UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
------------------
[ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________________ to _______________________
Commission File Number 1-6300
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Pennsylvania Real Estate Investment Trust
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-6216339
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
200 South Broad Street, Third Floor, Philadelphia, PA 19102-3803
- ----------------------------------------------------- ------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 875-0700
--------------
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares of beneficial interest outstanding at November 9, 1999: 13,328,391
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This report includes a total of 25 pages.
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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONTENTS
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets--September 30, 1999
and December 31, 1998 1-2
Consolidated Statements of Income--Three and Nine Months
Ended September 30, 1999 and September 30, 1998 3
Consolidated Statements of Cash Flows-- Nine Months
Ended September 30, 1999 and September 30, 1998 4
Notes to Unaudited Consolidated Financial Statements 5-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-22
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 23
Part II. Other Information
Item 1. Not Applicable -
Item 2. Not Applicable -
Item 3. Not Applicable -
Item 4. Not Applicable -
Item 5. Other Information -
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Part I. Financial Information
Item 1. Financial Statements
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(Note 1)
ASSETS
(Unaudited and in thousands)
September 30, December 31,
1999 1998
------------- ------------
INVESTMENTS IN REAL ESTATE, at cost:
Multifamily properties $ 235,350 $ 230,997
Retail properties 280,940 261,823
Industrial properties 5,078 5,078
Land and properties under development 38,862 11,508
--------- ---------
Total investments in real estate 560,230 509,406
Less- Accumulated depreciation 80,499 71,129
--------- ---------
479,731 438,277
INVESTMENT IN PREIT-RUBIN, INC. (Note 2) 5,414 5,372
INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES, at equity (Note 3) 17,601 13,439
ADVANCES TO PREIT-RUBIN, INC. 5,950 4,074
--------- ---------
508,696 461,162
Less- Allowance for possible losses 528 1,572
--------- ---------
508,168 459,590
OTHER ASSETS:
Cash and cash equivalents 2,166 6,135
Rents and sundry receivables (net of allowance for doubtful accounts
of $874 and $364, respectively) 4,036 3,498
Deferred costs, prepaid real estate taxes and
expenses, net 17,310 12,392
--------- ---------
$ 531,680 $ 481,615
========= =========
(Continued)
-1-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Unaudited and in thousands)
September 30, December 31,
1999 1998
------------- ------------
LIABILITIES:
Mortgage notes payable $ 267,920 $ 167,003
Bank and other loans payable 83,200 135,273
Construction costs payable 3,672 --
Tenants' deposits and deferred rents 2,297 1,827
Accrued pension and retirement benefits 939 972
Accrued expenses and other liabilities 6,479 11,413
---------- ---------
364,507 316,488
---------- ---------
MINORITY INTEREST (Note 3) 32,565 28,045
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 4):
Shares of beneficial interest, $1 par; authorized
unlimited; issued and outstanding 13,324,476
shares at September 30, 1999 and 13,299,723 shares at
December 31, 1998 13,324 13,300
Capital contributed in excess of par 145,529 145,103
Distributions in excess of net income (24,245) (21,321)
---------- ---------
134,608 137,082
---------- ---------
$ 531,680 $ 481,615
========== =========
The accompanying notes are an integral part of these statements.
-2-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF INCOME
(Note 1)
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- -------------------------
1999 1998 1999 1998
-------- --------- ------------ ----------
REVENUES:
Gross revenues from real estate $ 21,949 $ 14,768 $ 65,184 $ 42,076
Interest and other income 293 145 857 400
-------- --------- ------------ ----------
22,242 14,913 66,041 42,476
-------- --------- ------------ ----------
EXPENSES:
Property operating expenses 7,925 5,678 23,289 15,820
Depreciation and amortization 3,384 2,231 9,909 6,482
General and administrative expenses 771 852 2,617 2,458
Interest expense 5,676 2,457 16,143 6,292
-------- --------- ------------ ----------
17,756 11,218 51,958 31,052
-------- --------- ------------ ----------
Income before equity in
unconsolidated entities, gains
on sales of interests in real
estate and minority interest in
operating partnership 4,486 3,695 14,083 11,424
EQUITY IN (LOSS) INCOME OF PREIT-RUBIN, INC. (Note 2) (618) 1,133 (2,566) 274
EQUITY IN INCOME OF PARTNERSHIPS
AND JOINT VENTURES (Note 3) 1,541 1,343 4,384 4,032
GAINS ON SALES OF INTERESTS IN
REAL ESTATE 162 1,277 1,508 3,043
-------- --------- ------------ ----------
Income before minority interest in
operating partnership 5,571 7,448 17,409 18,773
MINORITY INTEREST IN OPERATING
PARTNERSHIP (507) (432) (1,557) (961)
-------- --------- ------------ ----------
NET INCOME $ 5,064 $ 7,016 $ 15,852 $ 17,812
======== ========= ============ ==========
BASIC INCOME PER SHARE (Note 4) $ .38 $ .53 $ 1.19 $ 1.34
======== ========= ============ ==========
DILUTED INCOME PER SHARE (Note 4) $ .38 $ .53 $ 1.19 $ 1.34
======== ========= ============ ==========
The accompanying notes are an integral part of these statements.
-3-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1)
(Unaudited and in thousands)
Nine Months Ended
September 30
-----------------------
1999 1998
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,852 $ 17,812
Adjustments to reconcile net income to net cash
provided by operating activities-
Minority interest in operating partnership 1,557 961
Depreciation and amortization 9,909 6,482
Provision for doubtful accounts, net 509 120
Gains on sales of interests in real estate (1,508) (3,043)
Equity in loss (income) of PREIT-RUBIN, Inc. 2,566 (274)
Decrease in allowance for possible losses (89) (143)
Change in assets and liabilities-
Rents and sundry receivables (1,047) (1,366)
Deferred costs, prepaid real estate taxes and expenses (4,018) (2,807)
Accrued pension and retirement benefits (33) (26)
Accrued expenses and other liabilities (4,597) 2,264
Tenants' deposits and deferred rents 470 40
--------- ----------
Net cash provided by operating activities 19,571 20,020
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in wholly-owned real estate (16,868) (100,784)
Investments in property under development (28,408) (19,435)
Investment in and advances to PREIT-RUBIN, Inc. (1,876) (500)
Investments in partnerships and joint ventures (5,817) (9,938)
Cash proceeds from sale of real estate interests 4,693 3,008
Cash distributions from partnerships and joint ventures
in excess of equity in income 1,770 496
--------- ----------
Net cash used in investing activities (46,506) (127,153)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal installments on mortgage notes payable (2,582) (1,034)
Repayment of mortgage notes payable (17,001) (33,680)
Net (payments) borrowings under revolving credit facility (55,673) 111,445
Proceeds from mortgage notes payable 120,500 51,014
Proceeds from shares of beneficial interest issued 111 206
Payment of deferred financing and equity offering costs (1,438) (1,076)
Distributions paid to shareholders (18,777) (18,750)
Distributions paid to OP Unit holders (1,887) (963)
Distributions to other minority partners (287) (19)
--------- ----------
Net cash provided by financing activities 22,966 107,143
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,969) 10
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,135 1,324
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,166 $ 1,334
========= ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Accrual of construction costs $ 3,672 $ --
========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest (net of capitalized interest of $1,500 and $1,190,
respectively) $ 15,100 $ 5,961
========= ==========
The accompanying notes are an integral part of these statements.
-4-
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION:
The Registrant prepared the consolidated financial statements pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Registrant believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the audited financial statements and the
notes thereto included in the Registrant's latest annual report on Form 10-K. In
the opinion of the Registrant, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position and the consolidated results of its operations and its cash flows, have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
Certain prior period amounts have been reclassified to conform with current
period presentation.
2. INVESTMENT IN PREIT-RUBIN, INC.:
PREIT-RUBIN, Inc. ("PRI") is responsible for various activities, including
management, leasing and real estate development of certain of the Registrant's
properties and for properties on behalf of third parties. Total management fees
paid by the Registrant's properties to PRI are included in property operating
expenses in the accompanying consolidated statements of income and amounted to
$192,000 and $483,000 for the three and nine-month periods ended September 30,
1999, respectively, and $66,000 and $158,000 for the three and nine-month
periods ended September 30, 1998, respectively. The Registrant's properties also
paid leasing and development fees to PRI totaling $31,000 and $473,000 for the
three and nine-month periods ended September 30, 1999, respectively, and
$207,000 and $662,000 for the three and nine-month periods ended September 30,
1998, respectively.
Leasing and development fees paid by the Registrant's properties to PRI are
capitalized and amortized to expense in accordance with the Registrant's normal
accounting policies. Intercompany profits earned by PRI related to such
activities are deferred and will be amortized to income over these same periods
in order to more properly match revenues and expenses.
-5-
PRI also provides management, leasing and development services for partnerships
and other ventures in which certain officers of the Registrant and PRI have
either direct or indirect ownership interests. Total revenues earned by PRI for
such services were $695,000 and $2,398,000 for the three and nine-month periods
ended September 30, 1999, respectively, and $880,000 and $2,621,000 for the
three and nine-months periods ended September 30, 1998, respectively. As of
September 30, 1999 and December 31, 1998, $1,034,000 and $1,682,000,
respectively, was due from these affiliates. Of these amounts, approximately
$139,000 was collected subsequent to September 30, 1999.
Summarized unaudited financial information for PRI as of and for the three and
nine-month periods ended September 30, 1999 and 1998 is as follows (in
thousands):
For the Nine For the Three
Months Ended Months Ended
September 30 September 30
--------------------------------- ---------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
Total assets $ 7,580 $ 13,332 $ 7,580 $ 13,332
========== =========== ========== ===========
Management fees $ 3,640 $ 3,663 $ 1,171 $ 1,186
Leasing commissions 4,202 6,736 1,800 4,235
Development fees 665 1,001 190 438
Other revenues 2,708 2,201 1,210 747
---------- ----------- ---------- -----------
Total revenue $ 11,215 $ 13,601 $ 4,371 $ 6,606
========== =========== ========== ===========
Net (loss) income $ (2,702) $ 288 $ (651) $ 1,193
========== =========== ========== ===========
Registrant's share of net (loss) income $ (2,566) $ 274 $ (618) $ 1,133
========== =========== ========== ===========
3. INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES:
The following table presents summarized financial information as to the
Registrant's equity in the assets and liabilities of 16 partnerships and joint
ventures and 1 property under development at September 30, 1999, and 19
partnerships and joint ventures and 2 properties under development at December
31, 1998 and the Registrant's equity in income for the three and nine-month
periods ended September 30, 1999 and 1998 (in thousands):
-6-
September 30, December 31,
1999 1998
------------- ------------
ASSETS
Investments in real estate, at cost:
Multifamily properties $ 56,098 $ 54,396
Retail properties 198,381 185,900
Industrial property -- 1,275
Properties under development 58,448 25,601
Land 279 926
----------- -----------
Total investments in real estate 313,206 268,098
Less- Accumulated depreciation 68,617 64,478
----------- -----------
244,589 203,620
Cash and cash equivalents 8,562 7,107
Deferred costs, prepaid real estate taxes and expenses, and other
assets, net 33,086 34,923
----------- -----------
Total assets $ 286,237 $ 245,650
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $ 227,556 $ 218,278
Bank loans payable -- 3,260
Construction loans payable 18,852 --
Other liabilities 19,987 9,675
----------- -----------
Total liabilities 266,395 231,213
----------- -----------
Net equity 19,842 14,437
Less: Partners' share 2,241 998
----------- -----------
Investment in partnerships and joint ventures $ 17,601 $ 13,439
=========== ===========
-7-
EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ----------
Gross revenues from real estate $ 14,388 $ 13,703 $ 42,909 $ 41,750
----------- --------- ---------- ----------
Expenses:
Property operating expenses 4,603 4,917 14,285 15,021
Mortgage and bank loan interest 4,398 4,043 13,027 12,369
Depreciation and amortization 2,291 2,021 6,756 6,175
----------- --------- ---------- ----------
11,292 10,981 34,068 33,565
----------- --------- ---------- ----------
3,096 2,722 8,841 8,185
Partners' share (1,555) (1,379) (4,457) (4,153)
----------- --------- ---------- ----------
Equity in income of partnerships and joint
ventures $ 1,541 $ 1,343 $ 4,384 $ 4,032
=========== ========= ========== ==========
4. EARNINGS PER SHARE:
Basic Earnings Per Share is based on the weighted average number of common
shares outstanding during the period. Diluted Earnings Per Share is based on the
weighted average number of shares outstanding during the period, adjusted to
give effect to common share equivalents. A reconciliation between basic and
diluted Earnings Per Share is shown below (in thousands, except share and per
share amounts):
For the Three Months Ended For the Nine Months Ended
September 30, 1999 September 30, 1999
------------------------------------- --------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
----------- ---------- ------------ ----------- ---------- ------------
BASIC EARNINGS PER SHARE:
Net income $ 5,064 13,321,934 $ .38 $ 15,852 13,315,203 $ 1.19
=========== ========== ============ =========== ========== ===========
DILUTED EARNINGS PER SHARE:
Net income $ 5,064 13,321,934 $ 15,852 13,315,203
Share options issued -- 8,375 -- 8,542
----------- ---------- ----------- ----------
$ 5,064 13,330,309 $ .38 $ 15,852 13,323,745 $ 1.19
=========== ========== ============ =========== ========== ===========
-8-
For the Three Months Ended For the Nine Months Ended
September 30, 1998 September 30, 1998
------------------------------------- -------------------------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
----------- ---------- ------------ ----------- ---------- -----------
BASIC EARNINGS PER SHARE:
Net income $ 7,016 13,299,723 $ .53 $ 17,812 13,296,405 $ 1.34
=========== ========== ============ =========== ========== ===========
DILUTED EARNINGS PER SHARE:
Net income $ 7,016 13,299,723 $ 17,812 13,296,405
Share options issued -- 18,222 -- 23,548
----------- ---------- ----------- ----------
$ 7,016 13,317,945 $ .53 $ 17,812 13,319,953 $ 1.34
=========== ========== ============ =========== ========== ===========
5. DISTRIBUTIONS:
The per-share amount declared at the date of this report and the per-share
amount declared in the comparable period for distribution are as follows:
Amount
Per
Date Declared Record Date Payment Date Share
---------------- ----------------- ----------------- ------
October 18, 1999 November 30, 1999 December 15, 1999 $ .47
October 13, 1998 November 30, 1998 December 15, 1998 $ .47
6. COMMITMENTS AND CONTINGENCIES:
Environmental matters had arisen at certain properties for which reserves had
previously been established. The reserves were established when the Registrant
owned an interest in these properties. The Registrant no longer has an interest
in these properties. In management's opinion, no material incremental cost will
be incurred on these properties.
As part of the merger with PRI (formerly The Rubin Organization, Inc.) the
Registrant entered into a contribution agreement (the "Contribution Agreement")
which includes a provision for PREIT Associates, L.P., the Registrant's
operating partnership, to issue up to 800,000 additional Class A Operating
Partnership ("OP") units over the five-year period, beginning October 1, 1997
and ending September 30, 2002 according to a formula based upon the Registrant's
adjusted funds from operations per share during the five-year period. The
Contribution Agreement establishes "hurdle" and "target" levels for the
Registrant's adjusted funds from operations per share during specified earn-out
periods to determine whether, and to what extent, the contingent OP units will
be issued. The additional OP units issuable under the Contribution Agreement are
accounted for as additional purchase price when such amounts are determinable.
Through December 31, 1998, 162,500 contingent OP units have been earned, all of
which have been issued.
At September 30, 1999, the Registrant is required to fund approximately $59.4
million ($37.3 million for wholly-owned properties and $22.1 million represents
the Registrant's share for partnerships and joint ventures) to complete current
development and redevelopment projects. In connection with certain development
properties, PREIT Associates, L.P. may be required to issue additional OP units
upon the achievement of certain financial results.
-9-
7. SEGMENT INFORMATION:
The Registrant has four reportable segments: retail properties, multifamily
properties, other, and corporate. The retail segment includes the operation and
management of 21 regional and community shopping centers (11 wholly owned and 10
owned in joint venture form). The multifamily segment includes the operation and
management of 19 apartment communities (14 wholly owned and 5 owned in joint
venture form). The other segment includes the operation and management of 6
retail properties under development (4 wholly owned and 2 owned in joint venture
form), 5 industrial properties (all wholly owned) and 3 land parcels (1 wholly
owned and 2 owned in joint venture form). The corporate segment is responsible
for cash and investment management and certain other general support functions.
The accounting policies for the segments are the same as those the Registrant
uses for its consolidated financial reporting, except that for segment reporting
purposes, the Registrant uses the "proportionate-consolidation method" of
accounting (a non-GAAP measure) for joint venture properties, instead of the
equity method of accounting. The Registrant calculates the
proportionate-consolidation method by applying its percentage ownership interest
to the historical financial statements of its equity method investments.
-10-
(In thousands)
Adjustments
to Equity Total
Nine Months Ended September 30, 1999 Retail Multifamily Other Corporate Total Method Consolidated
- ------------------------------------ --------- ----------- --------- --------- --------- ----------- ------------
Real estate operating revenues $ 46,108 $ 38,589 $ 1,155 $ -- $ 85,852 $ (20,666) $ 65,184
Real estate operating expense 13,966 15,846 20 -- 29,832 (6,543) 23,289
-------- --------- -------- --------- --------- ---------- -----------
Net operating income 32,142 22,743 1,135 -- 56,020 (14,125) 41,895
-------- --------- -------- --------- --------- ---------- -----------
General and administrative expenses -- -- -- (2,617) (2,617) -- (2,617)
Interest income -- -- -- 857 857 -- 857
PRI net operating loss -- -- -- (1,360) (1,360) 1,360 --
-------- --------- -------- --------- --------- ---------- -----------
EBITDA 32,142 22,743 1,135 (3,120) 52,900 (12,765) 40,135
-------- --------- -------- --------- --------- ---------- -----------
Interest expense (12,989) (9,009) (263) (848) (23,109) 6,966 (16,143)
Depreciation and amortization (7,297) (5,602) (75) (1,036) (14,010) 4,101 (9,909)
PRI income taxes -- -- -- 104 104 (104) --
Gains on sales of interests in real
estate 445 -- 1,063 -- 1,508 -- 1,508
Minority interest in operating
partnership -- -- -- (1,541) (1,541) (16) (1,557)
Equity in interest of partnerships
and joint ventures -- -- -- -- -- 4,384 4,384
Equity in loss of PRI -- -- -- -- -- (2,566) (2,566)
-------- --------- -------- --------- --------- ---------- -----------
Net income (loss) $ 12,301 $ 8,132 $ 1,860 $ (6,441) $ 15,852 $ -- $ 15,852
-------- --------- -------- --------- --------- ---------- -----------
Investments in real estate, at cost $280,940 $ 235,350 $ 43,940 $ -- $ 560,230 $ -- $ 560,230
-------- --------- -------- --------- --------- ---------- -----------
Total assets $364,401 $ 208,941 $ 74,206 $ 15,240 $ 662,788 $ (131,108) $ 531,680
-------- --------- -------- --------- --------- ---------- -----------
Recurring capital expenditures $ 1,718 $ 4,696 $ -- $ -- $ 6,414 $ (611) $ 5,803
-------- --------- -------- --------- --------- ---------- -----------
Adjustments
to Equity Total
Nine Months Ended September 30, 1998 Retail Multifamily Other Corporate Total Method Consolidated
- ------------------------------------ --------- ----------- --------- --------- --------- ----------- ------------
Real estate operating revenues $ 27,438 $ 33,822 $ 1,213 $ -- $ 62,473 $ (20,397) $ 42,076
Real estate operating expense 8,648 14,467 18 -- 23,133 (7,313) 15,820
-------- --------- -------- --------- --------- ---------- ------------
Net operating income 18,790 19,355 1,195 -- 39,340 (13,084) 26,256
-------- --------- -------- --------- --------- ---------- ------------
General and administrative expenses -- -- -- (2,458) (2,458) -- (2,458)
Interest income -- -- -- 400 400 -- 400
PRI net operating income -- -- -- 1,689 1,689 (1,689) --
-------- --------- -------- --------- --------- ---------- -----------
EBITDA 18,790 19,355 1,195 (369) 38,971 (14,773) 24,198
-------- --------- -------- --------- --------- ---------- ------------
Interest expense (6,625) (5,235) (331) (661) (12,852) 6,560 (6,292)
Depreciation and amortization (4,122) (5,042) (88) (897) (10,149) 3,667 (6,482)
PRI income taxes -- -- -- (240) (240) 240 --
Gains on sales of interests in real
estate 1,277 1,766 -- -- 3,043 -- 3,043
Minority interest in operating
partnership -- -- -- (961) (961) -- (961)
Equity in interest of partnerships
and joint ventures -- -- -- -- -- 4,032 4,032
Equity in income of PRI -- -- -- -- -- 274 274
-------- --------- -------- --------- --------- ---------- ------------
Net income (loss) $ 9,320 $ 10,844 $ 776 $ (3,128) $ 17,812 $ -- $ 17,812
-------- --------- -------- --------- --------- ---------- ------------
Investments in real estate, at cost $204,756 $ 185,207 $ 28,245 $ -- $ 418,208 $ -- $ 418,208
-------- --------- -------- --------- --------- ---------- ------------
Total assets $266,741 $ 188,963 $ 47,301 $ 9,851 $ 512,856 $ (108,749) $ 404,107
-------- --------- -------- --------- --------- ---------- ------------
Recurring capital expenditures $ 1,029 $ 2,855 $ -- $ -- $ 3,884 $ (705) $ 3,179
-------- --------- -------- --------- --------- ---------- ------------
-11-
(In thousands)
Adjustments
to Equity Total
Three Months Ended September 30, 1999 Retail Multifamily Other Corporate Total Method Consolidated
- ------------------------------------- --------- ----------- --------- --------- --------- ----------- ------------
Real estate operating revenues $ 15,655 $ 13,004 $ 379 $ -- $ 29,038 $ (7,089) $ 21,949
Real estate operating expense 4,712 5,469 6 -- 10,187 (2,262) 7,925
-------- --------- -------- --------- --------- ---------- ------------
Net operating income 10,943 7,535 373 -- 18,851 (4,827) 14,024
-------- --------- -------- --------- --------- ---------- ------------
General and administrative expenses -- -- -- (771) (771) -- (771)
Interest income -- -- -- 293 293 -- 293
PRI net operating loss -- -- -- (149) (149) 149 --
-------- --------- -------- --------- --------- ---------- ------------
EBITDA 10,943 7,535 373 (627) 18,224 (4,678) 13,546
-------- --------- -------- --------- --------- ---------- ------------
Interest expense (4,248) (3,497) (6) (272) (8,023) 2,347 (5,676)
Depreciation and amortization (2,505) (1,889) (24) (374) (4,792) 1,408 (3,384)
Gains on sales of interests in real
estate -- -- 162 -- 162 -- 162
Minority interest in operating
partnership -- -- -- (507) (507) -- (507)
Equity in interest of partnerships and
joint ventures -- -- -- -- -- 1,541 1,541
Equity in loss of PRI -- -- -- -- -- (618) (618)
-------- --------- -------- --------- --------- ---------- ------------
Net income (loss) $ 4,190 $ 2,149 $ 505 $ (1,780) $ 5,064 $ -- $ 5,064
-------- --------- -------- ---------= --------- ---------- ------------
Investments in real estate, at cost $280,940 $ 235,350 $ 43,940 $ -- $ 560,230 $ -- $ 560,230
-------- --------- -------- --------- --------- ---------- ------------
Total assets $364,401 $ 208,941 $ 74,206 $ 15,240 $ 662,788 $ (131,108) $ 531,680
-------- --------- -------- --------- --------- ---------- ------------
Recurring capital expenditures $ 107 $ 909 $ -- $ -- $ 1,016 $ (120) $ 896
-------- --------- -------- --------- --------- ---------- ------------
Adjustments
to Equity Total
Three Months Ended September 30, 1998 Retail Multifamily Other Corporate Total Method Consolidated
- ------------------------------------- --------- ----------- --------- --------- --------- ---------- ------------
Real estate operating revenues $ 9,498 $ 11,598 $ 405 $ -- $ 21,501 $ (6,733) $ 14,768
Real estate operating expense 2,982 5,104 5 -- 8,091 (2,413) 5,678
--------- ----------- --------- --------- --------- ---------- ------------
Net operating income 6,516 6,494 400 -- 13,410 (4,320) 9,090
--------- ----------- --------- --------- --------- ---------- ------------
General and administrative expenses -- -- -- (852) (852) -- (852)
Interest income -- -- -- 145 145 -- 145
PRI net operating income -- -- -- 2,196 2,196 (2,196) --
--------- ----------- --------- --------- --------- ---------- ------------
EBITDA 6,516 6,494 400 1,489 14,899 (6,516) 8,383
--------- ----------- --------- --------- --------- ---------- ------------
Interest expense (2,585) (1,815) (43) (191) (4,634) 2,177 (2,457)
Depreciation and amortization (1,405) (1,712) (29) (301) (3,447) 1,216 (2,231)
PRI income taxes -- -- -- (647) (647) 647 --
Gains on sales of interests in real
estate 1,277 -- -- -- 1,277 -- 1,277
Minority interest in operating
partnership -- -- -- (432) (432) -- (432)
Equity in interest of partnerships and
joint ventures -- -- -- -- -- 1,343 1,343
Equity in income of PRI -- -- -- -- -- 1,133 1,133
--------- ----------- --------- --------- --------- ---------- ------------
Net income (loss) $ 3,803 $ 2,967 $ 328 $ (82) $ 7,016 $ -- $ 7,016
--------- ----------- --------- --------- --------- ---------- ------------
Investments in real estate, at cost $ 204,756 $ 185,207 $ 28,245 $ -- $ 418,208 $ -- $ 418,208
--------- ----------- --------- --------- --------- ---------- ------------
Total assets $ 266,741 $ 188,963 $ 47,301 $ 9,851 $ 512,856 $ (108,749) $ 404,107
--------- ----------- --------- --------- --------- ---------- ------------
Recurring capital expenditures $ 493 $ 942 $ -- $ -- $ 1,435 $ (387) $ 1,048
--------- ----------- --------- --------- --------- ---------- ------------
-12-
8. RECENT ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. In June 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133," which delayed the effective date
of SFAS No. 133 for one year until January 1, 2001. The Registrant does not
expect the adoption of this statement to have a material impact on its financial
position or results of operations.
-13-
Item 2.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Registrant expects to meet its short-term liquidity requirements generally
through its available working capital and net cash provided by operations. The
Registrant believes that the net cash provided by operations will be sufficient
to make distributions to continue to qualify as a REIT under the Internal
Revenue Code. The Registrant also believes that the foregoing sources of
liquidity will be sufficient to fund its short-term liquidity needs for the
foreseeable future, including capital expenditures, tenant improvements and
leasing commissions.
The Registrant expects to meet certain long-term liquidity requirements such as
property development and acquisitions, scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness, the sale of properties, joint venture
partnerships with capital sources and the issuance of additional equity
securities.
The Credit Facility
As of September 30, 1999, $83.2 million of borrowings under the Credit Facility
were outstanding. In addition, the Registrant has pledged $5.7 million under the
Credit Facility as collateral for several letters of credit drawn to facilitate
development projects. Subject to the terms and conditions of the Credit
Facility, up to $61.1 million was available to fund property acquisitions,
scheduled debt maturities and other uses. At September 30, 1999 the interest
rate on the Credit Facility was 7.08%. The Credit Facility matures on December
31, 2000.
Mortgage Notes
In order to secure additional funds for its acquisition and development
activities, on April 13, 1999, the Registrant concluded the financing of eight
multifamily communities with $108.0 million of permanent, fixed-rate, long-term
debt. With the financing, the Registrant replaced short-term floating rate debt
with fixed rate, mortgage debt. The new debt carries a weighted average fixed
interest rate of approximately 6.77%, equating to a spread of 158 basis points
over the yield on ten year U. S. Treasury Notes at the time rates were locked.
The eight properties secure the non-recourse loans, which amortize over 30 years
and mature in May 2009. Proceeds from these newly-placed loans were used to
1) repay approximately $88.0 million of the Credit Facility, 2) pay off a
short-term floating rate loan of approximately $17.0 million and 3) fund
approximately $3.0 million in closing costs.
-14-
In addition to amounts due under the Credit Facility prior to December 31, 2000,
a mortgage loan, secured by a property owned by one partnership in which the
Registrant has an interest, matures by its terms. The balloon payment on this
loan is $1.2 million of which the Registrant's proportionate share is $.6
million and is due August 2000. A mortgage loan on a property wholly-owned by
the Registrant also matures by its terms. The balloon payment on this loan
totals $14.9 million and is due November 2000.
Acquisitions and Dispositions
The Registrant is actively involved in pursing and evaluating a number of
individual property and portfolio acquisition opportunities. In addition, the
Registrant has stated that a key strategic goal is to obtain managerial control
of all of its assets. In certain cases where existing joint venture assets are
managed by outside partners, the Registrant is considering the possible
acquisition of these outside interests. In certain cases where that opportunity
does not exist, the Registrant is considering the disposition of its interests.
There can be no assurance that the Registrant will consummate any such
acquisition or disposition. In April 1999, the Registrant acquired a shopping
center in Philadelphia, PA for $13.5 million, of which $12.5 million was funded
by assumed debt and $1.0 million through the issuance of OP units. On September
22, 1999, the Registrant sold land which had a basis of $4.7 million for $3.6
million. The difference of $1.1 million had been previously reserved.
Development, Expansions and Renovations
The Registrant is involved in a number of development and redevelopment
projects, which may require equity funding by the Registrant or third-party debt
or equity financing. Currently, the Registrant is developing a site in Plymouth
Meeting, PA for the Metroplex Shopping Center (a joint venture project) to build
a 780,000 square foot power center. During May 1999, the Registrant, along with
its joint venture partner, acquired the 103-acre site for this development
project. The Registrant has also began construction of a 560,000 square foot
power center for Paxton Towne Centre located in Harrisburg, PA. For each
development and redevelopment project, the Registrant will evaluate the
financing opportunities available to it at the time a project requires funding.
In cases where the project is undertaken with a joint venture partner, the
Registrant's flexibility in funding the project may be governed by the joint
venture agreement or the covenants existing in its line of credit which limit
the use of borrowed funds in joint venture projects.
-15-
Funds from Operations
Funds from operations (FFO) increased by approximately $3.9 million for the nine
months ended September 30, 1999, as compared to the nine months ended September
30, 1998, as follows:
(In thousands, except Three Months Ended Nine Months Ended
share amounts) September 30 September 30
----------------------------- -----------------------------
Funds from Operations(1) 1999 1998 1999 1998
- ----------------------------------------------- ------------ ------------- ------------- -------------
Income before minority interest in operating
partnership $ 5,571 $ 7,448 $ 17,409 $ 18,773
Less: Gains on sales of interests
in real estate (162) (1,277) (1,508) (3,043)
Add:
Depreciation and amortization-
Wholly-owned and consolidated partnerships 3,326 2,151 9,748 6,328
Unconsolidated partnerships and joint ventures 1,127 985 3,323 2,992
Excess purchase price over net assets acquired 54 29 161 87
Less:
Refinancing prepayment fee -- -- 55 --
Depreciation of non-real estate assets (60) (57) (180) (171)
Amortization of deferred financing costs (173) (117) (549) (360)
------------ ------------- ------------- -------------
Funds from operations $ 9,683 $ 9,162 $ 28,459 $ 24,606
============ ============= ============= =============
Weighted average number of shares outstanding 13,321,934 13,299,723 13,315,203 13,296,405
Weighted average effect of full
conversion of OP Units 1,335,662 811,465 1,310,183 701,951
------------ ------------- ------------- -------------
14,657,596 14,111,188 14,625,386 13,998,356
============ ============= ============= =============
(1) Funds from operations ("FFO") is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles "GAAP") plus real estate depreciation and
similar adjustments for unconsolidated joint ventures after adjustments for
non-real estate depreciation and amortization of financing costs. FFO
should not be construed as an alternative to net income (as determined in
accordance with GAAP) as an indicator of the Registrant's operating
performance, or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. In addition, the
Registrant's measure of FFO as presented may not be comparable to similar
measures reported by other companies.
-16-
Cash Flows
During the nine months ended September 30, 1999, the Registrant generated $19.6
million in cash flow from operating activities. Investing activities used cash
of $46.6 million including (i) $28.4 million in investments in property under
development, net of payables, (ii) $16.9 million in investments in wholly-owned
real estate assets, (iii) $7.7 million in investments in the affiliated
management company and partnerships, offset by (iv) cash proceeds from the sale
of a partnership interest of $4.7 million and (v) distributions from
partnerships in excess of equity in income of $1.7 million. Financing activities
provided cash flow of $22.9 million and included (i) $120.5 million in net
proceeds from mortgages, (ii) the payoff of matured debt of $17.0 million and
(iii) a net paydown of $55.7 million under the Registrant's Credit Facility,
offset by (iv) $20.9 million of distributions to shareholders, OP unit holders
and minority interests, (v) payments of deferred financing costs of $1.4
million, and (vi) principal installments on mortgages of $2.6 million.
Commitments
At September 30, 1999, the Registrant is required to fund approximately $59.4
million ($37.3 million for wholly-owned properties and $22.1 million represents
the Registrant's share for partnerships and joint ventures) to complete current
development and redevelopment projects. The Registrant has placed $30.0 million
in construction loans for wholly-owned properties and has a share in $21 million
in construction financing for partnerships and joint ventures. In connection
with certain development properties, PREIT Associates, L.P., may be required to
issue additional OP units upon the achievement of certain financial results.
Interest Rate Protection
In order to reduce exposure to variable interest rates, the Registrant entered
into a six-year interest rate swap agreement with First Union on $20.0 million
of indebtedness which fixes a rate of 6.12% per annum versus 30-day LIBOR until
2001.
Contingent Liability
The Registrant along with certain of its joint venture partners has guaranteed
debt totaling $7.0 million.
Results of Operations
Three Month Periods Ended September 30, 1999 and 1998
Gross revenues from real estate increased by $7.2 million to $21.9 million for
the three-month period ended September 30, 1999, as compared to the
corresponding period in 1998. The 1999 period included $6.5 million of increased
revenues attributable to the acquisitions made by the Registrant during 1998
(the "1998 Acquisitions") as described in the Registrant's 1998 Form 10-K.
Acquisitions made during 1999 (the "1999 Acquisitions") accounted for an
additional $0.6 million of revenues. Revenues from properties owned during both
periods increased by $0.1 million primarily as a result of an increase in
multifamily revenues.
Property operating expenses increased by $2.2 million to $7.9 million. This
increase is entirely attributable to an increase of operating expenses from the
1998 Acquisitions.
-17-
Depreciation and amortization increased by $1.2 to $3.4 million primarily as a
result of the 1998 Acquisitions and increased amortization of financing costs
related to the financing of multifamily properties.
Interest expense increased by $3.3 million to $5.7 million. This increase is
primarily attributable to $1.3 million of interest expense on mortgaged
properties from the 1998 Acquisitions. This increase also includes $1.8
million of interest expense incurred on the newly placed multifamily mortgages.
Approximately $0.2 million of this increase is from the 1999 Acquisitions.
Equity in income of partnerships and joint ventures increased by $0.2 million to
$1.5 million. The 1999 period includes an increase of $0.1 million of equity in
income attributable to the 1998 Acquisitions. Equity in income of properties
owned during both periods increased by $0.1 million.
Equity in net loss of PRI for the 1999 period was $0.6 million as
compared to net income of $1.1 million in the 1998 period. This decrease of $1.7
million is primarily attributable to a non-recurring leasing commission earned
during the 1998 period in the amount of $1.4 million.
Minority interest in the operating partnership increased from $0.4 million to
$0.5 million as a result of OP units issued in connection with five acquisitions
during 1998 and additional contingent OP units issued under the Contribution
Agreement. Minority interest partners held a 9.11% and 5.75% average interest in
the operating partnership for the three-month period ended September 30, 1999
and 1998, respectively.
Gains on sales of interests in real estate in the 1999 period were $0.2 million
from the sale of land. Gains on sales of interests in real estate in the 1998
period were $1.3 million from the sales of shopping centers.
Net income for the quarter ended September 30, 1999 decreased to $5.1 million
from $7.0 million as reported in the comparable period in the prior year.
Nine Month Periods Ended September 30, 1999 and 1998
Gross revenues from real estate increased by $23.1 million to $65.2 million for
the nine-month period ended September 30, 1999, as compared to the corresponding
period in 1998. The 1999 period increased by $21.3 million attributable to the
1998 Acquisitions as described in the Registrant's 1998 Form 10-K. The 1999
Acquisitions accounted for an additional $1.0 million of revenues. Revenues from
properties owned during both periods increased by $0.8 million as a result of an
increase in multifamily revenues.
Property operating expenses increased by $7.5 million to $23.3 million. Of this
increase $7.2 million is attributable to expenses from the 1998 acquisitions.
The 1999 acquisitions accounted for an additional $0.1 million of expenses.
Expenses from properties owned during both periods increased by $.2 million.
Depreciation and amortization increased by $3.4 million to $9.9 million entirely
as a result of the 1998 Acquisitions and increased amortization of financing
costs related to the financing of multifamily properties.
-18-
Interest expense increased by $9.8 million to $16.1 million. Interest expense
attributable to mortgaged properties increased by $4.7 million due primarily to
the 1998 Acquisitions. Interest expense incurred against the Registrant's Credit
Facility to fund the 1998 Acquisitions increased by $1.4 million. The 1999
acquisitions accounted for an additional $0.4 million of interest expense.
Interest expense incurred on the newly placed mortgages resulted in a $3.3
million increase.
Equity in income of partnerships and joint ventures increased by $0.4 million to
$4.4 million. This increase in 1999 is primarily attributable to the 1998
Acquisitions.
Equity in net loss of PRI for the 1999 period was $2.5 million as compared to
net income of $0.3 million in the 1998 period. This decrease of $2.8 million is
attributable to a non-recurring leasing commission earned during the 1998 period
in the amount of $1.7 million. In addition, operating expenses increased by $1.0
million in 1999.
Minority interest in the operating partnership increased from $1.0 million for
the nine months ended September 30, 1998 to $1.6 million for the nine months
ended September 30, 1999 as a result of OP units issued in connection with five
acquisitions during 1998 and additional contingent OP units issued under the
Contribution Agreement. Minority interest partners held a 8.96% and 5.01%
average interest in the Operating Partnership for the nine-month period ended
September 30, 1999 and 1998, respectively.
Net income decreased by $2.0 million from $17.8 million in 1998 to $15.8 million
in 1999.
Year 2000 Issues
Overview of Y2K Issue
The Year 2000 or "Y2K" problem refers to the concept that many existing programs
can use only two digits to identify a year in the date field. Those programs
were designed and developed at a time when data storage was expensive, and the
impact of the upcoming century change was not considered. If not corrected, many
programs may fail or provide inaccurate results at the turn of the century. The
Registrant, its tenants and vendors use information systems and control systems
which may be affected by the Y2K problem.
The Y2K Remediation Plan
In 1997, the Registrant began assessing the issues surrounding the Y2K problem.
Representatives from management and various departments at regional and home
offices, including property management, financial, risk management and
information systems participated in this assessment.
The Registrant decided to divide the plan into two critical areas: information
technology systems ("IT Systems") and non-information technology systems
("Non-IT Systems"). The Registrant established a Y2K Remediation Plan consisting
of the following phases with respect to each IT and Non-IT System: inventorying
systems and devices that are vulnerable to the Y2K problem, assessment of the
criticality of the inventoried items, remediation of the noncompliant items, and
testing of the corrections that have been applied.
-19-
Area One - IT Systems
The Registrant further delineated this phase into three segments. The first
segment is the core financial systems, namely, the accounting and payroll
systems. The Registrant believes these are its mission critical systems and has
determined these systems to be Y2K compliant.
The second segment covers desktop computing systems. As of this writing, the
Registrant is continuing to replace a number of its desktop computers. These
computers are either older models which may become subject to Y2K errors or
which are incapable of running current versions of software programs which are
Y2K compliant. In addition to replacement of computer hardware, the Registrant
has and is continuing to replace or upgrade computer software which may become
subject to Y2K errors. The remediation of these desktop computing systems is
ongoing and is expected to be completed by the end of 1999.
The third segment covers network computing and telecommunication systems. The
Registrant's computer systems are interconnected through local and wide area
networks. These networks rely on sophisticated telecommunications equipment. The
Registrant has identified the aspects of these networks which are expected to be
impacted by the Y2K problem and the actions necessary to remediate these issues.
The Registrant is in the process of upgrading a significant part of the hardware
and software which are utilized in its network. The internal network computing
systems upgrade is expected to be completed by the end of 1999. The network is
also reliant on the services of many external telecommunications providers which
are facing Y2K challenges.
Area Two - Non-IT Systems
The Registrant has identified several categories of Non-IT Systems used at the
real estate assets which have the most exposure to Y2K problems. These
categories include:
o Building Automation (e.g. Energy Management)
o Security Alarm Systems
o Fire and Life Safety Systems
o Elevators and Escalators
o Exterior Lighting
The Registrant has completed the first phase of its Remediation Plan for these
Non-IT Systems by compiling an inventory of the related machines and equipment.
The Registrant engaged the assistance of outside engineering consultants to
identify the potential Y2K problems which may impact the performance of these
systems. The consultants did not identify any material property systems that are
not Y2K compliant. The Registrant continues to respond to several of the
consultant's findings where areas of possible non-compliance were identified.
These areas are not expected to result in a significant Y2K related interruption
of services. Management is currently working to mitigate the remaining risks
associated with these findings, and is expected to complete this remediation by
the end of the fourth quarter of 1999.
-20-
The Registrant expects to complete the Year 2000 Remediation Plan, including
final testing, by the end of the fourth quarter of 1999.
Failure of IT Systems
The Registrant has obtained assurances from outside software providers and
hardware suppliers that its core financial systems are Y2K compliant. In
addition, the Registrant expects to correct the issues related to its desktop
computing and networking problems within its control before January 1, 2000,
thereby lowering or avoiding any increased cost(s) of correcting problems after
the fact.
Because the Registrant's major source of income is rental payments under its
tenants' leases, the failure of IT Systems is not expected to have a significant
effect on the Registrant's financial condition and results of operation. Even if
the Registrant or its tenants were to experience problems with IT Systems, the
rental payments under its tenants' leases would not be pardoned.
Failure of Non-IT Systems
The Registrant believes that the Y2K dangers to its financial condition and
operation associated with a failure of embedded systems in the machinery and
equipment of its real estate are not material. Because most of these embedded
systems can be operated in a manual or by-pass mode, the Y2K problem is
substantially lessened until it can be remedied. Furthermore, each of the
Registrant's properties has, for the most part, separate building management
systems. Therefore, a Y2K problem experienced at one property should have no
effect on other properties.
The Registrant considered the findings of the outside engineering consultants
and concluded that, based on such findings, the Y2K issues would not have a
material adverse impact on its financial condition or results of operations.
Y2K Problems of Registrant's Vendors
The success of the Registrant's business is not dependent on the operations of
any one vendor or supplier. Accordingly, if any of the Registrant's vendors or
suppliers fails to operate due to Y2K related problems, the Registrant expects
to be able to engage alternate providers without encountering any significant
effect on its financial condition and results of operations. In an effort to
further its Y2K readiness, the Registrant has surveyed major business partners,
vendors and suppliers relative to their Y2K compliance.
Developing Contingency Plans
After evaluating the results of a study of both its IT and Non-IT Systems, the
Registrant developed contingency plans to mitigate the remaining risks
associated with potential Y2K issues. Under such contingency plans, affected
systems could be operated in manual modes or alternate systems could be used to
bypass affected systems.
-21-
Management has determined that the appropriate total cost of its Y2K Plan and
the potential related impact on operation's amounts incurred to date have been
approximately $150,000 and the estimated remaining expenses of Y2K remediation
are expected to be approximately $200,000.
Costs associated with Y2K problems could have a material impact on the
Registrant's operations.
Summary
The failure to correct a material Y2K problem could result in an interruption
in, or failure of, certain normal business activities or operations. Material
failures could materially and adversely affect the Registrant's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the
Y2K readiness of tenants and third party suppliers, the Registrant is unable to
determine at this time whether the consequences of Y2K failures will have a
material impact on the Registrant's results of operations, liquidity or
financial condition. Furthermore, the Registrant does not believe it is possible
to identify and remediate all of the possible Y2K problems that could impact its
IT Systems or the functionality of its Non-IT Systems. The Y2K Plan is expected
to significantly reduce the Registrant's level of uncertainty about the Y2K
problem and, in particular, about the Y2K completion and readiness of its IT
Systems and Non-IT Systems. The Registrant's management believes that with the
completion of the Y2K Plan as scheduled, the possibility of significant
interruptions should be reduced.
Readers are cautioned that forward looking statements contained in the Year 2000
update should be read in conjunction with the Registrant's disclosures under
the heading: "FORWARD LOOKING STATEMENTS."
Forward-Looking Statements
The matters discussed in this report, as well as news releases issued from time
to time by the Registrant include use of forward-looking terminology such as
"may," "will," "should," "expect," "anticipate," "estimate," "plan," or
"continue" or the negative thereof or other variations thereon, or comparable
terminology which constitute "forward-looking statements." Such forward-looking
statements (including without limitation, information concerning the
Registrant's planned acquisition, development and divestiture activities, short-
and long-term liquidity position, ability to raise capital through public and
private offerings of debt and/or equity securities, availability of adequate
funds at reasonable cost, revenues and operating expenses for some or all of the
properties, leasing activities, occupancy rates, changes in local market
conditions or other competitive factors) involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Registrant's results to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. The Registrant disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any of
the forward-looking statements contained herein to reflect future events or
developments.
-22-
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Registrant's consolidated debt position consisted
of $150.0 million in fixed rate mortgage notes, $17.0 million in floating rate
mortgage notes, and $135.3 million borrowed under its revolving Credit Facility.
As a result of certain refinancing and additional borrowings to fund property
acquisitions and development activities, the Registrant's consolidated debt
position consisted of $267.9 million in fixed rate mortgage notes and $83.2
million borrowed under its revolving Credit Facility.
A 100 basis point increase in market interest rates would result in a decrease
in the net financial instrument position of $13.6 million at September 30, 1999.
A 100 basis point decrease in market interest rates would result in an increase
in the net financial instrument position of $14.6 million at September 30, 1999.
Based on the variable-rate debt included in the Registrant's debt portfolio,
including an interest rate swap agreement, as of September 30, 1999, a 100 basis
point increase in interest rates would result in an additional $0.6 million in
interest incurred at September 30, 1999. A 100 basis point decrease would reduce
interest incurred by $0.6 million at September 30, 1999.
There have been no material changes in the Registrant's qualitative disclosures
about market risk in 1999. Reference is made to Item 7A in the Registrant's
Form 10-K for the year ended December 31, 1998.
-23-
Part II. Other Information
Item 5. Other Information
The Registrant issued a press release on November 12, 1999 containing financial
information for the quarter ended September 30, 1999. A copy of the press
release is attached hereto as Exhibit 99.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule (included in electronic filing format)
99. Press Release, issued November 12, 1999, containing financial
information for the period ended September 30, 1999
(b) Reports on Form 8-K - None
-24-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
SIGNATURE OF REGISTRANT
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 thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Registrant
By /s/ Ronald Rubin
----------------------------------------------
Ronald Rubin
Chief Executive Officer
By /s/ Edward A. Glickman
----------------------------------------------
Edward A. Glickman
Executive Vice President and
Chief Financial Officer
By /s/ Dante J. Massimini
----------------------------------------------
Dante J. Massimini
Senior Vice President-Finance and Treasurer
Date: November 15, 1999
-25-