<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
-----------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________
Commission File No. 1-6300
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-6216339
- ------------------------------------------------ -------------------
(State or other jurisdiction of incorporation or (IRS Employer
organization) Identification No.)
The Bellevue
200 S. Broad St.
Philadelphia, Pennsylvania 19102
- --------------------------------------- ----------
(address of principal executive office) (Zip Code)
Trust's telephone number, including area code: (215) 875-0700
--------------
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
------------------- ---------------------
Shares of Beneficial Interest, par value New York Stock Exchange
$1.00 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Trust (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Trust was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value, as of March 26, 1999, of the voting shares held by
non-affiliates of the Registrant was $228,308,972.32. (Aggregate market value is
estimated solely for the purposes of this report and shall not be construed as
an admission for the purposes of determining affiliate status.)
On March 31, 1999, 13,314,223 Shares of Beneficial Interest, par value $1.00 per
share (the "Shares"), of the Trust were outstanding.
Documents Incorporated by Reference
The Registrant's definitive proxy statement for its April 29, 1999 Annual
Meeting is incorporated by reference in Part III hereof.
<PAGE>
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
--------------------
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
-------------------
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business..............................................................2
Item 2. Properties...........................................................24
Item 3. Legal Proceedings....................................................25
Item 4. Submission of Matters to a Vote of
Security Holders..................................................25
PART II
Item 5. Market for the Trust's Common Equity and Related Stockholder
Matters...........................................................26
Item 6. Selected Financial Data..............................................28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................29
Item 7A. Quantitative and Qualitative Disclosure About Market Risk............41
Item 8. Financial Statements and Supplementary Data..........................42
Item 9. Disagreements on Accounting and Financial Disclosure.................42
PART III
Item 10. Trustees and Executive Officers of the Trust .......................42
Item 11. Executive Compensation. . ...........................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management.......43
Item 13. Certain Relationships and Related Transactions.......................43
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....44
<PAGE>
Item 1. Business
Pennsylvania Real Estate Investment Trust, a Pennsylvania business
trust (the "Trust"), conducts substantially all of its operations through PREIT
Associates, L.P., a Delaware limited partnership (the "Operating Partnership").
As used herein, the term "Company" includes Pennsylvania Real Estate Investment
Trust, the Operating Partnership and their subsidiaries and affiliates,
including PREIT-RUBIN, Inc. (formerly The Rubin Organization, Inc.), a
commercial property development and management firm in which the Trust owns 95%
of the economic interests in the form of non-voting common shares (together with
its predecessors, the "Management Company"). The Management Company, prior to
September 30, 1997, is sometimes referred to herein as "TRO."
The Trust
The Trust, which is organized as a business trust under Pennsylvania
law, is a fully integrated, self-administered and self-managed real estate
investment trust ("REIT"), founded in 1960, which acquires, develops, redevelops
and operates retail and multifamily properties.
The Trust owns interests in 20 shopping centers (the "Existing Retail
Properties") containing an aggregate of approximately 8.0 million square feet,
19 multifamily properties (the "Multifamily Properties") containing 7,243 units,
six industrial properties with an aggregate of approximately 700,000 square feet
and three parcels of undeveloped land. In addition, the Trust has entered into
an agreement to acquire an interest in a shopping center containing an aggregate
of approximately 340,000 square feet (the "Acquisition Property"). The Trust
also owns interests in five shopping centers under development (the "Development
Properties"), which are expected to contain an aggregate of approximately 2.2
million square feet upon completion. Two of the Development Properties are under
construction currently and the Trust anticipates currently that the remaining
three Development Properties will be completed during the year 2000. There is no
assurance that all five Development Properties will be completed successfully.
The Trust also provides management, leasing and development services to
33 retail properties containing approximately 13.3 million square feet, 8 office
buildings containing approximately 2.5 million square feet and 4 mulitfamily
properties with approximately 0.8 million square feet for affiliated and
third-party owners.
Change in Fiscal Year
The Trust changed its fiscal year from August 31 to December 31,
commencing with the year ending December 31, 1998.
-2-
<PAGE>
Recent Developments
Warrington Acquisition
On January 14, 1999, the Company, through two subsidiaries, completed
the acquisition of two separate interests in certain real property located in
Warrington Township, Bucks County, Pennsylvania. PR Warrington Limited
Partnership acquired a unit in a condominium created by PR Warrington Limited
Partnership, Dayton Hudson Corporation ("Target") and Lowe's Home Centers, Inc.
("Lowes"). PR Warrington, Target and Lowe's have obtained land development
approval from Warrington Township to develop the property as a shopping center.
PR Warrington Limited Partnership is a Pennsylvania limited partnership whose
general partner is PR Warrington LLC, a Pennsylvania limited liability company,
whose sole member is the Operating Partnership. The sole limited partner of PR
Warrington Limited Partnership is the Operating Partnership.
PR Titus Limited Partnership acquired fee title to vacant land
containing approximately 17.5 acres adjacent to the condominium property. The
general partner of PR Titus Limited Partnership is PR Titus LLC, whose sole
member is the Operating Partnership. The sole limited partner of PR Titus
Limited Partnership is the Operating Partnership. PR Warrington Limited
Partnership and PR Titus Limited Partnership each acquired its interest for
cash.
Finally, the Operating Partnership acquired a right of first refusal to
acquire another tract adjoining the condominium property containing
approximately 64 acres.
-3-
<PAGE>
Structure Of The Trust
The Operating Partnership holds substantially all of the Trust's
assets. As the sole general partner of the Operating Partnership, the Trust has
the exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions. The Trust currently owns
92.1% of the Operating Partnership. The Trust anticipates that all acquisitions
of interests in real estate will be owned, directly or indirectly, by the
Operating Partnership. Set forth below is a diagram of the ownership structure
of the Trust as of December 31, 1998.
+--------------------------+
| Pennsylvania Real Estate |
| Investment Trust (1) |
+--------------------------+
| 92.1%
|
|
| +------------+
| | Minority |
| | Limited |
| | Partners(2)|
| +------+-----+
+----------------+ | | 7.9%
| Employee Stock | | |
| Bonus Plan | | |
+----------------+ | |
| 5% (voting) | |
| +-----------+------------+-+
| +---------------| PREIT Associates, L.P. |
| | +-----------+--------------+
| | |
| | 95% (non-voting) |
| | |
+-----------------+ |
| PREIT-RUBIN, | |
| Inc. | |
+-----------------+ |
|
|
|
+-------------------------+
| 53 Properties(3) |
+-------------------------+
- ----------------------
(1) Sole general partner of the Operating Partnership. The Trust holds
99.3% of its units of limited partner interest in the Operating
Partnership ("Units") as general partner and 0.7% of its Units as a
Class A Limited Partner.
(2) Includes an aggregate of 589,122 OP Units (4.1% of the aggregate of all
OP Units outstanding) owned by the persons who were former shareholders
and affiliates of the Management Company, prior to the TRO Transaction,
including Ronald Rubin, Chief Executive Officer and Trustee of the
Trust. Under the terms of the TRO Transaction, such persons have the
right to receive up to 767,500 additional OP Units in respect of their
ownership interest in the Management Company, depending on Adjusted FFO
of the Trust over the four year, nine month period commencing on
January 1, 1998, and also to receive additional OP Units in respect of
their interest in the Acquisition Property, three of the Development
Properties and a completed joint venture project. Although not yet
issued, the former shareholders and affiliates of the Management
Company are entitled to 130,000 units for the 12 month period from
January 1, 1998 through December 31, 1998.
(3) Interests in certain of these properties are (i) owned directly by the
Trust under arrangements in which the entire economic benefit of
ownership has been pledged to the Operating Partnership, or (ii) owned
directly by the Operating Partnership. The interest of the Operating
Partnership in these properties ranges from 40% to 100%.
-4-
<PAGE>
The Existing Retail Properties
The Trust has interests in 20 retail properties containing an aggregate
of approximately 8.0 million square feet. Twelve of these properties are
operated currently by the Management Company, of which ten are wholly-owned and
two are joint ventures. The remaining 8 joint venture retail properties are
managed by the Trust's joint venture partners, or an entity designated by the
Trust and the partner, and in most such instances a change in the management of
the property requires the concurrence of both partners. Eleven of the 20
Existing Retail Properties (containing an aggregate of approximately 4.9 million
square feet) are located in Pennsylvania, three (containing an aggregate of
approximately 0.5 million square feet) are located in Florida, two (containing
an aggregate of approximately 1.0 million square feet) are located in Maryland
and one in each of Delaware, Massachusetts, New Jersey and South Carolina
(containing an aggregate of approximately 1.6 million square feet).
The following table sets forth certain information regarding the
Existing Retail Properties, as of December 31, 1998:
-5-
<PAGE>
<TABLE>
<CAPTION>
Year Built Total Total Leased
Percent or Square Owned GLA Square Percent
Real Property Location Owned* Renovated(1) Feet(2) Square Feet Feet Leased(3) Anchors
- ------------- -------- ------- ------------ ------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lehigh Valley Allentown, PA 50% 1977/1996 1,051,712 699,359 685,372 98% JC Penney, Strawbridges,
Mall Macy's
The Court at Langhorne, PA 50% 1996 704,486 456,862 456,862 100 Dicks Sporting Goods, Best
Oxford Valley Buy, Pharmor, HomePlace,
The Home Depot, BJ
Wholesale Club
North North Dartmouth, 100% 1971/1987 639,419 639,419 549,900 86 JC Penney, Sears, Ames,
Dartmouth Mall MA General Cinema
Whitehall Mall Allentown, PA 50% 1964/82/98/99 534,193 534,193 400.645 75 Sears, Kohl's
Magnolia Mall Florence, SC 100% 1979/1992 567,557 567,557 556,206 98 JC Penney, Sears, Belk,
Rose's
Laurel Mall Hazleton, PA 40% 1973/1995 558,798 558,798 542,034 97 Boscov's, Kmart, JC Penney
Palmer Park Easton, PA 50% 1972/1982 458,542 458,542 421,859 92 The Bon-Ton, Boscov's
Mall
Forestville, Forestville, MD 100% 1974/1983 218,034 218,034 138,674 64 Ames, US Postal Service,
S/C Super Fresh
Mandarin Jacksonville, FL 100% 1986 238,867 215,019 212,869 99 Walmart, Upton's, Carmike
Corners Cinemas
Springfield Springfield, PA 50% 1963/1997 268,500 122,831 105,635 86 Target, Bed Bath & Beyond
Park I & II(4)
Rio Mall Rio Grande, NJ 50% 1973/1992 159,415 159,415 111,591 70 Kmart, Staples
Crest Plaza S/C Allentown, PA 100% 1959/1991 154,370 154,370 117,321 76 Weis Market, Eckerd
Drug Store
Park Plaza S/C Pinellas Park, FL 50% 1963/1983 155,528 155,528 135,309 87 Eckerd Drug Store, Ace
Hardware, Publix
Supermarket
South Blanding Jacksonville, FL 100% 1986 106,857 106,857 100,446 94 Food Lion, Scotty's
Village
Ingleside Thorndale, PA 70% 1981/1995 101,271 101,271 101,271 100 Kmart
Center
Festival at Exton, PA 100% 1991 139,446 139,446 132,474 95 Sears Hardware, Clemens
Exton
Northeast Philadelphia, PA 89% 1998 483,604 346,971 180,425 52 Home Depot, Dick's
Tower Sporting Goods
Center(5)
Prince Hyattsville, MD 100% 1959/1990 745,206 745,206 693,042 93 G.C. Murphy, J.C. Penny,
George's Plaza Hecht's
Red Rose Lancaster, PA 50% (6) 1998 459,707 261,424 237,896 91 Weis Market, Home Depot
Commons
Christiana Newark, DE 100% 1998 302,602 302,602 242,082 80 Costco, Dick's Sporting
Power Center ------- ------- ------- -- Goods
Phase I
Total/Weighted Average 8,048,114 6,943,704 6,121,913 88%
(20 Properties) ========= ========= ========= ===
</TABLE>
- -----------------------
* By the Operating Partnership; the Trust owns approximately 92.1% of the
Operating Partnership.
(1) Year initially completed and, where applicable, the most recent year in
which the property was renovated substantially or an additional phase of the
property was completed.
(2) Total Square Feet includes space owned or ground leased by anchors; Owned
Square Feet and Percent Leased excludes such space.
(3) Percent Leased is calculated as a percent of Owned Square Feet for which
leases were in effect as of December 31, 1998.
(4) With respect to Phase I, the Trust has an undivided one-half interest in one
of three floors in a free standing department store.
(5) The Trust will acquire the remaining 11% ownership interest, which the Trust
currently expects to occur by the first quarter of 2002.
(6) Subject to reduction to 25% under the terms of the agreement under which the
property was acquired.
-6-
<PAGE>
The following table sets forth certain information regarding each
anchor in the Existing Retail Properties:
Anchor and Square Footage
as of December 31, 1998
<TABLE>
<CAPTION>
# Anchor Square Footage Square Footage Total Square
Anchor Name(1) Stores Owned By Anchors Leased By Anchors Footage Occupied
- ----------- -------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Ames 2 - 166,539 166,539
Bed, Bath & Beyond 1 - 56,000 56,000
Belk 1 - 115,793 115,793
Boscov's 2 - 375,110 375,110
Clemens Markets 1 - 40,000 40,000
Costco 1 - 140,814 140,814
Dick's Sporting Goods 3 158,101 158,101
Food Lion 1 - 29,000 29,000
GC Murphy 1 - 60,029 60,029
Hecht's 1 - 195,655 195,655
Home Depot 3 400,584 - 400,584
IGA 1 - 21,700 21,700
J.C. Penney 4 187,659 403,137 590,796
K-Mart 3 - 308,652 308,652
Kohl's 1 - 81,785 81,785
Macy's 1 - 212,000 212,000
Publix 1 - 33,490 33,490
Rose's 1 - 53,200 53,200
Scotty's 1 - 44,921 44,921
Sears 4 - 412,454 412,454
Sears Hardware 1 - 20,425 20,425
Staples 1 - 20,000 20,000
Super Fresh 1 - 24,750 24,750
The Bon Ton 1 - 122,125 122,125
Upton's 1 - 51,800 51,800
Walmart 1 23,848 58,074 81,922
Weis Market 2 65,074 45,000 110,074
-- ------- --------- ---------
Total 42 677,165 3,250,544 3,927,719
== ======= ========= =========
</TABLE>
- ---------------------
(1) Actual tenant may be an affiliate of the entity listed.
The following table shows, as of December 31, 1998, scheduled lease
expirations of malls and shopping centers for the next 10 years, assuming that
none of the tenants exercise renewal options or termination rights:
-7-
<PAGE>
<TABLE>
<CAPTION>
Base Rent % of Total
Annualized Approximate Per Square Leased GLA (1)
Number of Base Rent Square Feet Foot of Represented By
Year Ending Leases of Expiring Of Expiring Expiring Expiring
December 31 Expiring Leases Leases Leases Leases
----------- -------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1999 61 $ 2,685,724 390,317 $ 6.88 6.39%
2000 84 3,052,178 233,617 13.06 3.82%
2001 89 4,630,608 610,492 7.59 9.99%
2002 68 3,281,032 200,587 16.36 3.28%
2003 60 3,924,655 305,578 12.84 5.00%
2004 36 3,518,744 245,983 14.30 4.03%
2005 35 2,246,268 103,181 21.77 1.69%
2006 54 5,879,549 631,139 9.32 10.33%
2007 44 5,192,338 653,973 7.94 10.70%
2008 43 5,520,211 672,172 8.21 11.00%
-- --------- ------- ---- ------
Total/ 574 $39,931,307 4,047,039 $9.87 66.23%
Weighted === ========== ========= ===== ======
Average
</TABLE>
- --------------------
(1) Percentage of total leased GLA = Approx. GLA of expiring leases / total
leased GLA square feet (6,121,913)
The Acquisition Property
Hillview Shopping Center (the "Acquisition Property") (in which the
Trust may acquire a 50% interest) is a "power center" which may be acquired from
TRO Affiliates as part of the TRO Transaction. The Trust's actual aggregate
purchase price (assumed debt and equity) for Hillview, assuming Hillview is, in
fact, acquired, will be based on a formula that capitalizes cash flow from
leased and occupied space, and space leased but not yet occupied, to
credit-worthy tenants, values triple net leases with purchase arrangements at
the present value of payments in excess of related debt amortization, and values
all other space as mutually agreed or, failing agreement, pursuant to
appraisals. The equity portion of the purchase price will be payable, in each
case, in Class A OP Units valued currently at $23.40 per OP Unit, which was the
average of the closing prices of the Shares on the twenty trading days prior to
July 30, 1997, the date on which the definitive documentation for the
acquisition of the Acquisition Property was executed, but to be adjusted to
reflect the Trust's recapitalization that occurred in December 1997.
Accordingly, the actual purchase will be a function of lease-up activity, and
other factors, prior to acquisition by the Trust.
The following table sets forth certain information, as of December 31,
1998, regarding the Acquisition Property.
-8-
<PAGE>
<TABLE>
<CAPTION>
Planned
Percent Estimated Planned Owned
To Be Acquisition Square Square Construction
Acquisition Property Location Acquired* Date Feet Feet Anchors Status
-------------------- -------- -------- ----------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hillview Shopping Center Cherry Hill, NJ 50% 2000 340,000 340,000(1) Target, Completed
Kohl's
PETsMART,
HomePlace,
Babies 'R Us
</TABLE>
- ---------------------------
* By the Operating Partnership; the Trust currently owns approximately 92.1%
of the Operating Partnership.
(1) Includes 261,000 square feet of retail space situated on land leased to
tenants that own their own buildings.
The Development Properties
The Trust has rights in five Development Properties - Blue Route
Metroplex, Christiana Power Center Phase II, Paxton Towne Center, Valley View
and Creekview Shopping Center - with the rights to Blue Route Metroplex and
Christiana Power Center Phase II subject to the TRO Contribution Agreement.
As each of the Development Properties in which the Trust acquired
rights in as part of the TRO Transaction is completed and leased up, it will be
valued based on the following principles: (i) all space leased and occupied by
credit-worthy tenants will be valued at ten times adjusted cash flow (computed
as specified in the agreement); and (ii) all space leased to a credit-worthy
tenant but unoccupied will be valued at ten times adjusted cash flow calculated
as though the space was built and occupied as set forth in the budget in the
property, and (iii) space not leased or occupied, whether built or unbuilt, will
be valued as mutually agreed on or, failing agreement, by appraisal. Additional
provisions exist for valuing triple net lease/purchase arrangements. Although
each project will be valued as completed and an "account" established against
which Class A OP Units will be deemed to be credited, as well as deemed cash in
an amount that would have been distributed on such deemed Units and a 10%
interest factor on such deemed cash, no consideration will be paid until the
earlier of (x) the completion of the last property, and (y) the abandonment by
the Trust of any uncompleted projects, and (z) September 30, 2002.
At that time, any uncompleted project will be valued and the Operating
Partnership will issue Class A OP Units equal in value to 50% of the amount, if
any, by which the value of the Operating Partnership's interest in each project
exceeded the aggregate cost of such project at the time of completion. Negative
amounts arising in connection with the completion or abandonment of any project
will be netted back against earlier completed projects in order of completion.
Class A OP Units issued in respect of the foregoing valuations of the projects
will be valued at the greater of (x) average of the closing prices of the Shares
for the twenty trading days prior to the date of the completion valuation and
(y) $19.00. If the average of the closing prices of the Shares on the 20 trading
days prior to each valuation is less than $19.00, additional OP Units, of a new
class but equal in value to those Class A OP Units not issued because of the
operation of the pricing limitation, will be issued.
-9-
<PAGE>
The following table sets forth certain information, as of December 31,
1998, regarding the Development Properties:
<TABLE>
<CAPTION>
Planned
Percent Planned Owned
To Be Square Square Expected
Development Property Location Acquired* Feet Feet(4) Status(5) Completion
-------------------- -------- --------- ------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Blue Route Metroplex (1) Plymouth Meeting, PA 50%(2) 760,000 319,000 Development 4th Quarter of 2000
Christiana Power Center (3) Newark, DE 50% 312,450 150,000 Development 4th Quarter of 2000
(Phase II)
Creekview Shopping Center Warrington, PA 100%(6) 390,000 97,500 Construction 2nd Quarter of 2000
Valley View Wilmington, DE 100% 56,000 56,000 Construction 2nd Quarter of 1999
Paxton Towne Center Harrisburg, PA 50% 677,212 373,000 Development 2nd Quarter of 2000
--------- -------
TOTAL (5 Properties) 2,195,662 995,500
========= =======
</TABLE>
- -----------------------
* By the Operating Partnership; the Trust currently owns approximately 92.1%
of the Operating Partnership.
(1) Construction of this project is subject to obtaining site plan approval.
(2) Subject to reduction to 25% under the terms of the agreement under which the
property was acquired.
(3) This project is not currently zoned for retail use and participation by the
Trust in the development is subject to rezoning.
(4) Square footage subject to change.
(5) "Development" indicates that development activities, such as site surveys,
preparation of architectural plans, or initiation of land use approvals or
rezoning processes, have commenced (but construction has not commenced).
"Construction" indicates that construction activities, such as site
preparation, ground-breaking activities, or exterior construction, has
commenced. There is no assurance that the properties which remain in the
Development stage will be constructed ultimately.
(6) An affiliate of the Trust owns one unit in a three-unit condominium regime
that constitutes the Shopping Center. The other two units are owned by
Target and Lowe's, respectively.
The Multifamily Properties
The Trust has interests in 19 multifamily properties with an aggregate
of 7,243 units. The Trust manages thirteen of its Multifamily Properties, and
the remaining six Multifamily Properties are managed by one or more partners of
the Trust. If the current managers of the Multifamily Properties that are not
managed by the Trust currently are unable or unwilling to perform their
obligations or responsibilities, the Trust would manage those properties with
its own staff.
-10-
<PAGE>
The following table sets forth certain information, as of December 31,
1998, regarding the 19 Multifamily Properties in which the Trust has an
interest:
<TABLE>
<CAPTION>
Approx. Fiscal 1998
Year Number Rentable Average
Multifamily Percent Built/ Of Area Percent Rent
Property Location Owned* Renov(1) Units(2) (Sq. Ft.) Occupied per Unit
- ----------- -------- ------- -------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Emerald Virginia Beach, VA 65% 1965/1993 862 846,000 94% $ 541
Point
Boca Palms Boca Raton, FL 100% 1970,1991 522 673,000 95 913
/1994
Lakewood Harrisburg, PA 100% 1972, 1975, 562 630,000 96 646
Hills 1982/1988
Regency Omaha, NE 50% 1970/1990 433 492,000 96 956
Lakeside
Kenwood Toledo, OH 100% 1951/1989 504 404,000 97 420
Gardens
Fox Run, Bear, DE 100% 1988 414 359,000 89 561
Delaware
Eagle's Nest Coral Springs, FL 100% 1989 264 343,000 94 751
Palms of Pembroke Pines, FL 100% 1989/1995 348 340,000 95 903
Pembroke
Hidden Lakes Dayton, OH 100% 1987/1994 360 306,000 91 616
Cobblestone Pompano Beach, FL 100% 1986/1994 384 297,000 96 723
Countrywood Tampa, FL 50% 1977/1997 536 295,000 100 465
Shenandoah West Palm Beach, FL 100% 1985/1993 220 286,000 96 930
Village
Marylander Baltimore, MD 100% 1951/1989 508 279,000 96 514
Camp Hill Camp Hill, PA 100% 1967/1994 300 277,000 95 669
Plaza
Fox Run, Warminster, PA 50% 1969/1992 196 232,000 100 688
Warminster
Cambridge West Chester, PA 50% 1967/1993 233 186,000 99 646
Hall
Will-O-Hill Reading, PA 50% 1970/1986 190 152,000 97 545
2031 Locust Philadelphia, PA 100% 1929/1986 87 89,000 97 1,257
Street
The Woods Ambler, PA 100% 1974 320 235,000 96 766
----- --------- --- ------
Total/Weighted Average 7,243 6,721,000 95% $ 667
(19 Properties) ===== ========= === ======
</TABLE>
- -----------------------
* By the Operating Partnership; the Trust currently owns approximately 92.1%
of the Operating Partnership.
(1) Year initially completed and most recently renovated, and where applicable,
year(s) in which additional phases were completed at the property.
(2) Number of Units includes all apartment and commercial units occupied or
available for occupancy at December 31, 1998.
Other Properties
Shortly following the organization of the Trust, it acquired six
industrial properties. The Trust has not acquired any property of this type in
over 20 years and the Trust does not consider these properties to be
strategically held assets. These properties, in the aggregate, contributed less
than 3% of the Trust's net rental income in the Trust's fiscal year ending
December 31, 1998, and the Trust is currently studying a program for the orderly
liquidation of these assets.
-11-
<PAGE>
The following table sets forth certain information, as of December 31,
1998, regarding the six industrial properties:
Industrial Properties
<TABLE>
<CAPTION>
Year Percent Square
Property and Location Acquired Owned* Feet Percentage Leased
- --------------------- -------- ------- ------- -----------------
<S> <C> <C> <C> <C>
Warehouse and 1962 100% 294,000 100%
Distribution Center
Alexandria, VA
Warehouse 1962 100% 12,000 100%
Pennsauken, NJ
Warehouse 1962 100% 16,000 100%
Allentown, PA
Warehouse 1963 100% 30,000 100%
Pennsauken, NJ
Warehouse and Plant 1963 100% 197,000 100%
Lowell, MA
Warehouse and Plant 1962 50% 141,000 100%
Ft. Washington, PA -------
Total 690,000
=======
</TABLE>
- -----------------------
* By the Operating Partnership; the Trust currently owns approximately 92.1% of
the Operating Partnership.
The Trust holds interests in three parcels of undeveloped land. Over
the next 12 months, the Trust anticipates determining, with its respective joint
venture partners, whether any of these parcels present appropriate development
opportunities for the Trust, and if not, an appropriate course of action to
liquidate these assets.
The following table sets forth certain information, as of December 31,
1998, regarding the three land parcels:
Year Percent
Property and Location Acquired Owned* Acres
- --------------------- -------- ------- -----
Rancocas, NJ 1971 75% 54
Elizabethtown, PA 1972 50% 22
Coral Springs, FL 1990/1998 100% 14
--
Total 90
==
- ----------------------------
* By the Operating Partnership; the Trust currently owns approximately 92.1% of
the Operating Partnership.
-12-
<PAGE>
Right of First Refusal Properties.
The Trust obtained rights of first refusal with respect to the
interests of certain TRO Affiliates in the three retail properties listed below:
Rights of First Refusal Properties
Percentage Interest
Gross Leasable Subject to the Right
Property/Location Sq. Ft. of First Refusal
- ----------------- -------------- --------------------
Cumberland Mall, 463,000 50%
Vineland, NJ
Fairfield Mall, 418,000 50%
Chicopee, MA
Christiana Mall, 1,100,000 (1)
Newark DE ---------
Total 1,981,000
=========
- ---------------------
(1) The interest subject to the right of first refusal is subject to adjustment
in connection with the refinancing of the participating mortgage that
currently encumbers this property.
Acquisition of The Rubin Organization
On September 30, 1997, the Trust completed a series of related
transactions pursuant to which the Trust: (i) transferred substantially all of
its real estate interests to PREIT Associates, L.P. of which the Trust is the
sole general partner; (ii) the Operating Partnership acquired all of the
nonvoting common shares of The Rubin Organization, Inc. ("TRO"), a commercial
real estate development and management firm (renamed "PREIT-RUBIN, Inc."),
constituting 95% of the total equity of PREIT-RUBIN, Inc. in exchange for the
issuance of 200,000 Class A Operating Partnership ("OP") Units and a provision
to issue up to 800,000 additional Class A OP Units over the next five years
according to a formula based upon the Company's per share growth in adjusted
funds from operations; (iii) the Operating Partnership acquired the interests of
certain affiliates of TRO ("TRO Affiliates") in The Court at Oxford Valley,
Magnolia Mall, North Dartmouth Mall and Springfield Park; (iv) the Operating
Partnership agreed to acquire the interests of TRO Affiliates in Hillview
Shopping Center and Northeast Tower Center, at prices based upon a
pre-determined formula; and (v) the Operating Partnership acquired the
development rights of certain TRO Affiliates, subject to related obligations, in
Christiana Power Center (Phase I and II), Red Rose Commons and Blue Route
Metroplex.
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<PAGE>
As part of the September 30, 1997 transactions discussed above, the
Trust entered into a contribution agreement (the "TRO Contribution Agreement")
which includes a provision to issue up to 800,000 additional Class A OP units
over the five-year period beginning October 1, 1997 and ending September 30,
2002 according to a formula based upon the Company's adjusted funds from
operations per share during the five year period. The TRO Contribution Agreement
established "hurdles" and "targets" during specified "earn-out periods" to
determine whether, and to what extent, the Contingent TRO OP Units will be
issued. For the three months ended December 31, 1997, 32,500 OP units were
earned, resulting in additional purchase price of approximately $830,000.
Pursuant to the TRO Contribution Agreement, the hurdles and targets were
adjusted on December 29, 1998 to account for the dilutive effect of the Trust's
December 1997 public offering, as follows:
<TABLE>
<CAPTION>
Per Share Adjusted
FFO Base No. Max. No.
-------------------------- Contingent Contingent
Earn-Out Period Hurdle Target TRO OP TRO OP
- --------------- ------ ------ ---------- ----------
<S> <C> <C> <C> <C>
1-1-98 to 12-31-98 2.13 2.39 20,000 130,000
1-1-99 to 12-31-99 2.30 2.58 57,500 167,500
1-1-00 to 12-31-00 2.43 2.72 57,500 167,500
1-1-01 to 12-31-01 2.72 3.03 57,500 167,500
1-1-02 to 9-30-02 2.19 2.43 52,500 135,000
------- -------
Total 245,000 767,500
======= =======
</TABLE>
In general, (i) if the hurdle for any earn-out period is not met, no
Contingent TRO OP Units will be issued in respect of such period, (ii) if the
target for any earn-out period is met, the maximum number of Contingent TRO OP
Units for such period will be issued, and (iii) if Adjusted FFO for any earn-out
period is between the hurdle and the target for such period, the Operating
Partnership would issue the base Contingent TRO OP Units for such period, plus a
pro rata portion of the number of Contingent TRO OP Units by which the maximum
Contingent TRO OP Units exceeded the base Contingent TRO OP Units for such
period equal to the amount by which the per share Adjusted FFO exceeded the
hurdle but was less than the target.
The foregoing is subject to the right to carry back to prior earn-out
periods amounts in excess of the target in the current period, thereby earning
additional Contingent TRO OP Units (but never more than the maximum amount) and
to carry forward into the next, but only the next, earn-out period amounts of
per share Adjusted FFO which exceed the target in any such period, provided, in
all cases, no amounts in excess of the target in any period may be applied to
result in the issuance of additional Contingent TRO OP Units in any other period
until first applied to eliminate all shortfalls from targets in all prior
periods.
The TRO Contribution Agreement provides that in the event of a share
split, share dividend or other similar change in the capitalization of the
Trust, the "hurdle" and "target" levels will be proportionately adjusted. The
TRO Contribution Agreement also provides for the creation of a special committee
of three independent Trustees to consider, among other matters, whether other
equitable adjustments, either upward or downward, should be effected in the
"hurdle" and "target" levels to reflect: (i) the incurrence by the Trust of
non-project specific indebtedness or the raising by the Trust of equity capital;
(ii) any breach by the Trust of its representations or warranties in the TRO
Contribution Agreement which may adversely affect Adjusted FFO; and (iii) the
effect which any adverse judgment in litigation pending against the Trust may
have on Adjusted FFO.
-14-
<PAGE>
For the year ended December 31, 1998, 130,000 OP units were earned
which will result in an additional purchase price of approximately $2.5 million.
For the three years and nine months commencing January 1, 1999, the Trust may be
required to issue the remaining 637,500 Units, depending on the Trust's per
share "adjusted funds from operations" ("Adjusted FFO") during such period.
"Adjusted FFO" is defined as the Trust's consolidated net income for any period,
plus, to the extent deducted in computing such net income: (i) depreciation
attributable to real property; (ii) certain amortization expenses; (iii) the
expenses of the TRO Transaction; (iv) losses on the sale of real estate; (v)
material write-downs on real estate; (vi) material prepayment fees; and (vii)
rents currently due in excess of rents reported, minus: (i) rental revenue
reported in excess of amounts currently due; (ii) lease termination fees; and
(iii) gains on the sale of real estate.
Competition, Regulation and Other Factors
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.
-15-
<PAGE>
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 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 Trust'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.
-16-
<PAGE>
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 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
-17-
<PAGE>
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 the Operating Partnership 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.
As of December 31, 1998, the Company's Leverage Ratio was approximately
54.8%. Until we reduce our leverage ratio below 50%, the lending banks hold
unrecorded mortgages on eleven unencumbered properties which the Operating
Partnership owns, directly or indirectly, and are entitled to record such
mortgages upon any event of default.
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 Trust does not own the entire
interest in connection with many of the properties held by a partnership or
joint venture, the Trust 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 Trust in order to protect its equity interest in such
property owned by such partnership or joint venture. Additionally, the Trust may
determine to pay a partnership's or joint venture's obligation in order to
protect the Trust's equity interest in its assets.
Governance
Partnerships and Joint Ventures. Generally, we hold interests in our
portfolio properties through the Operating Partnership. 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.
-18-
<PAGE>
Business disagreements with partners may arise. The Trust may incur
substantial expenses in achieving a resolution of such disputes. To preserve its
investment, the Trust 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
Trust's resolution of a dispute with a partner will be on terms that are
favorable to the Trust.
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
Trust restricts the possibility of sale or change in control of the Trust, 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 the Operating Partnership may suffer adverse tax consequences if certain
properties owned by the Operating Partnership are sold, the Trust, as the
general partner of the Operating Partnership, 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 the Operating Partnership 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."
-19-
<PAGE>
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 Trust's
policies. We cannot assure you that changes in our policies will serve fully the
interests of all shareholders.
The Operating Partnership; Required Vote of Limited Partners on
Fundamental Changes. Our assets are generally held through the Operating
Partnership, a Delaware limited partnership whose sole general partner is the
Trust. The Trust currently holds a majority of the limited partner interests in
the Operating Partnership. However, the Operating Partnership may from time to
time issue additional limited partner interests in the Operating Partnership to
third parties in exchange for contributions of property to the Operating
Partnership. These issuances will dilute the Trust's percentage ownership of the
Operating Partnership. Limited partner interests in the Operating Partnership
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 Trust'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 the Operating Partnership.
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.
The Management Company
Lack of Control of the Management Company. Although the Operating
Partnership owns 95% of the equity interests in our management affiliate, the
Management Company, all of the voting stock of the Management Company is owned
by a stock bonus plan created for the benefit of the Management Company's
employees. The Management Company's 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. The Management
Company's Board of Directors appoints the Stock Bonus Plan Committee's members.
Thus, the Trust does not control the day-to-day operations of the Management
Company 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.
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<PAGE>
Third-Party Management Business. The Management Company 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
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 the Management Company. The interest of
those members of our management who are also Management Company affiliates may
diverge from the interests of the shareholders.
The Management Company's employees work on behalf of the Trust.
However, the Management Company will continue to render management, development,
leasing and related services to a substantial number of properties in which
affiliates of the Management Company retain equity interests. We believe that
the Management Company's management arrangements with these entities are on
terms at least as favorable to the Management Company as the average of
management arrangements with parties unrelated to the Management Company. In
addition, the Management Company 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.
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<PAGE>
From time to time, we respond to inquiries from environmental
authorities with respect to properties both currently and formerly owned by the
Trust. 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 our financial condition or results of operations.
We have no way of determining at this time the magnitude of any
potential liability to which we may be subject arising out of unknown
environmental conditions or violations with respect to the properties formerly
owned by the Trust. Environmental laws today can impose liability on a previous
owner or operator of a property that owned or operated such property at a time
when hazardous or toxic substances were disposed of, or released from, the
property. A conveyance of the property, therefore, does not relieve the owner or
operator from liability.
As to five properties, two of which we no longer own, we or a
partnership in which we have an interest have responded to inquiries from
environmental authorities. In one of these properties, we believe that the
contamination was caused by a former tenant and we have sought indemnification
from the tenant. The estimated cost to remediate this property ranges from $0.1
million to $0.4 million. In another instance, we will only be liable for
remediation costs in excess of $1.0 million, and we do not anticipate currently
that remediation costs will exceed $1.0 million. If remediation costs for this
property exceed $1.0 million, our liability is not expected to exceed $0.3
million.
At four properties in which we currently have an interest, the
environmental conditions continue to be investigated and have not been
remediated fully. At three of these properties, groundwater contamination has
been found. At one of the properties, the former owner of the property is
remediating the groundwater contamination. At two of the properties, the
groundwater contamination was associated with a dry cleaning operation. Although
the properties with contamination arising from dry cleaning operations may be
eligible under a state law for remediation with state funds, there can be no
assurance that sufficient funds will be available under the legislation to pay
the full costs of any such remediation.
There are asbestos-containing materials in a number of the properties,
primarily in the form of floor tiles and adhesives. The floor tiles and
adhesives are generally in good condition. Fire-proofing material containing
asbestos is present at some of the properties in limited concentrations or in
limited areas. At properties where radon has been identified as a potential
concern, we have remediated or are performing additional testing. Lead-based
paint has been identified at certain of our Multifamily Properties and we have
notified tenants pursuant to applicable disclosure requirements. Based on our
current knowledge, we do not believe that the future liabilities associated with
asbestos, radon and lead-based paint at the foregoing properties will be
material.
We have no insurance coverage for the types of environmental
liabilities described above. In 1994, we established a reserve for environmental
remediation costs of $0.6 million. In addition, we received a credit of $0.4
million for environmental matters in connection with the acquisition of two
properties. Since 1994, a total of $0.7 million has been charged against the
reserve leaving a balance of $0.3 million. We cannot assure you that these
amounts will be adequate to cover future environmental costs.
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<PAGE>
We are aware of environmental concerns at three of our Development
Properties. Our present view is that our share of any remediation costs
necessary in connection with the development of these properties will be within
the budgets for development of these properties, but the final costs and such
necessary remediation are not known and may cause us to decide not to develop
one or more such properties.
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 Trust."
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 Trust-- 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.
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.
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<PAGE>
To assess and address the Trust'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 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.
Employees
The Company employs approximately 1,087 persons on a full-time basis.
Item 2. Properties
See the tables under "Item 1. Business" at pages 6 to 13 for the
properties owned by the Trust, both wholly owned and those in which it has a
percentage interest, and reference is made thereto.
The Management Company has leased 23,075 square feet (3rd floor) and
6,647 square feet (4th floor) of space for its principal offices at 200 S. Broad
Street, Philadelphia, Pennsylvania, under two leases both expiring on August 31,
2002. The base rent for the current year is $19.00 per square foot. The
Management Company has also leased 5,712 square feet, 860 square feet, and 922
square feet for its three regional offices at 500 Madison Street, Chicago,
Illinois, 668 North Orlando Avenue, Maitland, Florida and 1534 Dunwoody Village
Parkway, Atlanta, Georgia, respectively. The Chicago lease expires November 30,
1999 and the rent for the current year is $18.75 per square foot. The Maitland
lease expires on April 30, 2000 and the rent for the current year is $14.60 per
square foot. The Atlanta lease expires January 31, 2001 and the rent for the
current year is $15.00 per square foot. The rent at the Maitland and Atlanta
offices is paid proportionately by the properties managed from those offices.
The Company plans to consolidate the Maitland and Atlanta offices during 1999.
In addition, the Management Company leases an apartment at 1730 North Clark
Street, Chicago, Illinois. The lease, which the Company does not currently plan
to renew, expires August 31, 1999 and the rent for the eight month period then
ended will be $32,872.
-24-
<PAGE>
Titles to all of the Trust's real estate investments have been searched
and reported to the Trust by reputable title companies. The exceptions listed in
such title reports will not, in the opinion of the Trust, interfere materially
with the use of the respective properties for the intended purposes.
Schedule of Real Estate and Accumulated Depreciation
Schedule III, "Real Estate and Accumulated Depreciation - December 31,
1998," is part of the financial statement schedules set forth herein and
reference is made to that schedule which is incorporated herein by reference for
the amount of encumbrances, initial cost of the properties to the Trust, cost of
improvements, the amount at which carried and the amount of the accumulated
depreciation.
Item 3. Legal Proceedings
On December 18, 1998, the Trust settled certain litigation with Daniel
Berman and Robert Berman and/or entities owned or controlled by them
(collectively, the "Bermans"), partners of the Trust with respect to certain
properties, including all claims by the Bermans and counterclaims by the Trust.
The litigation had been ongoing since May of 1994 and was discussed in various
of the Trust's public filings since that date. Pursuant to the settlement, the
Trust received the Bermans' 50% interest in the Fox Run multifamily community in
Bear, Delaware (414 units), the Eagle's Nest multifamily community in Coral
Springs, Florida (264 units) and an undeveloped 14 acre parcel in Coral Springs,
Florida that will accommodate the development of approximately 260 units. The
Trust paid the Bermans $775,000 and assumed the remaining 50% of the debt
outstanding on the properties. In addition, the Trust refinanced the Fox Run
property, whereby the existing financing of $14.3 million with a weighted
average interest rate of 7.78% was replaced with a new mortgage in the amount of
$14.6 million with an interest rate of 6.54% and a maturity in December 2008.
The Trust paid a prepayment penalty of $270,000 in connection with the
refinancing. The savings in interest payments will be approximately $150,000, or
$.01 per share. The Trust will assume the management of the Fox Run and Eagle's
Nest apartment communities and intends to sell the undeveloped parcel.
From time to time, the Trust 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. 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
Trust's financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-25-
<PAGE>
PART II
Item 5. Market for the Trust's Common Equity and Related Shareholder Matters
Shares
The Shares commenced trading on the New York Stock Exchange on November
14, 1997. (ticker symbol: PEI). Prior to that time, the Shares were traded on
the American Stock Exchange.
Market Price and Distribution Record
The following table shows the high and low sales prices for the Shares
(as reported by the New York Stock Exchange) and cash distributions paid for the
periods indicated:
Distributions
High Low Paid
- --------------------------------------------------------------------------------
Period from November 14, 1997
through December 31, 1997 $24.75 $21.75 (1)
Quarter ended March 31, 1998 25.25 23.50 $ .47
Quarter ended June 30, 1998 24.69 21.50 .47
Quarter ended September 30, 1998 24.13 18.63 .47
Quarter ended December 31, 1998 21.50 18.75 .47
-----
$1.88
=====
(1) A prorated portion of the $.47 quarterly dividend was paid in this period,
but has been omitted from the table intentionally to avoid confusion
concerning the amount of dividends paid by the Trust on an annual basis.
The following table shows the high and low sales prices for the Shares
(as reported by the American Stock Exchange) and cash distributions paid for the
periods indicated:
Distributions
High Low Paid
- --------------------------------------------------------------------------------
Quarter Ended November 30, 1996 $23.38 $20.13 $ .47
Quarter Ended February 28, 1997 25.00 22.13 .47
Quarter Ended May 31, 1997 24.13 20.75 .47
Quarter Ended August 31, 1997 27.25 21.63 .47
Period from September 1, 1997 26.00 23.31 (1)
through November 13, 1997 -----
$1.88
=====
(1) A prorated portion of the $.47 quarterly dividend was paid in this period,
but has been omitted from the table intentionally to avoid confusion
concerning the amount of dividends paid by the Trust on an annual basis.
-26-
<PAGE>
As of December 31, 1998, there were approximately 1,300 holders of
record of the Shares.
The Trust currently anticipates that cash distributions will continue
to be paid in the future (in March, June, September and December); however, the
payment of future distributions by the Trust will be at the discretion of the
Board of Trustees and will depend on numerous factors, including the Trust's
cash flow, its financial condition, capital requirements, annual distribution
requirements under the real estate investment trust provisions of the Internal
Revenue Code and such other factors as the Board of Trustees deems relevant.
Units
Class A and Class B OP Units are redeemable by the Operating
Partnership at the election of the limited partner holding such units, at such
time, and for such consideration, as set forth in the Operating Partnership
Agreement. In general, and subject to certain exceptions and limitations,
beginning one year following the respective issue dates, "qualifying parties"
may give one or more notices of redemption with respect to all or any part of
the Class A OP Units so received and then held by such party. Class B OP Units
will be redeemable at the option of the holder at any time after issuance.
If a notice of redemption is given, the Trust has the right to elect to
acquire the OP Units tendered for redemption for its own account, either in
exchange for the issuance of a like number of Shares (subject to adjustments for
stock splits, recapitalizations, and like events) or a cash payment equal to the
average of the closing prices of the Shares on the ten consecutive trading days
immediately prior to receipt by the 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.
The OP Units were issued by the Operating Partnership pursuant to the
exemptions provided by Section 4(2) of the Securities Act of 1933, as amended
(the "Act"), and Regulation D promulgated under the Act.
-27-
<PAGE>
Item 6. Selected Financial Data
- --------------------------------------------------------------------------------
Selected Financial Information
- --------------------------------------------------------------------------------
(Thousands of dollars, except per share results)
<TABLE>
<CAPTION>
For the Calendar For the 4-Month
Year Ended Period Ended For the Fiscal Years Ended August 31,
December 31, December 31, ----------------------------------------------------
1998 1997 1997 1996 1995 1994
----------------- --------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Results
Gross revenues from real estate $ 61,745 $ 17,170 $ 40,231 $ 38,985 $ 36,978 $ 27,640
Income before gains on sales of interests
in real estate 20,142 3,872 9,166 10,179 11,106 8,325
Gains on sales of interests in real estate 3,043 2,090 1,069 865 119 12,362
Net income 23,185 5,962 10,235 11,044 11,225 20,687
-------- -------- -------- -------- -------- --------
Per Share Results
Income before gains on sales of interests
in real estate $ 1.51 $ .43 $ 1.06 $ 1.17 $ 1.28 $ .96
Gains on sales of interests in real estate .23 .23 .12 .10 .01 1.43
Net income 1.74 .66 1.18 1.27 1.29 2.39
-------- -------- -------- -------- -------- --------
Balance Sheet Data
Investments in real estate, at cost $509,406 $287,926 $202,443 $198,542 $195,929 $154,281
Total assets 481,615 265,566 165,657 177,725 181,336 142,495
Total mortgage and bank loans payable 302,276 103,939 117,412 124,148 122,518 80,155
Shareholders' equity 136,921 138,530 40,899 46,505 51,771 56,748
-------- -------- -------- -------- -------- --------
Other Data
Cash flows from operating activities $ 31,138 $ 4,281 $ 15,219 $ 15,090 $ 16,672 $ 15,909
Cash distributions per share 1.88 .47 1.88 1.88 1.88 1.86
-------- -------- -------- -------- -------- --------
</TABLE>
-28-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the notes thereto appearing elsewhere herein.
Acquisitions
The Company is actively involved in pursuing and evaluating a number of
individual property and portfolio acquisition opportunities. In addition, the
Company has stated that a key strategic goal is to obtain managerial control of
all of its assets. In certain cases where existing joint venture assets are
managed by outside partners, the Company is considering the possible acquisition
of these outside interests. In certain cases where that opportunity does not
exist, the Company is considering the disposition of its interests. There can be
no assurance that the Company will consummate any such acquisition or
disposition.
-29-
<PAGE>
1998 Acquisitions
Significant 1998 acquisitions include Prince Georges Plaza, a 745,000
square-foot regional shopping center in Hyattsville, MD; Festival at Exton, a
140,000 square-foot community shopping center in Chester County, PA; The Woods,
a 320-unit apartment complex in Ambler, PA; and Northeast Tower Center (an 89%
interest), a 484,000 square-foot power center in Philadelphia, PA, plus an
adjacent parcel of land for the development of an additional 100,000 square
feet. The Company also concluded the acquisitions of strip centers in
Springfield, PA (a 50% interest) and Valleyview in Wilmington, DE with 67,000
and 56,000 square-feet, respectively. The Company also opened Phase I of its
Christiana Power Center with approximately 300,000 square-feet in Newark, DE in
September 1998, which had been acquired as undeveloped land in early 1998. On
December 18, 1998, the Company also acquired the remaining 50% interests in two
multifamily properties and a parcel of undeveloped land. The following table
summarizes the financial terms of the 1998 acquisitions in thousands of dollars:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Acquisition Property Name Property Type Property City Location Purchase Credit Assumed OP Units
Date State Price Facility Debt
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1/26/98 Christiana Power Shopping Center Newark DE $ 8,700 $ 6,000 $ -- $ 2,700
Center
- --------------------------------------------------------------------------------------------------------------------------
5/12/98 Springfield Park Shopping Center Springfield PA 3,700 3,700 -- --
- --------------------------------------------------------------------------------------------------------------------------
7/21/98 Valleyview Shopping Center Wilmington DE 4,300 1,300 -- 3,000
- --------------------------------------------------------------------------------------------------------------------------
8/7/98 The Woods Apartments Ambler PA 21,200 12,200 7,300 1,700
- --------------------------------------------------------------------------------------------------------------------------
8/27/98 Festival at Exton Shopping Center Exton PA 18,400 18,400 -- --
- --------------------------------------------------------------------------------------------------------------------------
9/17/98 Prince Georges Plaza Regional Mall Hyattsville MD 65,000 19,000 43,000 3,000
- --------------------------------------------------------------------------------------------------------------------------
12/18/98 Fox Run Apartments Bear DE 15,388 388 15,000 --
- --------------------------------------------------------------------------------------------------------------------------
12/18/98 Eagles Nest Apartments Coral Springs FL 16,087 387 15,700 --
- --------------------------------------------------------------------------------------------------------------------------
12/18/98 Turtle Run Apartments Coral Springs FL 2,900 -- 2,900 --
- --------------------------------------------------------------------------------------------------------------------------
12/23/98 Northeast Tower Center Shopping Center Philadelphia PA 25,000 3,700 18,000 3,300
- --------------------------------------------------------------------------------------------------------------------------
Total Completed 1998 Acquisitions $180,675 $65,075 $101,900 $13,700
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Dispositions
Consistent with management's stated long-term strategic plan to review
and evaluate all joint venture real estate holdings, on July 24, 1998 the
Company sold its 25% interest in Punta Gorda Mall in Punta Gorda, Florida and
Ormond Beach Mall in Daytona Beach, Florida. The gain on the sale of these
properties was approximately $1.3 million. Also, on April 1, 1998 the Company
sold its 40% interest in Charter Pointe Apartments in Altamonte Springs,
Florida. The gain on the sale of this real estate interest was approximately
$1.7 million. The proceeds from these sales were applied to reduce outstanding
borrowings under the Company's Credit Facility.
Development, Expansions and Renovations
The Company is involved in a number of development and redevelopment
projects, which may require equity funding by the Company or third-party debt or
equity financing (see Note 11 to the Consolidated Financial Statements). In each
case, the Company will evaluate the financing opportunities available to it at
the time a project requires funding. In cases where the project is undertaken
with a joint venture partner, the Company's flexibility in funding the project
may be governed by the joint venture agreement or the covenants existing in its
line of credit which limit the use of borrowed funds in joint venture projects.
The TRO Transaction
On September 30, 1997, the Company acquired The Rubin Organization,
Inc. ("TRO", renamed "PREIT-RUBIN, Inc."), a commercial property development and
management firm, and certain related real estate interests (the "TRO
Transaction").
-30-
<PAGE>
As part of the TRO Transaction, the Company acquired Magnolia Mall,
located in Florence, South Carolina, North Dartmouth Mall, located in North
Dartmouth, Massachusetts and a 50% interest in the Court at Oxford Valley,
located in Langhorne, Pennsylvania. The Company also acquired the development
rights of certain affiliates of TRO ("TRO Affiliates"), subject to related
obligations, in Christiana Power Center (Phases I and II), Red Rose Commons and
Blue Route Metroplex. In addition, the Company agreed to acquire the interests
of TRO Affiliates in Hillview Shopping Center and Northeast Tower Center, at
prices based upon a pre-determined formula.
The TRO Transaction was financed through the issuance of 646,286
Operating Partnership Units in The Operating Partnership, L.P. (the "Operating
Partnership"), with a value of approximately $15.1 million, assumption of
mortgage indebtedness at Magnolia Mall of approximately $25.2 million, and $61.7
million of cash, totaling $102.0 million (see Note 3 to the Consolidated
Financial Statements). The cash was obtained primarily from borrowings under a
new Credit Facility entered into by the Operating Partnership coincident with
the September 30, 1997 closing of the TRO Transaction, with a group of banks led
by First Union National Bank. The obligations of the Operating Partnership under
the new Credit Facility have been guaranteed by the Company.
-31-
<PAGE>
Results of Operations
Operating Results
Calendar Year Ended December 31,
(In thousands) 1998 1997*
------- --------
Revenues
Gross revenues from real estate $61,745 $44,061
Interest and other income 650 218
--------------------
62,395 44,279
--------------------
Expenses
Property operating expenses 22,519 17,880
Depreciation and amortization 9,406 6,895
General and administrative expenses 3,351 3,388
Interest expense 10,591 10,328
Provision for losses on investments -- 500
---------------------
45,867 38,991
---------------------
16,528 5,288
Equity in (loss) income of PREIT-RUBIN, Inc. (678) 258
Equity in income of partnerships
and joint ventures 5,985 5,792
Loss on early extinguishment
of partnership and joint venture debt -- (1,218)
--------------------
Minority interest in operating partnership (1,423) (394)
Loss on early extinguishment of debt (270) --
--------------------
Net income before gains on sales
of interests in real estate 20,142 9,726
Gains on sales of interests in real estate 3,043 1,697
--------------------
Net Income $23,185 $11,423
====================
* Prior year information has been recast for comparability purposes to reflect
the Company's change in fiscal year-end (see Note 2 to the Consolidated
Financial Statements).
-32-
<PAGE>
Calendar Year December 31, 1998 compared with Calendar Year December 31, 1997
Net income for the calendar year ended December 31, 1998 before gains
on sales of interests in real estate, increased 107% to $20.1 million from $9.7
million for the comparable period of 1997. In 1998, net gains on the sales of
interests in real estate were $3.0 million as compared to $1.7 million in 1997.
Gains were recognized from the sales of interests in Punta Gorda Mall, Punta
Gorda, FL, Ormond Beach Mall, Daytona Beach, FL and Charter Pointe Apartments in
Altamonte Springs, FL. In 1997, gains resulted from sales of the Company's
interest in Gateway Mall, St. Petersburg, FL offset by a loss on the sale of
property in Margate, FL.
Gross revenues from real estate increased by $17.7 million or 40% to
$61.7 million for the year ended December 31, 1998, as compared to the year
ended December 31, 1997. The 1998 period included $17.1 million of revenues
attributable to new properties acquired. Of that amount, $10.8 million of
revenues are attributable to Magnolia Mall and North Dartmouth Mall, which the
Company acquired on September 30, 1997. The balance of the increase in revenues
of $6.3 million is attributable to the 1998 acquisitions. Revenues from
properties owned during both periods increased by $0.6 million primarily as a
result of an increase in apartment revenues of $0.5 million.
Property operating expenses increased by $4.6 million to $22.5 million.
The 1998 period included $4.8 million of expenses attributable to new properties
acquired. Of that increase, $3.0 million of expenses were attributable to
Magnolia Mall and North Dartmouth Mall. The balance of the increase of $1.8
million is attributable to the 1998 acquisitions. Operating expenses from
properties owned during both periods decreased by $0.2 million primarily due to
decreases in operating costs for apartments.
Depreciation and amortization increased by $2.5 million to $9.4 million
primarily as a result of depreciation of $2.2 million from the addition of
Magnolia Mall and North Dartmouth Mall and the 1998 acquisitions. Depreciation
and amortization for properties owned during both periods increased by $0.3
million.
Interest expense increased by $0.3 million to $10.6 million. Interest
expense attributable to mortgaged properties increased by $0.5 million due to
the acquisition of Magnolia Mall, and the acquisitions of The Woods Apartments
and Prince Georges Plaza offset by the repayment of the mortgage on Cobblestone
Apartments in December 1997. Interest expense incurred against the Company's
Credit Facility decreased by $0.2 million.
Equity in income of partnerships and joint ventures increased by $0.2
million to $6.0 million primarily as a result of the Company's purchase of a 50%
interest in Oxford Valley Road Associates on September 30, 1997 and Springfield
Mall, acquired during the second quarter of 1998, which together contributed
$0.6 million for the period. Equity in the income of properties owned during
both periods decreased by $0.3 million. This decrease was caused by a $0.6
million reduction from Whitehall Mall which is being redeveloped, offset by
increases from other joint ventures of $0.3 million.
In 1997, loss on early extinguishment of partnerships and joint venture
debt of $1.2 million relates to refinancing fees paid on Lehigh Valley Mall and
Regency Apartments.
-33-
<PAGE>
Equity in net loss of PREIT-RUBIN, Inc. for the 1998 period was $0.7
million compared with income of $0.3 million for the 1997 period.
Minority interest in the operating partnership increased $1.0 million
as a result of the OP units issued in connection with the TRO Transaction and OP
units issued in connection with five acquisitions during 1998.
In 1998, loss on early extinguishment of debt was due to a refinancing
prepayment fee on Fox Run Apartments of $0.3 million.
Calendar Year December 31, 1998 compared with Fiscal Year August 31, 1997
Net income for the calendar year ended December 31, 1998 before gains
on sales of interests in real estate, increased 118% to $20.1 million from $9.2
million for the fiscal period of 1997. In 1998, net gains on the sales of
interests in real estate were $3.0 million as compared to $1.0 million in 1997.
In 1998, gains were from sales of interests in Gateway Mall, St. Petersburg, FL
and Charter Pointe Apartments in Altamonte Springs, FL. In 1997, gains on sales
of the Company's interest in shopping centers in Lancaster, Beaver Falls and
Waynesburg, PA of $1.5 million were offset by a loss on sale of shopping center
in Margate, FL of $0.4 million.
Gross revenues from real estate increased by $21.5 million or 53% to
$61.7 million for the year ended December 31, 1998, as compared to $40.2 million
for the year ended August 31, 1997. The 1998 period included $20.5 million of
revenues attributable to properties acquired. Of that amount, $14.2 million of
revenues are attributable to Magnolia Mall and North Dartmouth Mall. The balance
of the increase of $6.3 million is attributable to the 1998 acquisitions.
Revenues from properties owned during both periods increased by $1.0 million
primarily as a result of an increase in apartment revenues of $0.7 million.
Property operating expenses increased by $6.0 million to $22.5 million.
The 1998 period included $6.1 million of expenses attributable to properties
acquired. Of that increase, $4.3 million of expenses were attributable to
Magnolia Mall and North Dartmouth Mall. The balance of the increase of $1.8
million is attributable to the 1998 acquisitions. Operating expenses from
properties owned during both periods decreased by $0.1 million primarily due to
decreases in operating costs for apartments.
Depreciation and amortization increased by $3.1 million to $9.4 million
primarily as a result of additional depreciation expense of $2.6 million from
the acquisition of Magnolia Mall and North Dartmouth Mall in 1997 and property
acquisitions in 1998. Depreciation and amortization from properties owned during
both periods increased by $0.3 million.
Interest expense increased by $1.5 million to $10.6 million. Interest
expense attributable to properties increased by $3.8 million due to the
acquisition of Magnolia Mall, which the Company acquired on September 30, 1997,
the acquisitions of The Woods Apartments and Prince Georges Plaza offset by the
repayment of the mortgage on Cobblestone Apartments in December 1997. Interest
expense incurred against the Company's Credit Facility decreased by $2.3
million.
Equity in income of partnerships and joint ventures increased by $1.6
million to $6.0 million as a result of the Company's purchase of a 50% interest
in Oxford Valley Road Associates on September 30, 1997 and three other
properties, which contributed $0.7 million for the period. Equity in the income
of properties owned during both periods increased by $0.9 million. This increase
is net of an $0.8 million decrease from Whitehall Mall which is currently being
redeveloped.
-34-
<PAGE>
Equity in net loss of PREIT-RUBIN, Inc. for the 1998 period was $0.7
million.
Minority interest in the operating partnership was $1.4 million as a
result of the OP units issued in connection with the TRO Transaction and OP
units issued in connection with five 1998 acquisitions (see Notes 3 and 12 to
the Consolidated Financial Statements).
Extraordinary loss on early extinguishment of debt was $0.3 million due
to the prepayment fee on the Fox Run Apartments refinancing.
Four-Month Periods Ended December 31, 1997 and 1996
Gross revenues from real estate increased by $3.9 million to $17
million for the four month period ended December 31, 1997 as compared to the
same period in the prior year. The 1997 period included $3.5 million of revenues
attributable to Magnolia Mall and North Dartmouth Mall. Revenues from properties
owned during both periods increase by $0.3 million primarily as a result of an
increase in apartment revenues.
Operating expenses increased by $1.4 million to $6.9 million. The 1997
period included $1.3 million of expenses attributable to Magnolia Mall and North
Dartmouth Mall. Operating expenses from properties owned during both periods
increased by $0.1 million. Depreciation and amortization increased by $0.6
million to $2.7 million primarily as a result of the addition of the Magnolia
Mall and North Dartmouth Mall properties of $0.4 million, and increased
amortization of financing costs of approximately $0.1 million.
Interest expense increased by $1.2 million to $4.3 million as a result
of interest on borrowings against the Company's Credit Facility for acquisitions
and working capital needs.
Equity in income of partnerships and joint ventures increased by $0.3
million to $2.1 million primarily as a result of the Company's purchase of a 50%
interest in Oxford Valley Road Associates on September 30, 1997 of $0.1 million.
The 1996 period includes a prepayment penalty in the amount of $0.2 million due
to the refinancing of debt for Lehigh Valley Mall. The 1996 period also included
income from properties sold during 1996 in the amount of $0.1 million. Income
from properties owned during both periods increased by $0.1 million.
Equity in income of PREIT-RUBIN, Inc. for the 1997 period was $0.3
million.
The gain on the sale of interest in real estate of $2.1 million in the
1997 period relates to the sale of the Company's 60% interest in Gateway Mall,
St. Petersburg, Florida. The prior year gains of $1.5 million consist of the
sale of the Company's 50% interest in three shopping centers in Pennsylvania.
Minority interest increased by $0.4 million to $0.4 million as a result
of the OP units issued in connection with the TRO Transaction.
Extraordinary loss of $0.3 million is due to the write-off of remaining
deferred financing costs following the early extinguishment of the Company's
previous credit facility.
-35-
<PAGE>
Net income for the four months ended December 31, 1997 increased to $6
million from $4.9 million as reported in the comparable period in the prior
year.
Fiscal 1997 Compared With Fiscal 1996
Net income for the fiscal year ended August 31, 1997 before gains on
sales of interests in real estate, decreased 10% to $9.2 million from $10.2
million for the comparable period of 1996. In the 1997 period, net gains on the
sales of interests in real estate were $1.1 million as compared to $0.9 million
in 1996. The net gains on sales of interests in real estate of $1.1 million in
1997, consisted of gains on the sale of the Company's joint venture interest in
shopping centers in Lancaster, Beaver Falls and Waynesburg, PA of $1.5 million,
offset by a loss on the sale of a shopping Center in Margate, FL of $0.4
million. The gains in 1996 totaling $0.9 million were derived from the sale of
land in Bucks County, PA and the sale of the Chateau Apartments in Midland, TX.
In 1997 net income was reduced by an accounting provision of $0.5 million for
losses on land held for sale in the Company's investment portfolio and
prepayment fees of $1.9 million paid in connection with refinancing of two
partnerships properties, the Company's share of which was $1.1 million.
Gross revenues from real estate for the fiscal year ended August 31,
1997, increased by 3% to $40.2 million from $39.0 million in the prior year. The
1997 period included $0.4 million of revenues attributable to Forestville Plaza
in which the Company acquired its partners' remaining 25% interest in the prior
fiscal year. The 1996 period included $0.5 million of revenues attributable to
Chateau Apartments which the Company sold in June 1996. Revenues from properties
owned during both periods increased by $1.0 million primarily as a result of
increases in apartment revenues.
Operating expenses for the fiscal year ended August 31, 1997, increased
1% to $16.3 million from $16.1 million in the prior year. The 1997 period
included $0.2 million of expenses attributable to Forestville Plaza in which the
Company acquired its partners' remaining 25% interest in the prior fiscal year.
The 1996 period included $0.3 million of expenses attributable to Chateau
Apartments which the Company sold. Operating expenses from properties owned
during both periods increased by $0.3 million.
Depreciation and amortization for the fiscal year ended August 31,
1997, increased by 7% to $6.3 million from $5.9 million in 1996, primarily as a
result of on going capital expenditures in apartments.
General and administrative expenses increased by 6% to $3.3 million
from $3.1 million in 1996, primarily as a result of costs associated with
litigation with a partner. Mortgage and bank loan interest expense decreased by
8% to $9.1 million from $9.8 million in 1996, primarily as a result of decreased
borrowing against the Company's credit facility.
In fiscal 1996, a partnership in which the Company has a 50% interest
signed an option to sell a parcel of land at a stipulated price, subject to the
buyer's obtaining certain zoning variance approvals. In fiscal 1997, the option
expired. As a result, management revised its estimate of the property's selling
price and recorded a $0.5 million provision for investment losses to reduce the
property held for sale to its estimated net realizable value.
-36-
<PAGE>
Equity in income of partnerships and joint ventures decreased in the
fiscal year ended August 31, 1997, by 32% to $4.3 million from $6.3 million in
1996, primarily as a result of an increase in mortgage interest expense of $2.9
million ($1.8 million of which was the Company's proportional share). The
increase in partnership mortgage interest expense is attributable to prepayment
fees of $1.9 million ($1.1 million of which was the Company's proportional
share) in connection with refinancings, as well as additional interest expense
associated with the refinancings of Regency Apartments, Lehigh Valley Mall and
Cambridge Hall Apartments in 1997. In addition, equity in income from properties
owned during both periods exclusive of the increase in mortgage interest
mentioned above increased by $0.5 million.
Liquidity and Capital Resources
The Company expects to meet its short-term liquidity requirements
generally through its available working capital and net cash provided by
operations. The Company believes that its net cash provided by operations will
be sufficient to allow the Company to make any distributions necessary to enable
the Company to continue to qualify as a REIT under the Internal Revenue Code of
1986, as amended. The Company also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future, including capital expenditures, tenant improvements and
leasing commissions.
The Company expects to meet certain long-term liquidity requirements
such as property acquisitions, scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness and the issuance of additional equity
securities.
In order to secure additional funds for its acquisition and development
activities, the Company is exploring a number of financing alternatives with its
current bank group as well as other financial institutions and intermediaries.
These financing alternatives may include an expansion of the Company's current
$150 million revolving credit facility (the "Credit Facility") and mortgaging
certain of the Company's properties that are presently unencumbered. The Company
expects to conclude one or more of these transactions in the second quarter of
1999.
The Credit Facility
The Operating Partnership entered into the Credit Facility with a group
of banks led by First Union National Bank. The obligations of the Operating
Partnership under the Credit Facility have been guaranteed by the Company.
The Credit Facility was for an initial term of two years and during
1998, the maturity date was extended to December 31, 2000. The Credit Facility
bears interest, at the borrower's election, at (i) the higher of First Union's
prime rate, or the Federal Funds lending rate plus .5%, in each case as in
effect from time to time, or (ii) the London Interbank Offered Rate (LIBOR) plus
margins ranging from 1.1% to 1.7%, depending on the ratio of the Company's
consolidated liabilities to gross asset value (the "Leverage Ratio"), each as
determined pursuant to the terms of the Credit Facility.
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<PAGE>
The Credit Facility contains affirmative and negative covenants
customarily found in facilities of this type, as well as requirements that the
Company maintain, on a consolidated basis: (i) a maximum Leverage Ratio of 65%;
(ii) a maximum ratio of Senior Liabilities (as defined in the Credit Facility)
to Unencumbered Asset Value (as defined in the Credit Facility) of 73%; (iii)
minimum tangible net worth of $115 million; (iv) a minimum ratio of annualized
consolidated property net operating income to total annual debt service of
1.40:1; and (v) a minimum ratio of annualized consolidated property net
operating income to pro forma debt service of 1.30:1. As of December 31, 1998,
the Company's Leverage Ratio was approximately 54.8%. Until the Company reduces
its leverage ratio below 50%, the lending banks hold unrecorded mortgages on
eleven unencumbered properties which the Operating Partnership owns, directly or
indirectly, and are entitled to record such mortgages upon any event of default.
As of December 31, 1998, the Operating Partnership had drawn $139
million on the Credit Facility ($136 million on wholly-owned properties and $3
million on joint venture properties). The Company used the proceeds primarily to
fund the 1997 and 1998 acquisitions.
Mortgage Notes
In addition to amounts due under the Credit Facility during the next
three years, construction and mortgage loans, secured by properties owned by
three partnerships in which the Company has an interest, mature by their terms.
Balloon payments on these loans total $24 million of which the Company's
proportionate share is $12 million. Construction and mortgage loans on
properties wholly-owned by the Company also mature by their terms. Balloon
payments on these loans total $32 million.
Commitments
At December 31, 1998, the Company had approximately $22 million
committed to complete current development and redevelopment projects. In
connection with certain development properties, including those development
properties acquired as part of the TRO Transaction (see Note 3 to the
Consolidated Financial Statements), the Company may be required to issue
additional OP units upon the achievement of certain financial results.
Cash Flows
During the year ended December 31, 1998, the Company generated $31.1
million in cash flow from operating activities. Other sources and uses of cash
flow included: (i) $127.9 million in additional borrowings under the Company's
Credit Facility, (ii) $68.3 million in net proceeds from mortgage notes payable,
offset by (iii) $33.7 million of prepayments of mortgage notes payable and $1.5
million of other principal installments and (iv) $26.5 million of distributions
to shareholders and OP Unit holders. During the year ended December 31, 1998,
the Company had net investing activities of $159.7 million including: (i)
investments in wholly-owned real estate assets ($150.8 million), (ii)
investments in property under development ($5.9 million), (iii) investments in
partnerships and joint ventures ($15.0 million), (iv) investments in the
affiliated management company ($1.3 million), offset by (v) cash proceeds from
gains on sales of real estate interests of $3.0 million and (vi) cash
distributions from partnerships and joint ventures in excess of equity in income
of $10.3 million.
Interest Rate Protection
In order to reduce exposure to variable interest rates, the Company
entered into a six-year interest rate swap agreement with First Union, on $20
million of indebtedness which fixes a rate of 6.12% per annum versus 30-day
LIBOR until 2001.
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Financial Instruments Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the
Company's financial instruments to selected changes in the general level of
market interest rates. In order to mitigate the impact of fluctuations in market
interest rates, the Company's derivative and other financial instruments consist
of long-term debt (including current portion) and an interest rate swap
agreement. All financial instruments are entered into for other than trading
purposes and the net market value of these financial instruments combined is
referred to as the net financial instrument position. As of December 31, 1998,
the Company's consolidated debt portfolio consisted of $150.0 million in fixed
rate mortgage notes, $17.0 million in floating rate mortgage notes, and $135.3
million borrowed under its revolving Credit Facility. The Company has limited
its exposure to increases in LIBOR on its floating rate debt by entering into a
$20.0 million interest rate swap agreement which expires in June 2001 and
carries a fixed interest rate of 6.12% versus 30-day LIBOR. Management does not
foresee any significant changes in the Company's exposure to interest rate
fluctuations or how such exposure will be managed in the near future.
Changes in market interest rates have different impacts on the fixed
and variable portions of the Company's debt portfolio. A change in market
interest rates on the fixed portion of the debt portfolio impacts the net
financial instrument position, however, it has no impact on interest incurred or
cash flows. A change in market interest rates on the variable portion of the
debt portfolio impacts the interest incurred and cash flows, but does not impact
the net financial instrument position. The sensitivity analysis, related to the
fixed debt portfolio, assumes an immediate 100 basis point move in interest
rates from their actual December 31, 1998 levels, with all other variables held
constant. A 100 basis point increase in market interest rates would result in a
decrease in the net financial instrument position of $8.7 million at December
31, 1998. A 100 basis point decrease in market interest rates would result in an
increase in the net financial instrument position of $9.4 million at December
31, 1998. Based on the variable-rate debt included in the Company's debt
portfolio, including an interest rate swap agreement, as of December 31, 1998, a
100 basis point increase in interest rates would result in an additional $1.3
million in interest incurred at December 31, 1998. A 100 basis point decrease
would reduce interest incurred by $1.3 million at December 31, 1998.
Contingent Liability
The Company along with certain of its joint venture partners has
guaranteed debt totaling $7 million (see Note 4 to Consolidated Financial
Statements).
Funds From Operations
The Company computes Funds from Operations in accordance with standards
established by NAREIT which may not be comparable to Funds from Operations
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
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<PAGE>
Funds from operations increased 76% to $34.6 million for the year ended
December 31, 1998, as compared to $19.7 million in fiscal 1997. The increase is
primarily due to an improvement in net operating income from residential
properties and newly acquired properties since September 30, 1997.
Capital Expenditures
During calendar 1998, the Company expended $4.6 million for capital
expenditures; $3.8 million ($612 per unit owned adjusted for partnership
interests) for multifamily communities and $0.8 million for shopping centers.
The Company's policy is to capitalize expenditures for floor coverings,
appliances and major exterior preparation and painting for apartments. During
the year, $1.2 million ($161 per unit owned) was expended for floor covering and
$0.6 million ($84 per unit owned) for appliances.
Environmental Matters
In 1994, the Company established a reserve for environmental
remediation costs of $0.6 million. In addition, the Company received a credit of
$0.4 million for environmental matters in connection with the acquisition of two
properties. Since 1994 a total of $0.7 million was charged against the reserve
leaving a balance of $0.3 million. There can be no assurance that these amounts
will be adequate to cover future environmental costs.
Competition
The Company's shopping centers compete with other shopping centers in
their trade areas as well as alternative retail formats, including catalogues,
home shopping networks and internet commerce. Apartment properties compete for
tenants with other multifamily properties in their markets. Economic factors,
such as employment trends and the level of interest rates, impact shopping
center sales as well as a prospective tenant's choice to rent or own his/her
residence.
Inflation
Inflation can have many effects on the financial performance of the
Company. Shopping center leases often provide for the payment of rents based on
a percentage of sales which may increase with inflation. Leases may also provide
for tenants to bear all or a portion of operating expenses which may reduce the
impact of such increases on the Company. Apartment leases are normally for a
one-year term which may allow the Company to seek increased rents as leases are
renewed or when new tenants are obtained.
Year 2000 Issue
Many existing computer programs use only two digits to identify a year
in the date field. Those programs were designed and developed at a time when
data storage was expensive, and the impact of the upcoming century change was
not considered. If not corrected, many programs may fail or provide inaccurate
results at the turn of the century. The Company uses information systems and
control systems which may be affected by the two digit date.
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<PAGE>
The Company established a Year 2000 Remediation Plan consisting of the
following phases: inventorying systems and devices including information
technology ("IT") and (non-IT systems) that are vulnerable to the Year 2000
problem, assessment of the criticality of the inventoried items, remediation of
the non compliant items, and testing of the corrections that have been applied.
The Company has completed the first phase of its Remediation Plan for IT systems
and has determined that all mission critical systems are Year 2000 compliant. In
addition, the Company has begun the first phase of its Remediation Plan for its
non-IT systems (such as elevators, HVAC and lighting systems) and is currently
completing an inventory of non-IT systems and assessing the potential risks of
noncompliance. Business partners, suppliers and tenants are also being surveyed
relative to their Year 2000 compliance to mitigate the potential impact of Year
2000 issues. The amount of remediation effort is not anticipated to be extensive
due to the Company's use of readily available. off-the-shelf software and
hardware products that are supported by the manufacturers. After evaluating the
Company's required compliance efforts, appropriate contingency plans will be
developed based on the outcome of the assessment phase and the survey of its
major suppliers. The Company expects to complete the Year 2000 Remediation Plan,
including final testing by the beginning of the fourth quarter of 1999.
Management has determined the approximate total cost of its Year 2000
Remediation Plan and the potential related impact on operations. Amounts
incurred to date have been less than $100,000 and the estimated remaining
expenses of Year 2000 remediation are also expected to be less than $100,000.
Costs associated with a Year 2000 issue could have a material impact on the
operations of the Company.
Forward-Looking Statements
The matters discussed in this report, as well as news releases issued
from time to time by the Company include use of forward-looking terminology such
as "may," "will," "should," "expect," "anticipate," "estimate," "plan," or
"continue" or the negative thereof or other variations thereon, or comparable
terminology which constitute "forward-looking statements." Such forward-looking
statements (including without limitation, information concerning the Company's
planned acquisition, development and divestiture activities, short- and
long-term liquidity position, ability to raise capital through public and
private offerings of debt and/or equity securities, revenues and operating
expenses for some or all of the properties, leasing activities, occupancy rates,
changes in local market conditions or other competitive factors) involve known
and unknown risks, uncertainties and other factors that my cause the actual
results, performance or achievements of the Company's results to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. The Company's disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking statements contained herein to reflect
future events or developments.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
See Item 7 under the heading "Financial Instruments Sensitivity
Analysis" for a discussion of the Company's market risk. Such information is
incorporated hereto by reference.
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Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets of the Trust as of December 31, 1998,
December 31, 1997 and August 31, 1997, and the related consolidated statements
of income, shareholders' equity and cash flows for the year ended December 31,
1998, the four-month period ended December 31, 1997 and for each of the two
years in the fiscal period ended August 31, 1997 and 1996, and the report of
independent public accountants thereon and the Trust's summary of unaudited
quarterly financial information for the calendar year ended December 31, 1998
and for the fiscal year ended August 31, 1997 are set forth on pages F-1 through
F-20 hereto.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Trustees and Executive Officers of the Trust.
<TABLE>
<CAPTION>
Principal Occupation
Name Age and Affiliations
---- --- ---------------------
<S> <C> <C>
Non-Trustee
Executive Officers
Edward A. Glickman 41 Since September 30, 1997, Executive Vice President and Chief Financial
Officer of the Trust. From 1993 to 1997, Executive Vice President and Chief
Financial Officer of The Rubin Organization, Inc. (now named PREIT-RUBIN,
Inc.).
Jeffrey A. 50 Senior Vice President-Acquisitions and Secretary of the Trust
Linn
Dante J. 65 Senior Vice President-Finance and Treasurer of the Trust
Massimini
Raymond J. Trost 43 Vice President - Asset Management
</TABLE>
The information regarding the Trust's Trustees required by Item 10 is
incorporated by reference to, and will be contained in, the Trust's definitive
proxy statement, which the Trust anticipates will be filed no later than April
30, 1999, and thus has been omitted in accordance with General Instruction G(3)
to Form 10-K.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to,
and will be contained in, the Trust's definitive proxy statement, which the
Trust anticipates will be filed no later than April 30, 1999, and thus the Item
has been omitted in accordance with General Instruction G(3) to Form 10-K.
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Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to,
and will be contained in, the Trust's definitive proxy statement, which the
Trust anticipates will be filed no later than April 30, 1999, and thus the Item
has been omitted in accordance with General Instruction G(3) to Form 10-K.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated by reference to,
and will be contained in, the Trust's definitive proxy statement, which the
Trust anticipates will be filed no later than April 30, 1999, and thus the Item
has been omitted in accordance with General Instruction G(3) to Form 10-K.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
(1) Financial Statements
1. The Trust's Consolidated Financial Statements as follows:
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December
31, 1998, December 31, 1997 and
August 31, 1997 F-2
Consolidated Statements of Income and
Shareholders' Equity for the calendar year
ended December 31, 1998, the four-month
period ended December 31, 1997 and for each
of the two years in the fiscal period ended
August 31, 1997 and 1996. F-3
Consolidated Statements of Cash Flows for the
calendar year ended December 31, 1998, the
four-month period ended December 31, 1997
and for each of the two years in the fiscal
period ended August 31, 1997 and 1996. F-4
Notes to Consolidated Financial Statements F-5
2. Lehigh Valley Associates Financial Statements
Report of Independent Auditors F-21
Balance Sheets at August 31, 1996 and 1995 F-22
Statements of Operations for the fiscal
years ended August 31, 1996, 1995 and 1994 F-23
Statements of Partners' Deficiency at
August 31, 1996, 1995 and 1994 and
September 1, 1993 F-24
Statements of Cash Flows for the fiscal
years ended August 31, 1996, 1995 and 1994 F-25
Notes to Financial Statements F-26
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<PAGE>
(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts F-31
III - Real Estate and Accumulated Depreciation F-32
All other schedules are omitted because they are not
applicable or are not required or because the required
information is reported in the consolidated financial
statements or notes thereto.
(3) Exhibits
3.1 Trust Agreement as Amended and Restated on December 16, 1997,
filed as Exhibit 3.2 to the Trust's Current Report on Form 8-K
dated December 16, 1997, is incorporated herein by reference.
3.2 By-Laws of the Trust as amended through December 16, 1997,
filed as exhibit 3.3 to the Trust's Current Report on Form 8-K
dated December 17, 1997, is incorporated herein by reference.
4.1 Revolving Credit Agreement, dated September 30, 1997, among
PREIT Associates, L.P. and the lending institutions named
therein, filed as exhibit 4.12 to the Trust's Current Report
on Form 8-K dated October 14, 1997, is incorporated herein by
reference.
4.2 Form of Revolving Credit Note, dated September 30, 1997, filed
as exhibit 4.13 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
4.3 Guaranty of the Trust, dated September 30, 1997, among the
Trust and the lending institutions named therein, filed as
exhibit 4.14 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
4.4 Guaranty dated August 29, 1996 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.3 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1996, is incorporated herein by reference.
4.5 Secured Loan Agreement dated November 9, 1994 among the Trust,
CoreStates Bank, N.A., as lender and as agent, and PNC Bank,
National Association, filed as exhibit 4.4 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
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4.6 First Amendment to Secured Loan Agreement dated March 20, 1995
among the Trust, CoreStates Bank, N.A., as lender and as
agent, and PNC Bank, National Association, filed as exhibit
4.5 to the Trust's Annual Report on Form 10-K for its fiscal
year ended August 31, 1995, is incorporated herein by
reference.
4.7 Form of Replacement Note pursuant to the First Amendment to
Secured Term Loan Agreement, filed as exhibit 4.6 to the
Trust's Annual Report on Form 10-K for its fiscal year ended
August 31, 1995, is incorporated herein by reference.
4.8 Second Amendment to Secured Loan Agreement dated April 25,
1995 among the Trust, CoreStates Bank, N.A., as lender and as
agent, and PNC Bank, National Association, filed as exhibit
4.7 to the Trust's Annual Report on Form 10-K for its fiscal
year ended August 31, 1996, is incorporated herein by
reference.
4.9 Third Amendment to Secured Loan Agreement dated August 29,
1991 among the Trust, CoreStates Bank, N.A., as lender and as
agent, and PNC Bank, National Association, filed as exhibit
4.8 to the Trust's Annual Report on Form 10-K for its fiscal
year ended August 31, 1996, is incorporated herein by
reference.
4.10 Guaranty dated August 2, 1993 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.7 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.11 Guaranty dated January 27, 1994 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.8 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.12 Guaranty dated September 23, 1994 of the Trust in favor of
CoreStates Bank, N.A., filed as exhibit 4.9 to the Trust's
Annual Report on Form 10-K for its fiscal year ended August
31, 1995, is incorporated herein by reference.
4.13 First Amended and Restated Agreement of Limited Partnership,
dated September 30, 1997, of PREIT Associates, L.P., filed as
exhibit 4.15 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
4.14 First Amendment to the First Amended and Restated Agreement of
Limited Partnership, dated September 30, 1997, of PREIT
Associates, L.P., filed as exhibit 4.1 to the Trust's Current
Report on Form 10-Q for the quarterly period ended September
30, 1998, is incorporated herein by reference.
4.15 Second Amendment to the First Amended and Restated Agreement
of Limited Partnership, dated September 30, 1997, of PREIT
Associates, L.P., filed as exhibit 4.2 to the Trust's Current
Report on Form 10-Q for the quarterly period ended September
30, 1998, is incorporated herein by reference.
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<PAGE>
4.16 Third Amendment to the First Amended and Restated Agreement of
Limited Partnership, dated September 30, 1997, of PREIT
Associates, L.P., filed as exhibit 4.3 to the Trust's Current
Report on Form 10-Q for the quarterly period ended September
30, 1998, is incorporated herein by reference.
4.17 Subscription Agreement, dated September 30, 1997, between
PREIT Associates, L.P. and Florence Mall Partners, filed as
exhibit 4.16 to the Trust's Current Report on Form 8-K dated
October 14, 1997, is incorporated herein by reference.
10.1 Employment Agreement, dated as of January 1, 1990, between the
Trust and Sylvan M. Cohen, filed as exhibit 10.1 to the
Trust's Annual Report on Form 10-K for the fiscal year ended
August 31, 1990, incorporated herein by reference.
10.2 Second Amendment to Employment Agreement, dated as of
September 29, 1997, between the Trust and Sylvan M. Cohen,
filed as exhibit 10.36 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.3 Employment Extension and Separation Agreement, dated October
1, 1997, between the Trust and Robert G. Rogers, filed as
exhibit 10.3 to the Trust's Annual Report on Form 10-K on
November 28, 1997, is incorporated herein by reference.
10.4 First Amendment to Amended and Restated Employment Agreement
as of July 12, 1993 between the Trust and Robert G. Rogers,
filed as exhibit 10.2 to the Trust's Annual Report on Form
10-K for the fiscal year ended August 31, 1993, is
incorporated herein by reference.
10.5 Amended and Restated Employment Agreement, dated as of October
1, 1990, between the Trust and Robert G. Rogers, filed as
exhibit 10.2 to the Trust's Annual Report on Form 10-K for the
fiscal year ended August 31, 1990, is incorporated herein by
reference.
10.6 Amended and Restated Employment Agreement, dated as of October
1, 1990, between the Trust and Dante J. Massimini, filed as
exhibit 10.3 to the Trust's Annual Report on Form 10-K for the
fiscal year ended August 31, 1990, is incorporated herein by
reference.
10.7 Trust's 1990 Incentive Stock Option Plan, filed as Appendix A
to Exhibit "A" to the Trust's Quarterly Report on Form 10-Q
for the quarterly period ended November 30, 1990, is
incorporated herein by reference.
10.8 Trust's Amended and Restated 1990 Stock Option Plan for
Non-Employee Trustees, filed as Appendix A to the Trust's
definitive proxy statement for the Annual Meeting of
Shareholders on December 16, 1997 filed on November 18, 1997,
is incorporated herein by reference.
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10.9 Amendment No. 2 to the Trust's 1990 Stock Option Plan for
Non-Employee Trustees is filed herewith.
10.10 Purchase and Sale Agreement between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Pembroke Associates Limited
Partnership dated May 9, 1994 and Amendment No. 1 to Purchase
and Sale Agreement between Robert G. Rogers and Jonathan B.
Weller, as Trustees and on behalf of all other Trustees of the
Trust, and Pembroke Associates Limited Partnership dated June
28, 1994, filed as exhibit 10.7 to the Trust's Report on Form
8-K dated August 1, 1994 and filed August 15, 1994, as
incorporated herein by reference.
10.11 Agreement of Sale (Phase I) between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of all other
Trustees of the Pennsylvania Real Estate Investment Trust, and
Arbern Investors VI, L.P., dated September 24, 1994 and
Amendment No. 1 to Purchase and Sale Agreement (Phase I)
between Robert G. Rogers and Jonathan B. Weller, as Trustees,
and on behalf of all other Trustees of the Trust, and Arbern
Investors VI, L.P., dated November 4, 1994, filed as exhibit
10.8 to the Trust's Report on Form 8-K dated November 10, 1994
and filed November 23, 1994, is incorporated by reference.
10.12 Agreement of Sale (Phase II) between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Arbern Investors VIII, L.P., dated
September 24, 1994, Amendment No. 1 to Purchase and Sale
Agreement (Phase I) between Robert G. Rogers and Jonathan B.
Weller, as Trustees, and on behalf of all other Trustees of
the Trust, and Arbern Investors VIII, L.P., dated November 4,
1994, and Amendment No. 2 to Purchase and Sale Agreement
(Phase I) between Robert G. Rogers and Jonathan B. Weller, as
Trustees, and on behalf of all other Trustees of the Trust,
and Arbern Investors VIII, L.P., dated November 4, 1994, filed
as exhibit 10.9 to the Trust's Report on Form 8-K dated
November 10, 1994 and filed on November 23, 1994, is
incorporated herein by reference.
10.13 Employment Agreement dated as of December 14, 1993 between the
Trust and Jonathan B. Weller, filed as exhibit 10.10 to the
Trust's Annual Report on Form 10-K for the fiscal year ended
August 31, 1994, is incorporated herein by reference.
10.14 The Trust's Amended Incentive and Non Qualified Stock Option
Plan, filed as exhibit A to the Trust's definitive proxy
statement for the Annual Meeting of Shareholders on December
15, 1994 filed on November 17, 1994, is incorporated herein by
reference.
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10.15 Amended and Restated 1990 Incentive and Non-Qualified Stock
Option Plan of the Trust, filed as exhibit 10.40 to the
Trust's Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.16 Amendment No. 1 to the Trust's 1990 Incentive and
Non-Qualified Stock Option Plan is filed herewith.
10.17 The Trust's 1993 Jonathan B. Weller Non Qualified Stock Option
Plan, filed as exhibit B to the Trust's definitive proxy
statement for the Annual Meeting of Shareholders on December
15, 1994 which was filed November 17, 1994, as incorporated
herein by reference.
10.18 Employment Agreement dated as of January 1, 1997 between the
Trust and Jeffrey Linn filed as exhibit 10.16 to the Trust's
Annual Report on Form 10-K on November 28, 1997, is
incorporated herein by reference.
10.19 PREIT Contribution Agreement and General Assignment and Bill
of Sale, dated as of September 30, 1997, by and between the
Trust and PREIT Associates, L.P., filed as exhibit 10.15 to
the Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.20 Declaration of Trust, dated June 19, 1997, by Trust, as
grantor, and Trust, as initial trustee, filed as exhibit 10.16
to the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.21 TRO Contribution Agreement, dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and the persons and
entities named therein, filed as exhibit 10.17 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.22 First Amendment to TRO Contribution Agreement, dated September
30, 1997, filed as exhibit 10.18 to the Trust's Current Report
on Form 8-K dated October 14, 1997, is incorporated herein by
reference.
10.23 Contribution Agreement (relating to the Court at Oxford
Valley, Langhorne, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Rubin Oxford, Inc.
and Rubin Oxford Valley Associates, L.P., filed as exhibit
10.19 to the Trust's Current Report on Form 8-K dated October
14, 1997, is incorporated herein by reference.
10.24 First Amendment to Contribution Agreement (relating to the
Court at Oxford Valley, Langhorne, Pennsylvania), dated
September 30, 1997, filed as exhibit 10.20 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
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10.25 Contribution Agreement (relating to Hillview Shopping Center,
Cherry Hill, New Jersey), dated as of July 30, 1997, among the
Trust, PREIT Associates, L.P., Cherry Hill Partner, Inc., and
Rubin Oxford Valley Associates, L.P., filed as exhibit 10.21
to the Trust's Current Report on Form 8-K dated October 14,
1997, is incorporated herein by reference.
10.26 Contribution Agreement (relating to Northeast Tower Center,
Philadelphia, Pennsylvania), dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., Roosevelt Blvd. Co., Inc.
and the individuals named therein, filed as exhibit 10.22 to
the Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.27 First Amendment to Contribution Agreement (relating to
Northeast Tower Center, Philadelphia, Pennsylvania), dated as
of December 23, 1998, among the Trust, PREIT Associates, L.P.,
Roosevelt Blvd. Co., Inc. and the individuals named therein,
filed as exhibit 2.2 to the Trust's Current Report on Form 8-K
dated January 7, 1999, is incorporated herein by reference.
10.28 Contribution Agreement (relating to the pre-development
properties named therein), dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and TRO Predevelopment,
LLC, filed as exhibit 10.23 to the Trust's Current Report on
Form 8-K dated October 14, 1997, is incorporated herein by
reference.
10.29 First Amendment to Contribution Agreement (relating to the
pre-development properties), dated September 30, 1997, filed
as exhibit 10.24 to the Trust's Current Report on Form 8-K
dated October 14, 1997, is incorporated herein by reference.
10.30 First Refusal Rights Agreement, effective as of September 30,
1997, by Pan American Associates, its partners and all persons
having an interest in such partners with and for the benefit
of PREIT Associates, L.P., filed as exhibit 10.25 to the
Trust's Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.31 Purchase and Sale Agreement (relating to Magnolia Mall,
Florence, South Carolina), dated as of June 30, 1997, by and
between Magnolia Retail Associates, L.L.C. and The Rubin
Organization, Inc., filed as exhibit 10.26 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.32 First Amendment to Purchase and Sale Agreement (relating to
Magnolia Mall, Florence, South Carolina), dated September 30,
1997, filed as exhibit 10.27 to the Trust's Current Report on
Form 8-K dated October 14, 1997, is incorporated herein by
reference.
-50-
<PAGE>
10.33 Purchase and Sale Agreement (relating to North Dartmouth Mall,
Dartmouth, Massachusetts), dated as of June 30, 1997, by and
between Diversified Equity Corporation of Illinois, Inc. and
The Rubin Organization, Inc., filed as exhibit 10.28 to the
Trust's Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.34 Contribution Agreement among the Woods Associates, a
Pennsylvania limited partnership, certain general, limited and
special limited partners thereof, PREIT Associates, L.P., a
Delaware limited partnership, and the Trust dated as of July
24, 1998, as amended by Amendment #1 to the Contribution
Agreement, dated as of August 7, 1998, filed as exhibit 2.1 to
the Trust's Current Report on Form 8-K dated August 7, 1998,
is incorporated herein by reference.
10.35 Purchase and Sale and Contribution Agreement dated as of
September 17, 1998 by and among Edgewater Associates #3
Limited Partnership, an Illinois Limited partnership,
Equity-Prince George's Plaza, Inc., an Illinois corporation,
PREIT Associates, L.P., a Delaware limited partnership and PR
PGPlaza LLC, a Delaware limited liability company, filed as
exhibit 2.1 to the Trust's Current Report on Form 8-K dated
September 17, 1998 is incorporated herein by reference.
10.36 Purchase and Sale Agreement dated as of July 24, 1998 by and
between Oaklands Limited Partnership, a Pennsylvania limited
partnership, and PREIT Associates, L.P. a Delaware limited
partnership, filed as exhibit 2.1 to the Trust's Current Repot
on Form 8-K dated August 27, 1998 is incorporated herein by
reference.
10.37 Agreement Regarding Assignment of Purchase and Sale Agreements
(relating to Magnolia Mall, Florence, South Carolina and North
Dartmouth Mall, Dartmouth, Massachusetts), dated as of June
30, 1997, between The Rubin Organization, Inc. and the Trust,
filed as exhibit 10.29 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.38 Registration Rights Agreement, dated as of September 30, 1997,
among the Trust and the persons listed on Schedule A thereto,
filed as exhibit 10.30 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.39 Registration Rights Agreement, dated as of September 30, 1997,
between the Trust and Florence Mall Partners, filed as exhibit
10.31 to the Trust's Current Report on Form 8-K dated October
14, 1997, is incorporated herein by reference.
10.40 Letter Agreement, dated March 26, 1996, by and among The
Goldenberg Group, The Rubin Organization, Inc., Ronald Rubin
and Kenneth Goldenberg, filed as exhibit 10.32 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
-51-
<PAGE>
10.41 Letter Agreement dated July 30, 1997, by and between The
Goldenberg Group and Ronald Rubin, filed as exhibit 10.33 to
the Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.42 Employment Agreement, dated September 30, 1997, between the
Trust and Ronald Rubin, filed as exhibit 10.34 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.43 Employment Agreement, dated September 30, 1997, between the
Trust and Edward Glickman, filed as exhibit 10.35 to the
Trust's Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.44 Trust Incentive Bonus Plan, effective as of January 1, 1998,
filed as exhibit 10.37 to the Trust's Current Report on Form
8-K dated October 14, 1997, is incorporated herein by
reference.
10.45 PREIT-RUBIN, Inc. Stock Bonus Plan Trust Agreement, effective
as of September 30, 1997, by and between PREIT-RUBIN, Inc. and
CoreStates Bank, N.A., filed as exhibit 10.38 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.46 PREIT-RUBIN, Inc. Stock Bonus Plan, filed as exhibit 10.39 to
the Trust's Current Report on Form 8-K dated October 14, 1997,
is incorporated herein by reference.
10.47 1997 Stock Option Plan, filed as exhibit 10.41 to the Trust's
Current Report on Form 8-K dated October 14, 1997, is
incorporated herein by reference.
10.48 Amendment No. 1 to the Trust's 1997 Stock Option Plan is filed
herewith.
10.49 The Trust's Special Committee of the Board of Trustees'
Statement Regarding Adjustment of Earnout Performance
Benchmarks Under the TRO Contribution Agreement, dated
December 29, 1998, filed as Exhibit 10.1 to the Trust's
Current Report on Form 8-K dated December 18, 1998, is
incorporated herein by reference.
10.50 Statement Regarding Adjustment of Earnout Performance
Benchmarks Under the TRO Contribution Agreement, dated
December 29, 1998, filed as exhibit 10.1 to the Trust's
Current Report on Form 8-K dated December 18, 1998, is
incorporated herein by reference.
-52-
<PAGE>
10.51 The Trust's 1998 Non-Qualified Employee Share Purchase Plan,
filed as exhibit 4 to the Trust's Form S-3 dated January 6,
1999, is incorporated herein by reference.
10.52 Amendment No. 1 to the Trust's Non-Qualified Employee Share
Purchase Plan is filed herewith.
10.53 The Trust's 1998 Qualified Employee Share Purchase Plan, filed
as exhibit 4 to the Trust's Form S-8 dated December 30, 1998,
is incorporated herein by reference.
10.54 Amendment No. 1 to the Trust's Qualified Employee Share
Purchase Plan is filed herewith.
10.55 PREIT-RUBIN Inc. 1998 Stock Option Plan, filed as Exhibit 4 to
the Trust's Form S-3 dated March 19, 1999, is incorporated
herein by reference.
10.56 Amendment No. 1 to the PREIT-RUBIN, Inc. 1998 Stock Option
Plan is filed herewith.
10.57 The Trust's Distribution Reinvestment and Share Purchase Plan,
filed on Form S-3 dated March 19, 1999, is incorporated herein
by reference.
21. Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent Public Accountants
of the Trust).
23.2 Consent of Ernst & Young LLP (Independent Auditors of Lehigh
Valley Associates).
27. Financial Data Schedule
-53-
<PAGE>
(b) Report on Form 8-K.
On December 31, 1998, the Trust filed a Form 8-K dated December 18,
1998 covering the following Item 5 events:
a) Audited Financial Statements as of and for the four month period
ended December 31, 1997
b) Adjustment of Earnout Performance Benchmarks Under the TRO
Contribution Agreement
c) Settlement of litigation with Bermans pursuant to which the Trust
received the Bermans' 50% interest in the Fox Run multifamily
community in Bear, Delaware (414 units), the Eagle's Nest
multifamily community in Coral Springs, Florida (264 units) and an
undeveloped 14 acre parcel in Coral Springs, Florida that will
accommodate the development of approximately 260 units and pursuant
to which the Trust paid the Bermans $775,000 and assumed the
remaining 50% of the debt outstanding on the properties.
-54-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date: March 31, 1999 By: /s/ Jonathan B. Weller
-------------------------------------
Jonathan B. Weller
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Sylvan M. Cohen and Jonathan B. Weller,
or either of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Annual
Report on Form 10-K, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and either of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents, or either of them or any substitute therefor, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Trust and in the capacities and on the dates indicated:
-55-
<PAGE>
<TABLE>
<CAPTION>
Name Capacity Date
---- -------- ----
<S> <C> <C>
/s/ Sylvan M. Cohen Chairman and Trustee March 31, 1999
- ------------------------
Sylvan M. Cohen
/s/ Ronald Rubin Chief Executive Officer and Trustee March 31, 1999
- --------------------------
Ronald Rubin
/s/ Jonathan B. Weller President, Chief Operating Officer March 31, 1999
- ------------------------- and Trustee
Jonathan B. Weller
/s/ George Rubin Trustee March 31, 1999
- -------------------------
George Rubin
/s/ William R. Dimeling Trustee March 31, 1999
- -------------------------
William R. Dimeling
/s/ Lee Javitch Trustee March 31, 1999
- -------------------------
Lee Javitch
/s/ Leonard I. Korman Trustee March 31, 1999
- -----------------------
Leonard I. Korman
/s/ Jeffrey P. Orleans Trustee March 31, 1999
- --------------------------
Jeffrey P. Orleans
Trustee March __, 1999
- -----------------------
Rosemarie B. Greco
/s/ Edward Glickman Executive Vice President and Chief March 31, 1999
- ----------------------- Financial Officer (principal
Edward Glickman financial officer)
/s/ Dante J. Massimini Senior Vice President - Finance March 31, 1999
- ------------------------ and Treasurer (principal
Dante J. Massimini accounting officer)
</TABLE>
-56-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Trustees of
Pennsylvania Real Estate Investment Trust:
We have audited the accompanying consolidated balance sheets of Pennsylvania
Real Estate Investment Trust (a Pennsylvania Trust) and Subsidiaries as of
December 31, 1998, December 31, 1997 and August 31, 1997 and the related
consolidated statements of income, shareholders' equity and cash flows for the
year ended December 31, 1998, the four-month period ended December 31, 1997 and
for each of the two years in the fiscal period ended August 31, 1997. These
financial statements and the schedules referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We did not audit the financial
statements for Lehigh Valley Mall Associates, a partnership in which the Company
has a 50% interest which is reflected in the accompanying financial statements
using the equity method of accounting. The equity in net income of Lehigh Valley
Mall Associates represents 12%, 19%, 23% and 31% of net income for the year
ended December 31, 1998, the four-month period ended December 31, 1997 and for
the fiscal years ended August 31, 1997 and 1996, respectively. The financial
statements of Lehigh Valley Mall Associates were audited by other auditors whose
report has been furnished to us and our opinion, insofar as it relates to the
amounts included for Lehigh Valley Mall Associates, is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Pennsylvania Real Estate Investment Trust and
Subsidiaries as of December 31, 1998 and 1997, and August 31, 1997, and the
results of their operations and their cash flows for the year ended December 31,
1998, the four-month period ended December 31, 1997 and for each of the two
years in the fiscal period ended August 31, 1997, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index of financial
statement schedules in Item 14 are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
February 26, 1999
F-1
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, August 31,
1998, 1997, 1997,
---------------- ---------------- ----------------
<S> <C> <C> <C>
Assets
Investments in real estate, at cost (Notes 1 and 6):
Multifamily properties $ 230,997,000 $ 161,270,000 $ 159,967,000
Retail properties 261,823,000 120,209,000 37,398,000
Industrial properties 5,078,000 5,078,000 5,078,000
Land and properties under development 11,508,000 1,369,000 --
---------------- ---------------- ----------------
Total investments in real estate 509,406,000 287,926,000 202,443,000
Less: Accumulated depreciation 71,129,000 53,171,000 50,711,000
---------------- ---------------- ----------------
438,277,000 234,755,000 151,732,000
Investments in PREIT-RUBIN, Inc. (Note 5) 5,372,000 4,853,000 --
Investments in and advances to partnerships
and joint ventures, at equity (Notes 1 and 4) 13,439,000 14,505,000 1,039,000
Advances to PREIT-RUBIN, Inc. (Note 3) 4,074,000 3,413,000 --
---------------- ---------------- ----------------
461,162,000 257,526,000 152,771,000
Less: Allowance for possible losses 1,572,000 1,770,000 1,831,000
---------------- ---------------- ----------------
459,590,000 255,756,000 150,940,000
Other assets:
Cash and cash equivalents 6,135,000 1,324,000 1,399,000
Rents and sundry receivables (net of allowance
for doubtful accounts of $372,000; $140,000
and $72,000, respectively) 3,498,000 441,000 590,000
Deferred costs, prepaid real estate
taxes and expenses, net (Note 1) 12,392,000 8,045,000 7,393,000
Deposits on properties -- -- 5,335,000
---------------- ---------------- ----------------
$ 481,615,000 $ 265,566,000 $ 165,657,000
================ ================ ================
Liabilities and Shareholders' Equity
Mortgage notes payable (Note 6) $ 167,003,000 $ 99,364,000 $ 83,528,000
Bank and other loans payable (Note 6) 135,273,000 4,575,000 33,884,000
Tenants' deposits and deferred rents 1,827,000 1,317,000 1,346,000
Accrued pension and retirement
benefits (Notes 1 and 8) 972,000 1,011,000 1,091,000
Accrued expenses and other liabilities 11,413,000 4,964,000 4,369,00
---------------- ---------------- ----------------
316,488,000 111,231,000 124,218,000
---------------- ---------------- ----------------
Minority interest (Note 1) 28,045,000 15,805,000 540,000
---------------- ---------------- ----------------
Commitments and contingencies (Note 11) -- -- --
Shareholders' equity (Notes 1 and 9):
Shares of beneficial interest, $1 par; authorized
unlimited; issued and outstanding 13,299,723;
13,288,848; and 8,685,098 shares at
December 31, 1998, 1997 and August 31,
1997, respectively 13,300,000 13,289,000 8,685,000
Capital contributed in excess of par 145,103,000 144,746,000 53,599,000
Distributions in excess of net income (21,321,000) (19,505,000) (21,385,000)
---------------- ---------------- ----------------
Total shareholders' equity 137,082,000 138,530,000 40,899,000
---------------- ---------------- ----------------
$ 481,615,000 $ 265,566,000 $ 165,657,000
================ ================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Calendar For the 4-Month
Year Ended, Period Ended, For the Fiscal Years Ended August 31,
December 31, December 31, -------------------------------------
1998 1997 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Gross revenues from real estate $61,745,000 $17,170,000 $40,231,000 $38,985,000
Interest and other income 650,000 82,000 254,000 171,000
----------- ----------- ----------- -----------
62,395,000 17,252,000 40,485,000 39,156,000
Expenses
Property operating expenses 22,519,000 6,915,000 16,487,000 16,377,000
Depreciation and amortization 9,406,000 2,695,000 6,259,000 5,908,000
General and administrative expenses 3,351,000 1,088,000 3,324,000 3,119,000
Interest expense 10,591,000 4,349,000 9,086,000 9,831,000
Provisions for losses on investments -- -- 500,000 --
----------- ----------- ----------- -----------
45,867,000 15,047,000 35,656,000 35,235,000
----------- ----------- ----------- -----------
Income before equity in unconsolidated entities,
gains on sales of interests in real estate,
minority interest and extraordinary item 16,528,000 2,205,000 4,829,000 3,921,000
Equity in (loss) income of PREIT-RUBIN, Inc.
(Notes 3 and 5) (678,000) 260,000 -- --
Equity in income of partnerships and
joint ventures (Note 4) 5,985,000 2,101,000 4,337,000 6,258,000
Gains on sales of interests in real estate 3,043,000 2,090,000 1,069,000 865,000
----------- ----------- ----------- -----------
Income before minority interest
and extraordinary item 24,878,000 6,656,000 10,235,000 11,044,000
Minority interest (Note 1) (1,423,000) (394,000) -- --
----------- ----------- ----------- -----------
Income before extraordinary item 23,455,000 6,262,000 10,235,000 11,044,000
Extraordinary item-loss on early
extinguishment of debt (Note 6) (270,000) (300,000) -- --
----------- ----------- ----------- -----------
Net Income $23,185,000 $ 5,962,000 $10,235,000 $11,044,000
=========== =========== =========== ===========
Net income per share (Note 7):
Basic $ 1.74 $ .66 $ 1.18 $ 1.27
=========== =========== =========== ===========
Diluted $ 1.74 $ .66 $ 1.18 $ 1.27
=========== =========== =========== ===========
</TABLE>
Consolidated Statements of Shareholders' Equity
For the Calendar Year Ended December 31, 1998, the 4-Month Period Ended December
31, 1997 and the 2 Fiscal Years Ended August 31, 1997
<TABLE>
<CAPTION>
Shares of Beneficial Capital Contributed Distributions in Excess
Interest $1 Par in Excess of Par of Net Income
-------------------- ------------------- -----------------------
<S> <C> <C> <C>
Balance, September 1, 1995 $ 8,676,000 $ 53,133,000 $(10,038,000)
Net income -- -- 11,044,000
Distributions paid to shareholders ($1.88 per share) -- -- (16,310,000)
-------------- ------------ ------------
Balance, August 31, 1996 8,676,000 53,133,000 (15,304,000)
Net income -- -- 10,235,000
Shares issued upon exercise of options (Note 9) 9,000 166,000 --
Issuance of compensatory stock options (Note 9) -- 300,000 --
Distributions paid to shareholders ($1.88 per share) -- -- (16,316,000)
-------------- ------------ ------------
Balance, August 31, 1997 8,685,000 53,599,000 (21,385,000)
Net income -- -- 5,962,000
Shares issued upon exercise of options (Note 9) 4,000 64,000 --
New shares issued (Note 9) 4,600,000 91,083,000 --
Distributions paid to shareholders ($.47 per share) -- -- (4,082,000)
-------------- ------------ ------------
Balance, December 31, 1997 13,289,000 144,746,000 (19,505,000)
Net income -- -- 23,185,000
Shares issued upon exercise of options (Note 9) 11,000 196,000 --
Option sold to PREIT-RUBIN, Inc. (Note 5) -- 161,000 --
Distributions paid to shareholders ($1.88 per share) -- -- (25,001,000)
-------------- ------------ ------------
Balance, December 31, 1998 $ 13,300,000 $145,103,000 $(21,321,000)
============== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Calendar, For the 4-Month,
Year Ended, Period Ended, For the Fiscal Years Ended August 31,
December 31, December 31, -------------------------------------
1998 1997 1997 1996
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 23,185,000 $ 5,962,000 $ 10,235,000 $ 11,044,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest in operating partnership 1,423,000 394,000 -- --
Depreciation and amortization 9,406,000 2,695,000 6,259,000 5,908,000
Gains on sales of interests in real estate (3,043,000) (2,090,000) (1,069,000) (865,000)
Provision for losses on investments -- -- 500,000 --
Issuance of compensatory stock options -- -- 300,000 --
Loss on early extinguishment of debt 270,000 300,000 -- --
Equity in loss (income) of PREIT-RUBIN, Inc. 678,000 (260,000) -- --
Decrease in allowance for possible losses (197,000) (61,000) (710,000) (734,000)
Change in assets and liabilities,
net of effects from acquisitions:
Rents and sundry receivables (2,670,000) 149,000 18,000 (192,000)
Deferred costs, prepaid real estate taxes
and expenses (4,994,000) (3,075,000) (10,000) (356,000)
Accrued pension and retirement benefits (38,000) (80,000) (116,000) (6,000)
Accrued expenses and other liabilities 6,875,000 296,000 (310,000) (54,000)
Tenants' deposits and deferred rents 84,000 (29,000) (76,000) 70,000
Other 159,000 80,000 198,000 275,000
-------------- -------------- ------------- --------------
Net cash provided by operating activities 31,138,000 4,281,000 15,219,000 15,090,000
-------------- -------------- ------------- --------------
Cash Flows from Investing Activities:
Investments in wholly-owned real estate (150,793,000) (47,972,000) (3,901,000) (3,685,000)
Investments in property under development (5,917,000) (1,246,000) -- --
Investments in partnerships and joint ventures (15,030,000) (9,947,000) (2,649,000) (897,000)
Investments in and advances to PREIT-RUBIN, Inc. (1,330,000) (1,448,000) -- --
Cash distributions from partnerships and joint
ventures in excess of (less than) equity in income 10,328,000 (518,000) 17,605,000 889,000
Cash proceeds from sales of real estate investments -- -- -- 5,163,000
Cash proceeds from sales of interests in partnerships 3,008,000 3,862,000 2,069,000 --
Decrease in notes receivable -- -- 1,649,000 --
Deposits on agreement to purchase -- -- (5,336,000) --
Deferred acquisition costs -- -- (1,488,000) (276,000)
-------------- -------------- ------------- --------------
Net cash (used in) provided by investing activities (159,734,000) (57,269,000) 7,949,000 1,194,000
-------------- -------------- ------------- --------------
Cash Flows from Financing Activities:
Principal installments on mortgage notes payable (1,518,000) (9,318,000) (1,305,000) (1,123,000)
Proceeds from mortgage notes payable 68,314,000 -- -- 8,800,000
Prepayment of mortgage notes payable (33,680,000) -- -- (1,749,000)
Proceeds from bank loan payable 127,948,000 -- -- --
Decrease in bank loan payable (242,000) (29,309,000) (5,431,000) (5,005,000)
Decrease (increase) in deferred financing costs -- -- 278,000 (704,000)
Payment of deferred financing costs (1,076,000) (859,000) -- --
Shares of beneficial interest issued 206,000 96,829,000 175,000 --
Distributions paid to shareholders (25,001,000) (4,082,000) (16,316,000) (16,310,000)
Distributions paid to OP unit holders (1,484,000) (304,000) -- --
Distributions to minority partners (60,000) (44,000) (200,000) (261,000)
-------------- -------------- ------------- --------------
Net cash provided by (used in) financing activities 133,407,000 52,913,000 (22,799,000) (16,352,000)
-------------- -------------- ------------- --------------
Net increase (decrease) in cash and cash equivalents 4,811,000 (75,000) 369,000 (68,000)
Cash and cash equivalents, beginning of period 1,324,000 1,399,000 1,030,000 1,098,000
-------------- -------------- ------------- --------------
Cash and cash equivalents, end of period $ 6,135,000 $ 1,324,000 $ 1,399,000 $ 1,030,000
============== ============== ============= ==============
Supplemental Disclosure of Noncash
Investing Activities (see Notes 1 and 12):
Accrual of acquisition costs $ -- $ -- $ 778,000 $ --
============== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Notes to Consolidated Financial Statements
For the Calendar Year Ended December 31, 1998, the Four-Month Period Ended
December 31, 1997 and the Fiscal Years Ended August 31, 1997 and 1996
1. Summary of Significant Accounting Policies:
Nature of Operations
Pennsylvania Real Estate Investment Trust (collectively with its subsidiaries,
the "Company") is a fully integrated, self-administered and self-managed real
estate investment trust ("REIT") which acquires, rehabilitates, develops, and
operates retail and multifamily properties. Substantially all of the Company's
properties are located in the Eastern United States, with concentrations in the
Mid-Atlantic states and in Florida.
The Company's interest in its properties is held through PREIT Associates, L.P.
(the "Operating Partnership"). The Company is the sole general partner of the
Operating Partnership and, as of December 31, 1998, the Company held a 92.1%
interest in the Operating Partnership. The Operating Partnership holds a 95%
economic interest in PREIT-RUBIN, Inc. (the "Management Company") through its
ownership of 95% of the Management Company's nonvoting preferred stock.
Consolidation
The Company consolidates its accounts and the accounts of the Operating
Partnership and reflects the remaining interest in the Operating Partnership as
minority interest. One partnership in which the Company is a 65% general
partner, and has control as provided in the partnership agreement, has been
consolidated for financial statement presentation. The minority partner's
interest is 35%. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Investment in Management Company
The Company's investment in the Management Company is accounted for using the
equity method. See Notes 3 and 5 for further discussion.
Partnership and Joint Venture Investments
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 78-9, "Accounting for Investments in Real Estate
Ventures," the Company accounts for its investment in partnerships and joint
ventures which it does not control using the equity method of accounting. These
investments, which represent 40% to 75% noncontrolling ownership interests, are
recorded initially at the Company's cost and subsequently adjusted for the
Company's net equity in income and cash contributions and distributions.
Statements of Cash Flows
The Company considers all highly liquid short-term investments with an original
maturity of three months or less to be cash equivalents. Cash paid for interest
was $10,146,000 ; $4,412,000; $8,963,000 and $9,962,000 for the calendar year
ended December 31, 1998, the four-month period ended December 31, 1997, and the
fiscal years ended August 31, 1997 and 1996, respectively. At December 31, 1998
and 1997, and August 31, 1997, cash and cash equivalents totaling $6,135,000;
$1,324,000 and $1,399,000, respectively included tenant escrow deposits of
$514,000; $211,000 and $304,000, respectively.
Capitalization of Costs
It is the Company's policy to capitalize interest and real estate taxes related
to properties under development and to depreciate these costs over the life of
the related assets in order to more properly match revenues and expenses. These
items are capitalized for income tax purposes and amortized or depreciated in
accordance with the provisions of the Internal Revenue Code. For the calendar
year ended December 31, 1998 and the four-month period ended December 31, 1997,
the Company capitalized interest and real estate taxes of $1,578,000 and
$247,000. No interest or taxes were capitalized for the fiscal years ended
August 31, 1997 and 1996.
The Company has capitalized as deferred costs certain expenditures related to
the financing and leasing of certain properties. Capitalized loan fees are being
amortized over the term of the related loans and leasing commissions are being
amortized over the term of the related leases.
During the fiscal year ended August 31, 1997, the Company capitalized certain
deposits associated with the planned future purchase of two regional malls.
These deposits were applied to the respective properties upon consummation of
the transaction described in Note 3.
F-5
<PAGE>
Depreciation
The Company, for financial reporting purposes, depreciates its buildings,
equipment and leasehold improvements over their estimated useful lives of 10 to
40 years, using the straight-line method of depreciation. For federal income tax
purposes, the Company currently uses the straight-line method of depreciation
and the useful lives prescribed by the Internal Revenue Code.
Allowance for Possible Losses
The Company reviews the carrying value of long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Measurement of an impairment loss
for these assets is based on the fair market value of the assets.
During the fiscal year ended August 31, 1997, an impairment loss of
approximately $500,000 was recorded following the expiration of an option to
sell certain land parcels held by a partnership in which the Company holds an
equity interest.
Benefit Plans
The Company has provided pension benefits since 1970 for all employees,
excluding the Chairman, for whom retirement benefits are provided in an
employment contract.
With regard to the Chairman's employment contract, no provision was required for
the calendar year ended December 31, 1998, the four months ended December 31,
1997 or for the fiscal years ended August 31, 1997 and 1996.
Derivative Financial Instruments
In managing interest rate exposure on certain floating rate debt, the Company at
times enters into interest rate swap and cap agreements. When interest rates
change, the differential to be paid or received is accrued as interest expense
and is recognized over the life of the swap agreements. The costs of cap
transactions are deferred and amortized over the contract period. The amortized
costs of cap transactions and interest income and interest expense on swap
transactions are included in mortgage and bank loan interest.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting For Derivative Instruments and Hedging Activities." This Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. This Statement will be effective for the Company's
calendar year 2000. This Statement must be applied to (a) derivative instruments
and (b) certain derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31, 1997. The Company
does not expect the adoption of this Statement to have a material impact on its
financial position or results of operations.
Income Taxes
The Company has elected to qualify as a real estate investment trust under
Sections 856-860 of the Internal Revenue Code and intends to remain so
qualified. Accordingly, no provision for federal income taxes has been reflected
in the financial statements.
Earnings and profits, which determine the taxability of distributions to
shareholders, will differ from net income reported for financial reporting
purposes due to differences in cost basis, differences in the estimated useful
lives used to compute depreciation and differences between the allocation of the
Company's net income and loss for financial reporting purposes and for tax
reporting purposes.
The Company is subject to a federal excise tax computed on a calendar year. The
excise tax equals 4% of the excess, if any, of 85% of the Company's ordinary
income plus 95% of the Company's capital gain net income for the calendar year
over cash distributions during the calendar year, as defined. The Company has in
the past distributed a substantial portion of its taxable income in the
subsequent fiscal year and may also follow this policy in the future.
No provision for excise tax was made for the calendar year ended December 31,
1998, the four months ended December 31, 1997 or for the fiscal years 1997 and
1996 as no tax was due.
F-6
<PAGE>
The tax status of distributions paid to shareholders was composed of the
following for the calendar years ended December 31, 1998, 1997 and 1996:
Years Ended December 31
-------------------------------------------
1998 1997 1996
--------- --------- ---------
Ordinary income $ 1.63 $ 1.66 $ 1.72
Capital gains .25 .22 .16
--------- --------- ---------
$ 1.88 $ 1.88 $ 1.88
========= ========= =========
The Management Company is subject to federal and state income taxes. The
operating results of the Management Company include a provision for income
taxes.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income." The standard establishes additional
disclosure for the elements of comprehensive income and a total comprehensive
income calculation. Net income as reported by the Company reflects total
comprehensive income for the calendar year ended December 31, 1998, for the four
month period ended December 31, 1997 and for the fiscal years ended August 31,
1997 and 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain prior period amounts have been reclassified to conform with the current
year presentation.
2. Change in Fiscal Year-End:
On October 14, 1997, the Company announced its intention to change its fiscal
year-end from August 31 to December 31. On February 17, 1998, the Company filed
a Transition Report on Form 10-Q which included its results for the period
September 1, 1997 through December 31, 1997 and the comparable period.
Listed below is unaudited income statement information with respect to the
four-month period ended December 31, 1996:
4-Month Period Ended
December 31, 1996
Revenues $ 13,397,000
Net income $ 4,842,000
Basic income per share $ .56
Diluted income per share $ .56
3. The TRO Transaction:
On September 30, 1997, the Company completed a series of related transactions
pursuant to which the Company: (i) transferred substantially all of its real
estate interests to PREIT Associates, L.P. of which the Company is the sole
general partner; (ii) the Operating Partnership acquired all of the non-voting
common shares of The Rubin Organization, Inc. ("TRO"), a commercial real estate
development and management firm (renamed "PREIT-RUBIN, Inc."), constituting 95%
of the total equity of PREIT-RUBIN, Inc. in exchange for the issuance of 200,000
Class A Operating Partnership ("OP") Units; (iii) the Operating Partnership
acquired the interests of certain affiliates of TRO ("TRO Affiliates") in The
Court at Oxford Valley, Magnolia Mall, North Dartmouth Mall and Springfield
Park; (iv) the Operating Partnership agreed to acquire the interests of TRO
Affiliates in Hillview Shopping Center and Northeast Tower Center, at prices
based upon a pre-determined formula; and (v) the Operating Partnership acquired
the development rights of certain TRO Affiliates, subject to related
obligations, in Christiana Power Center (Phases I and II), Red Rose Commons and
Blue Route Metroplex.
F-7
<PAGE>
The following pro forma financial information of the Company for the four-month
period ended December 31, 1997 and the fiscal year ended August 31, 1997 gives
effect to the acquisitions of the properties as if the purchases had occurred on
September 1, 1996.
<TABLE>
<CAPTION>
4-Month Period Fiscal Year
(Unaudited) Ended 12/31/97 Ended 8/31/97
<S> <C> <C>
Pro forma total revenues $ 18,292,000 $ 53,209,000
Pro forma net income $ 6,692,000 $ 10,459,000
Basic pro forma net income per common share $ .71 $ 1.21
Diluted pro forma net income per common share $ .71 $ 1.20
</TABLE>
The pro forma financial information presented within this footnote is not
necessarily indicative of the results which actually would have occurred if the
acquisitions had been consummated on September 1, 1996, nor does the pro forma
information purport to represent the results of operations for future periods.
As part of the September 30, 1997 transactions discussed above, the Company
entered into a contribution agreement (the "TRO Contribution Agreement") which
includes a provision to issue up to 800,000 additional Class A OP units over the
five-year period beginning October 1, 1997 and ending September 30, 2002
according to a formula based upon the Company's adjusted funds from operations
per share during the five-year period. The TRO Contribution Agreement
establishes "hurdle" and "target" levels set forth for the Company's adjusted
funds from operations per share during specified earn-out periods to determine
whether, and to what extent, the contingent OP units will be issued. The Company
intends to account for the issuance of contingent OP units as additional
purchase price when such amounts are determinable. For the four months ended
December 31, 1997, 32,500 OP units were earned, resulting in additional purchase
price of approximately $830,000. For the year ended December 31, 1998, 130,000
OP units were earned which will result in additional purchase price of
approximately $2.5 million.
Pursuant to the terms of the partnership agreement, the limited partners of the
Operating Partnership received a conversion right, which enables each limited
partner to convert his/her interest in the Operating Partnership into shares of
beneficial interest or cash, at the election of the Company on a one for one
basis beginning one year following the respective issue date. Certain OP units
issued in connection with the acquisition of Magnolia Mall can be converted at
the option of the limited partner at any time after issuance.
All of the acquisitions described above have been recorded by the Company using
the purchase method of accounting. The Company accounts for its noncontrolling
investment in PREIT-RUBIN, Inc. using the equity method. The excess of the
purchase price of PREIT-RUBIN, Inc. over the fair value of net assets acquired
is being amortized over 35 years.
The following table summarizes the consideration paid to acquire the assets and
businesses described above:
<TABLE>
<CAPTION>
Class A Cash Paid Net Liabilities Other Trans- Total
OP Units (Received) Assumed action Costs Purchase Price
------------- ------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Investment in PREIT-RUBIN, Inc. $ 4,680,000 $ (878,000) $ -- $ 793,000 $ 4,595,000
Investment in The Court at Oxford Valley 5,458,000 683,000 -- 688,000 6,829,000
Magnolia Mall 5,000,000 15,165,000 25,154,000 977,000 46,296,000
North Dartmouth Mall -- 35,000,000 -- 986,000 35,986,000
Development Properties -- 6,446,000 -- 1,859,000 8,305,000
------------- ------------- ------------ ----------- ------------
$ 15,138,000 $ 56,416,000 $ 25,154,000 $ 5,303,000 $102,011,000
============= ============= ============ =========== ============
</TABLE>
F-8
<PAGE>
4. Investments in Partnerships and Joint Ventures:
The following table presents summarized financial information as to the
Company's equity in the assets and liabilities of 19, 22, and 22 partnerships
and joint ventures at December 31, 1998, 1997, and August 31, 1997,
respectively, and 2 and 3 properties under development at December 31, 1998 and
1997, and the Company's equity in income for the calendar year ended December
31, 1998, the four-month period ended December 31, 1997 and the fiscal years
ended August 31, 1997 and 1996:
<TABLE>
<CAPTION>
For the Calendar For the 4-Month For the Fiscal
Year Ended Period Ended Year Ended
December 31, December 31, August 31,
1998 1997 1997
------------- ------------- ------------
<S> <C> <C> <C>
Assets
Investments in real estate, at cost:
Multifamily properties $ 54,396,000 $ 108,236,000 $107,604,000
Industrial property 1,275,000 1,275,000 1,264,000
Retail properties 185,900,000 160,684,000 120,660,000
Properties under development 25,601,000 7,378,000 --
Land 926,000 4,446,000 4,446,000
------------- ------------- ------------
Total investments in real estate 268,098,000 282,019,000 233,974,000
Less: Accumulated depreciation 64,478,000 71,155,000 71,838,000
------------- ------------- ------------
203,620,000 210,864,000 162,136,000
Cash and cash equivalents 7,107,000 8,442,000 6,031,000
Deferred costs, prepaid real estate taxes and other, net 34,923,000 20,469,000 5,728,000
------------- ------------- ------------
Total assets 245,650,000 239,775,000 173,895,000
------------- ------------- ------------
Liabilities and Partners' Equity
Mortgage notes payable 218,278,000 213,018,000 162,097,000
Bank loans payable 3,260,000 6,724,000 8,770,000
Due to the Company -- 3,371,000 3,118,000
Other liabilities 9,675,000 7,601,000 4,341,000
------------- ------------- ------------
Total liabilities 231,213,000 230,714,000 178,326,000
------------- ------------- ------------
Net equity (deficit) 14,437,000 9,061,000 (4,431,000)
Less: Partners' share 998,000 (5,444,000) (5,470,000)
------------- ------------- ------------
Investment in and advances to partnerships
and joint ventures $ 13,439,000 $ 14,505,000 $ 1,039,000
============= ============= ============
</TABLE>
Equity In Income of Partnerships and Joint Ventures
<TABLE>
<CAPTION>
For the Calendar Year, For the 4-Month Period,
Ended December 31, Ended December 31, For the Fiscal Years Ended August 31,
1998 1997 1997 1996
---------------------- ----------------------- -------------- ----------------
<S> <C> <C> <C> <C>
Gross revenues from real estate: $ 57,792,000 $19,258,000 $52,446,000 $53,209,000
------------ ----------- ----------- -----------
Expenses:
Property operating expenses 20,662,000 7,122,000 20,774,000 21,724,000
Mortgage and bank loan interest 16,647,000 5,205,000 14,908,000 11,984,000
Depreciation and amortization 8,348,000 2,609,000 6,978,000 6,833,000
------------ ----------- ----------- -----------
45,657,000 14,936,000 42,660,000 40,541,000
------------ ----------- ----------- -----------
12,135,000 4,322,000 9,786,000 12,668,000
Partners' share (6,150,000) (2,221,000) (5,449,000) (6,410,000)
------------ ----------- ----------- -----------
Equity in income of partnerships
and joint ventures $ 5,985,000 $ 2,101,000 $ 4,337,000 $ 6,258,000
============ =========== =========== ===========
</TABLE>
Mortgage notes payable which are secured by the related properties, are due in
installments over various terms extending to the year 2016 with interest rates
ranging from 6.55% to 8.63% with an average interest rate of 7.67%. Principal
payments are due as follows:
Years Ended December 31,
1999 $ 27,430,000
2000 4,381,000
2001 3,937,000
2002 4,196,000
2003 3,766,000
2004 and thereafter 174,568,000
------------
$218,278,000
============
F-9
<PAGE>
As of December 31, 1998, 15 partnerships and joint ventures were encumbered by
mortgage loans totaling $218,278,000.
The liability under each mortgage note is limited to the particular property
except for a loan in the amount of $6,386,000 which is guaranteed by the
partners of the respective partnerships, including the Company. In addition, one
bank loan in the amount of $811,000 has been guaranteed by the partners of the
partnership including the Company.
The Company's investments in certain partnerships and joint ventures reflect
cash distributions in excess of the Company's net investments totaling
$1,824,000; $5,898,000; $5,833,000 and $5,976,000 for the calendar year ended
December 31, 1998, the four-month period ended December 31, 1997 and the fiscal
years ended August 31, 1997 and 1996, respectively. The Company is generally
entitled to a priority return on these investments.
The Company has a 50% partnership interest in Lehigh Valley Mall Associates
which is included in the amounts above. Summarized financial information as of
December 31, 1998 and 1997, and for the calendar year ended December 31, 1998,
the four-month period ended December 31, 1997 and the fiscal years ended August
31, 1997 and 1996 for this investment which is accounted for by the equity
method is as follows:
<TABLE>
<CAPTION>
For the Calendar Year For the 4-Month Period
Ended December 31, Ended December 31, For the Fiscal Years Ended August 31,
1998, 1997, 1997 1996,
--------------------- ---------------------- -------------- ----------------------
<S> <C> <C> <C> <C>
Total assets $24,093,000 $24,943,000 $24,645,000 $23,552,000
Mortgages payable 52,369,000 53,157,000 53,406,000 22,489,000
Revenues 13,823,000 15,669,000 4,266,000 14,840,000
Property operating expenses 5,074,000 1,508,000 4,657,000 4,198,000
Interest expense 4,176,000 1,289,000 4,638,000 1,998,000
Net income 5,642,000 2,313,000 4,660,000 6,915,000
Equity in income of partnership 2,821,000 1,157,000 2,330,000 3,458,000
</TABLE>
5. Investment in PREIT-RUBIN, Inc.:
PREIT-RUBIN, Inc. ("PRI") is responsible for various activities, including
management, leasing and real estate development of certain of the Company's
properties and for properties on behalf of third parties. Total management fees
paid by the Company's properties to PRI are included in property operating
expenses in the accompanying consolidated statements of income and amounted to
$249,000 and $73,000 for the calendar year ended December 31, 1998 and the
four-month period ended December 31, 1997. The Company's properties also paid
leasing and development fees to PRI totaling $1,100,000 and $18,000 for the
calendar year ended December 31, 1998 and the four-month period ended December
31, 1997.
Leasing and development fees paid by the Company's properties to PRI are
capitalized and amortized to expense in accordance with the Company's normal
accounting policies as described in Note 1. Intercompany profits earned by PRI
related to such activities are deferred and will be amortized to income over
these same periods in order to more properly match revenues and expenses.
In July 1998, PRI issued 134,500 non-qualified stock options to its employees
("PRI options") to purchase shares of beneficial interest in the Company at a
price equal to fair market value of the shares ($23.85) on the grant date. The
options are exercisable over a four year period and vest in equal annual
installments commencing July 15, 1999 and on each anniversary thereof. At the
same time, the Company sold an option to PRI which will enable PRI to purchase
an equal number of shares from the Company with the same terms and conditions as
the PRI options. The purchase price for the option was determined based on the
Black-Scholes option pricing model and was valued at $1.20 per option.
F-10
<PAGE>
PRI also provides management leasing and development services for partnerships
and other ventures in which certain officers of the Company and PRI have either
direct or indirect ownership interests. Total revenues earned by PRI for such
services were $3,489,000 for the calendar year ended December 31, 1998 and
$1,419,000 for the four months ended December 31, 1997. As of December 31, 1998
and 1997, $1,682,000 and $2,014,000, respectively, was due from these
affiliates. Of these amounts, approximately $567,000 and $1,962,000,
respectively, were collected subsequent to December 31, 1998 and 1997.
PRI also leases office space from an affiliate of certain officers of the
Company and PRI. Total rent expense under this lease, which expires in 2002, was
$613,000 for the calendar year ended December 31, 1998 and $143,000 for the four
months ended December 31, 1997.
Summarized unaudited financial information for PRI as of and for the calendar
year ended December 31, 1998 and the four-month period ended December 31, 1997
is as follows:
<TABLE>
<CAPTION>
4-Month
Calendar Year Period Ended
(Unaudited) Ended 12/31/98 12/31/97
-------------- -----------
<S> <C> <C>
Total assets $ 12,142,000 $13,859,000
-------------- -----------
Management fees $ 4,700,000 $ 1,377,000
Leasing commissions 8,183,000 1,877,000
Development fees 1,539,000 124,000
Other revenues 4,131,000 2,334,000
-------------- -----------
Total revenue $ 18,553,000 $ 5,712,000
-------------- -----------
Net income (loss) $ (707,000) $ 303,000
-------------- -----------
Company's share of
net income (loss) $ (678,000) $ 260,000
-------------- -----------
</TABLE>
6. Mortgage Notes and Bank Loans Payable:
Mortgage Notes Payable
Mortgage notes payable which are secured by the related properties are due in
installments over various terms extending to the year 2027 with interest at
rates ranging from 5.90% to 9.50% with an average interest rate of 8.10%.
Principal payments are due as follows:
Years Ended December 31,
1999 $ 19,482,000
2000 17,611,000
2001 2,628,000
2002 2,835,000
2003 9,093,000
2004 and thereafter 115,354,000
---------------
$ 167,003,000
===============
As of December 31, 1998, 10 of the Company's properties were encumbered by
mortgage loans totaling $167,003,000.
The fair value of the mortgage notes payable was approximately $172,000,000 at
December 31, 1998 as determined by using year-end interest rates and market
conditions. At December 31, 1997, the carrying value of the mortgage notes were
approximately equal to their fair value.
Credit Facility
On September 30, 1997, the Operating Partnership entered into a $150 million
revolving credit facility (the "Credit Facility"). The obligations of the
Operating Partnership under the Credit Facility have been guaranteed by the
Company.
The Credit Facility was for an initial term of two years and during 1998 the
maturity date was extended to December 31, 2000. The Credit Facility bears
interest, at the borrowers' election, at (i) the higher of prime rate, or the
Federal Funds lending rate plus .5%, or (ii) the London Interbank Offered Rate
plus margins ranging from 1.1% to 1.7%, depending on the Company's consolidated
Leverage Ratio, as defined.
F-11
<PAGE>
The Credit Facility requires the Company to maintain ongoing compliance with a
number of customary financial and other covenants, including leverage ratios
based on gross asset value, fixed charge coverage ratios and a minimum tangible
net worth requirement. Until the Company reduces its leverage ratio below 50%,
the lending banks hold unrecorded mortgages on eleven unencumbered properties
which the Operating Partnership owns, directly or indirectly, and are entitled
to record such mortgages upon any event of default.
As of December 31, 1998, the Operating Partnership had $139 million outstanding
on the Credit Facility ($136 million on wholly-owned properties and $3 million
on joint venture properties). The weighted average interest rate based on
amounts borrowed on the Credit Facility was 7.06% for the calendar year ended
December 31, 1998 and 7.48% for the four-month period ended December 31, 1997.
At December 31, 1998, the Company was in compliance with all debt covenants.
The Company has limited its exposure to increases in LIBOR on $20,000,000 of its
floating rate debt by entering into a swap agreement which fixes a rate of 6.12%
versus 30-day LIBOR through June 2001. In the event that the Company wanted to
terminate the swap agreement referred to above, the amount which would be
payable at December 31, 1998 was approximately $519,000.
The Company is exposed to credit loss in the event of nonperformance by the
counterparty to the agreement; however, the Company does not anticipate
nonperformance by the counterparty.
During the calendar year ended December 31, 1998, the Company incurred a
prepayment penalty of $270,000 in connection with a mortgage refinancing. During
the four-month period ended December 31, 1997, the Company wrote off unamortized
deferred financing costs of $300,000 in connection with the refinancing of its
Credit Facility. These amounts have been reflected as extraordinary items in the
accompanying consolidated statements of income for the calendar year ended
December 31, 1998 and for the four-month period ended December 31, 1997,
respectively.
7. Net Income Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share" which establishes standards for computing and presenting
earnings per share ("EPS"). Basic EPS is based on the weighted average number of
common shares outstanding during the year. Diluted EPS is based on the weighted
average number of shares outstanding during the year, adjusted to give effect to
common share equivalents. All per share amounts for all periods presented have
been restated to conform to SFAS No. 128. A reconciliation between basic and
diluted EPS is shown below (in thousands, except per share data).
F-12
<PAGE>
<TABLE>
<CAPTION>
For the Calendar Year For the 4-Month Period
Ended December 31, Ended December 31,
----------------------- ------------------------
1998 1997 1997 1996,
----- ------- ----- -------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Income before extraordinary item $23,455 $23,455 $6,262 $6,262
Extraordinary item (270) (270) (300) (300)
------- ------- ------ ------
Net income $23,185 $23,185 $5,962 $5,962
------- ------- ------ ------
Weighted average
shares outstanding 13,297 13,297 9,049 9,049
Effect of share options issued -- 17 -- 50
------- ------- ------ ------
Total weighted average
shares outstanding 13,297 13,314 9,049 9,099
------- ------- ------ ------
Income per share before
extraordinary item $ 1.76 $ 1.76 $ .69 $ .69
Extraordinary item per share (.02) (.02) (.03) (.03)
------- ------- ------ ------
Net income per share $ 1.74 $ 1.74 $ .66 $ .66
------- ------- ------ ------
For the Fiscal Years Ended August 31,
-------------------------------------------------
Basic Diluted Basic Diluted
----- ------- ----- -------
<S> <C> <C> <C> <C>
Income before extraordinary item $10,235 $10,235 $11,044 $11,044
Extraordinary item -- -- -- --
------- ------- ------- -------
Net income $10,235 $10,235 $11,044 $11,044
------- ------- ------- -------
Weighted average
shares outstanding 8,679 8,679 8,676 8,676
Effect of share options issued -- 25 -- 16
------- ------- ------- -------
Total weighted average
shares outstanding 8,679 8,704 8,676 8,692
------- ------- ------- -------
Income per share before
extraordinary item $ 1.18 $ 1.18 $ 1.27 $ 1.27
Extraordinary item per share -- -- -- --
------- ------- ------- -------
Net income per share $ 1.18 $ 1.18 $ 1.27 $ 1.27
------- ------- ------- -------
</TABLE>
<PAGE>
8. Benefit Plans
The Company maintains a 401(k) Plan (the "Plan") in which substantially all of
the officers and employees are eligible to participate. The Plan permits
eligible participants, as defined in the plan agreement, to defer up to 15% of
their compensation, and the Company, at its discretion, may match a percentage
of the employees' contributions. The employees' contributions are fully vested
and contributions from the Company vest in accordance with an employee's years
of service as defined in the plan agreement. The Company's contributions to the
Plan for the calendar year ended December 31, 1998, the four-month period ended
December 31, 1997 and for the fiscal years ended August 31, 1997 and 1996 were
$29,000; $43,000; $41,000 and $39,000, respectively.
The Company also maintains a Supplemental Retirement Plan (the "Supplemental
Plan") covering certain senior management employees. The Supplemental Plan
provides eligible employees through normal retirement date, as defined in the
plan agreement, a benefit amount similar to that which would have been received
under the provisions of a pension plan which was terminated in 1994.
Contributions due by the Company under the provisions of this plan were $60,000;
$22,000; $92,000 and $160,000 for the calendar year ended December 31, 1998, the
four-month period ended December 31, 1997 and for the fiscal years ended August
31, 1997 and 1996.
9. Stock Option Plans
In December 1990, the shareholders approved an incentive stock option plan for
key employees (the "Employees Plan") and a stock option plan for nonemployee
trustees (the "Nonemployee Trustees Plan"), covering 200,000 and 100,000 shares
of beneficial interest, respectively. Under the terms of the plans, the purchase
price of shares subject to each option granted will be at least equal to the
fair market value of the shares on the date of grant. Options under the
incentive stock option plan may be exercised as determined by the Company, but
in no event later than 10 years from the date of grant. In December 1993, the
Board of Trustees amended the incentive stock option plan for key employees, to
increase the number of shares subject to option to 400,000 shares, to change the
name of the plan to the "1990 Incentive and Non-Qualifying Stock Option Plan"
and to expand some provisions of the plan. The stock option plan for nonemployee
trustees provides for annual grants of 1,000 options (becoming exercisable in
four equal installments). The options expire 10 years after the date of grant.
F-13
<PAGE>
In December 1993, the Board of Trustees adopted a nonqualifying stock option
plan covering 100,000 shares. The Company granted options on February 1, 1994
having a term of 10 years and subject to the other terms and conditions set
forth in the plan. All 100,000 shares are outstanding at December 31, 1998.
On September 30, 1997, the Company adopted an Incentive and Non-Qualified Stock
Option Plan (the "1997 Stock Option Plan") in connection with the TRO
Transaction. Options on 455,000 Shares were granted to former TRO officers and
employees on September 30, 1997 at an exercise price of $25.41 per share. All
options granted on September 30, 1997 vest in four equal annual installments
commencing January 1, 1999, and on each anniversary date thereof.
See Note 5 for a discussion of stock options at the Management Company. Changes
in options outstanding are as follows:
<TABLE>
<CAPTION>
1990 Incentive and
Non-Qualifying Stock Option Plan
---------------------------------
1997 Stock 1993 Stock Nonemployee
Exercise Price Option Plan Option Plan Employees Plan Trustees Plan
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding at 9/1/96 $15.75-$25.375 -- 100,000 295,125 41,250
Options granted $22.375-$24.625 -- -- 45,000 6,000
Options exercised $15.75-$25.375 -- -- -- (9,000)
--------------- ------- ------- ------- ------
Options outstanding at 8/31/97 $15.75-$25.375 -- 100,000 340,125 38,250
Options granted $25.41 455,000 -- -- --
Options exercised $15.75-$20.375 -- -- -- (3,750)
--------------- ------- ------- ------- ------
Options outstanding at 12/31/97 $15.75-$25.41 455,000 100,000 340,125 34,500
Options granted $23.85 -- -- 17,500 --
Options exercised $18.00-$20.375 -- -- (5,875) (5,000)
Options forfeited $18.00-$22.75 (23,000) -- (3,375) --
--------------- ------- ------- ------- ------
Options outstanding at 12/31/98 $15.75-$25.41 432,000 100,000 348,375 29,500
--------------- ------- ------- ------- ------
</TABLE>
At December 31, 1998, options for 325,138 shares of beneficial interest with an
aggregate purchase price of $7,117,000 (average of $21.89 per share) were
exercisable.
During the fourth quarter of 1997, the Board of Trustees extended the exercise
dates for 62,500 options previously granted to an officer of the Company and two
retiring trustees. As a result, the Company recorded compensation expense of
$300,000 for the four-month period ended December 31, 1997 relating to this
change in terms.
During fiscal year 1997, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 encourages a fair value method of
accounting for employee stock options and similar equity instruments. The
statement also allows an entity to continue to account for stock-based
compensation using the intrinsic value method in APB Opinion No. 25. As provided
for in the statement, the Company elected to continue the intrinsic value method
of expense recognition. If compensation cost for these plans had been determined
using the fair value method prescribed by SFAS No. 123, the Company's net income
and net income per share would have reflected the unaudited pro forma amounts
indicated below:
Calendar 4-Month Fiscal
Year Ended Period Ended Year Ended
12/31/98 12/31/97 8/31/97
---------- ------------ ----------
Net income:
As reported $23,185,000 $5,962,000 $10,235,000
Pro forma $22,884,000 $5,861,000 $10,212,000
Net income per share:
As reported-
Basic $1.74 $.66 $1.18
Diluted $1.74 $.66 $1.18
Pro forma-
Basic $1.72 $.65 $1.18
Diluted $1.72 $.65 $1.18
F-14
<PAGE>
The pro forma effect on the results may not be representative of the impact in
future years because the fair value method was not applied to options granted
before 1996. The fair value of each option was estimated on the grant date using
the Black-Scholes option pricing model and the assumptions presented below:
Calendar 4-Month Fiscal
Year Ended Period Ended Year Ended
12/31/98 12/31/97 8/31/97
---------- ------------ ----------
Expected life in years 5 5 5
Risk-free interest rate 5.52% 6.09% 6.10%
Volatility 17.76% 18.38% 17.31%
Dividend yield 9.67% 7.65% 7.28%
The weighted average fair value of each option granted was $1.20, $2.34 and
$2.05 for the calendar year ended December 31, 1998, the four-month period ended
December 31, 1997 and the fiscal year ended August 31, 1997, respectively.
Outstanding options as of December 31, 1998 have a weighted average remaining
contractual life of 7.14 years, an average exercise price of $ 15.12 per share
and an aggregate purchase price of $ 14,108,000.
10. Operating Leases:
The Company's apartments are typically leased to residents under operating
leases for a period of one year. The Company's shopping centers are leased to
tenants under operating leases with expiration dates extending to the year 2019.
During the fiscal years ended August 31, 1997 and 1996, and the four-month
period ended December 31, 1997, the Company recorded percentage rental income
for shopping center leases on a pro rata basis over the annual lease period if
the achievement of the specific sales target was probable. During the year ended
December 31, 1998, percentage rental income was recorded in accordance with this
policy for the first quarter and in accordance with the Emerging Issues Task
Force guidance for the remaining quarters (see Note 13).
Future minimum rentals under noncancelable operating leases are as follows:
Years Ended December 31,
1999 $ 25,981,000
2000 24,616,000
2001 22,455,000
2002 20,181,000
2003 17,759,000
Thereafter 94,826,000
------------
$205,818,000
============
The total future minimum rentals presented above do not include amounts that may
be received as tenant reimbursements for charges to cover increases in certain
operating costs.
11. Commitments and Contingencies:
During 1995, certain environmental matters arose at certain properties in which
the Company has an interest. The Company retained environmental consultants in
order to investigate these matters. At one property, in which the Company has a
50% ownership interest, groundwater contamination exists which the Company
alleges was caused by the former tenant. Estimates to remediate this property,
which are subject to the length of monitoring and the extent of remediation
required, range in total from $100,000 to $400,000. In addition, above normal
radon levels have been detected at three wholly-owned properties. Approximately
$250,000 of costs were incurred to remediate two of the properties. The
estimated remaining cost to remediate the third property is approximately
$90,000, which costs were received as a credit from the sellers as part of the
initial acquisition.
The Company has recorded its share of these liabilities totaling $329,000
related to the consultants' evaluation of these matters which, in certain
instances, are subject to applicable state approvals of the remediation plans.
In management's opinion, no material incremental cost will be incurred on these
properties. The Company will pursue recovery of remediation costs from all of
the responsible parties, including its tenants and partners.
The Company is also involved in a number of development and redevelopment
projects which may require equity funding by the Company, or third-party debt or
equity financing. In each case, the Company will evaluate the financing
opportunities available to it at the time the project requires funding. In cases
where the project is undertaken with a joint venture partner, the Company's
flexibility in funding the project may be governed by the joint venture
agreement or the covenants existing in its line of credit which limit the use of
borrowed funds in joint venture projects. At December 31, 1998, the Company had
approximately $22,000,000 committed to complete current development and
redevelopment projects.
F-15
<PAGE>
In connection with certain development properties, including those development
properties acquired as part of the TRO Transaction (see Note 3), the Company may
be required to issue additional OP units upon the achievement of certain
financial results.
12. Acquisitions:
Since September 30, 1997, the Company acquired wholly-owned interests in seven
shopping centers and one multifamily property as well as a 50% interest in two
shopping centers. The Company paid approximately $248.3 million, consisting of
$126.0 million in cash, $93.5 million in assumed debt, and $28.8 million of
operating partnership units. The Company also acquired the remaining 50%
interests in two multifamily properties and a parcel of undeveloped land for
cash of approximately $775,000 and assumption of liabilities of $33.6 million.
Each of these acquisitions was accounted for by the purchase method of
accounting. The results of operations for the acquired properties have been
included from their respective purchase dates. The unaudited pro forma
information presented within this footnote is not necessarily indicative of the
results which actually would have occurred if the acquisitions had been
consummated on September 1, 1996, nor does the pro forma information purport to
represent the results of operations for future periods.
<TABLE>
<CAPTION>
Calendar 4-Month Fiscal
Year Ended Period Ended Year Ended
12/31/98 12/31/97 8/31/97
---------- ------------ ----------
<S> <C> <C> <C>
Pro forma total revenues $76,846,000 $24,626,000 $70,819,000
Pro forma net income $23,664,000 $ 6,889,000 $ 9,790,000
Basic pro forma
net income per share $1.78 $.51 $.74
Diluted pro forma
net income per share $1.78 $.50 $.74
</TABLE>
13. Summary of Quarterly Results (unaudited):
The following presents a summary of the unaudited quarterly financial
information for the calendar year ended December 31, 1998 and for the fiscal
year ended August 31, 1997.
For the three months ended December 31, 1997, revenues totaled $13,831,000
(including $219,000 of percentage rental income), net income was $5,436,000,
income before gains on sales of interests in real estate was $3,795,000, and
gain on sales of interests in real estate totaled $2,090,000. On a per share
basis, net income was $.60 and $.59 per basic and diluted income share, income
before gain on sales of interests in real estate was $.37 and $.36 per basic and
diluted income per share, and gain on sales of interests in real estate was $.23
for both basic and diluted income per share.
<TABLE>
<CAPTION>
In thousands of dollars, except per share data
For the Calendar Year Ended December 31, 1998
1st 2nd 3rd 4th Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues (1) $13,647 $13,916 $14,913 $19,269 $61,745
------- ------- ------- ------- -------
Income before gains on sales of interests
in real estate $ 4,593 $ 4,439 $ 5,739 $ 5,371 $20,142
Gains on sales of interests
in real estate -- 1,766 1,277 -- 3,043
------- ------- ------- ------- -------
Net income (2) $ 4,593 $ 6,205 $ 7,016 $ 5,371 $23,185
======= ======= ======= ======= =======
Basic net income per share:
Income before gains on sales
of interests in real estate $ .35 $ .34 $ .43 $ .39 $ 1.51
Gains on sales of interests
in real estate -- .13 .10 -- .23
------- ------- ------- ------- -------
Total $ .35 $ .47 $ .53 $ .39 $ 1.74
======= ======= ======= ======= =======
Diluted income per share:
Income before gains on sales
of interests in real estate $ .34 $ .34 $ .43 $ .39 $ 1.51
Gains on sales of interests
in real estate -- .13 .10 -- .23
------- ------- ------- ------- -------
Total $ .34 $ .47 $ .53 $ .39 $ 1.74
======= ======= ======= ======= =======
</TABLE>
F-16
<PAGE>
(1) In May 1998, the Emerging Issues Task Force reached a consensus that a
lessor should defer recognition of percentage rental income in interim periods
until the specified target that triggers the contingent rental income is
achieved. At the September 1998 meeting, this prior consensus was withdrawn. The
Company recorded percentage rental income of $260,000, $402,000, $79,000 and
$1,045,000 in the first, second, third and fourth quarters, respectively.
(2) In the fourth quarter of 1998, the Company expensed $270,000 of prepayment
fees relating to a mortgage which was refinanced.
<TABLE>
<CAPTION>
In thousands of dollars, except per share data
For the Fiscal Year Ended August 31, 1997
1st 2nd 3rd 4th Total
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues (1) $10,063 $10,186 $10,085 $10,151 $40,485
------- ------- ------- ------- -------
Income before gains (loss) on sales
of interests in real estate $2,639 $ 1,520(2) $ 2,785 $ 2,222(3) $ 9,166
Gain (loss) on sales of interests
in real estate -- 1,461 -- (392) 1,069
------- ------- ------- ------- -------
Net income (2) $ 2,639 $ 2,981 $ 2,785 $ 1,830 $10,235
======= ======= ======= ======= =======
Basic net income per share:
Income before gains (loss) on sales
of interests in real estate $ .30 $ .17 $ .32 $ .26 $ 1.06
Gains (loss) on sales of interests
in real estate -- .17 -- (.05) .12
------- ------- ------- ------- -------
Total $ .30 $ .34 $ .32 $ .21 $ 1.18
======= ======= ======= ======= =======
Diluted income per share:
Income before gains (loss) on sales
of interests in real estate $ .30 $ .17 $ .32 $ .26 $ 1.06
Gains (loss) on sales of interests
in real estate -- .17 -- (.05) .12
------- ------- ------- ------- -------
Total $ .30 $ .34 $ .32 $ .21 $ 1.18
======= ======= ======= ======= =======
</TABLE>
(1) The Company recorded percentage rental income of $165,000, $168,000,
$148,000 and $146,000 in the first, second, third and fourth quarters,
respectively.
(2) Reflects the recording of a provision for asset impairment (see Note 1) and
the Company's share of prepayment fees relating to the refinancing of certain
debt at partnerships accounted for under the equity method.
(3) Includes additional compensation expense (see Note 9) relating to a change
in the terms of certain stock options previously granted.
14. Segment Information (unaudited):
In 1998, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
Statement established standards for reporting financial information about
operating segments in interim and annual financial reports and provides for a
"management approach" in identifying the reportable segments.
The Company has four reportable segments: (1) retail properties, (2) multifamily
properties, (3) other, and (4) corporate. The retail segment includes the
operation and management of 20 regional and community shopping centers (10
wholly-owned and 10 owned in joint venture form). The multifamily segment
includes the operation and management of 19 apartment communities (14
wholly-owned and 5 owned in joint venture form). The other segment includes the
operation and management of 5 retail properties under development (3
wholly-owned and 2 owned in joint venture form), 6 industrial properties, (5
wholly-owned and 1 joint venture) and 3 land parcels (1 wholly-owned and 2 joint
ventures). The corporate segment is responsible for cash and investment
management and certain other general support functions.
The accounting policies for the segments are the same as those described above
in Note 1, except that for segment reporting purposes, the Company uses the
"proportionate-consolidation method" of accounting (a non-GAAP measure) for
joint venture properties, instead of the equity method of accounting. The
Company calculates the proportionate-consolidation method by applying their
percentage ownership interest to the historical financial statements of their
equity method investments.
F-17
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998: Retail Multifamily Other
-------- -------- -------
<S> <C> <C> <C>
Real estate operating revenues $ 42,272 $ 46,167 $ 1,619
Real estate operating expenses 13,030 19,545 35
-------- -------- -------
Net operating income 29,242 26,622 1,584
-------- -------- -------
General and administrative expenses -- -- --
Interest income -- -- --
PRI net operating income -- -- --
-------- -------- -------
EBIDTA 29,242 26,622 1,584
-------- -------- -------
Interest expense (11,067) (7,050) (341)
Depreciation and amortization (6,182) (6,869) (117)
PRI income taxes -- -- --
Gains on sales of interests
in real estate 1,277 1,766 --
Minority interest in operating
partnership -- -- --
Equity in interest of partnerships
and joint ventures -- -- --
Equity in loss of PRI -- -- --
Loss on early extinguishment
of debt -- (270) --
-------- -------- -------
Net income $ 13,270 $ 14,199 $ 1,126
-------- -------- -------
Investments in real estate, at cost $261,823 $230,997 $16,586
-------- -------- -------
Total assets $269,829 $137,125 $ 9,410
-------- -------- -------
Capital expenditures $ 831 $ 3,777 $ --
-------- -------- -------
Adjustments to Total
Year Ended December 31, 1998: Corporate Total Equity Method Consolidated
--------- ----- -------------- ------------
<S> <C> <C> <C> <C>
Real estate operating revenues $ -- $ 90,058 $ (28,313) $ 61,745
Real estate operating expenses -- 32,610 (10,091) 22,519
-------- -------- --------- --------
Net operating income -- 57,448 (18,222) 39,226
-------- -------- --------- --------
General and administrative expenses -- (3,351) (3,351) --
Interest income 650 650 -- 650
PRI net operating income 762 762 (762) --
EBIDTA (1,939) 55,509 (18,984) 36,525
Interest expense (973) (19,431) 8,840 (10,591)
Depreciation and amortization (1,198) (14,366) 4,960 (9,406)
PRI income taxes 123 123 (123) --
Gains on sales of interests
in real estate -- 3,043 -- 3,043
Minority interest in operating
partnership (1,423) (1,423) -- (1,423)
Equity in interest of partnerships
and joint ventures -- -- 5,985 5,985
Equity in loss of PRI -- -- (678) (678)
Loss on early extinguishment
of debt -- (270) -- (270)
-------- -------- --------- --------
Net income $ (5,410) $ 23,185 $ -- $ 23,185
-------- -------- --------- --------
Investments in real estate, at cost $ -- $509,406 $ -- $509,406
-------- -------- --------- --------
Total assets $179,517 $595,881 $(114,266) $481,615
-------- -------- --------- --------
Capital expenditures $ -- $ 4,608 $ (974) $ 3,634
-------- -------- --------- --------
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
Four-Months Ended December 31, 1997: Retail Multifamily Other
------ ----------- -----
<S> <C> <C> <C>
Real estate operating revenues $ 11,076 $ 14,902 $ 538
Real estate operating expenses 3,714 6,654 7
-------- -------- -------
Net operating income 7,362 8,248 531
General and administrative expenses -- -- --
Interest income -- -- --
PRI net operating income -- -- --
-------- -------- -------
EBIDTA 7,362 8,248 531
-------- -------- -------
Interest expense (2,290) (4,534) (57)
Depreciation and amortization (1,588) (2,126) (39)
PRI income taxes -- -- --
Gains on sales of interests
in real estate 2,090 -- --
Minority interest in operating
partnership -- -- --
Equity in interest of partnerships
and joint ventures -- -- --
Equity in loss of PRI -- -- --
Loss on early extinguishment
of debt -- -- --
-------- -------- -------
Net income $ 5,574 $ 1,588 $ 435
-------- -------- -------
Investments in real estate, at cost $120,208 $161,270 $ 6,448
-------- -------- -------
Total assets $104,099 $107,474 $ 5,344
-------- -------- -------
Capital expenditures $ 114 $ 1,405 $ --
-------- -------- -------
Adjustments to Total
Four-Months Ended December 31, 1997: Corporate Total Equity Method Consolidated
--------- ----- -------------- ------------
<S> <C> <C> <C> <C>
Real estate operating revenues $ -- $ 26,516 $ (9,346) $ 17,170
Real estate operating expenses -- 10,375 (3,460) 6,915
-------- -------- --------- --------
Net operating income -- 16,141 (5,886) 10,255
-------- -------- --------- --------
General and administrative expenses (1,088) (1,088) -- (1,088)
Interest income 82 82 -- 82
PRI net operating income 922 922 (922) --
-------- -------- --------- --------
EBIDTA (84) 16,057 (6,808) 9,249
-------- -------- --------- --------
Interest expense (195) (7,076) 2,727 (4,349)
Depreciation and amortization (434) (4,187) 1,492 (2,695)
PRI income taxes (228) (228) 228 --
Gains on sales of interests
in real estate -- 2,090 -- 2,090
Minority interest in operating
partnership (394) (394) -- (394)
Equity in interest of partnerships
and joint ventures -- -- 2,101 2,101
Equity in loss of PRI -- -- 260 260
Loss on early extinguishment
of debt (300) (300) -- (300)
-------- -------- --------- --------
Net income $ (1,635) $ 5,962 $ -- $ 5,962
-------- -------- --------- --------
Investments in real estate, at cost $ -- $287,926 $ -- $287,926
-------- -------- --------- --------
Total assets $161,461 $378,378 $(112,812) $265,566
-------- -------- --------- --------
Capital expenditures $ -- $ 1,519 $ (308) $ 1,211
-------- -------- --------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended August 31, 1997: Retail Multifamily Other
------ ----------- -----
<S> <C> <C> <C>
Real estate operating revenues $ 20,186 $ 44,158 $ 1,426
Real estate operating expenses 6,911 19,686 32
-------- -------- -------
Net operating income 13,275 24,472 1,394
-------- -------- -------
General and administrative expenses -- -- --
Interest income -- -- --
PRI net operating income -- -- --
-------- -------- -------
EBIDTA 13,275 24,472 1,394
-------- -------- -------
Interest expense (4,446) (12,161) (159)
Depreciation and amortization (3,151) (6,264) (118)
Gains on sales of interests 1,069 -- --
in real estate
Equity in interest of partnerships
and joint ventures
Net income $ 6,747 $ 6,047 $ 1,117
-------- -------- -------
Investments in real estate, at cost $ 37,398 $159,967 $ 5,078
-------- -------- -------
Total assets $ 52,781 $150,833 $ 5,091
-------- -------- -------
Capital expenditures $ 794 $ 3,258 $ --
-------- -------- -------
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Adjustments to Total
Year Ended August 31, 1997: Corporate Total Equity Method Consolidated
--------- ----- -------------- ------------
<S> <C> <C> <C> <C>
Real estate operating revenues $ -- $ 65,770 $ (25,539) $ 40,231
Real estate operating expenses -- 26,629 (10,142) 16,487
-------- -------- --------- --------
Net operating income -- 39,141 (15,397) 23,744
-------- -------- --------- --------
General and administrative expenses (3,324) (3,324) -- (3,324)
Interest income (500) (500) -- (500)
PRI net operating income 254 254 -- 254
-------- -------- --------- --------
EBIDTA (3,570) 35,571 (15,397) 20,174
-------- -------- --------- --------
Interest expense -- (16,766) 7,680 (9,086)
Depreciation and amortization (106) (9,639) 3,380 (6,259)
Gains on sales of interests -- 1,069 -- 1,069
in real estate
Equity in interest of partnerships
and joint ventures
-------- -------- --------- --------
Net income $ (3,676) $ 10,235 $ -- $ 10,235
-------- -------- --------- --------
Investments in real estate, at cost $ -- $202,443 $ -- $202,443
-------- -------- --------- --------
Total assets $ 43,598 $252,303 $ (86,646) $165,657
-------- -------- --------- --------
Capital expenditures $ -- $ 4,052 $ (1,330) $ 2,722
-------- -------- --------- --------
</TABLE>
F-20
<PAGE>
Report of Independent Auditors
To the Partners of
Lehigh Valley Associates
We have audited the accompanying balance sheets of Lehigh Valley Associates (a
limited partnership) as of August 31, 1996 and 1995, and the related
statements of operations, partners' deficiency, and cash flows for each of the
three years in the period ended August 31, 1996. These financial statements
are the responsibility of Lehigh Valley Associates' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lehigh Valley Associates at
August 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, PA
October 18, 1996
F-21
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
August 31
1996 1995
----------- -----------
<S> <C> <C>
Assets
Real estate, at cost (Notes 1 and 2):
Land $ 5,752,083 $ 5,752,083
Regional shopping center building and
building improvements 22,010,037 21,559,002
Office building 587,771 587,771
------------ -------------
28,349,891 27,898,856
Less accumulated depreciation 12,587,778 11,899,934
------------ -------------
15,762,113 15,998,222
Cash and cash equivalents 1,767,561 1,707,710
Due from tenants and others 1,079,554 662,926
Accrued rent (Note 1) 1,872,634 1,779,296
Prepaid expenses and other assets 744,035 637,584
Deferred charges, net (Note 1) 2,195,925 71,940
Deferred finance costs, net (Note 1) 78,478 -
Deferred leasing costs, net (Note 1) 51,487 -
------------ -------------
$ 23,551,787 $ 20,858,378
============ =============
Liabilities
Mortgages payable and construction loan, (Note 2) $ 22,488,686 $ 22,226,947
Accrued expenses and other liabilities, including
accrued interest (1996--$170,690;
1995--$168,043) 2,657,661 1,040,899
------------ -------------
25,146,347 23,267,846
Partners' deficiency (1,594,560) (2,409,468)
------------ -------------
$ 23,551,787 $ 20,858,378
============ =============
</TABLE>
See accompanying notes.
F-22
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Statements of Operations
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Rentals (Notes 1 and 4):
Minimum $ 9,613,342 $ 9,729,591 $ 9,086,148
Percentage 627,388 773,350 771,092
----------- ----------- -----------
10,240,730 10,502,941 9,857,240
Tenant reimbursements 3,297,168 2,803,911 3,246,749
Sundry 285,405 364,891 286,856
----------- ----------- -----------
13,823,303 13,671,743 13,390,845
Expenses:
Real estate taxes 793,448 779,903 739,630
Interest (Note 2) 1,998,258 2,040,410 2,090,278
Management fees (Note 3) 714,827 731,156 701,419
Common area expenses 2,364,814 1,842,997 2,314,147
Other property expenses 324,539 58,135 359,637
Depreciation and amortization (Note 1) 712,509 671,333 664,840
----------- ----------- -----------
6,908,395 6,123,934 6,869,951
----------- ----------- -----------
Net income $ 6,914,908 $ 7,547,809 $ 6,520,894
=========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Statements of Partners' Deficiency
<TABLE>
<CAPTION>
Percentage Balance Balance
Interest Per as of as of
Partnership September 1, August 31,
Agreement 1993 Distributions Net Income 1994
------------ ------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
General Partners:
Delta Ventures, Inc. 0.50% $ (18,391) $ (34,470) $ 32,605 $ (20,256)
Pennsylvania Real Estate Investment Trust 30.00 (1,103,451) (2,068,200) 1,956,268 (1,215,383)
Limited Partners:
Morris A. Kravitz Residuary Trust 9.00 (331,035) (620,460) 586,880 (364,615)
Myles H. Tanenbaum 8.55 (314,484) (589,437) 557,537 (346,384)
Jordan A. Katz 4.50 (165,518) (310,230) 293,440 (182,308)
Robert T. Girling 4.50 (165,518) (310,230) 293,440 (182,308)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell 9.00 (331,035) (620,460) 586,880 (364,615)
Harold G. Schaeffer 4.50 (165,618) (310,230) 293,440 (182,308)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer 4.50 (165,618) (310,230) 293,440 (182,308)
Richard A. Jacoby 4.95 (182,069) (341,253) 322,784 (200,538)
Pennsylvania Real Estate Investment Trust 20.00 (735,634) (1,378,800) 1,304,180 (810,254)
------- ----------- ----------- ---------- -----------
100.00% $(3,678,171) $(6,894,000) $6,520,894 $(4,051,277)
======= =========== =========== ========== ===========
Balance
as of
August 31,
Distributions Net Income 1995
------------- ---------- ----------
<S> <C> <C> <C>
General Partners:
Delta Ventures, Inc. $ (29,530) $ 37,739 $ (12,047)
Pennsylvania Real Estate Investment Trust (1,771,800) 2,264,343 (722,840)
Limited Partners:
Morris A. Kravitz Residuary Trust (531,540) 679,303 (216,852)
Myles H. Tanenbaum (504,963) 645,338 (206,009)
Jordan A. Katz (265,770) 339,651 (108,427)
Robert T. Girling (265,770) 339,651 (108,427)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (531,540) 679,303 (216,852)
Harold G. Schaeffer (265,770) 339,651 (108,427)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (265,770) 339,651 (108,427)
Richard A. Jacoby (292,347) 373,617 (119,268)
Pennsylvania Real Estate Investment Trust (1,181,200) 1,509,562 (481,892)
----------- ---------- -----------
$(5,906,000) $7,547,809 $(2,409,468)
=========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Balance
as of
August 31,
Distributions Net Income 1996
------------- ---------- ----------
<S> <C> <C> <C>
General Partners:
Delta Ventures, Inc. $ (30,500) $ 34,575 $ (7,972)
Pennsylvania Real Estate Investment Trust (1,830,000) 2,074,472 (478,368)
Limited Partners:
Morris A. Kravitz Residuary Trust (549,000) 622,342 (143,510)
Myles H. Tanenbaum (521,550) 591,224 (136,335)
Jordan A. Katz (274,500) 311,171 (71,756)
Robert T. Girling (274,500) 311,171 (71,756)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (549,000) 622,342 (143,510)
Harold G. Schaeffer (274,500) 311,171 (71,756)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (274,500) 311,171 (71,756)
Richard A. Jacoby (301,950) 342,287 (78,931)
Pennsylvania Real Estate Investment Trust (1,220,000) 1,382,982 (318,910)
----------- ---------- -----------
$(6,100,000) $6,914,908 $(1,594,560)
=========== ========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Operating activities
Net income $6,914,908 $ 7,547,809 $6,520,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 712,509 671,333 664,840
Amortization of deferred charges 434,908 35,968 --
Changes in operating assets and liabilities:
Due from tenants and others and (509,966) (128,606) (553,443)
accrued rent
Prepaid expenses and other assets (18,069) (31,261) (110,066)
Accrued expenses and other liabilities 20,701 (108,134) 554,884
---------- ----------- ----------
Net cash provided by operating activities 7,554,991 7,987,109 7,077,109
Investing activities
Deferred charges (1,083,014) (107,908) --
Expenditures for property and equipment (512,748) (17,872) (6,341)
---------- ----------- ----------
Net cash used in investing activities (1,595,762) (125,780) (6,341)
Financing activities
Proceeds from construction loan 884,368 -- --
Principal payments on mortgages (622,629) (569,154) (520,267)
Deferred finance costs (61,117) -- --
Distributions paid to partners (6,100,000) (5,906,000) (6,894,000)
---------- ----------- ----------
Net cash used in financing activities (5,899,378) (6,475,154) (7,414,267)
---------- ----------- ----------
Increase (decrease) in cash and cash 59,851 1,386,175 (343,499)
equivalents
Cash and cash equivalents at beginning of year 1,707,710 321,535 665,034
---------- ----------- ----------
Cash and cash equivalents at end of year $1,767,561 $ 1,707,710 $321,535
========== =========== ==========
</TABLE>
See accompanying notes.
F-25
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements
August 31, 1996
1. Summary of Significant Accounting Policies
Real Estate
The Partnership owns and operates a regional shopping center and an office
building (the "Property") located in Whitehall, Pennsylvania. Two retail
department stores own adjacent property upon which each has constructed a
store as part of the Property and have entered into operating agreements with
the Partnership under which they are responsible for a share of common area
expenses.
Depreciation is computed on the straight-line method generally over 35 years
for the shopping center and 22 years for the office building, representing the
estimated lives of the assets.
Recognition of Rental Income
Minimum rent is recognized on a straight-line basis over the lease terms
regardless of when payments are due. Accrued rent represents minimum rent
recognized in excess of payments due.
Percentage rents are accrued as income for those tenants whose sales volume at
August 31 exceeded the minimum annual sales volumes required for percentage
rents.
Deferred Charges
Deferred charges, consisting of costs incurred that are reimbursable from
tenants, are amortized as tenants are billed. Accumulated amortization as of
August 31, 1996, 1995, and 1994 amounted to $470,876, $35,968, and $0,
respectively.
Deferred Finance Costs
Costs incurred in connection with the construction loan and the refinancing
described in Note 2 have been capitalized. The costs related to the
construction loan will be fully amortized on the date of the refinancing.
Costs associated with the refinancing will be amortized over the term of the
related mortgage.
Deferred Leasing Costs
F-26
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Costs incurred in connection with leasing are capitalized and amortized over
the period of the applicable tenant's lease. Accumulated amortization as of
August 31, 1996, 1995, and 1994 amounted to $38,513, $31,251, and $23,989,
respectively.
Fair Values of Financial Instruments
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Mortgages Payable and Construction Loan: The fair values of the mortgages
payable and construction loan have not been disclosed due to the refinancing
which occurred on September 18, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect various amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Income Taxes
In conformity with the Internal Revenue Code and applicable state and local
tax statutes, taxable income or loss of the limited partnership is required to
be reported in the tax returns of the partners in accordance with the terms of
the limited partnership agreement and, accordingly, no provision has been made
in the accompanying financial statements for any federal, state, or local
income taxes.
Cash Equivalents
The Partnership considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
F-27
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable and Construction Loan
<TABLE>
<CAPTION>
Year ended August 31
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Mortgage note on Property--payable in monthly
installments of $192,002, including interest at 9%
through 2012 $19,363,950 $19,898,791 $20,387,762
Mortgage note on Property--payable in monthly
installments of $16,909, including interest at
9-3/4%, through 2012 1,630,209 1,671,934 1,709,798
Mortgage note on Property--payable in monthly
installments of $4,475, including interest at
10-3/8%, through 2012 415,855 425,837 434,841
Mortgage note on office building and fringe land--
payable in monthly installments of $4,434,
including interest at 8%, through 2001 194,304 230,385 263,700
Construction loan--interest only, payable monthly
at variable rate (8.75% at June 30, 1996) on
outstanding draws up to $4,770,000, principal due
earlier of March 30, 1997 or refinancing, as 884,368 -- --
defined.
----------- ----------- -----------
$22,488,686 $22,226,947 $22,796,101
=========== =========== ===========
</TABLE>
The above mortgages are collateralized by the respective real estate and
tenant leases. The construction loan is guaranteed by the general partners.
F-28
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable and Construction Loan (continued)
The Partnership refinanced the above mortgages and construction loan on
September 18, 1996 with a mortgage loan obtained from an insurance company.
The proceeds of the mortgage loan of $54,000,000 were used to pay off the
outstanding principal and interest due on all of the above loans, pay
prepayment fees and other closing costs, including approximately $338,000 paid
to an affiliate, and provided a $26,000,000 distribution to the partners.
The mortgage is secured by the property and an assignment of leases and rents
and requires monthly payments of principal and interest of $413,210 (based on
annual interest of 7.9%) with remaining unpaid principal due on October 10,
2006.
Principal payments on the mortgage dated September 18, 1996 are due as
follows:
Year ending August 31:
1997 $ 594,500
1998 766,857
1999 829,682
2000 897,653
2001 971,192
Thereafter 49,940,116
-----------
$54,000,000
===========
Interest paid on the mortgages during 1996, 1995, and 1994 amounted to
$1,995,611, $2,044,685, and $2,093,560, respectively.
3. Related Party Transactions
Management fees were paid to an affiliate, pursuant to the terms of a
management agreement, at the rate of 5% of gross receipts from the Property
(as defined). In addition, an affiliate provides the center and its tenants
with electricity.
F-29
<PAGE>
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
3. Related Party Transactions (continued)
During 1996, development fees of $220,000 were paid to an affiliate in
connection with certain renovations of the center.
4. Leases
The Partnership earns rental income under operating leases with retail
tenants. Leases generally provide for minimum rentals plus percentage rentals
based on the tenants' sales volume and also require each tenant to pay a
portion of real estate taxes and common area expenses. In addition, leases
provide for the tenants to pay utility charges to an affiliate. Lease periods
generally range from 10 to 20 years and contain various renewal options.
The Partnership also earns rental income under leases with commercial tenants
located in its office building. Such leases generally provide for the tenant
to pay minimum rentals plus a portion of increases in real estate taxes and
operating expenses. Commercial lease periods generally range from 3 to 5 years
and contain various renewal options.
The following is a schedule by year of future minimum rental payments on
noncancelable tenant operating leases as of August 31, 1996 and does not
include any amounts due as percentage rent or the exercise of renewal options
under existing leases:
Years ending August 31:
1997 $ 8,712,000
1998 8,088,000
1999 7,777,000
2000 7,539,000
2001 7,083,000
Thereafter 20,469,000
-----------
$59,668,000
===========
F-30
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
-----------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
---------------------------------
Column A Column B Column C Column D
Additions
-----------------------------------
Balance Charged to Charged to
Beginning of Costs and Other
Description Period Expenses Accounts Deductions
- ------------------------------------------- -------------- ------------ ----------- --------------
ALLOWANCE FOR POSSIBLE LOSSES:
<S> <C> <C> <C> <C>
Calendar year ended December 31, 1998 $ 1,770,000 $ -- $ -- $ 198,000
============== ============ =========== ==============
Four-month period ended December 31, 1997 $ 1,831,000 $ -- $ -- $ 61,000
============== ============ =========== ==============
Fiscal year ended August 31, 1997 $ 2,042,000 $ 500,000 $ -- $ 711,000
============== ============ =========== ==============
Fiscal year ended August 31, 1996 $ 2,775,000 $ -- $ -- $ 733,000
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
[RESTUBBED TABLE]
Column A Column E
Balance at
End of
Description Period
- ------------------------------------------- --------------
ALLOWANCE FOR POSSIBLE LOSSES:
<S> <C>
Calendar year ended December 31, 1998 $ 1,572,000
==============
Four-month period ended December 31, 1997 $ 1,770,000
==============
Fiscal year ended August 31, 1997 $ 1,831,000
==============
Fiscal year ended August 31, 1996 $ 2,042,000
==============
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
-----------------------------------------
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1997
-----------------------------------------------------------
Column A Column B Column C
Encumbrances
------------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 12/31/97 to Company
- ------------------------------------------------- ------------------ ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
2031 Locust Street-
Land $ 100,000
Building and improvements 1,028,000
Furniture and portable equipment
Camp Hill Plaza Apartments-
Land 9.50% 3/1/2007 $ 6,707,000 336,000
Building and improvements 2,910,000
Furniture and portable equipment 150,000
Cobblestone Apartments-
Land 2,791,000
Building and improvements 9,335,000
Furniture and portable equipment 362,000
Kenwood Gardens-
Land 489,000
Building and improvements 3,007,000
Furniture and portable equipment 228,000
Lakewood Hills Apartments-
Land 501,000
Building and improvements 10,935,000
Furniture and portable equipment 468,000
Marylander Apartments-
Land 117,000
Building 4,013,000
Furniture and portable equipment 327,000
Shenandoah Village-
Land 5.70% 10/15/2025 8,575,000 2,200,000
Building and improvements 8,695,000
Furniture and portable equipment 281,000
Emerald Point-
Land 6.79% 3/1/2008 16,802,000 3,062,000
Building and improvements 17,352,000
Furniture and portable equipment 1,293,000
Hidden Lakes-
Land 1,225,000
Building and improvements 10,807,000
Furniture and portable equipment 986,000
Palms of Pembroke-
Land 4,869,000
Building and improvements 16,398,000
Furniture and portable equipment 986,000
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(continued)
[RESTUBBED TABLE]
Column A Column D Column E Column F Column G&H Column I
Cost of
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 12/31/97 Depreciation Constructed Depreciable
Description (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life in Years
- ----------------------------------------- -------------- ------------- ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
2031 Locust Street-
Land $ -- $ 100,000 $ -- 1961
Building and improvements 1,513,000 2,541,000 1,924,000 11-25
Furniture and portable equipment 687,000 687,000 379,000 10
Camp Hill Plaza Apartments-
Land -- 336,000 -- 1969
Building and improvements 771,000 3,681,000 2,988,000 5-33 1/3
Furniture and portable equipment 792,000 942,000 459,000 7-10
Cobblestone Apartments-
Land -- 2,791,000 -- 1992
Building and improvements 1,232,000 10,567,000 1,403,000 10-40
Furniture and portable equipment 588,000 950,000 264,000 7-10
Kenwood Gardens-
Land -- 489,000 -- 1963
Building and improvements 1,509,000 4,516,000 3,880,000 8-38
Furniture and portable equipment 1,180,000 1,408,000 934,000 8-10
Lakewood Hills Apartments-
Land -- 501,000 -- Phase I 1972
Building and improvements 1,727,000 12,662,000 7,510,000 Phase II 1975 8-45
Furniture and portable equipment 2,048,000 2,516,000 1,377,000 Phase III 1980 10
Marylander Apartments-
Land -- 117,000 -- 1962
Building 1,739,000 5,752,000 5,108,000 10-39
Furniture and portable equipment 852,000 1,179,000 716,000 5-10
Shenandoah Village-
Land -- 2,200,000 -- 1993 10-39
Building and improvements 452,000 9,147,000 1,102,000 5-10
Furniture and portable equipment 636,000 917,000 221,000
Emerald Point-
Land -- 3,062,000 -- 1993
Building and improvements 1,443,000 18,795,000 2,481,000 10-39
Furniture and portable equipment 888,000 2,181,000 806,000 5-10
Hidden Lakes-
Land -- 1,225,000 -- 1994
Building and improvements 175,000 10,982,000 1,310,000 10-39
Furniture and portable equipment 447,000 1,433,000 189,000 5-10
Palms of Pembroke-
Land -- 4,869,000 -- 1994
Building and improvements 392,000 16,790,000 1,608,000 10-39
Furniture and portable equipment 422,000 1,408,000 218,000 5-10
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
-----------------------------------------
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1997
-----------------------------------------------------------
Column A Column B Column C
Encumbrances
-------------------------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 12/31/97 to Company
- --------------------------------------------------- ------------------ ------------------ ------------------ ------------
<S> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
Boca Palms-
Land $ 7,107,000
Building and improvements 27,343,000
Furniture and portable equipment 1,101,000
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land 3,000
Building and improvements 82,000
Aramark Pennsauken, NJ-
Land 20,000
Building and improvements 190,000
Interstate Container Corporation, Lowell, MA-
Land 34,000
Building and improvements 364,000
People's Drug (CVS), Annandale, VA-
Land 225,000
Building and improvements 1,873,000
Sears, Roebuck and Company, Pennsauken, NJ-
Land 25,000
Building and improvements 206,000
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 278,000
Building and improvements 2,230,000
Furniture and portable equipment
Sitler Tract-
Land 54,000
Forestville Plaza-
Land 440,000
Building and improvements 5,572,000
Furniture and portable equipment
South Blanding Village-
Land 2,946,000
Building and improvements 6,138,000
Furniture and portable equipment
Madarin Corners-
Land 9.125% 8/1/2008 $ 8,339,000 4,891,000
Building and improvements 10,167,000
Furniture and portable equipment
F-32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
[RESTUBBED TABLE]
Column A Column D Column E Column F Column G&H Column I
Cost of
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 12/31/97 Depreciation Constructed Depreciable
Description (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life in Years
- ----------------------------------------------- ------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
Boca Palms-
Land $ -- $ 7,107,000 $ -- 1994
Building and improvements 496,000 27,839,000 2,596,000 10-39
Furniture and portable equipment 479,000 1,580,000 439,000 5-10
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land -- 3,000 -- 1962
Building and improvements -- 82,000 73,000 10-40
Aramark Pennsauken, NJ-
Land -- 20,000 -- 1962
Building and improvements -- 190,000 155,000 10-40
Interstate Container Corporation, Lowell, MA-
Land -- 34,000 -- 1963
Building and improvements 1,404,000 1,768,000 1,214,000 20-50
People's Drug (CVS), Annandale, VA-
Land -- 225,000 -- 1962
Building and improvements 476,000 2,349,000 1,493,000 25-55
Sears, Roebuck and Company, Pennsauken, NJ-
Land -- 25,000 -- 1963
Building and improvements 176,000 382,000 321,000 10-50
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land -- 278,000 --
Building and improvements 3,096,000 5,326,000 3,460,000 1964 20-40
Furniture and portable equipment 18,000 18,000 18,000 10
Sitler Tract-
Land 54,000 1964
Forestville Plaza-
Land -- 440,000 -- 1983
Building and improvements 705,000 6,277,000 2,814,000 33 1/3
Furniture and portable equipment -- -- --
South Blanding Village-
Land -- 2,946,000 -- 1988
Building and improvements 341,000 6,479,000 1,890,000 20-40
Furniture and portable equipment -- -- --
Madarin Corners-
Land -- 4,891,000 -- 1988
Building and improvements 527,000 10,694,000 3,414,000 33 1/3
Furniture and portable equipment -- -- --
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
-----------------------------------------
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1997
-----------------------------------------------------------
Column A Column B Column C
Encumbrances
-----------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 12/31/97 to Company
- -------------------------------------------------- ------------------ ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
Magnolia Mall-
Land 8.20% 2/2007 $ 25,019,000 $ 9,273,000
Building and improvements 37,158,000
Furniture and portable equipment 402,000
North Dartmouth Mall-
Land 7,192,000
Building and improvements 28,767,000
Furniture and portable equipment 38,000
PROPERTY UNDER DEVELOPMENT:
Christiana Power Center-
Land 1,312,000
Creekview (Warrington)
Land 57,000
Hillview Center
Land 1,000
----------------- ----------------
Total for wholly owned consolidated
partnership $ 65,442,000 $ 260,740,000
================= ================
</TABLE>
F-32
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
[RESTUBBED TABLE]
Column A Column D Column E Column F Column G&H Column I
Cost of
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 12/31/97 Depreciation Constructed Depreciable
Description (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life in Years
- ---------------------------------------------- -------------- ------------------ --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
Magnolia Mall-
Land $ -- $ 9,273,000 $ --
Building and improvements 2,000 37,160,000 232,000 1997
Furniture and portable equipment -- 402,000 --
North Dartmouth Mall-
Land -- 7,192,000 --
Building and improvements (27,000) 28,740,000 175,000 1997
Furniture and portable equipment -- 38,000 --
PROPERTY UNDER DEVELOPMENT:
Christiana Power Center-
Land -- 1,312,000 --
Creekview (Warrington)
Land -- 57,000 --
Hillview Center
Land -- 1,000 --
----------- ------------ -------------
Total for wholly owned consolidated
partnership $27,186,000 $287,926,000 $ 53,171,000
=========== ============ =============
</TABLE>
F-32
<PAGE>
SCHEDULE III
(Continued)
<TABLE>
<CAPTION>
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
-----------------------------------------
<S> <C> <C>
NOTES:
(1) Reconciliation of amount shown in Column E:
Balance, August 31, 1997 $ 202,443,000
Additions during the year-
Improvements, furniture and portable equipment $ 1,020,000
Land 17,835,000
Building 66,629,000
85,484,000
Deductions during the year-
Transferred to partnerships and joint ventures --
Retirements --
Properties sold --
Balance, December 31, 1997 $ 287,926,000
=================
(2) The aggregate cost for federal income tax purposes is
approximately $ 285,000,000
=================
(3) Reconciliation of amount shown in Column F: (Accumulated
Depreciation):
Balance, August 31, 1997 $ 50,711,000
Depreciation during the year-
Buildings and improvements 388,000
Furniture and portable equipment 2,072,000 2,460,000
----------------- -----------------
Balance, December 31, 1997 $ 53,171,000
=================
(4) Cost of improvements, net of retirements, etc., consists
of the following:
Cost of improvements $ 85,484,000
Retirements --
-----------------
$ 85,484,000
=================
</TABLE>
F-33
<PAGE>
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1998
<TABLE>
<CAPTION>
SCHEDULE III
Column A Column B Column C
Encumbrances
--------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 12/31/98 to Company
- ------------------------------------------------- ---------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
MULTIFAMILY PROPERTIES:
2031 Locust Street-
Land $ 100,000
Building and improvements 1,028,000
Furniture and portable equipment
Camp Hill Plaza Apartments-
Land 9.50% 3/1/2007 $ 6,578,000 336,000
Building and improvements 2,910,000
Furniture and portable equipment 150,000
Cobblestone Apartments-
Land 2,791,000
Building and improvements 9,334,000
Furniture and portable equipment 362,000
Kenwood Gardens-
Land 489,000
Building and improvements 3,007,000
Furniture and portable equipment 228,000
Lakewood Hills Apartments-
Land 501,000
Building and improvements 10,935,000
Furniture and portable equipment 467,000
Marylander Apartments-
Land 117,000
Building 4,013,000
Furniture and portable equipment 327,000
Shenandoah Village-
Land 5.90% 10/15/2025 8,435,000 2,200,000
Building and improvements 8,695,000
Furniture and portable equipment 281,000
Emerald Point-
Land 6.79% 3/1/2008 16,510,000 3,062,000
Building and improvements 17,352,000
Furniture and portable equipment 1,293,000
Hidden Lakes-
Land 1,225,000
Building and improvements 10,807,000
Furniture and portable equipment 986,000
Palms of Pembroke-
Land 4,869,000
Building and improvements 16,399,000
Furniture and portable equipment 985,000
</TABLE>
F-34
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
Column A Column D Column E Column F Column G&H
Cost of
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 12/31/98 Depreciation Constructed
Description (Note 4) (Notes 1 & 2) (Note 3) or Acquired
- ------------------------------------------------- ------------------ ------------------ ------------------- ---------------
<S> <C> <C>
MULTIFAMILY PROPERTIES:
2031 Locust Street-
Land $ -- $ 100,000 $ -- 1961
Building and improvements 1,567,000 2,595,000 2,005,000
Furniture and portable equipment 720,000 720,000 442,000
Camp Hill Plaza Apartments-
Land -- 336,000 -- 1969
Building and improvements 854,000 3,764,000 3,121,000
Furniture and portable equipment 878,000 1,028,000 530,000
Cobblestone Apartments-
Land -- 2,791,000 -- 1992
Building and improvements 1,542,000 10,878,000 1,794,000
Furniture and portable equipment 710,000 1,072,000 354,000
Kenwood Gardens-
Land -- 489,000 -- 1963
Building and improvements 1,686,000 4,693,000 4,026,000
Furniture and portable equipment 1,282,000 1,510,000 1,048,000
Lakewood Hills Apartments-
Land -- 501,000 -- Phase I 1972
Building and improvements 1,845,000 12,780,000 7,882,000 Phase II 1975
Furniture and portable equipment 2,445,000 2,912,000 1,569,000 Phase III 1980
Marylander Apartments-
Land -- 117,000 -- 1962
Building 1,808,000 5,821,000 5,259,000
Furniture and portable equipment 920,000 1,247,000 804,000
Shenandoah Village-
Land -- 2,200,000 --
Building and improvements 494,000 9,189,000 1,372,000 1993
Furniture and portable equipment 723,000 1,004,000 302,000
Emerald Point-
Land -- 3,062,000 -- 1993
Building and improvements 1,934,000 19,286,000 3,059,000
Furniture and portable equipment 1,159,000 2,452,000 1,040,000
Hidden Lakes-
Land -- 1,225,000 -- 1994
Building and improvements 238,000 11,045,000 1,676,000
Furniture and portable equipment 535,000 1,521,000 266,000
Palms of Pembroke-
Land -- 4,869,000 -- 1994
Building and improvements 418,000 16,817,000 2,112,000
Furniture and portable equipment 613,000 1,598,000 321,000
</TABLE>
F-34
<PAGE>
[RESTUBBED]
SCHEDULE III
(Continued)
<TABLE>
<CAPTION>
Column A Column I
Depreciable
Description Life in Years
- ------------------------------------------------- ------------------
<S> <C>
MULTIFAMILY PROPERTIES:
2031 Locust Street-
Land
Building and improvements 11-25
Furniture and portable equipment 10
Camp Hill Plaza Apartments-
Land
Building and improvements 5-33 1/3
Furniture and portable equipment 7-10
Cobblestone Apartments-
Land
Building and improvements 10-40
Furniture and portable equipment 7-10
Kenwood Gardens-
Land
Building and improvements 8-38
Furniture and portable equipment 8-10
Lakewood Hills Apartments-
Land
Building and improvements 8-45
Furniture and portable equipment 10
Marylander Apartments-
Land
Building 10-39
Furniture and portable equipment 5-10
Shenandoah Village-
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
Emerald Point-
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
Hidden Lakes-
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
Palms of Pembroke-
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
</TABLE>
F-34
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Cost of
Encumbrances Improvements,
--------------------------------------------- Net of
Interest Maturity Balance at Initial Cost Retirements
Description Rate Date 12/31/98 to Company (Note 4)
- ------------------------------------------------- ------------ ------------ ---------------- --------------- --------------
<S> <C> <C>
MULTIFAMILY PROPERTIES:
Boca Palms-
Land $ 7,107,000 $ --
Building and improvements 27,343,000 661,000
Furniture and portable equipment 1,101,000 710,000
Eagles' Nest
Land 8.24% 11/1/2000 $ 15,464,000 4,021,000 --
Building and improvements 16,815,000 409,000
Furniture and portable equipment 800,000 454,000
Fox Run Delaware
Land 6.54% 12/1/2008 14,600,000 1,355,000 --
Building and improvements 19,364,000 422,000
Furniture and portable equipment 595,000 485,000
The Woods Apartments
Land 8.63% 6/2003 7,274,000 4,234,000 --
Building and improvements 17,043,000 157,000
Furniture and portable equipment 225,000 75,000
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land 3,000 --
Building and improvements 82,000 --
Aramark Pennsauken, NJ-
Land 20,000 --
Building and improvements 190,000 --
Interstate Container Corporation, Lowell, MA-
Land 34,000 --
Building and improvements 364,000 1,404,000
People's Drug (CVS), Annandale, VA-
Land 225,000 --
Building 1,873,000 476,000
Sears, Roebuck and Company, Pennsauken, NJ-
Land 25,000 --
Building and improvements 206,000 176,000
LAND HELD FOR DEVELOPMENT:
Turtle Run
Land 4,613,000 --
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
Column A Column E Column F Column G&H Column I
Amount at
Which Carried Accumulated Date
12/31/98 Depreciation Constructed Depreciable
Description (Notes 1 & 2) (Note 3) or Acquired Life in Years
- ------------------------------------------------- --------------- ------------------- ------------- ----------------
<S> <C> <C> <C>
MULTIFAMILY PROPERTIES:
Boca Palms-
Land $ 7,107,000 $ -- 1994
Building and improvements 28,004,000 3,527,000 10-39
Furniture and portable equipment 1,811,000 627,000 5-10
Eagles' Nest
Land 4,021,000 -- 1998
Building and improvements 17,224,000 3,185,000 10-39
Furniture and portable equipment 1,254,000 808,000 5-10
Fox Run Delaware
Land 1,355,000 -- 1998
Building and improvements 19,786,000 4,353,000 10-39
Furniture and portable equipment 1,080,000 752,000 5-10
The Woods Apartments
Land 4,234,000 -- 1998
Building and improvements 17,200,000 160,000 10-39
Furniture and portable equipment 300,000 12,000 5-10
INDUSTRIAL PROPERTIES:
Aramark Allentown, PA-
Land 3,000 -- 1962
Building and improvements 82,000 75,000 10-40
Aramark Pennsauken, NJ-
Land 20,000 -- 1962
Building and improvements 190,000 157,000 10-50
Interstate Container Corporation, Lowell, MA-
Land 34,000 -- 1963
Building and improvements 1,768,000 1,258,000 20-50
People's Drug (CVS), Annandale, VA-
Land 225,000 -- 1962
Building 2,349,000 1,536,000 25-55
Sears, Roebuck and Company, Pennsauken, NJ-
Land 25,000 -- 1963
Building and improvements 382,000 329,000 10-50
LAND HELD FOR DEVELOPMENT:
Turtle Run
Land 4,613,000 --
</TABLE>
F-34
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column B Column C Column D Column E
Cost of
Encumbrances Improvements, Amount at
--------------------------------------- Net of Which Carried
Interest Maturity Balance at Initial Cost Retirements 12/31/98
Description Rate Date 12/31/98 to Company (Note 4) (Notes 1 & 2)
- ----------------------------------------- ------------ ----------- ------------ ------------ ------------ --------------
<S> <C> <C> <C>
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land $ 278,000 $ -- $ 278,000
Building and improvements 2,349,000 3,096,000 5,445,000
Furniture and portable equipment -- 18,000 18,000
Sitler Tract-
Land 54,000 -- 54,000
Forestville Plaza-
Land 440,000 -- 440,000
Building and improvements 5,572,000 705,000 6,277,000
Furniture and portable equipment -- -- --
South Blanding Village-
Land 2,946,000 -- 2,946,000
Building and improvements 6,138,000 341,000 6,479,000
Furniture and portable equipment
Madarin Corners-
Land 9.125% 8/1/2008 $8,088,000 4,891,000 -- 4,891,000
Building and improvements 10,168,000 605,000 10,772,000
Furniture and portable equipment
Magnolia Mall
Land 8.20% 2/207 24,453,000 9,279,000 -- 9,279,000
Building and improvements 37,146,000 520,000 37,666,000
Furniture and portable equipment 213,000 -- 213,000
North Dartmouth Mall
Land 7,199,000 -- 7,199,000
Building and improvements 28,935,000 13,000 28,947,000
Furniture and portable equipment 10,000 -- 10,000
Northeast Tower
Land 8.25% 3/1999 17,001,000 4,205,000 -- 4,205,000
Building and improvements 16,820,000 -- 16,820,000
Furniture and portable equipment 4,000 -- 4,000
Northeast Tower-Bradlees
Land 3,590,000 -- 3,590,000
Building and improvements
Furniture and portable equipment
Prince Georges Plaza
Land 8.70% 6/1/2027 48,600,000 13,066,000 -- 13,066,000
Building and improvements 57,479,000 3,000 57,482,000
Furniture and portable equipment
Festival at Exton
Land 3,728,000 -- 3,728,000
Building and improvements 14,989,000 -- 14,989,000
Furniture and portable equipment
</TABLE>
F-34
<PAGE>
[RESTUBBED]
SCHEDULE III
(continued)
<TABLE>
<CAPTION>
Column F Column G&H Column I
Accumulated Date
Depreciation Constructed Depreciable
Description (Note 3) or Acquired Life in Years
- ----------------------------------------- ------------------- -------------- -------------
<S> <C> <C>
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land $ --
Building and improvements 3,704,000 1964
Furniture and portable equipment 18,000 20-40
Sitler Tract- 10
Land -- 1964
Forestville Plaza-
Land -- 1983
Building and improvements 3,002,000 33 1/3
Furniture and portable equipment -- 10
South Blanding Village-
Land -- 1988
Building and improvements 2,111,000 20-40
Furniture and portable equipment -- 10
Madarin Corners-
Land -- 1988
Building and improvements 3,782,000 10-39
Furniture and portable equipment -- 5-10
Magnolia Mall
Land -- 1998
Building and improvements 1,160,000 10-39
Furniture and portable equipment -- 5-10
North Dartmouth Mall
Land -- 1998
Building and improvements 896,000 10-39
Furniture and portable equipment -- 5-10
Northeast Tower
Land -- 1998
Building and improvements -- 10-39
Furniture and portable equipment -- 5-10
Northeast Tower-Bradlees
Land -- 1998
Building and improvements -- 10-39
Furniture and portable equipment -- 5-10
Prince Georges Plaza
Land -- 1998
Building and improvements 377,000 10-39
Furniture and portable equipment --
Festival at Exton
Land -- 1998
Building and improvements 129,000 10-39
Furniture and portable equipment -- 5-10
</TABLE>
F-34
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Cost of
Encumbrances Improvements, Amount at
----------------------------------------- Net of Which Carried
Interest Maturity Balance at Initial Cost Retirements 12/31/98
Description Rate Date 12/31/98 to Company (Note 4) (Notes 1 & 2)
- --------------------------------------- ---------- ------------ ------------- ------------- --------------- ------------
<S> <C> <C>
Brandywood Center
Land $ -- $ -- $ --
Building and improvements 4,681,000 -- 4,681,000
Furniture and portable equipment -- -- --
Hornsby Lane
Land
Building and improvements 37,000 -- 37,000
Furniture and portable equipment
Paxton Towne Center
Land
Building and improvements 1,466,000 -- 1,466,000
Furniture and portable equipment
PROPERTIES UNDER DEVELOPMENT:
Christiana Power Center
Land 6,242,000 -- 6,242,000
Building and improvements 20,835,000 -- 20,835,000
Furniture and portable equipment
Creekview (Warrington)
Land
Building and improvements 625,000 -- 625,000
Furniture and portable equipment
Hillview Center
Land
Building and improvements
Furniture and portable equipment
Concordville Center 322
Land 20,000 -- 20,000
Building and improvements
Furniture and portable equipment
Concordville Center 202
Land 13,000 -- 13,000
Building and improvements
Furniture and portable equipment
-------------- ------------ ----------- ----------------
Total $ 167,003,000 $476,305,000 $ 33,101,000 $509,406,000
============= ============ =========== ================
</TABLE>
F-34
<PAGE>
[RESTUBBED]
<TABLE>
<CAPTION>
SCHEDULE III
(Continued)
Column A Column F Column G&H Column I
Accumulated Date
Depreciation Constructed Depreciable
Description (Note 3) or Acquired Life in Years
- --------------------------------------- ------------- ------------ ----------------
<S> <C>
Brandywood Center
Land $ -- 1998
Building and improvements 10-39
Furniture and portable equipment
Hornsby Lane 1998
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
Paxton Towne Center 1998
Land
Building and improvements 10-39
Furniture and portable equipment 5-10
PROPERTIES UNDER DEVELOPMENT:
Christiana Power Center
Land 1998
Building and improvements 189,000
Furniture and portable equipment
Creekview (Warrington) 1998
Land
Building and improvements
Furniture and portable equipment
Hillview Center 1998
Land
Building and improvements
Furniture and portable equipment
Concordville Center 322
Land 1998
Building and improvements
Furniture and portable equipment
Concordville Center 202
Land 1998
Building and improvements
Furniture and portable equipment
------------
Total $ 71,129,000
============
</TABLE>
F-34
<PAGE>
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
<S> <C> <C> <C>
NOTES:
(1) Reconciliation of amount shown in Column E:
Balance, December 31, 1997 $ 287,926,000
Additions during the year-
Improvements, furniture and portable equipment $ 4,097,000
Land 43,729,000
Building 173,654,000
221,480,000
Deductions during the year-
Transferred to partnerships and joint ventures --
Retirements --
Properties sold --
-----------------
Balance, December 31, 1998 $ 509,406,000
=================
(2) The aggregate cost for federal income tax purposes is
approximately $ 505,000,000
=================
(3) Reconciliation of amount shown in Column F:
(Accumulated Depreciation):
Balance, December 31, 1997 $ 53,171,000
Depreciation during the year-
Buildings and improvements 7,579,000
Furniture and portable equipment 1,323,000 8,902,000
-----------------
Transfers from partnerships and joint ventures 9,056,000
-----------------
Balance, December 31, 1998 $ 71,129,000
=================
(4) Cost of improvements, net of retirements, etc., consists
of the following:
Cost of improvements $ 221,478,000
Retirements --
-----------------
$ 221,478,000
=================
</TABLE>
F-35
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.09 Amendment No. 2 to the Trust's 1990 Stock Option Plan for
Non-Employee Trustees
10.16 Amendment No. 1 to the Trust's 1990 Incentive and
Non-Qualified Stock Option Plan
10.48 Amendment No. 1 to the Trust's 1997 Stock Option Plan
10.52 Amendment No. 1 to the Trust's Non-Qualified Employee
Share Purchase Plan
10.54 Amendment No. 1 to the Trust's Qualified Employee Share
Purchase Plan
10.56 Amendment No. 1 to the PREIT-RUBIN, Inc. 1998 Stock
Option Plan
21 Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent Public
Accountants of the Trust).
23.2 Consent of Ernst & Young LLP (Independent Auditors
of Lehigh Valley Associates)
27 Financial Data Schedule
<PAGE>
Exhibit 10.9
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
AMENDMENT NO. 2
TO THE
1990 STOCK OPTION PLAN
FOR NON-EMPLOYEE TRUSTEES
WHEREAS, the Pennsylvania Real Estate Investment Trust (the "Trust")
established the 1990 Stock Option Plan for Non-Employee Trustees (the "Plan") in
1990;
WHEREAS, Section 12 of the Plan provides that, subject to shareholder
approval for certain changes, the Board of Trustees of the Trust (the "Board")
may amend the Plan; and
WHEREAS, the Board desires to amend the Plan to provide for annual
automatic grants to non-employee trustees of options for 2,500 shares of
beneficial interest in the Trust ("Shares") rather than 1,000 Shares, to grant
any newly elected non-employee trustee options for 5,000 Shares, and to make
other, clarifying changes;
NOW, THEREFORE, subject to the approval of the shareholders of the
Trust, the Plan is hereby amended as follows, effective as of April 1, 1999:
1. The reference in Section 6 of the Plan to "Section 422A" of the
Internal Revenue Code is changed to a reference to "Section 422" of the Internal
Revenue Code.
2. Section 7(i) of the Plan is hereby amended to read as follows:
7. Terms, Conditions and Form of Options. * * *
(i) Option Grant Dates.
(a) Newly-Elected Trustee. Options to purchase 5,000 Shares (as
adjusted pursuant to Section 8) shall be granted automatically to each newly
elected (i.e., elected for the first time) Eligible Trustee on the first stock
trading day of the national securities exchange upon which the Shares are traded
that occurs on or after the date of such election or, if the Shares are not
listed on a national securities exchange and are traded over-the-counter, the
date of the first trade as reported by NASDAQ (or, if not reported by NASDAQ,
the date of the first trade that is reported as being made) on or after the date
of such election.
(b) Eligible Trustee. Annual options to purchase 2,500 Shares (as
adjusted pursuant to Section 8) shall be granted automatically to each Eligible
Trustee except for an Eligible Trustee who received an automatic grant described
in (a) above during the six months preceding
<PAGE>
the applicable January grant date. The grant date shall be the last stock
trading day of the national securities exchange upon which the Shares are traded
in each January through 2004 or, if the Shares are not listed on a national
securities exchange and are traded over-the-counter, the date of the last trade
as reported by NASDAQ (or, if not reported by NASDAQ, the date of the last trade
that is reported as being made) in each January through 2004.
* * * * *
3. Section 11 of the Plan is hereby amended to read as follows:
11. Effective Date and Duration of Plan. The Plan became
effective immediately following approval by the shareholders at the 1990 Annual
Meeting of shareholders. The period during which option grants shall be made
under the Plan shall terminate on February 1, 2004 (unless the Plan is extended,
or terminated on an earlier date, by shareholders) but such termination shall
not affect the terms of any then outstanding options.
4. The Plan, as hereby amended, shall remain in full force and effect.
<PAGE>
Exhibit 10.16
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
1990 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
(As Amended and Restated Effective July 1, 1997)
WHEREAS, the Pennsylvania Real Estate Investment Trust (the "Trust")
established the Pennsylvania Real Estate Investment Trust 1990 Incentive and
Nonqualified Stock Option Plan (the "1990 Plan") in 1990;
WHEREAS, Section 13(a) of the 1990 Plan provides that, subject to
certain inapplicable limitations, the Board of Trustees of the Trust (the
"Board") may amend the Plan;
WHEREAS, the Board has established the Pennsylvania Real Estate
Investment Trust 1999 Equity Incentive Plan (the "1999 Plan");
WHEREAS, the Board desires to suspend the issuance of options under the
1990 Plan to consolidate in the 1999 Plan any shares under the 1990 Plan that
have not yet been made subject to options, and to make available under the 1999
Plan any shares subject to expired or terminated options under the 1990 Plan;
WHEREAS, Section 4 of the 1990 Plan provides that options may be
granted to purchase up to a maximum of 400,000 shares of Common Stock, par value
$1.00 per share; and
WHEREAS, options have not yet been granted on 9,500 of the shares
available under the 1990 Plan;
NOW, THEREFORE, effective as of April 1, 1999, the 1990 Plan is hereby
amended as follows:
1. Section 4 of the 1990 Plan is amended to read as follows:
4. Stock. No Options may be granted under the Plan on or after April 1,
1999. (Prior to April 1, 1999, Options were granted on 390,500 shares of Common
Stock.) If any Option previously granted under the Plan expires or otherwise
terminates for any reason whatsoever (including, without limitation, the
Optionee's surrender thereof) without having been exercised, the shares subject
to the unexercised portion of the Option shall not be available for the granting
of Options under the Plan but instead shall, without further action, become
available for the granting of awards (other than ISOs) under the Pennsylvania
Real Estate Investment Trust 1999 Equity Incentive Plan.
<PAGE>
2. The following sentence is added to the end of Section 19
("Termination of Plan") of the 1990 Plan:
Further, shares of Common Stock subject to Options which expire or otherwise
terminate after September 16, 2000 shall be treated as provided in Section 4
hereof.
IN WITNESS WHEREOF, the Trust has caused these presents to be duly
executed this 26th day of March, 1999.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
By /s/ Jeffrey A. Linn
-----------------------------------
Senior Vice President-Acquisitions
& Secretary
<PAGE>
Exhibit 10.48
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
1997 STOCK OPTION PLAN
WHEREAS, the Pennsylvania Real Estate Investment Trust (the "Trust")
established the Pennsylvania Real Estate Investment Trust 1997 Stock Option Plan
(the "1997 Plan") in 1997;
WHEREAS, Section 12 of the 1997 Plan provides that, subject to certain
inapplicable limitations, the Board of Trustees of the Trust (the "Board") may
amend the Plan;
WHEREAS, the Board has established the Pennsylvania Real Estate
Investment Trust 1999 Equity Incentive Plan (the "1999 Plan");
WHEREAS, the Board desires to suspend the issuance of options under the
1997 Plan to consolidate in the 1999 Plan any shares under the 1997 Plan that
have not yet been made subject to options, and to make available under the 1999
Plan any shares subject to expired or terminated options under the 1997 Plan;
WHEREAS, Section 4 of the 1997 Plan provides that options may be
granted to purchase up to a maximum of 560,000 shares of Common Stock, par value
$1.00 per share; and
WHEREAS, options have not yet been granted on 128,000 of the shares
available under the 1997 Plan;
NOW, THEREFORE, effective as of April 1, 1999, the 1997 Plan is hereby
amended as follows:
1. Section 4 of the 1997 Plan is amended to read as follows:
4. Stock. No Options may be granted under the Plan on or after April 1,
1999. (Prior to April 1, 1999, Options were granted on 432,000 shares of Common
Stock.) If any Option previously granted under the Plan expires or otherwise
terminates for any reason whatsoever (including, without limitation, the
Optionee's surrender thereof) without having been exercised, the shares subject
to the unexercised portion of the Option shall not be available for the granting
of Options under the Plan but instead shall, without further action, become
available for the granting of awards (other than ISOs) under the Pennsylvania
Real Estate Investment Trust 1999 Equity Incentive Plan.
2. The following sentence is added to the end of Section 18
("Termination of Plan") of the 1997 Plan:
<PAGE>
Further, shares of Common Stock subject to Options which expire or otherwise
terminate after July 7, 2007 shall be treated as provided in Section 4 hereof.
IN WITNESS WHEREOF, the Trust has caused these presents to be duly
executed this 26th day of March, 1999.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
By /s/ Jeffrey A. Linn
----------------------------------
Senior Vice President-Acquisitions
& Secretary
<PAGE>
Exhibit 10.52
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
(Effective as of April 1, 1999)
<PAGE>
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NON-QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
(Effective as of April 1, 1999)
WHEREAS, the Pennsylvania Real Estate Investment Trust (the "Trust")
adopted the Pennsylvania Real Estate Investment Trust Non-Qualified Employee
Share Purchase Plan (the "Plan"), originally to be effective January 1, 1999;
WHEREAS, pursuant to ss.5(a) of the Plan, the Executive Compensation
and Human Resources Committee (the "Committee") has decided to delay the initial
grant of options under the Plan until April 1, 1999;
WHEREAS, pursuant to ss.12 of the Plan, the Committee, with certain
inapplicable limitations, has the right to amend the Plan; and
WHEREAS, the Committee has decided to amend the Plan to reflect the
delayed implementation date;
NOW, THEREFORE, effective April 1, 1999, the following changes are
hereby made to the Plan:
Paragraphs (a) and (b) of ss.5 of the Plan ("GRANT OF OPTION") are
hereby replaced by the following:
(c) Grant of Option. Employees shall have the right to purchase Shares
under options granted as of April 1, 1999 (or, in the Committee's discretion, as
soon as administratively practicable thereafter) and as of each subsequent
January 1 (the "Grant Dates"). Each employee who meets the eligibility
requirements of ss.3 shall be granted an option on the first Grant Date
coinciding with or immediately following the date he or she becomes an eligible
employee, and on each succeeding Grant Date, provided he or she continues to
meet the eligibility requirements of ss.3. The term of the options (the "Option
Term") shall be 12 calendar months (from January 1 through December 31), except
for the first Option Term, which shall be nine calendar months (from April 1
through December 31, 1999).
(d) Purchase Periods. Each Option Term shall contain four three-month
Purchase Periods (January-March, April-June, July-September, and
October-December), except for the first Option Term which shall contain three
three-month Purchase Periods (April-June, July-September, and October-December,
1999).
<PAGE>
ss.13 of the Plan is hereby replaced by the following:
13. Effective Date of Plan
The Plan will become effective as of April 1, 1999 or, in the
discretion of the Committee, as soon as administratively practicable thereafter,
subject, however, to approval by the holders of at least a majority of the
Shares present or represented, and entitled to vote, at a special or annual
meeting of the shareholders at which a quorum is present and that is held within
12 months before or after October 13, 1998, the date the Plan was approved by
the Board. If the Plan is not so approved by the shareholders, the Plan shall
not become effective.
<PAGE>
Exhibit 10.54
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
(Effective as of April 1, 1999)
<PAGE>
AMENDMENT NO. 1
TO THE
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
QUALIFIED EMPLOYEE SHARE PURCHASE PLAN
(Effective as of April 1, 1999)
WHEREAS, the Pennsylvania Real Estate Investment Trust (the "Trust")
adopted the Pennsylvania Real Estate Investment Trust Qualified Employee Share
Purchase Plan (the "Plan"), originally to be effective January 1, 1999;
WHEREAS, pursuant to ss.5(a) of the Plan, the Executive Compensation
and Human Resources Committee (the "Committee") has decided to delay the initial
grant of options under the Plan until April 1, 1999;
WHEREAS, pursuant to ss.12 of the Plan, the Committee, with certain
inapplicable limitations, has the right to amend the Plan; and
WHEREAS, the Committee has decided to amend the Plan to reflect the
delayed implementation date;
NOW, THEREFORE, effective April 1, 1999, the following changes are
hereby made to the Plan:
Paragraphs (a) and (b) of ss.5 of the Plan ("GRANT OF OPTION") are
hereby replaced by the following:
(e) Grant of Option. Employees shall have the right to purchase Shares
under options granted as of April 1, 1999 (or, in the Committee's discretion, as
soon as administratively practicable thereafter) and as of each subsequent
January 1 (the "Grant Dates"). Each employee who meets the eligibility
requirements of ss.3 shall be granted an option on the first Grant Date
coinciding with or immediately following the date he or she becomes an eligible
employee, and on each succeeding Grant Date, provided he or she continues to
meet the eligibility requirements of ss.3. The term of the options (the "Option
Term") shall be 12 calendar months (from January 1 through December 31), except
for the first Option Term, which shall be nine calendar months (from April 1
through December 31, 1999).
(f) Purchase Periods. Each Option Term shall contain four three-month
Purchase Periods (January-March, April-June, July-September, and
October-December), except for the first Option Term which shall contain three
three-month Purchase Periods (April-June, July-September, and October-December,
1999).
<PAGE>
ss.13 of the Plan is hereby replaced by the following:
13. Effective Date of Plan
The Plan will become effective as of April 1, 1999 or, in the
discretion of the Committee, as soon as administratively practicable thereafter,
subject, however, to approval by the holders of at least a majority of the
Shares present or represented, and entitled to vote, at a special or annual
meeting of the shareholders at which a quorum is present and that is held within
12 months before or after October 13, 1998, the date the Plan was approved by
the Board. If the Plan is not so approved by the shareholders, the Plan shall
not become effective.
<PAGE>
Exhibit 10.56
AMENDMENT NO. 1
TO THE
PREIT-RUBIN, INC.
1998 STOCK OPTION PLAN
WHEREAS, PREIT-RUBIN, Inc. ("PRI") established the PREIT-RUBIN, Inc.
1998 Stock Option Plan (the "1998 Plan") in 1998 to award nonqualified stock
options to acquire shares of beneficial interest in the Pennsylvania Real Estate
Investment Trust ("PREIT");
WHEREAS, Section 10 of the 1998 Plan provides that, subject to certain
inapplicable limitations, the Board of Directors of PRI (the "Board") may amend
the Plan;
WHEREAS, the Board has established the Pennsylvania Real Estate
Investment Trust 1999 Equity Incentive Plan (the "1999 Plan");
WHEREAS, the Board desires to suspend the issuance of options under the
1998 Plan to consolidate in the 1999 Plan any shares under the 1998 Plan that
have not yet been made subject to options, and to make available under the 1999
Plan any shares subject to expired or terminated options under the 1998 Plan;
WHEREAS, Section 4 of the 1998 Plan provides that options may be
granted to purchase up to 150,000 shares of beneficial interest in PREIT
("Shares"); and
WHEREAS, options have not yet been granted on 15,500 of the Shares
available under the 1998 Plan;
NOW, THEREFORE, effective as of April 1, 1999, the 1998 Plan is hereby
amended as follows:
1. Section 4 of the 1998 Plan is amended to read as follows:
4. Stock. No Options may be granted under the Plan on or after April 1,
1999. (Prior to April 1, 1999, Options were granted on 134,500 Shares.) If any
Option previously granted under the Plan expires or otherwise terminates for any
reason whatsoever (including, without limitation, the Optionee's surrender
thereof) without having been exercised, the Shares subject to the unexercised
portion of the Option shall not be available for the granting of Options under
the Plan but instead shall, without further action, become available for the
granting of awards (other than ISOs) under the Pennsylvania Real Estate
Investment Trust 1999 Equity Incentive Plan.
<PAGE>
2. The following sentence is added to the end of Section 16
("Termination of Plan") of the 1998 Plan:
Further, Shares subject to Options which expire or otherwise terminate after
July 14, 2008 shall be treated as provided in Section 4 hereof.
IN WITNESS WHEREOF, the Trust has caused these presents to be duly
executed this 26th day of March, 1999.
PREIT-RUBIN, INC.
By /s/ George Rubin
----------------------
President & Secretary
<PAGE>
Exhibit 21
Subsidiaries of Trust
- ---------------------
The Trust conducts substantially all of its real estate ownership
activities through PREIT Associates, L.P., a Delaware limited partnership (the
"Operating Partnership"), of which the Trust is the sole general partner and
92.1% owner.
The Operating Partnership and/or its affiliates own an interest in the
following partnerships:
<TABLE>
<CAPTION>
Aggregate
Names of Partnership State of Organization Percentage Owned*
- -------------------- --------------------- ----------------
<S> <C> <C>
Bailey Associates PA 50%
Cambridge Apartments PA 50
Countrywood Apartments Limited Partnership FL 50
Eagles Nest Associates FL 100
Elizabethtown Associates PA 50
Forestville Plaza Shopping Center Limited Partnership MD 100
Fox Run Apartments PA 50
Fox Run Del Associates DE 100
GP Stones Limited Partnership FL 100
Mall Corners Ltd. GA 19
Mall Corner II, Ltd. GA 11
Jacksonville Associates FL 100
Laurel Mall Associates PA 40
Lehigh Valley Associates PA 50
MC Associates FL 100
New Regency Hilltop Associates VA 65
Oxford Valley Road Associates PA 50
Palmer Park Mall Venture PA 50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Names of Partnership State of Organization Percentage Owned*
- -------------------- --------------------- ----------------
<S> <C> <C>
PR Shenandoah Limited Partnership FL 100
PR 8000 Airport Highway, L.P. PA 100
PR 8000 National Highway, L.P. PA 100
Rancocas Limited Partnership NJ 75
Regency Associates NE 50
Rio Grande Venture PA 50
Turren Associates FL 100
Windsong Apartments Limited Partnership FL 40
ALRO Associates, L.P. DE 50
PR Elizabethtown, L.P. PA 100
PR Fox Run, L.P. PA 100
PR Laurel Mall, L.P. PA 100
PR Palmer Park, L.P. PA 100
PR Rio Mall Limited Partnership PA 100
PR Springfield Associates, L.P. PA 100
PR Warrington, L.P. PA 100
PR Will-O-Hill, L.P. PA 100
Will-O-Hill Apartments PA 50
PRGL Paxton Limited Partnership PA 50
PRDB Springfield Limited Partnership PA 50
The Woods Associates PA 100
PR Festival Limited Partnership PA 100
Roosevelt II Associates, L.P. PA 89-Capital Interest
99-Profits Interest
PR Northeast Limited Partnership PA 100
Roosevelt Associates, L.P. PA 89-Capital Interest
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate
Names of Partnership State of Organization Percentage Owned*
- -------------------- --------------------- ----------------
<S> <C> <C>
99-Profits Interest
PR Titus Limited Partnership PA 100
PR Turtle Run L.P. DE 100
PR Eagles Nest L.P. DE 100
Red Rose Commons Associates, L.P. PA 50
PR Palmer Park, L.P. PA 100
Tupelo Mall AL 50(1)
VLRC Associates GA 87.5(1)
</TABLE>
* By the Operating Partnership, the Trust owns approximately 92.1% of the
Operating Partnership.
(1) By the Trust, not the Operating Partnership.
<PAGE>
The Trust owns 100% of the shares of the following corporations:
Names of Subsidiaries State of Organization
- --------------------- ---------------------
Berdel, Inc. DE
Berfla, Inc. FL
Burren, Inc. FL
PR West Palm Inc. FL
PR VA Regency Inc. VA
RA Inc. NE
PR Forestville Inc. MD
The Operating Partnership is the sole beneficiary of the following
Pennsylvania business trusts:
Name of Trust State of Organization
- ------------- ---------------------
PR Elizabethtown Trust PA
PR Fox Run Trust PA
PR Laurel Mall Trust PA
PR Metroplex Trust PA
PR Northeast Trust PA
PR Oxford Valley Trust PA
PR Palmer Park Trust PA
PR Red Rose Trust PA
PR Springfield Trust PA
PR Warrington Trust PA
PR Will-O-Hill Trust PA
<PAGE>
The Operating Partnership has a member interest in the following
limited liability companies:
State of Organization Percentage Owned
--------------------- ----------------
Subsidiary LLC
PR Christiana LLC DE 100
PR Cobblestone LLC DE 100
PR Concord LLC DE 100
PR Countrywood LLC DE 100
PR Forestville LLC DE 100
PR Hillview LLC DE 100
PR Howell LLC DE 100
PR Interstate Container LLC DE 100
PR Magnolia LLC DE 100
PR Mandarin Conners LLC DE 100
PR North Dartmouth Mall LLC DE 100
PR Regency Associates LLC DE 100
PR Rio Mall LLC DE 100
PR South Blanding LLC DE 100
PR Windsong LLC DE 100
PR 8000 Airport Highway LLC DE 100
PR 8000 National Highway LLC DE 100
PR Paxton LLC PA 100
PRDB Springfield LLC PA 50
PR Woods LLC PA 100
PR Festival LLC PA 100
PR Northeast LLC PA 100
PR Warrington LLC PA 100
PR Titus LLC PA 100
<PAGE>
PR Turren LLC DE 100
PR Berfla LLC DE 100
PR PGPlaza LLC DE 100
Equity-Prince George's Plaza L.L.C. DE 100
PR Fox Run Del LLC DE 100
PR Berdel LLC DE 100
PR Foulk Plaza LLC DE 100
PR Will-O-Hill LLC PA 100
CD Development LLC DE 100
The Operating Partnership owns all of the non-voting shares of
PREIT-RUBIN, Inc., a Pennsylvania corporation, representing 95% of the equity of
such Pennsylvania corporation. PREIT-RUBIN, Inc. owns all of the shares of The
Rubin Organization-Illinois, Inc., an Illinois corporation.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 26, 1999, included in this Form 10-K,
into the Company's previously filed registration statements on Forms S-3 (File
No. 33-61115, File No. 333-48917, File No. 333-70157, as amended, File No.
333-74693, File No. 333-74695 and File No. 333-74697) and Forms S-8 (File No.
33-59771, File No. 33-59773, File No. 33-59767 and File No. 333-69877).
/s/ Arthur Andersen LLP
-----------------------
Philadelphia, Pennsylvania
March 31, 1999
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-59771) pertaining to the 1993 Jonathan B. Weller
Non-Qualified Stock Option Plan, the Registration Statement (Form S-8 No.
33-59773) pertaining to the Amended Incentive and Non-Qualified Stock
Option Plan, the Registration Statement (Form S-8 No. 33-59767) pertaining
to the Option Plan for Non-Employee Trustees, the Registration Statement
(Form S-3 No. 33-61115) pertaining to the universal shelf registration, the
Registration Statement (Form S-8 File No. 333-69877) pertaining to the
Qualified Employee Share Purchase Plan, the Registration Statement (Form
S-3 File No. 333-48917) pertaining to the resale of shares, the
Registration Statement (Form S-3 File No. 333-70157) pertaining to the
Non-Qualified Employee Share Purchase Plan, the Registration Statement
(Form S-3 File No. 333-74693) pertaining to the 1998 Stock Option Plan, the
Registration Statement (Form S-3 File No. 333-74695) pertaining to the
resale of shares and the Registration Statement (Form S-3 File No.
333-74697) pertaining to the Distribution Reinvestment and Share Purchase
Plan, and related Prospectuses of Pennsylvania Real Estate Investment Trust
of our report dated October 18, 1996, with respect to the financial
statements of Lehigh Valley Associates included in Pennsylvania Real Estate
Investment Trust's Annual Report (Form 10-K) for the year ended December
31, 1998.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000077281
<NAME> PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,135,000
<SECURITIES> 0
<RECEIVABLES> 38,775,000
<ALLOWANCES> 1,572,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 509,406,000
<DEPRECIATION> 71,129,000
<TOTAL-ASSETS> 481,615,000
<CURRENT-LIABILITIES> 42,257,000
<BONDS> 302,276,000
0
0
<COMMON> 13,300,000
<OTHER-SE> 123,782,000
<TOTAL-LIABILITY-AND-EQUITY> 481,615,000
<SALES> 61,745,000
<TOTAL-REVENUES> 69,322,000
<CGS> 0
<TOTAL-COSTS> 35,276,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,591,000
<INCOME-PRETAX> 23,455,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,455,000
<DISCONTINUED> 0
<EXTRAORDINARY> (270,000)
<CHANGES> 0
<NET-INCOME> 23,185,000
<EPS-PRIMARY> 1.74
<EPS-DILUTED> 1.74
</TABLE>
