-----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, UWLrLpFA87OK1dUrrr22gtRjCwP56Gvrcb72f+ZRpB1ft0N6sP7c9vtwISFreoNe S2YgFK69n/WRBY6QGj2q8A== 0000950116-98-000400.txt : 19980218 0000950116-98-000400.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950116-98-000400 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980217 SROS: NONE 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: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06300 FILM NUMBER: 98543478 BUSINESS ADDRESS: STREET 1: 455 PENNSYLVANIA AVE STREET 2: STE 135 CITY: FORT WASHINGTON STATE: PA ZIP: 19034 BUSINESS PHONE: 2155429250 MAIL ADDRESS: STREET 1: 455 PENNSYLVANIA AVE STREET 2: STE 135 CITY: FORT WASHINGTON STATE: PA ZIP: 19034 10-Q 1 - ------------------------------------------------------------------------------ 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 December 31, 1997 ----------------------- [ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from --------------------- to --------------------- Commission File Number 1-6300 ------------------------------------------------------ Pennsylvania Real Estate Investment Trust - ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-6216339 - -------------------------------------------------------------- ------------------------------------ (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 455 Pennsylvania Avenue, Suite 135, Ft. Washington, PA 19034 - -------------------------------------------------------------- ------------------------------------ (Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (215) 542-9250 ------------------- 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 December 31, 1997: 13,288,848 - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ This report includes a total of 19 pages. - ------------------------------------------------------------------------------ PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONTENTS Page ---- Part I. Financial Information Financial Statements (Unaudited): Consolidated Balance Sheets--December 31, 1997 and August 31, 1997 (Audited) 1-2 Consolidated Statements of Income--Three Months Ended December 31, 1997 and November 30, 1996 3 Consolidated Statements of Cash Flows--Three Months Ended December 31, 1997 and November 30, 1996 4 Notes to Consolidated Financial Statements 5-10 Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 Part II. Other Information Item 1. Legal Proceedings 16 Item 2. Not Applicable - Item 3. Not Applicable - Item 4. Submission of Matters to a Vote of Security Holders 16-17 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 Part I. Financial Information Item 1. Financial Statements PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (Note 1) ASSETS
December 31, August 31, 1997 1997 ------------- ---------- (Unaudited) INVESTMENTS IN REAL ESTATE, at cost: Multifamily properties $ 161,270,000 $ 159,967,000 Industrial properties 5,078,000 5,078,000 Retail properties 120,209,000 37,398,000 ------------------ ------------------ Total investments in real estate 286,557,000 202,443,000 Less- Accumulated depreciation 53,171,000 50,711,000 ------------------ ------------------ 233,386,000 151,732,000 PROPERTY UNDER DEVELOPMENT 1,369,000 -- INVESTMENT IN PREIT-RUBIN 4,853,000 -- INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES, at equity (Note 3) 14,505,000 1,039,000 ADVANCES TO PREIT-RUBIN (Note 2) 3,413,000 -- ------------------ ----------------- 257,526,000 152,771,000 Less- Allowance for possible losses 1,770,000 1,831,000 ------------------ ------------------ 255,756,000 150,940,000 OTHER ASSETS: Cash and cash equivalents 1,324,000 1,399,000 Rents and sundry receivables 441,000 590,000 Deferred costs, prepaid real estate taxes and expenses, net 8,045,000 7,393,000 Deposits on properties -- 5,335,000 ------------------ ------------------ $ 265,566,000 $ 165,657,000 ================== ==================
The accompanying notes are an integral part of these statements. (Continued) -1- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (CONTINUED) (Note 1) LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, August 31, 1997 1997 ------------ ---------- (Unaudited) LIABILITIES: Mortgage notes payable $ 99,364,000 $ 83,528,000 Bank and other loans payable 4,575,000 33,884,000 Tenants' deposits and deferred rents 1,317,000 1,346,000 Accrued pension and retirement benefits 1,011,000 1,091,000 Accrued expenses and other liabilities 4,964,000 4,369,000 ------------------ ------------------ 111,231,000 124,218,000 ------------------ ------------------ MINORITY INTEREST (Note 3) 15,805,000 540,000 ------------------ ------------------ COMMITMENTS AND CONTINGENCIES (Note 7) -- -- SHAREHOLDERS' EQUITY (Note 5): Shares of beneficial interest, $1 par; authorized unlimited; issued and outstanding 13,288,848 shares at December 31, 1997, and 8,685,098 shares at August 31, 1997 13,289,000 8,685,000 Capital contributed in excess of par 144,746,000 53,599,000 Distributions in excess of net income (19,505,000) (21,385,000) ------------------ ------------------ 138,530,000 40,899,000 ------------------ ------------------ $ 265,566,000 $ 165,657,000 ================== ==================
The accompanying notes are an integral part of these statements. -2- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF INCOME (Note 1) (Unaudited)
Three Months Ended --------------------------------------- December 31, November 30, 1997 1996 ------------------ ------------------ REVENUES: Gross revenues from real estate $ 13,753,000 $ 9,968,000 Interest and other income 78,000 95,000 ------------------ ----------------- 13,831,000 10,063,000 ------------------ ----------------- EXPENSES: Property operating expenses 5,551,000 4,013,000 Depreciation and amortization 2,067,000 1,540,000 General and administrative expenses 678,000 748,000 Interest expense 3,604,000 2,359,000 ------------------ ----------------- 11,900,000 8,660,000 ------------------ ----------------- Income before equity in unconsolidated entities, gain on sale of interest in real estate and minority interest 1,931,000 1,403,000 EQUITY IN INCOME OF PREIT-RUBIN (Note 2) 260,000 -- EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES (Note 3) 1,604,000 1,326,000 GAIN ON SALE OF INTEREST IN REAL ESTATE 2,090,000 -- ------------------ ---------------- Income before minority interest 5,885,000 2,729,000 MINORITY INTEREST (449,000) (90,000) ------------------ ----------------- NET INCOME $ 5,436,000 $ 2,639,000 ================== ================= BASIC INCOME PER SHARE (Note 4) $ .57 $ .30 ================== ================= DILUTED INCOME PER SHARE (Note 4) $ .57 $ .30 ================== =================
The accompanying notes are an integral part of these statements. -3- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTES 1 AND 6)
Three Months Ended ----------------------------------- December 31, November 30, 1997 1996 ---------------- ---------------- (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,436,000 $ 2,639,000 Adjustments to reconcile net income to net cash provided by operating activities- Minority interest 449,000 90,000 Depreciation and amortization 2,067,000 1,540,000 Gain on sale of interest in real estate (2,090,000) -- Equity in income of PREIT-RUBIN (260,000) -- Decrease in allowance for possible losses (46,000) (44,000) Change in assets and liabilities- Rents and sundry receivables 202,000 (9,000) Deferred costs, prepaid real estate taxes and expenses (1,957,000) (23,000) Accrued pension and retirement benefits (83,000) (137,000) Accrued expenses and other liabilities (251,000) (819,000) Tenants' deposits and deferred rents (15,000) (221,000) ----------------- ----------------- Net cash provided by operating activities 3,452,000 3,016,000 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in wholly owned real estate (1,924,000) (995,000) Investments in property under development (421,000) -- Investment in and advances to PREIT-RUBIN (2,112,000) -- Investments in partnerships and joint ventures (1,411,000) (56,000) Cash proceeds from sale of interest in partnership 3,862,000 -- Cash distributions from partnerships and joint ventures in excess of (less than) equity in income (21,000) 15,805,000 Cash distributions to minority partners --- (6,000) ----------------- ----------------- Net cash (used in) provided by investing activities (2,027,000) 14,748,000 ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal installments on mortgage notes payable (9,188,000) (349,000) Repayment of bank loans payable (85,413,000) (12,374,000) Shares of beneficial interest issued 96,828,000 33,000 Distributions paid to shareholders (4,082,000) (4,078,000) Distributions paid to OP Unit holders (303,000) --- ----------------- ----------------- Net cash used in financing activities (2,158,000) (16,768,000) ----------------- ----------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (733,000) 996,000 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,057,000 1,030,000 ----------------- ----------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,324,000 $ 2,026,000 ================= =================
The accompanying notes are an integral part of these statements. -4- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED DECEMBER 31, 1997 AND NOVEMBER 30, 1996 1. BASIS OF PRESENTATION: The consolidated financial statements have been prepared by the Registrant, without audit, except as to the balance sheet as of August 31, 1997, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-K. In the opinion of the Registrant, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position and the consolidated results of its operations and its cash flows, have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. On October 14, 1997, the Registrant filed a Form 8-K announcing it's intention to change their fiscal year-end from August 31 to December 31. On February 17, 1998, the Registrant filed a Transition Report on Form 10-Q for the transition period from September 1, 1997 to December 31, 1997. As such, the consolidated financial statements herein include the Registrant's new calendar quarter and most comparable prior fiscal quarter. Certain reclassifications of prior period amounts have been made to conform with current year presentation. 2. THE TRO TRANSACTION: On September 30, 1997, the Registrant completed a series of related transactions pursuant to which the Registrant: (i) transferred substantially all of its real estate interests to a newly formed operating partnership (the "Operating Partnership"), of which the Registrant is the sole general partner; (ii) the Operating Partnership acquired all of the non-voting common shares of The Rubin Organization, Inc. ("TRO"), a commercial real estate development and management firm (renamed "PREIT-RUBIN, Inc."), constituting 95% of the total equity of PREIT-RUBIN, Inc. in exchange for the issuance of 200,000 Class A Operating Partnership ("OP") Units and a provision to issue up to 800,000 additional Class A OP Units over the next five years according to a formula based upon the Company's per share growth in adjusted funds from operations; (iii) the Operating Partnership acquired the interests of certain affiliates of TRO ("TRO Affiliates") in The Court at Oxford Valley, Magnolia Mall, North -5- Dartmouth Mall and Springfield Park; (iv) the Operating Partnership agreed to acquire the interests of TRO Affiliates in Hillview Shopping Center and Northeast Tower Center, both of which are currently under construction, at prices based upon a pre-determined formula; and (v) the Operating Partnership acquired the development rights of certain TRO Affiliates, subject to related obligations, in Christiana Power Center (Phases I and II), Red Rose Commons and Blue Route Metroplex. All of the acquisitions described above have been recorded by the Registrant using the purchase method of accounting. The Registrant accounts for its non-controlling investment in PREIT-RUBIN, Inc. using the equity method. The excess of purchase price of PREIT-RUBIN, Inc. over the fair value of net tangible assets acquired is being amortized over thirty five years. The following table summarizes the consideration paid to acquire the assets and businesses described above:
Net Other Total Class A Cash Paid Liabilities Transaction Purchase OP Units (Received) Assumed Costs Price -------- ---------- ------- ----- ----- Investment in PREIT-RUBIN $ 4,680,000 $ (878,000) $ -- $ 793,000 $ 4,595,000 Investment in The Court at Oxford Valley 5,458,000 683,000 -- 688,000 6,829,000 Magnolia Mall 5,000,000 15,165,000 25,154,000 977,000 46,296,000 North Dartmouth Mall -- 35,000,000 -- 986,000 35,986,000 Development Properties -- 6,446,000 -- 1,859,000 8,305,000 ------------- --------------- ------------- --------------- ---------------- $ 15,138,000 $ 56,416,000 $ 25,154,000 $ 5,303,000 $ 102,011,000 ============= =============== ============= =============== ================
3. INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES: The following table presents summarized financial information as to the Registrant's equity in the assets and liabilities of 22 partnerships and joint ventures and 3 properties under development at December 31, 1997, and 22 partnerships and joint ventures at August 31, 1997, and the Registrant's equity in income for the three months ended December 31, 1997 and November 30, 1996: -6- 3. INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES (continued):
December 31, August 31, 1997 1997 ------------ ---------- (Unaudited) ASSETS Investments in real estate, at cost: Multifamily properties $ 108,236,000 $ 107,604,000 Industrial property 1,275,000 1,264,000 Retail properties 160,684,000 117,960,000 Properties under development 7,378,000 -- Land 4,446,000 4,446,000 ------------------ ------------------ Total investments in real estate 282,019,000 231,274,000 Less- Accumulated depreciation 71,155,000 71,938,000 ------------------ ------------------ 210,864,000 159,336,000 Cash and cash equivalents 8,442,000 6,031,000 Deferred costs, prepaid real estate taxes and expenses, and other assets, net 20,469,000 8,528,000 ------------------ ------------------ Total assets $ 239,775,000 $ 173,895,000 ================== ================== LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable $ 213,018,000 $ 162,097,000 Bank loans payable 6,724,000 8,770,000 Due to the Trust 3,371,000 3,118,000 Other liabilities 7,601,000 4,341,000 ------------------ ------------------ Total liabilities 230,714,000 178,326,000 ------------------ ------------------ Net equity (deficit) 9,061,000 (4,431,000) Partners' share (5,444,000) (5,470,000) ------------------- ------------------ Investment in partnerships and joint ventures $ 14,505,000 $ 1,039,000 ================== ==================
-7- EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES
Three Months Ended -------------------------------------- December 31, November 30, 1997 1996 ------------------ ------------------ (Unaudited) Gross revenues from real estate $ 14,989,000 $ 13,545,000 ------------------ ------------------ Expenses: Property operating expenses 5,476,000 5,202,000 Mortgage and bank loan interest 4,148,000 3,858,000 Depreciation and amortization 2,077,000 1,756,000 ------------------ ------------------ 11,701,000 10,816,000 ------------------ ------------------ 3,288,000 2,729,000 Partners' share (1,684,000) (1,403,000) ------------------ ------------------ Equity in income of partnerships and joint ventures $ 1,604,000 $ 1,326,000 ================== ==================
One partnership, Emerald Point, in which the Registrant is a general partner and has control as provided in the partnership agreement, has been consolidated for financial statement presentation. All of the assets and liabilities of such partnership are included in the consolidated financial statements at 100%. The minority partner's interest is 35%. 4. EARNINGS PER SHARE: In 1997, the Registrant adopted SFAS No. 128, "Earnings Per Share." The adoption of this statement had no impact on previously reported earnings per share for 1996.
For the Three Months Ended December 31, 1997 --------------------------------------------- Per Share Income Shares Amount ------------- ------------- ------------ BASIC EARNINGS PER SHARE: Net income $ 5,436,000 9,535,094 $ .57 ============= ============= ============ DILUTED EARNINGS PER SHARE: Net income $ 5,436,000 9,535,094 Share options issued -- 22,951 ------------- ------------- $ 5,436,000 9,558,045 $ .57 ============= ============= ============
-8-
For the Three Months Ended November 30, 1996 --------------------------------------------- Per Share Income Shares Amount ------------- ------------- ------------ BASIC EARNINGS PER SHARE: Net income $ 2,639,000 8,678,098 $ .30 ============= ============= ============ DILUTED EARNINGS PER SHARE: Net income $ 2,639,000 8,678,098 Share options issued -- 18,071 ------------- ------------- $ 2,639,000 8,696,169 $ .30 ============= ============= ============
5. DISTRIBUTIONS: The per-share amount declared at the date of this report and the per-share amount declared in the comparable period for distribution are as follows:
Amount Per Date Declared Record Date Payment Date Share ----------------- ------------------- -------------------- -------- January 12, 1998 February 27, 1998 March 16, 1998 $.47 December 20, 1996 January 31, 1997 February 18, 1997 $.47
6. CASH FLOW INFORMATION: Cash paid for interest was $3,299,000 (net of capitalized interest of $205,000) and $2,344,000 for the three months ended December 31, 1997 and November 30, 1996, respectively. 7. COMMITMENTS AND CONTINGENCIES: Environmental matters have arisen at certain properties in which the Registrant has an interest for which reserves have previously been established. In management's opinion, no incremental cost will be incurred on these properties. The Registrant has been named as a defendant in a suit brought by persons and their affiliates who are partners of the Registrant in three partnerships. The Registrant is vigorously defending the suit and has denied the plaintiffs' allegations. The Registrant also believes that it has viable claims against certain of the same partners (or their affiliates) which it is asserting. As the pleadings are not yet closed and discovery is ongoing, it is not possible to judge the ultimate outcome of these suits at this time. However, management does not believe that resolution of these matters will have a material adverse effect on the Registrant's financial condition or results of operations. -9- 8. SUBSEQUENT EVENT: On January 26, 1998, the Registrant acquired the remaining 50% interest in a shopping center under construction located in Newark, Delaware, for a purchase price of at least $8.7 million consisting of $6 million in cash, $2.7 million to be paid through the issuance of operating partnership (OP) units upon completion of the shopping center, and a contingent payment to issue additional OP units upon completion of construction based on a predetermined formula which calculates the value of the center. -10- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The TRO Transaction On September 30, 1997, the Registrant acquired The Rubin Organization, Inc. ("TRO", renamed "PREIT-RUBIN, Inc."), a commercial property development and management firm, and certain related real estate interests (the "TRO Transaction"). As part of the TRO Transaction, the Registrant acquired Magnolia Mall, located in Florence, South Carolina, North Dartmouth Mall, located in North Dartmouth, Massachusetts and a 50% interest in the Court at Oxford Valley, located in Langorne, Pennsylvania. The Registrant also acquired the development rights of certain affiliates of TRO ("TRO Affiliates"), subject to related obligations, in Christiana Power Center (Phases I and II), Red Rose Commons and Blue Route Metroplex. In addition, the Registrant agreed to acquire the interests of TRO Affiliates in Hillview Shopping Center and Northeast Tower Center, both of which are currently under construction, at prices based upon a pre-determined formula. The TRO Transaction was financed through the issuance of 646,286 Class A Operating Partnership Units in PREIT Associates, L.P. (the "Operating Partnership), assumption of mortgage indebtedness at Magnolia Mall of approximately $25.2 million, and $59.9 million of cash. The cash was obtained primarily from borrowings under a new Credit Facility entered into by the Operating Partnership coincident with the September 30, 1997 closing of the TRO Transaction with a group of banks led by CoreStates Bank, N.A. The obligations of the Operating Partnership under the new Credit Facility have been guaranteed by the Registrant. Liquidity and Capital Resources Borrowings under the Credit Facility increased from approximately $34 million at August 31, 1997 to approximately $90 million at September 30, 1997, following the consummation of the TRO Transaction. On December 23, 1997, the Registrant sold 4,600,000 common shares of beneficial interest at a price of $22.375 per share. The net proceeds to the Registrant from the public offering, after deducting underwriting discounts and commissions were approximately $97 million. The Registrant used the net proceeds to prepay the $8.8 million mortgage loan (8.25%) secured by Cobblestone Apartments in Pompano Beach, Florida (the "Cobblestone Mortgage") and to repay approximately $88 million of amounts then outstanding under the Credit Facility. -11- Since September 30, 1997, the interest rate on the Credit Facility was set at a margin equal to 1.7% over 30-day LIBOR. As a result of the reduction in the Registrant's Leverage Ratio, following the December 1997 public offering, the interest rate is expected to be reduced by 30 basis points to a margin of 1.4% over 30-day LIBOR. In addition, the maturity date for the Credit Facility will be extended from September 30, 1999 to December 31, 2000. As of December 31, 1997, $10.3 million of borrowings under the Credit Facility were outstanding ($4.6 million directly by the Operating Partnership and $5.8 million through partnerships and joint ventures) and, subject to the terms and conditions of the Credit Facility, up to $139.7 million was available to fund property acquisitions, scheduled debt maturities and other uses. In addition to the Credit Facility, the Registrant has a $33.8 million Term Loan outstanding as of December 31, 1997, which is secured by three properties. This loan accrues interest at a fixed rate of 8.62% and matures in March 1998. The Registrant anticipates repaying the balance outstanding under the Term Loan on the maturity date with borrowings under the Credit Facility. In addition to amounts due under the Credit Facility and under the Term Loan, during the next three years mortgage loans secured by properties owned by three partnerships in which the Registrant has an interest mature by their terms. Balloon payments on these loans total $17.0 million, of which the Registrant's proportionate share is $8.5 million. The Registrant expects to meet its short-term liquidity requirements generally through its available working capital and net cash provided by operations. The Registrant believes that the net cash provided by operations will be sufficient to allow the Registrant to make any distributions necessary to enable the Registrant to continue to qualify as a REIT under the Code. The Registrant also believes that the foregoing sources of liquidity will be sufficient to fund its short-term liquidity needs for the foreseeable future, including capital expenditures, tenant improvements and leasing commissions. The Registrant expects to meet certain long-term liquidity requirements such as property acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through borrowings under the Credit Facility, long-term secured and unsecured indebtedness and the issuance of additional equity securities. -12- Funds from operations (FFO) increased by $1,542,000 for the three months ended December 31, 1997, as compared to the three months ended November 30, 1996, as follows:
Three Months Ended ------------------------------ December 31, November 30, Funds from Operations(1) 1997 1996 - --------------------------------------------------------- ----------- ----------- Income before minority interest $ 5,885,000 $ 2,729,000 Less: Gain on sale of interest in real estate (2,090,000) -- Minority interest in consolidated partnership (55,000) (90,000) Add: Depreciation and amortization- Wholly owned and consolidated partnerships (2) 2,017,000 1,474,000 Unconsolidated partnerships and joint ventures 996,000 852,000 Excess purchase price over net assets acquired 29,000 -- Refinancing prepayment fees -- 214,000 Less: Depreciation of non-real estate assets $ (57,000) $ (51,000) Amortization of deferred financing costs (133,000) (78,000) ----------- ----------- Funds from operations $ 6,592,000 $ 5,050,000 =========== =========== Funds from operations per share and OP Unit (3) $ 0.65 $ 0.58 =========== ===========
(1) Funds from operations ("FFO") is defined as income before gains (losses) on investments and extraordinary items (computed in accordance with generally accepted accounting principles "GAAP") plus real estate depreciation and similar adjustments for unconsolidated joint ventures after adjustments for non-real estate depreciation and amortization of financing costs. FFO should not be construed as an alternative to net income (as determined in accordance with GAAP) as an indicator of the Registrant's operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. In addition, the Registrant's measure of FFO as presented may not be comparable to similarly titled measures reported by other companies. (2) Net of minority interest of $50,000 in 1997 and $66,000 in 1996. (3) Assuming full conversion of the 646,286 Operating Partnership Units into shares of the Registrant. The weighted average effect for the three months ending December 31, 1997 and November 30, 1996 was 646,286 and 0, respectively. Net cash provided by operating activities increased to $3,452,000 from $3,016,000 for the three months ended December 31, 1997, as compared to the three months ended November 30, 1996. The increase is primarily attributable to additional operating income provided by Magnolia Mall and North Dartmouth Mall which the Registrant acquired on September 30, 1997, offset by the prepayment of real estate taxes in the 1997 period and the timing of other working capital changes. Net cash used in investing activities was $2,027,000 for the three months ended December 31, 1997, as compared to net cash provided by investing activities of $14,748,000 for the three months ended November 30, 1996. -13- Investing activities in the 1997 period include proceeds of approximately $3.9 million from the Registrant's sale of interests in Gateway Mall, St. Petersburg, Florida, offset by transaction costs paid in connection with the TRO Transaction and additional advances for property under development. Investing activities in the 1996 period include the Registrant's share of proceeds totaling $15.4 million from the refinancing of debt at two properties. Net cash used in financing activities was $2,158,000 for the three months ended December 31, 1997, as compared to $16,768,000 for the three months ended November 30, 1996. Financing activities in the 1997 period include the net proceeds from the sale of 4.6 million shares of the Registrant which totaled $96.8 million. The proceeds from the public offering were used to repay outstanding borrowings under the Credit Facility and to repay an $8.8 million mortgage loan. Financing activities in the 1996 period included net repayments of bank loans totaling $12.4 million and normal amortization of mortgage debt. Distributions paid to shareholders were approximately $4.1 million in both periods. Results of Operations Three Month Periods Ended December 31, 1997 and November 30, 1996 Gross revenues from real estate increased by $3,785,000 to $13,753,000 for the three month period ended December 31, 1997, as compared to the three month period ended November 30, 1996. The 1997 period included $3,540,000 of revenues attributable to Magnolia Mall and North Dartmouth Mall, which the Registrant acquired on September 30, 1997. Revenues from properties owned during both periods increased by $245,000 primarily as a result of an increase in apartment revenues. Operating expenses increased by $1,538,000 to $5,551,000. The 1997 period included $1,326,000 of expenses attributable to Magnolia Mall and North Dartmouth Mall which the Registrant acquired on September 30, 1997. Operating expenses from properties owned during both periods increased by $212,000 primarily due to increases in operating costs for apartments of $150,000. Depreciation and amortization increased by $527,000 to $2,067,000 primarily as a result of depreciation of $407,000 on the addition of the Magnolia Mall and North Dartmouth Mall properties and increased amortization of financing costs. Interest expense increased by $1,245,000 to $3,604,000 as a result of interest on borrowings against the Registrant's credit facility for acquisitions and working capital needs. -14- Equity in income of partnerships and joint ventures increased by $278,000 to $1,604,000 primarily as a result of the Registrant's purchase of a 50% interest in Oxford Valley Road Associates on September 30, 1997, the income of which was $113,000. The 1996 period includes a prepayment penalty in the amount of $214,000 due to the refinancing of debt at Lehigh Valley Mall. The 1996 period also includes income from properties sold during 1996 in the amount of $66,000. Equity in income of PREIT-RUBIN for the 1997 period was $260,000. The gain on the sale of interest in real estate of $2,090,000 in the 1997 period relates to the sale of the Registrant's 60% interest in Gateway Mall, St. Petersburg, Florida. Minority interest increased by $359,000 to $449,000 as a result of a the Class A OP Units issued in connection with the TRO Transaction. Net income for the quarter ended December 31, 1997 increased to $5,436,000 from $2,639,000 as reported in the comparable period in the prior year. -15- Part II. Other Information Item 1. Legal Proceedings Reference is made to the litigation between the Registrant and affiliates of the Registrant and Daniel Berman and Robert Berman and/or entities owned or controlled by them (collectively, the "Bermans") most recently described in Item 3 of the Registrant's Report on Form 10-K for its fiscal year ended August 31, 1997, filed with the Securities and Exchange Commission on November 28, 1997. In December 1997, the court in the Delaware Litigation issued an opinion granting partial summary judgment in favor of the Registrant and certain of its affiliates on certain counterclaims of the Bermans in that action (which counterclaims are substantially similar to the claims made by the Bermans as plaintiffs in the Pennsylvania Litigation). Under the court's decision: the Bermans would be liable for one-half of (i) the costs incurred at Eagles' Nest and in respect of the 14 acre undeveloped tract in Coral Gables, Florida, and (ii) reasonable environmental clean-up costs at Fox Run; and the counterclaims of the Bermans relating to Eagles' Nest and Fox Run were dismissed. The court did not dismiss counterclaims by the Bermans in the Delaware Litigation alleging that (i) there had been an oral modification of the management agreement relating to Fox Run (and the court therefore permitted the Bermans to continue to manage that project until that claim is resolved), and (ii) the environmental clean up costs incurred by certain of the Registrant's affiliates at Fox Run were excessive. The Registrant intends to continue to vigorously resist plaintiffs' claims in the Pennsylvania Litigation and the defendants' remaining counterclaims in the Delaware Litigation and to pursue the claims asserted by the Registrant in the Delaware Litigation. Management does not believe that resolution of these matters will have a material adverse effect on the Registrant's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders The 1997 Annual Meeting of Holders of Certificates of Beneficial Interest of the Registrant was held on December 16, 1997, pursuant to a Notice of Meeting and related proxy statement dated November 14, 1997, and filed with the Securities and Exchange Commission pursuant to Rule 14a-6(b) on November 18, 1997. At the Annual Meeting, Ms. Rosemarie B. Greco and Messrs. William F. Dimeling and George F. Rubin were reelected to the Board of Trustees of the Registrant for terms expiring at the Annual Meeting of Shareholders to be held in 2001. In such election, 7,033,092 shares were voted for the election of Ms. Rosemarie B. Greco, 7,014,196 shares were voted for the election of Mr. William F. Dimeling and 7,036,022 shares were voted for the election of Mr. George F. Rubin. Under the Trust Agreement for the Registrant, votes cannot be cast against a candidate. Proxies filed at the 1997 Annual Meeting by the holders of 84,188 shares withheld authority to vote for Ms. Greco, those filed by the holders of 103,084 shares withheld authority to vote for Mr. Dimeling and those filed by the holders of 81,258 shares withheld authority to vote for Mr. Rubin. The following persons continued as Trustees following the Annual -16- Meeting: for terms expiring at the 1999 Annual Meeting - Sylvan M. Cohen, Lee H. Javitch and Jonathan B. Weller; for terms expiring at the 2000 Annual Meeting - Ronald Rubin, Leonard I. Korman and Jeffrey P. Orleans. Also at the Annual Meeting, the shareholders approved amendments to the Registrant's 1990 Stock Option Plan for Non-Employee Directors, which amendments were described in detail in the Registrant's Proxy Statement for the Annual Meeting. The holders of 6,533,212 shares voted for approval of the amendments, the holders of 429,700 shares voted against approval of the amendments, and the holders of 152,080 shares abstained from voting on the amendments. Item 5. Other Information On January 26, 1998, a wholly-owned affiliate of PREIT Associates, L.P., the operating partnership of the Registrant, effectively acquired both the fee interest in the land for Phase I of the Registrant's Christiana Power Center retail project and the 50% interest in the project not previously owned by the Registrant. The consideration paid for the acquisition of such land and interest was $6.0 million plus the right of the transferror to receive Limited Partner units in PREIT Associates, L.P. upon completion of the Center. The value of the limited partner units to be issued will be equal to approximately $2.7 million plus 50% of the equity value of the center to be computed following completion based upon an agreed-upon formula. Units of limited partner interest in PREIT Associates, L.P. are redeemable for cash equal to the price of the Registrant's Shares at the time of redemption, or, at the option of the Registrant, Shares of the Registrant on a one-for-one basis. Construction of Phase I commenced in the fourth quarter of 1997 and substantial portions of the Center are expected to be completed in the fourth quarter of 1998. -17- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27.) Financial Data Schedule (included in electronic filing format) (b) Reports on Form 8-K: 1. Report on Form 8-K dated October 13, 1997 and filed October 14, 1997 (Item Nos. 2, 7 and 8); included pro forma consolidating financial information for the Registrant and identified acquired businesses at May 31, 1997 and for the year ended August 31, 1996 and the nine months ended May 31, 1997 and related notes and management assumptions; incorporated by reference historical financial information on the same acquired businesses from the Registrant's definitive proxy statement dated August 27, 1997 and filed with the Securities and Exchange Commission on August 28, 1997. 2. Report on Form 8-K dated December 2, 1997 and filed on December 2, 1997 (Item 7(c)). 3. Report on Form 8-K dated December 17, 1997 and filed on December 17, 1997 (Item 7(c)). 4. Report on Form 8-K dated December 22, 1997 and filed on December 22, 1997 (Item 7(c)). -18- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned on its behalf by the undersigned thereunto duly authorized. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST Registrant By /s/ Ronald Rubin -------------------------------------------- Ronald Rubin Chief Executive Officer By /s/ Edward A. Glickman -------------------------------------------- Edward A. Glickman Executive Vice President and Chief Financial Officer By /s/ Dante J. Massimini -------------------------------------------- Dante J. Massimini, Senior Vice President and Treasurer Date: February 17, 1998 -19- EX-27 2
5 0000077281 PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 3-MOS DEC-31-1997 OCT-01-1997 DEC-31-1997 1,324,000 0 32,626,000 1,770,000 0 0 286,557,000 53,171,000 265,566,000 23,097,000 103,939,000 0 0 13,289,000 125,241,000 265,566,000 13,753,000 17,336,000 0 8,296,000 0 0 3,604,000 5,436,000 0 5,436,000 0 0 0 5,436,000 0.57 0.57
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