JPMorgan
J.P. Morgan Securities, Inc.
60 Wall Street
New York, NY 10260-0060
December 28, 1994
Mr. Joseph M. Selzer
Vice President
Prudential Realty Trust
c/o Prudential Realty Group
751 Broad Street
4th Floor
Newark, NJ 07102
Dear Joe:
This letter outlines our understanding (the "Agreement") that
Prudential Realty Trust ("PRT" or the "Trust") has engaged J.P.
Morgan Securities Inc. ("J.P. Morgan") to act as financial
advisor to PRT with respect to options to maximize shareholder
value as PRT approaches its scheduled liquidation date.
Trustees' Objectives
We understand that PRT is a finite life real estate investment
trust, which, under the terms of its Declaration, is scheduled to
liquidate during the 18-month period ending approximately
September 30, 1997 (unless its term is extended for up to two
years by vote of a majority of the shareholders of each class of
stock). We understand that in order to extend the scheduled
termination date, a majority of the unaffiliated Trustees must
determine that such extension is in the best interests of the
shareholders and must recommend such extension to the
shareholders for their approval. We expect that any course of
action, scheduled liquidation, or extension will be closely
scrutinized by both classes of shareholders whose perspective and
interests may not be perfectly aligned. In this context, we
recognize the concerns of the Trustees in seeking to maximize the
values of all shareholders.
Scope of Assignment
We have structured our assignment as financial advisor to PRT in
two phases. In Phase I, we will evaluate a range of alternatives
and recommend a preferred course of action to best achieve the
objectives of PRT and its Trustees. In Phase II (should it
occur), we would review and, if appropriate, conduct the
transaction(s) and offer an opinion as to fairness of the
transaction(s) to each class of shareholder.
Phase I
Review Structure and History of PRT
We will begin by studying all relevant information on PRT
including, but not limited to, the Declaration of Trust, original
Prospectus, Advisory Agreement between PRT and The Prudential
Realty Advisors, recent Annual Reports and regulatory filings
including 10Q and 10K reports, current appraisals of the Trust's
properties, and the line of credit with First Fidelity. We will
study the capital structure of the Trust and also review the
history of the Trust's share price performance since inception.
Evaluate Net Asset Value on a Public and Private Market Basis
We will review the current appraisals and, based upon cash flow
projections provided in the appraisals or separately by PRT, we
will evaluate the private market valuation of such assets if sold
on an individual basis, if sold through combinations of certain
assets in smaller pools, and if sold as a complete portfolio.
This analysis will include an evaluation of the depth of demand
in the market for each of these alternatives with consideration
for the types of investors that would be most likely to acquire
assets of this property type. We also plan to visit each of the
properties as further due diligence in formulating our
conclusions.
Although we suspect that a public market valuation is less
appropriate in PRT's context given its finite life, we will also
review the current valuation of PRT in the public market (both
classes of stock) including the identification of comparable
REITs (and classes of stock) with an analysis of relative public
market valuation. We will then be prepared to contrast any
legitimate public market valuations with the private market
values described above.
Strategies to be Considered
With the objective of maximizing the value to holders of each
class of stock (while minimizing any adverse tax consequences),
both income and capital shares, we will evaluate the following
strategies:
(i) Disposition of assets by September, 1997, through the
following approaches:
Sale of assets individually.
Sale of pools of assets; for instance, selling Park 100 as a
pool to a single buyer.
Sale of the stock of PRT to an investor, either by public
tender or otherwise.
Merger with another public REIT or another entity with an
exchange of shares or other consideration.
Other appropriate alternatives that become evident during our
engagement.
In this context, we will identify REITS and other investors that
might be buyers of assets or shares due to similarities in
geographic focus and property type and will review and evaluate
any proposals that PRT may receive from interested parties.
(ii) Extension of the scheduled termination date. This will
include an evaluation of the current maximum net asset value
derived from all of the scenarios noted above, and based on a
review of the specific assets and competitive markets, an
estimate of the potential for further appreciation in value
assuming that the liquidation date were extended. The range of
options for liquidation at the end of the extension period will
likely be identical to those evaluated above. The conclusions,
however, may differ given the potential for change in the micro
and macro real estate market for each asset, demand and pricing
in the private equity market at large, and demand and pricing in
the public equity markets, which have lately experienced
explosive growth but considerable volatility.
We will, with the assistance as necessary of the Trust's
attorneys, accountants and other consultants, consider the full
range of regulatory, legal, tax, and reporting implications of
each of the above mentioned strategies.
Process & Timetable
As soon as possible, we will provide you with a detailed list of
documents and other information we require from PRT prior to
commencing Phase I and will also arrange a mutually convenient
time with Richard Flohr for our team to tour each of the
properties. Upon completion of our analysis, we will prepare a
detailed written report outlining our approach to the assignment,
a summary of the information considered, a detailed review of the
full range of alternatives available (including a discussion of
their relative ability to maximize shareholder value) and our
recommended course(s) of action. A complete draft of this report
will be provided to you on January 4, 1995 so that you might
review it in advance of our scheduled meeting on January 6.
Following this meeting, a final report incorporating any
necessary changes or comments will be prepared and provided to
you by January 20, so that you can distribute it to the Trustees
in advance of their scheduled February 9 meeting, at which we
will also be prepared to make a verbal presentation to the
Trustees.
PHASE II
It is difficult to specify our role in this phase given that your
precise needs have not yet been defined. However, depending on
the outcome of Phase I and the extent to which we mutually
determine that J.P. Morgan is the appropriate entity to do so, we
would assist in executing those strategies.
In addition, we anticipate that the Trustees may desire that a
fairness opinion be rendered regardless of the form of the
transaction. Without specifically outlining the tasks we would
perform in such an assignment, we would perform a sufficient
review of the transaction(s) to allow us to provide an opinion as
to fairness to all shareholders of PRT.
Compensation
PRT shall pay to J.P. Morgan an Advisory Fee of $100,000 for
Phase I of this assignment, payable upon completion of the
assignment when we present our findings and recommendations to
the Board of Trustees. Given the uncertainty at this time as to
the scope of Phase II of the assignment, it is difficult to
precisely determine the appropriate level of compensation for
that phase. Consequently, we would look to reach an agreement
following the completion of Phase I. Conceptually, however, we
would expect to receive a success fee calculated as a percentage
of the value of any disposition(s) and a flat fee for any
fairness opinion provided, with the understanding that 50% of the
Phase I fee would be creditable against these amounts. Some form
of retainer or upfront fee may also be appropriate if the
execution of Phase II takes place over an extended period of
time, again with the understanding that a portion of these fees
would be creditable against any success fees payable for Phase
II. In addition to the above described fees, PRT will reimburse
J.P. Morgan for all reasonable out-of-pocket expenses incurred by
J.P. Morgan in connection with this assignment whether or not (in
the case of Phase II) a transaction is completed, including
without limitation, travel, communication, and reasonable legal
fees and expenses; provided that such expenses shall not exceed
$10,000 without the prior approval of PRT. Notwithstanding the
forgoing, all interaction with Sullivan & Cromwell shall be
coordinated with Steven Parker, and J.P. Morgan shall not engage
independent counsel without prior approval from PRT. The
foregoing limitations, however, shall not apply in any way to any
counsel fees or expenses related to any matter for which J.P.
Morgan seeks indemnity pursuant to the provisions hereof.
Staffing
For the execution of this assignment, J.P. Morgan will establish
a team of qualified individuals from appropriate specialty areas
within the firm and its subsidiaries. From Real Estate, David
Gilbert will be primarily responsible for this assignment. The
team will also include Vice Presidents, Bob Sroka from our M&A
Department, Blake Witherington from Real Estate, and David Walker
from Equity Capital Markets, as well as Eric Brook and other
Associates as appropriate. Jon Zehner, Managing Director and
head of Real Estate, will be actively involved in the analysis
and presentation(s) as well.
Indemnity
PRT agrees to indemnify and hold harmless J.P. Morgan and its
affiliates, and the respective directors, officers, agents, and
employees of J.P. Morgan and its affiliates and each other entity
or person, if any, controlling J.P. Morgan or any of its
affiliates (J.P. Morgan and each such entity or person being
referred to as an "Indemnified Person") from and against any
losses, claims, demands, damages, or liabilities (or actions or
proceedings in respect thereof) of any kind relating to or
arising out of activities performed or services furnished
pursuant to this Agreement, or J.P. Morgan's role in connection
therewith, and to reimburse J.P. Morgan and any other Indemnified
Person for all expenses (including, without limitation, fees and
reasonable disbursements of counsel) incurred by J.P. Morgan or
any such other Indemnified Person in connection with
investigating, preparing, or defending any investigative,
administrative, judicial, or regulatory proceeding in any
jurisdiction, or any action, suit, or other proceeding in
relation thereto or in connection therewith, whether or not in
connection with pending or threatened litigation to which J.P.
Morgan (or any other Indemnified Person) or PRT or any of its
security holders is a party, in each case as such expenses are
incurred or paid. PRT will not, however, be responsible for any
such losses, actions, claims, demands, damages, liabilities, or
expenses of any Indemnified Person that are determined by final
and nonappealable judgment of a court of competent jurisdiction
to have resulted primarily from actions taken or omitted to be
taken by such Indemnified Person in bad faith or from such
Indemnified Person's negligence or misconduct.
Confidentiality
In the course of its services, J.P. Morgan will have access to
confidential information concerning PRT and its affiliates. J.P.
Morgan agrees that for a period of four years, all such
confidential information will be treated by J.P. Morgan and its
agents and employees as confidential in all respects.
The term "confidential information" shall mean all information,
whether written or oral, which is disclosed by PRT or its
affiliates to J.P. Morgan in connection with its engagement and
which is not in the public domain, but shall not include:
(a) information which, prior to disclosure to J.P.
Morgan in connection with its engagement, was
already in J.P. Morgan's possession other than on
a confidential basis;
(b) information which is hereby publicly disclosed
other than by J.P. Morgan in violation of this
Agreement;
(c) information which is obtained by J.P. Morgan from
a third party that (i) J.P. Morgan does not know
to have violated, or to have obtained such
information in violation of, any obligation to PRT
or its affiliates with respect to such
information, and (ii) does not require J.P. Morgan
to refrain from disclosing such information; and
(d) information which is required to be disclosed by
J.P. Morgan or its affiliates, agents or employees
under compulsion of law (whether by oral question,
interrogatory, subpoena, civil investigative
demand, or otherwise).
Upon any termination of J.P. Morgan's engagement, J.P. Morgan
further agrees promptly upon PRT's written request (and in no
event later than 14 days thereafter) to return all written and
other material, including copies thereof, submitted to J.P.
Morgan by PRT or its affiliates, it being understood that
notwithstanding the foregoing J.P. Morgan may retain all written
or other material which J.P. Morgan has itself prepared in
connection with its assignment. Notwithstanding the return of any
such material, J.P. Morgan and its agents and employees will continue to
hold in confidence all confidential information during the term of this
Agreement.
Summary
We are pleased to have been selected to assist you with this assignment
and look forward to working with you and your team. We are confident
that working together, we can devise a financial strategy that will
enable you to achieve maximum value for all your shareholders. We look
forward to meeting with you again shortly to begin this assignment and
please call if you have any comments on this agreement. If the
foregoing correctly sets forth the agreement between PRT and J.P.
Morgan, please sign and return the enclosed copy of this Agreement,
whereupon it shall become our binding agreement to be governed by New
York law.
Sincerely,
/s/David J. Gilbert /s/R. Blake Witherington
David J. Gilbert R. Blake Witherington
Vice President Vice President
Agreed and accepted:
Prudential Realty Trust
By:/s/Joseph M. Selzer
Joseph M. Selzer
Vice President