Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q 1 d500801d10q.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

Commission File No. 001-34698

EXCEL TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland

27-1493212

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Excel Centre

17140 Bernardo Center Drive, Suite 300

San Diego, California 92128

(Address of principal executive office, including zip code)

(858) 613-1800

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Number of shares outstanding as of May 1, 2013 of the registrant’s common stock, $0.01 par value per share: 47,834,385 shares

PART 1 — FINANCIAL INFORMATION

EXCEL TRUST, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

TABLE OF CONTENTS


PART I	Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets of Excel Trust, Inc. as of March 31, 2013 (unaudited) and December 31, 2012	3

	Condensed Consolidated Statements of Operations and Comprehensive Income of Excel Trust, Inc. for the three months ended March 31, 2013 and 2012 (unaudited)	4

	Condensed Consolidated Statements of Equity of Excel Trust, Inc. for the three months ended March 31, 2013 and 2012 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows of Excel Trust, Inc. for the three months ended March 31, 2013 and 2012 (unaudited)	7

	Notes to Condensed Consolidated Financial Statements of Excel Trust, Inc. (unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	43

PART II	Other Information	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Mine Safety Disclosures	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

PART 1 — FINANCIAL INFORMATION

Item 1.

Financial Statements

EXCEL TRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	March 31, 2013 (unaudited)			December 31, 2012
ASSETS:

Property:
Land	$	326,669		$	320,289
Buildings		585,304			564,352
Site improvements		53,503			51,875
Tenant improvements		45,537			42,903
Construction in progress		3,135			1,709
Less accumulated depreciation		(43,125	)		(36,765	)

Property, net		971,023			944,363
Cash and cash equivalents		6,658			5,596
Restricted cash		6,344			5,657
Tenant receivables, net		3,486			5,376
Lease intangibles, net		80,961			85,646
Deferred rent receivable		6,851			5,983
Other assets		18,497			17,618
Investment in unconsolidated entities		9,021			9,015

Total assets⁽¹⁾	$	1,102,841		$	1,079,254

LIABILITIES AND EQUITY:

Liabilities:
Mortgages payable, net	$	332,732		$	333,935
Notes payable		88,000			75,000
Accounts payable and other liabilities		22,061			25,319
Lease intangibles, net		25,320			26,455
Dividends/distributions payable		10,491			9,773

Total liabilities⁽²⁾		478,604			470,482

Commitments and contingencies
Equity:
Stockholders’ equity
Preferred stock, 50,000,000 shares authorized
7.0% Series A cumulative convertible perpetual preferred stock, $50,000,000 liquidation preference ($25.00 per share), 2,000,000 shares issued and outstanding at March 31, 2013 and December 31, 2012		47,703			47,703
8.125% Series B cumulative redeemable preferred stock, $92,000,000 liquidation preference ($25.00 per share), 3,680,000 issued and outstanding at March 31, 2013 and December 31, 2012		88,720			88,720
Common stock, $.01 par value, 200,000,000 shares authorized; 47,033,085 and 44,905,683 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively		468			448
Additional paid-in capital		474,321			459,151
Cumulative deficit		(1,118	)		(1,414	)

		610,094			594,608
Accumulated other comprehensive loss		(415	)		(572	)

Total stockholders’ equity		609,679			594,036
Non-controlling interests		14,558			14,736

Total equity		624,237			608,772

Total liabilities and equity	$	1,102,841		$	1,079,254

⁽¹⁾	Excel Trust Inc.’s consolidated total assets at March 31, 2013 and December 31, 2012, include $15,811 and $15,871, respectively, of assets of a variable interest entity (“VIE”) that can only be used to settle the liabilities of that VIE.

⁽²⁾

The Company’s consolidated total liabilities at March 31, 2013 and December 31, 2012, include $147 and $154 of accounts payable and other liabilities, respectively, that do not have recourse to Excel Trust, Inc.

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXCEL TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except per share data)

(Unaudited)


	For the Three Months Ended
	March 31, 2013			March 31, 2012
Revenues:
Rental revenue	$	22,481		$	16,153
Tenant recoveries		4,732			3,267
Other income		316			360

Total revenues		27,529			19,780
Expenses:
Maintenance and repairs		1,715			1,322
Real estate taxes		3,026			2,065
Management fees		234			191
Other operating expenses		1,527			829
General and administrative		3,834			3,502
Depreciation and amortization		12,390			8,279

Total expenses		22,726			16,188

Net operating income		4,803			3,592
Interest expense		(4,798	)		(3,674	)
Interest income		50			53
Income from equity in unconsolidated entities		39			—
Changes in fair value of financial instruments and gain on OP unit redemption		230			462

Net income		324			433
Net (income) loss attributable to non-controlling interests		(28	)		5

Net income available to Excel Trust, Inc.		296			438
Preferred stock dividends		(2,744	)		(2,121	)

Net loss attributable to the common stockholders	$	(2,448	)	$	(1,683	)

Net loss per share attributable to the common stockholders - basic and diluted	$	(0.06	)	$	(0.06	)

Weighted-average common shares outstanding - basic and diluted		45,352			31,761

Dividends declared per common share	$	0.17		$	0.1625

Net income	$	324		$	433
Other comprehensive income (loss):
Change in unrealized gain on investment in equity securities		—			32
Gain on sale of equity securities (reclassification adjustment)		—			(11	)
Change in unrealized loss on interest rate swaps		161			(16	)

Comprehensive income		485			438
Comprehensive (income) loss attributable to non-controlling interests		(32	)		4

Comprehensive income attributable to Excel Trust, Inc.	$	453		$	442

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXCEL TRUST, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(Dollars in thousands)

(Unaudited)


	Series A Preferred Stock		Series B Preferred Stock		Common Stock				Additional Paid-in Capital			Cumulative Deficit			Accumulated other Comprehensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
	Series A Preferred Stock		Series B Preferred Stock		Shares		Amount		Additional Paid-in Capital			Cumulative Deficit			Accumulated other Comprehensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
Balance at January 1, 2012	$	47,703	$	—		30,289,813	$	302	$	319,875		$	(3,277	)	$	(811	)	$	363,792		$	17,194		$	380,986
Net proceeds from sale of preferred stock		—		88,710		—		—		—			—			—			88,710			—			88,710
Issuance of restricted common stock awards		—		—		5,000		—		—			—			—			—			—			—
Redemption of OP units for common stock and cash		—		—		115,919		1		1,369			—			—			1,370			(1,440	)		(70	)
Issuance of common stock for acquisition		—		—		3,230,769		32		39,076			—			—			39,108			—			39,108
Noncash amortization of share-based compensation		—		—		—		—		785			—			—			785			—			785
Common stock dividends		—		—		—		—		(5,467	)		—			—			(5,467	)		—			(5,467	)
Distributions to non-controlling interests		—		—		—		—		—			—			—			—			(310	)		(310	)
Net income		—		—		—		—		—			438			—			438			(5	)		433
Preferred stock dividends		—		—		—		—		(2,121	)		—			—			(2,121	)		—			(2,121	)
Change in unrealized gain on investment in equity securities		—		—		—		—		—			—			20			20			1			21
Change in unrealized loss on interest rate swaps		—		—		—		—		—			—			(16	)		(16	)		—			(16	)
Adjustment for non-controlling interests		—		—		—		—		(456	)		—			—			(456	)		456			—

Balance at March 31, 2012	$	47,703	$	88,710		33,641,501	$	335	$	353,061		$	(2,839	)	$	(807	)	$	486,163		$	15,896		$	502,059


	Series A Preferred Stock		Series B Preferred Stock		Common Stock				Additional Paid-in Capital			Cumulative Deficit			Accumulated other Comprehensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
	Series A Preferred Stock		Series B Preferred Stock		Shares		Amount		Additional Paid-in Capital			Cumulative Deficit			Accumulated other Comprehensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
Balance at January 1, 2013	$	47,703	$	88,720		44,905,683	$	448	$	459,151		$	(1,414	)	$	(572	)	$	594,036		$	14,736		$	608,772
Net proceeds from sale of common stock		—		—		2,063,828		20		25,403			—			—			25,423			—			25,423
Issuance of restricted common stock awards		—		—		41,500		—		—			—			—			—			—			—
Redemption of OP units for common stock and cash		—		—		22,074		—		279			—			—			279			(235	)		44
Noncash amortization of share-based compensation		—		—		—		—		562			—			—			562			—			562
Common stock dividends		—		—		—		—		(7,996	)		—			—			(7,996	)		—			(7,996	)
Distributions to non-controlling interests		—		—		—		—		—			—			—			—			(309	)		(309	)
Net income		—		—		—		—		—			296			—			296			28			324
Preferred stock dividends		—		—		—		—		(2,744	)		—			—			(2,744	)		—			(2,744	)
Change in unrealized loss on interest rate swaps		—		—		—		—		—			—			157			157			4			161
Adjustment for non-controlling interests		—		—		—		—		(334	)		—			—			(334	)		334			—

Balance at March 31, 2013	$	47,703	$	88,720		47,033,085	$	468	$	474,321		$	(1,118	)	$	(415	)	$	609,679		$	14,558		$	624,237

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXCEL TRUST, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Three Months Ended March 31, 2013			Three Months Ended March 31, 2012
Cash flows from operating activities:
Net income	$	324		$	433
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,390			8,279
Changes in fair value of financial instruments and gain on OP unit redemption		(230	)		(462	)
Income from equity in unconsolidated entities		(39	)		—
Deferred rent receivable		(877	)		(751	)
Amortization of above- and below-market leases		40			(227	)
Amortization of deferred balances		442			483
Bad debt expense		337			247
Share-based compensation expense		562			785
Change in assets and liabilities (net of the effect of acquisitions):
Tenant and other receivables		1,565			365
Other assets		(1,020	)		(1,074	)
Accounts payable and other liabilities		(2,885	)		1,100

Net cash provided by operating activities		10,609			9,178

Cash flows from investing activities:
Acquisitions of property		(30,707	)		(61,031	)
Development of property and property improvements		(4,691	)		(3,076	)
Investments in unconsolidated entities		(106	)		—
Return of capital from unconsolidated entities		139			—
Receipt of master lease payments		162			—
Capitalized leasing costs		(728	)		(789	)
Proceeds from sale of equity securities		—			1,289
Restricted cash		(687	)		(485	)

Net cash used in investing activities		(36,618	)		(64,092	)

Cash flows from financing activities:
Issuance of common stock		25,610			—
Issuance of preferred stock		—			89,102
Preferred stock offering costs		—			(392	)
Payments on mortgages payable		(1,234	)		(1,066	)
Proceeds from mortgages payable		84			—
Payments on notes payable		(24,000	)		(40,500	)
Proceeds from notes payable		37,000			19,500
Payments of contingent consideration		—			(1,613	)
Distribution to non-controlling interests		(290	)		(327	)
Preferred stock dividends		(2,744	)		(875	)
Common stock dividends		(7,297	)		(4,847	)
Deferred financing costs		(58	)		(135	)

Net cash provided by financing activities		27,071			58,847

Net increase		1,062			3,933
Cash and cash equivalents, beginning of period		5,596			5,292

Cash and cash equivalents, end of period	$	6,658		$	9,225


Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized of $0 and $110	$	3,891	$	2,945

Non-cash investing and financing activity:
Acquisition of real estate for common shares and OP units	$	—	$	39,108

Assets received in connection with property acquisitions	$	—	$	772

Liabilities assumed in connection with property acquisitions	$	44	$	385

Common stock dividends payable	$	7,996	$	5,467

Preferred stock dividends payable	$	2,287	$	2,121

OP unit distributions payable	$	208	$	209

Accrued additions to operating and development properties	$	1,816	$	593

Change in unrealized loss on interest rate swaps	$	161	$	16

OP unit redemptions (common stock)	$	279	$	—

Reclassification of offering costs	$	187	$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXCEL TRUST, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization:

Excel Trust, Inc. was incorporated in the State of Maryland on December 15, 2009. On April 28, 2010, it commenced operations after completing its initial public offering (the “Offering”). Excel Trust, Inc. is a vertically integrated, self-administered, self-managed real estate firm with the principal objective of acquiring, financing, developing, leasing, owning and managing value oriented community and power centers, grocery anchored neighborhood centers and freestanding retail properties. It conducts substantially all of its business through its subsidiary, Excel Trust, L.P., a Delaware limited partnership (the “Operating Partnership” and together with Excel Trust, Inc. referred to as the “Company”). The Company seeks investment opportunities throughout the United States, but focuses on the Northeast, Northwest and Sunbelt regions. The Company generally leases anchor space to national and regional supermarket chains, big-box retailers and select national retailers that frequently offer necessity and value oriented items and generate regular consumer traffic.

Excel Trust, Inc. is the sole general partner of the Operating Partnership and, as of March 31, 2013, owned a 97.4% interest in the Operating Partnership. The remaining 2.6% interest in the Operating Partnership is held by limited partners. Each partner’s percentage interest in the Operating Partnership is determined based on the number of operating partnership units (“OP units”) owned as compared to total OP units (and potentially issuable OP units, as applicable) outstanding as of each period end and is used as the basis for the allocation of net income or loss to each partner.

2. Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying condensed consolidated financial statements of the Company include all the accounts of the Company and its subsidiaries. The financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements and have not been audited by independent registered public accountants.

The unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. All significant intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents:

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value, due to their short term maturities.

Restricted Cash:

Restricted cash is comprised of impound reserve accounts for property taxes, insurance, capital improvements and tenant improvements.

Accounts Payable and Other Liabilities:

Included in accounts payable and other liabilities are deferred rents in the amount of $4.1 million and $4.4 million at March 31, 2013 and December 31, 2012, respectively.

Revenue Recognition:

The Company commences revenue recognition on its leases based on a number of factors. In most cases, revenue recognition under a lease begins when the lessee takes possession of or controls the physical use of the leased asset. Generally, this occurs on the lease commencement date. In determining what constitutes the leased asset, the Company evaluates whether the Company or the lessee is the owner, for accounting purposes, of the tenant improvements. If the Company is the owner, for accounting purposes, of the tenant improvements, then the leased asset is the finished space and revenue recognition begins when the lessee takes possession of the finished space, typically when the improvements are substantially complete. If the Company concludes that it is not the owner, for accounting purposes, of the tenant improvements (the lessee is the owner), then the leased asset is the unimproved space and any

tenant improvement allowances funded under the lease are treated as lease incentives, which reduce revenue recognized on a straight-line basis over the remaining non-cancelable term of the respective lease. In these circumstances, the Company begins revenue recognition when the lessee takes possession of the unimproved space for the lessee to construct improvements. The determination of who is the owner, for accounting purposes, of the tenant improvements is highly subjective and determines the nature of the leased asset and when revenue recognition under a lease begins. The Company considers a number of different factors to evaluate whether it or the lessee is the owner of the tenant improvements for accounting purposes. These factors include:

•

whether the lease stipulates how and on what a tenant improvement allowance may be spent;

•

whether the tenant or landlord retains legal title to the improvements;

•

the uniqueness of the improvements;

•

the expected economic life of the tenant improvements relative to the length of the lease;

•

the responsible party for construction cost overruns; and

•

who constructs or directs the construction of the improvements.

Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of cash rent due in a year and the amount recorded as rental income is referred to as the “straight-line rent adjustment.” Rental income (net of write-offs for uncollectible amounts) was increased by $877,000 and $751,000 in the three months ended March 31, 2013 and 2012, respectively, due to the straight-line rent adjustment. Percentage rent is recognized after tenant sales have exceeded defined thresholds (if applicable) and was $385,000 and $208,000 for the three months ended March 31, 2013 and 2012, respectively.

Estimated recoveries from certain tenants for their pro rata share of real estate taxes, insurance and other operating expenses are recognized as revenues in the period the applicable expenses are incurred or as specified in the leases. Other tenants pay a fixed rate and these tenant recoveries are recognized as revenue on a straight-line basis over the term of the related leases.

Property:

Costs incurred in connection with the development or construction of properties and improvements are capitalized. Capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes and related costs and other direct costs incurred during the period of development. The Company capitalizes costs on land and buildings under development until construction is substantially complete and the property is held available for occupancy. The determination of when a development project is substantially complete and when capitalization must cease involves a degree of judgment. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of landlord-owned tenant improvements or when the lessee takes possession of the unimproved space for construction of its own improvements, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion substantially completed and occupied or held available for occupancy, and capitalizes only those costs associated with any remaining portion under construction. In March 2012, the Company reclassified the majority of construction in progress costs relating to two non-operating properties into the corresponding buildings, site improvements and tenant improvements financial statement line items upon substantial completion of development activities.

Maintenance and repairs expenses are charged to operations as incurred. Costs for major replacements and betterments, which include HVAC equipment, roofs, parking lots, etc., are capitalized and depreciated over their estimated useful lives. Gains and losses are recognized upon disposal or retirement of the related assets and are reflected in earnings.

Property is recorded at cost and is depreciated using the straight-line method over the estimated lives of the assets as follows:


		Building and improvements		15 to 40 years
		Tenant improvements		Shorter of the useful lives or the terms of the related leases

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed:

The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. This assessment considers expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenants’ ability to perform their duties and pay rent under the terms of the leases. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense, expected to result from the long-lived asset’s use and eventual disposition. The Company’s evaluation as to whether impairment may exist, including estimates of future anticipated cash flows, are highly subjective and could differ materially from actual results in future periods. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. Although the Company’s strategy is to hold its properties over a long-term period, if the strategy changes or market conditions dictate that the sale of properties at an earlier date would be preferable, a property may be classified as held for sale and an impairment loss may be recognized to reduce the property to the lower of the carrying amount or fair value less cost to sell. There was no impairment recorded for the three months ended March 31, 2013 or 2012.

Investments in Partnerships and Limited Liability Companies:

The Company evaluates its investments in limited liability companies and partnerships to determine whether such entities may be a variable interest entity (“VIE”) and, if a VIE, whether the Company is the primary beneficiary. Generally, an entity is determined to be a VIE when either (1) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support provided by any parties or (2) as a group, the holders of the equity investment lack one or more of the essential characteristics of a controlling financial interest. The primary beneficiary is the entity that has both (1) the power to direct matters that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company considers a variety of factors in identifying the entity that holds the power to direct matters that most significantly impact the VIE’s economic performance including, but not limited to, the ability to direct financing, leasing, construction and other operating decisions and activities. In addition, the Company considers the form of ownership interest, voting interest, the size of the investment (including loans) and the rights of other investors to participate in policy making decisions, to replace or remove the manager and to liquidate or sell the entity. The obligation to absorb losses and the right to receive benefits when a reporting entity is affiliated with a VIE must be based on ownership, contractual, and/or other pecuniary interests in that VIE.

If the foregoing conditions do not apply, the Company considers whether a general partner or managing member controls a limited partnership or limited liability company. The general partner in a limited partnership or managing member in a limited liability company is presumed to control that limited partnership or limited liability company. The presumption may be overcome if the limited partners or members have either (1) the substantive ability to dissolve the limited partnership or limited liability company or otherwise remove the general partner or managing member without cause or (2) substantive participating rights, which provide the limited partners or members with the ability to effectively participate in significant decisions that would be expected to be made in the ordinary course of the limited partnership’s or limited liability company’s business and thereby preclude the general partner or managing member from exercising unilateral control over the partnership or company. If these criteria are not met and the Company is the general partner or the managing member, as applicable, the consolidation of the partnership or limited liability company is required.

Investments that are not consolidated, over which the Company exercises significant influence but does not control, are accounted for under the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for the Company’s portion of earnings or losses and for cash contributions and distributions. Under the equity method of accounting, the Company’s investment is reflected in the consolidated balance sheets and its share of net income or loss is included in the consolidated statements of operations and comprehensive income.

Share-Based Payments:

All share-based payments to employees are recognized in earnings based on their fair value on the date of grant. Through March 31, 2013, the Company has awarded only restricted stock awards under its incentive award plan, which are based on shares of the Company’s common stock. The fair value of equity awards that include only service or performance vesting conditions is determined based on the closing market price of the underlying common stock on the date of grant. The fair value of equity awards that include one or more market vesting conditions is determined based on the use of a widely accepted valuation model. The fair value of equity grants is amortized to general and administrative expense ratably over the requisite service period for awards that include only service vesting conditions and utilizing a graded vesting method (an accelerated vesting method in which the majority of compensation expense is recognized in earlier periods) for awards that include one or more market vesting conditions, adjusted for anticipated forfeitures.

Purchase Accounting:

The Company, with the assistance of independent valuation specialists, records the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. Tangible assets (building and land) are recorded based upon the Company’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered include an estimate of carrying costs during the expected lease-up periods taking into account current market conditions and costs to execute similar leases. The fair value of land is derived from comparable sales of land within the same submarket and/or region. The fair value of buildings and improvements, tenant improvements, site improvements and leasing costs are based upon current market replacement costs and other relevant market rate information. Additionally, the purchase price of the applicable property is recorded to the above- or below-market value of in-place leases, the value of in-place leases and above- or below-market value of debt assumed, as applicable.

The value recorded to the above- or below-market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between: (1) the contractual amounts to be paid pursuant to the lease over its remaining term, and (2) the Company’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts recorded to above-market leases are included in lease intangible assets, net in the Company’s accompanying condensed consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term of the acquired leases with each property. The amounts recorded to below-market lease values are included in lease intangible liabilities, net in the Company’s accompanying condensed consolidated balance sheets and amortized to rental income over the remaining non-cancelable lease term plus any below-market fixed price renewal options of the acquired leases with each property.

The value recorded to above- or below-market debt is determined based upon the present value of the difference between the cash flow stream of the assumed mortgage and the cash flow stream of a market rate mortgage. The amounts recorded to above- or below-market debt are included in mortgage payables, net in the Company’s accompanying condensed consolidated balance sheets and are amortized to interest expense over the remaining term of the assumed mortgage.

Tenant receivables:

Tenant receivables and deferred rent are carried net of the allowances for uncollectible current tenant receivables and deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company maintains an allowance for deferred rent receivable arising from the straight-lining of rents. Such allowances are charged to bad debt expense which is included in other operating expenses on the accompanying condensed consolidated statement of operations. The Company’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. At March 31, 2013 and December 31, 2012, the Company had $877,000 and $719,000, respectively, in allowances for uncollectible accounts as determined to be necessary to reduce receivables to the estimate of the amount recoverable. During the three months ended March 31, 2013 and 2012, $337,000 and $247,000, respectively, of receivables were charged to bad debt expense.

Non-controlling Interests:

Non-controlling interests represent the portion of equity that the Company does not own in those entities it consolidates, including OP units not held by the Company. In conjunction with the Company’s formation transactions, interests in four properties were contributed in exchange for 641,062 OP units. The Company issued 764,343 OP units in March 2011 in connection with the acquisition of the Edwards Theatres property. In addition, the Company issued 411,184 OP units in October 2012 in connection with the acquisition of the West Broad Village property.

During the three months ended March 31, 2013, a total of 19,904 OP units related to the Edwards Theatres acquisition were tendered to the Company for redemption, resulting in the issuance of 22,074 shares of common stock. The OP units were redeemed for common stock on a one-to-one basis, with additional common stock provided as a result of the accompanying additional redemption obligation that guaranteed consideration equal to $14.00 per OP unit on the date of redemption. The remaining additional redemption obligation of $246,000 associated with the Edwards Theatres acquisition expired on March 11, 2013 and was reclassified and recognized as a gain in changes in fair value of financial instruments and gain on OP unit redemption (net of a loss of $16,000 on the OP unit redemption) on the accompanying condensed consolidated financial statements. At March 31, 2013, 172,869 OP units related to the Edwards Theatres acquisition remained outstanding, which continue to be redeemable for cash or common stock on a one-for-one basis, at the Company’s option, as noted below.

OP units not held by the Company are reflected as non-controlling interests in the Company’s consolidated financial statements. The OP units not held by the Company may be redeemed by the Company at the holder’s option for cash. The Company, at its option, may satisfy the redemption obligation with common stock on a one-for-one basis, which has been further evaluated to determine that permanent equity classification on the balance sheet is appropriate.

Concentration of Risk:

The Company maintains its cash accounts in a number of commercial banks. Accounts at these banks are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At various times during the periods, the Company had deposits in excess of the FDIC insurance limit.

In the three months ended March 31, 2013 and 2012, no tenant accounted for more than 10% of revenues.

At March 31, 2013, the Company’s gross real estate assets in the states of California, Arizona and Virginia represented approximately 22.1%, 18.3% and 16.1% of the Company’s total assets, respectively. At December 31, 2012, the Company’s gross real estate assets in the states of Arizona, California and Virginia represented approximately 16.6%, 16.5% and 14.6% of the Company’s

total assets, respectively. For the three months ended March 31, 2013, the Company’s revenues derived from properties located in the states of California, Arizona, Virginia and Texas represented approximately 20.5%, 19.0%, 11.9% and 11.0% of the Company’s total revenues, respectively. For the three months ended March 31, 2012, the Company’s revenues derived from properties located in the states of California, Arizona, Texas and Alabama represented approximately 29.2%, 21.7%, 10.7% and 10.3% of the Company’s total revenues, respectively.

Management Estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments:

The Company measures financial instruments and other items at fair value where required under GAAP, but has elected not to measure any additional financial instruments and other items at fair value as permitted under fair value option accounting guidance.

Fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, there is a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the assets or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The Company has used interest rate swaps to manage its interest rate risk (see Note 11). The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives classified as cash flow hedges fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of March 31, 2013, the Company has determined that the impact of the credit valuation adjustments on the overall valuation of its derivative positions is not significant. As a result, the Company has determined that its valuations related to derivatives classified as cash flow hedges in their entirety are classified in Level 2 of the fair value hierarchy (see Note 17).

Changes in the fair value of financial instruments (other than derivative instruments for which an effective hedging relationship exists and available-for-sale securities) are recorded as a charge against earnings in the consolidated statements of operations in the period in which they occur. The Company estimates the fair value of financial instruments at least quarterly based on current facts and circumstances, projected cash flows, quoted market prices and other criteria (primarily utilizing Level 3 inputs). The Company may also utilize the services of independent third-party valuation experts to estimate the fair value of financial instruments, as necessary.

The Company’s investments in equity securities fall within Level 1 of the fair value hierarchy as the Company utilizes observable market-based inputs, based on the closing trading price of securities as of the balance sheet date, to determine the fair value of the investments.

Derivative Instruments:

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk primarily by managing the amount, sources and duration of its debt funding and the use of derivative financial instruments. Specifically, from time to time the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings.

In addition, from time to time the Company may execute agreements in connection with business combinations that include embedded derivative instruments as part of the consideration provided to the sellers of the properties. Although these embedded derivative instruments are not intended as hedges of risks faced by the Company, they can provide additional consideration to the Company’s selling counterparties and may be a key component of negotiations.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company records all derivative instruments on the consolidated balance sheets at their fair value. In determining the fair value of derivative instruments, the Company also considers the credit risk of its counterparties, which typically constitute larger financial institutions engaged in providing a wide variety of financial services. These financial institutions generally face similar risks regarding changes in market and economic conditions, including, but not limited to, changes in interest rates, exchange rates, equity and commodity pricing and credit spreads.

Accounting for changes in the fair value of derivative instruments depends on the intended use of the derivative, whether it has been designated as a hedging instrument and whether the hedging relationship has continued to satisfy the criteria to apply hedge accounting. For derivative instruments qualifying as cash flow hedges, the effective portion of changes in the fair value is initially recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the cash flows of the derivative hedging instrument with the changes in the cash flows of the hedged item or transaction.

The Company formally documents the hedging relationship for all derivative instruments, has accounted for its interest rate swap agreements as cash flow hedges and does not utilize derivative instruments for trading or speculative purposes.

Revision to Condensed Consolidated Statements of Cash Flows:

Subsequent to the issuance of the Company’s condensed consolidated financial statements for the three months ended March 31, 2012, the Company determined that a cash outflow related to a contingent consideration payment in the three months ended March 31, 2012 should have been reflected as a cash outflow from financing activities rather than operating activities within the condensed consolidated statement of cash flows. The Company reviewed the impact of this correction with respect to the prior period condensed consolidated financial statements and determined that the correction was not material. However, the Company has revised the accompanying condensed consolidated statement of cash flows to reflect this correction in the prior period. The effect of the correction to the condensed consolidated statements of cash flows for the three months ended March 31, 2012 is an increase to cash flows provided by operating activities from an original balance of $7.6 million to a corrected balance of $9.2 million and a decrease to cash flows provided by financing activities from an original balance of $60.4 million to a corrected balance of $58.8 million (a total change of approximately $1.6 million). This correction had no effect on previously reported revenues, net loss, assets or equity.

Recent Accounting Pronouncements:

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). The amendments in this update provide an entity with the option to make a qualitative assessment about the likelihood that an indefinite-lived intangible asset is impaired to determine

whether it should perform a quantitative impairment test. ASU 2012-02 is effective for fiscal years and interim periods beginning after September 15, 2012. The adoption of ASU 2012-02 on January 1, 2013 did not have a material impact on the Company’s condensed consolidated financial position or results of operations.

In January 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). The amendments in this update require an entity to provide information about the amounts reclassified from accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the income statement or in the notes, significant amounts reclassified from accumulated other comprehensive income by the net income line item. The adoption of ASU 2013-02 on January 1, 2013 did not have a material impact on the Company’s condensed consolidated financial position or results of operations.

3. Acquisitions:

The Company completed the following property acquisition in the three months ended March 31, 2013, which was acquired for cash unless specified below (in thousands):


Property	Date Acquired	Location	Debt Assumed
Tracy Pavilion	January 24, 2013	Tracy, CA	$	—

The following summary provides an allocation of purchase price for the above acquisition (in thousands).


	Building		Land		Above-Market Leases		Below-Market Leases			In-Place Leases		Debt (Premium)/Discount		Other		Purchase Price
Tracy Pavilion	$	22,611	$	6,193	$	163	$	(1,136	)	$	2,907	$	—	$	—	$	30,738

Total	$	22,611	$	6,193	$	163	$	(1,136	)	$	2,907	$	—	$	—	$	30,738

Remaining useful life⁽¹⁾						54		95			62

⁽¹⁾

Weighted-average remaining useful life (months) for recorded intangible assets and liabilities as of the date of acquisition.

The Company completed the following property acquisitions in the three months ended March 31, 2012, which were acquired for cash unless specified below (in thousands):


Consolidated Property	Date Acquired	Location	Debt Assumed
Promenade Corporate Center	January 23, 2012	Scottsdale, AZ	$	—
EastChase Market Center	February 17, 2012	Montgomery, AL		—

Unconsolidated Property	Date Acquired	Location	Debt Assumed
La Costa Town Center	February 29, 2012	La Costa, CA	$	—

The following summary provides an allocation of purchase price for the above acquisitions that were completed in the three months ended March 31, 2012, which were acquired for cash unless specified below (in thousands):


Consolidated Property	Building		Land		Above-Market Leases		Below-Market Leases			In-Place Leases		Debt (Premium)/ Discount		Other		Purchase Price
Promenade Corporate Center⁽¹⁾	$	44,465	$	4,477	$	781	$	(749	)	$	3,279	$	—	$	—	$	52,253
EastChase Market Center		19,567		4,215		360		(1,296	)		1,804		—		—		24,650

Total	$	64,032	$	8,692	$	1,141	$	(2,045	)	$	5,083	$	—	$	—	$	76,903


Unconsolidated Property	Building		Land		Above-Market Leases		Below-Market Leases			In-Place Leases		Debt (Premium)/ Discount		Other		Purchase Price
La Costa Town Center⁽²⁾	$	15,054	$	8,383	$	86	$	(2,069	)	$	2,046	$	—	$	—	$	23,500

Total	$	15,054	$	8,383	$	86	$	(2,069	)	$	2,046	$	—	$	—	$	23,500

⁽¹⁾

The purchase price of $52.3 million reflects $13.9 million in cash paid and the issuance of 3,230,769 shares of common stock with a fair value of approximately $39.1 million based on a closing price of $12.11 per share on the date of acquisition. The purchase price noted above is net of master lease agreements between the Company and the seller in the amount of $772,000 (included in other assets on the accompanying condensed consolidated balance sheets) based on the estimated fair value of funds expected to be received from escrow in connection with the acquisition. Payments under the master lease agreements commence upon the expiration of two existing leases in June 2012 and February 2013 (with terms through May 2013 and January 2015, respectively) unless the related spaces are re-leased with base rents equaling or exceeding the master lease payments. In addition, the seller has agreed to reimburse the Company for any expenditures resulting from tenant improvements or leasing commissions related to the spaces to the extent that funds remain available pertaining to the master lease agreements. See Note 17 for a discussion of changes in the fair value of this asset after the initial acquisition.

⁽²⁾

This property was originally purchased as a consolidated property. However, in September 2012 the La Costa Town Center property was contributed in exchange for proceeds of approximately $21.2 million to a newly-formed entity in which the Company holds a 20% ownership interest (see Note 13). The Company accounts for its remaining equity ownership in the property in a manner similar to the equity method of accounting, which is reflected in the accompanying condensed consolidated balance sheets as an investment in unconsolidated entities.

The Company recorded revenues and a net loss for the three months ended March 31, 2013 of $549,000 and $2,000, respectively, related to the 2013 acquisition. The Company recorded revenues and net income for the three months ended March 31, 2012 of $1.6 million and $172,000, respectively, related to the 2012 acquisitions.

The following unaudited pro forma information for the three months ended March 31, 2013 and 2012 has been prepared to reflect the incremental effect of the properties acquired in 2013 and 2012 as if such acquisitions had occurred on January 1, 2012 (in thousands):


	Three Months Ended
	March 31, 2013		March 31, 2012
Revenues	$	27,722	$	21,301
Net income⁽¹⁾	$	140	$	(150	)

⁽¹⁾

Pro forma results for the three months ended March 31, 2013 were adjusted to exclude non-recurring acquisition costs of approximately $47,000 related to the 2013 acquisition. The pro forma results for the three months ended March 31, 2012 were adjusted to include these costs relating to the 2013 acquisitions. A portion of the 2012 acquisitions were funded by proceeds from the offering of 8.125% Series B Cumulative Redeemable Preferred Stock (“Series B preferred stock”) that closed in January 2012. However, pro forma net income for the three months ended March 31, 2012 is not adjusted for this funding as the assumed Series B preferred stock quarterly dividends of approximately $1.9 million are not included in the determination of net income (included only as a reduction of net income (loss) attributable to the common stockholders).

At March 31, 2013, the allocation of purchase price to tangible and intangible assets for all 2012 and 2013 acquisitions had been completed with the exception of one item pertaining to the Company’s acquisition of the West Broad Village property. In connection with the acquisition of this property, the Company received a credit at closing in the amount of $450,000 (recorded as a liability) representing the estimated amount due to the property’s tenants for prior periods in which the landlord had not yet completed a reconciliation of common area maintenance expenses. The seller has not provided the Company with the information necessary to complete the reconciliations as of March 31, 2013, but the Company expects to receive the necessary information prior to June 30, 2013.

4. Lease Intangible Assets, Net

Lease intangible assets, net consisted of the following at March 31, 2013 and December 31, 2012:


	March 31, 2013		December 31, 2012
	(in thousands)
In-place leases, net of accumulated amortization of $22.8 million and $20.7 million as of March 31, 2013 and December 31, 2012, respectively (with a weighted average remaining life of 80 and 82 months as of March 31, 2013 and December 31, 2012, respectively)	$	47,486	$	50,666

Above-market leases, net of accumulated amortization of $5.8 million and $5.2 million as of March 31, 2013 and December 31, 2012, respectively (with a weighted average remaining life of 67 and 70 months as of March 31, 2013 and December 31, 2012, respectively)		15,220		15,888

Leasing commissions, net of accumulated amortization of $5.5 million and $4.9 million as of March 31, 2013 and December 31, 2012, respectively (with a weighted average remaining life of 109 and 111 months as of March 31, 2013 and December 31, 2012, respectively)		18,255		19,092

	$	80,961	$	85,646

Estimated amortization of lease intangible assets as of March 31, 2013 for each of the next five years and thereafter is as follows (in thousands):


Year Ending December 31,	Amount
2013 (remaining nine months)	$	14,299
2014		14,856
2015		10,632
2016		7,879
2017		6,893
Thereafter		26,402

Total	$	80,961

Amortization expense recorded on the lease intangible assets for the three months ended March 31, 2013 and 2012 was $7.3 million and $4.9 million, respectively. Included in these amounts are $1.5 million and $747,000, respectively, of amortization of above-market lease intangible assets recorded against rental revenue.

5. Lease Intangible Liabilities, Net

Lease intangible liabilities, net consisted of the following at March 31, 2013 and December 31, 2012:


	March 31, 2013		December 31, 2012
	(in thousands)
Below-market leases, net of accumulated amortization of $5.4 million and $5.0 million as of March 31, 2013 and December 31, 2012, respectively (with a weighted average remaining life of 134 months as of March 31, 2013 and December 31, 2012)	$	25,320	$	26,455

Amortization recorded on the lease intangible liabilities for the three months ended March 31, 2013 and 2012 was $1.5 million and $974,000, respectively. These amounts were recorded to rental revenue in the Company’s condensed consolidated statements of operations.

Estimated amortization of lease intangible liabilities as of March 31, 2013 for each of the next five years and thereafter is as follows (in thousands):


Year Ending December 31,	Amount
2013 (remaining nine months)	$	2,625
2014		3,130
2015		2,600
2016		2,266
2017		2,143
Thereafter		12,556

Total	$	25,320

6. Variable Interest Entities

Consolidated Variable Interest Entities

Included within the condensed consolidated financial statements is the 50% owned joint venture with AB Dothan, LLC, that is deemed a VIE, and for which the Company is the primary beneficiary as it has the power to direct activities that most significantly impact the economic performance of the VIE. The joint venture’s activities principally consist of owning and operating a neighborhood retail center with 171,670 square feet of gross leasable area (“GLA”) located in Dothan, Alabama.

As of March 31, 2013 and December 31, 2012, total carrying amount of assets was approximately $15.8 million and $15.9 million, respectively, which includes approximately $13.6 million of real estate assets at the end of each period. As of March 31, 2013 and December 31, 2012, the total carrying amount of liabilities was approximately $14.3 million.

Unconsolidated Variable Interest Entities

On December 9, 2010, the Company loaned $2.0 million to an unaffiliated borrower which has been identified as a VIE. In June 2012, the counterparty repaid the loan in full. The Company did not consolidate the VIE because it did not have the ability to control the activities that most significantly impacted the VIE’s economic performance. See Note 7 for an additional description of the nature, purposes and activities of the Company’s VIE and interests therein.

7. Mortgage Loan and Note Receivable

On December 9, 2010, the Company loaned $2.0 million to an unaffiliated borrower. The proceeds were used to facilitate the land acquisition and development of a shopping center anchored by Publix in Brandon, Florida. The loan was secured with a second mortgage trust deed on the property and was personally guaranteed by members of the borrower. In June 2012, the mortgage loan receivable was repaid in full, including interest accrued through the date of repayment.

In connection with the loan, the Company entered into a purchase and sale agreement to acquire this property upon completion of development, at the Company’s election. In June 2012, the Company executed an amendment whereby the closing date for the potential acquisition was extended through December 31, 2012. On October 1, 2012, the Company completed the acquisition of the retail shopping center with 68,000 square feet of GLA in Brandon, Florida for a purchase price of approximately $13.1 million.

In June 2012, the Company extended a note receivable in the amount of $750,000 to a third party. The note receivable bears interest at 10.0% per annum, with the principal and accrued interest due upon maturity in June 2014. The loan is recourse to the borrower. The balance is included in other assets on the accompanying condensed consolidated balance sheets.

8. Mortgages Payable, net

Mortgages payable at March 31, 2013 and December 31, 2012 consist of the following (in thousands):


	Carrying Amount of Mortgage Notes				Contractual Interest Rate			Effective Interest Rate			Monthly Payment⁽¹⁾		Maturity Date
Property Pledged as Collateral	March 31, 2013		December 31, 2012		Contractual Interest Rate			Effective Interest Rate			Monthly Payment⁽¹⁾		Maturity Date
West Broad Village⁽²⁾	$	50,000	$	50,000		2.69	%		2.69	%	$	112		2013
Five Forks Place		4,833		4,882		5.50	%		5.50	%		39		2013
Grant Creek Town Center		15,247		15,342		5.75	%		5.75	%		105		2013
Park West Place⁽³⁾		55,800		55,800		2.50	%		3.66	%		120		2013
Red Rock Commons⁽⁴⁾		13,884		13,800		1.86	%		1.86	%		29		2014
Excel Centre		12,216		12,284		6.08	%		6.08	%		85		2014
Merchant Central		4,443		4,468		5.94	%		6.75	%		30		2014
Edwards Theatres		11,774		11,859		6.74	%		5.50	%		95		2014
Gilroy Crossing		46,439		46,646		5.01	%		5.01	%		263		2014
The Promenade		49,266		49,703		4.80	%		4.80	%		344		2015
5000 South Hulen		13,598		13,655		5.60	%		6.90	%		83		2017
Lake Pleasant Pavilion		28,092		28,176		6.09	%		5.00	%		143		2017
Rite Aid — Vestavia Hills		1,143		1,184		7.25	%		7.25	%		21		2018
Lowe’s, Shippensburg		13,425		13,511		7.20	%		7.20	%		110		2031
Northside Mall⁽⁵⁾		12,000		12,000		0.13	%		1.13	%		1		2035

		332,160		333,310
Less: premium⁽⁶⁾		572		625

Mortgage notes payable, net	$	332,732	$	333,935

⁽¹⁾

Amount represents the monthly payment of principal and interest at March 31, 2013.

⁽²⁾

The loan at the West Broad Village property was refinanced and the maturity date extended subsequent to May 1, 2020; see Note 18 for further discussion.

⁽³⁾

The loan bears interest at a rate of LIBOR plus 2.25% (variable interest rate of 2.50% at March 31, 2013). In December 2010, the Company entered into interest rate swap contracts, which fix LIBOR at an average of 1.41% for the term of the loan. The maturity date may be extended for an additional one-year period through December 2014 at the Company’s option and upon the satisfaction of conditions precedent and the payment of an extension fee.

⁽⁴⁾

The maturity date for the Red Rock Commons construction loan was extended to March 2014 and may be extended for an additional one-year period through March 2015 at the Company’s option and upon the satisfaction of conditions precedent and the payment of an extension fee. The construction loan bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on the Company’s leverage ratio (variable interest rate of 1.86% at March 31, 2013).

⁽⁵⁾

The debt represents redevelopment revenue bonds to be used for the redevelopment of this property, which mature in November 2035. Interest is reset weekly and determined by the bond remarketing agent based on the market value of the bonds (interest rate of 0.13% at March 31, 2013). The interest rate on the bonds is currently priced off of the Securities Industry and Financial Markets Association index but could change based on the credit of the bonds. The bonds are secured by a $12.1 million letter of credit issued by the Company from the Company’s unsecured revolving credit facility. An underwriter’s discount related to the original issuance of the bonds with a remaining balance of $108,000 at March 31, 2013 will be amortized as additional interest expense through November 2035.

⁽⁶⁾

Represents (a) the fair value adjustment on assumed debt on acquired properties at the time of acquisition to account for below- or above-market interest rates and (b) an underwriter’s discount for the issuance of redevelopment bonds.

Total interest cost capitalized for the three months ended March 31, 2013 and 2012 was $0 and $110,000, respectively.

The Company’s mortgage debt maturities at March 31, 2013 for each of the next five years and thereafter are as follows (in thousands):


Year Ending December 31,	Amount
2013 (remaining nine months)	$	129,156
2014		90,633
2015		47,381
2016		1,341
2017		39,990
Thereafter		23,659

	$	332,160

9. Notes Payable

On July 20, 2012, the Company entered into an amended and restated credit agreement, which provided an increase in borrowings available under its credit facility to $250.0 million, decreased the fees pertaining to the unused capacity depending on utilization of the borrowing capacity, decreased the applicable interest rate and extended the maturity date. The Company has the ability from time to time to increase the size of the unsecured revolving credit facility by up to an additional $200.0 million for a total borrowing capacity of $450.0 million, subject to receipt of lender commitments and other conditions precedent. The amended maturity date is July 19, 2016 and may be extended for one additional year at the Company’s option. The Company, among other things, is subject to covenants requiring the maintenance of (1) maximum leverage ratios on unsecured, secured and overall debt and (2) minimum fixed coverage ratios. At March 31, 2013, the Company believes that it was in compliance with all the covenants in the credit agreement.

The unsecured revolving credit facility bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on the Company’s leverage ratio. The Company also pays a fee of 0.25% or 0.35% for any unused portion of the unsecured revolving credit facility, depending on the Company’s utilization of the borrowing capacity. Borrowings from the unsecured revolving credit facility were $88.0 million at March 31, 2013 at a weighted-average interest rate of 1.86%. The Company issued a $12.1 million letter of credit from the unsecured revolving credit facility, which secures an outstanding $12.0 million bond payable for the Northside Mall. This bond is included with the mortgages payable on the Company’s condensed consolidated balance sheets. At March 31, 2013, there was approximately $149.9 million available for borrowing under the unsecured revolving credit facility.

10. Earnings Per Share

Basic earnings (loss) per share is computed by dividing income (loss) applicable to common stockholders by the weighted average shares outstanding, as adjusted for the effect of participating securities. The Company’s unvested restricted share awards are participating securities as they contain non-forfeitable rights to dividends. The impact of unvested restricted share awards on earnings (loss) per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends and the unvested restricted shares’ participation rights in undistributed earnings (losses).

The calculation of diluted earnings per share for the three months ended March 31, 2013 does not include 699,719 shares of unvested restricted common stock or 1,241,259 OP units as the effect of including these equity securities was anti-dilutive to net loss attributable to the common stockholders. The calculation of diluted earnings per share for the three months ended March 31, 2012 does not include 989,920 shares of unvested restricted common stock, 102,118 shares of contingently issuable common stock related to the 2011 Edwards Theatres acquisition, or 1,392,766 OP units as the effect of including these equity securities was anti-dilutive to net loss attributable to the common stockholders. In addition, 3,333,400 common shares issuable upon settlement of the conversion feature of the 7.00% Series A Cumulative Convertible Perpetual Preferred Stock (“Series A preferred stock”) were anti-dilutive and were not included in the calculation of diluted earnings per share based on the “if converted” method for the three months ended March 31, 2013 and 2012.

Computations of basic and diluted earnings per share for the three months ended March 31, 2013 and 2012 (in thousands, except share data) were as follows:


	Three Months Ended
	March 31, 2013			March 31, 2012
Basic earnings per share:
Net income	$	324		$	433
Preferred dividends		(2,744	)		(2,121	)
Allocation to participating securities		(121	)		(152	)
Loss from operations attributable to non-controlling interests		(28	)		5

Net loss applicable to the common stockholders	$	(2,569	)	$	(1,835	)

Net loss attributable to the common stockholders	$	(2,448	)	$	(1,683	)
Allocation to participating securities		(121	)		(152	)

Net loss applicable to the common stockholders	$	(2,569	)	$	(1,835	)

Weighted-average common shares outstanding:
Basic and diluted		45,352,489			37,761,446

Basic and diluted earnings per share:
Net loss per share attributable to the common stockholders	$	(0.06	)	$	(0.06	)

11. Derivatives and Hedging Activities

In December 2010, the Company executed two pay-fixed interest rate swaps with a notional value of $55.8 million (weighted average interest rate of 1.41%) to hedge the variable cash flows associated with one of the Company’s mortgage payables. As a result of the interest rate swaps, the Company either (1) receives the difference between a fixed interest rate (the “Strike Rate”) and one-month LIBOR if the Strike Rate is less than LIBOR or (2) pays such difference if the Strike Rate is greater than LIBOR. No initial investment was made to enter into either of the interest rate swap agreements. The Company had no derivative financial instruments prior to the execution of the two swaps.

During the three months ended March 31, 2013 and 2012, the Company recorded no amounts in earnings attributable to hedge ineffectiveness. During the next twelve months, the Company estimates that an additional $459,000 will be reclassified from other comprehensive income as an increase to interest expense.

As of March 31, 2013, the Company had the following outstanding interest rate swaps and other derivatives instruments (in thousands):


	Fair Value(1)				Current Notional Amount		Strike Rate		Expiration Date
Type of Derivative Instrument	March 31, 2013		December 31, 2012		Current Notional Amount		Strike Rate		Expiration Date
Interest rate swaps⁽²⁾	$	459	$	620	$	55,800		1.34% to 1.48%	December 2013
Other derivative instrument⁽³⁾		—		274					March 2013

Total derivative instruments	$	459	$	894

⁽¹⁾

Fair value of derivative instruments does not include any related accrued interest payable to the counterparty.

⁽²⁾

The interest rate swaps are classified within accounts payable and other liabilities on the accompanying condensed consolidated balance sheets.

⁽³⁾

The Company’s purchase agreement executed in connection with the acquisition of the Edwards Theatres property in March 2011 contained a provision determined to be an embedded derivative instrument. The embedded derivative provided a guaranteed fair value for the OP units provided to the sellers of the property if redeemed for shares of the Company’s common stock or cash, at the Company’s election, prior to its expiration in March 2013. The fair value of the embedded derivative at each period was calculated through the use of a Monte Carlo valuation model based on the historical volatility and closing price of the Company’s common stock and a risk-free interest rate (see Note 17 for discussion of changes in the fair value of this derivative). The embedded derivative was classified within accounts payable and other liabilities in the accompanying condensed consolidated balance sheets.

Tabular Disclosure of the Effect of Derivative Instruments on the Income Statement

The tables below present the effect of the Company’s derivative financial instruments on the condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012 (in thousands):


	Three Months Ended
	March 31, 2013			March 31, 2012
Amount of unrealized gain (loss) recognized in OCI (effective portion):
Interest rate swaps	$	(1	)	$	(173	)
Other derivatives		—			—

Total	$	(1	)	$	(173	)

Amount of gain (loss) reclassified from accumulated OCI into income (effective portion):
Interest rate swaps (interest expense)	$	(162	)	$	(157	)
Other derivatives		—			—

Total	$	(162	)	$	(157	)

Amount of gain (loss) recognized in income (ineffective portion and amount excluded from effectiveness testing):
Interest rate swaps (other income/expense)	$	—		$	—
Other derivatives (changes in fair value of financial instruments and gain on OP unit redemption)		230			462

Total	$	230		$	462

Credit-risk-related Contingent Features

Under the terms of the two interest rate swaps detailed above, the Company could be declared in default on its obligations under the swap agreements in the event that it defaults on any of its indebtedness, even if repayment of the indebtedness has not been accelerated by the lender. Additionally, because the Company’s derivative counterparty is also the lender for the hedged floating rate credit agreement, the swap agreements incorporate the loan covenant provisions of the Company’s indebtedness. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

If the Company had breached any of these provisions at March 31, 2013, it could have been required to settle its obligations under the agreements at their termination value. As of March 31, 2013, the termination value defined as the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was a liability of approximately $515,000. As of March 31, 2013, the Company has not posted any collateral related to these agreements.

Although the Company’s derivative contracts are subject to a master netting arrangement, the Company does not net its derivative fair values or any existing rights or obligations to cash collateral on the consolidated balance sheets.

12. Equity

The Company has issued restricted stock awards to senior executives, directors and employees totaling 1,141,542 shares of common stock (net of forfeitures of 3,000 shares), which are included in the total shares of common stock outstanding as of March 31, 2013.

As of March 31, 2013, the Company had outstanding 2,000,000 shares of 7.00% Series A preferred stock, with a liquidation preference of $25.00 per share. The Company pays cumulative dividends on the Series A preferred stock when, as and if declared by the Company’s board of directors, at a rate of 7.00% per annum, subject to adjustment in certain circumstances. The annual dividend on each share of Series A preferred stock is $1.75, payable quarterly in arrears on or about the 15th day of January, April, July and October of each year. Holders of the Series A preferred stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. The Series A preferred stock is convertible, at the holders’ option, at any time and from time to time, into common stock of the Company at an initial conversion rate of 1.6667 shares of common stock per share of Series A preferred stock, which is equivalent to an initial

conversion price of $15.00 per share. The conversion price will be subject to customary adjustments in certain circumstances. On or after April 1, 2014, the Company may, at its option, convert some or all of the Series A preferred stock if the closing price of the common stock equals or exceeds 140% of the conversion price for at least 20 of the 30 consecutive trading days ending the day before the notice of exercise of conversion is sent and the Company has either declared and paid, or declared and set apart for payment, any unpaid dividends that are in arrears on the Series A preferred stock.

As of March 31, 2013, the Company had outstanding 3,680,000 shares of 8.125% Series B preferred stock, with a liquidation preference of $25.00 per share. The Company pays cumulative dividends on the Series B preferred stock, when, as and if declared by the Company’s board of directors, at a rate of 8.125% per annum, subject to adjustment in certain circumstances. The annual dividend on each share of Series B preferred stock is $2.03125, payable quarterly in arrears on or about the 15th day of January, April, July and October of each year. Holders of the Series B preferred stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances. At any time on and after January 31, 2017, the Company may, at its option, redeem the Series B preferred stock, in whole or from time to time in part, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption. In addition, upon the occurrence of a change of control, the Company or a successor may, at its option, redeem the Series B preferred stock, in whole or in part and within 120 days after the first date on which such change of control occurred, by paying $25.00 per share, plus any accrued and unpaid dividends to, but not including, the date of redemption.

The Company’s board of directors has authorized a stock repurchase program under which the Company may acquire up to $30.0 million of its common stock in open market and negotiated purchases with no expiration date. As of March 31, 2013, approximately $23.3 million remained available under the stock repurchase program to acquire outstanding shares of the Company’s common stock.

The Company has entered into equity distribution agreements (the “2012 Equity Distribution Agreements”) with four sales agents, under which it can issue and sell shares of its common stock having an aggregate offering price of up to $50.0 million from time to time through, at its discretion, any of the sales agents. The sales of common stock made under the 2012 Equity Distribution Agreements are made in “at the market” offerings as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”). During the three months ended March 31, 2013 the Company completed the issuance of 2,063,828 shares pursuant to the 2012 Equity Distribution Agreements, resulting in net proceeds of approximately $25.6 million at an average stock issuance price of $12.63 per share. The Company used the net proceeds to repay outstanding indebtedness under its unsecured revolving credit facility and for other general corporate and working capital purposes. Subsequent to March 31, 2013, the Company issued 801,300 shares pursuant to the 2012 Equity Distribution Agreements, resulting in net proceeds of approximately $10.7 million at an average stock issuance price of $13.60 per share.

Consolidated net income is reported in the Company’s consolidated financial statements at amounts that include the amounts attributable to both the common stockholders and the non-controlling interests. In conjunction with the Company’s formation transactions, interests in four properties were contributed in exchange for 641,062 OP units. In March 2011, the Company issued an additional 764,343 OP units in connection with the acquisition of the Edwards Theatres property. During the period from March 2012 to March 2013, a total of 591,474 OP units related to the Edwards Theatres acquisition were tendered to the Company for redemption, resulting in the issuance of an additional 531,768 shares of common stock and cash payments totaling approximately $1.9 million to former unitholders (see Note 17 for further discussion). In October 2012, the Company issued an additional 411,184 OP units in connection with the acquisition of the West Broad Village property.

The following table shows the vested ownership interests in the Operating Partnership as of March 31, 2013 and December 31, 2012:


	March 31, 2013					December 31, 2012
	OP Units		Percentage of Total			OP Units		Percentage of Total
Excel Trust, Inc.		46,323,239		97.4	%		44,204,287		97.3	%
Non-controlling interests consisting of:
OP units		1,225,115		2.6	%		1,245,019		2.7	%

Total		47,548,354		100.0	%		45,449,306		100.0	%

A charge/credit is recorded each period in the consolidated statements of income for the non-controlling interests’ proportionate share of the Company’s net income (loss). Ownership interests held by the Company do not include unvested restricted stock.

2010 Equity Incentive Award Plan

The Company has established the 2010 Equity Incentive Award Plan of Excel Trust, Inc. and Excel Trust, L.P. (the “2010 Plan”), pursuant to which the Company’s board of directors or a committee of its independent directors may make grants of stock options, restricted stock, stock appreciation rights and other stock-based awards to its non-employee directors, employees and consultants. The maximum number of shares of the Company’s common stock that may be issued pursuant to the 2010 Plan is 1,350,000 (of which 208,458 shares of common stock remain available for issuance as of March 31, 2013).

The following shares of restricted common stock were issued during the three months ended March 31, 2013:


Grant Date	Price at Grant Date		Number		Vesting Period (yrs.)
Three months ended March 31, 2013⁽¹⁾	$	13.43		41,500		4

⁽¹⁾

Shares issued to certain of the Company’s employees. These shares vest over four years with 25% vesting on the first anniversary of the grant date and the remainder vesting in equal quarterly installments thereafter.

Shares of the Company’s restricted common stock generally may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the administrator of the 2010 Plan, a domestic relations order, unless and until all restrictions applicable to such shares have lapsed. Such restrictions expire upon vesting. Shares of the Company’s restricted common stock have full voting rights and rights to dividends upon grant. During the three months ended March 31, 2013 and 2012, the Company recognized compensation expense of $562,000 and $785,000, respectively, related to the restricted common stock grants ultimately expected to vest. ASC Topic 718, Compensation — Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated $0 in forfeitures. Stock compensation expense is included in general and administrative expense in the Company’s accompanying condensed consolidated statements of operations.

As of March 31, 2013 and December 31, 2012, there was approximately $3.4 million of total unrecognized compensation expense related to the non-vested shares of the Company’s restricted common stock. As of March 31, 2013, this expense was expected to be recognized over a weighted-average remaining period of 1.9 years.


	Number of Unvested Shares of Restricted Common Stock			Weighted Average Grant Date Fair Value
Balance - January 1, 2013		701,396		$	10.02
Grants		41,500		$	13.43
Forfeitures		—		$	—
Vested		(33,050	)	$	12.37

Balance - March 31, 2013		709,846		$	10.11

Expected to vest - March 31, 2013		709,846		$	10.11

401(k) Retirement Plan

The Company maintains a 401(k) retirement plan covering substantially all employees, which permits participants to defer up to the maximum allowable amount of their eligible compensation as determined by the Internal Revenue Service. This deferred compensation, together with Company matching contributions equal to 100% of employee deferrals up to 3.0% of eligible compensation and 50% of employee deferrals for the next 2.0% of eligible compensation, is fully vested and funded as of March 31, 2013. Costs related to the matching portion of the plan were approximately $36,000 and $27,000, respectively, for the three months ended March 31, 2013 and 2012.

13. Investment in Unconsolidated Entities

On September 7, 2012, the Company contributed the La Costa Town Center property to a limited liability company (the “La Costa LLC”) with GEM Realty Capital, Inc. (“GEM”) in which the Company and GEM hold 20% and 80% ownership interests, respectively. The Company received approximately $21.2 million in exchange for the 80% ownership interest acquired by GEM. The Company’s remaining interest is reflected in the accompanying balance sheets at the Company’s historical cost basis as an investment in a profit-sharing arrangement. The contribution was not considered a sale of real estate due to terms in the La Costa LLC formation documents that could require the Company’s continuing participation in the future under certain circumstances. La Costa LLC does not qualify as a variable interest entity (“VIE”) and consolidation is not required as the Company does not control the operations of the property. The majority owner will bear the majority of any losses incurred. The Company will receive 20% of the cash flow distributions and may receive a greater portion of cash distributions in the future based upon the performance of the property and the

availability of cash for distribution. In addition, the Company receives fees in its role as the day-to-day property manager and for any development services that it provides. The Company’s interest in the income or losses of the underlying venture is reflected in a manner similar to the equity method of accounting.

On October 19, 2012, the Company acquired a 50% tenant-in-common ownership interest in a property (“Bay Hill”) for a purchase price of approximately $19.8 million as a part of a larger acquisition. The remaining 50% undivided interest in the Bay Hill property is held by MDC Fountains, LLC (“MDC”). The Bay Hill property does not qualify as a VIE and consolidation is not required as the Company does not control the operations of the property. The Company will receive 50% of the cash flow distributions and recognize 50% of the results of operations. In addition, the Company receives fees in its role as the day-to-day property manager. The Company’s 50% ownership interest is reflected in the accompanying balance sheets as an investment in unconsolidated entities and the Company’s interest in the income or losses of the property is recorded based on the equity method of accounting.

General information on the La Costa LLC and Bay Hill properties as of March 31, 2013 was as follows:

Unconsolidated Investment

Partner

Ownership Interest

Formation/
Acquisition Date

Property

La Costa LLC⁽¹⁾

GEM

September 7, 2012

La Costa Town Center

Bay Hill⁽²⁾

MDC

October 19, 2012

The Fountains at Bay Hill

⁽¹⁾

At March 31, 2013, La Costa, LLC, had real estate assets of $23.5 million, total assets of $25.8 million, mortgages payable of $14.1 million and total liabilities of $14.9 million. For the three months ended March 31, 2013, total revenues were $1.9 million, total expenses were $1.4 million and net income was $186,000. The mortgage note was assumed with the contribution of the property. The mortgage note bears interest at the rate of LIBOR plus a margin of 575 basis points (6.0% at March 31, 2013). The mortgage note has a maturity date of October 1, 2014, which may be extended for three additional one-year periods at the LLC’s election and upon the satisfaction of certain conditions (including the payment of an extension fee upon the exercise of the 2^nd and 3^rdrenewal options, execution of an interest rate cap and the establishment of certain reserve accounts). La Costa LLC has also entered into an interest rate cap related to the mortgage note, which limits LIBOR to a maximum of 3.0% and expires on October 1, 2014.

⁽²⁾

At March 31, 2013, there were $23.8 million in outstanding borrowings on the mortgage note assumed with the acquisition of the Bay Hill property. The mortgage note bears interest at the rate of LIBOR plus a margin of 325 basis points (3.5% at March 31, 2013). The mortgage note has a maturity date of April 2, 2015, which may be extended for two additional one-year periods at the borrower’s election and upon the satisfaction of certain conditions.

14. Related Party Transactions

Subsequent to the Offering, many of the employees of Excel Realty Holdings, LLC (“ERH”) became employees of the Company. ERH reimburses the Company for estimated time the Company employees spend on ERH related matters. In the three months ended March 31, 2013 and 2012, approximately $83,000 and $68,000, respectively, was reimbursed to the Company from ERH and included in other income in the condensed consolidated statements of operations.

15. Income Taxes

The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with the taxable year ended December 31, 2010. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including the requirement that it distribute currently at least 90% of its REIT taxable income to its stockholders. It is the Company’s intention to comply with these requirements and maintain the Company’s REIT status. As a REIT, the Company generally will not be subject to corporate federal, state or local income taxes on income it distributes currently (in accordance with the Code and applicable regulations) to its stockholders. If the Company fails to qualify as a REIT in any taxable year, then it will be subject to federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for subsequent tax years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income, properties and operations and to federal income and excise taxes on its taxable income not distributed in the amounts and in the time frames prescribed by the Code and applicable regulations thereunder and on the taxable income of any of its taxable REIT subsidiaries.

16. Commitments and Contingencies

Litigation:

The Company is not presently subject to any material litigation nor, to its knowledge, is any material litigation threatened against it which if determined unfavorably, would have a material effect on its condensed consolidated financial position, results of operations or cash flows.

Environmental Matters:

The Company follows the policy of monitoring its properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist at its properties, the Company is not currently aware of any environmental liability with respect to its properties that would have a material effect on its condensed consolidated balance sheets, results of operations or cash flows. Further, the Company is not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that it believes would require additional disclosure or the recording of a loss contingency.

Other

The Company’s other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In management’s opinion, these matters are not expected to have a material adverse effect on its condensed consolidated balance sheets, results of operations or cash flows. In addition, the Company expects to incur construction costs relating to development projects on portions of existing operating properties (including the Company’s proportionate share of costs related to the redevelopment of the unconsolidated La Costa Town Center property).

17. Fair Value of Financial Instruments

The Company is required to disclose fair value information relating to financial instruments that are remeasured on a recurring basis and those that are only initially recognized at fair value (not required to be subsequently remeasured). The Company’s disclosures of estimated fair value of financial instruments were determined using available market information and appropriate valuation methods. The use of different assumptions or methods of estimation may have a material effect on the estimated fair value of financial instruments.

The following table reflects the fair values of the Company’s financial assets and liabilities that are required to be measured at fair value on a recurring basis (in thousands):


	Balance at March 31, 2013			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair value measurements on a recurring basis:
Assets:
Other assets related to business combinations⁽¹⁾	$	830		$	—	$	—		$	830
Liabilities:
Interest rate swaps (see Note 11)	$	(459	)	$	—	$	(459	)	$	—
Contingent consideration related to business combinations⁽²⁾		(1,787	)	$	—		—			(1,787	)

Total	$	(2,246	)	$	—	$	(459	)	$	(1,787	)


	Balance at December 31, 2012			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Fair value measurements on a recurring basis:
Assets:
Other assets related to business combinations⁽¹⁾	$	992		$	—	$	—		$	992
Liabilities:
Interest rate swaps (see Note 11)	$	(620	)	$	—	$	(620	)	$	—
Contingent consideration related to business combinations⁽²⁾		(1,787	)	$	—		—			(1,787	)
Derivative instrument related to business combinations (see Note 11)⁽³⁾		(274	)		—		—			(274	)

Total	$	(2,681	)	$	—	$	(620	)	$	(2,061	)

⁽¹⁾

Amount reflects the fair value of funds expected to be received pursuant to master lease agreements executed in connection with the Promenade Corporate Center acquisition. The Company has estimated the fair value of the asset based on its expectations of the probability of leasing or releasing spaces within the term of the master lease agreements and corresponding estimates for time required to lease, lease rates and funds required for tenant improvements and lease commissions. This amount has been included in other assets in the accompanying condensed consolidated balance sheets, with subsequent changes in the fair value of the asset recorded as a gain (loss) in earnings in the period in which the change occurs.

⁽²⁾

Additional consideration may be due to the prior owners of two properties purchased in 2012 contingent upon their ability to lease-up vacant space at those properties during 2013. The balance of $1.8 million at December 31, 2012 and March 31, 2013 represents the Company’s best estimate of the fair value of funds expected to be paid to the former owners (the maximum amount of contingent consideration that may be contractually earned by the prior owners is $8.0 million).

⁽³⁾

Amount reflects the fair value of a provision within a purchase agreement that provides a guaranteed redemption value for OP units provided to the sellers of a property acquired in March 2011. The Company has estimated the fair value of the embedded derivative instrument using a Monte Carlo valuation model based on the historical volatility and closing price of the Company’s common stock and a risk-free interest rate. This amount is included in accounts payable and other liabilities in the accompanying condensed consolidated balance sheets, with changes in the fair value of the embedded derivative recorded as gain (loss) on changes in fair value of financial instruments and gain on OP unit redemption in the condensed consolidated statements of operations. This embedded derivative instrument expired on March 11, 2013.

During the period from March 2012 to March 2013, 591,474 OP units were tendered to the Company for redemption, resulting in the issuance of 531,768 shares of common stock and cash payments totaling approximately $1.9 million. The Company has recognized the acquisition of non-controlling interests based on the fair value of shares issuable in connection with the one-for-one redemption right available to all holders of OP units. The Company recognized a loss of approximately $16,000 and a gain of approximately $174,000 in the three months ended March 31, 2013 and 2012, respectively, as a result of the deficit or excess of the fair value of the guarantee over the fair value of the consideration required to settle. In total, the Company recognized increases in additional paid-in capital and common stock, par value, of approximately $279,000 and $1.4 million for the three months ended March 31, 2013 and 2012, respectively. The Company also recognized additional gains of $246,000 and $288,000 in the three months ended March 31, 2013 and 2012, respectively, as a result of revaluations of the redemption obligation.

The following table reconciles the beginning and ending balances of financial instruments that are remeasured on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2013 (in thousands):


	Other Assets Related to Business Combinations⁽¹⁾			Contingent Consideration Related to Business Combinations⁽²⁾			Derivative Instruments Related to Business Combinations⁽³⁾
Beginning balance, January 1, 2013	$	992		$	(1,787	)	$	(274	)
Total gains:
Included in earnings		—			—			246
Purchases, issuances, or settlements		(162	)		—			28

Ending balance, March 31, 2013	$	830		$	(1,787	)	$	—

⁽¹⁾

The change of $162,000 for other assets related to business combinations during the three months ended March 31, 2013 is comprised of payments received on the master lease assets.

⁽²⁾

There was no change in the contingent consideration related to business combinations during the three months ended March 31, 2013, with the earn-out periods related to the two applicable acquisitions ending on June 30, 2013 and September 30, 2013, respectively.

⁽³⁾

The change of $274,000 for derivative instruments related to business combinations during the three months ended March 31, 2013 is related to changes to the redemption provision for OP units issued in connection with the 2011 Edwards Theatres acquisition as a result of (a) a decrease of $246,000 due to recognition of a gain included in earnings related to changes in the fair value of the redemption obligation and (b) a decrease of $28,000 due to the redemption of corresponding OP units.


	Other Assets Related to Business Combinations⁽¹⁾		Contingent Consideration Related to Business Combinations⁽²⁾			Derivative Instruments Related to Business Combinations⁽³⁾
Beginning balance, January 1, 2012	$	—	$	(1,613	)	$	(3,050	)
Total gains:
Included in earnings		—		—			462
Purchases, issuances, or settlements		772		1,613			266

Ending balance, March 31, 2012	$	772	$	—		$	(2,322	)

⁽¹⁾

The change of $772,000 for other assets related to business combinations during the three months ended March 31, 2012 is comprised of the recognition of a master lease asset of $772,000 related to the acquisition of the Promenade Corporate Center property (see Note 3).

⁽²⁾

The change of $1.6 million for contingent consideration related to business combinations during the three months ended March 31, 2012 is comprised of a decrease in the obligation due to the payment of approximately $1.6 million in earn-outs in January 2012.

⁽³⁾

The change of $728,000 for derivative instruments related to business combinations during the three months ended March 31, 2012 is related to changes to the redemption provision for OP units issued in connection with the 2011 Edwards Theatres acquisition as a result of (a) a decrease of $462,000 due to recognition of a gain included in earnings related to changes in the fair value of the redemption obligation and (b) a decrease of $266,000 due to the redemption of corresponding OP units.

There were no additional gains or losses, purchases, sales, issuances, settlements, or transfers in or out related to any of the three levels of the fair value hierarchy during the three months ended March 31, 2013 and 2012.

The following table provides quantitative disclosure about significant unobservable inputs related to financial assets and liabilities measured on a recurring basis (Level 3 of the fair value hierarchy) as of March 31, 2013:


	Fair Value at March 31, 2013			Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
Other assets related to business combinations⁽¹⁾	$	830			Cash flow		Tenant improvement allowance Lease commission TI construction period	$ $	12.00/sf - 35.00/sf 6.0 2-5 months	%
Contingent consideration related to business combinations⁽²⁾	$	(1,787	)		Cash flow		Tenant improvement allowance Lease commission TI construction period	$ $	12.00/sf - 33.00/sf 6.0 2 months	%

⁽¹⁾

The significant unobservable inputs used in the fair value measurement of the master lease agreement asset are any estimated tenant improvement allowances, leasing commissions and the construction periods associated with projected new leasing. Significant increases (decreases) in any of these inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, a change in the assumption used for market lease rates is accompanied by a directionally similar change in the assumption used for tenant improvement allowances and/or leasing commissions.

⁽²⁾

The significant unobservable inputs used in the fair value measurement of the contingent consideration are any estimated tenant improvement allowances, construction periods, leasing commissions and lease rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for market lease rates is accompanied by a directionally similar change in the assumption used for tenant improvement allowances and/or leasing commissions.

The Company has not elected the fair value measurement option for any of its other financial assets or liabilities. The Company has estimated the fair value of its financial assets using a discounted cash flow analysis based on an appropriate market rate for a similar type of instrument. The Company has estimated the fair value of its financial liabilities by using either (1) a discounted cash flow analysis using an appropriate market discount rate for similar types of instruments, or (2) a present value model and an interest rate that includes a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt. The fair values of financial instruments not included in this table are estimated to be equal to their carrying amounts.

The fair values of certain additional financial assets and liabilities at March 31, 2013 and December 31, 2012 (fair value measurements categorized as Level 3 of the fair value hierarchy) are as follows (in thousands):


	March 31, 2013				December 31, 2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Note receivable (Other Assets)	$	750	$	750	$	750	$	750
Financial liabilities:
Mortgage notes payable		332,732		340,158		333,935		341,288
Notes payable		88,000		88,047		75,000		74,862

18. Subsequent Events

On April 10, 2013, the Company executed a first amendment to the loan agreement at its West Broad Village property, resulting in an extension of the maturity date to June 1, 2013. In connection with the extension, the Company prepaid $10.0 million of the outstanding borrowings, leaving a remaining outstanding balance of $40.0 million. On April 19, 2013, the Company refinanced the loan associated with the West Broad Village property with a new principal amount of $39.7 million, which will bear interest at a fixed rate of 3.3%. The refinancing extended the maturity date of the loan to May 1, 2020.

On April 1, 2013, the Company executed a purchase and sale agreement for the sale of the Pavilions Crossing property (retail properties segment) for a sale price of approximately $16.3 million, which would result in a gain on sale if consummated. The sale of this property is subject to due diligence and other customary closing conditions.

On April 29, 2013, the Company utilized borrowings from its unsecured credit facility to voluntarily prepay approximately $20.0 million in mortgage notes maturing in 2013 at its Five Forks Place and Grant Creek Town Center properties.

19. Segment Disclosure

The Company’s reportable segments consist of the three types of commercial real estate properties for which management internally evaluates operating performance and financial results: Office Properties, Multi-family Properties (new in 2012) and Retail Properties. The Company was formed for the primary purpose of owning and operating Retail Properties. As such, administrative costs after the Offering are shown under the Retail Properties segment. The Retail Properties operating segment also includes undeveloped land which the Company intends to develop into retail properties.

The Company evaluates the performance of the operating segments based upon property operating income. “Property Operating Income” is defined as operating revenues (rental revenue and tenant recoveries) less property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses). The Company also evaluates interest expense, interest income and depreciation and amortization by segment. Corporate general and administrative expense, interest expense related to corporate indebtedness and other non-recurring gains or losses are reflected within the Retail Properties operating segment as this constitutes the Company’s primary business objective and represents the majority of its operations. There is no intersegment activity.

The following tables reconcile the Company’s segment activity to its condensed consolidated results of operations and financial position for the three months ended March 31, 2013 and 2012 (in thousands):


	For the Three Months Ended
	March 31, 2013			March 31, 2012
Office Properties:
Total revenues	$	2,050		$	1,832
Property operating expenses		(845	)		(598	)

Property operating income, as defined		1,205			1,234
General and administrative		(5	)		(67	)
Depreciation and amortization		(940	)		(794	)
Interest expense		(192	)		(198	)

Net income	$	68		$	175

Multi-family Properties:
Total revenues	$	1,320		$	—
Property operating expenses		(304	)		—


	For the Three Months Ended
	March 31, 2013			March 31, 2012
Property operating income, as defined		1,016			—
General and administrative		(144	)		—
Depreciation and amortization		(1,149	)		—

Net loss	$	(277	)	$	—

Retail Properties:
Total revenues	$	24,159		$	17,948
Property operating expenses		(5,353	)		(3,809	)

Property operating income, as defined		18,806			14,139
General and administrative		(3,685	)		(3,435	)
Depreciation and amortization		(10,301	)		(7,485	)
Interest expense		(4,606	)		(3,476	)
Interest income		50			53
Income from equity in unconsolidated entities		39			—
Changes in fair value of financial instruments and gain on OP unit redemption		230			462

Net income	$	533		$	258

Total Reportable Segments:
Total revenues	$	27,529		$	19,780
Property operating expenses		(6,502	)		(4,407	)

Property operating income, as defined		21,027			15,373
General and administrative		(3,834	)		(3,502	)
Depreciation and amortization		(12,390	)		(8,279	)
Interest expense		(4,798	)		(3,674	)
Interest income		50			53
Income from equity in unconsolidated entities		39			—
Changes in fair value of financial instruments and gain on OP unit redemption		230			462

Net income	$	324		$	433

Attributable to Controlling Interest:
Net income attributable	$	324		$	433
Net loss attributable to non-controlling interests in operating partnership		59			71
Net income attributable to non-controlling interests in consolidated joint ventures		(87	)		(66	)

Net income available to Excel Trust, Inc.	$	296		$	438


	March 31,		December 31,
	2013		2012
Assets:
Office Properties:
Total assets	$	68,532	$	70,473
Multi-family Properties:
Total assets		71,638		72,627
Retail Properties:
Total assets		962,671		936,154

Total Reportable Segments & Consolidated Assets:
Total assets	$	1,102,841	$	1,079,254

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used herein, the terms “we,” “us,” “our” or the “Company” refer to Excel Trust, Inc., a Maryland corporation, and any of our subsidiaries.

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this report that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: adverse economic or real estate developments in the retail industry or the markets in which we operate; changes in local, regional and national economic conditions; our inability to compete effectively; our inability to collect rent from tenants; defaults on or non-renewal of leases by tenants; increased interest rates and operating costs; decreased rental rates or increased vacancy rates; our failure to obtain necessary outside financing on favorable terms or at all; changes in the availability of additional acquisition opportunities; our inability to successfully complete real estate acquisitions; our failure to successfully operate acquired properties and operations; our failure to qualify or maintain our status as a REIT; our inability to attract and retain key personnel; government approvals, actions and initiatives, including the need for compliance with environmental requirements; financial market fluctuations; changes in real estate and zoning laws and increases in real property tax rates; the effects of earthquakes and other natural disasters; and lack of or insufficient amounts of insurance. While forward-looking statements reflect our good faith beliefs (or those of the indicated third parties), they are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2012. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Management’s Overview and Summary

We are a vertically integrated, self-administered, self-managed real estate firm with the principal objective of acquiring, financing, developing, leasing, owning and managing community and power centers, grocery anchored neighborhood centers and freestanding retail properties. Our strategy is to acquire high quality, well-located, dominant retail properties that generate attractive risk-adjusted returns. We target competitively protected properties in communities that have stable demographics and have historically exhibited favorable trends, such as strong population and income growth. We generally lease our properties to national and regional supermarket chains, big-box retailers and select national retailers that frequently offer necessity and value oriented items and generate regular consumer traffic. Our tenants often carry goods that are less impacted by fluctuations in the broader U.S. economy and consumers’ disposable income, which we believe generates more predictable property-level cash flows.

The following table reflects our total portfolio at March 31, 2013 (a property is reclassified from development to the operating portfolio at the earlier of 85% occupancy or one year from completion and delivery of the space):


	Gross Leasable Area (GLA)		% Occupied			% Leased			Number of Properties
Operating Portfolio:
Retail properties		5,292,555		92.1	%		93.2	%		31
Multi-family properties⁽¹⁾		339 units		89.7	%		92.9	%		n/a
Office properties		338,339		80.6	%		82.3	%		2

Total/weighted-average operating portfolio		5,630,894		91.4	%		92.5	%		33

Development Properties:
Development properties⁽²⁾		149,517		n/a			n/a			n/a
Unconsolidated properties⁽³⁾		225,070		65.5	%		65.5	%		2

Total Portfolio:
Total/weighted-average total portfolio		6,005,481		88.2	%		89.2	%		35

⁽¹⁾

Includes the 339 apartment units on the upper levels of our West Broad Village retail shopping center (the number of apartment units and leased percentage are not included in the total/weighted-average).

⁽²⁾

Our non-operating property consists of Phase II of our Chimney Rock property, which is held for future development. Phase I of our Chimney Rock property is classified as an operating property.

⁽³⁾

Includes our La Costa Town Center and The Fountains at Bay Hill properties in which we hold 20% and 50% ownership interests, respectively.

Our operations are carried out primarily through our operating partnership. Pursuant to contribution agreements in connection with our initial public offering, we and our operating partnership received a contribution of interests in four properties as well as the property management, leasing and real estate development operations of the properties in exchange for the issuance of shares of our common stock or operating partnership units and/or the payment of cash to the contributors and the assumption of debt and other specified liabilities.

We receive income primarily from rents and reimbursement payments received from tenants under existing leases at each of our properties. Potential impacts to our income include unanticipated tenant vacancies, vacancy of space that takes longer to re-lease and, for non-triple-net leases, operating costs that cannot be recovered from our tenants through contractual reimbursement formulas in our leases. Our operating results therefore depend materially on the ability of our tenants to make required payments and overall real estate market conditions.

Critical Accounting Policies

A complete discussion of our critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2012 which was filed with the Securities and Exchange Commission, or SEC, and is accessible on the SEC’s website at www.sec.gov.

New Accounting Standards

See Note 2 to the condensed consolidated financial statements included elsewhere herein for disclosure of new accounting standards.

Results of Operations

We operate through three reportable business segments: retail properties, multi-family properties and office properties. At March 31, 2013, we owned 31 consolidated retail operating properties with a total of approximately 5.3 million square feet of gross leasable area (including a consolidated joint venture owned 50% by us). The multi-family segment consists of 339 apartment units at one retail property, West Broad Village, which is located in Richmond, Virginia. The office segment consists of two properties, Excel Centre, a portion of which is utilized as our headquarters, and the Promenade Corporate Center (these properties total 338,339 square feet of gross leasable area). All of our other properties are reported in the retail segment.

The following table reflects leasing activity at our consolidated retail and office operating properties for comparable leases (leases executed for spaces in which there was a tenant at some point during the previous twelve-month period) and non-comparable leases during the three months ended March 31, 2013:


	Number of Leases		GLA		Weighted- Average Lease Rate		Weighted- Average Prior Lease Rate		% Increase (Decrease)			Tenant Improvement Allowance (sf)		Leasing Commission (sf)
Comparable leases		12		46,790	$	22.94	$	23.27		(1.4	)%	$	17.54	$	4.48
Non-comparable leases		9		28,952	$	19.21		n/a		n/a		$	30.67	$	9.57

Total leasing activity		21		75,742

In the three months ended March 31, 2013, we acquired one retail operating property for cash for a purchase price of approximately $30.7 million. We utilized borrowings from our unsecured revolving credit facility to acquire this property.

Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012

The following table sets forth historical financial information for same properties (all properties that we consolidated, owned and operated for the entirety of both periods being compared, except for properties that were entirely or primarily under redevelopment or development during either or both of the periods being compared), new properties (properties that were not owned during the entirety of the periods being compared), redevelopment/development properties (properties that were entirely or primarily under redevelopment or development during either or both of the periods being compared) and corporate entities (legal entities performing general and administrative functions) (dollars in thousands, except on a per square foot basis):


	Same Properties						New Properties						Redevelopment/ Development Properties						Corporate						Total
	Three months ended March 31,
	2013			2012			2013			2012			2013			2012			2013			2012			2013			2012
Rentable GLA		3,912,719			3,912,719			1,599,625			437,613			118,550			118,550			—			—			5,630,894			4,468,882
Percent leased		94.6	%		94.7	%		87.2	%		88.3	%		95.8	%		75.8	%		—			—			92.5	%		93.6	%
Number of properties		21			21			11			2			1			1			—			—			33			24
Percent of total portfolio		63.7	%		87.5	%		33.3	%		8.3	%		3.0	%		4.2	%		—			—			100.0	%		100.0	%

	Same Properties						New Properties						Redevelopment/ Development Properties						Corporate						Total
	Three months ended March 31,
	2013			2012			2013			2012			2013			2012			2013			2012			2013			2012
Rental revenue	$	14,185		$	14,516		$	7,930		$	1,448		$	424		$	247		$	(58	)	$	(58	)	$	22,481		$	16,153
Tenant recoveries		3,606			3,121			1,082			113			62			26			(18	)		7			4,732			3,267
Other income		11			20			149			50			—			—			156			290			316			360

Total revenues		17,802			17,657			9,161			1,611			486			273			80			239			27,529			19,780
Rental operations⁽¹⁾		4,214			4,226			2,524			484			118			37			(354	)		(340	)		6,502			4,407

Property operating income	$	13,588		$	13,431		$	6,637		$	1,127		$	368		$	236		$	434		$	579		$	21,027		$	15,373

⁽¹⁾

Amount includes the following expenses that are directly attributable to a property: maintenance and repairs, real estate taxes, management fees and other operating expenses.

The following table provides a reconciliation of property operating income (as defined in the table above) to net income for the three months ended March 31, 2013 and 2012 (dollars in thousands):


	Three Months Ended
	March 31, 2013			March 31, 2012			Change			Percent Change
Property operating income	$	21,027		$	15,373		$	5,654			36.8	%
Unallocated (income) expense:
General and administrative		3,834			3,502			332			9.5	%
Depreciation and amortization		12,390			8,279			4,111			49.7	%

Net operating income		4,803			3,592			1,211			33.7	%
Interest expense, net		(4,748	)		(3,621	)		(1,127	)		31.1	%
Income from equity in unconsolidated entities		39			—			39			n/a
Changes in fair value of financial instruments and gain on redemption of OP units		230			462			(232	)		50.2	%

Net income	$	324		$	433		$	(109	)	$	25.2	%

Property operating income: Property operating income increased by $5.6 million, or 36.8%, to $21.0 million for the three months ended March 31, 2013 compared to $15.4 million for the three months ended March 31, 2012. The increase was primarily related to the acquisition of eleven operating properties in 2012 and 2013 and the commencement of additional leases at our development property in 2012 and 2013.

General and administrative: General and administrative expenses were $3.8 million for the three months ended March 31, 2013 compared to $3.5 million for the three months ended March 31, 2012. The increase was primarily related to higher compensation and benefits costs associated with increases in the number of employees and an increase in the amount of professional fees paid, partially offset by a decrease in acquisition costs and a decrease in share-based compensation expense as a result of the graded vesting method of recognizing compensation expense related to the 2012 performance-based stock awards, which results in declining amounts of compensation expense in 2013 as compared to 2012. Included in general and administrative expenses was share-based compensation expense for the three months ended March 31, 2013 and 2012 of $562,000 and $785,000, respectively.

Depreciation and amortization: Depreciation and amortization expense increased $4.1 million, or 49.7%, to $12.4 million for the three months ended March 31, 2013 compared to $8.3 million for the three months ended March 31, 2012. The increase was primarily related to our acquisition of eleven operating properties in 2012 and 2013 and the commencement of depreciation at our development property in 2012.

Interest expense, net: Interest expense, net increased $1.1 million, or 31.1%, to $4.7 million for the three months ended March 31, 2013 compared to $3.6 million for the three months ended March 31, 2012. The increase was primarily due to the assumption of approximately $78.3 million of mortgage debt in connection with our property acquisitions in 2012, partially offset by a decrease in the interest rate and fees associated with our unsecured revolving credit facility as a result of amendments in July 2012.

Loss from equity in unconsolidated entities: In September 2012, we contributed our La Costa Town Center property to a newly-formed entity in which we hold a 20% ownership interest. We account for our ownership interest in a manner similar to the equity method of accounting. In October 2012, we purchased a 50% tenant-in-common interest in The Fountains at Bay Hill property, which we account for under the equity method of accounting. Both of these ownership interests are reflected in the accompanying condensed consolidated balance sheets as an investment in unconsolidated entities (see Note 13 to the condensed consolidated financial statements contained elsewhere herein for further discussion). The income of $39,000 recognized for the three months ended March 31, 2013 is comprised of our proportionate share of the income from operations of these properties.

Changes in fair value of financial instruments and gain on redemption of OP units: A gain on changes in fair value of financial instruments and gain on OP unit redemption of approximately $230,000 was recognized in the three months ended March 31, 2013 as a result of (1) the redemption of 19,904 OP units and (2) the expiration of the guaranteed redemption period for OP units issued in connection with the 2011 Edwards acquisition, which resulted in the recognition of a gain of approximately $246,000 representing the unutilized portion of the remaining redemption provision (see Note 17 to the condensed consolidated financial statements contained elsewhere herein for further discussion). A gain on changes in fair value of financial instruments of approximately $462,000 was recognized in the three months ended March 31, 2012 is the result of (1) the redemption of 121,852 OP units and (2) a decrease in the estimated fair value of the redemption provision.

Results of Operations – Segments

We evaluate the performance of our segments based upon property operating income. “Property Operating Income” is defined as operating revenues (rental revenue, tenant recoveries and other income) less property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses).

You should read the following discussion in conjunction with the segment information disclosed in Note 19 to our condensed consolidated financial statements in accordance with ASC 280, Segment Reporting. Our results of operations for the three months ended March 31, 2013 and 2012 may not be indicative of our future results of operations.

The following table sets forth results of operations presented by segments for the three months ended March 31, 2013 and 2012 (dollars in thousands):


	Three Months Ended
	March 31, 2013		March 31, 2012		Change		Percent Change
Revenues:
Office properties	$	2,050	$	1,832	$	218		11.9	%
Multi-family properties		1,320		—		1,320		n/a
Retail properties		24,159		17,948		6,211		34.6	%

Total revenues		27,529		19,780		7,749		39.2	%
Property operating expenses:
Office properties	$	845	$	598	$	247		41.3	%
Multi-family properties		304		—		304		n/a
Retail properties		5,353		3,809		1,544		40.5	%

Total property operating expenses		6,502		4,407		2,095		47.5	%

Comparison of the Three Months Ended March 31, 2013 to the Three Months Ended March 31, 2012

Revenue-office properties: Office property revenue increased by $218,000, or 11.9%, to $2.0 million for the three months ended March 31, 2013 compared to $1.8 million for the three months ended March 31, 2012. The increase was related to the acquisition of Promenade Corporate Center in January 2012.

Revenue-multi-family properties: Multi-family property revenue was $1.3 million for the three months ended March 31, 2013 as a result of our acquisition of the West Broad Village property in October 2012, which includes 339 apartments on the upper levels of the shopping center.

Revenue-retail properties: Retail property revenue increased by $6.2 million, or 34.6%, to $24.1 million for the three months ended March 31, 2013 compared to $17.9 million for the three months ended March 31, 2012. The increase was primarily related to our acquisition of eleven operating properties in 2012 and 2013 and commencement of additional leases at our development property in 2012 and 2013.

Property operating expenses-office properties: Property operating expenses related to our office properties increased by $247,000, or 41.3%, to $845,000 for the three months ended March 31, 2013 compared to $598,000 for the three months ended March 31, 2012. The increase was primarily related to the acquisition of Promenade Corporate Center in January 2012.

Property operating expenses-multi-family properties: Multi-family operating expenses were $304,000 for the three months ended March 31, 2013 as a result of our acquisition of the West Broad Village property in October 2012, which includes 339 apartments on the upper levels of the shopping center.

Property operating expenses-retail properties: Property operating expenses related to our retail properties increased by $1.5 million, or 40.5%, to $5.3 million for the three months ended March 31, 2013 compared to $3.8 million for the three months ended March 31, 2012. The increase was primarily related to the acquisition of eleven operating properties in 2012 and 2013.

Cash Flows

The following is a comparison, for the three months ended March 31, 2013 and 2012, of our cash flows.

Cash and cash equivalents were $6.7 million and $9.2 million at March 31, 2013 and 2012, respectively.

Net cash provided by operating activities was $10.6 million for the three months ended March 31, 2013 compared to $9.2 million for the three months ended March 31, 2012, an increase of $1.4 million. The increase was primarily due to changes in operating assets and liabilities.

Net cash used in investing activities was $36.6 million for the three months ended March 31, 2013 compared to $64.1 million for the three months ended March 31, 2012, a decrease of $27.5 million. The decrease in net cash used was primarily the result of an decrease in property acquisitions during the three months ended March 31, 2013 compared to the same period in 2012, partially offset by proceeds from the sale of equity securities in the amount of approximately $1.3 million in 2012.

Net cash provided by financing activities was $27.1 million for the three months ended March 31, 2013 compared to $58.9 million for the three months ended March 31, 2012, a decrease of $31.8 million. The decrease was primarily due to lower proceeds from equity offerings of $25.6 million compared to $88.7 million for the three months ended March 31, 2013 and 2012, respectively. The decrease was partially offset by net borrowings from notes payable of $13.0 million compared to net payments on notes payable of $21.0 million for the three months ended March 31, 2013 and 2012, respectively.

Funds From Operations

We present funds from operations, or FFO, because we consider FFO an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year-over-year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income. We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or NAREIT. As defined by NAREIT, FFO represents net income (loss) (computed in accordance with GAAP), excluding real estate-related depreciation and amortization, impairment charges and net gains (losses) on the disposition of real estate assets and after adjustments for unconsolidated partnerships and joint ventures. Our computation may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

The following table presents a reconciliation of our FFO for the three months ended March 31, 2013 and 2012 (in thousands):


	For the Three Months Ended
	March 31, 2013			March 31, 2012
Net loss attributable to the common stockholders	$	(2,448	)	$	(1,683	)
Non-controlling interests in operating partnership		(59	)		(71	)
Depreciation and amortization		12,390			8,279
Depreciation and amortization related to joint ventures⁽¹⁾		411			(62	)

Funds from operations	$	10,294		$	6,463

⁽¹⁾

Includes a reduction for 50% of the depreciation and amortization expense at our Dothan property and an increase for our proportionate share of depreciation and amortization expense at the unconsolidated La Costa Town Center and The Fountains at Bay Hill properties.

Liquidity and Capital Resources

At March 31, 2013, we had $6.7 million of cash and cash equivalents on hand.

Our short-term liquidity requirements consist primarily of funds to pay for operating expenses and other expenditures directly associated with our properties, including:

•

interest expense and scheduled principal payments on outstanding indebtedness,

•

general and administrative expenses,

•

future distributions expected to be paid to our stockholders and limited partners of our operating partnership,

•

anticipated and unanticipated capital expenditures, tenant improvements and leasing commissions, and

•

construction of our non-operating properties.

Our long term liquidity requirements consist primarily of funds to pay for property acquisitions, scheduled debt maturities, renovations, expansions, capital commitments, construction obligations and other non-recurring capital expenditures that need to be made periodically, and the costs associated with acquisitions and developments of new properties that we pursue.

We intend to satisfy our short-term liquidity requirements primarily through our existing working capital and cash provided by our operations. We believe our rental revenue net of operating expenses will generally provide sufficient cash inflows to meet our debt service obligations (excluding debt maturities), pay general and administrative expenses and fund regular distributions. We anticipate being able to refinance our debt service obligations or borrow from our unsecured credit facility to pay for upcoming debt maturities. In February 2013, we extended the maturity date for $13.9 million of our indebtedness with an original maturity date of 2013 through March 2014 (with one additional extension through March 2015 available at our option). In April 2013, we refinanced the outstanding loan at our West Broad Village property, extending the maturity date for $39.7 million of the outstanding indebtedness through May 2020 at a fixed rate of 3.3% ($10.3 million of the balance outstanding at March 31, 2013 was prepaid in connection with the refinancing, see Note 18 to the accompanying condensed consolidated financial statements contained elsewhere herein for further discussion). In addition, in April 2013 we utilized borrowings of approximately $20.0 million from our unsecured credit facility to prepay the outstanding loan balances at our Five Forks Place and Grant Creek Town Center properties. The only remaining loan maturity date in 2013 is the $55.8 million mortgage note at our Park West Place property, which is scheduled to mature in December 2013, but can be extended through December 2014 (see Note 8 to the accompanying condensed consolidated financial statements contained elsewhere herein for further discussion). We expect to incur approximately $27.8 million in construction costs relating to redevelopment or development projects on portions of existing operating properties (including the redevelopment of our unconsolidated La Costa Town Center property). Funds for these costs are expected to come from new mortgage financing, borrowings from our unsecured revolving credit facility and existing cash. We intend to satisfy our other long-term liquidity requirements through our existing working capital, cash provided by indebtedness, long-term secured and unsecured indebtedness and the use of net proceeds from the disposition of non-strategic assets. In addition, we may, from time to time, offer and sell additional shares of common stock and preferred stock, as well as debt securities, warrants, rights and other securities to the extent necessary or advisable to meet our liquidity needs.

Our unsecured revolving credit facility has a borrowing capacity of $250.0 million, which may be increased from time to time up to an additional $200.0 million for a total borrowing capacity of $450.0 million, subject to receipt of lender commitments and other conditions precedent. The maturity date is July 19, 2016 and may be extended for one additional year at our option. The unsecured revolving credit facility bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on our leverage ratio. We also pay a fee of 0.25% or 0.35% for any unused portion of the unsecured revolving credit facility, depending on our utilization of the borrowing capacity. Borrowings under the unsecured revolving credit facility were $88.0 million at March 31, 2013 at a weighted-average interest rate of 1.86%. In addition, we issued a $12.1 million letter of credit from the unsecured revolving credit facility, which secures an outstanding $12.0 million bond payable for the Northside Mall. This bond is included with the mortgages payable on our condensed consolidated balance sheets. At March 31, 2013, there was approximately $149.9 million available for borrowing under the unsecured revolving credit facility.

Our ability to borrow funds under the credit agreement, and the amount of funds available under the credit agreement at any particular time, are subject to our meeting borrowing base requirements. The amount of funds we can borrow is determined by the net operating income of our unencumbered assets that comprise the borrowing base (as defined in the credit agreement). We are also subject to financial covenants relating to maximum leverage ratios on unsecured, secured and overall debt, minimum fixed coverage ratios, minimum amount of net worth, dividend payment restrictions and certain investment limitations.

The following is a summary of key financial covenants and their covenant levels as of March 31, 2013:


	Required			Actual
Key financial covenant:
Ratio of total liabilities to total asset value (maximum)		60.0	%		38.3	%
Ratio of adjusted EBITDA to fixed charges (minimum)		1.50			1.92
Ratio of secured indebtedness to total asset value (maximum)		40.0	%		30.5	%

⁽¹⁾

For a complete listing of all debt covenants related to our consolidated indebtedness as well as definitions of the above terms, please refer to our applicable filings with the SEC.

As of March 31, 2013, we believe that we were in compliance with all of the covenants under our credit agreement.

We have filed a shelf registration statement with the SEC, as amended, which permits us, from time to time, to offer and sell debt securities, common stock, preferred stock, warrants and other securities to the extent necessary or advisable to meet our liquidity needs.

We have entered into equity distribution agreements with four sales agents, under which we can issue and sell shares of our common stock having an aggregate offering price of up to $50.0 million from time to time through, at our discretion, any of the sales agents. The sales of common stock made under the equity distribution agreements are made in “at the market” offerings as defined in the Securities Act. During the three months ended March 31, 2013 we completed the issuance of 2,063,828 shares pursuant to the 2012 equity distribution agreements, resulting in net proceeds of approximately $25.6 million at an average stock issuance price of $12.63 per share. We used the net proceeds to repay outstanding indebtedness under our unsecured revolving credit facility and for other general corporate and working capital purposes. Subsequent to March 31, 2013, we issued 801,300 shares pursuant to the equity distribution agreements, resulting in net proceeds of approximately $10.7 million at an average stock issuance price of $13.60 per share.

We may from time to time seek to repurchase or redeem outstanding shares of our common stock or preferred stock or other securities in open market purchases, privately negotiated transactions or otherwise. Such repurchases or redemptions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

As of March 31, 2013, our ratio of debt-to-gross undepreciated asset value was approximately 36.6%. Our organizational documents do not limit the amount or percentage of debt that we may incur, nor do they limit the types of properties we may acquire or develop, and our board of directors may modify our debt policy from time to time. The amount of leverage we will deploy for particular investments in our target assets will depend upon our management team’s assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the target assets in our investment portfolio, the potential for losses, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope and volatility of interest rates, the credit quality of our target assets and the collateral underlying our target assets. Accordingly, the ratio of debt-to-gross undepreciated asset value may increase or decrease beyond the current amount.

Commitments, Contingencies and Contractual Obligations

The following table outlines our contractual obligations (dollars in thousands) at March 31, 2013 related to our mortgage and note indebtedness and other commitments:


	Payments by Period
	2013 (nine months)		2014-2015		2016-2017		Thereafter		Total
Principal payments — fixed rate debt⁽¹⁾	$	79,156	$	124,130	$	41,331	$	11,659	$	256,276
Principal payments — variable rate debt⁽²⁾		50,000		13,884		88,000		12,000		163,884
Interest payments — fixed rate debt⁽¹⁾		9,194		13,244		5,524		6,631		34,593
Interest payments — variable rate debt⁽²⁾		1,610		3,348		881		252		6,091
Contingent consideration related to business combinations⁽³⁾		1,787		—		—		—		1,787
Construction costs⁽⁴⁾		9,263		18,552		—		—		27,815

	$	151,010	$	173,158	$	135,736	$	30,542	$	490,446

⁽¹⁾

Includes a mortgage payable at our Park West Place property, which was amended in July 2012 and now bears interest at a rate of LIBOR plus 2.25% (contractual interest rate of 2.5% at March 31, 2013). In December 2010, we entered into two interest rate swap contracts equal to the notional value of the mortgage payable, which fix LIBOR at an average of 1.41% for the term of the mortgage.

⁽²⁾

Includes redevelopment revenue bonds at our Northside Mall property, a construction loan at our Red Rock Commons property, a mortgage note at our West Broad Village property, and outstanding borrowings on our unsecured revolving credit facility (our unsecured revolving credit facility had a balance of $88.0 million at March 31, 2013). Interest on the redevelopment bonds is reset weekly and determined by the bond remarketing agent based on the market value of the bonds (interest rate of 0.13% at

March 31, 2013). The construction loan bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on our leverage ratio (interest rate of 1.86% at March 31, 2013). The mortgage note at West Broad Village bears interest at the rate of LIBOR plus a margin of 250 basis points (interest rate of 2.69% at March 31, 2013). The unsecured revolving credit facility bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points (weighted-average interest rate of 1.86% at March 31, 2013), depending on our leverage ratio.

⁽³⁾

Additional consideration is due to the prior owners of two properties purchased in 2012 based on their ability to lease-up vacant space at those properties during 2013. The balance of $1.8 million at March 31, 2013 represents our best estimate of the fair value of funds expected to be paid to the former owners (see Note 17 to the condensed consolidated financial statements contained elsewhere herein).

⁽⁴⁾

Amount represents our estimate of costs expected to be incurred primarily to complete the redevelopment of our unconsolidated La Costa Town Center property (representing our proportionate share of the estimated costs) and to complete the undeveloped portion of our Chimney Rock property.

Off-Balance Sheet Arrangements

In September 2012, PC Retail, LLC repaid in full a $2.0 million note receivable that we issued to facilitate the land acquisition and development of a shopping center anchored by Publix in Brandon, Florida, including interest accrued through the date of repayment. In conjunction with issuance of the note receivable, we entered into a purchase and sale agreement with PC Retail, LLC to acquire the property upon completion of development. On October 1, 2012, we completed the acquisition of the retail shopping center with 68,000 square feet of GLA in Brandon, Florida for a purchase price of approximately $13.1 million.

We hold a 20% ownership interest in an unconsolidated limited liability company, La Costa LLC. In connection with the formation of La Costa LLC in September 2012, we contributed the La Costa Town Center property to the entity in exchange for proceeds of approximately $21.2 million (see Note 13 to the accompanying condensed consolidated financial statements contained elsewhere herein for further discussion). La Costa LLC does not qualify as a variable interest entity, or VIE, and consolidation is not required as we do not control the operations of the property. The majority owner will bear the majority of any losses incurred. We will receive 20% of the cash flow distributions and may receive a greater portion of cash distributions in the future based upon the performance of the property and the availability of cash for distribution. In addition, we receive fees in our role as the day-to-day property manager and for any development services that we provide. We account for our interest in La Costa LLC as a profit-sharing arrangement, which is reflected in a manner that is similar to the equity method of accounting. The assets and liabilities of La Costa LLC were $25.8 million and $14.9 million, respectively, at March 31, 2013.

We hold a 50% tenant-in-common ownership interest in a company, Bay Hill Fountains, LLC (“Bay Hill”). In connection with our acquisition of a portfolio of properties in October 2012, we acquired a 50% undivided interest in the Bay Hill property. The Bay Hill property does not qualify as a VIE and consolidation is not required as we do not control the operations of the property. We will receive 50% of the cash flow distributions and recognize 50% of the results of operations. In addition, we receive fees in our role as the day-to-day property manager. We account for our interest in the Bay Hill property under the equity method of accounting. The assets and liabilities of the Bay Hill property were $41.5 million and $33.8 million, respectively, at March 31, 2013.

Our proportionate share of outstanding indebtedness at the unconsolidated entities is as follows (dollars in thousands):


Name	Ownership Interest			Principal Amount⁽¹⁾		Interest Rate			Maturity Date
La Costa LLC		20	%	$	2,820		6.0	%		October 1, 2014
Bay Hill		50	%	$	11,877		3.5	%		April 2, 2015

⁽¹⁾

Amount represents our proportionate share of a secured mortgage note, which bears interest at the rate of LIBOR plus a margin of 575 basis points (La Costa LLC) and at a rate of LIBOR plus a margin of 325 basis points (Bay Hill).

We do not have any other relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which typically are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitments or intent to provide funding to any such entities. Accordingly, we are not materially exposed to any other financing, liquidity, market or credit risk that could arise if we had engaged in these relationships, other than as described above.

Distribution Policy

We have elected to be taxed as a REIT under the Code. To continue to qualify as a REIT, we must meet a number of organizational and operational requirements, including the requirement that we distribute currently at least 90% of our REIT taxable income to our stockholders. It is our intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate United States federal, state or local income taxes on income we distribute currently (in accordance with the Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to United States federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for subsequent tax years. Even if we qualify for United States federal taxation as a REIT, we may be subject to certain state and local taxes on our income properties and operations and to United States federal income and excise taxes on our taxable income not distributed in the amounts and in the time frames prescribed by the Code and applicable regulations thereunder.

Inflation

Some of our leases contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the terms of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). We may be adversely impacted by inflation on our leases that do not contain indexed escalation provisions. In addition, most of our leases require the tenant to pay its share of operating expenses, including common area maintenance costs, real estate taxes and insurance. This may reduce our exposure to increases in costs and operating expenses resulting from inflation, assuming our properties remain leased and tenants fulfill their obligations to reimburse us for such expenses.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments depend upon prevailing market interest rates. Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. The primary market risk to which we believe we are exposed is interest rate risk. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control contribute to interest rate risk.

The fair value of mortgages payable at March 31, 2013, including our construction loan, was approximately $340.2 million compared to the carrying amount of $332.7 million. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by approximately $4.8 million at March 31, 2013. A 100 basis point decrease in market interest rates would result in an increase in the fair market value of our fixed-rate debt by approximately $5.1 million at March 31, 2013.

We have entered into a $250.0 million unsecured revolving credit facility. The unsecured revolving credit facility bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on our leverage ratio. As of March 31, 2013, we had $100.1 million of debt and commitments outstanding under our unsecured revolving credit facility, which includes a $12.1 million letter of credit issued under the facility. At March 31, 2013, the outstanding balance on our unsecured revolving credit facility was $88.0 million at a weighted-average interest rate of $1.86%. The fair value of unsecured revolving credit facility at March 31, 2013 was approximately $88.0 million. Based on outstanding borrowings of $88.0 million at March 31, 2013, an increase of 100 basis points in LIBOR would result in an increase in the interest we incur in the amount of approximately $880,000.

We have entered into an $18.0 million construction loan agreement in connection with construction activities at one of our development properties. The construction loan bears interest at the rate of LIBOR plus a margin of 165 basis points to 225 basis points, depending on our leverage ratio. At March 31, 2013, the outstanding balance on our construction loan was $13.9 million at an interest rate of 1.86%. Based on outstanding borrowings of $13.9 million at March 31, 2013, an increase of 100 basis points in LIBOR would result in an increase in the interest we incur in the amount of approximately $139,000.

In order to modify and manage the interest rate characteristics of our outstanding debt and to limit the effects of interest rate risks on our operations, we may utilize a variety of financial instruments, including interest rate swaps, caps, floors and other interest rate exchange contracts. The use of these types of instruments to hedge our exposure to changes in interest rates carries additional risks, including counterparty credit risk, the enforceability of hedging contracts and the risk that unanticipated and significant changes in interest rates will cause a significant loss of basis in the contract. To limit counterparty credit risk we will seek to enter into such agreements with major financial institutions with high credit ratings. There can be no assurance that we will be able to adequately protect against the foregoing risks and that we will ultimately realize an economic benefit that exceeds the related amounts incurred in connection with engaging in such hedging activities. We do not enter into such contracts for speculative or trading purposes.

As of March 31, 2013, we had two interest rate derivatives that were designated as cash flow hedges of interest rate risk. Both derivatives were interest rate swaps and the notional amount totaled $55.8 million. The interest rate swap contracts fixed LIBOR at an average of 1.41% for the term of a mortgage loan which expires in December 2013. The fair value of these derivative financial instruments was approximately $515,000 at March 31, 2013, and is classified in accounts payable and other liabilities on the accompanying condensed consolidated balance sheets.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is processed, recorded, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded, as of that time, that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

In addition, there has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

We are not presently involved in any material litigation nor, to our knowledge, is any material litigation threatened against us or our properties that we believe would have a material adverse effect on our financial position, results of operations or liquidity. We are involved in routine litigation arising in the ordinary course of business, none of which we believe to be material.

Item 1A.

Risk Factors

For a discussion of our potential risks and uncertainties, see the section entitled “Risk Factors” beginning on page 9 in our Annual Report on Form 10-K for the year ended December 31, 2012 which was filed with the SEC and is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in the Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

In the quarter ended March 31, 2013, we issued 22,074 shares of our common stock upon the redemption of 19,904 units in our operating partnership. This common stock was issued in private placements in reliance on Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Not applicable.

Item 5.

Other Information

None.

Item 6.

Exhibits


Exhibit Number		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.†

101.SCH		XBRL Taxonomy Extension Schema Document.†

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.†

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.†

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.†

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.†

†

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


EXCEL TRUST, INC.

By:		/S/ GARY B. SABIN
		Gary B. Sabin
		Chairman and Chief Executive Officer (Principal Executive Officer)

By:		/S/ JAMES Y. NAKAGAWA
		James Y. Nakagawa
		Chief Financial Officer (Principal Financial Officer)

Date: May 2, 2013

EXHIBIT INDEX


Exhibit Number		Description of Exhibit

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.†

101.SCH		XBRL Taxonomy Extension Schema Document.†

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.†

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.†

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.†

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.†

†