[GRAPHIC OMITTED] Pennsylvania Real Estate Investment Trust
200 South Broad Street
[GRAPHIC OMITTED] Philadelphia, PA 19102
www.preit.com
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Phone: 215-875-0700
Fax: 215-546-7311
Toll Free: 866-875-0700
FOR FURTHER INFORMATION:
AT THE COMPANY AT KCSA PUBLIC RELATIONS WORLDWIDE
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Edward A. Glickman Todd Fromer Evan Smith, CFA
Executive Vice President and CFO (Investor Relations) (Media Relations)
(215) 875-0700 (212) 896-1215 (212) 896-1251
FOR IMMEDIATE RELEASE
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Pennsylvania Real Estate Investment Trust Transforms
Strategic Focus to Retail:
o Agrees To Purchase Six Rouse Shopping Malls
o Signs Agreement To Sell Multifamily Portfolio
PHILADELPHIA, PA, March 6, 2003 - Pennsylvania Real Estate Investment Trust
("PREIT") (NYSE: PEI) today announced that it has reached an agreement to
purchase from The Rouse Company (NYSE:RSE) six shopping malls in the
Philadelphia metropolitan area: Cherry Hill Mall, Moorestown Mall, Plymouth
Meeting Mall, The Gallery at Market East, Exton Mall and Echelon Mall. Under the
terms of the documentation being finalized for execution, PREIT will acquire the
six properties for total consideration of $548 million. Assuming completion of
the transactions, the Company will be the largest retail owner/operator in the
Philadelphia market, the 4th largest retail market in the United States. The
boards of trustees/directors of both companies have approved the transaction.
In the Rouse mall acquisition, PREIT expects to acquire four properties directly
from The Rouse Company and two properties from New Castle Associates, which has
agreed to acquire those properties from Rouse in exchange for its interest in
the Christiana Mall, located in Newark, Delaware. New Castle Associates is a
partnership whose partners include Ronald Rubin, PREIT chairman and chief
executive officer, and George Rubin, President of PREIT's management
subsidiaries and a PREIT trustee.
In addition, PREIT announced that it has signed an agreement with an affiliate
of Morgan Properties of King of Prussia, Pennsylvania to sell its multifamily
portfolio for $420 million. The transaction, if consummated, will result in
PREIT's exit from the multifamily business. A substantial portion of the
expected gain from the sale of the Company's multifamily portfolio is expected
to meet the requirements for a tax deferred exchange with the Rouse mall
acquisition.
Upon completion of the transactions, PREIT's retail portfolio will consist of 28
properties, including 14 shopping malls and 14 strip and power centers, totaling
approximately 17.4 million square feet in seven states. The Rouse transaction
will increase the Company's gross leasable retail space by approximately 47%
from its current total of 11.8 million square feet in 22 properties.
PREIT Transforms Strategic Focus
March 6, 2003
Page 2
As part of the Company's strategy to transform its focus to the retail sector,
PREIT also announced that it intends to pursue acquisitions of additional
shopping malls and is in discussions with another party to acquire a significant
shopping mall portfolio.
Ronald Rubin, PREIT chairman and chief executive officer, said, "The Rouse mall
acquisition together with the sale of our multifamily portfolio will firmly
secure PREIT in the retail sector and solidify our position as the leading
shopping mall REIT in the Philadelphia market. The Rouse transaction presented
us with a unique opportunity to further penetrate our core market and
significantly strengthen our existing retail portfolio. These high quality
assets will, together with Willow Grove Park, serve as an anchor to PREIT's
regional mall portfolio. In addition, the expansion of our regional mall
portfolio should offer cross-selling opportunities to enhance our existing
portfolio."
For modeling purposes, PREIT has assumed that both the Rouse and multifamily
transactions close at the end of the second quarter of this year. The
transactions are expected to be $0.66 per share accretive to funds from
operations (FFO) during the first full 12 months following closing. On a
calendar year basis, PREIT expects its FFO per share for 2003 to be in the range
of $3.16 to $3.28, resulting in approximately $0.38 per share of FFO accretion.
As part of the Rouse transaction PREIT will assume approximately $285 million of
non-recourse mortgage debt, of which approximately $235 million is fixed-rate
with a weighted average interest rate of approximately 7.6%. In accordance with
GAAP, PREIT expects to record this debt at a premium (in aggregate,
approximately $15.3 million) to the current principal balance of the loans. The
premium associated with each affected loan will be amortized over such loan's
remaining term resulting in an offset to interest expense that will increase
FFO. This impact is $0.25 per share for the first full 12 months following
closing and $0.13 on a calendar year 2003 basis.
Excluding this FFO adjustment, the transactions are expected to be $0.41 per
share accretive to FFO for the first full 12 months following closing and $0.25
per share on a calendar year 2003 basis. Please see Exhibit I to this release
for an overview of assumptions related to FFO guidance.
Acquisition of Six Rouse Malls
Located in the metropolitan Philadelphia area, the six Rouse malls to be
acquired represent total gross leasable space of approximately 5.6 million
square feet. The combined in-line tenant occupancy rate for all six properties
is approximately 90% with in-line tenant sales volume of approximately $328 per
square foot. PREIT underwrote the acquisition to generate an unleveraged return
of approximately 9.9% on cost based on the first full 12 months of anticipated
NOI following closing of the transaction (after deducting an assumed management
fee equal to 3% of gross revenue).
Under the terms of the transaction, PREIT will acquire four properties directly
from affiliates of The Rouse Company for cash and the assumption of debt. In
addition, PREIT will acquire the other two properties from New Castle Associates
in exchange for PREIT operating partnership units, cash and the assumption of
debt. New Castle Associates has agreed to acquire those properties from Rouse in
exchange for its interest in the Christiana Mall. PREIT will retain the power
center and the development property located adjacent to the Christiana Mall.
Upon the sale of the Christiana Mall, PREIT's management and leasing agreement
will be terminated, and PREIT will receive a brokerage fee of approximately $2
million from New Castle Associates. PREIT's purchase of the two properties from
New Castle Associates in exchange for PREIT operating partnership units, cash
and the assumption of debt and the related termination of the management and
leasing agreement was approved by a special committee of the PREIT Board, which
is comprised of all five independent trustees of PREIT. The transaction is
expected to close in the second quarter of 2003.
PREIT Transforms Strategic Focus
March 6, 2003
Page 3
The total consideration for the Rouse mall acquisition (excluding transaction
costs of approximately $7 million) is $548 million, which includes approximately
$225 million in cash, $38 million in PREIT operating partnership units and
assumption of $285 million in non-recourse mortgage debt. PREIT currently
expects to fund the cash portion of the purchase price for the Rouse malls
primarily from an acquisition term loan. PREIT is currently in discussions with
several institutional lenders regarding the terms of the acquisition term loan.
PREIT expects to repay the term loan primarily from the cash proceeds from the
sale of the multifamily portfolio and additional fixed rate non-recourse debt
secured by assets transferred by Rouse on an unencumbered basis.
Sale of Multifamily Portfolio
To strengthen its retail focus, PREIT has entered into an agreement to sell all
of its 7,242 apartment units in seven states for $420 million, including
approximately $220 million in cash and approximately $200 million in assumed
debt. The sale price represents a capitalization rate of approximately 8.1%
based on anticipated net operating income less a capital expenditure reserve of
$250 per unit during the first 12 months following the closing of the sale. The
transaction is expected to close by July 31, 2003. Approximately $24.9 million
of the total purchase price, including $13.4 million of assumed debt, relates to
four properties that are held in joint ventures. Two of the joint venture
partners hold rights of first refusal and two hold veto rights with respect to
the sale. The total purchase price is subject to adjustment if any of the
properties are not included in the sale. Morgan has made a non-refundable
deposit of $3 million and has informed PREIT that it expects to complete
financing arrangements for the acquisition in April.
The buyer of the multifamily portfolio has informed PREIT that it currently
intends to retain PREIT's multifamily staff. Historically, substantially all of
the costs of PREIT's multifamily operation have been expensed as property
operating expenses, and therefore PREIT does not expect the sale of its
multifamily portfolio to impact its G&A expenses going forward.
"Our strategic departure from apartment communities strengthens our focus on
core retail properties. In addition, the expected sale price, which reflects the
attractive pricing currently available in the multifamily sale market, combined
with the timing of the transaction, will assist in the financing of the Rouse
properties and enable the Company to maintain a debt/capitalization ratio after
the transactions that is consistent with our current levels," said Rubin.
The agreement of Sale and Purchase between PREIT and Morgan can be found as an
exhibit in the Company's 8-K filing with the Securities and Exchange Commission.
Lehman Brothers and Salomon Smith Barney served as lead and co-financial
advisors, respectively, on behalf of PREIT for both transactions.
Timing of Transactions
PREIT stated that the parties are finalizing the documentation for execution in
connection with the Rouse mall acquisition. PREIT anticipates using the proceeds
from the sale of the multifamily portfolio to finance part of the purchase price
of the Rouse properties but does not expect any sale of the multifamily
portfolio to close prior to the Rouse mall acquisition. PREIT currently expects
to use the proceeds from an acquisition term loan to finance the purchase of the
six Rouse malls but has not finalized such loan.
PREIT Transforms Strategic Focus
March 6, 2003
Page 4
PREIT also stated that it cannot provide any assurances that it will be
successful in acquiring any additional shopping mall portfolios. PREIT does not
anticipate issuing any further press releases with respect to the potential
shopping mall acquisition until definitive agreements are entered into or the
discussions with the other party are terminated.
Conference Call Information
Management has scheduled a conference call for 10:00 a.m. Eastern Standard Time
on March 6, 2003 to discuss the Company's transactions in more detail. To listen
to the call, please dial (888) 841-5035 at least five minutes before the
scheduled start time. Investors can also access the call in a `listen only' mode
via the Internet on the Company's website, www.preit.com or at www.vcall.com.
Please allow extra time prior to the call to visit the site and download the
necessary software to listen to the Internet broadcast.
For individuals unable to join the conference call, a replay of the call will be
available through March 13, 2003 at (877) 519-4471 (Passcode: 3790743). The
online archive of the webcast will be available for 14 days following the call.
Pennsylvania Real Estate Investment Trust
Pennsylvania Real Estate Investment Trust, founded in 1960 and one of the first
equity REITs in the U.S., has a primary investment focus on shopping centers
(approximately 11.8 million square feet) and apartment communities
(approximately 7,242 units) located primarily in the eastern United States. The
Company's portfolio currently consists of 45 properties in 10 states. In
addition, there are three retail properties under development, which PREIT
expects will add approximately 1.0 million square feet to its portfolio. PREIT
is headquartered in Philadelphia, Pennsylvania.
The Rouse Company
Headquartered in Columbia, MD, The Rouse Company was founded in 1939 and became
a public company in 1956. A premier real estate development and management
company, The Rouse Company, through its numerous affiliates, operates more than
175 properties encompassing retail, office, research and development and
industrial space in 22 states. The Company is also the developer of the planned
communities of Columbia, MD and Summerlin, just outside of Las Vegas, NV.
Morgan Properties of King of Prussia, PA
Morgan Properties is a privately-owned owner and operator of 39 apartment
complexes with more than 11,000 units in the Mid-Atlantic and Southeastern
states. The company was founded in 1985 by Mitchell Morgan and currently employs
over 400 persons.
PREIT Transforms Strategic Focus
March 6, 2003
Page 5
This press release contains certain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934 and the U.S.
Private Securities Litigation Reform Act of 1995. Forward-looking statements
relate to expectations, beliefs, projections, future plans and strategies,
anticipated events or trends and other matters that are not historical facts.
These forward-looking statements reflect PREIT's current views about future
events and are subject to risks, uncertainties, assumptions and changes in
circumstances that may prevent PREIT from consummating any of the proposed
transactions on favorable terms to PREIT, or at all, or if such transactions are
consummated, may cause PREIT's actual results to differ significantly from those
expressed in any forward-looking statement. Certain factors that could cause
PREIT not to consummate such transactions or could cause PREIT's actual results
to differ materially from expected results include, without limitation, PREIT's
ability to raise capital through public and private offerings of debt and/or
equity securities, the availability of adequate financing at reasonable cost, or
at all, PREIT's ability to negotiate and enter into definitive agreements with
respect to the transactions, satisfaction of closing conditions applicable to
such transactions (some of which are beyond PREIT's control), the revenues,
operating expenses, leasing activities, occupancy rates, and other competitive
factors relating to PREIT's portfolio and the properties proposed to be acquired
and changes in local market conditions as well as general economic, financial
and political conditions, including the possibility of outbreak of war,
terrorist attacks or the escalation of hostilities. PREIT does not intend to and
disclaims any duty or obligation to update or revise any forward-looking
statements or industry information set forth in this press release to reflect
new information, future events or otherwise.
[Exhibits I & II Follow]
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PREIT Transforms Strategic Focus
March 6, 2003
Page 6
Pennsylvania Real Estate Investment Trust
Summary of FFO Accretion
Exhibit I
(all figures in thousands, except per share amounts)
2003 (1) July '03 - June '04 (2)
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PREIT Stand-Alone FFO per share (range) (3) $2.78 - $2.90 $2.90 - $3.02
PREIT Stand-Alone FFO per share (mid-point) (3) $ 2.84 $ 2.96
Weighted Average Shares / OP Units Outstanding 18,800 18,915
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PREIT Stand-Alone FFO $ 53,473 $ 56,057
Adjustments (mid-point):
Rouse Transaction
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Net Operating Income (NOI) (4) $ 28,074 $ 57,827
Incremental G&A Attributable to Rouse Transaction (989) (1,994)
Brokerage Fee on Sale of Christiana Mall (5) 2,000 2,000
Lost Fee Income on Christiana Mall - Terminated Management Agreement (583) (1,165)
Interest Expense on Assumed Mortgage Debt (6) (10,441) (20,882)
Interest Expense Reduction due to Amortization of Premium on Assumed Rouse Debt (7) 2,577 5,139
Interest Expense on Acquisition Term Loan (8) (462) (924)
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Total FFO $ 20,176 $ 40,001
Multifamily Transaction
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Net Operating Income (before Capital Expenditures) $ (17,604) $ (35,551)
Interest Expense on Mortgage Debt Assumed by Purchaser (9) 6,944 13,455
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Total FFO $ (10,659) $ (22,095)
Incremental FFO Attributable to Both Transactions $ 9,517 $ 17,906
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PREIT Pro Forma FFO $ 62,989 $ 73,962
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Weighted Average Shares/OP Units Outstanding
PREIT Stand Alone 18,800 18,915
Incremental OP Units Issued in Purchase of Christiana Mall (7) 738 1,476
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Total 19,538 20,391
PREIT Pro Forma FFO per share (mid-point) $ 3.22 $ 3.63
Per share accretion ($, mid-point) $ 0.38 $ 0.66
Per share accretion (%, mid-point) 13.3% 22.4%
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PREIT Pro Forma FFO per share (range) $3.16 - $3.28 $3.57 - $3.69
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Interest Expense Reduction due to Amortization of Premium on Assumed Rouse Debt per share $ (0.13) $ (0.25)
PREIT Pro Forma FFO per share (mid-point) $ 3.09 $ 3.38
Per share accretion ($, mid-point) $ 0.25 $ 0.41
Per share accretion (%, mid-point) 8.7% 13.9%
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PREIT Pro Forma FFO per share after Amortization of Premium (range) $3.03 - $3.15 $3.32 - $3.44
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Note: For illustrative purposes, guidance offered by the Company is based on a
variance of $0.06 per share relative to the mid-point.
Footnotes:
(1) Assumes both transactions close on June 30, 2003.
(2) Based on the full twelve-month period after the closing of both
transactions. Assumed to be the time period from July 2003 through June
2004.
(3) PREIT stand alone FFO per share guidance does not reflect any acquisitions
that may have otherwise been included.
(4) Includes $1.2 million of straight line rental income and $3.1 million of
incremental management fee income attributable to the portfolio.
(5) One time brokerage fee payable to PREIT-Rubin upon the closing of the
exchange of Christiana Mall with The Rouse Company.
(6) Based on $235.1 million of assumed mortgage debt at a weighted average
interest rate of 7.6% and the refinancing of an additional $50.0 million of
floating rate debt to a fixed rate of 6.0%.
(7) Represents the amortization of the mark-to-market premium (write up of $15.3
million) on the above-market rate debt thus effectively reducing GAAP
interest expense.
(8) Purchase of the Rouse portfolio (and the $7.3 million of assumed transaction
costs) requires a $232.1 million acquisition term loan on which the interest
rate is assumed to be 5.0%. The balance of the consideration is funded by
$285.1 million of assumed mortgage debt and $38.0 million of PREIT OP units
(1.476 million OP units) valued at the the current market price of $25.75
per share. Assuming the concurrent closing of transactions as described
above, the portfolio acquisition will be funded with $213.6 million of cash
from the sale of the multifamily portfolio (after transaction costs of $6.3
million) thereby causing the outstanding term loan balance upon completion
of both transactions to be $18.5 million.
(9) Based on $200.1 million of mortgage debt assumed by purchaser at a weighted
average interest rate of 6.9%.
PREIT Transforms Strategic Focus
March 6, 2003
Page 7
Pennsylvania Real Estate Investment Trust
Property Information
EXHIBIT II
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Total Owned
Total GLA GLA % Lease Mortgage Mortgage
(in (in Occupied Sales Expiration Balance Interest
Mall Name thousands) thousands) In-Line per SF Major Tenants (1) (in millions) Rate
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Cherry Hill Mall 1,282 533 94.5% $404 JCPenney's N/A $74 10.6%
Cherry Hill, NJ Macy's N/A 60(2)
Strawbridge's N/A
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Moorestown Mall 1,036 716 93.9% 312 Boscov's 2005 50 LIBOR
Moorestown, NJ Lord & Taylor N/A +141 bps.
Sears 2022
Strawbridge's N/A
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Echelon Mall 1,140 601 80.1% 252 Boscov's N/A
Voorhees, NJ Strawbridge's N/A
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Exton Square 1,098 463 89.7% 361 Boscov's N/A 101 6.95%
Exton, PA Sears N/A
JCPenney N/A
Strawbridge's N/A
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The Gallery at Market East 191 191 98.9% 419 K-Mart N/A
Philadelphia, PA Strawbridge's N/A
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Plymouth Meeting Mall 823 607 87.4% 244 Boscov's 2015
Plymouth Meeting, PA Strawbridge's N/A
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TOTAL/AVERAGE 5,570 3,111 90.0% $328 $285
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Date of Date List
Mall Name Maturity Bult Renovated
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Cherry Hill Mall 10/1/2005 1961 1990
Cherry Hill, NJ
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Moorestown Mall 12/31/2003 1963 2000
Moorestown, NJ
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Echelon Mall 1970 1998
Voorhees, NJ
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Exton Square 12/1/2008 1973 2000
Exton, PA
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The Gallery at Market East 1977 1983
Philadelphia, PA
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Plymouth Meeting Mall 1966 1999
Plymouth Meeting, PA
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TOTAL/AVERAGE
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(1) The lease expiration date for tenants that own their own store is noted as
N/A.
(2) A second mortgage will be assumed on the day of the closing.