-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CHo+89/FNJdk+kRjKpuXJ79lctmsCLWLahj2wzPdBQbYjiZCUsvMVuuAmdyH2XqG FVAUInOcS8PhT2bRJ7FxNw== 0000912057-01-504352.txt : 20010321 0000912057-01-504352.hdr.sgml : 20010321 ACCESSION NUMBER: 0000912057-01-504352 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010320 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCEL LEGACY CORP CENTRAL INDEX KEY: 0001050671 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 330781747 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-14609 FILM NUMBER: 1572512 BUSINESS ADDRESS: STREET 1: 17140 BERNARDO CENTER DR STREET 2: SUITE 300 CITY: SAN DIEGO STATE: CA ZIP: 92128 BUSINESS PHONE: 8586759400 MAIL ADDRESS: STREET 1: 16955 VIA DEL CAMPO STREET 2: SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92127 10-K405 1 a2042071z10-k405.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 2000 Commission File Number: 0-23503 EXCEL LEGACY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 33-0781747 (State of incorporation) (I.R.S. Employer Identification No.) 17140 BERNARDO CENTER DRIVE, SUITE 300, SAN DIEGO, CALIFORNIA 92128 (Address of principal executive offices) (Zip Code) Registrant's telephone number: (858) 675-9400 Securities Registered Pursuant To Section 12(b) of the Act: Common Stock, $0.01 par value per share 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004 10.0% Senior Redeemable Secured Notes due 2004 Securities Registered Pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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. YES X NO --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the Registrant's shares of common stock held by non-affiliates was $116,960,753 as of March 14, 2001 based on the $2.15 closing price on such date. 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 March 14, 2001 ------------------------------------ ------------------------------------ Common Stock, $.01 par value 61,540,849 Documents incorporated by reference: Portions of the Proxy Statement for the 2001 Annual Meeting of Stockholders of the Registrant to be filed subsequently with the Commission are incorporated by reference into Part III of this report. PART I ITEM 1. BUSINESS GENERAL Excel Legacy Corporation (the "Company" or "Legacy"), a Delaware corporation, was formed on November 17, 1997. The Company was originally a wholly-owned subsidiary of Excel Realty Trust, Inc. ("Excel"), now known as New Plan Excel Realty Trust, Inc., a Maryland corporation and a real estate investment trust ("REIT"). On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel. In connection with this spin-off, Excel transferred real properties, notes receivable and related assets and liabilities to Legacy. In addition to operating, developing or disposing of assets obtained from the spin-off, Legacy intends to pursue various real estate projects including: o developing mixed-use entertainment projects that have the potential for substantial capital gains but which may take several years to fully develop, o investing in securities of real estate related operating companies where significant influence may be exerted to enhance the value of the companies, o investing in properties requiring significant restructuring or redevelopment to create substantial value, such as changing the use, tenant mix or focus of a property, and o opportunistic buying and selling of commercial properties or real estate related and other companies. The Company's executive offices are located at 17140 Bernardo Center Drive, Suite 300, San Diego, California 92128 and its telephone number is (858) 675-9400. The Company also has an office in West Bountiful, Utah which coordinates the Company's acquisitions and dispositions and property management offices in Fountain Valley, California, San Diego, California, and Fairfax, Virginia. As of March 13, 2001, the Company and its subsidiaries had approximately 188 employees. PRICE ENTERPRISES, INC. In November 1999, the Company completed an exchange offer for the common stock of Price Enterprises, Inc. ("PEI"), a Maryland corporation which operates as a REIT. In the exchange offer, the Company acquired approximately 91.3% of the PEI common stock, which represents approximately 77.5% of PEI's voting power as outstanding PEI preferred stock also have voting rights. The accounts of PEI are not consolidated with the Company's books however, because, until certain events occur, the holders of PEI preferred stock, which does not include the Company, have the right to elect a majority of the PEI board of directors. PEI stockholders who tendered their shares of PEI common stock in the exchange offer received from the Company a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the Company's 9.0% Convertible Redeemable Subordinated Secured Debentures ("Debentures") due 2004 and $1.50 in principal amount of the Company's 10.0% Senior Redeemable Secured Notes ("Senior Notes") due 2004 for each share of PEI common stock. After expenses, the Company paid approximately $61.0 million in cash and issued approximately $33.2 million in principal amount of the Debentures and approximately $18.1 million in principal amount of the Senior Notes to acquire the PEI common stock in the exchange offer. Of the cash, $27.4 million was borrowed from The Sol and Helen Price Trust. As of the date the exchange offer was completed, the Company began managing the assets of PEI. STRATEGY AND PHILOSOPHY The following is a brief discussion of certain investment, financing and other strategies and policies of the Company. These policies have been determined by the Company and ratified by the Board of Directors, and generally may be amended or revised from time to time by the Board of Directors. There can be no assurance that the Company's strategies will be successful. 2 INVESTMENTS The Company intends to acquire, develop, own and manage, and sell a variety of real estate related assets. As opportunities emerge and in response to changes in real estate, market and general economic conditions, the Company may in the future reexamine its real estate related businesses and activities. The activities described below often do not generate immediate cash flow, and cash flow generated may be nonrecurring. Development - The Company may from time to time undertake, directly or through joint venture financing, long-term, development projects that have the potential for substantial gains but which may take three to five years or more to fully develop, with particular emphasis on mixed-use retail entertainment projects. To the extent the Company provides joint venture financing, the developer will often bear a portion of the economic risks associated with the construction, development and initial lease of properties. Under this financing method, the Company may enter into an equity joint venture or make a participating subordinated loan to the developer wherein the Company would receive a stated preferred return together with a share of the development profits. Operating Real Estate Companies - The Company may invest in retail, residential, hotel and other types of operating companies and manage properties owned by such companies in which it has an equity or debt investment. These investments may be subject to existing debt financing and any such financing will have a priority over the equity interests of the Company. Restructuring and Redevelopment in Order to Create Substantial Value - The Company may from time to time engage in selective restructuring and development activities such as changing the use, tenant mix or focus of a property, as opportunities arise and when justified by expected returns. The Company believes that appropriate, well-located properties which are currently underperforming can be acquired on advantageous terms and repositioned through such selective restructuring and development activities with the expectation of achieving enhanced returns that are greater than returns which could be achieved by acquiring a stabilized property. Investment in Real Estate Mortgages - While the Company will emphasize equity real estate investment in properties and the restructure and redevelopment of real estate properties, the Company may invest in mortgages and other types of real estate interests. The Company may invest in first or junior mortgages that may or may not be insured by a governmental agency. The Company also may invest in participating or convertible mortgages if the Company concludes that it may benefit from the cash flow and/or any appreciation in the value of the property. Such mortgages may be similar to equity participations. In addition, the Company may make mortgage loans or participate in such loans. SECURITIES OF/OR INTERESTS IN ENTITIES PRIMARILY ENGAGED IN REAL ESTATE ACTIVITIES The Company may from time to time acquire real estate related equity securities or invest in real estate related senior, junior or otherwise subordinated debt securities, which debt securities may be unsecured or secured by liens on real estate or the economic benefits thereof. Some of the entities in which the Company may invest may be start-up companies or companies in need of additional capital. These investments may contain options to acquire, or be convertible into the right to acquire, all or a portion of the underlying real estate, or contain the right to participate in the cash flow and economic return which may be derived from real estate. Debt investments may include debt that is acquired at a discount, mezzanine financing, commercial mortgage-backed securities, secured and unsecured lines of credit, distressed loans, and loans previously made by foreign and other financial institutions. In some cases, the Company may only acquire a participating interest in a debt security. The Company also may provide credit enhancement or guarantees of the obligations of others involved in real estate activities, and may invest in participating or convertible mortgages if the Company concludes that it may benefit from the cash flow and/or any appreciation in the value of the property. Such mortgages may be similar to equity participations. In addition, the Company may make mortgage loans or participate in such loans and contemporaneously or otherwise obtain related property purchase options. 3 Equity investments may include development projects directly or through joint ventures, as well as the purchase of general or limited partnership interests in limited partnerships, shares in publicly traded or privately held corporations or interests in other entities that own real estate, make real estate related loans, invest in real estate related debt instruments or provide services or products to the real estate industry. The Company intends to engage in real estate businesses, which may include land subdivisions, property sales and other businesses. The Company may also hold real estate or interests therein for investment. The Company may purchase substantially leased, mostly unleased or vacant properties of any type or geographic location. The Company also may purchase leasehold positions and sublease the property. PROACTIVE ASSET MANAGEMENT The Company's management regularly monitors and evaluates each investment, including those within the PEI portfolio, to identify properties which can be sold or exchanged for optimal sales prices (or exchange values) given prevailing market conditions and the particular characteristics of each property. Through this strategy, the Company seeks to continually update its core property portfolio by disposing of properties which have limited appreciation potential and redeploy capital into newer properties or properties where its aggressive management techniques may maximize property values. The Company may engage from time to time in like-kind property exchanges (i.e., Internal Revenue Code Section 1031 exchanges) which will allow the Company to dispose of properties and redeploy proceeds in a tax efficient manner. In addition to value enhancement, the Company also focuses on maintaining strong operational cost controls. FINANCING POLICIES The Company seeks to finance its investments through both public and private secured and unsecured debt financings, as well as public and private placements of its equity securities. The equity securities include both common and preferred equity issuances of the Company. The Company does not have a policy limiting the number or amount of mortgages that may be placed on any particular property, but mortgage financing instruments usually limit additional indebtedness on such properties. 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 may consider hedging against interest rate risk through interest rate protection agreements, interest rate swaps or other means. The Company does not plan to distribute dividends for the foreseeable future, which will permit it to accumulate for reinvestment cash flow from investments, disposition of investments and other business activities. POLICIES WITH RESPECT TO OTHER ACTIVITIES The Company does not qualify as a REIT, but it may, from time to time, invest in REITs and sell properties or entities to REITs for cash and/or securities. Further, it may spin-off to its common stockholders shares of its subsidiaries or shares of other entities it has acquired through the sale of its properties, investments or otherwise. These spin-offs may involve the formation of new entities and may be taxable or non-taxable, depending upon the facts and circumstances. The Company may pursue strategies, such as portfolio and other acquisitions, to take advantage of the tax benefits of PEI's REIT status. ENVIRONMENTAL CONDITIONS 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). 4 Such liability may be imposed whether or not the Company knew of, or was responsible for, the presence of such hazardous or toxic substances. The Company is not presently aware of any material environmental conditions at any of its properties. PRINCIPAL TENANTS As of December 31, 2000, a ground lease with an aquarium in Newport, Kentucky accounted for approximately 6% of the Company's total revenues in 2000. The Company had no other tenants at December 31, 2000 that accounted for a significant amount of the Company's revenues. PEI - The eight largest tenants in the PEI portfolio accounted for approximately 45% of its total Gross Leasable Area ("GLA") and approximately 53% of its total annualized revenues as of December 31, 2000. The table below presents certain information about these tenants (dollars in thousands):
PERCENT OF ANNUAL PERCENT OF NUMBER OF AREA UNDER GLA UNDER MINIMUM TOTAL ANNUAL TENANT LEASES LEASE (SQ. FT) LEASE RENT MINIMUM RENT ---------- ---------- ---------- ---------- ---------- Costco 4 618,192 15.8% $ 8,484.7 18.7% The Sports Authority 7 298,217 7.6% 3,720.4 8.2% The Home Depot 2 214,173 5.5% 2,775.2 6.1% AT&T Wireless 1 156,576 4.0% 2,415.7 5.3% Kmart 1 110,054 2.8% 2,027.2 4.5% Marshall's 2 87,968 2.2% 1,889.5 4.2% Borders Books and Music 2 62,999 1.6% 1,655.7 3.7% Lowe's 2 230,659 5.9% 1,207.8 2.7% ---------- ---------- ---------- ---------- ---------- 21 1,778,838 45.4% $ 24,176.2 53.4% ========== ========== ========== ========== ==========
ITEM 2. PROPERTIES The Company's largest investment is its 91.3% interest in the PEI common stock. At December 31, 2000, PEI owned 30 commercial real estate properties and held one property with a 19-year ground lease, in addition to land in Tucson, AZ, Temecula, CA and San Diego/Pacific Beach, CA held for future development. These properties encompass approximately 4.4 million square feet of GLA and were 95% leased. The five largest properties include 1.5 million square feet of GLA that generate annual minimum rent of $24.6 million, based on leases existing as of December 31, 2000. In addition to the commercial properties PEI owned at December 31, 2000 are four self storage facilities. One of these facilities, San Diego, CA, is located on the same site as PEI's commercial property. The commercial property located in Azusa, CA was sold during the year, but PEI retained the self storage facility. PEI's other two self storage facilities are stand-alone properties. At year end, these facilities had 0.7 million square feet of GLA and were 96% occupied. PEI also has a 50% interest in three joint ventures which own retail properties in Fresno, CA, Westminster, CO and Bend, OR. Below is a summary of the PEI properties, excluding the joint venture investments: 5
LEASES IN EFFECT AS OF DECEMBER 31, 2000 --------------------------------------------------------- NUMBER GROSS ANNUAL OF LEASABLE PERCENT MINIMUM COMMERCIAL PROPERTIES TENANTS AREA (SQ FT) LEASED RENT (1) - --------------------- ------- ------------ ------ -------- (000's) ($000's) Westbury, NY 8 398.6 100% $7,765.0 Pentagon City, VA 9 336.8 100% 6,928.6 Wayne, NJ (2) 5 343.9 93% 4,368.7 Philadelphia, PA 22 308.7 98% 3,085.6 Sacramento/Bradshaw, CA 1 156.6 100% 2,415.7 Roseville, CA 19 188.5 100% 2,415.3 Signal Hill, CA 13 154.8 97% 2,335.7 Seekonk, MA 12 213.9 98% 1,954.2 Glen Burnie, MD 10 154.6 87% 1,699.8 San Diego, CA (3) 3 443.2 100% 1,661.7 San Diego/Rancho San Diego, CA 19 98.4 97% 1,198.9 Scottsdale, AZ 22 68.0 79% 1,072.3 San Diego/Carmel Mountain, CA 7 35.0 100% 941.7 Inglewood, CA 1 119.9 100% 926.6 Moorestown, NJ (4) 3 177.1 37% 738.0 Northridge, CA 2 22.0 100% 734.0 New Britain, CT 1 112.4 100% 671.1 Middletown, OH 1 126.4 100% 650.0 San Juan Capistrano, CA 6 56.4 100% 610.8 Terre Haute, IN 1 104.3 100% 557.8 Smithtown, NY 1 55.6 100% 500.7 Hampton, VA 2 45.6 100% 452.4 San Diego/Rancho Bernardo, CA 1 82.5 100% 450.0 Redwood City, CA 2 49.4 100% 418.8 Tucson, AZ 11 40.1 100% 408.1 Denver/Aurora, CO 1 7.3 100% 164.3 San Diego/Southeast, CA 2 8.9 100% 150.4 Chula Vista/Rancho del Rey, CA 1 6.7 100% 75.0 Temecula, CA (5) - - - - ----------- ------------- ----------- ------------- Total Commercial Properties 186 3,915.6 95% $45,351.2 =========== ============= =========== =============
(1) Annual Base Rent does not include percentage rents, expense reimbursements, revenue from month to month leases, or rents expiring in 2001. (2) Includes 23,000 sq. ft. of vacant storage space. (3) Self storage is also located at these properties. (4) Consists of leased land. (5) Future shopping center development consisting of 47.5 acres purchased in July 1999.
GROSS LEASEABLE PERCENT SELF STORAGE PROPERTIES AREA (SQ FT) LEASED -------------- -------------- (000'S) San Diego/Murphy Canyon, CA 250.8 99% San Diego, CA (1) 89.6 99% Azusa, CA 84.3 99% Solana Beach, CA (2) 238.0 91% San Diego/Pacific Beach, CA (3) - - -------------- -------------- Total Self Storage Properties 662.7 96% ============== ==============
(1) GLA of facility is also included in GLA for the commercial property listed above. (2) Expansion of this facility was completed during the year and includes 100,000 square feet of indoor RV and boat storage. (3) Currently under development. 6 The annual gross potential rent for the four operating self storage facilities is $7.2 million. Gross potential rent equals the GLA times the average rent per square foot. In addition, the Company's business consisted of the following portfolio of real properties, notes receivable, and investments in real estate related ventures: o ownership interests in a number of real estate related ventures, including: o a 65% ownership interest in a joint venture that is developing a retail project in Newport, Kentucky scheduled for completion in 2001, o a 65% ownership interest in a joint venture which owns and operates a hotel, dinner theater and retail shop located near the Grand Canyon in northern Arizona, o a 100% ownership interest in Millennia which owns stock in two publicly traded companies, Mace Security International, Inc. and U.S. Plastics Lumber Corp. Another party can earn up to a 50% ownership interest in Millennia if certain returns as defined in the operating agreement exceed 35% per year, o a 100% ownership in TenantFirst Real Estate Services, Inc., a fully-integrated real estate development company providing development, leasing, property management and construction management services, o a 55% ownership interest in a development company which owns Newport Centre, a retail and office facility located in Winnipeg, Canada, o a 50% ownership in EL Holdings, Inc. and EL Media Holdings Company which were formed to invest in media towers and similar businesses, and o a 23.7% ownership interest in a development company which owns land in Indianapolis, Indiana. o five notes receivable relating to real estate projects in Arizona, California, and Utah with an aggregate outstanding balance of approximately $40.5 million as of December 31, 2000. The largest note relates to a project in Scottsdale, Arizona, o two properties located in Arizona including restaurant space and vacant land in Scottsdale, o two properties located in California including a development project in Palm Springs, and land held for sale/development in Yosemite, and o a hospitality property under development in Bermuda scheduled for opening in 2001. The following table describes Legacy's portfolio of real estate properties as of December 31, 2000. Amounts shown for annual rents are based on executed leases at December 31, 2000. Legacy makes no allowances for contractually based delays to the commencement of rental payments. Due to the nature of real estate investments, Legacy's actual rental income may differ from amounts shown in the table below.
TENANTS GLA (SQ FT) ANNUAL RENT ------- ----------- ----------- (IN THOUSANDS) (IN THOUSANDS) Arizona Scottsdale Land (1) (1) (1) Brio Land Roaring Fork Restaurant 3.7 $ 104.3 Grand Hotel (2) (2) (2) California Desert Fashion Plaza (4) Saks Fifth Avenue/various 96.1 461.5 Yosemite (3) (3) (3) Indiana Indianapolis (4) (4) (4) Kentucky Newport on the Levee (5) (5) (5) Bermuda Daniel's Head Bermuda (6) (6) (6) Winnipeg, Canada Newport Centre(7) Bank of Montreal/various 156.1 1,594.0 ---------------- ---------------- Total 255.9 $2,159.8 ================ ================
7 (1) Property consists of vacant land in Scottsdale and is held for sale. (2) The Company holds a 65% ownership interest in Grand Tusayan LLC which owns and operates a 120-room hotel and restaurant. (3) Properties consist of vacant land currently held for development or sale. (4) Property consists of land held for development. The Company holds a 23.7% ownership interest. (5) In addition to land leased to an aquarium which provided $1.1 million in revenue related to that lease, in 2001, property consists of land under development and scheduled for completion in 2001. The Company holds a 65% ownership interest. (6) Property under development. (7) Property is owned by a Nova Scotia company of which the Company holds a 55% ownership interest. ITEM 3. LEGAL PROCEEDINGS On or about February 13, 2001, Lewis P. Geyser filed a lawsuit against the Company in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by the Company and Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Geyser alleges that the Company breached its obligations under the Obligating Agreement, by failing to contribute the funding required under the Agreement. Geyser also alleges that the Company misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. The Company believes the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from the Company in negotiations with Geyser which were underway prior to its filing. The Company intends to vigorously defend the lawsuit. The Company also intends to prosecute a cross-complaint against Geyser for breach of contract, negligence, fraud in the inducement, fraudulent concealment, breach of fiduciary duty, abuse of process, and possibly other related claims. There have been no motions or other proceedings in the case as of this date. The Company is not party to any other legal proceedings other than various claims and lawsuits arising in the ordinary course of business which, in the opinion of Company's management, are not individually or in the aggregate material to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the year ended December 31, 2000. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of the Company's common stock which is quoted on the American Stock Exchange under the symbol "XLG".
HIGH LOW --------------- --------------- YEAR ENDED DECEMBER 31, 1999 Quarter ended March 31, 1999 $4.063 $3.063 Quarter ended June 30, 1999 5.688 2.875 Quarter ended September 30, 1999 4.750 3.500 Quarter ended December 31, 1999 4.750 3.000 YEAR ENDED DECEMBER 31, 2000 Quarter ended March 31, 2000 4.000 3.000 Quarter ended June 30, 2000 3.500 2.500 Quarter ended September 30, 2000 3.000 2.125 Quarter ended December 31, 2000 2.500 1.875
8 As of March 14, 2001, the last reported price per share was $2.15 and the Company had approximately 1,000 holders of record. The Company has never paid cash dividends on its common stock. The Company currently anticipates that it will retain all available funds for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. The Company's Debentures and Senior Notes are traded on the American Stock Exchange under the symbols "XLG9K04" and "XLG10K04", respectively. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected data should be read in conjunction with the Company's financial statements and accompanying notes located elsewhere in this Form 10-K and "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations."
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, ---------------------------- ------------ ------------ SELECTED STATEMENT OF OPERATIONS DATA 2000 1999 1998 1998 ------------ ------------ ------------ ------------ (IN THOUSANDS EXCEPT PER SHARE DATA) Total revenue $ 18,497 $ 25,917 $ 15,010 $ 8,145 Total operating expenses (24,385) (35,436) (13,754) (5,267) Gain (loss) from real estate sales and write-off of real estate related costs 8,715 (1,765) - - ------------ ------------ ------------ ------------ Net income (loss) before income taxes 2,827 (1,284) 1,256 2,878 (Provision) benefit of income taxes (1,611) 507 (535) (1,143) ------------ ------------ ------------ ------------ Net income (loss) $ 1,216 $ (777) $ 721 $ 1,735 ============ ============ ============ ============ Earnings before depreciation, amortization and deferred taxes ("EBDADT") $ 13,173 $ 3,674 $ 2,712 $ 2,994 Earnings before interest, income taxes, depreciation and amortization ("EBITDA") $ 15,249 $ 9,933 $ 5,819 $ 5,453 Net income (loss) per share: Basic $ 0.03 $ (0.02) $ 0.02 $ 0.11 Diluted $ 0.02 $ (0.02) $ 0.01 $ 0.07 Weighted average number of shares: Basic 41,847 33,985 33,458 15,842 Diluted 61,553 33,985 54,768 25,984 AS OF DECEMBER 31, AS OF JULY 31, -------------------------------------------- ------------ SELECTED BALANCE SHEET DATA 2000 1999 1998 1998 ------------ ------------ ------------ ------------ (IN THOUSANDS) Net real estate $ 96,133 $ 102,191 $ 190,878 $ 175,756 Total assets 324,584 328,153 261,296 246,916 Mortgages and notes payable 112,389 137,806 90,986 72,714 Stockholders' equity 194,598 180,039 166,640 165,919
SUMMARY SELECTED FINANCIAL DATA OF PEI - As previously discussed, the Company acquired approximately 91.3% of the PEI common stock in November 1999. The Company does not, however, consolidate the accounts of PEI in its financial statements. The following selected historical financial data of PEI should be read in conjunction with the PEI Form 10-K separately filed with the Securities and Exchange Commission. 9
FOUR MONTHS ENDED YEAR ENDED DECEMBER 31 DECEMBER 31 YEAR ENDED AUGUST 31 --------------------------------------- ------------------ ------------------- 2000 1999 1998 1997 1997 1996 1997 1996 -------- -------- -------- -------- -------- -------- -------- -------- SELECTED INCOME STATEMENT DATA Rental revenues $ 70,771 $ 66,667 $ 62,485 $ 56,067 $ 18,170 $ 18,941 $ 56,838 $ 56,221 Operating income 41,847 35,143 31,393 23,289 9,045 8,178 22,422 5,829 Income from continuing operations 34,292 32,671 29,429 29,003 17,508 7,590 19,085 8,340 Discontinued operations -- -- -- (1,625) -- (3,235) (4,860) (8,250) Net income 34,292 32,671 29,429 27,378 17,508 4,355 14,225 90 Net income (loss) per share from continuing operations - basic .07 (.05) .97 1.23 .74 .33 .82 .36 Cash dividends per share 1.40 1.40 1.40 1.25 .35 .30 1.20 --
AS OF DECEMBER 31 AS OF AUGUST 31 --------------------------------------- ------------------ 2000 1999 1998 1997 1997 1996 -------- -------- -------- -------- -------- -------- SELECTED BALANCE SHEET DATA Real estate assets, net $545,800 $550,869 $418,507 $353,056 $337,139 $337,098 Total assets 662,405 562,558 457,352 408,478 403,757 540,325 Stockholders' equity 463,109 461,260 344,811 406,624 396,476 532,899
Net income applicable to common stockholders from November 12, 1999 (the date of the Company's acquisition of the PEI common stock) to December 31, 1999 was $4.7 million of which the Company's equity interest was $163,000 after the accrual of preferred dividends. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NATURE OF BUSINESS The Company acquires, sells, develops, manages, invests, finances and operates real property and related businesses. The following discussion should be read in conjunction with the financial statements and the notes thereto. RESULTS OF OPERATIONS (COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31, 1999) OPERATING INCOME totaled $7.8 million in the year ended December 31, 2000 compared to $11.4 million in the year ended December 31, 1999, a decrease of $3.6 million. In 1999, Millennia, a subsidiary of the Company, owned car wash properties that generated $4.3 million of operating income, which were sold in March 1999. Also, there was $0.5 million of non-recurring income in 1999 related to some land sales. This decrease was offset by the Grand Hotel, not opened until 1998, which generated $1.1 million of additional operating income in 2000 when compared to 1999 and the Company's project in Daniel's Head, Bermuda, which contributed $0.2 million. PARTNERSHIP INCOME AND OTHER REVENUES were approximately $2.6 million in the year ended December 31, 2000 compared to $1.0 million in the year ended December 31, 1999. In 2000, the Company recognized $1.0 million from a joint venture that owns land in Orlando, Florida. The gain was primarily related to 235 acres of land sold in September 2000. The Company also recognized $0.8 million in income from its equity investment in PEI. Additionally, the Company recognized $0.3 million related to a forfeited deposit on a property sale and $0.5 million from its investments in joint ventures. In 1999 the income primarily related to the Company's investments in joint ventures. INTEREST INCOME was $4.2 million in the year ended December 31, 2000 compared to $3.9 million in the year ended December 31, 1999, which was primarily related to higher average note receivable balances in 2000. 10 RENTAL INCOME was $3.8 million during the year ended December 31, 2000 compared to $9.5 million in the year ended December 31, 1999, a decrease of $5.7 million. The sale of twelve properties accounted for a decrease of $7.2 million and a property held for sale in Palm Springs, CA had a decrease in revenues of $0.5 million. Offsetting this decrease was the Company's project in Newport, KY which accounted for $1.1 million in 2000 related to a land lease that did not generate any revenues in 1999 and an office building located in San Diego that the Company master leases from PEI which generated $0.8 million in revenues in 2000 and did not generate revenues in 1999. INTEREST EXPENSE was $10.9 million in the year ended December 31, 2000 compared to $8.0 million in the year ended December 31, 1999, an increase of $2.9 million. Debt assumed in conjunction with the acquisition of PEI in November 1999 accounted for $4.8 million of interest expense in the year ended December 31, 2000. An increase of $2.1 million relates to additional amounts borrowed on the Company's credit facilities and short-term notes, primarily to fund its development projects. A decrease of $3.3 million relates to mortgage debt on properties that were sold in 1999 and 2000. OTHER OPERATING EXPENSES were $6.3 million in the year ended December 31, 2000 compared to $6.3 million in the year ended December 31, 1999. In 1999, Millennia contributed $1.8 million of expenses. The offsetting net increase of $1.8 million primarily related to the Grand Hotel and operational costs of the Company's project in Bermuda. PROPERTY OPERATING EXPENSES were $2.8 million in the year ended December 31, 2000 compared to $1.8 million in the year ended December 31, 1999, an increase of $1.0 million. The increase relates primarily to an office building located in San Diego that the Company master leases from PEI, which generated expenses of $1.1 million. GENERAL AND ADMINISTRATIVE EXPENSES were $2.8 million in the year ended December 31, 2000 compared to $6.1 million in the year ended December 31, 1999. The primary reason for the decrease was a result of expenses incurred by Millennia in 1999. The remaining decrease relates to reimbursements received from PEI which were greater than the increase in general and administrative expenses resulting from the acquisition of PEI's common stock in 1999. DEPRECIATION AND AMORTIZATION EXPENSE totaled $1.6 million in the year ended December 31, 2000 compared to $3.2 million in the year ended December 31, 1999. The decrease of $1.6 million primarily relates to properties sold. THE NET GAIN FROM REAL ESTATE SALES AND WRITE-OFF OF REAL ESTATE RELATED COSTS was $8.7 million in the year ended December 31, 2000 compared to a net loss of $1.8 million in the year ended December 31, 1999. This gain in 2000 related to the Galleria in Scottsdale, AZ, two properties sold to PEI and land sold. An additional building was sold to PEI in 2000 for which there was no gain recorded as the Company is leasing back the building. In 1999, the Company recognized a gain of $5.1 million from real estate sales, which was offset by a write-off of $6.9 million of costs related to development projects in Scottsdale, Arizona and Indianapolis, Indiana. PROVISION FOR INCOME TAXES was $1.6 million in the year ended December 31, 2000 compared to a benefit of $0.5 million in the year ended December 31, 1999 related to income before taxes of $2.9 million and a loss of $1.3 million, respectively. The Company calculates EARNINGS BEFORE DEPRECIATION, AMORTIZATION AND DEFERRED TAXES ("EBDADT") as net income, plus depreciation and amortization on real estate and real estate related assets, and deferred income taxes. EBDADT does not represent cash flows from operations as defined by accounting principles generally accepted in the United States of America, and may not be comparable to other similarly titled measures of other companies. The Company believes, however, that to facilitate a clear understanding of its operating results, EBDADT should be examined in conjunction with its net income as reductions for certain items are not 11 meaningful in evaluating income-producing real estate. The following information is included to show the items included in the Company's EBDADT for the periods ended December 31, 2000 and 1999:
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ Net income $ 1,216 $ (777) Depreciation and amortization (financial statements) 1,562 3,220 Proportionate share of depreciation and amortization from equity investments: PEI 8,726 992 Other 696 121 Less depreciation of non-real estate assets (211) (83) Deferred tax expense 1,184 201 ------------ ------------ EBDADT $ 13,173 $ 3,674 ============ ============
RESULTS OF OPERATIONS (COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE TWELVE MONTHS ENDED DECEMBER 31, 1998) Effective December 11, 1998, the Board of Directors of the Company adopted a fiscal year-end of December 31, beginning with a short fiscal year ending on December 31, 1998. The Company's previous fiscal year-end was July 31. As such, the financial statements present the periods from inception (November 17, 1997) to July 31, 1998, the five months ended December 31, 1998, and the year ended December 31, 1999. For comparison purposes, the discussion below compares the year ended December 31, 1999 to the twelve months ended December 31, 1998. There were no significant operations from inception to December 31, 1997. The following discussion should be read in conjunction with the financial statements and the notes thereto. OPERATING INCOME totaled $11.4 million in the year ended December 31, 1999 compared to $9.4 million in the twelve months ended December 31, 1998. Of the increase of $2.0 million, there was an increase of $4.2 million related to operations from the Grand Hotel which was not opened until the second half of 1998. This increase was offset by a decrease of $3.5 million related to operations from Millennia. Millennia only had three months of operational results in 1999 as effective April 1, 1999, the operations were assigned to a third party in connection with the sale of Millennia assets. Of the remaining $1.3 million increase, $0.5 million was related to income from a ground lease and parking lot related to a venture in Newport, Kentucky which did not have any income in 1998, $0.5 million related to reversing accrued estimated costs related to a land sale and $0.3 million related to increased revenues from TenantFirst Real Estate Services and other various income sources. PARTNERSHIP INCOME AND OTHER REVENUES totaled $1.0 million for the year ended December 31, 1999 and $0.3 million in the twelve months ended December 31, 1998. This income is primarily related to the Company's interest in a Nova Scotia limited liability company which owns an office building in Canada. INTEREST INCOME was $3.9 million in the year ended December 31, 1999 compared to $3.7 million in the twelve months ended December 31, 1998. The increase of $0.2 million is primarily related to notes receivable which were not outstanding in 1998 until the spin-off on March 31, 1998. RENTAL INCOME was $9.5 million during the year ended December 31, 1999 compared to $9.9 million in the twelve months ended December 31, 1998. A property in Westminster, CO leased to AMC was contributed to a partnership for a 50% interest effective July 1, 1999. Earnings from this property since this contribution are now recorded as partnership income. This accounted for a decrease of $0.7 million in rental revenue. This decrease was offset by increases of $0.3 million in the Company's remaining properties. Although the Company sold nine income producing properties in the second half of 1999, the decrease in revenues related 12 to these sales was offset by 1998 operations which only had rental revenue after March 31, 1998, the date certain assets were spun-off from Excel Realty Trust, Inc. ("Excel"). INTEREST EXPENSE was $8.0 million in the year ended December 31, 1999 and primarily related to the $137.8 million of mortgages and notes payable outstanding at December 31, 1999 and $41.2 million of mortgage debt that was repaid in 1999 related to the sale of properties. In 1998, interest expense was $4.2 million. The increase in interest expense in 1999 compared to 1998 primarily relates to an increase in the average balance outstanding during the period which was influenced in part by additional debt related to the acquisition of PEI, and 1998 debt which was only outstanding from April 1, 1998. DEPRECIATION AND AMORTIZATION EXPENSE totaled $3.2 million in the year ended December 31, 1999 compared to $3.0 million in the twelve months ended December 31, 1998. The increase of $0.2 million primarily relates to depreciation of the Company's assets which the Company did not own until April 1, 1998. This was offset in part by the assets sold in 1999. PROPERTY OPERATING EXPENSES were $1.8 million in the year ended December 31, 1999 compared to $2.6 million in the twelve months ended December 31, 1998. The decrease of $0.8 million relates to certain expenses that were capitalized in 1999 on properties in Scottsdale, Arizona and Palm Springs, California that the Company intends to demolish and redevelop. In 1998, while these were operating properties, these costs were expensed. These decreases were offset in part by expenses in 1998 on properties owned by the Company after March 31, 1998. OTHER OPERATING EXPENSES were $6.3 million in the year ended December 31, 1999 compared to $5.8 million in the twelve months ended December 31, 1998. In 1999, expenses of $4.5 million related to the Grand Hotel compared to $1.0 million in 1998 as the property was under development until the second half of the year. Millennia had expenses of $1.8 million in the year ended December 31, 1999 compared to $4.8 million in the twelve months ended December 31, 1998. GENERAL AND ADMINISTRATIVE EXPENSES were $6.1 million in the year ended December 31, 1999 compared to $3.5 million in the twelve months ended December 31, 1998. The increase relates to an increase in personnel in 1999 when compared to 1998, $0.5 million of bonuses paid upon consummation of the PEI acquisition, and due to the Company not having any significant expenses until April 1, 1998. In 1999, the Company sold ten properties for a NET GAIN FROM REAL ESTATE SALES of $5.1 million. Also in 1999, the Company recorded a $6.0 million impairment charge for an investment (IMPAIRMENT IN INVESTMENT) in a minority interest in a partnership which owns a development project in Indianapolis, Indiana which has been delayed due to a lack of funding. Finally, the Company wrote-off $0.9 million in costs related to a redevelopment project in Scottsdale, Arizona. PROVISION FOR INCOME TAXES was a $0.5 million benefit in the year ended December 31, 1999 generated by the net loss before income taxes of $1.3 million. In the twelve months ended December 31, 1998, a $1.7 million expense was recorded due to the net income before income taxes of $4.1 million. The following information is included to show the items included in the Company's EBDADT for the year ended December 31, 1999 and the twelve months ended December 31, 1998: 13
YEAR ENDED DECEMBER 31, --------------------------- 1999 1998 ------------ ------------ Net income $ (777) $ 2,456 Depreciation and amortization (financial statements) 3,220 2,975 Proportionate share of depreciation and amortization from equity investments: PEI 992 - Other 121 - Less depreciation of non-real estate assets (83) (50) Deferred tax expense 201 325 ------------ ------------ EBDADT $ 3,674 $ 5,706 ============ ============
LIQUIDITY AND CAPITAL RESOURCES Cash flows from asset sales and borrowings from debt were the primary source of capital to fund the Company's development and ongoing operations in the year ended December 31, 2000. In addition, PEI reimburses the Company for certain general and administrative expenses. In November 1999, the Company completed an exchange offer for the common stock of PEI. In the exchange offer, the Company acquired approximately 91.3% of the PEI common stock. PEI stockholders who tendered their shares of the PEI common stock in the exchange offer received from the Company a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the Company's 9.0% Convertible Redeemable Subordinated Secured Debentures ("Debentures") due 2004 and $1.50 in principal amount of the Company's 10.0% Senior Redeemable Secured Notes ("Senior Notes") due 2004 for each share of PEI common stock. After expenses, the Company paid approximately $61.0 million in cash and issued approximately $33.2 million in principal amount of the Debentures and approximately $18.1 million in principal amount of the Senior Notes to acquire the PEI common stock in the exchange offer. Of the cash, $27.4 million was borrowed from The Sol and Helen Price Trust. In 2000 , the Company converted $18.1 million of this note payable into 5.1 million shares of common stock. In accordance with the stockholders agreement entered into in connection with the exchange offer, until a certain amount of PEI preferred stock is repurchased or tendered for, $7.5 million of cash flow, as defined, is required to be reinvested in PEI before dividends can be paid to Legacy's common shareholders. As such, cash available to service the Company's debt incurred to complete the PEI exchange offer is subject to this restriction. The Company does, however, directly benefit from savings in general and administrative expenses from managing the combined companies, and would receive its portion of PEI common stock dividends for cash flows in excess of the $7.5 million. In 2000, PEI cash flows were influenced by four properties sold where replacement properties were not immediately identified and acquired. As such, cash flows, as defined by the stockholders' agreement, did not exceed $7.5 million. The Company anticipates that cash flow will be generated from existing properties and from opportunistic trading of assets. The ability to continue to fund its development projects is dependent on the Company's selling of assets, the procurement of equity or joint venture capital, or the ability to raise additional debt. The Company currently has a $40.0 million revolving line of credit due in 2002 with PEI of which $25.4 million was outstanding at December 31, 2000 and a $15.0 million revolving credit facility with Fleet National Bank due in June 2001, of which $11.4 million was outstanding at December 31, 2000. In 2001 the Company has $15.0 million of principal debt due and expects to repay the short-term debt from asset sales or debt refinancing. In addition to using proceeds from asset sales to repay debt and fund development projects, the Company has on file a $300.0 million shelf registration statement for the purpose of issuing debt securities, preferred stock, 14 depositary shares, common stock, warrants or rights. Currently, there remains $286.5 million of securities available for issuance under this shelf. The Company expects to meet its long-term liquidity requirements, such as property acquisitions and development, mortgage debt maturities, and other investment opportunities, through the most advantageous sources of capital available to the Company at the time, which may include operating cash flows from existing properties and the completion of current development projects, the sale of common stock, preferred stock or debt securities through public offerings or private placements, entering into joint venture arrangements with financial partners, the incurrence of indebtedness through secured or unsecured borrowings and the reinvestment of proceeds from the disposition of assets. In October 1999, the Company completed the sale of Millennia's assets to American Wash Services, Inc. ("AWS"), in exchange for 3,500,000 shares of common stock of the parent of AWS, Mace Security International, Inc. ("Mace"), a warrant to acquire an additional 62,500 shares of Mace common stock at an exercise price of $4.00 per share, and the assumption by AWS of certain liabilities of Millennia. In conjunction with this transaction, Millennia had assigned the operations of its assets to AWS effective April 1, 1999, and thus did not receive cash flow from operations after April 1, 1999. In addition, Millennia acquired 250,000 common shares of Mace through a private placement at $2.00 per share and 250,000 common shares of US Plastic Lumber Corporation ("USPL") at $4.00 per share. The Mace and USPL common shares are subject to certain restrictions and not currently available for sale. In 1999, the City of Newport issued two series of public improvement bonds related to the Newport development project. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing 2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. As of December 31, 2000 Newport had drawn on $32.9 million of the bonds for construction incurred prior to that date. The Company also has a 50% interest in a limited liability company that owns land in Orlando, Florida. The land has a remaining land basis at December 31, 2000 of $18.5 million and has mortgage debt of $8.9 million secured by the land and guaranteed by the Company. The Company had $47.9 million of additional guaranteed debt related to several development projects at December 31, 2000. In December 2000, the Company converted 21,281,000 shares of Series B Preferred Stock (the "Preferred B Shares") to 21,281,000 shares of common stock. The Preferred B Shares were convertible into common stock of the Company on a one-for-one basis. In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights in 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of this debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased. The Company also purchased shares from unaffiliated sellers at $2.50 per share and higher pursuant to a previously announced share repurchase program. CERTAIN CAUTIONARY STATEMENTS Certain statements in this Form 10-K contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, but rather reflect current expectations concerning future results and 15 events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will" and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond the Company's control that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. These factors include, but are not limited to, the Company's development activities, leverage including short term obligations, reliance on major tenants, competition, dependence on regional economic conditions, fluctuations in operating results, integration of acquired businesses, costs of regulatory compliance, dependence on senior management, and possible stock price volatility. Such risks, uncertainties and other factors include, but are not limited to, the following risks: THE COMPANY'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE ITS BUSINESS - The Company was incorporated in November 1997 and became an independent business in March 1998 after Excel completed a spin-off of its business. Accordingly, the Company has a limited operating history on which to base an evaluation of its business and prospects. You must consider the Company's prospects in light of the risks and uncertainties encountered by companies in the early stages of development, particularly companies in the real estate industry. THE COMPANY'S (INCLUDING PEI'S) TENANTS MAY FACE FINANCIAL DIFFICULTIES AND BE UNABLE TO PAY RENT WHICH MAY, IN TURN, CAUSE FINANCIAL DIFFICULTIES - The Company's financial position may be materially harmed if any of its or PEI's major tenants, including The Sports Authority, or any other significant tenant experiences financial difficulties, such as a bankruptcy, insolvency or general downturn in the business of the tenant. In addition, any failure or delay by any of the Company or PEI's tenants to make rent payments could impair its financial condition and materially harm the Company's business. Although failure on the part of a tenant to materially comply with the terms of a lease, including failure to pay rent, would give the Company the right to terminate the lease, repossess the property and enforce the payment obligations under the lease, the Company would then be required to find another tenant to lease the property. The Company may not be able to enforce the payment obligations against the defaulting tenant, find another tenant or, if another tenant were found, that the Company would be able to enter into a new lease on favorable terms. THE COMPANY MAY FACE SIGNIFICANT COMPETITION FROM DEVELOPERS, OWNERS AND OPERATORS OF REAL ESTATE PROPERTIES WHICH MAY INHIBIT THE SUCCESS OF ITS BUSINESS - The Company competes in the acquisition of real estate properties with over 200 publicly-traded REITs as well as other public and private real estate investment entities, including financial institutions such as mortgage banks and pension funds, and other institutional investors, as well as individuals. Competition from these entities may impair the Company's financial condition and materially harm its business by reducing the number of suitable investment opportunities offered to the Company and increasing the bargaining power of prospective sellers of property, which often increases the price necessary to purchase a property. Many of the Company's competitors in the real estate sector are significantly larger than the Company and may have greater financial resources and more experienced managers than the Company. In addition, a large portion of the Company's and PEI's developed properties are located in areas where competitors maintain similar properties. The Company will need to compete for tenants based on rental rates, attractiveness and location of properties, as well as quality of maintenance and management services. Competition from these and other properties may impair the Company's financial condition and materially harm its business by: o interfering with the Company's ability to attract and retain tenants, o increasing vacancies, which lowers market rental rates and limits the Company's ability to negotiate favorable rental rates, and o impairing the Company's ability to minimize operating expenses. THE COMPANY'S FINANCIAL PERFORMANCE DEPENDS ON REGIONAL ECONOMIC CONDITIONS SINCE MANY OF ITS PROPERTIES AND INVESTMENTS ARE LOCATED IN ARIZONA AND CALIFORNIA - Of the Company's properties and real estate related investments, five are located in two states: three in Arizona and two in California. Additionally, 16 of PEI properties are located in California and two in Arizona. Concentrating a significant number of properties and real 16 estate related investments in these states may expose the Company to greater economic risks than if the properties and real estate related investments were located in several geographic regions. The Company's revenue from, and the value of, the properties and investments located in these states may be affected by a number of factors, including local real estate conditions, such as an oversupply of or reduced demand for real estate properties, and the local economic climate. High unemployment, business downsizing, industry slowdowns, changing demographics, and other factors may adversely impact any of these local economic climates. A general downturn in the economy or real estate conditions in Arizona or California could impair the Company's financial condition and materially harm its business. Further, due to the relatively high cost of real estate in the southwestern United States, the real estate market in that region may be more sensitive to fluctuations in interest rates and general economic conditions than other regions of the United States. The Company does not have any limitations or targets for the concentration of the geographic location of its properties and, accordingly, the risks associated with this geographic concentration will increase if the Company continues to acquire properties in Arizona and California. THE COMPANY'S SUBSTANTIAL LEVERAGE MAY BE DIFFICULT TO SERVICE AND COULD ADVERSELY AFFECT ITS BUSINESS - As of December 31, 2000, the Company had outstanding borrowings of approximately $36.8 million under its credit facilities, with total borrowing capacity of $55.0 million, and additional mortgage and note debt of approximately $75.6 million. This debt of $112.4 million represented approximately 35% of the Company's total assets at December 31, 2000. The Company is and will continue to be exposed to the risks normally associated with debt financing which may materially harm its business, including the following: o the Company's cash flow may be insufficient to meet required payments of principal and interest and payments of principal and interest on borrowings may leave the Company with insufficient cash resources to pay operating expenses. o the Company may not be able to refinance debt at maturity, and o if refinanced, the terms of refinancing may not be as favorable as the original terms of the debt. THE COMPANY HAS INCURRED ADDITIONAL DEBT TO FACILITATE THE EXCHANGE OFFER COLLATERALIZED BY THE PEI COMMON STOCK AND A DEFAULT ON THAT DEBT COULD RESULT IN THE COMPANY'S LOSS OF PEI - To facilitate the exchange offer, The Sol and Helen Price Trust made a five-year loan to the Company in the principal amount of $27.4 million. The Company used the proceeds of the loan to satisfy a portion of its monetary obligations under the exchange offer. In 2000 , the Company converted $18.1 million of this note payable into 5.1 million shares of common stock. The Company's Senior Notes and Convertible Debentures are secured by certain of the Company's shares of PEI common stock. To the extent the Company is unable to meet its obligations under the terms of the Senior Notes and Convertible Debentures, the debt holders will have the right to take ownership of this PEI common stock. THE COMPANY MAY NOT REALIZE THE EXPECTED BENEFITS FROM THE EXCHANGE OFFER MAKING ITS FUTURE FINANCIAL PERFORMANCE UNCERTAIN - The Company entered into the exchange offer with the expectation that the transaction would result in a number of benefits, including cost savings, operating efficiencies, revenue enhancements, tax advantages and other synergies. If these benefits and synergies are not realized, the Company's financial performance and the performance of PEI could be adversely impacted. THE COMPANY FACES RISKS ASSOCIATED WITH ITS EQUITY INVESTMENTS IN AND WITH THIRD PARTIES BECAUSE OF ITS LACK OF CONTROL OVER THE UNDERLYING REAL ESTATE ASSETS - As part of the Company's growth strategy, it may invest in shares of REITs or other entities that invest in real estate assets. In these cases, the Company will be relying on the assets, investments and management of the REIT or other entity in which it is investing. These entities and their properties will be exposed to the risks normally associated with the ownership and operation of real estate. The Company also may invest in or with other parties through partnerships and joint ventures. In these cases the Company will not be the only entity making decisions relating to the property, partnership, joint venture or other entity. Risks associated with investments in partnerships, joint ventures or other entities include: 17 o the possibility that the Company's partners might experience serious financial difficulties or fail to fund their share of required investment contributions, o the partners might have economic or other business interests or goals which are inconsistent with the Company's business interests or goals, and o the partners may take action contrary to the Company's instructions or requests and adverse to its policies and objectives. Any substantial loss or action of this nature could potentially harm the Company's business. In addition, the Company may in some circumstances be liable for the actions of its third-party partners or co-venturers. RISING INTEREST RATES MAY ADVERSELY AFFECT THE COMPANY'S CASH FLOW - As of December 31, 2000, the Company owed approximately $112.4 million under its credit facility, mortgage debt, and other notes of which $43.6 million bore interest at variable rates. Variable rate debt creates higher debt payments if market interest rates increase. The Company may incur additional debt in the future that also bears interest at variable rates. Higher debt payments as a result of an increase in interest rates could adversely affect the Company's cash flow, cause it to default under some debt obligations or agreements, and materially harm its business. BECAUSE THE COMPANY DOES NOT HAVE A POLICY PLACING A LIMIT ON THE AMOUNT OF DEBT THAT IT MAY INCUR, THE COMPANY'S FUTURE BORROWINGS COULD BE SIGNIFICANT AND MAY ADVERSELY AFFECT ITS CASH FLOW AND RESULTS OF OPERATIONS - The Company does not have a policy limiting the amount of debt that it may incur. Accordingly, the Company's management and board of directors have discretion to increase the amount of the Company's outstanding debt at any time. The Company could incur higher levels of debt, resulting in an increase in its total debt payments, which could adversely affect its cash flow and materially harm its business. In addition, if the Company increases the amount of its debt it may increase the risk of the Company's default on all of its debt, including the Company's Debentures and Senior Notes. THE COMPANY COULD INCUR SIGNIFICANT COSTS AND EXPENSES RELATED TO ENVIRONMENTAL PROBLEMS - Various federal, state and local laws and regulations require property owners or operators to pay for the costs of removal or remediation of hazardous or toxic substances located on a property. Although the Company is not aware of any necessary environmental remediation or other environmental liability on its portfolio of properties, these laws often impose liability without regard to whether the owner or operator of the property was responsible for or even knew of the presence of the hazardous substances. The presence of or failure to properly remediate hazardous or toxic substances may impair the Company's ability to rent, sell or borrow against a property. These laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of these hazardous substances at the disposal or treatment facility. Further, these laws often impose liability regardless of whether the entity arranging for the disposal ever owned or operated the disposal facility. Other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing materials into the air. As an owner and operator of property and as a potential arranger for hazardous substance disposal, the Company may be liable under the laws and regulations for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses. Payment of these costs and expenses could impair the Company's financial condition and materially harm its business. THE COMPANY COULD FACE SIGNIFICANT COSTS OF COMPLIANCE IF IT IS CONSIDERED AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT - The Company is not currently registered as an investment company under the Investment Company Act of 1940, because its management believes that the Company either is not within the definition of investment company under the Investment Company Act or, alternatively, excluded from regulation under the Investment Company Act by an exemption. If the Company is deemed to be an investment company under the Investment Company Act and fails to qualify for an exemption, it would be unable to conduct its business as currently conducted, which could materially harm its business. In the future, the Company intends to conduct its operations in order to avoid registration under the Investment Company 18 Act. Therefore, the assets that the Company may acquire or sell may be limited by the regulations of the Investment Company Act. THE COSTS OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT COULD ADVERSELY AFFECT THE COMPANY'S business - Under the Americans with Disabilities Act of 1990, all public accommodations and commercial facilities must meet federal requirements relating to access and use by disabled persons. Compliance with the Americans with Disabilities Act requirements could involve removal of structural barriers from disabled persons' entrances on the Company's (and PEI's) properties. Other federal, state and local laws may require modifications to or restrict further renovations of the Company's properties to provide for these accesses. Although the Company believes that its properties are substantially in compliance with present requirements, noncompliance with the Americans with Disabilities Act or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against the Company. If the Company incurs these costs and expenses, its financial condition could be impaired. CERTAIN ANTI-TAKEOVER PROVISIONS COULD PREVENT AN ACQUISITION OF THE COMPANY'S BUSINESS AT A PREMIUM PRICE - Some of the provisions of the Company's certificate of incorporation and bylaws could discourage, delay or prevent an acquisition of its business at a premium price and could make removal of its management more difficult. These provisions could reduce the opportunities for the Company's stockholders to participate in tender offers, including tender offers that are priced above the then current market price of its common stock. The Company's certificate of incorporation permits its board of directors to issue shares of preferred stock in one or more series without stockholder approval. The preferred stock may be issued quickly with terms that delay or prevent a change in control of the Company's business. In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between the Company and any holder of 15% or more of its common stock. PROTECTIONS FOR PEI'S PREFERRED STOCKHOLDERS LIMIT PEI'S COMMON STOCKHOLDERS' ABILITY TO CONTROL PEI AND RECEIVE DIVIDENDS - The Company has agreed to protections for the holders of the PEI preferred stock which limit the control over PEI by its common stockholders and the dividends payable to PEI's common stockholders. The holders of the PEI preferred stock are entitled to elect a majority of PEI's board of directors and to have one designee on the Company's board of directors, until: o less than 2,000,000 shares of the PEI preferred stock remain outstanding, o the Company makes an offer to purchase any and all outstanding shares of the PEI preferred stock at a cash price of $16.00 per share, and purchase all shares duly tendered and not withdrawn, o the directors of PEI (1) issue any equity securities without unanimous approval of PEI's board or (2) fail to pay dividends on the PEI common stock in an amount equal to 100% of PEI's taxable income or the amount necessary to maintain PEI's status as a REIT, or in an amount equal to the excess, if any, of PEI's funds from operations, less preferred stock dividends, over $7.5 million, or o the Board of Directors of PEI, by unanimous vote, terminates the right of the holders of the PEI preferred stock to elect a majority of the Directors. The third point above is intended to protect the interests of the holders of the PEI preferred stock by creating an annual reserve of $7.5 million at the PEI level which will not be distributed to the Company or any other holder of PEI common stock. This reserve will limit the Company's ability and the ability of all other PEI common stockholders to receive cash distributions from PEI for so long as the PEI preferred stock is outstanding. The Company has agreed with PEI that the $7.5 million reserve may be used for the improvement and/or acquisition of properties, the repurchase of the PEI preferred stock or the reduction of PEI's debt. DIRECTORS AND EXECUTIVE OFFICERS OWN A LARGE PERCENTAGE OF THE COMPANY'S VOTING STOCK AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER APPROVAL - As of December 31, 2000, the Company's 19 executive officers and directors and their affiliates beneficially owned approximately 12% of its outstanding common stock. As a result, these stockholders will continue to significantly influence the Company's management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger, consolidation or sale of substantially all of its assets. In addition, this significant ownership could discourage acquisition of the common stock by some potential investors and could have an anti-takeover effect. THE BOARD OF DIRECTORS MAY MAKE CHANGES TO THE COMPANY'S POLICIES WITHOUT STOCKHOLDER APPROVAL - The investment, financing, borrowing and distribution policies of the Company and its policies with respect to all other activities, growth, debt, capitalization, and operations, are determined by the Company's Board of Directors. Although it has no present intention to do so, the Board of Directors may amend or revise these policies at any time and from time to time at its discretion without a vote of the stockholders of the Company. A change in these policies could adversely affect the Company's financial condition and results of operations. THE LOSS OF KEY PERSONNEL COULD HARM THE COMPANY'S BUSINESS - Given the early stage of development of the Company's business, it depends to a large extent on the performance of its senior management team and other key employees for strategic business direction and real estate experience. If the Company lost the service of any members of its senior management or other key employees, it could materially harm its business. The Company has not obtained key-man life insurance for any of its senior management or other key employees. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's primary market risk exposure affecting its market risk sensitive financial instruments is interest rate risk. The Company's balance sheet contains financial instruments in the form of interest-earning notes receivable and interest-bearing mortgages payable. The Company manages the risk to its cash flow from changes in interest rates by monitoring its variable rate financial instruments. Although the fair value of its financial instruments may be affected by changes in interest rates, the Company typically does not dispose of them prior to maturity. Thus, the primary effect of changes in interest rates would occur to the extent that financial instruments mature and are replaced with others at different interest rates. In addition, the Company owns 3,750,000 common shares of Mace Security Intenational, Inc. ("MACE") and 250,000 common shares of U.S. Plastic Lumber Corp. ("USPL") whose market value is dependent on the trading prices of the respective security. The Company's investment in MACE common shares has a book value of $22.4 million and a fair value, based upon the closing stock price at December 31, 2000 of $0.906, of $3.4 million. USPL is marked to market each respective reporting period. At December 31, 2000, the Company had debts totaling $43.6 million in variable interest rates. If interest rates increased 100 basis points, the annual effect of such increase to the Company's financial position and cash flows would be approximately $0.4 million, based on the outstanding balance at December 31, 2000. The actual fluctuation of interest rates is not determinable; accordingly, actual results from interest rate fluctuation could differ. The following table presents (1) the scheduled principal payments on notes receivable, and (2) the scheduled principal repayments on mortgages payable: over the next five years and thereafter. The table also includes the average interest rates of the financial instruments during each respective year and the fair value of the notes receivable and mortgages payable. The Company determines the fair value of financial instruments through the use of discounted cash flow analysis using current interest rates for (1) notes receivable with terms and credit characteristics similar to its existing portfolio and (2) borrowings under terms similar to its existing mortgages payable. Accordingly, the Company has determined that the carrying value of its financial instruments at December 31, 2000 approximates fair value. 20
EXPECTED MATURITY DATE (DOLLAR AMOUNTS IN THOUSANDS) ---------------------------------------------------------------------------------------------- FAIR 2001 2002 2003 2004 2005 THEREAFTER TOTAL VALUE ------- -------- -------- -------- ------- ---------- ----------- -------- Notes receivable, including notes from affiliates $ 8,060 - $26,475 $ 5,935 - - $ 40,470 $ 40,400 Average interest rate 11.70% - 12.00% 12.00% - - 11.94% - Mortgages and notes payable $14,995 $31,579 - $60,645 - $5,000 $112,219 $112,200 Average interest rate 10.05% 10.02% - 9.16% - 10.07% 9.48% -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with Index to Financial Statements and Schedules, starting on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AN FINANCIAL DISCLOSURE None. PART III ITEMS 10 THROUGH 13 Incorporated by reference to the Company's Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed subsequently hereto. 21 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules: PAGE (1) Report of Independent Accountants................................................F-1 (2) Financial Statements (i) Consolidated Balance Sheets December 31, 2000 and 1999................................................F-2 (ii) Consolidated Statements of Income (Loss) Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998.......................F-3 (iii) Consolidated Statements of Changes In Stockholders' Equity Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998.......................F-4 (iv) Consolidated Statements of Cash Flows Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998.......................F-5 (v) Notes to Consolidated Financial Statements................................F-6 (3) Financial Statement Schedules (i) Schedule II; Valuation and Qualifying Accounts Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998.......................F-21 (ii) Schedule III; Real Estate and Accumulated Depreciation; December 31, 2000 ........................................................F-22 The separate financial statements of the Company's unconsolidated, significant subsidiary, PEI, are incorporated by reference to PEI's annual report filed on Form 10-K for the year ended December 31, 2000 (File No. 0-20449). (b) Reports on Form 8-K filed during the quarter ended December 31, 2000:
The Company filed no reports on Form 8-K during the quarter ended December 31, 2000. EXHIBIT INDEX - ------------- 2.1 (1) Distribution Agreement, dated as of March 31, 1998, by and among Excel Realty Trust, Inc., Excel Legacy Corporation and ERT Development Corporation. 3.1 (2) Amended and Restated Certificate of Incorporation of Excel Legacy Corporation. 3.2 (2) Amended and Restated Bylaws of Excel Legacy Corporation. 4.1 (3) Form of Common Stock Certificate. 4.2 (4) Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004, including form of Debenture and form of Pledge Agreement. 4.3 (4) Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 10.0% Senior Redeemable Secured Notes due 2004, including form of Note and form of Pledge Agreement. 10.1 (12) 1998 Stock Option Plan of Excel Legacy Corporation. 22 10.2 (1) Purchase Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and the purchasers named therein. 10.3 (1) Registration Rights Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and the purchasers named therein. 10.4 (1) Form of Indemnity Agreement between Excel Legacy Corporation and its directors and executive officers. 10.5 (5) Operating Agreement dated as of October 9, 1998 of Grand Tusayan, LLC, a Delaware limited liability company, as amended. 10.6 (5) First Amended and Restated Operating Agreement dated as of July 27, 1998 of Millennia Car Wash, LLC, a Delaware limited liability company. 10.7 (5) First Amended and Restated Operating Agreement dated as of July 29, 1998 of Newport on the Levee, LLC, a Delaware limited liability company. 10.8 (6) Real Estate and Asset Purchase Agreement, dated March 23, 1999, by and among American Wash Services, Inc., Millennia Car Wash, LLC, Excel Legacy Corporation and G II Ventures, Inc. 10.9 (6) Amendment No. 1 to Real Estate and Asset Purchase Agreement, dated March 30, 1999, by and among American Wash Services, Inc., Millennia Car Wash, LLC, Excel Legacy Corporation and G II Ventures, Inc. 10.10 (7) Agreement, dated May 12, 1999, as amended, between Excel Legacy Corporation and the other individuals and entities listed on the signature pages thereto. 10.11 (7) Agreement, dated June 2, 1999, as amended, between Excel Legacy Corporation and Price Enterprises, Inc.. 10.12 (8) Letter dated June 2, 1999 from Excel Legacy Corporation to Price Enterprises, Inc. regarding the status of Price Enterprises, Inc. as a REIT. 10.13 (4) Note Purchase Agreement, dated as of October 6, 1999, between Excel Legacy Corporation and The Sol and Helen Price Trust, including form of Secured Promissory Note and form of Pledge Agreement. 10.14 (9) Purchase and Sale Agreement and Escrow Instructions, dated as of August 2, 1999, by and between Excel Legacy Corporation and Wal Mart Real Estate Business Trust. 10.15 (10) Employment Contract, dated as of May 1, 1998, by and between Excel Legacy Corporation and Kelly D. Burt, an individual. 10.16 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Gary B. Sabin, an individual. 10.17 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Richard B. Muir, an individual. 10.18 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Graham R. Bullick, an individual. 10.19 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and S. Eric Ottesen, an individual. 10.20 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and John Visconsi, an individual. 10.21 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and James Y. Nakagawa, an individual. 10.22 (10) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Mark T. Burton, an individual. 10.23 (11) Form of Stock Purchase Agreement dated as of September 25, 2000, by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton. 10.24 (11) Form of Loan Assumption Agreement dated as of September 25, 2000 by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton. 10.25 (11) Amended and Restated Revolving Credit Agreement dated as of October 16, 2000 by and among Excel Legacy Corporation and Fleet National Bank. 23 10.26 (11) First Amended and Restated Promissory Note and Revolving Line of Credit dated September 27, 2000, by and among Excel Legacy Corporation and Price Enterprises, Inc.. 21.1 * Subsidiaries of Excel Legacy Corporation. 23.1 * Consent of PricewaterhouseCoopers LLP. 23.2 * Consent of Ernst & Young LLP. - ------------------------- * Filed herewith. (1) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on April 2, 1998. (2) Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-55715) filed with the Commission on June 1, 1998. (3) Incorporated by reference to Amendment No. 1 to the Company's Registrant Statement on Form 10 (File No. 0-23503) filed with the Commission on February 10, 1998. (4) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on November 12, 1999. (5) Incorporated by reference to the Company's Annual Report filed on Form 10-K (File No. 0-23503) filed with the Commission on October 28, 1998. (6) Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on June 16, 1999. (7) Incorporated by reference to Annexes A and B to the Offer to Exchange/Prospectus dated October 6, 1999, filed as Exhibit (a) (1) to the Company's Tender Offer Statement on Schedule 14D-1 as filed with the Commission on October 6, 1999. (8) Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-80339) filed with the Commission on June 9, 1999. (9) Incorporated by reference to the Company's Current Report on form 8-K (File No. 0-23503) filed with the Commission on September 1, 1999. (10) Incorporated by reference to the Company's Annual Report filed on Form 10-K (File No. 0-23503) filed with the Commission on March 30, 2000. (11) Incorporated by reference to the Company's Quarterly Report filed on Form 10-Q (File No. 0-23503) filed with the Commission on November 9, 2000. (12) Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 333-68597) filed with the Commission on December 9, 1998. 24 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXCEL LEGACY CORPORATION DATE: March 15, 2001 By: /s/ Gary B. Sabin --------------------- GARY B. SABIN President and Chief Executive Officer (Principal Executive Officer) DATE: March 15, 2001 By: /s/ James Y. Nakagawa --------------------- JAMES Y. NAKAGAWA Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Gary B. Sabin March 15, 2001 - -------------------------------------- --------------------------------------- GARY B. SABIN Date President and Chief Executive Officer and Chairman of the Board /s/ Richard B. Muir March 15, 2001 - -------------------------------------- --------------------------------------- RICHARD B. MUIR Date Executive Vice President and Secretary /s/ Kelly D. Burt March 15, 2001 - -------------------------------------- --------------------------------------- KELLY D. BURT Date Executive Vice President - Development /s/ Jack Mcgrory March 15, 2001 - -------------------------------------- --------------------------------------- JACK McGRORY, Director Date /s/ Richard J. Nordlund March 15, 2001 - -------------------------------------- --------------------------------------- RICHARD J. NORDLUND, Director Date /s/ Robert E. Parsons March 15, 2001 - -------------------------------------- --------------------------------------- ROBERT E. PARSONS, Director Date /s/ Robert S. Talbot March 15, 2001 - -------------------------------------- --------------------------------------- ROBERT S. TALBOT, Director Date /s/ John H. Wilmont March 15, 2001 - -------------------------------------- --------------------------------------- JOHN H. WILMONT, Director Date 25 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Excel Legacy Corporation In our opinion, the consolidated financial statements as listed in item 14(a) of this Form 10-K present fairly, in all material respects, the financial position of Excel Legacy Corporation and its subsidiaries at December 31, 2000 and 1999 and the results of their operations and their cash flows for the years ended December 31, 2000, December 31, 1999, the five months ended December 31, 1998 and the period from inception (November 17, 1997) to July 31, 1998, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in item 14(a) of this Form 10-K present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP San Diego, California February 22, 2001 F-1 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ----------
ASSETS DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ Real estate: Land $ 16,877 $ 27,099 Buildings 26,878 47,664 Construction in progress 51,835 27,380 Leasehold interest 2,351 2,351 Accumulated depreciation (1,808) (2,303) ------------ ------------ Net real estate 96,133 102,191 Cash 1,469 1,767 Accounts receivable, less allowance for bad debts of $32 and $55 in 2000 and 1999, respectively 812 739 Notes receivable 40,470 28,380 Investment in securities 135,846 136,570 Investment in partnerships 14,855 18,341 Interest receivable 12,875 8,929 Pre-development costs 9,780 16,783 Other assets 7,807 7,938 Deferred tax asset 4,537 6,515 ------------ ------------ $ 324,584 $ 328,153 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Notes payable $ 49,061 $ 70,661 Convertible debentures 33,240 33,243 Senior notes 18,067 18,067 Mortgages payable 12,021 15,835 Accounts payable and accrued liabilities 15,130 9,188 Other liabilities 1,364 151 ------------ ------------ Total liabilities 128,883 147,145 ------------ ------------ Commitments and contingencies Minority interests 1,103 969 ------------ ------------ Stockholders' equity: Series B Preferred stock, $.01 par value, 50,000,000 shares authorized, 0 and 21,281,000 shares issued and outstanding in 2000 and 1999, - 213 respectively Common stock, $.01 par value, 150,000,000 shares authorized, 61,540,849 and 36,835,921 shares issued and outstanding in 2000 and 1999, respectively 615 368 Additional paid-in capital 201,471 187,699 Accumulated other comprehensive (loss) income, net of tax (695) 922 Retained earnings 2,895 1,679 Notes receivable from affiliates for common shares (9,688) (10,842) ------------ ------------ Total stockholders' equity 194,598 180,039 ------------ ------------ $ 324,584 $ 328,153 ============ ============
The accompanying notes are an integral part of the financial statements F-2 CONSOLIDATED STATEMENTS OF INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, --------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Revenues Operating income $ 7,842 $ 11,426 $ 7,670 $ 1,732 Partnership and other income 2,564 1,006 252 - Interest income 4,246 3,937 1,573 1,996 Rental income 3,845 9,548 5,515 4,417 ------------ ------------ ------------ ------------ Total revenue 18,497 25,917 15,010 8,145 ------------ ------------ ------------ ------------ Operating expenses: Interest 10,860 7,997 2,645 1,518 Other operating expenses 6,322 6,305 4,904 879 Property operating expenses 2,856 1,816 1,646 915 General and administrative 2,785 6,098 2,641 898 Depreciation and amortization 1,562 3,220 1,918 1,057 ------------ ------------ ------------ ------------ Total operating expenses 24,385 25,436 13,754 5,267 ------------ ------------ ------------ ------------ Net operating (loss) income (5,888) 481 1,256 2,878 Net gain from real estate sales and write-off of real estate related costs 8,715 (1,765) - - ------------ ------------ ------------ ------------ Income (loss) before income taxes 2,827 (1,284) 1,256 2,878 (Provision) benefit for income taxes (1,611) 507 (535) (1,143) ------------ ------------ ------------ ------------ Net income (loss) $ 1,216 $ (777) $ 721 $ 1,735 ============ ============ ============ ============ Basic net income (loss) per common share $ 0.03 $ (0.02) $ 0.02 $ 0.11 ============ ============ ============ ============ Diluted net income (loss) per common share $ 0.02 $ (0.02) $ 0.01 $ 0.07 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements F-3 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT NUMBER OF SHARES) ----------
PREFERRED STOCK COMMON STOCK ADDITIONAL --------------------------- --------------------------- PAID-IN NUMBER AMOUNT NUMBER AMOUNT CAPITAL ------------ ------------ ------------ ------------ ------------ Balance at inception - $ - - $ - $ - Issuance of preferred stock 21,281,000 213 - - 106,192 Issuance of common stock - - 33,457,804 335 70,831 Issuance of notes receivable from officers for common shares - - - - - Issuance costs - - - - (2,515) Net income - - - - - ------------ ------------ ------------ ------------ ------------ Balance at July 31, 1998 21,281,000 213 33,457,804 335 174,508 Net income - - - - - ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1998 21,281,000 213 33,457,804 335 174,508 Issuance of common stock - - 3,378,117 33 13,479 Issuance costs - - - - (288) Repayment of loans - - - - - Comprehensive income: Net loss - - - - - Unrealized gain on marketable securities, net of tax - - - - - Total comprehensive income ------------ ------------ ------------ ------------ ------------ Balance at December 31, 1999 21,281,000 213 36,835,921 368 187,699 Conversion of notes payable to common stock - - 5,100,544 51 17,952 Conversion of preferred stock to common stock (21,281,000) (213) 21,281,000 213 - Issuance of common shares - - 35,333 - 102 Repurchase common shares (1,711,949) (17) (4,282) Repayment of notes to affiliates - - - - - Comprehensive income: Net income - - - - - Unrealized loss on marketable securities, net of tax Total comprehensive loss ------------ ------------ ------------ ------------ ------------ Balance at December 31, 2000 - $ - 61,540,849 $ 615 $ 201,471 ============ ============ ============ ============ ============ ACCUMULATED TOTAL TOTAL COMPREHENSIVE RETAINED NOTES STOCKHOLDERS' INCOME (LOSS) EARNINGS RECEIVABLE EQUITY ------------ ------------ ------------ ------------ Balance at inception $ - $ - $ - $ - Issuance of preferred stock - - - 106,405 Issuance of common stock - - - 71,166 Issuance of notes receivable from officers for common shares - - (10,872) (10,872) Issuance costs - - - (2,515) Net income - 1,735 - 1,735 ------------ ------------ ------------ ------------ Balance at July 31, 1998 - 1,735 (10,872) 165,919 Net income - 721 - 721 ------------ ------------ ------------ ------------ Balance at December 31, 1998 - 2,456 (10,872) 166,640 Issuance of common stock - - - 13,512 Issuance costs - - - (288) Repayment of loans - - 30 30 Comprehensive income: Net loss - (777) - (777) Unrealized gain on marketable securities, net of tax 922 - - 922 ------------- Total comprehensive income 145 ------------ ------------ ------------ ------------ Balance at December 31, 1999 922 1,679 (10,842) 180,039 Conversion of notes payable to common stock - - - 18,003 Conversion of preferred stock to common stock - - - - Issuance of common shares - - - 102 Repurchase common shares (4,299) Repayment of notes to affiliates - - 1,154 1,154 Comprehensive income: Net income - 1,216 - 1,216 Unrealized loss on marketable securities, net of tax (1,617) - - (1,617) ------------- Total comprehensive loss (401) ------------ ------------ ------------ ------------ Balance at December 31, 2000 $ (695) $ 2,895 $ (9,688) $ 194,598 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statements F-4 EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) -----------------
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, --------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Cash flows from operating activities: Net income (loss) $ 1,216 $ (777) $ 721 $ 1,735 Adjustments to reconcile net income to net cash provided by operations: (Gain) loss from real estate sales net of write-off of real estate related costs (8,715) 1,765 - - Depreciation and amortization 1,562 3,220 1,918 1,057 Earnings from equity investments (893) (163) - - Minority interest in income of partnerships 134 123 (7) - Change in accounts receivable and other assets (1,909) (10,212) (2,195) (6,334) Change in accounts payable and other liabilities 8,309 6,123 (4,482) (6,927) ------------ ------------ ------------ ------------ Net cash (used in) provided by operating activities (296) 79 (4,045) 3,385 ------------ ------------ ------------ ------------ Cash flows from investing activities: Proceeds from real estate sales 39,977 63,031 - - Real estate acquired and construction costs paid (32,860) (21,287) (1,489) (98,951) Pre-development costs paid (3,614) (5,755) (6,907) (6,662) Investment in partnerships 3,486 (10,828) (285) (11,138) Acquisition of Price Enterprises, Inc - (33,643) - - Notes receivable issued (12,090) (5,176) - - ------------ ------------ ------------ ------------ Net cash used in investing activities (5,101) (13,658) (8,681) (116,751) ------------ ------------ ------------ ------------ Cash flows from financing activities: Proceeds from issuance of preferred stock - - - 106,405 Proceeds from issuance of common stock - 13,512 - 11,104 Issuance costs paid - (288) - (2,515) Shares repurchased (4,197) - - - Principal payments of notes and mortgages (49,100) (38,129) (1,378) (72,504) Borrowings from issuance of notes payable 58,396 38,864 4,000 82,367 ------------ ------------ ------------ ------------ Net cash provided by financing activities 5,099 13,959 2,622 124,857 ------------ ------------ ------------ ------------ Net (decrease) increase in cash (298) 380 (10,104) 11,491 Cash at the beginning of the period 1,767 1,387 11,491 - ------------ ------------ ------------ ------------ Cash at the end of the period $ 1,469 $ 1,767 $ 1,387 $ 11,491 ============ ============ ============ ============
The accompanying notes are an integral part of the financial statement F-5 EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Excel Legacy Corporation (the "Company"), a Delaware corporation was formed on November 17, 1997. The Company was originally a wholly owned subsidiary of Excel Realty Trust, Inc. ("Excel"), a Maryland corporation now known as New Plan Excel Realty Trust, Inc. On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel (the "Spin-off"). In connection with the Spin-off, certain real properties, notes receivable and related assets and liabilities were transferred to the Company from Excel (Note 3). Upon completion of the Spin-off, the Company ceased to be a wholly owned subsidiary of Excel and began operating as an independent public real estate operating company. CHANGE IN FISCAL YEAR In 1998 the Company's Board of Directors adopted a fiscal year-end of December 31, beginning with a five month transition period ending on December 31, 1998. The Company's previous fiscal year-end was July 31. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and all affiliates in which the Company has an ownership interest greater than 50%. The Company uses the equity method of accounting to account for its investments in which its ownership interest is 50% or less, but in which it has significant influence. The Company accounts for its interest in Price Enterprises, Inc. ("PEI") (Note 2) under the equity method of accounting however, because the holders of PEI preferred stock, which does not include the Company, have the right to elect a majority of the PEI board of directors. REAL ESTATE Certain real estate assets were transferred to the Company from Excel and recorded at Excel's cost basis. Other real estate assets acquired subsequent to the Spin-off were recorded at the Company's cost. Depreciation is computed using the straight-line method over estimated useful lives of 40 years for buildings. Expenditures for maintenance and repairs are charged to expense as incurred and significant renovations are capitalized. The Company assesses its properties individually for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. Recoverability of property to be held and used is measured by comparing the carrying amount of the property to future undiscounted net cash flows expected to be generated by the property. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the property, the property is considered to be impaired. If the property is impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds the fair value of the property. F-6 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: PRE-DEVELOPMENT COSTS Pre-development costs that are directly related to specific construction projects are capitalized as incurred. The Company expenses these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued. MANAGEMENT CONTRACTS Management contracts are recorded at cost and amortized over a period of seven years. INCOME TAXES The Company provides for income taxes under the liability method. A current tax asset or liability is recognized for the estimated taxes refundable or payable for the current year. A deferred tax asset or liability is recognized for the estimated future tax effects attributable to carry forwards and to temporary differences between the tax and financial reporting basis of assets and liabilities. The measurement of current and deferred tax assets and liabilities is based on enacted tax laws and rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized. DEFERRED LEASING AND LOAN ACQUISITION COSTS Costs incurred in obtaining tenant leases and long-term financing are amortized to other property expense and interest expense, respectively, on the straight-line and effective interest 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 contingent rental revenue based upon the level of sales achieved by the lessee. Contingent rental revenue is recognized when earned. COMPREHENSIVE INCOME In 1999, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income." This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The components of comprehensive income for the Company include net income and unrealized gains on investments. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. F-7 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements at December 31, 1999 and for the periods ended December 31, 1998 and July 31, 1998, to conform with the current period's presentation. NEW PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that all derivatives be recognized as assets and liabilities and measured at fair value. The Company will be required to adopt this standard during the year ending December 31, 2001. The Company has determined that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements. 2. PRICE ENTERPRISES, INC.: In November 1999, the Company completed an exchange offer of $8.50 per share for any and all common shares of PEI which is operated as a real estate investment trust. The exchange offer consisted of per share consideration for PEI common stock of $4.25 in cash, $2.75 in principal amount of newly issued 9% Convertible Redeemable Subordinated Secured Debentures of the Company due in 2004 (convertible at any time into the Company's common stock at $5.50 per share) and $1.50 in newly issued 10% Senior Redeemable Secured Notes of the Company due in 2004. Approximately, 12.1 million shares of PEI common stock were tendered representing approximately 91% of the outstanding common stock. Below is summarized financial information as of December 31, 2000 and the year then ended for PEI (in thousands):
BALANCE SHEET DECEMBER 31, 2000 ------------ Real estate, net of accumulated depreciation $ 545,800 Other assets 116,605 ------------ Total assets $ 662,405 ============ Notes and mortgages payable $ 195,009 Accounts payable and other liabilities 4,287 ------------ 199,296 83/4% Series A Preferred stock 353,404 Other stockholders' equity 109,705 ------------ Total liabilities and stockholders' equity $ 662,405 ============
YEAR ENDED INCOME STATEMENT: DECEMBER 31, 2000 ------------ Total revenue, including interest income and gain on sale of real estate $ 73,983 Operating expenses (16,281) General and administrative (3,085) Interest expense (10,931) Depreciation and amortization (9,558) Gain on sales of real estate 164 ------------ Net income 34,292 Preferred dividends (33,360) ------------ Net income available for common shares $ 932 ============
The following unaudited pro forma information for the twelve months ended December 31, 1999 and 1998, has been presented as if Excel Legacy Corporation acquired approximately 91% of the common shares of PEI on January 1, 1999 and 1998 respectively. The unaudited pro forma information makes certain assumptions regarding capital sources and interest rates and the pro forma information is not necessarily indicative of what the actual results of operations of the Company would have been had the acquisition actually occurred on January 1, 1999 and 1998, respectively, (in thousands): F-8 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 2. PRICE ENTERPRISES, INC., CONTINUED:
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1999 1999 1998 1998 ------------ ------------ ------------ ------------ (actual) (pro forma) (actual) (pro forma) Total revenue $ 25,917 $ 27,767 $ 23,155 $ 24,326 Operating expenses, excluding interest (17,439) (17,439) (14,858) (14,858) Interest expense (7,997) (14,710) (4,163) (10,876) Net gain on real estate sales (1,765) (1,765) - - Income taxes 507 1,678 (1,678) - ------------ ------------ ------------ ------------ Net (loss) income $ (777) $ (4,469) $ 2,456 $ (1,408) ============ ============ ============ ============ Net income per share Basic $ (0.02) $ (0.13) $ 0.10 $ (0.06) ------------ ------------ ============ ============ Diluted $ (0.02) $ (0.13) $ 0.06 $ (0.06) ============ ============ ============ ============
3. SPIN-OFF: On March 31, 1998, Excel transferred certain real estate assets to the Company in exchange for 23.4 million common shares of the Company, assumption of mortgage debt by the Company, and issuance of a note payable to Excel from the Company which was subsequently repaid. The Spin-off took place through a dividend distribution to Excel's common stockholders of all the Company's common stock held by Excel. The fair value of the distribution was approximately $56.0 million or $2.39 per share. 4. MILLENNIA: The Company has an investment in a joint venture known as Millennia Car Wash, LLC ("Millennia") which owned interests in 19 car wash properties in Arizona and Texas. In October 1999, Millennia exchanged its assets in exchange for approximately 3.5 million shares of common stock and 62,500 common stock purchase warrants of Mace Security International ("MACE"). In connection with the agreement, Millennia had assigned the operations of its car wash properties to MACE effective April 1, 1999. As such, the Company has not reported operations of Millennia since that date. Millennia, however, had retained ownership of the car wash properties until October 1999. As part of the agreement, the Company acquired 250,000 common shares of MACE through a private placement at $2 per share and 250,000 common shares of US Plastic Lumber Corporation ("USPL") at $4 per share. The Company's common shares in MACE and USPL are subject to certain sale restrictions. One of the Company's senior officers is a director on the MACE board of directors. In conjunction with the sale of assets for MACE common shares, the Company recognized a $2.1 million gain on the exchange based upon the market value of the common shares on the date of the exchange, discounted for sale restrictions. In accordance with accounting principles generally accepted in the United States of America, the Company accounts for Millennia's investment in MACE under the equity method of accounting and owned approximately 15% of MACE at December 31, 2000. The Company classifies its investment in USPL as available-for-sale and recognizes changes in the fair value of its investment in USPL in other comprehensive income.
DECEMBER 31, --------------------------- INVESTMENT IN USPL (IN THOUSANDS): 2000 1999 ------------ ------------ Cost $ 1,000 $ 1,000 Unrealized (loss) gain (695) 922 ------------ ------------ Fair value $ 305 $ 1,922 ============ ============
F-9 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 5. REAL ESTATE: The Company sold the following properties in 2000:
MORTGAGE DATE SALES PRICE TRANSFERRED LOCATION SOLD (000'S) (000'S) --------------------------------------------- -------------- -------------- -------------- Middletown, OH (1) 2/00 $ 6,709 $3,726 Terre Haute, IN (1) 2/00 5,762 3,598 San Diego/Rancho Bernardo, CA (1) (2) 2/00 12,381 7,381 San Diego/4-S Ranch, CA 5/00 6,130 - Scottsdale Galleria, AZ 7/00 28,750 - Scottsdale City Center, AZ (1) 10/00 9,663 2,006 Telluride, CO 12/00 2,550 -
(1) PROPERTY SOLD TO PEI (2) PROPERTY MASTER LEASED BACK TO THE COMPANY The sales of the above properties resulted in a net gain of $9.2 million of which properties sold to PEI accounted for $1.9 million. The gain was partially offset by certain real estate held for sale, which were written down by $0.5 million to their estimated sales price. In September 2000, the Company acquired approximately 4.5 acres of land in Anaheim, CA for $7.8 million. The Company paid cash of $1.5 million and assumed $6.3 million of debt. In 1999, in addition to the Millennia transaction (Note 4), the Company sold a property located in Highlands Ranch, Colorado for approximately $25.4 million, eight properties in various locations leased to Wal-Mart for approximately $34.9 million, and a land parcel in Rancho Bernardo, California for approximately $2.9 million. The combined book value of these assets was $66.3 million. Mortgage debt of $41.2 million was retired in conjunction with the sales. The sales resulted in a net book gain of $3.1 million. The Company also contributed a property located in Westminster, Colorado to a partnership for a 50% interest. The property had book value of approximately $24.9 million and mortgage debt of $18.5 million and is part of a development project. In 1999, the Company incurred a charge of $6.0 million related to an impairment in a minority investment in a development project in Indianapolis, Indiana which has been delayed due to a lack of funding. Additionally, the Company wrote-off $0.9 million in non-recurring costs related to a development project in Scottsdale, Arizona. In the five months ended December 31, 1998, Millennia acquired nine car wash properties for approximately $15.2 million. The acquisition was made through the assumption of various notes payable. 6. NOTES RECEIVABLE: The Company had $40.5 million in notes receivable outstanding at December 31, 2000 related to various development projects. The notes bear interest at 10% to 12% per annum and are secured by the related projects. The notes mature on various dates between 2001 and the earlier of the sale of the related projects, or 2003 to 2004. F-10 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 7. NOTES AND MORTGAGES PAYABLE: NOTES PAYABLE The Company had the following notes payable outstanding at December 31, 2000 and December 31, 1999 (amounts in thousands):
DECEMBER 31, -------------------------- 2000 1999 ------------ ------------ Revolving $15.0 million credit facility bearing interest at Libor plus 3.75% (10.3% at December 31, 2000) due June 30, 2001. The facility is secured by some of the Company's PEI common shares. $ 11,481 $ - Revolving $40.0 million unsecured line of credit facility with PEI bearing interest at Libor plus 3.75% (10.3% at December 31, 2000) to 12.50% due December 2002. 25,377 - Note payable to The Sol and Helen Price Trust bearing interest at Libor plus 1.50% (8.1% at December 31, 2000) due November 2004. The note is secured by some of the Company's PEI common shares (Note 9). 9,347 27,347 Note payable to an individual bearing interest at Prime plus 2% repaid in October 2000. - 5,000 Note payable outstanding on a $4.7 million facility related to Newport on the Levee, LLC, bearing interest at Prime plus 0.5% (10% at December 31, 2000), due March 2001. 2,106 - Revolving $35.0 million secured credit facility bearing interest at Libor plus 3.75% repaid in July 2000. - 32,103 Other 750 6,211 ------------ ------------ Total $ 49,061 $ 70,661 ============ ============
The Company has a 65% interest in Newport on the Levee, LLC ("Newport") that is developing an entertainment retail project in Newport, KY. In addition to the $2.1 million note in the above table, the City of Newport has issued two series of public improvement bonds. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing 2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. Newport has drawn on $32.9 million of the bonds at December 31, 2000 for construction incurred to date. The Company has a 50% interest in a limited liability company that owns land in Orlando, Florida. The land has a total book basis of $18.5 million at December 31, 2000 and mortgage debt of $8.9 million which is guaranteed by the Company. The Company also has guaranteed a $15.0 million note payable related to a development project in Scottsdale, AZ and the Company has a note receivable with a participating interest. F-11 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 7. NOTES AND MORTGAGES PAYABLE, CONTINUED: CONVERTIBLE DEBENTURES In conjunction with the PEI exchange offer, the Company issued $33.2 million in convertible debentures ("Debentures"). The Debentures bear an interest rate of 9% per annum and are secured by a first priority security interest in common shares of PEI. The holders of the Debentures are entitled at any time before the day prior to the final maturity date, subject to prior redemption, to convert any Debentures into the Company's common stock at the conversion price of $5.50 per share. The Debentures mature in November 2004. SENIOR NOTES In conjunction with the PEI exchange offer, the Company issued $18.1 million in senior notes ("Senior Notes"). The Senior Notes bear an interest rate of 10% per annum and, along with the Debentures, are secured by a first priority security interest in common shares of PEI. The Senior Notes rank equal to future senior indebtedness of the Company and are senior to the Debentures. The Senior Notes mature in November 2004. MORTGAGES PAYABLE The Company had $12.0 million in mortgages payable outstanding at December 31, 2000 secured by real estate. The mortgage debt has an average maturity of 4.0 years expiring at various dates to 2009. The monthly payment of principal and interest approximates $80,000 bearing an average interest rate of 7.9% at December 31, 2000. MATURITIES The principal payments required to be made on mortgages and notes payable over the next five years are as follows (in thousands):
YEAR ENDED DECEMBER 31, 2001 $ 14,995 2002 31,739 2003 - 2004 60,655 2005 - Thereafter 5,000 ------------ $112,389 ============
8. INCOME TAXES: At December 31, 2000, the Company had a net deferred tax asset of $4.5 million. The deferred tax asset primarily relates to certain assets written-off for book purposes, but not yet deducted for tax purposes. The remaining portion of the deferred asset relates to timing differences in recognizing revenue and expenses for tax purposes through operations of the Company. No valuation allowance has been provided against the deferred tax asset as the Company believes future taxable income is more likely than not. The provision for income taxes consisted of the following (in thousands): F-12 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 8. INCOME TAXES, CONTINUED:
FEDERAL STATE ------------ ------------ YEAR ENDED DECEMBER 31, 2000: Current payable $ 126 $ 262 Deferred tax benefit 676 547 ------------ ------------ Provision for income taxes $ 802 $ 809 ============ ============ YEAR ENDED DECEMBER 31, 1999: Current (benefit) payable $ (743) $ 25 Deferred tax expense (benefit) 221 (10) ------------ ------------ (Benefit) provision for income taxes $ (522) $ 15 ============ ============ FIVE MONTHS ENDED DECEMBER 31, 1998: Current payable $ 312 $ 107 Deferred tax expense 82 34 ------------ ------------ Provision for income taxes $ 394 $ 141 ============ ============ PERIOD FROM INCEPTIONS TO JULY 31, 1998: Current payable $ 727 $ 207 Deferred tax expense 163 46 ------------ ------------ Provision for income taxes $ 890 $ 253 ============ ============
The significant components of activities that gave rise to deferred tax assets and liabilities included on the balance sheet were as follows (in thousands):
DECEMBER 31, --------------------------- 2000 1999 ------------ ------------ Impairment of real estate investments $ 2,579 $ 2,395 Assets acquired from the Spin-off (Note 2) 702 4,487 NOL carryforwards 2,442 - Other 219 - Deferred gain on equity investments (1,405) (367) ------------ ------------ Net deferred tax assets $ 4,537 $ 6,515 ============ ============
A reconciliation of the Company's effective tax rate to the statutory U.S. federal tax rate for the years ended December 31, 2000, December 31, 1999, the five months ended December 31, 1998 and the period from inception to December 31, 1998 is as follows:
2000 1999 1998 1997 ------ ------ ------ ------ Statutory rate 34% 34% 34% 34% State and local 22% 6% 8% 6% ------ ------ ------ ------ Effective rate 56% 40% 42% 40% ====== ====== ====== ======
F-13 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 9. CAPITAL STOCK: COMMON SHARES In March 2000, $18.0 million of notes payable to The Sol and Helen Price Trust were converted into 5.1 million shares of the Company's common stock. In October 2000 the Company repurchased 1.7 million shares of common stock from affiliates for approximately $2.50 per share. (Note 14) In December 2000, the Company converted 21,281,000 shares of Series B Preferred Stock to 21,281,000 shares of common stock on a one-for-one basis. PRIVATE PLACEMENT In October 1999, the Company sold 3,378,117 shares of common stock to a group of investors. Proceeds of approximately $13.5 million were used for general corporate purposes, to fund certain development costs and to repay outstanding amounts on the Company's credit facility. OPTIONS The Company adopted the 1998 Stock Option Plan (the "Option Plan") for directors, executive officers and other key employees of the Company. The aggregate number of shares issuable upon exercise of options under the Option Plan may not exceed 5,250,380 shares and are exercisable for 10 years from the date of grant. The exercise price of stock options may not be less than 100% of the fair market value of the stock on the date of grant. At December 31, 2000, the exercise price of the options outstanding ranged from $2.92 to $10.00 per share. Options granted in the period from inception to July 31, 1998 were granted at an exercise price of $5.00 and $10.00 per share. All subsequent options have been granted at an exercise price equal to the fair market value of the stock on the date of grant. Stock option and warrant activity are summarized as follows: The following table summarizes the activity for both plans:
WEIGHTED AVERAGE OPTIONS/ EXERCISE PRICE WARRANTS PER SHARE ---------------- ---------------- Outstanding at inception (November 17, 1997) - $ - Granted 3,850,000 7.50 ---------------- Outstanding at July 31, 1998 3,850,000 7.50 Granted 40,000 2.92 ---------------- Outstanding at December 31, 1998 3,890,000 7.45 Granted 1,363,000 5.06 Cancelled (950,000) 7.50 ---------------- Outstanding at December 31, 1999 4,303,000 6.68 Granted 374,000 3.26 Cancelled (58,500) 3.20 ---------------- Outstanding at December 31, 2000 4,618,500 $ 6.43 ================
F-14 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 9. CAPITAL STOCK, CONTINUED: The options vest over five years and expire at various dates through June 2010. All of the options were issued to directors, officers or affiliates of the Company. At December 31, 2000, options of 631,880 were available for granting under the Option Plan. In January 2001, 4,049,000 options with an average price of $6.82 were cancelled at the option of the respective holders. SFAS No. 123, Accounting for Stock-Based Compensation, requires either the recording or disclosure of compensation cost for stock-based employee compensation plans at fair value. The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation costs have been recognized by the Company. Had compensation cost for the Company's stock option plan been recognized based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net income in the year ended December 31, 2000 would have been decreased by $558,000 from $1,216,000 ($0.03 per share - basic, and $0.02 per share - diluted) to a net income of $658,000 ($0.02 per share - basic, and $0.01 per share - diluted). The Company's net loss in the year ended December 31, 1999 would have been increased by $3,225,000 from $777,000 ($0.02 per share - basic, and $0.01 per share - diluted) to a net loss of $4,002,000 ($0.12 per share - basic, and $0.07 per share - diluted). For the five months ended December 31, 1998, the net income would have been decreased by $50,000 from $721,000 ($0.02 per share - basic, and $0.01 per share - diluted) to $671,000 ($0.02 per share - basic, and $0.01 per share - diluted). For the period from inception (November 17, 1997) to July 31, 1998, net income reduced by $5,705,000 from $1,735,000 ($0.11 per share - basic, and $0.07 per share diluted) to a net loss of $3,970,000 ($0.25 per share - basic, and $0.15 per share - diluted). The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the year ended December 31, 2000 and 1999, the five months ended December 31, 1998, and the period from inception to July 31, 1998, respectively: expected volatility of 35.69%, 37.02%, 37.02%, and 36.56%; risk-free interest rate of 6.69%, 5.76%, 5.76% and 5.56%; expected life of 6 years (for all periods); and dividend yield of 0.00% (for all periods). 10. EARNINGS PER SHARE (EPS): A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts):
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, BASIC EPS DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, --------- -------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ NUMERATOR: Net income (loss) $ 1,216 $ (777) $ 721 $ 1,735 ============ ============ ============ ============ DENOMINATOR: Weighted average common shares outstanding 41,847 33,985 33,458 15,842 ============ ============ ============ ============ Earnings Per Share $ 0.03 $ (0.02) $ 0.02 $ 0.11 ============ ============ ============ ============
F-15 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 10. EARNINGS PER SHARE (EPS), CONTINUED:
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DILUTED EPS DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, ----------- -------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ NUMERATOR: Net income (loss) $ 1,216 $ (777) $ 721 $ 1,735 ============ ============ ============ ============ DENOMINATOR: Weighted average common shares outstanding 41,847 33,985 33,458 15,842 Effect of diluted securities: Preferred B shares 19,706 21,281 21,281 10,142 Common stock options - 4 29 - Deduct diluted securities for net loss - (21,285) - - ------------ ------------ ------------ ------------ 61,553 33,985 54,768 25,984 ============ ============ ============ ============ Earnings Per Share $ 0.02 $ (0.02) $ 0.01 $ 0.07 ============ ============ ============ ============
11. FINANCIAL INSTRUMENTS AND CREDIT RISK: Financial instruments which potentially subject the Company to concentrations of risk consist principally of cash, accounts receivable and notes receivable. From time to time, the Company's cash balances with any one institution may exceed Federal Deposit Insurance limits. The following fair value disclosure was determined by the Company, using available market information and discounted cash flow analyses as of December 31, 2000 and 1999. However, considerable judgment is necessary to interpret market data and to develop the related estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize upon disposition. The use of different estimation methodologies may have a material effect on the estimated fair value amounts. The Company believes that the carrying values reflected in the Consolidated Balance Sheets at December 31, 2000 and 1999 approximates the fair values for cash, accounts receivable and payable, notes receivable, mortgage debt and notes payable, and that the market value of its real estate held for sale exceeds the carrying value. The Company's investment in MACE common shares has a book value of $22.4 million and a fair value, based upon the closing stock price at December 31, 2000 of $0.906, of $3.4 million. 12. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE:
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, -------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Supplemental disclosure: Cash paid for interest $7.7 million $5.6 million $2.2 million $1.6 million Net cash paid for income taxes 0.2 million 0.3 million 1.5 million -
F-16 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 12. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE, CONTINUED: IN 2000: o The Company converted $18.0 million of notes payable into 5.1 million common shares. o The Company transferred $16.7 million in mortgage debt to PEI in conjunction with asset sales to PEI. o Newport assumed $2.1 million in debt in conjunction with real estate construction and acquisitions. o Notes receivable from certain officers were decreased and payables increased by a net $1.1 million for salary and bonuses not paid in cash. This amount was included as a general and administrative expense in 1999. IN 1999: o The Company's subsidiary, Millennia, exchanged $37.4 million of assets and $15.1 million of debt in exchange for securities (see Note 4). o The Company assumed $78.9 million of debt related to the tender offer of PEI common shares (see Note 2). o The Company assumed $6.4 million in mortgage debt related to the construction of an office building. o The Company contributed $24.9 million in real estate with mortgage debt of $18.5 million to a partnership for development. IN THE FIVE MONTHS ENDED DECEMBER 31, 1998: o Millennia assumed $15.2 million of debt in conjunction with the acquisition of nine car wash properties. IN THE PERIOD FROM INCEPTION TO JULY 31, 1998 o The Spin-off occurred (Note 3) and common shares were issued to certain officers of the Company in exchange for cash and $10.9 million in notes receivable. o The Company issued 850,000 shares of common stock in connection with the acquisition of a real estate management company. The market value of the shares was approximately $3.4 million. o The Company borrowed $35.5 million in mortgages payable in connection with the construction of the AMC theaters. 13. SEGMENT REPORTING: The Company's primary business segments consist of the Commercial Property Unit, the Development Unit, and the Investment Unit. The Commercial Property Unit manages Company held operating properties and includes its investment in PEI. The Development Unit develops real estate projects and the Business Unit pursues and invests in public and private real estate-related companies and/or their securities. Certain revenues and expenses such as general and administrative not specifically incurred by specific segments, and corporate income taxes have been grouped with "General and Administrative" for presentation purposes. F-17 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 13. SEGMENT REPORTING, CONTINUED:
COMMERCIAL DEVELOPMENT INVESTMENT GENERAL AND PROPERTY UNIT UNIT UNIT ADMINISTRATIVE TOTAL -------------- -------------- -------------- -------------- -------------- YEAR ENDED DECEMBER 31, 2000: Total revenues $ 2,725 $ 6,153 $ 7,637 $ 1,982 $ 18,497 -------------- -------------- -------------- -------------- -------------- Interest 220 5 1 10,634 10,860 Depreciation and amortization 149 423 779 211 1,562 General and administrative - - - 2,785 2,785 Operating expenses 1,500 927 6,751 - 9,178 -------------- -------------- -------------- -------------- -------------- Total operating expenses 1,869 1,355 7,531 13,630 24,385 -------------- -------------- -------------- -------------- -------------- Net operating income (loss) 856 4,798 106 (11,648) (5,888) Real estate sales 1,872 6,843 - - 8,715 Provision for income taxes - - (141) (1,470) (1,611) -------------- -------------- -------------- -------------- -------------- Net income $ 2,728 $ 11,641 $ (35) $ (13,118) $ 1,216 ============== ============== ============== ============== ============== Total assets $ 114,973 $ 126,973 $ 59,076 $ 23,562 $ 324,584 ============== ============== ============== ============== ============== YEAR ENDED DECEMBER 31, 1999: Total revenues $ 8,441 $ 4,903 $ 10,358 $ 2,215 $ 25,917 -------------- -------------- -------------- -------------- -------------- Interest 3,681 - 419 3,897 7,997 Depreciation and amortization 1,309 571 1,255 85 3,220 General and administrative - - 2,016 4,082 6,098 Operating expenses 465 1,162 6,494 - 8,121 -------------- -------------- -------------- -------------- -------------- Total operating expenses 5,455 1,733 10,184 8,064 25,436 -------------- -------------- -------------- -------------- -------------- Net operating income 2,986 3,170 174 (5,849) 481 Real estate sales 3,497 (7,324) 2,062 - (1,765) Provision for income taxes - - - 507 507 -------------- -------------- -------------- -------------- -------------- Net income $ 6,483 $ (4,154) $ 2,236 $ (5,342) $ (777) ============== ============== ============== ============== ============== Total assets $ 151,109 $ 86,304 $ 48,303 $ 42,437 $ 328,153 ============== ============== ============== ============== ============== FIVE MONTHS ENDED DECEMBER 31, 1999: Total revenues $ 4,749 $ 1,891 $ 7,690 $ 680 $ 15,010 -------------- -------------- -------------- -------------- -------------- Interest 2,215 - 348 82 2,645 Depreciation and amortization 782 238 852 46 1,918 General and administrative - - 1,705 936 2,641 Operating expenses 365 1,133 5,052 - 6,550 -------------- -------------- -------------- -------------- -------------- Total operating expenses 3,362 1,371 7,957 1064 13,754 -------------- -------------- -------------- -------------- -------------- Net operating income 1,387 520 (267) (384) 1,256 Provision for income taxes - - - (535) (535) -------------- -------------- -------------- -------------- -------------- Net income $ 1,387 $ 520 $ (267) $ (919) $ 721 ============== ============== ============== ============== ============== Total assets $ 99,170 $ 68,497 $ 55,902 $ 37,727 $ 261,296 ============== ============== ============== ============== ============== PERIOD FROM INCEPTION (NOVEMBER 17, 1997) TO JULY 31, 1998: Total revenues $ 3,835 $ 1,652 $ 2,063 $ 595 $ 8,145 -------------- -------------- -------------- -------------- -------------- Interest 1,444 - - 74 1,518 Depreciation and amortization 656 174 122 105 1,057 General and administrative - - 354 544 898 Operating expenses 165 753 876 - 1,794 -------------- -------------- -------------- -------------- -------------- Total operating expenses 2,265 927 1,352 723 5,267 -------------- -------------- -------------- -------------- -------------- Net operating income 1,570 725 711 (128) 2,878 Provision for income taxes - - - (1143) (1,143) -------------- -------------- -------------- -------------- -------------- Net income $ 1,570 $ 725 $ 711 $(1271) $ 1,735 ============== ============== ============== ============== ============== Total assets $ 100,529 $ 69,377 $ 38,240 $ 38,770 $ 246,916 ============== ============== ============== ============== ==============
F-18 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 14. RELATED PARTY TRANSACTIONS: In connection with the sale of common stock to certain affiliates in 1998, the Company issued notes receivable of which $9.7 million was outstanding at December 31, 2000. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2000 from these notes totaled $1.8 million. The notes have been offset against stockholders' equity on the Company's accompanying Consolidated Balance Sheets. In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights in 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of the above personal debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased. In 2000, four properties and a joint venture interest were sold to PEI. The Company leases back one of the properties for a quarterly amount of $0.1 million. Also, at December 31, 2000, the Company had $25.4 million payable to PEI on a $40.0 million note. Finally, the Company offsets the general and administrative costs with reimbursements received monthly from PEI. In the nine months ended December 31, 2000, approximately $3.0 million was received as reimbursements. 15. RETIREMENT PLAN: The Company has a 401(k) Retirement Plan (the "401(k) Plan") covering most of the officers and employees of the Company. The 401(k) Plan permits participants to contribute, until termination of employment with the Company, up to a maximum of 15% of their compensation to the 401(k) Plan. In addition, contributions of participants are matched by the Company in an amount equal to 50% of the participants contribution in Company stock (up to a maximum of 3% of such person's compensation). The following table shows the costs incurred in connection with the 401(k) Plan for each of the periods shown:
PERIOD FROM FIVE MONTHS INCEPTION YEAR ENDED ENDED (NOVEMBER 17, DECEMBER 31, DECEMBER 31, 1997) TO JULY 31, -------------------------- ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ 401 (k) Plan Costs incurred $ 142,000 $ 87,000 $ 15,000 $ -
F-19 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data is as follows (in thousands except per share amounts):
NET INCOME NET INCOME NET (LOSS) PER (LOSS) PER TOTAL INCOME SHARE - SHARE - REVENUES (LOSS) BASIC DILUTED ------------- ------------ -------------- -------------- YEAR ENDED DECEMBER 31, 2000 Quarter ended March 31, $3,693 $ (373) $(0.01) $(0.01) Quarter ended June 30, 5,235 (244) $(0.01) $(0.01) Quarter ended September 30, 5,896 3,150 $0.08 $0.05 Quarter ended December 31, 3,673 (1,317) $(0.02) $(0.02) YEAR ENDED DECEMBER 31, 1999 Quarter ended March 31, $9,217 $ 174 $0.01 $0.00 Quarter ended June 30, 6,216 512 $0.02 $0.01 Quarter ended September 30, 5,426 335 $0.01 $0.01 Quarter ended December 31, 5,058 (1,798) $(0.05) $(0.05)
F-20 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS) -------------
ADDITIONS DEDUCTIONS BALANCE AT ------------ ------------ BALANCE AT BEGINNING CHARGED TO END OF DESCRIPTION OF PERIOD EXPENSE WRITTEN OFF PERIOD - -------------------------------------------- ------------ ------------ ------------ ------------ Allowance for bad debts: Year ended December 31, 2000 $ 55 $ 20 $ (43) $ 32 ============ ============ ============ ============ Year ended December 31, 1999 $ 34 $ 97 $ (76) $ 55 ============ ============ ============ ============ Five months ended December 31, 1998 $ 14 $ 20 $ - $ 34 ============ ============ ============ ============ Period from inception (November 17, 1997) to July 31, 1998 $ - $ 16 $ 2 $ 14 ============ ============ ============ ============ Investment in Partnerships(1): Year ended December 31, 2000 $ 6,012 $ - $ - $ 6,012 ============ ============ ============ ============ Year ended December 31, 1999 $ - $ 6,012 $ - $ 6,012 ============ ============ ============ ============ Five months ended December 31, 1998 $ - $ - $ - $ - ============ ============ ============ ============ Period from inception (November 17, 1997) to July 31, 1998 $ - $ - $ - $ - ============ ============ ============ ============
(1) Relates to the Company's investment in Entercitement, LLC F-21 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 (IN THOUSANDS) ------------------------
NET COST CAPITALIZED (SOLD) INITIAL COST SUBSEQUENT TO ACQUISITION -------------------------- ------------------------------ BUILDING AND BUILDING AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS - ------------------------------------------------------------------------------------------------------------ Scottsdale Towers Land Scottsdale, AZ $ - $ 3,971 $ - $(428) $ - Brio Restaurant Scottsdale, AZ - 563 1,046 - - Grand Hotel Tusayan, A (1) - 11,898 - 139 Pointe Anaheim Anaheim, CA 6,312 7,871 - - 923 Residential Property Coto de Caza, CA 708 316 586 - - Desert Fashion Plaza Palm Springs, CA - 3,816 9,772 - 2,514 Land Yosemite, CA - 600 - 168 - Danile's Head Bermuda 5,000 - - - 14,190 Newport on the Levee Newport, KY (2) (3) 2,106 - 16,225 - 21,420 - ------------------------------------------------------------------------------------------------------------ $14,126 $ 17,137 $39,527 $(260) $ 39,186 ============================================================================================================ LIFE ON WHICH GROSS AMOUNT AT WHICH CARRIED DEPRECIATION AT CLOSE OF PERIOD IN LATEST ---------------------------------------- INCOME BUILDING AND ACCUMULATED DATE OF DATE STATEMENTS DESCRIPTION LAND IMPROVEMENTS TOTAL (a) DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED - ---------------------------------------------------------------------------------------------------------------------------------- Scottsdale Towers Land Scottsdale, AZ $ 3,543 $ - $ 3,543 $ - - 1998 - Brio Restaurant Scottsdale, AZ 563 1,046 1,609 73 1975 1998 40 years Grand Hotel Tusayan, A - 12,037 12,037 1,092 1998 1998 40 years Pointe Anaheim 1998, Anaheim, CA 7,871 923 8,794 - (2) 2000 - Residential Property Coto de Caza, CA 316 586 902 2 2000 2000 40 years Desert Fashion Plaza Palm Springs, CA 3,816 12,286 16,102 641 1967 1998 40 years Land Yosemite, CA 768 - 768 - - 1998 - Danile's Head Bermuda - 14,190 14,190 - (2) 1998 - Newport on the Levee Newport, KY (2) - 37,645 37,645 - - 1998 - - ---------------------------------------------------------------------------------------------------------------------------------- $16,877 $ 78,713 $95,590 $1,808 ==================================================================================================================================
(1) This property is on a land lease with a cost of $2,351 which is not included above. (2) Property is currently under construction. (3) The city of Newport, KY issued two series of public improvement bonds related to construction of this project. $32.9 million of the bonds are outstanding at December 31, 2000. See note 7 for additional information. F-22 Continued EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 2000 (IN THOUSANDS) ---------- (a) Reconciliation of total real estate carrying value is as follows:
FIVE MONTHS YEAR ENDED YEAR ENDED ENDED INCEPTION TO DECEMBER 31, DECEMBER 31, DECEMBER 31, JULY 31, ------------ ------------ ------------ ------------ 2000 1999 1998 1998 ------------ ------------ ------------ ------------ Balance at beginning of period: $ 102,143 $ 191,033 $ 174,344 $ - Acquisitions: 8,773 2,956 15,200 173,209 Improvements and other additions: 40,843 25,409 1,489 1,135 Cost of property sold/contributed to partnerships: (56,169) (117,255) - - ------------ ------------ ------------ ------------ Balance at the end of the period: $ 95,590 $ 102,143 $ 191,033 $ 174,344 ============ ============ ============ ============ Total cost for federal income tax purposes at the end of each period: $ 95,590 $ 114,274 $ 207,421 $ 190,732 ============ ============ ============ ============ (b) Reconciliation of accumulated depreciation is as follows: Balance at beginning of period: $ 2,303 $ 2,506 $ 939 $ - Depreciation expense: 1,562 2,382 1,567 939 Property sold/contributed to partnerships: (2,057) (2,585) - - ------------ ------------ ------------ ------------ Balance at the end of the period: $ 1,808 $ 2,303 $ 2,506 $ 939 ============ ============ ============ ============
F-23 EX-21.1 2 a2042071zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF EXCEL LEGACY CORPORATION
NAME JURISDICTION - ---- ------------ Excel Legacy-ST, Inc. Delaware Tenant First Real Estate Services California Desert Fashion Plaza, LLC Delaware Excel Westminster AMC, Inc. Delaware WestCol Corp. Delaware Newport on the Levee, LLC. Delaware Millennia Car Wash, LLC. Delaware Grand Tusayan, LLC. Delaware Campers Villages, LLC. Hawaii Destination Villages Daniel's Head, Bermuda Ltd. Bermuda Legacy-Newport, Inc. Delaware Excel Pointe Anaheim, LLC Delaware Price Enterprises, Inc. Maryland Price Self Storage, Inc. Delaware Price Enterprises--Tx, Inc. Delaware Price Enterprises--Texas, LP Delaware Price Owner LLC Delaware Price Owner Corp. Delaware
EX-23.1 3 a2042071zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-79673), S-8 (No. 333-68597), and S-11A (No. 333-55715) of Excel Legacy Corporation of our report dated February 22, 2001 relating to the consolidated financial statements and financial statement schedules, which appears in this Form 10-K. PricewaterhouseCoopers LLP San Diego, CA March 16, 2001 EX-23.2 4 a2042071zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-11 No. 333-55715) and related Prospectus of Excel Legacy Corporation for the registration of certain securities; the Registration Statement (Form S-3 No. 333-79673) and related Prospectus of Excel Legacy Corporation for the registration of certain securities; and the Registration Statement (Form S-8 No. 333-68597) pertaining to the 1998 Stock Option Plan of Excel Legacy Corporation of our report dated January 19, 2001 (except for Note 13, as to which the date is January 26, 2001), with respect to the consolidated financial statements and schedules of Price Enterprises, Inc. incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 2000. /s/ ERNST & YOUNG LLP San Diego, California March 14, 2001 -----END PRIVACY-ENHANCED MESSAGE-----