Exhibit 1
ADVISORY AGREEMENT
ADVISORY AGREEMENT dated as of August 29, 1985, between
PRUDENTIAL REALTY TRUST, a Massachusetts business trust (the
"Trust"), and THE PRUDENTIAL REALTY ADVISORS, INC., a New Jersey
corporation (the "Advisor").
The Trust was organized under a Declaration of Trust
executed June 19, 1985 (the "Declaration of Trust"). The Trust
intends to qualify as a "real estate investment trust" ("REIT")
as defined in the Internal Revenue Code of 1954, as amended (the
"Code"), and to make investments, principally consisting of the
Specified Investments (as herein defined), of the type permitted
to qualified REITs under the Code and not inconsistent with the
Declaration of Trust. The Trust desires to avail itself of the
experience, advice and assistance of the Advisor and to have the
Advisor undertake the duties and responsibilities herein set
forth, subject to the supervision of the Trustees of the Trust,
as provided herein. The Advisor is willing to undertake to
render such services, on the terms and conditions herein set
forth. Accordingly, the Trust and Advisor hereby agree as
follows:
1. Definitions. As used herein, the following terms
shall have the definitions set forth below. Where applicable,
calculations to be made pursuant to any such definition shall be
made in accordance with generally accepted accounting principles
as in effect on the date hereof, except as otherwise provided in
such definition.
"Affiliate" means, as to any Person, (i) any other
Person directly or indirectly controlling, controlled by or under
common control with such person, (ii) any other Person that owns
beneficially, directly or indirectly, five percent (5%) or more
of the outstanding capital stock, shares or equity interests of
such Person, or (iii) any officer, director, employee, general
partner or trustee of such Person or of any other Person
controlling, controlled by or under common control with such
Person (excluding trustees and persons serving in similar
capacities who are not otherwise an Affiliate of such Person).
"Average Invested Assets" for any period means the
average of the values of the Invested Assets on the last day of
each month during such period.
"Book Value" means the value of an asset or assets of
the Trust on the books of the Trust, without deduction for
depreciation or other asset valuation reserves and without
deduction for Mortgages or other security interests to which such
asset or assets are subject, except that no asset shall be valued
at more than its fair market value as determined by or under
procedures adopted by the Trustees, and the underlying assets of
a partnership, joint venture or other form of indirect ownership,
to the extent of the Trust's interest therein, shall be valued as
if owned directly by the Trust.
"Invested Assets" means the Book Value of all the Real
Estate Investments of the Trust.
"Mortgage" means a mortgage, deed of trust or other
security interest in Real Property or in rights or interests,
including leasehold interests, in Real Property.
"Mortgage Loan" means a note, debenture, bond or other
evidence of indebtedness or obligation which is negotiable or
nonnegotiable and which is secured or collateralized by a
Mortgage.
"Net Income" for any period means the net income of the
Trust (calculating the net income of the Trust from any
partnership, joint venture or other form of indirect ownership as
if the Trust directly received its proportionate share of such
entity's income, gains, expenses and losses, including non-cash
charges and imputed interest) for such period (i) excluding
realized gains and losses from the disposition of Trust assets
(after attributing to such disposition the taxes and fees paid in
connection therewith); (ii) before deducting additions to
reserves or provisions for depreciation, amortization, provision
for bad debts and other similar non-cash charges and imputed
interest; (iii) less the amount of any bad debts actually charged
to the provision therefor.
"Person" means and includes individuals, corporations,
limited partnerships, general partnerships, joint stock companies
or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other
entities and governments and agencies and political subdivisions
thereof.
"Real Estate Investment" means any direct or indirect
investment in any interest in Real Property or in any Mortgage
Loan, or in any Person whose principal purpose is to make any
such investment.
"Real Property" means and includes land, leasehold
interests (including but not limited to interests of a lessor or
lessee therein), rights and interests in land, and any buildings,
structures, improvements, furnishings, fixtures and equipment
located on or used in connection with land, leasehold interests
or rights in land or interests therein, but does not include
investments in Mortgages, Mortgage Loans or interests therein.
"Registration Statement" means the Registration
Statement on Form S-11 of the Trust covering the initial public
offering of the Shares of the Trust under the Securities Act of
1933.
"Securities" means any stocks, shares, voting trust
certificates, bonds, debentures, notes, or other evidences of
indebtedness or in general any instruments commonly known as
"securities" or any certificates of interest, shares or
participation in temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe
to, purchase or acquire any of the foregoing.
"Short-term Investments" means investments which the
Trust makes of its funds (a) on a temporary basis pending
utilization of such funds to acquire Real Estate Investments,
make distributions to Shareholders, or pay anticipated expenses
of the Trust or (b) to hold as reasonable reserves, and may
consist of any of the following: (i) U.S. government Securities
or Securities of U.S. government agencies, (ii) bankers'
acceptances, (iii) bank certificates of deposit, (iv) interest-
bearing deposits in commercial banks, (v) participation in pools
or mortgages or bonds and notes (such as Federal Home Loan
Mortgage Corporation participation sale certificates ("Freddie
Mac Pcs") Government National Mortgage Association modified pass-
through certificates ("Ginnie Mae Pass-Throughs") and Federal
National Mortgage Association bonds and notes ("Fannie Maes"));
(vi) bank repurchase agreements covering the Securities of the
United States or agencies or instrumentalities thereof; and (vii)
other similarly secured short-term investment Securities.
"Specified Investments" means the Real Estate
Investments which are specifically described in the Registration
Statement.
"Total Operating Expenses" for any period means all
operating expenses (including additional expenses paid directly
or indirectly by the Trust to the advisor, Affiliates of the
Advisor or third parties based upon their relationship with the
Trust) including loan administration, servicing, engineering,
inspection and all other expenses paid by the Trust, exclusive of
(i) interest and discounts; (ii) taxes and license fees; (iii)
expenses connected directly with the issuance, sale and
distribution, or listing on a stock exchange, of Securities of
the Trust, including, without limitation, underwriting and
brokerage discounts and commissions, private placement fees and
expenses, legal and accounting costs, printing, engraving and
mailing costs, and listing and registration fees; (iv) expenses
connected directly with the acquisition, disposition, operation
or ownership of Trust assets, including, without limitation,
costs of foreclosure; maintenance, repair and improvement of
property; maintenance and protection of the lien of mortgages;
property management fees; legal fees; premiums for insurance on
property owned by or mortgaged to the Trust; taxes; brokerage and
acquisition fees and commissions; appraisal fees; title insurance
and abstract expenses, provisions for depreciation, depletion and
amortization; disposition fees and real estate commissions; and
losses on the disposition of assets and provisions for such
losses; (v) fees and expenses payable to public accountants,
legal counsel, consultants, managers, or agents, employed for the
Trust directly by the Trustees; (vi) legal and other expenses in
connection with formal or informal administrative action or legal
proceedings which involve a challenge to the status of the Trust
as a REIT, or advice concerning obtaining or maintaining such
status, or the determination by the Trust of its taxable income,
or any claim that the activities of the Trust or any Trustee, or
Shareholder or officer or agent, of the Trust were improper;
(vii) all fees paid to the Advisor pursuant to Section 9 hereof
other than the Portfolio Management Fee described in Section 9(b)
hereof; and (viii) any other expenses related to raising capital,
for interest, taxes and direct property acquisition, operation,
maintenance and management costs; provided, however, that the
foregoing exclusions shall not include any allocation of costs of
the Advisor's overhead incurred in performing its duties
hereunder.
"Trustees" means the Trustees holding office under the
Declaration of Trust at any particular time.
"Unaffiliated Trustee" means a Trustee who, in his
individual capacity, (i) is not an Affiliate of the Advisor, (ii)
does not own any interest in the Advisor and (iii) does not
perform any other services for the Trust except as Trustee.
2. Duties of Advisor. The principal duties of the
Advisor shall be to supervise and make recommendations to the
Trust concerning the Trust's investments and to provide
administrative services with respect to the Trust and as
administrator of the Trust's day-to-day affairs, in each case
subject to the supervision of the Trustees.
Subject to the supervision of the Trustees and
consistent with the provisions of the Declaration of Trust and
Section 12 hereof, the Advisor shall:
(a) perform necessary administrative functions in the
management of the Trust;
(b) serve as the Trust's investment and financial
advisor and provide research, economic and statistical data in
connection with the Trust's investments and financial policies;
(c) investigate, select and conduct relations with
accountants, legal counsel, property managers, brokers,
investors, builders, developers, banks and other lenders, and
others as necessary in connection with the business of the Trust
and the fulfillment of the Advisors's duties hereunder.
(d) maintain bank accounts for the Trust, and arrange
for fidelity bonds with respect to fraudulent and negligent
acts, errors and omissions, in amounts specified by the
Trustees, covering all the personnel handling funds and
other assets of the Trust, with the Trust named as an
insured party;
(e) maintain appropriate records of activities on
behalf of the Trust;
(f) provide office space, office equipment and office
personnel;
(g) obtain for the Trust the services that may be
required in acquiring and disposing of investments of the
Trust, disbursing and collecting the funds of the Trust,
paying the debts and fulfilling the obligations of the
Trust, and handling, prosecuting and settling any claims of
the Trust;
(h) obtain for the Trust such services as may be
required for property management and other activities
relating to the investment portfolio of the Trust;
(i) advise in connection with negotiations by the
Trust with investment banking firms, securities brokers or
dealers and other institutions or investors in connection with
the sale of Securities of the Trust and the securing of loans for
the Trust;
(j) provide services to the Trust in connection with
the financing, refinancing, sale or other disposition of the
Trust's Real Estate Investments or any part thereof; and
(k) advise in connection with the preparation of
reports required under the Securities Exchange Act of 1934,
reports and other communications to Securities holders,
proxy solicitation materials, and any other reports required
to be filed with State or Federal governmental agencies.
In performing its various services under this Agreement, the
Advisor may from time to time call upon and utilize various
facilities, personnel and support services of other Persons
including one or more Affiliates of the Advisor.
3. No Partnership or Joint Venture. The Trust and
the Advisor are not, and shall not be deemed to be, partners or
joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or
to impose any liability as such on either of them.
4. Records. The Advisor shall keep proper books of
account and records relating to services performed hereunder,
which books of account and records shall be accessible for
inspection by the Trustees at any time during ordinary business
hours.
5. REIT Qualification, etc. The Advisor shall
refrain from any action which, in its judgement or in any
judgment of the Trustees of which the Advisor has written notice,
would adversely affect the qualification of the Trust as a REIT
or which would violate any law, rule or regulation of any
governmental body or agency having jurisdiction over the Trust or
its Securities or which would otherwise not be permitted by the
Declaration of Trust.
6. Bank Accounts. The Advisor may establish and
maintain one or more bank accounts in its own name and may
collect and deposit into and disburse from such accounts any
money on behalf of the Trust, under such terms and conditions as
the Trustees may approve, provided that no funds in any such
account shall be commingled with funds of the Advisor. The
Advisor shall from time to time render appropriate accounting of
such collections, deposits and payments to the Trustees and to
the auditors of the Trust.
7. Bond. The Advisor shall maintain a fidelity bond
with a responsible surety company, in such form and amounts as
may be required by the Trustees from time to time, covering
officers, employees and agents handling funds and any investment
documents or records pertaining to any investments of the Trust.
Such bond shall be paid for by the Trust and shall inure to the
benefit of the Trust in respect of losses of any such property
from acts of such officers, employees and agents through theft,
embezzlement or fraud. In the event that such a bond is canceled
or not renewed by the bonding company, the Advisor shall give
notice thereof to the Trustees, in which event the Trustees shall
have the right to terminate immediately this Agreement.
8. Information Furnished Advisor. The Trustees shall
at all times keep the Advisor informed concerning the investment,
financial and operating policies of the Trust. The Trustees
shall notify the Advisor promptly in writing of their intention
to make any new investments or to sell or dispose of any existing
investments. The Trust shall make available to the Advisor a
certified copy of all financial statements, a signed copy of each
report prepared by independent certified public accountants and
such other information with regard to its affairs as the Advisor
may reasonably request.
9. Compensation. The Trust shall pay to the Advisor
compensation for its services hereunder as follows:
(a) Initial Fees. The Initial Fee to be paid to the
Advisor for its services in connection with the organization
of the Trust and the acquisition of the Specified
Investments shall equal one and one tenth of one percent
(1.10%) of the gross purchase price (as stated in the
relevant contracts of sale, without regard to commissions or
expenses) of the Specified Investments. The Initial Fee
shall be due and payable at the closing with respect to each
Specified Investment.
(b) Portfolio Management Fee. The Portfolio
Management Fee shall be an annual fee paid to the Advisor in the
following manner:
Percentage of
Year Ending Average Invested
December 31, Assets
1985 (partial year) 0.25%
1986 0.55%
1987 0.75%
1988 0.90%
1989 1.00%
1990 1.10%
1991 1.20%
Each year thereafter 1.25%
The Portfolio Management Fee shall be paid in quarterly
installments in arrears within ten (10) days after the end of
each calendar quarter commencing after the closing of the initial
public offering of the Trust (based on the Average invested
Assets at that time, with adjustment to be made at the end of
each fiscal year).
(c) Incentive Disposition Fee. The Incentive
Disposition Fee shall equal five percent (5%) of the Trust's
total Economic Gain, as defined below, on the sale of the Trust's
Real Estate Investments. The Incentive Disposition Fee shall be
paid within thirty (30) days after each Real Estate Investment is
sold. In the event that this Agreement is terminated prior to
such date, the Advisor (if it acted as such at the time such sale
was agreed) shall nevertheless be entitled to the Incentive
Disposition Fee payable at such time as such Fee would have been
payable if this Agreement had not been terminated in an amount
equal to the amount of the Incentive Disposition Fee to which the
Advisor would have been entitled if this Agreement had not been
terminated. The Trust shall not delay any disposition of a Real
Estate Investment for the purpose of reducing the Incentive
Disposition Fee payable to the Advisor.
Economic Gain means the excess, if any, of the aggregate
gross proceeds (including the outstanding principal balance of
any indebtedness taken subject to or assumed by the buyer, the
principal amount of any purchase money indebtedness taken back by
the Trust (determined in accordance with generally accepted
accounting principles) and the fair market value of any other
non-cash proceeds) from the sale of Real Estate Investments over
the sum of (i) the aggregate acquisition price of the Trust's
Real Estate Investments (including the amount of any acquisition
fees and expenses incurred by the Trust in connection therewith)
(ii) the amount expended by the Trust on capital expenditures
(excluding tenant improvements and leasing commissions); (iii)
expenses of the Trust incurred in connection with the sale of its
Real Estate Investments (including as mentioned in (d) below);
and (iv) the unamortized amount expended by the Trust on tenant
improvements and leasing commissions.
(d) Selling Commission. A Selling Commission equal to
2% of such aggregate gross proceeds of sale shall be paid to
the Advisor on any sale of a Real Estate Investment in which
the Advisor (directly or through any Affiliate) acts as
broker.
10. Compensation for Additional Services. If the
Trust shall request the Advisor (or any Affiliate or any officer
or employee therof) to render services for the Trust other than
those required to be rendered by the Advisor hereunder, such
additional services, if performed, will be compensated separately
on terms to be agreed upon between such Person and the Trustees,
including a majority of the Unaffiliated Trustees, from time to
time. To the extent the Advisor or any Affiliate of the Advisor
performs any leasing, loan servicing, loan administration,
accounting, property management, legal, shareholder relations,
registrar, transfer agent, or other similar services, the
compensation for such services shall not exceed either (a) the
compensation, if any, paid to such Person by any other Person who
is not an Affiliate of such Person for any comparable services in
the same geographic area or (b) the rate generally charged for
similar services generally available in the relevant geographic
area by qualified Persons who are not Affiliates of the Advisor.
11. Statements. The Advisor shall promptly furnish to
the Trust quarterly and annual statements showing the computation
of the compensation payable to it under Section 9(b)hereof with
respect to the quarter or year then ended. All calculations of
the fees paid hereunder shall be reported upon by the Trust's
independent public accountants.
12. Expenses of Advisor. Without regard to the amount
of compensation received hereunder by the Advisor, the Advisor
shall bear the following expenses:
(a) salaries and other employment expenses of the
personnel employed by the Advisor to assist it in
performing its obligations hereunder and of Trustees,
officers and employees of the Trust who are directors,
officers of employees of the Advisor or of any Affiliate
of the Advisor, including without limitation fees, salaries,
wages, payroll taxes and the cost of employee benefit plans
and temporary help expenses, but excluding any salaries and
other expenses as to which separate compensation is per-
mitted pursuant to Section 10 hereof and excluding the
compensation to the Trustees described in the Registration
Statement under the caption "Management - Trustees and
Officers."
(b) rent, telephone, utilities, office furniture and
equipment and other office expenses of the Advisor and the
Trust, except as any of such expenses relate to an office
maintained by the Trust separate from the office of the
Advisor;
(c) travel and related out-of-pocket expenses
incurred by officers and employees of the Advisor and of
Trustees, officers and employees of the Trust who are
directors, officers or employees of the Advisor or of any
Affiliate of the Advisor, except that the Trust will bear
all travel and other out-of-pocket expenses of officers,
employees and Trustees of the Trust to the extent incurred
in furtherance of the business of the Trust; and
(d) all overhead expenses incurred by the Advisor.
13. Expenses of the Trust. Except as expressly
otherwise provided in this Agreement, the Trust shall pay all
expenses relating to services of the Advisor in the performance
of its duties hereunder, including without limitation all legal
and accounting expenses, not assumed by the Advisor.
14. Refund by the Advisor. The Advisor will refund to
the Trust, within sixty (60) days after the end of any fiscal
year of the Trust, the amount, if any, by which the Total
Operating Expenses of the Trust for any such twelve-month period
exceed the greater of (a) 2% of the Average Invested Assets for
such twelve-month period (calculated before the deduction
therefrom of such Total Operating Expenses); provided, however,
that only so much of such excess need be refunded as is
determined by the Trustees, including a majority of the
Unaffiliated Trustees, acting pursuant to Section 4.5 of the
Declaration of Trust, to be not justified.
The Advisor will furnish to the Trustees such
information as may be required to comply with the second and
third paragraphs of Section 4.5 of the Declaration of Trust.
15. Other Activities of the Advisor. Nothing herein
contained shall prevent the Advisor from engaging in other
activities, including without limitation the management of other
investments and the rendering of advice to other investors
(including in respect of other real estate programs), even if any
such investors are in competition with the Trust or any of the
Trust's Real Estate Investments; nor shall this Agreement limit
or restrict the right of any partner, director, officer, employee
or shareholder of the Advisor or any Affiliate of the Advisor to
engage in any other business (including business activities
competitive with those of the Trust) or to render services of any
kind to any other Person.
16. Trustee Action. Wherever action on the part of
the Trust or the Trustees is comtemplated in this Agreement,
unless otherwise provided herein, action by a majority of the
Trustees, including a majority of the Unaffiliated Trustees,
shall constitute the action provided for herein.
17. Term; Termination of Agreement. This Agreement
shall continue in force until December 31, 1986, and thereafter
may be extended from year to year by the affirmative vote or
written consent of a majority of the Unaffiliated Trustees.
Notice of renewal shall be given in writing by the Trust to the
Advisor not less than thirty (30) days before the expiration of
this Agreement or of any extension thereof. Notwithstanding any
other provision to the contrary, this Agreement may be terminated
without cause upon written notice given sixty (60) days in
advance by a majority of the Unaffiliated Trustees to the Advisor
and, after December 31, 1987, upon written notice given sixty
(60) days in advance by the Advisor to the Trust.
18. Amendments. This Agreement shall not be modified
or terminated except by an instrument in writing signed by both
parties hereto or otherwise as provided herein. Any amendment to
this Agreement shall require the written consent of a majority of
the Unaffiliated Trustees.
19. Assignment. The Trustees may terminate this
Agreement immediately in the event of its assignment by the
Advisor without the consent of the Trustees. Any permitted
assignement of this Agreement shall bind the assignee hereunder
in the same manner as the assignor is bound hereunder.
20. Default, Bankruptcy, etc. At the option of the
Trustees, this Agreement shall be terminated immediately upon
written notice of termination by a majority of the Unaffiliated
Trustees to the Advisor if any of the following events shall
occur:
(a) if the Advisor shall violate any provisions of
this Agreement, and after written notice of such violation
shall not cure such default within thirty (30) days; or
(b) if the Advisor shall be adjudged bankrupt or
insolvent by a court of competent jurisdiction, or any
order shall be made by a court of competent jurisdiction
for the appointment of a receiver, liquidator or trustee of
the Advisor or of all or substantially all its property by
reason of the foregoing or approving any petition filed
against the Advisor for its reorganization, and such
adjudication or order shall remain in force or unstayed for
a period of thirty (30) days; or
(c) if the Advisor shall institute proceedings for
voluntary bankruptcy or shall file a petition seeking
reorganization under the Federal bankruptcy laws, or for
relief under any law for the relief of debtors, or shall
consent to the appointment of a receiver, or shall make a
general assignment for the benefit of its creditors, or
shall admit in writing its inability to pay its debts
generally as they become due.
The Advisor agrees that if any of the events specified
in subsection (b) or (c) of this Section 20 shall occur, it will
give written notice thereof to the Trust promptly (but in any
event no later than seven days) after the occurrence of such
event.
21. Action Upon Termination. Except as provided in
Section 9 hereof, the Advisor shall not be entitled to
compensation after the date of termination of this Agreement for
further services hereunder but shall be reimbursed for all
expenses and shall be paid all compensation accruing to the date
of termination. The Advisor shall forthwith upon such
termination:
(a) pay over to the Trust all moneys collected and
held for the account of the Trust pursuant to this
Agreement, after deducting any accrued compensation and
reimbursement for its expenses to which it is then entitled;
(b) deliver to the Trust a full accounting, including
a statement showing all payments collected by it and a
statement of all moneys held by it, covering the period
following the date of the last accounting furnished to the
Trust;
(c) deliver to the Trust all property and documents
of the Trust then in the custody of the Advisor; and
(d) cooperate with the Trust and take all reasonable
steps requested to assist the Trustees in making an orderly
transition of the advisory function.
22. Change of Name. Upon termination of this
Agreement by either party, the Trustees shall, upon the request
of the Advisor, cause the name of the Trust to be changed to a
name that does not, in the reasonable opinion of the Advisor,
include any reference to the Advisor or any of its Affiliates.
23. Governing Law. The provisions of this Agreement
shall be construed and interpreted in accordance with the laws of
the State of New Jersey as at the time in effect.
24. Miscellaneous. The Advisor assumes no
responsibility under this Agreement other than to render the
services called for hereunder in good faith, and shall not be
responsible for any action of the Trust in following or declining
to follow any advice or recommendations of the Advisor. None of
the Advisor, its partners, officers or employees shall be liable
to the Trust, the Trustees or the holders of Securities of the
Trust except by reason of acts constituting bad faith, wilful
misfeasance, gross negligence or reckless disregard of their
duties.
25. Notices. Any communications given hereunder shall
be in writing delivered at the address of the respective party at
which that party most recently has established its principal
office, or at such other address as a party shall have specified
to the other party as the address for notices hereunder.
26. Trustees' and Shareholders' Liability. The
Advisor acknowledges its understanding of and agreement to the
following. The Declaration of Trust establishing Prudential
Realty Trust, dated June 19, 1985, a copy of which, together with
all amendments thereto (the "Declaration"), is duly filed in the
office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the Name "Prudential Realty Trust"
refers to the Trustees under the Declaration collectively as
Trustees, but not individually or personally; and that no
Trustee, officer, shareholder, employee or agent of the Trust
shall be held to any personal liability, jointly or severally,
for any obligation of, or claim against, the Trust. All persons
dealing with the Trust, in any way, shall look only to the assets
of the Trust for the payment of any sum or the performance of any
obligation.
IN WITNESS WHEREOF, each of the Trust and the Advisor
have caused this Agreement to be executed and delivered on its
behalf as of the day first above written.
PRUDENTIAL REALTY TRUST
By: /s/Joseph M. Selzer
Joseph M. Selzer
THE PRUDENTIAL REALTY ADVISORS, INC.
By: /s/Joseph M. Selzer
Joseph M. Selzer