-----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, MT5s7A8Jlbz6jlcigjKcnbqLTAIdzPWmdhaujhk064/RZwcqyDhHjDePt/doxf9J e2YslhhehwCL8Gqusx0Vyw== 0000950116-99-002114.txt : 19991117 0000950116-99-002114.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950116-99-002114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: SEC FILE NUMBER: 001-06300 FILM NUMBER: 99756316 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q [X] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999 ------------------ [ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________________ to _______________________ Commission File Number 1-6300 ---------------------------------------------------------- Pennsylvania Real Estate Investment Trust - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Pennsylvania 23-6216339 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 200 South Broad Street, Third Floor, Philadelphia, PA 19102-3803 - ----------------------------------------------------- ------------ (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (215) 875-0700 -------------- N/A - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of beneficial interest outstanding at November 9, 1999: 13,328,391 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- This report includes a total of 25 pages. - -------------------------------------------------------------------------------- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONTENTS Page ---- Part I. Financial Information Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets--September 30, 1999 and December 31, 1998 1-2 Consolidated Statements of Income--Three and Nine Months Ended September 30, 1999 and September 30, 1998 3 Consolidated Statements of Cash Flows-- Nine Months Ended September 30, 1999 and September 30, 1998 4 Notes to Unaudited Consolidated Financial Statements 5-13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14-22 Item 3. Quantitative and Qualitative Disclosures about Market Risk 23 Part II. Other Information Item 1. Not Applicable - Item 2. Not Applicable - Item 3. Not Applicable - Item 4. Not Applicable - Item 5. Other Information - Item 6. Exhibits and Reports on Form 8-K 24 Signatures 25 Part I. Financial Information Item 1. Financial Statements PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (Note 1) ASSETS (Unaudited and in thousands)
September 30, December 31, 1999 1998 ------------- ------------ INVESTMENTS IN REAL ESTATE, at cost: Multifamily properties $ 235,350 $ 230,997 Retail properties 280,940 261,823 Industrial properties 5,078 5,078 Land and properties under development 38,862 11,508 --------- --------- Total investments in real estate 560,230 509,406 Less- Accumulated depreciation 80,499 71,129 --------- --------- 479,731 438,277 INVESTMENT IN PREIT-RUBIN, INC. (Note 2) 5,414 5,372 INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES, at equity (Note 3) 17,601 13,439 ADVANCES TO PREIT-RUBIN, INC. 5,950 4,074 --------- --------- 508,696 461,162 Less- Allowance for possible losses 528 1,572 --------- --------- 508,168 459,590 OTHER ASSETS: Cash and cash equivalents 2,166 6,135 Rents and sundry receivables (net of allowance for doubtful accounts of $874 and $364, respectively) 4,036 3,498 Deferred costs, prepaid real estate taxes and expenses, net 17,310 12,392 --------- --------- $ 531,680 $ 481,615 ========= =========
(Continued) -1- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED BALANCE SHEETS (CONTINUED) (Note 1) LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited and in thousands)
September 30, December 31, 1999 1998 ------------- ------------ LIABILITIES: Mortgage notes payable $ 267,920 $ 167,003 Bank and other loans payable 83,200 135,273 Construction costs payable 3,672 -- Tenants' deposits and deferred rents 2,297 1,827 Accrued pension and retirement benefits 939 972 Accrued expenses and other liabilities 6,479 11,413 ---------- --------- 364,507 316,488 ---------- --------- MINORITY INTEREST (Note 3) 32,565 28,045 COMMITMENTS AND CONTINGENCIES (Note 6) SHAREHOLDERS' EQUITY (Note 4): Shares of beneficial interest, $1 par; authorized unlimited; issued and outstanding 13,324,476 shares at September 30, 1999 and 13,299,723 shares at December 31, 1998 13,324 13,300 Capital contributed in excess of par 145,529 145,103 Distributions in excess of net income (24,245) (21,321) ---------- --------- 134,608 137,082 ---------- --------- $ 531,680 $ 481,615 ========== =========
The accompanying notes are an integral part of these statements. -2- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF INCOME (Note 1) (Unaudited) (in thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30 September 30 -------------------- ------------------------- 1999 1998 1999 1998 -------- --------- ------------ ---------- REVENUES: Gross revenues from real estate $ 21,949 $ 14,768 $ 65,184 $ 42,076 Interest and other income 293 145 857 400 -------- --------- ------------ ---------- 22,242 14,913 66,041 42,476 -------- --------- ------------ ---------- EXPENSES: Property operating expenses 7,925 5,678 23,289 15,820 Depreciation and amortization 3,384 2,231 9,909 6,482 General and administrative expenses 771 852 2,617 2,458 Interest expense 5,676 2,457 16,143 6,292 -------- --------- ------------ ---------- 17,756 11,218 51,958 31,052 -------- --------- ------------ ---------- Income before equity in unconsolidated entities, gains on sales of interests in real estate and minority interest in operating partnership 4,486 3,695 14,083 11,424 EQUITY IN (LOSS) INCOME OF PREIT-RUBIN, INC. (Note 2) (618) 1,133 (2,566) 274 EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES (Note 3) 1,541 1,343 4,384 4,032 GAINS ON SALES OF INTERESTS IN REAL ESTATE 162 1,277 1,508 3,043 -------- --------- ------------ ---------- Income before minority interest in operating partnership 5,571 7,448 17,409 18,773 MINORITY INTEREST IN OPERATING PARTNERSHIP (507) (432) (1,557) (961) -------- --------- ------------ ---------- NET INCOME $ 5,064 $ 7,016 $ 15,852 $ 17,812 ======== ========= ============ ========== BASIC INCOME PER SHARE (Note 4) $ .38 $ .53 $ 1.19 $ 1.34 ======== ========= ============ ========== DILUTED INCOME PER SHARE (Note 4) $ .38 $ .53 $ 1.19 $ 1.34 ======== ========= ============ ==========
The accompanying notes are an integral part of these statements. -3- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 1) (Unaudited and in thousands)
Nine Months Ended September 30 ----------------------- 1999 1998 --------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 15,852 $ 17,812 Adjustments to reconcile net income to net cash provided by operating activities- Minority interest in operating partnership 1,557 961 Depreciation and amortization 9,909 6,482 Provision for doubtful accounts, net 509 120 Gains on sales of interests in real estate (1,508) (3,043) Equity in loss (income) of PREIT-RUBIN, Inc. 2,566 (274) Decrease in allowance for possible losses (89) (143) Change in assets and liabilities- Rents and sundry receivables (1,047) (1,366) Deferred costs, prepaid real estate taxes and expenses (4,018) (2,807) Accrued pension and retirement benefits (33) (26) Accrued expenses and other liabilities (4,597) 2,264 Tenants' deposits and deferred rents 470 40 --------- ---------- Net cash provided by operating activities 19,571 20,020 --------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Investments in wholly-owned real estate (16,868) (100,784) Investments in property under development (28,408) (19,435) Investment in and advances to PREIT-RUBIN, Inc. (1,876) (500) Investments in partnerships and joint ventures (5,817) (9,938) Cash proceeds from sale of real estate interests 4,693 3,008 Cash distributions from partnerships and joint ventures in excess of equity in income 1,770 496 --------- ---------- Net cash used in investing activities (46,506) (127,153) --------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal installments on mortgage notes payable (2,582) (1,034) Repayment of mortgage notes payable (17,001) (33,680) Net (payments) borrowings under revolving credit facility (55,673) 111,445 Proceeds from mortgage notes payable 120,500 51,014 Proceeds from shares of beneficial interest issued 111 206 Payment of deferred financing and equity offering costs (1,438) (1,076) Distributions paid to shareholders (18,777) (18,750) Distributions paid to OP Unit holders (1,887) (963) Distributions to other minority partners (287) (19) --------- ---------- Net cash provided by financing activities 22,966 107,143 --------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,969) 10 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,135 1,324 --------- ---------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,166 $ 1,334 ========= ========== SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES: Accrual of construction costs $ 3,672 $ -- ========= ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest (net of capitalized interest of $1,500 and $1,190, respectively) $ 15,100 $ 5,961 ========= ==========
The accompanying notes are an integral part of these statements. -4- NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 1999 1. BASIS OF PRESENTATION: The Registrant prepared the consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Registrant believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Registrant's latest annual report on Form 10-K. In the opinion of the Registrant, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position and the consolidated results of its operations and its cash flows, have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. Certain prior period amounts have been reclassified to conform with current period presentation. 2. INVESTMENT IN PREIT-RUBIN, INC.: PREIT-RUBIN, Inc. ("PRI") is responsible for various activities, including management, leasing and real estate development of certain of the Registrant's properties and for properties on behalf of third parties. Total management fees paid by the Registrant's properties to PRI are included in property operating expenses in the accompanying consolidated statements of income and amounted to $192,000 and $483,000 for the three and nine-month periods ended September 30, 1999, respectively, and $66,000 and $158,000 for the three and nine-month periods ended September 30, 1998, respectively. The Registrant's properties also paid leasing and development fees to PRI totaling $31,000 and $473,000 for the three and nine-month periods ended September 30, 1999, respectively, and $207,000 and $662,000 for the three and nine-month periods ended September 30, 1998, respectively. Leasing and development fees paid by the Registrant's properties to PRI are capitalized and amortized to expense in accordance with the Registrant's normal accounting policies. Intercompany profits earned by PRI related to such activities are deferred and will be amortized to income over these same periods in order to more properly match revenues and expenses. -5- PRI also provides management, leasing and development services for partnerships and other ventures in which certain officers of the Registrant and PRI have either direct or indirect ownership interests. Total revenues earned by PRI for such services were $695,000 and $2,398,000 for the three and nine-month periods ended September 30, 1999, respectively, and $880,000 and $2,621,000 for the three and nine-months periods ended September 30, 1998, respectively. As of September 30, 1999 and December 31, 1998, $1,034,000 and $1,682,000, respectively, was due from these affiliates. Of these amounts, approximately $139,000 was collected subsequent to September 30, 1999. Summarized unaudited financial information for PRI as of and for the three and nine-month periods ended September 30, 1999 and 1998 is as follows (in thousands):
For the Nine For the Three Months Ended Months Ended September 30 September 30 --------------------------------- --------------------------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- Total assets $ 7,580 $ 13,332 $ 7,580 $ 13,332 ========== =========== ========== =========== Management fees $ 3,640 $ 3,663 $ 1,171 $ 1,186 Leasing commissions 4,202 6,736 1,800 4,235 Development fees 665 1,001 190 438 Other revenues 2,708 2,201 1,210 747 ---------- ----------- ---------- ----------- Total revenue $ 11,215 $ 13,601 $ 4,371 $ 6,606 ========== =========== ========== =========== Net (loss) income $ (2,702) $ 288 $ (651) $ 1,193 ========== =========== ========== =========== Registrant's share of net (loss) income $ (2,566) $ 274 $ (618) $ 1,133 ========== =========== ========== ===========
3. INVESTMENTS IN PARTNERSHIPS AND JOINT VENTURES: The following table presents summarized financial information as to the Registrant's equity in the assets and liabilities of 16 partnerships and joint ventures and 1 property under development at September 30, 1999, and 19 partnerships and joint ventures and 2 properties under development at December 31, 1998 and the Registrant's equity in income for the three and nine-month periods ended September 30, 1999 and 1998 (in thousands): -6-
September 30, December 31, 1999 1998 ------------- ------------ ASSETS Investments in real estate, at cost: Multifamily properties $ 56,098 $ 54,396 Retail properties 198,381 185,900 Industrial property -- 1,275 Properties under development 58,448 25,601 Land 279 926 ----------- ----------- Total investments in real estate 313,206 268,098 Less- Accumulated depreciation 68,617 64,478 ----------- ----------- 244,589 203,620 Cash and cash equivalents 8,562 7,107 Deferred costs, prepaid real estate taxes and expenses, and other assets, net 33,086 34,923 ----------- ----------- Total assets $ 286,237 $ 245,650 =========== =========== LIABILITIES AND PARTNERS' EQUITY Mortgage notes payable $ 227,556 $ 218,278 Bank loans payable -- 3,260 Construction loans payable 18,852 -- Other liabilities 19,987 9,675 ----------- ----------- Total liabilities 266,395 231,213 ----------- ----------- Net equity 19,842 14,437 Less: Partners' share 2,241 998 ----------- ----------- Investment in partnerships and joint ventures $ 17,601 $ 13,439 =========== ===========
-7- EQUITY IN INCOME OF PARTNERSHIPS AND JOINT VENTURES
Three Months Ended Nine Months Ended September 30 September 30 ---------------------- ---------------------- 1999 1998 1999 1998 ---------- --------- ---------- ---------- Gross revenues from real estate $ 14,388 $ 13,703 $ 42,909 $ 41,750 ----------- --------- ---------- ---------- Expenses: Property operating expenses 4,603 4,917 14,285 15,021 Mortgage and bank loan interest 4,398 4,043 13,027 12,369 Depreciation and amortization 2,291 2,021 6,756 6,175 ----------- --------- ---------- ---------- 11,292 10,981 34,068 33,565 ----------- --------- ---------- ---------- 3,096 2,722 8,841 8,185 Partners' share (1,555) (1,379) (4,457) (4,153) ----------- --------- ---------- ---------- Equity in income of partnerships and joint ventures $ 1,541 $ 1,343 $ 4,384 $ 4,032 =========== ========= ========== ==========
4. EARNINGS PER SHARE: Basic Earnings Per Share is based on the weighted average number of common shares outstanding during the period. Diluted Earnings Per Share is based on the weighted average number of shares outstanding during the period, adjusted to give effect to common share equivalents. A reconciliation between basic and diluted Earnings Per Share is shown below (in thousands, except share and per share amounts):
For the Three Months Ended For the Nine Months Ended September 30, 1999 September 30, 1999 ------------------------------------- -------------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ----------- ---------- ------------ ----------- ---------- ------------ BASIC EARNINGS PER SHARE: Net income $ 5,064 13,321,934 $ .38 $ 15,852 13,315,203 $ 1.19 =========== ========== ============ =========== ========== =========== DILUTED EARNINGS PER SHARE: Net income $ 5,064 13,321,934 $ 15,852 13,315,203 Share options issued -- 8,375 -- 8,542 ----------- ---------- ----------- ---------- $ 5,064 13,330,309 $ .38 $ 15,852 13,323,745 $ 1.19 =========== ========== ============ =========== ========== ===========
-8-
For the Three Months Ended For the Nine Months Ended September 30, 1998 September 30, 1998 ------------------------------------- ------------------------------------- Per Share Per Share Income Shares Amount Income Shares Amount ----------- ---------- ------------ ----------- ---------- ----------- BASIC EARNINGS PER SHARE: Net income $ 7,016 13,299,723 $ .53 $ 17,812 13,296,405 $ 1.34 =========== ========== ============ =========== ========== =========== DILUTED EARNINGS PER SHARE: Net income $ 7,016 13,299,723 $ 17,812 13,296,405 Share options issued -- 18,222 -- 23,548 ----------- ---------- ----------- ---------- $ 7,016 13,317,945 $ .53 $ 17,812 13,319,953 $ 1.34 =========== ========== ============ =========== ========== ===========
5. DISTRIBUTIONS: The per-share amount declared at the date of this report and the per-share amount declared in the comparable period for distribution are as follows:
Amount Per Date Declared Record Date Payment Date Share ---------------- ----------------- ----------------- ------ October 18, 1999 November 30, 1999 December 15, 1999 $ .47 October 13, 1998 November 30, 1998 December 15, 1998 $ .47
6. COMMITMENTS AND CONTINGENCIES: Environmental matters had arisen at certain properties for which reserves had previously been established. The reserves were established when the Registrant owned an interest in these properties. The Registrant no longer has an interest in these properties. In management's opinion, no material incremental cost will be incurred on these properties. As part of the merger with PRI (formerly The Rubin Organization, Inc.) the Registrant entered into a contribution agreement (the "Contribution Agreement") which includes a provision for PREIT Associates, L.P., the Registrant's operating partnership, to issue up to 800,000 additional Class A Operating Partnership ("OP") units over the five-year period, beginning October 1, 1997 and ending September 30, 2002 according to a formula based upon the Registrant's adjusted funds from operations per share during the five-year period. The Contribution Agreement establishes "hurdle" and "target" levels for the Registrant's adjusted funds from operations per share during specified earn-out periods to determine whether, and to what extent, the contingent OP units will be issued. The additional OP units issuable under the Contribution Agreement are accounted for as additional purchase price when such amounts are determinable. Through December 31, 1998, 162,500 contingent OP units have been earned, all of which have been issued. At September 30, 1999, the Registrant is required to fund approximately $59.4 million ($37.3 million for wholly-owned properties and $22.1 million represents the Registrant's share for partnerships and joint ventures) to complete current development and redevelopment projects. In connection with certain development properties, PREIT Associates, L.P. may be required to issue additional OP units upon the achievement of certain financial results. -9- 7. SEGMENT INFORMATION: The Registrant has four reportable segments: retail properties, multifamily properties, other, and corporate. The retail segment includes the operation and management of 21 regional and community shopping centers (11 wholly owned and 10 owned in joint venture form). The multifamily segment includes the operation and management of 19 apartment communities (14 wholly owned and 5 owned in joint venture form). The other segment includes the operation and management of 6 retail properties under development (4 wholly owned and 2 owned in joint venture form), 5 industrial properties (all wholly owned) and 3 land parcels (1 wholly owned and 2 owned in joint venture form). The corporate segment is responsible for cash and investment management and certain other general support functions. The accounting policies for the segments are the same as those the Registrant uses for its consolidated financial reporting, except that for segment reporting purposes, the Registrant uses the "proportionate-consolidation method" of accounting (a non-GAAP measure) for joint venture properties, instead of the equity method of accounting. The Registrant calculates the proportionate-consolidation method by applying its percentage ownership interest to the historical financial statements of its equity method investments. -10-
(In thousands) Adjustments to Equity Total Nine Months Ended September 30, 1999 Retail Multifamily Other Corporate Total Method Consolidated - ------------------------------------ --------- ----------- --------- --------- --------- ----------- ------------ Real estate operating revenues $ 46,108 $ 38,589 $ 1,155 $ -- $ 85,852 $ (20,666) $ 65,184 Real estate operating expense 13,966 15,846 20 -- 29,832 (6,543) 23,289 -------- --------- -------- --------- --------- ---------- ----------- Net operating income 32,142 22,743 1,135 -- 56,020 (14,125) 41,895 -------- --------- -------- --------- --------- ---------- ----------- General and administrative expenses -- -- -- (2,617) (2,617) -- (2,617) Interest income -- -- -- 857 857 -- 857 PRI net operating loss -- -- -- (1,360) (1,360) 1,360 -- -------- --------- -------- --------- --------- ---------- ----------- EBITDA 32,142 22,743 1,135 (3,120) 52,900 (12,765) 40,135 -------- --------- -------- --------- --------- ---------- ----------- Interest expense (12,989) (9,009) (263) (848) (23,109) 6,966 (16,143) Depreciation and amortization (7,297) (5,602) (75) (1,036) (14,010) 4,101 (9,909) PRI income taxes -- -- -- 104 104 (104) -- Gains on sales of interests in real estate 445 -- 1,063 -- 1,508 -- 1,508 Minority interest in operating partnership -- -- -- (1,541) (1,541) (16) (1,557) Equity in interest of partnerships and joint ventures -- -- -- -- -- 4,384 4,384 Equity in loss of PRI -- -- -- -- -- (2,566) (2,566) -------- --------- -------- --------- --------- ---------- ----------- Net income (loss) $ 12,301 $ 8,132 $ 1,860 $ (6,441) $ 15,852 $ -- $ 15,852 -------- --------- -------- --------- --------- ---------- ----------- Investments in real estate, at cost $280,940 $ 235,350 $ 43,940 $ -- $ 560,230 $ -- $ 560,230 -------- --------- -------- --------- --------- ---------- ----------- Total assets $364,401 $ 208,941 $ 74,206 $ 15,240 $ 662,788 $ (131,108) $ 531,680 -------- --------- -------- --------- --------- ---------- ----------- Recurring capital expenditures $ 1,718 $ 4,696 $ -- $ -- $ 6,414 $ (611) $ 5,803 -------- --------- -------- --------- --------- ---------- ----------- Adjustments to Equity Total Nine Months Ended September 30, 1998 Retail Multifamily Other Corporate Total Method Consolidated - ------------------------------------ --------- ----------- --------- --------- --------- ----------- ------------ Real estate operating revenues $ 27,438 $ 33,822 $ 1,213 $ -- $ 62,473 $ (20,397) $ 42,076 Real estate operating expense 8,648 14,467 18 -- 23,133 (7,313) 15,820 -------- --------- -------- --------- --------- ---------- ------------ Net operating income 18,790 19,355 1,195 -- 39,340 (13,084) 26,256 -------- --------- -------- --------- --------- ---------- ------------ General and administrative expenses -- -- -- (2,458) (2,458) -- (2,458) Interest income -- -- -- 400 400 -- 400 PRI net operating income -- -- -- 1,689 1,689 (1,689) -- -------- --------- -------- --------- --------- ---------- ----------- EBITDA 18,790 19,355 1,195 (369) 38,971 (14,773) 24,198 -------- --------- -------- --------- --------- ---------- ------------ Interest expense (6,625) (5,235) (331) (661) (12,852) 6,560 (6,292) Depreciation and amortization (4,122) (5,042) (88) (897) (10,149) 3,667 (6,482) PRI income taxes -- -- -- (240) (240) 240 -- Gains on sales of interests in real estate 1,277 1,766 -- -- 3,043 -- 3,043 Minority interest in operating partnership -- -- -- (961) (961) -- (961) Equity in interest of partnerships and joint ventures -- -- -- -- -- 4,032 4,032 Equity in income of PRI -- -- -- -- -- 274 274 -------- --------- -------- --------- --------- ---------- ------------ Net income (loss) $ 9,320 $ 10,844 $ 776 $ (3,128) $ 17,812 $ -- $ 17,812 -------- --------- -------- --------- --------- ---------- ------------ Investments in real estate, at cost $204,756 $ 185,207 $ 28,245 $ -- $ 418,208 $ -- $ 418,208 -------- --------- -------- --------- --------- ---------- ------------ Total assets $266,741 $ 188,963 $ 47,301 $ 9,851 $ 512,856 $ (108,749) $ 404,107 -------- --------- -------- --------- --------- ---------- ------------ Recurring capital expenditures $ 1,029 $ 2,855 $ -- $ -- $ 3,884 $ (705) $ 3,179 -------- --------- -------- --------- --------- ---------- ------------
-11-
(In thousands) Adjustments to Equity Total Three Months Ended September 30, 1999 Retail Multifamily Other Corporate Total Method Consolidated - ------------------------------------- --------- ----------- --------- --------- --------- ----------- ------------ Real estate operating revenues $ 15,655 $ 13,004 $ 379 $ -- $ 29,038 $ (7,089) $ 21,949 Real estate operating expense 4,712 5,469 6 -- 10,187 (2,262) 7,925 -------- --------- -------- --------- --------- ---------- ------------ Net operating income 10,943 7,535 373 -- 18,851 (4,827) 14,024 -------- --------- -------- --------- --------- ---------- ------------ General and administrative expenses -- -- -- (771) (771) -- (771) Interest income -- -- -- 293 293 -- 293 PRI net operating loss -- -- -- (149) (149) 149 -- -------- --------- -------- --------- --------- ---------- ------------ EBITDA 10,943 7,535 373 (627) 18,224 (4,678) 13,546 -------- --------- -------- --------- --------- ---------- ------------ Interest expense (4,248) (3,497) (6) (272) (8,023) 2,347 (5,676) Depreciation and amortization (2,505) (1,889) (24) (374) (4,792) 1,408 (3,384) Gains on sales of interests in real estate -- -- 162 -- 162 -- 162 Minority interest in operating partnership -- -- -- (507) (507) -- (507) Equity in interest of partnerships and joint ventures -- -- -- -- -- 1,541 1,541 Equity in loss of PRI -- -- -- -- -- (618) (618) -------- --------- -------- --------- --------- ---------- ------------ Net income (loss) $ 4,190 $ 2,149 $ 505 $ (1,780) $ 5,064 $ -- $ 5,064 -------- --------- -------- ---------= --------- ---------- ------------ Investments in real estate, at cost $280,940 $ 235,350 $ 43,940 $ -- $ 560,230 $ -- $ 560,230 -------- --------- -------- --------- --------- ---------- ------------ Total assets $364,401 $ 208,941 $ 74,206 $ 15,240 $ 662,788 $ (131,108) $ 531,680 -------- --------- -------- --------- --------- ---------- ------------ Recurring capital expenditures $ 107 $ 909 $ -- $ -- $ 1,016 $ (120) $ 896 -------- --------- -------- --------- --------- ---------- ------------ Adjustments to Equity Total Three Months Ended September 30, 1998 Retail Multifamily Other Corporate Total Method Consolidated - ------------------------------------- --------- ----------- --------- --------- --------- ---------- ------------ Real estate operating revenues $ 9,498 $ 11,598 $ 405 $ -- $ 21,501 $ (6,733) $ 14,768 Real estate operating expense 2,982 5,104 5 -- 8,091 (2,413) 5,678 --------- ----------- --------- --------- --------- ---------- ------------ Net operating income 6,516 6,494 400 -- 13,410 (4,320) 9,090 --------- ----------- --------- --------- --------- ---------- ------------ General and administrative expenses -- -- -- (852) (852) -- (852) Interest income -- -- -- 145 145 -- 145 PRI net operating income -- -- -- 2,196 2,196 (2,196) -- --------- ----------- --------- --------- --------- ---------- ------------ EBITDA 6,516 6,494 400 1,489 14,899 (6,516) 8,383 --------- ----------- --------- --------- --------- ---------- ------------ Interest expense (2,585) (1,815) (43) (191) (4,634) 2,177 (2,457) Depreciation and amortization (1,405) (1,712) (29) (301) (3,447) 1,216 (2,231) PRI income taxes -- -- -- (647) (647) 647 -- Gains on sales of interests in real estate 1,277 -- -- -- 1,277 -- 1,277 Minority interest in operating partnership -- -- -- (432) (432) -- (432) Equity in interest of partnerships and joint ventures -- -- -- -- -- 1,343 1,343 Equity in income of PRI -- -- -- -- -- 1,133 1,133 --------- ----------- --------- --------- --------- ---------- ------------ Net income (loss) $ 3,803 $ 2,967 $ 328 $ (82) $ 7,016 $ -- $ 7,016 --------- ----------- --------- --------- --------- ---------- ------------ Investments in real estate, at cost $ 204,756 $ 185,207 $ 28,245 $ -- $ 418,208 $ -- $ 418,208 --------- ----------- --------- --------- --------- ---------- ------------ Total assets $ 266,741 $ 188,963 $ 47,301 $ 9,851 $ 512,856 $ (108,749) $ 404,107 --------- ----------- --------- --------- --------- ---------- ------------ Recurring capital expenditures $ 493 $ 942 $ -- $ -- $ 1,435 $ (387) $ 1,048 --------- ----------- --------- --------- --------- ---------- ------------
-12- 8. RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," which delayed the effective date of SFAS No. 133 for one year until January 1, 2001. The Registrant does not expect the adoption of this statement to have a material impact on its financial position or results of operations. -13- Item 2. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources The Registrant expects to meet its short-term liquidity requirements generally through its available working capital and net cash provided by operations. The Registrant believes that the net cash provided by operations will be sufficient to make distributions to continue to qualify as a REIT under the Internal Revenue Code. The Registrant also believes that the foregoing sources of liquidity will be sufficient to fund its short-term liquidity needs for the foreseeable future, including capital expenditures, tenant improvements and leasing commissions. The Registrant expects to meet certain long-term liquidity requirements such as property development and acquisitions, scheduled debt maturities, renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness, the sale of properties, joint venture partnerships with capital sources and the issuance of additional equity securities. The Credit Facility As of September 30, 1999, $83.2 million of borrowings under the Credit Facility were outstanding. In addition, the Registrant has pledged $5.7 million under the Credit Facility as collateral for several letters of credit drawn to facilitate development projects. Subject to the terms and conditions of the Credit Facility, up to $61.1 million was available to fund property acquisitions, scheduled debt maturities and other uses. At September 30, 1999 the interest rate on the Credit Facility was 7.08%. The Credit Facility matures on December 31, 2000. Mortgage Notes In order to secure additional funds for its acquisition and development activities, on April 13, 1999, the Registrant concluded the financing of eight multifamily communities with $108.0 million of permanent, fixed-rate, long-term debt. With the financing, the Registrant replaced short-term floating rate debt with fixed rate, mortgage debt. The new debt carries a weighted average fixed interest rate of approximately 6.77%, equating to a spread of 158 basis points over the yield on ten year U. S. Treasury Notes at the time rates were locked. The eight properties secure the non-recourse loans, which amortize over 30 years and mature in May 2009. Proceeds from these newly-placed loans were used to 1) repay approximately $88.0 million of the Credit Facility, 2) pay off a short-term floating rate loan of approximately $17.0 million and 3) fund approximately $3.0 million in closing costs. -14- In addition to amounts due under the Credit Facility prior to December 31, 2000, a mortgage loan, secured by a property owned by one partnership in which the Registrant has an interest, matures by its terms. The balloon payment on this loan is $1.2 million of which the Registrant's proportionate share is $.6 million and is due August 2000. A mortgage loan on a property wholly-owned by the Registrant also matures by its terms. The balloon payment on this loan totals $14.9 million and is due November 2000. Acquisitions and Dispositions The Registrant is actively involved in pursing and evaluating a number of individual property and portfolio acquisition opportunities. In addition, the Registrant has stated that a key strategic goal is to obtain managerial control of all of its assets. In certain cases where existing joint venture assets are managed by outside partners, the Registrant is considering the possible acquisition of these outside interests. In certain cases where that opportunity does not exist, the Registrant is considering the disposition of its interests. There can be no assurance that the Registrant will consummate any such acquisition or disposition. In April 1999, the Registrant acquired a shopping center in Philadelphia, PA for $13.5 million, of which $12.5 million was funded by assumed debt and $1.0 million through the issuance of OP units. On September 22, 1999, the Registrant sold land which had a basis of $4.7 million for $3.6 million. The difference of $1.1 million had been previously reserved. Development, Expansions and Renovations The Registrant is involved in a number of development and redevelopment projects, which may require equity funding by the Registrant or third-party debt or equity financing. Currently, the Registrant is developing a site in Plymouth Meeting, PA for the Metroplex Shopping Center (a joint venture project) to build a 780,000 square foot power center. During May 1999, the Registrant, along with its joint venture partner, acquired the 103-acre site for this development project. The Registrant has also began construction of a 560,000 square foot power center for Paxton Towne Centre located in Harrisburg, PA. For each development and redevelopment project, the Registrant will evaluate the financing opportunities available to it at the time a project requires funding. In cases where the project is undertaken with a joint venture partner, the Registrant's flexibility in funding the project may be governed by the joint venture agreement or the covenants existing in its line of credit which limit the use of borrowed funds in joint venture projects. -15- Funds from Operations Funds from operations (FFO) increased by approximately $3.9 million for the nine months ended September 30, 1999, as compared to the nine months ended September 30, 1998, as follows:
(In thousands, except Three Months Ended Nine Months Ended share amounts) September 30 September 30 ----------------------------- ----------------------------- Funds from Operations(1) 1999 1998 1999 1998 - ----------------------------------------------- ------------ ------------- ------------- ------------- Income before minority interest in operating partnership $ 5,571 $ 7,448 $ 17,409 $ 18,773 Less: Gains on sales of interests in real estate (162) (1,277) (1,508) (3,043) Add: Depreciation and amortization- Wholly-owned and consolidated partnerships 3,326 2,151 9,748 6,328 Unconsolidated partnerships and joint ventures 1,127 985 3,323 2,992 Excess purchase price over net assets acquired 54 29 161 87 Less: Refinancing prepayment fee -- -- 55 -- Depreciation of non-real estate assets (60) (57) (180) (171) Amortization of deferred financing costs (173) (117) (549) (360) ------------ ------------- ------------- ------------- Funds from operations $ 9,683 $ 9,162 $ 28,459 $ 24,606 ============ ============= ============= ============= Weighted average number of shares outstanding 13,321,934 13,299,723 13,315,203 13,296,405 Weighted average effect of full conversion of OP Units 1,335,662 811,465 1,310,183 701,951 ------------ ------------- ------------- ------------- 14,657,596 14,111,188 14,625,386 13,998,356 ============ ============= ============= =============
(1) Funds from operations ("FFO") is defined as income before gains (losses) on investments and extraordinary items (computed in accordance with generally accepted accounting principles "GAAP") plus real estate depreciation and similar adjustments for unconsolidated joint ventures after adjustments for non-real estate depreciation and amortization of financing costs. FFO should not be construed as an alternative to net income (as determined in accordance with GAAP) as an indicator of the Registrant's operating performance, or to cash flows from operating activities (as determined in accordance with GAAP) as a measure of liquidity. In addition, the Registrant's measure of FFO as presented may not be comparable to similar measures reported by other companies. -16- Cash Flows During the nine months ended September 30, 1999, the Registrant generated $19.6 million in cash flow from operating activities. Investing activities used cash of $46.6 million including (i) $28.4 million in investments in property under development, net of payables, (ii) $16.9 million in investments in wholly-owned real estate assets, (iii) $7.7 million in investments in the affiliated management company and partnerships, offset by (iv) cash proceeds from the sale of a partnership interest of $4.7 million and (v) distributions from partnerships in excess of equity in income of $1.7 million. Financing activities provided cash flow of $22.9 million and included (i) $120.5 million in net proceeds from mortgages, (ii) the payoff of matured debt of $17.0 million and (iii) a net paydown of $55.7 million under the Registrant's Credit Facility, offset by (iv) $20.9 million of distributions to shareholders, OP unit holders and minority interests, (v) payments of deferred financing costs of $1.4 million, and (vi) principal installments on mortgages of $2.6 million. Commitments At September 30, 1999, the Registrant is required to fund approximately $59.4 million ($37.3 million for wholly-owned properties and $22.1 million represents the Registrant's share for partnerships and joint ventures) to complete current development and redevelopment projects. The Registrant has placed $30.0 million in construction loans for wholly-owned properties and has a share in $21 million in construction financing for partnerships and joint ventures. In connection with certain development properties, PREIT Associates, L.P., may be required to issue additional OP units upon the achievement of certain financial results. Interest Rate Protection In order to reduce exposure to variable interest rates, the Registrant entered into a six-year interest rate swap agreement with First Union on $20.0 million of indebtedness which fixes a rate of 6.12% per annum versus 30-day LIBOR until 2001. Contingent Liability The Registrant along with certain of its joint venture partners has guaranteed debt totaling $7.0 million. Results of Operations Three Month Periods Ended September 30, 1999 and 1998 Gross revenues from real estate increased by $7.2 million to $21.9 million for the three-month period ended September 30, 1999, as compared to the corresponding period in 1998. The 1999 period included $6.5 million of increased revenues attributable to the acquisitions made by the Registrant during 1998 (the "1998 Acquisitions") as described in the Registrant's 1998 Form 10-K. Acquisitions made during 1999 (the "1999 Acquisitions") accounted for an additional $0.6 million of revenues. Revenues from properties owned during both periods increased by $0.1 million primarily as a result of an increase in multifamily revenues. Property operating expenses increased by $2.2 million to $7.9 million. This increase is entirely attributable to an increase of operating expenses from the 1998 Acquisitions. -17- Depreciation and amortization increased by $1.2 to $3.4 million primarily as a result of the 1998 Acquisitions and increased amortization of financing costs related to the financing of multifamily properties. Interest expense increased by $3.3 million to $5.7 million. This increase is primarily attributable to $1.3 million of interest expense on mortgaged properties from the 1998 Acquisitions. This increase also includes $1.8 million of interest expense incurred on the newly placed multifamily mortgages. Approximately $0.2 million of this increase is from the 1999 Acquisitions. Equity in income of partnerships and joint ventures increased by $0.2 million to $1.5 million. The 1999 period includes an increase of $0.1 million of equity in income attributable to the 1998 Acquisitions. Equity in income of properties owned during both periods increased by $0.1 million. Equity in net loss of PRI for the 1999 period was $0.6 million as compared to net income of $1.1 million in the 1998 period. This decrease of $1.7 million is primarily attributable to a non-recurring leasing commission earned during the 1998 period in the amount of $1.4 million. Minority interest in the operating partnership increased from $0.4 million to $0.5 million as a result of OP units issued in connection with five acquisitions during 1998 and additional contingent OP units issued under the Contribution Agreement. Minority interest partners held a 9.11% and 5.75% average interest in the operating partnership for the three-month period ended September 30, 1999 and 1998, respectively. Gains on sales of interests in real estate in the 1999 period were $0.2 million from the sale of land. Gains on sales of interests in real estate in the 1998 period were $1.3 million from the sales of shopping centers. Net income for the quarter ended September 30, 1999 decreased to $5.1 million from $7.0 million as reported in the comparable period in the prior year. Nine Month Periods Ended September 30, 1999 and 1998 Gross revenues from real estate increased by $23.1 million to $65.2 million for the nine-month period ended September 30, 1999, as compared to the corresponding period in 1998. The 1999 period increased by $21.3 million attributable to the 1998 Acquisitions as described in the Registrant's 1998 Form 10-K. The 1999 Acquisitions accounted for an additional $1.0 million of revenues. Revenues from properties owned during both periods increased by $0.8 million as a result of an increase in multifamily revenues. Property operating expenses increased by $7.5 million to $23.3 million. Of this increase $7.2 million is attributable to expenses from the 1998 acquisitions. The 1999 acquisitions accounted for an additional $0.1 million of expenses. Expenses from properties owned during both periods increased by $.2 million. Depreciation and amortization increased by $3.4 million to $9.9 million entirely as a result of the 1998 Acquisitions and increased amortization of financing costs related to the financing of multifamily properties. -18- Interest expense increased by $9.8 million to $16.1 million. Interest expense attributable to mortgaged properties increased by $4.7 million due primarily to the 1998 Acquisitions. Interest expense incurred against the Registrant's Credit Facility to fund the 1998 Acquisitions increased by $1.4 million. The 1999 acquisitions accounted for an additional $0.4 million of interest expense. Interest expense incurred on the newly placed mortgages resulted in a $3.3 million increase. Equity in income of partnerships and joint ventures increased by $0.4 million to $4.4 million. This increase in 1999 is primarily attributable to the 1998 Acquisitions. Equity in net loss of PRI for the 1999 period was $2.5 million as compared to net income of $0.3 million in the 1998 period. This decrease of $2.8 million is attributable to a non-recurring leasing commission earned during the 1998 period in the amount of $1.7 million. In addition, operating expenses increased by $1.0 million in 1999. Minority interest in the operating partnership increased from $1.0 million for the nine months ended September 30, 1998 to $1.6 million for the nine months ended September 30, 1999 as a result of OP units issued in connection with five acquisitions during 1998 and additional contingent OP units issued under the Contribution Agreement. Minority interest partners held a 8.96% and 5.01% average interest in the Operating Partnership for the nine-month period ended September 30, 1999 and 1998, respectively. Net income decreased by $2.0 million from $17.8 million in 1998 to $15.8 million in 1999. Year 2000 Issues Overview of Y2K Issue The Year 2000 or "Y2K" problem refers to the concept that many existing programs can use only two digits to identify a year in the date field. Those programs were designed and developed at a time when data storage was expensive, and the impact of the upcoming century change was not considered. If not corrected, many programs may fail or provide inaccurate results at the turn of the century. The Registrant, its tenants and vendors use information systems and control systems which may be affected by the Y2K problem. The Y2K Remediation Plan In 1997, the Registrant began assessing the issues surrounding the Y2K problem. Representatives from management and various departments at regional and home offices, including property management, financial, risk management and information systems participated in this assessment. The Registrant decided to divide the plan into two critical areas: information technology systems ("IT Systems") and non-information technology systems ("Non-IT Systems"). The Registrant established a Y2K Remediation Plan consisting of the following phases with respect to each IT and Non-IT System: inventorying systems and devices that are vulnerable to the Y2K problem, assessment of the criticality of the inventoried items, remediation of the noncompliant items, and testing of the corrections that have been applied. -19- Area One - IT Systems The Registrant further delineated this phase into three segments. The first segment is the core financial systems, namely, the accounting and payroll systems. The Registrant believes these are its mission critical systems and has determined these systems to be Y2K compliant. The second segment covers desktop computing systems. As of this writing, the Registrant is continuing to replace a number of its desktop computers. These computers are either older models which may become subject to Y2K errors or which are incapable of running current versions of software programs which are Y2K compliant. In addition to replacement of computer hardware, the Registrant has and is continuing to replace or upgrade computer software which may become subject to Y2K errors. The remediation of these desktop computing systems is ongoing and is expected to be completed by the end of 1999. The third segment covers network computing and telecommunication systems. The Registrant's computer systems are interconnected through local and wide area networks. These networks rely on sophisticated telecommunications equipment. The Registrant has identified the aspects of these networks which are expected to be impacted by the Y2K problem and the actions necessary to remediate these issues. The Registrant is in the process of upgrading a significant part of the hardware and software which are utilized in its network. The internal network computing systems upgrade is expected to be completed by the end of 1999. The network is also reliant on the services of many external telecommunications providers which are facing Y2K challenges. Area Two - Non-IT Systems The Registrant has identified several categories of Non-IT Systems used at the real estate assets which have the most exposure to Y2K problems. These categories include: o Building Automation (e.g. Energy Management) o Security Alarm Systems o Fire and Life Safety Systems o Elevators and Escalators o Exterior Lighting The Registrant has completed the first phase of its Remediation Plan for these Non-IT Systems by compiling an inventory of the related machines and equipment. The Registrant engaged the assistance of outside engineering consultants to identify the potential Y2K problems which may impact the performance of these systems. The consultants did not identify any material property systems that are not Y2K compliant. The Registrant continues to respond to several of the consultant's findings where areas of possible non-compliance were identified. These areas are not expected to result in a significant Y2K related interruption of services. Management is currently working to mitigate the remaining risks associated with these findings, and is expected to complete this remediation by the end of the fourth quarter of 1999. -20- The Registrant expects to complete the Year 2000 Remediation Plan, including final testing, by the end of the fourth quarter of 1999. Failure of IT Systems The Registrant has obtained assurances from outside software providers and hardware suppliers that its core financial systems are Y2K compliant. In addition, the Registrant expects to correct the issues related to its desktop computing and networking problems within its control before January 1, 2000, thereby lowering or avoiding any increased cost(s) of correcting problems after the fact. Because the Registrant's major source of income is rental payments under its tenants' leases, the failure of IT Systems is not expected to have a significant effect on the Registrant's financial condition and results of operation. Even if the Registrant or its tenants were to experience problems with IT Systems, the rental payments under its tenants' leases would not be pardoned. Failure of Non-IT Systems The Registrant believes that the Y2K dangers to its financial condition and operation associated with a failure of embedded systems in the machinery and equipment of its real estate are not material. Because most of these embedded systems can be operated in a manual or by-pass mode, the Y2K problem is substantially lessened until it can be remedied. Furthermore, each of the Registrant's properties has, for the most part, separate building management systems. Therefore, a Y2K problem experienced at one property should have no effect on other properties. The Registrant considered the findings of the outside engineering consultants and concluded that, based on such findings, the Y2K issues would not have a material adverse impact on its financial condition or results of operations. Y2K Problems of Registrant's Vendors The success of the Registrant's business is not dependent on the operations of any one vendor or supplier. Accordingly, if any of the Registrant's vendors or suppliers fails to operate due to Y2K related problems, the Registrant expects to be able to engage alternate providers without encountering any significant effect on its financial condition and results of operations. In an effort to further its Y2K readiness, the Registrant has surveyed major business partners, vendors and suppliers relative to their Y2K compliance. Developing Contingency Plans After evaluating the results of a study of both its IT and Non-IT Systems, the Registrant developed contingency plans to mitigate the remaining risks associated with potential Y2K issues. Under such contingency plans, affected systems could be operated in manual modes or alternate systems could be used to bypass affected systems. -21- Management has determined that the appropriate total cost of its Y2K Plan and the potential related impact on operation's amounts incurred to date have been approximately $150,000 and the estimated remaining expenses of Y2K remediation are expected to be approximately $200,000. Costs associated with Y2K problems could have a material impact on the Registrant's operations. Summary The failure to correct a material Y2K problem could result in an interruption in, or failure of, certain normal business activities or operations. Material failures could materially and adversely affect the Registrant's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Y2K problem, resulting in part from the uncertainty of the Y2K readiness of tenants and third party suppliers, the Registrant is unable to determine at this time whether the consequences of Y2K failures will have a material impact on the Registrant's results of operations, liquidity or financial condition. Furthermore, the Registrant does not believe it is possible to identify and remediate all of the possible Y2K problems that could impact its IT Systems or the functionality of its Non-IT Systems. The Y2K Plan is expected to significantly reduce the Registrant's level of uncertainty about the Y2K problem and, in particular, about the Y2K completion and readiness of its IT Systems and Non-IT Systems. The Registrant's management believes that with the completion of the Y2K Plan as scheduled, the possibility of significant interruptions should be reduced. Readers are cautioned that forward looking statements contained in the Year 2000 update should be read in conjunction with the Registrant's disclosures under the heading: "FORWARD LOOKING STATEMENTS." Forward-Looking Statements The matters discussed in this report, as well as news releases issued from time to time by the Registrant include use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "estimate," "plan," or "continue" or the negative thereof or other variations thereon, or comparable terminology which constitute "forward-looking statements." Such forward-looking statements (including without limitation, information concerning the Registrant's planned acquisition, development and divestiture activities, short- and long-term liquidity position, ability to raise capital through public and private offerings of debt and/or equity securities, availability of adequate funds at reasonable cost, revenues and operating expenses for some or all of the properties, leasing activities, occupancy rates, changes in local market conditions or other competitive factors) involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Registrant's results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The Registrant disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. -22- Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of December 31, 1998, the Registrant's consolidated debt position consisted of $150.0 million in fixed rate mortgage notes, $17.0 million in floating rate mortgage notes, and $135.3 million borrowed under its revolving Credit Facility. As a result of certain refinancing and additional borrowings to fund property acquisitions and development activities, the Registrant's consolidated debt position consisted of $267.9 million in fixed rate mortgage notes and $83.2 million borrowed under its revolving Credit Facility. A 100 basis point increase in market interest rates would result in a decrease in the net financial instrument position of $13.6 million at September 30, 1999. A 100 basis point decrease in market interest rates would result in an increase in the net financial instrument position of $14.6 million at September 30, 1999. Based on the variable-rate debt included in the Registrant's debt portfolio, including an interest rate swap agreement, as of September 30, 1999, a 100 basis point increase in interest rates would result in an additional $0.6 million in interest incurred at September 30, 1999. A 100 basis point decrease would reduce interest incurred by $0.6 million at September 30, 1999. There have been no material changes in the Registrant's qualitative disclosures about market risk in 1999. Reference is made to Item 7A in the Registrant's Form 10-K for the year ended December 31, 1998. -23- Part II. Other Information Item 5. Other Information The Registrant issued a press release on November 12, 1999 containing financial information for the quarter ended September 30, 1999. A copy of the press release is attached hereto as Exhibit 99. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27. Financial Data Schedule (included in electronic filing format) 99. Press Release, issued November 12, 1999, containing financial information for the period ended September 30, 1999 (b) Reports on Form 8-K - None -24- PENNSYLVANIA REAL ESTATE INVESTMENT TRUST SIGNATURE OF REGISTRANT Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST Registrant By /s/ Ronald Rubin ---------------------------------------------- Ronald Rubin Chief Executive Officer By /s/ Edward A. Glickman ---------------------------------------------- Edward A. Glickman Executive Vice President and Chief Financial Officer By /s/ Dante J. Massimini ---------------------------------------------- Dante J. Massimini Senior Vice President-Finance and Treasurer Date: November 15, 1999 -25- EX-99 2 EXHIBIT-99 [GRAPHIC OMITTED][GRAPHIC OMITTED] [GRAPHIC OMITTED][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 THE FINANCIAL RELATIONS BOARD - -------------- -------------------------------- Edward A. Glickman Joe Calabrese Pamela King Judith Sylk-Siegel Executive Vice President and CFO (General Info) (Analyst Info) (Media Info) (215) 875-0700 (212) 661-8030 (212) 661-8030 (212) 661-8030
FOR IMMEDIATE RELEASE - --------------------- November 12, 1999 Pennsylvania Real Estate Investment Trust Reports 1999 Third Quarter and Nine Month Results Philadelphia, PA, November 12, 1999 -- Pennsylvania Real Estate Investment Trust (NYSE:PEI) announced today the results of its operations for the third quarter and nine months ended September 30, 1999. Third Quarter Highlights o Increased FFO to $0.66 per share on 14.7 million shares/OP units outstanding from $0.65 per share on 14.1 million shares/OP units outstanding during the third quarter of 1998 o Increased FFO 5.7% to $9.7 million from $9.2 million in 1998 o Increased combined net operating income 40.6% to $18.9 million from $13.4 million in 1998 o Same store multifamily net operating income grew 7.0% from the 1998 third quarter due to 3.3% increase in revenues and 1.2% decrease in operating expenses Third Quarter Results Funds from operations (FFO) for the three months ended September 30, 1999 totaled $9,683,000, a 5.7% increase over FFO of $9,162,000 for the comparable three-month period ended September 30, 1998. The growth was driven by acquisitions and development projects completed in 1998 and improved operating results in the Company's portfolio. Third quarter FFO was $0.66 per share on 14,657,596 weighted average share equivalents outstanding (including Operating Partnership [OP] units), compared to $0.65 per share on 14,111,188 weighted average share equivalents for the three months ended September 30, 1998. As calculated by NAREIT, FFO is defined as net income, excluding extraordinary and unusual items, gain (or loss) on the sale of property, plus depreciation and amortization. Net operating income before depreciation from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties increased 40.6% to $18,851,000 for the three months ended September 30, 1999, from $13,410,000 for the three months ended September 30, 1998. The increase is mainly due to acquisitions completed in the second half of 1998 and the completion of two development properties in the fourth quarter of 1998. PREIT Announces Third Quarter 1999 Results November 12, 1999 Page 2 Net income for the three months ended September 30, 1999 was $5,064,000, or $0.38 per basic share, on total weighted average shares outstanding of 13,321,934 compared to $7,016,000, or $0.53 per basic share, on 13,299,723 total weighted average shares outstanding for the three months ended September 30, 1998. Net income for the 1999 third quarter includes gain on the sale of the Company's interest in land located in Rancocas, NJ totaling $162,000 or $0.01 per share. Net income for the 1998 third quarter included gains on the sale of interests in Punta Gorda Mall, Punta Gorda, FL and Ormond Beach Mall, Daytona Beach, FL totaling $1,277,000 or $0.10 per share. Nine Months Results Funds from operations (FFO) for the nine months ended September 30, 1999 totaled $28,459,000, a 15.7% increase over FFO of $24,606,000 for the prior comparable nine-month period ended September 30, 1998. FFO for the nine-month period totaled $1.95 per share on 14,625,386 weighted average shares outstanding (including OP units), compared to $1.76 per share on 13,998,356 weighted average shares for the nine months ended September 30, 1998. Net operating income before depreciation from wholly-owned properties and the Company's proportionate share of partnerships and joint venture properties increased 42.4% to $56,020,000 for the nine months ended September 30, 1999, from $39,339,000 for the nine months ended September 30, 1998. Net income for the nine months ended September 30, 1999 totaled $15,852,000, or $1.19 per basic share, on total weighted average shares outstanding of 13,315,203 compared to $17,812,000, or $1.34 per basic share, on 13,296,405 total weighted average shares outstanding for the comparable 1998 nine month period. Net income for the 1999 period includes gains on the sale of the Company's interests in 135 Commerce Drive in Fort Washington, PA, a land parcel at Crest Plaza in Allentown, PA and land located in Rancocas, NJ totaling $1,508,000, or $0.11 per share. Net income for the 1998 nine month period included gains on the sale of interests in Charter Pointe Apartments, Altemonte Springs, FL, Punta Gorda Mall, Punta Gorda, FL and Ormond Beach Mall, Daytona Beach, FL totaling $3,043,000 or $0.23 per share. Comments from Management Ronald Rubin, Chief Executive Officer of PREIT, said, "Our solid operating performance for both the quarter and nine-month period demonstrates the effectiveness of our focused strategy on both strategic development projects and accretive acquisitions. During the third quarter we achieved a 41% increase in combined net operating income and a 35% increase in real estate operating revenues. PREIT's year-to-date statistics are equally compelling with strong increases in both FFO per share and combined net operating income. In the quarters ahead we will continue to view opportunities for external growth, particularly through our active development pipeline, while focusing on internal growth from our existing portfolio." PREIT Announces Third Quarter 1999 Results November 12, 1999 Page 3 Same Store NOI Growth -- Multifamily and Shopping Center Portfolios Same store net operating income for the Company's portfolio of multifamily properties increased 7.0% over the third quarter of 1998, primarily driven by a 3.3% increase in revenues and a 1.2% decrease in operating expenses. Same store net operating income for the third quarter of 1999 for the Company's shopping center portfolio decreased by 4.1% over the comparable quarter primarily due to differences in the timing of income recognition and tenant bankruptcies which caused a negative $500,000 variance from the comparable period last year. Portfolio Highlights o Metroplex Shopping Center (Plymouth Meeting, PA) - Construction of the 780,000 square foot power center is on schedule and is currently 44% complete. Lowe's (163,000 square feet) and Target Stores (138,000 square feet), two of the power center's anchor tenants, began construction of their stores in October and November 1999, respectively. Initial occupancy is expected in the second quarter of 2000. o Paxton Towne Centre (Harrisburg, PA) - Construction of the 582,000 square foot power center is on schedule and is currently 48% complete. Target Stores (124,000 square feet) and Kohl's (87,000 square feet), two of the power center's anchor tenants, have begun construction of their stores. Initial occupancy is expected in the second quarter of 2000. PREIT also announced that it is negotiating with an additional anchor tenant for a second phase of the development involving a 184,000 square foot store. o Pavilion at Market East (Philadelphia, PA) - Construction of the Pavilion at Market East, a 377,000 square foot retail, entertainment and parking complex, is expected to commence in the first quarter of 2000, assuming the completion of leasing activities. o Frankford Arsenal (Philadelphia, PA) - The Company is actively engaged in predevelopment work for the Frankford Arsenal, a 500,000 square foot power center, and construction of the site is now slated for the third quarter of 2000, subject to satisfactory due diligence and leasing. o Dispositions - The Company has previously announced its intention to sell certain of its non-core properties which no longer meet its ownership criteria. With a sharpened focus on higher-yielding power centers and shopping malls, PREIT has retained Eastdil Realty to assist management in selling six non-core strip shopping center properties. The Company expects to bring these properties to market in the first quarter of 2000. Consistent with management's disposition strategy, during the third quarter the Company completed the sale of two undeveloped land parcels in Rancocas, NJ and Coral Springs, FL, realizing total proceeds of approximately $5.0 million. Jonathan B. Weller, President and Chief Operating Officer of PREIT, commented, "Pennsylvania Real Estate Investment Trust continues to refine its portfolio, expanding and strengthening its presence in retail power center and enclosed shopping mall properties, while selling those properties that no longer fit into our target property plan. Over the past nine months, we have completed several transactions that further diversify and enhance the Company's portfolio in mid-Atlantic markets, either through acquisitions or development projects. Management's sharp focus on proven markets like Philadelphia and its surrounding regions, has positioned the Company to attract top national retailers as anchor tenants while continuing to experience steady, fundamental growth. In the coming year, we fully expect to build upon this momentum as our existing development and redevelopment pipeline includes 7 power centers, 2 strip centers and 3 enclosed malls." PREIT Announces Third Quarter 1999 Results November 12, 1999 Page 4 Capital Resources Edward Glickman, Chief Financial Officer of PREIT, added, "Throughout the year, PREIT has closely examined financing options and has taken advantage of the favorable opportunities it identified. Most recently, the Company arranged a $30.0 million construction financing with a 2-year term for Paxton Towne Centre. The newly placed financing, which carries an interest rate of 175 basis points over LIBOR, was provided by Mellon Bank and First Trust. Furthermore, with the decision to sell six of our non-core strip center properties, PREIT will have the opportunity to use the net proceeds from these sales for the reduction of debt and the reinvestment of assets more consistent with our business plan. Going forward, the Company will continue to take steps to improve its capital structure and look for ways to provide PREIT with additional capital to fund its development projects." The Company noted that at end of the 1999 third quarter approximately $89 million was outstanding under the Company's $150 million line of credit. 1999 Fourth Quarter One-Time Charge The Company announced that it would take a charge of approximately $150,000, or $0.01 per share, during the 1999 fourth quarter relating to the abandonment of a previously unannounced shopping center development project in Newburgh, New York. Quarterly Dividend Declared The Company declared a quarterly dividend of $0.47 per share payable on December 15, 1999 to shareholders and unitholders of record as of November 30, 1999. The December 15, 1999 dividend payment will be PREIT's 91st consecutive distribution since its initial dividend paid in August of 1962. Throughout its history, the Company has never omitted or reduced a shareholder dividend. 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 8.1 million square feet) and apartment communities (7,242 units) located primarily in the eastern United States. The Company's portfolio currently consists of 46 properties in 10 states. In addition, there are 6 retail properties under development, which will add approximately 2.9 million square feet to the portfolio. Pennsylvania Real Estate Investment Trust is headquartered in Philadelphia, Pennsylvania. With the exception of the historical information contained in the release, the matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve various risks which may cause actual results to differ materially. These risks include, but are not limited to, the ability of the Company to grow internally or by acquisition and to integrate acquired businesses, the availability of adequate funds at reasonable cost, changing industry and competitive conditions, and other risks outside the control of the company referred to in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission. [Financial Tables Follow] PREIT Announces Third Quarter 1999 Results November 12, 1999 Page 5 # # # ** A supplemental quarterly financial package ** is available on the Company's web site at www.preit.com. To receive additional information on Pennsylvania Real Estate Investment Trust via fax at no charge, please dial 1-800-PRO-INFO and enter the ticker symbol PEI. EX-27 3 FINANCIAL DATA SCHEDULE
5 0000077281 PENNSYLVANIA REAL ESTATE INVESTMENT TRUST DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 2,166,000 0 50,311,000 528,000 0 0 560,230,000 80,499,000 531,680,000 45,952,000 351,120,000 0 0 13,324,000 121,284,000 531,680,000 65,184,000 67,810,000 35,815,000 0 0 0 16,143,000 15,852,000 0 15,852,000 0 0 0 15,852,000 1.19 1.19
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