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PROSPECTUS
1,300,000 SHARES [LOGO]
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN
The Distribution Reinvestment and Share Purchase Plan (the "Plan") of
Pennsylvania Real Estate Investment Trust (the "Trust") provides holders of
record and beneficial owners of shares of beneficial interest, $1.00 par value
per share, in the Trust (the "Shares") ("Eligible Shareholders"), with a simple
and convenient method of investing cash dividends made on Shares and cash
distributions made on units of limited partner interest in PREIT Associates,
L.P. ("Units") (together with dividends, "Distributions") in additional Shares
at the market price of the Shares less a discount of 1%. Shares may also be
purchased on a monthly basis with optional cash payments made by Eligible
Shareholders and interested new investors, not currently shareholders of the
Trust, ("Interested New Investors," together with Eligible Shareholders,
"Participants") at the market price of the Shares less a discount of 1% for
optional cash payments of not less than $250 and up to $5,000 per month and a
discount ranging between 0% and 5% (the "Discount") (as determined in accordance
with the Plan) for optional cash payments made pursuant to accepted Requests for
Waiver, to the extent Shares are purchased directly from the Trust.
Brokers and nominees may reinvest Distributions and make optional cash
payments on behalf of beneficial owners. Those holders of Shares who do not
participate in the Plan will receive cash Distributions, as declared, in the
usual manner.
To enroll in the Plan, simply complete the enclosed Authorization Form
and return it in the envelope provided. Enrollment in the Plan is entirely
voluntary and Participants may terminate their participation at any time. A
broker, bank or other nominee may reinvest Distributions and make optional cash
payments on behalf of beneficial owners.
A Participant may obtain additional Shares by:
o reinvesting Distributions relating to all or
part of the Shares held by the Participant; provided,
however, that Distributions in excess of $25,000 may
be reinvested only with the permission of the Trust.
o making optional cash payments of not less than
$250 and up to $5,000 per month whether or not
Distributions on Shares held by the Participant are
being reinvested.
o making optional cash payments in excess of
$5,000 per month, with the permission of the Trust,
whether or not Distributions on Shares held by the
Participant are being reinvested.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE SHARES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is March 19, 1999
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Optional cash payments in excess of $5,000 may be made only pursuant to
accepted Requests for Waiver. We expect that a portion of the Shares available
for issuance will be issued pursuant to such waivers. Each month, at least three
business days prior to the record date relating to optional cash payments for
such month (the "Optional Cash Payment Due Date"), the Trust will establish the
Threshold Price, if any (as defined in Question 17), applicable to optional cash
payments that exceed $5,000. The price to be paid for Shares purchased pursuant
to Requests for Waiver will be the applicable Market Price (as defined in
Question 12) less the Discount (see Question 12).
There is no pre-established maximum limit applicable to optional cash
payments that may be made pursuant to accepted Requests for Waiver. The
reinvestment of Distributions in additional Shares will not be subject to the
Threshold Price, if any. Participants in the Plan may request that any or all of
their shares held in Plan accounts be sold by the Plan Administrator at a
nominal charge to the Participant. See Question 27.
To the extent that Shares issued hereunder are authorized but
previously unissued shares rather than shares acquired in the open market, the
Plan will raise additional capital for the Trust. The Trust currently intends to
issue such shares and, therefore, the Plan is expected to raise capital for the
Trust. Each month a portion of the Shares available for issuance under the Plan
may be purchased by Participants (including brokers or dealers) who, in
connection with any resales of the Shares, may be deemed to be underwriters
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). These sales will be effected through the Trust's ability to waive limits
applicable to the amounts that Participants may invest pursuant to the Plan's
optional cash payment feature.
From time to time, financial intermediaries, including brokers and
dealers, may engage in positioning transactions in order to benefit from the
Discount from the Market Price of the Shares acquired through the optional case
payment feature of the Plan. Such transactions may cause fluctuations in the
price or trading volume of the Shares. Financial intermediaries that engage in
positioning transactions may be deemed to be underwriters within the meaning of
the Securities Act.
This Prospectus relates to 1,300,000 Shares offered hereby and
registered for sale under the Plan. Participants should retain this Prospectus
for future reference.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Trust under the
Securities Act with the Securities and Exchange Commission (the "Commission")
and are incorporated herein by reference:
1. The Trust's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997, filed on November 28, 1997, (amended by Form 10-K/A-1 filed on
December 15, 1997). The description of the Trust's Shares of Beneficial Interest
contained in the Registration Statement on Form 8-A/12(b)/A-1 dated November 13,
1997 filed on November 13, 1997 (amended December 17, 1997).
2. The Trust's definitive proxy statement for the Annual Meeting of
Shareholders on December 16, 1997, filed on November 18, 1997.
3. The Trust's definitive proxy statement for its Special Meeting of
Shareholders on September 29, 1997, filed on August 28, 1997.
4. The Trust's Current Reports on Form 10-Q for the four month period
ending December 31, 1997, dated February 17, 1998, filed February 17, 1998; for
the three month period ending December 31, 1997, dated February 17, 1998, filed
February 17, 1998 (amended February 19, 1998); for the three month period ending
March 31, 1998, dated March 31, 1998, filed May 15, 1998; for the three month
period ending June 30, 1998, dated June 30, 1998, filed August 14, 1998; and for
the three month period ending September 30, 1998, dated September 30, 1998,
filed November 13, 1998.
5. The Trust's Current Reports on Form 8-K dated September 29, 1997
filed October 14, 1997; dated December 2, 1997 filed December 2, 1997; dated
December 16, 1997 filed December 17, 1997; dated December 17, 1997 filed
December 22, 1997; dated August 7, 1998 filed August 13, 1998 (amended September
29, 1998); dated September 17, 1998 filed October 2, 1998 (amended November 9,
1998); dated August 27, 1998 filed October 9, 1998 (amended November 9, 1998);
dated December 18, 1998 filed December 31, 1998; and dated December 23, 1998
filed January 7, 1999 (amended March 8, 1999).
All documents filed subsequent to the date of this Prospectus pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (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.
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The Trust will provide without charge to each person 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, The Bellevue, 200 S. Broad Street,
Philadelphia, Pennsylvania 19102, Attention: Jeffrey A. Linn, Senior Vice
President-Acquisitions and Secretary, telephone: (215) 875-0700.
The Trust is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Trust 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,
by calling 1-800-SEC-0300. The Commission also maintains an Internet web site at
http://www.sec.gov that contains reports, proxy statements and other
information. In addition, the Trust's Shares are listed on the New York Stock
Exchange and such reports, proxy statements and other information concerning the
Trust can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Trust 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, 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 Trust and the Shares, reference
is hereby made to the Registration Statement and such exhibits and schedules
that may be obtained from the Commission at its principal office in Washington,
D.C. upon payment of the fees prescribed by the Commission.
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CAUTIONARY STATEMENT
In this Prospectus and in reports incorporated herein, we use
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, which are referred to under
the securities laws as "forward-looking statements."
Our forward-looking statements are affected by known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to differ materially from the results, performance and
achievements expressed or implied by our forward-looking statements. Some (but
not all) of these risks, uncertainties and factors are discussed in this
Prospectus. However, we disclaim any obligation to update this discussion or to
announce publicly the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
THE COMPANY
As used herein, unless the context indicates otherwise, the term
"Company" includes the Trust, PREIT Associates, L.P. (the "Operating
Partnership") and their subsidiaries and affiliates, including PREIT-RUBIN, Inc.
(formerly The Rubin Organization, Inc.), a real estate management company in
which the Company owns 95% of the economic interests in the form of non-voting
common shares (together with its predecessors, "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 that 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 its current interest in PREIT-RUBIN,
Inc. (formerly known as 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 (a "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, among other things, at least 95% of its
real estate investment trust taxable income, excluding any net capital gain, is
so distributed.
The Trust is a Pennsylvania business trust created in Pennsylvania as
an unincorporated association in business trust form 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 Trust's principal
executive offices are located at The Bellevue, 200 S. Broad St., Philadelphia,
Pennsylvania, 19102, telephone: (215) 875-0700. The Company has regional offices
in Maitland, Florida; Chicago, Illinois; and Atlanta, Georgia.
Our world wide web site is www.PREIT.com. The information on our web
site is not incorporated by reference into this prospectus.
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RISK FACTORS
Before you decide to invest, you should consider carefully the risks
described below, together with the information provided in the other parts of
this Prospectus. Our ability to make expected distributions to shareholders and
debt service payments to lenders, as well as our prospects as a whole, could be
affected by any or all of these factors or others not mentioned below.
Real Estate Industry
General. We may be affected adversely by general economic conditions
and local real estate conditions. For example, an oversupply of retail space or
apartments in a local area or a decline in the attractiveness of our properties
to shoppers, residents or tenants would have a negative effect on us.
Other factors that may affect general economic conditions or local real
estate conditions include:
o population trends
o income tax laws
o availability and costs of financing
o construction costs
Competition. The real estate business is highly competitive. We compete
for interests in properties with other real estate investors and purchasers,
many of whom have greater financial resources, revenues and geographical
diversity than we do. Furthermore, we compete for tenants with other property
owners. Our apartment properties portfolio competes with providers of other
forms of housing, such as single family housing. Competition from single family
housing increases when lower interest rates make mortgages more affordable. All
of our shopping center and apartment properties are subject to significant local
competition.
Regulation. Local zoning and use laws, environmental statutes and other
governmental requirements restrict our expansion, rehabilitation and
reconstruction activities. These regulations may prevent us from taking
advantage of economic opportunities.
Legislation such as the Americans with Disabilities Act may require us
to modify our properties. Future legislation may impose additional requirements.
We cannot predict what requirements may be enacted.
Inflation. The effect of inflation on our operations and investment
portfolio is mixed. On one hand, inflation increases rents by increasing the
tenant revenues upon which percentage rentals are based. Fixed rentals also
increase, reflecting higher costs for construction renovations and
rehabilitation. On the other hand, inflation increases our expenses.
Renewal of Leases and Reletting of Space. When a lease expires, a
tenant may refuse to renew it. We may not be able to relet the property on
similar terms, if we are able to relet the
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property at all. We have established an annual budget for renovation and
reletting expenses that we believe is reasonable in light of each property's
operating history and local market characteristics. This budget, however, may
not be sufficient to cover these expenses.
Bankruptcy and Failure To Make Rent Payments. At any time, a tenant may
experience a downturn in its business that may weaken its financial condition.
As a result, the tenant may fail to make rental payments when due, or may
declare bankruptcy. Either event could result in the termination of that
tenant's lease and material losses to us.
The Company's Properties
Development. There are risks associated with our development activities
in addition to those generally associated with the ownership and operation of
established shopping centers and multifamily properties. These risks include:
o expenditure of money and time on projects that may never be completed
o higher than estimated construction costs
o late completion because of unexpected delays in zoning approvals,
other land use approvals, construction or other factors outside of
our control
o failure to obtain zoning, occupancy or other governmental approvals
The risks described above are compounded by the fact that we must
distribute 95% of our taxable income in order to maintain our qualification as a
REIT. As a result of these distribution requirements, new developments are
financed primarily through lines of credit or other forms of construction
financing. Because we incur debt to finance the developments, our loss could
exceed our equity investment in the developments.
Furthermore, we must acquire and develop suitable high traffic retail
sites at costs consistent with the overall economics of the project. Because
retail development is extremely competitive, there is no assurance that we can
contract for appropriate sites within our geographic markets.
Maintenance and Renovation. Many of the properties in which we have an
interest were constructed more than 15 years ago. We generally spend more on
maintenance of these older properties than we do on newer properties. Because
older properties may be obsolete in some respects, they may generate lower
rentals or may require significant capital expense for renovations. Some
apartments lack amenities that are customarily included in modern construction,
such as dishwashers, central air conditioning and microwave ovens. Some
facilities are difficult to lease because they are too large, too small or
inappropriately proportioned for today's market. We generally consider
renovation of properties when renovation will enhance or maintain the long-term
value of those properties.
Recently Acquired Properties. Subject to the availability of financing
and other considerations, we intend to continue to acquire interests in
properties that we believe will be profitable or will enhance the value of our
portfolios. Some of these properties may have unknown characteristics or
deficiencies. Therefore, it is possible that some properties will be
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worth less or will generate less revenue than we believe at the time of
acquisition. It is also possible that the operating performance of some of our
properties will decline.
To manage our growth effectively, we must integrate successfully new
acquisitions. We cannot assure you that we will be able to integrate
successfully or manage effectively additional properties.
When we acquire properties, we also take on other risks, including:
o financing risks (some of which are described below)
o the risk that anticipated occupancy or rent levels won't be met
o the risk that required zoning, occupancy and other governmental
approvals won't be obtained
o the risk that there will be changes in applicable zoning and land
use laws that affect adversely the operation or development of our
properties
Shopping Centers. We receive a substantial portion of our shopping
center income as rents under long-term leases. If retail tenants are unable to
comply with the terms of their leases because of rising costs or falling sales,
we may modify lease terms to allow tenants to pay a lower rental or a smaller
share of operating costs and taxes.
Casualty Insurance. We generally maintain casualty insurance on our
assets. We believe that our insurance is adequate. However, we would be required
to bear all losses to the properties that are not adequately covered by
insurance. We cannot assure you that we can obtain insurance in the future at
acceptable levels and reasonable cost.
Financing
General. We finance parts of our operations and acquisitions through
debt. This debt creates risks, including:
o rising interest rates on our floating rate debt
o failure to prepay or refinance existing debt, which may result
in forced
disposition of properties on disadvantageous terms
o refinancing terms less favorable than the terms of existing debt
o failure to meet required payments of principal and interest
Credit Facility. We currently use an unsecured credit facility for
working capital, acquisitions, renovations and capital improvements to our
properties. The credit facility currently requires PREIT Associates, the
operating partnership through which our properties are held, to maintain certain
asset and income to debt ratios and minimum income and net worth levels. If
PREIT Associates fails to meet any one or more of these requirements, we would
be in default. The lenders, in their sole discretion, may waive a default. We
might secure alternative or substitute financing. We cannot assure you, however,
that we can obtain waivers or alternative financing. Any default may have a
materially adverse effect on our operations and financial condition.
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We expect to use our credit facility from time to time for
acquisitions, renovations and capital improvements to our properties. When the
credit markets are tight, we may encounter resistance from lenders when we seek
financing or refinancing for some of our properties. If the credit facility is
reduced significantly or withdrawn, our operations would be affected adversely.
If we are unable to increase our borrowing capacity under the credit facility,
our ability to make acquisitions and grow would be affected adversely. We cannot
give assurance as to the availability or terms of financing for any particular
property.
We have entered into agreements limiting the interest rate on portions
of our credit facility. If other parties to these agreements fail to perform as
required by the agreements, we may suffer credit loss.
Partnerships and Joint Ventures. The profitability of each partnership
or joint venture in which we are a partner or co-venturer that has short-term
financing or debt requiring a balloon payment is dependent on the availability
of long-term financing on satisfactory terms. If satisfactory financing is not
available, we may have to rely upon other sources of short-term financing,
equity contributions or the proceeds of refinancing of existing properties 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 that has been guaranteed in
whole or in part by the Company in order to protect its equity interest in such
property owned by such partnership or joint venture. Additionally, the Company
may determine to pay a partnership's or joint venture's obligation in order to
protect the Company's equity interest in its assets.
Governance
Partnerships and Joint Ventures. Generally, we hold interests in our
portfolio properties through PREIT Associates. In many cases we hold properties
through joint ventures or partnerships with third-party partners and joint
venturers and, thus, we hold less than 100% of the ownership interests in such
properties. Of the properties with respect to which our ownership is partial,
most are owned by partnerships in which we are a general partner. The remaining
properties are owned by joint ventures in which we have substantially the same
powers as a general partner. Under the terms of the partnership and joint
venture agreements, major decisions, such as a sale, lease, refinancing,
expansion or rehabilitation of a property, or a change of property manager,
require the consent of all partners or co-venturers. Because decisions must be
unanimous, necessary actions may be delayed significantly. It may be difficult
or even impossible to change a property manager if a partner or co-venturer is
serving as property manager.
Business disagreements with partners may arise. The Company may incur
substantial expenses in achieving a resolution of such disputes. To preserve its
investment, the Company may be required to make commitments to or on behalf of a
partnership or venture during a dispute. Moreover, we cannot assure you that the
Company's resolution of a dispute with a partner will be on terms that are
favorable to the Company.
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We guarantee the debt of some partnerships and joint ventures so that
those partnerships and joint ventures can obtain financing. Therefore, even
though we do not own the entire interest in properties owned by partnerships or
joint ventures, we may be required to repay all the debt owed by a partnership
or venture. We may also do so to protect our interest in the properties owned by
the partnership or venture.
Other risks of investments in partnerships and joint ventures include:
o partners or co-venturers might become bankrupt or fail to fund their
share of required capital contributions
o partners or co-venturers might have business interests or goals that
are inconsistent with our business interests or goals
o partners or co-venturers may be in a position to take action
contrary to our policies or objectives
o potential liability for the actions of our partners or co-venturers
Restrictions on Change-in-Control. The Trust Agreement that governs the
Company restricts the possibility of sale or change in control of the Company,
even if a sale or change in control were in the shareholders' interest. These
restrictions include the ownership limit designed to ensure qualification as a
REIT, the staggered terms of our Trustees and our ability to issue preferred
shares.
Restrictions on Sales of Properties. Because certain limited partners
of PREIT Associates may suffer adverse tax consequences if certain properties
owned by PREIT Associates are sold, the Trust, as the general partner of PREIT
Associates, has agreed from time to time, subject to certain exceptions, that
the consent of the holders of a majority (or all) of certain limited partner
interests issued by PREIT Associates in exchange for a property is required
before that property may be sold. These agreements may result in our being
unable to sell one or more properties, even in circumstances in which it would
be advantageous to do so. See "Summary of the Operating Partnership Agreement --
Other Rights."
Issuance of Preferred Shares. The Trust's Board of Trustees may issue
up to 25,000,000 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. Because the Board of Trustees has the power
to establish the preferences and rights of the preferred shares, preferred
shares may have preferences, distributions, powers and rights senior to the
rights of holders of Shares.
Changes in Policies Without Shareholder Approval. The Board of Trustees
determines the growth, investment, financing, capitalization, borrowing, REIT
status, operating and distribution policies of the Trust. Although the Board of
Trustees has no present intention to amend or revise any of these policies,
these policies may be amended or revised without notice to shareholders.
Accordingly, shareholders may not have control over changes in the Company's
policies. We cannot assure you that changes in our policies will serve fully the
interests of all shareholders.
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PREIT Associates; Required Vote of Limited Partners on Fundamental
Changes. Our assets are generally held through PREIT Associates, a Delaware
limited partnership whose sole general partner is the Trust. The Trust currently
holds a majority of the limited partner interests in PREIT Associates. However,
PREIT Associates may from time to time issue additional limited partner
interests in PREIT Associates to third parties in exchange for contributions of
property to PREIT Associates. These issuances will dilute the Trust's percentage
ownership of PREIT Associates. Limited partner interests in PREIT Associates
generally do not carry a right to vote on any matter voted on by our
shareholders (although limited partner interests may, under certain
circumstances, be redeemed for Shares). However, prior to the date on which at
least half of the partnership interests issued on September 30, 1997 have been
redeemed, the holders of partnership interests issued on September 30, 1997 are
entitled to vote, along with the Trust's shareholders, on any proposal to merge,
consolidate or sell substantially all of the Company's assets. The Trust's
partnership interests are not included for purposes of determining when half of
the partnership interests have been redeemed, nor are they counted as votes.
There can be no assurances that the Trust will not agree to extend comparable
rights to other limited partners in PREIT Associates.
Dependence on Ronald Rubin. We are dependent on the efforts of Ronald
Rubin, our Chief Executive Officer. The loss of his services could have an
adverse effect on our operations. If Mr. Rubin were to terminate his employment,
his current employment agreement with us would prevent him from becoming an
employee of one of our competitors for one year.
PREIT-RUBIN
Lack of Control of PREIT-RUBIN. Although PREIT Associates owns 95% of
the equity interests in our management affiliate, 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. PREIT-RUBIN employees are entitled to vote the common
shares vested in their accounts in the stock bonus plan on fundamental
transactions such as a merger or sale of assets. A Stock Bonus Plan Committee
votes the shares in the stock bonus plan on all other matters. PREIT-RUBIN's
Board of Directors appoints the Stock Bonus Plan Committee's members. Thus, the
Trust does not control the day-to-day operations of PREIT-RUBIN and has no legal
power to influence the manner in which it performs its management obligations,
seeks and accepts new business or otherwise determines its business strategy.
Third-Party Management Business. PREIT-RUBIN manages a substantial
number of properties owned by third parties. Risks associated with the
management of properties owned by third parties include:
o the property owner's termination of the management contract
o loss of the management contract in connection with a property sale
o non-renewal of the management contract upon expiration
o renewal of the management contract on terms less favorable than
current terms
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o decline in management fees as a result of general real estate market
conditions or local market factors
Conflicts of Interest. There are numerous potential conflicts of
interest relating to our investment in PREIT-RUBIN. The interest of those
members of our management who are also PREIT-RUBIN affiliates may diverge from
the interests of the shareholders.
PREIT-RUBIN's employees work on behalf of the Company. However,
PREIT-RUBIN will continue to render management, development, leasing and related
services to a substantial number of properties in which affiliates of
PREIT-RUBIN retain equity interests. We believe that PREIT-RUBIN's management
arrangements with these entities are on terms at least as favorable to
PREIT-RUBIN as the average of management arrangements with parties unrelated to
PREIT-RUBIN. In addition, PREIT-RUBIN leases substantial office space from
entities in which our affiliates have an interest.
Dependence on Primary Markets
All but one of our properties are located in the eastern United States.
A majority of the properties are located either in Pennsylvania or Florida.
General economic conditions and local real estate conditions in these geographic
regions have a particularly strong effect on us. Other REITs may have a more
geographically diverse portfolio and thus may be less susceptible to downturns
in one or more regions.
Environmental Liabilities
Current and former real estate owners and operators may be required by
law to investigate and clean up hazardous substances released at the properties
they own or operate. They may also be liable to the government or to third
parties for substantial property damage, investigation costs and cleanup costs.
In addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs the government incurs in
connection with the contamination. Contamination may affect adversely the
owner's ability to sell or lease real estate or to borrow with the real estate
as collateral.
From time to time, the Company responds to inquiries from environmental
authorities with respect to properties both currently and formerly owned by the
Company. Discussion of pending and recently completed environmental
investigations of the Company can be found in the Company's quarterly, annual
and various other public filings. We cannot assure you of the results of pending
investigations, but we do not believe that resolution of these matters will have
a material adverse effect on the Company's financial condition or results of
operations.
Since 1987, the Company has attempted to protect itself against
environmental liabilities by conducting an environmental study on each property
it seeks to acquire. In 1997 and 1998, the Company performed environmental
studies on each of the properties in which it had an interest when such studies
were performed. Despite these measures, the Company may be liable for presently
unknown environmental conditions at these properties or at properties formerly
owned by the Company. The Company cannot know the magnitude of this potential
liability.
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A number of the Company's properties contain asbestos in limited
concentrations or in limited areas. Where radon has been identified as a
potential concern, the Company generally has remediated the situation 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 future liabilities associated with
asbestos, radon and lead-based paint at these properties will be material, but
we cannot assure you that they will not.
The Company has no insurance coverage for the types of environmental
liabilities described above. The Company maintains a reserve on its books for
these matters. We cannot assure you that this reserve will be sufficient to
cover the cost of environmental liabilities.
Legal Proceedings
From time to time, the Company is a plaintiff or defendant in various
cases arising out of its usual and customary business of owning and investing in
real estate, both directly and through joint ventures and partnerships.
Discussion of the Company's pending and recently completed litigation can be
found in the Company's quarterly, annual and various other public filings. We
cannot assure you of the results of pending litigation, but we do not believe
that resolution of these matters will have a material adverse effect on the
Company's financial condition or results of operations.
Certain Tax Risks
Tax Liabilities as a Consequence of a Failure to Qualify as a REIT. If
we fail to qualify as a REIT, we will be subject to Federal income tax at
regular corporate rates. In addition, we might be barred from qualification as a
REIT for the four years following disqualification. The additional tax incurred
at regular corporate rates would reduce significantly the cash flow available
for distribution to shareholders and for debt service. See "Federal Income Tax
Considerations - Taxation of the Company."
To qualify as a REIT, we must comply with certain highly technical and
complex requirements. We cannot be certain we have complied because there are
few judicial and administrative interpretations of these provisions. In
addition, facts and circumstances that may be beyond our control may affect our
ability to qualify as a REIT. We can give you no assurance that new legislation,
regulations, administrative interpretations or court decisions will not change
the tax laws significantly with respect to our qualification as a REIT or with
respect to the federal income tax consequences of qualification. We believe that
we have qualified as a REIT since our inception and intend to continue to
qualify as a REIT. However, we can give you no assurance that we have been
qualified or will remain qualified.
REIT Distribution Requirements. To obtain the favorable tax treatment
associated with qualifying as a REIT, we are required each year to distribute to
our shareholders at least 95% of our net taxable income. See "Federal Income Tax
Considerations-Taxation of the Company--Annual Distribution Requirements." We
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 conditions were not favorable for borrowing.
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Factors Affecting Share Price
A number of factors may influence adversely the price of our Shares in
the public markets. These factors include:
o increases in market interest rates, which may lead purchasers of
shares to demand from us a higher annual yield from distributions
o the relatively low daily trading volume of the Shares, which means
that efforts to sell and sales of even relatively small amounts of
Shares can have a depressive effect on trading prices
o failure to invest the proceeds of a future offering of securities in
a manner that will increase earnings
o sales of a substantial number of Shares, or the perception that such
sales could occur
o issuance of additional Shares, including those reserved for issuance
according to stock option plans and other obligations.
Year 2000 Issues
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed at a time when
data storage was expensive, and the impact of the upcoming century change was
not considered. As a result of this dating limitation, many programs, if not
corrected, may fail or provide inaccurate results at and after the turn of the
century. We (and tenants that provide us with a significant percentage of our
income) use information systems and systems imbedded in certain equipment that
carry two digit dating and are thus susceptible to partial or total failure
after December 31, 1999.
To assess and address the Company's internal systems, we have
established a Year 2000 remediation plan consisting of the following phases:
o inventorying our systems and devices (including information
technology ("IT") and non-IT systems) that are vulnerable to the
Year 2000 problem
o assessing the criticality of the inventoried items
o remediating the non-compliant items
o testing the corrections that have been applied
We have completed the first phase of our remediation plan for our IT
systems. We believe that our accounting and payroll systems, which we believe to
be our mission critical systems, are Year 2000 compliant. The amount of
remediation effort has not and is not anticipated to be extensive due to our use
of readily available, off-the-shelf software and hardware products that are
supported by the manufacturers. In addition, we are in the first phase of the
remediation plan for our non-IT systems (such as elevators, HVAC and lighting
systems) and are currently completing an inventory of non-IT systems and
assessing the potential risks of
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noncompliance. After evaluating our required compliance efforts, appropriate
contingency plans will be developed based on the outcome of the assessment phase
and a survey of some of our major suppliers and tenants. We expect to complete
the Year 2000 remediation plan, including final testing, by the beginning of the
fourth quarter of 1999. All of our costs related to Year 2000 remediation are
expensed as incurred. Some of our business partners, suppliers and tenants are
also being surveyed as to their Year 2000 compliance readiness.
Although we believe our Year 2000 remediation plan will be adequate to
address the Year 2000 issue, we cannot assure you that this is so. If the
required remediation efforts are not made, or are not completed timely or if our
tenants experience material Year 2000 problems in their own operations, the Year
2000 issue could have a material impact on our operations.
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DESCRIPTION OF THE PLAN
The Plan provides Participants with a convenient and attractive method
of investing cash Distributions and optional cash payments in additional Shares
without payment of any brokerage commissions or service charges. The price to be
paid for Shares purchased under the Plan will be a price reflecting a 1%
discount from the Market Price (as defined in Question 12) for the reinvestment
of cash Distributions and for optional cash payments that do not exceed $5,000,
and a price reflecting a discount ranging between 0% and 5% (the "Discount")
from the Market Price for the investment of optional cash payments made pursuant
to Requests for Waiver, to the extent shares are purchased directly from the
Trust. The Discount is subject to change (but will not vary from the range of
between 0% and 5%) from time to time or discontinuance at the Trust's discretion
after a review of current market conditions, the level of participation in the
Plan and the Trust's current and projected capital needs.
Subject to the availability of Shares registered for issuance under the
Plan, there is no minimum or maximum limitation on the amount of Distributions a
Participant may reinvest under the Plan; provided that Distributions in excess
of $25,000 may be reinvested only with the permission of the Trust. See
Question 2.
Participants electing to invest optional cash payments in additional
Shares are subject to a minimum per month purchase limit of $250 and a maximum
per month purchase limit of $5,000 (subject to waiver). See Question 17.
Optional cash payments in excess of $5,000 may be made only upon acceptance by
the Trust of a completed Request for Waiver form from a Participant. See
Question 17. Each month, at least three business days prior to each Optional
Cash Payment Due Date (as defined in Question 18), the Trust will establish the
Discount and Threshold Price, if any (each as defined in Question 17),
applicable to optional cash payments pursuant to Requests for Waiver. The
Discount, which may vary each month, will be established in the Trust's sole
discretion after a review of current market conditions, the level of
participation in the Plan and the Trust's current and projected capital needs.
With respect to optional cash payments for purchases pursuant to Requests for
Waiver only, for each Trading Day of the related Pricing Period (each as defined
in Question 12) on which the Threshold Price is not satisfied, one-twelfth of a
Participant's optional cash payment will be returned without interest. Optional
cash payments that do not exceed $5,000 and the reinvestment of Distributions in
additional Shares will receive a discount of 1% and will not be subject to the
Threshold Price, if any. Optional cash payments of less than $250 and that
portion of any optional cash payment which exceeds the maximum monthly purchase
limit of $5,000, unless such limit has been waived, are subject to return to the
Participant without interest. Participants may request that any or all shares
held in the Plan be sold by the Plan Administrator on behalf of such
Participants, at a nominal charge to the Participant. See Question 27.
Subject to the availability of Shares registered for issuance under the
Plan, there is no total maximum number of shares that can be issued pursuant to
the reinvestment of Distributions, provided that Distributions in excess of
$25,000 may be reinvested only with the permission of the Trust, and no
preestablished maximum limit applies to optional cash payments that may be made
pursuant to Requests for Waiver. As of the date hereof, 1,300,000 Shares have
been registered and are available for sale under the Plan.
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The Trust expects to grant Requests for Waiver to Participants that are
financial intermediaries, including brokers and dealers, and other Participants
in the future. Grants of Requests for Waiver will be made in the sole discretion
of the Trust based on a variety of factors, which may include: the Trust's
current and projected capital needs, the alternatives available to the Trust to
meet those needs, prevailing market prices for Shares, general economic and
market conditions, expected aberrations in the price or trading volume of the
Shares, the potential disruption of the price of the Shares by a financial
intermediary, the number of Shares held by the Participant submitting the waiver
request, the past actions of a Participant under the Plan, the aggregate amount
of optional cash payments for which such waivers have been submitted and the
administrative constraints associated with granting such waivers. If such
Requests for Waiver are granted, a portion of the Shares available for issuance
under the Plan will be purchased by Participants (including brokers or dealers)
who, in connection with any resales of such Shares, may be deemed to be
underwriters within the meaning of the Securities Act. To the extent that
Requests for Waiver are granted, it is expected that a greater number of Shares
will be issued under the optional cash payment feature of the Plan as opposed to
the Distribution reinvestment feature of the Plan.
Financial intermediaries may purchase a significant portion of the
Shares issued pursuant to the optional cash payment feature of the Plan. The
Trust does not have any formal or informal understanding with any such
organizations and, therefore, the extent of such financial intermediaries'
participation under the Plan cannot be estimated at this time. Participants that
are financial intermediaries that acquire Shares under the Plan with a view to
distribution of such Shares or that offer or sell Shares for the Trust in
connection with the Plan may be deemed to be underwriters within the meaning of
the Securities Act.
From time to time, financial intermediaries, including brokers and
dealers, may engage in positioning transactions in order to benefit from the
discount from the Market Price of the shares of Shares acquired through the cash
payment feature of the Plan. Such transactions may cause fluctuations in the
price or trading volume of the Shares. Financial intermediaries that engage in
positioning transactions may be deemed to be underwriters within the meaning of
the Securities Act. The Plan is intended for the benefit of investors in the
Trust and not for individuals or investors who engage in transactions that may
cause aberrations in the price or trading volume of the Shares.
The Plan
The Plan was adopted by the Board of Trustees of the Trust on February
2, 1999. The following questions and answers explain and constitute the Plan.
Shareholders who do not participate in the Plan will receive cash Distributions,
as declared and paid in the usual manner.
Purpose
1. What is the purpose of the Plan?
The primary purpose of the Plan is to provide Participants with a
convenient and simple method of increasing their investment in the Trust by
investing cash Distributions in additional
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Shares without payment of any brokerage commission or service charge, to the
extent shares are purchased directly from the Trust, and by investing optional
cash payments in additional Shares without payment of any brokerage commission
or service charge. See Question 5 for a description of the holders who are
eligible to participate in the Plan. The Plan may also be used by the Trust to
raise additional capital through the sale each month of a portion of the shares
available for issuance under the Plan to Eligible Shareholders and Interested
New Investors (including brokers or dealers) who, in connection with any resales
of such shares, may be deemed to be underwriters. These sales will be effected
through the Trust's ability to waive limitations applicable to the amounts that
Participants (as defined in Question 2) may invest pursuant to the Plan's
optional cash payment feature.
See Question 17 for information concerning limitations applicable to
optional cash payments and certain of the factors considered by the Trust in
granting waivers. To the extent shares are purchased from the Trust under the
Plan, the Trust will receive additional funds for general Trust purposes, to
repay indebtedness and for working capital purposes. The Plan is intended for
the benefit of investors in the Trust and not for individuals or investors who
engage in transactions that may cause aberrations in the price or trading volume
of Shares. From time to time, financial intermediaries may engage in positioning
transactions in order to benefit from the discount from the Market Price of the
Shares acquired through the reinvestment of Distributions or optional cash
payments under the Plan. Such transactions may cause fluctuations in the price
or trading volume of the Shares. The Trust reserves the right to modify, suspend
or terminate participation in the Plan by otherwise Eligible Shareholders in
order to eliminate practices that are, in the sole discretion of the Trust, not
consistent with the purposes or operation of the Plan or that affect adversely
the price of the Shares.
Options Available To Participants
2. What options are available to enrolled Participants?
Eligible Shareholders may elect to have cash Distributions paid on all
or a portion of their Shares reinvested automatically in additional Shares;
provided that Distributions in excess of $25,000 may be reinvested only with the
permission of the Trust. Cash Distributions are paid on the Shares when and as
declared by the Trust's Board of Trustees. There is no minimum limitation on the
amount of Distributions a Participant may reinvest under the Distribution
reinvestment feature of the Plan.
Each month, Participants may also elect to invest optional cash
payments in additional Shares, subject to a minimum per month purchase limit of
$250 and a maximum per month purchase limit of $5,000, subject to waiver. See
Question 17 for information concerning limitations applicable to optional cash
payments and the availability of waivers with respect to such limitations.
Participants may make optional cash payments each month even if Distributions on
their Shares are not being reinvested and whether or not a Distribution has been
declared.
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Advantages and Disadvantages
3. What are the advantages and disadvantages of the Plan?
Advantages:
(a) The Plan provides Participants with the opportunity to reinvest
cash Distributions paid on all or a portion of their Shares in
additional Shares at a 1% discount from the Market Price without
payment of any brokerage commission or service charge to the extent
shares are purchased directly from the Trust.
(b) The Plan provides Participants with the opportunity to make monthly
investments of optional cash payments, subject to minimum and maximum
amounts, for the purchase of additional Shares without payment of any
brokerage commission or service charge if such Shares are purchased
directly from the Trust, which purchases may be made at the market
price of the Shares less a discount of 1% for optional cash payments of
not less than $250 and up to $5,000 per month and a Discount ranging
between 0% and 5% (as determined in accordance with the Plan) for
optional cash payments made pursuant to accepted Requests for Waiver,
to the extent Shares are purchased directly from the Trust.
(c) Subject to the availability of Shares registered for issuance under
the Plan and to permission from the Trust for Distributions in excess
of $25,000, all cash Distributions paid on Participants' shares can be
invested fully in additional Shares because the Plan permits fractional
shares to be credited to Plan accounts. Distributions on such
fractional shares, as well as on whole shares, will also be reinvested
in additional shares that will be credited to Plan accounts.
(d) The Plan Administrator, at no charge to Participants, provides for
the safekeeping of certificates for Shares credited to each Plan
account.
(e) Periodic statements reflecting all current activity, including
share purchases and latest Plan account balance, simplify Participants'
record keeping. See Question 22 for information concerning reports to
Participants.
Disadvantages:
(a) No interest will be paid by the Trust or the Plan Administrator on
Distributions or optional cash payments held pending reinvestment or
investment. See Question 11. In addition, optional cash payments in
excess of $5,000 for purchases made pursuant to Requests for Waiver may
be subject to return to the Participant without interest in the event
that the Threshold Price, if any, is not met for any Trading Day during
the related Pricing Period. See Question 17.
(b) With respect to optional cash payments, the actual number of shares
to be issued to a Participant's Plan account will not be determined
until after the end of the relevant Pricing Period. Therefore, during
the Pricing Period, Participants will not know the actual number of
shares they have purchased.
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(c) With respect to certain optional cash payments, the Market Price
may exceed the price at which Shares are trading on the Investment Date
when the shares are issued or thereafter.
(d) Because optional cash payments must be received by the Plan
Administrator prior to the related Pricing Period, such payments may be
exposed to changes in market conditions for a longer period of time
than in the case of typical secondary market transactions. In addition,
once received by the Plan Administrator, optional cash payments will
not be returned to Participants unless a written request is directed to
the Plan Administrator at least five business days prior to the
Optional Cash Payment Due Date for the Investment Date with respect to
which optional cash payments have been delivered by such Participant.
See Questions 18 and 20.
(e) Resales of Shares credited to a Participant's account under the
Plan will involve a nominal fee per transaction paid to the Plan
Administrator (if such resale is made by the Plan Administrator at the
request of a Participant), a brokerage commission and any applicable
share transfer taxes on the resales. See Questions 21 and 27.
(f) Prospective investors in Shares should consider carefully the
matters described above in "Risk Factors" prior to making an investment
in the Shares.
Administration
4. Who administers the Plan?
The Trust has retained American Stock Transfer and Trust Company, as
plan administrator (the "Plan Administrator"), to administer the Plan, keep
records, send statements of account activity to each Participant and perform
other duties relating to the Plan. See Question 22 for information concerning
reports to Participants. Shares purchased under the Plan and held by the Plan
Administrator will be registered in the Plan Administrator's name or the name of
its nominee for the benefit of the Participants. In the event that the Plan
Administrator resigns or otherwise ceases to act as plan administrator, the
Trust will appoint a new plan administrator to administer the Plan.
The Plan Administrator also acts as Distribution disbursing agent,
transfer agent and registrar for the Trust's Shares.
Participation
For purposes of this section, responses will be based on the method by
which the holder holds his or her Shares. Generally, shareholders are either
Record Owners or Beneficial Owners. A Record Owner is a holder who owns Shares
in his or her own name. A Beneficial Owner is a holder who owns Shares
beneficially that are registered in a name other than his or her own name
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(for example, the shares are held in the name of a broker, bank or other
nominee). A Record Owner may participate in the Plan directly, whereas a
Beneficial Owner will have to either become a Record Owner by having one or more
shares transferred into his or her own name or coordinate his or her
participation in the Plan through the broker, bank or other nominee in whose
name the Beneficial Owner's shares are held. If a Beneficial Owner who desires
to become a Participant encounters any difficulties in coordinating his or her
participation in the Plan with his or her broker, bank or other nominee, he or
she should call the Plan Administrator at (800) 278-4353 or (718) 921-8283.
5. Who is eligible to participate?
All Record Owners or Beneficial Owners of at least one Share are
eligible to participate in the Plan. A Record Owner may participate in the Plan
directly. A Beneficial Owner must either become a Record Owner by having one or
more shares transferred into his or her own name or arrange with the broker,
bank or other nominee who is the record holder to participate on his or her
behalf. In addition, Interested New Investors may participate in the optional
cash payment feature of the Plan. See Question 6. To facilitate participation by
Beneficial Owners, the Trust has made arrangements with the Plan Administrator
to reinvest Distributions, on a per Distribution basis, and accept optional cash
payments under the Plan by record holders such as brokers, banks and other
nominees, on behalf of beneficial owners. See Question 6.
The Trust may terminate, by written notice, at any time any
Participant's individual participation in the Plan if such participation would
be in violation of the restrictions contained in the Trust Agreement or Bylaws,
each as amended and/or restated from time to time, of the Trust. Such
restrictions prohibit any person or group of persons from acquiring or holding,
directly or indirectly, ownership of a number of shares of beneficial interest
of any class or series of shares of beneficial interest of the Trust in excess
of 9.9% of the number or value of the outstanding shares of such class or
series. The meanings ascribed to the terms "group" and "ownership" may cause a
person who owns less than 9.9% of the shares outstanding in an individual
capacity to be deemed to be holding shares in excess of the foregoing
limitation. The Trust Agreement provides that in the event a person acquires
shares of beneficial interest in excess of the foregoing limitation, the excess
shares shall be transferred to a trustee for the benefit of a charitable
beneficiary designated by the Trust pursuant to the Trust Agreement. Under the
Trust Agreement, certain transfers or attempted transfers that would jeopardize
the qualification of the Trust as a real estate investment trust for tax
purposes may be void to the fullest extent permitted by law.
6. How does an eligible shareholder or Interested New Investor participate?
Eligible Shareholders
Record Owners may join the Plan by completing and signing the
Authorization Form included with the Plan and, if applicable, a Request for
Waiver, and returning it or them to the Plan Administrator. Authorization Forms
and Requests for Waiver may be obtained at any time by written request to the
Trust, by telephoning the Trust at (215) 875-0700, by visiting the Trust's web
site at www. PREIT.com or by telephoning the Plan Administrator at (800)
278-4353 or (718) 921-8283.
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Beneficial Owners who wish to join the Plan must instruct their broker,
bank or other nominee to reinvest Distributions on their behalf. See Question 8
for a discussion of the Broker and Nominee form (the "B&N Form"), which is
required to be used for optional cash payments of a Beneficial Owner whose
broker, bank or other nominee holds the Beneficial Owner's shares in the name of
a securities depository. See also Question 16.
If a Record Owner or the broker, bank or other nominee on behalf of a
Beneficial Owner submits a properly executed Authorization Form without electing
an investment option, such Authorization Form will be deemed to indicate the
intention of such Record Owner or Beneficial Owner, as the case may be, to apply
all cash Distributions and optional cash payments, if applicable, toward the
purchase of additional Shares. See Question 7 for investment options.
Interested New Investors
Interested New Investors may join the Plan by completing and signing
the Authorization Form included with the Plan and, if applicable, a Request for
Waiver, and returning it or them to the Plan Administrator. Authorization Forms
and Requests for Waiver may be obtained at any time by written request to the
Trust, by telephoning the Trust at (215) 875-0700, by visiting the Trust's web
site at www. PREIT.com or by telephoning the Plan Administrator at (800)
278-4353 or (718) 921-8283.
7. What does the Authorization Form provide?
The Authorization Form appoints the Plan Administrator as agent for the
Participant and directs the Trust to pay to the Plan Administrator each
Participant's cash Distributions on all or a specified number of Shares owned by
the Participant on the applicable record date ("Participating Shares"), as well
as on all whole and fractional Shares credited to a Participant's Plan account
("Plan Shares"). The Authorization Form directs the Plan Administrator to
purchase on the Investment Date (as defined in Question 11) additional Shares
with such Distributions and optional cash payments, if any, made by the
Participant. See Question 8 for a discussion of the B&N Form, which is required
to be used for optional cash payments of a Beneficial Owner whose broker, bank
or other nominee holds the Beneficial Owner's shares in the name of a securities
depository. The Authorization Form also directs the Plan Administrator to
reinvest automatically all subsequent Distributions with respect to Plan Shares.
Distributions will continue to be reinvested on the number of Participating
Shares and on all Plan Shares until the Participant specifies otherwise by
contacting the Plan Administrator, withdraws from the Plan (see Questions 26 and
27) or the Plan is terminated. See Question 6 for additional information about
the Authorization Form.
Subject to permission from the Trust for the reinvestment of
Distributions in excess of $25,000, the Authorization Form provides for the
purchase of additional Shares through the following investment options:
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(1) If "Full Distribution Reinvestment" is elected, the Plan
Administrator will apply all cash Distributions on all Shares then
or subsequently registered in the Participant's name, and all cash
Distributions on all Plan Shares, together with any optional cash
payments, toward the purchase of additional Shares.
(2) If "Partial Distribution Reinvestment" is elected, the Plan
Administrator will apply all cash Distributions on only the number
of Participating Shares registered in the Participant's name and
specified on the Authorization Form and all cash Distributions on
all Plan Shares, together with any optional cash payments, toward
the purchase of additional Shares.
(3) If "Optional Cash Payments Only" is elected, the Participant will
continue to receive cash Distributions on Shares registered in
that Participant's name, if any, in the usual manner. However, the
Plan Administrator will apply all cash Distributions on all Plan
Shares, together with any optional cash payments received from the
Participant, toward the purchase of additional Shares. See
Question 8 for a discussion of the B&N Form, which is required to
be used for optional cash payments of a Beneficial Owner whose
broker, bank or other nominee holds the Beneficial Owner's shares
in the name of a securities depository.
Each Participant may select any one of these three options. In each
case, Distributions will be reinvested on all Participating Shares and on all
Plan Shares held in the Plan account, including Distributions on Shares
purchased with any optional cash payments, until a Participant specifies
otherwise by contacting the Plan Administrator, or withdraws from the Plan
altogether (see Questions 26 and 27), or until the Plan is terminated. If a
Participant would prefer to receive cash payments of Distributions paid on Plan
Shares rather than reinvest such Distributions, those shares must be withdrawn
from the Plan by written notification to the Plan Administrator. See Questions
26 and 27 regarding withdrawal of Plan Shares.
Participants may change their investment options at any time by
requesting a new Authorization Form and returning it to the Plan Administrator
at the address set forth in Question 37. See Question 11 for the effective date
for any change in investment options.
8. What does the B&N Form provide?
The B&N Form provides the only means by which a broker, bank or other
nominee holding shares of a Beneficial Owner in the name of a securities
depository may invest optional cash payments on behalf of such Beneficial Owner.
A B&N Form must be delivered to the Plan Administrator each time such broker,
bank or other nominee transmits optional cash payments on behalf of a Beneficial
Owner. B&N Forms will be furnished at any time upon request to the Plan
Administrator at the address or telephone number specified in Question 37.
Prior to submitting the B&N Form, the broker, bank or other nominee for
a Beneficial owner must submit a completed Authorization Form on behalf of the
Beneficial Owner. See Questions 6 and 7.
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THE B&N FORM AND APPROPRIATE INSTRUCTIONS MUST BE RECEIVED BY THE PLAN
ADMINISTRATOR NOT LATER THAN THE APPLICABLE OPTIONAL CASH PAYMENT DUE DATE OR
THE OPTIONAL CASH PAYMENT WILL NOT BE INVESTED UNTIL THE FOLLOWING INVESTMENT
DATE.
9. Is partial participation possible under the Plan?
Yes. Record Owners may designate on the Authorization Form a number of
shares for which Distributions are to be reinvested, subject to permission from
the Trust for reinvestment of Distributions in excess of $25,000. Distributions
will thereafter be reinvested only on the number of shares specified or on such
lesser number of shares as are owned on the record date for each Distribution,
and the Record Owner or Beneficial Owner, as the case may be, will continue to
receive cash Distributions on the remainder of the shares. Dividends on all
Shares held in the Plan, however, are automatically reinvested in the Plan.
10. When may an eligible shareholder or Interested New Investor join the
Plan?
A Record Owner, Beneficial Owner or Interested New Investor may join
the Plan at any time. Once in the Plan, a Participant remains in the Plan until
he or she withdraws from the Plan, the Trust terminates his or her participation
in the Plan or the Trust terminates the Plan. See Question 27 regarding
withdrawal from the Plan.
11. When will Distributions be reinvested and/or optional cash payments be
invested (See chart on page 28 for a breakdown of the Investment Dates under the
Plan)?
Investment Dates for Shares Acquired Directly from the Trust
When shares are purchased from the Trust, such purchases will be made
on the "Investment Date" in each month. The Investment Date with respect to
Shares acquired directly from the Trust and relating to a Distribution
reinvestment will be the Distribution payment date relating to the Shares. The
Investment Date with respect to Shares acquired directly from the Trust and
relating to optional cash payments of $5,000 or less shall be the last day (or
Pricing Period conclusion date) of a Pricing Period (as defined below). The
Investment Date with respect to Shares acquired directly from the Trust and
relating to an optional cash payment of greater than $5,000 made pursuant to a
Request for Waiver will be on each day on which the NYSE is open for business in
a Pricing Period, on which date 1/12 of a Participant's optional cash payment in
each month will be invested. See Schedule A attached hereto for a list of the
expected Pricing Period commencement dates and conclusion dates (with the
Pricing Period conclusion date being the Investment Date for optional cash
payments of $5,000 or less) in 1999 and 2000.
24
<PAGE>
Investment Dates for Shares Acquired Through Open Market Purchases by Plan
Administrator
When shares are acquired through open market purchases by the Plan
Administrator, such purchases will be made on the "Investment Date" in each
month. The Investment Date with respect to Shares acquired in the open market by
the Plan Administrator and relating to a Distribution reinvestment will be a
date chosen by the Plan Administrator no later than ten business days following
the Distribution payment date. The Investment Date with respect to Shares
acquired in the open market by the Plan Administrator and relating to optional
cash payments of not less than $250 and up to $5,000 shall be a date chosen by
the Plan Administrator no later than 30 days from the optional cash payment's
corresponding Optional Cash Payment Due Date. The Trust will not grant Requests
for Waiver for optional cash payments exceeding $5,000 when the Shares are to be
acquired in the open market.
When open market purchases are made by the Plan Administrator, such
purchases may be made on any securities exchange where the shares are traded, in
the over-the-counter market or by negotiated transactions, and may be subject to
such terms with respect to price, delivery and other matters as agreed to by the
Plan Administrator. Neither the Trust nor any Participant may control the time
or price at which shares will be purchased or the selection of the broker or
dealer through or from whom purchases are to be made by the Plan Administrator,
provided that the Trust may provide the Plan Administrator, not more than once
in any three month period, with a formula for determining the amount or timing
of Shares to be purchased by the Plan Administrator. When open market purchases
are made by the Plan Administrator, the Plan Administrator shall use reasonable
efforts to purchase the shares at the lowest possible price.
If the Authorization Form is received prior to the record date for a
Distribution payment, the election to reinvest Distributions will begin with
that Distribution payment. If the Authorization Form is received on or after any
such record date, reinvestment of Distributions will begin on the Distribution
payment date following the next record date if the Participant is still a
Shareholder of record. Record dates for payment of Distributions normally
precede payment dates by approximately two and a half weeks.
See Question 17 for information concerning limitations on the minimum
and maximum amounts of optional cash payments that may be made each month and
Question 18 for information as to when optional cash payments must be received
to be invested on each Investment Date.
Shares will be allocated and credited to Participants' accounts as
follows: (1) shares purchased from the Trust will be allocated and credited as
of the appropriate Investment Date; and (2) shares purchased in open market
transactions will be allocated and credited as of the date on which the Plan
Administrator completes the purchases of the aggregate number of shares to be
purchased on behalf of all Participants with Distributions to be reinvested or
optional cash payments, as the case may be, during the month.
NO INTEREST WILL BE PAID ON CASH DISTRIBUTIONS OR OPTIONAL CASH
PAYMENTS PENDING INVESTMENT OR REINVESTMENT UNDER THE TERMS OF THE PLAN. BECAUSE
NO INTEREST IS PAID ON CASH HELD BY THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE
IN THE BEST INTEREST OF A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL
SHORTLY BEFORE COMMENCEMENT OF THE PRICING PERIOD.
25
<PAGE>
Purchases And Prices Of Shares
12. What will be the price to Participants of shares purchased under the Plan
(See chart on page 28 for a breakdown of the purchase prices under the Plan)?
Price to Participants for Shares Acquired Directly from the Trust
With respect to reinvested Distributions, the price per Share acquired
directly from the Trust will reflect a discount of 1% from the average of the
high and low sales prices, computed to four decimal places, of the Shares on the
NYSE on the Investment Date (as defined in Question 11), or if no trading occurs
in the Shares on the Investment Date, the average of the high and low sales
prices for the first trading day immediately preceding the Investment Date for
which trades are reported.
With respect to optional cash payments, the price per share of the
Shares acquired directly from the Trust will be 100% of the average of the daily
high and low sale prices, computed to four decimal places, of the Shares as
reported on the NYSE for the Trading Day relating to each Investment Date (as
defined in Question 11 above) or, if no trading occurs in the Shares on such
Trading Day, for the Trading Day immediately preceding such Investment Date for
which trades are reported, less a 1% discount for purchases of less than $5,000
and the applicable Discount, if any, for purchases pursuant to a Request for
Waiver. A "Trading Day" means a day on which trades in the Shares are reported
on the NYSE. The Pricing Period is the period encompassing the twelve
consecutive Investment Dates relating to optional cash payments of greater than
$5,000 made pursuant to a Request for Waiver in each month.
Each month, at least three business days prior to the applicable
Optional Cash Payment Due Date (as defined in Question 18), the Trust may
establish the Discount from the Market Price applicable to optional cash
payments for purchases pursuant to a Request for Waiver and will notify the Plan
Administrator of the same. Such Discount may be between 0% and 5% of the Market
Price and may vary each month, but once established will apply uniformly to all
optional cash payments for purchases pursuant to a Request for Waiver made
during that month. If the Trust does not establish a Discount as outlined above,
the Discount for such period will be 0%. The Discount will be established in the
Trust's sole discretion after a review of current market conditions, the level
of participation in the Plan and the Trust's current and projected capital
needs. The Discount applies only to optional cash payments. Neither the Trust
nor the Plan Administrator shall be required to provide any written notice to
Participants as to the Discount, but current information regarding the Discount
applicable to the next Pricing Period may be obtained by contacting the Trust at
(215) 875-0700 or by visiting the Trust's web site at www.PREIT.com. Setting a
Discount for an Investment Date shall not affect the setting of a Discount for
any subsequent Investment Date. The Discount feature discussed above applies
only to the issuance of Shares by the Trust pursuant to optional cash payments
for purchases pursuant to a Request for Waiver and does not apply to optional
cash payments of up to $5,000, open market purchases made with optional cash
payments or the reinvestment of Distributions.
26
<PAGE>
Price to Participants for Shares Acquired Through Open Market Purchases by Plan
Administrator
With respect to reinvested Distributions, the price per Share acquired
through open market purchases by the Plan Administrator will be the weighted
average of the actual prices paid, computed to four decimal places, for all of
the Shares purchased by the Plan Administrator, less a discount of 1%.
The price per Share acquired through open market purchases by the Plan
Administrator with optional cash payments of not less than $250 and up to $5,000
will receive a discount of 1% (subject to change) from the weighted average of
the actual prices paid, computed to four decimal places, for all of the Shares
purchased by the Plan Administrator with all Participants' optional cash
payments for the related month. The Trust will not grant Requests for Waiver for
optional cash payments exceeding $5,000 when the Shares are to be acquired in
the open market.
The Trust will pay any brokerage commissions or other fees or charges
paid by the Plan Administrator in connection with open market purchases. If a
Participant desires to opt out of the Distribution reinvestment feature of the
Plan when the Shares relating to Distribution reinvestments will be purchased in
the open market, a Participant must notify the Plan Administrator no later than
the record date for the related Distribution payment date. Information as to the
source of the Shares to be purchased under the Plan may be obtained beginning
three business days prior to the relevant Record Date for cash Distributions or
the Optional Cash Payment Due Date for optional cash payments by contacting the
Trust at (215) 875-0700, by visiting the Trust's web site at www.PREIT.com or by
contacting the Plan Administrator at (800) 278-4353 or (718) 921-8283.
All references in the Plan to the "Market Price" when it relates to
Distribution reinvestments that will be reinvested in Shares acquired directly
from the Trust shall mean the average of the high and low sales prices, computed
to four decimal places, of the Shares on the NYSE on the Investment Date, or if
no trading occurs in the Shares on the Investment Date, the average of the high
and low sales prices for the first Trading Day immediately preceding the
Investment Date for which trades are reported. With respect to Distribution
reinvestments that will be reinvested in Shares purchased in the open market,
"Market Price" shall mean the weighted average of the actual prices paid, net of
commissions, computed to four decimal places, for all of the Shares purchased by
the Plan Administrator with all Participants' reinvested Distributions for the
related quarter. All references in the Plan to the "Market Price" for optional
cash payments that will be invested in Shares acquired directly from the Trust
shall mean the average of the daily high and low sales prices of the Shares as
reported on the NYSE on the Trading Day relating to each Investment Date or, if
no trading occurs in the Shares on such Investment Date, for the first Trading
Day immediately preceding such Investment Date for which trades are reported.
With respect to optional cash payments that will be reinvested in Shares
purchased in the open market, "Market Price" shall mean the weighted average of
the actual prices paid, computed to four decimal places, for all of the Shares
purchased by the Plan Administrator with all Participants' optional cash
payments for the related month.
27
<PAGE>
When Shares are Issued Directly by the Trust
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Date Price to Participant
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Reinvested Distributions Distribution Payment Date 1% discount from the average of the high and low sale prices,
computed to four decimal places, of the Shares as reported on the
NYSE for the Trading Day relating to the Investment Date or, if no
trading occurs in the Shares on such Trading Day, for the Trading
Day immediately preceding such Investment Date for which trades
are reported
- ----------------------------------------------------------------------------------------------------------------------------------
Optional Cash Payments of Last day of the applicable 1% discount from the average of the high and low sale prices,
not less than $250 and up to Pricing Period computed to four decimal places, of the Shares as reported on the
$5,000 NYSE for the Trading Day relating to the Investment Date or, if no
trading occurs in the Shares on such Trading Day, for the Trading
Day immediately preceding such Investment Date for which trades
are reported
- ----------------------------------------------------------------------------------------------------------------------------------
Optional Cash Payments of Each day on which the NYSE is 0% to 5% discount, as determined by the Trust in accordance with
Greater than $5,000 Pursuant open for business in a Pricing the Plan, from the average of the high and low sale prices,
to Accepted Requests for Period on which date 1/12 of a computed to four decimal places, of the Shares as reported on the
Waiver Participant's optional cash NYSE for the Trading Day relating to the Investment Date or, if no
payment in each month will be trading occurs in the Shares on such Trading Day, for the Trading
invested Day immediately preceding such Investment Date for which trades are
reported
- ----------------------------------------------------------------------------------------------------------------------------------
When Shares are Purchased on the Open Market
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Date Price to Participant
- ----------------------------------------------------------------------------------------------------------------------------------
Reinvested Distributions Distribution Payment Date or a 1% discount from the weighted average of the actual prices paid,
date, chosen by the Plan computed to four decimal places, for all of the Shares purchased by
Administrator, not less than the Plan Administrator
10 business days following the
Distribution Payment Date
- ----------------------------------------------------------------------------------------------------------------------------------
Optional Cash Payments of A date, chosen by the Plan 1% discount from the weighted average of the actual prices paid,
not less than $250 and up to Administrator, no later than computed to four decimal places, for all of the Shares purchased by
$5,000 30 days from the corresponding the Plan Administrator with all Participants' optional cash
Optional Cash Payment Due Date payments for the related month
- ----------------------------------------------------------------------------------------------------------------------------------
Optional Cash Payments of Not Applicable Not Applicable
Greater than $5,000 Pursuant
to Accepted Requests for
Waiver
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
13. What are the Record Dates and Investment Dates for Distribution
reinvestment?
For the reinvestment of Distributions, the "Record Date" is the record
date declared by the Board of Trustees for such Distribution. Likewise, the
Distribution payment date declared by the Board of Trustees constitutes the
Investment Date applicable to the reinvestment of such Distribution with respect
to Shares acquired directly from the Trust, except that if any such date is not
a business day, the first business day immediately following such date shall be
the Investment Date. The Investment Date with respect to Shares purchased in
open market transactions will be no later than ten business days following the
Distribution payment date. Distributions will be reinvested on the Investment
Date using the applicable Market Price (as defined in Question 12), subject to
permission from the Trust for reinvestment of Distributions in excess of
$25,000. Distributions in excess of $25,000 not approved for reinvestment by the
Trust will be paid in cash. Generally, record dates for quarterly Distributions
on the Shares will precede the Distribution payment dates by approximately two
weeks. See Schedule A for a list of the future Distribution record dates and
payment dates. Please refer to Question 18 for a discussion of the Optional Cash
Payment Due Dates and Investment Dates applicable to optional cash payments.
14. How will the number of shares purchased for a Participant be determined?
A Participant's account in the Plan will be credited with the number of
shares, including fractions computed to three decimal places, equal to the total
amount to be invested on behalf of such Participant divided by the purchase
price per share as calculated pursuant to the methods described in Question 12,
as applicable. The total amount to be invested will depend on the amount of any
Distributions paid on the number of Participating Shares and Plan Shares in such
Participant's Plan account and available for investment on the related
Investment Date, or the amount of any optional cash payments made by such
Participant and available for investment on the related Investment Date. Subject
to the availability of Shares registered for issuance under the Plan and
permission from the Trust for reinvestment of Distributions in excess of
$25,000, there is no total maximum number of shares available for issuance
pursuant to the reinvestment of Distributions.
15. What is the source of Shares purchased under the Plan?
Plan Shares will be purchased either directly from the Trust, in which
event such shares will be authorized but unissued shares, or on the open market,
or by a combination of the foregoing, at the option of the Trust, after a review
of current market conditions and the Trust's current and projected capital
needs. The Trust will determine the source of the Shares to be purchased under
the Plan at least three business days prior to the relevant Record Date for cash
Distributions or the Optional Cash Payment Due Date for optional cash payments,
and will notify the Plan Administrator of the same. Neither the Trust nor the
Plan Administrator shall be required to provide any written notice to
Participants as to the source of the Shares to be purchased under the Plan, but
current information regarding the source of the Shares may be obtained by
contacting the Trust at (215) 875-0700, by visiting the Trust's web site at
www.PREIT.com or by telephoning the Plan Administrator at (800) 278-4353 or
(718) 921-8283.
29
<PAGE>
16. How does the optional cash payment feature of the Plan work?
All Record Holders and Interested New Investors who have timely
submitted signed Authorization Forms indicating their intention to participate
in this feature of the Plan, and all Beneficial Owners whose brokers, banks or
other nominees have timely submitted signed Authorization Forms indicating their
intention to participate in this feature of the Plan (except for Beneficial
Owners whose brokers, banks or other nominees hold the shares of the Beneficial
Owners in the name of a major securities depository), are eligible to make
optional cash payments during any month, whether or not a Distribution is
declared. If a broker, bank or other nominee holds shares of a Beneficial Owner
in the name of a major securities depository, optional cash payments must be
made through the use of the B&N Form. See Question 8. Optional cash payments
must be accompanied by an Authorization Form or a B&N Form, as applicable. Each
month the Plan Administrator will apply any optional cash payment received from
a Participant no later than one business day prior to the commencement of that
month's Pricing Period (as defined in Question 12) to the purchase of additional
Shares for the account of the Participant on the following Investment Date (as
defined in Question 11).
17. What limitations apply to optional cash payments?
Each optional cash payment is subject to a minimum per month purchase
limit of $250 and a maximum per month purchase limit of $5,000, subject to
waiver by the Trust. For purposes of these limitations, all Plan accounts under
the common control or management of a Participant (which shall be determined at
the sole discretion of the Trust) will be aggregated. Generally, optional cash
payments of less than $250 and that portion of any optional cash payment that
exceeds the maximum monthly purchase limit of $5,000, unless such limit has been
waived by the Trust, will be returned to Participants without interest at the
end of the relevant Pricing Period.
Participants may make optional cash payments of up to $5,000 each month
without the prior approval of the Trust, subject to the Trust's right to modify,
suspend or terminate participation in the Plan by otherwise Eligible
Shareholders or Interested New Investors in order to eliminate practices that
are, in the sole discretion of the Trust, not consistent with the purposes or
operation of the Plan or that affect adversely the price of the Shares. Optional
cash payments in excess of $5,000 may be made by a Participant only upon
acceptance by the Trust of a completed Request for Waiver form from such
Participant and receipt of such form by the Plan Administrator. There is no
pre-established maximum limit applicable to optional cash payments that may be
made pursuant to accepted Requests for Waiver. A Request for Waiver form must be
received by the Trust and the Plan Administrator and accepted by the Trust each
month no later than the Optional Cash Payment Due Date (as defined in Question
18) for the applicable Investment Date. Request for Waiver forms will be
furnished at any time upon request to the Plan Administrator at the address or
telephone number specified in Question 37. Waivers will be accepted only with
respect to actual record Participants and not for the benefit of Beneficial
Owners. Participants interested in obtaining further information about a Request
for Waiver should contact the Trust at (215) 875-0700 or visit the Trust's web
site at www.PREIT.com.
30
<PAGE>
Waivers will be considered on the basis of a variety of factors, which
may include the Trust's current and projected capital needs, the alternatives
available to the Trust to meet those needs, prevailing market prices for Shares
and other Trust securities, general economic and market conditions, expected
aberrations in the price or trading volume of the Shares, the potential
disruption of the price of the Shares by a financial intermediary, the number of
Shares held by the Participant submitting the waiver request, the past actions
of a Participant under the Plan, the aggregate amount of optional cash payments
for which such waivers have been submitted and the administrative constraints
associated with granting such waivers. Grants of waivers will be made in the
absolute discretion of the Trust.
PARTICIPANTS IN THE PLAN ARE NOT OBLIGATED TO PARTICIPATE IN THE
OPTIONAL CASH PAYMENT FEATURE OF THE PLAN AT ANY TIME. OPTIONAL CASH PAYMENTS
NEED NOT BE IN THE SAME AMOUNT EACH MONTH.
Unless it waives its right to do so, the Trust may establish for any
Pricing Period a minimum price (the "Threshold Price") applicable only to the
investment of optional cash payments that exceed $5,000 and that are made
pursuant to Requests for Waiver, in order to provide the Trust with the ability
to set a minimum price at which Shares will be sold under the Plan each month
pursuant to such requests. A Threshold Price will only be established when
Shares will be purchased directly from the Trust on the applicable Investment
Date. The Trust will, at least three business days prior to each Optional Cash
Payment Due Date (as defined in Question 18), determine whether to establish a
Threshold Price and, if a Threshold Price is established, its amount and so
notify the Plan Administrator. The determination whether to establish a
Threshold Price and, if a Threshold Price is established, its amount will be
made by the Trust at its discretion after a review of current market conditions,
the level of participation in the Plan and the Trust's current and projected
capital needs. Neither the Trust nor the Plan Administrator shall be required to
provide any written notice to Participants as to whether a Threshold Price has
been established for any Pricing Period, but current information regarding the
Threshold Price may be obtained by contacting the Trust at (215) 875-0700 or by
visiting the Trust's web site at www.PREIT.com.
The Threshold Price for optional cash payments made pursuant to
Requests for Waiver, if established for any Pricing Period, will be a stated
dollar amount that the average of the high and low sale prices of the Shares on
the NYSE for each Trading Day of the relevant Pricing Period must equal or
exceed. In the event that the Threshold Price is not satisfied for a Trading Day
in the Pricing Period, that Trading Day will be excluded from that Pricing
Period and no investment will occur on the corresponding Investment Date. For
each Trading Day on which the Threshold Price is not satisfied, 1/12 of each
optional cash payment made by a Participant pursuant to a Request for Waiver
will be returned to such Participant, without interest, as soon as practicable
after the end of the applicable Pricing Period. Thus, for example, if the
Threshold Price is not satisfied for three of the twelve Trading Days in a
Pricing Period, 3/12 of each Participant's optional cash payment made pursuant
to a Request for Waiver will be returned to such Participant in the same means
by which such payment was made originally by the Participant, without interest,
as soon as practicable after the end of the applicable Pricing Period. The Plan
Administrator expects to mail such checks within five to ten business days from
the end of the applicable Pricing Period. This return procedure will only apply
when shares are purchased directly from the Trust for optional cash payments
made pursuant to Requests for Waiver and the Trust has set a Threshold Price
with respect to the relevant Pricing Period. See Question 15.
31
<PAGE>
Setting a Threshold Price for a Pricing Period shall not affect the
setting of a Threshold Price for any subsequent Pricing Period. The Threshold
Price concept and return procedure discussed above apply only to optional cash
payments made pursuant to Requests for Waiver.
For any Pricing Period, the Trust may waive its right to set a
Threshold Price for optional cash payments made pursuant to Requests for Waiver.
Participants may ascertain whether the Threshold Price applicable to a given
Pricing Period has been set or waived, as applicable, by contacting the Trust at
(215) 875-0700 or by visiting the Trust's web site at www.PREIT.com.
For a list of expected dates by which the Threshold Price will be set
in 1999 and 2000, see Schedule A.
Each month, at least three business days prior to the applicable
Optional Cash Payment Due Date (as defined in Question 18), the Trust may
establish the Discount from the Market Price applicable to optional cash
payments made pursuant to accepted Requests for Waiver during the corresponding
Pricing Period, to the extent Shares are purchased directly from the Trust, and
will notify the Plan Administrator of the same. Such Discount may be between 0%
and 5% of the Market Price and may vary each month, but once established will
apply uniformly to all optional cash payments made pursuant to Requests for
Waiver during that month. The Discount will be established in the Trust's sole
discretion after a review of current market conditions, the level of
participation in the Plan and the Trust's current and projected capital needs.
The Discount applies only to optional cash payments made pursuant to Requests
for Waiver. Neither the Trust nor the Plan Administrator shall be required to
provide any written notice to Participants as to the Discount, but current
information regarding the Discount applicable to the next Pricing Period may be
obtained by contacting the Trust at (215) 875-0700 or by visiting the Trust's
web site at www.PREIT.com. Setting a Discount for a Pricing Period shall not
affect the setting of a Discount for any subsequent Pricing Period. The Discount
feature discussed above applies only to optional cash payments and does not
apply to the reinvestment of Distributions.
THE THRESHOLD PRICE CONCEPT AND RETURN PROCEDURE DISCUSSED ABOVE APPLY
ONLY TO OPTIONAL CASH PAYMENTS MADE PURSUANT TO REQUESTS FOR WAIVER WHEN SHARES
ARE TO BE PURCHASED FROM THE TRUST ON THE APPLICABLE INVESTMENT DATE. ALL OTHER
OPTIONAL CASH PAYMENTS WILL BE MADE AT THE MARKET PRICE (SUBJECT TO CHANGE) LESS
THE DISCOUNT, IF ANY, WITHOUT REGARD TO ANY THRESHOLD PRICE.
18. What are the Optional Cash Payment Due Dates and Investment Dates for
optional cash payments?
Optional cash payments will be invested every month as of the related
Investment Date. The "Optional Cash Payment Due Date" for optional cash payments
is one business day prior to the commencement of the related Pricing Period and
the "Investment Date" for optional cash payments of $5,000 or less is the last
day of the Pricing Period (or Pricing Period conclusion date), and for optional
cash payments of greater than $5,000 made pursuant to Requests for Waivers, the
"Investment Date" is each day on which the NYSE is open for business in a
Pricing Period.
32
<PAGE>
Optional cash payments received by the Plan Administrator by the
Optional Cash Payment Due Date will be applied to the purchase of Shares on the
Investment Dates that relate to that Pricing Period. No interest will be paid by
the Trust or the Plan Administrator on optional cash payments held pending
investment. Generally, optional cash payments received after the Optional Cash
Payment Due Date will be returned to Participants without interest at the end of
the Pricing Period; such optional cash payments may be resubmitted by a
Participant prior to the commencement of the next or a later Pricing Period.
For a schedule of expected Optional Cash Payment Due Dates and Pricing
Period commencement dates and conclusion dates in 1999 and 2000, see Schedule A.
19. When must optional cash payments be received by the Plan Administrator?
Each month the Plan Administrator will apply any optional cash payment
for which good funds are timely received to the purchase of Shares for the
account of the Participant during the next Pricing Period. See Question 18. In
order for funds to be invested during the next Pricing Period, the Plan
Administrator must have received a check, money order or wire transfer by the
end of the business day immediately preceding the first Trading Day of the
ensuing Pricing Period and such check, money order or wire transfer must have
cleared on or before the first Investment Date in such Pricing Period. Wire
transfers may be used only if approved verbally in advance by the Plan
Administrator. Checks and money orders are accepted subject to timely collection
as good funds and verification of compliance with the terms of the Plan. Checks
or money orders should be made payable to American Stock Transfer and Trust
Company and submitted together with, initially, the Authorization Form or,
subsequently, the form for additional investments attached to Participant's
statements. Checks returned for any reason will not be resubmitted for
collection.
NO INTEREST WILL BE PAID BY THE TRUST OR THE PLAN ADMINISTRATOR ON
OPTIONAL CASH PAYMENTS HELD PENDING INVESTMENT. BECAUSE NO INTEREST IS PAID ON
CASH HELD BY THE PLAN ADMINISTRATOR, IT NORMALLY WILL BE IN THE BEST INTEREST OF
A PARTICIPANT TO DEFER OPTIONAL CASH PAYMENTS UNTIL SHORTLY BEFORE COMMENCEMENT
OF THE PRICING PERIOD.
In order for payments to be invested on the first Investment Date in a
Pricing Period, in addition to the receipt of good funds by the first Investment
Date in a Pricing Period, the Plan Administrator must be in receipt of an
Authorization Form or a B&N Form, as appropriate, as of the same date. See
Questions 6 and 8.
20. May optional cash payments be returned?
Upon telephone or written request to the Plan Administrator received at
least five business days prior to the Optional Cash Payment Due Date for the
Investment Date with respect to which optional cash payments have been delivered
to the Plan Administrator, such optional cash payments will be returned to the
Participant as soon as practicable. Requests received less than five business
days prior to such date will not be returned, but instead will be invested on
the next related Investment Date. Additionally, a portion of each optional cash
payment will be returned by check, without interest, as soon as practicable
after the end of the Pricing Period for each Trading Day that does not meet the
Threshold Price, if any, applicable to optional cash payments made pursuant to
Requests for Waiver. See Question 17. Also, each optional cash payment, to the
extent that it does not either conform to the limitations described in Question
18 or clear within the time limit described in Question 19, will be subject to
return to the Participant as soon as practicable.
33
<PAGE>
21. Are there any expenses to Participants in connection with their
participation under the Plan?
Participants will incur no brokerage commissions or service charges
and, generally, the Trust will pay all costs of administration of the Plan.
Participants that request that the Plan Administrator sell all or any portion of
their shares (see Question 27), however, must pay a nominal fee per transaction
to the Plan Administrator, any related brokerage commissions and applicable
share transfer taxes.
Reports to Participants
22. What kind of reports will be sent to Participants in the Plan?
Each Participant in the Plan will receive a statement of his or her
account following each purchase of additional shares. These statements are
Participants' continuing record of the cost of their purchases and should be
retained for income tax purposes. In addition, Participants will receive copies
of other communications sent to holders of the Shares, including the Trust's
annual report to its shareholders, the notice of annual meeting and proxy
statement in connection with its annual meeting of shareholders and Internal
Revenue Service information for reporting Distributions paid.
Distributions on Fractions
23. Will Participants be credited with Distributions on fractions of shares?
Yes.
Certificates for Shares
24. Will certificates be issued for shares purchased?
No. Shares purchased for Participants will be held in the name of the
Plan Administrator or its nominee. No certificates will be issued to
Participants for shares in the Plan unless a
34
<PAGE>
Participant submits a written request to the Plan Administrator or until
participation in the Plan is terminated. At any time, a Participant may request
the Plan Administrator to send a certificate for some or all of the whole shares
credited to a Participant's account. This request should be mailed to the Plan
Administrator at the address set forth in the answer to Question 37. Any
remaining whole shares and any fractions of shares will remain credited to the
Plan account. Certificates for fractional shares will not be issued under any
circumstances.
25. In whose name will certificates be registered when issued?
Each Plan account is maintained in the name in which the related
Participant's certificates were registered at the time of enrollment in the
Plan. Share certificates for whole shares purchased under the Plan will be
registered similarly when issued upon a Participant's request. If a Participant
is a Beneficial Owner, such request should be placed through such Participant's
banker, broker or other nominee. See Question 6. A Participant who wishes to
pledge shares credited to such Participant's Plan account must first withdraw
such shares from the account.
Withdrawals and Termination
26. When may Participants withdraw from the Plan?
A Participant may withdraw from the Plan with respect to all or a
portion of the shares held in his or her account in the Plan at any time. If the
request to withdraw is received prior to a Distribution record date set by the
Board of Trustees for determining Shareholders of record entitled to receive a
Distribution, the request will be processed on the day following receipt of the
request by the Plan Administrator.
If the request to withdraw is received by the Plan Administrator on or
after a Distribution Optional Cash Payment Due Date, but before payment date,
the Plan Administrator, in its sole discretion, may either pay such Distribution
in cash or reinvest it in shares for the Participant's account. The request for
withdrawal will then be processed as promptly as possible following such
Distribution payment date. All Distributions subsequent to such Distribution
payment date or Investment Date will be paid in cash unless a Shareholder
re-enrolls in the Plan, which may be done at any time.
Any optional cash payments that have been sent to the Plan
Administrator prior to a request for withdrawal will also be invested on the
next Investment Date unless a Participant expressly requests return of that
payment in the request for withdrawal, and the request for withdrawal is
received by the Plan Administrator at least two business days prior to the first
day of the Pricing Period.
27. How does a Participant withdraw from the Plan?
A Participant who wishes to withdraw from the Plan with respect to all
or a portion of the shares held in his or her account in the Plan must notify
the Plan Administrator in writing at its address set forth in the answer to
Question 37. Upon a Participant's withdrawal from the Plan or termination of the
Plan by the Trust, certificates for the appropriate number of whole shares
credited to his or her account under the Plan will be issued. A cash payment
will be made for any fraction of a share.
35
<PAGE>
Upon withdrawal from the Plan, a Participant may also request in
writing that the Plan Administrator sell all or part of the shares credited to
his or her account in the Plan. The Plan Administrator will sell the shares as
requested within ten business days after processing the request for withdrawal.
The Participant will receive the proceeds of the sale, less a nominal fee per
transaction paid to the Plan Administrator, any brokerage fees or commissions
and any applicable share transfer taxes, generally within five business days of
the sale.
28. Are there any automatic termination provisions?
Participation in the Plan will be terminated if the Plan Administrator
receives written notice of the death or adjudicated incompetence of a
Participant, together with satisfactory supporting documentation of the
appointment of a legal representative, at least five business days before the
next Record Date for purchases made through the reinvestment of Distributions or
the Optional Cash Payment Due Date for optional cash payments, as applicable. In
the event written notice of death or adjudicated incompetence and such
supporting documentation is received by the Plan Administrator less than five
business days before the next Record Date for purchases made through the
reinvestment of Distributions or the Optional Cash Payment Due Date for optional
cash payments, as applicable, shares will be purchased for the Participant with
the related cash Distribution or optional cash payment and participation in the
Plan will not terminate until after such Distribution or payment has been
reinvested. Thereafter, no additional purchase of shares will be made for the
Participant's account and the Participant's shares and any cash Distributions
paid thereon will be forwarded to such Participant's legal representative.
THE TRUST RESERVES THE RIGHT TO MODIFY, SUSPEND OR TERMINATE
PARTICIPATION IN THE PLAN BY OTHERWISE ELIGIBLE SHAREHOLDERS OR INTERESTED NEW
INVESTORS IN ORDER TO ELIMINATE PRACTICES THAT ARE, IN THE SOLE DISCRETION OF
THE TRUST, INCONSISTENT WITH THE PURPOSES OR OPERATION OF THE PLAN OR THAT
AFFECT ADVERSELY THE PRICE OF THE SHARES.
Other Information
29. What happens if a Participant sells or transfers all of the shares
registered in the Participant's name?
If a Participant disposes of all shares registered in his or her name,
and is not shown as a Record Owner on a Distribution record date, the
Participant may be terminated from the Plan at the discretion of the Trust as of
such date and such termination treated as though a withdrawal notice had been
received prior to the record date.
30. What happens if the Trust declares a Distribution payable in shares or
declares a share split?
36
<PAGE>
Any Distribution payable in shares and any additional shares
distributed by the Trust in connection with a share split in respect of shares
credited to a Participant's Plan account will be added to that account. Share
Distributions or split shares that are attributable to shares registered in a
Participant's own name and not in his or her Plan account will be mailed
directly to the Participant as in the case of Shareholders not participating in
the Plan.
31. How will shares held by the Plan Administrator be voted at meetings of
shareholders?
If the Participant is a Record Owner, the Participant will receive a
proxy card covering both shares held directly and shares held in the Plan. If
the Participant is a Beneficial Owner, the Participant will receive a proxy
covering shares held in the Plan through his or her broker, bank or other
nominee.
If a proxy is returned properly signed and marked for voting, all the
shares covered by the proxy will be voted as marked. If a proxy is returned
properly signed, but no voting instructions are given, all of the Participant's
shares will be voted in accordance with recommendations of the Board of Trustees
of the Trust, unless applicable laws require otherwise. If the proxy is not
returned, or if it is returned unexecuted or improperly executed, shares
registered in a Participant's name may be voted only by the Participant in
person.
32. What are the responsibilities of the Trust and the Plan Administrator
under the Plan?
The Trust and the Plan Administrator will not be liable in
administering the Plan for any act done in good faith or required by applicable
law or for any good faith omission to act including, without limitation, any
claim of liability arising out of failure to terminate a Participant's account
upon his or her death, with respect to the prices at which shares are purchased
and/or the times when such purchases are made or with respect to any fluctuation
in the market value before or after purchase or sale of shares. Notwithstanding
the foregoing, nothing contained in the Plan limits the Trust's liability with
respect to alleged violations of federal securities laws.
The Trust and the Plan Administrator shall be entitled to rely on
completed forms and the proof of due authority to participate in the Plan,
without further responsibility of investigation or inquiry.
33. May the Plan be changed or discontinued?
Yes. The Trust may suspend, terminate or amend the Plan at any time.
Notice will be sent to Participants of any suspension or termination, or of any
amendment that alters the Plan terms and conditions, as soon as practicable
after such action by the Trust.
The Trust may substitute another administrator or agent in place of the
Plan Administrator at any time. Participants will be promptly informed of any
such substitution.
37
<PAGE>
Any questions of interpretation arising under the Plan will be
determined by the Trust, in its sole discretion, and any such determination will
be final.
34. What are the federal income tax consequences of participation in the
Plan?
The following summarizes certain federal income tax considerations
applicable to current shareholders who participate in the Plan. New investors
and current shareholders should consult the discussion herein under the caption
"Federal Income Tax Considerations" for a summary of federal income tax
considerations related to the ownership of Shares generally.
The following summary is based upon an interpretation of current
federal tax law. Participants should consult their own tax advisors to determine
particular tax consequences, including state income tax (and non-income tax,
such as share transfer tax) consequences, which vary from state to state and
which may result from participation in the Plan and the subsequent disposition
of Shares acquired pursuant to the Plan. Income tax consequences to Participants
residing outside the United States will vary from jurisdiction to jurisdiction.
Current Shareholders
In the case of Shares purchased by the Plan Administrator pursuant to
the reinvestment feature of the Plan, whether purchased from the Trust or in the
open market, Participants will be treated for federal income tax purposes as
having received, on the Distribution payment date, a Distribution in an amount
equal to the amount of the cash Distribution that was reinvested.
Such Distribution will be taxable as a Distribution to the extent of
the Trust's current or accumulated earnings and profits. To the extent the
Distribution is in excess of the Trust's current or accumulated earnings and
profits, the Distribution will be treated first as a tax-free return of capital,
reducing the tax basis in a Participant's shares, and the Distribution in excess
of a Participant's tax basis will be taxable as gain realized from the sale of
its shares.
For Participants who are current shareholders of the Trust, it is not
entirely clear under current law how purchases of Shares from the Trust pursuant
to the optional cash purchase feature of the Plan should be treated for federal
income tax purposes. The Trust currently intends to take the position for tax
reporting purposes either that no distribution from the Trust has occurred in
connection with optional cash purchases, or, alternatively, that any such
distribution is not taxable as a Distribution. It is possible, however, that the
Internal Revenue Service ("IRS") might contend that Participants should be
treated for federal income tax purposes as having received a distribution from
the Trust in an amount equal to the excess, if any, of the fair market value
(determined as the average of the high and low trading prices) of the Shares on
the Investment Date less the amount of the optional cash payment, and that all
or a portion of such distribution should be treated as a taxable Distribution.
In the future, the Trust may, in light of subsequent developments in the tax
laws or for other reasons, treat as a taxable Distribution all, or a portion, of
the excess of the fair market value of the Shares credited to the Participant's
Plan account on the Investment Date less the amount of the optional cash
payment. Participants are encouraged to consult with their own tax advisors with
regard to the tax treatment of optional cash purchases.
38
<PAGE>
In the case of Shares purchased by the Plan Administrator on the open
market pursuant to the optional cash payment feature of the Plan, Participants
should not be treated for federal income tax purposes as having received a
distribution from the Trust.
General
A Participant's holding period for Shares acquired pursuant to the Plan
will begin on the day following the Investment Date. A Participant will have a
tax basis in the Shares equal to the amount of cash used to purchase the Shares.
A Participant will not realize any taxable income upon receipt of
certificates for whole Shares credited to the Participant's account, either upon
the Participant's request for certain of those Shares or upon termination of
participation in the Plan. A Participant will recognize gain or loss upon the
sale or exchange of Shares acquired under the Plan. A Participant will also
recognize gain or loss upon receipt, following termination of participation in
the Plan, of a cash payment for any fractional share equivalent credited to the
Participant's account. The amount of any such gain or loss will be the
difference between the amount that the Participant received for the Shares or
fractional share equivalent and the tax basis thereof.
35. How are income tax withholding provisions applied to Participants in the
Plan?
If a Participant fails to provide certain federal income tax
certifications in the manner required by law, distributions on Shares, proceeds
from the sale of fractional shares and proceeds from the sale of Shares held for
a Participant's account will be subject to federal income tax withholding at the
rate of 31%. If withholding is required for any reason, the appropriate amount
of tax will be withheld. Certain shareholders (including most corporations) are,
however, exempt from the above withholding requirements.
If a Participant is a foreign shareholder whose distributions are
subject to federal income tax withholding at the 30% rate (or a lower treaty
rate), the appropriate amount will be withheld and the balance in Shares will be
credited to such Participant's account. As a result of the Small Business Job
Protection Act of 1996, the Trust intends to withhold 10% of any distribution to
a foreign shareholder to the extent it exceeds the Trust's current and
accumulated earnings and profits.
36. Who bears the risk of market fluctuations in the Trust's Shares?
A Participant's investment in shares held in the Plan account is no
different from his or her investment in shares held directly. The Participant
bears the risk of any loss and enjoys the benefits of any gain from market price
changes with respect to such shares.
37. Who should be contacted with questions about the Plan?
All correspondence regarding the Plan should be directed to:
39
<PAGE>
AMERICAN STOCK TRANSFER AND TRUST COMPANY
REINVESTMENT DEPARTMENT
40 WALL STREET
NEW YORK, NY 10005
Please mention Pennsylvania Real Estate Investment Trust and this Plan in all
correspondence.
38. How is the Plan interpreted?
Any question of interpretation arising under the Plan will be
determined by the Trust and any such determination will be final. The Trust may
adopt and conditions of the Plan and its operation will be governed by the laws
of the Commonwealth of Pennsylvania.
39. What are some of the Participant responsibilities under the Plan?
Plan Shares are subject to escheat to the state in which the
Participant resides in the event that such shares are deemed, under such state's
laws, to have been abandoned by the Participant. Participants, therefore, should
notify the Plan administrator promptly in writing of any change of address.
Account statements and other communications to Participants will be addressed to
them at the last address of record provided by Participants to the Plan
Administrator.
Participants will have no right to draw checks or drafts against their
Plan accounts or to instruct the Plan Administrator with respect to any Shares
or cash held by the Plan Administrator except as expressly provided herein.
Distributions
The Trust has paid Distributions since its formation. In order to
accommodate the provisions of this Plan, the Trust anticipates that
Distributions will be payable on or about the fifteenth day of March, June,
September and December.
USE OF PROCEEDS
The Trust does not know either the number of Shares that will be
ultimately sold pursuant to the Plan or the prices at which such shares will be
sold. However, the Trust proposes to use the net proceeds from the sale of newly
issued Shares for general Trust purposes, repayment of indebtedness and for
working capital purposes.
PLAN OF DISTRIBUTION
Except to the extent the Plan Administrator purchases Shares in open
market transactions, the Shares acquired under the Plan will be sold directly by
the Trust through the Plan. The Trust may sell Shares to owners of shares or
Interested New Investors (including brokers or dealers) who, in connection with
any resales of such shares, may be deemed to be underwriters. In connection with
any such transaction, compliance with Regulation M under the Exchange Act would
be required. Such shares, including shares acquired pursuant to waivers granted
with
40
<PAGE>
respect to the optional cash payment feature of the Plan, may be resold in
market transactions (including coverage of short positions) on any national
securities exchange on which Shares trade or in privately negotiated
transactions. The Shares are currently listed on the New York Stock Exchange.
Under certain circumstances, it is expected that a portion of the Shares
available for issuance under the Plan will be issued pursuant to such waivers.
The difference between the price such owners pay to the Trust for Shares
acquired under the Plan, after deduction of the applicable discount from the
Market Price, and the price at which such shares are resold, may be deemed to
constitute underwriting commissions received by such owners in connection with
such transactions. Any such underwriter involved in the offer and sale of the
Shares will be named in an applicable Prospectus Supplement. Any underwriting
compensation paid by the Trust to underwriters or agents in connection with the
offering of the Shares, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in an applicable
Prospectus Supplement.
Subject to the availability of Shares registered for issuance under the
plan, there is no total maximum number of shares that can be issued pursuant to
the reinvestment of Distributions.
Except with respect to open market purchases of Shares relating to
reinvested Distributions, the Trust will pay any and all brokerage commissions
and related expenses incurred in connection with purchases of Shares under the
plan. Upon withdrawal by a participant from the plan by the sale of Shares held
under the plan, the participant will receive the proceeds of such sale less a
nominal fee per transaction paid to the Plan Administrator (if such resale is
made by the Plan Administrator at the request of a participant), any related
brokerage commissions and any applicable transfer taxes.
Shares may not be available under the plan in all states. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any Shares or other securities in any state or any other jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.
41
<PAGE>
SCHEDULE A
Optional Cash Payments
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Threshold Price and Optional Cash Pricing Period Pricing Period
Discount Set Date Payment Due Date Commencement Date Investment Date
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 25, 1999 March 29, 1999 March 30, 1999 April 15, 1999
- --------------------------------------------------------------------------------------------------------------
April 27, 1999 April 29, 1999 April 30, 1999 May 17, 1999
- --------------------------------------------------------------------------------------------------------------
May 25, 1999 May 27, 1999 May 28, 1999 June 15, 1999
- --------------------------------------------------------------------------------------------------------------
June 24, 1999 June 28, 1999 June 29, 1999 July 15, 1999
- --------------------------------------------------------------------------------------------------------------
July 27, 1999 July 29, 1999 July 30, 1999 August 16, 1999
- --------------------------------------------------------------------------------------------------------------
August 25, 1999 August 27, 1999 August 30, 1999 September 15, 1999
- --------------------------------------------------------------------------------------------------------------
September 27, 1999 September 29, 1999 September 30, 1999 October 15, 1999
- --------------------------------------------------------------------------------------------------------------
October 26, 1999 October 28, 1999 October 29, 1999 November 15, 1999
- --------------------------------------------------------------------------------------------------------------
November 24, 1999 November 29, 1999 November 30, 1999 December 15, 1999
- --------------------------------------------------------------------------------------------------------------
December 28, 1999 December 30, 1999 December 31, 1999 January 18, 2000
- --------------------------------------------------------------------------------------------------------------
January 26, 2000 January 28, 2000 January 31, 2000 February 15, 2000
- --------------------------------------------------------------------------------------------------------------
February 24, 2000 February 28, 2000 February 29, 2000 March 15, 2000
- --------------------------------------------------------------------------------------------------------------
March 28, 2000 March 30, 2000 March 31, 2000 April 17, 2000
- --------------------------------------------------------------------------------------------------------------
April 25, 2000 April 27, 2000 April 28, 2000 May 15, 2000
- --------------------------------------------------------------------------------------------------------------
May 25, 2000 May 30, 2000 May 31, 2000 June 15, 2000
- --------------------------------------------------------------------------------------------------------------
June 26, 2000 June 28, 2000 June 29, 2000 July 17, 2000
- --------------------------------------------------------------------------------------------------------------
July 26, 2000 July 28, 2000 July 31, 2000 August 15, 2000
- --------------------------------------------------------------------------------------------------------------
August 25, 2000 August 29, 2000 August 30, 2000 September 15, 2000
- --------------------------------------------------------------------------------------------------------------
September 26, 2000 September 28, 2000 September 29, 2000 October 16, 2000
- --------------------------------------------------------------------------------------------------------------
October 26, 2000 October 30, 2000 October 31, 2000 November 15, 2000
- --------------------------------------------------------------------------------------------------------------
November 27, 2000 November 29, 2000 November 30, 2000 December 15, 2000
- --------------------------------------------------------------------------------------------------------------
December 22, 2000 December 27, 2000 December 28, 2000 January 16, 2001
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Share Distribution Reinvestments (1)
- --------------------------------------------------------------------------------
Record Date Investment Date (2)
- --------------------------------------------------------------------------------
May 31, 1999 June 15, 1999
- --------------------------------------------------------------------------------
August 31, 1999 September 15, 1999
- --------------------------------------------------------------------------------
November 30, 1999 December 15, 1999
- --------------------------------------------------------------------------------
February 29, 2000 March 15, 2000
- --------------------------------------------------------------------------------
May 31, 2000 June 15, 2000
- --------------------------------------------------------------------------------
August 31, 2000 September 15, 2000
- --------------------------------------------------------------------------------
November 30, 2000 December 15, 2000
- --------------------------------------------------------------------------------
(1) The dates indicated are those expected to be applicable under the Plan with
respect to future Distributions, if and when declared by the Board of Trustees.
The actual record and payment dates will be determined by the Board of Trustees.
(2) The Investment Date relating to Distributions is also the pricing date with
respect to Common Shares acquired directly from the Trust with such
Distributions. See Question 12.
42
<PAGE>
New York Stock Exchange Holidays
- --------------------------------------------------------------------------------
1999 2000
- --------------------------------------------------------------------------------
New Year's Day -- (1)
- --------------------------------------------------------------------------------
Martin Luther King, Jr. Day -- January 17, 2000
- --------------------------------------------------------------------------------
President's Day February 15, 1999 February 21, 2000
- --------------------------------------------------------------------------------
Good Friday April 2, 1999 April 7, 2000
- --------------------------------------------------------------------------------
Memorial Day May 31, 1999 May 29, 2000
- --------------------------------------------------------------------------------
Independence Day (1) July 4, 2000
- --------------------------------------------------------------------------------
Labor Day September 6, 1999 September 4, 2000
- --------------------------------------------------------------------------------
Thanksgiving Day November 25, 1999 November 23, 2000
- --------------------------------------------------------------------------------
Christmas Day December 25, 1999 December 25, 2000
- --------------------------------------------------------------------------------
(1) Unknown at the date of this Prospectus because the holiday falls on a
weekend.
43
<PAGE>
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
Under the Trust Agreement, the Trust 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 in the Trust 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
Trust to vote with the Shareholders on certain matters, and the Trustees have
exercised that right as to holders of certain currently outstanding units of
limited partner interests in PREIT Associates ("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 preemptive rights
to purchase Trust 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, 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 Trust 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
44
<PAGE>
delivered to the Secretary of the Trust 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, 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 that 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 liable
personally 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 that the Trustees deem adequate to cover
foreseeable tort claims.
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.
45
<PAGE>
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 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 Trust 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 Trust 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 the Trust 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 exchanged automatically for the same number of
Shares for which the Excess Shares were exchanged originally. 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 Trust. 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 Trust, to have acted as an
agent on behalf of the Trust in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Trust.
The Trust Agreement further provides that Excess Shares shall be deemed
to have been offered for sale to the Trust 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 Trust or
its designee exercises its option to purchase. The Trust may purchase such
Excess Shares during a 90-day period, beginning on the date of the violation
transfer if the original transferee-Shareholder gives notice to the Trust of the
transfer or, if no notice is given, the date the Board of Trustees determines
that a violation transfer has been made.
46
<PAGE>
Each Shareholder upon demand is required to disclose to the Trust, 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 Trust
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 owned beneficially 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. 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 that would cause the Trust to be
owned beneficially 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 Trust'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 Trust 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 issued or outstanding currently.
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SUMMARY OF THE TRUST AGREEMENT
The following summary of the Trust Agreement is qualified in its
entirety by reference to the Trust Agreement, which is incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part.
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 Trust acquired its interest in 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.
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The Trustees may hold legal title to the Trust's properties on its
behalf or designate persons to so hold on behalf of the Trust. The Trustees have
complete control of the conduct of the Trust'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 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 Trust 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 Trust 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 Trust 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 Trust's By-laws provide for similar but not identical
indemnification rights.
Transactions with Trustees
The Trustees may deal with the Trust by rendering services for
reasonable compensation, buying property from or selling property to the Trust
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 that authorizes any such
transaction and may vote thereat to authorize any such transaction.
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Term
The Trust's term is perpetual. The Trust's existence does not terminate
automatically in the event the Trust fails to maintain its qualification as a
real estate investment trust for tax purposes.
Fundamental Transactions; Amendments
Any merger to which the Trust is a party (other than a merger with an
entity in which the Trust 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 Trust 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 Trust (other than to an entity
directly or indirectly controlled by the Trust) 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
in the Trust, 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 or 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 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 Trust 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., as amended (the "Operating
Partnership Agreement") is qualified in its entirety by reference to the
Operating Partnership Agreement, which is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part.
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General
The Trust is the sole general partner of the Operating Partnership. The
Trust contributed to the Operating Partnership, or to entities wholly owned by
the Operating Partnership, the real estate interests owned, directly or
indirectly, by the Trust, or the economic benefits thereof, in exchange for a
general partnership interest in the Operating Partnership and a number of Class
A Units which equaled, in the aggregate, the number of shares of beneficial
interest in the Trust issued and outstanding on September 30, 1997.
Management
Under the Operating Partnership Agreement, the Trust, 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 Trust, 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 previously. The Trust 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 Trust) consent to the
conduct of business activities outside the Operating Partnership.
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 Trust 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 Trust or an
affiliate of the Trust) have been redeemed, the holders of Units issued on
September 30, 1997 (other than the Trust or an affiliate of the Trust) 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 Trust 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 Trust 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 Trust 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.
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Redemption Rights
As of March 1999, the Operating Partnership has issued Units of Class A
limited partner interest and Units of Class B limited partner interest. 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 Trust 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 Trust upon the redemption of certain
outstanding Units pursuant to this provision of the Operating Partnership
Agreement.
If a notice of redemption is given, the Trust 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 Trust, in its capacity as general partner of
the Operating Partnership, of the notice of redemption. If the Trust 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
When the Operating Partnership acquires properties, the Operating
Partnership often enters into contracts that restrict the Operating
Partnership's ability to resell such properties. Those who are issued Units in
the transactions may have the right to prohibit such a sale if a certain number
of such Unit holders object to the sale, subject to certain conditions regarding
the form of the sale. Separate agreements may prohibit the Operating Partnership
from selling or otherwise disposing of properties in transactions unless the
sale takes a certain form or is undertaken in connection with a program to sell
a certain percentage of the Operating Partnership's assets.
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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, counsel for the Company, has provided an opinion letter to
the Company respecting the discussion set forth below under this heading
"Federal Income Tax Considerations," and this opinion 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 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
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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 PREIT Associates (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. To maintain its qualification as a REIT, a REIT must
satisfy two gross income requirements each year. First, at least 75% of the
REIT's gross income (excluding gross income from prohibited transactions) for
each year must be derived directly or indirectly from investments in 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 year must be derived from the same
items that 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 income 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 minimus
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
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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,
moreover, that the aggregate amount of any nonqualifying income in any taxable
year earned by the Operating Partnership and the Title Holding Partnerships has
not caused, and 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 Shares 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.
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 believes that it has complied, and anticipates that it will
continue 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 all assets deemed owned by the Operating Partnership
through its ownership of partnership interests in other partnerships. As a
result, the Company believes that more than 75% of its assets are 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 Shares of
PREIT-RUBIN. The Operating Partnership does not own any of the voting securities
of PREIT-RUBIN. The Company believes that its indirect interest in the
securities of PREIT-RUBIN did not as of September 30, 1997 and does not
currently exceed 5% of the total value of the Company's assets. However, no
independent appraisals have been obtained.
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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 own more than
10% of a management company's voting stock. However, in 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. We cannot assure you, however, that such other action will
always be successful.
It should also be noted that certain proposed changes to the tax laws
regarding REITs have been considered in the past and may be enacted in the
future. Of potential relevance to the Company are proposed changes in the
President's current budget proposals that would modify the 10% voting securities
test described above to include both vote or value, but would also permit
taxable REIT subsidiaries within certain limitations and subject to certain
restrictions. The proposal, if enacted as proposed, would not prohibit the
Company's current ownership of shares of PREIT-RUBIN, but it could limit the
Company's flexibility in future transactions between the Company and
PREIT-RUBIN.
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 corporate rates and also may be subject to a 4% excise tax on
undistributed income.
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.
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:
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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 applicable
"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 and other requirements.
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 have generally
been appreciated as of the time of contribution, and it is likely that
properties contributed in the future will also 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 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. If the Partnerships sell
contributed 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 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.
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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 could 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 properties for investment with a view to long-term appreciation, to
engage in the business of acquiring, developing, owning, and operating and
leasing 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 no property sale by the
Partnerships will constitute a sale of inventory or other property held
primarily for sale to customers.
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 20%-rate capital gain dividends will be taxed as long-term capital
gains, and distributions that are designated as 25%-rate gain dividends will be
taxed as 25%-rate gain, in each case 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), assuming the Shares are a capital asset in the hands of the shareholder.
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In addition, to the extent, if any, that the Company does not
distribute all its net capital gain (including 25%-rate 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 one year. Loss upon a sale or exchange of Shares by a
shareholder who has held such 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 (including both 20%- and 25%-rate 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 who
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 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.
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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 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.
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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 Trust, is of counsel to Drinker Biddle & Reath LLP.
Mr. Cohen is the beneficial owner of a substantial number of shares of
beneficial interest in the Trust.
EXPERTS
The financial statements and financial statement schedules incorporated
by reference in this Prospectus and elsewhere in the Registration Statement, to
the extent and for the periods indicated in their report, 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 giving said reports.
Some of the Company's historical financial statements were audited by
either Ernst & Young LLP, independent auditors, or Zelenkofske Axelrod and Co.,
Ltd., as set forth in their respective reports thereon included therein and
incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such reports given the authority of such
firms as experts in accounting and auditing.
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TABLE OF CONTENTS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................3
CAUTIONARY STATEMENT.........................................................5
THE COMPANY..................................................................5
RISK FACTORS.................................................................6
DESCRIPTION OF THE PLAN.....................................................16
USE OF PROCEEDS.............................................................40
PLAN OF DISTRIBUTION........................................................40
SCHEDULE A..................................................................42
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST................................44
SUMMARY OF THE TRUST AGREEMENT..............................................48
SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT..............................50
FEDERAL INCOME TAX CONSIDERATIONS...........................................53
LEGAL MATTERS...............................................................61
EXPERTS.....................................................................61
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