-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qt4MmJ92mnrRlK94em3YPcQXeTWU5LGvXRCdFPElFUSp/oy8y1M1JK5ONGGSMDzY jyoqw5Mh91F988mnyBZVCA== 0000936392-98-000487.txt : 19980326 0000936392-98-000487.hdr.sgml : 19980326 ACCESSION NUMBER: 0000936392-98-000487 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXCEL REALTY TRUST INC CENTRAL INDEX KEY: 0000798288 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 330160389 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12244 FILM NUMBER: 98573225 BUSINESS ADDRESS: STREET 1: 16955 VIA DEL CAMPO STE 100 CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194859400 MAIL ADDRESS: STREET 1: 16955 VIA DEL CAMPO SUITE 100 CITY: SAN DIEGO STATE: CA ZIP: 92127 FORMER COMPANY: FORMER CONFORMED NAME: EXCEL REALTY ADVISORS INC DATE OF NAME CHANGE: 19900514 FORMER COMPANY: FORMER CONFORMED NAME: INVESTORS REALTY TRUST INC DATE OF NAME CHANGE: 19890612 10-K 1 FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Under Sections 13 Or 15(d) Of The Securities Exchange Act of 1934 For The Fiscal Year Ended: DECEMBER 31, 1997 Commission File Number: 1-12244 EXCEL REALTY TRUST, INC. (Exact name of registrant, as specified in its charter) MARYLAND 33-0160389 (State of incorporation) (IRS Employer Identification Number) 16955 VIA DEL CAMPO, SUITE 110, SAN DIEGO, CALIFORNIA 92127 (Address of principal executive offices) Registrant's telephone number: (619) 485-9400 Securities Registered Pursuant To Section 12(b) Of The Act:
Title of Each Class Name of Each Exchange on which Registered ------------------- ----------------------------------------- Common Stock, $0.01 par value per share New York Stock Exchange 8 1/2% Series A Cumulative Convertible Preferred Stock New York Stock Exchange 8 5/8% Series B Cumulative Redeemable Preferred Stock New York Stock Exchange
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 Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Registrant's shares of common stock held by non-affiliates was $722,958,629 as of March 20, 1998 based on the $32.875 closing price on the NYSE on such date. Indicate the number of shares outstanding of each of the Registrant's class of common stock, as of the latest practicable date: Class Outstanding at March 20, 1998 Common Stock, $0.01 par value per share 23,163,155 Documents incorporated by reference: Portions of the Proxy Statement for the 1998 Annual Meeting of the stockholders of the Registrant to be filed subsequently with the Commission are incorporated by reference into Part III of this report. 2 PART I ITEM 1. BUSINESS General. Excel Realty Trust, Inc. (the "Company") was formed in 1985 and reincorporated as a Maryland corporation in 1993. The Company is a self-administered, self-managed equity real estate investment trust ("REIT") which owns and manages neighborhood and community shopping centers and other retail and commercial properties primarily leased on a long-term basis to major retail companies throughout the United States. The terms of such leases typically provide that the tenant is responsible for costs and expenses associated with the ongoing maintenance of the property. The majority of the single tenant property leases also require that tenants pay for structural repairs and maintenance. At December 31, 1997, the Company owned 148 operating properties located in 28 states as outlined in Item 2. The Company has elected to be taxed as a REIT for federal income tax purposes commencing with its taxable year ended December 31, 1987, and believes that, commencing with such taxable year, it has been organized and has operated in conformity with the requirements for qualification as a REIT under the Internal Revenue Code of 1986, as amended. Although the Company believes that it will continue to operate in such a manner, no assurance can be given that the Company will continue to qualify as a REIT. In order to maintain its qualification as a REIT, among other things, the Company must distribute at least 95% of its real estate investment trust taxable income to its stockholders and meet certain tests regarding the nature of its income and assets. As a REIT, the Company is not subject to federal income tax with respect to that portion of its income which meets certain criteria and is distributed annually to the stockholders. Additionally, to preserve the Company's status as a REIT, ownership of the capital stock of the Company, actually or constructively, by any single person is limited, by the Company, to 9.8% of the total number of outstanding shares, subject to certain exceptions. As of March 20, 1998, the Company employed 145 persons. Its executive offices are located at 16955 Via Del Campo, Suite 110, San Diego, California 92127 and its telephone number is (619) 485-9400. Properties The Company emphasizes investments in retail properties where a substantial portion of gross leasable area ("GLA") is subject to long-term net leases to national or regional retail tenants. The properties consist of three primary types: (i) multi-tenant retail properties (the "Shopping Centers"); (ii) single tenant net leased retail properties (the "Single Tenant Properties"); and (iii) commercial properties and office buildings (the "Commercial Properties"). At December 31, 1997, the Company owned (i) 80 Shopping Centers which accounted for approximately 84% of the Company's scheduled annualized base rent ("ABR") at December 31, 1997; (ii) 64 Single Tenant Properties which accounted for approximately 14% of the Company's ABR; and (iii) 4 Commercial Properties which accounted for approximately 2% of the Company's ABR. These 148 properties total approximately 14.4 million square feet of GLA, of which the Shopping Centers, Single Tenant Properties, and Commercial Properties comprise approximately 81%, 18%, and 1%, respectively. Additionally, the Company has one property held for sale/redevelopment related to a shopping mall in Arizona. Strategy and Philosophy The following is a brief discussion of the Company's current strategies and policies concerning acquisitions, management, dispositions, investments, finances and operations, and certain support practices. The Company may, however, from time to time, alter or change one or more of these strategies or its policies in these areas. There can be no assurance that the Company's strategies will be successful. The Company's primary objective is to acquire, own and manage a portfolio of commercial retail properties that will provide cash for quarterly distributions to stockholders while protecting investor capital and providing potential for capital appreciation. The Company seeks to achieve this objective by (i) aggressively managing its 148 existing 2 3 operating properties, (ii) continuing to acquire well-located neighborhood and community shopping centers with tenants that have a national or regional presence and an established credit quality, (iii) disposing of mature properties to continually update its core property portfolio, and (iv) continuing to maintain a strong and flexible financial position to facilitate growth. Aggressive Management The Company aggressively manages its properties, with an emphasis on maintaining high occupancy rates and a strong base of nationally recognized anchor tenants. In addition, the Company emphasizes monitoring of the physical condition of the properties and the financial condition of the tenants. The Company follows a schedule of regular physical maintenance with a view toward tenant expansion, renovations and refurbishing to preserve and increase the value of its properties. Renovations include upgrading of existing facades, updating signage, resurfacing parking lots and improving parking lot and exterior building lighting. In addition to the 33 employees at the Company's San Diego, California headquarters, the Company employs approximately 25 property management personnel at its regional field offices in Phoenix, Arizona; Huntington Beach, California; Sacramento, California; Orlando, Florida; Atlanta, Georgia; Lexington, Kentucky; Raleigh, North Carolina; and Chattanooga, Tennessee. Each of the Company's field offices is responsible for managing the leasing, property management and maintenance of the Company's properties in its region. The Company also employs a team of eleven people at its Salt Lake City, Utah office whose efforts are dedicated solely to acquisitions and dispositions of the Company's properties and has 76 other employees that work on various property sites. Over time, the Company will seek to increase cash flow and portfolio value primarily through contractual rent increases during the terms of its leases, reletting of existing space at higher rents, expansion of existing properties and the minimization of overhead and operating costs. Acquisition of Properties The Company intends to continue its portfolio focus on retail properties with predictable cash flow and growth potential. The Company seeks to expand its portfolio by acquiring well-located neighborhood and community shopping centers and other retail properties with tenants that have a national or regional presence and an established credit quality, and that the Company believes will have the ability to make timely lease payments over the term of the lease. When acquiring properties, however, primary emphasis is placed on the quality of the location and comparable market rents as opposed to a particular tenant. The Company intends to continue to concentrate its property acquisitions in the southwestern, southeastern and western United States, where a majority of its current properties are located. Management believes that such emphasis will allow the Company to utilize its current property management and maintenance personnel in these areas. The Company may, however, acquire properties in other areas of the United States. Additionally, the Company intends to continue to evaluate its property type mix and may purchase from time to time other properties that the Company believes will meet its objectives. Acquisitions through Partnerships. The Company may from time to time enter into joint venture partnership arrangements with certain entities for the purchase and management of properties. The Company may also from time to time acquire properties from unaffiliated property owners by forming partnerships and exchanging limited partnership units in such partnerships for the property owners' equity in the acquired properties. Such partnership units are generally exchangeable for shares of the Company's common stock under certain circumstances. The Company believes that this acquisition method may permit the Company to acquire properties at attractive prices from property owners wishing to enter into tax deferred transactions. In 1995, Excel Realty Partners, L.P., a Delaware limited partnership ("ERP"), was formed to facilitate these transactions. Joint Venture Development. The Company may from time to time finance properties under development, provided that the developer of each such property has previously (i) obtained all necessary entitlements allowing completion of the property and (ii) identified principal tenant(s) who will occupy the property. Under this financing method, the Company either purchases the undeveloped property and leases such property back to the developer or makes a subordinated loan to the developer. Upon completion of the project, the Company has the option to purchase the development. The Company believes that these methods of financing give the Company opportunities to purchase developed properties at capitalization rates slightly above those which might otherwise be available after completion 3 4 of development. Certain of these transactions have been and will be completed through the Company's affiliate, ERT Development Corporation, a Delaware corporation ("EDV"). Disposition of Properties The Company continually analyzes each asset in its portfolio and identifies those properties which can be sold or exchanged (to the extent consistent with REIT qualification requirements) 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 engages from time to time in like-kind property exchanges (i.e., Code Section 1031 exchanges) which allow the Company to dispose of properties and redeploy proceeds in a tax efficient manner. The Company holds its properties for investment and the production of rental income and not for sale to customers or other buyers in the ordinary course of the Company's business. If the Company were treated as holding properties for sale to customers in the ordinary course of its business, it would be subject to tax equal to 100% of its gain from each property sold. Financing Strategy The Company intends to finance future acquisitions with the most advantageous sources of capital available to the Company at the time, which may include the sale of common stock, preferred stock or debt securities through public offerings or private placements, the incurrance of additional indebtedness through secured or unsecured borrowings, and the reinvestment of proceeds from the disposition of assets. The Company's financing strategy is to maintain a strong and flexible financial position by (i) maintaining a prudent level of leverage, (ii) maintaining a large pool of unencumbered properties, (iii) managing its variable rate exposure, (iv) amortizing existing property specific non-recourse mortgages over the term of the anchor leases for such mortgaged properties, and (v) maintaining a conservative distribution payout ratio. The Company may seek variable rate financing from time to time if such financing appears advantageous in light of then-prevailing market conditions. In such case, the Company will consider hedging against interest rate risk through interest rate protection agreements, interest rate swaps or other means. 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. Except as discussed below, the Company is not aware of any significant environmental condition at any of its properties. Soil and groundwater contamination exists at Carmen Plaza in Camarillo, California, Cudahy Plaza in Cudahy, California, and Bristol Plaza in Santa Ana, California. With regard to Carmen Plaza, the primary contaminants of concern are perchloroethylene ("PCE") associated with the operations of an on-site dry cleaner, methyl tertiary butyl ether ("MTBE") from an unknown source and petroleum hydrocarbons associated with operations of an on-site auto repair facility. With regard to Cudahy Plaza, the primary contaminants of concern are PCE associated with operations of a former on-site dry cleaner and petroleum hydrocarbons associated with operations of an existing on-site auto repair facility. With regard to Bristol Plaza, the primary contaminants of concern are PCE and trichloroethyleme ("TCE") associated with operations of an on-site dry cleaner and petroleum hydrocarbons associated with operations of an on-site auto repair facility. Environmental professionals retained by the Company estimate that the total, cumulative cost of remediation for these properties will be approximately $1.8 million to $5.5 million. In connection with each of these properties, the Company has entered into a remediation and indemnity 4 5 agreement, which obligates the prior owner of the properties (including in some cases, principals of the prior owner) to perform the remediation and to indemnify the Company for any losses it may suffer because of the contamination or remediation. Although there can be no assurance that the remediation estimates of the environmental professionals are accurate or that the prior owners will perform their obligations under the remediation and indemnity agreements, the Company does not expect the environmental conditions at these properties to have a material adverse effect on the Company. In addition, groundwater contamination exists at Briggsmore Plaza in Modesto, California. The primary contaminant of concern is gasoline associated with a former on-site service station. The former tenant at the property is in the process of performing the necessary remediation. Although there can be no assurance that such remediation will be satisfactory, the Company does not expect the environmental condition of this property to have a material adverse effect on the Company. Finally, asbestos minerals relating to spray-applied fireproofing materials exists at Clearwater Mall in Clearwater, Florida which was acquired by the Company in December 1997. Environmental professionals retained by the Company estimate that the total cumulative cost of remediation for this property, which the Company assumed in conjunction with its purchase, will be approximately $3.2 million. The Company seeks to protect itself from environmental liabilities associated with properties it acquires in a number of ways. As part of its internal due diligence process, the Company undertakes environmental site assessments prior to purchasing a property. The Company will normally not purchase a property in the event these assessments reveal potential environmental liabilities. The Company may, however, evaluate the risks and attempt to quantify the potential costs associated with such liabilities, and then make a determination of whether to acquire the property. If the Company chooses to acquire the property, it will typically require the prospective seller/tenant to agree to remediate any environmental problems and may obtain a letter of credit or other security to provide adequate assurance to the Company that sufficient funds will be available to complete the work, or negotiate a purchase price reduction that considers the estimated cost of remediation. The Company will continue to obtain environmental reports on all properties it seeks to acquire. Moreover, to protect itself against environmental liabilities that were not discovered during its pre-purchase investigations as well as those that were disclosed, the Company, in the purchase agreement and/or lease, will typically require the seller/tenant to indemnify the Company against any and all environmental liabilities arising from the property acquired. No assurance can be given that the environmental studies performed at the properties would disclose all environmental liabilities thereon, that any prior owner thereof did not create a material environmental condition not known to the Company or that a material environmental condition does not otherwise exist with respect to any of its properties. Principal Lessees Kmart Corporation ("Kmart") is the Company's largest lessee in terms of ABR, representing approximately 11.1% of the Company's ABR (approximately 14.4% of GLA) at December 31, 1997. Kmart's principal business is general merchandise retailing through a chain of discount department stores. It is one of the world's largest retailers based on sales volume. Kmart's credit ratings as of December 31, 1997 were Ba3 and B+ according to Moody's Investor Services Inc. ("Moody's") and Standard and Poor's Corporation ("Standard and Poor's"), respectively. Kmart has closed a number of its stores in recent years including five Single Tenant Properties that were leased from the Company. The Company negotiated receipt of lease termination fees with respect to all five of these properties, three of which were subsequently sold. The Company is currently in the process of re-leasing or selling the other two properties. Should Kmart in the future announce additional store closures, the Company believes that Kmart would continue its lease payments for the term of the leases unless a lease termination fee was negotiated, and/or that the properties could be re-leased at rental rates which would not cause a material loss of revenue for the Company. However, the Company cannot fully predict the effect on the Company of material deterioration in Kmart's financial position. Wal-Mart Stores, Inc. ("Wal-Mart") is the Company's second largest lessee in terms of ABR, representing approximately 9.9% of the Company's ABR (approximately 15.9% of GLA) at December 31, 1997. Wal-Mart is the nation's largest retailer and operates approximately 2,000 discount department stores and over 400 warehouse clubs. As of December 31, 1997, Wal-Mart had credit ratings of AA from Standard and Poor's and Aa2 from Moody's. 5 6 Wal-Mart and Kmart are publicly traded companies and financial and other information regarding these lessees is on file with the Securities and Exchange Commission. The table below sets forth information concerning the five largest lessees of the Company and its subsidiaries in terms of ABR at December 31, 1997:
SCHEDULED PERCENT OF PERCENT OF ABR AS A COMPANY COMPANY TOTAL PERCENT OF NUMBER TOTAL GLA TOTAL GLA SCHEDULED SCHEDULED COMPANY 1997 LESSEE OF LEASES UNDER LEASES UNDER LEASES ABR ABR TOTAL REVENUES - ------ ---------- ------------ ------------ ---------- ---------- -------------- (IN THOUSANDS) (IN THOUSANDS) Kmart 23 2,079 14.4% $ 10,981 11.1% 10.4% Wal-Mart 24 2,299 15.9% 9,780 9.9% 9.2% Kroger 15 577 4.0% 3,660 3.7% 3.5% Food Lion 14 400 2.8% 2,491 2.5% 2.4% Winn Dixie 7 327 2.3% 2,384 2.4% 2.3% ---------- ---------- ---------- ---------- ---------- ---------- 83 5,682 39.4% $ 29,296 29.6% 27.8% ========== ========== ========== ========== ========== ==========
Certain leases related to the lessees in the table above have either been subleased or assigned to such party. Nevertheless, the original lessee under the lease remains responsible for payment of all rents and other obligations due under such lease. An assignment of the lease would not affect the terms of the lease. Generally, all subtenants are currently required to pay the same rent to the lessee as the lessee is required to pay to the Company. Subleased properties generally have been subleased for a term that is approximately the same as the remaining term of the lease. In the event that the subtenant defaults under the sublease and vacates the property, or in the event that the term of the sublease expires earlier than the term of the lease, the property could remain unoccupied until a new subtenant is located. In any event, the original lessee will remain responsible for payment of all rents and all other obligations due under the lease for the full remaining term of the lease. Recent Developments During 1997, the Company purchased 27 Shopping Centers, two Single Tenant Properties, an out-parcel, and the remaining interest of a property owned in Tennessee. The total cost of these properties was approximately $365.9 million. In January 1998, the Company acquired a Shopping Center for approximately $9.5 million and two Single Tenant Properties under construction which are expected to total $50.0 million when completed. In March 1998, an additional Shopping center was acquired for approximately $41.0 million. The Company sold five Single Tenant Properties for net proceeds of $11.2 million in 1997. In January 1998, the Company issued 6,300,000 depositary shares each representing 1/10 of a share of 8 5/8% Series B Cumulative Redeemable Preferred Stock (the "Preferred B Shares"). The offering price was $25.00 per depositary share with an annual dividend equal to $2.15625 per share, payable quarterly. Net proceeds from the offering totaled approximately $152.5 million. During 1997, the Company completed two stock offerings. In July, the Company issued 2,500,000 shares of common stock with a market price of $28.00 per share. The net proceeds were approximately $26.6875 per share, or $66.5 million. In February, the Company issued 4,600,000 shares of 8 1/2% Series A Cumulative Convertible Preferred Stock (the "Preferred A Shares"). The Preferred A Shares have an annual distribution of $2.125 per share payable quarterly. The Preferred A Shares are convertible by the holder at any time into shares of the Company's common stock at a conversion price of $26.06 per share. Net proceeds totaled approximately $111.4 million. In March 1998, 2,211,120 Preferred A Shares were converted into 2,121,183 shares of the Company's common stock. In October 1997, the Company issued $75,000,000 of 6.875% Senior Notes due 2004 (the "Senior Notes"). The effective interest rate on the Notes is 6.982% (6.875% coupon with proceeds before underwriting discount of $74.6 million). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year. 6 7 In July and August 1997, the Company received investment grade ratings of Baa3 and BBB- from Moody's and Standard & Poor's, respectively, with respect to prospective issuances of senior unsecured debt, including the Senior Notes issued in 1997. In its financial statements, the Company consolidated ERP beginning April 1, 1997. ERP was previously accounted for in the Company's financial statements under the equity method. On April 1, 1997, loans and related outstanding interest of approximately $23.4 million from the Company to ERP were converted into limited partnership interests in ERP. In 1995, the Company formed EDV, of which the Company owns 100% of the outstanding preferred shares. The investment in EDV is accounted for on the equity method. The preferred shares receive 95% of the dividends, if any, from EDV. EDV was formed to finance, acquire, develop, hold, and sell real estate in the short-term for capital gains and/or receive fee income. At December 31, 1997, the Company had notes receivable outstanding to EDV of $90.1 million to facilitate certain transactions. In December 1997, the Company filed a registration statement with the Securities and Exchange Commission with respect to the Company's intention to spin off Excel Legacy Corporation ("Legacy"), a newly-formed corporation which is a wholly-owned subsidiary of the Company (the "Spin-off"). Legacy was organized to create and realize value by identifying and making opportunistic real estate investments which are not restricted by REIT tax laws or influenced by the Company's objectives of increasing cash flows and maintaining certain leverage ratios. Prior to the Spin-off, EDV will transfer four notes receivable, a leasehold interest in a parcel of land, an office building and a single tenant building to the Company for a total consideration of $33.3 million. The Company will reduce the note receivable from EDV (which was $90.1 million at December 31, 1997). The Company will contribute the above assets from EDV together with ten single tenant properties owned by the Company with a December 31, 1997 book value of approximately $46.2 million and a property under development with a book value of $14.7 million to Legacy, in exchange for 23,160,757 common shares of Legacy, assumption of debt by Legacy on the ten single tenant properties of approximately $34.2 million, and issuance of a note payable from Legacy to the Company in the amount of $20.6 million. The Spin-off is expected to take place on or about March 31, 1998 through a dividend distribution to the Company's common stockholders, of all Legacy common stock held by the Company. The distribution will consist of one share of Legacy common stock for each share of the Company's common stock held on the record date of March 2, 1998. Upon completion of the Spin-off, Legacy will cease to be a wholly-owned subsidiary of the Company and begin operating as an independent public company. The Company's executive officers will continue to manage the Company's operations as well as supervise the management of Legacy. The Company is currently in the process of evaluating other potential property acquisitions and financing alternatives. The Company intends to continue to emphasize the acquisition of shopping centers and other retail properties under long-term leases to creditworthy national or regional tenants. ITEM 2. PROPERTIES General Rental revenue and operating expense reimbursements accounted for approximately 78.8% of the Company's total revenues for the year ended December 31, 1997. The Company's management believes that the average base rent per square foot of the Company's existing leases are generally lower than the prevailing market rate base rents for new leases in the geographical regions where the Company operates, reflecting the potential for growth as leases renew. At December 31, 1997, the Company's operating properties consisted of 80 Shopping Centers, 64 Single Tenant Properties, and four Commercial Properties. As set forth in the table on the following page, such properties were located in 28 states, contained approximately 14.4 million square feet of GLA and had approximately $99.2 million of scheduled ABR as of December 31, 1997. 7 8
PERCENT OF NUMBER OF TOTAL GLA PERCENT OF SCHEDULED SCHEDULED STATE PROPERTIES (SQUARE FEET) TOTAL GLA ABR ABR - ----- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) (IN THOUSANDS) Alabama 4 242 1.7% $ 1,360 1.4% Arizona 12 1,108 7.7% 8,979 9.1% Arkansas 2 105 0.7% 529 0.5% California 14 1,736 12.0% 15,965 16.1% Colorado 3 446 3.1% 4,637 4.7% Florida 9 1,929 13.3% 11,925 12.0% Georgia 11 994 6.9% 5,785 5.8% Illinois 8 358 2.4% 2,337 2.4% Indiana 13 490 3.4% 2,612 2.6% Iowa 3 104 0.7% 563 0.6% Kentucky 5 803 5.5% 4,656 4.7% Louisiana 1 41 0.3% 229 0.2% Michigan 3 108 0.7% 558 0.6% Minnesota 4 88 0.6% 1,691 1.7% Missouri 3 82 0.6% 68 0.1% Nebraska 3 71 0.5% 439 0.4% Nevada 1 165 1.1% 1,000 1.0% New Jersey 1 56 0.4% 272 0.3% North Carolina 14 1,538 10.6% 10,114 10.2% Ohio 3 403 3.0% 2,114 2.1% Oklahoma 1 46 0.3% 280 0.3% Pennsylvania 5 412 2.8% 3,082 3.1% South Carolina 5 376 2.6% 2,774 2.8% Tennessee 10 1,207 8.4% 7,837 7.9% Texas 7 701 4.9% 4,776 4.8% Utah 1 588 4.1% 3,260 3.3% Virginia 1 193 1.3% 1,139 1.1% Wisconsin 1 59 0.4% 218 0.2% ---------- ---------- ---------- ---------- ---------- TOTALS 148 14,449 100.0% $ 99,199 100.0% ========== ========== ========== ========== ==========
The Shopping Centers At December 31, 1997, the Company owned 80 Shopping Centers. The Shopping Centers accounted for approximately 81% of the Company's GLA and approximately 84% of the Company's ABR at December 31, 1997. The Shopping Centers ranged in size from approximately 15,000 to 841,000 square feet. The Company intends to maintain its policy of acquiring shopping centers for long-term investment. The Company maintains an aggressive leasing program to enhance the income potential of each property. It also follows a schedule of regular physical maintenance with a view toward tenant expansion, renovations and refurbishing to preserve and increase the value of its properties. Renovations include upgrading of existing facades, updating signage, resurfacing parking lots and improving parking lot and exterior building lighting. The majority of the Shopping Centers are anchored by one or more national or regional retailers. The remaining space is generally subject to shorter-term net leases to smaller tenants. A substantial portion of the Company's income from Shopping Centers consists of rent received under long-term leases. Most of these leases provide for payment of fixed base rentals monthly in advance and for the payment by tenants of their pro-rata share of real estate taxes, insurance, utilities and common area maintenance of the shopping center. In general, the Company's Shopping Center leases require the Company to make roof and structural repairs as needed. However, certain of the tenant leases place that responsibility on the tenant. The Company's standard small store lease provides for roof repairs and exterior repairs to be reimbursed by the tenant as part of the common area maintenance. 8 9 The Single Tenant Properties At December 31, 1997, the Company owned 64 Single Tenant Properties under long-term net leases to national or regional tenants. The GLA of these properties ranged in size from approximately 2,000 square feet to 126,000 square feet. These properties accounted for approximately 14% of the Company's ABR and 18% of the Company's total GLA at December 31, 1997. With few exceptions, the tenants are required to pay all operating expenses including roof and structural repairs. The Commercial Properties At December 31, 1997, approximately 1% of the total GLA owned by the Company was attributable to the four Commercial Properties under long-term leases to single tenants or groups of tenants. These properties accounted for approximately 2% of the ABR of the Company and its subsidiaries at December 31, 1997 and the GLA ranged in size from approximately 9,100 square feet to 63,000 square feet. One of the Commercial Properties is the 22,000 square foot office building which is the headquarters of the Company. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings other than various claims and lawsuits arising in the normal course of its business which, in the opinion of the 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 None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the NYSE under the symbol "XEL". As of March 20, 1998 there were approximately 1,439 record holders of the Company's common stock, plus those who hold their shares in street name. The Company has paid regular distributions since its commencement of operations in 1987 and intends to pay regular quarterly distributions in the future. Payment of distributions depends upon a number of factors (including primarily the Company's cash flow) and there can be no assurance that distributions will be paid. The following table sets forth the high and low sales price as reported by the NYSE composite tape and the distributions declared each calendar quarter during 1997 and 1996 with respect to the Company's common stock:
DISTRIBUTIONS HIGH LOW DECLARED ---- --- -------- 1996: First quarter $20.8750 $19.1250 $ 0.445 Second quarter 21.2500 18.0000 0.445 Third quarter 22.5000 19.5000 0.460 Fourth quarter 25.3750 21.5000 0.460 1997: First quarter $25.8750 $23.0000 $ 0.460 Second quarter 27.0000 23.8750 0.460 Third quarter 31.8750 26.5000 0.500 Fourth quarter 32.7500 28.0625 0.500
9 10 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31 -------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION) INCOME STATEMENT DATA Total revenue $ 105,458 $ 63,135 $ 59,390 $ 42,259 $ 23,082 Total expenses 54,681 37,562 44,861 28,355 20,250 Income before real estate impairment and sales, minority interest and other items 50,777 25,573 14,509 13,904 2,832 Real estate impairment and sales 523 (1,777) 3,683 (108) 399 Net income 48,962 23,796 18,192 13,796 3,231 Net income per share [b]: Basic $ 2.06 $ 1.66 $ 1.51 $ 1.27 $ 0.55 Diluted 1.97 1.62 1.51 1.27 0.55 Distributions per share 1.92 1.81 1.32[a] 1.71 1.42 Weighted average number of shares [b]: Basic 19,521 14,312 12,031 10,877 5,873 Diluted 20,708 14,531 12,038 10,881 5,877 BALANCE SHEET DATA Net real estate $ 891,582 $ 457,502 $ 372,016 $ 349,255 $ 273,362 Total assets 1,076,197 558,628 428,307 375,100 290,226 Mortgages payable 243,664 157,716 123,813 201,157 113,487 Senior notes payable 75,000 -- -- -- -- Notes payable 168,894 81,032 86,984 15 6,575 Capital leases 26,850 -- -- -- -- Stockholders' equity 502,516 312,654 208,678 163,898 161,962
- ---------- [a] In April 1995, the Company adopted a policy of declaring distributions to stockholders of record on the first day of the succeeding quarter, instead of the last day of the current quarter. The payment date of 15 days following each quarter remained unchanged. In 1996, a distribution of $0.445 per share was declared on January 1 and paid on January 15. Had the Company not changed its distribution declaration date, the distributions would have been $1.77 in 1995. [b] The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share effective December 31, 1997. SFAS No. 128 requires the presentation of basic and diluted earnings per share. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the conversion of convertible preferred stock (using the "if converted" method), exercise of stock options and warrants and potential conversion of ERP limited partner units for all periods. All prior period earnings per share amounts have been restated to comply with the SFAS No. 128. 10 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto. Historical results and percentage relationships set forth in the Consolidated Statements of Income contained in the Consolidated Financial Statements, including trends which might appear, should not be taken as indicative of future operations. Comparison of the year ended December 31, 1997 to the year ended December 31, 1996 Rental revenue and expense reimbursements increased $30.6 million, or 58% to $83.1 million in the year ended December 31, 1997, as compared to $52.5 million for the year ended December 31, 1996. This increase relates partially to the consolidation of Excel Realty Partners, L.P. ("ERP") on April 1, 1997. Had ERP been consolidated with the Company during 1996, rental revenue and expense reimbursements would have been greater in 1996 by $7.0 million. Also, the Company acquired 30 new properties in 1997 that accounted for $16.5 million in revenues and in addition, acquired a shopping mall in December 1996 which accounted for an additional $5.9 million in 1997 revenues. The remaining increase in revenues was attributable to an increase in rents from a full year of operations from the properties acquired in 1996, net of 1997 property sales, and a net increase in rents from its existing properties. Interest income increased $9.7 million, or 145% to $16.4 million in the year ended December 31, 1997 from $6.7 million in the year ended December 31, 1996. This increase is primarily related to additional notes receivable issued during the year including an increase of $50.3 million related to loans made to ERT Development Corporation ("EDV") to facilitate the development of various development projects. Also, in the second quarter of 1997, the Company reversed a reserve of $0.8 million related to one of its note receivables. The $0.8 million was recognized as interest income and was made due to increased leasing activity on the collateralized property and improved market conditions. Additionally in 1997, the Company recognized $0.7 million of loan fees from certain developers. Other income in 1997 of $6.0 million represented a $2.1 million or 54% increase from other income in 1996 of $3.9 million. The increase related primarily to an increase in EDV's operations. EDV's net income in the twelve month period ended December 31, 1997 increased by $3.3 million over the same period in 1996. This was offset by a $0.4 million decrease in development fees received from EDV. Also, equity income in ERP was $1.1 million in 1996. As the Company began consolidating ERP's accounts on April 1, 1997, equity income for the first three months in 1997 was $0.4 million, or a decrease of $0.7 million. Interest expense increased $4.5 million or 23% to $24.0 million in 1997 from $19.5 million in 1996. The increase primarily relates to additional debt related to property acquisitions and the consolidation of ERP. The outstanding mortgage debt and capital leases were $270.5 million at December 31, 1997 compared to $157.7 million at December 31, 1996. Additionally, the Company issued $75.0 million in Senior Notes in October 1997 and increased borrowings on its credit facility and other notes payable to $168.9 million at December 31, 1997 compared to $81.0 million at December 31, 1996. Depreciation and amortization expenses increased $4.1 million or 55% in 1997 when compared with 1996. This relates primarily to the increase in buildings from acquisitions made in 1997 and the consolidation of ERP. Property taxes, repairs and maintenance and other property expenses totaled $14.0 million in 1997 compared to $7.4 million in 1996. This increase primarily relates to property acquisitions and the inclusion of properties held by ERP. The increase of $6.6 million is consistent with the increase of expense reimbursement revenue of $5.6 million. The percentage of these expenses recovered in 1997 through expense reimbursement revenue increased to 73% from 62% in 1996. General and administrative expenses increased by $2.2 million in 1997 from 1996 which was a slight increase as a percentage of total revenues from 4.5% to 4.8%. 11 12 In July 1997, the Company bought an interest rate lock related to a proposed senior note offering. The interest rate lock was sold when the senior note offering was postponed and a common stock offering was completed instead. The Company recognized a $0.9 million loss on the sale. The Company later issued its Senior Notes at 6.875% (6.982% effective rate with a discounted issue price). The interest rate lock that was sold had guaranteed the seven year Treasury note at 6.44%. Had the Company issued the Senior Notes in July, the interest rate would have been 0.875% over the seven year Treasury note, or 7.315%. The $0.9 million loss is included in other items. Also included in other items was a $0.6 million currency loss related to a note receivable payable in Canadian dollars. The Company recognized a net gain on real estate sales of $1.3 million in 1997 compared with a net loss of $0.9 million in 1996. In 1997, the Company sold five Single Tenant Properties for net proceeds of $11.2 million. The net loss in 1996 was primarily a result of a dark building that was sold. The impairment of real estate in 1997 and 1996 relates to one dark building which the Company wrote down to its estimated fair value in each year, respectively. Net income increased $25.2 million, or 106%, to $49.0 million in 1997 from $23.8 million in 1996. In the third quarter of 1997, the Company increased the quarterly distributions per share to $0.50 from $0.46. Comparison of the year ended December 31, 1996 to the year ended December 31, 1995 Rental revenue and expense reimbursements decreased $2.7 million, or 5% to $52.5 million in the year ended December 31, 1996, as compared to $55.2 million for the year ended December 31, 1995. This decrease primarily relates to the sale of an office building in December 1995 which accounted for $3.0 million of revenue in 1995. Although property expenses decreased slightly as mentioned below, expense reimbursements increased by $0.8 million. The primary reason for this variance is the sale of the office building. In 1995, the office building accounted for $1.6 million in total expenses of which only $0.2 million was recovered in reimbursements. Interest income increased $3.5 million, or 109% to $6.7 million in the year ended December 31, 1996 from $3.2 in the year ended December 31, 1995. This increase is primarily related to additional notes receivable issued during the year. The Company's outstanding notes receivable were $83.7 million at December 31, 1996 compared with $22.9 million outstanding at December 31, 1995, an increase of $60.8 million. Of this amount, $27.1 million related to loans made to EDV, $11.9 million related to loans made to ERP primarily to facilitate cash requirements for seven properties contributed to ERP in 1996, $9.5 million was loaned to a Canadian company to facilitate the purchase and redevelopment of a mixed-use commercial building in Toronto, Canada and $12.3 million related to loans made to various other development companies. Other income in 1996 of $3.9 million represented a $2.9 million increase from other income in 1995 of $1.0 million. The increase related primarily to an increase in fees received from EDV which totaled $2.4 million in 1996 compared to $0.6 million in 1995. Additionally, the Company's equity in earnings from its affiliates accounted for $1.2 million of the increase. This increase is primarily due to ERP's activity. In 1996, seven properties were contributed to ERP. In addition, a full year of operations was recognized on the five properties that were contributed in the fourth quarter of 1995. Interest expense decreased $3.0 million to $19.5 million in the year ended December 31, 1996 from $22.5 million in 1995. The higher interest expense in 1995 related to $3.7 million of loan costs written-off compared to none in 1996. This was primarily due to the repayment of debt related to the Company's Real Estate Mortgage Investment Conduit (the "REMIC"). Excluding loan cost write-offs, interest expense increased $1.1 million in 1996 which primarily related to the increase in mortgage debt from properties purchased in 1996. Mortgages payable outstanding at December 31, 1996 were $157.7 million compared with $123.8 million outstanding at December 31, 1995. Depreciation and amortization expenses increased $0.6 million or 9% in 1996 when compared with 1995. This is due to an overall increase in the Company's depreciable real estate, and a full year's operations on the properties purchased in 1995. The Company's buildings at December 31, 1996 totaled $323.4 million compared to $251.0 million at December 31, 1995. Property taxes, repairs and maintenance and other property expenses decreased $0.6 million or 8% to $7.4 million in the year ended December 31, 1996 from $8.0 million in the year ended December 31, 1995. This decrease was 12 13 primarily the result of the sale of the office building in December 1995, as mentioned above, which accounted for $0.7 million of other property expenses in 1995. The properties acquired during 1996 that were not previously under master leases accounted for approximately $0.1 million of other property expenses in 1996. Master lease expenses, which were $4.7 million in the year ended December 31, 1995, decreased to $0.4 million in 1996. In 1996, the three properties under master leases were purchased in the first quarter of 1996 and the master leases were terminated. During 1995, eleven properties were under master leases for at least part of the year. There were no significant changes in the other operating expenses. General and administrative expenses decreased to approximately 4.5% of total revenues in 1996 from 4.8% of total revenues in 1995. The Company recognized a net loss on real estate sales of $0.9 million in 1996 compared with a net gain of $3.7 million in 1995. The loss in 1996 primarily was the result of a dark building that was sold in 1996. The Company had received a lease termination fee and, subsequent to termination of the lease, sold the building. In 1995 the Company's net gain was primarily associated with the sale of the office building. The impairment of real estate in 1996 relates to another dark building which the Company wrote down by $0.8 million to its estimated fair value. Net income increased $5.6 million, or 31%, to $23.8 million in 1996 from $18.2 million in 1995. In the third quarter of 1996, the Company increased the quarterly distributions per share to $0.46 from $0.445. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations has been the principal source of capital to fund the Company's ongoing operations. The Company's issuance of common and preferred shares and Senior Notes, use of the Company's credit facility and long-term mortgage financing have been the principal sources of capital required to fund its growth. In order to continue to expand and develop its portfolio of properties and other investments, the Company intends to finance future acquisitions and growth through the most advantageous sources of capital available to the Company at the time, which may include the sale of common stock, preferred stock or debt securities through public offerings or private placements, the incurrence of additional indebtedness through secured or unsecured borrowings and the reinvestment of proceeds from the disposition of assets. In 1997, the Company received investment grade credit ratings of Baa3 and BBB- from Moody's and Standard and Poor's, respectively, on unsecured senior debt securities issued from the Company's $500 million shelf registration. The Company's financing strategy is to maintain a strong and flexible financial position by (i) maintaining a prudent level of leverage, (ii) maintaining a large pool of unencumbered properties, (iii) managing its variable rate exposure, (iv) amortizing existing property specific non-recourse mortgages over the term of the anchor leases for such mortgaged properties, and (v) maintaining a conservative distribution payout ratio. The Company may seek variable rate financing from time to time if such financing appears advantageous in light of then-prevailing market conditions. In such case, the Company will consider hedging against interest rate risk through interest rate protection agreements, interest rate swaps or other means. In April 1997, the Company filed with the Commission a $500 million shelf registration statement. This registration statement was filed for the purpose of issuing debt securities, preferred stock, depositary shares, common stock or warrants. Currently, approximately $197.5 million is available to the Company on this registration statement. In January 1998, the Company issued 6,300,000 depositary shares each representing 1/10 of a share of 8 5/8% Series B Cumulative Redeemable Preferred Stock (the "Preferred B Shares"). The offering price was $25.00 per depositary share with an annual dividend equal to $2.15625 per share, payable quarterly. Net proceeds from the offering totaled approximately $152.5 million. In 1997, the Company completed two stock offerings. In July, the Company issued 2,500,000 shares of common stock with a market price of $28.00 per share. The net proceeds were approximately $26.6875 per share, or $66.5 million. In January, the Company issued 4,600,000 shares of 8 1/2% Series A Cumulative Convertible Preferred Stock (the "Preferred A Shares"). Net proceeds totaled approximately $111.4 million. The Preferred A Shares have an annual distribution of $2.125 per share payable quarterly. The Preferred A Shares are convertible by the holder at any time into shares of the Company's common stock at a conversion price of $26.06 per share. On or after February 5, 2002, the Preferred A Shares are redeemable by the Company at $25.00 per share in either shares of 13 14 common stock or cash at the Company's election. The Preferred A Shares rank senior to the Company's common stock and are on a parity with the Preferred B Shares with respect to the payment of dividends and amounts payable upon liquidation, dissolution or winding down of the Company. In March 1998, 2,211,120 Preferred A Shares were converted into 2,121,183 shares of the Company's common stock. In October 1997, the Company issued $75.0 million of 6.875% Senior Notes due 2004 (the " Senior Notes"). The effective interest rate on the Senior Notes is 6.982% (6.875% coupon with proceeds before underwriting discount of $74.6 million). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year. The proceeds from the Senior Notes and stock offerings were used to repay debt, acquire properties, make loans to EDV and to third party developers to facilitate the development of properties and for general corporate purposes. The Company has an unsecured revolving credit facility for up to $150.0 million from a group of seven banks (the "Credit Facility") which carries an interest rate of LIBOR plus 1.20%. The actual amount available to the Company is dependent on covenants such as the value of unencumbered assets and certain ratios. The Credit Facility expires December 1999. The outstanding balance of $148.6 million at December 31, 1997 was repaid in January 1998 with proceeds from the Company's Preferred B Shares offering. In 1995, the Company formed ERP to own and manage certain real estate properties and on April 1, 1997, the Company began consolidating the accounts of ERP. At December 31, 1997, there were 2,833,000 limited partner units outstanding of which 1,681,000 were held by third parties. These units are due distributions totaling $0.9 million per quarter and are redeemable for common stock of the Company or cash, at certain dates. In 1995, EDV was organized to finance, acquire, develop, hold and sell real estate in the short-term for capital gains and/or receive fee income. The Company owns 100% of the outstanding preferred shares of EDV. The preferred shares are entitled to receive dividends equal to 95% of net income from cash flows, if any. Cash requirements to facilitate EDV transactions have primarily been obtained through borrowings from the Company and are expected to continue in the future. Interest and principal payments are repaid to the Company as excess cash is available which is primarily expected to occur when development projects are completed and sold. The Company has guaranteed $30 million of an $85 million construction loan related to a retail development project in Orlando, Florida. The project is expected to be completed in August 1998. In September 1997, the Company established $25.7 million in credit facilities to certain developers. The total outstanding amounts on the credit facilities of $14.0 million at December 31, 1997 carry interest at 11% to 12%, are collateralized by real estate, and are payable on the earlier of the sale of certain real estate or seven years. In 1997, the Company recognized $0.7 million in loan fees related to credit facilities. In December 1997, the Company filed a registration statement with the Securities and Exchange Commission with respect to the Company's intention to spin off Excel Legacy Corporation ("Legacy"), a newly-formed corporation which is a wholly-owned subsidiary of the Company (the "Spin-off"). Legacy was organized to create and realize value by identifying and making opportunistic real estate investments which are not restricted by REIT tax laws or influenced by the Company's objectives of increasing cash flows and maintaining certain leverage ratios. Prior to the Spin-off, EDV will transfer four notes receivable, a leasehold interest in a parcel of land, an office building and a single tenant building to the Company for a total consideration of $33.3 million. The Company will reduce the note receivable from EDV (which was $90.1 million at December 31, 1997). The Company will contribute the above assets from EDV together with ten single tenant properties owned by the Company with a December 31, 1997 book value of approximately $46.2 million and a property under development with a book value of $14.7 million to Legacy, in exchange for 23,160,757 common shares of Legacy, assumption of debt by Legacy on the ten single tenant properties of approximately $34.2 million, and issuance of a note payable from Legacy to the Company in the amount of $20.6 million. The Spin-off is expected to take place on or about March 31, 1998 through a dividend distribution to the Company's common stockholders, of all Legacy common stock held by the Company. The distribution will consist of one share of Legacy common stock for each share of the Company's common stock held on the record date of March 2, 1998. Upon completion of the Spin-off, Legacy will cease to be a wholly-owned subsidiary of the Company and begin operating as an independent public company. The Company's executive officers will continue to manage the Company's operations as well as supervise the management of Legacy. 14 15 The Company has elected to be taxed as a REIT for federal income tax purposes and must distribute at least 95% of its taxable income to its stockholders in order to avoid income taxes. Although the Company receives most of its rental payments on a monthly basis, it intends to make quarterly distribution payments. Amounts accumulated for distributions will be invested by the Company in short-term marketable instruments including deposits at commercial banks, money market accounts, certificates of deposit, U.S. government securities or other liquid investments (including GNMA, FNMA, and FHLMC mortgage-backed securities) as the Board of Directors deems appropriate. The Company calculates funds from operations ("FFO") as net income before gain or loss on real estate sales (net of gain or loss on sales of undepreciated property), plus depreciation on real estate, amortization, amortized leasing commission costs, loan costs written off, and other non-recurring items. FFO does not represent cash flows from operations as defined by generally accepted accounting principles, and may not be comparable to other similarly titled measures of other REITs. The Company believes, however, that to facilitate a clear understanding of its operating results, FFO should be examined in conjunction with its net income as reductions for certain items are not meaningful in evaluating income-producing real estate, which historically has not depreciated. The following information is included to show the items included in the Company's FFO for the past three years (in thousands except per share amounts):
1997 1996 1995 -------- -------- -------- Net income $ 48,962 $ 23,796 $ 18,192 Depreciation: Buildings 10,980 7,025 6,313 Tenant improvements 409 329 531 From equity investments 43 9 1 Amortization (a): Leasing commissions 219 189 724 Organization costs and other 12 4 4 Minority interest (b) 816 -- -- Adjustment from equity investment (b) 118 -- -- Loan costs written off 664 (415) 4,453 Sale of loan rate cap 896 -- -- (Gain) loss on sale/impairment of buildings (523) 2,130 (3,683) -------- -------- -------- Funds from operations $ 62,596 $ 33,067 $ 26,535 ======== ======== ======== Other Information: Leasing commissions paid $ 330 $ 461 $ 335 Tenant improvements paid 793 338 741 Building improvements paid 638 683 716
(a) Only amortization of organizational costs are shown as amortization expense in the Consolidated Statements of Income. Loan cost amortization and loan costs written-off are classified as interest expense and leasing commission amortization is classified as part of other operating expenses in the Consolidated Statements of Income. (b) These amounts relate to third party ERP units and other common stock equivalents. ECONOMIC CONDITIONS The majority of the Company's leases contain provisions deemed to mitigate the adverse impact of inflation. Such provisions include clauses enabling the Company to receive percentage rents which generally increase as prices rise, and/or escalation clauses which are typically related to increases in the consumer price index or similar inflation indices. In addition, the Company believes that many of its existing lease rates are below current market levels for comparable space and that upon renewal or re-rental such rates may be increased to current market rates. This belief is based upon an analysis of relevant market conditions, including a comparison of comparable market rental rates, and upon the fact that many of such leases have been in place for a number of years and may not contain 15 16 escalation clauses sufficient to match the increase in market rental rates over such time. Most of the Company's leases require the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance, thereby reducing the Company's exposure to increases in costs and operating expenses resulting from inflation. In addition, the Company periodically evaluates its exposure to interest rate fluctuations, and may enter into interest rate protection agreements which mitigate, but do not eliminate, the effect of changes in interest rates on its floating rate loans. Many regions of the United States, including regions in which the Company owns property, may experience economic recessions. Such recessions, or other adverse changes in general or local economic conditions, could result in the inability of some existing tenants of the Company to meet their lease obligations and could otherwise adversely affect the Company's ability to attract or retain tenants. The Company's shopping centers are typically anchored by discount department stores, supermarkets and drug stores which usually offer day-to-day necessities rather than high priced luxury items. These types of tenants, in the experience of the Company, generally continue to maintain their volume of sales despite a slowdown in economic conditions. CERTAIN CAUTIONARY STATEMENTS Certain statements in this Form 10-K may be deemed to be "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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, the following risks: Economic Performance and Value of Centers Dependent on Many Factors. Real property investments are subject to varying degrees of risk. The economic performance and values of real estate can be affected by many factors, including changes in the national, regional and local economic climates, local conditions such as an oversupply of space or a reduction in demand for real estate in the area, the attractiveness of the properties to tenants, competition from other available space, the ability of the owner to provide adequate maintenance and insurance and increased operating costs. In recent years, there has been a proliferation of new retailers and a growing consumer preference for value-oriented shopping alternatives that have, among other factors, heightened competitive pressures. In certain areas of the country, there may also be an oversupply of retail space. As a consequence, many companies in all sectors of the retailing industry have encountered significant financial difficulties. A substantial portion of the Company's income is derived from rental revenues from retailers in neighborhood and community shopping centers. Accordingly, no assurance can be given that the Company's financial results will not be adversely affected by these developments in the retail industry. Dependence on Rental Income from Real Property. Since substantially all of the Company's income is derived from rental income from real property, the Company's income and funds for distribution would be adversely affected if a significant number of the Company's tenants were unable to meet their obligations to the Company or if the Company were unable to lease a significant amount of space in its properties on economically favorable lease terms. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that the Company will be able to re-lease space on economically advantageous terms. Illiquidity of Real Estate Investments. Equity real estate investments are relatively illiquid and therefore tend to limit the ability of the Company to vary its portfolio promptly in response to changes in economic or other conditions. In addition, mortgage payments and, to the extent the properties are not subject to triple net leases, certain significant expenditures such as real estate taxes and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. Should such events occur, the Company's income and funds for distribution would be adversely affected. A portion of the Company's properties are mortgaged to secure payment of indebtedness, and if the Company were unable to meet its mortgage payments, a loss could be sustained as a result of foreclosure on such properties by the mortgagee. Risk of Bankruptcy of Major Tenants. The bankruptcy or insolvency of a major tenant or a number of smaller tenants may have an adverse impact on the properties affected and on the income produced by such properties. Under bankruptcy law, a tenant has the option of assuming (continuing) or rejecting (terminating) any unexpired lease. If 16 17 the tenant assumes its lease with the Company, the tenant must cure all defaults under the lease and provide the Company with adequate assurance of its future performance under the lease. If the tenant rejects the lease, the Company's claim for breach of the lease would (absent collateral securing the claim) be treated as a general unsecured claim. The amount of the claim would be capped at the amount owed for unpaid pre-petition lease payments unrelated to the rejection, plus the greater of one years' lease payments or 15% of the remaining lease payments payable under the lease (but not to exceed the amount of three years' lease payments). Environmental Risks. Under various federal, state and local laws, ordinances and regulations, the Company may be considered an owner or operator of real property or may have arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may become liable for the costs of removal or remediation of certain hazardous substances released on or in its property or disposed of by it, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). Such liability may be imposed whether or not the Company knew of, or was responsible for, the presence of such hazardous or toxic substances. Reliance on Major Tenants. As of December 31, 1997, the Company's two largest tenants were Kmart Corporation and Wal-Mart Stores, Inc. whose scheduled ABR accounted for approximately 10.4% and 9.2%, respectively, of the Company's 1997 total revenues. The financial position of the Company and its ability to make distributions may be adversely affected by financial difficulties experienced by either of such tenants, or any other major tenant of the Company, including a bankruptcy, insolvency or general downturn in business of any such tenant, or in the event any such tenant does not renew its leases as they expire. Control by Directors and Executive Officers. As of December 31, 1997, directors and executive officers of the Company beneficially owned approximately 12.0% of the Company's common stock. Accordingly, such persons should continue to have substantial influence over the Company and on the outcome of matters submitted to the Company's stockholders for approval. Year 2000. The Company currently uses Management Reports Inc. ("MRI") software on a Novell local area network. The MRI software will require an upgrade to make it year 2000 compliant, which the Company intends to install prior to December 31, 1999. The Company does not believe that additional costs associated with the software upgrade and additional implementation and training costs will be material to the Company's financial position or results of operations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Financial statements required by this item appear with an Index to Financial Statements and Schedules, starting on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure. PART III ITEMS 10 THROUGH 13 Incorporated by reference to the Company's Proxy Statement for its 1998 annual meeting of stockholders to be filed subsequently hereto. 17 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules: (1) Report of Independent Accountants Page F-2 (2) Financial Statements (i) Consolidated Balance Sheets; December 31, 1997 and 1996 Page F-3 (ii) Consolidated Statements of Income; Years Ended December 31, 1997, 1996 and 1995 Page F-4 (iii)Consolidated Statements of Changes In Stockholders' Equity; Years Ended December 31, 1997, 1996 and 1995 Page F-5 (iv) Consolidated Statements of Cash Flows; Years Ended December 31, 1997, 1996, and 1995 Page F-6 (v) Notes to Consolidated Financial Statements Page F-7 (3) Financial Statement Schedules (i) Schedule II; Valuation and Qualifying Accounts; Years Ended December 31, 1997, 1996 and 1995 Page F-20 (ii) Schedule III; Real Estate and Accumulated Depreciation; December 31, 1997 Page F-21
All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements and notes thereto. (b) Reports on Form 8-K filed during the quarter ended December 31, 1997: A Current Report on Form 8-K was filed with the Commission on October 3, 1997 regarding the Company's acquisition of properties in Charleston, SC; Miami, FL; Naples, FL; Elizabethtown, PA; and Arlington, TX (including financial statements of the properties acquired). A Current Report on Form 8-K was filed with the Commission on October 15, 1997 regarding the Company's offering of 6.875% Senior Notes due 2004. A Current Report on Form 8-K was filed with the Commission on December 17, 1997 regarding the Company's acquisition of a property in Clearwater, FL (including financial statements of the property acquired). A Current Report on Form 8-K was filed with the Commission on December 30, 1997 regarding the Company's acquisition of properties in Westminster, CO and Winchester TN (including financial statements of the properties acquired). (c) Exhibits: Refer to Exhibit Index as follows. 18 19 EXHIBIT INDEX - ------------- 3.1 Articles of Incorporation of Excel Realty Trust, Inc., a Maryland corporation (the "Company"), as amended. (1) 3.2 Bylaws of the Company. (1) 4.1 Articles Supplementary classifying 4,600,000 shares of preferred stock as 8 1/2% Series A Cumulative Convertible Preferred Stock. (2) Exhibit 4.01 4.2 Articles Supplementary classifying 630,000 shares of preferred stock as 8 5/8% Series B Cumulative Redeemable Preferred Stock. (3) Exhibit 4.02 4.3 Indenture, dated as of May 8, 1995, by and between the Company and State Street Bank and Trust Company of California, N.A. (As successor to the First National Bank of Boston). (4) Exhibit 4.01 4.4 First Supplemental Indenture, dated as of April 4, 1997, by and between the Company and State Street Bank and Trust Company of California, N.A. (5) 4.02 4.5 Second Supplemental Indenture, dated as of July 3, 1997, by and between the Company and State Street Bank and Trust Company of California, N.A. (6) 4.01 10.1 General Partnership Agreement of Horne & Excel Properties, a Tennessee general partnership, dated as of October 13, 1992, by and between Horne and Excel California (also known as the "Company"). (1) Exhibit 10.2A 10.2 General Partnership Agreement of Horne & Excel Properties (Chapman), a Tennessee general partnership, dated as of December 30, 1992, by and between Horne and the Company. (1) Exhibit 10.2B 10.3 Employment Contract, dated as of April 1, 1993, by and between the Company and Gary Sabin, an individual. (1) Exhibit 10.8 10.4 Employment Contract, dated as of April 1, 1993, by and between the Company and Richard Muir, an individual. (1) Exhibit 10.8A 10.5 Employment Contract, dated as of April 1, 1993, by and between the Company and Graham Bullick, an individual. (1) Exhibit 10.9 10.6 Employment Contract, dated as of April 1, 1993, by and between the Company and Ronald Sabin an individual. (1) Exhibit 10.9A 10.7 1993 Stock Option Plan of the Company. (7) Exhibit B 10.8 Form of Incentive Stock Option Agreement under the Company's 1993 Stock Option Plan. (1) Exhibit 10.11 10.9 Form of Non-Qualified Stock Option Agreement under the Company's 1993 Stock Option Plan. (1) Exhibit 10.12 10.10 401(k) Retirement Plan of the Company. (1) Exhibit 10.13 10.11 Form of Common Stock Purchase Option, dated as of November 1, 1992 by and between the Company and each of the seven directors thereof. (1) Exhibit 10.27 10.12 Form of Common Stock Purchase Option, dated as of March 15, 1993, by and between the Company and each of the seven directors thereof. (1) Exhibit 10.28 10.13 Agreement of Limited Partnership of EH Properties, L.P., ("EH Properties"), a Delaware limited partnership, dated as of March 25, 1994, by and between the Company, as general partner, and Horne, as limited partner. (2) Exhibit 10.37 10.14 Partnership Contribution Closing Agreement dated as of March 28, 1994, by and between Horne, the Company, and EH Properties. (8) Exhibit 10.38 10.15 1994 Director's Stock Plan of the Company. (9) 4.1 10.16 Form of Stock Option Agreement under the 1994 Director's Stock Plan of the Company. (9) Exhibit 4.2
19 20 10.17 Master Agreement, dated as of January 1, 1995, by and among the Company and the limited partnerships named therein (the "Tricor Partnerships"). (8) Exhibit 10.45 10.18 Closing Memorandum, dated as of January 20, 1995, by and among the Company and the Tricor Partnerships. (8) Exhibit 10.46 10.19 Agreement, dated as of January 20, 1995, by and among the Company and the Tricor Partnerships. (8) Exhibit 10.47 10.20 Amended and restated agreement of limited partnership of Excel Realty Partners, L.P., a Delaware limited partnership ("ERP"), dated as of June 25, 1997. (13) 10.21 Contribution Agreement by and between each of the partnerships named therein and ERP. (3) Exhibit 10.32 10.22 Revolving Credit Agreement, dated as of June 12, 1997, among the Company, BankBoston, N.A., the Other Banks Which May Become Parties to The Agreement, and BankBoston, N.A. as agent. (12) Exhibit 10.1 10.23 Contribution Agreement dated as of June 20, 1997, among ERP, Briggsmore Plaza Co., a California partnership, G&H Associates, a California partnership, Montebello Plaza Co., a California partnership, and Paradise Plaza Co., a California Partnership. (11) Exhibit 10.01 21.1 Subsidiaries of the Company. (10) 23.1 Consent of Coopers & Lybrand L.L.P. (13) 27.1 Financial data schedules. (13)
- ---------- (1) Incorporated by reference to the Company's Registration Statement on Form S-11, File No. 33-63160, filed with the Commission on May 21, 1993, as amended, in which this exhibit bore the same number, unless otherwise indicated. (2) Incorporated by reference to the Company's report on Form 8-K dated February 7, 1997, in which this exhibit bore the same number, unless otherwise indicated. (3) Incorporated by reference to the Company's report on Form 8-K dated January 14, 1998, in which this exhibit bore the same number, unless otherwise indicated. (4) Incorporated by reference to the Company's Registration Statement on Form S-3 File No. 33-59195, filed with the Commission on May 9, 1995, as amended, in which this exhibit bore the same number, unless otherwise indicated. (5) Incorporated by reference to the Company's Registration Statement on Form S-3, file No. 333-24615, filed with the Commission on April 4, 1997, as amended, in which this exhibit bore the same number, unless otherwise indicated. (6) Incorporated by reference to the Company's report on Form 8-K dated July 3, 1997, in which this exhibit bore the same number, unless otherwise indicated. (7) Incorporated by reference to the Company's Proxy Statement dated April 1, 1996 relating to the 1996 Annual Meeting of Stockholders of the Company, in which this exhibit bore the same number, unless otherwise indicated. (8) Incorporated by reference from the Company's report on Form 10-K dated March 13, 1995, in which this exhibit bore the same number, unless otherwise indicated. (9) Incorporated by reference to the Company's Registration Statement on Form S-8, file No. 333-02329, filed with the Commission on April 8, 1996, in which this exhibit bore the same number, unless otherwise indicated. (10) Incorporated by reference from the Company's report on Form 10-K dated March 13, 1996, as amended, in which this exhibit bore the same number, unless otherwise indicated. (11) Incorporated by reference from the Company's report on Form 8-K dated July 3, 1997, as amended, in which this exhibit bore the same number, unless otherwise indicated. (12) Incorporated by reference to the Company's report on Form 8-K dated September 18, 1997, in which this exhibit bore the same number, unless otherwise indicated. (13) Filed herewith. 20 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXCEL REALTY TRUST, INC. DATE: March 23, 1998 By: /s/ Gary B. Sabin ----------------------------- GARY B. SABIN President and Chief Executive Officer DATE: March 23, 1998 By: /s/ David A. Lund ----------------------------- DAVID A. LUND Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Gary B. Sabin March 23, 1998 - ---------------------------------- ----------------------------- GARY B. SABIN, Director, Date President, Chief Executive Officer and Chairman of the Board /s/ Richard B. Muir March 23, 1998 - ---------------------------------- ----------------------------- RICHARD B. MUIR, Director Date and Executive Vice President /s/ Boyd A. Lindquist March 23, 1998 - ---------------------------------- ----------------------------- BOYD A. LINDQUIST, Director Date /s/ D. Charles Marston March 23, 1998 - ---------------------------------- ----------------------------- D. CHARLES MARSTON, Director Date /s/ Robert E. Parsons, Jr. March 23, 1998 - ---------------------------------- ----------------------------- ROBERT E. PARSONS, JR., Director Date /s/ Bruce A. Staller March 23, 1998 - ---------------------------------- ----------------------------- BRUCE A. STALLER, Director Date /s/ John H. Wilmot March 23, 1998 - ---------------------------------- ----------------------------- JOHN H. WILMOT, Director Date 21 22 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ----------
PAGE ---- 1. CONSOLIDATED FINANCIAL STATEMENTS: Report of Independent Accountants................................................F-2 Consolidated Balance Sheets December 31, 1997 and 1996....................................................F-3 Consolidated Statements of Income Years Ended December 31, 1997, 1996 and 1995..................................F-4 Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995..................................F-5 Consolidated Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995..................................F-6 Notes to Consolidated Financial Statements.......................................F-7 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES: Schedule II - Valuation and Qualifying Accounts Years Ended December 31, 1997, 1996 and 1995.................................F-20 Schedule III - Real Estate and Accumulated Depreciation December 31, 1997............................................................F-21
F-1 23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Excel Realty Trust, Inc. We have audited the consolidated financial statements and the financial statement schedules of Excel Realty Trust, Inc. and subsidiaries as listed in item 14(a) of this Form 10-K. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Excel Realty Trust, Inc. and subsidiaries as of December 31, 1997 and 1996 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND, L.L.P. San Diego, California March 13, 1998 F-2 24 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ----------
1997 1996 ----------- ----------- ASSETS Real estate: Land $ 307,995 $ 156,060 Buildings 617,523 323,418 Accumulated depreciation (33,936) (21,976) ----------- ----------- Net real estate 891,582 457,502 Cash 18,426 5,038 Escrow and other deposits 20,814 625 Accounts receivable, less allowance for bad debts of $1,896 and $1,608 in 1997 and 1996, respectively 4,577 2,917 Notes receivable - affiliates 90,124 57,716 Notes receivable - other 27,953 26,026 Interest receivable 12,867 2,579 Loan acquisition costs 2,993 1,775 Other assets 6,861 4,450 ----------- ----------- $ 1,076,197 $ 558,628 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgages payable $ 243,664 $ 157,716 Senior notes payable 75,000 -- Notes payable 168,894 81,032 Capital leases 26,850 -- Accounts payable and accrued liabilities 10,135 4,738 Deferred rental income 2,662 2,023 Other liabilities 4,490 465 ----------- ----------- Total liabilities 531,695 245,974 ----------- ----------- Minority interest in partnership 41,986 -- ----------- ----------- Commitments and contingencies -- -- Stockholders' equity: 8 1/2% Series A Cumulative Convertible Preferred stock, $0.01 par value, 10,000,000 shares authorized, 4,600,000 and 0 shares issued and outstanding in 1997 and 1996, respectively 46 -- Common stock, $.01 par value, 100,000,000 shares authorized, 20,999,634 and 18,231,089 shares issued and outstanding in 1997 and 1996, respectively 210 182 Additional paid-in capital 507,866 324,229 Accumulated distributions in excess of net income (5,606) (11,757) ----------- ----------- Total stockholders' equity 502,516 312,654 ----------- ----------- $ 1,076,197 $ 558,628 =========== ===========
The accompanying notes are an integral part of the financial statements. F-3 25 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------
1997 1996 1995 ---------- ---------- ---------- Revenues: Rental revenue $ 72,941 $ 47,892 $ 51,453 Expense reimbursements 10,171 4,589 3,776 Interest 16,381 6,731 3,150 Other 5,965 3,923 991 ---------- ---------- ---------- Total revenue 105,458 63,135 59,370 ---------- ---------- ---------- Expenses: Interest 23,991 19,450 22,458 Depreciation and amortization 11,621 7,487 6,933 Property taxes 6,002 2,765 2,877 Repairs and maintenance 4,388 1,865 1,861 Other property expenses 3,633 2,797 3,230 Master lease -- 351 4,681 General and administrative 5,046 2,847 2,821 ---------- ---------- ---------- Total expenses 54,681 37,562 44,861 ---------- ---------- ---------- Income before real estate impairment and sales, minority interest and other items 50,777 25,573 14,509 Gain (loss) on sale of real estate 1,264 (933) 3,683 Impairment of real estate (741) (844) -- Minority interest in income of partnership (816) -- -- Other items (1,522) -- -- ---------- ---------- ---------- Net income $ 48,962 $ 23,796 $ 18,192 ========== ========== ========== Basic net income per share $ 2.06 $ 1.66 $ 1.51 ========== ========== ========== Diluted net income per share $ 1.97 $ 1.62 $ 1.51 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. \ F-4 26 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS, EXCEPT NUMBER OF SHARES) ----------
ACCUMULATED PREFERRED STOCK COMMON STOCK ADDITIONAL DISTRIBUTIONS TOTAL ------------------------ ------------------------ PAID-IN IN EXCESS OF STOCKHOLDERS' NUMBER AMOUNT NUMBER AMOUNT CAPITAL NET INCOME EQUITY ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at January 1, 1995 -- $ -- 10,883,570 $ 109 $ 175,702 $ (11,913) $ 163,898 Issuance of common stock -- -- 2,287,783 23 45,641 -- 45,664 Selling expenses -- -- -- -- (2,812) -- (2,812) Net income -- -- -- -- -- 18,192 18,192 Distributions -- -- -- -- -- (16,264) (16,264) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1995 -- -- 13,171,353 132 218,531 (9,985) 208,678 Issuance of common stock -- -- 5,059,736 50 110,543 -- 110,593 Selling expenses -- -- -- -- (4,845) -- (4,845) Net income -- -- -- -- -- 23,796 23,796 Distributions -- -- -- -- -- (25,568) (25,568) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1996 -- -- 18,231,089 182 324,229 (11,757) (312,654) Issuance of preferred stock 4,600,000 46 -- -- 114,954 -- 115,000 Issuance of common stock -- -- 2,768,545 28 75,846 -- 75,874 Selling expenses -- -- -- -- (7,163) -- (7,163) Net income -- -- -- -- -- 48,962 48,962 Distributions -- -- -- -- -- (42,811) (42,811) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1997 4,600,000 $ 46 20,999,634 $ 210 $ 507,866 $ (5,606) $ 502,516 ========== ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-5 27 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) ----------
1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net income $ 48,962 $ 23,796 $ 18,192 Adjustments to reconcile net income to net cash provided by operations: Depreciation 11,609 7,482 6,929 Equity in earnings of affiliates (3,792) (1,254) (93) (Gain) loss on sale of real estate (1,264) 933 (3,683) Amortization of loan costs and leasing commissions 1,081 1,235 1,968 Provision for bad debts 959 1,008 445 Loss on sale of interest rate lock 896 -- -- Minority interest in income of partnership 816 -- -- Impairment of real estate 741 844 -- Loan costs written off 664 -- 4,453 Change in accounts receivable (2,253) (1,642) (1,157) Change in other assets (11,636) (2,612) (1,750) Change in accounts payable and accrued liabilities 3,117 (1,084) 2,213 Change in other liabilities 2,653 (626) 1,378 --------- --------- --------- Net cash provided by operating activities 52,553 28,080 28,895 --------- --------- --------- Cash flows from investing activities: Real estate acquisitions and building improvements (259,721) (39,731) (26,281) Advances for notes receivable (82,022) (78,224) (36,881) Principal payments on notes receivable 23,872 2,335 23,130 Proceeds from real estate sales 11,214 4,741 29,397 Escrow and other deposits paid (23,637) (3,595) (17,146) Escrow and other deposits collected 3,432 17,876 4,751 Other 355 398 (5,395) --------- --------- --------- Net cash used in investing activities (326,507) (96,200) (28,425) --------- --------- --------- Cash flows from financing activities: Proceeds from mortgages and notes payable 363,607 71,256 105,253 Principal payments of mortgages and notes payable (209,959) (84,032) (118,516) Issuance of preferred stock 115,000 -- -- Issuance of common stock 74,641 105,911 44,451 Distributions paid (42,811) (25,568) (20,949) Selling and offering costs (7,163) (4,845) (2,812) Minority interest distributions and redemptions (2,556) -- -- Loan costs paid (2,521) (129) (2,216) Other (896) 753 -- --------- --------- --------- Net cash provided by financing activities 287,342 63,346 5,211 --------- --------- --------- Net increase (decrease) in cash 13,388 (4,774) 5,681 Cash at beginning of year 5,038 9,812 4,131 --------- --------- --------- Cash at end of year $ 18,426 $ 5,038 $ 9,812 ========= ========= =========
The accompanying notes are an integral part of the financial statements. F-6 28 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ORGANIZATION Excel Realty Trust, Inc. (the "Company") was formed in 1985 and subsequently reincorporated as a Maryland corporation. The Company is in the business of purchasing and operating commercial real estate The Company is operated as a self-administered, self-managed real estate investment trust (REIT). PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and all significantly owned partnerships. All significant intercompany accounts have been eliminated in consolidation. On April 1, 1997, the Company began consolidating the accounts of Excel Realty Partners, L.P., a Delaware limited partnership ("ERP"), when the Company converted its loans into an equity investment in ERP. Prior to April 1, 1997, the Company accounted for ERP on the equity method of accounting. The Company uses the equity method to account for its investment in ERT Development Corporation, a Delaware corporation ("EDV") (Note 4). INCOME TAXES The Company has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. Under these provisions, the Company and its subsidiaries will not be subject to federal income tax if 95% of its real estate investment trust taxable income (before dividends paid deduction) is distributed to shareholders and certain gross income, asset diversification, share ownership and disclosure requirements are met. Accordingly, no provision for federal income taxes is included in the accompanying consolidated financial statements. REAL ESTATE Land, buildings and building improvements are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives of 40 years for buildings and 2 to 40 years for building improvements. Expenditures for maintenance and repairs are charged to expense as incurred and significant renovations are capitalized. The Company assesses whether there has been a permanent impairment in the value of its real estate by considering factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include a lessee's ability to pay rent under the terms of the lease. If a property is leased at a significantly lower rent, the Company may recognize a permanent impairment loss if the income stream is not sufficient to recover its investment. Such losses have been determined as the difference between the carrying value and the fair value of the property and are included in the Consolidated Statements of Income. F-7 29 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: 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 method over the terms of the related leases or debt agreements. REVENUE RECOGNITION Base rental revenue is recognized on the straight-line basis, which averages minimum rents over the terms of the leases. Certain of the leases provide for additional rental revenue by way of percentage rents to be paid based upon the level of sales achieved by the lessee. These percentage rents are recorded on the accrual basis and are included on the Consolidated Statements of Income in rental revenue. The leases also typically provide for tenant reimbursement of common area maintenance and other operating expenses which are included in the accompanying Consolidated Statements of Income as expense reimbursements. NET INCOME PER COMMON SHARE The Company has adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share effective December 31, 1997. SFAS No. 128 requires the presentation of basic and diluted earnings per share. Basic EPS is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed giving effect to all dilutive potential common shares that were outstanding during the period. Dilutive potential common shares consist of the incremental common shares issuable upon the conversion of convertible preferred stock (using the "if converted" method), exercise of stock options and warrants and potential conversion of ERP limited partner units for all periods. All prior period earnings per share amounts have been restated to comply with SFAS No. 128 (Note 9). USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the consolidated financial statements for the years ended December 31, 1996 and 1995 in order to conform with the current period's presentation. F-8 30 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 2. REAL ESTATE: ACQUISITIONS In 1997, the Company acquired 27 shopping centers located in California (12), Florida (3), Arizona (2), Pennsylvania (2), Tennessee (2), Colorado, Georgia, Nevada, North Carolina, South Carolina, and Texas. The Company also purchased buildings leased to single tenants, Winn Dixie and Kmart, in Tennessee and Florida, respectively, an out-parcel in Minnesota and the remaining interest of a property owned in Tennessee. The total cost of these properties was approximately $365,919,000. The Company assumed mortgage debt of $34,042,000 and capital leases of $26,850,000 in the above transactions. In January 1998, the Company acquired a shopping center located in California for approximately $9,500,000 and two single tenant properties under construction located in Colorado. The cost of these two properties after construction is expected to total approximately $50,000,000. In March 1998, the Company acquired a shopping center located in California for approximately $41,000,000. In 1996, the Company acquired three shopping centers in North Carolina, two shopping centers in Georgia, one shopping center in Arizona and a shopping center in Utah. The total cost of the properties was $93,190,000 of which the Company assumed $43,332,000 in mortgage debt. SALES In 1997, the Company sold five single tenant properties for proceeds of $11,214,000. A net gain of $1,264,000 was recognized on the sales. The Company sold four single-tenant properties in 1996. The net sales price of these properties totaled $4,741,000 and the Company recognized a $933,000 net loss. IMPAIRMENT OF REAL ESTATE In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company has written down the value of dark single-tenant properties by $741,000 in 1997 and $844,000 in 1996, to their estimated fair value based upon current market data. Another property was written down in the second quarter of 1996 by $1,246,000 but was reclassified as part of the net loss on sale of real estate when it was sold in the third quarter of 1996. REAL ESTATE HELD FOR SALE At December 31, 1997, the Company has a property with a book value of $14,702,000 held for sale/redevelopment in Arizona. Depreciation expense is no longer being charged to the property and costs to hold the property until sale are being capitalized. This property was transferred to Excel Legacy Corporation ("Legacy") in March 1998 (Note 4). ENVIRONMENTAL MATTERS Soil and groundwater contamination exists at Carmen Plaza in Camarillo, California, Cudahy Plaza in Cudahy, California, and Bristol Plaza in Santa Ana, California. Environmental professionals retained by the Company estimate that the total, cumulative cost of remediation for these properties will be approximately $1.8 million to $5.5 million. In connection with each of these properties, the Company has entered into a remediation and indemnity agreement, which obligates the prior owner of the properties (including in some cases, principals of the prior owner) to perform the remediation and to indemnify the Company for any losses it may suffer because of the contamination or remediation. Although there can be no assurance that the remediation estimates of the F-9 31 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 2. REAL ESTATE, CONTINUED: environmental professionals are accurate or that the prior owners will perform their obligations under the remediation and indemnity agreements, the Company does not expect the environmental conditions at these properties to have a material adverse effect on the Company. The Company has identified asbestos minerals relating to spray-applied fireproofing materials in Clearwater Mall in Clearwater, Florida which was acquired by the Company in December 1997. Environmental professionals retained by the Company estimate that the total cumulative cost of remediation for this property will be approximately $3.2 million. The estimated cost of this remediation, which was capitalized as part of the acquisition price of this property, is included in other liabilities in the Company's Consolidated Balance Sheet at December 31, 1997. MASTER LEASE AND OPTION AGREEMENT In 1995, the Company entered into master lease and option agreements with respect to eleven shopping centers. Under the master leases, the Company received all cash flow in excess of the master lease expense which included lease payments to the lessor and interest payments from debt service. All of the rental revenue and related operating expenses of these properties have been included in the Company's Consolidated Statements of Income. In 1996 and 1995, the Company purchased ten of the properties under the option agreements and terminated the master lease and purchase option on the one remaining property. Upon purchase of these properties, the master leases were canceled. 3. NOTES RECEIVABLE: The Company had the following notes receivable at December 31, 1997 and 1996:
1997 1996 -------- -------- (IN THOUSANDS) Notes from EDV, interest at 14% per annum, collateralized by EDV assets. Due on demand $ 90,124 $ 39,786 Notes from ERP, interest at 12% per annum, collateralized by real estate. Converted to equity in April 1997 -- 17,930 Notes from development companies, monthly interest from 10% - 14% per annum. Maturity dates vary depending upon the completion or sale of certain properties 15,599 15,763 Note from a development company, interest at 25% compounded monthly, payable in Canadian dollars Due May 2003 11,235 9,504 Other 1,119 759 -------- -------- Total $118,077 $ 83,742 ======== ========
Interest and principal payments from EDV are primarily received upon the completion of development projects. Interest receivable from EDV was $7,628,000 and $879,000 at December 31, 1997 and 1996, respectively. F-10 32 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 3. NOTES RECEIVABLE, CONTINUED: The Company has made loans totaling $16,050,000 Canadian dollars ($11,235,000 U.S. dollars at December 31, 1997) to a Canadian company which used the proceeds to acquire a 50% joint venture interest in a mixed-use commercial building known as "Atrium on Bay", and an adjacent land parcel in Toronto, Canada. The loan is collateralized by the Canadian company's interest in the building. In 1997, the Company established $25,680,000 in credit facilities to certain developers. The total outstanding amounts on the credit facilities of $14,049,000 carry interest at 11% to 12%, are collateralized by real estate, and are payable on the earlier of the sale of real estate or seven years. In 1997, the Company recognized $720,000 in loan fees related to the credit facilities. 4. INVESTMENTS: EXCEL REALTY PARTNERS, L.P. In 1995, ERP was formed to own and manage certain real estate properties. The Company is the sole general partner of ERP. The general partner is entitled to receive 99% of all net income and gains before depreciation, if any, after the limited partners receive their stipulated distributions. On April 1, 1997, loans and related interest receivable in the amount of $23,427,000 from the Company to ERP were converted into limited partnership interests in ERP. Upon this transaction, the Company began consolidating the accounts of ERP which were previously accounted for on the equity method. Properties have been contributed to ERP in exchange for limited partnership units (which may be redeemed at stipulated prices for cash or the issuance of the Company common shares at the Company's option) and cash. At December 31, 1997, there were approximately 2,833,000 limited partner units outstanding of which the Company owned approximately 1,152,000 units. Quarterly distributions approximate $882,000 for limited partner units held by third parties. PRO FORMA FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following Company actual and unaudited pro forma condensed consolidated balance sheets and income statements have been presented as if the Company had converted its notes and related interest receivable from ERP on December 31, 1996 and January 1, 1995 respectively. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of what the actual financial position would have been at December 31, 1996, or what actual results of operations of the Company would have been had the transaction actually occurred on January 1, 1996, nor do they purport to represent the actual results of operations of the Company for future periods.
DECEMBER 31, --------------------------- 1997 1996 ---------- ---------- (ACTUAL) (PRO FORMA) Net real estate assets $ 891,582 $ 537,485 Other assets 184,615 82,839 ---------- ---------- $1,076,197 $ 620,324 ========== ========== Mortgages payable and notes payable $ 514,408 $ 293,375 Other liabilities 17,287 8,396 ---------- ---------- Total liabilities 531,695 301,771 Minority interest 41,986 5,899 Stockholders' equity 502,516 312,654 ---------- ---------- $1,076,197 $ 620,324 ========== ==========
F-11 33 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 4. INVESTMENTS, CONTINUED:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 1997 1996 1995 -------- -------- -------- STATEMENTS OF INCOME (PRO FORMA) Rental revenues and reimbursements $ 85,914 $ 59,482 $ 55,935 Interest and other income 21,391 8,242 3,928 Interest expense (25,036) (22,256) (22,757) Depreciation and amortization (11,957) (8,358) (7,022) Property and other expenses (19,745) (11,906) (15,572) Real estate sales and impairment 523 (1,777) 3,683 Minority interest in income of partnership (849) (164) (91) Other items (1,522) -- -- -------- -------- -------- Net income $ 48,719 $ 23,263 $ 18,104 ======== ======== ======== Basic net income per share $ 2.05 $ 1.63 $ 1.50 ======== ======== ======== Diluted net income per share $ 1.96 $ 1.58 $ 1.50 ======== ======== ========
ERT DEVELOPMENT CORPORATION In 1995, EDV was organized to finance, acquire, develop, hold and sell real estate in the short-term for capital gains and/or receive fee income. The Company owns 100% of the outstanding preferred shares of EDV. The preferred shares receive 95% of the dividends, if any. Cash requirements to facilitate EDV's transactions have primarily been obtained through borrowings from the Company. Summary unaudited financial information for EDV is as follows (in thousands):
DECEMBER 31, ----------------------- 1997 1996 -------- -------- BALANCE SHEETS Notes receivable from developers, interest at 10% to 20% $ 79,400 $ 39,000 Net real estate and other assets 25,500 2,500 -------- -------- Total assets $104,900 $ 41,500 ======== ======== Notes payable to Excel Realty Trust, Inc. $ 90,100 $ 39,800 Other liabilities 11,200 1,500 -------- -------- Total liabilities 101,300 41,300 Total stockholders' equity 3,600 200 -------- -------- Total liabilities and stockholders' equity $104,900 $ 41,500 ======== ========
TWELVE MONTH PERIOD INCEPTION TO ENDED DECEMBER 31, DECEMBER 31, 1997 1996 1995 -------- -------- -------- STATEMENTS OF INCOME Total revenues $ 16,200 $ 6,500 $ 2,900 Interest expense to Excel Realty Trust, Inc. (9,200) (2,500) (1,700) Development and other fees paid to Excel Realty Trust, Inc. (2,000) (2,400) (300) Other expenses (1,600) (1,700) (600) -------- -------- -------- Net income (loss) $ 3,400 $ (100) $ 300 ======== ======== ========
EDV's receivables include loans of approximately $15,100,000 made to a joint venture partnership under a loan commitment related to a retail development project in Florida. In 1997, the joint venture obtained a construction loan which is expected to total approximately $85,000,000 of which $30,000,000 is guaranteed by the Company. F-12 34 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 4. INVESTMENTS, CONTINUED: EXCEL LEGACY CORPORATION In December 1997, the Company filed a registration statement with the Securities and Exchange Commission with respect to the Company's intention to spin off Excel Legacy Corporation ("Legacy"), a newly-formed corporation which is a wholly-owned subsidiary of the Company (the "Spin-off"). Legacy was organized to create and realize value by identifying and making opportunistic real estate investments which are not restricted by REIT tax laws or influenced by the Company's objectives of increasing cash flows and maintaining certain leverage ratios. Prior to the Spin-off, EDV will transfer four notes receivable, a leasehold interest in a parcel of land, an office building and a single tenant building to the Company for a total consideration of $33,300,000. The Company will reduce the note receivable from EDV. The Company will contribute the above assets from EDV together with ten single tenant properties owned by the Company with a December 31, 1997 book value of approximately $46,200,000 and a property held for sale/redevelopment (Note 2) to Legacy, in exchange for 23,160,757 common shares of Legacy, assumption of debt by Legacy on the ten single tenant properties of approximately $34,200,000, and issuance of a note payable from Legacy to the Company in the amount of $20,600,000. The Spin-off is expected to take place on or about March 31, 1998 through a dividend distribution to the Company's common stockholders, of all Legacy common stock held by the Company. The distribution will consist of one share of Legacy common stock for each share of the Company's common stock held on the record date of March 2, 1998. Upon completion of the Spin-off, Legacy will cease to be a wholly-owned subsidiary of the Company and begin operating as an independent public company. The Company's executive officers will continue to manage the Company's operations as well as supervise the management of Legacy. 5. MORTGAGES PAYABLE: The Company had the following mortgages payable at December 31, 1997 and 1996:
1997 1996 -------- -------- (IN THOUSANDS) Mortgage notes at 4.15% to 10%, payable in installments through 2018 (monthly payments at December 31, 1997 of $2,265), collateralized by real estate and an assignment of rents: Insurance companies $125,377 $ 87,530 Banks 77,467 41,656 Bonds 40,820 28,530 -------- -------- Total mortgages payable $243,664 $157,716 ======== ========
The principal payments required to be made on mortgages payable are as follows (in thousands):
YEAR 1998 $ 15,292 1999 51,322 2000 23,514 2001 22,655 2002 7,405 Thereafter 123,476 -------- $243,664 ========
Mortgages of $59,477,000 are fully amortizing with the final monthly payments to be made between the years 2004 and 2018. F-13 35 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 6. SENIOR NOTES PAYABLE: In 1997, the Company issued $75,000,000 of 6.875% Senior Notes due 2004 (the "Senior Notes"). The effective rate on the Senior Notes is 6.982% (6.875% coupon with proceeds before the underwriting discount of $74,561,000). Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 each year. Net proceeds were used to repay outstanding amounts on the credit facility and for general corporate purposes. 7. NOTES PAYABLE: The Company had the following notes payable at December 31, 1997 and 1996:
1997 1996 -------- -------- (IN THOUSANDS) Unsecured credit agreement of $150,000, interest at LIBOR + 1.20% (7.20% at December 31, 1997) $148,572 $ 67,000 Unsecured loan payable to a financial institution, interest at 8.75% (converted to LIBOR + 1.20% in January 1998) 19,926 -- Term loan payable to a financial institution, interest at LIBOR + 1.75%, repaid in 1997 -- 10,000 Line of credit payable to a financial institution, repaid in 1997 -- 3,923 Other 396 109 -------- -------- Total notes payable $168,894 $ 81,032 ======== ========
The Company has a revolving credit facility of up to $150,000,000 in unsecured advances from a group of seven banks. The facility expires December 1999 and bears an interest rate based upon the credit rating of the Company. In August 1997, the Company received prospective investment credit ratings of Baa3 and BBB- from Moody's Investor Service and Standard and Poor's Corporation, respectively, on future senior debt securities issued from the Company's $500 million shelf registration. Accordingly, the interest rate on the credit facility is 1.2% over LIBOR. In July 1997, the Company bought an interest rate lock related to a proposed Senior Note Offering. The interest rate lock was sold when the Senior Note Offering was postponed until October 1997 and a Common Stock Offering was completed instead. The Company recognized a $896,000 loss on the sale which is included in other items on the Consolidated Statements of Income. 8. CAPITAL LEASES: In 1997, the Company acquired a leasehold interest in three shopping centers in California ("Master Leased Centers"). The term of the leases are thirty-four years and the monthly lease payment is $201,000. In addition, the Company has purchased the option to acquire fee title to the Master Leased Centers, exercisable at various times during the terms of the respective leases. The owner of one of the Master Leased Centers has the option to require the Company to purchase the property after the occurrence of certain events. There are no principal payments due on the leases until a Master Leased Center is acquired. F-14 36 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 9. STOCKHOLDERS' EQUITY: EQUITY OFFERINGS In January 1998, the Company issued 6,300,000 depositary shares each representing 1/10 of a share of 8 5/8% Series B cumulative redeemable preferred stock (the "Preferred B Shares"). The offering price was $25.00 per depositary share with an annual dividend equal to $2.15625, payable quarterly. Net proceeds from the offering totaled $152,538,000. In July 1997, the Company issued 2,500,000 shares of common stock with a market price of $28.00 per share for net proceeds of $26.6875 per share or $66,719,000. In February 1997, the Company issued 4,600,000 shares of 8 1/2% Series A Cumulative Convertible Preferred Stock at $25.00 per share (the "Preferred A Shares") with net proceeds totaling approximately $111,400,000. The Preferred A Shares are entitled to an annual distribution of $2.125 per share and are convertible into common shares at a price of $26.06 per share. On or after February 5, 2002, the Preferred A Shares are redeemable by the Company at $25.00 per share in either shares of common stock or cash at the Company's election. The Preferred A Shares rank senior to the Company's common stock and are on a parity with the Preferred B Shares with respect to the payment of dividends and amounts payable upon liquidation, dissolution or winding down of the Company. In March 1998, 2,211,120 Preferred A Shares were converted into 2,121,183 shares of the Company's common stock. In June 1996, the Company issued 1,725,000 shares of common stock at $20.625 per share and in December 1996, the Company issued an additional 2,990,000 shares of common stock at $22.875 per share. Proceeds from the above offerings were used to repay debt, acquire properties, make loans to EDV and for general corporate purposes. DISTRIBUTIONS In 1997, distributions of $0.46, $0.46, $0.50, $0.50 were declared to common stockholders for each of the four quarters, respectively. In 1996, distributions of $0.445, $0.445, $0.46 and $0.46 were declared for each of the four quarters, respectively. In April 1995, the Company adopted a policy of declaring distributions to stockholders of record on the first day of the succeeding quarter, instead of the last day of the current quarter. The payment date of 15 days following each quarter remained unchanged. As such, in 1995, distributions of $0.43 per share were declared on March 31 and paid on April 15 and distributions of $0.445 per share were declared on July 1 and October 1 and paid on July 15 and October 15, respectively. In 1997, distributions of $0.32, $0.53, $0.53 ($2.125 per annum) were paid in April, July, and October 1997, respectively, on the Preferred A Shares. For the years ended December 31 1997, 1996 and 1995, approximately 0%, 9%, and 28%, respectively, of the distributions received by shareholders were considered to be a return of capital for tax purposes. OPTIONS AND WARRANTS The Company has adopted the 1993 Stock Option Plan (the "1993 Stock Plan") for executive officers and other key employees of the Company and its subsidiaries which was amended in 1996. In May 1994, the Company adopted the Directors 1994 Stock Option Plan (the "1994 Stock Plan") for directors options which was also amended in 1996. F-15 37 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 9. STOCKHOLDERS' EQUITY, CONTINUED: Options may be granted under the 1993 Stock Plan for a period through 2003 and under the 1994 Stock Plan through the year 2004. Options under these plans 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. The aggregate number of shares issuable upon exercise of options under the 1993 Stock Plan may not exceed 1,450,000 shares and the aggregate number of shares issuable upon exercise of options under the 1994 Stock Plan may not exceed 240,000 shares. Stock option and warrant activity are summarized as follows:
WEIGHTED AVERAGE OPTIONS/ EXERCISE PRICE WARRANTS PER SHARE -------- --------- Outstanding at January 1, 1995 602,587 $19.15 Granted - 1995 148,250 $19.23 Exercised or expired - 1995 (106,453) $17.26 Granted - 1996 525,900 $21.96 Exercised - 1996 (31,332) $18.05 Granted - 1997 700,250 $30.60 Exercised or forfeited - 1997 (169,155) $19.81 ------------ Outstanding December 31, 1997 1,670,047 $24.92 ===========
The options and warrants expire at various dates through December 2007. Of the options and warrants, 1,601,316 were issued to officers, directors or affiliates of the Company. At December 31, 1997, options for 143,350 and 168,250 shares were available for granting under the 1993 Stock Plan and 1994 Stock Plan, respectively. 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 two stock option plans been recognized based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company's net income in 1997 would have been reduced by $1,618,000 from $48,962,000 ($2.06 per share basic, and $1.97 per share - diluted) to $47,344,000 ($1.97 per share - basic, and $1.89 per share - diluted). In 1996 net income would have been reduced by $576,000, from $23,796,000 ($1.66 per share - basic and $1.62 per share - diluted) to $23,220,000 ($1.62 per share - basic and $1.58 per share - diluted) and in 1995, net income would have been reduced by $340,000, from $18,192,000 ($1.51 per share - basic and diluted) to $17,852,000 ($1.49 per share - basic and 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 grants in 1997: dividend yield of 7.85%; expected volatility of 18.22%; risk-free interest rate of 5.73% to 6.49%; and expected lives of 4 to 5 years. F-16 38 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 9. STOCKHOLDERS' EQUITY, CONTINUED: DISTRIBUTION REINVESTMENT PLAN The Company has adopted a distribution reinvestment plan (the "Plan"). Shares purchased under the Plan will be, at the Company's discretion, either newly issued shares of the Company, shares purchased in the open market or a combination of the foregoing. Distributions may be invested in newly issued shares at a 5% discount from the average closing price for the five trading days prior to the distribution pay date or in shares purchased in the open market without brokerage commissions or service charges. EARNINGS PER SHARE (EPS) In accordance with the disclosure requirements of SFAS No. 128 (Note 1), a reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts).
1997 1996 1995 -------- -------- -------- BASIC EPS NUMERATOR: Net income $ 48,962 $ 23,796 $ 18,192 Preferred dividends (8,798) -- -- -------- -------- -------- $ 40,164 $ 23,796 $ 18,192 ======== ======== ======== DENOMINATOR: Weighted average of common shares outstanding 19,521 14,312 12,031 ======== ======== ======== EARNINGS PER SHARE: $ 2.06 $ 1.66 $ 1.51 ======== ======== ======== DILUTED EPS NUMERATOR: Net income $ 48,962 $ 23,796 $ 18,192 Preferred dividends (8,798) -- -- Adjustments for ERP third party units 601 (285) -- -------- -------- -------- Net income available to common shares $ 40,765 $ 23,511 $ 18,192 ======== ======== ======== DENOMINATOR: Weighted average of common shares outstanding 19,521 14,312 12,031 Effect of diluted securities: Common stock options and warrants 252 44 7 ERP third party units 935 175 -- -------- -------- -------- 20,708 14,531 12,038 ======== ======== ======== EARNINGS PER SHARE: $ 1.97 $ 1.62 $ 1.51 ======== ======== ========
10. 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. The following fair value disclosure was determined by the Company, using available market information and discounted cash flow analyses as of December 31, 1997 and 1996. However, considerable judgement is necessary to interpret market data and to develop the related estimates F-17 39 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 10. FINANCIAL INSTRUMENTS AND CREDIT RISK, CONTINUED: 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, 1997 and 1996 approximates the fair values for cash, accounts receivable and payable, notes receivable, variable-rate debt, and senior notes payable, and that the market value of its real estate held for sale exceeds the carrying value. The Company estimates that the fair values of its fixed-rate mortgage debt at December 31, 1997 and 1996 is approximately $181,000,000 and $155,000,000, respectively compared to carrying values of $170,000,000 and $153,000,000 on the Company's books. At December 31, 1997 the Company's largest and second largest tenant's scheduled annual base rents ("ABR") account for approximately 10% and 9% of the Company's total revenues, respectively. The Company's next three largest tenant's ABR account for approximately 8% in total of the Company's revenues. At December 31, 1997, the Company owned 148 properties located in 28 states. There were 14 properties in California, 14 properties in North Carolina, 13 properties in Indiana, 12 properties in Arizona and 11 properties in Georgia. Approximately 44% of the Company's ABR are derived from these five states. 11. STATEMENT OF CASH FLOWS - SUPPLEMENTAL DISCLOSURE (IN THOUSANDS): The amounts paid for interest during the years ended December 31, 1997, 1996 and 1995 were $21,334,000 $18,116,000 and $16,507,000, respectively. In 1997, the Company acquired real estate and other assets of $116,232,000 without the use of cash by issuing $39,332,000 of ERP limited partner units, assuming $43,385,000 of mortgages payable and $26,850,000 of capitalized leases, retiring $3,104,000 of notes receivable and assuming $3,561,000 of notes payable and other liabilities. On April 1, 1997, the Company began consolidating the accounts of ERP when notes and related interest receivable in the amount of $23,427,000 from the Company were converted into limited partnership interests in ERP. Upon this transaction, ERP assets of $81,600,000 (including cash of $355,000) and liabilities of $52,263,000 (net of payables to the Company) were consolidated with the Company's accounts. Also in 1997, the Company redeemed $1,196,000 of ERP limited partnership units by issuing common stock. In 1996, the Company acquired real estate and interests in partnerships of $45,073,000 without the use of cash. The Company assumed $43,389,000 of mortgage debt, net of other assets and liabilities, and issued $1,684,000 of common stock. The Company also exchanged $2,947,000 in common stock to repay mortgage debt. In 1995, the Company acquired real estate of $23,997,000 without the use of cash be assuming $22,784,000 of mortgages payable, net of other assets and liabilities, and issued $1,213,000 of common stock. 12. MINIMUM FUTURE RENTALS: The Company leases its shopping centers and single-tenant buildings to tenants under noncancelable operating leases generally requiring the tenant to pay a minimum rent adjusted by either (i) fixed increases, (ii) a percentage of gross sales, or (iii) a CPI index. The leases generally either (i) require the tenant to pay all expenses of operating the property such as insurance, property taxes and structural repairs and maintenance, or (ii) require the tenant to reimburse the Company for the tenant's share of real estate taxes and other common area maintenance expenses. F-18 40 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED ---------- 12. MINIMUM FUTURE RENTALS, CONTINUED: Minimum future rental revenue for the next five years for the commercial real estate owned at December 31, 1997 and subject to noncancelable operating leases is as follows (in thousands):
YEAR ---- 1998 $ 95,562 1999 88,134 2000 81,729 2001 74,458 2002 67,358 Thereafter 588,208
13. 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 participant's contribution in Company stock (up to a maximum of 3% of such person's compensation) plus an annual discretionary contribution, to be determined by the Board of Directors, based upon the performance of the Company. For the years ended December 31, 1997, 1996 and 1995, the Company incurred costs of $109,000, $77,000 and $46,000, respectively, in connection with the 401(k) Plan. 14. NEW PRONOUNCEMENTS: In 1997, the Financial Accounting Standards Board issued SFAS No. 131, Disclosures about Segments in an Enterprise and Related Information and SFAS No. 130, Comprehensive Income, which become effective in 1998. The Company has determined that the adoption of these SFASs will not have a material effect on the consolidated financial statements. 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): Summarized quarterly financial data for 1997 and 1996 is as follows (in thousands except per share amounts):
NET INCOME NET INCOME TOTAL PER SHARE- PER SHARE- REVENUES NET INCOME BASIC DILUTED -------- ---------- ----- ------- 1997: First quarter $20,204 $10,310 $ 0.48 $ 0.46 Second quarter 23,461 11,191 0.47 0.46 Third quarter 27,360 12,646 0.50 0.48 Fourth quarter 34,433 14,815 0.59 0.56 1996: First quarter $14,707 $ 5,858 $ 0.44 $ 0.44 Second quarter 15,327 4,094 0.31 0.31 Third quarter 15,906 6,899 0.46 0.45 Fourth quarter 17,195 6,945 0.43 0.41
F-19 41 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (IN THOUSANDS) ----------
ADDITIONS DEDUCTIONS ---------- ---------- ACCOUNTS BALANCE AT CHARGED TO RECEIVABLE BALANCE AT BEGINNING BAD DEBT WRITTEN END OF DESCRIPTION OF YEAR EXPENSE OFF YEAR ----------- ---------- ---------- ---------- ---------- Allowance for bad debts: Year ended December 31, 1997 $ 1,608 $ 959 $ 671 $ 1,896 ========== ========== ========== ========== Year ended December 31, 1996 $ 726 $ 1,008 $ 126 $ 1,608 ========== ========== ========== ========== Year ended December 31, 1995 $ 318 $ 445 $ 37 $ 726 ========== ========== ========== ==========
F-20 42 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO INITIAL COST ACQUISITION --------------------------- ---------------------------- BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------------ ---------- ------------- ---------- ------------ Sony Building Burbank, CA $ -- $ 2,610 $ 2,610 $ -- $ -- Genetrix Building Scottsdale, AZ -- 666 1,434 (14) -- Shopping Center Mesa, AZ -- 2,394 3,132 (14) 258 Office Building Stillwater, MN 354 175 525 -- 37 Kinder Care #1182 Kalamazoo, MI -- 170 397 -- -- Shopping Center Phoenix, AZ -- 7,312 8,995 (56) 1,354 Shopping Center Norton, VA -- 1,559 7,711 316 187 Shopping Center Perry, GA 7,140 2,025 8,075 (9) 506 Shopping Center Leesburg, FL -- 1,436 4,584 30 704 Shopping Center Knoxville, TN 6,092 1,995 6,547 -- 12 Wal-Mart Building Berlin, MI 1,624 680 1,586 -- -- Wal-Mart Building Decateur, IN 2,416 1,011 2,359 -- -- Wal-Mart Building Big Rapids, MI 2,340 1,052 2,455 (10) -- Wal-Mart Building Wysomming. PA 4,710 2,118 4,942 -- -- Wal-Mart Building Brighton, CO 2,377 1,069 2,494 -- -- Wal-Mart Building and Outparcels Temple, TX 4,364 1,963 4,580 35 --
LIFE ON WHICH GROSS AMOUNT AT WHICH DEPRECIATION CARRIED AT CLOSE OF PERIOD IN LATEST ---------------------------------- ACCUMULATED INCOME BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- -------- ------------- -------- ------------ ------------ -------- -------------- Sony Building Burbank, CA $ 2,610 $ 2,610 $ 5,220 $ 536 1988 1989-90 40 years Genetrix Building Scottsdale, AZ 652 1,434 2,086 252 1971 1990 40 years Shopping Center Mesa, AZ 2,380 3,390 5,770 694 1970 1990 40 years Office Building Stillwater, MN 175 562 737 95 1985 1991 40 years Kinder Care #1182 Kalamazoo, MI 170 397 567 68 1990 1991 40 years Shopping Center Phoenix, AZ 7,256 10,349 17,605 1,923 1988 1991-92 40 years Shopping Center Norton, VA 1,875 7,898 9,773 1,051 1989 1992 40 years Shopping Center Perry, GA 2,016 8,581 10,597 1,088 1992 1992 40 years Shopping Center Leesburg, FL 1,466 5,288 6,754 921 1986 1992 40 years Shopping Center Knoxville, TN 1,995 6,559 8,554 514 1990 1992 40 years Wal-Mart Building Berlin, MI 680 1,586 2,266 200 1992 1992 40 years Wal-Mart Building Decateur, IN 1,011 2,359 3,370 297 1992 1992 40 years Wal-Mart Building Big Rapids, MI 1,042 2,455 3,497 309 1992 1992 40 years Wal-Mart Building Wysomming. PA 2,118 4,942 7,060 623 1992 1992 40 years Wal-Mart Building Brighton, CO 1,069 2,494 3,563 314 1992 1992 40 years Wal-Mart Building and Outparcels Temple, TX 1,998 4,580 6,578 577 1992 1992 40 years
(continued) F-21 43 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO INITIAL COST ACQUISITION ------------------------- -------------------------- BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------------ ---------- ------------- ---------- ------------ Wal-Mart Building Wabash, IN 2,596 1,167 2,724 -- -- Mtn. Jacks #210303 Dearborn Heights, MI -- 378 1,134 73 135 Autoworks #125 Hastings, NE -- 105 332 24 45 Autoworks #138 Grand Island, NE -- 189 421 24 44 Kindercare #125 Indianapolis, IN -- 63 146 9 18 Kindercare #126 Indianapolis, IN -- 63 146 9 18 Kindercare #577 High Ridge, MO -- 60 238 13 26 Kindercare #162 Fenton, MO -- 59 235 13 25 Kindercare #128 Indianapolis, IN -- 90 211 14 25 Kindercare #134 Indianapolis, IN -- 90 211 14 25 Kindercare #132 Indianapolis, IN -- 63 146 9 18 DHG (Bellaire) Houston, TX -- 74 110 -- -- DHG (Beechnut) Houston, TX -- 103 155 -- -- Egghead Software Maplewood, MN -- 172 258 -- -- United Artists Pueblo, CO -- 247 576 37 70 Lowes Building Terre Haute, IN 3,754 1,325 3,446 530 --
LIFE ON WHICH GROSS AMOUNT AT WHICH DEPRECIATION CARRIED AT CLOSE OF PERIOD IN LATEST ---------------------------------- ACCUMULATED INCOME BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- -------- ------------- -------- ------------ ------------ -------- -------------- Wal-Mart Building Wabash, IN 1,167 2,724 3,891 343 1992 1992 40 years Mtn. Jacks #210303 Dearborn Heights, MI 451 1,269 1,720 148 1980 1992 40 years Autoworks #125 Hastings, NE 129 377 506 44 1988 1992 40 years Autoworks #138 Grand Island, NE 213 465 678 54 1988 1992 40 years Kindercare #125 Indianapolis, IN 72 164 236 19 1975 1992 40 years Kindercare #126 Indianapolis, IN 72 164 236 19 1976 1992 40 years Kindercare #577 High Ridge, MO 73 264 337 31 1980 1992 40 years Kindercare #162 Fenton, MO 72 260 332 31 1977 1992 40 years Kindercare #128 Indianapolis, IN 104 236 340 28 1976 1992 40 years Kindercare #134 Indianapolis, IN 104 236 340 28 1976 1992 40 years Kindercare #132 Indianapolis, IN 72 164 236 19 1976 1992 40 years DHG (Bellaire) Houston, TX 74 110 184 14 1985 1992 40 years DHG (Beechnut) Houston, TX 103 155 258 20 1985 1992 40 years Egghead Software Maplewood, MN 172 258 430 33 1987 1992 40 years United Artists Pueblo, CO 284 646 930 75 1977 1992 40 years Lowes Building Terre Haute, IN 1,855 3,446 5,301 391 1993 1992/1993 40 years
(continued) F-22 44 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO INITIAL COST ACQUISITION ------------------------- -------------------------- BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------------ ---------- ------------- ---------- ------------ Wal-Mart Building Orland Hills, IL 6,139 2,631 6,140 -- -- Kmart Building Albany, GA -- 1,033 1,918 (260) (482) Kmart Building DeSoto, TX -- 951 1,767 -- 152 Kmart Building Omaha, NE -- 924 1,715 -- -- Kmart Building Pine Bluff, AR -- 892 1,656 -- -- Kmart Building Somerville, NJ -- 836 1,553 -- 4 Kmart Building St. Charles, MD -- 936 1,738 (296) (365) Kash & Karry Building Brandon, FL -- 698 1,295 -- -- Kroger Building Clearfield, PA -- 731 1,357 -- -- Kroger Building East Albany, GA -- 639 1,186 -- -- Kroger Building James Island, SC -- 722 1,340 -- -- Kroger Building Missouri City, TX -- 790 1,466 -- 41 Kroger Building Muscle Shoals, AL -- 817 1,517 -- -- Kroger Building Ottawa, IL -- 902 1,674 -- -- Kroger Building Scottsboro, AL -- 703 1,305 -- -- Payless Drug Building Yuma, AZ -- 389 723 -- --
LIFE ON WHICH GROSS AMOUNT AT WHICH DEPRECIATION CARRIED AT CLOSE OF PERIOD IN LATEST ---------------------------------- ACCUMULATED INCOME BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- -------- ------------- -------- ------------ ------------ -------- -------------- Wal-Mart Building Orland Hills, IL 2,631 6,140 8,771 735 1992 1993 40 years Kmart Building Albany, GA 773 1,436 2,209 210 1981 1993 40 years Kmart Building DeSoto, TX 951 1,919 2,870 252 1980 1993 40 years Kmart Building Omaha, NE 924 1,715 2,639 188 1981 1993 40 years Kmart Building Pine Bluff, AR 892 1,656 2,548 181 1981 1993 40 years Kmart Building Somerville, NJ 836 1,557 2,393 170 1982 1993 40 years Kmart Building St. Charles, MD 640 1,373 2,013 270 1981 1993 40 years Kash & Karry Building Brandon, FL 698 1,295 1,993 142 1982 1993 40 years Kroger Building Clearfield, PA 731 1,357 2,088 148 1982 1993 40 years Kroger Building East Albany, GA 639 1,186 1,825 130 1982 1993 40 years Kroger Building James Island, SC 722 1,340 2,062 147 1982 1993 40 years Kroger Building Missouri City, TX 790 1,507 2,297 161 1982 1993 40 years Kroger Building Muscle Shoals, AL 817 1,517 2,334 166 1982 1993 40 years Kroger Building Ottawa, IL 902 1,674 2,576 183 1982 1993 40 years Kroger Building Scottsboro, AL 703 1,305 2,008 143 1981 1993 40 years Payless Drug Building Yuma, AZ 389 723 1,112 79 1980 1993 40 years
F-23 (continued) 45 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO GROSS AMOUNT AT WHICH INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD --------------------- --------------------- ---------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND TOTAL DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS (a) ----------- ------------ -------- ------------- -------- ------------- -------- ------------- -------- Lucky Building Phoenix, AZ -- 471 875 -- -- 471 875 1,346 Lucky Building Coralville, IA -- 558 1,037 -- -- 558 1,037 1,595 Lucky Building Decateur, IL -- 588 1,093 -- -- 588 1,093 1,681 Lucky Building Dubuque, IA -- 744 1,383 -- -- 744 1,383 2,127 Lucky Building Hobart, IA -- 617 1,145 -- -- 617 1,145 1,762 Lucky Building Mesa, AZ -- 435 809 -- -- 435 809 1,244 Lucky Building Michigan City, IN -- 511 948 -- -- 511 948 1,459 Lucky Building Moline, IL -- 735 1,365 -- -- 735 1,365 2,100 Lucky Building Peoria, IL -- 673 1,249 -- -- 673 1,249 1,922 Lucky Building Pittsburgh, PA -- 862 1,601 -- -- 862 1,601 2,463 Lucky Building Springfield, IL -- 582 1,081 -- -- 582 1,081 1,663 Lucky Building Sterling, IL -- 744 1,382 -- -- 744 1,382 2,126 Kroger Building Waterloo, IL -- 670 1,243 -- -- 670 1,243 1,913 Safeway Building Muskogee, OK -- 906 1,683 -- -- 906 1,683 2,589 Safeway Building Sherwood, AR -- 778 1,445 -- -- 778 1,445 2,223 Safeway Building West Monroe, LA -- 739 1,373 -- -- 739 1,373 2,112
LIFE ON WHICH DEPRECIATION IN LATEST ACCUMULATED INCOME DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION (b) CONSTRUCTION ACQUIRED COMPUTED(3) ------------ ------------ ------------ -------- ------------- Lucky Building Phoenix, AZ 87 1981 1993 40 years Lucky Building Coralville, IA 113 1981 1993 40 years Lucky Building Decateur, IL 119 1983 1993 40 years Lucky Building Dubuque, IA 150 1980 1993 40 years Lucky Building Hobart, IA 125 1993 1993 40 years Lucky Building Mesa, AZ 88 1982 1993 40 years Lucky Building Michigan City, IN 104 1983 1993 40 years Lucky Building Moline, IL 149 1981 1993 40 years Lucky Building Peoria, IL 137 1983 1993 40 years Lucky Building Pittsburgh, PA 175 1982 1993 40 years Lucky Building Springfield, IL 118 1982 1993 40 years Lucky Building Sterling, IL 151 1980 1993 40 years Kroger Building Waterloo, IL 136 1982 1993 40 years Safeway Building Muskogee, OK 184 1981 1993 40 years Safeway Building Sherwood, AR 158 1981 1993 40 years Safeway Building West Monroe, LA 150 1981 1993 40 years
F-24 (continued) 46 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO GROSS AMOUNT AT WHICH INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD --------------------- ---------------------- ---------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND TOTAL DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS (a) ----------- -------- -------- -------- -------- -------- -------- -------- -------- Rite Aid Building East Albany, GA -- 176 328 -- -- 176 328 504 Super X Building Muscle Shoals, AL -- 195 363 -- -- 195 363 558 Shopping Center Elizabethtown, KY 4,996 1,888 4,981 -- 23 1,888 5,004 6,892 Shopping Center Glasgow, KY 4,562 629 5,555 -- 24 629 5,579 6,208 Shopping Center Deland, FL 8,284 3,469 8,125 64 224 3,533 8,349 11,882 Shopping Center Irving, TX 3,000 1,655 3,074 -- 6 1,655 3,080 4,735 Shopping Center Ashland, OH -- 2,689 4,994 35 182 2,724 5,176 7,900 Shopping Center Covington, GA -- 3,188 5,921 (10) 98 3,178 6,019 9,197 K-Mart Building Atlantic, IA -- 564 1,048 -- -- 564 1,048 1,612 Kash N' Karry Building Homossassa Springs, FL -- 378 702 -- -- 378 702 1,080 Shopping Center Brooksville, FL -- 1,779 3,305 124 400 1,903 3,705 5,608 Shopping Center Celina, OH -- 1,552 2,882 155 292 1,707 3,174 4,881 Shopping Center Albemarle, NC 2,499 984 1,827 125 260 1,109 2,087 3,196 Shopping Center Marion, IN -- 656 1,219 53 115 709 1,334 2,043 Shopping Center Warsaw, IN -- 568 1,056 110 204 678 1,260 1,938 Shopping Center Terre Haute, IN 3,042 1,618 3,013 181 343 1,799 3,356 5,155
LIFE ON WHICH DEPRECIATION IN LATEST ACCUMULATED INCOME DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- ------------ ------------ -------- -------------- Rite Aid Building East Albany, GA 36 1982 1993 40 years Super X Building Muscle Shoals, AL 40 1982 1993 40 years Shopping Center Elizabethtown, KY 625 1992 1993 40 years Shopping Center Glasgow, KY 685 1992 1993 40 years Shopping Center Deland, FL 946 1993 1993 40 years Shopping Center Irving, TX 331 1987 1993 40 years Shopping Center Ashland, OH 606 1990 1993 40 years Shopping Center Covington, GA 642 1991 1993 40 years K-Mart Building Atlantic, IA 104 1980 1994 40 years Kash N' Karry Building Homossassa Springs, FL 69 1982 1994 40 years Shopping Center Brooksville, FL 392 1987 1994 40 years Shopping Center Celina, OH 302 1990 1994 40 years Shopping Center Albemarle, NC 204 1988 1994 40 years Shopping Center Marion, IN 126 1989 1994 40 years Shopping Center Warsaw, IN 116 1989 1994 40 years Shopping Center Terre Haute, IN 318 1989 1994 40 years
F-25 (continued) 47 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO GROSS AMOUNT AT WHICH INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD --------------------- ---------------------- ---------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND TOTAL DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS (a) ----------- ------------ -------- ------------- -------- ------------ -------- ------------ -------- Office Building San Diego, CA 1,834 753 1,762 -- 228 753 1,990 2,743 Shopping Center Hilton Head, SC 4,286 2,431 4,515 -- 14 2,431 4,529 6,960 Shopping Center Lakes Wales, FL -- 2,028 3,767 -- 17 2,028 3,784 5,812 Shopping Center Versailles, KY 7,920 3,882 7,209 -- 171 3,882 7,380 11,262 Shopping Center Mesa, AZ -- 1,300 2,415 -- 308 1,300 2,723 4,023 Shopping Center London, KY 5,223 3,351 6,223 -- 18 3,351 6,241 9,592 Q Club Building Scottsdale, AZ -- 1,822 3,385 8 14 1,830 3,399 5,229 Q Club Building Phoenix, AZ -- 1,813 3,366 (145) (14) 1,668 3,352 5,020 Lowe's Building Middletown, OH 4,027 2,187 4,061 -- -- 2,187 4,061 6,248 Shopping Center Kannapolis, NC 2,147 1,035 1,924 69 133 1,104 2,057 3,161 Shopping Center Asheboro, NC 3,156 2,109 3,917 182 345 2,291 4,262 6,553 Shopping Center Kernersville, NC 2,552 1,096 2,036 178 15 1,274 2,051 3,325 Shopping Center Roxboro, NC -- 1,842 3,421 -- 29 1,842 3,450 5,292 Shopping Center Siler City, NC 5,282 2,330 4,328 -- 18 2,330 4,346 6,676 Shopping Center Wadesboro, NC -- 2,264 4,205 -- 13 2,264 4,218 6,482 Shopping Center Jonesville, NC 1,856 824 1,531 -- 6 824 1,537 2,361
LIFE ON WHICH DEPRECIATION IN LATEST ACCUMULATED INCOME DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- ------------ ------------ -------- ------------- Office Building San Diego, CA 193 1988 1994 40 years Shopping Center Hilton Head, SC 436 1994 1994 40 years Shopping Center Lakes Wales, FL 343 1994 1994 40 years Shopping Center Versailles, KY 713 1994 1994 40 years Shopping Center Mesa, AZ 381 1981 1994 40 years Shopping Center London, KY 581 1994 1994 40 years Q Club Building Scottsdale, AZ 287 1994 1994 40 years Q Club Building Phoenix, AZ 304 1994 1994 40 years Lowe's Building Middletown, OH 393 1993 1994 40 years Shopping Center Kannapolis, NC 156 1992 1994 40 years Shopping Center Asheboro, NC 281 1988 1995 40 years Shopping Center Kernersville, NC 130 1988 1995 40 years Shopping Center Roxboro, NC 221 1989 1995 40 years Shopping Center Siler City, NC 277 1988 1995 40 years Shopping Center Wadesboro, NC 250 1988 1995 40 years Shopping Center Jonesville, NC 99 1988 1995 40 years
(continued) F-26 48 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO INITIAL COST ACQUISITION --------------------- ---------------------- BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------------ -------- ------------- -------- ------------- Shopping Center and outparcels Kinston, NC -- 2,871 5,331 320 119 Shopping Center Hilton Head, SC 2,448 1,157 2,149 (24) -- Shopping Center Hendersonville, TN -- 1,325 2,461 -- 71 Shopping Center Manchester, TN -- 807 1,499 273 529 Shopping Center Williamsburg, NC 6,027 2,990 5,553 -- 39 Shopping Center Atlanta, GA -- 954 1,771 -- 11 Shopping Center Oxford, NC 5,727 2,863 5,318 -- 20 Shopping Center Statesville, NC 9,625 5,821 10,810 1,325 945 Shopping Center Statesboro, GA 3,305 1,694 3,145 -- 6 Shopping Center West Valley, UT 17,587 12,222 22,699 -- 242 Shopping Center and Outparcels Tuscon, AZ -- 5,996 9,324 (33) (39) Shopping Center Gadsden, AL(4) 5,629 2,519 4,682 -- -- Shopping Center Bakersfield, CA(4) -- 6,310 11,718 -- 15 Shopping Center Cudahy, CA(4) -- 1,936 3,602 -- 9 Shopping Center Modesto, CA(4) 1,479 1,998 3,721 -- 9 Shopping Center Montebello, CA(4) 9,253 8,055 14,959 -- 40
LIFE ON WHICH GROSS AMOUNT AT WHICH DEPRECIATION CARRIED AT CLOSE OF PERIOD IN LATEST ---------------------------------- ACCUMULATED INCOME BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- -------- -------- -------- -------- -------- -------- -------- Shopping Center and outparcels Kinston, NC 3,191 5,450 8,641 352 1991 1995 40 years Shopping Center Hilton Head, SC 1,133 2,149 3,282 119 1989 1995 40 years Shopping Center Hendersonville, TN 1,325 2,532 3,857 146 1989 1995 40 years Shopping Center Manchester, TN 1,080 2,028 3,108 96 1990 1995 40 years Shopping Center Williamsburg, NC 2,990 5,592 8,582 282 1991 1996 40 years Shopping Center Atlanta, GA 954 1,782 2,736 84 1995 1996 40 years Shopping Center Oxford, NC 2,863 5,338 8,201 252 1991 1996 40 years Shopping Center Statesville, NC 7,146 11,755 18,901 532 1991 1996 40 years Shopping Center Statesboro, GA 1,694 3,151 4,845 115 1994 1996 40 years Shopping Center West Valley, UT 12,222 22,941 35,163 593 1970 1996 40 years Shopping Center and Outparcels Tuscon, AZ 5,963 9,285 15,248 246 1995/96 1996 40 years Shopping Center Gadsden, AL(4) 2,519 4,682 7,201 259 1995 1997 40 years Shopping Center Bakersfield, CA(4) 6,310 11,733 18,043 156 1970 1997 40 years Shopping Center Cudahy, CA(4) 1,936 3,611 5,547 50 1968 1997 40 years Shopping Center Modesto, CA(4) 1,998 3,730 5,728 51 1974 1997 40 years Shopping Center Montebello, CA(4) 8,055 14,999 23,054 200 1974 1997 40 years
(continued) F-27 49 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO GROSS AMOUNT AT WHICH INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD ------------------------ --------------------- ---------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND TOTAL DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS (a) ----------- ------------ -------- ------------- -------- ------------- -------- ------------- -------- Shopping Center Paradise, CA(4) 2,872 1,717 3,189 -- -- 1,717 3,189 4,906 Shopping Center Santa Ana, CA(4) -- 3,731 6,930 -- 19 3,731 6,949 10,680 Shopping Center San Dimas, CA(4) 8,100 6,367 11,825 -- -- 6,367 11,825 18,192 Shopping Center Cornelia, GA(4) 4,094 2,183 4,054 -- 19 2,183 4,073 6,256 Shopping Center Dalton, GA(4) 2,337 1,261 2,341 -- 16 1,261 2,357 3,618 Shopping Center Snellville, GA(4) 2,801 3,124 5,802 -- 123 3,124 5,925 9,049 Shopping Center Campbellsville, KY(4) 5,497 2,950 5,479 -- 45 2,950 5,524 8,474 Office Building Fridley, MN(4) 5,800 2,171 4,031 -- 79 2,171 4,110 6,281 Shopping Center Winton-Salem, NC(4) 6,131 2,848 5,289 -- 9 2,848 5,298 8,146 Shopping Center Reno, NV(4) -- 3,785 7,028 -- 8 3,785 7,036 10,821 Shopping Center N. Charleston, SC(4) 3,905 1,826 3,390 -- -- 1,826 3,390 5,216 Shopping Center Chattanooga, TN(4) 4,340 2,036 3,781 -- -- 2,036 3,781 5,817 Shopping Center Kimball, TN(4) 10,379 2,494 3,940 -- 9,287 2,494 13,227 15,721 Shopping Center Shelbyville, TN(4) -- 974 1,809 -- 26 974 1,835 2,809 Shopping Center Tullahoma, TN(4) 9,116 4,051 7,524 -- -- 4,051 7,524 11,575 Firstar Bank Building Burnsville, MN -- 441 818 -- -- 441 818 1,259
LIFE ON WHICH DEPRECIATION IN LATEST ACCUMULATED INCOME DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- ------------ ------------ -------- ------------- Shopping Center Paradise, CA(4) 43 1979 1997 40 years Shopping Center Santa Ana, CA(4) 96 1972 1997 40 years Shopping Center San Dimas, CA(4) 62 1986-88 1997 40 years Shopping Center Cornelia, GA(4) 193 1990 1996 40 years Shopping Center Dalton, GA(4) 137 1990 1995 40 years Shopping Center Snellville, GA(4) 345 1985 1995 40 years Shopping Center Campbellsville, KY(4) 247 1989 1996 40 years Office Building Fridley, MN(4) 176 1991 1996 40 years Shopping Center Winton-Salem, NC(4) 138 1995 1996 40 years Shopping Center Reno, NV(4) 93 1974 1997 40 years Shopping Center N. Charleston, SC(4) 95 1996 1997 40 years Shopping Center Chattanooga, TN(4) 130 1995 1996 40 years Shopping Center Kimball, TN(4) 274 1987 1995 40 years Shopping Center Shelbyville, TN(4) 104 1985 1995 40 years Shopping Center Tullahoma, TN(4) 258 1995 1996 40 years Firstar Bank Building Burnsville, MN 8 1975 1997 40 years
(continued) F-28 50 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO GROSS AMOUNT AT WHICH INITIAL COST ACQUISITION CARRIED AT CLOSE OF PERIOD --------------------- --------------------- ---------------------------------- BUILDINGS AND BUILDINGS AND BUILDINGS AND TOTAL DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS (a) ----------- ------------ -------- ------------- -------- ------------- -------- ------------- -------- Shopping Center Camarillo, CA -- 2,538 4,719 -- -- 2,538 4,719 7,257 Shopping Center Coachella, CA -- 515 956 -- -- 515 956 1,471 Shopping Center Fresno, CA -- 6,511 12,092 -- -- 6,511 12,092 18,603 Shopping Center Fresno, CA -- 3,207 5,956 -- -- 3,207 5,956 9,163 Shopping Center Pleasanton, CA -- 7,634 14,178 -- -- 7,634 14,178 21,812 Shopping Center Westminster, CO -- 15,336 28,481 -- -- 15,336 28,481 43,817 Shopping Center Miami, FL -- 6,908 12,832 -- -- 6,908 12,832 19,740 Shopping Center Naples, FL -- 4,071 7,561 -- -- 4,071 7,561 11,632 Shopping Center Clearwater, FL -- 8,158 15,151 -- -- 8,158 15,151 23,309 Shopping Center Thomasville, NC -- 2,004 3,732 -- -- 2,004 3,732 5,736 Shopping Center Richland Township, PA 3,674 1,875 3,482 -- -- 1,875 3,482 5,357 Shopping Center Elizabethtown, PA -- 4,230 7,857 -- -- 4,230 7,857 12,087 Shopping Center James Island, SC -- 3,381 6,279 -- -- 3,381 6,279 9,660 Shopping Center Collegedale, TN 4,966 2,266 4,208 -- -- 2,266 4,208 6,474 K-Mart Building Brooksville, FL -- 1,795 3,334 -- -- 1,795 3,334 5,129 Shopping Center Winchester, TN -- 3,901 7,246 -- -- 3,901 7,246 11,147
LIFE ON WHICH DEPRECIATION IN LATEST ACCUMULATED INCOME DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- ------------ ------------ -------- ------------- Shopping Center Camarillo, CA 64 1971 1997 40 years Shopping Center Coachella, CA 13 1991 1997 40 years Shopping Center Fresno, CA 214 1993 1997 40 years Shopping Center Fresno, CA 105 1995 1997 40 years Shopping Center Pleasanton, CA 103 1995-96 1997 40 years Shopping Center Westminster, CO 30 1996 1997 40 years Shopping Center Miami, FL 67 1996 1997 40 years Shopping Center Naples, FL 39 1995 1997 40 years Shopping Center Clearwater, FL 16 1973 1997 40 years Shopping Center Thomasville, NC 67 1996 1997 40 years Shopping Center Richland Township, PA 40 1993 1997 40 years Shopping Center Elizabethtown, PA 41 1993-94 1997 40 years Shopping Center James Island, SC 33 1993-94 1997 40 years Shopping Center Collegedale, TN 48 1997 1997 40 years K-Mart Building Brooksville, FL 45 1987 1997 40 years Shopping Center Winchester, TN 7 1997 1997 40 years
F-29 (continued) 51 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ----------------------
NET COST CAPITALIZED (SOLD) SUBSEQUENT TO INITIAL COST ACQUISITION ----------------------- ------------------------ BUILDINGS AND BUILDINGS AND DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS ----------- ------------ --------- ------------- --------- ------------- Winn Dixie Building Chatannooga, TN -- 739 1,373 -- -- Shopping Center Glendale, AZ -- 3,951 7,337 -- -- Shopping Center Mesa, AZ -- 2,445 4,542 -- -- Shopping Center Dalton, GA -- 1,232 2,288 -- -- Shopping Center Arlington, TX -- 9,595 17,820 -- -- Property Held for Sale/Redevelopment Scottsdale, AZ -- 2,940 5,460 (2,940) 9,242 --------- --------- --------- --------- --------- $ 243,664 $ 307,454 $ 590,291 $ 541 $ 27,232 ========= ========= ========= ========= ========= (1)
LIFE ON WHICH GROSS AMOUNT AT WHICH DEPRECIATION CARRIED AT CLOSE OF PERIOD IN LATEST ------------------------------------- ACCUMULATED INCOME BUILDINGS AND TOTAL DEPRECIATION DATE OF DATE STATEMENTS IS DESCRIPTION LAND IMPROVEMENTS (a) (b) CONSTRUCTION ACQUIRED COMPUTED(3) ----------- --------- ------------- --------- ------------ ------------ --------- ------------ Winn Dixie Building Chatannooga, TN 739 1,373 2,112 27 1995 1997 40 years Shopping Center Glendale, AZ 3,951 7,337 11,288 69 1989-91 1997 40 years Shopping Center Mesa, AZ 2,445 4,542 6,987 43 1986-97 1997 40 years Shopping Center Dalton, GA 1,232 2,288 3,520 45 1994 1997 40 years Shopping Center Arlington, TX 9,595 17,820 27,415 93 1992-93 1997 40 years Property Held for Sale/Redevelopment Scottsdale, AZ 0 14,702 14,702 -- 1989 1993 (2) --------- --------- --------- --------- $ 307,995 $ 617,523 $ 925,518 $ 33,936 ========= ========= ========= =========
(1) Listing does not include debt related to capitalized leases on three ERP properties totaling $26,850. (2) At December 31, 1997, this property was held for sale / redevelopment. Depreciation expense is not being charged to the property. (3) Tenant improvements and other costs capitalized subsequent to acquisition are depreciated over 2 - 40 years. (4) These properties are owned by Excel Realty Partners, L.P. ("ERP") . The Company began consolidating the accounts of ERP on April 1, 1997. Acquisition dates are dates properties were contributed to ERP. F-30 (continued) 52 EXCEL REALTY TRUST, INC. AND SUBSIDIARIES SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (IN THOUSANDS) ---------- [a] Reconciliation of total real estate carrying value for the past three years is as follows:
1997 1996 1995 --------- --------- --------- Balance at beginning of year $ 479,478 $ 386,925 $ 359,459 Acquisitions 365,919 93,190 47,583 Improvements and other additions 10,800 6,206 7,473 Consolidation of ERP at April 1, 1997 80,724 -- -- Cost of property sold (10,662) (5,999) (27,590) Impairment of real estate (741) (844) --------- --------- --------- Balance at end of year $ 925,518 $ 479,478 $ 386,925 ========= ========= ========= Total cost for federal income tax purposes at the end of each year $ 879,950 $ 476,266 $ 386,062 ========= ========= =========
[b] Reconciliation of accumulated depreciation for the past three years is as follows:
1997 1996 1995 -------- -------- -------- Balance at beginning of year $ 21,976 $ 14,909 $ 10,228 Depreciation expense 11,389 7,354 6,845 Consolidation of ERP at April 1, 1997 1,283 -- -- Deletions - property sold (712) (287) (1,918) Reclass to real estate held for sale -- -- (246) -------- -------- -------- Balance at end of year $ 33,936 $ 21,976 $ 14,909 ======== ======== ========
F-31 EX-10.20 2 EXHIBIT 10.20 1 EXHIBIT 10.20 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF EXCEL REALTY PARTNERS, L.P. a Delaware limited partnership --------------------------- THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSFEROR DELIVERS TO THE PARTNERSHIP AN OPINION OF COUNSEL SATISFACTORY TO THE PARTNERSHIP, IN FORM AND SUBSTANCE SATISFACTORY TO THE PARTNERSHIP, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS. dated as of June 25, 1997 2 TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 DEFINED TERMS............................................................... 1 ARTICLE 2 ORGANIZATIONAL MATTERS...................................................... 15 Section 2.1 Organization.................................................... 15 Section 2.2 Name............................................................ 15 Section 2.3 Registered Office and Agent; Principal Office................... 15 Section 2.4 Power of Attorney............................................... 15 Section 2.5 Term............................................................ 16 ARTICLE 3 PURPOSE..................................................................... 16 Section 3.1 Purpose and Business............................................ 16 Section 3.2 Powers.......................................................... 17 Section 3.3 Partnership Only for Purposes Specified......................... 17 Section 3.4 Representations and Warranties by the Limited Partners.......... 17 ARTICLE 4 CAPITAL CONTRIBUTIONS....................................................... 19 Section 4.1 Capital Contributions of the Initial Partners................... 19 Section 4.2 Additional Limited Partners..................................... 19 Section 4.3 Loans by Third Parties.......................................... 19 Section 4.4 Additional Funding and Capital Contributions.................... 19 A. General.................................................... 19 B. Notice of Additional Funds Requirement..................... 19 C. General Partner Loans...................................... 20 D. Additional General Partner Contributions; Additional Limited Partners................................ 20 E. Timing of Additional Capital Contributions................. 20 Section 4.5 No Interest; No Return......................................... 20 ARTICLE 5 DISTRIBUTIONS............................................................... 20 Section 5.1 Requirement and Characterization of Distributions.............. 20 Section 5.2 Distributions in Kind.......................................... 21 Section 5.3 Amounts Withheld............................................... 21 Section 5.4 Distributions Upon Liquidation................................. 21 Section 5.5 Restricted Distributions....................................... 21 ARTICLE 6 ALLOCATIONS................................................................. 22 Section 6.1 Timing and Amount of Allocations of Net Income and Net Loss.... 22 Section 6.2 General Allocations............................................ 22 A. Net Income................................................. 22 B. Net Loss................................................... 22 Section 6.3 Additional Allocation Provisions............................... 23 A. Special Allocations........................................ 23 B. Regulatory Allocations..................................... 23 (a) Minimum Gain Chargeback................................ 23 (b) Partner Minimum Gain Chargeback........................ 23 (c) Nonrecourse Deductions and Partner Nonrecourse Deductions............................................. 24 (d) Qualified Income Offset................................ 24 (e) Gross Income Allocation................................ 24 (f) Limitation on Allocation of Net Loss................... 24 (g) Section 754 Adjustment................................. 24 (h) Curative Allocations................................... 24 C. Allocation of Excess Nonrecourse Liabilities............... 25 Section 6.4 Tax Allocations................................................ 25
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Page ---- A. In General................................................. 25 B. Allocations Respecting Section 704(c) Revaluations......... 25 Section 6.5 Other Provisions............................................... 25 A. Other Allocations Upon Change in Law....................... 25 B. Consistent Tax Reporting................................... 25 ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS....................................... 25 Section 7.1 Management..................................................... 25 Section 7.2 Certificate of Limited Partnership............................. 28 Section 7.3 Restrictions on General Partner's Authority.................... 28 Section 7.4 Reimbursement of the General Partner........................... 30 Section 7.5 Other Business of General Partner.............................. 31 Section 7.6 Contracts with Affiliates...................................... 31 Section 7.7 Indemnification................................................ 31 Section 7.8 Liability of the General Partner............................... 33 Section 7.9 Other Matters Concerning the General Partner................... 34 Section 7.10 Title to Partnership Assets.................................... 34 Section 7.11 Reliance by Third Parties...................................... 34 ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS.................................. 35 Section 8.1 Limitation of Liability........................................ 35 Section 8.2 Management of Business......................................... 35 Section 8.3 Outside Activities of Limited Partners......................... 35 Section 8.4 Return of Capital.............................................. 36 Section 8.5 Rights of Limited Partners Relating to the Partnership......... 36 Section 8.6 Redemption Rights of Qualifying Parties........................ 36 Section 8.7 Partnership Right to Call Limited Partner Interests............ 39 Section 8.8 Other Redemptions.............................................. 39 ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS...................................... 40 Section 9.1 Records and Accounting......................................... 40 Section 9.2 Fiscal Year.................................................... 40 Section 9.3 Reports........................................................ 40 ARTICLE 10 TAX MATTERS................................................................. 40 Section 10.1 Preparation of Tax Returns..................................... 40 Section 10.2 Tax Elections.................................................. 41 Section 10.3 Tax Matters Partner............................................ 41 Section 10.4 Withholding.................................................... 42 ARTICLE 11 TRANSFERS AND WITHDRAWALS................................................... 43 Section 11.1 Transfer....................................................... 43 Section 11.2 Transfer of General Partner's Partnership Interest............. 43 Section 11.3 Limited Partners' Rights to Transfer........................... 43 A. General.................................................... 43 (1) General Partner Right of First Refusal................. 44 (2) Qualified Transferee................................... 44 (3) Minimum Transfer Restriction........................... 44 (4) Transferee Agreement to Effect a Redemption............ 44 (5) Exception for Permitted Transfers...................... 44 B. Incapacity................................................. 44 C. Opinion of Counsel......................................... 45 D. Adverse Tax Consequences................................... 45
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Page ---- Section 11.4 Substituted Limited Partners................................... 45 Section 11.5 Assignees...................................................... 46 Section 11.6 General Provisions............................................. 46 ARTICLE 12 ADMISSION OF PARTNERS....................................................... 47 Section 12.1 Admission of Successor General Partner......................... 47 Section 12.2 Admission of Additional Limited Partners....................... 48 Section 12.3 Amendment of Agreement and Certificate of Limited Partnership.. 48 Section 12.4 Limit on Number of Partners.................................... 48 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION.................................... 49 Section 13.1 Dissolution.................................................... 49 Section 13.2 Winding Up..................................................... 49 Section 13.3 Deemed Distribution and Recontribution......................... 50 Section 13.4 Rights of Limited Partners..................................... 51 Section 13.5 Notice of Dissolution.......................................... 51 Section 13.6 Cancellation of Certificate of Limited Partnership............. 51 Section 13.7 Reasonable Time for Winding-Up................................. 51 ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS....... 51 Section 14.1 Procedures for Actions and Consents of Partners................ 51 Section 14.2 Amendments..................................................... 51 Section 14.3 Meetings of the Partners....................................... 52 ARTICLE 15 GENERAL PROVISIONS.......................................................... 52 Section 15.1 Addresses and Notice........................................... 52 Section 15.2 Titles and Captions............................................ 52 Section 15.3 Pronouns and Plurals........................................... 53 Section 15.4 Further Action................................................. 53 Section 15.5 Binding Effect................................................. 53 Section 15.6 Waiver......................................................... 53 Section 15.7 Counterparts................................................... 53 Section 15.8 Applicable Law................................................. 53 Section 15.9 Entire Agreement............................................... 54 Section 15.10 Invalidity of Provisions...................................... 54 Section 15.11 Limitation to Preserve REIT Status............................ 54 Section 15.12 No Partition.................................................. 54 Section 15.13 No Third-Party Rights Created Hereby.......................... 55 EXHIBIT A PARTNERS AND ADDRESSES...................................................... 56 EXHIBIT B EXAMPLES REGARDING ADJUSTMENT FACTOR........................................ 62 EXHIBIT C NOTICE OF REDEMPTION........................................................ 63 EXHIBIT D FORM OF PARTNER SCHEDULE.................................................... 65 EXHIBIT E FORM OF PARTNERSHIP UNIT CERTIFICATE........................................ 73
iii 5 AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF EXCEL REALTY PARTNERS, L.P. THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF EXCEL REALTY PARTNERS, L.P., dated as of June 25, 1997, is entered into by and among Excel Realty Trust, Inc., a Maryland corporation, as the General Partner, and the Persons whose names are set forth on Exhibit A as attached hereto, as the Limited Partners, together with any other Persons who become Partners in the Partnership as provided herein. WHEREAS, the parties hereto as of the date hereof are parties to that certain Agreement of Limited Partnership of Excel Realty Partners, L.P., dated as of April 24, 1995, as amended by that certain First Amendment to the Agreement of Limited Partnership of Excel Realty Partners, L.P., dated as of December 31, 1995 (the "PARTNERSHIP AGREEMENT"); and WHEREAS, the parties now wish to amend and restate the Partnership Agreement. NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties hereby agree as follows: ARTICLE 1 DEFINED TERMS The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement. "ACT" means the Delaware Revised Uniform Limited Partnership Act, as it may be amended from time to time, and any successor to such statute. "ACTIONS" has the meaning set forth in Section 7.7 hereof. "ADDITIONAL FUNDS" has the meaning set forth in Section 4.4.A hereof. "ADDITIONAL LIMITED PARTNER" means a Person admitted to the Partnership as a Limited Partner pursuant to Section 4.2 or Section 4.4.D and Section 12.2 hereof and who is shown as such on the books and records of the Partnership. "ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Partner, the deficit balance, if any, in such Partner's Capital Account as of the end of the relevant Fiscal Year, after giving effect to the following adjustments: (a) decrease such deficit by any amounts that such Partner is obligated to restore pursuant to this Agreement or by operation of law upon liquidation of such Partner's Partnership Interest or is deemed to be obligated to restore pursuant to the penultimate sentence of each of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5); and (b) increase such deficit by the items described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of "Adjusted Capital Account Deficit" is intended to comply with the provisions of Regulations Section 1.704- 1(b)(2)(ii)(d) and shall be interpreted consistently therewith. "ADJUSTMENT FACTOR" means 1.0; provided, however, that in the event that: 6 (a) the General Partner (i) declares or pays a dividend on its outstanding REIT Shares in REIT Shares or makes a distribution to all holders of its outstanding REIT Shares in REIT Shares, (ii) splits or subdivides its outstanding REIT Shares or (iii) effects a reverse stock split or otherwise combines its outstanding REIT Shares into a smaller number of REIT Shares, the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (1) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination (assuming for such purposes that such dividend, distribution, split, subdivision, reverse split or combination has occurred as of such time) and (2) the denominator of which shall be the actual number of REIT Shares (determined without the above assumption) issued and outstanding on the record date for such dividend, distribution, split, subdivision, reverse split or combination; (b) in the event that the General Partner distributes any rights, options or warrants to all holders of its REIT Shares to subscribe for or to purchase or to otherwise acquire REIT Shares (or other securities or rights convertible into, exchangeable for or exercisable for REIT Shares) at a price per share less than the Value of a REIT Share on the record date for such distribution (each a "DISTRIBUTED RIGHT"), then the Adjustment Factor shall be adjusted by multiplying the Adjustment Factor previously in effect by a fraction, (i) the numerator of which shall be the number of REIT Shares issued and outstanding on the record date plus the maximum number of REIT Shares purchasable under such Distributed Rights and (ii) the denominator of which shall be the number of REIT Shares issued and outstanding on the record date plus a fraction, (1) the numerator of which is the maximum number of REIT Shares purchasable under such Distributed Rights times the minimum purchase price per REIT Share under such Distributed Rights and (2) the denominator of which is the Value of a REIT Share as of the record date; provided, however, that, if any such Distributed Rights expire or become no longer exercisable, then the Adjustment Factor shall be adjusted, effective retroactive to the date of distribution of the Distributed Rights, to reflect a reduced maximum number of REIT Shares or any change in the minimum purchase price for the purposes of the above fractions; and (c) in the event that the General Partner shall, by dividend or otherwise, distribute to all holders of its REIT Shares evidences of its indebtedness or assets (including securities, but excluding any dividend or distribution referred to in subsection (a) above), which evidences of indebtedness or assets relate to assets not received by the General Partner pursuant to a pro rata distribution by the Partnership, then the Adjustment Factor shall be adjusted to equal the amount determined by multiplying the Adjustment Factor in effect immediately prior to the close of business on the date fixed for determination of shareholders entitled to receive such distribution by a fraction, (i) the numerator shall be such Value of a REIT Share on the date fixed for such determination and (ii) the denominator shall be the Value of a REIT Share on the dated fixed for such determination less the then fair market value (as reasonably determined by the General Partner) of the portion of the evidences of indebtedness or assets so distributed applicable to one REIT Share. Any adjustments to the Adjustment Factor shall become effective immediately after the effective date of such event, retroactive to the record date, if any, for such event; provided, however, that any Limited Partner may waive, by written notice to the General Partner, the effect of any adjustment to the Adjustment Factor applicable to the Partnership Units held by such Limited Partner, and, thereafter, such adjustment will not be effective as to such Partnership Units. For illustrative purposes, examples of adjustments to the Adjustment Factor are set forth on Exhibit B attached hereto. "AFFILIATE" means, with respect to any Person, any Person directly or indirectly controlling or controlled by or under common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of 2 7 the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "AGREEMENT" means this Amended and Restated Agreement of Limited Partnership of Excel Realty Partners, L.P., as it may be amended, supplemented or restated from time to time. "APPLICABLE PERCENTAGE" has the meaning set forth in Section 8.6.B hereof. "APPRAISAL" means, with respect to any assets, the written opinion of an independent third party experienced in the valuation of similar assets, selected by the General Partner in good faith. Such opinion may be in the form of an opinion by such independent third party that the value for such property or asset as set by the General Partner is fair, from a financial point of view, to the Partnership. "ASSIGNEE" means a Person to whom one or more Partnership Units have been Transferred in a manner permitted under this Agreement, but who has not become a Substituted Limited Partner, and who has the rights set forth in Section 11.5 hereof. "AVAILABLE CASH" means, with respect to any period for which such calculation is being made, (a) the sum, without duplication, of: (1) the Partnership's Net Income or Net Loss (as the case may be) for such period, (2) Depreciation and all other noncash charges to the extent deducted in determining Net Income or Net Loss for such period, (3) the amount of any reduction in reserves of the Partnership referred to in clause (b)(6) below (including, without limitation, reductions resulting because the General Partner determines such amounts are no longer necessary), (4) the excess, if any, of the net cash proceeds from the sale, exchange, disposition, financing or refinancing of Partnership property for such period over the gain (or loss, as the case may be) recognized from such sale, exchange, disposition, financing or refinancing during such period (excluding Terminating Capital Transactions), and (5) all other cash received (including amounts previously accrued as Net Income and amounts of deferred income) or any net amounts borrowed by the Partnership for such period that was not included in determining Net Income or Net Loss for such period; (b) less the sum, without duplication, of: (1) all principal debt payments made during such period by the Partnership, (2) capital expenditures made by the Partnership during such period, (3) investments in any entity (including loans made thereto) to the extent that such investments are not otherwise described in clause (b)(1) or clause (b)(2) above, 3 8 (4) all other expenditures and payments not deducted in determining Net Income or Net Loss for such period (including amounts paid in respect of expenses previously accrued), (5) any amount included in determining Net Income or Net Loss for such period that was not received by the Partnership during such period, and (6) the amount of any increase in reserves (including, without limitation, working capital reserves) established during such period that the General Partner determines are necessary or appropriate in its sole and absolute discretion. Notwithstanding the foregoing, Available Cash shall not include (i) any cash received or reductions in reserves, or take into account any disbursements made, or reserves established, after dissolution and the commencement of the liquidation and winding up of the Partnership or (ii) any Capital Contributions, whenever received. "BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in San Diego, California, Los Angeles, California or New York, New York are authorized or required by law to close. "CAPITAL ACCOUNT" means, with respect to any Partner, the Capital Account maintained by the General Partner for such Partner on the Partnership's books and records in accordance with the following provisions: (a) To each Partner's Capital Account, there shall be added such Partner's Capital Contributions, such Partner's distributive share of Net Income and any items in the nature of income or gain that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any Partnership liabilities assumed by such Partner or that are secured by any property distributed to such Partner. (b) From each Partner's Capital Account, there shall be subtracted the amount of cash and the Gross Asset Value of any property distributed to such Partner pursuant to any provision of this Agreement, such Partner's distributive share of Net Losses and any items in the nature of expenses or losses that are specially allocated pursuant to Section 6.3 hereof, and the principal amount of any liabilities of such Partner assumed by the Partnership or that are secured by any property contributed by such Partner to the Partnership. (c) In the event any interest in the Partnership is Transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent that it relates to the Transferred interest. (d) In determining the principal amount of any liability for purposes of subsections (a) and (b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and Regulations. (e) The provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and applied in a manner consistent with such Regulations. If the General Partner shall determine that it is prudent to modify the manner in which the Capital Accounts are maintained in order to comply with such Regulations, the General Partner may make such modification provided that such modification will not have a material effect on the amounts distributable to any Partner without such Partner's Consent. The General Partner also shall (i) make any adjustments that are necessary or appropriate to maintain equality between the Capital Accounts of the Partners and the amount of Partnership capital reflected on the Partnership's balance sheet, as computed for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q) and (ii) make any 4 9 appropriate modifications in the event that unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b) or Section 1.704-2. "CAPITAL CONTRIBUTION" means, with respect to any Partner, the amount of money and the initial Gross Asset Value of any Contributed Property that such Partner contributes to the Partnership pursuant to Section 4.1, Section 4.2 or Section 4.4 hereof. "CAPITAL TRANSACTION" means any Partnership transaction, not in the ordinary course of the Partnership's business, involving a sale, exchange, disposition, financing or refinancing of any Property. "CASH AMOUNT" means an amount of cash equal to the product of (a) the Value of a REIT Share and (b) the REIT Shares Amount determined as of the applicable Valuation Date. "CERTIFICATE" means the Certificate of Limited Partnership of the Partnership filed in the office of the Secretary of State of the State of Delaware, as amended from time to time in accordance with the terms hereof and the Act. "CHARTER" means the Articles of Incorporation of the General Partner filed with the Maryland State Department of Assessments and Taxation on May 13, 1993, as amended, supplemented or restated from time to time. "CODE" means the Internal Revenue Code of 1986, as amended and in effect from time to time or any successor statute thereto, as interpreted by the applicable Regulations thereunder. Any reference herein to a specific section or sections of the Code shall be deemed to include a reference to any corresponding provision of future law. "CONSENT" means the consent to, approval of, or vote on a proposed action by a Partner given in accordance with Article 14 hereof. "CONSENT OF THE LIMITED PARTNERS" means the Consent of a Majority in Interest of the Limited Partners, which Consent shall be obtained prior to the taking of any action for which it is required by this Agreement and, except as otherwise provided in this Agreement, may be given or withheld by a Majority in Interest of the Limited Partners, in their reasonable discretion. "CONTRIBUTED PROPERTY" means each Property or other asset, in such form as may be permitted by the Act, but excluding cash, contributed or deemed contributed to the Partnership (or deemed contributed to the Partnership on termination and reconstitution thereof pursuant to Code Section 708). "CONTROLLED ENTITY" means, as to any Limited Partner, (a) any corporation more than fifty percent (50%) of the outstanding voting stock of which is owned by such Limited Partner or such Limited Partner's Family Members, (b) any trust, whether or not revocable, of which such Limited Partner or such Limited Partner's Family Members are the sole beneficiaries, (c) any partnership of which such Limited Partner is the managing partner and in which such Limited Partner or such Limited Partner's Family Members hold partnership interests representing at least twenty-five percent (25%) of such partnership's capital and profits and (d) any limited liability company of which such Limited Partner is the manager and in which such Limited Partner or such Limited Partner's Family Members hold membership interests representing at least twenty-five percent (25%) of such limited liability company's capital and profits. "CONTROLLING PERSON" means any Person, whatever his or her title, who performs executive or senior management functions for the General Partner or its Affiliates similar to those of directors, executive management and senior management, or any Person who either holds a two percent (2%) or more equity interest in the General Partner or its Affiliates, or has the power to direct or cause the direction of the General Partner or its Affiliates, whether through the ownership of voting securities, by contract or otherwise, or, in the absence of a specific role or title, any Person having the power to direct or cause the direction of the management-level employees and 5 10 policies of the General Partner or its Affiliates. It is not intended that every Person who carries a title such as vice president, senior vice president, secretary or treasurer be included in the definition of "Controlling Person." "CUT-OFF DATE" means the twentieth (20th) calendar day (or, if such day is not a Business Day, then the next following Business Day) after the General Partner's receipt of a Notice of Redemption. "DEBT" means, as to any Person, as of any date of determination, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services; (ii) all amounts owed by such Person to banks or other Persons in respect of reimbursement obligations under letters of credit, surety bonds and other similar instruments guaranteeing payment or other performance of obligations by such Person; (iii) all indebtedness for borrowed money or for the deferred purchase price of property or services secured by any lien on any property owned by such Person, to the extent attributable to such Person's interest in such property, even though such Person has not assumed or become liable for the payment thereof; and (iv) lease obligations of such Person that, in accordance with generally accepted accounting principles, should be capitalized. "DECLINATION" has the meaning set forth in Section 8.6.D hereof. "DEPRECIATION" means, for each Fiscal Year or other applicable period, an amount equal to the federal income tax depreciation, amortization or other cost recovery deduction allowable with respect to an asset for such year or other period, except that, if the Gross Asset Value of an asset differs from its adjusted basis for federal income tax purposes at the beginning of such year or period, Depreciation shall be in an amount that bears the same ratio to such beginning Gross Asset Value as the federal income tax depreciation, amortization or other cost recovery deduction for such year or other period bears to such beginning adjusted tax basis; provided, however, that, if the federal income tax depreciation, amortization or other cost recovery deduction for such year or period is zero, Depreciation shall be determined with reference to such beginning Gross Asset Value using any reasonable method selected by the General Partner. "DESIGNATED PARTIES" means the Persons designated as such on the Partner Schedules then in effect. "DISTRIBUTED RIGHT" has the meaning set forth in the definition of "Adjustment Factor." "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "FAMILY MEMBERS" means, as to a Person that is an individual, (a) such Person's spouse, (b) such Person's ancestors, (c) such Person's descendants (whether by blood or by adoption), (d) such Person's brothers and sisters, (e) inter vivos or testamentary trusts of which only such Person and/or his spouse, ancestors, descendants (whether by blood or by adoption), brothers and/or sisters are beneficiaries and (f) any partnership or limited liability company all of whose partners or members consist of such Person and/or his spouse, ancestors, descendants (whether by blood or by adoption), brothers and/or sisters and/or inter vivos or testamentary trusts of which only such Person and/or his spouse, ancestors, descendants (whether by blood or by adoption), brothers and/or sisters are beneficiaries.. "FISCAL YEAR" means the fiscal year of the Partnership, which shall be the calendar year. "FUNDING DEBT" means any Debt incurred by or on behalf of the General Partner for the purpose of providing funds to the Partnership. "FUNDING NOTICE" has the meaning set forth in Section 4.4.B hereof. 6 11 "GENERAL PARTNER" means Excel Realty Trust, Inc., a Maryland corporation, and its successors and assigns, as the general partner of the Partnership in their capacities as general partner of the Partnership. "GENERAL PARTNER INTEREST" means the Partnership Interest held by the General Partner, which Partnership Interest is an interest as a general partner under the Act. A General Partner Interest may be expressed as a number of Partnership Units. "GENERAL PARTNER LOAN" has the meaning set forth in Section 4.4.C hereof. "GROSS ASSET VALUE" means, with respect to any asset, the asset's adjusted basis for federal income tax purposes, except as follows: (a) The initial Gross Asset Value of any asset contributed by a Limited Partner to the Partnership shall be set forth on the Partner Schedule with respect to such Limited Partner. (b) The Gross Asset Values of all Partnership assets immediately prior to the occurrence of any event described in clause (1), clause (2), clause (3), clause (4) or clause (5) hereof shall be adjusted to equal their respective gross fair market values, as determined by the General Partner using such reasonable method of valuation as it may adopt, as of the following times: (1) the acquisition of an additional interest in the Partnership (other than in connection with the execution of this Agreement but including, without limitation, acquisitions pursuant to Section 4.4 hereof or contributions or deemed contributions by the General Partner pursuant to Section 4.4 hereof) by a new or existing Partner in exchange for more than a de minimis Capital Contribution, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; (2) the distribution by the Partnership to a Partner of more than a de minimis amount of Partnership property as consideration for an interest in the Partnership, if the General Partner reasonably determines that such adjustment is necessary or appropriate to reflect the relative economic interests of the Partners in the Partnership; (3) the liquidation of the Partnership within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); (4) upon the admission of a successor General Partner pursuant to Section 12.1 hereof; and (5) at such other times as the General Partner shall reasonably determine necessary or advisable in order to comply with Regulations Sections 1.704-1(b) and 1.704-2. (c) The Gross Asset Value of any Partnership asset distributed to a Partner shall be the gross fair market value of such asset on the date of distribution as determined by the distributee and the General Partner, provided that, if the distributee is the General Partner or if the distributee and the General Partner cannot agree on such a determination, such gross fair market value shall be determined by Appraisal. (d) The Gross Asset Values of Partnership assets shall be increased (or decreased) to reflect any adjustments to the adjusted basis of such assets pursuant to Code Section 734(b) or 7 12 Code Section 743(b), but only to the extent that such adjustments are taken into account in determining Capital Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided, however, that Gross Asset Values shall not be adjusted pursuant to this subsection (d) to the extent that the General Partner reasonably determines that an adjustment pursuant to subsection (b) above is necessary or appropriate in connection with a transaction that would otherwise result in an adjustment pursuant to this subsection (d). (e) If the Gross Asset Value of a Partnership asset has been determined or adjusted pursuant to subsection (a), subsection (b) or subsection (d) above, such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with respect to such asset for purposes of computing Net Income and Net Losses. "HOLDER" means either (a) a Partner or (b) an Assignee, owning a Partnership Unit, that is treated as a member of the Partnership for federal income tax purposes. "INCAPACITY" or "INCAPACITATED" means, (i) as to any Partner who is an individual, death, total physical disability or entry by a court of competent jurisdiction adjudicating such Partner incompetent to manage his or her person or his or her estate; (ii) as to any Partner that is a corporation or limited liability company, the filing of a certificate of dissolution, or its equivalent, for the corporation or limited liability company or the revocation of its charter; (iii) as to any Partner that is a partnership, the dissolution and commencement of winding up of the partnership; (iv) as to any Partner that is an estate, the distribution by the fiduciary of the estate's entire interest in the Partnership; (v) as to any trustee of a trust that is a Partner, the termination of the trust (but not the substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For purposes of this definition, bankruptcy of a Partner shall be deemed to have occurred when (a) the Partner commences a voluntary proceeding seeking liquidation, reorganization or other relief of or against such Partner under any bankruptcy, insolvency or other similar law now or hereafter in effect, (b) the Partner is adjudged as bankrupt or insolvent, or a final and nonappealable order for relief under any bankruptcy, insolvency or similar law now or hereafter in effect has been entered against the Partner, (c) the Partner executes and delivers a general assignment for the benefit of the Partner's creditors, (d) the Partner files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the Partner in any proceeding of the nature described in clause (b) above, (e) the Partner seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator for the Partner or for all or any substantial part of the Partner's properties, (f) any proceeding seeking liquidation, reorganization or other relief under any bankruptcy, insolvency or other similar law now or hereafter in effect has not been dismissed within one hundred twenty (120) days after the commencement thereof, (g) the appointment without the Partner's consent or acquiescence of a trustee, receiver or liquidator has not been vacated or stayed within ninety (90) days of such appointment, or (h) an appointment referred to in clause (g) above is not vacated within ninety (90) days after the expiration of any such stay. "INDEMNITEE" means (i) any Person made a party to a proceeding by reason of its status as (A) the General Partner or (B) a director of the General Partner or an officer or employee of the Partnership or the General Partner and (ii) such other Persons (including Affiliates of the General Partner or the Partnership) as the General Partner may designate from time to time (whether before or after the event giving rise to potential liability), in its sole and absolute discretion. "INTEREST" means interest, original issue discount and other similar payments or amounts paid by the Partnership for the use or forbearance of money. "IRS" means the Internal Revenue Service, which administers the internal revenue laws of the United States. "LIMITED PARTNER" means any Person named as a Limited Partner in Exhibit A attached hereto, as such Exhibit A may be amended from time to time, or any Substituted Limited Partner or Additional Limited Partner, in such Person's capacity as a Limited Partner in the Partnership. 8 13 "LIMITED PARTNER INTEREST" means a Partnership Interest of a Limited Partner in the Partnership representing a fractional part of the Partnership Interests of all Limited Partners and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Limited Partner Interest may be expressed as a number of Partnership Units. "LIQUIDATING EVENT" has the meaning set forth in Section 13.1 hereof. "LIQUIDATOR" has the meaning set forth in Section 13.2.A hereof. "MAJORITY IN INTEREST OF THE LIMITED PARTNERS" means those Limited Partners (other than any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by the General Partner) holding in the aggregate more than fifty percent (50%) of the aggregate Partnership Units of all Limited Partners (other than any Limited Partner fifty percent (50%) or more of whose equity is owned, directly or indirectly, by the General Partner). "MAJORITY OF REMAINING PARTNERS" means Partners other than the General Partner owning (a) a majority of the income interests in the Partnership held by all Partners other than the General Partner, determined and allocated based on any reasonable estimate of income from the relevant date to the projected termination of the Partnership and taking into account present and future allocations of income under the Agreement as it is in effect on the relevant date, and (b) a majority of all capital interests in the Partnership, determined as of the relevant date under the Agreement, owned by all of the Partners other than the General Partner. "NET INCOME" or "NET LOSS" means, for each Fiscal Year of the Partnership, an amount equal to the Partnership's taxable income or loss for such year, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments: (a) Any income of the Partnership that is exempt from federal income tax and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss" shall be added to (or subtracted from, as the case may be) such taxable income (or loss); (b) Any expenditure of the Partnership described in Code Section 705(a)(2)(B) or treated as a Code Section 705(a)(2)(B) expenditure pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing Net Income (or Net Loss) pursuant to this definition of "Net Income" or "Net Loss," shall be subtracted from (or added to, as the case may be) such taxable income (or loss); (c) In the event that the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) or subsection (c) of the definition of "Gross Asset Value," the amount of such adjustment shall be taken into account as gain or loss from the disposition of such asset for purposes of computing Net Income or Net Loss; (d) Gain or loss resulting from any disposition of property with respect to which gain or loss is recognized for federal income tax purposes shall be computed by reference to the Gross Asset Value of the property disposed of, notwithstanding that the adjusted tax basis of such property differs from its Gross Asset Value; (e) In lieu of the depreciation, amortization and other cost recovery deductions that would otherwise be taken into account in computing such taxable income or loss, there shall be taken into account Depreciation for such Fiscal Year; 9 14 (f) To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in determining Capital Accounts as a result of a distribution other than in liquidation of a Partner's interest in the Partnership, the amount of such adjustment shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases the basis of the asset) from the disposition of the asset and shall be taken into account for purposes of computing Net Income or Net Loss; and (g) Notwithstanding any other provision of this definition of "Net Income" or "Net Loss," any item that is specially allocated pursuant to Section 6.3.B hereof shall not be taken into account in computing Net Income or Net Loss. The amounts of the items of Partnership income, gain, loss or deduction available to be specially allocated pursuant to Section 6.3.B hereof shall be determined by applying rules analogous to those set forth in this definition of "Net Income" or "Net Loss." "NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(c). "NONRECOURSE LIABILITY" has the meaning set forth in Regulations Section 1.752-1(a)(2). "NOTICE OF REDEMPTION" means the Notice of Redemption substantially in the form of Exhibit C attached to this Agreement. "ORIGINAL LIMITED PARTNERS" means the Persons executing a Partner Schedule together with the General Partner and being admitted to the Partnership either as an initial Limited Partner or as an Additional Limited Partner; provided, however, that "Original Limited Partners" does not include any Assignee or other transferee, including, without limitation, any Substituted Limited Partner succeeding to all or any part of the Partnership Interest of any such Person. The initial Original Limited Partners are listed on Exhibit A attached hereto. "OWNERSHIP LIMIT" means the applicable restriction on ownership of shares of the General Partner imposed under the Charter. "PARTNER" means the General Partner or a Limited Partner, and "PARTNERS" means the General Partner and the Limited Partners. "PARTNER MINIMUM GAIN" means an amount, with respect to each Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with Regulations Section 1.704-2(i)(3). "PARTNER NONRECOURSE DEBT" has the meaning set forth in Regulations Section 1.704-2(b)(4). "PARTNER NONRECOURSE DEDUCTIONS" has the meaning set forth in Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(i)(2). "PARTNER SCHEDULE" means a schedule, substantially in the form attached hereto as Exhibit D and executed by the General Partner and a Limited Partner (including any Original Limited Partner and any Substituted Limited Partner), that shall set forth, with respect to a Limited Partner to which Partnership Units are issued pursuant to this Agreement, (a) the Gross Asset Values, as determined by the General Partner and agreed to by the contributing Limited Partner, for any Contributed Properties contributed by such contributing Limited Partner, (b) the initial Partnership Units issued to such Limited Partner, (c) the Preferred Return Per Unit, (d) the Specific Adjustment Factor and (e) any Specific Adjustment Limitations. 10 15 "PARTNERSHIP" means the limited partnership formed under the Act and pursuant to this Agreement, and any successor thereto. "PARTNERSHIP AGREEMENT" has the meaning set forth in the recitals to this Agreement. "PARTNERSHIP INTEREST" means an ownership interest in the Partnership representing a Capital Contribution by either a Limited Partner or the General Partner and includes any and all benefits to which the holder of such a Partnership Interest may be entitled as provided in this Agreement, together with all obligations of such Person to comply with the terms and provisions of this Agreement. A Partnership Interest may be expressed as a number of Partnership Units. "PARTNERSHIP MINIMUM GAIN" has the meaning set forth in Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net increase or decrease in Partnership Minimum Gain, for a Fiscal Year shall be determined in accordance with the rules of Regulations Section 1.704-2(d). "PARTNERSHIP RECORD DATE" means the record date established by the General Partner for the distribution of Available Cash pursuant to Section 5.1 hereof, which record date shall generally be the same as the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such distribution. "PARTNERSHIP UNIT" means a fractional share of the Partnership Interests of all Partners issued pursuant to Section 4.1, Section 4.2 or Section 4.4 hereof; provided, however, that the General Partner Interest and the Limited Partner Interests shall have the differences in rights and privileges as specified in this Agreement. The ownership of Partnership Units may (but need not, in the sole and absolute discretion of the General Partner) be evidenced by the form of certificate for Partnership Units attached hereto as Exhibit E. "PERMITTED TRANSFER" has the meaning set forth in Section 11.3.A hereof. "PERSON" means an individual or a corporation, partnership, trust, unincorporated organization, association, limited liability company or other entity. "PLEDGE" has the meaning set forth in Section 11.3.A hereof. "PREFERRED RETURN PER UNIT" means (a) as to a Limited Partner or its Assignee (including, without limitation, the General Partner following the acquisition of Tendered Units pursuant to Section 8.6 hereof), the amount specified, as an amount distributable quarterly (or upon such other frequency as may be provided in the relevant Partner Schedule) from Available Cash as provided in Section 5.1 hereof, as such on the Partner Schedule with respect to such Limited Partner; or (b) in the case of additional Partnership Units issued to the General Partner in exchange for additional Capital Contributions as provided in Section 4.4.D, an amount, distributable quarterly from Available Cash as provided in Section 5.1 hereof, equal to the then current dividend yield on a REIT Share. The Preferred Return Per Unit need not be the same amount for each Partnership Limited Partner or Assignee or with respect to each Partnership Unit and, being determined with regard to the Partnership's income, shall not constitute a "guaranteed payment" under Code Section 707(c). "PRIMARY LIMITED PARTNER" means the Limited Partner holding the greatest number of Partnership Units; provided, however, that, if two (2) or more Limited Partners each hold the greatest number of Partnership Units, "PRIMARY LIMITED PARTNER" means all such Limited Partners, acting by majority Consent. 11 16 "PROPERTIES" means any assets and property of the Partnership such as, but not limited to, interests in real property and personal property, including, without limitation, fee interests, interests in ground leases, interests in limited liability companies, joint ventures or partnerships, interests in mortgages, and Debt instruments as the Partnership may hold from time to time. "QUALIFIED TRANSFEREE" means an "accredited investor" as defined in Rule 501 promulgated under the Securities Act. "QUALIFYING PARTY" means (a) an Original Limited Partner, (b) an Additional Limited Partner (unless otherwise provided in the applicable Partner Schedule), (c) a Designated Party that is either a Substituted Limited Partner or an Assignee, (d) a Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a Permitted Transfer or (e) with respect to any Notice of Redemption delivered to the General Partner within the time period set forth in Section 11.3.A(4) hereof, a Substituted Limited Partner succeeding to all or part of the Limited Partner Interest of (i) an Original Limited Partner, (ii) an Additional Limited Partner (unless such Additional Limited Partner was not a Qualifying Party), (iii) a Designated Party that is either a Substituted Limited Partner or an Assignee or (iv) a Family Member, or a lending institution as the pledgee of a Pledge, who is the transferee in a Permitted Transfer. "REDEMPTION" has the meaning set forth in Section 8.6.A hereof. "REGULATIONS" means the applicable income tax regulations under the Code, whether such regulations are in proposed, temporary or final form, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "REGULATORY ALLOCATIONS" has the meaning set forth in Section 6.3.B(h) hereof. "REIT" means a real estate investment trust qualifying under Code Section 856. "REIT PARTNER" means a Partner or Assignee that is, or has made an election to qualify as, a REIT. "REIT PAYMENT" has the meaning set forth in Section 15.11 hereof. "REIT REQUIREMENTS" has the meaning set forth in Section 5.1 hereof. "REIT SHARE" means a share of the General Partner's Common Stock, par value $.01 per share. "REIT SHARES AMOUNT" means a number of REIT Shares equal to the product of (a) the number of Tendered Units, (b) the Adjustment Factor and (c) the applicable Specific Adjustment Factor, taking into account any applicable Specific Adjustment Limitations; provided, however, that, in the event that the General Partner issues to all holders of REIT Shares as of a certain record date rights, options, warrants or convertible or exchangeable securities entitling the General Partner's shareholders to subscribe for or purchase REIT Shares, or any other securities or property (collectively, the "RIGHTS"), with the record date for such Rights issuance falling within the period starting on the date of the Notice of Redemption and ending on the day immediately preceding the Specified Redemption Date, which Rights will not be distributed before the relevant Specified Redemption Date, then the REIT Shares Amount shall also include such Rights that a holder of that number of REIT Shares would be entitled to receive, expressed, where relevant hereunder, in a number of REIT Shares determined by the General Partner in good faith. "RELATED PARTY" means, with respect to any Person, any other Person whose ownership of shares of the General Partner's capital stock would be attributed to the first such Person under Code Section 544 (as modified by Code Section 856(h)(1)(B)). 12 17 "RELATED PERSON" means with respect to a Partner or a Holder, a Person bearing a relationship to such Partner or Holder, or a Person to whom such Partner or Holder bears a relationship, specified in Regulations Section 1.752-4(b). "RIGHTS" has the meaning set forth in the definition of "REIT Shares Amount." "SEC" means the Securities and Exchange Commission. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "SINGLE FUNDING NOTICE" has the meaning set forth in Section 8.6.D(3) hereof. "SPECIFIC ADJUSTMENT FACTOR" means, as to a Limited Partner or its Assignee, the amount specified as such on the Partner Schedule with respect to such Limited Partner; provided, however, that, if no such amount is specified on such Partner Schedule, the Specific Adjustment Factor shall be 1.0. The Specific Adjustment Factor need not be the same for each Limited Partner and Assignee. "SPECIFIC ADJUSTMENT LIMITATIONS" means, as to a Limited Partner or its Assignee, the limitations and restrictions, if any, specified as such on the Partner Schedule with respect to such Limited Partner. The Specific Adjustment Limitations need not be the same for each Limited Partner and Assignee. "SPECIFIED REDEMPTION DATE" means the thirtieth (30th) calendar day (or, if such day is not a Business Day, the next following Business Day) after the receipt by the General Partner of a Notice of Redemption; provided, however, that no Specified Redemption Date shall occur during the first Twelve-Month Period; provided, further, that the Specified Redemption Date, as well as the closing of a Redemption, or an acquisition of Tendered Units by the General Partner pursuant to Section 8.6.B hereof, on any Specified Redemption Date, may be deferred, in the General Partner's sole and absolute discretion, for such time (but in any event not more than one hundred fifty (150) days in the aggregate) as may reasonably be required to effect, as applicable, (i) necessary funding arrangements, (ii) compliance with the Securities Act or other law (including, but not limited to, (a) state "blue sky" or other securities laws and (b) the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended) and (iii) satisfaction or waiver of other commercially reasonable and customary closing conditions and requirements for a transaction of such nature. "SUBSIDIARY" means, with respect to any Person, any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests is owned, directly or indirectly, by such Person; provided, however, that, with respect to the Partnership, "Subsidiary" means solely a partnership or limited liability company (taxed, for federal income tax purposes, as a partnership and not as an association or publicly traded partnership taxable as a corporation) of which the Partnership is a member unless the General Partner has received an unqualified opinion from independent counsel of recognized standing, or a ruling from the IRS, that the ownership of shares of stock of a corporation or other entity will not jeopardize the General Partner's status as a REIT, in which event the term "Subsidiary" shall include the corporation or other entity which is the subject of such opinion or ruling. "SUBSTITUTED LIMITED PARTNER" means an Assignee who is admitted as a Limited Partner to the Partnership pursuant to Section 11.4 hereof. The term "Substituted Limited Partner" shall not include any Additional Limited Partner. "TAX ITEMS" has the meaning set forth in Section 6.4.A hereof. "TENDERED UNITS" has the meaning set forth in Section 8.6.A hereof. "TENDERING PARTY" has the meaning set forth in Section 8.6.A hereof. 13 18 "TERMINATING CAPITAL TRANSACTION" means any sale or other disposition of all or substantially all of the assets of the Partnership or a related series of transactions that, taken together, result in the sale or other disposition of all or substantially all of the assets of the Partnership. "TRANSFER," when used with respect to a Partnership Unit or all or any portion of a Partnership Interest, means any sale, assignment, bequest, conveyance, devise, gift (outright or in trust), Pledge, encumbrance, hypothecation, mortgage, exchange, transfer or other disposition or act of alienation, whether voluntary or involuntary or by operation of law; provided, however, that, when the term is used in Article 11 hereof, Transfer does not include (a) any Redemption of Partnership Units by the Partnership, or acquisition of Tendered Units from the Limited Partners by the General Partner, pursuant to Section 8.6 hereof or (b) any redemption of Partnership Units pursuant to Section 8.7 or Section 8.8 hereof. The terms "Transferred" and "Transferring" have correlative meanings. "TWELVE-MONTH PERIOD" means a twelve-month period (or, as to a particular Qualifying Party, such shorter period as the General Partner may, in its sole and absolute discretion, agree to in the relevant Partner Schedule) ending on the day before the first (1st) anniversary of either (i) the admission of such Qualifying Party as a Limited Partner in the Partnership or (ii) the Transfer of Partnership Units to such Qualifying Party, or on the day before a subsequent anniversary thereof (or, in the case of a period shorter than twelve (12) months, such other period as may be provided in the relevant Partner Schedule). "UNITHOLDER" means the General Partner or a Holder of Partnership Units. "VALUATION DATE" means (a) in the case of a tender of Partnership Units for Redemption, the date of receipt by the General Partner of a Notice of Redemption or, if such date is not a Business Day, the immediately preceding Business Day or (b) in any other case, the date specified in this Agreement. "VALUE" means, on any Valuation Date with respect to a REIT Share, the average of the daily market prices for twenty (20) consecutive trading days immediately preceding the Valuation Date. The market price for any such trading day shall be: (1) if the REIT Shares are listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the closing price, regular way, on such day, or if no such sale takes place on such day, the average of the closing bid and asked prices on such day, in either case as reported in the principal consolidated transaction reporting system, (2) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System, the last reported sale price on such day or, if no sale takes place on such day, the average of the closing bid and asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or (3) if the REIT Shares are not listed or admitted to trading on any securities exchange or The Nasdaq Stock Market's National Market System and no such last reported sale price or closing bid and asked prices are available, the average of the reported high bid and low asked prices on such day, as reported by a reliable quotation source designated by the General Partner, or if there shall be no bid and asked prices on such day, the average of the high bid and low asked prices, as so reported, on the most recent day (not more than ten (10) days prior to the date in question) for which prices have been so reported; provided, however, that, if there are no bid and asked prices reported during the ten (10) days prior to the date in question, the Value of the REIT Shares shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. In the event that the REIT Shares Amount includes Rights that a holder of REIT Shares would be entitled to receive, then the Value 14 19 of such Rights shall be determined by the General Partner acting in good faith on the basis of such quotations and other information as it considers, in its reasonable judgment, appropriate. ARTICLE 2 ORGANIZATIONAL MATTERS SECTION 2.1 ORGANIZATION The Partnership is a limited partnership organized pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration and termination of the Partnership shall be governed by the Act. The Partnership Interest of each Partner shall be personal property for all purposes. SECTION 2.2 NAME The name of the Partnership is Excel Realty Partners, L.P. The Partnership's business may be conducted under any other name or names deemed advisable by the General Partner, including the name of the General Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or similar words or letters shall be included in the Partnership's name where necessary for the purposes of complying with the laws of any jurisdiction that so requires. The General Partner in its sole and absolute discretion may change the name of the Partnership at any time and from time to time and shall notify the Partners of such change in the next regular communication to the Partners. SECTION 2.3 REGISTERED OFFICE AND AGENT; PRINCIPAL OFFICE The address of the registered office of the Partnership in the State of Delaware is located at 32 Loockerman Square, Suite L-100, Dover, Delaware 19901, and the registered agent for service of process on the Partnership in the State of Delaware at such registered office is The Prentice-Hall Corporation System, Inc. The principal office of the Partnership is located at 16955 Via Del Campo, Suite 110, San Diego, California 92127, or such other place as the General Partner may from time to time designate by notice to the Limited Partners. The Partnership may maintain offices at such other place or places within or outside the State of Delaware as the General Partner deems advisable. SECTION 2.4 POWER OF ATTORNEY A. Each Limited Partner and each Assignee hereby irrevocably constitutes and appoints the General Partner, any Liquidator, and authorized officers and attorneys-in-fact of each, and each of those acting singly, in each case with full power of substitution, as its true and lawful agent and attorney-in-fact, with full power and authority in its name, place and stead to: (1) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices (a) all certificates, documents and other instruments (including, without limitation, this Agreement and the Certificate and all amendments, supplements or restatements thereof) that the General Partner or the Liquidator deems appropriate or necessary to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and in all other jurisdictions in which the Partnership may conduct business or own property; (b) all instruments that the General Partner deems appropriate or necessary to reflect any amendment, change, modification or restatement of this Agreement in accordance with its terms; (c) all conveyances and other instruments or documents that the General Partner or the Liquidator deems appropriate or necessary to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement, including, without limitation, a certificate of cancellation; (d) all conveyances and other instruments or documents that the General Partner or the Liquidator 15 20 deems appropriate or necessary to reflect the distribution or exchange of assets of the Partnership pursuant to the terms of this Agreement; (e) all instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Article 11, Article 12 or Article 13 hereof or the Capital Contribution of any Partner; and (f) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges relating to Partnership Interests; and (2) execute, swear to, acknowledge and file all ballots, consents, approvals, waivers, certificates and other instruments appropriate or necessary, in the sole and absolute discretion of the General Partner, to make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or appropriate or necessary, in the sole and absolute discretion of the General Partner, to effectuate the terms or intent of this Agreement. Nothing contained herein shall be construed as authorizing the General Partner to amend this Agreement except in accordance with Article 14 hereof or as may be otherwise expressly provided for in this Agreement. B. The foregoing power of attorney is hereby declared to be irrevocable and a special power coupled with an interest, in recognition of the fact that each of the Limited Partners and Assignees will be relying upon the power of the General Partner to act as contemplated by this Agreement in any filing or other action by it on behalf of the Partnership, and it shall survive and not be affected by the subsequent Incapacity of any Limited Partner or Assignee and the Transfer of all or any portion of such Limited Partner's or Assignee's Partnership Units or Partnership Interest and shall extend to such Limited Partner's or Assignee's heirs, successors, assigns and personal representatives. Each such Limited Partner or Assignee hereby agrees to be bound by any representation made by the General Partner, acting in good faith pursuant to such power of attorney; and each such Limited Partner or Assignee hereby waives any and all defenses that may be available to contest, negate or disaffirm the action of the General Partner, taken in good faith under such power of attorney. Each Limited Partner or Assignee shall execute and deliver to the General Partner or the Liquidator, within fifteen (15) days after receipt of the General Partner's or the Liquidator's request therefor, such further designation, powers of attorney and other instruments as the General Partner or the Liquidator, as the case may be, deems necessary to effectuate this Agreement and the purposes of the Partnership. SECTION 2.5 TERM The term of the Partnership commenced on April 24, 1995, the date that the original Certificate was filed in the office of the Secretary of State of Delaware in accordance with the Act, and shall continue until December 31, 2093 unless the Partnership is dissolved sooner pursuant to the provisions of Article 13 hereof or as otherwise provided by law. ARTICLE 3 PURPOSE SECTION 3.1 PURPOSE AND BUSINESS The purpose and nature of the Partnership is to conduct any business, enterprise or activity permitted by or under the Act, including, but not limited to, (i) to conduct the business of ownership, construction, development and operation of shopping centers or other real estate rental properties, (ii) to enter into any partnership, joint venture, business trust arrangement, limited liability company or other similar arrangement to engage in any business permitted by or under the Act, or to own interests in any entity engaged in any business permitted by or under the Act, and (iii) to do anything necessary or incidental to the foregoing; provided, however, such business and arrangements and interests may be limited to and conducted in such a manner as to permit the General Partner, in its sole and absolute discretion, at all times to be classified as a REIT. 16 21 SECTION 3.2 POWERS A. The Partnership shall be empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to or convenient for the furtherance and accomplishment of the purposes and business described herein and for the protection and benefit of the Partnership. B. Notwithstanding any other provision in this Agreement, the General Partner may cause the Partnership not to take, or to refrain from taking, any action that, in the judgment of the General Partner, in its sole and absolute discretion, (i) could adversely affect the ability of the General Partner to continue to qualify as a REIT, (ii) could subject the General Partner to any additional taxes under Code Section 857 or Code Section 4981 or (iii) could violate any law or regulation of any governmental body or agency having jurisdiction over the General Partner, its securities or the Partnership, unless such action (or inaction) under clause (i), clause (ii) or clause (iii) above shall have been specifically consented to by the General Partner in writing. SECTION 3.3 PARTNERSHIP ONLY FOR PURPOSES SPECIFIED The Partnership shall be a limited partnership only for the purposes specified in Section 3.1 hereof, and this Agreement shall not be deemed to create a company, venture or partnership between or among the Partners with respect to any activities whatsoever other than the activities within the purposes of the Partnership as specified in Section 3.1 hereof. Except as otherwise provided in this Agreement, no Partner shall have any authority to act for, bind, commit or assume any obligation or responsibility on behalf of the Partnership, its properties or any other Partner. No Partner, in its capacity as a Partner under this Agreement, shall be responsible or liable for any indebtedness or obligation of another Partner, nor shall the Partnership be responsible or liable for any indebtedness or obligation of any Partner, incurred either before or after the execution and delivery of this Agreement by such Partner, except as to those responsibilities, liabilities, indebtedness or obligations incurred pursuant to and as limited by the terms of this Agreement and the Act. SECTION 3.4 REPRESENTATIONS AND WARRANTIES BY THE LIMITED PARTNERS A. Each Limited Partner that is an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to the Partnership, the General Partner and each other Limited Partner that (i) the consummation of the transactions contemplated by this Agreement to be performed by such Limited Partner will not result in a breach or violation of, or a default under, any material agreement by which such Limited Partner or any of such Limited Partner's property is bound, or any statute, regulation, order or other law to which such Limited Partner is subject, (ii) such Limited Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iii) such Limited Partner does not own, directly or indirectly or by attribution under Code Section 318 (as modified by Code Section 856(d)(5)), (a) nine and eight-tenths percent (9.8%) or more of the total combined voting power of all classes of stock entitled to vote, or nine and eight-tenths percent (9.8%) or more of the total number of shares of all classes of stock, of the General Partner or of any corporation that is a tenant of either (I) the General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the General Partner or the Partnership is a member or (b) an interest of nine and eight-tenths percent (9.8%) or more in the assets or net profits of any tenant of either (I) the General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the General Partner or the Partnership is a member, (iv) such Limited Partner does not own, directly or indirectly or by attribution under Code Section 544 (as modified by Code Section 856(h)) stock of the General Partner (except as set forth in a Partner Schedule), and (v) this Agreement is binding upon, and enforceable against, such Limited Partner in accordance with its terms. B. Each Limited Partner that is not an individual (including, without limitation, each Additional Limited Partner or Substituted Limited Partner as a condition to becoming an Additional Limited Partner or a Substituted Limited Partner) represents and warrants to the Partnership, the General Partner and each other Limited Partner that (i) all transactions contemplated by this Agreement to be performed by it have been duly authorized by all 17 22 necessary action, including, without limitation, that of its general partner(s), committee(s), trustee(s), beneficiaries, directors and/or shareholder(s), as the case may be, as required, (ii) the consummation of such transactions shall not result in a breach or violation of, or a default under, its partnership or operating agreement, trust agreement, charter or bylaws, as the case may be, any material agreement by which such Limited Partner or any of such Limited Partner's properties or any of its partners, members, beneficiaries, trustees or shareholders, as the case may be, is or are bound, or any statute, regulation, order or other law to which such Limited Partner or any of its partners, members, trustees, beneficiaries or shareholders, as the case may be, is or are subject, (iii) such Limited Partner is neither a "foreign person" within the meaning of Code Section 1445(f) nor a "foreign partner" within the meaning of Code Section 1446(e), (iv) such Limited Partner does not own, directly or indirectly or by attribution under Code Section 318 (as modified by Code Section 856(d)(5)), (a) nine and eight-tenths percent (9.8%) or more of the total combined voting power of all classes of stock entitled to vote, or nine and eight-tenths percent (9.8%) or more of the total number of shares of all classes of stock, of the General Partner or of any corporation that is a tenant of either (I) the General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the General Partner or the Partnership is a member or (b) an interest of nine and eight-tenths percent (9.8%) or more in the assets or net profits of any tenant of either (I) the General Partner, (II) the Partnership or (III) any partnership, venture or limited liability company of which the General Partner or the Partnership is a member, (v) such Limited Partner does not own, directly or indirectly or by attribution under Code Section 544 (as modified by Code Section 856(h)) stock of the General Partner (except as set forth in a Partner Schedule), and (vi) this Agreement is binding upon, and enforceable against, such Limited Partner in accordance with its terms. C. Each Limited Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) represents, warrants and agrees that it has acquired and continues to hold its interest in the Partnership for its own account for investment only and not for the purpose of, or with a view toward, the resale or distribution of all or any part thereof, nor with a view toward selling or otherwise distributing such interest or any part thereof at any particular time or under any predetermined circumstances. Each Limited Partner further represents and warrants that it is a sophisticated investor, able and accustomed to handling sophisticated financial matters for itself, particularly real estate investments, and that it has a sufficiently high net worth that it does not anticipate a need for the funds that it has invested in the Partnership in what it understands to be a highly speculative and illiquid investment. D. The representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C hereof shall survive the execution and delivery of this Agreement by each Limited Partner (and, in the case of an Additional Limited Partner or a Substituted Limited Partner, the admission of such Additional Limited Partner or Substituted Limited Partner as a Limited Partner in the Partnership) and the dissolution, liquidation and termination of the Partnership. The General Partner may, in its sole and absolute discretion on behalf of the Partnership and its Partners, grant waivers and exceptions to the representations and warranties contained in Sections 3.4.A, 3.4.B and 3.4.C hereof, but any such waiver or exception must be in writing, must refer to this Section 3.4.D and must describe with particularity the representation or warranty as to which such waiver or exception shall apply. E. Each Limited Partner (including, without limitation, each Substituted Limited Partner as a condition to becoming a Substituted Limited Partner) hereby represents that it has consulted and been advised by its legal counsel and tax advisor in connection with, and acknowledges that no representations as to potential profit, tax consequences of any sort (including, without limitation, the tax consequences resulting from making a Capital Contribution, being admitted to the Partnership or being allocated Tax Items), cash flows, funds from operations or yield, if any, in respect of the Partnership or the General Partner have been made by any Partner or any employee or representative or Affiliate of any Partner, and that projections and any other information, including, without limitation, financial and descriptive information and documentation, that may have been in any manner submitted to such Limited Partner shall not constitute any representation or warranty of any kind or nature, express or implied. 18 23 ARTICLE 4 CAPITAL CONTRIBUTIONS SECTION 4.1 CAPITAL CONTRIBUTIONS OF THE INITIAL PARTNERS The initial Limited Partner has made the Capital Contribution as set forth in the Partner Schedule for such Partner, and the General Partner has made the Capital Contribution shown on Exhibit A attached hereto. Each initial Limited Partner shall own Partnership Units in the amount set forth for such Partner in the Partner Schedule with respect to such Partner, as the same may be amended from time to time. The General Partner shall initially own Partnership Units in the amount set forth for the General Partner on Exhibit A attached hereto. Except as provided in a particular Partner Schedule, by law or in Section 4.4.D or Section 10.4 hereof, the Partners shall have no obligation or right to make any additional Capital Contributions or loans to the Partnership. SECTION 4.2 ADDITIONAL LIMITED PARTNERS The General Partner is authorized to admit one or more Additional Limited Partners to the Partnership from time to time, on terms and conditions and for such Capital Contributions as may established by the General Partner in its reasonable discretion. No action or consent by the Limited Partners shall be required in connection with the admission of any Additional Limited Partner. In the sole and absolute discretion of the General Partner, the Partnership may acquire in the future additional Properties by means of Capital Contributions by other Persons, which Capital Contributions shall be set forth in one or more Partner Schedules. Persons making such Capital Contributions and executing such Partner Schedules together with the General Partner shall be admitted to the Partnership as Additional Limited Partners, with such number of Partnership Units, Preferred Returns Per Unit, Specific Adjustment Factors and Specific Adjustment Limitations as may be set forth in such Partner Schedules. To the extent that the Partnership acquires in the future any property by the merger of any other Person into the Partnership, Persons who receive Partnership Interests in exchange for their interests in the Person merging into the Partnership shall become Partners and shall be deemed to have made Capital Contributions as provided in the applicable merger agreement and as set forth in one or more Partner Schedules. SECTION 4.3 LOANS BY THIRD PARTIES The Partnership may incur or assume Debt, or enter into other similar credit, guarantee, financing or refinancing arrangements, for any purpose (including, without limitation, in connection with any further acquisition of Properties from any Person), upon such terms as the General Partner determines appropriate; provided, however, that the Partnership shall not incur or assume any Debt under which a breach, violation or default would be deemed to occur by virtue of the Transfer of any Limited Partner Interest or General Partner Interest; provided, further, that any Debt shall be nonrecourse to the General Partner unless the General Partner otherwise agrees. SECTION 4.4 ADDITIONAL FUNDING AND CAPITAL CONTRIBUTIONS A. GENERAL. The General Partner may, at any time and from time to time, determine that the Partnership requires additional funds ("ADDITIONAL FUNDS") for the acquisition or development of additional Properties or for such other purposes as the General Partner may determine. Additional Funds may be raised by the Partnership, at the election of the General Partner, in any manner provided in, and in accordance with, the terms of this Section 4.4 or, alternatively, the terms of Section 4.3 hereof. No Person, including, without limitation, any Partner or Assignee, shall have any preemptive, preferential, participation or similar right or rights to subscribe for or acquire any Partnership Interest. B. NOTICE OF ADDITIONAL FUNDS REQUIREMENT. The General Partner may, but shall not be required to, give written notice (the "FUNDING NOTICE") to the Limited Partners of the need for Additional Funds and the anticipated source(s) thereof. 19 24 C. GENERAL PARTNER LOANS. Whether or not a Funding Notice is given to the Limited Partners, the General Partner may enter into a Funding Debt (including, but not limited to, a Funding Debt that is convertible into REIT Shares) and lend the Additional Funds to the Partnership (a "GENERAL PARTNER LOAN"). If the General Partner enters into such a Funding Debt, the General Partner Loan will consist of the net proceeds from such Funding Debt and, to the extent permitted by law, will be on the same terms and conditions, including interest rate and repayment schedule, and providing for the reimbursement of costs and expenses, as shall be applicable with respect to or incurred in connection with such Funding Debt. Otherwise, all General Partner Loans made pursuant to this Section 4.4 shall be on terms and conditions no less favorable to the Partnership than would be available to the Partnership from any third party. D. ADDITIONAL GENERAL PARTNER CONTRIBUTIONS; ADDITIONAL LIMITED PARTNERS. Whether or not a Funding Notice is given to the Limited Partners, the General Partner on behalf of the Partnership may raise all or any portion of the Additional Funds by making additional Capital Contributions and/or accepting additional Capital Contributions from any other Partners and/or third parties and either (a) in the case of Partners (including the General Partner), increasing such Partner's Partnership Units or (b) in the case of a third party, admitting such third party as an Additional Limited Partner as contemplated by Section 4.2 of this Agreement. Subject to the terms of this Section 4.4 and to the definition of "Gross Asset Value," the General Partner shall determine in good faith the amount, terms and conditions of such additional Capital Contributions; provided, however, that, in the case of an additional Capital Contribution by the General Partner, the Partnership shall issue to the General Partner the number of Partnership Units derived by dividing (1) the amount of the additional Capital Contribution (net of any liabilities assumed or taken subject to by the Partnership) by (2) the Value determined as of the date of such Capital Contribution. E. TIMING OF ADDITIONAL CAPITAL CONTRIBUTIONS. If additional Capital Contributions are made by Partners on any day other than the first day of a Fiscal Year, then Net Income, Net Loss, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the "interim closing of the books" or "daily proration" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which such Capital Contributions are made shall be allocated among all the Partners and Assignees in accordance with the principles described in Section 11.6.C hereof. All distributions of Available Cash shall be made in accordance with the principles described in Section 12.2.C hereof. SECTION 4.5 NO INTEREST; NO RETURN No Partner shall be entitled to interest on its Capital Contribution or on such Partner's Capital Account. Except as provided herein or by law, no Partner shall have any right to demand or receive the return of its Capital Contribution from the Partnership. ARTICLE 5 DISTRIBUTIONS SECTION 5.1 REQUIREMENT AND CHARACTERIZATION OF DISTRIBUTIONS The General Partner shall cause the Partnership to distribute quarterly (or, with respect to a particular Holder of Partnership Units, in installments upon such other frequency as may be provided in the relevant Partner Schedule) all, or such portion as the General Partner may in its sole and absolute discretion determine, of Available Cash generated by the Partnership during such quarter (or other period) to the Unitholders on the Partnership Record Date with respect to such quarter (or other period) as follows: (1) First, to each Holder of Partnership Units, pari passu, an amount equal to the sum of (a) the product of (i) the Preferred Return Per Unit for such Holder (or its predecessor) for such quarter (or for such other period as provided in the relevant Partner Schedule) and (ii) the 20 25 number of Partnership Units held by such Holder as of the Partnership Record Date and (b) any unpaid amounts previously distributable to such Holder (or its predecessor) under this Section 5.1(1); provided, however, that, except as may otherwise be provided in a particular Partner Schedule, the amount distributable pursuant to clause (a) to any Additional Limited Partner admitted to the Partnership in the quarter immediately preceding and ending with such Partnership Record Date shall be prorated based on the number of days that such Additional Limited Partner was a Holder of Partnership Units during such quarter; and (2) Second, the balance, (a) ninety-nine percent (99%) to the General Partner and (b) one percent (1%) to the Limited Partners and Assignees (including the General Partner following the acquisition of Tendered Units pursuant to Section 8.6 hereof and the issuance of additional Partnership Units in exchange for Additional Capital Contributions pursuant to Section 4.4.D) in accordance with their respective Partnership Units as of the Partnership Record Date. The General Partner in its sole and absolute discretion may distribute to the Unitholders Available Cash in accordance with foregoing priorities on a more frequent basis and provide for an appropriate record date. The General Partner shall take such reasonable efforts, as determined by it in its sole and absolute discretion and consistent with the General Partner's qualification as a REIT, to cause the Partnership to distribute sufficient amounts to enable the General Partner to pay shareholder dividends that will (a) satisfy the requirements for qualifying as a REIT under the Code and Regulations (the "REIT REQUIREMENTS") and (b) avoid any federal income or excise tax liability of the General Partner. SECTION 5.2 DISTRIBUTIONS IN KIND No right is given to any Unitholder to demand and receive property other than cash as provided in this Agreement. The General Partner may determine, in its sole and absolute discretion, to make a distribution in kind of Partnership assets to the Unitholders, and, subject to Section 8.8 hereof, such assets shall be distributed in such a fashion as to ensure that the fair market value is distributed and allocated in accordance with Articles 5, 6 and 10 hereof. SECTION 5.3 AMOUNTS WITHHELD All amounts withheld pursuant to the Code or any provisions of any state or local tax law and Section 10.4 hereof with respect to any allocation, payment or distribution to any Unitholder shall be treated as amounts paid or distributed to such Unitholder pursuant to Section 5.1 hereof for all purposes under this Agreement. SECTION 5.4 DISTRIBUTIONS UPON LIQUIDATION Notwithstanding the other provisions of this Article 5, net proceeds from a Terminating Capital Transaction, and any other cash received or reductions in reserves made after commencement of the liquidation of the Partnership, shall be distributed to the Unitholders in accordance with Section 13.2 hereof. SECTION 5.5 RESTRICTED DISTRIBUTIONS Notwithstanding any provision to the contrary contained in this Agreement, neither the Partnership nor the General Partner, on behalf of the Partnership, shall make a distribution to any Unitholder on account of its Partnership Interest or interest in Partnership Units if such distribution would violate Section 17-607 of the Act or other applicable law. 21 26 ARTICLE 6 ALLOCATIONS SECTION 6.1 TIMING AND AMOUNT OF ALLOCATIONS OF NET INCOME AND NET LOSS Net Income and Net Loss of the Partnership shall be determined and allocated with respect to each Fiscal Year of the Partnership as of the end of each such year. Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof, an allocation to a Unitholder of a share of Net Income or Net Loss shall be treated as an allocation of the same share of each item of income, gain, loss or deduction that is taken into account in computing Net Income or Net Loss. SECTION 6.2 GENERAL ALLOCATIONS Except as otherwise provided in this Article 6, and subject to Section 11.6.C hereof: A. NET INCOME. Net Income for any Fiscal Year shall be allocated as follows: (1) First, to the Holders in proportion to, and until the amount of the cumulative Net Income allocated pursuant to this section 6.2.A(1) is equal to the amount of, the cumulative Net Loss allocated pursuant to section 6.2.B(2) and (3) for all prior Fiscal Years, in the reverse order of priority that such Net Loss was allocated to the Holders. (2) Second, up to 99% to the Holders, in proportion to, and to the extent of the excess, if any, of (a) the cumulative amount of the distributions of the Preferred Return Per Unit received for the Fiscal Year and all prior Fiscal Years, by such Holders pursuant to section 5.1(1) of this Agreement, over (b) the amount of the cumulative Net Income allocated for all prior Fiscal Years to such Holders pursuant to this section 6.2.A(2), until each Holder has been allocated an amount under this section 6.2.A(2) equal to such excess. (3) Third, to the General Partner, 1.01% of the amount allocated under section 6.2.A(2). (4) Fourth, to the Holders in proportion to, and to the extent of the excess, if any, of (a) the cumulative amount of the distributions received for the Fiscal Year and all prior Fiscal Years, by such Holders pursuant to section 5.1(2) of this Agreement, over (b) the amount of the cumulative Net Income allocated for all prior Fiscal Years to such Holders pursuant to this section 6.2.A(4), until each Holder has been allocated an amount under this section 6.2.A(4) equal to such excess. (5) Thereafter, 99% to the General Partner and 1% to the Limited Partners and Assignees (including the General Partner following the acquisition of Tendered Units pursuant to section 8.6 hereof and the issuance of additional Partnership Units in exchange for additional Capital Contributions pursuant to section 4.4.D) in accordance with their respective Partnership Units at the end of such Fiscal Year. B. NET LOSS. Net Loss for any Fiscal Year shall be allocated as follows: (1) First, to the Holders in proportion to, and until the amount of the cumulative Net Loss allocated pursuant to this section 6.2.B(1) is equal to the amount of, the cumulative Net Income allocated pursuant to sections 6.2.A(2), (3), (4) and (5) for all prior Fiscal Years, in the reverse order of priority that such Net Income was allocated to the Holders. 22 27 (2) Second, to the Holders up to and in proportion to the positive balances of their respective Capital Accounts, after giving effect to all contributions and distributions for such Fiscal Year. (3) Thereafter, 99% to the General Partner and 1% to the Limited Partners and Assignees (including the General Partner following the acquisition of Tendered Units pursuant to section 8.6 hereof and the issuance of additional Partnership Units in exchange for additional Capital Contributions pursuant to section 4.4.D) in accordance with their respective Partnership Units at the end of such Fiscal Year. SECTION 6.3 ADDITIONAL ALLOCATION PROVISIONS A. SPECIAL ALLOCATIONS. Notwithstanding the foregoing provisions of this Article 6: (1) Depreciation shall be allocated to the Holders in accordance with and in proportion to their Partnership Units. (2) Net Income for any Fiscal Year upon the sale or other disposition of any of the Properties shall be allocated to the Holders in proportion to, and until the amount of the cumulative Net Income allocated pursuant to this section 6.3.A(2) is equal to the amount of, the cumulative Depreciation allocated to the Holders with respect to the Property being sold or disposed of pursuant to section 6.3.A(1) for the Fiscal Year and all prior Fiscal Years. B. REGULATORY ALLOCATIONS (a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Regulations Section 1.704-2(f), notwithstanding the provisions of Section 6.2 hereof, or any other provision of this Article 6, if there is a net decrease in Partnership Minimum Gain during any Fiscal Year, each Unitholder shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder's share of the net decrease in Partnership Minimum Gain, as determined under Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each Unitholder pursuant thereto. The items to be allocated shall be determined in accordance with Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section 6.3.B(a) is intended to qualify as a "minimum gain chargeback" within the meaning of Regulations Section 1.704-2(f) and shall be interpreted consistently therewith. (b) PARTNER MINIMUM GAIN CHARGEBACK. Except as otherwise provided in Regulations Section 1.704- 2(i)(4) or in Section 6.3.B(a) hereof, if there is a net decrease in Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any Fiscal Year, each Unitholder who has a share of the Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(5), shall be specially allocated items of Partnership income and gain for such year (and, if necessary, subsequent years) in an amount equal to such Unitholder's share of the net decrease in Partner Minimum Gain attributable to such Partner Nonrecourse Debt, determined in accordance with Regulations Section 1.704-2(i)(4). Allocations pursuant to the previous sentence shall be made in proportion to the respective amounts required to be allocated to each General Partner, Limited Partner and other Holder pursuant thereto. The items to be so allocated shall be determined in accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section 6.3.B(b) is intended to qualify as a "chargeback of partner nonrecourse debt minimum gain" within the meaning of Regulations Section 1.704-2(i) and shall be interpreted consistently therewith. 23 28 (c) NONRECOURSE DEDUCTIONS AND PARTNER NONRECOURSE DEDUCTIONS. Any Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Holders of Partnership Units in accordance with their Partnership Units. Any Partner Nonrecourse Deductions for any Fiscal Year shall be specially allocated to the Unitholder(s) who bears the economic risk of loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable, in accordance with Regulations Section 1.704-2(i). (d) QUALIFIED INCOME OFFSET. If any Unitholder unexpectedly receives an adjustment, allocation or distribution described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership income and gain shall be allocated, in accordance with Regulations Section 1.704-1(b)(2)(ii)(d), to such Unitholder in an amount and manner sufficient to eliminate, to the extent required by such Regulations, the Adjusted Capital Account Deficit of such Unitholder as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(d) shall be made if and only to the extent that such Unitholder would have an Adjusted Capital Account Deficit after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(d) were not in the Agreement. It is intended that this Section 6.3.B(d) qualify and be construed as a "qualified income offset" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (e) GROSS INCOME ALLOCATION. In the event that any Unitholder has a deficit Capital Account at the end of any Fiscal Year that is in excess of the sum of (i) the amount (if any) that such Unitholder is obligated to restore to the Partnership upon complete liquidation of such Unitholder's Partnership Interest and (ii) the amount that such Unitholder is deemed to be obligated to restore pursuant to the penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Unitholder shall be specially allocated items of Partnership income and gain in the amount of such excess to eliminate such deficit as quickly as possible, provided that an allocation pursuant to this Section 6.3.B(e) shall be made if and only to the extent that such Unitholder would have a deficit Capital Account in excess of such sum after all other allocations provided in this Article 6 have been tentatively made as if this Section 6.3.B(e) and Section 6.3.B(d) hereof were not in the Agreement. (f) LIMITATION ON ALLOCATION OF NET LOSS. To the extent that any allocation of Net Loss would cause or increase an Adjusted Capital Account Deficit as to any Holder of Partnership Units, such allocation of Net Loss shall be reallocated among the other Holders of Partnership Units in accordance with their respective Partnership Units, subject to the limitations of this Section 6.3.B(f). (g) SECTION 754 ADJUSTMENT. To the extent that an adjustment to the adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant to Regulations Section 1.704- 1(b)(2)(iv)(m)(2) or Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital Accounts as the result of a distribution to a Holder of Partnership Units in complete liquidation of its interest in the Partnership, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such gain or loss shall be specially allocated to the Holders in accordance with their Partnership Units in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Holders to whom such distribution was made in the event that Regulations Section 1.704-1(b)(2)(iv)(m)(4) applies. (h) CURATIVE ALLOCATIONS. The allocations set forth in Sections 6.3.B(a), (b), (c), (d), (e), (f) and (g) hereof (the "REGULATORY ALLOCATIONS") are intended to comply with certain regulatory requirements, including the requirements of Regulations Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.1 hereof, the Regulatory Allocations shall be taken 24 29 into account in allocating other items of income, gain, loss and deduction among the Unitholders so that, to the extent possible without violating the requirements giving rise to the Regulatory Allocations, the net amount of such allocations of other items and the Regulatory Allocations to each Unitholder shall be equal to the net amount that would have been allocated to each such Unitholder if the Regulatory Allocations had not occurred. C. ALLOCATION OF EXCESS NONRECOURSE LIABILITIES. For purposes of determining a Holder's proportional share of the "excess nonrecourse liabilities" of the Partnership within the meaning of Regulations Section 1.752-3(a)(3), each Holder's interest in Partnership profits shall be such Holder's share of Partnership Units. SECTION 6.4 TAX ALLOCATIONS A. IN GENERAL. Except as otherwise provided in this Section 6.4, for income tax purposes under the Code and the Regulations each Partnership item of income, gain, loss and deduction (collectively, "TAX ITEMS") shall be allocated among the Unitholders in the same manner as its correlative item of "book" income, gain, loss or deduction is allocated pursuant to Sections 6.2 and 6.3 hereof. B. ALLOCATIONS RESPECTING SECTION 704(C) REVALUATIONS. Notwithstanding Section 6.4.A hereof, Tax Items with respect to Property that is contributed to the Partnership with a Gross Asset Value that varies from its basis in the hands of the contributing Partner immediately preceding the date of contribution shall be allocated among the Unitholders for income tax purposes pursuant to Regulations promulgated under Code Section 704(c) so as to take into account such variation. The Partnership shall account for such variation under any method approved under Code Section 704(c) and the applicable Regulations as chosen by the General Partner, including, without limitation, the "traditional method" as described in Regulations Section 1.704-3(b). In the event that the Gross Asset Value of any Partnership asset is adjusted pursuant to subsection (b) of the definition of "Gross Asset Value" (provided in Article 1 hereof), subsequent allocations of Tax Items with respect to such asset shall take account of the variation, if any, between the adjusted basis of such asset and its Gross Asset Value in the same manner as under Code Section 704(c) and the applicable Regulations. SECTION 6.5 OTHER PROVISIONS A. OTHER ALLOCATIONS UPON CHANGE IN LAW. In the event that the Code or any Regulations require allocations of items of income, gain, loss, deduction or credit different from those set forth in this Article 6, the General Partner is hereby authorized to make new allocations in reliance on the Code and such Regulations, such new allocations shall be deemed to be made pursuant to the fiduciary duty of the General Partner to the Partnership and the other Holders, and no such new allocation shall give rise to any claim or cause of action by any Holder. B. CONSISTENT TAX REPORTING. The Partners acknowledge and are aware of the income tax consequences of the allocations made by this Article 6 and hereby agree to be bound by the provisions of this Article 6 in reporting their shares of Net Income, Net Losses and other items of income, gain, loss, deduction and credit for federal, state and local income tax purposes. ARTICLE 7 MANAGEMENT AND OPERATIONS OF BUSINESS SECTION 7.1 MANAGEMENT A. Except as otherwise expressly provided in this Agreement, all management powers over the business and affairs of the Partnership are and shall be exclusively vested in the General Partner, and no Limited Partner shall have any right to participate in or exercise control or management power over the business and affairs of the Partnership. The General Partner may not be removed by the Partners with or without cause, except with the Consent of the General Partner. In addition to the powers now or hereafter granted a general partner of a limited partnership under applicable law or that are granted to the General Partner under any other provision of this 25 30 Agreement, the General Partner, subject to the other provisions hereof including Section 7.3, shall have full power and authority to do all things deemed necessary or desirable by it to conduct the business of the Partnership, to exercise all powers set forth in Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1 hereof, including, without limitation: (1) the making of any expenditures, the lending or borrowing of money (including, without limitation, making prepayments on loans and borrowing money to permit the Partnership to make distributions to its Partners in such amounts as will permit the General Partner (so long as the General Partner qualifies as a REIT) to avoid the payment of any federal income tax (including, for this purpose, any excise tax pursuant to Code Section 4981) and to make distributions to its shareholders sufficient to permit the General Partner to maintain REIT status or otherwise to satisfy the REIT Requirements), the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness (including the securing of same by deed to secure debt, mortgage, deed of trust or other lien or encumbrance on the Partnership's assets) and the incurring of any obligations that it deems necessary for the conduct of the activities of the Partnership; (2) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership; (3) the acquisition, sale, transfer, exchange or other disposition of any assets of the Partnership (including, but not limited to, the exercise or grant of any conversion, option, privilege or subscription right or any other right available in connection with any assets at any time held by the Partnership) or the merger, consolidation, reorganization or other combination of the Partnership with or into another entity; (4) the mortgage, pledge, encumbrance or hypothecation of any assets of the Partnership (including, without limitation, any Contributed Property), the use of the assets of the Partnership (including, without limitation, cash on hand) for any purpose consistent with the terms of this Agreement which the General Partner believes will directly benefit the Partnership and on any terms that the General Partner sees fit, including, without limitation, the financing of the operations and activities of the General Partner, the Partnership or any of the Partnership's Subsidiaries, the lending of funds to other Persons (including, without limitation, the Partnership's Subsidiaries) and the repayment of obligations of the Partnership, its Subsidiaries and any other Person in which it has an equity investment, and the making of capital contributions to and equity investments in the Partnership's Subsidiaries; (5) the management, operation, leasing, landscaping, repair, alteration, demolition, replacement or improvement of any Property, including, without limitation, any Contributed Property, or other asset of the Partnership or any Subsidiary; (6) the negotiation, execution and performance of any contracts, leases, conveyances or other instruments that the General Partner considers useful or necessary to the conduct of the Partnership's operations or the implementation of the General Partner's powers under this Agreement, including contracting with property managers (including, without limitation, as to any Contributed Property or other Property, contracting with the contributing or any other Limited Partner or its Affiliates for property management services), contractors, developers, consultants, accountants, legal counsel, other professional advisors and other agents and the payment of their expenses and compensation out of the Partnership's assets; (7) the distribution of Partnership cash or other Partnership assets in accordance with this Agreement, the holding, management, investment and reinvestment of cash and other assets of the Partnership, and the collection and receipt of revenues, rents and income of the Partnership; 26 31 (8) the selection and dismissal of employees of the Partnership or the General Partner (including, without limitation, employees having titles or offices such as "president," "vice president," "secretary" and "treasurer"), and agents, outside attorneys, accountants, consultants and contractors of the Partnership or the General Partner and the determination of their compensation and other terms of employment or hiring; (9) the maintenance of such insurance for the benefit of the Partnership and the Partners as it deems necessary or appropriate; (10) the formation of, or acquisition of an interest in, and the contribution of property to, any further limited or general partnerships, limited liability companies, joint ventures or other relationships that it deems desirable (including, without limitation, the acquisition of interests in, and the contributions of property to, any Subsidiary and any other Person in which it has an equity investment from time to time); provided, however, that, as long as the General Partner has determined to continue to qualify as a REIT, the General Partner may not engage in any such formation, acquisition or contribution that would cause the General Partner to fail to qualify as a REIT; (11) the control of any matters affecting the rights and obligations of the Partnership, including the settlement, compromise, submission to arbitration or any other form of dispute resolution, or abandonment, of any claim, cause of action, liability, debt or damages, due or owing to or from the Partnership, the commencement or defense of suits, legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, and the representation of the Partnership in all suits or legal proceedings, administrative proceedings, arbitrations or other forms of dispute resolution, the incurring of legal expense, and the indemnification of any Person against liabilities and contingencies to the extent permitted by law; (12) the undertaking of any action in connection with the Partnership's direct or indirect investment in any Subsidiary or any other Person (including, without limitation, the contribution or loan of funds by the Partnership to such Persons); (13) the determination of the fair market value of any Partnership property distributed in kind using such reasonable method of valuation as it may adopt, provided that such methods are otherwise consistent with the requirements of this Agreement; (14) the enforcement of any rights against any Partner pursuant to representations, warranties, covenants and indemnities relating to such Partner's contribution of property or assets to the Partnership; (15) the exercise, directly or indirectly, through any attorney-in-fact acting under a general or limited power of attorney, of any right, including the right to vote, appurtenant to any asset or investment held by the Partnership; (16) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of or in connection with any Subsidiary of the Partnership or any other Person in which the Partnership has a direct or indirect interest, or jointly with any such Subsidiary or other Person; (17) the exercise of any of the powers of the General Partner enumerated in this Agreement on behalf of any Person in which the Partnership does not have an interest, pursuant to contractual or other arrangements with such Person; 27 32 (18) the making, execution and delivery of any and all deeds, leases, notes, deeds to secure debt, mortgages, deeds of trust, security agreements, conveyances, contracts, guarantees, warranties, indemnities, waivers, releases or legal instruments or agreements in writing necessary or appropriate in the judgment of the General Partner for the accomplishment of any of the powers of the General Partner enumerated in this Agreement; (19) the issuance of additional Partnership Units, as appropriate and in the General Partner's sole and absolute discretion, in connection with Capital Contributions by Additional Limited Partners and additional Capital Contributions by Partners pursuant to Article 4 hereof. B. Each of the Limited Partners agrees that, except as provided in Section 7.3 hereof, the General Partner is authorized to execute, deliver and perform the above-mentioned agreements and transactions on behalf of the Partnership without any further act, approval or vote of the Partners, notwithstanding any other provision of this Agreement (except as provided in Section 7.3 hereof), the Act or any applicable law, rule or regulation. The execution, delivery or performance by the General Partner or the Partnership of any agreement authorized or permitted under this Agreement shall not constitute a breach by the General Partner of any duty that the General Partner may owe the Partnership or the Limited Partners or any other Persons under this Agreement or of any duty stated or implied by law or equity. C. At all times from and after the date hereof, the General Partner may cause the Partnership to obtain and maintain (i) casualty, liability and other insurance on the Properties of the Partnership and (ii) liability insurance for the Indemnitees hereunder. D. At all times from and after the date hereof, the General Partner may cause the Partnership to establish and maintain working capital and other reserves in such amounts as the General Partner, in its sole and absolute discretion, deems appropriate and reasonable from time to time. E. In exercising its authority under this Agreement, the General Partner may, but shall be under no obligation to, take into account the tax consequences to any Partner (including the General Partner) of any action taken by it. The General Partner and the Partnership shall not have liability to a Limited Partner under any circumstances as a result of an income tax liability incurred by such Limited Partner as a result of an action (or inaction) by the General Partner pursuant to its authority under this Agreement so long as the action or inaction is taken in good faith. SECTION 7.2 CERTIFICATE OF LIMITED PARTNERSHIP To the extent that such action is determined by the General Partner to be reasonable and necessary or appropriate, the General Partner shall file amendments to and restatements of the Certificate and do all the things to maintain the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) under the laws of the State of Delaware and each other state, the District of Columbia or any other jurisdiction in which the Partnership may elect to do business or own property. Subject to the terms of Section 8.5.A(4) hereof, the General Partner shall not be required, before or after filing, to deliver or mail a copy of the Certificate or any amendment thereto to any Limited Partner. The General Partner shall use all reasonable efforts to cause to be filed such other certificates or documents as may be reasonable and necessary or appropriate for the formation, continuation, qualification and operation of a limited partnership (or a partnership in which the limited partners have limited liability to the extent provided by applicable law) in the State of Delaware and any other state, or the District of Columbia or other jurisdiction in which the Partnership may elect to do business or own property. SECTION 7.3 RESTRICTIONS ON GENERAL PARTNER'S AUTHORITY A. The General Partner may not take any action in contravention of this Agreement. Specifically (but without limitation), the General Partner may not: 28 33 (1) take any action that would make it impossible to carry on the ordinary business of the Partnership, except as otherwise provided in this Agreement; (2) possess Partnership property, or assign any rights in specific Partnership property, for other than a Partnership purpose except as otherwise provided in this Agreement; (3) admit a Person as a Partner, except as otherwise provided in this Agreement; (4) perform any act that would subject a Limited Partner to liability as a general partner in any jurisdiction or any other liability except as provided herein or under the Act; or (5) enter into any contract, mortgage, loan or other agreement that prohibits or restricts, or has the effect of prohibiting or restricting, the ability of (a) the General Partner or the Partnership from satisfying its obligations under Section 8.6 hereof in full or (b) a Limited Partner from exercising its rights under Section 8.6 hereof to effect a Redemption in full, except, in either case, with the written consent of such Limited Partner affected by the prohibition or restriction. B. The General Partner shall not, without the prior Consent of the Limited Partners, undertake, on behalf of the Partnership, any of the following actions or enter into any transaction that would have the effect of such transactions: (1) except as provided in Section 7.3.C hereof, amend, modify or terminate this Agreement other than to reflect the admission, substitution, termination or withdrawal of Partners pursuant to Article 11 or Article 12 hereof; (2) make a general assignment for the benefit of creditors or appoint or acquiesce in the appointment of a custodian, receiver or trustee for all or any part of the assets of the Partnership; (3) institute any proceeding for bankruptcy on behalf of the Partnership; or (4) subject to the rights of Transfer provided in Section 11.2 hereof, approve or acquiesce to the Transfer of the Partnership Interest of the General Partner, or admit into the Partnership any additional or successor General Partners. C. Notwithstanding Section 7.3.B hereof, the General Partner shall have the power, without the Consent of the Limited Partners, to amend this Agreement as may be required to facilitate or implement any of the following purposes: (1) to add to the obligations of the General Partner or surrender any right or power granted to the General Partner or any Affiliate of the General Partner for the benefit of the Limited Partners; (2) to reflect the admission, substitution or withdrawal of Partners or the termination of the Partnership in accordance with this Agreement, and to amend Exhibit A in connection with such admission, substitution or withdrawal; (3) to reflect a change that is of an inconsequential nature and does not adversely affect the Limited Partners in any material respect, or to cure any ambiguity, correct or supplement any provision in this Agreement not inconsistent with law or with other provisions, or make other changes with respect to matters arising under this Agreement that will not be inconsistent with law or with the provisions of this Agreement; 29 34 (4) to satisfy any requirements, conditions or guidelines contained in any order, directive, opinion, ruling or regulation of a federal or state agency or contained in federal or state law; (5) to reflect such changes as are reasonably necessary for the General Partner to maintain its status as a REIT or to satisfy the REIT Requirements; and (6) to modify the manner in which Capital Accounts are computed (but only to the extent set forth in the definition of "Capital Account" or contemplated by the Code or the Regulations). The General Partner will provide notice to the Limited Partners when any action under this Section 7.3.C is taken. D. Notwithstanding Section 7.3.B and 7.3.C hereof, this Agreement shall not be amended, and no action may be taken by the General Partner, without the Consent of each Partner adversely affected, if such amendment or action would (i) convert a Limited Partner Interest in the Partnership into a General Partner Interest (except as a result of the General Partner acquiring such Partnership Interest), (ii) modify the limited liability of a Limited Partner, (iii) alter rights of the Partner to receive distributions pursuant to Article 5 or Section 13.2.A(4) hereof, or the allocations specified in Article 6 hereof (except in any case as permitted pursuant to Sections 4.4 and 7.3.C hereof), (iv) alter or modify the Redemption rights, Cash Amount or REIT Shares Amount as set forth in Sections 8.6 and 11.2 hereof, or amend or modify any related definitions, or (v) amend this Section 7.3.D. Further, no amendment may alter the restrictions on the General Partner's authority set forth elsewhere in this Section 7.3 without the Consent specified therein. Any such amendment or action consented to by any Partner shall be effective as to that Partner, notwithstanding the absence of such consent by any other Partner. SECTION 7.4 REIMBURSEMENT OF THE GENERAL PARTNER A. The General Partner shall not be compensated for its services as general partner of the Partnership except as provided elsewhere in this Agreement. B. Subject to Sections 7.4.C and 15.11 hereof, the Partnership shall be liable, and shall reimburse the General Partner on a monthly basis (or such other basis as the General Partner may determine in its sole and absolute discretion), for all sums expended in connection with the Partnership's business. Any such reimbursements shall be in addition to any reimbursement of the General Partner as a result of indemnification pursuant to Section 7.7 hereof. C. To the extent practicable, Partnership expenses shall be billed directly to and paid by the Partnership. Subject to Section 15.11 hereof, reimbursements to the General Partner or any of its Affiliates by the Partnership shall be allowed, however, for the actual cost to the General Partner or any of its Affiliates of operating and other expenses of the Partnership, including, without limitation, the actual cost of goods, materials and administrative services related to (i) Partnership operations, (ii) Partnership accounting, (iii) communications with Partners, (iv) legal services, (v) tax services, (vi) computer services, (vii) risk management, (viii) mileage and travel expenses and (ix) such other related operational and administrative expenses as are necessary for the prudent organization and operation of the Partnership. "Actual cost of goods and materials" means the actual cost to the General Partner or any of its Affiliates of goods and materials used for or by the Partnership obtained from entities not affiliated with the General Partner, and "actual cost of administrative services" means the pro rata cost of personnel (as if such persons were employees of the Partnership) providing administrative services to the Partnership. The cost for such services to be reimbursed to the General Partner or any Affiliate thereof shall be the lesser of the General Partner's or Affiliate's actual cost, or the amount the Partnership would be required to pay to independent parties for comparable administrative services in the same geographic location. Notwithstanding the foregoing, the Partnership shall not reimburse the General Partner or any Affiliate thereof under this Section 7.4 for: (1) Any rent, depreciation, utilities or other administrative items generally constituting the General Partner's or Affiliate's overhead; or 30 35 (2) Any of the salaries or fringe benefits incurred or allocated to any Controlling Person of any General Partner or any Affiliate thereof. Subject to Section 15.11 hereof, reimbursements to the General Partner or any of its Affiliates by the Partnership pursuant to this Section 7.4 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). SECTION 7.5 OTHER BUSINESS OF GENERAL PARTNER The General Partner may engage independently or with others in other business ventures of every nature and description, including, without limitation, the ownership of other properties and the making or management of other investments. Nothing in this Agreement shall be deemed to prohibit the General Partner or any Affiliate of the General Partner from dealing, or otherwise engaging in business with, Persons transacting business with the Partnership, or from providing services related to the purchase, sale, financing, management, development or operation of real or personal property and receiving compensation therefor, not involving any rebate or reciprocal arrangement that would have the effect of circumventing any restriction set forth herein upon dealings with the General Partner or any Affiliate of the General Partner. Neither the Partnership nor any Partner shall have any right by virtue of this Agreement or the Partnership relationship created hereby in or to such other ventures or activities or to the income or proceeds derived therefrom, and the pursuit of such ventures, even if competitive with the business of the Partnership, shall not be deemed wrongful or improper. SECTION 7.6 CONTRACTS WITH AFFILIATES A. The Partnership may lend or contribute funds or other assets to its Subsidiaries or other Persons in which it has an equity investment, and such Persons may borrow funds from the Partnership, on terms and conditions established in the sole and absolute discretion of the General Partner. The foregoing authority shall not create any right or benefit in favor of any Subsidiary or any other Person. B. The Partnership may transfer assets to joint ventures, limited liability companies, partnerships, corporations, business trusts or other business entities in which it is or thereby becomes a participant upon such terms and subject to such conditions consistent with this Agreement and applicable law as the General Partner, in its sole and absolute discretion, believes to be advisable. C. Except as expressly permitted by this Agreement, neither the General Partner nor any of its Affiliates shall sell, transfer or convey any property to the Partnership, directly or indirectly, except pursuant to transactions that are determined by the General Partner in good faith to be fair and reasonable. D. The General Partner is expressly authorized to enter into, in the name and on behalf of the Partnership, a right of first opportunity arrangement and other conflict avoidance agreements with various Affiliates of the Partnership and the General Partner, on such terms as the General Partner, in its sole and absolute discretion, believes are advisable. SECTION 7.7 INDEMNIFICATION A. To the fullest extent permitted by applicable law, the Partnership shall indemnify each Indemnitee from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including, without limitation, attorney's fees and other legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, that relate to the operations of the Partnership ("ACTIONS") as set forth in this Agreement in which such Indemnitee may be involved, or is threatened to be involved, as a party or otherwise; provided, however, that the Partnership shall not indemnify an Indemnitee (i) for fraud, willful misconduct, recklessness, gross negligence or a knowing violation of the law or (ii) for any transaction for which such Indemnitee received an improper personal benefit in violation or breach of any provision of this Agreement or applicable law. Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness of the 31 36 Partnership or any Subsidiary of the Partnership (including, without limitation, any indebtedness which the Partnership or any Subsidiary of the Partnership has assumed or taken subject to), and the General Partner is hereby authorized and empowered, on behalf of the Partnership, to enter into one or more indemnity agreements consistent with the provisions of this Section 7.7 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 7.7.A that the Partnership indemnify each Indemnitee to the fullest extent permitted by law. The termination of any proceeding by judgment, order or settlement does not create a presumption that the Indemnitee did not meet the requisite standard of conduct set forth in this Section 7.7.A. The termination of any proceeding by conviction of an Indemnitee or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an entry of an order of probation against an Indemnitee prior to judgment, does not create a presumption that such Indemnitee acted in a manner contrary to that specified in this Section 7.7.A with respect to the subject matter of such proceeding. Any indemnification pursuant to this Section 7.7 shall be made only out of the assets of the Partnership, and neither the General Partner nor any Limited Partner shall have any obligation to contribute to the capital of the Partnership or otherwise provide funds to enable the Partnership to fund its obligations under this Section 7.7. B. To the fullest extent permitted by law, expenses incurred by an Indemnitee who is a party to a proceeding or otherwise subject to or the focus of or is involved in any Action shall be paid or reimbursed by the Partnership as incurred by the Indemnitee in advance of the final disposition of the Action upon receipt by the Partnership of (i) a written affirmation by the Indemnitee of the Indemnitee's good faith belief that the standard of conduct necessary for indemnification by the Partnership as authorized in this Section 7.7.A has been met, and (ii) a written undertaking by or on behalf of the Indemnitee to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. C. The indemnification provided by this Section 7.7 shall be in addition to any other rights to which an Indemnitee or any other Person may be entitled under any agreement, pursuant to any vote of the Partners, as a matter of law or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified. D. The Partnership may, but shall not be obligated to, purchase and maintain insurance, on behalf of any of the Indemnitees and such other Persons as the General Partner shall determine, against any liability that may be asserted against or expenses that may be incurred by such Person in connection with the Partnership's activities, regardless of whether the Partnership would have the power to indemnify such Person against such liability under the provisions of this Agreement. E. Any liabilities which an Indemnitee incurs as a result of acting on behalf of the Partnership or the General Partner (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the IRS, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise) shall be treated as liabilities or judgments or fines under this Section 7.7, unless such liabilities arise as a result of (i) such Indemnitee's fraud, willful misconduct, recklessness, gross negligence or knowing violation of the law, or (ii) any transaction in which such Indemnitee received an improper personal benefit in violation or breach of any provision of this Agreement or applicable law. F. In no event may an Indemnitee subject any of the Partners to personal liability by reason of the indemnification provisions set forth in this Agreement. G. An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.7 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement. 32 37 H. The provisions of this Section 7.7 are for the benefit of the Indemnitees, their heirs, successors, assigns and administrators and shall not be deemed to create any rights for the benefit of any other Persons. Any amendment, modification or repeal of this Section 7.7 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the Partnership's liability to any Indemnitee under this Section 7.7 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. I. It is the intent of the Partners that any amounts paid by the Partnership to the General Partner pursuant to this Section 7.7 shall be treated as "guaranteed payments" within the meaning of Code Section 707(c). SECTION 7.8 LIABILITY OF THE GENERAL PARTNER A. Notwithstanding anything to the contrary set forth in this Agreement, neither the General Partner nor any of its directors or officers shall be liable or accountable in damages or otherwise to the Partnership, any Partners or any Assignees for losses sustained, liabilities incurred or benefits not derived as a result of errors in judgment or mistakes of fact or law or of any act or omission if the General Partner or such director or officer acted in good faith. B. The Limited Partners expressly acknowledge that the General Partner is acting for the benefit of the Partnership, the Limited Partners and the General Partner's shareholders collectively and that the General Partner is under no obligation to give priority to the separate interests of the Limited Partners or the General Partner's shareholders (including, without limitation, the tax consequences to Limited Partners, Assignees or the General Partner's shareholders) in deciding whether to cause the Partnership to take (or decline to take) any actions. C. Subject to its obligations and duties as General Partner set forth in Section 7.1.A hereof, the General Partner may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through its employees or agents (subject to the supervision and control of the General Partner). The General Partner shall not be responsible for any misconduct or negligence on the part of any such agent appointed by it in good faith. D. Any amendment, modification or repeal of this Section 7.8 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the General Partner's, and its officers' and directors', liability to the Partnership and the Limited Partners under this Section 7.8 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted. E. Notwithstanding anything herein to the contrary, except for fraud, willful misconduct, recklessness or gross negligence, or pursuant to any express indemnities given to the Partnership by any Partner pursuant to any other written instrument, no Partner shall have any personal liability whatsoever, to the Partnership or to the other Partner(s), for the debts or liabilities of the Partnership or the Partnership's obligations hereunder, and the full recourse of the other Partner(s) shall be limited to the interest of that Partner in the Partnership. To the fullest extent permitted by law, no officer, director or shareholder of the General Partner shall be liable to the Partnership for money damages except for (i) active and deliberate dishonesty established by a non-appealable final judgment or (ii) actual receipt of an improper benefit or profit in money, property or services. Without limitation of the foregoing, and except for fraud, willful misconduct, recklessness or gross negligence, or pursuant to any such express indemnity, no property or assets of any Partner, other than its interest in the Partnership, shall be subject to levy, execution or other enforcement procedures for the satisfaction of any judgment (or other judicial process) in favor of any other Partner(s) and arising out of, or in connection with, this Agreement. This Agreement is executed by the officers of the General Partner solely as officers of the same and not in their own individual capacities. 33 38 F. To the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to the Partnership or the Limited Partners, the General Partner shall not be liable to the Partnership or to any other Partner for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of the General Partner otherwise existing at law or in equity, are agreed by the Partners to replace such other duties and liabilities of such General Partner. SECTION 7.9 OTHER MATTERS CONCERNING THE GENERAL PARTNER A. The General Partner may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture or other paper or document believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties. B. The General Partner may consult with legal counsel, accountants, appraisers, management consultants, investment bankers, architects, engineers, environmental consultants and other consultants and advisers selected by it, and any act taken or omitted to be taken in reliance upon the opinion of such Persons as to matters that the General Partner reasonably believes to be within such Person's professional or expert competence shall be conclusively presumed to have been done or omitted in good faith and in accordance with such opinion. C. The General Partner shall have the right, in respect of any of its powers or obligations hereunder, to act through any of its duly authorized officers and a duly appointed attorney or attorneys-in-fact. Each such attorney shall, to the extent provided by the General Partner in the power of attorney, have full power and authority to do and perform all and every act and duty that is permitted or required to be done by the General Partner hereunder. D. Notwithstanding any other provisions of this Agreement or the Act, any action of the General Partner on behalf of the Partnership or any decision of the General Partner to refrain from acting on behalf of the Partnership, undertaken in the good faith belief that such action or omission is necessary or advisable in order (i) to protect the ability of the General Partner to continue to qualify as a REIT, (ii) for the General Partner otherwise to satisfy the REIT Requirements or (iii) to avoid the General Partner incurring any taxes under Code Section 857 or Code Section 4981, is expressly authorized under this Agreement and is deemed approved by all of the Limited Partners. SECTION 7.10 TITLE TO PARTNERSHIP ASSETS Title to Partnership assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Partnership as an entity, and no Partner, individually or collectively with other Partners or Persons, shall have any ownership interest in such Partnership assets or any portion thereof. Title to any or all of the Partnership assets may be held in the name of the Partnership, the General Partner or one or more nominees, as the General Partner may determine, including Affiliates of the General Partner. The General Partner hereby declares and warrants that any Partnership assets for which legal title is held in the name of the General Partner or any nominee or Affiliate of the General Partner shall be held by the General Partner for the use and benefit of the Partnership in accordance with the provisions of this Agreement; provided, however, that the General Partner shall use its best efforts to cause beneficial and record title to such assets to be vested in the Partnership as soon as reasonably practicable. All Partnership assets shall be recorded as the property of the Partnership in its books and records, irrespective of the name in which legal title to such Partnership assets is held. SECTION 7.11 RELIANCE BY THIRD PARTIES Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Partnership shall be entitled to assume that the General Partner has full power and authority, without the consent or approval of any other Partner or Person, to encumber, sell or otherwise use in any manner any and all assets of the Partnership and to enter into any contracts on behalf of the Partnership, and take any and all actions on behalf of the Partnership, and such Person shall be entitled to deal with the General Partner as if it were the Partnership's sole party in 34 39 interest, both legally and beneficially. Each Limited Partner hereby waives any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the General Partner in connection with any such dealing. In no event shall any Person dealing with the General Partner or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expediency of any act or action of the General Partner or its representatives. Each and every certificate, document or other instrument executed on behalf of the Partnership by the General Partner or its representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (i) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (ii) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (iii) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Partnership. ARTICLE 8 RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS SECTION 8.1 LIMITATION OF LIABILITY The Limited Partners shall have no liability under this Agreement except as expressly provided in this Agreement (including, without limitation, Section 10.4 hereof) or under the Act. SECTION 8.2 MANAGEMENT OF BUSINESS No Limited Partner or Assignee (other than the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such) shall take part in the operations, management or control (within the meaning of the Act) of the Partnership's business, transact any business in the Partnership's name or have the power to sign documents for or otherwise bind the Partnership. The transaction of any such business by the General Partner, any of its Affiliates or any officer, director, member, employee, partner, agent, representative, or trustee of the General Partner, the Partnership or any of their Affiliates, in their capacity as such, shall not affect, impair or eliminate the limitations on the liability of the Limited Partners or Assignees under this Agreement. SECTION 8.3 OUTSIDE ACTIVITIES OF LIMITED PARTNERS Subject to any agreements entered into pursuant to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary (including, without limitation, any employment agreement), any Limited Partner and any Assignee, officer, director, employee, agent, trustee, Affiliate or shareholder of any Limited Partner shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Partnership, including business interests and activities that are in direct or indirect competition with the Partnership or that are enhanced by the activities of the Partnership. Neither the Partnership nor any Partners shall have any rights by virtue of this Agreement in any business ventures of any Limited Partner or Assignee. Subject to such agreements, none of the Limited Partners nor any other Person shall have any rights by virtue of this Agreement or the partnership relationship established hereby in any business ventures of any other Person (other than the General Partner, to the extent expressly provided herein), and such Person shall have no obligation pursuant to this Agreement, subject to Section 7.6.D hereof and any other agreements entered into by a Limited Partner or its Affiliates with the General Partner, the Partnership or a Subsidiary, to offer any interest in any such business ventures to the Partnership, any Limited Partner or any such other Person, even if such opportunity is of a character that, if presented to the Partnership, any Limited Partner or such other Person, could be taken by such Person. 35 40 SECTION 8.4 RETURN OF CAPITAL Except pursuant to the rights of Redemption set forth in Section 8.6 hereof, no Limited Partner shall be entitled to the withdrawal or return of its Capital Contribution, except to the extent of distributions made pursuant to this Agreement or upon termination of the Partnership as provided herein. Except to the extent provided in Article 6 hereof or otherwise expressly provided in this Agreement, no Limited Partner or Assignee shall have priority over any other Limited Partner or Assignee either as to the return of Capital Contributions or as to profits, losses or distributions. SECTION 8.5 RIGHTS OF LIMITED PARTNERS RELATING TO THE PARTNERSHIP A. In addition to other rights provided by this Agreement or by the Act, and except as limited by Section 8.5.C hereof, each Limited Partner shall have the right, for a purpose reasonably related to such Limited Partner's interest as a limited partner in the Partnership, upon written demand with a statement of the purpose of such demand and at such Limited Partner's own expense: (1) to obtain a copy of (i) the most recent annual and quarterly reports filed with the SEC by the General Partner pursuant to the Exchange Act and (ii) each report or other written communication sent to the shareholders of the General Partner; (2) to obtain a copy of the Partnership's federal, state and local income tax returns for each Fiscal Year; (3) to obtain a current list of the name and last known business, residence or mailing address of each Partner; (4) to obtain a copy of this Agreement and the Certificate and all amendments thereto, together with executed copies of all powers of attorney pursuant to which this Agreement, the Certificate and all amendments thereto have been executed; and (5) to obtain true and full information regarding the amount of cash and a description and statement of any other property or services contributed by each Partner and that each Partner has agreed to contribute in the future, and the date on which each became a Partner. B. On written request, the Partnership shall notify any Limited Partner that is a Qualifying Party of the then current Adjustment Factor or any change made to the Adjustment Factor or to the REIT Shares Amount, Preferred Return Per Unit or Specific Adjustment Factor applicable to such Limited Partner. C. Notwithstanding any other provision of this Section 8.5, the General Partner may keep confidential from the Limited Partners, for such period of time as the General Partner determines in its sole and absolute discretion to be reasonable, any information that (i) the General Partner believes to be in the nature of trade secrets or other information the disclosure of which the General Partner in good faith believes is not in the best interests of the Partnership or the General Partner or (ii) the Partnership or the General Partner is required by law or by agreements with unaffiliated third parties to keep confidential. SECTION 8.6 REDEMPTION RIGHTS OF QUALIFYING PARTIES A. After the first Twelve-Month Period (or such shorter or longer period as may be provided in a particular Partner Schedule), a Qualifying Party, but no other Limited Partner or Assignee, shall have the right (subject to the terms and conditions set forth herein) to require the Partnership to redeem all or a portion of the Partnership Units held by such Tendering Party (such Partnership Units being hereafter called "TENDERED UNITS") in exchange (a "REDEMPTION") for the Cash Amount payable on the Specified Redemption Date. Any Redemption shall be exercised pursuant to a Notice of Redemption delivered to the General Partner by the Qualifying Party when 36 41 exercising the Redemption right (the "TENDERING PARTY"). The Partnership's obligation to effect a Redemption, however, shall not arise or be binding against the Partnership (i) until and unless there has been a Declination and (ii) before the first Business Day following the Cut-Off Date. In the event of a Redemption, the Cash Amount shall be delivered as a certified check payable to the Tendering Party or, in the General Partner's sole discretion, in immediately available funds. B. Notwithstanding the provisions of Section 8.6.A hereof, on or before the close of business on the Cut-Off Date, the General Partner may, in its sole and absolute discretion but subject to the Ownership Limit and the transfer restrictions and other limitations of the Charter, elect to acquire some or all (such percentage being referred to as the "APPLICABLE PERCENTAGE") of the Tendered Units from the Tendering Party in exchange for REIT Shares. If the General Partner so elects, on the Specified Redemption Date the Tendering Party shall sell such number of the Tendered Units to the General Partner in exchange for a number of REIT Shares equal to the product of the REIT Shares Amount and the Applicable Percentage. The Tendering Party shall submit (i) such information, certification or affidavit as the General Partner may reasonably require in connection with the application of the Ownership Limit and other restrictions and limitations of the Charter to any such acquisition and (ii) such written representations, investment letters, legal opinions or other instruments necessary, in the General Partner's view, to effect compliance with the Securities Act. In the event of a purchase of the Tendered Units pursuant to this Section 8.6.B, the Tendering Party shall no longer have the right to cause the Partnership to effect a Redemption of such Tendered Units, and, upon notice to the Tendering Party by the General Partner, given on or before the close of business on the Cut-Off Date, that the General Partner has elected to acquire some or all of the Tendered Units pursuant to this Section 8.6.B, the obligation of the Partnership to effect a Redemption of the Tendered Units as to which the General Partner's notice relates shall not accrue or arise. The product of the Applicable Percentage and the REIT Shares Amount, if applicable, shall be delivered by the General Partner as duly authorized, validly issued, fully paid and nonassessable REIT Shares and, if applicable, Rights, free of any pledge, lien, encumbrance or restriction, other than the Ownership Limit and other restrictions provided in the Charter, the Bylaws of the General Partner, the Securities Act and relevant state securities or "blue sky" laws. Neither any Tendering Party whose Tendered Units are acquired by the General Partner pursuant to this Section 8.6.B, any other Partner, any Assignee nor any other interested Person shall have any right to require or cause the General Partner to register, qualify or list any REIT Shares owned or held by such Person, whether or not such REIT Shares are issued pursuant to this Section 8.6.B, with the SEC, with any state securities commissioner, department or agency, under the Securities Act or the Exchange Act or with any stock exchange; provided, however, that this limitation shall not be in derogation of any registration or similar rights granted pursuant to any other written agreement between the General Partner and any such Person. Notwithstanding any delay in such delivery, the Tendering Party shall be deemed the owner of such REIT Shares and Rights for all purposes, including, without limitation, rights to vote or consent, receive dividends, and exercise rights, as of the Specified Redemption Date. REIT Shares issued upon an acquisition of the Tendered Units by the General Partner pursuant to this Section 8.6.B may contain such legends regarding restrictions under the Securities Act and applicable state securities laws as the General Partner in good faith determines to be necessary or advisable in order to ensure compliance with such laws. C. Notwithstanding the provisions of Sections 8.6.A and 8.6.B hereof, no Tendering Party (i) where the Redemption would consist of less than all the Partnership Units held by Partners other than the General Partner, shall be entitled to elect or effect a Redemption to the extent that the aggregate Partnership Units of the Limited Partners would be reduced, as a result of the Redemption (or the acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof), to less than one percent (1%) of all Partnership Units outstanding immediately prior to delivery of the Notice of Redemption and (ii) shall have any rights under this Agreement that would otherwise be prohibited under the Charter. To the extent that any attempted Redemption or acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof would be in violation of this Section 8.6.C, it shall be null and void ab initio, and the Tendering Party shall not acquire any rights or economic interests in REIT Shares otherwise issuable by the General Partner under Section 8.6.B hereof. D. In the event that the General Partner declines or fails to exercise its purchase rights pursuant to Section 8.6.B hereof following receipt of a Notice of Redemption (a "DECLINATION"): 37 42 (1) The General Partner shall give notice of such Declination to the Tendering Party on or before the close of business on the Cut-Off Date. The failure of the General Partner to give notice of such Declination by the close of business on the Cut-Off Date shall itself constitute a Declination. (2) The Partnership may elect to raise funds for the payment of the Cash Amount from any sources (including, but not limited to, the sale of any Property and the incurrence of additional Debt) available to the Partnership. E. Notwithstanding the provisions of Section 8.6.B hereof, the General Partner shall not, under any circumstances, elect to acquire Tendered Units in exchange for the REIT Shares Amount if such exchange would be prohibited under the Charter. F. Notwithstanding anything herein to the contrary (but subject to Section 8.6.C hereof), with respect to any Redemption (or any tender of Partnership Units for Redemption if the Tendered Units are acquired by the General Partner pursuant to Section 8.6.B hereof) pursuant to this Section 8.6: (1) All Partnership Units acquired by the General Partner pursuant to Section 8.6.B hereof shall automatically, and without further action required, be converted into and deemed to be General Partner Interests comprised of the same number of Partnership Units. (2) Subject to the Ownership Limit, no Tendering Party may effect a Redemption for less than five hundred (500) Partnership Units or, if such Tendering Party holds (as a Limited Partner or, economically, as an Assignee) less than five hundred (500) Partnership Units, all of the Partnership Units held by such Tendering Party. (3) Each Tendering Party (a) may effect a Redemption only once in each Twelve-Month Period (unless the restriction contained in this Section 8.6.F(3)(a) is waived by the General Partner in its sole and absolute discretion) and (b) may not effect a Redemption during the period after the Partnership Record Date with respect to a distribution and before the record date established by the General Partner for a distribution to its shareholders of some or all of its portion of such Partnership distribution. (4) Without the Consent of the General Partner (which may be given or withheld in its sole and absolute discretion), no Tendering Party may effect a Redemption within ninety (90) days following the closing of any prior registered public offering of REIT Shares by the General Partner. (5) The consummation of such Redemption (or an acquisition of Tendered Units by the General Partner pursuant to Section 8.6.B hereof, as the case may be) shall be subject to the expiration or termination of the applicable waiting period, if any, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. (6) The Tendering Party shall continue to own (subject, in the case of an Assignee, to the provisions of Section 11.5 hereof) all Partnership Units subject to any Redemption, and be treated as a Limited Partner or an Assignee, as applicable, with respect to such Partnership Units for all purposes of this Agreement, until such Partnership Units are either paid for by the Partnership pursuant to Section 8.6.A hereof or transferred to the General Partner and paid for, by the issuance of the REIT Shares, pursuant to Section 8.6.B hereof on the Specified Redemption Date. Until a Specified Redemption Date and an acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof, the Tendering Party shall have no rights as a shareholder of the General Partner with respect to the REIT Shares issuable in connection with such acquisition. 38 43 For purposes of determining compliance with the restrictions set forth in this Section 8.6.F, all Partnership Units beneficially owned by a Related Party of a Tendering Party shall be considered to be owned or held by such Tendering Party. G. In connection with an exercise of Redemption rights pursuant to this Section 8.6, the Tendering Party shall submit the following to the General Partner, in addition to the Notice of Redemption: (1) A written affidavit, dated the same date as, and accompanying, the Notice of Redemption, (a) disclosing the actual and constructive ownership, as determined for purposes of Code Sections 856(a)(6), 856(h), 856(d)(2)(B) and 856(d)(5), of REIT Shares by (i) such Tendering Party and (ii) any Related Party and (b) representing that, after giving effect to the Redemption or an acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof, neither the Tendering Party nor any Related Party will own REIT Shares in excess of the Ownership Limit; (2) A written representation that neither the Tendering Party nor any Related Party has any intention to acquire any additional REIT Shares prior to the closing of the Redemption or an acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof on the Specified Redemption Date; and (3) An undertaking to certify, at and as a condition to the closing of (i) the Redemption or (ii) the acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof on the Specified Redemption Date, that either (a) the actual and constructive ownership of REIT Shares by the Tendering Party and any Related Party remain unchanged from that disclosed in the affidavit required by Section 8.6.G(1) or (b) after giving effect to the Redemption or an acquisition of the Tendered Units by the General Partner pursuant to Section 8.6.B hereof, neither the Tendering Party nor any Related Party shall own REIT Shares in violation of the Ownership Limit. SECTION 8.7 PARTNERSHIP RIGHT TO CALL LIMITED PARTNER INTERESTS Notwithstanding any other provision of this Agreement, on and after the date on which the aggregate Partnership Units of the Limited Partners are less than five thousand (5,000), the Partnership shall have the right, but not the obligation, from time to time and at any time to redeem any and all outstanding Limited Partner Interests by treating any Limited Partner as a Tendering Party who has delivered a Notice of Redemption pursuant to Section 8.6 hereof for the amount of Partnership Units to be specified by the General Partner, in its sole and absolute discretion, by notice to such Limited Partner that the Partnership has elected to exercise its rights under this Section 8.7. Such notice given by the General Partner to a Limited Partner pursuant to this Section 8.7 shall be treated as if it were a Notice of Redemption delivered to the General Partner by such Limited Partner. For purposes of this Section 8.7, (a) any Limited Partner (whether or not otherwise a Qualifying Party) may, in the General Partner's sole and absolute discretion, be treated as a Qualifying Party that is a Tendering Party and (b) the provisions of Sections 8.6.C(i), 8.6.F(2), 8.6.F(3) and 8.6.F(4) hereof shall not apply, but the remainder of Section 8.6 hereof shall apply with such adjustments as shall be necessary in the circumstances. SECTION 8.8 OTHER REDEMPTIONS Notwithstanding the provisions of Section 8.6 hereof, nothing in this Agreement shall preclude the redemption of a Limited Partner Interest or Partnership Units by the Partnership upon such terms and conditions as may be negotiated between the Limited Partner or Assignee holding such Limited Partner Interest or Partnership Units, on the one hand, and the General Partner, on the other hand, in their sole and absolute discretion. Such a redemption may include, without limitation, the payment of cash by the Partnership to the Limited Partner or Assignee, in a lump sum or in installments, or the distribution in kind of Partnership assets to such Limited Partner or Assignee (which assets may be encumbered), including assets to be designated by the Limited Partner or Assignee and acquired (with or without debt financing) by the Partnership. Upon any such redemption, the Partnership Units 39 44 and Limited Partner Interest redeemed and the applicable Partner Schedule shall be cancelled and Exhibit A shall be amended as appropriate to reflect such redemption. In effecting any such redemption by negotiated agreement, none of the Partnership, the General Partner, the Limited Partner and the Assignee, as the case may be, shall incur any liability to any other Holder of Partnership Units or have any duty to offer the same or similar terms for redemption of any other Limited Partner Interest or Partnership Units. ARTICLE 9 BOOKS, RECORDS, ACCOUNTING AND REPORTS SECTION 9.1 RECORDS AND ACCOUNTING A. The General Partner shall keep or cause to be kept at the principal office of the Partnership those records and documents required to be maintained by the Act and other books and records deemed by the General Partner to be appropriate with respect to the Partnership's business, including, without limitation, all books and records necessary to provide to the Limited Partners any information, lists and copies of documents required to be provided pursuant to Section 8.5.A or Section 9.3 hereof. Any records maintained by or on behalf of the Partnership in the regular course of its business may be kept on, or be in the form of, punch cards, magnetic tape, photographs, micrographics or any other information storage device, provided that the records so maintained are convertible into clearly legible written form within a reasonable period of time. B. The books of the Partnership shall be maintained, for financial and tax reporting purposes, on an accrual basis in accordance with generally accepted accounting principles, or on such other basis as the General Partner determines to be necessary or appropriate. To the extent permitted by sound accounting practices and principles, the Partnership and the General Partner may operate with integrated or consolidated accounting records, operations and principles. SECTION 9.2 FISCAL YEAR The Fiscal Year of the Partnership shall be the calendar year. SECTION 9.3 REPORTS A. As soon as practicable, but in no event later than ninety (90) days after the close of each Fiscal Year, the General Partner shall cause to be mailed to each Limited Partner, of record as of the close of the Fiscal Year, an annual report containing financial statements of the Partnership, or of the General Partner if such statements are prepared solely on a consolidated basis with the General Partner, for such Fiscal Year, presented in accordance with generally accepted accounting principles. Such statements of the Partnership need not be audited if such statements are consolidated with audited financial statements of the General Partner. B. As soon as practicable, but in no event later than sixty (60) days after the close of each calendar quarter (except the last calendar quarter of each year), the General Partner shall cause to be mailed to each Limited Partner, of record as of the last day of the calendar quarter, a report containing unaudited financial statements of the Partnership, or of the General Partner, if such statements are prepared solely on a consolidated basis with the General Partner, and such other information as may be required by applicable law or regulation or as the General Partner determines to be appropriate. ARTICLE 10 TAX MATTERS SECTION 10.1 PREPARATION OF TAX RETURNS The General Partner shall arrange for the preparation and timely filing of all returns with respect to Partnership income, gains, deductions, losses and other items required of the Partnership for federal and state 40 45 income tax purposes and shall use all reasonable efforts to furnish, within ninety (90) days of the close of each taxable year, the tax information reasonably required by Limited Partners for federal and state income tax reporting purposes. The Limited Partners shall promptly provide the General Partner with such information relating to the Contributed Properties, including tax basis and other relevant information, as may be reasonably requested by the General Partner from time to time. SECTION 10.2 TAX ELECTIONS Except as otherwise provided herein, the General Partner shall, in its sole and absolute discretion, determine whether to make any available election pursuant to the Code, including, but not limited to, the election to use the "recurring item" method of accounting provided under Code Section 461(h) with respect to property taxes imposed on the Partnership's Properties; provided, however, that, if the "recurring item" method of accounting is elected with respect to such property taxes, the Partnership shall pay the applicable property taxes prior to the date provided in Code Section 461(h) for purposes of determining economic performance; provided, further, that the General Partner shall make the election under Code Section 754 upon a Permitted Transfer under Section 11.3.A or upon the death of any Limited Partner. The General Partner shall have the right to seek to revoke any such election (including, without limitation, any election under Code Sections 461(h) and 754) upon the General Partner's determination in its sole and absolute discretion that such revocation is in the best interests of the Partners; provided, however, that the General Partner may seek to revoke the election under Code Section 754 only with the Consent of a Majority in Interest of the Limited Partners. SECTION 10.3 TAX MATTERS PARTNER A. The General Partner shall be the "tax matters partner" of the Partnership for federal income tax purposes. The tax matters partner shall receive no compensation for its services. All third-party costs and expenses incurred by the tax matters partner in performing its duties as such (including legal and accounting fees and expenses) shall be borne by the Partnership in addition to any reimbursement pursuant to Section 7.4 hereof. Nothing herein shall be construed to restrict the Partnership from engaging an accounting firm to assist the tax matters partner in discharging its duties hereunder, so long as the compensation paid by the Partnership for such services is reasonable. At the request of any Limited Partner, the General Partner agrees to consult with such Limited Partner with respect to the preparation and filing of any returns and with respect to any subsequent audit or litigation relating to such returns; provided, however, that the filing of such returns shall be in the sole and absolute discretion of the General Partner. B. The tax matters partner is authorized, but not required: (1) to enter into any settlement with the IRS with respect to any administrative or judicial proceedings for the adjustment of Partnership items required to be taken into account by a Partner for income tax purposes (such administrative proceedings being referred to as a "tax audit" and such judicial proceedings being referred to as "judicial review"), and in the settlement agreement the tax matters partner may expressly state that such agreement shall bind all Partners, except that such settlement agreement shall not bind any Partner (i) who (within the time prescribed pursuant to the Code and Regulations) files a statement with the IRS providing that the tax matters partner shall not have the authority to enter into a settlement agreement on behalf of such Partner or (ii) who is a "notice partner" (as defined in Code Section 6231) or a member of a "notice group" (as defined in Code Section 6223(b)(2)); (2) in the event that a notice of a final administrative adjustment at the Partnership level of any item required to be taken into account by a Partner for tax purposes (a "final adjustment") is mailed to the tax matters partner, to seek judicial review of such final adjustment, including the filing of a petition for readjustment with the United States Tax Court or the United States Claims Court, or the filing of a complaint for refund with the District Court of the United States for the district in which the Partnership's principal place of business is located. If the tax matters partner 41 46 determines that the United States District Court or the United States Claims Court is the most appropriate forum in which to seek judicial review, the tax matters partner shall notify each Person who was a Partner at any time during the Partnership's taxable year to which the final adjustment relates of the approximate amount by which such Person's tax liability would be increased (based on such assumptions as the tax matters partner may in good faith make) if the treatment of partnership items on such Person's return was made consistent with the treatment of partnership items on the Partnership's return, as adjusted by the final adjustment. Unless each such Person deposits with the tax matters partner, for deposit with the IRS, the approximate amount of such Person's increased tax liability, together with a written agreement to make additional deposits if required to satisfy the jurisdictional requirements of the Court, within thirty (30) days after the tax matters partner's notice to such Person, the tax matters partner shall not seek judicial review in such Court. Instead, the tax matters partner may, but shall not be obligated to, file a petition in the United States Tax Court; (3) to intervene in any action brought by any other Partner for judicial review of a final adjustment; (4) to file a request for an administrative adjustment with the IRS at any time and, if any part of such request is not allowed by the IRS, to file an appropriate pleading (petition or complaint) for judicial review with respect to such request; (5) to enter into an agreement with the IRS to extend the period for assessing any tax that is attributable to any item required to be taken into account by a Partner for tax purposes, or an item affected by such item; and (6) to take any other action on behalf of the Partners in connection with any tax audit or judicial review proceeding to the extent permitted by applicable law or regulations. The taking of any action and the incurring of any expense by the tax matters partner in connection with any such proceeding, except to the extent required by law, is a matter in the sole and absolute discretion of the tax matters partner and the provisions relating to indemnification of the General Partner set forth in Section 7.7 hereof shall be fully applicable to the tax matters partner in its capacity as such. SECTION 10.4 WITHHOLDING Each Limited Partner hereby authorizes the Partnership to withhold from or pay on behalf of or with respect to such Limited Partner any amount of federal, state, local or foreign taxes that the General Partner determines that the Partnership is required to withhold or pay with respect to any amount distributable or allocable to such Limited Partner pursuant to this Agreement, including, without limitation, any taxes required to be withheld or paid by the Partnership pursuant to Code Section 1441, Code Section 1442, Code Section 1445 or Code Section 1446. Any amount paid on behalf of or with respect to a Limited Partner shall constitute a loan by the Partnership to such Limited Partner, which loan shall be repaid by such Limited Partner within fifteen (15) days after notice from the General Partner that such payment must be made unless (i) the Partnership withholds such payment from a distribution that would otherwise be made to the Limited Partner or (ii) the General Partner determines, in its sole and absolute discretion, that such payment may be satisfied out of the Available Funds of the Partnership that would, but for such payment, be distributed to the Limited Partner. Each Limited Partner hereby unconditionally and irrevocably grants to the Partnership a security interest in such Limited Partner's Partnership Interest to secure such Limited Partner's obligation to pay to the Partnership any amounts required to be paid pursuant to this Section 10.4. In the event that a Limited Partner fails to pay any amounts owed to the Partnership pursuant to this Section 10.4 when due, the General Partner may, in its sole and absolute discretion, elect to make the payment to the Partnership on behalf of such defaulting Limited Partner, and in such event shall be deemed to have loaned such amount to such defaulting Limited Partner and shall succeed to all rights and remedies of the Partnership as against such defaulting Limited Partner (including, without limitation, the right to receive distributions). Any amounts payable by a Limited Partner hereunder shall bear interest at the base rate on corporate loans at large United States money center 42 47 commercial banks, as published from time to time in the WALL STREET JOURNAL, plus four (4) percentage points (but not higher than the maximum lawful rate) from the date such amount is due (i.e., fifteen (15) days after demand) until such amount is paid in full. Each Limited Partner shall take such actions as the Partnership or the General Partner shall request in order to perfect or enforce the security interest created hereunder. ARTICLE 11 TRANSFERS AND WITHDRAWALS SECTION 11.1 TRANSFER A. No part of the interest of a Partner shall be subject to the claims of any creditor, to any spouse for alimony or support, or to legal process, and may not be voluntarily or involuntarily alienated or encumbered except as may be specifically provided for in this Agreement. B. No Partnership Interest shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article 11. Any Transfer or purported Transfer of a Partnership Interest not made in accordance with this Article 11 shall be null and void ab initio. SECTION 11.2 TRANSFER OF GENERAL PARTNER'S PARTNERSHIP INTEREST A. The General Partner may not Transfer any of its General Partner Interest or withdraw from the Partnership except as provided in Section 11.2.B hereof. B. The General Partner shall not withdraw from the Partnership and shall not Transfer all or any portion of its interest in the Partnership (whether by sale, disposition, statutory merger or consolidation, liquidation or otherwise) without the Consent of a Majority of Remaining Partners, which Consent may be given or withheld in their sole and absolute discretion. Upon any Transfer of such a Partnership Interest pursuant to the Consent of such Partners and otherwise in accordance with the provisions of this Section 11.2.B, the transferee shall of the Limited Partners become a successor General Partner for all purposes herein, and shall be vested with the powers and rights of the transferor General Partner, and shall be liable for all obligations and responsible for all duties of the General Partner, once such transferee has executed such instruments as may be necessary to effectuate such admission and to confirm the agreement of such transferee to be bound by all the terms and provisions of this Agreement with respect to the Partnership Interest so acquired. It is a condition to any Transfer otherwise permitted hereunder that the transferee assumes, by operation of law or express agreement, all of the obligations of the transferor General Partner under this Agreement with respect to such Transferred Partnership Interest, and such Transfer shall relieve the transferor General Partner of its obligations under this Agreement without the Consent of the Limited Partners. In the event that the General Partner withdraws from the Partnership, in violation of this Agreement or otherwise, or otherwise dissolves or terminates, or upon the bankruptcy of the General Partner, a Majority of Remaining Partners may elect to continue the Partnership business by selecting a successor General Partner in accordance with the Act. SECTION 11.3 LIMITED PARTNERS' RIGHTS TO TRANSFER A. GENERAL. Prior to the end of the first Twelve-Month Period, no Limited Partner shall Transfer all or any portion of its Partnership Interest to any transferee without the consent of the General Partner, which consent may be withheld in its sole and absolute discretion; provided, however, that any Limited Partner may, at any time, without the consent of the General Partner, (i) Transfer all or part of its Partnership Interest to any Designated Party, any Family Member, any Controlled Entity or any Affiliate, provided that the transferee is, in any such case, a Qualified Transferee, or (ii) pledge (a "PLEDGE") all or any portion of its Partnership Interest to a lending institution, that is not an Affiliate of such Limited Partner, as collateral or security for a bona fide loan or other extension of credit, and Transfer such pledged Partnership Interest to such lending institution in connection with the exercise of remedies under such loan or extension or credit (any Transfer or Pledge permitted by this proviso is hereinafter referred to as a "PERMITTED TRANSFER"). After such first Twelve-Month Period, each Limited Partner, 43 48 and each transferee of Partnership Units or Assignee pursuant to a Permitted Transfer, shall have the right to Transfer all or any portion of its Partnership Interest to any Person, subject to the provisions of Section 11.6 hereof and to satisfaction of each of the following conditions: (1) GENERAL PARTNER RIGHT OF FIRST REFUSAL. The transferring Partner shall give written notice of the proposed Transfer to the General Partner, which notice shall state (i) the identity of the proposed transferee and (ii) the amount and type of consideration proposed to be received for the Transferred Partnership Units. The General Partner shall have ten (10) Business Days upon which to give the Transferring Partner notice of its election to acquire the Partnership Units on the proposed terms. If it so elects, it shall purchase the Partnership Units on such terms within ten (10) Business Days after giving notice of such election; provided, however, that such closing may be deferred to the extent necessary to effect compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, if applicable, and any other applicable requirements of law. If it does not so elect, the Transferring Partner may Transfer such Partnership Units to a third party, on terms no more favorable to the transferee than the proposed terms, subject to the other conditions of this Section 11.3. (2) QUALIFIED TRANSFEREE. Any Transfer of a Partnership Interest shall be made only to a single Qualified Transferee; provided, however, that, for such purposes, all Qualified Transferees that are Affiliates, or that comprise investment accounts or funds managed by a single Qualified Transferee and its Affiliates, shall be considered together to be a single Qualified Transferee; provided, further, that each Transfer meeting the minimum Transfer restriction of Section 11.3.A(3) hereof may be to a separate Qualified Transferee. (3) MINIMUM TRANSFER RESTRICTION. Any Transferring Partner must Transfer not less than the lesser of (i) five thousand (5,000) Partnership Units (or such lesser number as to which the General Partner has consented in writing) or (ii) all of the remaining Partnership Units owned by such Transferring Partner; provided, however, that, for purposes of determining compliance with the foregoing restriction, all Partnership Units owned by Affiliates of a Limited Partner shall be considered to be owned by such Limited Partner. (4) TRANSFEREE AGREEMENT TO EFFECT A REDEMPTION. Any proposed transferee shall deliver to the General Partner a written agreement reasonably satisfactory to the General Partner to the effect that the transferee will, within six (6) months after consummation of the Partnership Units Transfer, tender its Partnership Units for Redemption in accordance with the terms of the Redemption rights provided in Section 8.6 hereof. (5) EXCEPTION FOR PERMITTED TRANSFERS. The conditions of Sections 11.3.A(1) through 11.3.A(4) hereof shall not apply in the case of a Permitted Transfer. It is a condition to any Transfer otherwise permitted hereunder (whether or not such Transfer is a Permitted Transfer or is effected during or after the first Twelve-Month Period) that the transferee assume by operation of law or express agreement all of the obligations of the transferor Limited Partner under this Agreement with respect to such Transferred Partnership Interest. Notwithstanding the foregoing, any transferee of any Transferred Partnership Interest shall be subject to any and all ownership limitations (including, without limitation, the Ownership Limit) contained in the Charter that may limit or restrict such transferee's ability to exercise its Redemption rights, including, without limitation, the Ownership Limit. Any transferee, whether or not admitted as a Substituted Limited Partner, shall take subject to the obligations of the transferor hereunder. Unless admitted as a Substituted Limited Partner, no transferee, whether by a voluntary Transfer, by operation of law or otherwise, shall have any rights hereunder, other than the rights of an Assignee as provided in Section 11.5 hereof. B. INCAPACITY. If a Limited Partner is subject to Incapacity, the executor, administrator, trustee, committee, guardian, conservator or receiver of such Limited Partner's estate shall have all the rights of a Limited 44 49 Partner, but not more rights than those enjoyed by other Limited Partners, for the purpose of settling or managing the estate, and such power as the Incapacitated Limited Partner possessed to Transfer all or any part of its interest in the Partnership. The Incapacity of a Limited Partner, in and of itself, shall not dissolve or terminate the Partnership. C. OPINION OF COUNSEL. In connection with any Transfer of a Limited Partner Interest, the General Partner shall have the right to receive an opinion of counsel reasonably satisfactory to it to the effect that the proposed Transfer may be effected without registration under the Securities Act and will not otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Interests Transferred. If, in the opinion of such counsel, such Transfer would require the filing of a registration statement under the Securities Act or would otherwise violate any federal or state securities laws or regulations applicable to the Partnership or the Partnership Units, the General Partner may prohibit any Transfer otherwise permitted under this Section 11.3 by a Limited Partner of Partnership Interests. D. ADVERSE TAX CONSEQUENCES. No Transfer by a Limited Partner of its Partnership Interests (including any Redemption, any other acquisition of Partnership Units by the General Partner or any acquisition of Partnership Units by the Partnership) may be made to any person if (i) in the opinion of legal counsel for the Partnership, it would result in the Partnership being treated as an association taxable as a corporation, or (ii) such Transfer is effectuated through an "established securities market" or a "secondary market (or the substantial equivalent thereof)" within the meaning of Code Section 7704. SECTION 11.4 SUBSTITUTED LIMITED PARTNERS A. No Limited Partner shall have the right to substitute a transferee (including any Designated Party or other transferees pursuant to Transfers permitted by Section 11.3 hereof) as a Limited Partner in its place. A transferee (including, but not limited to, any Designated Party) of the interest of a Limited Partner may be admitted as a Substituted Limited Partner only with the Consent of the General Partner, which Consent may be given or withheld by the General Partner in its sole and absolute discretion (or in the reasonable discretion of the General Partner if the Partnership receives an opinion from counsel for the Partnership that conditioning the admittance of a transferee as a Substituted Limited Partner upon the sole and absolute discretion of the General Partner is no longer necessary under federal or state tax laws or regulations), provided, however, that such consent shall be granted to transferees under pledges or other collateral transfers effected by a Limited Partner to secure the repayment of a loan or other obligation; provided, further, however, that each such pledgee shall agree in writing, prior to admittance of such pledgee or purchaser from such pledgee as a Substituted Limited Partner, to (i) subordinate its rights with respect to the pledged interest to any and all rights granted by the pledging Limited Partner to the Partnership, whether or not such rights constitute perfected security interests in favor of the Partnership, including, without limitation, any rights to withhold, restrict or offset distributions in respect of such pledged interest under the terms of any agreement between the Partnership and the pledging Limited Partner, and (ii) to defer the exercise of its rights as a secured creditor to realize upon the collateral in the case of an event of default until the expiration of any applicable "lock-up" period under the terms of any agreement between the Partnership and the pledging Limited Partner. The failure or refusal by the General Partner to permit a transferee of any such interests to become a Substituted Limited Partner shall not give rise to any cause of action against the Partnership or the General Partner, except where such failure or refusal breaches the provisions hereinabove contained. Subject to the foregoing, an Assignee shall not be admitted as a Substituted Limited Partner until and unless it furnishes to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all the terms, conditions and applicable obligations of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a Partner Schedule executed by such Assignee and (iii) such other documents and instruments as may be required or advisable, in the sole and absolute discretion of the General Partner, to effect such Assignee's admission as a Substituted Limited Partner. B. A transferee who has been admitted as a Substituted Limited Partner in accordance with this Article 11 shall have all the rights and powers and be subject to all the restrictions and liabilities of a Limited Partner under this Agreement. 45 50 C. Upon the admission of a Substituted Limited Partner, the General Partner shall amend Exhibit A to reflect the name and address of such Substituted Limited Partner and to eliminate, if necessary, the name and address of the predecessor of such Substituted Limited Partner. In addition, the Substituted Limited Partner and the General Partner shall execute a Partner Schedule with respect to such Substituted Limited Partner, which Partner Schedule shall supersede, to the extent necessary, the Partner Schedule for the predecessor of such Substituted Limited Partner. SECTION 11.5 ASSIGNEES If the General Partner, in its sole and absolute discretion, does not consent to the admission of any permitted transferee under Section 11.3 hereof as a Substituted Limited Partner, as described in Section 11.4 hereof, such transferee shall be considered an Assignee for purposes of this Agreement. An Assignee shall be entitled to all the rights of an assignee of a limited partnership interest under the Act, including the right to receive distributions from the Partnership and the share of Net Income, Net Losses and other items of income, gain, loss, deduction and credit of the Partnership attributable to the Partnership Units assigned to such transferee and the rights to Transfer the Partnership Units provided in this Article 11, but shall not be deemed to be a holder of Partnership Units for any other purpose under this Agreement (other than as expressly provided in Section 8.6 hereof with respect to a Qualifying Party that becomes a Tendering Party), and shall not be entitled to effect a Consent or vote with respect to such Partnership Units on any matter presented to the Limited Partners for approval (such right to Consent or vote, to the extent provided in this Agreement or under the Act, fully remaining with the transferor Limited Partner). In the event that any such transferee desires to make a further assignment of any such Partnership Units, such transferee shall be subject to all the provisions of this Article 11 to the same extent and in the same manner as any Limited Partner desiring to make an assignment of Partnership Units. SECTION 11.6 GENERAL PROVISIONS A. No Limited Partner may withdraw from the Partnership other than as a result of a permitted Transfer of all of such Limited Partner's Partnership Units in accordance with this Article 11, with respect to which the transferee becomes a Substituted Limited Partner, or pursuant to a Redemption (or acquisition by the General Partner) of all of its Partnership Units under Section 8.6 hereof. B. Any Limited Partner who shall Transfer all of its Partnership Units in a Transfer (i) permitted pursuant to this Article 11 where such transferee was admitted as a Substituted Limited Partner, (ii) pursuant to the exercise of its rights to effect a Redemption of all of its Partnership Units under Section 8.6 hereof or (iii) to the General Partner, whether or not pursuant to Section 8.6.B hereof, shall cease to be a Limited Partner. C. If any Partnership Unit is Transferred in compliance with the provisions of this Article 11, or is redeemed by the Partnership or acquired by the General Partner pursuant to Section 8.6 hereof, on any day other than the first day of a Fiscal Year, then Net Income, Net Loss, each item thereof and all other items of income, gain, loss, deduction and credit attributable to such Partnership Unit for such Fiscal Year shall be allocated to the transferor Partner or the Tendering Party, as the case may be, and, in the case of a Transfer or assignment other than a Redemption, to the transferee Partner (including, without limitation, the General Partner in the case of an acquisition of Partnership Units pursuant to Section 8.6 hereof) or Assignee, by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the "daily proration" or "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, the General Partner, in its sole and absolute discretion, may determine that each of such items for the calendar month in which a Transfer occurs shall be allocated to the transferee Partner or Assignee and none of such items for the calendar month in which a Transfer or a Redemption occurs shall be allocated to the transferor Partner or the Tendering Party, as the case may be, if such Transfer occurs on or before the fifteenth (15th) day of the month; otherwise such items for such calendar month shall be allocated to the transferor. All distributions of Available Cash attributable to such Partnership Unit with respect to which the Partnership Record Date is before the date of such Transfer, assignment or Redemption shall be made to the transferor Partner or the 46 51 Tendering Party, as the case may be, and, in the case of a Transfer other than a Redemption, all distributions of Available Cash thereafter attributable to such Partnership Unit shall be made to the transferee Partner or Assignee. D. In addition to any other restrictions on Transfer herein contained, in no event may any Transfer or assignment of a Partnership Interest by any Partner or Assignee (including any Redemption, any acquisition of Partnership Units by the General Partner or any other acquisition of Partnership Units by the Partnership) be made: (a) to any person or entity who lacks the legal right, power or capacity to own a Partnership Interest; (b) in violation of applicable law; (c) in the event that such Transfer would cause the General Partner to cease to comply with the REIT Requirements; (d) if such Transfer would, in the opinion of counsel to the Partnership or the General Partner, cause an increased tax liability to any other Partner or Assignee as a result of the termination of the Partnership, in either case for federal or state income tax purposes (except as a result of the Redemption (or acquisition by the General Partner) of all Partnership Units held by all Limited Partners); (e) if such Transfer would, in the opinion of legal counsel to the Partnership, cause the Partnership either (i) to cease to be classified as a partnership or (ii) to be classified as a publicly traded partnership treated as a corporation, in either case for federal income tax purposes (except as a result of the Redemption (or acquisition by the General Partner) of all Partnership Units held by all Limited Partners); (f) if such Transfer would cause the Partnership to become, with respect to any employee benefit plan subject to Title I of ERISA, a "party-in-interest" (as defined in ERISA Section 3(14)) or a "disqualified person" (as defined in Code Section 4975(c)); (g) if such Transfer would, in the opinion of legal counsel to the Partnership, cause any portion of the assets of the Partnership to constitute assets of any employee benefit plan pursuant to Department of Labor Regulations Section 2510.2-101; (h) if such Transfer requires the registration of such Partnership Interest pursuant to any applicable federal or state securities laws; (i) if such Transfer causes the Partnership (as opposed to the General Partner) to become a reporting company under the Exchange Act; or (j) if such Transfer subjects the Partnership to regulation under the Investment Company Act of 1940, the Investment Advisors Act of 1940 or ERISA, each as amended. ARTICLE 12 ADMISSION OF PARTNERS SECTION 12.1 ADMISSION OF SUCCESSOR GENERAL PARTNER A successor to all of the General Partner's General Partner Interest pursuant to Section 11.2 hereof who is proposed to be admitted as a successor General Partner shall be admitted to the Partnership as the General Partner, effective immediately prior to such Transfer. Any such successor shall carry on the business of the Partnership without dissolution. In each case, the admission shall be subject to the successor General Partner 47 52 executing and delivering to the Partnership an acceptance of all of the terms, conditions and applicable obligations of this Agreement and such other documents or instruments as may be required to effect the admission. SECTION 12.2 ADMISSION OF ADDITIONAL LIMITED PARTNERS A. A Person (other than an existing Partner) who makes a Capital Contribution to the Partnership in accordance with this Agreement shall be admitted to the Partnership as an Additional Limited Partner only upon furnishing to the General Partner (i) evidence of acceptance, in form and substance satisfactory to the General Partner, of all of the terms, conditions and applicable of this Agreement, including, without limitation, the power of attorney granted in Section 2.4 hereof, (ii) a Partner Schedule executed by such Person and (iii) such other documents or instruments as may be required in the sole and absolute discretion of the General Partner in order to effect such Person's admission as an Additional Limited Partner. B. Notwithstanding anything to the contrary in this Section 12.2, no Person shall be admitted as an Additional Limited Partner without the consent of the General Partner, which consent may be given or withheld in the General Partner's sole and absolute discretion. The admission of any Person as an Additional Limited Partner shall become effective on the date upon which the name of such Person is recorded on the books and records of the Partnership, following the consent of the General Partner to such admission. C. If any Additional Limited Partner is admitted to the Partnership on any day other than the first day of a Fiscal Year, then Net Income, Net Losses, each item thereof and all other items of income, gain, loss, deduction and credit allocable among Partners and Assignees for such Fiscal Year shall be allocated among such Additional Limited Partner and all other Partners and Assignees by taking into account their varying interests during the Fiscal Year in accordance with Code Section 706(d), using the "interim closing of the books" method or another permissible method selected by the General Partner. Solely for purposes of making such allocations, each of such items for the calendar month in which an admission of any Additional Limited Partner occurs shall be allocated among all the Partners and Assignees including such Additional Limited Partner, in accordance with the principles described in Section 11.6.C hereof. All distributions of Available Cash with respect to which the Partnership Record Date is before the date of such admission shall be made solely to Partners and Assignees other than the Additional Limited Partner, and all distributions of Available Cash thereafter shall be made to all the Partners and Assignees including such Additional Limited Partner. SECTION 12.3 AMENDMENT OF AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP For the admission to the Partnership of any Partner, the General Partner shall take all steps necessary and appropriate under the Act to amend the records of the Partnership and, if necessary, to prepare as soon as practical an amendment of this Agreement (including an amendment of Exhibit A) and, if required by law, shall prepare and file an amendment to the Certificate and may for this purpose exercise the power of attorney granted pursuant to Section 2.4 hereof. SECTION 12.4 LIMIT ON NUMBER OF PARTNERS No Person shall be admitted to the Partnership as a Substituted Limited Partner or an Additional Limited Partner if the effect of such admission would be to cause the Partnership to have more than five hundred (500) Partners, including as Partners for this purpose those Persons indirectly owning an interest in the Partnership through another partnership, a limited liability company, a subchapter S corporation or a grantor trust, or otherwise cause the Partnership to become a reporting company under the Exchange Act, if such admission would, in the opinion of legal counsel to the Partnership, cause the Partnership either (i) to cease to be classified as a partnership or (ii) to be classified as a publicly traded partnership treated as a corporation, in either case for federal income tax purposes (except as a result of the Redemption (or acquisition by the General Partner) of all Partnership Units held by all Limited Partners) 48 53 ARTICLE 13 DISSOLUTION, LIQUIDATION AND TERMINATION SECTION 13.1 DISSOLUTION The Partnership shall not be dissolved by the admission of Substituted Limited Partners or Additional Limited Partners or by the admission of a successor General Partner in accordance with the terms of this Agreement. Upon the withdrawal of the General Partner, any successor General Partner shall continue the business of the Partnership without dissolution. However, the Partnership shall dissolve, and its affairs shall be wound up, upon the first to occur of any of the following (each a "LIQUIDATING EVENT"): A. the expiration of its term as provided in Section 2.5 hereof; B. an event of withdrawal, as defined in the Act (including, without limitation, bankruptcy), of the sole General Partner unless, within ninety (90) days after the withdrawal, a Majority of Remaining Partners agree in writing, in their sole and absolute discretion, to continue the business of the Partnership and to the appointment, effective as of the date of withdrawal, of a successor General Partner; C. an election to dissolve the Partnership made by the General Partner, with the Consent of a Majority in Interest of the Limited Partners; D. entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Act; E. the occurrence of a Terminating Capital Transaction; or F. the Redemption (or acquisition by the General Partner) of all Partnership Units other than Partnership Units held by the General Partner. Section 13.1.B shall be of no further force or effect on the date that the Partnership receives an opinion from counsel for the Partnership that such provision is no longer necessary for federal or state tax laws or regulations. SECTION 13.2 WINDING UP A. Upon the occurrence of a Liquidating Event, the Partnership shall continue solely for the purposes of winding up its affairs in an orderly manner, liquidating its assets and satisfying the claims of its creditors and Partners. After the occurrence of a Liquidating Event, no Partner shall take any action that is inconsistent with, or not necessary to or appropriate for, the winding up of the Partnership's business and affairs. The General Partner (or, in the event that there is no remaining General Partner or the General Partner has dissolved, become bankrupt within the meaning of the Act or ceased to operate, any Person elected by a Majority in Interest of the Limited Partners (the General Partner or such other Person being referred to herein as the "LIQUIDATOR")) shall be responsible for overseeing the winding up and dissolution of the Partnership and shall take full account of the Partnership's liabilities and property, and the Partnership property shall be liquidated as promptly as is consistent with obtaining the fair value thereof, and the proceeds therefrom (which may, to the extent determined by the General Partner, include shares of stock in the General Partner) shall be applied and distributed in the following order: (1) First, to the satisfaction of all of the Partnership's debts and liabilities to creditors other than the Partners and their Assignees (whether by payment or the making of reasonable provision for payment thereof); 49 54 (2) Second, to the satisfaction of all of the Partnership's debts and liabilities to the General Partner (whether by payment or the making of reasonable provision for payment thereof), including, but not limited to, amounts due as reimbursements under Section 7.4 hereof; (3) Third, to the satisfaction of all of the Partnership's debts and liabilities to the other Partners and any Assignees (whether by payment or the making of reasonable provision for payment thereof); and (4) The balance, if any, to the General Partner, the Limited Partners and any Assignees in accordance with and proportion to their positive Capital Account balances, after giving effect to all contributions, distributions and allocations for all periods. The General Partner shall not receive any additional compensation for any services performed pursuant to this Article 13. B. Notwithstanding the provisions of Section 13.2.A hereof that require liquidation of the assets of the Partnership, but subject to the order of priorities set forth therein, if prior to or upon dissolution of the Partnership the Liquidator determines that an immediate sale of part or all of the Partnership's assets would be impractical or would cause undue loss to the Partners, the Liquidator may, in its sole and absolute discretion, defer for a reasonable time the liquidation of any assets except those necessary to satisfy liabilities of the Partnership (including to those Partners as creditors) and/or distribute to the Partners, in lieu of cash, as tenants in common and in accordance with the provisions of Section 13.2.A hereof, undivided interests in such Partnership assets as the Liquidator deems not suitable for liquidation. Any such distributions in kind shall be made only if, in the good faith judgment of the Liquidator, such distributions in kind are in the best interest of the Partners, and shall be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operation of such properties at such time. The Liquidator shall determine the fair market value of any property distributed in kind using such reasonable method of valuation as it may adopt. C. In the event that the Partnership is "liquidated" within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article 13 to the Partners and Assignees that have positive Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2) to the extent of, and in proportion to, positive Capital Account balances. If any Partner has a deficit balance in its Capital Account (after giving effect to all contributions, distributions and allocations for all taxable years, including the year during which such liquidation occurs), such Partner shall have no obligation to make any contribution to the capital of the Partnership with respect to such deficit, and such deficit shall not be considered a debt owed to the Partnership or to any other Person for any purpose whatsoever. In the sole and absolute discretion of the General Partner or the Liquidator, a pro rata portion of the distributions that would otherwise be made to the Partners pursuant to this Article 13 may be withheld or escrowed to provide a reasonable reserve for Partnership liabilities (contingent or otherwise) and to reflect the unrealized portion of any installment obligations owed to the Partnership, provided that such withheld or escrowed amounts shall be distributed to the General Partner and Limited Partners and Assignees in the manner and order of priority set forth in Section 13.2.A hereof as soon as practicable. SECTION 13.3 DEEMED DISTRIBUTION AND RECONTRIBUTION Notwithstanding any other provision of this Article 13, in the event that the Partnership is liquidated within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g), but no Liquidating Event has occurred, the Partnership's Property shall not be liquidated, the Partnership's liabilities shall not be paid or discharged and the Partnership's affairs shall not be wound up. Instead, for federal and state income tax purposes, the Partnership, and the Partners and the Assignees shall be deemed to have made such transfers of assets, liabilities and partnership interests as are provided in Regulations Section 1.708-1(b)(i)(iv); provided, however, that nothing in this Section 13.4 shall be deemed to have constituted any Assignee as a Substituted Limited Partner without compliance with the provisions of Section 11.4 hereof. 50 55 SECTION 13.4 RIGHTS OF LIMITED PARTNERS Except as otherwise provided in this Agreement, (a) each Limited Partner shall look solely to the assets of the Partnership for the return of its Capital Contribution, (b) no Limited Partner shall have the right or power to demand or receive property other than cash from the Partnership and (c) no Limited Partner shall have priority over any other Limited Partner as to the return of its Capital Contributions, distributions or allocations. SECTION 13.5 NOTICE OF DISSOLUTION In the event that a Liquidating Event occurs or an event occurs that would, but for an election or objection by one or more Partners pursuant to Section 13.1 hereof, result in a dissolution of the Partnership, the General Partner shall, within thirty (30) days thereafter, provide written notice thereof to each of the Partners and, in the General Partner's sole and absolute discretion or as required by the Act, to all other parties with whom the Partnership regularly conducts business (as determined in the sole and absolute discretion of the General Partner), and the General Partner may, or, if required by the Act, shall, publish notice thereof in a newspaper of general circulation in each place in which the Partnership regularly conduct business (as determined in the sole and absolute discretion of the General Partner). SECTION 13.6 CANCELLATION OF CERTIFICATE OF LIMITED PARTNERSHIP Upon the completion of the liquidation of the Partnership cash and property as provided in Section 13.2 hereof, the Partnership shall be terminated, a certificate of cancellation shall be filed with the State of Delaware, all qualifications of the Partnership as a foreign limited partnership or association in jurisdictions other than the State of Delaware shall be cancelled, and such other actions as may be necessary to terminate the Partnership shall be taken. SECTION 13.7 REASONABLE TIME FOR WINDING-UP A reasonable time shall be allowed for the orderly winding-up of the business and affairs of the Partnership and the liquidation of its assets pursuant to Section 13.2 hereof, in order to minimize any losses otherwise attendant upon such winding-up, and the provisions of this Agreement shall remain in effect between the Partners during the period of liquidation. ARTICLE 14 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS; AMENDMENTS; MEETINGS SECTION 14.1 PROCEDURES FOR ACTIONS AND CONSENTS OF PARTNERS The actions requiring consent or approval of Limited Partners pursuant to this Agreement, including Section 7.3 hereof, or otherwise pursuant to applicable law, are subject to the procedures set forth in this Article 14. SECTION 14.2 AMENDMENTS Amendments to this Agreement may be proposed by the General Partner or by a Majority in Interest of the Limited Partners. Following such proposal, the General Partner shall submit any proposed amendment to the Limited Partners. The General Partner shall seek the written consent of the Limited Partners on the proposed amendment or shall call a meeting to vote thereon and to transact any other business that the General Partner may deem appropriate. The affirmative vote or consent, as applicable, of the General Partner and a Majority in Interest of the Limited Partners is required for the approval of a proposed amendment. For purposes of obtaining a written consent, the General Partner may require a response within a reasonable specified time, but not less than fifteen (15) days, and failure to respond in such time period shall constitute a consent that is consistent with the General 51 56 Partner's recommendation with respect to the proposal; provided, however, that an action shall become effective at such time as requisite consents are received even if prior to such specified time. SECTION 14.3 MEETINGS OF THE PARTNERS A. Meetings of the Partners may be called by the General Partner and shall be called upon the receipt by the General Partner of a written request by a Majority in Interest of the Limited Partners. The call shall state the nature of the business to be transacted. Notice of any such meeting shall be given to all Partners not less than seven (7) days nor more than thirty (30) days prior to the date of such meeting. Partners may vote in person or by proxy at such meeting. Whenever the vote or Consent of Partners is permitted or required under this Agreement, such vote or Consent may be given at a meeting of Partners or may be given in accordance with the procedure prescribed in Section 14.3.B hereof. B. Any action required or permitted to be taken at a meeting of the Partners may be taken without a meeting if a written consent setting forth the action so taken is signed by Partners holding a majority of the Partnership Units (or such other percentage as is expressly required by this Agreement for the action in question). Such consent may be in one instrument or in several instruments, and shall have the same force and effect as a vote of Partners holding a majority of the Partnership Units (or such other percentage as is expressly required by this Agreement). Such consent shall be filed with the General Partner. An action so taken shall be deemed to have been taken at a meeting held on the effective date so certified. C. Each Limited Partner may authorize any Person or Persons to act for him by proxy on all matters in which a Limited Partner is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. Every proxy must be signed by the Limited Partner or its attorney-in-fact. No proxy shall be valid after the expiration of eleven (11) months from the date thereof unless otherwise provided in the proxy (or there is receipt of a proxy authorizing a later date). Every proxy shall be revocable at the pleasure of the Limited Partner executing it, such revocation to be effective upon the Partnership's receipt of written notice of such revocation from the Limited Partner executing such proxy. D. Each meeting of Partners shall be conducted by the General Partner or such other Person as the General Partner may appoint pursuant to such rules for the conduct of the meeting as the General Partner or such other Person deems appropriate in its sole and absolute discretion. Without limitation, meetings of Partners may be conducted in the same manner as meetings of the General Partner's shareholders and may be held at the same time as, and as part of, the meetings of the General Partner's shareholders. ARTICLE 15 GENERAL PROVISIONS SECTION 15.1 ADDRESSES AND NOTICE Any notice, demand, request or report required or permitted to be given or made to a Partner or Assignee under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent by first class United States mail or by other means of written communication (including by telecopy, facsimile, or commercial courier service) (i) in the case of a Partner, to such Partner at the address set forth in Exhibit A (or, if Exhibit A has not been amended to reflect the address of any such Partner, the Partner Schedule with respect to such Partner) or such other address of which the Partner shall notify the General Partner in writing and (ii) in the case of an Assignee, to the address of which such Assignee shall notify the General Partner in writing. SECTION 15.2 TITLES AND CAPTIONS All article or section titles or captions in this Agreement are for convenience only. They shall not be deemed part of this Agreement and in no way define, limit, extend or describe the scope or intent of any provisions 52 57 hereof. Except as specifically provided otherwise, references to "Articles" or "Sections" are to Articles and Sections of this Agreement. SECTION 15.3 PRONOUNS AND PLURALS Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa. SECTION 15.4 FURTHER ACTION The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement. SECTION 15.5 BINDING EFFECT This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. SECTION 15.6 WAIVER A. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach or any other covenant, duty, agreement or condition. B. The restrictions, conditions and other limitations on the rights and benefits of the Limited Partners contained in this Agreement, and the representations, duties, covenants and other requirements of performance or notice by the Limited Partners, are for the benefit of the Partnership and, except for an obligation to pay money to the Partnership, may be waived or relinquished by the General Partner, in its sole and absolute discretion, on behalf of the Partnership in one or more instances from time to time and at any time; provided, however, that any such waiver or relinquishment may not made if it would have the effect of (i) creating liability for any other Limited Partner, (ii) causing the Partnership to cease to qualify as a limited partnership, (iii) reducing the amount of cash otherwise distributable to the Limited Partners, (iv) resulting in the classification of the Partnership as an association or publicly traded partnership taxable as a corporation or (v) violating the Securities Act, the Exchange Act or any state "blue sky" or other securities laws; provided, further, that any waiver relating to compliance with the Ownership Limit or other restrictions in the Charter shall be made and shall be effective only as provided in the Charter. SECTION 15.7 COUNTERPARTS This Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or upon execution of a Partner Schedule. SECTION 15.8 APPLICABLE LAW This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of Delaware, without regard to the principles of conflicts of law. In the event of a conflict between any provision of this Agreement and any non-mandatory provision of the Act, the provisions of this Agreement shall control and take precedence. 53 58 SECTION 15.9 ENTIRE AGREEMENT This Agreement contains all of the understandings and agreements between and among the Partners with respect to the subject matter of this Agreement and the rights, interests and obligations of the Partners with respect to the Partnership. SECTION 15.10 INVALIDITY OF PROVISIONS If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. SECTION 15.11 LIMITATION TO PRESERVE REIT STATUS Notwithstanding anything else in this Agreement, to the extent that the amount paid, credited, distributed or reimbursed by the Partnership to, for or with respect to any REIT Partner or its officers, directors, employees or agents, whether as a reimbursement, fee, expense or indemnity (a "REIT PAYMENT"), would constitute gross income to the REIT Partner for purposes of Code Section 856(c)(2) or Code Section 856(c)(3), then, notwithstanding any other provision of this Agreement, the amount of such REIT Payments, as selected by the General Partner in its discretion from among items of potential distribution, reimbursement, fees, expenses and indemnities, shall be reduced for any Fiscal Year so that the REIT Payments, as so reduced, to, for or with respect to such REIT Partner shall not exceed the lesser of: (a) an amount equal to the excess, if any, of (i) four and nine-tenths percent (4.9%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (H) of Code Section 856(c)(2) over (ii) the amount of gross income (within the meaning of Code Section 856(c)(2)) derived by the REIT Partner from sources other than those described in subsections (A) through (H) of Code Section 856(c)(2) (but not including the amount of any REIT Payments); or (b) an amount equal to the excess, if any, of (i) twenty-four percent (24%) of the REIT Partner's total gross income (but excluding the amount of any REIT Payments) for the Fiscal Year that is described in subsections (A) through (I) of Code Section 856(c)(3) over (ii) the amount of gross income (within the meaning of Code Section 856(c)(3)) derived by the REIT Partner from sources other than those described in subsections (A) through (I) of Code Section 856(c)(3) (but not including the amount of any REIT Payments); provided, however, that REIT Payments in excess of the amounts set forth in clauses (a) and (b) above may be made if the General Partner, as a condition precedent, obtains an opinion of tax counsel that the receipt of such excess amounts shall not adversely affect the REIT Partner's ability to qualify as a REIT. To the extent that REIT Payments may not be made in a Fiscal Year as a consequence of the limitations set forth in this Section 15.11, such REIT Payments shall carry over and shall be treated as arising in the following Fiscal Year. The purpose of the limitations contained in this Section 15.11 is to prevent any REIT Partner from failing to qualify as a REIT under the Code by reason of such REIT Partner's share of items, including distributions, reimbursements, fees, expenses or indemnities, receivable directly or indirectly from the Partnership, and this Section 15.11 shall be interpreted and applied to effectuate such purpose. SECTION 15.12 NO PARTITION No Partner nor any successor-in-interest to a Partner shall have the right while this Agreement remains in effect to have any property of the Partnership partitioned, or to file a complaint or institute to any proceeding at law or in equity to have such property of the Partnership partitioned, and each Partner, on behalf of itself and its successors and assigns hereby waives any such right. It is the intention of the Partners that the rights of the parties hereto and their successors-in-interest to Partnership property, as among themselves, shall be governed by the terms 54 59 of this Agreement, and that the rights of the Partners and their successors-in-interest shall be subject to the limitations and restrictions as set forth in this Agreement. SECTION 15.13 NO THIRD-PARTY RIGHTS CREATED HEREBY The provisions of this Agreement are solely for the purpose of defining the interests of the Partners, inter se; and no other person, firm or entity (i.e., a party who is not a signatory hereto or a permitted successor to such signatory hereto) shall have any right, power, title or interest by way of subrogation or otherwise, in and to the rights, powers, title and provisions of this Agreement. No creditor or other third party having dealings with the Partnership shall have the right to enforce the right or obligation of any Partner to make Capital Contributions or loans to the Partnership or to pursue any other right or remedy hereunder or at law or in equity. None of the rights or obligations of the Partners herein set forth to make Capital Contributions or loans to the Partnership shall be deemed an asset of the Partnership for any purpose by any creditor or other third party, nor may any such rights or obligations be sold, transferred or assigned by the Partnership or pledged or encumbered by the Partnership to secure any debt or other obligation of the Partnership or any of the Partners. IN WITNESS WHEREOF, the General Partner and the Limited Partners have adopted this Agreement as of the date first written above by the affirmative vote of the General Partner and a Majority in Interest of the Limited Partners, and the General Partner has executed this Agreement as of the date first written above. GENERAL PARTNER: EXCEL REALTY TRUST, INC. By______________________________________ 55 EX-23.1 3 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements of Excel Realty Trust, Inc. and subsidiaries on Form S-3 (File No. 333-24615), Form S-8 (File No. 333-13481), and Form S-8 (File No. 333-02329) of our report dated February 13, 1998 on our audits of the consolidated financial statements and financial statement schedules of Excel Realty Trust, Inc. and subsidiaries as of December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996 and 1995, which report is included in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. San Diego, California March 13, 1998 EX-27.1 4 EXHIBIT 27.1
5 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 18,426,000 0 124,550,000 (1,896,000) 0 0 925,518,000 (33,936,000) 1,076,197,000 0 514,408,000 0 46,000 210,000 502,260,000 1,076,197,000 0 105,458,000 0 54,681,000 3,079,000 959,000 23,991,000 48,962,000 0 48,962,000 0 0 0 48,962,000 2.06 1.97 For Purposes of this Exhibit, Primary means Basic.
EX-27.2 5 RESTATED FINANCIAL DATA SCHEDULES
5 3-MOS 3-MOS 3-MOS YEAR DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 APR-01-1996 JUL-01-1996 JAN-01-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 846,000 7,159,000 5,379,000 5,038,000 0 0 0 0 34,948,000 80,889,000 51,850,000 91,483,000 (803,000) (907,000) (1,194,000) (1,608,000) 0 0 0 0 0 0 0 0 424,245,000 423,790,000 429,591,000 479,478,000 (16,677,000) (18,379,000) (20,229,000) (21,976,000) 449,463,000 500,186,000 473,631,000 558,628,000 0 0 0 0 231,814,000 248,999,000 221,928,000 238,748,000 0 0 0 0 0 0 0 0 132,000 150,000 150,000 182,000 209,990,000 241,856,000 242,696,000 312,472,000 449,463,000 500,186,000 473,631,000 558,628,000 0 0 0 0 14,707,000 15,327,000 15,906,000 63,135,000 0 0 0 0 8,997,000 9,987,000 9,280,000 37,562,000 0 0 0 1,777,000 77,000 224,000 358,000 1,008,000 4,357,000 5,253,000 4,886,000 19,450,000 5,858,000 4,094,000 6,899,000 23,796,000 0 0 0 0 5,858,000 4,094,000 6,899,000 23,796,000 0 0 0 0 0 0 0 0 0 0 0 0 5,858,000 4,094,000 6,899,000 23,796,000 0.44 0.31 0.46 1.66 0.44 0.31 0.45 1.62 For Purposes of This Exhibit, Primary means Basic.
EX-27.3 6 RESTATED FINANCIAL DATA SCHEDULES
5 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 25,568,000 5,554,000 3,484,000 0 0 0 95,000,000 77,933,000 103,017,000 (1,674,000) (1,063,000) (1,229,000) 0 0 0 0 0 0 483,735,000 692,406,000 753,008,000 (24,044,000) (27,866,000) (30,831,000) 590,859,000 759,287,000 845,675,000 0 0 0 156,028,000 286,388,000 303,419,000 0 0 0 46,000 46,000 46,000 183,000 184,000 209,000 427,933,000 430,143,000 498,451,000 590,859,000 759,287,000 845,675,000 0 0 0 20,204,000 23,461,000 27,360,000 0 0 0 9,894,000 12,563,000 13,635,000 0 0 1,239,000 298,000 167,000 167,000 4,321,000 5,514,000 5,877,000 10,310,000 11,191,000 12,646,000 0 0 0 10,310,000 11,191,000 12,646,000 0 0 0 0 0 0 0 0 0 10,310,000 11,191,000 12,646,000 0.48 0.47 0.50 0.46 0.46 0.48 For Purposes of This Exhibit, Primary means Basic.
EX-27.4 7 RESTATED FINANCIAL DATA SCHEDULES
5 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 9,812,000 0 25,732,000 (726,000) 0 0 386,925,000 (14,909,000) 428,307,000 0 210,797,000 0 0 132,000 208,546,000 428,307,000 0 59,370,000 0 44,861,000 0 959,000 22,458,000 18,192,000 0 18,192,000 0 0 0 18,192,000 1.51 1.51 For Purposes of This Exhibit, Primary means Basic.
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