-----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, TXrQHTdy8C+5TvVvMpWgJ6zQMyogKlquxv2bX2+qkxwOPp3cGigJNlIaZk7YeszP i1Q0UHlbQ/avvSp9yAWCAg== 0000950116-01-501128.txt : 20020410 0000950116-01-501128.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950116-01-501128 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1786393 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 September 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 (I.R.S. Employer Identification No.) of incorporation or organization) 200 South Broad Street, Third Floor, Philadelphia, PA 19102-3803 --------------------------------------- ------------------------------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (215) 875-0700 ------------------------------ N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of beneficial interest outstanding at November 12, 2001: 15,865,199 PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONTENTS Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets--September 30, 2001 and December 31, 2000 1-2 Consolidated Statements of Income--Three Months and Nine Months Ended September 30, 2001 and September 30, 2000 3 Consolidated Statements of Cash Flows--Nine Months Ended September 30, 2001 and September 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. Not Applicable - 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) September 30, December 31, 2001 2000 --------- --------- INVESTMENTS IN REAL ESTATE, at cost: Multifamily properties $ 252,429 $ 249,349 Retail properties 345,812 328,637 Industrial properties 2,504 2,504 Properties under development 37,868 31,776 --------- --------- Total investments in real estate 638,613 612,266 Less- Accumulated depreciation (107,809) (95,026) --------- --------- 530,804 517,240 INVESTMENT IN AND ADVANCES TO PREIT-RUBIN, INC -- 8,739 INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS AND JOINT VENTURES, at equity 15,570 21,470 --------- --------- 546,374 547,449 OTHER ASSETS: Cash and cash equivalents 7,051 6,091 Rents and sundry receivables (net of allowance for doubtful accounts of $760 and $733, respectively) 8,573 7,508 Deferred costs and other assets, net 33,336 15,615 --------- --------- $ 595,334 $ 576,663 ========= =========
(Continued) PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
(Unaudited) September 30, December 31, 2001 2000 --------- --------- LIABILITIES: Mortgage notes payable $ 259,111 $ 247,449 Bank loan payable 88,000 110,300 Construction loan payable 4,000 24,647 Tenants' deposits and deferred rents 3,213 3,118 Accrued pension and retirement benefits 760 992 Accrued expenses and other liabilities 22,615 16,485 --------- --------- 377,699 402,991 --------- --------- MINORITY INTEREST 40,171 29,766 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 8) SHAREHOLDERS' EQUITY: Shares of beneficial interest, $1 par; authorized unlimited; issued and outstanding 15,734 shares at September 30, 2001 and 13,628 shares at December 31, 2000 15,734 13,628 Capital contributed in excess of par 195,561 151,117 Restricted stock (1,791) (1,812) Accumulated other comprehensive income (loss) (4,348) -- Distributions in excess of net income (27,692) (19,027) --------- --------- 177,464 143,906 --------- --------- $ 595,334 $ 576,663 ========= =========
The accompanying notes are an integral part of these statements. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share data) Three Months Ended Nine Months Ended ------------------------------------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- REVENUES: Real estate revenues Base rent $ 21,148 $ 20,042 $ 62,630 $ 59,422 Percentage rent 211 144 783 567 Expense reimbursements 2,446 2,055 7,521 6,296 Lease termination revenue 110 83 1,084 5,720 Other real estate revenues 975 879 2,689 2,541 -------- -------- -------- -------- Total real estate revenue 24,890 23,203 74,707 74,546 Management company revenue 2,545 -- 7,010 -- Interest and other income 102 454 355 1,010 -------- -------- -------- -------- 27,537 23,657 82,072 75,556 -------- -------- -------- -------- EXPENSES: Property operating expenses Property payroll and benefits 1,817 1,647 5,298 4,980 Real estate and other taxes 1,980 1,773 5,779 5,349 Utilities 941 985 3,175 3,122 Other operating expenses 3,467 3,643 10,392 10,201 -------- -------- -------- -------- Total property operating expenses 8,205 8,048 24,644 23,652 Depreciation and amortization 4,501 3,551 13,229 10,733 General and administrative expenses Corporate payroll and benefits 3,240 542 9,644 1,708 Other general and administrative expenses 2,360 397 6,801 1,672 -------- -------- -------- -------- Total general and administrative expenses 5,600 939 16,445 3,380 Interest expense 5,924 5,855 19,170 17,586 -------- -------- -------- -------- 24,230 18,393 73,488 55,351 -------- -------- -------- -------- Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest 3,307 5,264 8,584 20,205 EQUITY IN LOSS OF PREIT-RUBIN, INC -- (1,634) -- (5,021) EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES 1,343 1,853 4,157 5,333 GAINS ON SALES OF INTERESTS IN REAL ESTATE -- 1,388 2,107 10,298 -------- -------- -------- -------- Income before minority interest 4,650 6,871 14,848 30,815 MINORITY INTEREST IN OPERATING PARTNERSHIP (501) (709) (1,700) (3,180) -------- -------- -------- -------- NET INCOME $ 4,149 $ 6,162 $ 13,148 $ 27,635 ======== ======== ======== ======== BASIC INCOME PER SHARE $ 0.27 $ 0.46 $ 0.92 $ 2.07 ======== ======== ======== ======== DILUTED INCOME PER SHARE $ 0.27 $ 0.46 $ 0.92 $ 2.07 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended ---------------------------------- September 30, September 30, 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 13,148 $ 27,635 Adjustments to reconcile net income to net cash provided by operating activities- Minority interest, net of distributions -- 987 Depreciation and amortization 13,229 10,733 Amortization of deferred financing costs 528 370 Provision for doubtful accounts 15 187 Amortization of deferred compensation 937 353 Gains on sales of interests in real estate (2,107) (10,298) Equity in loss of PREIT-RUBIN, Inc. -- 5,021 Decrease in allowance for possible losses -- (435) Change in assets and liabilities- Net change in other assets (6,088) (4,487) Net change in other liabilities 6,023 4,195 -------- -------- Net cash provided by operating activities 25,685 34,261 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in wholly-owned real estate (6,209) (34,239) Investments in property under development (20,154) (3,058) Investment in and advances to PREIT-RUBIN, Inc. -- (3,366) Investments in partnerships and joint ventures (935) (4,575) 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 20,044 Net cash received from PREIT-RUBIN, Inc. 1,616 -- Cash distributions from partnerships and joint ventures in excess of equity in income 7,561 1,108 -------- -------- Net cash used in investing activities (15,233) (21,146) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal installments on mortgage notes payable (3,337) (3,247) Proceeds from mortgage note payable 15,000 -- Net (payment) borrowing from construction loan payable (20,648) 13,619 Net repayment of credit facility (22,300) (3,300) Shares of beneficial interest issued 45,201 564 Payment of deferred financing costs (421) -- Distributions paid to shareholders (21,812) (18,832) Distributions paid to OP Unit holders in excess of minority interest (1,175) -- -------- -------- Net cash used in financing activities (9,492) (11,196) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 960 1,919 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,091 7,165 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,051 $ 9,084 ======== ========
The accompanying notes are an integral part of these statements. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2001 (Unaudited) 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 September 30, 2001, held an 89.3% 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. 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 also 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. For the three and nine months ended September 30, 2000, PREIT's properties paid management fees to PRI of $0.2 million and $0.6 million, respectively, and leasing and development fees to PRI of $0.5 million and $0.9 million, respectively. Effective January 1, 2001, PREIT no longer pays these fees to PRI. Previously, 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 $0.8 million and $2.0 million for the three and nine-month periods ended September 30, 2001, respectively, and $0.9 million and $2.4 million for the three and nine-month periods ended September 30, 2000. Summarized unaudited financial information for PRI as of and for the three and nine-month periods ended September 30, 2000 is as follows: (In thousands) For the Three For the Nine Months Ended Months Ended September 30, 2000 September 30, 2000 Total assets $ 5,629 $ 5,629 ======== ======== Management fees $ 832 $ 2,814 Leasing commissions 1,096 3,029 Development fees 298 477 Other revenue 870 1,976 --------- ---------- Total revenue $ 3,096 $ 8,296 ======== ======== Net loss $ (1,643) $ (5,055) ========= ========= PREIT's share of net loss $ (1,634) $ (5,021) ========= ========= Financial information for 2001 is not presented because PRI is consolidated as of January 1, 2001. 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 September 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 nine-months ended September 30, 2001 and 2000:
(In thousands) September 30, December 31, 2001 2000 --------- --------- ASSETS ------ Investments in real estate, at cost: Multifamily properties $ 56,906 $ 57,200 Retail properties 419,640 410,745 Properties under development 17,682 28,477 --------- --------- Total investments in real estate 494,228 496,422 Less: Accumulated depreciation (85,679) (78,025) --------- --------- 408,549 418,397 Cash and cash equivalents 6,378 5,788 Deferred costs, prepaid real estate taxes and expenses, and other assets, net 48,713 56,012 --------- --------- Total assets 463,640 480,197 --------- --------- LIABILITIES AND PARTNERS' EQUITY -------------------------------- Mortgage notes payable 337,580 327,684 Construction loans payable 62,400 61,857 Other liabilities 18,056 33,127 --------- --------- Total liabilities 418,036 422,668 --------- --------- Net equity 45,604 57,529 Less: Partners' share (30,184) (36,578) --------- --------- Investment in partnerships and joint ventures 15,420 20,951 Advances 150 519 --------- --------- Investment in and advances to partnerships and joint ventures $ 15,570 $ 21,470 ========= =========
EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES
(In thousands) Three Months Ended Nine Months Ended ----------------------------------------------------------------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 -------- -------- -------- -------- Gross revenues from real estate $ 22,651 $ 16,381 $ 67,796 $ 55,942 -------- -------- -------- -------- Expenses: Property operating expenses 8,190 5,468 24,226 18,604 Mortgage and bank loan interest 7,652 5,113 22,342 18,150 Refinancing prepayment penalty -- -- 510 -- Depreciation and amortization 4,273 2,531 12,866 8,592 -------- -------- -------- -------- 20,115 13,112 59,944 45,346 -------- -------- -------- -------- 2,536 3,269 7,852 10,596 Partners' share (1,193) (1,416) (3,695) (5,263) -------- -------- -------- -------- Equity in income of partnerships and joint ventures $ 1,343 $ 1,853 $ 4,157 $ 5,333 ======== ======== ======== ========
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:
(In thousands, except per share data) Three Months Ended Nine Months Ended ---------------------------------------------------------------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------- ---------- ------- ---------- Net income $ 4,149 $ 6,162 $13,148 $ 27,635 ======= ========== ======= ========== Weighted average shares outstanding 15,391 13,387 14,257 13,371 Effect of share options issued 28 -- 27 -- ------- ---------- ------- ---------- Total weighted average shares outstanding 15,419 13,387 14,284 13,371 ======= ========== ======= ========== Net income per share - Basic $ 0.27 $ 0.46 $ 0.92 $ 2.07 ======= ========== ======= ========== Net income per share - Diluted $ 0.27 $ 0.46 $ 0.92 $ 2.07 ======= ========== ======= ==========
5. DISTRIBUTIONS: -------------- The per-share amount declared for distribution at the date of this report and the per-share amount declared for distribution in the comparable period of the prior year are as follows: Amount Date Declared Record Date Payment Date per Share ---------------- ----------------- ----------------- --------- November 7, 2000 November 30, 2000 December 15, 2000 $0.51 October 18, 2001 November 30, 2001 December 17, 2001 $0.51 6. CASH FLOW INFORMATION: ---------------------- Cash paid for interest was $17.8 million (net of capitalized interest of $2.3 million) and $16.0 million (net of capitalized interest of $2.7 million) for the nine-months ended September 30, 2001 and 2000, respectively. Significant non-cash transactions for the nine months ended September 30, 2001 consisted of 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 earnout provisions of the Contribution Agreement (see Note 8). 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 is entitled to 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 September 30, 2001, 497,500 of the 800,000 OP units for the period covering October 1, 1997 to December 31, 2000 had been earned. The issuance of these 497,500 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 September 30, 2001, PREIT had commitments of approximately $21.6 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. 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. EQUITY OFFERING: ---------------- 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 was used to repay an existing construction loan and $16.5 million was used to pay outstanding indebtedness under the Company's Credit Facility. The balance of the proceeds was used to fund projects currently under development. 11. 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.
(In thousands) Development Adjustments and to Equity Total Three-months Ended Retail Multifamily Other Corporate Total Method Consolidated September 30, 2001 --------- --------- --------- --------- --------- --------- --------- Real estate operating revenues $ 19,392 $ 14,216 $ 83 $ -- $ 33,691 $ (8,801) $ 24,890 Real estate operating expenses (5,396) (5,937) (2) -- (11,335) 3,130 (8,205) --------- --------- --------- --------- --------- --------- --------- Net operating income 13,996 8,279 81 -- 22,356 (5,671) 16,685 --------- --------- --------- --------- --------- --------- --------- Management company revenues -- -- -- 2,545 2,545 -- 2,545 Interest income -- -- -- 102 102 -- 102 General and administrative expenses -- -- -- (5,600) (5,600) -- (5,600) --------- --------- --------- --------- --------- --------- --------- EBIDTA 13,996 8,279 81 (2,953) 19,403 (5,671) 13,732 --------- --------- --------- --------- --------- --------- --------- Interest expense (5,178) (3,435) -- -- (8,613) 2,689 (5,924) Depreciation and amortization (3,799) (2,328) (13) -- (6,140) 1,639 (4,501) Gains on sales of interests in real -- -- -- -- -- -- -- estate Minority interest in operating partnership -- -- -- (501) (501) -- (501) Equity in income of partnerships and joint ventures -- -- -- -- -- 1,343 1,343 --------- --------- --------- --------- --------- --------- --------- Net income $ 5,019 $ 2,516 $ 68 $ (3,454) $ 4,149 $ -- $ 4,149 ========= ========= ========= ========= ========= ========= ========= Investments in real estate, at cost $ 494,247 $ 281,132 $ 48,267 $ -- $ 823,646 $(185,033) $ 638,613 ========= ========= ========= ========= ========= ========= ========= Total assets $ 466,810 $ 208,667 $ 46,315 $ 25,723 $ 747,515 $(152,181) $ 595,334 ========= ========= ========= ========= ========= ========= ========= Recurring capital expenditures $ 6 $ 964 $ -- $ -- $ 970 $ (69) $ 901 ========= ========= ========= ========= ========= ========= =========
Development Adjustments Three-months Ended and to Equity Total September 30, 2000 Retail Multifamily Other Corporate Total Method Consolidated --------- --------- --------- --------- --------- --------- --------- Real estate operating revenues $ 17,200 $ 13,457 $ 80 $ -- $ 30,737 $ (7,534) $ 23,203 Real estate operating expense (4,972) (5,602) (3) -- (10,577) 2,529 (8,048) --------- --------- --------- --------- --------- --------- --------- Net operating income 12,228 7,855 77 -- 20,160 (5,005) 15,155 --------- --------- --------- --------- --------- --------- --------- General and administrative expenses -- -- -- (939) (939) -- (939) Interest income -- -- -- 454 454 -- 454 PRI net operating loss -- -- -- (1,165) (1,165) 1,165 -- --------- --------- --------- --------- --------- --------- --------- EBIDTA 12,228 7,855 77 (1,650) 18,510 (3,840) 14,670 --------- --------- --------- --------- --------- --------- --------- Interest expense (4,454) (3,448) -- (414) (8,316) 2,461 (5,855) Depreciation and amortization (2,702) (1,813) (13) (183) (4,711) 1,160 (3,551) Gains on sales of interests in real 1,388 -- -- -- 1,388 -- 1,388 estate Minority income in operating partnership -- -- -- (709) (709) -- (709) Equity in interest of partnerships and joint ventures -- -- -- -- -- 1,853 1,853 Equity in loss of PRI -- -- -- -- -- (1,634) (1,634) --------- --------- --------- --------- --------- --------- --------- Net income $ 6,460 $ 2,594 $ 64 $ (2,956) $ 6,162 $ -- $ 6,162 ========= ========= ========= ========= ========= ========= ========= Investments in real estate, at cost $ 408,119 $ 276,761 $ 97,667 $ -- $ 782,547 $(183,291) $ 599,256 ========= ========= ========= ========= ========= ========= ========= Total assets $ 390,815 $ 215,269 $ 97,161 $ 13,837 $ 717,082 $(146,034) $ 571,048 ========= ========= ========= ========= ========= ========= ========= Recurring capital expenditures $ 334 $ 733 $ -- $ -- $ 1,067 $ (261) $ 806 ========= ========= ========= ========= ========= ========= =========
(In thousands) Development Adjustments and to Equity Total Nine-months Ended Retail Multifamily Other Corporate Total Method Consolidated September 30, 2001 --------- --------- --------- --------- --------- --------- --------- Real estate operating revenues $ 58,605 $ 42,192 $ 242 $ -- $ 101,039 $ (26,332) $ 74,707 Real estate operating expenses (16,117) (17,605) (7) -- (33,729) 9,085 (24,644) --------- --------- --------- --------- --------- --------- --------- Net operating income 42,488 24,587 235 -- 67,310 (17,247) 50,063 --------- --------- --------- --------- --------- --------- --------- Management company revenues -- -- -- 7,010 7,010 -- 7,010 Interest income -- -- -- 355 355 -- 355 General and administrative expenses -- -- -- (16,445) (16,445) -- (16,445) --------- --------- --------- --------- --------- --------- --------- EBIDTA 42,488 24,587 235 (9,080) 58,230 (17,247) 40,983 --------- --------- --------- --------- --------- --------- --------- Interest expense (16,741) (10,456) -- (76) (27,273) 8,103 (19,170) Depreciation and amortization (11,174) (7,001) (39) (2) (18,216) 4,987 (13,229) Gains on sales of interests in real 2,107 -- -- -- 2,107 -- 2,107 estate Minority interest in operating partnership -- -- -- (1,700) (1,700) -- (1,700) Equity in income of partnerships and joint ventures -- -- -- -- -- 4,157 4,157 --------- --------- --------- --------- --------- --------- --------- Net income $ 16,680 $ 7,130 $ 196 $ (10,858) $ 13,148 $ -- $ 13,148 ========= ========= ========= ========= ========= ========= ========= Investments in real estate, at cost $ 494,247 $ 281,132 $ 48,267 $ -- $ 823,646 $(185,033) $ 638,613 ========= ========= ========= ========= ========= ========= ========= Total assets $ 466,810 $ 208,667 $ 46,315 $ 25,723 $ 747,515 $(152,181) $ 595,334 ========= ========= ========= ========= ========= ========= ========= Recurring capital expenditures $ 4 $ 1,574 $ -- $ -- $ 1,578 $ (179) $ 1,399 ========= ========= ========= ========= ========= ========= =========
Development Adjustments Nine-months Ended and to Equity Total September 30, 2000 Retail Multifamily Other Corporate Total Method Consolidated --------- --------- --------- --------- --------- --------- --------- Real estate operating revenues $ 51,663 $ 40,387 $ 4,626 $ -- $ 96,676 $ (22,130) $ 74,546 Real estate operating expense (14,262) (16,428) (42) -- (30,732) 7,080 (23,652) --------- --------- --------- --------- --------- --------- --------- Net operating income 37,401 23,959 4,584 -- 65,944 (15,050) 50,894 --------- --------- --------- --------- --------- --------- --------- General and administrative expenses -- -- -- (3,380) (3,380) -- (3,380) Interest income -- -- -- 1,010 1,010 -- 1,010 PRI net operating loss -- -- -- (3,732) (3,732) 3,732 -- --------- --------- --------- --------- --------- --------- --------- EBIDTA 37,401 23,959 4,584 (6,102) 59,842 (11,318) 48,524 --------- --------- --------- --------- --------- --------- --------- Interest expense (13,189) (10,456) -- (1,142) (24,787) 7,201 (17,586) Depreciation and amortization (8,021) (5,897) (50) (570) (14,538) 3,805 (10,733) Gains on sales of interest in real estate 3,650 -- 6,648 -- 10,298 -- 10,298 Minority interest in operating partnership -- -- -- (3,180) (3,180) -- (3,180) Equity in income of partnerships and joint ventures -- -- -- -- -- 5,333 5,333 Equity in loss of PRI -- -- -- -- -- (5,021) (5,021) --------- --------- --------- --------- --------- --------- --------- Net income $ 19,841 $ 7,606 $ 11,182 $ (10,994) $ 27,635 $ -- $ 27,635 ========= ========= ========= ========= ========= ========= ========= Investments in real estate, at cost $ 408,119 $ 276,761 $ 97,667 $ -- $ 782,547 $(183,291) $ 599,256 ========= ========= ========= ========= ========= ========= ========= Total assets $ 390,815 $ 215,269 $ 97,161 $ 13,837 $ 717,082 $(146,034) $ 571,048 ========= ========= ========= ========= ========= ========= ========= Recurring capital expenditures $ 637 $ 2,217 $ -- $ -- $ 2,854 $ (584) $ 2,270 ========= ========= ========= ========= ========= ========= =========
12. 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 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 $2.3 million and $3.7 million to recognize the change in value during the three-month and nine-month periods ending September 30, 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. 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 transaction occurs, expires or is otherwise terminated. As of September 30, 2001, $4.3 million in deferred losses were included in accumulated other comprehensive income/loss, a shareholders' equity account. The following table summarizes the notional values and fair values of the Company's derivative financial instruments at September 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 ($1.1 million) 2.) Swap - Cash Flow $55.0 million 6.00% 12/15/03 ($3.2 million)
On September 30, 2001, the derivative instruments were reported at their fair value as a liability of $4.3 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 $2.6 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. 13. 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. The Company's annual expense from the amortization of goodwill is $0.4 million. This amortization will cease on December 31, 2001. PREIT has not yet quantified any additional impact of SFAS No. 142 on its consolidated financial statements. 14. SUBSEQUENT EVENT ---------------- In October 2001, the construction loan for the Metroplex Shopping Center in Plymouth Meeting, PA was refinanced with a mortgage payable in the amount of $65.5 million. The Company owns 50% of the Metroplex Shopping Center. The Company, along with its joint venture partner, was jointly and severally liable for the construction loan, which was repaid from the mortgage proceeds. The mortgage bears interest at the rate of 7.25% per annum and matures in 2011. 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 interests 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 additional retail properties containing approximately 8.3 million square feet, seven office buildings containing approximately 1.9 million square feet and two additional 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 third quarter of 2001, the Company continued this trend with six retail properties in its development pipeline, and same store net operating income growth of 4.0% and 5.4% 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 is entitled to receive a development fee of $1.5 million for the construction of the store that will be built on the site, for total proceeds expected 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. In June 2001, the Company entered into agreements to take over the management and leasing operations of two retail properties and one apartment complex. On July 15, 2001, the Company began 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 balance of the proceeds was used to fund projects currently under development. 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 September 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 September 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. At September 30, 2001, the Company had $88.0 million of outstanding borrowings against its Revolving Facility and had pledged $1.1 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 $85.9 million, as of September 30, 2001, the Company's loan covenant restrictions allowed the Company to borrow approximately an additional $23.2 million based on the existing property collateral pool. Commitments At September 30, 2001, the Company had approximately $21.6 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. Interest Rate Protection In order to reduce exposure to variable interest rates, the Company has entered into interest rate swap agreements as follows: Notional Fixed Interest Rate Maturity Amount vs. 30-day LIBOR Date ------ ---------------- ----- $20.0 million 6.02% December 2003 $55.0 million 6.00% December 2003 Results of Operations Quarter Ended September 30, 2001 and 2000 Net income decreased by $2.1 million to $4.1 million ($0.27 per share) for the quarter ended September 30, 2001 as compared to $6.2 million ($0.46 per share) for the quarter ended September 30, 2000. Revenues increased by $3.8 million or 16% to $27.5 million in the quarter ended September 30, 2001 from $23.7 million for the quarter ended September 30, 2000. Gross revenues from real estate increased to $24.9 million for the quarter ended September 30, 2001 from $23.2 million for the quarter ended September 30, 2000. This increase resulted from a $1.1 million increase in base rents, a $0.1 million increase in percentage rents and a $0.4 million increase in expense reimbursements. Base rents increased due to a $0.5 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 sold in the third quarter of 2000. Base rents also increased due to a $0.6 million increase in multifamily rents, resulting from rental rate increases and higher occupancy rates. 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. PRI's revenue was $2.5 million for the quarter ended September 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 $0.3 million because interest income on a loan with PRI is eliminated in 2001 due to the consolidation of PRI effective January 1, 2001. Property operating expenses increased by $0.2 million or 3% to $8.2 million for the quarter ended September 30, 2001 from $8.0 million for the quarter ended September 30, 2000. Payroll expense increased $0.2 million. Real estate and other taxes increased by $0.2 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 decreased by $0.1 million. Other operating expenses decreased by $0.1 million due to decreased repairs and maintenance expenses. Depreciation and amortization expense increased by $0.9 million to $4.5 million for the quarter ended September 30, 2001 from $3.6 million for the quarter ended September 30, 2000. Depreciation and amortization expense for retail properties increased by $0.5 million due to $0.2 million from two properties under development in 2000 now placed in service, and $0.3 million from a higher asset base, of which $0.2 million is attributable to the 2000 renovation at Dartmouth Mall. Depreciation and amortization expense for multifamily properties increased by $0.4 million due to a higher asset base for properties owned during both periods. General and administrative expenses increased by $4.7 million to $5.6 million for the quarter ended September 30, 2001 from $0.9 million for the quarter ended September 30, 2000. The primary reason for the increase is the consolidation of PRI in 2001, which accounted for $3.9 million of the increase. General and administrative expenses also increased primarily due to a $0.3 million increase in payroll and benefits expenses, as well as minor increases in several other expense categories totaling $0.5 million in the aggregate. Interest expense was unchanged at $5.9 million for the quarter ended September 30, 2001 as compared to the comparable period in the prior year. Retail mortgage interest decreased by $0.1 million and multifamily mortgage interest decreased by $0.1 million both due to expected amortization of mortgage balances, offset primarily by an increase in bank loan interest expense of $0.2 million because development assets were placed into service. Equity in loss of PREIT-RUBIN, Inc. was $1.6 million in the quarter ended September 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 $0.6 million to $1.3 million in the quarter ended September 30, 2001 from $1.9 million in the quarter ended September 30, 2000. The decrease was primarily due to increased interest and bad debt expenses. There were no sales of interests in real estate in the third quarter of 2001. The Valley View Shopping Center was sold in the third quarter of 2000 resulting in a gain of $1.4 million. The Forestville Shopping Center was also sold in the third quarter of 2000 with no impact on earnings because a loss of $0.3 million had previously been reserved. Nine Month Period Ended September 30, 2001 and 2000 Net income decreased by $14.5 million to $13.1 million ($0.92 per share) for the nine-month period ended September 30, 2001 as compared to $27.6 million ($2.07 per share) for the nine-month period ended September 30, 2000. Revenues increased by $6.5 million or 9% to $82.1 million in the nine-month period ended September 30, 2001 from $75.6 million for the nine-month period ended September 30, 2000. Gross revenues from real estate increased by $0.2 million to $74.7 million for the nine-month period ended September 30, 2001 from $74.5 million in 2000. This increase is due to a $3.2 million increase in base rents, a $0.2 million increase in percentage rents, a $1.2 million increase in expense reimbursements, and a $0.2 million increase in other revenues. Offsetting this increase is a $4.6 million decrease in lease termination fees from $5.7 million in 2000 to $1.1 million in 2001. Lease termination fees in 2000 included a non-recurring $4.0 million fee received in connection with the sale of the CVS Warehouse and Distribution Center. Base rents increased due to a $2.1 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 sold in the third quarter of 2000. Base rents also increased due to a $1.4 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 $7.0 million for the nine-month period ended September 30, 2001. This entire amount represents an increase in revenues in 2001 because PRI was not consolidated in 2000. Interest and other income decreased $0.7 million because interest income on a loan with PRI is eliminated in 2001 due to the consolidation of PRI effective January 1, 2001. Property operating expenses increased by $0.9 million or 4% to $24.6 million for the nine-month period ended September 30, 2001 from $23.7 million for the nine-month period ended September 30, 2000. Payroll expense increased $0.3 million due to annual salary increases. Real estate and other taxes increased by $0.4 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 $0.1 million due to increased repairs and maintenance expenses. Depreciation and amortization expense increased by $2.5 million to $13.2 million for the nine-month period ended September 30, 2001 from $10.7 million for the nine-month period ended September 30, 2000. Depreciation and amortization expense for retail properties increased by $1.7 million. Of that amount, $0.8 million was due to two properties under development in 2000 now placed in service, partially offset by a decrease of $0.2 million due to the sale of two properties in 2000. Retail depreciation increased by $1.1 million for properties owned during both periods primarily because of the 2000 renovation at Dartmouth Mall. Depreciation and amortization expense for multifamily properties increased by $0.8 million due to a higher asset base for properties owned during both periods. General and administrative expenses increased by $13.0 million to $16.4 million for the nine-month period ended September 30, 2001 from $3.4 million for the nine-month period ended September 30, 2000. The primary reason for the increase is the consolidation of PRI in 2001, which accounted for $11.3 million of the increase. General and administrative expenses also increased primarily due to a $1.4 million increase in payroll and benefits expenses as well as minor increases in several other expense categories totaling $0.3 million in the aggregate. Interest expense increased by $1.6 million to $19.2 million for the nine-month period ended September 30, 2001 from $17.6 million for the nine-month period ended September 30, 2000. Retail mortgage interest increased by $1.1 million due to properties 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 $0.7 million due to a larger amount outstanding under the Credit Facility and due to development assets being placed into service Equity in loss of PRI was $5.0 million in the first nine-months of 2000. There was no corresponding amount in the 2001 period due to the consolidation of PRI in 2001. Equity in income of partnerships and joint ventures decreased by $1.1 million to $4.2 million in the nine-month period ended September 30, 2001 from $5.3 million in the nine-month period ended September 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 $10.3 million, respectively, in the first nine-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, the CVS Warehouse and Distribution Center, Valley View Shopping Center and Forestville Shopping Center in 2000. Same Store Properties Retail sector operating income, excluding the impact of lease termination fees for the three and nine-month periods ended September 30, 2001 for the properties owned since January 1, 2000 (the "Same Store Properties"), increased by $0.4 million and $1.8 million or 4.0% and 5.3% over corresponding periods in 2000 due to new and renewal leases at higher rates, higher occupancy and higher percentage rents in the 2001 period as compared to the 2000 period. Multifamily sector same store growth was approximately $0.4 million and $0.6 million or 5.4% and 2.6% for the three and nine-month period ended September 30, 2001 due to revenue increases of 5.6% and 4.5% which were partially offset by increases in real estate taxes, utilities, turnover expenses, repairs and maintenance and insurance costs. Set forth below is a schedule comparing the net operating income (excluding the impact of lease termination fees) for the Same Store Properties for the three and nine-months ended September 30, 2001, as compared to the three and nine-months ended September 30, 2000.
(In thousands) Three Months Ended Nine-months Ended ---------------------------------- ------------------------------ September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Retail Sector: Revenues $ 16,251 $ 15,759 $ 49,693 $ 47,382 Property operating expenses 4,762 4,710 14,552 13,997 ------------- ------------- ------------- ------------- Net operating income $ 11,489 $ 11,049 $ 35,141 $ 33,385 ============= ============= ============= ============= Multifamily Sector: Revenues $ 14,216 $ 13,457 $ 42,190 $ 40,386 Property operating expenses 5,937 5,602 17,605 16,429 ------------- ------------- ------------- ------------- Net operating income $ 8,279 $ 7,855 $ 24,585 $ 23,957 ============= ============= ============= =============
Cash Flows During the nine-month period ended September 30, 2001, PREIT generated $25.7 million in cash flow from operating activities. Investing activities during the nine-month period ended September 30, 2001 used cash of $15.2 million resulting from (i) $20.1 million in investments in property under development, (ii) $6.2 million in investments in wholly-owned real estate assets, (iii) $0.9 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 $7.6 million. Financing activities used cash of $9.5 million and included (i) a mortgage borrowing of $15.0 million and (ii) proceeds from common shares issued of $45.2 million, offset by (iii) $23.0 million of distributions to shareholders and OP unit holders, (iv) net Credit Facility repayments of $22.3 million, (v) principal installments on mortgages of $3.3 million, (vi) construction loan repayments of $20.6 million and (vii) payment of deferred financing costs of $0.4 million. Contingent Liabilities PREIT, along with certain of its joint venture partners, has guaranteed debt totaling $5.8 million. Also, PREIT and its joint venture partner jointly and severally guaranteed the construction loan payable on a development project. The balance of the loan at September 30, 2001 was $62.4 million and the remaining commitment from the lender was $3.6 million for a total credit line of $66.0 million. The construction loan was subsequently repaid from a mortgage financing in October 2001. 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 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. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5. Other Information ----------------- PREIT issued a press release on November 8, 2001 containing financial information for the nine-month period ended September 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 November 8, 2001 containing financial information for the nine-month period ended September 30, 2001. (b) Reports on Form 8-K Current Report on Form 8-K dated July 3, 2001 and filed on July 1, 2001. Current Report in Form 8-K dated July 10, 2001 and filed on July 11, 2001. 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) Exhibit Index ------------- Exhibit Number Description - ------- ----------- 99 Press Release, issued November 8, 2001, containing financial information for the nine-month period ended September 30, 2001 EX-99 3 ex99.txt EXHIBIT 99 [GRAPHIC OMITTED] Pennsylvania Real Estate Investment Trust 200 South Broad Street Philadelphia, PA 19102 www.preit.com ------------- Phone: 215-875-0700 Fax: 215-546-7311 FOR FURTHER INFORMATION:
AT THE COMPANY AT FRB/WEBER SHANDWICK - -------------- ---------------------- Edward A. Glickman Joe Calabrese Georganne Palffy 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 - --------------------- November 8, 2001 Pennsylvania Real Estate Investment Trust Reports 2001 Third Quarter and Nine Month Results Philadelphia, PA, November 8, 2001-- Pennsylvania Real Estate Investment Trust (NYSE: PEI) today announced results for the third quarter and nine months ended September 30, 2001 in line with the Company's August 2001 guidance. 2001 Third Quarter Highlights o FFO for the 2001 third quarter increased 7.6% to $10,733,000 from $9,977,000 in the 2000 third quarter. o Combined net operating income increased 10.9% to $22,356,000 in the third quarter of 2001 from $20,160,000 for the third quarter of 2000. o Same store net operating income for the Company's shopping center portfolio increased 4.0% from the 2000 third quarter. o Same store multifamily net operating income increased 5.4% from the 2000 third quarter. o Mall sales increased 7.1% to $391 per square foot and shopping center occupancy increased 180 basis points to 91.5%. Third Quarter Results For the third quarter ended September 30, 2001 the Company's funds from operations (FFO) totaled $10,733,000 compared with FFO of $9,977,000 for the comparable three-month period in 2000. Third quarter 2001 FFO per share totaled $0.62 per share, on 17,276,111 weighted average shares of beneficial interest/Operating Partnership units (collectively shares), compared with $0.67 per share, on 14,922,706 weighted average shares outstanding, in the 2000 third quarter. FFO for the 2001 third quarter was 7.6% higher than FFO for the same quarter one year ago, while weighted average shares outstanding increased 15.8% percent due to the Company's public offering in July 2001, leading to a 7.5% decrease in FFO on a per share basis. 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 Third Quarter 2001 Results November 8, 2001 Page 3 Net operating income from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties increased by 10.9% to $22,356,000 for the 2001 third quarter from $20,160,000 for the third quarter of 2000. This increase is due to improved performance in the Company's shopping center and multifamily portfolios and the completion of development projects Net income for the third quarter ended September 30, 2001 was $4,149,000, or $0.27 per share, on 15,391,440 total weighted average shares outstanding compared to $6,162,000 or $0.46 per share, on 13,387,471 total weighted average shares outstanding for the comparable 2000 period. This decrease is due, in part, to higher depreciation from development projects coming on line, the absence of gains from sales of real estate during the 2001 third quarter and the dilutive effect on earnings per share of the equity offering in July 2001. Net income in the third quarter of 2000 included a gain on the sale of Valleyview, a strip shopping center in Wilmington, DE, totaling $1.4 million or $0.10 per share. Nine Month Results FFO for the nine months ended September 30, 2001 totaled $31,069,000 compared with FFO of $34,381,000 for the prior nine-month period ended September 30, 2000. FFO for the nine-month period totaled $1.93 per share on 16,100,792 weighted average shares outstanding, compared to $2.31 per share on 14,907,903 weighted average shares for the nine months ended September 30, 2000. The decrease was primarily the result of non-recurring lease termination fees in the earlier period. Net operating income from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties totaled $67,310,000 for the nine months ended September 30, 2001, compared with $65,944,000 for the nine months ended September 30, 2000. After eliminating lease termination revenues from both periods, NOI increased 10.5% to $66,225,000 in 2001 from $59,939,000 in 2000. Net income for the nine months ended September 30, 2001 was $13,148,000, or $0.92 per share, on 14,256,967 total weighted average shares outstanding, compared to $27,635,000, or $2.07 per share, on 13,370,767 total weighted average shares outstanding for the nine months ended September 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 nine-month period includes gains on the sale of Valley View shopping center in Wilmington, DE, the CVS Building in Alexandria, VA and the Company's interest in Park Plaza shopping center in Pinellas Park, FL totaling $10.3 million or $0.77 per share. Same Store NOI Growth -- Retail and Multifamily Portfolios Same store net operating income for the Company's retail portfolio increased 4.0% over the 2000 third quarter. The increase over the comparable period was primarily driven by higher revenues from lease up of vacant space, lease PREIT Announces Third Quarter 2001 Results November 8, 2001 Page 4 turnover and rent step-ups. Contributing to the Company's retail portfolio net operating income growth was an increase in occupancy rates in the 2001 third quarter, which rose to 91.5%, 180 basis points higher than 89.7% reported for the 2000 third quarter. The Company's power centers and enclosed malls were 96.6% and 92.5% occupied, respectively, as of September 30, 2001. The Company also reported that sales at its mall properties increased 7.1% to $391 per square foot for the trailing twelve months from $365 per square foot for the comparable period in 1999 and 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 5.4% over the comparable quarter in 2000, primarily driven by a 4.2% increase in rents and a 5.6% increase in total revenues. The growth in net operating income was limited by a 6.0% increase in operating expenses due, in part, to a 76% increase in insurance costs. As previously discussed, 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 in the fourth quarter of this year. Comments from Management Ronald Rubin, Chairman and Chief Executive Officer of PREIT said, "It was a productive quarter for the Company as we achieved year-over-year FFO growth of 7.6% and a 10.9% increase in combined NOI. The Company achieved this growth, despite a difficult market environment, through the positive fundamentals of our core portfolio, strong relationships with leading national and regional retailers and our conservative development activity. Looking forward, we believe these fundamentals, along with our careful business plan, position PREIT to take advantage of the numerous growth opportunities in target markets and deliver consistent operating results and returns on capital." Mr. Rubin added, "Individuals are the heart of any organization, and we owe a great deal to those who provided long-standing leadership for our Company. We were saddened by the recent passing of Sylvan M. Cohen, our former Chairman who founded Pennsylvania Real Estate Investment Trust in 1960, and William R. Dimeling, a Trustee of PREIT since 1982. We shall deeply miss their counsel, insight and friendship." 2001 Fourth Quarter and Fiscal Year Forecast PREIT is reaffirming its financial guidance for the 2001 fourth quarter and fiscal year. The Company noted that it is currently estimating FFO to be approximately $0.75 to $0.79 for the fourth quarter ending December 31, 2001 and $2.68 to $2.72 per share for the calendar year ending December 31, 2001. PREIT Announces Third Quarter 2001 Results November 8, 2001 Page 5 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: o Construction in Progress: To position the Company for future growth, management intends, during 2001, to have $50 to $100 million of development projects on-line. As of September 30, 2001 the Company's construction in progress amounted to $45.8 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 six development projects with approximately 1.8 million square feet of GLA and a potential investment of approximately $116 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 in its development portfolio. Jonathan B. Weller, PREIT's President and Chief Operating Officer commented, "While the near term general economic environment continues to be challenging, we continue to benefit from our diversified portfolio of quality real estate and high-end roster of national and regional retailers. We continue to believe that our strategic direction is sound and will create long-term value for our shareholders. The Company's development and redevelopment pipeline currently consists of seven power centers, one entertainment center and one enclosed mall." The Company ended the 2001 third quarter with investment in real estate of $824 million, a net increase of $20 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, 60% retail, 6% retail development and less than 1% industrial. Development Pipeline o Creekview Shopping Center (Warrington, PA) - Construction of the 424,722 square foot shopping center is 70% complete as of September 30, 2001 and the center is 100% leased. During the quarter several stores opened, including Genuardi's Family Markets. o Paxton Towne Centre (Harrisburg, PA) - Construction of the 712,621 square foot power center is 90% complete as of September 30, 2001 and the center is 90% leased. PREIT Announces Third Quarter 2001 Results November 8, 2001 Page 6 Leasing Update A total of 412,587 square feet was leased in the third quarter of 2001, including the renewal of JC Penney at Prince George's Plaza. Within this total, 23 new leases for 230,092 square feet were responsible for the portfolio's increase in occupancy. Noteworthy among these new leases were replacements for two bankrupt tenants. At Creekview new leases were signed with Bed Bath & Beyond and Cingular Wireless which along with Duron Paints will occupy space previously leased to Lechter's Cost-for-Less. Linens' N Things has leased the 54,096 square foot former Homeplace store at the Court at Oxford Valley which will also include Thomasville Furniture Galleries. At Paxton Towne Center Old Navy leased 22,000 square feet which will open in the first quarter of 2002. Financing o Metroplex Shopping Center (Plymouth Meeting, PA) - The Company also announced that, after the close of the quarter, it arranged a $65.5 million financing with a 10-year term for the Metroplex Shopping Center, a 778,000 square foot power center in which the Company owns a 50% interest. The newly placed financing carries an interest rate of 7.25% and was provided by CS First Boston. Proceeds were used to repay the construction loan. Capital Resources Edward Glickman, Chief Financial Officer of PREIT, commented, "To position PREIT for future growth, we continue to take steps to improve the Company's capital structure. In July, we completed a two million share equity offering. Net proceeds of $44.5 million were used to pay down debt and for working capital. It is important to note that, while this offering resulted in modest FFO per share dilution, we believe that the additional access to capital and the reduction in leverage will be of significant long-term benefit to our shareholders. The successful completion of this transaction along with the $250 million combined credit and construction finance facility announced in January 2001, will enable us to continue to make strategic investments in areas that will drive growth. Looking forward, we will continue to conserve our resources to meet new market realities and preserve financial strength." As of September 30, 2001, the Company had approximately $89.1 million outstanding under the $175 million revolving portion of its bank credit facility. On July 11, 2001, the Company completed a public offering of 2.0 million shares of common stock at $23.00 per share, generating total net proceeds of $44.5 million. The net proceeds were used to pay down debt and for working capital. The offering was fully underwritten by Lehman Brothers. 99th Consecutive Dividend Distribution Declared The Company previously announced on October 18, 2001 that its Board of Trustees declared a quarterly cash dividend of $0.51 per share. The dividend will be paid on December 17, 2001 to shareholders and unitholders of record on November 30, 2001. The December 17, 2001 dividend will be PREIT's 99th consecutive distribution since its initial dividend paid in August of 1962. Throughout its history the Company has never omitted or reduced a shareholder dividend. The December 17th dividend represents an annualized rate of $2.04 per share and a 9.1% yield based on the closing stock price of November 7, 2001. PREIT Announces Third Quarter 2001 Results November 8, 2001 Page 7 Conference Call Information The Company will conduct a conference call that will be broadcast simultaneously over the Internet at 11:00 ET on Thursday November 8, 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.vcall.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 10.9 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 1.8 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 Third Quarter 2001 Results November 8, 2001 Page 7 Pennsylvania Real Estate Investment Trust Selected Financial Data
- ---------------------------------------------------------------- ------------------------------ ------------------------------ FUNDS FROM OPERATIONS Three Months Ended Nine Months Ended - ---------------------------------------------------------------- ------------------------------ ------------------------------ Sept 30, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000 ------------- ------------- ------------- ------------- Income before minority interest in operating partnership $ 4,650,000 $ 6,871,000 $ 14,848,000 $ 30,815,000 Less: Gains on sales of interests in real estate - (1,388,000) (2,107,000) (10,298,000) Add: Depreciation and amortization: Wholly owned & consolidated partnership, net 4,501,000 (a) 3,551,000 (a) 13,229,000 (a) 10,733,000 (a) Unconsolidated partnerships & joint ventures 1,639,000 977,000 4,988,000 3,234,000 Excess purchase price over net asset acquired 106,000 73,000 317,000 219,000 Prepayment fee - - 255,000 (b) - Less: Depreciation of non-real estate assets (65,000) (65,000) (195,000) (195,000) Amortization of deferred financing costs (98,000)(c) (42,000)(c) (266,000)(c) (127,000)(c) ------------ ------------ ------------ ------------ FUNDS FROM OPERATIONS $ 10,733,000 (d) $ 9,977,000 (d) $ 31,069,000 (d) $ 34,381,000 (d) ============ ============ ============ ============ FUNDS FROM OPERATIONS PER SHARE AND OP UNITS $0.62 $0.67 $1.93 $2.31 ============ ============ ============ ============ Weighted average number shares outstanding 15,391,440 13,387,471 14,256,967 13,370,767 Weighted average effect of full conversion of OP units 1,884,671 1,535,235 1,843,825 1,537,136 ------------ ------------ ------------ ------------ Total weighted average shares of outstanding including OP units 17,276,111 14,922,706 16,100,792 14,907,903 ------------ ------------ ------------ ------------
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 $335,000 and $555,000 for the 3rd quarter 2001 and 2000 and $934,000 and $1,034,000 for year to date 2001 and 2000, respectively.
- ---------------------------------------------------------------- ------------------------------ ------------------------------ OPERATING RESULTS Three Months Ended Nine Months Ended - ---------------------------------------------------------------- ------------------------------ ------------------------------ Sept 30, 2001 Sept 30, 2000 (4) Sept 30, 2001 ept 30, 2000 (4) ------------- ------------- ------------- ------------- REAL ESTATE REVENUES Base rent $ 21,148,000 $ 20,042,000 $ 62,630,000 $ 59,422,000 Percent rent 211,000 144,000 783,000 567,000 Expense reimbursement 2,446,000 2,055,000 7,521,000 6,296,000 Lease termination 110,000 83,000 1,084,000 5,720,000 Other real estate revenue 975,000 879,000 2,689,000 2,541,000 ------------ ------------ ------------ ------------ Total real estate revenue 24,890,000 23,203,000 74,707,000 74,546,000 ------------ ------------ ------------ ------------ Management company revenue 2,545,000 - 7,010,000 - Interest and other income 102,000 454,000 355,000 1,010,000 ------------ ------------ ------------ ------------ 27,537,000 23,657,000 82,072,000 75,556,000 ------------ ------------ ------------ ------------ EXPENSES Property payroll and benefits 1,817,000 1,647,000 5,298,000 4,980,000 Real estate and other taxes 1,980,000 1,773,000 5,779,000 5,349,000 Utilities 941,000 985,000 3,175,000 3,122,000 Other operating expenses 3,467,000 3,643,000 10,392,000 10,201,000 ------------ ------------ ------------ ------------ Total property operating expenses 8,205,000 8,048,000 24,644,000 23,652,000 ------------ ------------ ------------ ------------ Depreciation and amortization 4,501,000 3,551,000 13,229,000 10,733,000 Corporate payroll and benefits 3,240,000 542,000 9,644,000 1,708,000 Other general and administrative expenses 2,360,000 397,000 6,801,000 1,672,000 ------------ ------------ ------------ ------------ Total general & administrative expenses 5,600,000 939,000 16,445,000 3,380,000 ------------ ------------ ------------ ------------ Interest expense 5,924,000 5,855,000 19,170,000 17,586,000 ------------ ------------ ------------ ------------ 24,230,000 18,393,000 73,488,000 55,351,000 ------------ ------------ ------------ ------------ Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest in operating partnership 3,307,000 5,264,000 8,584,000 20,205,000 Equity in loss of PREIT-RUBIN, Inc. - (1,634,000) - (5,021,000) Equity in income of partnerships and joint ventures 1,343,000 1,853,000 4,157,000 5,333,000 Gains on sales of interests in real estate - 1,388,000 (1) 2,107,000 (2) 10,298,000 (3) ------------ ------------ ------------ ------------ Income before minority interest in operating partnership 4,650,000 6,871,000 14,848,000 30,815,000 Minority interest in operating partnership (501,000) (709,000) (1,700,000) (3,180,000) ------------ ------------ ------------ ----------- NET INCOME $ 4,149,000 $ 6,162,000 $ 13,148,000 $ 27,635,000 ============ ============ ============ =========== PER SHARE DATA Net income before gains on sales $0.27 $0.36 $0.77 $1.30 Gains on sales of interests in real estate $0.00 $0.10 (1) $0.15 (2) $0.77 (3) ------------ ------------ ------------ ------------ BASIC INCOME PER SHARE $0.27 $0.46 $0.92 $2.07 ============ ============ ============ ============ DILUTED INCOME PER SHARE $0.27 $0.46 $0.92 $2.07 ============ ============ ============ ============ Weighted average number shares outstanding 15,391,440 13,387,471 14,256,967 13,370,767 ------------ ------------ ------------ ------------
1) 3rd qtr 2000 includes gain on sale of Valley View, Wilmington, DE 2) 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. 3) Year to date 2000 includes gain on sale of Valley View, Wilmington, DE, of CVS Building, Alexandria, VA and gain on sale of interest in Park Plaza shopping center in Pinellas Park, Florida. 4) Certain prior period amounts have been reclassified to conform with the current period presentation. PREIT Announces Third Quarter 2001 Results November 8, 2001 Page 8 Pennsylvania Real Estate Investment Trust Selected Financial Data
- --------------------------------------------------------- ------------------------------ ------------------------------- EQUITY IN INCOME OF PARTNERSHIPS Three Months Ended Nine Months Ended AND JOINT VENTURES ------------------------------ ------------------------------- Sept 30, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000 - --------------------------------------------------------- ------------ ------------ ------------- ------------ Gross revenues from real estate $ 22,651,000 $ 16,381,000 $ 67,796,000 $ 55,942,000 ============ ============ ============= ============ Expenses: Property operating expenses 8,190,000 5,468,000 24,226,000 18,604,000 Mortgage and bank loan interest 7,652,000 5,113,000 22,342,000 18,150,000 Prepayment fee - - 510,000 (a) - Depreciation and amortization 4,273,000 2,531,000 12,866,000 8,592,000 ------------ ------------ ------------- ------------ 20,115,000 13,112,000 59,944,000 45,346,000 ------------ ------------ ------------- ------------ 2,536,000 3,269,000 7,852,000 10,596,000 Partner's share (1,193,000) (1,416,000) (3,695,000) (5,263,000) ------------ ------------ ------------- ------------ EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES $ 1,343,000 $ 1,853,000 $ 4,157,000 $ 5,333,000 ============ ============ ============= ============
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 Nine Months Ended AND AMORTIZATIONS ("EBITDA") -------------------------------- ------------------------------- Sept 30, 2001 Sept 30, 2000 Sept 30, 2001 Sept 30, 2000 - --------------------------------------------------------- ------------ ------------ ------------ ------------ Gross revenues $ 24,890,000 $ 23,203,000 $ 74,707,000 $ 74,546,000 Operating expenses (8,205,000) (8,048,000) (24,644,000) (23,652,000) ------------ ------------ ------------ ------------ Net operating income: wholly-owned properties 16,685,000 15,155,000 50,063,000 50,894,000 Company's proportionate share of partnerships and joint ventures net operating income 5,671,000 5,005,000 17,247,000 15,050,000 ------------ ------------ ------------ ------------ Combined net operating income 22,356,000 (2) 20,160,000 (2) 67,310,000 (2) 65,944,000 (2) Interest income 102,000 454,000 355,000 1,010,000 Company's proportionate share of PREIT-RUBIN, Inc. net operating income (loss) (1,165,000) (3,732,000) Management company revenue 2,545,000 - 7,010,000 - Total general & administrative expenses (5,600,000)(1) (939,000) (16,445,000)(1) (3,380,000) ------------ ------------ ------------ ------------ EBITDA $ 19,403,000 $ 18,510,000 $ 58,230,000 $ 59,842,000 ============ ============ ============ ============
1) Total General & Administrative Expenses for 2001 includes PREIT-RUBIN, Inc. expenses. 2) Net operating income includes lease termination income of $110,000 and $83,000 for the quarters ending September 30, 2001 and 2000 respectively, and $1,084,000 and $5,720,000 for the nine-month periods ending September 30, 2001 and 2000, respectively. NOI in the nine-month period ending September 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 $22,245,000 and $20,077,000 for the quarters ended September 30, 2001 and 2000, and $66,225,000 and $59,939,000 for the nine-month periods ended September 30, 2001 and 2000, respectively. MORTGAGE NOTES, BANK AND CONSTRUCTION LOANS PAYABLE - ---------------------------------------------------
--------------------------------- September 30, December 31, 2001 2000 --------------------------------- Wholly-owned properties - ----------------------- Mortgage notes payable $ 259,111,000 $247,449,000 Bank loans payable 88,000,000 110,300,000 Construction loan payable 4,000,000 24,647,000 -------------- ------------- 351,111,000 382,396,000 Company's proportionate share of partnerships and joint ventures - -------------------------------- Mortgage notes payable 113,973,000 111,457,000 Bank loans payable 31,200,000 30,929,000 -------------- ------------- Total mortgage notes and bank loans payable $ 496,284,000 $524,782,000 ============== =============
-----END PRIVACY-ENHANCED MESSAGE-----