-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MR2m6dr4zxBswTCXZS4NhcBJEKRcXqMFSfwkRKOqB1iRau3VPbykDhM5S4Tc1rRs Ky6arzxp6kH5qkHs4SLV0w== 0000950116-01-500662.txt : 20010815 0000950116-01-500662.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950116-01-500662 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CENTRAL INDEX KEY: 0000077281 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 236216339 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06300 FILM NUMBER: 1709457 BUSINESS ADDRESS: STREET 1: THE BELLEVUE STREET 2: 200 S BROAD STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155429250 MAIL ADDRESS: STREET 1: THE BELLEVUE STREET 2: 200 S BROAD STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-Q 1 ten-q.txt 10-Q ================================================================================ 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 June 30, 2001 ------------------- [ ] 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 --------------------------------------------- Pennsylvania Real Estate Investment Trust - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter)
Pennsylvania 23-6216339 - ----------------------------------------------------------------------- --------------------------------------------- (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 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 August 9, 2001: 15,703,227 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ================================================================================ PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- CONTENTS -------- Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets--June 30, 2001 and December 31, 2000 1-2 Consolidated Statements of Income--Three Months and Six Months Ended June 30, 2001 and June 30, 2000 3 Consolidated Statements of Cash Flows--Six Months Ended June 30, 2001 and June 30, 2000 4 Notes to Unaudited Consolidated Financial Statements 5-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-21 Item 3. Quantitative and Qualitative Disclosures about Market Risk 21 Part II. Other Information 22 Item 1. Not Applicable - - Item 2. Not Applicable Item 3. Not Applicable - Item 4. Submission of Matters to a Vote of Security Holders 22 Item 5. Other Information 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 Exhibits Index 24 Part I. Financial Information --------------------- Item 1. Financial Statements -------------------- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- CONSOLIDATED BALANCE SHEETS --------------------------- ASSETS ------ (In thousands)
(Unaudited) June 30, December 31, 2001 2000 ----------------- ----------------- INVESTMENTS IN REAL ESTATE, at cost: Multifamily properties $ 251,073 $ 249,349 Retail properties 335,068 328,637 Industrial properties 2,504 2,504 Properties under development 37,948 31,776 ----------------- ----------------- Total investments in real estate 626,593 612,266 Less- Accumulated depreciation (103,447) (95,026) ----------------- ----------------- 523,146 517,240 INVESTMENT IN AND ADVANCES TO PREIT-RUBIN, INC. -- 8,739 INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES, at equity 16,423 21,470 ----------------- ----------------- 539,569 547,449 OTHER ASSETS: Cash and cash equivalents 9,363 6,091 Rents and sundry receivables (net of allowance for doubtful accounts of $844 and $733, respectively) 7,254 7,508 Deferred costs and other assets, net 33,314 15,615 ----------------- ----------------- $ 589,500 $ 576,663 ================= =================
(Continued) -1- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- CONSOLIDATED BALANCE SHEETS (CONTINUED) --------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ (In thousands)
(Unaudited) June 30, December 31, 2001 2000 ----------------- ----------------- LIABILITIES: Mortgage notes payable $ 260,209 $ 247,449 Bank loan payable 103,000 110,300 Construction loan payable 24,717 24,647 Tenants' deposits and deferred rents 3,378 3,118 Accrued pension and retirement benefits 945 992 Accrued expenses and other liabilities 18,040 16,485 ----------------- ----------------- 410,289 402,991 ----------------- ----------------- MINORITY INTEREST 40,631 29,766 ----------------- ----------------- COMMITMENTS AND CONTINGENCIES (Note 8) SHAREHOLDERS' EQUITY: Shares of beneficial interest, $1 par; authorized unlimited; issued and outstanding 13,702 shares at June 30, 2001 and 13,628 shares at December 31, 2000 13,702 13,628 Capital contributed in excess of par 152,523 151,117 Restricted stock (1,681) (1,812) Accumulated other comprehensive income (loss) (2,082) -- Distributions in excess of net income (23,882) (19,027) ------------------ ----------------- 138,580 143,906 ----------------- ----------------- $ 589,500 $ 576,663 ================= =================
The accompanying notes are an integral part of these statements. -2- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Unaudited) -----------
(In thousands, except per share data) Three Months Ended Six Months Ended ------------------------------------------------------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ---------------- ---------------- ----------------- ---------------- REVENUES: Real estate revenues Base rent $ 20,919 $ 19,494 $ 41,482 $ 39,380 Percentage rent 238 147 571 424 Expense reimbursements 2,278 2,035 5,074 4,240 Lease termination revenue 845 5,557 975 5,637 Other real estate revenues 854 888 1,715 1,661 ------------- --------------- ------------- ------------- Total real estate revenue 25,134 28,121 49,817 51,342 Management company revenue 2,313 -- 4,465 -- Interest and other income 91 325 253 556 ------------- --------------- ------------- ------------- 27,538 28,446 54,535 51,898 ------------- --------------- ------------- ------------- EXPENSES: Property operating expenses Property payroll and benefits 1,702 1,568 3,481 3,333 Real estate and other taxes 1,884 1,823 3,799 3,575 Utilities 991 979 2,234 2,138 Other operating expenses 3,493 3,055 6,925 6,558 ------------- --------------- ------------- ------------- Total property operating expenses 8,070 7,425 16,439 15,604 Depreciation and amortization 4,386 3,594 8,729 7,182 General and administrative expenses Corporate payroll and benefits 3,186 706 6,403 1,166 Other general and administrative expenses 2,460 699 4,442 1,275 ------------- --------------- ------------- ------------- Total general and administrative expenses 5,646 1,405 10,845 2,441 Interest expense 6,658 5,765 13,246 11,731 ------------- --------------- ------------- ------------- 24,760 18,189 49,259 36,958 ------------- --------------- ------------- ------------- Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest 2,778 10,257 5,276 14,940 EQUITY IN LOSS OF PREIT-RUBIN, INC. -- (1,898) -- (3,387) EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES 1,370 1,808 2,815 3,480 GAINS ON SALES OF INTERESTS IN REAL ESTATE 301 6,648 2,107 8,911 ------------- --------------- ------------- ------------- Income before minority interest 4,449 16,815 10,198 23,944 MINORITY INTEREST IN OPERATING PARTNERSHIP (543) (1,732) (1,199) (2,471) ------------- --------------- ------------- ------------- NET INCOME $ 3,906 $ 15,083 $ 8,999 $ 21,473 ============= =============== ============= ============= BASIC INCOME PER SHARE $ 0.29 $ 1.13 $ 0.66 $ 1.61 ============= =============== ============= ============= DILUTED INCOME PER SHARE $ 0.29 $ 1.13 $ 0.66 $ 1.61 ============= =============== ============= =============
The accompanying notes are an integral part of these statements. -3- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (In thousands) (Unaudited) -----------
Six Months Ended -------------------------------- June 30, June 30, 2001 2000 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 8,999 $ 21,473 Adjustments to reconcile net income to net cash provided by operating activities- Minority interest, net of distributions -- 1,013 Depreciation and amortization 8,729 7,182 Amortization of deferred financing costs 380 245 Provision for doubtful accounts 100 429 Amortization of deferred compensation 596 -- Gains on sales of interests in real estate (2,107) (8,911) Equity in loss of PREIT-RUBIN, Inc. -- 3,387 Change in assets and liabilities- Net change in other assets (4,548) (2,093) Net change in other liabilities 2,899 197 ------------- ------------- Net cash provided by operating activities 15,048 22,922 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in wholly-owned real estate (2,473) (13,141) Investments in property under development (10,638) (9,342) Investment in and advances to PREIT-RUBIN, Inc. -- (2,430) Investments in partnerships and joint ventures (967) (2,136) Cash proceeds from sale of interest in partnership 1,080 2,940 Cash proceeds from sale of interest in wholly-owned real estate 1,808 7,631 Net cash received from PREIT-RUBIN, Inc. 1,616 -- Cash distributions from partnerships and joint ventures in excess of equity in income 6,740 483 ------------- ------------- Net cash used in investing activities (2,834) (15,995) -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal installments on mortgage notes payable (2,240) (2,237) Proceeds from mortgage note payable 15,000 -- Proceeds from construction loans payable 70 8,017 Net (payment) borrowing from credit facility (7,300) 1,200 Shares of beneficial interest issued 535 374 Payment of deferred financing costs (419) -- Distributions paid to shareholders (13,854) (12,549) Distributions paid to OP Unit holders in excess of minority interest (734) -- -------------- -------------- Net cash used in financing activities (8,942) (5,195) -------------- -------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,272 1,732 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,091 7,165 ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,363 $ 8,897 ============= =============
The accompanying notes are an integral part of these statements. -4- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- SIX MONTHS ENDED JUNE 30, 2001 ------------------------------ (Unaudited) (In thousands, except per share data unless otherwise noted) 1. BASIS OF PRESENTATION: ---------------------- Pennsylvania Real Estate Investment Trust ("PREIT" or the "Company") 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 we believe that the disclosures are adequate to make the information presented not misleading. The consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT's latest annual report on Form 10-K. In management's opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company 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. PREIT is organized as a Pennsylvania business trust, and is a fully integrated self-administrated and self-managed real estate investment trust. The Company's interest in its properties is held through PREIT Associates, L.P. (the "Operating Partnership"). The Company is the sole general partner of the Operating Partnership, and as of June 30, 2001, held an 87.9% interest in the Operating Partnership. Certain prior period amounts have been reclassified to conform with current period presentation. 2. INVESTMENT IN PREIT-RUBIN, INC.: -------------------------------- In January 2001, PREIT Services, LLC ("Services") was created to develop, manage and lease properties wholly-owned by the Company. Services is wholly-owned by the Operating Partnership and is consolidated by the Company. As such, Services does not charge management, development or leasing fees to the Company's wholly-owned properties as they would be eliminated in consolidation. On January 1, 2001, the Company acquired the remaining 5% minority interest in PREIT-RUBIN, Inc. ("PRI"), representing all of the voting common stock of PRI, in exchange for Company shares valued at approximately $0.5 million. As of December 31, 2000, the Company held a 95% economic interest in PRI through its ownership of 95% of PRI's stock, which represented all of PRI's non-voting stock. Effective January 1, 2001, PRI is wholly-owned by the Operating Partnership and is consolidated by the Company. PRI was also converted to a taxable REIT subsidiary as defined by federal tax laws. PRI is now capable of offering an expanded menu of services to tenants without jeopardizing the Company's continued qualification as a real estate investment trust. Prior to January 1, 2001, PRI was accounted for using the equity method of accounting. PRI is responsible for various activities, including management, leasing and real estate development for certain properties in which the Company is a joint venture partner, for properties owned by third parties and, prior to January 1, 2001, for certain of PREIT's properties. Prior to January 1, 2001, PREIT's properties paid management fees of $0.2 million and $0.4 million, respectively, and leasing and development fees of $0.3 million and $0.4 million, respectively, to PRI, for the quarter and six months ended June 30, 2000. Leasing and development fees paid by PREIT's properties to PRI were capitalized and amortized to expense in accordance with PREIT's normal accounting policies. Intercompany profits earned by PRI related to such activities were deferred and amortized to income over the same periods as such expenses were amortized. PRI also provides management, leasing and development services for partnerships and other ventures in which certain officers of PREIT and PRI have either direct or indirect ownership interests. Total revenues earned by PRI for such services were $0.7 million and $1.2 million for the three and six-month periods ended June 30, 2001, respectively, and $0.9 million and $1.6 million for the three and six-month periods ended June 30, 2000. -5- Summarized unaudited financial information for PRI as of and for the three and six-month periods ended June 30, 2000 is as follows:
For the Three For the Six Months Ended Months Ended June 30, 2000 June 30, 2000 ------------- -------------- Total assets $ 5,389 $ 5,389 ============= ============== Management fees $ 991 $ 1,981 Leasing commissions 987 1,933 Development fees 117 179 Other revenue 719 1,108 ------------- -------------- Total revenue $ 2,814 $ 5,201 ============= ============== Net loss $ 1,901 $ 3,412 ============= ============== PREIT's share of net loss $ 1,898 $ 3,387 ============= ==============
Financial information for 2001 is not presented because PRI is consolidated as of January 1, 2001. -6- 3. INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES: ----------------------------------------------- The following table presents summarized financial information as to PREIT's equity in the assets and liabilities of 16 partnerships and joint ventures (including 3 properties with development activity) at June 30, 2001, and 17 partnerships and joint ventures (including 3 properties with development activity) at December 31, 2000, and PREIT's equity in income for the three and six-months ended June 30, 2001 and 2000:
June 30, December 31, 2001 2000 ---------------- ----------------- ASSETS ------ Investments in real estate, at cost: Multifamily properties $ 57,447 $ 57,200 Retail properties 419,192 410,745 Properties under development 15,310 28,477 ---------------- ----------------- Total investments in real estate 491,949 496,422 Less: Accumulated depreciation (83,640) (78,025) ----------------- ------------------ 408,309 418,397 Cash and cash equivalents 2,825 5,788 Deferred costs, prepaid real estate taxes and expenses, and other assets, net 47,480 56,012 ---------------- ----------------- Total assets 458,614 480,197 ---------------- ----------------- LIABILITIES AND PARTNERS' EQUITY -------------------------------- Mortgage notes payable 333,077 327,684 Construction loans payable 62,400 61,857 Other liabilities 20,254 33,127 ---------------- ----------------- Total liabilities 415,731 422,668 ---------------- ----------------- Net equity 42,883 57,529 Less: Partners' share (26,715) (36,578) ----------------- ------------------ Investment in partnerships and joint ventures 16,168 20,951 Advances 255 519 ---------------- ----------------- Investment in and advances to partnerships and joint ventures $ 16,423 $ 21,470 ================ =================
-7- EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES
Three Months Ended Six Months Ended ---------------------------------- ------------------------------------ June 30, June 30, June 30, June 30, 2001 2000 2001 2000 --------------- --------------- --------------- ----------------- Gross revenues from real estate $ 23,082 $ 19,343 $ 45,145 $ 35,767 --------------- ------------- --------------- ---------------- Expenses: Property operating expenses 8,050 6,255 16,035 11,723 Mortgage and bank loan interest 7,404 6,503 14,689 11,617 Refinancing prepayment penalty 510 -- 510 -- Depreciation and amortization 4,480 3,217 8,627 5,713 --------------- ------------- --------------- ---------------- 20,444 15,975 39,861 29,053 --------------- ------------- --------------- ---------------- 2,638 3,368 5,284 6,714 Partners' share (1,268) (1,560) (2,469) (3,234) ---------------- ------------- ---------------- ---------------- Equity in income of partnerships and joint ventures $ 1,370 $ 1,808 $ 2,815 $ 3,480 =============== ============= =============== ================
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 year, adjusted to give effect to common share equivalents. A reconciliation between Basic and Diluted Earnings Per Share is shown below:
Three Months Ended Six Months Ended -------------------------------- ----------------------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 --------------- ------------- --------------- --------------- Net income $ 3,906 $ 15,083 $ 8,999 $ 21,473 =============== ============= =============== =============== Weighted average shares outstanding 13,692 13,385 13,680 13,362 Effect of share options issued 23 -- 5 1 --------------- ------------- --------------- --------------- Total weighted average shares outstanding 13,715 13,385 13,685 13,363 =============== ============= =============== =============== Net income per share - Basic $ 0.29 $ 1.13 $ 0.66 $ 1.61 =============== ============== ================ ================ Net income per share - Diluted $ 0.29 $ 1.13 $ 0.66 $ 1.61 =============== ============== ================ ================
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 Date Declared Record Date Payment Date per Share ------------- ----------- ------------ --------- July 13, 2000 August 31, 2000 September 15, 2000 $0.47 July 16, 2001 August 31, 2001 September 17, 2001 $0.51
-8- 6. CASH FLOW INFORMATION: ---------------------- Cash paid for interest was $12.1 million (net of capitalized interest of $1.6 million) and $11.2 million (net of capitalized interest of $1.7 million) for the six months ended June 30, 2001 and 2000, respectively. Significant non-cash transactions for the six months ended June 30, 2001 include the following: The Company issued OP units valued at $6.0 million in connection with the acquisition of land on which the Christiana Power Center (Phase I) is built. The Company issued OP units valued at $3.2 million in connection with the Contribution Agreement (see Note 8) earn-out provisions. 7. DISPOSITIONS: ------------ In January 2001, a partnership in which the Company owns a 50% interest, sold an undeveloped parcel of land adjacent to the Metroplex Shopping Center, which is owned by the partnership, for approximately $7.6 million. The Company recorded a nominal gain on the land sale. In March 2001, the Company sold its interest in the Ingleside Center, located in Thorndale, PA for $5.1 million. The Company's proportionate share of the gain on the sale was approximately $1.8 million. In May 2001, the Company sold its interest in a parcel of land located at the Paxton Towne Centre in Harrisburg, PA for approximately $6.3 million, resulting in a gain of $1.3 million. In June 2001, the Company sold its interest in a parcel of land at the Florence Commons Shopping Center in Florence, SC. The Company received cash at the closing of approximately $1.3 million, and will receive a development fee of $1.5 million for the construction of the store that will be built on the site, for total proceeds from the transaction, upon completion of the development, of $2.8 million. The Company recorded a loss of $1.0 million on the transaction. 8. COMMITMENTS AND CONTINGENCIES: ------------------------------ Environmental matters have arisen at certain properties in which PREIT has an interest for which reserves have previously been established. No additional material incremental cost is expected to be incurred on these properties. As part of the acquisition of The Rubin Organization in 1997, PREIT entered into a contribution agreement (the "Contribution Agreement") which includes a provision for PREIT Associates, L.P., (PREIT'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 PREIT's adjusted funds from operations per share during the five-year period. The Contribution Agreement establishes "hurdle" and "target" levels for PREIT'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. As of June 30, 2001, 497,500 of the 800,000 OP units for the period covering October 1, 1997 to December 31, 2000 had been earned. These OP units earned resulted in an additional purchase price of approximately $8.9 million. PREIT intends to account for the further issuance of contingent OP units as additional purchase price when such additional amounts are determinable. At June 30, 2001, PREIT had commitments of approximately $28.2 million 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- 9. REFINANCING: ------------ In January 2001, the mortgage on Eagle's Nest Apartments in Coral Springs, FL, was refinanced. The $15.0 million mortgage has a 10-year term and bears interest at the rate of 7.52% per annum. In May 2001, the mortgage on Countrywood Apartments in Tampa, FL was refinanced. The Company owns a 50% interest in Countrywood Apartments. The Company's share of the net proceeds of $4.3 million from the refinancing was used to pay down debt. The mortgage has a 10-year term and bears interest at the rate of 6.81% per annum. 10. SEGMENT INFORMATION: -------------------- PREIT has four reportable segments: (1) retail properties, (2) multifamily properties, (3) development and other, and (4) corporate. The retail segment includes the operation and management of 22 regional and community shopping centers (12 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 development and other segment includes the operation and management of 6 retail properties under development (5 wholly owned and 1 owned in joint venture form) and 4 industrial properties (all wholly owned). 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 PREIT uses for its consolidated financial reporting, except that for segment reporting purposes, PREIT uses the "proportionate-consolidation method" of accounting (a non-GAAP measure) for joint venture properties instead of the equity method of accounting. PREIT calculates the proportionate-consolidation method by applying its percentage ownership interest to the historical financial statements of its equity method investments. The chief operating decision making group for the Company's retail, multifamily, development and other and corporate segments is comprised of the Company's chief executive officer, president and the lead executives of each segment. The segments are managed separately because they each represent a specific property type, as well as properties under development and corporate services. -10-
(In thousands) Development Adjustments and to Equity Total Three Months Ended Retail Multifamily Other Corporate Total Method Consolidated - ------------------- -------- ----------- ----- --------- --------- ----------- ------------ June 30, 2001 - ------------- Real estate operating revenues $ 19,960 $ 14,025 $ 80 $ -- $ 34,065 $ (8,931) $ 25,134 Real estate operating expenses 5,123 5,897 2 -- 11,022 (2,952) 8,070 -------- --------- -------- --------- --------- --------- ---------- Net operating income 14,837 8,128 78 -- 23,043 (5,979) 17,064 -------- --------- -------- --------- --------- --------- ---------- Management company revenues -- -- -- 2,313 2,313 -- 2,313 Interest income -- -- -- 91 91 -- 91 General and administrative expenses -- -- -- (5,646) (5,646) -- (5,646) -------- --------- -------- --------- --------- --------- ---------- EBIDTA 14,837 8,128 78 (3,242) 19,801 (5,979) 13,822 -------- --------- -------- --------- --------- --------- ---------- Interest expense (5,848) (3,674) -- -- (9,522) 2,864 (6,658) Depreciation and amortization (3,756) (2,362) (13) -- (6,131) 1,745 (4,386) Gains on sales of interests in real estate 301 -- -- 301 -- 301 Minority interest in operating partnership -- -- -- (543) (543) -- (543) Equity in income of partnerships and joint ventures -- -- -- -- -- 1,370 1,370 -------- --------- -------- --------- --------- --------- ---------- Net income $ 5,534 $ 2,092 $ 65 $ (3,785) $ 3,906 $ -- $ 3,906 -------- --------- -------- --------- --------- --------- ---------- Investments in real estate, at cost $483,346 $ 279,930 $ 48,357 $ -- $ 811,633 $(185,040) $ 626,593 -------- --------- -------- --------- --------- --------- ---------- Total assets $460,390 $ 208,770 $ 46,409 $ 26,063 $ 741,632 $(152,132) $ 589,500 -------- --------- -------- --------- --------- --------- ---------- Recurring capital expenditures $ -- $ 450 $ -- $ -- $ 450 $ (63) $ 387 -------- --------- -------- --------- --------- --------- ----------
Three Months Ended Development Adjustments - ------------------- and to Equity Total June 30, 2000 Retail Multifamily Other Corporate Total Method Consolidated - ------------- --------- ----------- ----- --------- --------- ----------- ------------ Real estate operating revenues $ 17,774 $ 13,467 $ 4,167 $ -- $ 35,408 $ (7,287) $ 28,121 Real estate operating expense 4,092 5,479 34 -- 9,605 (2,180) 7,425 -------- --------- -------- --------- --------- --------- ---------- Net operating income 13,682 7,988 4,133 -- 25,803 (5,107) 20,696 -------- --------- -------- --------- --------- --------- ---------- General and administrative expenses -- -- -- (1,405) (1,405) -- (1,405) Interest income -- -- -- 325 325 -- 325 PRI net operating loss -- -- -- (1,437) (1,437) 1,437 -- -------- --------- -------- ---------- --------- --------- ---------- EBIDTA 13,682 7,988 4,133 (2,517) 23,286 (3,670) 19,616 -------- --------- -------- --------- --------- --------- ---------- Interest expense (4,344) (3,454) -- (377) (8,175) 2,410 (5,765) Depreciation and amortization (2,653) (2,065) (13) (213) (4,944) 1,350 (3,594) Gains on sales of interests in real estate -- -- 6,648 -- 6,648 -- 6,648 Minority interest in operating partnership -- -- -- (1,732) (1,732) -- (1,732) Equity in interest of partnerships and joint ventures -- -- -- -- -- 1,808 1,808 Equity in loss of PRI -- -- -- -- -- (1,898) (1,898) -------- --------- -------- --------- --------- --------- ---------- Net income $ 6,685 $ 2,469 $ 10,768 $ (4,839) $ 15,083 $ -- $ 15,083 -------- --------- -------- --------- --------- --------- ---------- Investments in real estate, at cost $404,142 $ 276,018 $ 96,440 $ -- $ 776,600 $(175,986) $ 600,614 -------- --------- -------- --------- --------- --------- ----------- Total assets $384,423 $ 216,262 $ 94,985 $ 13,833 $ 709,503 $(141,598) $ 567,905 -------- --------- -------- --------- --------- --------- ---------- Recurring capital expenditures $ 184 $ 780 $ -- $ -- $ 964 $ (162) $ 802 -------- --------- -------- --------- --------- --------- ----------
-11-
(In thousands) Development Adjustments and to Equity Total Six Months Ended Retail Multifamily Other Corporate Total Method Consolidated - ----------------- --------- ----------- ----- --------- --------- ----------- ------------ June 30, 2001 - ------------- Real estate operating revenues $ 39,213 $ 27,975 $ 159 $ -- $ 67,347 $ (17,530) $ 49,817 Real estate operating expenses 10,720 11,668 5 -- 22,393 (5,954) 16,439 -------- ---------- -------- --------- ---------- --------- ---------- Net operating income 28,493 16,307 154 -- 44,954 (11,576) 33,378 -------- ---------- -------- --------- ---------- --------- ---------- Management company revenues -- -- -- 4,465 4,465 -- 4,465 Interest income -- -- -- 253 253 -- 253 General and administrative expenses -- -- -- (10,845) (10,845) -- (10,845) -------- ---------- -------- --------- ---------- --------- ---------- EBIDTA 28,493 16,307 154 (6,127) 38,827 (11,576) 27,251 -------- ---------- -------- --------- ---------- ---------- ---------- Interest expense (11,349) (7,019) -- (291) (18,659) 5,413 (13,246) Depreciation and amortization (7,377) (4,674) (26) -- (12,077) 3,348 (8,729) Gains on sales of interests in real estate 2,107 -- -- -- 2,107 -- 2,107 Minority interest in operating partnership -- -- -- (1,199) (1,199) -- (1,199) Equity in income of partnerships and joint ventures -- -- -- -- -- 2,815 2,815 -------- ---------- -------- --------- ----------- --------- ---------- Net income $ 11,874 $ 4,614 $ 128 $ (7,617) $ 8,999 $ -- $ 8,999 --------- ---------- -------- --------- ---------- --------- ---------- Investments in real estate, at cost $483,346 $ 279,930 $ 48,357 $ -- $ 811,633 $(185,040) $ 626,593 --------- ---------- -------- --------- ---------- --------- ----------- Total assets $460,390 $ 208,770 $ 46,409 $ 26,063 $ 741,632 $(152,132) $ 589,500 -------- ---------- -------- --------- ---------- --------- ---------- Recurring capital expenditures $ -- $ 450 $ -- $ -- $ 450 $ (63) $ 387 -------- ---------- -------- --------- ---------- --------- ----------
Six Months Ended Development Adjustments - ----------------- and to Equity Total June 30, 2000 Retail Multifamily Other Corporate Total Method Consolidated - ------------- --------- ----------- ----- --------- ----------- ----------- ------------ Real estate operating revenues $ 34,463 $ 26,929 $ 4,545 $ -- $ 65,937 $ (14,595) $ 51,342 Real estate operating expense 9,290 10,826 39 -- 20,155 (4,551) 15,604 -------- ---------- -------- --------- ---------- --------- ---------- Net operating income 25,173 16,103 4,506 -- 45,782 (10,044) 35,738 -------- ---------- -------- --------- ---------- --------- ---------- General and administrative expenses -- -- -- (2,441) (2,441) -- (2,441) Interest income -- -- -- 556 556 -- 556 PRI net operating loss -- -- -- (2,567) (2,567) 2,567 -- -------- ---------- -------- ---------- ---------- --------- ---------- EBIDTA 25,173 16,103 4,506 (4,452) 41,330 (7,477) 33,853 -------- ---------- -------- --------- ---------- --------- ---------- Interest expense (8,735) (7,007) -- (728) (16,470) 4,739 (11,731) Depreciation and amortization (5,319) (4,084) (37) (387) (9,827) 2,645 (7,182) Gains on sales of interests in real estate 2,263 -- 6,648 -- 8,911 -- 8,911 Minority interest in operating partnership -- -- -- (2,471) (2,471) -- (2,471) Equity in interest of partnerships and joint ventures -- -- -- -- -- 3,480 3,480 Equity in loss of PRI -- -- -- -- -- (3,387) (3,387) -------- ---------- -------- --------- ---------- --------- ---------- Net income $ 13,382 $ 5,012 $ 11,117 $ (8,038) $ 21,473 $ -- $ 21,473 -------- ---------- -------- ---------- ---------- --------- ---------- Investments in real estate, at cost $404,142 $ 276,018 $ 96,440 $ -- $ 776,600 $(175,986) $ 600,614 -------- ---------- -------- --------- ---------- --------- ---------- Total assets $384,423 $ 216,262 $ 94,985 $ 13,833 $ 709,503 $(141,598) $ 567,905 -------- ---------- -------- --------- ---------- --------- ---------- Recurring capital expenditures $ 303 $ 1,484 $ -- $ -- $ 1,787 $ (323) $ 1,464 -------- ---------- -------- --------- ---------- --------- ----------
-12- 11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: ---------------------------------------------- Significant Accounting Policies: Derivative Financial Instruments In the normal course of business, the Company uses a variety of derivative financial instruments to manage, or hedge, interest rate risk. The Company requires that hedging derivative instruments are effective in reducing the interest rate risk exposure. This effectiveness is essential for qualifying for hedge accounting. Some derivative instruments are associated with the hedge of an anticipated transaction. In those cases, hedge effectiveness criteria also require that it be probable that the underlying transaction occurs. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income each period until the instrument matures. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market each period with unrealized gains and losses reported to earnings. To determine the fair values of derivative instruments, the Company uses a variety of methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments, including most derivatives, long-term investments and long-term debt, standard market conventions and techniques such as discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. Accounting Changes: Standards Implemented and Transition Adjustment On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - an Amendment of FASB Statement No. 133." Specifically, SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either shareholders' equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity. As of January 1, 2001, the adoption of the new standard resulted in derivative instruments reported on the balance sheet as liabilities of $0.6 million; and an adjustment of $0.6 million to accumulated other comprehensive loss, which are gains and losses not affecting retained earnings. The Company recorded additional other comprehensive loss of $1.4 million to recognize the change in value during the six-month periods ending June 30, 2001. The Company recorded other comprehensive income of $0.2 million to recognize the change in value in the second quarter of 2001. Financial Instruments: Derivatives and Hedging In the normal course of business, the Company is exposed to the effect of interest rate changes. The Company limits these risks by following established risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to align rate movements between interest rates associated with the Company's leasing income and other financial assets with interest rates on related debt, and manage the cost of borrowing obligations. The Company has a policy of only entering into contracts with major financial institutions based upon their credit ratings and other factors. When viewed in conjunction with the underlying and offsetting exposure that the derivatives are designed to hedge, the Company has not sustained any material adverse effect on its net income or financial position from the use of derivatives. To manage interest rate risk, the Company may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. The Company undertakes a variety of borrowings: from lines of credit, to medium- and long-term financings. To reduce overall interest cost, the Company uses interest rate instruments, typically interest rate swaps, to convert a portion of its variable rate debt to fixed rate debt, or even a portion of its fixed-rate debt to variable rate. Interest rate differentials that arise under these swap contracts are recognized in interest expense over the life of the contracts. The resulting cost of funds is expected to be lower than that which would have been available if debt with matching characteristics was issued directly. -13- The Company may employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transactions occurs, expires or is otherwise terminated. As of June 30, 2001, $2.1 million in deferred losses were included in accumulated other comprehensive income/loss, a shareholders' equity account. The following tables summarize the notional values and fair values of the Company's derivative financial instruments at June 30, 2001. The notional value provides an indication of the extent of the Company's involvement in these instruments at that time, but does not represent exposure to credit, interest rate or market risks.
Hedge Type Notional Value Interest Rate Maturity Fair Value ----------- -------------- ------------- -------- -------------- 1.) Swap - Cash Flow $20.0 million 6.02% 12/15/03 ($0.6 million) 2.) Swap - Cash Flow $55.0 million 6.00% 12/15/03 ($1.5 million)
On June 30, 2001, the derivative instruments were reported at their fair value as a liability of $2.1 million. Interest rate hedges that are designated as cash flow hedges hedge the future cash outflows on debt. Interest rate swaps that convert variable payments to fixed payments, interest rate caps, floors, collars, and forwards are cash flow hedges. The unrealized gains/losses in the fair value of these hedges are reported on the balance sheet with a corresponding adjustment to either accumulated other comprehensive income or in earnings depending on the type of hedging relationship. If the hedging transaction is a cash flow hedge, then the offsetting gains and losses are reported in accumulated other comprehensive income. Over time, the unrealized gains and losses held in accumulated other comprehensive income/loss will be reclassified to earnings. This reclassification is consistent with when the hedged items are also recognized in earnings. Within the next twelve months, the Company expects to reclassify to earnings approximately $0.8 million of the current balance held in accumulated other comprehensive income/loss. The Company may hedge its exposure to the variability in future cash flows for forecasted transactions over a maximum period of 12 months. During the forecasted period, unrealized gains and losses in the hedging instrument will be reported in accumulated other comprehensive income. Once the hedged transaction takes place, the hedge gains and losses will be reported in earnings during the same period in which the hedged item is recognized in earnings. 12. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142, which is effective January 1, 2002, changes the accounting for goodwill from an amortization method to assessing impairment on a fair-value-based test approach on an annual basis. PREIT has not yet quantified the impact, if any, of SFAS No. 142 on its consolidated financial statements. 13. SUBSEQUENT EVENTS ----------------- On July 11, 2001, the Company completed a public offering of 2.0 million shares of beneficial interest at a price of $23.00 per share. At the completion of the public offering the Company had approximately 15.7 million shares outstanding. Net proceeds to the Company from the offering after deducting the underwriting discount of $1.5 million and other expenses of the offering of approximately $0.3 million were approximately $44.2 million, of which $20.7 million were used to repay an existing construction loan and $16.5 million of outstanding indebtedness under the Company's Credit Facility. -14- Item 2. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST ----------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- Overview - -------- The Company owns interests in 22 shopping centers containing an aggregate of approximately 10.7 million square feet, 19 multifamily properties containing 7,242 units and four industrial properties with an aggregate of approximately 300,000 square feet. The Company also owns interest in six shopping centers currently under development, which are expected to contain an aggregate of approximately 1.6 million square feet upon completion. The Company also provides management, leasing and development services to 19 retail properties containing approximately 8.3 million square feet, seven office buildings containing approximately 1.9 million square feet and two multifamily properties with 137 units for affiliated and third-party owners. The Company has achieved significant growth since 1997 with the acquisition of The Rubin Organization ("TRO") and the formation of PREIT-RUBIN, Inc. ("PRI"). In the second quarter of 2001, the Company continued this trend with six retail properties in its development pipeline, and same store net operating income growth of 4.7% and 1.8% in the retail and multifamily sectors, respectively, excluding the impact of lease termination fees in the retail sector. Acquisitions and Dispositions - ----------------------------- The Company is actively involved in pursuing and evaluating a number of individual property and portfolio acquisition opportunities. In addition, the Company 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, PREIT is considering the possible acquisition of these outside interests. In certain cases where that opportunity does not exist, PREIT is considering the disposition of its interests. There can be no assurance that PREIT will consummate any such acquisition or disposition. In January 2001, a partnership in which the Company owns a 50% interest sold an undeveloped parcel of land adjacent to the Metroplex Shopping Center, which is owned by the partnership, for approximately $7.6 million. The Company recorded a nominal gain on the land sale. In March 2001, the Company sold its interest in the Ingleside Center, located in Thorndale, PA for $5.1 million. The Company's proportionate share of the gain on the sale of the property was approximately $1.8 million. In May 2001, the Company sold a parcel of land at Paxton Towne Centre in Harrisburg, PA for $6.3 million resulting in a gain of $1.3 million. In June 2001, the Company sold a parcel of land at its Florence Commons Shopping Center in Florence, SC. The Company received cash at the closing of approximately $1.3 million, and will receive a development fee of $1.5 million for the construction of the store that will be built on the site, for total proceeds from the transaction, upon completion of the development, of $2.8 million. The Company recorded a loss on this transaction of $1.0 million. Development, Expansions and Renovations - --------------------------------------- PREIT is involved in a number of development and redevelopment projects that may require equity funding by PREIT or third-party debt or equity financing. In each case, PREIT 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, PREIT's flexibility in funding the project may be governed by the joint venture agreement and the Company's Credit Facility covenants which limit the use of borrowed funds in joint venture projects. -15- In June 2001, the Company entered into agreements to take over the management and leasing operations of two retail properties and one apartment complex. Starting on July 15, 2001, the Company is managing the 837,000 square-foot Harrisburg East Mall, located in Harrisburg, PA and owned by the Prudential Insurance Company of America. Starting on January 1, 2002, the Company will also manage the 250,000 square foot Home Depot Plaza, located in Clifton Heights, PA. In addition, beginning on January 1, 2002, the Company will manage and lease a 233-unit apartment complex located in West Chester, PA, which is owned by a partnership between the Company and another entity. Equity Offering - --------------- On July 11, 2001, The Company issued, through a public offering, 2.0 million shares of beneficial interest at a price of $23.00 per share. The sole underwriter of the offering was Lehman Brothers. Net proceeds from the offering after deducting the underwriting discount of $1.5 million and other expenses of the offering of approximately $0.3 million were approximately $44.2 million. Proceeds from the offering of $20.7 million were used to repay an existing construction loan and $16.5 million of outstanding indebtedness under the Company's Credit Facility (see below). The Credit Facility - ------------------- The Company's operating partnership has entered into a $250 million Credit Facility consisting of a $175 million revolving credit facility (the "Revolving Facility") and a $75 million construction facility (the "Construction Facility") with a group of banks led by Wells Fargo Bank National Association. The obligations of the Company's operating partnership under the Credit Facility are secured by a pool of ten properties and have been guaranteed by the Company. The Credit Facility bears interest at the London Interbank Offered Rate (LIBOR) plus margins ranging from 1.3% to 1.8%, depending on the ratio of the Company's consolidated liabilities to gross asset value (the "Leverage Ratio"), each as determined pursuant to the terms of the Credit Facility. The Credit Facility contains affirmative and negative covenants customarily found in facilities of this type, as well as requirements that the Company maintain, on a consolidated basis: (i) a maximum Leverage Ratio of 65%; (ii) a maximum Borrowing Base Value (as defined in the Credit Facility) of 70% under the Revolving Facility; (iii) a minimum weighted average collateral pool property occupancy of 85%; (iv) minimum tangible net worth of $229 million plus 75% of cumulative net proceeds from the sale of equity securities; (v) minimum ratios of EBITDA to Debt Service and Interest expense (as defined in the Credit Facility) of 1.40:1 and 1.75:1, respectively, at June 30, 2001; (vi) maximum floating rate debt of $250 million; and (vii) maximum commitments for properties under development not in excess of 25% of Gross Asset Value (as defined in the Credit Facility). As of June 30, 2001, the Company was in compliance with all debt covenants. Liquidity and Capital Resources - ------------------------------- The Company expects to meet its short-term liquidity requirements generally through its available working capital and net cash provided by operations. The Company believes that its net cash provided by operations will be sufficient to allow the Company to make any distributions necessary to enable the Company to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The Company 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 Company expects to meet certain long-term capital requirements such as property acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness and the issuance of additional equity securities. The Company also expects to use the remaining funds available under the Revolving Facility and the Construction Facility to fund acquisitions, development activities and capital improvements on an interim basis. -16- At June 30, 2001, the Company had borrowed $103.0 million against its Revolving Facility and had pledged $5.6 million under the Revolving Facility as collateral for several letters of credit. The proceeds of the borrowings were used to fund acquisitions from 1997 to 2000 and several development projects. Of the unused portion of the Revolving Facility of approximately $66.4 million, as of June 30, 2001, the Company's loan covenant restrictions allowed the Company to borrow approximately an additional $3.8 million based on the existing property collateral pool. Subsequent repayments of $16.5 million of the amounts outstanding under the Credit Facility and a reduction of the Company's letters of credit of $4.5 million increased the amount the Company may borrow to $24.8 million. Commitments - ----------- At June 30, 2001, the Company had approximately $28.2 million committed to complete current development and redevelopment projects, which is expected to be financed through the Construction Facility. In connection with certain development properties, including those development properties acquired as part of the Company's acquisition of The Rubin Organization, the Company may be required to issue additional units of limited partner interest in its operating partnership ("OP Units") upon the achievement of certain financial results. Results of Operations - --------------------- Quarter Ended June 30, 2001 and 2000 - ------------------------------------ Net income decreased by $11.2 million to $3.9 million ($0.29 per share) for the quarter ended June 30, 2001 as compared to $15.1 million ($1.13 per share) for the quarter ended June 30, 2000. The decrease resulted primarily from decreased gains on sales of interest in real estate and lease termination fees. Revenues decreased by $0.9 million or 3% to $27.5 million in the quarter ended June 30, 2001 from $28.4 million for the quarter ended June 30, 2000. Gross revenues from real estate decreased to $25.1 million for the quarter ended June 30, 2001 from $28.1 million for the quarter ended June 30, 2000. This decrease resulted from a $4.8 million decrease in lease termination fees from $5.6 million in 2000 to $0.8 million in 2001. Lease termination fees in 2000 included the $4.0 million fee received in connection with the sale of the CVS Warehouse and Distribution Center. Amounts offsetting this decrease are a $1.4 million increase in base rents, a $0.1 million increase in percentage rents and a $0.3 million increase in expense reimbursements. Base rents increased due to a $1.0 million increase in retail rents, resulting from two properties under development in 2000 now placed in service, and higher rents due to new and renewal leases at higher rates in 2001. These positive influences are offset by the sale of two retail properties that were owned during the second quarter of 2000 and sold in the third quarter of 2000. Base rents also increased due to a $0.5 million increase in multifamily rents, resulting from rental rate increases and higher occupancy rates. Industrial property base rents decreased $0.1 million due to the sale of the CVS Warehouse and Distribution Center in 2000. Percentage rents increased due to higher tenant sales levels. Expense reimbursements increased due to two properties under development in 2000 now placed in service, increased property operating expenses and the charge back of 2000 renovation costs over 10 years at Dartmouth Mall. This is partially offset by the sale of two properties in 2000. PRI's revenue was $2.3 million for the quarter ended June 30, 2001. This entire amount represents an increase in revenues in 2001 because PRI was not consolidated in 2000. Interest and other income decreased by $0.2 million because of lower cash balances in 2001 generating less interest income. Property operating expenses increased by $0.7 million or 9% to $8.1 million for the quarter ended June 30, 2001 from $7.4 million for the quarter ended June 30, 2000. Payroll expense increased $0.1 million. Real estate and other taxes increased by $0.1 million as two properties under development in 2000 were placed in service and slightly higher tax rates for properties owned during both periods, partially offset by the sale of two properties in 2000. Utilities were unchanged. Other operating expenses increased by $0.5 million due to increased repairs and maintenance expenses and increased insurance expenses. Depreciation and amortization expense increased by $0.8 million to $4.4 million for the quarter ended June 30, 2001 from $3.6 million for the quarter ended June 30, 2000. Depreciation and amortization expense for retail properties increased by $0.6 million due to two properties under development in 2000 now placed in service, partially offset by the sale of two properties in 2000. Retail depreciation increased by $0.4 million for properties owned during both periods because of a higher asset base. Of this amount, $0.2 million relates to the 2000 -17- renovation at Dartmouth Mall. Depreciation and amortization expense for multifamily properties increased by $0.2 million due to a higher asset base for properties owned during both periods. General and administrative expenses increased by $4.2 million to $5.6 million for the quarter ended June 30, 2001 from $1.4 million for the quarter ended June 30, 2000. The primary reason for the increase is due to the consolidation of PRI in 2001, which accounted for $3.6 million of the increase. General and administrative expenses also increased primarily due to a $0.5 million increase in payroll and benefits expenses, as well as minor increases in several other expense categories. Interest expense increased by $0.9 million to $6.7 million for the quarter ended June 30, 2001 from $5.8 million for the quarter ended June 30, 2000. Retail mortgage interest increased by $0.6 million due to a property under development in 2000 now placed in service. Multifamily mortgage interest decreased by $0.1 million due to expected amortization of mortgage balances. Bank loan interest expense increased by $0.4 million due to a higher borrowing base and because development assets were placed into service. Equity in loss of PREIT-RUBIN, Inc. was $1.9 million in the quarter ended June 30, 2000. There was no corresponding amount in 2001 due to the consolidation of PRI in 2001. Equity in income of partnerships and joint ventures decreased by $0.4 million to $1.4 million in the quarter ended June 30, 2001 from $1.8 million in the quarter ended June 30, 2000. The decrease was primarily due to increased interest and bad debt expenses. Gains on sales of interests in real estate were $0.3 million and $6.6 million, respectively, in the second quarter of 2001 and 2000 resulting from the sales of the land parcels at Florence Commons Shopping Center and Paxton Towne Centre in the second quarter of 2001 and the CVS Warehouse and Distribution Center in the second quarter of 2000. Six Month Period Ended June 30, 2001 and 2000 - --------------------------------------------- Net income decreased by $12.5 million to $9.0 million ($0.66 per share) for the six-month period ended June 30, 2001 as compared to $21.5 million ($1.61 per share) for the six-month period ended June 30, 2000. The decrease resulted primarily from increased interest expense, non-cash depreciation and amortization, and decreased gains on sales of interests in real estate and lease termination fees. Revenues increased by $2.6 million or 5% to $54.5 million in the six-month period ended June 30, 2001 from $51.9 million for the six-month period ended June 30, 2000. Gross revenues from real estate decreased to $49.8 million for the six-month period ended June 30, 2001 from $51.3 million in 2000. This decrease resulted from a $4.6 million decrease in lease termination fees from $5.6 million in 2000 to $1.0 million in 2001. Lease termination fees in 2000 included the $4.0 million fee received in connection with the sale of the CVS Warehouse and Distribution Center. Offsetting this decrease are a $2.1 million increase in base rents, a $0.1 million increase in percentage rents, a $0.8 million increase in expense reimbursements, and a $0.1 million increase in other revenues. Base rents increased due to a $1.6 million increase in retail rents, resulting from two properties under development in 2000 now placed in service and higher rents due to new and renewal leases at higher rates in 2001. These positive influences are offset by the sale of two retail properties that were owned during the second quarter of 2000 and sold in the third quarter of 2000. Base rents also increased due to a $0.8 million increase in multifamily rents, resulting from rental rate increases and higher occupancy rates. Industrial rents decreased $0.3 million due to the sale of the CVS Warehouse and Distribution Center in Alexandria, Va in April 2000. Percentage rents increased due to higher tenant sales levels. Expense reimbursements increased due to two properties under development in 2000 now placed in service, increased property operating expenses and the charge back of 2000 renovation costs over 10 years at Dartmouth Mall. This is partially offset by the sale of two properties in 2000. Other revenues increased due to increased miscellaneous income from the multifamily properties. PRI's revenue was $4.4 million for the six-month period ended June 30, 2001. This entire amount represents an increase in revenues in 2001 because PRI was not consolidated in 2000. Interest and other income decreased $0.3 million due to lower cash balances in 2001 generating less interest income. -18- Property operating expenses increased by $0.8 million or 5% to $16.4 million for the six-month period ended June 30, 2001 from $15.6 million for the six-month period ended June 30, 2000. Payroll expense increased $0.2 million due to normal salary increases. Real estate and other taxes increased by $0.2 million due to two properties under development in 2000 now placed in service and slightly higher tax rates for properties owned during both periods, partially offset by the sale of two properties in 2000. Utilities increased by $0.1 million due to higher utility rates. Other operating expenses increased by $0.3 million due to increased repairs and maintenance expenses. Depreciation and amortization expense increased by $1.5 million to $8.7 million for the six-month period ended June 30, 2001 from $7.2 million for the six-month period ended June 30, 2000. Depreciation and amortization expense for retail properties increased by $1.2 million due to two properties under development in 2000 now placed in service, partially offset by the sale of two properties in 2000. Retail depreciation increased by $0.8 million for properties owned during both periods because of a higher asset base. Of this amount, $0.3 million relates to the 2000 renovation at Dartmouth Mall. Depreciation and amortization expense for multifamily properties increased by $0.3 million due to a higher asset base for properties owned during both periods. General and administrative expenses increased by $8.4 million to $10.8 million for the six-month period ended June 30, 2001 from $2.4 million for the six-month period ended June 30, 2000. The primary reason for the increase is due to the consolidation of PRI in 2001, which accounted for $7.2 million of the increase. General and administrative expenses also increased primarily due to a $1.0 million increase in payroll and benefits expenses as well as minor increases in several other expense categories. Interest expense increased by $1.5 million to $13.2 million for the six-month period ended June 30, 2001 from $11.7 million for the six-month period ended June 30, 2000. Retail mortgage interest increased by $1.2 million due to a property under development in 2000 now placed in service. Multifamily mortgage interest decreased by $0.2 million due to expected amortization of mortgage balances. Bank loan interest expense increased by $0.5 million due to a larger amount outstanding under the Credit Facility and due to development assets being placed into service Equity in loss of PREIT-RUBIN, Inc. was $3.4 million in the first six months of 2000. There was no corresponding amount in 2001 due to the consolidation of PRI in 2001. Equity in income of partnerships and joint ventures decreased by $0.7 million to $2.8 million in the six-month period ended June 30, 2001 from $3.5 million in the six-month period ended June 30, 2000. The decrease was primarily due to increased interest expense, utility costs and bad debt expenses. Gains on sales of interests in real estate were $2.1 million and $8.9 million, respectively, in the first six months of 2001 and 2000 resulting from the sales of the Company's interests in Ingleside Center and land parcels at Florence Commons Shopping Center and Paxton Towne Centre in 2001, and Park Plaza and the CVS Warehouse and Distribution Center in 2000. Same Store Properties - --------------------- Retail sector operating income excluding the impact of lease termination fees for the three and six-month periods ended June 30, 2001 for the properties owned since January 1, 2000 (the "Same Store Properties") increased by $0.5 million and $1.3 million or 4.7% and 5.9% over corresponding periods in 2000 due to new and renewal leases at higher rates in 2001 than in 2000, higher occupancy and higher percentage rents. Multifamily sector same store growth was approximately $0.1 million and $0.2 million or 1.8% and 1.3% for the three and six-month period ended June 30, 2001 due to revenue increases of 4.1% and 3.9% limited by increases in real estate taxes, utilities, turnover expenses, repairs and maintenance and insurance costs. -19- Set forth below is a schedule comparing the property level net operating income (excluding the impact of lease termination fees) for the Same Store Properties for the three and six months ended June 30, 2001, as compared to the three and six months ended June 30, 2000.
(In thousands) Three Months Ended Six Months Ended --------------------------- -------------------------------- June 30, June 30, June 30, June 30, 2001 2000 2001 2000 ------------- ------------- ---------------- -------------- Retail Sector: Revenues $ 16,502 $ 15,471 $ 33,442 $ 31,623 Property operating expenses 4,688 4,187 9,790 9,287 ------------- ------------- ------------- ------------- Net operating income $ 11,814 $ 11,284 $ 23,652 $ 22,336 ============= ============= ============= ============= Multifamily Sector: Revenues $ 14,025 $ 13,467 $ 27,974 $ 26,929 Property operating expenses $ 5,897 $ 5,479 $ 11,668 $ 10,827 ------------- ------------- ------------- ------------- Net operating income $ 8,128 $ 7,988 $ 16,306 $ 16,102 ============= ============= ============= =============
Cash Flows - ---------- During the six-month period ended June 30, 2001, PREIT generated $15.0 million in cash flow from operating activities. Investing activities during the six-month period ended June 30, 2001 used cash of $2.8 million including (i) $10.6 million in investments in property under development, (ii) $2.5 million in investments in wholly-owned real estate assets, (iii) $1.0 million in investments in joint ventures and partnerships, offset by (iv) cash proceeds from the sale of a partnership interest of $1.1 million, (v) cash proceeds from sale of interest in wholly-owned real estate of $1.8 million, (vi) cash received in connection with the consolidation of PREIT-RUBIN, Inc. of $1.6 million, and (vii) distributions from partnerships in excess of equity in income of $6.7 million. Financing activities used cash of $8.9 million and included a mortgage borrowing of $15.0 million and (ii) proceeds from common shares issued of $0.5 million, offset by (iii) $14.5 million of distributions to shareholders and OP unit holders, (iv) net Credit Facility repayments of $7.3 million, (v) principal installments on mortgages of $2.2 million, and (vi) payment of deferred financing costs of $0.4 million. Contingent Liabilities - ---------------------- PREIT along with certain of its joint venture partners has guaranteed debt totaling $5.9 million. Also, PREIT and its joint venture partner have jointly and severally guaranteed the construction loan payable on a development project. The balance of the loan at June 30, 2001 was $62.4 million and the remaining commitment from the lender was $3.6 for a total credit line of $66.0 million. Forward-Looking Statements - -------------------------- The matters discussed in this report, as well as news releases issued from time to time by PREIT 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 PREIT's continuing dividend levels, 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 PREIT's results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Certain factors that could cause actual results to -20- differ materially from expected results include uncertainties affecting real estate businesses generally, the effects of complex regulations relating to our status as a REIT, environmental risks and others, many of which are outside of our control. PREIT 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. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- There has been no material change in the net financial instrument position or sensitivity to market risk since December 31, 2000 as reported by PREIT in its Form 10-K for the year ended December 31, 2000. -21- PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- The 2001 Annual Meeting of Holders of Certificates of Beneficial Interest of the Company was held on May 10, 2001. At such meeting, Messrs. William R. Dimeling and George F. Rubin and Ms. Rosemarie B. Greco were reelected to the Board of Trustees of the Company to serve for a term ending at the Annual Meeting of Holders of Certificates of Beneficial Interest to be held in the spring of 2004 and until their respective successors are elected and qualified. In such election, 12,286,475 votes were cast for Mr. Dimeling, 12,235,391 votes were cast for Mr. Rubin, and 12,325,571 votes were cast for Ms. Greco. Under the Company's Trust Agreement, votes cannot be cast against a candidate. Proxies filed at the 2001 Annual Meeting by holders of 233,261 shares withheld authority to vote for Mr. Dimeling, those filed by the holders of 284,346 shares withheld authority to vote for Mr. Rubin, and those filed by the holders of 194,165 shares withheld authority to vote for Ms. Greco. Item 5. Other Information ----------------- PREIT issued a press release on August 9, 2001 containing financial information for the six-month period ended June 30, 2001. A copy of the press release is attached hereto as Exhibit 99. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit 99 Press Release, issued August 9, 2001 containing financial information for the six-month period ended June 30, 2001. (b) Reports on Form 8-K None -22- 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 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/ David J. Bryant -------------------------- David J. Bryant Senior Vice President and Treasurer (Principal Accounting Officer) -23- Exhibit Index Exhibit Number Description - ------- ----------- 99 Press Release, issued August 9, 2001, containing financial information for the period ended June 30, 2001 -24- EX-99 3 ex99.txt EX-99 Pennsylvania Real Estate Investment Trust PREIT NEWS 200 South Broad Street [GRAPHIC OMITTED] FOR RELEASE: Philadelphia, PA 19102 www.preit.com ------------- Phone: 215-875-0700 Fax: 215-546-7311 FOR FURTHER INFORMATION:
AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD/BSMG WORLDWIDE - -------------- ----------------------------------------------- Edward A. Glickman Joe Calabrese Leslie Loyet Judith Sylk-Siegel Executive Vice President and CFO (General Info) (Analyst Info) (Media Info) (215) 875-0700 (212) 445-8434 (312) 266-7800 (212) 445-8431
FOR IMMEDIATE RELEASE - --------------------- August 9, 2001 Pennsylvania Real Estate Investment Trust Reports 2001 Second Quarter and Six Month Results Philadelphia, PA, August 9, 2001-- Pennsylvania Real Estate Investment Trust (NYSE: PEI) today announced results for the second quarter and six months ended June 30, 2001 in line with the Company's May 2001 guidance. 2001 Second Quarter Highlights o FFO for the 2001 second quarter totaled $10,454,000, or $0.67 per share, on 15.6 million weighted average shares of beneficial interest/Operating Partnership units (collectively, shares). o Combined net operating income, excluding lease termination fees for both periods, increased 11.2% to $22,198,000 in the second quarter of 2001 from $19,961,000 for the second quarter of 2000. o Same store net operating income, excluding lease termination fees, for the Company's shopping center portfolio increased 4.7% from the 2000 second quarter. o Mall sales increased 8.6% to $391 per square foot and shopping center occupancy increased 50 basis points to 92.7%. Second Quarter Results For the second quarter ended June 30, 2001 the Company's funds from operations (FFO) totaled $10,454,000 compared with FFO of $14,880,000 for the comparable three-month period in 2000. Second quarter 2001 FFO was $0.67 per share on 15,576,261 weighted average shares. For the 2000 second quarter FFO totaled $1.00 per share on 14,920,132 weighted average shares. This differential is substantially due to reduced lease termination fees. As calculated by NAREIT, FFO is defined as net income, excluding extraordinary items, gain (or loss) on the sale of property, plus real estate related depreciation and amortization. PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 2 Net operating income from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties totaled $23,043,000 for the 2001 second quarter compared with $25,803,000 for second quarter of 2000. After eliminating lease termination revenues from both periods, NOI increased by 11.2% to $22,198,000 in 2001 from $19,961,000 in 2000. This increase is due to the completion of development projects and improved performance in the Company's shopping center portfolio. Net income for the second quarter ended June 30, 2001 was $3,906,000, or $0.29 per share, on 13,691,590 total weighted average shares outstanding compared to $15,083,000 or $1.13 per share, on 13,384,774 total weighted average shares outstanding for the comparable 2000 period. This decrease is due, in part, to reduced lease termination revenue and reduced gains on sales of real estate. Net income in the second quarter of 2001 included net gains on the sale of land at Florence Commons Shopping Center in Florence, SC and land at Paxton Towne Centre, PA totaling $0.3 million, or $0.02 per share. Net income in the second quarter of 2000 included a gain on the sale of the CVS Building in Alexandria, VA totaling $6.6 million, or $0.50 per share. Six Month Results FFO for the six months ended June 30, 2001 totaled $20,336,000 compared with FFO of $24,404,000 for the prior comparable six-month period ended June 30, 2000. FFO for the six-month period totaled $1.31 per share on 15,503,392 weighted average shares outstanding, compared to $1.64 per share on 14,900,420 weighted average shares for the six months ended June 30, 2000. Net operating income from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties totaled $44,954,000 for the six months ended June 30, 2001, compared with $45,782,000 in the second quarter ended June 30, 2000. After eliminating lease termination revenues from both periods, NOI increased 10.3% to $43,979,000 in 2001 from $39,860,000 in 2000. Net income for the six months ended June 30, 2001 was $8,999,000, or $0.66 per share, on 13,680,329 total weighted average shares outstanding compared to $21,473,000, or $1.61 per share on 13,362,324 total weighted average shares outstanding for the six months ended June 30, 2000. Year-to-date net income for 2001 includes $2.1 million, or $0.15 per share, from net gains on the sale of land at Florence Commons Shopping Center, Florence, SC, and Paxton Towne Centre, Harrisburg, PA and the sale of the Company's interest in Ingleside Shopping Center, Thorndale, PA. Net income for the 2000 six-month period includes gains on the sale of the CVS Building in Alexandria, VA and the Company's interest in Park Plaza shopping center in Pinellas Park, FL totaling $8.9 million or $0.67 per share. Same Store NOI Growth -- Retail and Multifamily Portfolios Same store net operating income for the Company's retail portfolio, excluding lease termination fees for both periods, increased 4.7% over the 2000 second quarter. Contributing to the Company's retail portfolio net operating income growth was the successful completion, in the second quarter, of 31 new, replacement and renewal leases representing 164,850 square feet at an average rent of $18.62 per square foot. During the quarter, the Company concluded 17 renewal and replacement leases at an average rent of $21.83 per square foot, which was 38.8% higher than the previous levels. A significant driver of the improved performance is Dartmouth Mall in Dartmouth, MA where occupancy increased to 93.4% from 87.4% in the comparable period, primarily the result of the mall's renovation completed in PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 3 the fourth quarter of 2000. Of note, occupancy rates in the 2001 second quarter averaged 92.7%, 50 basis points higher than 92.2% reported in the 2000 second quarter. The Company's power centers and enclosed malls were 98.6% and 92.6% occupied, respectively, as of June 30, 2001. The Company also reported that sales at its mall properties increased 8.6% to $391 per square foot for the trailing twelve months from $360 per square foot for the comparable period in 2000. During 2000 sales at the Company's mall properties were $371 per square foot. Same store net operating income for the Company's portfolio of multifamily properties increased 1.8% over the comparable quarter in 2000. During the 2001 second quarter the Company's multifamily revenues increased 4.1%. This growth was limited by a 7.6% increase in operating expenses due primarily to a 48.3% increase in insurance costs, a 32.3% increase in turnover expenses and a 16.8% increase in repairs and maintenance. The increase in turnover expenses is due in large part to improvements at the Company's Emerald Point community in Virginia Beach, VA where increased rents led to higher than normal turnover. Generally, the Company expects to be impacted by higher insurance costs throughout the balance of this year and is stringently managing its exposure to utility expenses by implementing additional submetering to take effect later in the year. Comments from Management Ronald Rubin, Chief Executive Officer of PREIT said, "We are pleased with the overall performance of our core portfolio during the 2001 second quarter especially given what has been recognized as a difficult retail environment. We continue to closely monitor the real estate market and believe the situation may be stabilizing, as indicated by our 3.3% increase in same store traffic levels during the 2001 second quarter and our 5.4% increase in average mall sales per square foot over the end of 2000. We are especially pleased with our recent lease commitments. Looking forward, we remain committed to maintaining a strong capital structure and enhancing FFO on a long-term basis by focusing on driving internal growth, cost-containment and pursuing our successful development, redevelopment and leasing programs." 2001 Third Quarter and Fiscal Year Forecast The Company noted that it is currently estimating FFO to be approximately $0.62 to $0.64 for the third quarter ending September 30, 2001 and $2.68 to $2.72 per share for the calendar year ending December 31, 2001, reflecting the Company's offering of 2.0 million shares in July, 2001, described below. Strategic Update PREIT is pursuing a broad range of internal and external growth strategies in its primary markets and is focused on three strategic goals and initiatives during 2001: o Construction in Progress: To position the Company for future growth, management intends, during 2001, to continuously have $50 to $100 million of development projects on-line. As of June 30, 2001 the Company's construction in progress amounted to $45.9 million. o Built-in Development Backlog: Leveraging the Company's in-depth market knowledge, strong tenant relationships and economies of scale, management is focused on maintaining an active pipeline of new properties in desirable locations to advance into the construction phase as existing development projects are completed. The Company's current backlog consists of 6 PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 4 projects with approximately 1.6 million square feet of GLA and a potential investment of approximately $115 million. o Return on Investment: Focused on taking full advantage of the favorable growth opportunities within its markets, the Company is committed to a solid investment philosophy that emphasizes quality real estate and transactions structured to protect return on investment. Accordingly, management's goal is to achieve a minimum 11% return on investment on its development portfolio. Jonathan B. Weller, PREIT's President and Chief Operating Officer commented, "Consistent with our operating strategy, the Company continues to focus on prudently growing the business through strategic investments in quality real estate where we can leverage our development and management expertise. We are committed to maintaining our disciplined investment criteria where we concentrate solely on transactions structured to produce stabilized rates of return that exceed our long-term cost of capital and provide for strong FFO growth. Our development and redevelopment pipeline currently consists of 7 power centers, one entertainment center and one enclosed mall." The Company ended the 2001 second quarter with investment in real estate of $812 million, a net increase of $8 million over 2000's year-end level of $804 million. As a result, on a cost basis, the Company's portfolio is now 34% multifamily, 59% retail, 6% retail development and less than 1% industrial. Development Pipeline o Creekview Shopping Center (Warrington, PA) - Construction of the 424,732 square foot shopping center is 62% complete as of June 30, 2001 and the center is 93% leased. o Metroplex Shopping Center (Plymouth Meeting, PA) -- Construction of the 778,190 square foot power center is 100% complete as of June 30, 2001. During the second quarter 52,000 square feet of new tenants opened including Ulta III Cosmetics, Party City, David's Bridal and Guitar Center. o Paxton Towne Centre (Harrisburg, PA) - Construction of the 711,471 square foot power center is 88% complete as of June 30, 2001 and the center is 90% leased. During the second quarter two stores opened, David's Bridal and Atlanta Breads. Additionally, a lease was executed with Old Navy for a 22,000 square foot store, expected to open in early 2002. Leasing Update o Prince George's Plaza (Hyattsville, MD) Six new and renewal leases were executed covering 24,102 square feet of GLA, including a new lease with Shoe City and an expansion with Gap/Gap Kids. o Dartmouth Mall (Dartmouth, MA) Five new and renewal leases were executed covering 17,356 square feet of GLA, including new leases with Bath and Body Works, Nancy's Coffee Cafe and Regis Beauty. o Willow Grove Park (Willow Grove, PA) Six new and renewal leases were executed covering 20,647 square feet of GLA, including new leases with Casual Corner, Rockport Shoes and Spencer Gifts and an expansion with Gap. PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 5 o Mandarin Corners (Jacksonville, FL) - Marshall's leased a 30,000 square foot store, which is expected to open in the fourth quarter of 2001. o Springfield Park (Springfield, PA) LA Fitness leased 27,000 square feet and is expected to open in early 2002. New Management Agreements As previously announced, the Company recently entered into agreements to take over the management and leasing operations at two retail properties and one apartment complex with projected annual management and leasing fees of approximately $0.2 million for the remainder of 2001, and approximately $0.7 million in 2002. Starting July 15, 2001, PREIT is managing the 837,000 square-foot Harrisburg East Mall, located in Harrisburg, PA and owned by The Prudential Insurance Company of America. Starting on January 1, 2002, PREIT will also manage the 250,000 square foot Home Depot Plaza, located in Clifton Heights, PA. The Home Depot Plaza is owned by a partnership in which two trustees of PREIT have ownership interests. In addition, beginning on January 1, 2002, PREIT will manage and lease a 233- unit apartment complex located in West Chester, PA, which is owned by a partnership between PREIT and another entity. Additional Activity o Countrywood Apartments (Tampa, FL) - The Company also announced that it has arranged a $15 million mortgage refinancing with a 10-year term for Countrywood Apartments, a 536-unit community in which the Company owns a 50% interest. The newly placed financing carries an interest rate of 6.81% and was provided by the Federal Home Loan Bank. The new financing replaced an 8.0% mortgage and generated proceeds of approximately $4.3 million to the Company. o Swansea Mall (Swansea Mall, MA) - Since 1997, the Company has managed this 686,000 square foot mall. After the close of the quarter the property was sold to a partnership of private investors. The Company entered into a new management and leasing agreement with the new owners and invested $0.75 million to purchase rights to manage and lease the property and to be eligible to receive incentive compensation. The Company expects to earn management and leasing fees of approximately $0.4 million per year and annual incentive compensation of $0.1 million. Raised Gross Proceeds of $44.5 Million In July 2001, the Company completed a public offering of 2.0 million shares of common stock at $23.00 per share, generating total gross proceeds of $44.5 million. The sole underwriter of the offering was Lehman Brothers. Edward Glickman, Chief Financial Officer of PREIT, commented, "We are pleased by the success of the offering in light of current capital market conditions. The proceeds from the offering along with our $250 million combined revolving credit and construction facility provides us with ample flexibility and borrowing capacity to complete our development and redevelopment pipeline as well as pursue other strategic opportunities that may arise." As of June 30, 2001, the Company had approximately $109 million outstanding under the $175 million revolving portion of its bank credit facility. PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 6 Conference Call Information The Company will conduct a conference call that will be broadcast simultaneously over the Internet at 11:00 ET on Thursday August 9, 2001 to review the Company's quarterly results, market trends and future outlook. The webcast will be available to the public, on a listen-only basis, via the Internet at www.streetevents.com or the Company's website at www.preit.com. Please allow extra time prior to the webcast to visit the site and download the streaming media software required to listen to the Internet broadcast. The online archive of the webcast will be available for 30 days. About Pennsylvania Real Estate Investment Trust Pennsylvania Real Estate Investment Trust, founded in 1960 and one of the first equity REITs in the U.S., has a primary investment focus on shopping centers (approximately 10.7 million square feet) and apartment communities (approximately 7,242 units) located primarily in the eastern United States. The Company's portfolio currently consists of 45 properties in 10 states. In addition, there are 6 retail properties under development, which PREIT expects will add approximately 1.6 million square feet to its portfolio. PREIT is headquartered in Philadelphia, Pennsylvania. The matters discussed in this report, as well as news releases issued from time to time by PREIT 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 PREIT's continuing dividend levels, 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 PREIT's results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. PREIT 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. [Financial Tables Follow] # # # ** A supplemental quarterly financial package ** is available on the Company's web site at www.preit.com. -------------- PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 7 Pennsylvania Real Estate Investment Trust Selected Financial Data
- ----------------------------------------------------------------------- ----------------------------------------- FUNDS FROM OPERATIONS Three Months Ended - ----------------------------------------------------------------------- ----------------------------------------- June 30, 2001 June 30, 2000 ----------------- ------------------ Income before minority interest in operating partnership $ 4,449,000 $ 16,815,000 Less: Gains on sales of interests in real estate (301,000) (6,648,000) Add: Depreciation and amortization: Wholly owned & consolidated partnership, net 4,386,000 (a) 3,594,000 (a) Unconsolidated partnerships & joint ventures 1,745,000 1,137,000 Excess purchase price over net asset acquired 106,000 92,000 Prepayment fee 255,000 (b) - Less: Depreciation of non-real estate assets (65,000) (65,000) Amortization of deferred financing costs (121,000) (c) (45,000) (c) ------------ ------------ FUNDS FROM OPERATIONS $ 10,454,000 (d) $ 14,880,000 (d) ============ ============ FUNDS FROM OPERATIONS PER SHARE AND OP UNITS $0.67 $1.00 ============ ============ Weighted average number shares outstanding 13,691,590 13,384,774 Weighted average effect of full conversion of OP units 1,884,671 1,535,358 ------------ ------------ Total weighted average shares of outstanding including OP units 15,576,261 14,920,132 ------------ ------------
[RESTUBBED TABLE]
- ----------------------------------------------------------------------- ----------------------------------------- FUNDS FROM OPERATIONS Six Months Ended - ----------------------------------------------------------------------- ----------------------------------------- June 30, 2001 June 30, 2000 ------------------ ----------------- Income before minority interest in operating partnership $ 10,198,000 $ 23,944,000 Less: Gains on sales of interests in real estate (2,107,000) (8,911,000) Add: Depreciation and amortization: Wholly owned & consolidated partnership, net 8,729,000 (a) 7,182,000 (a) Unconsolidated partnerships & joint ventures 3,348,000 2,258,000 Excess purchase price over net asset acquired 211,000 146,000 Prepayment fee 255,000 (b) - Less: Depreciation of non-real estate assets (130,000) (130,000) Amortization of deferred financing costs (168,000) (c) (85,000) (c) ------------ ------------ FUNDS FROM OPERATIONS $ 20,336,000 (d) $ 24,404,000 (d) ============ ============ FUNDS FROM OPERATIONS PER SHARE AND OP UNITS $ 1.31 $ 1.64 ============ ============ Weighted average number shares outstanding 13,680,329 13,362,324 Weighted average effect of full conversion of OP units 1,823,063 1,538,096 ------------ ------------ Total weighted average shares of outstanding including OP units 15,503,392 14,900,420 ------------ ------------
a) Amortization of deferred financing costs on the Company's Credit Facility was reclassified to interest expense. b) Prepayment fee for the refinancing of the mortgage on Countrywood Apartments in Tampa, FL. c) Amortization of deferred financing costs for property mortgages. Does not include amortization of amounts relating to the Company's Credit Facility. d) Includes the non-cash effect of straight-line rents of $273,000 and $183,000 for the 2nd quarter 2001 and 2000 and $599,000 and $478,000 for year to date 2001 and 2000, respectively.
- ----------------------------------------------------------------------- ----------------------------------------- OPERATING RESULTS Three Months Ended - ----------------------------------------------------------------------- ----------------------------------------- June 30, 2001 June 30, 2000 (5) ----------------- ------------------ REAL ESTATE REVENUES Base Rent $ 20,919,000 $ 19,494,000 Percent Rent 238,000 147,000 Expense Reimbursement 2,278,000 2,035,000 Lease Termination 845,000 5,557,000 Other Real Estate Revenue 854,000 888,000 ------------ ------------ Total Real Estate Revenue 25,134,000 28,121,000 ------------ ------------ Management company revenue 2,313,000 - Interest and other income 91,000 325,000 ------------ ------------ 27,538,000 28,446,000 ------------ ------------ EXPENSES Property Payroll and benefits 1,702,000 1,568,000 Real Estate and Other Taxes 1,884,000 1,823,000 Utilities 991,000 979,000 Other Operating Expenses 3,493,000 3,055,000 ------------ ------------ Total Property Operating Expenses 8,070,000 7,425,000 ------------ ------------ Depreciation and amortization 4,386,000 3,594,000 Corporate payroll and benefits 3,186,000 706,000 Other general and administrative expenses 2,460,000 699,000 ------------ ------------ Total General & Administrative Expenses 5,646,000 1,405,000 ------------ ------------ Interest expense 6,658,000 5,765,000 ------------ ------------ 24,760,000 18,189,000 ------------ ------------ Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest in operating partnership 2,778,000 10,257,000 Equity in loss of PREIT-RUBIN, Inc. - (1,898,000) Equity in income of partnerships and joint ventures 1,370,000 1,808,000 Gains on sales of interests in real estate 301,000 (1) 6,648,000 (2) ------------ ------------ Income before minority interest in operating partnership 4,449,000 16,815,000 Minority interest in operating partnership (543,000) (1,732,000) ------------ ------------ NET INCOME $ 3,906,000 $ 15,083,000 ============ ============ PER SHARE DATA Net income before gains on sales $ 0.27 $ 0.63 Gains on sales of interests in real estate $ 0.02 (1) $ 0.50 (2) ------------ ------------ BASIC INCOME PER SHARE $ 0.29 $ 1.13 ============ ============ DILUTED INCOME PER SHARE $ 0.29 $ 1.13 ============ ============ Weighted average number shares outstanding 13,691,590 13,384,774 ------------ ------------
[RESTUBBED TABLE]
- ----------------------------------------------------------------------- ----------------------------------------- OPERATING RESULTS Six Months Ended - ----------------------------------------------------------------------- ----------------------------------------- June 30, 2001 June 30, 2000 (5) ------------------ ----------------- REAL ESTATE REVENUES Base Rent $ 41,482,000 $ 39,380,000 Percent Rent 571,000 424,000 Expense Reimbursement 5,074,000 4,240,000 Lease Termination 975,000 5,637,000 Other Real Estate Revenue 1,715,000 1,661,000 ------------ ------------ Total Real Estate Revenue 49,817,000 51,342,000 ------------ ------------ Management company revenue 4,465,000 - Interest and other income 253,000 556,000 ------------ ------------ 54,535,000 51,898,000 ------------ ------------ EXPENSES Property Payroll and benefits 3,481,000 3,333,000 Real Estate and Other Taxes 3,799,000 3,575,000 Utilities 2,234,000 2,138,000 Other Operating Expenses 6,925,000 6,558,000 ------------ ------------ Total Property Operating Expenses 16,439,000 15,604,000 ------------ ------------ Depreciation and amortization 8,729,000 7,182,000 Corporate payroll and benefits 6,403,000 1,166,000 Other general and administrative expenses 4,442,000 1,275,000 ------------ ------------ Total General & Administrative Expenses 10,845,000 2,441,000 ------------ ------------ Interest expense 13,246,000 11,731,000 ------------ ------------ 49,259,000 36,958,000 ------------ ------------ Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest in operating partnership 5,276,000 14,940,000 Equity in loss of PREIT-RUBIN, Inc. - (3,387,000) Equity in income of partnerships and joint ventures 2,815,000 3,480,000 Gains on sales of interests in real estate 2,107,000 (3) 8,911,000 (4) ------------ ------------ Income before minority interest in operating partnership 10,198,000 23,944,000 Minority interest in operating partnership (1,199,000) (2,471,000) ------------ ------------ NET INCOME $ 8,999,000 $ 21,473,000 ============ ============ PER SHARE DATA Net income before gains on sales $ 0.51 $ 0.94 Gains on sales of interests in real estate $ 0.15 (3) $ 0.67 (4) ------------ ------------ BASIC INCOME PER SHARE $ 0.66 $ 1.61 ============ ============ DILUTED INCOME PER SHARE $ 0.66 $ 1.61 ============ ============ Weighted average number shares outstanding 13,680,329 13,362,324 ------------ ------------
1) 2nd qtr 2001 includes net gains on sales of land at Florence Commons Shopping Center in Florence, SC and land at Paxton Towne Centre, Harrisburg, PA. 2) 2nd qtr 2000 includes gain on sale of CVS Building, Alexandria, VA. 3) Year to date 2001 includes net gains on sales of land at Florence Commons Shopping Center in Florence, SC, land at Paxton Towne Centre, Harrisburg, PA and sale of interest in Ingleside Shopping Center, Thorndale, PA. 4) Year to date 2000 includes gain on sale of CVS Building, Alexandria, VA and gain on sale of interest in Park Plaza shopping center in Pinellas Park, Florida. 5) Certain prior period amounts have been reclassified to conform with the current period presentation. PREIT Announces Second Quarter 2001 Results August 9, 2001 Page 8 Pennsylvania Real Estate Investment Trust Selected Financial Data
- -------------------------------------- -------------------------------------- -------------------------------------- EQUITY IN INCOME OF PARTNERSHIPS Three Months Ended Six Months Ended -------------------------------------- -------------------------------------- AND JOINT VENTURES June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 - -------------------------------------- ----------------- ----------------- ------------------- --------------- Gross revenues from real estate $ 23,082,000 $ 19,343,000 $ 45,145,000 $ 35,767,000 ============ ============ ============= ============ Expenses: Property operating expenses 8,050,000 6,255,000 16,035,000 11,723,000 Mortgage and bank loan interest 7,404,000 6,503,000 14,689,000 11,617,000 Prepayment fee 510,000 (a) - 510,000 (a) - Depreciation and amortization 4,480,000 3,217,000 8,627,000 5,713,000 ------------ ------------ ------------ ------------ 20,444,000 15,975,000 39,861,000 29,053,000 ------------ ------------ ------------ ------------ 2,638,000 3,368,000 5,284,000 6,714,000 Partner's Share (1,268,000) (1,560,000) (2,469,000) (3,234,000) ------------ ------------ ------------ ------------ EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES $ 1,370,000 $ 1,808,000 $ 2,815,000 $ 3,480,000 ============ ============ ============ ============
a) Prepayment fee at 100% for the refinancing of the mortgage on Countrywood Apartments in Tampa, FL. Supplemental Information for Wholly Owned Properties and the Company's Proportionate Share of Partnerships and Joint Ventures
- -------------------------------------------------- ----------------------------------- ---------------------------------- EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION Three Months Ended Six Months Ended ----------------------------------- ---------------------------------- AND AMORTIZATIONS ("EBITDA") June 30, 2001 June 30, 2000 June 30, 2001 June 30, 2000 - -------------------------------------------------- -------------- ----------------- --------------- --------------- Gross Revenues $ 25,134,000 $ 28,121,000 $ 49,817,000 $ 51,342,000 Operating expenses (8,070,000) (7,425,000) (16,439,000) (15,604,000) ------------ ------------ ------------ ------------ Net operating income: Wholly-owned properties 17,064,000 20,696,000 33,378,000 35,738,000 Company's proportionate share of partnerships and joint ventures net operating income 5,979,000 5,107,000 11,576,000 10,044,000 ------------ ------------ ------------ ------------ Combined net operating income 23,043,000 (2) 25,803,000 (2) 44,954,000 (2) 45,782,000 (2) Interest income 91,000 325,000 253,000 556,000 Company's proportionate share of PREIT-RUBIN, Inc. net operating income (loss) - (1,437,000) - (2,567,000) Management company revenue 2,313,000 - 4,465,000 - Total General & Administrative Expenses (5,646,000)(1) (1,405,000) (10,845,000)(1) (2,441,000) ------------ ------------ ------------ ------------ EBITDA $ 19,801,000 $ 23,286,000 $ 38,827,000 $ 41,330,000 ============ ============ ============ ============
1) Total General & Administrative Expenses for 2001 includes PREIT-RUBIN, Inc. expenses. 2) Net operating income includes lease termination income of $845,000 and $5,557,000, for the quarters ending June 30, 2001 and 2000 respectively, and $975,000 and $5,637,000 for the six-month periods ending June 30, 2001 and 2000 respectively. NOI in the quarter and six-month periods ending June 30, 2000 also includes recovery of receivables previously reserved of $285,000, received in connection with a lease termination. Net operating income, net of these amounts, is $22,198,000 and $19,961,000 for the quarters ended June 30, 2001 and 2000, and $43,979,000 and $39,860,000 for the six-month periods ended June 30, 2001 and 2000, respectively. MORTGAGE NOTES, BANK AND CONSTRUCTION LOANS PAYABLE - ---------------------------------------------------
Wholly-Owned Properties - ----------------------- June 30, 2001 December 31, 2000 ---------------- ----------------- Mortgage notes payable $ 260,209,000 $247,449,000 Bank Loans payable 103,000,000 110,300,000 Construction Loan Payable 24,717,000 24,647,000 ------------- ------------ 387,926,000 382,396,000 Company's Proportionate Share of - -------------------------------- Partnerships and Joint Ventures - ------------------------------- Mortgage notes payable 114,199,000 111,457,000 Bank loans payable 31,200,000 30,929,000 ------------- ------------ Total mortgage notes and bank loans payable $ 533,325,000 $524,782,000 ============= ============
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