (the "Grand Canyon Property") from Excel in connection with the
Spin-off. Excel acquired the leasehold interest in November 1997 for
approximately $1.8 million. In November 1997, the original lease was terminated
and replaced with a new land lease (the "New Lease") with a term of 50 years and
two-ten year renewal options. The New Lease encompasses both the Grand Canyon
Property and an adjacent parcel consisting of approximately 3.5 acres currently
owned by Red Feather Properties Limited Partnership. Red Feather Properties
Limited Partnership and the Company have formed a joint venture, Grand Tusayan
LLC, to enter into the New Lease and the Company invested a total of $8.7
million in joint venture in May and June, 1998. In July 1998, Grand Tusayan LLC
completed construction of a 120-room hotel on the property. The Company holds
65% of the ownership interest in Grand Tusayan LLC and is entitled to a 12%
preferred rate of return on any funds it directly invests in the joint venture.

DESERT FASHION PLAZA

In May 1998, the Company acquired a 100% interest in Desert Fashion Plaza,
L.L.C., a Delaware limited liability company which owns an urban mall located in
Palm Springs, California (the "Desert Fashion Plaza") for a total purchase price
of approximately $13.3 million. The Desert Fashion Plaza contains approximately
270,000 square feet of GLA and presently has two anchor tenant spaces, leased by
Saks Fifth Avenue and I. Magnin, and approximately 80 small shop tenant spaces.
The property was purchased as a redevelopment opportunity. The plans for the
Desert Fashion Plaza include demolishing an 18,000 square foot vacant building
on an outparcel and rebuilding a 12,000 square foot building which could be
leased to a restaurant operator. The I. Magnin space, which is currently vacant
(43,000 sq. ft.), will also be demolished and replaced with a movie theater. The
Company intends to remodel the remainder of the mall into an open air
entertainment/restaurant/retail center and expand it to approximately 315,000
square feet.

RANCHO BERNARDO, CALIFORNIA

In March 1998, the Company purchased approximately 11.1 acres of land
located in the community of Rancho Bernardo in San Diego, California for
approximately $4.0 million. On approximately 8.0 acres of this site (which is
the final piece of undeveloped land zoned for such use within this community),
the

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Company intends to construct and develop a build-to-suit research and
development office complex for a single-user, hi-tech, electronics manufacturer.
The Company intends to commence construction of the complex in September 1998.
The complex is expected to include a single building containing approximately
100,000 square feet and to be constructed for a cost of approximately $11.8
million. The Company will retain the remaining approximately 3.0 acres for
future development.

SAN DIEGO, CALIFORNIA

The Company owns two parcels of vacant land located in San Diego, California
(together the "San Diego Land"). The Company acquired approximately 27,000
square feet of vacant land from EDV in connection with the Spin-off. EDV
purchased such property in February 1998 for approximately $1.8 million. In
March 1998 the Company also acquired approximately 1.4 acres of vacant land for
a total purchase price of $1.7 million. The Company is currently exploring
development plans for the San Diego Land.

BRIGHTON, COLORADO

The Company acquired a 94,220 square foot building situated on approximately
12.8 acres in Brighton, Colorado (the "Brighton Property") from Excel in
connection with the Spin-off. Excel purchased the Brighton Property in December
1992.

The Brighton Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $343,000, under a lease that
expires in January 2008. Wal-Mart's lease is a triple net lease and all property
taxes on the Brighton Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $200,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to the Company a
percentage rent equal to 1.0% of the amount by which Wal-Mart's gross sales at
the Brighton Property exceed $590 per square foot of the store building under
roof.

Wal-Mart has a right of first refusal to purchase the Brighton Property from
the Company if the Company receives an "acceptable bona fide offer to buy" or if
the Company offers to sell the property on the terms of such offer.

The purchase price for the Brighton Property was approximately $3.6 million.
Approximately $500,000 of the purchase price was paid in cash, and Excel assumed
a loan with approximately $3.0 million in outstanding principal (the "Brighton
Loan"), which was subsequently assumed by the Company. As part of the purchase
price, Excel also issued shares of its common stock with an aggregate value of
approximately $103,000. The Brighton Loan is self-amortizing, bears interest at
the rate of 7.1595% per annum and matures in January 2008. The Brighton Loan is
prepayable only in full and then only after April 10, 2000, and must be repaid
if the Brighton Property is sold. Under certain circumstances, prepayment of the
loan must be accompanied by a yield maintenance payment.

The Brighton Loan is non-recourse and repayment of the loan by the Company
is secured by a first mortgage on the Brighton Property and an assignment of the
Company's rights in the Wal-Mart lease.

HIGHLANDS RANCH AND WESTMINSTER, COLORADO

In January 1998, the Company acquired two properties currently under
construction situated on approximately 43.6 acres in Highlands Ranch and
Westminster, Colorado.

The acquired properties consist of two 110,000 square foot 24 screen movie
theaters, which were completed in March and April 1998. The Highlands Ranch
theater contains 4,850 seats and the Westminster theater contains 5,100 seats.
Both properties are occupied by AMC. The leases are guaranteed by AMC's parent
corporation, AMC Entertainment, Inc. Each of the leases has a 20-year term. For
the first ten years of the lease terms, AMC's annual rent is approximately $2.4
million for the Highlands Ranch theater and $2.5 million for the Westminster
theater. For the eleventh through fifteenth years of the lease

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terms, AMC's annual rent is approximately $2.7 million for the Highlands Ranch
theater and $2.8 million for the Westminster theater. For the final five years
of the lease terms, AMC's annual rent is approximately $2.9 million for the
Highlands Ranch theater and $3.0 million for the Westminster theater. The AMC
leases are triple net leases and all property taxes on the Highlands Ranch and
Westminster properties are paid by AMC. AMC has an option to extend the term of
each lease for six consecutive periods of five years. The annual rent will
increase by approximately $300,000 to $400,000 for each option term from
approximately $3.2 million during the first option term to $5.2 million during
the sixth option term for the Highlands Ranch theater and from approximately
$3.4 million during the first option term to $5.4 million during the sixth
option term for the Westminster theater.

The aggregate purchase price and cost to complete construction of the
theaters was approximately $50.0 million, which consisted of approximately $37.0
million in mortgage debt and approximately $13.0 million in cash.

TELLURIDE, COLORADO

In January 1998, the Company acquired approximately 0.25 acres of land
located at the base of Telluride mountain in Telluride Mountain Village Ski
Resort in Telluride, Colorado for approximately $763,000. The Company intends to
develop a "ski-in" condominium development comprised of 23 units on the
property. The construction of the project will require a $6.0 million
construction loan and is expected to be completed during the summer of 1999.

ORLAND HILLS, ILLINOIS

The Company acquired a 114,513 square foot building situated on
approximately 11.9 acres in Orland Hills, Illinois (the "Orland Hills Property")
from Excel in connection with the Spin-off. Excel purchased the Orland Hills
Property in March 1993.

The Orland Hills Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $824,000, under a lease that
expires in January 2009. Wal-Mart's lease is a triple net lease and all property
taxes on the Orland Hills Property are paid by Wal-Mart. Wal-Mart has an option
to extend the term of the lease for seven consecutive periods of five years each
at an annual rent of approximately $490,000. During the option terms, in
addition to the annual rent as described above, Wal-Mart will pay to the Company
a percentage rent equal to 1.0% of the amount by which Wal-Mart's gross sales at
the Orland Hills Property exceed $590 per square foot of the store building
under roof.

Wal-Mart has a right of first refusal to purchase the Orland Hills Property
from the Company if the Company receives an "acceptable bona fide offer to buy"
or if the Company offers to sell the property on the terms of such offer.

The purchase price for the Orland Hills Property was $8.8 million.
Approximately $1.2 million of the purchase price was paid in cash, and Excel
assumed approximately $7.3 million in existing bond financing which was obtained
through the sale of investment grade rated commercial mortgage pass-through
certificates in a real estate mortgage investment conduit ("REMIC") (the "Orland
Hills Loan"), which was subsequently assumed by the Company. As part of the
purchase price, Excel also issued shares of its common stock with an aggregate
value of approximately $300,000. The notes representing the Orland Hills Loan
bear interest at different rates that equate to a weighted average interest rate
of approximately 8.18% per annum. The Orland Hills Loan is self-amortizing and
matures in January 2009. The Orland Hills Loan is prepayable only in full and
must be repaid if the Orland Hills Property is sold. Under certain
circumstances, prepayment of the loan must be accompanied by a yield maintenance
payment, which will be no greater than 1.0% of the outstanding principal amount
of the Orland Hills Loan at the time of prepayment.

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The Orland Hills Loan is non-recourse and repayment of the loan by the
Company is secured by a first mortgage on the Orland Hills Property and an
assignment of the Company's rights in the Wal-Mart lease.

DECATUR, INDIANA

The Company acquired a 72,200 square foot building situated on approximately
11.4 acres in Decatur, Indiana (the "Decatur Property") from Excel in connection
with the Spin-off. Excel purchased the Decatur Property in December 1992.

The Decatur Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $324,000, under a lease that
expires in January 2009. Wal-Mart's lease is a triple net lease and all property
taxes on the Decatur Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $190,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to the Company a
percentage rent equal to 1.0% of the amount by which Wal-Mart's gross sales at
the Decatur Property exceed $590 per square foot of the store building under
roof.

Wal-Mart has a right of first refusal to purchase the Decatur Property from
the Company if the Company receives an "acceptable bona fide offer to buy" or if
the Company offers to sell the property on the terms of such offer.

The purchase price for the Decatur Property was $3.4 million. Approximately
$400,000 of the purchase price was paid in cash, and Excel assumed approximately
$2.9 million in existing bond financing which was obtained through the sale of
investment grade rated commercial mortgage pass-through certificates in a REMIC
(the "Decatur Loan"), which was subsequently assumed by the Company. As part of
the purchase price, Excel also issued shares of its common stock with an
aggregate value of approximately $100,000. The notes representing the Decatur
Loan bear interest at different rates that equate to a weighted average interest
rate of approximately 8.18% per annum. The Decatur Loan is self-amortizing and
matures in January 2009. The Decatur Loan is prepayable only in full and must be
repaid if the Decatur Property is sold. Under certain circumstances, prepayment
of the loan must be accompanied by a yield maintenance payment, which will be no
greater than 1.0% of the outstanding principal amount of the Decatur Loan at the
time of prepayment.

The Decatur Loan is non-recourse and repayment of the loan by the Company is
secured by a first mortgage on the Decatur Property and an assignment of the
Company's rights in the Wal-Mart lease.

TERRE HAUTE, INDIANA

The Company acquired a 104,259 square foot building situated on
approximately 10.8 acres in Terre Haute, Indiana (the "Terre Haute Property")
from Excel in connection with the Spin-off. Excel purchased the Terre Haute
Property in June 1993.

The Terre Haute Property is a single free-standing building occupied by
Lowe's. Lowe's annual rent is approximately $557,000, under a lease that expires
in January 2013. Lowe's lease is a triple net lease and all property taxes on
the Terre Haute Property are paid by Lowe's. Lowe's has an option to extend the
term of the lease for six consecutive periods of five years each. During the
first two option terms, the annual rent will be approximately $586,000. During
the third and fourth option terms, the annual rent will be approximately
$615,000. During the final two option terms, the annual rent will be
approximately $646,000. During the option terms, in addition to the annual rent
as described above, Lowe's will pay to the Company a percentage rent equal to
1.0% of Lowe's gross sales at the Terre Haute Property between $55.8 million and
$65.8 million and 0.5% of Lowe's gross sales at the Terre Haute Property in
excess of $65.8 million. The percentages set forth above as well as the
thresholds are subject to upward adjustment in accordance with any increases in
rent during the option terms.

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<PAGE>
The purchase price for the Terre Haute Property was approximately $5.3
million. Approximately $1.0 million of the purchase price was paid in cash, and
Excel assumed a loan with approximately $4.0 million in outstanding principal
(the "Terre Haute Loan"), which was subsequently assumed by the Company. As part
of the purchase price, Excel also issued shares of its common stock with an
aggregate value of approximately $300,000. The Terre Haute Loan bears interest
at the rate of 8.75% per annum and matures in June 2003. The Terre Haute Loan
must be repaid if the Terre Haute Property is sold. Any prepayment during the
sixth through ninth years of the Terre Haute Loan must be accompanied by a
prepayment premium equal to a percentage of the amount being prepaid, which
percentage equals 5.0% in the sixth year and decreases by 1.0% each year
thereafter. No prepayment premium must be paid during the final three months of
the loan.

The Terre Haute Loan is non-recourse and repayment of the loan by the
Company is secured by a first mortgage on the Terre Haute Property and an
assignment of the Company's rights in the Lowe's lease.

WABASH, INDIANA

The Company acquired a 93,465 square foot building situated on approximately
10.9 acres in Wabash, Indiana (the "Wabash Property") from Excel in connection
with the Spin-off. Excel purchased the Wabash Property in December 1992.

The Wabash Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $375,000, under a lease that expires in
January 2008. Wal-Mart's lease is a triple net lease and all property taxes on
the Wabash Property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $220,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to the Company a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the Wabash
Property exceed $590 per square foot of the store building under roof.

Wal-Mart has a right of first refusal to purchase the Wabash Property from
the Company if the Company receives an "acceptable bona fide offer to buy" or if
the Company offers to sell the property on the terms of such offer.

The purchase price for the Wabash Property was $3.9 million. Approximately
$200,000 of the purchase price was paid in cash, and Excel assumed a loan with
approximately $3.7 million in outstanding principal (the "Wabash Loan"), which
was subsequently assumed by the Company. The Wabash Loan bears interest at the
rate of 7.1595% per annum and matures in January 2008. The Wabash Loan is
prepayable only in full and then only after April 10, 2000, and must be repaid
if the Wabash Property is sold. Under certain circumstances, prepayment of the
loan must be accompanied by a yield maintenance payment.

The Wabash Loan is non-recourse and repayment of the loan by the Company is
secured by a first mortgage on the Wabash Property and an assignment of the
Company's rights in the Wal-Mart lease.

BIG RAPIDS, MICHIGAN

The Company acquired a 91,440 square foot building situated on approximately
17.1 acres in Big Rapids, Michigan (the "Big Rapids Property") from Excel in
connection with the Spin-off. Excel purchased the Big Rapids Property in
December 1992.

The Big Rapids Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $338,000, under a lease that
expires in January 2008. Wal-Mart's lease is a triple net lease and all property
taxes on the Big Rapids Property are paid by Wal-Mart. Wal-Mart has an option to
extend the term of the lease for seven consecutive periods of five years each at
an annual rent of approximately $200,000. During the option terms, in addition
to the annual rent as described above, Wal-Mart will pay to the Company a
percentage rent equal to 1.0% of the amount by which Wal-Mart's gross sales at
the Big Rapids Property exceed $590 per square foot of the store building under
roof.

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Wal-Mart has a right of first refusal to purchase the Big Rapids Property
from the Company if the Company receives an "acceptable bona fide offer to buy"
or if the Company offers to sell the property on the terms of such offer.

The purchase price for the Big Rapids Property was approximately $3.5
million. The purchase price included no cash. Excel assumed a loan with
approximately $3.4 million in outstanding principal (the "Big Rapids Loan"),
which was subsequently assumed by the Company. As part of the purchase price,
Excel also issued shares of its common stock with an aggregate value of
approximately $100,000. The Big Rapids Loan bears interest at the rate of
7.1595% per annum and matures in January 2008. The Big Rapids Loan is prepayable
only in full and then only after April 10, 2000, and must be repaid if the Big
Rapids Property is sold. Under certain circumstances, prepayment of the loan
must be accompanied by a yield maintenance payment.

The Big Rapids Loan is non-recourse and repayment of the loan by the Company
is secured by a first mortgage on the Big Rapids Property and an assignment of
the Company's rights in the Wal-Mart lease.

MIDDLETOWN, OHIO

The Company acquired a 126,400 square foot building situated on
approximately 15.7 acres in Middletown, Ohio (the "Middletown Property") from
Excel in connection with the Spin-off. Excel purchased the Middletown Property
in February 1994.

The Middletown Property is a single free-standing building occupied by
Lowe's. Lowe's annual rent is approximately $650,000, under a lease that expires
in January 2013. Lowe's lease is a triple net lease and all property taxes on
the Middletown Property are paid by Lowe's. Lowe's has an option to extend the
term of the lease for six consecutive periods of five years each. During the
first two option terms, the annual rent will be approximately $715,000. During
the third and fourth option terms, the annual rent will be approximately
$750,000. During the final two option terms, the annual rent will be
approximately $790,000. During the option terms, in addition to the annual rent
as described above, Lowe's will pay to the Company a percentage rent equal to
1.0% of Lowe's gross sales at the Middletown Property between $65.0 million and
$75.0 million and 0.5% of Lowe's gross sales at the Middletown Property in
excess of $75.0 million. The percentages set forth above as well as the
thresholds are subject to upward adjustment in accordance with any increases in
rent during the option terms.

The purchase price for the Middletown Property was approximately $6.2
million. Approximately $1.5 million of the purchase price was paid in cash, and
Excel assumed a loan with approximately $4.4 million in outstanding principal
(the "Middletown Loan"), which was subsequently assumed by the Company. As part
of the purchase price, Excel also issued shares of its common stock with an
aggregate value of approximately $300,000. The Middletown Loan bears interest at
the rate of 7.625% per annum and matures in March 2014. The Middletown Loan is
prepayable only in full and then only after April 1, 1999, and must be repaid if
the Middletown Property is sold. Under certain circumstances, prepayment of the
loan must be accompanied by a yield maintenance payment, which will be no
greater than 1.0% of the outstanding principal amount of the Middletown Loan at
the time of prepayment. No prepayment premium must be paid after July 2013.

The Middletown Loan is non-recourse and repayment of the loan by the Company
is secured by a first mortgage on the Middletown Property and an assignment of
the Company's rights in the Lowe's lease.

WYOMISSING, PENNSYLVANIA

The Company acquired a 115,092 square foot building situated on
approximately 3.5 acres in Wyomissing, Pennsylvania (the "Wyomissing Property")
from Excel in connection with the Spin-off. Excel purchased the Wyomissing
Property in December 1992.

The Wyomissing Property is a single free-standing building occupied by
Wal-Mart. Wal-Mart's annual rent is approximately $680,000, under a lease that
expires in January 2008. Wal-Mart's lease is a triple net

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lease and all property taxes on the Wyomissing Property are paid by Wal-Mart.
Wal-Mart has an option to extend the term of the lease for seven consecutive
periods of five years each at an annual rent of approximately $400,000. During
the option terms, in addition to the annual rent as described above, Wal-Mart
will pay to the Company a percentage rent equal to 1.0% of the amount by which
Wal-Mart's gross sales at the Wyomissing Property exceed $590 per square foot of
the store building under roof.

Wal-Mart has a right of first refusal to purchase the Wyomissing Property
from the Company if the Company receives an "acceptable bona fide offer to buy"
or if the Company offers to sell the property on the terms of such offer.

The purchase price for the Wyomissing Property was approximately $7.1
million. Approximately $100,000 of the purchase price was paid in cash, and
Excel assumed a loan with approximately $6.8 million in outstanding principal
(the "Wyomissing Loan"), which was subsequently assumed by the Company. As part
of the purchase price, Excel also issued shares of its common stock with an
aggregate value of approximately $200,000. The Wyomissing Loan bears interest at
the rate of 7.9195% per annum and matures in January 2008. The Wyomissing Loan
is prepayable only in full and then only after April 10, 2000, and must be
repaid if the Wyomissing Property is sold. Under certain circumstances,
prepayment of the loan must be accompanied by a yield maintenance payment.

The Wyomissing Loan is non-recourse and repayment of the loan by the Company
is secured by a first mortgage on the Wyomissing Property and an assignment of
the Company's rights in the Wal-Mart lease.

TEMPLE, TEXAS

The Company acquired a 110,580 square foot building situated on
approximately 16.5 acres in Temple, Texas (the "Temple Property") from Excel in
connection with the Spin-off. Excel purchased the Temple Property in December
1992.

The Temple Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $630,000, under a lease that expires in
January 2008. Wal-Mart's lease is a triple net lease and all property taxes on
the Temple Property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $370,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to the Company a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the Temple
Property exceed $590 per square foot of the store building under roof.

Wal-Mart has a right of first refusal to purchase the Temple Property from
the Company if the Company receives an "acceptable bona fide offer to buy" or if
the Company offers to sell the property on the terms of such offer.

The purchase price for the Temple Property was approximately $5.8 million.
None of the purchase price was paid in cash. Excel assumed a loan with
approximately $5.6 million in outstanding principal (the "Temple Loan"), which
was subsequently assumed by the Company. As part of the purchase price, Excel
also issued shares of its common stock with an aggregate value of approximately
$200,000. The Temple Loan bears interest at the rate of 7.1595% per annum and
matures in January 2008. The Temple Loan is prepayable only in full and then
only after April 10, 2000, and must be repaid if the Temple Property is sold.
Under certain circumstances, prepayment of the loan must be accompanied by a
yield maintenance payment.

The Temple Loan is non-recourse and repayment of the loan by the Company is
secured by a first mortgage on the Temple Property and an assignment of the
Company's rights in the Wal-Mart lease.

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BERLIN, WISCONSIN

The Company acquired a 59,097 square foot building situated on approximately
7.6 acres in Berlin, Wisconsin (the "Berlin Property") from Excel in connection
with the Spin-off. Excel purchased the Berlin Property in December 1992.

The Berlin Property is a single free-standing building occupied by Wal-Mart.
Wal-Mart's annual rent is approximately $220,000, under a lease that expires in
January 2009. Wal-Mart's lease is a triple net lease and all property taxes on
the Berlin property are paid by Wal-Mart. Wal-Mart has an option to extend the
term of the lease for seven consecutive periods of five years each at an annual
rent of approximately $130,000. During the option terms, in addition to the
annual rent as described above, Wal-Mart will pay to the Company a percentage
rent equal to 1.0% of the amount by which Wal-Mart's gross sales at the Berlin
Property exceed $590 per square foot of the store building under roof.

Wal-Mart has a right of first refusal to purchase the Berlin Property from
the Company if the Company receives an "acceptable bona fide offer to buy" or if
the Company offers to sell the property on the terms of such offer.

The purchase price for the Berlin Property was approximately $2.3 million.
None of the purchase price was paid in cash. Excel assumed approximately $2.2
million in existing bond financing which was obtained through the sale of
investment grade rated commercial mortgage pass-through certificates in a REMIC
(the "Berlin Loan"), which was subsequently assumed by the Company. As part of
the purchase price, Excel also issued shares of its common stock with an
aggregate value of approximately $100,000. The notes representing the Berlin
Loan bear interest at different rates that equate to a weighted average interest
rate of approximately 8.18% per annum. The Berlin Loan is self-amortizing and
matures in January 2009. The Berlin Loan is prepayable only in full and must be
repaid if the Berlin Property is sold. Under certain circumstances, prepayment
of the loan must be accompanied by a yield maintenance payment, which will be no
greater than 1.0% of the outstanding principal amount of the Berlin Loan at the
time of prepayment.

The Berlin Loan is non-recourse and repayment of the loan by the Company is
secured by a first mortgage on the Berlin Property and an assignment of the
Company's rights in the Wal-Mart lease.

NEWPORT CENTRE

In May 1998, the Company indirectly acquired a 50% interest in a 156,000
square foot, 17-story office building and a 2,500 square foot, two-story retail
building (the "Newport Centre"). As of the date of the purchase, the net income
of the property was approximately $637,000 with a vacancy of approximately 18%.
The Company believes that certain of the leases in the Newport Centre are under
market and that re-leasing may be successful at higher rates. The strategy for
the Newport Centre is to take advantage of the tight real estate market in
Winnipeg by increasing rental rates, leasing the vacant space and eventually
selling the property.

The Newport Centre was purchased for approximately $6.2 million by 3017977
Nova Scotia Company ("Nova Scotia Company"), a Nova Scotia unlimited liability
company of which the Company has a 50% ownership interest. In connection with
the purchase of the Newport Centre, the Company loaned $5.7 million to Nova
Scotia Company (the "Newport Centre Loan") as an interim funding mechanism until
the borrower obtains other financing. The Newport Centre Loan is non-recourse
and repayment of the loan is secured by a first priority lien on the Newport
Centre which the Company has agreed to subordinate to any acquisition financing
obtained by Nova Scotia Company. The Newport Centre Loan was originated in May
1998 and matures on May 13, 1999. The Newport Centre Loan may be prepaid in
whole or in part at any time. Until the maturity date, the borrower is to pay
interest at the rate of 12% per annum.

40
<PAGE>
In connection with the Newport Centre Loan, Nova Scotia Company has provided
the Company with an indemnification against any and all claims arising out of
the presence of hazardous substances on the property.

NOTES RECEIVABLE

LOS ARCOS LOAN

In connection with the Spin-off, the Company acquired from EDV a $22.8
million promissory note (the "Los Arcos Loan") payable by Los Arcos Development,
LLC, the owner of a 700,000 square foot indoor regional mall located in
Scottsdale, Arizona. The borrower intends to redevelop the property through the
acquisition of adjoining parcels and the construction of certain improvements.
The City of Scottsdale has issued an RFP for the redevelopment of this area. Los
Arcos Development, LLC was granted the RFP and the right to redevelop this area.
The note secures a three-year revolving line of credit. As of March 31, 1998,
approximately $16.2 million was outstanding under the Los Arcos Loan, plus
accrued interest of approximately $2.4 million. The Los Arcos Loan was
originated in December 1996 and matures on the earlier of (i) the sale of the
property and (ii) December 19, 2003. Interest on outstanding amounts under the
Los Arcos Loan accrues at the rate of 12.0% per annum until December 19, 1998.
From and after such date, all amounts outstanding and interest accrued thereon
will accrue and be compounded annually. Accrued interest on the Los Arcos Loan
becomes payable out of the property's net cash flow once the borrower's
development of the property is completed. Interest not paid out of current net
cash flow will continue to accrue.

Until the maturity date, the Company is entitled to receive a "profits
participation" equal to 50.0% of the net proceeds of any sale of the borrower's
ownership interest in the property less any senior encumbrances, amounts due
under the Los Arcos Loan and other costs and expenses incidental to the
disposition of the property. Such proceeds will be adjusted upward for any net
income from operations and downward for any net loss from operations during the
term of the Los Arcos Loan.

In connection with the Los Arcos Loan, the Company has the right of prior
approval with respect to (i) the decision to purchase any adjacent parcels, (ii)
leases in excess of 25,000 square feet, (iii) the final development plan for the
property, (iv) decisions concerning major project financing, (v) the form of any
subordination agreement affecting the Los Arcos Loan, and (vi) the development
agreement with the City of Scottsdale.

The Los Arcos Loan is non-recourse and repayment of the loan is secured by a
first mortgage on the property, which mortgage may be subordinated to future
lenders providing construction or interim financing in connection with the
redevelopment or operation of the property. The Los Arcos Loan may be prepaid in
whole or in part at any time and must be repaid if the property is sold.

In connection with the Los Arcos Loan, the borrower has provided the Company
with an indemnification against any and all claims arising out of the presence
of hazardous substances on the property.

The Company has an option to require the borrower to sell or refinance the
property at any time from December 19, 2001 through June 19, 2002, and to be
paid its profits participation out of the proceeds of such sale or refinancing.

FIRST STREET LOAN

In connection with the Spin-off, the Company acquired from EDV a $4.8
million promissory note (the "First Street Loan") payable by First Street
Investments Limited Partnership, the owner of a 120,000 square foot, eight story
office building located in downtown Phoenix, Arizona. The note secures a three-
year revolving line of credit. As of March 31, 1998, approximately $5.5 million
was outstanding under the First Street Loan, including accrued interest of
approximately $136,000. The First Street Loan was originated in May 1997 and
matures on the earlier of (i) the sale of the property and (ii) May 28, 2004.

41
<PAGE>
Until the maturity date, the borrower is to pay interest only on all amounts
outstanding under the First Street Loan at the rate of 11.0% per annum. Interest
not paid currently will accrue at the rate of 12.0% per annum until May 28,
1999. From and after such date, interest will accrue and be compounded annually.

Until the maturity date, the Company is entitled to receive a "profits
participation" equal to 50.0% of the net proceeds of any sale of the borrower's
ownership interest in the property less any senior encumbrances, amounts due
under the First Street Loan and other costs and expenses incidental to the
disposition of the property. Such proceeds will be adjusted upward for any net
income from operations and downward for any net loss from operations during the
term of the First Street Loan.

The First Street Loan is non-recourse and repayment of the loan is secured
by a subordinated mortgage on the property. The First Street Loan may be prepaid
in whole or in part at any time and must be repaid if the property is sold.

In connection with the First Street Loan, the borrower has provided the
Company with an indemnification against any and all claims arising out of the
presence of hazardous substances on the property.

The Company has an option to require the borrower to sell or refinance the
property at any time from May 28, 2002 through November 28, 2002, and to be paid
its profits participation out of the proceeds of such sale or refinancing.

GRAND CANYON LOAN

In connection with the Spin-off, the Company acquired from EDV a $1.1
million promissory note (the "Grand Canyon Loan") payable by Fain Properties
Limited Partnership, the owner of approximately 17 acres of undeveloped land
located in Tusayan, Arizona on the South Rim of Grand Canyon National Park. The
Grand Canyon Loan was originated in October 1995 and matures in September 1998.
Until the maturity date, the borrower is to pay interest only at the rate of
7.0% per annum. In addition, upon the maturity, prepayment or acceleration of
the Grand Canyon Loan, the borrower also must pay additional interest from
October 1995 on the principal amount of the Grand Canyon Loan at the rate of
3.0% per annum. The Grand Canyon Loan is non-recourse and repayment of the loan
is secured by a first mortgage on the property. The Grand Canyon Loan must be
repaid if the property is sold. The borrower intends to use the proceeds from
the Grand Canyon Loan to develop a hotel and a retail entertainment shopping
center on the property, in which the Company would have a percentage ownership
upon completion. As of March 31, 1998, accrued interest on the Grand Canyon Loan
was approximately $163,000.

SEAPORT VILLAGE/HARBOR VENTURES LOAN

In connection with the Spin-off, the Company acquired from EDV a $2.5
million promissory note (the "Seaport Village Loan") payable by Russell B.
Geyser securing a revolving line of credit. As of March 31, 1998, approximately
$266,000 was outstanding under the Seaport Village Loan. The Seaport Village
Loan was originated in June 1997 and matures in December 1998, subject to
extension at Mr. Geyser's option until June 1999, at which time the principal
amount and all interest accrued thereon at the rate of 12.0% per annum will be
due and payable. Until the maturity date, Mr. Geyser is not required to make any
payments to the Company with respect to the Seaport Village Loan. All amounts
advanced and outstanding under the Seaport Village Loan bear interest at the
rate of 12.0% per annum. On June 5, 1998, all accrued but unpaid interest will
be added to the principal amount outstanding under the loan as of that date.

Funds drawn under the Seaport Village Loan may be used solely for earnest
money deposits and option payments on projects approved by the Company as being
of a type for which the Company would be willing to provide equity capital and
for pre-development expenses in connection with the expansion of Seaport
Village, a retail entertainment shopping center located on San Diego harbor in
downtown San Diego, California.

42
<PAGE>
Repayment of the Seaport Village Loan is secured by Mr. Geyser's entire
membership or partnership interest, as applicable, in certain joint venture
entities, including Harbor Ventures, LLC, the joint venture entity through which
Mr. Geyser is participating in the development of Seaport Village. Mr. Geyser
has agreed to provide the Company with a security interest in any future joint
venture entity in which Mr. Geyser has an interest where such entity receives
capital by way of loan, equity investment or land lease from the Company or its
affiliates. Mr. Geyser has agreed at all times to maintain combined fair market
value equity in each entity in which the Company has a security interest
equivalent to 1.5 dollars of equity for every one dollar advanced under the
Seaport Village Loan. In the event the foregoing test is not satisfied at any
time, Mr. Geyser must pledge additional collateral acceptable to the Company or
repay a portion of the principal outstanding in order to regain compliance.

OTHER INVESTMENTS

In April 1998, the Company invested $6.0 million in EnterCitement, LLC
("EnterCitement"), a theme park development company. EnterCitement owns
approximately 510 acres of land in Indianapolis, Indiana, on which it plans to
develop a theme park. The Company holds a 23.7% ownership interest in
EnterCitement and an option to acquire an ownership interest of up to 55% in the
aggregate.

In June 1998, the Company organized Millennia Car Wash, LLC ("Millennia"), a
full-service car wash company, and capitalized it with approximately $20.0
million. In June 1998, Millennia acquired substantially all of the assets of two
car wash companies operating facilities in the Phoenix, Arizona metropolitan
area for an aggregate purchase price of approximately $20.0 million. As part of
the acquisitions, Millennia acquired either equity, leasehold, or profit
participation interests in ten car wash properties. The Company holds 100% of
the ownership interest in Millennia.

PRINCIPAL TENANTS

As of March 31, 1998, AMC was the Company's largest tenant, representing
approximately 45.2% of the Company's total revenue (approximately 17.4% of its
GLA) as of such date. AMC's parent corporation, AMC Entertainment, Inc., has
guaranteed the leases on the Highlands Ranch and Westminster properties under
which AMC is the tenant, which guarantee will remain in place for the full term
of such leases. AMC Entertainment, Inc. is a motion picture exhibitor and
operates approximately 230 theaters (containing approximately 1,960 screens)
primarily in California, Florida, Michigan, Missouri, Pennsylvania and Texas.
AMC Entertainment, Inc. also owns theaters in Japan and Portugal. AMC
Entertainment, Inc. is listed on the American Stock Exchange.

As of March 31, 1998, Wal-Mart was the Company's second largest tenant,
representing approximately 34.2% of the Company's total revenue (approximately
59.3% of its GLA) as of such date. Wal-Mart is the nation's largest retailer and
operates approximately 2,000 discount department stores and over 400 warehouse
clubs. Wal-Mart is listed on the New York Stock Exchange and, as of December
1997, had credit ratings of AA from Standard & Poor's Corporation ("Standard &
Poor's") and Aa1-Aa2 from Moody's Investors Service, Inc. ("Moody's").

As of March 31, 1998, Lowe's was the Company's third largest tenant,
representing approximately 11.1% of the Company's total revenue (approximately
18.2% of its GLA) as of such date. Lowe's is owned by Lowe's Companies, Inc.,
the nation's second largest home improvement retailer with over 400 stores.
Lowe's Companies, Inc. is listed on the New York Stock Exchange and, as of
December 1997, had credit ratings of A and A2 from Standard & Poor's and
Moody's, respectively. See "RISK FACTORS--Reliance on Major Tenants."

AMC Entertainment, Inc., Wal-Mart and Lowe's are publicly-traded companies
subject to the reporting requirements of the Exchange Act, and financial and
other information regarding these companies is on file with the Commission.

43
<PAGE>
EMPLOYEES

As of March 31, 1998, the Company had approximately 17 employees,
approximately 15 of whom were shared with Excel. The shared employees are
compensated by the Company and Excel on a pro rata basis for time spent on their
respective affairs. The Company pays its pro rata share of such employees'
salaries to Excel and Excel pays the employees their regular salaries. See
"RELATIONSHIP BETWEEN THE COMPANY AND EXCEL--Administrative Services Agreement."
The Company believes that its future prospects will depend, in part, on its
ability to continue to attract and retain skilled management personnel.

CORPORATE HEADQUARTERS

The Company's principal corporate office is located at 16955 Via Del Campo,
Suite 100, San Diego, California 92127. The Company leases the space from Excel
at current market rates. The Company believes that these facilities are adequate
to meet its current needs and that suitable additional or alternative space will
be available on commercially reasonable terms as needed.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings other than various
claims and lawsuits arising in the ordinary course of business which, in the
opinion of the Company's management, are not individually or in the aggregate
material to its business.

44
<PAGE>
MANAGEMENT

BOARD OF DIRECTORS

The Company's Board of Directors is comprised of seven directors: Gary B.
Sabin, Richard B. Muir, Kelly D. Burt, John H. Wilmot, Robert E. Parsons, Jr.,
Richard J. Nordlund and Robert S. Talbott. Such directors will serve until the
next Annual Meeting of Stockholders of the Company and until their respective
successors have been duly elected and qualified.

The table below indicates the name, position with the Company and age of
each director.

<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE
- ----------------------------- --------------------------------------------------------- ---
<S> <C> <C>
Gary B. Sabin................ Chairman, President and Chief Executive Officer 44

Richard B. Muir.............. Director, Executive Vice President and Secretary 42

Kelly D. Burt................ Director, Executive Vice President--Development 41

John H. Wilmot............... Director 55

Robert E. Parsons, Jr........ Director 42

Richard J. Nordlund.......... Director 53

Robert S. Talbott............ Director 44
</TABLE>

GARY B. SABIN has served as Chairman of the Board of Directors, President
and Chief Executive Officer of the Company since its formation. Mr. Sabin also
has served as Chairman, President and Chief Executive Officer of Excel since
January 1989 and of EDV and Excel Interfinancial Corporation ("EIC") since their
formation. Mr. Sabin has served as Chief Executive Officer of various companies
since his founding of Excel's predecessor company and its affiliates starting in
1977. He has been active for 20 years in diverse aspects of the real estate
industry, including the evaluation and negotiation of real estate acquisitions,
management, financing and dispositions.

RICHARD B. MUIR has served as Director, Executive Vice President and
Secretary of the Company since its formation and of Excel since January 1989.
Mr. Muir also has served as Executive Vice President of EDV since its formation.
Mr. Muir has served as an officer and director for various affiliates of Excel
since 1978, primarily in administrative and executive capacities, including
direct involvement in and supervision of asset acquisitions, management,
financing and dispositions.

KELLY D. BURT has served as a Director and Executive Vice President of the
Company since May 1998. From 1992 to May 1998, Mr. Burt was President and
founder of TenantFirst Real Estate Services, Inc. ("TenantFirst"), a real estate
development company in San Diego, California that was acquired by the Company in
May 1998. From 1984 to 1992, Mr. Burt was an Industrial/Office Partner at the
San Diego division of Trammel Crow Company, a real estate development company
headquartered in Dallas, Texas.

JOHN H. WILMOT has served as a Director of the Company since its formation
and of Excel since 1989. Mr. Wilmot, individually and through his wholly-owned
corporations, develops and manages real property, primarily in the
Phoenix/Scottsdale area, and has been active in such business since prior to
1989.

ROBERT E. PARSONS, JR. has served as a Director of the Company since its
formation and of Excel since January 1989. Mr. Parsons is presently Executive
Vice President and Chief Financial Officer of Host Marriott Corporation, a
company he joined in 1981. He also serves as a Director and officer of several
Host Marriott subsidiaries, and as a Director of Merrill Financial Corporation,
a privately-held real estate company.

45
<PAGE>
RICHARD J. NORDLUND has served as a Director of the Company since its
formation and as President of RJN Management, a real estate firm in Santa
Barbara, California, for the past 10 years. From 1978 through 1988, Mr. Nordlund
served as President of First Corporate Services, an investment banking firm in
Minneapolis, Minnesota. He is also associated with Miller & Schroeder Financial,
Inc. and is a Director of College Enterprises, Inc. Mr. Nordlund's business
experience includes 28 years in the investment banking and mortgage banking
industries.

ROBERT S. TALBOTT has served as a Director of the Company since its
formation. Mr. Talbott is an attorney and has served as President of Holrob
Investments, LLC, a company engaged in the acquisition, development, management
and leasing of real property, since 1997. From 1985 through 1997, Mr. Talbott
served as General Counsel for Horne Properties, Inc., where he was involved in
the acquisition and development of over 100 shopping centers. He also serves as
a member of the Public Building Authority of Knoxville, Tennessee, as a member
of the Knoxville Industrial Development Board, as a Director of the Knoxville
Chamber of Commerce and as Chairman of the St. Mary's Foundation.

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. The Audit Committee consists of Messrs. Nordlund, Parsons
and Talbott. The Audit Committee reviews the annual audits of the Company's
independent public accountants, reviews and evaluates internal accounting
controls, recommends the selection of the Company's independent public
accountants, reviews and passes upon (or ratifies) related party transactions,
and conducts such reviews and examinations as it deems necessary with respect to
the practices and policies of, and the relationship between, the Company and its
independent public accountants.

COMPENSATION COMMITTEE. The Compensation Committee consists of Messrs.
Nordlund, Talbott and Wilmot. The Compensation Committee reviews salaries,
bonuses and stock options of senior officers of the Company, and administers the
Company's executive compensation policies and stock option plans.

EXECUTIVE COMMITTEE. The Executive Committee consists of Messrs. Sabin,
Muir and Wilmot. The Executive Committee has all powers and rights necessary to
exercise the full authority of the Board of Directors in the management of the
business and affairs of the Company, except as provided in the Delaware General
Corporation Law (the "DGCL") or the Company Bylaws.

COMPENSATION OF THE BOARD OF DIRECTORS

Each non-employee director of the Company receives $6,000 per year for
serving on the Board of Directors and an additional $500 for each meeting
attended (other than committee meetings). An additional $4,000 is paid to any
non-employee director who serves on the Executive Committee. Each director is
eligible to receive stock options pursuant to the Legacy Stock Option Plan.

Directors also receive reimbursement for travel expenses incurred in
connection with their duties as directors.

46
<PAGE>
EXECUTIVE OFFICERS

Set forth below are the names, positions and ages of the executive officers
of the Company:

<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE
- ----------------------------------- ---------------------------------------------------------------------- ---
<S> <C> <C>
Gary B. Sabin...................... Chairman, President and Chief Executive Officer 44

Richard B. Muir.................... Director, Executive Vice President and Secretary 42

Kelly D. Burt...................... Director, Executive Vice President--Development 41

Graham R. Bullick, Ph.D............ Senior Vice President--Capital Markets 47

Ronald H. Sabin.................... Senior Vice President--Asset Management 47

David A. Lund...................... Chief Financial Officer 46

S. Eric Ottesen.................... Senior Vice President, General Counsel and Assistant Secretary 42

Mark T. Burton..................... Senior Vice President--Acquisitions 38
</TABLE>

RICHARD B. MUIR has served as Director, Executive Vice President and
Secretary of the Company since its formation and of Excel since January 1989.
For a more detailed discussion of Mr. Muir's business experience, see "--Board
of Directors."

KELLY D. BURT has served as Director and Executive Vice
President--Development of the Company since May 1998. From 1992 to May 1998, Mr.
Burt was President and founder of TenantFirst. For a more detailed discussion of
Mr. Burt's business experience, see "--Board of Directors."

GRAHAM R. BULLICK, PH.D. has served as Senior Vice President--Capital
Markets of the Company since its formation and of Excel since January 1991.
Previously, Dr. Bullick was associated with Excel as a Director from 1991 to
1992. From 1985 to 1991, Dr. Bullick served as Vice President and Chief
Operations Officer for a real estate investment firm, where his responsibilities
included acquisition and financing of investment real estate projects.

RONALD H. SABIN has served as Senior Vice President--Asset Management of the
Company since its formation and of Excel since January 1989. Mr. Sabin has
served as an officer or otherwise been employed by affiliates of Excel since
1979, primarily providing property management services. Mr. Sabin has supervised
the management of Excel's properties for 15 years and is a licensed real estate
broker and a licensed property and casualty insurance agent. Ronald Sabin is the
brother of Gary Sabin.

DAVID A. LUND has served as Chief Financial Officer of the Company since its
formation and of Excel since 1994 and as a Vice President of Excel since 1988.
Mr. Lund has served as an officer and director of certain affiliates of Excel
since 1983. Prior to 1983, Mr. Lund was a partner in a public accounting firm.
Mr. Lund is a Certified Public Accountant.

S. ERIC OTTESEN has served as Senior Vice President, General Counsel and
Assistant Secretary of the Company since its formation and of Excel since
September 1996. Mr. Otteson has served as Senior Vice President of Excel since
October 1995 and as General Counsel of Excel since January 1995. From 1987 to
1995, Mr. Ottesen was a senior partner in a San Diego law firm.

47
<PAGE>
MARK T. BURTON has served as Senior Vice President--Acquisitions of the
Company since its formation and of Excel since October 1995. Mr. Burton served
as a Vice President of Excel since January 1989 to October 1995. Mr. Burton has
been associated with Excel and its affiliates since 1983, primarily in the
evaluation and selection of property acquisitions.

EXECUTIVE OFFICER COMPENSATION

The Company was recently formed. Other than Mr. Burt, who is the only
executive officer of the Company not affiliated with Excel, none of the
Company's executive officers has received compensation (other than in the form
of option grants under the Legacy Stock Option Plan) from or on behalf of the
Company since its formation. The Company has no employment agreements with any
person and does not presently anticipate paying a salary or other compensation
to any executive officer (other than Mr. Burt) for his services in such
capacity, although options will be granted to the executive officers. See
"--Legacy Stock Option Plan." The Company may in the future consider paying a
salary or other compensation to executive officers who are shared with Excel on
the basis of an allocation of their salary from Excel. See "RELATIONSHIP BETWEEN
LEGACY AND EXCEL--Administrative Services Agreement."

OPTION GRANTS. The following table provides certain information concerning
the stock options which the Company has granted to its executive officers. The
Company has not granted any stock appreciation rights.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
-------------------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM(1)
OPTIONS GRANTED TO BASE PRICE EXPIRATION ---------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5.0% 10.0%
- ------------------------------------------- ----------- ------------- ------------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gary B. Sabin.............................. 800,000 23.5% (2) (3) -- $ 480,913
Richard B. Muir............................ 800,000 23.5 (2) (3) -- 480,913
Kelly D. Burt.............................. 300,000 8.8 (2) (3) -- 180,342
Graham R. Bullick.......................... 300,000 8.8 (2) (3) -- 180,342
Ronald H. Sabin............................ 300,000 8.8 (2) (3) -- 180,342
David A. Lund.............................. 300,000 8.8 (2) (3) -- 180,342
S. Eric Ottesen............................ 300,000 8.8 (2) (3) -- 180,342
Mark T. Burton............................. 300,000 8.8 (2) (3) -- 180,342
</TABLE>

- ------------------------

(1) These amounts represent assumed rates of appreciation in the price of the
Common Stock during the terms of the options in accordance with rates
specified in applicable federal securities regulations (assuming the per
share market value as of the date of grant equaled the estimated book value
per share of $2.39 as of such date). Actual gains, if any, on stock option
exercises will depend on the future price of the Common Stock and overall
stock market conditions. There is no representation that the rates of
appreciation reflected in this table will be achieved.

(2) One-half of the options have an exercise price of $5.00 per share, and the
other half of the options have an exercise price of $10.00 per share.

(3) The options will vest in five equal installments commencing on the first
anniversary of the date of grant, and will expire on the tenth anniversary
of the date of grant.

LEGACY STOCK OPTION PLAN

In March 1998, the Company adopted the Legacy Stock Option Plan. The
principal purposes of the Legacy Stock Option Plan are to provide incentives for
officers, employees and consultants of the Company and its subsidiaries through
the granting of options ("Options"), thereby stimulating their

48
<PAGE>
personal and active interest in the Company's development and financial success,
and inducing them to remain in the Company's employ. In addition to Options
granted to officers, employees and consultants, the Legacy Stock Option Plan
provides for formula grants of Options ("Director Options") to the Company's
directors.

Under the Legacy Stock Option Plan, not more than 5,250,380 shares of Common
Stock (or the equivalent in other equity securities) will be authorized for
issuance upon the exercise of Options. Furthermore, the maximum number of shares
which may be subject to Options granted under the Legacy Stock Option Plan to
any individual in any calendar year may not exceed 525,000.

The Compensation Committee of the Board of Directors (the "Committee")
administers the Legacy Stock Option Plan with respect to grants to employees or
consultants of the Company and the full Board of Directors administers the
Legacy Stock Option Plan with respect to Director Options. The Committee
consists of at least two members of the Board of Directors, each of whom is a
"non-employee director" for purposes of Rule 16b-3 under the Exchange Act ("Rule
16b-3") and, with respect to Options which are intended to constitute
performance-based compensation under Section 162(m) of the Code, an "outside
director" for purposes of Section 162(m) of the Code. Subject to the terms and
conditions of the Legacy Stock Option Plan, the Board of Directors or the
Committee has the authority to select the persons to whom Options are to be
made, to determine the number of shares to be subject thereto and the terms and
conditions thereof, and to make all other determinations and to take all other
actions necessary or advisable for the administration of the Legacy Stock Option
Plan. Similarly, the Board of Directors has discretion to determine the terms
and conditions of Director Options and to interpret and administer the Legacy
Stock Option Plan with respect to Director Options. The Committee (and the Board
of Directors) are also authorized to adopt, amend and rescind rules relating to
the administration of the Legacy Stock Option Plan.

Options under the Legacy Stock Option Plan may be granted to individuals who
are then officers or other employees of the Company or any of its present or
future subsidiaries. Such Options also may be granted to consultants of the
Company selected by the Board of Directors or the Committee for participation in
the Legacy Stock Option Plan. Non-employee directors of the Company will be
granted NQSOs (as hereinafter defined) pursuant to the formula grant provisions
of the Legacy Stock Option Plan.

Nonqualified Stock Options ("NQSOs") granted under the Legacy Stock Option
Plan provide for the right to purchase Common Stock at a specified price which,
except with respect to NQSOs intended to qualify as performance-based
compensation under Section 162(m) of the Code, may be less than fair market
value on the date of grant (but not less than par value), and usually will
become exercisable (in the discretion of the Board of Directors or the
Committee) in one or more installments after the grant date, subject to the
participant's continued employment with the Company and/or subject to the
satisfaction of individual or Company performance targets established by the
Board of Directors or the Committee. NQSOs may be granted for any term specified
by the Board of Directors or the Committee.

Incentive Stock Options ("ISOs") granted under the Legacy Stock Option Plan
are designed to comply with the provisions of the Code and are subject to
certain restrictions contained in the Code. Among such restrictions, ISOs must
have an exercise price not less than the fair market value of a share of Common
Stock on the date of grant, may only be granted to employees, must expire within
a specified period of time following the optionee's termination of employment,
and must be exercised within ten years after the date of grant. ISOs may be
subsequently modified to disqualify them from treatment as ISOs. In the case of
an ISO granted to an individual who owns (or is deemed to own) at least 10.0% of
the total combined voting power of all classes of stock of the Company, the
Legacy Stock Option Plan provides that the exercise price must be at least
110.0% of the fair market value of a share of Common Stock on the date of grant
and the ISO must expire upon the fifth anniversary of the date of grant.

On March 31, 1998, the Company issued Options to acquire an aggregate of
3,100,000 shares of Common Stock to its executive officers (other than Mr. Burt,
who was not hired until May 1998) under the

49
<PAGE>
Legacy Stock Option Plan, 50.0% of which have an exercise price of $5.00 per
share and 50.0% of which have an exercise price of $10.00 per share. The Options
will become exercisable in five equal annual installments commencing on the
first anniversary of the date of grant. In May 1998, the Company issued options
to purchase 300,000 shares of Common Stock to Mr. Burt on the same terms.

INDEMNIFICATION AGREEMENTS

The Company has entered into indemnification agreements with its directors
and executive officers (each, an "Indemnified Person"). An Indemnified Person is
specifically indemnified and held harmless under such agreements for costs and
expenses, including without limitation, damages, judgments, amounts paid in
settlement, reasonable costs of investigation, reasonable attorneys' fees, costs
of investigative, judicial or administrative proceedings or appeals, costs or
attachment of similar bonds, fines, penalties, and excise taxes assessed with
respect to employee benefit plans actually and reasonably incurred in connection
with a threatened, pending or completed claim, action, suit or proceeding by
reason of the fact that (i) he is or was a director, officer, employee and/or
agent of the Company, or (ii) he is or was serving as a director, officer,
employee, trustee and/or agent of another corporation or entity at the request
of the Company. To qualify for indemnification, the claim must not be (i) based
solely upon an Indemnified Person's gaining in fact any personal profit or
advantage to which he was not legally entitled, (ii) an accounting for profits
made from the purchase or sale of securities pursuant to Section 16(b) of the
Exchange Act, or (iii) based solely upon knowingly fraudulent, deliberately
dishonest, or willful misconduct on the part of the Indemnified Person. The
Company will indemnify the Indemnified Person to the extent that (i) the
Indemnified Person gives the Company prompt written notice of any claim, (ii)
expenses have not been advanced pursuant to Article Eighth of the Company
Certificate, (iii) the Indemnified Person has not already received payment
pursuant to collectible insurance policies, and (iv) indemnification is not
unlawful.

Under such indemnification agreements, the Company will advance costs and
expenses incurred by the Indemnified Person in advance of the final disposition
of an action, suit or proceeding if he undertakes to repay amounts advanced if
it is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Company. The Company will advance costs and
expenses related to defending or investigating an action, suit or proceeding
unless a determination is made that (i) the Indemnified Person did not act in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, (ii) the Indemnified Person intentionally
breached his duty to the Company or its stockholders, or (iii) with respect to
any criminal action or proceeding, the Indemnified Person had reasonable cause
to believe his conduct was unlawful. Such determination will be made by a
majority vote of a quorum of the Board of Directors consisting of directors not
a party to the suit, action or proceeding, by a written opinion of independent
legal counsel, by the stockholders or by a final, nonappealable adjudication in
a court of competent jurisdiction. If the Company advances costs and expenses of
any action, suit or proceeding, the Company reserves the right to assume the
defense of such action, suit or proceeding upon written notice to the
Indemnified Person of its intention to do so. After delivery of such notice, the
Company shall not be liable for any costs or expenses incurred by the
Indemnified Person in retaining separate counsel unless (i) the employment of
separate counsel was previously authorized by the Company, (ii) the Indemnified
Person reasonably concludes that joint representation would entail a conflict of
interest, or (iii) the Company shall not, in fact, have employed counsel to
assume the defense of such action, suit or proceeding. The indemnification
provisions and provisions for advancing expenses in such agreements are
expressly not exclusive of any other rights of indemnification or advancement of
expenses pursuant to the DGCL, the Company Certificate and the Company Bylaws.
See "CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S CHARTER AND
BYLAWS--Limitation of Liability and Indemnification."

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<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the number of shares of Common Stock and
Series A Preferred Stock (collectively, the "Voting Stock") beneficially owned
as of August 11, 1998 by (i) the executive officers and directors of the
Company, (ii) all of the Company's executive officers and directors as a group,
and (iii) all other stockholders known by the Company to beneficially own more
than 5.0% of the Common Stock or Series A Preferred Stock. Except as otherwise
indicated, each individual named has a business address of 16955 Via Del Campo,
Suite 100, San Diego, California 92127, and has sole investment and voting power
with respect to the securities shown.

<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK OF SERIES A
BENEFICIALLY PREFERRED STOCK PERCENT
NAME OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
- --------------------------------------------- ----------------- -------------------- -------------------------
<S> <C> <C> <C>
Gary B. Sabin(1)............................. 3,865,972 -- 11.6% of Common Stock
7.1% of Voting Stock

Ronald H. Sabin.............................. 1,086,870 -- 3.2% of Common Stock
2.0% of Voting Stock

Richard B. Muir.............................. 1,086,081 -- 3.2% of Common Stock
2.0% of Voting Stock

David A. Lund................................ 1,021,750 -- 3.1% of Common Stock
1.9% of Voting Stock

Mark T. Burton............................... 1,018,300 -- 3.0% of Common Stock
1.9% of Voting Stock

Graham R. Bullick............................ 1,006,605 -- 3.0% of Common Stock
1.8% of Voting Stock

S. Eric Ottesen.............................. 1,000,556 -- 3.0% of Common Stock
1.8% of Voting Stock

Kelly D. Burt................................ 850,000 -- 2.5% of Common Stock
1.6% of Voting Stock

John H. Wilmot(2)............................ 91,929 -- 0.3% of Common Stock
0.2% of Voting Stock

Robert E. Parsons, Jr.(3).................... 4,796 -- 0.0% of Common Stock
0.0% of Voting Stock

Richard J. Nordlund(4)....................... -- -- 0.0% of Common Stock
0.0% of Voting Stock

Robert S. Talbott(5)......................... -- -- 0.0% of Common Stock
0.0% of Voting Stock
Officers and Directors as a group
(12 persons)............................... 11,032,859 -- 33.0% of Common Stock
20.2% of Voting Stock

Fidelity Management Company(6)............... 2,715,790 -- 8.1% of Common Stock
5.0% of Voting Stock

Longleaf Partners Realty Fund(7)............. 2,280,000 14,600,000 6.8% of Common Stock
30.8% of Voting Stock

BancBoston Capital Inc.(8)................... -- 2,681,000 0.0% of Common Stock
4.9% of Voting Stock
The Northwestern Mutual Life Insurance
Company(9)................................. -- 2,000,000 0.0% of Common Stock
3.7% of Voting Stock

Allstate Insurance Company(10)............... -- 2,000,000 0.0% of Common Stock
3.7% of Voting Stock
</TABLE>

- ------------------------

(1) Includes shares of Common Stock held by EIC, of which Gary Sabin is the
controlling stockholder.

(2) Mr. Wilmot's business address is 4455 E. Camelback Rd., Phoenix, Arizona
85018.

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<PAGE>
(3) Mr. Parson's business address is Host Marriott Corporation, 10400 Fernwood
Road, Washington, D.C. 20058.

(4) Mr. Nordlund's business address is 817 Hot Springs Road, Santa Barbara,
California 93108-1108.

(5) Mr. Talbott's business address is 530 South Gay Street, Knoxville, Tennessee
37902.

(6) Fidelity is a group of funds of which no single fund owns more than 5.0% of
the Common Stock. Fidelity's business address is 82 Devonshire Street,
Boston, Massachusetts 02109.

(7) Longleaf Partners Realty Fund's business address is c/o Southeastern Asset
Management, Inc., 6410 Poplar Avenue, 9th Floor, Memphis, Tennessee 38119.

(8) BancBoston Capital Inc.'s business address is 100 Federal Street, Boston,
Massachusetts 02110. For a discussion of the relationship between the
Company and an affiliate of BancBoston Capital Inc., see "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS--Private Placements."

(9) The Northwestern Mutual Life Insurance Company's business address is 720
East Wisconsin Avenue, Milwaukee, Wisconsin 53202.

(10) Allstate Insurance Company's business address is Allstate Plaza, 3075
Sanders Road, Suite G5B, Northbrook, Illinois 60062-7127.

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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

INTERESTS RELATING TO EXCEL

Excel was the sole stockholder of the Company prior to the Spin-off. In
connection with the Spin-off, Excel and EDV transferred to the Company certain
real properties, notes receivable and related assets and liabilities held by
Excel and EDV. As consideration for such asset transfers, the Company issued to
Excel (i) 23,412,580 shares of Common Stock in order to effect the Spin-off, and
(ii) a promissory note payable to Excel in the amount of approximately $26.4
million. Such note bore interest at the rate of 12.0% per annum, was scheduled
to mature in March 2003 and was a non-recourse obligation secured by a first
mortgage on the Scottsdale Galleria. The note was repaid by the Company in April
1998. In addition, in connection with such asset transfers, Excel canceled
certain indebtedness of EDV held by Excel in the amount of approximately $38.1
million.

The Intercompany Agreement between the Company and Excel sets forth the
basis on which the Company and Excel provide each other with rights to
participate in certain transactions. See "RELATIONSHIP BETWEEN THE COMPANY AND
EXCEL--Intercompany Agreement" and "THE EXCEL MERGER."

PRIVATE PLACEMENTS

Upon consummation of the Spin-off, the Company sold (i) 9,195,224 shares of
Common Stock in a private placement to certain of the Company's officers at a
price per share of $2.39 (the estimated market value of the Common Stock as of
the Spin-off Date based upon the value of the assets transferred to the
Company), for an aggregate purchase price of approximately $22.0 million, and
(ii) 16,425,000 shares of Series A Preferred Stock in a private placement to the
Selling Holders at a price per share of $5.00, for an aggregate purchase price
of approximately $82.1 million. The Company granted to certain Selling Holders,
in connection with their purchase of Series A Preferred Stock described above,
warrants to purchase 4,497,000 shares of Series A Preferred Stock at an exercise
price of $5.00 per share. The warrants were exercised on the Spin-off Date. For
a list of the purchasers in the foregoing private placements and the respective
amounts of Common Stock and Series A Preferred Stock purchased, see "SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT." For a description of the
rights, preferences and privileges of the Series A Preferred Stock, see
"DESCRIPTION OF THE COMPANY'S CAPITAL STOCK--Series A Preferred Stock."

The Company loaned to certain of its officers, in connection with their
purchase of Common Stock described above, approximately 50.0% of the purchase
price therefor (an aggregate amount of approximately $10.9 million). Such loans
bear interest at the rate of 7.0% per annum, mature in March 2003 and are
recourse obligations of such officers.

The Company retained BancBoston Securities Inc. ("BSI"), an affiliate of
BankBoston, N.A., to act as placement agent in connection with the private
placement of Series A Preferred Stock described above. Pursuant to such
engagement, the Company paid to BSI a success fee of approximately $2.3 million
upon consummation of the private placement. As noted in "SECURITIES OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT," BancBoston Capital Inc., an affiliate
of BSI, acquired 2,681,000 shares of Series A Preferred Stock in the private
placement.

OTHER MATTERS

In May 1998, the Company acquired TenantFirst, which was formed and operated
by Kelly D. Burt. As consideration the Company issued to Mr. Burt 850,000 shares
of Common Stock and $137,500 in cash. In connection with the acquisition of
TenantFirst, the Company hired Mr. Burt as a Director and Executive Vice
President--Development of the Company.

53
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND EXCEL

For the purpose of governing certain of the ongoing relationships between
the Company, Excel and EDV after the Spin-off and to provide mechanisms for an
orderly transition, the Company, Excel and EDV have entered into various
agreements, and have adopted various policies, as described in this section.

DISTRIBUTION AGREEMENT

The Company, Excel and EDV have entered into a Distribution Agreement (the
"Distribution Agreement"), which provides for, among other things, (i) the
division among the Company, Excel and EDV of certain assets and liabilities,
(ii) the Spin-off, and (iii) certain other agreements governing the relationship
between the Company, Excel and EDV following the Spin-off. Pursuant to the
Distribution Agreement, as consideration for the asset transfers (see "THE
COMPANY--General"), the Company issued to Excel (a) 23,412,580 shares of Common
Stock in order to effect the Spin-off, and (b) a promissory note payable to
Excel in the amount of approximately $26.4 million. Such note bore interest at
the rate of 12.0% per annum, was scheduled to mature in March 2003 and was a
non-recourse obligation secured by a first mortgage on the Scottsdale Galleria.
The note was repaid by the Company in April 1998. In addition, in connection
with the asset transfers, Excel canceled certain indebtedness of EDV held by
Excel in the amount of approximately $38.1 million.

Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate to the Company, effective as of the Spin-off Date, financial
responsibility for the liabilities arising out of or in connection with the
assets transferred to the Company pursuant to the Distribution Agreement. The
agreements executed in connection with the Distribution Agreement set forth
certain specific allocations of liabilities between the Company, Excel and EDV.
See "--Administrative Services Agreement" and "--Tax Sharing Agreement."

The Distribution Agreement also provides that each of the Company, Excel and
EDV will be granted access to certain records and information in the possession
of the others, and requires the retention by each of the Company, Excel and EDV
for a period of ten years following the Spin-off of all such information in its
possession, and thereafter requires that each party give the others prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information and requires each of the Company, Excel and EDV to obtain
the consent of the others prior to waiving any shared privilege.

The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Spin-off will be charged to the party for whose benefit the expenses are
incurred, with any expenses that cannot be allocated on such basis to be split
equally between the parties.

ADMINISTRATIVE SERVICES AGREEMENT

The Company and Excel have entered into an Administrative Services Agreement
(the "Administrative Services Agreement") containing a number of provisions
relating to employees of Excel and the Company. The Administrative Services
Agreement generally provides that, after the Spin-off, Excel will provide
management and administrative services to the Company, including the ability to
use the services of Excel's employees in connection with the Company's business.
In exchange for those services, the Company is required to pay Excel on a
monthly basis 115.0% of the sum of (i) two-thirds of the aggregate amount of all
wages and salaries paid during the month to Excel employees who spend more than
50.0% of their working time performing services for the Company and are
designated in writing as "Legacy Individuals" for purposes of the Administrative
Services Agreement, and (ii) one-third of the aggregate amount of all wages and
salaries paid during the month to Excel employees that are not designated as
Legacy Individuals. Under the Administrative Services Agreement, Excel is
responsible for continuing to provide employee benefits (other than those
provided under the Legacy Stock Option Plan) to Excel

54
<PAGE>
employees and to Legacy Individuals. The Administrative Services Agreement may
be terminated either by Excel or the Company at any time upon 30 days' prior
written notice to the other party. Any individuals independently hired by the
Company after the Spin-off as separate employees of the Company are not subject
to the Administrative Services Agreement. The income Excel receives under the
Administrative Services Agreement will not be qualifying income for purposes of
the 75.0% REIT income test or the 95.0% REIT income test. For a discussion of
the amendments to the Administrative Services Agreement agreed to in connection
with the Excel Merger, see "THE EXCEL MERGER."

TAX SHARING AGREEMENT

The Company and Excel have entered into a Tax Sharing Agreement defining the
parties' rights and obligations with respect to tax returns and tax liabilities,
including, in particular, Federal and state income tax returns and liabilities,
for taxable years and other taxable periods ending on or before the Spin-off
Date. In general, Excel is responsible for (i) filing all Federal and state
income tax returns of Excel, the Company and any of their subsidiaries for all
taxable years ending on or before the Spin-off Date, and (ii) paying the taxes
relating to such returns (including any deficiencies proposed by applicable
taxing authorities). For post-Spin-off periods, the Company and Excel will each
be responsible for filing its own returns and paying its own taxes relating to
such returns (including any deficiencies proposed by applicable taxing
authorities). The Company and Excel will cooperate with each other and share
information in preparing income tax returns and in dealing with other tax
matters.

TRANSITIONAL SERVICES AGREEMENT

The Company and Excel have entered into a Transitional Services Agreement
(the "Transitional Services Agreement") pursuant to which Excel will provide
certain property acquisition, management and other services to the Company on a
transitional basis. The fees for such transitional services are based on hourly
rates or a percentage of revenues designed to reflect the actual costs
(including indirect costs) of providing such services. The Company is free to
procure such services from outside vendors or to develop in-house capabilities
in order to provide such services internally. The Transitional Services
Agreement will terminate on December 15, 1998 unless extended in writing by the
parties. The income Excel receives pursuant to the Transitional Services
Agreement will not be qualifying income for purposes of the 75.0% REIT income
test or the 95.0% REIT income test.

INTERCOMPANY AGREEMENT

The Company and Excel have entered into an Intercompany Agreement (the
"Intercompany Agreement") to provide each other with rights to participate in
certain transactions. Pursuant to the Intercompany Agreement, during the term
thereof, the Company has agreed not to engage in activities or make investments
that involve neighborhood and community shopping centers, power centers, malls
or other conventional retail properties (including without limitation the
opportunity to provide services related to such real estate and to invest in
entities that invest primarily in or have a substantial portion of their assets
in such real estate), unless it has first provided written notice to Excel of
the material terms and conditions of such activities or investments, and Excel
has determined not to pursue such activities or investments either by providing
written notice to the Company rejecting the opportunity within ten days
following the date of receipt of notice of the opportunity or by allowing such
ten-day period to lapse. The Intercompany Agreement expressly permits the
Company to engage in activities or make investments that involve office and
industrial properties, single tenant retail properties,
entertainment/retail/mixed-use development projects, real estate mortgages, real
estate derivatives, or entities that invest primarily in or have a substantial
portion of their assets in such real estate assets.

Pursuant to the Intercompany Agreement, during the term thereof, the Company
and Excel also will notify each other of, and make available to each other,
investment opportunities which they develop or of which they become aware but
are unable or unwilling to pursue. The term of the Intercompany Agreement

55
<PAGE>
commenced on March 31, 1998 and will terminate upon the earlier of (i) the tenth
anniversary of such date, or (ii) a change in control of either party. See "RISK
FACTORS--Possible Conflicts with Excel." For a discussion of the amendments to
the Intercompany Agreement agreed to in connection with the Excel Merger, see
"THE EXCEL MERGER."

POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS

The Board of Directors of the Company consists of Gary B. Sabin, who is
currently Chairman, President and Chief Executive Officer of Excel and who
serves in the same positions with the Company, Richard B. Muir, who is currently
Executive Vice President and Secretary of Excel and who serves in the same
positions with the Company, Kelly D. Burt, who is currently Executive Vice
President--Development of the Company and who is not affiliated with Excel, John
H. Wilmot and Robert E. Parsons, Jr., who are currently directors of Excel, and
Richard J. Nordlund and Robert S. Talbott, who are not affiliated with Excel.
The executive officers of the Company include Mr. Sabin, Mr. Muir, Mr. Burt,
Graham R. Bullick, who is currently Senior Vice President--Capital Markets of
Excel and who serves in the same position with the Company, Ronald H. Sabin, who
is currently Senior Vice President--Asset Management of Excel and who serves in
the same position with the Company, David A. Lund, who is currently Chief
Financial Officer of Excel and serves in the same position with the Company, S.
Eric Ottesen, who is currently Senior Vice President, General Counsel and
Assistant Secretary of Excel and who serves in the same positions with the
Company, and Mark T. Burton, who is currently Senior Vice
President--Acquisitions of Excel and who serves in the same position with the
Company. See "MANAGEMENT."

As of August 11, 1998, the executive officers and directors of the Company
beneficially owned or had the right to acquire an aggregate of 11,032,859
shares, or approximately 33.0%, of the outstanding Common Stock of the Company.
See "RISK FACTORS--Control by Executive Officers and Directors";
"MANAGEMENT--Legacy Stock Option Plan"; "SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT" and "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."

The Company and Excel intend to pursue separate and distinct business
strategies to minimize potential conflicts of interest between the two
companies. Nonetheless, the on-going relationships between the Company and Excel
may present conflict situations for the persons who will serve as officers
and/or directors of both the Company and Excel, and who will own (or have
options or other rights to acquire) a significant number of shares of common
stock in both companies. Such persons may be presented with conflicts of
interest with respect to certain matters affecting the Company and Excel, such
as the determination of which company may take advantage of potential business
opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on the Company's right to engage in certain activities or make
certain investments unless Excel was first offered the opportunity and declined
to pursue such activities or investments.

The Company and Excel have adopted appropriate policies and procedures to be
followed by the board of directors of each company to limit the involvement of
such officers and directors in conflict situations. Such procedures include
requiring the persons serving as directors of both companies to abstain from
voting as directors with respect to matters that present a significant conflict
of interest between the companies. Whether or not a significant conflict of
interest situation exists will be determined on a case-by-case basis depending
on such factors as the dollar value of the matter, the degree of personal
interest of any officers or directors in the matter and the likelihood that
resolution of the matter has significant strategic, operational or financial
implications for the business of the Company and/or Excel. In addition, the
Company Certificate contains a specific purpose clause which identifies at the
outset which types of

56
<PAGE>
opportunities will be pursued by the Company. Such clause provides that the
Company's purpose includes performing the Intercompany Agreement, which
prohibits the Company from engaging in certain activities or making certain
investments unless Excel was first offered the opportunity and declined to
pursue such activities or investments. See "RISK FACTORS--Possible Conflicts
with Excel" and "--Intercompany Agreement."

THE EXCEL MERGER

On May 14, 1998, Excel entered into the Merger Agreement with New Plan,
pursuant to which a wholly-owned subsidiary of Excel will merge with and into
New Plan, with New Plan surviving as a wholly-owned subsidiary of Excel. The
Merger Agreement calls for Excel to declare a 20% stock dividend prior to the
Excel Merger and subsequently to issue one share of its common stock for each
outstanding share of New Plan. The Excel Merger is subject to customary closing
conditions including the approval of the shareholders of Excel and New Plan.

In connection with the Excel Merger, the Company and Excel agreed to amend
the Administrative Services Agreement to provide, among other things, that the
Company is required to pay Excel on a monthly basis for the services of Excel's
employees in connection with the Company's business the sum of (i) the product
of 115.0% of the sum of (a) two-thirds of the aggregate amount of all wages and
salaries paid during the month to Excel employees who spend more than 50.0% of
their working time performing services for the Company and are designated in
writing as "Legacy Individuals" for purposes of the Administrative Services
Agreement, and (b) the sum of one-third of the aggregate amount of all wages and
salaries paid during the month to Excel employees that are not designated as
Legacy Individuals and two-thirds of the aggregate amount of all wages and
salaries paid to Legacy Individuals during the month, and (ii) 23.0% of the sum
of all current monthly salaries and one-twelfth of the most recent annual
bonuses for the senior executives of Excel. The Company and Excel also agreed to
amend the Intercompany Agreement to provide that the actions contemplated by the
Merger Agreement would not constitute a change of control for purposes of the
Intercompany Agreement. See "RELATIONSHIP BETWEEN THE COMPANY AND
EXCEL--Intercompany Agreement."

In addition to the amendments described above, the Company agreed, subject
to the successful completion of the Excel Merger, to make available for purchase
by the surviving corporation in the Excel Merger an amount of shares of Common
Stock of the Company representing between 5.0% and 9.8% of the outstanding
shares of Common Stock on a fully diluted basis (other than shares issuable upon
exercise of outstanding stock options) at a purchase price per share in cash
equal to the price at which the Common Stock is then trading, but in no event
less than $5.00 per share. The Company granted to the surviving corporation
registration rights with respect to any Common Stock purchased as described
above, which registration rights will be substantially identical to those
granted to the Selling Holders with respect to the Series A Preferred Stock.
Subject to the surviving corporation's purchase of shares of Common Stock, the
Company and Excel agreed to amend the Intercompany Agreement to provide that the
Company must present any proposed acquisition by the Company of apartments
(other than multi-use projects with a residential component) to the surviving
corporation in the same fashion as it provides notice of proposed acquisitions
of neighborhood and community shopping centers, power centers, malls or other
conventional retail properties. See "RELATIONSHIP BETWEEN THE COMPANY AND
EXCEL--Intercompany Agreement."

The Company also agreed that the surviving corporation in the Excel Merger
(the "Surviving Corporation") shall have the right to designate a director for
nomination to the Board of Directors of the Company if (i) the Surviving
Corporation elects to purchase shares of Common Stock as described above; or
(ii) the Surviving Corporation acquires within one year of the closing of the
Excel Merger at least 5.0% of the outstanding shares of Common Stock of the
Company on a fully diluted basis (other than shares issuable upon exercise of
outstanding stock options). The Surviving Corporation's right to designate a
director of the Company will survive only so long as it continues to own at
least 5.0% of the outstanding shares of Common Stock (as calculated above).

57
<PAGE>
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 150,000,000 shares of
Common Stock and 50,000,000 shares of preferred stock, par value $0.01 per share
(the "Preferred Stock"), of the Company. The Certificate of Designation
classifies 25,000,000 shares of Preferred Stock, constituting 50.0% of the
authorized Preferred Stock of the Company, as Series A Preferred Stock. As of
August 11, 1998, there were issued and outstanding 33,455,411 shares of Common
Stock, which were held by approximately 1,316 stockholders of record, and
21,281,000 shares of Series A Preferred Stock, which were held by four
stockholders of record. On May 18, 1998, the Company exercised its rights to
convert the Series A Preferred Stock into Common Stock, which conversion shall
take place automatically on August 18, 1998. As of August 11, 1998, 5,570,380
shares of Common Stock were reserved for issuance upon exercise of outstanding
options.

The Company Certificate states that the Company's Board of Directors is
authorized to provide for the issuance of shares of Preferred Stock, from time
to time, in one or more series. Prior to the issuance of shares in each series,
the Board of Directors is required by the Company Certificate and the DGCL to
adopt resolutions and file a Certificate of Designation, Preferences and
Relative, Participating, Optional and Other Special Rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof with the Secretary of
State of Delaware, fixing for each such series the designation, preferences and
relative, participating, optional or other special rights applicable to the
shares to be included in any such series and any qualifications, limitations or
restrictions thereon, including, but not limited to, dividend rights, dividend
rate or rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences as are permitted by Delaware law.

COMMON STOCK

VOTING RIGHTS. Each holder of Common Stock is entitled to one vote for each
share registered in his name on the books of the Company on all matters
submitted to a vote of stockholders. Except as otherwise provided by law, the
holders of Common Stock vote as one class. The shares of Common Stock do not
have cumulative voting rights. As a result, subject to the voting rights, if
any, of the holders of any shares of Preferred Stock which may at the time be
outstanding, the holders of Common Stock entitled to exercise more than 50.0% of
the voting rights in an election of directors will be able to elect 100.0% of
the directors to be elected if they choose to do so. In such event, the holders
of the remaining shares of Common Stock voting for the election of directors
will not be able to elect any persons to the Board of Directors. The Company
Certificate and the Company Bylaws contain certain provisions that could have an
anti-takeover effect. See "RISK FACTORS--Certain Anti-Takeover Features
Affecting a Change in Control of the Company" and "CERTAIN PROVISIONS OF
DELAWARE LAW AND OF THE COMPANY'S CHARTER AND BYLAWS."

DIVIDEND RIGHTS. Subject to the rights of the holders of any shares of
Preferred Stock which may at the time be outstanding, holders of the Common
Stock will be entitled to such dividends as the Board of Directors may declare
out of funds legally available therefor. Because portions of the operations of
the Company may be conducted through wholly-owned subsidiaries, the Company's
cash flow and consequent ability to pay dividends on the Common Stock may be
dependent to some degree upon the earnings of such subsidiaries and on dividends
and other payments therefrom.

LIQUIDATION RIGHTS AND OTHER PROVISIONS. Subject to the prior rights of
creditors and the holders of any Preferred Stock which may be outstanding from
time to time, the holders of Common Stock are entitled in the event of
liquidation, dissolution or winding up to share pro rata in the distribution of
all remaining assets.

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The Common Stock is not liable for any calls or assessments and is not
convertible into any other securities. In addition, there are no redemption or
sinking fund provisions applicable to the Common Stock.

The transfer agent and registrar for the Common Stock and Series A Preferred
Stock is BankBoston, N.A.

SERIES A PREFERRED STOCK

RANKING. With respect to the right to receive dividends and to participate
in distributions or payments in the event of any liquidation, dissolution or
winding up of the Company, the Series A Preferred Stock ranks (i) junior to any
other Preferred Stock ranking, as to dividends and upon liquidation, prior to
the Series A Preferred Stock, (ii) on a parity with any other Preferred Stock
ranking, as to dividends and upon liquidation, on a parity with the Series A
Preferred Stock, and (iii) senior to the Common Stock and any other class or
series of shares of stock of the Company ranking, as to dividends and upon
liquidation, junior to the Series A Preferred Stock (collectively, the "Junior
Shares"). However, as noted below, the Company has exercised its right to
convert all of the outstanding shares of the Series A Preferred Stock into
Common Stock, which conversion will take place automatically on August 18, 1998.
See "--Series A Preferred Stock--CONVERSION RIGHTS."

DIVIDENDS. The holders of the Series A Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors, out of funds of the
Company legally available for payment thereof, cumulative cash dividends payable
in an amount per share equal to the cash dividends, if any, on the shares of
Common Stock (or portion thereof) into which a share of Series A Preferred Stock
is convertible. Such dividends would equal the number of shares of Common Stock,
or portion thereof, into which a share of Series A Preferred Stock is
convertible, multiplied by the most current quarterly dividend on the Common
Stock on or before the applicable dividend payment date. Dividends on the Series
A Preferred Stock are payable quarterly in arrears on the 15th day (or the next
succeeding business day) of January, April, July and October of each year. The
amount of any dividend payable on the Series A Preferred Stock for any period
less than a full dividend period would be computed pro rata on the basis of
twelve 30-day months and a 360-day year. As noted below, however, the Company
has exercised its right to convert all of the outstanding shares of the Series A
Preferred Stock into Common Stock, which conversion will take place
automatically on August 18, 1998. See "--Series A Preferred Stock--CONVERSION
RIGHTS."

In the event the Company fails to pay any dividend on the Series A Preferred
Stock, the Company may not pay any dividends on any other capital stock of the
Company other than (i) pro rata with other securities of the Company ranking
PARI PASSU with the Series A Preferred Stock or (ii) with Junior Shares until
such dividend on the Series A Preferred Stock has been paid in full.

DISTRIBUTIONS UPON LIQUIDATION, DISSOLUTION OR WINDING UP. Upon the
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the holders of shares of the Series A Preferred Stock are entitled to receive
and to be paid out of the assets of the Company available for distribution to
its stockholders, before any payment or distribution is made on any Junior
Shares, the amount of $5.00 per share of the Series A Preferred Stock (the
"Liquidation Preference"), plus (i) a premium equivalent to a 7.0% annual total
return on the Series A Preferred Stock from the date of issuance and (ii) any
accrued and unpaid dividends. If, upon any dissolution, liquidation or winding
up of the Company, the amounts payable to the holders of shares of the Series A
Preferred Stock and holders of any other shares of stock of the Company ranking
as to any such distribution on a parity with the Series A Preferred Stock are
not paid in full, the holders of the Series A Preferred Stock and of such other
shares will share ratably in such distribution of assets of the Company in
proportion to the full respective preference amounts to which they are entitled.
A sale, conveyance or disposition of all or substantially all of the assets of
the Company shall be deemed to be a liquidation, dissolution or winding up for
purposes of payment of the Liquidation Preference. However, as noted below, the
Company has exercised its right to convert all of the outstanding

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shares of the Series A Preferred Stock into Common Stock, which conversion will
take place automatically on August 18, 1998. See "--Series A Preferred
Stock--CONVERSION RIGHTS."

REDEMPTION. The Series A Preferred Stock may not be redeemed by the Company
prior to March 31, 2005. On March 31, 2005 (the "Redemption Date"), the Company
would be required to redeem all outstanding shares of Series A Preferred Stock
for cash at a per share price equal to the Liquidation Preference, plus any
accrued and unpaid dividends to the Redemption Date. However, as noted below,
the Company has exercised its right to convert all of the outstanding shares of
the Series A Preferred Stock into Common Stock, which conversion will take place
automatically on August 18, 1998. See "--Series A Preferred Stock--CONVERSION
RIGHTS."

VOTING RIGHTS. Except as otherwise required by law, the Series A Preferred
Stock, the Common Stock and any other capital stock of the Company entitled to
vote with the Common Stock will be deemed to be one class for the purpose of
voting, or giving written consent in lieu of voting, on all matters submitted
for the approval of the stockholders of the Company. Each person in whose name
shares of Series A Preferred Stock is registered on the record date for
determining the holders of the Series A Preferred Stock entitled to vote at any
meeting of stockholders (or adjournment thereof) or to consent to corporate
action in writing without a meeting will be entitled to, at such meeting or with
respect to such action, one vote for each share of Common Stock into which each
share of Series A Preferred Stock registered in the name of such person on such
record date could be converted (with any fractional share determined on an
aggregate conversion basis being rounded to the nearest whole share).

So long as any shares of the Series A Preferred Stock remain outstanding,
the Company will not, without the affirmative vote of the holders of at least
two-thirds of the shares of the Series A Preferred Stock outstanding at the
time, (i) authorize or create, or increase the authorized amount of any shares
of any class or any security convertible into shares of any class ranking senior
to the Series A Preferred Stock with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, or (ii)
amend, alter or repeal the provisions of the Company Certificate or of the
Company Bylaws so as to adversely affect any right, preference, privilege or
voting power of the Series A Preferred Stock or the holders thereof; provided,
however, that any increase in the amount of the authorized or issued shares of
any class or security convertible into any shares ranking on a parity with or
junior to the Series A Preferred Stock with respect to the payment of dividends
or the distribution of assets upon liquidation, dissolution or winding up, shall
not be deemed to adversely affect such rights, preferences, privileges or voting
powers.

CONVERSION RIGHTS. Holders of the Series A Preferred Stock have the right,
exercisable at any time and from time to time, to convert all or any of the
Series A Preferred Stock into Common Stock, on a one-for-one basis, at a
conversion price of $5.00 per share of Common Stock (the "Conversion Price").

In addition, in the event the closing price of the Common Stock on the OTC
Bulletin Board (or a successor quotation system or other principal exchange) is
equal to or greater than certain price milestones for 30 consecutive trading
days, the Company has the right to convert all of the outstanding shares of
Series A Preferred Stock into a number of shares of Common Stock equal to the
product of (i) the number of shares of Series A Preferred Stock to be converted
multiplied by (ii) $5.00 divided by the Conversion Price then in effect. On May
18, 1998, pursuant to the Certificate of Designation, the Company exercised its
right to convert all of the outstanding shares of Series A Preferred Stock into
Common Stock, which conversion will take place automatically on August 18, 1998.
The Company has fixed July 28, 1998 as the record date for such mandatory
conversion.

All shares of Series A Preferred Stock converted into shares of Common Stock
shall be retired and shall be restored to the status of authorized and unissued
shares of Preferred Stock, without designation as to series and may thereafter
be reissued as shares of any series of Preferred Stock.

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CONVERSION PRICE ADJUSTMENTS. The Conversion Price is subject to adjustment
upon certain events, including (i) dividends (and other distributions) payable
in Common Stock or any class of capital stock of the Company (but excluding
issuances of Common Stock pursuant to the Company's employee benefit plans),
(ii) the issuance to all holders of Common Stock of certain rights or warrants
entitling them to subscribe for or purchase Common Stock at a price per share
less than current market price per share of the Common Stock (but excluding
issuances of Common Stock pursuant to the Company's employee benefit plans),
(iii) subdivisions, combinations and reclassifications of the Common Stock, and
(iv) distributions to all holders of Common Stock of evidences of indebtedness
of the Company or of assets (including securities and cash, but excluding those
dividends, rights, warrants and distributions referred to in clause (i), (ii) or
(iii) above).

CERTAIN PROVISIONS OF DELAWARE LAW AND
OF THE COMPANY'S CHARTER AND BYLAWS

The following summary of certain provisions of Delaware law and of the
Company Certificate and the Company Bylaws does not purport to be complete and
is subject to and qualified in its entirety by reference to Delaware law and to
the Company Certificate and the Company Bylaws, copies of which have been filed
with the Commission as exhibits to the Registration Statement of which this
Prospectus is a part and are available from the Company upon request.

ISSUANCE OF ADDITIONAL SHARES OF PREFERRED STOCK

Article Fourth of the Company Certificate authorizes the Company's Board of
Directors to issue additional shares of Preferred Stock of the Company, in one
or more series, and to establish the rights and preferences (including the
convertibility of such shares of Preferred Stock into shares of Common Stock) of
any series of Preferred Stock so issued. The issuance of Preferred Stock of the
Company may have the effect of delaying or preventing a change in control of the
Company and could diminish the opportunities for a stockholder to participate in
tender offers, including tender offers at a price above the then current market
value of the Common Stock. Such provisions also may inhibit fluctuations in the
market price of the Common Stock that could result from takeover attempts.

BUSINESS COMBINATIONS

Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless upon the closing of such transaction
the interested stockholder owned 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, or unless the business
combination is, or the transaction in which such person became an interested
stockholder was, approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, in the case of affiliates and
associates of the issuer, did own within the last three years) 15% or more of
the corporation's voting stock.

LIMITATION OF LIABILITY AND INDEMNIFICATION

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to serve as directors of Delaware corporations by permitting Delaware
corporations to include in their articles or certificates of incorporation a
provision limiting or eliminating directors' liability for monetary damages and
with other existing DGCL provisions permitting indemnification of certain
individuals, including directors and officers. The limitations of liability in
the Director Liability and Indemnification Provisions may not affect claims
arising under the Federal securities laws.

In performing their duties, directors of a Delaware corporation are
obligated as fiduciaries to exercise their business judgment and act in what
they reasonably determine in good faith, after appropriate consideration, to be
in the best interests of the corporation and its stockholders. Decisions made on
that basis are protected by the "business judgment rule." The business judgment
rule is designed to protect directors from personal liability to the corporation
or its stockholders when business decisions are subsequently challenged.
However, the expense of defending lawsuits, the frequency with which unwarranted
litigation is brought against directors and the inevitable uncertainties with
respect to the outcome of applying the business judgment rule to particular
facts and circumstances mean that, as a practical matter, directors and officers
of a corporation rely on indemnity from, and insurance procured by, the
corporation they serve as a financial backstop in the event of such expenses or
unforeseen liability. The Delaware legislature has recognized that adequate
insurance and indemnity provisions are often a condition of an individual's
willingness to serve as director of a Delaware corporation. The DGCL has for
some time specifically permitted corporations to provide indemnity and procure
insurance for its directors and officers.

Section 145 of the DGCL provides for the indemnification of officers,
directors, and other corporate agents in terms sufficiently broad to indemnify
such persons under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

Set forth below is a description of the Director Liability and
Indemnification Provisions. Such description is intended as a summary only and
is qualified in its entirety by reference to the Company Certificate and the
Company Bylaws.

ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES. Article Ninth of the
Company Certificate protects directors against monetary damages for breaches of
their fiduciary duty of care, except as set forth below. Under the DGCL, absent
Article Ninth, directors could generally be held liable for gross negligence for
decisions made in the performance of their duty of care but not for simple
negligence. Article Ninth eliminates director liability for negligence in the
performance of their duties, including gross negligence. Directors remain liable
for breaches of their duty of loyalty to the Company and its stockholders, as
well as acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law and transactions from which a director
derives improper personal benefit. Article Ninth does not eliminate director
liability under Section 174 of the DGCL, which makes directors personally liable
for unlawful dividends or unlawful stock repurchases or redemptions and
expressly sets forth a negligence standard with respect to such liability.

While Article Ninth provides directors with protection from awards of
monetary damages for breaches of the duty of care, it does not eliminate the
directors' duty of care. Accordingly, Article Ninth will have no effect on the
availability of equitable remedies such as an injunction or rescission based
upon a director's breach of the duty of care. The provisions of Article Ninth
which eliminate liability as described above will apply to officers of the
Company only if they are directors of the Company and are acting in their
capacity as directors, and will not apply to officers of the Company who are not
directors. The elimination of liability of directors for monetary damages in the
circumstances described above may deter

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persons from bringing third-party or derivative actions against directors to the
extent such actions seek monetary damages.

INDEMNIFICATION AND INSURANCE. Under Section 145 of the DGCL, directors and
officers as well as other employees and individuals may be indemnified against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with specified actions, suits or proceedings, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation--a "derivative action") if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe their conduct was unlawful. A similar
standard of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the DGCL requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the Company.

Article VIII of the Company Bylaws provides that all directors and officers
of the Company are entitled to indemnification as set forth in the Company
Certificate.

Article Eighth of the Company Certificate provides that each person who was
or is made a party to, or is involved in any action, suit or proceeding by
reason of the fact that he is or was a director, officer or employee of the
Company will be indemnified by the Company against all expenses and liabilities,
including counsel fees, paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Article
Eighth also provides that the right of indemnification shall be in addition to
and not exclusive of all other rights to which such director, officer or
employee may be entitled.

SHARES ELIGIBLE FOR FUTURE SALE

As of August 11, 1998, there were 33,455,411 shares of Common Stock issued
and outstanding and 21,281,000 shares of Series A Preferred Stock issued and
outstanding. In addition, 5,250,350 shares of Common Stock were reserved for
issuance upon exercise of options under the Legacy Stock Option Plan and
21,281,000 shares of Common Stock were reserved for issuance upon conversion of
the Series A Preferred Stock.

Upon consummation of the Spin-off, (i) 9,195,224 shares of Common Stock were
purchased by certain of the Company's officers in a private placement, (ii)
21,281,000 shares of Series A Preferred Stock were purchased by the Selling
Holders, which shares are convertible, on a one-for-one basis, by the holders
thereof at any time and by the Company under certain circumstances (which
conversion right has been exercised and will take effect on August 18, 1998 as
described herein) into shares of Common Stock, and (iii) options to purchase
3,100,000 shares of Common Stock were granted to the Company's executive
officers under the Legacy Stock Option Plan. In May 1998, the Company issued to
Mr. Burt 850,000 shares of Common Stock and options to purchase 300,000 shares
of Common Stock under the Legacy Stock Option Plan. See "RISK FACTORS--Shares
Eligible for Future Sale"; "MANAGEMENT--Legacy Stock Option Plan"; "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" and "DESCRIPTION OF THE COMPANY'S
CAPITAL STOCK--Series A Preferred Stock." Shares of Common Stock

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issued to Mr. Burt and issued in the private placement to the Company's officers
described in clause (i) above may be sold only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Rule 144. Shares of Series A Preferred Stock issued in the private placement
described in clause (ii) above and the Common Stock issuable upon conversion of
the Series A Preferred Stock will be freely transferable without restriction
immediately upon the effectiveness of the Registration Statement of which this
Prospectus is a part subject, in the case of sales by affiliates, to compliance
with Rule 144. Shares issued pursuant to the exercise of options granted under
the Legacy Stock Option Plan will be freely transferable without restriction,
subject, in the case of sales by affiliates, to compliance with Rule 144.

The Company is unable to estimate the number of shares of Series A Preferred
Stock or Common Stock, as applicable, that may be sold in the future by its
stockholders or the effect, if any, that sales of shares of Series A Preferred
Stock or Common Stock by such stockholders will have on the market price of the
Series A Preferred Stock and/or Common Stock prevailing from time to time. Sales
of substantial amounts of Series A Preferred Stock or Common Stock, or the
prospect of such sales, could adversely affect the market price of the Series A
Preferred Stock and/or Common Stock. As noted above, the Company has exercised
its right to convert all of the outstanding shares of the Series A Preferred
Stock into Common Stock, which conversion will take place automatically on
August 18, 1998. See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK--Series A
Preferred Stock--CONVERSION RIGHTS."

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a summary of certain Federal income tax
considerations generally relevant to the receipt, ownership and disposition of
the Series A Preferred Stock and the Common Stock by individuals or entities
taxed as United States persons, and does not purport to be a complete analysis
of all the potential tax effects thereof. This summary is based on the Internal
Revenue Code of 1986, as amended to the date of this Prospectus (the "Code"),
administrative pronouncements, judicial decisions and existing and proposed
Treasury Regulations, changes to any of which subsequent to the date of this
Prospectus may affect the tax consequences described herein and may be applied
retroactively in a manner that could have an adverse impact on a holder of the
Series A Preferred Stock or the Common Stock. It should be noted that this
summary addresses only holders of the Common Stock and Series A Preferred Stock
who hold the same as capital assets within the meaning of section 1221 of the
Code. It does not discuss all of the tax consequences that may be relevant to a
holder in light of the holder's particular circumstances or to holders subject
to special rules, such as certain financial institutions, insurance companies,
dealers in securities, "S" corporations, expatriates, persons that are, for
Federal income tax purposes, non-resident alien individuals or foreign
corporations or who are subject to alternative minimum tax, and persons holding
the Common Stock or Series A Preferred Stock as part of a "straddle," "hedge" or
"conversion transaction." Holders should consult their tax advisors with regard
to the application of the Federal income tax laws to their particular situations
as well as any tax consequences arising under the laws of any state, local or
foreign taxing jurisdiction or laws governing estate and gift tax
considerations.

As used in the discussion below, the term "earnings and profits" refers to
the Company's current or accumulated earnings and profits as determined under
the Code. There is no assurance that the Company will have earnings and profits
for any particular taxable year.

COMMON STOCK AND SERIES A PREFERRED STOCK GENERALLY

CASH DISTRIBUTIONS

The amount of any cash distribution with respect to the Common Stock or
Series A Preferred Stock will be treated as a dividend, taxable as ordinary
income to the recipient thereof, to the extent of the Company's current or
accumulated earnings and profits as determined under Federal income tax
principles. To the extent that the amount of such distribution exceeds the
Company's current and accumulated earnings and profits, the excess first will be
treated as a return of capital that will reduce the holder's tax basis in the
Common Stock or Series A Preferred Stock, as the case may be. Any remaining
amount after the holder's basis has been reduced to zero will be taxable as
capital gain.

For purposes of the remainder of this discussion, the term "dividend" refers
to a distribution taxable as ordinary income as described above unless the
context indicates otherwise. Dividends received by corporate stockholders will
be eligible for the 70% dividends-received deduction under section 243 of the
Code, subject to certain exceptions and limitations contained in the Code. U.S.
corporate stockholders should note, however, that there can be no assurance that
distributions with respect to the Common Stock or Series A Preferred Stock will
not exceed the amount of current or accumulated earnings and profits of the
Company in the future. Accordingly, there can be no assurance that the
dividends-received deduction will apply to distributions on the Common Stock or
Series A Preferred Stock.

In addition, as noted above, there are many exceptions and limitations
relating to the availability of a dividends-received deduction such as
restrictions relating to (i) the holding period of the stock on which the
dividends are received (including special rules under section 246(c) of the Code
which reduce the holding period for periods during which the taxpayer's risk of
loss is diminished), (ii) debt-financed portfolio stock, (iii) dividends treated
as "extraordinary dividends" for purposes of section 1059 of the Code (as
discussed below), and (iv) taxpayers that pay alternative minimum tax. Corporate
stockholders should consult their own tax advisors regarding the extent, if any,
to which such exceptions and restrictions (as amended by the Taxpayer Relief Act
of 1997) may apply to their particular factual situation.

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Section 1059 of the Code requires a corporate stockholder to reduce its
basis (but not below zero) in the Common Stock or Series A Preferred Stock by
the "nontaxed portion" or any "extraordinary dividend" if the holder has not
held its Common Stock or Series A Preferred Stock for more than two years as of
the date the amount or payment of such dividend is agreed to, announced or
declared. Generally, the nontaxed portion of an extraordinary dividend is the
amount excluded from income under section 243 of the Code (relating to the
dividends-received deduction). An "extraordinary dividend" on the Common Stock
or Series A Preferred Stock would include a dividend that (i) equals or exceeds
(a) in the case of the Series A Preferred Stock, 5% of the holder's adjusted tax
basis in such stock, and (b) in the case of the Common Stock, 10% of the
holder's adjusted tax basis in such stock, treating all dividends having
ex-dividend dates within an 85-day period as one dividend, or (ii) exceeds 20%
of the holder's adjusted tax basis in the Common Stock or Series A Preferred
Stock, as the case may be, treating all dividends having ex-dividend dates
within a 365-day period as one dividend. In determining whether a dividend paid
is an extraordinary dividend, a holder may elect to use the fair market value of
the Common Stock or Series A Preferred Stock, as the case may be, rather than
its basis, for purposes of applying the 5%/10% (or 20%) limitation if the
stockholder is able to establish to the satisfaction of the Secretary of the
Treasury such fair market value as of the day before the ex-dividend date. With
respect to the Series A Preferred Stock, an "extraordinary dividend" would also
include any amount treated as a dividend in the case of a redemption of the
Series A Preferred Stock that is non-pro rata as to all stockholders, without
regard to the period the holder held the stock. If any part of the nontaxed
portion of an extraordinary dividend exceeds the basis in the stock, the amount
of such excess will be treated as gain from the sale or exchange of stock for
the taxable year in which the extraordinary dividend is received.

The extraordinary dividend rules do not apply with respect to "qualified
preferred dividends." A "qualified preferred dividend" is any fixed dividend
payable with respect to Series A Preferred Stock which (i) provides for fixed
preferred dividends payable no less often than annually, and (ii) is not in
arrears as to dividends when acquired, provided the actual rate of return on
such stock, as determined under section 1059(e)(3) of the Code, does not exceed
15%. Where a qualified preferred dividend exceeds the 5% (or 20%) threshold for
extraordinary dividend status described above, (i) the extraordinary dividend
rules will not apply if the taxpayer holds the stock for more than five years,
and (ii) if the taxpayer disposes of the stock before it has been held for more
than five years, the aggregate reduction in basis cannot exceed the excess of
the qualified preferred dividends paid on such stock during the period held by
the taxpayer over the qualified preferred dividends which would have been paid
during such period on the basis of the stated rate of return, as determined
under section 1059(c)(3) of the Code. The length of time that a taxpayer is
deemed to have held stock for purposes of section 1059 of the Code is determined
under principles similar to those contained in section 246(c) of the Code as
noted above under the discussion regarding general availability of the dividends
received deduction.

CORPORATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE POSSIBLE APPLICATION OF SECTION 1059 TO THE OWNERSHIP AND
DISPOSITION OF THEIR COMMON STOCK OR SERIES A PREFERRED STOCK.

SALE OR DISPOSITION

The Series A Preferred Stock will be automatically converted into Common
Stock on August 18, 1998 and therefore will not be subject to redemption by the
Company. A sale or other disposition of Series A Preferred Stock or Common Stock
(other than a conversion or exchange of the Series A Preferred Stock for Common
Stock as discussed below) will normally be a taxable event. Upon such a taxable
sale or other disposition, a stockholder will generally recognize capital gain
or loss equal to the difference between the amount of cash and the fair market
value of property received by the holder for the Series A Preferred Stock or
Common Stock and the holder's adjusted tax basis in those shares. In the case of
certain noncorporate taxpayers, including individuals, long-term capital gain
with respect to stock held for more than eighteen months is taxed at a maximum
20% Federal tax rate, and mid-term capital gain with respect

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to stock held more than twelve months but no more than eighteen months is taxed
at a maximum 28% Federal tax rate.

SERIES A PREFERRED STOCK

CONVERSION OF SERIES A PREFERRED STOCK

A holder of the Series A Preferred Stock will generally not recognize gain
or loss by reason of receiving solely Common Stock in exchange for the Series A
Preferred Stock upon the conversion of the Series A Preferred Stock, but gain or
loss will be recognized with respect to any cash received in lieu of fractional
shares of such Common Stock. The adjusted tax basis of Common Stock (including
fractional share interests) so acquired will be equal to the tax basis of the
shares of the Series A Preferred Stock exchanged therefor and the holding period
of the Common Stock received upon conversion will include the holding period of
the shares of the Series A Preferred Stock surrendered in the exchange,

ADJUSTMENT OF CONVERSION PRICE

If at any time the Company makes a distribution of cash or property to
holders of Common Stock that would be taxable to such stockholders as a dividend
for Federal income tax purposes and, in accordance with the terms of the Series
A Preferred Stock, the conversion price or conversion ratio of the Series A
Preferred Stock is adjusted, such adjustment will likely be deemed to be the
payment of a taxable dividend to holders of the Series A Preferred Stock, even
though they receive no cash. An adjustment to the conversion price made pursuant
to a BONA FIDE reasonable adjustment formula which has the effect of preventing
the dilution of the interest of the holders of the Series A Preferred Stock and
which is not made to compensate them for taxable distributions of cash or
property on any of the outstanding Common Stock (or any convertible securities),
generally will not result in constructive distribution of stock. For example, a
decrease in the conversion price in the event of distributions of indebtedness
or assets of the Company will generally result in a deemed distribution to
holders of the Series A Preferred Stock, but a decrease in the event of stock
dividends or the distribution of rights to subscribe for Common Stock ordinarily
would not.

BACKUP WITHHOLDING

Under section 3406 of the Code and applicable Treasury regulations, a holder
of Common Stock or Series A Preferred Stock may be subject to backup withholding
at the rate of 31% with respect to "reportable payments," which include
dividends paid on, or the proceeds of a sale or exchange of, Common Stock or
Series A Preferred Stock, as the case may be. The payor will be required to
deduct and withhold the prescribed amounts if (i) the payee fails to furnish a
taxpayer identification number ("TIN") to the payor in the manner required by
the Code and applicable Treasury regulations, (ii) the Internal Revenue Service
notifies the payor that the TIN furnished by the payee is incorrect, (iii) there
has been a "notified payee underreporting" described in section 3406(c) of the
Code or (iv) there has been a failure of the payee to certify under penalty of
perjury that the payee is not subject to withholding under section 3406(a)(1)(C)
of the Code. If any one of the events listed above occurs, the Company will be
required to withhold an amount equal to 31% from any dividend payment made with
respect to Common Stock or Series A Preferred Stock to a holder. Amounts paid as
backup withholding do not constitute an additional tax and will be credited
against the holder's federal income tax liabilities, so long as the required
information is provided to the Internal Revenue Service. The Company will report
to the holders of Common Stock or Series A Preferred Stock and to the Internal
Revenue Service the amount of any "reportable payments" for each calendar year
and the amount of tax withheld, if any, with respect to payment on the
securities. A holder of Series A Preferred Stock or Common Stock who does not
provide the Company with his or her correct taxpayer identification number may
be subject to penalties imposed by the Internal Revenue Service.

67
<PAGE>
EACH PROSPECTIVE HOLDER OF COMMON STOCK OR SERIES A PREFERRED STOCK SHOULD
CONSULT HIS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE
COMMON STOCK OR PREFERRED STOCK INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL, OR FOREIGN INCOME TAX LAWS, AND ANY RECENT OR PROSPECTIVE CHANGES
IN APPLICABLE TAX LAWS.

EXPERTS

The balance sheet of the Company as of November 17, 1997, and the balance
sheets of the Excel Legacy Corporation Asset Group as of July 31, 1997 and 1996,
and the related statements of income, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1997 included in this
Prospectus have been included herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.

LEGAL MATTERS

Certain legal matters with respect to the validity of the shares of Series A
Preferred Stock and shares of Common Stock issuable upon conversion of the
Series A Preferred Stock offered hereby will be passed upon for the Company by
Latham & Watkins, San Diego, California.

68
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
EXCEL LEGACY CORPORATION BALANCE SHEET:

Report of Coopers & Lybrand L.L.P., Independent Accountants.............................................. F-2

Balance Sheet as of November 17, 1997.................................................................... F-3

Notes to Balance Sheet................................................................................... F-4

Balance Sheet as of April 30, 1998 (unaudited)........................................................... F-5

Statements of Income for three months ended April 30, 1998 and the period from November 17, 1997 to April
30, 1998 (unaudited)................................................................................... F-6

Statement of Changes in Stockholders' Equity (unaudited)................................................. F-7

Statement of Cash Flows for the period from November 17, 1997 to April 30, 1998 (unaudited).............. F-8

Notes to Financial Statements............................................................................ F-9

EXCEL LEGACY CORPORATION ASSET GROUP FINANCIAL STATEMENTS:

Report of Coopers & Lybrand L.L.P., Independent Accountants.............................................. F-18

Combined Balance Sheets as of April 30, 1998 (unaudited), July 31, 1997 and July 31,
1996................................................................................................... F-19

Combined Statements of Operations for each of the three years in the period ended July 31, 1997 and the
nine months ended April 30, 1998 (unaudited) and April 30, 1997 (unaudited)............................ F-20

Combined Statements of Changes in Investment by Excel Realty Trust, Inc. for each of the three years in
the period ended July 31, 1997 and the nine months ended April 30, 1998 (unaudited) and April 30, 1997
(unaudited)............................................................................................ F-21

Combined Statements of Cash Flows for each of the three years in the period ended July 31, 1997 and the
nine months ended April 30, 1998 (unaudited) and April 30, 1997 (unaudited)............................ F-22

Notes to Combined Financial Statements................................................................... F-23
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Excel Legacy Corporation

We have audited the accompanying balance sheet of Excel Legacy Corporation
(the "Company") as of November 17, 1997. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Excel Legacy Corporation as of
November 17, 1997, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Diego, California
November 24, 1997

F-2
<PAGE>
EXCEL LEGACY CORPORATION

BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
NOVEMBER 17,
1997
-------------
<S> <C>
ASSETS
Real Estate:
Land.......................................................................... $ --
Building under construction................................................... --
-----
Total real estate........................................................... --
Cash............................................................................ 1
Accounts receivable............................................................. --
Interest receivable............................................................. --
-----
Total assets.............................................................. $ 1
-----
-----

LIABILITIES AND STOCKHOLDER'S EQUITY

Liabilities:
Notes payable:
Affiliates.................................................................. $ --
Other....................................................................... --
Accounts payable.............................................................. --
Interest payable.............................................................. --
-----
Total liabilities......................................................... --

Stockholder's Equity:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none
outstanding................................................................. --
Common stock, $.01 par value, 150,000,000 shares authorized, 100 shares issued
and outstanding............................................................. --
Additional paid-in capital.................................................... 1
Retained earnings............................................................. --
-----
Total stockholder's equity................................................ 1
-----
Total liabilities and stockholder's equity................................ $ 1
-----
-----
</TABLE>

The accompanying notes are an integral part of the balance sheets.

F-3
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO BALANCE SHEET

1. FORMATION OF THE COMPANY:

Excel Legacy Corporation (the "Company"), a Delaware Corporation, was formed
on November 17, 1997 to own, operate and/or develop real estate. Certain real
estate assets ("Excel Legacy Corporation Asset Group") are planned to be
transferred from Excel Realty Trust, Inc. ("Excel") and ERT Development
Corporation ("EDV"), an unconsolidated affiliate of Excel, to the Company. In
September 1997, Excel's Board of Directors approved in principle, a plan for the
distribution (the "Distribution") of Company stock to holders of Excel common
stock. Excel is the sole stockholder of the Company and the Company is currently
considered a qualified REIT subsidiary of Excel.

The following assets are scheduled to be transferred to the Company:

- Eleven single tenant free-standing buildings with a book value of $47.6
million and encumbered by mortgages of $34.2 million at January 31, 1998.

- A 670,000 square foot shopping mall located in Scottsdale, Arizona which
is substantially vacant. The Company intends to redevelop this property.
The book value is $14.7 million at January 31, 1998.

- An office building containing 64,000 square feet located in Scottsdale,
Arizona. This building was acquired in October 1997, has a book value of
approximately $7.9 million at January 31, 1998 and is encumbered by a
mortgage of $2.6 million.

- A leasehold interest in 6.5 acres of land located in Tusayan, Arizona. The
leasehold interest was acquired in November 1997 for approximately $1.8
million and will have a term of 50 years with two 10-year renewal options.

- Four notes receivable related to development projects located in Arizona
(3) and California. The principal amount of the notes at January 31, 1998
is $22.1 million.

As consideration for the transfers, the Company will (a) issue to Excel a
significant number of shares of Company Common Stock to effect the Distribution,
and (b) execute a $21.4 million note payable to Excel. Other assets may be
transferred to the Company as the Boards of the Company and Excel deem
appropriate prior to the Distribution.

The Company has had relatively no operations since inception. Total revenues
and expenses have been less than $500, therefore, no income statement, statement
of changes in stockholder's equity or statement of cash flows has been
presented. Revenue and expenses associated with the construction of the
properties mentioned below have been capitalized.

2. COMMITMENTS TO ISSUE PREFERRED AND COMMON STOCK (UNAUDITED):

The Company has obtained commitments to buy, effective upon consummation of
the Distribution, 9,195,224 shares of Company Common Stock in a private
placement to certain of the Company's officers at a price per share of $2.39 for
an aggregate purchase price of $22.0 million. The Company intends to lend 50.0%
of the amount of the purchase price or $11.0 million at a 7.0% interest rate.

The Company has obtained commitments to buy, effective upon consummation of
the Distribution, 16,425,000 shares of Series A Preferred Stock at $5.00 per
share in a private placement to certain qualified institutional buyers ("QIBs")
(as such term is defined in Rule 144A under the Securities Act of 1933, as
amended), which shares will be convertible at any time into shares of Company
Common Stock on a one-for-one basis. The aggregate purchase price will be $80.1
million, less a 2.5% selling cost. As part of the preferred stock issuance, the
Company will issue warrants to purchase 4,497,000 shares of Series A Preferred
Stock at an exercise price of $5.00 per share to two QIBs.

F-4
<PAGE>
EXCEL LEGACY CORPORATION

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
APRIL 30,
1998
-----------
(UNAUDITED)
<S> <C>
ASSETS

Real estate:
Land............................................................................................... $ 40,529
Buildings.......................................................................................... 88,144
Leasehold interests................................................................................ 1,790
Accumulated depreciation........................................................................... (252)
-----------
Net real estate................................................................................ 130,211

Cash................................................................................................. 40,018
Notes receivable..................................................................................... 23,281
Investment in partnerships........................................................................... 9,240
Interest receivable.................................................................................. 2,999
Pre-development costs................................................................................ 1,751
Other assets......................................................................................... 874
Deferred tax asset................................................................................... 6,636
-----------
$ 215,010
-----------
-----------

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Mortgages payable.................................................................................. $ 36,283
Accounts payable and accrued liabilities........................................................... 2,615
Other liabilities.................................................................................. 14,891
Income taxes payable............................................................................... 227
-----------
Total liabilities.............................................................................. 54,016
-----------
Commitments and contingencies........................................................................ --
Series A Preferred stock, $.01 par value, 50,000,000 shares authorized,
21,281,000 shares issued and outstanding........................................................... 106,405

Stockholders' equity:
Common stock, $.01 par value, 150,000,000 shares authorized,
32,607,804 shares issued and outstanding......................................................... 326
Additional paid-in capital......................................................................... 64,772
Retained earnings.................................................................................. 363
Notes receivable from officers for common shares................................................... (10,872)
-----------
Total stockholders' equity..................................................................... 54,589
-----------
$ 215,010
-----------
-----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-5
<PAGE>
EXCEL LEGACY CORPORATION

STATEMENTS OF INCOME--UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE PERIOD FROM
MONTHS INCEPTION
ENDED (NOV. 17, 1997)
APRIL 30, TO APRIL 30,
1998 1998
----------- ---------------
<S> <C> <C>
Revenues:
Rental................................................................................ $ 1,034 $ 1,034
Interest income and other revenues.................................................... 309 309
----------- ------
Total revenue....................................................................... 1,343 1,343
----------- ------
Expenses:
Interest.............................................................................. 311 311
Depreciation.......................................................................... 262 262
Property operating expenses........................................................... 108 108
General and administrative............................................................ 58 58
----------- ------
Total operating expenses............................................................ 739 739
----------- ------
Income before income taxes.............................................................. 604 604
Provision for income taxes.............................................................. 241 241
----------- ------
Net income............................................................................ $ 363 $ 363
----------- ------
----------- ------
Basic net income per share.............................................................. $ 0.03 $ 0.06
----------- ------
----------- ------
Diluted net income per share............................................................ $ 0.02 $ 0.04
----------- ------
----------- ------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-6
<PAGE>
EXCEL LEGACY CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY--UNAUDITED
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL OFFICER TOTAL
------------------------- PAID-IN NOTES RETAINED STOCKHOLDERS'
NUMBER AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
------------ ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Period from inception (November 17,
1997) to April 30, 1998:

Balance at inception............................... -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock........................... 32,607,804 326 67,469 -- 67,795
Notes receivable from officers for common shares... -- -- -- (10,872) -- (10,872)
Issuance costs..................................... -- -- (2,697) -- -- (2,697)
Net income......................................... -- -- -- -- 363 363
------------ ----- ---------- ----------- ----- ------------
Balance at April 30, 1998.......................... 32,607,804 $ 326 $ 64,772 $ (10,872) $ 363 $ 54,589
------------ ----- ---------- ----------- ----- ------------
------------ ----- ---------- ----------- ----- ------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-7
<PAGE>
EXCEL LEGACY CORPORATION

STATEMENT OF CASH FLOWS--UNAUDITED
(IN THOUSANDS)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOV. 17,
1997)
TO APRIL 30,
1998
--------------
<S> <C>
Cash flows from operating activities:
Net income...................................................................................... $ 363
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization............................................................... 263
Changes in other assets..................................................................... 123
Changes in accounts payable................................................................. 2,615
Changes in other liabilities................................................................ 159
--------------
Net cash provided by operating activities................................................. 3,523
--------------
Cash flows from investing activities:
Real estate acquisitions and construction costs paid............................................ (5,124)
Investment in partnerships...................................................................... (9,240)
Pre-development costs paid...................................................................... (1,751)
Advances for notes receivable................................................................... (111)
--------------
Net cash used in investing activities..................................................... (16,226)
--------------
Cash flows from financing activities:
Issuance of preferred stock..................................................................... 106,405
Principal payments of mortgages and notes payable............................................... (62,091)
Issuance of common stock........................................................................ 11,104
Issuance costs.................................................................................. (2,697)
--------------
Net cash provided by financing activities................................................. 52,721
--------------
Net increase in cash...................................................................... 40,018
Cash at inception................................................................................. --
--------------
Cash at April 30.................................................................................. $ 40,018
--------------
--------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-8
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The financial statements reflect all adjustments of a recurring nature which
are, in the opinion of management, necessary for a fair presentation of the
financial statements. No adjustments were necessary which were not of a normal
recurring nature.

ORGANIZATION

Excel Legacy Corporation (the "Company"), a Delaware Corporation was formed
on November 17, 1997. The Company was originally a wholly-owned subsidiary of
Excel Realty Trust, Inc. ("Excel"), a Maryland corporation and a
self-administered, self-managed real estate investment trust ("REIT"). On March
31, 1998, Excel effected a spin-off of the Company through a special dividend to
the holders of common stock of Excel of all of the outstanding common stock of
the Company held by Excel (the "Spin-off").

The Company was formed to pursue opportunities available to those investors
that are not restricted by the Federal income tax laws governing REITs or
influenced by Excel's objectives of increasing cash flows and maintaining
certain leverage ratios. In connection with the Spin-off, certain real
properties, notes receivable and related assets and liabilities were transferred
to the Company from Excel (Note 2). Upon completion of the Spin-off, the Company
ceased to be a wholly-owned subsidiary of Excel and began operating as an
independent public company.

REAL ESTATE

Certain real estate assets were transferred to the Company from Excel and
recorded at Excel's cost. Other real estate assets acquired subsequent to the
Spin-off were recorded at the Company's cost. Depreciation is computed using the
straight-line method over estimated useful lives of 40 years for buildings.
Expenditures for maintenance and repairs are charged to expense as incurred and
significant renovations are capitalized.

INVESTMENT IN PARTNERSHIPS

The equity method of accounting is used for the Company's investment in
partnerships at April 30, 1998. In May 1998, the Company acquired a majority
interest in a partnership whose accounts will be consolidated with the Company's
accounts (Note 3).

INCOME TAXES

The Company uses the asset and liability method to account for income taxes.
Deferred income tax assets have been recorded to reflect the future tax benefit
of assets acquired from Excel that were recorded at cost for book purposes and
fair market value for tax purposes.

F-9
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
PRE-DEVELOPMENT COSTS

Pre-development costs that are directly related to specific construction
projects are capitalized as incurred. The Company expenses these costs to the
extent they are unrecoverable or it is determined that the related project will
not be pursued.

DEFERRED LEASING AND LOAN ACQUISITION COSTS

Costs incurred in obtaining tenant leases and long-term financing are
amortized to other property expense and interest expense, respectively, on the
straight-line method over the terms of the related leases or debt agreements.

REVENUE RECOGNITION

Base rental revenue is recognized on the straight-line basis, which averages
annual minimum rents over the terms of the leases. Certain of the leases provide
for additional rental revenue by way of percentage rents to be paid based upon
the level of sales achieved by the lessee. Certain of the leases also provide
for tenant reimbursement of common area maintenance and other operating
expenses. All the above revenue is included in the accompanying Statements of
Income as rental revenue.

NET INCOME PER COMMON SHARE

The Company has adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 128, Earnings Per Share effective December 31, 1997. SFAS
No. 128 requires the presentation of basic and diluted earnings per share (Note
9).

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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.

2. SPIN-OFF:

Prior to the Spin-off (Note 1) on March 31, 1998, ERT Development
Corporation ("EDV"), a Delaware Corporation and an affiliate of Excel
transferred four notes receivable, a land parcel, a leasehold interest in a
parcel of land, an office building, a single tenant building, and certain other
assets to Excel for a total consideration of approximately $38,112,000. Excel
contributed to the Company, the above assets from EDV, together with ten single
tenant properties owned by Excel with a book value of approximately $45,747,000,
certain other net assets of approximately $1,158,000, and a property held for
sale with a book value of $14,525,000, in exchange for 23,412,580 common shares
of the Company, assumption of debt by the Company on the ten single tenant
properties of approximately $33,878,000, and issuance of a note payable to Excel
from the Company in the amount of $26,402,000. This note was repaid in April
1998.

The Spin-off took place through a dividend distribution to Excel's common
stockholders, of all the Company's common stock (23,412,580 shares) held by
Excel. The distribution consisted of one share of the Company's common stock for
each share of Excel's common stock held on the record date of March 2,

F-10
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

2. SPIN-OFF: (CONTINUED)
1998. The fair market value of the distribution was approximately $55,956,000 or
$2.39 per share. While the Company has recorded the acquisition of assets and
liabilities at fair market value for tax purposes, the Company has recorded for
book purposes, the assets and liabilities at Excel's and EDV's original book
value. The tax effect of the difference between fair market value and book value
was $6,650,000 and was recorded as a deferred tax asset.

3. REAL ESTATE:

HIGHLANDS RANCH AND WESTMINSTER, COLORADO

In January 1998, the Company acquired two properties under construction
situated on approximately 43.6 acres in Highlands Ranch and Westminster,
Colorado. The acquired properties consist of two 110,000 square foot 24 screen
movie theaters that are occupied by AMC Multi-Cinema, Inc. ("AMC") and were
completed on March 20, 1998 and April 3, 1998, respectively. The Company
provided to AMC letters of credit which covered the construction of the
buildings. As of April 30, 1998, there were no outstanding amounts on the
letters of credit. In May 1998, $7,017,000 was drawn on the letters of credit
and an additional $7,588,000 of draws are expected. The $14,605,000 of estimated
remaining draws is included in the accompanying Balance Sheet in other
liabilities (Note 6 and 8). The total cost of these properties is expected to
total approximately $50,000,000.

SINGLE TENANT BUILDINGS

The Company acquired ten single tenant buildings from Excel in connection
with the Spin-off. Eight of the buildings are leased to Wal-Mart Stores, Inc.
and are located in Colorado, Illinois, Indiana (2), Michigan, Pennsylvania,
Texas, and Wisconsin. The other two properties are leased to Lowe's Home
Centers, Inc. and are located in Indiana and Ohio. The ten properties have a
total Gross Leasable Area ("GLA") of 981,266 square feet. The Company acquired
these properties for $45,747,000 and assumed $33,988,000 of mortgage debt (Note
6) and other net liabilities.

SCOTTSDALE GALLERIA

The Company acquired the Scottsdale Galleria ("Galleria") from Excel in
connection with the Spin-off. The Scottsdale Galleria is situated on
approximately 6.3 acres and consists of (i) an enclosed shopping mall contained
in two separate buildings, and (ii) a multi-level parking garage. The main
building is a four level building with a transparent glass roof and the smaller
building contains the "5th Avenue Shops". The Company acquired this property for
$14,525,000. This property is substantially vacant and is under consideration
for a mixed use entertainment redevelopment project.

SCOTTSDALE TOWERS

The Company acquired approximately 3.6 acres of vacant land located in
Scottsdale, Arizona which was originally owned by EDV in connection with the
Spin-off. The land was acquired for approximately $3,724,000 and was acquired
along with other properties located in the Scottsdale area as part of the
Galleria redevelopment plan.

F-11
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

3. REAL ESTATE: (CONTINUED)
SCOTTSDALE CITY CENTRE

The Company acquired the Scottsdale City Centre, a 64,262 square foot office
building situated on approximately two acres in Scottsdale, Arizona (the "City
Centre"). The City Centre was originally owned by EDV and transferred to Excel
and to the Company in connection with the Spin-off. The City Centre was acquired
for $7,885,000 and was encumbered by mortgage debt of $2,571,000. This property
was acquired as a strategic expansion site for the Galleria redevelopment
project.

BRIO LAND

The Company acquired approximately 0.5 acres of land located in Scottsdale,
Arizona which was originally owned by EDV in connection with the Spin-off. The
land currently contains a 3,700 square foot building which is leased to Brio
Restaurant and was acquired for approximately $1,602,000. The property is
expected to be part of the Galleria redevelopment plan along with the other
above properties located in Scottsdale.

RANCHO BERNARDO LAND

In March 1998, the Company acquired approximately 11.1 acres of land located
in the community of Rancho Bernardo in San Diego, California for approximately
$4,072,000. The land was acquired for office or industrial development.

GRAND CANYON LEASEHOLD

The Company acquired a leasehold interest in approximately 6.5 acres of land
located in Tusayan, Arizona at the entrance to Grand Canyon National Park. This
leasehold interest was originally owned by EDV and acquired in connection with
the Spin-off. The leasehold interest was acquired for $1,790,000 and is subject
to a lease with a term of 50 years and two ten year renewal options. A
development project is currently under development on the land (Note 5).

TELLURIDE LAND

In January 1998, the Company acquired a parcel of land located at the base
of Telluride mountain in Telluride Mountain Village Ski Resort in Telluride,
Colorado for approximately $763,000. The land was acquired for future
development.

DESERT FASHION PLAZA

In May 1998, the Company acquired a majority interest in Desert Fashion
Plaza, L.L.C., a Delaware limited liability company which owns an urban mall
located in Palm Springs, California (the "Desert Fashion Plaza") for
approximately $13,668,000. Desert Fashion Plaza contains approximately 290,000
square feet of GLA. Presently the mall is anchored by Saks Fifth Avenue and is
adjacent to the Hyatt Regency Hotel. The Company has acquired this property for
redevelopment.

F-12
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

4. NOTES RECEIVABLE:

LOS ARCOS

In connection with the Spin-off, the Company acquired a $16,225,000
promissory note payable by Los Arcos Development, LLC, the owner of a 700,000
square foot indoor regional mall located in Scottsdale, Arizona. The Company
also received $2,397,000 of accrued interest in connection with the Spin-off.
Interest on the note accrues at the rate of 12% per annum. The note matures on
the earlier of (i) the sale of the property or (ii) December 2003. Accrued
interest on the Los Arcos loan becomes payable out of the property's net cash
flow once the borrower's development of the property is completed. The note is
secured by a first mortgage on the property and includes a profit participation
upon the property's sale.

FIRST STREET

The Company acquired a $5,518,000 promissory note in connection with the
Spin-off payable by First Street Investments Limited Partnership, the owner of a
120,000 square foot, eight story building located in downtown Phoenix, Arizona.
The Company also assumed $137,000 of accrued interest in connection with the
Spin-off. The note matures on the earlier of (i) the sale of the property or
(ii) May 2004 and is secured by a subordinated mortgage on the property and
includes a profit participation upon sale of the property. Until the maturity
date, the borrower is to pay interest only at the rate of 11% per annum.
Interest not paid currently accrues at the rate of 12% per annum.

GRAND CANYON

In connection with the Spin-off, the Company acquired from Excel a
$1,050,000 promissory note payable by Fain Properties Limited Partnership, the
owner of approximately 17 acres of undeveloped land located in Tusayan, Arizona
near the Grand Canyon National Park. The note accrues interest at 10% and is
secured by a first mortgage on the property. The note matures in September 1998.

OTHER

The Company has outstanding two additional notes receivable it obtained in
connection with the Spin-off. These notes total $488,000 at April 30, 1998 and
bear interest at 12% per annum.

OFFICERS

In connection with the sale of common stock to certain of the Company's
officers and employees (Note 9), the Company issued $10,872,000 of notes
receivable due from certain of the Company's officers. The notes bear interest
at 7%, are recourse obligations of the note holders, and are due in March 2003.
The notes have been offset against stockholders' equity on the Company's
accompanying Balance Sheet.

5. INVESTMENTS:

ENTERCITEMENT

In April 1998, the Company invested $6,000,000 in EnterCitement, LLC
("EnterCitement"), a theme park development company. EnterCitement owns
approximately 510 acres of land in Indianapolis, Indiana, on which it plans to
develop a theme park. The Company currently holds a 23.7% ownership interest in
EnterCitement and an option to acquire an additional ownership interest of up to
55%.

F-13
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

5. INVESTMENTS: (CONTINUED)
THE GRAND HOTEL AND CANYON STAR

The Company has invested $3,240,000 in a joint venture arrangement with
Canyon Ventures, LLC for the development of a hotel and dinner theater and
retail shop situated near the south rim entrance to the Grand Canyon National
Park in Tusayan. An additional $3,708,000 has been invested subsequent to April
30, 1998.

TENANTFIRST

In May 1998, the Company acquired TenantFirst Real Estate Services, Inc.
("TenantFirst"). In connection with the acquisition, the Company paid $138,000
in cash and issued 850,000 shares of the Company's common stock. TenantFirst
performs property management and development services for various commercial
properties located in San Diego, California.

6. MORTGAGES PAYABLE:

The Company had $36,283,000 in mortgages payable outstanding at April 30,
1998 at 7.625% to 8.528%. The mortgages are due on various dates through 2014
and monthly payments approximate $405,000. The mortgages are collateralized by
real estate and an assignment of rents.

The principal payments required to be made on mortgages payable over the
next five years are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
- -----------------------------------------------------------------------------------
<S> <C>
1998, remaining three months....................................................... $ 1,418
1999............................................................................... 2,185
2000............................................................................... 2,357
2001............................................................................... 2,543
2002............................................................................... 2,752
Thereafter......................................................................... 25,028
---------
$ 36,283
---------
---------
</TABLE>

Mortgages of $29,982,000 are fully amortizing with the final monthly
payments to be made between the years 2004 and 2018.

In May 1998, the Company borrowed approximately $18,100,000 from a bank with
a fixed interest rate of 7.52%. The note is non-recourse to the Company and
secured by one of the properties leased to AMC (Note 3). The note is fully
amortizing over 20 years and expires in 2018.

7. INCOME TAXES:

At April 30, 1998, the Company had a deferred tax asset of $6,636,000. The
deferred tax asset is non-current and relates to the difference between fair
market value and book value of the assets acquired from Excel in connection with
the Spin-off. No valuation allowance has been provided against the asset as the
Company believes the asset will be realized upon eventual disposition of the
related properties. The provision for income taxes consists of federal expense
of $188,000 and state expense of $53,000 both of which is current.

F-14
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES:

The Company has provided letters of credit to AMC to complete construction
on two properties (Note 3). At April 30, 1998, the total estimated amounts
remaining to be drawn on the letters of credit was $14,605,000 of which
$7,017,000 was drawn in May 1998. The draw was converted to a bank term loan at
LIBOR plus 1.2% due on June 30, 1998. The total estimated liability of
$14,605,000 is included in the accompanying Balance Sheet in other liabilities.

The Company expects to fund the initial $19,000,000 of capital required to
fund a joint venture, Millennia Car Wash, LLC, which was formed to acquire car
wash properties.

9. CAPITAL STOCK:

COMMON SHARES

In connection with the Spin-off, 23,412,580 shares of common stock were
issued by the Company to its then parent company, Excel, who then distributed
the shares on a one for one basis. The shares had a book value and estimated
fair market value of $1.68 and $2.39 per share, respectively.

On March 31, 1998, the Company sold 9,195,224 shares of common stock to
certain officers and employees of the Company for $2.39 per share. The Company
received cash of $11,104,000 and issued notes receivable of $10,872,000 in
connection with the sale. The shares issued in exchange for the notes receivable
have been offset against stockholders' equity on the accompanying balance sheet.

SERIES A PREFERRED SHARES

On March 31, 1998, the Company issued 21,281,000 shares of Series A
Preferred Stock at $5.00 per share (the "Preferred A Shares"). Holders of the
Preferred A Shares are entitled to receive, when and if declared by the Board of
Directors, cumulative cash dividends payable in an amount per share equal to the
cash dividends, if any, on the shares of common stock, on a one for one basis,
subject to certain circumstances. The Preferred A Shares are also entitled to a
liquidation preference of $5.00 per share plus a premium of 7% per annum in the
event of any liquidation, dissolution or other winding up of the affairs of the
Company. The Preferred A Shares are also convertible into common stock by the
Company if certain circumstances regarding the price of the common stock are
met. Such circumstances were met in May 1998, and on May 18, 1998, the Company
exercised its right to convert all of the outstanding shares of the Preferred A
Shares into common stock, which conversion is expected to take place on August
18, 1998 with a July 28, 1998 record date.

F-15
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

9. CAPITAL STOCK--CONTINUED:

EARNINGS PER SHARE (EPS)

In accordance with the disclosure requirements of SFAS No. 128 (Note 1), a
reconciliation of the numerator and denominator of basic and diluted EPS is
provided as follows (in thousands, except per share amounts).

<TABLE>
<CAPTION>
THREE MONTHS INCEPTION
ENDED (NOV. 17, 1997)
APRIL 30, TO APRIL 30,
1998 1998
------------- ---------------
<S> <C> <C>
BASIC EPS
NUMERATOR:
Net income..................................................................... $ 363 $ 363
------ -----
------ -----
DENOMINATOR:
Weighted average of common shares outstanding.................................. 10,991 5,964
------ -----
------ -----
EARNINGS PER SHARE:.............................................................. $ 0.03 $ 0.06
------ -----
------ -----
DILUTED EPS
NUMERATOR:
Net income..................................................................... $ 363 $ 363
------ -----
------ -----
DENOMINATOR:
Weighted average of common shares outstanding.................................. 10,991 5,964
Effect of diluted securities:
Preferred A Shares........................................................... 7,173 3,893
Options...................................................................... 124 124
------ -----
18,288 9,981
------ -----
------ -----
EARNINGS PER SHARE:.............................................................. $ 0.02 $ 0.04
------ -----
------ -----
</TABLE>

10. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:

The amount paid for interest during the three months ended April 30, 1998
was approximately $339,000 of which approximately $267,000 was capitalized as
construction costs.

On March 31, 1998, Excel spun-off certain assets to the Company in the form
of a dividend and note payable (Notes 1 and 2). Also on March 31, 1998, common
shares were issued to certain officers of the Company in exchange for cash and
$10,872,000 in notes receivable (Note 4). During the three months ended April
30, 1998, the Company borrowed $35,523,000 in notes payable in connection with
the construction of the AMC theaters. The estimated additional amount of
construction costs incurred of $14,605,000 has been accrued for as a non-cash
item.

11. MINIMUM FUTURE RENTALS:

The Company leases its operating properties under noncancelable operating
leases generally requiring the tenant to pay a minimum rent. The leases
generally either (i) require the tenant to pay all expenses

F-16
<PAGE>
EXCEL LEGACY CORPORATION

NOTES TO FINANCIAL STATEMENTS--UNAUDITED (CONTINUED)

11. MINIMUM FUTURE RENTALS: (CONTINUED)
of operating the property such as insurance, property taxes, and structural
repairs and maintenance, or (ii) require the tenant to reimburse the Company for
the tenant's share of real estate taxes and other common area maintenance
expenses or for the tenant's share of any increase in expenses over a base year.

Minimum future rental revenue for the next five years for the commercial
real estate owned at April 30, 1998 and subject to noncancelable operating
leases is as follows (in thousands):

<TABLE>
<CAPTION>
YEAR
- ----------------------------------------------------------------------------------
<S> <C>
1998, remaining three months...................................................... $ 2,710
1999.............................................................................. 10,628
2000.............................................................................. 10,418
2001.............................................................................. 10,320
2002.............................................................................. 10,100
Thereafter........................................................................ 119,752
</TABLE>

F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Excel Legacy Corporation

We have audited the accompanying combined balance sheets of Excel Legacy
Corporation Asset Group (the "Portfolio"), as defined in Note 1, as of July 31,
1997 and 1996 and the related combined statements of operations, changes in
investment by Excel Realty Trust, Inc. and cash flows for each of the three
years in the period ended July 31, 1997. These financial statements are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Excel
Legacy Corporation Asset Group as of July 31, 1997 and 1996 and the combined
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997, in conformity with generally accepted accounting
principles.

As more fully described in Note 1, certain general and administrative
expenses were paid by Excel Realty Trust, Inc. and allocated to the Portfolio
principally based on Excel Realty Trust, Inc.'s specific identification of
individual cost items based upon estimated levels of effort devoted by its
corporate administrative departments. We have reviewed the methods and
documentation used in allocating such amounts and, in the circumstances, we
believe the methods used are reasonable and the documentation appropriate.
However, if the Portfolio had operated as a separate entity, actual expenses
might have been different.

COOPERS & LYBRAND L.L.P.

San Diego, California

November 24, 1997

F-18
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

COMBINED BALANCE SHEETS
(IN THOUSANDS)

<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1997
--------- --------- APRIL 30,
1998
------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS

Real estate:
Land........................................................................ $ 15,324 $ 15,324 $ 40,529
Buildings................................................................... 34,789 34,789 88,144
Real estate under development............................................... 13,888 14,060 --
Leasehold interest.......................................................... -- -- 1,790
Accumulated depreciation.................................................... (2,953) (3,823) (252)
--------- --------- ------------
Net real estate........................................................... 61,048 60,350 130,211

Notes receivable.............................................................. 1,050 21,958 23,280
Interest receivable........................................................... 71 1,379 2,936
--------- --------- ------------
$ 62,169 $ 83,687 $ 156,427
--------- --------- ------------
--------- --------- ------------

LIABILITIES AND INVESTMENT BY EXCEL REALTY TRUST, INC.

Liabilities:
Mortgages payable........................................................... $ 36,754 $ 35,115 $ 36,283
Interest payable............................................................ 253 228 238
Other liabilities........................................................... -- -- 15,188
--------- --------- ------------
Total liabilities......................................................... 37,007 35,343 51,709

Commitments and contingencies................................................. -- -- --

Investment by Excel Realty Trust, Inc......................................... 25,162 48,344 104,718
--------- --------- ------------
$ 62,169 $ 83,687 $ 156,427
--------- --------- ------------
--------- --------- ------------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-19
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental revenue................................................. $ 5,897 $ 4,937 $ 4,937 $ 3,702 $ 4,866
Interest....................................................... -- 95 1,458 802 1,956
--------- --------- --------- --------- ---------
Total revenue................................................ 5,897 5,032 6,395 4,504 6,822
--------- --------- --------- --------- ---------
Operating expenses:
Interest....................................................... 3,185 3,080 2,896 2,000 2,161
Depreciation and amortization.................................. 870 870 870 652 881
Administrative expenses........................................ 548 563 799 660 543
Property expenses.............................................. -- -- -- -- 286
--------- --------- --------- --------- ---------
Total operating expenses..................................... 4,603 4,513 4,565 3,312 3,871
--------- --------- --------- --------- ---------
Income before income taxes....................................... 1,294 519 1,830 1,192 2,951
Provision for income taxes....................................... 515 207 729 474 1,174
--------- --------- --------- --------- ---------
Net income..................................................... $ 779 $ 312 $ 1,101 $ 718 $ 1,777
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-20
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

COMBINED STATEMENTS OF CHANGES IN INVESTMENT BY
EXCEL REALTY TRUST, INC.
(IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
Investment by Excel Realty Trust, Inc. at August 1, 1994.............................................. $ 17,441
Net income for the year ended July 31, 1995......................................................... 779
Net return to Excel Realty Trust, Inc............................................................... (276)
----------
Investment by Excel Realty Trust, Inc. at July 31, 1995............................................... 17,944
Net income for the year ended July 31, 1996......................................................... 312
Net investment by Excel Realty Trust, Inc........................................................... 6,906
----------
Investment by Excel Realty Trust, Inc. at July 31, 1996............................................... 25,162
Net income for the year ended July 31, 1997......................................................... 1,101
Net investment by Excel Realty Trust, Inc........................................................... 22,081
----------
Investment by Excel Realty Trust, Inc. at July 31, 1997............................................... 48,344
Net income for the nine months ended April 30, 1998 (unaudited)..................................... 1,777
Net investment by Excel Realty Trust, Inc. (unaudited).............................................. 54,597
----------
Investment by Excel Realty Trust, Inc. at April 30, 1998 (unaudited).................................. $ 104,718
----------
----------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-21
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED JULY 31, APRIL 30,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
--------- --------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 779 $ 312 $ 1,101 $ 718 $ 1,777
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization................... 870 870 870 652 881
Change in interest receivable and other
assets........................................ -- (71) (1,308) (1,504) (1,557)
Change in interest payable and other
liabilities................................... (8) (9) (24) (22) 10
--------- --------- ---------- ---------- ---------
Net cash provided by operating activities......... 1,641 1,102 639 (156) 1,111
--------- --------- ---------- ---------- ---------
Cash flows from investing activities:
Cash paid for real estate acquired and
developed....................................... -- (5,488) (171) -- (46,420)
Cash paid for leasehold interest.................. -- -- -- -- (1,790)
Advances for notes receivable..................... -- (1,050) (20,908) (20,908) (1,322)
--------- --------- ---------- ---------- ---------
Net cash used in investing activities............. -- (6,538) (21,079) (20,908) (49,532)
--------- --------- ---------- ---------- ---------
Cash flows from financing activities:
Principal payments of mortgages payable........... (1,365) (1,470) (1,641) (1,190) (1,725)
Net investment by Excel Realty Trust, Inc......... (276) 6,906 22,081 22,254 50,146
--------- --------- ---------- ---------- ---------
Net cash provided by (used in) financing
activities...................................... (1,641) 5,436 20,440 21,064 48,421
--------- --------- ---------- ---------- ---------
Net increase in cash................................ -- -- -- -- --
Cash at beginning of period......................... -- -- -- -- --
--------- --------- ---------- ---------- ---------
Cash at end of period............................... $ -- $ -- $ -- $ -- $ --
--------- --------- ---------- ---------- ---------
--------- --------- ---------- ---------- ---------
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-22
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION:

FORMATION OF THE COMPANY

The following assets were acquired prior to July 31, 1997 and were
transferred to the Company on March 31, 1998:

- Ten single tenant free-standing buildings with a book value of $45.6
million and encumbered by mortgages of $33.7 million at April 30, 1998.

- A 670,000 square foot shopping mall located in Scottsdale, Arizona which
is substantially vacant. Upon transfer of the property on March 31, 1998
the property was reclassified from "real estate under development" to
"land and buildings" on the accompanying combined balance sheet at April
30, 1998. The book value is $14.8 million at April 30, 1998.

- Four notes receivable related to development projects located in Arizona
(3) and California. The principal amount of the notes at April 30, 1998 is
$23.2 million.

The following additional assets were acquired subsequent to July 31, 1997
and were transferred to the Company on March 31, 1998:

- A single-tenant free-standing building with a book value of $1.6 million
and unencumbered at April 30, 1998.

- An office building containing 64,000 square feet located in Scottsdale,
Arizona. This building was acquired in October 1997 for $7.9 million. At
April 30, 1998 the property has a book value of approximately $7.9 million
and is encumbered by a mortgage of $2.6 million.

- A leasehold interest in 6.5 acres of land located in Tusayan, Arizona. The
leasehold interest was acquired in November 1997 for approximately $1.8
million and has a term of 50 years with two 10-year renewal options.

In January 1998, the Company acquired two properties under construction
situated on approximately 43.6 acres in Highlands Ranch and Westminster,
Colorado. The acquired properties consist of two movie theaters that are
occupied by AMC Multi-Cinema, Inc. ("AMC") and were completed on March 20, 1998
and April 3, 1998, respectively. The Company provided to AMC letters of credit
which covered the construction of the buildings. As of April 30, 1998, there
were no outstanding amounts on the letters of credit. In May 1998, $7,017,000
was drawn on the letters of credit and an additional $7,588,000 of draws are
expected. The total estimated amount of draws of $14,605,000 is included in the
accompanying balance sheet in "other liabilities" (Notes 6 and 8). The total
cost of these properties is expected to total approximately $50,000,000.

The Company's authorized stock consists of 150,000,000 shares of $.01 par
value common stock and 50,000,000 shares of $.01 par value preferred stock.

F-23
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND BASIS OF PRESENTATION: (CONTINUED)
BASIS OF PRESENTATION

These financial statements present the financial position, results of
operations, and cash flows for the Excel Legacy Corporation Asset Group,
hereafter referred to as the Company, as if it were a separate entity of Excel
for all periods presented. Excel and EDV's historical basis in the assets and
liabilities has been carried over. Changes in investment by Excel represent the
net income of the Company plus the net change in cash and non-cash items
transferred between the Company and Excel and do not reflect capital
transactions of the Company or debt repayments and capital issued to Excel and
the holders of common stock of Excel.

The combined financial statements include assets, liabilities and operations
to be transferred to the Company in connection with the acquisition of assets
from Excel and EDV. All significant intercompany accounts have been eliminated.
Certain general and administrative expenses were paid by Excel and allocated to
the Company, principally based on Excel's specific identification of individual
cost items based upon estimated levels of effort devoted by its corporate
administrative departments. Expense amounts allocated to administrative expenses
were $799,000, $563,000 and $548,000 for each of the years ended July 31, 1997,
1996 and 1995, respectively, and $543,000 and $660,000 for each of the nine
month periods ended April 30, 1998 and 1997, respectively. In the opinion of
management, the methods for allocating corporate administrative expenses are
reasonable.

The accompanying financial statements do not include deferred tax assets of
the Company resulting from the assets transferred to the Company on March 31,
1998. Additionally, the above assets do not include all the assets held by the
Company at April 30, 1998 nor do the accompanying financial statements purport
to reflect the operations of the assets if they had been held by the Company for
the full periods presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

REAL ESTATE

Land, buildings and real estate under development are recorded at cost.
Depreciation is computed using the straight-line method over estimated useful
lives of 40 years for buildings. The leasehold interest is being amortized over
the initial lease term of 50 years using the straight-line method. Expenditures
for maintenance and repairs are charged to expense as incurred and significant
renovations are capitalized. Direct costs incurred for properties under
development or redevelopment are capitalized and depreciation is not charged to
the property until the project is completed.

The Company assesses whether there has been a permanent impairment in the
value of its real estate by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's ability
to pay rent under the terms of the lease. If these factors indicate that there
has been a permanent impairment in the value of its real estate, the Company
estimates the future cash flows expected to result from the operations of the
property and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the property, the Company will recognize a permanent impairment loss,
equal to the amount by which the carrying amount of the property exceeds the
fair value of the property.

F-24
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Company's income tax provision is determined as if the Company had paid
income tax on taxable income on a separate company basis. Taxes payable are
charged directly against the investment by Excel. The Company's income tax
provision, all of which is current, is based on income before taxes. Deferred
income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities of their financial
reporting amounts at each year end based on enacted laws and statutory tax rates
applicable to the years in which the differences are expected to affect taxable
income. There are no significant timing differences between financial reporting
and taxable income and as such, the Company has not recorded any deferred income
tax assets or liabilities for the Excel Legacy Corporation Asset Group on the
accompanying Balance Sheet.

REVENUE RECOGNITION

Base rental revenue is recognized on the straight-line basis, which averages
annual minimum rents over the terms of the leases. The leases also provide that
the tenant directly pay all of the common area maintenance and other operating
expenses.

USE OF ESTIMATES

CONCENTRATION OF CREDIT RISK

As of April 30, 1998, eight of the 14 operating properties held by the
Company are leased to Wal-Mart. Rents from these stores account for
approximately 45.2% of the Company's scheduled rental revenue. Two of the
operating properties, which account for 34.2% of scheduled rental revenue, are
leased to AMC. While the financial position of the Company may be adversely
affected by financial difficulties experienced by Wal-Mart or AMC the Company
has not experienced any such events. Wal-Mart and AMC Entertainment, Inc., AMC's
parent corporation are publicly-traded companies, and financial and other
information regarding these companies is on file with the Securities and
Exchange Commission.

Additionally, two of the Company's notes receivable which account for 95.0%
of the Company's scheduled interest revenue at April 30, 1998 are with the same
developer. EDV is committed to provide up to approximately $7,800,000 in
additional advances related to these notes.

INTERIM FINANCIAL INFORMATION

The accompanying financial statements as of April 30, 1998 and for the nine
months ended April 30, 1998 and 1997 are unaudited but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair statement of the financial position and the operating
results and cash flows of such periods. Interim results are not necessarily
indicative of results for the entire year or future periods.

F-25
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. REAL ESTATE:

The financial statements include 13 single tenant free-standing buildings
which are located in Arizona, Colorado (3), Illinois, Indiana (3), Michigan,
Ohio, Pennsylvania, Texas, and Wisconsin and an office building in Arizona.
Eight of the buildings are leased by Wal-Mart, two of the buildings are leased
by AMC and two of the buildings are leased by Lowe's. The financial statements
also include a leasehold interest in land located in Arizona and land parcels
located in Nevada and California.

Additionally, financial statements include a property located in Scottsdale,
Arizona that was held for development. The shopping center is substantially
vacant with large amounts of demolition having occurred. Depreciation expense
was not charged to the property and costs incurred during redevelopment were
capitalized. Upon transfer of this property to the Company at March 31, 1998 the
property was reclassified to "land and buildings" on the accompanying balance
sheet.

4. NOTES RECEIVABLE:

The Company holds a $16,225,000 mortgage loan receivable from a developer
and owner of a shopping center located in Scottsdale, Arizona. The borrower
intends to redevelop the property through the acquisition of adjoining parcels
and the construction of certain improvements. The loan was originated in
December 1996, and matures upon the sale of the property and bears interest at
the rate of 12.0%. In addition, the borrower must pay the Company a "profits
participation" equal to 50.0% of the profits generated by the property. The loan
is non-recourse and repayment of the loan is collateralized by a first mortgage
on the property. Interest receivable on the loan at April 30, 1998, July 31,
1997 and July 31, 1996 was $2,557,000, $1,193,000 and $0, respectively.

F-26
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

4. NOTES RECEIVABLE: (CONTINUED)
Summarized unaudited financial statements as of and for the twelve months
ended December 31, 1997 for the shopping center are as follows:

<TABLE>
<S> <C>
BALANCE SHEET:

Real estate, net of depreciation............................. $15,445,000
Other assets................................................. 1,741,000
----------
$17,186,000
----------
----------

Notes payable to the Company................................. $16,593,000
Other liabilities............................................ 2,365,000
----------
18,958,000
Partners' deficit............................................ (1,772,000)
----------
$17,186,000
----------
----------

STATEMENT OF OPERATIONS:

Total revenues............................................... $3,293,000
Operating expenses:
Property................................................... (1,737,000)
Interest................................................... (1,945,000)
Depreciation............................................... (322,000)
Amortization............................................... (251,000)
----------
Net operating loss....................................... $ (962,000)
----------
----------
</TABLE>

The Company holds a $5,518,000 promissory note receivable from a developer
and owner of an eight story office building in downtown Phoenix, Arizona. The
loan was originated in May 1997 and matures upon the sale of the property by the
borrower. Until maturity, the loan bears interest at 11.0% per annum. In
addition, the borrower must pay the Company a "profits participation" equal to
50.0% of the profits generated by the property. The loan is non-recourse and
repayment of the loan is collateralized by a first mortgage on the property.
Interest receivable was $186,000, $84,000 and $0 at April 30, 1998, July 31,
1997 and July 31, 1996, respectively.

The Company holds a $1,050,000 promissory note receivable from an owner of a
land parcel located in Arizona. The loan originated in October 1995 and matures
in September 1998. Until the maturity date, the borrower is to pay interest at
the rate of 7.0% per annum. In addition, upon maturity, prepayment or
acceleration of the note, the borrower must pay additional interest from October
1995 on the principal amount of the note at the rate of 3.0% per annum. The note
is non-recourse and repayment of the loan is collateralized by a first mortgage
on the property.

At April 30, 1998, the Company has approximately $110,000 in notes
receivable from a developer relating to predevelopment expenses of a property
located in San Diego, California. The outstanding amounts related to these
advances bear interest at the rate of 12.0%. EDV is committed to provide up to
$2,500,000 in total advances related to this project.

F-27
<PAGE>
EXCEL LEGACY CORPORATION ASSET GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

5. MORTGAGES PAYABLE:

Ten of the Company's single free-standing buildings are encumbered by
mortgages. The Company's office building is encumbered by a 8.125% mortgage due
in 2006. Interest rates on the properties range from 7.625% to 8.75% and mature
on various dates to 2014. Monthly payments at April 30, 1998 total $405,000. The
loans are non-recourse and repayment of the loans by the Company is
collateralized by a first mortgage on the properties.

The principal payments required to be made on mortgages payable are as
follows (in thousands):

<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998, remaining three months:...................................................... $ 1,418
1999............................................................................... 2,185
2000............................................................................... 2,357
2001............................................................................... 2,543
2002............................................................................... 2,752
Thereafter......................................................................... 25,628
---------
$ 36,283
---------
---------
</TABLE>

6. MINIMUM FUTURE RENTALS:

The Company leases its properties to tenants under noncancelable operating
leases generally requiring the tenant to pay a minimum rent. The leases
generally either (i) require the tenant to pay all expenses of operating the
property such as insurance, property taxes, and structural repairs and
maintenance, or (ii) require the tenant to reimburse the Company for the
tenant's share of real estate taxes and other common area maintenance expenses.
Minimum future rental revenue for the next five years is as follows (in
thousands):

<TABLE>
<CAPTION>
YEAR
- ----------------------------------------------------------------------------------
<S> <C>
1998, remaining three months:..................................................... $ 2,710
1999.............................................................................. 10,628
2000.............................................................................. 10,418
2001.............................................................................. 10,320
2002.............................................................................. 10,100
Thereafter........................................................................ 119,752
----------
$ 163,928
----------
----------
</TABLE>

7. STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURE:

The amounts paid for interest during the years ended July 31, 1997, 1996 and
1995 were $2,920,000, $3,089,000, and $3,193,000, respectively. For the nine
months ended April 30, 1998 and 1997, interest of $2,219,000 and $1,950,000 was
paid, respectively. For the nine months ended April 30, 1998, the Company
assumed mortgages payable of $2,893,000 in conjunction with an office building
acquired in Scottsdale, Arizona and assumed $15,188,000 in other liabilities in
connection with the contribution of two buildings leased to AMC. Additionally,
when certain assets were transferred to the Company accumulated depreciation was
adjusted against the book value of the assets.

F-28
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is an itemized statement of expenses incurred in connection
with this Registration Statement. All such expenses will be paid by the Company.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 31,390
Legal fees and expenses........................................... 50,000
Accounting fees and expenses...................................... 25,000
Printing and engraving expenses................................... 25,000
Blue Sky fees and expenses........................................ 5,000
Transfer agent and registrar fees................................. 5,000
Miscellaneous..................................................... 8,610
---------
TOTAL......................................................... $ 150,000
---------
---------
</TABLE>

- ------------------------

All of the above items are estimates, except the Securities and Exchange
Commission registration fee.

ITEM 32. SALES TO SPECIAL PARTIES.

See Item 33.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with the Spin-off, Excel and EDV transferred to the Company
certain real properties, notes receivable and related assets and liabilities
held by Excel and EDV. As consideration for such asset transfers, the Company
issued to Excel (i) 23,412,580 shares of Common Stock in order to effect the
Spin-off, and (ii) a promissory note payable to Excel in the amount of
approximately $26.4 million. The note was repaid by the Company in April 1998.
See "THE COMPANY--General" and "BUSINESS AND PROPERTIES."

In March 1998, upon consummation of the Spin-off, the Company sold (i)
9,195,224 shares of Common Stock in a private placement to certain of the
Company's officers at a price per share of $2.39 (the estimated market value of
the Common Stock as of the Spin-off Date based upon the value of the assets
transferred to the Company), for an aggregate purchase price of approximately
$22.0 million, and (ii) 16,425,000 shares of Series A Preferred Stock in a
private placement to the Selling Holders at a price per share of $5.00, for an
aggregate purchase price of approximately $82.1 million. The Company granted to
certain Selling Holders, in connection with their purchase of Series A Preferred
Stock described above, warrants to purchase 4,497,000 shares of Series A
Preferred Stock at an exercise price of $5.00 per share. The warrants were
exercised on the Spin-off Date. The Company relied upon an exemption from
registration under Rule 506 of Regulation D under the Securities Act in
connection with these private placements. For a list of the purchasers in the
foregoing private placements and the respective amounts of Common Stock and
Series A Preferred Stock purchased, see "SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT." For a description of the rights, preferences
and privileges of the Series A Preferred Stock, see "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK--Series A Preferred Stock."

II-1
<PAGE>

In May 1998, the Company acquired TenantFirst, which was formed and operated
by Kelly D. Burt. As consideration the Company issued to Mr. Burt 850,000 shares
of Common Stock and $137,500 in cash. In connection with the acquisition of
TenantFirst, the Company hired Mr. Burt as a director and Executive Vice
President--Development of the Company. The Company relied upon an exemption from
registration under Section 4(2) of the Securities Act in connection with this
private placement.

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Articles Eighth and Ninth of the Company Certificate and Article VIII of the
Company Bylaws (the "Director Liability and Indemnification Provisions") limit
the personal liability of the Company's directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty. The Director
Liability and Indemnification Provisions define and clarify the rights of
certain individuals, including the Company's directors and officers, to
indemnification by the Company in the event of personal liability or expenses
incurred by them as a result of certain litigation against them. Such provisions
are consistent with Section 102(b)(7) of the DGCL, which is designed, among
other things, to encourage qualified individuals to serve as directors of
Delaware corporations by permitting Delaware corporations to include in their
articles or certificates of incorporation a provision limiting or eliminating
directors' liability for monetary damages and with other existing DGCL
provisions permitting indemnification of certain individuals, including
directors and officers. The limitations of liability in the Director Liability
and Indemnification Provisions may not affect claims arising under the Federal
securities laws.

Article Ninth of the Company Certificate protects directors against monetary
damages for breaches of their fiduciary duty of care, except as set forth below.
Under the DGCL, absent Article Ninth, directors could generally be held liable
for gross negligence for decisions made in the performance of their duty of care
but not for simple negligence. Article Ninth eliminates director liability for
negligence in the performance of their duties, including gross negligence.
Directors remain liable for breaches of their duty of loyalty to the Company and
its stockholders, as well as acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law and transactions
from which a director derives improper personal benefit. Article Ninth does not
eliminate director liability under Section 174 of the DGCL, which makes
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions and expressly sets forth a negligence standard with respect to
such liability.

II-2
<PAGE>
elimination of liability of directors for monetary damages in the circumstances
described above may deter persons from bringing third-party or derivative
actions against directors to the extent such actions seek monetary damages.

Under Section 145 of the DGCL, directors and officers as well as other
employees and individuals may be indemnified against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement in connection
with specified actions, suits or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation--a "derivative action") if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard of
care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred in
connection with defense or settlement of such an action, and the DGCL requires
court approval before there can be any indemnification where the person seeking
indemnification has been found liable to the Company.

Article VIII of the Company Bylaws provides that all directors and officers
of the Company are entitled to indemnification as set forth in the Company
Certificate.

In addition to the provisions of the Company Certificate and the Company
Bylaws summarized above, the Company has entered into agreements with its
directors and executive officers that will require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason
of their status or service as directors or officers to the fullest extent
permitted by law. See "MANAGEMENT--Indemnification Agreements."

ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

Not applicable.

ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements. All required Financial Statements are included in
the Prospectus.

(b) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- -------------------- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 (6) Distribution Agreement, dated as of March 31, 1998, by and among Excel Realty Trust, Inc., Excel
Legacy Corporation and ERT Development Corporation.

3.1 (2) Amended and Restated Certificate of Incorporation of Excel Legacy Corporation.

3.2 (2) Amended and Restated Bylaws of Excel Legacy Corporation.

4.1 (3) Form of Common Stock Certificate.

4.2 (6) Certificate of Designations of the Series A Preferred Stock of Excel Legacy Corporation.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBERS DESCRIPTION OF EXHIBIT
- -------------------- ----------------------------------------------------------------------------------------------------
<C> <S> <C>
4.3 (6) Warrant to Purchase Shares of Series A Preferred Stock, dated as of March 31, 1998, issued by Excel
Legacy Corporation to BancBoston Capital Inc.

4.4 (6) Warrant to Purchase Shares of Series A Preferred Stock, dated as of March 31, 1998, issued by Excel
Legacy Corporation to Southeastern Asset Management, Inc.

5.1 (1) Opinion of Latham & Watkins.

10.1 (3) 1998 Stock Option Plan of Excel Legacy Corporation.

10.2 (6) Administrative Services Agreement, dated as of March 31, 1998, by and between Excel Realty Trust,
Inc. and Excel Legacy Corporation.

10.3 (6) Intercompany Agreement, dated as of March 31, 1998, by and between Excel Realty Trust, Inc. and
Excel Legacy Corporation.

10.4 (6) Tax Sharing Agreement, dated as of March 31, 1998, by and between Excel Realty Trust, Inc. and Excel
Legacy Corporation.

10.5 (6) Transitional Services Agreement, dated as of March 31, 1998, by and between Excel Realty Trust, Inc.
and Excel Legacy Corporation.

10.6 (6) Purchase Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and the
purchasers named therein.

10.7 (6) Registration Rights Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and
the purchasers named therein.

10.8 (4) Form of Indemnity Agreement, between Excel Legacy Corporation and its directors and executive
officers.

10.9 (5) Lease dated as of March 26, 1997, between MBK Southern California/MBK Mountain States Ventures and
American-Cinema, Inc. (including Assignment and Assumption of AMC lease dated as of December 31,
1997, between MBK Southern California/MBK Mountain States Ventures and Excel Legacy Corporation).

10.10 (5) Lease dated as of March 26, 1997, between MBK Southern California/MBK Mountain States Ventures and
American Multi-Cinema, Inc. (including Assignment and Assumption of AMC lease dated as of December
31, 1997, between MBK Southern California/MBK Mountain States Ventures and Excel Legacy
Corporation).

21.1 (2) Subsidiaries of Excel Legacy Corporation.

23.1 (1) Consent of PricewaterhouseCoopers LLP

23.2 (1) Consent of Latham & Watkins (included in Exhibit 5.1).

24.1 (2) Power of Attorney (included on signature page).

27.1 (2) Financial Data Schedule.
</TABLE>

- ------------------------

(1) Filed herewith.

(2) Previously filed.

(3) Incorporated by reference to the Company's Registration Statement on Form 10
(File No. 0-23503) filed with the Commission on December 12, 1998.

(4) Incorporated by reference to Amendment No. 1 to the Company's Registrant
Statement on Form 10 (File No. 0-23503) filed with the Commission on
February 10, 1998.

II-4
<PAGE>
(5) Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on Form 10 (File No. 0-23503) filed with the Commission on March
12, 1998.

(6) Incorporated by reference to the Company's Current Report on Form 8-K (File
No. 0-23503) filed with the Commission on April 2, 1998.

ITEM 37. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of the securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities which remain unsold at the termination of the
offering.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

II-5
<PAGE>
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial BONA FIDE offering thereof.

II-6
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunder
duly authorized, in the City of San Diego, State of California, on the 13th day
of August, 1998.

EXCEL LEGACY CORPORATION

BY: /S/ GARY B. SABIN
-----------------------------------------
Gary B. Sabin,
President And Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman, President and
/s/ GARY B. SABIN Chief Executive Officer
- ------------------------------ (Principal Executive August 13, 1998
Gary B. Sabin Officer)

RICHARD B. MUIR*
- ------------------------------ Director, Executive Vice August 13, 1998
Richard B. Muir President and Secretary

DAVID A. LUND* Chief Financial Officer
- ------------------------------ (Principal Financial and August 13, 1998
David A. Lund Accounting Officer)

JOHN H. WILMOT*
- ------------------------------ Director August 13, 1998
John H. Wilmot

ROBERT E. PARSONS, JR.*
- ------------------------------ Director August 13, 1998
Robert E. Parsons, Jr.

RICHARD J. NORDLUND*
- ------------------------------ Director August 13, 1998
Richard J. Nordlund

ROBERT S. TALBOTT*
- ------------------------------ Director August 13, 1998
Robert S. Talbott

KELLY D. BURT* Director and Executive
- ------------------------------ Vice August 13, 1998
Kelly D. Burt President--Development

*By: /s/ GARY B. SABIN
-------------------------
Gary B. Sabin
Attorney-in-Fact

II-7

<PAGE>

[Latham & Watkins Letterhead]

August 13, 1998

Excel Legacy Corporation
16955 Via Del Campo, Suite 110
San Diego, California 92127

Re: EXCEL LEGACY CORPORATION

Ladies and Gentlemen:

We are acting as counsel for Excel Legacy Corporation, a Delaware
corporation (the "Company"), in connection with the registration statement on
Form S-11 (the "Registration Statement") being filed by you with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, relating to the offering from time to time, as set forth in the
prospectus contained in the Registration Statement (the "Prospectus"), by the
Selling Holders (as defined in the Registration Statement) of 21,281,000
shares of Series A Liquidating Preference Convertible Preferred Stock due
2005, par value $0.01 per share (the "Preferred Shares") and the shares of
common stock, par value $0.01 per share (the "Common Shares" and together
with the Preferred Shares, the "Securities") issuable upon conversion of the
Preferred Shares.

In our capacity as your counsel in connection with such registration, we
are familiar with the proceedings taken and proposed to be taken by the
Company in connection with the authorization and issuance of the Securities
and for the purposes of this opinion, have assumed such proceedings will be
timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination
of originals or copies certified or otherwise identified to our satisfaction
of such documents, corporate records and instruments, as we have deemed
necessary or appropriate for purposes of this opinion.

In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us
as copies.

We have been furnished with, and with your consent have relied upon,
certificates of officers of the Company with respect to certain factual
matters. In addition, we have obtained and relied upon such certificates and
assurances from public officials as we have deemed necessary.

We are opining herein as to the effect on the subject transaction only
of the General Corporation Law of the State of Delaware, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of
the laws of the any other jurisdiction or as to any matters of municipal law
or the laws of any local agencies within any state.

<PAGE>

Subject to the foregoing and the other matters set forth herein, it is
our opinion that, as of the date hereof:

1. The Preferred Shares have been duly authorized by all necessary
corporate action of the Company and are validly issued, fully paid and
nonassessable.

2. The Common Shares have been duly authorized by all necessary
corporate action of the Company and, upon issuance thereof upon the
conversion of the Preferred Shares in the manner contemplated by the
Registration Statement, will be validly issued, fully paid and nonassessable.

We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm under the caption "Legal Matters"
in the Prospectus included therein.

This opinion is rendered only to you and is solely for your benefit in
connection with the transactions covered hereby. This opinion may not be
relied upon by you for any other propose, or furnished to, quoted to, or
relied upon by any other person, firm or corporation for any purpose, without
our prior written consent.

Very truly yours,

LATHAM & WATKINS

<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this Form S-11 of our report dated November
24, 1997 on our audits of the balance sheet of Excel Legacy Corporation as of
November 17, 1997 and the combined financial statements of Excel Legacy
Corporation Asset Group as of July 31, 1997 and 1996, and for the years ended
July 31, 1997, 1996 and 1995. We also consent to the reference to our Firm under
the caption "Experts."

PRICEWATERHOUSECOOPERS LLP

San Diego, California
August 13, 1998

<PAGE>
<ARTICLE> 5
<CURRENCY> US

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<EXCHANGE-RATE> 1
<CASH> 40,018,000
<SECURITIES> 0
<RECEIVABLES> 23,281,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 130,463,000
<DEPRECIATION> (252,000)
<TOTAL-ASSETS> 215,010,000
<CURRENT-LIABILITIES> 0
<BONDS> 36,283,000
213,000
0
<COMMON> 326,000
<OTHER-SE> 160,455,000
<TOTAL-LIABILITY-AND-EQUITY> 215,010,000
<SALES> 0
<TOTAL-REVENUES> 1,343,000
<CGS> 0
<TOTAL-COSTS> 739,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 311,000
<INCOME-PRETAX> 604,000
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 363,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 363,000
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.02

</TABLE>