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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
|_| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended ________________
OR
|X| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from
August 1, 1998 to December 31, 1998
Commission File Number 1-8459
NEW PLAN REALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS 13-1995781
(State of Incorporation) (I.R.S. Employer
Identification No.)
1120 AVENUE OF THE AMERICAS
NEW YORK, NY 10036 (212) 869-3000
(Address of Principal Executive Offices) (Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
NONE
(Title of Class)
NONE
(Name of Exchange on Which Registered)
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, 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 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]
AS OF MARCH 26, 1999, THE SOLE OUTSTANDING SHARE OF BENEFICIAL INTEREST OF THE
REGISTRANT WAS HELD BY NEW PLAN EXCEL REALTY TRUST, INC.
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PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, CONSOLIDATED FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements. The following documents are
filed as a part of this report:
The response to this portion of Item 14 is submitted as a separate
section of this report.
(b) Reports on Form 8-K filed during the three months ended December
31, 1998.
1. Form 8-K dated October 13, 1998 containing items 2, 7
and 8.
(c) Exhibits. The following documents are filed as exhibits to this
report:
*3.1 Amended and Restated Declaration of Trust of New Plan
Realty Trust dated as of January 15, 1996 filed as
Exhibit 99.3 to the Registrant's Form 8-K dated May
24, 1996.
*3.2 Certificate of Amendment of Amended and Restated
Declaration of Trust of New Plan Realty Trust dated
September 25, 1998 filed as Exhibit 3.2 to the
Registrant's Form 10-K for the fiscal year ended July
31, 1998.
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*4.1 Specimen Certificate for Shares of Beneficial
Interest filed as Exhibit 4.1 to the Registrant's
Form 10-K for the fiscal year ended July 31, 1997.
*4.2 Certificate of Designation Supplementing the Amended
and Restated Declaration of Trust of New Plan Realty
Trust filed as Exhibit 4.1 to the Registrant's Form
8-K dated July 2, 1997.
*10.1 Credit Agreement by and among New Plan Realty Trust,
the Lenders party thereto and The Bank of New York,
as agent, dated as of November 21, 1997, filed as
Exhibit 10.26 to the Form 10-K/A of New Plan Excel
Realty Trust, Inc. for the fiscal year ended December
31, 1998.
*10.2 Assignment and Assumption Agreement dated December 1,
1997 by and among New Plan Realty Trust, Bank
Hapoalim B.M. and The Bank of New York filed as
Exhibit 10.2 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.3 Waiver and Amendment to Credit Agreement dated as of
September 25, 1998 by and among New Plan Realty
Trust, the Lenders party thereto and The Bank of New
York, as agent, filed as Exhibit 10.3 to the
Registrant's Form 10-K for the fiscal year ended July
31, 1998.
*10.4 Assumption and Substitution Agreement dated as of
September 28, 1998 by and among New Plan Excel Realty
Trust, Inc., New Plan Realty Trust, the Lenders party
thereto and The Bank of New York, as agent, filed as
Exhibit 10.4 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.5 Guaranty, dated September 28, 1998, by New Plan
Realty Trust filed as Exhibit 10.5 to the
Registrant's Form 10-K for the transition period
ended December 31, 1998.
*10.6 Unconditional Guaranty of Payment and Performance
dated as of September 28, 1998 by and between New
Plan Realty Trust and BankBoston N.A. filed as
Exhibit 10.5 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.7 Senior Securities Indenture between New Plan Realty
Trust and The First National Bank of Boston, as
Trustee, dated as of March 29, 1995, filed as Exhibit
4.2 to Registration Statement No. 33-60045.
*10.8 7.75% Senior Note Due April 6, 2005 filed as Exhibit
10.7 to the Registrant's Form 10-K for the fiscal
year ended July 31, 1995.
*10.9 6.8% Senior Note Due May 15, 2002 filed as Exhibit
10.8 to the Registrant's Form 10-K for the fiscal
year ended July 31, 1995.
*10.10 Agreement and Plan of Merger, dated May 14, 1998, as
amended as of August 7, 1998, among Excel Realty
Trust, Inc., ERT Merger Sub, Inc. and New Plan Realty
Trust filed as Exhibit 2.1 to the Registrant's Form
8-K dated October 13, 1998.
*10.11 Senior Securities Indenture among New Plan Excel
Realty Trust, Inc., New Plan Realty Trust, as
guarantor, and State Street Bank and Trust Company,
as Trustee, dated as of February 3, 1999 filed as
Exhibit 4.1 to the Current Report on Form 8-K of New
Plan Excel Realty Trust, Inc. dated February 3, 1999.
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*10.12 New Plan Realty Trust 1997 Stock Option Plan filed as
Exhibit 4.1 to the Registration Statement of New Plan
Excel Realty Trust, Inc. on Form S-8, File No.
333-65221, on October 1, 1998.
*10.13 New Plan Realty Trust 1991 Stock Option Plan, as
amended, filed as Exhibit 4.2 to the Registration
Statement of New Plan Excel Realty Trust, Inc. on
Form S-8, File No. 333-65221, on October 1, 1998.
*10.14 Amended and Restated New Plan Realty Trust 1985
Incentive Stock Option Plan filed as Exhibit 4.3 to
the Registration Statement of New Plan Excel Realty
Trust, Inc. on Form S-8, File No. 333-65221, on
October 1, 1998.
*10.15 New Plan Realty Trust March 1991 Stock Option Plan
and Non-Qualified Stock Option Plan filed as Exhibit
4.4 to the Registration Statement of New Plan Excel
Realty Trust, Inc. on Form S-8, File No. 333-65221,
on October 1, 1998.
*12 Ratio of Earnings to Fixed Charges filed as Exhibit
12 to the Registrant's Form 10-K for the transition
period ended December 31, 1998.
*21 Subsidiaries of the Registrant filed as Exhibit 21
to the Registrant's Form 10-K for the transition
period ended December 31, 1998.
*23 Consent of PricewaterhouseCoopers LLP filed as
Exhibit 23 to the Registrant's Form 10-K for the
transition period ended December 31, 1998.
*27(1) Financial Data Schedule filed as Exhibit 27(1) to the
Registrant's Form 10-K for the transition period
ended December 31, 1998.
99.1 "Risk Factors" contained in New Plan Excel Realty
Trust, Inc.'s Annual Report on Form 10-K/A for the
year ended December 31, 1998.
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*Incorporated herein by reference as above indicated.
(1) Filed as exhibit to electronic filing only.
(d) Financial Statement Schedules. The following documents are filed as
a part of this report:
The response to this portion of Item 14 is submitted as a separate
section of this report.
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SIGNATURE
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.
NEW PLAN REALTY TRUST
(Registrant)
By: /s/ Arnold Laubich
-----------------------
Arnold Laubich
Chief Executive Officer
Dated: April 6, 1999
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EXHIBIT INDEX
Exhibit No. Description
*3.1 Amended and Restated Declaration of Trust of New
Plan Realty Trust dated as of January 15, 1996
filed as Exhibit 99.3 to the Registrant's Form 8-K
dated May 24, 1996.
*3.2 Certificate of Amendment of Amended and Restated
Declaration of Trust of New Plan Realty Trust dated
September 25, 1998 filed as Exhibit 3.2 to the
Registrant's Form 10-K for the fiscal year ended July
31, 1998.
*4.1 Specimen Certificate for Shares of Beneficial
Interest filed as Exhibit 4.1 to the Registrant's
Form 10-K for the fiscal year ended July 31, 1997.
*4.2 Certificate of Designation Supplementing the Amended
and Restated Declaration of Trust of New Plan Realty
Trust filed as Exhibit 4.1 to the Registrant's Form
8-K dated July 2, 1997.
*10.1 Credit Agreement by and among New Plan Realty Trust,
the Lenders party thereto and The Bank of New York,
as agent, dated as of November 21, 1997, filed as
Exhibit 10.26 to the Form 10-K/A of New Plan Excel
Realty Trust, Inc. for the fiscal year ended December
31, 1998.
*10.2 Assignment and Assumption Agreement dated December 1,
1997 by and among New Plan Realty Trust, Bank
Hapoalim B.M. and The Bank of New York filed as
Exhibit 10.2 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.3 Waiver and Amendment to Credit Agreement dated as of
September 25, 1998 by and among New Plan Realty
Trust, the Lenders party thereto and The Bank of New
York, as agent, filed as Exhibit 10.3 to the
Registrant's Form 10-K for the fiscal year ended July
31, 1998.
*10.4 Assumption and Substitution Agreement dated as of
September 28, 1998 by and among New Plan Excel Realty
Trust, Inc., New Plan Realty Trust, the Lenders party
thereto and The Bank of New York, as agent, filed as
Exhibit 10.4 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.5 Guaranty, dated September 28, 1998, by New Plan
Realty Trust filed as Exhibit 10.5 to the
Registrant's Form 10-K for the transition period
ended December 31, 1998.
*10.6 Unconditional Guaranty of Payment and Performance
dated as of September 28, 1998 by and between New
Plan Realty Trust and BankBoston N.A. filed as
Exhibit 10.5 to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998.
*10.7 Senior Securities Indenture between New Plan
Realty Trust and The First National Bank of
Boston, as Trustee, dated as of March 29, 1995, filed
as Exhibit 4.2 to Registration Statement No.
33-60045.
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*10.8 7.75% Senior Note Due April 6, 2005 filed as Exhibit
10.7 to the Registrant's Form 10-K for the fiscal
year ended July 31, 1995.
*10.9 6.8% Senior Note Due May 15, 2002 filed as Exhibit
10.8 to the Registrant's Form 10-K for the fiscal
year ended July 31, 1995.
*10.10 Agreement and Plan of Merger, dated May 14, 1998, as
amended as of August 7, 1998, among Excel Realty
Trust, Inc., ERT Merger Sub, Inc. and New Plan Realty
Trust filed as Exhibit 2.1 to the Registrant's Form
8-K dated October 13, 1998.
*10.11 Senior Securities Indenture among New Plan Excel
Realty Trust, Inc., New Plan Realty Trust, as
guarantor, and State Street Bank and Trust Company,
as Trustee, dated as of February 3, 1999 filed as
Exhibit 4.1 to the Current Report on Form 8-K of New
Plan Excel Realty Trust, Inc. dated February 3, 1999.
*10.12 New Plan Realty Trust 1997 Stock Option Plan filed as
Exhibit 4.1 to the Registration Statement of New Plan
Excel Realty Trust, Inc. on Form S-8, File No.
333-65221, on October 1, 1998.
*10.13 New Plan Realty Trust 1991 Stock Option Plan, as
amended, filed as Exhibit 4.2 to the Registration
Statement of New Plan Excel Realty Trust, Inc. on
Form S-8, File No. 333-65221, on October 1, 1998.
*10.14 Amended and Restated New Plan Realty Trust 1985
Incentive Stock Option Plan filed as Exhibit 4.3
to the Registration Statement of New Plan Excel
Realty Trust, Inc. on Form S-8, File No.
333-65221, on October 1, 1998.
*10.15 New Plan Realty Trust March 1991 Stock Option Plan
and Non-Qualified Stock Option Plan filed as
Exhibit 4.4 to the Registration Statement of New
Plan Excel Realty Trust, Inc. on Form S-8, File
No. 333-65221, on October 1, 1998.
*12 Ratio of Earnings to Fixed Charges filed as Exhibit
12 to the Registrant's Form 10-K for the transition
period ended December 31, 1998.
*21 Subsidiaries of the Registrant filed as Exhibit 21 to
the Registrant's Form 10-K for the transition period
ended December 31, 1998.
*23 Consent of PricewaterhouseCoopers LLP filed as
Exhibit 23 to the Registrant's Form 10-K for the
transition period ended December 31, 1998.
*27(1) Financial Data Schedule filed as Exhibit 27(1) to the
Registrant's Form 10-K for the transition period
ended December 31, 1998.
99.1 "Risk Factors" contained in New Plan Excel Realty
Trust, Inc.'s Annual Report on Form 10-K/A for the
year ended December 31, 1998.
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*Incorporated herein by reference as above indicated.
(1) Filed as exhibit to electronic filing only.
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Ex. 99.1
Risk Factors
Set forth below are the risks that the Company believes are material to
investors who purchase or own the securities of the Company that are not
otherwise described in this Annual Report on Form 10-K.
There Can Be No Assurance that the Company Will Effectively Manage Growth
The Company intends to pursue an aggressive growth strategy in the
foreseeable future. The Company plans to manage this growth by applying its
experience to new properties and markets, and expects to be successful in that
effort. If the Company does not effectively manage its rapid growth, however, it
may not be able to service its debt or pay expected dividends to its
stockholders.
The Company is Dependent on Key Personnel
The Company depends upon the efforts of its executive officers. In
particular, the Company depends upon the services of William Newman, Arnold
Laubich and Gary B. Sabin, who serve as Chairman of the Board, Chief Executive
Officer, and President of the Company, respectively. The loss of the services of
any of these executive officers or of certain other key personnel could have a
material adverse effect on the Company. William Newman has entered into an
agreement to provide consulting services to the Company through December 31,
2003, with two automatic one-year renewal periods thereafter unless terminated
by either party. Arnold Laubich and Gary B. Sabin have each entered into
employment agreements which have terms through December 31, 2002, with automatic
one-year renewal periods thereafter unless terminated by either party. In
addition, the Company has entered into employment agreements with certain of its
other executive officers. The Company has not obtained "key man" insurance with
respect to any members of its executive management team, however, and does not
expect that it will purchase such insurance in the foreseeable future.
Performance and Share Value are Subject to Risks Associated With the Real Estate
Industry
The Company Faces the Risks of All Real Estate Companies. If the Company's
assets do not generate income sufficient to pay expenses and maintain
properties, it may not be able to service debt or pay expected dividends to
stockholders. A number of factors may adversely affect the economic performance
of the Company and the value of its properties. These factors include changes in
the national, regional and local economic climate, local conditions, such as an
oversupply of space in properties like those owned by the Company, or a
reduction in demand for such properties, the attractiveness of its properties to
tenants, competition from other available properties, changes in market rental
rates and the need to periodically repair, renovate and relet space. The
Company's performance also depends on its ability to collect rent from tenants
and to pay for adequate maintenance, insurance and other operating costs
(including real estate taxes), which could increase over time. Also, the
expenses of owning and operating a property are not necessarily reduced when
circumstances such as market factors and competition cause a reduction in income
from the property. If a property is mortgaged and the Company is unable to make
the mortgage payments, the lender could foreclose on the mortgage and take the
property. In addition, interest rate levels, the availability of financing and
changes in laws and governmental regulations (including those governing usage,
zoning, the environment and taxes) may adversely affect the Company's financial
condition.
The Company is Dependent upon Economic Trends in the Retailing Industry.
The Company's properties consist largely of community and neighborhood shopping
centers and other retail properties. The Company's performance therefore is
linked to economic conditions in the market for retail space
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generally. The market for retail space has been or could be adversely affected
by the ongoing consolidation in the retail sector, the adverse financial
condition of certain large retailing companies, the excess amount of retail
space in certain markets, and increasing consumer purchases through catalogues
or the internet. To the extent that these conditions impact the market rents for
retail space, the Company's financial position and ability to service debt and
pay dividends to stockholders could be adversely affected.
The Company May be Unable to Renew Leases or Relet Space as Leases Expire.
If the Company's tenants decide not to renew their leases upon expiration, it
may not be able to relet the space. Even if the tenants do renew or the Company
can relet the space, the terms of renewal or reletting (including the cost of
required renovations) may be less favorable than current lease terms or than
expectations for the space. As of December 31, 1998, leases were scheduled to
expire on a total of approximately 35% of the space at the Company's retail
properties through the end of 2002. If the Company is unable promptly to renew
the leases or relet this space, or if the rental rates upon renewal or reletting
are significantly lower than expected rates, then the results of operations and
financial condition may be adversely affected. Consequently, cash flow and
ability to service debt and pay dividends to stockholders could be adversely
affected.
The Company is Dependent Upon the Financial Health of its Tenants. The
Company's financial position and ability to pay dividends may be affected by
financial difficulties experienced by a major tenant, including a bankruptcy,
insolvency or general downturn in business. The bankruptcy or insolvency of one
or more major tenants or a number of smaller tenants may have an adverse impact
on the Company's properties and on the income produced by such properties. As of
December 31, 1998, the Company's largest retail tenants were Kmart and Wal-mart,
whose scheduled annualized base rents represented 5.1% and 3.5%, respectively,
of the Company's total annualized base rents.
New Acquisitions and Developments May Fail to Perform as Expected and
Competition for Acquisitions May Result in Increased Prices for Properties. The
Company intends to continue actively acquiring and developing community and
neighborhood shopping centers, other retail and commercial properties and
apartment communities. Newly acquired and newly developed properties may fail to
perform as expected. The Company's management may underestimate the costs
necessary to bring an acquired property up to standards established for its
intended market position. New developments are subject to a number of risks,
including construction delays, cost overruns, financing risks, failure to meet
expected occupancy and rent levels, delays in and the inability to obtain
zoning, occupancy and other governmental permits, and changes in zoning and land
use laws. These development risks may result in increased project costs and the
incurrence of costs for developments that are not pursued to completion.
Additionally, the Company expects that other major real estate investors with
significant capital will compete with it for attractive investment and
development opportunities. These competitors include publicly traded REITs,
private REITs, investment banking firms and private institutional investment
funds. This competition has increased prices for the types of properties in
which the Company invests. The Company expects to acquire and develop properties
with cash from secured or unsecured financings or from offerings of equity or
debt. The Company may sometimes acquire properties with partnership units from a
partnership that it controls. The Company may not be in a position or have the
opportunity in the future to make suitable property acquisitions or to develop
properties on favorable terms.
Because Real Estate Property Investments are Illiquid, the Company May Not
be Able to Sell Properties When Appropriate. Real estate property investments
generally cannot be sold quickly. In addition, the federal tax code imposes
restrictions on a REIT's ability to dispose of properties. The Company may not
be able to vary its portfolio promptly in response to economic or other
conditions. This
<PAGE> 3
inability to respond promptly to changes in economic or other conditions could
adversely affect the Company's financial condition and ability to service debt
and pay dividends to stockholders.
Some Potential Losses are Not Covered By Insurance. The Company carries
comprehensive liability, fire, extended coverage and rental loss insurance on
all of its properties. The Company believes the policy specifications and
insured limits of these policies are adequate and appropriate. There are,
however, certain types of losses, such as lease and other contract claims, that
generally are not insured. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose all or a portion of the capital it
has invested in a property, as well as the anticipated future revenue from the
property. In such an event, the Company might nevertheless remain obligated for
any recourse mortgage debt or other financial obligations related to the
property.
Debt Financing, Financial Covenants, Degree of Leverage and Increases in
Interest Rates Could Adversely Affect the Company's Economic Performance
Scheduled Debt Payments Could Adversely Affect the Company's Financial
Condition. The Company's business is subject to risks normally associated with
debt financing. Cash flow could be insufficient to pay expected dividends to
stockholders and meet required payments of principal and interest. The Company
may not be able to refinance existing indebtedness (which in virtually all cases
requires substantial principal payments at maturity) and, even if it can, the
terms of such refinancing might not be as favorable as the terms of existing
indebtedness. The total principal amount of the Company's outstanding
indebtedness was $1.1 billion as of December 31, 1998. If principal payments due
at maturity cannot be refinanced, extended or paid with proceeds of other
capital transactions, such as new equity capital, cash flow may not be
sufficient in all years to repay all maturing debt. If prevailing interest rates
or other factors at the time of refinancing (such as the possible reluctance of
lenders to make commercial real estate loans) result in higher interest rates,
increased interest expense would adversely affect cash flow and the Company's
ability to service debt and pay expected dividends to stockholders.
Financial Covenants Could Adversely Affect the Company's Financial
Condition. If a property is mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, the holder of the mortgage or
lender could foreclose on the property, resulting in loss of income and asset
value. Certain of the mortgages contain customary negative covenants which,
among other things, limit the Company's ability, without the prior consent of
the lender, to further mortgage the property, to enter into new leases or
materially modify existing leases, and to discontinue insurance coverage. In
addition, credit facilities and the indentures under which the Company's senior
unsecured indebtedness is issued contain certain financial and operating
covenants, including, among other things, certain coverage ratios, as well as
limitations on the Company's ability to incur secured and unsecured
indebtedness, sell all or substantially all of the Company's assets and engage
in mergers and consolidations and certain acquisitions. Foreclosure on mortgaged
properties or an inability to refinance existing indebtedness would likely have
a negative impact on the Company's financial condition and results of
operations.
The Company's Degree of Leverage Could Limit Its Ability to Obtain
Additional Financing. The Company's organizational documents do not contain any
limitation on the incurrence of indebtedness. The degree of leverage of the
Company could have important consequences, including affecting the ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, development or other general corporate purposes and
making the Company more vulnerable to a downturn in business or the economy
generally.
<PAGE> 4
The Company is Subject to Interest Rate Risk. Increases in interest rates,
or the loss of the benefits of any hedging agreements of the Company, would
increase the Company's interest expense, which would adversely affect cash flow
and the Company's ability to service its debt and pay dividends to stockholders.
As of December 31, 1998, the Company had $200.5 million outstanding under two
unsecured revolving credit facilities under which advances bear interest at
floating interest rates. One is a $250 million credit facility that expires in
December 1999, and the other is a $50 million credit facility that expires
in November 1999. As of December 31, 1998, the Company also had approximately
$170 million in floating rate notes and mortgages outstanding, with $49 million
maturing in August 1999, $40 million maturing in May 2000, $10 million maturing
in August 2000 and approximately $71 million maturing in various amounts not
exceeding $10 million each on various dates from July 1999 to February 2013. The
Company was not a party to any hedging agreements with respect to its floating
rate debt as of December 31, 1998. In the event of a significant increase in
interest rates, the Company would consider entering into hedging agreements with
respect to all or a portion of its floating rate debt. Although hedging
agreements would enable the Company to convert floating rate liabilities to
fixed rate liabilities, they would expose the Company to the risk that the
counterparties to such hedge agreements may not perform, which could increase
the Company's exposure to rising interest rates. Generally, however, the
counterparties to hedging agreements that the Company would enter into would be
major financial institutions. The Company may borrow additional money with
floating interest rates in the future. Increases in interest rates, or the loss
of the benefits of any hedging agreements that the Company may enter into in the
future, would increase the Company's interest expenses, which would adversely
affect cash flow and the ability of the Company to service its debt. If the
Company enters into any hedging agreements in the future, decreases in interest
rates thereafter would increase the Company's interest expenses as compared to
the underlying floating rate debt and could result in the Company making
payments to unwind such agreements.
The Ability of Stockholders to Effect Changes in Control of the Company is
Limited
Provisions of the Company's Charter and Bylaws Could Inhibit Changes in
Control. Certain provisions of the Company's charter and bylaws may delay or
prevent a change in control of the Company or other transactions that could
provide stockholders with a premium over the then-prevailing market price of
their common stock or that might otherwise be in the best interests of the
stockholders. These include a staggered Board of Directors, a stockholder rights
plan and the REIT share ownership limits described two paragraphs below. Also,
any future series of preferred stock of the Company may have certain voting
provisions that could delay or prevent a change of control or other transaction
that might involve a premium price or otherwise be in the best interests of the
common or other stockholders.
The Company Could Adopt Maryland Law Limitations on Changes in Control.
Certain provisions of Maryland law applicable to REITs prohibit "business
combinations" (including certain issuances of equity securities) with any person
who beneficially owns ten percent or more of the voting power of outstanding
shares, or with an affiliate of the REIT who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the outstanding voting shares (a so-called
"interested stockholder"), or with an affiliate of an interested stockholder.
These prohibitions last for five years after the most recent date on which the
interested stockholder became an interested stockholder. After the five-year
period, a business combination with an interested stockholder must be approved
by two super-majority stockholder votes unless, among other conditions, the
REIT's common stockholders receive a minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by the
interested stockholder for its common shares. The Board of Directors of the
Company has opted out of these business combination provisions. Consequently,
the five-year prohibition and the super-majority vote requirements will not
apply to a business combination
<PAGE> 5
involving the Company. The Board of Directors may, however, repeal this election
in most cases and cause the Company to become subject to these provisions in the
future.
The Company Has a Share Ownership Limit. To facilitate maintenance of the
Company's REIT qualification and for other strategic reasons, the Company's
charter generally prohibits any person from acquiring or holding shares of the
Company's preferred and common stock in excess of 9.8% (by value or by number of
shares, whichever is more restrictive) of the outstanding shares of each class
or series of stock of the Company. The Company's Board of Directors may exempt a
person from this ownership limit under specified conditions. Absent an exemption
or a waiver, shares of stock that are purportedly transferred in excess of the
ownership limit will be automatically transferred to a trust for the exclusive
benefit of one or more charitable beneficiaries, and the purported transferee
will not acquire any rights in such shares. This ownership limit could delay or
prevent a change in control of the Company and, therefore, could adversely
affect the common stockholders' ability to realize a premium over the
then-prevailing market price for their shares.
The Company Does Not Control its Development Business
To facilitate maintenance of its REIT qualification, the Company has an
investment in a noncontrolled company that is engaged in the real estate
development business, EDV. Although the Company owns 95% of the economic
interest in EDV, its voting stock is owned directly or indirectly by a private
company controlled by certain of the Company's executive officers. The Company
therefore does not control the timing or amount of dividends or the management
and operations of this company. As a result, decisions relating to the
declaration and payment of dividends and the business policies and operations of
this company could be adverse to the Company's interests or could lead to
adverse financial results, which could adversely affect the Company's financial
condition and results of operations.
Certain Directors and Executive Officers Have Conflicts of Interest Involving
Legacy
Certain of the Company's directors and officers continue to serve as
directors and officers of Legacy, which Excel spun off in March 1998. As of
December 31, 1998, these individuals held 10,227,046 shares of common stock of
Legacy, which equaled approximately 31% of the currently outstanding shares, and
held options to acquire another 3,162,000 shares. The Company and Legacy
currently are parties to agreements providing for: (i) the orderly separation of
the Company and Legacy; (ii) the sharing of certain facilities and the provision
of management and administrative services by the Company to Legacy; and (iii)
the allocation of certain tax and other liabilities. 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. In this
regard, the certificate of incorporation of Legacy contains a specific purpose
clause providing that Legacy's purpose includes complying with an intercompany
agreement between the Company and Legacy as long as the agreement remains in
effect. The agreement prohibits Legacy from investing in community and
neighborhood shopping centers, power centers, malls or other conventional retail
properties, unless it has first offered to Excel (now the Company) the
opportunity to pursue such investments.
Environmental Problems are Possible and Can Be Costly
Federal, state and local laws and regulations relating to the protection
of the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred
<PAGE> 6
by such parties in connection with the contamination. Such laws typically impose
clean-up responsibility and liability without regard to whether the owner or
operator knew of or caused the presence of contaminants. Even if more than one
person may have been responsible for the contamination, each person covered by
the environmental laws may be held responsible for all of the clean-up costs
incurred. In addition, third parties may sue the owner or operator of a site for
damages and costs resulting from environmental contamination emanating from that
site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they notify and train
those who may come into contact with asbestos and that they undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.
The Market Value of the Company's Publicly Traded Securities Can Be Adversely
Affected by a Number of Factors
Changes in Market Conditions Could Adversely Affect the Market Price of
the Company's Publicly Traded Securities. As with other publicly traded
securities, the value of the Company's publicly traded securities depends on
various market conditions, which may change from time to time. Among the market
conditions that may affect the value of its publicly traded securities are the
following: the extent of institutional investor interest in the Company; the
reputation of REITs generally; the reputation of REITs with portfolios similar
to the Company's; the attractiveness of the securities of REITs in comparison to
other securities (including securities issued by other real estate companies);
the Company's financial condition and performance; and general economic and
financial market conditions.
The Company's Earnings and Cash Dividends Will Affect the Market Price of
its Publicly Traded Securities. The Company believes that the market value of a
REIT's equity securities is based primarily upon the market's perception of the
REIT's growth potential and its current and potential future cash dividends, and
is secondarily based upon the real estate market value of the underlying assets.
For that reason, the Company's common stock may trade at prices that are higher
or lower than the net asset value per share. To the extent the Company retains
operating cash flow for investment purposes, working capital reserves or other
purposes, these retained funds, while increasing the value of its underlying
assets, may not correspondingly increase the market price of the Company's
shares. Failure to meet the market's expectations with regard to future earnings
and cash dividends likely would adversely affect the market price of the
Company's publicly traded equity securities.
Market Interest Rates May Have an Effect on the Value of the Company's
Publicly Traded Securities. One of the factors that investors consider important
in deciding whether to buy or sell shares of a REIT is the dividend rate on such
shares (as a percentage of the price of such shares) relative to market interest
rates. If market interest rates go up, prospective purchasers of REIT shares may
expect a higher dividend rate. Higher interest rates would not, however, result
in more dividends and, in fact, likely would increase borrowing costs and
potentially decrease funds available for dividends. Thus, higher market interest
rates could cause the market price of the Company's publicly traded securities
to go down.
The Company is Dependent on External Sources of Capital
<PAGE> 7
To qualify as a REIT, among other things, the Company must distribute to
its stockholders each year at least 95% of its REIT taxable income (excluding
any net capital gain). Because of these distribution requirements, the Company
likely will not be able to fund all future capital needs, including capital for
acquisitions, with income from operations. The Company therefore will have to
rely on third-party sources of capital, which may or may not be available on
favorable terms or at all. The Company's access to third-party sources of
capital depends on a number of things, including the market's perception of its
growth potential and its current and potential future earnings. Moreover,
additional equity offerings may result in substantial dilution of stockholders'
interests, and additional debt financing may substantially increase leverage.
The Company's Classification as a REIT is Dependent on Compliance with Federal
Income Tax Requirements
Failure of the Company to Qualify as a REIT Would Have Serious Adverse
Consequences to Stockholders. The Company believes that its predecessor
companies, the Trust and Excel, qualified for taxation as REITs for federal
income tax purposes since their first elections to be taxed as REITs for the
taxable years ended July 31, 1972 and December 31, 1987, respectively. The
Company plans to continue to operate the combined company so that it meets the
requirements for taxation as a REIT. Many of these requirements, however, are
highly technical and complex. The determination that the Company is a REIT
requires an analysis of various factual matters and circumstances that may not
be totally within the Company's control. For example, to qualify as a REIT, at
least 95% of the Company's gross income must come from certain sources that are
itemized in the REIT tax laws. The Company is also required to distribute to
stockholders at least 95% of its REIT taxable income (excluding capital gains).
The fact that the Company holds certain of its assets through partnerships and
their subsidiaries further complicates the application of the REIT requirements.
Even a technical or inadvertent mistake could jeopardize the Company's REIT
status. Furthermore, Congress and the Internal Revenue Service might make
changes to the tax laws and regulations, and the courts might issue new rulings,
that make it more difficult, or impossible, for the Company to remain qualified
as a REIT. The Company does not believe, however, that any pending or proposed
tax law changes would jeopardize its REIT status.
If the Company fails to qualify as a REIT, the Company would be subject to
federal income tax at regular corporate rates. Also, unless the IRS granted the
Company relief under certain statutory provisions, the Company would remain
disqualified as a REIT for four years following the year the Company first
failed to qualify. If the Company failed to qualify as a REIT, the Company would
have to pay significant income taxes and would therefore have less money
available for investments, debt service and dividends to stockholders. This
likely would have a significant adverse affect on the value of its securities.
In addition, the Company would no longer be required to pay any dividends to
stockholders.
The Company Could be Disqualified as a REIT or Have to Pay Taxes if its
Predecessor Companies Did Not Qualify as REITs. If either the Trust or Excel,
whose businesses were combined in the Merger on September 28, 1998 to form the
Company, failed to qualify as a REIT throughout the duration of its existence,
it might have had undistributed "C corporation earnings and profits." If that
were the case and the Trust or Excel did not distribute such earnings and
profits prior to the Merger, the Company might not qualify as a REIT. The
Company believes that each of the Trust and Excel qualified as a REIT and that,
in any event, neither the Trust nor Excel had any undistributed "C corporation
earnings and profits" at the time of the Merger. If either the Trust or Excel
failed to qualify as a REIT, it would have recognized taxable gain at the time
of the Merger (and the Company would be liable for the tax on such gain). This
would be the case even though the business combination qualified as a "tax-free
reorganization," unless the Company makes a special election that is available
under current law. The Company will make such an election with respect to each
of the Trust and Excel. This election will have the effect of requiring the
<PAGE> 8
Company, if the Trust or Excel was not qualified as a REIT, to pay corporate
income tax on any gain existing at the time of the business combination on
assets acquired in the combination if such assets are sold within 10 years after
the combination. Finally, if either the Trust or Excel did not qualify as a
REIT, the Company could be precluded from electing REIT status for up to four
years after the year in which the predecessor company failed to qualify if the
Company were determined to be a "successor" to that predecessor company.
There Can Be No Assurance That the Company Will Be Successful in Integrating Two
Previously Separate Companies
The Merger took place in September 1998. There can be no assurance that
the remaining integration of the respective operations of the Trust and Excel
will be completed without substantial difficulties. Such difficulties could
include integrating different business strategies with respect to owning,
operating, acquiring and developing real estate properties, and integrating
personnel with different business backgrounds and corporate cultures. Further,
the process of integrating management services, administrative organizations,
facilities, management information systems and other aspects of operations,
while simultaneously managing a larger and geographically expanded entity, will
present a significant challenge to the management of the Company. There can be
no assurance that there will not be substantial costs associated with the
integration process, that the integration activities will not result in a
decrease in revenues or that there will not be other material adverse effects on
the Company as a result of the integration efforts. Although the Company does
not expect to incur any current material charge against earnings for integration
costs resulting from the Merger, there can be no assurance that the Company will
not in the future incur material charges to reflect costs associated with the
Merger.
Failure to Obtain Year 2000 Compliance May Have Adverse Effects on the Company
Many currently installed computer systems, software products, time clocks
and other similar devices of the Company are coded to accept only two digit
entries in the date code field. The Company needs to have these date code fields
upgraded or recoded to accept four digit entries to distinguish 21st century
dates from 20th century dates. Uncertainty exists concerning the potential
effects associated with compliance with such "Year 2000" requirements. In
addition, even if the Company's equipment and software is Year 2000 compliant,
equipment and software used by suppliers or other third parties having a
material relationship with the Company (e.g., utilities, financial institutions,
major tenants, suppliers, governmental agencies and municipalities) may not be
Year 2000 compliant.
