<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
For the Quarter Ended: Commission File Number:
MARCH 31, 1996 1-12244
EXCEL REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 33-0160389
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X No
----- ------
(2) Yes X No
----- ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 8, 1996
---------------------------- --------------------------
<S> <C>
Common stock, $.01 par value 13,243,196
</TABLE>
<PAGE> 2
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
INDEX
FORM 10-Q
----------
<TABLE>
<CAPTION>
PAGE
----
PART I. FINANCIAL INFORMATION:
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1996 (Unaudited)
December 31, 1995 ............................................................................. 3
Consolidated Statements of Income
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (Unaudited).................................................. 4
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (Unaudited).................................................. 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 (Unaudited)
Three Months Ended March 31, 1995 (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
Item 5. Other Information.............................................................................. 20
Item 6. Reports on Form 8-K............................................................................ 20
</TABLE>
2
<PAGE> 3
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
MARCH 31,
1996 DECEMBER 31,
(UNAUDITED) 1995
ASSETS
<S> <C> <C>
Real estate:
Land $ 135,372 $ 122,394
Buildings 275,145 251,012
Accumulated depreciation (16,677) (14,909)
Real estate held for sale 13,728 13,519
--------- ---------
Net real estate 407,568 372,016
Cash 846 9,812
Escrow and other cash deposits 1,131 14,890
Accounts receivable, less allowance for bad debts of
$803 and $726 in 1996 and 1995, respectively 2,587 2,156
Notes receivable from affiliates 22,976 18,561
Notes receivable - other 8,582 4,289
Loan acquisition costs 2,405 2,662
Other assets 3,368 3,921
--------- ---------
$ 449,463 $ 428,307
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 145,330 $ 123,813
Notes payable 86,484 86,984
Accounts payable and accrued liabilities 3,262 4,806
Deferred rental income 2,345 2,760
Other liabilities 1,920 1,266
--------- ---------
Total liabilities 239,341 219,629
--------- ---------
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,
13,242,128 and 13,171,353 shares issued and outstanding
in 1996 and 1995, respectively 132 132
Additional paid-in capital 219,996 218,531
Accumulated distributions in excess of net income (10,006) (9,985)
--------- ---------
Total stockholders' equity 210,122 208,678
--------- ---------
$ 449,463 $ 428,307
========= =========
</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
MARCH 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
Base rent $ 11,496 $ 12,587
Percentage rent 73 64
Expense reimbursements 1,171 775
-------- --------
Total revenue 12,740 13,426
-------- --------
Operating expenses:
Property taxes 649 609
Repairs and maintenance 567 393
Master lease 351 1,556
Utilities 140 188
Other property expenses 494 393
Depreciation and amortization 1,797 1,649
General and administrative 642 735
-------- --------
Total operating expenses 4,640 5,523
-------- --------
Operating income 8,100 7,903
Other income (expense):
Interest expense (4,772) (4,441)
Interest and other income 2,382 463
-------- --------
Income before real estate sales 5,710 3,925
Gain (loss) on sale of real estate 148 (8)
-------- --------
Net income $ 5,858 $ 3,917
======== ========
Net income per common share $ 0.44 $ 0.36
======== ========
</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 SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DISTRIBUTIONS TOTAL
COMMON STOCK PAID-IN IN EXCESS OF STOCKHOLDERS'
-------------------------
NUMBER AMOUNT CAPITAL NET INCOME EQUITY
--------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1996:
Balance at January 1, 1996 13,171,353 $ 132 $ 218,531 $ (9,985) $ 208,678
Issuance of new shares of
common stock 70,775 -- 1,465 -- 1,465
Net income -- -- -- 5,858 5,858
Distributions declared -- -- -- (5,879) (5,879)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1996 13,242,128 $ 132 $ 219,996 $ (10,006) $ 210,122
========== ========== ========== ========== ==========
THREE MONTHS ENDED MARCH 31, 1995:
Balance at January 1, 1995 10,883,570 $ 109 $ 175,702 $ (11,913) $ 163,898
Issuance of new shares of
common stock 874 -- 12 -- 12
Net income -- -- -- 3,917 3,917
Distributions declared -- -- -- (4,679) (4,679)
---------- ---------- ---------- ---------- ----------
Balance at March 31, 1995 10,884,444 $ 109 $ 175,714 $ (12,675) $ 163,148
========== ========== ========== ========== ==========
</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>
THREE MONTHS ENDED
MARCH 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,858 $ 3,917
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 1,796 1,648
Amortized loan costs and leasing commissions 271 486
(Gain) loss on sale of real estate (147) 8
Provision for bad debts, net of accounts written off 77 99
Changes in operating assets and liabilities:
Increase in assets:
Accounts receivable (426) (233)
Other assets (307) (239)
Increase (decrease) in liabilities:
Accounts payable (1,513) (9)
Other liabilities 166 61
------- -------
Net cash provided by operating activities 5,775 5,738
------- -------
Cash flows from investing activities:
Real estate acquisitions and building improvements (2,025) (2,657)
Advances for notes receivable (9,334) (378)
Principal payments on notes receivable 626 4
Escrow deposits paid 736 (5,455)
Escrow deposits collected 814 1,252
Proceeds from real estate sales -- 393
Other 753 (336)
------- -------
Net cash used in investing activities (8,430) (7,177)
------- -------
Cash flows from financing activities:
Distributions paid (5,879) (4,685)
Issuance of common stock 546 11
Principal payments of mortgages and notes payable (1,000) (4,291)
Proceeds from mortgages and notes payable -- 9,800
Loan costs refunded 125 --
Loan costs paid (103) (355)
------- -------
Net cash provided by financing activities (6,311) 480
------- -------
Net decrease in cash (8,966) (959)
Cash at January 1 9,812 4,131
------- -------
Cash at March 31 $ 846 $ 3,172
======= =======
</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
the consolidated financial statements for the three months ended March 31,
1995 in order to conform with the current period's presentation. These
financial statements should be read in conjunction with the consolidated
financial statements and accompanying footnotes included in the Company's
December 31, 1995 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,
its wholly-owned subsidiaries, Excel Mortgage Funding Corporation
("EMFC"), Excel Credit Corporation ("ECC"), Excel Realty Trust - NC, Excel
Realty Trust - TX, Excel Realty - NE, Inc., Excel Realty Trust - ST, Inc.,
and Excel Realty - PA, Inc., and its interest in 50% or more owned
partnerships. All significant intercompany accounts and transactions have
been eliminated. EMFC and ECC were dissolved in 1995.
The equity method of accounting is used for investments in partnerships
which the Company owns less than 50%, but is able to exercise significant
influence over the partnership's operations. The Company also used the
equity method to account for its investment in ERT Development Corporation
("EDV") (see Note 4). These investments were recorded initially at cost
and subsequently adjusted for net equity in income (loss) and
contributions and distributions.
REAL ESTATE
Land, buildings and building improvements, and real estate held for sale
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.
Continued
7
<PAGE> 8
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
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 or sell the related property.
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.
REVENUE RECOGNITION
In general, minimum rent revenues are recognized when due from tenants;
however, the straight-line basis, which averages annual minimum rents over
the terms of the leases, is used to recognize rents under leases which
provide for significant varying rents over their terms. 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.
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. Accordingly, no provision
for federal income taxes is included in the accompanying consolidated
financial statements.
Continued
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 three months ended March 31, 1996 and 1995 were 13,247,774 and
10,908,744 respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
2. REAL ESTATE ACQUISITIONS AND SALES:
In 1996, the Company acquired three shopping centers in North Carolina
remaining under the option agreements described below, and one shopping
center in Georgia. The total cost of the four properties was approximately
$35,983,000 of which the Company assumed $22,016,000 in debt. No
significant real estate acquisitions were made in the three month period
ended March 31, 1995.
In January 1995, the Company entered into a master lease and option
agreement to purchase certain shopping centers in North Carolina. The
master leases required the payment equal to eight percent of the
lessor/sellers' equity and gave the Company all management and operating
responsibilities for the shopping centers. Under the master leases, the
Company received all cash flow in excess of the master lease expense. The
master lease expense included master lease and interest payments from debt
service. All of the rent revenue and related operating expenses from the
master leased properties have been consolidated in the Company's
consolidated financial statements. The option agreement gave the Company
the option to purchase the properties. Upon purchase of the three
remaining shopping centers in 1996, the master lease and option agreements
were terminated.
The Company sold one single tenant property in the three month period
ended March 31, 1996 for a net price of $814,000. During the three month
period ended March 31, 1995, the Company sold two single tenant properties
for a net price of $1,484,000. A gain of $147,000 and a net loss of $8,000
were recognized on real estate sales in the three months ended March 31,
1996 and 1995, respectively.
Continued
9
<PAGE> 10
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
3. NOTES RECEIVABLE (IN THOUSANDS):
The Company had the following notes receivable at March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Notes from affiliates, interest at 12-14% per annum,
(see Note 11). Due on demand $22,976 $18,561
Notes from development companies, interest from 10% - 14% per annum
Maturity dates vary based upon the completion of certain properties 7,801 3,500
Other 781 789
------- -------
Total notes receivable $31,558 $22,850
======= =======
</TABLE>
4. INVESTMENTS:
In April 1995, Excel Realty Partners, L.P. ("ERP"), a Delaware Limited
partnership, was formed to own and manage certain real estate properties.
The Company is a 1% partner and the sole general partner of ERP. In May
1995, ERP entered into an agreement for certain unaffiliated entities to
contribute to the partnership shopping centers in the southeastern United
States. Through March 31, 1996, seven real estate properties with a basis
of approximately $36,000,000 have been contributed to ERP in exchange for
limited partnership units and cash. The Company is entitled to receive 99%
of all earnings, if any, after the limited partners receive their
distributions. Annual distributions approximate $439,000 based on the
limited partner units held at March 31, 1996 (see Note 7). The partnership
had net income of $140,000 and $0 for the three months ended March 31,
1996 and 1995, respectively. The Company's 1% investment in the
partnership at March 31, 1996 and December 31, 1995 was $288,000 and
$139,000 respectively, and is included in other assets on the Consolidated
Balance Sheets.
In April 1995, ERT Development Corp. ("EDV"), a Delaware Corporation, was
organized. The Company owns 100% of the outstanding preferred shares of
EDV. The preferred shares receive 95% of the dividends, 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 (see Note 11).
Continued
10
<PAGE> 11
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
5. MORTGAGES PAYABLE (IN THOUSANDS):
The Company had the following mortgages payable at March 31, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Mortgage notes at 6.86% to 10%, payable in installments through 2018
(monthly payments at March 31, 1996 of $1,345), collateralized by
real estate and an assignment of rents:
Private bonds $ 29,572 $ 29,907
Insurance companies 67,349 67,356
Banks 45,462 23,603
Other 2,947 2,947
-------- --------
Total mortgages payable $145,330 $123,813
======== ========
</TABLE>
The principal payments required to be made on mortgages payable over the
next five years are as follows:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1996, remaining nine months $ 6,744
1997 4,009
1998 6,608
1999 27,108
2000 18,060
Thereafter 82,801
---------
$ 145,330
=========
</TABLE>
Mortgages of $59,792 are fully amortizing with the final monthly payments
to be made between the years 2004 and 2018.
Continued
11
<PAGE> 12
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
6. NOTES PAYABLE (IN THOUSANDS):
The Company had the following notes payable at March 31, 1996 and December
31, 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Unsecured credit agreement of $150,000, interest at LIBOR +1.75% (7.3% at March 31, 1996) $82,800 $82,800
Line of credit of $4,000 payable to a financial institution, interest at the lender's
base rate plus 1.25% (8.91% at March 31, 1996) 3,184 3,184
Unsecured revolving line of credit of $1,000, interest at 9.5% 500 1,000
------- -------
Total notes payable $86,484 $86,984
======= =======
</TABLE>
In December 1995, the Company received a two-year revolving credit
facility of up to $150,000 in unsecured advances through December 1997,
from a consortium of six banks. The actual amount available to the Company
is dependent on certain covenants such as the value of unencumbered assets
and the ratio of earnings before interest, depreciation, and amortization
to fixed charges. The principal outstanding is due in December 1997. The
Company also has a $4,000 line of credit due September 1996 that is
collateralized by certain notes receivables, and an unsecured $1,000
revolving bank line.
7. COMMITMENTS AND CONTINGENCIES:
As part of an agreement with an unaffiliated developer to contribute
certain properties to ERP for limited partnership units and cash, the
limited partners are guaranteed distributions as defined by the
contribution agreement. The Company is obligated to make advances to ERP
to pay the distributions in the event ERP is unable to make these payments
(see Note 4). Also, at March 31, 1996, ERP mortgage debt of $8,000,000 was
guaranteed by the Company.
The Company has committed to loan $12,000,000 to a developer related to a
development project in Florida. Additionally, the Company has committed to
loan $10,000,000 to a developer secured by an interest in a mixed use
retail and office complex in Toronto, Canada.
Continued
12
<PAGE> 13
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
8. DISTRIBUTIONS:
In April 1995, the Company adopted a policy of declaring distributions to
stockholders of record on the first day of the succeeding quarter, instead
of the last day of the current quarter. The payment date of 15 days
following each quarter remained unchanged. As such, in 1996, a
distribution of $0.445 per share was declared on January 2 and paid on
January 15 and in 1995 a distribution of $0.43 per share was declared on
March 31 and paid on April 15. For the three months ended March 31, 1996
and 1995, approximately 2.9% and 16.3% of the distributions received by
shareholders respectively, were considered to be a return of capital for
tax purposes.
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
The amounts paid for interest during the three months ended March 31, 1996
and 1995 were $3,975,000 and $3,930,000 respectively. State income taxes
of $211,000 and $0 were paid in 1996 and 1995 respectively.
For the three months ended March 31, 1996, the Company acquired real
estate and interests in partnerships of $36,001,000 without the use of
cash. The Company assumed $22,070,000 of mortgage debt, used $13,023,000
of escrow and other cash deposits, issued $920,000 of common stock, and
incurred $12,000 of other liabilities. Also, net proceeds of $814,000 and
$1,091,000 from the sale of properties were directly deposited to escrow
accounts in the first quarters of 1996 and 1995, respectively. There were
no other significant non-cash transactions in the three months ended March
31, 1996 or 1995.
10. 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 are either
(i) triple-net, requiring the tenant to pay all expenses of operating the
property such as insurance, property taxes, repairs and utilities, or (ii)
require the tenant to reimburse the Company for the tenant's share of real
estate taxes and other common area maintenance expenses.
Continued
13
<PAGE> 14
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
10. MINIMUM FUTURE RENTALS, CONTINUED (IN THOUSANDS):
Minimum future rental revenue for the next five years for the commercial
real estate currently owned at March 31, 1996 and subject to noncancelable
operating leases is as follows:
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1996, remaining nine months $ 32,476
1997 41,655
1998 39,239
1999 36,559
2000 34,825
Thereafter 304,199
</TABLE>
11. RELATED PARTY TRANSACTIONS:
Notes receivable at March 31, 1996 and December 31, 1995 included
$15,062,000 and $12,611,000 from EDV and $7,914,000 and $5,950,000 from
ERP, respectively. Total interest income recognized in 1996 from EDV and
ERP amounted to $452,000 and $197,000, respectively. No interest income
was recognized from related parties for the three month period ended March
31, 1995. Also, in 1996 the Company recognized as income $669,000 in fees
from EDV.
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 Sections 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.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto.
Comparison of the three months ended March 31, 1996 to the three months ended
March 31, 1995.
Total revenue decreased $686,000 or 5%, to $12,740,000 for the three months
ended March 31, 1996 from $13,426,000 for the three months ended March 31, 1995.
The decrease is primarily related to a sale of an office building in December
1995 which accounted for $733,000 in revenue for the three months ended March
31, 1995. The proceeds of this building were primarily used to purchase three
shopping centers that were being master leased in 1995. Under the master lease
agreements, the Company recognized revenue and expenses from the properties, in
addition to the master lease payments (which included interest on the existing
mortgage debt) to and on behalf of the properties' owners. Accordingly, as rents
were already being recognized on the master leased properties, there was no
significant increase in rents from purchasing these properties. While base rents
on average have increased in 1996 from the same period in 1995 on the Company's
remaining properties, these increases were offset in part by certain
transactions that occurred in the prior year. In the first quarter of 1995, the
Company recognized $300,000 in rental revenue from lease termination fees
related to a property that was re-leased to another tenant. Also, rent which
accounted for $240,000 in the three month period ended March 31 1995, is no
longer being recognized on a property that is now held for sale.
Total operating expenses decreased $883,000 or 15.9%, to $4,640,000 in the first
quarter of 1996 from $5,523,000 in the first quarter of 1995. The decrease was
primarily related to a decrease in master lease expense of $1,205,000. In the
first quarter of 1995, there were eleven properties that were being master
leased. During the last three quarters of 1995, seven of these properties were
purchased, and the master lease on one additional property was terminated. In
the first quarter of 1996, the remaining three properties under master leases
were purchased. General and administrative expenses decreased by $93,000 from
1995 and
15
<PAGE> 16
remained at approximately 6% of base rents. Remaining operating expenses
included property taxes, repairs and maintenance, utilities and other property
expenses which increased a total of $267,000 or 16.9% in 1996 from 1995. This
increase was primarily related to the acquisition of three shopping centers in
the last two quarters of 1995, and to the lease termination of two single tenant
properties whose expenses are now being paid by the Company instead of the
lessee.
Interest expense increased to $4,772,000 in 1996 from $4,441,000 in 1995 or 8%.
This increase is related to the increase in the Company's debt. At March 31,
1996, the Company had mortgages and notes payable of $232,814,000 compared with
$206,680,000 at March 31, 1995, an increase of 13%. Interest expense did not
increase proportionally with debt partly because $22,070,000 of mortgage debt
was incurred in 1996 and not outstanding for the full first quarter.
Comparatively, approximately $8,000,000 of debt was incurred during the first
quarter of 1995. Also, in 1995, the Company used proceeds from the Credit
Facility to repay $76,000,000 of existing debt related to a securitized mortgage
financing known as a Real Estate Mortgage Investment Conduit (the "REMIC"). The
Credit Facility carries an interest rate of LIBOR plus 1.75% (7.3% at March 31,
1996), while the REMIC carried interest rates of LIBOR plus 0.6% to 0.8%, plus a
servicing fee of 0.1865% (see Liquidity and Capital Resources).
Interest and other income increased $1,919,000 or 414% from 1995, primarily
related to additional cash invested and loans made to Excel Realty Partners,
L.P., ERT Development Corporation, and other development companies. The Company
had $31,558,000 in notes receivable outstanding at March 31, 1996 compared to
$9,473,000 at March 31, 1995. Also in the first quarter of 1996, the Company
sold certain interest rate protection agreements related to the REMIC debt for a
gain of $415,000.
Net income increased $1,941,000 , or 50% to $5,858,000, $0.44 per share, in the
three months ended March 31, 1996 from $3,917,000, $0.36 per share for the three
months ended March 31, 1995. Distributions per share increased to $0.445 for the
three months ended March 31, 1996 from $0.43 for the same period in 1995.
The Company calculates funds from operations (""FFO") as net income plus
depreciation on real estate, amortization, amortized leasing commission costs
and loan costs written off, before gains or losses on real estate sales. FFO
does not represent cash flows from operations as defined by generally accepted
accounting principles, and may not be comparable to other similarly titled
measures of other REITs. The Company believes however, 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 following information is included to show the items
included in the Company's FFO for the three months ended March 31, 1996 and 1995
(in thousands):
16
<PAGE> 17
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net income $ 5,858 $ 3,917
Depreciation:
Buildings 1,684 1,520
Tenant improvements 87 109
From equity investments 1 --
Amortization (1):
Organization costs 1 1
Leasing commissions 42 53
Loan costs written off -- 106
Gain from sale of loan rate cap (415) --
(Gain) loss on sale of buildings (148) 8
------- -------
Funds from operations(2) $ 7,110 $ 5,714
======= =======
Other Information:
Leasing commissions paid $ 278 $ 78
Tenant improvements paid 135 197
Building improvements paid
(Parking lots, roofs, etc.) 49 52
</TABLE>
(1) Only amortization of organization costs is shown as amortization expense in
the Consolidated Statements of Income. Leasing commission amortization is
classified as other operating expenses in the Consolidated Statements of Income.
(2) Beginning in 1996, the Company revised its definition of FFO to exclude the
amortization of loan costs and depreciation of furniture, equipment and vehicles
as add-back items. Under the previous definition, FFO was $6,060 for the three
months ended March 31, 1995.
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 issuance of common shares, use of
the Company's credit facilities, and long-term 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 financing 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. The
Company anticipates that adequate cash will be available to fund its operating
and administrative expenses, continuing debt service obligations and the payment
of distributions in both the short-term and long-term. In the three month period
ended March 31, 1996, property acquisitions were primarily funded through the
use of existing cash deposits from previous property sales and long-term
mortgage financing.
In 1995, the Company obtained a two-year unsecured revolving credit facility for
up to $150,000,000 through December 1997 from a consortium of seven banks (the
"Credit Facility"). The actual amount available to the Company is dependent on
certain covenants such as the value of unencumbered assets and the ratio of
earnings before interest, depreciation, and amortization to fixed charges. At
March 31, 1996, approximately $16,000,000 was available under the Credit
Facility. In December 1995, the Company used proceeds from the Credit Facility
to repay existing debt related to the REMIC. The Credit Facility carries
17
<PAGE> 18
an interest rate of LIBOR plus 1.75% (7.3% at March 31, 1996), while the REMIC
carried interest rates of LIBOR plus 0.6% to 0.8%, plus a servicing fee of
0.1865%. Although the REMIC debt carried lower interest rates than the Credit
Facility, the Company believes that other capital resources may become
accessible at lower costs with the increase in the Company's unsecured
portfolio. The Company also has a $4,000,000 line of credit due September 1996
and an unsecured $1,000,000 revolving bank line. Approximately $1,300,000 in
total is available under these two facilities at March 31, 1996.
In April 1995, the Company formed a Delaware limited partnership, Excel Realty
Partners, L.P. ("ERP") to own and manage certain real estate properties. During
1996, the Company loaned ERP $2,124,000 and may advance additional amounts in
the future. Also, the Company is committed to make loans to ERP to pay partner
distributions in the event ERP is unable to. There are a minimum of seven
remaining properties scheduled to be contributed to ERP in 1996. Should all
seven properties be contributed, ERP would assume approximately $36,000,000 of
indebtedness and pay $16,000,000 in a combination of cash and partnership units.
In is anticipated that the cash requirements would be principally loaned to ERP
by the Company. There is no assurance that all or any of the seven properties
will be contributed to ERP.
In 1996, the Company loaned $2,000,000 to a developer and is committed to loan
an additional $12,000,000 related to a development project in Florida.
Additionally, the Company is committed to loan $10,000,000 to a separate
developer secured by an interest in a mixed use retail and office complex in
Toronto, Canada.
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
avoid federal income taxes. Although the Company receives most of its rental
revenue on a monthly basis, it intends to make quarterly distribution payments.
Amounts accumulated for distribution 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).
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
floating 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,
18
<PAGE> 19
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.
CERTAIN CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q that are not historical fact constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results of the Company to be materially different from historical results or
from any results expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, but are not limited to, the
following risks:
Economic Performance and Value of Centers Dependent on Many Factors. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate can be affected by many factors, including
changes in the national, regional and local economic climates, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
Dependence on Rental Income from Real Property. Since substantially all of the
Company's income is derived from rental income from real property, the Company's
income and funds for distribution would be adversely affected if a significant
number of the Company's tenants were unable to meet their obligations to the
Company or if the Company were unable to lease a significant amount of space in
its properties on economically favorable lease terms. There can be no assurance
that any tenant whose lease expires in the future will renew such lease or that
the Company will be able to re-lease space on economically advantageous terms.
Illiquidity of Real Estate Investments. Equity real estate investments are
relatively illiquid and therefore tend to limit the ability of the Company to
vary its portfolio promptly in response to changes in economic or other
conditions. In addition, mortgage payments and, to the extent the properties are
not subject to triple net leases, certain significant expenditures such as real
estate taxes and maintenance costs, are generally not reduced when circumstances
cause a reduction in income from the investment, and should such events occur,
the Company's income and funds for distribution would be adversely affected. A
portion of the Company's properties are mortgaged to secure payment of
indebtedness, and if the Company were unable to meet its mortgage payments, a
loss could be sustained as a result of foreclosure on such properties by the
mortgagee.
Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a major
tenant or a number of smaller tenants may have an adverse impact on the
properties affected and on the income produced by such properties. Under
bankruptcy law, a tenant has the option of assuming (continuing) or rejecting
(terminating) any unexpired lease. If the tenant assumes its lease with the
Company, the tenant must cure all defaults under the lease and provide the
Company with adequate assurance of its future performance under the lease. If
the tenant rejects the lease, the Company's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
The amount of the claim would be capped at the amount
19
<PAGE> 20
owed for unpaid pre-petition lease payments unrelated to the rejection, plus the
greater of one years' lease payments or 15% of the remaining lease payments
payable under the lease (but not to exceed the amount of three years' lease
payments).
Environmental Risks. Under various federal, state and local laws, ordinances and
regulations, the Company may be considered an owner or operator of real property
or may have arranged for the disposal or treatment of hazardous or toxic
substances and, therefore, may become liable for the costs of removal or
remediation of certain hazardous substances released on or in its property or
disposed of by it, as well as certain other potential costs which could relate
to hazardous or toxic substances (including governmental fines and injuries to
persons and property). Such liability may be imposed whether or not the Company
knew of, or was responsible for, the presence of such hazardous or toxic
substances.
Reliance on Major Tenants. As of March 31, 1996, the Company's two largest
tenants were Wal-Mart Stores, Inc. and Kmart Corporation which each accounted
for approximately 14% of the Company's annualized base rental income as of such
date. The financial position of the Company and its ability to make
distributions may be adversely affected by financial difficulties experienced by
either of such tenants, or any other major tenant of the Company, including a
bankruptcy, insolvency or general downturn in business of any such tenant, or in
the event any such tenant does not renew its leases as they expire. In that
regard, it has been reported in the media that Kmart is experiencing operating
and financial difficulties.
Control by Directors and Executive Officers. Directors and executive officers of
the Company beneficially own approximately 8.3% of the Company's common stock.
Accordingly, such persons should continue to have substantial influence over the
Company and on the outcome of matters submitted to the Company's stockholders
for approval.
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 purchased four properties in the first quarter of 1996. These
transactions are described in Note 2 to the financial statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
March 31, 1996.
20
<PAGE> 21
SIGNATURES
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: May 8, 1996 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
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
27.1 Financial Data Schedule 23
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 846,000
<SECURITIES> 0
<RECEIVABLES> 3,390,000
<ALLOWANCES> (803,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 424,245,000
<DEPRECIATION> (16,677,000)
<TOTAL-ASSETS> 449,463,000
<CURRENT-LIABILITIES> 0
<BONDS> 231,814,000
0
0
<COMMON> 210,122,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 449,463,000
<SALES> 0
<TOTAL-REVENUES> 12,740,000
<CGS> 0
<TOTAL-COSTS> 4,640,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 77,000
<INTEREST-EXPENSE> 4,772,000
<INCOME-PRETAX> 0
<INCOME-TAX> 5,858,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,858,000
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
</TABLE>
