SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 29, 1997
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Pennsylvania Real Estate Investment Trust
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(Exact Name of Registrant as Specified in Charter)
Pennsylvania 1-6300 23-6216339
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
455 Pennsylvania Avenue, Suite 135, Ft. Washington, Pennsylvania 19034
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (215) 542-9250
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
On September 30, 1997, the Registrant (sometimes referred to herein
as the "Trust") completed a series of related transactions pursuant to which,
inter alia, (i) the Trust capitalized PREIT Associates, L.P., a Delaware
limited partnership of which the Trust is the sole general partner (the
"Operating Partnership") by transferring to the Operating Partnership
substantially all of the assets of the Trust, or the economic benefit thereof,
subject to the liabilities of the Trust, in exchange for the issuance to the
Trust and PREIT Property Trust, a wholly-owned subsidiary of the Trust and a
limited partner of the Operating Partnership, general partner interests in the
Operating Partnership and Class A limited partner interests in the Operating
Partnership ("Class A OP Units") aggregating the number of issued and
outstanding shares of Beneficial Interest, $1.00 par value per share, of the
Trust ("Shares") as of such date; (ii) the Operating Partnership acquired all
of the non-voting common shares, constituting 95% of the equity, of The Rubin
Organization, Inc., a Pennsylvania corporation ("TRO") which changed its name
to PREIT-RUBIN, Inc., in exchange for 200,000 Class A OP Units and the
obligation to issue up to 800,000 additional Class A OP Units over the next
five (5) years determined by the per share funds from operation ("FFO") of the
Trust; (iii) the Operating Partnership acquired the interests of certain
affiliates of TRO ("TRO Affiliates") in, or their right to acquire, and did
acquire, four existing shopping centers, or portions thereof (the "Existing
Properties") and in two shopping centers currently under construction (the
"Development Properties"); (iv) the Operating Partnership acquired the
pre-development rights of certain TRO Affiliates, subject to related
obligations, in certain proposed shopping centers (the "Pre-Development
Properties") under a co-development agreement (the "Goldenberg Letter
Agreement") with a joint venture partner of TRO; (v) the Trust and TRO entered
into a number of employment agreements with members of TRO management; (vi)
Ronald Rubin, former chief executive officer of TRO, was elected chief
executive officer of the Trust, Edward Glickman, former chief financial
officer of TRO, was elected chief financial officer and executive vice
president of the Trust, and George Rubin, former President of TRO, continued
in such capacity; (vii) Sylvan M. Cohen, former chairman and chief executive
officer of the Trust, continued as chairman of the Trust and as chair of the
Property Committee of the Board of Trustees of the Trust and Jonathan B.
Weller, president and chief operating officer of the Trust, continued in such
positions with the Trust; and (viii) Ronald Rubin, George Rubin and Rosemarie
B. Greco, former President of CoreStates Financial Corp. and former President
and Chief Executive Officer of Corestates Bank, N.A., were elected as trustees
of the Trust to fill vacancies created by the resignations as trustees of
Robert Freedman, Jack Farber and Robert G. Rogers. The inter-related
transactions described
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above are collectively referred to below as the "TRO Transaction."
The following summary describes the principal features of the TRO
Transaction. The TRO Transaction was accomplished in several separate
transactions, the combined effect of which was to capitalize the Operating
Partnership and to transfer ownership of the Trust's direct and indirect
interests in its existing properties, or the economic benefits thereof, to the
Operating Partnership, and to effect the acquisitions described in the
immediately previous paragraph.
It is intended that the structuring of the TRO Transaction through
the Operating Partnership will enable those persons and entities conveying
assets in the TRO Transaction to defer certain tax consequences of the TRO
Transaction and will permit the Trust, through the Operating Partnership, to
subsequently acquire from third parties additional commercial properties in a
structure that may enable such parties to defer the recognition of taxable
gain.
The Operating Partnership. The Trust is the sole general partner of
the Operating Partnership and PREIT Property Trust, a business trust
wholly-owned by the Trust, is a limited partner. The Trust contributed to the
Operating Partnership, or to entities wholly-owned by the Operating
Partnership, the real estate interests owned, directly or indirectly, by the
Trust, or the economic benefits thereof, in exchange for general partnership
interests in the Operating Partnership and a number of Class A OP Units issued
to it and PREIT Property Trust which equalled, in the aggregate, the number of
Shares of beneficial interest of the Trust issued and outstanding on the
closing date of the TRO Transaction. This structure, known in the industry as
an "UPREIT" structure, is now a common method for organizing the holdings of
the real property portfolio investments of real estate investment trusts. The
Trust believes that the formation of the Operating Partnership will increase
the pool of potential property acquisitions by enabling the Trust to afford
prospective transferors the prospect of a deferral of taxable gain.
Under the Operating Partnership's First Amended and Restated
Agreement of Limited Partnership (the "Operating Partnership Agreement"), the
Trust, as the sole general partner of the Operating Partnership, has the
authority, to the exclusion of the limited partners, to make all management
decisions on behalf of the Operating Partnership. In addition, the Trust, as
general partner, will have the ability to cause the Operating Partnership to
make subsequent acquisitions of real property assets, and, in connection
therewith, to create and issue subsequent classes of limited or preferred
partner interests with terms different from the limited partner and general
partner interests issued in the TRO Transaction. The Trust has agreed in the
Operating
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Partnership Agreement to conduct substantially all of its business activities
through the Operating Partnership unless a majority in interest of the Class A
and Class B OP Units consent to the conduct of business activities outside the
Operating Partnership.
OP Units. The Operating Partnership Agreement authorizes the issuance
of an unlimited number of limited partner interests ("OP Units"). Holders of
Class A OP Units and Class B OP Units (which were issued in the TRO Transaction
to the Equity Property and Development Limited Partnership ("EPDLP") affiliate
with an interest in one of the Existing Properties sold to the Operating
Partnership) are entitled to distributions from the Operating Partnership as and
when made by the general partner. Since the general partner will, of necessity,
have to make distributions on the Class A OP Units held directly or indirectly
by it at the times and in the amounts as will permit it to make distributions to
shareholders of the Trust (the "Shareholders") necessary to preserve its status
as a real estate investment trust for federal income tax purposes, it is
anticipated that the holders of Class A OP Units and Class B OP Units will
receive such distributions at the approximate time, and in the same amounts, as
distributions are declared and paid by the Trust to the Shareholders.
Holders of OP Units generally will have no right to vote on any matter
voted on by holders of Shares except that prior to the date on which at least
half of the Class A and Class B OP Units issued on September 30, 1997 (other
than to the Trust or an affiliate of the Trust) have been redeemed, the holders
of Class A and Class B OP Units issued on September 30, 1997 (other than the
Trust or an affiliate of the Trust) shall be entitled to vote, as a single
class, on any proposal to merge, consolidate, or sell substantially all of the
assets of the Trust if the holders of Shares vote thereon and, in such event,
the necessary vote to effect such action shall be the sum of an absolute
majority of the outstanding Class A and Class B OP Units and the applicable vote
of the holders of the Shares, which such vote may be met by any combination of
holders of the Class A and Class B OP Units and the Shares. In such event,
holders of OP Units will be entitled to one vote for each Share issuable by the
Trust upon the redemption of one Class A or Class B OP Unit.
The Operating Partnership Agreement also provides that the Trust may
not engage in a fundamental transaction (e.g., a merger) unless, by the terms
of such transaction, the OP Units are treated in the same manner as that
number of Shares for which they are exchangeable by the Trust upon notice of
redemption are treated and that holders of OP Units will have the right to
vote on certain amendments to the Operating Partnership Agreement.
Class A and Class B OP Units are redeemable by the Operating
Partnership at the election of a limited partner holding such units, at such
time, and for such consideration, as set forth in
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the Operating Partnership Agreement. In general, and subject to certain
exceptions and limitations, "qualifying parties" may, beginning one year
following the respective issue dates, give one or more notices of redemption
with respect to all or any part of the Class A OP Units so received and then
held by such party. Neither the Trust nor its wholly-owned business trust
subsidiary will be qualifying parties and, accordingly, neither will have
contractual redemption rights under the Operating Partnership Agreement unless
such agreement were to be subsequently amended. Class B OP Units will be
redeemable at the option of the holder at any time after issuance.
If a notice of redemption is given, the Trust has the right to elect
to acquire the OP Units tendered for redemption for its own account, either in
exchange for the issuance of a like number of Shares (subject to adjustments
for stock splits, recapitalizations, and like events) or a cash payment equal
to the average of the closing prices of the Shares on the ten consecutive
trading days immediately prior to receipt by the Trust, in its capacity as
general partner of the Operating Partnership, of the notice of redemption. If
the Trust declines to exercise such right, then on the tenth day following
tender for redemption the Operating Partnership will pay a cash amount equal
to the number of units so tendered multiplied by such average closing price.
The TRO Equity Acquisition. Pursuant to an agreement among the TRO
Shareholders (including entities who received TRO shares in the recapitalization
of TRO contemporaneously with the closing of the TRO Transaction), TRO, a
corporate affiliate of TRO, the Trust and the Operating Partnership (the "TRO
Contribution Agreement"), (i) TRO was recapitalized, (ii) the Operating
Partnership acquired all of the non-voting common shares of TRO, constituting
95% of the total equity of TRO, (iii) a stock bonus plan created for the benefit
of TRO employees acquired all of the voting common shares of TRO, constituting
5% of the total equity of TRO, and (iv) the TRO shareholders and certain TRO
Affiliates received (x) an aggregate of 200,000 Class A OP Units, and (y) the
right to receive up to an additional 800,000 Class A OP Units over the following
five-year period, depending on the Trust's per share "adjusted funds from
operations" ("Adjusted FFO") during such period.
The TRO Contribution Agreement defines "Adjusted FFO" as the Trust's
consolidated net income for any period, plus, to the extent deducted in
computing such net income (i) depreciation attributable to real property, (ii)
certain amortization expenses, (iii) the expenses of the TRO Transaction, (iv)
losses on the sale of real estate, (v) material write-downs on real estate, (vi)
material prepayment penalties, and (vii) rents currently due in excess of rents
reported, minus (i) rental revenue reported in excess of amounts currently due,
(ii) lease termination fees, and (iii) gains on the sale of real
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estate. For the twelve-month periods ending August 31, 1996 and May 31, 1997,
the Trust's Adjusted FFO per share on a stand-alone basis would have been
$2.16 and $2.21, respectively.
With respect to the additional 800,000 Class A OP Units which the
Operating Partnership will be contingently obligated to issue in the future as
additional consideration to TRO Shareholders, the TRO Contribution Agreement
establishes "hurdles" and "targets" during specified "earn-out periods." The
earn-out periods consist of (i) the three month period ending December 31,
1997, (ii) the years ending December 31, 1998 through 2001, and (iii) the
nine-month period ending September 30, 2002.
The per share Adjusted FFO hurdles/targets are $0.58/$0.65 for the
first earn-out period and $2.40/$2.66, $2.53/$2.81, $2.65/$2.94, $2.83/$3.14
and $2.19/$2.43 for the second through the sixth earn-out periods,
respectively. The minimum number of earn-out units (i) for the first earn-out
period is 5,000, (ii) for the second earn-out period is 20,000, (iii) for the
third through fifth earn-out periods is 57,500, and (iv) for the sixth
earn-out period is 52,500. The maximum earn-out units (i) for the first
earn-out period is 32,500, (ii) for the second earn-out period is 130,000,
(iii) for the third through fifth earn-out periods is 167,500, and (iv) for
the sixth earn-out period is 135,000.
In general, (i) if the hurdle for any earn-out period is not met, no
units will be issued in respect of such period, (ii) if the target for any
earn-out period is met, the maximum number of units for such period will be
issued, and (iii) if Adjusted FFO for any earn-out period is between the
hurdle and the target for such period, the Operating Partnership would issue
the base units for such period plus a pro rata portion of the number of units
by which the maximum units exceeded the base units for such period equal to
the amount by which the per share Adjusted FFO exceeded the hurdle but was
less than the target. For example, the minimum number of units for the
calendar year 1998 is 20,000 and the maximum number of units is 130,000, the
per share Adjusted FFO hurdle for 1998 is $2.40 and the per share Adjusted FFO
target is $2.66. If the per share Adjusted FFO for 1998 were $2.53 (that is,
one-half of the difference between the target and the hurdle), the Operating
Partnership would issue 75,000 Units (20,000 + (.5 (130,000-20,000))).
The foregoing is subject to the right to carry back to prior earn-out
periods amounts in excess of the target in the current period, thereby earning
additional units (but never more than the maximum amount) and to carry forward
into the next, but only the next, earn-out period amounts of per share
Adjusted FFO which exceed the target in any such period, provided, in all
cases, no amounts in excess of the target in any period may be applied to
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result in the issuance of additional units in any other period until first
applied to eliminate all shortfalls from targets in all prior periods.
In the computation of Adjusted FFO, certain revenues received by TRO
prior to September 30, 1997 (the "TRO Closing Date") which remained as cash
assets of TRO on the TRO Closing Date will be included as a portion of
Adjusted FFO. In the computation of per share Adjusted FFO, outstanding Shares
will include the number of Shares issuable by the Trust upon redemption of all
then outstanding OP Units.
Pursuant to the TRO Contribution Agreement, the Operating Partnership
loaned TRO on the TRO Closing Date $3,358,972 (the "Closing Loan"), which was
an amount equal to (i) start-up expenses incurred by TRO in performing 23
shopping center management contracts acquired by TRO from EPDLP on December
31, 1996, plus (ii) costs incurred by TRO in connection with the purchase
agreements for the Existing Properties to be acquired from affiliates of EPDLP
and co-investors therewith, plus (iii) legal expenses incurred by TRO which
were directly related to the preparation of the proxy statement, plus (iv)
certain advances and expenses previously incurred by TRO in respect of the
Predevelopment Properties.
In addition, on September 30, 1997, the Operating Partnership advanced
$6,442,197 to TRO (and affiliates of TRO) for predevelopment expenses incurred
by TRO in respect of properties developed jointly with the Goldenberg Group.
The TRO Contribution Agreement provided that TRO would make
distributions of current assets to its shareholders immediately prior to the
closing of the TRO Transaction (the "TRO Closing"), subject to a requirement
that, on the TRO Closing Date, TRO have no liabilities other than those (i)
under scheduled contracts, (ii) with respect to scheduled contingencies, (iii)
with respect to advances made by the Operating Partnership to TRO on the TRO
Closing Date, (iv) ordinary course accounts payable, accrued salaries and taxes,
and (v) certain other specified liabilities. TRO will be obligated on the TRO
Closing Date to have cash and collectible receivables at least equal to the sum
of the amount of certain categories of permitted liabilities on the TRO Closing
Date and certain principals of TRO pledged Class A OP Units to secure the
payment of certain undischarged contingent obligations of TRO incurred prior to
the TRO Closing Date.
Indemnification. In the TRO Contribution Agreement, TRO and the
Shareholders made representations and warranties about TRO, its organization,
capitalization, financial statements and like matters and the Trust and the
Operating Partnership made like representations and warranties to TRO and the
Shareholders. The TRO Contribution Agreement provides for indemnification by
the
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Shareholders in respect of their representations, warranties and covenants in
the agreement. Such indemnification is subject to a general $350,000 threshold
(subject to certain exclusions therefrom) and the Operating Partnership may
set-off Class A OP Units subject to the earn-out against any such claims. The
contribution agreements for the Court at Oxford Valley and the Development
Properties also contain post-transaction indemnification obligations of the
contributing parties.
Registration Rights. At the TRO Closing, the Trust entered into
Registration Rights Agreements with those persons receiving or entitled to
receive (i) Class A OP Units in respect of shares of TRO and/or their
interests in the Existing, Development and Pre-Development Properties and (ii)
the Class B OP Units issued at the closing in respect of the purchase of one
of the Existing Properties from an affiliate of EPDLP. In general, the
Registration Rights Agreement for the holders of Class A OP Units provides
that those parties receiving and entitled to receive Class A OP Units in the
TRO Transaction will be entitled to cause the Trust, subject to exclusions and
limitations commonly found in agreements of this type, to register Shares for
resale by them in connection with other registration statements filed by the
Trust. This Registration Rights Agreement contains provisions dealing with
registration procedures, holdbacks, responsibility for expenses,
indemnification, and other customary provisions.
If the TRO Shareholders having piggyback registration rights do not
have an opportunity to exercise those rights before a specified period
following the last issuance of Class A Units pursuant to the TRO Transaction,
these TRO Shareholders will have the right to cause the Trust to file a
registration statement covering the resale of the Shares underlying the Class
A OP Units owned by these TRO Shareholders. In such event, the Trust will be
obligated to use its commercially reasonable efforts to cause the registration
statement to become effective within sixty (60) days after filing and to
remain effective for not less than two years (or until the date on which
Shares may be sold without registration, if earlier).
The Trust also entered into a Registration Rights Agreement with the
party receiving Class B OP Units in respect of the equity in one of the
Existing Properties -- Magnolia Mall -- in which the Trust has agreed to file
and maintain a registration statement covering resales from time to time by
such party of Shares obtained by it in connection with the redemption of Class
B OP Units. If the Trust files such a registration statement, it has agreed to
use its reasonable best efforts to include in such registration statement
resales of Shares issued upon redemption of Class A Units issued at the TRO
Closing.
Other Rights. If the Operating Partnership determines to
sell, before the fifth anniversary of the date on which a
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property is acquired by the Operating Partnership, an Existing Property,
Development Property or Predevelopment Property for which Class A OP Units were
issued in the TRO Transaction and the holders of a majority of the then
outstanding Class A OP Units issued to the TRO Affiliates object to such sale,
the sale will not be consummated unless (i) the sale constitutes an exchange
under Section 1031 of the Internal Revenue Code or (ii) the sale is in
connection with the proposed sale of all or substantially all of the real estate
assets of the Operating Partnership.
Furthermore, before September 30, 2001, the Operating Partnership may
not sell or otherwise dispose of Magnolia Mall in a transaction in which taxable
gain is recognized unless (i) the sale constitutes an exchange under Section
1031 of the Internal Revenue Code and no gain is recognized on such sale or (ii)
the sale is in connection with a program to sell substantially all of the
Operating Partnership's (and its affiliates) retail assets to an entity not
affiliated with the Operating Partnership and at least 80% of the retail
properties owned by the Operating Partnership have been sold or are under
binding contracts of sale with unaffiliated third parties and are scheduled to
close within six months of the date of the closing of the sale of Magnolia Mall.
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The Existing Properties Acquisition. In connection with the TRO
Transaction, the Operating Partnership acquired interests in four shopping
centers/retail properties, listed below:
Existing Properties -- General Information
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Approximate
Annualized
Contract Minimum
Gross Percentage Acquisition Percentage Rent as of
Leasable Interest Price Leased at Number of June 30, 1997
Property/Location Sq. Ft. Acquired ($Mil.)* June 30, 1997 Tenants ($ mil.)
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The Court at Oxford 692,000(1) 50% 6.1(2) 100% 15 6.6
Valley, Langhorne, PA
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Magnolia Mall, 570,000 100% 45.4(4) 97.7% 72 3.5
Florence, SC(3)
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North Dartmouth 620,000 100% 35.0(6) 87.7% 55 4.0
Mall,
Dartmouth, MA(5)
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Former Strawbridge 207,000 (7) 3.2 (8) --- ---
Store, Springfield, PA
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* Before closing and other adjustments.
(1) Includes 235,000 sq. ft. owned by Home Depot and BJ's Warehouse Club.
(2) The equity portion of the purchase price (following initial closing
adjustments) was paid in 233,248 Class A OP Units valued at $23.40 per
unit. The equity portion of the purchase price is subject to
post-closing adjustments. The effective cost to the Trust includes
allocated mortgage debt of $24.7 million at June 30, 1997.
(3) This property was initially subject to a purchase contract between
TRO and Magnolia Retail Associates, L.L.C. TRO assigned its rights
and obligations under such contract to the Operating Partnership. The
seller was an affiliate of EPDLP.
(4) Includes assumed mortgage debt of approximately $25.2 million. The
equity portion of the purchase price was paid in 213,038 Class B OP
Units valued at $23.47 per Unit and $15.1 million in cash.
(5) TRO entered into a contract to purchase this center from Diversified
Equity Corporation of Illinois, Inc., an affiliate of EPDLP. The
Operating Partnership assumed TRO's obligations under the Agreement
of Sale at the closing.
(6) Approximately $6.0 million of the purchase price in respect of the
equity of the seller in the property was paid in cash and the balance
of the purchase price, to be applied to mortgage debt on the property
which was not assumed, was also paid in cash.
(7) The Trust is a co-tenant with an undivided one-half interest in one
of three floors in this free-standing former department store. Its
share of the costs of reconstruction is 14.98%.
(8) Vacant.
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The Court at Oxford Valley (Langhorne, Pennsylvania).
The Court at Oxford Valley was completed in 1996. The center has 15
units with total minimum rents of approximately $6.6 million. Its tenants
include Dick's, Best Buy, HomePlace, Phar-mor (subleased from Melville Corp.),
Baby Superstore, Sears HomeLife, Office Max, and Barnes & Noble. Home Depot
and BJ's Warehouse Club own stores (and associated land) at the center. TRO's
joint venture partner in the center is The Goldenberg Group, which also
manages the center.
The center is encumbered by a mortgage held by an institutional
lender in the principal amount of approximately $49.4 million as of June 30,
1997. The mortgage was unaffected by the Trust's acquisition of a 50% interest
in the partnership that owns the center. The mortgage is for a fifteen-year
term at a fixed interest rate of 8.02% per annum and requires level monthly
payments of principal and interest based on a twenty-five year amortization.
It is first prepayable in 2002 and any prepayment is subject to a prepayment
fee.
The Trust issued an aggregate of 233,248 Class A OP Units to certain
TRO Affiliates in respect of their 50% equity interest in Oxford Valley Road
Associates, the partnership which owns The Court at Oxford Valley. The
consideration was obtained by dividing the agreed-upon value of the equity of
the TRO Affiliates in the center ($5.5 million, after giving effect to closing
and other adjustments) by $23.40, which was the average closing price per
Share on the twenty trading days prior to July 30, 1997, the date the TRO
Transaction Documents were executed. Certain principals of TRO pledged Class A
OP Units to secure the payment of certain undischarged contingent obligations
related to The Court at Oxford Valley incurred prior to the TRO Closing Date.
Magnolia Mall (Florence, South Carolina)
This center was completed in 1979, expanded in 1986-87, and renovated
in 1992. Its anchor tenants are JC Penney, Belk and Sears. Other tenants
include Rose's and Carmike Cinema. The center has 67 other tenants (including
kiosks). TRO obtained management of the center in December 1996. Magnolia Mall
is leased pursuant to a long-term ground lease (with an option to purchase)
expiring in May 2019 with monthly rental payments of approximately $17,000.
Magnolia Mall is encumbered by a mortgage held by an institutional
lender in the principal amount of approximately $25.2 million at September 30,
1997 and was unaffected by the acquisition of the property by the Operating
Partnership. The mortgage is a ten-year fixed rate mortgage maturing in 2006.
The interest rate on the mortgage is 8.2% per annum and the mortgage provides
for level payments of principal and interest which would amortize the principal
over a twenty-year term.
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North Dartmouth Mall, Dartmouth, Massachusetts
This center was completed in 1971 and renovated in 1987. Its anchor
tenants include JC Penney, Sears, General Cinema, and Ames. The center
currently has approximately fifty other tenants (including kiosks). TRO
obtained management of the center from EPDLP in December, 1996. The entire
purchase price was paid by the Operating Partnership in cash.
Former Strawbridge Store (Springfield, Pennsylvania)
Target, the Trust and the Trust's co-owner acquired condominium
interests in the former Strawbridge Store on April 18, 1997. The site is at
the Intersection of Route 13, Baltimore Pike and Route 420, approximately 1/2
mile from the Springfield Mall. Target plans on occupying the lower two
levels. The Trust and its co-tenants, entities affiliated with Claude
deBotton, together own a condominium interests in the third floor of the
building and condominium interest in pads for one to three outparcels. All
levels of the building have access to at-grade parking. The Trust's projected
total investment is approximately $3.2 million.
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The Development Properties Acquisition. As part of the TRO
Transaction, the Operating Partnership entered into a contribution agreement
(the "Development Properties Contribution Agreement") pursuant to which it
will acquire the interests of TRO Affiliates in two properties developed by
TRO. The Operating Partnership's actual aggregate purchase price (assumed debt
and equity) for each property will be based on a formula which capitalizes
cash flow from leased and occupied space, and space leased but not yet
occupied, to credit-worthy tenants, values triple net leases with purchase
arrangements at the present value of payments in excess of related debt
amortization, and values all other space as mutually agreed or, failing
agreement, pursuant to appraisals. The equity portion of the purchase price
will be payable, in each case, in Class A OP Units valued at $23.40 per Unit
which was the average of the closing prices of the Shares on the twenty
trading days prior to July 30, 1997, the date on which the definitive
documentation for the acquisition of the Development Properties was executed.
The projected purchase prices listed below are based on certain assumptions
which may not be realized and actual results are likely to vary. Accordingly,
the actual purchase prices may differ from the projected purchase prices and
will be a function of lease-up activity, and other factors, prior to
acquisition by the Operating Partnership. Information with respect to the
Development Properties is listed below.
Development Properties -- General Information
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Projected
Annualized
Minimum Rent
Planned Gross Percentage on a Fully- Projected Anticipated
Leasable Interest to Leased Basis Purchase Acquisition
Property/Location Sq. Ft. be Acquired ($Mil.) Price ($Mil.) (1) Date by Trust
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Hillview Shopping 341,000 50% 3.2 14.0 (2) Prior to December
Center, 31, 1998
Cherry Hill, NJ
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Northeast Tower 462,000 100% (3) 4.0 25.3 (4) Prior to December
Center, 15, 1999
Philadelphia, PA (3)
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(1) The projected purchase prices listed above are illustrative only and
the actual purchase prices will be a function of lease-up activity,
and other factors, prior to acquisition by the Operating Partnership.
(2) Includes allocated portion of projected assumed indebtedness of $12.9
million.
(3) The Trust will initially acquire 89% of the interest in the
partnership which owns this property and obtain the right to acquire
the remaining 11% interest not earlier than three years from the
first acquisition date.
(4) Includes projected assumed indebtedness of $20.5 million.
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Hillview Shopping Center (Cherry Hill, New Jersey)
This center was developed by TRO, which has a 50% interest in the
center. Affiliates of The Goldenberg Group own the balance of the center. TRO
will manage the center. Tenants in the center will be Target, Kohl's, Babies
'R Us, Home Place, PetsMart, Crown Book, and Silver Diner.
The Operating Partnership will acquire the 50% interest of certain
TRO Affiliates in the center shortly after its completion, which is currently
anticipated in autumn of 1997.
The center is currently encumbered by a floating-rate construction
loan and mortgage held by an institutional lender and having an approximate
principal balance of $18 million as of September 30, 1997. The mortgage bears
interest at the London Interbank Offered Rate plus 1.9% and is extendable
until the spring of 1998. The terms of the mortgage will be unaffected by the
acquisition by the Operating Partnership of the equity interest of TRO
Affiliates in the center, but it is anticipated that a permanent mortgage will
be placed on the property on or before its acquisition by the Operating
Partnership.
Northeast Tower Center (Philadelphia, Pennsylvania)
This center was developed by TRO and all of the equity interests in
the center are owned by TRO Affiliates. TRO will manage the center. Tenants in
the center include Home Depot, PetsMart, Staples, and Old Navy. The center
will have approximately twelve other stores.
Upon completion of the center, which is currently anticipated to be
not later than December, 1999, the Operating Partnership will initially
acquire 89% of the interests of the TRO Affiliates which own the center. The
Operating Partnership will have the absolute right to acquire the remaining
11% interests of the TRO Affiliates thirty-seven months following the original
acquisition date.
It is currently anticipated that the center will be encumbered at the
time of its acquisition by the Operating Partnership by one or more mortgages
in the aggregate amount of approximately $20.6 million. The terms of the
mortgage will be unaffected by the acquisition by the Operating Partnership of
the equity interest of TRO Affiliates in the center.
-14-
The Predevelopment Properties Acquisition. Under the terms of the TRO
Transaction, the Trust has acquired all of the interests of certain TRO
Affiliates in the Predevelopment Properties listed below. Additional
permitting and other work is required on all sites. Accordingly, there can be
no assurance that any particular site will ultimately be developed and it is
possible that the right to acquire an interest in some of these properties
will be allowed to expire unexercised due to unresolved permitting issues or
other factors encountered in the development process.
Predevelopment Properties -- General Information
====================================================================================================================================
Total
Projected Projected Gross Current Projected Projected
Percentage Rentable Retail Construction Cost to the Trust
Property/Location Interest Sq. Ft. Commencement Date ($Mil.) (1)
----------------- --------- --------------- ------------------ -----------------
- ------------------------------------------------------------------------------------------------------------------------------------
Blue Route Metroplex 50%* 760,000 Autumn, 1998 38.8
Plymouth Meeting, PA
- ------------------------------------------------------------------------------------------------------------------------------------
Christiana Strip Center 50% 279,000 Winter, 1997 14.7
(Phase 1)
Newark, DE
- ------------------------------------------------------------------------------------------------------------------------------------
Christiana Strip Center 50% (2) 445,000 Autumn, 1998 (3)
(Phase II)
Newark, DE
- ------------------------------------------------------------------------------------------------------------------------------------
Red Rose Commons 50%* 461,000 Winter, 1997 14.6
Lancaster, PA
====================================================================================================================================
- ---------------
* Subject to reduction to 25% under the terms of the Goldenberg Letter
Agreement. See "The Goldenberg Letter Agreement" below.
(1) Stated projected project costs are based on current estimates and
include both attributed debt and equity but exclude amounts due
certain TRO Affiliates in respect of one-half of any positive
difference between value at completion and cost (on an aggregate
basis).
(2) This property is not currently zoned for retail use and any
participation by the Trust in the development of this property is
subject to rezoning.
(3) None as of the date of this Report.
The Basic Predevelopment Arrangements
The terms of the TRO Transaction required the Operating Partnership,
on the TRO Closing Date, to reimburse TRO in cash for its verified
out-of-pocket expenditures and advances in respect of the Predevelopment
Properties which are not covered by the funding under the Goldenberg Letter
Agreement (see "The Goldenberg Letter Agreement" below). At the TRO Closing,
the Operating Partnership acquired from TRO, for cash, the account
-15-
through which TRO had made Predevelopment Property advances under the
Goldenberg Letter Agreement.
As each Predevelopment Property project is completed, it will be
valued based on the following valuation principles: (i) all space based and
occupied by credit tenants will be valued at ten times adjusted cash flow
(computed as specified in the agreement); and (ii) all space leased to a
credit tenant but unoccupied will be valued at ten times adjusted cash flow
calculated as though the space was built and occupied as set forth in the
budget in the property, and (iii) space not leased or occupied, whether built
or unbuilt, will be valued as mutually agreed on or, failing agreement, by
appraisal. Additional provisions exist for valuing triple net lease/purchase
arrangements. Although each Predevelopment Property project will be valued as
completed and an "account" established against which Class A OP Units will be
deemed to be credited, as well as deemed cash in an amount that would have
been distributed on such deemed Units and a 10% interest factor on such deemed
cash, no consideration will be paid until the earlier of (x) the completion of
the last predevelopment property, and (y) the abandonment by the Trust of any
uncompleted projects, and (z) five years following the TRO closing. At that
time, any uncompleted project will be valued and the Operating Partnership
will issue Class A OP Units equal in value to 50% of the amount, if any, by
which the value of the Operating Partnership's interest in each predevelopment
project exceeded the aggregate cost of such project at the time of completion.
Negative amounts arising in connection with the completion or abandonment of
any project will be netted back against earlier completed projects in order of
completion. Class A OP Units issued in respect of the foregoing valuations of
the Predevelopment Projects will be valued at the greater of (x) average of
the closing prices of the Shares for the twenty trading days prior to the date
of the completion valuation and (y) $19.00. If the average of the closing
prices of the Shares on the 20 trading days prior to each valuation is less
than $19.00, additional OP Units, of a new class but equal in value to those
Class A OP Units not issued because of the operation of the pricing
limitation, will be issued.
The Goldenberg Letter Agreement
TRO was party to a letter agreement with The Goldenberg Group (the
"Goldenberg Letter Agreement"), which contemplates the development of six
power centers, three by The Goldenberg Group and three by TRO. The Goldenberg
Letter Agreement provides that the entity developing the center will have the
right to manage the center but that each center will be 50% owned by The
Goldenberg Group and 50% owned by TRO. TRO was obligated under the Goldenberg
Letter Agreement to provide a $5 million revolving fund to carry
pre-development expenses on The Goldenberg Group's three projects to the
extent those expenses exceed construction loan financing proceeds and to fund
all such expenses on TRO projects directly. At the TRO Closing, the Operating
Partnership took by assignment from TRO and an affiliate of TRO all of TRO's
rights, subject to all of TRO's obligations, under the Goldenberg Letter
Agreement.
-16-
The Court at Oxford Valley, an Existing Property, was developed by
Goldenberg under the Goldenberg Letter Agreement and Hillview Shopping Center,
a Development Property, was developed by TRO under the Goldenberg Letter
Agreement. Goldenberg's remaining two projects under the Goldenberg Letter
Agreement are the Blue Route/Metroplex Center, Plymouth Meeting, Pennsylvania,
and Red Rose Commons, Lancaster, Pennsylvania, both listed above as
Predevelopment Properties. TRO has not yet proposed its second and third
projects under the Goldenberg Letter Agreement. In the event that the
Operating Partnership were to fail to offer The Goldenberg Group two proposed
power center projects meeting specified criteria (one to be selected at The
Goldenberg Group's sole election) within eighteen months of the closing of a
construction loan on each of Blue Route/Metroplex and Red Rose Commons, then
the interest of the Operating Partnership in the "unmatched" project would be
subject to reduction by The Goldenberg Group, without the payment of any
consideration, from 50% to 25%.
Although TRO has performed preliminary work for the requisite
"matches" for Blue Route/Metroplex and Red Rose Commons, there can be no
assurance that either project will be successfully matched and, therefore,
that the Operating Partnership's interest in these projects will not be
reduced to 25%. However, since the Operating Partnership will only pay TRO
Affiliates in respect of one-half of the "developer profit" on the share of
the profit actually acquired, a reduction in the interest in these projects
should not result in any unrecaptured cost to the Operating Partnership.
Rights of First Refusal. The Operating Partnership obtained rights of
first refusal with respect to the interests of certain TRO Affiliates in the
three retail properties listed below. There can be no assurance that the
Operating Partnership will have the opportunity to exercise its right of first
refusal with respect to any of such properties or that, having such right, it
will elect to do so.
-17-
Rights of First Refusal Properties -- General Information
=============================================================================================================
Gross Leasable Percentage Interests
Property/Location Sq. Ft. Owned By TRO Affiliates
- -------------------------------------------------------------------------------------------------------------
Christiana Mall, 1,100,000 (1)
Newark, DE (1)
- -------------------------------------------------------------------------------------------------------------
Cumberland Mall, 463,143 50%
Vineland, NJ
- -------------------------------------------------------------------------------------------------------------
Fairfield Mall, 417,940 50%
Chicopee, MA
=============================================================================================================
- -----------------
(1) The ownership interest in this property is to be restructured. The
interests of TRO Affiliates is subject to adjustment. The Operating
Partnership's right of first refusal does not attach to transactions
incident to such restructuring.
Management Changes. A substantial number of management changes occurred
at the Trust as a consequence of the completion of the TRO Transaction. Ronald
Rubin, formerly Chairman and Chief Executive Officer of TRO, was elected a
Trustee and Chief Executive Officer of the Trust. George Rubin, formerly
President and Chief Operating Officer of TRO, was elected a Trustee of the Trust
and President of TRO. Rosemarie B. Greco was also elected a Trustee of the Trust
as a designee of TRO. Ms. Greco has no prior affiliation with the Trust. Messrs.
Robert G. Rogers, Robert Freedman and Jack Farber resigned as Trustees of the
Trust. Set forth below is biographical and other data with respect to Ronald
Rubin, George Rubin and Rosemarie B. Greco.
-18-
===========================================================================================================
Occupation During Beneficial Ownership
Age Last Five Years of Shares of the Trust
- -----------------------------------------------------------------------------------------------------------
Ronald Rubin (1) 66 Chairman and Chief (2)
Executive Officer, The
Rubin Organization, Inc.,
since 1992
- -----------------------------------------------------------------------------------------------------------
George Rubin (1) 54 President, The Rubin (2)
Organization, Inc., since
1992
- -----------------------------------------------------------------------------------------------------------
Rosemarie B. Greco 51 Former President, -0-
CoreStates Financial Corp.
and CoreStates Bank, N.A.
since 1992
===========================================================================================================
- -----------------
(1) Ronald Rubin and George Rubin are brothers.
(2) Neither Ronald Rubin nor George Rubin currently own Shares of the
Trust. George Rubin's spouse currently owns 500 Shares, and his
daughter is the beneficiary of 900 shares held in trust for her. At the
closing of the TRO Transaction, Ronald Rubin and George Rubin became
beneficial owners, after adjustments, of approximately 143,440 and
86,055 Class A OP Units, respectively, issued in respect of their
equity interests in TRO and the Court at Oxford Valley. They will be
entitled to receive additional Class A OP Units during the five-year
period following the TRO Closing to the extent the Trust meets
specified financial goals. (See "The TRO Transaction -- Principal
Features of the TRO Transaction -- The TRO Equity Acquisition.") They
own a majority of the interests of the TRO Affiliates that own
interests in the Development Properties and the Predevelopment
Properties and thus will also obtain beneficial interests in a
substantial additional number of Class A OP Units as some or all of
such interests are acquired by the Operating Partnership. Class A OP
Units become redeemable by the holder one year after issuance and, if
tendered for redemption may, at the election of the Trust, be
exchanged for Shares. Ronald Rubin and George Rubin were granted
options at the TRO Closing to purchase 150,000 and 75,000 Shares,
respectively, of the Trust, none of which are currently exercisable
within the next sixty (60) days.
Sylvan M. Cohen, a founder of the Trust and currently Chairman and
Chief Executive Officer of the Trust, will continue as Chairman of the Board
of Trustees and as Chairman of its Property Committee. Jonathan B. Weller, a
Trustee and President of the Trust, will continue in those positions and as
Chief Operating Officer of the Trust. Robert G. Rogers, formerly Executive
Vice President of the Trust, will retire effective December 31, 1997. Edward
Glickman, currently Chief Financial Officer of TRO, became Chief Financial
Officer of the Trust. A number of members of management of TRO will continue
in such capacities in TRO.
-19-
Ronald Rubin Employment Agreement. The Trust has entered into an
employment agreement with Ronald Rubin for an initial term of five years and
extending year-to-year thereafter until terminated by either party. During the
period of his employment, Mr. Rubin will be required to devote his full
working time, energy, skill and best efforts to the performance of his duties
under the agreement and may not participate in any other business pursuits
except that he may maintain his existing ownership interest in approximately
35 commercial properties in which the Trust will have no interest so long as
the aggregate time he devotes to such properties is insignificant and such
activities do not interfere with, detract from or affect the performance of
his duties to the Trust. The contract precludes Mr. Rubin, directly or
indirectly, from engaging in any development opportunity in which Mr. Rubin
has an ownership interest other than three specified projects, subject to
waiver by the Special Committee of the Board of Trustees of the Trust (see
"The TRO Transaction -- The Special Committee"), upon the request of Mr.
Rubin, in exceptional circumstances.
The contract provides for annual base salary of $345,000, provided
that at all times during the term of the contract the base salary be at least
equal to the highest amount paid to any other person employed by the Trust or
TRO. For each fiscal year commencing after December 31, 1997, Mr. Rubin will
be entitled to incentive compensation under a plan to be adopted by the Trust.
(See "The TRO Transaction -- Principal Features of the TRO Transaction -- Cash
Incentive Bonus Plan"). The contract also provides for the grant pursuant to
the 1997 Stock Option Plan of non-qualified options to purchase 150,000 Shares
at an exercise price fixed in accordance with the terms of the Plan, which
will be the closing price on the TRO Closing Date. The options will vest in
four equal annual installments beginning on the first anniversary of the grant
date. (See "The 1997 Stock Option Plan").
If Mr. Rubin's employment is terminated other than for cause or a
change in control of the Trust, he will be entitled to lump sum severance
equal to the present value of his base salary and a target incentive bonus for
the remaining portion of the contract term at the time of termination. If his
employment is terminated pursuant to a change in control (including voluntary
termination by Mr. Rubin within 60 days of a change in control), the Trust
shall pay him up to three times the present value of his base salary and
target incentive compensation, subject to all necessary reductions to preserve
the deductibility of all such payments under the Internal Revenue Code.
Mr. Rubin's contract defines change in control to mean (i) the
acquisition by any person or group of the beneficial ownership of 51% of the
issued and outstanding Shares, or (ii) a circumstance in which the majority of
the Board of Trustees does not consist of persons ("Continuing Trustees") who
were Trustees of the Trust prior to the time any person or group acquired 50%
or more of the Shares, or who were recommended to succeed such persons by a
majority of such persons, or (iii) the approval by the Shareholders of a
reorganization, consolidation or merger or approval by the Shareholders of a
liquidation or dissolution of the Trust or sale of all or substantially all of
the Trust's assets unless (A) the Shareholders will, by reason of such
transaction, own at least 51% of the voting securities of
-20-
the surviving entity, and (B) no person, excluding an employee benefit plan,
will own more than 49% of the voting power of any resulting entity, and (C) a
majority of the members of the board of directors or trustees of the surviving
entity consist of persons who were Continuing Trustees of the Trust
immediately prior to the transaction.
During Mr. Rubin's employment and for one year thereafter if his
employment is terminated for cause, Mr. Rubin will be prohibited from
competing, in certain defined respects, with the Trust, subject to the
permitted ownership interests described above. Any non-competition agreement
would terminate upon a change in control of the Trust.
Other Employment Agreements. The Trust and TRO have entered into
employment agreements with a number of current managers of TRO, to take effect
on the TRO Closing. Most of the contracts provide for stated rates of minimum
base cash compensation, initial option grants, and incentive compensation to
be established in the future. (See "Cash Incentive Bonus Plan.") These
individuals include George Rubin, the brother of Ronald Rubin, who is
currently President of TRO and who will become a Trustee of the Trust and
remain President of TRO, and Edward Glickman, who is currently Chief Financial
Officer of TRO and who will become the Chief Financial Officer of the Trust.
Most of the individuals executing employment agreements were granted
options to purchase an aggregate of approximately 300,000 shares at an
exercise price equal to the closing price of the Shares on the date of the
closing of the TRO Transaction. The options will be non-qualified options,
will vest in four equal annual installments beginning on the first anniversary
of the grant date.
The term of all such contracts are two years and automatically
renewable for year-to-year terms thereafter unless prior notice is given by
either party. In many respects, these contracts otherwise contain terms
similar to those of the contract with Ronald Rubin, except that most of the
contracts provide that severance upon a change in control is a multiple of
twice base and targeted incentive compensation, subject to reduction to
satisfy limitations on deductibility, and the executive may only obtain such
payment if he or she resigns for Good Reason (as defined in the agreements)
following a change in control.
TRO Stock Bonus Plan. At the Closing, TRO established a stock bonus
plan for all of its employees who have completed at least one year of service
as of the effective date of the plan (September 30, 1997). The plan will be
qualified for favorable tax treatment under section 401(a) of the Internal
Revenue Code and all of the outstanding voting common shares of TRO will be
held by the trust established under the plan.
TRO contributed all of its voting common shares to the plan for the
plan year ending December 31, 1997. The shares will be allocated to the plan
accounts of the eligible employees as of December 31, 1997, pro rata, based on
their covered compensation for 1997. The shares held by the plan will be
appraised as of the effective date, and as of each
-21-
December 31 thereafter. The value of an employee's account under the plan will
be payable to the employee upon termination of service. Since TRO's Articles
of Incorporation restrict ownership of all of the outstanding voting common
shares of TRO to TRO employees or to a tax-qualified plan for the benefit of
employees, benefits to terminated employees will be paid only in cash.
Voting on major corporate transactions (including mergers,
recapitalizations, liquidations, and similar transactions) will be passed
through by the plan trustee CoreStates Bank, N.A., to the plan's participants.
Voting by the plan trustee on other matters will be directed by majority vote
of the TRO Stock Bonus Plan Committee, who will be appointed by the Board of
Directors of TRO.
Cash Incentive Bonus Plan. The Trust and TRO have established an
incentive bonus plan, effective January 1, 1998, for certain officers and key
employees of the Trust and TRO. The plan is a nonqualified, unfunded plan with
bonuses to be paid from the general assets of the Trust.
The Executive Compensation and Human Resources Committee of the Board
of Trustees of the Trust will administer the plan. The Committee will
designate which eligible officers and key employees are eligible to receive a
bonus under the plan. Each of the individuals who will be entering into
employment agreements in connection with the TRO Transaction will be eligible
to participate in the Plan. A bonus pool will be created equal to a percentage
of "Adjusted Funds Available for Distribution," and one-half of the pool will
be paid to the participants based on set individual percentages. All or a
portion of the remainder of the pool may be awarded by senior management (in
its discretion, but subject to the approval of the Committee) to any of the
participants in the plan and/or to any other employees of the Trust or TRO who
achieved the goals and objectives stated in the Trust's business plan.
Bonuses will be paid in single-sum cash payments within a
reasonable time after the Trust's fiscal year-end financial statements are
approved. Except as provided in a participant's employment agreement, only
participants who are employed by the Trust or TRO on December 31 of each plan
year will be eligible to receive payments under the plan (unless the
participant was no longer an employee due to a reorganization, or because he
retired on or after age 65, became disabled, or died).
The New Credit Agreement
Coincident with the closing of the TRO transaction, the Operating
Partnership entered into a $150 million revolving credit facility (the "New
Revolver") with a group of banks led by CoreStates Bank, N.A ("CoreStates").
The obligations of the Operating Partnership under the New Revolver have been
guaranteed by the Trust. The New Revolver replaces,
-22-
effective June 30, 1997, facilities which the Trust maintained with CoreStates
and other banks in the aggregate principal amount of $75 million (of which
$39.7 million was outstanding as of September 30, 1997). The New Revolver
leaves in place a separate $35 million term loan facility previously provided
the Trust by a bank group, including CoreStates, which is secured by three
apartment properties, had a balance as of September 30, 1997, of $34.0
million, and which may be extended at the borrower's option to March, 2000.
The New Revolver is for an initial term of twenty-four months
(subject to extension upon conditions and terms set forth therein) and bears
interest, at the borrower's election, at (i) the higher of CoreStates' prime
rate, or the Federal Funds lending rate plus .5%, in each case as in effect
from time to time, or (ii) the London Interbank Offered Rate plus margins
ranging from 1.1% to 1.7%, depending on the ratio of the Operating
Partnership's Consolidated Liabilities to Gross Asset Value (the "Leverage
Ratio"), each as determined pursuant to the terms of the New Revolver.
The New Revolver contains affirmative and negative covenants normally
found in facilities of this type, as well as requirements that the Operating
Partnership maintain, on a consolidated basis: (i) a maximum Leverage Ratio of
65%; (ii) a maximum ratio of Senior Liabilities to Unencumbered Asset Value of
73%; (iii) minimum tangible net worth of $115 million plus 75% of the net
proceeds of sales of equity securities by the Operating Partnership or the
Trust; (iv) a minimum ratio of annualized consolidated property net operating
income to total annual debt service of 1.40:1; (v) a minimum ratio of
annualized consolidated property net operating income to pro forma debt
service 1.30:1; and (vi) maintain consolidated net operating income of at
least $40,000,000. After giving effect to the acquisition of the non-voting
common shares of TRO and the acquisition of the Existing Properties, the
Leverage Ratio, computed as provided in the New Revolver, is approximately
59%. Until the Operating Partnership reduces its leverage ratio to 50%, the
lending banks will hold unrecorded mortgages on thirteen unencumbered
properties which the Operating Partnership owns, directly or indirectly, and
would be entitled to record such mortgages upon any event of default. After
the Operating Partnership reduces the Leverage Ratio to 50% and the ratio of
Senior Liabilities to Unencumbered Asset Value to 60%, the Lending Banks are
to release the unrecorded mortgages, whereupon the ratios in clauses (i),
(ii), (iv) and (v) above become, respectively, 50%, 60%, 1.70 to 1 and
1.65 to 1.
On September 30, 1997, the Operating Partnership drew $89.6 million
on the New Revolver, which was used as follows: $10.1 million for the
acquisition of Magnolia Mall, Florence, S.C.; $33.9 million for the
acquisition of North Dartmouth Mall, Dartmouth, MA; $39.7 million to refinance
existing credit facilities and unsecured term loans ($5.7 million of which
remained in place from the prior $75 million revolving credit facility); $8.9
million advance to TRO for the Closing Loan and predevelopment costs; and $2.7
million for other transaction costs. Because of the operation of the
Unencumbered Asset Value covenant, the
-23-
current maximum borrowings which could be made by the Operating Partnership
under the New Revolver are approximately $113.4 million.
-24-
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
i. The Rubin Organization, Inc. and Subsidiary --
Consolidated Balance Sheets as of December 31, 1996, 1995 (unaudited)
and June 30, 1997 (unaudited); Consolidated Statements of Operations,
Stockholders' Equity, and Cash Flows for the years ending December
31, 1997, 1996 (unaudited), and 1995 (unaudited) and for the six
months ended June 30, 1997 (unaudited) and 1996 (unaudited); and
related notes thereto. Filed as Exhibit F to the Trust's definitive
proxy statement for the Special Meeting of Shareholders on September
29, 1997, filed with the Securities and Exchange Commission (the
"Commission") on August 27, 1997, and incorporated herein by
reference.
ii. Oxford Valley Road Associates -- Balance Sheets as at
December 31, 1996 and 1995 and June 30, 1997 (unaudited); Statements
of Operations and Partners Capital and Cash Flows for the years
ending December 31, 1996 and 1995 and the six months ending June 30,
1997 (unaudited) and 1996 (unaudited); and related notes thereto.
Filed as Exhibit G to the Trust's definitive proxy statement for the
Special Meeting of Shareholders on September 29, 1997, filed with the
Commission on August 27, 1997, and incorporated herein by reference.
iii. Magnolia Mall -- Statement of Revenues and Certain
Expenses for the year ending December 31, 1996, and the six months
ending June 30, 1997 (unaudited); and related notes thereto. Filed as
Exhibit H to the Trust's definitive proxy statement for the Special
Meeting of Shareholders on September 29, 1997, filed with the
Commission on August 27, 1997, and incorporated herein by reference.
iv. North Dartmouth Mall -- Statement of Revenues and
Certain Expenses for the year ending December 31, 1996, and the six
months ending June 30, 1997 (unaudited); and related notes thereto.
Filed as Exhibit I to the Trust's definitive proxy statement for the
Special Meeting of Shareholders on September 29, 1997, filed with the
Commission on August 27, 1997, and incorporated herein by reference.
(b) Pro Forma Financial Information.
i. Unaudited Pro Forma Consolidating Financial Information
of Pennsylvania Real Estate Investment Trust -- Consolidated Balance
Sheet as of May 31, 1997; Consolidating Income Statements for the
year ended August 31, 1996 and the nine months ended May 31, 1997;
and related notes to Management's Assumptions. See page F-1.
-25-
(c) Exhibits. The Registrant agrees to furnish supplementally a copy
of any omitted Schedule or Exhibit to the Commission upon request.
3.2 Trust Agreement, as Amended and Restated September 29, 1997.
3.3 By-Laws, as adopted on September 29, 1997.
4.12 Revolving Credit Agreement, dated September 30, 1997, among
PREIT Associates, L.P. and the lending institutions named
therein.
4.13 Revolving Credit Note, dated September 30, 1997.
4.14 Guaranty of the Trust, dated September 30, 1997, among the
Trust and the lending institutions named therein.
4.15 First Amended and Restated Agreement of Limited Partnership,
dated September 30, 1997, of PREIT Associates, L.P.
4.16 Subscription Agreement, dated September 30, 1997, between
PREIT Associates, L.P. and Florence Mall Partners.
10.15 PREIT Contribution Agreement and General Assignment and Bill
of Sale, dated as of September 30, 1997, by and between the
Trust and PREIT Associates, L.P.
10.16 Declaration of Trust, dated June 19, 1997, by Trust, as
grantor, and Trust, as initial trustee.
10.17 TRO Contribution Agreement, dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and the persons and
entities named therein.
10.18 First Amendment to TRO Contribution Agreement, dated September
30, 1997.
10.19 Contribution Agreement (relating to the Court at Oxford
Valley, Langhorne, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Rubin Oxford, Inc.
and Rubin Oxford Valley Associates, L.P.
10.20 First Amendment to Contribution Agreement (relating to the
Court at Oxford Valley, Langhorne, Pennsylvania), dated
September 30, 1997.
10.21 Contribution Agreement (relating to Hillview Shopping
Center, Cherry Hill, New Jersey), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Cherry Hill
Partner, Inc., and Rubin Oxford Valley Associates, L.P.
-26-
10.22 Contribution Agreement (relating to Northeast Tower Center,
Philadelphia, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Roosevelt Blvd.
Co., Inc., and the individuals named therein.
10.23 Contribution Agreement (relating to the pre-development
properties named therein), dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and TRO Predevelopment,
LLC.
10.24 First Amendment to Contribution Agreement (relating to the
pre-development properties), dated September 30, 1997.
10.25 First Refusal Rights Agreement, effective as of September
30, 1997, by Pan American Associates, its partners and all
persons having an interest in such partners with and for the
benefit of PREIT Associates, L.P.
10.26 Purchase and Sale Agreement (relating to Magnolia Mall,
Florence, South Carolina), dated as of June 30, 1997, by and
between Magnolia Retail Associates, L.L.C. and The Rubin
Organization, Inc.
10.27 First Amendment to Purchase and Sale Agreement (relating to
Magnolia Mall, Florence, South Carolina), dated September
30, 1997.
10.28 Purchase and Sale Agreement (relating to North Dartmouth
Mall, Dartmouth, Massachusetts), dated as of June 30, 1997,
by and between Diversified Equity Corporation of Illinois,
Inc. and The Rubin Organization, Inc.
10.29 Agreement Regarding Assignment of Purchase and Sale
Agreements (relating to Magnolia Mall, Florence, South
Carolina and North Dartmouth Mall, Dartmouth,
Massachusetts), dated as of June 30, 1997, between The Rubin
Organization, Inc. and the Trust.
10.30 Registration Rights Agreement, dated as of September 30,
1997, among the Trust and the persons listed on Schedule A
thereto.
10.31 Registration Rights Agreement, dated as of September 30,
1997, between the Trust and Florence Mall Partners.
10.32 Letter Agreement, dated March 26, 1996, by and among The
Goldenberg Group, The Rubin Organization, Inc., Ronald Rubin
and Kenneth Goldenberg.
10.33 Letter Agreement dated July 30, 1997, by and between The
Goldenberg Group and Ronald Rubin.
-27-
10.34 Employment Agreement, dated September 30, 1997, between the
Trust and Ronald Rubin.
10.35 Employment Agreement, dated September 30, 1997, between the
Trust and Edward Glickman.
10.36 Second Amendment to Employment Agreement, dated as of
September 29, 1997, between the Trust and Sylvan M. Cohen.
10.37 Trust Incentive Bonus Plan, effective as of January 1, 1998.
10.38 PREIT-RUBIN, Inc. Stock Bonus Plan Trust Agreement,
effective as of September 30, 1997, by and between
PREIT-RUBIN, Inc. and CoreStates Bank, N.A.
10.39 PREIT-RUBIN, Inc. Stock Bonus Plan.
10.40 Amended and Restated 1990 Incentive and Non-Qualified Stock
Option Plan of the Trust.
10.41 1997 Stock Option Plan.
23.3 Consent of Arthur Andersen LLP (Independent Public
Accountants for the Trust, The Rubin Organization, Inc.,
Magnolia Mall and North Dartmouth Mall.)
23.4 Consent of Zelenkofske, Axelrod & Co., Ltd. (Independent
Public Accountants for Oxford Valley Road Associates.)
-28-
Item 8. Change in Fiscal Year.
At a meeting of the Board of Trustees of the Registrant held
September 29, 1997, the Board of Trustees resolved to change the Registrant's
fiscal year end from August 31 to December 31. The Registrant's first full
fiscal year after the change will be the twelve months ended December 31,
1998. The Registrant intends to file a report on Form 10-Q for the four month
period ending December 31, 1997, not later than February 14, 1998.
-29-
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Pennsylvania Real Estate Investment Trust
/s/ Dante J. Massimini
Date: October 13, 1997 -----------------------------------
Dante J. Massimini
Senior Vice President-Finance
and Treasurer
-30-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PRO FORMA CONSOLIDATING FINANCIAL INFORMATION
The following sets forth the pro forma consolidating balance sheet of
Pennsylvania Real Estate Investment Trust as of May 31, 1997 and the pro forma
consolidating statements of operations for the year ended August 31, 1996 and
the nine-month period ended May 31, 1997 to give effect to the TRO
Transaction.
The TRO Transaction involved a number of related transactions, the combined
effect of which was to form and capitalize an Operating Partnership and to
transfer ownership of the Trust's direct and indirect interests in its
existing properties, or the economic benefits thereof, to the Operating
Partnership, and to effect the acquisitions described below:
* TRO Equity Acquisition. The Operating Partnership acquired all of the
non-voting common shares of TRO, constituting 95% of all of the total
equity of TRO, in exchange for the issuance of 200,000 Class A OP
Units and a contingent obligation to issue up to 800,000 additional
Class A OP Units over the following five-year period if the Trust
achieves certain specified levels of funds from operations, on a per
share basis, over such period.
* Existing Properties Acquisition. The Operating Partnership acquired the
interests of certain affiliates of TRO ("TRO Affiliates") in three
existing shopping centers, or portions of shopping centers (the
"Existing Properties").
Two of the properties (Magnolia Mall and North Dartmouth Mall) were
purchased from Equity Properties and Development Limited Partnership
("EPDLP") for aggregate consideration, excluding transaction costs, of
approximately $80 million, of which (i) $25.2 million represents an
assumable mortgage, (ii) $5 million was paid through the issuance of
approximately 213,000 Class B OP units to an affiliate of EPDLP for
their interest in Magnolia Mall; and (iii) the balance was financed with
borrowings under a revolving credit facility.
The Operating Partnership issued approximately 233,000 additional
Class A OP units to TRO Affiliates in respect of their 50% equity
interest in the Court at Oxford Valley.
* Predevelopment Properties Acquisition. The Operating Partnership
acquired the rights of certain TRO Affiliates in respect of three
potential shopping center sites (the "Predevelopment Properties") in
exchange for (i) a loan of cash to TRO in the amount of $3.4 million
representing actual out-of-pocket expenditures of TRO incurred with
respect of such properties through the Closing Date, and (ii) an
obligation to issue, upon completion of any property subsequently
developed, Class A OP Units for one-half of the difference between the
aggregate value of all such properties at the time of completion and
the all-in-cost of all such properties.
* Development Properties Acquisition. The Operating Partnership became
obligated to acquire, for Class A OP Units, the interests of certain
TRO Affiliates in two shopping centers currently under development
(the "Development Properties"), upon completion of their construction,
F-1
at prices based upon a pre-determined formula. As these transactions
are expected to occur in the future at amounts that are not currently
determinable, the financial impact of such future events has not been
reflected in the accompanying pro forma financial statements.
All of the acquisitions described above have been recorded by the Trust using
the purchase method of accounting.
The accompanying pro forma consolidating financial information is presented as
if the transactions described above had been consummated on May 31, 1997 for
balance sheet purposes and September 1, 1995 for purposes of the statements of
operations. This unaudited pro forma consolidating financial information should
be read in conjunction with the historical financial statements of the Trust,
including the Trust's most recently filed reports on Form 10-K and Form 10-Q,
and The Rubin Organization, Inc., Magnolia Mall, North Dartmouth Mall and
Oxford Valley Road Associates and the related notes thereto all which are
incorporated by reference in this Form 8-K or included elsewhere herein. In
management's opinion, all adjustments necessary to reflect the effects of the
transactions have been made.
The pro forma consolidating financial information is unaudited and is not
necessarily indicative of what the actual financial position or results of
operations of the Trust would have been had the TRO Transaction been
consummated as of the dates indicated, nor does it purport to represent the
future financial position and the results of operations of the Trust.
F-2
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PRO FORMA CONSOLIDATING BALANCE SHEET
MAY 31, 1997
(Unaudited)
(In thousands)
Other The
PREIT Existing Pro Forma Company
Historical TRO (A) Properties(B) Adjustments Pro Forma
---------- ------- ------------- ----------- ---------
Assets
Investments in Real Estate, at cost
Apartment buildings $ 158,865 $ -- $ -- $ -- $ 158,865
Industrial properties 5,078 -- -- -- 5,078
Shopping centers and retail stores 37,393 -- 80,365 2,212 (C) 119,970
----------- ----------- ------------ ----------- ------------
Total investments in real estate 201,336 -- 80,365 2,212 283,913
Less accumulated depreciation 49,172 -- -- -- 49,172
----------- ----------- ------------ ----------- ------------
152,164 -- 80,365 2,212 234,741
Property under development -- -- -- 2,162 (D) 2,162
Investment in management company -- 4,680 -- 896 (E) 5,576
Investments in partnerships and joint
ventures, at equity 1,710 -- 5,458 778 (F) 7,946
Advances to management company -- -- -- 9,000 (G) 9,000
----------- ----------- ------------ ------------ ------------
153,874 4,680 85,823 15,048 259,425
Less allowance for possible losses 1,880 -- -- -- 1,880
----------- ----------- ------------ ----------- ------------
151,994 4,680 85,823 15,048 257,545
Other Assets:
Cash and cash equivalents 3,554 -- -- -- 3,554
Rents and sundry receivables 370 -- -- -- 370
Deferred costs, prepaid real estate
taxes and expenses, net 5,961 -- -- 775 (H) 6,736
----------- ----------- ----------- ----------- ------------
$ 161,879 $ 4,680 $ 85,823 $ 15,823 $ 268,205
=========== =========== ============ =========== ============
Liabilities and Beneficiaries' Equity
Mortgage notes payable $ 83,844 $ -- $ 25,200 $ -- $ 109,044
Bank and other loans payable 28,623 -- 50,165 15,823 (I) 94,611
Tenants' deposits and deferred rents 1,246 -- -- -- 1,246
Accrued pension and other benefits 1,117 -- -- -- 1,117
Accrued expenses and other liabilities 3,624 -- -- -- 3,624
----------- ----------- ----------- ----------- ------------
118,454 -- 75,365 15,823 209,642
----------- ----------- ------------ ----------- ------------
Minority interest 718 4,680 10,458 -- 15,856
----------- ----------- ------------ ----------- ------------
Beneficiaries' Equity
Shares of beneficial interest 8,678 -- -- -- 8,678
Capital contributed in excess of par 53,164 -- -- -- 53,164
Distributions in excess of net income (19,135) -- -- -- (19,135)
----------- ----------- ----------- ----------- ------------
42,707 -- -- -- 42,707
----------- ----------- ----------- ----------- ------------
$ 161,879 $ 4,680 $ 85,823 $ 15,823 $ 268,205
=========== =========== ============ =========== ============
The accompanying notes and management's assumptions are an
integral part of this statement.
F-3
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PRO FORMA CONSOLIDATING INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 1996
(Unaudited)
(In Thousands, except Per Share Data)
North Other The
PREIT Magnolia Dartmouth Pro Forma Company
Historical TRO (a) Mall(b) Mall (c) Adjustments Pro Forma
---------- ------- --------- --------- ----------- ---------
Revenues
Revenues from real estate $ 38,985 $ -- $ 6,017 $ 5,823 $ -- $ 50,825
Interest and other income 171 -- 84 285 -- 540
----------- ----------- ------------ ----------- ----------- ------------
39,156 -- 6,101 6,108 -- 51,365
Expenses
Property expenses 16,102 -- 1,575 2,188 -- 19,865
Depreciation and amortization 5,908 -- 1,512 1,164 -- 8,584
General and administrative
expenses 3,119 -- -- -- -- 3,119
Interest 9,831 -- 3,280 2,800 666 (d) 16,577
----------- ----------- ------------ ----------- ----------- ------------
34,960 -- 6,367 6,152 666 48,145
----------- ----------- ------------ ----------- ----------- ------------
Income (loss) before gains
on sales of interests in
real estate, equity in
unconsolidated entities
and minority interest 4,196 -- (266) (44) (666) 3,220
Gains on sales of interests
in real estate 865 -- -- -- -- 865
Equity in loss of management
company -- (1,002) -- -- -- (1,002)
Equity in income of
partnerships and joint
ventures 6,258 -- -- -- (57) (e) 6,201
----------- -------------- ------------ ----------- ------------ ------------
Income before minority
interest 11,319 (1,002) (266) (44) (723) 9,284
Minority interest 275 -- -- -- 630 (f) 905
----------- ----------- ------------ ----------- ------------ ------------
Net income (loss) $ 11,044 $ (1,002) $ (266) $ (44) $ (1,353) $ 8,379
=========== =========== ============= ============ =========== ============
Net Income Per Share $ 1.27 $ .97
========== ===========
Weighted Average Number of
Shares Outstanding 8,676 8,767
=========== ===========
The accompanying notes and management's assumptions are an
integral part of this statement.
F-4
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PRO FORMA CONSOLIDATING INCOME STATEMENT
FOR THE NINE MONTHS ENDED MAY 31, 1997
(Unaudited)
(In Thousands, except Per Share Data)
North Other The
PREIT Magnolia Dartmouth Pro Forma Company
Historical TRO (a) Mall(b) Mall (c) Adjustments Pro Forma
---------- ------- -------- --------- ----------- ---------
Revenues
Revenues from real estate $ 30,116 $ -- $ 4,730 $ 4,543 $ -- $ 39,389
Interest and other income 218 -- 15 15 -- 248
----------- ----------- ------------ ----------- ----------- ------------
30,334 -- 4,745 4,558 -- 39,637
Expenses
Property expenses 12,154 -- 1,313 1,714 -- 15,181
Depreciation and
amortization 4,661 -- 1,134 873 -- 6,668
General and administrative
expenses 2,433 -- -- -- -- 2,433
Interest 6,864 -- 2,460 2,100 703 (d) 12,127
Provisions for losses on
investments 500 -- -- -- -- 500
----------- ----------- ------------ ----------- ----------- ------------
26,612 -- 4,907 4,687 703 36,909
----------- ----------- ------------ ----------- ----------- ------------
Income (loss) before gains
on sales of interests
in real estate, equity
in unconsolidated
entities and minority
interest 3,722 -- (162) (129) (703) 2,728
Gains on sales of
interests in real estate 1,461 -- -- -- -- 1,461
Equity in loss of
management company -- (96) -- -- -- (96)
Equity in income of
partnerships and joint
ventures 3,487 -- -- -- (105) (e) 3,592
---------- ------------ ------------- ----------- ------------ ------------
Income before minority
interest 8,670 (96) (162) (129) (598) 7,685
Minority interest 265 -- -- -- 519 (f) 784
----------- ----------- ------------ ----------- ------------ ------------
Net income (loss) $ 8,405 $ (96) $ (162) $ (129) $ (1,117) $ 6,901
=========== =========== ============= ============ =========== ============
Net Income Per Share $ .97 $ .80
========== ===========
Weighted Average Number of
Shares Outstanding 8,678 8,678
=========== ===========
The accompanying notes and management's assumptions are an
integral part of this statement.
F-5
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING BALANCE SHEET
(A) Acquisition of The Rubin Organization (TRO):
Assets and
Liabilities
TRO Not TRO
Historical (1) Acquired (2) Other (3) Acquisition
-------------- ------------- --------- -------------
Assets
Current assets
Cash and cash equivalents $ 787 $ -- $ -- $ 787
Fees and commissions receivable 3,614 2,714 -- 6,328
Real estate held for sale -- -- -- --
Prepaid expenses 165 (165) -- --
------------- ------------- ------------- ------------
Total current assets 4,566 2,549 -- 7,115
-- --
Property and Equipment, net 1,141 1,141
-- --
Leasing commissions receivable, long-term 312 312
Investment in partnerships 146 (146) -- --
Intangible assets - management contracts 6,859 -- -- 6,859
Advances to affiliated partnerships 3,525 (3,525) -- --
------------- ------------- ------------- ------------
Total Other Assets 10,842 (3,671) -- 7,171
------------- ------------- ------------- -------------
Total Assets $ 16,549 $ (1,122) -- $ 15,427
============= ============= ============== =============
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt $ 3,053 $ (2,553) $ -- $ 500
Accounts payable, trade and accrued expenses 3,281 -- -- 3,281
Accounts payable to affiliates 223 -- -- 223
Advances from Operating Partnership -- 3,359 -- 3,359
Deferred compensation payable 186 -- -- 186
------------- ------------- ------------- -------------
Total current liabilities 6,743 806 -- 7,549
Long-term debt 9,440 (3,541) -- 5,899
Deferred compensation - long term 247 -- -- 247
Minority Interest 4 (4) -- --
Stockholders' Equity
Common stock 28 (28) -- --
Additional paid-in capital 4,663 (2,931) -- 1,732
Treasury stock (1) 1 -- --
Accumulated deficit (4,575) 4,575 -- --
------------- ------------- ------------- ------------
Total stockholders' equity 115 1,617 -- 1,732
------------- ------------- ------------- -------------
Total Liabilities and Stockholders' Equity $ 16,549 $ (1,122) -- $ 15,427
============= ============== ============= =============
Operating partnership's investment in management
company (4) $ 4,680
=============
(Footnote explanations appear on next page)
F-6
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING BALANCE SHEET
- ---------------------------------------------------
Footnotes to Acquisition of TRO:
(1) To reflect the historical cost basis of the assets and liabilities of
TRO.
(2) To eliminate assets and liabilities not being acquired or
assumed.
(3) Represents additional cash contribution required by TRO shareholders
to satisfy minimum working capital requirements at the Closing Date.
(4) The Operating Partnership will record its investment in the
non-voting common shares of TRO using the equity method of
accounting. The excess of purchase price paid for TRO, including
allocated transaction costs, over the fair value of the net assets
acquired will be amortized against the Operating Partnership's share
of TRO's income over 10 years.
- ---------------------------------------------------
(B) Acquisition of the EPDLP Properties and 50% interest in the Court at
Oxford Valley (the "Existing Properties"):
North The Court at Total
Magnolia Dartmouth Oxford Existing
Mall (1) Mall (2) Valley (3) Properties
------------- ------------- ------------- ----------
Assets
Investments in Shopping Centers and Retail
Stores, at cost $ 45,365 $ 35,000 $ -- $ 80,365
Investments in Partnerships and Joint
Ventures, at equity -- -- 5,458 5,458
------------- ------------- ------------ -------------
$ 45,365 $ 35,000 $ 5,458 $ 85,823
============= ============= ============= =============
Liabilites
Mortgage Notes Payable $ 25,200 $ -- $ -- $ 25,200
Bank and Other Loans Payable 15,165 35,000 -- 50,165
Minority Interest 5,000 -- 5,458 10,458
------------- ------------ ------------- -------------
$ 45,365 $ 35,000 $ 5,458 $ 85,823
============= ============= ============= =============
- ---------------------------------------------------
Footnotes to Acquisition of Existing Properties:
(1) To record the acquisition of Magnolia Mall for total consideration of
$45.4 million consisting of $25.2 million of mortgage notes payable
assumed, $15.2 million of borrowings under the revolving line of
credit and approximately 213,000 Class B OP Units valued at $23.47
per unit.
(2) To record the acquisition of North Dartmouth Mall for total
consideration of $35 million utilizing borrowings under the revolving
line of credit.
(3) To record the Operating Partnership's 50% interest in the Court at
Oxford Valley for total consideration of approximately 233,000 Class
A OP Units valued at $23.40 per unit.
- --------------------------------------------------
F-7
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING BALANCE SHEET
(C) To allocate transaction costs to Magnolia Mall and North Dartmouth Mall. $ 2,212
(D) To record the Operating Partnership's acquisition of the Predevelopment Properties and an
allocation of transaction costs. 2,162
(E) To allocate transaction costs to the Operating Partnership's investment in the management
company. 896
(F) To allocate transaction costs to the Operating Partnership's investment in
the Court at Oxford Vall 778
(G) To reimburse TRO for EPDLP management contract start-up costs and pre-development expenses.
9,000
(H) To record financing costs incurred relating to the $125 million revolving line of credit.
775
(I) To record additional borrowings to fund transaction costs and reimburse TRO for pre-development
expenses and EPDLP management contract start-up costs.
15,823
F-8
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING INCOME STATEMENTS
(a) TRO:
For the Year Ended August 31, 1996
----------------------------------
TRO Pro Forma TRO
Historical Adjustments Pro Forma
------------- ------------- -----------
Revenues $ 14,783 -- $ 14,783
Operating Expenses
Salaries, commissions and employee benefits 9,985 300 (1) 10,285
Rent expense 795 -- 795
Other operating expenses 4,023 -- 4,023
Depreciation and amortization 351 -- 351
Property writedown 320 (320) (2) --
------------ -------------- -------------
Total Operating Expenses 15,474 (20) 15,454
------------ -------------- -------------
Income (Loss) From Operations (691) 20 (671)
(3)
Interest Expense (715) 715 --
Equity in Loss from Partnership Investments (468) 468 (4) --
------------ ------------- -------------
Pre-tax loss (1,874) 1,203 (671)
Provision for income taxes -- -- --
------------ ------------- -------------
Net loss $ (1,874) $ 1,203 $ (671)
============ ============= =============
Amortization of excess purchase price over net assets
acquired recorded in consolidation (5)
(384)
Net loss, as adjusted $ (1,055)
=============
Operating Partnership's share of net loss of TRO $ (1,002)
=============
(Footnote explanations appear on next page)
F-9
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING INCOME STATEMENTS
For the Nine Months Ended May 31, 1997
--------------------------------------
TRO Pro Forma TRO
Historical Adjustments Pro Forma
---------- ------------ -----------
Revenues $ 14,155 $ -- $ 14,155
Operating Expenses
Salaries, commissions and employee benefits 8,602 225 (1) 8,827
Rent expense 581 -- 581
Other operating expenses 3,884 -- 3,884
Depreciation and amortization 676 -- 676
Property writedown -- -- --
------------ ------------- -------------
Total Operating Expenses 13,743 225 13,968
------------ ------------- -------------
Income From Operations 412 (225) 187
Interest Expense (618) 618 (3) --
Equity in Loss from Partnership Investments (131) 131 (4) --
------------ ------------- -------------
Pre-tax loss (337) 524 187
Provision for income taxes -- -- --
------------ ------------- -------------
Net (loss) income $ (337) $ 524 $ 187
============ ============= =============
Amortization of excess purchase price over net assets
acquired recorded in consolidation (5) (288)
Net loss, as adjusted $ (101)
=============
Operating Partnership's share of net loss of TRO $ (96)
=============
- ---------------------------------------------------
Footnotes to TRO:
(1) To record additional compensation expense in accordance with the
proposed employment contracts. Certain employees will also be
entitled to additional incentive compensation based on their
achievement of certain financial and other performance objectives.
Additional amounts for incentive compensation expense have not been
recorded, as such amounts would not have been earned on an historical
basis.
(2) To eliminate impairment loss recorded on equity investment not being
acquired.
(3) To eliminate interest expense on debt not assumed.
(4) To eliminate equity in loss of partnerships and joint ventures not
being acquired.
(5) To record the amortization of excess purchase price, including
allocated transaction costs, over net assets acquired over 10 years.
- ---------------------------------------------------
F-10
PENNSYLVANIA REAL ESTATE INVESTMENTS TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING INCOME STATEMENTS
(b) Magnolia Mall:
For the Year Ended August 31, 1996
----------------------------------
Magnolia Magnolia
Mall Pro Forma Mall
Historical Adjustments Pro Forma
------------ ------------ -------------
Revenues
Gross revenues from real estate $ 6,017 $ -- $ 6,017
Interest and other income 84 -- 84
------------ ------------- -------------
6,101 -- 6,101
Expenses
Property operating expenses 1,575 -- 1,575
Depreciation and amortization -- 1,512 (1) 1,512
Mortgage and bank loan interest -- 3,280 (2) 3,280
------------ ------------- -------------
1,575 4,792 6,367
------------ ------------- -------------
Net income (loss) $ 4,526 $ (4,792) $ (266)
============ ============= ==============
For the Nine Months Ended May 31, 1997
--------------------------------------
Magnolia Magnolia
Mall Pro Forma Mall
Historical Adjustments Pro Forma
------------- ----------- --------------
Revenues
Gross revenues from real estate $ 4,730 $ -- $ 4,730
Interest and other income 15 -- 15
------------ ------------- -------------
4,745 -- 4,745
Expenses
Property operating expenses 1,313 -- 1,313
Depreciation and amortization -- 1,134 (1) 1,134
Mortgage and bank loan interest -- 2,460 (2) 2,460
------------ ------------- -------------
1,313 3,594 4,907
------------ ------------- -------------
Net income $ 3,432 $ (3,594) $ (162)
============ ============= ==============
- ---------------------------
Footnotes to Magnolia Mall:
(1) To record depreciation and amortization on assets acquired and
transaction costs capitalized.
(2) To record interest expense on $25,200 of assumed mortgage
indebtedness at 8.2% and $15,165 of short-term borrowings under the
revolving line of credit at 8%.
- ---------------------------------------------------
F-11
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING INCOME STATEMENTS
(c) North Dartmouth Mall Acquisition:
For the Year Ended August 31, 1996
----------------------------------
North North
Dartmouth Pro Forma Dartmouth
Historical Adjustments Pro Forma
----------- ----------- -------------
Revenues
Gross revenues from real estate $ 5,823 $ -- $ 5,823
Interest and other income 285 -- 285
------------ ------------ -------------
6,108 -- 6,108
Expenses
Property operating expenses 2,188 -- 2,188
Depreciation and amortization -- 1,164 (1) 1,164
Mortgage and bank loan interest -- 2,800 (2) 2,800
------------ ------------- -------------
2,188 3,964 6,152
------------ ------------- -------------
Net income (loss) $ 3,920 $ (3,964) $ (44)
============ ============= ==============
For the Nine Months Ended May 31, 1997
--------------------------------------
North North
Dartmouth Pro Forma Dartmouth
Historical Adjustments Pro Forma
------------ ------------- ---------------
Revenues
Gross revenues from real estate $ 4,543 $ -- $ 4,543
Interest and other income 15 15
------------ ------------- -------------
4,558 -- 4,558
Expenses
Property operating expenses 1,714 -- 1,714
Depreciation and amortization -- 873 (1) 873
Mortgage and bank loan interest -- 2,100 (2) 2,100
------------ ------------- -------------
1,714 2,973 4,687
------------ ------------- -------------
Net income (loss) $ 2,844 $ (2,973) $ (129)
============ ============= ==============
- ---------------------------------------------------
Footnotes to North Dartmouth Mall:
(1) To record depreciation and amortization on assets acquired and
transaction costs capitalized.
(2) To record interest expense on additional short-term borrowings under
the revolving line of credit of $35 million at 8%.
- ---------------------------------------------------
F-12
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
PRO FORMA CONSOLIDATING INCOME STATEMENTS
Year Ended Nine Months Ended
August 31, 1996 May 31, 1997
--------------- ------------------
(d) To record interest expense on $15.3 million of additional borrowings
at an effective borrowing rate 8%, including amortization of deferred
financing costs, net of interest capitalized on Development
Properties. $ 666 $ 703
(e) To record the Operating Partnership's 50% equity in the income of the
Court at Oxford Valley, net of amortization of excess purchase price
over net book value of assets acquired. $ (57) $(105)
(f) To adjust the minority interest's share of income in Operating
Partnership. $ 630 $ 519
F-13
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
3.2 Trust Agreement, as Amended and Restated September 29, 1997.
3.3 By-Laws, as adopted on September 29, 1997.
4.12 Revolving Credit Agreement, dated September 30, 1997, among
PREIT Associates, L.P. and the lending institutions named
therein.
4.13 Revolving Credit Note, dated September 30, 1997.
4.14 Guaranty of the Trust, dated September 30, 1997, among the Trust and the
lending institutions named therein.
4.15 First Amended and Restated Agreement of Limited Partnership,
dated September 30, 1997, of PREIT Associates, L.P.
4.16 Subscription Agreement, dated September 30, 1997, between PREIT
Associates, L.P. and Florence Mall Partners.
10.15 PREIT Contribution Agreement and General Assignment and Bill of Sale,
dated as of September 30, 1997, by and between the Trust and PREIT
Associates, L.P.
10.16 Declaration of Trust, dated June 19, 1997, by Trust, as grantor, and Trust, as
initial trustee.
10.17 TRO Contribution Agreement, dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and the persons and
entities named therein.
10.18 First Amendment to TRO Contribution Agreement, dated September 30, 1997.
10.19 Contribution Agreement (relating to the Court at Oxford
Valley, Langhorne, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Rubin Oxford, Inc.
and Rubin Oxford Valley Associates, L.P.
10.20 First Amendment to Contribution Agreement (relating to the
Court at Oxford Valley, Langhorne, Pennsylvania), dated
September 30, 1997.
Exhibit
Number Description Page
- ------- ----------- ----
10.21 Contribution Agreement (relating to Hillview Shopping Center, Cherry Hill,
New Jersey), dated as of July 30, 1997, among the Trust, PREIT Associates,
L.P., Cherry Hill Partner, Inc., and Rubin Oxford Valley Associates, L.P.
10.22 Contribution Agreement (relating to Northeast Tower Center,
Philadelphia, Pennsylvania), dated as of July 30, 1997,
among the Trust, PREIT Associates, L.P., Roosevelt Blvd.
Co., Inc., and the individuals named therein.
10.23 Contribution Agreement (relating to the pre-development
properties named therein), dated as of July 30, 1997, among
the Trust, PREIT Associates, L.P., and TRO Predevelopment,
LLC.
10.24 First Amendment to Contribution Agreement (relating to the pre-development
properties), dated September 30, 1997.
10.25 First Refusal Rights Agreement, effective as of September
30, 1997, by Pan American Associates, its partners and all
persons having an interest in such partners with and for the
benefit of PREIT Associates, L.P.
10.26 Purchase and Sale Agreement (relating to Magnolia Mall,
Florence, South Carolina), dated as of June 30, 1997, by and
between Magnolia Retail Associates, L.L.C. and The Rubin
Organization, Inc.
10.27 First Amendment to Purchase and Sale Agreement (relating to Magnolia Mall,
Florence, South Carolina), dated September 30, 1997.
10.28 Purchase and Sale Agreement (relating to North Dartmouth Mall, Dartmouth,
Massachusetts), dated as of June 30, 1997, by and between Diversified Equity
Corporation of Illinois, Inc. and The Rubin Organization, Inc.
10.29 Agreement Regarding Assignment of Purchase and Sale
Agreements (relating to Magnolia Mall, Florence, South
Carolina and North Dartmouth Mall, Dartmouth,
Massachusetts), dated as of June 30, 1997, between The Rubin
Organization, Inc. and the Trust.
10.30 Registration Rights Agreement, dated as of September 30, 1997, among the
Trust and the persons listed on Schedule A thereto.
10.31 Registration Rights Agreement, dated as of September 30, 1997, between the
Trust and Florence Mall Partners.
Exhibit
Number Description Page
- ------- ------------ ----
10.32 Letter Agreement, dated March 26, 1996, by and among The Goldenberg
Group, The Rubin Organization, Inc., Ronald Rubin and Kenneth Goldenberg.
10.33 Letter Agreement dated July 30, 1997, by and between The Goldenberg Group
and Ronald Rubin.
10.34 Employment Agreement, dated September 30, 1997, between the Trust and
Ronald Rubin.
10.35 Employment Agreement, dated September 30, 1997, between the Trust and
Edward Glickman.
10.36 Second Amendment to Employment Agreement, dated as of September 29,
1997, between the Trust and Sylvan M. Cohen.
10.37 Trust Incentive Bonus Plan, effective as of January 1, 1998.
10.38 PREIT-RUBIN, Inc. Stock Bonus Plan Trust Agreement, effective as of
September 30, 1997, by and between PREIT-RUBIN, Inc. and CoreStates
Bank, N.A.
10.39 PREIT-RUBIN, Inc. Stock Bonus Plan.
10.40 Amended and Restated 1990 Incentive and Non-Qualified Stock Option Plan of
the Trust.
10.41 1997 Stock Option Plan.
23.3 Consent of Arthur Andersen LLP (Independent Public Accountants for the
Trust, The Rubin Organization, Inc., Magnolia Mall and North Dartmouth
Mall.)
23.4 Consent of Zelenkofske, Axelrod & Co., Ltd. (Independent Public Accountants
for Oxford Valley Road Associates.)