SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-K
________________
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the Fiscal Year Ended August 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
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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 (IRS Employer Identification No.)
incorporation or organization)
455 Pennsylvania Avenue, Suite 135 19034
Ft. Washington, Pennsylvania (Zip Code)
(address of principal executive office)
Registrant's telephone number, including area code: (215) 542-9250
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
- ---------------------------------- -------------------------
Shares of Beneficial Interest, par American Stock Exchange
value $1.00 per share
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. /x/
The aggregate market value, as of November 15, 1995, of the voting stock held by
non-affiliates of the registrant was approximately $148,994,600. (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.)
At November 15, 1995, 8,676,098 Shares of Beneficial Interest of the Trust were
outstanding.
Documents Incorporated by Reference
Portions of the Trust's 1995 Annual Report to Shareholders are incorporated by
reference into Part II of this report. Portions of the Trust's Proxy Statement
for the 1995 Annual Meeting of Shareholders are incorporated by reference into
Part III of this report. Except for the parts of such documents that have been
specifically incorporated herein by reference, such documents shall not be
deemed "filed" for the purposes of this report.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
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ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED AUGUST 31, 1995
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TABLE OF CONTENTS
PART I
Item 1. Business........................................................1
Item 2. Properties.....................................................12
Item 3. Legal Proceedings..............................................13
Item 4. Submission of Matters to a Vote of
Security Holders...............................................13
Item 4A. Executive Officers of the Trust................................14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters....................................15
Item 6. Selected Financial Data........................................15
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................................................15
Item 8. Financial Statements and Supplementary Data....................15
Item 9. Disagreements on Accounting and Financial
Disclosure.....................................................16
PART III
Item 10. Item 13........................................................16
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................................16
Item 1. Business
General
Pennsylvania Real Estate Investment Trust (the "Trust") is a
self-administered equity real estate investment trust engaged, directly and
through subsidiaries, partnerships and joint ventures, in the business of
acquiring, managing and holding for current yield and long-term appreciation
real estate and interests in real estate. The Trust has invested substantially
all of its assets in rental producing real estate, with an emphasis on shopping
centers and apartment complexes.
The Trust has elected to qualify, and conducts its operations in a
manner intended to comply with the requirements for qualification, as a real
estate investment trust under the Real Estate Investment Trust Act of 1960,
Sections 856-860 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Code, a real estate investment trust that meets certain requirements
is not subject to Federal income tax on the portion of its taxable income which
is distributed to its shareholders provided that at least 95% of its real estate
investment trust taxable income, excluding any net capital gain, is so
distributed.
The Trust is an unincorporated association in business trust form
created in Pennsylvania pursuant to a Trust Agreement dated December 17, 1960,
as amended and restated on December 16, 1987. Since its inception it has been
self-administered by its trustees.
The Trust's principal real estate assets at August 31, 1995 included 20
apartment communities with 7,337 units and 18 shopping centers totaling 4.8
million square feet. Located primarily in the mid-Atlantic region from
Pennsylvania to Virginia, and in selected areas of Florida, 15 of these
properties are wholly-owned by the Trust and its subsidiaries (in one instance,
the property is treated by the Trust as effectively wholly-owned because the
Trust holds a 65% interest in the partnership that owns the property and this
interest, under the partnership agreement, gives the Trust control). Another 23
are owned by the Trust and its subsidiaries through partnerships and joint
ventures with equity interests ranging from 25 percent to 87.5 percent in the
Trust and its subsidiaries. The Trust also owns, directly and through
subsidiaries, joint ventures and partnerships, interests in six industrial
properties and four parcels of undeveloped land.
Of the 27 properties in which the Trust has a partial interest
(excluding the property held by the partnership that is consolidated in the
Trust's financial statements as described below), 22 are owned by partnerships
in which the Trust or one of its wholly-owned subsidiaries is a general partner
and 5 are joint ventures in which the Trust has substantially the same
powers as a general partner. Under the terms of the partnership or joint venture
agreements (hereinafter, collectively, "partnership agreements"), major
decisions, such as a sale, refinancing or expansion or rehabilitation of the
property held by the partnership or joint venture (hereinafter, collectively,
"partnerships"), and all leasing decisions, require the consent of all partners
and co-venturers (hereinafter, collectively, "partners"). There are restrictions
on the ability of any partner to borrow against or dispose of its interest in
the partnership. Because of the requirement for unanimity, the taking of any
action or the making of any decision respecting a partnership could be
significantly delayed.
Under the terms of many of the partnership agreements to which the
Trust or one of its subsidiaries is a party, the concurrence of all partners is
required to change the property manager. Where the other partner is providing
management, effecting such a change could be difficult or even unfeasible, even
if the Trust believed the management services were unsatisfactory. However, many
of the partnership agreements entitle the Trust to a priority with respect to
distributions of partnership cash based on the Trust's capital contributions to
the partnership. Under the terms of some of these agreements, the Trust has a
unilateral right to change management if it has not received its priority
distributions of partnership cash for a stated period of time.
The Trust's wholly-owned apartment properties are managed by its own
staff. The Trust's wholly-owned shopping center properties are managed by
non-affiliated independent contractors. Many of the properties held by
partnerships in which the Trust has an interest are managed by one or more
partners other than the Trust who oversee the day-to-day development,
construction, leasing and management of properties.
The Trust intends generally to seek to acquire 100% equity interests in
properties and to rely less on joint ventures and partnership structures in the
future. During the 1995 fiscal year, the Trust enlarged its management staff for
apartment properties and acquired management information systems in view of this
strategy. The Trust is presently considering the personnel and technology
support required to create a similar in-house shopping center management team.
If the current managers of the properties that are not currently
managed by the Trust are unable or unwilling to perform their obligations or
responsibilities, the Trust's present staff is not of sufficient size to carry
out those functions. In such event, the Trust would be obligated to contract
with others, perhaps at a substantially increased cost, for such services or to
increase its staff to manage the properties itself, which may be a less costly
alternative.
-2-
In November 1994, the Trust acquired a 522-unit apartment complex in
Boca Raton, Florida for approximately $32 million. This acquisition was financed
through the Trust's credit facility described in the Notes to
Consolidated Financial Statements appearing in the portions of the 1995 Annual
Report to Shareholders incorporated by reference in this report.
In October 1995, the Trust completed a financing of its 220-unit
Shenandoah Village Apartment community in West Palm Beach, Florida with the
placement of $8.8 million in tax-exempt bonds issued by the Housing Finance
Authority of Palm Beach County, Florida. The bonds, which are insured by
Financial Security Assurance, Inc., carry an average annual interest rate of
5.90%, are amortized over 30 years, and constitute long-term indebtedness of the
Trust. The Trust applied the net proceeds of the financing to reduce the
outstanding indebtedness under its $75 million revolving credit facility.
Real Estate Investments
The following table sets forth certain information concerning the
Trust's real estate investments at August 31, 1995.
Real Estate Investments
-----------------------
No. of Square Feet or Depreciated
Properties Apartment Units Cost (2)
---------- --------------- ------------
Wholly-Owned and Consolidated Partnership(1)
Apartment Buildings.......................... 12 4,760 $126,591,000
Shopping Centers............................. 3 476,000(3) 23,675,000(3)
Industrial Properties........................ 5 587,000 2,059,000
Land......................................... 1 25 acres 3,590,000
Partnerships and Joint Ventures
Apartment Buildings.......................... 8 2,577 $86,625,000
Shopping Centers(3).......................... 15 4,330,000(3) 81,728,000(3)
Industrial Properties........................ 1 141,000 443,000
Land......................................... 3 90 acres 4,445,000
- --------------------
(1) The Trust has a 65% "controlling" interest in an apartment building
partnership. This partnership is reported on a consolidated basis with
the Trust in the Trust's consolidated financial statements.
(2) The amounts shown represent 100% of the depreciated cost of the
property held by the respective partnerships and joint ventures. The
equity interest of the Trust in each of the partnerships and joint
ventures is set forth on pages 7-9 herein.
-3-
(3) Ingleside Shopping Center is primarily held through a joint venture in
which the Trust has a 50% equity interest. However, the property also
consists of a parcel that is owned directly by the Trust. For purposes
of this table, this wholly-owned parcel has not been counted in the
number of wholly-owned shopping center properties and has been included
in the totals shown for partnerships and joint ventures shopping
centers square footage and depreciated cost.
The Trust accounts for its investments in partnerships that it does not
control (which is the case with all but one of the partnerships) using the
equity method of accounting. These investments, which represent 25-to-87.5%
non-controlling ownership interests, are recorded initially at the Trust's cost
and subsequently adjusted for the Trust's net equity in income and cash
contributions and distributions. During the fiscal year ended August 31, 1995,
the Trust's net equity in income from partnerships was $6,381,000, which
constituted approximately 57.5% of the Trust's net income before gains on sales
of interests in real estate and approximately 56.8% of the Trust's total net
income.
The 28 properties held through partnerships (including the property
owned by the partnership that is reported on a consolidated basis with the Trust
in the Trust's financial statements and in which the Trust has a 65% controlling
interest (hereinafter the "Consolidated Partnership")) involve 18 different
partners, 12 of whom held an interest in only one property and 6 of whom held
interests in from 2 to 4 properties.
No trustee or employee of the Trust or any of its subsidiaries
participates in the ownership or income from the properties held in partnership
form or any other property in which the Trust has an interest and none of the
Trust's partners in the partnerships is affiliated with the Trust.
As of August 31, 1995, the aggregate indebtedness secured by mortgages
on the wholly-owned properties of the Trust was $78,198,000, including
indebtedness of $17,413,000 secured by a mortgage against the property owned by
the Consolidated Partnership. In addition, the Trust has equity interests in 18
partnerships which have an aggregate mortgage indebtedness of $136,004,000. The
mortgage notes relating to the wholly-owned and the partnership properties bear
interest at rates ranging from 6.8% to 10.4% per annum. The liability under each
mortgage note is limited to the particular property except for two loans in the
aggregate amount of $28,761,000 which are guaranteed by the partners of the
respective partnerships, including the Trust. In addition, a bank loan in the
amount of $1,306,000 has been guaranteed by the partners of one partnership,
including the Trust.
-4-
WHOLLY-OWNED PROPERTIES
The following chart sets forth certain information with respect to the Trust's
wholly-owned properties at August 31, 1995.
Apartment Buildings
-------------------
Property and Location Year Acquired Units Occupancy Rate (1) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----- ------------------ ---------------- ----------------
2031 Locust Street
Philadelphia, PA 1961 87 100% $ 877,000 $ 0(2)
Marylander
Baltimore, MD 1962 510 95% 1,363,000 0
Kenwood Gardens
Toledo, OH 1963 504 94% 1,866,000 0(2)
Chateau
Midland, TX 1964 101 97% 725,000 0
Camp Hill Plaza
Camp Hill, PA 1969 300 96% 1,585,000 6,963,000
Lakewood Hills
Harrisburg, PA 1972 562 96% 6,599,000 0(2)
Cobblestone
Pompano Beach, FL 1993 384 96% 12,323,000 9,072,000
Shenandoah
West Palm Beach, FL 1993 220 98% 11,240,000 0
Hidden Lakes
Dayton, OH 1994 360 99% 12,752,000 0(2)
Palms of Pembroke
Pembroke Pines, FL 1994 348 97% 21,734,000 0
Boca Palms
Boca Raton, FL 1994 522 96% 33,918,000 0
----- ----------- ----------
SUB TOTAL 3,898 104,982,000 16,035,000(2)
Consolidated Partnership
- ------------------------
Emerald Point
Virginia Beach, VA 1993 862 96% 21,609,000 17,413,000
----- --- ------------ -----------
TOTAL 4,760 96% $126,591,000 $33,448,000
===== === ============ ===========
-5-
Shopping Centers
--------------------------
Property and Location Year Acquired Square Feet Percentage Leased(3) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----------- -------------------- ---------------- ----------------
Crest Plaza Shopping Center
Allentown, PA 1964 153,000 94% $ 2,701,000 $ 0
Ingleside Center
Thorndale, PA 1980 41,000 100% 1,185,000 1,043,000
South Blanding Village
Jacksonville, FL 1986 107,000 100% 8,005,000 0
Mandarin Corners
Jacksonville, FL 1986 216,000 96% 12,969,000 8,845,000
------- --- ----------- ----------
TOTAL 517,000 96% $24,860,000 $9,888,000
======= === =========== ==========
Industrial Properties
--------------------------
Property and Location Year Acquired Square Feet Percentage Leased Depreciated Cost Mortgage Balance
- --------------------- ------------- ----------- -------------------- ---------------- ----------------
Office and Warehouse
Alexandria, VA 1962 332,000 100% $ 1,183,000 $ 0
Warehouse
Pennsauken, NJ 1962 12,000 100% 61,000 0
Warehouse
Allentown, PA 1962 16,000 100% 15,000 0
Warehouse
Pennsauken, NJ 1963 30,000 100% 108,000 0
Warehouse and Plant
Lowell, MA 1963 197,000 100% 693,000 0
------- ---- ----------- -------------
TOTAL 587,000 100% $ 2,060,000 0
======= ==== =========== =============
Land
----
Property and Location Year Acquired Acres Depreciated Cost Mortgage Balance
- --------------------- ------------- ----- ---------------- ----------------
Bucks County, PA(4) 1985 25 $3,590,000 $ 0
-- ------------ ---------------
TOTAL 25 3,590,000 0
== ============ ===============
Total Wholly Owned $157,101,000 $ 43,336,000(2)
============ ===============
- ------------------------------
(1) Occupancy rate is calculated as the percentage of occupied units for
all apartments as of August 31, 1995.
(2) Excludes aggregate indebtedness of $34,862,000 that is
cross-collateralized by the apartment complexes in Philadelphia,
Pennsylvania, Toledo, Ohio, Harrisburg, Pennsylvania and Dayton, Ohio
shown in this table.
(3) Percentage Leased is calculated as a percentage of total shopping
center net leasable area for which leases were in effect as of August
31, 1995.
(4) On January 1, 1995, the Trust, in satisfaction of its partner's
obligation, acquired its partner's 50% interest in the partnership that
owns this property and therefore now has 100% of the equity interest in
this property.
-6-
PARTNERSHIPS AND JOINT VENTURES
The following chart sets forth certain information with respect to the
properties owned by the partnerships, and the Trust's equity interest and
investment in the partnerships at August 31, 1995.
Apartment Buildings
-------------------
Partnerships
Partnerships and and Joint Trust's
Trust's Joint Ventures Ventures Investment in
Property and Year Equity Occupancy Depreciated Mortgage Partnerships and
Location Acquired Interest Units Rate(1) Cost Balance (2) Joint Ventures
- ------------ -------- -------- ----- --------- ----------------- ------------ ----------------
Cambridge Hall
West Chester, PA 1967 50% 232 98% $ 1,175,000 $ 0 $ 1,861,000
Fox Run
Warminster, PA 1969 50% 196 98% 1,742,000 4,000,000 (1,088,000)
Will-O-Hill
Reading, PA 1983 50% 190 99% 3,226,000 1,913,000 853,000
Fox Run
Bear, DE 1988 50% 414 91% 19,529,000 15,164,000 1,809,000
Eagle's Nest
Coral Springs, FL 1989 50% 264 96% 20,396,000 16,150,000 1,976,000
Regency Lakeside
Omaha, NE 1990 50% 433 100% 24,415,000 19,171,000 1,734,000
Countrywood
Tampa, FL 1993 50% 536 97% 10,169,000 6,610,000 1,706,000
Windsong
Altamonte Springs, FL 1993 40% 312 92% 5,973,000 3,685,000 869,000
----- --- ----------- ----------- ----------
TOTAL 2,577 96% $86,625,000 $66,693,000 $9,720,000
===== === =========== =========== ==========
-7-
Shopping Centers
---------------------
Partnerships Partnerships Trust's
and Joint and Joint Investment in
Trust's Ventures Ventures Partnerships
Year Equity Square Percentage Depreciated Mortgage and Joint
Property and Location Acquired Interest Feet Leased (8) Cost Balance (2) Ventures
- --------------------- -------- -------- ------ ---------- ------------ ------------ -------------
Park Plaza Shopping Center
Pinellas Park, FL 1963 50% 151,000 96% $1,386,000 $ 542,000 $ 478,000
Whitehall Mall
Allentown, PA 1964 50% 603,000(3) 95% 5,671,000 0 3,952,000
Punta Gorda Mall
Punta Gorda, FL 1965 25% 102,000 91% 882,000 2,253,000 (335,000)
Ormond Beach Mall
Daytona Beach, FL 1966 25% 103,000 95% 650,000 0 143,000
Palmer Park Mall
Easton, PA 1972 50% 349,000(4) 96% 5,586,000 4,315,000 285,000
Gateway Mall
St. Petersburg, FL 1973 60% 386,000(5) 74% 2,300,000 0 1,804,000
Rio Mall
Rio Grande, NJ 1973 50% 161,000 84% 2,243,000 747,000 976,000
Lehigh Valley Mall
Allentown, PA 1973 50% 1,054,000(6) 99% 17,428,000 22,227,000 (1,277,000)
East Towne Mall
Lancaster, PA 1973 50% 303,000 71% 4,124,000 3,648,000 312,000
Chippewa Mall
Beaver Falls, PA 1979 50% 83,000 67% 1,755,000 1,828,000 (102,000)
Greene Plaza
Waynesburg, PA 1980 50% 117,000 93% 2,608,000 2,388,000 150,000
Ingleside Center
Thorndale, PA 1981 50% 61,000 100% 1,658,000 1,559,000 95,000
Forestville Shopping Center
Forestville, MD 1983 75% 218,000 90% 6,062,000 1,859,000 3,046,000
Laurel Mall
Hazelton, PA 1988 40% 558,000 95% 26,150,000 27,945,000 (404,000)
Margate Center
Margate, FL(7) 1987 87.5% 40,000 76% 2,040,000 0 371,000
--------- --- ----------- ----------- ----------
TOTAL 4,289,000 91% $80,543,000 $69,311,000 $9,494,000
========= === =========== =========== ==========
-8-
Industrial Property
-------------------
Partnerships Partnerships Trust's
and Joint and Joint Investment in
Trust's Ventures Ventures Partnerships
Year Equity Square Percentage Depreciated Mortgage and Joint
Property and Location Acquired Interest Feet Leased Cost Balance (2) Ventures
- --------------------- -------- -------- ------- ---------- ------------ ------------ ------------
Warehouse and Plant
Ft. Washington, PA 1962 50% 141,000 100% $ 443,000 $ 0 $ 108,000
------- ---- ---------- ----------- -----------
TOTAL 141,000 100% $ 443,000 $ 0 $ 108,000
======= ==== ========== =========== ===========
Land
----
Partnerships Partnerships Trust's
and Joint and Joint Investment in
Trust's Ventures Ventures Partnerships
Year Equity Depreciated Mortgage and Joint
Property and Location Acquired Interest Acres Cost Balance Ventures
- --------------------- -------- -------- ------- ------------ ------------ ------------
Rancocas, NJ 1971 75% 54 $ 646,000 $ 0 ($1,393,000)
Elizabethtown, PA 1972 50% 22 279,000 0 136,000
Coral Springs, FL 1990 50% 14 3,521,000 0 ( 662,000)
-- ------------ ------------ -------------
TOTAL 90 $ 4,446,000 $ 0 ($1,919,000)
== ============ ============ =============
Other 36,000
------------
Total Partnerships and Joint Ventures $172,057,000 $136,004,000 $17,439,000
============ ============ ============
- ------------------------------------
(1) Occupancy rate is calculated as the percentage of occupied units for
all apartments as of August 31, 1995.
(2) Some partnerships and joint ventures have incurred non-mortgage
indebtedness in connection with operations.
(3) Whitehall Mall includes 82,000 square feet occupied by a department
store tenant which leases the ground and owns the building.
(4) Palmer Park Mall includes 82,000 square feet occupied and owned by a
department store.
(5) Gateway Mall includes 60,000 square feet occupied and owned by a
department store.
(6) Lehigh Valley Mall includes 565,000 square feet occupied and owned by
department stores which either own or lease the ground upon which
their stores are located.
(7) Frank's Garden Center which had occupied 18,800 square feet, vacated
the property but is obligated to pay rent until its lease term expires
December 2006.
(8) Percentage Leased is calculated as a percentage of total shopping
center net leaseable area for which leases were in effect as of
August 31, 1995.
Competition, Regulation and Other Factors
The real estate business is highly competitive. The Trust competes for
tenants with other property owners. All of the Trust's shopping center and
apartment properties are subject to significant competition. The Trust also
competes for investment opportunities with investors and purchasers of real
estate of all types, many of which have greater financial resources, revenues
and geographical diversity than those of the Trust, including institutional,
private and foreign investors.
-9-
Increased building of new apartment communities and shopping centers as
well as renovation of older properties are a source of competition for the
Trust. In addition, single family housing becomes increasingly attractive when
lower interest rates make mortgages more affordable. These trends can affect the
number of prospective tenants for the Trust's apartment properties.
A substantial portion of the Trust's shopping center income consists of
rents received under long-term leases. Most of these shopping center leases
provide for payment by tenants of an annual minimum rent and additional rent
calculated generally as a percentage of gross sales in excess of a specified
amount ("percentage rent"). These shopping center leases often contain
provisions for contribution by tenants to the cost of maintaining common areas
and real estate tax escalation clauses under which the tenant bears its
proportionate share of increases in or total real estate taxes. While tenant
contributions historically have not covered all costs required to maintain
common areas, some leases provide for full recovery of these costs from tenants.
Upon renewal of a shopping center lease, the annual minimum rent of a tenant may
be increased to an amount which approaches or exceeds the sum of the former
annual minimum rent plus the most recent annual percentage rent received from
the tenant, and the level from which percentage rent is calculated is
correspondingly increased. In difficult economic times or in strongly
competitive environments, the shopping center owner may have to offer
concessions or negotiate leases in which the tenant pays a lower rental or less
than its pro rata share of certain operating costs.
The success of the Trust depends, among other factors, upon general
economic conditions, population trends, real estate fluctuations, income tax
laws, governmental regulations, availability and costs of financing,
construction costs, increases or decreases in operating expenses, zoning laws
and the ability of the Trust to keep its properties leased at profitable levels.
All but two of the 48 properties in which the Trust has an interest are
located in the eastern United States, with 20 of the properties located in
Pennsylvania and 15 in Florida. The ability of some existing tenants of the
Trust's properties to meet their lease obligations could be adversely affected
by economic conditions in the East and in Florida and Pennsylvania in
particular.
The effects of inflation upon the Trust's operations and investment
portfolio are varied. From the standpoint of revenues, inflation has the dual
effect of both increasing the tenant revenues upon which percentage rentals are
based and allowing increased fixed rentals to rise generally to reflect higher
construction costs on new properties and on renovation and rehabilitation of
older properties. This positive effect may be offset by higher operating
expenses.
-10-
Fundamental to the Trust is the generation of cash flow which, if
distributed to shareholders, is free from Federal income taxes to the Trust. The
determination to make distributions to shareholders, however, is not solely
based on cash flow because the Trust is required to distribute to its
shareholders annually at least 95% of its real estate investment trust taxable
income to remain qualified for the favorable tax treatment afforded by the
Internal Revenue Code. The Trust generally attempts to distribute 100% of such
income and capital gains from sales of real estate investments so as to avoid
any Federal income and excise tax liability for the Trust.
The United States government and a number of states and their
subdivisions have adopted laws and regulations relating to environmental
controls, some of which directly, and many of which indirectly, limit the
development of real estate and may adversely affect the operation of existing
properties. Such laws and regulations may operate to reduce the number and
attractiveness of investment opportunities available to the Trust and limit the
extent to which existing properties may be utilized. If hazardous substances are
discovered on or emanating from any of the Trust's properties, the owner or
operator of the property, including the Trust, may be held liable for all costs
and liabilities relating to such hazardous substances. Since 1987, the Trust has
conducted a Phase I environmental study on each property it seeks to acquire.
These studies may, but do not necessarily, detect the potential environmental
hazards associated with a property. The Trust has no way of determining the
magnitude of any potential liability to which it may be subject arising out of
unknown environmental conditions or violations.
Environmental matters have arisen at certain properties in which the
Trust has an interest. The Trust retained environmental consultants in order to
investigate certain of these matters. At one property in which the Trust has a
50% ownership interest, groundwater contamination may exist which the Trust
alleges was caused by the former tenant. Estimates to remediate this property,
which are subject to the length of monitoring and the extent of remediation
required, range in total from $400,000 to $1,600,000. In addition, above normal
radon levels have been detected at two wholly-owned properties. The estimated
cost to remediate these properties is approximately $380,000, which costs were
received as a credit from the sellers as part of the initial acquisitions.
The Trust has recorded its share of these liabilities, totaling
$688,000, based upon the consultants' evaluation of these matters which, in
certain instances, are subject to applicable state approvals of the remediation
plans.
-11-
There are asbestos-containing materials in many of the properties in
which the Trust has an interest, primarily in the form of floor tiles and
adhesives. The floor tiles and adhesives are generally in good condition.
Fire-proofing material containing asbestos is present at some of the properties
in limited concentrations or in limited areas.
Employees
The Trust, as of August 31, 1995, employed fifteen (15) persons on a
full-time basis, three of whom, Sylvan M. Cohen, Chairman and Chief Executive
Officer, Jonathan B. Weller, President and Chief Operating Officer, and Robert
G. Rogers, Executive Vice President, are Trustees.
Item 2. Properties
See the tables under "Item 1. Business" at pages 5 to 9 for the
properties owned by the Trust, both wholly-owned and those in which it has a
percentage interest, and reference is made thereto.
The Trust leases 4,661 square feet of space for its principal offices
at 455 Pennsylvania Avenue, Ft. Washington, Pennsylvania with a five-year term
expiring December 31, 1998. The rent for the first year was $13.00 per
square foot, and the rent escalates annually to the final year's rent at $14.50
per square foot. In addition to the rent, the Trust pays its pro rata share of
any increase in operating expenses over those in 1994, which is the base year
for determining the increase.
Titles to all of the Trust's real estate investments have been searched
and reported to the Trust by reputable title companies. The exceptions listed in
such title reports will not, in the opinion of the Trust, materially interfere
with the use of the respective properties for the intended purposes.
-12-
Schedule of Real Estate and Accumulated Depreciation
Schedule III, "Real Estate and Accumulated Depreciation-August 31,
1995," is part of the financial statement schedules set forth herein and
reference is made to that schedule which is incorporated herein by reference
for the amount of encumbrances, initial cost of the properties to the Trust,
cost of improvements, the amount at which carried and the amount of the
accumulated depreciation.
Item 3. Legal Proceedings
Daniel Berman and Robert Berman and/or entities owned or controlled by
them (collectively, the "Bermans") are partners of wholly-owned subsidiaries of
the Trust in the ownership of Fox Run Apartments, Bear, Delaware, Eagle's Nest
Apartments, Coral Springs, Florida, and 14 undeveloped acres in Coral Springs,
Florida. Berman Real Estate Management, Inc., a corporation owned by the
Bermans, currently manages the two apartment complexes.
In May 1994, the Bermans commenced an action against the Trust and
certain of its wholly-owned subsidiaries in the Montgomery County Court of
Common Pleas in Pennsylvania (the "Pennsylvania Litigation"). In the
Pennsylvania Litigation, the Bermans, seeking damages and a declaratory
judgment, asserted that the Trust interfered with a contract to develop the
parcel in Coral Springs, Florida and violated the partnership agreement relating
to Eagle's Nest Apartments in Coral Springs, Florida. The Bermans later amended
their complaint to add new parties and to allege that the defendants had no
right to terminate the leasing and management agreement at Fox Run Apartments,
had violated the Fox Run partnership agreement and that the Bermans had no
liability for certain partnership expenses.
In June 1994, two wholly-owned subsidiaries of the Trust commenced an
action in Delaware Chancery Court against the Bermans (the "Delaware
Litigation"). The action seeks, among other things, a declaratory judgment and
an injunction preventing the defendants from continuing to manage Fox Run and
damages resulting from the payment by plaintiffs of defendants' share of the
investigation and remediation of the environmental condition at Fox Run
Apartments.
The Trust intends to continue to vigorously resist plaintiffs' claims
in the Pennsylvania Litigation and to pursue the claims asserted in the Delaware
Litigation. Management does not believe that resolution of these matters will
have a material adverse effect on the Trust's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
-13-
Item 4A. Executive Officers of the Registrant
The executive officers of the Trust on November 1, 1995 were as
follows:
FIRST BECAME
AN EXECUTIVE BUSINESS EXPERIENCE
NAME AND OFFICE AGE OFFICER DURING PAST 5 YEARS
Sylvan M. Cohen 81 1960 Chairman and Chief
Chairman and Executive Officer of
Chief Executive the Trust. Presently
Officer of counsel to the
Philadelphia law firm
of Drinker Biddle &
Reath and formerly
partner in the
Philadelphia law firm
of Cohen, Shapiro, Polisher,
Shiekman and Cohen.
Jonathan B. 48 1994 President and Chief
Weller Operating Officer of
President and the Trust. From 1988-
Chief Operating 1993, Executive Vice
Officer President and Director
of Eastdil Realty,
Inc., a real estate
investment banking
firm.
Robert G. Rogers 64 1972 Executive Vice
Executive Vice President of the
President Trust.
Jeffrey A. Linn 46 1990 Vice President -
Senior Vice Acquisitions since
President - 1994 and Secretary
Acquisitions and since 1990. Vice
Secretary President - Operations
of the Trust until
1994.
Dante J. 62 1976 Treasurer and Vice
Massimini President - Finance of
Senior Vice the Trust.
President -
Finance and
Treasurer
-14-
FIRST BECAME
AN EXECUTIVE BUSINESS EXPERIENCE
NAME AND OFFICE AGE OFFICER DURING PAST 5 YEARS
Raymond J. Trost 40 1994 Asset Manager of the
Vice President - Trust's Apartment
Asset Management Complexes since 1994.
Formerly, Property
Manager of one of the
Trust's properties.
Each of Messrs. Cohen, Weller, Rogers, Linn and Massimini has an
employment agreement to serve the Trust in the capacities described above.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
Incorporated by reference to "Market Price and Distribution Record",
inside back cover (page 25) of the 1995 Annual Report to Shareholders.
The Board of Trustees on December 19, 1991 changed the prior practice
of making semi-annual distributions. The Board of Trustees has, in each quarter
subsequent to the third quarter of the 1992 fiscal year, considered and declared
a quarterly distribution. It is anticipated that the Board of Trustees will
consider a distribution each quarter; however, no assurance can be given that a
distribution will be declared.
Item 6. Selected Financial Data
Incorporated by reference to "Financial Highlights", page 1 of the 1995
Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference to pages 21-23 of the 1995 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets of the Trust as of August 31, 1995 and
1994, and the related consolidated statements of income, beneficiaries' equity
and cash flows for each of the three years in the period ended August 31, 1995,
and the report of independent public accountants thereon and the Trust's summary
-15-
of unaudited quarterly financial information for the two-year period ended
August 31, 1995 are incorporated by reference from the 1995 Annual Report to
Shareholders, pages 12-20.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
PART III
The information called for by Items 10, 11, 12 and 13 (except the information
concerning executive officers included in Item 4A of this report) is
incorporated by reference to the Trust's proxy statement relating to its 1995
Annual Meeting. However, the portions of such proxy statement constituting the
report of the Executive Compensation and Human Resources Committee of the Board
of Trustees and the graph showing performance of the Trust's shares and certain
share indices shall not be deemed to be incorporated herein or filed for
purposes of the Securities Exchange Act of 1934, as amended.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
1. The Trust's Consolidated Financial Statements, as
described below, are incorporated by reference to pages
12-20 of the Trust's 1995 Annual Report to Shareholders.
Consolidated Balance Sheet at
August 31, 1995 and 1994
Consolidated Statements of Income and
Beneficiaries' Equity for the fiscal years ended
August 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the
fiscal years ended August 31, 1995, 1994 and 1993
Notes to Consolidated Financial
Statements
-16-
Report of Independent Public
Accountants
2. Lehigh Valley Associates Financial Statements
Report of Independent Auditors F-1
Balance Sheets at August 31, 1995
and 1994 F-2
Statements of Operations for the
fiscal years ended August 31,
1995 and 1994 F-3
Statements of Partners'
Deficiency at August 31, 1995 and
1994 and September 1, 1993 F-4
Statements of Cash Flows for the
fiscal years ended August 31,
1995 and 1994 F-5
Notes to Financial Statements F-6
The audited financial statements of Lehigh Valley Associates
for the year ended August 31, 1993 and the report of the
independent public accountants thereon are incorporated herein
by reference from the Trust's Annual Report on Form 10-K for
the fiscal year ended August 31, 1993.
(2) Financial Statement Schedules
II - Valuation and Qualifying
Accounts 22
III - Real Estate and Accumulated
Depreciation 23
IV - Mortgage Loans on Real Estate
- August 31, 1995 26
Report of Independent Public Accountants
on Supplemental Schedules. 27
All other schedules are omitted because they are not
applicable or are not required or because the required
information is reported in the consolidated financial
statements or notes thereto.
(3) Exhibits
3.1 Trust Agreement, as amended and restated on
December 16, 1987, filed as Exhibit 3.1 to the
-17-
Trust's Annual Report on Form 10-K for the fiscal year
ended August 31, 1988, is incorporated herein by
reference.
4.1 Revolving Credit Agreement dated November 3, 1994
among the Trust, CoreStates Bank, N.A. as lender
and as agent, Meridian Bank, Midlantic Bank, N.A.
and PNC Bank, National Association.
4.2 First Amendment to Revolving Credit Agreement dated
March 20, 1995 among the Trust, CoreStates Bank,
N.A., as a lender and as agent, Meridian Bank,
Midlantic Bank, N.A. and PNC Bank, National
Association.
4.3 Form of Revolving Credit Agreement Note.
4.4 Secured Loan Agreement dated November 9, 1994 among
the Trust, CoreStates Bank, N.A., as lender and as
agent, Meridian Bank, Midlantic Bank, N.A. and PNC
Bank, National Association.
4.5 First Amendment to Secured Loan Agreement dated
March 20, 1995 among the Trust, CoreStates Bank,
N.A., as lender and as agent, Meridian Bank,
Midlantic Bank, N.A. and PNC Bank, National
Association.
4.6 Form of Replacement Note pursuant to the First
Amendment to Secured Term Loan Agreement.
4.7 Guaranty dated August 2, 1993 of the Trust in favor
of CoreStates Bank, N.A.
4.8 Guaranty dated January 27, 1994 of the Trust in
favor of CoreStates Bank, N.A.
4.9 Guaranty dated September 23, 1994 of the Trust in
favor of CoreStates Bank, N.A.
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, is incorporated
herein by reference.
10.2 First Amendment to Amended and Restated Employment
Agreement as of July 12, 1993 between the Trust and
Robert G. Rogers, filed as Exhibit 10.2 to the Trust's
Annual Report on Form 10-K for the fiscal year ended
August 31, 1993, is incorporated herein by reference.
-18-
10.3 Amended and Restated Employment Agreement, dated as of
October 1, 1990, between the Trust and Robert G. Rogers,
filed as Exhibit 10.2 to the Trust's Annual Report on
Form 10-K for the fiscal year ended August 31, 1990, is
incorporated herein by reference.
10.4 Amended and Restated Employment Agreement, dated as of
October 1, 1990, between the Trust and Dante J.
Massimini, filed as Exhibit 10.3 to the Trust's Annual
Report on Form 10-K for the fiscal year ended August 31,
1990, is incorporated herein by reference.
10.5 The 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.
10.6 The Trust's Stock Option Plan for Non-Employee Trustees,
filed as Appendix B 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.
10.7 Purchase and Sale Agreement between Robert G.
Rogers and Jonathan B. Weller, as Trustees and on
behalf of all other Trustees of the Trust, and
Pembroke Associates Limited Partnership dated
May 9, 1994 and Amendment No. 1 to Purchase and
Sale Agreement between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of
all other Trustees of Trust, and Pembroke
Associates Limited Partnership dated June 28, 1994,
filed as Exhibit 10.7 to the Trust's Report on Form
8-K dated August 1, 1994 and filed August 15, 1994,
is incorporated herein by reference.
10.8 Agreement of Sale (Phase I) between Robert G.
Rogers and Jonathan B. Weller, as Trustees and on
behalf of all other Trustees of the Trust, and
Arbern Investors VI, L.P., dated September 24, 1994
and Amendment No. 1 to Purchase and Sale Agreement
(Phase I), between Robert G. Rogers and Jonathan B.
Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Arbern Investors VI,
L.P., dated November 4, 1994, filed as Exhibit 10.8
to the Trust's Report on Form 8-K dated November
10, 1994 and filed November 23, 1994, is
incorporated herein by reference.
-19-
10.9 Agreement of Sale (Phase II) between Robert G.
Rogers and Jonathan B. Weller, as Trustees and on
behalf of all other Trustees of the Trust, and
Arbern Investors VIII, L.P., dated September 24,
1994, Amendment No. 1 to Purchase and Sale
Agreement (Phase I) between Robert G. Rogers and
Jonathan B. Weller, as Trustees and on behalf of
all other Trustees of the Trust, and Arbern
Investors VIII, L.P., dated November 4, 1994, and
Amendment No. 2 to Purchase and Sale Agreement
(Phase I) between Robert G. Rogers and Jonathan B.
Weller, as Trustees and on behalf of all other
Trustees of the Trust, and Arbern Investors VIII,
L.P., dated November 4, 1994, filed as Exhibit 10.9
to the Trust's Report on Form 8-K dated November
10, 1994 and filed on November 23, 1994, is
incorporated herein by reference.
10.10 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.
10.11 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.
10.12 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, is incorporated herein by reference.
10.13 Employment Agreement dated as of October 1, 1985
between the Trust and Jeffrey Linn.
13. "Market Price and Distribution Record" contained on
the inside back page of the Trust's 1995 Annual
Report to Shareholders; "Financial Highlights"
contained on page 1 of the Trust's 1995 Annual
Report to Shareholders; the Trust's consolidated
financial statements, including "Notes to
consolidated financial statements" and "Report of
independent public accountants", pages 12-20 of the
Trust's 1995 Annual Report to Shareholders; and
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on
pages 21-23 of the Trust's 1995 Annual Report to
Shareholders.
-20-
21. Listing of subsidiaries.
23.1 Consent of Arthur Andersen LLP (Independent Public
Accountants).
23.2 Consent of Ernst & Young LLP (Independent
Auditors).
27. Financial Data Schedule
99. Portions of the Trust's definitive proxy statement
for its 1995 Annual Meeting of Shareholders
responsive to Items 10, 11, 12 and 13 in Part III
hereof filed on November 16, 1995, are incorporated
herein by reference. However, the portions of such
proxy statement constituting the report of the
Executive Compensation and Human Resources
Committee of the Board of Trustees and the graph
showing performance of the Trust's Shares and
certain shares indices shall not be deemed to be
incorporated herein or filed for the purposes of
the Securities Exchange Act of 1934.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months
ended August 31, 1995.
-21-
SCHEDULE II
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
------------------------
Balance Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
- --------------------------------- ------------ ---------- ----------- ---------- ----------
ALLOWANCE FOR POSSIBLE
LOSSES:
Year ended August 31, 1995 $3,235,000 $ - $ - $ 460,000 $2,775,000
========== ========== ========== ========== ==========
Year ended August 31, 1994 $1,440,000 $1,795,000 $ - $ - $3,235,000
========== ========== ========== ========== ==========
Year ended August 31, 1993 $1,120,000 $ 320,000 $ - $ - $1,440,000
========== ========== ========== ========== ==========
SCHEDULE III
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1995
Column A Column B Column C
Encumbrances
------------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 8/31/95 to Trust
------------------------------------ ------------------- ------------- --------------- ------------------
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ $ 100,000
Building and improvements 1,028,000
Furniture and portable equipment
Camp Hill Plaza Apartments-
Land 9.5% 3/1/2007 6,963,268 337,000
Building and improvements 2,911,000
Furniture and portable equipment 150,000
Chateau Apartments-
Land 110,000
Building and improvements 1,004,000
Furniture and portable equipment 159,000
Cobblestone Apartments-
Land 7.50% to 8.25% 12/16/2002 9,072,466 2,791,000
Building and improvements 9,336,000
Furniture and portable equipment 362,000
Kenwood Gardens-
Land 489,000
Building and improvements 3,007,000
Furniture and portable equipment 228,000
Lakewood Hills Apartments-
Land 501,000
Building and improvements 10,935,000
Furniture and portable equipment 468,000
Marylander Apartments-
Land 117,000
Building 4,013,000
Furniture and portable equipment 327,000
Shenandoah Village-
Land 2,200,000
Building and improvements 8,695,000
Furniture and portable equipment 281,000
Emerald Point-
Land 6.790% 12/1/2008 17,412,875 3,063,000
Building and improvements 17,352,000
Furniture and portable equipment 1,293,000
Hidden Lakes-
Land 1,225,000
Building and improvements 10,807,000
Furniture and portable equipment 986,000
Palms of Pembroke-
Land 4,868,000
Building and improvements 16,389,000
Furniture and portable equipment 848,000
Boca Palms-
Land 7,107,000
Building and improvements 26,378,000
Furniture and portable equipment 1,101,000
Column A Column D Column E Column F Column G&H Column I
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 8/31/95 Depreciation Constructed Depreciable
Description Etc. (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life (Years)
----------------------------------- ------------- ------------- ------------ ----------- ------------
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ - $ 100,000 $ - 1961
Building and improvements 1,234,000 2,262,000 1,765,000 11-25
Furniture and portable equipment 527,000 527,000 248,000 10
Camp Hill Plaza Apartments-
Land - 336,000 - 1969
Building and improvements 657,000 3,567,000 2,700,000 5-33-1/3
Furniture and portable equipment 539,000 689,000 307,000 7-10
Chateau Apartments-
Land - 110,000 - 1964
Building and improvements 355,000 1,359,000 1,045,000 3-38
Furniture and portable equipment 443,000 602,000 301,000 5-13
Cobblestone Apartments-
Land - 2,791,000 - 1992
Building and improvements 345,000 9,681,000 693,000 10-40
Furniture and portable equipment 285,000 647,000 102,000 7-10
Kenwood Gardens-
Land - 489,000 - 1963
Building and improvements 1,369,000 4,375,000 3,555,000 8-38
Furniture and portable equipment 1,002,000 1,230,000 673,000 8-10
Lakewood Hills Apartments-
Land - 500,000 - Phase I 1972
Building and improvements 1,108,000 12,042,000 6,772,000 Phase II 1975 8-45
Furniture and portable equipment 1,369,000 1,837,000 1,010,000 Phase III 1980 10
Marylander Apartments-
Land - 117,000 - 1962
Building 1,574,000 5,587,000 4,756,000 10-39
Furniture and portable equipment 599,000 926,000 510,000 5-10
Shenandoah Village-
Land - 2,200,000 -
Building and improvements 265,000 8,960,000 495,000 1993 10-39
Furniture and portable equipment 367,000 648,000 72,000 5-10
Emerald Point-
Land - 3,062,000 - 1993
Building and improvements 1,075,000 18,427,000 1,216,000 10-39
Furniture and portable equipment 404,000 1,697,000 362,000 5-10
Hidden Lakes-
Land - 1,225,000 - 1994
Building and improvements 69,000 10,877,000 477,000 10-39
Furniture and portable equipment 196,000 1,182,000 55,000 5-10
Palms of Pembroke-
Land - 4,869,000 - 1994
Building and improvements 25,000 16,424,000 481,000 10-39
Furniture and portable equipment 130,000 977,000 54,000 5-10
Boca Palms-
Land - 7,107,000 -
Building and improvements - 26,378,000 574,000 1994 10-39
Furniture and portable equipment - 1,101,000 93,000 5-10
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1995
Column A Column B Column C
Encumbrances
------------------------------------------------------
Interest Maturity Balance at Initial Cost
Description Rate Date 8/31/95 to Trust
---------------------------------- ---------- ---------- ------------ --------------
INDUSTRIAL PROPERTIES:
ARA Services, Inc., Allentown, PA-
Land $ $ 3,000
Building and improvements 82,000
ARA Services, Inc., Pennsauken, NJ-
Land 20,000
Building and improvements 190,000
Interstate Container Corporation,
Lowell, MA-
Land 34,000
Building and improvements 364,000
People's Drug (CVS), Annandale, VA-
Land 225,000
Building and improvements 1,873,000
Sears, Roebuck and Company,
Pennsauken, NJ-
Land 25,000
Building and improvements 206,000
LAND HELD FOR DEVELOPMENT:
Big Oak-
Land 3,590,000
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 278,000
Building and improvements 2,230,000
Furniture and portable equipment --
Sitler Tract-
Land 55,000
Ingleside Shopping Center
Land 7.5% 8/1/2000 1,042,790 382,000
Building and improvements 1,471,000
Furniture and portable equipment --
South Blanding Village-
Land 2,947,000
Building and improvements 6,138,000
Furniture and portable equipment --
Mandarin Corners-
Land 9.125% 8/1/2008 8,844,508 4,892,000
Building and improvements 10,168,000
Furniture and portable equipment --
------------------ -----------------
Total for wholly owned and
consolidated partnership $ 43,336,000 $ 176,139,000
================== =================
Column A Column D Column E Column F Column G&H Column I
Improvements, Amount at
Net of Which Carried Accumulated Date
Retirements 8/31/95 Depreciation Constructed Depreciable
Description Etc. (Note 4) (Notes 1 & 2) (Note 3) or Acquired Life (Years)
----------------------------------- -------------- ------------- --------------- ----------- ------------
INDUSTRIAL PROPERTIES:
ARA Services, Inc., Allentown, PA-
Land $ -- $ 3,000 $ -- 1962
Building and improvements -- 82,000 70,000 10-40
ARA Services, Inc., Pennsauken, NJ-
Land -- 20,000 -- 1962
Building and improvements -- 190,000 150,000 10-50
Interstate Container Corporation,
Lowell, MA-
Land -- 34,000 -- 1963
Building and improvements 1,404,000 1,768,000 1,110,000 20-50
People's Drug (CVS), Annandale, VA-
Land -- 225,000 -- 1962
Building and improvements 476,000 2,349,000 1,392,000 25-55
Sears, Roebuck and Company,
Pennsauken, NJ-
Land -- 25,000 -- 1963
Building and improvements 176,000 382,000 299,000 10-50
LAND HELD FOR DEVELOPMENT:
Big Oak-
Land -- 3,590,000 -- 1995 --
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land -- 278,000 -- 1964
Building and improvements 3,013,000 5,243,000 2,874,000 20-40
Furniture and portable equipment 18,000 18,000 17,000 10
Sitler Tract-
Land -- 54,000 -- 1964
Ingleside Shopping Center -- Acme Parcel-
Land -- 382,000 -- 1980
Building and improvements 8,000 1,478,000 676,000 33-1/3
Furniture and portable equipment 2,000 2,000 2,000 10
South Blanding Village-
Land -- 2,947,000 -- 1988
Building and improvements 292,000 6,429,000 1,370,000 20-40
Furniture and portable equipment 10
Mandarin Corners-
Land -- 4,891,000 -- 1988
Building and improvements 464,000 10,631,000 2,553,000 33-1/3
Furniture and portable equipment -- ------------ ------------
------------
Total for wholly owned and
consolidated partnership $ 19,790,000 $195,929,000 $ 38,828,000
============ ============ ============
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES:
(1) Reconciliation of amount shown in Column E:
Balance, August 31, 1994 $ 154,281,000
Additions during the year-
Improvements, furniture and portable
equipment $ 3,753,000
Land 10,627,000
Building 27,268,000
41,648,000
Deductions during the year-
Retirements --
Properties sold --
------------
Balance, August 31, 1995 $195,929,000
============
(2) The aggregate cost for federal income tax
purposes is approximately $194,720,000
============
(3) Reconciliation of amount shown in Column F:
(Accumulated Depreciation):
Balance, August 31, 1994 $ 33,735,000
Depreciation during the year-
Buildings and improvements 4,217,000
Furniture and portable equipment 876,000 5,093,000
-----------
Deductions during the year-
Retirements --
Properties sold --
------------
Balance, August 31, 1995 $ 38,828,000
============
(4) Cost of improvements, net of retirements, etc.,
consists of the following:
Cost of improvements $ 19,790,000
Retirements --
------------
$ 19,790,000
============
SCHEDULE IV
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
MORTGAGE LOANS ON REAL ESTATE--AUGUST 31, 1995
Column A Column B Column C Column D Column E Column F Column G Column H
Principal
Amount of
Carrying Loan
Periodic Payment Outstanding Amount Subject to
Terms Principal of Delinquent
Interest Maturity --------------------- Prior Amount of Mortgage Principal
Description Rate Date Interest Principal Liens Mortgage (Note 5) or Interest
- ------------------------------- -------- -------- -------- --------- ----- -------- -------- -----------
Samuel Lauter (Note 2) (Note 4) Monthly (Note 4) None $ 560,000 $ 560,000 None
Donald Cafiero (Note 2) (Note 4) Monthly (Note 4) None 568,000 568,000 None
Charles A. Lotz, Jr. (Note 3) 2% over prime (Note 3) Monthly (Note 3) None 521,000 521,000 $521,000
--------- ----------
$1,649,000 $1,649,000
========== ==========
NOTES:
(1) Reconciliation of mortgage loans-
Balance at August 31, 1994 $1,649,000
Advances during period --
Repayments during period --
----------
Balance at August 31, 1995 $1,649,000
==========
(2) The interest rate is 1% over the prime rate but not less than 10% or more than 18%.
(3) The loan was not paid on the maturity date of February 15, 1990. The loan is on a nonaccrual basis.
(4) The loan was not paid on the maturity date of March 4, 1994. Beginning in March 1992,
25% of all distributions due are applied to the repayment of the loan.
(5) The aggregate carrying value for federal income tax purposes is the same as the amount shown in Column G.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULES
To Pennsylvania Real Estate Investment Trust:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in the portions of Pennsylvania Real
Estate Investment Trust's annual report to shareholders incorporated by
reference in this Form 10-K, and have issued our report thereon dated October
19, 1995. Our audit was made for the purpose of forming an opinion on those
statements taken as a whole. The supplemental schedules are the responsibility
of the Trust's management and 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 consolidated
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 19, 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Registrant)
Date: November 29, 1995 By:/s/ Sylvan M. Cohen
--------------------------------
Sylvan M. Cohen, Chairman and
Chief Executive 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 attorneys-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 attorneys-in-fact and
agents, or either of them or any substitute therefor, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Trust and in the
capacities and on the dates indicated:
/s/ Sylvan M. Cohen November 29, 1995
- ----------------------------------
Sylvan M. Cohen,
Chairman and Chief Executive
Officer and Trustee
(Principal Executive Officer)
/s/ Jonathan B. Weller November 29, 1995
- ----------------------------------
Jonathan B. Weller,
President and Chief Operating
Officer and Trustee
/s/ William R. Dimeling November 29, 1995
- ----------------------------------
William R. Dimeling,
Trustee
/s/ Jack Farber
- ---------------------------------- November 29, 1995
Jack Farber,
Trustee
/s/ Robert Freedman November 29, 1995
- ----------------------------------
Robert Freedman,
Trustee
/s/ Lee Javitch November 29, 1995
- ----------------------------------
Lee Javitch,
Trustee
- ---------------------------------- November __, 1995
Samuel J. Korman,
Trustee
/s/ Jeffrey P. Orleans November 29, 1995
- ----------------------------------
Jeffrey P. Orleans,
Trustee
/s/ Robert G. Rogers November 29, 1995
- ----------------------------------
Robert G. Rogers,
Executive Vice President
and Trustee
/s/ Jeffrey A. Linn November 29, 1995
- ----------------------------------
Jeffrey A. Linn,
Senior Vice President -
Acquisitions and Secretary
/s/ Dante J. Massimini November 29, 1995
- ----------------------------------
Dante J. Massimini,
Senior Vice President -
Finance and Treasurer
(Principal Financial and
Accounting Officer)
LOGO ERNST & YOUNG LLP // Two Commerce Square // Phone: 215-448-5000
Suite 4000 Fax: 215-448-4069
2001 Market Street
Philadelphia
Pennsylvania 19103-7096
Report of Independent Auditors
To the Partners of
Lehigh Valley Associates
We have audited the accompanying balance sheets of Lehigh Valley Associates (a
limited partnership) as of August 31, 1995 and 1994, and the related statements
of operations, partners' deficiency, and cash flows for the years then ended.
These financial statements are the responsibility of Lehigh Valley Associates'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lehigh Valley Associates at
August 31, 1995 and 1994, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
October 20, 1995
F-1
Lehigh Valley Associates
(A Limited Partnership)
Balance Sheets
August 31
1995 1994
------------------------------
Assets
Real estate, at cost (Notes 1 and 2):
Land $ 5,752,083 $ 5,752,083
Regional shopping center building and
building improvements 21,559,002 21,551,272
Office building 587,771 587,771
------------------------------
27,898,856 27,891,126
Less accumulated depreciation 11,899,934 11,240,992
------------------------------
15,998,922 16,650,134
Cash and cash equivalents 1,707,710 321,535
Due from tenants and others 662,926 852,084
Accrued rent (Note 1) 1,779,296 1,461,532
Prepaid expenses and other assets 709,524 608,572
------------------------------
$ 20,858,378 $ 19,893,857
==============================
Liabilities
Mortgages payable (Note 2) $ 22,226,947 $ 22,796,101
Accrued expenses and other liabilities, including
accrued interest (1995--$168,043;
1994--$172,318) 1,040,899 1,149,033
------------------------------
23,267,846 23,945,134
Partners' deficiency (2,409,468) (4,051,277)
------------------------------
$ 20,858,378 $ 19,893,857
==============================
See accompanying notes.
F-2
Lehigh Valley Associates
(A Limited Partnership)
Statements of Operations
Year ended August 31
1995 1994
------------------------------
Income:
Rentals (Notes 1 and 4):
Minimum $ 9,729,591 $ 9,086,148
Percentage 773,350 771,092
------------------------------
10,502,941 9,857,240
Sundry 364,891 286,856
------------------------------
10,867,832 10,144,096
Expenses, other than depreciation and amortization:
Real estate taxes, net of tenants' reimbursements
(1995--$765,852; 1994--$692,754) 14,051 46,876
Interest (Note 2) 2,040,410 2,090,278
Management fees (Note 3) 731,156 701,419
Common area expenses, net of tenants'
reimbursements (1995--$2,038,059;
1994--$2,553,995) (195,062) (239,848)
Other property expenses 58,135 359,637
------------------------------
2,648,690 2,958,362
------------------------------
Income before depreciation and amortization 8,219,142 7,185,734
Depreciation and amortization (Note 1) 671,333 664,840
------------------------------
Net income $ 7,547,809 $ 6,520,894
==============================
See accompanying notes.
F-3
Lehigh Valley Associates
(A Limited Partnership)
Statements of Partners' Deficiency
Percentage Balance
Interest Per as of
Partnership September 1,
Agreement 1993 Distributions Net Income
----------------------------------------------------------
General Partners:
Delta Ventures, Inc. 0.50% $ (18,391) $ (34,470) $ 32,605
Pennsylvania Real Estate Investment Trust 30.00 (1,103,451) (2,068,200) 1,956,268
Limited Partners:
Morris A. Kravitz Residuary Trust 9.00 (331,035) (620,460) 586,880
Myles H. Tanenbaum 8.55 (314,484) (589,437) 557,537
Jordan A. Katz 4.50 (165,518) (310,230) 293,440
Robert T. Girling 4.50 (165,518) (310,230) 293,440
Lea R. Powell, Trustee under indenture of
Arthur L. Powell 9.00 (331,035) (620,460) 586,880
Harold G. Schaeffer 4.50 (165,518) (310,230) 293,440
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer 4.50 (165,518) (310,230) 293,440
Richard A. Jacoby 4.95 (182,069) (341,253) 322,784
Pennsylvania Real Estate Investment Trust 20.00 (735,634) (1,378,800) 1,304,180
----------------------------------------------------------
100.00% $(3,678,171) $(6,894,000) $ 6,520,894
==========================================================
Balance Balance
as of as of
August 31, August 31,
1994 Distributions Net Income 1995
-------------------------------------------------------------
General Partners:
Delta Ventures, Inc. $ (20,256) $ (29,530) $ 37,739 $ (12,047)
Pennsylvania Real Estate Investment Trust (1,215,383) (1,771,800) 2,264,343
(722,840)
Limited Partners:
Morris A. Kravitz Residuary Trust (364,615) (531,540) 679,303 (216,852)
Myles H. Tanenbaum (346,384) (504,963) 645,338 (206,009)
Jordan A. Katz (182,308) (265,770) 339,651 (108,427)
Robert T. Girling (182,308) (265,770) 339,651 (108,427)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (364,615) (531,540) 679,303 (216,852)
Harold G. Schaeffer (182,308) (265,770) 339,651 (108,427)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (182,308) (265,770) 339,651 (108,427)
Richard A. Jacoby (200,538) (292,347) 373,617 (119,268)
Pennsylvania Real Estate Investment Trust (810,254) (1,181,200) 1,509,562 (481,892)
-------------------------------------------------------------
$(4,051,277) $(5,906,000) $7,547,809 $(2,409,468)
=============================================================
See accompanying notes.
F-4
Lehigh Valley Associates
(A Limited Partnership)
Statements of Cash Flows
Year ended August 31
1995 1994
-------------------------------
Operating activities
Net income $ 7,547,809 $
6,520,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 671,333 664,840
Changes in operating assets and liabilities:
Due from tenants and others and accrued rent (128,606) (553,443)
Prepaid expenses and other assets (103,201) (110,066)
Accrued expenses and other liabilities (108,134) 554,884
-------------------------------
Net cash provided by operating activities 7,879,201 7,077,109
Investing activities
Net expenditures for property and equipment (17,872) (6,341)
Financing activities
Principal payments on mortgages (569,154) (520,267)
Distributions paid to partners (5,906,000) (6,894,000)
-------------------------------
Net cash used in financing activities (6,475,154) (7,414,267)
-------------------------------
Increase (decrease) in cash and cash equivalents 1,386,175 (343,499)
Cash and cash equivalents at beginning of year 321,535 665,034
-------------------------------
Cash and cash equivalents at end of year $ 1,707,710 $ 321,535
===============================
See accompanying notes.
F-5
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements
August 31, 1995
1. Summary of Significant Accounting Policies
Real Estate
The Partnership owns and operates a regional shopping center and an office
building (the "Property") located in Whitehall, Pennsylvania. Two retail
department stores own adjacent property upon which each has constructed a store
as part of the Property and have entered into operating agreements with the
Partnership under which they are responsible for a share of common area
expenses.
Depreciation is computed on the straight-line method over 35 years for the
shopping center and 22 years for the office building, representing the estimated
lives of such assets.
Recognition of Rental Income
Minimum rent is recognized on a straight-line basis over the lease terms
regardless of when payments are due. Accrued rent represents minimum rent
recognized in excess of payments due.
Percentage rents are accrued as income for those tenants whose sales at August
31 exceeded the minimum annual sales volumes required for percentage rents.
Income Taxes
In conformity with the Internal Revenue Code and applicable state and local tax
statutes, taxable income or loss of the limited partnership is required to be
reported in the tax returns of the partners in accordance with the terms of the
limited partnership agreement and, accordingly, no provision has been made in
the accompanying financial statements for any federal, state, or local income
taxes.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Partnership considers all
highly liquid investments with maturities of three months or less when purchased
to be cash equivalents.
F-6
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation.
2. Mortgages Payable
Year ended August 31
1995 1994
----------------------------
Mortgage note on Property--payable in monthly installments
of $192,002, including interest at 9% through 2012 $19,898,791 $20,387,762
Mortgage note on Property--payable in monthly installments
of $16,909, including interest at 9-3/4%, through 2012 1,671,934 1,709,798
Mortgage note on Property--payable in monthly installments
of $4,475, including interest at 10-3/8%, through 2012 425,837 434,841
Mortgage note on office building and fringe land--
payable in monthly installments of $4,434,
including interest at 8%, through 2001 230,385 263,700
----------------------------
$22,226,947 $22,796,101
============================
The above mortgages are collateralized by the respective real estate and tenant
leases.
Principal payments are due as follows:
Year ending August 31:
1996 $ 622,381
1997 677,304
1998 743,862
1999 814,890
2000 891,520
Thereafter 18,476,990
-----------
$22,226,947
===========
Interest paid on the mortgages during 1995 and 1994 amounted to $2,044,685 and
$2,093,560, respectively.
F-7
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
3. Related Party Transactions
Management fees were paid to an affiliate, pursuant to the terms of a management
agreement, at the rate of 5% of gross receipts from the Property (as defined).
In addition, an affiliate provides the center and its tenants with electricity.
4. Leases
The Partnership earns rental income under operating leases with retail stores.
Leases generally provide for minimum rentals plus percentage rentals based on
the stores' sales volume and also require each store to pay a portion of real
estate taxes and common area expenses. In addition, leases provide for the
tenants to pay utility charges to an affiliate. Lease periods generally range
from 10 to 20 years and contain various renewal options.
The Partnership also earns rental income under leases with commercial tenants
located in its office building. Such leases generally provide for the tenant to
pay minimum rentals plus a portion of increases in real estate taxes and
operating expenses. Commercial lease periods generally range from 3 to 5 years
and contain various renewal options.
The following is a schedule by year of future minimum rental payments on
noncancelable tenant operating leases as of August 31, 1995 and does not include
any amounts due as percentage rent or the exercise of renewal options under
existing leases:
Years ending August 31:
1996 $ 9,327,000
1997 8,423,000
1998 7,599,000
1999 7,358,000
2000 7,085,000
Thereafter 23,833,000
-----------
$63,625,000
===========
F-8
EXHIBIT INDEX
EXHIBITS
Exhibit No. Description Page
- ---------- ----------- ----
4.1 Revolving Credit Agreement dated November
3, 1994 among the Trust, CoreStates Bank,
N.A. as lender and as agent, Meridian
Bank, Midlantic Bank, N.A. and PNC Bank,
National Association.
4.2 First Amendment to Revolving Credit Agreement dated March 20, 1995
among the Trust, CoreStates Bank, N.A., as a lender and as agent,
Meridian Bank, Midlantic Bank, N.A. and PNC Bank, National Association.
4.3 Form of Revolving Credit Agreement Note.
4.4 Secured Loan Agreement dated November 9,
1994 among the Trust, CoreStates Bank,
N.A., as lender and as agent, Meridian
Bank, Midlantic Bank, N.A. and PNC Bank,
National Association.
4.5 First Amendment to Secured Loan Agreement dated March 20, 1995 among
the Trust, CoreStates Bank, N.A., as lender and as agent, Meridian
Bank, Midlantic Bank, N.A. and PNC Bank, National Association.
4.6 Form of Replacement Note pursuant to the
First Amendment to Secured Term Loan
Agreement.
4.7 Guaranty dated August 2, 1993 of the Trust in favor of CoreStates Bank,
N.A.
4.8 Guaranty dated January 27, 1994 of the Trust in favor of CoreStates
Bank, N.A.
4.9 Guaranty dated September 23, 1994 of the Trust in favor of CoreStates
Bank, N.A.
10.13 Employment Agreement dated as of October 1, 1985 between the Trust and
Jeffrey Linn.
13. "Market Price and Distribution Record" contained on the inside back
page of the Trust's 1995 Annual Report to Shareholders; "Financial
Highlights" contained on page 1 of the Trust's 1995 Annual Report to
Shareholders; the Trust's consolidated financial statements,
Exhibit No. Description Page
- ---------- ----------- ----
including "Notes to consolidated financial statements" and "Report of
independent public accountants", pages 12-20 of the Trust's 1995 Annual
Report to Shareholders; and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained on pages 21-23
of the Trust's 1995 Annual Report to Shareholders.
21. Listing of subsidiaries.
23.1 Consent of Arthur Andersen LLP (Independent Public Accountants).
23.2 Consent of Ernst & Young LLP (Independent Auditors).
27. Financial Data Schedule