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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
AMENDMENT NO. 2

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2001

Commission File Number: 0-23503

EXCEL LEGACY CORPORATION
(Exact name of registrant as specified in its charter)

Delaware		33-0781747
(State of incorporation)		(I.R.S. Employer Identification No.)
17140 Bernardo Center Drive, Suite 300, San Diego, California		92128
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number: (858) 675-9400

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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at May 14, 2001
Common Stock, $.01 par value		61,540,849

Excel Legacy Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, as amended, is hereby amended and restated as follows.

ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)

EXCEL LEGACY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

			March 31, 2001			December 31, 2000
			(Restated)
ASSETS
Real estate:
	Land		$	15,476		$	16,877
	Buildings			26,539			26,878
	Construction in progress			63,654			51,835
	Leasehold interest			2,351			2,351
	Accumulated depreciation			(1,978	)		(1,808	)

		Net real estate		106,042			96,133
Cash				1,074			1,469
Accounts receivable, less allowance for bad debts of $32 and $32 in 2001 and 2000, respectively				883			812
Notes receivable				45,700			40,470
Investment in securities				117,057			116,853
Investment in partnerships				15,989			14,855
Interest receivable				14,165			12,875
Pre-development costs				9,260			9,780
Other assets				6,504			7,807
Deferred tax asset				7,827			7,315

			$	324,501		$	308,369

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Notes payable		$	68,347		$	49,061
	Convertible debentures			33,240			33,240
	Senior notes			18,067			18,067
	Mortgages payable			12,018			12,021
	Accounts payable and accrued liabilities			14,155			15,130
	Other liabilities			371			1,364

Total liabilities				146,198			128,883

Commitments and contingencies
Minority interests				595			1,103

Stockholders' equity:
	Common stock, $.01 par value, 150,000,000 shares authorized, 61,540,849 and 61,540,849 shares issued and outstanding in 2001 and 2000, respectively			615			615
	Additional paid-in capital			201,471			201,471
	Accumulated other comprehensive loss, net of tax			(797	)		(695	)
	Retained earnings			(13,893	)		(13,320	)
	Notes receivable from affiliates for common shares			(9,688	)		(9,688	)

		Total stockholders' equity		177,708			178,383

			$	324,501		$	308,369

The accompanying notes are an integral part of the financial statements

EXCEL LEGACY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF LOSS

(in thousands, except per share amounts)

			Three Months Ended March 31,
			2001			2000
Revenues:
	Operating income		$	1,190		$	1,135
	Partnership and other income			327			1,048
	Interest income			1,302			929
	Rental income			847			581

		Total revenue		3,666			3,693

Operating expenses:
	Interest			1,999			3,351
	Other operating expenses			1,271			978
	Property operating expenses			543			597
	General and administrative			708			833
	Depreciation and amortization			338			411

		Total operating expenses		4,859			6,170

Net operating loss				(1,193	)		(2,477	)
Net gain from real estate sales				114			1,880

Loss before income taxes				(1,079	)		(597	)
Benefit for income taxes				506			224

		Net loss	$	(573	)	$	(373	)

Basic and diluted net loss per common share			$	(0.01	)	$	(0.01	)

The accompanying notes are an integral part of the financial statements

EXCEL LEGACY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(in thousands, except number of shares)

		Preferred Stock			Common Stock
		Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Comprehensive Income (Loss)			Total Retained Earnings			Notes Receivable			Total Stockholders' Equity
		Number	Amount		Number	Amount		Additional Paid-in Capital		Accumulated Comprehensive Income (Loss)			Total Retained Earnings			Notes Receivable			Total Stockholders' Equity
Three Months Ended March 31, 2001:
Balance at January 1, 2001 (Restated):		—	$	—	61,540,849	$	615	$	201,471	$	(695	)	$	(13,320	)	$	(9,688	)	$	178,383
Comprehensive income:
	Net loss	—		—	—		—		—		—			(573	)		—			(573	)
	Unrealized loss on marketable securities, net of tax	—		—	—		—		—		(102	)		—			—			(102	)

Total comprehensive loss																				(675	)

Balance at March 31, 2001 (Restated):		—	$	—	61,540,849	$	615	$	201,471	$	(797	)	$	(13,893	)	$	(9,688	)	$	177,708

Three Months Ended March 31, 2000:
Balance at January 1, 2000		21,281,000	$	213	36,835,921	$	368	$	187,699	$	922		$	1,679		$	(10,842	)	$	180,039
Conversion of notes payable to common stock		—		—	5,102,181		51		18,012		—			—			—			18,063
Issuance of common shares		—		—	25,333		1		83		—			—			—			84
Repayment of notes to affiliates		—		—	—		—		—		—			—			1,083			1,083
Comprehensive income:
	Net loss	—		—	—		—		—		—			(373	)		—			(373	)
	Unrealized gain on marketable securities, net of tax	—		—	—		—		—		391			—			—			391

Total comprehensive incom																				18

Balance at March 31, 2000		21,281,000	$	213	41,963,435	$	420	$	205,794	$	1,313		$	1,306		$	(9,759	)	$	199,287

The accompanying notes are an integral part of the financial statements

EXCEL LEGACY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

			Three Months Ended March 31,
			2001			2000
Cash flows from operating activities:
	Net loss		$	(573	)	$	(373	)
	Adjustments to reconcile net loss to net cash provided by operations:
		Gain from real estate sales		(114	)		(1,880	)
		Depreciation and amortization		338			411
		Earnings from equity investments		(307	)		724
	Change in accounts receivable and other assets			(645	)		133
	Change in accounts payable and other liabilities			(968	)		717

Net cash used by operating activities				(2,269	)		(268	)

Cash flows from investing activities:
	Real estate acquired and construction costs paid			(12,065	)		(6,725	)
	Notes receivable issued			(5,230	)		(608	)
	Investment in partnerships			(1,134	)		(1,252	)
	Proceeds from real estate sales			500			10,046
	Net pre-development costs reimbursed (paid)			520			(7,879	)

Net cash used in investing activities				(17,409	)		(6,418	)

Cash flows from financing activities:
	Principal payments of notes and mortgages			(2,576	)		(72	)
	Borrowings from issuance of notes payable			21,859			7,765

Net cash provided by financing activities				19,283			7,693

Net (decrease) increase in cash				(395	)		1,007
Cash at the beginning of the period				1,469			1,767

Cash at the end of the period			$	1,074		$	2,774

The accompanying notes are an integral part of the financial statements

EXCEL LEGACY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies:

The financial statements reflect all adjustments of a recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial statements. No adjustments were necessary which were not of a normal recurring nature. Certain footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to the quarterly reporting rules of the Securities and Exchange Commission. These financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in Excel Legacy Corporation, Inc.'s December 31, 2000 Form 10-K, as amended.

Organization

Excel Legacy Corporation (the "Company"), a Delaware corporation was formed on November 17, 1997. The Company was originally a wholly owned subsidiary of Excel Realty Trust, Inc. ("Excel"), a Maryland corporation now known as New Plan Excel Realty Trust, Inc. On March 31, 1998, Excel effected a spin-off of the Company through a special dividend to the holders of common stock of Excel of all of the outstanding common stock of the Company held by Excel (the "Spin-off"). Upon completion of the Spin-off, the Company ceased to be a wholly owned subsidiary of Excel and began operating as an independent public real estate operating company.

Restatement of Financial Results

The Company restated the financial statements as of and for the year ended December 31, 2000 to reflect a non-cash charge of $19.0 million related to an impairment of its equity method investment in Mace Security International, Inc. ("MACE") which is considered other than temporary. This impairment was recorded based on MACE's closing stock price at December 29, 2000 of $0.906 per share, compared to the carrying value of the investment. A tax benefit of $2.8 million was also recorded related to the impairment of the investment.

(in thousands)	As previously reported		As restated
As of March 31, 2001:
Total assets	$	340,716	$	324,501
Total liabilities		146,198		146,198
Total stockholders' equity		193,923		177,708
As of December 31, 2000:
Total assets	$	324,584	$	308,369
Total liabilities		128,883		128,883
Total stockholders' equity		194,598		178,383

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and all affiliates in which the Company has an ownership interest greater than 50%. The Company uses the equity method of accounting to account for its investments in which its ownership interest is 50% or less, but in which it has significant influence. The Company accounts for its interest in Price Enterprises, Inc., a Maryland Corporation ("PEI") (Note 2) under the equity

method of accounting however, because the holders of PEI preferred stock, which does not include the Company, have the right to elect a majority of the PEI board of directors.

Investment in Securities

The Company reviews its investments in securities for possible impairment whenever the market value of the securities falls below cost and, in the opinion of the Company, such decline represents an other than temporary impairment. Factors considered in this review include:

•: Duration and extent, as well as reasons for which the market value has been less than cost.
•: Financial condition and near-term prospects of the investee, which includes consideration of proposed transactions known through Board of Directors participation.
•: The ability and intent of the Company to retain its investment for a period of time to allow for a recovery in market value.

When an other than temporary impairment loss on an individual investment is considered to have occurred, the cost basis of the security is written down, and the charge is recorded in earnings.

Real Estate

Certain real estate assets were transferred to the Company from Excel and recorded at Excel's cost basis. Other real estate assets acquired subsequent to the Spin-off were recorded at the Company's cost. Depreciation is computed using the straight-line method over estimated useful lives of 40 years for buildings. The Company expenses as incurred ordinary repairs and maintenance costs, which include building painting, parking lot repairs, etc. The Company capitalizes major replacements and betterments, which include HVAC equipment, roofs, etc., and depreciates them over their estimated useful lives.

The Company assesses its wholly owned properties as well as its investments in partnerships individually for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. Recoverability of property to be held and used is measured by comparing the carrying amount of the property to future undiscounted net cash flows expected to be generated by the property. If the sum of the expected undiscounted future cash flows is less than the carrying amount of the property, the property is considered to be impaired. If the property is impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property exceeds the fair value of the property.

At March 31, 2001, the Company had $16.1 million of real estate assets under contract to sell in 2001. This sale may not be completed due to uncertainties associated with contract negotiations and buyer due diligence contingencies. There were no other significant assets for sale at December 31, 2000. The Company continues to use its other real estate assets in its operations until it is under contract to sell.

Pre-development Costs

Pre-development costs that are directly related to specific construction projects are capitalized as incurred. The Company expenses these costs to the extent they are unrecoverable or it is determined that the related project will not be pursued.

Management Contracts

Management contracts are recorded at cost and amortized over a period of seven years. At March 31, 2001, the Company had $1.3 million capitalized related to management contracts acquired

when the Company bought TenantFirst, a California corporation, related to the management of eight properties. The properties are not owned by PEI.

Income Taxes

The Company provides for income taxes under the liability method. A current tax asset or liability is recognized for the estimated taxes refundable or payable for the current year. A deferred tax asset or liability is recognized for the estimated future tax effects attributable to carry forwards and to temporary differences between the tax and financial reporting basis of assets and liabilities. The measurement of current and deferred tax assets and liabilities is based on enacted tax laws and rates. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, are not expected to be realized.

Deferred Leasing and Loan Acquisition Costs

Costs incurred in obtaining tenant leases and long-term financing are amortized to other property expense and interest expense, respectively, on the straight-line and effective interest method over the terms of the related leases or debt agreements.

Revenue Recognition

Rental revenues include: (1) minimum annual rentals, adjusted for the straight-line method for recognition of fixed future increases; (2) additional rentals, including recovery of property operating expenses, and certain other expenses which the Company accrues for in the period in which the related expense occurs; and (3) percentage rents which the Company accrues for on the basis of actual sales reported by tenants.

Gain or loss on sale of real estate is recognized when the sales contract is executed, title has passed, payment is received, and the Company no longer has continuing involvement in the asset.

The Company adopted the SEC's Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements effective the fourth quarter of 2000. The adoption of SAB 101 did not have a material effect on the Company's consolidated financial position or results of operations.

Comprehensive Income

In 1999, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting Comprehensive Income." This statement requires that all components of comprehensive income be reported in the financial statements in the period in which they are recognized. The components of comprehensive income for the Company include net income and unrealized gains on investments.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to the consolidated financial statements at December 31, 2000 and for the period ended March 31, 2000, to conform with the current period's presentation.

New Pronouncement

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement No. 133 and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—an Amendment of FASB Statement No. 133. SFAS No. 133 standardizes the accounting for derivative instruments by requiring that all derivatives be recognized as assets and liabilities and measured at fair value. The Company adopted this standard on January 1, 2001 and has determined that the adoption of SFAS No. 133 does not have a material impact on the Company's financial statements.

2. Price Enterprises, Inc.:

In November 1999, the Company completed an exchange offer of $8.50 per share for any and all common shares of PEI, which is operated as a real estate investment trust. The exchange offer consisted of per share consideration for PEI common stock of $4.25 in cash, $2.75 in principal amount of newly issued 9% Convertible Redeemable Subordinated Secured Debentures of the Company due in 2004 (convertible at any time into the Company's common stock at $5.50 per share) and $1.50 in newly issued 10% Senior Redeemable Secured Notes of the Company due in 2004. Approximately, 12.1 million shares of PEI common stock were tendered representing approximately 91% of the outstanding common stock. Below is summarized financial information as of March 31, 2001 and the quarter then ended for PEI (in thousands):

Balance Sheet	March 31, 2001		Income statement:	Three Months Ended March 31, 2001
Real estate, net of accumulated depreciation	$	570,323	Total revenue, including interest income and joint venture income	$	19,765
Other assets		112,497	Operating expenses		(4,444	)

Total assets	$	682,820	General and administrative		(867	)

			Interest expense		(3,398	)
Notes and mortgages payable	$	213,991	Depreciation and amortization		(2,226	)
Accounts payable and other liabilities		4,594	Loss on sale of real estate		(91	)

		218,585	Net income		8,739
8³/4% Series A Preferred stock		353,404	Preferred dividends		(8,358	)
Other stockholders' equity		110,831

Total liabilities and stockholders' equity	$	682,820	Net income available for common shares	$	381

3. Millennia:

The Company has an investment in a joint venture known as Millennia Car Wash, LLC ("Millennia") which owns approximately 3.75 million shares of common stock and 62,500 common stock purchase warrants of Mace Security International ("MACE") and 250,000 common shares of US Plastic Lumber Corporation ("USPL"). The Company's common shares in MACE and USPL are subject to certain sale restrictions. One of the Company's senior officers is a director on the MACE board of directors.

The Company accounts for Millennia's investment in MACE under the equity method of accounting and owned approximately 15% of MACE at March 31, 2001. Based upon the Company's

review of its investment in MACE, the Company determined that an other than temporary impairment in its investment in MACE occurred in the fourth quarter of 2000. The factors considered were the fact that certain pending transactions had not materialized as expected by December 31, 2000, the duration and extent that the market value of the security had been less than cost and other information the Company was aware of.

The Company classifies its investment in USPL as available-for-sale and recognizes changes in the fair value of its investment in USPL in other comprehensive income.

Investment in USPL (in thousands):	March 31 2001			December 31 2000
Cost	$	1,000		$	1,000
Unrealized loss		(797	)		(695	)

Fair value	$	203		$	305

4. Real Estate:

The Company sold a parcel of land during the first quarter of 2001 for $0.5 million and recorded a net gain of $0.1 million.

The Company sold the following properties in the first quarter of 2000:

Location	Date Sold	Sales Price (000's)		Mortgage Transferred (000's)
Middletown, OH(1)	2/00	$	6,709	$	3,726
Terre Haute, IN(1)	2/00		5,762		3,598
San Diego/Rancho Bernardo, CA(1)(2)	2/00		12,381		7,381

(1): Property sold to PEI
(2): Property master leased back to the Company

5. Notes Receivable:

The Company had $45.7 million in notes receivable outstanding at March 31, 2001 related to various development projects. The notes bear interest at 10% to 12% per annum and are secured by the related projects. The notes mature on various dates between 2001 and the earlier of the sale of the related projects, or 2003 to 2004.

6. Notes and Mortgages Payable:

Notes Payable

The Company had the following notes payable outstanding at March 31, 2001 and December 31, 2000 (amounts in thousands):

	March 31 2001		December 31 2000
Revolving $15.0 million credit facility bearing interest at Libor plus 3.75% (8.8% at March 31, 2001) due June 30, 2001. The facility is secured by some of the Company's PEI common shares.	$	13,080	$	11,481
Revolving $40.0 million unsecured line of credit facility with PEI bearing interest at Libor plus 3.75% (8.8% at March 31, 2001) to 12.50% due December 2002.		39,782		25,377
Note payable to The Sol and Helen Price Trust bearing interest at Libor plus 1.50% (6.5% at March 31, 2001) due November 2004. The note is secured by some of the Company's PEI common shares.		9,347		9,347
Note payable outstanding on a $4.7 million facility related to Newport on the Levee, LLC, bearing interest at Prime plus 0.5% (8.5% at March 31, 2001), due March 2002.		4,738		2,106
Other		1,400		750

Total	$	68,347	$	49,061

The Company has a 65% interest in Newport on the Levee, LLC ("Newport") that is developing an entertainment retail project in Newport, KY. In addition to the $4.7 million note in the above table, the City of Newport has issued two series of public improvement bonds. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing 2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. Newport has drawn on $38.9 million of the bonds at March 31, 2001 for construction incurred to date.

The Company has a 50% interest in a limited liability company that owns land in Orlando, FL. The land has a total book basis of $18.5 million at March 31, 2001 and mortgage debt of $8.9 million which is guaranteed by the Company.

The Company also has guaranteed a $15.0 million note payable related to a development project in Scottsdale, AZ and the Company has a note receivable with a participating interest.

In April 2001, the Company borrowed an additional $6.0 million from an individual with interest at 12.5%. Proceeds from this note were used to fund certain development projects and pay-down the line of credit. This note is due in April 2002.

Convertible Debentures

In conjunction with the PEI exchange offer, the Company issued $33.2 million in convertible debentures ("Debentures"). The Debentures bear an interest rate of 9% per annum and are secured by a first priority security interest in common shares of PEI. The holders of the Debentures are entitled at any time before the day prior to the final maturity date, subject to prior redemption, to convert any

Debentures into the Company's common stock at the conversion price of $5.50 per share. The Debentures mature in November 2004.

Senior Notes

In conjunction with the PEI exchange offer, the Company issued $18.1 million in senior notes ("Senior Notes"). The Senior Notes bear an interest rate of 10% per annum and, along with the Debentures, are secured by a first priority security interest in common shares of PEI. The Senior Notes rank equal to future senior indebtedness of the Company and are senior to the Debentures. The Senior Notes mature in November 2004.

Mortgages Payable

The Company had $12.0 million in mortgages payable outstanding at March 31, 2001 secured by real estate. The mortgage debt has an average maturity of 4 years expiring at various dates to 2009. The monthly payment of principal and interest approximates $80,000 bearing an average interest rate of 7.41% at March 31, 2001.

Maturities

The principal payments required to be made on mortgages and notes payable over the next five years are as follows (in thousands):

Year Ended December 31,
2001 (remaining nine months)	$	15,185
2002		50,833
2003		—
2004		60,654
2005		—
Thereafter		5,000

	$	131,672

7. Income Taxes:

At March 31, 2001, the Company had a net deferred tax asset of $7.8 million. The deferred tax asset primarily relates to certain assets written-off for book purposes, but not yet deducted for tax purposes. The remaining portion of the deferred asset relates to timing differences in recognizing revenue and expenses for tax purposes through operations of the Company. No valuation allowance has been provided against the deferred tax asset as the Company believes future taxable income is more likely than not. The provision for income taxes consisted of the following (in thousands):

		Federal			State
*Three months ended March 31, 2001:*
	Current payable	$	—		$	6
	Deferred tax benefit		(388	)		(124	)

	Benefit for income taxes	$	(388	)	$	(118	)

*Three months ended March 31, 2000:*
	Current payable	$	—		$	35
	Deferred tax benefit		(187	)		(72	)

	Benefit for income taxes	$	(187	)	$	(37	)

8. Capital Stock:

Common Shares

In March 2000, $18.0 million of notes payable were converted into 5.1 million shares of the Company's common stock.

9. Earnings Per Share (EPS):

A reconciliation of the numerator and denominator of basic and diluted EPS is provided as follows (in thousands, except per share amounts):

		Three Months Ended March 31
Basic EPS		Three Months Ended March 31
Basic EPS		2001			2000
Numerator:
	Net loss	$	(573	)	$	(373	)

Denominator:
	Weighted average common shares outstanding		61,541			36,893

Earnings Per Share		$	(0.01	)	$	(0.01	)

			Three Months Ended March 31
Diluted EPS			Three Months Ended March 31
Diluted EPS			2001			2000
Numerator:
	Net loss		$	(573	)	$	(373	)

Denominator:
	Weighted average common shares outstanding			61,541			36,893
	Effect of diluted securities:
		Preferred B shares		—			21,281
		Common stock options		—			12
	Deduct diluted securities for net loss			—			(21,293	)

				61,541			36,893

Earnings Per Share			$	(0.01	)	$	(0.01	)

10. Statement of Cash Flows—Supplemental Disclosure:

		Three Months Ended March 31
		2001		2000
Supplemental disclosure:
	Cash paid for interest	$	3.6 million	$	4.1 million
	Net cash paid for income taxes		—		—

In the three months ended March 31, 2001 the Company:

•: Reduced a liability, due to the city of Scottsdale, AZ, of $1.0 million in connection with the sale of a parcel of land

In the three months ended March 31, 2000 the Company:

•: Converted $18.1 million of notes payable into 5.1 million shares of common stock
•: Reduced $14.8 million in mortgage debt which was assumed by PEI in conjunction with three properties sold to PEI, and
•: Assumed $1.2 million in debt in conjunction with real estate construction and acquisitions

11. Segment Reporting:

The Company's primary business segments consist of the Commercial Property Unit, the Development Unit, and the Investment Unit. The Commercial Property Unit manages Company held operating properties and includes its investment in PEI. The Development Unit develops real estate projects and the Business Unit pursues and invests in public and private real estate-related companies and/or their securities. Certain revenues and expenses such as general and administrative not specifically incurred by specific segments, and corporate income taxes have been grouped with "General and Administrative" for presentation purposes.

		Commercial Property Unit		Development Unit		Investment Unit			General and Administrative			Total
*Three months ended March 31, 2001:*
Total revenues		$	934	$	1,613	$	1,090		$	29		$	3,666

Interest			9		16		—			1,974			1,999
Depreciation and amortization			6		65		212			55			338
General and administrative			—		—		2			706			708
Operating expenses			351		163		1,300			—			1,814

Total operating expenses			366		244		1,514			2,735			4,859

Net operating income (loss)			568		1,369		(424	)		(2,706	)		(1,193	)
	Real estate sales		—		114		—			—			114
	Benefit for income taxes		—		—		—			506			506

Net income (loss)		$	568	$	1,483	$	(424	)	$	(2,200	)	$	(573	)

Additions (reductions) to real estate			—		8,813		1,266			—			10,079
Investment in securities and partnerships (Restated)			113,499		—		3,558			—			117,057
Deferred tax asset (Restated)			4,030		—		3,797			—			7,827
Total assets (Restated)		$	115,419	$	138,674	$	45,115		$	25,293		$	324,501

*Three months ended March 31, 2000:*
Total revenues		$	1,268		$	1,235	$	1,012		$	178		$	3,693

Interest			127			—		—			3,224			3,351
Depreciation and amortization			59			143		160			49			411
General and administrative			—			—		14			819			833
Operating expenses			314			222		1,039			—			1,575

Total operating expenses			500			365		1,213			4,092			6,170

Net operating income (loss)			768			870		(201	)		(3,914	)		(2,477	)
	Real estate sales		1,880			—		—			—			1,880
	Benefit for income taxes		—			—		—			224			224

Net income (loss)		$	2,648		$	870	$	(201	)	$	(3,690	)	$	(373	)

Additions (reductions) to real estate			(19,883	)		1,081		—			—			(18,802	)
Investment in securities and partnerships			120,005			—		37,272			—			157,277
Deferred tax asset			5,719			—		1,019			—			6,738
Total assets		$	130,352		$	118,288	$	52,309		$	18,158		$	319,107

12. Related Party Transactions:

At March 31, 2001, the Company had $39.8 million payable to PEI on a $40.0 million note. During the first quarter of 2001 the Company recorded $0.9 million in interest expense related to this note.

The Company offsets the general and administrative costs with reimbursements received monthly from PEI. In the three months ended March 31, 2001, approximately $0.8 million was received as reimbursements.

In February 2001 the Company executed a ground lease with PEI in connection with a development project in Anaheim, CA. The ground lease requires payments of $2.8 million per year and during the first quarter of 2001 the Company recorded $0.5 million in cost related to this lease.

In the first quarter of 2000, three properties were sold to PEI. The Company leases back one of the properties for a quarterly amount of $0.2 million.

In connection with the sale of common stock to certain affiliates in 1998, the Company issued notes receivable of which $9.7 million was outstanding at March 31, 2001. The notes bear interest at a fixed rate of 7%, and are due in March 2003. The total interest receivable at March 31, 2001 from these notes totaled $2.0 million. The notes have been offset against stockholders' equity on the Company's accompanying Consolidated Balance Sheets.

In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights to 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of the above personal debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased.

Additional related party information is discussed in notes 2, 4, 6 and 13.

13. Significant Event:

On March 21, 2001, PEI, PEI Merger Sub, Inc., a Maryland corporation ("Merger Sub"), and the Company entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant to the Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will be merged with and into the Company (the "Merger"), with the Company continuing as a wholly-owned subsidiary of PEI. At the effective time of the Merger, each outstanding share of common stock, will be exchanged for 0.6667 of a share of PEI common stock, and each option to purchase shares of common stock will be exchanged for an option to purchase shares of PEI common stock (with the exercise price and number of shares appropriately adjusted to reflect the exchange ratio). Following the Merger, PEI will continue to operate as a real estate investment trust under the name Price Legacy Corporation ("Price Legacy"). The Merger, which is structured to qualify as a tax-free reorganization, is subject to the approval of the stockholders of both PEI and the Company and other customary closing conditions.

Also on March 21, 2001, PEI entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with Warburg, Pincus Equity Partners, L.P. and certain of its affiliates ("Warburg Pincus"), pursuant to which PEI agreed to sell to Warburg Pincus (a) 17,985,612 shares of a new class of preferred stock, 9% Series B Junior Convertible Redeemable Preferred Stock, par value $0.0001 per share (the "Series B Preferred Stock"), and (b) a warrant (the "Warrant") to purchase an aggregate of 2.5 million shares of Price Legacy common stock at an exercise price of $8.25 per share, for an aggregate purchase price of $100,000,000. The Series B Preferred Stock is junior to the Series A Preferred Stock with respect to dividend, liquidation and other rights, and is convertible under certain conditions into Price Legacy common stock at $5.56 per share after 24 months from the date of issuance. The 9% coupon will be paid in kind with additional shares of Series B Preferred Stock for the first 45 months from issuance. Since the Warburg Pincus investment and the Merger are subject to substantially the same conditions, it is expected that the two transactions will close concurrently (assuming they are both completed).

On April 12, 2001, PEI and Sol Price, a significant stockholder of PEI and the Company through various trusts, agreed to convert an existing note payable to a trust controlled by Sol Price of approximately $9.3 million into 1,681,142 shares of the Series B Preferred Stock and a warrant to purchase 233,679 shares of PEI common stock at an exercise price of $8.25 per share concurrently with the closing of the Merger with the Company and the sale of the Series B Preferred Stock to Warburg Pincus. These transactions are subject to stockholder approval and other customary conditions.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nature of Business

Excel Legacy Corporation ("the Company"), acquires, sells, develops, manages, invests, finances and operates real property and related businesses. The Company performs within three business units: 1) a commercial property unit which manages Company held properties. In this unit the company has its investment in Price Enterprises, Inc., a REIT, ("PEI") 2) a business investment unit where the Company pursues public and private operating real estate-related companies and/or their securities, and 3) a development unit where the Company develops signature projects that have unique locations, original concepts and significant competitive entry barriers.

The following discussion should be read in conjunction with the financial statements and the notes thereto.

Results of Operations (Comparison of the three months ended March 31, 2001 to the three months ended March 31, 2000)

Operating income totaled $1.2 million in the three months ended March 31, 2001 compared to $1.1 million in the three months ended March 31, 2000, an increase of $0.1 million. This increase was related to the Grand Hotel which contributed $1.0 in operating income in 2001 compared to $0.9 million in 2000.

Partnership income and other revenues were approximately $0.3 million in the three months ended March 31, 2001 compared to $1.0 million in the three months ended March 31, 2000, a decrease of $0.7 million. In 2001, the Company recognized $0.3 million from its investment in PEI compared to $0.8 million in 2000. The decrease of $0.5 million was primarily related to properties PEI sold in the fourth quarter of 2000. The proceeds from these sales were not yet reinvested in the first three months of 2001. Also contributing to the decrease in income from PEI were bad debt recoveries in 2000 that related to receivables written off in a previous year. The remaining decrease of $0.2 million in partnership income and other revenues primarily related to income from a joint venture in Westminster, CO in 2000 that was subsequently sold to PEI.

Interest income was $1.3 million in the three months ended March 31, 2001 compared to $0.9 million in the three months ended March 31, 2000, which primarily related to higher average note receivable balances in 2001. In the first quarter of 2001, the average notes receivable balance was $44.0 million compared to an average balance of $28.6 million in the first quarter of 2000.

Rental income was $0.8 million during the three months ended March 31, 2001 compared to $0.6 million in the three months ended March 31, 2000, an increase of $0.2 million. The increase primarily relates to an office building in San Diego, CA which the Company master leases from PEI. The building was completed in December 1999 and during the first three months of 2000 was in the process of being leased.

Interest expense was $2.0 million in the three months ended March 31, 2001 compared to $3.4 million in the three months ended March 31, 2000, a decrease of $1.4 million. In March 2000, $18.0 million of debt was converted into common shares of the Company. Interest related to this debt was $0.4 million less in 2001 than in 2000. Also, of the notes payable outstanding in 2001, the Company capitalized approximately $0.4 million of interest expense related to borrowings directly related to its investment in a joint venture that is constructing an entertainment retail property in Newport, KY. There was no significant interest capitalized in 2000. While the debt related to the development project in Newport, KY increased, average amounts outstanding on the Company's credit facilities and

short-term notes decreased, which contributed an additional $0.5 million of the decrease. An additional decrease of $0.1 million relates to mortgage debt on properties that were sold in 2000.

Other operating expenses were $1.3 million in the three months ended March 31, 2001 compared to $1.0 million in the three months ended March 31, 2000. The increase primarily relates to $0.2 million of expenses incurred by the Company's project located in Daniel's Head, Bermuda. The project opened in May 2001 and incurred certain overhead costs during the first quarter of 2001 that it did not incur in 2000. The Grand Hotel also contributed to $0.1 million of the increase.

Property operating expenses were $0.5 million in the three months ended March 31, 2001 compared to $0.6 million in the three months ended March 31, 2000, a decrease of $0.1 million. The decrease primarily relates to properties sold in 2000.

General and administrative expenses did not significantly change and were $0.7 million in the three months ended March 31, 2001 compared to $0.8 million in the three months ended March 31, 2000.

Depreciation and amortization expense totaled $0.3 million in the three months ended March 31, 2001 compared to $0.4 million in the three months ended March 31, 2000. The decrease of $0.1 million relates to properties sold.

The net gain from real estate sales and write-off of real estate related costs was $0.1 million in the three months ended March 31, 2001 compared to $1.9 million in the three months ended March 31, 2000. In 2001, the Company sold a parcel of land located in Scottsdale, AZ for approximately $0.5 million. In 2000, the gain related to the sale of two properties to PEI for approximately $24.4 million. An additional property was also sold to PEI which the Company leases back from PEI.

Benefit for income taxes was $0.5 million in the three months ended March 31, 2001 compared to a benefit of $0.2 million in the three months ended March 31, 2000 related to loss before taxes of $1.0 million and a loss of $0.6 million, respectively.

The Company calculates Earnings Before Depreciation, Amortization and Deferred Taxes ("EBDADT") as net income, plus depreciation and amortization on real estate and real estate related assets, and deferred income taxes. EBDADT does not represent cash flows from operations as defined by accounting principles generally accepted in the United States of America, and may not be comparable to other similarly titled measures of other companies. The Company believes, however, that to facilitate a clear understanding of its operating results, EBDADT should be examined in conjunction with its net income as reductions for certain items are not meaningful in evaluating income-producing

real estate. The following information is included to show the items included in the Company's EBDADT for the periods ended March 31, 2001 and 2000:

		Three Months Ended March 31,
		2001			2000
Net loss		$	(573	)	$	(373	)
Depreciation and amortization (financial statements)			338			411
Proportionate share of depreciation and amortization from equity investments:
	PEI		2,032			2,090
	Other		133			194
Less depreciation of non-real estate assets			(55	)		(49	)
Deferred tax expense			(512	)		(224	)

EBDADT		$	1,363		$	2,049

Cash flows from
	Operating activities	$	(2,269	)	$	(268	)
	Investing activities		(17,409	)		(6,418	)
	Financing activities		19,283			7,693

The changes in EBDAT in the first quarter of 2001 compared to the first quarter of 2000 are primarily due to the changes in the Company's results of operations discussed previously, the most significant change being the net gain from real estate of $1.8 million recorded in 2000 compared to $0.1 million in 2001.

Liquidity and Capital Resources

Debt borrowings and cash flow from asset sales were the primary sources of capital to fund the Company's development and ongoing operations in the three months ended March 31, 2001. In addition, PEI reimburses the Company for certain general and administrative expenses.

In November 1999, the Company completed an exchange offer for the common stock of PEI. In the exchange offer, the Company acquired approximately 91% of the PEI common stock. PEI stockholders who tendered their shares of the PEI common stock in the exchange offer received from the Company a total of $8.50 consisting of $4.25 in cash, $2.75 in principal amount of the Company's 9.0% Convertible Redeemable Subordinated Secured Debentures ("Debentures") due 2004 and $1.50 in principal amount of the Company's 10.0% Senior Redeemable Secured Notes ("Senior Notes") due 2004 for each share of PEI common stock. After expenses, the Company paid approximately $61.0 million in cash and issued approximately $33.2 million in principal amount of the Debentures and approximately $18.1 million in principal amount of the Senior Notes to acquire the PEI common stock in the exchange offer. Of the cash, $27.4 million was borrowed from The Sol and Helen Price Trust. In the first quarter of 2000, the Company converted $18.1 million of this note payable into 5.1 million shares of common stock.

In accordance with the stockholders agreement entered into in connection with the exchange offer, until a certain amount of PEI preferred stock is repurchased or tendered for, $7.5 million of cash flow, as defined, is required to be reinvested in PEI before dividends can be paid to Legacy's common shareholders. As such, cash available to service the Company's debt incurred to complete the PEI exchange offer is subject to this restriction. The Company does, however, directly benefit from savings in general and administrative expenses from managing the combined companies, and would receive its portion of PEI common stock dividends for cash flows in excess of the $7.5 million. In 2000, PEI cash flows were influenced by four properties sold where replacement properties were not immediately

identified and acquired. As such, cash flows, as defined by the stockholders' agreement, did not exceed $7.5 million.

The Company anticipates that cash flow will be generated from existing properties and from opportunistic trading of assets. The ability to continue to fund its development projects is dependent on the Company's selling of assets, the procurement of equity or joint venture capital, or the ability to raise additional debt. The Company currently has a $40.0 million revolving line of credit due in 2002 with PEI of which $39.8 million was outstanding at March 31, 2001 and a $15.0 million revolving credit facility with Fleet National Bank due in June 2001, of which $13.1 million was outstanding at March 31, 2001. In April 2001, the Company borrowed an additional $6.0 million from an individual with interest at 12.5%. Proceeds from this note were used to fund certain development projects and pay-down the line of credit. This note is due in April 2002. The Company expects to repay the short-term debt from asset sales or debt refinancing.

The Company has two significant projects currently under development, it's hospitality located in Daniel's Head, Bermuda and its retail project in Newport, Kentucky. The project in Bermuda is scheduled to open in May 2001. The estimated remaining capital requirement on the project is less than $1.0 million. The Company anticipates meeting this capital requirement through borrowings from its $15.0 million facility, which had $13.1 million outstanding at March 31, 2001. The Company anticipates that the remaining required equity in its project in Kentucky will be funded by a construction loan which the Company has a commitment from a Bank. The Company may have to stop construction should the Bank decide not to fund the construction loan. The Company has other projects in various stages of pre-development. The total costs of these projects is not known, as their nature, size and certainty are either not yet known or still need to be approved by the Company or various regulatory bodies. The Company spends approximately $0.3 million per month to fund these costs. The Company anticipates continuing to meet these costs both in the short and long terms, from available amounts on its credit facilities and from asset sales. Should the Company not have available funds for these costs, it may postpone further expenditures until funds are available. The Company intends to fund eventual construction costs on these projects through debt, other investors, and through future asset sales. Should the Company not secure the capital when needed for these projects, the Company may sell or delay the projects.

In addition to using proceeds from asset sales to repay debt and fund development projects, the Company has on file a $300.0 million shelf registration statement for the purpose of issuing debt securities, preferred stock, depositary shares, common stock, warrants or rights. Currently, there remain $286.5 million of securities available for issuance under this shelf.

The Company expects to meet its long-term liquidity requirements, such as property acquisitions and development, mortgage debt maturities, and other investment opportunities, through the most advantageous sources of capital available to the Company at the time, which may include operating cash flows from existing properties and the completion of current development projects, the sale of common stock, preferred stock or debt securities through public offerings or private placements, entering into joint venture arrangements with financial partners, the incurrence of indebtedness through secured or unsecured borrowings and the reinvestment of proceeds from the disposition of assets.

The Company owns 3,750,000 shares of common stock of Mace Security International, Inc. ("MACE"), and a warrant to acquire an additional 62,500 shares of Mace common stock at an exercise price of $4.00 per share. In addition, the Company owns 250,000 common shares of US Plastic Lumber Corporation ("USPL"). The Mace and USPL common shares are subject to certain restrictions and not currently available for sale.

In 1999, the City of Newport issued two series of public improvement bonds related to the Newport development project. The Series 2000a tax exempt bonds total $44.2 million and are broken down as follows: (a) $18.7 million maturing 2027 with interest at 8.375%; (b) $20.5 million maturing

2018 with interest at 8.5%; and (c) $5.0 million maturing 2027 with interest at 8.375%. The Series 2000b bonds are taxable and have a par amount of $11.6 million with interest at 11% due 2009. The bonds are guaranteed by Newport, the Company, and the third party developers of the project. As of March 31, 2001 Newport had drawn on $38.9 million of the bonds for construction incurred prior to that date.

The Company also has a 50% interest in a limited liability company that owns land in Orlando, Florida. The land has a remaining land basis at March 31, 2001 of $18.5 million and has mortgage debt of $8.9 million secured by the land and guaranteed by the Company. The Company had $15.0 million of additional guaranteed debt related to a development project in Scottsdale, AZ.

In December 2000, the Company converted 21,281,000 shares of Series B Preferred Stock (the "Preferred B Shares") to 21,281,000 shares of common stock. The Preferred B Shares were convertible into common stock of the Company on a one-for-one basis.

In September 2000, the Company entered into agreements with certain officers to assume $5.1 million in personal debt obligations of the officers in exchange for their rights to 2.05 million shares of Company common stock. The effective price of the transaction was $2.50 per share, tied to the market price on the day of the transaction. The officer debts were entered into in connection with their original share purchase. By assuming these third-party debts, the Company also obtained a first lien on all remaining shares currently held by the officers, which will serve as security for the officers' notes to the Company. The Company paid $4.3 million of this debt in October 2000, upon which the Company recorded 1.71 million shares as repurchased. The Company also purchased shares from unaffiliated sellers at $2.50 per share and higher pursuant to a previously announced share repurchase program.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure affecting its market risk sensitive financial instruments is interest rate risk. The Company's balance sheet contains financial instruments in the form of interest-earning notes receivable and interest-bearing mortgages payable. The Company manages the risk to its cash flow from changes in interest rates by monitoring its variable rate financial instruments. Although the fair value of its financial instruments may be affected by changes in interest rates, the Company typically does not dispose of them prior to maturity. Thus, the primary effect of changes in interest rates would occur to the extent that financial instruments mature and are replaced with others at different interest rates. In addition, the Company owns 3,750,000 common shares of MACE and 250,000 common shares of U.S. Plastic Lumber Corp. ("USPL") whose market value is dependent on the trading prices of the respective security. The Company's investment in MACE common shares has a book value of $3.4 million and a fair value, based upon the closing stock price at March 31, 2001 of $0.688, of $2.6 million. USPL is marked to market each respective reporting period.

At March 31, 2001, the Company had debts totaling $47.4 million in variable interest rates. If interest rates increased 100 basis points, the annual effect of such increase to the Company's financial position and cash flows would be approximately $0.5 million, based on the outstanding balance at March 31, 2001. The actual fluctuation of interest rates is not determinable; accordingly, actual results from interest rate fluctuation could differ.

The following table presents (1) the scheduled principal payments on notes receivable, and (2) the scheduled principal repayments on mortgages payable:over the next five years and thereafter. The table also includes the average interest rates of the financial instruments during each respective year and the fair value of the notes receivable and mortgages payable. The Company determines the fair value of financial instruments through the use of discounted cash flow analysis using current interest rates for (1) notes receivable with terms and credit characteristics similar to its existing portfolio and (2) borrowings under terms similar to its existing mortgages payable. Accordingly, the Company has

determined that the carrying value of its financial instruments at March 31, 2001 approximates fair value.

	Expected Maturity Date (dollar amounts in thousands)
	2001			2002			2003			2004			2005	Thereafter			Total			Fair Value
Notes receivable, including notes from affiliates	$	8,060			—		$	31,705		$	5,935		—		—		$	45,701		$	45,700
Average interest rate		11.70	%		—			12.00	%		12.00	%	—		—			11.94	%
Mortgages and notes payable	$	15,185		$	50,833			—		$	60,654		—	$	5,000		$	131,672		$	131,700
Average interest rate		8.23	%		9.20	%		—			9.16	%	—		8.58	%		9.34	%

Certain Cautionary Statements

Certain statements in this Quarterly Report on Form 10-Q, including, but not limited to, "Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations," contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are not historical facts, but rather reflect current expectations concerning future results and events. The words "believes," "expects," "intends," "plans," "anticipates," "likely," "will" and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond the Company's control that could cause actual results to differ materially from those forecast or anticipated in such forward-looking statements. These factors include, but are not limited to, the Company's development activities, leverage including short term obligations, reliance on major tenants, competition, dependence on regional economic conditions, fluctuations in operating results, integration of acquired businesses, costs of regulatory compliance, dependence on senior management, and possible stock price volatility. These factors are discussed in greater detail under the caption "Certain Cautionary Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, as amended.

PART II—OTHER INFORMATION

ITEM 4. Submission of Matters to a Vote of Security Holders

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a): Exhibits

None

(b): Reports on Form 8-K during the quarter

A Current Report on Form 8-K was filed with the Commission on March 23, 2001 relating to the merger agreement with PEI. The Company did not file any other reports on Form 8-K during the quarter ended March 31, 2001.

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 LEGACY CORPORATION
DATE: July 26, 2001	By:	/s/ GARY B. SABIN GARY B. SABIN President and Chief Executive Officer (Principal Executive Officer)
DATE: July 26, 2001	By:	/s/ JAMES Y. NAKAGAWA JAMES Y. NAKAGAWA Chief Financial Officer (Principal Financial and Accounting Officer)

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ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF LOSS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

PART II—OTHER INFORMATION
SIGNATURES

EXCEL LEGACY CORP 10-Q/A