<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 2
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For The Fiscal Year Ended: July 31, 1998
COMMISSION FILE NUMBER: 0-23503
EXCEL LEGACY CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0781747
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
16955 VIA DEL CAMPO, SUITE 100, SAN DIEGO, CALIFORNIA 92127
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (858) 675-9400
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's shares of common stock
held by non-affiliates was $60,839,000 as of October 23, 1998 based on the
$2.71875 closing price on such date.
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT OCTOBER 23, 1998
------ -------------------------------
Common Stock, $.01 par value 33,457,804
<PAGE> 2
PART II
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
COMBINED FINANCIAL STATEMENTS OF EXCEL LEGACY ASSET GROUP, AUDITED BY
PRICEWATERHOUSECOOPERS LLP, AS OF AND FOR THE YEARS ENDED JULY 31, 1997, 1996
AND 1995 AND THE EIGHT MONTHS ENDED MARCH 31, 1998.
The combined balance sheets as of July 31, 1997 and 1996 and the related
statements of operations, of changes in investment by Excel Realty Trust, Inc.
and of cash flows for each of the three years in the period ended July 31, 1997
and the eight months ended March 31, 1998 and notes thereto appear elsewhere in
this annual report and should be read in conjunction with this selected
financial data.
CONSOLIDATED FINANCIAL STATEMENTS OF EXCEL LEGACY CORPORATION, AUDITED BY
PRICEWATERHOUSECOOPERS LLP, AS OF JULY 31, 1998 AND FOR THE PERIOD FROM
INCEPTION (NOVEMBER 17, 1997) THROUGH JULY 31, 1998.
The consolidated balance sheet as of July 31, 1998 and the related statements of
income, of changes in stockholders' equity and of cash flows for the period from
inception (November 17, 1997) through July 31, 1998 and the notes thereto
appear elsewhere in this annual report and should be read in conjunction with
this selected financial data.
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION EIGHT MONTHS YEAR ENDED JULY 31,
(NOVEMBER 17, 1997) ENDED ---------------------------------------
INCOME STATEMENT DATA TO JULY 31, 1998 MARCH 31, 1998 1997 1996 1995
------------------- -------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total revenue $ 8,145 3,757 6,395 5,032 5,897
Total operating expenses (5,267) (3,149) (4,565) (4,513) (4,603)
Net income before income taxes 2,878 2,365 1,830 519 1,294
Provision for income taxes (1,143) 946 (729) (207) (515)
Net income 1,735 1,419 1,101 312 779
Net income per share:
Basic $ 0.11 N/A N/A N/A N/A
Diluted $ 0.07 N/A N/A N/A N/A
Weighted average number of shares:
Basic 15,842 N/A N/A N/A N/A
Diluted 25,984 N/A N/A N/A N/A
BALANCE SHEET DATA (AT PERIOD END)
Net real estate $ 175,756 (1) 60,350 61,048 59,184
Total assets 246,916 (1) 83,687 62,169 59,388
Mortgages payable 72,714 (1) 35,115 36,754 38,224
Stockholders' equity 165,919 (1)
Investment by Excel Realty Trust -- (1) 48,344 25,162 20,903
</TABLE>
- -----------------
(1) Not applicable as assets were spun-off to Excel Legacy Corporation at
March 31, 1998.
2
<PAGE> 3
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(1) Financial Statements of Excel Legacy Corporation
(i) Report of Independent Accountants F-1
(ii) Consolidated Balance Sheet as of July 31, 1998 F-2
(iii) Consolidated Statement of Income for the period from
inception (November 17, 1997) to July 31, 1998 F-3
(iv) Consolidated Statement of Changes In Stockholders'
Equity for the period from inception (November 17,
1997) to July 31, 1998 F-4
(v) Consolidated Statement of Cash Flows for the period
from inception (November 17, 1997) to July 31, 1998 F-5
(vi) Notes to Consolidated Financial Statements F-6
(2) Financial Statement Schedules of Excel Legacy Corporation
(i) Schedule II; Valuation and Qualifying Accounts; For the
period from inception (November 17, 1997) to July 31,
1998 F-19
(ii) Schedule III; Real Estate and Accumulated Depreciation;
July 31, 1998 F-20
(3) Excel Legacy Corporation Asset Group Financial Statements
(i) Report of Independent Accountants F-21
(ii) Combined Balance Sheets as of July 31, 1997 and July 31,
1996 F-22
(iii) Combined Statements of Operations for each of the three
years in the period ended July 31, 1997 and the eight
months ended March 31, 1998 and March 31, 1997
(unaudited) F-23
(iv) Combined Statements of Changes in Investment by Excel
Realty Trust, Inc. for each of the three years in the
period ended July 31, 1997 F-24
(v) Combined Statements of Cash Flows for each of the three
years in the period ended July 31, 1997 and the eight
months ended March 31, 1998 and March 31, 1997
(unaudited) F-25
(vi) Notes to Combined Financial Statements F-26
(b) Reports on Form 8-K filed during the quarter ended July 31,
1998: None
(c) Exhibits: Refer to Exhibit Index as follows.
</TABLE>
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EXCEL LEGACY CORPORATION
DATED: August 19, 1999 By: /s/ GARY B. SABIN
------------------------------------
Name: Gary B. Sabin
Title: Chairman, President and
Chief Executive Officer
DATED: August 19, 1999 By: /s/ JAMES Y. NAKAGAWA
------------------------------------
Name: James Y. Nakagawa
Title: Chief Financial and
Accounting Officer
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<S> <C>
2.1(2) Distribution Agreement, dated as of March 31, 1998, by and among
Excel Realty Trust, Inc., Excel Legacy Corporation and ERT
Development Corporation.
3.1(3) Amended and Restated Certificate of Incorporation of Excel
Legacy Corporation.
3.2(3) Amended and Restated Bylaws of Excel Legacy Corporation.
4.1(4) Form of Common Stock Certificate.
4.2(2) Certificate of Designations of the Series A Preferred Stock of
Excel Legacy Corporation.
4.3(2) Warrant to Purchase Shares of Series A Preferred Stock, dated as
of March 31, 1998, issued by Excel Legacy Corporation to
BankBoston Capital Inc.
4.4(2) 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.
10.1(4) 1998 Stock Option Plan of Excel Legacy Corporation.
10.2(2) Administrative Services Agreement, dated as of March 31, 1998,
by and between Excel Realty Trust, Inc. and Excel Legacy
Corporation.
10.3(2) Intercompany Agreement, dated as of March 31, 1998, by and
between Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.4(2) Tax Sharing Agreement, dated as of March 31, 1998, by and
between Excel Realty Trust, Inc. and Excel Legacy Corporation.
10.5(2) Transitional Services Agreement, dated as of March 31, 1998, by
and between Excel Realty Trust, Inc. and Excel Legacy
Corporation.
10.6(2) Purchase Agreement, dated as of March 31, 1998, by and among
Excel Legacy Corporation and the purchasers named therein.
10.7(2) 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).
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
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).
10.11(1) Operating Agreement dated as of October 9, 1998 of Grand
Tusayan, LLC, a Delaware limited liability company, as amended.
10.12(1) First Amended and Restated Operating Agreement dated as of July
27, 1998 of Millennia Car Wash, LLC, a Delaware limited
liability company.
10.13(1) First Amended and Restated Operating Agreement dated as of July
29, 1998 of Newport on the Levee, LLC, a Delaware limited
liability company.
21.1(1) Subsidiaries of Excel Legacy Corporation.
23.1(1) Consent of PricewaterhouseCoopers LLP.
27.1(1) Financial Data Schedule.
</TABLE>
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(1) Filed herewith (for other than Exhibit 23.1, refer to Annual Report on
Form 10-K (File No. 0-023503) filed with the Commission on October 28,
1998).
(2) 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.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-11 (File No. 333-55715) filed with the Commission on June 1,
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.
(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.
<PAGE> 7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
In our opinion, the consolidated financial statements and the financial
statement schedules of Excel Legacy Corporation and subsidiaries as listed in
item 14(a) of this Form 10-K present fairly, in all material respects, the
financial position of Excel Legacy Corporation and subsidiaries at July 31, 1998
and the results of their operations and their cash flows for the period from
Inception (November 17, 1997) to July 31, 1998, in conformity with generally
accepted accounting principles. These financial statements and financial
statement schedules are the responsibility of the Company's management: our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audit of
these financial statements and financial statement schedules in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Diego, California
October 22, 1998
F-1
<PAGE> 8
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
----------
ASSETS
<TABLE>
<S> <C>
Real estate:
Land $ 51,675
Buildings 122,669
Leasehold interests 2,351
Accumulated depreciation (939)
---------
Net real estate 175,756
Cash 11,491
Accounts receivable, less allowance for bad debts of $14 732
Notes receivable 23,171
Investment in partnerships 11,138
Interest receivable 3,889
Pre-development costs 6,662
Other assets 7,757
Deferred tax asset 6,320
---------
$ 246,916
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 72,714
Accounts payable and accrued liabilities 5,680
Other liabilities 816
Income taxes payable 934
---------
Total liabilities 80,144
---------
Commitments and contingencies --
Minority interests 853
---------
Stockholders' equity:
Series A Preferred stock, $.01 par value, 50,000,000 shares
authorized, 21,281,000 shares issued and outstanding 213
Common stock, $.01 par value, 150,000,000 shares authorized,
33,457,804 shares issued and outstanding 335
Additional paid-in capital 174,508
Retained earnings 1,735
Notes receivable from officers for common shares (10,872)
---------
Total stockholders' equity 165,919
---------
$ 246,916
=========
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-2
<PAGE> 9
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31,1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
<TABLE>
<S> <C>
Revenue:
Rental $4,417
Other operating income 1,732
Interest income and other revenues 1,996
------
Total revenue 8,145
------
Operating expenses:
Interest 1,518
Depreciation and amortization 1,057
Property operating expenses 915
Other operating expenses 876
General and administrative 898
Minority interest 3
------
Total operating expenses 5,267
------
Income before income taxes 2,878
Provision for income taxes 1,143
------
Net income $1,735
======
Basic net income per share $ 0.11
Diluted net income per share $ 0.07
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-3
<PAGE> 10
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR
THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
----------
<TABLE>
<CAPTION>
SERIES A
PREFERRED STOCK COMMON STOCK ADDITIONAL OFFICER TOTAL
-------------------- -------------------- PAID-IN NOTES RETAINED STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL RECEIVABLE EARNINGS EQUITY
---------- ------ ---------- ------ ---------- ---------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at inception -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of preferred stock 21,281,000 213 -- -- 106,192 -- -- 106,405
Issuance of common stock -- -- 33,457,804 335 70,831 -- 71,166
Notes receivable from
officers for common shares -- -- -- -- -- (10,872) -- (10,872)
Issuance costs -- -- -- -- (2,515) -- -- (2,515)
Net income -- -- -- -- -- -- 1,735 1,735
---------- ---- ---------- ---- --------- -------- ------- ---------
Balance at July 31, 1998 21,281,000 $213 33,457,804 $335 $ 174,508 $(10,872) $ 1,735 $ 165,919
========== ==== ========== ==== ========= ======== ======= =========
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-4
<PAGE> 11
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31,1998
(IN THOUSANDS)
----------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 1,735
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 1,057
Provision for bad debts 16
Minority interest in partnerships 3
Changes in other assets (6,353)
Changes in accounts payable 5,680
Changes in other liabilities 1,247
---------
Net cash provided by operating activities 3,385
---------
Cash flows from investing activities:
Real estate acquisitions and construction costs paid (98,951)
Investment in partnerships (11,138)
Pre-development costs paid (6,662)
---------
Net cash used in investing activities (116,751)
---------
Cash flows from financing activities:
Issuance of preferred stock 106,405
Proceeds from issuance of mortgages and notes payable 82,367
Principal payments of mortgages and notes payable (72,504)
Issuance of common stock 11,104
Issuance costs (2,515)
---------
Net cash provided by financing activities 124,857
---------
Net increase in cash 11,491
Cash at inception --
---------
Cash at July 31 $ 11,491
=========
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-5
<PAGE> 12
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 rust
("REIT"), now know as New Plan Excel Realty Trust, Inc. 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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and all affiliates in
which the Company has a ownership greater than 50%. The Company uses the
equity method of accounting to account for its investments in which its
ownership is less than 50% but has significant influence over.
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.
The Company assesses its properties individually for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the property may not be recoverable. Recoverability of property to be
held and used is measured by comparing the carrying amount of the
property to future undiscounted net cash flows expected to be generated
by the property. If the sum of the expected undiscounted future cash
flows is less than the carrying amount of the property, the property is
considered to be impaired. If the property is impaired, the impairment
to be recognized is measured by the amount by which the carrying amount
of the property exceeds the fair value of the property.
F-6
<PAGE> 13
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
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.
MANAGEMENT CONTRACTS
The Company acquired certain management contracts in conjunction with
its acquisition of TenantFirst (Note 5). The management contracts are
recorded at cost and amortized over a period of seven years.
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.
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.
Percentage rents and tenant reimbursements are recognized when they are
earned.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" were issued.
SFAS No. 130 and SFAS No. 131 are effective for fiscal years beginning
after December 15, 1997. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements and requires
restatement of earlier periods presented. SFAS No. 130 had no effect on
the Company's consolidated financial statements. SFAS No. 131
establishes standards for the way that a public enterprise reports
information about operating segments in annual financial statements, and
requires that those enterprises report selected information about
operating segments in interim financial reports to shareholders.
Management is currently evaluating the requirements of SFAS 131.
F-7
<PAGE> 14
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
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, 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 in accordance with accounting standards for distributions of
non-monetary assets to owners in a spin-off. The tax effect of the
difference between fair market value and book value was $6,528,000 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 total cost of these two properties was approximately
$50,047,000. The Company financed these properties with mortgage debt of
$37,000,000 during 1998.
F-8
<PAGE> 15
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. REAL ESTATE, CONTINUED:
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 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 property had a fair market value of $25,000,000 at the acquisition
date (Note 2) and acquired the property for $14,525,000 for book
purposes. This property is substantially vacant and is under
consideration for a mixed use entertainment redevelopment project.
SCOTTSDALE LAND
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.
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 the Company in connection with the Spin-off. The City
Centre was acquired for $7,886,000 and is 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
$1,609,000. The property is expected to be part of the Galleria
redevelopment plan along with the other above properties located in
Scottsdale.
F-9
<PAGE> 16
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
3. REAL ESTATE, CONTINUED:
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 is currently under consideration for
sale.
TELLURIDE LAND
In January 1998, the Company acquired 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 $13,588,000. 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.
4. NOTES RECEIVABLE:
LOS ARCOS
In connection with the Spin-off, the Company acquired a $16,212,000
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 $2,414,000 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 50% profit participation upon
the property's sale.
FIRST STREET
The Company acquired a $5,538,000 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 office building located in
downtown Phoenix, Arizona. The Company also assumed $119,000 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 50% 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.
F-10
<PAGE> 17
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
4. NOTES RECEIVABLE, CONTINUED:
GRAND CANYON
In connection with the Spin-off, the Company acquired 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.
OTHER
The Company has outstanding two additional notes receivable it obtained
in connection with the Spin-off. These notes total $371,000 at July 31,
1998 and bear interest at 11% to 12% per annum.
OFFICERS
In connection with the sale of common stock to certain of the Company's
officers and employees (Note 8), 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 total interest receivable at July 31, 1998 from
these notes total $254,000. The notes have been offset against
stockholders' equity on the Company's accompanying Balance Sheet.
5. INVESTMENTS:
MILLENNIA CAR WASH, LLC
The Company has invested $19,891,000 in a joint venture arrangement with
Millennia Car Wash, LLC ("Millennia"). In June 1998, Millennia acquired
nine car wash properties in the Phoenix, Arizona metropolitan area. At
July 31, 1998, the Company holds 100% of the ownership interest in
Millennia. Another party manages the daily operations of Millennia and
can earn up to 50% of the ownership interest in Millennia based upon
operating results exceeding a 35% return on the Company's investment.
The accounts of Millennia are consolidated with the Company's financial
statements. Summary unaudited financial information as of July 31, 1998
and for the period from the acquisition of the car wash properties to
July 31, 1998 is as follows (in thousands):
<TABLE>
BALANCE SHEET
<S> <C>
Land $ 3,117
Buildings, net of accumulated depreciation 13,504
Other assets 3,599
--------
Total assets $ 20,220
========
Accounts payable and other liabilities $ 271
Stockholders' equity 19,949
--------
Total liabilities and stockholders' equity $ 20,220
========
INCOME STATEMENT
Operating revenue $ 1,178
Operating expenses (747)
General and administrative costs (288)
Depreciation and amortization (85)
--------
Net income $ 58
========
</TABLE>
F-11
<PAGE> 18
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. INVESTMENTS, CONTINUED:
In August and September 1998, Millennia acquired an additional nine car
wash properties located in Arizona and Texas for approximately $15.2
million. Notes payable of $14.8 million bearing annual interest of 8.5%
were borrowed in connection with these acquisitions.
THE GRAND HOTEL
The Company has invested $13,309,000 in a joint venture, Grand Tusayan,
LLC ("Grand Hotel") 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, Arizona. The hotel was opened in July 1998 and
the dinner theater was opened in October 1998. The accounts of the Grand
Hotel are consolidated with the Company's financial statements. At July
31, 1998, the Company ownership in the Grand Hotel was 65% although the
Company was entitled to approximately 97% of the Grand Hotel's
operations based upon its equity contributed. Summary unaudited
financial information as of July 31, 1998 and for the period from the
completion of the hotel to July 31, 1998 is as follows (in thousands):
<TABLE>
<S> <C>
BALANCE SHEET
Leasehold interest in land $ 2,351
Building, net of depreciation 9,986
Other assets 1,380
--------
Total assets $ 13,717
========
Accounts payable and other liabilities $ 114
Stockholders' equity 13,603
--------
Total liabilities and stockholders' equity $ 13,717
========
INCOME STATEMENT
Revenue $ 95
Operating expenses (114)
Depreciation and amortization (38)
--------
Net Loss $ (57)
========
</TABLE>
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.
NEWPORT
In May 1998, the Company invested $5,000,000 in 3017977 Nova Scotia
Company ("Nova Scotia Company"), a Nova Scotia unlimited liability
company. Nova Scotia Company used the proceeds to help acquire the
Newport Centre, an office building located in Winnipeg, Canada. The
Company is entitled to a 12% preferred return on its investment from the
eventual disposition of or cash flows from the property in addition to
its 50% interest in Nova Scotia Company. The Company accounts for this
investment on the equity method of accounting.
F-12
<PAGE> 19
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
5. INVESTMENTS, CONTINUED:
TENANTFIRST
On May 1, 1998, the Company acquired TenantFirst Real Estate Services,
Inc. ("TenantFirst"), a California corporation. 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. TenantFirst is a wholly-owned subsidiary of the
Company.
6. MORTGAGES PAYABLE:
The Company had $72,714,000 in mortgages payable outstanding at July 31,
1998 at 7.37% to 8.53%. The mortgages are due on various dates through
2018 and monthly payments approximate $702,000. 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>
1999 $ 2,824
2000 3,056
2001 3,306
2002 3,577
2003 7,152
Thereafter 52,799
--------
$ 72,714
========
</TABLE>
Mortgages of $66,890,000 are fully amortizing with the final monthly
payments to be made between the years 2004 and 2018. Notes payable of
$14,800,000 were borrowed by Millennia in August and September of 1998
in connection with the acquisition of certain properties. These notes
bear annual interest of 8.5% and are due in fifteen years.
7. INCOME TAXES:
At July 31, 1998, the Company had a net deferred tax asset of
$6,319,000. The deferred tax asset includes $6,446,000 primarily
relating to the difference between fair market value and book value of
the real estate assets acquired from Excel in connection with the
Spin-off and is non-current. The offsetting portion of the deferred
asset relates to timing differences in recognizing revenue and expenses
for tax purposes through operations of the Company. No valuation
allowance has been provided against the deferred tax asset as the
Company believes future taxable income is more likely than not. The
provision for income taxes consists of the following:
F-13
<PAGE> 20
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
7. INCOME TAXES, CONTINUED:
<TABLE>
<CAPTION>
FEDERAL STATE
-------- --------
<S> <C> <C>
Current payable $727,000 $207,000
Deferred tax expense 163,000 46,000
-------- --------
Provision for income taxes $890,000 $253,000
======== ========
</TABLE>
8. 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 July 31, 1998, the Company had 21,281,000 shares of Series A
Preferred Stock outstanding (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
into which the Preferred A Shares are convertible. Holders of 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 convertible into common stock of the Company
at the election of the holders at any time, on a one-for-one basis,
subject to adjustment in certain circumstances. The Preferred A Shares
also are convertible into common stock by the Company if the closing
price of the Company's common stock is equal to or greater than certain
milestones for 30 consecutive trading days. Such price milestones were
met in May 1998 and on May 18, 1998, the Company took steps to exercise
its right to convert all of the Preferred A Shares into common stock,
which conversion was expected to take place on August 18, 1998.
On August 17, 1998, the Company withdrew its election to convert the
Preferred A Shares, and instead the holders and the Company agreed to
modify the terms of the Preferred A Shares. The Company decided to
effect such modification through the exchange of the Preferred A Shares
for new preferred shares of the Company, rather than through an
amendment to the Preferred A Shares. The new preferred shares will be
substantially similar to the Preferred A Shares, except in the following
respects:
F-14
<PAGE> 21
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. CAPITAL STOCK, CONTINUED:
1. The new preferred shares will be convertible into common
stock at the election of the Company upon the earlier to occur
of the following: (a) six months after the listing of the
Company's common stock on a national securities exchange
(including the New York Stock Exchange, American Stock Exchange
or Nasdaq), or (b) March 31, 2000.
2. Certain voting rights provided to the holders with
respect to future issuances of common stock will be removed.
OPTIONS
The Company adopted the 1998 Stock Option Plan (the "Option Plan") for
executive officers and other key employees of the Company. The aggregate
number of shares issuable upon exercise of options under the Option Plan
may not exceed 5,250,380 shares and are exercisable for 10 years from
the date of grant. The exercise price of stock options may not be less
than 100% of the fair market value of the stock on the date of grant.
In 1998, 1,900,000 options were granted under the Stock Option plan with
an exercise price of $5.00 and 1,900,000 options were granted with an
exercise price of $10.00. The options vest over five years and expire at
various dates through December 2006. All of the options were issued to
officers or affiliates of the Company.
SFAS No. 123, Accounting for Stock-Based Compensation, requires either
the recording or disclosure of compensation cost for stock-based
employee compensation plans at fair value. The Company has adopted the
disclosure-only provisions of SFAS No. 123. Accordingly, no compensation
costs have been recognized by the Company. Had compensation cost for the
Company's stock option plan been recognized based on the fair value at
the grant date for awards consistent with the provisions of SFAS No.
123, the Company's net income in 1998 would have been reduced by
$5,705,000 from $1,735,000 ($0.11 per share - basic, and $0.07 per share
- diluted) to a net loss of $3,970,000 ($0.25 per share - basic, and
$0.15 per share - diluted).
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used: expected volatility of 36.56%;
risk-free interest rate of 5.54% to 5.70%; expected life of 6 years; and
dividend yield of 0.00%.
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).
F-15
<PAGE> 22
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
8. CAPITAL STOCK, CONTINUED:
<TABLE>
<CAPTION>
INCEPTION
(NOV. 17, 1997)
TO JULY 31, 1998
----------------
<S> <C>
BASIC EPS
NUMERATOR:
Net income $ 1,735
=======
DENOMINATOR:
Weighted average of common shares outstanding 15,842
=======
EARNINGS PER SHARE: $ 0.11
=======
DILUTED EPS
NUMERATOR:
Net income $ 1,735
=======
DENOMINATOR:
Weighted average of common shares outstanding 15,842
Effect of diluted securities:
Preferred A Shares 10,142
-------
25,984
=======
EARNINGS PER SHARE: $ 0.07
=======
</TABLE>
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
The amount paid for interest in 1998 was approximately $1,648,000 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 period from inception (November 17, 1997) to July 31, 1998, the
Company borrowed $35,523,000 in notes payable in connection with the
construction of the AMC theaters.
In May 1998, the Company issued 850,000 shares of common stock in
connection with the acquisition of TenantFirst (Note 5). The market
value of the shares issued was approximately $3,400,000.
10. FINANCIAL INSTRUMENTS AND CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of cash, accounts receivable
and notes receivable. From time to time, the Company's cash balances
with any one financial institution may exceed Federal Deposit Insurance
limits. The following fair value disclosure was determined by the
Company, using available market information and discounted cash flow
analyses as of July 31, 1998. However, considerable judgement is
necessary to interpret market data and to develop the related estimates
of fair value. Accordingly,
F-16
<PAGE> 23
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
10. FINANCIAL INSTRUMENTS AND CREDIT RISK, CONTINUED:
the estimates presented are not necessarily indicative of the amounts
that the Company could realize upon disposition. The use of different
estimation methodologies may have a material effect on the estimated
fair value amounts. The Company believes that the carrying values
reflected in the Consolidated Balance Sheet at July 31, 1998
approximates the fair values for cash, accounts receivable and payable,
notes receivable and mortgages payable.
At July 31, 1998 the Company's three largest tenants accounted for
approximately 20%, 15%, and 5%, respectively, of total revenues for the
period ended July 31, 1998. At July 31, 1998, the Company owned 31
properties located in 11 states of which 14 properties were located in
Arizona.
11. RELATED PARTY TRANSACTIONS:
The Company shares certain employees with New Plan Excel Realty
Corporation ("New Plan Excel"), formerly Excel. The shared employees are
paid by New Plan Excel and reimbursed by the Company based upon a
Administrative Services Agreement which requires the Company to pay New
Plan Excel 23% of the salary and bonus of the shared employees as
compensation for their services to the Company. For the period ended
July 31, 1998, approximately $170,000 was paid by the Company for these
services. Additionally, approximately $24,000 was paid by the Company to
New Plan Excel as reimbursement for various operating expenses.
12. 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
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 retail commercial real estate owned at July
31, 1998 and subject to noncancelable operating leases is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------
<S> <C>
1999 $ 11,191
2000 11,536
2001 11,425
2002 11,190
2003 10,971
Thereafter 110,590
</TABLE>
F-17
<PAGE> 24
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data is as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>
TOTAL PER SHARE- PER SHARE-
REVENUES NET INCOME BASIC DILUTED
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First quarter $ -- $ -- $ -- $ --
Second quarter -- -- -- --
Third quarter 1,343 363 0.03 0.02
Fourth quarter 6,802 1,372 0.04 0.03
</TABLE>
F-18
<PAGE> 25
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------- ----------
ACCOUNTS
BALANCE AT CHARGED TO RECEIVABLE BALANCE AT
BEGINNING BAD DEBT WRITTEN END OF
DESCRIPTION OF YEAR EXPENSE OFF YEAR
----------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Allowance for bad debts: $ -- $ 16 $ 2 $ 14
====== ====== ====== ======
</TABLE>
F-19
<PAGE> 26
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
JULY 31, 1998
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
NET COST
CONSOLIDATED (SOLD)
SUBSEQUENT TO
INITIAL COST ACQUISITION
----------------------- -----------------------
BUILDINGS AND BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS
- ----------- ------------ ---- ------------ ---- ------------
<S> <C> <C> <C> <C> <C>
Scottsdale Galleria
Scottsdale, AZ $ -- $ 1,755 $ 13,077 $ -- $ --
Scottsdale City Centre
Scottsdale, AZ 2,539 2,760 5,126 -- --
Scottsdale Towers Land
Scottsdale, AZ -- 3,743 -- -- --
Brio Restaurant
Scottsdale, AZ -- 563 1,046 -- --
Grand Hotel
Tusayan, AZ -(1) -- 10,021 -- --
Desert Fashion Plaza
Palm Springs, CA -- 3,816 9,772 -- 102
4-S Ranch Land
Rancho Bernardo, CA -- 4,072 -- -- 1,033
Land
Telluride, CO -- 752 -- -- --
Land
Yosemite, -- 600 -- -- --
Land
Rancho Bernardo, CA -- 3,623 -- -- --
Wal-Mart Building
Berlin, MI 1,567 680 1,378 -- --
Wal-Mart Building
Decateur, IN 2,330 1,011 2,050 -- --
Wal-Mart Building
Big Rapids, MI 2,249 1,042 2,133 -- --
Wal-Mart Building
Wysomming. PA 4,528 2,118 4,294 -- --
Wal-Mart Building
Brighton, CO 2,285 1,069 2,167 -- --
Wal-Mart Building
Wabash, IN 2,496 1,168 2,367 -- --
Lowes Building
Terre Haute, IN 3,716 1,855 3,037 -- --
Wal-Mart Building
Orland Hills, IL 5,922 2,631 5,372 -- --
Wal-Mart Building
Temple, TX 4,195 1,563 3,979 -- --
Lowe's Building
Middletown, OH 3,951 2,187 3,646 -- --
Millenia Car Washes (2)
Phoenix, AZ -- 3,117 13,572 -- --
AMC Theater
Highlands Ranch, CO 18,067 5,800 18,736 -- --
AMC Theater
Westminster, CO 18,869 5,750 19,761 -- --
-------- -------- -------- -------- --------
$ 72,714 $ 51,675 $121,534 $ -- $ 1,135
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
LIFE ON WHICH
GROSS AMOUNT AT WHICH DEPRECIATION
CARRIED AT CLOSE OF PERIOD IN LATEST
---------------------------------- ACCUMULATED INCOME
BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS
DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED
- ----------- ---- ------------ --- --- ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Scottsdale Galleria
Scottsdale, AZ 1,755 $ 13,077 $ 14,832 $ 123 (3) 1998 40 years
Scottsdale City Centre
Scottsdale, AZ 2,760 5,126 7,886 48 1982 1998 40 years
Scottsdale Towers Land
Scottsdale, AZ 3,743 -- 3,743 -- -- 1998 --
Brio Restaurant
Scottsdale, AZ 563 1,046 1,609 10 1975 1998 40 years
Grand Hotel
Tusayan, AZ -- 10,021 10,021 35 1998 1998 40 years
Desert Fashion Plaza
Palm Springs, CA 3,816 9,874 13,690 51 1967 1998 40 years
4-S Ranch Land
Rancho Bernardo, CA 4,072 1,033 5,105 -- (3) 1998 --
Land
Telluride, CO 752 -- 752 -- -- 1998 --
Land
Yosemite, 600 -- 600 -- -- 1998 --
Land
Rancho Bernardo, CA 3,623 -- 3,623 -- -- 1998 --
Wal-Mart Building
Berlin, MI 680 1,378 2,058 13 1992 1998 40 years
Wal-Mart Building
Decateur, IN 1,011 2,050 3,061 19 1992 1998 40 years
Wal-Mart Building
Big Rapids, MI 1,042 2,133 3,175 20 1992 1998 40 years
Wal-Mart Building
Wysomming. PA 2,118 4,294 6,412 40 1992 1998 40 years
Wal-Mart Building
Brighton, CO 1,069 2,167 3,236 20 1992 1998 40 years
Wal-Mart Building
Wabash, IN 1,168 2,367 3,535 22 1992 1998 40 years
Lowes Building
Terre Haute, IN 1,855 3,037 4,892 28 1993 1998 40 years
Wal-Mart Building
Orland Hills, IL 2,631 5,372 8,003 50 1992 1998 40 years
Wal-Mart Building
Temple, TX 1,563 3,979 5,542 37 1992 1998 40 years
Lowe's Building
Middletown, OH 2,187 3,646 5,833 34 1993 1998 40 years
Millenia Car Washes (2)
Phoenix, AZ 3,117 13,572 16,689 68 1976-1990 1998 25 years
AMC Theater
Highlands Ranch, CO 5,800 18,736 24,536 176 1998 1998 40 years
AMC Theater
Westminster, CO 5,750 19,761 25,511 145 1998 1998 40 years
------- -------- -------- -------
51,675 $122,669 $174,344 $ 939
======= ======== ======== =======
</TABLE>
(1) This property is on a land lease with a cost of $2,351 which is not
included above.
(2) These represent nine car washes located in Phoenix, Arizona.
(3) Property is currently being redeveloped.
[a] Reconciliation of total real estate carrying value is as follows:
<TABLE>
<S> <C>
Balance at inception (November 17, 1997): $ --
Acquisitions: 173,209
Improvements and other additions: 1,135
--------
Balance at July 31, 1998: $174,344
========
Total cost for federal income tax purposes
at the end of each year $190,732
========
</TABLE>
[b] Reconciliation of accumulated depreciation is as follows:
<TABLE>
<S> <C>
Balance at inception (November 17, 1997): $ --
Depreciation expense: 939
--------
Balance at July 31, 1998: $ 939
========
</TABLE>
F-20
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, changes in investment by New Plan Excel
Realty Trust, Inc. ("NPXL", formerly Excel Realty Trust, Inc.) and cash flows
present fairly, in all material respects, the financial position of the Excel
Legacy Corporation Asset Group (the "Portfolio") at July 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the three years in
the period ended July 31, 1997 and for the eight months ended March 31, 1998,
in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As more fully described in Note 1, certain general and administrative expenses
were paid by NPXL and allocated to the Portfolio principally based upon NPXL'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 documentation
appropriate.
PricewaterhouseCoopers LLP
San Diego, California
August 13, 1999
F-21
<PAGE> 28
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1997
-------- --------
<S> <C> <C>
ASSETS
Real estate:
Land ..................................................... $ 15,324 $ 15,324
Buildings ................................................ 34,789 34,789
Real estate under development ............................ 13,888 14,060
Leasehold interest ....................................... -- --
Accumulated depreciation ................................. (2,953) (3,823)
-------- --------
Net real estate ........................................ 61,048 60,350
Notes receivable ........................................... 1,050 21,958
Interest receivable ........................................ 71 1,379
Other assets ............................................... -- --
-------- --------
$ 62,169 $ 83,687
======== ========
LIABILITIES AND INVESTMENT BY EXCEL REALTY TRUST, INC
Liabilities:
Mortgages payable ........................................ $ 36,754 $ 35,115
Interest payable ......................................... 253 228
Other liabilities ........................................ -- --
-------- --------
Total liabilities ...................................... 37,007 35,343
Commitments and contingencies .............................. -- --
Investment by Excel Realty Trust, Inc. ..................... 25,162 48,344
-------- --------
$ 62,169 $ 83,687
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-22
<PAGE> 29
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEARS ENDED JULY 31, MARCH 31,
---------------------------------- ---------------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Rental revenue .................... $5,897 $4,937 $4,937 $3,291 3,757
Interest .......................... -- 95 1,458 694 1,757
------ ------ ------ ------ ------
Total revenue ................... 5,897 5,032 6,395 3,985 5,514
------ ------ ------ ------ ------
Operating expenses:
Interest .......................... 3,185 3,080 2,896 1,999 1,927
Depreciation and amortization ..... 870 870 870 590 643
Administrative expenses ........... 548 563 799 644 453
Property expenses ................. -- -- -- -- 126
------ ------ ------ ------ ------
Total operating expenses ........ 4,603 4,513 4,565 3,223 3,149
------ ------ ------ ------ ------
Income before income taxes .......... 1,294 519 1,830 762 2,365
Provision for income taxes .......... 515 207 729 305 946
------ ------ ------ ------ ------
Net income ........................ $ 779 $ 312 $1,101 $ 457 $1,419
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-23
<PAGE> 30
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF CHANGES IN INVESTMENT BY
EXCEL REALTY TRUST, INC.
(IN THOUSANDS)
<TABLE>
<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 eight months ended March 31, 1998 ..... 1,419
Net investment by Excel Realty Trust, Inc. ............... 15,348
--------
Investment by Excel Realty Trust, Inc. at March 31, 1998 .... 65,111
========
</TABLE>
The accompanying notes are an integral part
of the financial statements
F-24
<PAGE> 31
EXCEL LEGACY CORPORATION ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
EIGHT MONTHS ENDED
YEARS ENDED JULY 31, MARCH 31,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................... $ 779 $ 312 $ 1,101 $ 276 $ 1,419
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization .................... 870 870 870 580 643
Change in interest receivable and other
assets ......................................... -- (71) (1,308) (397) (1,810)
Change in interest payable and other
liabilities .................................... (8) (9) (24) (16) (7)
------- ------- -------- -------- -------
Net cash provided by operating activities .......... 1,641 1,102 639 443 245
------- ------- -------- -------- -------
Cash flows from investing activities:
Net costs paid on real estate held for
development ...................................... -- (5,488) (171) 99 (826)
Cash paid for real estate acquired ................. -- -- -- -- (11,256)
Cash paid for leasehold interest ................... -- -- -- -- (1,790)
Advances for notes receivable ...................... -- (1,050) (20,908) (16,593) (162)
------- ------- -------- -------- -------
Net cash used in investing activities .............. -- (6,538) (21,079) (16,494) (14,034)
------- ------- -------- -------- -------
Cash flows from financing activities:
Principal payments of mortgages payable ............ (1,365) (1,470) (1,641) (776) (1,559)
Net investment by Excel Realty Trust, Inc. ......... (276) 6,906 22,081 16,827 15,348
------- ------- -------- -------- -------
Net cash provided by (used in) financing
activities ....................................... (1,641) 5,436 20,440 16,051 13,789
------- ------- -------- -------- -------
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-25
<PAGE> 32
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
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 were acquired prior to July 31, 1997 and are
scheduled to be transferred to the Company:
- Ten single tenant free-standing buildings with a book value of
$45.8 million and encumbered by mortgages of $35.1 million at
July 31, 1997.
- 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 July
31, 1997.
- Four notes receivable related to development projects located
in Arizona (3) and California. The principal amount of the notes
at July 31, 1997 is $22.0 million.
The following additional assets were acquired subsequent to July 31,
1997 and are scheduled to be transferred to the Company:
- A single-tenant free-standing building with a book value of
$1.6 million and unencumbered at July 31, 1997.
- An office building containing 64,000 square feet located in
Scottsdale, Arizona. This building was acquired in October 1997
for $7.9 million. At July 31, 1997 the property has a book value
of approximately $7.9 million and is encumbered by a mortgage of
$2.8 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.
Other assets may be transferred to the Company as the Boards of the
Company and Excel deem appropriate. 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.
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
F-26
<PAGE> 33
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED:
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.
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 $453,000 for the
eight months ended March 31, 1998. In the opinion of management, the methods for
allocating corporate administrative expenses are reasonable.
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.
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.
F-27
<PAGE> 34
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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
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.
CONCENTRATION OF CREDIT RISK
As of July 31, 1997, eight of the 12 operating properties held by the
Company are leased to Wal-Mart. Rents from these stores account for
approximately 65% of the Company's scheduled rental revenue. Two of the
operating properties, which account for 21% of scheduled rental revenue, are
leased to Lowe's. While the financial position of the Company may be adversely
affected by financial difficulties experienced by Wal-Mart, the Company has not
experienced any such events. Wal-Mart and Lowe's 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 July 31, 1997 are with the
same developer. EDV is committed to provide up to approximately $9,000,000 in
additional advances related to these notes.
3. REAL ESTATE:
The financial statements include 11 single tenant free-standing
buildings which are located in Arizona, Colorado, Illinois, Indiana (3),
Michigan, Ohio, Pennsylvania, Texas, and Wisconsin and an office building in
Arizona. Eight of the buildings are leased by Wal-Mart and two of the buildings
are leased by Lowe's. The financial statements also include a leasehold interest
in land located in Arizona.
REAL ESTATE UNDER DEVELOPMENT
The financial statements include a property located in Scottsdale,
Arizona that is under redevelopment. The shopping center is substantially vacant
with large amounts of demolition having occurred. Depreciation expense is no
longer being charged to the property and costs incurred during redevelopment are
being capitalized.
F-28
<PAGE> 35
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES RECEIVABLE:
The Company holds a $16,593,000 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 at July 31, 1997 and July 31, 1996 is
$1,193,000 and $0, respectively.
Summarized unaudited financial statements as of and for the twelve
months ended December 31, 1997 for the shopping center are as follows:
<TABLE>
<CAPTION>
BALANCE SHEET:
<S> <C>
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 $4,290,000 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 $84,000 and $0 at July 31, 1997 and July 31, 1996,
respectively.
F-29
<PAGE> 36
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. NOTES RECEIVABLE, CONTINUED:
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 July 31, 1997, the Company has approximately $156,000 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.
5. MORTGAGES PAYABLE:
Ten of the Company's single free-standing buildings are encumbered by
mortgages. The Company's office building, acquired after July 31, 1997, is
encumbered by a 8.125% mortgage due in 2006 which has been included in the table
below. Interest rates on the properties range from 7.625% to 8.75% and mature on
various dates to 2014. Monthly payments at July 31, 1997 total $405,000. The
loans are non-recourse and repayment of the loans by the Company is
collateralized by a first mortgage on the properties.
The principal payments required to be made on mortgages payable are as
follows (in thousands):
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998..........................................................$ 2,026
1999.......................................................... 2,182
2000.......................................................... 2,353
2001.......................................................... 2,538
2002.......................................................... 2,743
Thereafter.................................................... 25,974
</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..........................................................$ 5,684
1999.......................................................... 5,519
2000.......................................................... 5,411
2001.......................................................... 5,268
2002.......................................................... 5,070
Thereafter.................................................... 36,842
</TABLE>
F-30
<PAGE> 37
EXCEL LEGACY CORPORATION ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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
eight months ended March 31, 1998 and 1997 (unaudited), interest of $1,934,000
and approximately $1,947,000 was paid, respectively. For the eight months ended
March 31, 1998, a mortgage payable of $2,893,000 was assumed in conjunction with
the office building acquired in Scottsdale, Arizona.
8. NEW PRONOUNCEMENTS:
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share and SFAS No.
129, Disclosure of Information about Capital Structure, which become effective
for periods after December 15, 1997 and SFAS No. 131, Disclosures about Segments
in an Enterprise and Related Information and SFAS No. 130, Comprehensive Income,
which become effective in 1998. The Company has determined that the adoption of
these SFASs will not have a material effect on the consolidated financial
statements.
9. INTERIM FINANCIAL INFORMATION:
The accompanying combined statements of operations of changes in
investment by Excel Realty Trust, Inc. and of cash flows for each of the
eight-month periods ended March 31, 1998 and 1997 (unaudited) include all
adjustments (consisting only of normal recurring adjustments) which the Company
considers necessary for a fair presentation of 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-31
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-79673) of our report dated October 22, 1998
relating to the consolidated financial statements and financial statement
schedules of Excel Legacy Corporation, which appear in Excel Legacy
Corporation's annual report on Form 10-K/A for the period from inception
(November 17, 1997) to July 31, 1998. We also consent to the incorporation by
reference in the Registration Statement on Form S-3 (No. 333-79673) of our
report dated August 13, 1999 relating to the combined financial statements of
Excel Legacy Asset Group, which appear in Excel Legacy Corporation's annual
report on Form 10-K/A for the period from inception (November 17, 1997) to July
31, 1998.
/s/ PricewaterhouseCoopers LLP
San Diego, California
August 17, 1999
