<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
For the Quarter Ended: Commission File Number:
JUNE 30, 1995 0-18678
------------------------ --------------------------
</TABLE>
EXCEL REALTY TRUST, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 33-0160389
---------------------------------- -----------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
16955 VIA DEL CAMPO, SUITE 110 SAN DIEGO, CALIFORNIA 92127
------------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (619) 485-9400
-----------------
Securities registered pursuant to Section 12(b) of the Act: NONE
------
Indicated 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.
(1) Yes X No _____
------
(2) Yes X No _____
------
Indicated the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
<TABLE>
<S> <C>
Class Outstanding at June 30, 1995
---------------------------------- -------------------------------------------------
Common stock, $.01 par value 12,920,349
</TABLE>
<PAGE> 2
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
INDEX
FORM 10-Q
__________
<TABLE>
<CAPTION> PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1995 (Unaudited)
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income
Three Months Ended June 30, 1995 (Unaudited)
Three Months Ended June 30, 1994 (Unaudited)
Six Months Ended June 30, 1995 (Unaudited)
Six Months Ended June 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1995 (Unaudited)
Six Months Ended June 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 (Unaudited)
Six Months Ended June 30, 1994 (Unaudited) . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 15
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30,
1995 DECEMBER 31,
(UNAUDITED) 1994
----------- ------------
<S> <C> <C>
ASSETS
Real estate:
Land $ 120,513 $ 115,614
Buildings 253,392 243,845
Building improvements under construction 13 24
Less accumulated depreciation (13,253) (10,228)
--------- ---------
Net real estate 360,665 349,255
Cash 11,463 4,131
Accounts receivable, less allowance for bad debts of
$440 and $318 in 1995 and 1994, respectively 1,734 1,443
Notes receivable:
Affiliates 18,657 -
Other 10,674 9,099
Escrow deposits 5,013 2,494
Loan acquisition costs 4,601 5,060
Interest rate protection agreements 1,937 2,106
Other assets 2,355 1,512
--------- --------
$ 417,099 $ 375,100
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $205,163 $ 201,157
Notes payable 1,608 15
Accounts payable and accrued liabilities:
Affiliates 69 86
Other 2,550 2,597
Dividends payable - 4,685
Other liabilities 2,572 2,662
--------- ----------
Total liabilities 211,962 211,202
--------- ---------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized - -
Common stock, $.01 par value, 100,000,000 shares authorized,
12,920,349 and 10,883,570 shares issued and outstanding
in 1995 and 1994, respectively 129 109
Additional paid-in capital 213,990 175,702
Accumulated dividends in excess of net income (8,982) (11,913)
--------- ---------
Total stockholders' equity 205,137 163,898
-------- ---------
$ 417,099 $ 375,100
======== =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
<PAGE> 4
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Base rent $ 12,164 $ 9,538 $ 24,751 $ 18,248
Percentage rent 28 41 92 110
Expense reimbursements 789 565 1,564 913
-------- -------- -------- --------
Total revenue 12,981 10,144 26,407 19,271
-------- -------- -------- --------
Operating expenses:
Master lease 1,330 - 2,886 -
Property taxes 642 445 1,251 787
General and administrative expenses 307 520 1,042 1,466
Repairs and maintenance 399 230 792 433
Utilities 102 170 290 308
Other property expenses 476 284 869 341
-------- -------- -------- --------
Total operating expenses 3,256 1,649 7,130 3,335
-------- -------- -------- --------
Operating income 9,725 8,495 19,277 15,935
Other income (expense):
Interest expense (4,993) (3,561) (9,434) (6,365)
Depreciation and amortization (1,690) (1,787) (3,339) (3,366)
Interest and other income 774 355 1,237 595
-------- -------- -------- --------
Income before real estate sales 3,816 3,502 7,741 6,799
Gain (loss) on sale of real estate (123) 12 (131) (41)
-------- -------- -------- --------
Net income $ 3,693 $ 3,514 $ 7,610 $ 6,758
======= ======= ======= =======
Net income per common share $0.33 $0.32 $0.69 $0.62
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part
of the financial statements.
4
<PAGE> 5
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(IN THOUSANDS, EXCEPT NUMBER OF SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL DIVIDENDS TOTAL
--------------------- PAID-IN IN EXCESS OF STOCKHOLDERS'
NUMBER AMOUNT CAPITAL NET INCOME EQUITY
------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1995:
Balance at January 1, 1995 10,883,570 $ 109 $ 175,702 $(11,913) $ 163,898
Issuance of new shares of
common stock 2,036,779 20 40,820 - 40,840
Selling expenses - - (2,532) - (2,532)
Net income - - - 7,610 7,610
Dividends declared - - - (4,679) (4,679)
---------- ----- --------- -------- ---------
Balance at June 30, 1995 12,920,349 $ 129 $ 213,990 $ (8,982) $ 205,137
========== ===== ========= ======== =========
SIX MONTHS ENDED JUNE 30, 1994:
Balance at January 1, 1994 10,465,643 $ 105 $ 168,962 $ (7,105) $ 161,962
Issuance of new shares of
common stock 460,089 4 7,466 - 7,470
Selling expenses - - (36) - (36)
Net income - - - 6,758 6,758
Dividends declared - - - (9,221) (9,221)
---------- ----- --------- -------- ---------
Balance at June 30, 1994 10,925,732 $ 109 $ 176,392 $ (9,568) $ 166,933
========== ===== ========= ======== =========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
5
<PAGE> 6
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,610 $ 6,758
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 3,337 2,854
Amortization 2 511
Amortized loan costs and leasing commissions 1,204 472
Loss on sale of real estate 131 41
Provision for bad debts, net of accounts written off 122 (118)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (413) 2,027
Other assets (626) (197)
Decrease in liabilities:
Accounts payable (64) (873)
Other liabilities (98) (172)
-------- --------
Net cash provided by operating activities 11,205 11,303
-------- --------
Cash flows from investing activities:
Real estate acquisitions and building improvements (10,367) (45,324)
Advances for notes receivable (25,150) (5,026)
Principal payments on notes receivable 4,918 3,326
Escrow deposits paid (6,239) (6,358)
Escrow deposits collected 3,721 5,560
Proceeds from real estate sales 9,127 1,427
Other (371) (173)
-------- --------
Net cash used in investing activities (24,361) (46,568)
-------- --------
Cash flows from financing activities:
Issuance of common stock 40,840 844
Selling and offering costs (2,532) (36)
Dividends paid (9,364) (8,844)
Proceeds from notes payable 24,021 100,074
Payments of mortgages and notes payable (32,019) (48,418)
Loan costs paid (458) (5,770)
-------- --------
Net cash provided by financing activities 20,488 37,850
-------- --------
Net increase in cash 7,332 2,585
Cash at January 1 4,131 5,376
-------- --------
Cash at June 30 $ 11,463 $ 7,961
======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
6
<PAGE> 7
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The financial statements reflect all adjustments of a recurring nature
which are, in the opinion of management, necessary for a fair presentation
of the financial statements. No adjustments were necessary which were not
of a normal recurring nature. Certain reclassifications have been made to
periods ended June 30, 1994 and the December 31, 1994 consolidated
financial statements in order to conform with the current period
presentation. These financial statements should be read in conjunction
with the consolidated financial statements and accompanying footnotes
included in the Company's December 31, 1994 Annual Report on Form 10-K.
ORGANIZATION
Excel Realty Trust, Inc. (the "Company") was formed in 1985 and is a
Maryland corporation. The Company is in the business of purchasing and
operating commercial real estate. The Company is operated as a
self-administered, self-managed real estate investment trust (REIT).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Excel Mortgage Funding Corporation
("EMFC") and Excel Credit Corporation ("ECC"). Intercompany accounts and
transactions have been eliminated.
EMFC and ECC were created to facilitate separate financing for a group of
properties as described in Note 7. Of total assets at June 30, 1995,
approximately $175,503,000 were in these subsidiaries.
REAL ESTATE
Land, buildings and building improvements are recorded at cost.
Depreciation is computed using the straight-line method over estimated
useful lives of 40 years for buildings and 2 to 40 years for building
improvements.
Expenditures for maintenance and repairs are charged to expense as
incurred. Significant renovations are capitalized. The cost and related
accumulated depreciation of real estate are removed from the accounts upon
disposition. Gains and losses arising from dispositions are reported as
income or expense.
DEFERRED LEASING AND LOAN ACQUISITION COSTS
Costs incurred in obtaining tenant leases and long-term financing are
amortized to leasing commission expense and interest expense,
respectively, on the straight-line method over the terms of the related
leases or debt agreements.
7
<PAGE> 8
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
INTEREST RATE PROTECTION AGREEMENTS
The Company has entered into two interest rate protection agreements with
an interest rate cap provider for the REMIC loans (see Note 7). The
Company paid $2,375,000 for the agreements which limit the Company's
maximum all inclusive interest rate exposure to 8.5%. The cost of the
agreements is being amortized over the 84 month term of the loans.
REVENUE RECOGNITION
Base rental income attributable to leases is recorded when due from
tenants. 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. These percentage rents are recorded on the accrual basis.
The leases also typically provide for tenant reimbursement of common area
maintenance and other operating expenses which are included in the
accompanying Consolidated Statements of Income as expense reimbursements.
LEASE TERMINATION FEES
Revenue recognition of fees received for lease terminations are deferred
and amortized using the straight-line method over the estimated time to
re-lease the related property , or until the property is sold, whichever
comes first.
INCOME TAXES
The Company has elected to be treated as a real estate investment trust
under Sections 856 through 860 of the Internal Revenue Code of 1986, as
amended. Under these provisions, the Company and its subsidiaries will
not be subject to federal income tax if 95% of its real estate investment
trust taxable income (before dividends paid deduction) is distributed to
shareholders and certain gross income, asset diversification, share
ownership and disclosure requirements are met.
To date the Company has distributed over 95% of its real estate investment
trust taxable income. Accordingly, no provision for federal income taxes
is included in the accompanying consolidated financial statements.
8
<PAGE> 9
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
NET INCOME PER COMMON SHARE
Net income per common share is based upon the weighted average number of
common shares and common share equivalents outstanding during each period.
Common share equivalents included in the computation represent shares
issuable upon assumed exercise of common stock options and warrants which
would have a dilutive effect. The weighted average shares outstanding for
the six months ended June 30, 1995 and 1994 were 10,875,696 and
10,833,656 respectively.
2. REGISTRATION STATEMENT:
In May 1995, the Company filed with the Securities and Exchange Commission
a $250,000,000 shelf registration statement. This registration statement
was filed for the purpose of issuing debt securities, preferred stock,
depositary shares, common stock or warrants for general corporate
purposes.
In June 1995, the Company issued from the shelf, 2,000,000 shares of
common stock in a publicly underwritten offering at a price of $20.125 per
share. Net proceeds of $38,030,000 from the offering were used to pay
off debt, purchase properties, make loans to facilitate the development of
certain properties for purchase (see Note 12), and to increase cash
reserves. Additionally, in July 1995, the Company received $2,662,000 in
net proceeds for 140,000 shares of common stock for over-allotments
related to this offering.
3. REAL ESTATE ACQUISITIONS AND SALES:
In the six months ended June 30, 1995, the Company acquired, in separate
transactions, five shopping centers in North Carolina. The total purchase
price for the five properties was approximately $21,251,000. In July
1995, an additional shopping center was purchased in North Carolina for
approximately $8,200,000 (see Note 4).
The Company sold five single tenant properties in the six month period
ended June 30, 1995 for a total net sales price of $9,127,000.
Additionally in July 1995, the Company sold a single tenant property for
$564,000 and recognized a net gain of approximately $85,000.
9
<PAGE> 10
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
4. MASTER LEASE AND OPTION AGREEMENT:
In January 1995, the Company entered into master lease and option
agreements to purchase eleven shopping centers in North Carolina. The
master leases require the payment equal to eight percent of the
lessor/sellers equity in the properties and give the Company all
management and operating responsibilities for the shopping centers. Under
the master leases, the Company receives all cash flow, if any, in excess
of the master lease payments. Each master lease has a term of five years.
The option agreements give the Company the option to purchase the
properties through February 1, 1996. Through July 1995, the Company has
purchased six of the above properties (see Note 3). The estimated
purchase price on the remaining five properties on the option agreements
is approximately $45,000,000. These properties have existing mortgages of
approximately $32,000,000. Upon exercise of the option agreements, the
Company receives the benefit of all principal amortization occurring from
January 1, 1995 until the time of purchase and reduces the purchase price
of the properties. Principal amortization of $282,000 was credited to the
Company on the six properties purchased. The principal amortization at
June 30, 1995 on the properties which may be purchased was $371,000 and is
recorded as an asset of the Company.
The Company deposited $4,000,000 in an escrow account and is being
returned to the Company as the properties are purchased. Escrow deposits
of $2,000,000 may be forfeited if certain properties are not purchased
within the time specified by the option agreements. At June 30, 1995, the
balance of this escrow account is $3,381,000.
5. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE (IN THOUSANDS):
The amounts paid for interest during the six months ended June 30, 1995
and 1994 were $8,250 and $6,078 respectively. No income taxes were paid
in either period.
The Company acquired real estate properties and interests in partnerships,
without the use of cash, for the six months ended June 30, 1995 and 1994
as summarized below:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Mortgage notes payable and other liabilities assumed $13,698 $21,943
Common stock issued - 6,626
------- -------
Net real estate purchased without cash $13,698 $28,569
======= =======
</TABLE>
10
<PAGE> 11
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
6. NOTES RECEIVABLE (IN THOUSANDS):
The Company had the following notes receivable at June 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Notes from affiliates, interest at 14% per annum, collateralized by
real estate. Due upon demand (see Note 12). $18,657 $ -
Notes from development companies, interest from 10% to 14%
per annum. Maturity dates vary from the completion of
certain properties or earlier, to January 1996. 9,887 8,306
Other 787 793
------- ------
Total notes receivable $29,331 $9,099
======= ======
</TABLE>
7. MORTGAGES PAYABLE (IN THOUSANDS):
The Company had the following mortgages payable at June 30, 1995 and
December 31, 1994:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Mortgage notes at 6.9115% to 10%, payable in installments
through 2018 (monthly payments at June 30, 1995
of $1,808):
Pass through certificates/bonds:
Public (see below) $ 84,965 $ 96,486
Private 30,559 31,187
Insurance companies 71,225 68,622
Banks 15,467 1,914
Other 2,947 2,948
-------- --------
Total mortgages payable $205,163 $201,157
======== ========
</TABLE>
Mortgages are collateralized by real estate and an assignment of rents and
leases. Mortgage debt of $2,947 is callable by the lender with 12 months
prior notice in 1997 and 1998.
11
<PAGE> 12
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
7. MORTGAGES PAYABLE (IN THOUSANDS), CONTINUED:
In March 1994, EMFC and ECC completed a securitized mortgage financing
known as a Real Estate Mortgage Investment Conduit (a "REMIC"). Pursuant
to this transaction, ECC issued and sold publicly, in an underwritten
offering, $100,000 aggregate principal amount of its Commercial Mortgage
Pass-Through Certificates. The Class A certificates ($51,965 at June 30,
1995) were rated AAA and the Class B certificates ($33,000 at June 30,
1995) were rated AA by Fitch Investors Services, Inc. and Duff and Phelps
Credit Rating Co. The Certificates bear interest at a variable rate equal
to one-month LIBOR plus 60 basis points (6.9115% at June 30, 1995 for the
Class A Certificates) and one-month LIBOR plus 80 basis points (7.1115% at
June 30, 1995 for the Class B Certificates), and mature on February 27,
2001. To protect against future increases in interest rates, ECC entered
into interest rate protection agreements with an interest rate cap
provider which limits ECC's maximum all-inclusive interest rate exposure
to 8.5%. The Certificates are fully prepayable at any time without
penalty. At June 30, 1995, the Certificates were collateralized by 57
retail and commercial properties which are owned by EMFC. In July 1995,
an additional $5,896 of the Class A certificates was repaid.
The principal payments required to be made on mortgages payable over the
next five years are as follows:
<TABLE>
<CAPTION>
YEAR
------
<S> <C>
1995, remaining six months $ 4,713
1996 9,477
1997 6,770
1998 9,660
1999 26,596
Thereafter 147,947
--------
$205,163
========
</TABLE>
Mortgages of $61,291 are fully amortizing with no balloon payments with
the final monthly payments coming between the years 2004 and 2018.
12
<PAGE> 13
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
8. NOTES PAYABLE (IN THOUSANDS):
The Company had the following notes payable at June 30, 1995 and December
31, 1994:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
$4,000 uncollateralized line of credit payable to a
financial institution, interest at the lenders base rate
plus 1.25% (8.91% at June 30, 1995), Due June 1996.
An additional $ 1,555 was borrowed in July 1995. $1,600 $ -
Other 8 15
------ ----
Total notes payable $1,608 $ 15
====== ====
</TABLE>
The Company has a loan agreement whereby a bank has committed to provide
the Company with a revolving credit facility of up to $25,000 at a rate of
LIBOR plus 2% (the actual amount available is dependent on compliance with
certain covenants). In June 1995, the Company repaid $18,230 which was
outstanding under this agreement. Additionally, the Company has an
unsecured revolving bank line of credit of $1,000, all of which is
available at June 30, 1995.
9. COMMITMENTS AND CONTINGENCIES:
In April 1995, the Company formed a Delaware Limited partnership, Excel
Realty Partners, L.P. ("ERP") to facilitate the acquisition of certain
properties. The Company is the sole general partner of ERP. In May 1995,
ERP entered into an agreement to purchase up to 25 shopping centers in the
southeastern United States. The commitment to purchase any or all of the
properties may be cancelled by the Company depending on the result of
property due diligence.
10. DIVIDENDS:
No dividend was declared in the second quarter of 1995. In April 1995,
the Company adopted a policy of declaring dividends to stockholders of
record on the first day of the of the succeeding quarter, instead of the
last day of the current quarter. As such, the normal declaration of a
dividend for stockholders on June 30, 1995 was changed to July 1, 1995.
The payment date of 15 days following each quarter remained unchanged. In
1995, dividends of $0.43 per share was declared on March 31 and paid on
April 15, and dividends of $0.445 per share was declared on July 1 and paid
on July 15. Total dividends of $5,748,000 were paid in July 1995.
Dividends of $0.415 and $0.43 per share were declared for each quarter for
the six months ended June 30, 1994, respectively.
For the six months ended June 30, 1995 and 1994, approximately 27% and
23.4%, respectively, of the dividends received by stockholders, were
considered to be a return of capital for tax purposes.
13
<PAGE> 14
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
__________
11. MINIMUM FUTURE RENTALS (IN THOUSANDS):
The Company leases its shopping centers and single-tenant buildings to
tenants under noncancelable operating leases generally requiring the
tenant to pay a minimum rent adjusted by either (i) fixed increases, (ii)
a percentage of gross sales, or (iii) a CPI index. The leases either (i)
require the tenant to reimburse the Company for the tenant's share of real
estate taxes and other common area maintenance expenses, or (ii) require
the tenant to pay all expenses of operating the property such as insurance
and property taxes, including structural repairs and maintenance.
Minimum future rental revenue for the next five years for the commercial
real estate currently owned at June 30, 1995 (not including properties
that are being master leased) and subject to noncancelable operating
leases is as follows:
<TABLE>
<CAPTION>
YEAR
-----
<S> <C>
1995, remaining six months $ 21,234
1996 42,510
1997 40,787
1998 38,418
1999 36,374
Thereafter 326,021
</TABLE>
12. RELATED PARTY TRANSACTIONS:
In April 1995, ERT Development Corporation ("EDV"), a Delaware
Corporation, was organized. The Company owns 100% of the outstanding
preferred shares of EDV. The preferred shares receive 95% of the
after-tax profits, if any, from EDV. EDV was formed to acquire, develop,
hold, and sell real estate in the short-term for capital gains and/or
receive fee income. At June 30, 1995, the Company had loaned EDV
$18,657,000 in exchange for notes receivable with interest at 14%.
Total interest income for the six months ended June 30, 1995 recognized
from EDV was approximately $329,000. In July 1995, an additional
$1,555,000 was loaned to EDV.
13. SUBSEQUENT EVENTS:
In July 1995, the Company sold $11,000,000 of the interest rate protection
agreement for $275,000 and recognized a gain of approximately $62,000.
Also in July 1995, the Company received $3,535,000 in lease termination
fees related to three single tenant properties the Company is negotiating
to sell.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
NATURE OF BUSINESS
Excel Realty Trust, Inc. (the "Company") is a self-administered, self-managed
equity real estate investment trust ("REIT") which owns and manages commercial
retail income-producing properties primarily leased on a long-term basis. The
terms of such leases typically provide that the tenant is responsible for all
costs and expenses associated with the ongoing maintenance of the property,
including but not limited to property taxes, insurance and common area
maintenance. The majority of the single tenant property leases also require
that tenants pay for roof and structure repairs and maintenance. The
properties are generally either (i) neighborhood or community shopping centers,
anchored by a major retail discount department store and a major grocery chain
store, or (ii) single tenant properties leased to a major retail tenant.
The Company has operated and intends to operate in a manner to qualify as a
REIT under Section 856 through 860 of the Internal Revenue Code of 1986, as
amended. As a REIT, the Company is not subject to federal income tax with
respect to that portion of its income which meets certain criteria and is
distributed annually to the stockholders.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has been the principal source of capital to fund the
Company's on-going operations. The Company's offering of 2,000,000 common
shares, use of the Company's existing credit facilities, and long-term mortgage
financing, have been the principal sources of capital required to fund its
property acquisitions. In order to continue to expand and develop its
portfolio of properties, the Company may seek to obtain funds through
additional equity offerings or debt financings in a manner consistent with its
intention to operate with what it believes to be an appropriate debt level with
respect to prudent interest coverage ratios. In April 1995, the Company
increased its quarterly dividends from $0.43 per share to $0.445 per share.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, continuing debt service obligations and
the payment of dividends in accordance with REIT requirements in both the short
and long-term.
In May 1995, the Company filed with the Securities and Exchange Commission a
$250,000,000 shelf registration statement. This registration statement was
filed for the purpose of issuing debt securities, preferred stock, depositary
shares, common stock or warrants for general corporate purposes. In June
1995, the Company issued from the shelf, 2,000,000 shares of common stock in a
publicly underwritten offering at a price of $20.125 per share. Net proceeds
of $38,030,000 from the offering were used to repay an existing loan agreement,
purchase properties, make loans to ERT Development Company for the purpose of
taking advantage of short-term development opportunities (as described below)
and other development companies, and increase cash reserves. In July 1995, the
Company received $2,662,000 in net proceeds for 140,000 shares of common stock
issued for over-allotments related to this offering.
The Company has a loan agreement whereby a bank has committed to loan the
Company up to $25,000,000 at a rate of LIBOR plus 2% in a secured revolving
credit facility. The actual amount available to the Company is dependent on
certain covenants such as the aggregate value of unencumbered properties and
meeting certain debt service ratios. The Company had borrowed $18,230,000
under this agreement, primarily to pay for costs relating to a master lease and
option agreement to manage and purchase 11 shopping centers in North Carolina,
to repay mortgage debt, and to fund other operating costs. The amount was
repaid in June 1995 with proceeds from the Company's stock offering. The
Company has received a commitment letter from the bank to increase the credit
facility to $75,000,000 and to decrease the interest rate to LIBOR plus 1.75%,
although there can be no assurance that either of these changes will occur.
Additionally, the Company has an uncollateralized line of credit of $4,000,000
of which $845,000 was available at August 8, 1995. The proceeds from this line
were used to make loans to ERT Development Company (see below). Finally, the
Company has a unsecured revolving $1,000,000 line of credit, all of which is
available as of August 8, 1995.
15
<PAGE> 16
In January 1995, The Company entered into master lease and option agreements to
purchase eleven shopping centers in North Carolina. The master leases require
payment equal to eight percent of the lessor/seller's equity in the properties
and give the Company all management and operating responsibilities for the
shopping centers. Under the master leases, the Company receives all cash flow,
if any, in excess of the payments required to be made to the lessor/seller.
Each master lease has a term of five years. The option agreements give the
Company the option to purchase each property through February 1, 1996. Through
July 1995, the Company has purchased six of the properties. The estimated
purchase price on the remaining five properties on the option agreements is
approximately $45,000,000. The Company deposited $4,000,000 in an escrow
account which is being returned as the properties are purchased. Escrow
deposits of $2,000,000 may be forfeited if certain of the properties are not
purchased within the time specified by the option agreement. At June 30, 1995,
the balance of this escrow account is $3,381,000.
In April 1995, the Company formed a Delaware Limited partnership, Excel Realty
Partners, L.P. ("ERP") to facilitate the acquisition of certain properties. The
Company is the sole general partner of ERP. In May 1995, ERP entered into an
agreement with an unaffiliated developer to purchase up to 25 shopping centers
in the southeastern United States. The agreement calls for the sellers to
contribute properties to ERP for limited partnership units. The units will be
exchangeable into common shares of the Company at prices of $21.50 and $20.70
per share. The partnership units priced at $21.50 will be exchangeable anytime
after one year from closing and adjust to the existing market price of the
common shares of the Company at the time of the exchange. The partnership
units priced at $20.70 are exchangeable anytime after two years and do not
adjust to the then existing market price, but exchange on a basis of one
partnership unit for one common share of the Company. The Company will be
entitled to receive 99% of all income and gains after the unit holders receive
annual per unit distributions of $1.72 for the $21.50 units and $1.78 for the
$20.70 units. ERP will assume the existing mortgages on the centers. In
addition to its 99% share of profits, the Company will initially contribute
cash for an equity position in the limited partnership. The transaction is
subject to the completion of property due diligence. One or more properties
may be eliminated as a result of such due diligence. If all of the properties
are acquired by ERP, it is anticipated that ERP would (i) assume approximately
$107,000,000 of existing indebtedness, (ii) issue limited partnership units in
an amount valued at approximately $10,000,000 to $13,000,000, and (iii) pay
approximately $6,000,000 to $9,000,000 in cash. It is anticipated that such
cash amount would be contributed to ERP by the Company. There is no assurance
that all or any of such properties would be acquired.
In April 1995, ERT Development Corporation ("EDV"), a Delaware Corporation, was
organized. The Company owns 100% of the outstanding preferred shares of EDV.
EDV was formed to acquire, develop, hold, and sell real estate in the
short-term for capital gains and/or receive fee income. The Company is to
receive 95% of EDV's net income after income taxes are paid, if any, in the
form of dividends. Additionally in 1995, EDV paid approximately $50,000 per
month of the Company's general and administrative expenses. At June 30, 1995,
the Company had loaned EDV $18,657,000 in exchange for notes receivable with
interest at 14%. Total interest income for the six months ended June 30, 1995
recognized from EDV was approximately $329,000. In July, 1995, an additional
$1,555,000 was loaned to EDV.
In July 1995, the Company received $3,535,000 in lease termination fees related
to three single tenant properties. The Company is presently negotiating to sell
these properties. In addition, the Company has $700,000 of deferred rental
income at June 30, 1995 related to lease termination fees received in 1994 for
two single tenant properties that the Company is attempting to release.
With the cash balance of $11,463,000 at June 30, 1995, the Company had
sufficient funds available to pay accounts payable of $2,550,000, interest
payable of $866,000 and the July 1995 dividend payment of $5,748,000. The
Company at the present time has no short-term borrowings.
The cash position of the Company at June 30, 1995 increased by $7,332,000 when
compared to December
16
<PAGE> 17
31, 1994. The increase in cash was principally from the following which is not
meant to be an all inclusive statement of cash flows:
Cash provided by financing activities amounted to $20,488,000. The net
increase is primarily due to the Company's offering of common stock described
above. Total net cash received from stock issued was $40,840,000.
Additionally, the Company received $24,021,000 from notes payable. Netted
against this these amounts are payments of mortgages and notes payable of
$32,019,000, dividends paid of $9,364,000, and stock selling and offering costs
of $2,532,000.
Cash provided by operations amounted to $11,205,000, primarily related to net
income of $7,610,000 and non-cash adjustments to net income of depreciation
and amortization of $4,543,000.
Net cash decreased by $24,361,000 from investing activities. Of this amount,
$25,150,000 was used to make loans to EDV and other development companies,
$10,367,000 was used for real estate acquisitions and building improvements and
$6,239,000 was paid in escrow deposits of which $4,000,000 related to the
master lease and purchase option agreement described above. Netted against
the cash used for investing activities is $9,127,000 obtained from the sale of
five properties of which $1,091,000 was deposited into an escrow account and
used to purchase a shopping center in April 1995.
The Company has elected REIT status for federal income tax purposes and must
distribute at least 95% of its taxable income to its stockholders in order to
not pay federal income taxes. Although the Company receives most of its rental
revenue on a monthly basis, it intends to make quarterly dividend payments.
Amounts accumulated for dividends will be invested by the Company in short-term
marketable instruments including deposits at commercial banks, money market
accounts, certificates of deposit, U.S. government securities, commercial
paper or other liquid investments (including GNMA, FNMA, and FHLMC
mortgage-backed securities) as the Board of Directors deems appropriate.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1995 to the three months ended
June 30, 1994.
Net income increased $179,000, or 5% to $3,693,000, $0.33 per share, in the
three months ended June 30, 1995 from $3,514,000, $0.32 per share. Dividends
per share was $0 for the three months ended June 30, 1995 and $0.43 for the
same period in 1994. The decrease in dividends related to a change in the
Company's dividend policy. In April 1995, the Company changed its record date
from the last day of each quarter, to the first day of the following quarter.
Dividends of $0.445 per share, were declared on July 1, 1995 and not declared
on June 30, 1995. Dividends of $5,748,000 were paid in July 1995 on the normal
payment date of the 15th day following the end of the quarter.
Almost all revenue and expense amounts have increased in the three months ended
June 30, 1995 from the three months ended June 30, 1994 primarily due to the
growth of the Company's real estate portfolio. As of January 1, 1995, the
Company entered into master lease and option agreements to manage and/or
purchase eleven shopping centers in North Carolina (the "North Carolina
Properties") (see Liquidity and Capital Resources). Additionally, the Company
acquired six shopping centers in the last two quarters of 1994 which on
average, have greater rents than the five single tenant properties sold in 1995
and the two single tenant properties sold in the last two quarters of 1994.
Total revenue increased $2,837,000 or 28%, to $12,981,000 for the three months
ended June 30, 1995 from $10,144,000 for the three months ended June 30, 1994.
The North Carolina Properties accounted for revenue of $2,200,000.
Total operating expenses increased $1,607,000 or 97%. Of this amount, master
lease expense accounted for $1,330,000 and other expenses related to the North
Carolina Properties accounted for $313,000. General and administrative
expenses decreased by $213,000 in the 1995 second quarter. This was primarily
due to the payment of expenses in the amount of approximately $50,000 a month
by EDV. In
17
<PAGE> 18
the second quarter 1995, EDV paid six months of expenses or approximately
$300,000.
Interest expense increased $1,432,000 or 87% from 1994 to $4,993,000 in 1995.
The increase is primarily attributable to additional debt incurred. Mortgages
and notes payable totaled $206,771,000 at June 30, 1995 compared to
$201,172,000 at June 30, 1994. Additionally in 1995, the Company paid interest
on a bank loan of which the outstanding balance ranged from $9,800,000 to
$18,230,000 during the period and was repaid in June. Interest and other
income increased $419,000 or 118% from 1994 primarily related to additional
cash invested and additional loans made.
Comparison of the six months ended June 30, 1995 to the six months ended June
30, 1994.
Net income increased $852,000, or 11% to $7,610,000, $0.69 per share, in the
six months ended June 30, 1995 from $6,758,000, $0.62 per share. Dividends per
share decreased to $0.43 for the six months ended June 30, 1995 from $0.85 for
the same period in 1994. See explanation in the three month comparison above
for discussion on the change of the record date. Had the Company not changed
its record date, dividends per share for the six months ended June 30, 1995
would have been $0.875.
Almost all revenue and expense amounts have increased in the six months ended
June 30, 1995 from the six months ended June 30, 1994 primarily due to the
growth of the Company's real estate portfolio. As previously noted, on January
1, 1995, the Company entered into master lease and option agreements to
manage and/or purchase the North Carolina Properties. Additionally, the
Company acquired nineteen properties in 1994, twelve of which were shopping
centers that on average, have greater rents than the five single tenant
properties sold in 1995 and the six single tenant properties sold in 1994.
Total revenue increased $7,136,000 or 37%, to $26,407,000 for the six months
ended June 30, 1995 from $19,271,000 for the six months ended June 30, 1994.
The North Carolina Properties accounted for revenue of $4,300,000. Lease
termination fees of $300,000 were recognized in March 1995 relating to a
property that was re-leased to another tenant. In 1994, a lease termination
fee of $799,000 was recognized as revenue related to a property that was sold.
Total operating expenses increased $3,795,000 or 114%. Of this amount, the
master lease expense accounted for $2,886,000 and other expenses related to the
North Carolina Properties accounted for $577,000. General and administrative
expenses decreased by $424,000 in the first two quarters. This was primarily
due to the payment of bonuses by the Board of Directors to the executive
officers of the Company in the amount of $328,000 in the first quarter of 1994.
A similar expense was not incurred in the first quarter of 1995 as bonuses were
accrued for at December 31, 1994. Additionally, expenses of approximately
$300,000 were paid by EDV for the first six months of 1995. Overall, the
other operating expenses increased due to the growth of the Company.
Depreciation expense for the six months ended June 30, 1995 was $3,337,000
compared to $2,854,000 for the six months ended June 30, 1994, a $483,000
increase or 17%. The increase is primarily due to a full period of
depreciation in 1995 on properties acquired in and after the first quarter of
1994. Amortization expense of $511,000 in 1994 was primarily due to a
management contract which was fully amortized in 1994. Amortization expense in
1995 was $2,000.
Interest expense increased $3,069,000 or 48% from 1994 to $9,434,000 in 1995.
The increase is attributable to additional debt incurred. Additionally in
1995, the Company paid interest on a bank loan of which the outstanding balance
was as much as $18,230,000 before being repaid in June. In March 1994, the
Company received $100 million in a securitized mortgage financing known as a
Real Estate Mortgage Investment Conduit (a "REMIC"). The REMIC financing
replaced approximately $42,000,000 of higher interest rate debt. The remaining
proceeds were mostly used to purchase additional properties. As such, in
addition to the increased debt level at June 30, 1995, interest expense for the
in the first six months of 1995 was incurred on the REMIC debt for the full
period compared to three and half months in the first two quarters of 1994.
18
<PAGE> 19
FUNDS FROM OPERATIONS
The Company calculates funds from operations ("FFO") as net income plus gains
(losses) on sales of real estate, depreciation, amortization, amortized loan
and leasing commission costs and loan costs written off. The Company believes
that to facilitate a clear understanding of its operating results, FFO should
be examined in conjunction with its net income as reductions for certain items
are not meaningful in evaluating income-producing real estate, which
historically has not depreciated. The Company generated FFO of $6,219,000 or
$0.56 per share for the three months ended June 30, 1995 which compared to FFO
of $5,580,000 or $0.51 per share for the three month period ended June 30,
1994. Because of the variations between companies as to how funds from
operations are calculated, the following information is included to show the
items included in the Company's funds from operations for the three months
ended June 30, 1995 and 1994 (in thousands except per share amounts):
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Net income $ 3,693 $ 3,514
Depreciation:
Buildings 1,544 1,439
Tenant improvements 124 72
Amortization (1):
Management contract - 255
Organization costs 1 -
Loan costs written off 325 -
Leasing commissions 60 37
(Gain) loss on sale of buildings 123 (12)
-------- -------
Funds from operations - revised definition (2) 5,870 5,305
Loan cost amortization (1) 328 254
Depreciation on furniture,
equipment, and vehicles 21 21
------- -------
Funds from operations $ 6,219 $ 5,580
======= =======
Funds from operations per share $0.56 $0.51
===== =====
Other Information:
Leasing commissions paid $ 155 $ 134
Tenant improvements paid 210 215
Building improvements paid
(Parking lots, roofs, etc.) 33 55
</TABLE>
(1) Only amortization of the management contract and organization costs are
shown as amortization expense in the Consolidated Statements of Income. The
management contract was fully amortized in 1994. Loan cost amortization and
loan costs written off are classified as interest expense and leasing
commission amortization is classified as other operating expenses in the
Consolidated Statements of Income.
(2) Beginning in 1996, the Company will revise its definition of FFO to
exclude the amortization of loan costs and depreciation of furniture, equipment
and vehicles as add-back items. Under this revised definition of FFO, the per
share amounts would have been $0.54 and $0.49 for the three months ended June
30, 1995 and 1994, respectively.
19
<PAGE> 20
ECONOMIC CONDITIONS
The majority of the Company's leases contain provisions designed to mitigate
the adverse impact of inflation. Such provisions include clauses enabling the
Company to receive percentage rents which generally increase as prices rise,
and/or escalation clauses which are typically related to increases in the
consumer price index or similar inflation indices. In addition, the Company
believes that many of its existing lease rates are below current market levels
for comparable space and that upon renewal or re-rental such rates may be
increased to current market rates. This belief is based upon an analysis of
relevant market conditions, including a comparison of comparable market rental
rates, and upon the fact that many of such leases have been in place for a
number of years and may not contain escalation clauses sufficient to match the
increases in market rental rates over such time. Most of the Company's leases
require the tenant to pay its share of operating expenses, including common
area maintenance, real estate taxes and insurance, thereby reducing the
Company's exposure to increases in costs and operating expenses resulting from
inflation. In addition, the Company periodically evaluates its exposure to
interest rate fluctuations, and may enter into interest rate protection
agreements which mitigate, but do not eliminate, the effect of changes in
interest rates on its variable rate loans.
Many regions of the United States, including regions in which the Company owns
property, may experience an economic recession. Such recessions, or other
adverse changes in general or local economic conditions, could result in the
inability of some existing tenants of the Company to meet their lease
obligations and could otherwise adversely effect the Company's ability to
attract or retain tenants. The Company's shopping centers are typically
anchored by discount department stores, supermarkets and drug stores which
usually offer day-to-day necessities rather than high priced luxury items.
These types of tenants, in the experience of the Company generally continue to
maintain their volume of sales despite a slowdown in economic conditions.
PART II. OTHER INFORMATION
Items 1 through 4 have been omitted since no events occurred with respect to
these items.
Item 5. Other Information.
The Company formed a Delaware Limited partnership, Excel Realty Partners, L.P.
("ERP") and entered into an agreement to purchase up to 25 properties. This
transaction is described in the Management's Discussion and Analysis of
Financial Conditions and Results of Operations. Additionally in the three
month ended June 30, 1995, the Company acquired five shopping centers and sold
three single tenant properties. These transactions are described in Note 3 to
the financial statements.
Item 6 has been omitted since no events occurred with respect to this item.
20
<PAGE> 21
SIGNATURE
Pursuant to the requirements 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.
Dated: August 10, 1995
EXCEL REALTY TRUST, INC.
------------------------
(Registrant)
By: /s/ Gary B. Sabin
-------------------------------
Gary B. Sabin, President
By: /s/ David A. Lund
-------------------------------
David A. Lund,
Principal Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 11,463,000
<SECURITIES> 0
<RECEIVABLES> 2,174,000
<ALLOWANCES> (440,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 373,918,000
<DEPRECIATION> (13,253,000)
<TOTAL-ASSETS> 417,099,000
<CURRENT-LIABILITIES> 0
<BONDS> 206,771,000
<COMMON> 205,137,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 417,099,000
<SALES> 0
<TOTAL-REVENUES> 26,407,000
<CGS> 0
<TOTAL-COSTS> 7,130,000
<OTHER-EXPENSES> 3,339,000
<LOSS-PROVISION> 122,000
<INTEREST-EXPENSE> 9,434,000
<INCOME-PRETAX> 7,610,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,610,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,610,000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
