Excel Trust, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Excel Trust, Inc.	dex311.htm
EX-10.9 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - Excel Trust, Inc.	dex109.htm
EX-10.5 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - Excel Trust, Inc.	dex105.htm
EX-10.8 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - Excel Trust, Inc.	dex108.htm
EX-10.3 - PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS - Excel Trust, Inc.	dex103.htm
EX-10.6 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - Excel Trust, Inc.	dex106.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Excel Trust, Inc.	dex312.htm
EX-10.7 - FIRST AMENDMENT TO EMPLOYMENT AGREEMENT - Excel Trust, Inc.	dex107.htm
EX-10.10 - FORM OF RESTRICTED STOCK AWARD AGREEMENT - Excel Trust, Inc.	dex1010.htm
EX-10.11 - FORM OF RESTRICTED STOCK AWARD AGREEMENT - Excel Trust, Inc.	dex1011.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - Excel Trust, Inc.	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

Commission File No. 001-34698

EXCEL TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland

27-1493212

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

Excel Centre

17140 Bernardo Center Drive, Suite 300

San Diego, California 92128

(Address of principal executive office, including zip code)

(858) 613-1800

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

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

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


Large accelerated filer	¨	Accelerated filer	¨

Non-accelerated filer	x (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

Number of shares outstanding as of May 10, 2011 of the registrant’s common stock, $0.01 par value per share: 16,576,831 shares

PART 1 — FINANCIAL INFORMATION

Item 1.

Financial Statements

EXCEL TRUST, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

TABLE OF CONTENTS


PART I	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets of Excel Trust, Inc as of March 31, 2011 and December 31, 2010, respectively	3

	Condensed Consolidated and Combined Statements of Operations of Excel Trust, Inc. for the three months ended March 31, 2011 and Excel Trust, Inc. Predecessor for the three months ended March 31, 2010	4

	Condensed Consolidated and Combined Statements of Equity of Excel Trust, Inc. for three months ended March 31, 2011 and Excel Trust, Inc. Predecessor for the three months ended March 31, 2010	5

	Condensed Consolidated and Combined Statements of Cash Flows of Excel Trust, Inc. for the three months ended March 31, 2011 and Excel Trust, Inc. Predecessor for the three months ended March 31, 2010	6

	Notes to Condensed Consolidated and Combined Financial Statements of Excel Trust, Inc. and Excel Trust, Inc. Predecessor	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 4.	Controls and Procedures	27

PART II	Other Information	27

Item 1.	Legal Proceedings	27

Item 1A.	Risk Factors	27

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3.	Defaults Upon Senior Securities	27

Item 4.	Reserved	28

Item 5.	Other Information	28

Item 6.	Exhibits	28

Signatures		29

PART 1 — FINANCIAL INFORMATION

Item 1.

Financial Statements

EXCEL TRUST, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	March 31,2011 (unaudited)			December 31, 2010
ASSETS:

Property:
Land	$	164,712		$	153,601
Buildings		191,931			178,374
Site improvements		19,231			18,832
Tenant improvements		19,720			18,242
Construction in progress		10,801			4,423
Less accumulated depreciation		(10,529	)		(8,360	)

Property, net		395,866			365,112
Cash and cash equivalents		3,955			6,525
Restricted cash		4,393			5,870
Tenant receivables, net		1,860			1,945
Lease intangibles, net		53,791			53,024
Mortgage loan receivable		2,000			2,000
Deferred rent receivable		1,498			1,148
Other assets		6,726			5,464

Total assets	$	470,089		$	441,088

LIABILITIES AND EQUITY:

Liabilities:
Mortgages payable, net	$	150,957		$	137,043
Notes payable		37,835			85,384
Accounts payable and other liabilities		20,190			12,944
Lease intangibles, net		7,222			7,150
Dividends/distributions payable		3,037			1,957

Total liabilities		219,241			244,478

Equity:

Stockholders’ equity
Preferred stock, 50,000,000 shares authorized; 7.0% Series A cumulative convertible perpetual preferred stock, $50,000,000 liquidation preference ($25.00 per share), 2,000,000 and 0 shares issued and outstanding, at March 31, 2011 and December 31, 2010, respectively		47,628			—
Common stock, $.01 par value, 200,000,000 shares authorized; 16,576,831 and 15,663,331 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		165			156
Additional paid-in capital		188,972			191,453
Cumulative distributions in excess of net income		(3,754	)		(3,725	)

		233,011			187,884
Accumulated other comprehensive loss		(162	)		(373	)

Total stockholders’ equity		232,849			187,511

Non-controlling interests		17,999			9,099

Total equity		250,848			196,610

Total liabilities and equity	$	470,089		$	441,088

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	The Company			The Predecessor
	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Revenues:
Rental revenue	$	9,210		$	1,138
Tenant recoveries		1,899			82
Other income		104			—

Total revenues		11,213			1,220

Expenses:
Maintenance and repairs		639			77
Real estate taxes		1,135			103
Management fees		124			32
Other operating expenses		768			75
General and administrative		2,650			6
Depreciation and amortization		4,369			460

Total expenses		9,685			753

Net operating income		1,528			467

Interest expense		(2,565	)		(361	)
Interest income		40			—
Gain on acquisition of real estate		937			—

Net (loss) income		(60	)		106
Non-controlling interest		(31	)		94

Net (loss) income attributable to Excel Trust Inc. and Excel Trust, Inc. Predecessor	$	(29	)	$	12
Preferred stock dividends	$	(603	)	$	—

Net (loss) income available to the common stockholders and controlling interest of the Predecessor	$	(632	)	$	12

Basic and diluted loss per share	$	(0.04	)

Weighted-average common shares outstanding - basic and diluted		15,513

Dividends declared per common share	$	0.14

Net (loss) income	$	(60	)	$	106
Other comprehensive income:
Change in unrealized loss on interest rate swaps		220			—

Comprehensive income		160			106
Comprehensive (loss) income attributable to non-controlling interests		(22	)		94

Comprehensive income attributable to the common stockholders and controlling interest of Predecessor	$	182		$	12

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

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

(Dollars in thousands)

(Unaudited)

The Predecessor


	Total Owner’s Equity			Non-controlling Interests			Total Equity
Balance January 1, 2010	$	8,622		$	900		$	9,522
Contributions		149			31			180
Distributions		(201	)		(94	)		(295	)
Net (loss) income		12			94			106

Balance March 31, 2010	$	8,582		$	931		$	9,513

The Company


	Series A Preferred Stock		Common Stock				Additional Paid-in Capital			Accumulated Deficit			Accumulated other Compre- hensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
	Series A Preferred Stock		Shares		Amount		Additional Paid-in Capital			Accumulated Deficit			Accumulated other Compre- hensive Loss			Total Stockholders’ Equity			Non- controlling Interests			Total Equity
Balance at January 1, 2011	$	—		15,663,331	$	156	$	191,453		$	(3,725	)	$	(373	)	$	187,511		$	9,099		$	196,610
Net proceeds from sale of Preferred Stock		47,628		—		—		—			—			—			47,628			—			47,628
Issuance of restricted common stock awards		—		913,500		9		(9	)		—			—			—			—			—
Noncash amortization of share-based compensation		—		—		—		451			—			—			451			—			451
Common stock dividends		—		—		—		(2,320	)		—			—			(2,320	)		—			(2,320	)
Issuance of non-controlling interests		—		—		—		—			—			—			—			9,035			9,035
Distributions to non-controlling interests		—		—		—		—			—			—			—			(113	)		(113	)
Comprehensive Loss:
Net loss		—		—		—		—			(29	)		—			(29	)		(31	)		(60	)
Preferred stock dividends		—		—		—		(603	)		—			—			(603	)		—			(603	)
Change in unrealized loss on interest rate swaps		—		—		—		—			—			211			211			9			220

Balance at March 31, 2011	$	47,628		16,576,831	$	165	$	188,972		$	(3,754	)	$	(162	)	$	232,849		$	17,999		$	250,848

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

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	The Company			The Predecessor
	Three Months Ended March 31, 2011			Three Months Ended March 31, 2010
Cash flows from operating activities:
Net (loss) income	$	(60	)	$	106
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		4,369			460
Gain on acquisition of real estate		(937	)		—
Deferred rent receivable		(371	)		(63	)
Amortization of above and below market leases		44			(20	)
Amortization of deferred financing costs		234			17
Bad debt expense		204			16
Amortization of share-based compensation		451			—
Change in assets and liabilities:
Tenant and other receivables		(97	)		31
Other assets		(59	)		(77	)
Accounts payable and other liabilities		2,718			(327	)

Net cash provided by operating activities		6,496			143

Cash flows from investing activities:
Acquisitions of property, development and property improvements		(8,339	)		(103	)
Capitalized leasing costs		(239	)		(95	)
Restricted cash		2,170			(14	)

Net cash used in investing activities		(6,408	)		(212	)

Cash flows from financing activities:
Issuance of preferred stock		47,628			—
Payments on mortgages payable		(298	)		(187	)
Payments on notes payable		(47,549	)		—
(Payments) and proceeds from Predecessor controlling interests		—			119
Contributions from Predecessor controlling interests		—			149
Contributions from Predecessor non-controlling interests		—			31
Distributions to Predecessor controlling interests		—			(201	)
Distributions to Predecessor non-controlling interests		—			(94	)
Dividends/distributions		(1,957	)		—
Deferred financing costs		(482	)		(28	)

Net cash provided (used) by financing activities		(2,658	)		(211	)

Net decrease		(2,570	)		(280	)
Cash and cash equivalents, beginning of period		6,525			661

Cash and cash equivalents, end of period	$	3,955		$	381

Supplemental cash flow information:
Cash payments for interest, net of amounts capitalized	$	1,961		$	338

Non-cash investing and financing activity:
Acquisition of real estate for operating partnership units	$	9,035		$	—

Assumption of net mortgage debt in connection with property acquisitions	$	14,269		$	—

Assets received in connection with property acquisitions	$	693		$	—

Liabilities assumed in connection with property acquisitions	$	3,835		$	—

Dividends/distributions payable	$	3,036		$	—

Accrued additions to development	$	858		$	26

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

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(Dollars in thousands, except per share amounts)

(Unaudited)

1. Organization:

Excel Trust, Inc. (the “Company”) was incorporated in the State of Maryland on December 15, 2009. On April 28, 2010, the Company completed an initial public offering (the “Offering”) of 15,000,000 shares of its common stock at an aggregate public offering price of $210,000. In connection with the Offering, the Company and its operating partnership subsidiary, Excel Trust, L.P. (the “Operating Partnership”), of which the Company is the sole general partner, together with the partners and members of the affiliated partnerships and limited liability companies of Excel Trust, Inc. Predecessor (“ETP” or the “Predecessor”) and other parties which hold direct or indirect ownership interests in the Properties (defined below) engaged in certain formation transactions (the “Formation Transactions”). The Formation Transactions were designed to (1) continue the operations of ETP, (2) enable the Company to raise the necessary capital to acquire increased interests in certain of the Properties, (3) provide capital for future acquisitions, (4) fund certain development costs at the Company’s development property, (5) establish a capital reserve for general corporate purposes, and (6) fund future joint venture capital commitments.

Following the Offering, ETP was contributed to the Company and the Operating Partnership in exchange for 507,993 shares of the Company’s common stock and 641,062 partnership interests (the “OP Units”). The exchange of entities or interests therein for shares of common stock of the Company and OP Units has been accounted for as a reorganization of enties under common control, and accordingly, the related assets and liabilities of ETP have been reflected at their historical cost basis. The Company intends to elect to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with its taxable year ended December 31, 2010.

ETP, which is not a legal entity but rather a combination of real estate entities and operations as described below, was engaged in the business of owning, managing, leasing, acquiring and developing commercial real estate, consisting of retail properties, an office property and undeveloped land (the “Properties”). The Properties are located in South Carolina, Tennessee, California and Utah. During the periods presented in the accompanying combined financial statements prior to the Offering, ETP was the general partner or managing member of the real estate entities that directly or indirectly own the Properties, and ETP had responsibility for the day-to-day operations of such entities. The ultimate owners of ETP were Mr. Gary B. Sabin and certain others who had non-controlling interests.

The accompanying condensed combined financial statements of the Predecessor do not include certain investments in real estate entities owned by Mr. Sabin that were not contributed to the Operating Partnership. Prior to the Formation Transactions, ETP was invested in the following real estate properties:


Acquisition Date	Property	Type	Location
May 2004	Excel Centre	Office Building	San Diego, California
July 2005	Five Forks Place	Retail Shopping Center	Simpsonville, South Carolina
January 2007	Newport Towne Center	Retail Shopping Center	Newport, Tennessee
October 2007	Red Rock Commons	Undeveloped Land	St. George, Utah

Prior to their contribution to the Operating Partnership, Five Forks Place and Newport Towne Center were directly or indirectly 100% owned by Mr. Sabin. Prior to their contribution to the Operating Partnership, Excel Centre and Red Rock Commons were directly or indirectly 62.5% and 82.8% owned, respectively, by Mr. Sabin. The remaining ownership interests of Excel Centre and Red Rock Commons are reflected in the Predecessor financial statements as non-controlling interests.

2. Summary of Significant Accounting Policies

Basis of Presentation:

The accompanying condensed consolidated financial statements of the Company include all the accounts of the Company, the Operating Partnership and the subsidiaries of the Operating Partnership. The exchange of Predecessor controlling and non-controlling interests for shares of the Company’s common stock and OP Units has been reflected on the Predecessor historical cost basis as a reorganization of entities under common control. The Predecessor’s condensed combined financial statements reflect presentation of properties on a combined historical cost basis because of their common ownership. The financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for the interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all the information and footnotes required by GAAP for complete financial statements and have not been audited by independent registered public accountants.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

The unaudited interim condensed consolidated and combined financial statements should be read in conjunction with the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the combined financial statements for the interim periods have been made. Operating results for the periods ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. All significant intercompany balances and transactions have been eliminated in consolidation and combination.

The significant accounting policies discussed as follows are consistent between the Company and the Predecessor.

Cash and Cash Equivalents:

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

Restricted Cash:

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

Accounts Payable and Other Liabilities:

Included in accounts payable and other liabilities are deferred rents in the amount of $3,002 and $3,082 at March 31, 2011 and December 31, 2010, respectively.

Revenues:

Minimum rental revenues are recognized on a straight-line basis over the terms of the related lease. The difference between the amount of cash rent due in a year and the amount recorded as rental income is referred to as the “straight-line rent adjustment.” Rental income was increased by $371 and $63 in the three months ended March 31, 2011 and 2010, respectively, due to the straight-line rent adjustment.

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

Property:

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

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

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


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

The Company assesses whether there has been impairment in the value of its long-lived assets by considering expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Such factors include the tenants’ ability to perform their duties and pay rent under the terms of the leases. The determination of recoverability is made based upon the estimated undiscounted future net cash flows, excluding interest expense. The amount of impairment loss, if any, is determined by comparing the fair value, as determined by a discounted cash flows analysis, with the carrying value of the related assets. Long-lived assets classified as held for sale are measured at the lower of the carrying amount or fair value less cost to sell. There was no impairment charge recorded for the three months ended March 31, 2011 or 2010.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Mortgage Loan Receivables:

Mortgage loan receivable consists of loans originated by the Company. Mortgage loan receivables are recorded at stated principal amounts net of any discount or premium or deferred loan origination costs or fees. The related discounts or premiums on mortgage loan receivables are amortized or accreted over the life of the related loan receivable. The Company defers certain loan origination and commitment fees, net of certain origination costs and amortizes them as an adjustment of the loan’s yield over the term of the related loan. The Company evaluates the collectability of both interest and principal on each loan to determine whether it is impaired. A loan is considered to be impaired, when based upon current information and events, it is probable that the Company will be unable to collect all amounts due according to the existing contractual terms. When a loan is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the value determined by discounting the expected future cash flows at the loan’s effective interest rate or to the value of the underlying collateral if the loan is collateralized. Interest income on performing loans is accrued as earned. Interest income on impaired loans is recognized on a cash basis.

Purchase Accounting:

The Company, with the assistance of independent valuation specialists, allocates the purchase price of acquired properties to tangible and identified intangible assets and liabilities based on their respective fair values. The allocation to tangible assets (building and land) is based upon the Company’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered include an estimate of carrying costs during the expected lease-up periods taking into account current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in place leases, the value of in place leases and above or below market value of debt assumed.

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

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

Tenant receivables:

Tenant receivables and deferred rent are carried net of the allowances for uncollectible current tenant receivables and deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. The Company maintains an allowance for deferred rent receivable arising from the straight-lining of rents. Such allowance is charged to bad debt expense which is included in other operating expenses on the accompanying consolidated and combined statement of operations. The Company’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, the tenant’s financial condition, security deposits, letters of credit, lease guarantees, current economic conditions and other relevant factors. At March 31, 2011 and December 31 2010, the Company had $669 and $605, respectively, in allowances for uncollectible accounts as determined to be necessary to reduce receivables to the estimate of the amount recoverable. During the three months ended March 31, 2011 and 2010, $204 and $15, respectively, of receivables were charged to bad debt expense.

Non-controlling Interests

At March 31, 2011 and December 31, 2010, non-controlling interest represented the portion of equity that the Company did not own in those entities it consolidates. Non-controlling interests also include OP Units not held by the Company.

In conjunction with the Formation Transactions, certain interests in the Predecessor were contributed in exchange for OP Units. OP Units not held by the Company are reflected as non-controlling interests in the Company’s consolidated financial statements. The OP Units not held by the Company may be redeemed by the holder for cash. The Company, at its option, may satisfy the redemption obligation with common stock on a one-for-one basis.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Concentration of Risk

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

In the three months ended March 31, 2011, no tenant accounted for more than 10% of revenues. In the three months ended March 31, 2010, two tenants accounted for 24.3% and 12.0% of total revenues, respectively.

Management Estimates:

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

Earnings per Share:

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

The calculation of diluted earnings per share for the three months ended March 31, 2011 does not include unvested restricted common shares, or contingently issuable shares (Note 3), as the effect of including these equity securities was anti-dilutive. In addition, common shares issuable upon settlement of the conversion feature of the 7.00% Series A Cumulative Convertible Perpetual Preferred Stock (the “Preferred Stock”) were anti-dilutive and were not included in the calculation of diluted earnings per share based on the “if converted” method for the three months ended March 31, 2011. Computations of basic and diluted earnings per share (in thousands, except share data) were as follows:


	Three Months Ended March 31, 2011
Basic earnings per share:
Net loss available to common stockholders	$	(632	)
Allocation to participating securities		(59	)

Undistributed loss	$	(691	)

Weighted-average common shares outstanding:
Basic and diluted		15,513,370

Basic and diluted earnings per share:
Net loss per share available to common stockholders, basic and diluted	$	(0.04	)

Fair Value of Financial Instruments:

On January 1, 2008, ETP adopted Financial Accounting Standard Board (“FASB”) ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value hierarchy distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity and the reporting entity’s own assumptions about market participant assumptions.

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

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


	Balance at March 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair value measurements on a recurring basis:
Interest rate swaps	$	168	$	—	$	168	$	—
Contingent consideration related to business combinations⁽¹⁾		2,500		—		—		2,500
Derivative instrument related to business combinations⁽²⁾		3,835		—		—		3,835

	Balance at December 31, 2010		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fair value measurements on a recurring basis:
Interest rate swaps	$	388	$	—	$	388	$	—
Contingent consideration related to business combinations⁽¹⁾		2,500		—		—		2,500

⁽¹⁾

Additional consideration may be due to the sellers of certain properties based on their ability to lease-up vacant space through October 18, 2011 and December 31, 2011. The Company has estimated the fair value of the contingent consideration based on the facts and circumstances existing at each reporting date and the likelihood of the counterparty achieving the necessary conditions at that date. This amount is included in accounts payable and other liabilities in the accompanying consolidated balance sheets.

⁽²⁾

Amount reflects the fair value of a guarantee for OP units provided to the sellers of a property acquired in March 2011 (see Note 3 for additional details). The Company has estimated the fair value of the derivative instrument using a Monte Carlo valuation model to project the future value of the Company’s common stock based on the historical volatility and closing price of the Company’s common stock and a risk-free interest rate. This amount is included in accounts payable and other liabilities in the accompanying consolidated balance sheets.

During the three months ended March 31, 2011, financial instruments measured on a recurring basis using level three inputs was increased by the addition of a derivative instrument related to a business combination in the amount of $3,835. There were no additional gains or losses, purchases, sales, issuances, settlements, or transfers in or out related to fair value measurements using level three inputs.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Recent Accounting Pronouncements:

In December 2010, the FASB issued ASU No. 2010-29, Disclosure of Supplementary Pro Forma Information for Business Combinations (“ASU 2010-29”), which amended ASC Topic 805, Business Combinations (“ASC 805”). The objective of this guidance is to eliminate diversity in the interpretation of pro forma revenue and earnings disclosure requirements for business combinations. The guidance specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures under ASC 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination(s) included in the reported pro forma revenue and earnings. ASU 2010-29 is effective for business combinations for which the acquisition date occurs following the first annual reporting period which commences after December 15, 2010. The guidance is required in interim and annual reporting periods. Early adoption is permitted. The Company’s adoption of this guidance effective January 1, 2011 did not have a material effect on the Company’s consolidated financial statements.

3. Acquisitions:

The Company completed two acquisitions in the three months ended March 31, 2011 and no acquisitions in the three months ended March 31, 2010:

Date Acquired

Property

Location

Square
Footage

Purchase
Price

Cash
Paid

Debt
Assumed

March 22, 2011

Rite Aid⁽¹⁾

Vestavia Hills, AL

11,180

1,467

—

1,452

March 11, 2011

Edwards Theatres⁽²⁾

San Marcos, CA

100,551

25,781

1,200

12,400

⁽¹⁾	A gain of $937 was recognized on the acquisition of this property which represented the difference between the fair value at the date of closing and the price paid.

⁽²⁾

In addition to the cash and mortgage debt assumed, 764,343 OP Units were issued in connection with this acquisition at $11.82 per unit. These OP Units can be redeemed for shares of the Company’s common stock after one year. If the redemption takes place in the second year after the acquisition and the price of shares of the Company’s common stock is less than $14.00 per share at the date of redemption, the Company must issue additional shares or cash for the difference. The Company has recorded a liability for $3,835 for the fair value of this redemption provision.

Business Combinations

The following summary provides a preliminary allocation of purchase price for the above acquisitions. The allocations for the properties acquired in 2011 are estimates and subject to adjustment as allowed by GAAP.


	2011 Property Acquisitions
Land	$	10,907
Building		12,964
Site improvements		359
Tenant improvements		623
Lease intangible assets		3,116
Mortgage payable, net		(356	)
Lease intangible liabilities		(365	)

Real estate acquisitions	$	27,248

The following unaudited pro forma information for the three months ended March 31, 2011 has been prepared to reflect the incremental effect of the properties acquired in 2011 as if such acquisitions had occurred on January 1, 2011. Pro forma information for the three months ended March 31, 2010 is impractical to determine as information for the properties is not available for that period.


	Three Months Ended March 31, 2011
Revenues	$	11,825
Net income	$	32

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

4. Lease Intangible Assets, Net

Lease intangible assets, net consisted of the following at March 31, 2011 and December 31, 2010:


	March 31, 2011		December 31, 2010
In-place leases, net of accumulated amortization of $6,399 and $4,703 as of March 31, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 99 and 101 months as of March 31, 2011 and December 31, 2010, respectively)	$	32,801	$	32,328

Above market leases, net of accumulated amortization of $1,527 and $1,212 as of March 31, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 95 and 97 months as of March 31, 2011 and December 31, 2010, respectively)		7,444		7,803

Leasing commissions, net of accumulated amortization of $1,968 and $1,568 as of March 31, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 146 and 151 months as of March 31, 2011 and December 31, 2010, respectively)		13,546		12,893

	$	53,791	$	53,024

Estimated amortization of lease intangible assets as of March 31, 2011 and for each of the next five years and thereafter is as follows:


Year	Amount
2011 (remaining nine months)	$	7,085
2012		8,165
2013		6,837
2014		5,744
2015		4,405
Thereafter		21,555

Total	$	53,791

Amortization expense recorded on the lease intangible assets for the three months ended March 31, 2011 and 2010 was $2,384 and $119, respectively. Included in these amounts are $337 and $15, respectively, of amortization recorded against rental income in the Company and ETP’s condensed combined statements of operations for above market leases.

5. Lease Intangible Liabilities, Net

Lease intangible liabilities, net consisted of the following at March 31, 2011 and December 31, 2010:


	December 31, 2010		December 31, 2010
Below market leases, net of accumulated amortization of $1,466 and $1,173 as of March 31, 2011 and December 31, 2010, respectively (with a weighted average remaining life of 118 and 121 months as of March 31, 2011 and December 31, 2010, respectively)	$	7,222	$	7,150

Amortization recorded on the lease intangible liabilities for the three months ended March 31, 2011 and 2010 was $293 and $37, respectively. These amounts were recorded to rental income in the Company and ETP’s condensed consolidated and combined statements of operations.

Estimated amortization of lease intangible liabilities as of March 31, 2011 and for each of the next five years and thereafter is as follows:


Year	Amount
2011 (remaining nine months)	$	834
2012		952
2013		839
2014		758
2015		636
Thereafter		3,203

Total	$	7,222

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

6. Variable Interest Entities

The Company analyzes joint ventures in accordance with ASC 810-10 to determine whether they are variable interest entities (“VIEs”), and, if so, whether the Company is the primary beneficiary. The Company’s judgment with respect to the level of influence or control over an entity and whether the Company is the primary beneficiary of a VIE involves consideration of various factors including the form of ownership interest, voting interest, the size of investment (including loans) and ability to participate in major policy-making decisions. The ability to correctly assess influence or control over an entity affects the presentation of these investments in the consolidated financial statements.

Consolidated Variable Interest Entities

Included within the consolidated financial statement is the 50% joint venture with AB Dothan, LLC, that is deemed a VIE, and for which the Company is the primary beneficiary as it has the power to direct activities that most significantly impact the economic performance of the VIE.

As of March 31, 2011 and December 31, 2010, total carrying amount of assets was approximately $17,595 and $18,600, respectively which includes approximately $11,729 and $8,300, respectively of real estate assets. As of March 31, 2011 and December 31, 2010, the total carrying amount of liabilities was approximately $16,966 and $15,900, respectively.

Unconsolidated Variable Interest Entities

On December 9, 2010, the Company loaned $2,000 to an unaffiliated borrower which has been identified as a VIE. The Company does not consolidate the VIE because it does not have the ability to control the activities that most significantly impact the VIE’s economic performance. See Note 7 for additional description of the loan.

7. Mortgage Loan Receivable

On December 9, 2010, the Company loaned $2,000 to an unaffiliated borrower. The proceeds were used to facilitate the land acquisition and development of a shopping center anchored by Publix in Brandon, Florida. The loan is secured with a second mortgage trust deed on the property and is personally guaranteed by members of the borrower. The loan bears interest at 8% per annum. In connection with the loan, the Company also entered into a purchase and sale agreement to acquire this property upon maturity. The loan matures on the earlier of April 2012 or the acquisition of the property. We estimate the fair value of the mortgage loan receivable approximates the book value at March 31, 2011 and December 31, 2010 by using discounted cash flow analyses based on an appropriate market rate for a similar type of instrument.

8. Mortgages Payable, net

Mortgages payable at March 31, 2011 and December 31, 2010 consist of the following:


	Carrying Amount of Mortgage Notes						Interest Rate			Monthly Payment⁽¹⁾		Maturity Date
Property Pledged as Collateral	March 31, 2011			December 31, 2010			Interest Rate			Monthly Payment⁽¹⁾		Maturity Date
Excel Centre	$	12,708		$	12,768			6.08	%	$	85		2014
Five Forks Place		5,198			5,242			5.50	%		39		2013
5000 South Hulen		14,034			14,086			5.60	%		83		2017
Lowe’s, Shippensburg		14,072			14,147			7.20	%		110		2031
Merchant Central		4,625			4,647			5.94	%		30		2014
Grant Creek Town Center		15,944			16,029			5.75	%		105		2013
Mariner’s Point		3,465			3,482			7.10	%		25		2011
Park West Place⁽²⁾		55,800			55,800			3.91	%		182		2013
Northside Mall⁽³⁾		12,000			12,000			0.36	%		3		2035
Rite Aid, Vestavia		1,452			—			7.25	%		21		2018
Edwards Theatres, San Marcos		12,418			—			6.74	%		95		2014

	$	151,716		$	138,201
Less: discount⁽⁴⁾		(759	)		(1,158	)

Mortgage notes payable, net	$	150,957		$	137,043

⁽¹⁾	This represents the monthly payment of principal and interest at March 31, 2011.

⁽²⁾	The loan bears interest at a rate of LIBOR plus 2.50%. In December 2010, the Company entered into interest rate swap contracts which fixed LIBOR at an average of 1.41% for the term of the loan.

⁽³⁾	The debt represents redevelopment revenue bonds to be used for the redevelopment of this property. Interest is reset weekly and determined by the bond remarketing agent based on the market value of the bonds. The interest rate on the bonds is currently priced off of the Securities

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Industry and Financial Markets Association, or SIFMA, index but could change based on the credit of the bonds. The bonds are secured by a $12,100 letter of credit issued by the Company from the Company’s credit facility

⁽⁴⁾	Represents (a) the fair value adjustment on assumed debt on acquired properties at the time of acquisition to account for below or above market interest rates and (b) underwriter’s discount for the issuance of redevelopment bonds.

Total interest cost capitalized for the three months ended March 31, 2011 and 2010 was $20 and $77, respectively.

The fair value of mortgage notes payable at March 31, 2011 and December 31, 2010 was $153,118 and $139,141, respectively, based on current interest rates for comparable loans. The method for computing fair value was determined using a present value model and an interest rate that included a credit value adjustment based on the estimated value of the property that serves as collateral for the underlying debt.

The Company’s mortgage debt maturities at March 31, 2011 and during the next five years is as follows:


Year Ending December 31,	Amount
2011 (remaining nine months)	$	4,812
2012		1,898
2013		77,444
2014		28,726
2015		852
Thereafter		37,984

	$	151,716

9. Notes Payable

On July 8, 2010, the Company and the Operating Partnership entered into an unsecured revolving credit facility (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility of up to $125,000. The Company has the ability from time to time to increase the size of the revolving credit facility by up to an additional $275,000 to a total of $400,000, subject to receipt of lender commitments and other conditions precedent. The maturity date is July 7, 2013 and can be extended for one year at the Company’s option. The Company, among other things is subject to covenants requiring the maintenance of (1) maximum leverage ratios on unsecured, secured and overall debt, and (2) minimum fixed coverage ratios. At March 31, 2011, the Company was in compliance with all of the covenants in the Credit Agreement.

The unsecured revolving credit facility bears interest at the rate of LIBOR plus a margin of 275 basis points to 400 basis points, depending on the Company’s leverage ratio, provided that in no event shall LIBOR be deemed to be less than 1.50%. The Company will also pay a 0.45% fee for any unused portion of the revolving credit facility. Borrowings from the credit facility were $36,300 at March 31, 2011. These proceeds were primarily used to acquire properties. The interest rate at March 31, 2011 was 4.25%. In addition, the Company issued a $12,100 letter of credit from the revolving credit facility which secures an outstanding $12,000 bond payable for the Northside Mall. This bond is included with the mortgages payable on the Company’s condensed consolidated balance sheet. At March 31, 2010, there was approximately $58,100 available for borrowing under the facility.

At March 31, 2011, the Company had a note payable from a consolidated joint venture to the Company’s partner in the amount of $1,535. The note bears interest at 6% and is due the earlier of May 1, 2012 or when Publix and Hobby Lobby, two new tenants in the property owned by the joint venture, commence their lease and are opened for business.

The Company determines the fair value of the unsecured revolving credit facility and the note payable by performing discounted cash flow analyses using an appropriate market discount rate for similar types of instruments. At March 31, 2011 and December 31, 2010, the fair value approximated $39,800 and $87,200, respectively.

10. Derivatives and Hedging Activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s investments and borrowings. In addition, the Company may execute agreements in connection with business combinations that include embedded derivative instruments as part of the consideration provided to the sellers of the properties. Although these embedded derivative instruments are not intended as hedges of risks faced by the Company, they can provide additional consideration to the Company’s selling counterparties and may be a key component of negotiations.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Cash Flow Hedges of Interest Rate Risk

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

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated Other Comprehensive Income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. In December 2010, the Company executed two pay-fixed interest rate swaps to hedge the variable cash flows associated with one of the Company’s mortgage payables. The Company had no derivative financial instruments prior to the execution of the two swaps. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended March 31, 2010, the Company recorded no amounts in earnings attributable to hedge ineffectiveness.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s hedged variable-rate debt. During the next twelve months, the Company estimates that an additional $570,490 will be reclassified as an increase to interest expense.

As of March 31, 2011, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:


	Cash Flow Hedge Derivative Summary
	As of March 31, 2011 and December 31, 2010
	Number of Instruments		Notional
Derivative Type
Interest Rate Swaps		2	$	55,800

Total		2	$	55,800

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheet as of March 31, 2011 and December 31, 2010.

Fair Values of Derivative Instruments


	As of March 31, 2011				As of December 31, 2010
	Derivatives Asset		Derivative Liabilities		Derivatives Asset		Derivative Liabilities
Interest rate derivatives
Balance Sheet Location		Other Assets		Accounts payable and other liabilities		Other assets		Accounts payable and other liabilities
Pay-Fixed Swaps	$	0	$	168	$	0	$	388
Derivative instrument related to business combinations		0		3,835		0		0

Total	$	0	$	4,003	$	0	$	388

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

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

The tables below present the effect of the Company’s derivative financial instruments on the Income Statement for the three months ended March 31, 2011:


	Income Statement Impact of Derivatives in Cash Flow Hedging Relationships For the Three Months Ended March 31, 2011
	Amount of Unrealized Gain/(loss) Recognized in OCI on Derivative (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)		Amount of Gain/(loss) Reclassified from Accumulated OCI into Income (Effective Portion)		Location of Gain/ (loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)		Amount of Gain/(loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest rate derivatives
Pay-Fixed Swaps	$	69		Interest expense	$	152		Other income/expense	$	0

Total	$	69			$	152			$	0

Credit-risk-related Contingent Features

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

If the Company had breached any of these provisions at March 31, 2011, it could have been required to settle its obligations under the agreements at their termination value. As of March 31, 2011, the termination value defined as the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, was a liability of $216. As of March 31, 2011, the Company has not posted any collateral related to these agreements.

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

11. Equity

The Company issued 15,000,000 shares in conjunction with the Offering resulting in net proceeds of approximately $194,600 after deducting the underwriters’ discount and commissions and offering expenses. In conjunction with the Formation transaction, the Company also issued 507,993 shares of common stock and 641,062 OP Units. The Company has issued restricted stock awards to senior executives, directors and employees totaling 1,068,838 shares of common stock, which are included in the total shares of common stock outstanding as of March 31, 2011.

On January 28, 2011, the Company issued 2,000,000 shares of Preferred Stock, with a liquidation preference of $25.00 per share. The Company pays cumulative dividends on the Preferred Stock when, as and if declared by the Company’s Board of Directors, from the date of original issue at a rate of 7.00% per annum, subject to adjustment in certain circumstances. The annual dividend on each share of Preferred Stock is $1.75, payable quarterly in arrears on the 15th calendar day of each January, April, July and October of each year, as and if declared by the Company’s Board of Directors.

The Preferred Stock is be convertible, at the holders’ option, at any time and from time to time, into common stock of the Company at an initial conversion rate of 1.6667 shares of common stock per share of Preferred Stock, which is equivalent to an initial conversion price of $15.00 per share. The conversion price will be subject to customary adjustments in certain circumstances. On or after April 1, 2014, the Company may, at its option, convert some or all of the Preferred Stock if the closing price of the common stock equals or exceeds 140% of the conversion price for at least 20 of the 30 consecutive trading days ending the day before the notice of exercise of conversion is sent and the Company has either declared and paid, or declared and set apart for payment, any unpaid dividends that are in arrears on the Preferred Stock. Net proceeds from this offering were approximately $47.6 million. The Company used the net proceeds of this offering to repay a portion of the outstanding indebtedness under the unsecured revolving credit facility.

On January 28, 2010, the Company entered into a registration rights agreement with the representatives of the initial purchasers of the Preferred Stock, pursuant to which the Company agreed to use commercially reasonable efforts to file with the Securities and Exchange Commission a registration statement registering the Preferred Stock and the common stock issuable upon conversion of the Preferred Stock. On May 6, 2011, the Company filed such a registration statement on Form S-3 with the Securities and Exchange Commission, which is not yet effective. In the event that the registration statement is not declared effective within the deadline, the

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Company may be subject to the payment of additional dividends to holders of the Preferred Stock at a rate per annum of 0.25% through the first ninety days and at a rate per annum of 0.50% thereafter.

Consolidated net income is reported in the Company’s condensed consolidated financial statements at amounts that include the amounts attributable to both the common stockholders and the non-controlling interests. In conjunction with the Formation Transactions, certain interests in the Predecessor were contributed in exchange for OP Units. OP Units not held by the Company are reflected as non-controlling interest in the Company’s condensed consolidated financial statements and included as equity. OP Units not held by the Company have redemption provisions that permit the Operating Partnership to settle in either cash or common stock at the option of the Operating Partnership, which have been further evaluated to determine that permanent equity classification on the balance sheet is appropriate.

The following table shows the ownership interests in the Operating Partnership:


	March 31, 2011					December 31, 2010
	Partner ship Units		Percentage of Total			Partnership Units		Percentage of Total
Excel Trust, Inc.		15,514,541		91.7	%		15,512,755		96.0	%
Noncontrolling interest consisting of:
OP Units		1,405,405		8.3	%		641,062		4.0	%

Total		16,919,946		100.0	%		16,153,817		100.0	%

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

2010 Equity Incentive Award Plan

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

The following shares of restricted common stock have been issued as of March 31, 2011:


Grant Data	Price at Grant Date		Number		Vesting Period (yrs.)
April 23, 2010⁽¹⁾	$	13.30		126,766		4
April 23, 2010 ⁽²⁾	$	13.30		28,572		4
March 7, 2011⁽¹⁾	$	11.96		295,000		4
March 7, 2011 ⁽³⁾	$	11.96		618,000		3

⁽¹⁾	Shares issued to certain of the Company’s senior management. These shares vest over four years with 25% vesting on the first anniversary date of the grant date and the remainder vesting in equal quarterly installments thereafter.

⁽²⁾	Shares issued to members of the Company’s Board of Directors. These shares vest pro-rata over four years in monthly installments.

⁽³⁾

Shares issued to certain of the Company’s senior management and employees. These shares vest over three years depending on the Company’s stock meeting certain market conditions. The Company calculated the fair value of the restricted common stock to be $8.87 per share on the date of grant with the assistance of independent valuation specialists. The corresponding compensation expense of approximately $5,500 will be recognized utilizing a graded vesting method over the three-year period as long as the recipients of the grants remain employed at the Company regardless of whether the Company’s common stock satisfies the market conditions.

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Shares of the Company’s restricted common stock generally may not be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the administrator of the 2010 Plan, a domestic relations order, unless and until all restrictions applicable to such shares have lapsed. Such restrictions expire upon vesting. Shares of the Company’s restricted common stock have full voting rights and rights to dividends. During the three months ended March 31, 2011, the Company recognized compensation expense of $451 related to the restricted common stock grants ultimately expected to vest. ASC Topic 718, Compensation — Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated $0 in forfeitures in 2011. Stock compensation expense is included in general and administrative in the Company’s accompanying condensed consolidated statements of operations.

As of March 31, 2011 and December 31, 2010, there was $10,975 and $1,709, respectively, of total unrecognized compensation expense related to the non-vested shares of the Company’s restricted common stock. As of March 31, 2011 and December 31, 2010, this expense was expected to be recognized over a remaining period of 3.2 years and 3.3 years, respectively.


	Number of Nonvested Shares of Restricted Common Stock			Weighted Average Grant Date Fair Value
Balance - January 1, 2010		—		$	—
Granted - April 23, 2010		155,338		$	13.30
Granted - March 7, 2011		913,500		$	9.85
Vested		(6,548	)	$	13.30

Balance - March 31, 2011		1,062,290		$	10.33

Expected to vest - March 31, 2011		1,062,290		$	10.33

12. Related Party Transactions

Prior to the Offering, Excel Realty Holdings, LLC, a company wholly-owned by Mr. Sabin (“ERH”), managed operations of ETP under various management agreements. Fees paid to ERH for property management services were $32 in the three months ended March 31, 2010.

Subsequent to the Offering, many of the employees of ERH became employees of the Company. ERH reimburses the Company for estimated time the Company employees spend on ERH related matters. In the three months ended March 31, 2011, $52 was reimbursed to the Company from ERH and included in other income in the consolidated statements of operations.

13. Income Taxes

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

ETP’s real estate entities were partnerships and limited liability companies. Under applicable federal and state income tax rules, the allocated share of net income or loss from partnerships and limited liability companies is reportable in the income tax returns of the partners and members. Accordingly, no income tax provision is included in the accompanying condensed combined financial statements of the Predecessor.

14. Commitments and Contingencies

Litigation:

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

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)

Environmental Matters:

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

Property Acquisitions:

In connection with the Company’s note receivable secured by real estate, the Company also entered into a purchase and sale agreement to acquire the property. The purchase price will be dependent upon leasing and net operating income of the property when acquired. Also, On March 21, 2011, the company entered into a purchase agreement to acquire an approximately 433,000 square foot retail shopping center in Arizona. The purchase price for the shopping center, excluding closing costs, is approximately $110,000, of which approximately $52,800 will be assumed debt with an interest rate of 4.8%.

Other

The Company’s other commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In management’s opinion, these matters are not expected to have a material adverse effect on its condensed consolidated and combined balance sheets, results of operations or cash flows. In addition, we expect to incur approximately $31,900 in construction costs on three development properties.

15. Segment Disclosure

The Company and ETP’s reportable segments consist of the two types of commercial real estate properties for which management internally evaluates operating performance and financial results: Office Properties and Retail Properties. The Company was formed for the primary purpose of owning and operating Retail Properties. As such, administrative costs after the Offering are shown under the Retail Property segment. Retail Properties also includes undeveloped land which the Company intends to develop into a retail property.

The Company and ETP evaluate the performance of the operating segments based upon property net operating income. “Property Net Operating Income” is defined as operating revenues (rental revenue and tenant recoveries) less property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses) and general and administrative expenses and excludes other non-property income, interest expense, depreciation and amortization. There is no intersegment activity.

The following tables reconcile the Company and ETP’s segment activity to their condensed consolidated and combined results of operations and financial position for the three months ended March 31, 2011 and 2010:


	For the Three Months Ended March 31, 2011			For the Three Months Ended March 31, 2010
Office Properties:
Total revenues	$	822		$	798
Property operating expenses		168			154
General and administrative costs		—			5

Property net operating income, as defined		654			639
Depreciation and amortization		241			273
Interest expense		199			202
Interest income		—			—

Net income	$	214		$	164

Retail Properties:
Total revenues	$	10,391		$	422
Property operating expenses		2,498			133
General and administrative costs		2,650			1

Property net operating income, as defined		5,243			288
Depreciation and amortization		4,128			187
Interest expense		2,366			159
Interest income		40			—
Gain on acquisition of real estate		937			—

Net loss	$	(274	)	$	(58	)

Total Reportable Segments:
Total revenues	$	11,213		$	1,220
Property operating expenses		2,666			287
General and administrative expenses		2,650			6

Property net operating income, as defined		5,897			927
Depreciation and amortization		4,369			460
Interest expense		2,565			361
Interest income		40			—
Gain on acquisition of real estate		937			—

Net (loss) income		(60	)		106
Reconciliation to the Consolidated and Combined Net Income Attributable to Controlling Interest:
Total net (loss) income for reportable segments		(60	)		106
Net income attributable to non-controlling interests		(31	)		94

Net (loss) income attributable to Excel Trust, Inc. and Excel Trust, Inc. Predecessor	$	(29	)	$	12

EXCEL TRUST, INC. AND

EXCEL TRUST, INC. PREDECESSOR

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS — (Continued)

(Dollars in thousands, except per share amounts)

(Unaudited)


	March 31,		December 31,
	2011		2010
Assets:
Office Properties:
Total assets	$	15,961	$	16,081
Retail Properties:
Total assets		454,128		425,007

Total Reportable Segments & Consolidated and Combined Assets:
Total assets	$	470,089	$	441,088

16. Subsequent Events

On April 5, 2011, the Company, through the Operating Partnership, completed the acquisition of Gilroy Crossing Shopping Center (“Gilroy Crossing”), a 473,640 square foot retail shopping center (of which 325,431 square feet are owned) located in Gilroy, California. The purchase price was approximately $68,500 and consisted of the assumption of $48,000 of mortgage debt and $20,500 of cash which was funded from borrowings from the Company’s unsecured credit facility. The mortgage loan bears interest at a rate of 5.01% and matures on October 11, 2014.

Item 2.

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

As used herein, the terms “we,” “us,” “our” or the “Company” refer to Excel Trust, Inc., a Maryland corporation, any of our subsidiaries and Excel Trust Inc. Predecessor, or our Predecessor. Our Predecessor is not a legal entity, but rather a combination of real estate entities and operations invested in four properties that have been contributed to us.

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

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2010. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

Management’s Overview and Summary

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

On April 28, 2010, we completed the Offering of our common stock. In connection with the Offering , we and the Operating Partnership, of which we are the sole general partner, engaged in the Formation Transactions. The Formation Transactions were designed to (1) continue the operations of four properties that were contributed by related parties, (2) enable us to raise the necessary capital to acquire increased interests in certain of the properties, (3) provide capital for future acquisitions, (4) fund certain development costs at our development property, (5) establish a capital reserve for general corporate purposes and (6) fund future joint venture capital commitments. The exchange of entities or interests therein for shares of our common stock and OP Units was accounted for as a reorganization of entities under common control, and accordingly, the related assets and liabilities were reflected at their historical cost basis. We were organized as a Maryland corporation on December 15, 2009 and intend to elect to be taxed as a REIT beginning with our taxable year ended December 31, 2010.

As of March 31, 2011, we owned a portfolio consisting of 22 retail operating properties totaling approximately 2.6 million square feet of gross leasable area, which were approximately 94.0% leased and had a weighted average age of approximately five years, based on gross leasable area. In addition, we own one commercial office property totaling 82,157 square feet of gross leasable area, which was 96.4% leased as of March 31, 2011. We utilize a portion of this commercial building as our headquarters. We also own two land parcels comprising approximately 31 acres slated for retail development and a 50% interest in a property currently being redeveloped.

Our operations are carried on primarily through our Operating Partnership. Pursuant to contribution agreements, we and our Operating Partnership received a contribution of interests in four properties as well as the property management, leasing and real estate development operations of the properties in exchange for the issuance of shares of our common stock or OP Units and/or the payment of cash to the contributors and the assumption of debt and other specified liabilities in connection with the Offering.

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

Critical Accounting Policies

A complete discussion of our critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2010 which was filed with the Securities and Exchange Commission and is accessible on the Securities and Exchange Commission’s website at www.sec.gov.

New Accounting Standards

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

Results of Operations

We operate through two reportable business segments: retail properties and office properties. The office segment consists of one property, Excel Centre, with a total of 82,157 leasable square feet. Our Predecessor has owned and operated Excel Centre since 2004. All of our other properties are reported in the retail segment. At March 31, 2011, we owned 22 retail operating properties with a total of approximately 2.6 million of leasable square feet.

We evaluate the performance of our segments based upon property net operating income. “Property Net Operating Income” is defined as total revenues (rental revenue and tenant recoveries) less property operating expenses (maintenance and repairs, real estate taxes, management fees, and other operating expenses) and general and administrative expenses. We also evaluate interest expense, interest income and depreciation and amortization by segment.

You should read the following discussion in conjunction with the segment information disclosed in Note 15 to our condensed consolidated and combined financial statements in accordance with ASC 280, Segment Reporting. Our results of operations for the three months ended March 31, 2011 and 2010. Results for the three months ended March 31, 2010 reflect operations of the Predecessor properties prior to the IPO. Management believes this information provides for the most meaningful comparison as the historical cost of the Predecessor properties were carried over by the Company at historical cost subsequent to the Offering and therefore, results of operations for such properties would be comparable for those periods. However, our results of operations for the three month ended March 31, 2011 and 2010 may not be indicative of our future results of operations.

Retail Properties

At March 31, 2011, we owned 22 retail operating properties totaling approximately 2.6 million square feet. The properties were 94% leased and 21 leases were signed or renewed in the three months ended March 31, 2011. At March 31, 2010, our Predecessor owned two operating properties comprised of approximately 121,000 square feet.

Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010

Total revenues, which include rental revenues and tenant recoveries including insurance, property taxes and other operating expenses paid by tenants, increased by $10.0 million to $10.4 million for the three months ended March 31, 2011 compared to $0.4 million for the three months ended March 31, 2010. The increase was directly related to our acquisition of 20 retail properties since the completion of the Offering.

Property operating expenses, which include maintenance and repair expenses, real estate taxes, management fees and other operating expenses including bad debts, increased by $2.4 million to $2.5 million for the three months ended March 31, 2011 compared to $0.1 million for the three months ended March 31, 2010. Seven of the properties we acquired are under triple-net leases whereby the tenant pays for all the operating expenses. The increase primarily related to the 13 operating retail properties we acquired since the completion of the Offering that are not under triple-net leases.

General and administrative expenses were $2.7 million for the three months ended March 31, 2011 compared to $1,000 for the three months ended March 31, 2010. General and administrative expenses in the three months ended March 31, 2011 relate to our operations since the completion of the Offering, and include salaries and other costs incurred to operate as a public company. Prior to the Offering, there were no general and administrative expenses included in the Predecessor’s results of operations other than those that were directly related to the properties contributed to us by the Predecessor.

Depreciation and amortization expense increased $3.9 million, to $4.1 million for the three months ended March 31, 2011 compared to $0.2 million for the three months ended March 31, 2010. The increase was directly related to our acquisition of 20 retail properties since the completion of the Offering.

Interest expense increased $2.2 million to $2.4 million for the three months ended March 31, 2011 compared to $0.2 million for the three months ended March 31, 2010. The increase was due to the increase in mortgage and notes payable. At March 31, 2011, we had $188.8 million compared to $33.7 million of debt outstanding at March 31, 2010.

Commercial Office Properties

Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010

Total revenues did not change significantly (approximately $0.8 million for both the three months ended March 31, 2011 and 2010) as there were no significant changes in tenants or rents.

Property operating expenses did not change significantly (approximately $0.2 million for both the three months ended March 31, 2011 and 2010) as there were no significant changes in operations.

There were no significant general and administrative expenses related to our commercial office property in either the three months ended March 31, 2011 or 2010.

Depreciation and amortization expense was relatively stable in the three months ended March 31, 2011 compared to the three months ended March 31, 2010 ($32,000 difference) as there was no significant change in tenants.

Interest expense did not change significantly (approximately $0.2 million in both the three months ended March 31, 2011 and 2010) as there was no significant change in the mortgage balance outstanding other than scheduled principal amortization from monthly debt payments.

Cash Flows

The following is a comparison, for the three months ended March 31, 2011 and 2010, of the cash flows of the Company and our Predecessor.

Cash and cash equivalents were $4.0 million and $0.4 million at March 31, 2011 and 2010, respectively.

Net cash provided by operating activities was $6.5 million for the three months ended March 31, 2011 compared to $0.1 million for the three months ended March 31, 2010, an increase of $6.4 million. Included in the adjustments to reconcile net loss to cash provided by operating activities was depreciation and amortization which increased $3.9 million from properties acquired since the Offering. The change in other liabilities increased $3.0 million. This was primarily due to payables related to properties acquired since our Offering and general and administrative costs which were not included in the Predecessor 2010 operations.

Net cash used in investing activities was $6.4 million for the three months ended March 31, 2011 compared to $0.2 million for the three months ended March 31, 2010, an increase of $6.2 million. This was primarily the result of construction costs paid in the three months ended March 31, 2011.

Net cash used by financing activities was $2.7 million in the three months ended March 31, 2011 compared to $0.2 million in the three months ended March 31, 2010, an increase of $2.5 million. The increase is primarily due to $2.0 million paid for dividends and distributions to our stockholders and OP Unit holders in the three months ended March 31, 2011. Net proceeds of $47.6 million from the issuance of our Preferred Stock were used to repay $47.5 million outstanding on our credit facility.

Funds From Operations

We present funds from operations (FFO) because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is intended to exclude GAAP historical cost depreciation and

amortization of real estate and related assets, which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization unique to real estate, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year-over-year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.

We compute FFO in accordance with standards established by the Board of Governors of NAREIT in its March 1995 White Paper (as amended in November 1999 and April 2002). As defined by NAREIT, FFO represents net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization (excluding amortization of loan origination costs) and after adjustments for unconsolidated partnerships and joint ventures. Our computation may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to such other REITs. Further, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (loss) (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions.

The following table presents a reconciliation of our FFO for the three months ended March 31, 2011 and 2010 (in thousands):


	The Company			The Predecessor
	2011			2010
Net (loss) attributable to Excel Trust, Inc. and Excel Trust, Inc. Predecessor	$	(29	)	$	12
Depreciation and amortization		4,369			460
Gain on acquisition of joint venture equity interest		(937	)		—

Funds from operations	$	3,403		$	472

Liquidity and Capital Resources

On April 28, 2010, we completed the Offering of our common stock. Net proceeds for the Operating Partnership were approximately $194.6 million, which were partially used to acquire real estate, pay for the Formation Transactions and for general corporate and working capital purposes. At March 31, 2011, we had $4.0 million of cash and cash equivalents on hand.

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

•

interest expense and scheduled principal payments on outstanding indebtedness,

•

general and administrative expenses,

•

future distributions expected to be paid to our stockholders and limited partners of our Operating Partnership,

•

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

•

construction of our three non-operating properties

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

We intend to satisfy our short-term liquidity requirements through our existing working capital and cash provided by our operations. We believe our rental revenue net of operating expenses will generally provide cash inflows to meet our debt service obligations (excluding debt maturities), pay general and administrative expenses and fund regular distributions. We anticipate being able to refinance or will borrow from our unsecured credit facility to pay for upcoming debt maturities. We expect to incur approximately $31.9 million of additional construction costs on our three non-operating properties. Funds for these costs are expected to come from new mortgage financing, borrowings from our unsecured revolving credit facility and existing cash. We intend to satisfy our other long-term liquidity requirements through our existing working capital, cash provided by indebtedness, long-term secured and unsecured indebtedness and the use of net proceeds from the disposition of non-strategic assets. In addition, we may, from time to time, offer and sell additional shares of preferred stock, as well as debt securities, common stock, warrants, rights and other securities to the extent necessary or advisable to meet our liquidity needs.

We have one mortgage with a balance of $3.5 million maturing in 2011. We anticipate that we will either refinance this mortgage with a new loan or repay the debt with available cash or borrowings from our credit facility.

On July 8, 2010, we entered into an unsecured revolving credit facility with Wells Fargo Securities, LLC and KeyBanc Capital Markets, as joint lead arrangers and bookrunners, and certain other lenders, as amended from time to time (the “Credit Agreement”). The Credit Agreement provides for a revolving credit facility of up to $125.0 million. We have the ability from time to time to increase the size of the revolving credit facility by up to an additional $275.0 million to a total of $400.0 million, subject to receipt of lender commitments and other conditions precedent. The maturity date is July 7, 2013 and can be extended for one year at our option. The outstanding balance on our revolving credit facility at March 31, 2011 was $36.3 million which was primarily used to acquire properties. Additionally, we issued a $12.1 million letter of credit under the facility.

The revolving credit facility bears interest at the rate of LIBOR plus a margin of 275 basis points to 400 basis points, depending on our leverage ratio, provided that in no event shall LIBOR be deemed to be less than 1.50% (interest rate at March 31, 2011 was 4.25%). We also pay a 0.45% fee for any unused portion of the revolving credit facility.

Our ability to borrow funds under the Credit Agreement and the amount of funds available under the Credit Agreement at any particular time, are subject to our meeting borrowing base requirements. The amount of funds we can borrow is determined by the net operating income of our unencumbered assets that comprise the borrowing base. We are also subject to ongoing compliance with a number of customary restrictive covenants, including:

•

a maximum leverage ratio (defined as total liabilities to total asset value) of (1) 0.60 : 1.00, until the earlier of (a) an equity issuance of common stock or preferred stock by us with gross proceeds of at least $75.0 million to $125.0 million, depending on our property holdings (a Follow-On Offering), and (b) December 31, 2011, and (2) 0.55 : 1.00 at any time thereafter,

•

a minimum fixed charge coverage ratio (defined as adjusted earnings before interest, taxes, depreciation and amortization to fixed charges) of (1) 1.50 : 1.00 as of the end of each fiscal quarter ending prior to December 31, 2011 and (2) 1.75 : 1.00 as of the fiscal quarter ending December 31, 2011, and as of each fiscal quarter ending thereafter,

•

a maximum secured indebtedness ratio (defined as secured indebtedness to total asset value) of 0.35 : 1.00,

•

a maximum unencumbered leverage ratio (defined as unsecured indebtedness to unencumbered asset value) of (1) 0.60 : 1.00 until the earlier of (a) a Follow-On Offering and (b) December 31, 2011, and (2) 0.55 : 1.00 at any time thereafter,

•

a minimum unencumbered interest coverage ratio (defined as unencumbered net operating income to unsecured interest expense) of 2.00 : 1.00, and

•

a minimum tangible net worth equal to approximately $169.0 million plus 80% of the net proceeds of any additional equity issuances.

Under the Credit Agreement, cash dividends on our common stock, as well as our preferred stock, may not exceed the greater of (1)(a) during the period from October 1, 2010 to June 30, 2011, 110% of our FFO, and (b) beginning on July 1, 2011, 95% of our FFO, and (2) the amount required for us to qualify and maintain our REIT status. If an event of default exists, we may only make distributions sufficient to qualify and maintain our REIT status. As of March 31, 2011, we were in compliance with all of the covenants under the Credit Agreement.

On January 28, 2011, we issued 2,000,000 shares of Preferred Stock, with a liquidation preference of $25.00 per share. We will pay cumulative dividends on the Preferred Stock when, as and if declared by our Board of Directors at a rate of 7.00% per annum, subject to adjustment in certain circumstances. The annual dividend on each share of Preferred Stock is $1.75, payable quarterly in arrears on the 15th calendar day of January, April, July and October of each year, as and if declared by our Board of Directors. Net proceeds from this offering were approximately $47.6 million in cash. We used the net proceeds of this offering to repay a portion of the outstanding indebtedness under the unsecured revolving credit facility.

As of March 31, 2011, our ratio of debt-to-gross undepreciated asset value was approximately 45.6%. Our organizational documents do not limit the amount or percentage of debt that we may incur, nor do they limit the types of properties we may acquire or develop, and our Board of Directors may modify our debt policy from time to time. The amount of leverage we will deploy for particular investments in our target assets will depend upon our management team’s assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the target assets in our investment portfolio, the potential for losses, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the health of the U.S. economy and commercial mortgage markets, our outlook for the level, slope and volatility of interest rates, the credit quality of our target assets and the collateral underlying our target assets. Accordingly, the ratio of debt-to-gross undepreciated asset value may increase or decrease beyond the current amount.

Commitments and Contingencies

The following table outlines the timing of our required payments (dollars in thousands) related to our mortgage and note indebtedness as of March 31, 2011:


	Payments by Period
	2011 (nine months)		2012-2013		2014-2015		Thereafter		Total
Principal payments — fixed rate debt	$	4,812	$	80,878	$	29,578	$	25,984	$	141,252
Principal payments — variable rate debt		—		36,300		—		12,000		48,300
Interest payments — fixed rate debt		6,213		13,337		4,035		9,323		32,908
Interest payments — variable rate debt		1,589		3,208		864		8,586		14,247

	$	12,614	$	133,723	$	34,477	$	55,893	$	236,707

Off-Balance Sheet Arrangements

As of March 31, 2011, we had a $2.0 million note receivable related to a mezzanine loan to PC Retail, LLC to facilitate the land acquisition and development of a shopping center anchored by Publix in Brandon, Florida. The loan is secured with a second mortgage trust deed on the property and is personally guaranteed by members of PC Retail, LLC. We have also entered into a purchase and sale agreement with PC Retail, LLC to acquire the property upon completion. The purchase price will be based on the income from leasing of the center.

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

Distribution Policy

We intend to elect to be taxed as a REIT under the Code commencing with our taxable year ended December 31, 2010. To qualify as a REIT, we must meet a number of organizational and operational requirements, including the requirement that we distribute currently at least 90% of our REIT taxable income to our stockholders. It is our intention to comply with these requirements and maintain our REIT status. As a REIT, we generally will not be subject to corporate United States federal, state or local income taxes on income we distribute currently (in accordance with the Code and applicable regulations) to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to United States federal, state and local income taxes at regular corporate rates and may not be able to qualify as a REIT for subsequent tax years. Even if we qualify for United States federal taxation as a REIT, we may be subject to certain state and local taxes on our income properties and operations and to United States federal income and excise taxes on our taxable income not distributed in the amounts and in the time frames prescribed by the Code and applicable regulations thereunder.

Inflation

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

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

The fair value of mortgages payable (before discount) at March 31, 2011 was approximately $153.1 million compared to the carrying amount of $151.7 million. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our fixed-rate debt by approximately $3.0 million at March 31, 2011. A 100 basis point decrease in market interest rates would result in an increase in the fair market value of our fixed-rate debt by approximately $3.2 million at March 31, 2011.

On July 8, 2010, we entered into a $125.0 million unsecured revolving credit facility. The revolving credit facility bears interest at the rate of LIBOR plus a margin of 275 basis points to 400 basis points, depending on our leverage ratio, provided that in no event shall LIBOR be deemed to be less than 1.50% (interest rate at March 31, 2011 was 4.25%). As of March 31, 2011, due to this LIBOR floor, an increase of LIBOR of 100 basis points would not result in a change to the interest rate of our revolving credit facility. Any

increase in LIBOR above 1.50% would increase the interest we incur for amounts drawn under this revolving credit facility, if any, and would reduce our cash flows. As of March 31, 2011, we had $48.4 million of debt and commitments outstanding under our unsecured revolving credit facility, which includes a $12.1 million letter of credit issued under the facility.

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

As of March 31, 2011, we had two interest rate derivatives that were designated as cash flow hedges of interest rate risk. Both derivatives were interest rate swaps and the notional amount totaled $55.8 million. The interest rate swap contracts fixed LIBOR at an average of 1.41% for the term of a mortgage loan which expires in December 2013. The fair value of these derivative financial instruments classified as liability derivatives was $168.

Item 4.

Controls and Procedures

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

As required by Rule 13a-15(b) under the Exchange Act, management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the reasonable assurance level.

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

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 1A.

Risk Factors

For a discussion of our potential risks and uncertainties, see the section entitled “Risk Factors” beginning on page 9 in our Annual Report on Form 10-K for the year ended December 31, 2010 which was filed with the Securities and Exchange Commission and is accessible on the Securities and Exchange Commission’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in the Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Reserved

Item 5.

Other Information

None.

Item 6.

Exhibits


Exhibit Number		Description of Exhibit

3.1		Articles of Supplementary Classifying 7.00% Series A Cumulative Convertible Perpetual Preferred Stock of Excel Trust, Inc. (1)

4.1		Specimen Certificate for 7.00% Series A Cumulative Convertible Perpetual Preferred Stock of Excel Trust, Inc. (1)

10.1		Amended and Restated Agreement of Limited Partnership of Excel Trust, L.P. (1)

10.2		Registration Rights Agreement, dated as of January 28, 2011, by and among Excel Trust, Inc., Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. (1)

10.3		Purchase and Sale Agreement and Joint Escrow Instructions dated March 21, 2011 between Pacific Promenade, LLC and Excel Trust, L.P.

10.4		Purchase and Sale Agreement and Joint Escrow Instructions dated December 9, 2010 between Lakha Properties – Gilroy LLC and Excel Trust, L.P.(Gilroy Crossing). (2)

10.5		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Gary B. Sabin.

10.6		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and James Y. Nakagawa.

10.7		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and S. Eric Ottesen.

10.8		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Spencer G. Plumb.

10.9		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Mark T. Burton.

10.10		Form of Restricted Stock Award Agreement under the 2010 Equity Incentive Award Plan (Time-Based Vesting).

10.11		Form of Restricted Stock Award Agreement under the 2010 Equity Incentive Award Plan (2011 Performance-Based Vesting Awards).

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

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

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

(1)	Incorporated herein by reference to Excel Trust, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2011.

(2)	Incorporated herein by reference to Excel Trust, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2011.

SIGNATURES

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


EXCEL TRUST, INC.

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

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

Date: May 10, 2011

EXHIBIT INDEX


Exhibit Number		Description of Exhibit

3.1		Articles of Supplementary Classifying 7.00% Series A Cumulative Convertible Perpetual Preferred Stock of Excel Trust, Inc. (1)

4.1		Specimen Certificate for 7.00% Series A Cumulative Convertible Perpetual Preferred Stock of Excel Trust, Inc. (1)

10.1		Amended and Restated Agreement of Limited Partnership of Excel Trust, L.P. (1)

10.2		Registration Rights Agreement, dated as of January 28, 2011, by and among Excel Trust, Inc., Stifel, Nicolaus & Company, Incorporated and Raymond James & Associates, Inc. (1)

10.3		Purchase and Sale Agreement and Joint Escrow Instructions dated March 21, 2011 between Pacific Promenade, LLC and Excel Trust, L.P.

10.4		Purchase and Sale Agreement and Joint Escrow Instructions dated December 9, 2010 between Lakha Properties – Gilroy LLC and Excel Trust, L.P.(Gilroy Crossing). (2)

10.5		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Gary B. Sabin.

10.6		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and James Y. Nakagawa.

10.7		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and S. Eric Ottesen.

10.8		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Spencer G. Plumb.

10.9		First Amendment to Employment Agreement among Excel Trust, Inc., Excel Trust, L.P. and Mark T. Burton.

10.10		Form of Restricted Stock Award Agreement under the 2010 Equity Incentive Award Plan (Time-Based Vesting).

10.11		Form of Restricted Stock Award Agreement under the 2010 Equity Incentive Award Plan (2011 Performance-Based Vesting Awards).

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

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

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

(1)	Incorporated herein by reference to Excel Trust, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 28, 2011.

(2)	Incorporated herein by reference to Excel Trust, Inc.’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 7, 2011.

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Excel Trust, Inc. Reports

Excel Trust, Inc. - FORM 10-Q - May 10, 2011

Attached files

Excel Trust, Inc. Reports