SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) September 2, 2003
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Pennsylvania Real Estate Investment Trust
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(Exact Name of Registrant as Specified in Charter)
Pennsylvania 1-6300 23-6216339
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
The Bellevue, 200 S. Broad Street, Philadelphia, Pennsylvania 19102
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (215) 875-0700
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
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On September 2, 2003, Pennsylvania Real Estate Investment Trust
(together with its affiliated entities, "PREIT") acquired the remaining limited
partnership interest in WG Holdings, L.P., a holding company which controls W.G.
Park L.P., the entity that in turn owns Willow Grove Park, a retail mall in
Willow Grove, Pennsylvania. PREIT purchased the remaining interest in WG
Holdings, L.P. from its joint venture partner Pennsylvania State Employee
Retirement System ("PaSERS"). On the same day, PREIT acquired a general
partnership interest in WG Holdings, L.P. from LMRES Real Estate Advisers, Inc.,
an affiliate of PaSERS, and thus obtained 100% of the ownership interest in WG
Holdings, L.P. PREIT entered into the joint venture with PaSERS to acquire
Willow Grove Park in February, 2000, and PREIT owned a 30% economic interest in
WG Holdings, L.P. prior to the acquisition of PaSERS's interest. The purchase
price of the remaining partnership interests in WG Holdings, L.P. was $45.5
million in cash, which was financed from a portion of the net proceeds of
PREIT's recent equity offering. WG Holdings, L.P. has $109.7 million in debt at
an interest rate of 8.39% maturing in 2006. As a result of PREIT's acquisition
of the remaining interest in WG Holdings, L.P. this debt will be reflected on
PREIT's balance sheet in future periods.
PREIT had an option to acquire PaSERS's interest in the partnership
that was to become exercisable for a thirty day period beginning November 7,
2003. Although the option exercise period had not yet commenced, PREIT acquired
PaSERS's interest in WG Holdings, L.P. upon terms similar to those in the
option. The purchase price was equal to a 12% internal rate of return on
PaSERS's investment in WG Holdings, L.P. assuming a projected payment date in
the fourth quarter of 2003, which was when the option would have been
exercisable. If PREIT's option to acquire PaSERS's interest in WG Holdings, L.P.
had lapsed, PaSERS would have been entitled to exercise an option to exchange
its interest in WG Holdings, L.P. for PREIT's interest in Paxton Towne Centre, a
shopping center located in Harrisburg, Pennsylvania, subject to certain cash
adjustments based on the relative values of the exchanged assets.
Willow Grove Park is a 1.2 million square foot regional mall and is
located 12 miles north of Philadelphia in Willow Grove, Pennsylvania. The
three-level mall is anchored by Bloomingdale's, Macy's, Sears and Strawbridge's
and currently has 127 in-line tenants, including specialty stores such as
Abercrombie & Fitch, Cache, Coach and Williams-Sonoma. Willow Grove Park has
been operated as a retail mall and PREIT intends to continue to operate it as a
retail mall.
Copies of the principal agreements relating to the transaction
described in this report are attached hereto and incorporated herein by
reference. The description contained herein of these agreements does not purport
to be complete and is qualified in its entirety by reference to the provisions
of these agreements.
This report contains certain "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934. Forward-looking
statements relate to expectations, beliefs, projections, future plans and
strategies, anticipated events or trends and other matters that are not
historical facts. These forward-looking statements reflect PREIT's current views
about future events and are subject to risks, uncertainties, assumptions and
changes in circumstances that may cause future events, achievements or results
to differ materially from those expressed by the forward-looking statements.
PREIT's business is subject to uncertainties regarding the revenues, operating
expenses, leasing activities, occupancy rates, and other competitive factors
relating to PREIT's portfolio, and changes in local market conditions as well as
general economic, financial and political conditions, including the possibility
of outbreak or escalation of war or terrorist attacks, any of which may cause
future events, achievements or results to differ materially from those expressed
by the forward-looking statements. PREIT does not intend to and disclaims any
duty or obligation to update or revise any forward-looking statements or
industry information set forth in this report to reflect new information, future
events or otherwise.
-2-
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statement of Business Acquired:
The following financial statements are attached hereto:
Statements of Revenue and Certain Expenses of Willow Grove
Park for the year ended December 31, 2002 (audited) and for
the six-month period ended June 30, 2003 (unaudited).
Material factors considered in assessing the acquisition of Willow
Grove Park included but were not limited to the opportunity to strengthen
PREIT's retail presence in the metropolitan Philadelphia area, the opportunity
for increased operational efficiencies, historical and prospective financial
performance of the mall, local and regional demographics, competition, sources
of revenues and expenses of the mall, the nature of the tenants and terms of
leases in place, opportunities for alternative and new tenancies, historical and
expected cash flows, occupancy rates, current operating costs of the mall and
anticipated changes therein under PREIT's full ownership, the physical condition
and location of the mall and the anticipated effect on PREIT's financial
results. In addition, PREIT considered the desirability of acquiring PaSERS's
interest in Willow Grove Park in order to end the preferred return PaSERS
received on its investment and to ensure that there would be no risk that PaSERS
would be able to exercise its option to exchange its interest in Willow Grove
Park for PREIT's interest in Paxton Towne Centre.
The historical financial statements are presented in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and have
been audited only for the property's most recent fiscal year as the transaction
relating to the acquired property is not with related parties and PREIT, after
reasonable inquiry, is not aware of any material factors related to the property
not otherwise disclosed that would cause the reported financial information not
to be necessarily indicative of future operating results except as to interest
expense related to certain debt assumed and as related to depreciation and
amortization.
(b) Pro Forma Financial Information:
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PRO FORMA BALANCE SHEET AND
STATEMENTS OF INCOME
The following pro forma financial information is presented in
accordance with Article 11 of Regulation S-X of the Securities and Exchange
Commission. Because the interests in the property will be directly or indirectly
owned by entities that intend to be treated as REITs for Federal income tax
purpose, a presentation of estimated taxable operating results is not
applicable.
This pro forma information should be read in conjunction with the
historical financial statements and notes of PREIT included in its Current
Report on Form 8-K filed on August 12, 2003 and its Quarterly Report on Form
10-Q for the six months ended June 30, 2003.
-3-
The following unaudited pro forma information sets forth the pro forma
balance sheet of PREIT as of June 30, 2003 and the pro forma statements of
income for the year ended December 31, 2002 and the six months ended June 30,
2003 to give effect to the acquisition of the remaining joint venture interest
in Willow Grove Park described in Item 2.
The following unaudited pro forma balance sheet presents information as
if the acquisition had taken place on June 30, 2003. The following unaudited pro
forma statements of income for the year ended December 31, 2002 and for the six
months ended June 30, 2003 present combined financial information as if the
acquisition had taken place on January 1, 2002.
The pro forma combining financial information is unaudited and prepared
for informational purposes only and is not necessarily indicative of future
results or of actual results that would have been achieved had the acquisition
been consummated as of the dates noted in the prior paragraph.
-4-
Pennsylvania Real Estate Investment Trust
Pro Forma Combining Balance Sheet
As of June 30, 2003
(Unaudited)
(In thousands, except per share amounts)
Company
Company Pro Forma Pro Forma
Historical Adjustments (A) As Adjusted
-------------- --------------- ---------------
Assets
Investments in real estate, at cost:
Retail properties $ 953,825 $ 167,426 $ 1,121,251
Industrial properties 2,504 - 2,504
Construction in Progress 11,601 - 11,601
-------------- --------------- ---------------
Total investments in real estate 967,930 167,426 1,135,356
Less: Accumulated depreciation 48,988 4,217 53,205
-------------- --------------- ---------------
918,942 163,209 1,082,151
Investments in and advances to partnerships
and joint ventures, at equity 29,695 (14,727) 14,968
-------------- --------------- ---------------
948,637 148,482 1,097,119
Other assets:
Assets held for sale 50,360 - 50,360
Cash and cash equivalents 8,712 (42,097) (33,385)
Rents and sundry receivables (net of allowance
for doubtful accounts of $1,591) 13,900 570 14,470
Intangible Assets, net 45,494 8,512 54,006
Deferred costs, prepaid real estate taxes and expenses, net 38,910 1,346 40,256
-------------- --------------- ---------------
$ 1,106,013 $ 116,813 $ 1,222,826
============== =============== ===============
Liabilities and Shareholders' Equity
Mortgage notes payable $ 509,588 $ 114,876 $ 624,464
Bank loans payable 138,150 - 138,150
Liabilities related to assets held for sale 35,008 - 35,008
Tenants' deposits and deferred rents 4,760 1,167 5,927
Accrued expenses and other liabilities 32,020 770 32,790
-------------- --------------- ---------------
719,526 116,813 836,339
-------------- --------------- ---------------
Minority interest 61,828 - 61,828
-------------- --------------- ---------------
Shareholders' equity:
Shares of beneficial interest, $1 par; authorized 100,000;
issued and outstanding 16,837 shares 16,837 - 16,837
Capital contributed in excess of par 220,081 - 220,081
Deferred compensation (3,121) - (3,121)
Accumulated other comprehensive loss (3,239) - (3,239)
Distributions in excess of net income 94,101 - 94,101
-------------- --------------- ---------------
Total shareholders' equity 324,659 - 324,659
-------------- --------------- ---------------
$ 1,106,013 $ 116,813 $ 1,222,826
-------------- --------------- ---------------
The accompanying notes are an integral part of the pro
forma combining financial statements.
-5-
Pennsylvania Real Estate Investment Trust
Pro Forma Combining Statements of Income
For the Twelve Months Ended December 31, 2002
(Unaudited)
(In thousands, except per share amounts)
Company
Company Historical Proforma Pro Forma
Historical Willow Grove (C) Adjustments As Adjusted
-------------- ---------------- ----------- -----------
Revenues
Real estate revenue
Base rent $ 46,022 $ 12,281 $ 78 (D) $ 58,381
Expense reimbursements 12,959 9,585 - 22,544
Percentage rent 1,948 100 - 2,048
Lease termination revenue 754 - - 754
Other real estate revenue 1,658 2,386 - 4,044
-------------- ---------------- ----------- -----------
Total real estate revenue 63,341 24,352 78 87,771
Management company revenue 11,003 - (873) (E) 10,130
Interest and other income 711 - - 711
-------------- ---------------- ----------- -----------
Total revenues 75,055 24,352 (795) 98,612
-------------- ---------------- ----------- -----------
Expenses
Property operating expenses (16,265) (8,517) - (24,782)
Depreciation and amortization (12,969) - (5,740) (F) (18,709)
General and administrative expenses:
Corporate payroll and benefits (14,138) - - (14,138)
Other general and administrative expenses (10,609) - - (10,609)
-------------- ---------------- ----------- -----------
Total general and administrative expenses (24,747) - - (24,747)
-------------- ---------------- ----------- -----------
(53,981) (8,517) (5,740) (68,238)
Interest expense (15,378) (9,189) 2,157 (G) (22,410)
Equity in income of partnerships and joint ventures 7,449 - (108) (H) 7,341
-------------- ---------------- ----------- -----------
Income before minority interest and discontinued operations 13,145 6,646 (4,486) 15,305
Minority interest in operating partnership (1,307) - (215) (I) (1,522)
-------------- ---------------- ----------- -----------
Income from continuing operations $ 11,838 $ 6,646 $ (4,701) $ 13,783
-------------- -----------
Basic income from continuing operations per share $ 0.73 $ 0.85
-------------- -----------
Diluted income from continuing operations per share $ 0.72 $ 0.84
-------------- -----------
Weighted average number of shares outstanding:
Basic 16,162 16,162
-------------- -----------
Diluted 16,388 16,388
-------------- -----------
The accompanying notes are an integral part of the pro
forma combining financial statements.
-6-
Pennsylvania Real Estate Investment Trust
Pro Forma Combining Statements of Income
For The Six Months ended June 30, 2003
(Unaudited)
(In thousands, except per share amounts)
Company
Company Historical Proforma Pro Forma
Historical Willow Grove (C) Adjustments As Adjusted
---------- ---------------- ----------- -----------
Revenues
Real estate revenue
Base rent $ 33,493 $ 6,145 $ (21) (D) $ 39,617
Expense reimbursements 12,835 4,790 - 17,625
Percentage rent 478 25 - 503
Lease termination revenue 259 - - 259
Other real estate revenue 1,121 907 - 2,028
---------- ---------------- ----------- -----------
Total real estate revenue 48,186 11,867 (21) 60,032
Management company revenue 5,973 - (401) (E) 5,572
Interest and other income 335 - - 335
---------- ---------------- ----------- -----------
Total revenues 54,494 11,867 (422) 65,939
---------- ---------------- ----------- -----------
Expenses
Property operating expenses (15,431) (3,956) - (19,387)
Depreciation and amortization (10,507) - (2,851) (F) (13,358)
General and administrative expenses:
Corporate payroll and benefits (7,584) - - (7,584)
Other general and administrative expenses (6,259) - - (6,259)
---------- ---------------- ----------- -----------
Total general and administrative expenses (13,843) - - (13,843)
---------- ---------------- ----------- -----------
(39,781) (3,956) (2,851) (46,588)
Interest expense (13,143) (4,731) 1,030 (G) (16,844)
Equity in income of partnerships and joint ventures 3,800 - - 3,800
Gains on sales of interests in real estate 5,513 - - 5,513
---------- ---------------- ----------- -----------
Income before minority interest and discontinued
operations 10,883 3,180 (2,243) 11,820
Minority interest in operating partnership (1,110) - (95) (I) (1,205)
---------- ---------------- ----------- -----------
Income from continuing operations $ 9,773 $ 3,180 $ (2,338) $ 10,615
---------- ---------------- ----------- -----------
Basic income from continuing operations per share $ 0.59 $ 0.64
---------- -----------
Diluted income from continuing operations per share $ 0.58 $ 0.63
---------- -----------
Weighted average number of shares outstanding:
Basic 16,545 16,545
---------- -----------
Diluted 16,818 16,818
---------- -----------
The accompanying notes are an integral part of the pro
forma combining financial statements.
-7-
Pennsylvania Real Estate Investment Trust
Notes to Management's Assumptions to
Unaudited Pro Forma Combining Financial Information
1. Basis of Presentation
Pennsylvania Real Estate Investment Trust, (collectively with its subsidiaries,
the "Company") is a fully integrated, self-administered and self-managed real
estate investment trust, founded in 1960, that acquires, develops, redevelops
and operates retail properties. The Company's interest in its properties is held
through PREIT Associates, L.P.
2. Adjustments to Pro Forma Combining Balance Sheet and Pro Forma Combining
Statements of Income
A. Reflects pro forma adjustments to consolidate PREIT's historical 30% economic
interest in Willow Grove Park along with its newly acquired 70% economic
interest. Prior to the acquisition on September 2, 2003, PREIT accounted for
Willow Grove Park under the equity method of accounting. PaSERS owned the
remaining 70% economic interest in Willow Grove Park. After the acquisition,
PREIT owns a 100% interest in Willow Grove Park, and it will be consolidated for
financial reporting purposes. PREIT will retain its historical carryover basis
in 30% of the assets and liabilities of Willow Grove Park. PREIT's basis in 70%
of the assets and liabilities of Willow Grove Park that PREIT acquired from
PaSERS was stepped-up to fair value. The effect of consolidating PREIT's
historical share of its investment in Willow Grove Park and the interest it
acquired from PaSERS is as follows:
Pro Forma
Historical 30% Remaining 70%(B) Adjustment
-------------- ---------------- ----------
Land 8,272 23,298 31,570
Building 42,667 93,189 135,856
-------------- ------------- ----------
Investment in real estate 50,939 116,487 167,426
Accumulated depreciation (4,217) - (4,217)
Equity in joint ventures and partnerships (14,727) (14,727)
Cash 735 (42,832) (42,097)
Accounts receivable 171 399 570
Lease origination value 1,961 1,961
Acquired above market leases 227 227
In place leases 6,324 6,324
-------------- ------------- ----------
Intangible assets - 8,512 8,512
Deferred costs, prepaid real estate and
expenses, net 576 770 1,346
-------------- ------------- ----------
Total assets 33,477 83,336 116,813
============== ============= ==========
Mortgages assumed 32,917 76,807 109,724
Debt premium 5,152 5,152
-------------- ------------- ----------
32,917 81,959 114,876
Tenants deposits and deferred rents 350 817 1,167
Accrued expenses and other liabilities 210 560 770
-------------- ------------- ----------
Total liabilities 33,477 83,336 116,813
-------------- ------------- ----------
-8-
Pennsylvania Real Estate Investment Trust
Notes to Management's Assumptions to
Unaudited Pro Forma Combining Financial Information
B. The Company has allocated the purchase price to the estimated fair value of
net assets acquired and liabilities assumed as follows:
Investments in land $23,298
Investments in building 93,189
Lease origination value 1,961
Acquired above market leases 227
In place leases 6,324
Cash 2,668
Accounts receivable 399
Deferred costs, prepaid real estate and expenses, net 770
---------------
Total assets 128,836
Debt premium (5,152)
Tenant deposits and deferred rents (817)
Accrued expenses and other liabilities (560)
---------------
Total purchase price $122,307
===============
Cash paid 45,500
Mortgage debt assumed 76,807
---------------
Total acquisition consideration $122,307
===============
C. To record the revenue and certain expenses associated with the operations of
the Willow Grove Park.
D. To adjust straight-line rent and record amortization of market value of
acquired leases over the remaining terms of the leases.
Year Ended Six Months Ended
(in thousands) December 31, 2002 June 30, 2003
--------------------- --------------------
Straight-line rent $136 $ (1)
Amortization of market value of
acquired leases (58) (20)
--------------------- --------------------
$ 78 $ (21)
E. To record the reduction in management fee income because PREIT-Rubin, Inc.
will no longer receive a management fee for the management of Willow Grove Park.
F. To record depreciation expense and amortization of acquired lease costs based
on the historical expense for the 30% of the property formerly accounted for
under the equity method of accounting and to record depreciation and
amortization expense of acquired lease costs based on a real estate depreciable
base of $93.2 million and an estimated useful life of 30 years for the remaining
70% acquired.
Year Ended Six Months Ended
(in thousands) December 31, 2002 June 30, 2003
--------------------- --------------------
Historical depreciation and
amortization expense $1,604 $798
Pro Forma depreciation 3,106 1,553
Pro Forma amortization 1,030 500
--------------------- --------------------
$5,740 $2,851
===================== ====================
G. To record a reduction of interest expense based on the amortization of debt
premium associated with the mortgage debt assumed. The debt premium of
$5,152,000 is being amortized over a 30 month period.
H. To eliminate the equity in income of partnerships and joint ventures related
to Willow Grove Park.
I. To record the additional minority interest associated with the 70% increase
in the interest of Willow Grove Park.
-9-
(c) Exhibits:
2.1 Assignment of Limited Partnership Interests as of
September 2, 2003 by Commonwealth of Pennsylvania State
Employees' Retirement System to PREIT Associates, L.P.
2.2 Assignment of General Partnership Interests as of
September 2, 2003 by LMRES Real Estate Advisers, Inc. to
PRWGP General, LLC.
23 Consent of KPMG LLP.
-10-
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date: September 17, 2003 By: Jonathan B. Weller
--------------------------------------
Jonathan B. Weller
President and Chief Operating Officer
-11-
Exhibit Index
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Number Description
2.1 Assignment of Limited Partnership Interests as of
September 2, 2003 by Commonwealth of Pennsylvania State
Employees' Retirement System to PREIT Associates, L.P.
2.2 Assignment of General Partnership Interests as of
September 2, 2003 by LMRES Real Estate Advisers, Inc. to
PRWGP General, LLC.
23 Consent of KPMG LLP.
-12-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Audited Financial Statements for WG Park, L.P.
Page
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Independent Auditors' Report F-2
Statements of Revenue and Certain Expenses of WG Park, L.P.
for the Year Ended December 31, 2002 (audited) and for the Six-Month
Period Ended June 30, 2003 (unaudited) F-3
Notes to Statements of Revenue and Certain Expenses of WG Park, L.P. F-4
F-1
Independent Auditors' Report
The Board of Trustees of
Pennsylvania Real Estate Investment Trust:
We have audited the accompanying statement of revenue and certain
expenses of WG Park, L.P. (a Pennsylvania limited partnership) for the year
ended December 31, 2002. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the statement
of revenue and certain expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of revenue and certain expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement
of revenue and certain expenses. We believe that our audit provides a reasonable
basis for our opinion.
As described in note 2, the accompanying statement of revenue and
certain expenses for the year ended December 31, 2002 excludes certain expenses
that would not be comparable with those resulting from the proposed future
operations of WG Park, L.P. The accompanying statement of revenue and certain
expenses for the year ended December 31, 2002 was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the
WG Park, L.P. revenue and expenses.
In our opinion, the statement referred to above presents fairly, in all
material respects, the revenue and certain expenses (described in note 2) of WG
Park, L.P. for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG
September 12, 2003
F-2
WG Park, L.P.
Statements of Revenue and Certain Expenses
Year ended December 31, 2002 and
Six-Month Period Ended June 30, 2003 (unaudited)
Year ended Six-month
December 31, period ended
2002 June 30, 2003
------------ -------------
(unaudited)
(In thousands)
Revenue:
Base rent $ 12,281 $ 6,145
Expense reimbursements 9,585 4,790
Percentage rent 100 25
Other real estate revenue 2,386 907
------------ -------------
Total revenue 24,352 11,867
------------ -------------
Property operating expenses:
Payroll and benefits 1,498 683
Real estate and other taxes 1,774 851
Utilities 2,231 1,046
Other operating expenses 3,014 1,376
------------ -------------
Total property operating
expenses 8,517 3,956
------------ -------------
15,835 7,911
Interest expense 9,189 4,731
------------ -------------
Excess of revenue over certain expenses $ 6,646 $ 3,180
============ =============
See accompanying notes to financial statements.
F-3
WG Park, L.P.
Notes to
Statements of Revenue and Certain Expenses
Year ended December 31, 2002 and
Six-Month Period Ended June 30, 2003 (unaudited)
(1) Background
In September 2003, Pennsylvania Real Estate Investment Trust (PREIT)
acquired the remaining limited partnership interest that represented a
70% economic interest in WG Holdings, L.P. which controls WG Park, L.P.,
a Pennsylvania limited partnership (the Partnership), from its joint
venture partner Pennsylvania State Employee Retirement System (PaSERS).
PREIT also acquired a general partnership interest in the Partnership
from LMRES Real Estate Advisers, Inc., an affiliate of PaSERS. Prior to
this acquisition, PREIT owned a 30% economic interest in WG Holdings,
L.P. The Partnership commenced operations on February 28, 2000, for the
purpose of acquiring, holding, and operating Willow Grove Park (the
Mall), a regional shopping mall, located in Willow Grove, Pennsylvania.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying statements of revenue and certain expenses have
been prepared for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission.
Accordingly, the financial results are not representative of the
actual operations for the periods presented as certain expenses,
which may not be comparable to the expenses expected to be
incurred by PREIT in the proposed future operations of the
Partnership have been excluded such as management fees and
depreciation and amortization expenses.
The statement of revenue and certain expenses for the six-month
period ended June 30, 2003 is unaudited; however, in the opinion
of management of the Partnership, all adjustments (consisting
solely of normal recurring adjustments) necessary for the fair
presentation of the statement of revenue and certain expenses for
the interim period have been included. The results of the interim
period are not necessarily indicative of the results for the full
year.
(b) Minimum Rents
The straight-line basis is used to recognize minimum rent revenue
under leases, which provide for varying rents over their terms.
(c) Percentage Rents
Percentage rents are considered earned when a tenant's sales
volume exceeds the minimum annual sales volume required for
percentage rent to be paid under the terms of the lease agreement.
(d) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and judgments that
affect the revenue and expenses recognized during the reporting
period. Actual results could differ from those estimates.
(3) Tenant Leases
Space in the Partnership is leased to tenants under operating leases with
expiration dates extending to the year 2052. In addition to minimum
rents, many of the leases provide for percentage rents when the tenants'
sales volumes exceed stated amounts as well as other rents, which
reimburse the Partnership for certain operating expenses.
F-4
The total minimum rents to be received from tenants under noncancelable
operating leases in effect at December 31, 2002 are as follows (in
thousands):
2003 $ 11,636
2004 11,385
2005 9,664
2006 8,606
2007 7,677
Subsequent to 2007 29,376
------------------
Total $ 78,344
==================
No tenants have minimum rental payments greater than 10% of total minimum
rent in 2002.
(4) Mortgage Notes Payable
In February 2000, the Partnership obtained two mortgage notes payable
in the amount of $55 million each from the Equitable Life Assurance
Society of the United States and Connecticut General Life Insurance
Company. An initial advance of $50 million per each mortgage note
payable (collectively, the Notes) was received upon the signing of the
Notes. The initial advance of $100 million bears interest at an annual
fixed rate of 8.39% and has a term of six years, with the final
installment due March 1, 2006. Interest-only payments on each of the
Notes were payable monthly through March 2003. In April 2003 monthly
principal and interest payments on each of the Notes are due through
the maturity date upon which a balloon payment of approximately
$48 million on each of the Notes is due.
Additional advances in the amount of $5 million on each of the Notes
were received in accordance with the terms set forth in the loan and
escrow agreement. These additional advances bear interest equal to the
higher of 8.39% or the sum of the U.S. Treasury Yield plus a market
spread as defined in each mortgage note agreement (8.39% at December
31, 2002). Interest-only payments for the additional advances on each
of the Notes were payable monthly through March 2003. Monthly principal
and interest payments beginning in April 2003 on the additional
advances are payable in equal installments through the maturity date of
each of the Notes. The proceeds from the financing were used to acquire
the Mall and fund completion of additional mall renovations and other
tenant improvements. During 2002, the Partnership received the final
advance of $5 million on the Notes.
The Partnership has the right to prepay in whole (but not in part) the
principle sum of the Notes with 30 days prior written notice. A
prepayment penalty will be charged to the borrower in accordance with
each note agreement if the notes are prepaid anytime prior to 90 days
of the maturity date.
F-5
(5) Transactions with Affiliates
The Partnership pays leasing commission fees to PREIT-RUBIN, Inc., an
affiliate of the Partnership for leasing services provided to the Mall.
Total leasing commission fees paid to affiliates for the periods ending
December 31, 2002 and June 30, 2003 were approximately $317,000 and
$7,000, respectively.
An affiliate of the Partnership has entered into a development agreement
with the Partnership to supervise construction of certain improvements at
the Mall. For the periods ending December 31 2002 and June 30, 2003,
$2,000 and $0, respectively of development fees were paid to this
affiliate.
Portfolio Marketing Group (Portfolio), an affiliate of PREIT-RUBIN, Inc.,
provides marketing services for the tenants of the Mall. Total fees paid
to Portfolio were approximately $443,000 and $56,000 for the periods
ending December 31, 2002 and June 30, 2003, respectively.
F-6