SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A-1
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended August 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________to _______________
Commission File No. 1-6300
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact name of Registrant as specified in its charter)
Pennsylvania 23-6216339
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
455 Pennsylvania Avenue, Suite 135 19034
Ft. Washington, Pennsylvania (Zip Code)
(address of principal executive office)
Trust's telephone number, including area code: (215) 542-9250
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which
Share of Beneficial Interest, par value registered
$1.00 per share New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Trust (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the Trust was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value, as of October 31, 1997, of the voting shares held
by non-affiliates of the Registrant is $183,526,000. (Aggregate market value
is estimated solely for the purposes of this report and shall not be construed
as an admission for the purposes of determining affiliate status.)
At October 31, 1997, 8,685,098 Shares of Beneficial Interest, par value $1.00
per share (the "Shares"), of the Trust were outstanding.
Documents Incorporated by Reference
None
DESCRIPTION OF AMENDMENTS
This Amendment No. 1 to the Annual Report on Form 10-K of
Pennsylvania Real Estate Investment Trust (the "Trust") (1-6300) for the
fiscal year ended August 31, 1997 is being filed for the purposes set forth
below:
Item 1. Business.
Item 1 has been amended and restated in its entirety as set forth
herein.
Item 13. Certain Relationships and Related Transactions.
Item 13 has been amended and restated in its entirety as set forth
herein.
All other information in the Form 10-K of the Trust not set forth in
this Form 10-K/A remains the same as filed with the Securities and Exchange
Commission by the Trust in its Form 10-K on November 28, 1997.
Item 1. Business
Pennsylvania Real Estate Investment Trust, a Pennsylvania business
trust (the "Company," the "Registrant" or the "Trust"), conducts substantially
all of its operations through PREIT Associates, L.P., a Delaware limited
partnership (the "Operating Partnership"). As used herein, unless the context
indicates otherwise, the term "Company" "Registrant" or "Trust" includes
Pennsylvania Real Estate Investment Trust, the Operating Partnership and their
subsidiaries and affiliates, including PREIT-RUBIN, Inc. (formerly The Rubin
Organization, Inc.), a commercial property development and management firm in
which the Company owns 95% of the economic interests in the form of non-voting
common shares (together with its predecessors, the "Management Company"). The
Management Company, prior to September 30, 1997, is sometimes referred to
herein as "TRO."
The Company
The Company, which is organized as a business trust under
Pennsylvania law, is a fully integrated, self-administered and self-managed
real estate investment trust ("REIT") founded in 1960 which acquires,
develops, redevelops and operates retail and multifamily properties. On
September 30, 1997, the Company acquired The Rubin Organization, Inc., a
commercial property development and management firm, and certain related real
estate interests.
The Company owns interests in 18 shopping centers (the "Existing
Retail Properties") containing an aggregate of approximately 6.4 million
square feet, 19 multifamily properties (the "Multifamily Properties")
containing 7,236 units, six industrial properties with an aggregate of
approximately 700,000 square feet and three parcels of undeveloped land. In
addition, the Company has entered into agreements to acquire interests in two
shopping centers containing an aggregate of approximately 824,000 square feet
(the "Acquisition Properties"). The Company also owns interests in five
shopping centers under development (the "Development Properties"), which are
expected to contain an aggregate of approximately 2.2 million square feet upon
completion. Two of the Development Properties are currently under construction
and the Company currently anticipates that the remaining three Development
Properties will be completed by the year 2000. There is no assurance that all
five Development Properties will be successfully developed.
The Company also provides management, leasing and development
services to 49 retail properties containing approximately 19.2 million square
feet and 11 office buildings containing approximately 4.0 million square feet
for affiliated and third-party property owners.
-2-
Recent Developments
Acquisition of The Rubin Organization, Inc. On September 30, 1997,
the Company acquired The Rubin Organization, Inc. (renamed "PREIT-RUBIN,
Inc.") and interests in certain related retail properties (the "TRO
Transaction") as part of the Company's previously announced strategy to
acquire management, leasing and development expertise for retail properties.
Founded in 1946, the predecessor of The Rubin Organization was a Philadelphia-
based owner, operator and developer of commercial real estate properties. As
part of the TRO Transaction, the Company also acquired interests in four of
the Existing Retail Properties containing an aggregate of approximately 2.1
million square feet, and obtained the right to acquire the two Acquisition
Properties and interests in four of the Development Properties. Of the four
Existing Retail Properties acquired, two were purchased for a combination of
cash, assumption of debt and units of limited partner interests in the
Operating Partnership ("OP Units").
The following table sets forth certain information regarding the four
Existing Retail Properties acquired in the TRO Transaction:
Recent Acquisitions
Total Owned Percentage
Property and Percentage Square Square Leased at
Location Owned* Feet Feet 9/30/97
- ------------ ----------- ------ ------ -----------
The Court at Oxford 50% 692,000 457,000 100%
Valley Langhorne, PA
Magnolia Mall 100% 570,000 570,000 98%
Florence, SC
North Dartmouth Mall 100% 620,000 620,000 88%
Dartmouth, MA
Springfield Park 50% 209,000 65,000 N/A
Springfield, PA(1)
--------- ---------
Total 2,091,000 1,712,000
========= =========
- ----------------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
(1) The Company owns a one-half interest in one of three floors in this
free-standing former department store. The Company acquired its
interest in this vacant property for purposes of redevelopment.
-3-
The following table sets forth certain information regarding the
Acquisition Properties:
Percentage Total Owned Percentage
Property and to be Square Square Leased at
Location Acquired* Feet Feet 9/30/97
- ------------- -------- ------- ------- -----------
Hillview Shopping 50% 340,000 340,000(1) 100%
Center
Cherry Hill, NJ
Northeast Tower 100%(3) 484,000 353,000(4) 99%
Center(2)
Philadelphia, PA
------- -------
Total 824,000 693,000
======= =======
- ----------------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
(1) Includes 261,000 square feet of retail space situated on land leased to
tenants which own their own buildings.
(2) Information includes 121,000 square feet currently under development
(Phase II). Phase I is 99% leased.
(3) The Company 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 153,000 square feet of retail space situated on land leased
to tenants which own their own buildings.
The following table sets forth certain information regarding the
Development Properties:
Development Properties
Planned
Percentage Total
Project and to be Square Expected
Location Acquired* Feet Status(1) Completion
- ----------- ---------- ------- --------- ----------
Blue Route 50%(2) 760,000 Development First half of
Metroplex 2000
Plymouth
Meeting, PA
Christiana Power 50% 295,000 Construction Second half of
Center 1998
(Phase I)
Newark, DE
Christiana Power 50% 300,000 Development Second half of
Center 2000
(Phase II)
Newark, DE
Red Rose 50%(2) 463,000 Construction Second half of
Commons 1998
Lancaster, PA
Warrington 100% 415,000 Development Second half of
Shopping Center 1999
Warrington, PA
---------
Total 2,233,000
=========
- ----------------------------
* By the Operating Partnership; the Registrant currently owns
approximately 93.1% of the Operating Partnership.
(1) "Development" indicates that development activities, such as site
surveys, preparation of architectural plans, or initiation of land use
approvals or rezoning processes, have commenced (but construction has
not commenced).
-4-
"Construction" indicates that construction activities, such as site
preparation, ground-breaking activities, or exterior construction has
commenced. There is no assurance that the properties which remain in
the Development stage will ultimately be constructed.
(2) Subject to reduction to 25% under the terms of the Goldenberg Letter
Agreement. See "The TRO Transaction - The Goldenberg Letter
Agreement."
Formation of Operating Partnership. The Company recently formed the
Operating Partnership to hold substantially all of its assets. As the sole
general partner of the Operating Partnership, the Company has the exclusive
power to manage and conduct the business of the Operating Partnership, subject
to certain limited exceptions. The Company currently owns 93.1% of the
Operating Partnership. It is anticipated that all future acquisitions of
interests in real estate will be owned, directly or indirectly, by the
Operating Partnership.
Expansion of Credit Facilities. On September 30, 1997, the Company
replaced its $75 million credit facility with a $150 million credit facility
(the "Credit Facility"). The Credit Facility bears interest, at the Company's
election, at (i) the higher of the CoreStates' prime rate, or the Federal
Funds lending rate, plus 0.5%, in each case as in effect from time to time, or
(ii) the London Interbank Offered Rate ("LIBOR") plus margins ranging from
1.10% to 1.70%, depending on the ratio of the Company's consolidated
liabilities to gross asset value, each as determined pursuant to the terms of
the Credit Facility. The Credit Facility currently bears interest at 1.70%
over LIBOR. The Company intends to use the Credit Facility to fund further
growth.
New York Stock Exchange Listing. On November 14, 1997, the Shares
commenced trading on the New York Stock Exchange, Inc. ("NYSE").
Change in Fiscal Year. The Company has announced that it will change
its fiscal year end to December 31, commencing with the year ending December
31, 1998, and, in connection therewith, change its distribution payment cycle
from February/May/August/November to March/June/September/December.
The TRO Transaction
On September 30, 1997, the Registrant and TRO completed the TRO
Transaction, pursuant to which:
o The Registrant capitalized the Operating Partnership by
transferring to it substantially all of its assets, or the
beneficial interest therein, subject to the liabilities of the
Registrant, in exchange for the issuance to the Registrant and
PREIT Property Trust, a wholly owned subsidiary of the
Registrant and a limited partner of the Operating Partnership,
general partner interests in the Operating Partnership and
Class A OP Units ("Class A OP Units") equal in the aggregate to
the number of issued and outstanding Shares as of such date;
-5-
o the Operating Partnership acquired all of the non-voting common
shares, constituting 95% of the economic interests of TRO, 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 years, such exact number to be determined according to a
formula based upon the per Share adjusted funds from operation
of the Company (see "Acquisition of TRO and Related Property
Interests");
o the Operating Partnership acquired the interests of certain
affiliates of TRO ("TRO Affiliates") in four of the Existing
Retail Properties;
o the Operating Partnership acquired the interests of certain TRO
Affiliates in the Acquisition Properties;
o the Operating Partnership acquired the development rights of
certain TRO Affiliates, subject to related obligations, in four
of the Development Properties;
o the Operating Partnership obtained rights of first refusal with
respect to the interests of certain TRO Affiliates in three
properties;
o Ronald Rubin was elected chief executive officer and a trustee
of the Company, Edward Glickman was elected chief financial
officer and executive vice president of the Company, and George
F. Rubin continued in his capacity as President of the
Management Company and was elected trustee of the Company;
o Ronald Rubin, George F. Rubin and Rosemarie B. Greco were
elected as trustees of the Company to fill vacancies created by
the resignations as trustees of Robert Freedman, Jack Farber
and Robert G. Rogers.
Acquisition of TRO and Related Property Interests. As part of the TRO
Transaction, the Company entered into a contribution agreement (the "TRO
Contribution Agreement") pursuant to which it acquired all of the non-voting
shares of TRO for 200,000 Class A OP Units and the obligation to issue up to
800,000 additional Class A OP Units (the "Contingent TRO OP Units") over the
following five-year period, depending on the Company's per share "adjusted
funds from operations" ("Adjusted FFO") during such period. "Adjusted FFO" is
defined as the Company'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 fees; 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 estate. For the twelve-month periods ending August
-6-
31, 1996, and August 31, 1997; the Company's Adjusted FFO per share without
giving effect to the TRO Transaction would have been $2.15 and $2.26,
respectively.
The TRO Contribution Agreement establishes "hurdles" and "targets"
during specified "earn-out periods" to determine whether, and to what extent,
the Contingent TRO OP Units will be issued.
Per Share Adjusted
FFO Base No. Max. No.
------------------ Contingent Contingent
Earn-Out Period Hurdle Target TRO OP TRO OP
--------------- ------ ------ ---------- ----------
10-1-97 to 12-31-97 $0.58 $0.65 5,000 32,500
1-1-98 to 12-31-98 2.40 2.66 20,000 130,000
1-1-99 to 12-31-99 2.53 2.81 57,500 167,500
1-1-00 to 12-31-00 2.65 2.94 57,500 167,500
1-1-01 to 12-31-01 2.83 3.14 57,500 167,500
1-1-02 to 9-30-02 2.19 2.43 52,500 135,000
------- -------
Total 250,000 800,000
======= =======
In general, (i) if the hurdle for any earn-out period is not met, no
Contingent TRO OP Units will be issued in respect of such period, (ii) if the
target for any earn-out period is met, the maximum number of Contingent TRO OP
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 Contingent TRO OP Units for such
period plus a pro rata portion of the number of Contingent TRO OP Units by
which the maximum Contingent TRO OP Units exceeded the base Contingent TRO OP
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, 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 Contingent TRO OP 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 Contingent TRO OP 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 result in the issuance of additional Contingent TRO OP Units in
any other period until first applied to eliminate all shortfalls from targets
in all prior periods.
The TRO Contribution Agreement provides that in the event of a share
split, share dividend or other similar change in the capitalization of the
Company, the "hurdle" and "target" levels will be proportionately adjusted.
-7-
The TRO Contribution Agreement also provides for the creation of a special
committee of three independent Trustees to consider, among other matters,
whether other equitable adjustments, either upward or downward, should be
effected in the "hurdle" and "target" levels to reflect: (i) the incurrence by
the Company of non-project specific indebtedness or the raising by the Company
of equity capital; (ii) any breach by the Company of its representations or
warranties in the TRO Contribution Agreement which may adversely affect Adjusted
FFO; and (iii) the effect which any adverse judgment in litigation pending
against the Company may have on Adjusted FFO.
For provisions of the TRO Transaction relating to the pricing of the
Acquisition Properties, see "The Acquisition Properties," below. For
provisions of the TRO Transaction relating to the pricing of the four
Development Properties acquired in the TRO Transactions, see "The Development
Properties," below.
The Goldenberg Letter Agreement. On September 30, 1997, as part of
the TRO Transaction, the Company took by assignment from TRO and certain TRO
Affiliates all of their rights, subject to all of their obligations, under a
letter agreement with The Goldenberg Group (the "Goldenberg Letter
Agreement"). The Goldenberg Letter Agreement contemplates the development of
six power centers, three by The Goldenberg Group and three by the Company. 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 the Company. The Company is
obligated under the Goldenberg Letter Agreement to provide a $5 million
revolving credit facility to fund pre-development expenses on The Goldenberg
Group's three projects. In addition, the Company must fund all such expenses
on the Company projects directly.
The Court at Oxford Valley, an Existing Retail Property, was
developed by the Goldenberg Group under the Goldenberg Letter Agreement and
Hillview Shopping Center, a Development Property, was developed by the
Management Company under the Goldenberg Letter Agreement. The Goldenberg
Group's remaining two Development Property projects under the Goldenberg
Letter Agreement are the Blue Route Metroplex Center, Plymouth Meeting,
Pennsylvania, and Red Rose Commons, Lancaster, Pennsylvania. The Company has
not yet proposed its second and third projects under the Goldenberg Letter
Agreement. In the event that the Company 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 18 months of the
closing of a construction loan on each of Red Rose Commons (which is
anticipated to occur in the next 24 months) and Blue Route Metroplex (which
occurred on November 28, 1997) then the interest of the Company in the
"unmatched" project would be subject to reduction by The Goldenberg Group,
without the payment of any consideration, from 50% to 25%.
Although the Company 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 Company's interest in these projects will not be reduced to 25%.
-8-
However, since the Company will only pay the 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 Company.
Right of First Refusal Properties. The Company obtained rights of
first refusal with respect to the interests of certain TRO Affiliates in the
three retail properties listed below.
Rights of First Refusal Properties
Percentage Interest
Gross Leasable Subject to the Right
Property/Location Sq. Ft. of First Refusal
- ----------------- -------------- --------------------
Christiana Mall, 1,100,000 (1)
Newark, DE (1)
Cumberland Mall, 463,143 50%
Vineland, NJ
Fairfield Mall, 417,940 50%
Chicopee, MA
---------
Total 1,981,083
=========
(1) The interest subject to the right of first refusal is subject to
adjustment in connection with the refinancing of the participating
mortgage which currently encumbers this property.
-9-
Structure Of The Company
The Company conducts substantially all of its real estate ownership
activities through the Operating Partnership, of which the Company is the sole
general partner. Set forth below is a diagram of the ownership structure of
the Company as of October 31, 1997.
----------------------------
| Pennsylvania Real Estate |
| Investment Trust (1) |
----------------------------
|100% | 1.0%
------------------ |
| | | --------------------
| PREIT | | -------| Minority Limited |
----------------- | Property Trust | | |6.9.% | Partners(2) |
| | | (Majority | | | --------------------
| | | | | |
| Employee Stock| |Limited Partner)| | |
| Bonus Plan | ------------------ | |
----------------- |92.1% | |
|5% (voting) ----------------------------
| ----------------- PREIT Associates, L.P. |
| |95% ----------------------------
| |(non-voting) |
| | |
------------------- |
| PREIT-RUBIN, | |
| Inc. | |
------------------- |
|
|
|
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| 46 Properties(3) |
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- ----------------------
(1) Sole general partner of the Operating Partnership.
(2) Includes an aggregate of 433,248 OP Units (4.6% of the aggregate of
all OP Units and Sharers outstanding prior to the Offering) owned by
the persons who were former shareholders and affiliates of the
Management Company, prior to the TRO Transaction, including Ronald
Rubin, Chief Executive Officer and Trustee of the Company. Under the
terms of the TRO Transaction, such persons have the right to receive
up to 800,000 additional OP Units in respect of their ownership
interest in the Management Company, depending on Adjusted FFO of the
Company over the five year period commencing on September 30, 1997,
and also to receive additional OP Units in respect of their interest
in two of the Acquisition Properties and four of the Development
Properties.
(3) Interests in certain of these properties are (i) owned directly by
the Company under arrangements in which the entire economic benefit
of ownership has been pledged to the Operating Partnership, or (ii)
owned directly by the Operating Partnership. The interest of the
Operating Partnership in these properties ranges from 25% to 100%.
-10-
The Existing Retail Properties
The Company has interests in 18 retail properties containing an
aggregate of approximately 6.4 million square feet. Two of the Company's
wholly-owned properties are currently managed by the Management Company and
the remaining four will be under the management of the Management Company by
March 1998. The Company's 12 joint venture retail properties are managed by
the Company's joint venture partners, or an entity designated by the Company
and the partner, and in most such instances a change in the management of the
property requires the concurrence of both partners. Eight of the 18 Existing
Retail Properties (containing an aggregate of approximately 3.7 million square
feet) are located in Pennsylvania and five (containing an aggregate of
approximately 1.0 million square feet) are located in Florida.
-11-
The following table sets forth certain information regarding the
Existing Retail Properties, as of August 31, 1997, other than the Gateway
Shopping Center in St. Petersburg, Florida, which is under contract to be sold:
Percent Year Total
Real Property Location Owned* Built/Renov(1) Square Feet(2)
------------- -------- ------ -------------- --------------
Lehigh Valley Allentown, PA 50% 1977/1996 1,054,000
Mall
Court at Oxford Langhorne, PA 50% 1996 692,000
Valley
North North Dartmouth, MA 100% 1971/1987 620,000
Darthmouth
Mall
Whitehall Mall Allentown, PA 50% 1964/1982 603,000
Magnolia Mall Florence, SC 100% 1979/1992 570,000
Laurel Mall Hazelton, PA 40% 1973/1995 558,000
Palmer Park Easton, PA 50% 1972/1982 349,000
Mall(4)
Forestville, S/C Forestville, MD 100% 1974/1983 218,000
Mandarin Jacksonville, FL 100% 1986 216,000
Corners
Springfield Springfield, PA 50% 1963/1997 209,000
Park(5)
Rio Mall Rio Grande, NJ 50% 1973/1992 161,000
Crest Plaza S/C Allentown, PA 100% 1959/1991 153,000
Park Plaza S/C Pinellas Park, FL 50% 1963/1983 151,000
South Blanding Jacksonville, FL 100% 1986 107,000
Village
Ormond Beach Daytona Beach, FL 25% 1966/1991 103,000
Mall
Ingleside Center Thorndale, PA 70% 1981/1995 102,000
Punta Gorda Punta Gorda, FL 25% 1965/1992 102,000
Mall
Total/Weighted Average 5,968,000
=========
(17 Properties)
Owned Percent
Real Property Square Feet Leased(3) Anchors
------------- ----------- --------- -------
Lehigh Valley 489,000 99% JC Penney, Strawbridges, Macy's
Mall
Court at Oxford 457,000 100 Dicks Clothing and Sporting Goods,
Valley Best Buy, Pharmor, HomePlace, The
Home Depot, BJ Wholesale Club
North 620,000 88 JC Penney, Sears, Ames, General
Darthmouth Cinema
Mall
Whitehall Mall 521,000 84 Sears, Kohl's
Magnolia Mall 570,000 98 JC Penney, Sears, Belk, Rose's
Laurel Mall 558,000 97 Boscov's Dept., Kmart, JC Penney
Palmer Park 349,000 68 The Bon-Ton, Eckerd Drug Store
Mall(4)
Forestville, S/C 218,000 73 Ames
Mandarin 216,000 99 Wal-Mart, Upton's, Carmike Cinemas
Corners
Springfield 65,000 -- Target
Park(5)
Rio Mall 161,000 73 Kmart, Staples The Office Superstore
Crest Plaza S/C 153,000 83 Weis Market, Eckerd Drug Store
Park Plaza S/C 151,000 95 Eckerd Drug Store, Ace Hardware,
Publix Supermarket
South Blanding 107,000 94 Food Lion, Scotty's
Village
Ormond Beach 103,000 94 Belk-Lindsey, Publix Supermarket,
Mall Eckerd Drug Store
Ingleside Center 102,000 100 Kmart
Punta Gorda 102,000 87 Beall's, Publix Supermarket, Eckerd
Mall Drug Store
Total/Weighted Average 4,942,000 89.2%
========= ------
(17 Properties)
- -----------------------
* By the Operating Partnership; the Registrant owns approximately 93.1% of the
Operating Partnership.
(1) Year initially completed and, where applicable, the most recent year in
which the property was substantially renovated or an additional phase of the
property was completed.
(2) Total Square Feet includes space owned or ground leased by anchors; Owned
Square Feet and Percent Leased excludes such space. (3) Percent Leased is
calculated as a percent of Owned Square Feet for which leases were in effect
as of August 31, 1997.
(4) Includes 82,000 sq. ft. Clover store currently vacant.
(5) The Trust has an undivided one-half interest in one of three floors in a
free standing department store currently under re-development. Its share of
reconstruction costs is approximately 15%.
-12-
The following table sets forth certain information regarding each
anchor in the Existing Retail Properties:
Anchor and Square Footage
as of September 30, 1997
# Anchor Square Footage Square Footage Total Square
Anchor Name(1) Stores Owned By Anchors Leased By Anchors Footage Occupied
- ----------- -------- ---------------- ----------------- ----------------
Ace Hardware 1 - 20,000 20,000
Ames 2 - 166,123 166,123
BJ Wholesale Club 1 - 105,000 105,000
Beall's 1 - 22,000 22,000
Belk 1 - 119,046 119,046
Belk-Lindsey 1 - 14,000 14,000
Best Buy 1 - 59,495 59,495
The Bon-Ton 1 - 82,500 82,500
Boscov's Department Store 1 - 183,000 183,000
Dick's Clothing & Sporting
Goods 1 - 63,115 63,115
Eckerd Drug Store 5 - 57,500 57,500
Food Lion 1 - 29,000 29,000
The Home Depot 1 - 130,000 130,000
HomePlace 1 - 54,096 54,096
J.C. Penney 4 188,000 254,359 442,359
Kmart Corp. 3 - 263,000 263,000
Kohl's(2) 1 82,000 - 82,000
Macy's 1 212,000 - 212,000
Phar-Mor(3) 1 - 45,621 45,621
Publix Supermarket 3 - 106,000 106,000
Rose's 1 - 53,000 53,000
Scotty's 1 - 45,000 45,000
Sears 3 - 412,604 412,604
Staples The Office Superstore 1 - 20,000 20,000
Strawbridge's 1 165,000 - 165,000
Target 1 140,000 - 140,000
Upton's(4) 1 - 51,800 51,800
Wal-Mart 1 - 82,000 82,000
Weis Market 1 45,000 45,000
-- --------- --------- ----------
Total 43 787,000 2,483,259 3,270,259
== ======= ========= =========
- ---------------------
(1) Actual tenant may be an affiliate of the entity listed.
(2) Subleased to Kohl's by Kimco Realty Corp.
(3) Subleased to Phar-Mor by an affiliate of Melville Realty corporation.
(4) Subleased to Upton's by J. Byron.
-13-
The following table shows, as of August 31, 1997, scheduled lease
expirations of malls and shopping centers for the next 10 years, assuming that
none of the tenants exercise renewal options or termination rights:
Base Rent % of Total
Annualized Approximate Per Square Leased GLA
Number of Base Rent Square Feet Foot of Represented By
Year Ending Leases of Expiring of Expiring Expiring Expiring
December 31 Expiring Leases Leases Leases Leases
- ----------- --------- ----------- ----------- ---------- --------------
1998 85 2,726,056 303,954 $ 8.97 6.9%
1999 50 1,929,919 327,654 5.89 7.4
2000 56 1,752,427 158,080 11.00 3.6
2001 72 3,531,402 432,572 8.16 9.8
2002 46 1,929,045 178,057 10.83 4.0
2003 37 2,662,176 231,062 11.52 5.2
2004 28 2,830,863 224,083 12.63 5.1
2005 32 2,049,362 124,892 16.41 2.8
2006 48 4,717,681 554,385 8.51 12.6
2007 26 3,587,946 496,852 7.22 11.3
--- ---------- --------- ------ -----
Total/ 480 27,716,877 3,031,591 $ 9.14 68.8%
Weighted === ========== ========= ------ =====
Average
The Acquisition Properties
The Acquisition Properties, Hillview Shopping Center (in which the
Company will acquire a 50% interest) and Northeast Tower Center (in which the
Company will acquire a 100% interest), are "power centers" to be acquired from
TRO Affiliates as part of the TRO Transaction. The Company's actual aggregate
purchase price (assumed debt and equity) for each of Hillview and Northeast
Tower 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 OP 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
Acquisition Properties was executed. Accordingly, the actual purchase will be
a function of lease-up activity, and other factors, prior to acquisition by
the Company.
-14-
The following table sets forth certain information, as of November
28, 1997, regarding the Acquisition Properties.
Planned
Percent Estimated Planned Owned
To Be Acquisition Square Square Construction
Acquisition Property Location Acquired* Date Feet Feet Anchors Status
-------------------- -------- -------- ------ ------ ------ ------- -------
Hillview Shopping Center Cherry Hill, NJ 50% 1998 340,000 340,000(1) Target, Kohl's Substantially
PETsMART, completed
HomePlace,
Babies 'R Us,
Crown Books
Northeast Tower Center Philadelphia, 100%(2) 1999 484,000 353,000(3) The Home Phase I:
PA Depot, 363,000 sf is
PETsMART, completed.
Staples, Old Phase II:
Navy, Pep Projected
TOTAL Boys completion is
------- ------- Fall 1998
824,000 693,000
======= =======
- ---------------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
(1) Includes 261,000 square feet of retail space situated on land leased to
tenants which own their own buildings.
(2) The Company will initially acquire 89% of the interest in the partnership
and acquire the remaining 11% interest not earlier than three years from
the first acquisition date.
(3) Includes 153,000 square feet of retail space situated on land leased
to tenants which own their own buildings.
The Development Properties
The Company has rights in five Development Properties, the rights to
four of which -- Red Rose; Blue Route Metroplex; Christiana Power Center
Phase I and Christiana Power Center Phase II -- are the subject of a
contribution agreement entered into as part of the TRO Transaction.
As each of the four Development Properties in which the Company
acquired rights in as part of the TRO Transaction is completed and leased up,
it will be valued based on the following principles: (i) all space based and
occupied by credit-worthy tenants will be valued at ten times adjusted cash
flow (computed as specified in the agreement); and (ii) all space leased to a
credit-worthy tenant but unoccupied will be valued at ten times adjusted cash
flow calculated as though the space was built and occupied as 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 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
property, and (y) the abandonment by the Company of any uncompleted projects,
and (z) September 30, 2002.
-15-
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 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 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 following table sets forth certain information, as of November
10, 1997, regarding the Development Properties.
Planned
Percent Planned Owned
To Be Square Square Expected
Development Property Location Acquired* Feet Feet(4) Status(5) Completion
-------------------- -------- -------- ---- ------- --------- ----------
Blue Route Metroplex (1)(2) Plymouth Meeting, PA 50% 760,000 319,000 Development First Half of 2000
Christiana Power Center Newark, DE 50% 295,000 142,000 Construction Second half of 1998
(Phase I)
Christiana Power Center (3) Newark, DE 50% 300,000 150,000 Development Second half of 2000
(Phase II)
Red Rose Commons (2) Lancaster, PA 50% 463,000 265,000 Construction Second half of 1998
Warrington Shopping Center (1) Warrington, PA 100% 415,000 140,000 Development Second half of 1999
--------- ---------
TOTAL (5 Properties) 2,233,000 1,016,000
========= =========
- -----------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
(1) Construction of this project is subject to obtaining site plan approval.
(2) Subject to reduction to 25% under the terms of the Goldenberg Letter
Agreement.
(3) This project is not currently zoned for retail use and participation by the
Trust in the development is subject to rezoning.
(4) Square footage subject to change.
(5) "Development" indicates that development activities, such as site surveys,
preparation of architectural plans, or initiation of land use approvals or
rezoning processes, have commenced (but construction has not commenced).
"Construction" indicates that construction activities, such as site
preparation, ground-breaking activities, or exterior construction, has
commenced. There is no assurance that the properties which remain in the
Development stage will ultimately be constructed.
-16-
The Multifamily Properties
The Company has interests in 19 multifamily properties with an
aggregate of 7,236 units. The Company manages ten of its Multifamily
Properties, and the remaining nine Multifamily Properties are managed by one
or more partners of the Company. If the current managers of the Multifamily
Properties that are not currently managed by the Company are unable or
unwilling to perform their obligations or responsibilities, the Company would
manage those properties with its own staff.
The following table sets forth certain information, as of August 31,
1997, regarding the 19 multifamily properties in which the Company has an
interest:
Approx. Fiscal 1997
Year Number Rentable Average
Multifamily Percent Built/ Of Area Percent Rent
Property Location Owned* Renov(1) Units(2) (Sq. Ft.) Occupied per Unit
---------- -------- ------ -------- -------- --------- -------- --------
Emerald Point Virginia Beach, VA 65% 1965/1993 862 846,000 96% $ 463
Boca Palms Boca Raton, FL 100% 1970,1991 522 673,000 97 802
/1994
Lakewood Hills Harrisburg, PA 100% 1972, 1975, 562 630,000 96 590
1982/1988
Regency Lakeside Omaha, NE 50% 1970/1990 433 492,000 99 886
Kenwood Gardens Toledo, OH 100% 1951/1989 504 404,000 98 362
Fox Run, Delaware Bear, DE 50% 1988 414 359,000 96 588
Eagle's Nest Coral Springs, FL 50% 1989 264 343,000 97 812
Palms of Pembroke Pembroke Pines, FL 100% 1989/1995 348 340,000 95 788
Hidden Lakes Dayton, OH 100% 1987/1994 360 306,000 98 523
Cobblestone Pompano Beach, FL 100% 1986/1994 384 297,000 95 644
Countrywood Tampa, FL 50% 1977/1997 536 295,000 95 409
Shenandoah Village West Palm Beach, FL 100% 1985/1993 220 286,000 97 820
Marylander Baltimore, MD 100% 1951/1989 510 279,000 98 461
Camp Hill Plaza Camp Hill, PA 100% 1967/1994 300 277,000 97 598
Charter Pointe (Windsong) Altamonte Springs, FL 40% 1974/1993 312 258,000 96 470
Fox Run, Warminster Warminster, PA 50% 1969/1992 196 232,000 99 637
Cambridge Hall West Chester, PA 50% 1967/1993 232 186,000 99 607
Will-O-Hill Reading, PA 50% 1970/1986 190 152,000 99 487
2031 Locust Street Philadelphia, PA 100% 1929/1986 87 89,000 98 1,172
Total/Weighted Average (19 7,236 6,744,000 97% $ 595
Properties) ===== ========= --- ------
- -----------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
(1) Year initially completed and most recently renovated, and where applicable,
year(s) in which additional phases were completed at the property.
(2) Number of Units includes all apartment and commercial units occupied or
available for occupancy at August 31, 1997.
-17-
Other Properties
Shortly following the organization of the Company, it acquired six
industrial properties. The Company has not acquired any property of this type
in over 20 years and the Company does not consider these properties to be
strategically held assets. These properties, in the aggregate, contributed
less than 3% of the Company's net rental income in the Company's fiscal year
ending August 31, 1997, and the Company is currently studying a program for
the orderly liquidation of these assets.
The following table sets forth certain information, as of August 31,
1997, regarding the six industrial properties:
Industrial Properties
Year Percent Square
Property and Location Acquired Owned* Feet Percentage Leased
- --------------------- -------- -------- ------ -----------------
Office and Warehouse 1962 100% 332,000 100%
Annandale, VA
Warehouse 1962 100% 12,000 100%
Pennsauken, NJ
Warehouse 1962 100% 16,000 100%
Allentown, PA
Warehouse 1963 100% 30,000 100%
Pennsauken, NJ
Warehouse and Plant 1963 100% 197,000 100%
Lowell, MA
Warehouse and Plant 1962 50% 141,000 100%
Ft. Washington, PA
Total 728,000
=======
- -----------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
The Company holds partial interests in three parcels of undeveloped
land. Over the next 12 months, the Company anticipates determining, with its
respective joint venture partners, whether any of these parcels present
appropriate development opportunities for the Company, and if not, an
appropriate course of action to liquidate these assets.
-18-
The following table sets forth certain information, as of August 31,
1997, regarding the three land parcels:
Year Percent
Property and Location Acquired Owned * Acres
- --------------------- -------- ------- -----
Rancocas, NJ 1971 75% 54
Elizabethtown, PA 1972 50% 22
Coral Springs, FL 1990 50% 14
--
Total 90
==
- ----------------------------
* By the Operating Partnership; the Registrant currently owns approximately
93.1% of the Operating Partnership.
Competition, Regulation and Other Factors
The real estate business is highly competitive. The Trust competes
for tenants with other property owners. All of the Trust's shopping center and
apartment properties are subject to significant competition. The Trust also
competes for investment opportunities with investors and purchasers of real
estate of all types, many of which have greater financial resources, revenues
and geographical diversity than those of the Trust, including institutional,
private and foreign investors.
Increased building of new apartment communities and shopping centers
as well as renovation of older properties are a source of competition for the
Trust. In addition, single family housing becomes increasingly attractive when
lower interest rates make mortgages more affordable. These trends can affect
the number of prospective tenants for the Trust's apartment properties.
A substantial portion of the Trust's shopping center income consists
of rents received under long-term leases. Most of these shopping center leases
provide for payment by tenants of an annual minimum rent and additional rent
calculated generally as a percentage of gross sales in excess of a specified
amount ("percentage rent"). These shopping center leases often contain
provisions for contribution by tenants to the cost of maintaining common areas
and real estate tax escalation clauses under which the tenant bears its
proportionate share of increases in or total real estate taxes. While tenant
contributions historically have not covered all costs required to maintain
common areas, some leases provide for full recovery of these costs from
tenants. Upon renewal of a shopping center lease, the annual minimum rent of a
tenant is often increased to an amount which approaches or exceeds the sum of
the former annual minimum rent plus the most recent annual percentage rent
-19-
received from the tenant, and the level from which percentage rent is calculated
is correspondingly increased. In difficult economic times or in strongly
competitive environments, the shopping center owner may have to offer
concessions or negotiate leases in which the tenant pays a lower rental or
less than its pro rata share of certain operating costs or offer tenant
allowances.
The success of the Trust depends, among other factors, upon general
economic conditions, population trends, real estate fluctuations, income tax
laws, governmental regulations, availability and costs of financing,
construction costs, increases or decreases in operating expenses, zoning laws
and the ability of the Trust to keep its properties leased at profitable
levels.
All but one of the 46 properties in which the Trust has an interest
are located in the eastern United States, with 19 of the properties located in
Pennsylvania and 14 in Florida. The ability of some existing tenants of the
Trust's properties to meet their lease obligations could be adversely affected
by economic conditions in the East and in Florida and Pennsylvania in
particular.
The effects of inflation upon the Trust's operations and investment
portfolio are varied. From the standpoint of revenues, inflation has the dual
effect of both increasing the tenant revenues upon which percentage rentals
are based and allowing increased fixed rentals to rise generally to reflect
higher construction costs on new properties and on renovation and
rehabilitation of older properties. This positive effect may be offset by
higher operating expenses.
Fundamental to the Trust is the generation of cash flow which, if
distributed to shareholders, is free from Federal income taxes to the Trust.
The determination to make distributions to shareholders, however, is not
solely based on cash flow because the Trust is required to distribute to its
shareholders annually at least 95% of its real estate investment trust taxable
income to remain qualified for the favorable tax treatment afforded by the
Internal Revenue Code. The Trust generally attempts to distribute 100% of such
income and capital gains from sales of real estate investments so as to avoid
any Federal income and excise tax liability for the Trust.
Under various Federal, state and local laws and regulations, the
current or a previous owner or operator of real estate may be required to
investigate and clean up certain hazardous substances released at the
property, and may be held liable to a governmental entity or to third parties
for property damage and for investigation and cleanup costs incurred by such
parties in connection with asserted contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the
contamination. The presence of contamination or the failure to remediate
contamination may adversely affect the owner's ability to sell or lease real
estate or to borrow with the real estate as collateral. The owner or operator
of a site may be liable under statutory or common law to third parties for
damages and injuries resulting from environmental contamination emanating from
the site.
-20-
Since 1987, the Trust has conducted a Phase I environmental study on
each property it seeks to acquire and has recently performed a Phase I
environmental study on each of the properties.
The Trust has no way of determining at this time the magnitude of any
potential liability to which it may be subject arising out of unknown
environmental conditions or violations with respect to the properties formerly
owned by the Trust. Environmental laws today can impose liability on a
previous owner or operator of a property that owned or operated such property
at a time when hazardous or toxic substances were disposed of, or released
from, the property. Therefore, a conveyance of the property does not relieve
the owner or operator from liability.
As to five properties, two of which the Trust no longer owns, the
Trust or a partnership in which the Trust has an interest has responded to
inquiries from environmental authorities. In one of these properties, the
Trust believes that the contamination was caused by a former tenant and has
sought indemnification from the tenant. The estimated cost to remediate this
property ranges from $0.4 million to $1.2 million. In another instance, the
Trust will only be liable for remediation costs in excess of $1.0 million, and
the Trust does not currently anticipate that remediation costs will exceed
$1.0 million. If remediation costs for this property exceed $1.0 million, the
Trust's liability is not expected to exceed $0.6 million.
As to six properties in which the Trust currently has an interest,
the environmental conditions continue to be investigated and have not been
fully remediated. At these properties, ground water contamination has been
found. At four of the properties, the contamination is associated with dry
cleaning operations. The Trust has submitted assessment reports to the state
authorities for approval. While all of the properties with contamination
arising from dry cleaning operations may be eligible under a state law for
remediation with state funds, there can be non assurance that sufficient funds
will be available under the legislation to pay the full costs of any such
remediation.
There are asbestos-containing materials in a number of the
properties, primarily in the form of floor tiles and adhesives. The floor
tiles and adhesives are generally in good condition. Fire-proofing material
containing asbestos is present at some of the properties in limited
concentrations or in limited areas. At properties where radon has been
identified as a potential concern, the Trust has remediated or is performing
additional testing. Lead-based paint has been identified at certain of the
Trust's Multi-family Properties and the Trust has notified tenants pursuant to
applicable disclosure requirements. Based on its current knowledge, the Trust
does not believe that the future liabilities associated with asbestos, radon
and lead-based paint at the foregoing properties will be material.
The Trust has no insurance coverage for the types of environmental
liabilities described above. At August 31, 1997 an aggregate reserve of
$336,000 existed on the Trust's books in respect of certain of these matters;
-21-
there can be no assurance that this amount will be sufficient to cover the cost
of known liabilities respecting environmental issues at the properties, or
matters which may be identified in the future.
Management is aware of environmental concerns at four of its
development properties. It is management's present view that the Trust's share
of any remediation costs necessary in connection with the development of these
properties will be within the budgets for development of these properties, but
the final costs and such necessary remediation are not known and may cause the
Trust to decide not to develop one or more such properties.
Employees
The Registrant employs approximately 1,150 persons on a full-time
basis.
Item 13. Certain Relationships and Related Transactions
On September 30, 1997, the Trust consummated the TRO Transaction in
which the Trust, inter alia, (i) formed the Operating Partnership, (ii)
transferred to the Operating Partnership its interests in its real property
assets, or the economic benefits thereof, in exchange for the issuance to the
Trust's business trust subsidiary of Class A OP Units and to the Trust of a
general partner interest in the Operating Partnership, (iii) caused the
Operating Partnership to acquire all of the issued and outstanding non-voting
common shares of TRO representing 95% of the total equity of TRO, in exchange
for 200,000 Class A OP Units and a contingent obligation to issue up to
800,000 additional Class A OP Units over a five year period based on the
levels of the Trust's funds from operations ("Adjusted FFO") per Share during
such period, (iv) caused the Operating Partnership to acquire, or to become
obligated to acquire, in exchange for additional Class A OP Units, the
interests of certain TRO Affiliates, including Ronald and George Rubin, Edward
Glickman, and entities in which they own interests, or their rights or
obligations to acquire interests, in four of the Existing Properties, and in
the Acquisition Properties, (v) caused the Operating Partnership to acquire
the development rights, subject to the obligations of certain TRO Affiliates,
in four of the Development Properties in exchange for (A) additional Class A
OP Units computed based upon one-half of the net profit to the Operating
Partnership at completion of such project determined as set forth in the
relevant documents, and (B) the reimbursement by the Operating Partnership of
certain of TRO's pre-closing expenses relating to such properties, (vi)
implemented, directly or indirectly, employment agreements with members of
TRO's management, including Ronald Rubin, who became the Chief Executive
Officer of the Trust and George F. Rubin, and (vii) elected three designees of
TRO, Ronald Rubin, George F. Rubin and Rosemarie B. Greco, as trustees of the
Trust. Ronald Rubin's employment agreement is for an initial term of five (5)
years and provides for annual base compensation of not less than $345,000 per
annum. The employment agreements of Messrs. George F. Rubin and Edward
Glickman are for initial terms of two years and provide for base compensation
of $250,000 per annum and $230,000 per annum, respectively.
-22-
The OP Units referred to above are redeemable by the Operating
Partnership, at the option of the holder, beginning one year following the
dates of their respective issuance for an amount per OP Unit equal to the
average closing price of a Share on the twenty trading days immediately prior
to the date notice of redemption is received by the Trust in its capacity as
general partner of the Operating Partnership. The Trust has the right to
acquire any OP Units tendered for redemption for (i) cash, or (ii) Shares, on
the basis of one Share for each OP Unit (subject to adjustments for share
splits and other capital changes). Redeeming holders of OP Units who receive
Shares from the Trust will have certain rights to cause the Trust to register
such Shares for resale under the federal securities laws. Ronald Rubin, George
F. Rubin and Edward Glickman, as a result of the TRO Transaction, will each be
prohibited from reselling more than one-half of the Shares to which he would
be entitled upon redemption of Class A OP Units held by them during the five
year period following the completion of the TRO Transaction if he continues to
hold executive positions with the Trust or the Management Company during such
period.
In the TRO Transaction, in exchange for their direct and indirect
interests in the Management Company and certain affiliated entities, (i)
Ronald Rubin received, directly or indirectly, beneficial ownership of 143,044
Class A OP Units; (ii) George F. Rubin received, directly or indirectly,
beneficial ownership of 86,055 Class A Units; and (iii) Edward Glickman
received, directly or indirectly, beneficial ownership of 13,066 Class A OP
Units. All such individuals will also be eligible to receive additional Class
A OP Units relating to any contingent payments for their equity interest in
TRO and for the Acquisition Properties and four of the Development Properties
in which the Trust acquired interests in the TRO Transaction, all in
accordance with the valuation and payment provisions of the applicable
agreements. It is anticipated that holders of Class A OP Units will receive
distributions at the approximate times, and in the same amounts, as dividends
are paid by the Trust to the Shareholders. Generally, each of such Class A OP
Units is redeemable for cash, or at the option of the Trust, for one Share.
Certain of the Class A OP Units in the TRO Transaction are subject to pledges
in favor of the Operating Partnership until certain obligations of TRO are
satisfied.
The amount of consideration paid by the Trust and the manner in which
it would be paid was determined by the Trust's management and was approved by
a Special Acquisition Committee of the Board of Trustees and by the Board of
Trustees. The Board received an opinion from Lehman Brothers that the
consideration to be paid was fair from a financial point of view, and the
Shareholders of the Trust approved the completion by the Trust of the TRO
Transaction at a Special Meeting of Shareholders held on September 29, 1997.
The Board of Trustees has established a committee consisting of Leonard I.
Korman, Chair, Rosemarie B. Greco and William R. Dimeling for the purpose of
addressing and resolving any matters pertaining to the TRO Transaction as they
arise on an on-going basis.
The Management Company provides real estate development, management,
leasing and other services to 28 properties in which Ronald Rubin (the Trust's
Chief Executive Officer) and/or other TRO Affiliates own interests. These 28
-23-
properties consist of: two hotel and mixed use properties; eight office
buildings; ten retail properties (eight with two or less tenants) which contain
less than 200,000 square feet in the aggregate; the three retail properties for
which the TRO Affiliates have granted the Trust rights of first refusal (see
"Business - The TRO Transaction - Right of First Refusal Properties"); the two
retail properties which the Trust will acquire pursuant to existing agreements
(see "Business - Acquisition Properties"); and three parcels of land. The
interests of Mr. Rubin and/or the TRO Affiliates in these 28 properties range
between 11% and 81%, and Mr. Rubin and/or the TRO Affiliates generally exercise
the right to select service providers for all of these properties.
The Trust determined not to purchase these properties as part of the
TRO Transaction, with the exception of the right of first refusal properties
and the Acquisition Properties, because of its belief that they are not
consistent with the Trust's investment strategy. All services provided to
these 28 properties are set forth in written agreements which the Trust
believes are no less favorable to the Trust than agreements between the Trust
and unaffiliated third parties with respect to similar services. Pursuant to
Mr. Rubin's employment agreement, Mr. Rubin is required to devote his full
working time, energy, skill and best efforts to the performance of his duties
to the Trust.
The Management Company leases office space from Richard I. Rubin &
Co., Inc. under a sublease agreement. The term of the sublease agreement began
on January 1, 1994 and expires on July 31, 1999. The monthly base rent is
$36,535. The Management Company also leases additional office space in the
same building from Bellevue Associates for a minimum rental of $10,524 per
year plus additional rent based on the Management Company's share of increases
in office maintenance and other costs. Ronald Rubin and George Rubin own a
majority of the equity interests of Richard I. Rubin & Co., Inc. and
approximately 10% of Bellevue Associates. The lease rates on this space is at
least as favorable to the Management Company as that paid by other tenants in
the building for comparable space.
During fiscal 1997, the Trust paid or accrued fees and costs to the
Philadelphia law firm of Drinker Biddle & Reath LLP, general counsel for the
Trust, for legal services rendered to the Trust, its subsidiaries and its
affiliates, including partnerships and other ventures in which the Trust is
involved. Sylvan M. Cohen, Chairman of the Trust, and Chief Executive Officer
of the Trust until September 30, 1997, and Robert Freedman, a Trustee of the
Trust until September 1997, are of counsel to such firm.
Rosemarie B. Greco is the former President and Chief Executive
Officer of CoreStates Bank, N.A., and the former President of its parent
company, CoreStates Financial Corp. Mr. Leonard I. Korman is a Director of
CoreStates Bank, N.A. CoreStates Bank, N.A. has been, and will continue to be,
a primary source of financing for the Trust. At November 1, 1997, the Trust
was indebted (i) to CoreStates Bank, N.A. and the other banks in the lending
group in the aggregate principal amount of approximately $95.3 million on an
existing line of credit in the total amount of $150 million, and (ii) to a
-24-
two-bank group, of which CoreStates Bank, N.A. is a member, for $33.9 million on
an existing $35 million term loan facility. All borrowing arrangements from the
Trust from CoreStates Bank, N.A. have been on terms which the Trust believes are
at least as favorable to the Trust as would be available from other lending
sources.
-25-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Trust has duly caused this Amendment No. 1 to its Annual
Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST
(The Registrant)
Date: December 12, 1997 By: /s/ Sylvan M. Cohen
--------------------
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Trust
and in the capacities and on the dates indicated:
/s/ Sylvan M. Cohen December 12, 1997
- -------------------------------------
Sylvan M. Cohen,
Chairman and Trustee
/s/ Ronald Rubin* December 12, 1997
- -------------------------------------
Ronald Rubin,
Chief Executive Officer and Trust
/s/ Jonathan B. Weller* December 12, 1997
- -------------------------------------
Jonathan B. Weller,
President and Chief Operating Officer
and Trustee
/s/ George Rubin* December 12, 1997
- -------------------------------------
George Rubin,
Trustee
-26-
/s/ William R. Dimeling* December 12, 1997
- -------------------------------------
William R. Dimeling,
Trustee
/s/ Lee Javitch* December 12, 1997
- -------------------------------------
Lee Javitch,
Trustee
/s/ Leonard T. Korman* December 12, 1997
- -------------------------------------
Leonard I. Korman,
Trustee
/s/ Jeffrey P. Orleans* December 12, 1997
- -------------------------------------
Jeffrey P. Orleans,
Trustee
/s/ Rosemarie B. Greco* December 12, 1997
- -------------------------------------
Rosemarie B. Greco
Trustee
/s/ Edward Glickman* December 12, 1997
- -------------------------------------
Edward Glickman,
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ Jeffrey A. Linn* December 12, 1997
- -------------------------------------
Jeffrey A. Linn,
Senior Vice President -
Acquisitions and Secretary
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/s/ Dante J. Massimini* December 12, 1997
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Dante J. Massimini,
Senior Vice President -
Finance and Treasurer
(Principal Accounting Officer)
*/s/ Sylvan M. Cohen
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By: Sylvan M. Cohen
Attorney-in-Fact
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