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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
AMENDMENT NO. 3
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
(Mark One)
/x/ | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000. |
/ / | Transitional report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Commission File Number: 0-23503
EXCEL LEGACY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State of other jurisdiction of incorporation or organization) | 33-0781747 (I.R.S. Employer Identification Number) |
17140 Bernardo Center Drive, Suite 300, San Diego, CA 92128
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (858)-675-9400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 par value per share
9.0% convertible Redeemable Subordinated Secured debentures due 2004
10.0% Senior Redeemable Secured Notes due 2004
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/
The aggregate market value of the Registrant's shares of common stock held by non-affiliates was $116,960,753 as of March 14, 2001 based on the $2.15 closing price on such date.
The number of outstanding shares of the Registrant's common stock as of March 14, 2001 was 61,540,849.
Excel Legacy Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, as amended, is hereby amended and restated as follows.
ITEM 1. BUSINESS
General
Excel Legacy Corporation (the "Company" or "Legacy"), a Delaware corporation, was formed on November 17, 1997. The Company was originally a wholly-owned subsidiary of Excel Realty Trust, Inc. ("Excel"), now known as New Plan Excel Realty Trust, Inc., a Maryland corporation and a real estate investment trust ("REIT"). On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel.
In connection with this spin-off, Excel transferred real properties, notes receivable and related assets and liabilities to Legacy. In addition to operating, developing or disposing of assets obtained from the spin-off, Legacy intends to pursue various real estate projects including:
- •
- developing mixed-use entertainment projects that have the potential for substantial capital gains but which may take several years to fully develop,
- •
- investing in securities of real estate related operating companies where significant influence may be exerted to enhance the value of the companies,
- •
- investing in properties requiring significant restructuring or redevelopment to create substantial value, such as changing the use, tenant mix or focus of a property, and
- •
- opportunistic buying and selling of commercial properties or real estate related and other companies.
The Company's executive offices are located at 17140 Bernardo Center Drive, Suite 300, San Diego, California 92128 and its telephone number is (858) 675-9400. The Company also has an office in West Bountiful, Utah which coordinates the Company's acquisitions and dispositions and property management offices in Fountain Valley, California, San Diego, California, and Fairfax, Virginia. As of March 13, 2001, the Company and its subsidiaries had approximately 188 employees.
Price Enterprises, Inc.
In November 1999, the Company completed an exchange offer for the common stock of Price Enterprises, Inc. ("PEI"), a Maryland corporation which operates as a REIT. In the exchange offer, the Company acquired approximately 91.3% of the PEI common stock, which represents approximately 77.5% of PEI's voting power as outstanding PEI preferred stock also have voting rights. The accounts of PEI are not consolidated with the Company's books however, because, until certain events occur, the holders of PEI preferred stock, which does not include the Company, have the right to elect a majority of the PEI board of directors. PEI stockholders who tendered their shares of PEI common stock in the exchange offer received from the Company a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the Company's 9.0% Convertible Redeemable Subordinated Secured Debentures ("Debentures") due 2004 and $1.50 in principal amount of the Company's 10.0% Senior Redeemable Secured Notes ("Senior Notes") due 2004 for each share of PEI common stock. After expenses, the Company paid approximately $61.0 million in cash and issued approximately $33.2 million in principal amount of the Debentures and approximately $18.1 million in principal amount of the Senior Notes to acquire the PEI common stock in the exchange offer. Of the cash, $27.4 million was borrowed from The Sol and Helen Price Trust. As of the date the exchange offer was completed, the Company began managing the assets of PEI.
2
Strategy and Philosophy
The following is a brief discussion of certain investment, financing and other strategies and policies of the Company. These policies have been determined by the Company and ratified by the Board of Directors, and generally may be amended or revised from time to time by the Board of Directors. There can be no assurance that the Company's strategies will be successful.
Investments
The Company intends to acquire, develop, own and manage, and sell a variety of real estate related assets. As opportunities emerge and in response to changes in real estate, market and general economic conditions, the Company may in the future reexamine its real estate related businesses and activities. The activities described below often do not generate immediate cash flow, and cash flow generated may be nonrecurring.
Development—The Company may from time to time undertake, directly or through joint venture financing, long-term, development projects that have the potential for substantial gains but which may take three to five years or more to fully develop, with particular emphasis on mixed-use retail entertainment projects. To the extent the Company provides joint venture financing, the developer will often bear a portion of the economic risks associated with the construction, development and initial lease of properties. Under this financing method, the Company may enter into an equity joint venture or make a participating subordinated loan to the developer wherein the Company would receive a stated preferred return together with a share of the development profits.
Operating Real Estate Companies—The Company may invest in retail, residential, hotel and other types of operating companies and manage properties owned by such companies in which it has an equity or debt investment. These investments may be subject to existing debt financing and any such financing will have a priority over the equity interests of the Company.
Restructuring and Redevelopment in Order to Create Substantial Value—The Company may from time to time engage in selective restructuring and development activities such as changing the use, tenant mix or focus of a property, as opportunities arise and when justified by expected returns. The Company believes that appropriate, well-located properties which are currently underperforming can be acquired on advantageous terms and repositioned through such selective restructuring and development activities with the expectation of achieving enhanced returns that are greater than returns which could be achieved by acquiring a stabilized property.
Investment in Real Estate Mortgages—While the Company will emphasize equity real estate investment in properties and the restructure and redevelopment of real estate properties, the Company may invest in mortgages and other types of real estate interests. The Company may invest in first or junior mortgages that may or may not be insured by a governmental agency. The Company also may invest in participating or convertible mortgages if the Company concludes that it may benefit from the cash flow and/or any appreciation in the value of the property. Such mortgages may be similar to equity participations. In addition, the Company may make mortgage loans or participate in such loans.
Securities of/or Interests in Entities Primarily Engaged in Real Estate Activities
The Company may from time to time acquire real estate related equity securities or invest in real estate related senior, junior or otherwise subordinated debt securities, which debt securities may be unsecured or secured by liens on real estate or the economic benefits thereof. Some of the entities in which the Company may invest may be start-up companies or companies in need of additional capital. These investments may contain options to acquire, or be convertible into the right to acquire, all or a portion of the underlying real estate, or contain the right to participate in the cash flow and economic return which may be derived from real estate.
3
Debt investments may include debt that is acquired at a discount, mezzanine financing, commercial mortgage-backed securities, secured and unsecured lines of credit, distressed loans, and loans previously made by foreign and other financial institutions. In some cases, the Company may only acquire a participating interest in a debt security. The Company also may provide credit enhancement or guarantees of the obligations of others involved in real estate activities, and may invest in participating or convertible mortgages if the Company concludes that it may benefit from the cash flow and/or any appreciation in the value of the property. Such mortgages may be similar to equity participations. In addition, the Company may make mortgage loans or participate in such loans and contemporaneously or otherwise obtain related property purchase options.
Equity investments may include development projects directly or through joint ventures, as well as the purchase of general or limited partnership interests in limited partnerships, shares in publicly traded or privately held corporations or interests in other entities that own real estate, make real estate related loans, invest in real estate related debt instruments or provide services or products to the real estate industry. The Company intends to engage in real estate businesses, which may include land subdivisions, property sales and other businesses. The Company may also hold real estate or interests therein for investment. The Company may purchase substantially leased, mostly unleased or vacant properties of any type or geographic location. The Company also may purchase leasehold positions and sublease the property.
Proactive Asset Management
The Company's management regularly monitors and evaluates each investment, including those within the PEI portfolio, to identify properties which can be sold or exchanged for optimal sales prices (or exchange values) given prevailing market conditions and the particular characteristics of each property. Through this strategy, the Company seeks to continually update its core property portfolio by disposing of properties which have limited appreciation potential and redeploy capital into newer properties or properties where its aggressive management techniques may maximize property values. The Company may engage from time to time in like-kind property exchanges (i.e., Internal Revenue Code Section 1031 exchanges) which will allow the Company to dispose of properties and redeploy proceeds in a tax efficient manner. In addition to value enhancement, the Company also focuses on maintaining strong operational cost controls.
Financing Policies
The Company seeks to finance its investments through both public and private secured and unsecured debt financings, as well as public and private placements of its equity securities. The equity securities include both common and preferred equity issuances of the Company. The Company does not have a policy limiting the number or amount of mortgages that may be placed on any particular property, but mortgage financing instruments usually limit additional indebtedness on such properties.
The Company may seek variable rate financing from time to time if such financing appears advantageous in light of then-prevailing market conditions. In such case, the Company may consider hedging against interest rate risk through interest rate protection agreements, interest rate swaps or other means.
The Company does not plan to distribute dividends for the foreseeable future, which will permit it to accumulate for reinvestment cash flow from investments, disposition of investments and other business activities.
4
Policies With Respect to Other Activities
The Company does not qualify as a REIT, but it may, from time to time, invest in REITs and sell properties or entities to REITs for cash and/or securities. Further, it may spin-off to its common stockholders shares of its subsidiaries or shares of other entities it has acquired through the sale of its properties, investments or otherwise. These spin-offs may involve the formation of new entities and may be taxable or non-taxable, depending upon the facts and circumstances. The Company may pursue strategies, such as portfolio and other acquisitions, to take advantage of the tax benefits of PEI's REIT status.
Environmental Conditions
Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property or disposed of by it, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not the Company knew of, or was responsible for, the presence of such hazardous or toxic substances. The Company is not presently aware of any material environmental conditions at any of its properties.
Principal Tenants
As of December 31, 2000, a ground lease with an aquarium in Newport, Kentucky accounted for approximately 6% of the Company's total revenues in 2000. The Company had no other tenants at December 31, 2000 that accounted for a significant amount of the Company's revenues.
PEI—The eight largest tenants in the PEI portfolio accounted for approximately 45% of its total Gross Leasable Area ("GLA") and approximately 53% of its total annualized revenues as of December 31, 2000. The table below presents certain information about these tenants (dollars in thousands):
Tenant | Number of Leases | Area Under Lease (sq. ft.) | Percent of GLA Under Lease | Annual Minimum Rent | Percent of Total Annual Minimum Rent | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Costco | 4 | 618,192 | 15.8 | % | $ | 8,484.7 | 18.7 | % | ||||
The Sports Authority | 7 | 298,217 | 7.6 | % | 3,720.4 | 8.2 | % | |||||
The Home Depot | 2 | 214,173 | 5.5 | % | 2,775.2 | 6.1 | % | |||||
AT&T Wireless | 1 | 156,576 | 4.0 | % | 2,415.7 | 5.3 | % | |||||
Kmart | 1 | 110,054 | 2.8 | % | 2,027.2 | 4.5 | % | |||||
Marshall's | 2 | 87,968 | 2.2 | % | 1,889.5 | 4.2 | % | |||||
Borders Books and Music | 2 | 62,999 | 1.6 | % | 1,655.7 | 3.7 | % | |||||
Lowe's | 2 | 230,659 | 5.9 | % | 1,207.8 | 2.7 | % | |||||
21 | 1,778,838 | 45.4 | % | $ | 24,176.2 | 53.4 | % | |||||
ITEM 2. PROPERTIES
The Company's largest investment is its 91.3% interest in the PEI common stock. At December 31, 2000, PEI owned 30 commercial real estate properties and held one property with a 19-year ground lease, in addition to land in Tucson, AZ, Temecula, CA and San Diego/Pacific Beach, CA held for future development. These properties encompass approximately 4.4 million square feet of GLA and were 95% leased. The five largest properties include 1.5 million square feet of GLA that generate annual minimum rent of $24.6 million, based on leases existing as of December 31, 2000.
5
In addition to the commercial properties PEI owned at December 31, 2000 are four self storage facilities. One of these facilities, San Diego, CA, is located on the same site as PEI's commercial property. The commercial property located in Azusa, CA was sold during the year, but PEI retained the self storage facility. PEI's other two self storage facilities are stand-alone properties. At year end, these facilities had 0.7 million square feet of GLA and were 96% occupied.
PEI also has a 50% interest in three joint ventures which own retail properties in Fresno, CA, Westminster, CO and Bend, OR. Below is a summary of the PEI properties, excluding the joint venture investments:
| Leases in Effect as of December 31, 2000 | ||||||||
---|---|---|---|---|---|---|---|---|---|
Commercial Properties | Number Of Tenants | Gross Leasable Area (sq. ft.) (000's) | Percent Leased | Annual Minimum Rent (1) ($000's) | |||||
Westbury, NY | 8 | 398.6 | 100 | % | $ | 7,765.0 | |||
Pentagon City, VA | 9 | 336.8 | 100 | % | 6,928.6 | ||||
Wayne, NJ (2) | 5 | 343.9 | 93 | % | 4,368.7 | ||||
Philadelphia, PA | 22 | 308.7 | 98 | % | 3,085.6 | ||||
Sacramento/Bradshaw, CA | 1 | 156.6 | 100 | % | 2,415.7 | ||||
Roseville, CA | 19 | 188.5 | 100 | % | 2,415.3 | ||||
Signal Hill, CA | 13 | 154.8 | 97 | % | 2,335.7 | ||||
Seekonk, MA | 12 | 213.9 | 98 | % | 1,954.2 | ||||
Glen Burnie, MD | 10 | 154.6 | 87 | % | 1,699.8 | ||||
San Diego, CA (3) | 3 | 443.2 | 100 | % | 1,661.7 | ||||
San Diego/Rancho San Diego, CA | 19 | 98.4 | 97 | % | 1,198.9 | ||||
Scottsdale, AZ | 22 | 68.0 | 79 | % | 1,072.3 | ||||
San Diego/Carmel Mountain, CA | 7 | 35.0 | 100 | % | 941.7 | ||||
Inglewood, CA | 1 | 119.9 | 100 | % | 926.6 | ||||
Moorestown, NJ (4) | 3 | 177.1 | 37 | % | 738.0 | ||||
Northridge, CA | 2 | 22.0 | 100 | % | 734.0 | ||||
New Britain, CT | 1 | 112.4 | 100 | % | 671.1 | ||||
Middletown, OH | 1 | 126.4 | 100 | % | 650.0 | ||||
San Juan Capistrano, CA | 6 | 56.4 | 100 | % | 610.8 | ||||
Terre Haute, IN | 1 | 104.3 | 100 | % | 557.8 | ||||
Smithtown, NY | 1 | 55.6 | 100 | % | 500.7 | ||||
Hampton, VA | 2 | 45.6 | 100 | % | 452.4 | ||||
San Diego/Rancho Bernardo, CA | 1 | 82.5 | 100 | % | 450.0 | ||||
Redwood City, CA | 2 | 49.4 | 100 | % | 418.8 | ||||
Tucson, AZ | 11 | 40.1 | 100 | % | 408.1 | ||||
Denver/Aurora, CO | 1 | 7.3 | 100 | % | 164.3 | ||||
San Diego/Southeast, CA | 2 | 8.9 | 100 | % | 150.4 | ||||
Chula Vista/Rancho del Rey, CA | 1 | 6.7 | 100 | % | 75.0 | ||||
Temecula, CA (5) | — | — | — | — | |||||
Total Commercial Properties | 186 | 3,915.6 | 95 | % | $ | 45,351.2 | |||
- (1)
- Annual Base Rent does not include percentage rents, expense reimbursements, revenue from month to month leases, or rents expiring in 2001.
- (2)
- Includes 23,000 sq. ft. of vacant storage space.
- (3)
- Self storage is also located at these properties.
- (4)
- Consists of leased land.
- (5)
- Future shopping center development consisting of 47.5 acres purchased in July 1999.
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Self Storage Properties | Gross Leaseable Area (sq. ft.) (000's) | Percent Leased | |||
---|---|---|---|---|---|
San Diego/Murphy Canyon, CA | 250.8 | 99 | % | ||
San Diego, CA (1) | 89.6 | 99 | % | ||
Azusa, CA | 84.3 | 99 | % | ||
Solana Beach, CA (2) | 238.0 | 91 | % | ||
San Diego/Pacific Beach, CA (3) | — | — | |||
Total Self Storage Properties | 662.7 | 96 | % | ||
- (1)
- GLA of facility is also included in GLA for the commercial property listed above.
- (2)
- Expansion of this facility was completed during the year and includes 100,000 square feet of indoor RV and boat storage.
- (3)
- Currently under development.
The annual gross potential rent for the four operating self storage facilities is $7.2 million. Gross potential rent equals the GLA times the average rent per square foot.
In addition, the Company's business consisted of the following portfolio of real properties, notes receivable, and investments in real estate related ventures:
- •
- ownership interests in a number of real estate related ventures, including:
- •
- a 65% ownership interest in a joint venture that is developing a retail project in Newport, Kentucky scheduled for completion in 2001,
- •
- a 65% ownership interest in a joint venture which owns and operates a hotel, dinner theater and retail shop located near the Grand Canyon in northern Arizona,
- •
- a 100% ownership interest in Millennia which owns stock in two publicly traded companies, Mace Security International, Inc. and U.S. Plastics Lumber Corp. Another party can earn up to a 50% ownership interest in Millennia if certain returns as defined in the operating agreement exceed 35% per year,
- •
- a 100% ownership in TenantFirst Real Estate Services, Inc., a fully-integrated real estate development company providing development, leasing, property management and construction management services,
- •
- a 55% ownership interest in a development company which owns Newport Centre, a retail and office facility located in Winnipeg, Canada,
- •
- a 50% ownership in EL Holdings, Inc. and EL Media Holdings Company which were formed to invest in media towers and similar businesses, and
- •
- a 23.7% ownership interest in a development company which owns land in Indianapolis, Indiana.
- •
- five notes receivable relating to real estate projects in Arizona, California, and Utah with an aggregate outstanding balance of approximately $40.5 million as of December 31, 2000. The largest note relates to a project in Scottsdale, Arizona,
- •
- two properties located in Arizona including restaurant space and vacant land in Scottsdale,
- •
- two properties located in California including a development project in Palm Springs, and land held for sale/development in Yosemite, and
- •
- a hospitality property under development in Bermuda scheduled for opening in 2001.
7
The following table describes Legacy's portfolio of real estate properties as of December 31, 2000. Amounts shown for annual rents are based on executed leases at December 31, 2000. Legacy makes no allowances for contractually based delays to the commencement of rental payments. Due to the nature of real estate investments, Legacy's actual rental income may differ from amounts shown in the table below.
| Tenants | GLA (sq ft) | Annual Rent | |||||
---|---|---|---|---|---|---|---|---|
| | (in thousands) | (in thousands) | |||||
Arizona | ||||||||
Scottsdale Land | (1) | (1) | (1) | |||||
Brio Land | Roaring Fork Restaurant | 3.7 | $ | 104.3 | ||||
Grand Hotel | (2) | (2) | (2) | |||||
California | ||||||||
Desert Fashion Plaza (4) | Saks Fifth Avenue/various | 96.1 | 461.5 | |||||
Yosemite | (3) | (3) | (3) | |||||
Indiana | ||||||||
Indianapolis | (4) | (4) | (4) | |||||
Kentucky | ||||||||
Newport on the Levee | (5) | (5) | (5) | |||||
Bermuda | ||||||||
Daniel's Head Bermuda | (6) | (6) | (6) | |||||
Winnipeg, Canada | ||||||||
Newport Centre(7) | Bank of Montreal/various | 156.1 | 1,594.0 | |||||
Total | 255.9 | $ | 2,159.8 | |||||
- (1)
- Property consists of vacant land in Scottsdale and is held for sale.
- (2)
- The Company holds a 65% ownership interest in Grand Tusayan LLC which owns and operates a 120-room hotel and restaurant.
- (3)
- Properties consist of vacant land currently held for development or sale.
- (4)
- Property consists of land held for development. The Company holds a 23.7% ownership interest.
- (5)
- In addition to land leased to an aquarium which provided $1.1 million in revenue related to that lease, in 2001, property consists of land under development and scheduled for completion in 2001. The Company holds a 65% ownership interest.
- (6)
- Property under development.
- (7)
- Property is owned by a Nova Scotia company of which the Company holds a 55% ownership interest.
Debt Secured by Properties
The following table summarizes outstanding PEI debt secured by properties as of December 31, 2000:
Lender | Property | Interest Rate | Maturity Date | Balance | Balance due at Maturity | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | ($000's) | ($000's) | |||||||
GMAC Commercial Mortgage(1)(5) | Westbury, NY; Signal Hill, CA; Philadelphia, PA; Wayne, NJ; and Roseville, CA | 7.88% | (2) | 6/28/04 | $ | 121,375 | $ | 121,375 | ||||
Kieg Financial Corporation | Scottsdale, AZ | 8.13 | % | 2/1/06 | 1,983 | 1,087 | ||||||
American General Realty Advisors | Terre Haute, IN | 8.75 | % | 6/1/03 | 3,529 | 3,323 | ||||||
Fifth third Real Estate Capital | Middletown, OH | 7.63 | % | 2/1/14 | 3,596 | - | ||||||
GMAC Commercial Mortgage (3) | San Diego/Murphy Canyon, CA | 9.00 | % | 7/1/04 | 8,765 | 8,437 | ||||||
Rose Canyon Business Park (4)(5) | San Diego/Rancho Bernardo, CA | 4.43 | % | 12/8/04 | 11,500 | 11,500 |
- (1)
- No prepayment on loan is allowed prior to July 2002.
- (2)
- Interest based on LIBOR plus 98 basis points. Monthly payments are interest only.
- (3)
- No prepayment on loan is allowed prior to July 2001.
- (4)
- Capital lease arrangement whereby lease may be paid in full upon six month notice.
- (5)
- Monthly payments are interest only.
8
The following table summarizes outstanding debt secured by the Company's properties as of December 31, 2000:
Lender | Property | Interest Rate | Maturity Date | Balance | Balance due at Maturity | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | ($000's) | ($000's) | |||||||
A.L. Rist and Margaret R. Rist | Anaheim, CA | 6.00 | % | 9/28/02 | $ | 6,312 | $ | 6,312 | ||||
San Diego National Bank | Coto de Caza, CA | 9.50% | (1) | 11/21/01 | 708 | 690 | ||||||
Firstar Bank | Newport, KY | 10.00% | (2) | 3/31/01 | 2,106 | 2,106 | ||||||
Bank of Butterfield & Sons Limited | Daniel's Head, Bermuda | 10.07% | (3) | 7/1/10 | 5,000 | 5,000 |
- (1)
- Interest based on Prime.
- (2)
- Interest based on Prime plus 0.5%
- (3)
- Interest based on the Bermuda dollar Base Rate plus 3.0%.
ITEM 3. LEGAL PROCEEDINGS
On or about February 13, 2001, Lewis P. Geyser filed a lawsuit against the Company in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by the Company and Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Geyser alleges that the Company breached its obligations under the Operating Agreement, by failing to contribute the funding required under the Agreement. Geyser also alleges that the Company misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. The Company believes the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from the Company in negotiations with Geyser which were underway prior to its filing. The Company intends to vigorously defend the lawsuit. The Company also intends to prosecute a cross-complaint against Geyser for breach of contract, negligence, fraud in the inducement, fraudulent concealment, breach of fiduciary duty, abuse of process, and possibly other related claims. There have been no motions or other proceedings in the case as of this date.
The Company is not party to any other legal proceedings other than various claims and lawsuits arising in the ordinary course of business which, in the opinion of Company's management, are not individually or in the aggregate material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during the fourth quarter of the year ended December 31, 2000.
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The table below sets forth, for the calendar quarters indicated, the reported high and low sales prices of the Company's common stock which is quoted on the American Stock Exchange under the symbol "XLG".
| High | Low | ||||
---|---|---|---|---|---|---|
Year ended December 31, 1999 | ||||||
Quarter ended March 31, 1999 | $ | 4.063 | $ | 3.063 | ||
Quarter ended June 30, 1999 | 5.688 | 2.875 | ||||
Quarter ended September 30, 1999 | 4.750 | 3.500 | ||||
Quarter ended December 31, 1999 | 4.750 | 3.000 | ||||
Year ended December 31, 2000 | ||||||
Quarter ended March 31, 2000 | 4.000 | 3.000 | ||||
Quarter ended June 30, 2000 | 3.500 | 2.500 | ||||
Quarter ended September 30, 2000 | 3.000 | 2.125 | ||||
Quarter ended December 31, 2000 | 2.500 | 1.875 |
As of March 14, 2001, the last reported price per share was $2.15 and the Company had approximately 1,000 holders of record. The Company has never paid cash dividends on its common stock. The Company currently anticipates that it will retain all available funds for use in the operation and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.
The Company's Debentures and Senior Notes are traded on the American Stock Exchange under the symbols "XLG9K04" and "XLG10K04", respectively.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected data should be read in conjunction with the Company's financial statements and accompanying notes located elsewhere in this Form 10-K and "Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations."
| Year Ended December 31, | Five Months Ended December 31, | Period from Inception (November 17, 1997) to July 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Selected Statement of Operations Data | 2000 | 1999 | 1998 | 1998 | ||||||||||
(in thousands except per share data) | (Restated) | | | | ||||||||||
Total revenue | $ | 18,497 | $ | 25,917 | $ | 15,010 | $ | 8,145 | ||||||
Total operating expenses | (43,378 | ) | (25,436 | ) | (13,754 | ) | (5,267 | ) | ||||||
Gain (loss) from real estate sales and write-off of real estate related costs | 8,715 | (1,765 | ) | — | — | |||||||||
Net income (loss) before income taxes | (16,166 | ) | (1,284 | ) | 1,256 | 2,878 | ||||||||
Benefit (provision) of income taxes | 1,167 | 507 | (535 | ) | (1,143 | ) | ||||||||
Net income (loss) | $ | (14,999 | ) | $ | (777 | ) | $ | 721 | $ | 1,735 | ||||
Net income (loss) per share: | ||||||||||||||
Basic | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.02 | $ | 0.11 | ||||
Diluted | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.01 | $ | 0.07 | ||||
Weighted average number of shares: | ||||||||||||||
Basic | 41,847 | 33,985 | 33,458 | 15,842 | ||||||||||
Diluted | 41,847 | 33,985 | 54,768 | 25,984 | ||||||||||
Other Data | ||||||||||||||
Earnings before depreciation, amortization and deferred taxes ("EBDADT") | $ | (5,781 | ) | $ | 3,674 | $ | 2,712 | $ | 2,994 | |||||
Earnings before interest, income taxes, depreciation and amortization ("EBITDA") | $ | (3,744 | ) | $ | 9,933 | $ | 5,819 | $ | 5,453 | |||||
Cash flows from | ||||||||||||||
Operating activities | $ | (296 | ) | $ | 79 | $ | (4,045 | ) | $ | 3,385 | ||||
Investing activities | (5,101 | ) | (13,658 | ) | (8,681 | ) | (116,751 | ) | ||||||
Financing activities | 5,099 | 13,959 | 2,622 | 124,857 |
| As of December 31, | As of July 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Selected Balance Sheet Data | 2000 | 1999 | 1998 | 1998 | ||||||||
(in thousands) | (Restated) | | | | ||||||||
Net real estate | $ | 96,133 | $ | 102,191 | $ | 190,878 | $ | 175,756 | ||||
Total assets | 308,369 | 328,153 | 261,296 | 246,916 | ||||||||
Mortgages and notes payable | 112,389 | 137,806 | 90,986 | 72,714 | ||||||||
Stockholders' equity | 178,383 | 180,039 | 166,640 | 165,919 |
11
Summary Selected Financial Data of PEI—As previously discussed, the Company acquired approximately 91.3% of the PEI common stock in November 1999. The Company does not, however, consolidate the accounts of PEI in its financial statements. The following selected historical financial data of PEI should be read in conjunction with the PEI Form 10-K separately filed with the Securities and Exchange Commission.
| Year Ended December 31, | Four Months Ended December 31, | Year Ended August 31, | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2000 | 1999 | 1998 | 1997 | 1997 | 1996 | 1997 | 1996 | ||||||||||||||||||
Selected Income Statement Data | ||||||||||||||||||||||||||
Rental revenues | $ | 70,771 | $ | 66,667 | $ | 62,485 | $ | 56,067 | $ | 18,170 | $ | 18,941 | $ | 56,838 | $ | 56,221 | ||||||||||
Operating income | 41,847 | 35,143 | 31,393 | 23,289 | 9,045 | 8,178 | 22,422 | 5,829 | ||||||||||||||||||
Income from continuing operations | 34,292 | 32,671 | 29,429 | 29,003 | 17,508 | 7,590 | 19,085 | 8,340 | ||||||||||||||||||
Discontinued operations | — | — | — | (1,625 | ) | — | (3,235 | ) | (4,860 | ) | (8,250 | ) | ||||||||||||||
Net income | 34,292 | 32,671 | 29,429 | 27,378 | 17,508 | 4,355 | 14,225 | 90 | ||||||||||||||||||
Net income (loss) per share | ||||||||||||||||||||||||||
from continuing operations — basic | .07 | (.05 | ) | .97 | 1.23 | .74 | .33 | .82 | .36 | |||||||||||||||||
Cash dividends per share | ||||||||||||||||||||||||||
Preferred share | 1.40 | 1.40 | .35 | — | — | — | — | — | ||||||||||||||||||
Common share | — | — | 1.05 | 1.25 | .35 | .30 | 1.20 | — |
| As of December 31, | As of August 31, | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2000 | 1999 | 1998 | 1997 | 1997 | 1996 | | |||||||||||||
Selected Balance Sheet Data | ||||||||||||||||||||
Real estate assets, net | $ | 545,800 | $ | 550,869 | $ | 418,507 | $ | 353,056 | $ | 337,139 | $ | 337,098 | ||||||||
Total assets | 662,405 | 562,558 | 457,352 | 408,478 | 403,757 | 540,325 | ||||||||||||||
Stockholders' equity | 463,109 | 461,260 | 344,811 | 406,624 | 396,476 | 532,899 |
Net income applicable to common stockholders from November 12, 1999 (the date of the Company's acquisition of the PEI common stock) to December 31, 1999 was $4.7 million of which the Company's equity interest was $163,000 after the accrual of preferred dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nature of Business
The Company acquires, sells, develops, manages, invests, finances and operates real property and related businesses. The following discussion should be read in conjunction with the financial statements and the notes thereto.
Results of Operations (Comparison of the year ended December 31, 2000 to the year ended December 31, 1999)
Operating income totaled $7.8 million in the year ended December 31, 2000 compared to $11.4 million in the year ended December 31, 1999, a decrease of $3.6 million. In 1999, Millennia, a subsidiary of the Company, owned car wash properties that generated $4.3 million of operating income, which were sold in March 1999. Also, there was $0.5 million of non-recurring income in 1999 related to some land sales. This decrease was offset by the Grand Hotel, not opened until 1998, which generated $1.1 million of additional operating income in 2000 when compared to 1999 and the Company's project in Daniel's Head, Bermuda, which contributed $0.2 million.
Partnership income and other revenues were approximately $2.6 million in the year ended December 31, 2000 compared to $1.0 million in the year ended December 31, 1999. In 2000, the Company recognized $1.0 million from a joint venture that owns land in Orlando, Florida. The gain was primarily related to 235 acres of land sold in September 2000. The Company also recognized $0.8 million in income from its equity investment in PEI. Additionally, the Company recognized $0.3 million related to a forfeited deposit on a property sale and $0.5 million from its investments in joint ventures. In 1999 the income primarily related to the Company's investments in joint ventures.
12
Interest income was $4.2 million in the year ended December 31, 2000 compared to $3.9 million in the year ended December 31, 1999, which was primarily related to higher average note receivable balances in 2000. In 2000 the average notes receivable balance was $35.0 million compared to an average balance of $24.6 million in 1999.
Rental income was $3.8 million during the year ended December 31, 2000 compared to $9.5 million in the year ended December 31, 1999, a decrease of $5.7 million. The sale of twelve properties accounted for a decrease of $7.2 million and a property held for sale in Palm Springs, CA had a decrease in revenues of $0.5 million. Offsetting this decrease was the Company's project in Newport, KY which accounted for $1.1 million in 2000 related to a land lease that did not generate any revenues in 1999 and an office building located in San Diego that the Company master leases from PEI which generated $0.8 million in revenues in 2000 and did not generate revenues in 1999.
Interest expense was $10.9 million in the year ended December 31, 2000 compared to $8.0 million in the year ended December 31, 1999, an increase of $2.9 million. Debt of approximately $60.6 million assumed in conjunction with the acquisition of PEI in November 1999 increased interest expense by $4.8 in the year ended December 31, 2000. An increase of $2.1 million relates to additional amounts borrowed by an average of $21.0 million on the Company's credit facilities and short-term notes, primarily to fund its development projects. A decrease of $3.3 million relates to a reductions on mortgage debt related to properties that were sold in 1999 and 2000.
Other operating expenses were $6.3 million in the year ended December 31, 2000 compared to $6.3 million in the year ended December 31, 1999. In 1999, Millennia contributed $1.8 million of expenses. The offsetting net increase of $1.8 million primarily related to the Grand Hotel and operational costs of the Company's project in Bermuda.
Property operating expenses were $2.8 million in the year ended December 31, 2000 compared to $1.8 million in the year ended December 31, 1999, an increase of $1.0 million. The increase relates primarily to an office building located in San Diego that the Company master leases from PEI, which generated expenses of $1.1 million.
General and administrative expenses were $2.8 million in the year ended December 31, 2000 compared to $6.1 million in the year ended December 31, 1999. The primary reason for the decrease was a result of expenses incurred by Millennia in 1999. The remaining decrease relates to reimbursements received from PEI which were greater than the increase in general and administrative expenses resulting from the acquisition of PEI's common stock in 1999.
Depreciation and amortization expense totaled $1.6 million in the year ended December 31, 2000 compared to $3.2 million in the year ended December 31, 1999. The decrease of $1.6 million primarily relates to properties sold.
Provision for investment impairment was $19.0 million in the year ended December 31, 2000 due to the write down of its investment in Mace Security International, Inc. ("MACE") due to an impairment considered other than temporary. The impairment was recorded based on MACE's closing stock price at December 29, 2000 of $0.906 per share. Based upon the Company's review of its investment in MACE, the Company determined that an other than temporary impairment in its investment in MACE occurred in the fourth quarter of 2000. The factors considered were the fact that certain pending transactions had not materialized as expected by December 31, 2000, the duration and extent that the market value of the security had been less than cost and other information the Company was aware of.
13
The net gain from real estate sales and write-off of real estate related costs was $8.7 million in the year ended December 31, 2000 compared to a net loss of $1.8 million in the year ended December 31, 1999. This gain in 2000 related to the Galleria in Scottsdale, AZ, two properties sold to PEI and land sold. An additional building was sold to PEI in 2000 for which there was no gain recorded as the Company is leasing back the building. In 1999, the Company recognized a gain of $5.1 million from real estate sales, which was offset by a write-off of $6.9 million of costs related to development projects in Scottsdale, Arizona and Indianapolis, Indiana.
Provision for income taxes was a benefit of $1.2 million in the year ended December 31, 2000 compared to a benefit of $0.5 million in the year ended December 31, 1999 related to a loss before taxes of $16.2 million and a loss of $1.3 million, respectively.
The Company calculatesEarnings Before Depreciation, Amortization and Deferred Taxes ("EBDADT") as net income, plus depreciation and amortization on real estate and real estate related assets, and deferred income taxes. EBDADT does not represent cash flows from operations as defined by accounting principles generally accepted in the United States of America, and may not be comparable to other similarly titled measures of other companies. The Company believes, however, that to facilitate a clear understanding of its operating results, EBDADT should be examined in conjunction with its net income as reductions for certain items are not meaningful in evaluating income-producing real estate. The following information is included to show the items included in the Company's EBDADT for the periods ended December 31, 2000 and 1999:
| Year Ended December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 2000 | 1999 | ||||||
| (Restated) | | ||||||
Net income | $ | (14,999 | ) | $ | (777 | ) | ||
Depreciation and amortization (financial statements) | 1,562 | 3,220 | ||||||
Proportionate share of depreciation and amortization from equity investments: | ||||||||
PEI | 8,726 | 992 | ||||||
Other | 696 | 121 | ||||||
Less depreciation of non-real estate assets | (211 | ) | (83 | ) | ||||
Deferred tax (benefit) expense | (1,555 | ) | 201 | |||||
EBDADT | $ | (5,781 | ) | $ | 3,674 | |||
Results of Operations (comparison of the year ended December 31, 1999 to the twelve months ended December 31, 1998)
Effective December 11, 1998, the Board of Directors of the Company adopted a fiscal year-end of December 31, beginning with a short fiscal year ending on December 31, 1998. The Company's previous fiscal year-end was July 31. As such, the financial statements present the periods from inception (November 17, 1997) to July 31, 1998, the five months ended December 31, 1998, and the year ended December 31, 1999. For comparison purposes, the discussion below compares the year ended December 31, 1999 to the twelve months ended December 31, 1998. There were no significant operations from inception to December 31, 1997. The following discussion should be read in conjunction with the financial statements and the notes thereto.
14
Operating income totaled $11.4 million in the year ended December 31, 1999 compared to $9.4 million in the twelve months ended December 31, 1998. Of the increase of $2.0 million, there was an increase of $4.2 million related to operations from the Grand Hotel which was not opened until the second half of 1998. This increase was offset by a decrease of $3.5 million related to operations from Millennia. Millennia only had three months of operational results in 1999 as effective April 1, 1999, the operations were assigned to a third party in connection with the sale of Millennia assets. Of the remaining $1.3 million increase, $0.5 million was related to income from a ground lease and parking lot related to a venture in Newport, Kentucky which did not have any income in 1998, $0.5 million related to reversing accrued estimated costs related to a land sale and $0.3 million related to increased revenues from TenantFirst Real Estate Services and other various income sources.
Partnership income and other revenues totaled $1.0 million for the year ended December 31, 1999 and $0.3 million in the twelve months ended December 31, 1998. This income is primarily related to the Company's interest in a Nova Scotia limited liability company which owns an office building in Canada.
Interest income was $3.9 million in the year ended December 31, 1999 compared to $3.7 million in the twelve months ended December 31, 1998. The increase of $0.2 million is primarily related to notes receivable which were not outstanding in 1998 until the spin-off on March 31, 1998.
Rental income was $9.5 million during the year ended December 31, 1999 compared to $9.9 million in the twelve months ended December 31, 1998. A property in Westminster, CO leased to AMC was contributed to a partnership for a 50% interest effective July 1, 1999. Earnings from this property since this contribution are now recorded as partnership income. This accounted for a decrease of $0.7 million in rental revenue. This decrease was offset by increases of $0.3 million in the Company's remaining properties. Although the Company sold nine income producing properties in the second half of 1999, the decrease in revenues related to these sales was offset by 1998 operations which only had rental revenue after March 31, 1998, the date certain assets were spun-off from Excel Realty Trust, Inc. ("Excel").
Interest expense was $8.0 million in the year ended December 31, 1999 and primarily related to the $137.8 million of mortgages and notes payable outstanding at December 31, 1999 and $41.2 million of mortgage debt that was repaid in 1999 related to the sale of properties. In 1998, interest expense was $4.2 million. The increase in interest expense in 1999 compared to 1998 primarily relates to an increase in the average balance outstanding during the period which was influenced in part by additional debt related to the acquisition of PEI, and 1998 debt which was only outstanding from April 1, 1998.
Depreciation and amortization expense totaled $3.2 million in the year ended December 31, 1999 compared to $3.0 million in the twelve months ended December 31, 1998. The increase of $0.2 million primarily relates to depreciation of the Company's assets which the Company did not own until April 1, 1998. This was offset in part by the assets sold in 1999.
Property operating expenses were $1.8 million in the year ended December 31, 1999 compared to $2.6 million in the twelve months ended December 31, 1998. The decrease of $0.8 million relates to certain expenses that were capitalized in 1999 on properties in Scottsdale, Arizona and Palm Springs, California that the Company intends to demolish and redevelop. In 1998, while these were operating properties, these costs were expensed. These decreases were offset in part by expenses in 1998 on properties owned by the Company after March 31, 1998.
Other operating expenses were $6.3 million in the year ended December 31, 1999 compared to $5.8 million in the twelve months ended December 31, 1998. In 1999, expenses of $4.5 million related to the Grand Hotel compared to $1.0 million in 1998 as the property was under development until the second half of the year. Millennia had expenses of $1.8 million in the year ended December 31, 1999 compared to $4.8 million in the twelve months ended December 31, 1998.
15
General and administrative expenses were $6.1 million in the year ended December 31, 1999 compared to $3.5 million in the twelve months ended December 31, 1998. The increase relates to an increase in personnel in 1999 when compared to 1998, $0.5 million of bonuses paid upon consummation of the PEI acquisition, and due to the Company not having any significant expenses until April 1, 1998.
In 1999, the Company sold ten properties for anet gain from real estate sales of $5.1 million. Also in 1999, the Company recorded a $6.0 million impairment charge for an investment (impairment in investment) in a minority interest in a partnership which owns a development project in Indianapolis, Indiana which has been delayed due to a lack of funding. Finally, the Company wrote-off $0.9 million in costs related to a redevelopment project in Scottsdale, Arizona.
Provision for income taxes was a $0.5 million benefit in the year ended December 31, 1999 generated by the net loss before income taxes of $1.3 million. In the twelve months ended December 31, 1998, a $1.7 million expense was recorded due to the net income before income taxes of $4.1 million.
The following information is included to show the items included in the Company's EBDADT for the year ended December 31, 1999 and the twelve months ended December 31, 1998:
| Year Ended December 31, | |||||||
---|---|---|---|---|---|---|---|---|
| 1999 | 1998 | ||||||
Net income | $ | (777 | ) | $ | 2,456 | |||
Depreciation and amortization (financial statements) | 3,220 | 2,975 | ||||||
Proportionate share of depreciation and amortization from equity investments: | ||||||||
PEI | 992 | — | ||||||
Other | 121 | — | ||||||
Less depreciation of non-real estate assets | (83 | ) | (50 | ) | ||||
Deferred tax expense | 201 | 325 | ||||||
EBDADT | $ | 3,674 | $ | 5,706 | ||||
Liquidity and Capital Resources
Cash flows from asset sales and borrowings from debt were the primary source of capital to fund the Company's development and ongoing operations in the year ended December 31, 2000. In addition, PEI reimburses the Company for certain general and administrative expenses.
In November 1999, the Company completed an exchange offer for the common stock of PEI. In the exchange offer, the Company acquired approximately 91.3% of the PEI common stock. PEI stockholders who tendered their shares of the PEI common stock in the exchange offer received from the Company a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the Company's 9.0% Convertible Redeemable Subordinated Secured Debentures ("Debentures") due 2004 and $1.50 in principal amount of the Company's 10.0% Senior Redeemable Secured Notes ("Senior Notes") due 2004 for each share of PEI common stock. After expenses, the Company paid approximately $61.0 million in cash and issued approximately $33.2 million in principal amount of the Debentures and approximately $18.1 million in principal amount of the Senior Notes to acquire the PEI common stock in the exchange offer. Of the cash, $27.4 million was borrowed from The Sol and Helen Price Trust. In 2000, the Company converted $18.1 million of this note payable into 5.1 million shares of common stock.
16
In accordance with the stockholders agreement entered into in connection with the exchange offer, until a certain amount of PEI preferred stock is repurchased or tendered for, $7.5 million of cash flow, as defined, is required to be reinvested in PEI before dividends can be paid to Legacy's common shareholders. As such, cash available to service the Company's debt incurred to complete the PEI exchange offer is subject to this restriction. The Company does, however, directly benefit from savings in general and administrative expenses from managing the combined companies, and would receive its portion of PEI common stock dividends for cash flows in excess of the $7.5 million. In 2000, PEI cash flows were influenced by four properties sold where replacement properties were not immediately identified and acquired. As such, cash flows, as defined by the stockholders' agreement, did not exceed $7.5 million.
The Company anticipates that cash flow will be generated from existing properties and from opportunistic trading of assets. The ability to continue to fund its development projects is dependent on the Company's selling of assets, the procurement of equity or joint venture capital, or the ability to raise additional debt. The Company currently has a $40.0 million revolving line of credit due in 2002 with PEI of which $25.4 million was outstanding at December 31, 2000 and a $15.0 million revolving credit facility with Fleet National Bank due in June 2001, of which $11.4 million was outstanding at December 31, 2000. In 2001 the Company has $15.0 million of principal debt due and expects to repay the short-term debt from asset sales or debt refinancing.
The Company has two significant projects currently under development, it's hospitality located in Daniel's Head, Bermuda and its retail project in Newport, Kentucky. The project in Bermuda is scheduled to open in 2001. The estimated remaining capital requirement on the project is less than $1.5 million. The Company anticipates meeting this capital requirement through borrowings from its $15.0 million facility which had $11.4 million outstanding at December 31, 2000. The Company's project in Kentucky has approximately $14.6 million remaining in required capital before a construction loan, for which the Company has a commitment from a Bank, funds the remaining construction costs. The Company anticipates meeting this capital requirement through the remaining available capital on its credit facility with Price Enterprises, Inc. The Company may have to stop construction should the Bank decide not to fund the construction loan. The Company has other projects in various stages of pre-development. The total costs of these projects is not known, as their nature, size and certainty are either not yet known or still need to be approved by the Company or various regulatory bodies. The Company spends approximately $0.3 million per month to fund these costs. The Company anticipates continuing to meet these costs both in the short and long terms, from available amounts on its credit facilities and from asset sales. Should the Company not have available funds for these costs, it may postpone further expenditures until funds are available. The Company intends to fund eventual construction costs on these projects through debt, other investors, and through future asset sales. Should the Company not secure the capital when needed for these projects, the Company may sell or delay the projects.
In addition to using proceeds from asset sales to repay debt and fund development projects, the Company has on file a $300.0 million shelf registration statement for the purpose of issuing debt securities, preferred stock, depositary shares, common stock, warrants or rights. Currently, there remains $286.5 million of securities available for issuance under this shelf.
The Company expects to meet its long-term liquidity requirements, such as property acquisitions and development, mortgage debt maturities, and other investment opportunities, through the most advantageous sources of capital available to the Company at the time, which may include operating cash flows from existing properties and the completion of current development projects, the sale of common stock, preferred stock or debt securities through public offerings or private placements, entering into joint venture arrangements with financial partners, the incurrence of indebtedness through secured or unsecured borrowings and the reinvestment of proceeds from the disposition of assets.
17
In October 1999, the Company completed the sale of Millennia's assets to American Wash Services, Inc. ("AWS"), in exchange for 3,500,000 shares of common stock of MACE, the parent of AWS, a warrant to acquire an additional 62,500 shares of MACE common stock at an exercise price of $4.00 per share, and the assumption by AWS of certain liabilities of Millennia. In conjunction with this transaction, Millennia had assigned the operations of its assets to AWS effective April 1, 1999, and thus did not receive cash flow from operations after April 1, 1999. In addition, Millennia acquired 250,000 common shares of MACE through a private placement at $2.00 per share and 250,000 common shares of US Plastic Lumber Corporation ("USPL") at $4.00 per share. The MACE and USPL common shares are subject to certain restrictions and not currently available for sale.
In 1999, the City of Newport issued two series of public improvement bonds related to the Newport development project. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing 2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. As of December 31, 2000 Newport had drawn on $32.9 million of the bonds for construction incurred prior to that date.
The Company also has a 50% interest in a limited liability company that owns land in Orlando, Florida. The land has a remaining land basis at December 31, 2000 of $18.5 million and has mortgage debt of $8.9 million secured by the land and guaranteed by the Company. The Company had $47.9 million of additional guaranteed debt related to several development projects at December 31, 2000.
In December 2000, the Company converted 21,281,000 shares of Series B Preferred Stock (the "Preferred B Shares") to 21,281,000 shares of common stock. The Preferred B Shares were convertible into common stock of the Company on a one-for-one basis.
In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights in 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of this debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased. The Company also purchased shares from unaffiliated sellers at $2.50 per share and higher pursuant to a previously announced share repurchase program.
18
Certain Cautionary Statements
Certain statements in this Form 10-K contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, but rather reflect current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will" and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond the Company's control that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. These factors include, but are not limited to, the Company's development activities, leverage including short term obligations, reliance on major tenants, competition, dependence on regional economic conditions, fluctuations in operating results, integration of acquired businesses, costs of regulatory compliance, dependence on senior management, and possible stock price volatility. Such risks, uncertainties and other factors include, but are not limited to, the following risks:
The Company's limited operating history makes it difficult to evaluate its business — The Company was incorporated in November 1997 and became an independent business in March 1998 after Excel completed a spin-off of its business. Accordingly, the Company has a limited operating history on which to base an evaluation of its business and prospects. You must consider the Company's prospects in light of the risks and uncertainties encountered by companies in the early stages of development, particularly companies in the real estate industry.
The Company's (including PEI's) tenants may face financial difficulties and be unable to pay rent which may, in turn, cause financial difficulties — The Company's financial position may be materially harmed if any of its or PEI's major tenants, including The Sports Authority, or any other significant tenant experiences financial difficulties, such as a bankruptcy, insolvency or general downturn in the business of the tenant. In addition, any failure or delay by any of the Company or PEI's tenants to make rent payments could impair its financial condition and materially harm the Company's business. Although failure on the part of a tenant to materially comply with the terms of a lease, including failure to pay rent, would give the Company the right to terminate the lease, repossess the property and enforce the payment obligations under the lease, the Company would then be required to find another tenant to lease the property. The Company may not be able to enforce the payment obligations against the defaulting tenant, find another tenant or, if another tenant were found, that the Company would be able to enter into a new lease on favorable terms.
The Company may face significant competition from developers, owners and operators of real estate properties which may inhibit the success of its business — The Company competes in the acquisition of real estate properties with over 200 publicly-traded REITs as well as other public and private real estate investment entities, including financial institutions such as mortgage banks and pension funds, and other institutional investors, as well as individuals. Competition from these entities may impair the Company's financial condition and materially harm its business by reducing the number of suitable investment opportunities offered to the Company and increasing the bargaining power of prospective sellers of property, which often increases the price necessary to purchase a property. Many of the Company's competitors in the real estate sector are significantly larger than the Company and may have greater financial resources and more experienced managers than the Company.
In addition, a large portion of the Company's and PEI's developed properties are located in areas where competitors maintain similar properties. The Company will need to compete for tenants based on rental rates, attractiveness and location of properties, as well as quality of maintenance and management services. Competition from these and other properties may impair the Company's financial condition and materially harm its business by:
- •
- interfering with the Company's ability to attract and retain tenants,
19
- •
- increasing vacancies, which lowers market rental rates and limits the Company's ability to negotiate favorable rental rates, and
- •
- impairing the Company's ability to minimize operating expenses.
The Company's financial performance depends on regional economic conditions since many of its properties and investments are located in Arizona and California — Of the Company's properties and real estate related investments, five are located in two states: three in Arizona and two in California. Additionally, 16 of PEI properties are located in California and two in Arizona. Concentrating a significant number of properties and real estate related investments in these states may expose the Company to greater economic risks than if the properties and real estate related investments were located in several geographic regions. The Company's revenue from, and the value of, the properties and investments located in these states may be affected by a number of factors, including local real estate conditions, such as an oversupply of or reduced demand for real estate properties, and the local economic climate. High unemployment, business downsizing, industry slowdowns, changing demographics, and other factors may adversely impact any of these local economic climates. A general downturn in the economy or real estate conditions in Arizona or California could impair the Company's financial condition and materially harm its business. Further, due to the relatively high cost of real estate in the southwestern United States, the real estate market in that region may be more sensitive to fluctuations in interest rates and general economic conditions than other regions of the United States. The Company does not have any limitations or targets for the concentration of the geographic location of its properties and, accordingly, the risks associated with this geographic concentration will increase if the Company continues to acquire properties in Arizona and California.
The Company's substantial leverage may be difficult to service and could adversely affect its business — As of December 31, 2000, the Company had outstanding borrowings of approximately $36.8 million under its credit facilities, with total borrowing capacity of $55.0 million, and additional mortgage and note debt of approximately $75.6 million. This debt of $112.4 million represented approximately 35% of the Company's total assets at December 31, 2000. The Company is and will continue to be exposed to the risks normally associated with debt financing which may materially harm its business, including the following:
- •
- the Company's cash flow may be insufficient to meet required payments of principal and interest and payments of principal and interest on borrowings may leave the Company with insufficient cash resources to pay operating expenses.
- •
- the Company may not be able to refinance debt at maturity, and
- •
- if refinanced, the terms of refinancing may not be as favorable as the original terms of the debt.
The Company has incurred additional debt to facilitate the exchange offer collateralized by the PEI common stock and a default on that debt could result in the Company's loss of PEI — To facilitate the exchange offer, the Sol and Helen Price Trust made a five-year loan to the Company in the principal amount of $27.4 million. The Company used the proceeds of the loan to satisfy a portion of its monetary obligations under the exchange offer. In 2000, the Company converted $18.1 million of this note payable into 5.1 million shares of common stock. The Company's Senior Notes and Convertible Debentures are secured by certain of the Company's shares of PEI common stock. To the extent the Company is unable to meet its obligations under the terms of the Senior Notes and Convertible Debentures, the debt holders will have the right to take ownership of this PEI common stock.
20
The Company may not realize the expected benefits from the exchange offer making its future financial performance uncertain—The Company entered into the exchange offer with the expectation that the transaction would result in a number of benefits, including cost savings, operating efficiencies, revenue enhancements, tax advantages and other synergies. If these benefits and synergies are not realized, the Company's financial performance and the performance of PEI could be adversely impacted.
The Company faces risks associated with its equity investments in and with third parties because of its lack of control over the underlying real estate assets—As part of the Company's growth strategy, it may invest in shares of REITs or other entities that invest in real estate assets. In these cases, the Company will be relying on the assets, investments and management of the REIT or other entity in which it is investing. These entities and their properties will be exposed to the risks normally associated with the ownership and operation of real estate.
The Company also may invest in or with other parties through partnerships and joint ventures. In these cases the Company will not be the only entity making decisions relating to the property, partnership, joint venture or other entity. Risks associated with investments in partnerships, joint ventures or other entities include:
- •
- the possibility that the Company's partners might experience serious financial difficulties or fail to fund their share of required investment contributions,
- •
- the partners might have economic or other business interests or goals which are inconsistent with the Company's business interests or goals, and
- •
- the partners may take action contrary to the Company's instructions or requests and adverse to its policies and objectives.
Any substantial loss or action of this nature could potentially harm the Company's business. In addition, the Company may in some circumstances be liable for the actions of its third-party partners or co-venturers.
Rising interest rates may adversely affect the Company's cash flow—As of December 31, 2000, the Company owed approximately $112.4 million under its credit facility, mortgage debt, and other notes of which $43.6 million bore interest at variable rates. Variable rate debt creates higher debt payments if market interest rates increase. The Company may incur additional debt in the future that also bears interest at variable rates. Higher debt payments as a result of an increase in interest rates could adversely affect the Company's cash flow, cause it to default under some debt obligations or agreements, and materially harm its business.
Because the Company does not have a policy placing a limit on the amount of debt that it may incur, the Company's future borrowings could be significant and may adversely affect its cash flow and results of operations—The Company does not have a policy limiting the amount of debt that it may incur. Accordingly, the Company's management and board of directors have discretion to increase the amount of the Company's outstanding debt at any time. The Company could incur higher levels of debt, resulting in an increase in its total debt payments, which could adversely affect its cash flow and materially harm its business. In addition, if the Company increases the amount of its debt it may increase the risk of the Company's default on all of its debt, including the Company's Debentures and Senior Notes.
21
The Company could incur significant costs and expenses related to environmental problems—Various federal, state and local laws and regulations require property owners or operators to pay for the costs of removal or remediation of hazardous or toxic substances located on a property. Although the Company is not aware of any necessary environmental remediation or other environmental liability on its portfolio of properties, these laws often impose liability without regard to whether the owner or operator of the property was responsible for or even knew of the presence of the hazardous substances. The presence of or failure to properly remediate hazardous or toxic substances may impair the Company's ability to rent, sell or borrow against a property. These laws and regulations also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances at another location for the costs of removal or remediation of these hazardous substances at the disposal or treatment facility. Further, these laws often impose liability regardless of whether the entity arranging for the disposal ever owned or operated the disposal facility. Other environmental laws and regulations impose liability on owners or operators of property for injuries relating to the release of asbestos-containing materials into the air. As an owner and operator of property and as a potential arranger for hazardous substance disposal, the Company may be liable under the laws and regulations for removal or remediation costs, governmental penalties, property damage, personal injuries and related expenses. Payment of these costs and expenses could impair the Company's financial condition and materially harm its business.
The Company could face significant costs of compliance if it is considered an investment company under the Investment Company Act—The Company is not currently registered as an investment company under the Investment Company Act of 1940, because its management believes that the Company either is not within the definition of investment company under the Investment Company Act or, alternatively, excluded from regulation under the Investment Company Act by an exemption. If the Company is deemed to be an investment company under the Investment Company Act and fails to qualify for an exemption, it would be unable to conduct its business as currently conducted, which could materially harm its business. In the future, the Company intends to conduct its operations in order to avoid registration under the Investment Company Act. Therefore, the assets that the Company may acquire or sell may be limited by the regulations of the Investment Company Act.
The costs of compliance with the Americans With Disabilities Act could adversely affect the Company's business—Under the Americans with Disabilities Act of 1990, all public accommodations and commercial facilities must meet federal requirements relating to access and use by disabled persons. Compliance with the Americans with Disabilities Act requirements could involve removal of structural barriers from disabled persons' entrances on the Company's (and PEI's) properties. Other federal, state and local laws may require modifications to or restrict further renovations of the Company's properties to provide for these accesses. Although the Company believes that its properties are substantially in compliance with present requirements, noncompliance with the Americans with Disabilities Act or related laws or regulations could result in the United States government imposing fines or private litigants being awarded damages against the Company. If the Company incurs these costs and expenses, its financial condition could be impaired.
22
Certain anti-takeover provisions could prevent an acquisition of the Company's business at a premium price—Some of the provisions of the Company's certificate of incorporation and bylaws could discourage, delay or prevent an acquisition of its business at a premium price and could make removal of its management more difficult. These provisions could reduce the opportunities for the Company's stockholders to participate in tender offers, including tender offers that are priced above the then current market price of its common stock. The Company's certificate of incorporation permits its board of directors to issue shares of preferred stock in one or more series without stockholder approval. The preferred stock may be issued quickly with terms that delay or prevent a change in control of the Company's business. In addition, Section 203 of the Delaware General Corporation Law imposes restrictions on mergers and other business combinations between the Company and any holder of 15% or more of its common stock.
Protections for PEI's preferred stockholders limit PEI's common stockholders' ability to control PEI and receive dividends—The Company has agreed to protections for the holders of the PEI preferred stock which limit the control over PEI by its common stockholders and the dividends payable to PEI's common stockholders. The holders of the PEI preferred stock are entitled to elect a majority of PEI's board of directors and to have one designee on the Company's board of directors, until:
- •
- less than 2,000,000 shares of the PEI preferred stock remain outstanding,
- •
- the Company makes an offer to purchase any and all outstanding shares of the PEI preferred stock at a cash price of $16.00 per share, and purchase all shares duly tendered and not withdrawn,
- •
- the directors of PEI (1) issue any equity securities without unanimous approval of PEI's board or (2) fail to pay dividends on the PEI common stock in an amount equal to 100% of PEI's taxable income or the amount necessary to maintain PEI's status as a REIT, or in an amount equal to the excess, if any, of PEI's funds from operations, less preferred stock dividends, over $7.5 million, or
- •
- the Board of Directors of PEI, by unanimous vote, terminates the right of the holders of the PEI preferred stock to elect a majority of the Directors.
The third point above is intended to protect the interests of the holders of the PEI preferred stock by creating an annual reserve of $7.5 million at the PEI level which will not be distributed to the Company or any other holder of PEI common stock. This reserve will limit the Company's ability and the ability of all other PEI common stockholders to receive cash distributions from PEI for so long as the PEI preferred stock is outstanding. The Company has agreed with PEI that the $7.5 million reserve may be used for the improvement and/or acquisition of properties, the repurchase of the PEI preferred stock or the reduction of PEI's debt.
Directors and executive officers own a large percentage of the Company's voting stock and could exert significant influence over matters requiring stockholder approval—As of December 31, 2000, the Company's executive officers and directors and their affiliates beneficially owned approximately 12% of its outstanding common stock. As a result, these stockholders will continue to significantly influence the Company's management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger, consolidation or sale of substantially all of its assets. In addition, this significant ownership could discourage acquisition of the common stock by some potential investors and could have an anti-takeover effect.
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The Board of Directors may make changes to the Company's policies without stockholder approval—The investment, financing, borrowing and distribution policies of the Company and its policies with respect to all other activities, growth, debt, capitalization, and operations, are determined by the Company's Board of Directors. Although it has no present intention to do so, the Board of Directors may amend or revise these policies at any time and from time to time at its discretion without a vote of the stockholders of the Company. A change in these policies could adversely affect the Company's financial condition and results of operations.
The loss of key personnel could harm the Company's business—Given the early stage of development of the Company's business, it depends to a large extent on the performance of its senior management team and other key employees for strategic business direction and real estate experience. If the Company lost the service of any members of its senior management or other key employees, it could materially harm its business. The Company has not obtained key-man life insurance for any of its senior management or other key employees.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the year ended December 31, 2000, the Company wrote down its investment in Mace Security International, Inc. ("MACE") from its book value of $22.4 million to a fair value of $3.4 million, based on the closing stock price of $0.906 at December 29, 2000. Other than its investment in MACE, the Company's primary market risk exposure affecting its market risk sensitive financial instruments is interest rate risk. The Company's balance sheet contains financial instruments in the form of interest-earning notes receivable and interest-bearing mortgages payable. The Company manages the risk to its cash flow from changes in interest rates by monitoring its variable rate financial instruments. Although the fair value of its financial instruments may be affected by changes in interest rates, the Company typically does not dispose of them prior to maturity. Thus, the primary effect of changes in interest rates would occur to the extent that financial instruments mature and are replaced with others at different interest rates. The Company owns 3,750,000 common shares of MACE and 250,000 common shares of U.S. Plastic Lumber Corp. ("USPL") whose market value is dependent on the trading prices of the respective security.
At December 31, 2000, the Company had debts totaling $3.6 million in variable interest rates. If interest rates increased 100 basis points, the annual effect of such increase to the Company's financial position and cash flows would be approximately $0.5 million, based on the outstanding balance at December 31, 2000. The actual fluctuation of interest rates is not determinable; accordingly, actual results from interest rate fluctuation could differ.
The following table presents (1) the scheduled principal payments on notes receivable, and (2) the scheduled principal repayments on mortgages payable: over the next five years and thereafter. The table also includes the average interest rates of the financial instruments during each respective year and the fair value of the notes receivable and mortgages payable. The Company determines the fair value of financial instruments through the use of discounted cash flow analysis using current interest rates for (1) notes receivable with terms and credit characteristics similar to its existing portfolio and (2) borrowings under terms similar to its existing mortgages payable. Accordingly, the Company has determined that the carrying value of its financial instruments at December 31, 2000 approximates fair value.
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| Expected Maturity Date (dollar amounts in thousands) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2002 | 2003 | 2004 | 2005 | Thereafter or | Total | Fair Value | |||||||||||||||
Notes receivable, including notes from affiliates | $ | 8,060 | — | $ | 26,475 | $ | 5,935 | — | — | $ | 40,470 | $ | 40,400 | ||||||||||
Average interest rate | 11.70 | % | — | 12.00 | % | 12.00 | % | — | — | 11.94 | % | ||||||||||||
Mortgages and notes payable | $ | 14,995 | $ | 31,579 | — | $ | 60,645 | — | $ | 5,000 | $ | 112,219 | $ | 112,200 | |||||||||
Average interest rate | 10.05 | % | 10.02 | % | — | 9.16 | % | — | 10.07 | % | 9.48 | % |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements required by this item appear with Index to Financial Statements and Schedules, starting on page F-1 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AN FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The table below indicates the name, position with Legacy and ages of the directors, executive officers and other key employees of Legacy.
Name | Age | Position with Legacy | ||
---|---|---|---|---|
Gary B. Sabin | 47 | Chairman, President and Chief Executive Officer | ||
Richard B. Muir | 45 | Director, Executive Vice President, Chief Operating Officer and Secretary | ||
Kelly D. Burt | 43 | Director and Executive Vice President — Development | ||
Jack McGrory | 51 | Director | ||
Richard J. Nordlund | 56 | Director | ||
Robert E. Parsons, Jr. | 45 | Director | ||
Robert S. Talbott | 47 | Director | ||
John H. Wilmot | 58 | Director | ||
Graham R. Bullick, Ph.D. | 50 | Senior Vice President—Capital Markets | ||
Mark T. Burton | 40 | Senior Vice President—Acquisitions | ||
S. Eric Ottesen | 45 | Senior Vice President, General Counsel and Assistant Secretary | ||
James Y. Nakagawa | 35 | Chief Financial Officer | ||
Emmett R. Albergotti | 58 | Senior Vice President—Retail Development | ||
William J. Hamilton | 43 | Senior Vice President—Self Storage | ||
William J. Stone | 57 | Senior Vice President—Retail Development | ||
John A. Visconsi | 56 | Senior Vice President—Leasing/Asset Management |
25
Gary B. Sabin has served as Chairman of the Board of Directors, President and Chief Executive Officer of Legacy since its formation in November 1997. Mr. Sabin also has served as President and Chief Executive Officer and a director of PEI since November 1999. Mr. Sabin served as director and President of New Plan Excel Realty Trust, Inc. (New Plan Excel) from September 1998 to April 1999 and as Chairman, President and Chief Executive Officer of Excel Realty Trust from January 1989 to September 1998. In addition, Mr. Sabin has served as Chief Executive Officer of various companies since his founding of Excel Realty Trust's predecessor company and its affiliates starting in 1977. He has been active for over 20 years in diverse aspects of the real estate industry, including the evaluation and negotiation of real estate acquisitions, management, financing and dispositions.
Richard B. Muir has served as director, Executive Vice President and Secretary of Legacy since its formation and as Legacy's Chief Operating Officer since November 1999. Mr. Muir also has served as Executive Vice president, Chief Operating Officer and a director of PEI since November 1999. Mr. Muir served as a director, Executive Vice President and Co-Chief Operating Officer of New Plan Excel from September 1998 to April 1999 and served as director, Executive Vice President and Secretary of Excel Realty Trust from January 1989 to September 1998. In addition, Mr. Muir served as an officer and director of various affiliates of Excel Realty Trust since 1978, primarily in administrative and executive capacities, including direct involvement in and supervision of asset acquisitions, management, financing and dispositions.
Kelly D. Burt has served as Executive Vice President -Development of Legacy since May 1998 and in the same position with PEI since November 1999. From 1992 to May 1998, Mr. Burt served as President and founder of TenantFirst, a real estate development company in San Diego, California that was acquired by Legacy in May 1998. From 1984 to 1992, Mr. Burt was an Industrial/Office Partner at the San Diego division of Trammell Crow Company, a real estate development company headquartered in Dallas, Texas.
Jack McGrory has served as a director of Legacy and Chairman of the Board of PEI since November 1999. Since September 2000, Mr. McGrory has also served as President and Chief Executive Officer of Downtown Development Inc., an entity which manages the construction of San Diego's new ballpark and adjacent commercial real estate, and President and Chief Executive Officer of San Diego Revitalization, a non-profit organization focused on real estate development in City Heights. Mr. McGrory has also been the Managing Director of The Price Group LLC, which is engaged in securities and real estate investments, since August 2000. Mr. McGrory served as Chief Operating Officer of the San Diego Padres from October 1999 to August 2000. Mr. McGrory served as President and Chief Executive Officer of PEI from September 1997 to November 1999 and as City Manager of the City of San Diego from March 1991 to August 1997.
Richard J. Nordlund has served as a director since Legacy's formation and as President of RJN Management, a real estate firm in Santa Barbara, California, since 1985. From 1978 through 1988, Mr. Nordlund served as President of First Corporate Services, an investment banking firm in Minneapolis, Minnesota. He is also associated with Miller & Schroeder Financial, Inc. Mr. Nordlund's business experience includes 28 years in the investment banking and mortgage banking industries.
26
Robert E. Parsons, Jr. has served as a director since Legacy's formation. He served as a director of Excel Realty Trust and then New Plan Excel from January 1989 to April 1999. Mr. Parsons is presently Executive Vice President and Chief Financial Officer of Host Marriott Corporation, a company he joined in 1981. He also serves as a director and officer of several Host Marriott subsidiaries, and as a director of Merrill Financial Corporation, a privately-held real estate company.
Robert S. Talbott has served as a director since Legacy's formation. Mr. Talbott is an attorney and has served as President of Holrob Investments, LLC, a company engaged in the acquisition, development, management and leasing of real property, since 1997. From 1985 through 1997, Mr. Talbott served as Executive Vice President and President of Horne Properties, Inc., where he was involved in the acquisition and development of over 100 shopping centers. He also serves as a member of the Public Building Authority of Knoxville, Tennessee, as a member of the Knoxville Industrial Development Board, as a director of the Knoxville Chamber of Commerce and as Chairman of the St. Mary's Foundation.
John H. Wilmot has served as a director since Legacy's formation. He served as a director of Excel Realty Trust and then New Plan Excel from 1989 to April 1999. Mr. Wilmot, individually and through his wholly-owned corporations, develops and manages real property, including office buildings, shopping centers and residential projects primarily in the Phoenix/Scottsdale area, and has been active in that business since 1976.
Graham R. Bullick, Ph.D., has served as Senior Vice President—Capital Markets of Legacy since its formation and in the same position with PEI since November 1999. Mr. Bullick served as Senior Vice President—Capital Markets of Excel Realty Trust and then New Plan Excel from January 1991 to April 1999. Previously, Mr. Bullick was associated with Excel Realty Trust as a director from 1991 to 1992. From 1985 to 1991, Mr. Bullick served as Vice President and Chief Operations Officer for a real estate investment firm, where his responsibilities included acquisition and financing of investment real estate projects.
Mark T. Burton has served as Senior Vice President—Acquisitions of Legacy since its formation and in the same position with PEI since November 1999. Mr. Burton served as Senior Vice President—Acquisitions with Excel Realty Trust and then New Plan Excel from October 1995 to April 1999. He also served as a Vice President of Excel Realty Trust from January 1989 to October 1995. Mr. Burton was associated with Excel Realty Trust and its affiliates beginning in 1983, primarily in the evaluation and selection of property acquisitions.
S. Eric Ottesen has served as Senior Vice President, General Counsel and Secretary of Legacy since its formation. Mr. Ottesen also has served as Senior Vice President, General Counsel and Assistant Secretary of PEI since November 1999. Mr. Ottesen served as Senior Vice President—Legal Affairs and Secretary of New Plan Excel from September 1998 to April 1999. Mr. Ottesen served as Senior Vice President, General Counsel and Assistant Secretary of Excel Realty Trust from September 1996 to September 1998. From 1987 to 1995, Mr. Ottesen was a senior partner in a San Diego law firm.
James Y. Nakagawa has served as Chief Financial Officer and Treasurer of Legacy since October 1998. Mr. Nakagawa also has served as Chief Financial Officer of PEI since November 1999. From March 1998 to October 1998, Mr. Nakagawa served as Controller of Legacy. Mr. Nakagawa served as Controller of Excel Realty Trust and then New Plan Excel from September 1994 to April 1999. Prior to joining Excel Realty Trust, Mr. Nakagawa was a manager at Coopers & Lybrand LLP. Mr. Nakagawa is a certified public accountant.
27
Emmett R. Albergotti has served as Legacy's Senior Vice President—Retail Development since August 1998 and in the same position with PEI since November 1999. From 1993 to August 1998, Mr. Albergotti served as Senior Vice President of AMC Realty, Inc., the real estate arm of AMC Entertainment, Inc., for which he oversaw the acquisition and development of new theater locations throughout the western United States.
William J. Hamilton has served as President of Price Self Storage, a unit of PEI since its inception in August 1996. From August 1995 to July 1996, Mr. Hamilton served as Executive Vice President of Price Quest, a subsidiary of PEI that had various retailing divisions. From November 1994 to August 1995, he was a Vice President of PEI. From October 1993 to November 1994, Mr. Hamilton was a Vice President of PriceCostco. Mr. Hamilton is also a Senior Vice President—Self Storage of Legacy.
William J. Stone has served as a Senior Vice President—Retail Development of Legacy and PEI since December 1999. From November 1994 to December 1999, Mr. Stone served as the Executive Vice President of DDR/Oliver McMillan, where he oversaw the development of urban retail/entertainment redevelopment projects. Prior to joining DDR/Oliver McMillan and since 1975, Mr. Stone was an executive with several nationally recognized firms in the regional shopping center industry, most recently with TrizecHahn, Inc.
John A. Visconsi has served as Senior Vice President—Leasing/Asset Management of Legacy since May 1999 and in the same position with PEI since November 1999. Mr. Visconsi served as Vice President—Leasing with Excel Realty Trust and then New Plan Excel from January 1995 to April 1999. He also served as Senior Vice President of PEI from January 1994 to March 1995. From 1981 to 1994, Mr. Visconsi was director of Leasing and Land Development of Ernest W. Hahn, Inc.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Securities Exchange Act of 1934, directors, executive officers and beneficial owners of ten percent or more of the Company's common stock are required to report to the Securities and Exchange Commission on a timely basis the initiation of their status as a reporting person and any changes with respect to their beneficial ownership of the Company's common stock. Based solely on its review of such forms received by it, Legacy believes that all of the Section 16(a) filings required to be made by reporting persons with respect to 2000 were made on a timely basis.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of the Company's Directors
Each non-employee director of Legacy receives $8,000 per year for serving on the board and an additional $1,000 for each in-person meeting attended (other than committee meetings). Each director receives an option to purchase 10,000 shares of the Company's common stock on the date of the first annual meeting of stockholders at which the director is re-elected to Legacy's board. At each subsequent annual meeting of stockholders at which the director is re-elected, the director will receive an option to purchase the number of shares of the Company's common stock granted to the director at the prior annual meeting of stockholders plus an additional 1,000 shares of the Company's common stock. However, a director may not receive an option to purchase more than 20,000 shares of the Company's common stock upon re-election in any given year.
Directors also receive reimbursement for travel expenses incurred in connection with their duties as directors.
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Meetings of the Board
During 2000, Legacy's board held five meetings. In 2000, each director attended at least 75% of the aggregate of all meetings held by the board and all meetings held by all committees of the board on which the director served.
Committees of the Board of Directors
Audit Committee. Legacy's audit committee consists of Messrs. McGrory, Nordlund, Parsons and Talbott. During 2000, the audit committee held three meetings. The audit committee reviews the annual audits of Legacy's independent public auditors, reviews and evaluates internal accounting controls, recommends the selection of the Legacy's independent public auditors, reviews and passes upon (or ratifies) related party transactions and conducts such reviews and examinations as it deems necessary with respect to the practices and policies of, and the relationship between, Legacy and its independent public auditors.
Compensation Committee. Legacy's compensation committee consists of Messrs. Nordlund, Talbott and Wilmot. During 2000, the compensation committee held one meeting. The compensation committee reviews compensation of senior officers of Legacy and administers Legacy's executive compensation policies and the Legacy Stock Option Plan.
Executive Committee. Legacy's executive committee consists of Messrs. Sabin, Muir, Burt and Wilmot. During 2000, the executive committee held three meetings. The executive committee has all powers and rights necessary to exercise the full authority of Legacy's board in the management of the business and affairs of Legacy, except as provided in the DGCL or Legacy's bylaws.
Compensation Committee Interlocks and Insider Participation
During 2000, Legacy's compensation committee was comprised of Messrs. Nordlund, Talbott and Wilmot. No interlocking relationship exists between any member of the compensation committee and any member of any other company's board of directors or compensation committee.
Set forth below in full is the Report on Executive Compensation of Legacy's compensation committee regarding the compensation paid by Legacy to its executive officers during 2000:
The philosophy of Legacy's compensation program is to employ, retain and reward executives capable of leading Legacy in achieving its business objectives. These objectives include enhancing stockholder value, maximizing financial performance, preserving a strong financial posture, increasing Legacy's assets and positioning its assets and business in geographic markets offering long-term growth opportunities. The accomplishment of these objectives is measured against the conditions characterizing the industry within which Legacy operates.
Components of Executive Compensation
Base Salary. Base salary is established by Legacy's compensation committee based on an executive's job responsibilities, level of experience, individual performance and contribution to the business, with reference to the competitive marketplace for executive officers at other similar companies. The compensation committee believes that the base salaries paid to executive officers of Legacy are at competitive levels relative to the various markets from which Legacy attracts its executive talent.
29
Annual Cash Incentive Bonus. Annual cash incentive bonus is established by the committee at the end of the fiscal year and is based on Legacy's performance, individual performance and compensation surveys. Bonuses awarded in prior years are also taken into consideration. Those executive officers of Legacy with employment agreements may receive up to 100% of their base salary in the form of a bonus.
Long-Term Incentives. Long-term incentives include awards of stock options. The objective for the awards is to align closely executive interests with the longer term interests of stockholders. These awards, which are at risk and dependent on the creation of incremental stockholder value or the attainment of cumulative financial targets over several years, represent a portion of the total compensation opportunity provided for the executive officers. Award sizes are based on individual performance, level of responsibility, the individual's potential to make significant contributions to Legacy and award levels at other similar companies.
Annual Stock Grants. Annual stock grants include annual stock grants of the Legacy common stock to employees based on contributions to Legacy and individual job performance.
Compensation for the Chairman and Chief Executive Officer
During 2000, the Chief Executive Officer, Mr. Gary B. Sabin, received a base salary of $300,000 and a bonus of $60,000. With respect to long-term incentives during 2000, Mr. Sabin was awarded options to purchase 40,000 shares of Legacy common stock in his capacity as Chairman and Chief Executive Officer. All of such options are immediately exercisable and 30,000 have an exercise price of $3.50 per share and 10,000 have an exercise price of $2.875 per share. Legacy's compensation committee reviewed Legacy's actual performance in 2000 and determined that most of Legacy's goals and objectives were accomplished and, in some instances, exceeded. Mr. Sabin's bonus and his award of stock options took into consideration his performance and contribution to achieving Legacy's objectives in 2000.
Tax Considerations
Section 162(m) of the Code generally limits the tax deductions a public corporation may take for compensation paid to its Chief Executive Officer and its other four most highly compensated executive officers to $1 million per executive per year. Legacy does not presently anticipate any such executive officers to exceed the non-performance based compensation threshold of Section 162(m). The committee intends to evaluate Legacy's executive compensation policies and benefit plans during the coming year to determine whether any actions to maintain the tax deductibility of executive compensation are in the best interest of Legacy's stockholders.
The foregoing report has been furnished by the compensation committee.
Richard J. Nordlund Robert S. Talbott John H. Wilmot January 18, 2001 |
Executive Compensation
The following table sets forth certain summary information concerning compensation paid by Legacy to or on behalf of Legacy's Chief Executive Officer and each of Legacy's other four most highly compensated executive officers. Legacy elected to change its fiscal year-end date from July 31 to December 31 in 1998 and, accordingly, executive compensation is reported below for (1) the fiscal year ended December 31, 2000, (2) the fiscal year ended December 31, 1999 and (3) the transition period consisting of the five months ended December 31, 1998.
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| | | | Long-term Compensation Awards | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Fiscal Year Compensation | | |||||||||||
| | Number of Securities Underlying Options | | |||||||||||
Name | Fiscal Year | All Other Compensation(1) | ||||||||||||
Salary | Bonus | |||||||||||||
Gary B. Sabin | 2000 | $ | 300,000 | $ | 60,000 | (2) | 40,000 | $ | 9,138 | |||||
Chairman, President and | 1999 | 249,574 | (3) | 125,000 | (4) | 243,000 | 3,633 | |||||||
Chief Executive Officer | Transition | 76,295 | (5) | — | — | |||||||||
Richard B. Muir | 2000 | 200,000 | $ | 40,000 | (2) | 37,000 | 12,183 | |||||||
Executive Vice President, Chief | 1999 | 164,840 | (6) | 100,000 | (4) | 171,000 | 5,628 | |||||||
Operating Officer and Secretary | Transition | 46,498 | (5) | — | — | — | ||||||||
William J. Hamilton | 2000 | 150,000 | 98,408 | - | 10,440 | |||||||||
Senior Vice President—Self | 1999 | — | (7) | — | 100,000 | 375 | ||||||||
Storage | Transition | — | (7) | — | — | — | ||||||||
Mark T. Burton | 2000 | 150,000 | $ | 80,000 | (2) | 30,000 | 12,222 | |||||||
Senior Vice President— | 1999 | 117,138 | (8) | 100,000 | (4) | 120,000 | 3,633 | |||||||
Acquisitions | Transition | 25,632 | (5) | — | — | — | ||||||||
Kelly D. Burt | 2000 | 150,000 | $ | 30,000 | (2) | 46,000 | 17,436 | |||||||
Executive Vice President— | 1999 | 150,000 | 35,000 | (9) | 140,000 | 14,677 | ||||||||
Development | Transition | 62,500 | 25,000 | — | — |
- (1)
- All other compensation consists of medical and dental benefits, life insurance, long-term disability insurance and Legacy's matching 401(k) contributions and, in the case of Mr. Burt, a car allowance.
- (2)
- The bonuses represent amounts awarded by the compensation committee related to 2000 payable prior to May 31, 2001.
- (3)
- Since May 1, 1999, Mr. Sabin has been paid his annual salary by Legacy pursuant to Mr. Sabin's employment agreement with Legacy under which Mr. Sabin receives an annual base salary of $300,000. Mr. Sabin received $200,000 in 1999 under his employment agreement in the form of cancellation of a portion of Mr. Sabin's debt to Legacy, which was incurred for the purchase of Legacy common stock. The remaining $49,574 was paid by Legacy to New Plan Excel under an administrative services agreement between New Plan Excel and Legacy, which was terminated in April 1999.
- (4)
- The bonuses were paid in the form of cancellation of a portion of each individual's debt to Legacy, which was incurred for the purchase of Legacy common stock. In 2000, the compensation committee amended the debt repayment program, where the debt is to be cancelled over five years through 2005.
- (5)
- These amounts were paid to New Plan Excel by Legacy under an administrative services agreement.
- (6)
- Since May 1, 1999, Mr. Muir has been paid his annual salary by Legacy pursuant to Mr. Muir's employment agreement with Legacy under which Mr. Muir receives an annual base salary of $200,000. Mr. Muir received $133,333 in 1999 under his employment agreement in the form of cancellation of a portion of Mr. Muir's debt to Legacy, which was incurred for the purchase of Legacy common stock. The remaining $31,507 was paid by Legacy to New Plan Excel under an administrative services agreement.
31
- (7)
- Mr. Hamilton began his employment with Legacy in January 1, 2000. Prior to January 1, 2000, Mr. Hamilton was employed by PEI.
- (8)
- Since May 1, 1999, Mr. Burton has been paid his annual salary by Legacy pursuant to Mr. Burton's employment agreement with Legacy under which Mr. Burton receives an annual base salary of $150,000. Mr. Burton received $100,000 in 1999 under his employment agreement in the form of cancellation of a portion of Mr. Burton's debt to Legacy, which was incurred for the purchase of Legacy common stock. The remaining $17,138 was paid by Legacy to New Plan Excel under an administrative services agreement.
- (9)
- Mr. Burt's bonus for 1999 was paid in shares of Legacy common stock.
The following table sets forth certain summary information concerning individual grants of stock options made during 2000 to each of Legacy's named executive officers.
| Individual Grants | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1) | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % of Total Options Granted to Employees in 2000 | | | |||||||||||
| Number of Securities Underlying Options Granted | | | ||||||||||||
Name | Exercise or Base Price Per Share | Expiration Date | |||||||||||||
10% | 5% | ||||||||||||||
Gary B. Sabin | 30,000 | 11.5 | % | $ | 3.500 | 02/18/10 | $ | 66,034 | $ | 167,343 | |||||
10,000 | (2) | — | $ | 2.875 | 06/07/10 | $ | 18,081 | $ | 45,820 | ||||||
Richard B. Muir | 27,000 | 10.4 | % | $ | 3.500 | 02/18/10 | $ | 59,431 | $ | 150,609 | |||||
10,000 | (2) | — | $ | 2.875 | 06/07/10 | $ | 18,081 | $ | 45,820 | ||||||
William J. Hamilton | — | — | — | — | — | — | |||||||||
Mark T. Burton | 30,000 | 11.5 | % | $ | 3.500 | 02/18/10 | $ | 66,034 | $ | 167,343 | |||||
Kelly D. Burt | 36,000 | 13.8 | % | $ | 3.500 | 02/18/10 | $ | 79,241 | $ | 200,812 | |||||
10,000 | (2) | — | $ | 2.875 | 06/07/10 | $ | 18,081 | $ | 45,820 |
- (1)
- These amounts represent assumed rates of appreciation in the price of the Company's common stock during the terms of the options in accordance with rates specified in applicable federal securities regulations. Actual gains, if any, on stock option exercises will depend on the future price of the Company's common stock and overall stock market conditions. There is no representation that the rates of appreciation reflected in this table will be achieved.
- (2)
- Mr. Sabin, Mr. Muir and Mr. Burt each received an option to purchase 10,000 shares in their capacity as directors of Legacy.
32
The following table sets forth certain information concerning exercises of stock options by each of Legacy's named executive officers during 2000, and the number of options and value of unexercised options held by each such person on December 31, 2000.
Aggregated Option Exercises in 2000
and Fiscal Year-End Option Values
Name | Number of Securities Underlying Unexercised Options at Year-End — | Value of Unexercised In-the-Money Options at Year-End(1) — | ||
---|---|---|---|---|
| Exercisable | Exercisable | ||
Gary B. Sabin | 43,000 | — | ||
Richard B. Muir | 40,000 | — | ||
William J. Hamilton | — | — | ||
Mark T. Burton | 30,000 | — | ||
Kelly D. Burt | 69,000 | — |
- (1)
- The dollar values have been calculated by determining the difference between the fair market value of the securities underlying the options and the closing price of the Company's common stock on December 31, 2000.
Compensation Plans
Legacy Stock Option Plan. Legacy's stock option plan was adopted (1) to further the growth, development and financial success of Legacy by providing additional incentives to some of its directors, key employees and consultants by assisting them to become owners of capital stock of Legacy and thus to benefit directly from its growth, development and financial success and (2) to enable Legacy to retain the services of directors, key employees and consultants considered essential to the long-range success of Legacy, by providing and offering them the opportunity to become owners of capital stock of Legacy. Legacy's stock option plan provides for the grant to executive officers, other key employees, consultants and directors of Legacy of nonqualified stock options and incentive stock options.
In 2000, Legacy issued options to acquire an aggregate of 128,500 shares of Legacy common stock to its officers, other employees and directors under Legacy's stock option plan. Of such shares, 80,000 are immediately exercisable and have an exercise price of $2.875 and 48,500 are immediately exercisable and have an exercise price of $3.50.
401(k) Retirement Plan and Trust. Legacy has established a tax-qualified employee savings and retirement plan effective January 1998 covering all employees who were employed on August 31, 1998 or who have been employed by Legacy for at least six months and who are at least 21 years of age. Pursuant to the 401(k) plan, employees may elect to reduce their current compensation by up to the maximum amount determined by the federal government each year and have the amount of such reduction contributed to the 401(k) plan. The 401(k) plan permits, but does not require, additional cash contributions to the 401(k) plan by Legacy. The trustee under the 401(k) plan invests the assets of the 401(k) plan in designated investment options. The 401(k) plan is intended to qualify under Section 401 of the Code, so that contributions to the 401(k) plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) plan, and so that contributions by Legacy are deductible by Legacy when made for income tax purposes.
33
Employment Agreements
Legacy has entered into employment agreements with each of Messrs. Sabin, Muir, Hamilton and Burt. Each of those agreements commenced on May 1, 1999 and expires on December 31, 2003. On January 1, 2004, and on each anniversary date thereafter, the employment period will automatically be extended for one additional year unless either party gives written notice at least six months before such anniversary. These agreements provide for an annual base salary as set forth in the table below and a maximum bonus of up to 100% of the officer's annual base salary based upon, among other things, the performance of Legacy. Under the agreements, the officer is eligible to participate in Legacy's stock option plan. The agreements provide that in the event the officer's employment is terminated by Legacy without "Cause" or by the officer for "Good Reason," including, without limitation, a "Change of Control" (as defined in the agreements), the officer is entitled to a payment of 200% of his annual base salary and 200% of the average total additional compensation for the two preceding fiscal years of Legacy.
Legacy has also entered into an employment agreement with Mr. Burt. This agreement has a term of 36 months commencing May 1, 1998. At the end of the term, and on each anniversary date thereafter, the employment period will automatically be extended for one additional year unless either party gives notice at least six months before such anniversary. The agreement provides for an annual base salary of $150,000 and a maximum bonus of up to 100% of his annual base salary based upon, among other things, the performance of Legacy. The agreement also provided for the issuance to Mr. Burt in April 1998 of options to purchase 300,000 shares of Legacy common stock, half of which have an exercise price of $5.00 per share and half of which have an exercise price of $10.00 per share. In the event Legacy terminates Mr. Burt without cause, Mr. Burt shall receive a severance payment in an amount equal to 150% of his highest compensation paid under the agreement during any employment year, or if greater, the amount he would have received had he been employed for the entire 36 month term of the agreement.
34
The following table provides the name, position and annual base salary of each of the executive officers named in the Summary Compensation Table who has entered into an employment agreement with Legacy:
Name | Position | Annual Base Salary | |||
---|---|---|---|---|---|
Gary B. Sabin | President and Chief Executive Officer | $ | 300,000 | ||
Richard B. Muir | Executive Vice President, Chief Operating Officer and Secretary | $ | 200,000 | ||
William J. Hamilton | Senior Vice President-Self Storage | $ | 150,000 | ||
Mark T. Burton | Senior Vice President-Acquisitions | $ | 150,000 | ||
Kelly D. Burt | Executive Vice President-Development | $ | 150,000 |
The following performance graph compares the performance of the Legacy common stock to the S&P 500 Index and to an index average of Legacy's peer group, composed of comparable publicly-traded companies in the real estate business, in each case for the period commencing March 31, 1998 through December 31, 2000. Such peer group includes: Crescent Operating, Inc., Forest City Enterprises, Inc. and Wellsford Real Properties, Inc. The graph assumes that the value of the investment in the Company's common stock and each index was $100 at March 31, 1998 and that all dividends were reinvested. The stock price performance shown on the graph is not necessarily indicative of future price performance.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of shares of the Company's common stock as of April 11, 2001 (unless described otherwise) by Legacy's directors and executive officers, all of Legacy's directors and executive officers as a group and all other stockholders known by Legacy to beneficially own more than five percent of the Company's common stock. Beneficial ownership of directors, executive officers and five percent stockholders includes both outstanding shares of the Company's common stock and shares of the Company's common stock issuable upon exercise of options that are currently exercisable or will become exercisable within 60 days of the date of this table.
35
Name and Address(1) | Number of Shares of Common Stock Beneficially Owned(2) | Percent of Total(%) | ||
---|---|---|---|---|
Longleaf Partners Realty Fund(3) | 16,880,000 | 27.4 | ||
The Price Group LLC(4) | 5,250,000 | 8.5 | ||
Gary B. Sabin(5) | 3,971,215 | 6.4 | ||
Kelly D. Burt | 970,650 | 1.6 | ||
Richard B. Muir | 639,517 | 1.0 | ||
Mark T. Burton | 563,365 | * | ||
Graham R. Bullick, Ph.D. | 496,154 | * | ||
S. Eric Ottesen | 491,906 | * | ||
John H. Wilmot(6) | 125,336 | * | ||
Richard J. Nordlund(7) | 63,468 | * | ||
James Y. Nakagawa | 45,020 | * | ||
Robert S. Talbott(8) | 32,000 | * | ||
Robert E. Parsons, Jr.(9) | 27,123 | * | ||
Jack McGrory | 2,000 | * | ||
William J. Hamilton | — | * | ||
All executive officers and directors as a group (12 persons) | 7,427,754 | 12.0 |
- *
- Less than 1% beneficially owned.
- (1)
- Except as otherwise indicated, each individual named has a business address of 17140 Bernardo Center Drive, Suite 300, San Diego, California 92128, and has sole investment and voting power with respect to the securities shown.
- (2)
- Includes the following shares issuable upon the exercise of outstanding stock options that are exercisable within 60 days of April 11, 2001: Mr. Sabin—43,000; Mr. Muir—40,000; Mr. Burton—30,000; Mr. Bullick—30,000; Mr. Ottesen—27,000; Mr. Burt—69,000; Mr. Nakagawa—12,000; Mr. Wilmot—13,000; Mr. Nordlund—13,000; Mr. Talbott—13,000; Mr. Parsons—13,000; and all executive officers and directors as a group (12 persons)—393,000.
- (3)
- Longleaf Partners Realty Fund's business address is c/o Southeastern Asset Management, Inc., 6410 Poplar Avenue, 9th Floor, Memphis, Tennessee 38119.
- (4)
- The Price Group LLC's business address is 7979 Ivanhoe Avenue, Suite 520, La Jolla, California 92037.
- (5)
- Includes shares of Legacy common stock held by EIC, of which Gary Sabin is the controlling stockholder.
- (6)
- Mr. Wilmot's business address is 7201 E. Camelback Rd., #222, Phoenix, Arizona 85018.
- (7)
- Mr. Nordlund's business address is 615 Hot Springs Road, Santa Barbara, California 93108.
- (8)
- Mr. Talbott's business address is 2607 Kingston Pike, Knoxville, Tennessee 37919.
- (9)
- Mr. Parson's business address is Host Marriott Corporation, 10400 Fernwood Road, Bethesda, MD 20058.
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Business Relationships
Following Legacy's completion of its exchange offer for the PEI common stock, Gary B. Sabin, Chairman, President and Chief Executive Officer of Legacy, became PEI's President and Chief Executive Officer, and certain other Legacy executives became PEI's executives. Legacy also took over daily management of PEI, including property management, finance and administration and its self storage business. PEI reimburses Legacy for these services. PEI expensed $3 million for these services for the year ended December 31, 2000, which was based on historical costs for similar expenses. PEI expensed $249,000 for these services during the period of November 12, 1999 through December 31, 1999.
During 2000 PEI purchased two retail buildings and two office buildings properties from Legacy. They were funded through advances on PEI's unsecured revolving credit facility, by assuming mortgages and notes payable, and with the proceeds from a property sold in 2000 in a tax-deferred exchange transaction.
PEI also purchased a 50% interest in a real estate development joint venture in Westminster, Colorado from Legacy for an initial payment of $8.1 million. The purchase price was based on the property's existing operating income, with additional payments estimated to be $4.8 million due through the completion of construction.
In March 2000, PEI executed a $15 million note receivable with Legacy due December 2002. The note was amended in September 2000 to allow Legacy to borrow up to $40 million on the note. The note bears an interest rate of LIBOR plus 375 basis points (10.23% at December 31, 2000) on the first $15 million. Amounts borrowed in excess of $15 million bear interest at a fixed rate of 12.5% per year. As of December 31, 2000, Legacy owed $25.4 million on this note at a weighted average interest rate of 11.2%.
37
Indebtedness of Management
In 1998, Legacy loaned to some of its officers, in connection with their purchase of the Company's common stock, approximately 50% of the purchase price of the stock (an aggregate amount of $10.9 million). These loans bear interest at the rate of 7.0% per annum, mature in 2003 and are secured by some of the officers' Company common stock. The total interest receivable at December 31, 2000 from these loans totaled $1.8 million. The following table lists the largest aggregate amount outstanding (including interest) during 2000 and the aggregate amount outstanding as of April 11, 2001 for the loans to the officers identified therein.
Name and Position | Largest Aggregate Amount Outstanding During 2000 | Aggregate Amount Outstanding as of April 11, 2001 | Shares held as Collateral | |||||
---|---|---|---|---|---|---|---|---|
Gary B. Sabin Chairman, President and Chief Executive Officer | $ | 4,185,895 | $ | 4,247,740 | 1,525,348 | |||
Richard B. Muir Executive Vice President, Chief Operating Officer and Secretary | 1,401,463 | 1,422,078 | 512,119 | |||||
Graham R. Bullick, Ph.D. Senior Vice President — Capital Markets | 1,407,297 | 1,427,912 | 459,018 | |||||
S. Eric Ottesen Senior Vice President, General Counsel and Assistant Secretary | 1,407,297 | 1,427,912 | 462,906 | |||||
Mark T. Burton Senior Vice President — Acquisitions | 1,407,297 | 1,427,912 | 514,534 |
In September 2000, Legacy entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights in 2,050,000 shares of Legacy common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, Legacy also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to Legacy. Legacy paid $4.3 million of the above personal debt in October 2000, upon which Legacy recorded 1,710,000 shares as repurchased.
38
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- (a)
- Financial Statements and Financial Statement Schedules:
| | | Page | |||
---|---|---|---|---|---|---|
(1) | Report of Independent Accountants | F-1 | ||||
(2) | Financial Statements | |||||
(i) | Consolidated Balance Sheets December 31, 2000 and 1999 | F-2 | ||||
(ii) | Consolidated Statements of Income (Loss) Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998 | F-3 | ||||
(iii) | Consolidated Statements of Changes In Stockholders' Equity Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998 | F-4 | ||||
(iv) | Consolidated Statements of Cash Flows Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998 | F-5 | ||||
(v) | Notes to Consolidated Financial Statements | F-6 | ||||
(3) | Financial Statement Schedules | |||||
(i) | Schedule II; Valuation and Qualifying Accounts Years Ended December 31, 2000, December 31, 1999, Five Months Ended December 31, 1998 and the Period from Inception (November 17, 1997) to July 31, 1998 | F-22 | ||||
(ii) | Schedule III; Real Estate and Accumulated Depreciation; December 31, 2000 | F-23 |
The separate financial statements of the Company's unconsolidated, significant subsidiary, PEI, are incorporated by reference to PEI's annual report filed on Form 10-K for the year ended December 31, 2000 (File No. 0-20449).
- (b)
- Reports on Form 8-K filed during the quarter ended December 31, 2000:
- (c)
- Exhibit Index
The Company filed no reports on Form 8-K during the quarter ended December 31, 2000.
2.1 | (1) | Distribution Agreement, dated as of March 31, 1998, by and among Excel Realty Trust, Inc., Excel Legacy Corporation and ERT Development Corporation. | ||
3.1 | (2) | Amended and Restated Certificate of Incorporation of Excel Legacy Corporation. | ||
3.2 | (2) | Amended and Restated Bylaws of Excel Legacy Corporation. | ||
4.1 | (3) | Form of Common Stock Certificate. | ||
4.2 | (4) | Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004, including form of Debenture and form of Pledge Agreement. | ||
4.3 | (4) | Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 10.0% Senior Redeemable Secured Notes due 2004, including form of Note and form of Pledge Agreement. | ||
10.1 | (12) | 1998 Stock Option Plan of Excel Legacy Corporation. |
39
10.2 | (1) | Purchase Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and the purchasers named therein. | ||
10.3 | (1) | Registration Rights Agreement, dated as of March 31, 1998, by and among Excel Legacy Corporation and the purchasers named therein. | ||
10.4 | (1) | Form of Indemnity Agreement between Excel Legacy Corporation and its directors and executive officers. | ||
10.5 | (5) | Operating Agreement dated as of October 9, 1998 of Grand Tusayan, LLC, a Delaware limited liability company, as amended. | ||
10.6 | (5) | First Amended and Restated Operating Agreement dated as of July 27, 1998 of Millennia Car Wash, LLC, a Delaware limited liability company. | ||
10.7 | (5) | First Amended and Restated Operating Agreement dated as of July 29, 1998 of Newport on the Levee, LLC, a Delaware limited liability company. | ||
10.8 | (6) | Real Estate and Asset Purchase Agreement, dated March 23, 1999, by and among American Wash Services, Inc., Millennia Car Wash, LLC, Excel Legacy Corporation and G II Ventures, Inc. | ||
10.9 | (6) | Amendment No. 1 to Real Estate and Asset Purchase Agreement, dated March 30, 1999, by and among American Wash Services, Inc., Millennia Car Wash, LLC, Excel Legacy Corporation and G II Ventures, Inc. | ||
10.10 | (7) | Agreement, dated May 12, 1999, as amended, between Excel Legacy Corporation and the other individuals and entities listed on the signature pages thereto. | ||
10.11 | (7) | Agreement, dated June 2, 1999, as amended, between Excel Legacy Corporation and Price Enterprises, Inc.. | ||
10.12 | (8) | Letter dated June 2, 1999 from Excel Legacy Corporation to Price Enterprises, Inc. regarding the status of Price Enterprises, Inc. as a REIT. | ||
10.13 | (4) | Note Purchase Agreement, dated as of October 6, 1999, between Excel Legacy Corporation and The Sol and Helen Price Trust, including form of Secured Promissory Note and form of Pledge Agreement. | ||
10.14 | (9) | Purchase and Sale Agreement and Escrow Instructions, dated as of August 2, 1999, by and between Excel Legacy Corporation and Wal Mart Real Estate Business Trust. | ||
10.15 | (10) | Employment Contract, dated as of May 1, 1998, by and between Excel Legacy Corporation and Kelly D. Burt, an individual. | ||
10.16 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Gary B. Sabin, an individual. | ||
10.17 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Richard B. Muir, an individual. | ||
10.18 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Graham R. Bullick, an individual. | ||
10.19 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and S. Eric Ottesen, an individual. | ||
10.20 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and John Visconsi, an individual. | ||
10.21 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and James Y. Nakagawa, an individual. |
40
10.22 | (10) | Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Mark T. Burton, an individual. | ||
10.23 | (11) | Form of Stock Purchase Agreement dated as of September 25, 2000, by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton. | ||
10.24 | (11) | Form of Loan Assumption Agreement dated as of September 25, 2000 by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton. | ||
10.25 | (11) | Amended and Restated Revolving Credit Agreement dated as of October 16, 2000 by and among Excel Legacy Corporation and Fleet National Bank. | ||
10.26 | (11) | First Amended and Restated Promissory Note and Revolving Line of Credit dated September 27, 2000, by and among Excel Legacy Corporation and Price Enterprises, Inc.. | ||
21.1 | * | Subsidiaries of Excel Legacy Corporation. | ||
23.1 | ** | Consent of PricewaterhouseCoopers LLP. | ||
23.2 | ** | Consent of Ernst & Young LLP. |
- *
- Previously filed.
- **
- Filed herewith.
- (1)
- Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on April 2, 1998.
- (2)
- Incorporated by reference to the Company's Registration Statement on Form S-11 (File No. 333-55715) filed with the Commission on June 1, 1998.
- (3)
- Incorporated by reference to Amendment No. 1 to the Company's Registrant Statement on Form 10 (File No. 0-23503) filed with the Commission on February 10, 1998.
- (4)
- Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on November 12, 1999.
- (5)
- Incorporated by reference to the Company's Annual Report filed on Form 10-K (File No. 0-23503) filed with the Commission on October 28, 1998.
- (6)
- Incorporated by reference to the Company's Current Report on Form 8-K (File No. 0-23503) filed with the Commission on June 16, 1999.
- (7)
- Incorporated by reference to Annexes A and B to the Offer to Exchange/Prospectus dated October 6, 1999, filed as Exhibit (a) (1) to the Company's Tender Offer Statement on Schedule 14D-1 as filed with the Commission on October 6, 1999.
- (8)
- Incorporated by reference to the Company's Registration Statement on Form S-4 (File No. 333-80339) filed with the Commission on June 9, 1999.
- (9)
- Incorporated by reference to the Company's Current Report on form 8-K (File No. 0-23503) filed with the Commission on September 1, 1999.
- (10)
- Incorporated by reference to the Company's Annual Report filed on Form 10-K (File No. 0-23503) filed with the Commission on March 30, 2000.
- (11)
- Incorporated by reference to the Company's Quarterly Report filed on Form 10-Q (File No. 0-23503) filed with the Commission on November 9, 2000.
- (12)
- Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 333-68597) filed with the Commission on December 9, 1998.
41
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EXCEL LEGACY CORPORATION | |||
DATE: July 26, 2001 | By: | /s/ GARY B. SABIN Gary B. Sabin President and Chief Executive Officer (Principal Executive Officer) | |
DATE: July 26, 2001 | By: | /s/ JAMES Y. NAKAGAWA James Y. Nakagawa Chief Financial Officer (Principal Financial and Accounting Officer) |
42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Excel Legacy Corporation
In our opinion, the consolidated financial statements as listed in item 14(a) of this Form 10-K present fairly, in all material respects, the financial position of Excel Legacy Corporation and its subsidiaries at December 31, 2000 and 1999 and the results of their operations and their cash flows for the years ended December 31, 2000, December 31, 1999, the five months ended December 31, 1998 and the period from inception (November 17, 1997) to July 31, 1998, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in item 14(a) of this Form 10-K present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As discussed in paragraph 3 of Note 1 to the consolidated financial statements, the 2000 financial statements have been restated to reflect a non-cash charge related to the Company's investment in Mace Security International, Inc.
/s/ PricewaterhouseCoopers LLP
San Diego, California
February 22, 2001, except for paragraph 3 of Note 1, as to which the date is July 26, 2001
F–1
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
| December 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2000 | 1999 | |||||||
| (Restated) | | |||||||
ASSETS | |||||||||
Real estate: | |||||||||
Land | $ | 16,877 | $ | 27,099 | |||||
Buildings | 26,878 | 47,664 | |||||||
Construction in progress | 51,835 | 27,380 | |||||||
Leasehold interest | 2,351 | 2,351 | |||||||
Accumulated depreciation | (1,808 | ) | (2,303 | ) | |||||
Net real estate | 96,133 | 102,191 | |||||||
Cash | 1,469 | 1,767 | |||||||
Accounts receivable, less allowance for bad debts of $32 and $55 in 2000 and 1999, respectively | 812 | 739 | |||||||
Notes receivable | 40,470 | 28,380 | |||||||
Investment in securities | 116,853 | 136,570 | |||||||
Investment in partnerships | 14,855 | 18,341 | |||||||
Interest receivable | 12,875 | 8,929 | |||||||
Pre-development costs | 9,780 | 16,783 | |||||||
Other assets | 7,807 | 7,938 | |||||||
Deferred tax asset | 7,315 | 6,515 | |||||||
$ | 308,369 | $ | 328,153 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Liabilities: | |||||||||
Notes payable | $ | 49,061 | $ | 70,661 | |||||
Convertible debentures | 33,240 | 33,243 | |||||||
Senior notes | 18,067 | 18,067 | |||||||
Mortgages payable | 12,021 | 15,835 | |||||||
Accounts payable and accrued liabilities | 15,130 | 9,188 | |||||||
Other liabilities | 1,364 | 151 | |||||||
Total liabilities | 128,883 | 147,145 | |||||||
Commitments and contingencies | |||||||||
Minority interests | 1,103 | 969 | |||||||
Stockholders' equity: | |||||||||
Series B Preferred stock, $.01 par value, 50,000,000 shares authorized, 0 and 21,281,000 shares issued and outstanding in 2000 and 1999, respectively | — | 213 | |||||||
Common stock, $.01 par value, 150,000,000 shares authorized, 61,540,849 and 36,835,921 shares issued and outstanding in 2000 and 1999, respectively | 615 | 368 | |||||||
Additional paid-in capital | 201,471 | 187,699 | |||||||
Accumulated other comprehensive (loss) income, net of tax | (695 | ) | 922 | ||||||
Retained earnings | (13,320 | ) | 1,679 | ||||||
Notes receivable from affiliates for common shares | (9,688 | ) | (10,842 | ) | |||||
Total stockholders' equity | 178,383 | 180,039 | |||||||
$ | 308,369 | $ | 328,153 | ||||||
The accompanying notes are an integral part of the financial statements.
F–2
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share amounts)
| Year Ended December 31, | | Period from Inception (November 17, 1997) to July 31, 1998 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Five Months Ended December 31, 1998 | ||||||||||||||
| 2000 | 1999 | |||||||||||||
| (Restated) | | | | |||||||||||
Revenues | |||||||||||||||
Operating income | $ | 7,842 | $ | 11,426 | $ | 7,670 | $ | 1,732 | |||||||
Partnership and other income | 2,564 | 1,006 | 252 | — | |||||||||||
Interest income | 4,246 | 3,937 | 1,573 | 1,996 | |||||||||||
Rental income | 3,845 | 9,548 | 5,515 | 4,417 | |||||||||||
Total revenue | 18,497 | 25,917 | 15,010 | 8,145 | |||||||||||
Operating expenses: | |||||||||||||||
Provision for investment impairment | 18,993 | — | — | — | |||||||||||
Interest | 10,860 | 7,997 | 2,645 | 1,518 | |||||||||||
Other operating expenses | 6,322 | 6,305 | 4,904 | 879 | |||||||||||
Property operating expenses | 2,856 | 1,816 | 1,646 | 915 | |||||||||||
General and administrative | 2,785 | 6,098 | 2,641 | 898 | |||||||||||
Depreciation and amortization | 1,562 | 3,220 | 1,918 | 1,057 | |||||||||||
Total operating expenses | 43,378 | 25,436 | 13,754 | 5,267 | |||||||||||
Net operating (loss) income | (24,881 | ) | 481 | 1,256 | 2,878 | ||||||||||
Net gain from real estate sales and write-off of real estate related costs | 8,715 | (1,765 | ) | — | — | ||||||||||
(Loss) income before income taxes | (16,166 | ) | (1,284 | ) | 1,256 | 2,878 | |||||||||
Benefit (provision) for income taxes | 1,167 | 507 | (535 | ) | (1,143 | ) | |||||||||
Net (loss) income | $ | (14,999 | ) | $ | (777 | ) | $ | 721 | $ | 1,735 | |||||
Basic net (loss) income per common share | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.02 | $ | 0.11 | |||||
Diluted net (loss) income per common share | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.01 | $ | 0.07 | |||||
The accompanying notes are an integral part of the financial statements.
F–3
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
| Preferred Stock | Common Stock | | | | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Additional Paid-in Capital | Accumulated Comprehensive Income (Loss) | Total Retained Earnings | Notes Receivable | Total Stockholders' Equity | ||||||||||||||||||||||
| Number | Amount | Number | Amount | |||||||||||||||||||||||
Balance at inception | — | $ | — | — | $ | — | $ | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Issuance of preferred stock | 21,281,000 | 213 | — | — | 106,192 | — | — | — | 106,405 | ||||||||||||||||||
Issuance of common stock | — | — | 33,457,804 | 335 | 70,831 | — | — | — | 71,166 | ||||||||||||||||||
Issuance of notes receivable from officers for common shares | — | — | — | — | — | — | — | (10,872 | ) | (10,872 | ) | ||||||||||||||||
Issuance costs | — | — | — | — | (2,515 | ) | — | — | — | (2,515 | ) | ||||||||||||||||
Net income | — | — | — | — | — | — | 1,735 | — | 1,735 | ||||||||||||||||||
Balance at July 31, 1998 | 21,281,000 | 213 | 33,457,804 | 335 | 174,508 | — | 1,735 | (10,872 | ) | 165,919 | |||||||||||||||||
Net income | — | — | — | — | — | — | 721 | — | 721 | ||||||||||||||||||
Balance at December 31, 1998 | 21,281,000 | 213 | 33,457,804 | 335 | 174,508 | — | 2,456 | (10,872 | ) | 166,640 | |||||||||||||||||
Issuance of common stock | — | — | 3,378,117 | 33 | 13,479 | — | — | — | 13,512 | ||||||||||||||||||
Issuance costs | — | — | — | — | (288 | ) | — | — | — | (288 | ) | ||||||||||||||||
Repayment of loans | — | — | — | — | — | — | — | 30 | 30 | ||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (777 | ) | — | (777 | ) | ||||||||||||||||
Unrealized gain on marketable securities, net of tax | — | — | — | — | — | 922 | — | — | 922 | ||||||||||||||||||
Total comprehensive income | 145 | ||||||||||||||||||||||||||
Balance at December 31, 1999 | 21,281,000 | 213 | 36,835,921 | 368 | 187,699 | 922 | 1,679 | (10,842 | ) | 180,039 | |||||||||||||||||
Conversion of notes payable to common stock | — | — | 5,100,544 | 51 | 17,952 | — | — | — | 18,003 | ||||||||||||||||||
Conversion of preferred stock to common stock | (21,281,000 | ) | (213 | ) | 21,281,000 | 213 | — | — | — | — | — | ||||||||||||||||
Issuance of common shares | — | — | 35,333 | — | 102 | — | — | — | 102 | ||||||||||||||||||
Repurchase common shares | — | — | (1,711,949 | ) | (17 | ) | (4,282 | ) | — | — | — | (4,299 | ) | ||||||||||||||
Repayment of notes to affiliates | — | — | — | — | — | — | — | 1,154 | 1,154 | ||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (14,999 | ) | — | (14,999 | ) | ||||||||||||||||
Unrealized loss on marketable securities, net of tax | — | — | — | — | — | (1,617 | ) | — | — | (1,617 | ) | ||||||||||||||||
Total comprehensive loss | (16,616 | ) | |||||||||||||||||||||||||
Balance at December 31, 2000 (Restated) | — | $ | — | 61,540,849 | $ | 615 | $ | 201,471 | $ | (695 | ) | $ | (13,320 | ) | $ | (9,688 | ) | $ | 178,383 | ||||||||
The accompanying notes are all integral part
of the financial statements
F–4
| Year Ended December 31, | | Period from Inception (November 17, 1997) to July 31, 1998 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Five Months Ended December 31, 1998 | ||||||||||||||
| 2000 | 1999 | |||||||||||||
| (Restated) | | | | |||||||||||
Cash flows from operating activities: | |||||||||||||||
Net income (loss) | $ | (14,999 | ) | $ | (777 | ) | $ | 721 | $ | 1,735 | |||||
Adjustments to reconcile net income to net cash provided by operations: | |||||||||||||||
Provision for investment impairment | 18,993 | — | — | — | |||||||||||
(Gain) loss from real estate sales net of write-off of real estate related costs | (8,715 | ) | 1,765 | — | — | ||||||||||
Depreciation and amortization | 1,562 | 3,220 | 1,918 | 1,057 | |||||||||||
Earnings from equity investments | (893 | ) | (163 | ) | — | — | |||||||||
Minority interest in income of partnerships | 134 | 123 | (7 | ) | — | ||||||||||
Change in accounts receivable and other assets | (4,687 | ) | (10,212 | ) | (2,195 | ) | (6,334 | ) | |||||||
Change in accounts payable and other liabilities | 8,309 | 6,123 | (4,482 | ) | 6,927 | ||||||||||
Net cash (used in) provided by operating activities | (296 | ) | 79 | (4,045 | ) | 3,385 | |||||||||
Cash flows from investing activities: | |||||||||||||||
Proceeds from real estate sales | 39,977 | 63,031 | — | — | |||||||||||
Real estate acquired and construction costs paid | (32,860 | ) | (21,287 | ) | (1,489 | ) | (98,951 | ) | |||||||
Pre-development costs paid | (3,614 | ) | (5,755 | ) | (6,907 | ) | (6,662 | ) | |||||||
Investment in partnerships | 3,486 | (10,828 | ) | (285 | ) | (11,138 | ) | ||||||||
Acquisition of Price Enterprises, Inc | — | (33,643 | ) | — | — | ||||||||||
Notes receivable issued | (12,090 | ) | (5,176 | ) | — | — | |||||||||
Net cash used in investing activities | (5,101 | ) | (13,658 | ) | (8,681 | ) | (116,751 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Proceeds from issuance of preferred stock | — | — | — | 106,405 | |||||||||||
Proceeds from issuance of common stock | — | 13,512 | — | 11,104 | |||||||||||
Issuance costs paid | — | (288 | ) | — | (2,515 | ) | |||||||||
Shares repurchased | (4,197 | ) | — | — | — | ||||||||||
Principal payments of notes and mortgages | (49,100 | ) | (38,129 | ) | (1,378 | ) | (72,504 | ) | |||||||
Borrowings from issuance of notes payable | 58,396 | 38,864 | 4,000 | 82,367 | |||||||||||
Net cash provided by financing activities | 5,099 | 13,959 | 2,622 | 124,857 | |||||||||||
Net (decrease) increase in cash | (298 | ) | 380 | (10,104 | ) | 11,491 | |||||||||
Cash at the beginning of the period | 1,767 | 1,387 | 11,491 | — | |||||||||||
Cash at the end of the period | $ | 1,469 | $ | 1,767 | $ | 1,387 | $ | 11,491 | |||||||
The accompanying notes are an integral part
of the financial statement
F–5
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Organization
Excel Legacy Corporation (the "Company"), a Delaware corporation was formed on November 17, 1997. The Company was originally a wholly owned subsidiary of Excel Realty Trust, Inc. ("Excel"), a Maryland corporation now known as New Plan Excel Realty Trust, Inc. On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel (the "Spin-off").
In connection with the Spin-off, certain real properties, notes receivable and related assets and liabilities were transferred to the Company from Excel (Note 3). Upon completion of the Spin-off, the Company ceased to be a wholly owned subsidiary of Excel and began operating as an independent public real estate operating company.
Restatement of Financial Results
The Company restated the financial statements as of and for the year ended December 31, 2000 to reflect a non-cash charge of $19.0 million related to an impairment of its equity method investment in Mace Security International, Inc. ("MACE") which is considered other than temporary. This impairment was recorded based on MACE's closing stock price at December 29, 2000 of $0.906 per share, compared to the carrying value of the investment. A tax benefit of $2.8 million was also recorded related to the impairment of the investment.
Year ended December 31, 2000:
(in thousands) | As previously reported | As restated | ||||||
---|---|---|---|---|---|---|---|---|
Net operating loss | $ | (5,888 | ) | $ | (24,881 | ) | ||
Income (loss) before income taxes | 2,827 | (16,166 | ) | |||||
(Provision) benefit for income taxes | (1,611 | ) | 1,167 | |||||
Net income (loss) | 1,216 | (14,999 | ) | |||||
Net income (loss) per share: | ||||||||
Basic | $ | 0.03 | $ | (0.36 | ) | |||
Diluted | $ | 0.02 | $ | (0.36 | ) | |||
As of December 31, 2000: | ||||||||
Total Assets | $ | 324,584 | $ | 308,369 | ||||
Total liabilities | 128,883 | 128,883 | ||||||
Total stockholders' equity | 194,598 | 178,383 |
Change in Fiscal Year
In 1998 the Company's Board of Directors adopted a fiscal year-end of December 31, beginning with a five month transition period ending on December 31, 1998. The Company's previous fiscal year-end was July 31.
F–6
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and all affiliates in which the Company has an ownership interest greater than 50%. The Company uses the equity method of accounting to account for its investments in which its ownership interest is 50% or less, but in which it has significant influence. The Company accounts for its interest in Price Enterprises, Inc. ("PEI") (Note 2) under the equity method of accounting however, because the holders of PEI preferred stock, which does not include the Company, have the right to elect a majority of the PEI board of directors.
Investment in Securities
The Company reviews its investments in securities for possible impairment whenever the market value of the securities fall below cost and, in the opinion of the Company, such decline represents an other than temporary impairment. Factors considered in this review include:
- •
- Duration and extent, as well as reasons for which the market value has been less than cost.
- •
- Financial condition and near-term prospects of the investee, which includes consideration of proposed transactions known through Board of Directors participation.
- •
- The ability and intent of the Company to retain its investment for a period of time to allow for a recovery in market value.
When an other than temporary impairment loss on an individual investment is considered to have occurred, the cost basis of the security is written down, and the charge is recorded in earnings.
Real Estate
Certain real estate assets were transferred to the Company from Excel and recorded at Excel's cost basis. Other real estate assets acquired subsequent to the Spin-off were recorded at the Company's cost. Depreciation is computed using the straight-line method over estimated useful lives of 40 years for buildings. The Company expenses as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. The Company capitalizes major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciates them over their estimated useful lives.
The Company assesses its properties individually for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. Recoverability of property to be held and used is measured by comparing the carrying amount of the property to future undiscounted net cash flows expected to be generated by the property. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the property, the property is considered to be impaired. If the property is impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds the fair value of the property.
At December 31, 2000, the Company had $16.1 million of real estate assets under contract to sell in 2001. This sale may not be completed due to uncertainties associated with contract negotiations and buyer due diligence contingencies. There were no other significant assets for sale at December 31, 2000. The Company continues to use its other real estate assets in its operations until it is under contract to sell.
F–7
Pre-development Costs
Pre-development costs that are directly related to specific construction projects are capitalized as incurred. The Company expenses these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.
Management Contracts
Management contracts are recorded at cost and amortized over a period of seven years. At December 31, 2000, the Company had $1.3 million capitalized related to management contracts acquired when the Company bought TenantFirst, a California corporation, related to the management of eight properties. The properties are not owned by PEI.
Income Taxes
The Company provides for income taxes under the liability method. A current tax asset or liability is recognized for the estimated taxes refundable or payable for the current year. A deferred tax asset or liability is recognized for the estimated future tax effects attributable to carry forwards and to temporary differences between the tax and financial reporting basis of assets and liabilities. The measurement of current and deferred tax assets and liabilities is based on enacted tax laws and rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.
Deferred Leasing and Loan Acquisition Costs
Costs incurred in obtaining tenant leases and long-term financing are amortized to other property expense and interest expense, respectively, on the straight-line and effective interest method over the terms of the related leases or debt agreements.
Revenue Recognition
Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which the Company accrues for in the period in which the related expense occurs; and (3) percentage rents which the Company accrues for on the basis of actual sales reported by tenants.
Gain or loss on sale of real estate is recognized when the sales contract is executed, title has passed, payment is received, and the Company no longer has continuing involvement in the asset.
The Company adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on the Company's consolidated financial position or results of operations.
Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income." This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The components of comprehensive income for the Company include net income and unrealized gains on investments.
F–8
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the consolidated financial statements at December 31, 1999 and for the periods ended December 31, 1998 and July 31, 1998, to conform with the current period's presentation.
New Pronouncement
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of FASB Statement No. 133. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that all derivatives be recognized as assets and liabilities and measured at fair value. The Company will be required to adopt this standard during the year ending December 31, 2001. The Company has determined that the adoption of SFAS No. 133 will not have a material impact on the Company's financial statements.
2. Price Enterprises, Inc.:
In November 1999, the Company completed an exchange offer of $8.50 per share for any and all common shares of PEI which is operated as a real estate investment trust. The exchange offer consisted of per share consideration for PEI common stock of $4.25 in cash, $2.75 in principal amount of newly issued 9% Convertible Redeemable Subordinated Secured Debentures of the Company due in 2004 (convertible at any time into the Company's common stock at $5.50 per share) and $1.50 in newly issued 10% Senior Redeemable Secured Notes of the Company due in 2004. Approximately, 12.1 million shares of PEI common stock were tendered representing approximately 91% of the outstanding common stock. Below is summarized financial information as of December 31, 2000 and the year then ended for PEI (in thousands):
Balance Sheet | December 31, 2000 | |||
---|---|---|---|---|
Real estate, net of accumulated depreciation | $ | 545,800 | ||
Other assets | 116,605 | |||
Total assets | $ | 662,405 | ||
Notes and mortgages payable | $ | 195,009 | ||
Accounts payable and other liabilities | 4,287 | |||
199,296 | ||||
83/4% Series A Preferred stock | 353,404 | |||
Other stockholders' equity | 109,705 | |||
Total liabilities and stockholders' equity | $ | 662,405 | ||
Income statement: | Year Ended December 31, 2000 | |||
Total revenue, including interest income and gain on sale of real estate | $ | 73,983 | ||
Operating expenses | (16,281 | ) | ||
General and administrative | (3,085 | ) | ||
Interest expense | (10,931 | ) | ||
Depreciation and amortization | (9,558 | ) | ||
Gain on sales of real estate | 164 | |||
Net income | 34,292 | |||
Preferred dividends | (33,360 | ) | ||
Net income available for common shares | $ | 932 | ||
F–9
The following unaudited pro forma information for the twelve months ended December 31, 1999 and 1998, has been presented as if Excel Legacy Corporation acquired approximately 91% of the common shares of PEI on January 1, 1999 and 1998 respectively. The unaudited pro forma information makes certain assumptions regarding capital sources and interest rates and the pro forma information is not necessarily indicative of what the actual results of operations of the Company would have been had the acquisition actually occurred on January 1, 1999 and 1998, respectively, (in thousands):
| Year Ended December 31, | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1999 (actual) | 1999 (pro forma) | 1998 (actual) | 1998 (pro forma) | |||||||||
Total revenue | $ | 25,917 | $ | 27,767 | $ | 23,155 | $ | 24,326 | |||||
Operating expenses, excluding interest | (17,439 | ) | (17,439 | ) | (14,858 | ) | (14,858 | ) | |||||
Interest expense | (7,997 | ) | (14,710 | ) | (4,163 | ) | (10,876 | ) | |||||
Net gain on real estate sales | (1,765 | ) | (1,765 | ) | — | — | |||||||
Income taxes | 507 | 1,678 | (1,678 | ) | — | ||||||||
Net (loss) income | $ | (777 | ) | $ | (4,469 | ) | $ | 2,456 | $ | (1,408 | ) | ||
Net income per share | |||||||||||||
Basic | $ | (0.02 | ) | $ | (0.13 | ) | $ | 0.10 | $ | (0.06 | ) | ||
Diluted | $ | (0.02 | ) | $ | (0.13 | ) | $ | 0.06 | $ | (0.06 | ) | ||
3. Spin-off:
On March 31, 1998, Excel transferred certain real estate assets to the Company in exchange for 23.4 million common shares of the Company, assumption of mortgage debt by the Company, and issuance of a note payable to Excel from the Company which was subsequently repaid. The Spin-off took place through a dividend distribution to Excel's common stockholders of all the Company's common stock held by Excel. The fair value of the distribution was approximately $56.0 million or $2.39 per share.
F–10
The Company has an investment in a joint venture known as Millennia Car Wash, LLC ("Millennia") which owned interests in 19 car wash properties in Arizona and Texas. In October 1999, Millennia exchanged its assets in exchange for approximately 3.5 million shares of common stock and 62,500 common stock purchase warrants of Mace Security International ("MACE"). In connection with the agreement, Millennia had assigned the operations of its car wash properties to MACE effective April 1, 1999. As such, the Company has not reported operations of Millennia since that date. Millennia, however, had retained ownership of the car wash properties until October 1999. As part of the agreement, the Company acquired 250,000 common shares of MACE through a private placement at $2 per share and 250,000 common shares of US Plastic Lumber Corporation ("USPL") at $4 per share. The Company's common shares in MACE and USPL are subject to certain sale restrictions. One of the Company's senior officers is a director on the MACE board of directors.
In conjunction with the sale of assets for MACE common shares, the Company recognized a $2.1 million gain on the exchange based upon the market value of the common shares on the date of the exchange, discounted for sale restrictions. In accordance with accounting principles generally accepted in the United States of America, the Company accounts for Millennia's investment in MACE under the equity method of accounting and owned approximately 15% of MACE at December 31, 2000.
Based upon the Company's review of its investment in MACE, the Company determined that an other than temporary impairment in its investment in MACE occurred in the fourth quarter of 2000. The factors considered were the fact that certain pending transactions had not materialized as expected by December 31, 2000, the duration and extent that the market value of the security had been less than cost and other information the Company was aware of.
As noted in footnote 1, the Company restated the financial statements as of and for the year ended December 31, 2000 to reflect a non-cash charge of approximately $19.0 million to its investment in MACE due to an impairment considered other than temporary. The Company classifies its investment in USPL as available-for-sale and recognizes changes in the fair value of its investment in USPL in other comprehensive income.
| December 31, | |||||
---|---|---|---|---|---|---|
Investment in USPL (in thousands): | ||||||
2000 | 1999 | |||||
Cost | $ | 1,000 | $ | 1,000 | ||
Unrealized (loss) gain | (695 | ) | 922 | |||
Fair value | $ | 305 | $ | 1,922 | ||
F–11
5. Real Estate:
The Company sold the following properties in 2000:
Location | Sold Date | Sales Price (000's) | Mortgage Transferred (000's) | |||||
---|---|---|---|---|---|---|---|---|
Middletown, OH (1) | 2/00 | $ | 6,709 | $ | 3,726 | |||
Terre Haute, IN (1) | 2/00 | 5,762 | 3,598 | |||||
San Diego/Rancho Bernardo, CA (1) (2) | 2/00 | 12,381 | 7,381 | |||||
San Diego/4-S Ranch, CA | 5/00 | 6,130 | — | |||||
Scottsdale Galleria, AZ | 7/00 | 28,750 | — | |||||
Scottsdale City Center, AZ (1) | 10/00 | 9,663 | 2,006 | |||||
Telluride, CO | 12/00 | 2,550 | — |
- (1)
- Property sold to PEI
- (2)
- Property master leased back to the Company
The sales of the above properties resulted in a net gain of $9.2 million of which properties sold to PEI accounted for $1.9 million. The gain was partially offset by certain real estate held for sale, which were written down by $0.5 million to their estimated sales price. In September 2000, the Company acquired approximately 4.5 acres of land in Anaheim, CA for $7.8 million. The Company paid cash of $1.5 million and assumed $6.3 million of debt.
In 1999, in addition to the Millennia transaction (Note 4), the Company sold a property located in Highlands Ranch, Colorado for approximately $25.4 million, eight properties in various locations leased to Wal-Mart for approximately $34.9 million, and a land parcel in Rancho Bernardo, California for approximately $2.9 million. The combined book value of these assets was $66.3 million. Mortgage debt of $41.2 million was retired in conjunction with the sales. The sales resulted in a net book gain of $3.1 million. The Company also contributed a property located in Westminster, Colorado to a partnership for a 50% interest. The property had book value of approximately $24.9 million and mortgage debt of $18.5 million and is part of a development project.
In 1999, the Company incurred a charge of $6.0 million related to an impairment in a minority investment in a development project in Indianapolis, Indiana which has been delayed due to a lack of funding. Additionally, the Company wrote-off $0.9 million in non-recurring costs related to a development project in Scottsdale, Arizona.
In the five months ended December 31, 1998, Millennia acquired nine car wash properties for approximately $15.2 million. The acquisition was made through the assumption of various notes payable.
6. Notes Receivable:
The Company had $40.5 million in notes receivable outstanding at December 31, 2000 related to various development projects. The notes bear interest at 10% to 12% per annum and are secured by the related projects. The notes mature on various dates between 2001 and the earlier of the sale of the related projects, or 2003 to 2004.
F–12
7. Notes and Mortgages Payable:
Notes payable
The Company had the following notes payable outstanding at December 31, 2000 and December 31, 1999 (amounts in thousands):
December 31, | ||||||
---|---|---|---|---|---|---|
| 2000 | 1999 | ||||
Revolving $15.0 million credit facility bearing interest at Libor plus 3.75% (10.3% at December 31, 2000) due June 30, 2001. The facility is secured by some of the Company's PEI common shares | $ | 11,481 | $ | — | ||
Revolving $40.0 million unsecured line of credit facility with PEI bearing interest at Libor plus 3.75% (10.3% at December 31, 2000) to 12.50% due December 2002 | 25,377 | — | ||||
Note payable to The Sol and Helen Price Trust bearing interest at Libor plus 1.50% (8.1% at December 31, 2000) due November 2004. The note is secured by some of the Company's PEI common shares (Note 9) | 9,347 | 27,347 | ||||
Note payable to an individual bearing interest at Prime plus 2% repaid in October 2000 | — | 5,000 | ||||
Note payable outstanding on a $4.7 million facility related to Newport on the Levee, LLC, bearing interest at Prime plus 0.5% (10% at December 31, 2000), due March 2001 | 2,106 | — | ||||
Revolving $35.0 million secured credit facility bearing interest at Libor plus 3.75% repaid in July 2000 | — | 32,103 | ||||
Other | 750 | 6,211 | ||||
Total | $ | 49,061 | $ | 70,661 | ||
The Company has a 65% interest in Newport on the Levee, LLC ("Newport") that is developing an entertainment retail project in Newport, KY. In addition to the $2.1 million note in the above table, the City of Newport has issued two series of public improvement bonds. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing 2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. Newport has drawn on $32.9 million of the bonds at December 31, 2000 for construction incurred to date.
The Company has a 50% interest in a limited liability company that owns land in Orlando, Florida. The land has a total book basis of $18.5 million at December 31, 2000 and mortgage debt of $8.9 million which is guaranteed by the Company.
The Company also has guaranteed a $15.0 million note payable related to a development project in Scottsdale, AZ and the Company has a note receivable with a participating interest.
F–13
7. Notes and Mortgages Payable, Continued:
Convertible Debentures
In conjunction with the PEI exchange offer, the Company issued $33.2 million in convertible debentures ("Debentures"). The Debentures bear an interest rate of 9% per annum and are secured by a first priority security interest in common shares of PEI. The holders of the Debentures are entitled at any time before the day prior to the final maturity date, subject to prior redemption, to convert any Debentures into the Company's common stock at the conversion price of $5.50 per share. The Debentures mature in November 2004.
Senior Notes
In conjunction with the PEI exchange offer, the Company issued $18.1 million in senior notes ("Senior Notes"). The Senior Notes bear an interest rate of 10% per annum and, along with the Debentures, are secured by a first priority security interest in common shares of PEI. The Senior Notes rank equal to future senior indebtedness of the Company and are senior to the Debentures. The Senior Notes mature in November 2004.
Mortgages Payable
The Company had $12.0 million in mortgages payable outstanding at December 31, 2000 secured by real estate. The mortgage debt has an average maturity of 4.0 years expiring at various dates to 2009. The monthly payment of principal and interest approximates $80,000 bearing an average interest rate of 7.9% at December 31, 2000.
Maturities
The principal payments required to be made on mortgages and notes payable over the next five years are as follows (in thousands):
Year Ended December 31, | | ||
---|---|---|---|
2001 | $ | 14,995 | |
2002 | 31,739 | ||
2003 | — | ||
2004 | 60,655 | ||
2005 | — | ||
Thereafter | 5,000 | ||
$ | 112,389 | ||
F–14
8. Income Taxes:
At December 31, 2000, the Company had a net deferred tax asset of $7.3 million. The deferred tax asset primarily relates to certain assets written-off for book purposes, but not yet deducted for tax purposes. The remaining portion of the deferred asset relates to timing differences in recognizing revenue and expenses for tax purposes through operations of the Company. No valuation allowance has been provided against the deferred tax asset as the Company believes future taxable income is more likely than not. The provision for income taxes consisted of the following (in thousands):
| Federal | State | ||||||
---|---|---|---|---|---|---|---|---|
Year ended December 31, 2000 (Restated): | ||||||||
Current payable | $ | 126 | $ | 262 | ||||
Deferred tax benefit | (1,878 | ) | (65 | ) | ||||
(Benefit) provision for income taxes | $ | (1,752 | ) | $ | 197 | |||
Year ended December 31, 1999: | ||||||||
Current (benefit) payable | $ | (743 | ) | $ | 25 | |||
Deferred tax expense (benefit) | 221 | (10 | ) | |||||
(Benefit) provision for income taxes | $ | (522 | ) | $ | 15 | |||
Five months ended December 31, 1998: | ||||||||
Current payable | $ | 312 | $ | 107 | ||||
Deferred tax expense | 82 | 34 | ||||||
Provision for income taxes | $ | 394 | $ | 141 | ||||
Period from inceptions to July 31, 1998: | ||||||||
Current payable | $ | 727 | $ | 207 | ||||
Deferred tax expense | 163 | 46 | ||||||
Provision for income taxes | $ | 890 | $ | 253 | ||||
The significant components of activities that gave rise to deferred tax assets and liabilities included on the balance sheet were as follows (in thousands):
| December 31, | ||||||
---|---|---|---|---|---|---|---|
| 2000 | 1999 | |||||
| (Restated) | | |||||
Impairment of real estate investments | $ | 2,579 | $ | 2,395 | |||
Impairment in securities | 2,778 | — | |||||
Assets acquired from the Spin-off (Note 2) | 702 | 4,487 | |||||
NOL carryforwards | 2,442 | — | |||||
Other | 219 | — | |||||
Deferred gain on equity investments | (1,405 | ) | (367 | ) | |||
Net deferred tax assets | $ | 7,315 | $ | 6,515 | |||
A reconciliation of the Company's effective tax rate to the statutory U.S. federal tax rate for the years ended December 31, 2000, December 31, 1999, the five months ended December 31, 1998 and the period from inception to December 31, 1998 is as follows:
| 2000 | 1999 | 1998 | 1997 | |||||
---|---|---|---|---|---|---|---|---|---|
| (Restated) | | | | |||||
Statutory rate | 34 | % | 34 | % | 34 | % | 34 | % | |
State and local | (27) | % | 6 | % | 8 | % | 6 | % | |
Effective rate | 7 | % | 40 | % | 42 | % | 40 | % | |
F–15
9. Capital Stock:
Common Shares
In March 2000, $18.0 million of notes payable to The Sol and Helen Price Trust were converted into 5.1 million shares of the Company's common stock. In October 2000 the Company repurchased 1.7 million shares of common stock from affiliates for approximately $2.50 per share (Note 14).
In December 2000, the Company converted 21,281,000 shares of Series B Preferred Stock to 21,281,000 shares of common stock on a one-for-one basis.
Private Placement
In October 1999, the Company sold 3,378,117 shares of common stock to a group of investors. Proceeds of approximately $13.5 million were used for general corporate purposes, to fund certain development costs and to repay outstanding amounts on the Company's credit facility.
Options
The Company adopted the 1998 Stock Option Plan (the "Option Plan") for directors, executive officers and other key employees of the Company. The aggregate number of shares issuable upon exercise of options under the Option Plan may not exceed 5,250,380 shares and are exercisable for 10 years from the date of grant. The exercise price of stock options may not be less than 100% of the fair market value of the stock on the date of grant. At December 31, 2000, the exercise price of the options outstanding ranged from $2.92 to $10.00 per share. Options granted in the period from inception to July 31, 1998 were granted at an exercise price of $5.00 and $10.00 per share. All subsequent options have been granted at an exercise price equal to the fair market value of the stock on the date of grant. Stock option and warrant activity are summarized as follows:
The following table summarizes the activity for both plans:
| Options/ Warrants | Weighted Average Exercise Price Per Share | |||
---|---|---|---|---|---|
Outstanding at inception (November 17, 1997) | — | $ | — | ||
Granted | 3,850,000 | 7.50 | |||
Outstanding at July 31, 1998 | 3,850,000 | 7.50 | |||
Granted | 40,000 | 2.92 | |||
Outstanding at December 31, 1998 | 3,890,000 | 7.45 | |||
Granted | 1,363,000 | 5.06 | |||
Cancelled | (950,000 | ) | 7.50 | ||
Outstanding at December 31, 1999 | 4,303,000 | 6.68 | |||
Granted | 374,000 | 3.26 | |||
Cancelled | (58,500 | ) | 3.20 | ||
Outstanding at December 31, 2000 | 4,618,500 | $ | 6.43 | ||
F–16
The options vest over five years and expire at various dates through June 2010. All of the options were issued to directors, officers or affiliates of the Company. At December 31, 2000, options of 631,880 were available for granting under the Option Plan. In January 2001, 4,049,000 options with an average price of $6.82 were cancelled at the option of the respective holders.
SFAS No. 123, Accounting for Stock-Based Compensation, requires either the recording or disclosure of compensation cost for stock-based employee compensation plans at fair value. The Company has adopted the disclosure-only provisions of SFAS No. 123. Accordingly, no compensation costs have been recognized by the Company. Had compensation cost for the Company's stock option plan been recognized based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net income (loss) in the year ended December 31, 2000 would have been decreased by $558,000 from $(14,999,000) ($(0.36) per share—basic and diluted) to a net loss of $(15,557,000) ($(0.37) per share—basic and diluted). The Company's net loss in the year ended December 31, 1999 would have been increased by $3,225,000 from $777,000 ($0.02 per share—basic, and $0.01 per share—diluted) to a net loss of $4,002,000 ($0.12 per share—basic, and $0.07 per share—diluted). For the five months ended December 31, 1998, the net income would have been decreased by $50,000 from $721,000 ($0.02 per share—basic, and $0.01 per share—diluted) to $671,000 ($0.02 per share—basic, and $0.01 per share—diluted). For the period from inception (November 17, 1997) to July 31, 1998, net income reduced by $5,705,000 from $1,735,000 ($0.11 per share—basic, and $0.07 per share diluted) to a net loss of $3,970,000 ($0.25 per share—basic, and $0.15 per share—diluted).
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for the year ended December 31, 2000 and 1999, the five months ended December 31, 1998, and the period from inception to July 31, 1998, respectively: expected volatility of 35.69%, 37.02%, 37.02%, and 36.56%; risk-free interest rate of 6.69%, 5.76%, 5.76% and 5.56%; expected life of 6 years (for all periods); and dividend yield of 0.00% (for all periods).
F–17
A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts):
| Year Ended December 31, | Five Months Ended December 31, | Inception (November 17, 1997) to July 31, | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Basic EPS | ||||||||||||||
2000 | 1999 | 1998 | 1998 | |||||||||||
| (Restated) | | | | ||||||||||
Numerator: | ||||||||||||||
Net (loss) income | $ | (14,999 | ) | $ | (777 | ) | $ | 721 | $ | 1,735 | ||||
Denominator: | ||||||||||||||
Weighted average common shares outstanding | 41,847 | 33,985 | 33,458 | 15,842 | ||||||||||
Earnings Per Share | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.02 | $ | 0.11 | ||||
Diluted EPS | ||||||||||||||
Numerator: | ||||||||||||||
Net (loss) income | $ | (14,999 | ) | $ | (777 | ) | $ | 721 | $ | 1,735 | ||||
Denominator: | ||||||||||||||
Weighted average common shares outstanding | 41,847 | 33,985 | 33,458 | 15,842 | ||||||||||
Effect of diluted securities: | ||||||||||||||
Preferred B shares | 19,706 | 21,281 | 21,281 | 10,142 | ||||||||||
Common stock options | — | 4 | 29 | — | ||||||||||
Deduct diluted securities for net loss | (19,706 | ) | (21,285 | ) | — | — | ||||||||
41,847 | 33,985 | 54,768 | 25,984 | |||||||||||
Earnings Per Share | $ | (0.36 | ) | $ | (0.02 | ) | $ | 0.01 | $ | 0.07 | ||||
11. Financial Instruments and Credit Risk:
Financial instruments which potentially subject the Company to concentrations of risk consist principally of cash, accounts receivable and notes receivable. From time to time, the Company's cash balances with any one institution may exceed Federal Deposit Insurance limits. The following fair value disclosure was determined by the Company, using available market information and discounted cash flow analyses as of December 31, 2000 and 1999. However, considerable judgment is necessary to interpret market data and to develop the related estimates of fair value. Accordingly, the estimates presented are not necessarily indicative of the amounts that the Company could realize upon disposition. The use of different estimation methodologies may have a material effect on the estimated fair value amounts. The Company believes that the carrying values reflected in the Consolidated Balance Sheets at December 31, 2000 and 1999 approximates the fair values for cash, accounts receivable and payable, notes receivable, mortgage debt and notes payable, and that the market value of its real estate held for sale exceeds the carrying value. During the year ended December 31, 2000, the Company wrote down its investment in Mace Security International, Inc. ("MACE") from its book value of $22.4 million to a fair value of $3.4 million, based on the closing stock price of $0.906 at December 29, 2000.
F–18
12. Statement of Cash Flows—Supplemental Disclosure:
| Year Ended December 31, | Five Months Ended December 31, | Inception (November 17, 1997) to July 31, | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Diluted EPS | |||||||||||||
2000 | 1999 | 1998 | 1998 | ||||||||||
Supplemental disclosure: | |||||||||||||
Cash paid for interest | $ | 7.7 million | $ | 5.6 million | $ | 2.2 million | $ | 1.6 million | |||||
Net cash paid for income taxes | 0.2 million | 0.3 million | 1.5 million | — |
- •
- The Company converted $18.0 million of notes payable into 5.1 million common shares.
- •
- The Company transferred $16.7 million in mortgage debt to PEI in conjunction with asset sales to PEI.
- •
- Newport assumed $2.1 million in debt in conjunction with real estate construction and acquisitions.
- •
- Notes receivable from certain officers were decreased and payables increased by a net $1.1 million for salary and bonuses not paid in cash. This amount was included as a general and administrative expense in 1999.
In 2000:
- •
- The Company's subsidiary, Millennia, exchanged $37.4 million of assets and $15.1 million of debt in exchange for securities (see Note 4).
- •
- The Company assumed $78.9 million of debt related to the tender offer of PEI common shares (see Note 2).
- •
- The Company assumed $6.4 million in mortgage debt related to the construction of an office building.
- •
- The Company contributed $24.9 million in real estate with mortgage debt of $18.5 million to a partnership for development.
- •
- Millennia assumed $15.2 million of debt in conjunction with the acquisition of nine car wash properties.
In 1999:
In the five months ended December 31, 1998:
- •
- The Spin-off occurred (Note 3) and common shares were issued to certain officers of the Company in exchange for cash and $10.9 million in notes receivable.
- •
- The Company issued 850,000 shares of common stock in connection with the acquisition of a real estate management company. The market value of the shares was approximately $3.4 million.
- •
- The Company borrowed $35.5 million in mortgages payable in connection with the construction of the AMC theaters.
In the period from inception to July 31, 1998
F–19
13. Segment Reporting:
The Company's primary business segments consist of the Commercial Property Unit, the Development Unit, and the Investment Unit. The Commercial Property Unit manages Company held operating properties and includes its investment in PEI. The Development Unit develops real estate projects and the Business Unit pursues and invests in public and private real estate-related companies and/or their securities. Certain revenues and expenses such as general and administrative not specifically incurred by specific segments, and corporate income taxes have been grouped with "General and Administrative" for presentation purposes. (in thousands)
| Commercial Property Unit | Development Unit | Investment Unit | General and Administrative | Total | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year ended December 31, 2000: (Restated) | |||||||||||||||||
Total revenues | $ | 2,725 | $ | 6,153 | $ | 7,637 | $ | 1,982 | $ | 18,497 | |||||||
Interest | 220 | 5 | 1 | 10,634 | 10,860 | ||||||||||||
Depreciation and amortization | 149 | 423 | 779 | 211 | 1,562 | ||||||||||||
General and administrative | — | — | — | 2,785 | 2,785 | ||||||||||||
Operating expenses | 1,500 | 927 | 6,751 | — | 9,178 | ||||||||||||
Total operating expenses | 1,869 | 1,355 | 7,531 | 13,630 | 24,385 | ||||||||||||
Net operating income (loss) | 856 | 4,798 | 106 | (11,648 | ) | (5,888 | ) | ||||||||||
Investment impairment | — | — | (18,993 | ) | — | (18,993 | ) | ||||||||||
Real estate sales | 1,872 | 6,843 | — | — | 8,715 | ||||||||||||
Provision for income taxes | — | — | 2,637 | (1,470 | ) | 1,167 | |||||||||||
Net income | $ | 2,728 | $ | 11,641 | $ | (16,250 | ) | $ | (13,118 | ) | $ | (14,999 | ) | ||||
Additions (reductions) to real estate | (29,788 | ) | 16,934 | 6,300 | — | (6,554 | ) | ||||||||||
Investment in securities and partnerships | 113,151 | — | 18,557 | — | 131,708 | ||||||||||||
Deferred tax asset | 3515 | — | 3,800 | — | 7,315 | ||||||||||||
Total assets | $ | 114,973 | $ | 126,973 | $ | 42,861 | $ | 23,562 | $ | 308,369 | |||||||
Year ended December 31, 1999: | |||||||||||||||||
Total revenues | $ | 8,441 | $ | 4,903 | $ | 10,358 | $ | 2,215 | $ | 25,917 | |||||||
Interest | 3,681 | — | 419 | 3,897 | 7,997 | ||||||||||||
Depreciation and amortization | 1,309 | 571 | 1,255 | 85 | 3,220 | ||||||||||||
General and administrative | — | — | 2,016 | 4,082 | 6,098 | ||||||||||||
Operating expenses | 465 | 1,162 | 6,494 | — | 8,121 | ||||||||||||
Total operating expenses | 5,455 | 1,733 | 10,184 | 8,064 | 25,436 | ||||||||||||
Net operating income | 2,986 | 3,170 | 174 | (5,849 | ) | 481 | |||||||||||
Real estate sales | 3,497 | (7,324 | ) | 2,062 | — | (1,765 | ) | ||||||||||
Provision for income taxes | — | — | — | 507 | 507 | ||||||||||||
Net income | $ | 6,483 | $ | (4,154 | ) | $ | 2,236 | $ | (5,342 | ) | $ | (777 | ) | ||||
Additions (reductions) to real estate | (73,837 | ) | 17,595 | (32,649 | ) | — | (88,891 | ) | |||||||||
Investment in securities and partnerships | 120,070 | — | 34,841 | — | 154,911 | ||||||||||||
Deferred tax asset | (104 | ) | 5,600 | 1,019 | — | 6,515 | |||||||||||
Total assets | $ | 151,109 | $ | 86,304 | $ | 48,303 | $ | 42,437 | $ | 328,153 | |||||||
Five months ended December 31, 1998: | |||||||||||||||||
Total revenues | $ | 4,749 | $ | 1,891 | $ | 7,690 | $ | 680 | $ | 15,010 | |||||||
Interest | 2,215 | — | 348 | 82 | 2,645 | ||||||||||||
Depreciation and amortization | 782 | 238 | 852 | 46 | 1,918 | ||||||||||||
General and administrative | — | — | 1,705 | 936 | 2,641 | ||||||||||||
Operating expenses | 365 | 1,133 | 5,052 | — | 6,550 | ||||||||||||
Total operating expenses | 3,362 | 1,371 | 7,957 | 1064 | 13,754 | ||||||||||||
Net operating income | 1,387 | 520 | (267 | ) | (384 | ) | 1,256 | ||||||||||
Provision for income taxes | — | — | — | (535 | ) | (535 | ) | ||||||||||
Net income | $ | 1,387 | $ | 520 | $ | (267 | ) | $ | (919 | ) | $ | 721 | |||||
Additions to real estate | — | 379 | 16,365 | — | 16,744 | ||||||||||||
Investment in securities and partnerships | — | — | 11,423 | — | 11,423 | ||||||||||||
Deferred tax asset | 603 | 5,600 | — | — | 6,203 | ||||||||||||
Total assets | $ | 99,170 | $ | 68,497 | $ | 55,902 | $ | 37,727 | $ | 261,296 | |||||||
Period from inception (November 17, 1997) to July 31, 1998: | |||||||||||||||||
Total revenues | $ | 3,835 | $ | 1,652 | $ | 2,063 | $ | 595 | $ | 8,145 | |||||||
Interest | 1,444 | — | — | 74 | 1,518 | ||||||||||||
Depreciation and amortization | 656 | 174 | 122 | 105 | 1,057 | ||||||||||||
General and administrative | — | — | 354 | 544 | 898 | ||||||||||||
Operating expenses | 165 | 753 | 876 | — | 1,794 | ||||||||||||
Total operating expenses | 2,265 | 927 | 1,352 | 723 | 5,267 | ||||||||||||
Net operating income | 1,570 | 725 | 711 | (128 | ) | 2,878 | |||||||||||
Provision for income taxes | — | — | — | (1143 | ) | (1,143 | ) | ||||||||||
Net income | $ | 1,570 | $ | 725 | $ | 711 | $ | (1271 | ) | $ | 1,735 | ||||||
Additions to real estate | 105,287 | 28,521 | 42,886 | — | 176,694 | ||||||||||||
Investment in securities and partnerships | — | — | 11,138 | — | 11,138 | ||||||||||||
Deferred tax asset | 720 | 5,600 | — | — | 6,320 | ||||||||||||
Total assets | $ | 100,529 | $ | 69,377 | $ | 38,240 | $ | 38,770 | $ | 246,916 | |||||||
F–20
14. Related Party Transactions:
In connection with the sale of common stock to certain affiliates in 1998, the Company issued notes receivable of which $9.7 million was outstanding at December 31, 2000. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2000 from these notes totaled $1.8 million. The notes have been offset against stockholders' equity on the Company's accompanying Consolidated Balance Sheets.
In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights in 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of the above personal debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased.
In 2000, four properties and a joint venture interest were sold to PEI. The Company leases back one of the properties for a quarterly amount of $0.1 million. Also, at December 31, 2000, the Company had $25.4 million payable to PEI on a $40.0 million note. Finally, the Company offsets the general and administrative costs with reimbursements received monthly from PEI. In the nine months ended December 31, 2000, approximately $3.0 million was received as reimbursements.
F–21
15. Retirement Plan:
The Company has a 401(k) Retirement Plan (the "401(k) Plan") covering most of the officers and employees of the Company. The 401(k) Plan permits participants to contribute, until termination of employment with the Company, up to a maximum of 15% of their compensation to the 401(k) Plan. In addition, contributions of participants are matched by the Company in an amount equal to 50% of the participants contribution in Company stock (up to a maximum of 3% of such person's compensation). The following table shows the costs incurred in connection with the 401(k) Plan for each of the periods shown:
| Year Ended December 31, | | Period from Inception (November 17, 1997) to July 31, 1998 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Five Months Ended December 31, 1998 | |||||||||||
| 2000 | 1999 | ||||||||||
401(k) Plan Costs incurred | $ | 142,000 | $ | 87,000 | $ | 15,000 | $ | — |
16. Selected Quarterly Financial Data (unaudited):
Summarized quarterly financial data is as follows (in thousands except per share amounts):
| Total Revenues | Net Income (Loss) | Net Income (Loss) Per Share– Basic | Net Income (Loss) Per Share– Diluted | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Year ended December 31, 2000 (Restated) | ||||||||||||||
Quarter ended March 31, | $ | 3,693 | $ | (373 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||
Quarter ended June 30, | 5,235 | (244 | ) | $ | (0.01 | ) | $ | (0.01 | ) | |||||
Quarter ended September 30, | 5,896 | 3,150 | $ | 0.08 | $ | 0.05 | ||||||||
Quarter ended December 31, | 3,673 | (17,532 | ) | $ | (0.26 | ) | $ | (0.26 | ) | |||||
Year ended December 31, 1999 | ||||||||||||||
Quarter ended March 31, | $ | 9,217 | $ | 174 | $ | 0.01 | $ | 0.00 | ||||||
Quarter ended June 30, | 6,216 | 512 | $ | 0.02 | $ | 0.01 | ||||||||
Quarter ended September 30, | 5,426 | 335 | $ | 0.01 | $ | 0.01 | ||||||||
Quarter ended December 31, | 5,058 | (1,798 | ) | $ | (0.05 | ) | $ | (0.05 | ) |
F–22
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
| | Additions | Deductions | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Description | Balance at Beginning of Period | Charged to Expense | Written Off | Balance at End of Period | |||||||||
Allowance for bad debts: | |||||||||||||
Year ended December 31, 2000 | $ | 55 | $ | 20 | $ | (43 | ) | $ | 32 | ||||
Year ended December 31, 1999 | $ | 34 | $ | 97 | $ | (76 | ) | $ | 55 | ||||
Five months ended December 31, 1998 | $ | 14 | $ | 20 | $ | — | $ | 34 | |||||
Period from inception (November 17, 1997) to July 31, 1998 | $ | — | $ | 16 | $ | 2 | $ | 14 | |||||
Investment in Partnerships(1): | |||||||||||||
Year ended December 31, 2000 | $ | 6,012 | $ | — | $ | — | $ | 6,012 | |||||
Year ended December 31, 1999 | $ | — | $ | 6,012 | $ | — | $ | 6,012 | |||||
Five months ended December 31, 1998 | $ | — | $ | — | $ | — | $ | — | |||||
Period from inception (November 17, 1997) to July 31, 1998 | $ | — | $ | — | $ | — | $ | — | |||||
- (1)
- Relates to the Company's investment in Entercitement, LLC.
F–23
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(in thousands)
| | | | Net Cost Capitalized (Sold) Subsequent to Acquisition | Gross amount at which carried at close of period | | | | Life on Which Depreciation in Latest Income Statements is Computed | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Initial Cost | | | | ||||||||||||||||||||||||||||
Description | Encumbrances | Land | Building and Improvements | Land | Building and Improvements | Land | Building and Improvements | Total(a) | Accumulated Depreciation | Date of Construction | Date Acquired | ||||||||||||||||||||||
Scottsdale Towers Land Scottsdale, AZ | $ | — | $ | 3,971 | $ | — | $ | (428 | ) | $ | — | $ | 3,543 | $ | — | $ | 3,543 | $ | — | — | 1998 | — | |||||||||||
Brio Restaurant Scottsdale, AZ | — | 563 | 1,046 | — | — | 563 | 1,046 | 1,609 | 73 | 1975 | 1998 | 40 years | |||||||||||||||||||||
Grand Hotel Tusayan, AZ | (1 | ) | — | 11,898 | — | 139 | — | 12,037 | 12,037 | 1,092 | 1998 | 1998 | 40 years | ||||||||||||||||||||
Pointe Anaheim Anaheim, CA | 6,312 | 7,871 | — | — | 923 | 7,871 | 923 | 8,794 | — | (2 | ) | 1998, 2000 | — | ||||||||||||||||||||
Residential Property Coto de Caza, CA | 708 | 316 | 586 | — | — | 316 | 586 | 902 | 2 | 2000 | 2000 | 40 years | |||||||||||||||||||||
Desert Fashion Plaza Palm Springs, CA | — | 3,816 | 9,772 | — | 2,514 | 3,816 | 12,286 | 16,102 | 641 | 1967 | 1998 | 40 years | |||||||||||||||||||||
Land Yosemite, CA | — | 600 | — | 168 | — | 768 | — | 768 | — | — | 1998 | — | |||||||||||||||||||||
Danile's Head Bermuda | 5,000 | — | — | — | 14,190 | — | 14,190 | 14,190 | — | (2 | ) | 1998 | — | ||||||||||||||||||||
Newport on the Levee Newport, KY(2)(3) | 2,106 | — | 16,225 | — | 21,420 | — | 37,645 | 37,645 | — | — | 1998 | — | |||||||||||||||||||||
$ | 14,126 | $ | 17,137 | $ | 39,527 | $ | (260 | ) | $ | 39,186 | $ | 16,877 | $ | 78,713 | $ | 95,590 | $ | 1,808 | |||||||||||||||
- (1)
- This property is on a land lease with a cost of $2,351 which is not included above.
- (2)
- Property is currently under construction.
- (3)
- The city of Newport, KY issued two series of public improvement bonds related to construction of this project.
$32.9 million of the bonds are outstanding at December 31, 2000. See note 7 for additional information.
F–24
EXCEL LEGACY CORPORATION AND SUBSIDIARIES
SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(in thousands)
- (a)
- Reconciliation of total real estate carrying value is as follows:
| Year Ended December 31, 2000 | Year Ended December 31, 1999 | Five Months Ended December 31, 1998 | Period from Inception (November 17, 1997) to July 31, 1998 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at beginning of period: | $ | 102,143 | $ | 191,033 | $ | 174,344 | $ | — | ||||
Acquisitions: | 8,773 | 2,956 | 15,200 | 173,209 | ||||||||
Improvements and other additions: | 40,843 | 25,409 | 1,489 | 1,135 | ||||||||
Cost of property sold/contributed to partnerships: | (56,169 | ) | (117,255 | ) | — | — | ||||||
Balance at the end of the period: | $ | 95,590 | $ | 102,143 | $ | 191,033 | $ | 174,344 | ||||
Total cost for federal income tax purposes at the end of each period: | $ | 95,590 | $ | 114,274 | $ | 207,421 | $ | 190,732 | ||||
- (b)
- Reconciliation of accumulated depreciation is as follows:
| Year Ended December 31, 2000 | Year Ended December 31, 1999 | Five Months Ended December 31, 1998 | Period from Inception (November 17, 1997) to July 31, 1998 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at beginning of period: | $ | 2,303 | $ | 2,506 | $ | 939 | $ | — | ||||
Depreciation expense: | 1,562 | 2,382 | 1,567 | 939 | ||||||||
Property sold/contributed to partnerships: | (2,057 | ) | (2,585 | ) | — | — | ||||||
Balance at the end of the period: | $ | 1,808 | $ | 2,303 | $ | 2,506 | $ | 939 | ||||
F–25
PART I
PART III
COMPENSATION COMMITTEE REPORT
Summary Compensation Table
Option Grants in 2000
Aggregated Option Exercises in 2000 and Fiscal Year-End Option Values
PERFORMANCE GRAPH
PART IV
SIGNATURES
REPORT OF INDEPENDENT ACCOUNTANTS
CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (in thousands, except per share amounts)
EXCEL LEGACY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands, except number of shares)
EXCEL LEGACY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS (in thousands)
EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands)
EXCEL LEGACY CORPORATION AND SUBSIDIARIES SCHEDULE III—REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2000 (in thousands)