<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K/A-1
-----------------
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, 1996
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
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-6216339
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
455 Pennsylvania Avenue, Suite 135
Ft. Washington, Pennsylvania 19034
(address of principal executive office) (Zip Code)
Trust's telephone number, including area code: (215) 542-9250
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Share of Beneficial Interest, par value American Stock Exchange
$1.00 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Trust (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 Trust was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
Indicate by check mark 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 III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value, as of November 20, 1996, of the voting stock held
by non-affiliates of the Registrant is $168,499,000. (Aggregate market value
is estimated solely for the purposes of this report and shall not be construed
as an admission for the purposes of determining affiliate status.)
At November 15, 1996, 8,678,098 Shares of Beneficial Interest of the Trust
were outstanding.
Documents Incorporated by Reference
Portions of the Trust's 1996 Annual Report to Shareholders are incorporated by
reference into Part II of this report. Portions of the Trust's Proxy Statement
for the 1996 Annual Meeting of Shareholders are incorporated by reference into
Part III of this report. Except for the parts of such documents that have been
specifically incorporated herein by reference, such documents shall not be
deemed "filed" for the purposes of this report.
<PAGE>
This Amendment No. 1 to Report on Form 10-K of Pennsylvania Real Estate
Investment Trust (1-6300) (the Trust) for its fiscal year ended August 31,
1996 is being filed for the sole purpose of filing in electronic format
Exhibit 13.1 thereto (being portions of the Trust's Annual Report to
Shareholders identified in the description to Exhibit 13.1). Unanticipated
technical difficulties presented the timely preparation and submission of
Exhibit 13.1 in electronic format. Paper copy of Exhibit 13.1 was timely filed
by the Trust with the Securities and Exchange Commission on Form SE on
November 29, 1996.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(3) Exhibits
13.1 "Market Price and Distribution Record" contained on the inside
back page of the Trust's 1996 Annual Report to Shareholders;
"Financial Highlights" contained on page 1 of the Trust's 1996
Annual Report to Shareholders; consolidated financial
statements, including "Notes to consolidated financial
statements" and "Report of independent public accountants,"
pages 12-20 of the Trust's 1996 Annual Report to Shareholders;
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained on pages 21-23 of the
Trust's 1996 Annual Report to Shareholders.
-1-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(The Registrant)
Date: December 2, 1996 By: /s/ Sylvan M. Cohen
--------------------------------------
Sylvan M. Cohen, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Trust
and in the capacities and on the dates indicated:
/s/ Sylvan M. Cohen
- ------------------------------
Sylvan M. Cohen, December 2, 1996
Chairman and Chief Executive Officer and Trustee
(Principal Executive Officer)
*
- ------------------------------
Jonathan B. Weller, December 2, 1996
President and Chief Operating Officer and Trustee
*
- ------------------------------
William R. Dimeling, December 2, 1996
Trustee
*
- ------------------------------
Jack Farber, December 2, 1996
Trustee
*
- ------------------------------
Robert Freedman, December 2, 1996
Trustee
*
- ------------------------------
Lee Javitch, December 2, 1996
Trustee
-2-
<PAGE>
*
- ------------------------------
Leonard I. Korman, December 2, 1996
Trustee
*
- ------------------------------
Jeffrey P. Orleans, December 2, 1996
Trustee
*
- ------------------------------
Robert G. Rogers, December 2, 1996
Executive Vice President and Trustee
*
- ------------------------------
Dante J. Massimini, December 2, 1996
Senior Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
* /s/ Sylvan M. Cohen
- ------------------------------
By Sylvan M. Cohen, December 2, 1996
Attorney-In-Fact
-3-
<PAGE>
EXHIBIT INDEX
EXHIBITS
===============================================================================
Exhibit No. Description Page
- -------------------------------------------------------------------------------
13.1 "Market Price and Distribution Record" contained on
the inside back page of the Trust's 1996 Annual Report
to Shareholders; "Financial Highlights" contained on
page 1 of the Trust's 1996 Annual Report to
Shareholders; consolidated financial statements,
including "Notes to consolidated financial statements"
and "Report of independent public accountants," pages
12-20 of the Trust's 1996 Annual Report to
Shareholders; and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations" contained on pages 21-23 of the Trust's
1996 Annual Report to Shareholders.
===============================================================================
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Years Ended August 31
(Thousands of dollars except per share results) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Income Before Gains on Sales of
Interests in Real Estate $ 10,179 $ 11,106 $ 8,325 $ 10,125 $ 8,677
Gains on Sales of Interests in Real Estate 865 119 12,362 3,875 --
Net Income 11,044 11,225 20,687 14,000 8,677
Distributions Paid to Beneficiaries 16,310 16,302 16,121 15,386 14,860 1
---------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Results
Income Before Gains on Sales
of Interests in Real Estate $ 1.17 $ 1.28 $ .96 $ 1.17 $ 1.01
Gains on Sales of Interests in Real Estate .10 .01 1.43 .45 --
Net Income 1.27 1.29 2.39 1.62 1.01
Distributions Paid 1.88 1.88 1.86 1.78 1.72 1
Distribution Rate at Fiscal Year End 1.88 1.88 1.88 1.80 1.72
---------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Investments in Real Estate, at Cost $198,542 $195,929 $154,281 $112,262 $ 64,612
Total Assets 177,725 181,336 142,495 107,853 66,250
Total Mortgage and Bank Loans Payable 124,148 122,518 80,155 51,929 10,772
---------------------------------------------------------------------------
</TABLE>
Funds from Operations 2
<TABLE>
<CAPTION>
Years Ended August 31
(Thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income $ 11,044 $ 11,225 $ 20,687 $ 14,000 $ 8,677
Less: Gains on sales of interests in real estate (865) (119) (12,362) (3,875) --
Plus: Provision for losses 3 -- -- 1,795 320 320
--------------------------------------------------------------------------
10,179 11,106 10,120 10,445 8,997
Plus:
Depreciation and amortization:
Wholly owned and consolidated partnerships 4 5,650 5,044 3,322 2,685 2,101
Unconsolidated partnerships and joint ventures 3,334 3,214 3,229 4,119 3,960
Less:
Depreciation of non-real estate assets (202) (173) (146) (104) (88)
Amortization of deferred financing costs (333) (228) (108) (275) (138)
--------------------------------------------------------------------------
Funds from operations $ 18,628 $ 18,963 $ 16,417 $ 16,870 $ 14,832
============================================================================
</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 Effective Fiscal Year 1996, the Trust implemented a revised definition of
funds from operations ("FFO") based on recommendations adopted by the
National Association of Real Estate Investment Trusts, and has restated FFO to
conform with the revised definition, FFO is defined as income before gains
(losses) on investments and extraordinary items (computed in accordance with
gennerally accepted accounting principles "GAAP") plus real estate
depreciation and similar adjustments for unconsolidated joint ventures after
adjustments for non-real estate depreciation and amortization of financing
costs. FFO should not be construed as an alternative to net income (as
determined in accordance with GAAP) as an indicator of the Trust's operating
performance, or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidty.
3 See Note 1 to Consolidated Financial Statements.
4 Net of minority interest share of $258,000, $241,000, $219,000 and $99,000 in
1996, 1995, 1994 and 1993, respectively.
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
At August 31
1996 1995
------------------------------------
<S> <C> <C>
Assets
Investments in Real Estate, At Cost (Notes 1, 3 and 7):
Apartment buildings $156,102,000 $154,907,000
Industrial properties 5,078,000 5,078,000
Shopping centers and retail stores 37,362,000 32,354,000
------------------------------------
Total investments in real estate 198,542,000 192,339,000
Less accumulated depreciation 44,693,000 38,828,000
------------------------------------
153,849,000 153,511,000
Land held for sale -- 3,590,000
Investments in Partnerships and Joint Ventures, At Equity
(Notes 1 and 2) 14,200,000 17,439,000
Advances to Partnerships and Joint Ventures 2,795,000 2,414,000
Notes Receivable 1,649,000 1,649,000
------------------------------------
172,493,000 178,603,000
Less allowance for possible losses (Note 1) 2,042,000 2,775,000
------------------------------------
170,451,000 175,828,000
Other Assets:
Cash and cash equivalents 1,030,000 1,098,000
Rents and sundry receivables 608,000 346,000
Deferred costs, prepaid real estate taxes and expenses, net 5,636,000 4,064,000
------------------------------------
$177,725,000 $181,336,000
====================================
Liabilities and Beneficiaries' Equity
Mortgage Notes Payable (Note 3) $ 84,833,000 $ 78,198,000
Bank Loans Payable (Note 3) 39,315,000 44,320,000
Tenants Deposits and Deferred Rents 1,422,000 1,352,000
Accrued Pension and Retirement Benefits (Notes 1 and 4) 1,207,000 1,213,000
Accrued Expenses and Other Liabilities 3,901,000 3,954,000
------------------------------------
130,678,000 129,037,000
------------------------------------
Minority Interest in Consolidated Partnership (Note 1) 542,000 528,000
------------------------------------
Commitments and Contingencies (Note 6)
Beneficiaries Equity
($5.36 and $5.97 per share at August 31, 1996 and 1995)
(Notes 1 and 5):
Shares of Beneficial Interest, $1 Par; Authorized, Unlimited;
Issued and Outstanding 8,676,098 Shares in 1996 and 1995 8,676,000 8,676,000
Capital Contributed in Excess of Par 53,133,000 53,133,000
Distributions in Excess of Net Income (15,304,000) (10,038,000)
------------------------------------
46,505,000 51,771,000
------------------------------------
$177,725,000 $181,336,000
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the years ended August 31
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gross revenues from real estate (Note 6) $38,985,000 $36,978,000 $27,640,000
Interest and other income 171,000 176,000 274,000
-----------------------------------------
39,156,000 37,154,000 27,914,000
-----------------------------------------
Expenses
Property operating expenses 16,102,000 14,859,000 11,758,000
Depreciation and amortization (Note 1) 5,908,000 5,286,000 3,541,000
General and administrative expenses (Notes 1 and 4) 3,119,000 3,091,000 2,528,000
Mortgage and bank loan interest 9,831,000 8,908,000 4,162,000
Provisions for losses on investments (Note 1) -- -- 1,795,000
-----------------------------------------
34,960,000 32,144,000 23,784,000
-----------------------------------------
Income before minority interest, equity in income of
partnerships and joint ventures and gains on sales
of interests in real estate 4,196,000 5,010,000 4,130,000
Minority interest (275,000) (285,000) (221,000)
Equity in income of partnerships and joint ventures
(Notes 1 and 2) 6,258,000 6,381,000 4,416,000
Gains on sales of interests in real estate 865,000 119,000 12,362,000
-----------------------------------------
Net income $11,044,000 $11,225,000 $20,687,000
=========================================
Net Income Per Share (Note 1) $ 1.27 $ 1.29 $ 2.39
=========================================
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated Statements of
Beneficiaries' Equity
<TABLE>
<CAPTION>
For the three years ended August 31, 1996
Shares Capital
of beneficial contributed Distributions
interest in excess in excess
$1 par of par of net income
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 1, 1993 $ 8,649,000 $ 52,730,000 $ (9,527,000)
Net income -- -- 20,687,000
Shares issued upon exercise of options (Note 5) 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)
Net income -- -- 11,225,000
Shares issued upon exercise of options (Note 5) 6000 94,000 --
Distributions paid to beneficiaries ($1.88 per share) -- -- (16,302,000)
------------------------------------------
Balance, August 31, 1995 8,676,000 53,133,000 (10,038,000)
Net income -- -- 11,044,000
Distributions paid to beneficiaries ($1.88 per share) -- -- (16,310,000)
------------------------------------------
Balance, August 31, 1996 $ 8,676,000 $ 53,133,000 $(15,304,000)
==========================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Pennsylvania Real Estate Investment Trust
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the years ended August 31
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 11,044,000 $ 11,225,000 $ 20,687,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in income of consolidated partnership 275,000 285,000 221,000
Depreciation and amortization 5,908,000 5,286,000 3,541,000
Gains on sales of interests in real estate (865,000) (119,000) (12,362,000)
(Decrease) increase in allowance for possible losses (734,000) (460,000) 1,795,000
Change in assets and liabilities:
Rents and sundry receivables (192,000) (18,000) 161,000
Deferred costs, prepaid real estate taxes
and expenses, net. (632,000) (837,000) 536,000
Accrued pension and retirement benefits (6,000) 130,000 4,000
Accrued expenses and other liabilities (54,000) 1,042,000 1,028,000
Tenants deposits and deferred rents 70,000 138,000 298,000
--------------------------------------------------------------------
Net cash provided by operating activities 14,814,000 16,672,000 15,909,000
--------------------------------------------------------------------
Cash Flows From Investing Activities
Investments in wholly owned real estate (3,685,000) (38,058,000) (37,144,000)
Investments in partnerships and joint ventures (517,000) (983,000) (471,000)
Cash proceeds from sales of real estate investments 5,163,000 -- 14,540,000
Increase in advances to partnerships and joint ventures (380,000) (749,000) (429,000)
Cash distributions from partnerships and joint ventures
in excess of (less than) equity in income 889,000 (127,000) 2,529,000
Cash distributions to minority partners (261,000) (165,000) (144,000)
Decrease in U.S. Treasury obligations -- -- 2,595,000
--------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,209,000 (40,082,000) (18,524,000)
--------------------------------------------------------------------
Cash Flows From Financing Activities
Principal installments on mortgage notes payable (1,123,000) (821,000) (576,000)
Increase in mortgage notes payable 8,800,000 35,000,000 --
Prepayment of mortgage notes payable (1,749,000) -- (2,164,000)
Proceeds from bank loan payable -- 39,379,000 36,136,000
Decrease in bank loan payable (5,005,000) (35,000,000) (14,300,000)
Payment of deferred financing costs (704,000) -- --
Shares of beneficial interest issued -- 100,000 330,000
Distributions paid to beneficiaries (16,310,000) (16,302,000) (16,121,000)
--------------------------------------------------------------------
Net cash (used in) provided by financing activities (16,091,000) 22,356,000 3,305,000
--------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (68,000) (1,054,000) 690,000
Cash and cash equivalents, beginning of year 1,098,000 2,152,000 1,462,000
--------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,030,000 $ 1,098,000 $ 2,152,000
====================================================================
Supplemental disclosure of non-cash investing activities:
Net assets acquired -- $ 3,590,000 --
Liabilities assumed primarily bank loans payable -- (3,804,000) --
--------------------------------------------------------------------
-- $ (214,000) --
====================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
Notes to Consolidated Financial Statements
Years Ended August 31, 1996, 1995 and 1994
1. Summary of significant accounting policies
Nature of Operations
Pennsylvania Real Estate Investment Trust (the Trust) is a self-administered
equity real estate investment trust engaged, directly and through subsidiaries
and joint ventures, in owning and managing income producing real estate, with
an emphasis on shopping centers and apartment complexes. The Trust primarily
operates in the mid-Atlantic region from Pennsylvania to Virginia and in
selected areas of Florida.
Consolidation
The consolidated financial statements of the Trust include the accounts of
thirteen wholly owned subsidiaries, two are Delaware corporations, one is a
Nebraska corporation, one is a Virginia corporation, one is a Maryland
corporation and eight are Florida corporations. One partnership in which the
Trust is a 65% general partner, and has control as provided in the partnership
agreement, has been consolidated for financial statement presentation. The
minority partners 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 Trusts cost and subsequently adjusted
for the Trusts net equity in income and cash contributions and distributions.
Statements of cash flows
The Trust considers all highly liquid short-term investments with an original
maturity of 3 months or less to be cash equivalents. Cash paid for interest
was $9,962,000, $8,619,000, and $3,948,000, for the years ended August
31,1996, 1995 and 1994, 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. For fiscal years
1996, 1995 and 1994 the Trust did not capitalize any interest or real estate
taxes.
<PAGE>
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 Trusts investments is evaluated on an
individual investment basis, and to the extent managements 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 $1,795,000 was recorded for certain investments in the Trust's
portfolio, based upon independent appraisals and managements estimates of the
potential income or loss associated with each property to realize the adjusted
carrying value.
In the first quarter of fiscal 1997, the Trust will be required to adopt the
provisions of Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of (SFAS No. 121). This new accounting standard provides guidance for
determining when impairment losses should be recognized and how they should be
measured. The Trust has reviewed the provisions of SFAS No. 121 and does not
anticipate any material impact on its financial condition or results of
operations upon adoption.
Benefit plans
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.
With regard to the Chairman and CEO's employment contract, no provision was
required for fiscal years ended August 31, 1996, 1995 and 1994, 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.
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 Trusts ordinary
income plus 95% of the Trusts 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 1996 and 1995 as no tax was
due.
<PAGE>
The tax status of distributions paid to beneficiaries was composed of the
following for the calendar years ended December 31, 1995 and 1994.
1995 1994
- --------------------------------------------------------
Ordinary income $ 1.88 $ .65
Capital gains -- 1.23
------------------------------
$ 1.88 $ 1.88
==============================
The tax status of distributions paid to beneficiaries for the calendar year
ending December 31, 1996 will be determined upon preparation of the Trust's
federal income tax return. Management expects such distributions to consist of
ordinary income and capital gains.
2. Investments in partnerships and joint ventures
The following presents summarized financial information for the Trust's
investments in 26 and 27 partnerships and joint ventures at August 31, 1996
and 1995, respectively, and the Trust's equity in income for the years ended
August 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
At August 31
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in Real Estate at Cost:
Apartment buildings $ 105,480,000 $ 103,683,000
Industrial property 1,264,000 1,250,000
Shopping centers and retail stores 128,936,000 132,596,000
Land 4,446,000 4,446,000
--------------------------------------------
Total investments in real estate 240,126,000 241,975,000
Less accumulated depreciation 73,989,000 69,918,000
--------------------------------------------
166,137,000 172,057,000
Cash and cash equivalents 5,589,000 7,303,000
Other assets 6,020,000 4,544,000
--------------------------------------------
Total assets 177,746,000 183,904,000
--------------------------------------------
Liabilities and Partners' Equity
Mortgage notes payable 133,578,000 136,004,000
Bank loans payable 9,124,000 8,277,000
Due to the Trust 2,795,000 2,414,000
Other liabilities 4,436,000 4,571,000
--------------------------------------------
Total liabilities 149,933,000 151,266,000
--------------------------------------------
Total partners' equity 27,813,000 32,638,000
Partners' share (13,613,000) (15,199,000)
--------------------------------------------
Investments in partnerships and joint ventures $ 14,200,000 $ 17,439,000
============================================
For the years ended August 31
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues from real estate $ 53,209,000 $ 52,339,000 $ 51,088,000
Expenses:
Property operating expenses 21,724,000 20,477,000 22,601,000
Mortgage and bank loan interest 11,984,000 12,463,000 12,668,000
Depreciation and amortization 6,833,000 6,502,000 6,406,000
-------------------------------------------------------------------
40,541,000 39,442,000 41,675,000
-------------------------------------------------------------------
12,668,000 12,897,000 9,413,000
Partners' share (6,410,000) (6,516,000) (4,997,000)
-------------------------------------------------------------------
Equity in income of partnerships and
joint ventures $ 6,258,000 $ 6,381,000 $ 4,416,000
===================================================================
</TABLE>
Net income per share
Earnings per share are based on the weighted average number of shares
outstanding which were 8,676,098 in 1996, 8,670,810 in 1995, and 8,663,646 in
1994.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
<PAGE>
Mortgage notes payable which are secured by the related properties, are due in
installments over various terms extending to the year 2013 with interest rates
ranging from 6.6% to 10.4% with an average interest rate of 8.4%. Principal
payments are due as follows:
Fiscal year ending
1997 $ 4,390,000
1998 6,766,000
1999 9,046,000
2000 30,690,000
2001 18,926,000
2002 and thereafter 63,760,000
-------------
$ 133,578,000
=============
The liability under each mortgage note is limited to the particular property
except for two loans in the amount of $7,563,000 which are guaranteed by the
partners of the respective partnerships, including the Trust. In addition, two
bank loans in the amount of $1,594,000 have been guaranteed by the partners of
the partnership including the Trust.
The Trusts investments in certain partnerships and joint ventures reflect cash
distributions in excess of the Trust's net investments totaling $5,976,000 and
$6,325,000 at August 31, 1996 and 1995, respectively.The Trust is generally
entitled to a priority return on these investments.
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>
For the years ended
8/31/96 8/31/95 8/31/94
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $ 23,552,000 $ 20,858,000 $ 19,894,000
Revenues 13,823,000 13,667,000 13,391,000
Net income 6,915,000 7,548,000 6,521,000
Equity in income of partnership 3,458,000 3,774,000 3,260,000
</TABLE>
<PAGE>
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 5.90% to 9.50% with an average interest rate of 8.0%.
Principal payments are due as follows:
Fiscal Year ending
1997 $ 1,307,000
1998 1,408,000
1999 1,504,000
2000 33,969,000
2001 1,129,000
2002 and thereafter 45,516,000
---------------
$ 84,833,000
===============
In August 1996, the Trust modified its existing $75 million unsecured
revolving line of credit to a $20 million revolving line of credit and a $55
million unsecured term loan. The term loan is divided into two tranches, a $30
million ten year term and a $25 million seven year term. The Trust has the
option of selecting fixed or floating rates on the term loan.
As of August 31, 1996, $19.4 million of the unsecured revolving line of credit
was outstanding ($12.3 directly by the Trust and $7.1 million through
partnerships and joint ventures) and $27 million of the term loan ($20 million
for ten years due August 2006 and $7 million for seven years due August 2003).
The line of credit and term loans bear interest at LIBOR plus 185 basis
points. Under the credit facility, the Trust must maintain minimum net worth
and operating income levels as defined in the loan documents. The line of
credit maturity date is August 31, 1998. The weighted average interest rates
based on amounts borrowed were 7.51% and 7.98% for fiscal years ended August
31, 1996 and 1995, respectively.
During 1995, the Trust purchased interest rate protection at a cost of
$250,000 on $15,000,000 of outstanding debt limiting the 30-day LIBOR rate to
7.5% for three years. The Trust also limited its exposure to increases in
LIBOR on $20,000,000 of its floating rate debt by entering into a swap
agreement which fixes a rate of 6.12% versus 30-day LIBOR through June 2001.
The Trust is exposed to credit loss in the event of non-performance by
counterparties to the interest rate protection agreements; however, the Trust
does not anticipate non-performance by the counterparties. At August 31, 1996,
the Trust was in compliance with all debt covenants.
The carrying values of the mortgage notes and bank loans payable at August 31,
1996 and 1995 were approximately equal to their respective fair values, as
determined by using year-end interest rates and market conditions. At August
31, 1996, the fair values of the interest rate protection and swap agreements
referred to above were approximately $15,000 and $538,000, respectively.
4. Benefit Plans
During 1995 the Trust adopted a 401(k) Plan in which substantially all of the
officers and employees are eligible to participate. The Plan permits eligible
participants, as defined in the Plan agreement, to defer up to 15% of their
compensation, and the Trust, at its discretion, may match a percentage of the
employees contributions. The employees contributions are fully vested and
contributions from the Trust vest in accordance with an employees years of
service as defined in the plan agreement.
<PAGE>
During 1995, the Trust also adopted a Supplemental Retirement Plan (the
Supplemental Plan) covering certain senior management employees. The
Supplemental Plan provides eligible employees through normal retirement date,
as defined in the plan agreement, a benefit amount similar to that which would
have been received under the provisions of the terminated pension plan
referred to below. The Trust has recorded $160,000 and $168,000 of
contributions due under the provisions of this plan for years ended August 31,
1996 and 1995 respectively.
Prior to February 28, 1995, the Trust maintained a noncontributory, defined
benefit pension plan for all eligible employees. Benefits under the plan were
generally based on years of service and final pay. Pension costs were accrued
and funded annually from entry date in the plan to projected retirement date
and included 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 for the year ended August 31, 1994.
Effective February 28, 1995 the Trust funded $169,000 and the pension plan was
terminated. All participants were paid their accumulated benefit obligation
and the Trust received a favorable determination letter from the I.R.S.
5. 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, to increase the number of shares subject to
option to 400,000 shares, to change 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 adopted a non-qualifying stock option
plan covering 100,000 shares. The Trust granted options on February 1, 1994
having a term of 10 years and subject to the other terms and conditions set
forth in the plan. All 100,000 shares are outstanding at August 31, 1996.
Changes in options outstanding are as follows:
Plan For
Employees Non-Employee
Plan Trustees
Options outstanding at 8/31/94 153,875 29,250
Options granted 97,000 6,000
Options exercised (6,250) 0
------------------------
Options outstanding at 8/31/95 244,625 35,250
Options granted 50,500 6,000
Options exercised 0 0
------------------------
Options outstanding at 8/31/96 295,125 41,250
========================
<PAGE>
As of August 31, 1996, options for 332,500 shares had been granted pursuant to
the incentive stock option plan of which 295,125 remain outstanding at $16.00
to $24.625 per share and options for 42,000 shares had been granted, pursuant
to the stock option plan for non-employee trustees of which 41,250 shares
remain outstanding at $15.75 to $25.375 per share. At August 31, 1996, options
for 141,200 shares of beneficial interest with an aggregate purchase price of
$3,048,000 (average of $21.59 per share) were exercisable.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation. The Statement encourages a fair value based method of accounting
for employee stock options and similar equity instruments, which generally
would result in the recording of additional compensation expense in an entitys
financial statements. The Statement also allows an entity to continue to
account for stock-based compensation using the intrinsic value based method in
APB Opinion No. 25. The Trust intends to continue its accounting for equity
instruments using APB Opinion No. 25. As a result, beginning in 1997, the
Trust will be required to make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied.
6. Commitments and Contingencies
Environmental matters have arisen at certain properties in which the Trust has
an interest. The Trust retained environmental consultants in order to
investigate these matters. At one 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 in total from $400,000 to $1,200,000. In addition, above
normal radon levels have been detected at two wholly owned properties. The
estimated remaining cost to remediate these properties is approximately
$325,000, which costs were received as a credit from the sellers as part of
the initial acquisitions.
The Trust has recorded its share of these liabilities totaling $447,000
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 continuing, 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
Trusts financial condition or results of operations.
<PAGE>
Future minimum rentals receivable under non-cancelable operating leases at
August 31, 1996 are as follows:
1997 $ 5,049,000
1998 4,669,000
1999 4,274,000
2000 3,943,000
2001 3,759,000
Thereafter 15,215,000
-----------------
$ 36,909,000
=================
7. Acquisitions
The Trust acquired one property during the year ended August 31, 1995 for
approximately $34,000,000 (including improvements) which was accounted for by
the purchase method. The results of the property were included in the Trust's
financial statements from the acquisition date. The pro forma financial
information may not be indicative of results that would have been reported if
the acquisition had occurred on September 1, 1994. Also, amounts presented
below may not be indicative of future results.
Year ended August 31, 1995 (unaudited)
Pro forma total revenues $ 37,815,000
Pro forma net income $ 11,103,000
Pro forma earnings per share $ 1.28
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 partner's 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
<PAGE>
8. Summary of quarterly results (unaudited)
The following presents a summary of the unaudited quarterly financial
information for the years ended August 31, 1996 and 1995 (thousands of
dollars, except per share data).
<TABLE>
<CAPTION>
For the year ended August 31, 1996
1st 2nd 3rd 4th Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 9,696 $ 9,667 $ 9,968 $ 9,825 $ 39,156
Income before gains on sales of interests in real estate 2,845 2,336 2,625 2,373 10,179
Gains on sales of interests in real estate -- -- 411 454 865
Net income 2,845 2,336 3,036 2,827 11,044
Net income per share:
Income before gains on sales of interests
in real estate $ .33 $ .27 $ .30 $ .27 $ 1.17
Gains on sales of interests in real estate -- -- .05 .05 .10
-----------------------------------------------------------------------------
Total $ .33 $ .27 $ .35 $ .32 $ 1.27
=============================================================================
For the year ended August 31, 1995
1st 2nd 3rd 4th Total
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues $ 8,555 $ 9,548 $ 9,495 $ 9,556 $ 37,154
Income before gain on sale of interest in real estate 3,345 2,713 2,569 2,479 11,106
Gain on sale of interest in real estate -- 119 -- -- 119
Net income 3,345 2,832 2,569 2,479 11,225
Net income per share:
Income before gain on sale of interest in
real estate $ .39 $ .32 $ .30 $ .27 $ 1.28
Gain on sale of interest in real estate -- .01 -- -- .01
-----------------------------------------------------------------------------
Total $ .39 $ .33 $ .30 $ .27 $ 1.29
=============================================================================
</TABLE>
<PAGE>
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, 1996 and 1995, and the related consolidated statements of income,
beneficiaries' equity and cash flows for each of the three years in the period
ended August 31, 1996. 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 1996, 1995 and
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 31 percent,
32 percent and 16 percent of net income, in 1996, 1995 and 1994, respectively.
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 our 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Philadelphia, PA
October 21, 1996
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
On August 31, 1996 liquidity was provided by cash and cash equivalents of $3.8
million, including the Trust's proportionate share of cash held by
partnerships and joint ventures, and by the unused portion of the Trust's line
of credit.
Management believes that cash flow from operations, together with available
capacity under the Trust's line of credit and cash balances on hand will be
sufficient to meet scheduled debt service requirements and fund the ongoing
capital needs of its properties. However, events such as acquisitions,
reduction in the Trust's line of credit, failure of the Trust's partners to
make capital contributions when due could result in the need for management to
explore additional sources of funds. These sources could include refinancing
of existing mortgage debt, sale of assets, securing loans on properties
presently unencumbered by debt, other securitized borrowings or the sale of
shares of beneficial interest.
Credit Facilities
The Trust has two primary credit facilities, a $75 million unsecured bank
facility and a $35 million secured term loan. The Trust has agreed to various
covenants including maintaining a minimum net worth and net operating income
levels as defined. The Trust has never failed to be in compliance with the
applicable loan covenants. Both facilities have cross default provisions.
1. Revolving Credit Facility and Unsecured Term Loan:
The Trust's $75 million bank facility, which was modified on August 31, 1996,
provides for a $20 million revolving line of credit and up to $55 million of
term debt. As of October 15, 1996, $13 million is available under the
revolving line of credit and $28 million under the term facility. The
revolving line bears interest at the Trust's option of either the prime rate
or 185 basis points over LIBOR and matures on August 31, 1998. The term loan
facility permits the Trust to select floating rates on the same basis as the
revolving loan, or to select a fixed rate at any time until August 31, 2001.
If the Trust elects the fixed rate option under the term loan facility, up to
$30 million of the loan amount would become due by August of 2006 and up to
$25 million by August of 2003. If the Trust does not select a fixed rate, the
loans become due on August 31, 2001. The present interest rate is 7.29%.
2. Secured Term Loan:
In addition to the above facilities, the Trust previously borrowed $35 million
from a bank group at a fixed rate of 8.62% until March 1998 at which time the
rate is to be reset at either a fixed or floating rate at the option of the
Trust. The loan is secured by four apartment properties, had a balance of
$34.4 million on August 31, 1996, and matures in March 2000.
<PAGE>
Interest Rate Protection
In order to reduce exposure to variable interest rates, the Trust has
purchased a three-year interest rate cap on $15 million limiting the
underlying 30-day LIBOR rate to 7.5% until March 1998. In June 1995, the Trust
entered into a six-year interest rate swap agreement with CoreStates Bank, NA
on $20 million which fixes a rate of 6.12% per annum versus 30-day LIBOR until
2001. When combined with the 1.85% interest rate spread on the Trust's
revolving credit agreement, the Trust has effectively locked in a rate of
7.97%. As a result of these transactions the Trust has as of August 31, 1996
fixed or hedged $35 million of the outstanding balance on its revolving credit
and unsecured term loan facilities which loans are at rates which would
otherwise be floating rates.
Contingent Liability
The Trust along with certain partners have guaranteed debt totaling $16.3
million. (See Notes 2 and 3 of the Notes to Consolidated Financial
Statements.)
Significant Capital Events
In addition to amounts due under the credit agreements, during the next three
years mortgage loans, secured by properties owned by three partnerships in
which the Trust or a wholly-owned subsidiary has an interest, mature by their
terms. Balloon payments on these loans total $16 million of which the Trust's
proportionate share is $7.9 million.
Lehigh Valley Mall, in which the Trust has a 50% interest, was refinanced
subsequent to the end of the fiscal year. The new loan of $54 million was
sufficient to repay the existing debt of approximately $22 million, fund
renovations to the mall of $5 million, and provide excess capital which has
been distributed to the owners, the Trust's share of which is $13 million. The
ten-year loan bears interest at 7.9% with principal payments based on a
twenty-five year amortization schedule. The renovations to Lehigh Valley Mall
are expected to be completed by November 1996 and consist primarily of
improvements to internal common areas.
Following the close of the fiscal year a partnership in which the Trust has a
50% interest borrowed $5.4 million at 8.34% for a term of twenty years, with
principal payments based on a thirty year amortization schedule. The Trust
received $2.4 million of the net proceeds of the financing, while the Trust's
partners received the balance pursuant to the terms of the Partnership
Agreement.
The Trust has entered into agreements regarding three shopping center
properties pursuant to which its partners will purchase the Trust's interest
for a cash consideration of $2 million plus the assumption of debt of $2.7
million. In the event the Trust's partners are unable to complete the
transaction by December 1996, the Trust has the obligation to purchase the
properties by June 1997, under substantially the same terms and conditions
except that the price will be reduced by $200,000.
<PAGE>
Net cash provided by operating activities decreased to $14,814,000 for the
year ended August 31, 1996 as compared to $16,672,000 for the same period last
year. Operating cash flow was lower as a result of decreased net income, the
components of which are discussed below, and other net uses of cash partially
offset by increased depreciation and amortization expense from the Boca Palms
acquisition.
Net cash provided by investing activities was $1,209,000 for the year ended
August 31, 1996 as compared to $40,082,000 used in the same period last year.
For the year ended August 31, 1996, the Trust sold two properties and received
net cash proceeds of $5,163,000. For the year ended August 31, 1995, the Trust
invested $34,500,000 for the acquisition of and subsequent improvement to Boca
Palms Apartments.
Net cash used in financing activities was $16,091,000 for the year ended
August 31, 1996 as compared to net cash provided by financing activities of
$22,356,000 in the same period last year. Financing activities in 1996
included a mortgage note payable on Shenandoah Village Apartments of
$8,800,000, a reduction in bank loans payable of $5,005,000 and distributions
paid to beneficiaries of $16,310,000. Financing activities in 1995 included
bank borrowings used to finance the Boca Palms acquisition and $16,302,000 of
distributions paid to beneficiaries.
Capital Expenditures
During fiscal 1996, the Trust expended $3,300,000 for capital expenditures:
$2,800,000 ($456 per unit owned adjusted for partnership interests) for
apartment communities and $500,000 for shopping centers. The Trust's policy is
to capitalize expenditures for floor coverings, appliances and major exterior
preparation and painting for apartments. During the year, $900,000 ($155 per
unit owned) was expended for floor covering and $300,000 ($52 per unit owned)
for appliances. No material amount was expended for exterior preparation and
painting.
In addition, the Trust expended $2,600,000 for acquisition and non-recurring
improvement costs. Of this amount, $1,200,000 was for recently acquired
apartment communities, which costs were previously identified at acquisition,
and $1,400,000 for renovations and improvements to existing shopping centers,
including part of the renovations to Lehigh Valley Mall.
Environmental Matters
In 1994, the Trust established a reserve for environmental remediation costs
of $597,000. In addition, the Trust received a credit of $380,000 for
environmental matters in connection with the acquisition of two properties.
During 1995 and 1996, a total of $390,000 was charged against the reserve
leaving a balance of $587,000. There can be no assurance that these amounts
will be adequate to cover future environmental costs.
<PAGE>
Competition
The Trust's shopping centers compete with other shopping centers in their
trade areas as well as alternative retail formats, such as catalogues and home
shopping networks. Apartment properties compete for tenants with other
multi-family properties in their markets. Economic factors, such as employment
trends and the level of interest rates, impact shopping center sales as well
as a prospective tenant's choice to rent or own his/her residence.
Inflation
Inflation can have many effects on the financial performance of the Trust.
Shopping center leases often provide for the payment of rents based on a
percentage of sales which may increase with inflation. Leases may also provide
for tenants to bear all or a portion of operating expenses which may reduce
the impact of such increases on the Trust. Apartment leases are normally for a
one-year term which may allow the Trust to seek increased rents as leases are
renewed or when new tenants are obtained.
Results of Operations
Fiscal 1996 Compared With Fiscal 1995
Net income for the fiscal year ended August 31, 1996 before gains on sales of
interests in real estate, decreased to $10,179,000 from $11,106,000 for the
comparable period in 1995. In the 1996 period, the gains on the sales of
interests in real estate were $865,000 as compared to the 1995 period which
included a gain on sale of interest in real estate of $119,000.
Gross revenues from real estate increased by $2,007,000 to $38,985,000. The
increase is due primarily to an increase in revenues of $1,219,000 from the
Boca Palms Apartments, which was acquired in November 1994 and $379,000 from
Forestville Plaza which became wholly-owned during the year. Exclusive of Boca
Palms Apartments and Forestville Plaza, revenues from properties owned during
both periods increased $409,000.
Operating expenses increased by $1,243,000 to $16,102,000. The increase is due
primarily to $467,000 of increased expenses from the Boca Palms Apartments,
approximately $150,000 of additional operating expenses as a result of the
harsh winter weather in the mid-Atlantic region and $148,000 from Forestville
Plaza.
Depreciation and amortization increased by $622,000 to $5,908,000 as a result
of the acquisition of Boca Palms, Forestville Plaza, and ongoing capital
expenditures. Interest expense increased by $923,000 to $9,831,000 as a result
of increased borrowings to finance the Boca Palms acquisition and for general
corporate purposes.
<PAGE>
For fiscal year ended August 31, 1996, $734,000 was charged against the
allowance for investment losses, $353,000 for carrying costs for land held for
sale, and $381,000 of development expenses incurred at Crest Plaza, Allentown,
Pennsylvania, for a potential expansion of the shopping center, including a
Caldor store. The lease with Caldor was canceled and the cost was written off
following the bankruptcy declaration by Caldor.
Equity in income of partnerships and joint ventures decreased by $123,000 to
$6,258,000, primarily as a result of a non-recurring lease termination fee
received from a shopping center tenant in the amount of $220,000 for fiscal
year 1995. The Trust's share of partnership and joint venture income in 1996
was also reduced by approximately $100,000 as compared to the prior year due
to higher operating expenses resulting from the harsh winter weather discussed
earlier.
Operating results included two gains totaling $865,000 from the sale of land
in Bucks County, Pennsylvania and Chateau Apartments in Midland, Texas.
Operating results for 1995 included a $119,000 gain from the sale of an
interest in real estate.
Fiscal 1995 Compared With Fiscal 1994
Net income for the fiscal year ended August 31, 1995 before gains on sales of
interests in real estate, increased to $11,106,000 from $8,325,000 for the
comparable period in 1994. In the 1995 period, the gain on the sale of an
interest in real estate was $119,000 as compared to the 1994 period which
included gains on sales of interests in real estate totaling $12,362,000.
Gross revenues from real estate increased by $9,338,000 to $36,978,000
primarily due to revenues from Boca Palms Apartments, which was acquired in
November 1994, and increased revenues from Hidden Lakes Apartments, Palms of
Pembroke Apartments, and Mandarin Corners Shopping Center which were acquired
or became wholly-owned in the prior fiscal year. Principally, as a result of
the increase in the Trust's wholly-owned portfolio, operating expenses
increased by $3,101,000 to $14,859,000, depreciation and amortization
increased by $1,727,000 to $5,268,000, and mortgage and bank loan interest
increased by $4,746,000 to $8,908,000.
Interest and other income decreased by $98,000 to $176,000 due to maturing of
invested Treasury obligations.
For the fiscal year ended August 31, 1995, $460,000 was charged against the
allowance for possible losses. No additional provision is considered necessary
at this time.
General and administrative expenses increased by $563,000 to $3,091,000 due to
the addition of management and administrative personnel and an increase in
pension costs.
Equity in income of partnerships and joint ventures increased by $1,965,000 to
$6,381,000 primarily due to (i) improved performance of apartments and
shopping centers of $940,000 including a lease termination fee received from a
shopping center tenant in the amount of $220,000 and (ii) non-recurring
environmental costs and reserves of $760,000 associated with five properties
in fiscal 1994.
<PAGE>
Market Price and Distribution Record
The following table shows the high and low sales prices for PREIT shares on
the American Stock Exchange and cash distributions paid for the periods
indicated.
Quarters Distributions
Ended High Low Paid
Fiscal Year 1996
- ------------------------------------------------------------------------------
November 30 $ 21.88 $ 19.25 $ .47
February 29 21.75 19.50 .47
May 31 21.63 19.00 .47
August 31 20.88 18.75 .47
------------
$ 1.88
============
Fiscal Year 1995
- ------------------------------------------------------------------------------
November 30 $ 21.25 $ 18.50 $ .47
February 28 23.63 19.88 .47
May 31 21.75 20.13 .47
August 31 21.88 21.25 .47
------------
$ 1.88
============
As of November 8, 1996, there were approximately 1500 shareholders of the
Trust's shares of beneficial interest.
