<PAGE>
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
For the Fiscal Year Ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 19034
Ft. Washington, Pennsylvania (Zip Code)
(address of principal executive office)
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
------------------- ------------------------------
Share of Beneficial Interest, par value registered
----------
$1.00 per share New York Stock Exchange
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 [X].
The aggregate market value, as of October 31, 1997, of the voting shares held
by non-affiliates of the Registrant is $183,526,000. (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 October 31, 1997, 8,685,098 Shares of Beneficial Interest, par value $1.00
per share (the "Shares"), of the Trust were outstanding.
Documents Incorporated by Reference
None
<PAGE>
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
--------------------
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED AUGUST 31, 1997
-------------------
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Business............................................................................................1
Item 2. Properties.........................................................................................19
Item 3. Legal Proceedings..................................................................................19
Item 4. Submission of Matters to a Vote of
Security Holders................................................................................20
PART II
Item 5. Market for the Trust's Common Equity and Related Stockholder Matters...............................21
Item 6. Selected Financial Data............................................................................22
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................................23
Item 7A. Quantitative and Qualitative Disclosure About Market Risk..........................................28
Item 8. Financial Statements and Supplementary Data........................................................28
Item 9. Disagreements on Accounting and Financial Disclosure...............................................28
PART III
Item 10. Directors and Executive Officers of the Registrant ...............................................29
Item 11. Executive Compensation. . .........................................................................34
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................42
Item 13. Certain Relationships and Related Transactions.....................................................42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................44
</TABLE>
<PAGE>
Item 1. Business
--------
Pennsylvania Real Estate Investment Trust, a Pennsylvania business
trust (the "Company," the "Registrant" or the "Trust"), conducts substantially
all of its operations through PREIT Associates, L.P., a Delaware limited
partnership (the "Operating Partnership"). As used herein, unless the context
indicates otherwise, the term "Company" "Registrant" or "Trust" includes
Pennsylvania Real Estate Investment Trust, the Operating Partnership and
their subsidiaries and affiliates, including PREIT-RUBIN, Inc. (formerly The
Rubin Organization, Inc.), a real estate management company in which the
Company owns 95%of the economic interests in the form of non-voting common
shares (together with its predecessors, the "Management Company"). The
Management Company, prior to September 30, 1997, is sometimes referred to
herein as "TRO."
The Company
The Company, which is organized as a business trust under
Pennsylvania law, is a fully integrated, self-administered and self-managed
real estate investment trust ("REIT") founded in 1960 which acquires,
rehabilitates, develops and operates shopping centers and multifamily
properties. On September 30, 1997, the Company acquired The Rubin
Organization, Inc., a retail property management firm, and certain related
real estate interests.
The Company owns interests in 18 shopping centers (the "Existing
Retail Properties") containing an aggregate of approximately 6.4 million
square feet, 19 multifamily properties (the "Multifamily Properties")
containing 7,236 units, six industrial properties (the "Industrial
Properties") with an aggregate of approximately 725,000 square feet and three
parcels of undeveloped land (the "Undeveloped Land"). In addition, the Company
has entered into agreements to acquire interests in two shopping centers
containing an aggregate of approximately 824,000 square feet (the "Acquisition
Properties"). The Company also owns or has a right to acquire interests in
five shopping centers under development (the "Development Properties") which
are expected to contain an aggregate of approximately 2.2 million square feet
upon completion. The Company or a joint venture partner owns or has under
contract the land for all of the Development Properties, two of which are
currently under construction. The Company currently anticipates that the
remaining three Development Properties will be constructed by the year 2000.
There is no assurance that all five Development Properties will be
successfully developed.
The Company also provides management, leasing and development
services to 51 retail properties containing approximately 18.5 million square
feet and 11 office buildings containing approximately 4.0 million square feet
for third-party property owners.
Recent Developments
Acquisition of The Rubin Organization, Inc. On September 30, 1997,
the Company acquired The Rubin Organization, Inc. (renamed "PREIT-RUBIN,
Inc.") and interests in certain related retail properties (the "TRO
Transaction") as part of the Company's previously announced strategy to
acquire management, leasing and development expertise for shopping center
properties. Founded in 1946, the predecessor of The Rubin Organization was a
Philadelphia based owner,
<PAGE>
operator and developer of commercial real estate properties. As part of the TRO
Transaction, the Company also acquired interests in four of the Existing Retail
Properties containing an aggregate of approximately 2.1 million square feet, and
obtained the right to acquire the two Acquisition Properties and interest in
four of the Development Properties. Of the four Existing Retail Properties
acquired, two were purchased for a combination of cash, assumption of debt and
units of limited partner interests in the Operating Partnership ("OP Units"). In
October 1997, the Company entered into a contract to acquire the fifth
Development Property.
The following table sets forth certain information regarding the four
Existing Retail Properties acquired in the TRO Transaction:
<TABLE>
<CAPTION>
Recent Acquisitions
Percentage
Property and Percentage Total Owned Leased at
Location Owned* GLA GLA 9/30/97
- ------------ ---------- ----- ----- ----------
<S> <C> <C> <C> <C>
The Court at Oxford 50% 692,000 457,000 100%
Valley Langhorne, PA
Magnolia Mall 100% 570,000 570,000 98%
Florence, SC
North Dartmouth Mall 100% 620,000 620,000 88%
Dartmouth, MA
Springfield Park 50% 209,000 65,000 (1)
Springfield, PA(1)
--------- ---------
TOTAL 2,091,000 1,712,000
========= =========
</TABLE>
- ----------------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
(1) The Company is a co-tenant with an undivided one-half interest in one
of three floors in this free-standing former department store. The
Company acquired its interest in this vacant property in June 1997
for purposes of redevelopment.
The following table sets forth certain information regarding the
Acquisition Properties:
<TABLE>
<CAPTION>
Percentage
Property and Percentage Total Owned Leased at
Location To Be Acquired* GLA GLA 9/30/97
- ------------ -------------- ----- ------ ----------
<S> <C> <C> <C> <C>
Hillview Shopping 50% 340,000 78,900 100%
Center
Cherry Hill, NJ
Northeast Tower 100%(1) 484,000 336,000(2) 100%(3)
Center
Philadelphia, PA
------- -------
TOTAL 824,000 414,900
======= =======
</TABLE>
- ----------------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
-2-
<PAGE>
(1) The Company will initially acquire 89% of the interest in the
partnership which owns this property and obtain the right to acquire
the remaining 11% interest not earlier than three years from the
first acquisition date.
(2) Subject to change upon the execution, if any, of ground leases in
connection with Phase II of this project.
(3) Of phase 1, which consists of 363,000 square feet.
The following table sets forth certain information regarding the
Development Properties:
Development Properties
<TABLE>
<CAPTION>
Planned
Project and Percentage Total Expected
Location To Be Acquired* GLA Status(1) Completion
- ----------- -------------- ------- --------- ----------
<S> <C> <C> <C> <C>
Blue Route 50%(2) 760,000 Development First half of
Metroplex 2000
Plymouth
Meeting, PA
Christiana Power 50% 295,000 Construction Second half of
Center 1998
(Phase I)
Newark, DE
Christiana Power 50% 300,000 Development Second half of
Center 2000
(Phase II)
Newark, DE
Red Rose 50%(2) 463,000 Construction Second half of
Commons 1998
Lancaster, PA
Warrington 100%(2) 415,000 Development Second half of
Shopping Center 1999
Warrington, PA
---------
TOTAL 2,233,000
=========
</TABLE>
- -----------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
(1) "Development" indicates that development activities, such as site
surveys, preparation of architectural plans, or initiation of land
use approvals or rezoning processes, have commenced (but construction
has not commenced). "Construction" indicates that construction
activities, such as site preparation, ground-breaking activities, or
exterior construction has commenced. There is no assurance that the
properties which remain in the Development stage will ultimately be
constructed.
(2) Except as to the Warrington Shopping Center, subject to reduction to
25% under the terms of the Goldenberg Letter Agreement. The Company
intends to offer a 50% interest in Warrington Shopping Center to The
Goldenberg Group under the terms of the Goldenberg Letter Agreement.
See "The Company -- The TRO Transaction -- The Goldenberg Letter
Agreement."
Formation of Operating Partnership. The Company recently formed the
Operating Partnership to hold substantially all of its assets. As the sole
general partner of the Operating Partnership, the Company has the exclusive
power to manage and conduct the business of the Operating Partnership, subject
to certain limited exceptions. The Company currently owns 93.1% of the
Operating Partnership. It is anticipated that all future acquisitions of
interests in real estate will be owned, directly or indirectly, by the
Operating Partnership.
-3-
<PAGE>
Expansion of Credit Facilities. On September 30, 1997, the Company
replaced its $75 million credit facility with a $150 million credit facility
(the "Credit Facility"). The Credit Facility bears interest, at the Company's
election, at (i) the higher of the CoreStates' prime rate, or the Federal
Funds lending rate, plus 0.5%, in each case as in effect from time to time, or
(ii) the London Interbank Offered Rate ("LIBOR") plus margins ranging from
1.10% to 1.70%, depending on the ratio of the Company's consolidated
liabilities to gross asset value, each as determined pursuant to the terms of
the Credit Facility. The Credit Facility currently bears interest at 1.70%
over LIBOR. The Company intends to use the Credit Facility to fund further
growth.
New York Stock Exchange Listing. On November 14, 1997, the Shares
commenced trading on the NYSE.
Change in Fiscal Year. The Company has announced that it will change
its fiscal year end to December 31, commencing with the year ending December
31, 1998, and, in connection therewith, change its distribution payment cycle
from February/May/August/November to March/June/September/December.
The TRO Transaction
On September 30, 1997, the Registrant and TRO completed the TRO
Transaction pursuant to which:
o The Registrant capitalized the Operating
Partnership by transferring to it substantially all
of its assets, or the economic benefit thereof,
subject to the liabilities of the Registrant, in
exchange for the issuance to the Registrant and
PREIT Property Trust, a wholly owned subsidiary of
the Registrant and a limited partner of the
Operating Partnership, general partner interests in
the Operating Partnership and Class A OP Units
("Class A OP Units") equal in the aggregate to the
number of issued and outstanding Shares as of such
date;
o the Operating Partnership acquired all of the
non-voting common shares, constituting 95% of the
economic interests of TRO, in exchange for 200,000
Class A OP Units and the obligation to issue up to
800,000 additional Class A OP Units over the next
five years, such exact number to be determined by
according to a formula based upon the per Share
adjusted funds from operation of the Company (see
"- Acquisition of TRO and Related Property
Interests");
o the Operating Partnership acquired the interests of
certain affiliates of TRO ("TRO Affiliates") in
four of the Existing Retail Properties;
o the Operating Partnership acquired the interests of
certain TRO Affiliates in the Acquisition Properties;
o the Operating Partnership acquired the development
rights of certain TRO Affiliates, subject to
related obligations, in four of the Development
Properties;
o the Operating Partnership obtained rights of first
refusal with respect to the interests of certain
TRO Affiliates in three properties;
-4-
<PAGE>
o Ronald Rubin was elected chief executive officer
and a trustee of the Company, Edward Glickman was
elected chief financial officer and executive vice
president of the Company, and George F. Rubin
continued in his capacity as President of the
Management Company and was elected trustee of the
Company;
o Ronald Rubin, George F. Rubin and Rosemarie B. Greco
were elected as trustees of the Company to fill
vacancies created by the resignations as trustees of
Robert Freedman, Jack Farber and Robert G. Rogers.
Acquisition of TRO and Related Property Interests. As part of the TRO
Transaction, the Company entered into a contribution agreement (the "TRO
Contribution Agreement") pursuant to which it acquired all of the non-voting
shares of TRO for 200,000 Class A OP Units and the obligation to issue up to
800,000 additional Class A OP Units (the "Contingent TRO OP Units") over the
following five-year period, depending on the Company's per share "adjusted funds
from operations" ("Adjusted FFO") during such period. "Adjusted FFO" is defined
as the Company's consolidated net income for any period, plus, to the extent
deducted in computing such net income: (i) depreciation attributable to real
property; (ii) certain amortization expenses; (iii) the expenses of the TRO
Transaction; (iv) losses on the sale of real estate; (v) material write-downs on
real estate; (vi) material prepayment fees; and (vii) rents currently due in
excess of rents reported, minus: (i) rental revenue reported in excess of
amounts currently due; (ii) lease termination fees; and (iii) gains on the sale
of real estate. For the twelve-month periods ending August 31, 1996 and August
31, 1997, the Company's Adjusted FFO per share without giving effect to the TRO
Transaction would have been $2.16 and $2.27, respectively.
The TRO Contribution Agreement establishes "hurdles" and "targets"
during specified "earn-out periods" to determine whether, and to what extent,
the Contingent TRO OP Units will be issued.
<TABLE>
<CAPTION>
Per Share Adjusted
FFO Base No. Max. No.
--------------------- Contingent Contingent
Earn-Out Period Hurdle Target TRO OP TRO OP
--------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
10-1-97 to 12-31-97 $0.58 $0.65 5,000 32,500
1-1-98 to 12-31-98 2.40 2.66 20,000 130,000
1-1-99 to 12-31-99 2.53 2.81 57,500 167,500
1-1-00 to 12-31-00 2.65 2.94 57,500 167,500
1-1-01 to 12-31-01 2.83 3.14 57,500 167,500
1-1-02 to 9-30-02 2.19 2.43 52,500 135,000
------- -------
250,000 800,000
======= =======
</TABLE>
In general, (i) if the hurdle for any earn-out period is not met, no
Contingent TRO OP Units will be issued in respect of such period, (ii) if the
target for any earn-out period is met, the maximum number of Contingent TRO OP
Units for such period will be issued, and (iii) if Adjusted FFO for any
earn-out period is between the hurdle and the target for such period, the
Operating Partnership would issue the base Contingent TRO OP Units for such
period plus a pro rata portion of the number of Contingent TRO OP Units by
which the maximum Contingent TRO OP Units exceeded the base Contingent TRO OP
Units for such period equal to the amount by which the per share Adjusted FFO
exceeded the hurdle but was less than the target. For example, if the per
share Adjusted FFO for 1998 were $2.53 (that is, one-half of the difference
between the target and the hurdle), the Operating Partnership would issue
75,000 Contingent TRO OP Units (20,000 + (.5 (130,000-20,000))).
-5-
<PAGE>
The foregoing is subject to the right to carry back to prior earn-out
periods amounts in excess of the target in the current period, thereby earning
additional Contingent TRO OP Units (but never more than the maximum amount)
and to carry forward into the next, but only the next, earn-out period amounts
of per share Adjusted FFO which exceed the target in any such period,
provided, in all cases, no amounts in excess of the target in any period may
be applied to result in the issuance of additional Contingent TRO OP Units in
any other period until first applied to eliminate all shortfalls from targets
in all prior periods.
For provisions of the TRO Transaction relating to the pricing of the
Acquisition Properties, see "The Acquisition Properties, below". For provisions
of the TRO Transaction relating to the pricing of the four Development
Properties acquired in the TRO Transactions, see "The Development Properties,
below."
The Goldenberg Letter Agreement. On September 30, 1997, as part of
the TRO Transaction, the Company took by assignment from TRO and certain TRO
Affiliates all of their rights, subject to all of their obligations, under a
letter agreement with The Goldenberg Group (the "Goldenberg Letter
Agreement"). The Goldenberg Letter Agreement contemplates the development of
six power centers, three by The Goldenberg Group and three by the Company. The
Goldenberg Letter Agreement provides that the entity developing the center
will have the right to manage the center but that each center will be 50%
owned by The Goldenberg Group and 50% owned by the Company. The Company is
obligated under the Goldenberg Letter Agreement to provide a $5 million
revolving fund to carry pre-development expenses on The Goldenberg Group's
three projects to the extent those expenses exceed construction loan financing
proceeds and to fund all such expenses on the Company projects directly.
The Court at Oxford Valley, an Existing Retail Property, was developed
by the Goldenberg Group under the Goldenberg Letter Agreement and Hillview
Shopping Center, a Development Property, was developed by the Management Company
under the Goldenberg Letter Agreement. The Goldenberg Group's remaining two
Development Property projects under the Goldenberg Letter Agreement are the Blue
Route/Metroplex Center, Plymouth Meeting, Pennsylvania, and Red Rose Commons,
Lancaster, Pennsylvania. The Company has not yet proposed its second and third
projects under the Goldenberg Letter Agreement. In the event that the Company
were to fail to offer The Goldenberg Group two proposed power center projects
meeting specified criteria (one to be selected at The Goldenberg Group's sole
election) within 18 months of the closing of a construction loan on each of Red
Rose Commons (currently anticipated to occur prior to the end of 1997) and Blue
Route/Metroplex (currently anticipated to occur in the next 24 months), then the
interest of the Company in the "unmatched" project would be subject to reduction
by The Goldenberg Group, without the payment of any consideration, from 50% to
25%.
Although the Company has performed preliminary work for the requisite
"matches" for Blue Route/Metroplex and Red Rose Commons, there can be no
assurance that either project will be successfully matched and, therefore,
that the Company's interest in these projects will not be reduced to 25%.
However, since the Company will only pay the TRO Affiliates in respect of
one-half of the "developer profit" on the share of the profit actually
acquired, a reduction in the interest in these projects should not result in
any unrecaptured cost to the Company.
Right of First Refusal Properties. The Company obtained rights of
first refusal with respect to the interests of certain TRO Affiliates in the
three retail properties listed below.
-6-
<PAGE>
Rights of First Refusal Properties
Percentage Interest
Gross Leasable Subject to the Right
Property/Location Sq. Ft. of First Refusal
- ----------------- -------------- --------------------
Christiana Mall, 1,100,000 (1)
Newark, DE (1)
Cumberland Mall, 463,143 50%
Vineland, NJ
Fairfield Mall, 417,940 50%
Chicopee, MA
-------
Total 1,981,083
=========
- -----------------
(1) The interest subject to the right of first refusal is subject to
adjustment in connection with the refinancing of the participating
Mortgage which currently encumbers this property.
-7-
<PAGE>
Structure Of The Company
The Company conducts substantially all of its real estate ownership
activities through the Operating Partnership, of which the Company is the sole
general partner. Set forth below is a diagram of the ownership structure of
the Company as of October 31, 1997.
----------------------------
Pennsylvania Real Estate
Investment Trust (1)
----------------------------
|100% | 1.0%
------------------ | -------------------------
PREIT | ------- Minority Limited
Property Trust | |6.9% Partners(2)
----------------- (Majority | | -------------------------
Employee Stock Limited Partner) | |
Bonus Plan ------------------ | |
----------------- |92.1% | |
|5% (voting) ----------------------------
| ----------------- PREIT Associates, L.P.
| |95% ----------------------------
| |(non-voting) |
| | |
------------------- |
PREIT-RUBIN, |
Inc. |
------------------- |
|
|
|
|
|
|
---------------------------
46 Properties(3)
---------------------------
- -----------------------------
(1) Sole general partner of the Operating Partnership.
(2) Includes an aggregate of 433,248 OP Units (4.6% of the aggregate of all
OP Units and Sharers outstanding prior to the Offering) owned by the
persons who were former shareholders and affiliates of the Management
Company, prior to the TRO Transaction, including Ronald Rubin, Chief
Executive Officer and Trustee of the Company. Under the terms of the
TRO Transaction, such persons have the right to receive up to 800,000
additional OP Units in respect of their ownership interest in the
Management Company, depending on Adjusted FFO of the Company over the
five year period commencing on September 30, 1997, and also to receive
additional OP Units in respect of their interest in two of the
Acquisition Properties and four of the Development Properties.
(3) Interests in certain of these properties are (i) owned directly by
the Company under arrangements in which the entire economic benefit
of ownership has been pledged to the Operating Partnership, or (ii)
owned directly by the Operating Partnership. The interest of the
Operating Partnership in these properties ranges from 25% to 100%.
-8-
<PAGE>
The Existing Retail Properties
The Company has interests in 18 retail properties containing an
aggregate of approximately 6.4 million square feet of gross leasable area
("GLA"). Two of the Company's wholly-owned properties are currently managed by
the Management Company and the remaining four will be under the management of
the Management Company by March 1998. The Company's 12 joint venture retail
properties are managed by the Company's joint venture partners, or an entity
designated by the Company and the partner, and in most such instances a change
in the management of the property requires the concurrence of both partners.
Eight of the 18 Existing Retail Properties (containing an aggregate of
approximately 3.7 million square feet of GLA) are located in Pennsylvania and
five (containing an aggregate of approximately 1.0 million square feet of GLA)
are located in Florida.
-9-
<PAGE>
The following table sets forth certain information regarding the
Existing Retail Properties, other than the Gateway Shopping Center in St.
Petersburg, Florida, which is under contract to be sold:
<TABLE>
<CAPTION>
Total
Percent Year GLA Owned
Real Property Location Owned* Built/Renov (sq Ft)(1) GLA
<S> <C> <C> <C> <C> <C>
Lehigh Valley Allentown, PA 50% 1977/1996 1,054,000 489,000
Mall
Court at Langhorne, PA 50% 1996 692,000 457,000
Oxford Valley
North Dartmouth, 100% 1971/1987 620,000 620,000
Darthmouth MA
Mall
Whitehall Mall Allentown, PA 50% 1964/1982 603,000 521,000
Magnolia Mall Florence, SC 100% 1979/1992 570,000 570,000
Laurel Mall Hazelton, PA 40% 1973/1995 558,000 558,000
Palmer Park Easton, PA 50% 1972/1982 349,000 349,000
Mall 3) (3)
Forestville, Forestville, 100% 1983 218,000 218,000
S/C MD
Mandarin Jacksonville, 100% 1986 216,000 216,000
Corners FL
Springfield Springfield, PA 50% 1963/1997 209,000 65,000
Park (4)
Rio Mall Rio Grande, 50% 1973/1992 161,000 161,000
NJ
Crest Plaza Allentown, PA 100% 1959/1991 153,000 153,000
S/C
Park Plaza S/C Pinellas Park, 50% 1963/1983 151,000 151,000
FL
South Blanding Jacksonville, 100% 1986 107,000 107,000
Village FL
Ormond Beach Daytona 25% 1966/1991 103,000 103,000
Mall Beach, FL
Ingleside Thorndale, PA 70% 1981/1995 102,000 102,000
Center
Punta Gorda Punta Gorda, 25% 1965/1992 102,000 102,000
Mall FL
TOTAL (17 Properties)(13) 5,968,000 4,942,000
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Sq Ft Percent
Occupied Leased
Real Property Location @ 8/31/97 (2) Anchors
<S> <C> <C> <C> <C>
Lehigh Valley Allentown, PA 484,110 99% JC Penney, Strawbridges, Macy's
Mall
Court at Langhorne, PA 457,000 100% Dicks, Best Buy, Pharmor, Homeplace, Home
Oxford Valley Depot, BJ's Warehouse Club
North Dartmouth, 545,600 88% JC Penney, Sears, Ames, General Cinema
Darthmouth MA
Mall
Whitehall Mall Allentown, PA 437,640 84% Sears, Kohl's
Magnolia Mall Florence, SC 558,600 98% JC Penney, Sears, Belk, Roses
Laurel Mall Hazelton, PA 541,260 97% Boscov's, K-Mart, JC Penney
Palmer Park Easton, PA 317,590 91% Bonton
Mall
Forestville, Forestville, 159,140 73% Ames, Superfresh
S/C MD
Mandarin Jacksonville, 213,840 99% Walmart, Upton's, Carmike Theaters
Corners FL
Springfield Springfield, PA -- -- Target
Park (4)
Rio Mall Rio Grande, 117,530 73% K-Mart, Staples
NJ
Crest Plaza Allentown, PA 126,990 83% Weis Markets, Eckerd Drugs
S/C
Park Plaza S/C Pinellas Park, 143,450 95% Eckerd Drugs, Ace Hardware, Publix
FL Supermarket
South Blanding Jacksonville, 100,580 94% Food Lion, Scotty's Home Center
Village FL
Ormond Beach Daytona 96,820 94% Belk, Publix Supermarket, Eckerd Drugs
Mall Beach, FL
Ingleside Thorndale, PA 102,000 100% K-Mart
Center
Punta Gorda Punta Gorda, 88,740 87% Beall's, Publix Supermarket, Eckerd Drugs
Mall FL
TOTAL (17 Properties)(13) 4,490,890 90.9%
=========
</TABLE>
- -----------------------
* By the Operating Partnership; the Registrant owns approximately 93.1% of
the Operating Partnership.
(1) Total GLA includes space owned by anchors; Owned GLA and Percent Leased
excludes such space.
(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, 1997.
(3) Includes 82,000 sq. ft. Clover store currently vacant.
(4) The Trust is a co-tenant with an undivided one-half interest in one of
three floors in a free standing department store currently under
re-development. Its share of reconstruction costs is approximately 15%.
-10-
<PAGE>
The following table sets forth certain information regarding each
anchor in the Existing Retail Properties:
<TABLE>
<CAPTION>
Anchor and Square Footage
For Fiscal Year Ending August 31, 1997
# Anchor GLA Owned GLA Leased Total GLA
Anchor Name Stores By Anchors By Anchors Occupied
----------- ------ ---------- ---------- --------
<S> <C> <C> <C> <C>
Ace Hardware 1 - 20,000 20,000
Ames 2 - 166,123 166,123
BJ's Warehouse 1 - 105,000 105,000
Beall's 1 - 22,000 22,000
Belk 2 - 33,046 133,046
Best Buy 1 - 59,495 59,495
Bonton 1 - 82,500 82,500
Boscov 1 - 183,000 183,000
Dick's 1 - 63,115 63,115
Eckerd 3 - 37,500 37,500
Food Lion 1 - 29,000 29,000
Home Depot 1 - 130,000 130,000
Homeplace 1 - 54,096 54,096
JC Penney 4 188,000 254,359 442,359
K-Mart 3 - 263,000 263,000
Kohl's 1 82,000 - 82,000
Macy 1 212,000 - 212,000
Pharmor 1 - 45,621 45,621
Publix 3 - 106,000 106,000
Scotty's 1 - 45,000 45,000
Sears 3 - 412,604 412,604
Staples 1 - 20,000 20,000
Strawbridges 1 165,000 - 165,000
Target 1 140,000 0 140,000
Upton's 1 - 51,800 51,800
Walmart 1 - 82,000 82,000
Weis Markets 1 45,000 45,000
--- ------- --------- ---------
Totals 40 787,000 2,410,259 3,197,259
======= ========= =========
</TABLE>
The following table shows, as of September 30, 1997, scheduled lease
expirations of malls and shopping centers for the next 10 years, assuming that
none of the tenants exercise renewal options or termination rights:
-11-
<PAGE>
<TABLE>
<CAPTION>
Base Rent % of Total
Annualized Approximate Per Square Leased GLA
Number of Base Rent GLA of Foot of Represented By
Year Ending Leases of Expiring Expiring Expiring Expiring
December 31 Expiring Leases Leases Leases Leases
----------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
1998 85 2,726,056 303,954 $8.97 6.92%
1999 50 1,929,919 327,654 $5.89 7.46%
2000 56 1,752,427 158,080 $11.00 3.60%
2001 72 3,531,402 432,572 $8.16 9.85%
2002 46 1,929,045 178,057 $10.83 4.06%
2003 37 2,662,176 231,062 $11.52 5.26%
2004 28 2,830,863 224,083 $12.63 5.10%
2005 32 2,049,362 124,892 $16.41 2.84%
2006 48 4,717,681 554,385 $8.51 12.63%
2007 26 3,587,946 496,852 $7.22 11.32%
---- ----------- --------- ----- ------
480 27,716,877 3,031,591 $9.14 100.00%
==== =========== ========= ===== ======
</TABLE>
The Acquisition Properties
The Acquisition Properties, Hillview Shopping Center (in which the
Company will acquire a 50% interest) and Northeast Tower Center (in which the
Company will acquire a 100% interest), are "power centers" to be acquired from
TRO Affiliates as part of the TRO Transaction. The Company's actual aggregate
purchase price (assumed debt and equity) for each of Hillview and Northeast
Tower will be based on a formula which capitalizes cash flow from leased and
occupied space, and space leased but not yet occupied, to credit-worthy
tenants, values triple net leases with purchase arrangements at the present
value of payments in excess of related debt amortization, and values all other
space as mutually agreed or, failing agreement, pursuant to appraisals. The
equity portion of the purchase price will be payable, in each case, in Class A
OP Units valued at $23.40 per OP Unit which was the average of the closing
prices of the Shares on the twenty trading days prior to July 30, 1997, the
date on which the definitive documentation for the acquisition of the
Acquisition Properties was executed. Accordingly, the actual purchase will be
a function of lease-up activity, and other factors, prior to acquisition by
the Company.
The following table sets forth certain information regarding the
Acquisition Properties.
<TABLE>
<CAPTION>
Planned
Estimated Planned Owned
Percent Acquisition GLA GLA Construction
Acquisition Property Location To Be Acquired* Date (Sq. Ft.) (Sq. Ft.) Anchors Status
- -------------------- -------- --------------- ---- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Hillview Shopping Center Cherry Hill, NJ 50% 1/1998 340,000 78,900 Target, Kohl's Substantially
PetSmart, completed
Homeplace,
Babies 'R Us,
Crown Books
-12-
<PAGE>
Northeast Tower Center (1) Philadelphia, 100%(2) 1/1999 484,000 336,000(3) Home Depot, Phase I:
PA PetSmart, 363,000 sf is
Staples, Old completed.
Navy, Pep Phase II:
Boys Projected
TOTAL ________ _________ completion is
824,000 414,900 Fall 1998
======== =========
</TABLE>
- ---------------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
(1) Pep Boys owns a store at the center. The center will have approximately
12 other stores.
(2) The Company will initially acquire 89% of the interest in the partnership
and acquire the remaining 11% interest not earlier than three years from
the first acquisition date.
(3) Subject to change.
The Development Properties
The Company has rights in five Development Properties, the rights to
four of which -- Red Rose; Blue Route, Metroplex; Christiana Phase Power
Center Phase I and Christiana Power Center, Phase II - - is the subject of a
contribution agreement entered into as part of the TRO Transaction.
As each of the four Development Properties in which the Company
acquired rights in as part of the TRO Transaction is completed and leased up,
it will be valued based on the following principles: (i) all space based and
occupied by credit-worthy tenants will be valued at ten times adjusted cash
flow (computed as specified in the agreement); and (ii) all space leased to a
credit-worthy tenant but unoccupied will be valued at ten times adjusted cash
flow calculated as though the space was built and occupied as set forth in the
budget in the property, and (iii) space not leased or occupied, whether built
or unbuilt, will be valued as mutually agreed on or, failing agreement, by
appraisal. Additional provisions exist for valuing triple net lease/purchase
arrangements. Although each project will be valued as completed and an
"account" established against which Class A OP Units will be deemed to be
credited, as well as deemed cash in an amount that would have been distributed
on such deemed Units and a 10% interest factor on such deemed cash, no
consideration will be paid until the earlier of (x) the completion of the last
property, and (y) the abandonment by the Company of any uncompleted projects,
and (z) September 30, 2002.
At that time, any uncompleted project will be valued and the
Operating Partnership will issue Class A OP Units equal in value to 50% of the
amount, if any, by which the value of the Operating Partnership's interest in
each project exceeded the aggregate cost of such project at the time of
completion. Negative amounts arising in connection with the completion or
abandonment of any project will be netted back against earlier completed
projects in order of completion. Class A OP Units issued in respect of the
foregoing valuations of the projects will be valued at the greater of (x)
average of the closing prices of the Shares for the twenty trading days prior
to the date of the completion valuation and (y) $19.00. If the average of the
closing prices of the Shares on the 20 trading days prior to each valuation is
less than $19.00, additional OP Units, of a new class but equal in value to
those Class A OP Units not issued because of the operation of the pricing
limitation, will be issued.
The following table sets forth certain information regarding the
Development Properties.
<TABLE>
<CAPTION>
Planned
Planned Owned
Percent GLA GLA Expected
Development Property Location Owned* (Sq. Ft.) (Sq. Ft.)(4) Status(6) Completion
-------------------- -------- ------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Blue Route Metroplex (1)(2) Plymouth Meeting, PA 50% 760,000 319,000 Development First Half of 2000
Christiana Power Center Newark, DE 100% 279,000 142,000 Construction Second half of 1998
(Phase I)
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
Planned
Planned Owned
Percent GLA GLA Expected
Development Property Location Owned* (Sq. Ft.) (Sq. Ft.)(4) Status(6) Completion
-------------------- -------- ------ --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Christiana Power Center (1)(3) Newark, DE 50% 300,000 150,000 Development Second half of 2000
(Phase II)
Red Rose Commons (2) Lancaster, PA 50% 463,000 265,000 Construction Second half of 1998
Warrington (1)(5) Warrington, PA 100% 415,000 140,000 Development Second half of 1999
--------- ---------
TOTAL (5 Properties) 2,217,000 1,016,000
========= =========
</TABLE>
- -----------------------
* By the Operating Partnership; the Registrant owns approximately 93.1% of
the Operating Partnership.
(1) Construction of this project is subject to obtaining government approval
for zoning and pre-leasing.
(2) Subject to reduction to 25% under the terms of the Goldenberg Letter
Agreement.
(3) This project is not currently zoned for retail use and participation by
the Trust in the development is subject to rezoning.
(4) Square footage subject to change.
(5) Subject to reduction to 50% under the terms of the Goldenberg Letter
Agreement.
(6) "Development" indicates that development activities, such as site
surveys, preparation of architectural plans, or initiation of land use
approvals or rezoning processes, have commenced (but construction has not
commenced). "Construction" indicates that construction activities, such
as site preparation, ground-breaking activities, or exterior construction
has commenced. There is no assurance that the properties which remain in
the Development stage will ultimately be constructed.
The Multifamily Properties
The Company has interests in 19 multifamily properties with an
aggregate of 7,236 units.
The Company's wholly-owned multifamily properties are managed by its
own staff. Many of the multifamily properties held by partnerships in which
the Company has an interest are managed by one or more partners other than the
Company who oversee the day-to-day development, construction, leasing and
management of properties.
If the current managers of the multifamily properties that are not
currently managed by the Company are unable or unwilling to perform their
obligations or responsibilities, the Company would manage those properties
with its own staff.
-14-
<PAGE>
The following table sets forth certain information regarding the 19
multifamily properties in which the Company has an interest:
<TABLE>
<CAPTION>
Approx.
Year Number Rentable
Multifamily Percent Built/ Of Area
Property Location Owned* Renov(1) Units(2) (Sq. Ft.)
<S> <C> <C> <C> <C> <C>
Emerald Point Virginia Beach, VA 65% 1965/1993 862 846,000
Boca Palms Boca Raton, FL 100% 1970,1991 522 673,000
/1994
Lakewood Hills Harrisburg, PA 100% 1972, 1975, 562 630,000
1982/1988
Regency Lakeside, NE Omaha, NE 50% 1970/1990 433 492,000
Kenwood Gardens Toledo, OH 100% 1951/89 504 404,000
Fox Run, Delaware Bear, DE 50% 1988 414 359,000
Eagle's Nest Coral Springs, FL 50% 1989 264 343,000
Palms of Pembroke Pembroke Pines, FL 100% 1989/1995 348 340,000
Hidden Lakes Dayton, OH 100% 1987/1994 360 306,000
Cobblestone Pompano Beach, FL 100% 1986/1994 384 297,000
Countrywood Tampa, FL 50% 1977/1997 536 295,000
Shenandoah West Palm Beach, FL 100% 1985/1993 220 286,000
Marylander Baltimore, MD 100% 1951/89 510 279,000
Camp Hill Plaza Camp Hill, PA 100% 1967/94 300 277,000
Charter Pointe (Windsong) Altamonte Springs, FL 40% 1974/1993 312 258,000
Fox Run, Warminster Warminster, PA 50% 1969/1992 196 232,000
Cambridge Hall West Chester, PA 50% 1967/1993 232 186,000
Will-O-Hill Reading, PA 50% 1970/1986 190 152,000
2031 Locust Street Philadelphia, PA 100% 1929/1986 87 89,000
----- ---------
TOTAL (19 Properties) 7,236 6,744,000
===== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Percent Fiscal 1997 Fiscal 1997
Occupied Average Average
Multifamily on Rent Rental
Property 8/31/97 per Unit per sq. ft.
<S> <C> <C> <C>
Emerald Point 96% $ 463 $ 0.49
Boca Palms 97% 802 0.64
Lakewood Hills 96% 590 0.53
Regency Lakeside, NE 99% 886 0.79
Kenwood Gardens 98% 362 0.47
Fox Run, Delaware 96% 588 0.75
Eagle's Nest 97% 812 0.64
Palms of Pembroke 95% 788 0.88
Hidden Lakes 98% 523 0.65
Cobblestone 95% 644 0.87
Countrywood 95% 409 0.79
Shenandoah 97% 820 0.66
Marylander 98% 461 0.89
Camp Hill Plaza 97% 598 0.67
Charter Pointe (Windsong) 96% 470 0.59
Fox Run, Warminster 99% 637 0.54
Cambridge Hall 99% 607 0.78
Will-O-Hill 99% 487 0.63
2031 Locust Street 98% 1,172 1.21
------ -------
TOTAL (19 Properties) $ 595 $ 0.67
====== =======
</TABLE>
- -----------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
(1) Appliances, kitchens, floor coverings and mechanical systems are replaced
on all properties as needed. Common areas are also renovated as needed.
(2) Number of Units includes all apartment and commercial unites occupied or
available for occupancy at August 31, 1997.
-15-
<PAGE>
Other Properties
Shortly following the organization of the Company, it acquired six
industrial properties. The Company has not acquired any property of this type
in over 20 years and the Company does not consider these properties to be
strategically held assets. These properties, in the aggregate, contributed
less than 3% of the Company's net rental income in the Company's fiscal year
ending August 31, 1997, and the Company is currently studying a program for
the orderly liquidation of these assets.
The following table sets forth certain information regarding the six
Industrial Properties:
Industrial Properties
<TABLE>
<CAPTION>
Year Percent Square Percentage Leased
Property and Location Acquired Owned* Feet
<S> <C> <C> <C> <C>
Office and Warehouse 1962 100% 332,000 100%
Annandale, VA
Warehouse 1962 100% 12,000 100%
Pennsauken, NJ
Warehouse 1962 100% 16,000 100%
Allentown, PA
Warehouse 1963 100% 30,000 100%
Pennsauken, NJ
Warehouse and Plant 1963 100% 197,000 100%
Lowell, MA
Warehouse and Plant 1962 50% 141,000 100%
Ft. Washington, PA
Total 728,000
</TABLE>
- -----------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
The Company holds partial interests in three parcels of undeveloped
land. Over the next 12 months, the Company anticipates determining, with its
respective joint venture partners, whether any of these parcels present
appropriate development opportunities for the Company, and if not, an
appropriate course of action to liquidate these assets.
-16-
<PAGE>
The following table sets forth certain information regarding the
Undeveloped Land:
Year Percent
Property and Location Acquired Owned * Acres
- --------------------- -------- ------- -----
Rancocas, NJ 1971 75% 54
Elizabethtown, PA 1972 50% 22
Coral Springs, FL 1990 50% 14
==
TOTAL 90
==
- ----------------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
Competition, Regulation and Other Factors
The real estate business is highly competitive. The Trust competes
for tenants with other property owners. All of the Trust's shopping center and
apartment properties are subject to significant competition. The Trust also
competes for investment opportunities with investors and purchasers of real
estate of all types, many of which have greater financial resources, revenues
and geographical diversity than those of the Trust, including institutional,
private and foreign investors.
Increased building of new apartment communities and shopping centers
as well as renovation of older properties are a source of competition for the
Trust. In addition, single family housing becomes increasingly attractive when
lower interest rates make mortgages more affordable. These trends can affect
the number of prospective tenants for the Trust's apartment properties.
A substantial portion of the Trust'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. In difficult economic times or in
strongly competitive environments, the shopping center owner may have to offer
concessions or negotiate leases in which the tenant pays a lower rental or
less than its pro rata share of certain operating costs or offer tenant
allowances.
-17-
<PAGE>
The success of the Trust depends, among other factors, upon 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 the Trust to keep its properties leased at profitable
levels.
All but one of the 46 properties in which the Trust has an interest
are located in the eastern United States, with 19 of the properties located in
Pennsylvania and 14 in Florida. The ability of some existing tenants of the
Trust's properties to meet their lease obligations could be adversely affected
by economic conditions in the East and in Florida and Pennsylvania in
particular.
The effects of inflation upon the Trust's operations and investment
portfolio are varied. From the standpoint of revenues, inflation has the dual
effect of both increasing the tenant revenues upon which percentage rentals
are based and allowing increased fixed rentals to rise generally to reflect
higher construction costs on new properties and on renovation and
rehabilitation of older properties. This positive effect may be offset by
higher operating expenses.
Fundamental to the Trust is the generation of cash flow which, if
distributed to shareholders, is free from Federal income taxes to the Trust.
The determination to make distributions to shareholders, however, is not
solely based on cash flow because the Trust 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. The Trust generally attempts to distribute 100% of such
income and capital gains from sales of real estate investments so as to avoid
any Federal income and excise tax liability for the Trust.
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 the Trust and limit
the extent to which existing properties may be utilized. If hazardous
substances are discovered on or emanating from any of the Trust's properties,
the owner or operator of the property, including the Trust, may be held liable
for all costs and liabilities relating to such hazardous substances. Since
1987, the Trust has conducted a Phase I environmental study on each property
it seeks to acquire. These studies may, but do not necessarily, detect the
potential environmental hazards associated with a property. The Trust has no
way of determining the magnitude of any potential liability to which it may be
subject out of unknown environmental conditions or violations.
Environmental matters have arisen at certain properties in which the
Trust has an interest. The Trust retained environmental consultants in order
to investigate certain of 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 $100,000 to $1,000,000. In addition, above
normal radon levels have been detected at two wholly-owned properties. The
estimated remaining cost to remediate these properties is approximately
$115,000, 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
$366,000, based upon the consultants' evaluation of these matters which, in
certain instances, are subject to applicable state approvals of the
remediation plans.
-18-
<PAGE>
There are asbestos-containing materials in many of the properties in
which the Trust has an interest, primarily in the form of floor tiles and
adhesives. The floor tiles and adhesives are generally in good condition.
Fire-proofing material containing asbestos is present at some of the
properties in limited concentrations or in limited areas.
Employees
The Registrant employs approximately 1,150 persons on a full-time
basis.
Item 2. Properties
See the tables under "Item 1. Business" at pages 1 to 19 for the
properties owned by the Trust, both wholly owned and those in which it has a
percentage interest, and reference is made thereto.
The Trust has leased 4,661 square feet of space for its principal
offices at 455 Pennsylvania Avenue, Fort Washington, Pennsylvania, with a
five-year term expiring December 31, 1998. The rent for the current year is
$14.50 per square foot.
The Management Company has leased 23,075 square feet (3rd floor) and
6,647 square feet (4th floor) of space for its principal offices at 200 S.
Broad Street, Philadelphia, Pennsylvania, under two leases both expiring on
July 31, 1999. The rent for the current year on both of the spaces is $19.00
per square foot. In addition, the Management Company has leased 5,712 square
feet, 860 square feet and 922 square feet of space for its three regional
offices at 500 Madison Street, Chicago, Illinois, 668 North Orlando Ave.,
Maitland, Florida and 1534 Dunwoody Village Parkway, Atlanta, Georgia,
respectively. The Chicago lease expires on November 30, 1999, and the rent for
the current year is $25.00 per square foot. The Maitland lease expires on
April 30, 2000, and the rent for the current year is $13.75 per square foot.
The Atlanta lease expires on January 1, 1998, and the rent for the current
year is $12.20 per square foot. The Management Company is currently
negotiating a three year extension to the Maitland lease.
Titles to all of the Trust's real estate investments have been
searched and reported to the Trust by reputable title companies. The
exceptions listed in such title reports will not, in the opinion of the Trust,
materially interfere with the use of the respective properties for the
intended purposes.
Schedule of Real Estate and Accumulated Depreciation
Schedule III, "Real Estate and Accumulated Depreciation - August 31,
1997," is part of the financial statement schedules set forth herein and
reference is made to that schedule which is incorporated herein by reference
for the amount of encumbrances, initial cost of the properties to the Trust,
cost of improvements, the amount at which carried and the amount of the
accumulated depreciation.
Item 3. Legal Proceedings
Daniel Berman and Robert Berman and/or entities owned or controlled
by them (collectively, the "Bermans") are partners of wholly-owned
subsidiaries of Trust 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,
-19-
<PAGE>
currently manages the two apartment complexes.
On May 1994, the Bermans commenced an action against the Trust and
certain of its wholly-owned subsidiaries in the Montgomery County Court of
Common Pleas of Pennsylvania (the "Pennsylvania Litigation"). In the
Pennsylvania Litigation, the Bermans, seeking damages and a declaratory
judgment, asserted that the Trust interfered with a contract to develop the
parcel in Coral Springs, Florida and violated the partnership agreement
relating to Eagle's Nest Apartments in Coral Springs, Florida. The Bermans
later amended their complaint to add new parties and to allege that the
defendants had no right to terminate the leasing and management agreement at
Fox Run Apartments, had violated the Fox Run partnership agreement and that
the Bermans had no liability for certain partnership expenses.
In June 1994, two wholly-owned subsidiaries of the Trust commenced an
action in Delaware Chancery Court against the Bermans (the "Delaware
Litigation"). The action seeks, among other things, a declaratory judgment and
an injunction preventing the defendants from continuing to manage Fox Run and
damages resulting from the payment by plaintiffs of defendants' share of the
investigation and remediation of the environmental condition at Fox Run
Apartments.
The Trust intends to continue to vigorously resist plaintiffs' claims
in the Pennsylvania Litigation and to pursue the claims asserted in the
Delaware Litigation. Management does not believe that resolution of these
matters will have a material adverse effect on the Trust's financial condition
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-20-
<PAGE>
PART II
Item 5. Market for the Trust's Common Equity and Related Shareholder Matters
Stock Market
The Shares commenced trading on the New York Stock Exchange on November 14,
1997. (ticker symbol: PEI). Prior to that time, the Shares were traded on the
American Stock Exchange.
Market Price and Distribution Record
The following table shows the high and low sales prices for the
Shares (as reported by the American Stock Exchange) and cash distributions
paid for the periods indicated:
Quarters
Ended
Distributions
Fiscal Year 1997 High Low Paid
- ---------------- ---- --- --------------
November 30 $ 23.38 $ 20.13 $ .47
February 28 25.00 22.13 .47
May 31 24.13 20.75 .47
August 31 27.25 21.63 .47
------
$ 1.88
======
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
======
As of November 12, 1997, there were approximately 1,400 shareholders of record
of the Shares.
The Registrant currently anticipates that cash distributions will
continue to be paid in the future (in March, June, September and December);
however, the payment of future distributions by the Registrant will be at the
discretion of the Board of Trustees and will depend on numerous factors,
including the Registrant's cash flow, its financial condition, capital
requirements, annual distribution requirements under the real estate
investment trust provisions of the Internal Revenue Code and such other
factors as the Board of Trustees deems relevant.
On September 30, 1997, the Registrant completed a series of related
transactions pursuant to which, among other things, the Operating Partnership
acquired (a) all of the non-voting common shares, constituting 95% of the
equity of TRO for 200,000 Class A Op Units, (b) the interests of
-21-
<PAGE>
certain affiliates of TRO in The Court at Oxford Valley, Langhorne, PA, for,
among other consideration, 233,248 Class A Op Units, and (c) Magnolia Mall
from an affiliate of Equity Property and Development Limited Partnership
("EPDLP") for, among other consideration, 213,038 Class B OP Units ("Class B
Op Units") issued to an affiliate of EPDLP.
The Class A and Class B OP Units issued in the above described
transactions are redeemable by the Operating Partnership at the election of
the limited partner holding such units, at such time, and for such
consideration, as set forth in the Operating Partnership Agreement. In
general, and subject to certain exceptions and limitations, beginning one year
following the respective issue dates, "qualifying parties" may give one or
more notices of redemption with respect to all or any part of the Class A OP
Units so received and then held by such party. Class B OP Units will be
redeemable at the option of the holder at any time after issuance.
If a notice of redemption is given, the Registrant has the right to
elect to acquire the OP Units tendered for redemption for its own account,
either in exchange for the issuance of a like number of Shares (subject to
adjustments for stock splits, recapitalizations, and like events) or a cash
payment equal to the average of the closing prices of the Shares on the ten
consecutive trading days immediately prior to receipt by the Registrant, in
its capacity as general partner of the Operating Partnership, of the notice of
redemption. If the Registrant declines to exercise such right, then on the
tenth day following tender for redemption the Operating Partnership will pay a
cash amount equal to the number of units so tendered multiplied by such
average closing price.
The OP Units were issued by the Operating Partnership pursuant to the
exemptions provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D promulgated under the Act.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Selected Financial Information
- ------------------------------------------------------------------------------------------------------------------
Years Ended August 31
(Thousands of dollars except per share results) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results
Income Before Gains on Sales of
Interests in Real Estate $ 9,166 $ 10,179 $ 11,106 $ 8,325 $ 10,125
Gains on Sales of Interests in Real Estate 1,069 865 119 12,362 3,875
Net Income 10,235 11,044 11,225 20,687 14,000
- ------------------------------------------------------------------------------------------------------------------
Per Share Results
Income Before Gains on Sales
of Interests in Real Estate $1.06 $1.17 $1.28 $ .96 $1.17
Gains on Sales of Interests in Real Estate .12 .10 .01 1.43 .45
Net Income 1.18 1.27 1.29 2.39 1.62
- ------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Investments in Real Estate, at Cost $202,443 $198,542 195,929 $154,281 $112,262
Total Assets 165,657 177,725 181,336 142,495 107,853
Total Mortgage and Bank Loans Payable 117,412 124,148 122,518 80,155 51,929
Total Liabilities 124,218 130,678 129,037 85,339 55,671
Shareholders' Equity 40,899 46,505 51,771 56,748 51,852
- ------------------------------------------------------------------------------------------------------------------
Other Data:
Cash Flow Provided By (Used In)
Operating Activities 15,219 15,090 16,672 15,909 13,034
Investing Activities 7,749 933 (40,082) (18,524) (38,683)
Financing Activities (22,599) (16,091) 22,356 3,305 25,913
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-22-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the notes thereto appearing elsewhere herein.
Results of Operations
Fiscal 1997 Compared With Fiscal 1996
Net income for the fiscal year ended August 31, 1997 before gains on
sales of interests in real estate, decreased 10% to $9.2 million from $10.2
million for the comparable period of 1996. In the 1997 period, net gains on
the sales of interests in real estate were $1.1 million as compared to $0.9
million in 1996. The net gains on sales of interests in real estate of $1.1
million in 1997, consisted of gains on the sale of the Trust's joint venture
interest in shopping centers in Lancaster, Beaver Falls and Waynesburg, PA of
$1.5 million, offset by a loss on the sale of a shopping Center in Margate, FL
of $0.4 million. The gains in 1996 totaling $0.9 million were derived from the
sale of land in Bucks County, PA and the sale of the Chateau Apartments in
Midland, TX. In 1997 net income was reduced by an accounting provision of $0.5
million for losses on land held for sale in the Trust's investment portfolio
and prepayment fees of $1.9 million paid in connection with refinancing of two
partnership properties, the Trust's share of which was $1.1 million.
Gross revenues from real estate for the fiscal year ended August 31,
1997, increased by 3% to $40.2 million from $39.0 million in the prior year.
The 1997 period included $0.4 million of revenues attributable to Forestville
Plaza in which the Trust acquired its partners' remaining 25% interest in the
prior fiscal year. The 1996 period included $0.5 million of revenues
attributable to Chateau Apartments which the Trust sold in June 1996. Revenues
from properties owned during both periods increased by $1.0 million primarily
as a result of increases in apartment revenues.
Operating expenses for the fiscal year ended August 31, 1997
increased 1% to $16.3 million from $16.1 million in the prior year. The 1997
period included $0.2 million of expenses attributable to Forestville Plaza in
which the Trust acquired its partners' remaining 25% interest in the prior
fiscal year. The 1996 period included $0.3 million of expenses attributable to
Chateau Apartments which the Trust sold. Operating expenses from properties
owned during both periods increased by $0.3 million.
Depreciation and amortization for the fiscal year ended August 31,
1997 increased by 7% to $6.3 million from $5.9 million in 1996, primarily as a
result of ongoing capital expenditures in apartments.
General and administrative expenses increased by 6% to $3.3 million
from $3.1 million in 1996, primarily as a result of costs associated with
litigation with a partner.
Mortgage and bank loan interest expense decreased by 8% to $9.1
million from $9.8 million in 1996, primarily as a result of decreased
borrowing against the Trust's credit facility.
In Fiscal 1996, a partnership in which the Trust has a 50% interest
signed an option to sell a parcel of land at a stipulated price, subject to
the buyer's obtaining certain zoning variance approvals. In Fiscal 1997, the
option expired. As a result, management revised its estimate of the property's
-23-
<PAGE>
selling price and recorded a $0.5 million provision for investment losses to
reduce the property held for sale to its estimated net realizable value.
Equity in income of partnerships and joint ventures decreased in the
fiscal year ended August 31, 1997, by 32% to $4.3 million from $6.3 million in
1996, primarily as a result of an increase in mortgage interest expense of
$2.9 million ($1.8 million of which was the Trust's proportional share). The
increase in partnership mortgage interest expense is attributable to
prepayment fees of $1.9 million ($1.1 million of which was the Trust's
proportional share) in connection with refinancings, as well as additional
interest expense associated with the refinancings of Regency Apartments,
Lehigh Valley Mall and Cambridge Hall Apartments in 1997. In addition, equity
in income from properties owned during both periods exclusive of the increase
in mortgage interest mentioned above increased by $0.5 million.
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 by 8% to $10.2 million from $11.1
million for the comparable period in 1995. In the 1996 period, the gains on
the sales of interests in real estate were $0.9 million as compared to the
1995 period which included a gain on sale of interest in real estate of $0.1
million. Net income was reduced by an increase in operating expenses of $0.3
million primarily due to winter conditions in the Mid-Atlantic region and the
receipt in the prior year of $0.2 million as a non-recurring termination fee
from a shopping center tenant.
Gross revenues from real estate for the fiscal year ended August 31,
1996 increased by 5% to $39.0 million from $37.0 million in 1995. The increase
is due primarily to an increase in revenues of $1.2 million from the Boca
Palms Apartments, which was acquired in November 1994 and $0.4 million 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 2%, to $33.7 in 1996 from $33.1 million in 1995.
Operating expenses in the fiscal year ended August 31, 1996 increased
by 8% to $16.1 million from $14.9 million in 1995. The increase is due
primarily to $0.4 million of increased expenses from the Boca Palms
Apartments, approximately $0.2 million of additional operating expenses as a
result of the harsh winter weather in the Mid-Atlantic region and $0.1 million
attributable to the increased ownership of Forestville Plaza.
Depreciation and amortization increased by 12% to $5.9 million from
$5.3 million in 1995, primarily as a result of the acquisition of Boca Palms,
the remaining interest in Forestville Plaza, and ongoing capital expenditures.
Interest expense increased by 10% to $9.8 million from $8.9 million in 1995 as
a result of increased borrowings to finance the Boca Palms acquisition and for
general corporate purposes.
For fiscal year ended August 31, 1996, $0.7 million was charged
against the allowance for investment losses, $0.3 million for carrying costs
for land held for sale, and $0.4 million 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.
-24-
<PAGE>
Equity in income of partnerships and joint ventures decreased by 2%
to $6.3 million from $6.4 million in 1995, primarily as a result of a
non-recurring lease termination fee received from a shopping center tenant in
the amount of $0.2 million for fiscal year 1995. The Trust's share of
partnership and joint venture income in 1996 was also reduced by approximately
$0.1 million as compared to the prior year due to higher operating expenses
resulting from the harsh winter weather discussed earlier.
Liquidity and Capital Resources
The Trust expects to meet its short-term liquidity requirements
generally through its available working capital and net cash provided by
operations. The Trust believes that its net cash provided by operations will
be sufficient to allow the Trust to make any distributions necessary to enable
the Trust to continue to qualify as a REIT under the Internal Revenue Code of
1986, as amended. The Trust also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future, including capital expenditures, tenant improvements and
leasing commissions.
The Trust expects to meet certain long-term liquidity requirements
such as property acquisitions, scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness and the issuance of additional equity
securities. The Trust also expects to use funds available under the $150
million revolving credit facility (the "Credit Facility") to fund
acquisitions, development activities and capital improvements on an interim
basis.
In addition to amounts due under the Credit Facility and under the
Term Loan (as hereinafter defined), during the next three years mortgage
loans. secured by properties owned by three partnerships in which the Trust
has an interest, mature by their terms. Balloon payments on these loans total
$17 million of which the Trust's proportionate share is $8.5 million.
The Credit Facility
Coincident with the closing of the TRO transaction, the Operating
Partnership entered into the Credit Facility with a group of banks led by
CoreStates Bank, N.A. The obligations of the Operating Partnership under the
Credit Facility have been guaranteed by the Trust.
The Credit Facility is for an initial term of two years and bears
interest, at the borrower's election, at (i) the higher of CoreStates' prime
rate or the Federal Funds lending rate plus .5%, in each case as in effect
from time to time or (ii) the London Interbank Offered Rate (LIBOR) plus
margins ranging from 1.1% to 1.7%, depending on the ratio of the Trust's
consolidated liabilities to gross asset value (the "Leverage Ratio") each as
determined pursuant to the terms of the Credit Facility.
The Credit Facility contains affirmative and negative covenants
customarily found in facilities of this type, as well as requirements that the
Trust maintain, on a consolidated basis: (i) a maximum Leverage Ratio of 65%;
(ii) a maximum ratio of Senior Liabilities (as defined in the Credit Facility)
to Unencumbered Asset Value (as defined in the Credit Facility) of 73%; (iii)
minimum tangible net worth of $115 million; (iv) a minimum ratio of annualized
consolidated property net operating income to total annual debt service of
1.40:1; and (v) a minimum ratio of annualized consolidated property
-25-
<PAGE>
net operating income to pro forma debt service of 1.30:1. As of September 30,
1997, the Trust's Leverage Ratio was approximately 58.6%. Until the Trust
reduces its leverage ratio below 50%, the lending banks will hold unrecorded
mortgages on eleven unencumbered properties which the Operating Partnership
owns, directly or indirectly, and would be entitled to record such mortgages
upon any event of default.
As of September 30, 1997, the Operating Partnership had drawn $95.0
million on the Credit Facility, which was used to repay amounts outstanding on
the Trust's prior line of credit and for cash payments in the TRO Transaction
referred to in note 10 of the Notes to Consolidated Financial Statements.
Secured Term Loan
In addition to the Credit Facility, the Trust previously borrowed $35
million (the "Term Loan") 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 three apartment
properties, had a balance of $33.9 million on August 31, 1997, and matures in
March 2000.
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 of indebtedness
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, N.A. on $20 million of indebtedness which fixes a rate of
6.12% per annum versus 30-day LIBOR until 2001. As a result of these
transactions, the Trust has as of August 31, 1997, fixed or hedged $35 million
of the outstanding balance on its Credit Facility.
Contingent Liabilities
The Trust along with certain of its joint venture partners has
guaranteed debt totaling $16.0 million. (See Notes 2 and 3 of the Notes to
Consolidated Financial Statements.)
Cash Flows
Net cash provided by operating activities increased by approximately
1% to $15.2 million for the year ended August 31, 1997 as compared to $15.1
million in the same period last year. Operating cash flow was higher primarily
as a result of the timing of collections of receivables.
Net cash provided by investing activities was $7.7 million for the
year ended August 31, 1997 as compared to $0.9 million in the same period last
year. For the year ended August 31, 1997, the Trust refinanced two properties
and received $15.4 million, sold interests in four shopping centers and
received proceeds of $2.1 million, invested $6.2 million in real estate and
incurred deposits to acquire real estate of $5.3 million. For the year ended
August 31, 1996, the Trust sold two properties and received net cash proceeds
of $5.2 million.
Net cash used in financing activities increased by 40% to $22.6
million for the year ended August 31, 1997 as compared to $16.1 million in the
same period last year. Financing activities
-26-
<PAGE>
included reduction in bank loans payable of $5.4 million and distributions
paid to shareholders of $16.3 million. Financing activities in 1996 included
proceeds of a mortgage note payable on Shenandoah Village Apartments of $8.8
million, a reduction in bank loans payable of $5.0 million and distributions
paid to shareholders of $16.3 million.
Funds From Operations
Funds from operations increased 6% to $19.7 million for the year
ended August 31, 1997, as compared to $18.6 million in 1996. The increase is
primarily due to an improvement in net operating income, exclusive of a
provision for losses on investments, of 6% for apartments.
Capital Expenditures
During fiscal 1997, the Trust expended $3.6 million for capital
expenditures: $2.9 million ($502 per unit owned adjusted for partnership
interests) for multifamily communities and $0.7 million 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, $0.8 million ($171 per unit owned) was expended for floor covering
and $0.3 million ($71 per unit owned) for appliances.
In addition, the Trust expended $1.2 million for non-recurring
improvement costs to multifamily communities which included $0.7 million for
exterior preparation and painting.
Environmental Matters
In 1994, the Trust established a reserve for environmental
remediation costs of $0.6 million. In addition, the Trust received a credit of
$0.4 million for environmental matters in connection with the acquisition of
two properties. During 1995, 1996 and 1997 a total of $0.6 million was charged
against the reserve leaving a balance of $0.4 million. There can be no
assurance that these amounts will be adequate to cover future environmental
costs.
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 multifamily properties in their markets. Economic factors such as
employment trends and the level of interest rates, impact shopping center
sales as well as 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.
-27-
<PAGE>
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets of the Trust as of August 31, 1997,
and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended August
31, 1997, and the report of independent public accountants thereon and the
Trust's summary of unaudited quarterly financial information for the two-year
period ended August 31, 1997 are set forth on pages F-1 through F-14 hereto.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
-28-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
<TABLE>
<CAPTION>
Shares Beneficially Owned
on October 1, 1997 (1)
Principal Occupation Trustee ----------------------------
Name Age and Affiliations Since Number Percent
---- --- -------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Class C Trustees;
Terms Expire in
1997
William R. 56 Partner in Dimeling, 1982 7,187 (2) *
Dimeling ** Schreiber and Park, a
private investment
partnership. Director of
Aero Services
International, Inc., a
fixed base operator for
private aviation.
Director, Addison
Capital Shares.
George F. 54 President, PREIT- 1997 1,400 (4) *
Rubin** RUBIN, Inc. (formerly
(3) named "The Rubin
Organization, Inc.,"
acquired by the Trust in
September 1997) since
1992.
Rosemarie B. 51 Businesswoman. 1997 -0- *
Greco** (3) Formerly President,
CoreStates Financial
Corp. and President and
Chief Executive Officer,
CoreStates Bank, N.A.
Director, General
Accident Insurance
Company of America.
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
on October 1, 1997 (1)
Principal Occupation Trustee ----------------------------
Name Age and Affiliations Since Number Percent
---- --- -------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Class A Trustees;
Terms Expire in
1999
Sylvan M. 83 Chairman of the Board 1960 650,291 (5) 7.5%
Cohen of Trustees of the Trust.
Chief Executive Officer
of the Trust until
September 30, 1997. Of
counsel to the
Philadelphia law firm of
Drinker Biddle & Reath
LLP and formerly
partner in the
Philadelphia law firm of
Cohen, Shapiro,
Polisher, Shiekman and
Cohen. Director of FPA
Corporation. Trustee of
EQK Realty Investments
I and Trustee of Arbor
Property Trust.
Lee H. 66 Private Investor. 1985 5,500 (2) *
Javitch Former Chairman and
Chief Executive Officer
of Giant Food Stores,
Inc., an owner and
operator of
supermarkets. Director
of Dauphin Deposit
Corp. Director of First
Maryland BanCorp.
Jonathan B. 50 President and Chief 1994 105,910 (6) 1.2%
Weller Operating Officer of the
Trust. From 1988 to
1993, Executive Vice
President and Director of
Eastdil Realty, Inc., a
real estate investment
banking firm.
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
on October 1, 1997 (1)
Principal Occupation Trustee ----------------------------
Name Age and Affiliations Since Number Percent
---- --- -------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Class B Trustees;
Terms Expire
in 2000
Ronald Rubin (3) 66 Since September 30, 1997 -0- (7) *
1997, Chief Executive
Officer of the Trust.
From 1992 to September
1997, Chairman and
Chief Executive Officer
of The Rubin
Organization, Inc. (now
named PREIT-RUBIN,
Inc.). Director, PECO
Energy Corp.
Leonard I. 61 Chairman and Chief 1996 482,663 (8) 5.6%
Korman Executive Officer,
Korman Commercial
Properties, Inc., a
commercial real estate
management and
development firm since
January 1996. General
partner, The Korman
Co., a real estate
management and
development firm, since
1984. Director,
CoreStates Bank, N.A.
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
on October 1, 1997 (1)
Principal Occupation Trustee ----------------------------
Name Age and Affiliations Since Number Percent
---- --- -------------------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Jeffrey P. 51 Chairman of the Board, 1986 51,413 (9) *
Orleans Chief Executive Officer
and Director of FPA
Corporation, a
residential real estate
developer. Chief
Executive Officer of
Orleans Construction
Corp., a residential real
estate developer, prior to
FPA Corporation's
acquisition of such
company in 1993.
Non-Trustee
Executive
Officers
Edward A. 40 Since September 30, __ -0- (10) *
Glickman 1997, Executive Vice
President and Chief
Financial Officer of the
Trust. From 1993 to
1997, Executive Vice
President and Chief
Financial Officer of The
Rubin Organization, Inc.
(now named PREIT-
RUBIN, Inc.).
Jeffrey A. 48 Senior Vice President- -- 29,771 (11) *
Linn Acquisitions and
Secretary of the Trust
Dante J. 64 Senior Vice President- -- 20,931 (12) *
Massimini Finance and Treasurer of
the Trust
All Trustees and -- -- -- 1,354,814 (13) 15.6%
executive officers
as a group (12
persons)
</TABLE>
* Less than one percent
** To be nominated at the Annual Meeting of Shareholders of the Registrant
scheduled to be held on December 16, 1997, for a term expiring in 2001.
-32-
<PAGE>
(1) Unless otherwise indicated in the following footnotes, each Trustee and
Non-Trustee executive officer has sole voting and investment power with
respect to all such Shares.
(2) Includes 5,500 Shares subject to options that are currently exercisable.
(3) Pursuant to the TRO Contribution Agreement, the Trust acquired all of the
outstanding non-voting shares of capital stock of The Rubin Organization,
Inc. In accordance with Section 5.19 of the TRO Contribution Agreement,
the Board of Trustees of the Trust elected Ronald Rubin, George F. Rubin
and Rosemarie B. Greco as Trustees of the Trust to fill the vacancies
created by the resignations of Robert Freedman, Jack Farber and Robert G.
Rogers. Ronald Rubin and George F. Rubin are brothers.
(4) Includes 900 Shares held by a trust, the beneficiary of which is Mr.
Rubin's daughter. Mr. Rubin is not a trustee of that trust. Also includes
500 shares held by Mr. Rubin's spouse. Mr. Rubin disclaims beneficial
ownership of all Shares referred to in this footnote. Excludes 86,055
Class A OP Units first redeemable on September 30, 1998 for cash or, at
the option of the Trust, for a like number of Shares.
(5) Includes 186,558 Shares owned by Mr. Cohen's spouse, 37,056 Shares owned
by a trust of which Mr. Cohen's wife is a co-trustee, 252 Shares owned by
a corporation 50% of whose outstanding shares are owned by Mr. Cohen and
the remaining 50% of whose outstanding shares are owned by Jeffrey P.
Orleans, a Trustee of the Trust, 71,815 Shares owned by a charitable
remainder unitrust of which Mr. Cohen is a co-trustee, and 28,523 Shares
subject to options that are currently exercisable. Mr. Cohen disclaims
beneficial ownership of all of the Shares referred to in this footnote
other than Shares owned by trusts of which Mr. Cohen is a trustee or a
co-trustee, Shares owned of record by Mr. Cohen's wife and the Shares
subject to options.
(6) Includes 94,710 Shares subject to options that are currently exercisable,
and 400 Shares held by Mr. Weller as custodian for his children under the
New York Uniform Gifts to Minors Act.
(7) Excludes 143,440 Class A OP Units first redeemable on September 30, 1998
for cash or, at the option of the Trust, for a like number of Shares.
(8) Includes (i) 420 Shares owned by Mr. Korman's spouse, (ii) 87,570 Shares
held by a charitable foundation of which Mr. Korman is a co-trustee, and
(iii) 151,585 Shares held by trusts of which Mr. Korman is a co-trustee.
Mr. Korman disclaims beneficial ownership of all but 10,528 of the
foregoing Shares.
(9) Includes 450 Shares owned by Mr. Orleans' spouse, 1,000 Shares for which
Mr. Orleans is custodian for his children under the Pennsylvania Uniform
Gifts to Minors Act, 947 Shares owned by an adult daughter of Mr.
Orleans, 360 Shares held by trusts of which Mr. Orleans is co-trustee,
252 Shares owned by a corporation 50% of whose shares are owned by Mr.
Orleans and the remaining 50% of whose shares are owned by Sylvan M.
Cohen, Chairman of the Board of Trustees of the Trust and 3,000 Shares
subject to options that are currently exercisable. Mr. Orleans disclaims
beneficial ownership of the Shares owned by Mr. Orleans' wife and certain
Shares for which he serves as custodian under the Pennsylvania Uniform
Gifts to Minors Act.
(10) Excludes 13,066 Class A OP Units redeemable first on September 30, 1998
for cash or, at the
-33-
<PAGE>
option of the Trust, for a like number of Shares.
(11) Includes 21,431 Shares subject to options that are currently exercisable
and 500 Shares that are held by Mr. Linn as custodian for his son under
the Pennsylvania Uniform Gifts to Minors Act.
(12) Includes 20,331 Shares subject to options that are currently exercisable.
(13) Includes 178,995 Shares subject to options that are currently
exercisable. In certain instances, two Trustees beneficially own the same
Shares because they share voting or investment power over such Shares.
Such Shares have been counted only once in this total.
Item 11. Executive Compensation
The following table sets forth certain information concerning the
compensation paid by the Trust during the fiscal years ended August 31, 1997,
1996 and 1995 to the Trust's Chief Executive Officer and the four other most
highly compensated executive officers of the Trust.
-34-
<PAGE>
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------------------------- ------ All Other
Name and Principal Other Annual Compensation
Position Year Salary ($) Bonus ($) Compensation($)(1) Options (#) ($) (2)
------------------ ---- ---------- --------- ------------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sylvan M. Cohen 1997 $345,000 0 0 0 $9,070
Chairman and Chief 1996 342,333 0 0 0 9,070
Executive Officer 1995 333,000 0 0 20,000 9,070
and Trustee
Jonathan B. Weller 1997 $301,731 50,000 $22,414 20,000 25,871
President and Chief 1996 297,212 0 7,182 20,000 25,608
Operating Officer and 1995 281,539 0 37,463 35,000 32,408
Trustee
Robert G. Rogers 1997 $193,365 0 33,414 0 0
Executive Vice 1996 191,923 0 7,182 5,000 69,654
President and 1995 183,269 0 0 10,000 72,499
Trustee(3)
Jeffrey A. Linn 1997 $134,375 20,000 33,835 10,000 14,042
Senior Vice President- 1996 130,797 0 5,163 10,000 14,114
Acquisitions and 1995 116,346 0 0 15,000 18,021
Secretary
Dante J. Massimini 1997 $128,365 5,000 39,204 5,000 60,661
Senior Vice President- 1996 125,673 0 5,174 5,000 59,897
Finance and 1995 116,538 0 0 10,000 54,706
Treasurer
</TABLE>
- -----------------
(1) Amounts shown in Fiscal 1997 represent (a) discretionary contributions by
the Trust to the accounts of Messrs. Weller, Rogers, Linn and Massimini,
in the Company's 401(k) retirement plan in the amounts of $7,164, $7,164,
$6,010 and $5,704, respectively, and (b) paid accrued vacation salary of
$15,250, $26,250, $27,825 and $33,500, respectively. Amounts shown in
Fiscal 1996 represent discretionary contributions by the Trust to the
accounts of the named executive officers in the Company's 401(k)
retirement plan. Amounts shown for Fiscal 1995 for Mr. Weller include
$14,352 for relocation expenses, $12,378 for reimbursement for taxes
resulting from payment of living expenses on behalf of Mr. Weller in 1994
and $10,733 in respect of a leased automobile.
(2) All amounts for Mr. Cohen represent annual premium payments on life
insurance provided under Mr. Cohen's employment agreement. Amounts for
Mr. Weller include $9,750 of annual premium payments on life insurance
provided under Mr. Weller's employment agreement. All other amounts
represent anticipated contributions by the Trust with respect to Fiscal
1997 and actual contributions for Fiscal 1996 and Fiscal 1995 under the
Supplemental Retirement Plan approved during Fiscal 1995 in which Messrs.
Weller, Rogers, Massimini and Linn are participants.
(3) Mr. Rogers resigned from the Board of Trustees in August 1997 and will
retire from his position as Executive Vice President of the Trust
effective December 31, 1997.
-35-
<PAGE>
Employment Agreements
The Trust entered into an Employment Agreement with Mr. Cohen on July
16, 1982, which was amended and restated on March 14, 1985 and further amended
as of January 1, 1990 and September 29, 1997. The Employment Agreement
provides that Mr. Cohen is to serve as Chairman of the Board of Trustees of
the Trust and Chairman of the Property Committee of the Board of Trustees.
Pursuant to the 1997 amendment, the employment term shall continue until
December 31, 2000, with automatic calendar year renewals thereafter that will
continue until written notice of termination is delivered by either Mr. Cohen
or the Trust at least 180 days prior to the end of the then current term. The
current annual base compensation is $345,000, and the agreement provides that
base compensation cannot be unilaterally decreased by the Trust. Mr. Cohen was
not a participant in the Trust's defined benefit pension plan, which was
terminated during Fiscal 1995, nor is he a participant in the non-qualified
retirement plan which was established during Fiscal 1995 and in which the
other executive officers of the Trust named in the Summary Compensation Table
are participants. Following the termination of Mr. Cohen's employment for any
reason (including expiration of the term) other than termination for specified
cause, the Trust is required to make payments to Mr. Cohen and, in the event
his wife survives him, to Mr. Cohen's widow. Post-termination payments to Mr.
Cohen are to continue for the balance of his lifetime at a rate equal to,
subject to an annual cost-of-living adjustment, 50% of the rate of Mr. Cohen's
highest annual basic compensation during his employment with the Trust. If Mr.
Cohen is survived by his wife, the Trust is to pay her for the balance of her
lifetime at a rate equal to, subject to an annual cost-of-living adjustment,
(i) 25% of the rate of Mr. Cohen's highest annual basic compensation during
Mr. Cohen's employment with the Trust or (ii) if higher than the rate
specified in subclause (i), 50% of the rate of the adjusted payments to which
Mr. Cohen shall have been entitled at the time of his death. During fiscal
1997, the Trust was not required to accrue on its financial statements any
additional amount in respect of the aforementioned post-termination payments.
As of the end of fiscal 1997, such accrual equals approximately $900,000. The
Employment Agreement also requires the Trust to maintain $150,000 of life
insurance coverage on Mr. Cohen's life, payable to beneficiaries designated by
Mr. Cohen.
The Trust entered into an Employment Agreement with Mr. Weller on
December 14, 1993. The Employment Agreement provides that Mr. Weller is to
serve as President and Chief Operating Officer of the Trust with
responsibility for the day-to-day management of the Trust. The employment
term, which began on January 31, 1994, is three years, a period that is
automatically extended, as of January 31, 1996 and each January 31 thereafter,
for a new three year term beginning on such January 31 unless the Trust gives
Mr. Weller written notice at least 60 days prior to January 31 in a year that
the term is not to be extended as of such January 31. The agreement further
provides for an initial annual base salary of $275,000 and provides that if
the annual salary is increased, such increased annual salary thereafter
constitutes the annual base salary for purposes of the agreement. Mr. Weller's
annual base salary under the agreement currently is $305,000. In accordance
with the Employment Agreement, on December 14, 1993, the Trust granted Mr.
Weller non-qualified stock options to purchase 100,000 Shares of the Trust at
an exercise price equal to the fair market value of the Shares on such date.
See "Stock
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<PAGE>
Option Plans" below. The Trust is required to provide certain employee
benefits to Mr. Weller, including $1,500,000 of life insurance. Mr. Weller was
required to invest a minimum of $250,000 in Shares of the Trust. Upon a
termination of employment by Mr. Weller for specified good reason (including
delivery by the Trust of written notice that the term of the agreement is not
to be renewed for a new three-year period) or by the Trust other than for
cause, disability or death, Mr. Weller is entitled to receive a lump-sum cash
payment equal to the sum of any unpaid annual base salary through the date of
termination and the amount of annual base salary that would have been paid
during the remaining term of employment, discounted on a present value basis.
The Employment Agreement provides that all options to purchase Shares granted
to Mr. Weller vest and become immediately exercisable upon a change of control
of the Trust or upon a termination of employment by the Trust without cause or
by Mr. Weller for good reason or upon Mr. Weller's death or disability. The
Employment Agreement provides that, in the event any payments to Mr. Weller
result in the imposition on Mr. Weller of an excise tax under Section 4999 of
the Internal Revenue Code, the Trust shall pay Mr. Weller an additional amount
sufficient to reimburse him for such excise tax.
Mr. Rogers' employment agreement with the Trust was terminated on
September 30, 1997. Pursuant to an Employment Extension and Separation
Agreement, dated October 3, 1997, by and between Mr. Rogers and the Trust (a)
Mr. Rogers' employment has been extended through December 31, 1997 at his
current rate of compensation, and (b) from January 1, 1998 through March 31,
1998, Mr. Rogers will make himself available to the Trust up to three days a
month for business consulting (any number over three days a month will be
compensated at a specified additional rate). The agreement also provides,
among other things, for (i) a $50,000 payment to Mr. Rogers on January 2,
1998, (ii) a $25,000 payment to Mr. Rogers on or before each of December 26,
1998 and 1999, (iii) medical insurance reimbursements for Mr. Rogers and his
spouse for the remainder of their natural lives, and (iv) the immediate
vesting of all Trust options held by him and the extension of the exercise
date of the same to June 30, 2000. The Trust has accrued $250,000 in respect
of the cost of extending Mr. Rogers' options.
The Trust has an employment agreement with Mr. Linn, who serves as
Senior Vice President - Acquisitions and Secretary of the Trust. The agreement
has an initial term expiring December 31, 1999 with automatic one-year
renewals unless either party gives the other not less than 180 days notice
prior to the expiration of the then current term. The agreement provides that
the annual base compensation shall be $136,500 per year and that such amount
may be increased (but not decreased) by the Board of Trustees.
The Trust has an employment agreement with Mr. Massimini, who serves
as Senior Vice President-Finance and Treasurer. The agreement has a term
expiring September 30, 1998, with automatic one-year renewals thereafter until
written notice of termination is delivered at least 180 days prior to the
expiration of the then-current term.
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Stock Option Tables
The following table sets forth certain information with respect to
options to purchase Shares granted to certain executive officers named in the
Summary Compensation Table during the fiscal year ended August 31, 1997. Mr.
Cohen was not granted options in the fiscal year ended August 31, 1997.
Options Granted in Fiscal 1997
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------- Value at Assumed
% of Total Annual Rates of Stock
Options Price Appreciation for
Options Granted to Exercise Option Term (1)
Granted Employees in Price Expiration ------------------------
Name (#) Fiscal Year Per Share Date 5% 10%
---- ------- ------------ --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Jonathan B. Weller 20,000(2) 44.4% $22.75 12/06/06 $324,673 $822,785
Jeffrey A. Linn 10,000(3) 22.2% $22.75 12/06/06 $162,337 $411,393
Dante J. Massimini 5,000(4) 11.1% $22.75 12/06/06 $ 81,168 $205,696
</TABLE>
- ------------------
(1) These amounts represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the end of the option
term. These gains are based on assumed rates of share appreciation of 5% and
10% compounded annually from the date the respective options were granted to
their expiration date. The assumed annual rates of share appreciation are
specified by the Securities and Exchange Commission and are not intended to
forecast possible future appreciation of the Trust's share price.
(2) Consists of a non-qualified stock option exercisable in four
equal and consecutive annual installments of 5,000 shares each, commencing on
January 1, 1998.
(3) Consists of a non-qualified stock option exercisable in four
equal and consecutive annual installments of 2,500 shares each, commencing on
January 1, 1998.
(4) Consists of a non-qualified stock exercisable in four successive
annual installments of 1,125 shares each, commencing January 1, 1998.
The following table sets forth certain information as to the exercise
of options to purchase Shares during the fiscal year ended August 31, 1997 by
the persons named in the Summary Compensation Table and the fiscal year-end
value of unexercised options.
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<PAGE>
Aggregate Option Exercises in Fiscal Year Ended August 31, 1997
and August 31, 1997 Option Values
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired August 31, 1997 August 31, 1997(1)
on Value ---------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sylvan M. Cohen - - 28,768 56,232 $135,119 $244,611
Jonathan B. Weller - - 94,710 80,290 231,219 331,056
Robert G. Rogers(2) - - 32,046 19,954 210,576 84,732
Dante J. Massimini - - 20,331 24,044 95,735 116,905
Jeffrey A. Linn - - 21,431 34,819 103,663 170,818
</TABLE>
(1) In-the-money options are those where the fair market value of the
underlying securities exceeds the exercise price of the option. All of the
options held by the named executive officers were in-the-money except for
options granted in December 1993. Dollar amounts shown represent the
difference between the option exercise price and the fair market value of the
Shares at August 31, 1997. The closing price of the Shares on August 31, 1997
was $25.813 per Share.
(2) Pursuant to the Employment Extension and Separation Agreement,
dated October 3, 1997, by and between the Trust and Mr. Rogers, all options
granted to Mr. Rogers have become vested and are immediately exercisable as of
October 3, 1997.
Stock Option Plans
Pursuant to the Trust's 1990 Incentive and Non-Qualified Stock Option
Plan (the "Employee Plan"), incentive stock options designed to qualify under
Section 422A of the Internal Revenue Code and non-qualified stock options to
purchase up to an aggregate of 400,000 of the Trust's Shares may be issued by
the Trust to officers and key employees of the Trust. The Employee Plan is
administered by a committee of the Board, currently the Executive Compensation
and Human Resources Committee, which has authority to determine the persons to
whom options will be granted, the number of option shares, the exercise price,
the date of grant, and the term of options granted under the Employee Plan.
The Employee Plan requires that the exercise price not be less than 100% of
the fair market value of the Shares on the date of grant.
The Company also has a 1990 Stock Option Plan for Non-Employee
Trustees (the "Trustee Plan") under which each non-employee Trustee
automatically receives a non-qualified option on 1,000 Shares on the last
trading day in January of each year at an exercise price equal to the closing
price on that date. Options granted under the Trustee Plan vest in four equal
annual increments and expire on the tenth anniversary of the grant date. The
Plan authorizes
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<PAGE>
the granting of options on 100,000 Shares, of which options on 52,750 remain
ungranted. The Plan would have expired in January, 1997, but the Shareholders
of the Registrant will vote on an extension of the Trustee Plan through 2004.
In connection with the TRO Transaction; the Trust adopted the 1997
Stock Option Plan (the "1997 Plan"). Pursuant to the 1997 Plan, incentive
stock options designed to qualify under Section 422A of the Internal Revenue
Code and non-qualified stock options to purchase up to an aggregate of 560,000
of the Trust's Shares may be granted by the Trust to key employees of the
Trust and the Management Company. The 1997 Plan is administered by the
Executive Compensation and Human Resources Committee, which has authority to
determine the persons to whom options will be granted, the number of option
shares, the exercise price, the date of grant, and the term of options granted
under the Employee Plan. The 1997 Plan requires that the exercise price not be
less than the fair market value of the Shares on the grant date. As of October
31, 1997, options to purchase up to 455,000 Shares have been issued under the
1997 Plan, all at an exercise price of $25.41 per share, none of which are
vested. Of such amounts, options on 150,000 shares, 75,000 shares and 50,000
shares were granted to Messrs. Ronald Rubin, George Rubin and Edward Glickman,
respectively.
In accordance with the terms of Mr. Weller's Employment Agreement
with the Trust, the Trust adopted the 1993 Jonathan B. Weller Non Qualified
Stock Option Plan (the "Weller Plan"). Under the Weller Plan, on December 14,
1993 the Trust granted Mr. Weller options to purchase 100,000 Shares at an
exercise price equal to the fair market value of the Shares on such date. Such
options have a term of ten years and become exercisable in four equal annual
installments of 25,000 Shares each, commencing on the first anniversary of the
grant date, subject to earlier exercisability under certain specified
circumstances.
Other Benefit Plans
Section 401(k) Plan. The Trust maintains a 401(k) profit sharing and
retirement savings plan in which substantially all of the officers and
employees are eligible to participate.
Supplemental Retirement Plan. The Trust maintains a Supplemental
Retirement Plan in which the executive officers named in the Summary
Compensation Table other than Mr. Cohen are participants. Under the
Supplemental Retirement Plan, the Trust is required to make defined
contributions to the plan annually in amounts equal to amounts that would have
been required to be contributed under the Trust's defined benefit pension
plan, which was terminated in fiscal 1995, in order to fund the targeted
retirement benefit (after taking into account amounts distributed under the
terminated defined benefit pension plan, together with an assumed rate of
return thereon). The Trust has recorded $92,000, $160,000 and $168,000 of
contributions due under the provisions of this plan for years ended August 31,
1997, 1996 and 1995, respectively.
The Management Company Stock Bonus Plan. The Management Company has
established a stock bonus plan for all of its employees who have completed at
least one year of service as of the effective date of the plan (September 30,
1997). The plan is expected to be
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<PAGE>
qualified for favorable tax treatment under section 401(a) of the Internal
Revenue Code and all of the outstanding voting common shares of the Management
Company are held by the trust established under the plan.
The Management Company contributed all of its voting common shares to
the plan for the plan year ending December 31, 1997. The shares will be
allocated to the plan accounts of the eligible employees as of December 31,
1997, pro rata, based on their covered compensation for 1997. The shares held
by the plan will be appraised as of the effective date, and as of each
December 31 thereafter. The value of an employee's account under the plan will
be payable to the employee upon termination of service. Since the Management
Company's Articles of Incorporation restrict ownership of all of the
outstanding voting common shares of the Management Company to the Management
Company employees or to a tax-qualified plan for the benefit of employees,
benefits to terminated employees will be paid only in cash.
Voting on major corporate transactions (including mergers,
recapitalizations, liquidations, and similar transactions) will be passed
through by the plan trustee, CoreStates Bank, N.A., to the plan's
participants. Voting by the plan trustee on other matters will be directed by
majority vote of the Management Company Stock Bonus Plan Committee, who are
appointed by the Board of Directors of the Management Company.
Incentive Bonus Plan. The Trust and the Management Company have
established an incentive bonus plan, effective January 1, 1998, for certain
officers and key employees of the Trust and the Management Company. The plan
is a nonqualified, unfunded plan with bonuses to be paid from the general
assets of the Trust.
The Executive Compensation and Human Resources Committee of the Board
of Trustees of the Trust administers the plan. The Committee has designated
those officers and key employees who are eligible to receive a bonus under the
plan, and each of the individuals who entered into employment agreements in
connection with the TRO Transaction have been included as eligible to
participate in the plan. A bonus pool has been created equal to a graduated
percentage of "Adjusted Funds Available for Distribution," which is generally
defined as funds from operations less the sum of all obligations of the Trust,
including annual capital expenditures, reserves for capital expenditures,
distributions by the Trust and its operating partnership and working capital
reserves. One-half of the pool will be paid to the participants based on set
individual percentages. All or a portion of the remainder of the pool may be
awarded by senior management (in its discretion, but subject to the approval
of the Committee) to any of the participants in the plan and/or to any other
employees of the Trust or the Management Company who achieved the goals and
objectives stated in the Trust's business plan. The plan provides that in no
event will incentive compensation paid under the plan exceed $1,500,000 in any
plan year.
Bonuses will be paid in single-sum cash payments within a reasonable
time after the Trust's fiscal year-end financial statements are approved.
Except as provided in a participant's employment agreement, only participants
who are employed by the Trust or the Management
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<PAGE>
Company on December 31 of each plan year will be eligible to receive payments
under the plan (unless the participant was no longer an employee due to a
reorganization, or because he retired on or after age 65, became disabled, or
died).
Item 12. Security Ownership of Certain Beneficial Owners and Management
All information responsive to this Item is set forth in Item 10.
Except as listed in Item 10, the Registrant has no knowledge of any person or
group who is the beneficial owner of more than 5% of the Shares.
Item 13. Certain Relationships and Related Transactions
On September 30, 1997, the Trust consummated the TRO Transaction in
which the Trust, inter alia, (i) formed the Operating Partnership, (ii)
transferred to the Operating Partnership its interests in its real property
assets, or the economic benefits thereof, in exchange for the issuance to the
Trust's business trust subsidiary of Class A OP Units and to the Trust of a
general partner interest in the Operating Partnership, (iii) caused the
Operating Partnership to acquire all of the issued and outstanding non-voting
common shares of TRO representing 95% of the total equity of TRO, in exchange
for 200,000 Class A OP Units and a contingent obligation to issue up to
800,000 additional Class A OP Units over a five year period based on the
levels of the Trust's funds from operations ("Adjusted FFO") per Share during
such period, (iv) caused the Operating Partnership to acquire, or to become
obligated to acquire, in exchange for additional Class A OP Units, the
interests of certain TRO Affiliates, including Ronald and George Rubin, Edward
Glickman, and entities in which they own interests, or their rights or
obligations to acquire interests, in four of the Existing Properties, and in
the Acquisition Properties, (v) caused the Operating Partnership to acquire
the development rights, subject to the obligations of certain TRO Affiliates,
in four of the Development Properties in exchange for (A) additional Class A
OP Units computed based upon one-half of the net profit to the Operating
Partnership at completion of such project determined as set forth in the
relevant documents, and (B) the reimbursement by the Operating Partnership of
certain of TRO's pre-closing expenses relating to such properties, (vi)
implemented, directly or indirectly, employment agreements with members of
TRO's management, including Ronald Rubin, who became the Chief Executive
Officer of the Trust and George F. Rubin, and (vii) elected three designees of
TRO, Ronald Rubin, George F. Rubin and Rosemarie B. Greco, as trustees of the
Trust. Ronald Rubin's employment agreement is for an initial term of five (5)
years and provides for annual base compensation of not less than $345,000 per
annum. The employment agreements of Messrs. George F. Rubin and Edward
Glickman are for initial terms of two years and provide for base compensation
of $250,000 per annum and $230,000 per annum, respectively.
The OP Units referred to above are redeemable by the Operating
Partnership, at the option of the holder, beginning one year following the
dates of their respective issuance for an amount per OP Unit equal to the
average closing price of a Share on the twenty trading days immediately prior
to the date notice of redemption is received by the Trust in its capacity as
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<PAGE>
general partner of the Operating Partnership. The Trust has the right to
acquire any OP Units tendered for redemption for (i) cash, or (ii) Shares, on
the basis of one Share for each OP Unit (subject to adjustments for share
splits and other capital changes). Redeeming holders of OP Units who receive
Shares from the Trust will have certain rights to cause the Trust to register
such Shares for resale under the federal securities laws. Ronald Rubin, George
F. Rubin and Edward Glickman, as a result of the TRO Transaction, will each be
prohibited from reselling more than one-half of the Shares to which he would
be entitled upon redemption of Class A OP Units held by them during the five
year period following the completion of the TRO Transaction if he continues to
hold executive positions with the Trust or the Management Company during such
period.
In the TRO Transaction, in exchange for their direct and indirect
interests in the Management Company and certain affiliated entities, (i)
Ronald Rubin received, directly or indirectly, beneficial ownership of 143,044
Class A OP Units; (ii) George F. Rubin received, directly or indirectly,
beneficial ownership of 86,055 Class A Units; and (iii) Edward Glickman
received, directly or indirectly, beneficial ownership of 13,066 Class A OP
Units. All such individuals will also be eligible to receive additional Class
A OP Units relating to any contingent payments for their equity interest in
TRO and for the Acquisition Properties and four of the Development Properties
in which the Trust acquired interests in the TRO Transaction, all in
accordance with the valuation and payment provisions of the applicable
agreements. It is anticipated that holders of Class A OP Units will receive
distributions at the approximate times, and in the same amounts, as dividends
are paid by the Trust to the Shareholders. Generally, each of such Class A OP
Units is redeemable for cash, or at the option of the Trust, for one Share.
Certain of the Class A OP Units in the TRO Transaction are subject to pledges
in favor of the Operating Partnership until certain obligations of TRO are
satisfied.
The amount of consideration paid by the Trust and the manner in which
it would be paid was determined by the Trust's management and was approved by
a Special Acquisition Committee of the Board of Trustees and by the Board of
Trustees. The Board received an opinion from Lehman Brothers that the
consideration to be paid was fair from a financial point of view, and the
Shareholders of the Trust approved the completion by the Trust of the TRO
Transaction at a Special Meeting of Shareholders held on September 29, 1997.
The Board of Trustees has established a committee consisting of Leonard I.
Korman, Chair, Rosemarie B. Greco and William R. Dimeling for the purpose of
addressing and resolving any matters pertaining to the TRO Transaction as they
arise on an on-going basis.
The Management Company provides real estate management, leasing,
administrative, accounting and/or development services to 21 properties and
related entities (including ther retail properties on which the Registrant holds
a right of first refusal on the affiliated interest and eight office buildings)
in which Mr. Ronald Rubin and George Rubin and/or other TRO Affiliates have
direct or indirect interest. All such services are provided on terms which the
Management Company believes to be no less favorable to the Management Company
than agreements between the Management Company and unrelated third parties with
respect to similar services. For the twelve months ended December 31, 1996 and
the nine months ended September 30, 1997,
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<PAGE>
revenues received by the Management Company from such properties and entities
aggregated $5,951,000 and $5,115,000, respectively.
The Management Company leases office space from Richard I. Rubin & Co.,
Inc. under a sublease agreement. The term of the sublease agreement began on
January 1, 1994 and expires on July 31, 1999. The monthly base rent is $36,535.
The Management Company also leases additional office space in the same building
from Bellevue Associates for a minimum rental of $10,524 per year plus
additional rent based on the Management Company's share of increases in office
maintenance and other costs. Ronald Rubin and George Rubin own a majority of the
equity interests of Richard I. Rubin & Co., Inc. and approximately 10% of
Bellevue Associates. The lease rates on this space is at least as favorable to
the Management Company as that paid by other tenants in the building for
comparable space.
During fiscal 1997, the Trust paid or accrued fees and costs to the
Philadelphia law firm of Drinker Biddle & Reath LLP, general counsel for the
Trust, for legal services rendered to the Trust, its subsidiaries and its
affiliates, including partnerships and other ventures in which the Trust is
involved. Sylvan M. Cohen, Chairman of the Trust, and Chief Executive Officer
of the Trust until September 30, 1997, and Robert Freedman, a Trustee of the
Trust until September 1997, are of counsel to such firm.
Rosemarie B. Greco is the former President and Chief Executive
Officer of CoreStates Bank, N.A., and the former President of its parent
company, CoreStates Financial Corp. Mr. Leonard I. Korman is a Director of
CoreStates Bank, N.A. CoreStates Bank, N.A. has been, and will continue to be,
a primary source of financing for the Trust. At November 1, 1997, the Trust
was indebted (i) to CoreStates Bank, N.A. and the other banks in the lending
group in the aggregate principal amount of approximately $95.3 million on an
existing line of credit in the total amount of $150 million, and (ii) to a
two-bank group, of which CoreStates Bank, N.A. is a member, for $33.9 million
on an existing $35 million term loan facility. All borrowing arrangements from
the Trust from CoreStates Bank, N.A. have been on terms which the Trust
believes are at least as favorable to the Trust as would be available from
other lending sources.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
(1) Financial Statements
1. The Trust's Consolidated Financial Statements as follows:
Consolidated Balanced Sheet at August 31, 1997 and 1996 F-1
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<PAGE>
Consolidated Statements of Income and Shareholders'
Equity for the fiscal years ended August 31, 1997, 1996
and 1995 F-2
Consolidated Statement of Cash Flows for the fiscal year
ended August 31, 1997, 1996 and 1995 F-3
Notes to Consolidated Financial Statements F-4
Report of Independent Public Accountants F-14
2. Lehigh Valley Associates Financial Statements
Report of Independent Auditors F-15
Balance Sheets at August 31, 1996 and 1995 F-16
Statements of Operations for the fiscal years F-17
ended August 31, 1996, 1995 and 1994
Statements of Partners' Deficiency at August F-18
31, 1996, 1995 and 1994 and September 1,
1993
Statements of Cash Flows for the fiscal years F-19
ended August 31, 1996, 1995 and 1994
Notes to Financial Statements F-20
(2) Financial Statement Schedules
Report of Independent Public Accountants on
Supplemental Schedules F-25
II - Valuation and Qualifying Accounts F-26
III - Real Estate and Accumulated Depreciation F-27
All other schedules are omitted because they are not
applicable or are not required or because the required
information is reported in the consolidated financial
statements or notes thereto.
(3) Exhibits
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<PAGE>
3.1 Trust Agreement as Amended and Restated on September 29,
1997, filed as Exhibit 3.2 to the Trust's Current Report on
Form 8-K dated October 14, 1997, is incorporated herein by
reference.
3.2 By-Laws, as adopted on September 29, 1997, filed as exhibit
3.3 to the Trust's Current Report on Form 8-K dated October
14, 1997, is incorporated herein by reference.
4.1 Revolving Credit Agreement, dated September 30, 1997, among
PREIT Associates, L.P. and the lending institutions named
therein, filed as exhibit 4.12 to the Trust's Current Report
on Form 8-K dated October 14, 1997, is incorporated herein
by reference.
4.2 Form of Revolving Credit Note, dated September 30, 1997,
filed as exhibit 4.13 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
4.3 Guaranty of the Trust, dated September 30, 1997, among the
Trust and the lending institutions named therein, filed as
exhibit 4.14 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
4.4 Guaranty dated August 29, 1996 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.3 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1996, is incorporated herein by reference.
4.5 Secured Loan Agreement dated November 9, 1994 among the
Trust, CoreStates Bank, N.A., as lender and as agent, and
PNC Bank, National Association, filed as exhibit 4.4 to the
Trust's Annual Report on Form 10-K for its fiscal year ended
August 31, 1995, is incorporated herein by reference.
4.6 First Amendment to Secured Loan Agreement dated March 20,
1995 among the Trust, CoreStates Bank, N.A., as lender and
as agent, and PNC Bank, National Association, filed as
exhibit 4.5 to the Trust's Annual Report on Form 10-K for
its fiscal year ended August 31, 1995, is incorporated
herein by reference.
4.7 Form of Replacement Note pursuant to the First Amendment to
Secured Term Loan Agreement, filed as exhibit 4.6 to the
Trust's Annual Report on Form 10-K for its fiscal year ended
August 31, 1995, is incorporated herein by reference.
4.8 Second Amendment to Secured Loan Agreement dated April 25,
1995 among the Trust, CoreStates Bank, N.A., as lender and
as agent, and PNC Bank, National Association, filed as
exhibit 4.7 to the Trust's Annual Report on Form 10-K for
its fiscal year ended August 31, 1996, is incorporated
herein by reference.
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<PAGE>
4.9 Third Amendment to Secured Loan Agreement dated August 29,
1991 among the Trust, CoreStates Bank, N.A., as lender and
as agent, and PNC Bank, National Association, filed as
exhibit 4.8 to the Trust's Annual Report on Form 10-K for
its fiscal year ended August 31, 1996, is incorporated
herein by reference.
4.10 Guaranty dated August 2, 1993 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.7 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.11 Guaranty dated January 27, 1994 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.8 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.12 Guaranty dated September 23, 1994 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.9 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.13 First Amended and Restated Agreement of Limited Partnership,
dated September 30, 1997, of PREIT Associates, L.P., filed
as exhibit 4.15 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
4.14 Subscription Agreement, dated September 30, 1997, between
PREIT Associates, L.P. and Florence Mall Partners, filed as
exhibit 4.16 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
10.1 Employment Agreement, dated as of January 1, 1990, between
the Trust and Sylvan M. Cohen, filed as exhibit 10.1 to the
Trust's Annual Report on Form 10- K for the fiscal year
ended August 31, 1990, incorporated herein by reference.
10.2 Second Amendment to Employment Agreement, dated as of
September 29, 1997, between the Trust and Sylvan M. Cohen,
filed as exhibit 10.36 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.3 Employment Extension and Separation Agreement, dated
October 1, 1997, between the Trust and Robert G. Rogers.
10.4 First Amendment to Amended and Restated Employment Agreement
as of July 12, 1993 between the Trust and Robert G. Rogers,
filed as exhibit 10.2 to the Trust's Annual Report on Form
10-K for the fiscal year ended August 31, 1993, is
incorporated herein by reference.
10.5 Amended and Restated Employment Agreement, dated as of
October 1, 1990, between the Trust and Robert G. Rogers,
filed as exhibit 10.2 to the Trust's
-47-
<PAGE>
Annual Report on Form 10-K for the fiscal year ended August
31, 1990, is incorporated herein by reference.
10.6 Amended and Restated Employment Agreement, dated as of
October 1, 1990, between the Trust and Dante J. Massimini,
filed as exhibit 10.3 to the Trust's Annual Report on Form
10-K for the fiscal year ended August 31, 1990, is
incorporated herein by reference.
10.7 [Reserved]
10.8 Trust's 1990 Incentive Stock Option Plan, filed as Appendix
A to Exhibit "A" to the Trust's Quarterly Report on Form
10-Q for the quarterly period ended November 30, 1990, is
incorporated herein by reference.
10.9 Trust's Stock Option Plan for Non-Employee Trustees, filed
as Appendix B to Exhibit "A" to the Trust's Quarterly Report
on Form 10-Q for the quarterly period ended November 30,
1990, is incorporated herein by reference.
10.10 Purchase and Sale Agreement between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Pembroke Associates Limited
Partnership dated May 9, 1994 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 the Trust, and Pembroke Associates Limited
Partnership dated June 28, 1994, filed as exhibit 10.7 to
the Trust's Report on Form 8-K dated August 1, 1994 and
filed August 15, 1994, as incorporated herein by reference.
10.11 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 Investment Trust,
and Arbern Investors VI, L.P., dated September 24, 1994 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 Trust,
and Arbern Investors VI, L.P., dated November 4, 1994, filed
as exhibit 10.8 to the Trust's Report on Form 8-K dated
November 10, 1994 and filed November 23, 1994, is
incorporated by reference.
10.12 Agreement of Sale (Phase II) between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Arbern Investors VIII, L.P.,
dated September 24, 1994, 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 Trust, and Arbern Investors VIII, L.P.,
dated November 4, 1994, and Amendment No. 2 to Purchase and
Sale Agreement (Phase I) between Robert G. Rogers and
Jonathan B. Weller, as
-48-
<PAGE>
Trustees, and on behalf of all other Trustees of the Trust,
and Arbern Investors VIII, L.P., dated November 4, 1994,
filed as exhibit 10.9 to the Trust's Report on Form 8-K
dated November 10, 1994 and filed on November 23, 1994, is
incorporated herein by reference.
10.13 Employment Agreement dated as of December 14, 1993 between
the Trust and Jonathan B. Weller, filed as exhibit 10.10 to
the Trust's Annual Report on Form 10-K for the fiscal year
ended August 31, 1994, is incorporated herein by reference.
10.14 The Trust's Amended Incentive and Non Qualified Stock Option
Plan, filed as exhibit A to the Trust's definitive proxy
statement for the Annual Meeting of Shareholders on December
15, 1994 filed on November 17, 1994, is incorporated herein
by reference.
10.15 Amended and Restated 1990 Incentive and Non-Qualified Stock
Option Plan of the Trust, filed as exhibit 10.40 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.16 The Trust's 1993 Jonathan B. Weller Non Qualified Stock
Option Plan, filed as exhibit B to the Trust's definitive
proxy statement for the Annual Meeting of Shareholders on
December 15, 1994 which was filed November 17, 1994, as
incorporated herein by reference.
10.17 Employment Agreement dated as of January 1, 1997 between the
Trust and Jeffrey Linn.
10.18 PREIT Contribution Agreement and General Assignment and Bill
of Sale, dated as of September 30, 1997, by and between the
Trust and PREIT Associates, L.P., filed as exhibit 10.15 to
the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.19 Declaration of Trust, dated June 19, 1997, by Trust, as
grantor, and Trust, as initial trustee, filed as exhibit
10.16 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
10.20 TRO Contribution Agreement, dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and the persons and
entities named therein, filed as exhibit 10.17 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.21 First Amendment to TRO Contribution Agreement, dated
September 30, 1997, filed as exhibit 10.18 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
-49-
<PAGE>
10.22 Contribution Agreement (relating to the Court at Oxford
Valley, Langhorne, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Rubin Oxford, Inc.
and Rubin Oxford Valley Associates, L.P., filed as exhibit
10.19 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
10.23 First Amendment to Contribution Agreement (relating to the
Court at Oxford Valley, Langhorne, Pennsylvania), dated
September 30, 1997, filed as exhibit 10.20 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.24 Contribution Agreement (relating to Hillview Shopping
Center, Cherry Hill, New Jersey), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Cherry Hill
Partner, Inc., and Rubin Oxford Valley Associates, L.P.,
filed as exhibit 10.21 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.25 Contribution Agreement (relating to Northeast Tower Center,
Philadelphia, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Roosevelt Blvd.
Co., Inc., and the individuals named therein, filed as
exhibit 10.22 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
10.26 Contribution Agreement (relating to the pre-development
properties named therein), dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and TRO Predevelopment,
LLC, filed as exhibit 10.23 to the Trust's Current Report on
Form 8-K dated October 14, 1997, is incorporated herein by
reference.
10.27 First Amendment to Contribution Agreement (relating to the
pre-development properties), dated September 30, 1997, filed
as exhibit 10.24 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
10.28 First Refusal Rights Agreement, effective as of September
30, 1997, by Pan American Associates, its partners and all
persons having an interest in such partners with and for the
benefit of PREIT Associates, L.P., filed as exhibit 10.25 to
the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.29 Purchase and Sale Agreement (relating to Magnolia Mall,
Florence, South Carolina), dated as of June 30, 1997, by and
between Magnolia Retail Associates, L.L.C. and The Rubin
Organization, Inc., filed as exhibit 10.26 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
-50-
<PAGE>
10.30 First Amendment to Purchase and Sale Agreement (relating to
Magnolia Mall, Florence, South Carolina), dated September
30, 1997, filed as exhibit 10.27 to the Trust's Current
Report on Form 8-K dated October 14, 1997, is incorporated
herein by reference.
10.31 Purchase and Sale Agreement (relating to North Dartmouth
Mall, Dartmouth, Massachusetts), dated as of June 30, 1997,
by and between Diversified Equity Corporation of Illinois,
Inc. and The Rubin Organization, Inc., filed as exhibit
10.28 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
10.32 Agreement Regarding Assignment of Purchase and Sale Agreements
(relating to Magnolia Mall, Florence, South Carolina and
North Dartmouth Mall, Dartmouth, Massachusetts), dated as of
June 30, 1997, between The Rubin Organization, Inc. and the
Trust, filed as exhibit 10.29 to the Trust's Current Report
on Form 8-K dated October 14, 1997, is incorporated herein
by reference.
10.33 Registration Rights Agreement, dated as of September 30,
1997, among the Trust and the persons listed on Schedule A
thereto, filed as exhibit 10.30 to the Trust's Current
Report on Form 8-K dated October 14, 1997, is incorporated
herein by reference.
10.34 Registration Rights Agreement, dated as of September 30,
1997, between the Trust and Florence Mall Partners, filed as
exhibit 10.31 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
10.35 Letter Agreement, dated March 26, 1996, by and among The
Goldenberg Group, The Rubin Organization, Inc., Ronald Rubin
and Kenneth Goldenberg, filed as exhibit 10.32 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.36 Letter Agreement dated July 30, 1997, by and between The
Goldenberg Group and Ronald Rubin, filed as exhibit 10.33 to
the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.37 Employment Agreement, dated September 30, 1997, between the
Trust and Ronald Rubin, filed as exhibit 10.34 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.38 Employment Agreement, dated September 30, 1997, between the
Trust and Edward Glickman, filed as exhibit 10.35 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.39 Trust Incentive Bonus Plan, effective as of January 1, 1998,
filed as exhibit 10.37
-51-
<PAGE>
to the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.40 PREIT-RUBIN, Inc. Stock Bonus Plan Trust Agreement, effective
as of September 30, 1997, by and between PREIT-RUBIN, Inc.
and CoreStates Bank, N.A., filed as exhibit 10.38 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.41 PREIT-RUBIN, Inc. Stock Bonus Plan, filed as exhibit 10.39
to the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.42 1997 Stock Option Plan, filed as exhibit 10.41 to the
Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
21. Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent Public Accountants
of the Trust).
23.2 Consent of Ernst & Young LLP (Independent Auditors of Lehigh
Valley Associates).
27. Financial Data Schedule
Report on Form 8-K.
There were no reports on Form 8-K filed during the three months ended
August 31, 1997.
-52-
<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: November 25, 1997 By: /s/ Ronald Rubin
-------------------------------------
Ronald Rubin, 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 and Jonathan B. Weller,
or either of them, 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 on Form 10-K, 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 agents, and either of
them, 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 agents, or either of them or any substitute therefor, 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 Trust and in the capacities and on the dates indicated:
/s/ Sylvan M. Cohen
- ---------------------------------------------
Sylvan M. Cohen, November 25, 1997
Chairman and Trustee
/s/ Ronald Rubin
- ---------------------------------------------
Ronald Rubin, November 25, 1997
Chief Executive Officer and Trustee
/s/ Jonathan B. Weller
- ---------------------------------------------
Jonathan B. Weller, November 25, 1997
President and Chief Operating Officer and
Trustee
-53-
<PAGE>
/s/ George Rubin
- ----------------------------------
George Rubin, November 25, 1997
Trustee
/s/ William R. Dimeling
- ----------------------------------
William R. Dimeling, November 25, 1997
Trustee
/s/ Lee Javitch
- ----------------------------------
Lee Javitch, November 25, 1997
Trustee
/s/ Leonard T. Korman
- ----------------------------------
Leonard I. Korman, November 25, 1997
Trustee
/s/ Jeffrey P. Orleans
- ---------------------------------- November 25, 1997
Jeffrey P. Orleans,
Trustee
/s/ Rosemarie B. Greco
- ----------------------------------
Rosemarie B. Greco November 25, 1997
Trustee
/s/ Edward Glickman
- ----------------------------------
Edward Glickman, November 25, 1997
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
/s/ Jeffrey A. Linn
- ----------------------------------
Jeffrey A. Linn, November 25, 1997
Senior Vice President -
Acquisitions and Secretary
/s/ Dante J. Massimini
- ----------------------------------
Dante J. Massimini, November 25, 1997
Senior Vice President - Finance and Treasurer
(Principal Accounting Officer)
-54-
<PAGE>
Consolidated Balance Sheets
At August 31
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Assets
Investments in Real Estate, At Cost (Notes 1 and 3):
Apartment buildings $159,967,000 156,102,000
Industrial properties 5,078,000 5,078,000
Shopping centers and retail stores 37,398,000 37,362,000
------------ ------------
Total investments in real estate 202,443,000 198,542,000
Less accumulated depreciation 50,711,000 44,693,000
------------ ------------
151,732,000 153,849,000
Investments in Partnerships and Joint Ventures, At Equity
(Notes 1 and 2) 1,039,000 16,995,000
Notes Receivable -- 1,649,000
------------ ------------
152,771,000 172,493,000
Less allowance for possible losses (Note 1) 1,831,000 2,042,000
------------ ------------
150,940,000 170,451,000
Other Assets:
Cash and cash equivalents 1,399,000 1,030,000
Rents and sundry receivables 590,000 608,000
Deferred costs, prepaid real estate taxes and expenses,
net (Note 1) 7,393,000 5,636,000
Deposits on properties (Notes 1 and 10) 5,335,000 --
------------ ------------
$165,657,000 177,725,000
============ ============
Liabilities and Shareholders' Equity
Mortgage Notes Payable (Note 3) $ 83,528,000 $ 84,833,000
Bank Loans Payable (Note 3) 33,884,000 39,315,000
Tenants' Deposits and Deferred Rents 1,346,000 1,422,000
Accrued Pension and Retirement Benefits (Notes 1 and 4) 1,091,000 1,207,000
Accrued Expenses and Other Liabilities 4,369,000 3,901,000
------------ ------------
124,218,000 130,678,000
Minority Interest in Consolidated Partnership (Note 1) 540,000 542,000
Commitments and Contingencies (Note 7) -- --
Shareholders' Equity
($4.71 and $5.36 per share at August 31, 1997 and 1996)
(Notes 1 and 5):
Shares of Beneficial Interest, $1 Par; Authorized, Unlimited;
Issued and Outstanding 8,685,098 Shares in 1997 and
8,676,098 in 1996 8,685,000 8,676,000
Capital Contributed in Excess of Par 53,599,000 53,133,000
Distributions in Excess of Net Income (21,385,000) (15,304,000)
40,899,000 46,505,000
------------ ------------
$165,657,000 $177,725,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-1
<PAGE>
Consolidated Statements of Income
For the years ended August 31
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Revenues
Gross revenues from real estate (Note 6) $ 40,231,000 $ 38,985,000 $ 36,978,000
Interest and other income 254,000 171,000 176,000
------------ ------------ ------------
40,485,000 39,156,000 37,154,000
------------ ------------ ------------
Expenses
Property operating expenses 16,289,000 16,102,000 14,859,000
Depreciation and amortization (Note 1) 6,259,000 5,908,000 5,286,000
General and administrative expenses (Notes 1 and 4) 3,324,000 3,119,000 3,091,000
Mortgage and bank loan interest 9,086,000 9,831,000 8,908,000
Provisions for losses on investments (Note 1) 500,000 -- --
------------ ------------ ------------
35,458,000 34,960,000 32,144,000
------------ ------------ ------------
Income before minority interest, equity in income of
partnerships and joint ventures and gains on sales
of interests in real estate 5,027,000 4,196,000 5,010,000
Minority interest (198,000) (275,000) (285,000)
Equity in income of partnerships and joint ventures
(Notes 1 and 2) 4,337,000 6,258,000 6,381,000
Gains on sales of interests in real estate 1,069,000 865,000 119,000
------------ ------------ ------------
Net income $10,235,000 $11,044,000 $11,225,000
============ ============ ============
Net Income Per Share (Note 1) $1.18 $1.27 $1.29
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
Consolidated Statements of Shareholders' Equity
For the three years ended August 31, 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Capital
of beneficial contributed Distributions
in excess interest in excess
of par of net income $1 par
------------ ------------ ------------
<S> <C> <C> <C>
Balance, September 1, 1994 $8,670,000 $53,039,000 $(4,961,000)
Net income -- -- 11,225,000
Shares issued upon exercise of options (Note 5) 6,000 94,000 --
Distributions paid to shareholders
($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 shareholders
($1.88 per share) -- -- (16,310,000)
------------ ------------ ------------
Balance, August 31, 1996 8,676,000 53,133,000 (15,304,000)
Net income -- -- 10,235,000
Shares issued upon exercise of options (Note 5) 9,000 166,000 --
Issuance of compensatory stock options (Note 5) -- 300,000 --
Distributions paid to shareholders
($1.88 per share) -- -- (16,316,000)
------------ ------------ ------------
Balance, August 31, 1997 $8,685,000 $53,599,000 $(21,385,000)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Consolidated Statements of Cash Flows
For the years ended August 31
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $10,235,000 $11,044,000 $11,225,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in income of consolidated partnership 198,000 275,000 285,000
Depreciation and amortization 6,259,000 5,908,000 5,286,000
Gains on sales of interests in real estate (1,069,000) (865,000) (119,000)
Provision for losses on investments 500,000 -- --
Issuance of compensatory stock options 300,000 -- --
Decrease in allowance for possible losses (710,000) (734,000) (460,000)
Change in assets and liabilities:
Rents and sundry receivables 18,000 (192,000) (18,000)
Deferred costs, prepaid real estate taxes
and expenses, net (10,000) (356,000) (837,000)
Accrued pension and retirement benefits (116,000) (6,000) 130,000
Accrued expenses and other liabilities (310,000) (54,000) 1,042,000
Tenants' deposits and deferred rents (76,000) 70,000 138,000
----------- ----------- -----------
Net cash provided by operating activities 15,219,000 15,090,000 16,672,000
----------- ----------- -----------
Cash Flows From Investing Activities
Investments in wholly owned real estate (3,901,000) (3,685,000) (38,058,000)
Investments in partnerships and joint ventures (2,326,000) (517,000) (983,000)
Cash proceeds from sales of real estate investments -- 5,163,000 --
Cash proceeds from sales of interests in partnerships 2,069,000 -- --
Increase in advances to partnerships
and joint ventures (323,000) (380,000) (749,000)
Cash distributions from partnerships and joint ventures
in excess of (less than) equity in income 17,605,000 889,000 (127,000)
Cash distributions to minority partners (200,000) (261,000) (165,000)
Decrease in notes receivable 1,649,000 -- --
Deposits on agreement to purchase (5,336,000) -- --
Deferred acquisition costs (1,488,000) (276,000) --
----------- ----------- -----------
Net cash provided by (used in) investing activities 7,749,000 933,000 (40,082,000)
----------- ----------- -----------
Cash Flows From Financing Activities
Principal installments on mortgage notes payable (1,305,000) (1,123,000) (821,000)
Increase in mortgage notes payable -- 8,800,000 35,000,000
Prepayment of mortgage notes payable -- (1,749,000) --
Proceeds from bank loan payable -- -- 39,379,000
Decrease in bank loan payable (5,431,000) (5,005,000) (35,000,000)
Decrease (increase) in deferred financing costs 278,000 (704,000) --
Shares of beneficial interest issued 175,000 -- 100,000
Distributions paid to shareholders (16,316,000) (16,310,000) (16,302,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (22,599,000) (16,091,000) 22,356,000
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 369,000 (68,000) (1,054,000)
Cash and cash equivalents, beginning of year 1,030,000 1,098,000 2,152,000
----------- ----------- -----------
Cash and cash equivalents, end of year 1,399,000 $1,030,000 $1,098,000
=========== =========== ===========
Supplemental disclosure of non-cash investing activities:
Net assets acquired $-- $-- $3,590,000
Liabilities assumed (primarily bank loans payable) -- -- (3,804,000)
----------- ----------- -----------
$-- $-- $(214,000)
=========== =========== ===========
Accrual of acquisition costs $778,000 $-- $--
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Notes to Consolidated Financial Statements
Years Ended August 31, 1997, 1996 and 1995
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 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-70% 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 original
maturity of three months or less to be cash equivalents. Cash paid for
interest was $8,963,000, $9,962,000, and $8,619,000, for the years ended
August 31, 1997, 1996 and 1995, respectively.
Capitalization of costs
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
1997, 1996 and 1995 the Trust did not capitalize any interest or real estate
taxes.
The Trust has capitalized as deferred costs certain expenditures related to
the financing and leasing of certain properties. Capitalized loan fees are
being amortized over the terms of the related loans and leasing commissions
are being amortized over the term of the related leases.
During 1997, the Trust capitalized certain deposits associated with the
planned future purchase of two regional malls. These deposits were applied to
the respective properties upon consummation of the transaction described in
Note 10.
F-4
<PAGE>
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.
Allowance for possible losses
On September 1, 1996, the Trust adopted 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"). SFAS No. 121 requires long-lived assets to be held and used by the
Trust to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss should be recognized. Measurement of an impairment loss for
these assets should be based on the fair market value of the assets. Adoption
of this statement had no impact on the Trust's financial position or results
of operations.
During 1997, an impairment loss of approximately $500,000 was recorded
following the expiration of an option to sell certain land parcels held by a
partnership in which the Trust holds an equity interest.
Benefit plans
The Trust has provided pension benefits since 1970 for all employees,
excluding the Chairman, for whom retirement benefits are provided in an
employment contract.
With regard to the Chairman's employment contract, no provision was required
for fiscal years ended August 31, 1997, 1996 and 1995, respectively.
Derivative Financial Instruments
In managing interest rate exposure on certain floating rate debt, the Trust at
times enters into interest rate swap and cap agreements. When interest rates
change, the differential to be paid or received is accrued as interest expense
and is recognized over the life of the swap agreements. The costs of cap
transactions are deferred and amortized over the contract period. The
amortized costs of cap transactions and interest income and interest expense
on swap transactions are included in mortgage and bank loan interest.
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 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.
F-5
<PAGE>
No provision for excise tax was made for fiscal years 1997, 1996 and 1995 as
no tax was due.
The tax status of distributions paid to shareholders was composed of the
following for the calendar years ended December 31, 1996 and 1995.
1996 1995
------ ------
Ordinary income $1.72 $1.88
Capital gains .16 --
----- -----
$1.88 $1.88
===== =====
The tax status of distributions paid to shareholders for the calendar year
ending December 31, 1997 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.
Net income per share
Earnings per share are based on the weighted average number of shares
outstanding which were 8,678,560 in 1997, 8,676,098 in 1996, and 8,670,810 in
1995.
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.
Reclassifications
Certain prior year amounts leave been reclassified to conform with the current
year presentation.
2. Investments in partnerships and joint ventures
The following presents summarized financial information for the Trust's
investments in 22 and 26 partnerships and joint ventures at August 31, 1997
and 1996, respectively, and the Trust's equity in income for the years ended
August 31, 1997, 1996 and 1995.
At August 31
1997 1996
------ ------
Assets
Investments in Real Estate at Cost:
Apartment buildings $107,604,000 $105,480,000
Industrial property 1,264,000 1,264,000
Shopping centers and retail stores 120,660,000 128,936,000
Land 4,446,000 4,446,000
------------ ------------
Total investments in real estate 233,974,000 240,126,000
Less accumulated depreciation 71,838,000 73,989,000
------------ ------------
162,136,000 166,137,000
Cash and cash equivalents 6,031,000 5,589,000
Other assets 5,728,000 6,020,000
Total assets 173,895,000 177,746,000
------------ ------------
Liabilities and Partners' Equity
Mortgage notes payable 162,097,000 133,578,000
Bank loans payable 8,770,000 9,124,000
F-6
<PAGE>
Due to the Trust 3,118,000 2,795,000
Other liabilities 4,341,000 4,436,000
Total liabilities 178,326,000 149,933,000
------------ ------------
Net equity (deficit) (4,431,000) 27,813,000
Partners' share (5,470,000) (10,818,000)
Investments in partnerships and joint
ventures $ 1,039,000 $ 16,995,000
============ ============
<TABLE>
<CAPTION>
For the years ended August 31
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Gross revenues from real estate $52,446,000 $53,209,000 $52,339,000
----------- ----------- -----------
Expenses:
Property operating expenses 20,774,000 21,724,000 20,477,000
Mortgage and bank loan interest 14,908,000 11,984,000 12,463,000
Depreciation and amortization 6,978,000 6,833,000 6,502,000
42,660,000 40,541,000 39,442,000
----------- ----------- -----------
9,786,000 12,668,000 12,897,000
Partners' share (5,449,000) (6,410,000) (6,516,000)
----------- ----------- -----------
Equity in income of partnerships and
joint ventures $ 4,337,000 $ 6,258,000 $ 6,381,000
=========== =========== ===========
</TABLE>
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 7.9%. Principal
payments are due as follows:
Fiscal year ending
- ------------------
1998 $6,062,000
1999 8,268,000
2000 9,147,000
2001 18,705,000
2002 3,913,000
2003 and thereafter 116,002,000
------------
$162,097,000
============
The liability under each mortgage note is limited to the particular property
except for two loans in the amount of $7,234,000 which are guaranteed by the
partners of the respective partnerships, including the Trust. In addition, one
bank loan in the amount of $2,911,000 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
$5,999,000 and $5,876,000 at August 31, 1997 and 1996, 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:
F-7
<PAGE>
<TABLE>
<CAPTION>
For the years ended
8/31/97 8/31/96 8/31/95
--------- --------- ---------
<S> <C> <C> <C>
Total assets $24,645,000 $23,552,000 $20,858,000
Mortgages payable and
construction loan 53,406,000 22,489,000 22,227,000
Revenues 14,840,000 13,823,000 13,667,000
Property operating expenses 4,657,000 4,198,000 3,412,000
Interest expense 4,638,000 1,998,000 2,040,000
Net income 4,660,000 6,915,000 7,548,000
Equity in income of partnership 2,330,000 3,458,000 3,774,000
</TABLE>
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 7.94%.
Principal payments are due as follows:
Fiscal Year ending
1998 $1,408,000
1999 1,504,000
2000 33,969,000
2001 1,129,000
2002 1,217,000
2003 and thereafter 44,301,000
-----------
$83,528,000
===========
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, 1997, $13.0 million of the unsecured revolving line of credit
was outstanding ($7.3 million directly by the Trust and $5.7 million through
partnerships and joint ventures) and $26.7 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 weighted average interest rates based on amounts borrowed were 7.43%,
7.51% and 7.98% for fiscal years ended August 31, 1997, 1996 and 1995,
respectively. Subsequent to year end, the Trust entered into a new $150
million credit facility (see Note 10).
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, 1997, the Trust was in compliance with all debt covenants.
The carrying values of the mortgage notes and bank loans payable at August 31,
1997 and 1996 were approximately equal to their respective fair values, as
F-8
<PAGE>
determined by using year-end interest rates and market conditions. At August
31, 1997, the fair values of the interest rate protection and swap agreements
referred to above were approximately $0 and $85,000, respectively.
4. Benefit Plans
During 1995 the Trust adopted a 401(k) Plan (the "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 employee's years of service as defined in the plan
agreement. The Trust's contributions to the Plan for the Years ended August
31, 1997, 1996 and 1995 were $41,000, $39,000 and $1,000, respectively.
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 a pension plan which was terminated
in 1994. The Trust has recorded $92,000, $160,000 and $168,000 of
contributions due under the provisions of this plan for the years ended August
31, 1997, 1996 and 1995, respectively,
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 plan, 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, 1997.
Changes in options outstanding are as follows:
Plan For
Employees Non-Employee
Plan Trustees
--------- ------------
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
Options granted 45,000 6,000
Options exercised 0 (9,000)
Options outstanding at 8/31/97 340,125 38,250
------- -------
As of August 31, 1997, options for 377,500 shares had been granted pursuant to
F-9
<PAGE>
the incentive stock option plan of which 340,125 remain outstanding at $16.00
to $24.625 per share and options for 48,000 shares had been granted, pursuant
to the stock option plan for non-employee trustees of which 38,250 shares
remain outstanding at $15.75 to $25.375 per share. At August 31, 1997, options
for 223,286 shares of beneficial interest with an aggregate purchase price of
$4,853,000 (average of $21.73 per share) were exercisable.
During the fourth quarter of 1997, the Board of Trustees extended the exercise
dates for 62,500 options previously granted to an officer of the Trust and two
retiring trustees. As a result, the Trust recorded compensation expense of
$300,000 relating to this change in terms.
During 1997, the Trust adopted an accounting standard, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). SFAS No 123 encourages a fair value
method of accounting for employee stock options and similar equity
instruments. The statement also allows an entity to continue to account for
stock-based compensation using the intrinsic value method in APB Opinion No.
25. As provided for in the statement, the Company elected to continue the
intrinsic value method of expense recognition. If compensation cost for these
plans had been determined using the fair value method prescribed by SFAS No.
123, the Trust's net income would have reflected the pro forma amounts
indicated below.
1997 1996
---- ----
Net income $10,212,000 $11,033,000
Net income per share $1.18 $1.27
The pro forma effect on the results may not be representative of the impact in
future years because the fair value method was not applied to options granted
before 1996.
The fair value of each option was estimated on the grant date using the Black-
Scholes option pricing model and the assumptions presented below.
1997 1996
---- ----
Expected life in years 5 5
Risk-free interest rate 6.10% 5.58%
Volatility 17.31% 18.12%
Dividend yield 7.28% 8.90%
The weighted average fair value of options granted was $2.05 per option in
1997 and $1.29 per option in 1996.
In March 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share". The new statement is effective for fiscal years
ending after December 15, 1997. When adopted, the statement will require
implementing a new definition of earnings per share including restatement of
prior year amounts. Management has determined there will be no significant
impact upon adoption of the statement.
6. Operating Leases
The Trust's apartments are typically leased to residents under operating
leases for a period of one year. The Trust's shopping centers are leased to
tenants under operating leases with expiration dates extending to the year
2008.
F-10
<PAGE>
Future minimum rentals under non-cancelable operating leases at August 31,
1997 are as follows:
1998 $4,911,000
1999 4,574,000
2000 4,340,000
2001 4,005,000
2002 3,438,000
Thereafter 12,189,000
$33,457,000
7. Commitments and Contingencies
During 1995 certain environmental matters arose 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 $100,000 to $1,000,000. In addition, above
normal radon levels have been detected at two wholly owned properties. The
estimated remaining cost to remediate these properties is approximately
$115,000, 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 $366,000
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
Trust's financial condition or results of operations.
8. 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
9. Summary of quarterly results (unaudited)
The following presents a summary of the unaudited quarterly financial
information for the years ended August 31, 1997 and 1996 (thousands of
F-11
<PAGE>
dollars, except per share data).
For the year ended August 31, 1997
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 10,063 $ 10,186 $ 10,085 $ 10,151 $ 40,485
Income before gains (loss) on
sales of interests in real estate 2,639 1,520(1) 2,785 2,222(2) 9,166
Gains (loss) on sales of interests in
real estate - 1,461 - (392) 1,069
Net income 2,639 2,981 2,785 1,830 10,235
Net income per share:
Income before gains (loss) on sales of
interests in real estate $ .30 $ .17 $ .32 $ .26 $ 1.06
Gains (loss) on sales of interests in
real estate - .17 - (.05) .12
Total $ .30 $ .34 $ .32 $ .21 $ 1.18
</TABLE>
(1) Reflects the recording of a provision for asset impairment (see Note
1) and the share of prepayment fees relating to the refinancing of
certain debt at partnerships accounted for under the equity method.
(2) Includes additional compensation expense (see Note 5) relating to a
change in the terms of certain stock options previously granted.
For the year ended August 31, 1996
<TABLE>
<CAPTION>
1st 2nd 3rd 4th Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 9,696 $ 9,667 $ 9,968 $ 9,925 $ 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
</TABLE>
10. Subsequent Events
On September 30, 1997 the Trust completed a series of related transactions
pursuant to which the Trust (i) transferred substantially all of its real
estate interests to a newly formed operating partnership ("OP"), of which the
Trust is the sole general partner, (ii) the OP acquired all of the non-voting
common shares of The Rubin Organization, Inc. ("TRO"), a full service real
estate company, constituting 95% of the total equity of TRO in exchange for
the issuance of 200,000 OP units and a provision to issue up to 800,000
additional OP units over the next five years, upon achievement of certain
specified levels of adjusted funds from operations per share, as defined, over
that period; (iii) acquired the interests of certain affiliates of TRO in the
Court at Oxford Valley for total consideration of $6.4 million plus a share of
debt in the amount of $24.7 million, of which $684,000 was paid in cash and
the balance paid in 233,248 OP units valued at approximately $5.5 million;
F-12
<PAGE>
(iv) committed to acquire the interests of certain affiliates of TRO, in two
shopping centers nearing completion (Northeast Tower Center and Hillview
Shopping Center); and (v) acquired TRO affiliates' interests in four
predevelopment properties.
In connection with the above transaction, the Trust also acquired two malls
located in Florence, South Carolina and North Dartmouth, Massachusetts for an
aggregate purchase price of approximately $80.4 million consisting of $ 15.1
million in cash, $25.2 million of assumed mortgage debt, $35.1 million of
borrowings under the new revolving credit facility and the balance paid in
213,038 OP units valued at approximately $5 million.
Coincident with the closing of the TRO Transaction, the Operating Partnership
entered into a $150 million revolving credit facility (the "Credit Facility").
The obligations of the Operating Partnership under the Credit Facility have
been guaranteed by the Trust.
The Credit Facility is for an initial term of two years and bears interest, at
the borrower's election, at (i) the higher of prime rate, or the Federal Funds
lending rate plus .5%, or (ii) the London Interbank Offered Rate plus margins
ranging from 1.1% to 1.7%, depending on the Trust's consolidated Leverage
Ratio, as defined.
The Credit Facility contains various financial covenants with which the Trust
must comply. Until the Trust reduces its leverage ratio below 50%, the lending
banks will hold unrecorded mortgages on eleven unencumbered properties which
the Operating Partnership owns, directly or indirectly, and would be entitled
to record such mortgages upon any event of default.
As of September 30, 1997, the Operating Partnership had drawn $95 million on
the Credit Facility which was used to repay amounts outstanding on the
Company's prior line of credit and for cash payments in the TRO Transaction
referred to above.
On September 29, 1997, the Trust changed its fiscal year end from August 31 to
December 31.
F-13
<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, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended August 31, 1997. 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 1997, 1996 and
1995 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 23 percent,
31 percent and 32 percent of net income in 1997, 1996 and 1995, 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended August 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Philadelphia, PA
October 17, 1997
F-14
<PAGE>
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 August 31, 1996 and 1995, and the related
statements of operations, partners' deficiency, and cash flows for each of the
three years in the period ended August 31, 1996. 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
August 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, PA
October 18, 1996
F-15
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
August 31
1996 1995
----------- -----------
<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 22,010,037 21,559,002
Office building 587,771 587,771
------------ -------------
28,349,891 27,898,856
Less accumulated depreciation 12,587,778 11,899,934
------------ -------------
15,762,113 15,998,222
Cash and cash equivalents 1,767,561 1,707,710
Due from tenants and others 1,079,554 662,926
Accrued rent (Note 1) 1,872,634 1,779,296
Prepaid expenses and other assets 744,035 637,584
Deferred charges, net (Note 1) 2,195,925 71,940
Deferred finance costs, net (Note 1) 78,478 -
Deferred leasing costs, net (Note 1) 51,487 -
------------ -------------
$ 23,551,787 $ 20,858,378
============ =============
Liabilities
Mortgages payable and construction loan, (Note 2) $ 22,488,686 $ 22,226,947
Accrued expenses and other liabilities, including
accrued interest (1996--$170,690;
1995--$168,043) 2,657,661 1,040,899
------------ -------------
25,146,347 23,267,846
Partners' deficiency (1,594,560) (2,409,468)
------------ -------------
$ 23,551,787 $ 20,858,378
============ =============
</TABLE>
See accompanying notes.
F-16
<PAGE>
Valley Lehigh Associates
(A Limited Partnership)
Statements of Operations
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Rentals (Notes 1 and 4):
Minimum $ 9,613,342 $ 9,729,591 $ 9,086,148
Percentage 627,388 773,350 771,092
----------- ----------- -----------
10,240,730 10,502,941 9,857,240
Tenant reimbursements 3,297,168 2,803,911 3,246,749
Sundry 285,405 364,891 286,856
----------- ----------- -----------
13,823,303 13,671,743 13,390,845
Expenses:
Real estate taxes 793,448 779,903 739,630
Interest (Note 2) 1,998,258 2,040,410 2,090,278
Management fees (Note 3) 714,827 731,156 701,419
Common area expenses 2,364,814 1,842,997 2,314,147
Other property expenses 324,539 58,135 359,637
Depreciation and amortization (Note 1) 712,509 671,333 664,840
----------- ----------- -----------
6,908,395 6,123,934 6,869,951
----------- ----------- -----------
Net income $ 6,914,908 $ 7,547,809 $ 6,520,894
=========== =========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Statements of Partners' Deficiency
<TABLE>
<CAPTION>
Percentage Balance Balance
Interest Per as of as of
Partnership September 1, August 31,
Agreement 1993 Distributions Net Income 1994
------------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
General Partners:
Delta Ventures, Inc. 0.50% $ (18,391) $ (34,470) $ 32,605 $ (20,256)
Pennsylvania Real Estate Investment Trust 30.00 (1,103,451) (2,068,200) 1,956,268 (1,215,383)
Limited Partners:
Morris A. Kravitz Residuary Trust 9.00 (331,035) (620,460) 586,880 (364,615)
Myles H. Tanenbaum 8.55 (314,484) (589,437) 557,537 (346,384)
Jordan A. Katz 4.50 (165,518) (310,230) 293,440 (182,308)
Robert T. Girling 4.50 (165,518) (310,230) 293,440 (182,308)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell 9.00 (331,035) (620,460) 586,880 (364,615)
Harold G. Schaeffer 4.50 (165,618) (310,230) 293,440 (182,308)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer 4.50 (165,618) (310,230) 293,440 (182,308)
Richard A. Jacoby 4.95 (182,069) (341,253) 322,784 (200,538)
Pennsylvania Real Estate Investment Trust 20.00 (735,634) (1,378,800) 1,304,180 (810,254)
------- ----------- ----------- ---------- -----------
100.00% $(3,678,171) $(6,894,000) $6,520,894 $(4,051,277)
======= =========== =========== ========== ===========
Balance
as of
August 31,
Distributions Net Income 1995
------------- ---------- ----------
<S> <C> <C> <C>
General Partners:
Delta Ventures, Inc. $ (29,530) $ 37,739 $ (12,047)
Pennsylvania Real Estate Investment Trust (1,771,800) 2,264,343 (722,840)
Limited Partners:
Morris A. Kravitz Residuary Trust (531,540) 679,303 (216,852)
Myles H. Tanenbaum (504,963) 645,338 (206,009)
Jordan A. Katz (265,770) 339,651 (108,427)
Robert T. Girling (265,770) 339,651 (108,427)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (531,540) 679,303 (216,852)
Harold G. Schaeffer (265,770) 339,651 (108,427)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (265,770) 339,651 (108,427)
Richard A. Jacoby (292,347) 373,617 (119,268)
Pennsylvania Real Estate Investment Trust (1,181,200) 1,509,562 (481,892)
----------- ---------- -----------
$(5,906,000) $7,547,809 $(2,409,468)
=========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance
as of
August 31,
Distributions Net Income 1996
------------- ---------- ----------
<S> <C> <C> <C>
General Partners:
Delta Ventures, Inc. $ (30,500) $ 34,575 $ (7,972)
Pennsylvania Real Estate Investment Trust (1,830,000) 2,074,472 (478,368)
Limited Partners:
Morris A. Kravitz Residuary Trust (549,000) 622,342 (143,510)
Myles H. Tanenbaum (521,550) 591,224 (136,335)
Jordan A. Katz (274,500) 311,171 (71,756)
Robert T. Girling (274,500) 311,171 (71,756)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (549,000) 622,342 (143,510)
Harold G. Schaeffer (274,500) 311,171 (71,756)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (274,500) 311,171 (71,756)
Richard A. Jacoby (301,950) 342,287 (78,931)
Pennsylvania Real Estate Investment Trust (1,220,000) 1,382,982 (318,910)
----------- ---------- -----------
$(6,100,000) $6,914,908 $(1,594,560)
=========== ========== ===========
</TABLE>
See accompanying notes.
F-18
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Operating activities
Net income $6,914,908 $ 7,547,809 $6,520,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 712,509 671,333 664,840
Amortization of deferred charges 434,908 35,968 --
Changes in operating assets and liabilities:
Due from tenants and others and (509,966) (128,606) (553,443)
accrued rent
Prepaid expenses and other assets (18,069) (31,261) (110,066)
Accrued expenses and other liabilities 20,701 (108,134) 554,884
---------- ----------- ----------
Net cash provided by operating activities 7,554,991 7,987,109 7,077,109
Investing activities
Deferred charges (1,083,014) (107,908) --
Expenditures for property and equipment (512,748) (17,872) (6,341)
---------- ----------- ----------
Net cash used in investing activities (1,595,762) (125,780) (6,341)
Financing activities
Proceeds from construction loan 884,368 -- --
Principal payments on mortgages (622,629) (569,154) (520,267)
Deferred finance costs (61,117) -- --
Distributions paid to partners (6,100,000) (5,906,000) (6,894,000)
---------- ----------- ----------
Net cash used in financing activities (5,899,378) (6,475,154) (7,414,267)
---------- ----------- ----------
Increase (decrease) in cash and cash 59,851 1,386,175 (343,499)
equivalents
Cash and cash equivalents at beginning of year 1,707,710 321,535 665,034
---------- ----------- ----------
Cash and cash equivalents at end of year $1,767,561 $ 1,707,710 $321,535
========== =========== ==========
</TABLE>
See accompanying notes.
F-19
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements
August 31, 1996
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 and have entered into operating agreements with
the Partnership under which they are responsible for a share of common area
expenses.
Depreciation is computed on the straight-line method generally over 35 years
for the shopping center and 22 years for the office building, representing the
estimated lives of the assets.
Recognition of Rental Income
Minimum rent is recognized on a straight-line basis over the lease terms
regardless of when payments are due. Accrued rent represents minimum rent
recognized in excess of payments due.
Percentage rents are accrued as income for those tenants whose sales volume at
August 31 exceeded the minimum annual sales volumes required for percentage
rents.
Deferred Charges
Deferred charges, consisting of costs incurred that are reimbursable from
tenants, are amortized as tenants are billed. Accumulated amortization as of
August 31, 1996, 1995, and 1994 amounted to $470,876, $35,968, and $0,
respectively.
Deferred Finance Costs
Costs incurred in connection with the construction loan and the refinancing
described in Note 2 have been capitalized. The costs related to the
construction loan will be fully amortized on the date of the refinancing.
Costs associated with the refinancing will be amortized over the term of the
related mortgage.
Deferred Leasing Costs
F-20
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Costs incurred in connection with leasing are capitalized and amortized over
the period of the applicable tenant's lease. Accumulated amortization as of
August 31, 1996, 1995, and 1994 amounted to $38,513, $31,251, and $23,989,
respectively.
Fair Values of Financial Instruments
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Mortgages Payable and Construction Loan: The fair values of the mortgages
payable and construction loan have not been disclosed due to the refinancing
which occurred on September 18, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect various amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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
income taxes.
Cash Equivalents
The Partnership considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
F-21
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable and Construction Loan
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Mortgage note on Property--payable in monthly
installments of $192,002, including interest at 9%
through 2012 $19,363,950 $19,898,791 $20,387,762
Mortgage note on Property--payable in monthly
installments of $16,909, including interest at
9-3/4%, through 2012 1,630,209 1,671,934 1,709,798
Mortgage note on Property--payable in monthly
installments of $4,475, including interest at
10-3/8%, through 2012 415,855 425,837 434,841
Mortgage note on office building and fringe land--
payable in monthly installments of $4,434,
including interest at 8%, through 2001 194,304 230,385 263,700
Construction loan--interest only, payable monthly
at variable rate (8.75% at June 30, 1996) on
outstanding draws up to $4,770,000, principal due
earlier of March 30, 1997 or refinancing, as 884,368 -- --
defined.
----------- ----------- -----------
$22,488,686 $22,226,947 $22,796,101
=========== =========== ===========
</TABLE>
The above mortgages are collateralized by the respective real estate and
tenant leases. The construction loan is guaranteed by the general partners.
F-22
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable and Construction Loan (continued)
The Partnership refinanced the above mortgages and construction loan on
September 18, 1996 with a mortgage loan obtained from an insurance company.
The proceeds of the mortgage loan of $54,000,000 were used to pay off the
outstanding principal and interest due on all of the above loans, pay
prepayment fees and other closing costs, including approximately $338,000 paid
to an affiliate, and provided a $26,000,000 distribution to the partners.
The mortgage is secured by the property and an assignment of leases and rents
and requires monthly payments of principal and interest of $413,210 (based on
annual interest of 7.9%) with remaining unpaid principal due on October 10,
2006.
Principal payments on the mortgage dated September 18, 1996 are due as
follows:
Year ending August 31:
1997 $ 594,500
1998 766,857
1999 829,682
2000 897,653
2001 971,192
Thereafter 49,940,116
-----------
$54,000,000
===========
Interest paid on the mortgages during 1996, 1995, and 1994 amounted to
$1,995,611, $2,044,685, and $2,093,560, respectively.
3. Related Party Transactions
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.
F-23
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
3. Related Party Transactions (continued)
During 1996, development fees of $220,000 were paid to an affiliate in
connection with certain renovations of the center.
4. Leases
The Partnership earns rental income under operating leases with retail
tenants. Leases generally provide for minimum rentals plus percentage rentals
based on the tenants' sales volume and also require each tenant to pay a
portion of real estate taxes and common area expenses. In addition, leases
provide for the tenants 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 year of future minimum rental payments on
noncancelable tenant operating leases as of August 31, 1996 and does not
include any amounts due as percentage rent or the exercise of renewal options
under existing leases:
Years ending August 31:
1997 $ 8,712,000
1998 8,088,000
1999 7,777,000
2000 7,539,000
2001 7,083,000
Thereafter 20,469,000
-----------
$59,668,000
===========
F-24
<PAGE>
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 Form 10-K, and have issued our report thereon dated October
17, 1997. 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.
Philadelphia, Pa.,
October 17, 1997
F-25
<PAGE>
SCHEDULE II
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, 1997 $2,042,000 $500,000 $ -- $711,000 $1,831,000
========== ======== ===== ======== ==========
Year ended August 31, 1996 $2,775,000 $ -- $ -- $733,000 $2,042,000
========== ======== ===== ======== ==========
Year ended August 31, 1995 $3,235,000 $ -- $ -- $460,000 $2,775,000
========== ======== ===== ======== ==========
</TABLE>
F-26
<PAGE>
SCHEDULE III
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1997
<TABLE>
<CAPTION>
Column B Column C Column D Column E
Encumbrances Cost of
---------------------------- Improvements, Amount at
Net of Which Carried
Interest Maturity Balance at Initial Cost Retirements 8/31/97
Description Rate Date 8/31/97 to Trust Etc. (Note 4) (Notes 1 & 2)
- ----------- -------- -------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ -- $ 100,000 $ -- 100,000
Building and improvement 1,028,000 1,488,000 2,516,000
Furniture and portable equipment 657,000 657,000
Camp Hill Plaza Apartments-
Land 9.50% 3/1/2007 6,747,000 336,000 -- 336,000
Building and improvements 2,910,000 747,000 3,658,000
Furniture and portable equipment 150,000 758,000 908,000
Cobblestone Apartments
Land 7.50% to 8.25% 12/16/2002 8,859,000 2,791,000 -- 2,792,000
Building and improvements 9,335,000 1,020,000 10,357,000
Furniture and portable equipment 362,000 558,000 920,000
Kenwood Gardens-
Land 489,000 -- 489,000
Building and improvements 3,007,000 1,486,000 4,493,000
Furniture and portable equipment 228,000 1,162,000 1,390,000
Lakewood Hills Apartments-
Land 501,000 -- 501,000
Building and improvements 10,935,000 1,668,000 12,603,000
Furniture and portable equipment 468,000 1,884,000 2,352,000
Maylander Apartments-
Land 117,000 -- 117,000
Building 4,013,000 1,726,000 5,739,000
Furniture and portable equipment 327,000 831,000 1,158,000
Shenandoah Village- 5.90% 10/15/2025 8,640,000
Land 2,200,000 -- 2,200,000
Building and improvements 8,695,000 423,000 9,118,000
Furniture and portable equipment 281,000 607,000 889,000
Emerald Point
Land 6.79% 12/1/2008 16,896,000 3,062,000 -- 3,062,000
Building and improvements 17,352,000 1,313,000 18,665,000
Furniture and portable equipment 1,293,000 812,000 2,105,000
Hidden Lakes-
Land 1,225,000 -- 1,225,000
Building and improvements 10,807,000 167,000 10,974,000
Furniture and portable equipment 986,000 410,000 1,396,000
Palms of Pembroke-
Land 4,869,000 -- 4,869,000
Building and improvements 16,399,000 363,000 16,761,000
Furniture and portable equipment 985,000 349,000 1,335,000
Boca Palms-
Land 7,107,000 -- 7,108,000
Building and improvements 27,393,000 325,000 27,669,000
Furniture and portable equipment 1,101,000 411,000 1,512,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Column F Column G & H Column I
Accumulated Date
Depreciation Constructed Depreciable
(Note 3) or Acquired Life (Years)
------------ ----------- ------------
Description
- -----------
<S> <C> <C> <C>
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ -- 7/17/61
Building and improvement 1,899,000 11-25
Furniture and portable equipment 360,000 10
Camp Hill Plaza Apartments-
Land -- 9/25/69
Building and improvements 2,947,000 5-33-1/3
Furniture and portable equipment 436,000 7-10
Cobblestone Apartments
Land -- 12/16/92
Building and improvements 1,286,000 10-40
Furniture and portable equipment 237,000 7-10
Kenwood Gardens-
Land -- 11/1/63
Building and improvements 3,833,000 8-38
Furniture and portable equipment 897,000 8-10
Lakewood Hills Apartments-
Land -- Phase I10/1/72
Building and improvements 7,401,000 Phase II8/1/75 8-45
Furniture and portable equipment 1,321,000 Phase III6/1/80 10
Maylander Apartments-
Land -- 8/15/62
Building 5,507,000 10-39
Furniture and portable equipment 685,000 5-10
Shenandoah Village-
Land --
Building and improvements 1,014,000 8/2/93 10-39
Furniture and portable equipment 197,000 5-10
Emerald Point
Land -- 2/23/93
Building and improvements 2,293,000 10-39
Furniture and portable equipment 737,000 5-10
Hidden Lakes-
Land -- 2/23/94
Building and improvements 1,190,000 10-39
Furniture and portable equipment 168,000 5-10
Palms of Pembroke-
Land -- 8/1/94
Building and improvements 1,436,000 10-39
Furniture and portable equipment 193,000 5-10
Boca Palms-
Land --
Building and improvements 2,295,000 11/10/94 10-39
Furniture and portable equipment 384,000 5-10
</TABLE>
F-27
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1997
<TABLE>
<CAPTION>
Column B Column C Column D Column E
Encumbrances Cost of
---------------------------- Improvements, Amount at
Net of Which Carried
Interest Maturity Balance at Initial Cost Retirements 8/31/97
Description Rate Date 8/31/97 to Trust Etc. (Note 4) (Notes 1 & 2)
- ----------- -------- -------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land $ -- $ 3,000 $ -- $ 3,000
Building and improvements 82,000 -- 82,000
Aramark Pennsauken, NJ-
Land 20,000 -- 20,000
Building and improvements 190,000 -- 190,000
Interstate Container Corporation,
Lowell, MA-
Land 34,000 -- 35,000
Building and improvements 364,000 1,404,000 1,769,000
People's Drug (CVS), Annandale, VA
Land 225,000 -- 225,000
Building and improvements 1,873,000 478,000 2,349,000
Sears, Roebuck and Company,
Pennsauken, NJ-
Land 25,000 -- 25,000
Building and improvements 206,000 176,000 383,000
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 276,000 -- 278,000
Building and improvements 2,230,000 3,096,000 5,326,000
Furniture and portable equipment -- 18,000 18,000
Sitler Tract-
Land 54,000 -- 54,000
Forestville Plaza-
Land 440,000 -- 440,000
Building and improvements 5,572,000 705,000 6,278,000
Furniture and portable equipment -- -- --
South Blanding Village-
Land 2,946,000 -- 2,946,000
Building and improvements 6,138,000 339,000 6,467,000
Furniture and portable equipment -- -- --
Mandarin Corners-
Land 9.125% 8/1/2008 8,418,000 4,891,000 -- 4,891,000
Building and improvements 10,168,000 523,000 10,690,000
Furniture and portable equipment -- -- --
------------ ----------- ------------
Total for wholly owned and
consolidated partnership $49,560,000 $176,589,000 $25,904,000 $202,443,000
=========== ============ =========== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Column F Column G & H Column I
Accumulated Date
Depreciation Constructed Depreciable
(Note 3) or Acquired Life (Years)
------------ ----------- ------------
Description
- -----------
<S> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land $ -- 10/1/62
Building and improvements 73,000 10-40
Aramark Pennsauken, NJ-
Land -- 12/21/62
Building and improvements 154,000 10-50
Interstate Container Corporation,
Lowell, MA-
Land -- 6/4/63
Building and improvements 1,199,000 20-50
People's Drug (CVS), Annandale, VA-
Land -- 10/12/62
Building and improvements 1,478,000 25-55
Sears, Roebuck and Company,
Pennsauken, NJ-
Land -- 12/30/63
Building and improvements 318,000 10-50
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land -- 2/1/64
Building 3,374,000 20-40
Furniture and portable equipment 18,000 10
Sitler Tract-
Land -- 4/9/64
Forestville Plaza-
Land -- 9/12/83
Building and improvements 2,726,000 33-1/3
Furniture and portable equipment -- 10
South Blanding Village-
Land -- 12/1/88
Building and improvements 1,815,000 20-40
Furniture and portable equipment -- 10
Mandarin Corners-
Land -- 3/1/88
Building and improvements 3,290,000 33-1/3
Furniture and portable equipment --
-----------
Total for wholly owned and
consolidated partnership $50,711,000
===========
</TABLE>
F-28
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
NOTES:
<S> <C> <C>
(1) Reconciliation of amount shown in Column E:
Balance, August 31, 1996 $198,542,000
Additions during the year-
Improvements, furniture and portable equipment
$1,570,000
Land --
Building 2,331,000
3,901,000
Deductions during the year-
Transferred to partnerships and joint ventures --
Retirements --
Properties sold --
------------
Balance, August 31, 1997 $202,443,000
============
Capitalized costs from 8/31/89 annual report deducted
for income tax purposes 1,209,000
------------
The aggregate cost for federal income tax
purposes is approximately $201,234,000
============
Reconciliation of amount shown in Column F:
(Accumulated Depreciation):
Balance, August 31, 1996 $ 44,693,000
Depreciation during the year-
Buildings and improvements 4,757,000
Furniture and portable equipment 1,127,000 5,884,000
----------
Deductions during the year-
Transferred from partnerships and joint
ventures 134,000
Retirements --
Properties sold --
------------
Balance, August 31, 1997 $ 50,711,000
============
Cost of improvements, net of retirements, etc.,
consists of the following:
Cost of improvements $ 3,901,000
Retirements --
------------
$ 3,901,000
============
</TABLE>
F-29
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page
- ----------- ----------- ----
10.3 Employment Extension and Separation
Agreement, dated October 1, 1997, between the
Trust and Robert G. Rogers.
10.17 Employment Agreement dated as of January 1,
1997 between the Trust and Jeffrey Linn.
21 Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent
Public Accountant of the Trust).
23.2 Consent of Ernst & Young LLP (Independent
Auditors of Lehigh Valley Associates)
27 Financial Data Schedule
<PAGE>
Exhibit 10.3
EMPLOYMENT EXTENSION AND SEPARATION AGREEMENT
Robert G. Rogers, having been a valued and trusted employee
and friend of the Pennsylvania Real Estate Investment Trust ("PREIT") for 25
years, and having received notice of the termination of his employment
contract with PREIT effective September 30, 1997, and Mr. Rogers and PREIT
desiring to extend the employment relationship through December 31, 1997 on
new terms and to enter into a separation agreement, both parties hereby state
their agreement as follows:
1. Mr. Rogers' regular daily duties will conclude September
30, 1997, although he will continue employment at his current rate of pay,
benefits, and other compensation through December 31, 1997. During such
period, Mr. Rogers will be available on an "as needed" basis via phone, or
will come into the office at reasonable times should his presence be required
for meetings or other matters. Thereafter, Mr. Rogers will make himself
available for business consulting up to three times per month in the period
January 1, 1998 through March 31, 1998 for no additional compensation (though
with his reasonable expenses to be reimbursed by PREIT). For any business
consulting in excess of three times in a month during the January 1 through
March 31 period, and for any business consulting after March 31, 1998, Mr.
Rogers will be compensated at a rate of $750 per day or any part thereof. For
purposes of this Agreement, "business consulting" shall mean work rendered by
Mr. Rogers on the premises of PREIT or at another location away from his home
to which PREIT asks him to go; "business consulting" shall not include
occasional phone calls from PREIT to Mr. Rogers at his home.
It is also agreed that Mr. Rogers will arrange to be
available to meet with PREIT's attorneys and to submit to deposition in the
pending Berman and Tyson litigation involving PREIT at no additional
compensation (though with his reasonable expenses to be reimbursed by PREIT)
through December 31, 1999. For any litigation assistance rendered by Mr.
Rogers after 1999, and for any litigation assistance rendered by Mr. Rogers
after March 31, 1998 on matters not involving the Berman or Tyson litigation,
he will be compensated at a rate of $750 per day or any part thereof, provided
that he will not be paid for the same day for both litigation assistance and
business consulting.
For any business consulting or litigation assistance
rendered by Mr. Rogers after December 31, 1997, Mr. Rogers will be considered
an independent contractor of PREIT for such work.
2. In addition to the above compensation, PREIT shall
<PAGE>
pay to Mr. Rogers $50,000 on January 2, 1998 (with such payment to be
delivered or posted by Federal Express to a mailing address to be supplied),
and there shall be two additional payments of $25,000 each to be made in
similar fashion on or before December 26, 1998 and the second on or before
December 26, 1999. It is understood that payments referred to in this
paragraph are subject to normal income withholding taxes, but no other
deductions.
3. PREIT will promptly reimburse Mr. Rogers and his spouse,
Rinda, for the cost of maintaining medical insurance coverage for the balance
of their natural lives. The amount to be reimbursed will be the lesser of (i)
the cost of the actual medical insurance they purchase, or (ii) the sum of the
premium for Medicare Part B plus the premium for Plan J sponsored by the
American Association of Retired Persons (whether or not such plans are
actually purchased) as those premiums may be changed from time to time and
subject to the adjustments set forth below. (Mrs. Rogers is not presently
eligible for Medicare coverage.)
If Part B and/or Plan J are unavailable, the maximum monthly
amount to be reimbursed will be adjusted by multiplying the monthly cost on
the last date before such non-availability by a fraction, the numerator of
which shall be the Consumer Price Index, Medical Care Expenditure Class on the
date on which reimbursement is required and the denominator of which shall be
the same Index on the date before such nonavailability.
By way of example:
Medicare Part B Premium in December, 2000 $ 70
Plan J Premium in December, 2000 200
Total Monthly Maximum Reimbursement
Per Person 270
Times two 540
The Plans are discontinued in December, 2000; what is the
Maximum Reimbursement for January, 2002?
Consumer Price Index, Medical Care Expenditure
Class (denominator): 125 in December 2000
Consumer Price Index, Medical Care Expenditure
Class, December, 2001 (numerator): 130
Maximum Monthly Reimbursement January, 2002 =
$561.60 ($540 x 130/125)
In December, 2002, the Consumer Price Index,
<PAGE>
Medical Care Expenditure Class, increases
to 135. In January, 2003 the Maximum
Reimbursement would become $583.20 ($540 x 135/125).
The reimbursements shall be made in monthly payments, the
first of which will be on January 15th, 1998 and will continue until
notification by Mr. Rogers of any changes required. Upon the death of Mr.
Rogers or his spouse, the reimbursement described above shall be reduced
accordingly. The reimbursement shall end with the month in which occurs the
death of the surviving spouse.
4. PREIT hereby agrees to vest immediately all options which
have previously been granted to Mr. Rogers by PREIT and have not yet vested,
and to extend the period for exercise of all such options that have not as of
this date been exercised, regardless of their nature or classification,
including those issued pursuant to the PREIT 1990 Incentive and Nonqualified
Stock Option Plan, as amended and restated in 1997; provided, that the
shareholders of PREIT approve such amendment and restatement. Mr. Rogers, or
his estate in the event of his death, may exercise such options, at the
purchase price described at the time of their grant, on or before June 30,
2000.
The options referred to herein shall include 9,500 referred
to in correspondence from PREIT dated January 18, 1991 (3,000 options of the
12,500 referred to in that correspondence having previously been exercised),
12,500 options referred to in correspondence dated December 16, 1992, 15,000
options referred to in correspondence dated December 15, 1993, 10,000 options
referred to in correspondence dated December 22, 1994, and 5,000 options
referred to in correspondence dated January 3, 1996. This listing is not
intended to exclude any options issued, but not listed herein.
5. It is acknowledged and agreed that PREIT will take no
action to prevent the trustees of the rabbi trust associated with Mr. Rogers'
supplemental retirement plan from making the distributions as required and
intended heretofore during the existence of PREIT, provided that PREIT does
not become "Insolvent" (as defined in the applicable trust agreement).
6. Beginning on or after January 2, 1998, Mr. Rogers shall
be free to work in an enterprise for himself or with or for others of any
nature whatsoever and by way of example such endeavors may include investment
in real estate.
7. Based upon the consideration described above, both
parties waive and release the other, their shareholders, directors, trustees,
agents, successors and assigns (the "Released Parties") from all claims,
actions, suits and grievances and restrictions, whether known or unknown, from
the beginning of the world to the
<PAGE>
date of this agreement, including, without limitation of the foregoing general
release, any and all claims against the Released Parties related to Mr.
Rogers' employment by PREIT to date, and any and all claims arising from any
alleged violation to date by the Released Parties of the Age Discrimination in
Employment Act (the "ADEA"), 29 U.S.C. ss.621 et seq., claims arising to date
from any alleged violation by the Released Parties of the Pennsylvania Human
Relations Act, 43 P.S. ss.951, et seq., and claims arising to date from any
other federal, state, or local statutes, ordinances, or common law principles
(collectively, the "Employment Claims"). Nothing in this Agreement is intended
to, nor shall it be deemed to, constitute a waiver or release of any claim
under the ADEA arising after this Agreement is executed by Mr. Rogers.
However, Mr. Rogers agrees that, prior to the payment of the amounts described
in Paragraph 2 above and as consideration for such payment, he will enter into
a separate release, in substantially the form attached hereto as Exhibit A, in
which he will discharge the Released Parties from any and all Employment
Claims against the Released Parties related to his employment by PREIT or the
termination of such relationship. PREIT will not pay the amounts described in
Paragraph 2 above unless Mr. Rogers enters into such a separate release.
8. All persons dealing with PREIT must look solely to PREIT
property for the enforcement of any claims against PREIT, as neither the
Trustees, officers, agents or shareholders of PREIT assume any personal
liability for obligations entered into by PREIT by reason of their status as
said Trustee, officer, agent or shareholder.
9. Mr. Rogers shall not at any time (other than in the good
faith performance of his services to PREIT) disclose to anyone other than
employees of PREIT or its affiliates (the "Companies") any trade secrets or
other information confidential to the business of the Companies.
10. Any breach of this agreement shall be resolved by
arbitration before a single arbitrator selected from one panel of 11
arbitrators supplied by the American Arbitration Association. If the parties
do not mutually agree to an arbitrator from the panel, the parties shall each
list arbitrators in order of preference and the Association shall designate
the arbitrator highest on both parties listing preference. If one party fails
to timely submit a preference, the Association shall designate an arbitrator
from the sole party submitting a listing of order of preference. An arbitrator
shall be selected within 30 days of request for arbitration to the AAA, and a
hearing shall be held at the earliest possible date available to the
arbitrator (although with at least two weeks' notice) regardless of the then
existing schedules of the parties. The award of the arbitrator will be final
and binding and the cost of the arbitrator shall be paid by the losing party.
<PAGE>
Agreed to:/s/ Jonathan B. Weller Agreed to:/s/ Robert G. Rogers
----------------------------- ----------------------
Pennsylvania Real Estate Robert G. Rogers
Investment Trust
TRUSTEE
DATED: October 1, 1997 DATED: October 3, 1997
---------------------------------- --------------------------
<PAGE>
EXHIBIT A
GENERAL RELEASE
THIS GENERAL RELEASE is entered into this _______ day of
_________, 199_, by and between Robert G. Rogers ("Executive") and the
Pennsylvania Real Estate Investment Trust (the "Trust").
WHEREAS, Executive has been employed by the Trust pursuant
to an Employment Extension and Separation Agreement dated ______________ (the
"EES Agreement") from a date on or before ________________________ to the date
of this General Release (the "Release"), and Executive and the Trust desire to
settle fully and finally all differences, claims, and potential claims arising
out of the EES Agreement or out of the predecessor Amended and Restated
Employment Agreement, dated October 1, 1990, as amended July 12, 1993, or out
of Executive's course of employment by the Trust;
NOW, THEREFORE, in consideration of the mutual promises
herein contained, and intending to be legally bound hereby, Executive and the
Trust AGREE as follows:
1. Release. In consideration of the payment by the Trust to
Executive set forth in paragraph 2 of the EES Agreement (which payment
Executive acknowledges that he is not otherwise entitled to receive),
Executive hereby irrevocably and unconditionally remises, releases, and
forever discharges the Trust and each of the Trust's owners, stockholders,
agents, trustees, directors, officers, employees, representatives, attorneys,
divisions, parents, subsidiaries, affiliates (and agents, trustees, directors,
officers, employees, representatives, and attorneys of such divisions,
parents, subsidiaries, and affiliates), and it and their predecessors,
successors, heirs, executors, administrators, and assigns, and all persons
acting by, through, under, or in concert with any of them (collectively, the
"Released Parties"), of and from any and all actions, causes of action, suits,
debts, contracts, charges, and expenses (including attorney's fees and costs),
of any nature whatsoever, arising to the date hereof, asserted or unasserted,
known or unknown, which he ever had, now has, or hereafter may have, against
the Released Parties, to the date of this Agreement, including without
limitation of the foregoing general terms, any and all claims against the
Released Parties related to Executive's employment by the Trust or the
termination of such relationship, and any and all claims arising from any
alleged violation by the Released Parties of the Age Discrimination in
Employment Act (the "ADEA"), 29 U.S.C. ss.621 et seq., claims arising from any
alleged violation by the Released Parties of the Pennsylvania Human Relations
Act, 43 P.S. ss.951, et seq., and the New Jersey Law Against Discrimination,
10 N.J.S.A. ss.951, et seq., and any other federal, state, or local statutes,
ordinances, or common law principles. However, nothing in this Agreement is
intended to, nor shall it be deemed to, constitute a waiver or release of any
claim under
<PAGE>
the ADEA arising after this Agreement is executed by Executive.
2. Covenant Not To Sue. In exchange for the consideration
described in paragraph 1 above, Executive also hereby covenants and agrees
never to institute a claim against or to sue the Released Parties concerning
any potential claim described in paragraph 1 above. If Executive violates this
Agreement by filing such a claim against or suing any of the Released Parties,
Executive agrees to pay all costs and expenses of defending against the suit
incurred by such Released Parties, including reasonable attorney's fees.
3. Time Allowed to Review Agreement; Advice of Attorney.
Executive acknowledges that he has carefully read and fully understands all of
the provisions and effects of this Agreement; that the Trust has advised him
in writing to consult and thoroughly discuss all aspects of this Agreement
with an attorney; that the Trust has provided him with no fewer than 21
calendar days to consider this Agreement before executing it; that he is
voluntarily entering into this Agreement; and that neither the Trust nor its
agents or attorneys made any representations or promises concerning the terms
or effects of this Agreement other than those contained herein and in the
explanatory letter to Executive dated _________ __, 199_ which is incorporated
by reference herein.
4. Right to Revoke. This Agreement will become binding,
irrevocable, and enforceable seven calendar days after it has been executed by
Executive. Executive has the right to revoke this Agreement, by giving written
notice of his intent to do so to the President of the Trust, at any time
during that seven-calendar-day period. Executive is not obligated to sign this
Agreement, and refusal to do so will not jeopardize Executive's right to
benefits to which Executive is already entitled.
5. Other Representations. Executive hereby acknowledges that
neither the Trust nor its agents or employees made any representations or
promises concerning the terms or effects of this Agreement other than those
contained in this Agreement.
6. Applicable Law. This Agreement is made and entered into
in the Commonwealth of Pennsylvania, and shall in all respects be interpreted,
enforced, and governed under the laws of said Commonwealth, to the extent not
preempted by federal law. The language of all parts of this Agreement shall in
all cases be construed as a whole, according to its fair meaning, and not
strictly for or against any of the parties.
7. Entire Agreement. This Agreement sets forth the entire
agreement between the parties hereto, and fully supersedes any and all prior
agreements or understandings between the parties hereto pertaining to the
subject matter hereto.
<PAGE>
PLEASE READ CAREFULLY. THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS, AND BARS FUTURE LEGAL ACTION AGAINST THE TRUST BY EXECUTIVE.
* * * * *
IN WITNESS WHEREOF, and intending to be legally bound
hereby, Executive and the Trust have executed the foregoing Agreement.
Executed this ______ day of _________, 199_.
- ------------------------------------ ----------------------------------------
Witness Executive
Attest: PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
By:
- ------------------------------------ ------------------------------------
3
<PAGE>
Exhibit 10.17
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Agreement is made as of the 1st day of January, 1997,
between Pennsylvania Real Estate Investment Trust ("PREIT") and Jeffrey
A. Linn ("Employee").
Background of Agreement
Employee has, for many years, served PREIT faithfully as a
Vice President or Senior Vice President-Acquisitions and is acknowledged as
having been instrumental in the growth and success of PREIT. PREIT desires
that Employee continue to serve in his current or in another executive
capacity, and Employee desires to continue to so serve. The parties are
entering into this Agreement to amend and restate in its entirety the
Employment Agreement between the parties dated as of October 1, 1985, as
extended (the "Original Agreement"), and to provide for the relationships and
obligations of each of the parties hereto with respect to the employment of
Employee.
NOW, THEREFORE, the parties hereto, intending to be legally
bound hereby and in consideration of the mutual covenants herein contained,
agree as follows:
1. Employment. PREIT hereby employs the Employee, and the
Employee hereby accepts employment, upon the terms and conditions set forth
herein.
<PAGE>
2. Duties. Employee shall serve PREIT in the position of
Senior Vice President-Acquisitions or in such other executive capacity as
shall be determined by the Board of Trustees and as shall be consistent with
Employee's skills and experience. Employee shall devote his time, attention
and best efforts to the performance of his duties hereunder and shall not,
during the term of his employment, be engaged in any other business activity
(whether or not such business activity is pursued for gain, profit or other
pecuniary advantage) that would interfere with the services to be rendered by
Employee hereunder. However, this provision shall not prevent Employee from
investing his assets in such form or manner as will not require any service on
his part in connection with such investments.
3. Term. The term of employment hereunder shall commence on
the date first set forth above and shall continue for an initial term expiring
December 31, 1999. The initial or any additional term of employment shall be
automatically extended for an additional term of one year unless either party
gives the other not less than one hundred eighty (180) days notice prior to
the expiration of the then current term of its or his intention not to extend
the term of such employment. If such notice is given, the term of employment
shall terminate at the end of the then current term.
4. Basic Compensation. PREIT agrees to pay and Employee
agrees to accept, as the basic compensation for all services to be rendered by
Employee hereunder, the sum of $136,500 per annum, payable
<PAGE>
in approximately equal weekly, bi-monthly or monthly installments. The Board
of Trustees of PREIT (or any Committee of the Board thereunto authorized), in
its sole discretion, may increase (but not decrease) the annual basic
compensation payable hereunder at any time or times during the term hereof.
5. Working Facilities and Expenses. PREIT shall furnish
Employee with appropriate office space, stenographic help and other facilities
and services suitable to his employment hereunder and adequate for the
performance of his duties. PREIT shall also pay directly or reimburse to
Employee all business-related expenses incurred in the course of his duties
hereunder.
6. Termination of Employment. In addition to the provisions
contained in Section 2 hereof, PREIT shall have the right to terminate the
term of employment pursuant to the provisions of Sections 6.1 and 6.2 hereof
and the term of employment shall end upon the occurrence described in Section
6.3 hereof:
6.1 Upon thirty (30) days written notice for "good
cause." The term "good cause" shall mean (i) dishonesty; (ii) conduct on the
part of Employee intended to injure the business of PREIT; (iii) Employee's
(a) indictment for a crime involving moral turpitude relating to his
employment or (b) conviction for a crime involving moral turpitude not
involving employment, whether or not an appeal shall be pending; (iv)
insobriety repeated after notice; or (v) a material
<PAGE>
failure of Employee to perform or observe the provisions of this Agreement
(other than by reason of illness or incapacity) which persists for an
unreasonable period of time after notice is given to Employee which details
the failure.
6.2 By complying with the provisions of Section 7 hereof.
6.3 Upon the death of Employee.
7. Disability.
7.1 Effect of Disability. In the event that during the
term of employment Employee shall become disabled so that he is unable to
perform his duties hereunder, the compensation herein provided shall continue
to be paid until PREIT exercises its right of termination set forth herein.
Should the disability continue for more than six (6) consecutive months or
should such disability exist for more than nine (9) months in any twelve (12)
month period, PREIT shall have the right to terminate the term of employment,
without further liability to pay compensation hereunder, by giving Employee
thirty (30) days notice of its intention to do so. If Employee shall resume
his duties within thirty (30) days after such notice is given and shall
perform such duties on a regular basis for three (3) consecutive months
thereafter, the term of employment shall continue in full force and effect and
the notice of intention to terminate shall have no further force or
<PAGE>
validity; otherwise the term of employment shall terminate at the end of such
thirty (30) day period or, if applicable, upon the recurrence of disability
during the three (3) month period.
7.2 Determination of Disability. Employee shall be deemed
disabled for purposes of this Agreement either (i) if he is deemed disabled
for purposes of any disability policy, group or individual, paid for by PREIT
and at the time in effect, or (ii) if no such policy is then in effect, by an
independent referee licensed to practice medicine selected by the Board of
Trustees of PREIT and approved by Employee or in the event that PREIT and
Employee are unable to agree on a single referee, then by a panel of three (3)
independent referees licensed to practice medicine, one of whom shall be
selected by PREIT, one by Employee and a third by the other two (2) referees.
7.3 Clarification. Employee shall not be entitled to the
benefits of Sections 7.1 and 7.2 hereof if he should become disabled after his
employment has been terminated pursuant to the provisions of Section 6.1
hereof.
8. Rights and Obligations on Termination and Expiration.
8.1 In the event that PREIT terminates Employee's
employment hereunder without cause, PREIT shall pay to Employee within thirty
(30) days of such termination (a) the sum, if any, required under clause (a)
of the second sentence of Section 9.1 hereof plus (b) the
<PAGE>
amount obtained by multiplying Employee's annual basic compensation in effect
at the date of termination by the number of months (but not less than 12
months) in the remainder of the employment term hereunder at the date of
termination (which shall include any additional term resulting from a failure
to give timely notice of non-extension under Section 3 hereof) and dividing
the result by twelve (12). The resulting amount under (b) of the preceding
sentence shall then be discounted at the prime rate then prevailing at
CoreStates Bank, N.A. (or its successor), assuming that the resulting amount
had been paid out over the greater of the remainder of the employment period
and 12 months in accordance with PREIT's normal payroll practices at the time
of termination. The discounted value of Employee's basic compensation for 12
months shall be paid without regard to any obligation that Employee might
otherwise have to mitigate damages, and Employee shall not be required to seek
other employment to reduce the aforesaid amount; nor shall PREIT be entitled
to set-off against the amount aforesaid any sums earned by Employee in other
employment or to obtain reimbursement in respect of such amount out of such
earnings. It is, however, understood and agreed that any rights which Employee
may have in respect of compensation for the remainder of the term (including
any additional term referred to above), if any, in excess of twelve (12)
months from the date of termination shall be subject to such obligations to
mitigate damages as exist under applicable law. Moreover, Employee agrees
that, except in connection with the obligations in respect of annual basic
compensation herein described and obligations under other contracts and
applicable law, PREIT shall have no obligation to Employee as a consequence of
such
<PAGE>
wrongful termination.
8.2 In the event that, within eighteen (18) months of a
Change of Control of PREIT, PREIT or its successor shall give Employee notice
of its intention not to extend the term of Employee's employment under this
Agreement, PREIT shall pay to Employee within thirty (30) days of the
expiration date (a) the sum, if any, required under Section 9 hereof plus (b)
an amount equal to Employee's annual basic compensation in effect at
expiration, discounted at the prime rate then prevailing at CoreStates Bank,
N.A. (or its successor) assuming that the annual basic compensation had been
paid out over 12 months in accordance with PREIT's normal payroll practices at
the time of expiration. The discounted value of Employee's annual basic
compensation shall be paid without regard to any obligation that Employee
might otherwise have to mitigate damages, and Employee shall not be required
to seek other employment to reduce the aforesaid amount; nor shall PREIT be
entitled to set-off against the amount aforesaid any sums earned by Employee
in other employment or to obtain reimbursement in respect of such amount out
of such earnings.
8.3 All payments under this Section 8 or other provisions
hereof shall be subject to and reduced by any federal, state or local
withholding or similar tax required under applicable law.
8.4 The term "Change of Control" as used in Section 8.2
hereof shall have the meaning ascribed to such term under the
<PAGE>
Pennsylvania Real Estate Investment Trust Amended Incentive and Non-
Qualified Stock Option Plan as constituted on the date hereof, a copy of
which definition is attached hereto.
9. Additional Benefits.
9.1 Employee shall be entitled to receive benefits
equivalent to those presently provided to him by PREIT and such additional
benefits as may be provided to a majority of the other executive employees of
PREIT, including, without limitation, contributions by PREIT on his behalf in
connection with the non-qualified deferred compensation plan (the "Plan")
maintained for executive officers of PREIT. In the event of the applicability
of either Section 8.1 or 8.2 hereof, Employee shall be entitled to receive (a)
at the time set forth in Section 8.1 or 8.2, as applicable, a sum, without
discount, equal to the amount of the contribution to the Plan accrued to the
date of termination or expiration but not paid plus the amount which would
have been contributed in respect of the period (12 months or, if applicable,
the remainder of the employment term) referred to in the first sentence of the
applicable Section and (b) reimbursement for a one year period following such
termination or expiration of payments required to be made by Employee to
maintain the health care coverage provided by PREIT to Employee and his family
at the time of termination. The good faith determination by the Chief
Executive Officer of PREIT of the sum to be paid to Employee pursuant to
clause (a) of the preceding sentence shall be conclusive in the absence of
<PAGE>
manifest error.
9.2 Employee acknowledges that he has received payment
net of applicable tax withholding for all unused vacation time to date and
that, hereafter, he shall be entitled to paid vacation and payment in respect
of unused vacation time in accordance with the policy of PREIT for executive
personnel as in effect from time to time during the term of his employment.
10. Trade Secrets; Confidential Information. In the event
that, during the course of his employment hereunder, Employee shall acquire
trade secrets or other information confidential to the business of PREIT,
Employee agrees not to disclose any such information, during or after his term
of employment, to any person, firm, corporation or other entity for any reason
whatsoever. Employee may disclose information if required to do so by order of
a court of competent jurisdiction or by a government agency acting under due
authority provided that Employee shall have given PREIT written notice of any
effort to compel such disclosure as promptly as possible and shall cooperate
with PREIT at PREIT's expense in all lawful ways requested by PREIT in
connection with any effort by PREIT to contest or restrict such disclosure.
11. Notices. Any notice required or permitted under this
Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by registered or certified mail,
<PAGE>
postage prepaid, addressed as follows:
If to Employee:
Jeffrey Linn
#7 Crescent Road
Wyncote, Pennsylvania 19095
If to PREIT:
Pennsylvania Real Estate Investment Trust
455 Pennsylvania Avenue, Suite 135
Fort Washington, Pennsylvania 19034
Attention: President
The designation of the person to be so notified or the address of such person
for the purposes of such notice may be changed from time to time by a similar
notice to be effective ten (10) days after such change designation is
supplied.
12. Binding Effect. This Agreement and all of the terms
hereof shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, successors, administrators and assigns.
13. Location of Employment. Employee's place of employment
shall be Philadelphia or elsewhere in Pennsylvania within a twenty (20) mile
radius of Philadelphia.
14. Severability. If any term or provision of this Agreement
is held to be invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect any other term or provision hereof, and this
Agreement shall continue in full force and effect as if such
<PAGE>
invalid or unenforceable term or provision (to the extent of the invalidity or
unenforceability) had not been contained herein.
15. Headings. The section headings in this Agreement are for
reference purposes only and shall not define, limit or affect the meaning or
interpretation of this Agreement.
16. Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.
17. Entire Agreement. This Agreement contains the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior negotiations, understandings
and agreements (including, without limitation, the Original Agreement), if
any, with respect to such subject matter and there are no agreements other
than those set forth, provided for, or referred to herein.
<PAGE>
18. Liability Limited to Trust's Property. Neither the
Trustees of PREIT nor its shareholders shall be held to any personal liability
hereunder, and Employee agrees to look only to the property of PREIT for
satisfaction of obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written on this 16th day of April, 1997.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
By: /s/ Sylvan M. Cohen
-------------------------------
Sylvan M. Cohen, Trustee
By: /s/ Jonathan B. Weller
-------------------------------
Jonathan B. Weller, Trustee
EMPLOYEE
/s/ Jeffrey A. Linn 4/10/97
----------------------------------
Jeffrey A. Linn
<PAGE>
Exhibit 21
Subsidiaries of Registrant
The Trust conducts substantially all of its real estate ownership
activities through PREIT Associates, L.P., a Delaware limited partnership (the
"Operating Partnership"), of which the Trust is the sole general partner and
PREIT Property Trust, a Pennsylvania business trust and wholly-owned
subsidiary of the Trust, is the majority limited partner.
The Operating Partnership and/or its affiliates own an interest in
the following partnerships:
<TABLE>
<CAPTION>
Aggregate
Names of Partnership State of Organization Percentage Owned*
- -------------------- --------------------- ----------------
<S> <C> <C>
Bailey Associates PA 50%
Cambridge Apartments PA 50
Countrywood Apartments Limited FL 50
Partnership
Eagles Nest Associates FL 50
Elizabethtown Associates PA 50
Forestville Plaza Shopping Center MA 100
Limited Partnership
Fox Run Apartments PA 50
Fox Run Del Associates DE 50
Gateway Mall Associates FL 60
GP Stores Limited Partnership FL 100
Mall Corners Ltd. GA 19
Mall Corner II, Ltd. GA 11(1)
Jacksonville Associates FL 100
Laurel Mall Associates PA 40
Lehigh Valley Associates PA 50
MC Associates FL 100
New Regency Hilltop Associates VA 65
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Names of Partnership State of Organization Percentage Owned*
- -------------------- --------------------- ----------------
<S> <C> <C>
Oxford Valley Road Associates PA 50
Palmer Park Mall Venture PA 50
PR Shenandoah Limited Partnership FL 100
PR 8000 Airport Highway, L.P. PA 100
PR 8000 National Highway, L.P. PA 100
Rancocas Limited Partnership NJ 75
Regency Associates NE 50
Rio Grande Venture PA 50
Turren Associates FL 50
Windsong Apartments Limited FL 40
Partnership
ALRO Associates, L.P. DE 50
PREIT Associates, L.P. DE 93.1
PR Elizabethtown, L.P. PA 100
PR Fox Run, L.P. PA 100
PR Laurel Mall, L.P. PA 100
PR Palmer Park, L.P. PA 100
PR Rio Mall Limited Partnership PA 100
PR Springfield Associates, L.P. PA 100
PR Warrington, L.P. PA 100
PR Will-O-Hill, L.P. PA 100
Will-O-Hill Apartments PA 50
</TABLE>
* By the Operating Partnership, the Registrant owns approximately 93.1% of the
Operating Partnership.
(1) To be acquired in December 1997.
<PAGE>
The Trust owns 100% of the shares of the following corporations:
Names of Subsidiaries State of Organization
- --------------------- ---------------------
Berdel, Inc. DE
Berfla, Inc. FL
Blanding, Inc. FL
Burren, Inc. FL
Larmes, Inc. DE
PR Countrywood Inc. FL
PR West Palm Inc. FL
PR VA Regency Inc. VA
PR Windsong Inc. FL
RA Inc. NE
Stones Inc. FL
PR Mandarin, Inc. FL
PR Forestville Inc. MD
The Operating Partnership is the sole beneficiary of the following
Pennsylvania business trusts:
Name of Trust State of Organization
- ------------- ---------------------
PR Elizabethtown Trust PA
PR Fox Run Trust PA
PR Laurel Mall Trust PA
PR Metroplex Trust PA
PR Northeast Trust PA
PR Oxford Valley Trust PA
PR Palmer Park Trust PA
<PAGE>
Name of Trust State of Organization
- ------------- ---------------------
PR Red Rose Trust PA
PR Springfield Trust PA
PR Warrington Trust PA
PR Will-O-Hill Trust PA
The Operating Partnership has a member interest in the following
Delaware limited liability companies:
State of Organization Percentage Owned
--------------------- ----------------
Subsidiary LLC
- --------------
PR Christiana LLC DE 100
PR Cobblestone LLC DE 100
PR Concord LLC DE 100
PR Countrywood LLC DE 100
PR Forestville LLC DE 100
PR Hillview LLC DE 100
PR Howell LLC DE 100
Howell LLC DE 50
PR Interstate Container LLC DE 100
PR Magnolia LLC DE 100
PR Mandarin Conners LLC DE 100
PR North Darthmouth LLC DE 100
PR Regency Associates LLC DE 100
PR Rio Mall LLC DE 100
PR South Blanding LLC DE 100
PR Windsong LLC DE 100
PR 8000 Airport Highway LLC DE 100
<PAGE>
PR 8000 National Highway LLC DE 100
The Operating Partnership owns all of the non-voting shares of
PREIT-RUBIN, Inc., a Pennsylvania corporation, representing 95% of the equity
of such Pennsylvania corporation. PREIT- RUBIN, Inc. owns all of the shares of
The Rubin Organization-Illinois, Inc., an Illinois corporation.
The Trust is the sole beneficiary of PREIT Property Trust, a
Pennsylvania business trust.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports dated October 17, 1997, included in or incorporated by
reference in this Form 10-K, into the Trust's previously filed: Form S-3
Registration Statement File No. 33-61115 and Form S-8 Registration Statements
File Nos. 33-59771, 33-59773 and 33-59767.
Philadelphia, PA /s/ Arthur Andersen LLP
November 26, 1997
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-59771) pertaining to the 1993 Jonathan B. Weller
Non-Qualified Stock Option Plan, the Registration Statement (Form S-8 No.
33-59773) pertaining to the Amended Incentive and Non-Qualified Stock Option
Plan, the Registration Statement (Form S-8 No. 33-59767) pertaining to the
Option Plan for Non-Employee Trustees, and the Registration Statement (Form
S-3 No. 33-61115) and related Prospectus of Pennsylvania Real Estate
Investment Trust of our report dated October 18, 1996, with respect to the
financial statements of Lehigh Valley Associates included in Pennsylvania Real
Estate Investment Trust's Annual Report (Form 10-K) for the year ended August
31, 1997.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 26, 1997
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