SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the Fiscal Year Ended August 31, 1996
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 _________
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 of organization)
455 Pennsylvania Avenue, Suite 135
Ft. Washington, Pennsylvania 19034
(address of principal executive office) (Zip Code)
Trust's telephone number, including area code: (215) 542-9250
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Share of Beneficial Interest, par value American Stock Exchange
$1.00 per share
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Trust (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 Trust was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
The aggregate market value, as of November 20, 1996, of the voting stock held
by non-affiliates of the Registrant is $168,499,000. (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, 1996, 8,678,098 Shares of Beneficial Interest of the Trust
were outstanding.
Documents Incorporated by Reference
Portions of the Trust's 1996 Annual Report to Shareholders are incorporated by
reference into Part II of this report. Portions of the Trust's Proxy Statement
for the 1996 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, 1996
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TABLE OF CONTENTS
PART I
Item 1. Business ....................................................... 1
Item 2. Properties...................................................... 11
Item 3. Legal Proceedings............................................... 12
Item 4. Submission of Matters to a Vote of Security Holders............. 12
Item 4A. Executive Officers of the Trust................................ 13
PART II
Item 5. Market for the Trust's Common Equity and Related Stockholder
Matters................................................... 14
Item 6. Selected Financial Data......................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................... 14
Item 8. Financial Statements and Supplementary Data..................... 14
Item 9. Disagreements on Accounting and Financial Disclosure............ 14
PART III .......................................................... 14
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 15
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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, 1996 included 19
apartment communities with 7,236 units and 18 shopping centers totaling 4.8
million square feet, located primarily in the mid- Atlantic region from
Pennsylvania to Virginia, and in parts of Florida. Of these properties, 15 are
wholly-owned by the Trust and its subsidiaries (one property is treated by the
Trust as effectively wholly- owned because a wholly-owned subsidiary of 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
22 properties are owned by the Trust and its subsidiaries through partnerships
and joint ventures with equity interests ranging from 25 percent to 87.5
percent. The Trust also owns, directly and through subsidiaries, partnerships
and joint ventures, interests in six industrial properties and three parcels
of unimproved land.
Twenty-six 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) are owned by partnerships in
which the Trust or one of its wholly-owned subsidiaries is 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.
-1-
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.
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
newly-acquired 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 apartment properties that are not currently
managed by the Trust were unable or unwilling to perform their obligations or
responsibilities, the Trust would manage those properties with its own staff.
However, if the current managers of shopping center properties that are not
currently managed by the Trust were unable or unwilling to perform their
obligations, the Trust's present staff is not of sufficient size to carry out
those functions and the Trust would contract management services with others.
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.
In December 1995, a partnership in which the Trust has a 40% interest
refinanced a mortgage of $28,000,000 for a term of 8 years secured by Laurel
Mall, Hazleton, Pennsylvania. The interest rate was reduced from 8% to 7.63%.
The mortgage loan, which had previously been interest only, now requires
annual principal payments of $885,000.
In December 1995, a partnership in which the Trust has a 50% interest
reset the interest rate on the $16,150,000 mortgage secured by its 264 unit
apartment community in Coral Springs, Florida. The interest rate for the
remaining five years of the mortgage term was reset to 8.235% from 9.875%. The
revised annual debt service is $1,526,000, including amortization based on a
25-year schedule, compared with $1,594,000 on an interest-only basis.
In February 1996, a partnership in which the Trust has a 40% interest
completed the refinancing of its 312-unit apartment community in Altamonte
Springs, Florida, with the placement of a $5,700,000 10-year mortgage maturing
in February 2006. The interest rate is 7.5% and amortization is based on a
25-year schedule. The excess proceeds of the refinancing of $777,000 were
distributed to the partners with 60% distributed to the Trust.
-2-
In March 1996, a wholly owned subsidiary of the Trust acquired the
Trust's partner's 25% interest in Forestville Plaza, Forestville, Maryland,
for $122,000. The Trust now owns 100% of this property. Subsequently, the
Trust paid off the mortgage on the property in the amount of $1,749,000.
In May 1996, the Trust sold 25 acres of land in Bucks County,
Pennsylvania, for $4,100,000 and realized a gain of $411,000. Proceeds from
the sale were used to reduce the Trust's bank debt.
In June 1996, the Trust sold a property consisting of 101 apartment units
in Midland, Texas, for $1,246,000 and realized a gain of $454,000. Proceeds
from the sale were used to reduce the Trust's bank debt.
In August 1996, the modification to the Trust's $75,000,000 bank facility
was completed. The facility provides for a $20,000,000 revolving line of
credit and $55,000,000 of term debt. As of November 1996, $34,000,000 is in
use leaving $41,000,000 available. Of that amount, $13,000,000 is available
under the revolving line of credit and $28,000,000 under the term debt.
The revolving line of credit is on a floating rate basis with the Trust
having the right to select either the prime rate or 185 basis points over
LIBOR. The term facility permits the Trust to select the floating rates on the
same basis as the revolving loan, or to fix a rate on up to $30,000,000 of the
loan amount with a maturity of August 2006 and up to $25,000,000 with a
maturity of August 2003. If the Trust does not select a fixed rate, the loans
become due in August 2001.
In September 1996, Lehigh Valley Mall, in which the Trust has a 50%
interest, was refinanced in the amount of $54,000,000. The new loan was
sufficient to repay the existing debt of approximately $22,000,000, fund
renovations to the mall of $5,000,000, and provide excess capital which has
been distributed to the owners, the Trust's share of which is $13,000,000. The
ten-year mortgage loan bears interest at 7.9% with principal payments based on
a twenty-five year amortization schedule. The renovations to Lehigh Valley
Mall were completed in November 1996 and consist primarily of improvements to
internal common areas.
In September 1996, a partnership in which the Trust has a 50% interest
completed the refinancing of its 232-unit apartment community in West Chester,
Pennsylvania, with the placement of a $5,400,000 twenty-year mortgage maturing
in October 2016. The interest rate is 8.345% and amortization is based on a
thirty-year schedule. The Trust received $2,400,000 of the net proceeds of the
financing while the Trust's partners received the balance pursuant to the
terms of the Partnership Agreement.
The Trust has entered into agreements with its partners regarding three
shopping centers, all located in Pennsylvania in Lancaster, Waynesburg, and
Beaver Falls, pursuant to which its partners will purchase the Trust's
interest for a cash consideration of $2,000,000 plus the assumption of debt of
$2,700,000. In the event the Trust's partners are unable to complete the
transaction by December 1996, the Trust has the obligation to purchase the
properties by June 1997, under substantially the same terms and conditions
except that the price will be reduced by $200,000.
Real Estate Investments
The following table sets forth certain information concerning Trust's
real estate investments at August 31, 1996.
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Real Estate Investments
No. of Square Feet or Depreciated
Properties Apartment Units Cost (2)
---------- --------------- -----------
Wholly-Owned and Consolidated Partnership (1)
Apartment Buildings........ 11 4,659 $124,640,000
Shopping Centers........... 4 694,000 27,253,000
Industrial Properties...... 5 587,000 1,956,000
-- ------------
TOTAL............. 20 $153,849,000
== ============
Partnerships and Joint Ventures
Apartment Buildings........ 8 2,577 $85,797,000
Shopping Centers........... 14 4,112,000 75,458,000
Industrial Property........ 1 141,000 436,000
Land....................... 3 90 acres 4,446,000
-- ------------
TOTAL............. 26 $166,137,000
== ============
(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.
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, 1996,
the Trust's net equity in income from partnerships was $6,258,000, which
constituted approximately 61.5% of the Trust's net income before gains on
sales of interests in real estate and approximately 56.7% of the Trust's total
net income.
The 27 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 17 different
partners, 11 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, 1996, the aggregate indebtedness secured by mortgages on
the wholly-owned properties of the Trust was $84,833,000, including
indebtedness of $17,163,000 secured by a mortgage against the property owned
by the Consolidated Partnership. In addition, the Trust has equity interests
in 17 partnerships which have an aggregate mortgage indebtedness of
$133,578,000, the Trust's proportionate share of which is $63,416,000. The
mortgage notes bear interest at rates ranging from 5.9% 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 $7,563,000 which are
guaranteed by the partners of the respective partnerships, including the
Trust.
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WHOLLY-OWNED PROPERTIES
The following chart sets forth certain information with respect to the Trust's
wholly-owned properties at August 31, 1996.
Apartment Buildings
Property and Location Year Acquired Units Occupancy Rate (1) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----- ------------------ ---------------- ----------------
2031 Locust Street
Philadelphia, PA 1961 87 99% $ 868,000 $ 0(2)
Marylander
Baltimore, MD 1962 510 92% 1,304,000 0
Kenwood Gardens
Toledo, OH 1963 504 88% 1,749,000 0(2)
Camp Hill Plaza
Camp Hill, PA 1969 300 97% 1,537,000 6,860,000
Lakewood Hills
Harrisburg, PA 1972 562 93% 6,499,000 0(2)
Cobblestone
Pompano Beach, FL 1993 384 93% 12,182,000 8,965,000
Shenandoah
West Palm Beach, FL 1993 220 95% 11,083,000 8,770,000
Hidden Lakes 1994 360 97% 12,515,000 0(2)
Dayton, OH
Palms of Pembroke
Pembroke Pines, FL 1994 348 94% 21,438,000 0
Boca Palms
Boca Raton, FL 1994 522 95% 34,281,000 0
----- ---------- ----------------
SUB TOTAL 3,797 103,456,000 24,595,000
Consolidated Partnership
Emerald Point 1993 862 96% 21,184,000 17,163,000
---- --- ------------ -----------
Virginia Beach, VA
TOTAL 4,659 94% $124,640,000 $41,758,000
===== === ============ ===========
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Shopping Centers
Property and Location Year Acquired Square Percentage Leased (3) Depreciated Cost Mortgage Balance
- --------------------- ------------- ------ --------------------- ---------------- ----------------
Feet
----
Crest Plaza Shopping Center
Allentown, PA 1964 153,000 90% $ 2,540,000 $ 0
Forestville Shopping Center
(4) 1983 218,000 80% 4,249,000 0
Forestville, MD
South Blanding Village
Jacksonville, FL 1986 107,000 96% 7,822,000 0
Mandarin Corners
Jacksonville, FL 1986 216,000 97% 12,642,000 8,641,000
------- --- ---------- -----------
TOTAL 694,000 90% $27,253,000 $8,641,000
======= === =========== ==========
Industrial Properties
Property and Location Year Acquired Square Feet Percentage Leased (3) Depreciated Cost Mortgage Balance
- --------------------- ------------- ----------- --------------------- ---------------- ----------------
Office and Warehouse
Annandale, VA 1962 332,000 100% $ 1,139,000 $ 0
Warehouse
Pennsauken, NJ 1962 12,000 100% 58,000 0
Warehouse
Allentown, PA 1962 16,000 100% 13,000 0
Warehouse
Pennsauken, NJ 1963 30,000 100% 98,000 0
Warehouse and Plant
Lowell, MA 1963 197,000 100% 648,000 0
------- ---- -------------- ---------------
TOTAL 587,000 100% $ 1,956,000 0
======= ==== ============= ---------------
TOTAL WHOLLY OWNED $153,849,000 $50,399,000
============ ===========
(1) Occupancy rate is calculated as the percentage of occupied units for all
apartments as of August 31, 1996.
(2) Excludes aggregate indebtedness of $34,434,000 that is
cross-collateralized by the apartment complexes in Philadelphia, PA,
Toledo, OH, Harrisburg, PA and Dayton, OH 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, 1996.
(4) On February 1, 1996, the Trust acquired its partner's 25% interest in the
partnership that owns this property and therefore now has 100% of the
equity interest in this property.
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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, 1996.
Apartment Buildings
Unconsolidated Partnerships and Joint Ventures
Partnerships
Partnerships and and Joint
Joint Ventures Ventures Trust's Investment
Property and Year Trust's Equity Occupancy Depreciated Mortgage in Partnerships
Location Acquired Interest Units Rate(1) Cost Balance(2) and Joint Ventures
- ------------ -------- ---------- ----- --------- ------ ------------ ------------------
Cambridge Hall
West Chester, PA 1967 50% 232 97% $ 1,177,000 $ 0 $ 1,974,000
Fox Run
Warminster, PA 1969 50% 196 99% 1,673,000 3,912,000 (1,066,000)
Will-O-Hill
Reading, PA 1983 50% 190 99% 3,137,000 1,857,000 807,000
Fox Run
Bear, DE 1988 50% 414 97% 19,137,000 14,931,000 1,700,000
Eagle's Nest
Coral Springs, FL 1989 50% 264 96% 20,293,000 15,999,000 2,108,000
Regency Lakeside
Omaha, NE 1990 50% 433 99% 23,903,000 18,953,000 1,428,000
Countrywood
Tampa, FL 1993 50% 536 97% 10,079,000 6,440,000 1,733,000
Charter Pointe
[formerly Windsong]
Altamonte Springs, FL 1993 40% 312 93% 6,398,000 5,646,000 346,000
--- --- --------- --------- ----------
TOTAL
2,577 97% $85,797,000 $67,738,000 $9,030,000
===== === =========== =========== ==========
-7-
Partnerships and Joint Ventures (continued)
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 99% $1,585,000 $ 412,000 $ 665,000
Whitehall Mall
Allentown, PA 1964 50% 603,000 (3) 83% 5,830,000 0 3,510,000
Punta Gorda Mall
Punta Gorda, FL 1965 25% 102,000 94% 859,000 2,204,000 (310,000)
Ormond Beach Mall
Daytona Beach, FL 1966 25% 103,000 99% 558,000 0 142,000
Palmer Park Mall
Easton, PA 1972 50% 349,000 (4) 96% 5,665,000 3,896,000 424,000
Gateway Mall
St. Petersburg, FL 1973 60% 386,000 (5) 61% 2,171,000 0 1,839,000
Rio Mall
Rio Grande, NJ 1973 50% 161,000 83% 2,080,000 598,000 996,000
Lehigh Valley Mall
Allentown, PA 1973 50% 1,054,000 (6) 98% 18,400,000 21,604,000 (778,000)
East Towne Mall
Lancaster, PA 1973 50% 303,000 86% 3,856,000 3,288,000 322,000
Chippewa Mall
Beaver Falls, PA 1979 50% 83,000 83% 1,792,000 1,685,000 (108,000)
Greene Plaza
Waynesburg, PA 1980 50% 117,000 93% 2,470,000 2,296,000 194,000
Ingleside Center
Thorndale, PA 1981 70% 102,000 100% 2,734,000 2,430,000 340,000
Laurel Mall
Hazleton, PA 1988 40% 558,000 96% 25,484,000 27,427,000 (454,000)
Margate Center
Margate, FL (7) 1987 87.5% 40,000 85% 1,974,000 0 389,000
------ --- --------- -------------- -------
TOTAL 4,112,000 90% $75,458,000 $65,840,000 $7,171,000
========= === =========== =========== ==========
-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% $ 436,000 $ 0 $ 109,000
------- ---- ---------- ------------ -----------
TOTAL 141,000 100% $ 436,000 $ 0 $ 109,000
======= ==== ========== ============ ===========
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 ($1,539,000)
Elizabethtown, PA 1972 50% 22 279,000 0 219,000
Coral Springs, FL 1990 50% 14 3,521,000 0 ( 826,000)
-- --------- --------- ------------
TOTAL 90 $4,446,000 $ 0 ($2,146,000)
-- ---------- --------- ------------
Other 36,000
TOTAL PARTNERSHIPS AND JOINT VENTURES $166,137,000 $133,578,000 $14,200,000
============ ============ ===========
(1) Occupancy rate is calculated as the percentage of occupied units for all
apartments as of August 31, 1996.
(2) Some partnerships and joint ventures have incurred non-mortgage
indebtedness in connection with operations.
(3) Whitehall Mall includes 82,000 square feet leased to Kimco Realty which
announced plans for occupancy by Kohl's.
(4) Palmer Park Mall includes 82,000 square feet acquired by Kimco Realty
which contemplates occupancy 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 leasable area for which leases were in effect as of August 31, 1996.
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.
Increased building of new apartment communities and shopping centers as
well as renovation of older properties are a source of competition for the
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PHTRANS:139957_1.WP5
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. In difficult economic times or in strongly competitive environments,
the shopping center owner may have to offer concessions, negotiate leases in
which the tenant pays a lower rental or less than its pro rata share of
certain operating costs or offer tenant allowances.
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 one of the 46 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 eastern United States 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.
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 operations 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
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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 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 $1,200,000. The Trust
and its partners have sued the former tenant for damages. In addition, above
normal radon levels have been detected at two wholly-owned properties. The
estimated cost to remediate these properties is approximately $325,000, 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 $447,000,
based upon the consultants' evaluation of these matters which, in certain
instances, are subject to applicable state approvals of the remediation plans.
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, 1996, employed one hundred and thirty seven
(137) 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 has leased 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 current year is $14.00 per square
foot, escalating to $14.50 per square foot in the final 18 months of the lease
term. 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.
Schedule of Real Estate and Accumulated Depreciation
Schedule III, "Real Estate and Accumulated Depreciation - August 31,
1996," is part of the financial statement schedules set forth herein and
-11-
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.
On 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 of 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.
-12-
Item 4A. Executive Officers of the Trust
The executive officers of the Trust on November 1, 1996 were as
follows:
FIRST BECAME AN
EXECUTIVE BUSINESS EXPERIENCE
NAME AND OFFICE AGE OFFICER DURING PAST 5 YEARS
--------------- --- --------------- -------------------
Sylvan M. Cohen 82 1960 Chairman and Chief Executive
Chairman and Officer of the Trust. Presently of
Chief Executive Officer counsel to the Philadelphia law
firm of Drinker Biddle & Reath
and formerly partner of the
Philadelphia law firm of Cohen,
Shapiro, Polisher, Shiekman and
Cohen.
Jonathan B. Weller 49 1994 President and Chief Operating
President and Chief Officer of the Trust. From 1988-
Operating Officer 1993, Executive Vice President of
Eastdil Realty, Inc., a real estate
investment banking firm.
Robert G. Rogers 65 1972 Executive Vice President of the
Executive Vice President Trust.
Jeffrey A. Linn 47 1990 Senior Vice President -
Senior Vice President for Acquisitions since 1994 and
Acquisitions and Secretary Secretary since 1990. Vice
President - Operations of the Trust
until 1994.
Dante J. Massimini 63 1976 Senior Vice President - Finance of
Senior Vice President - Finance the Trust since 1994, Vice
and Treasurer President - Finance since 1990 and
Treasurer since 1976.
Raymond J. Trost 41 1994 Asset Manager of the Trust's
Vice President - Asset Apartment complexes since 1994.
Management 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.
-13-
PART II
Item 5. Market for the Trust's Common Equity and Related Stockholder Matters
Incorporated by reference to "Market Prices and Distribution Record,"
inside back cover (page 25) of the 1996 Annual Report to Shareholders.
The Board of Trustees on December 19, 1991 changed the prior practice of
making semi-annual distributions. Since May 1992 the Trust has made quarterly
distributions to its shareholders. 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 1996
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 1996 Annual Report to
Shareholders.
Item 8. Financial Statements and Supplementary Data
The consolidated balance sheets of the Trust as of August 31, 1996 and
1995, and the related consolidated statements of income, beneficiaries' equity
and cash flows for each of the three years in the period ended August 31,
1996, and the report of independent public accountants thereon and the Trust's
summary of unaudited quarterly financial information for the two-year period
ended August 31, 1996 are incorporated by reference from the 1996 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
1996 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 and Exchange Act
of 1934, as amended.
-14-
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
2. The Trust's Consolidated Financial Statements, as described below, are
incorporated by reference to pages 12-20 of the Trust's 1996 Annual
Report to Shareholders.
Consolidated Balanced Sheet at August 31, 1996 and 1995
Consolidated Statements of Income and Beneficiaries' Equity for the
fiscal years ended August 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the fiscal years ended
August 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
2. Lehigh Valley Associates Financial Statements
Report of Independent Auditors F-1
Balance Sheets at August 31, 1996 and 1995 F-2
Statements of Operations for the fiscal years ended F-3
August 31, 1996, 1995, and 1994
Statements of Partners' Deficiency for the fiscal years ended
August 31, 1996, 1995 and 1994 F-4
Statements of Cash Flows for the fiscal years ended F-5
August 31, 1996, 1995 and 1994
Notes to Financial Statements F-6
(2) Financial Statement Schedules
II - Valuation and Qualifying Accounts 19
III - Real Estate and Accumulated Depreciation 20
IV - Mortgage Loans on Real Estate - August 31, 1996 22
Report of Independent Public Accountants on Supplemental
Schedules 23
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.
-15-
(3) Exhibits
3.1 Trust Agreement as Amended and Restated on December 16, 1987. Filed as
Exhibit 3.1 to the Trust's Annual Report on Form 10-K for the fiscal
year ended August 31, 1988, and incorporated herein by reference.
4.1 Revolving Credit Agreement dated August 29, 1996, between the Trust and
CoreStates Bank, N.A. as lender.
4.2 Form of Revolving Credit Agreement Note.
4.3 Guaranty dated August 29, 1996 of the Trust in favor of CoreStates Bank,
N.A.
4.4 Secured Loan Agreement dated November 9, 1994 among the Trust,
CoreStates Bank, N.A., as lender and as agent, and PNC Bank, National
Association, filed as exhibit 4.4 to the Trust's Annual Report on Form
10-K for its fiscal year ended August 31, 1995, and incorporated herein
by reference.
4.5 First Amendment to Secured Loan Agreement dated March 20, 1995 among the
Trust, CoreStates Bank, N.A., as lender and as agent, and PNC Bank,
National Association, filed as exhibit 4.5 to the Trust's Annual Report
on Form 10-K for its fiscal year ended August 31, 1995, and incorporated
herein by reference.
4.6 Form of Replacement Note pursuant to the First Amendment to Secured Term
Loan Agreement, filed as exhibit 4.6 to the Trust's Annual Report on
Form 10-K for its fiscal year ended August 31, 1995, and incorporated
herein by reference.
4.7 Second Amendment to Secured Loan Agreement dated April 25, 1995 among
the Trust, CoreStates Bank, N.A., as lender and as agent, and PNC Bank,
National Association.
4.8 Third Amendment to Secured Loan Agreement dated August 29, 1991 among
the Trust, CoreStates Bank, N.A., as lender and as agent, and PNC Bank,
National Association.
4.9 Guaranty dated August 2, 1993 of the Trust in favor of CoreStates Bank,
N.A., filed as exhibit 4.7 to the Trust's Annual Report on Form 10-K for
its fiscal year ended August 31, 1995, and incorporated herein by
reference.
4.10 Guaranty dated January 27, 1994 of the Trust in favor of CoreStates
Bank, N.A., filed as exhibit 4.8 to the Trust's Annual Report on Form
10-K for its fiscal year ended August 31, 1995, and incorporated herein
by reference.
4.11 Guaranty dated September 23, 1994 of the Trust in favor of CoreStates
Bank, N.A., filed as exhibit 4.9 to the Trust's Annual Report on Form
10-K for its fiscal year ended August 31, 1995, and incorporated herein
by reference.
10.1 Employment Agreement, dated as of January 1, 1990, between the Trust and
Sylvan M. Cohen, filed as Exhibit 10.1 to the Trust's Annual Report on
Form 10-K for the fiscal year ended August 31, 1990, and incorporated
herein by reference.
-16-
PHTRANS:1
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, and incorporated herein by reference.
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, and 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, and incorporated herein by reference.
10.5 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, and incorporated herein by reference.
10.6 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, and 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 the 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, and 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
Pennsylvania Real Estate Investment 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, and incorporated by reference.
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
-17-
10.9 to the Trust's Report on Form 8-K dated November 10, 1994 and filed
on November 23, 1994, and 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, and 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,
and 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, and incorporated herein by reference.
10.13 Employment Agreement dated as of October 1, 1985 between the Trust and
Jeffrey Linn, filed as exhibit 10.13 to the Trust's Annual Report on
Form 10-K for its fiscal year ended August 31, 1995, and incorporated
herein by reference.
13.1 "Market Price and Distribution Record" contained on the inside back page
of the Trust's 1996 Annual Report to Shareholders; "Financial
Highlights" contained on page 1 of the Trust's 1996 Annual Report to
Shareholders; consolidated financial statements, including "Notes to
consolidated financial statements" and "Report of independent public
accountants," pages 12-20 of the Trust's 1996 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 1996 Annual Report to Shareholders.
21. Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent Public Accountants of the
Trust).
23.2 Consent of Ernst & Young LLP (Independent Auditors of Lehigh Valley
Associates).
27. Financial Data Schedule
99. Portions of the Trust's definitive proxy statement for its 1996 Annual
Meeting of Shareholders responsive to Items 10, 11, 12 and 13 in Part
III hereof filed on November 15, 1996, 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) Report on Form 8-K.
There were no reports on Form 8-K filed during the three months ended
August 31, 1996.
-18-
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, 1996 $ 2,775,000 $ -- $ -- $ 733,000 $ 2,042,000
============== ============== ============== ============== ==============
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
============== ============== ============== ============== ==============
SCHEDULE III
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1996
Column A Column B Column C Column D
Encumbrances Improvements,
------------------------------------------------ Net of
Interest Maturity Balance at Initial Cost Retirements
Description Rate Date 8/31/96 to Trust Etc. (Note 4)
- -----------------------------------------------------------------------------------------------------------------------------------
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ $ 100,000 $ --
Building and improvements 1,028,000 1,283,000
Furniture and portable equipment 587,000
Camp Hill Plaza Apartments-
Land 9.5% 3/1/2007 6,860,268 337,000 --
Building and improvements 2,911,000 688,000
Furniture and portable equipment 150,000 642,000
Cobblestone Apartments-
Land 7.50% to 8.25% 12/16/2002 8,965,000 2,791,000 --
Building and improvements 9,336,000 409,000
Furniture and portable equipment 362,000 423,000
Kenwood Gardens-
Land 489,000 --
Building and improvements 3,007,000 1,410,000
Furniture and portable equipment 228,000 1,092,000
Lakewood Hills Apartments-
Land 500,000 --
Building and improvements 10,935,000 1,210,000
Furniture and portable equipment 468,000 1,616,000
Marylander Apartments-
Land 117,000 --
Building 4,013,000 1,633,000
Furniture and portable equipment 327,000 717,000
Shenandoah Village-
Land 2,200,000 --
Building and improvements 8,695,000 283,000
Furniture and portable equipment 281,000 503,000
Emerald Point
Land 6.790% 12/1/2008 17,163,000 3,062,000 --
Building and improvements 17,352,000 1,175,000
Furniture and portable equipment 1,293,000 586,000
Hidden Lakes-
Land 1,225,000 --
Building and improvements 10,807,000 126,000
Furniture and portable equipment 986,000 308,000
Palms of Pembroke-
Land 4,868,000 --
Building and improvements 16,399,000 62,000
Furniture and portable equipment 985,000 188,000
Boca Palms-
Land 7,107,000 --
Building and improvements 27,270,000 225,000
Furniture and portable equipment 1,101,000 206,000
SCHEDULE III
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1996
Column A Column B Column C Column D
Encumbrances Improvements,
------------------------------------------------ Net of
Interest Maturity Balance at Initial Cost Retirements
Description Rate Date 8/31/96 to Trust Etc. (Note 4)
- -----------------------------------------------------------------------------------------------------------------------------------
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 1,404,000
People's Drug (CVS), Annandale, VA-
Land 225,000 --
Building and improvements 1,873,000 476,000
Sears, Roebuck and Company,
Pennsauken, NJ-
Land 25,000 --
Building and improvements 206,000 176,000
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 278,000 --
Building and improvements 2,230,000 3,096,000
Furniture and portable equipment -- 18,000
Sitler Tract-
Land 54,000 --
Forestville Plaza-
Land 440,000 --
Building and improvements 5,572,000 699,000
Furniture and portable equipment -- --
South Blanding Village-
Land 2,947,000 --
Building and improvements 6,138,000 329,000
Furniture and portable equipment -- --
Mandarin Corners-
Land 9.125% 8/1/2008 8,641,000 4,891,000 --
Building and improvements 10,168,000 502,000
Furniture and portable equipment -- --
Total for wholly owned and
consolidated partnership $ 50,399,000 $ 176,470,000 $ 22,072,000
============== ============== ==============
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1996
Column A Column E Column F Column G&H Column I
Amount at
Which Carried Accumulated Date
8/31/96 Depreciation Constructed Depreciable
Description (Notes 1 & 2) (Note 3) or Acquired Life (Years)
- -----------------------------------------------------------------------------------------------------------------------------------
APARTMENT BUILDINGS:
2031 Locust Street-
Land $ 100,000 $ -- 1961
Building and improvements 2,311,000 1,826,000 11-25
Furniture and portable equipment 587,000 304,000 10
Camp Hill Plaza Apartments-
Land 337,000 -- 1969
Building and improvements 3,599,000 2,823,000 5-33-1/3
Furniture and portable equipment 792,000 368,000 7-10
Cobblestone Apartments-
Land 2,791,000 -- 1992
Building and improvements 9,745,000 977,000 10-40
Furniture and portable equipment 785,000 162,000 7-10
Kenwood Gardens-
Land 489,000 -- 1963
Building and improvements 4,417,000 3,692,000 8-38
Furniture and portable equipment 1,320,000 788,000 8-10
Lakewood Hills Apartments-
Land 500,000 -- Phase I 1972
Building and improvements 12,145,000 7,076,000 Phase II 1975 8-45
Furniture and portable equipment 2,084,000 1,155,000 Phase III 1980 10
Marylander Apartments-
Land 117,000 -- 1962
Building 5,646,000 4,907,000 10-39
Furniture and portable equipment 1,044,000 594,000 5-10
Shenandoah Village-
Land 2,200,000 --
Building and improvements 8,978,000 751,000 1993 10-39
Furniture and portable equipment 784,000 128,000 5-10
Emerald Point
Land 3,062,000 -- 1993
Building and improvements 18,527,000 1,750,000 10-39
Furniture and portable equipment 1,879,000 537,000 5-10
Hidden Lakes-
Land 1,225,000 -- 1994
Building and improvements 10,933,000 831,000 10-39
Furniture and portable equipment 1,294,000 106,000 5-10
Palms of Pembroke-
Land 4,868,000 -- 1994
Building and improvements 16,461,000 946,000 10-39
Furniture and portable equipment 1,173,000 119,000 5-10
Boca Palms-
Land 7,107,000 --
Building and improvements 27,495,000 1,398,000 1994 10-39
Furniture and portable equipment 1,307,000 229,000 5-10
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1996
Column A Column E Column F Column G&H Column I
Amount at
Which Carried Accumulated Date
8/31/96 Depreciation Constructed Depreciable
Description (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 71,000 10-40
ARA Services, Inc., Pennsauken, NJ-
Land 20,000 -- 1962
Building and improvements 190,000 152,000 10-50
Interstate Container Corporation,
Lowell, MA-
Land 34,000 -- 1963
Building and improvements 1,768,000 1,155,000 20-50
People's Drug (CVS), Annandale, VA-
Land 225,000 -- 1962
Building and improvements 2,349,000 1,435,000 25-55
Sears, Roebuck and Company,
Pennsauken, NJ-
Land 25,000 -- 1963
Building and improvements 382,000 309,000 10-50
SHOPPING CENTERS AND RETAIL STORES:
Crest Plaza Shopping Center-
Land 278,000 -- 1964
Building and improvements 5,326,000 3,118,000 20-40
Furniture and portable equipment 18,000 18,000 10
Sitler Tract-
Land 54,000 -- 1964
Forestville Plaza-
Land 440,000 -- 1983
Building and improvements 6,271,000 2,462,000 33-1/3
Furniture and portable equipment -- --
South Blanding Village-
Land 2,947,000 -- 1988
Building and improvements 6,467,000 1,591,000 20-40
Furniture and portable equipment -- --
Mandarin Corners-
Land 4,891,000 -- 1988
Building and improvements 10,670,000 2,920,000 33-1/3
Furniture and portable equipment -- --
Total for wholly owned and
consolidated partnership $ 198,542,000 $ 44,693,000
================= =================
SCHEDULE III
(Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES:
(1) Reconciliation of amount shown in Column E:
Balance, August 31, 1995 $ 195,929,000
Additions during the year-
Improvements, furniture and portable
equipment $ 1,589,000
Land 440,000
Building 8,107,000
10,136,000
Deductions during the year-
Transferred to partnerships and joint
ventures (1,862,000)
Retirements --
Properties sold (5,661,000)
------------------
Balance, August 31, 1996 $ 198,542,000
==================
(2) The aggregate cost for federal income tax
purposes is approximately $ 197,333,000
==================
(3) Reconciliation of amount shown in Column F:
(Accumulated Depreciation):
Balance, August 31, 1995 $ 38,828,000
Depreciation during the year-
Buildings and improvements 4,591,000
Furniture and portable equipment 1,036,000 5,627,000
---------------
Deductions during the year-
Transferred to partnerships and joint
ventures 1,654,000
Retirements --
Properties sold (1,416,000)
------------------
Balance, August 31, 1996 $ 44,693,000
==================
(4) Cost of improvements, net of retirements, etc.,
consists of the following:
Cost of improvements $ 22,072,000
Retirements --
------------------
$ 22,072,000
==================
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
MORTGAGE LOANS ON REAL ESTATE--AUGUST 31, 1996
Column A Column B Column C Column D Column E
Periodic Payment
Terms
Interest Maturity ------------------------------- Prior
Description Rate Date Interest Principal Liens
- ---------------------------------------------- ---------------- ---------- ---------- ------------- ---------
Samuel Lauter (Note 2) (Note 4) Monthly (Note 4) None
Donald Cafiero (Note 2) (Note 4) Monthly (Note 4) None
Charles A. Lotz, Jr. (Note 3) 2% over prime (Note 3) Monthly (Note 3) None
Column A Column F Column G Column H
Principal
Carrying Amount of Loan
Outstanding Amount Subject to
Principal of Delinquent
Amount of Mortgage Principal
Description Mortgage (Note 5) or Interest
- ------------------------------------------------ ------------ --------------- -----------
Samuel Lauter $ 560,000 $ 560,000 None
Donald Cafiero 568,000 568,000 None
Charles A. Lotz, Jr. (Note 3) 521,000 521,000 $521,000
-------------- ---------------
$ 1,649,000 $ 1,649,000
============== ===============
NOTES:
(1) Reconciliation of mortgage loans-
Balance at August 31, 1995 $1,649,000
Advances during period --
Repayments during period --
-------------
Balance at August 31, 1996 $ 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 cost for federal income tax purposes is the same as the cost 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 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 21, 1996. 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 basic consolidated financial statements
taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 21, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Trust has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(The Registrant)
Date: November 27, 1996 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 attorney-in-fact and agents, and either of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or either of them or any substitute therefor, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Trust
and in the capacities and on the dates indicated:
/s/ Sylvan M. Cohen
- -------------------------------------------------
Sylvan M. Cohen, November 27, 1996
Chairman and Chief Executive Officer and Trustee
(Principal Executive Officer)
/s/ Jonathan B. Weller
- -------------------------------------------------
Jonathan B. Weller, November 27, 1996
President and Chief Operating Officer and Trustee
/s/ William R. Dimeling
- -------------------------------------------------
William R. Dimeling, November 27, 1996
Trustee
-24-
/s/ Jack Farber
- -------------------------------------------------
Jack Farber, November 27, 1996
Trustee
/s/ Robert Freedman
- -------------------------------------------------
Robert Freedman, November 27, 1996
Trustee
/s/ Lee Javitch
- -------------------------------------------------
Lee Javitch, November 27, 1996
Trustee
/s/ Leonard I. Korman
- -------------------------------------------------
Leonard I. Korman, November 27, 1996
Trustee
/s/ Jeffrey P. Orleans
- -------------------------------------------------
Jeffrey P. Orleans, November 27, 1996
Trustee
/s/ Robert G. Rogers
- -------------------------------------------------
Robert G. Rogers, November 27, 1996
Executive Vice President and Trustee
/s/ Dante J. Massimini
- -------------------------------------------------
Dante J. Massimini, November 27, 1996
Senior Vice President - Finance and Treasurer
(Principal Financial and Accounting Officer)
-25-
[LETTERHEAD ERNST & YOUNG LLP]
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, 1996 and 1995, and the related statements
of operations, partners' deficiency, and cash flows for each of the three years
in the period ended August 31, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
October 18, 1996
F-1
Lehigh Valley Associates
(A Limited Partnership)
Balance Sheets
August 31
1996 1995
------------------------------------------
Assets
Real estate, at cost (Notes 1 and 2):
Land $ 5,752,083 $ 5,752,083
Regional shopping center building and
building improvements 22,323,824 21,559,002
Office building 587,771 587,771
------------------------------------------
28,663,678 27,898,856
Less accumulated depreciation 12,587,778 11,899,934
------------------------------------------
16,075,900 15,998,922
Cash and cash equivalents 1,767,561 1,707,710
Due from tenants and others 1,079,554 662,926
Accrued rent (Note 1) 1,872,634 1,779,296
Prepaid expenses and other assets 795,522 637,584
Deferred charges, net (Note 1) 1,882,138 71,940
Deferred finance costs, net (Note 1) 78,478 -
------------------------------------------
$ 23,551,787 $ 20,858,378
==========================================
Liabilities
Mortgages payable and construction loan, (Note 2) $ 22,488,686 $ 22,226,947
Accrued expenses and other liabilities, including
accrued interest (1996--$170,690;
1995--$168,043) 2,657,661 1,040,899
------------------------------------------
25,146,347 23,267,846
Partners' deficiency (1,594,560) (2,409,468)
------------------------------------------
$ 23,551,787 $ 20,858,378
==========================================
See accompanying notes.
F-2
Lehigh Valley Associates
(A Limited Partnership)
Statements of Operations
Year ended August 31
1996 1995 1994
----------------------------------------------------------
Income:
Rentals (Notes 1 and 4):
Minimum $ 9,613,342 $ 9,729,591 $ 9,086,148
Percentage 627,388 773,350 771,092
----------------------------------------------------------
10,240,730 10,502,941 9,857,240
Sundry 285,405 364,891 286,856
----------------------------------------------------------
10,526,135 10,867,832 10,144,096
Expenses, other than depreciation:
Real estate taxes, net of tenants' reimbursements
(1996--$787,135; 1995--$765,852; 1994--
$692,754) 6,313 14,051 46,876
Interest (Note 2) 1,998,258 2,040,410 2,090,278
Management fees (Note 3) 714,827 731,156 701,419
Common area expenses, net of tenants'
reimbursements (1996--$2,510,033;
1995--$2,038,059; 1994--$2,553,995) (145,219) (195,062) (239,848)
Other property expenses 324,539 58,135 359,637
----------------------------------------------------------
2,898,718 2,648,690 2,958,362
----------------------------------------------------------
Income before depreciation and amortization 7,627,417 8,219,142 7,185,734
Depreciation and amortization (Note 1) 712,509 671,333 664,840
----------------------------------------------------------
Net income $ 6,914,908 $ 7,547,809 $ 6,520,894
==========================================================
See accompanying notes.
F-3
Lehigh Valley Associates
(A Limited Partnership)
Statements of Partners' Deficiency
Percentage Balance Balance
Interest Per as of as of
Partnership September 1, August 31,
Agreement 1993 Distributions Net Income 1994
-------------------------------------------------------------------------
General Partners:
Delta Ventures, Inc. 0.50% $ (18,391) $ (34,470) $ 32,605 $ (20,256)
Pennsylvania Real Estate Investment Trust 30.00 (1,103,451) (2,068,200) 1,956,268 (1,215,383)
Limited Partners:
Morris A. Kravitz Residuary Trust 9.00 (331,035) (620,460) 586,880 (364,615)
Myles H. Tanenbaum 8.55 (314,484) (589,437) 557,537 (346,384)
Jordan A. Katz 4.50 (165,518) (310,230) 293,440 (182,308)
Robert T. Girling 4.50 (165,518) (310,230) 293,440 (182,308)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell 9.00 (331,035) (620,460) 586,880 (364,615)
Harold G. Schaeffer 4.50 (165,518) (310,230) 293,440 (182,308)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer 4.50 (165,518) (310,230) 293,440 (182,308)
Richard A. Jacoby 4.95 (182,069) (341,253) 322,784 (200,538)
Pennsylvania Real Estate Investment Trust 20.00 (735,634) (1,378,800) 1,304,180 (810,254)
-------------------------------------------------------------------------
100.00% $(3,678,171) $(6,894,000) $ 6,520,894 $(4,051,277)
=========================================================================
Balance
as of
August 31,
Distributions Net Income 1995
---------------------------------------------
General Partners:
Delta Ventures, Inc. $ (29,530) $ 37,739 $ (12,047)
Pennsylvania Real Estate Investment Trust (1,771,800) 2,264,343 (722,840)
Limited Partners:
Morris A. Kravitz Residuary Trust (531,540) 679,303 (216,852)
Myles H. Tanenbaum (504,963) 645,338 (206,009)
Jordan A. Katz (265,770) 339,651 (108,427)
Robert T. Girling (265,770) 339,651 (108,427)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (531,540) 679,303 (216,852)
Harold G. Schaeffer (265,770) 339,651 (108,427)
Adele K. Schaeffer, Trustee under indenture
of Harold G. Schaeffer (265,770) 339,651 (108,427)
Richard A. Jacoby (292,347) 373,617 (119,268)
Pennsylvania Real Estate Investment Trust (1,181,200) 1,509,562 (481,892)
---------------------------------------------
$(5,906,000) $7,547,809 $(2,409,468)
=============================================
Balance
as of
August 31,
Distributions Net Income 1996
------------------------------------------------
General Partners:
Delta Ventures, Inc. $ (30,500) $ 34,575 $ (7,972)
Pennsylvania Real Estate Investment Trust (1,830,000) 2,074,472 (478,368)
Limited Partners:
Morris A. Kravitz Residuary Trust (549,000) 622,342 (143,510)
Myles H. Tanenbaum (521,550) 591,224 (136,335)
Jordan A. Katz (274,500) 311,171 (71,756)
Robert T. Girling (274,500) 311,171 (71,756)
Lea R. Powell, Trustee under indenture of
Arthur L. Powell (143,510)
Harold G. Schaeffer (549,000) 622,342 (71,756)
Adele K. Schaeffer, Trustee under indenture (274,500) 311,171
of Harold G. Schaeffer (274,500) 311,171 (71,756)
Richard A. Jacoby (301,950) 342,287 (78,931)
Pennsylvania Real Estate Investment Trust (1,220,000) 1,382,982 (318,910)
------------------------------------------------
$(6,100,000) $6,914,908 $(1,594,560)
================================================
See accompanying notes.
F-4
Lehigh Valley Associates
(A Limited Partnership)
Statements of Cash Flows
Year ended August 31
1996 1995 1994
----------------------------------------------------------
Operating activities
Net income $ 6,914,908 $ 7,547,809 $ 6,520,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 712,509 671,333 664,840
Amortization of deferred charges 434,908 35,968 -
Changes in operating assets and liabilities:
Due from tenants and others and accrued rent (509,966) (128,606) (553,443)
Prepaid expenses and other assets (18,069) (31,261) (110,066)
Accrued expenses and other liabilities 20,701 (108,134) 554,884
----------------------------------------------------------
Net cash provided by operating activities 7,554,991 7,987,109 7,077,109
Investing activities
Deferred charges (1,083,014) (107,908) -
Expenditures for property and equipment (512,748) (17,872) (6,341)
----------------------------------------------------------
Net cash used in investing activities (1,595,762) (125,780) (6,341)
Financing activities
Proceeds from construction loan 884,368 - -
Principal payments on mortgages (622,629) (569,154) (520,267)
Deferred finance costs (61,117) - -
Distributions paid to partners (6,100,000) (5,906,000) (6,894,000)
----------------------------------------------------------
Net cash used in financing activities (5,899,378) (6,475,154) (7,414,267)
----------------------------------------------------------
Increase (decrease) in cash and cash equivalents 59,851 1,386,175 (343,499)
Cash and cash equivalents at beginning of year 1,707,710 321,535 665,034
----------------------------------------------------------
Cash and cash equivalents at end of year $ 1,767,561 $ 1,707,710 $ 321,535
==========================================================
See accompanying notes.
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements
August 31, 1996
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 generally over 35 years for
the shopping center and 22 years for the office building, representing the
estimated lives of the 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 volume at
August 31 exceeded the minimum annual sales volumes required for percentage
rents.
Deferred Charges
Deferred charges, consisting of costs incurred that are reimbursable from
tenants, are amortized as tenants are billed. Accumulated amortization as of
August 31, 1996, 1995, and 1994 amounted to $470,876, $35,968, and $0,
respectively.
Deferred Finance Costs
Costs incurred in connection with the construction loan and the refinancing
described in Note 2 have been capitalized. The costs related to the construction
loan will be fully amortized on the date of the refinancing. Costs associated
with the refinancing will be amortized over the term of the related mortgage.
F-6
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Fair Values of Financial Instruments
Cash and cash equivalents: The carrying amount reported in the balance sheet for
cash and cash equivalents approximates fair value.
Mortgages Payable and Construction Loan: The fair values of the mortgages
payable and construction loan have not been disclosed due to the refinancing
which occurred on September 18, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect various amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
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
The Partnership considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.
F-7
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Reclassifications
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
2. Mortgages Payable and Construction Loan
Year ended August 31
1996 1995 1994
-----------------------------------------------------------
Mortgage note on Property--payable in monthly
installments of $192,002, including interest at 9%
through 2012 $ 19,363,950 $ 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 1,630,209 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 415,855 425,837 434,841
Mortgage note on office building and fringe land--payable
in monthly installments of $4,434, including interest
at 8%, through 2001 194,304 230,385 263,700
Construction loan--interest only, payable monthly at
variable rate (8.75% at June 30, 1996) on outstanding
draws up to $4,770,000, principal due earlier of
March 30, 1997 or refinancing, as defined. 884,368 - -
-----------------------------------------------------------
$ 22,488,686 $ 22,226,947 $ 22,796,101
===========================================================
The above mortgages are collateralized by the respective real estate and tenant
leases. The construction loan is guaranteed by the general partners.
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable and Construction Loan (continued)
The Partnership refinanced the above mortgages and construction loan on
September 18, 1996 with a mortgage loan obtained from an insurance company. The
proceeds of the mortgage loan of $54,000,000 were used to pay off the
outstanding principal and interest due on all of the above loans, pay prepayment
fees and other closing costs, including approximately $338,000 paid to an
affiliate, and provided a $26,000,000 distribution to the partners.
The mortgage is secured by the property and an assignment of leases and rents
and requires monthly payments of principal and interest of $413,210 (based on
annual interest of 7.9%) with remaining unpaid principal due on October 10,
2006.
Principal payments on the mortgage dated September 18, 1996 are due as follows:
Year ending August 31:
1997 $ 594,500
1998 766,857
1999 829,682
2000 897,653
2001 971,192
Thereafter 49,940,116
----------------------
$ 54,000,000
======================
Interest paid on the mortgages during 1996, 1995, and 1994 amounted to
$1,995,611, $2,044,685, and $2,093,560, respectively.
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.
F-9
Lehigh Valley Associates
(A Limited Partnership)
Notes to Financial Statements (continued)
3. Related Party Transactions (continued)
During 1996, development fees of $220,000 were paid to an affiliate in
connection with certain renovations of the center.
4. Leases
The Partnership earns rental income under operating leases with retail tenants.
Leases generally provide for minimum rentals plus percentage rentals based on
the tenants' sales volume and also require each tenant 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, 1996 and does not include
any amounts due as percentage rent or the exercise of renewal options under
existing leases:
Years ending August 31:
1997 $ 8,712,000
1998 8,088,000
1999 7,777,000
2000 7,539,000
2001 7,083,000
Thereafter 20,469,000
---------------
$ 59,668,000
===============
F-10
EXHIBIT INDEX
EXHIBITS
Exhibit No. Description Page
4.1 Revolving Credit Agreement dated August 29, 1996,
between the Trust and CoreStates Bank, N.A. as lender.
4.2 Form of Revolving Credit Agreement Note.
4.3 Guaranty dated August 29, 1996 of the Trust in favor of
CoreStates Bank, N.A.
4.7 Second Amendment to Secured Loan Agreement dated
April 25, 1995 among the Trust, CoreStates Bank,
N.A., as lender and as agent, and PNC Bank, National
Association.
4.8 Third Amendment to Secured Loan Agreement dated
August 29, 1991 among the Trust, CoreStates Bank,
N.A., as lender and as agent, and PNC Bank, National
Association.
13.1 "Market Price and Distribution Record" contained on
the inside back page of the Trust's 1996 Annual Report
to Shareholders; "Financial Highlights" contained on
page 1 of the Trust's 1996 Annual Report to
Shareholders; consolidated financial statements,
including "Notes to consolidated financial statements"
and "Report of independent public accountants," pages
12-20 of the Trust's 1996 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
1996 Annual Report to Shareholders.
21 Listing of subsidiaries
23.1 Consent of Arthur Andersen LLP (Independent Public
Accountants of the Trust).
23.2 Consent of Ernst & Young LLP (Independent Auditors
of Lehigh Valley Associates).
27 Financial Data Schedule