<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:
JUNE 30, 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 .
Class Outstanding at August 12, 1997
- ---------------------------------- ----------------------------------
Common stock, $.01 par value 20,891,442
<PAGE> 2
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
INDEX
FORM 10-Q
----------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1997 (Unaudited)
December 31, 1996 ........................................... 3
Consolidated Statements of Income
Three Months Ended June 30, 1997 (Unaudited)
Three Months Ended June 30, 1996 (Unaudited)
Six Months Ended June 30, 1997 (Unaudited)
Six Months Ended June 30, 1996 (Unaudited) .................. 4
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 1997 (Unaudited)
Six Months Ended June 30, 1996 (Unaudited) .................. 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 (Unaudited)
Six Months Ended June 30, 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
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ............................................... 21
PART II. OTHER INFORMATION ............................................... 22
Item 4. Submission of Matters to a vote of Security Holders ......... 22
Item 6. Exhibits and Reports on Form 8-K ............................ 22
</TABLE>
2
<PAGE> 3
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
--------- ---------
<S> <C> <C>
ASSETS
Real estate:
Land $ 229,035 $ 156,060
Buildings 463,371 323,418
Accumulated depreciation (27,866) (21,976)
--------- ---------
Net real estate 664,540 457,502
Cash 5,554 5,038
Escrow and other deposits 1,120 625
Accounts receivable, less allowance for bad debts of
$1,063 and $726 in 1997 and 1996, respectively 2,417 2,917
Notes receivable from affiliates 61,161 57,716
Notes receivable - other 13,292 26,026
Interest receivable 6,442 2,579
Loan acquisition costs 1,986 1,775
Other assets 2,775 4,450
--------- ---------
$ 759,287 $ 558,628
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable $ 220,967 $ 157,716
Notes payable 38,765 81,032
Capital leases 26,656 --
Accounts payable and accrued liabilities 6,948 4,738
Deferred rental income 1,695 2,023
Other liabilities 999 465
--------- ---------
Total liabilities 296,030 245,974
--------- ---------
Minority interests in partnership 32,884 --
--------- ---------
Commitments and contingencies -- --
Stockholders' equity:
81/2% Series A Cumulative Convertible Preferred stock, $0.01 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,
18,377,444 and 18,231,089 shares issued and outstanding
in 1997 and 1996, respectively 184 182
Additional paid-in capital 438,683 324,229
Accumulated distributions in excess of net income (8,540) (11,757)
--------- ---------
Total stockholders' equity 430,373 312,654
--------- ---------
$ 759,287 $ 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Rental revenue $ 16,725 $ 12,115 $ 29,771 $ 23,684
Expense reimbursements 2,160 1,258 3,758 2,429
Interest 3,671 1,389 7,200 2,509
Other 905 565 2,936 1,412
-------- -------- -------- --------
Total revenue 23,461 15,327 43,665 30,034
-------- -------- -------- --------
Operating expenses:
Interest 5,514 5,253 9,835 9,610
Depreciation and amortization 2,648 1,861 4,758 3,658
Property taxes 1,254 713 2,117 1,362
Repairs and maintenance 961 478 1,705 1,045
Other property expenses 819 805 1,625 1,439
Master lease -- -- -- 351
Minority interests in income of partnership, net 70 -- 70 --
General and administrative expenses 1,297 877 2,347 1,519
-------- -------- -------- --------
Total operating expenses 12,563 9,987 22,457 18,984
-------- -------- -------- --------
Income before real estate impairment and sales 10,898 5,340 21,208 11,050
Gain on sale of real estate 293 -- 293 148
Impairment of real estate -- (1,246) -- (1,246)
-------- -------- -------- --------
Net income $ 11,191 $ 4,094 $ 21,501 $ 9,952
======== ======== ======== ========
Net income per common share $ 0.47 $ 0.31 $ 0.93 $ 0.75
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE> 5
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - UNAUDITED
(IN THOUSANDS, EXCEPT NUMBER OF SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL DISTRIBUTIONS TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN IN EXCESS OF STOCKHOLDERS'
NUMBER AMOUNT NUMBER AMOUNT CAPITAL NET INCOME EQUITY
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1997:
Balance at January 1, 1997 -- $ -- 18,231,089 $ 182 $ 324,229 $ (11,757) $ 312,654
Issuance of preferred stock 4,600,000 46 -- -- 114,954 -- 115,000
Issuance of common stock -- -- 146,355 2 3,164 -- 3,166
Selling expenses -- -- -- -- (3,664) -- (3,664)
Net income -- -- -- -- -- 21,501 21,501
Distributions declared -- -- -- -- -- (18,284) (18,284)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1997 4,600,000 $ 46 18,377,444 $ 184 $ 438,683 $ (8,540) $ 430,373
========== ========== ========== ========== ========== ========== ==========
SIX MONTHS ENDED JUNE 30, 1996:
Balance at January 1, 1996 -- $ -- 13,171,353 $ 132 $ 218,531 $ (9,985) $ 208,678
Issuance of common stock -- -- 1,805,633 18 37,189 -- 37,207
Selling expenses -- -- -- -- (2,057) -- (2,057)
Net income -- -- -- -- -- 9,952 9,952
Distributions declared -- -- -- -- -- (11,774) (11,774)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 1996 -- $ -- 14,976,986 $ 150 $ 253,663 $ (11,807) $ 242,006
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
5
<PAGE> 6
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
----------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,501 $ 9,952
Adjustments for noncash items:
Depreciation 4,743 3,656
Equity in earnings of affiliates (946) (423)
Minority interests in income of partnership, net 70 --
Loan costs written off 664 --
Amortized loan costs and leasing commissions 618 585
Provision for bad debts 465 301
Gain on sale of real estate (293) (148)
Impairment of real estate value -- 1,246
Change in accounts receivable 401 (1,885)
Change in other assets (4,034) (161)
Change in accounts payable 454 (1,176)
Change in other liabilities 988 794
--------- ---------
Net cash provided by operating activities 24,631 12,741
--------- ---------
Cash flows from investing activities:
Real estate acquisitions and building improvements (60,060) (2,138)
Advances for notes receivable (25,297) (21,172)
Principal payments on notes receivable 11,052 1,600
Escrow deposits (431) --
Proceeds from real estate sales 1,401 814
Other 355 753
--------- ---------
Net cash used in investing activities (72,980) (20,143)
--------- ---------
Cash flows from financing activities:
Issuance of stock 116,934 572
Selling and offering costs (3,664) (150)
Distributions paid (18,284) (11,774)
Proceeds from notes payable 57,807 23,425
Principal payments of mortgages and notes payable (102,737) (7,239)
Loan costs refunded 42 125
Loan costs paid (1,233) (210)
--------- ---------
Net cash provided by financing activities 48,865 4,749
--------- ---------
Net increase (decrease) in cash 516 (2,653)
Cash at January 1 5,038 9,812
--------- ---------
Cash at June 30 $ 5,554 $ 7,159
========= =========
</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 periods ended June 30, 1996
and at December 31, 1996 in order to conform with the current period
presentation. These financial statements should be read in conjunction
with the consolidated financial statements and accompanying footnotes
included in the Company's December 31, 1996 Annual Report on Form 10-K, as
amended.
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 accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and all significantly owned
partnerships. All significant intercompany accounts and transactions have
been eliminated in consolidation.
On April 1, 1997 the Company began consolidating the accounts of Excel
Realty Partners, L.P., a Delaware limited partnership ("ERP"), when the
Company converted its loans into an equity investment in ERP. Prior to
April 1, 1997, the Company accounted for ERP on the equity method of
accounting (Note 4).
The Company uses the equity method to account for its investment in ERT
Development Corporation, a Delaware corporation ("EDV"). This investment
was recorded initially at cost and subsequently adjusted for net income
(loss) and contributions paid and distributions received (Note 4).
INCOME TAXES
The Company has elected to be treated as a REIT 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, CONTINUED
----------
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 a significantly lower rent, the Company may recognize a permanent
impairment loss if the value of the income stream is not considered
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 revenue. 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
six months ended June 30, 1997 and 1996 were 18,823,936 and 13,312,720,
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, CONTINUED
----------
2. REAL ESTATE:
ACQUISITIONS
In the six months ended June 30, 1997, the Company acquired ten shopping
centers in California, three shopping centers located in Georgia, Nevada
and North Carolina, and two buildings leased to single tenants, Winn Dixie
and Kmart, in Tennessee and Florida, respectively. Three of the properties
acquired in California are subject to master leases which were capitalized
(Note 7). The total cost of these fifteen properties was approximately
$130,001,000. The Company assumed mortgage debt of $14,363,000 and capital
leases of $26,656,000 in the above transactions. In July and August 1997,
the Company purchased an additional three shopping centers located in
Arizona(2), and Tennessee, and two outparcels in Minnesota and
Pennsylvania. The total purchase price of the properties was approximately
$32,200,000 of which the Company assumed $8,700,000 of mortgage debt.
In 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
In the six months ended 1997 and 1996, the Company sold one single tenant
property in each period for proceeds of $1,401,000 and $814,000,
respectively. A gain of $293,000 and $148,000 was recognized on the sales,
respectively.
IMPAIRMENT OF REAL ESTATE
In accordance with FASB Statement No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the
Company wrote down the value of a property in the second quarter of 1996
by $1,246,000 to its estimated sales price when the Company received a
lease termination fee on the property.
REAL ESTATE UNDER CONSTRUCTION
At June 30, 1997, the Company had two properties with a book value of
$18,324,000 under construction and redevelopment. Depreciation expense is
not being charged to the projects and costs related to the construction
and redevelopment are being capitalized.
ENVIRONMENTAL MATTERS
Soil and groundwater contamination exists at Carmen Plaza in Camarillo,
California, Cudahy Plaza in Cudahy, California, and Bristol Plaza in Santa
Ana, California. Environmental professionals retained by the Company
estimate that the total, cumulative cost of remediation for these
properties will be approximately $1.8 million to $5.5 million. In
connection with each of these properties, the Company has entered into a
remediation and indemnity agreement, which obligates the prior owner of
the properties (including in some cases, principals of the prior owner) to
perform the remediation and to indemnify the Company for any losses it may
suffer because of the contamination or remediation. Although there can be
no assurance that the remediation estimates of the environmental
professionals are accurate or that the prior owners will perform their
obligations under the remediation and indemnity agreements, the Company
does not expect the environmental conditions at these properties to have a
material adverse effect on the Company.
Continued 9
<PAGE> 10
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
3. NOTES RECEIVABLE:
The Company had the following notes receivable at June 30, 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 $61,161 $39,786
Notes from ERP, interest at 12% per annum, collateralized
by real estate. Converted to equity in April 1997 (Note 4) -- 17,930
Note from a development company, interest at 25% per annum,
payable in Canadian dollars. Due 2003 10,898 9,504
Notes from development companies, interest from 10% to 14%
per annum. Maturity dates vary from the completion of
certain properties 1,636 15,763
Other 758 759
------- -------
Total notes receivable $74,453 $83,742
======= =======
</TABLE>
Interest and principal payments from EDV are primarily received upon the
completion of development projects. Interest receivable from EDV was
$3,383,000 and $879,000 at June 30, 1997 and December 31, 1996,
respectively.
In 1996, the Company made a loan of $13,000,000 Canadian dollars to a
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,
Ontario, 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.
4. INVESTMENTS:
EXCEL REALTY PARTNERS, L.P.
In 1995, ERP was formed to own and manage certain real estate properties.
The Company is the sole general partner of ERP. The general partner is
entitled to receive 99% of net income and gains before depreciation, if
any, after the limited partners receive their stipulated distributions. On
April 1, 1997, loans and related interest payable in the amount of
$23,427,000 from the Company to ERP were converted into limited
partnership interests in ERP. Upon this transaction, the Company began
consolidating the accounts of ERP which were previously accounted for on
the equity method. Properties held by ERP have been contributed to ERP in
exchange for limited partnership units (which may be converted to Company
common shares at stipulated prices) and cash. At June 30, 1997, there were
2,556,931 limited partner units outstanding of which the Company owned
1,152,121 units. Quarterly distributions approximate $687,000 for limited
partner units held by third parties.
Continued 10
<PAGE> 11
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
4. INVESTMENTS, CONTINUED:
ERP PRO FORMA FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
The following unaudited actual and pro forma condensed consolidated
balance sheets and income statements have been presented as if the Company
had converted its notes and related interest receivable from ERP on
December 31, 1996 and January 1, 1996, respectively. The unaudited pro
forma condensed consolidated financial statements are not necessarily
indicative of what the actual financial position would have been at
December 31, 1996, or what actual results of operations of the Company
would have been had the transaction actually occurred on January 1, 1996,
nor do they purport to represent the results of operations of the Company
for future periods.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- --------
(ACTUAL) (PRO FORMA)
<S> <C> <C>
BALANCE SHEET
Net real estate assets $664,540 $537,485
Other assets 94,747 82,839
-------- --------
$759,287 $620,324
======== ========
Mortgages and notes payable $259,732 $293,375
Other liabilities 36,298 8,396
-------- --------
Total liabilities 296,030 301,771
Minority Interest 32,884 5,899
Stockholders' equity 430,373 312,654
-------- --------
$759,287 $620,324
======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(ACTUAL) (PRO FORMA) (PRO FORMA) (PRO FORMA)
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
Rental revenues and reimbursements $ 18,885 $ 14,844 $ 36,331 $ 28,609
Interest and other income 4,576 1,439 9,181 3,483
Depreciation and amortization (2,648) (2,052) (5,094) (3,983)
Other property expenses (4,403) (3,082) (8,542) (6,052)
Interest expense (5,442) (5,882) (10,808) (11,114)
Minority interest (70) (43) (103) (63)
Real estate sales and impairment, net 293 (1,246) 293 (1,098)
-------- -------- -------- --------
Net income $ 11,191 $ 3,978 $ 21,258 $ 9,782
======== ======== ======== ========
Net income per share $ 0.47 $ 0.30 $ 0.92 $ 0.73
======== ======== ======== ========
</TABLE>
Continued 11
<PAGE> 12
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
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% of net income 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 (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------- ------------
<S> <C> <C>
BALANCE SHEETS
Notes receivable from developers, interest at 10% to 20% $58,600 $39,000
Other assets 7,800 2,500
------- -------
Total assets $66,400 $41,500
======= =======
Notes payable to Excel Realty Trust, Inc. $61,100 $39,800
Other liabilities 4,500 1,500
------- -------
Total liabilities 65,600 41,300
Total stockholders' equity 800 200
------- -------
Total liabilities and stockholders' equity $66,400 $41,500
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENTS OF INCOME
Total revenues $ 3,700 $ 800 $ 7,200 $ 1,900
Interest expense to Excel Realty Trust, Inc. (2,100) (400) (3,700) (1,000)
Fees paid to Excel Realty Trust, Inc. (100) -- (2,000) (700)
Other expenses (700) (200) (900) (400)
------- ------- ------- -------
Net income (loss) $ 800 $ 200 $ 600 $ (200)
======= ======= ======= =======
</TABLE>
EDV's receivables include loans made to a joint venture partnership under
a loan commitment related to a retail development project in Florida. In
1997 the joint venture obtained a construction loan which is expected to
total $85,000,000 of which $30,000,000 is guaranteed by the Company. In
1996, EDV obtained a $8,500,000 line of credit from a financial
institution at an interest rate of 8.91%, all of which is available at
June 30, 1997.
Continued 12
<PAGE> 13
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
5. MORTGAGES PAYABLE:
The Company had the following mortgages payable at June 30, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes at 4.15% to 10%, payable in installments
through 2018 (monthly payments at June 30, 1997 of $1,298):
Insurance companies $111,744 $ 87,530
Banks 75,619 41,656
Private bonds 33,604 28,530
-------- --------
Total mortgages payable $220,967 $157,716
======== ========
</TABLE>
The principal payments required to be made on mortgages payable are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997, remaining six months $ 3,127
1998 9,021
1999 42,882
2000 23,292
2001 22,359
Thereafter 120,286
--------
$220,967
========
</TABLE>
Mortgages of $57,046,000 are fully amortizing with no balloon payments
with the final monthly payments coming between the years 2004 and 2018,
and $46,940,000 of mortgage debt is subject to floating interest rates.
6. NOTES PAYABLE:
The Company had the following notes payable at June 30, 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% (7.04% at June 30, 1997) $38,610 $67,000
Term loan secured by notes receivable. Repaid in 1997 -- 10,000
Line of credit payable to a financial institution,
Repaid in 1997 -- 3,923
Other 155 109
------- -------
Total notes payable $38,765 $81,032
======= =======
</TABLE>
Continued 13
<PAGE> 14
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
6. NOTES PAYABLE (CONTINUED):
In December 1995, the Company received a revolving credit facility of up
to $150,000,000 in unsecured advances from a consortium of six banks. In
1996, the Company purchased an interest rate protection agreement which
limits $50,000,000 of the outstanding balance of the unsecured credit
agreement to 10% through December 1997. In June 1997, the Company
renegotiated the credit facility. The new facility expires December 1999
and bears an interest rate based on the credit rating of the Company.
Subsequent to June 30, 1997, the Company received a prospective investment
credit rating of Baa3 and BBB- from Moody's Investors Service and Standard
and Poor's Corporation, respectively, on future senior debt securities
issued from the Company's $500 million shelf registration. As such the
interest rate on the credit facility decreased to 1.2% over LIBOR. The
Company repaid the outstanding amounts on the credit facility in July
1997, primarily from proceeds of the Company's stock offering (Note 8) and
subsequently borrowed $5,500,000 to facilitate acquisitions later in July
and August 1997 (Note 2).
7. CAPITAL LEASES:
In June 1997, the Company acquired a leasehold interest in three shopping
centers in California ("Master Leased Centers") . The term of the leases
are thirty-four years and the initial monthly rental payment is $201,000.
In addition, the Company has purchased the option to acquire fee title to
the Master Leased Centers, exercisable at various times during the terms
of the respective leases. The owner of one of the Master Leased Centers
has the option to require the Company to purchase the property after the
occurance of certain events.
8. STOCKHOLDERS' EQUITY:
EQUITY OFFERINGS
In July 1997, the Company issued 2,500,000 shares of common stock with a
market price of $28.00 per share for net proceeds of $26.6875 per share.
The proceeds of $66,700,000 were used to repay the Company's notes payable
(Note 6), acquire properties (Note 2), and for general corporate purposes.
In April 1997, the Company filed with the Securities and Exchange
Commission a $500,000,000 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.
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, purchase properties and for general
corporate purposes.
DISTRIBUTIONS
In April and January 1997, the Company paid quarterly distributions of
$0.46 per share on the common stock and in July 1997 a distribution of
$0.50 per share was paid. Distributions of $0.32 and $0.53 ($2.125 per
annum) were paid in April and July 1997, respectively, on the Preferred
Shares. In the first six months of 1996, quarterly distributions of $0.445
per share were paid. For the six months ended June 30, 1997 and 1996,
approximately 0% and 15% of the distributions received by shareholders,
respectively, were considered to be a return of capital for tax purposes.
Continued 14
<PAGE> 15
EXCEL REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED, CONTINUED
----------
9. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
The amounts paid for interest during the six months ended June 30, 1997
and 1996 were $7,401,000 and $8,798,000, respectively. State income taxes
of $78,000 and $246,000 were paid in 1997 and 1996, respectively.
In the six months ended June 30, 1997, the Company acquired real estate of
$72,546,000 without the use of cash by issuing $28,424,000 of ERP limited
partner units, assuming $26,656,000 of capitalized leases and $14,363,000
of mortgages payable, and retiring notes receivable of $3,103,000. On
April 1, 1997, the Company began consolidating the accounts of ERP when
notes and related interest receivable in the amount of $23,427,000 from
the Company to ERP were converted into limited partnership interests in
ERP. Upon this transaction, ERP assets of $81,600,000 (including cash of
$355,000) and liabilities of $52,263,000 (net of payables to the Company)
were consolidated with the Company's accounts. Also in 1997, the Company
redeemed $1,196,000 of ERP limited partnership units by issuing common
stock.
In 1996, the Company acquired real estate and interests in partnerships
of $36,001,000 without the use of cash. The Company assumed $22,088,000 of
mortgage debt and other liabilities, used $13,023,000 of escrow and other
cash deposits, and issued $890,000 of common stock.
10. 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 at June 30, 1997
subject to noncancelable operating leases is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1997, remaining six months $ 36,538
1998 69,495
1999 64,292
2000 59,216
2001 53,378
Thereafter 411,286
</TABLE>
11. NEW PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share and
SFAS No. 131, Disclosures about Segments in an Enterprise and Related
Information which become effective for periods after December 15, 1997 and
SFAS No. 130, Comprehensive Income, which becomes effective in 1998. The
Company has determined that the adoption of these SFASs will not have a
material effect on the consolidated financial statements.
15
<PAGE> 16
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/or 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 June 30, 1997 to the three months ended
June 30, 1996.
Rental revenue and expense reimbursements increased $5.5 million, or 41% to
$18.9 million in the three months ended June 30, 1997 from $13.4 million in the
three months ended June 30, 1996. This increase relates primarily to the
consolidation of the operating partnership, Excel Realty Partners, L.P. ("ERP"),
which accounted for $3.1 million in 1997. In addition, the Company has acquired
eleven properties subsequent to June 30, 1996 (excluding properties acquired by
ERP) that contributed to operations in the three months ended June 30, 1997.
These properties accounted for $3.1 million in rental revenues and
reimbursements in 1997. The remaining net decrease of $0.7 million primarily
related to lease terminations fees received in 1996 but not in 1997, and
properties sold subsequent to April 1, 1996.
Interest income increased $2.3 million, or 164% to $3.7 million in 1997 from
$1.4 million in 1996. This increase is primarily related to additional notes
receivable issued during the period. The Company's outstanding notes receivable
were $74.5 million at June 30, 1997 compared to $42.3 million at June 30, 1996.
Loans made to ERT Development Corporation ("EDV") to facilitate the development
of various projects increased by $50.3 million over the first twelve months. On
April 1, 1997, outstanding note receivables from ERP were converted into equity
interests in ERP. The outstanding amount at June 30, 1996 from ERP was $10.8
million. Finally, in the quarter ended June 30, 1997, the Company reversed a
reserve of $776,000 related to a $10.8 million note. The $776,000 was recognized
as interest income and was made due to increased leasing activity on the
collateralized property and current market conditions.
Other income in the three months ended June 30, 1997 of $0.9 million related
primarily to the Company's equity interest in the income of EDV. In the three
months ended June 30, 1996, the Company recognized $0.6 million in other income
primarily related to its equity interest in EDV in addition to ERP, which was
accounted for on the equity method of accounting in 1996.
There was no significant change in interest expense between the periods ended
June 30, 1997 and 1996. Although the balance of mortgages payable at June 30,
1997 was $79.8 million greater than at June 30, 1996 (primarily due to the
consolidation of ERP and additional acquisitions), the notes payable at June 30,
1997 was $69.1 million less than at June 30, 1996. This was a result of the
Company repaying outstanding amounts in notes payable in February 1997 from
proceeds from a preferred stock offering.
Depreciation and amortization expenses increased $0.8 million or 42% in 1997
when compared to the three months ended June 30, 1996. This related to buildings
which increased from $274 million at June 30, 1996 to $463 million at June 30,
1997.
16
<PAGE> 17
Property taxes, repairs and maintenance and other property expenses totaled $3.0
million in 1997 compared to $2.0 million in 1996. This increase primarily
relates to the inclusion of properties held by ERP and property acquisitions
made. The increase of $1.0 million is consistent with the increase of expense
reimbursement revenue of $0.9 million. The percentage of expenses recovered
increased slightly in 1997 to 71% from 63%. General and administrative expenses
increased by $0.4 million in 1997 from 1996 which was a decrease as a percentage
of total revenues from 5.7% to 5.5%.
In 1996, the Company wrote down the value of one of its real estate properties
held for sale by $1.2 million to its estimated selling price. There were no such
write-downs in 1997.
Net income increased $7.1 million, or 173% to $11.2 million, or $0.47 per share,
in the three months ended June 30, 1997 from $4.1 million, or $0.31 per share
for the three months ended June 30, 1996. Distributions per share increased to
$0.46 for the three months ended June 30, 1997 from $0.445 for the same period
in 1996.
Comparison of the six months ended June 30, 1997 to the six months ended June
30, 1996.
Rental revenue and expense reimbursements increased $7.4 million, or 28% to
$33.5 million in the six months ended June 30, 1997 from $26.1 million in the
six months ended June 30, 1996. This increase relates primarily to the
consolidation of ERP on April 1, 1997 which accounted for $3.1 million. In
addition, the Company has acquired eleven properties subsequent to June 30, 1996
(excluding properties acquired by ERP) that contributed to operations in the six
months ended June 30, 1997. These properties accounted for $5.2 million in
rental revenues and reimbursements in 1997. The remaining net decrease of $0.9
million primarily related to lease terminations fees received in 1996 but not in
1997, and properties sold subsequent to January 1, 1996.
Interest income increased $4.7 million, or 188% to $7.2 million in 1997 from
$2.5 million in 1996. This increase is primarily related to additional notes
receivable issued during the period including an increase of $50.3 million over
the past twelve months related to loans made to EDV and the reversal of a
reserve of $776,000 as previously discussed. On April 1, 1997, outstanding note
receivables from ERP were converted into equity interests in ERP. Interest
income of $0.5 million was recognized in 1997 before the notes were converted,
compared to $0.6 million in 1996.
Other income in the six months ended June 30, 1997 of $2.9 million related
primarily to $2.0 million of development fees that were received form EDV.
Additionally, the Company's equity interest in ERP amounted to $0.4 million. In
the six months ended June 30, 1996, the Company recognized $1.4 million in other
income primarily related to its equity interest in EDV and ERP, and fees paid
from EDV.
There was no significant change in interest expense between the periods ended
June 30, 1997 and 1996. Depreciation and amortization expenses increased $1.1
million or 30% in 1997 when compared to the six months ended June 30, 1996. This
related primarily to the increase in buildings from acquisitions made since June
30, 1996 and the consolidation of ERP.
Property taxes, repairs and maintenance, and other property expenses totaled
$5.4 million in 1997 compared to $3.8 million in 1996. This increase primarily
relates to the inclusion of properties held by ERP and property acquisitions.
The increase of $1.6 million is consistent with the increase of expense
reimbursement revenue of $1.3 million. The percentage of expenses recovered
increased slightly in the six months ended June 30, 1997 to 69% from 63%.
General and administrative expenses increased by $0.8 million in 1997 from 1996
which was an increase as a percentage of total revenues from 5.1% to 5.4%.
Net income increased $11.5 million, or 115% to $21.5 million, or $0.93 per
share, in the six months ended June 30, 1997 from $10.0 million, or $0.75 per
share for the six months ended June 30, 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.
17
<PAGE> 18
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 incurrence of
additional indebtedness through secured or unsecured borrowings and the
reinvestment of proceeds from the disposition of assets. In 1997, the Company
received a prospective investment credit rating of Baa3 and BBB- from Moody's
Investors Service and Standard and Poor's Corporation, respectively, on future
senior debt securities issued from the Company's $500 million shelf
registration. 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 July 1997, the Company issued 2,500,000 shares of Common Stock with a market
price of $28.00 per share. The net proceeds after the underwriter discount was
$26.6875 per share or $66.7 million. The proceeds were used to repay outstanding
amounts on the Company's credit facility, acquire properties and for general
corporate purposes.
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. Net proceeds of approximately $111.5 million were used to repay the
Company's outstanding balance on its credit facility, purchase properties and
for general corporate purposes.
The Company had a two-year unsecured revolving credit facility for up to $150
million from a group of six banks (the "Credit Facility") which carried an
interest rate of LIBOR plus 1.75%. The actual amount available to the Company
was dependent on certain covenants such as the value of unencumbered assets and
certain ratios. In June 1997, the Company renegotiated the Credit Facility. The
new facility expires December 1999 and bears a current interest rate of 1.2%
over LIBOR. At August 12, 1997, there was $5.5 million outstanding under the
Credit Facility. The Company has an interest rate protection agreement through
December 1997 which limits $50 million of the outstanding balance on the Credit
Facility to 10%.
In 1995, the Company formed ERP to own and manage certain real estate properties
and on April 1, 1997, the Company began consolidating the accounts of ERP. At
June 30, 1997, there were 1,404,810 limited partner units of ERP held by third
parties. The units are due quarterly distributions which range from $0.43 to
$0.50 and are redeemable by cash or common stock of the Company at certain
dates. The Company may, from time to time, contribute additional capital to ERP
to facilitate property acquisitions, capital improvements or other events which
may require capital in excess of ERP's operations.
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 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. The Company has guaranteed $30 million of a $85 million
construction loan related to a retail development project in Orlando, Florida.
This project is expected to be completed November 1997.
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
18
<PAGE> 19
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 June 30,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net income $ 11,191 $ 4,094
Depreciation:
Buildings 2,510 1,678
Tenant improvements 89 151
From equity investments (minority interest) (116) 2
Amortization (1):
Organization costs 3 1
Leasing commissions 51 35
Loan costs written off 589 --
Impairment in real estate -- 1,246
Gain on sale of buildings (293) --
-------- --------
Funds from operations $ 14,024 $ 7,207
======== ========
Other Information:
Leasing commissions paid $ 108 $ 31
Tenant improvements paid 128 69
Building improvements paid
(Parking lots, roofs, etc.) 144 51
</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
19
<PAGE> 20
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 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
20
<PAGE> 21
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.
Soil and groundwater contamination exists at Carmen Plaza in Camarillo,
California, Cudahy Plaza in Cudahy, California, and Bristol Plaza in Santa Ana,
California. With regard to Carmen Plaza, the primary contaminants of concern are
perchloroethylene ("PCE") associated with operations of an on-site dry cleaner,
methyl tertiary butyl ether ("MTBE") from an unknown source and petroleum
hydrocarbons associated with operations of an on-site auto repair facility. With
regard to Cudahy Plaza, the primary contaminants of concern are PCE associated
with operations of a former on-site dry cleaner and petroleum hydrocarbons
associated with operations of an existing on-site auto repair facility. With
regard to Bristol Plaza, the primary contaminants of concern are PCE and
trichloroethylene ("TCE") associated with operations of an on-site dry cleaner
and petroleum hydrocarbons associated with operations of an on-site auto repair
facility. Environmental professionals retained by the Company estimate that the
total, cumulative cost of remediation for these properties will be approximately
$1.8 million to $5.5 million. In connection with each of these properties, the
Company has entered into a remediation and indemnity agreement, which obligates
the prior owner of the properties (including in some cases, principals of the
prior owner) to perform the remediation and to indemnify the Company for any
losses it may suffer because of the contamination or remediation. Although there
can be no assurance that the remediation estimates of the environmental
professional are accurate or that the prior owners will perform their
obligations under the remediation and indemnity agreements, the Company does not
expect the environmental conditions at these properties to have a material
adverse effect on the Company.
Reliance on Major Tenants. As of June 30, 1997, the Company's two largest
tenants were Wal-Mart Stores, Inc. and Kmart Corporation which accounted for
approximately 11.8% and 9.6%, respectively 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, Kmart has experienced flat or declining earnings in
recent periods and had announced plans to eliminate a significant number of jobs
and close certain of its existing stores.
Control by Directors and Executive Officers. Directors and executive officers of
the Company beneficially own approximately 10.7% 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable
21
<PAGE> 22
PART II. OTHER INFORMATION
Items 1, 2, 3 and 5 have been omitted since no events occurred with respect to
these items.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Stockholders on May 2,
1997.
(b) Management's nominees for director as listed in the proxy
statement were all elected, and there was no solicitation in
opposition to such nominees.
(c) The matters voted upon at the meeting and the votes cast with
respect thereto were as follows:
Election of Directors.
<TABLE>
<CAPTION>
For Withheld Abstentions Non-votes
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
D. Charles Marston 14,725,182 83,198 0 3,521,027
Bruce A. Staller 14,733,757 74,623 0 3,521,027
</TABLE>
(d) Not applicable.
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
The Company filed no reports on Form 8-K during the quarter ended
June 30, 1997.
A Current Report on Form 8-K, dated July 3, 1997, was filed with
the Commission regarding the Company's acquisition of interests in
nine shopping centers from entities owned or controlled by Albert
B. Glickman.
A Current Report on Form 8-K, dated July 3, 1997 was filed with
the Commission regarding the Company's Second Supplemental
Indenture between Excel Realty Trust, Inc. and State Street Bank
and Trust Company of California, N.A., as Trustee.
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: August 12, 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
22
<PAGE> 1
Exhibit 11.1
COMPUTATION OF PER COMMON SHARE NET INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings per share - Primary:
Weighted average of common
shares outstanding: 18,348,154 13,302,214 18,306,571 13,266,761
Common share equivalent;
options and warrants: 198,469 10,660 186,704 45,959
Common share equivalents; Excel
Realty Partners, L.P. units: 392,786 -- 330,661 --
------------ ------------ ------------ ------------
Weighted average of common
shares and common share
equivalents outstanding: 18,939,409 13,312,874 18,823,936 13,312,720
============ ============ ============ ============
Net income: $ 11,191,000 $ 4,094,000 $ 21,501,000 $ 9,952,000
Preferred stock distribution paid: (2,444,000) -- (3,910,000) --
Adjustments to net income for
common share equivalents 70,000 -- (145,000) --
------------ ------------ ------------ ------------
Adjusted net income for per share
calculation: $ 8,817,000 $ 4,094,000 $ 17,446,000 $ 9,952,000
============ ============ ============ ============
Net income per share $0.47 $ 0.31 $0.93 $0.75
===== ====== ===== =====
</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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,554,000
<SECURITIES> 0
<RECEIVABLES> 3,480,000
<ALLOWANCES> (1,063,000)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 692,406,000
<DEPRECIATION> (27,866,000)
<TOTAL-ASSETS> 759,287,000
<CURRENT-LIABILITIES> 0
<BONDS> 220,967,000
0
46,000
<COMMON> 184,000
<OTHER-SE> 430,143,000
<TOTAL-LIABILITY-AND-EQUITY> 759,287,000
<SALES> 0
<TOTAL-REVENUES> 23,461,000
<CGS> 0
<TOTAL-COSTS> 12,563,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 465,000
<INTEREST-EXPENSE> 5,514,000
<INCOME-PRETAX> 11,191,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 11,191,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,191,000
<EPS-PRIMARY> 0.47
<EPS-DILUTED> 0.47
</TABLE>
