SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
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PREIT
[graphic omitted]
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
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NOTICE OF ANNUAL MEETING OF
HOLDERS OF CERTIFICATES OF BENEFICIAL INTEREST
JUNE 5, 2003
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The Annual Meeting of Holders of Certificates of Beneficial Interest of
Pennsylvania Real Estate Investment Trust will be held on Thursday, June 5, 2003
at 11:00 a.m. at the Park Hyatt Philadelphia at the Bellevue, 200 South Broad
Street, Philadelphia, Pennsylvania 19102 for the following purposes:
(1) To elect three Trustees; and
(2) To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
The Trustees have fixed the close of business on April 21, 2003 as the record
date for the determination of shareholders entitled to notice of and to vote at
the meeting.
All shareholders are cordially invited to attend the meeting. Whether or not
you expect to attend the meeting in person, please mark, sign and date the
enclosed proxy and return it promptly so that your shares may be voted. If you
attend the meeting, you may revoke your proxy and vote in person.
By Order of the Board of Trustees
JEFFREY A. LINN
Secretary
Philadelphia, Pennsylvania
April 30, 2003
TABLE OF CONTENTS
Page
----
VOTING AND REVOCABILITY OF PROXIES ...................................... 1
PROPOSAL ONE -- ELECTION OF TRUSTEES .................................... 2
Required Vote ....................................................... 8
Board Recommendation ................................................ 8
PROPOSAL TWO -- OTHER MATTERS ........................................... 8
ADDITIONAL INFORMATION .................................................. 9
Summary Compensation Table .......................................... 9
Employment Agreements ............................................... 11
Stock Options ....................................................... 13
Equity Compensation Plans ........................................... 13
2002 - 2004 Long-Term Incentive Plan - Awards in 2002 ............... 14
Transactions with Management ........................................ 16
Board Matters ....................................................... 20
Section 16(a) Beneficial Ownership Reporting Compliance ............. 20
Report of Executive Compensation and Human Resources Committee on
Executive Compensation ............................................ 21
Performance Graph ................................................... 23
Audit Committee Report .............................................. 24
Additional Information Regarding Our Independent Public Accountants . 25
Principal Security Holders .......................................... 26
Shareholders' Proposals ............................................. 26
APPENDIX A -- Audit Committee Charter
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
200 South Broad Street
Philadelphia, Pennsylvania 19102
www.preit.com
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PROXY STATEMENT
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The Annual Meeting of Holders of Certificates of Beneficial Interest of
Pennsylvania Real Estate Investment Trust ("PREIT") will be held on Thursday,
June 5, 2003 at 11:00 a.m. at the Park Hyatt Philadelphia at the Bellevue, 200
South Broad Street, Philadelphia, Pennsylvania 19102. We are mailing this Proxy
Statement on or about April 30, 2003 to each holder of PREIT's issued and
outstanding shares of beneficial interest entitled to vote at the meeting in
order to furnish information relating to the business to be transacted at the
meeting. We have mailed our Annual Report to Shareholders for the fiscal year
ended December 31, 2002, including financial statements, to our shareholders
together with this Proxy Statement. We have included the Annual Report for
informational purposes and not as a means of soliciting your proxy.
We have fixed the close of business on April 21, 2003 as the record date for
the Annual Meeting. All shareholders of record at that time are entitled to
notice of and are entitled to vote at the Annual Meeting and any adjournment or
postponement thereof. On the record date, 16,754,458 shares were outstanding.
VOTING AND REVOCABILITY OF PROXIES
We hope you will be present at the Annual Meeting. If you cannot attend,
please complete, sign, date and return the enclosed proxy in the accompanying
envelope so that your shares will be represented. The envelope is addressed to
our transfer agent and requires no postage. If you receive more than one proxy
card -- because you have multiple accounts -- you should sign and return all
proxies received to be sure all of your shares are voted.
On each matter voted on at the Annual Meeting and any adjournment or
postponement thereof, each record holder of shares will be entitled to one vote
per share. Assuming a quorum is present, the three nominees receiving the
highest number of votes cast at the meeting will be elected Trustees. If you
mark your proxy as "Withhold Authority" or "Abstain" on any matter, or if you
give specific instructions that no vote be cast on any specific matter, the
shares represented by your proxy will not be voted on that matter, but will
count toward the establishment of a quorum.
You may vote your shares at the Annual Meeting in person or by proxy. All
valid proxies received before the Annual Meeting will be voted according to
their terms. If you complete your proxy properly, but do not provide
instructions as to how to vote your shares, your proxy will be voted "FOR" the
election of all Trustees nominated by our Board of Trustees. If any other
business is brought before the Annual Meeting, proxies will be voted, to the
extent permitted by the rules and regulations of the Securities and Exchange
Commission, in accordance with the judgment of the persons voting the proxies.
After providing your proxy, you may revoke it at any time before it is voted at
the Annual Meeting by filing with PREIT's Secretary an instrument revoking it or
a duly executed proxy bearing a later date, or by attending the Annual Meeting
and giving notice of revocation. Attendance at the Annual Meeting, by itself,
will not constitute revocation of a proxy.
We will bear the cost of preparing and soliciting proxies, including the
reasonable charges and expenses of brokerage firms or other nominees for
forwarding proxy materials to shareholders. In addition to solicitation by mail,
certain Trustees, officers and employees of PREIT and its subsidiaries may
solicit proxies by telephone, telegraph or personally without extra
compensation, with the exception of reimbursement for actual expenses incurred
in connection with the solicitation. The enclosed proxy is solicited by and on
behalf of our Board of Trustees.
1
PROPOSAL ONE
ELECTION OF TRUSTEES
The Trustees intend to cause Ronald Rubin, Leonard I. Korman and Jeffrey P.
Orleans, the three Trustees whose terms expire at the Annual Meeting, to be
nominated for re-election at the Annual Meeting as Class B Trustees to serve
until the Annual Meeting to be held in the spring of 2006 and until their
respective successors have been duly elected and have qualified. If any of the
foregoing nominees becomes unable to or declines to serve, the persons named in
the accompanying proxy shall have discretionary authority to vote for a
substitute or substitutes unless the Board of Trustees reduces the number of
Trustees to be elected.
PREIT's 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 PREIT's Secretary not fewer
than thirty-five days before an Annual or Special Meeting of Shareholders 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 properly nominated is fewer than the
number of persons to be elected to the office of Trustee at the meeting. In this
latter event, nominations for the Trustee positions that would not otherwise be
filled may be made at the meeting by any person entitled to vote in the election
of Trustees.
PREIT's management currently is considering proposing to PREIT's Board of
Trustees that it expand its size by one or two additional members and fill the
vacancies created thereby at a meeting of the Board of Trustees occurring after
the Annual Meeting of Shareholders.
PREIT's Board of Trustees currently consists of eight members who serve
staggered three year terms. The following table presents information concerning
the three nominees for the office of Class B Trustee, the five Trustees who will
continue in office after the Annual Meeting and PREIT's executive officers,
including their ages, principal occupations and the number of shares
beneficially owned by them as of April 1, 2003.
2
Shares Beneficially Owned
on April 1, 2003(1)
Principal Occupation Trustee --------------------------
Name Age and Affiliations Since Number Percent
---- --- ---------------- ----- ------ -------
Nominees for the
Office of Trustee
Class B Trustees; Terms Expire in 2003
Ronald Rubin(2) 71 Since September 1997, Chief Executive Officer 1997 822,370(3) 4.71%
of PREIT. Chairman of PREIT since October
2001. From 1992 to September 1997, Chairman
and Chief Executive Officer of The Rubin
Organization, Inc. (renamed PREIT-RUBIN, Inc.
upon acquisition by PREIT in September 1997).
Trustee of International Council of Shopping
Centers. Director of Exelon Corporation. Past
Chairman of Center City District and past
Chairman of the Greater Philadelphia Chamber
of Commerce. Director of the Regional
Performing Arts Center. Past President of
Jewish Federation of Greater Philadelphia.
Served on boards of Franklin Institute,
Philadelphia Orchestra, Albert Einstein
Medical Center, Tel Aviv University,
American Friends of Hebrew University,
Midlantic Bank (now PNC), University of the
Arts and the United Jewish Appeal.
Leonard I. Korman 67 Chairman and Chief Executive Officer, Korman 1996 312,785(4) 1.87%
Commercial Properties, Inc. (real estate
development and management). Former member of
regional advisory board of First Union
National Bank, Trustee of Albert Einstein
Health Care Network, Thomas Jefferson
University, and Korman Family Foundation.
Jeffrey P. Orleans 56 Chairman and Chief Executive Officer, Orleans 1986 82,748(5) *
Homebuilders, Inc. (residential development).
Director of Builders League of South Jersey
and National Association of Home Builders.
Member of the Board of Directors of The
American Committee for the Weizmann Institute
of Science, Pennsylvania Academy of Fine Arts,
Philadelphia Orchestra, Philadelphia Police
Foundation and Pennsylvania Academy of Fine
Arts. Trustee of Jewish Employment &
Vocational Service. Member of Dean's Advisory
Board -- LeBow College of Business, Drexel
University. Co-chair of Fund-raising Campaign,
Delaware Valley Habitat for Humanity.
President of the Lower Merion Township Police
Pension Association.
3
Shares Beneficially Owned
on April 1, 2003(1)
Principal Occupation Trustee --------------------------
Name Age and Affiliations Since Number Percent
---- --- ---------------- ----- ------ -------
Trustees Whose
Terms Continue
Class C Trustees; Terms Expire in 2004
George F. Rubin(2) 60 President and Secretary, PREIT Services, LLC 1997 403,707(6) 2.36%
and PREIT-RUBIN, Inc. (formerly named The
Rubin Organization, Inc., which was acquired
by PREIT in September 1997). Trustee of
Lafayette College, Board Member of Elwyn
Institute and Israel Elwyn and the Radnor
Hunt. Chairman of the Board of Thorncroft
Therapeutic Horseback Riding, Inc. Former
treasurer of the Philadelphia Vietnam
Veteran's Memorial Committee.
Rosemarie B. Greco(2) 57 Director, Office of Health Care Reform, 1997 7,125(7) *
Governor's Office, Commonwealth of
Pennsylvania. Founding Principal,
Grecoventures Ltd. (business investment and
consulting partnership). Former CEO and
President, CoreStates Bank, N.A. and
President CoreStates Financial Corp. Former
corporate director of General Accident
Insurance (USA), Cardone Industries, Inc.,
Genuardi's Family Markets, Inc. and Radian,
Inc.; currently director of Exelon
Corporation, Sunoco, Inc.; Trustee of SEI I
Mutual Funds. Former chair of the Greater
Philadelphia Chamber of Commerce, former
President and CEO of Philadelphia Private
Industry Council; former member of
Philadelphia Planning Commission and Board
of Education; former chair of Workforce
Investment Board and Trustee of the
University of Pennsylvania School of
Nursing.
Ira M. Lubert 53 Chairman of Lubert-Adler Partners, L.P., a 2001 3,250(8) *
company specializing in private equity
investments in real estate and other
entrepreneurial opportunities. Co-founder and
managing partner of LLR Equity Partners, L.P.,
a venture fund making private equity
investments in mid-Atlantic growth companies
and middle market special opportunity
situations. Chairman of GF Management, a
company that specializes in the ownership and
management of underperforming hospitality
properties. Co-founder of LEM Mezzanine Fund,
a fund making mortgage loans, and Quaker Bio
Venture, a private equity fund engaged in
making health care and life science
investments.
4
Shares Beneficially Owned
on April 1, 2003(1)
Principal Occupation Trustee --------------------------
Name Age and Affiliations Since Number Percent
---- --- ---------------- ----- ------ -------
Trustees Whose
Terms Continue
Class A Trustees; Terms Expire in 2005
Lee H. Javitch 72 Private investor and former Chairman and Chief 1985 13,125(9) *
Executive Officer, Giant Food Stores, Inc.
Director of Jewish Theological Seminary of
America, and Jewish Community Center of
Harrison, NY. Former chairman of MAZON: A
Jewish Response to Hunger, Rye Country Day
School, Pennsylvania Council on Arts, and
executive committee member of Boy Scouts of
America.
Jonathan B. Weller 56 President and Chief Operating Officer of PREIT 1994 223,161(10) 1.32%
since 1993. From 1988 to 1993, Executive Vice
President and Director of Eastdil Realty, Inc.
(real estate investment banking). Member of
National Association of Real Estate Investment
Trusts, Urban Land Institute and International
Council of Shopping Centers. Chair of Lower
Merion Conservancy. Director of Ramapo-
Anchorage Camp.
5
Shares Beneficially Owned
on April 1, 2003(1)
Principal Occupation Trustee --------------------------
Name Age and Affiliations Since Number Percent
---- --- ---------------- ----- ------ -------
Non-Trustee
Executive Officers
Edward A. Glickman 46 Since September 1997, Executive Vice President -- 200,436(11) 1.18%
and Chief Financial Officer of PREIT.
Joseph F. Coradino 51 Since December 2001, Executive Vice President -- 135,996(12) *
-- Retail of PREIT and, since November 1998,
Executive Vice President -- Retail Division
and Treasurer, PREIT-RUBIN, Inc. From
September 1997 to November 1998, Senior Vice
President -- Retail Division and Treasurer,
PREIT-RUBIN, Inc.
Douglas S. Grayson 44 Since March 2002, Executive Vice President -- -- 61,242(13) *
Development of PREIT. Since October 1998,
Executive Vice President -- Development of
PREIT-RUBIN, Inc. From September 1997 to
September 1998, Vice President of PREIT-RUBIN,
Inc.
Jeffrey A. Linn 54 Since December 2001, Executive Vice President -- 85,443(14) *
-- Acquisitions and Secretary of PREIT. From
1995 to December 2001, Senior Vice President
-- Acquisitions and Secretary of PREIT.
Bruce Goldman 44 Since December 2002, Executive Vice President -- 10,574(15) *
-- General Counsel of PREIT, and Assistant
Secretary of PREIT since April 2003. From
December 2001 to November 2002, Senior Vice
President -- General Counsel of PREIT. From
September 2000 to December 2001, Senior Vice
President -- Legal of PREIT. From 1997 to
2000, Vice President of New City Development,
the development subsidiary of Mirage Resorts,
Inc.
David J. Bryant 45 Since September 2000, Senior Vice President -- -- 27,603(16) *
Finance and Treasurer of PREIT. From September
1997 to September 2000, Vice President --
Financial Services of PREIT.
Raymond J. Trost 47 Since May 2000, Senior Vice President -- -- 21,736(17) *
Multifamily Division of PREIT. From 1995 to
May 2000, Vice President -- Asset
Management of PREIT.
All Trustees and -- -- -- 2,354,598(18) 12.84%
executive officers as a
group (15 persons)
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* Less than one percent.
(1) Unless otherwise indicated in the following footnotes, each Trustee and
executive officer has sole voting and investment power with respect to all
such shares.
(2) Pursuant to the TRO Contribution Agreement, dated as of July 30, 1997 (the
"TRO Contribution Agreement"), PREIT acquired all of the outstanding
non-voting shares of capital stock of The Rubin Organization, Inc. In
accordance with Section 5.19 of the TRO Contribution Agreement, the Board
of Trustees of PREIT elected Ronald Rubin, George F. Rubin and Rosemarie B.
Greco as Trustees of PREIT to fill the vacancies created by the
resignations of Robert Freedman, Jack Farber and Robert G. Rogers. Ronald
Rubin and George F. Rubin are brothers.
(3) Includes 112,700 shares held directly by Ronald Rubin, 551,973 Class A
units of limited partnership interest in PREIT Associates, L.P. (49,006 of
which are held by a trust of which Ronald Rubin and George F. Rubin are
beneficiaries and 2,776 of which are owned by a corporation of which Ronald
Rubin is the sole
6
shareholder) that are currently redeemable for cash or, at the option of
PREIT, for a like number of shares, 150,000 shares subject to options that
are currently exercisable and 7,697 shares held by a trust of which Mr.
Rubin is a trustee. Excludes 17,611 Class A units of limited partnership
interest in PREIT Associates, L.P. that are not redeemable until July 10,
2003.
(4) Includes 245,088 shares held directly by Mr. Korman, 420 shares owned by
Mr. Korman's spouse, 41,824 shares held in trusts of which Mr. Korman is a
co-trustee, 19,328 shares held by trusts of which Mr. Korman is a co-
trustee and the sole beneficiary and 6,125 shares subject to options that
are currently exercisable. Mr. Korman disclaims beneficial ownership of the
41,824 shares held in trusts of which Mr. Korman is a co-trustee and the
420 shares owned by Mr. Korman's spouse.
(5) Includes 72,351 shares held directly by Mr. Orleans, 1,300 shares held by
Mr. Orleans' minor children, 220 shares held by trusts of which Mr. Orleans
is co-trustee, 252 shares owned by a corporation 50% of whose shares are
owned by Mr. Orleans and 8,625 shares subject to options that are currently
exercisable. Mr. Orleans disclaims beneficial ownership of the 220 shares
held by trusts of which he is co-trustee.
(6) Includes 49,481 shares held directly by George Rubin, 270,129 Class A units
of limited partnership interest in PREIT Associates, L.P. (49,006 of which
are held by a trust of which Ronald Rubin and George F. Rubin are
beneficiaries) that are currently redeemable for cash or, at the option of
PREIT, for a like number of shares, 75,000 shares subject to options that
are currently exercisable and 7,697 shares held by a trust of which Mr.
Rubin is a trustee. Also includes 900 shares held by a trust, the
beneficiary of which is Mr. Rubin's daughter, and 500 shares held by Mr.
Rubin's spouse, as to both of which Mr. Rubin disclaims beneficial
ownership. Excludes 6,725 Class A units of limited partnership interest in
PREIT Associates, L.P. that are not redeemable until July 10, 2003.
(7) Includes 2,000 shares held directly by Ms. Greco and 5,125 shares subject
to options that are currently exercisable.
(8) Includes 2,000 shares and 1,250 shares subject to options that are
currently exercisable, all of which are held indirectly by Mr. Lubert
through LLR Management, L.P., of which Mr. Lubert is a managing director
and beneficial owner.
(9) Includes 4,000 shares held directly by Mr. Javitch and 9,125 shares subject
to options that are currently exercisable.
(10) Includes 62,961 shares held directly by Mr. Weller, 160,000 shares subject
to options that are currently exercisable and 200 shares held by Mr. Weller
as custodian for his children under the New York Uniform Gifts to Minors
Act.
(11) Includes 25,000 shares held directly by Mr. Glickman, 45,436 Class A units
of limited partnership interest in PREIT Associates, L.P. that are
currently redeemable for cash or, at the option of PREIT, for a like number
of shares, and 130,000 shares subject to options that are currently
exercisable.
(12) Includes 20,241 shares held directly by Mr. Coradino, 85,756 Class A units
of limited partnership interest in PREIT Associates, L.P. that are
currently redeemable for cash or, at the option of PREIT, for a like number
of shares, and 30,000 shares subject to options that are currently
exercisable.
(13) Includes 22,854 shares held directly by Mr. Grayson, 18,388 Class A units
of limited partnership interest in PREIT Associates, L.P. that are
currently redeemable for cash or, at the option of PREIT, for a like number
of shares, and 20,000 shares subject to options that are currently
exercisable.
(14) Includes 33,443 shares held directly by Mr. Linn, 50,000 shares subject to
options that are currently exercisable and 2,000 shares that are held by
Mr. Linn as custodian for his son under the Pennsylvania Uniform Gifts to
Minors Act.
(15) All 10,574 shares are owned by Mr. Goldman directly.
(16) Includes 12,859 shares held directly by Mr. Bryant, 4,744 Class A units of
limited partnership interest in PREIT Associates, L.P. that are currently
redeemable for cash or, at the option of PREIT, for a like number of
shares, and 10,000 shares subject to options that are currently
exercisable.
(17) Includes 11,736 shares held directly by Mr. Trost and 10,000 shares subject
to options that are currently exercisable.
(18) Includes 665,250 shares subject to options that are currently exercisable
and 927,420 Class A units of limited partnership interest in PREIT
Associates, L.P. that are currently redeemable for cash or, at PREIT's
option, for a like number of shares. In certain instances, two Trustees
beneficially own the same shares because they share voting or investment
power over the shares. These shares have been counted only once in this
total.
7
Required Vote
Assuming a quorum is present, the three nominees receiving the highest number
of votes cast at the Annual Meeting will be elected Trustees. For this purpose,
the withholding of authority to vote or the specific direction not to cast a
vote, such as a broker non-vote, will not constitute the casting of a vote in
the election of Trustees.
Board Recommendation
The Board of Trustees recommends that shareholders vote FOR the election of
each of the nominees for Trustee.
PROPOSAL TWO
OTHER MATTERS
PREIT's management knows of no matters other than those stated above to come
before the meeting. However, if any other matters should properly come before
the meeting, the enclosed proxy confers discretionary authority with respect to
these matters.
8
ADDITIONAL INFORMATION
Summary Compensation Table
The following table shows information concerning the compensation paid by
PREIT for the last three fiscal years to PREIT's Chief Executive Officer and its
four other most highly compensated executive officers.
Long Term
Annual Compensation Compensation Awards
------------------- -------------------
Restricted Stock All Other
Name and Principal Position Year Salary($) Bonus($)(4) Awards($)(5) Options(#) Compensation($)
--------------------------- ---- --------- ----------- ------------ ---------- ---------------
Ronald Rubin 2002 390,000 190,000 320,637(6) -- 100,000(9)
Chairman, Chief Executive 2001 378,895 140,000 120,004(7) -- --
Officer and Trustee 2000 378,898 255,000 363,200(8) -- --
Jonathan B. Weller(1) 2002 340,000 150,000 240,478(6) -- 77,667
President, Chief Operating 2001 330,746 116,000 89,997(7) -- 67,415
Officer and Trustee 2000 330,746 212,000 272,400(8) -- 62,870
Edward A. Glickman(2) 2002 325,000 162,500 -- -- 151,934
Executive Vice President 2001 312,648 150,000 -- -- 109,750
and Chief Financial Officer 2000 275,000 137,500 448,500 100,000 70,200
George F. Rubin(3) 2002 290,000 125,000 176,343(6) -- 32,333
President, PREIT Services, 2001 262,496 92,000 89,997(7) -- 6,800
LLC and PREIT-RUBIN, Inc. 2000 262,496 77,500 272,400(8) -- 6,800
and Trustee
Joseph F. Coradino(3) 2002 280,000 125,000 168,337(6) -- 32,333
Executive Vice President 2001 250,000 110,000 65,000(7) -- 6,800
-- Retail 2000 236,250 130,000 136,200(8) -- 6,800
---------------
(1) The amounts shown in the "All Other Compensation" column for Mr. Weller
represent annual premium payments on life insurance provided under Mr.
Weller's employment agreement of $4,875 for 2002, $9,750 for 2001 and
$9,750 for 2000; payments on long-term disability insurance of $6,219 for
each of 2002, 2001 and 2000; matching contributions under PREIT's 401(k)
retirement plan of $7,333 for 2002, $5,076 for 2001 and $6,800 for 2000;
contributions by PREIT under a Supplemental Retirement Plan of $51,500 for
2002, $38,630 for 2001 and $32,361 for 2000; and annual rental payments of
$7,740 for each of 2002, 2001 and 2000 for an automobile leased by PREIT
for Mr. Weller's use.
(2) The restricted shares awarded to Mr. Glickman in 2000 vest in five equal
annual installments beginning on January 1, 2000, contingent upon his
continued employment on the vesting dates. The amounts shown in the "All
Other Compensation" column for Mr. Glickman represent $25,000 of
contributions by PREIT under a Supplemental Retirement Plan for each of
2002, 2001 and 2000; matching contributions under PREIT's 401(k) retirement
plan of $7,334 for 2002, $5,950 for 2001 and $6,800 for 2000; and a credit
to an account established for Mr. Glickman of $119,600 for 2002, $78,800
for 2001 and $38,400 for 2000 related to dividend equivalent rights on a
notional 50,000 shares. The amounts credited to such account vest in five
equal annual installments beginning on January 1, 2000, contingent on
continued employment on those dates.
(3) The amounts shown in the "All Other Compensation" column for George Rubin
and Joseph Coradino represent matching contributions under PREIT's 401(k)
retirement plan, as well as $25,000 of contributions in 2002 by PREIT under
Supplemental Retirement Plans for each of George Rubin and Joseph Coradino.
(4) The bonuses for 2002 were paid on February 21, 2003.
9
(5) As of (and based upon the $26.00 closing price of PREIT's shares on)
December 31, 2002, Ronald Rubin owned an aggregate of 32,619 restricted
shares worth $848,094; Jonathan B. Weller owned an aggregate of 24,464
restricted shares worth $636,064; Edward A. Glickman owned an aggregate of
10,000 restricted shares worth $260,000; George F. Rubin owned an aggregate
of 19,273 restricted shares worth $501,098; and Joseph F. Coradino owned an
aggregate of 16,125 restricted shares worth $419,250.
(6) Represents the number of restricted shares subject to time-based vesting
granted under PREIT's 2002-2004 Long-Term Incentive Plan. Excludes
restricted shares subject to performance-based vesting granted under
PREIT's 2002-2004 Long-Term Incentive Plan, which instead will be reflected
in the Summary Compensation Table as "LTIP Payouts" when and if earned in
future years. All of the above mentioned restricted shares vest, if at all,
in three equal installments on February 15 of each of 2003, 2004 and 2005.
(7) The restricted shares vested in full on February 15, 2002.
(8) The restricted shares vested in full on February 15, 2003.
(9) Represent contributions in 2002 by PREIT under a Supplemental Retirement
Plan for Ronald Rubin.
10
Employment Agreements
Ronald Rubin entered into an employment agreement with PREIT as of April 2,
2002 for an initial term through December 31, 2004 and extending year-to-year
thereafter unless either party gives at least 120 days advance written notice
that the term is not to be extended. Under the agreement, Mr. Rubin serves as
Chairman and Chief Executive Officer of PREIT. Mr. Rubin's base salary may be
increased each year at the discretion of PREIT's Executive Compensation and
Human Resources Committee. In accordance with the agreement, Mr. Rubin is
eligible each year to participate in PREIT's Incentive Bonus Opportunity Plan,
and he received $1,200,000 worth of performance units and 25,952 restricted
shares subject to the terms of PREIT's 2002-2004 Long-Term Incentive Plan. PREIT
agreed to contribute $100,000 per year to a supplemental retirement plan that
will accrue interest at the rate of 10% per year, compounded annually. The
amounts in the plan are payable to Mr. Rubin within 60 days of the termination
of his employment for any reason.
Jonathan B. Weller entered into an employment agreement with PREIT as of
March 22, 2002 for an initial term through December 31, 2004 and extending
year-to-year thereafter unless either party gives at least 120 days advance
written notice that the term is not to be extended. Under the agreement, Mr.
Weller serves as President and Chief Operating Officer of PREIT. Mr. Weller's
base salary may be increased each year at the discretion of PREIT's Executive
Compensation and Human Resources Committee. In accordance with the agreement,
Mr. Weller is eligible each year to participate in PREIT's Incentive Bonus
Opportunity Plan, and he received $900,000 worth of performance units and 19,464
restricted shares subject to the terms of PREIT's 2002-2004 Long-Term Incentive
Plan. In the agreement, PREIT acknowledged a continuing obligation to contribute
amounts to Mr. Weller's supplemental retirement plan according to a formula
contained in that plan. PREIT also acknowledged a continuing obligation to make
payments under existing split dollar insurance agreements for the benefit of Mr.
Weller's designated beneficiaries. See footnote (1) to the Summary Compensation
Table for PREIT's payments pursuant to these arrangements in 2000, 2001 and
2002. PREIT discontinued payments under the split dollar insurance agreements
upon the enactment of the Sarbanes-Oxley Act of 2002, and PREIT and Mr. Weller
are discussing alternative arrangements to compensate Mr. Weller for the loss of
these contributions, including on a going-forward basis.
Edward A. Glickman entered into an employment agreement with PREIT on
November 10, 2000. The employment agreement provides that Mr. Glickman is to
serve as Chief Financial Officer of PREIT. The term of the employment agreement
was made retroactively effective to January 1, 1999 and extended until September
30, 2002, whereupon it automatically renewed for an additional two-year period,
which it will continue to do every other September 30 unless and until either
party gives notice of termination at least one year prior to the end of the then
current term. Mr. Glickman's base salary for 2002 was $325,000, and his salary
increases by at least $25,000 per year on the first day of each January during
the term. The agreement also provides for the payment of a bonus equal to one
half of Mr. Glickman's base salary each year, subject to Mr. Glickman's meeting
performance goals established by PREIT's compensation committee. Mr. Glickman
achieved the performance goals for 2002 and, accordingly, received the full
potential bonus payable with respect to 2002. In accordance with the Employment
Agreement, PREIT granted Mr. Glickman (i) 25,000 restricted shares that vest in
five equal annual installments beginning January 1, 2000, (ii) an incentive
stock option to purchase 11,210 shares at $17.94 per share that vests in two
equal annual installments beginning on January 1, 2003, (iii) a nonqualified
stock option to purchase 88,790 shares at $17.94 per share that vests in five
annual installments, 20,000 shares on November 10, 2000, 20,000 shares on
January 1, 2001, 20,000 shares on January 1, 2002, 14,395 shares on January 1,
2003 and 14,395 shares on January 1, 2004, and (iv) 50,000 dividend equivalent
rights that vest in five equal annual installments beginning on January 1, 2000.
PREIT has agreed to contribute $25,000 per year to a supplemental executive
retirement plan that will accrue interest at the rate of 10% per year,
compounded annually, payable to Mr. Glickman within 60 days of the termination
of his employment for any reason. PREIT and Mr. Glickman expect to begin
discussions in the near future regarding possible modifications to his
employment agreement.
George F. Rubin entered into an employment agreement with PREIT Services, LLC
as of March 22, 2002 for an initial term through December 31, 2004 and extending
year-to-year thereafter unless either party gives at least 120 days advance
written notice that the term is not to be extended. The obligations of PREIT
Services under the agreement are guaranteed by PREIT. Under the agreement, Mr.
Rubin serves as President of PREIT Services. Mr. Rubin's base salary may be
increased each year at the discretion of PREIT's Executive
11
Compensation and Human Resources Committee. In accordance with the agreement,
Mr. Rubin is eligible each year to participate in PREIT's Incentive Bonus
Opportunity Plan, and he received $700,000 worth of performance units and 14,273
restricted shares subject to the terms of PREIT's 2002-2004 Long-Term Incentive
Plan. PREIT Services has agreed to contribute $25,000 per year to a supplemental
executive retirement plan that will accrue interest at the rate of 10% per year,
compounded annually, payable to Mr. Rubin within 60 days of the termination of
his employment for any reason.
Joseph F. Coradino entered into an employment agreement with PREIT Services,
LLC as of March 22, 2002 for an initial term through December 31, 2004 and
extending year-to-year thereafter unless either party gives at least 120 days
advance written notice that the term is not to be extended. The obligations of
PREIT Services under the agreement are guaranteed by PREIT. Under the agreement,
Mr. Coradino serves as Executive Vice President -- Retail both of PREIT Services
and of PREIT. Mr. Coradino's base salary may be increased each year at the
discretion of PREIT's Executive Compensation and Human Resources Committee. In
accordance with the agreement, Mr. Coradino is eligible each year to participate
in PREIT's Incentive Bonus Opportunity Plan, and he received $600,000 worth of
performance units and 13,625 restricted shares subject to the terms of PREIT's
2002-2004 Long-Term Incentive Plan. PREIT Services has agreed to contribute
$25,000 per year to a supplemental executive retirement plan that will accrue
interest at the rate of 10% per year, compounded annually, payable to Mr.
Coradino within 60 days of the termination of his employment for any reason.
The employment agreements described above contain provisions addressing the
consequences of a termination of each executive's employment. With respect to
each executive other than Mr. Glickman, if PREIT or PREIT Services terminates
the executive's employment without specified cause, or if the executive
terminates his employment for specified good reason (including the delivery by
PREIT or PREIT Services of notice that the term of the agreement will not be
renewed), the executive is entitled to a lump-sum severance payment equal to the
greater of (a) his base salary through the end of the term plus a portion of the
executive's average bonus for the last three years prorated through the date of
termination, or (b) a multiple of the sum of the executive's then current salary
plus a portion of the executive's average bonus for the last three years
prorated through the date of termination. For purposes of the preceding
sentence, the phrase "average bonus for the last three years" means the average
percentage of the executive's salary represented by his annual bonus paid in
each of the prior three years, multiplied by his then current salary. For Ronald
Rubin, the multiple related to part (b) above is three, for Jonathan Weller and
George Rubin, the multiple is two and one-half and for Joseph Coradino, the
multiple is two. If such a termination occurs within a specified period of time
following a change of control of PREIT, then Jonathan Weller's multiple is
increased to three. In the same circumstances, without regard to whether the
termination is preceded by a change of control, Mr. Glickman is entitled to
three times the sum of his then current salary plus the average of his annual
bonus over the last three years. Additionally, Mr. Glickman is entitled to
terminate his employment for good reason if Ronald Rubin ceases to be PREIT's
Chief Executive Officer for any reason.
If the executive dies or becomes disabled during the term of his employment
agreement, the executive or his estate is entitled to continue to receive his
then current salary for the longer of the remainder of the term or one year (two
years with respect to Edward Glickman and three years with respect to Ronald
Rubin), and to receive a prorated portion of any bonus payable with respect to
established performance goals that the company achieves in the year of the
executive's disability or death.
Additionally, the employment agreements provide that if PREIT terminates any
of the executives without cause, if the executive terminates his employment for
good reason or if the executive dies or becomes disabled:
o the executive's restricted shares and options (and, with respect to Mr.
Glickman, dividend equivalent rights) immediately become vested; and
o the executive -- in some cases including his dependents -- is entitled
to continuing medical benefits for a specified number of days.
As to Ronald Rubin, Jonathan Weller and Edward Glickman, the employment
agreements provide that, in the event any payments to such executives result in
the imposition on them of an excise tax under Section 4999 of the Internal
Revenue Code, PREIT will pay to such executive an additional amount equal to one
half of the excise tax.
12
Stock Options
The following table presents information as to the exercise of options to
purchase shares and the fiscal year-end value of unexercised options for all of
the persons named in the Summary Compensation Table. None of the persons named
in the Summary Compensation Table were granted options during 2002.
Aggregate Option Exercises in 2002
and December 31, 2002 Option Values
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired December 31, 2002 December 31, 2003(1)
On Value --------------------------- ---------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------------------------------- -------- -------- ----------- ------------- ----------- -------------
Ronald Rubin ................................. -- -- 150,000 0 $ 88,500 --
Jonathan B. Weller ........................... 15,000 $114,000 160,000 0 $475,000 --
Edward A. Glickman ........................... -- -- 110,000 40,000 $569,100 $326,400
George F. Rubin .............................. -- 75,000 0 $ 44,250 --
Joseph F. Coradino ........................... -- -- 30,000 0 $ 17,700 --
---------------
(1) In-the-money options are those where the fair market value of the
underlying securities exceeds the exercise price of the option. The closing
price of the shares on December 31, 2002 was $26.00 per share.
Equity Compensation Plans
Under PREIT's 1990 Stock Option Plan for Non-Employee Trustees (the "Trustee
Option Plan"), PREIT is authorized to issue to its Trustees who are not
employees of PREIT or any of its affiliates nonqualified stock options to
purchase up to 100,000 shares. Options to purchase 88,000 shares have been
issued under the Trustee Option Plan, 28,125 of which have been exercised and
10,500 have expired without being exercised. The Executive Compensation and
Human Resources Committee administers the Trustee Option Plan. The exercise
price per share of options granted under the Trustee Option Plan must equal 100%
of the fair market value of the shares underlying the options on the grant date
and the options generally expire 10 years from the grant date unless extended in
the Compensation Committee's discretion. The Trustee Option Plan was amended in
2001 to cease the automatic annual grant in January of each year to each
non-employee Trustee of an option for 2,500 shares. The Trustee Option Plan
continues to provide for an automatic grant of an option for 5,000 shares to
newly elected non-employee Trustees. Option grants may not be made after January
31, 2004, unless the plan is extended. Additional options may be granted under
the Trustee Option Plan to purchase a maximum of 22,500 shares.
PREIT's Restricted Share Plan for Non-Employee Trustees, adopted in 2002,
authorizes PREIT to issue to its Trustees who are not employees of PREIT or any
of its affiliates up to 50,000 restricted shares. The plan provides for the
automatic grant of 1,000 shares to each non-employee Trustee on January 31 of
each year. 10,000 restricted shares have been granted under the plan. The
restricted shares vest in three approximately equal annual installments so long
as the recipient remains a Trustee of PREIT. The plan is administered by the
Executive Compensation and Human Resources Committee.
Under PREIT's 1999 Equity Incentive Plan (the "1999 Plan"), PREIT has granted
incentive stock options, designed to qualify under Section 422 of the Code, and
nonqualified stock options to purchase an aggregate of 100,000 shares to the
officers and other key employees of PREIT and PREIT-RUBIN and their subsidiary
entities. The Executive Compensation and Human Resources Committee administers
the 1999 Plan. The 1999 Plan requires that the exercise price of options granted
under the plan not be less than the fair market value of the shares underlying
the options on the grant date and the term of each option granted may not exceed
10 years. Additionally, the 1999 Plan provides for the grant of restricted
shares, share appreciation rights, performance shares, dividend equivalent
rights and/or loans to the officers and other key employees of PREIT and
PREIT-RUBIN and their subsidiary entities. The loan component of the 1999 Plan
never has been utilized and may have been rendered unusable by the prohibition
against personal loans contained in the Sarbanes-Oxley Act of 2002. PREIT has
awarded 403,740 restricted shares and 50,000 dividend equivalent rights under
the 1999 Plan.
13
Amounts equal to dividends are paid each year on the unvested portion of
restricted share grants and such shares also carry voting rights. In addition to
the 400,000 shares that initially were authorized under the 1999 Plan, shares
that are subject to options under PREIT's 1990 Incentive and Nonqualified Stock
Option Plan, 1997 Stock Option Plan and 1998 Stock Option Plan that expire or
otherwise terminate, other than incentive stock options, automatically will also
be made available for awards under the 1999 Plan. The 1999 Plan also covers the
grant of restricted shares under the 2002-2004 Long- Term Incentive Plan. An
additional 130,062 shares remain available for awards under the 1999 Plan.
2002 - 2004 Long-Term Incentive Plan - Awards in 2002
Under PREIT's 2002-2004 Long-Term Incentive Plan, participants may receive
awards of performance units and restricted shares. Performance units are awards
providing for a payment to participants - which may be in cash or a combination
of cash and shares - if PREIT achieves certain financial targets that are
specified in the Plan and described below. Restricted share awards are shares
that a participant may not sell, assign, transfer or pledge until those shares
have vested. A portion of the restricted share awards vest based on PREIT's
achievement of financial targets, some of which are specified in the Plan and
some of which will be determined by PREIT's Executive Compensation and Human
Resources Committee. The balance of the restricted share awards vest over time
subject to the participant's continued employment with PREIT. The executive
officers of PREIT and its subsidiaries who hold the office of Executive Vice
President or a higher office are eligible to participate in the Plan.
Performance Unit Awards
Each performance unit is valued at one dollar per unit. The financial targets
relating to the performance units were established to motivate PREIT's top
executive officers and to focus their attention on critical financial indicators
that measure PREIT's success. PREIT will make payments to participants in
respect of their performance units if certain financial targets are reached in
2004. The financial targets are based on PREIT's publicly reported per share
"funds from operations" for 2004, subject to adjustment to account for certain
non-recurring items as described in the Plan. None of the performance units will
vest if PREIT does not achieve at least $3.12 of funds from operations per share
in 2004, one-third will vest if PREIT achieves $3.12 of funds from operations
per share in 2004 (the "Threshold"), two-thirds will vest if PREIT achieves
$3.18 of funds from operations per share in 2004 (the "Target") and all of the
performance units will vest if PREIT achieves at least $3.24 of funds from
operations per share in 2004 (the "Maximum"). PREIT's Executive Compensation and
Human Resources Committee, if applicable and in their good faith judgment, will
adjust the preceding target levels of funds from operations per share to account
for certain material asset sales by PREIT and its subsidiaries or the issuance
of a significant number of shares by PREIT. Such adjustments may be required as
a result of the transactions with The Rouse Company and New Castle Associates
described in "Transactions with Management" and as a result of other
transactions, including the pending sale of PREIT's multifamily portfolio,
described in PREIT's Annual Report on Form 10-K for the year ended December 31,
2002, which PREIT filed with the SEC on March 31, 2003, if such other
transactions are consummated.
In addition to the performance units allocated to specific participants by
the Plan at its inception, and an additional 200,000 performance units that were
more recently issued to other eligible participants, 500,000 unallocated
performance units are available for future issuances under the Plan to any
individual in the group of eligible officers whom PREIT's Executive Compensation
and Human Resources Committee designates to receive performance units. Edward A.
Glickman, who is included in the group of eligible participants but who, to
date, has not been issued any performance units under the Plan, is expected to
receive the remaining 500,000 performance units in 2003 upon the modification of
his employment agreement.
14
The following table shows information regarding the awards of performance
units in 2002 to each participant listed in the Summary Compensation Table:
Estimated Future Payouts Under
Non-Stock Price Based Plans
Performance or --------------------------------
Number Other Period Until Threshold Target Maximum
Name of Units Maturation or Payment ($) ($) ($)
---------------------------------------------------------- --------- --------------------- --------- ------- ---------
Ronald Rubin.............................................. 1,200,000 1/1/2002 - 12/31/2004 400,000 800,000 1,200,000
Jonathan B. Weller........................................ 900,000 1/1/2002 - 12/31/2004 300,000 600,000 900,000
Edward A. Glickman........................................ 0 N/A N/A N/A N/A
George F. Rubin........................................... 700,000 1/1/2002 - 12/31/2004 233,333 466,666 700,000
Joseph F. Coradino........................................ 600,000 1/1/2002 - 12/31/2004 200,000 400,000 600,000
Restricted Share Awards
The restricted shares issuable under the Plan were awarded on March 22, 2002.
One half of a participant's restricted share award is subject to time-based
vesting and the other half is subject to performance-based vesting. So long as a
participant remains employed by PREIT, he will vest in one half of his
restricted share award in equal installments on each February 15 in 2003, 2004
and 2005. An equal portion of the other half of each participant's award is
eligible to vest in 2003, 2004 and 2005, and all, none or a portion of each such
amount may vest depending on the level of the financial targets achieved in each
of those years. Financial targets with respect to restricted share awards for
2002 only are set forth in the Plan, and the Executive Compensation and Human
Resources Committee, in its sole discretion, will decide whether such targets
have been reached. The Executive Compensation and Human Resources Committee will
establish the financial targets for the restricted share awards for 2003 after
analyzing the effects of the transactions with The Rouse Company and New Castle
Associates described in "Transactions with Management" and the effects of the
other pending transactions described in PREIT's Annual Report on Form 10-K for
the year ended December 31, 2002, which PREIT filed with the SEC on March 31,
2003, if such other transactions are consummated. The financial targets for 2004
are expected to be established before the beginning of 2004. PREIT will pay an
amount equal to the dividends that would be payable on the shares on a current
basis, and participants have voting rights, with respect to their non-vested
restricted shares.
The following table shows certain information regarding the restricted shares
with performance-based conditions on vesting granted in accordance with the
Plan:
Estimated Future Payouts
Under
Non-Stock Price Based Plans
Performance or -----------------------------
Number Other Period Until Threshold Target Maximum
Name of Shares Maturation or Payment (#) (#) (#)
------------------------------------------------------------- --------- --------------------- --------- ------ -------
Ronald Rubin................................................. 12,976 1/1/2002 - 12/31/2005 4,325 8,650 12,976
Jonathan B. Weller........................................... 9,732 1/1/2002 - 12/31/2005 3,254 6,508 9,732
Edward A. Glickman........................................... 0 N/A N/A N/A N/A
George F. Rubin.............................................. 7,137 1/1/2002 - 12/31/2005 2,379 4,758 7,137
Joseph F. Coradino........................................... 6,813 1/1/2002 - 12/31/2005 2,271 4,542 6,813
Restricted shares that vest based solely on the passage of time and continued
service are not reflected in the table and, instead, are reflected as
"Restricted Share Awards" in the Summary Compensation Table.
15
Transactions with Management
On September 30, 1997, PREIT consummated a series of related transactions
(the "TRO Transaction") in which PREIT, among other things: (i) caused a
Delaware limited partnership (the "Operating Partnership") of which PREIT is the
sole general partner to acquire all of the issued and outstanding non-voting
common shares of The Rubin Organization, Inc. ("TRO") (renamed PREIT-RUBIN,
Inc.), a commercial real estate development and management firm, representing
95% of the total equity of TRO, in exchange for 200,000 Class A units of limited
partnership interest in the Operating Partnership ("Class A OP Units") and a
contingent obligation to issue up to 800,000 additional Class A OP Units over a
five-year period based on the levels of PREIT's funds from operations ("FFO")
per share during such period; (ii) caused the Operating Partnership to acquire,
or to become obligated to acquire, in exchange for additional Class A OP Units,
the interests of certain affiliates of TRO ("TRO Affiliates"), or their rights
or obligations to acquire interests, in three existing shopping centers or
portions thereof, and in two shopping centers then under construction (the
"Development Properties"); (iii) caused the Operating Partnership to acquire the
pre-development rights, subject to the obligations of certain TRO Affiliates, in
certain additional proposed shopping centers (the "Predevelopment Properties");
(iv) implemented, directly or indirectly, employment agreements with ten members
of TRO management, including Ronald Rubin, who became PREIT's Chief Executive
Officer and a Trustee and has since become its Chairman as well; George F.
Rubin, who continued as President of PREIT-RUBIN, became a Trustee of PREIT and
has since become President of PREIT Services, LLC as well, Edward A. Glickman,
who became PREIT's Chief Financial Officer; Joseph F. Coradino, who has since
become PREIT's Executive Vice President -- Retail Division; Douglas S. Grayson,
who has since become PREIT's Executive Vice President -- Development; and David
J. Bryant, who has since become PREIT's Senior Vice President -- Finance and
Treasurer; and (v) elected three designees of TRO -- Ronald Rubin, George F.
Rubin and Rosemarie B. Greco -- as Trustees of PREIT.
The Class A OP Units referred to above are redeemable by the Operating
Partnership, at the option of the holder, beginning one year following the dates
of their respective issuance for an amount per unit equal to the average closing
price of a share on the twenty trading days immediately before the date notice
of redemption is received by PREIT in its capacity as general partner of the
Operating Partnership. PREIT has the right to acquire any Class A OP Units
tendered to the Operating Partnership for redemption for cash or PREIT shares,
on the basis of one share for each Class A OP Unit, subject to adjustments for
share splits and other capital changes.
At the closing of the TRO Transaction, in exchange for their direct and
indirect interests in TRO and certain of the Development Properties: (i) Ronald
Rubin received, directly or indirectly, beneficial ownership of 144,359 Class A
OP Units; (ii) George F. Rubin received, directly or indirectly, beneficial
ownership of 86,462 Class A OP Units; (iii) Edward Glickman received beneficial
ownership of 13,633 Class A OP Units; (iv) Joseph F. Coradino received
beneficial ownership of 28,691 Class A OP Units; (v) Douglas S. Grayson received
beneficial ownership of 5,968 Class A OP Units; and (vi) David J. Bryant
received beneficial ownership of 1,639 Class A OP Units. The amounts shown above
for each of Ronald Rubin and George F. Rubin include 12,167 Class A OP Units
held by a trust of which both are beneficiaries.
The amount of consideration PREIT pays and the manner in which it would be
paid was approved by a Special Acquisition Committee of the Board of Trustees
and by the Board of Trustees. The Board received an opinion from Lehman Brothers
that the consideration to be paid was fair from a financial point of view, and
PREIT's shareholders approved PREIT's completion of the TRO Transaction at a
Special Meeting of Shareholders held on September 29, 1997. The TRO Contribution
Agreement established a special committee (the "Special TRO Committee") of
disinterested trustees, currently consisting of Leonard I. Korman, Chair,
Rosemarie B. Greco and Jeffrey P. Orleans, for the purpose of addressing and
resolving any matters pertaining to the 800,000 additional Class A OP Units that
were issuable after the closing of the TRO Transaction. In 2002, the role of the
Special TRO Committee was expanded to include addressing and resolving any
matters pertaining to the Development Properties and the Predevelopment
Properties.
As stated above, the TRO Transaction also entitled the TRO Affiliates to
receive up to 800,000 additional Class A OP Units based on PREIT's FFO for the
five-year period beginning September 30, 1997. In 1998, and again in 2002 with
respect to 2001 only, these "hurdle" and "target" FFO levels were adjusted by
the Special TRO Committee to account for the dilutive effects of public
offerings of PREIT's shares that occurred in 1998 and 2001. For the period
beginning September 30, 1997 and ending December 31, 2000, the Operating
16
Partnership issued 497,500 Class A OP Units to the TRO Affiliates. On April 8,
2002, the Operating Partnership issued 167,500 Class A OP Units attributable to
the period from January 1, 2001 through December 31, 2001. As part of this 2002
issuance: (i) Ronald Rubin received beneficial ownership of 66,159 Class A OP
Units; (ii) George F. Rubin received beneficial ownership of 30,210 Class A OP
Units; (iii) Edward A. Glickman received beneficial ownership of 7,553 Class A
OP Units; (iv) Joseph F. Coradino received beneficial ownership of 12,273 Class
A OP Units; (v) Douglas S. Grayson received beneficial ownership of 3,776 Class
A OP Units; and (vi) David J. Bryant received beneficial ownership of 944 Class
A OP Units. For the period from January 1, 2002 through September 30, 2002, the
TRO Affiliates are entitled to receive up to 135,000 Class A OP Units. The
Special TRO Committee will determine whether these remaining 135,000 Class A OP
Units have been earned. In addition, the Special TRO Committee may adjust the
hurdle and target FFO levels for the 2002 period in order to account for the
dilutive effect of PREIT's July 2001 public offering or other matters deemed
appropriate by the Special TRO Committee.
The TRO Affiliates also were eligible to receive additional Class A OP Units
in respect of PREIT's payment for the Development and Predevelopment Properties,
all in accordance with the valuation and payment provisions of the applicable
agreements. In 2002, in exchange for the remaining 11% interest in Northeast
Tower Center - one of the Development Properties - Ronald Rubin received
beneficial ownership of 17,611 Class A OP Units and George F. Rubin received
beneficial ownership of 6,726 Class A OP Units. The calculation of the number of
OP Units to be issued in exchange for one of the Development Properties was
deferred until a specified date to allow that property to be leased to a
credit-worthy tenant acceptable to PREIT so that its value could be determined.
That property was leased after the expiration of the deferral period, and the
Special TRO Committee will determine how many, if any, Class A OP Units should
be issued in respect of that property.
The Predevelopment Properties include Christiana Power Center Phase I,
Christiana Power Center Phase II, Metroplex Shopping Center and Red Rose
Commons. According to the TRO Contribution Agreement, the Predevelopment
Properties were to be valued as of the date of completion based on principles
set forth in the TRO Contribution Agreement.
Following completion of each individual Predevelopment Property, the TRO
Contribution Agreement provides for an unfunded bookkeeping account to be
established for such property, which is credited with a number of Class A OP
Units equal in value to (a) 50% of the value of the Operating Partnership's
interest in that property determined in accordance with the TRO Contribution
Agreement in excess of (b) the aggregate cost associated with that property.
Each such account is further credited with any distributions that would have
been payable on the credited Class A OP Units from the completion date for the
applicable property through the date the OP Units in the account are issued as
described below, together with interest on those distributions at the rate of
10% per year. The TRO Contribution Agreement also provides that, if any
Predevelopment Property is not completed by September 30, 2002, then such
property is valued on September 30, 2002, based upon a prescribed appraisal
process.
No Class A OP Units or distributions in respect of Class A OP Units were to
be issued or distributed in respect of the Predevelopment Properties until the
earlier of September 30, 2002 or the date on which all of the Predevelopment
Properties were completed and valued, at which time the number of Class A OP
Units and the amount of cash in each Predevelopment Property account was to be
distributed to the TRO Affiliates as provided in the TRO Contribution Agreement.
Christiana Power Center Phase I, Metroplex Shopping Center and Red Rose
Commons all were completed prior to the September 30, 2002 deadline. Christiana
Power Center Phase II was not completed by that deadline and currently is the
subject of litigation with the Delaware Department of Transportation concerning
the development of that property. The Special TRO Committee will determine the
action to be taken with respect to the Predevelopment Properties in light of the
litigation, including the number of Class A OP Units that may be issued before
the litigation is resolved.
PREIT's Board of Trustees also must determine whether PREIT will purchase or
continue to lease certain art work and other property at its principal executive
office that were leased for a nominal amount to PREIT by the former TRO
Affiliates for a term of five years beginning at the closing of the TRO
Transaction.
17
Holders of Class A OP Units generally receive distributions at the
approximate times, and in the same amounts, as PREIT pays dividends to its
shareholders. Certain of the Class A OP Units issued in the TRO Transaction are
subject to pledges in favor of the Operating Partnership until certain
obligations of TRO are satisfied.
PREIT-RUBIN provides real estate management and other services to 16
properties in which Ronald Rubin and/or other TRO Affiliates have direct or
indirect interests. Total revenues earned by PREIT-RUBIN for such services were
approximately $3.5 million for the calendar year ended December 31, 2002. As of
December 31, 2002, approximately $0.7 million was due from these affiliates. Of
this amount, approximately $0.6 million was collected subsequent to December 31,
2002. The remaining approximately $0.1 million is due in installments to be paid
through 2010, plus interest where applicable. PREIT and PREIT-RUBIN lease their
principal executive office from an entity in which Ronald Rubin and George F.
Rubin have indirect interests. The lease term currently is scheduled to expire
on July 31, 2009. In 2002, PREIT and PREIT-RUBIN paid approximately $0.9 million
on this lease. Ronald Rubin and George F. Rubin, collectively with members of
their immediate family, own less than a 16.66% interest in the entity that
leases the property to PREIT and PREIT-RUBIN.
On April 28, 2003, PREIT - through exchange intermediaries for purposes of
complying with the fax-deferred exchange provisions of the Internal Revenue
Code - acquired Moorestown Mall, The Gallery at Market East and Exton Square
Mall from affiliated companies of The Rouse Company ("Rouse") in exchange for
cash and the assumption of mortgage debt on certain of those malls. Also on
April 28, 2003, New Castle Associates acquired Cherry Hill Mall from Rouse in
exchange for its interest in Christiana Mall, cash and the assumption by New
Castle Associates of mortgage debt on Cherry Hill Mall. One of the partners of
New Castle Associates, which was both the sole general partner and a limited
partner of New Castle Associates, is Pan American Associates, which is
controlled by Ronald Rubin and George F. Rubin.
Also on April 28, 2003, the Operating Partnership acquired 49% of the
aggregate partnership interests in New Castle Associates from partners of New
Castle Associates other than Pan American Associates, in exchange for an
aggregate of 585,422 OP Units. The number of OP Units is subject to specified
post-closing adjustments. Simultaneously with this acquisition, the Operating
Partnership increased its aggregate ownership interest in New Castle Associates
to 72.89% by acquiring an additional ownership interest directly from New Castle
Associates in exchange for a cash investment in New Castle Associates of
approximately $30.8 million (which amount is also subject to specified
post-closing adjustments). This cash investment was used by New Castle
Associates to pay the majority of the cash portion of the purchase price and
associated costs for Cherry Hill Mall.
The Operating Partnership also obtained an option, beginning April 30, 2004
and expiring October 27, 2004, to acquire the remaining interests in New Castle
Associates, including that of Pan American Associates for an aggregate of
609,317 additional OP Units (subject to specified post-closing adjustments). If
the Operating Partnership does not exercise this option, then the remaining
partners of New Castle Associates will have the right, beginning April 28, 2008
and expiring October 25, 2008, to require the Operating Partnership to acquire
the remaining interests in New Castle Associates in exchange for an aggregate of
670,249 additional OP Units (which amount is also subject to specified
post-closing adjustments). Any OP Units issued to Pan American Associates as a
result of these call and put rights will be Class A OP Units and redeemable for
cash or, at PREIT's option, for PREIT shares beginning one year after issuance.
Unless and until the Operating Partnership acquires the remaining interests
in New Castle Associates, each of the remaining partners of New Castle
Associates other than the Operating Partnership will be entitled to receive a
cumulative preferred distribution from New Castle Associates on their remaining
interests in New Castle Associates equal to 6.97% per annum of such partner's
remaining share of the New Castle Associates equity value. These preferred
distributions are designed to approximate the distributions that would have been
payable had the partners exchanged all of their interests in New Castle
Associates for OP Units on April 28, 2003. If the Operating Partnership does not
exercise its call right, this preferred distribution will increase by 50%
beginning January 1, 2005 and by an additional 5% over the amount for the
preceding year beginning each January 1 thereafter. If the remaining New Castle
Associates partners do not exercise their put rights, this preferred
distribution will terminate on October 25, 2008. By reason of their interest in
Pan American Associates, Ronald Rubin currently has a 9.37% indirect limited
partner interest in New Castle Associates and George F. Rubin currently has a
1.43% indirect limited partner interest in New Castle Associates.
18
In connection with PREIT's acquisition of its interest in New Castle
Associates, Pan American Associates ceased to be a general partner of New Castle
Associates and PREIT designated one of its affiliates as the sole general
partner. Certain former partners of New Castle Associates not affiliated with
PREIT are expected to exercise their special right to redeem for cash an
aggregate of 261,349 OP Units issued to such partners at closing, and PREIT will
pay to those partners an aggregate amount of approximately $7.7 million. PREIT
also granted registration rights to the partners of New Castle Associates with
respect to the PREIT shares underlying the OP Units issued or to be issued to
them, other than those OP Units redeemed for cash following the closing.
To facilitate the exchange of Christiana Mall for Cherry Hill Mall, PREIT
waived any right of first refusal that it may have had with respect to the sale
of Christiana Mall by New Castle Associates. Upon the sale of Christiana Mall by
New Castle Associates, PREIT's management and leasing agreement for that
property was terminated, and PREIT received a brokerage fee of $2 million from
New Castle Associates in respect of the exchange of Christiana Mall for Cherry
Hill Mall. PREIT also entered into a new management and leasing agreement with
New Castle Associates for Cherry Hill Mall, which provides for a fee of
approximately 5.25% of all rents and other revenues received by New Castle
Associates from the ownership of Cherry Hill Mall.
A special committee of PREIT's Board of Trustees comprised of all five of its
independent trustees was formed to consider the fairness of the New Castle
Associates contribution transaction (including the relevant elements of the
Rouse transaction), and the special committee approved those transactions.
19
Board Matters
PREIT has a standing Executive Compensation and Human Resources Committee and
a standing Audit Committee. PREIT also has authorized the establishment of a
standing Executive Committee to consist of three members. PREIT's Board of
Trustees has not yet appointed any members to the Executive Committee, but at
least two of the three seats are expected to be filled by trustees who are
independent of management.
The Executive Compensation and Human Resources Committee, which currently is
comprised of Leonard I. Korman, Chair, Rosemarie B. Greco and Lee H. Javitch,
met seven times during 2002. The principal duties of the Executive Compensation
and Human Resources Committee are to review and approve goals and objectives
relevant to the compensation of PREIT's CEO and other executive officers, to
evaluate performance against these goals and objectives and to set compensation
accordingly and in light of existing agreements, to make recommendations to
PREIT's Board of Trustees regarding incentive compensation and equity-based
plans and to administer these plans.
The Audit Committee, which currently is comprised of Rosemarie B. Greco,
Chair, Lee H. Javitch and Ira Lubert, met six times during 2002. The principal
duties of the Audit Committee are to oversee PREIT's accounting and financial
reporting processes and the audit of PREIT's financial statements, to select and
retain independent public accountants, to review with management and the
independent accountants PREIT's annual financial statements and related
footnotes, to review PREIT's internal audit activities, to review with the
independent accountants the planned scope and results of the annual audit and
their reports and recommendations and to review with the independent accountants
matters relating to PREIT's system of internal controls.
Once duly constituted, the Executive Committee will be authorized to exercise
all of the powers and authority of the Board of Trustees between meetings of the
Board of Trustees, except for matters that expressly are reserved by PREIT's
bylaws to the full Board of Trustees or to another committee of the Board of
Trustees.
Pursuant to the TRO Contribution Agreement, PREIT also has established the
Special TRO Committee, currently consisting of Leonard I. Korman, Chair,
Rosemarie B. Greco and Jeffrey P. Orleans, that meets as necessary to review on
an on-going basis issues arising in the implementation of the TRO Transaction.
The Special TRO Committee met once during 2002.
The Board of Trustees also established a special committee consisting of all
five of its independent trustees to review and report to the full Board of
Trustees on matters related to PREIT's acquisition of certain properties in a
transaction in which Ronald Rubin and George Rubin are interested parties. This
special committee met once during 2002.
The Board of Trustees met eight times in 2002. Trustees who are not officers
of PREIT will receive an annual retainer for 2003 of $20,000, plus $1,000 per
Board of Trustees meeting and committee meeting attended and $500 for telephonic
meetings. In addition, the Chairperson of PREIT's Audit Committee receives an
additional annual retainer of $10,000 and the Chairperson of PREIT's Executive
Compensation and Human Resources Committee receives an additional annual
retainer of $10,000. Non-employee Trustees also receive 1,000 restricted shares
on January 31 of each year under the Restricted Share Plan for Non-Employee
Trustees, which vest in three approximately equal annual installments so long as
the recipient remains a Trustee of PREIT. All of the Trustees attended at least
75% of Board and applicable committee meetings in 2002.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
PREIT's executive officers and Trustees and persons who own more than ten
percent of a registered class of PREIT's equity securities (collectively, the
"reporting persons") to file reports of ownership and changes in ownership with
the Securities and Exchange Commission and to furnish PREIT with copies of these
reports.
Based on PREIT's review of the copies of the reports it has received, and
written representations received from certain reporting persons with respect to
the filing of reports on Form 3, 4 and 5, PREIT believes that all filings
required to be made by the reporting persons for 2002 were made on a timely
basis.
20
Report of Executive Compensation and Human Resources Committee on Executive
Compensation
PREIT's Executive Compensation and Human Resources Committee is responsible
for setting goals and objectives relevant to the compensation of PREIT's CEO and
other executive officers, for evaluating the performance of these executive
officers against the goals and objectives, and, after taking existing agreements
into account, for determining appropriate compensation. The Compensation
Committee also is responsible for recommending incentive compensation and
equity-based plans to PREIT's Board of Trustees, and for administering the
policies that govern PREIT's equity incentive plans. The Compensation Committee
consists of three of PREIT's non-employee Trustees.
The Board of Trustees believes that PREIT's investment goal is to invest in
assets that provide the opportunity for cash flow growth and capital
appreciation. Accordingly, the Board of Trustees believes that PREIT's overall
performance in any year should be based on PREIT's performance in all aspects of
PREIT's business during that year, including development, management,
acquisition and capital structure, as well as financial accomplishments.
The members of the Compensation Committee believe that PREIT's success is
largely due to the efforts of its employees and, in particular, the leadership
exercised by its officers. Therefore, the Compensation Committee believes it is
important to:
o Create a fair, reasonable and balanced executive compensation program
that incentivizes and rewards management for performance while closely
aligning the interests of management with those of shareholders.
o Foster excellence and create annual and long-term incentives that enable
PREIT to attract, retain and motivate key executives.
o Provide a mix of cash and share-based compensation programs that are
competitive with a select group of real estate investment trusts that
the members of the Compensation Committee believe are comparable to
PREIT.
Each executive officer's salary, including that of the Chief Executive
Officer and the Chief Operating Officer, is based on his employment contract and
the competitive market for the executive officer's services, considering the
executive's specific responsibilities, experience and overall performance. The
Compensation Committee reviews each executive officer's salary and adjusts the
salary to account for inflation, any change in the executive's responsibilities
and any change in the competitive marketplace. In its evaluation of the
competitive market, the Compensation Committee periodically retains consultants
to compare PREIT's compensation policies and the amount and form of compensation
PREIT pays to its key executives to that of other companies that the consultants
identify as PREIT's peers.
The Compensation Committee believes that PREIT's overall performance is best
measured by the enhancement of long-term shareholder value. The Compensation
Committee further believes that, as a result of the nature of PREIT's business,
funds from operations is a better measurement of PREIT's performance than its
reported net income because funds from operations excludes various items
included in net income that do not relate to or are not indicative of operating
performance, such as various non-recurring items, gains or sales of real estate
and depreciation and amortization of real estate. This standard has been adopted
by the National Association of Real Estate Investment Trusts.
21
The Compensation Committee, in its discretion, periodically awards restricted
shares, options to purchase PREIT's shares or other share-based compensation to
executive officers. These awards are based on the performance of the individual
executive, PREIT's financial results and the executive officer's accomplishments
in his or her area of responsibility. The Committee believes that restricted
share awards and cash bonuses based on PREIT's financial performance are
important elements in PREIT's compensation structure because these awards
promote alignment of the interests of the employees with the interests of the
shareholders.
SUBMITTED BY THE EXECUTIVE
COMPENSATION AND HUMAN RESOURCES
COMMITTEE OF THE BOARD OF TRUSTEES
Leonard I. Korman, Chairman
Rosemarie B. Greco
Lee H. Javitch
22
Performance Graph
The graph below compares PREIT's cumulative shareholder return with the
cumulative total return of the S&P 500 and the index of all equity real estate
investment trusts (excluding health care real estate investment trusts) as
prepared by the National Association of Real Estate Investment Trusts. Equity
real estate investment trusts are defined as those which derive more than 75% of
their income from equity investments in real estate assets. The graph assumes
that the value of the investment in each of the three was $100 at August 31,
1997 and that all dividends were reinvested.
August 1997 December 1997 December 1998 December 1999 December 2000 December 2001 December 2002
PREIT 100 97 84 69 101 134 163
Equity REITs 100 111 91 87 110 125 130
S&P 500 100 109 140 169 154 135 105
Russell 2000 100 104 101 123 119 122 97
23
Audit Committee Report
PREIT's Audit Committee operates under an amended and restated charter
approved and adopted by its Board of Trustees on October 30, 2002. A copy of the
charter is attached as Appendix A to this proxy statement. In accordance with
the charter, PREIT's Board of Trustees has determined that all of the members of
the Audit Committee are independent and that the composition of PREIT's Audit
Committee complies with all applicable qualification criteria.
The following is the report of the Audit Committee with respect to PREIT's
audited financial statements for the fiscal year ended December 31, 2002, which
include the consolidated balance sheets of PREIT as of December 31, 2002 and
2001, the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 2002,
and the notes thereto. The information contained in this report is not
"soliciting material," nor is it "filed" with the SEC, nor shall the information
be incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934, except to the extent that PREIT
specifically incorporates it by reference in a filing.
The Audit Committee reviewed and discussed PREIT's audited financial
statements and the "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of PREIT's Annual Report with management and
with PREIT's independent accountants before PREIT's Annual Report on Form 10-K
was filed with the SEC. In connection with this review, the Audit Committee,
among other things:
o made inquiries of PREIT's internal auditor and the independent
accounting firm to determine that management maintained the reliability
and integrity of PREIT's accounting policies and financial reporting
practices; and
o reviewed with the independent accounting firm its views on the quality
of PREIT's implementation of accounting principles, disclosure practices
and use of accounting estimates in preparing the financial statements.
The Audit Committee discussed with KPMG LLP, PREIT's independent accountants,
the matters required to be discussed by SAS 61 (Communications with Audit
Committees), as amended by SAS 90 (Audit Committee Communications), which
include, among other items, matters related to the conduct of the audit of
PREIT's financial statements. The Audit Committee received written disclosures
and the letter from KPMG LLP required by Independence Standards Board Standard
No. 1, which relates to the accountants' independence from PREIT and its related
entities and has discussed with KPMG LLP their independence from PREIT.
Based on the review and discussions referred to above, the Audit Committee
recommended to PREIT's Board of Trustees that PREIT's audited financial
statements be included in PREIT's Annual Report on Form 10-K for the fiscal year
ended December 31, 2002.
SUBMITTED BY THE AUDIT COMMITTEE OF
THE BOARD OF TRUSTEES
Rosemarie B. Greco, Chairperson
Lee H. Javitch
Ira Lubert
24
Additional Information Regarding Our Independent Public Accountants
On July 16, 2002, PREIT's Audit Committee approved the dismissal of Arthur
Andersen LLP as its independent auditors. On July 18, 2002, PREIT's Board of
Trustees, upon the recommendation of its Audit Committee, appointed KPMG LLP to
serve as PREIT's independent auditors for the fiscal year ended December 31,
2002.
Arthur Andersen's reports on PREIT's consolidated financial statements for
each of the two fiscal years preceding its dismissal did not contain an adverse
opinion or disclaimer of opinion; nor were such reports qualified or modified as
to uncertainty, audit scope or accounting principles. During each of PREIT's two
most recent fiscal years preceding the dismissal of Arthur Andersen, and through
the date of such dismissal, there were: (1) no disagreements with Arthur
Andersen on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen's satisfaction, would have caused it to make reference to the subject
matter in connection with its reports on PREIT's consolidated financial
statements for such years; and (2) no reportable events required to be disclosed
by applicable securities laws.
PREIT provided Arthur Andersen with a copy of the foregoing disclosures at
the time of its dismissal and requested that Arthur Andersen provide it with a
letter confirming whether it agreed or disagreed with the disclosures. After
reasonable efforts to obtain such a letter, PREIT was advised that Arthur
Andersen no longer has the ability to provide such a letter.
During each of PREIT's two most recent fiscal years preceding PREIT's
appointment of KPMG LLP, and through the date of such appointment, PREIT did not
consult KPMG LLP with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on PREIT's consolidated financial statements, or
any other matters or reportable events as set forth in applicable securities
laws.
Audit Fees
The aggregate fees billed to PREIT by KPMG LLP for its audit of PREIT's 2002
financial statements, reaudit of PREIT's 2001 and 2000 financial statements and
for its review of the financial statements included in PREIT's quarterly reports
on Form 10-Q for the second and third quarters of 2002 were approximately
$415,000. The aggregate fees billed to PREIT by Arthur Andersen LLP for its
review of the financial statements included in PREIT's quarterly report on Form
10-Q for the first quarter of 2002 were approximately $15,000.
All Other Fees
The aggregate fees billed to PREIT by KPMG LLP for all other services for
2002 were approximately $393,500, including $90,500 for stand-alone property
audits required for loan or joint venture compliance and consultation on
accounting matters related to proposed transactions, and $303,000 for tax
compliance and tax planning services and consultation on tax matters related to
proposed transactions. The aggregate fees billed to PREIT by Arthur Andersen LLP
for all other services for 2002 were approximately $15,000.
The audit committee considered the nature of the non-audit services provided
by KPMG LLP and by Arthur Andersen LLP and determined that those services were
compatible with the provision of independent audit services by such firms. PREIT
has not yet selected its principal independent public accounting firm for 2003
because the Audit Committee has not yet met for the purpose of doing so. A
representative of KPMG LLP is expected to be present at the Annual Meeting and
available to respond to appropriate questions, and will be given an opportunity
to make a statement, if the representative so desires.
25
Principal Security Holders
After examining its own records and those of the Securities and Exchange
Commission, PREIT does not know of any individual or entity that beneficially
owns more than 5% of PREIT's shares.
Shareholders' Proposals
Under Securities and Exchange Commission rules, certain shareholder proposals
may be included in PREIT's proxy statement. Any shareholder desiring to have
such a proposal included in PREIT's proxy statement for the Annual Meeting to be
held in 2004 must deliver a proposal in full compliance with Rule 14a-8 under
the Securities Exchange Act of 1934 to PREIT's executive offices by December 31,
2003. Where a shareholder does not seek inclusion of a proposal in the proxy
material and submits a proposal outside of the process described in Rule 14a-8
of the Securities Exchange Act of 1934, the proposal must be received by March
16, 2004, or it will be deemed "untimely" for purposes of Rule 14a-4(c) under
the Exchange Act and, therefore, the proxies will have the right to exercise
discretionary authority with respect to such proposal. PREIT has not received
any such proposal to be submitted from the floor at the upcoming meeting.
By Order of the Board of Trustees
Jeffrey A. Linn
Secretary
April 30, 2003
26
Appendix A
PREIT
[graphic omitted]
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
----------------------------
Audit Committee Charter
October 30, 2002
----------------------------
I. Organization
1. There shall be a committee of the Board of Trustees of Pennsylvania
Real Estate Investment Trust (the "Company") to be known as the Audit
Committee.
2. Audit Committee members and the committee chairman shall be designated
by the full Board of Trustees upon the recommendation of the
Nominating and Governance Committee.
3. The Audit Committee shall be composed of at least three financially
literate members of the Board of Trustees each of whom are
affirmatively determined to be independent by the Board of Trustees
consistent with the criteria set forth on Annex A, as determined in
each case by the Board of Trustees in its business judgment. The
Audit Committee shall have such number of members meeting such
qualification criteria as shall be required by applicable law, rule
or regulation as determined by the Board of Trustees in its business
judgment. The Company's proxy statement shall disclose that all
Audit Committee members have been determined to be independent and
that the composition of the Audit Committee complies with all
applicable qualification criteria.
4. No Audit Committee member may serve on the Audit Committee of more
than two other public companies unless the Board of Trustees
affirmatively determines that such simultaneous service would not
impair the ability of such member to effectively serve on the Audit
Committee, such determination to be disclosed in the Company's annual
proxy statement.
5. Members of the Audit Committee may be removed from the Audit Committee
by the full Board of Trustees, upon the recommendation of any Trustee,
this Committee or the Nominating and Governance Committee of the Board
of Trustees and upon a determination by the full Board of Trustees
that such member is not fulfilling his or her duties under this
Charter.
6. The Company shall disclose in its proxy statements that it has a
written Audit Committee Charter and will file a copy of the charter
with the proxy statement for its annual shareholders' meeting at least
once every three years.
II. Purpose and Overall Responsibilities
1. Oversee the accounting and financial reporting processes of the
Company and the audit of the Company's financial statements.
2. Assist the Board of Trustees in its oversight of the integrity of
the Company's financial statements, the Company's compliance with
legal and regulatory requirements, the qualifications and
independence of the Company's registered public accounting firm and
the performance of the Company's internal audit functions and
registered public accounting firm. The Company's public accounting
firm shall become a registered public accounting firm no later than
the October 23, 2003 deadline required by applicable law. Until such
time as such firm has become a registered public accounting firm,
the term "registered public accounting firm" shall include the
Company's independent auditor.
A-1
3. Oversee the performance of the registered public accounting firm in
the preparation or issuing of an audit report or related work.
4. Provide an open avenue of communication between the Company's
registered public accounting firm, internal auditor and the Board of
Trustees.
5. Meet four times per year, or more frequently, as circumstances
require. The Audit Committee shall review reports received from
members of management, the internal auditor and the Company's
registered public accounting firm, on matters relating to accounting,
financial reporting, internal control, auditing and other matters.
6. Review and reassess the adequacy of the committee's charter annually.
7. Prepare the report of the Audit Committee that is required to be
included in the Company's annual proxy statement.
8. Establish procedures for the receipt, retention and treatment of
complaints regarding accounting, internal auditing controls or
auditing matters and for the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting
or auditing matters.
9. Receive from the internal auditor on a timely basis reports of all
critical accounting policies and practices, alternative treatments of
financial information discussed with management of the Company and the
ramifications thereof and the treatment preferred by the registered
public accounting firm, and copies of all other material written
communications between the registered public accounting firm and the
Company's management.
10. Make inquiries of the internal auditor and registered public
accounting firm to determine that management has maintained the
reliability and integrity of the accounting policies and financial
reporting practices of the Company.
11. Conduct or authorize investigations into any matters within the
committee's scope of responsibilities. The Audit Committee shall be
empowered to retain and determine the appropriate compensation to be
paid to independent counsel, accountants or others to assist it in the
conduct of any investigation or otherwise to carry out its duties.
12. Perform annually an evaluation of its own performance.
13. Report regularly to the Board of Trustees regarding results of the
Audit Committee's activities.
III. Selection, Retention and Discharge of Registered Public Accounting Firm
1. Select and retain a qualified and independent registered public
accounting firm. The registered public accounting firm's ultimate
accountability shall be to the Audit Committee.
2. Determine the terms of engagement of and compensation to be paid to
the registered public accounting firm for performing audit services,
including the rendering or issuing of an audit report.
3. Preapprove all auditing services and all non-de minimis non-audit
services to be provided to the Company by the registered public
accounting firm. Preapproval of non-audit services shall be disclosed
in the Company's periodic reports under the Securities Exchange Act.
4. Consider, in consultation with the registered public accounting firm,
the scope and plan of forthcoming audits from the perspective of the
registered public accounting firm's responsibility under generally
accepted auditing standards.
5. Review with the Company's registered public accounting firm any audit
problems or difficulties and management's response, including any
restrictions on the scope of the registered public accounting firm's
activities or access to requested information. Resolve disagreements
between the Company's management and the registered public accounting
firm.
A-2
6. Receive annually from the registered public accounting firm a written
statement listing all relationships with the Company and determine
that such relationships will not impair independence and obtain
assurances that the auditor is "independent" within the meaning of the
Securities Exchange Act.
7. Receive annually from the Company's registered public accounting
firm, and conduct a review of, a report describing (i) the
registered public accounting firm's internal quality-control
procedures and (ii) any material issues raised by the registered
public accounting firm's most recent internal quality control
review, peer review or inquiry or investigation by governmental or
professional authorities within the preceding five years with
respect to one or more of its independent audits and any steps taken
to deal with any such issues.
8. Determine whether to discharge the Company's registered public
accounting firm and effect any such determination.
IV. Review of Financial Statements
1. Review and discuss with management and the registered public
accounting firm at the completion of the annual examination and prior
to the filing of the SEC Form 10K:
o The Company's annual financial statements and related footnotes.
o The registered public accounting firm's audit of the financial
statements and their report thereon.
o The "Management's Discussion and Analysis of Financial Condition
and Results of Operations" section of the report.
o Any significant changes required in the registered public
accounting firm's audit plan.
o Any difficulties or disputes with management encountered during the
course of the audit.
o Accounting principles and financial statement presentations,
including changes in the selection or application of principles.
o Major issues as to the adequacy of the Company's internal controls
and any special audit steps adopted in response to material
internal control deficiencies.
o Analyses prepared by management and/or the registered public
accounting firm with respect to significant financial reporting
issues and judgments made in connection with the preparation of the
financial statements, including the effects of employing any
alternative GAAP methods.
o The effect of regulatory and accounting initiatives and off-
balance sheet structures on the Company's financial statements.
o Other matters related to the conduct of the audit that are to be
communicated to the committee under generally accepted auditing
standards.
o With the participation of the Company's counsel, legal and
regulatory matters that may have a material impact on the financial
statements, related Company compliance policies and programs and
reports received from regulators.
2. Discuss the Company's quarterly financial statements with management
and the registered public accounting firm, including the Company's
disclosures under "Management's Discussion and Analysis of Financial
Condition and Results of Operations," prior to the filing of SEC Forms
10-Q.
3. Discuss the Company's general policy regarding earnings press releases
and any financial information provided to analysts and rating
agencies.
4. Confirm that the registered public accounting firm has reviewed the
Company's interim financial statements prior to their inclusion in the
SEC Form 10-Q filings.
5. Review with the registered public accounting firm its views on the
quality of the Company's implementation of accounting principles,
disclosure practices and use of accounting estimates in preparation of
the Company's financial statements and in practice throughout the
year.
A-3
6. Periodically, meet separately with management; with the registered
public accounting firm; with the internal auditor; and on request,
with the Company's general counsel.
V. Review of Internal Audit
1. Ensure the existence of the Company's internal audit function.
2. Review the internal audit function of the Company including the
independence and authority of its reporting obligations, the proposed
audit plans for the coming year and the coordination of such plans
with the registered public accounting firm.
3. Review the results of the regular internal audit activities, including
major reports, conclusions, findings, recommendations and management's
responses.
VI. Review of Internal Controls
1. Discuss with the internal auditor and registered public accounting
firm the adequacy and effectiveness of the Company's systems of
internal control.
2. Receive from the officers certifying the Company's annual and
quarterly reports under the Securities Exchange Act disclosure
regarding (i) any significant deficiencies in the design or
operation of internal controls that could affect adversely the
Company's ability to record, process, summarize and report financial
data and an identification of any material weaknesses in the
Company's internal controls and (ii) any fraud, whether or not
material, that involves the Company's management or other Company
employees who have a significant role in the Company's internal
controls.
3. Review any controls deemed to be deficient and discuss any changes
required with the internal auditor and the registered public
accounting firm, as the Audit Committee deems appropriate.
4. Obtain recommendations from the internal auditor regarding internal
controls and other matters relating to the accounting procedures and
the books and records of the Company and its subsidiaries.
5. Inquire of the internal auditor and the registered public accounting
firm regarding any matters raised under Statement of Auditing
Standards No. 61 "Communication with Audit Committees," including any
changes in significant accounting policies or estimates, any
significant audit adjustments, any disagreements with management and
any difficulties encountered in performing the audit.
6. Discuss guidelines and policies to govern the process by which risk
assessment and management is undertaken.
7. Set clear policies with respect to the Company's hiring of employees
or former employees of the Company's registered public accounting
firm.
---------------
* Upon becoming effective, this Charter shall be made available on the
Company's website and, upon request, in print.
A-4
ANNEX A
(to Audit Committee Charter)
INDEPENDENCE CRITERIA
1. Audit Committee members must be independent of the Company and free of any
relationship that, in the judgment of the Board of Trustees, would
interfere with their exercise of independent judgment as a committee
member.
2. Other than in his or her capacity as a member of the Audit Committee, the
Board of Trustees or any other committee of the Board of Trustees, no Audit
Committee member may (i) accept any consulting, advisory or other
compensatory fee from the Company or (ii) be an affiliated person of the
Company or any subsidiary of the Company.
3. Other than in his or her capacity as a Trustee or shareholder of the
Company, no Audit Committee member shall have a material relationship
with the Company (either directly or as a partner, shareholder, officer
or other affiliate of an organization that has a material relationship
with the Company). For this purpose, a Trustee shall be presumed not to
have a material relationship with the Company if he or she is not and,
within the past two years, has not been an executive officer of, or the
direct or indirect owner of more than 10% of the equity interest in, any
business or professional entity:
-- that within the last two years has made or received, or going forward
proposes to make or receive, payments to or from the Company or any of
its subsidiaries for property or services in excess of 5% of (i) the
Company's consolidated gross revenues for its last full fiscal year,
or (ii) the other entity's consolidated gross revenues for its last
full fiscal year.
-- to which the Company or any of its affiliates is indebted in an
aggregate amount exceeding 5% of the Company's total consolidated
assets as of the end of the Company's last full fiscal year.
4. No Audit Committee member shall have been employed by the Company within
the past five years.
5. No Audit Committee member shall have been affiliated with or employed by a
present or former auditor of the Company within the last five years.
6. No Audit Committee member shall have been a member of an interlocking
directorate within the last five years in which an executive officer of the
Company serves on the compensation committee of another company that
currently employs the Audit Committee member.
7. No immediate family members of an Audit Committee member shall fit within
the categories prohibited by numbers 3, 4, 5 or 6 above, and no Audit
Committee member may have any relationships with the Company that are
substantially similar to any of the categories prohibited by the foregoing.
8. Audit Committee members shall satisfy any other independence criteria
required by applicable law or regulation, or otherwise established by the
Board of Trustees.
A-5
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
This Proxy is solicited on behalf of the Board of Trustees
The undersigned, revoking all prior proxies, hereby appoints George F.
Rubin, Lee H. Javitch and Jonathan B. Weller, and each and any of them, as
proxies of the undersigned, with full power of substitution, to vote and act
with respect to all Certificates of Beneficial Interest of Pennsylvania Real
Estate Investment Trust held of record by the undersigned at the close of
business on April 21, 2003 at the Annual Meeting of Holders of Certificates of
Beneficial Interest to be held on Thursday, June 5, 2003 and at any adjournment
thereof.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE, NO POSTAGE REQUIRED.
Annual Meeting of Holders of Certificates of Beneficial Interest
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
June 5, 2003
Please mark, sign, date and mail your proxy card in the envelope provided
as soon as possible
________________________________________________________________________________
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR
VOTE IN BLUE OR BLACK INK AS SHOWN HERE |X|
1. Election of Class B Trustees:
|_| FOR ALL NOMINEES NOMINEES:
|_| Ronald Rubin
|_| WITHHOLD AUTHORITY FOR ALL NOMINEES |_| Leonard I. Korman
|_| Jeffrey P. Orleans
|_| FOR ALL EXCEPT (See instructions below)
(INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark
"FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here |X|
2. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature of Stockholder____________________ Date:________ Signature of Stockholder____________________ Date:________
Note: Please sign exactly as your name appears on this Proxy. When shares are
held jointly, each holder should sign. When signing as executor, administrator,
attorney, trustee or guardian, please give full title as such. If the signer is
a corporation, please sign full corporate name by duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.