UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 25, 1995
Date of Earliest Event Reported: April 5, 1995
PRUDENTIAL REALTY TRUST
(Exact name of Registrant as specified in its charter)
Massachusetts 1-8965 22-6400284
(State or other (Commission IRS Employer
jurisdiction) File Number) Identification No.)
Prudential Plaza, Newark, New Jersey 07102
(Address of principal executive offices) (Zip Code)
201-802-4302
(Registrant's Telephone Number, including area code)
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Item 5. Other Events
On April 5, 1995, Richard Osborne, a stockholder of the Trust,
commenced a lawsuit in the Massachusetts Probate Court against the
Trust and all Trustees, seeking to have the Trustees removed for
allegedly engaging in "a pattern of conduct" to waste the Trust's
assets by liquidating the Trust and paying high advisory fees. On
April 14, 1995, Mr. Osborne and another filed another suit, in the
Massachusetts Superior Court, making virtually the same allegations
of breach of fiduciary duty by the Trustees and asking for treble
damages.
In the opinion of the Trust's management, the factual basis for the
two lawsuits is incorrect and all of the claims asserted are lacking
in merit.
Item 7. Financial Statements and Exhibits
c). Exhibits
The following is a list of Exhibits on Form 8-K. The
Registrant will furnish a copy of any exhibit listed below
to any security holder of the Registrant who requires it upon
payment of a fee of 20 cents per page. All Exhibits are
either contained in this Report on Form 8-K or are
incorporated herein by reference.
99.1 Lawsuit dated April 5, 1995, between the Trust and all
Trustees and Richard Osborne and Robert Stern, filed as
part of this report.
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S I G N A T U R E
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Prudential Realty Trust
(Registrant)
Date: April 25, 1995 By: /s/ James W. McCarthy
James W. McCarthy
Vice President, Comptroller
and Principal Accounting
Officer
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COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. PROBATE COURT DEPARTMENT
OF THE TRIAL COURT
DOCKET NO. 95-E-0016
RICHARD M. OSBORNE and
ROBERT G. STERN,
Plaintiffs,
v. FIRST AMENDED
COMPLAINT
PRUDENTIAL REALTY TRUST, a
Massachusetts Business Trust, and
JEFFREY L. DANKER, THOMAS F.
MURRAY, JOSEPH M. SELZER,
RICHARD J. BOYLE, FRANCIS L.
BRYANT, as Trustees of the
Prudential Realty Trust,
Defendants.
COMPLAINT IN EQUITY
Introduction
Plaintiffs Richard M. Osborne, the largest shareholder in
Prudential Realty Trust, a publicly-traded Massachusetts business
trust, and Robert G. Sterns bring this complaint in equity to remove
the trustees of Prudential Realty Trust. The immediate removal of
the Trustees is necessary because the Trustees have engaged in a
systematic course of conduct that is adverse to the interest of, and
detrimental to, the beneficiaries by wasting trust assets and
stating their intention to prematurely liquidate the Trust Estate.
Parties
1. Plaintiff Richard M. Osborne ("Mr. Osborne")is an Ohio
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resident and, both in his own right and as the managing member of a
limited liability company, a shareholder of Prudential Realty Trust.
2. Plaintiff Robert G. Stern ("Mr. Stern") is a Massachusetts
resident and shareholder of Prudential Realty Trust.
3. Defendant Prudential Realty Trust ("Prudential" or
"Trust") is a voluntary association established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated
June 19, 1985. A copy of the Declaration of Trust is attached as
Exhibit A. Prudential maintains an office in Boston, Massachusetts
and has its principal place of business at Prudential Plaza, Newark,
New Jersey. The Trust's place of business, according to paragraph
1.2 of the Trust, is Prudential Center, 4th Floor, Boston, MA 02199.
4. Defendant Jeffrey L. Danker is the President and a trustee
of Prudential. He resides at 231 Oak Ridge Avenue, Summit, New
Jersey.
5. Defendant Joseph M. Selzer is the Vice-President,
Treasurer, Principal Financial Officer and a trustee of Prudential.
He resides at 16 Lombard Drive, West Caldwell, New Jersey.
6. Defendant Richard J. Boyle is a trustee of Prudential who
resides at 83 Druid Hill Road, Summit, New Jersey.
7. Defendant Thomas F. Murray is a trustee of Prudential who
resides at 7 Midland Gardens, Bronxville, New York.
8. Defendant Francis L. Bryant is a trustee of Prudential who
resides at 2 Sturgis Road, Bronxville, New York.
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Jurisdiction and Venue
9. This Court has jurisdiction over this matter pursuant to
G.L. c. 215 section 6 because this is a case and matter in which
equitable relief is sought relative to a Massachusetts business
trust. This Court also has jurisdiction over the matter since
Prudential maintains an office in Massachusetts and the terms of the
Declaration of Trust provide that the rights of all parties and the
effect and construction of every provision of the Declaration of
Trust shall be subject to and construed according to the statutes
and laws of the Commonwealth of Massachusetts.
10. Venue is proper in this Court pursuant to G.L. c. 215 section 8
because Prudential maintains an office in Boston, Suffolk County,
Massachusetts.
The Trust
11. On June 19, 1985, Prudential, a Massachusetts business
trust, was formed pursuant to a Declaration of Trust for the purpose
of investing in real property; it was further desired that the trust
qualify as a real estate investment trust ("REIT") under the REIT
provisions of the U.S. Internal Revenue Code. Shares of the trust
are traded on the New York Stock Exchange. Prudential is managed by
its trustees and the shareholders of Prudential are beneficiaries of
the trust.
12. Prudential owns in trust for its beneficiaries three
properties: two office complexes and an industrial park. These
properties were purchased by the Trust at or around the time of the
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Trust's formation. On information and belief, Prudential paid
between $90 million and $100 million for the three properties.
13. Mr. Osborne, in his own right and as managing member of a
limited liability company, is the beneficial owner of 2,018,500
capital shares of beneficial interest of Prudential and 576,100
income shares of beneficial interest of Prudential. Under the terms
of the Declaration of Trust, income shares of beneficial interest
are entitled to receive dividends and a liquidation preference over
the capital shares of beneficial interest. The plaintiff currently
owns approximately twelve (12%) percent of Prudential's outstanding
shares of beneficial interests.
14. Article 3.2(l) of the Declaration of Trust granted the
trustees the express authority to sell or transfer the Trust Estate
to any person in exchange for the shares of beneficial interest in
Prudential, or to merge or consolidate the Trust with any person.
15. According to the terms of the Declaration of Trust, it was
intended that the trustees would "hold the Trust's investments in
interests in Real Property for a period of approximately 10-1/2
years after the effective date of the Registration Statement and,
after that time, the Trustees would dispose of any remaining assets
of the Trust in an orderly fashion within a period of approximately
18 months in order to achieve a complete liquidation of the Trust by
the end of the quarter in which the twelfth anniversary after the
effective date of the Registration Statement shall fall." On
information and belief, the Registration Statement became effective
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on or about June 19, 1985.
16. However, the Declaration of Trust did not provide for the
automatic liquidation of the Trust. On the contrary, the
Declaration of Trust expressly provided that
The Trust's existence and the maximum holding
period for its investments may be extended beyond
such twelve year period only if (a) (i) at any
time after December 31, 1994, a majority of the
Trustees. . . affirmatively determines that such
extension would be in the best interest of the
Shareholders, taking into consideration the then
prevailing conditions in the relevant real estate
markets, and recommends to the Shareholders a
single specified extension of the aforesaid
twelve year period (not to exceed two years) and
(ii) the holders of a majority of each class of
the Shares then outstanding and entitled to vote
thereon approve such extension or (b) the Trust
is a party to any judicial . . . proceeding . . .
with respect to the Trust, which in the Trustees'
reasonable judgment makes impracticable a final
distribution in liquidation to the Shareholders.
The Trustees' Failure to Act in the
Best Interest of the Beneficiaries
17. During the nearly ten years of the Trust's existence, the
value of its shares and underlying real estate have dropped
precipitously. The capital share trading price has declined from a
high of $2.30 per share on August 30, 1985 to only $0.41 per share
on February 17, 1995. Similarly, the income share trading price
has declined from a high of $8.11 on August 30, 1985 to $4.13 per
share on February 17, 1995. Meanwhile, the appraised value of the
underlying assets has plummeted. On information and belief, the
appraised value in 1985 of the Trust Estate was between $90 million
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and $100 million. In a Form 8-K Report filed on February 15, 1995,
by the Trustees with the Securities and Exchange Commission, the
appraised value of the Trust Estate by the close of 1994 was only
$73.7 million.
18. As the value of the Trust Estate and Prudential's shares
of beneficial interest declined, the Trustees took no significant
actions to halt the slide. The administrative costs of the Trust
Estate were unreasonably high at the same time that occupancy rates
in the properties was low. Moreover, even though it became evident
that the marketability of the shares was being materially harmed by
the two-tiered share structure that was constructed when the real
estate market was rapidly rising, the Trustees failed to collapse
the shares into a single class of stock as other REITs had
successfully done in the early 1990s.
19. Nonetheless, despite Prudential's historically poor
financial performance, there are signs that Prudential is finally
turning around. Modest gains in the value of the Trust Estate and
the price of the shares have been recorded during the last fifteen
months. The February 17, 1995, Form 8-K reveals that the market
value of the Trust Estate increased by 13% during the calendar year
1994. Similar increases have occurred during 1994 and 1995 in the
price of Prudential's capital and income shares.
20. Notwithstanding such a financial turnaround, and in the
face of modest gains and the opportunity to give the beneficiaries -
including the plaintiff - a long-awaited chance to recoup his
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losses, the Trustees have embarked on a course of conduct intent on
liquidating the trust as quickly as possible. During the latter
half of 1994, the Trustees retained the services of J.P. Morgan
Securities, Inc. to solicit bids for the liquidation of the Trust's
assets as contemplated by the Declaration of Trust - even though
such liquidation is not called for under the terms of the
Declaration of Trust for another year.
21. On December 21, 1994, February 21, 1995 and March 16,
1995, Mr. Osborne met with representatives of Prudential to discuss
his investment in Prudential. At those meetings, Mr. Osborne noted
that he believed that Prudential's stock price was undervalued and
that Prudential was dogged by high advisory costs.
22. Because Mr. Osborne believes that the Shareholders can and
should have the opportunity to recoup their investment, Mr. Osborne
proposed to the trustees that Prudential be merged into a new entity
with a single class of common stock. In addition, Mr. Osborne has
proposed that experienced professional management be retained to
manage the Trust Estate on an ongoing basis and, in connection with
this proposal, Mr. Osborne has guaranteed that management expenses
will be reduced by at least 50%, i.e., $400,000. Mr. Osborne's
proposal also has the added advantage of providing a mechanism
through which shareholders who wish to withdraw and liquidate their
investment can do so while the remaining shareholders can continue
to hold their shares.
23. The trustees have rebuffed Mr. Osborne's attempts to
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streamline the structure and management of the Trust Estate. And,
in meetings with the Trustees and their representatives, the
Trustees have indicated that they are not interested in Mr.
Osborne's proposals and that they are not inclined to bring his
proposals to a vote of the shareholders. Indeed, the Trustees have
specifically rejected Mr. Osborne's oral proposal that the parties
enter into a standstill agreement whereby the Trustees would agree
to refrain from disposing of any of the Trust Estate while the
Trustees evaluated Mr. Osborne's proposal.
24. Instead, the Trustees have continued their efforts to
liquidate the Trust Estate at the earliest available dates and, upon
information and belief, Prudential is presently negotiating the
property in Indianapolis.
25. The liquidation of the Trust Estate at this time would
cause the plaintiff and the other beneficiaries significant harm.
At best, there would be a modest premium, if any, over the current
market to the Income stockholders and no payout to the Capital
stockholders. This is because the liquidation value of the assets
of the Trust Estate is significantly lower than it is likely to be
in the coming years. It is thus anticipated that the liquidation
would not be well received in the stock market; the price of the
income shares would be less than half the price paid by the
plaintiff, and the capital shares would be virtually worthless.
COUNT I
(Removal of Trustees Pursuant To G.L. c. 203 section 12)
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26. Plaintiffs reallege and repeat paragraphs 1 through 25 as
if fully restated herein.
27. The Trustees are in direct conflict with the Trust
beneficiaries and by charging excessively high fees and by
attempting to liquidate the Trust's assets, have engaged in and are
continuing to engage in a pattern of conduct designed to waste
Prudential's assets while at the same enriching the Trustees.
Accordingly, the immediate removal of the Trustees is required.
27. The Trustees are not suitable to continue to carry out the
duties of trustee and their continuation in office puts these
interests of the beneficiaries at risk of irreparable harm.
WHEREFORE, Plaintiff requests that the Trustees be removed and
that Court appoint suitable successor trustees.
Dated: April 5, 1995
Respectfully submitted by
counsel for Richard M.
Osborne and Robert G. Stern,
/s/ Philip Y. Brown /s/ Joseph P. Davis III
Philip Y. Brown(BBO #552366) Brian D. Bixby (BBO #044140)
Grant Schwartz & Brown Edwin A. McCabe (BBO #327040)
31 Newbury Street Joseph P. Davis III (BBO #551111)
Boston, Massachusetts 02116 Cuddy Bixby
(617) 421-1800 One Financial Center
Boston, Massachusetts 02116
(617) 348-3600
