ITEM 1 - Business
Formation of the Company and Subsequent Transactions
Price Legacy was formed in September 2001 from the merger of PEI and Excel Legacy (the Merger). In 1994, PEI spun off from Costco Companies, Inc., formerly Price/Costco, Inc. PEI became a self-administered, self-managed REIT in September 1997, which acquires, operates and develops open-air retail properties throughout the United States. In 1998, Excel Legacy spun off from Excel Realty Trust, Inc., a REIT, to pursue a wider variety of real estate opportunities including acquiring, developing and managing mixed-use and retail properties and real estate related operating companies throughout the United States and Canada. In connection with the Merger, Excel Legacy became a wholly owned subsidiary of PEI, and PEI changed its name to Price Legacy Corporation.
Price Legacy continues to operate as a REIT focused on open-air retail properties throughout the United States. Our current property portfolio mainly consists of open-air shopping centers leased to major retail tenants. At December 31, 2001, we owned 42 commercial real estate properties, three of which were held through majority-owned joint ventures, and one property with a 24-year ground lease. We also owned five parcels of land under development and five parcels of land held for future development or sale. In addition to the above property portfolio, we held 50-55% ownership interests in three joint ventures.
Concurrently with the Merger, Price Legacy issued to Warburg, Pincus Equity Partners, L.P. and certain of its affiliates (Warburg Pincus), for an aggregate purchase price of $100 million (the Warburg Investment):
•17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, par value $0.0001 per share (Series B Preferred Stock), and
•a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share.
In addition, Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, converted an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of Series B Preferred Stock and a warrant to purchase 233,679 shares of common stock at an exercise price of $8.25 per share.
The Series B Preferred Stock is junior to our Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from the date of issuance. The 9% coupon will be paid with additional shares of Series B Preferred Stock, at $5.56 per share for the first 45 months from issuance. The Warburg Investment closed concurrently with the Merger.
Holders of our Series A Preferred Stock have the right to elect four of the eight directors of our board of directors and Warburg Pincus has the right to elect two directors to our board. The remaining two directors of our board will be elected by the holders of our common stock and Series A Preferred Stock, voting together as a single class.
Our subsidiaries include Excel Legacy Holdings, Inc. which acquired certain assets of Excel Legacy after the Merger and elected to be treated as a Taxable REIT Subsidiary (TRS). Other than certain activities related to lodging and health care facilities, a TRS may generally engage in any business. As a regular C corporation, a TRS is subject to federal income tax and state and local income taxes, where applicable.
Overview of the Company's Business
Our current property portfolio consists primarily of open-air shopping centers leased to major retail tenants including Costco, Kmart, The Sports Authority, The Home Depot, Marshall's, PETsMART, and Wal-Mart. We receive approximately 35% of annual minimum rents from tenants with investment grade credit ratings.
For a description of our properties and of material developments during the year regarding these investments and our Company as a whole please refer to "Item 2
ITEM 2 - Properties
Overview
At December 31, 2001, we owned 42 commercial real estate properties including one property with a 24-year ground lease and two hospitality properties. These properties encompass approximately 8.0 million square feet of GLA and were 93% leased. The five largest properties include 2.3 million square feet of GLA that generate annual minimum rent of $32.4 million, based on leases existing as of December 31, 2001. We also have a 50% interest in two joint ventures which own retail properties in Fresno, CA and Bend, OR, as well as a 55% interest in a development company which owns a retail and office facility in Winnipeg, Canada. These properties generate annual minimum rent of $4.1 million and are 83% leased.
We also own approximately 3,000 acres of land, either under development or held for future development or sale.
The table below presents the geographic concentration of our properties at December 31, 2001, including our unconsolidated joint ventures and land held for development or sale.
Included in our commercial properties are four properties in Southern California with self storage businesses which we master lease to former officers who managed that division for us. Three additional self storage properties are under development at year-end and will be master-leased once completed. As part of the master lease agreement, we have the right to require the lessee to purchase the properties from us at a price based upon the properties' net operating income as defined by the agreement.
Property Table
Amounts shown for annual minimum rents are based on current leases as of December 31, 2001. Joint venture partnerships represent 100% of annual minimum rents for the property. We made no allowances for contractually-based delays to commencement of rental payments. Due to the nature of real estate investments, our actual rental income may differ from amounts shown in this schedule. The following table describes our portfolio of real estate properties as of December 31, 2001.
(1)Annual Minimum Rent does not include percentage rents or expense reimbursements.
(2)Represents a 65% ownership interest. The property opened in October 2001 and construction is expected to continue through March 2002.
(3)The property opened in June 2001 and construction is expected to continue through the end of 2003.
Not included in the above tables are two hospitality properties:
•a 65% interest in Grand Tusayan LLC which owns and operates a 120-room hotel and restaurant in Arizona
•a 55% interest in Daniel's Head Bermuda which operates an eco-tourism resort opened in 2001 in Bermuda The following table reflects land under development or held for development or sale:
(1)We own 50% of a limited liability company that owns this land
Debt Secured by Properties
The following table summarizes outstanding debt secured by our properties as of December 31, 2001:
1)No prepayment on loan is allowed prior to July 2002. 2)Interest based on LIBOR plus 98 basis points. 3)Monthly payments are interest only. 4)Capital lease arrangement whereby lease may be paid in full upon six month notice. 5)Interest based on LIBOR plus 310 basis points. 6)Interest based on LIBOR plus 225 basis points. 7)Interest based on LIBOR plus 205 basis points. 8)Interest based on LIBOR plus 350 basis points. Loan changes to principal and interest payments at a fixed rate of 9.25% beginning May 2002. 9)Interest based on Prime plus 5 basis points. 10)Interest based on 90-day LIBOR plus 275 basis points. 11)Construction loan with a maximum draw of $46.2 million. 12)Balance due at maturity is estimated. 13)Construction loan with a maximum draw of $4.9 million. 14)Construction loan with a maximum draw of $8.7 million 15)Construction loan with a maximum draw of $8.5 million.
Pending Real Estate Transactions
Since December 31, 2001, we have executed six leases, including one in an unconsolidated joint venture, for approximately 7,500 square feet of GLA. These new leases will generate $158,000 in annual minimum rents. We have also sold two parcels of undeveloped land for $2.1 million. We are currently in negotiations to sell additional commercial properties and land as well as evaluating various properties for acquisition.
ITEM 3
ITEM 3 - Legal Proceedings
On or about February 13, 2001, Lewis P. Geyser filed a lawsuit against Excel Legacy in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by Excel Legacy and Mr. Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Mr. Geyser alleges that Excel Legacy breached its obligations under the Operating Agreement, by failing to contribute the funding required under the Agreement. Mr. Geyser also alleges that Excel Legacy misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. We believe the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from Excel Legacy in negotiations with Mr. Geyser which were underway prior to its filing. We intend to vigorously defend the lawsuit. Excel Legacy has also filed a cross-complaint against Mr. Geyser for breach of contract, fraud, breach of fiduciary duty and other related claims. The trial of this matter began February 26, 2002. On March 19, 2002, the trial judge dismissed both the complaint and cross-complaint on the grounds that Mr. Geyser was not the proper party under the Operating Agreement and therefore could not sue or be sued on any of the pending causes of action.
We are not party to any other legal proceedings other than various claims and lawsuits arising in the ordinary course of business that, in the opinion of our management, are not individually or in the aggregate material to our business.
ITEM 4
ITEM 4 - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of 2001.
PART II
ITEM 5
ITEM 5 - Market for Registrant's Common Equity and Related Stockholder Matters
Stock Prices
Prior to the Merger with Excel Legacy, our common stock was traded on the Nasdaq National Market under the symbol PREN. Following the Merger, our common stock is traded on the American Stock Exchange under the symbol XLG. Our Series A Preferred Stock trades on the Nasdaq National Market under the symbol PRENP. The table below provides the high and low sales prices of our common stock and Series A Preferred Stock for the period indicated, as reported by the American Stock Exchange and the Nasdaq National Market.
(1)Common stock symbol PREN for Price Enterprises, Inc.
(2)Common stock symbol XLG for Price Legacy Corporation On March 15, 2002, the last reported sales price per share of our common stock was $3.08, and we had approximately 480 common stockholders of record plus those who hold their shares in street name.
In September 2001 in conjunction with the Merger with Excel Legacy, each outstanding share of Excel Legacy common stock was exchanged for 0.6667 share of PEI common stock. Also under the terms of the Merger Agreement, PEI commenced a tender offer for all outstanding shares of common stock (other than those held by Excel Legacy and those issued in the Merger) at a cash price of $7.00 per share. In connection with the tender offer, 807,583 shares were purchased at a total cost of $5.7 million. We now have approximately 40.7 million shares of common stock outstanding.
Dividends
We intend to distribute at least 90% of our REIT taxable income (determined without regard to the dividends-paid deduction and by excluding any net capital gain) to maintain our qualification as a REIT.
In connection with the Merger we assumed a net operating loss of approximately $18.7 million, which can be used to reduce our taxable income with certain limitations.
During 2001, we declared and paid four quarterly dividends of $0.35 on each share of Series A Preferred Stock for a total of $1.40 per share or $34.6 million. We accrued $2.8 million in dividends on our Series B Preferred Stock in accordance with its terms, but have not yet declared these dividends.
For the first 45 months after issuance, all distributions declared on our Series B Preferred Stock will be payable in additional shares of Series B Preferred Stock. Any dividends required to be paid in excess of dividends paid on our Series A Preferred Stock and our Series B Preferred Stock will be paid to our common stockholders. We did not declare or pay any dividends on our common stock during 2001.
During 2000, we declared and paid four quarterly dividends of $0.35 on each share of Series A Preferred Stock for a total of $1.40 per share or $33.4 million and we did not declare or pay any dividends on our common stock.
It is possible that, from time to time, we may not have sufficient cash or other liquid assets to meet our distribution requirements due to timing differences between (i) the actual receipt of such income and actual payment of deductible expenses and (ii) the inclusion of such income and deduction of such expenses in arriving at our taxable income. In the event that such timing differences occur, in order to meet these distribution requirements, we may find it necessary to arrange for short-term, or possibly long-term borrowings or to pay dividends in the form of taxable stock dividends.
ITEM 6
ITEM 6 - Selected Financial Data
The following selected data should be read in conjunction with our financial statements and accompanying notes located elsewhere in this Form 10-K and "Item 7
ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations
As you read Management's Discussion and Analysis, it may be helpful to refer to our financial statements and accompanying notes beginning on page 41. In Management's Discussion and Analysis we explain the changes in specific line items in the statements of operations. Where changes are due to more than one reason, we list the reasons in order of importance.
Introduction
In Management's Discussion and Analysis of Financial Conditions and Results of Operations we explain our general financial condition and results of operations including:
•results of operations
•why revenues, costs and earnings changed from the prior period
•funds from operations (FFO)
•how we used cash for capital projects and dividends during 1999 through 2001 and how we expect to use cash in 2002
•where we plan on obtaining cash for future dividend payments and future capital expenditures
The results of Excel Legacy are included in operations beginning September 19, 2001.
Because of Excel Legacy's acquisition of 91% of our common stock in 1999, we report operating results for the year ended December 31, 1999 divided between the periods of January 1, 1999 to November 11, 1999 and November 12, 1999 to December 31, 1999, due to a new basis of accounting as required by accounting principles generally accepted in the United States of America. For purposes of this discussion however, we combined these two periods of 1999 to make an equivalent twelve-month period in order to compare operating results with the year ended December 31, 2000.
Critical Accounting Policies and Estimates
General
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Preparation of our financial statements in accordance with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related notes. We believe that the following accounting policies are critical because they affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. For a detailed discussion on the application of these and other accounting policies, see Note One in the Notes to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
Consolidation
We combine our financial statements with those of our wholly-owned subsidiaries as well as all affiliates in which we have a significant influence and present them on a consolidated basis. The consolidated financial statements do not include the results of transactions between us and our subsidiaries or among our subsidiaries.
Revenue Recognition
Recognition of revenue is dependent upon the quality and ability of our tenants to pay their rent in a timely manner. Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which we accrue in the period in which the related expense occurs; and (3) percentage rents based on the level of sales achieved by the lessee are recognized when earned.
Gain or loss on sale of real estate is recognized when the sales contract is executed, title has passed, payment is received, and we no longer have continuing involvement in the asset.
We adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on our consolidated financial position or results of operations.
Real Estate Assets and Depreciation
We record real estate assets at historical costs and adjust them for recognition of impairment losses. In following purchase accounting, we adjusted the historical costs of Excel Legacy's real estate assets to fair value at the time of the Merger. Our consolidated balance sheet at December 31, 2001 reflects the new basis of those real estate assets.
We expense as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. We capitalize major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciate them over their estimated useful lives.
We compute real estate asset depreciation on a straight-line basis over their estimated useful lives, as follows:
We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if their expected associated future undiscounted cash flows are less than their carrying amounts.
We capitalize interest incurred during the construction period of certain assets and this interest is depreciated over the lives of those assets.
Pre-development costs that are directly related to specific construction projects are capitalized as incurred. We expense these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.
New Accounting Standards
Derivative Instruments and Hedging Activities: In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and in 1999 they voted to delay the effective date of this SFAS by one year. SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities, where all derivatives must be recognized as assets and liabilities and measured at fair value. We adopted this standard on January 1, 2001 and it did not have a significant impact on our financial statements.
Business Combinations: In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations initiated after June 30, 2001. SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets other than those acquired in a business combination. SFAS No. 141 and SFAS No. 142 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated results of operations and financial position.
Asset Impairment: In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting for the impairment or disposal of long-lived assets and is effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated results of operations and financial position.
Results of Operations
Rental Revenues
Revenues increased $12.2 million to $82.9 million in 2001 compared to 2000 because:
•properties we acquired during 2000 and 2001 generated $14.0 million of additional revenues
•properties acquired from Excel Legacy due to the Merger generated an additional $2.4 million in revenues
•revenues from properties we owned in both 2000 and 2001 increased $1.4 million, primarily due to additional leasing activity and additional expense reimbursement revenue
•partially offsetting these increases was the loss of $5.6 million in revenues generated in 2000 from properties sold during 2001
Revenues increased $4.1 million to $70.8 million in 2000 compared to 1999 because:
•revenues from properties we owned in both 1999 and 2000 increased $3.2 million, primarily due to additional leasing activity and additional expense reimbursement revenue
•properties we acquired during 2000 generated $2.0 million of additional revenues
•expansion of our self storage business provided an additional $1.2 million of revenues
•partially offsetting these increases were:
•the loss of $1.5 million in revenues generated in 1999 from two properties we sold in 1999
•the loss of $0.8 million in revenues generated in 1999 from properties we sold during 2000
Expenses
Expenses increased $8.6 million to $37.6 million in 2001 compared to 2000 primarily due to:
•properties we purchased in 2000 and 2001 contributed $4.4 million to expenses
•properties acquired from Excel Legacy due to the merger contributed $3.9 million to expenses
•an increase in general and administrative expenses of $1.3 million
•bad debt expense increased $1.1 million, primarily due to a recovery in the prior year of amounts previously written off related to a former tenant
•expenses on properties we owned in 2000 and 2001 increased $0.6 million
•these increases in expenses were partially offset by:
•a decrease in expenses of $1.7 million as a result of properties sold during the year
•a decrease in expenses of $1.0 million for our self storage business as we began collecting rent net of expenses when we entered into a master lease arrangement on these properties
Expenses decreased $2.6 million to $28.9 million in 2000 compared to 1999 primarily because:
•depreciation expense decreased $1.9 million due to our change to Excel Legacy's accounting policy of depreciating real estate assets. Following the completion of Excel Legacy's exchange offer for our common stock, we adopted Excel Legacy's policy of depreciating real estate assets, to useful lives of 40 years for land improvements and buildings compared to 25 years in prior years
•bad debt expense decreased $0.6 million, primarily due to a recovery of amounts previously written off related to the Homeplace bankruptcy, a former tenant
•properties we sold during 2000 contributed an additional $0.9 million to expenses, including depreciation expense of $0.5 million, in 1999
•properties we sold in the second quarter of 1999 contributed $0.6 million of expense in 1999
•these decreases in expenses were partially offset by:
•expansion of our self storage business, which increased expenses by $0.4 million
•properties we acquired during 2000, which increased expenses by $0.7 million, including depreciation of $0.5 million
•general and administrative expenses, which increased $0.3 million over the prior year
Operating Income
Operating income increased for 2001 and 2000 compared to the same periods in the prior year primarily because of the changes in Rental Revenues and Expenses discussed above.
Interest Expense
During 2001, interest expense increased $5.9 million compared to 2000 because:
•our average debt outstanding in 2001 was $274.0 million compared to $148.5 million in 2000, which relates primarily to additional borrowings and assumptions of loans with the purchase of properties
•the increase in interest expense due to the amount of debt outstanding was partially offset by a decrease in interest rates on our variable rate debt. The weighted average interest rate on our variable rate debt decreased to 3.6% on December 31, 2001 compared to 7.5% at December 31, 2000
•interest expense is net of $1.6 million interest capitalized to real estate assets in 2001
During 2000, interest expense increased $5.1 million compared to 1999 because:
•our average debt outstanding in 2000 was $148.5 million compared to $90.0 million in 1999, which relates primarily to additional borrowings which were used to purchase properties and to provide loans to Excel Legacy and other real estate developers
•the weighted average interest rate related to our credit facility increased from 7.5% at December 31, 1999 to 8.0% at December 31, 2000
•we recorded $0.5 million of interest expense related to the assumptions of loans on the Terre Haute, IN, Middletown, OH, and Scottsdale, AZ properties purchased in 2000
•interest expense is net of $2.1 million interest capitalized to real estate assets in 2000
We discuss our outstanding debt further in "Liquidity and Capital Resources" located elsewhere in this Form 10-K.
Interest Income
Interest income increased $4.8 million to $7.5 million in 2001 compared to 2000 primarily because:
•Prior to the Merger in 2001, our note receivable with Excel Legacy earned additional interest of $1.9 million
•our notes receivable with other real estate developers, including interest on notes acquired in the Merger, earned additional interest of $2.9 million
Interest income increased $2.2 million to $2.7 million in 2000 compared to 1999 primarily because:
•our note receivable with Excel Legacy earned interest of $1.0 million
•our notes receivable with other real estate developers earned additional interest of $0.7 million
•we recorded $0.5 million in additional interest income on higher cash balances
Gain on Sale of Real Estate and Investments (net)
During 2001, we sold the following properties for a net gain of $1.3 million:
(1)Partial sale-one building remains We also sold our 50% ownership interest in a joint venture which owns a retail property in Westminster, CO, on December 14, 2001 for $13.5 million. We recognized no gain or loss on the sale.
During 2000, we sold the following properties for a net gain of $0.2 million:
(1)Partial sale-self storage remains
(2)Partial sale-sold two of four buildings in office complex Funds From Operations
(1)Includes $2.8 million of non-cash dividends accrued on our Series B Preferred Stock Our Company, as well as real estate industry analysts, generally consider FFO as another measurement of economic profitability for real estate-oriented companies. The Board of Governors of the National Association for Real Estate Investment Trusts (NAREIT), defines FFO as net income in accordance with accounting principles generally accepted in the United States of America (GAAP), excluding depreciation and amortization expense and gains (losses) from depreciable operating real estate. We calculate FFO in accordance with the NAREIT definition and also exclude provisions for asset impairments and gains (losses) from the sale of investments when we calculate FFO. FFO does not represent the cash flows from operations defined by GAAP, may not be comparable to similarly titled measures of other companies and should not be considered as an alternative to net income as an indicator of our operating performance or to cash flows as a measure of liquidity. Excluded from FFO are significant components in understanding our financial performance.
FFO before preferred dividends during 2001 increased $4.7 million or 10.8% to $48.7 million compared to 2000 because:
•properties we acquired during 2000 and 2001 increased FFO $11.2 million
•interest income on our outstanding notes receivable and higher cash balances increased FFO $4.8 million
•a net increase in FFO of $0.8 million for our self storage business as we began collecting rent net of expenses when we entered into a master lease arrangement on these properties
•properties we owned in both 2000 and 2001 increased FFO $0.7 million
•joint venture income contributed an additional $0.1 million to FFO in the current year
•these increases to FFO were partially offset by:
•additional interest expense which reduced FFO $5.9 million
•properties sold during 2001 reduced FFO $4.6 million
•additional bad debt expense and general and administrative expenses reduced FFO by $2.4 million
FFO before preferred dividends during 2000 increased 10% to $43.9 million compared to 1999 because:
•properties we owned in both 1999 and 2000 increased FFO $2.3 million
•properties we acquired during 2000 increased FFO $1.6 million
•interest income on our outstanding notes receivable and higher cash balances increased FFO $2.2 million
•we expensed $1.8 million in merger costs in 1999 related to our transaction with Excel Legacy
•expansion of our self storage business increased FFO $0.8 million
•joint venture income contributed $0.5 million to FFO in the current year
•these increases to FFO were partially offset by additional interest expense which reduced FFO $5.1 million
Liquidity and Capital Resources
Liquidity refers to our ability to generate sufficient cash flows to meet the short and long-term cash requirements of our business operations. Capital resources represent those funds used or available to be used to support our business operations and consist of stockholders' equity and debt.
Cash flow from operations has been the principal source of capital to fund our ongoing operations and dividend payments, while use of our credit facilities and mortgage financing have been the principal sources of capital required to fund our growth. While we are positioned to finance our business activities through a variety of sources, we expect to satisfy short-term liquidity requirements through net cash provided by operations and through borrowings.
As discussed previously, concurrently with the Merger, we issued to Warburg Pincus and certain of its affiliates, for an aggregate purchase price of $100 million:
•17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, par value $0.0001 per share (the Series B Preferred Stock)
•a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share
In addition, Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, converted an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of Series B Preferred Stock and a warrant to purchase 233,679 shares of common stock at an exercise price of $8.25 per share.
The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from
the date of issuance. The 9% coupon will be paid in kind with additional shares of Series B Preferred Stock for the first 45 months from issuance. We used the net proceeds from this transaction to repay debt and pay costs associated with the Merger.
Also in connection with the Merger, we completed a tender offer for our common stock (other than those shares held by Excel Legacy prior to the Merger and those shares issued in the Merger) at a cash price of $7.00 per share. A total of 807,583 shares were tendered for $5.7 million. The merger agreement further obligated us to commence an exchange offer in which holders of Excel Legacy's outstanding debentures and notes were offered shares of our Series A Preferred Stock in exchange for their debt securities valued at par. In the exchange, $30.4 million of the debentures and $15.8 million of the notes were exchanged for Series A Preferred Stock.
Upon completion of the Merger, we obtained a $100.0 million unsecured credit facility with Fleet Bank as agent. The facility has a three year term with an initial interest rate of LIBOR plus 150 basis points. The rate may vary based on our leverage and other financial ratios. At December 31, 2001, we had $31.5 million outstanding on the facility at a 3.5% interest rate. In connection with obtaining the new credit facility, we repaid and terminated our then exi0sting $75 million facility in September 2001.
Subsequent to the Merger, we no longer record interest income on notes receivable due from and rent revenues earned from master leases with Excel Legacy. Total interest income and rent revenues earned from Excel Legacy were $5.4 million for year ended December 31, 2001, which covers the period from January 1, 2001 through September 18, 2001.
We have $55.2 million in notes receivable at December 31, 2001. These notes are primarily due from developers and are collateralized by the related projects or other real estate. Of these notes, $52.1 million do not require cash payments on the interest until specified future dates, typically when the projects are completed or sold.
We continue to evaluate various properties for acquisition or development and continue to evaluate other investment opportunities. We anticipate borrowing available amounts on our credit facility to fund these acquisition and development opportunities. We anticipate obtaining construction loans to fund our development activities. During the year ended December 31, 2001, we purchased eleven properties for a total of $339.1 million. We used available cash, advances on our line of credit, proceeds from tax-deferred exchange transactions on properties sold in 2001 and 2000, and assumed loans of $237.1 million to fund these acquisitions.
In February 2002 we filed a $500.0 million shelf registration statement pursuant to which we may issue debt securities, preferred stock, depositary shares, common stock, warrants or rights.
From time to time we will consider selling properties to better align our portfolio with our geographic and tenant composition strategies. We may also participate in additional tax-deferred exchange transactions, which allow us to dispose of properties and reinvest the proceeds in a tax efficient manner. During the year ended December 31, 2001, we sold five properties from our portfolio for $40.7 million and our interest in a joint venture partnership for $13.5 million. When we sell a property, we anticipate a temporary reduction in operating income due to the time lag between selling a property and reinvesting the proceeds.
We are contemplating purchasing various properties and selling certain other properties. As we sell properties, our cash flows from operations may decrease until the proceeds are reinvested into new properties. At December 31, 2001, we have $15.0 million cash awaiting reinvestment through a tax deferred exchange transaction.
We have a significant retail project currently under development in Newport, Kentucky. The majority of the construction was completed in October 2001, with all of the primary buildings completed except for one out parcel yet to be leased. The project opened in October 2001. At present
the project is approximately 70% leased in addition to the space currently occupied by Firststar IMAX Theater and the Newport Aquarium.
We also have two other significant retail development projects in which construction will continue through 2002. The Temecula, CA project is an open-air retail shopping center with Wal-Mart and other tenants. Total cost of the project is approximately $30.0 million, with an estimated cost of $11.5 million remaining to complete construction. We expect to fund the remaining cost through a construction loan. The Anaheim Garden Walk project in Anaheim, CA, located at the corner of Harbor Blvd. and Disney Way, will consist of an open-air retail center and three hotels. Total cost of the retail portion of this project is approximately $250 million with an estimated cost of $200 million remaining to complete construction over the next eight years. We expect to fund construction costs through a construction loan, sales of adjacent land parcels for hotels or potential joint venture investors.
The following table summarizes all of our long-term contractual obligations, excluding interest, to pay third parties as of December 31, 2001:
In 2002, we plan to use cash flow from operations to fund our principal payments due on mortgages and we plan to borrow on our unsecured line of credit to repay approximately $12.3 million of debt maturing in 2002.
Off-Balance Sheet Financing Matters
Also related to our Newport, KY project discussed previously, the City of Newport, KY in 1999 issued two series of public improvement bonds related to the Newport development project. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2018 with interest at 8.375%; (b) $20.5 million maturing 2027 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by the Newport project, the Company, and the project's third party developers. As of December 31, 2001, Newport had drawn on $44.8 million of the bonds for construction incurred prior to that date.
Summarized debt information for our unconsolidated joint ventures and the amount guaranteed by us at December 31, 2001 is as follows:
We also have guaranteed a $11.9 million note payable related to a development project in Scottsdale, AZ and have a note receivable with a participating interest.
Transactions with Related and Certain Other Parties
Prior to the Merger, Excel Legacy was responsible for our daily management, including property management, finance and administration. We reimbursed Excel Legacy for these services. We expensed $2.4 million during 2001 prior to the Merger and $3.0 million for these services during 2000, which was based on our historical costs for similar expenses.
Also prior to the Merger, we executed a note receivable with Excel Legacy allowing them to borrow up to $40.0 million. During 2001, we recorded $2.9 million in interest income on this note prior to the Merger, and $1.0 million for 2000. As a result of the Merger, interest income is no longer recorded on this note.
In conjunction with the purchase of the Anaheim land in the first quarter of 2001, we executed a ground lease agreement with Excel Legacy, which required payments of $2.8 million per year in rent. During 2001, we recorded $1.8 million in rental revenue from Excel Legacy related to this lease for the period of January 1 through September 18, 2001. Due to the Merger, rental revenue is no longer recorded on this lease.
In connection with the Merger, we acquired notes receivable from certain affiliates of Excel Legacy, of which $9.4 million was outstanding at December 31, 2001. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2001 from these notes was $2.6 million. The notes have been offset against stockholders' equity on our accompanying Consolidated Balance Sheets.
Inflation
Because a substantial number of our leases contain provisions for rent increases based on changes in various consumer price indices, based on fixed rate increases, or based on percentage rent if tenant sales exceed certain base amounts, we do not expect inflation to have a material impact on future net income or cash flow from developed and operating properties. In addition, substantially all leases are triple net, which means specific operating expenses and property taxes are passed through to the tenant.
ITEM 7A.
ITEM 7A.-Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from changes in short-term LIBOR interest rates. We do not have any significant foreign exchange or other material market risk. We did not have any derivative financial instruments at December 31, 2001.
Our exposure to market risk for changes in interest rates relates primarily to our variable interest rate debt. We enter into variable rate debt obligations to support general corporate purposes, including acquisitions, capital expenditures and working capital needs. We continuously evaluate our level of variable rate debt with respect to total debt and other factors, including our assessment of the current and future economic environment.
We had $252.4 million in variable rate debt outstanding at December 31, 2001. Based upon these year-end debt levels, a hypothetical increase in interest rates by 100 basis points would increase interest expense by approximately $2.5 million on an annual basis, and likewise decrease our earnings and cash flows. We cannot predict market fluctuations in interest rates and their impact on our variable rate debt, nor can there be any assurance that fixed rate long-term debt will be available to us at favorable rates, if at all. Consequently, future results may differ materially from the estimated adverse changes discussed above.
The following table presents the scheduled principal payments on notes receivable and the scheduled principal payments on mortgages payable over the next five years and thereafter. The table
also includes the average interest rates of the financial instruments during each respective year and the fair value of the notes receivable and mortgages payable. We determine the fair value of financial instruments through the use of discounted cash flows analysis using current interest rates for notes receivable with terms and credit characteristics similar to our existing portfolio and borrowings under terms similar to our existing mortgages payable. Accordingly, we have determined that the carrying value of our financial instruments at December 31, 2001 approximated fair value.
ITEM 8
ITEM 8 - Financial Statements and Supplementary Data
PRICE LEGACY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
See accompanying notes.
PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
See accompanying notes.
PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
See accompanying notes.
PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
PRICE LEGACY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
See accompanying notes.
PRICE LEGACY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1-Organization and Significant Accounting Policies
Organization
Price Legacy Corporation (Price Legacy) operates as a real estate investment trust (REIT) incorporated in the State of Maryland. Our principal business is to operate, acquire, sell, and develop real property, primarily open-air shopping centers. On September 18, 2001, Price Legacy completed a merger between Price Enterprises, Inc. (PEI) and Excel Legacy Corporation (Excel Legacy) resulting in Excel Legacy becoming a wholly owned subsidiary of PEI (the Merger). The results of Excel Legacy are included in our operations beginning September 19, 2001.
Our subsidiaries include Excel Legacy Holdings, Inc. which has elected to be treated as a Taxable REIT Subsidiary (TRS). Other than certain activities related to lodging and health care facilities, a TRS may generally engage in any business. As a regular C corporation, a TRS is subject to federal income tax and state and local income taxes, where applicable.
Accounting Principles
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). We follow the accounting standards established by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (SEC).
Consolidation
We combine our financial statements with those of our wholly-owned subsidiaries as well as all affiliates in which we have significant influence and present them on a consolidated basis. The consolidated financial statements do not include the results of transactions between us and our subsidiaries or among our subsidiaries.
We account for our investment in unconsolidated joint ventures using the equity method of accounting. Under the equity method of accounting, the net equity investment of the joint ventures is reflected on the consolidated balance sheets and the consolidated statements of operations includes our share of net income or loss from the unconsolidated joint ventures.
Real Estate Assets and Depreciation
We record real estate assets at historical cost and adjust them for recognition of impairment losses. In following purchase accounting, we adjusted the historical costs of Excel Legacy's real estate assets to fair value at the time of the Merger. Our consolidated balance sheet at December 31, 2001 reflects the new basis of those real estate assets. See Note 2 for additional information on this transaction.
We expense as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. We capitalize major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciate them over their estimated useful lives.
We compute real estate asset depreciation on a straight-line basis over their estimated useful lives, as follows:
We review long-lived assets for impairment when events or changes in business conditions indicate that their full carrying value may not be recovered. We consider assets to be impaired and write them down to fair value if their expected associated future undiscounted cash flows are less than their carrying amounts.
We capitalize interest incurred during the construction period of certain assets and this interest is depreciated over the lives of those assets. The following table shows interest expense and the amount capitalized (amounts in thousands):
Pre-development costs that are directly related to specific construction projects are capitalized as incurred. We expense these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.
Investment in Securities
We review our investments in securities for possible impairment whenever the market value of the securities falls below cost and, in our opinion, such decline represents an other than temporary impairment. Factors considered in this review include:
•duration and extent, as well as reasons for which the market value has been less than cost
•financial condition and near-term prospects of the investee, which includes consideration of proposed transactions known through Board of Directors participation
•our ability and intent to retain the investment for a period of time to allow for a recovery in market value.
When an other than temporary impairment loss on an individual investment is considered to have occurred, we write down the cost basis of the security, and the charge is recorded in earnings.
Included in other assets on our consolidated balance sheet is an investment in Millennia Car Wash, LLC (Millennia) which owns approximately 3.8 million shares of common stock, and 62,500 common stock purchase warrants of Mace Security International (MACE) and 250,000 common shares of US Plastic Lumber Corporation (USPL). Our common shares in MACE are subject to certain sale
restrictions and one of our senior officers is a member of the MACE board of directors. In following GAAP, we account for Millennia's investment in MACE under the equity method of accounting and owned approximately 15% of MACE at December 31, 2001. We classify our investment in USPL as available-for-sale and recognize changes in the fair value of this investment in other comprehensive income.
Revenue Recognition
Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which we accrue in the period in which the related expense occurs; and (3) percentage rents based on the level of sales achieved by the lessee are recognized when earned.
Gain or loss on sale of real estate is recognized when the sale contract is executed, title has passed, payment is received, and we no longer have continuing involvement in the asset.
We adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on our consolidated financial position or results of operations.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of less than three months when purchased to be cash and cash equivalents.
Our cash balance at December 31, 2001 includes $1.5 million of restricted funds which represent proceeds from the financing of a construction project. Funds are held in trust and released as work is completed.
Leasing Costs
We capitalize costs associated with leasing space to tenants and amortize leasing costs using the straight-line method over the initial terms of the related tenant leases.
Financial Instruments
The carrying amounts reflected in our balance sheets for cash and cash equivalents, receivables and all liabilities including minority interest approximate their fair values. In making these assessments we used estimates and market rates for similar instruments.
Authorized Stock
As of December 31, 2001, our Company's authorized stock consisted of 150 million shares of capital stock of which 94.7 million shares have been designated as common stock, par value $0.0001 per share; 27.8 million shares have been designated as 83/4% Series A Cumulative Redeemable Preferred Stock, par value $.0001 per share; and 27.5 million shares have been designated as 9% Series B Junior Convertible Redeemable Preferred Stock, par value $.0001 per share.
Income Taxes
We intend to continue to meet all conditions necessary to qualify as a REIT under the Internal Revenue Code. To qualify as a REIT, we are required to pay dividends of at least 90% of our REIT taxable income (95% for years beginning before January 1, 2001), determined without regard to the dividends-paid deduction and by excluding any net capital gain each year and meet certain other criteria. As a qualifying REIT, we will not be subject to tax on income distributed to our stockholders, but we will be subject to tax on our income to the extent it is not distributed. Also, if we sell properties that would result in a significant tax liability, we intend to use tax deferred exchange transactions so we will not be taxed on potential gains. The reported amounts of our net assets, as of December 31, 2001 and 2000 were more than their tax basis for Federal tax purposes by approximately $149.6 million and $195.8 million, respectively.
The following table shows the tax status of our preferred dividend payments between ordinary income, return of capital and capital gains:
Reclassifications
Certain reclassifications have been reflected in the consolidated financial statements in order to conform with the current year presentation.
Use of Estimates
Preparing financial statements in conformity GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We continually review our estimates and make adjustments as necessary, but actual results could differ from those envisioned when these estimates were made.
Stock-Based Compensation
We follow Accounting Principles Board No. 25, "Accounting for Stock Issued to Employees" and related interpretations, in accounting for our employee and non-employee director stock options instead of following Statement of Financial Accounting Standard (SFAS) No. 123, "Accounting for Stock- Based Compensation." The alternative fair value accounting provided for under SFAS No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation models that were not developed for use in valuing employee stock options. As a result, deferred compensation is recorded only in the event that the fair market value of the stock on the date of the option grant exceeds the exercise price of the options. Since the exercise price of our stock options equals the market price of our stock on the day the options are granted there is no related compensation expense.
Comprehensive Income
In 1999, we adopted SFAS No. 130 "Reporting Comprehensive Income." This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The components of comprehensive income for us include net income and unrealized gains (losses) on investments.
New Accounting Standards
Derivative Instruments and Hedging Activities: Effective January 1, 2001, we adopted SFAS No. 133,"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes a new model for accounting for derivatives and hedging activities, where all derivatives must be recognized as assets and liabilities and measured at fair value. We adopted this standard and it did not have a significant impact on our consolidated financial statements.
Business Combinations: In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations initiated after June 30, 2001. SFAS No. 142 addresses the financial accounting and reporting for acquired goodwill and other intangible assets other than those acquired in a business combination. SFAS No. 141 and SFAS No. 142 are effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated financial statements.
Asset Impairment: In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting for the impairment or disposal of long-lived assets and is effective in fiscal years beginning after December 15, 2001, with early adoption permitted. We have evaluated the effect of this statement and have determined it will not have a significant impact on our consolidated financial statements.
Note 2-Merger and Significant Event
On March 21, 2001, PEI, PEI Merger Sub, Inc., a Maryland corporation (Merger Sub), and Excel Legacy entered into an Agreement and Plan of Merger (the Merger Agreement). On September 18, 2001, Merger Sub was merged with and into Excel Legacy (the Merger), with Excel Legacy continuing as a wholly-owned subsidiary of PEI. On the effective date of the Merger, each outstanding share of Excel Legacy common stock was exchanged for 0.6667 of a share of PEI common stock, and each option to purchase shares of Excel Legacy common stock was exchanged for an option to purchase shares of PEI common stock. Following the Merger, PEI continues to operate as a REIT under the name Price Legacy Corporation. The Merger was structured to qualify as a tax-free reorganization, was approved by the stockholders of both PEI and Excel Legacy, and was accounted for as a purchase. The results of Excel Legacy are included in operations beginning September 19, 2001.
The purchase price of the Excel Legacy common stock in the Merger was calculated based on $4.89 per share for the PEI common stock, which is equal to the closing price of $5.75 per share on March 21, 2001 (the day immediately prior to the public announcement of the Merger), less a 15% discount to reflect the low trading volume of the PEI stock (amounts in thousands, except per share data):
The purchase price of the Excel Legacy common stock resulted in an increase in the book value of the Excel Legacy assets acquired of approximately $26.0 million which has been primarily allocated to real estate and other assets.
Also on March 21, 2001, PEI entered into a Securities Purchase Agreement with Warburg, Pincus Equity Partners, L.P. and certain of its affiliates (Warburg Pincus), pursuant to which PEI agreed to sell to Warburg Pincus for an aggregate purchase price of $100,000,000
•17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock at $5.56 per share, par value $0.0001 per share (the Series B Preferred Stock)
•a warrant to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share (the Warburg Investment)
On April 12, 2001, PEI and Sol Price, a significant stockholder of PEI and Excel Legacy through various trusts, agreed to convert an existing Excel Legacy loan payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of the Series B Preferred Stock and a warrant to purchase 233,679 shares of our common stock at an exercise price of $8.25 per share. Price Legacy issued the Series B Preferred Stock and warrants to Warburg Pincus and Sol Price concurrently with the completion of the Merger.
The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at a one-to-one ratio, which may be adjusted under certain circumstances, after 24 months from the date of issuance. The 9% coupon will be paid with additional shares of Series B Preferred Stock at $5.56 per share for the first 45 months from issuance.
In addition, under the terms of the Merger Agreement PEI commenced a tender offer for all outstanding shares of our common stock (other than those shares held by Excel Legacy and those shares issued in the Merger) at a cash price of $7.00 per share. In connection with the tender offer, 807,583 shares were purchased at a total cost of $5.7 million. Under terms of the Merger Agreement we also commenced an exchange offer in which holders of Excel Legacy's outstanding debentures and notes were offered shares of our Series A Preferred Stock in exchange for their debt securities. In connection with the exchange offer, we exchanged approximately $30.4 million in Excel Legacy
debentures and $15.8 million in Excel Legacy notes. The tender offer and exchange offer also closed concurrently with the Merger.
The exchange of Excel Legacy common stock for Price Legacy common stock in connection with the Merger is being accounted for as a purchase of Excel Legacy by Price Legacy. Under purchase accounting, the assets and liabilities of Excel Legacy have been adjusted to fair value.
The following unaudited pro forma information for the years ended December 31, 2001 and 2000 have been presented as if the Merger had been completed on January 1, 2001 and 2000, respectively. It also reflects the Series B Preferred Stock dividends and exchange of Excel Legacy senior notes and convertible debentures into Series A Preferred Stock. It does not reflect any application of proceeds from the sale of Series B Preferred Stock. We present pro forma information for comparative purposes only and the pro forma information may not be indicative of our actual results of operations had the Merger been completed on January 1, 2001 or 2000 (amounts in thousands, except per share data):
Note 3-Net Income Per Share
SFAS No. 128, "Earnings per Share," requires presentation of two calculations of earnings per common share. Basic earnings per common share equals net income applicable to common stockholders divided by weighted average common shares outstanding during the period. Diluted earnings per common share equals net income applicable to common stockholders divided by the sum of weighted average common shares outstanding during the period plus common stock equivalents. Common stock equivalents are shares assumed to be issued if outstanding stock options were exercised.
All earnings per share amounts have been presented, and where appropriate, restated to reflect these calculations.
There were 19,666,754 shares of Series B Preferred Stock outstanding at December 31, 2001 which may be exchanged on a one-to-one basis into common stock, subject to adjustment, after 24 months if certain events occur.
Note 4-Real Estate Properties
Our real estate properties are generally leased under noncancelable leases with remaining terms ranging from 1 to 24 years. Rental revenues include the following (amounts in thousands):
Costco, our largest tenant, contributed 13.6% of minimum rent revenue from four leases in 2001. Rental revenues generated from Costco were as follows (amounts in thousands):
As of December 31, 2001, future minimum rental income due under the terms of all noncancelable tenant leases is as follows (amounts in thousands):
Acquisitions
We acquired the following properties during 2001:
(1)Capital lease We funded these acquisitions using the proceeds from tax-deferred exchange transactions on properties we sold in 2000 and by assuming mortgages and notes payable.
We acquired the following properties during 2000:
(1)Property purchased from Excel Legacy
(2)Property master leased back to Excel Legacy
(3)Indicates maximum construction loan balance. Balance assumed on date of acquisition was $7.4 million. Loan was refinanced in December 2000 We funded these acquisitions through advances on our unsecured revolving credit facility, by assuming mortgages and notes payable, and with the proceeds from a property sold in 2000 in a tax-deferred exchange transaction.
Dispositions
During 2001 we sold the following properties:
(1)Partial sale-one building remains
(2)We sold our 50% share of this joint venture As a result of the sales noted above, we recorded a gain of $1.3 million. We used the proceeds from the sale of the properties to repay debt or to purchase additional properties in tax-deferred exchange transactions.
In May 2001, we executed a master lease of our existing four self-storage properties to a corporation owned by certain former officers. Effective as of the date of the agreement, the officers ceased being employees of PEI and Excel Legacy. The initial rent paid under this agreement is $5.1 million per year, and during 2001 we recorded $2.6 million in rental revenue related to this lease. As part of the agreement, we have the right to require the lessee to purchase the properties from us at a price based upon the properties' net operating income as defined by the agreement. In addition, three additional self-storage properties are under development and the lessees will have the right to acquire them from us upon completion and stabilization of the properties.
During 2000, we sold the following properties:
(1)Partial sale-self storage remains
(2)Partial sale-sold two of four buildings in office complex As a result of the sales noted above, we recorded a gain of $0.2 million. We used the proceeds from the sale of the properties to purchase additional properties in tax-deferred exchange transactions.
Note 5-Investments in Unconsolidated Real Estate Joint Ventures
As of December 31, 2001 and 2000, we had the following investments in unconsolidated joint ventures which we account for under the equity method of accounting:
Cash distributions and profits are typically allocated based on the above ownership percentages. The Orlando Business Park LLC assets consist primarily of land held for sale. The other joint ventures are primarily in the business of operating real estate. Their accounting principles are consistent with ours.
Summarized unaudited financial information for the joint ventures at December 31, 2001 and 2000 is as follows:
1)Joint ventures acquired from Excel Legacy in the Merger. Net income shown is for the entire year, but we did not recognize our share of net income until the 4th quarter of 2001.
2)We sold our 50% share of this joint venture in December 2001 for $13.5 million and recognized no gain or loss on the sale. Revenues and net income shown for 2001 are through September. Prior to 2000, the joint ventures' results of operations were not significant.
Note 6-Notes Receivable
We have $55.2 million in notes receivable outstanding at December 31, 2001 related to various projects. The notes bear interest ranging from 8% to 25% per year and are secured by the related projects or other real estate. Of these notes, $50.1 million involve entities controlled by one individual. Repayment of the notes is anticipated to occur from the completion of various development projects or other events. The largest note is for approximately $31.1 million related to a development project in Scottsdale, AZ. The remaining notes are all less than $10.0 million. The notes do not require cash payments on the interest until specified future dates, typically when the projects are completed or sold. The notes mature on various dates between 2002 and the earlier of the sale of the related projects, or 2003 to 2004.
We had the following mortgages and notes payable outstanding at December 31, 2001 and December 31, 2000 (amounts in thousands):
We have a 65% interest in Newport on the Levee, LLC (Newport) that is developing a retail project in Newport, KY. In addition to the $26.7, $4.7 and $5.5 million notes in the above table, the City of Newport has issued two series of public improvement bonds. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2018 with interest at 8.375%; (b) $20.5 million maturing 2027 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by us, by Newport, and the third party co-developers of the project. Newport has drawn on $44.8 million of the bonds at December 31, 2001.
Summarized debt information for our unconsolidated joint ventures and the amount guaranteed by us at December 31, 2001 is as follows:
We also have guaranteed an $11.9 million note payable related to a development project in Scottsdale, AZ and have a note receivable with a participating interest.
Convertible Debentures
Prior to the Merger, Excel Legacy had $33.2 million in convertible debentures outstanding. As part of the Merger, $30.4 million of the debentures were exchanged for Series A Preferred Stock, with $2.8 million of debentures remaining. The debentures bear an interest rate of 9% per year and mature in November 2004. The holders of the debentures are entitled at any time before the day prior to the final maturity date, subject to prior redemption, to convert any debentures into common stock.
Senior Notes
Prior to the Merger, Excel Legacy had $18.1 million in senior notes outstanding. As part of the Merger, $15.8 million of the notes were exchanged for Series A Preferred Stock, with $2.3 million of notes remaining. The notes bear an interest rate of 10% per year and mature in November 2004. The notes rank equal to future senior indebtedness and are senior to the debentures.
The amount of debt that becomes due in each of the next five years is as follows (amounts in thousands):
Note 8-Related Party Transactions
Prior to the Merger, Excel Legacy was responsible for the daily management of PEI, including property management, finance and administration. We reimbursed Excel Legacy for these services. We expensed $2.4 million during 2001 prior to the Merger and $3.0 million for these services during 2000, which was based on our historical costs for similar expenses.
Prior to the Merger, we executed a note receivable with Excel Legacy allowing them to borrow up to $40.0 million. During 2001 we recorded $2.9 million in interest income on this note prior to the Merger, and $1.0 million for 2000. As a result of the Merger, interest income is no longer recorded on this note.
In conjunction with the purchase of the Anaheim land in the first quarter of 2001, we executed a ground lease agreement with Excel Legacy, which required payments of $2.8 million per year in rent. During 2001 we recorded $1.8 million in rental revenue from Excel Legacy related to this lease for the period of January 1 through September 18, 2001. Due to the Merger, rental revenue will no longer be recorded on this lease.
In connection with the Merger, we acquired notes receivable from certain affiliates, of which $9.4 million was outstanding at December 31, 2001. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at December 31, 2001 from these notes was $2.6 million. The notes have been offset against stockholders' equity on our accompanying Consolidated Balance Sheets.
We discuss other related party transactions in Note 2 and Note 4.
Note 9-Profit Sharing and 401(k) Plan
In 2001, we adopted a new 401(k) Retirement Plan (the 401(k) Plan) covering most of our officers and employees. The 401(k) Plan permits participants to contribute, until termination of employment, up to a maximum of 15% of their compensation to the 401(k) Plan. In addition, we contribute 3% of each eligible employee's compensation.
In 1999, prior to Excel Legacy taking over daily management of PEI, we contributed $119,000 to our profit sharing and $8,000 to our 401(k) Plan. We made no contributions for the year ended December 31, 2000.
Note 10-Stock Option Plans
In 2001, we established a Stock Option and Incentive Plan (the Plan) and we may grant stock options to any employee or director under this plan. We reserved 3,000,000 shares for issuance under the Plan. Options generally vest over three years and expire ten years after the grant date. Once exercisable, the employee or director can purchase shares of our stock at the market price on the date we granted the option.
In connection with the Merger, each outstanding option to purchase Excel Legacy stock automatically became an option to purchase our common stock. The number of shares of our common stock, which may be purchased with these options, and the exercise price was adjusted to reflect the exchange ratio. You will see in the following table the activity in the common stock options and related weighted average exercise price per share. The quantity of stock options granted, exercised and cancelled for 2001 reflect only common stock options.
The following table summarizes the activity for the Plan:
As of December 31, 2001, options to purchase 1,527,392 shares were exercisable under the Plan and 236,995 shares of common stock remained available for future issuance in connection with the Plan.
The following table summarizes information concerning options outstanding under the Plan as of December 31, 2001.
As we stated in Note 1, we follow the provisions for APB No. 25, "Accounting for Stock Issued to Employees." In 1997, we implemented the disclosure provisions required by SFAS No. 123, "Accounting for Stock-Based Compensation" for our stock option plans. SFAS No. 123 requires pro forma net income and earnings per share information, which is calculated assuming we had accounted for our stock option plans under the "fair value" method described in that statement. We estimated the fair
value using the Black-Scholes option pricing model, modified for dividends and using the following assumptions:
We do not record compensation expense for stock option grants. The following table summarizes results as if we had recorded compensation expense for the 2001 option grants.
We also have a 1995 Employee Stock Option and Stock Grant Plan and a Director Stock Option Plan. In connection with Excel Legacy's exchange offer for our common stock in 1999, all options and rights to purchase our common stock and our preferred stock became fully vested and exercisable upon the closing of the exchange offer. Additionally, all options to purchase our Company's common stock at that time were canceled. Each outstanding option, which represented the right to purchase a share of both our common stock and our Series A preferred stock, was modified so that the holder was paid by Legacy an amount in cash and received a replacement option to purchase shares of our Series A preferred stock, fully exercisable and vested and will not expire for a period ending upon the earlier of:
•two years following the closing of the exchange offer or such longer period as may be applicable to holders who remain employed by us or Excel Legacy after the exchange offer, or
•such time as no shares of our preferred stock remain outstanding, at which time the option will represent the right to receive the redemption price for our preferred stock.
Because our transaction with Excel Legacy resulted in the accelerated vesting of preferred stock options, we expensed $0.9 million during the period from January 1 through November 11, 1999 as
required by GAAP. The amount is included in merger related costs. The following table summarizes the activity for the Series A preferred stock options:
Note 11-Stockholders' Equity
The Series A Preferred Stock pays quarterly dividends at a rate of $1.40 per year and has a $16.00 per share liquidation preference. We have the right to redeem the Series A Preferred Stock anytime after August 16, 2003 at a redemption price of $16.00 per share plus accrued and unpaid dividends, if any. Holders of the Series A Preferred Stock have one-tenth of one vote per share, voting together with our common stock.
For the first 45 months after issuance, all distributions on the Series B Preferred Stock will be payable in additional shares of Series B Preferred Stock.
Included in Additional Paid-in Capital at December 31, 2001 are $3.1 million in warrants to purchase common stock at an exercise price of $8.25 per share.
The total market value of the Series A Preferred Stock is based on the closing price on its first day of trading and is shown on the balance sheet as Series A Preferred Stock. We reduced additional paid in capital by the Series A Preferred Stock's value to reflect our change in capital structure.
Note 12-Commitments and Contingencies
We own a property in New Jersey with a ground lease that has a remaining term of 24 years with three 15-year options to renew. Rent expense related to the ground lease is summarized below (amounts in thousands):
Future minimum payments during the next five years and thereafter under this noncancelable lease at December 31, 2001 are as follows (amounts in thousands):
The above property is subleased and as of year end, total future sublease revenues are $28.0 million, which are included in future minimum rental income amounts in Note 4.
In February 2001, Lewis P. Geyser filed a lawsuit against Excel Legacy in Santa Barbara County Superior Court, Anacapa Division, Case No. 01038577. The suit arises out of an Operating Agreement for Destination Villages, LLC, an entity which is owned jointly by Excel Legacy and Mr. Geyser, under which Destination Villages, LLC would develop certain eco-tourism resorts. Mr. Geyser alleges that Excel Legacy breached its obligations under the Operating Agreement, by failing to contribute the funding required under the Agreement. Mr. Geyser also alleges that Excel Legacy misrepresented its intention to provide the funding required under the Agreement. The complaint includes causes of action for breach of contract, breach of fiduciary duty, fraud and negligent misrepresentation. The lawsuit includes a prayer for compensatory and punitive damages. We believe the lawsuit is wholly without merit, and was filed for the improper purpose of extracting concessions from Excel Legacy in negotiations with Mr. Geyser which were underway prior to its filing. We intend to vigorously defend the lawsuit. Excel Legacy has also filed a cross-complaint against Mr. Geyser for breach of contract, fraud, breach of fiduciary duty and other related claims. The trial of this matter began February 26, 2002. On March 19, 2002, the trial judge dismissed both the complaint and cross-complaint on the grounds that Mr. Geyser was not the proper party under the Operating Agreement and therefore could not sue or be sued on any of the pending causes of action.
Note 13-Quarterly Results of Operations (unaudited)
The following is an unaudited summary of our quarterly results for the last two years (amounts in thousands, except per share data):
Note 14-Subsequent Events
In January 2002, we sold a parcel of land in Hollywood, FL for $1.4 million. We are using the proceeds from the sale to purchase additional properties in tax-deferred exchange transactions.
In January 2002, we sold a parcel of land in Tucson, AZ for $0.7 million. We are using the proceeds from the sale to purchase additional properties in tax-deferred exchange transactions.
Report of Independent Accountants
To the Board of Directors and Shareholders
of Price Legacy Corporation:
In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 62 present fairly, in all material respects, the financial position of Price Legacy Corporation and its subsidiaries at December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 14(a)(2) on page 62 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The financial statements of the Company as of December 31, 2000 and December 31, 1999 and for the year ended December 31, 2000, the period from November 12, 199 through December 31, 1999, and the period from January 1, 1999 through November 11, 1999 were audited by other independent accountants whose report dated January 19, 2001, except for Note 13, as to which the date is January 26, 2001 expressed an unqualified opinion on those statements.
On September 18, 2001, Price Enterprises, Inc. acquired Excel Legacy Corporation (see Note 2).
PRICEWATERHOUSECOOPERS LLP
San Diego, California
January 25, 2002, except for Note 14,
as to which the date is January 31, 2002
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Price Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Price Enterprises, Inc. as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 2000 and the period from November 12, 1999 through December 31, 1999, period from January 1, 1999 through November 11, 1999, and the year ended December 31, 1998. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Price Enterprises, Inc. at December 31, 2000 and 1999 and the consolidated results of its operations and its cash flows for the year ended December 31, 2000 and the period from November 12, 1999 through December 31, 1999, period from January 1, 1999 through November 11, 1999, and the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Diego, California
January 19, 2001, except for Note 13, as to which the date is January 26, 2001
ITEM 9
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
As reported in our Form 8-K dated October 31, 2001, Ernst and Young LLP was not appointed to serve as our independent accountants for the year ending December 31, 2001. Effective October 25, 2001, PricewaterhouseCoopers LLP was engaged as our independent accountant. This decision was approved by the Audit Committee of our Board of Directors.
There have been no disagreements with the independent accountants on any matter of accounting principles and practices, financial statement disclosures, or auditing scope or procedure.
PART III
Note that in this Form 10-K, we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission (SEC). The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information.
ITEM 10
ITEM 10 - Directors and Executive Officers of the Registrant
Information about Directors of the Company is incorporated by reference from the discussion under the heading Enterprises' Directors and Officers in our Proxy Statement for the 2002 Annual Meeting of Stockholders.
ITEM 11
ITEM 11 - Executive Compensation
Information about executive compensation is incorporated by reference from the discussion under the heading Executive Compensation in our Proxy Statement for the 2002 Annual Meeting of Stockholders.
ITEM 12
ITEM 12 - Security Ownership of Certain Beneficial Owners and Management
Information about security ownership of certain beneficial owners and management is incorporated by reference from the discussion under the heading Securities Ownership of Certain Beneficial Owners and Management in our Proxy Statement for the 2002 Annual Meeting of Stockholders.
ITEM 13
ITEM 13 - Certain Relationships and Related Transactions
Information about certain relationships and transactions with related parties is incorporated by reference from the discussion under the heading Certain Relationships and Related Transactions in our Proxy Statement for the 2002 Annual Meeting of Stockholders.
PART IV
ITEM 14
ITEM 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)List of Financial Statements and Financial Statement Schedules:
The following consolidated financial statements of Price Legacy Corporation are included in Item 8
(b)Reports on Form 8-K
We filed reports on Form 8-K on October 31, 2001, November 8, 2001 and November 18, 2001.
(c)Exhibits: For a list of exhibits filed with this annual report, refer to the exhibit index beginning on page 69.
PRICE LEGACY CORPORATION
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 2001
(amounts in thousands)
PRICE LEGACY CORPORATION
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(amounts in thousands)
PRICE LEGACY CORPORATION
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
December 31, 2001
(amounts in thousands)
(1) The aggregate cost for federal income tax purposes is $893,120.
(2) Does not include our investments in unconsolidated joint ventures.
PRICE LEGACY CORPORATION
SCHEDULE III (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
(in thousands)
(1)Combined depreciation expense for the periods January 1 through November 11 and November 12 through December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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/ JACK MCGRORY JACK McGRORY, Chairman of the Board of
Directors
March 20, 2002 Date
/s/ GARY B. SABIN GARY B. SABIN, Co-Chairman of the Board of
Directors and Chief Executive Officer
March 20, 2002 Date
/s/ RICHARD B. MUIR RICHARD B. MUIR, Director and Vice Chairman
March 20, 2002 Date
/s/ JAMES F. CAHILL JAMES F. CAHILL, Director
March 20, 2002 Date
/s/ MURRAY GALINSON MURRAY GALINSON, Director
March 20, 2002 Date
/s/ MELVIN L. KEATING MELVIN L. KEATING, Director
March 20, 2002 Date
/s/ RUEBEN S. LEIBOWITZ RUEBEN S. LEIBOWITZ, Director
March 20, 2002 Date
/s/ KEENE WOLCOTT KEENE WOLCOTT, Director
March 20, 2002 Date
EXHIBIT INDEX
Description
2.1
(1 ) Agreement and Plan of Merger, dated as of March 21, 2001, by and among Price Enterprises, Inc., PEI Merger Sub, Inc. and Excel Legacy Corporation
2.2
(2 ) Distribution Agreement dated as of August 26, 1997 between Price Enterprises, Inc. and PriceSmart, Inc.
2.3
(3 ) Distribution Agreement, dated as of March 31, 1998, by and among Excel Realty Trust, Inc., Excel Legacy Corporation and ERT Development Corporation
3.1
(4 ) Articles of Amendment and Restatement of Price Legacy Corporation
3.2
(5 ) Bylaws of Price Legacy Corporation
4.1
(4 ) Form of Common Stock Certificate
4.2
(6 ) Form of Series A Preferred Stock Certificate
4.3
(7 ) Form of Series B Preferred Stock Certificate
4.4
(8 ) Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 9.0% Convertible Redeemable Subordinated Secured Debentures due 2004, including form of Debenture and form of Pledge Agreement
4.5
(9 ) First Supplemental Indenture, dated as of September 18, 2001, by and among Excel Legacy Corporation, Price Legacy Corporation and Wells Fargo Bank Minnesota, N.A. with respect to the 9% Convertible Redeemable Subordinated Secured Debentures due 2004 of Excel Legacy Corporation
4.6
(8 ) Indenture, dated as of November 5, 1999, between Excel Legacy Corporation and Norwest Bank Minnesota, National Association, for 10.0% Senior Redeemable Secured Notes due 2004, including form of Note and form of Pledge Agreement
4.7
(9 ) First Supplemental Indenture, dated as of September 18, 2001, by and between Excel Legacy Corporation and Wells Fargo Bank Minnesota, N.A. with respect to the 10% Senior Redeemable Secured Notes due 2004 of Excel Legacy Corporation
10.1
*
Amended and restated Price Legacy Corporation 2001 Stock Option and Incentive Plan
10.2
*
Form of Incentive Stock Option Agreement under the 2001 Plan
10.3
(10 ) The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan (the "1995 Plan")
10.4
(11 ) First Amendment to The Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
10.5
(11 ) Form of Amended and Restated Non-Qualified Stock Option Agreement under the 1995 Plan, as amended
10.6
(13 ) Second Amendment to the Price Enterprises 1995 Combined Stock Grant and Stock Option Plan
10.7
(14 ) Loan Agreement dated June 28, 2000 between Price Owner LLC and GMAC Commercial Mortgage Corporation, including form of Promissory Note, Mortgage and Security Agreement, Assignment of Leases and Rents, Guaranty of Recourse Obligations and Environmental Indemnity Agreement
10.8
(1 ) Securities Purchase Agreement, dated as of March 21, 2001, by and among Price Enterprises, Inc., and Warburg, Pincus Equity Partners, L.P., Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and Warburg, Pincus Netherlands Equity Partners III, C.V.
10.9
(15 ) Conversion Agreement, dated as of April 12, 2001, by and among Price Enterprises, Inc., The Sol and Helen Price Trust, Warburg, Pincus Equity Partners, L.P. and Excel Legacy Corporation
10.10
(4 ) Registration Rights Agreement, dated as of September 18, 2001, by and among Price Enterprises, Inc., Warburg, Pincus Equity Partners, L.P., Warburg, Pincus Netherlands Equity Partners I, C.V., Warburg, Pincus Netherlands Equity Partners II, C.V. and Warburg, Pincus Netherlands Equity Partners III, C.V.
10.11
(1 ) Form of Common Stock Purchase Warrant
10.12
(12 ) Revolving Credit Agreement dated as of September 19, 2001 among the Company and Fleet National Bank and the other banks which are party thereto
10.13
(15 ) Purchase and Sale Agreement, dated as of May 7, 2001, among SREG Operating Limited Partnership, SREG Oakwood Plaza, Inc., SREG OBC, Inc., SREG Hollywood Hills, Inc., SREG Cypress Creek, Inc., SREG Kendale, Inc., SREG Cross County, Inc., and SREG (Millenia), Inc., and Swerdlow Real Estate Group, Inc. and Price Enterprises, Inc.
10.14
(16 ) First Amended and Restated Operating Agreement dated as of July 29, 1998 of Newport on the Levee, LLC, a Delaware limited liability company
10.15
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Gary B. Sabin, an individual
10.16
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Richard B. Muir, an individual
10.17
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Graham R. Bullick, an individual
10.18
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and S. Eric Ottesen, an individual
10.19
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and John Visconsi, an individual
10.20
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and James Y. Nakagawa, an individual
10.21
(17 ) Employment Contract, dated as of July 1, 1999, by and between Excel Legacy Corporation and Mark T. Burton, an individual
10.22
(18 ) Form of Stock Purchase Agreement dated as of September 25, 2000, by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton
10.23
(18 ) Form of Loan Assumption Agreement dated as of September 25, 2000 by and between Excel Legacy Corporation and each of Richard B. Muir, Graham R. Bullick, S. Eric Ottesen and Mark T. Burton
12.1
*
Computation of ratio of earnings to fixed charges
21.1
*
Subsidiaries of Price Legacy Corporation
23.1
*
Consent of PricewaterhouseCoopers LLP
23.2
*
Consent of Ernst & Young LLP
*Filed herewith. (1)Incorporated by reference to Current Report on Form 8-K filed with the SEC on March 23, 2001 (File No. 0-20449) (2)Incorporated by reference to Current Report on Form 8-K filed with the SEC on September 12, 1997 (File No. 0-20449) (3)Incorporated by reference to the Excel Legacy Corporation's Current Report on Form 8-K (File No. 0-23503) filed with the SEC on April 2, 1998 (4)Incorporated by reference to Current Report on Form 8-K filed with the SEC on September 19, 2001 (File No. 0-20449) (5)Incorporated by reference to Transition Report on Form 10-K of Price Enterprises, Inc. filed with the SEC on March 27, 1998 (File No. 0-20449)
(6)Incorporated by reference to Current Report on Form 8-A filed with the SEC on August 7, 1998 (File No. 0-20449) (7)Incorporated by reference to Registration Statement on Form S-3 of Price Legacy Corporation filed with the SEC on March 1, 2002 (File No. 333-83606) (8)Incorporated by reference to the Excel Legacy Corporation's Current Report on Form 8-K (File No. 0-23503) filed with the SEC on November 12, 1999 (9)Incorporated by reference to Excel Legacy Corporation's Current Report on Form 8-K filed with the SEC on September 19, 2001 (File No. 0-23503) (10)Incorporated by reference to Registration Statement on Form 10 of Price Enterprises, Inc. filed with the SEC on December 13, 1994 (File No. 0-20449) (11)Incorporated by reference to Registration Statement on Form S-8 of Price Enterprises, Inc. filed with the SEC on September 2, 1998 (File No. 333-62723) (12)Incorporated by reference to Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 filed with the SEC on November 14, 2001 (File No. 0-20449) (13)Incorporated by reference to Quarterly Report on Form 10-Q filed with the SEC on August 4, 1999 (File No. 0-20449) (14)Incorporated by reference to Current Report on Form 8-K filed with the SEC on July 26, 2000 (File No. 0-20449) (15)Incorporated by reference to Quarterly Report on Form 10-Q/A for the quarter ended March 31, 2001 filed with the SEC on May 25, 2001 (File No. 0-20449) (16)Incorporated by reference to the Excel Legacy Corporation's Annual Report filed on Form 10-K (File No. 0-23503) filed with the SEC on October 28, 1998 (17)Incorporated by reference to the Excel Legacy Corporation's Annual Report filed on Form 10-K (File No. 0-23503) filed with the SEC on March 30, 2000 (18)Incorporated by reference to the Excel Legacy Corporation's Quarterly Report filed on Form 10-Q (File No. 0-23503) filed with the SEC on November 9, 2000
PRICE LEGACY CORPORATION Annual Report on Form 10-K for the Year Ended December 31, 2001
FORWARD-LOOKING STATEMENTS
PART I
PART II
PRICE LEGACY CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands, except share data) ASSETS
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
PRICE LEGACY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (in thousands)
PRICE LEGACY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants
REPORT OF INDEPENDENT AUDITORS
PART III
PART IV
PRICE LEGACY CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS December 31, 2001 (amounts in thousands)
PRICE LEGACY CORPORATION SCHEDULE III (Continued) REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands)
SIGNATURES
EXHIBIT INDEX