SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
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 organization) (IRS Employer Identification No.)
The Bellevue 19102
200 S. Broad St. (Zip Code)
Philadelphia, Pennsylvania
(address of principal executive office)
Registrant's telephone number, including area code: (215) 875-0700
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
(1) Shares of Beneficial Interest, par value $1.00 per share New York Stock Exchange
(2) Rights to Purchase Shares of Beneficial Interest New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
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 20, 2001, of the voting shares held by
non-affiliates of the Registrant was $262,498,281. (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 20, 2001, 13,690,100 Shares of Beneficial Interest, par value $1.00 per
share (the "Shares"), of Pennsylvania Real Estate Investment Trust were
outstanding.
Documents Incorporated by Reference
The Registrant's definitive proxy statement for its May 10, 2001 Annual Meeting
is incorporated by reference in Part III hereof.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
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ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
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TABLE OF CONTENTS
PART I
Page
----
Item 1. Business............................................................................................2
Item 2. Properties.........................................................................................25
Item 3. Legal Proceedings..................................................................................26
Item 4. Submission of Matters to a Vote of
Security Holders................................................................................26
PART II
Item 5. Market for Our Common Equity and Related Shareholder Matters.......................................27
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..........................................39
Item 8. Financial Statements and Supplementary Data........................................................39
Item 9. Disagreements on Accounting and Financial Disclosure...............................................39
PART III
Item 10. Trustees and Executive Officers of the Trust.......................................................39
Item 11. Executive Compensation.............................................................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management.....................................40
Item 13. Certain Relationships and Related Transactions.....................................................40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................40
Item 1. Business
Pennsylvania Real Estate Investment Trust, a Pennsylvania business
trust ("PREIT"), conducts substantially all of its operations through PREIT
Associates, L.P., a Delaware limited partnership. As used in this report, unless
the context requires otherwise, the terms "Company," "we," "us," and "our"
includes PREIT, PREIT Associates and their subsidiaries and affiliates,
including PREIT RUBIN, Inc. (formerly The Rubin Organization, Inc.) and PREIT
Services, LLC, which together comprise our commercial property development and
management business. As of December 31, 2000, PREIT Associates owned 95% of the
economic interests in PREIT-RUBIN in the form of non-voting common shares.
Effective January 1, 2001, PREIT Associates acquired the 5% minority interest in
PREIT-RUBIN. PREIT-RUBIN is now 100% owned by PREIT Associates.
The Company
PREIT, which is organized as a business trust under Pennsylvania law,
is a fully integrated, self-administered and self-managed real estate investment
trust, founded in 1960, which acquires, develops, redevelops and operates retail
and multifamily properties.
As of December 31, 2000, we owned interests in 23 shopping centers
containing an aggregate of approximately 10.8 million square feet, 19
multifamily properties containing 7,242 units and 4 industrial properties with
an aggregate of approximately 300,000 square feet. We also own interests in 6
shopping centers currently under development, which we expect to contain an
aggregate of approximately 1.6 million square feet upon completion. We cannot
assure you that all 6 development properties will be completed successfully.
We also provide management, leasing and development services to 16
retail properties containing approximately 7.4 million square feet, 7 office
buildings containing approximately 1.9 million square feet and 2 multifamily
properties with approximately 100,000 square feet for affiliated and third-party
owners.
Recent Developments
In January 2001, we modified our organizational structure in response
to changes in federal tax laws applicable to real estate investment trusts. A
new property development and management company, PREIT Services, LLC, was
created to develop and manage properties wholly owned by the Company.
PREIT-RUBIN continues to develop and manage third party owned properties and
joint ventures in which the Company is a party. PREIT-RUBIN is now wholly owned
by PREIT Associates, making it a taxable REIT subsidiary, as defined by federal
tax laws, which means it is capable of offering an expanded menu of services to
tenants without jeopardizing the Company's continued qualification as a real
estate investment trust.
In January 2001, we sold an undeveloped land parcel at the Metroplex
Shopping Center site, in which we own a 50% interest. We expect to record a
nominal gain on the sale of the land.
-2-
In January 2001, we refinanced a mortgage secured by our Eagles Nest
multifamily property located in Coral Springs, Florida. The mortgage amount was
$15 million, has a 10 year term and bears interest at the rate of 7.52% per
annum.
In March 2001, we sold our interest in the Ingleside Center located in
Thorndale, PA for $5.1 million, of which $1.0 million was used to pay off the
existing mortgage on the property. The gain on the sale of the property was
approximately $1.8 million. Our proportionate share of the gain was
approximately $1.4 million.
Our Structure
PREIT Associates holds substantially all of our assets. As the sole
general partner of PREIT Associates, we have the exclusive power to manage and
conduct PREIT Associates' business, subject to limited exceptions. As of
December 31, 2000, we owned approximately 89.5% of PREIT Associates. We
anticipate that all of our acquisitions of interests in real estate will be
owned, directly or indirectly, by PREIT Associates. Below is a diagram of our
ownership structure, including PREIT Associates and PREIT-RUBIN, as of December
31, 2000. The diagram does not reflect the January 1, 2001 acquisition by PREIT
Associates of the minority interest in PREIT-RUBIN.
-3-
+--------------------------+
| Pennsylvania Real Estate |
| Investment Trust(1) |
+--------------------------+
|89.5%
|
|
| +------------+
| | Minority |
| | Limited |
| | Partners(2)|
| +------+-----+
+----------------+ | |10.5%
| Employee Stock | | |
| Bonus Plan | | |
+----------------+ | |
| 5% (voting) | |
| +-----------+------------+-+
| +---------------| PREIT Associates, L.P. |
| | +-----------+--------------+
| | |
| | 95% (non-voting) |
| | |
+-----------------+ |
| PREIT-RUBIN, | |
| Inc. | |
+-----------------+ |
|
|
|
+-------------------------+
| 52 Properties(3) |
+-------------------------+
- ----------------------
(1) Sole general partner of PREIT Associates. Of our 89.5% interest in PREIT
Associates, we hold 99.3% of our units of limited partnership interest
("Units") as a Class A Limited Partner and 0.7% of our Units as the sole
general partner.
(2) Includes an aggregate of 991,257 Units, 6.6% of the weighted average of all
Units outstanding in 2000, owned by the persons who were shareholders and
affiliates of The Rubin Organization before our acquisition of The Rubin
Organization. Under the terms of our acquisition of The Rubin Organization,
these individuals have the right to receive up to 470,000 additional Units
in respect of their former ownership interest in The Rubin Organization,
depending on our adjusted funds from operations over the two year, nine
month period commencing on January 1, 2000, and also to receive additional
Units in respect of their interest in other properties we acquired rights to
as part of the acquisition. Although not yet issued, the former shareholders
and affiliates of The Rubin Organization are entitled to 167,500 units for
the 12 month period from January 1, 2000 through December 31, 2000.
(3) Interests in some of these properties are owned directly by PREIT under
arrangements in which the entire economic benefit of ownership has been
pledged to PREIT Associates, rather than being owned directly by PREIT
Associates. PREIT Associates' interest in these properties ranges from 0.01%
to 100%.
-4-
The following is a diagram of our structure as of January 1, 2001,
which reflects the acquisition by PREIT Associates of the minority interest in
PREIT-RUBIN:
+--------------------------+
| Pennsylvania Real Estate |
| Investment Trust |
+--------------------------+
|89.5%
|
|
| +------------+
| | Minority |
| +----------| Limited |
| | 10.5% | Partners |
| | +------------+
| |
| |
| |
| |
| |
+-----------+------------+-+
+-------| PREIT Associates, L.P. |-------+
| +-----------+--------------+ |
| | |
| | |
+------------+ +-------------+ +------------+
| PREIT | | | | PREIT |
|Services LLC| |52 Properties| | RUBIN, Inc |
+------------+ +-------------+ +------------+
-5-
Retail Properties
As of December 31, 2000, we had interests in 23 retail properties
containing an aggregate of approximately 10.8 million square feet. PREIT
Services currently operates 12 of these properties, all of which are wholly
owned by the Company. PREIT-RUBIN manages 3 of the properties, each of which is
owned by a joint venture in which the Company is a party. The remaining 8
properties are also owned by joint ventures in which the Company is a party and
are managed by our joint venture partners, or by an entity we or our joint
venture partners designate, and in many instances a change in the management of
the property requires the concurrence of both partners. Fifteen of the 23 retail
properties (containing an aggregate of approximately 7.9 million square feet)
are located in Pennsylvania, two (containing an aggregate of approximately
300,000 square feet) are located in Florida, two (containing an aggregate of
approximately 800,000 square feet) are located in South Carolina, and one is
located in each of Delaware, Maryland, Massachusetts and New Jersey (containing
an aggregate of approximately 1.8 million square feet).
The following table presents information regarding our retail
properties, as of December 31, 2000:
-6-
Total
Year Built Total Owned Leased
Percent or Square Square GLA(3)
Real Property Location Owned* Renovated(1) Feet(2) Feet Square Ft.
- ------------- -------- ------ ------------ ------- ---- ---------
Lehigh Valley Mall Allentown, PA 50% 1977/1996 1,051,260 679,274 665,689
The Court at Langhorne, PA 50% 1996 704,486 456,862 456,862
Oxford Valley
Dartmouth Mall North 100% 1971/1987 623,622 623,622 581,057
Dartmouth, MA
Festival at Exton Exton, PA 100% 1991 144,949 144,949 138,851
Whitehall Mall Allentown, PA 50% 1964/82/98/99 533,444 533,444 521,717
Magnolia Mall Florence, SC 100% 1979/1992 579,039 579,039 566,396
Laurel Mall Hazleton, PA 40% 1973/1995 558,801 558,801 528,355
Palmer Park Mall Easton, PA 50% 1972/1998 459,835 459,835 431,325
Mandarin Corners Jacksonville, FL 100% 1986 238,861 215,013 150,482
Springfield Park I Springfield, PA 50% 1963/1997 268,500 122,831 81,437
& II(5)
Rio Mall Rio Grande, NJ 60% 1973/1992 165,583 165,583 159,145
Crest Plaza Allentown, PA 100% 1959/1991 154,370 154,370 83,356
South Blanding Jacksonville, 100% 1986 106,857 106,857 104,157
Village FL
Ingleside Center(6) Thorndale, PA 70% 1981/1995 101,271 101,271 101,271
Northeast Tower Philadelphia, 89% 1997/1998 472,296 433,618 424,946
Center (7)(8) PA
Prince Georges Hyattsville, MD 100% 1959/1990 744,993 744,993 618,848
Plaza
Red Rose Commons Lancaster, PA 50% 1998 463,042 263,452 261,344
Florence Commons Florence, SC 100% 1991 197,258 197,258 101,718
Christiana Power Newark, DE 100% 1998 302,409 302,409 302,409
Center Phase I
Paxton Towne Harrisburg, PA 100% 2000 569,004 444,579 364,999
Centre(8)
Creekview Shopping Warrington, PA 100% 2000 378,796 89,880 88,981
Center(8)
Metroplex Shopping Plymouth 50% 2000 778,261 477,584 477,584
Center(8) Meeting, PA
Willow Grove Willow Grove, 0.01% 1982 1,204,123 562,262 534,711
Park(9) PA ---------- --------- ---------
Total/Weighted Average 10,801,060 8,417,786 7,745,640
(23 Properties) ========== ========= =========
Percent
Real Property Leased(4) Anchors/Primary Tenants
- ------------- --------- -----------------------
Lehigh Valley Mall 98% JC Penney, Strawbridges,
Macy's
The Court at 100% Dicks Sporting Goods, Best
Oxford Valley Buy, Pharmor, HomePlace, The
Home Depot, BJ Wholesale Club
Dartmouth Mall 93% JC Penney, Sears, Ames,
General Cinema
Festival at Exton 96% Sears Hardware, Clemen's
Whitehall Mall 98% Sears, Kohl's, Bed, Bath &
Beyond
Magnolia Mall 98% JC Penney, Sears, Belk,
Rose's
Laurel Mall 95% Boscov's, Kmart, JC Penney
Palmer Park Mall 94% The Bon-Ton, Boscov's
Mandarin Corners 70% Walmart
Springfield Park I 66% Target, Bed Bath & Beyond
& II(5)
Rio Mall 96% Kmart, Staples
Crest Plaza 54% Weis Market, Eckerd Drug
Store
South Blanding 98% Food Lion, Staples
Village
Ingleside Center(6) 100% Kmart
Northeast Tower 98% Home Depot, Dick's Sporting
Center (7)(8) Goods
Prince George's 83% JC Penney, Hecht's
Plaza
Red Rose Commons 99% Weis Market, Home Depot
Florence Commons 52% Tags Store, Goody's Family
Clothings
Christiana Power 100% Costco, Dick's Sporting Goods
Center Phase I
Paxton Towne 82% Target, Kohl's, Bed, Bath &
Centre(8) Beyond
Creekview Shopping 99% Target, Lowe's
Center(8)
Metroplex Shopping 100% Target, Lowe's, Giant
Center(8)
Willow Grove 95% Sears, Bloomingdales,
Park(9) ----- Strawbridge's, Macy's
Total/Weighted Average 92%
(23 Properties) =====
- -----------------------
* By PREIT Associates; we own approximately 89.5% of PREIT Associates.
(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 by the tenant; Owned Square Feet and
Percent Leased excludes such space.
(3) GLA stands for Gross Leasable Area.
(4) Percent Leased is calculated as a percent of Owned Square Feet for which
leases were in effect as of December 31, 2000.
(5) With respect to Phase I, we have an undivided one-half interest in one of
three floors in a freestanding department store.
(6) Property sold in March 2001.
(7) We expect to acquire the remaining 11% ownership interest by the end of the
first quarter of 2002. Includes a parcel under development of 114,270 square
feet that is leased to Bradlees. Bradlees filed for bankruptcy under Chapter
11 in the fourth quarter of 2000.
(8) Property is income producing as of 12/31/00, with a portion still under
development.
(9) The percentage of our ownership interest in Willow Grove Park is nominal
until the satisfaction of certain conditions, including the completion of
the Mall's expansion.
-7-
The following table presents information regarding the primary tenant
in each of our retail properties:
Primary Tenant and Square Footage
as of December 31, 2000
Number of GLA of Annualized
Primary Tenant Stores Stores Leased Base Rent
- -------------- ------ ------------- ---------
The Limited Stores, Inc. (1) 28 185,314 $4,103,528
The Gap, Inc./Old Navy (1) 13 171,151 3,003,109
Dick's Sporting Goods 4 199,576 2,936,130
Bed Bath & Beyond 4 156,909 2,135,399
Sears/HomeLife 8 695,252 2,006,164
Barnes & Noble/B. Dalton 6 96,017 1,807,443
Best Buy 2 105,330 1,692,350
PetSmart 4 104,797 1,657,780
K-Mart 3 334,858 1,651,008
Venator Group 18 53,836 1,503,865
Boscov's 2 375,110 1,436,000
Costco 1 140,814 1,300,588
Home Depot 1 136,633 1,250,000
Toys R Us 3 101,995 1,188,082
J.C. Penney/Eckerd Drug (1) 6 422,766 1,152,000
Circuit City 2 64,733 1,076,380
Weis Markets 3 158,075 1,019,908
Trans World Entertainment Corp. 8 32,450 826,072
Office Max 2 60,926 819,878
Homeplace 1 54,096 757,344
--- --------- -----------
Total 119 3,650,638 $33,323,028
=== ========= ===========
- ---------------------
(1) Includes lease(s) in which the tenant pays rent based on a percentage of
sales in lieu of minimum rent. No annualized base rent has been estimated
for these leases.
-8-
The following table presents, as of December 31, 2000, scheduled lease
expirations with respect to our retail properties for the next 10 years,
assuming that none of the tenants exercise renewal options or termination
rights:
Percentage of
Total
Annualized Approximate Average Base Leased GLA (1)
Number of Base Rent Square Feet Rent Per Square Represented By
Year Ending Leases of Expiring of Expiring Foot of Expiring
December 31 Expiring Leases Leases Expiring Leases Leases
- ----------- -------- ------ ------ --------------- ------
2001 83 4,952,821 647,303 7.65 8.36%
2002 84 4,246,838 238,407 17.81 3.08%
2003 78 5,185,473 250,951 20.66 3.24%
2004 77 6,145,670 441,124 13.93 5.69%
2005 84 7,831,278 443,975 17.64 5.73%
2006 66 7,424,822 652,051 11.39 8.42%
2007 55 5,867,156 622,790 9.42 8.04%
2008 52 5,817,681 651,754 8.93 8.41%
2009 51 5,416,183 280,408 19.32 3.62%
2010 61 6,730,869 321,880 20.91 4.16%
--- ----------- --------- ------ ------
Total/Weighted Average 691 $59,618,791 4,550,643 $13.10 58.75%
=== =========== ========= ====== ======
- ---------------------
(1) Percentage of total leased GLA is calculated by dividing the approximate GLA
of expiring leases by the total leased GLA, which is 7,745,640.
-9-
Development Properties
We have rights in 6 development properties - Delran Shopping Center,
Delran, NJ; Christiana Power Center Phase II, Newark, DE; New Garden, New Garden
Township, PA; Pavilion at Market East, Philadelphia, PA; South Brunswick, South
Brunswick, NJ and Cox Cro Road, Toms River, NJ.
The following table presents information, as of December 31, 2000,
regarding the development properties:
Planned Planned
Ownership Approximate Owned Expected
Development Property Location Interest* Square Feet Square Feet Status Completion
- -------------------- -------- --------- -------------- ----------- ------ ----------
Christiana Power Center II Newark, DE 100% 346,238 346,238 Predevelopment 1Q03
Delran Shopping Center Delran, NJ 100% 221,894 88,894 Predevelopment 2Q02
New Garden New Garden 100% 330,650 195,750 Predevelopment 2Q02
Township, PA
South Brunswick South Brunswick, NJ 100% 199,857 63,485 Predevelopment 3Q02
Cox Cro Road Tom's River, NJ 100% 237,900 102,900 Predevelopment 1Q03
Pavilion at Market East Philadelphia, PA 50% 297,314 148,657 Predevelopment Uncertain
--------- -------
TOTAL: 1,633,853 945,924
========= =======
- -----------------
* By PREIT Associates; we currently own approximately 89.5% of PREIT Associates.
We acquired our rights to Christiana Power Center Phase II when we
acquired The Rubin Organization, and we hold our rights subject to a
contribution agreement executed in connection with that acquisition. The
contribution agreement provides for PREIT Associates to issue Units to former
affiliates of The Rubin Organization as consideration for our rights in this
property according to a formula. As Christiana Power Center Phase II is
completed and leased up, it will be valued based on the following principles:
o all space leased and occupied by credit-worthy tenants will be valued
at ten times adjusted cash flow, computed as specified in the
contribution agreement;
o 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 shown in the property's budget; and
o 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. No consideration will be paid until the earlier of:
o the completion of the property;
-10-
o our abandonment of the project; or
o September 30, 2002.
If the project is not completed by September 30, 2002, we will value
the project and PREIT Associates will issue Units equal in value to 50% of the
amount, if any, by which the value of PREIT Associates' interest in the project
exceeds the aggregate cost of the project at the time of completion. Negative
amounts arising in connection with the completion or abandonment of the project
will be netted back against earlier completed projects in order of completion.
Units issued in respect of the foregoing valuations of the project will be
valued at the greater of (1) the average of the closing prices of the Shares for
the twenty trading days before the date of the completion valuation and (2)
$19.00. If the average of the closing prices of the shares on the 20 trading
days before each valuation is less than $19.00, PREIT Associates will issue
additional Units, of a new class but equal in value to those Units not issued
because of the operation of the pricing limitation.
-11-
Multifamily Properties
We have interests in 19 multifamily properties with an aggregate of
7,242 units. We manage 14 of these multifamily properties, and the remaining 5
multifamily properties are managed by one or more of our partners. If our
partners currently managing these 5 multifamily properties become unable or
unwilling to perform their obligations or responsibilities, we are capable of
managing these properties with our own staff.
The following table presents information, as of December 31, 2000,
regarding the 19 multifamily properties in which we have an interest:
Approx. Calendar
Year Number Rentable 2000
Multifamily Percent Built/ Of Area Percent Average Rent
Property Location Owned* Renov(1) Units(2) (Sq. Ft.) Occupied per Unit
-------- -------- ------ -------- -------- --------- -------- --------
Emerald Point Virginia Beach, 100% 1965/1993 862 846,000 94% $582
VA
Boca Palms Boca Raton, FL 100% 1970/1994 522 673,000 94% 953
Lakewood Hills Harrisburg, PA 100% 1972/1988 562 630,000 96% 672
Regency Lakeside Omaha, NE 50% 1970/1990 433 492,000 97% 981
Kenwood Gardens Toledo, OH 100% 1951/1989 504 404,000 93% 468
Fox Run Bear, DE 100% 1988 414 359,000 97% 721
Eagle's Nest Coral Springs, FL 100% 1989 264 343,000 96% 955
Palms of Pembroke Pembroke Pines, 100% 1989/1995 348 340,000 99% 934
FL
Hidden Lakes Dayton, OH 100% 1987/1994 360 306,000 96% 621
Cobblestone Pompano Beach, FL 100% 1986/1994 384 297,000 98% 761
Countrywood Tampa, FL 50% 1977/1997 536 295,000 97% 531
Shenandoah Village West Palm Beach, 100% 1985/1993 220 286,000 97% 961
FL
Marylander Baltimore, MD 100% 1951/1989 507 279,000 96% 552
Camp Hill Plaza Camp Hill, PA 100% 1967/1994 300 277,000 96% 699
Fox Run, Warminster Warminster, PA 50% 1969/1992 196 232,000 99% 722
Cambridge Hall West Chester, PA 50% 1967/1993 233 186,000 95% 695
Will-O-Hill Reading, PA 50% 1970/1986 190 152,000 98% 579
2031 Locust Street Philadelphia, PA 100% 1929/1986 87 89,000 100% 1,358
The Woods Ambler, PA 100% 1974 320 235,000 99% 838
----- --------- --- ----
Total/Weighted Average 7,242 6,721,000 96% $720
(19 properties) ===== ========= === ====
- -----------------------
* By PREIT Associates; we currently own approximately 89.5% of PREIT
Associates.
(1) Year initially completed and most recently renovated, and where applicable,
year(s) in which additional phases were completed at the property.
(2) Includes all apartment and commercial units occupied or available for
occupancy at December 31, 2000.
-12-
Other Properties
We own four industrial properties that we acquired shortly after our
organization. We have not acquired any property of this type in over 27 years.
We do not consider these properties to be strategically held assets. These
properties, in the aggregate, contributed less than 4% (excluding lease
termination income of $4 million, this would be less than 1%) of our net rental
income in our fiscal year ended December 31, 2000. We have been implementing a
program providing for the orderly disposition of these assets. As part of this
program, in 2000, we sold a warehouse and distribution center in Alexandria,
Virginia.
The following table shows information, as of December 31, 2000,
regarding the remaining four industrial properties:
Year Percent Square Percentage
Property and Location Acquired Owned* Feet Leased
- --------------------- -------- ----- ---- ------
Warehouse 1962 100% 12,034 100%
Pennsauken, NJ
Warehouse 1962 100% 16,307 100%
Allentown, PA
Warehouse 1963 100% 29,450 100%
Pennsauken, NJ
Warehouse and Plant 1963 100% 197,000 100%
Lowell, MA -------
Total 254,791
=======
- ---------
* By PREIT Associates; we currently own approximately 89.5% of PREIT Associates.
Right of First Refusal Properties.
We obtained rights of first refusal with respect to the interests of
some of the former affiliates of The Rubin Organization, after our acquisition
of The Rubin Organization, in the three retail properties listed below:
-13-
Percentage Interest
Gross Leasable Subject to the Right
Property/Location Sq. Ft. of First Refusal
- ----------------- ------- ----------------
Cumberland Mall, 810,000 50%
Vineland, NJ
Fairfield Mall, 385,000 50%
Chicopee, MA
Christiana Mall, 1,100,000 (1)
Newark, DE ---------
Total 2,295,000
=========
- -------------
(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, we completed a series of related transactions in
which:
o we transferred substantially all of our real estate interests to
PREIT Associates;
o PREIT Associates acquired all of the nonvoting common shares of The
Rubin Organization, Inc., a commercial real estate development and
management firm (renamed PREIT-RUBIN, Inc.), constituting 95% of the
total equity of PREIT-RUBIN in exchange for the issuance of 200,000
Class A units of limited partnership interest in PREIT Associates
("Units") and a contingent obligation to issue up to 800,000
additional Units over the next five years, discussed below; and
o PREIT Associates acquired the interests of some of the former
affiliates of The Rubin Organization in The Court at Oxford Valley,
Magnolia Mall, North Dartmouth Mall, Springfield Park, Hillview
Shopping Center and Northeast Tower Center at prices based upon a
pre-determined formula; and subject to related obligations, in
Christiana Power Center (Phase I and II), Red Rose Commons and
Metroplex Shopping Center. Subsequent to September 30, 1997, by
mutual agreement with the former affiliates of The Rubin
Organization, PREIT Associates did not acquire Hillview Shopping
Center.
The 800,000 additional Units discussed above were to be issued over the
five-year period beginning October 1, 1997 and ending September 30, 2002
according to a formula based on our adjusted funds from operations per share
during the five year period. The contribution agreement established "hurdles"
and "targets" during specified "earn-out periods" to determine whether, and to
what extent, the contingent Units will be issued. For the period beginning
October 1, 1997 through December 31, 2000, 497,500 contingent OP units had been
earned, resulting in an additional purchase price of approximately $8.9 million.
Under the contribution agreement, the hurdles and targets were adjusted on
December 29, 1998 (after the issuance of 32,500 OP units for the period ended
December 31, 1997) to account for the dilutive effect of our December 1997
public offering, as follows:
-14-
Per Share Adjusted
FFO Base No. Max. No.
------------------ Contingent Contingent
Earn-Out Period Hurdle Target TRO OP TRO OP
- --------------- ------ ------ ---------- ----------
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
======= =======
In general:
o if the hurdle for any earn-out period is not met, no contingent Units
will be issued in respect of that period;
o if the target for any earn-out period is met, the maximum number of
contingent Units for that period will be issued; and
o if adjusted funds from operations for any earn-out period is between
the hurdle and the target for the period, PREIT Associates would
issue the base contingent Units for that period, plus a pro rata
portion of the number of contingent Units by which the maximum
contingent Units exceeded the base contingent Units for that period
equal to the amount by which the per Share adjusted funds from
operations 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 Units, but never more than the maximum aggregate amount,
and to carry forward into the next, but only the next, earn-out period amounts
of per Share adjusted funds from operations 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 Units in any
other period until first applied to eliminate all shortfalls from targets in all
prior periods.
The contribution agreement provides that if we declared a share split,
share dividend or other similar change in our capitalization, the "hurdle" and
"target" levels will be proportionately adjusted. The 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:
-15-
o our incurrence of non-project specific indebtedness or our raising of
equity capital;
o our breach of any of our representations or warranties in the
contribution agreement which may adversely affect adjusted funds from
operations; and
o the effect on adjusted funds from operations of any adverse judgment
in litigation pending against us.
For the one year and nine months commencing January 1, 2001, we may be
required to issue the remaining 302,500 Units, depending on our per share
"adjusted funds from operations" during this period. "Adjusted funds from
operations" is defined as our consolidated net income for any period, plus, to
the extent deducted in computing such net income:
o depreciation attributable to real property;
o certain amortization expenses;
o the expenses of the acquisition of The Rubin Organization;
o losses on the sale of real estate;
o material write-downs on real estate;
o material prepayment fees; and
o rents currently due in excess of rents reported, minus:
o rental revenue reported in excess of amounts currently due;
o lease termination fees; and
o gains on the sale of real estate.
Risk Factors
Real Estate Industry
We face risks associated with local real estate conditions in areas
where we own properties
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
o weather conditions that may increase or decrease energy costs
-16-
We may be unable to compete with our larger competitors and other
alternatives to our portfolio of properties
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 have. 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. Further, our portfolio of retail properties faces competition from
interest-based operations that may be capable of providing lower-cost
alternatives to customers.
We are subject to significant regulation that inhibits our activities
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.
Our Properties
We face risks that may restrict our ability to develop properties
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 90% 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 these developments.
-17-
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, we cannot assure you that we can
contract for appropriate sites within our geographic markets.
Many of our properties are old and in need of maintenance and/or
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 of our apartments lack
amenities that are customarily included in modern construction, such as
dishwashers, central air conditioning and microwave ovens. Some of our
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 our properties.
We may be unable to successfully integrate and effectively manage the
properties we acquire
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 successfully integrate new
acquisitions. We cannot assure you that we will be able to successfully
integrate or effectively manage 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 we will not meet anticipated occupancy or rent levels
o the risk that we will not obtain required zoning, occupancy and other
governmental approvals
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
We may be unable to renew leases or relet space as leases expire
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.
-18-
Our tenants may fail to make rental payments when due
At any time, a tenant may experience a downturn in its business that
may weaken its financial condition. As a result, our tenants may delay lease
commencement, fail to make rental payments when due, or declare bankruptcy. Any
such event could result in the termination of that tenant's lease and material
losses to us.
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.
Our casualty insurance may be inadequate
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.
We face risks due to lack of geographic diversity
Most 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.
We face possible environmental liabilities
Current and former real estate owners and operators may be required by
law to investigate and clean up hazardous substances released at the properties
they own or operate. They may also be liable to the government or to third
parties for substantial property damage, investigation costs and cleanup costs.
In addition, some environmental laws create a lien on the contaminated site in
favor of the government for damages and costs the government incurs in
connection with the contamination. Contamination may affect adversely the
owner's ability to sell or lease real estate or to borrow with the real estate
as collateral.
From time to time, we respond to inquiries from environmental
authorities with respect to properties both currently and formerly owned by us.
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
our financial condition or results of operations.
-19-
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 we
formerly owned. Environmental laws today can impose liability on a previous
owner or operator of a property that owned or operated the 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.
We are aware of certain environmental matters at some of our
properties, including ground water contamination, above-normal radon levels and
the presence of asbestos containing materials and lead-based paint. We have, in
the past, performed remediation of such environmental matters, and, at December
31, 2000, the Company is not aware of any significant remaining potential
liability relating to these environmental matters. We may be required in the
future to perform testing relating to these matters. We have reserved
approximately $100,000 to cover such costs if they are necessary. We cannot
assure you that these amounts will be adequate to cover future environmental
costs.
At five 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 three 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, we cannot assure
you 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 our 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 our 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 under 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 limited environmental liability coverage for the types of
environmental liabilities described above. The policy covers liability for
pollution and on-site remediation limited to $2 million for any single claim and
further limited to $4 million in the aggregate. The policy expires on December
1, 2002.
We are aware of environmental concerns at two 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
necessary remediation are not known and may cause us to decide not to develop
one or more of these properties.
-20-
Financing Risks
We face risks generally associated with our debt
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
We may not be able to comply with leverage ratios imposed by our credit
facility or to use our credit facility when credit markets are tight
We currently use a three year secured credit facility for working
capital, acquisitions, construction of our development pipeline, renovations and
capital improvements to our properties. The credit facility is secured by ten
properties and currently requires our operating partnership, PREIT Associates,
to maintain certain asset and income to debt ratios and minimum income and net
worth levels. As of December 31, 2000, we were in compliance with all debt
covenants. If, in the future, 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.
When the credit markets are tight, we may encounter resistance from
lenders when we seek financing or refinancing for some of our properties. If our
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 assure you 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.
-21-
We may be unable to obtain long-term financing required to finance our
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 long-term financing is not available, we may
have to rely on other sources of short-term financing, equity contributions or
the proceeds of refinancing the existing properties to satisfy debt obligations.
Although we do not own the entire interest in connection with many of the
properties held by such partnerships or joint ventures, we may be required to
pay the full amount of any obligation of the partnership or joint venture that
we have guaranteed in whole or in part to protect our equity interest in the
property owned by the partnership or joint venture. Additionally, we may
determine to pay a partnership's or joint venture's obligation to protect our
equity interest in its assets.
Governance
We may be unable to effectively manage our partnerships and joint
ventures due to disagreements with our partners and joint venturers
Generally, we hold interests in our portfolio properties through PREIT
Associates. In many cases we hold properties through joint ventures or
partnerships with third-party partners and joint venturers and, thus, we hold
less than 100% of the ownership interests in these properties. Of the properties
with respect to which our ownership is partial, most are owned by partnerships
in which we are a general partner. The remaining properties are owned by joint
ventures in which we have substantially the same powers as a general partner.
Under the terms of the partnership and joint venture agreements, major
decisions, such as a sale, lease, refinancing, expansion or rehabilitation of a
property, or a change of property manager, require the consent of all partners
or co-venturers. Because decisions must be unanimous, necessary actions may be
delayed significantly. It may be difficult or even impossible to change a
property manager if a partner or co-venturer is serving as property manager.
Business disagreements with partners may arise. We may incur
substantial expenses in resolving these disputes. To preserve our investment, we
may be required to make commitments to or on behalf of a partnership or joint
venture during a dispute. Moreover, we cannot assure you that our resolution of
a dispute with a partner will be on terms that are favorable to us.
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
-22-
We are restricted from experiencing a sale or change in control
Our Trust Agreement restricts the possibility of our sale or change in
control, even if a sale or change in control were in our 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. Additionally, we have adopted a rights plan that may deter a
potential acquiror from attempting to acquire us.
We have entered into agreements restricting our ability to sell some of
our properties
Because some limited partners of PREIT Associates may suffer adverse
tax consequences if certain properties owned by PREIT Associates are sold, we,
as the general partner of PREIT Associates, have agreed from time to time,
subject to certain exceptions, that the consent of the holders of a majority (or
all) of certain limited partner interests issued by PREIT Associates in exchange
for a property is required before that property may be sold. These agreements
may result in our being unable to sell one or more properties, even in
circumstances in which it would be advantageous to do so.
We may issue preferred shares with greater rights than your shares
Our Board of Trustees may issue up to 25,000,000 preferred shares
without shareholder approval. Our Board of Trustees may determine the relative
rights, preferences and privileges of each class or series of preferred shares.
Because our 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 your rights as a shareholder.
We may amend our business policies without your approval
Our Board of Trustees determines our growth, investment, financing,
capitalization, borrowing, REIT status, operating and distribution policies.
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 our
policies. We cannot assure you that changes in our policies will serve fully the
interests of all shareholders.
Limited partners of PREIT Associates may vote on fundamental changes
we propose
Our assets are generally held through PREIT Associates, a Delaware
limited partnership of which we are the sole general partner. We currently hold
a majority of the limited partner interests in PREIT Associates. However, PREIT
Associates may from time to time issue additional limited partner interests in
PREIT Associates to third parties in exchange for contributions of property to
PREIT Associates. These issuances will dilute our percentage ownership of PREIT
Associates. Limited partner interests in PREIT Associates generally do not carry
a right to vote on any matter voted on by our shareholders, although limited
partner interests may, under certain circumstances, be redeemed for our shares.
However, before 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 our
shareholders, on any proposal to merge, consolidate or sell substantially all of
our assets. Our partnership interests are not included for purposes of
determining when half of the partnership interests have been redeemed, nor are
they counted as votes. We cannot assure you that we will not agree to extend
comparable rights to other limited partners in PREIT Associates.
-23-
Our success depends in part on Ronald Rubin
We are dependent on the efforts of Ronald Rubin, our Chief Executive
Officer. The loss of his services could have an adverse effect on our
operations. If Mr. Rubin were to terminate his employment, his current
employment agreement with us would prevent him from becoming an employee of one
of our competitors for one year.
PREIT-RUBIN
We face risks associated with PREIT-RUBIN's management of properties
owned by third parties
PREIT-RUBIN manages a substantial number of properties owned by third
parties. Risks associated with the management of properties owned by third
parties include:
o the property owner's termination of the management contract
o loss of the management contract in connection with a property sale
o non-renewal of the management contract after 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
Our employees who work both for us and for PREIT-RUBIN may have
conflicts of interest
There are numerous potential conflicts of interest relating to our
ownership of PREIT-RUBIN. PREIT-RUBIN renders management, development, leasing
and related services to a substantial number of properties in which affiliates
of PREIT-RUBIN retain equity interests. In such instances the interests of our
management who are also PREIT-RUBIN affiliates may differ from your own. We
believe that PREIT-RUBIN's management arrangements with these entities are on
terms at least as favorable to PREIT-RUBIN as the average of management
arrangements with parties unrelated to PREIT-RUBIN. In addition, PREIT-RUBIN
leases substantial office space from entities in which our affiliates have an
interest.
Other Risks
We may fail to qualify as a REIT and you may incur tax liabilities as
a result
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.
-24-
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 cannot assure you 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 cannot assure you that we have been qualified or
will remain qualified.
We may be unable to comply with the strict income distribution
requirements applicable to REITs
To obtain the favorable tax treatment associated with qualifying as a
REIT, we are required each year to distribute to our shareholders at least 90%
of our net taxable income. 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.
Employees
We employ approximately 791 people on a full-time basis.
Item 2. Properties
We refer you to the tables under "Item 1. Business" for the properties
we own, both wholly and those in which we have a percentage interest.
PREIT-RUBIN leases 11,421 square feet (2nd Floor) and 28,064 square
feet (3rd Floor) of space for its principal offices at 200 S. Broad Street,
Philadelphia, PA, under a lease with a remaining term of 9 years. The base rent
is $19.50 per square foot.
Titles to all of our real estate investments have been searched and
reported to us by reputable title companies. The exceptions listed in the title
reports will not, in our opinion, interfere materially with our use of the
respective properties for the intended purposes.
-25-
Schedule of Real Estate and Accumulated Depreciation
We refer you to Schedule III, "Real Estate and Accumulated Depreciation
- - December 31, 2000," of the financial statement schedules set forth herein for
the amount of encumbrances, initial cost of the properties to us, cost of
improvements, the amount at which carried and the amount of the accumulated
depreciation.
Item 3. Legal Proceedings
From time to time, we are a plaintiff or defendant in various cases
arising out of our usual and customary business of owning and investing in real
estate, both directly and through joint ventures and partnerships. We expect to
be covered against any such liability by our liability insurance, though we
cannot assure you to this effect. 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 our financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-26-
PART II
Item 5. Market for Our Common Equity and Related Shareholder Matters
Shares
Our shares of beneficial interest began trading on the New York Stock
Exchange on November 14, 1997 (ticker symbol: PEI). Before then, our shares were
traded on the American Stock Exchange.
The following table presents the high and low sales prices for our
shares, as reported by the New York Stock Exchange, and cash distributions paid
for the periods indicated:
Distributions
High Low Paid
- --------------------------------------------------------------------------------
Quarter ended March 31, 2000 $ 17.25 $ 14.63 $ .47
Quarter ended June 30, 2000 $ 18.50 $ 16.00 .47
Quarter ended September 30, 2000 $ 18.06 $ 16.88 .47
Quarter ended December 31, 2000 $ 19.75 $ 16.81 .51
-----
$1.92
Distributions
High Low Paid
- --------------------------------------------------------------------------------
Quarter ended March 31, 1999 $ 20.25 $ 18.56 $ .47
Quarter ended June 30, 1999 $ 21.69 $ 18.56 .47
Quarter ended September 30, 1999 $ 21.00 $ 18.56 .47
Quarter ended December 31, 1999 $ 18.88 $ 14.00 .47
-----
$1.88
As of December 31, 2000, there were approximately 1,190 holders of
record of our shares.
We currently anticipate that cash distributions will continue to be
paid in the future in March, June, September and December; however, our future
payment of distributions will be at the discretion of our Board of Trustees and
will depend on numerous factors, including our cash flow, financial condition,
capital requirements, annual distribution requirements under the real estate
investment trust provisions of the Internal Revenue Code and other factors that
our Board of Trustees deems relevant.
-27-
Units
Class A and Class B Units of PREIT Associates are redeemable by PREIT
Associates at the election of the limited partner holding the Units, at the time
and for the consideration set forth in PREIT Associates' partnership agreement.
In general, and subject to 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 Units then
held by that party. Class B Units are redeemable at the option of the holder at
any time after issuance.
If a notice of redemption is given, we have the right to elect to
acquire the Units tendered for redemption for our own account, either in
exchange for the issuance of a like number of our shares, subject to adjustments
for stock splits, recapitalizations and like events, or a cash payment equal to
the average of the closing prices of our shares on the ten consecutive trading
days immediately before our receipt, in our capacity as general partner of PREIT
Associates, of the notice of redemption. If we decline to exercise this right,
then on the tenth day following tender for redemption, PREIT Associates will pay
a cash amount equal to the number of Units so tendered multiplied by such
average closing price.
PREIT Associates issued the Units under exemptions provided by Section
4(2) of the Securities Act of 1933 and Regulation D promulgated under the
Securities Act.
Item 6. Selected Financial Data
Selected Financial Information
(Thousands of dollars, except per share results)
For the Fiscal For the Fiscal For the Fiscal For the 4-Month
Year Ended Year Ended Year Ended Period Ended For the Fiscal
December 31, December 31, December 31, December 31 Years Ended August 31,
2000 1999 1998 1997(1) 1997 1996
---- ---- ---- ------- ---- ----
Operating Results
Gross revenues from real estate $100,471 $ 89,220 $ 61,745 $ 17,170 $ 40,231 $ 38,985
------- -------- -------- ------- -------- --------
Net income $ 32,254 $ 20,739 $ 23,185 $ 5,962 $ 10,235 $ 11,044
------ ------ ------ ----- ------ ------
Net income per share $ 2.41 $ 1.56 $ 1.74 $ 0.66 $ 1.18 $ 1.27
---- ---- ---- --- ---- ----
Balance Sheet Data
Investments in real estate, at
cost $612,266 $ 577,521 $ 509,406 $287,926 $ 202,443 $ 198,542
Total assets 576,570 547,590 481,615 265,566 165,657 177,725
Total mortgage, bank and
construction loans payable 382,396 364,634 302,276 103,939 117,412 124,148
Shareholders' equity 143,906 133,412 137,082 138,530 40,899 46,505
------- ------- ------- ------- ------ ------
Other Data
Cash flows from operating
activities $ 44,123 $ 29,347 $ 31,302 $ 4,237 $ 15,219 $ 15,090
Cash distributions per share $ 1.92 $ 1.88 $ 1.88 $ 0.47 $ 1.88 $ 1.88
---- ---- ---- --- ---- ----
- ---------------------
(1) We changed from a fiscal year end to a calendar year end in 1997.
-28-
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 included elsewhere in this report.
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 capital 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. The Company also
expects to use the remaining funds available under its $175 million revolving
credit facility (the "Revolving Facility") and its $75 million construction
facility (the "Construction Facility") to fund acquisitions, development
activities and capital improvements on an interim basis.
At December 31, 2000 the Company had borrowed $110 million against its Revolving
Facility and had pledged $6 million under the Revolving Facility as collateral
for several letters of credit. The proceeds of the $110 million in borrowings
were used to fund acquisitions from 1997 to 2000 and several development
projects. Of the unused portion of the Revolving Facility of approximately $59
million, as of December 31, 2000, the Company's loan covenant restrictions
allowed the Company to borrow approximately an additional $4 million based on
the existing property collateral pool. In January 2001, the amount available to
borrow increased to approximately $18 million due to a mortgage refinancing (see
Note 12 to the Consolidated Financial Statements).
The Credit Facility
The Company's operating partnership has entered into a Credit Facility
consisting of the Revolving Facility and the Construction Facility with a group
of banks led by Wells Fargo Bank National Association. The obligations of the
Company's operating partnership under the Credit Facility are secured by a pool
of ten properties and have been guaranteed by the Company.
The Credit Facility bears interest at the London Interbank Offered Rate (LIBOR)
plus margins ranging from 1.3% to 1.8%, 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.
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 Borrowing Base Value (as defined in the Credit Facility) of 70% under
the Revolving Facility; (iii) a minimum weighted average collateral pool
property occupancy of 85%; (iv) minimum tangible net worth of $229 million plus
75% of cumulative net proceeds from the sale of equity securities; (v) minimum
ratios of EBITDA to Debt Service and Interest expense (as defined in the Credit
Facility) of 1.40:1 and 1.75:1, respectively, at December 31, 2000; (vi) maximum
floating rate debt of $250 million; and (vii) maximum commitments for properties
under development not in excess of 25% of Gross Asset Value (as defined in the
Credit Facility). As of December 31, 2000, the Company was in compliance with
all debt covenants.
-29-
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 $88.7 million of which the Company's
proportionate share is $42.1 million. Construction and mortgage loans on
properties wholly-owned by the Company also mature by their terms. Balloon
payments on these loans total $30.8 million. The Company is pursuing long-term
financing for properties with balloon payments coming due in 2001.
In 1999 the Company concluded the financing of eight multifamily communities
with $108.0 million of permanent, fixed-rate, long-term debt. With the
financing, the Company replaced short-term floating rate debt with fixed rate,
mortgage debt. The new debt carries a weighted average fixed interest rate of
approximately 6.77%. The eight properties secure the non-recourse loans, which
amortize over 30 years and mature in May 2009.
Commitments
At December 31, 2000, the Company had approximately $28.1 million committed to
complete current development and redevelopment projects. Of this amount,
approximately $22.8 million is expected to be financed through the Construction
Facility and $5.3 million is expected to be financed using construction loans.
In connection with certain development properties, including those development
properties acquired as part of the Company's acquisition of The Rubin
Organization, the Company may be required to issue additional units of limited
partner interest in its operating partnership ("OP Units") upon the achievement
of certain financial results.
Cash Flows
During the year ended December 31, 2000, the Company generated $44.1 million in
cash flow from operating activities. Financing activities included: (i) $19.3
million net borrowing under the Company's then outstanding credit facility, and
(ii) $17.8 million proceeds from a construction loan payable; offset by (i)
$14.9 million of repayment of mortgage notes payable, (ii) $4.4 million of
mortgage notes payable principal installments, (iii) $25.7 million of
distributions to shareholders and (iv) $1.6 million payment of deferred
financing costs. During the year ended December 31, 2000, the Company had net
investing activities of $36.4 million including: (i) investments in wholly-owned
real estate assets ($24.9 million), (ii) investments in property under
development ($25.7 million), (iii) investments in partnerships and joint
ventures ($5.1 million), (iv) investments in the affiliated management company
($5.0 million), offset by (i) cash proceeds from sales of real estate interests
of $23.0 million and (ii) cash distributions from partnerships and joint
ventures in excess of equity in income of $1.3 million.
-30-
Contingent Liabilities
The Company along with certain of its joint venture partners has guaranteed debt
totaling $6.0 million (see Note 2 to the Consolidated Financial Statements).
Also, the Company and its joint venture partner have jointly
and severally guaranteed the construction loan payable on a development project.
The balance of the loan at December 31, 2000 was $61.9 million and the remaining
commitment from the lender was $4.1 million for a total construction loan
commitment of $66.0 million.
Interest Rate Protection
In order to reduce exposure to variable interest rates, the Company has entered
into interest rate swap agreements as follows:
Fixed Interest Rate
Notional Amount vs. 30-day LIBOR Maturity Date
$20 million 6.12% June 2001
$20 million 6.02% December 2003
$55 million 6.00% December 2003
Financial Instruments Sensitivity Analysis
The analysis below presents the sensitivity of the market value of the Company's
financial instruments to selected changes in market interest rates. In order to
mitigate the impact of fluctuation in market interest rates, the Company has
entered into three interest rate swap agreements totaling $95.0 million. All
derivative instruments are entered into for other than trading purposes. As of
December 31, 2000, the Company's consolidated debt portfolio consisted of $247.4
million in fixed rate mortgage notes and $110.3 million borrowed under its
Revolving Facility.
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, but, 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, 2000 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 $10.7 million at December 31, 2000. A
100 basis point decrease in market interest rates would result in an increase in
the net financial instrument position of $11.6 million at December 31, 2000.
Based on the variable-rate debt included in the Company's debt portfolio,
including three interest rate swap agreements, as of December 31, 2000, a 100
basis point increase in interest rates would result in an additional $0.2
million in interest incurred at December 31, 2000. A 100 basis point decrease
would reduce interest incurred by $0.2 million at December 31, 2000.
-31-
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.
2000 Acquisitions
Significant 2000 acquisitions included the purchase of the remaining 35%
interest in the Emerald Point multifamily community in Virginia Beach, VA and
the acquisition of an interest in the Willow Grove Park Mall. The Company
entered into an agreement giving it an interest in Willow Grove Park, a 979,000
square foot regional mall in Willow Grove, PA. Under the agreement, the Company
is responsible for the expansion of the property to include a new Macy's store
and decked parking. The expected cost of the expansion is approximately $15
million and is scheduled to be completed in the Fall of 2001. Upon the
successful completion of the expansion, the Company will contribute the
expansion asset to the Joint Venture in return for a subordinated 50% general
partnership interest.
1999 Acquisitions
Significant 1999 acquisitions included the purchase of land for three
development properties: Creekview Shopping Center, a 379,000 square-foot power
center in Warrington, PA; Metroplex Shopping Center, a 778,000 square-foot power
center in Plymouth Meeting, PA; and Paxton Towne Centre, a 569,000 square-foot
power center in Harrisburg, PA. Other acquisitions during 1999 included the Home
Depot at the Northeast Tower Center in Philadelphia, PA and Florence Commons, a
197,000 square-foot strip center adjacent to Magnolia Mall in Florence, SC. On
December 15, 1999, the Company also acquired an additional 10% interest (giving
it a 60% total interest) in Rio Mall, a 166,000 square-foot strip center in Rio
Grande, NJ.
Dispositions
Consistent with management's stated long-term strategic plan to review and
evaluate all joint venture real estate holdings and non-core properties, during
1999 and 2000 the Company sold its interests in four properties. The four
properties sold in 2000 were CVS warehouse and distribution center in
Alexandria, VA; Valleyview Shopping Center in Wilmington, DE; Forestville
Shopping Center in Forestville, MD and the Company's 50% interest in Park Plaza
Shopping Center in Pinellas Park, FL. The four properties sold in 1999 were 135
Commerce Drive, a 141,000 square-foot warehouse in Fort Washington, PA; 54 acres
of undeveloped land in Rancocas, NJ; 14 acres of undeveloped land in Coral
Springs, FL; and 22 acres of undeveloped land in Elizabethtown, PA. In 1999 the
Company also sold surplus land at Crest Plaza in Allentown, PA. The combined
cash proceeds of $23.0 million and $6.6 million in 2000 and 1999, respectively,
were applied to reduce outstanding borrowings under the Company's then
outstanding credit facility.
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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 9 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 Company's involvement in joint venture projects.
Capital Resources
-----------------------------------
Acquisition Property Property Property Location New/Assumed
Date Name Type City State Purchase Price Credit Facility Debt OP Units
- ------------------------------------------------------------------------------------------------------------------------------------
1/03/00 Emerald Point Multifamily Virginia Beach VA $11,000 $ 5,350 $ 5,650 $ --
2/28/00 Willow Grove Park Enclosed Mall Willow Grove PA $ --(1) $ -- $ -- $ --
---------------------------------------------------
Total Completed 2000 Acquisitions $11,000 $ 5,350 $ 5,650 $ --
===================================================
1/12/99 Creekview Shopping Center Power Center Warrington PA $ 1,380 $ 1,380 $ -- $ --
4/1/99 Northeast Tower Center
(Home Depot) Power Center Philadelphia PA 13,500 -- 12,500 1,000
6/8/99 Metroplex Shopping Center Power Center Plymouth Meeting PA 9,880 -- 9,880 --
6/25/99 Paxton Towne Centre Power Center Harrisburg PA 20,000 20,000 -- --
12/15/99 Florence Commons Shopping Center Florence SC 6,417 6,417 -- --
12/15/99 Rio Mall Shopping Center Rio Grande NJ 260 260 -- --
---------------------------------------------------
Total Completed 1999 Acquisitions $51,437 $28,057 $22,380 $1,000
===================================================
(1)The Company is required to make certain investments, including the funding
of an expansion to the mall. The Company incurred nominal costs at the
acquisition date. The total cost to the Company will be determined upon
the completion of the expansion.
Year Ended December 31, 2000 compared with Year Ended December 31, 1999
Net income increased 56% to $32.2 million in 2000 from $20.7 million for 1999.
In 2000, net gains on the sales of interests in real estate were $10.3 million
as compared to $1.8 million in 1999. In 2000, gains were recognized from the
sale of a 50% interest in Park Plaza Shopping Center, Pinellas, FL; the sale of
a CVS Warehouse and Distribution Center in Alexandria, VA; and the sale of
Valleyview Shopping Center, Wilmington, DE. In addition, Forestville Shopping
Center, Forestville, MD, was sold for a loss, which had been previously
reserved. In 1999, gains were recognized from the sales of interests in 135
Commerce Drive, Fort Washington, PA and undeveloped land in Rancocas, NJ; Coral
Springs, FL; Elizabethtown, PA and Allentown, PA.
Gross revenues from real estate increased by $11.3 million or 12.6% to $100.5
million for the year ended December 31, 2000, as compared to the year ended
December 31, 1999. Retail property revenues increased by $5.9 million. Of this
amount $2.6 million is attributable to 1999 acquisitions and properties under
development in 1999 now placed in service. In addition, $1.6 million in
termination fees were received during the 2000 period. The remaining $1.7
million represents a $2.0 million increase for properties owned during both
periods due to increased tenant leasing activities, offset by a decrease of $0.3
million due to the sale of Forestville Shopping Center. Multifamily property
revenues increased by $2.2 million for properties owned during both periods due
to rental rate increases and higher occupancy rates. Industrial property
revenues increased by $3.2 million primarily due to the $4.0 million CVS lease
termination fee, offset by a decrease in rents of $0.8 million due to the CVS
lease termination.
In 2000, property operating expenses increased by $0.9 million to $32.7 million.
Retail property operating expenses increased by $0.2 million with a $0.4 million
increase attributable to 1999 acquisitions
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and properties under development in 1999 now placed in service, offset by
operating expenses for properties owned during both periods, which decreased by
$0.2 million due to the recovery of tenant receivable amounts previously
reserved. Multifamily operating expenses increased by $0.7 million due to
increased repairs and maintenance, payroll and bad debt costs.
In 2000, depreciation and amortization increased by $2.0 million to $16.2
million. Retail property depreciation increased by $0.4 million, of which $0.6
million is the result of 1999 acquisitions and the new development properties
placed in service. Retail depreciation decreased by $0.2 million for properties
owned during both periods because of the property dispositions in 1999 and 2000
noted above. Multifamily depreciation increased by $1.6 million for properties
owned during both periods due to a higher asset base.
In 2000, interest expense increased by $1.6 million to $23.4 million. Interest
expense incurred on the newly placed multifamily mortgages resulted in a $1.7
million increase. Retail property interest expense increased by $0.6 million
primarily attributable to 1999 properties under development now placed in
service. Interest expense on the Credit Facility decreased by $0.7 million
because increased development activity in 2000 allowed the Company to capitalize
a greater portion of Credit Facility interest.
Equity in income of partnerships and joint ventures increased by $1.2 million to
$7.4 million primarily attributable to increased income from Whitehall Mall
which was under redevelopment in 1999.
Equity in net loss of PREIT-RUBIN, Inc. for the 2000 period was $6.3 million
compared with $4.0 million for the 1999 period. The $2.3 million increase in the
equity in net loss was primarily due
-34-
to decreases in non-recurring brokerage commissions of $1.2 million, management
fees of $1.0 million, publication fees of $0.4 million and depreciation and
amortization expense of $0.2 million, offset by decreased operating expenses of
$0.5 million due to a $0.3 million decrease in publication costs and a $0.2
million decrease in professional services.
Gains from the sale of interests in real estate were $10.3 million and $1.8
million for 2000 and 1999, respectively. The 2000 period reflects a gain on the
sale of interest in Park Plaza Shopping Center in Pinellas Park, FL; the CVS
Warehouse and Distribution Center in Alexandria, VA and the Valleyview Shopping
Center in Wilmington, DE. The 1999 period includes gains on the sale of
interests in 135 Commerce Drive, Fort Washington, PA and an undeveloped land
parcel at Crest Plaza in Allentown, PA.
Minority interest in the operating partnership increased $1.7 million to $3.8
million primarily as a result of increased earnings and 167,500 additional
contingent OP units earned under the Contribution Agreement related to the
acquisition of The Rubin Organization in 1997.
Year Ended December 31, 1999 compared with Year Ended December 31, 1998
Net income for the year ended December 31, 1999, decreased 11% to $20.7 million
from $23.2 million for 1998. In 1999, net gains on the sales of interests in
real estate were $1.8 million as compared to $3.0 million in 1998. In 1999,
gains were recognized from the sales of interests in 135 Commerce Drive, Fort
Washington, PA and undeveloped land in Rancocas, NJ, Coral Springs, FL,
Elizabethtown, PA and Allentown, PA. In 1998, gains resulted from sales of the
Company's interests in Punta Gorda Mall, Punta Gorda, FL; Ormond Beach Mall,
Daytona Beach, FL and Charter Pointe Apartments in Altamonte Springs, FL.
Gross revenues from real estate increased by $27.5 million or 44% to $89.2
million for the year ended December 31, 1999, as compared to the year ended
December 31, 1998. The 1999 period included an increase of $25.8 million of
revenues attributable to the 1998 acquisitions. The balance of the increase in
revenues of $1.7 million is attributable to an increase in revenues from
properties owned during both periods. This was primarily the result of an
increase in multifamily revenues of $1.2 million.
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In 1999, property operating expenses increased by $9.3 million to $31.8 million.
The 1999 period included $8.7 million of expenses attributable to the 1998
acquisitions. The balance of the increase of $0.6 million is attributable to
operating expenses from properties owned during both periods. This increase was
primarily due to an increase in multifamily operating costs.
In 1999, depreciation and amortization increased by $4.8 million to $14.2
million primarily as a result of the 1998 acquisitions. Depreciation and
amortization for properties owned during both periods increased by $0.3 million.
In 1999, interest expense increased by $11.2 million to $21.8 million. Interest
expense attributable to mortgaged properties increased by $10.9 million due to
the 1998 acquisitions ($5.6 million) and the refinancing of multifamily
properties in the second quarter of 1999 ($5.3 million). Interest expense
incurred against the Company's then outstanding credit facility increased by
$0.3 million.
Equity in income of partnerships and joint ventures increased by $0.2 million to
$6.2 million primarily as a result of an increase in multifamily revenues from
partnerships and joint ventures.
Equity in net loss of PREIT-RUBIN, Inc. for the 1999 period was $4.0 million
compared with $0.7 million for the 1998 period primarily attributable to a
decrease in leasing commissions of $2.8 million due to several large,
non-recurring leasing commissions earned in the 1998 period and a decrease in
development fees of $0.8 million due to the completion of several development
projects that generated fees in 1998 only.
Minority interest in the operating partnership increased $0.7 million as a
result of the Units issued in connection with the Company's acquisition of The
Rubin Organization and Units issued in connection with five acquisitions during
1998 and one transaction during 1999.
In 1998, loss on early extinguishment of debt was due to a refinancing
prepayment fee on Fox Run Apartments of $0.3 million.
-36-
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 as an alternative 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.
Funds from operations increased 17.8% to $45.8 million for the year ended
December 31, 2000, as compared to $38.9 million in 1999. The increase was
primarily due to an improvement in net operating income from same store retail
and residential properties and newly acquired properties in 2000 and 1999.
Capital Expenditures
During 2000, the Company expended $4.1 million for capital expenditures; $3.5
million ($497 per unit owned adjusted for partnership interests) for multifamily
communities and $0.6 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, $1.5 million ($216 per
unit owned) was expended for floor covering and $0.6 million ($77 per unit
owned) for appliances.
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.
Seasonality
Shopping center leases often provide for the payment of rents based on a
percentage of sales over certain levels. Income from such rents is recorded only
after the minimum sales levels have been met. The sales levels are often met in
the fourth quarter, in the December holiday season.
-37-
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.
Forward-Looking Statements
The matters discussed in this report, as well as news releases issued from time
to time by the Company use forward-looking terminology such as "may," "will,"
"should," "expect," "anticipate," "estimate," "plan," or "continue" or the
negative thereof or other variations thereon, or comparable terminology which
constitute "forward-looking statements." Such forward-looking statements
(including without limitation, information concerning the Company's continuing
dividend levels, 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, availability of adequate
funds at reasonable cost, 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 may 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 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.
-38-
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
See Item 7 under the heading "Financial Instruments Sensitivity
Analysis" for a discussion of our market risk.
Item 8. Financial Statements and Supplementary Data
Our consolidated balance sheets as of December 31, 2000 and 1999, and
the related consolidated statements of income, shareholders' equity and cash
flows for the years ended December 31, 2000, 1999 and 1998, and the notes
thereto, and the report of independent public accountants thereon, and our
summary of unaudited quarterly financial information for the years ended
December 31, 2000 and 1999, and the financial statement schedules are set forth
on pages F-1 through F-25 of this report.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
Item 10. Trustees and Executive Officers of the Trust.
The information required by this item is incorporated by reference to,
and will be contained in, our definitive proxy statement, which we anticipate
will be filed no later than April 30, 2001, and thus we have omitted the Item 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, our definitive proxy statement, which we anticipate
will be filed no later than April 30, 2001, and thus we have omitted the item in
accordance with General Instruction G(3) to Form 10-K.
-39-
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, our definitive proxy statement, which we anticipate
will be filed no later than April 30, 2001, and thus we have omitted the item 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, our definitive proxy statement, which we anticipate
will be filed no later than April 30, 2001, and thus we have omitted the item in
accordance with General Instruction G(3) to Form 10-K.
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
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-2
Consolidated Statements of Income and Shareholders' Equity for
the calendar years ended December 31, 2000, 1999 and 1998 F-3
Consolidated Statements of Cash Flows for the calendar years
ended December 31, 2000, 1999 and 1998 F-4
Notes to Consolidated Financial Statements F-5 - F-23
(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts F-24
III - Real Estate and Accumulated Depreciation F-24 - F-25
All other schedules are omitted because they are not
applicable, not required or because the required information
is reported in the consolidated financial statements or notes
thereto.
-40-
(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 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.
4.2 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.
4.3 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.
4.4 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.
4.5 Rights Agreement dated as of April 30, 1999 between the Trust and
American Stock Transfer and Trust Company, as Rights Agent, filed as
exhibit 1 to the Trust's Registration Statement on Form 8-A dated April
29, 1999, 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.
-41-
10.3 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.
+10.4 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.
+10.5 Amendment No. 2 to the Trust's 1990 Stock Option Plan for Non-Employee
Trustees, filed as exhibit 10.9 to the Trust's annual Report on Form
10-K for the fiscal year ended December 31, 2000, is incorporated
herein by reference.
+10.6 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.
10.7 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.
10.8 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.
10.9 Amendment No. 1 to the Trust's 1990 Incentive and Non-Qualified Stock
Option Plan, filed as exhibit 10.16 to the Trust's Annual Report on
Form 10-K for the year ended December 31, 1998, is incorporated hereby
by reference.
+10.10 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.
+10.11 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.
10.12 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.
-42-
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
-43-
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
-44-
+10.30 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.
+10.31 Employment Agreement, effective January 1, 1999, between the Trust and
Edward Glickman.
+10.32 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.
+10.33 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.
+10.34 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.
+10.35 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.
+10.36 Amendment No. 1 to the Trust's 1997 Stock Option Plan, filed as Exhibit
10.48 to the Trust's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, is incorporated herein by reference.
+10.37 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.
+10.38 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.
+10.39 Amendment No. 1 to the Trust's Non-Qualified Employee Share Purchase
Plan, filed as exhibit 10.52 to the Trust's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, is incorporated herein by
reference.
+10.40 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.
-45-
+10.41 Amendment No. 1 to the Trust's Qualified Employee Share Purchase Plan,
filed as exhibit 10.54 to the Trust's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, is incorporated herein by
reference.
+10.42 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.
+10.43 Amendment No. 1 to the PREIT-RUBIN, Inc. 1998 Stock Option Plan, filed
as exhibit 10.56 to the Trust's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, is incorporated herein by
reference.
10.44 Promissory Note, dated April 13, 1999, by and between the Registrant
and GMAC Commercial Mortgage Corporation, a California corporation
("GMAC"), filed as exhibit 10.1 to the Trust's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, is incorporated herein by
reference.
10.45 Mortgage and Security Agreement, dated April 13, 1999, by and between
the Registrant and GMAC, filed as exhibit 10.2 to the Trust's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.46 Promissory Note, dated April 13, 1999, by and between PR Marylander
LLC, a Delaware limited liability company ("PR Maryland"), and GMAC,
filed as exhibit 10.3 to the Trust's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
10.47 Indemnity Deed of Trust and Security Agreement, dated April 13, 1999,
by and between PR Marylander and GMAC, filed as exhibit 10.4 to the
Trust's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, is incorporated herein by reference.
10.48 Indemnity Deed of Trust and Security Agreement, dated April 13, 1999,
by and between PR Kenwood Gardens LLC, a Delaware limited liability
company ("PR Kenwood Gardens"), and GMAC, filed as exhibit 10.5 to the
Trust's Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, is incorporated herein by reference.
10.49 Mortgage and Security Agreement, dated April 13, 1999, by and between
PR Kenwood Gardens and GMAC, filed as exhibit 10.6 to the Trust's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.50 Promissory Note, dated April 13, 1999, by and between GP Stones Limited
Partnership, a Florida limited partnership ("GP Stones"), and GMAC,
filed as exhibit 10.7 to the Trust's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
-46-
10.51 Mortgage and Security Agreement, dated April 13, 1999, by and between
GP Stones and GMAC, filed as exhibit 10.8 to the Trust's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.52 Promissory Note, dated April 13, 1999, by and between PR Boca Palms
LLC, a Delaware limited liability company ("PR Boca Palms"), and GMAC,
filed as exhibit 10.9 to the Trust's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
10.53 Mortgage and Security Agreement, dated April 13, 1999, by and between
PR Boca Palms and GMAC, filed as exhibit 10.10 to the Trust's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.54 Promissory Note, dated April 13, 1999, by and between PR Pembroke LLC,
a Delaware limited liability company ("PR Pembroke"), and GMAC, filed
as exhibit 10.11 to the Trust's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999, is incorporated herein by reference.
10.55 Mortgage and Security Agreement, dated April 13, 1999, by and between
PR Pembroke and GMAC, filed as exhibit 10.12 to the Trust's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.56 Promissory Note, dated April 13, 1999, by and between PR Hidden Lakes
LLC, a Delaware limited liability company ("PR Hidden Lakes"), and
GMAC, filed as exhibit 10.13 to the Trust's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, is incorporated herein by
reference.
10.57 Mortgage and Security Agreement, dated April 13, 1999, by and between
PR Hidden Lakes and GMAC, filed as exhibit 10.14 to the Trust's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
10.58 Promissory Note, dated April 13, 1999, by and between PREIT Associates
L.P., a Delaware limited partnership ("PREIT Associates"), and GMAC,
filed as exhibit 10.15 to the Trust's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999, is incorporated herein by reference.
10.59 Mortgage and Security Agreement, dated April 13, 1999, by and between
PREIT Associates and GMAC, filed as exhibit 10.16 to the Trust's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, is
incorporated herein by reference.
-47-
+10.60 The Trust's 1999 Equity Incentive Plan, filed as Appendix A to the
Trust's definitive proxy statement for the Annual Meeting of
Shareholders on April 29, 1999 filed on March 30, 1999, is incorporated
herein by reference.
10.61 Credit Agreement, dated as of December 28, 2000, among PREIT
Associates, the Trust, each Subsidiary Borrower (as defined therein)
and the leading institution named therein, filed as exhibit 10.67 to
the Trust's Current Report on Form 8-K filed on January 5, 2001, is
incorporated herein by reference.
10.62 Form of Revolving Note, dated December 28, 2000, filed as exhibit 10.68
to the Trust's Current Report on Form 8-K filed on January 5, 2001, is
incorporated herein by reference.
10.63 Swingline Note, dated December 28, 2000, filed as exhibit 10.69 to the
Trust's Current Report on Form 8-K filed on January 5, 2001, is
incorporated herein by reference.
10.64 Guaranty, dated as of December 28, 2000, executed by the Trust and
certain direct or indirect subsidiaries of the Trust, filed as exhibit
10.70 to the Trust's Current Report on Form 8-K filed on January 5,
2001, is incorporated herein by reference.
+10.65 Employment Agreement, dated as of September 30, 1997, between
PREIT-RUBIN and David J. Bryant.
+10.66 Employment Agreement, dated January 1, 1998, between the Trust and
Raymond J. Trost.
+10.67 Amendment No. 1 dated January 11, 2001, to Employment Agreement, dated
January 1, 1998, between the Trust and Raymond J. Trost.
21 Listing of subsidiaries
23 Consent of Arthur Andersen LLP (Independent Public Accountants of the
Company).
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form.
(b) Report on Form 8-K.
On November 8, 2000, PREIT filed a Current Report on Form 8-K reporting that
its Board of Trustees approved an increase in its quarterly cash dividends.
-48-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant 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 30, 2001 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 registrant and in the capacities and on the dates indicated:
Name Capacity Date
---- -------- ----
/s/ Sylvan M. Cohen Chairman and Trustee March 30, 2001
- ------------------------
Sylvan M. Cohen
/s/ Ronald Rubin Chief Executive Officer and March 30, 2001
- ------------------------ Trustee
Ronald Rubin
/s/ Jonathan B. Weller President, Chief Operating Officer March 30, 2001
- ------------------------ and Trustee
Jonathan B. Weller
/s/ George Rubin Trustee March 30, 2001
- ------------------------
George Rubin
/s/ William R. Dimeling Trustee March 30, 2001
- ------------------------
William R. Dimeling
/s/ Lee Javitch Trustee March 30, 2001
- ------------------------
Lee Javitch
/s/ Leonard I. Korman Trustee March 30, 2001
- ------------------------
Leonard I. Korman
Trustee
- ------------------------
Jeffrey P. Orleans
/s/Rosemarie B. Greco Trustee March 30, 2001
- ------------------------
Rosemarie B. Greco
/s/ Edward Glickman Executive Vice President and Chief March 30, 2001
- ------------------------ Financial Officer (principal
Edward Glickman financial officer)
/s/ David J. Bryant Senior Vice President - Finance March 30, 2001
- ------------------------ and Treasurer (principal accounting
David J. Bryant officer)
-49-
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 Business Trust) and Subsidiaries as
of December 31, 2000 and December 31, 1999 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. 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 and
schedules 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 10%, 15%, and 12% of net income for the years ended
December 31, 2000, 1999, and 1998, 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 auditing standards generally accepted
in the United States. 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 audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Pennsylvania Real Estate Investment Trust
and Subsidiaries as of December 31, 2000 and 1999 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedules listed in the
index to the financial statement schedules in Item 14 are presented for purposes
of complying with the Securities and Exchange Commission's rules and are not
part of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
February 23, 2001
F-1
CONSOLIDATED BALANCE SHEETS
As of 12/31 As of 12/31
Thousands of dollars, except per share amounts 2000 1999
Assets
Investments in real estate, at cost:
Multifamily properties $249,349 $236,859
Retail properties 328,637 294,945
Industrial properties 2,504 5,078
Land and properties under development 31,776 40,639
--------------------
Total investments in real estate 612,266 577,521
Less: Accumulated depreciation 95,026 84,577
--------------------
517,240 492,944
Investment in and advances to PREIT-RUBIN, Inc. 8,739 10,088
Investments in and advances to partnerships and joint
ventures, at equity 21,470 17,912
--------------------
547,449 520,944
Less: Allowance for possible losses 93 528
--------------------
547,356 520,416
Other assets:
Cash and cash equivalents 6,091 7,165
Rents and sundry receivables (net of allowance for
doubtful accounts of $733 and $582, respectively) 7,508 6,210
Deferred costs, prepaid real estate taxes
and expenses, net 15,615 13,799
--------------------
$576,570 $547,590
====================
Liabilities and Shareholders' Equity
Mortgage notes payable $247,449 $266,830
Bank loan payable 110,300 91,000
Construction loan payable 24,647 6,804
Tenants' deposits and deferred rents 3,118 2,291
Accrued pension and retirement benefits 992 952
Accrued expenses and other liabilities 16,392 13,812
--------------------
402,898 381,689
--------------------
Minority interest 29,766 32,489
--------------------
Commitments and contingencies (Note 9)
Shareholders' equity:
Shares of beneficial interest, $1 par; authorized
unlimited; issued and outstanding 13,628 and
13,338 at December 31, 2000 and 1999,
respectively 13,628 13,338
Capital contributed in excess of par 151,117 145,697
Deferred compensation (1,812) --
Distributions in excess of net income (19,027) (25,623)
--------------------
Total shareholders' equity 143,906 133,412
--------------------
$576,570 $547,590
====================
The accompanying notes are an integral part of these statements.
F-2
CONSOLIDATED STATEMENTS OF INCOME
Year Ended 12/31 Year Ended 12/31 Year Ended 12/31
Thousands of dollars, except per share results 2000 1999 1998
Revenues
Gross revenues from real estate $100,471 $89,220 $61,745
Interest and other income 1,385 1,144 650
----------------------------------------------
101,856 90,364 62,395
----------------------------------------------
Expenses
Property operating expenses 32,675 31,783 22,519
Depreciation and amortization 16,155 14,223 9,406
General and administrative expenses 4,953 3,560 3,351
Interest expense 23,392 21,842 10,591
----------------------------------------------
77,175 71,408 45,867
----------------------------------------------
Income before equity in unconsolidated entities, gains
on sales of interests in real estate, minority interest
and extraordinary item 24,681 18,956 16,528
Equity in loss of PREIT-RUBIN, Inc. (6,307) (4,036) (678)
Equity in income of partnerships and joint ventures 7,366 6,178 5,985
Gains on sales of interests in real estate 10,298 1,763 3,043
----------------------------------------------
Income before minority interest and extraordinary item 36,038 22,861 24,878
Minority interest (3,784) (2,122) (1,423)
----------------------------------------------
Income before extraordinary item 32,254 20,739 23,455
Extraordinary item-loss on early extinguishment of debt -- -- (270)
----------------------------------------------
Net Income $32,254 $20,739 $23,185
==============================================
Net income per share:
Basic $2.41 $1.56 $1.74
==============================================
Diluted $2.41 $1.56 $1.74
==============================================
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2000, 1999 and 1998
Thousands of dollars Shares of Beneficial Capital Contributed Deferred Distributions in Excess
Interest $1 Par in Excess of Par Compensation Net Income
Balance, January 1, 1998 $13,289 $144,746 $ -- $(19,505)
Net income -- -- -- 23,185
Shares issued upon exercise of options 11 196 -- --
Option sold to PREIT-RUBIN, Inc. -- 161 -- --
Distributions paid to shareholders
($1.88 per share) -- -- -- (25,001)
------------------------------------------------------------------------
Balance, December 31, 1998 13,300 145,103 -- (21,321)
Net income -- -- -- 20,739
Shares issued under the employees' share
purchase plans 23 270 -- --
Shares issued upon conversion of operating
partnership units 15 324 -- --
Distributions paid to shareholders
($1.88 per share) -- -- -- (25,041)
------------------------------------------------------------------------
Balance, December 31, 1999 13,338 145,697 -- (25,623)
Net income -- -- -- 32,254
Shares issued upon exercise of options 13 211 -- --
Shares issued upon conversion of
operating partnership units 116 2,588 -- --
Shares issued under the employees' share
purchase plans 43 601 -- --
Shares issued under equity incentive plan 118 2,020 (2,162) --
Amortization of deferred compensation -- -- 350 --
Distributions paid to shareholders
($1.92 per share) -- -- -- (25,658)
------------------------------------------------------------------------
Balance, December 31, 2000 $13,628 $151,117 $(1,812) $(19,027)
========================================================================
The accompanying notes are an integral part of these statements.
F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended 12/31 Year Ended 12/31 Year Ended 12/31
Thousands of dollars 2000 1999 1998
Cash Flows from Operating Activities:
Net income $32,254 $20,739 $23,185
Adjustments to reconcile net income to
net cash provided by operating activities:
Minority interest, net of distributions 667 -- --
Depreciation and amortization 16,155 14,223 9,406
Provision for doubtful accounts 151 210 194
Gains on sales of interests in real estate (10,298) (1,763) (3,043)
Loss on early extinguishment of debt -- -- 270
Equity in loss of PREIT-RUBIN, Inc. 6,307 4,036 678
Decrease in allowance for possible losses -- (98) (197)
Change in assets and liabilities,
net of effects from acquisitions:
Net change in other assets (2,750) (8,386) (6,271)
Net change in other liabilities 1,637 476 7,080
------------------------------------------------
Net cash provided by operating activities 44,123 29,437 31,302
------------------------------------------------
Cash Flows from Investing Activities:
Net investments in wholly-owned real estate (24,886) (36,971) (150,793)
Investments in property under development (25,657) (26,802) (5,917)
Investments in partnerships and joint ventures (5,093) (8,299) (15,030)
Investments in and advances to PREIT-RUBIN, Inc. (5,036) (2,126) (1,330)
Cash distributions from partnerships and joint
ventures in excess of equity in income 1,338 3,789 10,328
Cash proceeds from sales of interests in partnerships 2,940 1,491 3,008
Cash proceeds from sales of wholly-owned real estate 20,044 4,045 --
------------------------------------------------
Net cash used in investing activities (36,350) (64,873) (159,734)
------------------------------------------------
Cash Flows from Financing Activities:
Principal installments on mortgage notes payable (4,440) (3,672) (1,518)
Proceeds from mortgage notes payable -- 120,500 68,314
Proceeds from construction loan payable 17,843 6,804 --
Repayment of mortgage notes payable (14,942) (17,000) (33,680)
Net (payment) borrowing from revolving credit facility 19,300 (47,873) 127,706
Payment of deferred financing costs (1,594) (1,438) (1,076)
Shares of beneficial interest issued 644 293 206
Distributions paid to shareholders (25,658) (25,041) (25,001)
Distributions paid to OP unit holders and minority partners,
in excess of minority interest -- (789) (121)
------------------------------------------------
Net cash (used in) provided by financing activities (8,847) 31,784 134,830
------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,074) (3,652) 6,398
Cash and cash equivalents, beginning of period 7,165 10,817 4,419
------------------------------------------------
Cash and cash equivalents, end of period $6,091 $7,165 $10,817
================================================
The accompanying notes are an integral part of these statements.
F-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2000, 1999 and 1998
(Thousands of dollars, except per share results, unless otherwise noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Pennsylvania Real Estate Investment Trust, a Pennsylvania Business 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, 2000, the Company held an 89.5%
interest in the Operating Partnership.
Pursuant to the terms of the partnership agreement, each of the other limited
partners of the Operating Partnership has the right 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.
As of December 31, 2000, the Operating Partnership held a 95% economic interest
in PREIT-RUBIN, Inc. (the "Management Company") through its ownership of 95% of
the Management Company's stock, which represented all of the nonvoting common
stock of the Management Company.
Effective January 1, 2001, in exchange for Company shares valued at
approximately $0.5 million, the Operating Partnership acquired the 5% minority
interest representing all of the voting common stock in the Management Company,
which is now 100% owned by the Operating Partnership. Also effective January 1,
2001, the Management Company was converted to a Taxable REIT Subsidiary, as
defined under the Internal Revenue Code. As a Taxable REIT Subsidiary, the
Management Company is able to pursue certain business opportunities not
previously available under the rules governing REITs.
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. 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 through December 31, 2000. Effective January 1, 2001, the
Management Company will be consolidated with the Company. See Notes 3 and 10 for
further discussion. The excess of the Company's investment over the underlying
equity in the net assets of the Management Company ($6,682 at December 31, 2000)
is being amortized over 35 years.
F-5
Partnership and Joint Venture Investments
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 0.01% (See Note 10) to 70% 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,
net of amounts capitalized was $24,159, $22,101 and $10,146 for the years ended
December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999,
cash and cash equivalents totaling $6,091 and $7,165, respectively included
tenant escrow deposits of $1,165 and $724, 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 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 years ended December
31, 2000, 1999 and 1998, the Company capitalized interest and real estate taxes
of $5,159, $2,311 and $1,578, respectively.
The Company capitalized as deferred costs certain expenditures related to the
financing and leasing of certain properties. Capitalized loan fees are amortized
over the term of the related loans and leasing commissions are amortized over
the term of the related leases.
The Company capitalizes certain deposits associated with planned future
purchases of real estate. These deposits are transferred to the properties upon
consummation of the transaction.
Depreciation
The Company, for financial reporting purposes, depreciates its buildings,
equipment and leasehold improvements over their estimated useful lives of 10 to
50 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. Depreciation
expense was $15,389, $13,448 and $8,902 for the years ended December 31, 2000,
1999 and 1998, respectively.
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 estimated fair market value of the assets.
F-6
Derivative Financial Instruments
The Company at times enters into interest rate swap and cap agreements in order
to manage interest rate exposure on certain floating rate debt. 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 interest expense.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("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. The Company
adopted this statement effective as of January 1, 2001. The impact of adopting
this statement resulted in a decrease in other comprehensive income of
approximately $0.6 million as of January 1, 2001. There was no impact on the
Company's 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 accompanying 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
basis. 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 year
plus 100% of any prior year shortfall over cash distributions during the year,
as defined by the Internal Revenue Code. 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.
A provision for excise tax of $211 was recorded for the year ended December 31,
2000. No provision for excise tax was made for the years ended December 31, 1999
and 1998, as no tax was due.
The tax status of per share distributions paid to shareholders was composed of
the following for the years ended December 31, 2000, 1999, and 1998:
Year Ended Year Ended Year Ended
12/31/00 12/31/99 12/31/98
Ordinary income $ 1.14 $ 1.67 $ 1.63
Capital gains .78 .21 .25
------------------------------------------
$ 1.92 $ 1.88 $ 1.88
==========================================
F-7
The Management Company is subject to federal, state and local income taxes. The
operating results of the Management Company include a provision or benefit for
income taxes. Tax benefits are recorded by the Management Company to the extent
realizable.
The aggregate cost for Federal income tax purposes of the Company's investment
in real estate was approximately $609 million and $574 million at December 31,
2000 and 1999, respectively.
Fair Value of Financial Instruments
Carrying amounts reported in the balance sheet for cash, accounts receivable,
accounts payable and accrued expenses, and borrowings under the Credit Facility
and the construction loan payable approximate fair value due to the nature of
these instruments. Accordingly, these items have been excluded from the fair
value disclosures.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the lease term
regardless of when payments are due. The straight-line rent adjustment increased
revenue by approximately $1,218 in 2000, $731 in 1999, and $551 in 1998. Certain
lease agreements contain provisions that require tenants to reimburse a pro rata
share of real estate taxes and certain common area maintenance costs. Percentage
rents are recorded after annual tenant sales targets are met.
No tenant represented 10% or more of the Company's rental revenue in 2000, 1999
or 1998.
Comprehensive Income
Net income as reported by the Company reflects total comprehensive income for
the years ended December 31, 2000, 1999 and 1998.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
F-8
2. INVESTMENTS IN PARTNERSHIPS & JOINT VENTURES
The following table presents summarized financial information of the Company's
equity investments in 16 partnerships and joint ventures as of December 31, 2000
and 1999, including 3 properties with development activity.
Year Ended Year Ended
12/31/00 12/31/99
Assets
Investments in real estate, at cost:
Multifamily properties $ 57,200 $ 56,112
Retail properties 410,745 212,238
Properties under
development 28,477 38,766
-----------------------
Total investments in
real estate 496,422 307,116
Less: Accumulated
depreciation 78,025 70,520
-----------------------
418,397 236,596
Cash and cash equivalents 5,788 7,952
Deferred costs, prepaid real
estate taxes and other, net 56,012 43,677
-----------------------
Total assets 480,197 288,225
-----------------------
Liabilities and Partners' Equity
Mortgage notes payable 327,684 231,611
Construction loans payable 61,857 22,298
Other liabilities 33,127 16,707
-----------------------
Total liabilities 422,668 270,616
-----------------------
Net equity 57,529 17,609
Less: Partners' share 36,578 (264)
-----------------------
20,951 17,873
-----------------------
Advances 519 39
-----------------------
Investment in and advances
to partnerships and
joint ventures $ 21,470 $ 17,912
=======================
Mortgage notes payable, which are secured by 13 of the related properties, are
due in installments over various terms extending to the year 2016 with interest
rates ranging from 6.40% to 8.39% with an average interest rate of 7.52% at
December 31, 2000. Principal payments are due as follows:
Year Ended 12/31
2001 $ 4,712
2002 5,204
2003 26,649
2004 5,021
2005 5,665
2006 and thereafter 280,433
==========
$ 327,684
==========
The liability under each mortgage note is limited to the particular property
except for a loan with a balance of $5,986 which is guaranteed by the partners
of the respective partnerships, including the Company.
Also, the Company and its joint venture partner have jointly and severally
guaranteed the construction loan payable on a development project. The balance
of the loan at December 31, 2000 was $61,857 and the remaining commitment from
the lender was $4,143 for a total credit line of $66,000. At December 31, 2000
this loan bears interest at the London Interbank Offered Rate ("LIBOR") plus
2.0% or 8.65%. The loan matures in May 2001. The joint venture is pursuing
long-term financing for the property.
The Company's investments in certain partnerships and joint ventures reflect
cash distributions in excess of the Company's net investments totaling $2,099
and $2,065 as of December 31, 2000 and 1999, respectively.
F-9
The following table summarizes the Company's equity in income for the years
ended December 31, 2000, 1999 and 1998.
Year Ended Year Ended Year Ended
12/31/00 12/31/99 12/31/98
Equity In Income of Partnerships and Joint Ventures
Gross revenues from real estate $ 80,303 $ 58,817 $ 57,792
-------------------------------------------
Expenses:
Property operating expenses 27,267 19,785 20,662
Mortgage and bank loan interest 25,477 17,475 16,647
Depreciation and amortization 12,436 9,131 8,348
-------------------------------------------
65,180 46,391 45,657
-------------------------------------------
15,123 12,426 12,135
Partners' share (7,757) (6,248) (6,150)
-------------------------------------------
Equity in income of partnerships and joint ventures $ 7,366 $ 6,178 $ 5,985
===========================================
F-10
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, 2000, 1999 and 1998 for this investment, which is accounted for by
the equity method, is as follows:
Year Ended Year Ended Year Ended
12/31/00 12/31/99 12/31/98
Total assets $ 21,148 $ 23,283 $ 24,093
Mortgages payable 50,596 51,518 52,369
Revenues 17,295 17,296 15,669
Property operating expenses 5,888 6,057 5,074
Interest expense 4,068 4,103 4,176
Net income 6,565 6,356 5,642
Equity in income of partnership 3,282 3,178 2,821
- --------------------------------------------------------------------------------
3. INVESTMENT IN THE MANAGEMENT COMPANY
The Management Company 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 the Management Company are included in
property operating expenses in the accompanying consolidated statements of
income and amounted to $862, $634 and $249 for the years ended December 31,
2000, 1999 and 1998. The Company's properties also paid leasing and development
fees to the Management Company totaling $1,272, $477 and $1,100 for the years
ended December 31, 2000, 1999 and 1998.
Leasing and development fees paid by the Company's properties to the Management
Company are capitalized and amortized to expense in accordance with the
Company's accounting policies as described in Note 1. Intercompany profits
earned by the Management Company related to such activities are deferred and
will be recognized as income over these same periods in order to match revenues
and expenses.
In July 1998, the Management Company 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 vest in four equal annual installments commencing July
15, 1999. At the same time, the Company sold an option to the Management Company
which will enable the Management Company 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 options was determined based on the Black-Scholes option
pricing model and was valued at $1.20 per option. There were no stock options
issued in 1999 or 2000.
The Management Company also provides management, leasing and development
services for partnerships and other ventures in which certain officers of the
Company and the Management Company have either direct or indirect ownership
interests. Total revenues earned by the Management Company for such services
were $3,158, $3,593 and $3,489 for the years ended December 31, 2000, 1999 and
1998, respectively. As of December 31, 2000 and 1999, $661 and $988,
respectively, was due from these affiliates. Of these amounts, approximately
$490 and $988, respectively, were collected subsequent to December 31, 2000 and
1999. The remaining related party accounts receivable amounts of $171 are due by
their terms in installments to be paid through 2010, plus interest, where
applicable.
The Management Company also leases office space from an affiliate of certain
officers of the Company and the Management Company. Total rent expense under
this lease, which expires in 2010, was $700, $649 and $613 for the years ended
December 31, 2000, 1999 and 1998, respectively. Minimum rental payments under
this lease are $706 per year from 2001 to 2010.
Summarized financial information for the Management Company as of and for the
years ended December 31, 2000, 1999 and 1998 is as follows:
Year Ended Year Ended Year Ended
12/31/00 12/31/99 12/31/98
Total assets $ 6,782 $ 7,185 $ 12,142
------------------------------------------
Management fees $ 3,739 $ 4,526 $ 4,700
Leasing commissions 4,113 5,312 8,183
Development fees 617 691 1,539
Other revenues 3,620 4,382 4,131
------------------------------------------
Total revenue $ 12,089 $ 14,911 $ 18,553
==========================================
Net loss $ (6,624) $ (4,237) $ (707)
==========================================
Company's share of net loss $ (6,307) $ (4,036) $ (678)
==========================================
F-11
4. MORTGAGE NOTES, BANK AND CONSTRUCTION LOANS PAYABLE
Mortgage Notes Payable
Mortgage notes payable which are secured by 18 of the Company's properties are
due in installments over various terms extending to the year 2025 with interest
at rates ranging from 5.90% to 9.50% with a weighted average interest rate of
7.45% at December 31, 2000. Principal payments are due as follows:
Year Ended 12/31
2001 $4,466
2002 4,769
2003 11,122
2004 5,103
2005 17,991
2006 and thereafter 203,998
--------
$247,449
========
The fair value of the mortgage notes payable was approximately $247,261 at
December 31, 2000 based on year-end interest rates and market conditions.
Credit Facility
In December 2000, the Operating Partnership entered into a Credit Facility
consisting of a $175 million three-year revolving credit facility (the
"Revolving Facility") and a $75 million two-year construction finance facility
(the "Construction Facility"). The obligations of the Operating Partnership
under the Credit Facility are secured by a pool of properties and have been
guaranteed by the Company.
The Credit Facility replaced a $150 million line of credit which had $110.3
million outstanding at its maturity in December 2000.
The Credit Facility bears interest at the London Interbank Offered Rate plus
margins ranging from 1.3% to 1.8%, depending on the Company's consolidated
Leverage Ratio, as defined by the Credit Facility.
The Credit Facility is secured by 10 of the Company's existing retail and
industrial properties. The facility contains covenants and agreements which
affect, among other things, the amount of permissible borrowings and other
liabilities of the Company. The initial term of the Revolving Facility may be
extended for an additional year on the lenders' approval or, alternatively, may
be converted by the Company into a two-year amortizing term loan at the
beginning of the third year. In addition, properties financed under the
Construction Facility may join the collateral pool for the Revolving Facility
upon their completion.
As of December 31, 2000, the Operating Partnership had $110.3 million
outstanding on the Revolving Facility. The weighted average interest rate based
on amounts borrowed on the Company's credit facilities (old and new) was 8.22%,
6.95% and 7.06% for the years ended December 31, 2000, 1999 and 1998,
respectively. The weighted average interest rate at December 31, 2000 was 8.45%.
F-12
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 Borrowing Base Value (as defined in the Credit Facility) of 70% under
the Revolving Facility; (iii) a minimum weighted average collateral pool
property occupancy of 85%; (iv) minimum tangible net worth of $229 million plus
75% of cumulative net proceeds from the sale of equity securities; (v) minimum
ratios of EBITDA to Debt Service and Interest expense (as defined in the Credit
Facility) of 1.40:1 and 1.75:1, respectively, at December 31, 2000; (vi) maximum
floating rate debt of $250 million; and (vii) maximum commitments for properties
under development not in excess of 25% of Gross Asset Value (as defined in the
Credit Facility). As of December 31, 2000, the Company was in compliance with
all debt covenants.
The Company has limited its exposure to increases in LIBOR on a total of $95
million of its floating rate debt by entering into three swap agreements versus
30-day LIBOR as follows:
Notional Amount Fixed Interest Rate Maturity Date
$20 million 6.12% June 2001
$20 million 6.02% December 2003
$55 million 6.00% December 2003
For the Company to terminate the swap agreements referred to above, the cost to
the Company at December 31, 2000 would have been approximately $0.6 million.
The Company is exposed to credit loss in the event of nonperformance by the
counterparties to the swap agreements; however, the Company does not anticipate
nonperformance by the counterparties.
During the calendar year ended December 31, 1998, the Company incurred a
prepayment penalty of $0.3 million in connection with a mortgage refinancing.
This amount has been reflected as an extraordinary item in the accompanying
consolidated statements of income for 1998.
Construction Loan Payable
The Company has a construction loan outstanding with a balance of $24,647 at
December 31, 2000. The construction loan bears interest at the rate of LIBOR
plus 1.75% or 8.40%, at December 31, 2000. The loan is secured by a first
mortgage on the property under development. The construction loan has an
additional $5,353 available under the total commitment of $30,000. The loan
matures in 2001, prior to which time the Company expects to pursue long-term
financing for the property.
F-13
5. Net Income Per Share
Basic Earnings Per Share ("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. A reconciliation between basic and diluted EPS is
shown below.
Year Ended 12/31/00 Year Ended 12/31/99 Year Ended 12/31/98
Basic Diluted Basic Diluted Basic Diluted
Income before extraordinary item $32,254 32,254 $20,739 $20,739 $23,455 $23,455
Extraordinary item -- -- -- -- (270) (270)
---------------------------------------------------------------------
Net income $32,254 32,254 $20,739 $20,739 $23,185 $23,185
---------------------------------------------------------------------
Weighted average shares outstanding 13,403 13,403 13,318 13,318 13,297 13,297
=====================================================================
Effect of share options issued -- -- -- -- -- 17
---------------------------------------------------------------------
Total weighted average
shares outstanding 13,403 13,403 13,318 13,318 13,297 13,314
Income per share before
extraordinary item $2.41 2.41 $1.56 $1.56 $1.76 $1.76
=====================================================================
Extraordinary item per share -- -- -- -- (.02) (.02)
---------------------------------------------------------------------
Net income per share $2.41 2.41 $1.56 $1.56 $1.74 $1.74
---------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Benefit Plans
The Company maintains a 401(k) Plan (the "Plan") in which substantially all of
its 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 and contributions
from the Company are fully vested, as defined in the Plan agreement. The
Company's contributions to the Plan for the years ended December 31, 2000, 1999
and 1998 were $25, $ 34 and $29, 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
Supplemental Plan agreement, a benefit amount similar to the amount that would
have been received under the provisions of a pension plan that was terminated in
1994. Contributions due by the Company under the provisions of this plan were
$65, $62 and $60 for the years ended December 31, 2000, 1999 and 1998,
respectively.
The Company and the Management Company also each maintain share purchase plans
through which Company and the Management Company employees may purchase shares
of beneficial interest at a 15% discount of the fair market value. In 2000 and
1999, 43,000 and 23,000 shares were purchased for total consideration of $644
and $293, respectively.
F-14
7. STOCK OPTION PLANS
The Company has five plans that provide for the granting of options to purchase
shares of beneficial interest to key employees and nonemployee trustees of the
Company. Options are granted at the fair market value of the shares on the date
of the grant. The options vest and are exercisable over periods determined by
the Company, but in no event later than 10 years from the grant date. Changes in
options outstanding are as follows:
1999 1997 1993 1990 1990
Equity Incentive Stock Option Stock Option Employees Nonemployee
Plan Plan Plan Plan Trustee Plan
Authorized shares 400,000 455,000 100,000 400,000 100,000
----------------------------------------------------------------------
Available for grant at December 31, 2000 181,500(1) -- -- -- --
----------------------------------------------------------------------
(1) Amount is net of 118,500 restricted stock awards issued to certain
employees as incentive compensation in 2000. The restricted stock was
awarded at its fair value that ranged from $18.16 to $18.56 per share for a
total value of $2,162. Restricted stock vests ratably over periods of three
to five years. The Company recorded compensation expense of $350 in 2000
related to these restricted stock awards.
1999 1997 1993 1990 1990
Exercise Price Equity Incentive Stock Option Stock Option Employees Nonemployee
Plan Plan Plan Plan Trustees Plan
Options outstanding at 12/31/97 $15.75-$25.41 -- 455,000 100,000 340,125 37,000
===============================================================================
Options granted $23.85-$24.50 -- -- -- 17,500 5,000
Options exercised $18.00-$20.375 -- -- -- (5,875) (5,000)
Options forfeited $18.00-$22.75 -- (23,000) -- (4,875) --
-------------------------------------------------------------------------------
Options outstanding at 12/31/98 $15.75-$25.41 432,000 100,000 346,875 37,000
===============================================================================
Options granted $20.00 -- -- -- -- 5,000
Options forfeited $18.00-$25.41 -- (72,000) -- (500) (5,500)
-------------------------------------------------------------------------------
Options outstanding at 12/31/99 $15.75-$25.41 -- 360,000 100,000 346,375 36,500
===============================================================================
Options granted $17.00-$17.94 100,000 -- -- -- 12,500
Options exercised $15.75-$16.00 -- -- -- (12,625) (4,000)
Options forfeited $18.00-$23.63 -- -- -- (89,500) --
-------------------------------------------------------------------------------
Options outstanding at 12/31/00 $17.00-$25.41 100,000 360,000 100,000 244,250 45,000
===============================================================================
At December 31, 2000, options for 519,235 shares of beneficial interest with an
aggregate purchase price of $11,806 (average of $22.74 per share) were
exercisable.
Outstanding options as of December 31, 2000 have a weighted average remaining
contractual life of 6.21 years, an average exercise price of $22.64 per share
and an aggregate purchase price of $19,230.
The fair value of each option granted was estimated on the grant date using the
Black-Scholes options pricing model and the assumptions presented below:
2000 1999 1998
Weighted average
fair value $0.81 $1.06 $1.20
Expected life in
years 5 5 5
Risk-free interest rate 5.80% 4.59% 5.52%
Volatility 17.34% 19.05% 17.76%
Dividend yield 10.04% 9.40% 9.67%
The Company accounts for stock-based compensation under the guidelines of SFAS
No. 123, "Accounting for Stock-Based Compensation," which 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
impact on the Company's net income and net income per share would have been
immaterial.
F-15
8. OPERATING LEASES
The Company's multifamily apartment units are typically leased to residents
under operating leases for a period of one year. The Company's retail properties
are leased to tenants under operating leases with expiration dates extending to
the year 2025.
Future minimum rentals under noncancelable operating leases with terms greater
than one year are as follows:
Years Ended 12/31
2001 $ 31,889
2002 31,362
2003 29,607
2004 27,600
2005 25,008
2006 and thereafter 139,092
--------
$284,558
========
The total future minimum rentals as presented do not include amounts that may be
received as tenant reimbursements for charges to cover increases in certain
operating costs or contingent amounts that may be received as percentage rents.
- --------------------------------------------------------------------------------
9. Commitments and Contingencies
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. 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 Company's involvement
in joint venture projects. At December 31, 2000, the Company had approximately
$28.1 million committed to complete current development and redevelopment
projects. Of this amount, the Company expects that approximately $22.8 million
will be financed through the Company's $75 million Construction Facility and
expects that $5.3 million will be financed using construction loans.
In connection with certain development properties, the Company may be required
to issue additional OP units upon the achievement of certain financial results.
Further, the Company is obligated to acquire the remaining 11% interest in a
retail property by the end of the first quarter of 2002. Finally, the Company is
committed to issuing OP units valued at approximately $6 million in connection
with the acquisition of land on which the Christiana Power Center (Phase I) is
built. These units are expected to be issued in 2001.
The Company is not presently involved in any material litigation nor, to its
knowledge, is any material litigation threatened against the Company or its
properties. The Company is involved in routine litigation arising in the
ordinary course of business which is expected to be covered by the Company's
liability insurance.
The Company is aware of certain environmental matters at certain of its
properties, including ground water contamination, above-normal radon levels and
the presence of asbestos containing materials and lead-based paint. The Company
has, in the past, performed remediation of such environmental matters, and, at
December 31, 2000, the Company is not aware of any significant remaining
potential liability relating to these environmental matters. The Company may be
required in the future to perform testing relating to these matters. The Company
has reserved approximately $0.1 million to cover such costs if they are
necessary.
F-16
10. ACQUISITIONS AND DIVESTITURES
During 2000, the Company acquired an additional 35% interest in a multifamily
property, which it now wholly owns. The Company paid approximately $11.0 million
for the interest, including $5.7 million in assumed debt and $5.3 million
borrowed under the line of credit. The Company also formed a partnership with an
unrelated third party to purchase a shopping center. At December 31, 2000, the
Company's interest in the shopping center was 0.01%. Upon completion of certain
requirements by the Company, including the funding of an expansion to the
shopping center, the Company's interest in the partnership that owns the
shopping center will increase to a subordinated 50% general partnership
interest.
During 2000, the Company sold two shopping centers, one industrial property and
its 50% interest in a shopping center. Total proceeds from these sales was
approximately $23.0 million. The property sales resulted in gains totaling
approximately $10.3 million.
During 1999, the Company acquired two shopping centers, three shopping center
development sites, and an additional 10% interest in a shopping center in which
it now owns a 60% interest. The Company paid approximately $51.4 million,
consisting of $28.0 million in cash, $12.5 million in assumed debt, $9.9 million
borrowed under the line of credit and $1.0 million of OP units.
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 2000 and 1999 acquisitions
did not result in a requirement to present pro forma information.
During 1998, the Company acquired six shopping centers, one multifamily
property, a parcel of undeveloped land and the remaining 50% interest in two
multifamily properties. The Company paid approximately $180.7 million,
consisting of $101.9 in assumed debt, $65.1 million borrowed under the line of
credit and $13.7 million of OP units. 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
January 1, 1998, nor does the pro forma information purport to represent the
results of operations for future periods.
Pro forma 1998 revenues, net income, basic net income per share and diluted
earnings per share, reflecting the purchases as if they all took place on
January 1, 1998, are $76.8 million, $23.7 million, $1.78 per share and $1.78 per
share, respectively.
In connection with the Company's 1997 acquisition of the Management Company and
certain other property interests, the Company agreed to issue up to 800,000
additional Class A OP units over a five-year period ending September 30, 2002,
if certain earnings are achieved. The Company intends to account for the
issuance of contingent OP units as additional purchase price when when such
amounts are determinable. Through December 31, 2000, 497,500 contingent OP units
had been earned, resulting in additional purchase price of approximately $8.9
million.
F-17
11. SEGMENT INFORMATION
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes 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) development and other, and (4) corporate. The retail segment
includes the operation and management of 23 regional and community shopping
centers (12 wholly-owned and 11 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 6 retail properties under development (5
wholly-owned and 1 owned in joint venture form) and 4 industrial properties (all
wholly-owned). The corporate segment includes cash and investment management and
certain other general support functions.
The accounting policies for the segments are the same as those described 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 its
percentage ownership interest to the historical financial statements of their
equity method investments.
The chief operating decision making group for the Company's Retail, Multifamily,
Development and Other and Corporate segments is comprised of the Company's
President, Chief Executive Officer and the lead executives of each of the
Company's operating segments. The lead executives of each operating segment also
manage the profitability of each respective segment. The operating segments are
managed separately because each operating segment represents different property
types, as well as properties under development and corporate services.
Development
Year Ended 12/31/00 Retail Multifamily and Other Corporate Total
Real estate operating revenues(1) $ 72,773 $ 54,199 $ 4,707 $ -- $131,679
Property operating expenses 20,289 22,448 45 -- 42,782
-----------------------------------------------------------------------
Net operating income 52,484 31,751 4,662 -- 88,897
-----------------------------------------------------------------------
General and administrative expenses -- -- -- (4,953) (4,953)
Interest income -- -- -- 1,385 1,385
PREIT-RUBIN, Inc. net operating loss -- -- -- (4,498) (4,498)
-----------------------------------------------------------------------
EBITDA 52,484 31,751 4,662 (8,066) 80,831
-----------------------------------------------------------------------
Interest expense (18,428) (13,917) -- (1,141) (33,486)
Depreciation and amortization (11,151) (9,130) (63) (1,261) (21,605)
Gains on sales of interests in real estate 3,650 -- 6,648 -- 10,298
Minority interest in operating partnership -- -- -- (3,784) (3,784)
Equity in interest of partnerships and
joint ventures -- -- -- -- --
Equity in loss of PREIT-RUBIN, Inc. -- -- -- -- --
-----------------------------------------------------------------------
Net income $ 26,555 $ 8,704 $11,247 $(14,252) $ 32,254
=======================================================================
Investments in real estate, at cost $464,633 $278,199 $60,727 $ -- $803,559
=======================================================================
Total assets $448,720 $211,328 $58,820 $ 15,678 $734,546
=======================================================================
Recurring capital expenditures $ 642 $ 3,464 $ -- $ -- $ 4,106
=======================================================================
F-18
Adjustments to Total
Year Ended 12/31/00 Equity Method Consolidated
Real estate operating revenues(1) $ (31,208) $100,471
Property operating expenses (10,107) 32,675
---------------------------------
Net operating income (21,101) 67,796
---------------------------------
General and administrative expenses -- (4,953)
Interest income -- 1,385
PREIT-RUBIN, Inc. net operating loss 4,498 --
---------------------------------
EBITDA (16,603) 64,228
---------------------------------
Interest expense 10,094 (23,392)
Depreciation and amortization 5,450 (16,155)
Gains on sales of interests in real estate -- 10,298
Minority interest in operating partnership -- (3,784)
Equity in interest of partnerships and
joint ventures 7,366 7,366
Equity in loss of PREIT-RUBIN, Inc. (6,307) (6,307)
---------------------------------
Net income $ -- $ 32,254
=================================
Investments in real estate, at cost $(191,293) $612,266
=================================
Total assets $(157,976) $576,570
=================================
Recurring capital expenditures $ (627) $ 3,479
=================================
(1) Includes lease termination income of approximately $6 million.
Development
Year Ended 12/31/99 Retail Multifamily and Other Corporate Total
Real estate operating revenues $ 64,870 $ 51,891 $ 1,534 $ -- $118,295
Property operating expenses 19,857 21,617 31 -- 41,505
-----------------------------------------------------------------------
Net operating income 45,013 30,274 1,503 -- 76,790
-----------------------------------------------------------------------
General and administrative expenses -- -- -- (3,560) (3,560)
Interest income -- -- -- 1,144 1,144
PREIT-RUBIN, Inc. net operating loss -- -- -- (2,504) (2,504)
-----------------------------------------------------------------------
EBITDA 45,013 30,274 1,503 (4,920) 71,870
-----------------------------------------------------------------------
Interest expense (17,261) (12,534) (263) (1,107) (31,165)
Depreciation and amortization (10,615) (7,712) (98) (1,238) (19,663)
PREIT-RUBIN, Inc. income taxes -- -- -- 56 56
Gains on sales of interests in real estate 445 -- 1,318 -- 1,763
Minority interest in operating partnership -- -- -- (2,122) (2,122)
Equity in interest of partnerships and
joint ventures -- -- -- -- --
Equity in loss of PREIT-RUBIN, Inc. -- -- -- -- --
-----------------------------------------------------------------------
Net income $ 17,582 $ 10,028 $ 2,460 $(9,331) $ 20,739
=======================================================================
Investments in real estate, at cost $402,154 $265,165 $75,819 $ -- $743,138
=======================================================================
Total assets $384,417 $208,020 $72,796 $15,812 $681,045
=======================================================================
Recurring capital expenditures $ 293 $3,332 $ -- $ -- $ 3,625
=======================================================================
F-19
Adjustments to Total
Year Ended 12/31/99 Equity Method Consolidated
Real estate operating revenues $ (29,075) $ 89,220
Property operating expenses (9,722) 31,783
---------------------------------
Net operating income (19,353) 57,437
---------------------------------
General and administrative expenses -- (3,560)
Interest income -- 1,144
PREIT-RUBIN, Inc. net operating loss 2,504 --
---------------------------------
EBITDA (16,849) 55,021
---------------------------------
Interest expense 9,323 (21,842)
Depreciation and amortization 5,440 (14,223)
PREIT-RUBIN, Inc. income taxes (56) --
Gains on sales of interests in real estate -- 1,763
Minority interest in operating partnership -- (2,122)
Equity in interest of partnerships and
joint ventures 6,178 6,178
Equity in loss of PREIT-RUBIN, Inc. (4,036) (4,036)
---------------------------------
Net income $ -- $ 20,739
=================================
Investments in real estate, at cost $(165,617) $577,521
=================================
Total assets $(133,455) $547,590
=================================
Recurring capital expenditures $ (432) $ 3,193
=================================
F-20
Development
Year Ended 12/31/98 Retail Multifamily and Other Corporate Total
Real estate operating revenues $ 42,272 $ 46,167 $ 1,619 $ -- $ 90,058
Property operating expenses 13,030 19,545 35 -- 32,610
-----------------------------------------------------------------------
Net operating income 29,242 26,622 1,584 -- 57,448
-----------------------------------------------------------------------
General and administrative expenses -- -- -- (3,351) (3,351)
Interest income -- -- -- 650 650
PREIT-RUBIN, Inc. net operating income -- -- -- 762 762
-----------------------------------------------------------------------
EBITDA 29,242 26,622 1,584 (1,939) 55,509
-----------------------------------------------------------------------
Interest expense (11,067) (7,050) (341) (973) (19,431)
Depreciation and amortization (6,182) (6,869) (117) (1,198) (14,366)
PREIT-RUBIN, Inc. income taxes -- -- -- 123 123
Gains on sales of interests in real estate 1,277 1,766 -- -- 3,043
Minority interest in operating partnership -- -- -- (1,423) (1,423)
Equity in interest of partnerships and
joint ventures -- -- -- -- --
Equity in loss of PREIT-RUBIN, Inc. -- -- -- -- --
Loss on early extinguishment of debt -- (270) -- -- (270)
-----------------------------------------------------------------------
Net income $ 13,270 $ 14,199 $ 1,126 $ (5,410) $ 23,185
=======================================================================
Investments in real estate, at cost $356,243 $258,195 $33,712 $ -- $648,150
=======================================================================
Total assets $269,829 $137,125 $ 9,410 $179,517 $595,881
=======================================================================
Recurring capital expenditures $ 831 $ 3,777 $ -- $ -- $ 4,608
=======================================================================
F-21
Adjustments to Total
Year Ended 12/31/98 Equity Method Consolidated
Real estate operating revenues $ (28,313) $ 61,745
Property operating expenses (10,091) 22,519
----------------------------
Net operating income (18,222) 39,226
----------------------------
General and administrative expenses -- (3,351)
Interest income -- 650
PREIT-RUBIN, Inc. net operating income (762) --
----------------------------
EBITDA (18,984) 36,525
----------------------------
Interest expense 8,840 (10,591)
Depreciation and amortization 4,960 (9,406)
PREIT-RUBIN, Inc. income taxes (123) --
Gains on sales of interests in real estate -- 3,043
Minority interest in operating partnership -- (1,423)
Equity in interest of partnerships and
joint ventures 5,985 5,985
Equity in loss of PREIT-RUBIN, Inc. (678) (678)
Loss on early extinguishment of debt -- (270)
----------------------------
Net income $ -- $ 23,185
============================
Investments in real estate, at cost $(138,744) $509,406
============================
Total assets $(114,266) $481,615
============================
Recurring capital expenditures $ (974) $ 3,634
============================
F-22
- --------------------------------------------------------------------------------
12. SUBSEQUENT EVENTS
In January 2001, the Company refinanced a mortgage secured by a multifamily
property. The mortgage amount was $15 million, has a 10-year term and bears
interest at the rate of 7.52% per annum.
In January 2001, a partnership in which the Company owns a 50% interest sold an
undeveloped parcel of land adjacent to a shopping center owned by the
partnership. The purchase price was approximately $8 million.The Company's
expects to record a nominal gain on the sale of the land.
- --------------------------------------------------------------------------------
13. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following presents a summary of the unaudited quarterly financial
information for the years ended December 31, 2000 and 1999.
Year Ended 12/31/00
In thousands of dollars, except per share data 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Revenues(1) $23,452 $28,446 $23,657 $26,301 $101,856
===========================================================================
Net income(2) $ 6,389 $15,084 $ 6,162 $ 4,619 $ 32,254
===========================================================================
Basic net income per share $ 0.48 $ 1.13 $ 0.46 $ 0.34 $ 2.41
===========================================================================
Diluted income per share $ 0.48 $ 1.13 $ 0.46 $ 0.34 $ 2.41
===========================================================================
(1) Includes lease termination fees of approximately $6.0 million in 2nd
Quarter.
(2) Includes gains on sale of real estate of approximately $2.3 million (1st
Quarter), $6.6 million (2nd Quarter), and $1.3 million (3rd Quarter).
Year Ended 12/31/99
In thousands of dollars, except per share data 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
Revenues $21,739 $22,061 $22,242 $24,322 $90,364
===========================================================================
Net income $ 5,870 $ 4,918 $ 5,064 $ 4,887 $20,739
===========================================================================
Basic net income per share $ .44 $ .37 $ .38 $ .37 $ 1.56
===========================================================================
Diluted income per share $ .44 $ .37 $ .38 $ .37 $ 1.56
===========================================================================
F-23
Schedule II
Pennsylvania Real Estate Investment Trust
Valuation and Qualifying Accounts
Column A Column B Column C Column D
Column E
Additions
Description Balance
Beginning Charged to Costs Charged to Balance End
of Period and Expenses Other Accounts Deductions of Period
--------- ------------ -------------- ---------- ---------
Allowance for Possible Losses:
Year ended December 31, 2000 $528 $- $- $435 $93
Year ended December 31, 1999 $1,572 -- $135 $1,179 $528
Year ended December 31, 1998 $1,770 -- -- $198 $1,572
Allowance for Doubtful Accounts:
Year ended December 31, 2000 $582 $151 $- $- $733
Year ended December 31, 1999 $372 $210 $- $- $582
Year ended December 31, 1998 $178 $194 $- $- $372
Schedule III
Cost of Balance of
Initial Cost Investments Balance Building & Current Current
Initial Of Bldg & Net of Of Land Improvements Depreciation Encumbrance
Cost of Land Improvement Retirements @12/31/00 @12/31/00 Balance
- ------------------------------------------------------------------------------------------------------------------------------------
Multifamily Properties
- ----------------------
2031 Locust Street 100 1,028 2,582 100 3,610 2,762 5,852
Boca Palms 7,107 28,444 2,303 7,107 30,747 6,523 22,227
Camp Hill 336 3,060 2,149 336 5,209 3,970 6,282
Cobblestone Apartments 2,791 9,697 2,917 2,791 12,614 3,215 13,621
Eagles Nest 4,021 17,615 1,973 4,021 19,589 5,309
Emerald Point 3,062 18,645 11,124 3,789 29,042 6,280 15,861
Fox Run - Bear 1,355 19,959 2,437 1,355 22,396 6,525 14,126
Hidden Lakes 1,225 11,794 1,203 1,225 12,996 2,880 10,523
Kenwood Gardens 489 3,235 3,659 489 6,893 5,542 7,130
Lakewood Hills 501 11,402 5,448 501 16,850 10,674 18,440
Palms of Pembroke 4,869 17,384 1,775 4,869 19,159 3,758 16,326
Shenandoah Village 2,200 8,975 2,077 2,200 11,052 2,485 8,140
The Marylander 117 4,340 3,050 117 7,390 6,533 12,097
The Woods 4,234 17,268 1,400 4,234 18,667 1,038 6,838
Industrial Properties
ARA- Allentown 3 82 - 3 82 78 -
ARA - Pennsauken 20 190 - 20 190 162 -
Interstate Commerce 34 364 1,404 34 1,768 1,347 -
Sears 25 206 176 25 382 336 -
Retail Properties
Christiana Power Center 9,316 22,154 54 9,316 22,208 1,698 -
Crest Plaza 332 2,349 3,510 282 5,909 4,167 -
Creekview (Warrington) 1,380 4,825 - 1,380 4,825 9 -
Festival Shopping Center 3,728 14,988 83 3,728 15,071 880 -
Florence Commons 959 5,603 52 983 5,631 209 -
Home Depot Operations 2,716 10,863 - 2,716 10,863 475 12,500
Magnolia Mall 9,279 37,358 2,840 9,279 40,198 3,434 23,169
Mandarin Corner 4,891 10,168 633 4,891 10,801 4,476 7,510
North Dartmouth Mall 7,199 28,945 11,126 7,199 40,071 2,907 -
Northeast Tower Center 4,205 16,824 1,922 4,606 18,345 913 -
Paxton Tower Center 16,308 33,132 - 16,308 33,132 366 24,647
Prince George's Plaza 13,066 57,678 2,031 13,066 59,708 3,533 46,805
South Blanding Village 2,946 6,138 400 2,946 6,537 2,542 -
Development Properties
Christiana - Dev (Phase II) 32 935 - 32 935 - -
Northeast Tower 3,659 1,115 - 3,659 1,115 - -
PR New Garden, LP 45 256 - 45 256 - -
PR Delran LLC 3 577 - 3 577 - -
PR Tom's River 93 200 - 93 200 - -
Willow Grove - 3,499 - - 3,499 - -
-----------------------------------------------------------------------------------------------------
Total Investment
In Real Estate 112,643 431,295 68,328 113,745 498,521 95,026 272,096
=====================================================================================================
Date of Depreciable
Construction Life in
Balance /Acquisition Years
- --------------------------------------------------------------------------------
Multifamily Properties
- ----------------------
2031 Locust Street 1961 25
Boca Palms 1994 39
Camp Hill 1969 33
Cobblestone Apartments 1992 40
Eagles Nest 1998 39
Emerald Point 1993 39
Fox Run - Bear 1998 39
Hidden Lakes 1994 39
Kenwood Gardens 1963 38
Lakewood Hills 1972-80 45
Palms of Pembroke 1994 39
Shenandoah Village 1993 39
The Marylander 1962 39
The Woods 1998 39
Industrial Properties
ARA- Allentown 1962 40
ARA - Pennsauken 1962 50
Interstate Commerce 1963 50
Sears 1963 50
Retail Properties
Christiana Power Center 1998 39
Crest Plaza 1964 40
Creekview (Warrington) 1998 40
Festival Shopping Center 1998 39
Florence Commons 1999 39
Home Depot Operations 1999 39
Magnolia Mall 1998 39
Mandarin Corner 1988 39
North Dartmouth Mall 1998 39
Northeast Tower Center 1998 39
Paxton Tower Center 1998 40
Prince George's Plaza 1998 39
South Blanding Village 1988 40
Development Properties
Christiana - Dev (Phase II) 1998
Northeast Tower 1998
PR New Garden, LP 2000
PR Delran LLC 2000
PR Tom's River 2000
Willow Grove 2000
------------------------------------------------
Total Investment
In Real Estate
================================================
F-24
The aggregate cost for Federal income tax purposes of the Company's investment
in real estate was approximately $609 million and $574 million at December 31,
2000 and 1999, respectively. The changes in total real estate and accumulated
depreciation for the three years ended December 31, 2000 are as follows:
Total Real Estate Assets
------------------------------------------------------------------------------------
Calendar Year Ended Calendar Year Ended Calendar Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------------------------------------------------------------------------
BALANCE, beginning of period $577,521 $509,406 $287,926
Acquisitions and development 41,477 55,830 217,383
Improvements 10,584 12,285 4,097
Dispositions <17,316> -- --
------------------------------------------------------------------------------------
Balance, end of period $612,266 $577,521 $509,406
Accumulated
------------------------------------------------------------------------------------
Calendar Year Ended Calendar Year Ended Calendar Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------------------------------------------------------------------------
BALANCE, beginning of period $84,577 $71,129 $53,171
Depreciation expense 15,338 13,448 8,902
Transfers from partnerships
and joint ventures -- -- 9,056
Dispositions (4,886) -- --
------------------------------------------------------------------------------------
Balance, end of period $95,026 $84,577 $71,129
F-25
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
+10.31 Employment Agreement, effective January 1, 1999, between the
Trust and Edward Glickman.
+10.65 Employment Agreement, dated as of September 30, 1997, between
PREIT-RUBIN and David J. Bryant.
+10.66 Employment Agreement, dated January 1, 1998, between the Trust
and Raymond J. Trost.
+10.67 Amendment No. 1, dated January 11, 2001, to Employment Agreement,
dated January 1, 1998, between the Trust and Raymond J. Trost.
21 Listing of subsidiaries
23 Consent of Arthur Andersen LLP (Independent Public Accountants of
the Company).