As filed with the Securities and Exchange Commission on December 4, 2003
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
______________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
_______________
Pennsylvania 23-6216339
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
Bruce Goldman
Executive Vice President-General Counsel
and Assistant Secretary
The Bellevue, 200 S. Broad Street The Bellevue, 200 S. Broad Street
Philadelphia, Pennsylvania 19102 Philadelphia, Pennsylvania 19102
(215) 875-0700 (215) 875-0700
(Address, Including Zip Code, and Telephone Number, (Name, Address, Including Zip Code, and Telephone
Including Area Code, of Registrant's Principal Executive Offices) Number, Including Area Code, of Agent for Service)
_______________________
Copy to:
Howard A. Blum, Esquire
Robert C. Juelke, Esquire
Drinker Biddle & Reath LLP
One Logan Square, 18th & Cherry Streets
Philadelphia, Pennsylvania 19103-6996
(215) 988-2700
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Amount Proposed Maximum Proposed Maximum Amount of
Title of Shares to be Offering Price Aggregate Registration
to be Registered Registered(1) Per Share (2) Offering Price(2) Fee
-----------------------------------------------------------------------------------------------------------------------------------
Shares of Beneficial Interest, par 2,761,230 $34.45 $95,124,374 $7,696
value $1.00 per share (and associated
rights)
===================================================================================================================================
(1) In the event of a share split, share dividend or similar transaction
involving the Registrant's shares, in order to prevent dilution, the number of
shares registered automatically shall be increased to cover the additional
shares in accordance with Rule 416(a) under the Securities Act of 1933.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
registration fee. The price and fee are based on the average of the highest and
lowest selling prices of the Registrant's shares of beneficial interest on
November 28, 2003 on the New York Stock Exchange.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is efffective. The prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 4, 2003
PROSPECTUS
PREIT
[LOGO OMITTED]
Pennsylvania Real Estate Investment Trust
2,761,230 SHARES OF BENEFICIAL INTEREST
We are registering the reoffer and resale from time to time of up to
2,761,230 shares of beneficial interest, including:
o 1,058,016 shares that we issued on November 20, 2003 in
connection with our merger with Crown American Realty Trust
and transactions related to the merger; and
o 1,703,214 shares that we may issue in the future to the
holders of units of limited partnership interest in PREIT
Associates, L.P., of which we are the sole general partner,
that PREIT Associates issued on November 20, 2003 in
connection with our merger with Crown American Realty Trust
and transactions related to the merger. The units are
redeemable by their holders for cash or, at our option, for a
like number of our shares.
The reoffer and resale of the shares will be made by the holders of
those shares or by the holders' pledgees, donees, transferees, partners or other
successors in interest in public or private transactions, on or off of the New
York Stock Exchange, at prevailing market prices or at privately negotiated
prices. They may sell the offered shares directly or through broker-dealers
acting as principal or agent, or in a distribution by underwriters. We will not
receive any of the proceeds from the sale of any shares by the selling
shareholders, but we have agreed to bear certain expenses of registering the
sale of the shares under federal and state securities laws. Our shares are
traded on the New York Stock Exchange under the symbol "PEI."
Consider carefully the Risk Factors beginning on page 2 before deciding
to invest in our shares.
These securities have not been approved or disapproved by the Securities and
Exchange Commission nor has the Securities and Exchange Commission passed upon
the accuracy or adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
The date of this prospectus is __________, 2003.
TABLE OF CONTENTS
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST...................................1
RISK FACTORS................................................................2
USE OF PROCEEDS............................................................17
SELLING SHAREHOLDERS.......................................................17
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST...............................18
FEDERAL INCOME TAX CONSIDERATIONS..........................................30
PLAN OF DISTRIBUTION.......................................................47
LEGAL MATTERS..............................................................49
EXPERTS....................................................................49
WHERE YOU CAN FIND MORE INFORMATION........................................50
FORWARD LOOKING STATEMENTS.................................................52
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
PREIT, which is organized as a business trust under Pennsylvania law,
is a fully integrated, self-administered and self-managed real estate investment
trust, founded in 1960, that acquires, develops, redevelops and operates retail
properties. We conduct substantially all of our operations through PREIT
Associates, L.P., and we have elected, and conduct our operations in a manner
intended, to comply with the requirements for qualification as a real estate
investment trust (a "REIT") under the Real Estate Investment Trust Act of 1960,
Sections 856-60 of the Internal Revenue Code of 1986, as amended.
Our principal executive offices are located at The Bellevue, 200 S.
Broad St., Philadelphia, Pennsylvania, 19102, and our telephone number is (215)
875-0700.
RISK FACTORS
RISKS RELATED TO OUR PROPERTIES AND OUR BUSINESS
Our retail properties are concentrated in the Mid-Atlantic region of the United
States and adverse market conditions in that region may impact the ability of
our tenants to make lease payments and to renew leases, which may reduce the
amount of income generated by our properties.
Our retail properties currently are concentrated in the Mid-Atlantic
region of the United States. To the extent adverse conditions affecting retail
properties - such as population trends and changing demographics, income, sales
and property tax laws, availability and costs of financing, construction costs
and weather conditions that may increase energy costs - are particularly adverse
in Pennsylvania or in the Mid-Atlantic region, our results of operations will be
more notably affected. If the sales of stores operating at our properties were
to decline significantly due to economic conditions, the risk that our tenants
will be unable to fulfill the terms of their leases or will enter into
bankruptcy may increase. In particular, economic and market conditions in the
Mid-Atlantic region have a substantial impact on the performance of our anchor
and other tenants and may impact the ability of our tenants to make lease
payments and to renew their leases. If, as a result of such tenant difficulties,
our properties do not generate sufficient income to meet our operating expenses,
including debt service, our results of operations would be adversely affected.
Our substantial debt and the dividends payable on our preferred shares may
adversely affect our operating results and put us at a competitive disadvantage.
As a result of our substantial debt obligations, we may not have
sufficient cash flow from operations to meet required payments of principal and
interest on our debt or to pay distributions on our securities at historical
rates, which could affect our ability to qualify as a REIT or to make necessary
investments in new business initiatives. In addition, increases in interest
rates on our existing indebtedness, which includes a significant portion of
variable rate debt, would increase our interest expense, which could harm our
cash flow and our ability to pay distributions.
We assumed significant indebtedness through our merger with Crown
American Realty Trust. As of September 30, 2003, Crown had approximately $754.4
million in total debt outstanding, all of which was secured by its real estate
assets. This excludes Crown's pro rata portion of $18.6 million of outstanding
debt owed by Palmer Park Mall Venture, a former joint venture between us and
Crown that holds title to the Palmer Park Mall. We repaid a portion of the debt
assumed from Crown with proceeds from our new $500 million unsecured credit
facility. We also are obligated to pay a quarterly dividend of $1.375 per share
to the holders of the 11% preferred shares that we issued in connection with the
merger.
-2-
Our existing indebtedness and the dividends payable on our preferred
shares could have negative consequences to our shareholders, including:
o requiring us to use a significant portion of our cash flow
from operations to make interest and principal payments on our
debt and dividend and redemption payments on our preferred
shares rather than for other purposes such as working capital,
capital expenditures or dividends on our common shares;
o harming our ability to obtain additional financing in the
future for working capital, capital expenditures,
acquisitions, development activities or other general
corporate purposes;
o limiting our flexibility to plan for or react to changes in
business and economic conditions; and
o making us more vulnerable to a downturn in our business or the
economy generally.
Our financial covenants may restrict our operating or acquisition activities,
which may harm our financial condition and operating results.
Our existing $500 million credit facility currently requires our
operating partnership, PREIT Associates, L.P., to satisfy numerous financial
covenants. These covenants could reduce our flexibility in conducting our
operations by limiting our ability to borrow money and may create a risk of
default on our debt if we cannot continue to satisfy these covenants. If we
default under this credit facility, the lenders could require us to repay the
debt immediately. We rely on borrowings under this credit facility to finance
acquisitions, construction of our development properties, renovations and
capital improvements to our properties and for working capital. If we are unable
to borrow under our credit facility or to arrange for alternative financing, our
financial condition and results of operations would be adversely impacted.
We may be unable to manage effectively our rapid growth and expansion in the
retail sector, which may result in disruptions to our business.
We recently completed the acquisition of six shopping malls from The
Rouse Company and the acquisition of 26 retail properties through our merger
with Crown American Realty Trust. The merger requires the integration of two
large and complex real estate businesses that formerly operated independently.
We have retained the services of Generative Leadership Group and
PricewaterhouseCoopers, LLP to assist with the integration of the Crown assets
and personnel. Following the merger and the related transactions, the gross
leasable area of our owned, managed or leased retail properties is approximately
115% higher than it was before the merger and the Rouse shopping mall
acquisition. We also recently completed the sale of all 19 properties in our
multifamily portfolio.
The integration efforts required in connection with the merger and the
Rouse shopping mall acquisition, together with our continuing efforts to
transform our strategic focus to ownership of retail properties, are substantial
and may cause disruptions in our operations and divert management's attention
away from day-to-day operations, which could impair our relationships with our
current tenants and employees. In addition, the Rouse shopping mall acquisition
and the Crown merger pose specific risks for our ongoing operations, including
that:
-3-
o we may not achieve the expected operating efficiencies,
value-creation potential, economies of scale or other benefits
of those transactions;
o we may not have adequate personnel and financial and other
resources to successfully handle our substantially increased
operations;
o we may not be successful in leasing space in properties
acquired from Rouse or Crown;
o the combined portfolio may not perform at the level we
anticipate;
o we may experience difficulties and incur unforeseen expenses
in connection with assimilating and retaining Crown employees,
assimilating Crown's business and assimilating the properties
acquired from Rouse and Crown; and
o we may experience problems and incur unforeseen expenses in
connection with upgrading and expanding our systems and
processes required as a result of the Rouse shopping mall
acquisition and the Crown merger.
In addition, we expect to make future acquisitions or investments in
real properties, other assets and other companies. If we fail to integrate
successfully these properties and/or fail to realize the intended benefits of
these transactions, our financial condition and results of operations may be
materially harmed.
Competition may impede our ability to renew leases or re-let space as leases
expire and require us to undertake unbudgeted capital improvements, which could
harm our operating results.
We face competition from similar retail centers that are near our
retail properties with respect to the renewal of leases and re-letting of space
as leases expire. Any new competitive properties that are developed close to our
existing properties also may impact our ability to lease space to creditworthy
tenants. Increased competition for tenants may require us to make capital
improvements to properties that we would not have otherwise planned to make. Any
unbudgeted capital improvements could adversely affect our results of
operations. Also, to the extent we are unable to renew leases or re-let space as
leases expire, it would result in decreased cash flow from tenants and adversely
affect our results of operations.
Rising operating expenses could reduce our cash flow and funds available for
future distributions.
Our properties and any properties we acquire in the future are and will
be subject to operating risks common to real estate in general, any or all of
which may negatively affect us. If any property is not fully occupied or if
rents are being paid in an amount that is insufficient to cover operating
expenses, then we could be required to expend funds for that property's
operating expenses. The properties will be subject to increases in real estate
and other tax rates, utility costs, operating expenses, insurance costs, repair
and maintenance costs and administrative expenses. Although some of our
properties are leased on terms that require tenants to pay a portion of the
expenses associated with the property, renewals of leases or future leases may
not be negotiated on that basis, in which event we will have to pay those costs.
If we are unable to lease properties on a basis requiring the tenants to pay all
or some of the expenses associated with the property, or if tenants fail to pay
required tax, utility and other impositions, we could be required to pay those
costs, which could adversely affect our results of operations.
-4-
Any tenant bankruptcies or leasing delays we encounter, particularly with
respect to our anchor tenants, could adversely affect our operating results and
financial condition.
We receive a substantial portion of our income as rent under long term
leases. At any time, any of our tenants may experience a downturn in its
business that may weaken its financial condition. Our tenants may delay lease
commencement, fail to make rental payments when due, or declare bankruptcy. Any
leasing delays, tenant failures to make rental payments when due or tenant
bankruptcies could result in the termination of the tenant's lease and,
particularly in the case of a key anchor tenant, material losses to us and harm
to our results of operations. Some of our tenants occupy stores at multiple
locations in our portfolio, and so the impact of any bankruptcy of those tenants
may be more significant on us than others. If tenants are unable to comply with
the terms of our leases, we may modify lease terms in ways that are unfavorable
to us. In addition, under many of our leases, our tenants pay rent based on a
percentage of their sales or other operating results. Accordingly, declines in
these tenants' performance directly impacts our results of operations.
In addition to the loss of rental payments from an anchor tenant, a
lease termination by an anchor tenant or a failure by that anchor tenant to
occupy the premises could result in lease terminations or reductions in rent by
other tenants of the same shopping center whose leases permit cancellation or
rent reduction if an anchor tenant's lease is terminated. In that event, we may
be unable to re-lease the vacated space. In addition, the leases of some anchor
tenants may permit the anchor tenant to transfer its lease to another retailer.
The transfer to a new anchor tenant could cause customer traffic in the retail
center to decrease, which could reduce the income generated by that retail
center. A transfer of a lease to a new anchor tenant also could allow other
tenants to make reduced rental payments or to terminate their leases at the
retail center, which could adversely affect our results of operations.
PREIT-RUBIN manages properties owned by third parties, and the loss,
interruption or termination of one or more management contracts could harm our
operating results.
Risks associated with PREIT-RUBIN's management of properties owned by third
parties include:
o the property owner's termination of the management contract;
o loss of the management contract in connection with a property sale;
o non-renewal of the management contract after expiration;
o renewal of the management contract on terms less favorable than
current terms;
o decline in management fees as a result of general real estate market
conditions or local market factors; and
o claims of losses due to allegations of mismanagement.
The occurrence of one or more of these events could adversely affect our results
of operations.
-5-
We may not be successful in identifying suitable acquisitions that meet our
criteria, which may impede our growth.
Integral to our business strategy has been our strategic acquisitions
of retail properties. Our ability to expand through acquisitions requires us to
identify suitable acquisition candidates or investment opportunities that meet
our criteria and are compatible with our growth strategy. We analyze potential
acquisitions on a property-by-property and market-by-market basis. We may not be
successful in identifying suitable real estate properties or other assets in our
existing geographic markets or that otherwise meet our acquisition criteria or
in consummating acquisitions or investments on satisfactory terms. Failures in
identifying or consummating acquisitions could reduce the number of acquisitions
we complete and slow our growth, which could adversely affect our results of
operations.
We face increasing competition for the acquisition of real estate properties and
other assets, which may impede our ability to make future acquisitions or may
increase the cost of these acquisitions.
We compete with many other entities engaged in real estate investment
activities for acquisitions of retail shopping centers, including institutional
pension funds, other REITs and other owner-operators of retail properties. These
competitors may drive up the price we must pay for real estate properties, other
assets or other companies we seek to acquire or may succeed in acquiring those
properties, assets or companies themselves. In addition, our potential
acquisition targets may find our competitors to be more attractive suitors
because they may have greater resources, may be willing to pay more, or may have
more compatible operating philosophy. In particular, larger REITs may enjoy
significant competitive advantages that result from, among other things, a lower
cost of capital and enhanced operating efficiencies. In addition, the number of
entities and the amount of funds competing for suitable investment properties
may increase. This would result in increased demand for these assets and
therefore increased prices paid for them. If we pay higher prices for
properties, our profitability will be reduced, and shareholders may experience a
lower return on their investment.
Illiquidity of real estate investments could significantly impede our ability to
respond to adverse changes in the performance of our properties and harm our
financial condition.
Because real estate investments are relatively illiquid, our ability to
promptly sell one or more properties in our portfolio in response to changing
economic, financial and investment conditions is limited. The real estate market
is affected by many factors, such as general economic conditions, availability
of financing, interest rates and other factors, including supply and demand,
that are beyond our control. We cannot predict whether we will be able to sell
any property for the price or on the terms we set, or whether any price or other
terms offered by a prospective purchaser would be acceptable to us. We also
cannot predict the length of time needed to find a willing purchaser and to
close the sale of a property.
We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We cannot assure you that we will
have funds available to correct those defects or to make those improvements, and
if we cannot do so, we may not be able to sell the property, or may be required
to sell the property on unfavorable terms. In acquiring a property, we may agree
to provisions that materially restrict us from selling that property for a
period of time or impose other restrictions, such as limitations on the amount
of debt that can be placed or repaid on that property. These factors and any
others that would impede our ability to respond to adverse changes in the
performance of our properties could significantly harm our financial condition
and results of operations.
-6-
We have entered into tax protection agreements for the benefit of some limited
partners of PREIT Associates, L.P. that may limit our ability to sell some of
our properties that we may otherwise want to sell, which could harm our
financial condition.
As the general partner of PREIT Associates, L.P. we have agreed to
indemnify certain former property owners who have become limited partners of
PREIT Associates, L.P. against tax liability that they may incur if we sell
these properties within a certain number of years in a taxable transaction. For
example, in connection with our recent merger with Crown American Realty Trust,
we agreed with Mark E. Pasquerilla and entities affiliated with him not to
dispose of certain protected properties that we acquired in the merger in a
taxable transaction until November 20, 2011 or until Mr. Pasquerilla and his
affiliates own less that 25% of the aggregate of the shares and units of limited
partnership interest in PREIT Associates, L.P. ("PREIT Partnership Units") that
they acquired in the merger. If we violate this agreement during the first five
years of the protection period, we would owe as damages the sum of the
hypothetical tax owed by Mr. Pasquerilla and/or his applicable affiliate, plus
an amount intended to make him or his affiliate whole for taxes that may be due
upon receipt of those damages. From the end of the first five years through the
end of the tax protection period, damages are intended to compensate the
affected parties for interest expense incurred on amounts borrowed to pay the
taxes incurred on the prohibited sale. If we were to sell properties in
violation of this agreement, the amounts that we would be required to pay to Mr.
Pasquerilla and his affiliates could be substantial. In some cases, these
agreements may make it uneconomical for us to sell these properties, even in
circumstances in which it otherwise would be advantageous to do so, which could
harm our ability to address liquidity needs in the future or otherwise harm our
financial condition.
Our investments in development properties may not yield anticipated returns,
which would harm our operating results and reduce the amount of funds available
for distributions.
Our development properties comprise a component of our growth strategy.
To the extent we continue current development projects or enter into new
development projects, they will be subject to a number of risks, including,
among others:
o inability to obtain required zoning, occupancy and other
governmental approvals;
o expenditure of money and time on projects that may never be
completed;
o higher than estimated construction costs;
o cost overruns and timing delays due to lack of availability of
materials and labor, delays in receipt of zoning and other
regulatory approvals, weather conditions and other factors outside
our control; and
o inability to obtain permanent financing upon completion of
development activities.
-7-
Unanticipated delays or expenses associated with our development
properties could adversely affect the investment returns from these projects and
adversely affect our financial condition and results of operations.
Some of our properties are in need of maintenance and/or renovation, which could
harm our operating results.
Some of our retail properties, including some of those acquired as part
of the Rouse shopping mall acquisition and our merger with Crown, were
constructed or last renovated more than 10 years ago. Older properties may
generate lower rentals or may require significant expense for maintenance and/or
renovations, which could harm our results of operations.
Our business and, in particular, our acquisition integration efforts could be
harmed if Ronald Rubin, our chairman and chief executive officer, and other
members of our senior management team terminate their employment with us.
Our future success depends, to a significant extent, upon the continued
services of Ronald Rubin - our chairman and chief executive officer - and of our
corporate management team. We are critically dependent upon our corporate
management team and other key employees to lead our integration efforts for
acquisitions. Although we have entered into employment agreements with Mr. Rubin
and certain other members of our corporate management team, they could elect to
terminate those agreements at any time. In addition, although we have purchased
a key man life insurance policy in the amount of $5 million to cover Mr. Rubin,
we cannot assure you that this would compensate us for the loss of his services.
The loss of services of one or more members of our corporate management team
could harm our business and our prospects.
We hold substantial investments in unconsolidated partnerships and joint
ventures, which we may not be able to successfully manage.
Many of our retail properties are owned by partnerships in which we are
a general partner or by joint ventures in which we have substantially the same
powers as a general partner. Under the terms of the partnership and joint
venture agreements, major decisions, such as a sale, lease, refinancing,
expansion or rehabilitation of a property, or a change of property manager,
require the consent of all partners or co-venturers. Accordingly, necessary
actions may be delayed significantly because decisions must be unanimous and it
may be difficult or even impossible to remove a partner or co-venturer that is
serving as the property manager.
Business disagreements with partners may arise. We may incur
substantial expenses in resolving these disputes. To preserve our investment, we
may be required to make commitments to or on behalf of a partnership or joint
venture during a dispute. Moreover, we cannot assure you that our resolution of
a dispute with a partner will be on terms that are favorable to us.
Other risks of investments in partnerships and joint ventures include:
o partners or co-venturers might become bankrupt or fail to fund their
share of required capital contributions;
-8-
o partners or co-venturers might have business interests or goals that
are inconsistent with our business interests or goals;
o partners or co-venturers may be in a position to take action
contrary to our policies or objectives; and
o we may incur liability for the actions of our partners or
co-venturers.
We may be unable to obtain long term financing required to finance our
partnerships and joint ventures, which could harm our operating results.
The profitability of each partnership or joint venture in which we are
a partner or co-venturer that has short-term financing or debt requiring a
balloon payment is dependent on the availability of long-term financing on
satisfactory terms. If satisfactory long-term financing is not available, we may
have to rely on other sources of short-term financing, equity contributions or
the proceeds of refinancing other properties to satisfy debt obligations which
may not be as favorable to us. Although we do not own the entire interest in
connection with the properties held by these partnerships and joint ventures, we
may be required to pay the full amount of any obligation of the partnership or
joint venture that we have guaranteed in whole or in part or we may elect to pay
a partnership's or joint venture's obligation to protect our equity interest in
its properties and assets, which could cause us to use a substantial portion of
our funds from operations, reducing amounts available for distribution.
The costs of compliance with environmental laws may harm our operating results.
Under various federal, state and local laws, ordinances and
regulations, an owner, former owner or operator of real estate may be liable for
the costs of removal or remediation of hazardous or toxic substances present at,
on, under, in or released from its property. They also may be liable to the
government or to third parties for substantial property damage, investigation
costs or clean up costs. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs the
government incurs in connection with the contamination. Contamination may affect
adversely the owner's ability to sell or lease real estate or borrow with real
estate as collateral.
From time to time, we respond to inquiries from environmental
authorities with respect to properties both currently and formerly owned by us.
We are aware of certain environmental matters at some of our properties,
including ground water contamination, and the presence of asbestos containing
materials. We have, in the past, performed remediation of such environmental
matters, but we may be required in the future to perform testing relating to
these matters and further remediation may be required. As of the date of this
prospectus, we have reserved $0.1 million for future remediation of these
matters, but we may incur costs associated with such remediation that exceed
such amount.
In addition, at five of the properties in which we currently have an
interest, and at two properties in which we formerly had an interest,
environmental conditions have been or continue to be investigated and have not
been fully remediated. Groundwater contamination has been found at five of these
properties. While the former owners of two of the properties with groundwater
contamination presently are remediating such contamination, any failure of such
former owners to properly remediate such contamination could result in liability
to us for such contamination. Dry cleaning operations were performed at three of
the properties. Soil contamination has been identified at two of the properties
having dry cleaning operations and groundwater contamination was found at the
third property having dry cleaning operations. Although these properties may be
eligible under state law for remediation with state funds, we cannot assure you
that sufficient funds will be available under state legislation to pay the full
costs of any such remediation and we may incur costs in connection with such
remediation.
-9-
Asbestos-containing materials are present in a number of our properties,
primarily in the form of floor tiles and adhesives. Fire-proofing material
containing asbestos is present at some of our properties in limited
concentrations or in limited areas. We have taken certain actions to remediate
or to comply with disclosure requirements, as necessary or appropriate, in
connection with the foregoing, but we may be required to take additional actions
or to make additional expenditures.
We are aware of environmental concerns at Christiana Power Center Phase
II, one of our development properties. The final costs and necessary remediation
are not known and may cause us to decide not to develop the property, which
would result in us having incurred unnecessary development costs and could have
an adverse impact on our operating results. We also are a party to a number of
agreements for the purchase of property for development in which initial
environmental investigations have revealed environmental risk factors that might
require remediation by the owner or prior owners of the property. Such
environmental risks may cause us to decide not to purchase such properties,
which would result in us having incurred unnecessary development expenses and
could adversely affect our results of operations.
In addition, the malls that we acquired as part of our merger with Crown
have some environmental issues. Many of these malls contain, or at one time
contained, underground and/or above ground storage tanks used to store waste
oils or other petroleum products primarily related to the operation of auto
service center establishments at those malls. In some cases, the underground
storage tanks have been abandoned in place, filled in with inert materials or
removed and replaced with above ground tanks. Historical records indicate that
soil and groundwater contamination from underground tanks and, in one case, a
hydraulic lift, requiring remediation has occurred at five of the malls, and
subsurface investigations (Phase II assessments) and remediation work either are
ongoing or are scheduled to be conducted at three of those malls. In addition,
three of the Crown malls were constructed on sites a portion of which previously
had been used as landfills, two were constructed on former strip mines and dry
cleaning operations formerly were conducted at two of the malls. There also are
minor amounts of asbestos-containing materials in most of the Crown malls,
primarily in the form of floor tiles, mastics and roofing materials.
Fireproofing and insulation containing asbestos also are present in some of the
malls in non-public areas, such as mechanical rooms. Two of the Crown malls also
contain wastewater treatment facilities that treat wastewater at the malls
before discharge into local streams. Operation of these facilities is subject to
federal and state regulation.
Our environmental liability coverage for the types of environmental
liabilities described above, which currently covers liability for pollution and
on-site remediation of up to $2 million in any single claim and $4 million in
the aggregate, may be inadequate, which could result in our being obligated to
fund those liabilities.
-10-
In addition to the costs of remediation described above, we may incur
additional costs to comply with federal, state and local laws, ordinances and
regulations relating to environmental protection and human health and safety
generally. We cannot assure you that future laws, ordinances or regulations will
not impose any material environmental liability, or that the current
environmental condition of our properties will not be affected by the operations
of our tenants, by the existing condition of the land, by operations in the
vicinity of the properties - such as the presence of underground storage tanks -
or by the activities of unrelated third parties. In addition, there are various
local, state and federal fire, health, life-safety and similar regulations that
may be applicable to our operations, and that may subject us to liability in the
form of fines or damages for noncompliance.
If we suffer losses that are not covered by insurance or that are in excess of
our insurance coverage limits, we could lose invested capital and anticipated
profits.
Catastrophic losses - such as losses due to wars, earthquakes, floods,
hurricanes, pollution and environmental matters - generally either are
uninsurable or are not economically insurable, or may be subject to insurance
coverage limitations, such as large deductibles or co-payments. If one of these
events occurred to, or caused the destruction of, one or more of our properties,
we could lose both our invested capital and anticipated profits from that
property. In addition, if we are unable to obtain insurance in the future at
acceptable levels and at a reasonable cost, the possibility of losses in excess
of our insurance coverage may increase and we may not be able to comply with
covenants under our debt agreements, which could adversely affect our financial
condition.
Some of our properties are held by special purpose entities and are not
generally available to satisfy creditors' claims in bankruptcy, which could
impair our ability to borrow.
Some of our properties are owned or ground-leased by subsidiaries that
we created solely to own or ground-lease those properties. The mortgaged
properties and related assets are restricted solely for the payment of the
related loans and are not available to pay our other debts, which could impair
our ability to borrow, which in turn could harm our business.
Our operating performance may be adversely affected if we choose not to sell
some of the assets that we acquired in the Crown merger.
As a result of the Crown merger, we acquired six properties that have
occupancy rates and sales volume substantially lower than that of the remainder
of Crown's properties. We intend to pursue the reposition and potential
disposition of these properties. We currently expect to make investments in some
of these properties in order to reposition them for potential sale. However, we
cannot predict whether we will be able to sell any property for the price or on
the terms we set. We also cannot predict the length of time needed to find a
willing purchaser and to close the sale of a property. In addition, whether or
not we ultimately sell these properties, we may not recover our investment in
these properties, which could harm our financial condition and results of
operations.
-11-
RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE
Some of our officers have interests in properties that we manage and therefore
may have conflicts of interest that could adversely affect our business.
We provide management, leasing and development services for
partnerships and other ventures in which some of our officers, including Ronald
Rubin, our chairman and chief executive officer, have either direct or indirect
ownership interests. In addition, we lease substantial office space from
Bellevue Associates, an entity in which some of our officers have an interest.
Our officers who have interests in both sides of these transactions face a
conflict of interest in deciding to enter into these agreements and in
negotiating their terms, which could result in our obtaining terms that are less
favorable than we might otherwise obtain, which could adversely affect our
business.
Limited partners of PREIT Associates, L.P. may vote on certain fundamental
changes we propose, which could inhibit a change in control that might result in
a premium to our shareholders.
Our assets generally are held through PREIT Associates, L.P., a
Delaware limited partnership of which we are the sole general partner. We
currently hold a majority of the outstanding PREIT Partnership Units. However,
PREIT Associates may from time to time issue additional PREIT Partnership Units
to third parties in exchange for contributions of property to PREIT Associates.
These issuances will dilute our percentage ownership of PREIT Associates. PREIT
Partnership Units generally do not carry a right to vote on any matter voted on
by our shareholders, although limited partner interests may, under certain
circumstances, be redeemed for our shares. However, before the date on which at
least half of PREIT Partnership Units issued on September 30, 1997 in connection
with our acquisition of The Rubin Organization have been redeemed, the holders
of PREIT Partnership Units issued on September 30, 1997 are entitled to vote
such units and additional units received or to be received pursuant to the
transactions that were the subject of the September 30, 1997 issuance, along
with our shareholders as a single class, on any proposal to merge, consolidate
or sell substantially all of our assets. Our partnership interest in PREIT
Associates is not included for purposes of determining when half of the
partnership interests issued on September 30, 1997 have been redeemed, nor are
they counted as votes. These existing rights could inhibit a change in control
that might otherwise result in a premium to our shareholders. In addition, we
cannot assure you that we will not agree to extend comparable rights to other
limited partners in PREIT Associates.
Mark E. Pasquerilla may have the ability to exercise influence over us and may
delay, defer or prevent us from taking actions that would be beneficial to our
shareholders.
Mark E. Pasquerilla and his affiliates own approximately 7.6% of our
outstanding common shares assuming the redemption of their PREIT Partnership
Units for our common shares. Mr. Pasquerilla also will become a member of our
board of trustees. Accordingly, Mr. Pasquerilla may be able to exercise
influence over the outcome of certain matters such as decisions relating to the
election of the board of trustees and the determination of our day-to-day
corporate and management policies, and possibly over the outcome of any proposed
merger or consolidation that we consider. Mr. Pasquerilla's ownership interest
in us may discourage third parties from seeking to acquire control of us, which
may adversely affect the market price of our common shares. As a condition to
the merger, Mr. Pasquerilla and certain of his affiliates entered into a
standstill agreement limiting their rights in connection with, among other
things, a proposed change in control of us. However, we cannot assure you that
Mr. Pasquerilla and his affiliates will abide by the terms of the standstill
agreement, and the standstill agreement will not prevent Mr. Pasquerilla from
voting his shares or taking other actions with respect to matters not covered by
the standstill agreement.
-12-
Our organizational documents contain provisions that may discourage a takeover
of us and depress our share price.
Our organizational documents contain provisions that may have an
anti-takeover effect and inhibit a change in our management. These provisions
include:
(1) There are ownership limits and restrictions on transferability in
our trust agreement. In order to protect our status as a REIT, no
more than 50% of the value of our outstanding shares (after taking
into account options to acquire shares) may be owned, directly or
constructively, by five or fewer individuals and the shares must be
beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months or during a proportionate part of a
shorter taxable year. To assist us in satisfying these tests,
subject to some exceptions, our trust agreement prohibits any
shareholder from owning more than 9.9% of our outstanding shares of
beneficial interest (exclusive of preferred shares) or more than
9.9% of any class or series of preferred shares. The trust agreement
also prohibits transfers of shares that would cause a shareholder to
exceed the 9.9% limit or cause us to be beneficially owned by fewer
than 100 persons. Our board of trustees may exempt a person from the
9.9% ownership limit if they receive a ruling from the Internal
Revenue Service or an opinion of counsel or tax accountants that
exceeding the 9.9% ownership limit as to that person would not
jeopardize our tax status as a REIT. Absent an exemption, this
restriction may:
o discourage a tender offer or other transactions or a change in
management or control that might involve a premium price for our
shares or otherwise be in the best interests of our
shareholders; or
o compel a shareholder who had acquired more than 9.9% of our
shares to transfer the additional shares to a trust and, as a
result, to forfeit the benefits of owning the additional shares.
(2) Our trust agreement permits our board of trustees to issue preferred
shares with terms that may discourage a third party from acquiring
our company. Our trust agreement permits our board of trustees to
create and issue multiple classes and series of preferred shares and
classes and series of preferred shares having preferences to the
existing shares on any matter, including rights in liquidation or to
dividends and option rights, and other securities having conversion
or option rights and may authorize the creation and issuance by our
subsidiaries and affiliates of securities having conversion and
option rights in respect of our shares. Our trust agreement further
provides that the terms of such rights or other securities may
provide for disparate treatment of certain holders or groups of
holders of such rights or other securities. The issuance of such
rights or other securities could have the effect of delaying or
preventing a change in control over us, even if a change in control
were in the shareholders' interest.
-13-
(3) Our staggered board of trustees may affect the ability of a
shareholder to take control of our company. Our board of trustees
has three classes of trustees. The term of office of one class
expires each year. Trustees for each class are elected for three
year terms upon the expiration of the term of the respective class.
The staggered terms for trustees may affect the ability of a
shareholder to take control of us, even if a change in control were
in the best interests of our shareholders.
In addition, we have adopted a shareholder rights plan that may
discourage a tender offer or other transaction that might involve a premium
price for our shares or otherwise be in the best interests of our shareholders.
RISKS RELATED TO THE REAL ESTATE INDUSTRY
Negative perceptions of the retail sector generally may result in a decline in
our share price.
A substantial portion of our portfolio consists of retail shopping
centers and we expect to continue to focus on acquiring retail shopping centers
in the future. To the extent that the investing public has a negative perception
of the retail sector, the value of our shares could be negatively impacted,
which could result in our shares trading at a discount below the inherent value
of our assets as a whole.
Costs associated with complying with the Americans with Disabilities Act may
adversely affect our financial condition and results of operations.
Our properties are subject to the Americans with Disabilities Act of
1990. Under the Americans with Disabilities Act, all places of public
accommodation are required to comply with rules related to access and use by
disabled persons. The Americans with Disabilities Act's requirements could
require costly modifications to our properties and could result in imposition of
injunctive relief, monetary penalties or, in some cases, an award of damages.
Future legislation also may impose additional requirements that we cannot
predict.
Legislative actions, higher insurance costs and potential new accounting
pronouncements could increase our operating expenses and impact our financial
condition and results of operations.
In order to comply with the Sarbanes-Oxley Act of 2002 as well as
proposed changes to listing standards by the New York Stock Exchange, we have
been and continue to be enhancing our internal controls, hiring additional
personnel and utilizing additional outside legal, accounting and advisory
services. These activities increase our operating expenses. In addition,
insurers likely will increase premiums as a result of higher claims rates
incurred over the past year, so our premiums for our insurance policies,
including our directors' and officers' insurance policies, may increase.
-14-
We cannot predict the impact that proposed accounting pronouncements,
such as the proposed accounting treatment that would require merger costs to be
expensed in the period in which they are incurred, will have on our financial
condition or results of operations.
Possible terrorist activity or other acts of violence or war could adversely
affect our financial condition and results of operations.
Future terrorist attacks in the United States, such as the attacks that
occurred in New York and Washington, D.C. on September 11, 2001, and other acts
of terrorism or war, may result in declining economic activity, which could harm
the demand for and the value of our properties and may adversely affect the
value of an investment in our securities. A decrease in retail demand could make
it difficult for us to renew or re-lease our properties at lease rates equal to
or above historical rates. Terrorist activities also could directly impact the
value of our properties through damage, destruction or loss, and the
availability of insurance for such acts may be lower, or cost more, which could
adversely affect our financial condition and results of operations. To the
extent that our tenants are impacted by future attacks, their businesses
similarly could be adversely affected, including their ability to continue to
meet obligations under their existing leases. These acts may erode business and
consumer confidence and spending, and may result in increased volatility in
national and international financial markets and economies. Any one of these
events may decrease demand for real estate, decrease or delay the occupancy of
our new or renovated properties, increase our operating expenses due to
increased physical security for our properties and limit our access to capital
or increase our cost of raising capital.
TAX RISKS
If we fail to qualify as a REIT our shareholders could be adversely affected.
We believe that we have qualified as a REIT since our inception and
intend to continue to qualify as a REIT. However, we cannot assure shareholders
that we have been qualified or will remain qualified. To qualify as a REIT, we
must comply with certain highly technical and complex requirements under the
Internal Revenue Code. We cannot be certain we have complied with such
requirements because there are very limited judicial and administrative
interpretations of these provisions. Even a technical or inadvertent mistake
could jeopardize our REIT status. In addition, facts and circumstances that may
be beyond our control may affect our ability to qualify as a REIT. We cannot
assure you that new legislation, regulations, administrative interpretations or
court decisions will not change the tax laws significantly with respect to our
qualification as a REIT or with respect to the federal income tax consequences
of qualification.
If we fail to qualify as a REIT, we will be subject to federal income
tax on our taxable income at regular corporate rates. Also, unless the Internal
Revenue Service granted us relief under statutory provisions, we would remain
disqualified from treatment as a REIT for the four taxable years following the
year during which we first failed to qualify. The additional tax incurred at
regular corporate rates would reduce significantly the cash flow available for
distribution to shareholders and for debt service. In addition, we would no
longer be required to make any distributions to shareholders.
-15-
We may be unable to comply with the strict income distribution requirements
applicable to REITs or compliance with such requirements could adversely affect
our financial condition.
To obtain the favorable treatment associated with qualifying as a REIT,
we are required each year to distribute to our shareholders at least 90% of our
net taxable income. In addition, we are subject to a tax on the undistributed
portion of our income at regular corporate rates and may also be subject to a 4%
excise tax on this undistributed income. We could be required to seek to borrow
funds on a short-term basis to meet the distribution requirements that are
necessary to achieve the tax benefits associated with qualifying as a REIT, even
if conditions are not favorable for borrowing, which could adversely affect our
financial condition.
Recent change in taxation of corporate dividends may adversely affect the value
of our shares.
President Bush signed the Jobs and Growth Tax Relief Reconciliation Act
of 2003 into law on May 28, 2003 (the "Jobs and Growth Tax Act"). The Jobs and
Growth Tax Act, among other things, generally reduces to 15% the maximum
marginal rate of federal tax payable by individuals on dividends received from a
regular C corporation. This reduced tax rate, however, will not apply to
dividends paid to individuals by a REIT on its shares except for certain limited
amounts. The earnings of a REIT that are distributed to its shareholders
generally will remain subject to less federal income taxation than earnings of a
non-REIT C corporation that are distributed to its shareholders net of
corporate-level income tax. The Jobs and Growth Tax Act, however, could cause
individual investors to view shares of regular C corporations as more attractive
relative to shares of REITs than was the case prior to the enactment of the
legislation because the dividends from regular C corporations generally will be
taxed at a lower rate, while dividends from REITs generally will be taxed at the
federal income tax rate applicable to ordinary income, up to a maximum marginal
rate of 35%. We cannot predict what effect, if any, the enactment of this
legislation may have on the value of the stock of REITs in general or on the
value of our shares in particular, either in terms of price or relative to other
investments.
We could have to pay taxes if Crown did not qualify as a REIT up to the time of
the merger.
If Crown failed to qualify as a REIT up to the time of the merger, we
would be required to pay corporate income tax on any gain existing at the time
of the merger on assets acquired in the transaction if those assets were sold
within ten years after the transaction.
-16-
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares by the
selling shareholders, nor will any of the proceeds be available for our use or
otherwise for our benefit.
SELLING SHAREHOLDERS
The following table provides the names of the selling shareholders as
of the date of this prospectus and the number of shares beneficially owned by
each such holder on that date. Because the selling shareholders may sell all,
some or none of their shares, we cannot estimate the aggregate number of shares
that will be owned by each selling shareholder after completion of the offering
to which this prospectus relates.
The shares offered by this prospectus may be offered from time to time
by the selling shareholders named below or by their pledgees, donees,
transferees, partners or other successors in interest.
-------------------------------------------------------------------------------------------------------------------------
Number of Shares
Beneficially
Owned Prior to Number of Shares
Name Position with Company Offering Offered
---- --------------------- ----------------- -----------------
-------------------------------------------------------------------------------------------------------------------------
Crown American Properties, L.P. N/A 1,703,214(1) 1,703,214(1)
-------------------------------------------------------------------------------------------------------------------------
Crown Investments Trust N/A 1,046,093(2) 1,046,093(2)
-------------------------------------------------------------------------------------------------------------------------
Mark E. Pasquerilla To be appointed as a new trustee of 2,761,230(3) 11,923(4)
PREIT at the next regularly
scheduled meeting of PREIT's board
of trustees
-------------------------------------------------------------------------------------------------------------------------
TOTAL 2,761,230 2,761,230
-------------------------------------------------------------------------------------------------------------------------
--------------
(1) Shares underlying PREIT Partnership Units held directly by Crown
American Properties, L.P.
(2) Shares held directly by Crown Investments Trust.
(3) Includes 11,923 shares held directly by Mr. Pasquerilla, 1,046,093
shares held by Crown Investments Trust and shares underlying 1,703,214
PREIT Partnership Units held by Crown American Properties, L.P. Does
not include (a) 2,931 shares in the Former Crown Employees Retirement
Savings Plan, (b) 1,327 shares in the Crown American Associates Key
Executive Capital Incentive Plan (c) 22,961 shares in the Former Crown
Employees Key Executive Capital Incentive Plan, (d) 243 shares in the
Crown American Hotels Company Deferred Compensation Plan, (e) 65,206
shares held by Marenrico Partnership and (f) 3 shares held Leah
Pasquerilla.
(4) Shares held directly by Mr. Pasquerilla.
-17-
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the material terms of our shares of beneficial
interest does not include all of the terms of the shares and should be read
together with our trust agreement and by-laws and with applicable Pennsylvania
law. In addition, this summary includes a description of our 11.00%
Non-Convertible, Senior Preferred Shares, par value $0.01 per share, liquidation
preference $50.00 per share (the "11% preferred shares"). Accordingly, you
should read the designating amendment to our trust agreement for those preferred
shares. Our trust agreement and by-laws and the designating amendment are
incorporated by reference into the registration statement of which this
prospectus is a part.
Authorized Capital Stock
Under our trust agreement, we have the authority to issue up to
100,000,000 shares of beneficial interest and up to 25,000,000 preferred shares.
Shares of Beneficial Interest
Voting, Dividend and Other Rights. Subject to the provisions of our
trust agreement regarding "Excess Shares" (See "--REIT Ownership Limitations and
Transfer Restrictions Applicable to Shares of Beneficial Interest and 11%
Preferred Shares"), (1) the holders of our shares are entitled to one vote per
share on all matters voted on by shareholders, including elections of trustees,
and (2) subject to the rights of holders of any preferred shares, including the
11% preferred shares, the holders of our shares are entitled to a pro rata
portion of any distributions declared from time to time by our board of trustees
from funds available for those distributions, and upon liquidation are entitled
to receive pro rata all of the assets available for distribution to those
holders. See "-- 11% Preferred Shares--Dividends and --Liquidation." The
majority of shares voting on a matter at a meeting at which at least a majority
of the outstanding shares are present in person or by proxy constitutes the act
of the shareholders, except with respect to the election of trustees (see
below). Our trust agreement permits the holders of securities of our affiliates
to vote with our shareholders on specified matters, and our trustees have
granted that right to certain holders of currently outstanding PREIT Partnership
Units with respect to fundamental changes in us (i.e., mergers, consolidations
and sales of substantially all of our assets). See "- Summary of the Operating
Partnership Agreement and PREIT Partnership Units - Authorization of PREIT
Partnership Units and Voting Rights." Shareholders do not have any pre-emptive
rights to purchase our securities.
Our trust agreement provides that our board of trustees may authorize
the issuance of multiple classes and series of shares of beneficial interest
and, subject to the rights of the holders of the 11% preferred shares, classes
and series of preferred shares having preferences to the existing shares in any
matter, including rights in liquidation or to dividends and option rights
(including shareholder rights plans), and other securities having conversion or
option rights and may authorize the creation and issuance by our subsidiaries
and affiliates of securities having conversion and option rights in respect of
shares. Accordingly, the rights of holders of existing shares of beneficial
interest are subject and junior to preferred rights, including the rights of
holders of the 11% preferred shares, as to dividends and in liquidation (and
other such matters) and to the extent set forth in any subsequently authorized
preferred shares or class of preferred shares.
-18-
Board of Trustees. Our board of trustees is divided into three classes
serving staggered three-year terms. Our trust agreement does not provide for
cumulative voting in the election of trustees, and the candidates receiving the
highest number of votes are elected to the office of trustee.
Trustee Nomination Process. Our trust agreement provides that
nominations for election to the office of trustee at any annual or special
meeting of shareholders shall be made by the trustees, or by petition in writing
delivered to the secretary not fewer than 35 days before the meeting signed by
the holders of at least two percent of the shares outstanding on the date of the
petition. Nominations not made in accordance with these procedures will not be
considered unless the number of persons nominated is fewer than the number of
persons to be elected to the office of trustee at the meeting. In this latter
event, any person entitled to vote in the election of trustees may make
nominations at the meeting for the trustee positions that would not otherwise be
filled.
11% Preferred Shares
In connection with our merger with Crown American Realty Trust, we
issued 2,475,000 preferred shares to the former holders of Crown's 11% preferred
shares that are identical in all material respects to the former Crown 11%
preferred shares. The number of 11.00% preferred shares may be decreased by our
board from time to time, though not below the number of 11% preferred shares
then outstanding.
Rank. With respect to dividend rights and rights upon liquidation,
dissolution or winding up, the 11% preferred shares rank senior to all classes
or series of our equity securities, except that the 11% preferred shares will
rank on a parity with additional preferred shares that we may issue with terms
specifically providing that the new preferred shares rank on a parity with the
11% preferred shares with respect to dividend rights or rights upon our
liquidation, dissolution or winding up, if the aggregate liquidation preference
of the additional preferred shares and the 11% preferred shares together do not
exceed $123,750,000.
Dividends. Holders of the 11% preferred shares will be entitled to
receive, when, as and if declared by our board of trustees, out of funds legally
available for the payment of dividends, cumulative, preferential cash dividends
in an amount per share equal to $5.50 per annum. Each dividend will be payable
to holders of record as they appear on our transfer books on the record date as
provided below.
In addition, holders of the 11% preferred shares may be eligible to
receive additional dividends ("Additional Dividends") from time to time if our
"Total Debt" (as defined in the designating amendment) exceeds the product of
6.5 times "EBITDA" (as defined in the designating amendment) (the "Leverage
Ratio") without the consent of the holders of at least 50% of the 11% preferred
shares outstanding at that time. Holders who consent to a waiver of this
restriction will be paid a consent fee. If required to be paid, Additional
Dividends will be for an amount per share equal to 0.25% of the Preferred
Liquidation Preference Amount (as defined below) on an annualized basis for the
first quarter with respect to which an Additional Dividend is due. For each
quarter after that initial due date that we continue to exceed the permitted
Leverage Ratio, the Additional Dividend will increase by an amount per share
equal to an additional 0.25% of the Preferred Liquidation Preference Amount on
an annualized basis. However, the maximum total dividend on the 11% preferred
shares, including any Additional Dividends, will not at any time exceed 13% of
the Preferred Liquidation Preference Amount per annum.
-19-
If any 11% preferred shares are outstanding, we will not declare, pay,
or set apart for payment dividends on our common shares or any other series
ranking, as to dividends, on a parity with or junior to the 11% preferred shares
for any period unless we contemporaneously declare and pay, or declare and set
apart funds sufficient to pay, full cumulative dividends (including any
Additional Dividends) on the 11% preferred shares for all past dividend periods
and the then current dividend period. If we do not pay dividends in full or set
apart a sum sufficient for full payment on the 11% preferred shares and the
shares of any series of preferred shares ranking on a parity as to dividends
with the 11% preferred shares, we will declare, pro rata, all dividends on the
11% preferred shares and any series of preferred shares ranking on a parity as
to dividends with the 11% preferred shares so that the amount of dividends that
we declare per share on the 11% preferred shares and such other series of
preferred shares will in all cases bear to each other the same ratio that
accrued and unpaid dividends per 11% preferred share and such other series of
preferred shares bear to each other. We will not pay any interest, or sum of
money in lieu of interest, in respect of any dividend payment or payments on the
11% preferred shares that may be in arrears.
Except as provided in the immediately preceding paragraph, unless we
contemporaneously have declared and paid, or declared and set apart funds
sufficient to pay, full cumulative dividends (including any Additional
Dividends) on the 11% preferred shares for all past dividend periods and the
then current dividend period, we will not declare and pay, or declare and set
apart for payment, any dividends on our capital shares ranking junior to or on a
parity with the 11% preferred shares as to dividends, other than distributions
payable in our common shares or other capital shares ranking junior to the 11%
preferred shares as to dividends and upon our liquidation, dissolution or
winding up. In that event, we also will not redeem, purchase, or otherwise
acquire for any consideration any of our common shares or any other capital
shares ranking junior to or on a parity with the 11% preferred shares as to
dividends or upon our liquidation, dissolution or winding up, nor will we pay
any moneys to or make moneys available for a sinking fund for the redemption of
any such shares, except by conversion into or exchange for other of our capital
shares ranking junior to the 11% preferred shares as to dividends and upon our
liquidation, dissolution and winding up.
Any dividend that we pay on the 11% preferred shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
the 11% preferred shares that remains payable.
Liquidation Rights. If we are liquidated or dissolved, or if our
operations are wound up, the holders of the 11% preferred shares will be
entitled to be paid out of our assets legally available for distribution to our
shareholders a liquidation preference equal to the sum of $50.00 per share plus
an amount equal to any accrued and unpaid dividends on the 11% preferred shares
- whether or not earned or declared - to the date of payment (the "Preferred
Liquidation Preference Amount"), before we distribute any assets to holders of
our common shares or any other capital shares that rank junior to the 11%
preferred shares as to liquidation rights. After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of the 11%
preferred shares will have no right or claim to any of our remaining assets.
-20-
If we have made liquidating distributions in full to all holders of the
11% preferred shares, our remaining assets will be distributed among the holders
of any other classes or series of capital shares ranking junior to the 11%
preferred shares upon our liquidation, dissolution or winding up according to
their respective rights and preferences and in each case according to their
respective number of shares.
Our consolidation or merger with or into any other corporation, or the
sale, lease, transfer or conveyance of all or substantially all of our property
or business, will not be deemed to constitute a liquidation, dissolution or
winding up for purposes of liquidation rights.
Redemption. We may not redeem the 11% preferred shares before July 31,
2007, except under certain limited circumstances to preserve our status as a
REIT. See "--REIT Ownership Limitations and Transfer Restrictions Applicable to
Shares of Beneficial Interest and 11% Preferred Shares." On and after July 31,
2007, we, at our option - to the extent we have legally available funds - and
upon not less than 30 nor more than 60 days written notice, may redeem the 11%
preferred shares, in whole or in part, at any time or from time to time, during
the periods and at the redemption prices shown below plus any accrued and unpaid
dividends to the date of redemption:
Redemption Price
Redemption Period Per 11% Preferred Share
----------------- -----------------------
July 31, 2007 through July 30, 2009 $52.50
July 31, 2009 through July 30, 2010 $51.50
On or after July 31, 2010 $50.00
Notwithstanding the foregoing, unless we contemporaneously have
declared and paid, or declared and set aside a sum sufficient for the payment
of, full cumulative dividends on all outstanding 11% preferred shares for all
past dividend periods and the then current dividend period, (1) we will not
redeem any 11% preferred shares unless we redeem all outstanding 11% preferred
shares simultaneously and (2) we will not purchase or otherwise acquire directly
or indirectly through a subsidiary or otherwise, any 11% preferred shares;
except that we may purchase or otherwise acquire 11% preferred shares through a
purchase or exchange offer made on the same terms to holders of all outstanding
11% preferred shares.
If we redeem fewer than all of the outstanding 11% preferred shares,
then we will determine the number of shares to be redeemed and those shares may
be redeemed pro rata from their record holders either in proportion to the
number of shares held by those holders - as nearly as may be practicable without
creating fractional 11% preferred shares - or under any other equitable method
that we determine to use.
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We will retire and restore to the status of authorized and unissued
preferred shares, without designation as to series, all 11% preferred shares
that we redeem. After doing so, we may reissue them as any series of preferred
shares.
The 11% preferred shares have no stated maturity and will not be
subject to any sinking fund.
Voting Rights. Holders of the 11% preferred shares do not have any
voting rights, except as described below or as otherwise required by law.
Subject to the provisions of our trust agreement regarding Excess Shares (see
"--REIT Ownership Limitations and Transfer Restrictions Applicable to Shares of
Beneficial Interest and 11% Preferred Shares"), in any matter in which the
holders of the 11% preferred shares may vote, including any action by written
consent, each holder will be entitled to one vote per share. The holders of each
share may separately designate a proxy for the vote to which that share is
entitled.
Whenever dividends on any 11% preferred shares have been in arrears for
six or more quarterly dividend periods - regardless of whether the periods are
consecutive - the holders of 11% preferred shares (voting separately as a class
with all other series of preferred shares upon which rights to vote on such
matter with the 11% preferred shares have been conferred and are then
exercisable) will be entitled to vote for the election of two additional members
of our board of trustees. This vote may occur at a special meeting called by the
holders of record of at least 10% of the 11% preferred shares and any other
preferred shares, if any (unless the request is received less than 90 days
before the date fixed for the next annual or special meeting of the
shareholders). In addition, this vote may occur at the next annual meeting of
shareholders, and at each annual meeting after that annual meeting. These voting
rights expire when we have paid, or declared and set aside a sum sufficient for
the payment of, all dividends accumulated on the 11% preferred shares for past
dividend periods and the then current dividend period. In this event, the entire
board will be increased by two trustees, each of whom will be elected to serve
until the earlier of (1) the election and qualification of the trustee's
successor or (2) payment of the dividend arrearage for the 11% preferred shares.
If any trustee elected by the holders of the 11% preferred shares
ceases to serve as a trustee before the trustee's term expires, the holders of
the 11% preferred shares - and any other series of preferred shares, if any,
entitled to vote on such matter, as described above - then outstanding may, at a
special meeting of the holders called as provided above, elect a successor to
hold office for the unexpired term of the trustee whose place is vacant.
While any 11% preferred shares remain outstanding, we will not (1)
without the affirmative vote or consent of the holders of all of the 11%
preferred shares outstanding at the time (such series voting separately as a
class), authorize, create or issue, or increase the authorized or issued amount
of, any class or series of capital shares ranking senior to the 11% preferred
shares with respect to the payment of dividends or the distribution of assets
upon our liquidation, dissolution or winding up, or create, authorize or issue
any obligation or security convertible into or evidencing the right to purchase
any such shares; or (2) without the affirmative vote or consent of the holders
of at least two-thirds of the 11% preferred shares outstanding at the time (such
series voting separately as a class), amend, alter or repeal the provisions of
our trust agreement, whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting power
of the 11% preferred shares or the holders thereof. Any increase in the amount
of the authorized preferred shares, or the creation or issuance of any other
series of preferred shares, or any increase in the amount of authorized shares
of preferred shares or any other series of preferred shares, in each case
ranking on a parity with or junior to the 11% preferred shares with respect to
payment of dividends or the distribution of assets upon our liquidation,
dissolution or winding up, will not be deemed to materially and adversely affect
the rights, preferences, privileges or voting powers of the 11% preferred
shares.
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The foregoing voting provisions will not apply if, at or before the
time when the act with respect to which such vote would otherwise be required is
effected, we have redeemed or called for redemption upon proper notice all
outstanding 11% preferred shares and we have deposited in trust funds sufficient
to effect the redemption.
Shareholder Rights Plan
The following summary of the Rights Agreement, dated as of April 30,
1999, as the same may be amended from time to time (the "Rights Agreement"),
between us and American Stock Transfer and Trust Company, as rights agent (the
"Rights Agent") does not include all of the terms of the Rights Agreement,
meaning that you should read this summary together with the Rights Agreement,
which is incorporated by reference into the registration statement of which this
prospectus is a part.
The description and terms of the rights issuable under our shareholder
rights plan are set forth in the Rights Agreement. Each right entitles its
registered holder to purchase from us one share at a price of $70.00 (the
"Exercise Price"), subject to certain adjustments.
The rights, unless earlier redeemed or exchanged by our board of
trustees, become exercisable upon the close of business on the day (the
"Distribution Date") that is the earlier of (i) the tenth day following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person"), with certain exceptions set forth below, has acquired
beneficial ownership or voting control of 15% or more of our outstanding voting
shares, and (ii) the tenth business day (or such later date as may be determined
by our board of trustees before any person or group of affiliated or associated
persons becomes an Acquiring Person) after the date of the commencement or
public announcement of a person's or group's intention to commence a tender or
exchange offer the consummation of which would result in the acquisition of
beneficial ownership or voting control of 15% or more of our outstanding voting
shares (even if no shares actually are acquired as part of that offer). The
rights will expire at the close of business on March 31, 2009, unless we redeem
or exchange them earlier as described below.
Unless we redeem or exchange the rights, if a person or group of
affiliated or associated persons becomes an Acquiring Person, each holder of
record of a right, other than the Acquiring Person (whose rights will become
null and void), will have the right to pay the Exercise Price in return for
shares having a market value equal to double the Exercise Price. In addition,
after a person or group becomes an Acquiring Person, if we were to undergo a
change of control, each holder of record of a right, other than the Acquiring
Person (whose rights will become null and void), will have the right to pay the
Exercise Price in return for shares of the acquiring entity having a market
value equal to double the Exercise Price.
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At any time after any person or group of affiliated or associated
persons becomes an Acquiring Person and before the Acquiring Person acquires 50%
or more of our outstanding voting shares, our board of trustees may exchange the
rights (other than rights owned by the Acquiring Person, which will have become
null and void), in whole or in part, at an exchange ratio of one share per right
(subject to adjustment).
The rights have anti-takeover effects in that they will cause
substantial dilution to a person or group of affiliated or associated persons
that attempts to acquire our shares on terms not approved by our board of
trustees. The rights should not interfere with any merger or other business
combination approved by our board of trustees because we may redeem the rights
at $0.001 per right at any time until the close of business on the tenth day (or
such later date as described above) after a person or group has obtained
beneficial ownership or voting control of 15% or more of our voting shares.
Transfer Agent and Registrar
The transfer agent and registrar for our shares of beneficial interest
and for the 11% preferred shares is American Stock Transfer & Trust Co.
Limited Liability of Shareholders
Our trust agreement provides that shareholders, to the fullest extent
permitted by applicable law, are not liable for any act, omission or liability
of a trustee and that the trustees have no power to bind shareholders
personally. Nevertheless, there may be liability in some jurisdictions that may
decline to recognize a business trust as a valid organization. With respect to
all types of claims in any such jurisdiction, and with respect to tort claims,
certain contract claims and possible tax claims in jurisdictions where the
business trust is treated as a partnership for certain purposes, shareholders
may be personally liable for such obligations to the extent that we do not
satisfy those claims. We conduct substantially all of our business in
jurisdictions other than the Commonwealth of Pennsylvania in entities recognized
in the relevant jurisdiction to limit the liability of equity owners. We carry
insurance in amounts that we deem adequate to cover foreseeable tort claims.
Summary of the Operating Partnership Agreement and PREIT Partnership Units
The following summary of the First Amended and Restated Agreement of
Limited Partnership of PREIT Associates, L.P., as amended (the "Operating
Partnership Agreement"), and PREIT Partnership Units does not include all of the
terms of the Operating Partnership Agreement or the PREIT Partnership Units, so
you should read the summary together with the Operating Partnership Agreement,
which is incorporated by reference into the registration statement of which this
prospectus is a part.
General. We are the sole general partner of PREIT Associates. When
PREIT Associates initially was organized on September 30, 1997, we contributed
to PREIT Associates, or to entities wholly owned by PREIT Associates, the real
estate interests that we owned, directly or indirectly, or the economic benefits
of those real estate interests, in exchange for a general partnership interest
in PREIT Associates and a number of Class A PREIT Partnership Units that
equaled, in the aggregate, the number of our shares of beneficial interest
issued and outstanding on September 30, 1997. In addition, as part of our merger
with Crown American Realty Trust, PREIT Associates issued to us a number of 11%
Senior Preferred PREIT Partnership Units, representing another class of PREIT
Partnership Units, equal to the number of 11% preferred shares that we issued in
the merger. The number of 11% PREIT Partnership Units issued will at any time
always equal the number of 11% preferred shares outstanding at that time.
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Management. Under the Operating Partnership Agreement, we, as the sole
general partner of PREIT Associates, have the authority, to the exclusion of the
limited partners, to make all management decisions on behalf of PREIT
Associates. In addition, we, as general partner, may cause PREIT Associates to
create and issue additional classes of limited or preferred partner interests
with terms different from the limited partner and general partner interests
currently outstanding. We have agreed in the Operating Partnership Agreement to
conduct substantially all of our business activities through PREIT Associates
unless a majority in interest of the PREIT Partnership Units (exclusive of PREIT
Partnership Units that we own) consent to the conduct of business activities
outside PREIT Associates.
Authorization of PREIT Partnership Units and Voting Rights. The
Operating Partnership Agreement authorizes the issuance of an unlimited number
of PREIT Partnership Units in one or more classes. Holders of PREIT Partnership
Units are entitled to distributions from PREIT Associates as and when made by us
as the general partner. Because we are required to make distributions on the
Class A PREIT Partnership Units that we hold directly or indirectly at the times
and in the amounts required to allow us to make distributions to our
shareholders necessary to preserve our status as a REIT for federal income tax
purposes, we anticipate that the other holders of PREIT Partnership Units will
receive those distributions at the approximate time, and in the same amounts, as
we declare and pay dividends to our shareholders.
Holders of PREIT Partnership Units generally have no right to vote on
any matter voted on by holders of our shares except that, before the date on
which at least half of the PREIT Partnership Units issued on September 30, 1997
in connection with the organization of PREIT Associates have been redeemed, the
holders of PREIT Partnership Units issued and outstanding on September 30, 1997
are entitled to vote those PREIT Partnership Units and additional PREIT
Partnership Units that they may have received and may receive in the future in
transactions that were the subject of the September 30, 1997 issuance, along
with our shareholders as a single class, on any proposal to merge, consolidate,
or sell substantially all of our assets. Our PREIT Partnership Units are not
included for purposes of determining when half of the PREIT Partnership Units
issued and outstanding on September 30, 1997 have been redeemed, nor are they
counted as votes. If the holders of our shares vote on such a transaction, and
holders of PREIT Partnership Units are entitled to vote on the transaction, then
each covered PREIT Partnership Unit will be entitled to one vote for each share
issuable by us upon the redemption of such PREIT Partnership Unit and the
necessary vote to effect such action shall be the sum of an absolute majority of
the outstanding PREIT Partnership Units entitled to vote on such matter and the
applicable vote of the holders of our outstanding shares. The required aggregate
vote may be met by any combination of holders of PREIT Partnership Units or
shares.
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The Operating Partnership Agreement also provides that we may not
engage in a fundamental transaction (e.g., a merger) unless, by the terms of the
fundamental transaction, the PREIT Partnership Units are treated in the same
manner as that number of shares for which they are exchangeable upon notice of
redemption are treated. Holders of PREIT Partnership Units also have the right
to vote on certain amendments to the Operating Partnership Agreement. In
addition, so long as any 11% PREIT Partnership Units remain outstanding, PREIT
Associates will not (1) without the affirmative vote or consent of the holders
of all of the 11% PREIT Partnership Units outstanding at the time, authorize,
create or issue, or increase the authorized or issued amount of, any class or
series of capital shares ranking senior to the 11% PREIT Partnership Units with
respect to payment of dividends or the distribution of assets upon liquidation,
dissolution or winding up, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such shares;
or (2) without the affirmative vote or consent of the holders of at least
two-thirds of the 11% PREIT Partnership Units outstanding at the time (such
series voting separately as a class), amend, alter or repeal the provisions of
the Operating Partnership Agreement, whether by merger, consolidation or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the 11% PREIT Partnership Units or of the holders
of the 11% PREIT Partnership Units. Any increase in the amount of the authorized
preferred units, or the creation or issuance of any other series of preferred
units, or any increase in the amount of authorized shares of preferred units or
any other series of preferred units, in each case ranking on a parity with or
junior to the 11% PREIT Partnership Units with respect to payment of dividends
or the distribution of assets upon PREIT Associates' liquidation, dissolution or
winding up, will not be deemed to materially and adversely affect the rights,
preferences, privileges or voting powers of the 11% PREIT Partnership Units.
Redemption Rights. Class A and Class B PREIT Partnership Units are
redeemable by PREIT Associates at the election of a limited partner holding the
units, at such time, and for such consideration, as provided in the Operating
Partnership Agreement. In general, and subject to certain exceptions and
limitations, holders of Class A PREIT Partnership Units (other than us and our
subsidiaries) may, beginning one year following the respective issue dates, give
one or more notices of redemption with respect to all or any part of the Class A
PREIT Partnership Units so received and then held by such party. Class B PREIT
Partnership Units are redeemable at the option of the holder at any time after
issuance. The 11% PREIT Partnership Units will be redeemable in the same amounts
and during the same time periods as the 11% preferred shares. See "--11%
Preferred Shares--Redemption."
If a notice of redemption is given, we may elect to acquire the PREIT
Partnership Units tendered for redemption for our own account, either in
exchange for the issuance of a like number of shares (subject to adjustments for
stock splits, recapitalizations, and like events) or a cash payment equal to the
average closing price of the shares over the ten consecutive trading days
immediately before we receive, in our capacity as general partner of PREIT
Associates, the notice of redemption. If we decline to exercise such right, then
on the tenth day following tender for redemption, PREIT Associates will pay a
cash amount equal to the number of Class A or Class B PREIT Partnership Units so
tendered multiplied by such average closing price. PREIT Associates is required
to distribute to us such additional amounts as we may need at any time to pay
the redemption price of the 11% preferred shares, and that payment also will be
treated as payment of the redemption price of the same number of 11% PREIT
Partnership Units, which also will be redeemed.
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Ranking; Liquidation. The 11% PREIT Partnership Units will, with
respect to distribution rights and rights upon liquidation, rank senior to the
other PREIT Partnership Units. Upon liquidation of PREIT Associates, each holder
of an 11% PREIT Partnership Unit will be entitled to receive a liquidation
preference equal to $50.00 per unit, plus any accrued and unpaid dividends on
the 11% PREIT Partnership Unit before payment or distribution of any amounts to
holders of other PREIT Partnership Units.
REIT Ownership Limitations and Transfer Restrictions Applicable to Shares of
Beneficial Interest and 11% Preferred Shares
Among the requirements for qualification as a REIT under the Internal
Revenue Code are (1) not more than 50% in value of our outstanding shares,
including our shares of beneficial interest and the 11% preferred shares (after
taking into account options to acquire shares), may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) during the last half of a taxable year, (2)
our shares must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and (3) certain percentages of our gross income must be from
particular activities. In order to continue to qualify as a REIT under the
Internal Revenue Code, our trustees have adopted, and our shareholders have
approved, provisions of our trust agreement that restrict the ownership and
transfer of shares (the "Ownership Limit Provisions").
The Ownership Limit Provisions provide that no person may beneficially
own, or be deemed to own by virtue of the attribution provisions of the Internal
Revenue Code, more than 9.9% of any separate class of our shares. For this
purpose, our shares of beneficial interest and the 11% preferred shares are
treated as separate classes. Our trustees may exempt a person from the Ownership
Limit Provisions after obtaining a ruling from the Internal Revenue Service or
an opinion of counsel or our tax accountants to the effect that such ownership
will not jeopardize our status as a REIT.
Issuance or transfers of shares in violation of the Ownership Limit
Provisions, or that would cause us to be beneficially owned by fewer than 100
persons, are void ab initio and the intended transferee acquires no rights to
the shares.
If a purported transfer or other event occurs that would, if effective,
result in the ownership of shares in violation of the Ownership Limit
Provisions, our trust agreement provides that such transfer or other event with
respect to that number of shares that would be owned by the transferee in excess
of the Ownership Limit Provisions, automatically are exchanged for an equal
number of Excess Shares (as defined in our trust agreement), to the extent
necessary to ensure that the purported transfer or other event does not result
in the ownership of shares in violation of the Ownership Limit Provisions. Any
purported transferee or other purported holder of Excess Shares is required to
give us written notice of a purported transfer or other event that would result
in the issuance of Excess Shares.
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Excess Shares are not treasury shares but rather continue as issued and
outstanding shares of beneficial interest. While outstanding, Excess Shares will
be held in trust. We will serve as the trustee of that trust. The purported
holder of the Excess Shares will be entitled to designate the beneficiary of the
Trust. A holder of Excess Shares is not entitled to any dividends or
distributions. If, after the purported transfer or other event resulting in an
exchange of shares of beneficial interest for Excess Shares, and before our
discovery of that exchange, we pay any dividends or distributions on the shares
that were exchanged for Excess Shares, then the holder of the Excess Shares will
be required to repay those dividends or distributions to us upon demand. Holders
of Excess Shares will participate ratably (based on the total number of shares
and Excess Shares) if we undergo any liquidation, dissolution or winding up.
Except as required by law, holders of Excess Shares are not entitled to vote
such shares on any matter. While Excess Shares are held in trust, any interest
in that trust may be transferred by the trustee only to a person whose ownership
of shares will not violate the Ownership Limit Provisions, at which time the
Excess Shares automatically will be exchanged for the same number of shares of
the same type and class as the shares for which the Excess Shares were
originally exchanged. Before any transfer of any interest in the Excess Shares
held in trust, the purported transferee or other purported holder, as the case
may be, must give us advance notice of the intended transfer and we must waive
in writing our purchase rights, described below. Our trust agreement contains
provisions designed to ensure that the purported transferee or other purported
holder of Excess Shares does not receive in return for such a transfer an amount
that reflects any appreciation in the shares for which Excess Shares were
exchanged during the period that such Excess Shares were outstanding. Any amount
received by a purported transferee or other purported holder in excess of the
amount permitted to be received must be paid to us. If the foregoing
restrictions are determined to be invalid by any court of competent jurisdiction
then the intended transferee or holder of any Excess Shares may be deemed, at
our option, to have acted as an agent on our behalf in acquiring the Excess
Shares and to hold the Excess Shares on our behalf.
Our trust agreement further provides that a purported transfer of
Excess Shares shall be deemed to be offered for sale to us at the lesser of (1)
the price paid for the shares by the purported transferee or, in the case of a
gift, devise or other transaction, the market price for such shares at the time
of such gift, devise or other transaction or (2) the market price for the shares
on the date we or our designee exercise our or its option to purchase the Excess
Shares. We may purchase such Excess Shares during a 90-day period, beginning on
the date of the violative transfer if the original transferee-shareholder gives
notice to us of the transfer or, if no notice is given, the date our board of
trustees determines that a violative transfer or other event resulting in an
exchange of shares for the Excess Shares has occurred.
Each shareholder, upon demand, is required to disclose to us in writing
such information with respect to the direct, indirect and constructive ownership
of shares as our board of trustees deems necessary to comply with the provisions
of our trust agreement or the Internal Revenue Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
Certificates representing shares of any class or series issued after September
29, 1997 will bear a legend referring to the restrictions described above.
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Certain Provisions Affecting a Change in Control
In addition to our shareholder rights plan, the following may deter a
potential acquiror from acquiring our shares:
Ownership Limits and Restrictions on Transferability. In order to
protect our status as a REIT, no more than 50% of the value of our outstanding
shares (after taking into account options to acquire shares) may be owned,
directly or constructively, by five or fewer individuals and the shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year. To
assist us in satisfying these tests, subject to some exceptions, our trust
agreement prohibits any shareholder from owning more than 9.9% of our
outstanding shares of beneficial interest (exclusive of preferred shares) or
more than 9.9% of any class or series of preferred shares. Our trust agreement
also prohibits transfers of shares that would cause a shareholder to exceed the
9.9% limit or cause us to be beneficially owned by fewer than 100 persons. Our
board of trustees may exempt a person from the 9.9% ownership limit if our board
receives a ruling from the Internal Revenue Service or an opinion of counsel or
tax accountants that exceeding the 9.9% ownership limit as to that person would
not jeopardize our status as a REIT. Absent an exemption, this restriction may
discourage a tender offer or other transaction or change in management or
control that might involve a premium price for our shares or otherwise be in the
best interests of our shareholders.
Staggered Board. Our board of trustees has three classes of trustees.
The term of office of one class expires each year. Trustees for each class are
elected for three year terms upon the expiration of the term of the respective
class. The staggered terms for trustees may affect a shareholder's ability to
take control of us, even if a change in control were in the best interests of
our shareholders.
Multiple Classes and Series of Shares of Beneficial Interest. Our trust
agreement permits our board of trustees to create and issue multiple classes and
series of preferred shares and classes and series of preferred shares having
preferences to the existing shares on any matter, including rights in
liquidation or to dividends and option rights (including shareholder rights
plans), and other securities having conversion or option rights and may
authorize the creation and issuance by our subsidiaries and affiliates of
securities having conversion and option rights in respect of our shares. Our
trust agreement further provides that the terms of such rights or other
securities may provide for disparate treatment of certain holders or groups of
holders of such rights or other securities. Our issuance of such rights or
preferred shares could delay or prevent someone from acquiring control of us,
even if a change in control were in the best interests of our shareholders.
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FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the federal income tax
considerations that may be material to an owner of shares of PREIT. The
following discussion, which is not exhaustive of all possible tax
considerations, does not give a detailed discussion of any state, local or
foreign tax considerations; nor does it discuss all of the aspects of federal
income taxation that may be relevant to a prospective shareholder in light of
his or her particular circumstances or to certain types of shareholders who are
subject to special treatment under the federal income tax laws (including, but
not limited to, (1) insurance companies, (2) tax-exempt entities, (3) financial
institutions, (4) broker-dealers, (5) foreign corporations, (6) persons who are
not citizens or residents of the United States, (7) trusts, estates, regulated
investment companies, other REITs, or S corporations, (8) persons subject to the
alternative minimum tax, (9) persons holding their shares as part of a hedge,
straddle, conversion or other risk-reduction or constructive sale transaction,
(10) persons holding the shares through a partnership or similar pass-through
entity, (11) persons with a "functional currency" other than the U.S. dollar,
(12) U.S. expatriates and (13) persons who do not hold the shares as a capital
asset).
THIS DISCUSSION IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSTRUED TO BE, TAX
ADVICE. YOU ARE ADVISED TO CONSULT WITH YOUR OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF SHARES IN AN ENTITY
ELECTING TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES AND POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
Taxation of PREIT
General. If PREIT qualifies for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on net income that it currently
distributes to shareholders but PREIT's shareholders will generally be taxed at
ordinary income rates on dividends that they receive other than dividends
designated by PREIT as capital gain dividends or qualified dividend income. This
differs from non-REIT C corporations, which generally are subject to federal
corporate income taxes but whose individual stockholders are currently taxed on
dividends they receive at capital gains rates. In general, income earned by a
REIT and distributed to its shareholders will be subject to less federal income
taxation than if such income were earned by a non-REIT C corporation, subjected
to corporate income tax, and then distributed to shareholders and subjected to
tax at capital gain rates.
While PREIT is generally not subject to corporate income taxes on
income that PREIT distributes currently to shareholders, PREIT will be subject
to federal tax as follows:
1. PREIT will be taxed at regular corporate rates on any "REIT taxable
income." REIT taxable income is the taxable income of a REIT subject to
specified adjustments, including a deduction for dividends paid.
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2. Under some circumstances, PREIT may be subject to the "alternative
minimum tax" due to PREIT's undistributed items of tax preference and
alternative minimum tax adjustments, if any.
3. If PREIT has net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business, or other nonqualifying income from foreclosure
property, PREIT will be subject to tax at the highest corporate rate on this
income.
4. PREIT's net income from "prohibited transactions" will be subject to
a 100% tax. In general, prohibited transactions are sales or other dispositions
of property, other than foreclosure property, held primarily for sale to
customers in the ordinary course of business.
5. If PREIT fails to satisfy either the 75% or the 95% gross income
test discussed below, but nonetheless maintains, its qualification as a REIT
because other requirements are met, PREIT will be subject to a tax equal to the
gross income attributable to the greater of (1) the amount by which 75% of
PREIT's gross income exceeds the amount qualifying under the 75% test for the
taxable year or (2) the amount by which 90% of PREIT's gross income exceeds the
amount of PREIT's income qualifying under the 95% test for the taxable year,
multiplied in either case by a fraction reflecting the ratio of PREIT's net
income to its gross income.
6. PREIT generally will be subject to a 4% excise tax on any shortfall
to the extent PREIT fails to distribute during each calendar year (or pay income
taxes on) at least the sum of:
o 85% of PREIT's ordinary income for the year;
o 95% of PREIT's capital gain net income for the year; and
o any undistributed taxable income from prior taxable years.
7. PREIT will be subject to a 100% penalty tax on amounts received by
PREIT (or on certain expenses deducted by a taxable REIT subsidiary) if certain
arrangements among PREIT, its tenants and/or a taxable REIT subsidiary of PREIT,
as further described below, are not comparable to similar arrangements among
unrelated parties.
8. If PREIT acquires any assets from a taxable C corporation in a
carry-over basis transaction (as would be the case, for example, if it were
determined that Crown American Realty Trust failed to qualify as a REIT up to
the time of its merger with and into PREIT), PREIT could be liable for specified
tax liabilities inherited from that C corporation with respect to that
corporation's "built-in gain" in its assets. Built-in gain is the amount by
which an asset's fair market value exceeds its adjusted tax basis at the time
PREIT acquired the asset. Applicable Treasury regulations, however, allow PREIT
to avoid the recognition of gain and the imposition of corporate-level tax with
respect to a built-in gain asset acquired in a carry-over basis transaction from
a C corporation unless and until PREIT disposes of that built-in gain asset
during the 10-year period following its acquisition, at which time PREIT would
recognize, and would be subject to tax at the highest regular corporate rate on,
the built-in gain.
If PREIT is subject to taxation on its REIT taxable income or is
subject to tax due to the sale of a built-in gain asset that was acquired in a
carry-over basis transaction from a C corporation, some of the dividends PREIT
pays to its shareholders may be subject to tax at the reduced capital gains
rates, rather than ordinary income rates.
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In addition, notwithstanding PREIT's status as a REIT, PREIT may also
have to pay certain state and local income taxes, because not all states and
localities treat REITs in the same manner that they are treated for federal
income tax purposes. Moreover, each of PREIT's taxable REIT subsidiaries (as
further described below) is subject to federal corporate income tax on its net
income.
Requirements for REIT Qualification. The Internal Revenue Code
generally defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares of stock, or by transferable
certificates of beneficial interest; (3) that would be taxable as a domestic
corporation, but for Sections 856 through 859 of the Internal Revenue Code; (4)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Internal Revenue Code; (5) the beneficial ownership of
which is held by 100 or more persons; (6) not more than 50% in value of the
outstanding shares of which are owned, directly or indirectly, by five or fewer
individuals (as defined in the Internal Revenue Code to include certain
entities) during the last half of each taxable year; (7) that makes an election
to be a REIT for the current taxable year or previously has made such an
election which has not been terminated or revoked; and (8) that meets certain
other tests, described below, regarding the nature of its income and assets. The
Internal Revenue Code provides that conditions (1) through (4), inclusive, must
be met during the entire taxable year and that condition (5) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a taxable year of less than 12 months. PREIT's trust agreement contains
certain restrictions regarding the transfers of its shares and provides certain
disclosure requirements for 1% or greater shareholders that are intended to
assist PREIT in continuing to satisfy the share ownership requirements described
in (5) and (6) above. These restrictions, however, may not ensure that PREIT
will be able to satisfy these share ownership requirements. If PREIT fails to
satisfy these ownership requirements, PREIT will fail to qualify as a REIT.
In addition, PREIT must satisfy all relevant filing and other
administrative requirements established by the Internal Revenue Service that
must be met to maintain REIT status, use a calendar year for federal income tax
purposes, and comply with the record keeping requirements of the Internal
Revenue Code and regulations promulgated thereunder. To qualify as a REIT, PREIT
cannot have at the end of any taxable year any undistributed earnings and
profits that are attributable to a non-REIT taxable year.
A REIT is permitted to have wholly owned subsidiaries. Such a
subsidiary will constitute a "qualified REIT subsidiary" unless the REIT elects
to have it treated instead as a "taxable REIT subsidiary." A qualified REIT
subsidiary is not treated as a separate entity for federal income tax purposes.
Rather, all of the assets, liabilities and items of income, deductions and
credit of a qualified REIT subsidiary are treated as if they were those of the
REIT. A qualified REIT subsidiary is not subject to federal corporate income
taxation, although it may be subject to state and local taxation in some states.
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A REIT is also generally permitted to own any percentage of the stock
of a "taxable REIT subsidiary," provided that the aggregate value of the REIT's
interests in taxable REIT subsidiaries does not exceed 20% of the value of the
REIT's gross assets and the aggregate value of the REIT's interests in its
taxable REIT subsidiaries and the securities of other issuers does not exceed
25% of the value of the REIT's gross assets. Provided that certain limitations
on operating activities are satisfied, an entity that is taxable as a
corporation and is wholly or partially owned by a REIT will qualify as a
"taxable REIT subsidiary" if both the REIT and the subsidiary so elect. A
taxable REIT subsidiary is subject to federal income tax, and state and local
income tax where applicable, as a regular C corporation. If a REIT receives
dividends from a taxable REIT subsidiary, then dividends from the REIT to its
shareholders, to the extent attributable to the taxable REIT subsidiary
dividends, generally will be eligible to be subject to tax at reduced capital
gains rates, rather than taxed at ordinary income rates.
A REIT is deemed to own its proportionate share of the assets of a
partnership in which it is a partner and is deemed to receive its proportionate
share of the income of the partnership. Thus, PREIT's proportionate share of the
assets, liabilities and items of income of PREIT Associates, L.P. and each of
the real estate partnerships or other pass-through entities in which PREIT
Associates holds an interest (the "Title Holding Partnerships") will be treated
as assets, liabilities and items of income of PREIT for purposes of applying the
requirements described herein, provided that PREIT Associates and the Title
Holding Partnerships are treated as partnerships for federal income tax
purposes.
Income Tests. To maintain its qualification as a REIT, a REIT must
satisfy two gross income requirements each year. First, at least 75% of a REIT's
gross income each year (other than gross income from prohibited transactions)
must be derived directly or indirectly from investments in real property or
mortgages on real property (including "rents from real property" and, in certain
circumstances, interest) or from certain types of temporary investments. Second,
at least 95% of a REIT's gross income each year (other than gross income from
prohibited transactions) must be derived from the same items that qualify under
the 75% income test, and/or from dividends, interest and gain from the sale or
disposition of stock or securities.
Rents will qualify as "rents from real property" in satisfying the
gross income requirements for a REIT described above only if several conditions
are met. These conditions relate to the identity of the tenant, the computation
of the rent payable and the nature of the property leased. First, the amount of
rent must not be based in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from rents from real property solely by reason of being based on a fixed
percentage or percentages of receipts or sales. Second, rents received from a
"related party tenant" will not qualify as rents from real property in
satisfying the gross income tests unless the tenant is a taxable REIT
subsidiary, at least 90% of the property is leased to unrelated tenants and the
rent paid by the taxable REIT subsidiary is substantially comparable to the rent
paid by the unrelated tenants for comparable space. A tenant is a related party
tenant if the REIT, or an actual or constructive owner of 10% or more of the
REIT, actually or constructively owns 10% or more of the tenant. Third, if rent
attributable to personal property, leased in connection with a lease of real
property, is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to the personal property will not qualify as
rents from real property.
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PREIT does not anticipate receiving rents that fail to meet these
conditions in amounts that, together with other types of nonqualifying income
earned by PREIT, would cause PREIT to fail to satisfy the gross income tests.
In addition, for rents to qualify as "rents from real property," PREIT
generally must not furnish or render more than a de minimis amount of services
to tenants, other than through an "independent contractor" from whom PREIT
derives no revenue or a taxable REIT subsidiary. The "independent contractor"
requirement, however, does not apply to the extent the services provided by
PREIT are "usually or customarily rendered" in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." If the impermissible tenant service income (which is the greater of
the amount actually received from an impermissible service to tenants or 150% of
the cost of such service) that PREIT receives with respect to a property exceeds
1% of PREIT's total income from that property, then all of the income from that
property will fail to qualify as rents from real property. Although PREIT-RUBIN,
which, together with PREIT Services, LLC, comprise PREIT's commercial property
development and management business, renders services with respect to rental
properties of PREIT Associates and the Title Holding Partnerships, and
PREIT-RUBIN does not constitute an "independent contractor" for this purpose,
PREIT believes that the services being provided by PREIT-RUBIN with respect to
these properties in past years have been usual or customary and should not
otherwise be considered "rendered to the occupant." Moreover, for years
beginning after December 31, 2000, PREIT and PREIT- RUBIN have elected for
PREIT-RUBIN to be treated as a taxable REIT subsidiary. PREIT believes that the
aggregate amount of any nonqualifying income in any taxable year earned by PREIT
Associates and the Title Holding Partnerships has not caused, and will not
cause, PREIT to exceed the limits on nonqualifying income under the 75% and 95%
gross income tests.
PREIT Associates owns all of the outstanding shares of PREIT-RUBIN. As
a taxable REIT subsidiary, PREIT-RUBIN is taxable as a regular corporation.
PREIT-RUBIN performs management, development and leasing services for PREIT
Associates and other real estate owned in whole or in part by third parties. The
third-party income earned by and taxed to PREIT-RUBIN would be nonqualifying
income if earned directly by PREIT. As a result of the corporate structure, all
third-party and other services income will be earned by and taxed to PREIT-RUBIN
at applicable federal and state corporate income tax rates and will be received
by PREIT only indirectly as dividends, after reduction by these taxes. Any such
dividends will be qualifying income under the 95% test but will not be
qualifying income for purposes of the 75% test.
If PREIT fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for that year
if it is entitled to relief under the Internal Revenue Code. It is not possible,
however, to state whether in all circumstances PREIT would be entitled to the
benefit of these relief provisions. Even if these relief provisions were to
apply, however, a tax would be imposed with respect to the "excess net income"
attributable to the failure to satisfy the 75% and 95% gross income tests.
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Asset Tests. PREIT, at the close of each quarter of its taxable year,
must satisfy several tests relating to the nature of its assets: (1) at least
75% of the value of PREIT's total assets must be represented by "real estate
assets," cash, cash items and government securities; (2) not more than 25% of
PREIT's total assets may be represented by securities other than those in the
75% asset class; (3) of the investments included in the 25% asset class (other
than shares of a taxable REIT subsidiary or a qualified REIT subsidiary), the
value of any one issuer's securities owned by PREIT may not exceed 5% of the
value of PREIT's total assets, and PREIT may not own more than 10% of the vote
or value of any one issuer's outstanding securities; and (4) not more than 20%
of PREIT's total assets may be represented by the securities of one or more
taxable REIT subsidiaries.
Securities, for purposes of the asset tests, may include debt PREIT
holds from other issuers. However, debt PREIT holds in an issuer will not be
taken into account for purposes of the 10% value test if the debt securities
meet the "straight debt" safe harbor and (1) the issuer is an individual, (2)
the only securities of the issuer that PREIT holds are straight debt or (3) if
the issuer is a partnership, PREIT holds at least a 20 percent profits interest
in the partnership. Debt will meet the "straight debt" safe harbor if the debt
is a written unconditional promise to pay on demand or on a specified date a sum
certain in money, the debt is not convertible, directly or indirectly, into
stock, and the interest rate and the interest payment dates of the debt are not
contingent on profits, the borrower's discretion or similar factors.
PREIT believes that it has complied, and anticipates that it will
continue to comply, with these asset tests. PREIT is deemed to hold directly its
proportionate share of all real estate and other assets of PREIT Associates and
all assets deemed owned by PREIT Associates through its ownership of partnership
interests in other partnerships. As a result, PREIT believes that more than 75%
of its assets are real estate assets. In addition, PREIT does not plan to hold
any securities other than securities in a qualified REIT subsidiary or taxable
REIT subsidiary of PREIT representing more than 10% of the vote or value of any
one issuer's common stock, or securities of any one issuer the value of which
exceeds 5% of the value of PREIT's gross assets. Further, PREIT does not plan to
hold securities of taxable REIT subsidiaries that, in the aggregate, exceed 20%
of the total value of PREIT's assets. As previously discussed, PREIT is deemed
to own its proportionate share of the assets of a partnership in which it is a
partner so that the partnership interest, itself, is not a security for purposes
of this asset test.
After initially meeting the asset tests at the close of any quarter,
PREIT will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient nonqualifying assets within 30 days after the close of that quarter.
PREIT intends to maintain adequate records of the value of its assets to ensure
compliance with the asset tests, and to take any other action within 30 days
after the close of any quarter as may be required to cure any noncompliance. No
assurance can be given, however, that this other action will always be
successful.
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Annual Distribution Requirements. To qualify as a REIT, PREIT generally
must distribute to its shareholders each year at least 90% of its REIT taxable
income (computed without the dividends paid deduction and excluding net capital
gains) and 90% of PREIT's net income after tax, if any, from foreclosure
property, minus the sum of certain items of noncash income. Distributions must
generally be made during the taxable year to which they relate. Distributions
may be made in the following year in two circumstances. First, if PREIT declares
a dividend in October, November, or December of any year with a record date in
one of these months and pays the dividend on or before January 31 of the
following year, PREIT will be treated as having paid the dividend on December 31
of the year in which the dividend was declared. Second, distributions may be
made in the following year if the dividends are declared before PREIT timely
files its tax return for the year and if made before the first regular dividend
payment made after such declaration. To the extent that PREIT does not
distribute all of its net capital gain or distributes at least 90%, but less
than 100% of its REIT taxable income, as adjusted, PREIT will be subject to tax
on the undistributed amounts at regular corporate tax rates. In addition, PREIT
may be subject to a 4% nondeductible excise tax on the excess of the required
distribution over the sum of the amounts actually distributed and amounts
retained for which federal income tax was paid if PREIT fails to distribute
during a calendar year (or, in the case of distributions with declaration and
record dates falling in the last three months of the calendar year, by the end
of January following such calendar year) at least the sum of (1) 85% of PREIT's
REIT ordinary income for such year, (2) 95% of PREIT's REIT capital gain net
income for such year, and (3) any undistributed taxable income from prior
periods.
PREIT may elect to retain rather than distribute all or a portion of
its net capital gains and pay the tax on the gains. In that case, PREIT may
elect to have its shareholders include their proportionate share of the
undistributed net capital gains in income as long-term capital gains and receive
a credit for their share of the tax paid by PREIT. For purposes of the 4% excise
tax described above, any retained amounts would be treated as having been
distributed.
PREIT believes that it has made, and expects to continue to make,
timely distributions sufficient to satisfy the annual 90% distribution
requirement. It is possible, however, that PREIT, from time to time, may not
have sufficient cash or other liquid assets to meet the 90% distribution
requirement and to avoid all corporate-level taxes. In that event, PREIT may
arrange for short-term, or possibly long-term, borrowing (by itself or by PREIT
Associates) to meet the 90% distribution requirement and avoid the
corporate-level taxes.
Under some circumstances, PREIT may be able to rectify a failure to
meet the distribution requirement for a year by paying deficiency dividends to
shareholders in a later year, which may be included in PREIT's deduction for
dividends paid for the earlier year. Thus, PREIT may be able to avoid being
taxed on amounts distributed as deficiency dividends. However, PREIT will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
Failure to Qualify. If PREIT fails to qualify for taxation as a REIT in
any taxable year, PREIT will be subject to tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates. If
PREIT fails to qualify as a REIT, it will not be required to make any
distributions to its shareholders and any distributions that are made will not
be deductible by PREIT. As a result, PREIT's failure to qualify as a REIT would
significantly reduce both the cash available for distributions by PREIT to its
shareholders and its earnings. In addition, if PREIT fails to qualify as a REIT,
all distributions to shareholders, to the extent of PREIT's current and
accumulated earnings and profits, will be taxable as regular corporate
dividends, which means that shareholders taxed as individuals currently would be
taxed on those dividends at capital gains rates and corporate shareholders
generally would be entitled to a dividends received deduction with respect to
such dividends. Unless entitled to relief under specific statutory provisions,
PREIT also will be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances PREIT would be entitled to this statutory
relief.
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Limitations Applicable to Taxable REIT Subsidiaries. Certain provisions
of the Internal Revenue Code are designed to curtail a REIT's ability to
minimize the taxable income of any taxable REIT subsidiary, such as PREIT-RUBIN.
A 100% tax will apply to any excessive interest expense or other deductions paid
by a taxable REIT subsidiary to the REIT and to any amounts by which the taxable
REIT subsidiary undercharges tenants of the REIT. Also, there are limitations on
the deductibility of interest by highly leveraged taxable REIT subsidiaries.
Income Taxation of PREIT Associates, the Title Holding Partnerships and their
Partners
The following discussion summarizes certain federal income tax
considerations applicable to PREIT's investment in PREIT Associates and the
Title Holding Partnerships:
Classification of PREIT Associates and Title Holding Partnerships as
Partnerships. PREIT will be entitled to include in its income its distributive
share of the income and to deduct its distributive share of the losses of PREIT
Associates (including PREIT Associates' share of the income or losses of the
Title Holding Partnerships) only if PREIT Associates and the Title Holding
Partnerships (collectively, the "Partnerships") are classified for federal
income tax purposes as partnerships rather than as associations taxable as
corporations. The Partnerships have not elected, and do not intend to elect, to
be taxable for federal income tax purposes as corporations. Accordingly, under
applicable "check-the-box" regulations, they should be classified as
partnerships for federal income tax purposes.
Partnership Allocations. Although a partnership agreement generally
will determine the allocation of income and losses among partners, the
allocations will be disregarded for tax purposes under Section 704(b) of the
Internal Revenue Code if they do not comply with the provisions of Section
704(b) of the Internal Revenue Code and the Treasury Regulations promulgated
thereunder as to substantial economic effect and other requirements.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to the item. PREIT Associates' allocations of
taxable income and loss are intended to comply with the requirements of Section
704(b) of the Internal Revenue Code and the Treasury Regulations promulgated
thereunder.
Tax Allocations With Respect to Contributed Properties. The properties
contributed directly or indirectly to PREIT Associates have generally been
appreciated as of the time of contribution, and it is likely that properties
contributed in the future will also be appreciated. Under Section 704(c) of the
Internal Revenue Code, items of income, gain, loss and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner so that the contributor is charged with or benefits
from the unrealized gain or unrealized loss associated with the property at the
time of the contribution. The amount of the unrealized gain or unrealized loss
is generally equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
the property at the time of contribution. The partnership agreements of the
Partnerships require allocations of income, gain, loss and deduction
attributable to the contributed property to be made in a manner that is
consistent with Section 704(c) of the Internal Revenue Code. If the Partnerships
sell contributed property at a gain or loss, the gain or loss will be allocated
to the contributing partner(s) generally to the extent of the precontribution
unrealized gain or loss.
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Depreciation. The Partnerships' assets other than cash consist largely
of appreciated property contributed by its partners. Assets contributed to a
partnership in a tax-free transaction carry over their depreciation schedules.
Accordingly, PREIT Associates' depreciation deductions for its real property are
based largely on the historic depreciation schedules for the properties. The
properties are being depreciated over a range of 15 to 40 years using various
methods of depreciation which were determined at the time that each item of
depreciable property was placed in service. Any real property purchased by the
Partnerships will be depreciated over at least 39 years, except that residential
buildings will be depreciated over 27.5 years, and land is nondepreciable. In
certain instances where a partnership interest rather than real estate is
contributed to the Partnership, the real estate may not carry over its
depreciation schedule but rather may, similarly, be subject to the lengthier
depreciation period.
Section 704(c) of the Internal Revenue Code requires that depreciation
as well as gain and loss be allocated in a manner so as to take into account the
variation between the fair market value and tax basis of the property
contributed. Depreciation with respect to any property purchased by PREIT
Associates subsequent to the admission of its partners, however, will be
allocated among the partners in accordance with their respective percentage
interests in the Partnerships.
Sale of Partnership Property. Generally, any gain realized by a
partnership on the sale of property held by the partnership for more than one
year will be long-term capital gain, except for any portion of the gain that is
treated as depreciation or cost recovery recapture. However, under the REIT
requirements, PREIT's share as a partner of any gain realized by the
Partnerships on the sale of any property held as inventory or other property
held primarily for sale to customers in the ordinary course of a trade or
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. The prohibited transaction income could also have an
adverse effect upon PREIT's ability to satisfy the income tests for REIT status.
Under existing law, whether property is held as inventory or primarily for sale
to customers in the ordinary course of a trade or business is a question of fact
that depends on all the facts and circumstances with respect to the particular
transaction. A safe harbor to avoid classification as a prohibited transaction
exists as to real estate assets held for the production of rental income by a
REIT for at least four years where in any taxable year the REIT has made no more
than seven sales of property or, in the alternative, the aggregate of the
adjusted bases of all properties sold does not exceed 10% of the adjusted bases
of all of the REIT's properties during the year and the expenditures includable
in a property's net sales price. The Partnerships intend to hold properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning, and operating and leasing properties and to make
occasional sales of the properties as are consistent with PREIT's and PREIT
Associates' investment objectives. No assurance can be given, however, that no
property sale by the Partnerships will constitute a sale of inventory or other
property held primarily for sale to customers.
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Taxation of Shareholders
Taxation of Taxable Domestic Shareholders. As long as PREIT qualifies
as a REIT, distributions made to PREIT's taxable domestic shareholders (or "U.S.
shareholders") out of current or accumulated earnings and profits (and not
designated as capital gain dividends or qualified dividend income) will be taken
into account by them as ordinary income (at graduated federal income tax rates
up to 35%). In determining the extent to which a distribution constitutes a
dividend for tax purposes, PREIT's earnings and profits will be allocated first
to distributions with respect to its preferred shares and then to its common
shares. Corporate shareholders will not be eligible for the dividends-received
deduction as to such amounts. Dividends paid by a REIT will generally not
constitute qualified dividends that are taxed at the recently reduced federal
capital gain tax rates (up to only 15%) that are generally applicable to
dividend income earned by individuals from non-REIT C corporations, except to
the extent the REIT dividends are attributable to dividend income earned by the
REIT or are attributable to other REIT income on which certain income taxes have
been paid by the REIT. PREIT does not anticipate that any substantial amount of
its dividends will constitute qualified dividends.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent that the distributions
do not exceed the adjusted basis of the shareholder's shares. Rather, such
distributions will reduce the adjusted basis of such shares. To the extent that
distributions exceed the adjusted basis of a U.S. shareholder's shares, the
distributions will be taxable as capital gains, assuming the shares are a
capital asset in the hands of the U.S. shareholder.
Distributions will generally be taxable, if at all, in the year of the
distribution. However, if PREIT declares a dividend in October, November, or
December of any year with a record date in one of these months and pays the
dividend on or before January 31 of the following year, PREIT will be treated as
having paid the dividend, and the shareholder will be treated as having received
the dividend, on December 31 of the year in which the dividend was declared.
PREIT may elect to designate distributions of its net capital gain as
"capital gain dividends." Capital gain dividends are taxed to PREIT's U.S.
shareholders as gain from the sale or exchange of a capital asset held for more
than one year. This tax treatment applies regardless of the period during which
the shareholders have held their shares. If PREIT designates any portion of a
dividend as a capital gain dividend, the amount that will be taxable to the
shareholder as capital gain will be detailed to U.S. shareholders on Internal
Revenue Service Form 1099-DIV. Corporate shareholders, however, may be required
to treat up to 20% of capital gain dividends as ordinary income.
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Instead of paying capital gain dividends, PREIT may elect to require
shareholders to include PREIT's undistributed net capital gains in their income.
If PREIT makes such an election, U.S. shareholders (1) will include in their
income as long-term capital gains their proportionate share of such
undistributed capital gains and (2) will be deemed to have paid their
proportionate share of the tax paid by PREIT on such undistributed capital gains
and thereby receive a credit or refund for such amount. A U.S. shareholder of
PREIT's shares will increase the basis in its shares by the difference between
the amount of capital gain included in its income and the amount of tax it is
deemed to have paid. PREIT's earnings and profits will be adjusted
appropriately.
PREIT must classify portions of its designated capital gain dividend
into the following categories:
1. a 15% gain distribution, which will be taxable to non-corporate U.S.
shareholders at a maximum rate of 15%; or
2. an unrecaptured Section 1250 gain distribution, which will be
taxable to non-corporate U.S. shareholders at a maximum rate of 25%.
In addition, a 20% gain distribution, which would be taxable to non-corporate
U.S. shareholders of PREIT's shares at a maximum rate of 20%, rather than 15%,
may be applicable for capital gain dividends attributable to PREIT's capital
gains for periods prior to May 6, 2003.
Distributions made by PREIT and gain arising from the sale or exchange
by a U.S. shareholder of PREIT's shares will not be treated as passive activity
income, and as a result, U.S. shareholders of PREIT's shares generally will not
be able to apply any "passive losses" against this income or gain. In addition,
taxable distributions from PREIT generally will be treated as investment income
for purposes of the investment interest limitations. A U.S. shareholder of
PREIT's shares may elect to treat capital gain dividends, capital gains from the
disposition of shares and income designated as qualified dividend income as
investment income for purposes of the investment interest limitation, in which
case the applicable gain or income will be taxed at ordinary income tax rates.
U.S. shareholders of PREIT's shares may not include in their individual income
tax returns any of PREIT's net operating losses or capital losses. PREIT's
operating or capital losses would be carried over by PREIT for potential offset
against future income, subject to applicable limitations. PREIT will notify
shareholders regarding the portions of distributions for each year that
constitute ordinary income, return of capital and capital gain. In general, a
domestic shareholder will realize capital gain or loss on the disposition of
shares equal to the difference between (1) the amount of cash and the fair
market value of any property received on the disposition and (2) the
shareholder's adjusted basis of the shares. The gain or loss generally will
constitute long-term capital gain or loss if the shareholder has held the shares
for more than one year. For an individual shareholder, a long-term capital gain
will generally be taxable at a maximum rate of 15%.
Loss upon a sale or exchange of shares by a shareholder who has held
the shares for six months or less (after applying certain holding period rules)
will be treated as a long-term capital loss to the extent of distributions from
PREIT required to be treated by the shareholder as long-term capital gain
(including both 15%- and 25%-rate gain).
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Taxation of Tax-Exempt Shareholders. PREIT does not expect that
distributions by PREIT to a shareholder that is a tax-exempt entity will
constitute "unrelated business taxable income" ("UBTI"), provided that the
tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Internal Revenue Code and
the shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity. However, for a tax-exempt shareholder that is a social club,
voluntary employee benefit association, supplemental unemployment benefit trust,
or qualified group legal services plan exempt from federal income taxation under
Internal Revenue Code Sections 501(c)(7), (c)(9), (c)(17) and (c)(20),
respectively, or a single parent title-holding corporation exempt under Section
501(c)(2) the income of which is payable to any of the aforementioned tax-exempt
organizations, income from an investment in PREIT's shares will constitute UBTI
unless the organization properly sets aside or reserves such amounts for
purposes specified in the Internal Revenue Code. These tax exempt shareholders
should consult their own tax advisors concerning these "set aside" and reserve
requirements.
Notwithstanding the above, however, a portion of the dividends paid by
a "pension held REIT" are treated as UBTI as to any trust which is described in
Section 401(a) of the Internal Revenue Code, is tax-exempt under Section 501(a)
of the Internal Revenue Code, and holds more than 10%, by value, of the
interests in the REIT. Tax-exempt pension funds that are described in Section
401(a) of the Internal Revenue Code are referred to below as "pension trusts."
A REIT is a "pension held REIT" if it meets the following two tests:
1. it would not have qualified as a REIT but for Section 856(h)(3) of
the Internal Revenue Code, which provides that shares owned by pension trusts
will be treated, for purposes of determining whether the REIT is closely held,
as owned by the beneficiaries of the trust rather than by the trust itself; and
2. either (a) at least one pension trust holds more than 25% of the
value of the interests in the REIT, or (b) a group of pension trusts, each
individually holding more than 10% of the value of the REIT's shares,
collectively owns more than 50% of the value of the REIT's shares.
The percentage of any REIT dividend from a "pension held REIT" that is treated
as UBTI is equal to the ratio of the UBTI earned by the REIT, treating the REIT
as if it were a pension trust and therefore subject to tax on UBTI, to the total
gross income of the REIT. An exception applies where the percentage is less than
5% for any year, in which case none of the dividends would be treated as UBTI.
Based on the current estimated ownership of PREIT's common and
preferred shares and as a result of certain limitations on transfer and
ownership of common and preferred shares contained in PREIT's trust agreement,
PREIT does not expect to be classified as a "pension held REIT."
-41-
Taxation of Non-U.S. Shareholders. The rules governing U.S. federal
income taxation of nonresident alien individuals, foreign corporations, foreign
partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are complex, and no attempt will be made herein to provide more
than a limited summary of these rules. Prospective Non-U.S. Shareholders should
consult with their own tax advisor to determine the impact of U.S. federal,
state and local income tax laws with regard to an investment in shares,
including any reporting requirements. In particular, Non-U.S. Shareholders who
are engaged in a trade or business in the United States, and Non-U.S.
Shareholders who are individuals and who were present in the United States for
183 days or more during the tax year and have a "tax home" in the United States,
may be subject to tax rules different from those described below.
Distributions that are not attributable to gain from sales or exchanges
by PREIT of U.S. real property interests and not designated by PREIT as capital
gain dividends or qualified dividend income will be treated as dividends of
ordinary income to the extent that they are made out of current or accumulated
earnings and profits of PREIT. These distributions, ordinarily, will be subject
to a withholding tax equal to 30% of the gross amount of the distribution unless
an applicable tax treaty reduces that tax or the dividends are treated as
effectively connected with the conduct by the Non-U.S. Shareholder of a U.S.
trade or business. Under some treaties, however, lower rates generally
applicable to dividends do not apply to dividends from REITs. Dividends that are
effectively connected with a trade or business will be subject to tax on a net
basis, that is, after allowance for deductions, at graduated rates, in the same
manner as U.S. shareholders are taxed with respect to these dividends, and are
generally not subject to withholding. Applicable certification and disclosure
requirements must be satisfied to be exempt from withholding under the
effectively connected income exception. Any dividends received by a corporate
Non-U.S. Shareholder that is engaged in a U.S. trade or business also may be
subject to an additional branch profits tax at a 30% rate, or lower applicable
treaty rate. PREIT expects to withhold U.S. income tax at the rate of 30% on any
dividend distributions, not designated as (or deemed to be) capital gain
dividends, made to a Non-U.S. Shareholder unless:
o a lower treaty rate applies and the Non-U.S. Shareholder furnishes
an Internal Revenue Service Form W-8BEN to PREIT evidencing
eligibility for that reduced rate; or
o the Non-U.S. Shareholder furnishes an Internal Revenue Service Form
W-8ECI to PREIT claiming that the distribution is effectively
connected income.
Distributions in excess of current and accumulated earnings and profits
of PREIT will not be taxable to a Non-U.S. Shareholder to the extent that they
do not exceed the adjusted basis of the shareholder's shares, but rather will
reduce the adjusted basis of the shares. To the extent that these distributions
exceed the adjusted basis of a Non-U.S. Shareholder's shares, they will give
rise to tax liability if the Non-U.S. Shareholder would otherwise be subject to
tax on any gain from the sale or disposition of shares as described below (in
which case they also may be subject to a 30% branch profits tax if the
shareholder is a foreign corporation). If it cannot be determined at the time a
distribution is made whether or not the distribution will be in excess of
current or accumulated earnings and profits, the entire distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Shareholder may seek a refund of the amounts from the Internal Revenue
Service if it is subsequently determined that the distribution was, in fact, in
excess of current or accumulated earnings and profits of PREIT.
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PREIT may be required to withhold at least 10% of any distribution in
excess of its current and accumulated earnings and profits, even if a lower
treaty rate applies or the Non-U.S. Shareholder is not liable for tax on the
receipt of that distribution. However, a Non-U.S. Shareholder may seek a refund
of these amounts from the Internal Revenue Service if the Non-U.S. Shareholder's
U.S. tax liability with respect to the distribution is less than the amount
withheld.
PREIT generally will be required to withhold and remit to the Internal
Revenue Service 35% of any distributions to Non-U.S. Shareholders that are
designated as capital gain dividends, or, if greater, 35% of a distribution that
could have been designated as a capital gain dividend. Distributions can be
designated as capital gains to the extent of PREIT's net capital gain for the
taxable year of the distribution. The amount withheld is creditable against the
Non-U.S. Shareholder's United States federal income tax liability.
Although the law is not entirely clear on the matter, it appears that
amounts of undistributed capital gain that are designated by PREIT as deemed
distributions (as discussed under "Taxation of Taxable Domestic Shareholders"
above) would be treated with respect to Non-U.S. Shareholders in the manner
outlined in the preceding paragraph for actual distributions by PREIT of capital
gain dividends. Under that approach, the Non-U.S. Shareholders would be able to
offset as a credit against their United States federal income tax liability
resulting therefrom their proportionate share of the tax paid by PREIT on the
undistributed capital gains (and to receive from the Internal Revenue Service a
refund to the extent their proportionate share of the tax paid by PREIT were to
exceed their actual United States federal income tax liability).
Under the Foreign Investment in Real Property Tax Act, which is referred to as
"FIRPTA," distributions to a Non-U.S. Shareholder that are attributable to gain
from sales or exchanges by PREIT of U.S. real property interests, whether or not
designated as a capital gain dividend, will cause the Non-U.S. Shareholder to be
treated as recognizing gain that is income effectively connected with a U.S.
trade or business. Non-U.S. Shareholders will be taxed on this gain at the same
rates applicable to U.S. shareholders, subject to a special alternative minimum
tax in the case of nonresident alien individuals. Also, this gain may be subject
to a 30% (or lower applicable treaty rate) branch profits tax in the hands of a
Non-U.S. Shareholder that is a corporation.
Gain recognized by a Non-U.S. Shareholder upon a sale or exchange of
PREIT's shares generally will not be subject to United States taxation unless:
o the investment in PREIT's shares is effectively connected with a
U.S. trade or business (or, in the case of a Non-U.S. Shareholder
that is an eligible resident of a foreign country that has an
applicable tax treaty with the U.S., a U.S. permanent establishment
of the Non-U.S. Shareholder), in which case the Non-U.S. Shareholder
will be subject to the same treatment as a domestic shareholder with
respect to any gain or loss;
-43-
o the Non-U.S. Shareholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable
year and has a tax home in the United States, in which case the
nonresident alien individual will be subject to a 30% tax on the
individual's net capital gains for the taxable year; or
o PREIT's shares constitute a U.S. real property interests within the
meaning of FIRPTA, as described below.
PREIT's shares will constitute U.S. real property interests within the
meaning of FIRPTA unless PREIT is a "domestically controlled REIT," defined
generally as a REIT for which at all times during a defined testing period less
than 50% in value of its stock has been held directly or indirectly by foreign
persons. PREIT believes that it is a domestically controlled REIT, and,
therefore, that its shares do not constitute U.S. real property interests.
However, because PREIT's shares are publicly traded, PREIT cannot guarantee that
it is or will continue to be a domestically controlled REIT.
Even if PREIT were not to qualify as a domestically controlled REIT at
the time a Non-U.S. Shareholder sells PREIT's shares, gain arising from the sale
still would not be subject to FIRPTA tax if:
o the class of shares sold is "regularly traded" on an established
securities market, such as the NYSE (which PREIT believes to be the
case); and
o the selling Non-U.S. Shareholder has owned, actually or
constructively, no more than 5% of the outstanding class of shares
during the five-year period ending on the date of the sale.
If the gain on the sale of shares were to be subject to tax under
FIRPTA, the Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to the gain (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals).
Backup Withholding Tax and Information Reporting
In general, information-reporting requirements will apply to payments
of dividends on PREIT's shares to some U.S. shareholders, unless an exception
applies.
The payor is required to withhold tax on such payments at the rate of
28% if (1) the payee fails to furnish a taxpayer identification number, or TIN,
to the payor or to establish an exemption from backup withholding, or (2) the
Internal Revenue Service notifies the payor that the TIN furnished by the payee
is incorrect.
In addition, a payor of the dividends on PREIT's shares is required to
withhold tax at a rate of 28% if (1) there has been a notified payee
under-reporting with respect to interest, dividends or original issue discount
described in Section 3406(c) of the Internal Revenue Code, or (2) there has been
a failure of the payee to certify under the penalty of perjury that the payee is
not subject to backup withholding under the Internal Revenue Code.
-44-
Some shareholders, including corporations, may be exempt from backup
withholding. Any amounts withheld under the backup withholding rules from a
payment to a shareholder will be allowed as a credit against the shareholder's
United States federal income tax and may entitle the shareholder to a refund,
provided that the required information is furnished to the Internal Revenue
Service.
The payor will be required to furnish annually to the Internal Revenue
Service and to PREIT's shareholders information relating to the amount of
dividends paid on PREIT's shares, and that information reporting may also apply
to payments of proceeds from the sale of PREIT's shares. Some shareholders,
including corporations, financial institutions and certain tax-exempt
organizations, are generally not subject to information reporting.
With regard to Non-U.S. Shareholders, information reporting generally
will apply to payments of dividends on PREIT's shares, and backup withholding
described above for a U.S. shareholder will apply, unless the payee certifies
that it is not a U.S. person or otherwise establishes an exemption.
The payment of the proceeds from the disposition of PREIT's shares to
or through the U.S. office of a U.S. or foreign broker will be subject to
information reporting and backup withholding as described above for U.S.
shareholders unless the Non-U.S. Shareholder satisfies the requirements
necessary to be an exempt Non-U.S. Shareholder or otherwise qualifies for an
exemption. The proceeds of a disposition by a Non-U.S. Shareholder of PREIT's
shares to or through a foreign office of a broker generally will not be subject
to information reporting or backup withholding. However, if the broker is a U.S.
person, a controlled foreign corporation for U.S. tax purposes, a foreign person
50% or more of whose gross income from all sources for specified periods is from
activities that are effectively connected with a U.S. trade or business, a
foreign partnership if partners who hold more than 50% of the interest in the
partnership are U.S. persons, or a foreign partnership that is engaged in the
conduct of a trade or business in the U.S., then information reporting generally
will apply as though the payment was made through a U.S. office of a U.S. or
foreign broker.
Applicable Treasury regulations provide presumptions regarding the
status of a PREIT shareholder when payments to such shareholder cannot be
reliably associated with appropriate documentation provided to the payor.
Because the application of these Treasury regulations varies depending on the
shareholder's particular circumstances, you are advised to consult your tax
advisor regarding the information reporting requirements applicable to you.
Sunset of Tax Provisions
Several of the tax considerations described herein are subject to a
sunset provision. The sunset provision generally provides that for taxable years
beginning after December 31, 2008, certain provisions that are currently in the
Internal Revenue Code will revert back to a prior version of those provisions.
These provisions include those related to the 15% capital gains rate and its
application to qualified dividend income and other tax rates described herein.
Prospective shareholders should consult their own tax advisors regarding the
possible effects of these sunset provisions.
-45-
Other Tax Considerations
PREIT and its shareholders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of PREIT and its
shareholders may not conform to the federal income tax consequences discussed
above. Prospective shareholders should consult their own tax advisors regarding
the effect of state and local tax laws on an investment in shares of PREIT.
Tax Shelter Reporting
Under recently promulgated Treasury regulations, if a taxpayer
recognizes a loss of $2 million or more, in the case of an individual taxpayer,
or $10 million or more, in the case of a corporate taxpayer, the taxpayer may be
required to file a disclosure statement with the Internal Revenue Service on
Form 8886. Losses on sales of portfolio securities are in many cases exempt from
this reporting requirement, but sales of REIT shares currently are not excepted.
The fact that a loss is reportable under these regulations does not affect the
legal determination of whether the taxpayer's treatment of the loss is proper.
Stockholders should consult their tax advisors to determine the applicability of
these regulations in light of their individual circumstances.
-46-
PLAN OF DISTRIBUTION
This prospectus relates to the offer and sale from time to time of up
to 2,761,230 shares that have been issued or may be issued to the holders of
PREIT Partnership Units listed above under the caption "Selling Shareholders,"
or to their pledgees, donees, transferees, partners or other successors in
interest. We will not receive any of the proceeds from the sale of any shares by
the selling shareholders. The distribution of the shares may be effected from
time to time in one or more underwritten transactions at a fixed price or
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on a "best efforts" or a "firm
commitment" basis. In connection with any such underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from the selling shareholders or from purchasers of
shares for whom they may act as agents. Underwriters may sell shares to or
through dealers, and such dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agents.
Under agreements into which we may enter, underwriters, dealers and
agents who participate in the distribution of shares may be entitled to
indemnification from us against certain liabilities, including liabilities under
the Securities Act, or to contribution with respect to payments that such
underwriters, dealers or agents may be required to make in respect thereof.
The selling shareholders and any underwriters, dealers or agents that
participate in the distribution of shares may be deemed to be "underwriters"
within the meaning of the Securities Act, and any profit on the sale of shares
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act.
At a time a particular offer of shares is made, a prospectus
supplement, if required, will be distributed that will set forth the name and
names of any underwriters, dealers or agents, any discounts, commissions and
other terms constituting compensation from the selling shareholders and any
other required information.
The sale of the shares by the selling shareholders also may be effected
from time to time by selling the shares directly to purchasers or to or through
broker-dealers. In connection with any such sale, any such broker-dealer may act
as agent for the selling shareholders or may purchase from the selling
shareholders all or a portion of the shares as principal, and any such sale may
be made pursuant to any of the methods described below. Such sales may be made
on the NYSE or other exchanges on which the shares are then traded, in the
over-the-counter market, in negotiated transactions or otherwise at prices and
at terms then prevailing or at prices related to the then-current market prices
or at prices otherwise negotiated.
The shares also may be sold in one or more of the following transactions: (a)
block transactions (which may involve crosses) in which a broker-dealer may sell
all or a portion of such shares as agent but may position and resell all or a
portion of the block as principal to facilitate the transaction; (b) purchases
by any such broker-dealer as principal and resale by such broker-dealer for its
own account; (c) a special offering, an exchange distribution or a secondary
distribution in accordance with applicable NYSE or other stock exchange rules;
(d) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (e) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; (f) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers; (g)
transactions in options, swaps or other derivatives that may not be listed on an
exchange; and (h) the creation or settlement of hedging transactions.
-47-
In effecting sales, broker-dealers engaged by the selling shareholders
may arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the selling shareholders in amounts to be
negotiated immediately prior to the sale that will not exceed those customary in
the types of transactions involved. Broker-dealers may also receive compensation
from purchasers of the shares that is not expected to exceed that customary in
the types of transactions involved. The shares may also be sold pursuant to Rule
144 promulgated under the Securities Act.
We will pay all expenses incident to the offering and sale of the
shares, other than commissions, discounts and fees of underwriters,
broker-dealers or agents. We have agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
-48-
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for us by
Drinker Biddle & Reath LLP. Drinker Biddle & Reath LLP will also pass on certain
federal income tax matters respecting us.
EXPERTS
The consolidated financial statements and schedules of PREIT and
subsidiaries as of December 31, 2002 and 2001, and for each of the years in the
three-year period ended December 31, 2002 included in PREIT's Current Report on
Form 8-K dated June 27, 2003 and filed on August 12, 2003 have been incorporated
herein by reference in reliance upon the reports of KPMG LLP and Ernst & Young
LLP, independent auditors, incorporated by reference herein, and upon the
authority of said firms as experts in accounting and auditing.
The report of KPMG LLP dated March 27, 2003, except as to note 16,
which is as of June 27, 2003, refers to the fact that PREIT has adopted
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets and Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets as of January
1, 2002.
The statement of revenue and certain expenses of WG Park, L.P. for the
year ended December 31, 2002 included in PREIT's Current Report on Form 8-K
dated September 2, 2003 and filed on September 17, 2003 have been incorporated
herein by reference in reliance upon the report of KPMG LLP, independent
auditors, incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing. The report of KPMG LLP dated September
12, 2003, includes a paragraph that states that the statement was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission, as described in note 2, and is not intended to be a
complete presentation of the WG Park, L.P. revenue and expenses.
The combined statements of revenues and certain expenses of the Subject
Properties - First Close and the Subject Properties - Second Close for the year
ended December 31, 2002 and the statements of revenues and certain expenses of
Cherry Hill Mall for the years ended December 31, 2002, 2001 and 2000 included
in PREIT's Current Report on Form 8-K/A No. 2 dated April 28, 2003 (filed on
September 26, 2003) have been incorporated herein by reference in reliance upon
the report of KPMG LLP, independent auditors, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing. The
reports of KPMG LLP dated April 29, 2003 include a paragraph that states that
the statements were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission, as described in note 2,
and are not intended to be a complete presentation of the revenues and expenses
of the Subject Properties - First Close, the Subject Properties - Second Close
and Cherry Hill Mall.
The consolidated financial statements and schedules of Crown American
Realty Trust at December 31, 2002, and for the three years then ended
incorporated by reference in Crown American Realty Trust's Current Report on
Form 8-K dated June 9, 2003 and filed June 19, 2003, which is filed as Exhibit
99.1 to PREIT's Form 8-K dated November 20, 2003 and filed on December 4, 2003,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
-49-
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, which require us to file reports, proxy statements and
other information with the SEC. You may read and copy our SEC filings at the
SEC's Public Reference Facilities, which are in Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 and the SEC's following regional offices: 233
Broadway, New York, New York 10279 and 175 W. Jackson Boulevard, Chicago,
Illinois 60604. Copies of the material can be obtained from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates, by calling 1-800-SEC-0330. The SEC also maintains an Internet
web site at www.sec.gov that contains our SEC filings. In addition, our shares
are listed on the New York Stock Exchange and our SEC filings can be inspected
at the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005. We also maintain an internet website that contains information about
us at www.preit.com.
We filed with the SEC a registration statement on Form S-3 under the
Securities Act of 1933 with respect to the securities we are offering by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement because we have omitted some of the information as
permitted by the SEC's rules and regulations. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete. In each instance, each statement is qualified, in all
respects, by reference to the copy of the applicable contract or document filed
as an exhibit to the registration statement. For further information about us
and our securities, we refer you to the registration statement and the exhibits
and schedules that may be obtained from the SEC at its principal office in
Washington, D.C. after payment of the SEC's prescribed fees.
The SEC allows us to "incorporate by reference" the information in
documents we file with them. This means that we can disclose important
information by referring you to these documents. The information we incorporate
by reference is an important part of this prospectus, and information in
documents we file after the date of this prospectus automatically will update
and supersede information in this prospectus.
We filed the documents listed below under the Exchange Act with the
SEC, and we incorporate each of the documents, and all documents filed after the
date of this prospectus under Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act, into this prospectus by reference:
1. 2002 Annual Report on Form 10-K, filed on March 31, 2003.
2. Quarterly Reports on Form 10-Q for the quarter ended March 31, 2003,
filed on May 15, 2003, the quarter ended June 30, 2003, filed on August 14,
2003, and the quarter ended September 30, 2003, filed on November 7, 2003.
3. Current Reports on Form 8-K dated April 3, 2003 (filed on April 10,
2003), dated April 28, 2003 (filed on May 13, 2003, amended on June 20, 2003,
amended on September 26, 2003), dated May 13, 2003 (filed on May 22, 2003),
dated May 30, 2003 (filed on June 16, 2003, amended on August 8, 2003, amended
on September 29, 2003), dated June 27, 2003 (filed on August 12, 2003), dated
August 15, 2003 (filed on August 15, 2003 and amended on August 25, 2003), dated
August 21, 2003 (filed on August 21, 2003), dated September 2, 2003 (filed on
September 17, 2003) and dated November 20, 2003 (filed on December 4, 2003).
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4. Registration Statement on Form 8-A12B, filed on December 17, 1997,
setting forth the description of our common shares, and filed on May 3, 1999,
setting forth the description of rights to purchase PREIT common shares,
including any amendment or reports filed for the purpose of updating such
information.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, after their written or oral request, a copy of any or
all of the documents we have incorporated in this prospectus by reference.
Written requests for copies should be addressed to:
Pennsylvania Real Estate Investment Trust
Attention: Bruce Goldman,
Executive Vice President-General Counsel and Assistant Secretary
The Bellevue
200 S. Broad Street
Philadelphia, Pennsylvania 19102
Telephone: (215) 875-0700
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FORWARD LOOKING STATEMENTS
This prospectus, together with other statements and information
publicly disseminated by us, contains certain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and 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 our current views about future events and are
subject to risks, uncertainties and changes in circumstances that may cause
future events, achievements or results to differ materially from those expressed
or implied by the forward-looking statement. Factors that may cause our actual
results to differ materially from those expressed or implied by our
forward-looking statements include, but are not limited to:
o the timing and full realization of the expected benefits from the
recently completed transactions;
o the cost, timing and difficulty of integrating the properties
recently acquired into our business; and
o greater than expected operating costs, financing costs and business
disruption associated with the recently completed transactions,
including without limitation, difficulties in maintaining
relationships with employees and tenants following the consummation
of such transactions.
Additional factors that may cause our actual results to differ
materially from those expressed or implied in our forward-looking statements
include those discussed in the section entitled "Risk Factors." We do not intend
to and disclaim any duty or obligation to update or revise any forward-looking
statements to reflect new information, future events or otherwise.
-52-
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than selling or
underwriting discounts and commissions, we will incur in connection with the
issuance and distribution of the securities being registered. All amounts shown
are estimated except the SEC registration fee.
Securities and Exchange Commission Registration Fee............. $ 7,696
Legal Fees and Expenses......................................... 30,000
Miscellaneous Expenses.......................................... 15,000
-------
Total........................................................... $52,696
=======
Item 15. Indemnification of Directors and Officers.
The PREIT trust agreement, as amended, provides that:
o no trustee shall be personally liable to any person or entity for
any of PREIT's acts, omissions or obligations;
o no trustee shall be personally liable for monetary damages for any
action, or any failure to act, except to the extent a Pennsylvania
business corporation's director would remain liable under the
provisions of Section 1713 of the Pennsylvania Business Corporation
Law; and
o no officer who performs his duties in good faith, in a manner
reasonably believed to be in PREIT's best interests and with the
care, skill and diligence a person of ordinary prudence would use
will be liable by reason of having been an officer.
Pennsylvania law permits and the PREIT trust agreement and by-laws
provide that every trustee and officer is entitled as of right to be indemnified
by PREIT against reasonable expenses (including attorney's fees) and any
liability, loss, judgment, excise tax, fine, penalty, or settlement they pay or
incur in connection with an actual (whether pending or completed) or threatened
claim, action, suit or proceeding, whether civil, criminal, administrative,
investigative or otherwise, whether brought by or in PREIT's right or otherwise,
in which he or she may be involved, as a party or otherwise, by reason of being
or having been a trustee or officer or because the person is or was serving in
any capacity at PREIT's request as a trustee, director, officer, employee,
agent, partner, fiduciary or other representative of another REIT, corporation,
partnership, joint venture, trust, employee benefit plan or other entity
provided, however, that:
o no right of indemnification will exist with respect to an action
brought by a trustee or officer against PREIT; and
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o no indemnification will be made in any case where the act or failure
to act giving rise to the claim for indemnification is determined by
the final judgment of a court of competent jurisdiction to have
constituted willful misconduct or recklessness.
The right to indemnification is contractual in nature and includes the
right to be paid in advance the expenses incurred in connection with any
proceedings; provided, however, that advance payments must be made in accordance
with applicable law and must be accompanied by an undertaking by or on behalf of
the applicable trustee or officer to repay all amounts so advanced if it is
determined ultimately that the applicable trustee or officer is not entitled to
indemnification under PREIT's trust agreement.
In addition, the PREIT trust agreement and Pennsylvania law permit
PREIT to provide similar indemnification to employees, agents and other persons
who are not trustees or officers. Pennsylvania law also permits indemnification
in connection with a proceeding brought by or in PREIT's right to procure a
judgment in PREIT's favor and requires indemnification in certain cases where
the trustee or officer is the prevailing party. Certain of the employment
agreements PREIT has entered into with its officers provide the officer
indemnification. Generally, these contracts require PREIT to indemnify the
officer to the fullest extent permitted under PREIT's trust agreement. The
limited partnership agreement for PREIT Associates, PREIT's operating
partnership, also provides for indemnification of PREIT, its trustees and its
officers for any and all actions with respect to PREIT Associates; provided,
however, that PREIT Associates will not provide indemnity for:
o willful misconduct or knowing violation of the law;
o any transaction where the covered person received an improper
personal benefit in violation or breach of PREIT Associates' limited
partnership agreement;
o any violation of PREIT Associates' limited partnership agreement; or
o any liability the person may have to PREIT Associates under certain
specified documents.
Currently, PREIT maintains directors' and officers' liability insurance
for its trustees and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to trustees, officers, or persons
controlling PREIT pursuant to the foregoing provisions, PREIT has been informed
that in the Securities and Exchange Commission's opinion, the indemnification is
against public policy as expressed in the Securities Act of 1933, as amended,
and is, therefore, unenforceable. In addition, indemnification may be limited by
state securities laws.
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Item 16. Exhibits.
(a) Exhibits:
Exhibit
Number Description
------ ------------
5 Opinion of Drinker Biddle & Reath LLP
8 Opinion of Drinker Biddle & Reath LLP regarding tax matters
23.1 Consent of KPMG LLP (Independent Auditors of the Registrant)
23.2 Consent of KPMG LLP (Independent Auditors of the Registrant)
23.3 Consent of Ernst & Young LLP (Independent Auditors of Lehigh Valley
Associates)
23.4 Consent of Ernst & Young LLP (Independent Auditors of Lehigh Valley
Associates)
23.5 Consent of Ernst & Young LLP (Independent Auditors of Crown
American Realty Trust)
23.6 Consent of Drinker Biddle & Reath LLP (included in Exhibits 5 and 8)
24 Powers of Attorney (included on signature page)
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the SEC pursuant to rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
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(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the SEC by the registrant pursuant to Section 13 or
15(d) of the Exchange Act that are incorporated by reference in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
December 3, 2003.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
By: /s/ Jonathan B. Weller
-------------------------------------
Jonathan B. Weller,
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below, does hereby constitute and appoint RONALD RUBIN and JONATHAN B.
WELLER, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this registration
statement and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or either of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
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Name Capacity Date
---- -------- ----
/s/ Ronald Rubin Chairman, Chief Executive Officer and Trustee December 3, 2003
--------------------------------
Ronald Rubin
/s/ Jonathan B. Weller President, Chief Operating Officer and December 3, 2003
-------------------------------- Trustee
Jonathan B. Weller
/s/ Rosemarie B. Greco Trustee December 3, 2003
--------------------------------
Rosemarie B. Greco
-------------------------------- Trustee December __, 2003
Lee H. Javitch
/s/ Leonard I. Korman Trustee December 3, 2003
--------------------------------
Leonard I. Korman
/s/ Ira Lubert Trustee December 3, 2003
--------------------------------
Ira Lubert
/s/ Jeffrey P. Orleans Trustee December 3, 2003
--------------------------------
Jeffrey P. Orleans
/s/ John J. Roberts Trustee December 3, 2003
--------------------------------
John J. Roberts
/s/ George F. Rubin Trustee December 3, 2003
--------------------------------
George F. Rubin
/s/ Edward A. Glickman Executive Vice President and Chief Financial December 3, 2003
-------------------------------- Officer
Edward A. Glickman
/s/ David J. Bryant Senior Vice President - Finance and December 3, 2003
-------------------------------- Treasurer (Chief Accounting Officer)
David J. Bryant
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EXHIBIT INDEX
Exhibit
Number Description
------- ------------
5 Opinion of Drinker Biddle & Reath LLP
8 Opinion of Drinker Biddle & Reath LLP as to certain federal income
tax matters
23.1 Consent of KPMG LLP (Independent Auditors of the Registrant)
23.2 Consent of KPMG LLP (Independent Auditors of the Registrant)
23.3 Consent of Ernst & Young LLP (Independent Auditors of Lehigh Valley
Associates)
23.4 Consent of Ernst & Young LLP (Independent Auditors of Lehigh Valley
Associates)
23.5 Consent of Ernst & Young LLP (Independent Auditors of Crown
American Realty Trust)
23.6 Consent of Drinker Biddle & Reath LLP (included in Exhibits 5 and 8)
24 Powers of Attorney (included on signature page)
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