<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, 1997 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.
Class Outstanding at May 9, 1997
---------------------------- --------------------------
Common stock, $.01 par value 18,330,647
<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
March 31, 1997 (Unaudited)
December 31, 1996 ....................................................3
Consolidated Statements of Income
Three Months Ended March 31, 1997 (Unaudited)
Three Months Ended March 31, 1996 (Unaudited).........................4
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1997 (Unaudited)
Three Months Ended March 31, 1996 (Unaudited).........................5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 (Unaudited)
Three Months Ended March 31, 1996 (Unaudited).........................6
Notes to Consolidated Financial Statements (Unaudited)...................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................16
PART II. OTHER INFORMATION
Item 1 to 5. Other Information...............................................21
Item 6. Exhibits and Reports on Form 8-K.....................................21
</TABLE>
2
<PAGE> 3
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
MARCH 31,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- ------------
<S> <C> <C>
ASSETS
Real estate:
Land $ 157,369 $ 156,060
Buildings 312,792 310,031
Accumulated depreciation (24,044) (21,976)
Real estate held for sale 13,574 13,387
--------- ----------
Net real estate 459,691 457,502
Cash 25,568 5,038
Escrow and other cash deposits 999 625
Accounts receivable, less allowance for bad debts of
$1,674 and $1,608 in 1997 and 1996, respectively 4,016 2,917
Notes receivable from affiliates 75,546 57,716
Notes receivable - other 13,764 26,026
Interest receivable 5,566 2,579
Loan acquisition costs 1,572 1,775
Other assets 4,137 4,450
--------- ---------
$ 590,859 $ 558,628
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 155,928 $ 157,716
Notes payable 100 81,032
Accounts payable and accrued liabilities 4,323 4,738
Deferred rental income 1,826 2,023
Other liabilities 520 465
--------- ---------
Total liabilities 162,697 245,974
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
8 1/2% Series A Cumulative Convertible Preferred
stock, $.01 par value, 10,000,000 shares authorized,
4,600,000 and 0 shares issued and outstanding in
1997 and 1996, respectively 46 --
Common stock, $.01 par value, 100,000,000 shares authorized,
18,330,647 and 13,171,353 shares issued and outstanding
in 1997 and 1996, respectively 183 182
Additional paid-in capital 437,766 324,229
Accumulated distributions in excess of net income (9,833) (11,757)
--------- ---------
Total stockholders' equity 428,162 312,654
--------- ---------
$ 590,859 $ 558,628
========= =========
</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,
--------------------
1997 1996
------- -------
<S> <C> <C>
Revenues:
Rental revenue $13,046 $11,569
Expense reimbursements 1,598 1,171
Interest 3,529 1,120
Equity in earnings of affiliates 173 141
Other 1,858 706
------- -------
Total revenue 20,204 14,707
------- -------
Operating expenses:
Interest 4,321 4,357
Depreciation and amortization 2,110 1,797
Property taxes 863 649
Repairs and maintenance 744 567
Other property expenses 806 634
Master lease -- 351
General and administrative 1,050 642
------- -------
Total operating expenses 9,894 8,997
------- -------
Income before real estate sales 10,310 5,710
Gain on sale of real estate -- 148
------- -------
Net income $10,310 $ 5,858
======= =======
Net income per common share $ 0.46 $ 0.44
======= =======
</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)
----------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DISTRIBUTIONS TOTAL
PREFERRED COMMON PAID-IN IN EXCESS OF STOCKHOLDERS'
STOCK STOCK CAPITAL NET INCOME EQUITY
--------- ------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1997:
Balance at January 1, 1997 $ -- $182 $324,229 $(11,757) $ 312,654
Issuance of shares of stock 46 1 113,537 -- 113,584
Net income -- -- -- 10,310 10,310
Distributions declared -- -- -- (8,386) (8,386)
---- ---- -------- -------- ---------
Balance at March 31, 1997 $ 46 $183 $437,766 $ (9,833) $ 428,162
==== ==== ======== ======== =========
THREE MONTHS ENDED MARCH 31, 1996:
Balance at January 1, 1996 -- $132 $218,531 $ (9,985) $ 208,678
Issuance of shares of stock -- -- 1,465 -- 1,465
Net income -- -- -- 5,858 5,858
Distributions declared -- -- -- (5,879) (5,879)
---- ---- -------- -------- ---------
Balance at March 31, 1996 -- $132 $219,996 $(10,006) $ 210,122
==== ==== ======== ======== =========
</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,
-----------------------
1997 1996
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,310 $ 5,858
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation 2,109 1,796
Amortized loan costs and leasing commissions 442 271
Equity in earnings of affiliates (173) (141)
Gain on sale of real estate -- (148)
Provision for bad debts 298 77
Changes in operating assets and liabilities:
Increase in assets:
Accounts receivable (200) (426)
Interest receivable (2,947) 180
Other assets (496) (345)
Increase (decrease) in liabilities:
Accounts payable (369) (1,513)
Other liabilities (74) 166
--------- -------
Net cash provided by operating activities 8,900 5,775
--------- -------
Cash flows from investing activities:
Advances for notes receivable (17,896) (9,334)
Principal payments on notes receivable 11,029 626
Real estate acquisitions and building improvements (2,201) (2,025)
Escrow deposits paid (389) (166)
Escrow deposits collected -- 1,716
Other -- 753
--------- -------
Net cash used in investing activities (9,457) (8,430)
--------- -------
Cash flows from financing activities:
Distributions paid (8,386) (5,879)
Issuance of preferred stock 115,000 --
Issuance of common stock 964 546
Selling and offering costs (3,591) --
Proceeds from notes payable 16,000 --
Principal payments of mortgages and notes payable (98,719) (1,000)
Loan costs refunded -- 125
Loan costs paid (181) (103)
--------- -------
Net cash provided (used) by financing activities 21,087 (6,311)
--------- -------
Net increase (decrease) in cash 20,530 (8,966)
Cash at January 1 5,038 9,812
--------- -------
Cash at March 31 $ 25,568 $ 846
========= =======
</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,
1996 and at December 31, 1996 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, 1996 Annual Report on
Form 10-K.
ORGANIZATION
Excel Realty Trust, Inc. (the "Company") was formed in 1986 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 accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and all majority owned
partnerships. All significant intercompany balances and accounts have been
eliminated in consolidation.
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. These investments included
Excel Realty Partners, L.P. ("ERP"), a Delaware limited partnership. The
Company also uses the equity method to account for its investment in ERT
Development Corporation ("EDV"), a Delaware corporation. These investments
were recorded initially at cost and subsequently adjusted for net income
(loss) and contributions paid and distributions received (see Note 4).
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.
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 and significant renovations are
capitalized.
Continued
7
<PAGE> 8
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
The Company assesses whether there has been a permanent impairment in the
value of its real estate by considering factors such as expected future
operating income, trends and prospects, as well as the effects of demand,
competition and other economic factors. Such factors include a lessee's
ability to pay rent under the terms of the lease. If a property is leased
at significantly lower rent, the Company may recognize a permanent
impairment loss if the income stream is not sufficient to recover its
investment.
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
Base rental revenue is recognized on the straight-line basis, which
averages annual minimum rents over the terms of the leases. Certain of the
leases provide for additional rental revenue by way of percentage rents to
be paid based upon the level of sales achieved by the lessee. These
percentage rents are recorded on the accrual basis and are included on the
Consolidated Statements of Income in rental income. 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.
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.
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, warrants, and
other convertible securities (including ERP limited partner units) which
would have a dilutive effect. The weighted average shares outstanding for
the three months ended March 31, 1997 and 1996 were 18,752,867 and
13,246,654 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.
Continued
8
<PAGE> 9
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
2. REAL ESTATE:
ACQUISITIONS
In the three months ended March 31, 1997, the Company acquired a shopping
center in Georgia and a single tenant, Winn Dixie, located in Tennessee.
The total cost of these two properties was approximately $5,600,000. In
April 1997, the Company purchased two shopping centers in California for
approximately $28,000,000 and one shopping center in North Carolina for
approximately $5,700,000. No mortgage debt was assumed in these
transactions.
In the three months ended March 31, 1996, the Company acquired three
shopping centers in North Carolina 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.
SALES
There were no real estate sales in 1997. In 1996, the Company sold one
single tenant property for a net price of $814,000. A gain of $147,000 was
recognized on the sale.
REAL ESTATE HELD FOR SALE
The Company has one property held for sale in Arizona. Depreciation
expense is no longer being charged to the property and costs to hold the
property until sale are being capitalized.
3. NOTES RECEIVABLE:
The Company had the following notes receivable at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes from EDV, interest at 14% per annum, collateralized
by EDV assets. Due on demand $54,376 $39,786
Notes from ERP, interest at 12% per annum, collateralized
by real estate. Due on demand 21,170 17,930
Notes from development companies, interest from 10% - 14% per annum Maturity
dates vary based upon the completion of certain properties 2,119 15,763
Note from a development company, interest at 25% per annum,
payable in Canadian dollars. Due May 2003 10,886 9,504
Other 759 759
------- -------
Total notes receivable $89,310 $83,742
======= =======
</TABLE>
Continued
9
<PAGE> 10
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
3. NOTES RECEIVABLE, CONTINUED:
Interest and principal payments from EDV are primarily received upon the
completion of development projects. Interest receivable from EDV was
$2,526,000 and $879,000 at March 31, 1997 and December 31, 1996,
respectively. Interest and principal payments from ERP are received on a
monthly basis or as excess cash is available. Interest receivable from ERP
was $761,000 and $201,000 at March 31, 1997 and December 31, 1996,
respectively.
In 1996, the Company made a loan in the amount of $13,000,000 Canadian
dollars to a Canadian company which used the proceeds to acquire a 50%
joint venture interest in a mixed-use commercial building known as "Atrium
on Bay" in Toronto, Canada. In 1997 the Company advanced an additional
$2,050,000 Canadian dollars to acquire an adjacent land parcel for
development. The loan is collateralized by the Canadian company's interest
in the building. The loan bears interest at 25% per annum and matures in
2003. The Company has reserved $776,000 and $601,000 at March 31, 1997 and
December 31, 1996, respectively, against the interest receivable and
interest income, pending future leasing activity. The net interest
receivable at March 31, 1997 and December 31, 1996 is $1,482,000 and
$938,000, respectively.
Through January 1997, the Company had loaned $17,661,000 to a joint
venture partnership under a loan commitment related to a development
retail project in Florida. In 1997, the joint venture obtained a
construction loan and $9,161,000 was repaid to the Company. The remaining
$8,500,000 was transferred to EDV. The Company has agreed to guarantee up
to $30,000,000 of the construction loan which is expected to total
$80,000,000.
4. INVESTMENTS:
EXCEL REALTY PARTNERS, L.P.
In 1995, ERP was formed to own and manage certain real estate properties.
The Company is a 1% partner and the sole general partner of ERP. The
Company is entitled to receive 99% of net income and gains before
depreciation, if any, after the limited partners receive their stipulated
distributions. Through March 31, 1997, twelve properties have been
contributed to ERP in exchange for limited partnership units (which may be
converted to Company common shares at stipulated prices) and cash. Cash
requirements to facilitate these transactions were obtained through
borrowings from the Company and general partner contributions. Summary
unaudited financial information for ERP is as follows:
Continued
10
<PAGE> 11
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
4. INVESTMENTS, CONTINUED:
EXCEL REALTY PARTNERS, L.P.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEETS
Net real estate assets $80,000 $80,000
Other assets 1,500 1,000
------- -------
Total assets $81,500 $81,000
======= =======
Mortgages payable $51,500 $54,500
Notes payable to Excel Realty Trust, Inc. 21,100 18,000
Other liabilities 2,900 1,500
------- -------
Total liabilities 75,500 74,000
------- -------
General partner's equity 1,600 1,200
Limited partners' equity 4,400 5,800
------- -------
Total partners' equity 6,000 7,000
------- -------
Total liabilities and partners' equity $81,500 $81,000
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF INCOME
Total revenues $ 2,800 $ 1,000
Depreciation (300) (100)
Other property expenses (700) (150)
Mortgage interest expense (1,050) (450)
Interest expense to Excel Realty Trust, Inc. (550) (200)
------- -------
Net income $ 200 $ 100
======= =======
</TABLE>
In 1997, 55,641 limited partner units were converted to Company common
shares. At March 31, 1997, there were 267,845 limited partner units
outstanding. Quarterly distributions approximate $118,500 based upon these
units. The Company's investment in the partnership at March 31, 1997 and
December 31, 1996 was $1,600,000 and $1,221,000, respectively, which is
included in other assets on the Consolidated Balance Sheets. At March 31,
1997, ERP mortgage debt of $3,500,000 was guaranteed by the Company.
On April 1, 1997, ERP's notes payable to the Company were converted into
an equity investment. As a result of this conversion, the financial
statements of ERP will be consolidated with the Company's financial
statements beginning in the second quarter of 1997.
Continued
11
<PAGE> 12
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
4. INVESTMENTS, CONTINUED:
ERT DEVELOPMENT CORPORATION
In 1995, EDV was organized to acquire, develop, hold and sell real estate
in the short-term for capital gains and/or receive fee income. The Company
owns 100% of the outstanding preferred shares of EDV. The preferred shares
are entitled to receive dividends equal to 95% net income and are expected
to be paid from cash flows, if any. Cash requirements to facilitate EDV's
transactions have primarily been obtained through borrowings from the
Company. Summary unaudited financial information for EDV is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEETS
Notes receivable from developers, interest at 10% to 12% $54,800 $39,000
Other assets 4,100 2,500
------- -------
Total assets $58,900 $41,500
======= =======
Notes payable to Excel Realty Trust, Inc. $54,400 $39,800
Other liabilities 4,450 1,500
------- -------
Total liabilities 58,850 41,300
Total stockholders' equity 50 200
------- -------
Total liabilities and stockholders' equity $58,900 $41,500
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------- -------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF INCOME
Total revenues $ 3,500 $ 1,100
Interest expense to Excel Realty Trust, Inc. (1,600) (600)
Development and other fees paid to Excel Realty Trust, Inc. (1,900) (700)
Other expenses (200) (200)
------- -------
Net loss $ (200) $ (400)
======= =======
</TABLE>
In 1996, EDV obtained a $8,500,000 line of credit from a financial
institution at an interest rate of 8.92%. There was $1,700,000 and $0
outstanding at March 31, 1997 and December 31, 1996, respectively.
Continued
12
<PAGE> 13
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
5. MORTGAGES PAYABLE :
The Company had the following mortgages payable at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes at 6.86% to 10%,
payable in installments through 2018
(monthly payments at March 31, 1997
of $1,449), collateralized by real
estate and an assignment of rents:
Insurance companies $ 86,277 $ 87,530
Banks 41,481 41,656
Bonds 28,170 28,530
-------- --------
Total mortgages payable $155,928 $157,716
======== ========
</TABLE>
The principal payments required to be made on mortgages payable over the
next five years are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997, remaining nine months $ 2,789
1998 5,085
1999 12,979
2000 30,427
2001 9,867
Thereafter 94,781
---------
$ 155,928
=========
</TABLE>
Mortgages of $58,202 are fully amortizing with the final monthly payments
to be made between the years 2004 and 2018.
Continued
13
<PAGE> 14
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
6. NOTES PAYABLE:
The Company had the following notes payable at March 31, 1997 and December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
---- -------
(IN THOUSANDS)
<S> <C> <C>
Unsecured credit agreement of $150,000, interest
at LIBOR +1.75% (7.3% at March 31, 1997) $ -- $67,000
Term loan payable to a financial institution, interest at
LIBOR + 1.75%, secured by certain notes receivable -- 10,000
Line of credit of $4,000 payable to a financial institution,
interest at the lender's base rate plus 1.25% -- 3,923
Other 100 109
---- -------
Total notes payable $100 $81,032
==== =======
</TABLE>
The Company has a two-year revolving credit facility of up to $150,000,000
in unsecured advances due in 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.
In 1996, the Company purchased an interest rate protection agreement which
limits the interest rate of $50,000,000 of the outstanding balance on the
unsecured credit agreement to 10%.
7. CAPITAL STOCK:
EQUITY OFFERINGS
In February 1997, the Company issued 4,600,000 shares of 8 1/2% Series A
Cumulative Convertible Preferred Stock at $25.00 per share (the "Preferred
Shares"). The Preferred Shares are entitled to an annual distribution of
$2.125 per share and are convertible into common shares at a price of
$26.06 per share. Net proceeds of approximately $111,550,000 were used to
repay the Company's notes payable (Note 6), purchase properties (Note 2),
and for general corporate purposes.
In April 1997, the Company filed with the Commission a $500 million shelf
registration statement. This registration statement was filed for the
availability of issuing in the future, debt securities, preferred stock,
depositary shares, common stock or warrants.
DISTRIBUTIONS
In January 1997, the Company paid distributions of $0.46 per share on the
common stock and in April 1997 another distribution of $0.46 per share was
paid. In May, the Company increased the quarterly distribution to $0.50
per share which will be paid in July 1997 to stockholders of record on
July 1, 1997. Dividends of $0.32 ($2.125 per annum) were paid in April
1997 on the Preferred Shares which were issued in February 1997.
Distributions of $0.445 per share were paid in the three months ended
March 31, 1996. For the three months ended March 31, 1997 and 1996,
approximately 0% and 2.9% of the
Continued
14
<PAGE> 15
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
----------
7. CAPITAL STOCK (CONTINUED):
distributions received by shareholders respectively, were considered to be
a return of capital for tax purposes.
8. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
The amounts paid for interest during the three months ended March 31, 1997
and 1996 were $3,964,000 and $3,975,000, respectively. State income taxes
of $78,000 and $211,000 were paid in 1997 and 1996 respectively.
For the three months ended March 31, 1997, the Company acquired real
estate of $2,055,000 without the use of cash by retiring notes receivable.
Also, limited partners of ERP converted $1,196,000 of units into common
shares of the Company. In 1996, the Company acquired real estate and
interests in partnerships of $36,025,000 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.
9. MINIMUM FUTURE RENTALS:
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 generally
either (i) require the tenant to pay all expenses of operating the
property such as insurance, property taxes, and structural repairs and
maintenance, or (ii) require the tenant to reimburse the Company for the
tenant's share of real estate taxes and other common area maintenance
expenses.
Minimum future rental revenue for the next five years for the commercial
real estate currently owned at March 31, 1997 and subject to noncancelable
operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997, remaining nine months $ 36,571
1998 46,354
1999 42,877
2000 39,776
2001 36,549
Thereafter 289,829
</TABLE>
Continued
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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, 1997 to the three months ended
March 31, 1996.
Rental revenue and expense reimbursements increased $1.9 million, or 15% to
$14.6 million in the three months ended March 31, 1997 from $12.7 million in the
three months ended March 31, 1996. This increase relates primarily to
acquisitions made in 1996. Two shopping centers that were acquired in December
of 1996 accounted for $1.9 million in revenues in 1997.
Interest income increased $2.4 million, or 211% to $3.5 million in 1997 from
$1.1 million in 1996. This increase is primarily related to additional notes
receivable issued during the period. The Company's outstanding notes receivable
were $89.3 million at March 31, 1997 compared to $31.6 million at March 31,
1996. Of the increase in notes, $39.3 million related to loans made to ERT
Development Corporation ("EDV") to facilitate the development of various
development projects, $13.2 million related to loans made to Excel Realty
Partners, L.P., ("ERP") primarily to facilitate cash requirements for properties
contributed to ERP, and $10.9 was loaned to a Canadian company to facilitate the
purchase and redevelopment of a mixed-used commercial building in Toronto.
Other income in the three months ended March 31, 1997 related primarily to $1.9
million of development fees that were received from EDV. This was offset by a
$0.1 million foreign currency exchange loss related to a loan receivable in
Canadian dollars. In the three months ended March 31, 1996, the Company
recognized $0.7 million in other income primarily related to development fees
received from EDV.
There was no significant change in interest expense between the period ended
March 31, 1997 and 1996. In February 1997, the Company used proceeds from a
preferred stock offering to repay outstanding amounts in notes payable. Interest
expense in 1996 was decreased when the Company sold an interest rate protection
agreement of which a $.4 million gain was offset against interest expense. Also
in 1996, $22 million of mortgage debt was incurred during the first quarter and
not outstanding for the full period.
Depreciation and amortization expenses increased $0.3 million or 17% in 1997
when compared to the three months ended March 31, 1996. This related to
buildings which increased from $275 million at March 31, 1996 to $313 million at
March 31, 1997.
Property taxes, repairs and maintenance, and other property expenses totaled
$2.4 million in 1997 compared
16
<PAGE> 17
to $1.9 million in 1996. This increase primarily relates to property
acquisitions made. The increase of $.5 million is consistent with the increase
of expense reimbursement revenue of $0.4 million. The percentage of expenses
recovered has increased slightly in 1997 to 67% from 60%. Master lease expense
was $0 in 1997 compared with $.4 million in 1996 as the three properties under
master leases in 1996 were purchased in 1996, and the master leases were
terminated. General and administrative expenses increased by $.4 million in 1997
from 1996 which was an increase as a percentage of total revenues from 4.4% to
5.2%. Approximately $70,000 of property manager salaries charged to property
expenses in 1996, were charged to administrative expenses in 1997. Additionally
in 1997, the Company accrued an additional $0.1 million in bonuses when compared
to 1996. Finally in 1997, there was an increase of $0.1 million related to the
timing of accruals associated with annual accounting and shareholder service
expenses. Other increases related to the growth of the Company.
Net income increased $4.4 million, or 75% to $10.3 million $0.46 per share, in
the three months ended March 31, 1997 from $5.9 million, $0.44 per share for the
three months ended March 31, 1996. Distributions per share increased to $0.46
for the three months ended March 31, 1997 from $0.445 for the same period in
1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations has been the principal source of capital to fund the
Company's ongoing operations. The Company's issuance of common and preferred
shares, use of the Company's credit facilities and long-term mortgage financing
have been the principal sources of capital required to fund its growth.
In order to continue to expand and develop its portfolio of properties and other
investments, the Company intends to finance future acquisitions and growth
through the most advantageous sources of capital available to the Company at the
time, which may include the sale of common stock, preferred stock or debt
securities through public offerings or private placements, the incurrance of
additional indebtedness through secured or unsecured borrowings and the
reinvestment of proceeds from the disposition of assets. The Company's financing
strategy is to maintain a strong and flexible financial position by (i)
maintaining a prudent level of leverage, (ii) maintaining a large pool of
unencumbered properties, (iii) managing its variable rate exposure, (iv)
amortizing existing mortgages over the term of the leases for such mortgaged
properties, and (v) maintaining a conservative distribution payout ratio.
The Company may seek variable rate financing from time to time if such financing
appears advantageous in light of then-prevailing market conditions. In such
case, the Company will consider hedging against interest rate risk through
interest rate protection agreements, interest rate swaps or other means.
In February 1997, the Company issued 4,600,000 shares of 8 1/2% Series A
Cumulative Convertible Preferred Stock (the "Preferred Shares") at $25.00 per
share. The Preferred Shares have an annual distribution of $2.125 per share
payable quarterly. The Preferred Shares are convertible by the holder at any
time into shares of the Company's common stock at a conversion price of $26.06
per share. On or after February 5, 2002, the Preferred Shares are redeemable by
the Company at $25.00 per share in either shares of common stock or cash at the
Company's election. Net proceeds of approximately $111.5 million were used to
repay the Company's outstanding balance on its credit facility, purchase
properties in April 1997 and for general corporate purposes. In April 1997, the
Company filed with the Commission a $500 million shelf registration statement.
This registration statement was filed for the availability of issuing in the
future, debt securities, preferred stock, depositary shares, common stock or
warrants.
The Company has a two-year unsecured revolving credit facility for up to $150
million through December 1997 from a group of six 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, 1997, no
amounts were outstanding under the Credit Facility. The total amount available
under the Credit Facility based upon covenants at March 31, 1997 was
approximately $125 million. The Credit Facility carries an interest rate of
LIBOR plus 1.75%. The Company has an interest rate protection agreement which
limits $50 million of the outstanding balance on the Credit Facility to 10%. The
Company is currently negotiating the extension of the Credit Facility to
December
17
<PAGE> 18
1999 at a reduced interest rate.
In 1995, the Company formed a Delaware limited partnership, ERP, to own and
manage certain real estate properties. Twelve real estate properties have been
contributed to ERP and at March 31, 1997, ERP's net real estate was
approximately $80.0 million and mortgages payable were $51.5 million. Cash
requirements (in excess of cash from operations) needed to facilitate these
property acquisitions, capital improvements, and mortgage debt retirement of
approximately $21.1 million were loaned to ERP by the Company. On April 1, 1997,
the Company's loans to ERP were converted into an equity investment and as such,
the financial statements of ERP will be consolidated with the Company's
financial statements in the future. It is anticipated that additional cash
requirements to facilitate future growth would principally be funded to ERP
through additional equity investments by the Company.
In 1995, EDV was organized to acquire, develop, hold and sell real estate in the
short-term for capital gains and/or receive fee income. The Company owns 100% of
the outstanding preferred shares of EDV. The preferred shares are entitled to
receive dividends equal to 95% of net income and are expected to be paid from
cash flows, if any. Cash requirements to facilitate EDV's transactions have
primarily been obtained through borrowings from the Company and are expected to
continue in the future. Interest and principal payments are repaid to the
Company as excess cash is available which is primarily expected to occur when
development projects are completed and sold.
At March 31, 1997, $3.5 million of ERP's mortgage debt was guaranteed by the
Company. Additionally, the Company has guaranteed $30 million of a construction
loan which is expected to total $80 million related to a retail development
project in Orlando, Florida.
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 income taxes. Although the Company receives most of its rental payments on
a monthly basis, it intends to make quarterly distribution payments. Amounts
accumulated for distributions 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 or other liquid
investments (including GNMA, FNMA, and FHLMC mortgage-backed securities) as the
Board of Directors deems appropriate.
The Company calculates funds from operations ("FFO") as net income before gain
or loss on real estate (net of gain or loss on sales of undepreciated property),
plus depreciation on real estate, amortization, amortized leasing commission
costs and loan costs written off. 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, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Net income $10,310 $ 5,858
Depreciation:
Buildings 1,981 1,684
Tenant improvements 88 87
From equity investments 3 1
Amortization (1):
Organization costs 1 1
Leasing commissions 49 42
Loan costs written off 75 --
Gain from sale of loan rate cap -- (415)
Gain on sale of buildings -- (148)
------- -------
Funds from operations $12,507 $ 7,110
======= =======
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Other Information:
Leasing commissions paid $ 40 $278
Tenant improvements paid 248 135
Building improvements paid
(Parking lots, roofs, etc.) 115 49
</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.
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 economic recessions. 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 affect 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 type 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. In recent years, there has been a
proliferation of new retailers and a growing consumer preference for
value-oriented shopping alternatives that have, among other factors, heightened
competitive pressures. In certain areas of the country, there may also be an
oversupply of retail space. As a consequence, many companies in all sectors of
the retailing industry have encountered significant financial difficulties. A
substantial portion of the Company's income is derived from
19
<PAGE> 20
rental revenues from retailers in neighborhood and community shopping centers.
Accordingly, no assurance can be given that the Company's financial results will
not be adversely affected by these developments in the retail industry.
Dependence on Rental Revenue from Real Property. Since substantially all of the
Company's income is derived from rental revenue 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 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, 1997, the Company's two largest
tenants were Wal-Mart Stores, Inc. and Kmart Corporation which each accounted
for approximately 8% of the Company's total revenues 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 11% 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.
20
<PAGE> 21
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since no events occurred with respect to
these items.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K, dated January 17, 1997, as amended
January 22, 1997, was filed with the Commission regarding the
Company's purchase of the Valley Fair Mall, a shopping center
located in West Valley City (Salt Lake City), Utah (includes pro
forma financial information).
A Current Report on Form 8-K, dated February 7, 1997 was filed with
the Commission regarding the Company's Underwriting Agreement dated
January 30, 1997 between the Company and Furman Selz LLC, Terms
Agreement dated January 30, 1997 between the Company and Furman
Selz LLC, and Articles Supplementary classifying 4,600,000 share of
preferred stock as 8 1/2% Series A Cumulative Convertible Preferred
Stock.
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 9, 1997 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> 1
Exhibit 11.1
COMPUTATION OF PER COMMON SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 1996
------------ -----------
<S> <C> <C>
Earnings Per Share - Primary:
Weighted average of common
shares outstanding: 18,300,043 13,231,306
Common share equivalents;
options and warrants: 184,979 15,348
Common share equivalents; Excel
Realty Partners, L.P. units: 267,845 --
------------ -----------
Weighted average of common
shares and common share
equivalents outstanding: 18,752,867 13,246,654
============ ===========
Net Income: $ 10,310,000 $ 5,858,371
Preferred stock distributions paid: (1,466,000) --
Adjustments to net income for
common share equivalents: (214,000) --
------------ -----------
Adjusted net income for earnings
per share calculation: $ 8,630,000 $ 5,858,371
============ ===========
Earnings per share $ 0.46 $ 0.44
============ ===========
</TABLE>
Note: The fully dilutive calculation for earnings per share is not significantly
different from the primary calculation above.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,568,000
<SECURITIES> 0
<RECEIVABLES> 5,690,000
<ALLOWANCES> (1,674,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 483,735,000
<DEPRECIATION> (24,044,000)
<TOTAL-ASSETS> 590,859,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
46,000
0
<COMMON> 183,000
<OTHER-SE> 427,933,000
<TOTAL-LIABILITY-AND-EQUITY> 590,859,000
<SALES> 0
<TOTAL-REVENUES> 20,204,000
<CGS> 0
<TOTAL-COSTS> 9,894,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 298,000
<INTEREST-EXPENSE> 4,321,000
<INCOME-PRETAX> 10,310,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,310,000
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
