<PAGE>
As filed with the Securities and Exchange Commission on May 22, 1998
Registration No. 333-48917
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
---------------
<TABLE>
<CAPTION>
<S> <C>
Pennsylvania 23-6216339
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
455 Pennsylvania Avenue Daniel J. Massimini
Fort Washington, Pennsylvania 19034 Senior Vice President-Finance and Treasurer
(215) 542-9250 455 Pennsylvania Avenue
Fort Washington, Pennsylvania 19034
(215) 542-9250
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Executive Offices) Number, Including Area Code, of Agent for Service)
</TABLE>
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Copy to:
Henry S. Bryans, Esquire
Drinker Biddle & Reath LLP
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(215) 988-2700
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions and other factors.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. X
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
=============================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Offering Price Aggregate Registration
to be Registered Registered Per Share (1) Offering Price(1) Fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Beneficial Interest, 646,286 $24.84 $16,053,744 $4,735.85
$1.00 par value
=============================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) based on the average of the high and low
reported sales prices per share on the New York Stock Exchange, Inc. on March
26, 1998.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 1998
PROSPECTUS
646,286 SHARES
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
SHARES OF BENEFICIAL INTEREST
This Prospectus relates to the offer and sale from time to time by
the holders thereof of up to 646,286 Shares of Beneficial Interest, par value
$1.00 per share (the "Shares"), that may be issued by Pennsylvania Real Estate
Investment Trust (the "Company") to holders of up to 646,286 units of limited
partnership interest ("Units") in PREIT Associates, L.P. (the "Operating
Partnership"), of which the Company is the sole general partner, if and to the
extent the holders of Units elect to redeem them and the Company, as General
Partner, elects to satisfy such redemption by the issuance of Shares. The
Company is registering for reoffer and resale by such holders or their pledgees,
donees, transferees, partners or other successors in interest (collectively, the
"Selling Shareholders") the Shares which may be issued upon the redemption of
Units held by them pursuant to the terms of certain registration rights
agreements executed by the Company for their benefit. The registration of the
reoffer and resale of the Shares does not necessarily mean that any of the
Shares will be offered or sold by the Selling Shareholders. The Units referenced
in this paragraph were issued by the Operating Partnership in private
transactions in 1997.
The Shares are traded on the New York Stock Exchange, Inc. (the
"NYSE") under the symbol "PEI." To assist the Company in complying with certain
qualification requirements applicable to real estate investment trusts, the
Company's Trust Agreement provides that no person may beneficially own more than
9.9% of the outstanding Shares, subject to certain exceptions. See "Description
of Shares of Beneficial Interest - Restrictions on Transfer."
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS PROSPECTUS FOR
CERTAIN FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Selling Shareholders from time to time may offer and sell the
Shares held by them directly or through agents or broker-dealers on terms to be
determined at the time of sale. To the extent required, the names of any agent
or broker-dealer and applicable commissions or discounts and any other required
information with respect to any particular offer will be set forth in the
section of this Prospectus entitled "Plan of Distribution" or an accompanying
Prospectus Supplement. Each of the Selling Shareholders reserves the sole right
to accept or reject, in whole or in part, any proposed purchase of the Shares to
be made directly or through agents.
The Company will not receive any of the proceeds from the sale of
any Shares by the Selling Shareholders, but has agreed to bear certain expenses
of registration of the Shares under Federal and state securities laws.
The Selling Shareholders and any agents or broker-dealers that
participate with the Selling Shareholders in the distribution of Shares may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by them and any
profit on the resale of the Shares may be deemed to be underwriting commissions
or discounts under the Securities Act.
THE DATE OF THIS PROSPECTUS IS MAY 22, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company may be copied and
inspected at the Public Reference Facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the following
regional offices of the Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains an Internet web site
at http://www.sec.gov that contains reports, proxy statements and other
information. In addition, the Company's Shares are listed on the New York Stock
Exchange and such reports, proxy statements and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), of which this Prospectus is a part,
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance,
reference is made to the copy of such contract or documents filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference and the exhibits and schedules thereto. For further
information regarding the Company and the Shares, reference is hereby made to
the Registration Statement and such exhibits and schedules which may be obtained
from the Commission at its principal office in Washington, D.C. upon payment of
the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the
Exchange Act with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, filed on November 28, 1997, as amended by Form 10-K/A-1 filed
on December 15, 1997.
2. The description of the Company's Shares of Beneficial Interest
contained in the Registration Statement on Form 8-A/12(b)/A-1 filed with the
Commission on December 17, 1997,
<PAGE>
including any amendment or reports filed for the purpose of
updating such description.
3. The Company's definitive proxy statement for the Annual Meeting of
Shareholders on December 16, 1997, filed on November 18, 1997.
4. The Company's definitive proxy statement for its Special Meeting of
Shareholders on September 29, 1997, filed on August 28, 1997.
5. The Company's Report on Form 10-Q for the three month period ending
December 31, 1997, filed February 17, 1998, as amended by Form 10-Q/A-1 filed on
February 19, 1998.
6. The Company's Report on Form 10-Q for the four month period ending
December 31, 1997.
7. The Company's Report on Form 10-Q for the three month period ending
March 31, 1998.
8. The Company's Reports on Form 8-K filed on October 14, 1997,
December 2, 1997, December 17, 1997 and December 22, 1997.
All documents filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to
termination of the offering of all Shares to which this Prospectus relates shall
be deemed to be incorporated by reference in this Prospectus and shall be part
hereof from the date of filing of such document.
Any statement contained herein or in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of Shares or
in any other subsequently filed document that is also incorporated or deemed to
be incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus or any
accompanying Prospectus Supplement. Subject to the foregoing, all information
appearing in this Prospectus and each accompanying Prospectus Supplement is
qualified in its entirety by the information appearing in the documents
incorporated by reference.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon their
written or oral request, a copy of any or all of the documents incorporated
herein by reference (other than exhibits to such documents, unless such exhibits
are specifically incorporated by reference in such documents). Written requests
for such copies should be addressed to Pennsylvania Real Estate Investment
Trust, 455 Pennsylvania Avenue, Suite 135, Ft. Washington, Pennsylvania 19034,
Attention: Dante J. Massimini, Senior Vice President-Finance and Treasurer.
Telephone: (215)542-9250.
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CAUTIONARY STATEMENT
INFORMATION CONTAINED IN THIS PROSPECTUS AND ANY SUPPLEMENT HERETO
CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21D OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED, RELATING TO, WITHOUT LIMITATION, FUTURE ECONOMIC
PERFORMANCE, PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS AND
PROJECTIONS OF REVENUE AND OTHER FINANCIAL ITEMS, WHICH CAN BE IDENTIFIED BY THE
USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "PLAN," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE CAUTIONARY STATEMENTS SET
FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSEWHERE IN THE PROSPECTUS IDENTIFY
IMPORTANT FACTORS WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS, INCLUDING
CERTAIN RISKS AND UNCERTAINTIES, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
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THE COMPANY
As used herein, unless the context indicates otherwise, the term
"Company" includes Pennsylvania Real Estate Investment Trust, PREIT Associates,
L.P. 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, "PREIT-RUBIN") and the term
"Properties" means all of the Company's real estate assets.
The Company is a fully integrated, self-administered and self-managed
real estate investment trust which acquires, rehabilitates, develops and
operates shopping centers and multifamily Properties. Founded in 1960, the
Company believes that it is one of the 15 largest publicly held operators of
retail properties in the United States (in terms of square feet owned and/or
managed). On September 30, 1997, the Company acquired The Rubin Organization,
Inc., a commercial property development and management firm, and certain related
real estate interests.
The Company conducts substantially all of its operations through the
Operating Partnership and has elected and conducts its operations in a manner
intended to comply with the requirements for qualification as a real estate
investment trust ("REIT") under the Real Estate Investment Trust Act of 1960,
Sections 856-60 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Code, a real estate investment trust which meets certain requirements
is not subject to Federal income tax on the portion of its taxable income which
is distributed to its shareholders, if, inter alia, at least 95% of its real
estate investment trust taxable income, excluding any net capital gain, is so
distributed.
The Company is an unincorporated association in business trust form
created in Pennsylvania pursuant to a Trust Agreement dated December 17, 1960,
as amended (the "Trust Agreement"). Since its inception it has been
self-administered by its trustees. The Company's principal executive offices are
located at 455 Pennsylvania Avenue, Suite 135, Fort Washington, PA 19034.
Telephone: (215) 542-9250. The Company has regional offices in Philadelphia,
Pennsylvania; Boca Raton, Florida; Chicago, Illinois; and Atlanta, Georgia.
RISK FACTORS
Prospective investors should carefully consider, among other factors,
the risks and other matters described below.
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Real Estate Investment Risks
General. Real property investments are subject to varying degrees of
risk. The returns available from equity investments in real estate as well as
the Company's ability to service debt will depend in large part on the amount of
income generated, expenses incurred and capital expenditures required. The
Company's income from the Properties may be adversely affected by a number of
factors, including the general economic climate and local real estate
conditions, such as an oversupply of, or a reduction in demand for, retail space
or apartments in the area and the attractiveness of the Properties to shoppers,
residents and tenants. In addition, income from properties and real estate
values generally also are affected by such factors as the cost of compliance
with government regulation, including zoning and tax laws, the potential for
liability under applicable laws, interest rate levels and the availability of
financing. Certain significant expenditures associated with each equity
investment by the Company in a Property (such as mortgage payments, if any, real
estate taxes and maintenance costs) also are generally not reduced when
circumstances cause a reduction in income from the Property.
The success of the Company 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 Company to keep the Properties leased at profitable
levels.
Competition. The real estate business is highly competitive. The
Company competes for tenants with other property owners. Competition from single
family housing increases when lower interest rates make mortgages more
affordable. Increased building of new multifamily communities and renovation of
older properties provide competition for the Company's multifamily Properties.
The Company also competes in acquiring interests in properties 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 Company,
including institutional, private and foreign investors. All of the Company's
shopping center and apartment Properties are subject to significant local
competition.
Shopping Centers. The Company's shopping centers usually are anchored
by department stores and/or supermarket and drug store chains. Its shopping
centers are located principally in Pennsylvania and Florida. A substantial
portion of the Company's shopping center income consists of rents received under
long-term leases. Most of the 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").
The shopping center leases usually contain: (i) provisions for a contribution by
tenants to the cost of maintaining common areas; and (ii) real estate tax
escalation clauses under which the tenant bears its
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proportionate share of increases in or total real estate taxes. While tenant
contributions historically have not covered all costs required to maintain
common areas, the Company seeks to have new leases provide for full recovery of
these costs from tenants. In difficult economic times or in strongly competitive
environments, the Company may have to offer concessions or negotiate leases in
which the tenant pays a lower rental or less than its pro rata share of
operating costs and taxes. Modifications of lease terms may be necessary where
tenants are unable to comply fully with their lease obligations. When interest
rates are high it is more difficult for retail tenants to afford financing for
inventory, store fixtures, renovations and additional store locations.
Multifamily Properties. The Company's multifamily
communities are principally located in the Eastern half of the
United States. The multifamily units are generally rented for
terms of one year.
Renewal of Leases and Reletting of Space. The Company is subject to the
risks that upon expiration of leases for space located at the Properties, the
leases may not be renewed, the space may not be relet or the terms of the
renewal or reletting (including the cost of required renovations or concessions
to tenants) may be less favorable than current lease terms. Although the Company
has established an annual budget for renovation and reletting expenses that it
believes is reasonable in light of each Property's operating history and local
market characteristics, no assurance can be given that this budget will be
sufficient to cover these expenses. If the Company is unable to promptly relet
or renew leases for all or substantially all of the space at the Properties, if
the rental rates upon such renewal or reletting are significantly lower than
expected, or if the Company's reserves for these purposes prove inadequate, then
the Company's cash provided by operating activities and ability to make expected
distributions to shareholders or debt service payments could be adversely
affected.
At any time, a tenant of the Properties (including an anchor tenant or
other tenant which is not an anchor tenant but nonetheless leases space in more
than one of the Properties) may seek the protection of the bankruptcy laws,
which could result in the rejection and termination of such tenant's lease and
thereby adversely affect the Company's results of operation and ability to make
distributions to its shareholders. Although the Company has not experienced
material losses from tenant bankruptcies, no assurance can be given that tenants
will not file for bankruptcy protection in the future, or if any tenants file,
that they will affirm their leases and continue to make rental payments in a
timely manner. In addition, a tenant from time to time may experience a downturn
in its business which may weaken its financial condition and result in the
failure to make rental payments when due. If tenant leases are not affirmed
following bankruptcy or if a tenant's financial condition weakens, the Company's
results of operations and ability to make distributions to its shareholders may
be adversely affected.
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Financing
The Trust Agreement places no limitations on borrowings by the Company.
The Company is subject to the risks associated with debt financing, including
the risk that the Company's cash provided by operating activities will be
insufficient to meet required payments of principal and interest, the risks of
rising interest rates on the Company's floating rate debt, the risk that the
Company will not be able to prepay or refinance existing indebtedness on
encumbered Properties (which generally will not have been fully amortized at
maturity) or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. If the Company is unable to secure refinancing
of such indebtedness on acceptable terms, the Company might be forced to dispose
of Properties or interests therein upon disadvantageous terms, which might
result in losses to the Company and might adversely affect the cash flow
available for distribution to equity holders or debt service. In addition, if a
Property is mortgaged to secure payment of indebtedness and the Company (or the
operating entity) is unable to meet mortgage payments, the mortgage securing
such property could be foreclosed upon or the property could be otherwise
transferred to the mortgagee with a consequent loss of income and asset value to
the Company.
A significant reduction in or withdrawal of its credit facility could,
if not replaced by a similar credit facility, have a material effect on the
Company's operations. The Company expects to continue open-account borrowing for
acquisitions, renovations and capital improvements to the Properties and has
used its general credit to guarantee obligations of partnerships or joint
ventures in which it has an interest. If the credit markets tighten, the Company
may encounter resistance from lenders when it seeks financing or refinancing for
some of its Properties. No assurance can be given as to the availability of
financing for any particular Property or the terms upon which it may be
obtained.
The Company's $150.0 million unsecured credit facility (the "Credit
Facility") contains affirmative and negative covenants normally found in
facilities of this type, as well as requirements that the Operating Partnership
maintain, on a consolidated basis: (i) a maximum Leverage Ratio (as defined) of
65%; (ii) a maximum ratio of Senior Liabilities (as defined) to Unencumbered
Asset Value (as defined) of 73%; (iii) minimum tangible net worth of $115.0
million plus 75% of the net proceeds of sales of equity securities by the
Operating Partnership or the Company; (iv) a minimum ratio of annualized
consolidated property net operating income to total annual debt service of
1.40:1; (v) a minimum ratio of annualized consolidated property net operating
income to pro forma debt service of 1.30:1; and (vi) consolidated net operating
income of at least $40,000,000. If and when the Leverage Ratio is reduced to 50%
and the ratio of Senior Liabilities to Unencumbered Asset Value to 60%, the
lending banks will release the unrecorded mortgages they hold on a substantial
number of unencumbered Properties which the Company directly or indirectly
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owns, whereupon the ratios in clauses (i), (ii), (iv) and (v)
above become, respectively, 50%, 60%, 1.70 : 1 and 1.65 : 1.
To the extent that the Company fails to meet any one or more of these
financial covenants or other covenants respecting the Credit Facility, the
Company would be in default unless the lenders, in their sole discretion, were
to waive such defaults or the Company were able to secure alternative or
substitute financing. Because there can be no assurance that such waivers or
alternative financing can be obtained by the Company, any default may have a
materially adverse effect on the Company's operations and financial condition.
The profitability of each partnership or joint venture subject to
short-term financing or debt requiring a balloon payment will be affected by its
ability to secure long-term financing on satisfactory terms. If satisfactory
financing is not made available, the Company may be required to rely upon its
credit lines and other sources of short term financing, equity contributions or
the proceeds of refinancing of existing Properties (if the same can be arranged
on satisfactory terms) in order to satisfy debt obligations. Although the
Company does not own the entire interest in connection with many of the
Properties held by a partnership or joint venture, the Company may be required
to pay the full amount of any obligation of such partnership or joint venture
which has been guaranteed in whole or in part by the Company in order to protect
its equity interest in such Property. Additionally, the Company may determine to
pay obligations of a partnership or joint venture in order to protect its equity
interest in its assets.
The Company has entered into agreements limiting the interest rate on
portions of its Credit Facility. The Company is exposed to credit loss in the
event of non-performance by counterparties to these agreements.
Dependence on Primary Markets and Economic Factors
All but one of the Company's Properties are located in the Eastern
United States, with a majority of the Properties located either in Pennsylvania
or Florida. The Company's performance and its ability to make distributions to
shareholders or debt service payments could be adversely affected by economic
conditions in such geographic regions, including changes which could result in
the ability of some existing tenants of the Properties to meet their lease
obligations.
The success of the Company depends, among other factors, upon general
economic conditions and on the conditions in those areas where the Properties
are located, 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 Company to keep the Properties leased at profitable levels.
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Many of the Properties in which the Company has an interest were
constructed more than 15 years ago. Such Properties usually involve greater
maintenance costs. Ultimately, the Properties may generate lower rentals because
of obsolescence and may require significant capital expense for renovations.
Some apartments may lack certain amenities which are customarily included in
modern construction, such as dishwashers, central air conditioning, microwave
ovens and the like. Some facilities may be too large or be constructed in
inappropriate proportions for today's market or be too small based on current
industry requirements and, thus, more difficult to lease. The Company
customarily renovates Properties when renovation will enhance or maintain their
long-term value.
The effects of inflation upon the Company'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 renovations and rehabilitation of
older Properties. This positive effect may be offset by higher operating
expenses.
Casualty and Liability Insurance
The protection of the Company's assets from natural or other insurable
risks requires the maintenance of casualty insurance at sufficient levels. While
the Company believes that it has adequate insurance on the Company's assets,
there can be no assurance that the Company can obtain insurance in the future at
acceptable levels and reasonable cost. The Company would be required to bear the
effects of all losses to the Properties that are not adequately covered by
insurance.
Possible Environmental Liabilities
Under various Federal, state and local laws and regulations, the
current or a previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at the property,
and may be held liable to a governmental entity or to third parties for property
damage and for investigation and cleanup costs incurred by such parties in
connection with asserted contamination. In addition, some environmental laws
create a lien on the contaminated site in favor of the government for damages
and costs it incurs in connection with the contamination. The presence of
contamination or the failure to remediate contamination may adversely affect the
owner's ability to sell or lease real estate or to borrow with the real estate
as collateral. The owner or operator of a site may be liable under statutory or
common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
Since 1987, the Company has conducted a Phase I environmental study on
each property it seeks to acquire and has performed a Phase I environmental
study on each of the Properties.
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The Company has no way of determining at this time any potential
liability to which it may be subject arising out of unknown environmental
conditions or violations with respect to the Properties formerly owned by the
Company. Environmental laws today can impose liability on a previous owner or
operator of a property that owned or operated such property at a time when
hazardous or toxic substances were disposed of, or released from, the property.
Therefore, a conveyance of the property does not relieve the owner or operator
from liability.
The Company (or a partnership or joint venture in which the Company has
an interest) has responded to inquiries from environmental authorities with
respect to several of its current or previously owned Properties. At several
other Properties, enviornmental conditions, including groundwater contamination,
continue to be investigated by the Company and have not been fully remediated.
Based on its current knowledge, the Company does not believe that the Company's
liabilities associated with these environmental conditions will have a material
adverse effect on the Company's financial condition or results of operations.
There are asbestos-containing materials in a number of the Properties,
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. At Properties where radon has been identified as a potential
concern, the Company has remediated or is performing additional testing. Lead-
based paint has been identified at certain of the Company's multi-family
Properties and the Company has notified tenants pursuant to applicable
disclosure requirements. Based on its current knowledge, the Company does not
believe that the liabilities associated with asbestos, radon and lead-based
paint at the foregoing Properties will have a material adverse effect on the
Company's financial condition or results of operations.
The Company does not generally maintain insurance coverage for the
types of environmental liabilities described above. The Company maintains a
reserve on its books in respect of certain of these matters. There can be no
assurance that this reserve will be sufficient to cover the cost of known
liabilities respecting environmental issues at the Properties, or matters not
now known to the Company which may be identified in the future.
From time to time, management becomes aware of environmental concerns
at properties under development. Management typically attempts to include the
Company's share of any remediation costs within the budgets for development of
these properties, but the final costs of such remediation are often not known
and may cause the Company to decide not to complete development of any such
property if the revised remediation cost estimates exceed the budget.
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Certain Considerations Relating to Partnerships and Joint
Ventures
Of the Properties in which the Company has a partial interest, a
majority are owned by partnerships in which the Company is a general partner and
the remaining properties are owned by joint ventures in which the Company has
substantially the same powers as a general partner. Under the terms of the
partnership or joint venture agreements, major decisions, such as a sale,
refinancing or expansion or rehabilitation of the Property, and all leasing
decisions, require the consent of all venture partners. There are restrictions
on the ability of any venturer to borrow against or dispose of its interest in
the venture. Because of the requirement for unanimity, the taking of any action
or the making of any decision respecting a joint venture could be significantly
delayed. Under the terms of many of the partnership or joint venture agreements
to which the Company is a party, the concurrence of all partners is required to
change the property manager. Where the other partner or co-venturer is providing
management, effecting such a change could be difficult or even unfeasible, even
if the Company believed the management services were unsatisfactory. Under the
terms of some agreements, the Company has a unilateral right to change
management if it has not received its priority distributions for a stated period
of time.
Many of the partnerships in which the Company has an interest are
controlled by one or more partners other than the Company who oversee the
day-to-day development, construction, leasing and management of Properties. The
Company's wholly owned apartments are managed by its own staff.
While the Company endeavors to maintain good relationships with all of
its partners, there have been a few instances in which the Company has
experienced business disagreements with partners on a variety of issues that
have not as yet been resolved. Such disagreements have included the failure of a
partner to meet a call by the joint venture for the contribution of additional
capital, differences in the interpretation of the relative rights and duties of
the partners under the joint venture agreement and the commencement of
litigation or arbitration to assert its rights by one or more of the partners.
The Company may incur substantial expenses in instituting or defending
litigation or achieving a resolution of disputes in an alternative manner. The
Company may also be required to advance funds or make other commitments or
arrangements to or on behalf
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of the venture during the pendency of a dispute in order to preserve its
investment. Moreover, there can be no assurance that the resolution by the
Company of a dispute with a partner will be on terms that are favorable to the
Company. See "--Legal Proceedings."
Other risks of investments in joint ventures include the possibility
that the Company's partners might become bankrupt or otherwise fail to fund
their share of required capital contributions, that such partners might at any
time have economic or other business interests or goals which are inconsistent
with the business interest or goals of the Company, and that such partners may
be in a position to take action contrary to the instructions or the request of
the Company and contrary to the Company's policies or objectives. Such
investments may also have the potential risk of impasses on decisions, such as
sale, because neither the Company nor the partner would have full control over
the joint venture. Consequently, actions by such partner might result in
subjecting Properties owned by the partnership to additional risk. In addition,
the Company may in certain circumstances be liable for the actions of its
third-party partners.
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
the Company in the ownership of Fox Run Apartments, Bear, Delaware, Eagle's Nest
Apartments, Coral Springs, Florida, and 14 undeveloped acres in Coral Springs,
Florida. Berman Real Estate Management, Inc., a corporation owned by the
Bermans, currently manages the two apartment complexes.
On May 1994, the Bermans commenced an action against the Company 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 Company 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 Company 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.
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In December, 1997, the court in the Delaware Litigation granted partial
summary judgment in favor of the Company and certain of its affiliates on
certain counterclaims of the Bermans in that action (which counterclaims are
substantially similar to the claims made by the Bermans as plaintiffs in the
Pennsylvania Litigation). Under the court's decision: the Bermans would be
liable for one-half of (i) the costs incurred at Eagles' Nest and in respect of
the 14 acre undeveloped tract in Coral Gables, Florida, and (ii) reasonable
environmental clean-up costs at Fox Run; and the counterclaims of the Bermans
relating to Eagles' Nest and Fox Run were dismissed. The court did not dismiss
counterclaims by the Bermans in the Delaware Litigation alleging that (i) there
had been an oral modification of the management agreement relating to Fox Run
(and the court therefore permitted the Bermans to continue to manage that
project until that claim is resolved), and (ii) the environmental clean up costs
incurred by certain of the Company's affiliates at Fox Run were excessive.
The Company 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 Company's financial condition or results
of operations.
The Company is also a plaintiff or defendant in various cases arising
out of its usual and customary business of owning and investing in real estate,
both individually and through joint ventures and partnerships. None of these
cases is expected to have a material adverse effect on the Company.
Certain Regulatory Matters
The ability of the Company or a partnership or joint venture to expand,
rehabilitate or reconstruct a property in the event of a casualty loss or
condemnation is affected by local zoning and use laws, environmental statutes
and regulations and a variety of other local, state and federal requirements.
The Company may be precluded from taking advantage of economic opportunities
presented to it because of the inability to achieve compliance with these
requirements in a timely manner. Under the Americans With Disabilities Act (the
"ADA") and other similar legislation, the Company's Properties may require
modification to provide access to persons with disabilities. The Company
believes it is in substantial compliance with the ADA.
Expansion and Acquisition Risks
The Company intends to continue expanding and acquiring interests in
retail and multifamily Properties where it believes that such expansion or
acquisition will be profitable or enhance the value of the Company's portfolio.
Expansion of existing Properties is subject to a number of risks, including
financing risks as described above, the failure to meet anticipated occupancy or
rent levels, failure to receive required zoning, occupancy and other
governmental permits and authorizations and changes in applicable zoning and
land use laws, which may result
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in the incurrence of expansion costs in connection with projects that are not
pursued to completion.
The Company anticipates that new property expansions and acquisitions
will be financed primarily through lines of credit or other forms of secured or
unsecured construction financing. If permanent debt or equity financing is not
available on acceptable terms to refinance such new developments or acquisitions
are undertaken without permanent financing, further expansion or acquisition
activities may be curtailed or there may be an adverse effect on cash available
for distributions and to meet debt service obligations. Acquisitions entail
risks that investments will fail to perform in accordance with expectations and
that judgments with respect to the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property will prove inaccurate, as well as general investment risks associated
with any new real estate investment.
Risks of Development
Retail development is extremely competitive and entails substantial
risks, both in respect to the ultimate recapture of pre-development expenditures
and the viability and profitability of any resulting project. Development
projects require the availability of suitable, high traffic sites at costs
consistent with the overall economics of the project. There is no assurance that
such sites can be contracted for within the geographic markets in which the
Company operates. Development projects generally require various governmental
and other approvals, the receipt of which cannot be assured. The grant of such
approvals is often opposed by local residents and businesses who perceive that
they will be adversely affected by the project.
The Company will incur certain risks in connection with development
activities in addition to those involved in the ownership and operation of
established shopping centers and multi-family properties. These risks include
the expenditure of funds on and devotion of management's time to projects which
may not come to fruition, the risk that construction costs of a project may
exceed original estimates, possibly making the project uneconomical, the risk
that a project may not be completed on schedule (because of inability to obtain
zoning changes or other land use approvals on a timely basis or construction
delays or other factors outside of the control of the Company) which may affect
its profitability, the risk that occupancy rates and rents at a completed
project will not be sufficient to make the project profitable, financing risks
and the failure to obtain required or desirable zoning, occupancy or other
governmental permits or authorizations. There can be no assurance that any
development Property will ultimately be constructed or that the Company will not
have to expense substantial costs associated with the abandonment of a proposed
development project.
In addition, because the Company must distribute 95% of its taxable
income in order to maintain its qualification as a REIT,
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the Company anticipates that new developments (including expansions) and
acquisition will be financed primarily through lines of credit or other forms of
secured or unsecured construction financing. In the case of an unsuccessful
development project, the Company's loss could exceed its investment in the
project. If any of the above occurs, the Company's ability to repay such
borrowings or make expected distributions to shareholders could be adversely
affected.
Risks Associated with Recently Acquired Properties
The Company is currently experiencing a period of growth. Recently
acquired Properties may have characteristics or deficiencies unknown to the
Company affecting their valuation or revenue potential, and it is also possible
that the operating performance of such Properties may decline in the future. The
Company's ability to manage its growth effectively will require it to
successfully integrate these new acquisitions into its existing management
structure. No assurances can be given that the Company will be able to succeed
with such integration or effectively manage additional Properties or that the
newly acquired Properties will perform as expected.
Risks of Third-Party Management Business
PREIT-RUBIN currently manages a substantial number of Properties owned
by third parties. Risks associated with the management of Properties owned by
third parties include the risk that the management contracts (which are
generally cancelable upon 30 days notice or upon certain events, including sale
of the applicable property) will be terminated by the property owner or will be
lost in connection with a sale of such property, that contracts may not be
renewed upon expiration or may not be renewed on terms consistent with current
terms and that the rental revenues upon which management fees are based will
decline as a result of general real estate market conditions or specific market
factors affecting Properties managed by PREIT-RUBIN, resulting in decreased
management fee income. In December 1996, PREIT-RUBIN entered into a contract
with Equity Properties and Development Partnership ("EPDLP") to manage, lease
and redevelop 18 retail Properties. Substantially all of these Properties are
expected to be marketed for sale in the near term and the management agreements
are terminable in connection with any such sale.
Certain Tax Risks
Tax Liabilities as a Consequence of the Failure to Qualify as a REIT.
The Company (i) believes that it has operated so as to qualify as a REIT under
the Code since its inception and (ii) intends to continue to so operate. No
assurance, however, can be given that the Company has so qualified or will be
able to remain so qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions as to which there are only limited
judicial and administrative interpretations. Certain facts and circumstances
that may be wholly beyond the Company's control may affect its ability to
qualify or to
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continue to qualify as a REIT. In addition, no assurance can be given that new
legislation, Treasury Regulations, administrative interpretations or court
decisions will not significantly change the tax laws with respect to the
qualification as a REIT or the Federal income tax consequences of such
qualification to the Company. If the Company fails to qualify as a REIT, it will
be subject to Federal income tax (including any applicable alternative minimum
tax) on its taxable income at regular corporate rates. In addition, unless
entitled to relief under certain statutory provisions, the Company would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification is lost. The additional tax incurred in such
event would significantly reduce the cash flow available for distribution to
shareholders and to meet debt service obligations. See "Federal Income Tax
Considerations -- Taxation."
REIT Distribution Requirements and Potential Impact of Borrowings. To
obtain the favorable tax treatment associated with qualifying as a REIT under
the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income. See "Federal Income Tax
Considerations-Taxation -- Annual Distribution Requirements". The Company could
be required to borrow funds on a short-term basis to meet the distribution
requirements that are necessary to achieve the tax benefits associated with
qualifying as a REIT, even if management believed that then prevailing market
conditions were not generally favorable for such borrowings.
Other Tax Liabilities. Even if the Company qualifies as a REIT, it will
be subject to certain Federal, state and local taxes on its income and property.
In addition, the net taxable income of PREIT-RUBIN will be subject to Federal
and state income tax. See "Federal Income Tax Considerations -- Taxation of the
Company" and "Federal Income Tax Considerations -- Other Tax Considerations".
Factors Affecting Share Price
A number of factors may adversely influence the price of the Company's
Shares in the public markets, many of which are beyond the control of the
Company. These factors include possible increases in market interest rates,
which may lead purchasers of Shares to demand a higher annual yield from
distributions by the Company in relation to the price paid for Shares, the
relatively low daily trading volume of REITs in general, including the Shares,
and any inability of the Company to invest the proceeds of a future offering of
securities in a manner that will increase earnings or funds from operations on a
per share basis. Sales of a substantial number of Shares, or the perception that
such sales could occur, could adversely affect prevailing market prices for
shares.
The Company is authorized to issue up to 100,000,000 Shares and up to
25,000,000 Preferred Shares. At March 1, 1998, there were 1,260,000 Shares
reserved for issuance pursuant to share option plans, and these Shares will be
available for sale in the
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public markets from time to time pursuant to exemptions from registration
requirements or upon registration. The Company has filed or plans to file
Registration Statements on Form S-8 with the Commission respecting the offer and
sale of Shares under its current share option and restricted share plans. No
prediction can be made about the effect that future sales of Shares or other
securities will have on the market prices of the Shares or the extent, if any,
to which there may be a dilutive effect on the value of the Shares as the result
of issuances of Shares pursuant to share option and restricted share plans or
other issuances of securities.
The Operating Partnership has the obligation to issue a substantial
number of additional Units, the number of which is dependent on future events,
but could approximate over 1.3 million additional Units redeemable by the holder
for cash or, at the election of the Company, for Shares. The Company is
obligated to maintain one or more registration statements to enable most of the
Shares so issued upon redemption of the Units to be resold from time to time in
market transactions.
Possible Adverse Consequences of Limits on Ownership of Shares
For the Company to qualify as a REIT under the Code, not more than 50%
in value of its outstanding Shares may be owned, directly or indirectly, by five
or fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year (the "Ownership Limit"). To assist the Company
in meeting this requirement, the Company may take certain actions to limit the
beneficial ownership, directly or indirectly, of the Company's outstanding
equity securities. While the Trust Agreement allows the Board of Trustees (the
"Trustees") to take appropriate action to maintain the Company's qualification
as a REIT under the Code, there can be no assurance that appropriate action can
be taken to avoid or ameliorate a violation of the Ownership Limitation. See
"Description of Shares of Beneficial Interest -- Restrictions on Transfer" for
additional information regarding the Ownership Limit.
Restrictions on Acquisition and Change in Control
Various provisions of the Trust Agreement restrict the possibility for
acquisition or change in control of the Company, even if such acquisition or
change in control were in the shareholders' interest, including the Ownership
Limit, the staggered terms of the Company's Trustees and the ability of the
Company to issue Preferred Shares.
Lack of Control of PREIT-RUBIN
Although the Operating Partnership owns 95% of the aggregate equity
interests in PREIT-RUBIN, all of the voting stock of PREIT-RUBIN is owned by a
stock bonus plan created for the benefit of PREIT-RUBIN's employees (the "Stock
Bonus Plan"). PREIT-RUBIN employees are entitled to vote the common shares
vested in their accounts in the Stock Bonus Plan on fundamental transactions
(merger, sale of assets, etc.). Voting on the
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shares in the Stock Bonus Plan on all other matters will be at the direction of
the Stock Bonus Plan Committee, which, as of March 25, 1998, consisted of George
F. Rubin, Trustee of the Company and President of PREIT-RUBIN, Alan F. Feldman,
Chief Operating Officer-Retail Division of PREIT-RUBIN, and David J. Bryant,
Vice President-Financial Services of PREIT-RUBIN. The members of the Stock Bonus
Plan Committee are appointed by the Board of Directors of PREIT-RUBIN. Thus, the
Company does not control the day-to-day operations of PREIT-RUBIN and is not
able, from a legal perspective, to influence the manner in which it performs its
management obligations, seeks and accepts new business or otherwise determines
its business strategy.
Conflicts of Interest
The employment agreements between the Company or PREIT-RUBIN and each
of the employees of PREIT-RUBIN who will be parties to such agreements provide
that they will devote their full business time and effort to the business of the
Company. However, PREIT-RUBIN will continue to render management, development,
leasing and related services to a substantial number of properties in which
certain affiliates ("TRO Affiliates") of PREIT-RUBIN, retain equity interests.
The Company believes that the existing management arrangements with these
entities are on terms at least as favorable to PREIT-RUBIN as the average of
PREIT-RUBIN's third-party management arrangements with unrelated parties. In
addition, PREIT-RUBIN leases substantial office space from entities in which
affiliates of the Company have an interest. Finally, there will be numerous
issues requiring resolution over the next several years relating to the
implementation of various important elements of; (i) the transaction in which
the Company acquired PREIT-RUBIN; and (ii) the various related transactions
closed on the same date as the acquisition of PREIT-RUBIN (collectively, the
"TRO Transaction"). In the resolution of these issues, the interest of those
members of the Company's management who are TRO Affiliates may diverge from the
interests of the Company and the holders of the Shares.
Management Integration
Substantially all of the strategies to be employed by the Company to
enhance future growth are dependent upon the successful integration of efforts
of the former management of The Rubin Organization ("TRO") with the Company's
existing management. Any difficulties or delay encountered in that integration
would adversely impact the implementation of the strategies for growth.
Changes in Policies Without Shareholder Approval
The investment, financing, borrowing and distribution policies of the
Company, and its policies with respect to all other activities, including its
growth, debt, capitalization, distributions, REIT status and operating policies,
are determined by the Board of Trustees. Although the Board of Trustees has no
present intention to amend or revise any of these policies, these
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policies may be amended or revised from time to time at the discretion of the
Board of Trustees without notice to or a vote of the shareholders of the
Company. Accordingly, shareholders may not have control over changes in policies
of the Company and changes in the Company's policies may not fully serve the
interests of all shareholders. A change in these policies could adversely affect
the Company's distributions, financial condition, results of operations or the
market price of Shares.
Dependence on Ronald Rubin
The Company is dependent on the efforts of Ronald Rubin, its Chief
Executive Officer. While the Company believes that it could find a replacement
for Mr. Rubin, the loss of his services could have an adverse effect on the
operations of the Company. Mr. Rubin is party to an employment agreement with
the Company. However, this agreement generally does not restrict his ability to
become employed by a competitor of the Company after expiration of one year
following the termination of his employment with the Company.
Effect on Holders of Shares of an Issuance of Preferred Shares
The Board of Trustees is empowered by the Company's Trust Agreement to
designate and issue from time to time, without limitation as to amount, up to
25,000,000 shares in one or more classes or series of Preferred Shares without
shareholder approval. The Board of Trustees may determine the relative rights,
preferences and privileges of each class or series of Preferred Shares so
issued. Because the Board of Trustees has the power to establish the preferences
and rights of each class or series of Preferred Shares, it may afford the
holders in any series or class of Preferred Shares preferences, distributions,
powers and rights, voting or otherwise, senior to the rights of holders of
Shares.
Limitation Upon Sale or Refinancing of Certain Properties
Due to the potential adverse consequences to certain limited partners
of the Operating Partnership which may result from a sale of certain Properties
acquired by the Operating Partnership, the Operating Partnership has agreed
that, for a specified period of years, any sale, other than in connection with
the sale of all or substantially all of the assets of the Operating Partnership
or a merger of the Company or a like kind exchange, would require the consent of
the holders of a majority of the Units issued by the Operating Partnership as
consideration for the Property, which may result in the Company being unable to
sell such a Property in circumstances in which it would be advantageous to do
so. See "Summary of the Operating Partnership Agreement -- Other Rights."
Required Vote of Limited Partners of Operating Partnership In
Connection with Fundamental Changes by the Company
Holders of Units generally will have no right to vote on any matter
voted on by holders of Shares except that prior to the
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date on which at least half of the Units issued on September 30, 1997 (other
than to the Company or an affiliate of the Company) have been redeemed, the
holders of Units issued on September 30, 1997 (other than the Company or an
affiliate of the Company) shall be entitled to vote, as a single class, on any
proposal to merge, consolidate, or sell substantially all of the assets of the
Company if the holders of Shares vote thereon and, in such event, holders of
Units will be entitled to one vote for each Share issuable by the Company upon
the redemption of one Unit and the necessary vote to effect such action shall be
the sum of an absolute majority of the outstanding Units and the applicable vote
of the holders of the Shares, which such vote may be met by any combination of
holders of the Units and Shares.
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
Under the Trust Agreement, the Company has the authority to issue up to
100,000,000 Shares and up to 25,000,000 Preferred Shares. As used herein, the
term "Shares" means shares of beneficial interest other than Preferred Shares.
General Provisions
Voting, Dividend and Other Rights. Subject to the provisions of the
Trust Agreement regarding "Excess Shares" (See " -- Restrictions on Transfer"),
(i) the holders of the Shares ("Shareholders") are entitled to one vote per
Share on all matters voted on by the Shareholders, including elections of the
Trustees, and (ii), subject to the rights of holders of any Preferred Shares, if
any ("Preferred Shareholders") the Shareholders are entitled to a pro rata
portion of such distributions as may be declared from time to time by the
Trustees from funds available therefor, and upon liquidation are entitled to
receive pro rata all assets of the Company available for distribution to such
holders. The majority of Shares voting on a matter at a meeting at which at
least a majority of the Shares are present in person or by proxy constitutes the
act of the Shareholders, except with respect to the election of Trustees (see
below). While the Shareholders generally possess all of the voting power, the
Trust Agreement permits the Trustees to (a) issue, classify or reclassify up to
25,000,000 Preferred Shares, which may have voting rights equal to or superior
to the Shares, and (b) authorize the holders of securities of affiliates of the
Company to vote with the Shareholders on certain matters, and the Trustees have
exercised that right as to holders of currently outstanding Units with respect
to fundamental changes in the Company (i.e. mergers, consolidations and sales of
substantially all of the Company's assets). See "Summary of the Operating
Partnership Agreement -- Authorization of Units and Voting Rights." All Shares
are fully paid and nonassessable. Shareholders do not have any pre-emptive
rights to purchase Company securities.
The Trust Agreement provides that the Trustees may (a) issue, classify
or reclassify shares of beneficial interest as Preferred Shares having
preferences to the Shares in any matter,
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including rights in liquidation or to dividends; (b) issue options, rights
(including Shareholder rights plans), and other securities having conversion or
option rights; and (c) authorize the creation and issuance by subsidiaries and
affiliates of the Company of securities having conversion and option rights in
respect of Shares. Thus, the rights of holders of existing Shares are subject to
preferred rights as to dividends and in liquidation (and other such matters) to
the extent set forth in any subsequently authorized Preferred Shares or class of
Preferred Shares.
Board of Trustees. The Board of Trustees is divided into three classes
serving staggered three-year terms. The Trust Agreement does not provide for
cumulative voting in the election of Trustees, and the candidates receiving the
highest number of votes are elected to the office of Trustee.
Trustee Nomination Process. The Trust Agreement provides that
nominations for election to the office of Trustee at any Annual or Special
Meeting of Shareholders shall be made by the Trustees, or, subject to the rights
of Preferred Shareholders, by petition in writing delivered to the Secretary of
the Company not fewer than thirty-five (35) days prior to such meeting signed by
the holders of at least two percent (2%) of the Shares outstanding on the date
of such petition. Unless nominations shall have been made as aforesaid, they
shall not be considered at such meeting unless the number of persons nominated
as aforesaid shall be fewer than the number of persons to be elected to the
office of Trustee at such meeting, in which such event nominations for the
Trustee positions which would not otherwise be filled may be made at the meeting
by any person entitled to vote in the election of Trustees.
Transfer Agent. The transfer agent for the Shares is
American Stock Transfer and Trust Company.
Limited Liability of Shareholders
The Trust Agreement provides that Shareholders, to the fullest extent
permitted by applicable law, as amended or supplemented, are not liable for any
act, omission or liability of a Trustee or the Company and that the Trustees
have no general power to bind them personally. Notwithstanding the foregoing,
there may be liability in some jurisdictions which may decline to recognize a
business trust as a valid organization. With respect to all types of claims in
such jurisdictions, and with respect to tort claims, contract claims where the
required provision is omitted, and possible tax claims in jurisdictions where
the business trust is treated as a partnership for certain purposes,
Shareholders may be personally liable for such obligations to the extent that
the Company does not satisfy such claims. The Company conducts substantially all
of its business in jurisdictions other than the Commonwealth of Pennsylvania in
entities recognized in the relevant jurisdiction to limit the liability of
equity owners. The Company carries insurance in amounts which the Trustees deem
adequate to cover foreseeable tort claims.
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Restrictions on Transfer
Among the requirements for qualification of the Company as a REIT under
the Code are, (i) not more than 50% in value of its outstanding shares of
beneficial interest (after taking into account options to acquire shares) may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of a taxable year, (ii)
the shares must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and (iii) certain percentages of the Company's gross income must
be from particular activities. In order to continue to qualify as a REIT under
the Code, provisions of the Trust Agreement restrict the ownership and transfer
of shares (the "Ownership Limit Provisions").
The Ownership Limit Provisions provide that no person may beneficially
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 9.9% in value of the Shares. A comparable restriction applies to the
ownership of any Preferred Shares. The Trustees may waive the Ownership Limit
Provisions if evidence satisfactory to the Trustees and tax counsel to the
Company is presented that such ownership will not jeopardize the Company's
status as a REIT.
Issuance or transfers of Shares in violation of the Ownership Limit
Provisions or which would cause the Shares to be beneficially owned by fewer
than 100 persons are void ab initio and the intended transferee acquires no
rights to the Shares.
In the event of a purported transfer or other event that would, if
effective, result in the ownership of Shares in violation of the Ownership Limit
Provisions, such transfer or other event with respect to that number of Shares
that would be owned by the transferee in excess of the Ownership Limit
Provisions automatically are exchanged for Excess Shares (the "Excess Shares"),
authorized by the Trust Agreement, according to the rules set forth therein, to
the extent necessary to insure that the purported transfer or other event does
not result in the ownership of Shares in violation of the Ownership Limit
Provisions. Any purported transferee or other purported holder of Excess Shares
is required to give written notice to the Company of a purported transfer or
other event that would result in the issuance of Excess Shares.
Excess Shares are not treasury shares but rather continue as issued and
outstanding shares of beneficial interest. While outstanding, Excess Shares will
be held in trust. The trustee of such trust shall be the Company. The
beneficiary of such trust shall be designated by the purported holder of Shares.
Excess Shares are not entitled to any dividends or distributions. If, after the
purported transfer or other event resulting in an exchange of Shares for Excess
Shares and prior to the discovery by the Company of such exchange, dividends or
distributions are paid with respect to the Shares that were exchanged for Excess
Shares, then such dividends or distributions are to be repaid to
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the Company upon demand. Subject to the rights of the Preferred Shareholders, if
any, Excess Shares participate ratably (based on the total number of Shares and
Excess Shares) in any liquidation, dissolution or winding up of the Company.
Except as required by law, holders of Excess Shares are not entitled to vote
with respect to such shares on any matter. While Excess Shares are held in
trust, any interest in that trust may be transferred by the trustee only to a
person whose ownership of Shares will not violate the Ownership Limit
Provisions, at which time the Excess Shares will be automatically exchanged for
the same number of Shares for which the Excess Shares were originally exchanged.
The Trust Agreement contains provisions that are designed to insure that the
purported transferee or other purported holder of Excess Shares may not receive
in return for such a transfer an amount that reflects any appreciation in the
Shares for which Excess Shares were exchanged during the period that such Excess
Shares were outstanding. Any amount received by a purported transferee or other
purported holder in excess of the amount permitted to be received must be paid
to the Company. If the foregoing restrictions are determined to be invalid by
any court of competent jurisdiction then the intended transferee or holder of
any Excess Shares may be deemed, at the option of the Company, to have acted as
an agent on behalf of the Company in acquiring such Excess Shares and to hold
such Excess Shares on behalf of the Company.
The Trust Agreement further provides that Excess Shares shall be deemed
to have been offered for sale to the Company at the lesser of the price paid for
the Shares by the purported transferee or in the case of a gift, devise or other
transaction, the market price for such Shares at the time of such gift, devise
or other transaction or the market price for the Shares on the date the Company
or its designee exercises its option to purchase. The Company may purchase such
Excess Shares during a 90-day period, beginning on the date of the violative
transfer if the original transferee-Shareholder gives notice to the Company of
the transfer or, if no notice is given, the date the Board of Trustees
determines that a violative transfer has been made.
Each Shareholder upon demand is required to disclose to the Company in
writing such information with respect to the direct, indirect and constructive
ownership of Shares as the Board of Trustees deems necessary to comply with the
provisions of the Trust Agreement or the Code applicable to a REIT or to comply
with the requirements of any taxing authority or governmental agency.
Certificates representing shares of any class or series issued after September
29, 1997 will bear a legend referring to the restrictions described above.
Change-in-Control Provisions
Ownership Limit. In order to protect its status as a REIT, the Company
must satisfy certain conditions, including the conditions that: (i) no more than
50% in value of the outstanding Shares may be owned, directly or indirectly, by
five or fewer individuals; and (ii) the Shares must be beneficially owned by 100
or more persons during at least 335 days of a
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<PAGE>
taxable year of 12 months or during a proportionate part of a shorter taxable
year. To this end, the Trust Agreement, among other things, prohibits: (a) any
holder from owning more than 9.9% of its outstanding Shares without the consent
of the Board of Trustees after evidence satisfactory to the Trustees and tax
counsel to the Company is presented evidencing that such ownership will not
jeopardize the Company's tax status as a REIT, and (b) transfers of Shares which
would cause the Company to be beneficially owned by fewer than 100 persons.
These limitations may have the effect of precluding acquisition of control of
the Company by a third party.
Staggered Board. The Company's Board of Trustees has three classes of
trustees. The term of office of one class expires each year. Trustees for each
class are elected for three-year terms upon the expiration of the respective
class' term. Trustees may only be removed by the Shareholders during their term
in office for "cause," as that term is defined in the Trust Agreement. The
staggered terms for trustees may affect the Shareholders' ability to take
control of the Company, even if a change in control were in the Shareholders'
interest.
Multiple Classes and Series of Shares of Beneficial Interest. The Trust
Agreement provides that the Trustees may issue, classify or reclassify up to
25,000,000 Preferred Shares (including classes and series of Preferred Shares
having preferences to the Shares in any matter, including rights in liquidation
or to dividends) and options, rights (including Shareholder rights plans), and
other securities having conversion or option rights and may authorize the
creation and issuance by subsidiaries and affiliates of the Company of
securities having conversion and option rights in respect of Shares. The Trust
Agreement further provides that the terms of such rights or other securities may
provide for disparate treatment of certain holders or groups of holders of such
rights or other securities. The issuance of such rights or Preferred Shares
could have the effect of delaying or preventing a change of control of the
Company, even if a change in control were in the Shareholders' interest. No such
rights or Preferred Shares are currently issued or outstanding.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the Shares sold
by the Selling Shareholders nor will any such proceeds be available for use by
the Company or otherwise for the Company's benefit.
SUMMARY OF THE TRUST AGREEMENT
The following summary of the Trust Agreement is qualified in its
entirety by reference to the Trust Agreement, which included as an exhibit to
the Company's Current Report on Form 8-K, filed on December 17, 1997, and
incorporated by reference into this Prospectus.
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<PAGE>
The Trustees
The Trustees are divided into three classes, with each member of a
class elected for a term of three years or until his successor is duly elected
and qualified. Of the nine Trustees currently in office, six have been elected
by the shareholders and three were appointed to fill the unexpired terms of the
trustees who resigned as contemplated by the provisions of the agreement in
which the Company acquired PREIT-RUBIN. The Trust Agreement provides that there
will be not fewer than five nor more than 15 Trustees. The Trustees are not
required to furnish a bond. Trustees may resign at any time, but no resignation
is effective until a successor is elected if its effect would be to reduce the
number of Trustees below five. The Trustees may fill vacancies that shall have
occurred as a result of an increase in the number of Trustees or by reason of
the death, resignation or incapacity of any of the Trustees. A Trustee chosen by
the other Trustees to fill a vacancy that has occurred as a result of an
increase in the number of Trustees will serve until the next annual or special
meeting of shareholders and until his successor is elected and qualified. A
Trustee chosen by other trustees to fill a vacancy created by reason of the
death, resignation or incapacity of a Trustee will hold office for the full
remaining term of the former Trustee and until his successor is elected and
qualified. At such meetings to elect Trustees, the holders of a majority of
shares represented will elect Trustees for the term of the class of Trustees
being elected. The shareholders may also elect Trustees to fill a vacancy which
the other Trustees have not filled. Two-thirds of the serving Trustees have the
right at any time to remove any of their number, including a Trustee elected by
the shareholders, for any cause deemed by them to be sufficient. Any Trustee may
be removed for cause by the holders of a majority of the outstanding Shares then
outstanding and entitled to vote. A vacancy created by the removal of a Trustee
by the other Trustees may be filled only by the shareholders at their next
annual meeting or a special meeting called for that purpose unless there are
fewer than five Trustees, in which event the remaining Trustees are required to
elect a sufficient number of persons so that at least five will be serving.
Regular meetings of the shareholders are held annually, and special meetings of
the shareholders may be called upon proper notice.
The concurrence of a majority of the Trustees present at any meeting
where there is a quorum, or the written consent of a majority of the Trustees
then serving, is necessary for the validity of any action taken. In no event may
action be taken without the concurrence, at a meeting or by consent in writing,
of at least four Trustees. A majority of the Trustees, provided that the
majority consists of at least four Trustees, constitutes a quorum. However, if
there are fewer than five Trustees, the remainder must act to fill vacancies to
bring the total number of Trustees to at least five.
The Trustees may hold legal title to the Company's Properties on its
behalf or designate persons to so hold on behalf of the Company. The Trustees
have complete control of the
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<PAGE>
conduct of the Company's business, including investments, sales, leasing,
issuance of additional shares, borrowing and distributions to shareholders
without the necessity of securing shareholder approval.
Indemnification
The Trust Agreement provides that (a) no Trustee shall be personally
liable for monetary damages for any action, or any failure to take action,
except that a Trustee shall remain personally liable for monetary damages to the
same extent that a director of a Pennsylvania business corporation remains
liable under the provisions of 15 Pa. C.S. Section 1713, and (b) no officer who
performs his duties in good faith, in a manner reasonably believed to be in the
best interests of the Company and with such care, skill and diligence as a
person of ordinary diligence would use will not be liable by reason of having
been an officer of the Company.
The Trust Agreement provides that every Trustee and officer shall be
entitled as of right to be indemnified by the Company against reasonable expense
(including attorney's fees) and any liability, loss, judgment, excise tax, fine,
penalties, and settlements paid or incurred by such person in connection with an
actual (whether pending or completed) or threatened claim, action, suit or
proceeding, civil, criminal, administrative, investigative or other, whether
brought by or in the right of the Company or otherwise, in which he or she may
be involved, as a party or otherwise, by reason of such person's being or having
been a Trustee or officer of the Company or by reason of the fact that such
person is or was serving in any capacity at the request of the Company as a
trustee, director, officer, employee, agent, partner, fiduciary or other
representative or another real estate investment trust, corporation,
partnership, joint venture, trust, employee benefit plan or other entity;
provided, however, that no such right of indemnification shall exist with
respect to an action brought by a Trustee or officer against the Company and
further provided that no indemnification shall be made in any case where the act
or failure to act giving rise to the claim for indemnification is determined by
the final judgment of a court of competent jurisdiction to have constituted
willful misconduct or recklessness. The Trust Agreement further provides that
such right to indemnification shall be contractual in nature and shall include
the right to be paid in advance the expenses incurred in connection with such
proceedings; provided, however, that such advance payments must be made in
accordance with applicable law and must be accompanied by an undertaking by or
on behalf of such Trustee or officer to repay all amounts so advanced if it is
ultimately determined that such Trustee or officer is not entitled to be
indemnified under the Trust Agreement. The Company's By-laws provide for similar
but not identical indemnification rights.
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<PAGE>
Transactions with Trustees
The Trustees may deal with the Company by rendering services for
reasonable compensation, buying property from or selling property to the Company
or otherwise. No Trustee shall have any liability for such transactions approved
by a majority of the other Trustees, except for his bad faith or gross
negligence, and any such Trustee may be counted in determining the existence of
a quorum at any meeting of the Board of Trustees which authorizes any such
transaction and may vote thereat to authorize any such transaction.
Term
The Company's term is perpetual. The Company's existence does not
terminate automatically in the event the Company fails to maintain its
qualification as a real estate investment trust for tax purposes.
Fundamental Transactions; Amendments
Any merger to which the Company is a party (other than a merger with an
entity in which the Company owned, directly or indirectly, at least 80% of the
voting power of all ownership interests prior to the merger or a merger where
the persons that were the Shareholders of the Company immediately prior to the
merger will own, directly or indirectly, immediately following the merger all of
the ownership interests in the surviving entity) and any sale or transfer of all
or substantially all of the assets of the Company (other than to an entity
directly or indirectly controlled by the Company) must be approved by the
affirmative vote of the holders of a majority of the votes cast by all
Shareholders entitled to vote thereon (excluding holders of any Preferred Shares
that are entitled to vote thereon exclusively as a class) and by the affirmative
vote of a majority of the votes cast by holders of any class or series of
Preferred Shares entitled to vote thereon as a class.
Amendments to the Trust Agreement can be made by the consent of
two-thirds of the Trustees, but not fewer than four. However: (i) no amendment
to increase the liability of Shareholders shall be effected; (ii) no amendment
may require additional contributions from or assessments against Shareholders;
(iii) no amendment (A) increasing the authorized shares of beneficial interest
of the Company, or (B), except for an amendment designating a class or series of
Preferred Shares, having the purpose or reasonably foreseeable effect of
impeding or preventing a "control transaction" shall be effective without the
affirmative vote of the holders of a majority of votes cast by (1) all
Shareholders entitled to vote thereon (excluding holders of any Preferred Shares
that are entitled to vote thereon exclusively as a class) and (2) the holders of
any class or series of Preferred Shares entitled to vote thereon as a class; and
(iv) no amendment to the provisions regarding the amendment of the Trust
Agreement, the dissolution of the Company or fundamental changes to the Company
(i.e., mergers, sales of all or substantially all of the Company's assets) shall
be effected without the affirmative vote of the Shareholders whose votes are at
the time of such amendment necessary to effect the pertinent
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<PAGE>
action. As used in the Trust Agreement, the term "control transaction" means the
acquisition by a person or a group of persons acting in concert of voting
control over voting Shares of the Company that would entitle the holders thereof
to cast at least 20% of the votes that all Shareholders would be entitled to
cast in the election of Trustees.
Applicable Law
The Trust Agreement provides that it shall be construed in accordance
with Pennsylvania law.
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT
The following summary of the First Amended and Restated Agreement of
Limited Partnership of PREIT Associates, L.P. (the "Operating Partnership
Agreement") is qualified in its entirety by reference to the Operating
Partnership Agreement, which is included as an exhibit to the
Company's Current Report on Form 8-K, filed on October 14, 1997, and
incorporated by reference into this Prospectus.
General
The Company is the sole general partner of the Operating Partnership,
and PREIT Property Trust, a business trust wholly owned by the Company, is a
limited partner of the Operating Partnership. The Company contributed to the
Operating Partnership, or to entities wholly owned by the Operating Partnership,
the real estate interests owned, directly or indirectly, by the Company, or the
economic benefits thereof, in exchange for a general partnership interest in the
Operating Partnership and a number of Class A Units issued to PREIT Property
Trust which equalled, in the aggregate, the number of shares of beneficial
interest of the Company issued and outstanding on September 30, 1997.
Management
Under the Operating Partnership Agreement, the Company, as the sole
general partner of the Operating Partnership, has the authority, to the
exclusion of the limited partners, to make all management decisions on behalf of
the Operating Partnership. In addition, the Company, as general partner, will
have the ability to cause the Operating Partnership to create and issue
subsequent classes of limited or preferred partner interests with terms
different from the limited partner and general partner interests issued in the
TRO Transaction. The Company has agreed in the Operating Partnership Agreement
to conduct substantially all of its business activities through the Operating
Partnership unless a majority in interest of the Units (exclusive of Units owned
by the Company) consent to the conduct of business activities outside the
Operating Partnership.
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<PAGE>
Authorization of Units and Voting Rights
The Operating Partnership Agreement authorizes the issuance of an
unlimited number of Units in one or more classes. Holders of Units are entitled
to distributions from the Operating Partnership as and when made by the general
partner. Since the general partner will, of necessity, have to make
distributions on the Class A Units held directly or indirectly by it at the
times and in the amounts as will permit it to make distributions to Shareholders
necessary to preserve its status as a REIT for federal income tax purposes, it
is anticipated that the holders of Units will receive such distributions at the
approximate time, and in the same amounts, as distributions are declared and
paid by the Company to the Shareholders.
Holders of Units generally will have no right to vote on any matter
voted on by holders of Shares except that prior to the date on which at least
half of the Units issued on September 30, 1997 (other than to the Company or an
affiliate of the Company) have been redeemed, the holders of Units issued on
September 30, 1997 (other than the Company or an affiliate of the Company) shall
be entitled to vote, as a single class, on any proposal to merge, consolidate,
or sell substantially all of the assets of the Company if the holders of Shares
vote thereon and, in such event, holders of Units will be entitled to one vote
for each Share issuable by the Company upon the redemption of one Unit and the
necessary vote to effect such action shall be the sum of an absolute majority of
the outstanding Units and the applicable vote of the holders of the Shares,
which such vote may be met by any combination of holders of the Units and the
Shares.
The Operating Partnership Agreement also provides that the Company may
not engage in a fundamental transaction (e.g., a merger) unless, by the terms of
such transaction, the Units are treated in the same manner as that number of
Shares for which they are exchangeable by the Company upon notice of redemption
are treated and that holders of Units will have the right to vote on certain
amendments to the Operating Partnership Agreement.
Redemption Rights
As of the date of this Prospectus, the Operating Partnership had
outstanding 433,248 Class A Units (in addition to those held by the Company) and
213,038 Class B Units. Class A and Class B Units are redeemable by the Operating
Partnership at the election of a 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,
holders of limited partnership units (other than the Company and its
subsidiaries) may, beginning one year following the respective issue dates, give
one or more notices of redemption with respect to all or any part of the Class A
Units so received and then held by such party. Class B Units are redeemable at
the option of the holder at any time after issuance. This Registration Statement
has been filed to register for resale by the holders thereof Shares issuable by
the Company
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<PAGE>
upon the redemption of the outstanding Units pursuant to this provision of the
Operating Partnership Agreement.
If a notice of redemption is given, the Company has the right to elect
to acquire the 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 closing price of the Shares over the ten consecutive trading days
immediately prior to receipt by the Company, in its capacity as general partner
of the Operating Partnership, of the notice of redemption. If the Company
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.
Other Rights
If the Operating Partnership determines to sell, before the fifth
anniversary of the date on which a property is acquired by the Operating
Partnership, certain specified Properties for which Class A Units were issued in
the TRO Transaction, and the holders of a majority of the then outstanding Class
A Units issued to the TRO Affiliates object to such sale, the sale will not be
consummated unless (i) the sale constitutes an exchange under Section 1031 of
the Code or (ii) the sale is in connection with the proposed sale of all or
substantially all of the assets of the Operating Partnership.
Pursuant to a separate agreement by and between the Company and an
affiliate of the holder of Class B Units, before September 30, 2001, the
Operating Partnership may not sell or otherwise dispose of Magnolia Mall in a
transaction in which taxable gain is recognized unless (i) the sale constitutes
an exchange under Section 1031 of the Code and no gain is recognized on such
sale or (ii) the sale is in connection with a program to sell substantially all
of the Operating Partnership's (and its affiliates) retail assets to an entity
not affiliated with the Operating Partnership and at least 80% of the retail
Properties owned by the Operating Partnership have been sold or are under
binding contracts of sale with unaffiliated third parties and are scheduled to
close within six months of the date of the closing of the sale of Magnolia Mall.
SELLING SHAREHOLDERS
The following table provides the names of the Selling Shareholders as
of March 25, 1998 and the number of Shares beneficially owned by each such
holder on that date. Since such Selling Shareholders may sell all, some or none
of their Shares, no estimate can be made of the aggregate number of Shares that
will be owned by each such Selling Shareholder upon completion of the offering
to which this Prospectus relates.
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<PAGE>
The Shares offered by this Prospectus may be offered from time to time
by the Selling Shareholders named below or their pledgees, donees, transferrees,
partners or other successors in interest.
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Number of
Position with Owned Prior Shares
Name Company to Offering Offered
---- ------- ----------- -------
<S> <C> <C> <C>
Ronald Rubin Chairman of the 164,359(1) 132,191
Board, CEO and
Trustee of the
Company since
September 1997.
Prior to September
1997, CEO of TRO
George F. Rubin President of PREIT- 97,862(2) 74,294
RUBIN and Trustee
of the Company
Leonard Shore Executive V.P.- 39,828(3) 39,828
Development of
PREIT-RUBIN
Joseph Coradino Executive V.P. of 28,690(3) 28,690
PREIT-RUBIN
Lewis Stone No current position 15,042 15,042
with the Company.
Prior to October
1997, Senior V.P.-
Retail Leasing of
TRO
Gerald Broker No current position 64,310 64,310
with the Company.
Prior to October
1997, Vice Chairman
and General Counsel
of TRO
Patricia Berns Executive V.P.- 15,947(3) 15,947
Retail Leasing of
PREIT-RUBIN
Edward Glickman Executive V.P. and 13,633(4) 13,633
CFO of the Company
since September
1997. Prior to
September 1997,
Executive V.P. and
CFO of TRO
Joseph Straus, No current position 8,194 8,194
Jr. with the Company.
Prior to October
1997, Chairman of
the Board of TRO
Alan F. Feldman COO-Retail Division 6,555(3) 6,555
of PREIT-RUBIN
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Number of
Shares
Beneficially Number of
Position with Owned Prior Shares
Name Company to Offering Offered
---- ------- ----------- -------
<S> <C> <C> <C>
Douglas S. V.P.-Development of 5,967(5) 5,967
Grayson PREIT-RUBIN
Eric M. Mallory V.P.-Acquisitions 6,555(5) 6,555
of PREIT-RUBIN
James L. V.P.-Office Leasing 4,916(6) 4,916
Paterno of PREIT-RUBIN
Judith No current position 1,680 1,680
Garfinkel with the Company.
Prior to October
1997, V.P.-
Corporate
Communications of
TRO
David J. Bryant V.P.-Financial 1,639(7) 1,639
Services of PREIT-
RUBIN
Susan Kirchhoff No current position 1,639 1,639
with the Company.
Prior to December
1997, V.P.-Retail
Marketing of PREIT-
RUBIN
Non-QTIP N/A 12,168 12,168
Marital Trust
under Will of
Richard I.
Rubin,
Deceased(8)
Florence Mall N/A 213,038 213,038
Partners
</TABLE>
- -------------------
(1) Does not include a currently unexercisable option to purchase 150,000
Shares. Includes 12,168 Shares owned by the Estate of Richard I. Rubin
of which Mr. Rubin disclaims
beneficial ownership.
(2) Does not include a currently unexercisable option to
purchase 75,000 Shares. Includes 900 Shares held in trust
for Mr. Rubin's daughter, 500 Shares owned by Mr. Rubin's
spouse and 12,168 Shares owned by the Estate of Richard I.
Rubin. Mr. Rubin disclaims beneficial interest in all of
the foregoing except the 75,000 Shares subject to the
option.
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<PAGE>
(3) Does not include a currently unexercisable option to purchase 30,000
Shares.
(4) Does not include a currently unexercisable option to purchase 50,000
Shares.
(5) Does not include a currently unexercisable option to purchase 20,000
Shares.
(6) Does not include a currently unexercisable option to purchase 15,000
Shares.
(7) Does not include a currently unexercisable option to purchase 5,000
Shares.
(8) Ronald Rubin, George F. Rubin and Gerald Broker are the co-trustees of
this trust. They disclaim beneficial ownership of these Shares.
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<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes the Federal income tax
considerations that may be material to a prospective holder of Shares. Drinker
Biddle & Reath LLP, general counsel for the Company, provided an opinion letter
to the Company respecting this discussion under "Federal Income Tax
Considerations," which is included as an Exhibit to the Registration Statement.
The following discussion, which is not exhaustive of all possible tax
considerations, does not give a detailed discussion of any state, local or
foreign tax considerations; nor does it discuss all of the aspects of Federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders
(including insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
Federal income tax laws.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.
Taxation of the Company
General. The Company is designed to qualify and has elected to qualify
as a "real estate investment trust" under Sections 856-60 of the Code. The
Company believes that it has been organized and has operated in such a manner as
to qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner. No assurance, however, can be given that
the Company has operated in a manner so as to qualify as a REIT or that it will
continue to operate in such a manner in the future. Qualification and taxation
as a REIT depends upon the Company's ability to meet on a continuing basis,
through actual annual operating results, distribution levels and diversity of
share ownership, the various qualification tests imposed under the Code on
REITs, some of which are summarized below. While the Company intends to operate
so that it qualifies as a REIT, given the highly complex nature of the rules
governing REITs, the ongoing importance of factual determinations, and the
possibility of future changes in circumstances of the Company, no assurance can
be given that the Company satisfies such tests or will continue to do so. See
"Failure to Qualify" below.
The following is a general summary of the Code provisions that govern
the Federal income tax treatment of a REIT and its shareholders. These
provisions of the Code are highly technical and complex. This summary is
qualified in its entirety by the applicable Code provisions, Treasury
Regulations and
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<PAGE>
administrative and judicial interpretations thereof. If the Company qualifies
for taxation as a REIT, it generally will not be subject to Federal corporate
income taxes on net income that it currently distributes to shareholders.
However, the Company will be subject to Federal income tax on any income that it
does not distribute and will be subject to Federal income tax in certain
circumstances on certain types of income even though that income is distributed.
Requirements for Qualification. The Code defines a REIT as a
corporation, trust or association (i) that is managed by one or more trustees or
directors; (ii) the beneficial ownership of which is evidenced by transferable
shares of stock, or by transferable certificates of beneficial interest; (iii)
that would be taxable as a domestic corporation, but for Sections 856 through
859 of the Code; (iv) that is neither a financial institution nor an insurance
company subject to certain provisions of the Code; (v) the beneficial ownership
of which is held by 100 or more persons; (vi) that during the last half of each
taxable year not more than 50% in value of the outstanding stock of which is
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities); and (vii) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. The Company's Trust Agreement provides certain
disclosure requirements for 1% or greater shareholders and certain restrictions
regarding the transfers of Company shares that are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above.
A REIT is permitted to have a wholly owned subsidiary (also referred to
as a "qualified REIT subsidiary"). A qualified REIT subsidiary is not treated as
a separate entity for Federal income tax purposes. Rather, all of the assets,
liabilities and items of income, deductions and credit of a qualified REIT
subsidiary are treated as if they were those of the REIT.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its proportionate
share of the income of the partnership. Thus, the Company's proportionate share
of the assets, liabilities and items of income of the Operating Partnership and
each of the real estate partnerships or other pass-through entities in which the
Operating Partnership holds an interest (the "Title Holding Partnerships") will
be treated as assets, liabilities and items of income of the Company for
purposes of applying the requirements described herein, provided that the
Operating Partnership and the Title Holding Partnerships are treated as
partnerships for Federal income tax purposes.
Income Tests. In order to maintain qualification as a REIT,
there are two gross income requirements that must be satisfied
annually. First, at least 75% of the REIT's gross income
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(excluding gross income from prohibited transactions) for each taxable year must
be derived directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from the same items which
qualify under the 75% income test, and from dividends, interest and gain from
the sale or disposition of stock or securities, or from any combination of the
foregoing.
Rents received by the Company will qualify as "rents from real
property" in satisfying the gross income requirements for a REIT described above
only if several conditions (related to the identity of the tenant, the
computation of the rent payable, and the nature of the property leased) are met.
The Company does not anticipate receiving rents in excess of five (5%) percent
of gross revenue that fail to meet these conditions. In addition, for rents
received to qualify as "rents from real property," the Company generally must
not operate or manage the property or furnish or render more than a de minimis
amount of services to tenants, other than through an "independent contractor"
from whom the Company derives no revenue. The "independent contractor"
requirement, however, does not apply to the extent the services provided by the
Company are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." Although PREIT-RUBIN renders services with respect to rental
properties of the Operating Partnership and the Title Holding Partnerships, and
PREIT-RUBIN does not constitute an "independent contractor" for this purpose,
the Company believes that the services being provided by PREIT-RUBIN with
respect to such properties are usual or customary or should not otherwise be
considered "rendered to the occupant."
The Company believes, however, that the aggregate amount of any such
fees and other non-qualifying income in any taxable year earned by the Operating
Partnership and the Title Holding Partnerships will not cause the Company to
exceed the limits on nonqualifying income under the 75% and 95% gross income
tests.
The Operating Partnership owns all of the nonvoting common stock of
PREIT-RUBIN, a corporation that is taxable as a regular corporation. PREIT-RUBIN
performs management, development and leasing services for the Operating
Partnership and other real estate owned in whole or in part by third parties.
The third-party income earned by and taxed to PREIT-RUBIN would be nonqualifying
income if earned directly by the Company. As a result of the corporate
structure, all third party and other services income will be earned by and taxed
to PREIT-RUBIN at applicable Federal and state corporate income tax rates and
will be received by the Company only indirectly as dividends (after reduction by
such taxes). Although dividends generally qualify under the 95% test, the IRS
refuses to rule on this issue when the dividends are earned in this manner.
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If the Company fails to satisfy one or both of the 75% or the 95% gross
income tests for any taxable year, it may nevertheless qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code. It
is not possible, however, to state whether in all circumstances the Company
would be entitled to the benefit of these relief provisions. Even if these
relief provisions were to apply, however, a tax would be imposed with respect to
the "excess net income" attributable to the failure to satisfy the 75% and 95%
gross income tests.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets: (i) at
least 75% of the value of the Company's total assets must be represented by
"real estate assets," cash, cash items and government securities; (ii) not more
than 25% of the Company's total assets may be represented by securities other
than those in the 75% asset class; and (iii) of the investments included in the
25% asset class, the value of any one issuer's securities (other than an
interest in a partnership, shares of a "qualified REIT subsidiary" or another
REIT) owned by the Company may not exceed 5% of the value of the Company's total
assets, and the Company may not own more than 10% of any one issuer's
outstanding voting securities (other than an interest in a partnership, shares
of a qualified REIT subsidiary or another REIT).
The Company anticipates that it will be able to comply with these asset
tests. The Company is deemed to hold directly its proportionate share of all
real estate and other assets of the Operating Partnership and should be
considered to hold its proportionate share of all assets deemed owned by the
Operating Partnership through its ownership of partnership interests in other
partnerships. As a result, the Company plans to hold more than 75% of its assets
as real estate assets. In addition, the Company does not plan to hold any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary of the Company, nor securities of any
one issuer exceeding 5% of the value of the Company's gross assets. As
previously discussed, the Company is deemed to own its proportionate share of
the assets of a partnership in which it is a partner so that the partnership
interest, itself, is not a security for purposes of this asset test.
The Operating Partnership owns all of the nonvoting common stock of
PREIT-RUBIN. The Operating Partnership will not own more than 10% of the voting
securities of PREIT-RUBIN. The Company believes that its indirect interest in
the securities of PREIT-RUBIN will not exceed 5% of the total value of the
Company's assets. However, no independent appraisals have been obtained.
No assurance can be given that the Company's indirect ownership of
PREIT-RUBIN will meet the 10% voting securities test. Prior to June 1994, the
Internal Revenue Service (the "IRS") routinely issued rulings that the 10%
voting securities test was met in any case where the REIT did not have more than
10% of the management company's voting stock. However, in
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September 1994, the IRS reevaluated its position on this issue and now refuses
to issue a ruling on whether the 10% voting securities test is met.
After initially meeting the asset tests at the close of any quarter,
the Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. However, there can be no assurance that such other action
will always be successful.
It should also be noted that certain proposed changes to the tax laws
regarding REITs are currently under consideration. Of potential relevance to
PREIT is one proposed change that would generally prohibit a REIT from owning
10% or more of the vote or value of the outstanding shares of any corporation
other than a qualified REIT subsidiary. Under the proposal, existing ownership
arrangements such as PREIT's ownership of shares of PREIT-RUBIN would be
grandfathered, provided that the subsidiary -- in this case PREIT-RUBIN -- does
not enter into a new trade or business or acquire substantial new assets after
the effective date of the change in the law.
Annual Distribution Requirements. To qualify as a REIT, the Company
generally must distribute to its shareholders at least 95% of its income each
year. In addition, the Company will be subject to tax on the undistributed
amount at regular capital gains and ordinary corporate tax rates and also may be
subject to a 4% excise tax on undistributed income in certain events.
The Company believes that it has made, and expects to continue to make,
timely distributions sufficient to satisfy the annual distribution requirements.
It is possible, however, that the Company, from time to time, may not have
sufficient cash or other liquid assets to meet the distribution requirements. In
that event, the Company may arrange for short-term, or possibly long-term,
borrowing (by itself or by the Operating Partnership) to permit the payments of
required dividends.
Failure to Qualify. If the Company fails to qualify for taxation as a
REIT in any taxable year, the Company will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under specific statutory provisions, the
Company also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.
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Income Taxation of the Operating Partnership, the Title Holding
Partnerships and Their Partners. The following discussion summarizes certain
Federal income tax considerations applicable to the Company's investment in the
Operating Partnership and the Title Holding Partnerships:
Classification of the Operating Partnership and Title Holding
Partnerships as Partnerships. The Company will be entitled to include in its
income its distributive share of the income and to deduct its distributive share
of the losses of the Operating Partnership (including the Operating
Partnership's share of the income or losses of the Title Holding Partnerships)
only if the Operating Partnership and the Title Holding Partnerships
(collectively, the "Partnerships") are classified for Federal income tax
purposes as partnerships rather than as associations taxable as corporations.
The Partnerships have not elected, and do not intend to elect, to be taxable for
Federal income tax purposes as corporations. Accordingly, under recently
promulgated "check-the-box" regulations, they should be classified as
partnerships for Federal income tax purposes.
Partnership Allocations. Although a partnership agreement will
generally determine the allocation of income and losses among partners, such
allocations will be disregarded for tax purposes under Section 704(b) of the
Code if they do not comply with the provisions of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder as to substantial economic
effect.
If an allocation is not recognized for Federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The Operating Partnership's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. The Properties
contributed directly or indirectly to the Operating Partnership will generally
be appreciated. Pursuant to Section 704(c) of the Code, items of income, gain,
loss, and deduction attributable to appreciated or depreciated property that is
contributed to a partnership in exchange for an interest in the partnership must
be allocated for Federal income tax purposes in a manner such that the
contributor is charged with or benefits from the unrealized gain or unrealized
loss associated with the property at the time of the contribution. The amount of
such unrealized gain or unrealized loss is generally equal to the difference
between the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the time of
contribution. The partnership agreements of the Partnerships will require
allocations of income, gain, loss and deduction attributable to such contributed
property to be made in a manner that is consistent with Section 704(c) of the
Code. Thus, if the Partnerships sell contributed
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property at a gain or loss, such gain or loss will be allocated to the
contributing partner(s) generally to the extent of the precontribution
unrealized gain or loss.
Depreciation. The Partnerships' assets other than cash will consist
largely of appreciated property contributed by its partners. Assets contributed
to a partnership in a tax-free transaction carry over their depreciation
schedules. Accordingly, the Operating Partnership's depreciation deductions for
its real property are based largely on the historic depreciation schedules for
the Properties. The Properties are being depreciated over a range of 15 to 40
years using various methods of depreciation which were determined at the time
that each item of depreciable property was placed in service. Any real property
purchased by the Partnerships will be depreciated over at least 39 years. In
certain instances where a partnership interest rather than real estate is
contributed to the Partnership, the real estate may not carry over its
depreciation schedule but rather may, similarly, be subject to the lengthier
depreciation period.
Section 704(c) of the Code requires that depreciation as well as gain
and loss be allocated in a manner so as to take into account the variation
between the fair market value and tax basis of the property contributed.
Depreciation with respect to any property purchased by the Operating Partnership
subsequent to the admission of its partners, however, will be allocated among
the partners in accordance with their respective percentage interests in the
Partnerships.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. However, under the REIT
requirements, the Company's share as a partner of any gain realized by the
Partnerships on the sale of any property held as inventory or other property
held primarily for sale to customers in the ordinary course of a trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. Such prohibited transaction income will also have an
adverse effect upon the Company's ability to satisfy the income tests for REIT
status. Under existing law, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business is a
question of fact that depends on all the facts and circumstances with respect to
the particular transaction. A safe harbor to avoid classification as a
prohibited transaction exists as to real estate assets held for the production
of rental income by a REIT for at least four years where in any taxable year the
REIT has made no more than seven sales of property or, in the alternative, the
aggregate of the adjusted bases of all Properties sold does not exceed 10% of
the adjusted bases of all of the REIT's properties during the year and the
expenditures includible in a property's net sales price. The Partnerships intend
to hold the Properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating and
leasing
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Properties and to make such occasional sales of the Properties as are consistent
with the Company's and the Operating Partnership's investment objectives. No
assurance can be given, however, that every property sale by the Partnerships
will constitute a sale of property held for investment.
Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as the Company
qualifies as a REIT, distributions made to the Company's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income, and corporate shareholders will not be eligible for the
dividends received deduction as to such amounts. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains or
mid-term capital gains (to the extent they are attributable to the Company's
long-term and mid-term portions of net capital gain for the taxable year)
without regard to the period for which the shareholder has held its Shares.
However, corporate shareholders may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Distributions in excess of current or
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's Shares,
but rather will reduce the adjusted basis of such Shares. To the extent that
such distributions exceed the adjusted basis of a shareholder's Shares, they
will be included in income as long-term capital gain (or short-term capital gain
if the Shares have been held for one year or less or mid-term capital gains if
the Shares have been held for more than one year but not more than 18 months),
assuming the Shares are a capital asset in the hands of the shareholder.
In addition, to the extent, if any, that the Company does not
distribute all its net capital gain in a year, the Company may elect to
designate (in a written notice to shareholders) that such undistributed capital
gain shall nonetheless be treated for Federal income tax purposes as if it had
been distributed proportionately to the Company's shareholders as of the end of
the year and recontributed to the Company's capital. In that case, the
shareholders will be taxed on such gain, but will receive a tax credit for the
tax paid by the Company on the gain, and each shareholder's basis in Shares of
the Company will be increased by the excess of the amount of such gain over the
amount of such tax credit.
In general, a domestic shareholder will realize capital gain or loss on
the disposition of Shares equal to the difference between (i) the amount of cash
and the fair market value of any property received on such disposition and (ii)
the shareholder's adjusted basis of such Shares. Such gain or loss generally
will constitute long-term capital gain or loss if the shareholder has held such
shares for more than eighteen months and mid-term capital gain or loss if the
shareholder has held such Shares for more than one year but not more than
eighteen months. Loss upon a sale or exchange of Shares by a shareholder who has
held such
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Shares for six months or less (after applying certain holding period rules) will
be treated as a long-term capital loss to the extent of distributions from the
Company required to be treated by such shareholder as long-term capital gain.
Under certain circumstances, domestic shareholders may be subject to
backup withholding at the rate of 31% with respect to dividends paid.
Taxation of Tax-Exempt Shareholders. The Company does not expect that
distributions by the Company to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its Shares with
"acquisition indebtedness" within the meaning of the Code and the Shares are not
otherwise used in an unrelated trade or business of the tax-exempt entity.
Taxation of Non-U.S. Shareholders. The rules governing U.S. Federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of such rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisors to determine the impact of U.S. Federal,
state and local income tax laws with regard to an investment in Shares,
including any reporting requirements. In particular, Non-U.S. Shareholders that
are engaged in a trade or business in the United States, and Non-U.S.
Shareholders who are individuals and who were present in the United States for
183 days or more during the tax year and have a "tax home" in the United States,
may be subject to tax rules different from those described below.
Distributions that are not attributable to gain from sales or exchanges
by the Company of U.S. real property interests and not designated by the Company
as capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions, ordinarily, will be subject to a withholding
tax equal to 30% of the gross amount of the distribution unless an applicable
tax treaty reduces that tax. Distributions in excess of current and accumulated
earnings and profits of the Company will not be taxable to a Non-U.S.
Shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Shares, but rather will reduce the adjusted basis of such Shares.
To the extent that such distributions exceed the adjusted basis of a Non-U.S.
Shareholder's Shares, they will give rise to tax liability if the Non-U.S.
Shareholder would otherwise be subject to tax on any gain from the sale or
disposition of Shares as described below (in which case they also may be subject
to a 30% branch profits tax if the shareholder is a foreign corporation). If it
cannot be determined at the time a distribution is made whether or not such
distribution will be in excess of current or accumulated earnings and profits,
the entire distribution will be subject to withholding at the rate applicable to
dividends. However, the
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Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it is
subsequently determined that such distribution was, in fact, in excess of
current or accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions
that are attributable to gain from sales or exchanges by the Company of U.S.
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA")
at the normal capital gain rates applicable to U.S. shareholders (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). Also, distributions subject to FIRPTA
may be subject to a 30% branch profits tax in the hands of a corporate Non-U.S.
Shareholder not entitled to treaty relief or exemption. The Company is required
by applicable Treasury Regulations to withhold 35% of any distribution that is
or could be designated by the Company as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts of undistributed capital gain that are designated by the Company as
deemed distributions (as discussed under "Taxation of Taxable Domestic
Shareholders" above) would be treated with respect to Non-U.S. Shareholders in
the manner outlined in the preceding paragraph for actual distributions by the
Company of capital gain dividends. Under that approach, the Non-U.S.
Shareholders would be able to offset as a credit against their United States
Federal income tax liability resulting therefrom their proportionate share of
the tax paid by the Company on such undistributed capital gains (and to receive
from the IRS a refund to the extent their proportionate share of such tax paid
by the Company were to exceed their actual United States Federal income tax
liability).
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by foreign persons. The Company believes that it is a
"domestically controlled REIT," and, therefore, that the sale of Shares will not
be subject to taxation under FIRPTA. If the gain on the sale of Shares were to
be subject to tax under FIRPTA, the Non-U.S. Shareholder would be subject to the
same treatment as U.S. shareholders with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals), and the purchaser of the Shares would be
required to withhold and remit to the IRS 10% of the purchase price.
Other Tax Considerations
State and Local Taxes. The Company and its shareholders may
be subject to state or local taxation in various state or local
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jurisdictions, including those in which it or they transact business or reside.
The state and local tax treatment of the Company and its shareholders may not
conform to the Federal income tax consequences discussed above. Consequently,
prospective shareholders should consult their own tax advisors regarding the
effect of state and local tax laws on an investment in the Shares of the
Company.
PLAN OF DISTRIBUTION
This Prospectus relates to the offer and sale from time to time of up
to 646,286 Shares that may be issued to holders of Units. The Company will not
receive any of the proceeds from the sale of any Shares by the Selling
Shareholders. The distribution of the Shares may be effected from time to time
in one or more underwritten transactions at a fixed price or prices, which may
be changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Any such
underwritten offering may be on a "best efforts" or a "firm commitment" basis.
In connection with any such underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders or from purchasers of Shares for whom they may act as
agents. Underwriters may sell Shares to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agents.
Under agreements that may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Shares may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Securities Act, or to contribution with respect to
payments which such underwriters, dealers or agents may be required to make in
respect thereof.
The Selling Shareholders and any underwriters, dealers or agents that
participate in the distribution of Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of Shares
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
At a time a particular offer of Shares is made, a Prospectus
Supplement, if required, will be distributed that will set forth the name and
names of any underwriters, dealers or agents, any discounts, commissions and
other terms constituting compensation from the Selling Shareholders and any
other required information.
The sale of the Shares by the Selling Shareholders may also be effected
from time to time by selling the Shares directly to purchasers or to or through
broker-dealers. In connection with any such sale, any such broker-dealer may act
as agent for the Selling Shareholders or may purchase from the Selling
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Shareholders all or a portion of the Shares as principal, and any such sale may
be made pursuant to any of the methods described below. Such sales may be made
on the NYSE or other exchanges on which the Shares are then traded, in the
over-the-counter market, in negotiated transactions or otherwise at prices and
at terms then prevailing or at prices related to the then-current market prices
or at prices otherwise negotiated.
The Shares may also be sold in one or more of the following
transactions: (a) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such Shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (b) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable NYSE or
other stock exchange rules; (d) ordinary brokerage transactions and transactions
in which any such broker-dealer solicits purchasers; (e) sales "at the market"
to or through a market maker or into an existing trading market, on an exchange
or otherwise, for such shares; and (f) sales in other ways not involving market
makers or established trading markets, including direct sales to purchasers. In
effecting sales, broker-dealers engaged by the Selling Shareholders may arrange
for other broker-dealers to participate. Broker-dealers will receive commissions
or other compensation from the Selling Shareholders in amounts to be negotiated
immediately prior to the sale that will not exceed those customary in the types
of transactions involved. Broker-dealers may also receive compensation from
purchasers of the Shares which is not expected to exceed that customary in the
types of transactions involved. The Shares may also be sold pursuant to Rule 144
promulgated under the Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares may be sold only through registered or licensed brokers
or dealers. In addition, in certain states, the Shares may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from such registration or qualification requirement is available and is complied
with.
All expenses incident to the offering and sale of the Shares, other
than commissions, discounts and fees of underwriters, broker-dealers or agents,
will be paid by the Company. The company has agreed to indemnify the Selling
Shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Shares offered hereby will be passed upon for the
Company by Drinker Biddle & Reath LLP. Drinker Biddle & Reath LLP will also pass
on certain federal income tax matters respecting the Company. Sylvan M. Cohen,
Chairman of the Board of the Company, is of counsel to Drinker Biddle & Reath
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LLP. Mr. Cohen is the beneficial owner of 650,291 shares of beneficial
interest.
EXPERTS
The financial statements and financial statement schedules incorporated
by reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The financial statements of Lehigh Valley Associates included in the
Company's Annual Report (Form 10-K) for the years ended August 31, 1996 and 1995
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given the authority of such firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. NEITHER THIS PROSPECTUS SUPPLEMENT NOR THE
PROSPECTUS CONSTITUTES AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------------------------------------
646,286 Shares
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
Shares of Beneficial Interest
TABLE OF CONTENTS
Available Information...............................................1
Incorporation of Certain Documents by Reference.....................1
Cautionary Statement................................................3
The Company.........................................................4
Risk Factors........................................................4
Description of Shares of Beneficial Interest.......................20
Use of Proceeds....................................................24
Summary of the Trust Agreement.....................................24
Summary of the Operating Partnership Agreement.....................28
Selling Shareholders...............................................30
Federal Income Tax Considerations..................................34
Plan of Distribution...............................................44
Legal Matters......................................................45
Experts............................................................46
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses payable by the
Registrant in connection with this Registration Statement.
Securities and Exchange Commission Registration Fee........ $ 4,736
Legal Fees and Expenses.................................... 10,000
Miscellaneous Expenses..................................... 5,000
-------
Total...................................................... $ 19,736
=======
Item 15. Indemnification of Directors and Officers.
The Company's Trust Agreement, as amended, provides that (a) no Trustee
shall be personally liable for monetary damages for any action, or any failure
to take action, except that a Trustee shall remain personally liable for
monetary damages to the same extent that a director of a Pennsylvania business
corporation remains liable under the provisions of 15 Pa. C.S. Section 1713, and
(b) no officer who performs his duties in good faith, in a manner reasonably
believed to be in the best interests of the Company and with such care, skill
and diligence as a person of ordinary diligence would use will not be liable by
reason of having been an officer of the Company.
The Company's Trust Agreement provides that every Trustee and officer
shall be entitled as of right to be indemnified by the Company against
reasonable expense (including attorney's fees) and any liability, loss,
judgment, excise tax, fine, penalties, and settlements paid or incurred by such
person in connection with an actual (whether pending or completed) or threatened
claim, action, suit or proceeding, civil, criminal, administrative,
investigative or other, whether brought by or in the right of the Company or
otherwise, in which he or she may be involved, as a party or otherwise, by
reason of such person's being or having been a Trustee or officer of the Company
or by reason of the fact that such person is or was serving in any capacity at
the request of the Company as a trustee, director, officer, employee, agent,
partner, fiduciary or other representative or another real estate investment
trust, corporation, partnership, joint venture, trust, employee benefit plan or
other entity; provided, however, that no such right of indemnification shall
exist with respect to an action brought by a Trustee or officer against the
Company and further provided that no indemnification shall be made in any case
where the act or failure to act giving rise to the claim for indemnification is
determined by the final judgment of a court of competent jurisdiction to have
constituted willful misconduct or recklessness. The Trust Agreement further
provides that such right to indemnification shall be contractual in nature and
shall include the right to be paid in advance the expenses incurred in
connection with such proceedings; provided, however, that such advance payments
must be made in accordance with applicable law
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<PAGE>
and must be accompanied by an undertaking by or on behalf of such Trustee or
officer to repay all amounts so advanced if it is ultimately determined that
such Trustee or officer is not entitled to be indemnified under the Trust
Agreement.
The Company's By-laws require the Company to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or proceeding, including actions by or in the right of the
Company, whether civil, criminal, administrative or investigative, by reason of
the fact that such person is or was a director or officer of the Company, or is
or was serving while a director or officer of the Company at the request of the
Company as a director, officer, employee, agent, fiduciary or other
representative or another corporation for profit or not-for-profit, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines, excise taxes and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such action or proceeding unless the act or failure to act giving rise to
the claim for indemnification is determined by a court to have constituted
willful misconduct or recklessness. The Company's By-laws also provide that such
right to indemnification shall be contractual in nature and shall include the
right to be paid the expenses (including attorneys fees) incurred in defending
any action or proceeding in advance of the final disposition of such action or
proceeding upon receipt by the Company of an undertaking by or on behalf of such
person to repay such amount if it is ultimately determined that the person is
not entitled to indemnification.
In addition, the Trust Agreement and Pennsylvania law permit the
Company to provide similar indemnification to employees, agents and other
persons who are not Trustees or officers. Pennsylvania law also permits
indemnification in connection with a proceeding brought by or in the right of
the Company to procure a judgment in its favor and requires indemnification in
certain cases where the Trustee or officer is the prevailing party. Certain of
the employment agreements the Company has entered into with its officers provide
for indemnification for such officer. Generally, these contracts require the
Company to indemnify the officer to the fullest extent permitted under the Trust
Agreement. The Operating Partnership Agreement also provides for indemnification
of the Company, the Trustees and the Company's officers for any and all actions
with respect to the Operating Partnership; provided, however, that the Operating
Partnership will not indemnify such parties for (i) wilful misconduct or knowing
violation of the law; (ii) any action where the covered person received an
improper personal benefit in violation or breach of the Operating Partnership
Agreement; (iii) any violation of the Operating Partnership Agreement or (iv)
any liability such person may have to the Operating Partnership under certain
documents delivered in the TRO Transaction. The Company currently maintains
insurance for its Trustees and officers.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to Trustees,
II-2
<PAGE>
officers, or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in that Act and is therefore unenforceable.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit
Number Description
5* Opinion of Drinker Biddle & Reath LLP
8* Opinion of Drinker Biddle & Reath LLP
regarding tax matters
23.1* Consent of Arthur Andersen LLP
(Independent Public Accountants of the
Company)
23.2* Consent of Ernst & Young LLP
(Independent Auditors of Lehigh Valley
Associates)
23.3* Consent of Zelenkofske Axelrod and
Co., Ltd (Independent Auditors of
Oxford Valley Road Associates)
23.4* Consent of Drinker Biddle & Reath LLP (included in
Exhibits 5 and 8)
24* Powers of Attorney -- Included on
signature page.
- -----------------
* Previously filed
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represents a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in the volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than
II-3
<PAGE>
20 percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in
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<PAGE>
the Act and will be governed by the final adjudication of such
issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
May 19, 1998.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
By: /s/ Jonathan B. Weller
-------------------------------------
Jonathan B. Weller,
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
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<PAGE>
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Sylvan M. Cohen* Chairman of the Board May 19, 1998
- ------------------------ and Trustee
Sylvan M. Cohen
/s/ Ronald Rubin* Chief Executive Officer May 19, 1998
- ------------------------ and Trustee
Ronald Rubin
/s/ Jonathan B. Weller President, Chief May 19, 1998
- ------------------------ Operating Officer and
Jonathan B. Weller Trustee
/s/ William R. Dimeling* Trustee May 19, 1998
- ------------------------
William R. Dimeling
/s/ Rosemarie B. Greco* Trustee May 19, 1998
- ------------------------
Rosemarie B. Greco
/s/ Lee H. Javitch* Trustee May 19, 1998
- ------------------------
Lee H. Javitch
/s/ Leonard I. Korman* Trustee May 19, 1998
- ------------------------
Leonard I. Korman
/s/ Jeffrey P. Orleans* Trustee May 19, 1998
- ------------------------
Jeffrey P. Orleans
/s/ George F. Rubin* Trustee May 19, 1998
- ------------------------
George F. Rubin
/s/ Edward A. Glickman* Executive Vice President May 19, 1998
- ------------------------ and Chief Financial
Edward A. Glickman Officer
/s/ Dante J. Massimini* Senior Vice President - May 19, 1998
- ------------------------ Finance and Treasurer
Dante J. Massimini (Chief Accounting
Officer)
</TABLE>
* By: /s/ Jonathan B. Weller
----------------------
Jonathan B. Weller
Attorney in Fact
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
5* Opinion of Drinker Biddle & Reath LLP
8* Opinion of Drinker Biddle & Reath LLP
regarding tax matters
23.1* Consent of Arthur Andersen LLP
(Independent Public Accountants of the
Company)
23.2* Consent of Ernst & Young LLP
(Independent Auditors of Lehigh Valley
Associates)
23.3* Consent of Zelenkofske Axelrod and
Co., Ltd (Independent Auditors of
Oxford Valley Road Associates)
23.4* Consent of Drinker Biddle & Reath LLP (included in
Exhibits 5 and 8)
24* Powers of Attorney -- Included on
signature page.
- --------------
* Previously filed
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