SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K/A NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) April 28, 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)
EXPLANATORY NOTE: This Current Report on Form 8-K/A No. 2 is filed to correct a
mathematical error in the Form 8-K/A dated April 28, 2003 and filed with the SEC
on June 20, 2003 relating to the acquisition of certain malls from The Rouse
Company. The mathematical error involved the presentation of amortization of
debt premium as one of the pro forma adjustments to interest expense. For the
year ended December 31, 2002 and the three months ended March 31, 2003, the
amortization of debt premium pro forma adjustment to interest expense was
negative $4.236 million and negative $1.063 million, respectively, instead of
$4.236 million and $1.063 million, respectively. As a result of the mathematical
error, pro forma interest expense was overstated by $8.472 million in the Pro
Forma Combining Statement of Income For the Twelve Months Ended December 31,
2002 and by $2.126 million in the Pro Forma Combining Statement of Income For
the Three Months Ended March 31, 2003. As a further result, minority interest in
PREIT's operating partnership was understated by $0.939 million in the Pro Forma
Combining Statement of Income For the Twelve Months Ended December 31, 2002 and
was understated by $0.223 million in the Pro Forma Combining Statement of Income
For the Three Months Ended March 31, 2003. As a net result of the overstatement
of interest expense and the understatement of minority interest, pro forma
income from continuing operations was understated by $7.533 million in the Pro
Forma Combining Statement of Income For the Twelve Months Ended December 31,
2002 and by $1.903 million in the Pro Forma Combining Statement of Income For
the Three Months Ended March 31, 2003.
PREIT recorded the debt premium because the interest rates of two of
the mortgages that PREIT assumed in connection with the acquisition from The
Rouse Company were above market. In these circumstances, generally accepted
accounting principles require PREIT to record a debt premium that is amortized
over the remaining term of the mortgage in order to reduce the interest expense
on the above-market rate debt to a market rate. For purposes of the pro forma
presentation, the amortization of this debt premium reduced the amount of the
pro forma adjustment for interest expense related to the properties acquired
from The Rouse Company.
Accordingly, this Current Report on Form 8-K/A No. 2 amends in its
entirety Item 7 of the Current Report on Form 8-K/A dated April 28, 2003 and
filed with the SEC on June 20, 2003.
The information contained in this Current Report on Form 8-K/A No. 2
has not been updated to reflect any developments since the filing of the Current
Report on Form 8-K/A dated April 28, 2003 and filed with the SEC on June 20,
2003. In particular, the financial information in this Form 8-K/A No. 2 does not
reflect the re-issuance of our 2002 year end financial information in a Form 8-K
dated June 27, 2003 and filed on August 12, 2003 to reflect properties sold
and/or classified as held for sale as discontinued operations in the statements
of income for all periods presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Financial Statements of Businesses Acquired:
The following financial statements are attached hereto:
(i) Combined Statements of Revenues and Certain Expenses
of Subject Properties - First Close for the year ended
December 31, 2002 and for the three-month period ended
March 31, 2003 (unaudited)
(ii) Combined Statements of Revenues and Certain Expenses
of Subject Properties - Second Close for the year ended
December 31, 2002 and for the three-month period ended
March 31, 2003 (unaudited)
(iii) Statements of Revenues and Certain Expenses of Cherry Hill
Mall for the years ended December 31, 2002, 2001 and 2000
and for the three-month period ended March 31, 2003
(unaudited).
Material factors considered in assessing the acquisition of the malls
described in this report include but were not limited to the opportunity to
strengthen PREIT's retail presence in the metropolitan Philadelphia area, the
opportunity for increased operational efficiencies, greater competitive
advantages and cross-selling opportunities from strengthening PREIT's existing
retail portfolio, historical and prospective financial performance of the malls,
local and regional demographics, competition, sources of revenues and expenses
of the properties, 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 on the properties and
anticipated changes therein under PREIT's ownership, the physical condition and
location of the properties and the anticipated effect on PREIT's financial
results. After reasonable inquiry, PREIT is not aware of any material factors
relating to the mall properties, other than those described in the foregoing
discussion, that would cause the financial information reported in Item 7(a)
hereof not to be necessarily indicative of future operating results.
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(b) Pro Forma Financial Information:
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
UNAUDITED PRO FORMA COMBINING BALANCE SHEET AND
COMBINING STATEMENTS OF INCOME
This unaudited pro forma information should be read in conjunction with
the historical financial statements and notes of PREIT included in its annual
report on Form 10-K for the year ended December 31, 2002 and its quarterly
report filed on Form 10-Q for the three months ended March 31, 2003.
The following unaudited pro forma information sets forth the pro forma
combining balance sheet of PREIT as of March 31, 2003 and the pro forma
combining statements of income for the year ended December 31, 2002 and the
three months ended March 31, 2003 to give effect to the acquisition of five
malls and the investment in New Castle Associates and other financing events as
described in Item 2.
The following unaudited pro forma combining balance sheet presents
information as if the acquisition of the malls had taken place on March 31,
2003. The following unaudited pro forma statements of income for the year ended
December 31, 2002 and for the three months ended March 31, 2003 present combined
financial information as if the acquisition of the malls had taken place on
January 1, 2002 and January 1, 2003, respectively.
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
of the malls been consummated as of the dates noted in the prior paragraph.
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Pennsylvania Real Estate Investment Trust
Pro Forma Combining Balance Sheet
As of March 31, 2003
(Unaudited)
(In thousands, except per share amounts)
Company
Company First Close New Castle Second Close Pro Forma
Historical Acquisition (A) Acquisition (A) Acquisition (A) As Adjusted
------------- --------------- ---------------- --------------- ------------
Assets:
Investments in real estate, at cost:
Retail properties $ 426,428 $ 267,778 $ 203,978 $ 77,866 $ 976,050
Construction in progress 19,232 -- -- -- 19,232
Industrial properties 2,504 -- -- -- 2,504
--------- --------- --------- --------- ----------
Total investments in real estate 448,164 267,778 203,978 77,866 997,786
Less accumulated depreciation (44,036) -- -- -- (44,036)
--------- --------- --------- --------- ----------
404,128 267,778 203,978 77,866 953,750
Investments in and advances to partnerships
and joint ventures, at equity 25,556 -- -- -- 25,556
--------- --------- --------- --------- ----------
429,684 267,778 203,978 77,866 979,306
Other assets:
Assets held for sale 205,021 -- -- -- 205,021
Cash and cash equivalents 8,115 (717) (542) -- 6,856
Rents and sundry receivables (net of
allowance for doubtful accounts
of $1,084) 9,829 472 400 101 10,802
Deferred costs and other assets, net 46,598 7,404 5,140 4,738 63,880
--------- --------- --------- --------- ----------
$ 699,247 $ 274,937 $ 208,976 $ 82,705 $1,265,865
========= ========= ========= ========= ==========
Liabilities:
Mortgage notes payable $ 126,193 $ 146,189 $ 140,974 $ -- $ 413,356
Bank loans payable 146,900 123,507 28,853 80,437 379,697
Liabilities related to assets held for sale 190,679 -- -- -- 190,679
Tenants' deposits and deferred rents 1,633 1,165 1,453 666 4,917
Accrued expenses and other liabilities 16,172 4,076 2,708 1,602 24,558
--------- --------- --------- --------- ----------
Total liabilities 481,577 274,937 173,988 82,705 1,013,207
--------- --------- --------- --------- ----------
Minority interest 32,236 -- 34,988 (B) -- 67,224
--------- --------- --------- --------- ----------
Shareholders' equity:
Shares of beneficial interest, $1 par; 100,000
authorized; issued and outstanding 16,754 shares 16,754 -- -- -- 16,754
Capital contributed in excess of par 218,158 -- -- -- 218,158
Deferred compensation (3,579) -- -- -- (3,579)
Accumulated other comprehensive loss (3,845) -- -- -- (3,845)
Distributions in excess of net income (42,054) -- -- -- (42,054)
--------- --------- --------- --------- ----------
Total shareholders' equity 185,434 -- -- -- 185,434
--------- --------- --------- --------- ----------
$ 699,247 $ 274,937 $ 208,976 $ 82,705 $1,265,865
========= ========= ========= ========= ==========
The accompanying notes are an integral part of the pro forma combining financial statements.
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Pennsylvania Real Estate Investment Trust
Pro Forma Combining Statement of Income
For the Twelve Months Ended December 31, 2002
(Unaudited)
(In thousands, except per share amounts)
Company
Company First Close New Castle Second Close Pro Forma Pro Forma
Historical Acquisition(A) Acquisition(A) Acquisition(A) Adjustments As Adjusted
---------- ----------- ------------- ------------- ----------- ------------
Revenues:
Real estate revenues
Base rent $ 94,636 $ 27,328 $ 18,169 $ 16,063 $ 2,355 (B) $ 158,551
Expense reimbursements 13,068 14,297 11,011 11,828 -- 50,204
Percentage rent 1,948 934 355 294 -- 3,531
Lease termination revenue 1,034 1,886 10 742 -- 3,672
Other real estate revenues 3,913 710 461 708 -- 5,792
--------- --------- --------- --------- --------- ---------
Total real estate revenues 114,599 45,155 30,006 29,635 2,355 221,750
Management company revenue 11,003 -- -- -- 282 (C) 11,285
Interest and other income 711 -- -- -- -- 711
--------- --------- --------- --------- --------- ---------
Total revenues 126,313 45,155 30,006 29,635 2,637 233,746
--------- --------- --------- --------- --------- ---------
Expenses:
Property operating expenses 37,548 17,206 11,344 16,116 1,575 (C) 83,789
Depreciation and amortization 21,411 -- -- -- 12,826 (D) 34,237
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
Interest expense 28,000 -- -- -- 26,503 (E) 54,503
--------- --------- --------- --------- --------- ---------
Total expenses 111,706 17,206 11,344 16,116 40,904 197,276
---------- ----------- ----------- ------------ ----------- -----------
14,607 27,949 18,662 13,519 (38,267) 36,470
Equity in income of partnerships and joint
ventures 7,449 -- -- -- -- 7,449
--------- --------- --------- --------- --------- ---------
Income before minority interest 22,056 27,949 18,662 13,519 (38,267) 43,919
Minority interest in operating partnership (2,194) -- -- -- (4,512) (F) (6,706)
--------- --------- --------- --------- --------- ---------
Income from continuing operations $ 19,862 $ 27,949 $ 18,662 $ 13,519 $ (42,779) $ 37,213
========= ========= ========= ========= ========= =========
Basic income from continuing operations
per share $ 1.23 $ 2.30
========= =========
Diluted income from continuing operations
per share $ 1.21 2.27
========= =========
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.
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Pennsylvania Real Estate Investment Trust
Pro Forma Combining Statement of Income
For the Three Months Ended March 31, 2003
(Unaudited)
(In thousands, except per share amounts)
Company
Company First Close New Castle Second Close Pro Forma Pro Forma
Historical Acquisition(A) Acquisition(A) Acquisition(A) Adjustments As Adjusted
---------- ------------- -------------- -------------- ----------- -------------
Revenues:
Real estate revenues
Base rent $ 11,924 $ 6,703 $ 4,573 $ 3,793 $ 173 (B) $ 27,166
Expense reimbursements 3,902 3,910 3,089 3,114 -- 14,015
Percentage rent 273 215 203 79 -- 770
Lease termination revenue 259 84 -- -- -- 343
Other real estate revenues 334 235 219 134 -- 922
-------- -------- --------- --------- -------- ---------
Total real estate revenue 16,692 11,147 8,084 7,120 $ 173 43,216
Management company revenue 2,181 -- -- -- 76 (C) 2,257
Interest and other income 142 -- -- -- -- 142
-------- -------- --------- --------- -------- ---------
Total revenues 19,015 11,147 8,084 7,120 249 45,615
-------- -------- --------- --------- -------- ---------
Expenses:
Property operating expenses 4,899 4,762 3,163 4,353 424 (C) 17,601
Depreciation and amortization 3,513 -- -- -- 3,207 (D) 6,720
General and administrative expenses:
Corporate payroll and benefits 3,636 -- -- -- -- 3,636
Other general and administrative
expenses 2,690 -- -- -- -- 2,690
-------- -------- --------- --------- -------- ---------
Total general and administrative expenses 6,326 -- -- -- -- 6,326
Interest expense 4,046 -- -- -- 7,010 (E) 11,056
-------- -------- --------- --------- -------- ---------
Total expenses 18,784 4,762 3,163 4,353 10,641 41,703
-------- -------- --------- --------- -------- ---------
231 6,385 4,921 2,767 (10,392) 3,912
Equity in income of partnerships and
joint ventures 1,593 -- -- -- -- 1,593
Gains on sales of interests in real
estate 1,191 -- -- -- -- 1,191
-------- -------- --------- --------- -------- ---------
Income before minority interest 3,015 6,385 4,921 2,767 (10,392) 6,696
Minority interest in operating
partnership (287) -- -- -- (815) (F) (1,102)
-------- -------- --------- --------- -------- ---------
Income from continuing operations $ 2,728 $ 6,385 $ 4,921 $ 2,767 $(11,207) $ 5,594
======== ======== ========= ========= ======== =========
Basic income from continuing operations
per share $ 0.16 $ 0.34
======== =========
Diluted income from continuing
operations per share $ 0.16 $ 0.33
======== =========
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.
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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 that acquires, develops, redevelops
and operates retail, multifamily and industrial properties. The Company's
interest in its properties is held through PREIT Associates, L.P.
2. Adjustments to Pro Forma Combining Balance Sheet
(A) To record the acquisition of Moorestown Mall, The Gallery at Market
East and Exton Square Mall (collectively, the "First Close Properties"), the
Company's interest in New Castle Associates ("New Castle") and the acquisition
of Echelon Mall and Plymouth Meeting Mall (collectively, the "Second Close
Properties") based upon preliminary estimates of the fair value of the assets
acquired as follows:
First Close Properties
Land $ 53,556
Building 214,222
-----------
Investment in real estate $ 267,778
===========
Accounts receivable $ 472
Lease origination value $ 3,815
Acquired above market value leases 2,433
Escrows and other credits received at settlement 1,156
-----------
Deferred costs, prepaid real estate taxes and expenses, net $ 7,404
===========
Mortgages assumed $ (142,496)
Debt premium (3,693)
-----------
Mortgage notes payable $ (146,189)
===========
Bank loan borrowing $ (123,507)
Tenant's deposits and deferred rents $ (1,165)
Accounts payable and accrued expenses $ (1,788)
Acquired below market value leases (2,288)
-----------
Accrued expenses and other liabilities $ (4,076)
===========
Cash payment $ (717)
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New Castle
Land $ 40,795
Building 163,183
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Investment in real estate $ 203,978
=============
Accounts receivable $ 400
Lease origination value $ 1,613
Acquired above market value leases 1,500
Cherry Hill intangible asset 1,170
Escrows and other credits received at settlement 857
-----------
Deferred costs, prepaid real estate and expenses, net $ 5,140
===========
Mortgages assumed $ (134,092)
Debt premium (6,882)
-----------
Mortgage notes payable $ (140,974)
===========
Minority interest (see note (B)) $ (34,988)
Bank loan borrowing $ (28,853)
Tenant's deposits and deferred rents $ (1,453)
Acquired below market value leases $ (1,218)
Liabilities assumed (1,490)
-----------
Accrued expenses and other liabilities $ (2,708)
===========
Cash payment $ (542)
Second Close Properties
Land $ 15,573
Building 62,293
-----------
Investment in real estate $ 77,866
===========
Accounts receivable $ 101
Lease origination value $ 2,103
Acquired above market value leases 1,843
Escrows and other credits received at settlement 792
-----------
Deferred costs, prepaid real estate taxes and expenses, net $ 4,738
===========
Bank loan borrowing $ (80,437)
Tenants' deposits and deferred rents $ (666)
Acquired below market value leases $ (863)
Liabilities assumed (739)
-----------
Accrued expenses and other liabilities $ (1,602)
===========
-8-
(B) To record (i) the issuance of 585,422 OP units at a price of $29.285 per OP
Unit in connection with the Company's acquisition of its interest in New Castle
Associates, and (ii) the value of the additional consideration that is expected
to be paid in the future for the remaining minority interest in New Castle
Associates.
3. Adjustments to Pro Forma Combining Statements of Income.
(A) To record the revenue and certain expenses associated with the operations of
the First Close Properties, New Castle Associates and the Second Close
Properties.
(B) To adjust straight-line rent and record amortization of market value of
acquired leases over the remaining terms of the leases.
(C) To (i) record management fees for Cherry Hill Mall and (ii) remove
historical management fees and leasing commissions totaling $1,293,000 for the
year ended December 31, 2002 and $348,000 for the three months ended March 31,
2003 related to Christiana Mall, which the Company will no longer manage as a
result of this transaction. The management agreement for Cherry Hill Mall
provides for a management fee equal to 5.25% of revenues. Property operating
expenses are impacted only by the management fees to be received on Cherry Hill
Mall because Christiana Mall's operating expenses were not consolidated by the
Company as it had no ownership interest in that property.
(D) To record depreciation expense and amortization of acquired lease costs
based on a real estate depreciable base of $439.7 million and an estimated
useful life of 40 years.
(E) To record additional interest expense as follows:
Year Ended December Three Months Ended
31, 2002 March 31, 2003
------------------- -------------------
Mortgage borrowings (1)
Moorestown Mall $42.0 million at 4.25% $ 1,785 $ 446
Exton Square Mall $100.5 million at 6.95% 6,947 1,737
Cherry Hill Mall $73.7 million at 10.6% 7,447 1,862
Cherry Hill Mall $60.4 million at 5.0% 3,000 750
---------- ----------
Total mortgage expense 19,179 4,795
Bank borrowing of $232.8 million at 4.30% 10,010 2,503
Amortization of debt premium (4,236) (1,063)
Amortization of deferred financing costs
related to the borrowings noted above 1,550 775
---------- ----------
$ 26,503 $ 7,010
========== ==========
(1) Mortgage balances are as of the settlement date. The balances
amortize over varying periods.
(F) To record (i) additional minority interest resulting from the issuance of OP
Units to the New Castle Associates partners which caused an increase in the
minority interest percentage to 12.8% and 12.4% for the year ended December 31,
2002 and the three months ended March 31, 2003, respectively, (ii) the minority
interest impact of the acquired properties and the pro forma adjustments,
resulting in additional minority interest expense, and (iii) the preferred
distribution the partners of New Castle (other than PREIT) are entitled to.
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(c) Exhibits:
2.1 Agreement of Purchase and Sale among The Rouse
Company of Nevada, LLC, The Rouse Company of New
Jersey, LLC and PR Cherry Hill Limited Partnership,
dated as of March 7, 2003, filed as Exhibit 2.1 to
PREIT's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 is incorporated herein
by reference.
2.2 Agreement of Purchase and Sale among Echelon Mall
Joint Venture, Echelon Acquisition, LLC and PR
Echelon Limited Partnership, dated as of March 7,
2003, filed as Exhibit 2.2 to PREIT's Annual Report
on Form 10-K for the fiscal year ended December 31,
2002 is incorporated herein by reference.
2.3 Agreement of Purchase and Sale between Gallery at
Market East, LLC and PR Gallery I Limited
Partnership, dated as of March 7, 2003, filed as
Exhibit 2.3 to PREIT's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 is
incorporated herein by reference.
2.4 Agreement of Purchase and Sale among The Rouse
Company of Nevada, LLC, The Rouse Company of New
Jersey, LLC and PR Moorestown Limited Partnership,
dated as of March 7, 2003, filed as Exhibit 2.4 to
PREIT's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 is incorporated herein
by reference.
2.5 Agreement of Purchase and Sale between Plymouth
Meeting Property, LLC and PR Plymouth Meeting Limited
Partnership, dated as of March 7, 2003, filed as
Exhibit 2.5 to PREIT's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 is
incorporated herein by reference.
2.6 Agreement of Purchase and Sale between The Rouse
Company, L.P. and PR Exton Limited Partnership, dated
as of March 7, 2003, filed as Exhibit 2.6 to PREIT's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 is incorporated herein by
reference.
2.7 First Amendment to Agreement of Purchase and Sale
Plymouth Meeting Mall, dated as of April 28, 2003, by
and between Plymouth Meeting Property, LLC and PR
Plymouth Meeting Limited Partnership, filed as
Exhibit 2.7 to PREIT's Current Report on Form 8-K
dated April 28, 2003 and filed May 13, 2003 is
incorporated herein by reference.
2.8 First Amendment to Agreement of Purchase and Sale
Echelon Mall, dated as of April 28, 2003, by and
between Echelon Mall Joint Venture, Echelon
Acquisition, LLC and PR Echelon Limited Partnership,
filed as Exhibit 2.8 to PREIT's Current Report on
Form 8-K dated April 28, 2003 and filed May 13, 2003
is incorporated herein by reference.
2.9+ Contribution Agreement, dated as of April 22, 2003,
among Pennsylvania Real Estate Investment Trust,
PREIT Associates, L.P. and the persons and entities
named therein and the joinder to the contribution
agreement, filed as Exhibit 2.9 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
-10-
2.10+ Call and Put Option Agreement, dated as of April 28,
2003, among PREIT Associates, L.P., PR New Castle
LLC, Pan American Associates and Ivyridge Investment
Corp, filed as Exhibit 2.10 to PREIT's Current Report
on Form 8-K dated April 28, 2003 and filed May 13,
2003 is incorporated herein by reference.
10.1 Agreement of Purchase and Sale between New Castle
Associates and Christiana Mall, LLC, dated as of
March 7, 2003, filed as Exhibit 10.72 to PREIT's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 is incorporated herein by
reference.
10.2 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Cherry Hill
Mall), filed as Exhibit 10.2 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.3 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of Gallery at Market
East, LLC and its affiliates, including The Rouse
Company, L.P. (relating to The Gallery at Market
East), filed as Exhibit 10.3 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.4 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Moorestown
Mall), filed as Exhibit 10.4 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.5 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Exton Square
Mall), filed as Exhibit 10.5 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.6 Security Agreement, dated as of April 28, 2003, by
Pan American Associates and Ivyridge Investment Corp.
in favor of PREIT Associates, L.P, filed as Exhibit
10.6 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.7 Amended and Restated Agreement of Limited Partnership
of New Castle Associates, dated as of April 28, 2003,
among PR New Castle LLC, as general partner, and
PREIT Associates, L.P., Pan American Associates and
Ivyridge Investment Corp., as limited partners, filed
as Exhibit 10.7 to PREIT's Current Report on Form 8-K
dated April 28, 2003 and filed May 13, 2003 is
incorporated herein by reference.
10.8 Registration Rights Agreement, dated as of April 28,
2003, between Pennsylvania Real Estate Investment
Trust and Pan American Associates, filed as Exhibit
10.8 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
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10.9 Registration Rights Agreement, dated as of April 28,
2003, among Pennsylvania Real Estate Investment
Trust, The Albert H. Marta Revocable Inter Vivos
Trust, Marta Holdings I, L.P. and Ivyridge Investment
Corp, filed as Exhibit 10.9 to PREIT's Current Report
on Form 8-K dated April 28, 2003 and filed May 13,
2003 is incorporated herein by reference.
10.10 Termination of Management and Leasing Agreement,
dated as of April 28, 2003, between New Castle
Associates and PREIT-RUBIN, Inc, filed as Exhibit
10.10 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.11 Leasing and Management Agreement, dated as of April
28, 2003, between New Castle Associates and
PREIT-RUBIN, Inc, filed as Exhibit 10.11 to PREIT's
Current Report on Form 8-K dated April 28, 2003 and
filed May 13, 2003 is incorporated herein by
reference.
10.12+ Credit Agreement dated as of April 23, 2003 by and
among PREIT Associates, L.P., Pennsylvania Real
Estate Investment Trust and Wells Fargo Bank,
National Association, as agent, filed as Exhibit
10.12 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.13+ Revolving Note, dated April 23, 2003, in the
principal amount of $25,000,000 issued by PREIT
Associates, L.P. in favor of Wells Fargo Bank,
National Association, filed as Exhibit 10.13 to
PREIT's Current Report on Form 8-K dated April 28,
2003 and filed May 13, 2003 is incorporated herein by
reference.
10.14+ Term Note, dated April 23, 2003, in the principal
amount of $175,000,000 issued by PREIT Associates,
L.P. in favor of Wells Fargo Bank, National
Association, filed as Exhibit 10.14 to PREIT's
Current Report on Form 8-K dated April 28, 2003 and
filed May 13, 2003 is incorporated herein by
reference.
10.15+ Guaranty Agreement, dated as of April 23, 2003, by
PREIT Associates, L.P. in favor of Wells Fargo Bank,
National Association, filed as Exhibit 10.15 to
PREIT's Current Report on Form 8-K dated April 28,
2003 and filed May 13, 2003 is incorporated herein by
reference.
10.16+ Second Amendment to that certain Credit Agreement
dated as of December 28, 2000 as further amended as
of April 23, 2003, by Pennsylvania Real Estate
Investment Trust, each of the Guarantors thereto and
Wells Fargo Bank, National Association, as agent,
filed as Exhibit 10.16 to PREIT's Current Report on
Form 8-K dated April 28, 2003 and filed May 13, 2003
is incorporated herein by reference.
10.17 Letter agreement between Lehman Brothers Bank, FSB
and Moorestown Mall LLC dated June 3, 2003 filed as
Exhibit 10.17 PREIT's Current Report on Form 8-K/A
dated April 28, 2003 and filed June 20, 2003 is
incorporated herein by reference.
10.18 Promissory Note, dated June 3, 2003, in the principal
amount of $64,250,000 issued by Moorestown Mall LLC
in favor of Lehman Brothers Bank, FSB filed as
Exhibit 10.18 to PREIT's Current Report on Form 8-K/A
dated April 28, 2003 and filed June 20, 2003 is
incorporated herein by reference.
-12-
10.19 Promissory Note, dated May 30, 2003, in the principal
amount of $70,000,000 issued by PR North Dartmouth
LLC in favor of Lehman Brothers Holdings, Inc. filed
as Exhibit 10.19 to PREIT's Current Report on Form
8-K/A dated April 28, 2003 and filed June 20, 2003 is
incorporated herein by reference.
23* Consent of KPMG LLP.
*Filed herewith.
+ Pursuant to Item 601(b)(2) of Regulation S-K, certain
exhibits and schedules have been omitted, copies of which
will be furnished to the SEC upon request.
-13-
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 26, 2003 By: Jonathan B. Weller
----------------------------------------
Jonathan B. Weller
President and Chief Operating Officer
-14-
Exhibit Index
-------------
Number Description
------ -----------
2.1 Agreement of Purchase and Sale among The Rouse
Company of Nevada, LLC, The Rouse Company of New
Jersey, LLC and PR Cherry Hill Limited Partnership,
dated as of March 7, 2003, filed as Exhibit 2.1 to
PREIT's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 is incorporated herein
by reference.
2.2 Agreement of Purchase and Sale among Echelon Mall
Joint Venture, Echelon Acquisition, LLC and PR
Echelon Limited Partnership, dated as of March 7,
2003, filed as Exhibit 2.2 to PREIT's Annual Report
on Form 10-K for the fiscal year ended December 31,
2002 is incorporated herein by reference.
2.3 Agreement of Purchase and Sale between Gallery at
Market East, LLC and PR Gallery I Limited
Partnership, dated as of March 7, 2003, filed as
Exhibit 2.3 to PREIT's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 is
incorporated herein by reference.
2.4 Agreement of Purchase and Sale among The Rouse
Company of Nevada, LLC, The Rouse Company of New
Jersey, LLC and PR Moorestown Limited Partnership,
dated as of March 7, 2003, filed as Exhibit 2.4 to
PREIT's Annual Report on Form 10-K for the fiscal
year ended December 31, 2002 is incorporated herein
by reference.
2.5 Agreement of Purchase and Sale between Plymouth
Meeting Property, LLC and PR Plymouth Meeting Limited
Partnership, dated as of March 7, 2003, filed as
Exhibit 2.5 to PREIT's Annual Report on Form 10-K for
the fiscal year ended December 31, 2002 is
incorporated herein by reference.
2.6 Agreement of Purchase and Sale between The Rouse
Company, L.P. and PR Exton Limited Partnership, dated
as of March 7, 2003, filed as Exhibit 2.6 to PREIT's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 is incorporated herein by
reference.
2.7 First Amendment to Agreement of Purchase and Sale
Plymouth Meeting Mall, dated as of April 28, 2003, by
and between Plymouth Meeting Property, LLC and PR
Plymouth Meeting Limited Partnership, filed as
Exhibit 2.7 to PREIT's Current Report on Form 8-K
dated April 28, 2003 and filed May 13, 2003 is
incorporated herein by reference.
2.8 First Amendment to Agreement of Purchase and Sale
Echelon Mall, dated as of April 28, 2003, by and
between Echelon Mall Joint Venture, Echelon
Acquisition, LLC and PR Echelon Limited Partnership,
filed as Exhibit 2.8 to PREIT's Current Report on
Form 8-K dated April 28, 2003 and filed May 13, 2003
is incorporated herein by reference.
2.9+ Contribution Agreement, dated as of April 22, 2003,
among Pennsylvania Real Estate Investment Trust,
PREIT Associates, L.P. and the persons and entities
named therein and the joinder to the contribution
agreement, filed as Exhibit 2.9 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
-15-
2.10+ Call and Put Option Agreement, dated as of April 28,
2003, among PREIT Associates, L.P., PR New Castle
LLC, Pan American Associates and Ivyridge Investment
Corp, filed as Exhibit 2.10 to PREIT's Current Report
on Form 8-K dated April 28, 2003 and filed May 13,
2003 is incorporated herein by reference.
10.1 Agreement of Purchase and Sale between New Castle
Associates and Christiana Mall, LLC, dated as of
March 7, 2003, filed as Exhibit 10.72 to PREIT's
Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 is incorporated herein by
reference.
10.2 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Cherry Hill
Mall), filed as Exhibit 10.2 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.3 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of Gallery at Market
East, LLC and its affiliates, including The Rouse
Company, L.P. (relating to The Gallery at Market
East), filed as Exhibit 10.3 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.4 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Moorestown
Mall), filed as Exhibit 10.4 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.5 Guaranty Agreement, dated as of April 24, 2003, by
PREIT Associates, L.P. in favor of The Rouse Company,
L.P. and its affiliates (relating to Exton Square
Mall), filed as Exhibit 10.5 to PREIT's Current
Report on Form 8-K dated April 28, 2003 and filed May
13, 2003 is incorporated herein by reference.
10.6 Security Agreement, dated as of April 28, 2003, by
Pan American Associates and Ivyridge Investment Corp.
in favor of PREIT Associates, L.P, filed as Exhibit
10.6 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.7 Amended and Restated Agreement of Limited Partnership
of New Castle Associates, dated as of April 28, 2003,
among PR New Castle LLC, as general partner, and
PREIT Associates, L.P., Pan American Associates and
Ivyridge Investment Corp., as limited partners, filed
as Exhibit 10.7 to PREIT's Current Report on Form 8-K
dated April 28, 2003 and filed May 13, 2003 is
incorporated herein by reference.
10.8 Registration Rights Agreement, dated as of April 28,
2003, between Pennsylvania Real Estate Investment
Trust and Pan American Associates, filed as Exhibit
10.8 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
-16-
10.9 Registration Rights Agreement, dated as of April 28,
2003, among Pennsylvania Real Estate Investment
Trust, The Albert H. Marta Revocable Inter Vivos
Trust, Marta Holdings I, L.P. and Ivyridge Investment
Corp, filed as Exhibit 10.9 to PREIT's Current Report
on Form 8-K dated April 28, 2003 and filed May 13,
2003 is incorporated herein by reference.
10.10 Termination of Management and Leasing Agreement,
dated as of April 28, 2003, between New Castle
Associates and PREIT-RUBIN, Inc, filed as Exhibit
10.10 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.11 Leasing and Management Agreement, dated as of April
28, 2003, between New Castle Associates and
PREIT-RUBIN, Inc, filed as Exhibit 10.11 to PREIT's
Current Report on Form 8-K dated April 28, 2003 and
filed May 13, 2003 is incorporated herein by
reference.
10.12+ Credit Agreement dated as of April 23, 2003 by and
among PREIT Associates, L.P., Pennsylvania Real
Estate Investment Trust and Wells Fargo Bank,
National Association, as agent, filed as Exhibit
10.12 to PREIT's Current Report on Form 8-K dated
April 28, 2003 and filed May 13, 2003 is incorporated
herein by reference.
10.13+ Revolving Note, dated April 23, 2003, in the
principal amount of $25,000,000 issued by PREIT
Associates, L.P. in favor of Wells Fargo Bank,
National Association, filed as Exhibit 10.13 to
PREIT's Current Report on Form 8-K dated April 28,
2003 and filed May 13, 2003 is incorporated herein by
reference.
10.14+ Term Note, dated April 23, 2003, in the principal
amount of $175,000,000 issued by PREIT Associates,
L.P. in favor of Wells Fargo Bank, National
Association, filed as Exhibit 10.14 to PREIT's
Current Report on Form 8-K dated April 28, 2003 and
filed May 13, 2003 is incorporated herein by
reference.
10.15+ Guaranty Agreement, dated as of April 23, 2003, by
PREIT Associates, L.P. in favor of Wells Fargo Bank,
National Association, filed as Exhibit 10.15 to
PREIT's Current Report on Form 8-K dated April 28,
2003 and filed May 13, 2003 is incorporated herein by
reference.
10.16+ Second Amendment to that certain Credit Agreement
dated as of December 28, 2000 as further amended as
of April 23, 2003, by Pennsylvania Real Estate
Investment Trust, each of the Guarantors thereto and
Wells Fargo Bank, National Association, as agent,
filed as Exhibit 10.16 to PREIT's Current Report on
Form 8-K dated April 28, 2003 and filed May 13, 2003
is incorporated herein by reference.
10.17 Letter agreement between Lehman Brothers Bank, FSB
and Moorestown Mall LLC dated June 3, 2003 filed as
Exhibit 10.17 to PREIT's Current Report on Form 8-K/A
dated April 28, 2003 and filed June 20, 2003 is
incorporated herein by reference.
-17-
10.18 Promissory Note, dated June 3, 2003, in the principal
amount of $64,250,000 issued by Moorestown Mall LLC
in favor of Lehman Brothers Bank, FSB filed as
Exhibit 10.18 to PREIT's Current Report on Form 8-K/A
dated April 28, 2003 and filed June 20, 2003 is
incorporated herein by reference.
10.19 Promissory Note, dated May 30, 2003, in the principal
amount of $70,000,000 issued by PR North Dartmouth
LLC in favor of Lehman Brothers Holdings, Inc. filed
as Exhibit 10.19 to PREIT's Current Report on Form
8-K/A dated April 28, 2003 and filed June 20, 2003
is incorporated herein by reference.
23* Consent of KPMG LLP.
*Filed herewith.
+ Pursuant to Item 601(b)(2) of Regulation S-K, certain
exhibits and schedules have been omitted, copies of which
will be furnished to the SEC upon request.
-18-
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONTENTS
Page
----
Independent Auditors' Report - Subject Properties - First Close F-2
Combined Statements of Revenues and Certain Expenses of Subject
Properties - First Close for the Year Ended December 31, 2002 and for
the Three-Month Period Ended March 31, 2003 (unaudited) F-3
Notes to Combined Statements of Revenues and Certain Expenses of
Subject Properties - First Close F-4
Independent Auditors' Report - Subject Properties - Second Close F-6
Combined Statements of Revenues and Certain Expenses of Subject
Properties - Second Close for the Year Ended December 31, 2002 and for
the Three-Month Period Ended March 31, 2003 (unaudited) F-7
Notes to Combined Statements of Revenues and Certain Expenses of
Subject Properties - First Close F-8
Independent Auditors' Report - Cherry Hill Mall F-10
Statements of Revenues and Certain Expenses of Cherry Hill Mall for the Years
Ended December 31, 2002, 2001 and 2000 and for the Three-Month Period Ended
March 31, 2003 (unaudited) F-11
Notes to Statements of Revenues and Certain Expenses of Cherry Hill Mall F-12
F-1
Independent Auditors' Report
The Board of Directors
Pennsylvania Real Estate Investment Trust
We have audited the accompanying combined statement of revenues and certain
expenses of the Subject Properties - First Close, as defined in note 1, for the
year ended December 31, 2002. This combined financial statement is the
responsibility of management of the Subject Properties - First Close. Our
responsibility is to express an opinion on this combined 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 combined
statement of revenues 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 revenues 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 combined
statement of revenues and certain expenses. We believe that our audit provides a
reasonable basis for our opinion.
As described in note 2, the accompanying combined statement of revenues and
certain expenses excludes certain expenses that would not be comparable with
those resulting from the proposed future operations of the Subject Properties -
First Close. The accompanying combined statement of revenues and certain
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission Rule 3-14 of Regulation
S-X and is not intended to be a complete presentation of the Subject Properties
- First Close revenues and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the combined revenues and certain expenses (described in note 2) of
the Subject Properties - First Close for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying combined statement of revenues and certain expenses for the
three-month period ended March 31, 2003 was not audited by us and, accordingly,
we do not express an opinion on it.
/s/ KPMG LLP
-------------------
Baltimore, Maryland
April 29, 2003
F-2
SUBJECT PROPERTIES - FIRST CLOSE
Combined Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and
Year Ended December 31, 2002
(in thousands)
Three-Month Period Year Ended
Ended March 31, 2003 December 31, 2002
--------------------- -----------------
(Unaudited)
Revenues:
Minimum rents $ 6,355 $25,293
Percentage rents 215 934
Temporary tenant rents 348 2,035
Charges for common facilities 2,325 7,520
Charges for heating, ventilating and air conditioning 175 963
Charges for light and power 492 2,081
Charges for real estate taxes 597 2,605
Charges for other recoverable expenses 321 1,128
Lease terminations 84 1,886
Other 235 710
------- -------
11,147 45,155
------- -------
Certain expenses:
On-site and other management costs 117 627
Other general and administrative expenses 293 1,239
Temporary tenant expenses 159 739
Marketing expenses 63 279
Common facilities expenses 2,251 6,932
Heating, ventilating and air conditioning expenses 119 554
Tenant light and power expenses 399 1,866
Real estate taxes 853 3,311
Other recoverable expenses 295 1,303
Building maintenance expenses 25 54
Ground rent expenses 188 302
------- -------
4,762 17,206
------- -------
Revenues in excess of certain expenses $ 6,385 $27,949
======= =======
The accompanying notes are an integral part of these statements.
F-3
SUBJECT PROPERTIES - FIRST CLOSE
Notes to Combined Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and
Year Ended December 31, 2002
(1) Background
In March 2003, Pennsylvania Real Estate Investment Trust ("PREIT") agreed
to purchase six shopping malls owned by The Rouse Company ("Rouse"). Five
of the properties were acquired directly from Rouse in two closings. The
first closing included Exton Square in Exton, Pennsylvania, The Gallery
at Market East in Philadelphia, Pennsylvania and Moorestown Mall in
Moorestown, New Jersey. These properties are collectively referred to as
the Subject Properties - First Close. The second closing included
Plymouth Meeting in Plymouth Meeting, Pennsylvania and Echelon Mall in
Voorhees, New Jersey. PREIT acquired its interest in Cherry Hill Mall in
Cherry Hill, New Jersey indirectly, through New Castle Associates, a
related party of PREIT that acquired the property from Rouse.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying combined statements of revenues and certain
expenses relate to the Subject Properties - First Close and have
been prepared for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission.
Accordingly, it is 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 Subject Properties - First
Close, have been excluded. Expenses excluded consist of management
fees, mortgage interest and depreciation and amortization.
The combined statement of revenue and certain expenses for the
three-month period ended March 31, 2003 is unaudited; however, in
the opinion of management of the Subject Properties - First Close,
all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of the combined
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 revenues
under leases, which provide for varying rents over their terms.
F-4
SUBJECT PROPERTIES - FIRST CLOSE
Notes to Combined Statements of Revenues and Certain Expenses
(2) Summary of Significant Accounting Policies and Other Matters, Continued
(c) Percentage Rents
Percentage rent revenues are considered earned when a tenant's
sales exceed the minimum annual sales volume required for
percentage rent under the terms of the lease agreement.
(d) Management Costs
Management expense includes administrative costs incurred by Rouse
which are allocated to subsidiaries and affiliates based primarily
on their respective revenues and certain other expenses incurred
in the operation of the retail center. These expenses include
on-site management costs, leasing costs and certain off-site
accounting and other services.
Management and other costs allocated from Rouse aggregated
approximately $267,000 for the three-month period ended March 31,
2003 and $1,228,000 for the year ended December 31, 2002.
Substantially all of these costs were recorded in other management
costs and common facilities expenses.
(e) 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 revenues and expenses recognized during the reporting
period. Actual results could differ from those estimates.
(3) Tenant Leases
Space in the Subject Properties - First Close is leased to approximately
310 tenants. In addition to minimum rents, the majority of the leases
provide for percentage rents when the tenants' sales volumes exceed
stated amounts as well as other rents which reimburse the Subject
Properties - First Close for certain of their operating expenses.
The total minimum rents to be received from tenants under noncancellable
operating leases in effect at December 31, 2002, relating to the Subject
Properties - First Close, are as follows (in thousands):
2003 $ 24,359
2004 22,331
2005 20,667
2006 17,460
2007 15,996
Subsequent to 2007 41,194
--------
Total $142,007
========
F-5
Independent Auditors' Report
The Board of Directors
Pennsylvania Real Estate Investment Trust
We have audited the accompanying combined statement of revenues and certain
expenses of the Subject Properties - Second Close, as defined in note 1, for the
year ended December 31, 2002. This combined financial statement is the
responsibility of management of the Subject Properties - Second Close. Our
responsibility is to express an opinion on this combined 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 combined
statement of revenues 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 revenues 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 combined
statement of revenues and certain expenses. We believe that our audit provides a
reasonable basis for our opinion.
As described in note 2, the accompanying combined statement of revenues and
certain expenses excludes certain expenses that would not be comparable with
those resulting from the proposed future operations of the Subject Properties -
Second Close. The accompanying combined statement of revenues and certain
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission Rule 3-14 of Regulation
S-X and is not intended to be a complete presentation of the Subject Properties
- Second Close revenues and expenses.
In our opinion, the statement referred to above presents fairly, in all material
respects, the combined revenues and certain expenses (described in note 2) of
the Subject Properties - Second Close for the year ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying combined statement of revenues and certain expenses for the
three-month period ended March 31, 2003 was not audited by us and, accordingly,
we do not express an opinion on it.
/s/ KPMG LLP
-------------------
Baltimore, Maryland
April 29, 2003
F-6
SUBJECT PROPERTIES - SECOND CLOSE
Combined Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and
Year Ended December 31, 2002
(in thousands)
Three-Month Period Ended Year Ended
March 31, 2003 December 31, 2002
-------------------------- -----------------
(Unaudited)
Revenues:
Minimum rents $ 3,660 $15,115
Percentage rents 79 294
Temporary tenant rents 133 948
Charges for common facilities 1,597 5,318
Charges for heating, ventilating and air conditioning 323 1,530
Charges for light and power 498 1,994
Charges for real estate taxes 538 2,276
Charges for other recoverable expenses 158 710
Lease terminations - 742
Other 134 708
------- -------
7,120 29,635
------- -------
Certain expenses:
On-site and other management costs 100 535
Other general and administrative expenses 139 1,021
Temporary tenant expenses 62 268
Marketing expenses 48 186
Common facilities expenses 1,920 5,852
Heating, ventilating and air conditioning expenses 302 1,211
Tenant light and power expenses 439 1,957
Real estate taxes 867 3,464
Other recoverable expenses 182 677
Building maintenance expenses 79 71
Ground rent expenses 215 874
------- -------
4,353 16,116
------- -------
Revenues in excess of certain expenses $ 2,767 $13,519
======= =======
The accompanying notes are an integral part of these statements.
F-7
SUBJECT PROPERTIES - SECOND CLOSE
Notes to Combined Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and
Year Ended December 31, 2002
(1) Background
In March 2003, Pennsylvania Real Estate Investment Trust ("PREIT") agreed
to purchase six shopping malls owned by The Rouse Company ("Rouse"). Five
of the properties were acquired directly from Rouse in two closings. The
first closing included Exton Square in Exton, Pennsylvania, The Gallery
at Market East in Philadelphia, Pennsylvania and Moorestown Mall in
Moorestown, New Jersey. The second closing included Plymouth Meeting in
Plymouth Meeting, Pennsylvania and Echelon Mall in Voorhees, New Jersey.
Plymouth Meeting and Echelon Mall are collectively referred to as the
Subject Properties - Second Close. PREIT acquired its interest in Cherry
Hill Mall in Cherry Hill, New Jersey indirectly, through New Castle
Associates, a related party of PREIT that acquired the property from
Rouse.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying combined statements of revenues and certain
expenses relate to the Subject Properties - Second Close and have
been prepared for the purpose of complying with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission.
Accordingly, it is 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 Subject Properties - Second
Close, have been excluded. Expenses excluded consist of management
fees, mortgage interest, depreciation and amortization, and
provision for impairment loss.
The combined statement of revenue and certain expenses for the
three-month period ended March 31, 2003 is unaudited; however, in
the opinion of management of the Subject Properties - Second
Close, all adjustments (consisting solely of normal recurring
adjustments) necessary for the fair presentation of the combined
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 revenues
under leases which provide for varying rents over their terms.
F-8
SUBJECT PROPERTIES - SECOND CLOSE
Notes to Combined Statements of Revenues and Certain Expenses
(2) Summary of Significant Accounting Policies and Other Matters, Continued
(c) Percentage Rents
Percentage rent revenues are considered earned when a tenant's
sales exceed the minimum annual sales volume required for
percentage rent under the terms of the lease agreement.
(d) Management Costs
Management expense includes administrative costs incurred by Rouse
which are allocated to subsidiaries and affiliates based primarily
on their respective revenues and certain other expenses incurred
in the operation of the retail center. These expenses include
on-site management costs, leasing costs and certain off-site
accounting and other services.
Management and other costs allocated from Rouse aggregated
approximately $194,000 for the three-month period ended March 31,
2003 and $885,000 for the year ended December 31, 2002.
Substantially all of these costs were recorded in other management
costs and common facilities expenses.
(e) 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 revenues and expenses recognized during the reporting
period. Actual results could differ from those estimates.
(3) Tenant Leases
Space in the Subject Properties - Second Close is leased to approximately
230 tenants. In addition to minimum rents, the majority of the leases
provide for percentage rents when the tenants' sales volumes exceed
stated amounts as well as other rents which reimburse the Subject
Properties - Second Close for certain of their operating expenses.
The total minimum rents to be received from tenants under noncancellable
operating leases in effect at December 31, 2002, relating to the Subject
Properties - Second Close, are as follows (in thousands):
2003 $13,459
2004 12,218
2005 10,540
2006 8,602
2007 7,319
Subsequent to 2007 14,689
-------
Total $66,827
=======
F-9
Independent Auditors' Report
The Board of Directors
Pennsylvania Real Estate Investment Trust
We have audited the accompanying statements of revenues and certain expenses of
Cherry Hill Mall for the years ended December 31, 2002, 2001 and 2000. These
financial statements are the responsibility of management of Cherry Hill Mall.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the statements
of revenues and certain expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues 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 statements
of revenues and certain expenses. We believe that our audits provide a
reasonable basis for our opinion.
As described in note 2, the accompanying statements of revenues and certain
expenses exclude certain expenses that would not be comparable with those
resulting from the proposed future operations of Cherry Hill Mall. The
accompanying statements of revenues and certain expenses were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission Rule 3-14 of Regulation S-X and are not intended to be a
complete presentation of Cherry Hill Mall's revenues and expenses.
In our opinion, the statements referred to above present fairly, in all material
respects, the revenues and certain expenses (described in note 2) of Cherry Hill
Mall for the years ended December 31, 2002, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying statement of revenues and certain expenses for the three-month
period ended March 31, 2003 was not audited by us and, accordingly, we do not
express an opinion on it.
/s/ KPMG LLP
-------------------
Baltimore, Maryland
April 29, 2003
F-10
CHERRY HILL MALL
Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and Years Ended
December 31, 2002, 2001 and 2000
(in thousands)
Three-Month
Period ended
March 31, 2003 Year ended December 31,
-------------- ------------------------------------------
(Unaudited) 2002 2001 2000
---- ---- ----
Revenues:
Minimum rents $ 4,358 $16,862 $15,057 $14,625
Percentage rents 203 355 465 291
Temporary tenant rents 215 1,307 1,122 1,045
Charges for common facilities 1,426 4,294 3,677 3,380
Charges for heating, ventilating and air
conditioning 213 1,071 1,268 923
Charges for light and power 250 1,183 1,070 1,307
Charges for real estate taxes 1,032 3,963 3,482 3,371
Charges for other recoverable expenses 168 500 295 460
Lease terminations - 10 445 -
Other 219 461 631 368
------- ------- ------- -------
8,084 30,006 27,512 25,770
------- ------- ------- -------
Certain expenses:
On-site and other management costs 45 233 377 320
Other general and administrative expenses 155 316 265 254
Temporary tenant expenses 51 193 173 162
Marketing expenses 55 177 211 215
Common facilities expenses 1,106 3,625 3,137 2,843
Heating, ventilating and air conditioning
expenses 108 581 840 540
Tenant light and power expenses 209 1,094 926 1,220
Real estate taxes 1,270 4,524 4,202 4,026
Other recoverable expenses 151 512 279 424
Building maintenance expenses 13 89 75 175
------- ------- ------- -------
3,163 11,344 10,485 10,179
------- ------- ------- -------
Revenues in excess of certain expenses $ 4,921 $18,662 $17,027 $15,591
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The accompanying notes are an integral part of these statements.
F-11
CHERRY HILL MALL
Notes to Statements of Revenues and Certain Expenses
Three-Month Period Ended March 31, 2003 (unaudited) and
Years Ended December 31, 2002, 2001 and 2000
(1) Background
In March 2003, Pennsylvania Real Estate Investment Trust ("PREIT") agreed
to purchase six shopping malls owned by The Rouse Company ("Rouse"). Five
of the properties were acquired directly from Rouse in two closings. The
first closing included Exton Square in Exton, Pennsylvania, The Gallery
at Market East in Philadelphia, Pennsylvania and Moorestown Mall in
Moorestown, New Jersey. The second closing included Plymouth Meeting in
Plymouth Meeting, Pennsylvania and Echelon Mall in Voorhees, New Jersey.
PREIT acquired its interest in Cherry Hill Mall in Cherry Hill, New
Jersey indirectly, through New Castle Associates, a related party of
PREIT that acquired the property from Rouse.
(2) Summary of Significant Accounting Policies and Other Matters
(a) Basis of Presentation
The accompanying combined statements of revenues and certain
expenses relate to Cherry Hill Mall and have been prepared for
the purpose of complying with Rule 3-14 of Regulation S-X of the
Securities and Exchange Commission. Accordingly, they 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 Cherry Hill Mall, have been excluded. Expenses
excluded consist of management fees, mortgage interest and
depreciation and amortization.
The combined statement of revenue and certain expenses for the
three-month period ended March 31, 2003 is unaudited; however, in
the opinion of management of Cherry Hill Mall, all adjustments
(consisting solely of normal recurring adjustments) necessary for
the fair presentation of the combined 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
revenues under leases which provide for varying rents over their
terms.
F-12
CHERRY HILL MALL
Notes to Statements of Revenues and Certain Expenses
(2) Summary of Significant Accounting Policies and Other Matters, Continued
(c) Percentage Rents
Percentage rent revenues are considered earned when a tenant's
sales exceed the minimum annual sales volume required for
percentage rent under the terms of the lease agreement.
(d) Management Costs
Management expense includes administrative costs incurred by
Rouse which are allocated to subsidiaries and affiliates based
primarily on their respective revenues and certain other expenses
incurred in the operation of the retail center. These expenses
include on-site management costs, leasing costs and certain
off-site accounting and other services.
Management and other costs allocated from Rouse aggregated
approximately $90,000 for the three-month period ended March 31,
2003 and $422,000, $459,000 and $404,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. Substantially all
of these costs were recorded in other management costs and common
facilities expenses.
(e) 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 revenues and expenses recognized during the reporting
period. Actual results could differ from those estimates.
(3) Tenant Leases
Space in Cherry Hill Mall is leased to approximately 160 tenants. In
addition to minimum rents, the majority of the leases provide for
percentage rents when the tenants' sales volumes exceed stated amounts
as well as other rents which reimburse Cherry Hill Mall for certain of
their operating expenses.
The minimum rents to be received from tenants under noncancellable
operating leases in effect at December 31, 2002, are as follows (in
thousands):
2003 $17,610
2004 15,575
2005 13,669
2006 12,095
2007 10,411
Subsequent to 2007 25,730
-------
Total $95,090
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F-13