SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8965
PRUDENTIAL REALTY TRUST
(Exact name of registrant as specified in its charter)
Massachusetts 22-6400284
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
Prudential Plaza, Newark, New Jersey 07102
(Address of principal executive offices) (Zip code)
201-802-4302
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
Income Shares of Beneficial Interest New York Stock Exchange
Capital Shares of Beneficial Interest New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by 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
<PAGE>
The aggregate market value of the Registrant's outstanding Income
Shares of Beneficial Interest and Capital Shares of Beneficial
Interest (the classes of voting stock) held by non-affiliates is
$48,596,625 and $3,472,594 respectively, based on the last
reported sale price on March 16, 1995.
The number of shares outstanding as of March 16, 1995 was
11,135,000 Income Shares of Beneficial Interest ($.01 par value),
($8.00 stated value) and 11,135,000 Capital Shares of Beneficial
Interest ($.01 par value).
Portions of the Trust's definitive proxy statement for the Annual
Meeting of Shareholders, to be held in 1995, are incorporated by
reference in Part III hereof.
<PAGE>
PRUDENTIAL REALTY TRUST
(Registrant)
INDEX
Item Page
No. No.
Cover Page . . . . . . . . . . . . . . . . . . -
Index . . . . . . . . . . . . . . . . . . . . 1
PART I
1. Business. . . . . . . . . . . . . . . . 2
2. Properties. . . . . . . . . . . . . . . 3
3. Legal Proceedings . . . . . . . . . . . 5
4. Submission of Matters to a Vote of
Shareholders . . . . . . . . . . . . . . 5
PART II
5. Market for the Registrant's Common Stock and Related
Shareholder Matters. . . . . . . . . 5
6. Selected Financial Data . . . . . . . . 6
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations. .. . . . . 6
8. Financial Statements and Supplementary Data 13
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. . . . . . . 13
PART III
10. Trustees and Executive Officers of the
Registrant. . . . . . . . . . . . . . 13
11. Executive Compensation. . . . . . . . . 13
12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . 13
13. Certain Relationships and Related
Transactions . . . . . . . . . . . . 13
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K . . . . . . . . . . . . . . . 14
Exhibit Index. . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . 17
Independent Auditors' Report . . . . . . . . F-2
<PAGE>
PART I
Item 1. Business
Prudential Realty Trust (the "Trust"), a Massachusetts business trust,
was formed pursuant to a Declaration of Trust dated June 19, 1985 and
amended August 20, 1985. Since its inception the Trust has qualified
as a real estate investment trust in accordance with the provision of
the Internal Revenue Code of 1986, as amended (the "Code"). The Trust
has no employees.
The Trust anticipates that it will qualify as a real estate investment
trust under the Code, for the years ended December 31, 1994 and 1993.
The Trust is aware that in years prior to 1993 it did not follow a
procedural requirement of the Code and regulations thereunder regarding
requesting and retaining certain information from large shareholders.
As a result, the status of the Trust as a real estate investment trust
in years prior to 1993 is uncertain even though the Trust believes that
the substantive requirements of the Code were satisfied. The
Prudential Realty Advisors, Inc. (the "Advisor") has agreed to
indemnify the Trust against any resulting taxes and related costs the
Trust may incur. Accordingly, the Trust does not believe that there
will be any adverse effect on its results of operations or financial
condition.
The Trust's business consists of holding equity investments in
income-producing properties in order to provide periodic distributions
of cash flow from operations on the Income Shares of Beneficial
Interest ("Income Shares") with the goal of realizing long-term capital
appreciation for distribution on the Capital Shares of Beneficial
Interest ("Capital Shares"). However, as more fully discussed in Item
7(b), Schedule of Pro Forma Distributable Cash Upon Liquidation, and
based upon historical December 31, 1994 amounts, there would have been
no available distributions to Capital Shareholders, if the Trust was
liquidated on December 31, 1994.
The holders of the Income Shares are entitled, in general, to all
Distributable Cash of the Trust (as defined in the Declaration of
Trust) and, at or prior to the termination of the Trust, to redemption
of such shares up to the stated value of $8.00 per share plus accrued
and unpaid dividends. The holders of the Capital Shares are entitled
to all other shareholder distributions which will, in general, include
capital gains, if any, of the Trust. Dividends on the Capital Shares
may be paid following the recognition of capital gains, if any, by the
Trust. Capital Shareholders are also entitled to participate in the
distribution of assets, if any, upon dissolution of the Trust after
receipt by the Income Shareholders of the stated value of the Income
Shares.
The Trust owns three properties which were purchased in 1985 for a
combined cost of $99.9 million. The three properties are Huntington
Business Campus, located in Melville, New York; Maple Plaza located in
Parsippany, New Jersey; and 19 buildings in Park 100 ("Park 100")
located in Indianapolis, Indiana. No other real estate investments
will be made except those involving the expansion and rehabilitation of
these properties.
<PAGE>
On December 28, 1994, the Board of Trustees engaged J.P. Morgan
Securities, Inc., an investment banking firm, to review and provide
recommendations on the strategic options available to maximize the
value of the Trust to its shareholders as it approaches its scheduled
liquidation date. Subsequent to December 31, 1994, J.P. Morgan
recommended that the Trustees proceed to solicit bids for the shares of
the Trust or its assets, in the form of cash and/or stock. On February
9, 1995, the Board of Trustees accepted J.P. Morgan's and the Advisor's
recommendation and the Trustees approved the engagement of J.P. Morgan
to solicit bids for the Trust assets.
For additional information regarding the Trust's investments,
operations and other significant events see Item 2, Properties, Item 7,
Management's Discussion and Analysis of Financial Condition and Results
of Operations and Item 8, Financial Statements and Supplementary Data.
Item 2. Properties
The Trust owns the following properties:
Maple Plaza, located in Parsippany, Morris County, New Jersey, consists
of two three-story office buildings each containing approximately
146,500 net rentable square feet. The buildings are situated on two
adjacent ten-acre sites located within the Prudential Business Campus
in Parsippany, a New Jersey suburb located approximately 30 miles west
of New York City. The Morris County market consists of approximately
21.9 million square feet of office space, of which approximately 25%
was vacant at December 31, 1994. The Prudential Insurance Company of
America ("The Prudential") completed the development of these buildings
in 1984. At December 31, 1994 the property was 97% occupied. Major
tenants include The Prudential, Royal Indemnity Insurance, AT&T,
Chemical Bank and Summit Equities.
Huntington Business Campus, located in Melville, Long Island, New York,
consists of two single-story, multi-tenanted office buildings which
have a combined net rentable area of approximately 152,900 square feet.
The Huntington Business Campus is located on approximately 13.5 acres
near the intersection of the Long Island Expressway and New York State
Route 110 in Melville, New York. The Melville market contains an
estimated 4.5 million square feet of office space, of which
approximately 16% was vacant at December 31, 1994. Tenant mix in the
area consists of aerospace, corporate and clerical offices. The
Prudential developed and built the Huntington Business Campus in two
phases from 1978 to 1981. Major tenants leasing office space in these
buildings include: AT&T, ABD Sales, Inc., and Prudential Property and
Casualty Insurance Company. At December 31, 1994, the property was 100%
occupied. However, AT&T will be vacating approximately 40,000 square
feet during 1995, which will result in 74% occupancy.
<PAGE>
Park 100, located in Indianapolis, Indiana, consists of nineteen
one-story industrial buildings which have a total net rentable area of
approximately 1,358,600 square feet. The buildings are located within
a complex containing over ninety industrial buildings. The 19
buildings are on ninety-seven acres of land. Park 100 is located
immediately southeast of the intersection of Interstate 465 and West
86th Street in the northwest section of Indianapolis, Indiana. The
Indianapolis market contains an estimated 165 million square feet of
industrial space with a vacancy rate of approximately 5% at December
31, 1994. Prominent tenants located at Park 100 include: Inland
Container, Marathon Electric, Gerber Products, and Handleman Company.
At December 31, 1994, the Trust's properties at Park 100 were
approximately 93% occupied.
Maple Plaza and Huntington Business Campus are suitable for use as
office buildings. Park 100 is suitable for its use as an industrial
park. The Trust owns all the properties in fee interest. The
properties are adequately covered by insurance.
Occupancy rates for the properties for the past five years as of
December 31, were as follows:
<TABLE>
Property 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Maple Plaza 97% 84% 39% 50% 100%
Huntington Business Campus 100 88 84 83 86
Park 100 93 95 95 94 96
</TABLE>
At December 31, 1994, the following tenants occupied more than 10% of
the rentable square footage of each respective property:
Property Tenant Principal Nature of Business
Maple Plaza AT&T Communications
The Prudential Insurance
Huntington AT&T Communications
Business Prudential Property Insurance
Campus & Casualty Co.
The principal business, occupations and professions carried on in, or
from the buildings are as follows:
Property Principal business, occupation and professions
Maple Plaza Executive and general offices; including
insurance, law, communications, and banking
tenants
Huntington Executive and general offices; including
Business insurance, food brokerage and
Campus communications tenants.
<PAGE>
Property Principal business, occupation and professions
Park 100 Warehousing, storage, shipping and light manufacturing
of various materials and products, and executive and
general offices; including medical systems, windows,
printing, containers, electric, plants, and food
products.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Shareholders
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters
The Trust has issued and outstanding two classes of equity securities:
Income Shares and Capital Shares. The principal market on which the
Trust's shares are traded is the New York Stock Exchange. Dividend
information and high and low sale prices, as reported on the New York
Stock Exchange, are as follows:
<TABLE>
Income Shares
1994 1993
Cash Cash
Sale Price Dividend Sale Price Dividend
Quarter Ended High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C>
December 31 $ 4 $3 1/2 $.07 $ 3 3/8 $3 $.04
September 30 4 3 1/2 .06 3 1/2 3 1/8 .04
June 30 3 5/8 3 3/8 .05 3 1/2 3 1/4 .04
March 31 3 5/8 3 1/4 .04 3 1/2 2 3/4 .04
</TABLE>
<TABLE>
Capital Shares
1994 1993
Sale Price Sale Price
Quarter Ended High Low High Low
<S> <C> <C> <C> <C>
December 31 $13/64 $1/8 $13/64 $9/64
September 30 7/32 5/32 13/64 1/8
June 30 7/32 5/32 11/64 7/64
March 31 7/32 1/8 3/16 1/8
</TABLE>
It is the Trust's intention to continue to distribute all of the
Distributable Cash, as defined in the Declaration of Trust, to the
Income Shareholders. Pursuant to the Declaration of Trust, dividends
in respect of the Capital Shares may only be declared following the
recognition of a capital gain, if any, by the Trust. No such capital
gain has been recognized to date and, as a result, no dividends have
been declared on the Capital Shares.
As of March 16, 1995, there were approximately 8,000 and 7,800
shareholders of record of the Trust's Income Shares and Capital Shares,
respectively.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
Year Ended December 31,
1994 1993 1992 1991 1990
(Dollars in thousands, except per share data)
Results of Operations:
<S> <C> <C> <C> <C> <C>
Property revenue $ 11,662 $ 9,691 $9,586 $11,303 $13,391
Income (loss) from
operations (a) 2,509 (16,857) 904 3,342 4,981
Income (loss) from operations
before depreciation and
amortization 6,488 (12,443) 4,849 6,988 9,194
Net income (loss) (a) 197 (18,783) (777) 1,785 3,466
Distributable Cash 3,006 1,782 2,116 3,897 6,486
Per share:
Net income (loss) per
Income Share $ 0.02 $(1.69) $(0.07) $0.16 $ 0.31
Distributable Cash per
Income Share 0.27 0.16 0.19 0.35 0.58
Shareholder Distributions (b):
Distributions declared $ 2,450 $ 1,782 $ 2,227 $ 4,565 $ 7,182
Per share distributions 0.22 0.16 0.20 0.41 0.645
</TABLE>
<TABLE>
Financial Position: December 31,
1994 1993 1992 1991 1990
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Real estate owned, net $71,515 $71,348 $85,984 $85,946 $86,080
Total assets 76,779 74,417 88,560 88,640 88,627
Total liabilities 20,127 15,513 9,090 6,166 3,373
Total shareholders' equity 56,652 58,904 79,469 82,474 85,254
</TABLE>
(a) Net loss for the year ended December 31, 1993 is after the
deduction for impairment loss.
(b) Distributions generated from operations for the quarters ended
December 31 were declared and paid in the following year.
Distributions reported herein are for the year in which they were
declared and paid.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
With respect to the Company's status as a real estate investment
trust, see Item 1, Business, and the footnotes to the financial
statements (Item 8).
Item 7.(a) Liquidity and Capital Resources
The Trust's initial working capital was established upon
capitalization of the Trust and is augmented by cash generated from
operations which may be set aside at the discretion of the Trustees
subject to certain constraints set forth in the Declaration of
Trust. It consists of cash and cash equivalents, accounts
receivable and prepaid expenses less accounts payable and accrued
expenses and amounts payable to the Advisor.
<PAGE>
At December 31, 1994 working capital was $170,018 compared to
($855,758) at December 31, 1993. Loans payable of $16,975,000 at
December 31, 1994 and $13,395,000 at December 31, 1993, are not
considered as a component of working capital as the Trust refinances
the loans payable as they come due using its revolving credit
agreement. The increase in working capital of $1,025,776 was
primarily the result of increased occupancy at Maple Plaza in 1994
versus 1993, and the Trust's decision to increase the reserve for
Distributable Cash.
The Trust's policy is to fund tenant alterations and leasing
commissions utilizing the revolving credit agreement (see notes 4
and 10 to the Financial Statements). Other capital expenditures are
reviewed, and at the discretion of the Trustees, may be funded
entirely from property operations or financed, totally or in part,
under the revolving credit agreement. During the year ended
December 31, 1994, the Trust expended $4,146,605 for capital
expenditures of which $3,675,295 represented tenant alterations and
leasing commissions. A portion of these were financed under the
credit agreement during 1994, with the remainder financed under the
credit agreement in January 1995. The remaining $471,310 of capital
expenditures was funded by working capital and includes
approximately $417,000 for land improvements and exterior building
improvements at Park 100, $29,000 for interior renovations at Maple
Plaza, and $25,000 for land and building improvements at Huntington
Business Campus.
Capital expenditures for the year ended December 31, 1993, totalled
$6,876,676 of which $5,982,966 were for tenant alterations, leasing
commissions and other significant capital expenditures which were
financed under the line of credit. The remaining $893,710 of 1993
capital expenditures was funded by working capital.
Projected capital expenditures for 1995 total approximately
$2,054,000 of which $1,756,000 are expected to be financed under the
revolving credit agreement in accordance with the Trust's policy.
These consist of tenant alterations and leasing commissions. The
actual amount of such expenditures will depend upon the number of
new leases, the needs of the particular tenants and the timing of
lease executions. The remaining $298,000 includes land improvements
and exterior building improvements at Park 100 and Huntington
Business Campus. The Trust has no plans to acquire additional
properties.
Cash provided by operating activities for 1994 was $4,752,472, an
increase of $2,507,249 (112%) from 1993. This was due, in part, to
an increase of $1,560,522 in income before depreciation,
amortization and impairment loss for 1994 versus 1993 as described
under Results of Operations.
In 1994, the Trust paid cash dividends totalling $2,449,700 ($0.22
per Income Share). Of this amount, $445,400 ($0.04 per Income
Share) represented the remainder of Distributable Cash generated
from 1993 operations. In 1993, cash dividends totalled $1,781,600,
($0.16 per Income Share), of which $445,400 ($0.04 per Income Share)
represented the remainder of Distributable Cash from 1992
operations. It is the intent of the Trust to distribute, on an
annual basis, all of the Distributable Cash generated from
operations and to comply with Sections 856 through 860 of the
Internal Revenue Code.
On February 2, 1993 the Trust amended the revolving credit agreement
with First Fidelity Bank, N.A. New Jersey. First Fidelity Bank has
increased the total amount available to the Trust from $10 million
to $20 million for the duration of the Trust (not to extend beyond
August 28, 1999). Under the amendment, the LIBOR and Certificate of
Deposit interest rate options accrue interest at the applicable rate
plus 1%.
<PAGE>
Management anticipates that ongoing operations and the revolving
credit agreement will satisfy the Trust's liquidity needs over the
next 12 months. Loans under the credit agreement mature annually or
quarterly, but each may be extended for additional periods until the
agreement expires. Management anticipates continuing to extend the
maturity of outstanding loans under this agreement.
Item 7.(b) Results of Operations
1994 as compared with 1993
Net income for 1994 was $197,140, an increase of $18,980,461 from
the net loss of $18,783,321 for 1993. This was due primarily to an
impairment loss totalling $16,985,453 relating to the Maple Plaza
property recognized in 1993, as discussed below. The Trust's income
before depreciation, amortization and impairment loss for 1994
increased $1,560,522 (59.6%) from 1993. This is primarily due to
greater income from property operations in 1994, as discussed below.
Income from property operations before depreciation and amortization
and impairment loss for 1994 was $6,488,490 as compared to
$4,542,263 for 1993.
At Maple Plaza, income from property operations before depreciation,
amortization and impairment loss was $2,257,500 as of December 31,
1994, an increase of $1,856,900 (463.5%) from the comparable amount
of $400,600 in 1993. This increase was primarily the result of
higher revenues due to increased leasing activity during late 1993
and 1994. As of December 31, 1994, Maple Plaza was 97% leased as
compared to 84% at December 31, 1993.
While vacancy rates in the Northern New Jersey market declined
during 1994, they still remain at relatively high levels. However,
during 1994, net absorption of space in the Morris County submarket
reached its highest level in the last five years. While the
oversupply of space keeps downward pressure on rents, the lack of
large blocks of quality space, combined with the increased demand
for space as evidenced by the high level of absorption, should lead
to continued improving market conditions during 1995.
At Huntington Business Campus, income from operations before
depreciation and amortization for 1994 was approximately $1,196,000,
a decrease of $136,000 (10.2%) from the comparable amount of
$1,332,000 in 1993. This decrease was primarily due to lower
occupancy levels in early 1994 versus 1993. As of December 31,
1994, Huntington Business Campus was 100% leased as compared to 88%
in 1993. However, AT&T will be vacating approximately 40,000 square
feet during 1995, which will result in occupancy of 74%. No other
leases are scheduled to expire in 1995.
During 1994, conditions improved throughout the Long Island market.
The lack of new development combined with the scarcity of large
blocks of Class A space, have led to strengthening market conditions
for the first time in the last several years. While vacancy rates
remain high, much of the available space is concentrated in the
Class B and C properties. Assuming continued economic growth in
the Long Island economy, conditions during 1995 should continue to
improve.
<PAGE>
At Park 100, income from operations before depreciation and
amortization was $3,037,000 in 1994, an increase of $278,000 (10.1%)
from the comparable amount of $2,759,000 in 1993. During the year,
16 new leases were entered into totalling 85,400 square feet and 16
existing leases were renewed covering 218,900 square feet. Park 100
is 93% leased as of December 31, 1994. In 1995, 36 leases totaling
318,000 square feet, 23.4% of the total rentable area of the
property, are scheduled to expire. The Trust is presently marketing
its vacant space and is discussing renewal terms with the current
tenants.
In December 1994, the Trust became aware of soil contamination at
one of its smaller Park 100 properties. The contamination involves
an underground storage tank. Based on the opinion of a consulting
engineer the Trust has begun remediation proceedings and, depending
on the outcome of future tests, currently estimates the cost of
cleaning the site to range from $100,000 to $150,000. Based on
information currently available, the Trust has recorded a loss
contingency of $100,000 in Park 100's operating expenses for the
year ended December 31, 1994. The Trust is not aware of any other
potential environmental liabilities at any of it's other properties.
Interest income is earned on the investment of excess cash in short-
term securities. Interest income was $42,827 in 1994, an increase
of $25,580 (148%) from the comparable amount of $17,247 in 1993.
This was the result of increased balances invested during 1994 and
higher interest rates in 1994.
Interest expense is related to loans outstanding under the revolving
credit agreement. Interest expense was $843,548 in 1994, an
increase of $354,593 (72.5%) from the comparable amount of $488,955
in 1993. This was the result of increased balances outstanding
under the Trust's revolving credit agreement during 1994 and higher
interest rates in 1994. The outstanding balance at December 31,
1994 was $16,975,000 compared to $13,395,000 at December 31, 1993.
Portfolio management fee and other expenses were $1,510,922 in 1994,
an increase of $32,684 (2.2%) from the comparable amount of
$1,478,238 in 1993.
During 1994, the Trust entered into a total of 23 new leases
totalling 159,900 square feet and renewed or expanded 18 existing
leases covering 233,905 square feet.
The current conditions in the markets that the properties are
located in continue to improve. Although rental rates on new leases
have not increased significantly, leasing activity has increased and
rental concessions to attract new tenants have been reduced. This
has resulted in a higher net income and Distributable Cash for 1994
as compared to 1993.
Annual Appraisal
The Trust's properties are appraised annually by independent real
estate appraisers (members of the Appraisal Institute). The
analysis, opinions and conclusions of the independent real estate
appraisers are subject to general assumptions and limiting
conditions set forth in the appraisal. An appraisal is only an
estimate of value and should not be relied upon as a measure of
realizable value. In 1994, three separate appraisers were utilized:
(1) Pearson Partners, Inc. for Maple Plaza, (2) Marchitelli Barnes &
Company, Inc. for Huntington Business Campus, and (3) US Realty
Consultants, Inc. for Park 100.
<PAGE>
Based on the appraisals conducted as of December 31, 1994 the
appraised value of the Trust's properties was $73,700,000, an
increase of $8,500,000 (13%) from the appraised value of $65,200,000
as of December 31, 1993. This increase is primarily due to higher
occupancy at the office properties. The Trust's properties are
carried at cost, net of allowances for accumulated depreciation and
impairment. The ultimate recovery of the carrying amount of the
properties is dependent on the successful operation and sale of the
properties.
The Advisor monitors the effects of current and expected market
conditions and other factors used in estimating the recovery of the
carrying amount of the properties. Such estimates necessarily
include assumptions, which may include anticipated improvements in
market conditions for real estate, that may or may not occur. The
more significant assumptions involve estimates of: lease absorption
and rental rates; real estate values and rates of return; operating
expenses and capital expenditures; and the expected holding period
prior to sale of the Trust's properties.
Amounts expected to be recoverable from future operations and
ultimate sale were greater than the carrying value of the properties
as of December 31, 1994. As a result, there was no loss on
impairment for the year ended December 31, 1994.
Amounts that were expected to be recoverable from future operations
and ultimate sale were less than the carrying value of the Maple
Plaza property as of December 31, 1993. As a result, the carrying
value of the property was reduced to fair market value as of
December 31, 1993, based on the 1993 appraisal. The effect of this
reduction in carrying value resulted in a loss on impairment of
$16,985,453 which is included in the Statement of Operations for the
year ended December 31, 1993.
The impairment was the result of the effects of the scheduled
liquidation of the Trust between 1996 and 1997. For the year ended
December 31, 1993, the Trust assumed that income from the operations
of Maple Plaza would have been received for only two-to-four more
years.
1993 as compared with 1992
The Trust's income before depreciation, amortization and impairment
loss for 1993 decreased approximately $551,953 or (17.4%) from 1992.
This was primarily due to lower income from property operations in
1993, as discussed below. Income from property operations before
depreciation, amortization and impairment loss for 1993 was
$4,542,263 as compared to $4,849,191 for 1992.
At Maple Plaza, income from operations before depreciation,
amortization and impairment loss was $400,600, a decrease of
$220,400 (35.5%) from the comparable amount of $621,000 in 1992. As
of December 31, 1993, Maple Plaza was 84% leased as compared to 39%
at December 31, 1992. The higher revenues from the increased
leasing activity were offset by the increased operating expenses in
addition to the decline in expense recoveries due to the expiration
of Nabisco's lease in 1992.
At Huntington Business Campus, income from operations before
depreciation and amortization for 1993 was approximately
$1,332,000, an increase of $15,000 (1.1%) from the comparable
amount of $1,317,000 in 1992. As of December 31, 1993, Huntington
Business Campus was 88% leased, as compared to 84% at December 31,
1992.
<PAGE>
At Park 100, income from operations before depreciation and
amortization was $2,759,000 in 1993, a decrease of $200,000 (6.8%)
from the comparable amount of $2,959,000 in 1992. During the
year, 22 new leases were entered into totalling 143,400 square
feet and 27 existing leases were renewed covering 145,600 square
feet. Park 100 was 95% leased as of December 31, 1993.
Interest income was $17,247 in 1993, a decrease of $33,930 (66.2%)
from the comparable amount of $51,177 in 1992. This was the
result of lower short-term interest rates during 1993 in addition
to lower amounts invested.
Interest expense was $488,955 in 1993, an increase of $176,298
(56.4%) from the comparable amount of $312,657 in 1992, despite
lower interest rates in 1993. This was the result of increased
balances outstanding under the Trust's revolving credit agreement
during 1993. The outstanding balance at December 31, 1993 was
$13,395,000 compared to $7,006,000 at December 31, 1992.
Portfolio management fee and other expenses 1993 were $1,478,238
in 1993, an increase of $58,805 (4.1%) from the comparable amount
of $1,419,433 in 1992.
During 1993, the Trust entered into a total of 28 new leases
totalling approximately 228,305 square feet and renewed or
extended 33 existing leases covering 176,102 square feet.
Reconciliation of Net Income (Loss) to Distributable Cash
Management believes that the following reconciliation is useful in
understanding the sources of the dividends available to Income
Shareholders and potential investors and assessing the future cash
flows from the Trust.
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Net income (loss) $ 197,140 $(18,783,321) $(777,326)
Depreciation and amortization 3,979,707 4,414,193 3,945,604
Provision for doubtful accounts,
net of write-offs (5,355) (41,457) 29,881
Net rental concessions earned (278,449) (574,747) (582,974)
Gain on sale of land 0 (24,008) 0
Loss on impairment of property 0 16,985,453 0
Increase in cash reserve (886,593) (194,513) (499,535)
Distributable Cash $ 3,006,450 $ 1,781,600 $2,115,650
Distributable Cash Per
Income Share $ 0.27 $ 0.16 $ 0.19
</TABLE>
Since the Trust is expected to have net income for 1995, the Trust
believes that Distributable Cash will be available during 1995 and
the Trust will continue to pay dividends.
<PAGE>
Schedule of Pro Forma Distributable Cash Upon Liquidation-- Based
on December 31, 1994 Amounts
Upon the decision to liquidate the Trust, the properties will be
sold and the available cash used to settle outstanding
liabilities. The Income Shares will then be redeemed up to their
stated value of $8.00 per share. Any remaining assets, if any, in
excess of such $8.00 per Income Share, will be distributed to the
Capital Shareholders.
The schedule below sets forth the resultant distribution to
shareholders of the Trust as if the Trust were liquidated based on
amounts as of December 31, 1994.
Amounts in
thousands
Gross proceeds on sale of properties . . . . . . .$73,700
Less: Selling commissions and expenses. . . . . . (2,211)
Additional state and local taxes
related to the sale . . . . . . . . . . (523)
Net proceeds upon sale of properties . . . . . . .70,966
Distribution to Income Shareholders of fourth
quarter 1994
Distributable Cash . . . . . . . . . . . . . .(1,002)
Repayment of loans payable at December 31, 1994 . .(16,975)
Settlement of receivables and payables at
December 31, 1994, related to operations:
Accounts receivable. . . . . . . . . . . . . . 486
Accounts payable, accrued expenses, due to advisor
and other liabilities. . . . . . . . . . . .(3,152)
Cash on hand . . . . . . . . . . . . . . . . . . 2,253
Pro Forma cash available upon liquidation. . . . .$ 52,576
Resultant Pro Forma cash (assumes 11,135,000
shares of each class outstanding) Per:
Income Share . . . . . . . . . . . . . . . . . $4.72
Capital Share. . . . . . . . . . . . . . . . . $ -0-
The above schedule assumes that the properties are sold for their
appraised values at December 31, 1994. No assurance can be given
that the properties could have been sold for their appraised
values. Gross sale proceeds are reduced by a provision of 3% of
the gross selling price for estimated commissions and expenses,
plus estimated local transfer taxes and state gross receipts taxes
to arrive at net sale proceeds. The distribution of fourth
quarter Distributable Cash to Income Shareholders represents the
quarterly dividend of $0.09 declared on February 9, 1995 and paid
on March 1, 1995.
<PAGE>
Since the pro forma cash available upon liquidation, based on
historical December 31, 1994 amounts, would not exceed $8.00 per
Income Share, there would be no available distribution to Capital
Shareholders.
Item 7.(c) Effects of Inflation
The Trust has not experienced any significant effects from
inflation during recent years. To the extent that inflation in
future periods may have an adverse impact on property operating
expenses, the Trust has generally structured its leases to require
the tenant to pay some portion of a property's operating expenses.
As a result of these lease provisions, increases due to inflation
generally do not have a significant adverse effect upon the
Trust's operating results. However, since no expenses are
recovered on unrented space, the Trust will be exposed to the
effects of inflation on such space.
Item 8. Financial Statements and Supplementary Data
The response to this Item is submitted in a separate section of
this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Trustees and Executive Officers of the Registrant
The information set forth on pages 2, 3 and 4 of the definitive
proxy statement for the 1994 Annual Meeting of Shareholders
regarding the Trustees and officers of the Trust is incorporated
herein by reference.
Item 11. Executive Compensation
The information set forth on page 4 of the definitive proxy
statement for the 1994 Annual Meeting of Shareholders regarding
executive compensation is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth on pages 1 and 2 of the definitive proxy
statement for the 1994 Annual Meeting of Shareholders regarding
security ownership is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth on pages 4 and 5 of the definitive proxy
statement for the 1994 Annual Meeting of Shareholders regarding
certain relationships and related transactions is incorporated
herein by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) (1) and (2) - The response to this portion of Item 14
is submitted as a separate section of this report.
3. Exhibits
The following is a list of Exhibits to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
The Registrant will furnish a copy of any exhibit listed below to any
security holder of the Registrant who requests it upon payment of a fee
of 20 cents per page. All Exhibits are either contained in this Annual
Report on Form 10-K or are incorporated by reference as indicated below.
3.1 Declaration of Trust, filed as Exhibit 3(a) to
Registration Statement No. 2-98520 and Amendment No. 1
to the Declaration of Trust, filed as Exhibit 3(b) to
Amendment No. 2 to Registration Statement No. 2-98520
and incorporated herein by reference.
3.2 Trustees' Regulations, filed as Exhibit 3(b) to
Registration Statement No. 2-98520 and incorporated
herein by reference.
3.2.1 Amendment to Trustees' Regulations, adopted February 6,
1986, filed as Exhibit 3.2.1 to a report on Form 10-K for
the year ended December 31, 1985 (File No. 1-8965) and
incorporated herein by reference.
4.1 Form of Certificate for Income Shares filed as Exhibit
4(a) and Capital Shares filed as Exhibit 4(b) to
Amendment No. 2 to Registration Statement No. 2-98520
and incorporated herein by reference.
9. None.
10.1 Form of Advisory Agreement between the Registrant and
The Prudential Realty Advisors, Inc., filed as Exhibit
10(a) to Amendment No. 3 to Registration Statement No.
2-98520 and incorporated herein by reference.
10.2 Amendment dated May 14, 1987 to Advisory Agreement
between the Registrant and the Prudential Realty
Advisors, Inc., filed as Exhibit 10.2 to December 31,
1993 Form 10-K (File No. 1-8965) and incorporated herein by
reference.
10.3 Amendment dated May 10, 1993 to Advisory Agreement
between the Registrant and the Prudential Realty
Advisors, Inc., filed as Exhibit 10.3 to December 31,
1993 Form 10-K (File No. 1-8965) and incorporated
herein by reference.
<PAGE>
10.4 Form of Property Management Agreement between the Trust
and Property Management System, Inc. with respect to
Huntington Business Campus filed as Exhibit 10(e) to
Amendment No. 2 to Registration Statement No. 2-98520
and incorporated herein by reference.
10.5 Form of Property Management Agreement between the Trust
and Premisys Real Estate Services, Inc. with respect to
Maple Plaza filed as part of an exhibit to The
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 1-8965) and
incorporated herein by reference.
10.6 Form of Property Management Agreement between the Trust
and PREMISYS Real Estate Services, Inc. with respect to
Park 100 filed as part of an exhibit to The
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (File No. 1-8965) and
incorporated herein by reference.
10.7 Amendment to Property Management Agreement between the
Trust and PREMISYS Real Estate Services, Inc. with
respect to Park 100 filed as Exhibit 10.7 to December
31, 1993 Form 10-K (File No. 1-8965) and incorporated
herein by reference.
10.8 Revolving Credit Agreement dated as of December 18,
1986, between the Trust and First Fidelity Bank N.A.
New Jersey filed as Exhibit 4.2 to December 31, 1986
Form 10-K (File No. 1-8965) and incorporated herein by
reference.
10.9 Amendment dated February 2, 1993 to Revolving Credit
Agreement filed as Exhibit 10.6 to December 31, 1992
Form 10-K (File No. 1-8965) and incorporated herein by
reference.
10.10 Amendment dated June 30, 1993 to Revolving Credit
Agreement filed as Exhibit 10.10 to December 31, 1993
Form 10-K (File No. 1-8965) and incorporated herein by
reference.
10.11 Tax Indemnification Agreement dated March 30, 1994
between Prudential Realty Advisors, Inc., and the Trust
filed as Exhibit 10.11 to December 31, 1993 Form 10-K
(File No. 1-8965) and incorporated herein by reference.
10.12 Engagement letter dated December 28, 1994, between the
Trust and J.P. Morgan & Co., Inc., filed as part of this report.
11. Inapplicable.
12. Inapplicable.
13. Inapplicable.
16. Inapplicable.
18. None.
21. None.
<PAGE>
22. None.
23. Inapplicable.
24. (i) Executed Power of Attorney of Francis L. Bryant,
Jr. filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1985 (File No. 1-8965) and incorporated herein by
reference.
(ii) Executed Power of Attorney of Thomas F. Murray
filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1985 (File No. 1-8965) and
incorporated herein by reference.
(iii) Executed Power of Attorney of Richard J. Boyle
filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-8965) and
incorporated herein by reference.
(iv) Executed Power of Attorney of James W.
McCarthy filed as an exhibit to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 (File No. 1-8965) and
incorporated herein by reference.
27. Inapplicable.
28. None.
(b) Reports on Form 8-K
On June 3, 1994, the Trust filed a Form 8-K to
report the resignation of Mr. Brian J. Strum as President,
Trustee and Chairman of the Board of Trustees, and
incorporated herein by reference.
On June 9, 1994, the Trust filed a Form, 8-K to
report the election by the Unaffiliated Trustees of
Mr. Jeffrey L. Danker as President, Trustee and
Chairman of the Board of Trustees to replace Mr.
Strum, and incorporated herein by reference.
On February 15, 1995, The Trust filed a Form 8-K to
report the Trust's fourth quarter dividend and earnings,
the approved engagement of J.P. Morgan Securities, Inc.
to begin to solicit bids for the Shares of the Trust or its
assets, in the form of cash and/or stock, and the
appraised value of the Trust's properties as of
December 31, 1994.
c) Exhibits - The response to this portion of Item 14
is submitted as a separate section of this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Prudential Realty Trust
Registrant
Date: March 29, 1995
By: /s/Jeffrey L. Danker
Jeffrey L. Danker
President, Trustee and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/Jeffrey L. Danker President, Trustee and
Jeffrey L. Danker Principal Executive Officer March 29, 1995
/s/Joseph M. Selzer Vice President, Trustee,
Joseph M. Selzer Treasurer and Principal
Financial Officer March 29, 1995
* Trustee March 29, 1995
Francis L. Bryant
* Trustee March 29, 1995
Thomas F. Murray
* Trustee March 29, 1995
Richard Boyle
/s/Stephen C. Parker Vice President and
Stephen C. Parker Secretary March 29, 1995
/s/James W. McCarthy Vice President, Comptroller
James W. McCarthy and Principal Accounting
Officer March 29, 1995
* By: /s/Stephen C. Parker
Stephen C. Parker
(Attorney-in-fact)
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1), (2) AND (c)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1994
PRUDENTIAL REALTY TRUST
<PAGE>
Form 10-K-Item 14 (a)(1) and (2)
Prudential Realty Trust
List of Financial Statements and Financial Statement Schedules
The following financial statements of Prudential Realty Trust are
included in
Item 8:
Page
Number
Independent Auditors' Report . . . . . . . . . . . . . . F-2
Financial Statements:
Balance Sheets - - December 31, 1994 and 1993. . . . F-3
Statements of Operations - - Years Ended
December 31, 1994, 1993 and 1992. . . . . . . . . F-4
Statements of Shareholders' Equity - -
Years Ended December 31, 1994, 1993 and 1992. . . F-5
Statements of Cash Flows - -
Years Ended December 31, 1994, 1993 and 1992. . . F-6
Notes to Financial Statements - - December 31, 1994. F-7
Schedules:
II - Valuation and Qualifying Accounts
Years Ended December 31, 1994, 1993 and 1992 . F-16
III - Real Estate Owned and Accumulated Depreciation - -
December 31, 1994. . . . . . . . . . . . . . . F-17
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
DELOITTE & TOUCHE LLP Two Hilton Court
P.O. Box 319
Parsippany, New Jersey 07054-0319
INDEPENDENT AUDITORS' REPORT
To the Trustees and Shareholders of
Prudential Realty Trust
Newark, New Jersey
We have audited the accompanying balance sheets of the Prudential
Realty Trust as of December 31, 1994 and 1993, and the related
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994.
Our audits also included the financial statements schedules listed
in Item 14(a)(2). These financial statements and financial
statement schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by the Trust's management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Prudential
Realty Trust as of December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
/s/Deloitte & Touche, LLP
Deloitte & Touche, LLP
February 23, 1995
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
BALANCE SHEETS
December 31,
1994 1993
ASSETS
<S> <C> <C>
Real estate owned, net (Note 2) . . . . $71,514,788 $71,347,890
Cash and cash equivalents. . . . . . . . . . . 2,253,075 516,908
Accounts receivable (net of
allowance for doubtful accounts of
$11,552 in 1994 and $37,239 in 1993). . . . . 486,148 256,934
Prepaid expenses . . . . . . . . . . . . . . . 83,333 94,405
Deferred rent receivable . . . . . . . . . . . 2,366,718 2,088,269
Deferred financing costs (net of accumulated
amortization of $75,000 in 1994 and . . . . .
$37,500 in 1993). . . . . . . . . . . . . . 75,000 112,500
TOTAL ASSETS . . . . . . . . . . . . . . $76,779,062 $74,416,906
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and
accrued expenses (Note 5) $2,376,430 $ 1,489,342
Loans payable (Notes 4 and 11) . . . . . . . .16,975,000 13,395,000
Due to advisor (Note 3). . . . . . . . . . . . 276,108 234,663
Security deposits. . . . . . . . . . . . . . . 403,443 294,295
Other liabilities. . . . . . . . . . . . . . . 96,321 99,286
Total Liabilities. . . . . . . . . . . . . . .20,127,302 15,512,586
Income Shares ($.01 par value,
8.00 stated value) 11,135,000
shares authorized, issued and
outstanding . .89,080,000 89,080,000
Capital Shares ($.01 par value)
11,135,000 shares authorized,
issued and outstanding. . . . . . . . . . 111,350 111,350
Additional paid-in capital . . . . . . . . . .12,879,052 12,879,052
Distributions in excess of net income . . . (45,418,642) (43,166,082)
Total Shareholders' Equity . . . . . 56,651,760 58,904,320
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $76,779,062 $74,416,906
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
STATEMENTS OF OPERATIONS
Year Ended December 31,
1994 1993 1992
REVENUES
<S> <C> <C> <C>
Property revenue . . . . . . . . $ 11,662,252 $9,690,863 $9,585,901
EXPENSES
Operating expenses . . . . . . . 5,173,762 5,148,600 4,736,710
Depreciation and amortization. . 3,979,707 4,414,193 3,945,604
Loss on impairment of property
(Note 2). . . . . . . . . . . 0 16,985,453 0
Total expenses from operations . 9,153,469 26,548,246 8,682,314
Income (loss) from operations . 2,508,783 (16,857,383) 903,587
Interest income. . . . . . . . . 42,827 17,247 51,177
Interest expense . . . . . . . . 843,548 488,955 312,657
Portfolio management fee
and other expenses (Note 3) . . 1,510,922 1,478,238 1,419,433
Gain on sale of land (Note 10) . 0 24,008 0
NET INCOME (LOSS) . . . . . . . $ 197,140 $(18,783,321) $(777,326)
NET INCOME (LOSS) PER INCOME SHARE $ 0.02 $ (1.69) $ (0.07)
Number of shares of each class
outstanding . . . . . . . . . . 11,135,000 11,135,000 11,135,000
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended December 31, 1994, 1993 and 1992
Additional Distributions Total
Income Capital Paid-in in Excess of Shareholders'
Shares Shares Capital Net Income Equity
<S> <C> <C> <C> <C> <C>
Balance,
1/1/92 $89,080,000 $111,350 $12,879,052 $(19,596,835) $82,473,567
Net Loss (777,326) (777,326)
Distributions
to Income Shares (2,227,000) (2,227,000)
Balance,
12/31/92 89,080,000 111,350 12,879,052 (22,601,161) 79,469,241
Net Loss (18,783,321) (18,783,321)
Distributions
to Income Shares (1,781,600) (1,781,600)
Balance,
12/31/93 89,080,000 111,350 12,879,052 (43,166,082) 58,904,320
Net Income 197,140 197,140
Distributions
to Income Shares (2,449,700) (2,449,700)
Balance,
12/31/94 $89,080,000 $111,350 $12,879,052 $(45,418,642) $56,651,760
Number of shares of each class authorized, issued and outstanding:
11,135,000 shares during each of the three years in the period ended
December 31, 1994.
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 197,140 $(18,783,321) $ (777,326)
Adjustments to reconcile
net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 3,979,707 4,414,193 3,945,604
Net rental concessions earned (278,449) (574,747) (582,974)
Gain on sale of land 0 (24,008) 0
Loss on impairment of property 0 16,985,453 0
Changes in assets and liabilities:
(Increase)/Decrease in
accounts receivable,
prepaid expenses and
other assets (180,642) 310,008 (74,532)
Increase/(Decrease) in
accounts payable and
accrued expenses, due
to advisor, security
deposits and other
liabilities 1,034,716 (82,355) 257,205
Net cash provided by operating
activities 4,752,472 2,245,223 2,767,977
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate owned (4,146,605) (6,876,676) (3,983,650)
Proceeds on condemnation 0 252,517 0
Net cash used in investing activities (4,146,605) (6,624,159) (3,983,650)
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown on credit agreement 12,443,000 14,110,000 8,438,000
Repayment of credit agreement (8,863,000) (7,721,000) (5,771,000)
Distributions to Income Shareholders (2,449,700) (1,781,600) (2,227,000)
Net cash provided by financing
activities 1,130,300 4,607,400 440,000
Net increase/(decrease) in cash and
cash equivalents 1,736,167 228,464 (775,673)
Cash and cash equivalents -
beginning of year 516,908 288,444 1,064,117
CASH AND CASH EQUIVALENTS -
END OF YEAR $ 2,253,075 $ 516,908 $ 288,444
Supplemental Information:
Interest paid $ 715,395 $ 397,470 $ 308,002
Taxes paid, state $ 57,079 $ 104,371 $ 125,218
<FN>
See Notes to Financial Statements.
</TABLE>
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1 - DESCRIPTION OF TRUST AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Trust - Prudential Realty Trust (the "Trust"), a
Massachusetts business trust, was formed pursuant to a Declaration of
Trust dated June 19, 1985 to acquire income producing real estate
properties. The Trust intends to hold these properties for a period of
approximately 10 1/2 years from the date of formation. After that
time, it will dispose of any remaining properties in an orderly fashion
within a period of approximately 18 months. Therefore, the Trust is
self-liquidating. This holding period may be extended by up to two
years if recommended by a majority of the Trustees, including a
majority of the Unaffiliated Trustees, and approved by the holders of a
majority of each class of Shares outstanding.
See Footnote 11 for Subsequent Events.
The Trust sold 11,115,000 Units in an initial public offering resulting
in proceeds to the Trust of $102,813,750 net of underwriting discounts
and commissions, before deducting offering expenses of $943,348. Prior
to the offering the Trust sold 20,000 Units to The Prudential Realty
Advisors, Inc. (the "Advisor"), a wholly-owned indirect subsidiary of
The Prudential Insurance Company of America ("The Prudential"). Each
Unit then separated into one Income Share of Beneficial Interest
("Income Shares") ($.01 par value; $8.00 stated value) and one Capital
Share of Beneficial Interest ("Capital Shares") ($.01 par value), which
are separately transferable. Since the Trust will not issue any
additional Income Shares or Capital Shares it is a closed-end trust.
The holders of the Income Shares are entitled, in general, to all
Distributable Cash of the Trust (as defined in the Declaration of
Trust) and, at or prior to the termination of the Trust, to redemption
of such shares up to the stated value of $8.00 per share plus accrued
and unpaid dividends. The holders of the Capital Shares are entitled
to all other shareholder distributions which will, in general, include
capital gains of the Trust. Dividends on the Capital Shares may be
paid following the recognition of capital gains by the Trust. Capital
Shareholders are also entitled to participate in the distribution of
assets, if any, upon dissolution of the Trust after receipt by the
Income Shareholders of the stated value of the Income Shares.
Certain reclassifications have been made to the prior years financial
statements to conform them to the current year presentation.
The following is a description of the more significant accounting
policies used in preparation of the financial statements:
Cash and Cash Equivalents - Cash equivalents include U.S. Treasury
bills and other securities with original maturities of three months or
less. Securities are valued at amortized cost which, with accrued
interest, approximates market value.
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
Real Estate Owned - Real estate owned by the Trust is carried at cost
less allowances for accumulated depreciation and impairment and
includes land; land improvements; building improvements; furniture,
fixtures and equipment; tenant alterations and leasing commissions.
The Trust will capitalize any asset
that extends a property's useful life and/or substantially increases
its value. Tenant alterations represent the cost of constructing or
finishing tenant space under the terms of a lease for that space.
Leasing commissions represent payments made to the leasing agent as
compensation for the negotiation and consummation of a lease.
Depreciation - Depreciation expense on real estate owned is computed
using the straight-line method over 40 years for buildings and shorter
periods (generally five years to 20 years) for certain other
improvements. Tenant alterations and leasing commissions are amortized
over the terms of the respective leases.
Revenue Recognition - Revenue from tenant operating leases, which
provide for rental concessions and scheduled rental increases, is
recognized on a straight-line basis over the terms of the respective
leases.
Taxes - The Trust anticipates that it will qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended
(the "Code") , for the years ended December 31, 1994 and 1993. The
Trust is aware that in years prior to 1993 it did not follow a
procedural requirement of the
Code and regulations thereunder regarding requesting and retaining
certain information from large shareholders. As a result, the status
of the Trust as a real estate investment trust in years prior to 1993
is uncertain even though the Trust believes that the substantive
requirements of the Code were satisfied. The Prudential Realty
Advisors, Inc. (the "Advisor") has agreed to indemnify the Trust
against any resulting taxes and related costs the Trust may incur.
Accordingly, the Trust does not believe that there will be any adverse
effect on its results of operations or financial condition.
Since the Trust intends to distribute all of its net taxable income to
its shareholders, and in view of the indemnification agreement referred
to above, no provision has been made for federal income taxes. The
Trust pays applicable state taxes. See notes 3 and 7.
NOTE 2 - REAL ESTATE OWNED
The Trust's real estate investments and the related allowances for
accumulated depreciation and impairment were as follows:
<TABLE>
December 31, 1994 December 31, 1993
<S> <C> <C>
Land $11,503,816 $11,503,816
Buildings and Improvements 94,176,266 93,409,576
Tenant Alterations and
Leasing Commissions 17,352,526 12,892,943
Construction in Progress 1,436,424 2,516,090
Cost of Real Estate Owned 124,469,032 120,322,425
Less Allowances for Accumulated
Depreciation and Impairment 52,954,244 48,974,535
Real Estate Owned $ 71,514,788 $ 71,347,890
</TABLE>
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 2 - REAL ESTATE OWNED cont.
Real estate owned by the Trust is carried at cost less allowances
for accumulated depreciation and impairment. The Trust has a
process in place which compares the carrying amount of the Trust
properties to the sum of future economic benefits expected to be
recovered from the property in the foreseeable future. If the
carrying amount of the property is no longer recoverable through
future economic benefits, an impairment loss exists and a write-
down of the carrying amount of the property is recorded.
Amounts expected to be recoverable from future operations and
ultimate sale based on an inde- pendent appraisal report are
greater than the carrying value of the Trust properties as of
December 31, 1994. As a result, there is no loss on impairment
for the year ended December 31, 1994.
Amounts expected to be recoverable from future operations and
ultimate sale were less than the carrying value of the Maple Plaza
property as of December 31, 1993. As a result, the carrying value
of the property was reduced to fair value as of December 31, 1993,
based on an independent appraisal report. The effect of this
reduction in carrying value resulted in a loss on impairment of
$16,985,453 which is included in the 1993 Statement of Operations.
Maple Plaza consists of two three-story office buildings
containing approximately 146,500 rentable square feet each. The
property is located in Parsippany, New Jersey, approximately 30
miles west of New York City.
The impairment was the result of the effects of the scheduled
liquidation of the Trust between 1996 and 1997. For the year
ended December 31, 1993, the Trust assumed that income from the
operations of Maple Plaza would have been received for only two-
to-four more years.
The oversupply of office space in the market had resulted in
rental rates on new office leases which were generally lower than
those on the expiring leases. Increased rental concessions and
allowances for tenant alterations had also been necessary to
attract and retain tenants. Finally, the increased risk of
holding real estate in such a market had raised the rates of
return demanded by potential buyers. This lowered the amount
expected to be recoverable from the ultimate sale of the property.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Advisor, an affiliate of The Prudential, has entered into an
agreement to act as advisor to the Trust. The Advisor received
initial fees of $1,093,000 in connection with the organization of
the Trust and the Trust's acquisition of the properties. In
addition, the Advisor receives a portfolio management fee based on
Average Invested Assets of the Trust (as defined in the Trust's
Prospectus), an incentive disposition fee equal to 5% of the gain
on the sale of properties, and a selling commission equal to 2% of
the gross sales price on the sale of properties for which the
Advisor acts as broker. The agreement is subject to annual review
by the unaffiliated Trustees. The annual portfolio management fee
is 1.25% of Average Invested Assets for the year ended December
31, 1992 and thereafter.
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 3 - RELATED PARTY TRANSACTIONS cont.
Refer to Note 1, Taxes, regarding an indemnification agreement the
Advisor has provided to the Trust.
Transactions between the Trust and its affiliates for the years
ended December 31, 1994, 1993 and 1992 are summarized below.
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Fees incurred for portfolio management
and other advisory services provided
by The Prudential Realty Advisors, Inc. $ 951,054 $887,200 $861,970
Fees incurred for property management,
construction management and leasing
services by Premisys Real Estate
Services, Inc. 506,645 538,747 437,247
Rental revenue from space leased to
various affiliates, excluding expense
recoveries 1,368,226 1,146,742 1,175,559
</TABLE>
NOTE 4 - REVOLVING CREDIT AGREEMENT
On February 2, 1993, the Trust amended its revolving credit
agreement with First Fidelity Bank, N.A. New Jersey, increasing
the total amount available to the Trust to $20 million. The
proceeds of the loan may be drawn upon as needed, and are used for
tenant alterations, leasing commissions and certain other capital
expenditures.
The aggregate unpaid principal balance will become due on August
28, 1997, or if the duration of the Trust is extended, August 28,
1999. Individual loans may be extended each year until the
expiration of the agreement. Interest accrues at an annual rate
of either the bank's base rate, the LIBOR rate plus 1%, or the
bank's Certificate of Deposit rate plus 1%. The Trust determines
the interest rate option at the inception of each loan. As of
December 31, 1994, $3,025,000 was available under the agreement.
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS --CONTINUED
DECEMBER 31, 1994
NOTE 4 - REVOLVING CREDIT AGREEMENT cont.
At December 31, 1994, sixteen credit notes were outstanding under
this agreement:
<TABLE>
Annual Interest
Due Date Rate Amount
<S> <C> <C>
January 13, 1995 4.7500% $1,000,000
January 14, 1995 4.7500 1,000,000
January 16, 1995 4.7500 1,829,000
January 18, 1995 4.7500 1,000,000
January 18, 1995 4.7500 1,000,000
January 18, 1995 4.7500 1,000,000
January 18, 1995 5.7500 146,000
April 13, 1995 6.0625 1,000,000
July 13, 1995 6.8750 2,000,000
July 18, 1995 6.8750 1,000,000
July 18, 1995 6.8750 1,000,000
October 17, 1995 7.3125 1,000,000
October 17, 1995 7.3125 1,000,000
October 17, 1995 7.3125 1,000,000
October 18, 1995 7.3125 1,000,000
October 19, 1995 7.3125 1,000,000
$16,975,000
</TABLE>
The weighted average interest rate at December 31, 1994, 1993 and
1992 was 6.23%, 4.44% and 4.60% respectively. The average amount
outstanding during 1994, 1993 and 1992 was $15,498,000,
$10,085,917 and $6,109,500 respectively, and the weighted average
interest rate during 1994, 1993 and 1992 was 5.44%, 4.85% and
5.12% respectively.
In connection with this agreement, the Trust must comply with
certain covenants and other restrictive provisions related to net
worth, total debt and debt service. The most restrictive of these
requires the Trust show, each quarter, Distributable Cash, as
defined in the declaration of Trust, before debt service on an
annualized basis of not less than 12.5% of the loan outstanding at
the end of the quarter. The Trust must also show, each quarter,
Minimum Tangible Net Worth to be greater than or equal to three
times the aggregate value of the loans outstanding. At December
31, 1994, the Trust was in compliance with all financial covenants
under the loan agreement.
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 5 - ENVIRONMENTAL REMEDIATION LIABILITY
In December 1994, the Trust became aware of soil contamination at
one of its smaller Park 100 properties in Indianapolis, Indiana.
The contamination involves an underground storage tank. Based on
the opinion of a consulting engineer the Trust has begun
remediation proceedings and, depending on the outcome of future
tests, currently estimates the cost of cleaning the site to range
from $100,000 to $150,000. Based on information currently
available, the Trust has recorded a loss contingency of $100,000
in Park 100's operating expenses for the year ended December 31,
1994. The Trust is not aware of any other potential environmental
liabilities at any of its other properties.
NOTE 6 - DISTRIBUTIONS TO SHAREHOLDERS
The Trust distributed cash dividends during the years ended
December 31, 1994, 1993 and 1992 to Income Shareholders of record
as follows:
<TABLE>
Dividend Per
Year Ended: Record Date Payment Date Share
<S> <C> <C> <C>
1994 November 18, 1994 December 1, 1994 $0.07
August 18, 1994 September 1, 1994 0.06
May 20, 1994 June 1, 1994 0.05
February 18, 1994 March 1, 1994 0.04
1993 November 22, 1993 December 7, 1993 $0.04
August 20, 1993 September 7, 1993 0.04
May 20, 1993 June 1, 1993 0.04
February 16, 1993 March 2, 1993 0.04
1992 November 20, 1992 December 8, 1992 $0.05
August 21, 1992 September 8, 1992 0.05
May 22, 1992 June 2, 1992 0.05
February 18, 1992 March 3, 1992 0.05
</TABLE>
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 7 - TAX STATUS OF DISTRIBUTIONS PAID
Distributions to the Income Shareholders for the calendar year
1994 totalled $2,449,700 ($0.22 per Income Share). For federal
income tax purposes, $768,698 (31.4%) was taxed as ordinary income
and $1,681,002 (68.6%) represented a return of capital.
Distributions to the Income Shareholders for the calendar year
1993 totalled $1,781,600 ($0.16 per Income Share), all of which
represented a return of capital. For the calendar year 1992
distributions to Income Shareholders totalled $2,227,000 ($0.20
per Income Share), all of which represented a return of capital.
NOTE 8 - LEASING ACTIVITY
Office space is leased at Maple Plaza and Huntington Business
Campus and office/warehouse space is leased at Park 100 under
operating leases. Initial terms range from 13 months to ten years
for the office space and 12 months to ten years on the
office/warehouse space. Leases provide for base rent plus
reimbursement to the lessor by the lessee of the increase in
certain defined expenses over those expenses in the base rental
period.
AT&T's lease of office space from the Trust accounted for
approximately 15% of total revenue for the year ended December 31,
1994, 10% of total revenue for 1993, and less than 10% of total
revenue for 1992. Rental revenue from Prudential accounted for
approximately 11% of total revenue for the years ended December
31, 1994 and 1993 and less than 10% of total revenue for the year
ended December 31, 1992. Rental revenue from Nabisco Brands' (a
subsidiary of RJR Nabisco), accounted for approximately 12% of the
Trust's total revenue for the year ended December 31, 1992.
Future minimum base rentals to be received from the properties,
during each of the next five years and thereafter, under
noncancellable operating leases in effect at December 31, 1994
were:
<TABLE>
Huntington
Year Ending Business
December 31, Maple Plaza Campus Park 100 Total
<S> <C> <C> <C> <C>
1995 $4,558,309 $1,778,928 $3,981,559 $10,318,796
1996 4,548,709 1,931,424 2,992,329 9,472,462
1997 3,979,402 1,667,860 2,169,687 7,816,949
1998 3,463,395 1,438,258 1,535,014 6,436,667
1999 2,808,726 1,365,111 888,434 5,057,271
Thereafter 3,425,255 3,165,769 559,608 7,150,632
Total $22,783,796 $11,347,350 $12,121,631 $46,252,777
</TABLE>
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 9 - INTERIM FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of selected quarterly financial data for the
years ended December 31, 1994 and 1993.
<TABLE>
(Dollars in thousands, except per share data)
For the quarter ended
3/31/94 6/30/94 9/30/94 12/31/94 Total
<S> <C> <C> <C> <C> <C>
Property revenue $2,738 $2,747 $2,983 $3,194 $11,662
Total expenses from
operations 2,341 1,959 2,289 2,564 9,153
Net income (loss) (146) 241 140 (38) 197
Distributions 445 557 668 779 2,449
Net income (loss) per
Income Share (0.01) 0.02 0.01 0.00 0.02
Distributable Cash per
Income Share 0.05 0.06 0.07 0.07 0.25
</TABLE>
<TABLE>
For the quarter ended
3/31/93 6/30/93 9/30/93 12/31/93 Total
<S> <C> <C> <C> <C> <C>
Property revenue $2,227 $2,325 $2,401 $2,738 $9,691
Total expenses from
operations 2,289 2,250 2,345 19,664 26,548
Net loss (525) (371) (437) (17,450) (18,783)
Distributions 445 445 445 445 1,782
Net loss per Income Share (0.05) (0.03) (0.04) (1.57) (1.69)
Distributable Cash per
Income Share 0.04 0.04 0.04 0.04 0.16
</TABLE>
NOTE 10 - SALE IN LIEU OF CONDEMNATION
In April 1993, the Trust sold land and granted easements to the City
of Indianapolis related to a street-widening and roadway improvement
project at Park 100, in lieu of condemnation. The proceeds amounted
to approximately $253,000.
The sale of land resulted in a net gain of approximately $24,000. The
proceeds for the granting of easements reduced the basis of the
affected land parcels. Since the Trust intends to reinvest the net
proceeds received in capital projects at Park 100, this transaction
does not result in a gain for federal income tax purposes.
<PAGE>
PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1994
NOTE 11 - EVENTS SUBSEQUENT TO DECEMBER 31, 1994
Loans Payable - On January 17, 1995, the Trust repaid $6,975,000 of
the revolving credit notes outstanding at December 31, 1994, with
interest of $258,172 on the entire balance outstanding. The Trust
concurrently borrowed $7,945,000 under the revolving credit agreement
as follows:
Annual
Interest
Due Date Rate Amount
4/13/95 6.60% $1,000,000
4/14/95 6.60% 1,000,000
4/16/95 6.60% 1,829,000
4/18/95 6.60% 4,116,000
The total outstanding loans as of January 17, 1995 were $17,945,000.
Dividend Declaration - On February 9, 1995, the Board of Trustees
declared a dividend of $0.09 per Income Share which was paid on March
1, 1995 to Income Shareholders of record on February 21, 1995.
Engagement of Investment Banker - In January 1995, J.P. Morgan
Securities, Inc. recommended that the Trustees proceed to solicit bids
for the shares of the Trust or its assets, in the form of cash and/or
stock. On February 9, 1995, the Board of Trustees accepted J.P.
Morgan's and the Advisor's recommendation and the Trustees approved
the engagement of J.P. Morgan to solicit bids for the Trust assets.
As discussed in Note 1, Description of Trust, the Trust is self-
liquidating. At such time that the Trustees adopt a plan to liquidate
the assets of the Trust, the accounting process of the Trust will
change to a liquidation basis with the principal effect being that
real estate owned will be carried at its net realizable value. This
method considers the cost to dispose of the assets including selling
commissions, expenses and additional taxes related to the sale.
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
DECEMBER 31, 1994
Balance at Balance at
Beginning of (a) End of
DESCRIPTION Period Additions Deductions Period
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts -
Accounts receivable $37,239 $ - $25,687 $11,552
Year ended December 31, 1993:
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts -
Accounts receivable 80,177 - 42,938 37,239
Allowance for doubtful
accounts - Deferred rent
receivable 50,000 (50,000) - -
Year ended December 31, 1992:
Reserve and allowances
deducted from asset accounts:
Allowance for doubtful
accounts -
Accounts receivable 53,820 105,409 79,052 80,177
Allowance for doubtful
accounts - Deferred rent
receivable - 50,000 - 50,000
(a) Uncollectible accounts written off, net of recoveries.
</TABLE>
<PAGE>
<TABLE>
PRUDENTIAL REALTY TRUST
SCHEDULE III - REAL ESTATE OWNED AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
Costs
Initial Costs to Trust Capitalized
Buildings & Subsequent to
Description Land Improvements Acquisition
<S> <C> <C> <C>
Maple Plaza - Office
Buildings
Parsippany, NJ $ 4,020,139 $42,103,561 $ 9,436,338
Huntington Business
Campus - Office
Buildings
Melville, NY 1,172,592 17,417,492 2,874,901
Park 100 - Industrial/
Office Buildings
Indianapolis, Indiana 6,423,981 28,747,185 8,118,635(d)
$11,616,712 $88,268,238 $20,429,874
</TABLE>
<TABLE>
Gross Amount at Which
Carried at Close of Period (b)
Buildings & Accumulated
Description Land Improvements Total (b)(c) Depreciation
<S> <C> <C> <C> <C>
Maple Plaza - Office
Buildings
Parsippany, NJ $4,020,139 $52,841,328 $ 56,861,467 $ 31,924,370
Huntington Business
Campus - Office
Buildings
Melville, NY 1,172,592 22,025,240 23,197,832 9,551,273
Park 100 - Industrial/
Office Buildings
Indianapolis, Indiana 6,311,085 38,098,645 44,409,733 11,478,601
$11,503,816 $112,965,213 $124,469,032 $52,954,244
</TABLE>
<TABLE>
Life on which
Date of Date Depreciation is
Description Construction Acquired Computed
<S> <C> <C> <C>
Maple Plaza - Office
Buildings
Parsippany, NJ Aug. 1984 Aug. 1985 (a)
Huntington Business
Campus - Office
Buildings
Melville, NY May 1981 Aug. 1985 (a)
Park 100 - Industrial/
Office Buildings
Indianapolis, Indiana July 1980 Aug. 1985 (a)
</TABLE>
(a) Depreciation of real estate is computed using the straight-line method
over 40 years for buildings and shorter periods (generally five years to
20 years) for other improvements.
(b Reconciliation of "Real Estate, Accumulated Depreciation and Loss on
Impairment":
<TABLE>
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Investment in Real Estate
Balance at beginning of year $120,322,425 $113,558,645 $109,574,995
Additions:
Improvements, etc. 4,146,605 6,876,676 3,983,650
Deletions:
Cost of real estate sold 0 112,896 0
Balance at end of year $124,469,030 $120,322,425 $113,558,645
Accumulated Depreciation
Balance at beginning of year $ 48,974,535 $ 27,574,889 $ 23,629,285
Additions:
Depreciation expense 3,979,707 4,414,193 3,945,604
Loss on impairment of property 0 16,985,453 0
Balance at end of year $ 52,954,242 $ 48,974,535 $ 27,574,889
</TABLE>
(c) Represents aggregate cost for Federal income tax purposes.
(d) Net of $112,896 in reduction of costs from sale in lieu of
condemnation.
F-16
JPMorgan
J.P. Morgan Securities, Inc.
60 Wall Street
New York, NY 10260-0060
December 28, 1994
Mr. Joseph M. Selzer
Vice President
Prudential Realty Trust
c/o Prudential Realty Group
751 Broad Street
4th Floor
Newark, NJ 07102
Dear Joe:
This letter outlines our understanding (the "Agreement") that
Prudential Realty Trust ("PRT" or the "Trust") has engaged J.P.
Morgan Securities Inc. ("J.P. Morgan") to act as financial
advisor to PRT with respect to options to maximize shareholder
value as PRT approaches its scheduled liquidation date.
Trustees' Objectives
We understand that PRT is a finite life real estate investment
trust, which, under the terms of its Declaration, is scheduled to
liquidate during the 18-month period ending approximately
September 30, 1997 (unless its term is extended for up to two
years by vote of a majority of the shareholders of each class of
stock). We understand that in order to extend the scheduled
termination date, a majority of the unaffiliated Trustees must
determine that such extension is in the best interests of the
shareholders and must recommend such extension to the
shareholders for their approval. We expect that any course of
action, scheduled liquidation, or extension will be closely
scrutinized by both classes of shareholders whose perspective and
interests may not be perfectly aligned. In this context, we
recognize the concerns of the Trustees in seeking to maximize the
values of all shareholders.
Scope of Assignment
We have structured our assignment as financial advisor to PRT in
two phases. In Phase I, we will evaluate a range of alternatives
and recommend a preferred course of action to best achieve the
objectives of PRT and its Trustees. In Phase II (should it
occur), we would review and, if appropriate, conduct the
transaction(s) and offer an opinion as to fairness of the
transaction(s) to each class of shareholder.
<PAGE>
Phase I
Review Structure and History of PRT
We will begin by studying all relevant information on PRT
including, but not limited to, the Declaration of Trust, original
Prospectus, Advisory Agreement between PRT and The Prudential
Realty Advisors, recent Annual Reports and regulatory filings
including 10Q and 10K reports, current appraisals of the Trust's
properties, and the line of credit with First Fidelity. We will
study the capital structure of the Trust and also review the
history of the Trust's share price performance since inception.
Evaluate Net Asset Value on a Public and Private Market Basis
We will review the current appraisals and, based upon cash flow
projections provided in the appraisals or separately by PRT, we
will evaluate the private market valuation of such assets if sold
on an individual basis, if sold through combinations of certain
assets in smaller pools, and if sold as a complete portfolio.
This analysis will include an evaluation of the depth of demand
in the market for each of these alternatives with consideration
for the types of investors that would be most likely to acquire
assets of this property type. We also plan to visit each of the
properties as further due diligence in formulating our
conclusions.
Although we suspect that a public market valuation is less
appropriate in PRT's context given its finite life, we will also
review the current valuation of PRT in the public market (both
classes of stock) including the identification of comparable
REITs (and classes of stock) with an analysis of relative public
market valuation. We will then be prepared to contrast any
legitimate public market valuations with the private market
values described above.
<PAGE>
Strategies to be Considered
With the objective of maximizing the value to holders of each
class of stock (while minimizing any adverse tax consequences),
both income and capital shares, we will evaluate the following
strategies:
(i) Disposition of assets by September, 1997, through the
following approaches:
Sale of assets individually.
Sale of pools of assets; for instance, selling Park 100 as a
pool to a single buyer.
Sale of the stock of PRT to an investor, either by public
tender or otherwise.
Merger with another public REIT or another entity with an
exchange of shares or other consideration.
Other appropriate alternatives that become evident during our
engagement.
In this context, we will identify REITS and other investors that
might be buyers of assets or shares due to similarities in
geographic focus and property type and will review and evaluate
any proposals that PRT may receive from interested parties.
(ii) Extension of the scheduled termination date. This will
include an evaluation of the current maximum net asset value
derived from all of the scenarios noted above, and based on a
review of the specific assets and competitive markets, an
estimate of the potential for further appreciation in value
assuming that the liquidation date were extended. The range of
options for liquidation at the end of the extension period will
likely be identical to those evaluated above. The conclusions,
however, may differ given the potential for change in the micro
and macro real estate market for each asset, demand and pricing
in the private equity market at large, and demand and pricing in
the public equity markets, which have lately experienced
explosive growth but considerable volatility.
<PAGE>
We will, with the assistance as necessary of the Trust's
attorneys, accountants and other consultants, consider the full
range of regulatory, legal, tax, and reporting implications of
each of the above mentioned strategies.
Process & Timetable
As soon as possible, we will provide you with a detailed list of
documents and other information we require from PRT prior to
commencing Phase I and will also arrange a mutually convenient
time with Richard Flohr for our team to tour each of the
properties. Upon completion of our analysis, we will prepare a
detailed written report outlining our approach to the assignment,
a summary of the information considered, a detailed review of the
full range of alternatives available (including a discussion of
their relative ability to maximize shareholder value) and our
recommended course(s) of action. A complete draft of this report
will be provided to you on January 4, 1995 so that you might
review it in advance of our scheduled meeting on January 6.
Following this meeting, a final report incorporating any
necessary changes or comments will be prepared and provided to
you by January 20, so that you can distribute it to the Trustees
in advance of their scheduled February 9 meeting, at which we
will also be prepared to make a verbal presentation to the
Trustees.
PHASE II
It is difficult to specify our role in this phase given that your
precise needs have not yet been defined. However, depending on
the outcome of Phase I and the extent to which we mutually
determine that J.P. Morgan is the appropriate entity to do so, we
would assist in executing those strategies.
In addition, we anticipate that the Trustees may desire that a
fairness opinion be rendered regardless of the form of the
transaction. Without specifically outlining the tasks we would
perform in such an assignment, we would perform a sufficient
review of the transaction(s) to allow us to provide an opinion as
to fairness to all shareholders of PRT.
<PAGE>
Compensation
PRT shall pay to J.P. Morgan an Advisory Fee of $100,000 for
Phase I of this assignment, payable upon completion of the
assignment when we present our findings and recommendations to
the Board of Trustees. Given the uncertainty at this time as to
the scope of Phase II of the assignment, it is difficult to
precisely determine the appropriate level of compensation for
that phase. Consequently, we would look to reach an agreement
following the completion of Phase I. Conceptually, however, we
would expect to receive a success fee calculated as a percentage
of the value of any disposition(s) and a flat fee for any
fairness opinion provided, with the understanding that 50% of the
Phase I fee would be creditable against these amounts. Some form
of retainer or upfront fee may also be appropriate if the
execution of Phase II takes place over an extended period of
time, again with the understanding that a portion of these fees
would be creditable against any success fees payable for Phase
II. In addition to the above described fees, PRT will reimburse
J.P. Morgan for all reasonable out-of-pocket expenses incurred by
J.P. Morgan in connection with this assignment whether or not (in
the case of Phase II) a transaction is completed, including
without limitation, travel, communication, and reasonable legal
fees and expenses; provided that such expenses shall not exceed
$10,000 without the prior approval of PRT. Notwithstanding the
forgoing, all interaction with Sullivan & Cromwell shall be
coordinated with Steven Parker, and J.P. Morgan shall not engage
independent counsel without prior approval from PRT. The
foregoing limitations, however, shall not apply in any way to any
counsel fees or expenses related to any matter for which J.P.
Morgan seeks indemnity pursuant to the provisions hereof.
Staffing
For the execution of this assignment, J.P. Morgan will establish
a team of qualified individuals from appropriate specialty areas
within the firm and its subsidiaries. From Real Estate, David
Gilbert will be primarily responsible for this assignment. The
team will also include Vice Presidents, Bob Sroka from our M&A
Department, Blake Witherington from Real Estate, and David Walker
from Equity Capital Markets, as well as Eric Brook and other
Associates as appropriate. Jon Zehner, Managing Director and
head of Real Estate, will be actively involved in the analysis
and presentation(s) as well.
<PAGE>
Indemnity
PRT agrees to indemnify and hold harmless J.P. Morgan and its
affiliates, and the respective directors, officers, agents, and
employees of J.P. Morgan and its affiliates and each other entity
or person, if any, controlling J.P. Morgan or any of its
affiliates (J.P. Morgan and each such entity or person being
referred to as an "Indemnified Person") from and against any
losses, claims, demands, damages, or liabilities (or actions or
proceedings in respect thereof) of any kind relating to or
arising out of activities performed or services furnished
pursuant to this Agreement, or J.P. Morgan's role in connection
therewith, and to reimburse J.P. Morgan and any other Indemnified
Person for all expenses (including, without limitation, fees and
reasonable disbursements of counsel) incurred by J.P. Morgan or
any such other Indemnified Person in connection with
investigating, preparing, or defending any investigative,
administrative, judicial, or regulatory proceeding in any
jurisdiction, or any action, suit, or other proceeding in
relation thereto or in connection therewith, whether or not in
connection with pending or threatened litigation to which J.P.
Morgan (or any other Indemnified Person) or PRT or any of its
security holders is a party, in each case as such expenses are
incurred or paid. PRT will not, however, be responsible for any
such losses, actions, claims, demands, damages, liabilities, or
expenses of any Indemnified Person that are determined by final
and nonappealable judgment of a court of competent jurisdiction
to have resulted primarily from actions taken or omitted to be
taken by such Indemnified Person in bad faith or from such
Indemnified Person's negligence or misconduct.
Confidentiality
In the course of its services, J.P. Morgan will have access to
confidential information concerning PRT and its affiliates. J.P.
Morgan agrees that for a period of four years, all such
confidential information will be treated by J.P. Morgan and its
agents and employees as confidential in all respects.
The term "confidential information" shall mean all information,
whether written or oral, which is disclosed by PRT or its
affiliates to J.P. Morgan in connection with its engagement and
which is not in the public domain, but shall not include:
<PAGE>
(a) information which, prior to disclosure to J.P.
Morgan in connection with its engagement, was
already in J.P. Morgan's possession other than on
a confidential basis;
(b) information which is hereby publicly disclosed
other than by J.P. Morgan in violation of this
Agreement;
(c) information which is obtained by J.P. Morgan from
a third party that (i) J.P. Morgan does not know
to have violated, or to have obtained such
information in violation of, any obligation to PRT
or its affiliates with respect to such
information, and (ii) does not require J.P. Morgan
to refrain from disclosing such information; and
(d) information which is required to be disclosed by
J.P. Morgan or its affiliates, agents or employees
under compulsion of law (whether by oral question,
interrogatory, subpoena, civil investigative
demand, or otherwise).
Upon any termination of J.P. Morgan's engagement, J.P. Morgan
further agrees promptly upon PRT's written request (and in no
event later than 14 days thereafter) to return all written and
other material, including copies thereof, submitted to J.P.
Morgan by PRT or its affiliates, it being understood that
notwithstanding the foregoing J.P. Morgan may retain all written
or other material which J.P. Morgan has itself prepared in
connection with its assignment. Notwithstanding the return of any
such material, J.P. Morgan and its agents and employees will continue to
hold in confidence all confidential information during the term of this
Agreement.
<PAGE>
Summary
We are pleased to have been selected to assist you with this assignment
and look forward to working with you and your team. We are confident
that working together, we can devise a financial strategy that will
enable you to achieve maximum value for all your shareholders. We look
forward to meeting with you again shortly to begin this assignment and
please call if you have any comments on this agreement. If the
foregoing correctly sets forth the agreement between PRT and J.P.
Morgan, please sign and return the enclosed copy of this Agreement,
whereupon it shall become our binding agreement to be governed by New
York law.
Sincerely,
/s/David J. Gilbert /s/R. Blake Witherington
David J. Gilbert R. Blake Witherington
Vice President Vice President
Agreed and accepted:
Prudential Realty Trust
By:/s/Joseph M. Selzer
Joseph M. Selzer
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Trust's Income Shareholders (Preferred-Mandatory) are entitled to all
Distributable Cash of the Trust and, at or prior to the termination of the
Trust, to redemption of such shares up to the stated value of $8.00. The
Trust's Capital Shareholders (Common) are entitled to Distributions only after
Distributions to the Income Shareholders.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 2253
<SECURITIES> 0
<RECEIVABLES> 498
<ALLOWANCES> 12
<INVENTORY> 0
<CURRENT-ASSETS> 5264
<PP&E> 124469
<DEPRECIATION> 52954
<TOTAL-ASSETS> 76779
<CURRENT-LIABILITIES> 20127
<BONDS> 0
<COMMON> 111
89080
0
<OTHER-SE> (32540)
<TOTAL-LIABILITY-AND-EQUITY> 76779
<SALES> 11662
<TOTAL-REVENUES> 11662
<CGS> 5174
<TOTAL-COSTS> 5174
<OTHER-EXPENSES> 1511
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 844
<INCOME-PRETAX> 197
<INCOME-TAX> 0
<INCOME-CONTINUING> 197
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
