Annual Report (Form 10-K), fiscal year 1994

Item 1. Business
General
Registrant, Pennsylvania Real Estate Investment Trust, an unincorporated association in business trust form was formed in Pennsylvania pursuant to a Trust Agreement dated December 27, 1960 as amended and restated on December 16, 1987. It is a self-administered equity real estate investment trust engaged in the business of acquiring, managing and holding for current yield and long term appreciation real estate and interests in real estate directly or through wholly-owned subsidiaries, partnerships and joint ventures. The Registrant has elected and conducts its operations in a manner intended to comply with the requirements for qualification as a real estate investment trust under the Real Estate Investment Trust Act of 1960. (Sections 856-860 of the Internal Revenue Code of 1986 (the "Code"). Under the Code, a real estate investment trust which meets certain requirements is not subject to Federal income tax on the portion of its taxable income which is distributed to its shareholders provided at least 95% of its real estate investment trust taxable income, excluding any net capital gain, is so distributed.
Since the beginning of the last fiscal year, the following material events have occurred:
1. In October 1993, Registrant sold (i) its 100% interest in Village Shopping Center (356,000 square feet) in Gary, Indiana; 50% interest in The Commons of Chicago Ridge (287,000 square feet) Chicago Ridge, Illinois; and (iii) 60% interest in Sheridan Village Shopping Center (280,000 square feet) Peoria, Illinois. Registrant received net proceeds of $15 million and recorded gains of $12.4 million. Registrant acquired the Village Shopping Center in 1965, its interest in The Commons of Chicago Ridge in 1987 and its interest in the Sheridan Village Shopping Center in 1990.
2. In February 1994, Jonathan B. Weller joined Registrant as its President, Chief Operating Officer and a Trustee. Sylvan M, Cohen continues as Registrant's Chairman, Chief Executive Officer and a Trustee. Mr. Weller, 47 years old, had previously served as Executive Vice President and Director of Eastdil Realty, Inc., a real estate investment banking firm, responsible for its real estate investment management activities.
3. In February 1994, Registrant purchased Hidden Lakes Apartments, a 360 unit property in Dayton, Ohio, for a total cost of $12.9 million. The cash to acquire this property was borrowed from the Registrant's bank lines of credit.
4. In August 1994, Registrant purchased The Palms of Pembroke, a 348 unit apartment property in Broward County, Florida, for a total cost of $21.5 million. The cash to acquire this property was borrowed from the Registrant's bank line of credit. (See Registrant's Form 8-K, dated August 1, 1994 and filed August 15, 1994.)
5. In August 1994, Registrant increased its unsecured bank credit lines by $25 million to a total of $55 million. The credit lines had an interest rate of prime and they had a one year renewable term.
6. In November 1994, Registrant obtained a $110 million revolving credit and acquisition facility. Of the total, $78 million is a 30 month unsecured revolving credit facility which replaced the $55 million one year credit lines referred to in paragraph 5 above. The remaining $32 million is a one-year secured borrowing which was advanced for the acquisition of Boca Palms Apartments discussed in paragraph 7 below. The credit facilities permit the Registrant to borrow at its election, at either (i) the prime rate or LIBOR plus 1.85% for the revolving credit facility and (ii) prime rate or the federal funds effective rate plus 0.5% or LIBOR plus 2% for the secured facility.
7. In November 1994, the Registrant purchased Boca Palms Apartments, a 522 unit apartment community in Palm Beach County, Florida for $32.5 million. The Registrant anticipates spending an additional $2.1 million for closing costs, landscape improvements, apartment upgrades and other enhancements over the next year. (See Registrant's Form 8-K, dated November 10, 1994 and filed November 23, 1994.)
Real Estate Investments
Registrant's principal real estate assets as of August 31, 1994 consisted of interests in 48 properties, 20 of which are wholly owned (one of which is a consolidated partnership) and 28 of which are owned by partnerships or joint ventures (hereinafter referred to as "partnerships"), in which Registrant or its subsidiaries have equity interests ranging from 25% to 87.5%, only four of which are less than 50%. Registrant's intent is to invest in assets that provide opportunity for growth in income and capital appreciation in real terms. During the fiscal year, equity in income from partnerships was $4,416,000 or approximately 54.6% of Registrant's net income before gains on sales of interests in real estate and approximately 21% of Registrant's total net income. The investment portfolio of the Trust also included 3 notes receivable.
The following table sets forth certain information concerning Registrant's real estate investments at August 31, 1994.
(1) Registrant has a 65% "controlling interest" in an apartment building. For financial statement presentation the partnership is reported on a consolidated basis with the Registrant.
(2) The amounts shown represent 100% of the depreciated cost of the property related to the respective partnerships and joint ventures. The ownership interest of the Registrant in the partnerships and joint ventures is set forth on pages 8-10 herein.
All of the properties held in partnership form were acquired through or developed by individuals or entities independent from the Registrant. The persons presently involved in these properties are hereinafter referred to in this Form 10-K as "partners." The 29 properties (including the property owned by the consolidated partnership) involve 18 different partners, 11 of whom held an interest in only one property and 7 of whom held interests in from 2 to 4 properties.
In 26 of the 29 partnerships, (including a consolidated partnership) Registrant either received or was entitled to receive a priority distribution of the cash flow. The priority distribution is based upon Registrant's capital contribution to the partnership. Registrant generally is not required to make its capital contribution to the partnership until the permanent financing of the property is funded or the property is "operational" as defined in the partnership agreement. In the 3 remaining partnerships, there were no priority distributions as Registrant's partner made a pro-rata capital contribution.
No trustee or employee of Registrant participates in the ownership or income from the properties held in partnership form or any other property in which Registrant has an interest.
Registrant or a wholly-owned subsidiary of Registrant is a general partner in the ownership of the 29 properties owned by partnerships and its approval along with that of its partner, except for Registrant's partners at Emerald Point (a consolidated partnership), is required in decisions involving finance, sale, or major policies regarding capital improvements and leasing. Usually, an entity owned or controlled by Registrant's partner is the manager of the property and collects rents, pays the expenses from the receipts collected and reports on a monthly basis to Registrant.
As of August 31, 1994, the mortgage indebtedness of the wholly-owned properties of the Registrant was $44,019,000, including a consolidated partnership mortgage of $17,659,000 in which the Registrant has a 65% interest. In addition, Registrant has interests in 19 partnerships which have an aggregate mortgage indebtedness of $131,002,000, none are subject to an equity type participation. The mortgage notes bear interest at rates ranging from 7.49% to 9.5% per annum. The liability under each mortgage note is limited to the particular property except for two loans in the amount of $21,227,000 which are guaranteed by the partners of the respective partnerships, including the Registrant. In addition, a bank loan in the amount of $1,409,000 has been guaranteed by the partners of the partnership, including the Registrant.
General Information
Registrant has invested substantially all of its assets in rental producing real estate, with an emphasis on shopping centers and apartment complexes and in U.S. Government obligations. Shopping centers and apartment complexes accounted for approximately 97% of Registrant's real estate equity investments at cost and of its revenues for the fiscal year ended August 31, 1994.
No single tenant accounts for more than three percent (3%) of the rental revenue attributable to the Registrant (including Registrant's share of rental income from partnerships and joint ventures).
WHOLLY OWNED PROPERTIES
The following chart sets forth the type of property and location, year acquired, the number of units or square feet, occupancy rate, depreciated cost and the mortgage balance as of August 31, 1994.
APARTMENT BUILDINGS
Wholly Owned Properties (continued)
SHOPPING CENTERS
INDUSTRIAL PROPERTIES
(1) Occupancy rate is calculated as the percentage of occupied units for all apartments as of August 31, 1994.
(2) Percentage Leased is calculated as a percentage of total shopping center net leasable area for which leases were in effect as of August 31, 1994.
(3) Acquired on February 23, 1994.
(4) Acquired on August 1, 1994.
(5) Registrant has control of this partnership and as a result for financial statement purposes the partnership is consolidated with Registrant.
(6) Acme Markets, which occupied 34,000 square feet, vacated the property but continued to pay the rent pursuant to its lease which was to expire July, 2000. Registrant, effective August 31, 1994, entered into a lease with K-Mart to occupy the shopping center and cancelled the Acme lease.
(7) Registrant, in settlement of a partners' obligation acquired the partners' 50% interest in this property on February 1, 1994.
PARTNERSHIPS AND JOINT VENTURES
The following chart sets forth the type of property and location, year acquired, Registrant's equity interest in amounts shown, number of units, square feet of building or acres of ground, occupancy rate, percentage leased, partnerships and joint ventures depreciated cost, partnerships and joint ventures mortgage balance and Registrant's investment in partnerships and joint ventures at August 31, 1994.
APARTMENT BUILDINGS
Unconsolidated Partnerships and Joint Ventures
Partnerships and Joint Ventures (continued)
SHOPPING CENTERS
(1) Some partnerships and joint ventures have incurred non-mortgage indebtedness in connection with operations.
(2) These investments, which represent 25%-87.5% non controlling ownership interests, are recorded initially at Registrant's cost and subsequently adjusted for the Registrant's net equity in income and cash contributions and distributions.
(3) Whitehall Mall includes 82,000 square feet occupied by a department store tenant which leases the ground and owns the building.
(4) Palmer Park Mall includes 82,000 square feet occupied and owned by a department store.
(5) Gateway Mall includes 60,000 square feet occupied and owned by a department store.
(6) Lehigh Valley Mall includes 565,000 square feet occupied and owned by department stores which either own or lease the ground upon which their stores are located.
(7) Frank's Garden Center which had occupied 18,800 square feet, vacated the property but continues to pay rent until its lease term expires December 2006.
Balance Notes Receivable August 31, 1994 - ---------------- --------------- Samuel Lauter, (1) $559,600 Donald Cafiero, (1) 568,000 Charles A. Lotz, Jr., Jacksonville, Fl.(2) 521,100 ---------- $1,648,700 ==========
(1) Collateralized by his partnership interest in four Partnerships.
(2) Collateralized by his interests in real estate holdings. The loan was not paid on the maturity date, February 15, 1990. The note is on a non-accrual basis.
Competition, Regulation and Other Factors
The real estate investment business engaged in by Registrant is highly competitive. Registrant competes with investors of all types, including institutions, other real estate investment trusts, corporations, partnerships, and foreign investors, in acquiring interests in properties. Competition is extremely intense for the prime properties, with insurance companies, real estate investment trusts and numerous other institutions, corporations, pension funds, limited partnerships and other business entities, both domestic and foreign, investing in real estate.
A substantial portion of Registrant's shopping center income consists of rents received under long-term leases. Most of these shopping center leases provide for payment by tenants of an annual minimum rent and additional rent calculated generally as a percentage of gross sales in excess of a specified amount ("percentage rent"). These shopping center leases often contain provisions for contribution by tenants to the cost of maintaining common areas and real estate tax escalation clauses under which the tenant bears its proportionate share of increases in or total real estate taxes. While tenant contributions historically have not covered all costs required to maintain common areas, some leases provide for full recovery of these costs from tenants. Upon renewal of a shopping center lease, the annual minimum rent of a tenant is often increased to an amount which approaches or exceeds the sum of the former annual minimum rent plus the most recent annual percentage rent received from the tenant, and the level from which percentage rent is calculated is correspondingly increased.
The success of Registrant depends, among other factors, general economic conditions, population trends, real estate fluctuations, income tax laws, governmental regulations, availability and costs of financing, construction costs, increases or decreases in operating expenses, zoning laws and the ability of Registrant to keep its properties leased at profitable levels. A continuation of the current economic conditions, or adverse changes in general or local economic conditions or weakness in the real estate and retail markets, particularly in the eastern half of the United States where Registrant primary focuses its efforts, could result in the
inability of some existing tenants of the Registrant's properties to meet their lease obligations and could adversely affect Registrant's ability to attract or retain tenants. It is Registrant's belief that economic conditions in the eastern half of the United States have stabilized and recently have shown some improvement. However, it is not possible to predict what, if any, effect that recovery has or will have on Registrant's properties. All of Registrant's shopping center and apartment properties are subject to significant competition.
Registrant is not dependent upon any single lender for its long term debt. It borrows money from time to time on its general credit and expects to continue such open-account borrowing in the future and has used its general credit to guarantee obligations of partnerships in which it has an interest. A number of the traditional sources for such financing are not currently in the market or have sharply limited their activities, particularly with respect to properties more than ten years old.
At August 31, 1994, the liability of each permanent mortgage note is limited to the particular property, except for two loans on shopping centers in the amount of $21,227,000 which are guaranteed by the partners of the partnership. Generally, the liability of a construction mortgage note and borrowings of the partnerships in which Registrant has an interest are not limited to a particular property, but are the general obligation of Registrant and the partnership. At August 31, 1994, one construction mortgage was outstanding with respect to a property in which Registrant has an interest. Where Registrant has a co-ownership or partnership interest in a property, it may be required to make the full payment under the obligation to protect its equity interest in the property. (See Note 2 of the Notes to Consolidated Financial Statements.)
Fundamental to the operations of Registrant is the generation of funds from operations under circumstances which render such funds, if distributed to shareholders, free from Federal income taxes to the Registrant. The determination to make distributions to shareholders, however, is not solely based on funds from operations, since Registrant is required to distribute to its shareholders annually at least 95% of its real estate investment trust taxable income to remain qualified for the favorable tax treatment afforded by the Internal Revenue Code. Registrant has followed a policy of distributing all of its real estate investment trust taxable income and substantially all taxable capital gains from sales of real estate investments. Since Registrant was founded, substantially all of the cash derived from operations has been from recurring rental and interest income. However, Registrant has realized capital gains from the sale of some of its properties and from the sale of properties by partnerships in which Registrant has an interest. Registrant has in the past distributed a substantial portion of its real estate investment trust taxable income in the subsequent year and may follow this policy in the future. The Registrant is subject to a federal excise tax computed on a calendar year basis. The excise tax equals 4% of the excess, if any, of 85% of Registrant's ordinary income for the calendar year plus 95% of Registrant's capital gain income for the calendar year over the amount distributed during the calendar year, as defined. A provision for excise tax was made in 1994 in the amount of $400,000. No provision was made for fiscal year 1993 as no tax was due.
The United States government and a number of states and their subdivisions have adopted laws and regulations relating to environmental controls, some of which directly, and many of which indirectly, limit the development of real estate and may adversely affect the operations of existing properties. Such laws and regulations may operate to reduce the number and attractiveness of investment opportunities available to Registrant and limit the extent to which existing properties may be utilized. If hazardous substances are discovered on or emanating from any of Registrant's properties, the owner or operator of the property, including Registrant, may be held liable for all costs and liabilities relating to such hazardous substances. Since 1987, Registrant has conducted a Phase I environmental study on each property it seeks to acquire. The effect upon Registrant of the application of such laws and regulations cannot be predicted. However, Registrant's Trustees believe that Registrant has not to date experienced any material adverse effects by reason of the application of such laws and regulations. Registrant has no insurance coverage for the types of environmental conditions described above. See "Management's Discussion and Analysis of Financial Condition and Results of Operations", page 22 of 1994 Annual Report to Shareholders, incorporated herein by reference and made a part hereof.
In many cases, Registrant relies on its partners or entities controlled by one or more of its partners to oversee the day-to-day development, construction, leasing and management of properties in which it has an interest. Registrant's wholly-owned properties are managed either by its own staff or by independent property managers on a contract basis. Should such entities be unable or unwilling to perform their obligations or responsibilities with respect to one or more projects, Registrant's present staff is not of sufficient size to perform those functions.
In the past three years inflation has not had a significant impact on Registrant because of the relatively low inflation rate. Should the inflation rate increase substantially, some of the impacts would have differing results on net income. Generally retail prices would increase which would increase the rents paid by those tenants whose sales were at or near the level at which percentage rents would be paid in addition to the minimum rents. Some shopping center leases require tenants to pay a portion of operating expenses and taxes which tends to mitigate the overall impact of inflation. Furthermore, there can be no assurances that leases with such provisions will be renewed at the same levels in the future. The direct impact on net income depends on the amount of debt subject to rate adjustments in effect. An increase in interest rates may also affect the ability to borrow money by the Registrant and the partnerships in which Registrant has an interest, particularly when mortgages mature and a balloon payment is required.
Bank Lines of Credit
At August 31, 1994, Registrant had an aggregate $55,000,000 of unsecured revolving lines of credit of which $46,655,000 was borrowed ($10,519,000 through partnerships and $36,136,000 by the Registrant). In addition, a bank loan in the amount of $1,409,000 had been guaranteed by the partners of a partnership, including Registrant. The lines of credit provide that the loans will bear interest at rates tied to the prime rate with no requirement that Registrant maintain any compensating balances. The weighted average interest rate based on amounts borrowed was 6.5% at August 31, 1994. In connection with the loans, Registrant agreed to certain covenants, including maintaining a minimum net worth (as defined in the loan documents) and maintaining cash and cash equivalents levels of at least $3,000,000, which may include up to $2,000,000 of Registrant's share of cash and cash equivalents held by partnerships. During all relevant periods, Registrant was in compliance with those covenants.
In November 1994, Registrant obtained a $110 million revolving credit and acquisition facility. Of this amount, $78 million is a 30-month unsecured revolving credit facility which replaced the one year credit lines of $55 million, referred to above. The $32 million balance is a one-year secured borrowing, which was advanced for the acquisition of Boca Palms Apartments, discussed elsewhere herein. Both credit facilities permit Registrant to borrow, at its election (i) at the prime rate or (ii) LIBOR plus 1.85% for the revolving credit facility; and (i) at the prime rate or the federal funds effective rate plus 0.5% or (ii) LIBOR plus 2.0% for the secured facility.
Employees
Registrant, as of August 31, 1994, employed fourteen (14) persons on a full-time basis, three of whom, Sylvan M. Cohen, Chairman and Chief Executive Officer, Jonathan B. Weller, President and Chief Operating Officer and Robert G. Rogers, Executive Vice President, are Trustees.
Item 2.



Item 2. Properties
See the tables under "Item 1. Business" at pages 5 to 10 for the properties owned by Registrant, both wholly owned and those in which it has a percentage interest, and reference is made thereto.
Registrant has leased 4,661 square feet of space for its principal offices at 455 Pennsylvania Avenue, Ft. Washington, Pennsylvania, for a term of five years and five months. The rent for the first year's rent is $13.00 per square foot, escalating annually to the final year's rent at $14.50 per square foot. In addition to the rent, Registrant pays its pro rata share of any increase in operating expenses over those in 1993, which is the base year for determining the increase.
Titles to all of Registrant's real estate investments have been searched and reported to Registrant by reputable title companies. The exceptions listed in such title reports will not, in the opinion of Registrant, prevent the respective properties from being used for the intended purposes.
Schedule of Real Estate and Accumulated Depreciation
Schedule XI, "Real Estate and Accumulated Depreciation - August 31, 1994," is part of the financial statement schedules attached hereto and reference is made to that schedule which is incorporated herein by reference for the amount of encumbrances, initial cost of the properties to Registrant, cost of improvements, the amount at which carried and the amount of the accumulated depreciation.
Item 3.

Item 3. Legal Proceedings
Daniel Berman and Robert Berman (the "Bermans") and/or entities owned or controlled by them are partners of wholly-owned subsidiaries of Registrant in the ownership of Fox Run Apartments, Bear, Delaware, Eagle's Nest Apartments, Coral Springs, Florida, and 14 undeveloped acres in Coral Springs, Florida. Berman Real Estate Management, Inc., a corporation owned by the Bermans, currently manages the two apartment complexes.
On May 27, 1994 the Bermans on behalf of themselves and partnerships and corporations controlled and/or owned by them commenced an action against Registrant and wholly-owned subsidiaries owned by it. Berman v. Burren, Inc., et al, Montgomery County Court of Common Pleas, Civil Action No. 94-09993 (the "Pennsylvania Litigation"). The complaint in the Pennsylvania Litigation alleges breach of contract, misrepresentation, and breach of fiduciary duty and seeks a declaratory judgment. The complaint was amended in response to Registrant's preliminary objections to add several claims not alleged in the original complaint, including that Registrant tortiously interfered with a contract to develop the parcel in Coral Springs, Florida and that defendants had no right to terminate the leasing and managing agreement at Fox Run. The amended complaint seeks a declaratory judgment and damages. The Court has not rendered a decision on Registrant's preliminary objections to the amended complaint or its motion to strike.
On June 22, 1994 two wholly-owned subsidiaries of Registrant commenced an action in Delaware against the Bermans and several partnerships and corporations controlled and/or owned by them. Berdel, Inc. et al v. Berman Real Estate Management, Inc. et al, Delaware Court of Chancery in and for New Castle County, Civil Action No. 13579 (the "Delaware Litigation"). The action seeks a declaratory judgment and an injunction preventing the defendant from continuing to manage Fox Run and damages resulting from the payment by plaintiff of defendant's share of the investigation and remediation of the environmental condition at Fox Run Apartments. Defendants moved to dismiss or stay the Delaware Litigation in favor of the Pennsylvania Litigation and plaintiffs amended their complaint to assert additional claims for
recovery of cleanup costs under the Delaware Hazardous Substance Cleanup Act, diminuation in value of investment, conspiracy, breach of fiduciary duty and tortious interference with contract. The Court has not rendered a decision on defendant's motion to dismiss.
On June 20, 1994, a wholly-owned subsidiary of Registrant commenced an action against the Bermans, a partnership and several corporations owned or controlled by them, seeking damages for failure to make capital contributions under the partnership's agreement for Eagle's Nest Apartments. Berfla, Inc. v. ETA Associates, et al, Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CL 94-4787AJ (the "Florida Litigation"). Defendants moved to abate or stay the Florida Litigation in favor of the Pennsylvania Litigation. On September 13, 1994 the Court granted defendants' motion.
Discovery is in its preliminary stages in both the Pennsylvania Litigation and the Delaware Litigation. It is Registrant's intent to continue to vigorously resist plaintiffs' claims in the Pennsylvania Litigation and to pursue all of the claims asserted by its subsidiaries in the Delaware Litigation.
Item 4.

Item 4. Submision of Matters to a Vote of Security Holders
There were no matters submitted for a vote of security holders during the Registrant's fourth quarter.
Executive Officers of the Registrant
The executive officers of Registrant on November 1, 1994 were as follows:
None of the foregoing officers is related by blood, marriage, or adoption to any of the others or to any of the Trustees. All of the officers serve at the will of the Trustees but are elected to terms expiring at the annual meeting of the Trustees, which next occurs on December 15, 1994. There is no special arrangement with any officer pursuant to which he was elected. Mr. Cohen has an employment contract to serve Registrant as its chief executive officer for a term that expires on December 31, 1994 and then from year to year unless terminated by written notice. Messrs. Rogers and Massimini have employment contracts to serve Registrant as its officers for initial terms that expire in 1996 and 1995, respectively, and then year-to-year unless terminated by written notice. Mr. Linn has an employment contract to serve Registrant as Vice President for Acquisitions and Secretary. The contract was entered into in 1985 with an initial term of two years and then from year-to-year unless terminated by written notice.
Registrant entered into an Employment Agreement with Mr. Weller on December 14, 1993. The employment period is for a term of three years; provided, however, that commencing one year after the start of his employment, February 1, 1994, and on each annual anniversary of such date, unless the agreement is previously terminated, the employment period shall be automatically extended so as to terminate three years from the said February 1st. The Employment Agreement provides for an annual base salary of $275,000 and provides that in the event that the base salary is raised the raised salary shall become the base salary for purposes of the Employment Agreement. Pursuant to the Employment Agreement, Mr. Weller was granted, subject to shareholder approval, a non qualified stock option to acquire 100,000 shares of Registrant's stock with a purchase price of $24.625 per share, equal to the opening price of Registrant's shares on the American Stock Exchange on December 14, 1993. In accordance with the Employment Agreement, Mr. Weller invested $250,000 in shares of the Registrant.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Incorporated by reference to "Market Prices and Distribution Record", inside front cover of the 1994 Annual Report to Shareholders.
The Board of Trustees on December 19, 1991 changed the prior practice of making semi-annual distributions. The Board of Trustees in each quarter, subsequent to the third quarter of the 1992 fiscal year, has considered and declared a quarterly distribution. It is anticipated that the Board of Trustees will consider a distribution each quarter; however, no assurance can be given that a distribution will be declared.
Item 6.

Item 6. Selected Financial Data
Incorporated by reference to "Financial Highlights", page 1 of the 1994 Annual Report to Shareholders.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated by reference to pages 21-24 of the 1994 Annual Report to Shareholders.
Item 8.


Item 8. Financial statements and Supplementary Data
The consolidated balance sheets of the Registrant as of August 31, 1994, and 1993, and the related consolidated statements of income, beneficiaries' equity and cash flows for each of the three years in the period ended August 31, 1994, and the report of independent public accountants thereon and Registrant's summary of unaudited quarterly financial information for the two-year period ended August 31, 1994 are incorporated by reference from the 1994 Annual Report to Shareholders, pages 12-20. The audited financial statements of Lehigh Valley Associates for the years ended August 31, 1993 and December 31, 1992 and 1991 and the report of independent auditors thereon are incorporated by reference from Registrant's Form 8 dated March 29, 1994 amending Registrant's Form 10-K annual report for the fiscal year ended August 31, 1992.
Item 9.

Item 9. Disagreements on Accounting and Financial Disclosure
There are no matters which are required to be reported under this Item 9.
PART III
Item 10.



Item 10. Directors and Executive Oficers of the Registrant
Incorporated herein by reference from Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 under the caption "Nominees for the Office of Trustee and Trustees Continuing in Office", pages 3-4. See also the list of Registrant's executive officers and related information appearing in Part I hereof, pages 16-17.
Item 11.

Item 11. Executive Compensation
Incorporated herein by reference from Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 under the captions "Executive Compensation", "Stock Options", "Compensation of Directors", and "Benefit Plans", pages 5-9.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference from Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 under the captions "Principal Security Holders", page 14, and "Nominees for the Office of Trustee and Trustees Continuing in Office", pages 3-4.
Item 13.

Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference from Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 under the caption "Transactions with Management", page 14.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements
(1) Financial Statements 1. The consolidated financial statements appear in the 1994 Annual Report to Shareholders.
2. The financial statements of Lehigh Valley Associates for the year ended August 31, 1993 are incorporated herein by reference from Registrant's Annual Report for the fiscal year ended August 31, 1993 on Form 10-K. The financial statements of Lehigh Valley Associates for the year ended August 31, 1994 are not included in this Form 10-K Annual Report as the partnership did not meet the conditions for inclusion set forth in Rule 3-09 of Regulation S-X.
3. The financial statements of Lehigh Valley Associates for the years ended December 31, 1992 and 1991 are incorporated herein by reference from Registrant's Form 8 dated March 29, 1993, amending Registrant's Form 10-K Annual Report for the fiscal year ended August 31, 1992.
(2) Schedules
VIII - Valuation and Qualifying Accounts XI - Real Estate and Accumulated Depreciation XII - Mortgage Loans on Real Estate - August 31, 1994
Report of Independent Public Accountants on Supplemental Schedules Schedules not included have been omitted because they are not applicable or are not required or the required information is reported in the consolidated financial statements or notes thereto.
(b) Reports on Form 8-K
Registrant filed a Form 8-K Report on August 15, 1994, reporting under Item 2 the purchase on August 1, 1994 of The Palms of Pembroke Apartments for $20,496,500. Included in the Form 8-K Report under Item 7 were The Palms of Pembroke - Statements of Revenues and Certain Expenses as of the Year Ended August 31, 1993 and the Nine-Month Period Ended May 31, 1994 (unaudited) and the Pro Forma Unaudited Consolidating Balance Sheet as of May 31, 1994 and Consolidating Statements of Operations for the year ended August 31, 1993 and the Nine-Month Period ended May 31, 1994 (unaudited).
(c) Exhibits
3.1 Copy of Trust Agreement as Amended and Restated on December 16, 1987. Filed as Exhibit 3.1 to Registrant's Annual Report for the fiscal year ended August 31, 1988 on Form 10-K and incorporated herein by this reference.
10.1 Employment Agreement, dated as of March 14, 1985 as of January 1, 1990, between Registrant and Sylvan M. Cohen, incorporated hereby by reference to Exhibit 10.1 to Registrant's Form 10-K for the fiscal year ended August 31, 1990.
10.2 First Amendment to Amended and Restated Employment Agreement as of July 12, 1993 between Registrant and Robert G. Rogers, incorporated hereby by reference to Exhibit 10.2 to Registrant's Form 10-K for the fiscal year ended August 31, 1993.
10.3 Amended and Restated Employment Agreement, dated as of October 1, 1990, between Registrant and Robert G. Rogers, incorporated hereby by reference to Exhibit 10.2 to Registrant's Form 10-K for the fiscal year ended August 31, 1990.
10.4 Amended and Restated Employment Agreement, dated as of October 1, 1990, between Registrant and Dante J. Massimini, incorporated hereby by reference to Exhibit 10.3 to Registrant's Form 10-K for the fiscal year ended August 31, 1990.
10.5 Registrant's 1990 Incentive Stock Option Plan, incorporated hereby by reference to Appendix A to Exhibit "A" to Registrant's Form 10-Q for the quarterly period ended November 30, 1990.
10.6 Registrant's Stock Option Plan for Non-Employee Trustees, incorporated herein by reference to Appendix B to Exhibit "A" to Registrant's Form 10-Q for the quarterly period ended November 30, 1990.
10.7 Purchase and Sale Agreement between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Registrant and Pembroke Associates Limited Partnership dated May 9, 1994 (without affiliates); and Amendment No. 1 to Purchase and Sale Agreement between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of Registrant and Pembroke Associates Limited Partnership dated June 28, 1994, incorporated hereby by reference to Exhibit 10.7 to Registrant's Form 8-K dated August 1, 1994 and filed August 15, 1994.
10.8 Agreement of Sale (Phase I) between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Pennsylvania Real Estate
Investment Trust and Arbern Investors VI, L.P., each a Delaware limited partnership, dated September 24, 1994 (without exhibits); and Amendment No. 1 to Purchase and Sale Agreement (Phase I) between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Pennsylvania Real Estate Investment Trust and Arbern Investors VI, L.P. each a Delaware limited partnership, dated November 4, 1994, incorporated hereby by reference to Exhibit 10.8 to Registrant's Form 8-K dated November 10, 1994 and filed November 23, 1994.
10.9 Agreement of Sale (Phase II) between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Pennsylvania Real Estate Investment Trust and Arbern Investors VIII, L.P., each a Delaware limited partnership, dated September 24, 1994 (without exhibits); Amendment No. 1 to Purchase and Sale Agreement (Phase I) between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Pennsylvania Real Estate Investment Trust and Arbern Investors VIII, L.P., each a Delaware limited partnership, dated November 4, 1994; and Amendment No. 2 to Purchase and Sale Agreement (Phase I) between Robert G. Rogers and Jonathan B. Weller, as Trustees, and on behalf of all other Trustees of the Pennsylvania Real Estate Investment Trust and Arbern Investors VIII, L.P., each a Delaware limited partnership, dated November 4, 1994, incorporated hereby by reference to Exhibit 10.9 to Registrant's Form 8-K dated November 10, 1994 and filed on November 23, 1994.
10.10 Employment Agreement dated as of December 14, 1993 between Registrant and Jonathan B. Weller.
10.11 Registrant's Amended Incentive and Non Qualified Stock Option Plan, incorporated hereby by reference to Exhibit A to Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 which was filed November 17, 1994 (Exhibit 13.2).
10.12 Registrant's 1993 Jonathan B. Weller Non Qualified Stock Option Plan, incorporated hereby by reference to Exhibit B to Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 which was filed November 17, 1994 (Exhibit 13.2).
13.1 "Market Price and Distribution Record" contained on inside cover page; "Financial Highlights" contained on page 1 of Registrant's 1994 Annual Report to Shareholders; consolidated financial statements including "notes to consolidated financial statements" and "report of independent public accountants" contained on pages 12-14, pages 15-19 and page 20, respectively of Registrant's 1994 Annual Report to Shareholders; and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained on pages 21-24 of Registrant's 1994 Annual Report to Shareholders.
13.2 Registrant's definitive proxy statement for the annual meeting of shareholders on December 15, 1994 which was filed November 17, 1994.
22. Listing of subsidiaries
27. Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST (Registrant)
Date: November 28, 1994 By: s/ Sylvan M. Cohen -------------------- Sylvan M. Cohen, Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Sylvan M. Cohen his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
s/ Sylvan M. Cohen - --------------------------------------- Sylvan M. Cohen, November 28, 1994 Chairman and Chief Executive Officer and Trustee (Principal Executive Officer)
s/ Jonathan B. Weller - --------------------------------------- Jonathan B. Weller, November 28, 1994 President and Chief Operating Officer and Trustee
s/ William R. Dimeling - --------------------------------------- William R. Dimeling, November 28, 1994 Trustee
s/ Jack Farber - --------------------------------------- Jack Farber, November 28, 1994 Trustee
s/ Robert Freedman - --------------------------------------- Robert Freedman, November 28, 1994 Trustee
- --------------------------------------- Lee Javitch, November , 1994 Trustee
- --------------------------------------- Samuel J. Korman, November , 1994 Trustee
- --------------------------------------- Jeffrey P. Orleans, November , 1994 Trustee
s/ Robert G. Rogers - --------------------------------------- Robert G. Rogers, November 28, 1994 Executive Vice President and Trustee
s/ Jeffrey A. Linn - --------------------------------------- Jeffrey A. Linn, November 28, 1994 Vice President - Acquisitions and Secretary
s/ Dante J. Massimini - --------------------------------------- Dante J. Massimini, November 28, 1994 Vice President - Fiance and Treasurer (Principal Financial and Accounting Officer)
SCHEDULE VIII
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE XI PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1994
SCHEDULE XI (Continued)
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION--AUGUST 31, 1994
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST SCHEDULOE XI (Continued)
SCHEDULE XII PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
MORTGAGE LOANS ON REAL ESTATE--AUGUST 31, 1994
(2) The interest rate is 1% over the prime rate but not less than 10% or more than 18%.
(3) The loan was not paid on the maturity date of December 15, 1990. The loan is on a nonaccrual basis.
(4) The loan was not paid on the maturity date of February 15, 1990. Beginning in March 1992, 25% of all distributions due are applied to the repayment of the loan.
(5) The aggregate cost for federal income tax purposes is the same as the cost shown in Column G.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULES
To Pennsylvania Real Estate Investment Trust:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements included in Pennsylvania Real Estate Investment Trust's annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated October 24, 1994. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The supplemental schedules are the responsibility of the Trust's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic consolidated financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa., October 24, 1994
LEHIGH VALLEY ASSOCIATES
FINANCIAL STATEMENTS AS OF AUGUST 31, 1993 TOGETHER WITH AUDITORS' REPORT
LEHIGH VALLEY ASSOCIATES
BALANCE SHEET
AUGUST 31, 1993
ASSETS: Real estate at cost (Notes 1 and 2): Land $ 8,406,814 Building and improvements 19,959,224 Furniture and equipment 267,882 ----------- 28,633,920 Less-Accumulated depreciation (9,930,046) ----------- 18,703,874 Cash and cash equivalents 665,034 Due from tenants and others 886,020 Prepaid expenses and other assets 456,064 ----------- $20,710,992 =========== LIABILITIES AND PARTNERS' DEFICIT: Mortgages payable (Note 3) $23,316,368 Accrued expenses and other liabilities, including accrued interest of $175,600 704,856 ----------- 24,021,224 Commitments (Notes 5 and 6)
Partners' deficit (3,310,232) ----------- $20,710,992 ===========
The accompanying notes are an integral part of this statement.
LEHIGH VALLEY ASSOCIATES
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1993
INCOME: Rentals (Notes 2 and 6): Minimum $ 8,231,046 Percentage 898,470 Tenant reimbursements: Common area maintenance 2,317,249 Utilities 721,734 Real estate taxes 692,026 Insurance 18,342 Other 302,835 ----------- 13,181,702 ----------- EXPENSES: Common area expenses 2,440,426 Interest (Note 3) 2,135,634 Real estate taxes 692,976 Depreciation and amortization (Note 2) 667,480 Management fees (Note 5) 645,936 Other property operating expenses 307,120 ----------- 6,889,572 ----------- Net income $ 6,292,130 ===========
The accompanying notes are an integral part of this statement.
LEHIGH VALLEY ASSOCIATES
STATEMENT OF PARTNERS' DEFICIT
FOR THE YEAR ENDED AUGUST 31, 1993
The accompanying notes are an integral part of this statement.
LEHIGH VALLEY ASSOCIATES
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED AUGUST 31, 1993
The accompanying notes are an integral part of this statement.
LEHIGH VALLEY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1993
1. ORGANIZATION AND NATURE OF BUSINESS:
Lehigh Valley Associates, a Pennsylvania limited partnership (the Partnership), was formed on July 31, 1973 for the purpose of developing and operating a regional shopping center property. The regional shopping center and an office building are located in Whitehall, Pennsylvania. Two retail department stores own adjacent property upon which each has constructed a store. The partners and their respective ownership interests are as follows:
General Partners Pennsylvania Real Estate Investment Trust (PREIT) 30.0% Delta Ventures, Inc. 0.5 Limited Partners - Pennsylvania Real Estate Investment Trust 20.0 Various Individuals 49.5 ----- 100.0% =====
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Real Estate
Depreciation is computed on the straight-line method over 10 to 35 years for buildings and improvements and 10-20 years for furniture and equipment, representing the estimated useful lives of such assets.
Betterments, renewals and extraordinary repairs that extend the life of the property are capitalized. Other repairs and maintenance are expensed.
Recognition of Rental Income
The Partnership recognizes minimum rental income on a straight-line basis over the applicable lease term. Percentage rents are accrued as income for those tenants whose annualized reported sales at August 31 exceeded the minimum annual sales volumes required for percentage rents.
Income Taxes
No provision has been made for federal or state income taxes since such taxes are the liability of the individual partners. The Partnership's tax returns and the amount of allocable Partnership profits or losses are subject to examination by federal and state taxing authorities. If such examinations result in changes to Partnership profits or losses, the tax liability of the partners would be changed accordingly.
Cash Equivalents
For purposes of reporting cash flows, the Partnership considers all highly liquid investments with initial maturities of three months or less to be cash equivalents.
3. MORTGAGES PAYABLE:
The above mortgages are collateralized and recourse is limited to the respective real estate and tenant leases.
Principal payments on the mortgages are due as follows:
Years Ending August 31: 1994 $ 520,000 1995 568,000 1996 622,000 1997 682,000 1998 746,000 Thereafter 20,178,368 ----------- $23,316,368 ===========
Interest paid in fiscal 1993 amounted to $2,138,234.
4. PARTNERS' EQUITY (DEFICIT):
In accordance with the Partnership agreement, cash flow from operations, as defined, shall be distributed and profits shall be allocated on a pro-rata basis in accordance with the partners' respective ownership interests.
5. MANAGEMENT FEES:
Management fees are paid to an affiliate of certain of the various limited partners, pursuant to the terms of a management agreement, at the rate of 5% of gross receipts from the property (as defined). In addition, the affiliate provides the center and its tenants with electricity.
6. LEASES:
The Partnership earns rental income under leases with retail stores. All leases are accounted for as operating leases. Leases generally provide for minimum rentals plus percentage rentals based on the stores' sales volume and also require each store to pay a portion of real estate taxes and common area expenses. In addition, leases provide for the stores to pay utility charges to an affiliate. Lease periods generally range from 10 to 20 years and contain various renewal options. The Partnership also earns rental income under leases with commercial tenants located in its office building. Such leases generally provide for the tenant to pay minimum rentals plus a portion of increases in real estate taxes and operating expenses. Commercial lease periods generally range from 3 to 5 years and contain various renewal options.
The following schedule of future minimum rental payments required under noncancelable operating leases as of August 31, 1993 does not include any amounts due as percentage rent or amounts that would be due from new leases or the exercise of renewal options under existing leases:
Years Ending August 31: 1994 $ 8,670,000 1995 8,637,000 1996 8,529,000 1997 7,169,000 1998 6,208,000 Thereafter 26,163,000 ----------- Total minimum future rentals $65,376,000 ===========
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Lehigh Valley Associates:
We have audited the accompanying balance sheet of Lehigh Valley Associates (a Pennsylvania limited partnership) as of August 31, 1993, and the related statements of operations, partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lehigh Valley Associates as of August 31, 1993, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa. October 25, 1993
Financial Statements
Lehigh Valley Associates (A Limited Partnership)
Years ended December 31, 1992 and 1991 with Report of Independent Auditors
Lehigh Valley Associates (A Limited Partnership)
Financial Statements
Years ended December 31, 1992 and 1991
Contents
Report of Independent Auditors................................................1
Audited Financial Statements
Balance Sheets................................................................2 Statements of Operations......................................................3 Statements of Partners' Deficiency............................................4 Statements of Cash Flows......................................................5 Notes to Financial Statements.................................................6
Report of Independent Auditors
To the Partners of Lehigh Valley Associates
We have audited the accompanying balance sheets of Lehigh Valley Associates (a limited partnership) as of December 31, 1992 and 1991, and the related statements of operations, partners' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of Lehigh Valley Associates' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lehigh Valley Associates at December 31, 1992 and 1991, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG
March 10, 1993
Lehigh Valley Associates (A Limited Partnership)
Balance Sheets
See accompanying notes.
Lehigh Valley Associates
(A Limited Partnership)
Statements of Operations
See accompanying notes.
Lehigh Valley Associates (A Limited Partnership)
Statements of Partners' Deficiency
See accompanying notes.
Lehigh Valley Associates (A Limited Partnership)
Statements of Cash Flows
See accompanying notes.
Lehigh Valley Associates (A Limited Partnership)
Notes to Financial Statements
December 31, 1992
1. Summary of Significant Accounting Policies
Real Estate
The Partnership owns and operates a regional shopping center and an office building (the "Property") located in Whitehall, Pennsylvania. Two retail department stores own adjacent property upon which each has constructed a store as part of the Property.
Depreciation is computed on the straight-line method over 35 years for the shopping center and 22 years for the office building, representing the estimated lives of such assets.
Recognition of Rent Income
The Partnership recognizes minimum rent income on a straight-line basis over the applicable lease term. Percentage rents are accrued as income for those tenants whose reported sales at December 31 exceeded the minimum annual sales volumes required for percentage rents.
Income Taxes
In conformity with the Internal Revenue Code and applicable state and local tax statutes, taxable income or loss of the limited partnership is required to be reported in the tax returns of the partners in accordance with the terms of the limited partnership agreement and, accordingly, no provision has been made in the accompanying financial statements for any federal, state, or local taxes.
Cash Equivalents
For purposes of the Statement of Cash Flows, the Partnership considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Lehigh Valley Associates (A Limited Partnership)
Notes to Financial Statements (continued)
2. Mortgages Payable
The above mortgages are collateralized by the respective real estate and tenant leases.
Principal payments on the mortgages are due as follows:
Years ending December 31: 1993 $ 490,052 1994 536,085 1995 586,447 1996 641,551 1997 701,838 Thereafter 20,682,196 ----------- $23,638,169 ===========
Interest paid in 1992 and 1991 amounted to $2,165,861 and $2,207,579, respectively.
Lehigh Valley Associates (A Limited Partnership)
Notes to Financial Statements (continued)
3. Management Fees
Management fees were paid to an affiliate, pursuant to the terms of a management agreement, at the rate of 5% of gross receipts from the Property (as defined). In addition, an affiliate provides the center and its tenants with electricity.
4. Leases
The Partnership earns rental income under leases with retail stores. All leases are accounted for as operating leases. Leases generally provide for minimum rentals plus percentage rentals based on the stores' sales volume and also require each store to pay a portion of real estate taxes and common area expenses. In addition, leases provide for the stores to pay utility charges to an affiliate. Lease periods generally range from 10 to 20 years and contain various renewal options. The Partnership also earns rental income under leases with commercial tenants located in its office building. Such leases generally provide for the tenant to pay minimum rentals plus a portion of increases in real estate taxes and operating expenses. Commercial lease periods generally range from 3 to 5 years and contain various renewal options.
The following is a schedule by years of future minimum rental payments required under noncancelable operating leases as of December 31, 1992 and does not include any amounts due as percentage rent or amounts that would be due from new leases or the exercise of renewal options under existing leases:
Years ending December 31: 1993 $7,199,000 1994 7,024,000 1995 6,913,000 1996 6,642,000 1997 4,997,000 Thereafter 19,504,000 -------------- Total minimum future rentals $52,279,000 ==============