<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended August 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
--------- ------------
Commission File No. 1-6300
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Organized in Pennsylvania I.R.S. No. 23-6216339
455 Pennsylvania Avenue, Suite 135
Ft. Washington, Pennsylvania 19034
215-542-9250
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
------------------- ------------------------
Certificates of Beneficial Interest American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Not Applicable
----------------
(Title of Class)
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 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> 2
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $136,337,138 as of November 23, 1994 based on the reported
closing sales price of the Trust's Certificates of Beneficial Interest on the
American Stock Exchange on such date.
8,669,848 Certificates of Beneficial Interest were outstanding on November 23,
1994.
Portions of the Registrant's 1994 Annual Report to Shareholders and its
definitive Proxy Statement for its annual meeting of shareholders to be held on
December 15, 1994 are incorporated by reference into Parts, I, II, III, and IV
as set forth herein. Such annual report and proxy statement were filed with the
Securities and Exchange Commission on November 17, 1994.
<PAGE> 3
TABLE OF CONTENTS
PART I
Item 1. Business ...................................................... 1
Item 2. Properties ..................................................... 13
Item 3. Legal Proceedings .............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders ............ 15
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters ........................................... 18
Item 6. Selected Financial Data ........................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 18
Item 8. Financial Statements and Supplementary Data .................... 18
Item 9. Disagreements on Accounting and Financial Disclosure ........... 18
PART III
Item 10. Directors and Executive Officers of the Registrant ............ 19
Item 11. Executive Compensation ........................................ 19
Item 12. Security Ownership of Certain Beneficial Owners and Management. 19
Item 13. Certain Relationships and Related Transactions ................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
<PAGE> 4
Item 1. Business
General
Registrant, Pennsylvania Real Estate Investment Trust, an unincorporated
association in business trust form was formed in Pennsylvania pursuant to a
Trust Agreement dated December 27, 1960 as amended and restated on December 16,
1987. It is a self-administered equity real estate investment trust engaged in
the business of acquiring, managing and holding for current yield and long term
appreciation real estate and interests in real estate directly or through
wholly-owned subsidiaries, partnerships and joint ventures. The Registrant has
elected and conducts its operations in a manner intended to comply with the
requirements for qualification as a real estate investment trust under the Real
Estate Investment Trust Act of 1960. (Sections 856-860 of the Internal Revenue
Code of 1986 (the "Code"). Under the Code, a real estate investment trust which
meets certain requirements is not subject to Federal income tax on the portion
of its taxable income which is distributed to its shareholders provided at least
95% of its real estate investment trust taxable income, excluding any net
capital gain, is so distributed.
Since the beginning of the last fiscal year, the following material events
have occurred:
1. In October 1993, Registrant sold (i) its 100% interest in Village
Shopping Center (356,000 square feet) in Gary, Indiana; 50% interest in The
Commons of Chicago Ridge (287,000 square feet) Chicago Ridge, Illinois; and
(iii) 60% interest in Sheridan Village Shopping Center (280,000 square feet)
Peoria, Illinois. Registrant received net proceeds of $15 million and recorded
gains of $12.4 million. Registrant acquired the Village Shopping Center in 1965,
its interest in The Commons of Chicago Ridge in 1987 and its interest in the
Sheridan Village Shopping Center in 1990.
2. In February 1994, Jonathan B. Weller joined Registrant as its President,
Chief Operating Officer and a Trustee. Sylvan M, Cohen continues as Registrant's
Chairman, Chief Executive Officer and a Trustee. Mr. Weller, 47 years old, had
previously served as Executive Vice President and Director of Eastdil Realty,
Inc., a real estate investment banking firm, responsible for its real estate
investment management activities.
3. In February 1994, Registrant purchased Hidden Lakes Apartments, a 360
unit property in Dayton, Ohio, for a total cost of $12.9 million. The cash to
acquire this property was borrowed from the Registrant's bank lines of credit.
4. In August 1994, Registrant purchased The Palms of Pembroke, a 348 unit
apartment property in Broward County, Florida, for a total cost of $21.5
million. The cash to acquire this property was borrowed from the Registrant's
bank line of credit. (See Registrant's Form 8-K, dated August 1, 1994 and filed
August 15, 1994.)
<PAGE> 5
5. In August 1994, Registrant increased its unsecured bank credit lines by
$25 million to a total of $55 million. The credit lines had an interest rate of
prime and they had a one year renewable term.
6. In November 1994, Registrant obtained a $110 million revolving credit
and acquisition facility. Of the total, $78 million is a 30 month unsecured
revolving credit facility which replaced the $55 million one year credit lines
referred to in paragraph 5 above. The remaining $32 million is a one-year
secured borrowing which was advanced for the acquisition of Boca Palms
Apartments discussed in paragraph 7 below. The credit facilities permit the
Registrant to borrow at its election, at either (i) the prime rate or LIBOR plus
1.85% for the revolving credit facility and (ii) prime rate or the federal
funds effective rate plus 0.5% or LIBOR plus 2% for the secured facility.
7. In November 1994, the Registrant purchased Boca Palms Apartments, a 522
unit apartment community in Palm Beach County, Florida for $32.5 million. The
Registrant anticipates spending an additional $2.1 million for closing costs,
landscape improvements, apartment upgrades and other enhancements over the next
year. (See Registrant's Form 8-K, dated November 10, 1994 and filed November 23,
1994.)
<PAGE> 6
Real Estate Investments
Registrant's principal real estate assets as of August 31, 1994 consisted
of interests in 48 properties, 20 of which are wholly owned (one of which is a
consolidated partnership) and 28 of which are owned by partnerships or joint
ventures (hereinafter referred to as "partnerships"), in which Registrant or its
subsidiaries have equity interests ranging from 25% to 87.5%, only four of which
are less than 50%. Registrant's intent is to invest in assets that provide
opportunity for growth in income and capital appreciation in real terms. During
the fiscal year, equity in income from partnerships was $4,416,000 or
approximately 54.6% of Registrant's net income before gains on sales of
interests in real estate and approximately 21% of Registrant's total net income.
The investment portfolio of the Trust also included 3 notes receivable.
The following table sets forth certain information concerning Registrant's
real estate investments at August 31, 1994.
<TABLE>
<CAPTION>
Real Estate No. of Square Feet or Depreciated
Investments Properties Apartment Units Cost (2)
-------------- ---------- --------------- ----------
<S> <C> <C> <C>
Wholly-Owned and Consolidated Partnership (1)
Apartment Buildings.......... 11 4,238 $92,721,000
Shopping Centers............. 4 517,000 25,660,000
Industrial Properties........ 5 587,000 2,165,000
Partnerships and Joint Ventures
Apartment Buildings.......... 8 2,577 $87,882,000
Shopping Centers............. 15 4,281,000 73,910,000
Industrial Property.......... 1 141,000 448,000
Land......................... 4 115 acres 7,052,000
</TABLE>
(1) Registrant has a 65% "controlling interest" in an apartment building. For
financial statement presentation the partnership is reported on a
consolidated basis with the Registrant.
(2) The amounts shown represent 100% of the depreciated cost of the property
related to the respective partnerships and joint ventures. The ownership
interest of the Registrant in the partnerships and joint ventures is set
forth on pages 8-10 herein.
All of the properties held in partnership form were acquired through or
developed by individuals or entities independent from the Registrant. The
persons presently involved in these properties are hereinafter referred to in
this Form 10-K as "partners." The 29 properties (including the property owned by
the consolidated partnership) involve 18 different partners, 11 of whom held an
interest in only one property and 7 of whom held interests in from 2 to 4
properties.
<PAGE> 7
In 26 of the 29 partnerships, (including a consolidated partnership)
Registrant either received or was entitled to receive a priority distribution of
the cash flow. The priority distribution is based upon Registrant's capital
contribution to the partnership. Registrant generally is not required to make
its capital contribution to the partnership until the permanent financing of the
property is funded or the property is "operational" as defined in the
partnership agreement. In the 3 remaining partnerships, there were no priority
distributions as Registrant's partner made a pro-rata capital contribution.
No trustee or employee of Registrant participates in the ownership or
income from the properties held in partnership form or any other property in
which Registrant has an interest.
Registrant or a wholly-owned subsidiary of Registrant is a general partner
in the ownership of the 29 properties owned by partnerships and its approval
along with that of its partner, except for Registrant's partners at Emerald
Point (a consolidated partnership), is required in decisions involving finance,
sale, or major policies regarding capital improvements and leasing. Usually, an
entity owned or controlled by Registrant's partner is the manager of the
property and collects rents, pays the expenses from the receipts collected and
reports on a monthly basis to Registrant.
As of August 31, 1994, the mortgage indebtedness of the wholly-owned
properties of the Registrant was $44,019,000, including a consolidated
partnership mortgage of $17,659,000 in which the Registrant has a 65% interest.
In addition, Registrant has interests in 19 partnerships which have an aggregate
mortgage indebtedness of $131,002,000, none are subject to an equity type
participation. The mortgage notes bear interest at rates ranging from 7.49% to
9.5% per annum. The liability under each mortgage note is limited to the
particular property except for two loans in the amount of $21,227,000 which are
guaranteed by the partners of the respective partnerships, including the
Registrant. In addition, a bank loan in the amount of $1,409,000 has been
guaranteed by the partners of the partnership, including the Registrant.
General Information
Registrant has invested substantially all of its assets in rental producing
real estate, with an emphasis on shopping centers and apartment complexes and in
U.S. Government obligations. Shopping centers and apartment complexes accounted
for approximately 97% of Registrant's real estate equity investments at cost and
of its revenues for the fiscal year ended August 31, 1994.
No single tenant accounts for more than three percent (3%) of the rental
revenue attributable to the Registrant (including Registrant's share of rental
income from partnerships and joint ventures).
<PAGE> 8
WHOLLY OWNED PROPERTIES
The following chart sets forth the type of property and location, year
acquired, the number of units or square feet, occupancy rate, depreciated cost
and the mortgage balance as of August 31, 1994.
APARTMENT BUILDINGS
<TABLE>
<CAPTION>
Property and Location Year Acquired Units Occupancy Rate (1) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C> <C>
2031 Locust Street
Philadelphia, PA 1961 87 98% $ 826,000 $ 0
Marylander
Baltimore, MD 1962 510 96% 1,467,000 0
Kenwood Gardens
Toledo, OH 1963 504 93% 1,871,000 0
Chateau
Midland, TX 1964 101 98% 637,000 0
Camp Hill Plaza
Camp Hill, PA 1969 300 98% 1,579,000 7,057,000
Lakewood Hills
Harrisburg, PA 1972 562 99% 6,676,000 0
Cobblestone
Pompano Beach, FL 1993 384 98% 12,402,000 9,163,000
Shenandoah
West Palm Beach, FL 1993 220 95% 11,195,000 0
Hidden Lakes (3) 1994 360 92% 12,502,000 0
Dayton, OH
Palms of Pembroke (4)
Pembroke Pines, FL 1994 348 95% 21,768,000 0
----- ---------- ----------
SUB TOTAL 3,376 70,923,000 16,220,000
Consolidated Partnership(5)
- --------------------------
Emerald Point
Virginia Beach, VA 1993 862 91% 21,798,000 17,659,000
----- ----------- -----------
TOTAL 4,238 $92,721,000 $33,879,000
===== =========== ===========
</TABLE>
<PAGE> 9
Wholly Owned Properties (continued)
SHOPPING CENTERS
<TABLE>
<CAPTION>
Property and Location Year Acquired Square Feet Percentage Leased (2) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Crest Plaza
Shopping Center 1964 153,000 96% $ 2,943,000 $ 0
Allentown, PA
Ingleside Center
(Acme Parcel)
Thorndale, PA 1980 41,000 (6) 83% 1,230,000 1,110,000
South Blanding
Village 1986 107,000 98% 8,213,000 0
Jacksonville, FL
Mandarin Corners
Jacksonville, FL 1986 216,000 (7) 97% 13,274,000 9,030,000
------- ---------- ---------
517,000 $25,660,000 $10,140,000
======= =========== ===========
</TABLE>
INDUSTRIAL PROPERTIES
<TABLE>
<CAPTION>
Property and Location Year Acquired Square Feet Percentage Leased (2) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----------- -------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Office and Warehouse
Annandale, VA 1962 332,000 100% $ 1,226,000 $ 0
Warehouse
Pennsauken, NJ 1962 12,000 100% 63,000 0
Warehouse
Allentown, PA 1962 16,000 100% 17,000 0
Warehouse
Pennsauken, NJ 1963 30,000 100% 123,000 0
Warehouse and Plant
Lowell, MA 1963 197,000 100% 736,000 0
------- ------------ ------------
587,000 2,165,000 0
======= ------------ -----------
Total Wholly Owned $120,546,000 $44,019,000
============ ===========
</TABLE>
(1) Occupancy rate is calculated as the percentage of occupied units for all
apartments as of August 31, 1994.
(2) Percentage Leased is calculated as a percentage of total shopping center net
leasable area for which leases were in effect as of August 31, 1994.
(3) Acquired on February 23, 1994.
(4) Acquired on August 1, 1994.
(5) Registrant has control of this partnership and as a result for financial
statement purposes the partnership is consolidated with Registrant.
(6) Acme Markets, which occupied 34,000 square feet, vacated the property but
continued to pay the rent pursuant to its lease which was to expire July,
2000. Registrant, effective August 31, 1994, entered into a lease with
K-Mart to occupy the shopping center and cancelled the Acme lease.
(7) Registrant, in settlement of a partners' obligation acquired the partners'
50% interest in this property on February 1, 1994.
<PAGE> 10
PARTNERSHIPS AND JOINT VENTURES
The following chart sets forth the type of property and location, year
acquired, Registrant's equity interest in amounts shown, number of units, square
feet of building or acres of ground, occupancy rate, percentage leased,
partnerships and joint ventures depreciated cost, partnerships and joint
ventures mortgage balance and Registrant's investment in partnerships and joint
ventures at August 31, 1994.
APARTMENT BUILDINGS
Unconsolidated Partnerships and Joint Ventures
<TABLE>
<CAPTION>
Partnerships
Partnerships and and Joint Registrant's
Registrant's Joint Ventures Ventures Investment in
Property and Year Equity Occupancy Depreciated Mortgage Partnerships and
Location Acquired Interest Units Rate Cost Balance (1) Joint Ventures (2)
- ------------- -------- ------------ ----- ---------- ---------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cambridge Hall
West Chester, PA 1967 50% 232 100% $ 1,227,000 $ 157,000 $ 1,614,000
Fox Run
Warminster, PA 1969 50% 196 100% 1,772,000 3,766,000 (1,129,000)
Will-O-Hill
Reading, PA 1983 50% 190 99% 3,349,000 1,965,000 855,000
Fox Run
Bear, DE 1988 50% 414 96% 20,069,000 15,364,000 1,916,000
Eagle's Nest
Coral Springs, FL 1989 50% 264 98% 20,365,000 16,150,000 2,006,000
Regency Lakeside
Omaha, NE 1990 50% 433 100% 24,908,000 19,369,000 2,007,000
Countrywood
Tampa, FL 1993 50% 536 95% 10,173,000 6,767,000 1,738,000
Windsong
Altamonte Springs, FL 1993 40% 312 95% 6,019,000 3,774,000 924,000
----- ----------- ----------- ----------
2,577 $87,882,000 $67,312,000 $9,931,000
===== =========== =========== ==========
</TABLE>
<PAGE> 11
Partnerships and Joint Ventures (continued)
SHOPPING CENTERS
<TABLE>
<CAPTION>
Partnerships Partnerships
and Joint and Joint Registrant's
Registrant's Ventures Ventures Investment in
Property and Year Equity Percentage Depreciated Mortgage Partnerships and
Location Acquired Interest Square Feet Leased Cost Balance(1) Joint Ventures(2)
- ------------ --------- ------------ ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Park Plaza Shopping
Center 1963 50% 148,000 97% $1,320,000 $ 532,000 $ 417,000
Pinellas Park, FL
Whitehall Mall
Allentown, PA 1964 50% 603,000(3) 98% 6,006,000 0 4,514,000
Punta Gorda Mall
Punta Gorda, FL 1965 25% 105,000 92% 960,000 2,297,000 (336,000)
Ormond Beach Mall
Daytona Beach, FL 1966 25% 101,000 98% 741,000 0 156,000
Palmer Park Mall
Easton, PA 1972 50% 349,000(4) 97% 5,859,000 4,709,000 236,000
Gateway Mall
St. Petersburg, FL 1973 60% 386,000(5) 76% 2,451,000 0 1,735,000
Rio Mall
Rio Grande, NJ 1973 50% 161,000 87% 1,575,000 884,000 514,000
Lehigh Valley Mall
Allentown, PA 1973 50% 1,054,000(6) 99% 18,077,000 22,796,000 (1,882,000)
East Towne Mall
Lancaster, PA 1973 50% 303,000 75% 4,396,000 3,979,000 246,000
Chippewa Mall
Beaver Falls, PA 1979 50% 83,000 67% 1,861,000 1,960,000 (86,000)
Greene Plaza
Waynesburg, PA 1980 50% 117,000 98% 2,739,000 2,474,000 161,000
Ingleside Center
(K-Mart Parcel)
Thorndale, PA 1981 50% 58,000 96% 1,721,000 1,652,000 66,000
Forestville Shopping
Center
Forestville, MD 1983 75% 218,000 92% 6,356,000 2,107,000 3,000,000
Frank's Garden Center
Margate, FL (7) 1987 87.5% 40,000 82% 2,106,000 0 378,000
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Partnerships Partnerships
and Joint and Joint Registrant's
Registrant's Ventures Ventures Investment in
Property and Year Equity Percentage Depreciated Mortgage Partnerships and
Location Acquired Interest Square Feet Leased Cost Balance(1) Joint Ventures(2)
- ------------ --------- ------------ ----------- ---------- ------------ ------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Laurel Mall
Hazelton, PA
1988 40% 555,000 96% 17,742,000 20,300,000 ( 374,000)
--------- ----------- ----------- ----------
4,281,000 $73,910,000 $63,690,000 $7,745,000
========= =========== =========== ==========
INDUSTRIAL PROPERTY
Warehouse and Plant
Ft. Washington, PA 1962 50% 141,000 100% $ 448,000 $ 0 $ 49,000
--------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
LAND Partnerships Partnerships
and Joint and Joint Registrant's
Registrant's Ventures Ventures Investment in
Property and Year Equity Depreciated Mortgage Partnerships and
Location Acquired Interest Acres Cost Balance Joint Ventures (2)
- ------------ -------- --------- ----- ------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Rancocas, NJ 1971 75% 54 $ 646,000 $ 0 ($1,248,000)
Elizabethtown, PA 1972 50% 22 279,000 0 138,000
Bucks County, PA 1985 50% 25 2,607,000 0 ( 927,000)
Coral Springs, FL 1990 50% 14 3,520,000 0 ( 492,000)
--- ------------ ---------- -----------
115 7,052,000 0 ( 2,529,000)
--- ------------ ---------- -----------
Other 29,000
------------
Total Partnerships and Joint Ventures $169,292,000 $131,002,000 $15,225,000
============ ============ ===========
</TABLE>
(1) Some partnerships and joint ventures have incurred non-mortgage indebtedness
in connection with operations.
(2) These investments, which represent 25%-87.5% non controlling ownership
interests, are recorded initially at Registrant's cost and subsequently
adjusted for the Registrant's net equity in income and cash contributions
and distributions.
(3) Whitehall Mall includes 82,000 square feet occupied by a department store
tenant which leases the ground and owns the building.
(4) Palmer Park Mall includes 82,000 square feet occupied and owned by a
department store.
(5) Gateway Mall includes 60,000 square feet occupied and owned by a department
store.
(6) Lehigh Valley Mall includes 565,000 square feet occupied and owned by
department stores which either own or lease the ground upon which their
stores are located.
(7) Frank's Garden Center which had occupied 18,800 square feet, vacated the
property but continues to pay rent until its lease term expires December
2006.
<PAGE> 13
Balance
Notes Receivable August 31, 1994
- ---------------- ---------------
Samuel Lauter, (1) $559,600
Donald Cafiero, (1) 568,000
Charles A. Lotz, Jr., Jacksonville, Fl.(2) 521,100
----------
$1,648,700
==========
(1) Collateralized by his partnership interest in four Partnerships.
(2) Collateralized by his interests in real estate holdings. The loan was not
paid on the maturity date, February 15, 1990. The note is on a non-accrual
basis.
Competition, Regulation and Other Factors
The real estate investment business engaged in by Registrant is highly
competitive. Registrant competes with investors of all types, including
institutions, other real estate investment trusts, corporations, partnerships,
and foreign investors, in acquiring interests in properties. Competition is
extremely intense for the prime properties, with insurance companies, real
estate investment trusts and numerous other institutions, corporations, pension
funds, limited partnerships and other business entities, both domestic and
foreign, investing in real estate.
A substantial portion of Registrant's shopping center income consists of
rents received under long-term leases. Most of these shopping center leases
provide for payment by tenants of an annual minimum rent and additional rent
calculated generally as a percentage of gross sales in excess of a specified
amount ("percentage rent"). These shopping center leases often contain
provisions for contribution by tenants to the cost of maintaining common areas
and real estate tax escalation clauses under which the tenant bears its
proportionate share of increases in or total real estate taxes. While tenant
contributions historically have not covered all costs required to maintain
common areas, some leases provide for full recovery of these costs from tenants.
Upon renewal of a shopping center lease, the annual minimum rent of a tenant is
often increased to an amount which approaches or exceeds the sum of the former
annual minimum rent plus the most recent annual percentage rent received from
the tenant, and the level from which percentage rent is calculated is
correspondingly increased.
The success of Registrant depends, among other factors, general economic
conditions, population trends, real estate fluctuations, income tax laws,
governmental regulations, availability and costs of financing, construction
costs, increases or decreases in operating expenses, zoning laws and the ability
of Registrant to keep its properties leased at profitable levels. A continuation
of the current economic conditions, or adverse changes in general or local
economic conditions or weakness in the real estate and retail markets,
particularly in the eastern half of the United States where Registrant primary
focuses its efforts, could result in the
<PAGE> 14
inability of some existing tenants of the Registrant's properties to meet their
lease obligations and could adversely affect Registrant's ability to attract or
retain tenants. It is Registrant's belief that economic conditions in the
eastern half of the United States have stabilized and recently have shown some
improvement. However, it is not possible to predict what, if any, effect that
recovery has or will have on Registrant's properties. All of Registrant's
shopping center and apartment properties are subject to significant competition.
Registrant is not dependent upon any single lender for its long term debt.
It borrows money from time to time on its general credit and expects to continue
such open-account borrowing in the future and has used its general credit to
guarantee obligations of partnerships in which it has an interest. A number of
the traditional sources for such financing are not currently in the market or
have sharply limited their activities, particularly with respect to properties
more than ten years old.
At August 31, 1994, the liability of each permanent mortgage note is
limited to the particular property, except for two loans on shopping centers in
the amount of $21,227,000 which are guaranteed by the partners of the
partnership. Generally, the liability of a construction mortgage note and
borrowings of the partnerships in which Registrant has an interest are not
limited to a particular property, but are the general obligation of Registrant
and the partnership. At August 31, 1994, one construction mortgage was
outstanding with respect to a property in which Registrant has an interest.
Where Registrant has a co-ownership or partnership interest in a property, it
may be required to make the full payment under the obligation to protect its
equity interest in the property. (See Note 2 of the Notes to Consolidated
Financial Statements.)
Fundamental to the operations of Registrant is the generation of funds from
operations under circumstances which render such funds, if distributed to
shareholders, free from Federal income taxes to the Registrant. The
determination to make distributions to shareholders, however, is not solely
based on funds from operations, since Registrant is required to distribute to
its shareholders annually at least 95% of its real estate investment trust
taxable income to remain qualified for the favorable tax treatment afforded by
the Internal Revenue Code. Registrant has followed a policy of distributing all
of its real estate investment trust taxable income and substantially all taxable
capital gains from sales of real estate investments. Since Registrant was
founded, substantially all of the cash derived from operations has been from
recurring rental and interest income. However, Registrant has realized capital
gains from the sale of some of its properties and from the sale of properties by
partnerships in which Registrant has an interest. Registrant has in the past
distributed a substantial portion of its real estate investment trust taxable
income in the subsequent year and may follow this policy in the future. The
Registrant is subject to a federal excise tax computed on a calendar year basis.
The excise tax equals 4% of the excess, if any, of 85% of Registrant's ordinary
income for the calendar year plus 95% of Registrant's capital gain income for
the calendar year over the amount distributed during the calendar year, as
defined. A provision for excise tax was made in 1994 in the amount of $400,000.
No provision was made for fiscal year 1993 as no tax was due.
<PAGE> 15
The United States government and a number of states and their subdivisions
have adopted laws and regulations relating to environmental controls, some of
which directly, and many of which indirectly, limit the development of real
estate and may adversely affect the operations of existing properties. Such laws
and regulations may operate to reduce the number and attractiveness of
investment opportunities available to Registrant and limit the extent to which
existing properties may be utilized. If hazardous substances are discovered on
or emanating from any of Registrant's properties, the owner or operator of the
property, including Registrant, may be held liable for all costs and liabilities
relating to such hazardous substances. Since 1987, Registrant has conducted a
Phase I environmental study on each property it seeks to acquire. The effect
upon Registrant of the application of such laws and regulations cannot be
predicted. However, Registrant's Trustees believe that Registrant has not to
date experienced any material adverse effects by reason of the application of
such laws and regulations. Registrant has no insurance coverage for the types of
environmental conditions described above. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations", page 22 of 1994
Annual Report to Shareholders, incorporated herein by reference and made a part
hereof.
In many cases, Registrant relies on its partners or entities controlled by
one or more of its partners to oversee the day-to-day development, construction,
leasing and management of properties in which it has an interest. Registrant's
wholly-owned properties are managed either by its own staff or by independent
property managers on a contract basis. Should such entities be unable or
unwilling to perform their obligations or responsibilities with respect to one
or more projects, Registrant's present staff is not of sufficient size to
perform those functions.
In the past three years inflation has not had a significant impact on
Registrant because of the relatively low inflation rate. Should the inflation
rate increase substantially, some of the impacts would have differing results on
net income. Generally retail prices would increase which would increase the
rents paid by those tenants whose sales were at or near the level at which
percentage rents would be paid in addition to the minimum rents. Some shopping
center leases require tenants to pay a portion of operating expenses and taxes
which tends to mitigate the overall impact of inflation. Furthermore, there can
be no assurances that leases with such provisions will be renewed at the same
levels in the future. The direct impact on net income depends on the amount of
debt subject to rate adjustments in effect. An increase in interest rates may
also affect the ability to borrow money by the Registrant and the partnerships
in which Registrant has an interest, particularly when mortgages mature and a
balloon payment is required.
<PAGE> 16
Bank Lines of Credit
At August 31, 1994, Registrant had an aggregate $55,000,000 of unsecured
revolving lines of credit of which $46,655,000 was borrowed ($10,519,000 through
partnerships and $36,136,000 by the Registrant). In addition, a bank loan in the
amount of $1,409,000 had been guaranteed by the partners of a partnership,
including Registrant. The lines of credit provide that the loans will bear
interest at rates tied to the prime rate with no requirement that Registrant
maintain any compensating balances. The weighted average interest rate based on
amounts borrowed was 6.5% at August 31, 1994. In connection with the loans,
Registrant agreed to certain covenants, including maintaining a minimum net
worth (as defined in the loan documents) and maintaining cash and cash
equivalents levels of at least $3,000,000, which may include up to $2,000,000 of
Registrant's share of cash and cash equivalents held by partnerships. During all
relevant periods, Registrant was in compliance with those covenants.
In November 1994, Registrant obtained a $110 million revolving credit and
acquisition facility. Of this amount, $78 million is a 30-month unsecured
revolving credit facility which replaced the one year credit lines of $55
million, referred to above. The $32 million balance is a one-year secured
borrowing, which was advanced for the acquisition of Boca Palms Apartments,
discussed elsewhere herein. Both credit facilities permit Registrant to borrow,
at its election (i) at the prime rate or (ii) LIBOR plus 1.85% for the revolving
credit facility; and (i) at the prime rate or the federal funds effective rate
plus 0.5% or (ii) LIBOR plus 2.0% for the secured facility.
Employees
Registrant, as of August 31, 1994, employed fourteen (14) persons on a
full-time basis, three of whom, Sylvan M. Cohen, Chairman and Chief Executive
Officer, Jonathan B. Weller, President and Chief Operating Officer and Robert G.
Rogers, Executive Vice President, are Trustees.
Item 2. Properties
See the tables under "Item 1. Business" at pages 5 to 10 for the properties
owned by Registrant, both wholly owned and those in which it has a percentage
interest, and reference is made thereto.
Registrant has leased 4,661 square feet of space for its principal offices
at 455 Pennsylvania Avenue, Ft. Washington, Pennsylvania, for a term of five
years and five months. The rent for the first year's rent is $13.00 per square
foot, escalating annually to the final year's rent at $14.50 per square foot. In
addition to the rent, Registrant pays its pro rata share of any increase in
operating expenses over those in 1993, which is the base year for determining
the increase.
<PAGE> 17
Titles to all of Registrant's real estate investments have been searched
and reported to Registrant by reputable title companies. The exceptions listed
in such title reports will not, in the opinion of Registrant, prevent the
respective properties from being used for the intended purposes.
Schedule of Real Estate and Accumulated Depreciation
Schedule XI, "Real Estate and Accumulated Depreciation - August 31, 1994,"
is part of the financial statement schedules attached hereto and reference is
made to that schedule which is incorporated herein by reference for the amount
of encumbrances, initial cost of the properties to Registrant, cost of
improvements, the amount at which carried and the amount of the accumulated
depreciation.
Item 3. Legal Proceedings
Daniel Berman and Robert Berman (the "Bermans") and/or entities owned or
controlled by them are partners of wholly-owned subsidiaries of Registrant in
the ownership of Fox Run Apartments, Bear, Delaware, Eagle's Nest Apartments,
Coral Springs, Florida, and 14 undeveloped acres in Coral Springs, Florida.
Berman Real Estate Management, Inc., a corporation owned by the Bermans,
currently manages the two apartment complexes.
On May 27, 1994 the Bermans on behalf of themselves and partnerships and
corporations controlled and/or owned by them commenced an action against
Registrant and wholly-owned subsidiaries owned by it. Berman v. Burren, Inc., et
al, Montgomery County Court of Common Pleas, Civil Action No. 94-09993 (the
"Pennsylvania Litigation"). The complaint in the Pennsylvania Litigation alleges
breach of contract, misrepresentation, and breach of fiduciary duty and seeks a
declaratory judgment. The complaint was amended in response to Registrant's
preliminary objections to add several claims not alleged in the original
complaint, including that Registrant tortiously interfered with a contract to
develop the parcel in Coral Springs, Florida and that defendants had no right to
terminate the leasing and managing agreement at Fox Run. The amended complaint
seeks a declaratory judgment and damages. The Court has not rendered a decision
on Registrant's preliminary objections to the amended complaint or its motion to
strike.
On June 22, 1994 two wholly-owned subsidiaries of Registrant commenced an
action in Delaware against the Bermans and several partnerships and corporations
controlled and/or owned by them. Berdel, Inc. et al v. Berman Real Estate
Management, Inc. et al, Delaware Court of Chancery in and for New Castle County,
Civil Action No. 13579 (the "Delaware Litigation"). The action seeks a
declaratory judgment and an injunction preventing the defendant from continuing
to manage Fox Run and damages resulting from the payment by plaintiff of
defendant's share of the investigation and remediation of the environmental
condition at Fox Run Apartments. Defendants moved to dismiss or stay the
Delaware Litigation in favor of the Pennsylvania Litigation and plaintiffs
amended their complaint to assert additional claims for
<PAGE> 18
recovery of cleanup costs under the Delaware Hazardous Substance Cleanup Act,
diminuation in value of investment, conspiracy, breach of fiduciary duty and
tortious interference with contract. The Court has not rendered a decision on
defendant's motion to dismiss.
On June 20, 1994, a wholly-owned subsidiary of Registrant commenced an
action against the Bermans, a partnership and several corporations owned or
controlled by them, seeking damages for failure to make capital contributions
under the partnership's agreement for Eagle's Nest Apartments. Berfla, Inc. v.
ETA Associates, et al, Circuit Court of the Fifteenth Judicial Circuit in and
for Palm Beach County, Florida, Civil Case No. CL 94-4787AJ (the "Florida
Litigation"). Defendants moved to abate or stay the Florida Litigation in favor
of the Pennsylvania Litigation. On September 13, 1994 the Court granted
defendants' motion.
Discovery is in its preliminary stages in both the Pennsylvania Litigation
and the Delaware Litigation. It is Registrant's intent to continue to vigorously
resist plaintiffs' claims in the Pennsylvania Litigation and to pursue all of
the claims asserted by its subsidiaries in the Delaware Litigation.
Item 4. Submision of Matters to a Vote of Security Holders
There were no matters submitted for a vote of security holders during the
Registrant's fourth quarter.
<PAGE> 19
Executive Officers of the Registrant
The executive officers of Registrant on November 1, 1994 were as follows:
<TABLE>
<CAPTION>
DATE OF
COMMENCEMENT BUSINESS EXPERIENCE
NAME AND POSITION AGE OF POSITION DURING PAST 5 YEARS
<S> <C> <C> <C>
Sylvan M. Cohen 80 1960 Chairman and Chief Executive Officer of
Chairman and Registrant; Partner of Cohen, Shapiro,
Chief Executive Officer Polisher, Shiekman and Cohen, attorneys.
Jonathan B. Weller 47 1994 Executive Vice President of Eastdil
President and Chief Realty, Inc. A member of its Management
Operating Officer and Investment Committees, as well as a
member of its Board of Directors.
Robert G. Rogers 63 1972 Executive Vice President of Registrant
Executive Vice President
Jeffrey A. Linn 45 1990 Director of operations and development
Vice President for Acquisitions and from 1984 until elected Vice President -
Secretary Operations (title changed in 1994 to Vice
President for Acquisitions) and Secretary
of Registrant in December 1990.
Dante J. Massimini 61 1976 Treasurer since 1976 and elected Vice
Vice President - Finance President - Finance and Treasurer of
and Treasurer Registrant in December 1990.
</TABLE>
None of the foregoing officers is related by blood, marriage, or adoption
to any of the others or to any of the Trustees. All of the officers serve at the
will of the Trustees but are elected to terms expiring at the annual meeting of
the Trustees, which next occurs on December 15, 1994. There is no special
arrangement with any officer pursuant to which he was elected. Mr. Cohen has an
employment contract to serve Registrant as its chief executive officer for a
term that expires on December 31, 1994 and then from year to year unless
terminated by written notice. Messrs. Rogers and Massimini have employment
contracts to serve Registrant as its officers for initial terms that expire in
1996 and 1995, respectively, and then year-to-year unless terminated by written
notice. Mr. Linn has an employment contract to serve Registrant as Vice
President for Acquisitions and Secretary. The contract was entered into in 1985
with an initial term of two years and then from year-to-year unless terminated
by written notice.
<PAGE> 20
Registrant entered into an Employment Agreement with Mr. Weller on December
14, 1993. The employment period is for a term of three years; provided, however,
that commencing one year after the start of his employment, February 1, 1994,
and on each annual anniversary of such date, unless the agreement is previously
terminated, the employment period shall be automatically extended so as to
terminate three years from the said February 1st. The Employment Agreement
provides for an annual base salary of $275,000 and provides that in the event
that the base salary is raised the raised salary shall become the base salary
for purposes of the Employment Agreement. Pursuant to the Employment Agreement,
Mr. Weller was granted, subject to shareholder approval, a non qualified stock
option to acquire 100,000 shares of Registrant's stock with a purchase price of
$24.625 per share, equal to the opening price of Registrant's shares on the
American Stock Exchange on December 14, 1993. In accordance with the Employment
Agreement, Mr. Weller invested $250,000 in shares of the Registrant.
<PAGE> 21
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Incorporated by reference to "Market Prices and Distribution Record",
inside front cover of the 1994 Annual Report to Shareholders.
The Board of Trustees on December 19, 1991 changed the prior practice of
making semi-annual distributions. The Board of Trustees in each quarter,
subsequent to the third quarter of the 1992 fiscal year, has considered and
declared a quarterly distribution. It is anticipated that the Board of Trustees
will consider a distribution each quarter; however, no assurance can be given
that a distribution will be declared.
Item 6. Selected Financial Data
Incorporated by reference to "Financial Highlights", page 1 of the 1994
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference to pages 21-24 of the 1994 Annual Report to
Shareholders.
Item 8. Financial statements and Supplementary Data
The consolidated balance sheets of the Registrant as of August 31, 1994,
and 1993, and the related consolidated statements of income, beneficiaries'
equity and cash flows for each of the three years in the period ended August 31,
1994, and the report of independent public accountants thereon and Registrant's
summary of unaudited quarterly financial information for the two-year period
ended August 31, 1994 are incorporated by reference from the 1994 Annual Report
to Shareholders, pages 12-20. The audited financial statements of Lehigh Valley
Associates for the years ended August 31, 1993 and December 31, 1992 and 1991
and the report of independent auditors thereon are incorporated by reference
from Registrant's Form 8 dated March 29, 1994 amending Registrant's Form 10-K
annual report for the fiscal year ended August 31, 1992.
Item 9. Disagreements on Accounting and Financial Disclosure
There are no matters which are required to be reported under this Item 9.
<PAGE> 22
PART III
Item 10. Directors and Executive Oficers of the Registrant
Incorporated herein by reference from Registrant's definitive proxy
statement for the annual meeting of shareholders on December 15, 1994 under the
caption "Nominees for the Office of Trustee and Trustees Continuing in Office",
pages 3-4. See also the list of Registrant's executive officers and related
information appearing in Part I hereof, pages 16-17.
Item 11. Executive Compensation
Incorporated herein by reference from Registrant's definitive proxy
statement for the annual meeting of shareholders on December 15, 1994 under the
captions "Executive Compensation", "Stock Options", "Compensation of Directors",
and "Benefit Plans", pages 5-9.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from Registrant's definitive proxy
statement for the annual meeting of shareholders on December 15, 1994 under the
captions "Principal Security Holders", page 14, and "Nominees for the Office of
Trustee and Trustees Continuing in Office", pages 3-4.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from Registrant's definitive proxy
statement for the annual meeting of shareholders on December 15, 1994 under the
caption "Transactions with Management", page 14.
<PAGE> 23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements
(1) Financial Statements
1. The consolidated financial statements appear in the 1994 Annual
Report to Shareholders.
2. The financial statements of Lehigh Valley Associates for the year
ended August 31, 1993 are incorporated herein by reference from
Registrant's Annual Report for the fiscal year ended August 31, 1993
on Form 10-K. The financial statements of Lehigh Valley Associates
for the year ended August 31, 1994 are not included in this Form
10-K Annual Report as the partnership did not meet the conditions
for inclusion set forth in Rule 3-09 of Regulation S-X.
3. The financial statements of Lehigh Valley Associates for the years
ended December 31, 1992 and 1991 are incorporated herein by reference
from Registrant's Form 8 dated March 29, 1993, amending Registrant's
Form 10-K Annual Report for the fiscal year ended August 31, 1992.
(2) Schedules
VIII - Valuation and Qualifying Accounts
XI - Real Estate and Accumulated Depreciation
XII - Mortgage Loans on Real Estate - August 31, 1994
Report of Independent Public Accountants on Supplemental Schedules
Schedules not included have been omitted because they are not
applicable or are not required or the required information is
reported in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
Registrant filed a Form 8-K Report on August 15, 1994, reporting under Item
2 the purchase on August 1, 1994 of The Palms of Pembroke Apartments for
$20,496,500. Included in the Form 8-K Report under Item 7 were The Palms of
Pembroke - Statements of Revenues and Certain Expenses as of the Year Ended
August 31, 1993 and the Nine-Month Period Ended May 31, 1994 (unaudited) and
the Pro Forma Unaudited Consolidating Balance Sheet as of May 31, 1994 and
Consolidating Statements of Operations for the year ended August 31, 1993
and the Nine-Month Period ended May 31, 1994 (unaudited).
<PAGE> 24
(c) Exhibits
3.1 Copy of Trust Agreement as Amended and Restated on December 16, 1987.
Filed as Exhibit 3.1 to Registrant's Annual Report for the fiscal
year ended August 31, 1988 on Form 10-K and incorporated herein by
this reference.
10.1 Employment Agreement, dated as of March 14, 1985 as of January 1,
1990, between Registrant and Sylvan M. Cohen, incorporated hereby by
reference to Exhibit 10.1 to Registrant's Form 10-K for the fiscal
year ended August 31, 1990.
10.2 First Amendment to Amended and Restated Employment Agreement as of
July 12, 1993 between Registrant and Robert G. Rogers, incorporated
hereby by reference to Exhibit 10.2 to Registrant's Form 10-K for the
fiscal year ended August 31, 1993.
10.3 Amended and Restated Employment Agreement, dated as of October 1,
1990, between Registrant and Robert G. Rogers, incorporated hereby by
reference to Exhibit 10.2 to Registrant's Form 10-K for the fiscal
year ended August 31, 1990.
10.4 Amended and Restated Employment Agreement, dated as of October 1,
1990, between Registrant and Dante J. Massimini, incorporated hereby
by reference to Exhibit 10.3 to Registrant's Form 10-K for the fiscal
year ended August 31, 1990.
10.5 Registrant's 1990 Incentive Stock Option Plan, incorporated hereby by
reference to Appendix A to Exhibit "A" to Registrant's Form 10-Q for
the quarterly period ended November 30, 1990.
10.6 Registrant's Stock Option Plan for Non-Employee Trustees,
incorporated herein by reference to Appendix B to Exhibit "A" to
Registrant's Form 10-Q for the quarterly period ended November 30,
1990.
10.7 Purchase and Sale Agreement between Robert G. Rogers and Jonathan B.
Weller, as Trustees, and on behalf of all other Trustees of the
Registrant and Pembroke Associates Limited Partnership dated May 9,
1994 (without affiliates); and Amendment No. 1 to Purchase and Sale
Agreement between Robert G. Rogers and Jonathan B. Weller, as
Trustees, and on behalf of all other Trustees of Registrant and
Pembroke Associates Limited Partnership dated June 28, 1994,
incorporated hereby by reference to Exhibit 10.7 to Registrant's Form
8-K dated August 1, 1994 and filed August 15, 1994.
10.8 Agreement of Sale (Phase I) between Robert G. Rogers and Jonathan B.
Weller, as Trustees, and on behalf of all other Trustees of the
Pennsylvania Real Estate
<PAGE> 25
Investment Trust and Arbern Investors VI, L.P., each a Delaware
limited partnership, dated September 24, 1994 (without exhibits); and
Amendment No. 1 to Purchase and Sale Agreement (Phase I) between
Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf
of all other Trustees of the Pennsylvania Real Estate Investment
Trust and Arbern Investors VI, L.P. each a Delaware limited
partnership, dated November 4, 1994, incorporated hereby by reference
to Exhibit 10.8 to Registrant's Form 8-K dated November 10, 1994 and
filed November 23, 1994.
10.9 Agreement of Sale (Phase II) between Robert G. Rogers and Jonathan B.
Weller, as Trustees, and on behalf of all other Trustees of the
Pennsylvania Real Estate Investment Trust and Arbern Investors VIII,
L.P., each a Delaware limited partnership, dated September 24, 1994
(without exhibits); Amendment No. 1 to Purchase and Sale Agreement
(Phase I) between Robert G. Rogers and Jonathan B. Weller, as
Trustees, and on behalf of all other Trustees of the Pennsylvania
Real Estate Investment Trust and Arbern Investors VIII, L.P., each a
Delaware limited partnership, dated November 4, 1994; and Amendment
No. 2 to Purchase and Sale Agreement (Phase I) between Robert G.
Rogers and Jonathan B. Weller, as Trustees, and on behalf of all
other Trustees of the Pennsylvania Real Estate Investment Trust and
Arbern Investors VIII, L.P., each a Delaware limited partnership,
dated November 4, 1994, incorporated hereby by reference to Exhibit
10.9 to Registrant's Form 8-K dated November 10, 1994 and filed on
November 23, 1994.
10.10 Employment Agreement dated as of December 14, 1993 between Registrant
and Jonathan B. Weller.
10.11 Registrant's Amended Incentive and Non Qualified Stock Option Plan,
incorporated hereby by reference to Exhibit A to Registrant's
definitive proxy statement for the annual meeting of shareholders on
December 15, 1994 which was filed November 17, 1994 (Exhibit 13.2).
10.12 Registrant's 1993 Jonathan B. Weller Non Qualified Stock Option Plan,
incorporated hereby by reference to Exhibit B to Registrant's
definitive proxy statement for the annual meeting of shareholders on
December 15, 1994 which was filed November 17, 1994 (Exhibit 13.2).
13.1 "Market Price and Distribution Record" contained on inside cover
page; "Financial Highlights" contained on page 1 of Registrant's
1994 Annual Report to Shareholders; consolidated financial
statements including "notes to consolidated financial statements"
and "report of independent public accountants" contained on pages
12-14, pages 15-19 and page 20, respectively of Registrant's 1994
Annual Report to Shareholders; and "Management's Discussion and
Analysis of Financial Condition
<PAGE> 26
and Results of Operations" contained on pages 21-24 of Registrant's
1994 Annual Report to Shareholders.
13.2 Registrant's definitive proxy statement for the annual meeting of
shareholders on December 15, 1994 which was filed November 17, 1994.
22. Listing of subsidiaries
27. Financial Data Schedule.
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Registrant)
Date: November 28, 1994 By: s/ Sylvan M. Cohen
--------------------
Sylvan M. Cohen, Chairman and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Sylvan M. Cohen his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their or his substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
s/ Sylvan M. Cohen
- ---------------------------------------
Sylvan M. Cohen, November 28, 1994
Chairman and Chief Executive Officer and
Trustee
(Principal Executive Officer)
<PAGE> 28
s/ Jonathan B. Weller
- ---------------------------------------
Jonathan B. Weller, November 28, 1994
President and Chief Operating Officer
and Trustee
s/ William R. Dimeling
- ---------------------------------------
William R. Dimeling, November 28, 1994
Trustee
s/ Jack Farber
- ---------------------------------------
Jack Farber, November 28, 1994
Trustee
s/ Robert Freedman
- ---------------------------------------
Robert Freedman, November 28, 1994
Trustee
- ---------------------------------------
Lee Javitch, November , 1994
Trustee
- ---------------------------------------
Samuel J. Korman, November , 1994
Trustee
- ---------------------------------------
Jeffrey P. Orleans, November , 1994
Trustee
s/ Robert G. Rogers
- ---------------------------------------
Robert G. Rogers, November 28, 1994
Executive Vice President and Trustee
<PAGE> 29
s/ Jeffrey A. Linn
- ---------------------------------------
Jeffrey A. Linn, November 28, 1994
Vice President - Acquisitions and
Secretary
s/ Dante J. Massimini
- ---------------------------------------
Dante J. Massimini, November 28, 1994
Vice President - Fiance and Treasurer
(Principal Financial and Accounting
Officer)
<PAGE> 30
SCHEDULE VIII
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
-------------------------------
Balance Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
- ----------------------------- ------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR POSSIBLE
LOSSES:
Year ended August 31, 1994 $1,440,000 $1,795,000 $ - $ - $3,235,000
========== ========== ===== ====== ===========
Year ended August 31, 1993 $1,120,000 $ 320,000 $ - $ - $1,440,000
========== ========== ===== ====== ===========
Year ended August 31, 1992 $ 800,000 $ 320,000 $ - $ - $1,120,000
========== ========== ===== ====== ===========
</TABLE>
<PAGE> 31
SCHEDULE XI
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C
Encumbrances
--------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 8/31/94 to Trust
- --------------------------------------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C>
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ $ 100,000
Building and improvements 1,028,000
Furniture and portable equipment
Camp Hill Plaza Apartments-
Land 9.5% 3/1/2007 7,057,000 336,000
Building and improvements 2,910,000
Furniture and portable equipment 150,000
Chateau Apartments-
Land 110,000
Building and improvements 1,004,000
Furniture and portable equipment 159,000
Cobblestone Apartments-
Land 7.50% to 8.25% 12/16/2002 9,163,000 2,860,000
Building and improvements 9,331,000
Furniture and portable equipment 249,000
Kenwood Gardens-
Land 489,000
Building and improvements 3,007,000
Furniture and portable equipment 228,000
Lakewood Hills Apartments-
Land 501,000
Building and improvements 10,935,000
Furniture and portable equipment 468,000
Marylander Apartments-
Land 117,000
Building 4,013,000
Furniture and portable equipment 327,000
Shenandoah Village-
Land 2,200,000
Building and improvements 8,695,000
Furniture and portable equipment 220,000
Emerald Point
Land 7.49% 3/1/2008 17,659,000 3,062,000
Building and improvements 17,352,000
Furniture and portable equipment 1,293,000
Hidden Lakes-
Land 1,225,000
Building and improvements 10,807,000
Furniture and portable equipment 489,000
Palms of Pembroke-
Land 4,868,000
Building and improvements 16,389,000
Furniture and portable equipment 531,000
</TABLE>
<TABLE>
<CAPTION>
Column A Column D Column E Column F Column G&H Column I
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 8/31/94 Depreciation Constructed Depreciable
Description Etc. (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life (Years)
- --------------------------------------- --------------- ------------ -------------- ------------ ------------
APARTMENT BUILDINGS:
<S> <C> <C> <C> <C> <C>
2031 Locust Street-
Land $ - $ 100,000 $ - 1961
Building and improvements 1,152,000 2,180,000 1,710,000 11-25
Furniture and portable equipment 451,000 451,000 195,000 10
Camp Hill Plaza Apartments-
Land - 336,000 - 1969
Building and improvements 607,000 3,517,000 2,578,000 5-33-1/3
Furniture and portable equipment 413,000 563,000 259,000 7-10
Chateau Apartments-
Land - 110,000 - 1964
Building and improvements 341,000 1,345,000 1,000,000 3-38
Furniture and portable equipment 294,000 453,000 270,000 5-13
Cobblestone Apartments-
Land - 2,860,000 - 1992
Building and improvements 274,000 9,605,000 419,000 10-40
Furniture and portable equipment 161,000 410,000 55,000 7-10
Kenwood Gardens-
Land - 489,000 - 1963
Building and improvements 1,282,000 4,289,000 3,423,000 8-38
Furniture and portable equipment 864,000 1,092,000 575,000 8-10
Lakewood Hills Apartments-
Land - 501,000 - Phase I 1972
Building and improvements 1,012,000 11,947,000 6,429,000 Phase II 1975 8-45
Furniture and portable equipment 1,072,000 1,540,000 881,000 Phase III 1980 10
Marylander Apartments-
Land - 117,000 - 1962
Building 1,529,000 5,542,000 4,593,000 10-39
Furniture and portable equipment 504,000 831,000 429,000 5-10
Shenandoah Village-
Land - 2,200,000 -
Building and improvements 211,000 8,906,000 254,000 1993 10-39
Furniture and portable equipment 148,000 368,000 25,000 5-10
Emerald Point
Land - 3,062,000 - 1993
Building and improvements 813,000 18,165,000 703,000 10-39
Furniture and portable equipment 186,000 1,479,000 205,000 5-10
Hidden Lakes-
Land - 1,225,000 - 1994
Building and improvements 35,000 10,842,000 142,000 10-39
Furniture and portable equipment 101,000 590,000 14,000 5-10
Palms of Pembroke-
Land - 4,868,000 - 1994
Building and improvements 11,000 16,400,000 34,000 10-39
Furniture and portable equipment 4,000 535,000 3,000 5-10
</TABLE>
<PAGE> 32
SCHEDULE XI
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C
Encumbrances
------------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 8/31/94 to Trust
- ------------------------------------ --------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
ARA Services, Inc., Allentown, PA-
Land $ $ 3,000
Building and improvements 82,000
ARA Services, Inc., Pennsauken, NJ-
Land 20,000
Building and improvements 190,000
Interstate Container Corporation,
Lowell, MA-
Land 34,000
Building and improvements 364,000
People's Drug (CVS), Annandale, VA-
Land 225,000
Building and improvements 1,873,000
Sears, Roebuck and Company,
Pennsauken, NJ-
Land 25,000
Building and improvements 206,000
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 278,000
Building and improvements 2,230,000
Furniture and portable equipment -
Sitler Tract-
Land 54,000
Ingleside Shopping Center --Acme Parcel-
Land 7.5% 8/1/2000 1,110,000 382,000
Building and improvements 1,471,000
Furniture and portable equipment -
South Blanding Village-
Land 2,946,000
Building and improvements 6,138,000
Furniture and portable equipment -
Mandarin Corners-
Land 9.125% 8/1/2008 9,030,000 4,891,000
----------- ------------
Building and improvements 10,168,000
Furniture and portable equipment -
Total for wholly owned and
consolidated partnership $44,019,000 $137,033,000
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
Column A Column D Column E Column F Column G&H Column I
Improvements, Net Amount at
of Which Carried Accumulated Date
Retirements 8/31/94 Depreciation Constructed Depreciable
Description Etc. (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life (Years)
- ------------------------------------- ----------------- -------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
ARA Services, Inc., Allentown, PA-
Land $ - $ 3,000 $ - 1962
Building and improvements - 82,000 68,000 10-40
ARA Services, Inc., Pennsauken, NJ-
Land - 20,000 - 1962
Building and improvements - 190,000 148,000 10-50
Interstate Container Corporation,
Lowell, MA-
Land - 34,000 - 1963
Building and improvements 1,404,000 1,768,000 1,066,000 20-50
People's Drug (CVS), Annandale, VA-
Land - 225,000 - 1962
Building and improvements 476,000 2,349,000 1,347,000 25-55
Sears, Roebuck and Company,
Pennsauken, NJ-
Land - 25,000 - 1963
Building and improvements 176,000 382,000 284,000 10-50
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land - 278,000 - 1964
Building and improvements 3,013,000 5,243,000 2,634,000 20-40
Furniture and portable equipment 18,000 18,000 17,000 10
Sitler Tract-
Land - 54,000 - 1964
Ingleside Shopping Center --Acme Parcel-
Land - 382,000 - 1980
Building and improvements 8,000 1,479,000 630,000 33-1/3
Furniture and portable equipment 2,000 2,000 2,000 10
South Blanding Village-
Land - 2,946,000 - 1988
Building and improvements 279,000 6,417,000 1,151,000 20-40
Furniture and portable equipment 10
Mandarin Corners-
Land 4,891,000 1988
Building and improvements 407,000 10,575,000 2,192,000 33-1/3
Furniture and portable equipment -
------------ ------------ -----------
Total for wholly owned and
consolidated partnership $ 17,248,000 $154,281,000 $33,735,000
------------ ------------ -----------
</TABLE>
<PAGE> 33
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
SCHEDULOE XI
(Continued)
<TABLE>
<S> <C> <C>
NOTES:
(1) Reconciliation of amount shown in Column E:
Balance, August 31, 1993 $112,262,000
Additions during the year-
Improvements, furniture and portable
equipment $ 2,142,000
Land 6,094,000
Building 28,748,000
Assignment of Mandarin Corners
50% partnership interest-
Land 4,891,000
Building 10,575,000 52,450,000
-----------
Deductions during the year-
Retirements -
Properties sold (10,431,000)
-------------
Balance, August 31, 1994 $154,281,000
=============
(2) The aggregate cost for federal income tax
purposes is approximately $153,072,000
=============
(3) Reconciliation of amount shown in Column F:
(Accumulated Depreciation):
Balance, August 31, 1993 $ 34,953,000
Depreciation during the year-
Buildings and improvements 2,863,000
Furniture and portable equipment 615,000 3,478,000
----------
Assignment of Mandarin Corners
50% partnership interest-
Buildings and improvements,
accumulated depreciation at
date of assignment 1,984,000
Deductions during the year-
Retirements -
Properties sold (6,680,000)
-------------
Balance, August 31, 1994 $ 33,735,000
=============
(4) Cost of improvements, net of retirements, etc.,
consists of the following:
Cost of improvements $ 17,248,000
Retirements -
-------------
$ 17,248,000
=============
</TABLE>
<PAGE> 34
SCHEDULE XII
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
MORTGAGE LOANS ON REAL ESTATE--AUGUST 31, 1994
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H
Principal
Carrying Amount of Loan
Periodic Payment Outstanding Amount Subject to
Terms Principal of Delinquent
Interest Maturity ------------------------ Prior Amount of Mortgage Principal
Description Rate Date Interest Principal Liens Mortgage (Note 5) or Interest
- ---------------------- -------- -------- -------- --------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel Lauter (Note 2) (Note 4) Monthly (Note 4) None $560,000 $560,000 None
Donald Cafiero (Note 2) (Note 4) Monthly (Note 4) None 568,000 568,000 None
Charles A. Lotz, Jr.
(Note 3) 2% over prime (Note 3) Monthly (Note 3) None 521,000 521,000 $521,000
----------- ----------
$1,649,000 $1,649,000
========== ==========
NOTES:
(1) Reconciliation of mortgage loans-
Balance at August 31, 1993 $1,655,000
Advances during period -
Repayments during period (6,000)
----------
Balance at August 31, 1994 $1,649,000
==========
</TABLE>
(2) The interest rate is 1% over the prime rate but not less than 10% or more
than 18%.
(3) The loan was not paid on the maturity date of December 15, 1990. The loan
is on a nonaccrual basis.
(4) The loan was not paid on the maturity date of February 15, 1990. Beginning
in March 1992, 25% of all distributions due are applied to the repayment
of the loan.
(5) The aggregate cost for federal income tax purposes is the same as the cost
shown in Column G.
<PAGE> 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
To Pennsylvania Real Estate Investment Trust:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements included in Pennsylvania Real Estate
Investment Trust's annual report to shareholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated October 24, 1994. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The supplemental schedules are the responsibility of the Trust's
management and are presented for purposes of complying with the Securities and
Exchange Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 24, 1994
<PAGE> 36
LEHIGH VALLEY ASSOCIATES
FINANCIAL STATEMENTS
AS OF AUGUST 31, 1993
TOGETHER WITH AUDITORS' REPORT
<PAGE> 37
LEHIGH VALLEY ASSOCIATES
BALANCE SHEET
AUGUST 31, 1993
ASSETS:
Real estate at cost (Notes 1 and 2):
Land $ 8,406,814
Building and improvements 19,959,224
Furniture and equipment 267,882
-----------
28,633,920
Less-Accumulated depreciation (9,930,046)
-----------
18,703,874
Cash and cash equivalents 665,034
Due from tenants and others 886,020
Prepaid expenses and other assets 456,064
-----------
$20,710,992
===========
LIABILITIES AND PARTNERS' DEFICIT:
Mortgages payable (Note 3) $23,316,368
Accrued expenses and other liabilities, including
accrued interest of $175,600 704,856
-----------
24,021,224
Commitments (Notes 5 and 6)
Partners' deficit (3,310,232)
-----------
$20,710,992
===========
The accompanying notes are an integral part of this statement.
<PAGE> 38
LEHIGH VALLEY ASSOCIATES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1993
INCOME:
Rentals (Notes 2 and 6):
Minimum $ 8,231,046
Percentage 898,470
Tenant reimbursements:
Common area maintenance 2,317,249
Utilities 721,734
Real estate taxes 692,026
Insurance 18,342
Other 302,835
-----------
13,181,702
-----------
EXPENSES:
Common area expenses 2,440,426
Interest (Note 3) 2,135,634
Real estate taxes 692,976
Depreciation and amortization (Note 2) 667,480
Management fees (Note 5) 645,936
Other property operating expenses 307,120
-----------
6,889,572
-----------
Net income $ 6,292,130
===========
The accompanying notes are an integral part of this statement.
<PAGE> 39
LEHIGH VALLEY ASSOCIATES
STATEMENT OF PARTNERS' DEFICIT
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
Other
PREIT Partners Total
------------ ------------- ------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1992 $(1,472,681) $(1,472,681) $(2,945,362)
Net income 3,146,065 3,146,065 6,292,130
Cash distributions (3,328,500) (3,328,500) (6,657,000)
----------- ----------- -----------
BALANCE, AUGUST 31, 1993 $(1,655,116) $(1,655,116) $(3,310,232)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 40
LEHIGH VALLEY ASSOCIATES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1993
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net Income $ 6,292,130
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 667,480
Changes in assets and liabilities-
Increase in due from tenants and others (166,702)
Increase in prepaid expenses and other assets (10,606)
Increase in accrued expenses and other liabilities 38,744
------------
Net cash provided by operating activities 6,821,046
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property (29,646)
------------
Net cash used in investing activities (29,646)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans (475,604)
Distributions paid to partners (6,657,000)
------------
Net cash used in financing activities (7,132,604)
------------
DECREASE IN CASH AND CASH EQUIVALENTS (341,204)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,006,238
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 665,034
=============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 41
LEHIGH VALLEY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1993
1. ORGANIZATION AND NATURE OF BUSINESS:
Lehigh Valley Associates, a Pennsylvania limited partnership (the
Partnership), was formed on July 31, 1973 for the purpose of developing and
operating a regional shopping center property. The regional shopping center and
an office building are located in Whitehall, Pennsylvania. Two retail department
stores own adjacent property upon which each has constructed a store. The
partners and their respective ownership interests are as follows:
General Partners
Pennsylvania Real Estate
Investment Trust (PREIT) 30.0%
Delta Ventures, Inc. 0.5
Limited Partners -
Pennsylvania Real Estate
Investment Trust 20.0
Various Individuals 49.5
-----
100.0%
=====
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Real Estate
Depreciation is computed on the straight-line method over 10 to 35 years
for buildings and improvements and 10-20 years for furniture and equipment,
representing the estimated useful lives of such assets.
Betterments, renewals and extraordinary repairs that extend the life of the
property are capitalized. Other repairs and maintenance are expensed.
Recognition of Rental Income
The Partnership recognizes minimum rental income on a straight-line basis
over the applicable lease term. Percentage rents are accrued as income for those
tenants whose annualized reported sales at August 31 exceeded the minimum annual
sales volumes required for percentage rents.
<PAGE> 42
Income Taxes
No provision has been made for federal or state income taxes since such
taxes are the liability of the individual partners. The Partnership's tax
returns and the amount of allocable Partnership profits or losses are subject to
examination by federal and state taxing authorities. If such examinations result
in changes to Partnership profits or losses, the tax liability of the partners
would be changed accordingly.
Cash Equivalents
For purposes of reporting cash flows, the Partnership considers all highly
liquid investments with initial maturities of three months or less to be cash
equivalents.
3. MORTGAGES PAYABLE:
<TABLE>
<S> <C>
Mortgage note on shopping center property--payable in monthly
installments of $192,002, including interest at 9% through 2012 $20,834,786
Mortgage note on shopping center property--payable in monthly
installments of $16,909, including interest at 9-3/4%, through 2012 1,744,159
Mortgage note on shopping center property--payable in monthly
installments of $4,475, including interest at 10-3/8%, through 2012 442,960
Mortgage note on office building and land--payable in monthly
installments of $4,434, including interest at 8%, through 2000 294,463
------------
$23,316,368
============
</TABLE>
The above mortgages are collateralized and recourse is limited to the
respective real estate and tenant leases.
Principal payments on the mortgages are due as follows:
Years Ending August 31:
1994 $ 520,000
1995 568,000
1996 622,000
1997 682,000
1998 746,000
Thereafter 20,178,368
-----------
$23,316,368
===========
Interest paid in fiscal 1993 amounted to $2,138,234.
<PAGE> 43
4. PARTNERS' EQUITY (DEFICIT):
In accordance with the Partnership agreement, cash flow from operations, as
defined, shall be distributed and profits shall be allocated on a pro-rata basis
in accordance with the partners' respective ownership interests.
5. MANAGEMENT FEES:
Management fees are paid to an affiliate of certain of the various limited
partners, pursuant to the terms of a management agreement, at the rate of 5% of
gross receipts from the property (as defined). In addition, the affiliate
provides the center and its tenants with electricity.
6. LEASES:
The Partnership earns rental income under leases with retail stores. All
leases are accounted for as operating leases. Leases generally provide for
minimum rentals plus percentage rentals based on the stores' sales volume and
also require each store to pay a portion of real estate taxes and common area
expenses. In addition, leases provide for the stores to pay utility charges to
an affiliate. Lease periods generally range from 10 to 20 years and contain
various renewal options. The Partnership also earns rental income under leases
with commercial tenants located in its office building. Such leases generally
provide for the tenant to pay minimum rentals plus a portion of increases in
real estate taxes and operating expenses. Commercial lease periods generally
range from 3 to 5 years and contain various renewal options.
The following schedule of future minimum rental payments required under
noncancelable operating leases as of August 31, 1993 does not include any
amounts due as percentage rent or amounts that would be due from new leases or
the exercise of renewal options under existing leases:
Years Ending August 31:
1994 $ 8,670,000
1995 8,637,000
1996 8,529,000
1997 7,169,000
1998 6,208,000
Thereafter 26,163,000
-----------
Total minimum future rentals $65,376,000
===========
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Lehigh Valley Associates:
We have audited the accompanying balance sheet of Lehigh Valley Associates
(a Pennsylvania limited partnership) as of August 31, 1993, and the related
statements of operations, partners' deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lehigh Valley Associates as
of August 31, 1993, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
October 25, 1993
<PAGE> 45
Financial Statements
Lehigh Valley Associates
(A Limited Partnership)
Years ended December 31, 1992 and 1991
with Report of Independent Auditors
<PAGE> 46
Lehigh Valley Associates
(A Limited Partnership)
Financial Statements
Years ended December 31, 1992 and 1991
Contents
Report of Independent Auditors................................................1
Audited Financial Statements
Balance Sheets................................................................2
Statements of Operations......................................................3
Statements of Partners' Deficiency............................................4
Statements of Cash Flows......................................................5
Notes to Financial Statements.................................................6
<PAGE> 47
Report of Independent Auditors
To the Partners of
Lehigh Valley Associates
We have audited the accompanying balance sheets of Lehigh Valley Associates
(a limited partnership) as of December 31, 1992 and 1991, and the related
statements of operations, partners' deficiency, and cash flows for the years
then ended. These financial statements are the responsibility of Lehigh Valley
Associates' management. Our responsibility is to express an opinion on these
financial statements 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
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lehigh Valley Associates at
December 31, 1992 and 1991, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG
March 10, 1993
<PAGE> 48
Lehigh Valley Associates
(A Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
December 31
1992 1991
----------- ------------
<S> <C> <C>
Assets
Real estate at cost (Notes 1 and 2):
Land $ 5,752,083 $ 5,752,083
Regional shopping center building and
building improvements 21,544,931 21,511,426
Office building 587,771 587,771
----------- ------------
27,884,785 27,851,280
Less accumulated depreciation 10,143,108 9,485,638
----------- ------------
17,741,677 18,365,642
Cash and cash equivalents 871,952 1,072,176
Due from tenants and others 2,997,471 2,701,925
Prepaid expenses and other assets 346,084 370,080
----------- ------------
$21,957,184 $22,509,823
=========== ============
Liabilities
Mortgages payable (Note 2) $23,638,169 $24,086,147
Accrued expenses and other liabilities, including
accrued interest (1992--$178,642; 1991--$182,006) 1,203,621 1,043,212
----------- ------------
24,841,790 25,129,359
Partners' deficiency (2,884,606) (2,619,536)
----------- ------------
$21,957,184 $22,509,823
=========== ============
</TABLE>
See accompanying notes.
<PAGE> 49
Lehigh Valley Associates
(A Limited Partnership)
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1992 1991
---------- ----------
<S> <C> <C>
Income:
Rentals (Notes 1 and 4):
Minimum $8,285,210 $6,715,946
Percentage 1,005,293 1,388,653
---------- ----------
9,290,503 8,104,599
Sundry 241,380 242,005
---------- ----------
9,531,883 8,346,604
---------- ----------
Expenses, other than depreciation and amortization:
Real estate taxes, net of tenants' reimbursements
(1992--$614,062; 1991--$649,030) 68,568 12,375
Interest (Note 2) 2,162,497 2,203,433
Management fees (Note 3) 618,046 536,173
Common area expenses, net of tenants'
reimbursements (1992--$1,929,556;
1991--$1,866,087) (124,148) (260,603)
Other property expenses 238,736 146,759
---------- ----------
2,963,699 2,638,137
---------- ----------
Income before depreciation and amortization 6,568,184 5,708,467
Depreciation and amortization (Note 1) 668,254 659,087
---------- ----------
Net income $5,899,930 $5,049,380
========== ==========
</TABLE>
See accompanying notes.
<PAGE> 50
Lehigh Valley Associates
(A Limited Partnership)
Statements of Partners' Deficiency
<TABLE>
<CAPTION>
Distributions
Partners' Net Income to Partners
Percentage Deficiency for the During the
Interest Per as of Year Ended Year Ended
Partnership January 1, December 31, December 31,
Agreement 1991 1991 1991
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
General Partners:
Delta Ventures, Inc. .50% $ (13,221) $ 25,247 $ (25,125)
Pennsylvania Real Estate
Investment Trust 30.00 (793,172) 1,514,814 (1,507,500)
Limited Partners:
Estate of Morris A. Kravitz 9.00 (237,954) 454,444 (452,250)
Myles H. Tanenbaum 8.55 (226,077) 431,722 (429,638)
Jordan A. Katz 4.50 (118,973) 227,222 (226,125)
Robert T. Girling 4.50 (118,974) 227,222 (226,125)
Lea R. Powell, Trustee under
indenture of Arthur L. Powell 9.00 (237,910) 454,444 (452,250)
Harold G. Schaeffer 4.50 (118,833) 227,222 (226,125)
Adele K. Schaeffer, Trustee
under indenture of Harold G.
Schaeffer 4.50 (119,116) 227,222 (226,125)
Richard A. Jacoby 4.95 (130,907) 249,944 (248,737)
Pennsylvania Real Estate
Investment Trust 20.00 (528,779) 1,009,877 (1,005,000)
------- ----------- ----------- -----------
100.00% $(2,643,916) $5,049,380 $(5,025,000)
======= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Distributions
Partners' Net Income to Partners Partners'
Deficiency for the During the Deficiency
as of Year Ended Year Ended as of
December 31, December 31, December 31, December 31,
1991 1992 1992 1992
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
General Partners:
Delta Ventures, Inc. $ (13,099) $ 29,500 $ (30,825) $ (14,424)
Pennsylvania Real Estate
Investment Trust (785,858) 1,769,979 (1,849,500) (865,379)
Limited Partners:
Estate of Morris A. Kravitz (235,760) 530,993 (554,850) (259,617)
Myles H. Tanenbaum (223,993) 504,444 (527,108) (246,657)
Jordan A. Katz (117,876) 265,497 (277,425) (129,804)
Robert T. Girling (117,877) 265,497 (277,425) (129,805)
Lea R. Powell, Trustee under
indenture of Arthur L. Powell (235,716) 530,993 (554,850) (259,573)
Harold G. Schaeffer (117,736) 265,497 (277,425) (129,664)
Adele K. Schaeffer, Trustee
under indenture of Harold G.
Schaeffer (118,019) 265,497 (277,425) (129,947)
Richard A. Jacoby (129,700) 292,047 (305,167) (142,820)
Pennsylvania Real Estate
Investment Trust (523,902) 1,179,986 (1,233,000) (576,916)
----------- ----------- ----------- -----------
$(2,619,536) $ 5,899,930 $(6,165,000) $(2,884,606)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE> 51
Lehigh Valley Associates
(A Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1992 1991
---------- ------------
<S> <C> <C>
Operating activities
Net income $5,899,930 $ 5,049,380
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 668,254 659,087
Changes in operating assets and liabilities:
Increase in due from tenants and others (295,546) (89,338)
Decrease (increase) in prepaid expenses
and other assets 13,212 (25,512)
Increase in accrued expenses and
other liabilities 160,409 134,433
---------- -----------
Net cash provided by operating activities 6,446,259 5,728,050
Investing activities
Expenditures for property (33,505) (96,991)
---------- -----------
Net cash used in investing activities (33,505) (96,991)
Financing activities
Principal payments on mortgage loans (447,978) (409,522)
Distributions paid to partners (6,165,000) (5,025,000)
---------- -----------
Net cash used in financing activities (6,612,978) (5,434,522)
---------- -----------
(Decrease) increase in cash and cash equivalents (200,224) 196,537
Cash and cash equivalents at beginning of year 1,072,176 875,639
---------- -----------
Cash and cash equivalents at end of year $ 871,952 $ 1,072,176
========== ===========
</TABLE>
See accompanying notes.
<PAGE> 52
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements
December 31, 1992
1. Summary of Significant Accounting Policies
Real Estate
The Partnership owns and operates a regional shopping center and an office
building (the "Property") located in Whitehall, Pennsylvania. Two retail
department stores own adjacent property upon which each has constructed a store
as part of the Property.
Depreciation is computed on the straight-line method over 35 years for the
shopping center and 22 years for the office building, representing the estimated
lives of such assets.
Recognition of Rent Income
The Partnership recognizes minimum rent income on a straight-line basis
over the applicable lease term. Percentage rents are accrued as income for those
tenants whose reported sales at December 31 exceeded the minimum annual sales
volumes required for percentage rents.
Income Taxes
In conformity with the Internal Revenue Code and applicable state and local
tax statutes, taxable income or loss of the limited partnership is required to
be reported in the tax returns of the partners in accordance with the terms of
the limited partnership agreement and, accordingly, no provision has been made
in the accompanying financial statements for any federal, state, or local taxes.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with maturities of three months or less when purchased
to be cash equivalents.
<PAGE> 53
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable
<TABLE>
<CAPTION>
1992 1991
-------------- ---------------
<S> <C> <C>
Mortgage note on Property--payable in monthly
installments of $192,002, including interest
at 9% through 2012 $21,111,312 $21,496,295
Mortgage note on Property--payable in monthly
installments of $16,909, including interest at
9-3/4%, through 2012 1,765,281 1,794,507
Mortgage note on Property--payable in monthly
installments of $4,475, including interest at
10-3/8%, through 2012 447,925 454,760
Mortgage note on office building and fringe land--
payable in monthly installments of $4,434,
including interest at 8%, through 2001 313,651 340,585
----------- -----------
$23,638,169 $24,086,147
=========== ===========
</TABLE>
The above mortgages are collateralized by the respective real estate and
tenant leases.
Principal payments on the mortgages are due as follows:
Years ending December 31:
1993 $ 490,052
1994 536,085
1995 586,447
1996 641,551
1997 701,838
Thereafter 20,682,196
-----------
$23,638,169
===========
Interest paid in 1992 and 1991 amounted to $2,165,861 and $2,207,579,
respectively.
<PAGE> 54
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
3. Management Fees
Management fees were paid to an affiliate, pursuant to the terms of a
management agreement, at the rate of 5% of gross receipts from the Property (as
defined). In addition, an affiliate provides the center and its tenants with
electricity.
4. Leases
The Partnership earns rental income under leases with retail stores. All
leases are accounted for as operating leases. Leases generally provide for
minimum rentals plus percentage rentals based on the stores' sales volume and
also require each store to pay a portion of real estate taxes and common area
expenses. In addition, leases provide for the stores to pay utility charges to
an affiliate. Lease periods generally range from 10 to 20 years and contain
various renewal options. The Partnership also earns rental income under leases
with commercial tenants located in its office building. Such leases generally
provide for the tenant to pay minimum rentals plus a portion of increases in
real estate taxes and operating expenses. Commercial lease periods generally
range from 3 to 5 years and contain various renewal options.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases as of December 31, 1992 and does
not include any amounts due as percentage rent or amounts that would be due from
new leases or the exercise of renewal options under existing leases:
Years ending December 31:
1993 $7,199,000
1994 7,024,000
1995 6,913,000
1996 6,642,000
1997 4,997,000
Thereafter 19,504,000
--------------
Total minimum future rentals $52,279,000
==============
<PAGE> 1
EMPLOYMENT AGREEMENT
AGREEMENT by and between Pennsylvania Real Estate Investment Trust, an
unincorporated association in business trust form (the "Company") and Jonathan
B. Weller (the "Executive"), dated as of the 14th day of December, 1993.
1. Employment Period. The Company hereby agrees to continue the Executive
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on January 31, 1994 or such earlier date as may be agreed by the
parties (the "Commencement Date") and ending on the third anniversary of such
date (the "Employment Period"); provided, however, that commencing on the date
one year after the Commencement Date, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Employment
Period shall be automatically extended so as to terminate three years from such
Renewal Date, unless at least 60 days prior to the Renewal Date the Company
shall give notice to the Executive that the Employment Period shall not be so
extended (a "Non-Renewal Notice").
2. Terms of Employment. (a) Position and Duties. Commencing on the
Commencement Date and for the remainder of the Employment Period, the Executive
shall be President and Chief Operating Officer of the Company having
responsibility for the day-to-day management of the Company. The Executive shall
report to the Chairman of the Company and the Board of Trustees of the Company
(the "Board"). Upon due election, the Executive shall serve as a Class A Trustee
of the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of
$275,000. In the event the Annual Base Salary is raised, "Annual Base Salary"
shall refer to such increased amount.
(ii) Stock Options. The Executive shall be granted on the date
hereof a nonqualified stock option (the "Option") to acquire 100,000 shares of
the Company's common stock with a purchase price equal to the opening price of
the Company's common stock on the American Stock Exchange on the date hereof
(the "Initial Price"). The Option shall have a term of ten years and shall vest
and become exercisable with respect to 25,000 shares after one year, with
respect to an additional 25,000 shares after two years, an additional 25,000
shares after three years, and as to the final 25,000 shares, after four years,
provided that the Option, and any other options subsequently granted to the
Executive, shall vest and become immediately exercisable upon a Change of
Control or upon a termination by the Company of the Executive's employment
without Cause or by the Executive with Good Reason or upon Executive's death or
Disability. Upon a termination of employment, any unexercised portion of the
Option shall remain exercisable for 6 months following such termination; 9
months in the case of death or
<PAGE> 2
Disability. The Company agrees to submit a stock option plan to shareholders
pursuant to which the Option will be approved at its next shareholder meeting.
(iii) Employee Benefit Plans. During the Employment Period, the
Executive shall be eligible to participate in all incentive, savings, welfare,
insurance and retirement plans, practices, policies and programs applicable
generally to other peer executives of the Company. The Company agrees to
establish a plan qualified under Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code") as soon as practicable after the date hereof.
Subject to the Executive submitting to any required medical examination, the
Company agrees to provide Executive with $1,500,000 of term life insurance at
the Company's cost, which amount may be offset by any life insurance for the
benefit of the Executive and his beneficiaries held by any retirement plan of
the Company. Executive acknowledges that he will be required to pay all premiums
for disability insurance.
(iv) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable business expenses
incurred by the Executive. In addition, subject to a limit of $1,000 per week,
the Company shall reimburse the Executive for all expenses incurred in
connection with relocating from New York City to the Greater Delaware Valley,
including commuting expenses and temporary housing costs incurred through the
earlier of September 1, 1994 or the time when the Executive secures permanent
housing. In addition, the Company agrees to reimburse the Executive for all
moving expenses in connection with the relocation described in the previous
sentence.
(v) Automobile. During the Employment Period, the Company shall
provide the Executive with the lease of an automobile and payment of insurance,
maintenance, operating costs and other related expenses.
(vi) Vacation. During the Employment Period, the Executive shall
be entitled to four weeks of paid vacation.
(c) Executive's Obligations. (i) Doctor's Letter. Executive shall
provide the Company with a letter from his doctor attesting to the fact that the
Executive is in good health.
(ii) Stock Acquisition. Executive agrees to invest a minimum of
$250,000 in the stock of the Company.
3. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 9(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
<PAGE> 3
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for six months as a result of incapacity
due to mental or physical illness which is determined to be total and permanent
by a physician selected by the Company or its insurers and acceptable to the
Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
the Employment Period for cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company (other than any
such failure resulting from Executive's Disability), after a written
demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
misconduct which is materially and demonstrably injurious to the
Company.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position, authority, duties or responsibilities as
contemplated by Section 2(a) of this Agreement, or any other action by the
Company which results in a diminution of such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any breach by the Company of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location more than 45 miles from the Company's headquarters as of the
date hereof;
(iv) delivery by the Company to the Executive of a Non-Renewal
Notice.
<PAGE> 4
(d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 9(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated, and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination, and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
4. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, and (2)
any accrued vacation pay in accordance with the Company's
policies, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1) and (2) shall be
hereinafter referred to as the "Accrued Obligation"); and
B. the amount obtained by multiplying the Executive's Annual
Base Salary by the number of months remaining in the Employment
Period on the Date of Termination, and dividing the result by 12;
such amount shall then be discounted at the prime rate then
prevailing at CoreStates Bank, N.A., assuming
<PAGE> 5
such amount had been paid out over the remainder of the
Employment Period in accordance with the Company's normal payroll
practices.
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as
the case may be;
(iii) for the remainder of the Employment Period, or such longer
period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue health
and welfare benefits [including life insurance] to the Executive
and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans,
programs, practices and policies described in Section 2(b)(ii) of
this Agreement if the Executive's employment had not been
terminated; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive
medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein
shall cease.
(iv) the Company shall provide the Executive with outplacement
services of the Company's choice, the scope and provider of which
shall be reasonably acceptable to the Executive;
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive
is entitled to receive upon termination under any plan, program,
policy or practice or contract or agreement of the Company (such
other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination.
(d) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation
<PAGE> 6
previously deferred by the Executive, and (z) Other Benefits, in each case to
the extent theretofore unpaid. If the Executive voluntarily terminates
employment during the Employment Period, excluding a termination for Good
Reason, this Agreement shall terminate without further obligations to the
Executive, other than for Accrued Obligations and the timely payment or
provision of Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination. Upon a termination of the Executive's employment for Cause by the
Company or by the Executive without Good Reason, the Executive shall forfeit all
stock options that are not vested on the Date of Termination.
5. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay all legal fees and expenses which the Executive has
incurred in the preparation and negotiation of this Agreement, or may incur as a
result of any contest by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable Federal rate
provided for in Section 7872(f)(2), provided that the Company shall have no such
obligation if the Executive does not substantially prevail in such contest.
6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in the amount such that after payment by the Executive of all taxes
and any benefits that result from the deductibility by the Executive of such
taxes (including, in each case, any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
<PAGE> 7
7. Change of Control. For purposes of this Agreement, a Change of Control
shall mean:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) below, or (v)
any acquisition by any Person entitled to file Form 13G under the Exchange Act
with respect to such acquisition; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a trustee subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the trustees then
comprising the Incumbent Board shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of trustees
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(c) approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or substantially all
of the assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners of the Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Voting Securities, (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 30% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the
<PAGE> 8
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of trustees or directors of the entity resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
8. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
9. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without reference
to principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
<PAGE> 9
If to the Executive:
Jonathan B. Weller
c/o Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Adam D. Chinn
If to the Company:
Pennsylvania Real Estate Investment Trust
455 Pennsylvania Avenue, Suite 135
Fort Washington, PA 19034
Attention: Chairman of the Board of Trustees
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right
<PAGE> 10
of the Executive to terminate employment for Good Reason pursuant to this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
JONATHAN B. WELLER
s/Jonathan B. Weller
--------------------------------------------
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
s/Sylvan M. Cohen, Trustee
--------------------------------------------
<PAGE> 1
MARKET PRICE AND
DISTRIBUTION RECORD
----------
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following table shows the high and low sales prices for the Trust's
shares on the American Stock Exchange and cash distributions paid for the
periods indicated.
<TABLE>
<CAPTION>
Fiscal Year 1994 Distributions
Quarters Ended High Low Paid
------------------------------------------------------
<S> <C> <C> <C>
November 30 $26.00 $23.25 $ .45
February 28 25.38 22.00 .47
May 31 24.75 22.25 .47
August 31 24.63 22.88 .47
-----
$1.86
=====
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year 1993 Distributions
Quarters Ended High Low Paid
------------------------------------------------------
<S> <C> <C> <C>
November 30 $21.75 $20.25 $ .43
February 28 28.00 20.88 .45
May 31 30.38 25.00 .45
August 31 26.25 23.75 .45
-----
$1.78
=====
</TABLE>
As of November 4, 1994, there were approximately 1,690 shareholders of the
Trust's shares of beneficial interest.
<PAGE> 2
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Years Ended August 31,
(Thousands of dollars except per share results) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Income Before Gains on Sales of Interest in Real
Estate $ 8,325 $10,125 $ 8,677 $ 8,750 $10,029
Gains on Sales of Interests in Real Estate 12,362 3,875 - 1,600 66
Net Income 20,687 14,000 8,677 10,350 10,095
Distributions Paid to Beneficiaries 16,121 15,386 14,860(1) 13,997 14,137
---------------------------------------------------------------------------------------------------
Per Share Results
Income Before Gains on Sales of Interests in
Real Estate $ .96 $1.17 $1.01 $1.07 $1.22
Gains on Sales of Interests in Real Estate 1.43 .45 - .20 .01
Net Income 2.39 1.62 1.01 1.27 1.23
Distributions Paid 1.86 1.78 1.72(1) 1.72 1.72
Distribution Rate at Fiscal Year End 1.88 1.80 1.72 1.72 1.72
---------------------------------------------------------------------------------------------------
</TABLE>
FUNDS FROM OPERATIONS (2)
<TABLE>
<CAPTION>
Years Ended August 31,
(Thousands of Dollars) 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $20,687 $14,000 $ 8,677 $10,350 $10,095
Less gains on sales of interests in real estate 12,362 3,875 - 1,600 66
----------------------------------------------
8,325 10,125 8,677 8,750 10,029
Plus:
Depreciation and amortization:
Wholly owned and consolidated partnership
(3) 3,322 2,685 2,101 1,977 1,782
Partnerships and joint ventures 3,229 4,119 3,960 3,766 3,185
Provision for losses (4) 1,795 320 320 320 320
----------------------------------------------
Funds from operations $16,671 $17,249 $15,058 $14,813 $15,316
==============================================
</TABLE>
(1) In 1992, distributions paid to beneficiaries and distributions paid
per share have been adjusted to reflect the annualized change from a
semi-annual distribution to a quarterly distribution (Actual amount
paid during the fiscal year was $11,145,000 or $1.29 per share).
(2) Defined as net income excluding gains or losses from sales of
property, plus depreciation and amortization and other non-cash
charges and similar adjustments for unconsolidated joint ventures.
This conforms to the definition adopted by the National Association of
Real Estate Investment Trusts and does not represent cash generated
from operations as defined by Generally Accepted Accounting Principles
(GAAP) and is not necessarily indicative of cash available to fund
cash needs.
(3) Net of minority interest share of $219,000 and $99,000 in 1994 and 1993,
respectively.
(4) See Note 1 to consolidated financial statements.
<PAGE> 3
Pennsylvania Real Estate Investment Trust
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
At August 31 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Real Estate, At Cost (Notes 1, 3, 8 and 10):
Apartment buildings $116,918,000 $ 80,157,000
Industrial properties 5,078,000 5,078,000
Shopping centers and retail stores 32,285,000 27,027,000
------------ ------------
Total investments in real estate 154,281,000 112,262,000
Less accumulated depreciation 33,735,000 34,953,000
------------ ------------
120,546,000 77,309,000
Investments in Partnerships and Joint Ventures, At Equity
(Notes 1 and 2) 15,225,000 20,588,000
Advances to Partnerships and Joint Ventures 2,418,000 1,990,000
Notes Receivable 1,649,000 1,655,000
------------ ------------
139,838,000 101,542,000
Less allowance for possible losses (Note 1) 3,235,000 1,440,000
------------ ------------
136,603,000 100,102,000
Other Assets:
Cash and cash equivalents 2,152,000 1,462,000
U.S. Treasury obligations, at cost - 2,588,000
Rents and sundry receivables 328,000 403,000
Prepaid real estate taxes and expenses 3,412,000 3,299,000
------------ ------------
$142,495,000 $107,854,000
============ ============
--------------------------------------------------------------------------------------------------------------------
Liabilities and Beneficiaries' Equity
Mortgage Notes Payable (Note 3) $ 44,019,000 $ 37,629,000
Bank Loans Payable (Notes 3 and 10) 36,136,000 14,300,000
Tenants' Deposits and Deferred Rents 1,214,000 888,000
Accrued Pension and Retirement Benefits (Notes 1 and 5) 1,084,000 1,080,000
Accrued Expenses and Other Liabilities 2,886,000 1,774,000
------------ ------------
85,339,000 55,671,000
------------ ------------
Minority Interest in Consolidated Partnership (Note 1) 408,000 331,000
------------ ------------
Commitments and Contingencies (Note 7)
Beneficiaries' Equity
($6.55 and $5.99 per share at August 31, 1994 and 1993)
(Notes 1, 4 and 6):
Shares of Beneficial Interest, $1 Par; Authorized, Unlimited; Issued and Outstanding
8,669,848 Shares in 1994 and 8,649,223 Shares in 1993 8,670,000 8,649,000
Capital Contributed in Excess of Par 53,039,000 52,730,000
Distributions in Excess of Net Income (4,961,000) (9,527,000)
------------ ------------
56,748,000 51,852,000
------------ ------------
$142,495,000 $107,854,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
Pennsylvania Real Estate Investment Trust
CONSOLIDATED STATEMENTS OF INCOME
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
For the years ended August 31 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gross revenues from real estate (Note 7) $27,640,000 $21,083,000 $16,064,000
Interest and other income 274,000 542,000 795,000
----------- ----------- -----------
27,914,000 21,625,000 16,859,000
----------- ----------- -----------
Expenses
Property operating expenses 11,758,000 8,959,000 6,608,000
Depreciation and amortization (Note 1) 3,541,000 2,784,000 2,100,000
General and administrative expenses (Notes 1 and 5) 2,528,000 1,873,000 1,859,000
Mortgage and bank loan interest 4,162,000 2,222,000 945,000
Provisions for losses on investments (Note 1) 1,795,000 320,000 320,000
----------- ----------- -----------
23,784,000 16,158,000 11,832,000
----------- ----------- -----------
Income before minority interest, equity in income of partnerships
and joint ventures and gains on sales of interests in real estate 4,130,000 5,467,000 5,027,000
Minority interest (221,000) (92,000) -
Equity in income of partnerships and joint ventures (Notes 1 and 2) 4,416,000 4,750,000 3,650,000
Gains on sales of interests in real estate 12,362,000 3,875,000 -
----------- ----------- -----------
Net income $20,687,000 $14,000,000 $ 8,677,000
=========== =========== ===========
Net Income Per Share (Note 1) $ 2.39 $ 1.62 $ 1.01
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF BENEFICIARIES' EQUITY
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
Shares of Capital
beneficial contributed Distributions
interest in excess in excess of
For the three years ended August 31, 1994 $1 par of par net income
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 1, 1991 $8,138,000 $43,945,000 $(5,673,000)
Net income - - 8,677,000
Shares issued (Note 4) 500,000 8,620,000 -
Shares issued upon exercise of options (Note 6) 2,000 30,000 -
Distributions paid to beneficiaries ($1.29 per share) - - (11,145,000)
----------- ------------ -------------
Balance, August 31, 1992 8,640,000 52,595,000 (8,141,000)
Net income - - 14,000,000
Shares issued upon exercise of options (Note 6) 9,000 135,000 -
Distributions paid to beneficiaries ($1.78 per share) - - (15,386,000)
----------- ------------ -------------
Balance, August 31, 1993 8,649,000 52,730,000 (9,527,000)
Net income - - 20,687,000
Shares issued upon exercise of options (Note 6) 21,000 309,000 -
Distributions paid to beneficiaries ($1.86 per share) - - (16,121,000)
----------- ------------ -------------
Balance, August 31, 1994 $8,670,000 $53,039,000 $ (4,961,000)
========== =========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
Pennsylvania Real Estate Investment Trust
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
<TABLE>
<CAPTION>
For the years ended August 31 1994 1993 1992
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 20,687,000 $ 14,000,000 $ 8,677,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Minority interest in income of consolidated partnership 221,000 92,000 -
Depreciation and amortization 3,541,000 2,784,000 2,101,000
Gains on sales of interests in real estate (12,362,000) (3,875,000) -
Provision for losses on investments 1,795,000 320,000 320,000
Change in assets and liabilities:
Rents and sundry receivables 161,000 (102,000) -
Prepaid real estate taxes and expenses 536,000 (1,544,000) (649,000)
Accrued pension and retirement benefits 4,000 (3,000) (51,000)
Accrued expenses and other liabilities 1,028,000 915,000 (13,000)
Tenants' deposits and deferred rents 298,000 447,000 (53,000)
------------ ------------ ------------
Net cash provided by operating activities 15,909,000 13,034,000 10,332,000
------------ ------------ ------------
Cash Flows From Investing Activities
Investments in real estate (37,144,000) (48,333,000) (2,537,000)
Investments in partnerships and joint ventures (471,000) (7,416,000) (1,536,000)
Cash proceeds from sales of real estate investments 14,540,000 5,175,000 -
Increase in advances to partnerships and joint ventures (429,000) (414,000) (288,000)
Cash distributions from partnerships and joint ventures in excess
of equity in income 2,529,000 2,463,000 2,719,000
Net cash contributions from (distributions to) minority partners (144,000) 240,000 -
Decrease (increase) in notes receivable 6,000 (363,000) (321,000)
Decrease (increase) in U.S. Treasury obligations 2,589,000 9,965,000 (11,048,000)
------------ ------------ ------------
Net cash used in investing activities (18,524,000) (38,683,000) (13,011,000)
------------ ------------ ------------
Cash Flows From Financing Activities
Principal installments on mortgage notes payable (576,000) (385,000) (312,000)
Proceeds from mortgage notes payable - 27,240,000 7,250,000
Prepayment of mortgage notes payable (2,164,000) - (4,935,000)
Proceeds from bank loan payable 36,136,000 14,300,000 -
Repayment of bank loan payable (14,300,000) - -
Shares of beneficial interest issued 330,000 144,000 9,152,000
Distributions paid to beneficiaries (16,121,000) (15,386,000) (11,145,000)
------------ ------------ ------------
Net cash provided by financing activities 3,305,000 25,913,000 10,000
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 690,000 264,000 (2,669,000)
Cash and cash equivalents, beginning of year 1,462,000 1,198,000 3,867,000
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,152,000 $ 1,462,000 $ 1,198,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
Pennsylvania Real Estate Investment Trust
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Years Ended August 31, 1994, 1993 and 1992
1. Summary of significant accounting policies
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Consolidation
The consolidated financial statements of the Trust include the accounts of
twelve wholly owned subsidiaries, two are Delaware corporations, one is a
Nebraska corporation, one is a Virginia corporation and eight are Florida
corporations. One partnership in which the Trust is a general partner, and
has control as provided in the partnership agreement, has been
consolidated for financial statement presentation. All of the assets and
liabilities are included in the consolidated financial statements at 100%.
The minority partner's interest is 35%. All significant intercompany
accounts and transactions have been eliminated in consolidation.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Partnership and joint venture investments
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 78-9, ''Accounting for Investments in Real Estate
Ventures,'' the Trust accounts for its investment in partnerships and
joint ventures which it does not control using the equity method of
accounting. These investments, which represent 25-to-87.5% non-controlling
ownership interests, are recorded initially at the Trust's cost and
subsequently adjusted for the Trust's net equity in income and cash
contributions and distributions.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Statements of cash flows
The Trust considers all highly liquid short-term investments with an
initial maturity of 3 months or less to be cash equivalents. Cash paid for
interest was $3,948,000, $1,985,000 and $932,000 for the years ended
August 31, 1994, 1993 and 1992, respectively.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Depreciation
The Trust, for financial reporting purposes, depreciates its buildings,
equipment and leasehold improvements over their estimated useful lives of
10 to 45 years, using the straight-line method of depreciation. For
Federal income tax purposes, the Trust currently uses the straight-line
method of depreciation and the useful lives prescribed by the Internal
Revenue Code.
It is the Trust's policy to capitalize interest and real estate taxes
related to construction in progress and to depreciate these costs over the
life of the related assets in order to more properly match revenues and
expenses. These items are capitalized for income tax purposes and
amortized or depreciated in accordance with the provisions of the Internal
Revenue Code.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Allowance for possible losses
Management reviews the net realizable value of the Trust's portfolio
periodically to determine whether an allowance for possible losses is
necessary. The carrying value of the Trust's investments is evaluated on
an individual investment basis, and to the extent Management's estimate of
the net realizable value of each investment is less than its carrying
value, a provision for possible losses is established. During 1994, a
provision of approximately $1,300,000 was recorded for certain investments
in the Trust's portfolio, based upon recent independent appraisals and
Management's estimates of the potential income or loss associated with
each property to realize the adjusted carrying value. In addition, the
Trust recorded a provision of approximately $500,000 pertaining to other
investments in the portfolio in order to reflect Management's estimates of
net realizable value.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Pension plan
The Trust has provided pension benefits since 1970 for all employees,
excluding the Chairman and CEO for whom retirement benefits are provided
in an employment contract. The Trust's policy is to fund such accrued
pension costs.
With regards to the Chairman and CEO employment contract, no provision
was required for fiscal years ended August 31, 1994, 1993 and 1992,
respectively.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Income taxes
The Trust has elected to qualify as a real estate investment trust under
Sections 856-860 of the Internal Revenue Code and intends to remain so
qualified. Accordingly, no provision has been made for Federal income
taxes on income resulting from those sales of real estate investments
which have or will be distributed to shareholders within the prescribed
time limits. However, taxes are provided for those gains which are not
anticipated to be distributed to shareholders.
<PAGE> 7
Notes continued
The Trust is subject to a Federal excise tax computed on a calendar year.
The excise tax equals 4% of the excess, if any, of 85% of the Trust's
ordinary income plus 95% of the Trust's capital gain net income for the
calendar year over cash distributions during the calendar year, as
defined. The Trust has in the past distributed a substantial portion of
its taxable income in the subsequent fiscal year and may also follow this
policy in the future.
A provision for excise tax was made in 1994 in the amount of $400,000. No
provision for excise tax was made for fiscal years 1993 and 1992 as no tax
was due.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net income per share
Earnings per share are based on the weighted average number of shares
outstanding which were 8,663,646 in 1994, 8,643,223 in 1993 and 8,562,223
in 1992.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Reclassifications
Certain accounts in the 1993 financial statements have been reclassified
to conform with the 1994 presentation.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
2. Investments in partnerships and joint ventures
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following presents summarized financial information for the
Trust's investments in 28 and 31 partnerships and joint ventures at August
31, 1994 and 1993 respectively, and the Trust's equity in income for the
years ended August 31, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
At August 31 1994 1993
------------ ------------
<S> <C> <C> <C>
Assets
Investments in Real Estate at Cost:
Apartment buildings $102,395,000 $100,193,000
Industrial property 1,237,000 1,228,000
Shopping centers and retail stores 122,248,000 179,680,000
Land held for development 7,051,000 7,051,000
------------ ------------
Total investments in real estate 232,931,000 288,152,000
Less accumulated depreciation 63,639,000 64,238,000
------------ ------------
169,292,000 223,914,000
Cash and cash equivalents 3,566,000 4,936,000
Other assets 5,454,000 7,323,000
------------ ------------
Total assets 178,312,000 236,173,000
------------ ------------
Liabilities
Mortgage notes payable 131,002,000 174,456,000
Bank loans payable 11,928,000 15,208,000
Due to the Trust 2,418,000 1,990,000
Other liabilities 4,729,000 5,197,000
------------ ------------
Total liabilities 150,077,000 196,851,000
------------ ------------
Net equity 28,235,000 39,322,000
Partners' share (13,010,000) (18,734,000)
------------ ------------
Investment in partnerships and joint ventures $ 15,225,000 $ 20,588,000
============ ============
For the years ended August 31 1994 1993 1992
------------ ------------ -----------
Gross revenues from real estate $ 51,088,000 $ 55,700,000 $53,924,000
------------ ------------ -----------
Expenses
Property operating expenses 22,601,000 21,713,000 20,877,000
Mortgage and bank interest expense 12,668,000 16,379,000 17,793,000
Depreciation and amortization 6,406,000 8,179,000 7,765,000
------------ ------------ -----------
41,675,000 46,271,000 46,435,000
------------ ------------ -----------
9,413,000 9,429,000 7,489,000
Partners' share (4,997,000) (4,679,000) (3,839,000)
------------ ------------ -----------
Equity in income of partnerships and joint ventures $ 4,416,000 $ 4,750,000 $ 3,650,000
============ ============ ===========
</TABLE>
The Trust has a 50% partnership interest in Lehigh Valley Mall Associates which
is included in the amounts above. Summarized financial information for this
investment which is accounted for by the equity method follows:
<TABLE>
<CAPTION>
August 31, August 31, December 31,
For the years ended 1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Total assets $ 19,894,000 $ 20,711,000 $21,957,000
Revenues 13,391,000 13,182,000 12,075,000
Net income 6,521,000 6,292,000 5,900,000
Equity in income of partnership 3,260,000 3,146,000 2,950,000
</TABLE>
<PAGE> 8
The liability under each mortgage note is limited to the particular
property except for two loans in the amount of $21,227,000 which are
guaranteed by the partners of the respective partnerships, including the
Trust. In addition, a bank loan in the amount of $1,409,000 has been
guaranteed by the partners of the partnership including the Trust.
The Trust's investments in certain partnerships and joint ventures
reflect cash distributions in excess of the Trust's net investments
totaling $6,270,000 and $9,911,000 at August 31, 1994 and 1993
respectively. The Trust is generally entitled to a priority return on
these investments.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
3. Mortgage notes and bank loans payable
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Mortgage notes payable which are secured by the related properties are due
in installments over various terms extending to the year 2008 with
interest at rates ranging from 7.49% to 9.50% with an average interest
rate of 8.6%. Principal payments are due as follows:
Fiscal Year ending
1995 $647,000
1996 701,000
1997 761,000
1998 822,000
1999 889,000
2000 and thereafter 40,199,000
-----------
$44,019,000
===========
As of August 31, 1994, the Trust had available $55,000,000 of
unsecured revolving lines of credit of which $46,655,000 has been
borrowed, ($36,136,000 directly by the Trust and $10,519,000 through
partnerships and joint ventures). The loans bear interest at rates tied to
the prime rate with no requirements for compensating balances. The
weighted average interest rate based on amounts borrowed was 6.5% at
August 31, 1994. Under the lines of credit, the Trust must maintain a
minimum net worth, as defined in the loan documents, and maintain cash and
cash equivalents of at least $3,000,000, which may include up to
$2,000,000 of the Trust's share of cash and cash equivalents held by
partnerships and joint ventures. At August 31, 1994 the Trust was in
compliance with all debt covenants.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
4. Beneficiaries' equity
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
During fiscal 1992, the Trust sold 500,000 shares of beneficial interest
through a private placement at a price of $19.25 per share. The net
proceeds after offering costs were $9,119,000.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
5. Pension plan
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Trust maintains a noncontributory, defined benefit pension plan for
all eligible employees. Benefits under the plan are generally based on
years of service and final pay. Pension costs are accrued and funded
annually from entry date in the plan to projected retirement date and
include service costs for benefits earned during the period, interest
costs on the projected benefit obligation less the return on plan assets.
Pension cost was $94,000, $88,000 and $102,000 for the years ended August
31, 1994, 1993 and 1992, respectively. The actual return on plan assets
was ($30,000) and $111,000 for the years ended August 31, 1994 and 1993,
respectively. The funding status of the pension plan is:
At August 31 1994 1993
---------- ----------
Actuarial present value of benefit obligations:
Vested benefit obligation $1,675,000 $1,544,000
Accumulated benefit obligation 1,680,000 1,549,000
Projected benefit obligation 2,067,000 2,002,000
Plan assets at market value 1,567,000 1,499,000
Key assumptions used in these determinations were:
Discount rate 7.0% 6.5%
Rate of increase in compensation levels 5.0% 5.5%
Expected long-term rate of return 8.5% 8.5%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
6. Stock Option Plans
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
In December 1990, the shareholders approved an incentive stock option plan
for key employees and a stock option plan for non-employee trustees,
covering 200,000 and 100,000 shares of beneficial interest, respectively.
Under the terms of the plans, the purchase price of shares subject to each
option granted will be at least equal to the fair market value of the
shares on the date of grant. Options under the incentive stock option plan
may be exercised as determined by the Trust, but in no event later than 10
years from the date of grant. In December 1993, the Board of Trustees
amended the incentive stock option plan for key employees, subject to
<PAGE> 9
Notes continued
shareholder approval at their meeting on December 15, 1994, to increase
the number of shares subject to option to 400,000 shares, changed the name
of the plan to "1990 Incentive and Non Qualifying Stock Option Plan" and
to expand some provisions of the plan. The stock option plan for
non-employee trustees provides for annual grants of 1,000 options
(becoming exercisable in four equal installments). The options expire 10
years after the date of grant.
In December 1993, the Board of Trustees in accordance with the Employment
Agreement with Jonathan B. Weller to be President and Chief Operating
Officer of the Trust adopted, subject to shareholders' approval at their
meeting on December 15, 1994, a non-qualifying stock option plan covering
100,000 shares. Mr. Weller was granted options on February 1, 1994, when
he commenced his employment with the Trust, for 100,000 shares at a price
of $24.625 per share, having a term
of 10 years and subject to the other terms and conditions set forth in the
plan. Should the shareholders not approve the adoption of the plan, Mr.
Weller's options will be null and void.
Changes in options outstanding are as follows:
<TABLE>
<CAPTION>
Plan For Plan For
Key Employees Non-Employee Trustees
------------- ---------------------
<S> <C> <C>
Options outstanding at 8/31/93 ................. 89,500 23,250
Options granted................................. 85,000 6,000
Options exercised............................... (20,625) 0
------- ------
Options outstanding at 8/31/94.................. 153,875 29,250
======= ======
</TABLE>
As of August 31, 1994, options for 185,000 shares had been granted
pursuant to the incentive stock option plan of which 153,875 remain
outstanding at $16.00 to $23.625 per share and options for 30,000 shares
had been granted, pursuant to the stock option plan for non-employee
trustees of which 29,250 shares remain outstanding at $15.75 to $25.375
per share.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
7. Commitments and Contingencies
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Environmental matters have arisen at certain properties in which the Trust
has an interest. The Trust has retained environmental consultants in order
to investigate these matters. At one shopping center, in which the Trust
has a 60% ownership interest, a plan has been submitted to the state
regulatory agency in order to remediate groundwater contamination caused
by a former tenant who operated a dry cleaning establishment. Estimates to
remediate the contamination range from $300,000 to $500,000. At another
property, in which the Trust has a 50% ownership interest, groundwater
contamination exists which the Trust alleges was caused by the former
tenant. Estimates to remediate this property, which are subject to the
length of monitoring and the extent of remediation required, range from
$400,000 to $1,000,000. In addition, buried organic material, which caused
unacceptable levels of methane gas, was recently removed from the site of
an apartment project, in which the Trust has a 50% interest, at a cost of
approximately $400,000.
The Trust has recorded its share of these liabilities totaling $580,000
related to the consultants' evaluation of these matters which, in certain
instances, are subject to applicable state approvals of the remediation
plans. In Management's opinion no material incremental cost will be
incurred on these properties. The Trust will pursue recovery of
remediation costs from all of the responsible parties, including its
tenants and partners.
The Trust has been named as a defendant in a suit brought by persons and
their affiliates who are partners of the Trust in three partnerships. The
Trust is vigorously defending the suit and has denied the plaintiffs'
allegations. The Trust also believes that it has viable claims against
certain of the same partners (or their affiliates) which it is asserting.
As the pleadings are not yet closed and discovery is still in the
preliminary stages, it is not possible to judge the ultimate outcome of
these suits at this time. However, Management does not believe that
resolution of these matters will have a material effect on the Trust's
financial condition or results of operations.
The Trust has committed and expects to fund up to $1,900,000 of cash
contributions to the partnership which owns Laurel Mall for cost related
to the recent expansion.
Future minimum rentals receivable under non-cancelable operating leases
at August 31, 1994 are as follows:
1995 $ 6,541,000
1996 4,401,000
1997 4,323,000
1998 4,031,000
1999 3,494,000
Thereafter 21,052,000
----------
$43,842,000
===========
<PAGE> 10
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
8. Acquisitions:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The Trust acquired two properties during the year ended August 31, 1994
for approximately $36,100,000 which were accounted for by the purchase
method. The results of each property were included from the respective
acquisition date. In addition, in settlement of a partners' obligation to
the Trust, the Trust acquired a partner's 50% interest in the partnership
owning a shopping center in which the Trust previously held a 50%
partnership interest. The pro forma financial information may not be
indicative of results that would have been reported if the acquisitions
had occurred on September 1, 1993. Also, amounts presented below may not
be indicative of future results.
Year ended August 31, 1994 (unaudited)
-------------------------------------------------------------------
Pro forma total revenues $32,136,000
Pro forma net income $20,744,000
Pro forma earnings per share $2.39
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
9. Summary of quarterly results (unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
The following presents a summary of the unaudited quarterly financial
information for the years ended August 31, 1994 and 1993 (thousands of
dollars, except per share data).
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
For the year ended August 31, 1994 1st 2nd 3rd 4th Total
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 6,480 $6,525 $7,263 $7,646 $27,914
Income before gains on sales of interests in
real estate 2,957 2,612 2,342 414 8,325
Gains on sales of interests in real estate 12,223 106 - 33 12,362
Net income 15,180 2,718 2,342 447 20,687
Net income per share:
Income before gains on sales of interests in
real estate $ .34 $ .30 $ .27 $ .05 $ .96
Gains on sales of interest in real estate 1.41 .01 - .01 1.43
------- ------ ------ ------ -------
Total $ 1.75 $ .31 $ .27 $ .06 $ 2.39
======= ====== ====== ====== =======
----------------------------------------------------------------------------------------------------
For the year ended August 31, 1993 1st 2nd 3rd 4th Total
----------------------------------------------------------------------------------------------------
Revenues $ 4,285 $4,972 $6,011 $6,357 $21,625
Income before gains on sales of interests in
real estate 2,505 2,581 2,201 2,838 10,125
Gains on sales of interests in real estate 3,875 - - - 3,875
Net income 6,380 2,581 2,201 2,838 14,000
Net income per share:
Income before gains on sales of interest in
real estate $ .29 $ .30 $ .25 $ .33 $ 1.17
Gains on sales of interests in real estate .45 - - - .45
------- ------ ------ ------ -------
Total $ .74 $ .30 $ .25 $ .33 $ 1.62
======= ====== ====== ====== =======
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
10. Subsequent Events
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
In November 1994, the Trust replaced its unsecured revolving credit
agreement, increasing the amount of the revolving lines of credit to
$78,000,000 with an interest rate of either LIBOR plus 1.85% or the prime
rate, at the Trust's option. The term of these lines was extended to 30
months.
The Trust has signed an agreement to acquire a 522 unit apartment complex
in Boca Raton, Florida for approximately $31,500,000. The Trust
anticipates spending an additional $2,100,000 for closing costs and
enhancements to the units and the community. This acquisition, will be
financed through a $32,000,000 secured borrowing with a one year term with
any additional amount required to be funded from the Trust's revolving
credit facility. It is anticipated this acquisition will close by November
30, 1994.
<PAGE> 11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
To the Shareholders and Trustees of
Pennsylvania Real Estate Investment Trust:
We have audited the accompanying consolidated balance sheets of
Pennsylvania Real Estate Investment Trust (a Pennsylvania Trust) and
Subsidiaries as of August 31, 1994 and 1993, and the related consolidated
statements of income, beneficiaries' equity and cash flows for each of the
three years in the period ended August 31, 1994. These financial
statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the 1994 financial statements of
Lehigh Valley Mall Associates, a partnership in which the Trust has a 50
percent interest which is reflected in the accompanying financial
statements using the equity method of accounting. The equity in net income
of Lehigh Valley Mall Associates represents 16 percent of net income. The
financial statements of Lehigh Valley Mall Associates were audited by
other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for Lehigh Valley Mall
Associates, is based solely on the report of the other auditors.
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 management, as well as evaluating
the overall financial statement presentation. We believe that out audits
provide a reasonable basis for our opinion.
In our opinion, based upon our audit and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Pennsylvania Real Estate Investment
Trust and Subsidiaries as of August 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years in the
period ended August 31, 1994 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, PA
October 24, 1994
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
LIQUIDITY AND CAPITAL RESOURCES
On August 31, 1994 liquidity was provided by cash and cash equivalents
of $4.1 million, including the Trust's proportionate share of cash held by
partnerships and joint ventures, and by the unused portion of the Trust's
lines of credit in the amount of $8.4 million.
Management expects to have adequate resources to meet the Trust's
projected uses of funds. However, events such as acquisitions of
properties, reductions in the Trust's lines of credit, or failure of the
Trust's partners to make capital contributions when due could result in
the need to obtain additional sources of funds. These sources could
include refinancing of existing mortgage debt, sale of assets, securing
loans on the 17 properties presently unencumbered by debt, other
securitized borrowings, or the sale of shares of beneficial interest.
Lines of Credit
The present lines of credit total $55 million of which $46.6 million
was in use on August 31, 1994, leaving an unused balance of $8.4 million.
Included in the amount in use was $10.5 million borrowed by various
partnerships in which the Trust or its subsidiaries have an interest.
In connection with these lines of credit, the Trust has agreed to
certain covenants, including maintaining a minimum net worth, as defined
in the loan documents, and maintaining cash and cash equivalent levels of
at least $3 million. The Trust has never failed to be in compliance with
these covenants.
In November 1994 the Trust replaced its unsecured revolving credit
agreement, increasing the amount to $78,000,000 and extending the term
from one year to 30 months. The interest rate is either LIBOR plus 1.85%
or the prime rate, at the Trust's option.
Other Borrowings
The financial obligations of Emerald Point Apartments (formerly
Regency Apartments) in Virginia Beach, VA totaling approximately $17.5
million will be refinanced in December 1994, through the Fannie Mae
Pass-Through Certificate program at an average interest rate of 6.8%
payable over 14 years with a final principal payment of $12.5 million in
December, 2008. The loan is guaranteed by the Federal National Mortgage
Association (FNMA). The interest on these obligations is exempted from
Federal and Virginia Income Taxes and is presently 7.49%. The annual
payments of debt service will be reduced to $1.4 million from $1.5
million. A partner of a subsidiary of the Trust has a 35% minority
interest in the property.
Laurel Mall, in which a subsidiary of the Trust has a 40% interest,
has recently been expanded. The total cost of the project, including both
the original investment as well as the estimated cost of the expansion is
$30.6 million. As of August 31, 1994, an institutional lender had advanced
$20.3 million to the partnership and is committed to advance up to an
additional $10.3 million as construction and leasing is completed. The
loan becomes due in July, 1998. Management anticipates that a permanent
non-recourse mortgage will be obtained to replace the existing mortgage.
At such time the Trust will be required to advance 57% of the difference,
if any, between the existing financing and the new permanent mortgage. In
addition, the Trust is obligated to fund 40% of project costs in excess of
$30.6 million. Until then, the Trust and its partners have jointly and
severally guaranteed repayment of the full balance of the loan and have
similarly guaranteed completion of the project.
The Trust may be contingently liable for portions of several loans not
directly reflected on its balance sheet, being the portion of loans
secured by properties in which it has an interest, which loans are not
limited in recourse to the real estate. (See Note 2 of notes to
consolidated financial statements.)
Significant Capital Events
The Trust has agreed to acquire five apartment properties containing a
total of 1,122 units in Pennsylvania and Florida, subject to due diligence
reviews including environmental, physical conditions and financial review.
If all five properties are purchased, the total acquisition costs,
including closing costs and physical improvements are estimated to be $51
million. The sources to
<PAGE> 13
fund these acquisitions are the Trust's expanded lines of credit and a one
year term loan secured by certain of the Trust's properties.
The Trust anticipates spending approximately $1,600,000 for routine
replacements of carpets and appliances at its wholly-owned apartment
properties during the coming year. A portion of a shopping center in which
the Trust owns a 50% interest now under lease to a major retailer will
undergo general repairs and improvements at a cost to the Trust of
approximately $450,000. A lease has been signed with a major retailer for
a 113,000 square foot store in one of the Trust's wholly-owned shopping
centers, the total cost of which will be approximately $8.6 million, and
construction is expected to begin in the spring of 1995 for opening in
fiscal 1996.
Over the next three years, three mortgage loans which are secured by
properties in which the Trust has an interest come due as follows: 1995
$3,756,000, 1996 $5,830,000, 1997, none.
Environmental and Litigation Matters
Environmental matters have arisen at certain properties in which the
Trust has an interest. The Trust has retained environmental consultants in
order to investigate these matters.
The Trust is involved in litigation with its partners who are the same
persons in three partnerships. Two of the partnerships own apartment
properties which are being managed by the partners. The Trust's ability to
influence management policies and practices and the economic return
produced by the properties are affected by the pendency of the litigation.
(See Note 7 of the notes to consolidated financial statements regarding
both environmental and litigation matters.)
Competition
Several projects have been completed or announced recently which will
directly compete with properties in which the Trust has an interest.
Lehigh Valley Mall and Whitehall Mall, in which the Trust owns a 50%
interest, are located in Whitehall Township (near Allentown),
Pennsylvania. A shopping center of 289,000 square feet will open in that
township in November 1994. Tenants include K-Mart, Giant Foods, Pier One
Imports and Barnes & Noble. Another shopping center is under construction
in the same township in which Wal-Mart is expected to open by the spring
of 1995. Sam's Warehouse Club is expected to commence construction within
one year. The Trust also owns Crest Plaza, located about 4 miles from the
site.
The Trust has a 40% interest in Laurel Mall, Hazleton, PA. Adjacent
to Laurel Mall, a store of 180,000 square feet is under construction for
Wal-Mart which is expected to open by the spring of 1995.
The Trust has a 50% interest in Palmer Park Mall, Easton PA. A
developer has applied for governmental approval to construct a 400,000
square foot shopping center approximately 3 miles from the site. The
anchor tenants are reported to be Wal-Mart and Sam's Warehouse Club, which
are expected to occupy 125,000 and 128,000 square feet, respectively. Site
plan approval has not yet been received by the developer, but it is
believed that it will be forthcoming.
The Trust owns Kenwood Gardens Apartments, a 504 unit complex in
Toledo, Ohio. Nearly 50% of the tenants are students at the University of
Toledo. That institution is now undertaking the construction of new
dormitories which are expected to house 400 students and will be completed
in the fall of 1995.
Economic Conditions - Unemployment
Both long-term and short-term interest rates increased during the year
as evidenced by an increase in the prime rate from 6% to 7 3/4%. Changes in
interest rates often affect the pace of single family and multifamily
construction and ultimately the competition for apartment tenants. In
Broward and Palm Beach Florida counties, the issuance of multifamily
building permits increased at an annualized rate of 49% during the year.
Unemployment rates generally are believed to affect indirectly both
retail sales and apartment occupancy. The unemployment rate in the Ft.
Lauderdale MSA (Broward County area) was 6.9% during the second quarter of
1994, while total employment increased 3.6% from
<PAGE> 14
the prior year. In the West Palm Beach - Boca Raton MSA unemployment was
9.0% while total employment increased by 4.0% from the prior year. In the
Allentown, Pennsylvania MSA, unemployment dropped from 7.2% in August of
1993 to 6.3% in August of 1994. In Toledo, Ohio, the rates were 6.5% in
August of 1993, and 6.1% a year later. In Harrisburg, Pennsylvania the
rates were 4.6% and 4.3% respectively.
It is not possible to determine what effect new single family and
multifamily construction, employment and population growth, and
unemployment will have on the occupancy or rental rates of the Trust's
properties. Properties located in the above areas accounted for over 50%
of the Funds From Operations of the Trust in the last fiscal year.
Investing Activities
During the fiscal year ended August 31, 1994, the Trust invested $37
million in real estate of which $36.1 million was borrowed through the
Trust's line of credit. This includes investments of $12.7 million in
Hidden Lakes Apartments near Dayton, Ohio, a 360 unit garden apartment
complex and $21.8 million in The Palms of Pembroke, in Southwest Broward
County, Florida, a 348 unit garden apartment property. Approximately $3
million was invested in other properties wholly-owned by the Trust.
Cash proceeds from the sale of real estate investments were $14.5
million compared to $5.2 in 1993 as a result of the sale of interests in
five properties. The Trust realized cash proceeds of $2.5 million from the
maturing or disposition of U.S. Treasury obligations.
Financing Activities
Financing activities by the Trust during the period principally
consisted of proceeds received from mortgage and bank borrowings. The
total amount was $36.1 million compared to $41.5 million in 1993.
The Trust borrowed $34.5 million for the acquisition of Hidden Lakes
Apartments and The Palms of Pembroke.
The Trust received proceeds of $14.5 million from sales of five
properties. The funds were used to discharge bank debt.
Distributions to beneficiaries during fiscal year ended 1994 increased
to $16.1 million from $15.4 million in 1993.
RESULTS OF OPERATIONS
Fiscal 1994 Compared With Fiscal 1993
Net income for the fiscal year 1994 increased to $20,687,000 from
$14,000,000 for the comparable period in 1993, principally as a result of
an increase in gains on sales of interests in real estate of $8,487,000
and the results of operations from newly acquired properties. This was
offset by an increase in the provision for losses on investments of
$1,475,000.
In the fiscal year 1994, the Trust sold interests in Village Shopping
Center, Gary, Indiana (which was wholly owned); Commons of Chicago Ridge,
Chicago Ridge, Illinois; Sheridan Village Shopping Center, Peoria,
Illinois and land parcels. The gains totaled $12,362,000. In the
comparable period in fiscal 1993, the Trust sold interests in Park Hills
Plaza and Valley Forge Mall and realized gains totaling $3,875,000.
Gross revenue from wholly owned and controlled real estate increased
to $27,640,000 from $21,083,000, primarily due to revenue from Cobblestone
Apartments acquired in December 1992, Shenandoah Village Apartments
acquired in August 1993, Emerald Point, Virginia Beach, Virginia, acquired
in February 1993, Hidden Lakes Apartments, Dayton, Ohio, acquired in
February 1994, and Mandarin Corners Shopping Center which became a wholly
owned property in February 1994.
Principally, as a result of these acquisitions, operating expenses for
wholly owned and controlled properties increased to $11,758,000 from
$8,959,000; depreciation and amortization
<PAGE> 15
increased to $3,541,000 from $2,784,000; and mortage and bank loan interest
increased to $4,162,000 from $2,222,000.
Provision for losses on investments increased to $1,795,000 from
$320,000. (See Note 1 to consolidated financial statements.)
Interest and other income decreased to $274,000 from $542,000, due to
maturing of invested Treasury obligations, a portion of such proceeds
having been invested in real estate.
General and administrative expenses increased to $2,528,000 from
$1,873,000, due to the addition of a new president for the Trust and an
increase in officers' compensation and professional fees, including legal
fees dealing with litigation with a partner.
Equity in income of partnerships and joint ventures decreased from
$4,750,000 to $4,416,000 primarily due to recognition of environmental
costs and reserves associated with five properties which totaled $760,000
as compared to $50,000 in the prior year. This was offset by an increase
in equity in income from Countrywood Apartments acquired in August 1993 of
$158,000 and the disposition of the Commons of Chicago Ridge, Chicago
Ridge, Illinois in October 1993 which incurred a loss of $368,000 for
fiscal 1993.
Fiscal 1993 Compared With Fiscal 1992
Net income for the fiscal year 1993 increased to $14,000,000 from
$8,677,000 for the comparable period of 1992 , principally as a result of
gains on sales of interests in real estate of $3,875,000. The acquisition
of Cobblestone Apartments added $461,000 and improved performance of
existing properties such as Lehigh Valley Mall added $740,000. The
properties sold were Valley Forge Mall and Park Hills Plaza.
Gross revenue from real estate increased to $21,083,000 from
$16,064,000, primarily due to the revenues from Cobblestone Apartments
which was acquired in December, 1992 and Emerald Point acquired in
February, 1993. Interest and other income decreased to $541,000 from
$795,000 due to the maturing of invested Treasury obligations, as well as
a reduction in the rates received on such investments.
Property operating expenses increased to $8,959,000 from $6,607,000
primarily due to operating expenses on Cobblestone Apartments and Emerald
Point.
Mortgage and bank interest expense increased to $2,222,000 from
$945,000 primarily due to the acquisition of Cobblestone Apartments and
Emerald Point and interest expense on Camp Hill Plaza Apartments which was
financed in February 1992. Interest expense was reduced by $460,000 due to
the prepayment of mortgages in February 1992 on Kenwood Gardens and
Lakewood Hills.
Equity in income of partnerships and joint ventures increased by
$1,100,000, primarily due to an increase in gross rental income of
$840,000 from Lehigh Valley Mall and $250,000 from the Commons of Chicago
Ridge and a reduction in the interest rate on borrowings for Sheridan
Village Shopping Center which reduced its mortgage interest expense by
$134,000.
The net income from Marylander Apartments declined by $100,000 because
of an increase in vacancies to 12% from 10% and an increase of 10% in
operating expenses.
Fiscal 1992 Compared with Fiscal 1991
Net income for fiscal year 1992 decreased to $8,677,000 from
$10,350,000 for the comparable period of 1991, principally as a result of
gains on sales of interests in real estate of $1,600,000 in 1991.
Gross revenue from real estate increased to $16,064,000 from
$15,474,000 primarily due to the revenue from six apartment properties.
Property operating expenses increased to $6,608,000 from $6,132,000
primarily due to operating expenses on six apartment properties and one
shopping center.
Equity in income of partnerships and joint ventures increased by
$156,000 primarily due to an increase in gross rental income of $208,000
for Sheridan Village Shopping Center.
<PAGE> 1
Exhibit 22
Subsidiaries of Registrant
Registrant or its subsidiaries have an interest in 24 partnerships and 5
joint ventures as follows: a 50% partnership interest in 18 partnerships; a 40%
partnership interest in two partnerships; a 60% partnership interest in one
partnership, a 65% partnership interest in one partnership, a 75% partnership
interest in two partnerships and a 87.5% partnership interest in one other
partnership. In addition, Registrant has a 50% interest in 3 joint ventures and
a 25% interest in 2 joint ventures.
Registrant accounts for its investments in partnerships and joint ventures
which it does not "control" using the equity method of accounting. These
investments, which represent 25% to 87.5% ownership interests, are recorded at
Registrant's cost adjusted for Registrant's net equity in the income and cash
contributions and distributions.
<TABLE>
<CAPTION>
Percentage
Names of Partnership State of Organization Owned
- -------------------- --------------------- ----------
<S> <C> <C>
Bailey Associates PA 50%
Big Oak Associates PA 50
Cambridge Apartments PA 50
Chippewa Associates PA 50
Countrywood Apartments Limited Partnership FL 50
Eagles Nest Associates FL 50
East Lampeter Associates PA 50
Elizabethtown Associates PA 50
Forestville Plaza Shopping Center Associates MD 75
Fox Run Apartments PA 50
Fox Run Del Associates DE 50
Gateway Mall Associates FL 60
Laurel Mall Associates PA 40
Lehigh Valley Associates PA 50
New Regency Hilltop Associates VA 65
Palmer Park Mall Venture PA 50
Rancocas Limited Partnership NJ 75
Regency Associates NE 50
Rio Grande Venture PA 50
Turren Associates FL 50
Waynesburg Associates PA 50
Windsong Apartments Limited Partnership FL 40
VLRC Associates FL 87.5
Will-O-Hill Apartments PA 50
</TABLE>
<PAGE> 2
Registrant owns 100% of twelve corporations which hold partnership
interests as follows: two incorporated in Delaware, one which holds a 50%
interest, one with a 40% interest; eight incorporated in Florida, four which
hold a 50% interest, one a 60% interest and two a 1% interest; one incorporated
in Nebraska which holds a 50% interest and one in Virginia which holds a 65%
interest.
<TABLE>
<CAPTION>
Percentage
Names of Partnership State of Organization Owned
- -------------------- --------------------- ----------
<S> <C> <C>
Berdel, Inc. DE 100%
Berfla, Inc. FL 100
Blanding, Inc. FL 100
Burren, Inc. FL 100
Larmes, Inc. DE 100
PR Countrywood Inc. FL 100
PR Shenandoah Inc. FL 100
PR VA Regency Inc. VA 100
PR Windsong Inc. FL 100
RA Inc. NE 100
Stones Inc. FL 100
PR Mandarin, Inc. FL 100
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000077281
<NAME> PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 0.00001
<FISCAL-YEAR-END> AUG-31-1994
<PERIOD-START> SEP-1-1993
<PERIOD-END> AUG-31-1994
<CASH> 2,152,000
<SECURITIES> 0
<RECEIVABLES> 23,032,000
<ALLOWANCES> 3,235,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 154,281,000
<DEPRECIATION> 33,735,000
<TOTAL-ASSETS> 142,495,000
<CURRENT-LIABILITIES> 5,592,000
<BONDS> 80,155,000
<COMMON> 8,670,000
0
0
<OTHER-SE> 48,078,000
<TOTAL-LIABILITY-AND-EQUITY> 142,495,000
<SALES> 27,914,000
<TOTAL-REVENUES> 32,109,000
<CGS> 0
<TOTAL-COSTS> 17,827,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,795,000
<INTEREST-EXPENSE> 4,162,000
<INCOME-PRETAX> 8,325,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,235,000
<DISCONTINUED> 0
<EXTRAORDINARY> 12,362,000
<CHANGES> 0
<NET-INCOME> 20,687,000
<EPS-PRIMARY> 2.39
<EPS-DILUTED> 2.39
