10-K 1 q41410-k2014.htm 10-K Q414 10-K 2014


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________________ 
FORM 10-K
_________________________________________________________ 
 
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2014
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 1-6300
_________________________________________________________  
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact name of Registrant as specified in its charter)
_________________________________________________________  
 
Pennsylvania
 
23-6216339
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
 
 
The Bellevue
200 South Broad Street
Philadelphia, Pennsylvania
 
19102
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (215) 875-0700
_________________________________________________________  
Securities Registered Pursuant to Section 12(b) of the Act:
 
Title of each class
 
Name of each exchange on which registered
Shares of Beneficial Interest, par value $1.00 per share
 
New York Stock Exchange
Series A Preferred Shares, par value $0.01 per share
 
New York Stock Exchange
Series B Preferred Shares, par value $0.01 per share
 
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
_________________________________________________________  
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    
Yes ý    No  ¨ 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  ý
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
ý
 
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
The aggregate market value, as of June 30, 2014, of the shares of beneficial interest, par value $1.00 per share, of the Registrant held by non-affiliates of the Registrant was approximately $1,249.2 million. (Aggregate market value is estimated solely for the purposes of this report and shall not be construed as an admission for the purposes of determining affiliate status.)
On February 17, 2015, 69,014,266 shares of beneficial interest, par value $1.00 per share, of the Registrant were outstanding.
_________________________________________________________  
Documents Incorporated by Reference
Portions of the Registrant’s definitive proxy statement for its 2015 Annual Meeting of Shareholders are incorporated by reference in Part III of this Form 10-K.




PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
 
 
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
 
 
 
 
 
Item 15.
 
 
 
 
 
 
 
 





FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K for the year ended December 31, 2014, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events, achievements or results and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by uncertainties affecting real estate businesses generally as well as the following, among other factors:
our substantial debt and stated value of preferred shares and our high leverage ratio;
constraining leverage, unencumbered debt yield, interest and tangible net worth covenants under our 2013 Revolving Facility, our 2014 Term Loans and Letter of Credit (all as defined below);
potential losses on impairment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, including such losses that we might be required to record in connection with any dispositions of assets;
changes in the retail industry, including consolidation and store closings, particularly among anchor tenants;
our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek;
the effects of online shopping and other uses of technology on our retail tenants;
risks related to development and redevelopment activities;
current economic conditions and the state of employment growth and consumer confidence and spending, and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions and on our cash flows, and the value and potential impairment of our properties;
our ability to refinance our existing indebtedness when it matures, on favorable terms or at all;
our ability to raise capital, including through joint ventures or other partnerships, through sales of properties or interests in properties, through the issuance of equity or equity-related securities if market conditions are favorable, or through other actions;
our ability to identify and execute on suitable acquisition opportunities and to integrate acquired properties into our portfolio;
our partnerships and joint ventures with third parties to acquire or develop properties;
our short- and long-term liquidity position;
general economic, financial and political conditions, including credit and capital market conditions, changes in interest rates or unemployment;
our ability to maintain and increase property occupancy, sales and rental rates, in light of the relatively high number of leases that have expired or are expiring in the next two years;
acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales;
changes to our corporate management team and any resulting modifications to our business strategies;
increases in operating costs that cannot be passed on to tenants;
concentration of our properties in the Mid-Atlantic region;
changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors; and
potential dilution from any capital raising transactions or other equity issuances.
 
Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed in the section entitled “Item 1A. Risk Factors.” We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.
Except as the context otherwise requires, references in this Annual Report on Form 10-K to “we,” “our,” “us,” the “Company” and “PREIT” refer to Pennsylvania Real Estate Investment Trust and its subsidiaries, including our operating partnership, PREIT Associates, L.P. References in this Annual Report on Form 10-K to “PREIT Associates” refer to PREIT Associates, L.P. References in this Annual Report on Form 10-K to “PRI” refer to PREIT-RUBIN, Inc., which is a taxable REIT subsidiary of the Company.

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PART I
 
ITEM 1.    BUSINESS.
OVERVIEW
Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.
We currently own interests in 42 retail properties, of which 38 are operating properties and four are development properties. The 38 operating properties include 32 shopping malls and six other retail properties, have a total of 28.6 million square feet and are located in 11 states. We and partnerships in which we own an interest own 21.9 million square feet at these properties (excluding space owned by anchors). In 2014, we sold three of our wholly owned mall properties, 50% of our interest in a mall property that was previously wholly owned, and our partnership interest in one other retail property.
There are 31 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 23.2 million square feet, of which we own 17.9 million square feet. The seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 5.4 million square feet, of which 4.0 million square feet are owned by such partnerships.
The development portion of our portfolio contains four properties in three states, with two classified as “mixed use” (a combination of retail and other uses), one classified as “retail” (outlet) and one classified as “other.”
We are a fully integrated, self-managed and self-administered REIT that has elected to be treated as a REIT for federal income tax purposes. In general, we are required each year to distribute to our shareholders at least 90% of our net taxable income and to meet certain other requirements in order to maintain the favorable tax treatment associated with qualifying as a REIT.
PREIT’S BUSINESS
We are primarily engaged in the ownership, management, leasing, acquisition, redevelopment, development and disposition of shopping malls. In general, our malls include tenants that are national or regional department stores, large format retailers or other anchors and a diverse mix of national, regional and local in-line stores offering apparel (women’s, family, teen, children’s, men’s), shoes, eyewear, cards and gifts, jewelry, sporting goods, home furnishings and drug stores, among other things.
To enhance the experience for shoppers, most of our malls have restaurants and/or food courts, and some of the malls have multi-screen movie theaters and other entertainment options, either as part of the mall or on outparcels around the perimeter of the mall property. In addition, many of our malls have outparcels containing restaurants, banks or other stores. In their geographic trade areas, our malls frequently serve as a central place for community, promotional and charitable events.
The largest mall in our retail portfolio is 1.5 million square feet and contains 97 stores, and the smallest is 0.5 million square feet and contains 48 stores. The other retail assets in our retail portfolio range from 34,000 to 780,000 square feet.
We derive the substantial majority of our revenue from rent received under leases with tenants for space at retail properties in our real estate portfolio. In-line stores typically generate a majority of the revenue of a mall, with a relatively small proportion coming from anchor tenants, junior anchors or large format retailers. In general, our leases require tenants to pay minimum rent, which is a fixed amount specified in the lease, and which is often subject to scheduled increases during the term of the lease for longer term leases. In 2014, 88% of the new leases that we signed contained scheduled rent increases, and these increases, which are typically scheduled to occur between two and four times during the term, ranged from 1.5% to 19.6%, with approximately 70% ranging from 2% to 5%. In addition or in the alternative, certain tenants are required to pay percentage rent, which can be either a percentage of their sales revenue that exceeds certain levels specified in their lease agreements, or a percentage of their total sales revenue.
Also, the majority of our leases provide that the tenant will reimburse us for certain expenses relating to the property for common area maintenance (“CAM”), real estate taxes, utilities, insurance and other operating expenses incurred in the operation of the property subject, in some cases, to certain limitations. The proportion of the expenses for which tenants are responsible is historically related to the tenant’s pro rata share of space at the property. As discussed below, we have continued to shift the provision in our leases that addresses these items to be a fixed amount, which gives greater predictability to tenants, and a majority of such revenue is derived from leases specifying fixed CAM.

Retail real estate industry participants sometimes classify malls based on the average sales per square foot of non anchor mall tenants, the population and average household income of the trade area and the geographic market, the growth rates of the

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population and average household income in the trade area and geographic market, and numerous other factors. Based on these factors, in general, malls that have high average sales per square foot and are in trade areas with large populations and high household incomes and/or growth rates are considered Class A malls, malls with average sales per square foot that are in the middle range of population or household income and/or growth rates are considered Class B malls, and malls with lower average sales and smaller populations and lower household incomes and/or growth rates are considered Class C malls. Although these classifications are defined differently by different market participants, in general, some of our malls are in the Class A range and many might be classified as Class B or Class C properties. The classification of a mall can change, and one of the goals of our current property strategic plans, remerchandising programs and non-core property disposition program is to increase the average sales per square foot of certain of our properties and correspondingly increase their rental income and cash flows, and thus potentially their class, in order to maximize the value of the property. The properties that we have sold pursuant to our strategic property disposition program have generally been Class C properties. Nearly 80% of our 2014 Net Operating Income (“NOI”)(a non-GAAP measure; as defined below) came from our Premier and Core Growth property categories (as described below), which generally include Class A and Class B properties.

Portfolio Stratification. As discussed previously, when listing our malls in order by individual property 2014 sales per square foot, there is a group of six malls at the top of that list that collectively had 2014 average sales per square foot of $543, average non anchor occupancy of 97.3% as of December 31, 2014 and contributed approximately 34.3% of our NOI in 2014. This “Premier” group includes such properties as Cherry Hill Mall in Cherry Hill, New Jersey and Willow Grove Park in suburban Philadelphia, Pennsylvania.
The next 17 properties on the list are a collection of solidly performing properties that had 2014 average sales per square foot of $352, average non anchor occupancy of 94.7% as of December 31, 2014 and contributed approximately 44.8% of our NOI in 2014. This “Core Growth” group includes such properties as Capital City Mall near Harrisburg, Pennsylvania and Valley Mall in Hagerstown, Maryland.
The next four properties on the list, which exhibit moderate performance, had 2014 average sales per square foot of $261, non anchor occupancy of 89.7% as of December 31, 2014 and contributed 4.9% of our NOI in 2014, and, we believe, present opportunities for improvement. This “Opportunistic” group includes such properties as Beaver Valley Mall in Monaca, Pennsylvania and New River Valley Mall in Christiansburg, Virginia.
The remaining four mall properties (Lycoming Mall in Pennsdale, Pennsylvania, Palmer Park Mall in Easton, Pennsylvania, Uniontown Mall in Uniontown, Pennsylvania, and Washington Crown Center in Washington, Pennsylvania) constitute “Non-Core” properties and contributed 5.7% of our NOI in 2014. As discussed above, we sold three mall properties that were designated as Non-Core properties in 2014, and we are seeking to dispose of all four of these Non-Core properties.
Our portfolio also includes other retail properties including power centers, street level retail, office properties and properties under redevelopment. These properties contributed approximately 7.6% of our NOI in 2014. The balance of our 2014 NOI came mostly from properties we sold during the year.
RECENT DEVELOPMENTS
Recent Dispositions, Joint Venture and Acquisition
In continuing to execute our strategy of elevating the quality of our portfolio, in 2014, we disposed of three non-core mall properties, a partnership interest in one other retail property, and interests in several other properties. We also entered into one joint venture to redevelop a significant property and agreed to acquire one property.

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Dispositions and Joint Venture. The table below presents our dispositions of consolidated properties since January 1, 2014 :
Sale Date
 
Property and Location
 
Description of Real Estate Sold
 
Capitalization
Rate
 
Sale Price
 
Gain/
(Loss)
 
 
 
 
(in millions of dollars)
June
 
South Mall
Allentown, Pennsylvania
 
Mall
 
10.1
%
 
$
23.6

 
$
0.2

July
 
The Gallery at Market East (1)Philadelphia, PA
 
Mall (50% interest)(1)
 
5.1
%
 
106.8

 
(0.6
)
September
 
North Hanover Mall,
Hanover, Pennsylvania
and
Nittany Mall
State College, Pennsylvania
 
Two malls (single combined transaction)
 
North Hanover Mall 11.0%

Nittany Mall
16.2%

 
32.3

 
(0.1
)
(1) In July 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop The Gallery at Market East in Philadelphia, Pennsylvania (“The Gallery”). In connection therewith, we contributed and sold real estate assets to the venture, and Macerich acquired its interest in the venture and real estate from us for $106.8 million in cash. It is expected that both parties will make additional investments in the project. Net proceeds after closing costs from the sale of the interests were $104.0 million.
The three non-core malls sold in 2014 (South Mall, Nittany Mall and North Hanover Mall) had aggregate average trailing 12 month sales per square foot at the time of sale of $246. Also in 2014, we sold our 50% interest in Whitehall Mall in Allentown, Pennsylvania (“Whitehall Mall”) for $14.9 million.
In addition, in 2014, we sold an anchor pad, outparcels and undeveloped land for an aggregate sales price of $9.9 million.
We are seeking to to dispose of five more properties: Palmer Park Mall in Easton, Pennsylvania; Uniontown Mall in Uniontown, Pennsylvania; Lycoming Mall in Williamsport, Pennsylvania; Washington Crown Center in Washington, Pennsylvania; and Springfield Park in Springfield, Pennsylvania.
Pending Acquisition. In March 2014, we entered into a Contribution Agreement (the “Contribution Agreement”) to acquire Springfield Town Center in Springfield, Virginia (“Springfield Town Center”) for total consideration of: (i) an aggregate of $340.0 million (subject to customary closing proration adjustments), in the form of cash and the assumption and payoff of certain seller debt, and (ii) 6,250,000 common units of limited partnership interest (“OP Units”) of PREIT Associates L.P., our operating partnership (the “Operating Partnership”), and, if the 30-day average share price is less than $20.00 at closing , a number of preferred units of limited partnership interest. We expect to provide the cash amount by borrowing from the amounts available under our existing credit agreements. In addition, the seller of Springfield Town Center may be entitled to certain additional consideration based on the value of Springfield Town Center three years after the closing date. The closing is subject to the substantial completion of the redevelopment of Springfield Town Center in accordance with plans and specifications for such redevelopment, as well as certain other customary closing conditions. We currently expect this transaction to close on or about March 31, 2015, subject to the seller meeting all closing conditions.
In 2014, we acquired a small number of street level retail properties for an aggregate of $20.0 million. 
 
Operating Performance
In 2014, we continued to generate improvement in our key metrics, despite severe winter weather in the first quarter of the year that negatively affected our properties located in the Mid-Atlantic States.
Funds From Operations (“FFO”) as adjusted, a non-GAAP measure, increased 9.1% from the prior year. FFO as adjusted per share increased 2.1% over 2013. Adjustments included acquisition costs, employee separation expense and hedging loss.
Same Store net operating income (“Same Store NOI”), a non-GAAP measure, increased 3.1% over the prior year. Same Store NOI, excluding lease termination revenue, increased 3.0% compared to 2013. The proportion of NOI from our Premier and Core Growth properties increased to 79.1% from 74.8%.

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Net loss was $14.3 million in 2014, a decrease of $51.5 million compared to net income of $37.2 million in 2013, primarily as a result of gains on sales in 2013, partially offset by decreased interest expense in 2014.
Renewal spreads increased 3.8% for leases under 10,000 square feet. Renewal spreads increased 3.7% for all leases. Average gross rent at Premier and Core Growth properties increased 2.0%, and average gross rent increased 1.6% for all properties.
Retail portfolio occupancy at December 31, 2014 was 95.4%, an increase of 10 basis points. Non anchor occupancy was 94.0%, an increase of 20 basis points. Same store mall occupancy increased 10 basis points to 96.7%.
Sales per square foot at our mall properties were $394, an increase of 1.5% from 2013, including consolidated and unconsolidated properties.
A number of well-known retailers opened stores at our properties in 2014. Century 21 opened its first location outside of the New York City metropolitan area at The Gallery. The following operators also opened stores or expanded in our portfolio: UNIQLO, ULTA, Vera Bradley and Michael Kors, among others.
Descriptions of each non-GAAP measure mentioned above and the related reconciliation to the comparable GAAP measures are located in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Reconciliation of GAAP Net Income (Loss) to Non-GAAP Measures.”
Financing Activity
Leverage. After significant reductions in 2013 and 2012, our ratio of Total Liabilities to Gross Asset Value under our 2013 Revolving Facility decreased modestly to 47.6% as of December 31, 2014.
2014 Unsecured Term Loans. In January 2014, we entered into two senior unsecured term loans for an aggregate amount of $250.0 million. We entered into a 5 Year Term Loan Agreement with Wells Fargo Bank, National Association, U.S. Bank National Association and other financial institutions for $150.0 million, which may be expanded to $300.0 million, and a 7 Year Term Loan Agreement with Wells Fargo Bank, National Association, Capital One, National Association and other financial institutions for $100.0 million, which may be expanded to $200.0 million (collectively, the “2014 Term Loans”). We made initial borrowings of $100.0 million under the 5 Year Term Loan Agreement and $30.0 million under the 7 Year Term Loan Agreement, and used the proceeds to repay the $130.0 million then-outstanding balance under our 2013 Revolving Facility (as defined below). We expect to use the remaining $120.0 million available under the 2014 Term Loans as part of the purchase price to acquire Springfield Town Center, which is currently expected to close on or about March 31, 2015, subject to the seller meeting all closing conditions.
Mortgage Loan Activity. In June 2014, the partnership that is developing Gloucester Premium Outlets entered into a $90.0 million construction loan.
In July 2014, we repaid a $25.8 million mortgage loan plus accrued interest secured by 801 Market Street, Philadelphia, Pennsylvania, a property that is part of The Gallery, using proceeds from the transaction relating to The Gallery with Macerich.
Also, in July 2014, we repaid a $51.0 million mortgage loan plus accrued interest secured by Logan Valley Mall in Altoona, Pennsylvania using $50.0 million from our 2013 Revolving Facility and $1.0 million from available working capital. The $50.0 million borrowed from the 2013 Revolving Facility was subsequently repaid in July 2014 using proceeds from the transaction relating to The Gallery with Macerich.
BUSINESS STRATEGY
Our primary objective is to maximize the long-term value of the Company for our shareholders. To that end, our business goals are to obtain the highest possible rental income, tenant sales and occupancy at our properties in order to maximize our cash flows, net operating income, funds from operations, funds available for distribution to shareholders and other operating measures and results, and ultimately to maximize the values of our properties.
To achieve this primary goal, we have developed a business strategy focused on increasing the values of our properties, and ultimately of the Company, which includes:
Raising the overall level of quality of our portfolio and of the individual properties in our portfolio;
Improving the operating results of our properties;

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Taking steps to position the Company for future growth opportunities; and
Improving our balance sheet by reducing debt and leverage, and maintaining a solid liquidity position.
Raising the Overall Level of Quality of Our Portfolio and of Individual Properties in Our Portfolio
A key element of our strategy is to elevate the overall level of quality of our portfolio. We intend to accomplish this, in part, by disposing of lower productivity non-core properties and by selectively acquiring higher quality assets. We also plan to enhance the value of some of our properties (most of which are in the Core Growth group).
Portfolio Actions. We continue to refine our collection of properties to enhance the overall quality of the portfolio. We seek to have a portfolio that derives most of its net operating income (a non-GAAP measure; as defined below) from higher productivity properties, and one that is represented in the vicinity of a few major east coast cities. One avenue for raising the level of quality of our portfolio is to dispose of certain non-core assets, which have sales productivity or occupancy below the average for our portfolio. In 2014, we sold Nittany Mall, North Hanover Mall and South Mall. These properties had average aggregate sales per square foot of $246 and occupancy of 90.0%, which were materially less than the figures for the balance of the portfolio. We also sold our our interest in Whitehall Mall. We are also currently seeking to sell four other malls and one other retail property. We anticipate that the proposed disposition of these lower-performing properties, together with the property sales that have already closed, will result in improved operating metrics for the remaining collection of assets (other things being equal), which are indicators of the quality of our portfolio.
In addition to our strategic property disposition program, we seek to selectively acquire high quality properties to enhance our portfolio. In 2014, we entered into an agreement to acquire Springfield Town Center, a property which has been undergoing a redevelopment.
As discussed below under “—Improving the Operating Results of Our Properties,” we believe that both these dispositions and this acquisition will aid our bargaining position in lease negotiations and potentially help increase rental rates.
Redevelopment. We might also seek to improve the overall quality of our portfolio and of particular properties, to increase the potential value of properties in our portfolio, and to maintain or enhance their competitive positions by redeveloping them. We do so in order to attract more customers and retailers, which we expect to lead to increases in sales, occupancy and rental rates. Redevelopments are generally more involved than strategic property plans or remerchandising programs that include the elements described below under “—Improving the Operating Results of Our Properties,” and usually require some use of capital.
In July 2014, we entered into a 50/50 joint venture with Macerich to redevelop The Gallery. In connection therewith, we contributed and sold real estate assets to the venture and Macerich acquired its interest in the venture and real estate from us for $106.8 million in cash. It is expected that both parties will make additional investments in the project. The Gallery is in a key location in Philadelphia, strategically positioned above regional mass transit, adjacent to the convention center and tourism sites, and amidst numerous offices and residential sites. An important aspect of any redevelopment project, including the redevelopment of The Gallery, is its effect on the property and on the tenants and customers during the time that a redevelopment is taking place. While we might undertake a redevelopment to maximize the long term performance of the property, in the short term, the operations and performance of the property, as measured by sales, occupancy and NOI, might be negatively affected. Tenants might be dislodged as space for the redevelopment is aggregated, which affects tenant sales and rental rates. As The Gallery is redeveloped, it is expected that occupancy, sales and NOI will continue to decrease until the newly constructed space is completed, leased and occupied.
Mall-Specific Plans. We seek to unlock value in our portfolio through a variety of targeted efforts at our properties. We believe that certain of our properties, including ones which are in trade areas around major cities or are leading properties in secondary markets, can benefit from strategic remerchandising strategies, including, for example, selective re-tenanting of certain spaces in certain properties with higher quality, better-matched tenants. Based on the demographics of the trade area or the relevant competition, we believe that this subset of properties provides opportunities for meaningful value creation at the property level. We believe that we can successfully implement particular strategies at these assets, such as adding restaurants, making fashion and certain fashion categories the focus of the retailers at such properties, and relocating and right-sizing certain stores. We also continuously work to optimize the match between the demographics of the trade area, such as the household income level, and the nature and mix of tenants at such properties. We strive to work closely with tenants to enhance their merchandising opportunities at our properties. We believe that these approaches can attract more national and other tenants to the property and can lead to higher occupancy and net operating income. In 2014, we began executing on specific plans for substantially all of our Core Growth properties, developed plans for almost all of our other properties, and substantially completed the redevelopments of Moorestown Mall and and Washington Crown Center.

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Shopper Experiences. In addition to such property-wide remerchandising efforts, we also seek to offer unique shopper experiences at our properties by having tenants that provide products, services or interactions that are unlike other offerings in the trade area. We seek to add first-to-market tenants, entertainment options, beauty and fashion purveyors, and unique tenants like a popular upscale flea market, as well as providing amenities like children’s play areas and mall shopping smartphone apps. In 2014, a number of well-known retailers opened stores at our properties. Century 21 opened its first location outside of the New York City metropolitan area at The Gallery. The following operators also opened stores or expanded in our portfolio: UNIQLO, ULTA, Vera Bradley and Michael Kors, among others. We are also striving to add restaurants of recognized chefs and other dining options with unique concepts, as studies indicate that mall restaurant customers spend more and stay on the property longer.
Improving the Operating Results of Our Properties
We aim to improve the overall operational performance of our portfolio of properties with a multi-pronged approach.
Occupancy. We continue to work to increase non anchor and total occupancy in our properties. In 2014, non anchor occupancy at our Same Store Malls increased by 20 basis points to 94.5% and total occupancy at our Same Store Malls increased by 10 basis points to 96.7%. In connection with the remerchandising plans at several of our properties described above in “—Raising the Overall Level of Quality of Our Portfolio and of Individual Properties in Our Portfolio,” we are seeking or have obtained tenants for space in our properties that is the focus of remerchandising plans and for new space of different types such as pads or kiosks. We are also seeking tenants that have not previously been prevalent at our mall properties. In connection with these efforts, over the past two years, non anchor occupancy at our malls increased by 210 basis points and total occupancy increased by 80 basis points.
Key Tenants; Mall Leasing. We continue to recruit, and expand our relationships with, certain high profile retailers, and to initiate and expand our relationships with other quality and first-to-market retailers or concepts. As described above, in 2014, we brought Century 21, UNIQLO and others to our properties. We coordinate closely with tenants on new store locations in an effort to position our properties for our tenants’ latest concept or store prototype, in order to drive traffic to our malls and stimulate customer spending. We believe that increasing our occupancy in ways that are tailored to particular properties will be helpful to our leasing efforts and will help increase rental rates.
Rental Rates and Releasing Spreads. For the year ended December 31, 2014, we generated sales per square foot of $394 from our continuing properties, an increase of 1.5% from 2013. At properties with improved or already higher sales per square foot, these sales levels have helped attract new tenants and helped us retain current tenants that seek to take advantage of the property’s increased productivity. We have worked to capitalize on the increase in, or high level of, sales per square foot by seeking positive rent renewal spreads, including from renewals and new leases following expirations of leases entered into during the economic downturn of recent years. In 2014, renewal spreads increased 3.8% on leases under 10,000 square feet. More than half of the near-term lease expirations in our portfolio are in the Premier and Core Growth groups of properties. Hence, we believe that there is a meaningful opportunity to increase rent and replace underperforming tenants at these properties, and potentially to increase their NOI and net asset values.
As discussed above in “—Raising the Overall Level of Quality of Our Portfolio and of Individual Properties in Our Portfolio,” in 2014, we sold three Non-Core malls and our interests in a partnership classified as “other retail,” and we are now seeking to dispose of four more Non-Core malls and one other partnership retail property. We believe that the disposition of these less productive assets will help improve our negotiating position with retailers with multiple stores in our portfolio (including stores at these properties), and potentially enable us to obtain higher rental rates from them in the remaining properties.
Specialty Leasing and Partnership Marketing. Some space at our properties might be available for a shorter period of time, pending a lease with a permanent tenant or in connection with a redevelopment. We strive to manage the use of this space through our specialty leasing function, which manages the short term leasing of stores and the licensing of income-generating carts and kiosks, with the goal of maximizing the rent we receive during the period when a space is not subject to a longer term lease.
We also seek to generate ancillary revenue (such as sponsorship marketing revenue and promotional income) from the properties in our portfolio. We believe that increased efforts in this area can enable us to increase the proportion of net operating income derived from ancillary revenue.
Operating Expenses and CAM Charges. Our strategy for improving operating results also includes efforts to control or reduce the costs of operating our properties. With respect to operating expenses, we have taken steps to manage a significant proportion of them through contracts with third party vendors for housekeeping and maintenance, security services, landscaping and trash removal. These contracts provide reasonable control, certainty and predictability. For example, we

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renegotiated our security contract in 2013 to better control our operating expenses in the future. We also seek to contain certain expenses through our active programs for managing utility expense and real estate taxes. We have taken advantage of opportunities to buy electricity economically in states that have opened their energy markets to competition, and we expect to continue with this approach. Nevertheless, in 2014, as discussed previously, snow removal and utility expense at our properties located in the Mid Atlantic States, particularly Pennsylvania and New Jersey, were affected by a severe winter with numerous snowfalls with significant accumulation and higher electric utility rates. We also review the annual tax assessments of our properties and, when appropriate, pursue appeals.
With respect to CAM charges, we have continued to offer tenants an option of fixed CAM, in contrast to the traditional pro rata CAM. Fixed CAM, while shifting some risk to us as landlord, offers tenants increased predictability of their costs, a decrease in the number of items to be negotiated in a lease thus speeding lease execution, and reduced need for detailed CAM billings, reconciliations and collections. It is taking several years for all tenants of our properties to be subject to leases with a fixed CAM provision, but we believe there is an opportunity to increase our cost recoveries.
Taking Steps to Position the Company for Future Growth Opportunities
We are taking steps to position the Company to generate future growth. In connection therewith, we have implemented processes designed to ensure strong internal discipline in the use, harvesting and recycling of our capital, and these processes will be applied in connection with proposals to acquire properties and to redevelop properties or to reposition properties with a mix of uses.
External Opportunities. We seek to acquire, in an opportunistic, selective and disciplined manner, properties that are well-located, that are in trade areas with growing or stable demographics, that have operating metrics that are better than or equal to our existing portfolio averages, and that we believe have strong potential for increased cash flows and appreciation in value if we call upon our relationships with retailers and apply our skills in asset management and redevelopment. We also seek to acquire additional parcels or properties that are included within, or adjacent to, the properties already in our portfolio, in order to gain greater control over the merchandising and tenant mix of a property. Taking advantage of any acquisition opportunities will likely involve some use of debt or equity capital. As discussed above, in March 2014, we entered into an agreement to acquire Springfield Town Center. The redevelopment of the property, which has been underway since 2013, is nearly complete. We expect to close this acquisition on our about March 31, 2015, subject to the seller meeting all closing conditions.
We pursue development of retail and mixed use projects that we expect can meet the financial and strategic criteria we apply, given economic, market and other circumstances. We seek to leverage our skill sets in site selection, entitlement and planning, cost estimation and project management to develop new retail and mixed use properties. We seek properties in trade areas that we believe have sufficient demand , once developed, to generate cash flows that meet the financial thresholds we establish in the given environment. We manage all aspects of these undertakings, including market and trade area research, acquisition, preliminary development work, construction and leasing.
Depending on the nature of the acquisition or development opportunity, we might involve a partner, including in connection with projects involving a use other than retail. In June 2014, we initially contributed $3.2 million, representing a 25% interest, to the partnership that is developing Gloucester Premium Outlets in Gloucester Township, New Jersey (“Gloucester Premium Outlets”). The partnership used our and our partners’ initial contribution to purchase the land on which the project is currently being developed.
Organic Opportunities. We look for ways to maximize the value of our assets by adding a mix of uses, such as office or multi-family residential housing, initiated either by ourselves or with a partner, that are designed to attract a greater number of people to the property. Multiple constituencies, from local governments to city planners to citizen groups, have indicated a preference for in-place development, development near transportation hubs, the addition of uses to existing properties, and sustainable development, as opposed to locating, acquiring and developing new green field sites. For example, we are contemplating adding, through joint ventures, residential or lodging uses at Plymouth Meeting Mall in Plymouth Meeting, Pennsylvania. Also, if appropriate, we will seek to attract certain nontraditional tenants to these properties, including tenants using the space for purposes such as entertainment, education, health care, government and child care, which can bring larger numbers of people to the property, as well as regional, local or nontraditional retailers. Such uses will, we believe, increase traffic and enable us to generate additional revenue and grow the value of the property.

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Improving Our Balance Sheet by Reducing Debt and Leverage; Maintaining Liquidity
Leverage. In 2014, we further reduced our ratio of Total Liabilities to Gross Asset Value (as defined under the 2013 Revolving Facility) to 47.6% largely because of our strategic property disposition program, which generated proceeds that were used to pay down debt, and which, in turn, generally offset amounts borrowed in connection with various projects and acquisitions.
We continue to contemplate ways to reduce our leverage further through a variety of means available to us. These means might include selling properties or interests in properties with values in excess of their mortgage loans and applying any excess proceeds to debt reduction; entering into joint ventures or other partnerships or arrangements involving our contribution of assets; issuing common or preferred equity or equity-related securities if market conditions are favorable; or through other actions. We are also striving to reduce further our ratio of Total Liabilities to Gross Asset Value by increasing our Gross Asset Value through improving our operating performance. See “—Improving the Operating Results of Our Properties.”
Mortgage Loan Refinancings and Repayments. We might pursue opportunities to make favorable changes to individual mortgage loans on our properties. When we refinance such loans, we might seek a new term, better rates and excess proceeds. An aspect of our approach to debt financing is that we strive to lengthen and stagger the maturities of our debt obligations in order to better manage our future capital requirements. We might seek to repay certain mortgage loans in full in order to unencumber the associated properties, which enables us to increase our pool of unencumbered assets, have greater financial flexibility and obtain additional financing, like the unsecured 2013 Revolving Facility and the unsecured 2014 Term Loans.
Deployment of Capital. As discussed above under “—Taking Steps to Position the Company for Future Growth Opportunities,” our external and organic growth opportunities might require the use of capital, including debt or equity capital.
Liquidity. As of December 31, 2014, our balance sheet reflected $40.4 million in cash and cash equivalents. We believe that this amount and our net cash provided by operations, together with the available credit under the 2013 Revolving Facility and the 2014 Term Loans, provide sufficient liquidity to meet our liquidity requirements and to take advantage of opportunities in the short to intermediate term.
Capital Recycling. We regularly conduct portfolio property reviews and, if appropriate, we seek to dispose of malls, other retail properties or outparcels that we do not believe meet the financial and strategic criteria we apply, given economic, market and other circumstances. Disposing of these properties can enable us to redeploy or recycle our capital to other uses, such as to repay debt, to reinvest in other real estate assets and development and redevelopment projects, and for other corporate purposes.
CAPITAL STRATEGY
In support of the business strategies described above, our long-term corporate finance objective is to maximize the availability and minimize the cost of the capital we employ to fund our operations. In pursuit of this objective and for other business reasons, we seek the broadest range of funding sources (including commercial banks, institutional lenders, equity and debt investors and joint venture partners) and funding vehicles (including mortgage loans, commercial loans, sales of properties or interests in properties, and debt and equity securities) available to us on the most favorable terms. We pursue this goal by maintaining relationships with various capital sources and utilizing a variety of financing instruments, enhancing our flexibility to execute our business strategy in different economic environments or at different points in the business cycle.
In 2014, as discussed above, we entered into two unsecured term loans for an aggregate amount of $250.0 million.
In July 2014, we repaid a $25.8 million mortgage loan plus accrued interest secured by 801 Market Street, Philadelphia, Pennsylvania, a property that is part of The Gallery, using proceeds from the transaction relating to The Gallery with Macerich.
Also, in July 2014, we repaid a $51.0 million mortgage loan plus accrued interest secured by Logan Valley Mall in Altoona, Pennsylvania (“Logan Valley Mall”) using $50.0 million from our 2013 Revolving Facility and $1.0 million from available working capital. The $50.0 million borrowed from the 2013 Revolving Facility was subsequently repaid in July 2014 using proceeds from the transaction relating to The Gallery with Macerich.
Three mortgage loans with an aggregate balance of $276.8 million secured by consolidated properties are scheduled to mature in 2015, and two mortgage loans with an aggregate balance of $224.8 million secured by consolidated properties are scheduled to mature in 2016. We expect to be able to refinance these mortgage loans. We believe that, in the aggregate, the values of these properties will be sufficient to support replacement financing. While mortgage interest rates remain relatively low, we will seek to extend these mortgage loans to the maximum extent possible, or to replace them with longer term mortgage loans. See “Item 1A. Risk Factors” and “—Business Strategy—Improving Our Balance Sheet by Reducing Debt and Leverage; Maintaining Liquidity.”

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In general, in determining the amount and type of debt capital to employ in our business, we consider several factors, including: general economic conditions, the capital market environment, prevailing and forecasted interest rates for various debt instruments, the cost of equity capital, property values, capitalization rates for mall properties, our financing needs for acquisition, redevelopment and development opportunities, the debt ratios of other mall REITs and publicly-traded real estate companies, and the federal tax law requirement that REITs distribute at least 90% of net taxable income, among other factors.
In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest-bearing liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of various types of financial instruments. To manage interest rate risk and limit overall interest cost, we may employ interest rate swaps, options, forwards, caps and floors or a combination thereof depending on our underlying exposure, and subject to our ability to satisfy collateral requirements.
Capital Availability
To maintain our status as a REIT, we are required, under federal tax laws, to distribute to shareholders 90% of our net taxable income, which generally leaves insufficient funds to finance major initiatives internally. Because of these requirements, we ordinarily fund most of our significant capital requirements, such as the capital for acquisitions, redevelopments and developments, through secured and unsecured indebtedness, sales of properties or interests in properties and, when appropriate, the issuance of additional debt, equity or equity-related securities.

In April 2013, we entered into the 2013 Revolving Facility, for a $400.0 million senior unsecured revolving credit facility. In January 2014, we entered into two senior unsecured term loans for an aggregate amount of $250.0 million: a five year agreement for a $150.0 million facility, expandable to $300.0 million, and a seven year agreement for a $100.0 million facility, expandable to $200.0 million. During the term of the 2013 Revolving Facility (as defined below), 2014 Term Loans (as defined below) and Letter of Credit (as defined below) (collectively, the “Credit Agreements”), certain covenants and provisions might restrict our ability to use our cash flows and any debt or equity capital we obtain to execute our strategy.

In addition, our ability to finance our growth using these sources depends, in part, on our creditworthiness, the availability of credit to us, the market for our securities at the time or times we need capital and prevailing conditions in the capital and credit markets, among other things. See “Item 1A. Risk Factors—Risks Related to Our Indebtedness and Our Financing.”
OWNERSHIP STRUCTURE
We hold our interests in our portfolio of properties through our operating partnership, PREIT Associates. We are the sole general partner of PREIT Associates and, as of December 31, 2014, held a 97.0% controlling interest in PREIT Associates. (In connection with the pending acquisition of Springfield Town Center, we plan to issue 6,250,000 OP Units, which will reduce our controlling interest to approximately 89.2%.) We consolidate PREIT Associates for financial reporting purposes. We own our interests in our properties through various ownership structures, including partnerships and tenancy in common arrangements (collectively, “partnerships”). PREIT owns interests in some of these properties directly and has pledged the entire economic benefit of ownership to PREIT Associates. PREIT Associates’ direct or indirect economic interest in the properties ranges from 25% or 50% (for nine partnership properties) up to 100%. See “Item 2. Properties—Retail Properties.”
We provide our management, leasing and real estate development services through our subsidiaries PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties in which we own interests through partnerships with third parties and properties that are owned by third parties in which we do not own an interest. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.


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COMPETITION
Competition in the retail real estate market is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, power centers, strip centers, lifestyle centers, factory outlet centers, theme/festival centers and community centers, as well as other commercial real estate developers and real estate owners, particularly those with properties near our properties, on the basis of several factors, including location and rent charged. We compete with these companies to attract customers to our properties, as well as to attract anchor and in-line stores and other tenants. We also compete to acquire land for new site development or to acquire parcels or properties to add to our existing properties. Our malls and our other retail properties face competition from similar retail centers, including more recently developed or renovated centers that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs, and telemarketers. Our tenants face competition from companies at the same and other properties and from other retail channels or formats as well, including internet retailers. This competition could have a material adverse effect on our ability to lease space and on the amount of rent and expense reimbursements that we receive.
The existence or development of competing retail properties and the related increased competition for tenants might, subject to the terms and conditions of our Credit Agreements, lead us to make capital improvements to properties that we would have deferred or would not have otherwise planned to make and might affect occupancy and net operating income of such properties. Any such capital improvements, undertaken individually or collectively, would involve costs and expenses that could adversely affect our results of operations.
We compete with many other entities engaged in real estate investment activities for acquisitions of malls, other retail properties and prime development sites or sites adjacent to our properties, including institutional pension funds, other REITs and other owner-operators of retail properties. When we seek to make acquisitions, competitors might drive up the price we must pay for properties, parcels, other assets or other companies or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, better cash flow and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay a higher price for a property or site, or generate lower cash flow from an acquired property or site than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.
ENVIRONMENTAL
Under various federal, state and local laws, ordinances, regulations and case law, an owner, former owner or operator of real estate might be liable for the costs of removal or remediation of hazardous or toxic substances present at, on, under, in or released from its property, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous or toxic substances. Contamination might adversely affect the owner’s ability to sell or lease real estate or borrow with real estate as collateral. In connection with our ownership, operation, management, development and redevelopment of properties, or any other properties we acquire in the future, we might be liable under these laws and might incur costs in responding to these liabilities.
Each of our retail properties has been subjected to a Phase I or similar environmental audit (which involves a visual property inspection and a review of records, but not soil sampling or ground water analysis) by environmental consultants. These audits have not revealed, and we are not aware of, any environmental liability that we believe would have a material adverse effect on our results of operations. It is possible, however, that there are material environmental liabilities of which we are unaware.
We are aware of certain past environmental matters at some of our properties. We have, in the past, investigated and, where appropriate, performed remediation of such environmental matters, but we might be required in the future to perform testing relating to these matters or to satisfy requirements for further remediation, or we might incur liability as a result of such environmental matters. See “Item 1A. Risk Factors—Risks Related to Our Business and Our Properties—We might incur costs to comply with environmental laws, which could have an adverse effect on our results of operations.”

EMPLOYEES
We had 429 employees at our properties and in our corporate office as of December 31, 2014. None of our employees are represented by a labor union.

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INSURANCE
We have comprehensive liability, fire, flood, cyber liability, terrorism, extended coverage and rental loss insurance that we believe is adequate and consistent with the level of coverage that is standard in our industry. We cannot assure you, however, that our insurance coverage will be adequate to protect against a loss of our invested capital or anticipated profits, or that we will be able to obtain adequate coverage at a reasonable cost in the future.
STATUS AS A REIT
We conduct our operations in a manner intended to maintain our qualification as a REIT under the Internal Revenue Code of 1986, as amended. Generally, as a REIT, we will not be subject to federal or state income taxes on our net taxable income that we currently distribute to our shareholders. Our qualification and taxation as a REIT depend on our ability to meet various qualification tests (including dividend distribution, asset ownership and income tests) and certain share ownership requirements prescribed in the Internal Revenue Code.
CORPORATE HEADQUARTERS
Our principal executive offices are located at The Bellevue, 200 South Broad Street, Philadelphia, Pennsylvania 19102.
SEASONALITY
There is seasonality in the retail real estate industry. Retail property leases often provide for the payment of all or a portion of rent based on a percentage of a tenant’s sales revenue, or sales revenue over certain levels. Income from such rent is recorded only after the minimum sales levels have been met. The sales levels are often met in the fourth quarter, during the December holiday season. Also, many new and temporary leases are entered into later in the year in anticipation of the holiday season and a higher number of tenants vacate their space early in the year. As a result, our occupancy and cash flows are generally higher in the fourth quarter and lower in the first and second quarters. Our concentration in the retail sector increases our exposure to seasonality and has resulted, and is expected to continue to result, in a greater percentage of our cash flows being received in the fourth quarter.
AVAILABLE INFORMATION
We maintain a website with the address www.preit.com. We are not including or incorporating by reference the information contained on our website into this report. We make available on our website, free of charge and as soon as practicable after filing with the SEC, copies of our most recently filed Annual Report on Form 10-K, all Quarterly Reports on Form 10-Q and all Current Reports on Form 8-K filed during each year, including all amendments to these reports, if any. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports are also available on the SEC’s website at http://www.sec.gov. In addition, copies of our corporate governance guidelines, codes of business conduct and ethics (which include the code of ethics applicable to our chief executive officer, principal financial officer and principal accounting officer) and the governing charters for the audit, nominating and governance, and executive compensation and human resources committees of our Board of Trustees are available free of charge on our website, as well as in print to any shareholder upon request. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. We intend to comply with the requirements of Item 5.05 of Form 8-K regarding amendments to and waivers under the code of business conduct and ethics applicable to our chief executive officer, principal financial officer and principal accounting officer by providing such information on our website within four days after effecting any amendment to, or granting any waiver under, that code, and we will maintain such information on our website for at least twelve months.

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ITEM 1A.    RISK FACTORS.
RISKS RELATED TO OUR INDEBTEDNESS AND OUR FINANCING
We have substantial debt and stated value of preferred shares outstanding, which could adversely affect our overall financial health and our operating flexibility. We require significant cash flows to satisfy our debt service and dividends on our preferred shares outstanding. These obligations may prevent us from using our cash flows for other purposes. If we are unable to satisfy these obligations, we might default on our debt or reduce, defer or suspend our dividend payments on preferred shares.
We use a substantial amount of debt and preferred shares outstanding to finance our business. As of December 31, 2014, we had an aggregate consolidated indebtedness of $1,537.9 million, the majority of which consisted of mortgage loans secured by our properties. In 2014, we repaid $76.8 million of existing mortgage loan debts. As of December 31, 2014, $130.0 million was outstanding under the 2014 Term Loans. These aggregate debt amounts do not include our proportionate share of indebtedness of our partnership properties, which was $190.3 million. Our consolidated debt represented 45.2% of our total market capitalization. Under the Credit Agreements , our ratio of Total Liabilities to Gross Asset Value was 47.6%. We also had outstanding, in aggregate, $115.0 million of 8.25% Series A Preferred Shares and $86.3 million of 7.375% Series B Preferred Shares.
Our substantial indebtedness and preferred shares outstanding involve significant obligations for the payment of interest, principal and dividends. If we do not have sufficient cash flow from operations to meet these obligations, we might be forced to sell assets to generate cash, which might be on unfavorable terms, or we might not be able to make all required payments of principal and interest on our debt, which could result in a default or have a material adverse effect on our financial condition and results of operations, and which might adversely affect the value of our preferred shares or our common shares, or our ability to make distributions to shareholders.
Our substantial obligations arising from our indebtedness and preferred shares could also have other negative consequences to our shareholders, including the acceleration of a significant amount of our debt if we are not in compliance with the terms of such debt or, if such debt contains cross-default or cross-acceleration provisions (as our Credit Agreements do), other debt. If we fail to meet our obligations under our debt and our preferred shares, we could lose assets due to foreclosure or sale on unfavorable terms, which could create taxable income without accompanying cash proceeds, or such failure could harm our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions, redevelopment and development activities, execution of our business strategy or other general corporate purposes. Also, our indebtedness and mandated debt service might limit our ability to refinance existing debt or to do so at a reasonable cost, might make us more vulnerable to adverse economic and market conditions, might limit our ability to respond to competition or to take advantage of opportunities, and might discourage business partners from working with us or counterparties from entering into hedging transactions with us.
In addition to our current debt, we might incur additional debt in the future in the form of mortgage loans, unsecured borrowings, additional borrowing under our 2013 Revolving Facility or 2014 Term Loans, other term loan borrowings or other financing vehicles, or issue additional preferred shares. We might do so in order to finance acquisitions, to develop or redevelop properties or for other general corporate purposes, subject to the terms and conditions of our Credit Agreements, which could exacerbate the risks set forth above.
If we are unable to comply with the covenants in our 2013 Revolving Facility, 2014 Term Loans and Letter of Credit (which are identical), we might be adversely affected.
The Credit Agreements require us to satisfy certain customary affirmative and negative covenants and to meet numerous financial tests, including tests relating to our leverage, unencumbered debt yield, interest coverage, fixed charge coverage, tangible net worth, corporate debt yield and facility debt yield. We expect the current conditions in the economy and the retail industry to continue to affect our operating results. The leverage covenant in the Credit Agreements generally takes our net operating income and applies capitalization rates to calculate Gross Asset Value, and consequently, deterioration or improvement to our operating performance also affects the calculation of our leverage. In addition, a material decline in future operating results could affect our ability to comply with other financial ratio covenants contained in our Credit Agreements, which are calculated on a trailing four quarter basis. Also, we might be restricted in the amount we can borrow based on the Unencumbered Debt Yield covenant under the Credit Agreements. As of December 31, 2014, we were in compliance with all such financial covenants. Following recent property sales, the NOI from the Company’s remaining unencumbered properties is at a level such that the maximum unsecured amount that the Company may currently borrow within the Unencumbered Debt Yield covenant under the $400.0 million 2013 Revolving Facility and the $250.0 million aggregate 2014 Term Loans is an aggregate of $561.1 million. As of December 31, 2014, the Company had borrowed $130.0 million under the 2014 Term Loans

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and there were no amounts outstanding under the 2013 Revolving Facility (with $7.1 million pledged as collateral for a letter of credit and we entered into a second letter of credit in January 2015 in the amount of $7.9 million). We currently have an aggregate of $416.1 million available under the Credit Agreements. These covenants could restrict our ability to pursue acquisitions, redevelopment and development projects or limit our ability to respond to changes and competition, and reduce our flexibility in conducting our operations by limiting our ability to borrow money, sell or place liens on assets, manage our cash flows, repurchase securities, make capital expenditures or make distributions to shareholders.
An inability to comply with these covenants would require us to seek waivers or amendments. There is no assurance that we could obtain such waivers or amendments, and even if obtained, we would likely incur additional costs. Our inability to obtain any such waiver or amendment could result in a breach and a possible event of default under our Credit Agreements, which could allow the lenders to discontinue lending or issuing letters of credit, terminate any commitments they have made to provide us with additional funds, and/or declare amounts outstanding to be immediately due and payable. If a default were to occur, we might have to refinance the debt through secured or unsecured debt financing or private or public offerings of debt or equity securities. If we are unable to do so, we might have to liquidate assets, potentially on unfavorable terms. Any of such consequences could negatively affect our financial position, results of operations, cash flow and ability to make capital expenditures and distributions to shareholders.
We might not be able to refinance our existing obligations or obtain the capital required to finance our activities.
The REIT provisions of the Internal Revenue Code of 1986, as amended, generally require the distribution to shareholders of 90% of a REIT’s net taxable income, excluding net capital gains, which generally leaves insufficient funds to finance major initiatives internally. Due to these requirements, and subject to the terms of the Credit Agreements, we generally fund certain capital requirements, such as the capital for renovations, expansions, redevelopments, other non-recurring capital improvements, scheduled debt maturities, and acquisitions of properties or other assets, through secured and unsecured indebtedness and, when available and market conditions are favorable, the issuance of additional equity securities.
As of December 31, 2014, we had $276.8 million of indebtedness with initial maturities on or before December 31, 2015 at our consolidated properties. Also, subject to the terms and conditions of our Credit Agreements, we estimate that we will need $15.7 million of additional capital to complete our current active development and redevelopment projects, excluding any project we undertake at The Gallery and our share of the Gloucester Premium Outlets. Our ability to finance growth from financing sources depends, in part, on our creditworthiness, the availability of credit to us from financing sources, or the market for our debt, equity or equity-related securities when we need capital, and on conditions in the capital markets generally. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for information about our available sources of funds.
Much of our indebtedness does not require significant principal payments prior to maturity, and we might enter into agreements on similar terms in future transactions. If our mortgage loans and other debts cannot be repaid in full, refinanced or extended at maturity on acceptable terms, or at all, a lender could foreclose upon the mortgaged property and receive an assignment of rent and leases or pursue other remedies, or we might be forced to dispose of one or more of our properties on unfavorable terms, which could have a material adverse effect on our financial condition and results of operations and which might adversely affect our cash flow and our ability to make distributions to shareholders.
Conditions in the U.S. economy continue to be challenging, and might adversely affect our cash flows from operations.
The U.S. economy has continued to experience relatively slow job growth, and reduced or fluctuating business and consumer confidence and retail sales. These conditions have negatively affected consumer spending on retail goods. This lower demand has led to decreased operating performance of and bankruptcy or similar filings by several retailer tenants, which has led to delays or deferred decisions regarding lease renewals and the openings of new retail stores at our properties, and has in some cases affected the ability of our current tenants to meet their obligations to us. This could adversely affect our ability to generate cash flows, meet our debt service requirements, comply with the covenants under our Credit Agreements, make capital expenditures and make distributions to shareholders. These conditions could also have a material adverse effect on our financial condition and results of operations.
Payments by our direct and indirect subsidiaries of dividends and distributions to us might be adversely affected by their obligations to make prior payments to the creditors of these subsidiaries.
We own substantially all of our assets through our interest in PREIT Associates. PREIT Associates holds substantially all of its properties and assets through subsidiaries, including subsidiary partnerships and limited liability companies, and derives substantially all of its cash flow from cash distributions to it by its subsidiaries. We, in turn, derive substantially all of our cash flow from cash distributions to us by PREIT Associates. Our direct and indirect subsidiaries must make payments on their obligations to their creditors when due and payable before they may make distributions to us. Thus, PREIT Associates’ ability

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to make distributions to its partners, including us, depends on its subsidiaries’ ability first to satisfy their obligations to their creditors. Similarly, our ability to pay dividends to holders of our shares depends on PREIT Associates’ ability first to satisfy its obligations to its creditors before making distributions to us. If the subsidiaries were unable to make payments to their creditors when due and payable, or if the subsidiaries had insufficient funds both to make payments to creditors and distribute funds to PREIT Associates, we might not have sufficient cash to satisfy our obligations and/or make distributions to our shareholders.
In addition, we will only have the right to participate in any distribution of the assets of any of our direct or indirect subsidiaries upon the liquidation, reorganization or insolvency of such subsidiary after the claims of the creditors, including mortgage lenders and trade creditors, of that subsidiary are satisfied. Our shareholders, in turn, will have the right to participate in any distribution of our assets upon our liquidation, reorganization or insolvency only after the claims of our creditors, including trade creditors, are satisfied.
Some of our properties are owned or ground-leased by subsidiaries that we created solely to own or ground-lease those properties. The mortgaged properties and related assets are restricted solely for the payment of the related loans and are not available to pay our other debts, which could impair our ability to borrow, which in turn could have a material adverse effect on our operating results and reduce amounts available for distribution to shareholders.
Our hedging arrangements might not be successful in limiting our risk exposure, and we might incur expenses in connection with these arrangements or their termination that could harm our results of operations or financial condition.
In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest-bearing liabilities. We use interest rate hedging arrangements to manage our exposure to interest rate volatility, but these arrangements might expose us to additional risks, such as requiring that we fund our contractual payment obligations under such arrangements in relatively large amounts or on short notice. As of December 31, 2014, the aggregate fair value of our derivative instruments was an unrealized loss of $2.4 million, which is expected to be subsequently reclassified into earnings in the periods that the hedged forecasted transactions affect earnings. Developing an effective interest rate risk strategy is complex, and no strategy can completely insulate us from risks associated with interest rate fluctuations. We might enter into interest rate swaps as hedges in connection with forecasted debt transactions or payments, and if we repay such debt earlier than expected and are no longer obligated to make such payments, then we might determine that the swaps no longer meet the criteria for effective hedges, and we might incur gain or loss on such ineffectiveness. For the year ended December 31, 2014, we recorded a net loss on hedge ineffectiveness of $1.8 million in connection with our early and anticipated early repayment of variable interest rate debt. We cannot assure you that our hedging activities will have a positive impact, and it is possible that our strategies could adversely affect our financial condition or results of operations. We might be subject to additional costs, such as transaction fees or breakage costs, if we terminate these arrangements.

We are subject to risks associated with increases in interest rates, including in connection with our variable interest rate debt.
As of December 31, 2014, we had $302.6 million of indebtedness with variable interest rates, including the 2014 Term Loans. We have fixed the interest rates on all of our variable rate debt, including the 2014 Term Loans, using derivative instruments. We might incur additional variable rate debt in the future, through borrowings under the 2013 Revolving Facility, 2014 Term Loans or otherwise, and, if we do so, the proportion of our debt with variable interest rates might increase. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”
An increase in market interest rates applicable to the variable portion of the debt portfolio would increase the interest incurred and cash flows necessary to service such debt, subject to our hedging arrangements on such debt. This has and could, in the future, adversely affect our results of operations and our ability to make distributions to shareholders. Also, in coming years, as our current mortgage loans mature, if these mortgage loans are refinanced at higher interest rates than the rates in effect at the time of the prior loans, our interest expense in connection with debt secured by our properties will increase, and could adversely affect our results of operations and ability to make distributions to shareholders.
RISKS RELATED TO OUR BUSINESS AND OUR PROPERTIES
Changes in the retail industry, particularly among anchor tenant retailers, could adversely affect our results of operations and financial condition.
The income we generate depends in part on our anchor or other major tenants’ ability to attract customers to our properties and generate traffic, which affects the property’s ability to attract non anchor tenants, and thus the revenue generated by the property. In recent years, in connection with economic conditions and other changes in the retail industry, including customers’ use of smartphones and websites and the continued expansion of ecommerce generally, some anchor tenant retailers have

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experienced decreases in operating performance, and in response, they are contemplating strategic, operational and other changes. The strategic and operational changes being considered by anchor tenants include subleasing, combinations and other consolidation designed to increase scale, leverage with suppliers like landlords, and other efficiencies, which might result in the restructuring of these companies and which could involve withdrawal from certain geographic areas, such as secondary or tertiary trade areas, or the closure or sale of stores operated by them. For example, in January 2015, J.C. Penney Company, Inc. (“JC Penney”) announced that it is closing 40 stores, including one in a mall in our portfolio (Cumberland Mall), after closing 33 the prior year, including its store at Exton Square Mall. Also, Macy’s has announced that it will close 14 stores in 2015, and Sears Holdings, whose brands include Sears and Kmart, said that it is closing more than 200 stores. In April 2014, Sears closed its Kmart store at The Gallery. Sears has also subleased space in a few of its stores to a British retailer. We cannot assure you that there will not be additional store closings by JC Penney, Sears and Kmart, or any other anchor or other tenant in the future, which could affect our results of operations, cash flows, and ability to make cash distributions. The closure of one or more anchor stores would have a negative effect on the affected properties, on our portfolio and on our results of operations, particularly if the affected properties are not classified as Class A malls. In addition, a lease termination by an anchor for any reason, a failure by an anchor to occupy the premises, or any other cessation of operations by an anchor could result in lease terminations or reductions in rent by other tenants of the same property whose leases permit cancellation or rent reduction (i.e., co-tenancy provisions) if an anchor’s lease is terminated or the anchor otherwise ceases occupancy or operations. In that event, we might be unable to re-lease the vacated space of the anchor or non anchor stores in a timely manner, or at all. In addition, the leases of some anchors might permit the anchor to transfer its lease, including any attendant approval rights, to another retailer. The transfer to a new anchor could cause customer traffic in the property to decrease or to be composed of different types of customers, which could reduce the income generated by that property. A transfer of a lease to a new anchor also could allow other tenants to make reduced rental payments or to terminate their leases at the property, which could adversely affect our results of operations.
Approximately 40% of our non anchor leases expire in 2015 or 2016 or are in holdover status, and if we are unable to renew these leases or re-lease the space covered by these leases on equivalent terms, we might experience reduced occupancy and traffic at our properties and lower rental revenue, net operating income, cash flows and funds available for distributions.
The current conditions in the economy have affected employment growth and have caused fluctuations and variations in retail sales, consumer confidence and consumer spending on retail goods. The weaker operating performance of certain retailers has resulted in delays or deferred decisions regarding the openings of new retail stores at some of our properties and regarding renewals of both anchor and non anchor leases. In recent years, partially because of such fluctuations and variations, we frequently renewed or entered into leases with terms of one year, two years or three years, rather than the more typical five years or ten years. These shorter term leases enabled both the tenant and us, before entering into a longer term lease, to evaluate the advantages and disadvantages of a longer term lease at a later time in the economic cycle, at least in part with the expectation that there will be greater visibility into future conditions in the economy and future trends. As a result, we have higher percentages of such leases that are in holdover status or will expire in the next few years, including some leases with our top 20 tenants, and including both anchor and non anchor leases. See “Item 2. Properties—Retail Lease Expiration Schedule” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Leasing Activity.” We might not be successful in renewing the leases for, or re-leasing, the space covered by leases that are in holdover status or that are expiring in 2015 and 2016, or doing so on terms comparable to those of the expiring leases. If we are not successful, we will be likely to experience reduced occupancy, traffic, rental revenue and net operating income, which could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders.
Expense reimbursements are relatively low and might continue to be relatively low. Also, operating expense amounts have increased and, in the future, are likely to continue to increase, reducing our cash flow and funds available for future distributions.
Our leases have historically provided that the tenant is liable for a portion of common area maintenance (“CAM”) costs, real estate taxes and other operating expenses. If these expenses increase, then under such provisions, the tenant’s portion of such expenses also increases. Our new leases are continuing to incorporate terms providing for fixed CAM or caps on the rate of annual increases in CAM. In these cases, a tenant will pay a set or capped expense reimbursement amount, regardless of the actual amount of operating expenses. The tenant’s payment remains the same even if operating expenses increase, causing us to be responsible for the excess amount. To the extent that existing leases, new leases or renewals of leases do not require a pro rata contribution from tenants, and to the extent that any new fixed CAM provision sets an amount below actual expense levels, we are liable for the cost of such expenses in excess of the portion paid by tenants, if any. This has and could, in the future, adversely affect our net effective rent, our results of operations and our ability to make distributions to shareholders. Further, if a property is not fully occupied, as it typically is not, we are required to pay the portion of the expenses allocable to the vacant

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space that is otherwise typically paid by tenants, which would adversely affect our results of operations and our ability to make distributions to shareholders.
Our properties are also subject to the risk of increases in CAM and other operating expenses, which typically include real estate taxes, energy and other utility costs, repairs, maintenance on and capital improvements to common areas, security, housekeeping, property and liability insurance and administrative costs. In the first quarter of 2014, a severe winter season with numerous snowfalls with significant accumulations affected a number of our properties located in the Mid-Atlantic States, particularly Pennsylvania and New Jersey, and caused them to incur higher snow removal expense and higher utility expense due to a spike in electricity rates. Also, in recent years, municipalities have sought to raise real estate taxes paid by our property in their jurisdiction because of their strained budgets, our recent redevelopment of such property or for other reasons. In some cases, our mall might be the largest single taxpayer in a jurisdiction, which could make real estate tax increases significant to us. If operating expenses increase, the availability of other comparable retail space in the specific geographic markets where our properties are located might limit our ability to pass these increases through to tenants, or, if we do pass all or a part of these increases on, might lead tenants to seek retail space elsewhere, which, in either case, could adversely affect our results of operations and limit our ability to make distributions to shareholders.
The valuation and accounting treatment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, could result in future asset impairments, which would be recorded as operating losses.
Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances, such as a decrease in net operating income, the loss of an anchor tenant or an agreement of sale at a price below book value, indicate that the carrying amount of the property might not be recoverable. An operating property to be held and used is considered impaired under applicable accounting authority only if management’s estimate of the aggregate future cash flows to be generated by the property, undiscounted and without interest charges, is less than the carrying value of the property. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated. This estimate takes into consideration factors such as expected future net operating income, trends and prospects, and upcoming lease maturities, as well as the effects of demand, competition and other factors. The current conditions in the economy have negatively affected retail sales, employment growth and consumer spending on retail goods. We have set our estimates of future cash flows to be generated by our properties taking into account these factors, which might cause changes in our estimates in the future. If we find that the carrying value of real estate investments and related intangible assets has been impaired, as we did in 2014, 2013 and 2012, we will recognize impairment with respect to such assets. Applicable accounting principles require that goodwill and certain intangible assets be tested for impairment annually or earlier upon the occurrence of certain events or substantive changes in circumstances. If we find that the carrying value of goodwill or certain intangible assets exceeds estimated fair value, we will reduce the carrying value of the real estate investment or goodwill or intangible asset to the estimated fair value, and we will recognize impairment with respect to such investments or goodwill or intangible assets.
Impairment of long-lived assets is required to be recorded as a noncash operating expense. Our 2014, 2013 and 2012 impairment analyses resulted in noncash impairment charges on long lived assets of $19.7 million, $30.0 million and $3.8 million, respectively, and, as a result, the carrying values of our impaired assets were reset to their estimated fair values as of the respective dates on which the impairments were recognized. Any further decline in the estimated fair values of these assets could result in additional impairment charges. It is possible that such impairments, if required, could be material. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Asset Impairment.”
Any store closings, leasing delays, lease terminations, tenant financial difficulties or tenant bankruptcies we encounter could adversely affect our financial condition and results of operations.
We receive a substantial portion of our operating income as rent under leases with tenants. At any time, any tenant having space in one or more of our properties could experience a downturn in its business that might weaken its financial condition. There are also a number of tenants that are based outside the U.S., and these tenants are affected by economic conditions in the country where their headquarters are located and internationally. Any of such tenants might enter into or renew leases with relatively shorter terms. Such tenants might also defer or fail to make rental payments when due, delay or defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which could result in the termination of the tenant’s lease, or preclude the collection of rent in connection with the space for a period of time, and could result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants, and we might incur costs to remove such tenants. Some of our tenants occupy stores at multiple locations in our portfolio, and so the effect of any bankruptcy or store closing of those tenants might be more significant to us than the bankruptcy or store closings of other tenants. See “Item 2. Properties—Major Tenants.” In addition, under many of our leases,

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our tenants pay rent based, in whole or in part, on a percentage of their sales. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Real Estate Revenue.” Accordingly, declines in these tenants’ sales directly affect our results of operations. Also, if tenants are unable to comply with the terms of our leases, or otherwise seek changes to the terms, including changes to the amount of rent, we might modify lease terms in ways that are less favorable to us.
If a tenant files for bankruptcy, the tenant might have the right to reject and terminate its leases, and we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. A bankruptcy filing by, or relating to, one of our tenants would bar all efforts by us to collect pre-bankruptcy debts from that tenant, or from their property, unless we receive an order permitting us to do so from the bankruptcy court. In addition, we cannot evict a tenant solely because of its bankruptcy. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages in connection with such balances. If a bankrupt tenant vacates a space, it might not do so in a timely manner, and we might be unable to re-lease the vacated space during that time, or at all. In addition, such a scenario with one tenant could result in lease terminations or reductions in rent by other tenants of the same property whose leases have co-tenancy provisions. These other tenants might seek changes to the terms of their leases, including changes to the amount of rent. Any unsecured claim we hold against a bankrupt tenant might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are restrictions under bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold, which would adversely affect our financial condition and results of operations. In some instances, retailers that have sought protection from creditors under bankruptcy law have had difficulty in obtaining debtor-in-possession financing, which has decreased the likelihood that such retailers will emerge from bankruptcy protection and has limited their alternatives. Tenant bankruptcies and liquidations have adversely affected, and are likely in the future to adversely affect, our financial condition and results of operations. In the first quarter of 2015, our bad debt expense associated with tenant bankruptcies is expected to be approximately $0.5 million, with three tenants in our portfolio filing for bankruptcy protection, Radio Shack, Wet Seal and Cache.

The investments we have made in redeveloping older properties and developing new properties could be subject to delays or other risks and might not yield the returns we anticipate, which would harm our financial condition and operating results.

Before 2011, we completed construction at the properties in our recent major redevelopment program. Currently, we are planning or engaged in redevelopment projects at a few of our properties, including our 50/50 joint venture to redevelop The Gallery, which is a significant project. We are also engaged in various early stage development steps at three mixed use and other projects, although we do not expect to make material investments in these projects in the short term, except some amounts that we expect will be reimbursed. To the extent we continue current redevelopment or development projects or enter into new redevelopment or development projects in the longer term, they will be subject to a number of risks that could negatively affect our return on investment, financial condition, results of operations and our ability to make distributions to shareholders, including, among others:

delayed ability or inability to reach projected occupancy, rental rates, profitability, and investment return;
timing delays due to tenant decision delays and other factors outside our control, which might make a project less profitable or unprofitable, or delay profitability;
expenditure of money and time on projects that might be significantly delayed before stabilization.
Some of our retail properties were constructed or last renovated more than 10 years ago. Older, unrenovated properties tend to generate lower rent and might require significant expense for maintenance or renovations to maintain competitiveness, which, if incurred, could harm our results of operations. Subject to the terms and conditions of our Credit Agreements, as a key component of our growth strategy, we plan to continue to redevelop existing properties and develop new properties, and we might develop or redevelop other projects as opportunities arise. These plans are subject to then-prevailing economic, capital market and retail industry conditions.
We might elect not to proceed with certain development projects after they are begun. In general, when we elect not to proceed with a project, development costs for such a project will be expensed in the then-current period. The accelerated recognition of these expenses could have a material adverse effect on our results of operations for the period in which the expenses are recognized.

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Online shopping and other uses of smartphones and other technology could affect the business models and viability of retailers, which could, in turn, affect their demand for retail real estate.
Online retailing and shopping and the use of technology to aid purchase decisions have increased in recent years, and are expected to continue to increase in the future. Also, small local and regional businesses and specialty retailers, who have previously been limited to marketing and selling their products within their immediate geographical area, are now able to reach a broader group of consumers and compete with a broader group of retailers, including the retailers at our properties. In certain categories, such as books, music and electronics, online retailing has become a significant proportion of total sales, and has affected retailers in those categories significantly. The information available online empowers consumers with knowledge about products and information about prices and other offers in a different way than is available in a single physical store with sales associates. Consumers are able to compare more products than are typically found in a single retail location, and they are able to read product reviews and to compare product features and pricing. In addition, retailers have recently begun to experience the phenomenon of customers, who are physically present in their stores to evaluate merchandise, checking competitors’ product offerings and prices while in their stores using technology, including smart phones. Some tenants utilize our shopping centers as showrooms or as part of an omni-channel strategy (allowing for customers to shop online or in stores and for order fulfillment to take place in stores or via shipping). In this model, customers may make purchases during or immediately after visiting our malls, with such sales not currently being captured in our tenant sales figures or monetized in our minimum or percentage rents.
Online shopping and technology, such as smartphone applications, might affect the business models, sales and profitability of retailers, which might, in turn, affect the demand for retail real estate, occupancy at our properties and the amount of rent that we receive. Any resulting decreases in rental revenue could have a material adverse effect on our financial condition, results of operations and ability to make distributions to shareholders.
There is a concentration of our retail properties in the Eastern United States, particularly in the Mid-Atlantic region, and adverse market conditions in that region might affect the ability of our tenants to make lease payments and the interest of prospective tenants to enter into leases, which might reduce the amount of revenue generated by our properties.
Our retail properties are concentrated in the Eastern United States, particularly in the Mid-Atlantic region, including a number of properties in the Philadelphia, Pennsylvania metropolitan area. To the extent adverse conditions affecting retail properties, such as economic conditions, population trends and changing demographics, availability and costs of financing, construction costs, income, sales and property tax laws, and weather conditions, are particularly adverse in Pennsylvania, New Jersey or in the Mid-Atlantic region more broadly, our results of operations will be affected to a greater degree than companies that do not have a concentration in this region. In the first quarter of 2014, our properties located in the Mid-Atlantic States, particularly Pennsylvania and New Jersey, were affected by a severe winter season with numerous snowfalls with significant accumulation.  In connection with the weather, we experienced increased snow removal expense and increased common area utility expense as a result of higher electricity expense rates. If the sales of stores operating at our properties were to decline significantly due to adverse regional conditions, the risk that our tenants, including anchors, will be unable to fulfill the terms of their leases to pay rent or will enter into bankruptcy might increase. Furthermore, such adverse regional conditions might affect the likelihood or timing of lease commitments by new tenants or lease renewals by existing tenants as such parties delay their leasing decisions in order to obtain the most current information about trends in their businesses or industries. If, as a result of prolonged adverse regional conditions, occupancy at our properties decreases or our properties do not generate sufficient revenue to meet our operating and other expenses, including debt service, our financial position, results of operations, cash flow and ability to make distributions to shareholders would be adversely affected.
We have invested and expect to invest in the future in partnerships with third parties to acquire, develop or redevelop properties, and we might not control the management, redevelopment or disposition of these properties, or we might be exposed to other risks.
We have invested and expect to invest in the future as a partner with third parties in the acquisition or ownership of existing properties or the development of new properties, in contrast to acquiring or owning properties or developing projects by ourselves. Entering into partnerships with third parties involves risks not present where we act alone, in that we might not have primary control over the acquisition, development, redevelopment, financing, leasing, management, budgeting and other aspects of the property or project. These limitations might adversely affect our ability to develop, redevelop or sell these properties at the most advantageous time for us. Also, there might be restrictive provisions and rights that apply to sales or transfers of interests in our partnership properties, which might require us to make decisions about buying or selling interests at a disadvantageous time.

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In July 2014, we entered into a 50/50 joint venture with Macerich to redevelop The Gallery. In connection therewith, we contributed and sold real estate assets to the venture and Macerich acquired its interest in the venture and real estate from us for $106.8 million in cash. It is expected that both parties will make additional investments in the project. We retained a 50% interest in The Gallery. We account for the retained 50% investment in The Gallery using the equity method of accounting.
Some of our retail properties are owned by partnerships in which we are a general partner. Under the terms of those partnership agreements, major decisions, such as a sale, lease, refinancing, redevelopment, expansion or rehabilitation of a property, or a change of property manager, require the consent of all partners. Accordingly, because decisions must be unanimous, necessary actions might be delayed significantly and it might be difficult or even impossible to remove a partner that is serving as the property manager. We might not be able to resolve favorably any conflicts which arise with respect to such decisions, or we might be required to provide financial or other inducements to our partners to obtain a resolution. In cases where we are not the controlling partner or where we are only one of the general partners, there are many decisions that do not relate to fundamental matters that do not require our approval and that we do not control. Also, in cases in which we serve as managing general partner of the partnership that owns the property, we might have certain fiduciary responsibilities to the other partners in those partnerships.
Business disagreements with partners might arise. We might incur substantial expenses in resolving these disputes. Moreover, we cannot assure you that our resolution of a dispute with a partner will be on terms that are favorable to us.

The profitability of each partnership we enter into with third parties that has short-term financing or debt requiring a balloon payment is dependent on the subsequent availability of long-term financing on satisfactory terms. If satisfactory long-term financing is not available, we might have to rely on other sources of short-term financing or equity contributions. Although these partnerships are not wholly-owned by us, if any obligations were recourse, we might be required to pay the full amount of any obligation of the partnership, or we might elect to pay all of the obligations of such a partnership to protect our equity interest in its properties and assets. This could cause us to utilize a substantial portion of our liquidity sources or operating funds and could have a material adverse effect on our operating results and reduce amounts available for distribution to shareholders.

Other risks of investments in partnerships with third parties include:

partners might become bankrupt or fail to fund their share of required capital contributions, which might inhibit our ability to make important decisions in a timely fashion or necessitate our funding their share to preserve our investment, which might be at a disadvantageous time or in a significant amount;
partners might have business interests or goals that are inconsistent with our business interests or goals;
partners might be in a position to take action contrary to our policies or objectives;
we might incur liability for the actions of our partners; and
third-party managers might not be sensitive to publicly-traded company or REIT tax compliance matters.

The retail real estate industry is highly competitive, and this competition could harm our ability to operate profitably.
Competition in the retail real estate industry is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, power centers, strip centers, lifestyle centers, factory outlet centers, theme/festival centers and community centers, as well as other commercial real estate developers and real estate owners, particularly those with properties near our properties, on the basis of several factors, including location and rent charged. We compete with these companies to attract customers to our properties, as well as to attract anchor, non anchor and other tenants. We also compete to acquire land for new site development or to add to our existing properties. Our properties face competition from similar retail centers, including more recently developed or renovated centers that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs, and telemarketers. Our tenants face competition from companies at the same and other properties and from other retail formats as well, including online retailers. This competition could have a material adverse effect on our ability to lease space and on the amount of rent and expense reimbursements that we receive.
The existence or development of competing retail properties and the related increased competition for tenants might, subject to the terms and conditions of our Credit Agreements, require us to make capital improvements to properties that we would have deferred or would not have otherwise planned to make, and might affect the occupancy and net operating income of such properties. Any such capital improvements, undertaken individually or collectively, would involve costs and expenses that could adversely affect our results of operations.

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We might be unable to effectively manage any redevelopment and development projects involving a mix of uses, or other unique aspects, such as a project located in a city rather than a suburb, which could affect our financial condition and results of operations.
The complex nature of redevelopment and development projects calls for substantial management time, attention and skill. Some of our redevelopment and development projects currently, and in the future, might involve mixed uses of the properties, including residential, office and other uses. We might not have all of the necessary or desirable skill sets to manage such projects. If a development project includes a non-retail use, we might seek to sell the rights to that component to a third-party developer with experience in that use, or we might seek to partner with such a developer. If we are not able to sell the rights to, or partner with, such a developer, or if we choose to develop the other component ourselves, we would be exposed not only to those risks typically associated with the development of commercial real estate generally, and of retail real estate, but also to specific risks associated with the development, ownership and property management of non-retail real estate, such as the demand for residential or office space of the types to be developed and the effects of general economic conditions on such property types, as opposed to the effects on retail real estate, with which we are more familiar. Also, if we pursue a redevelopment or development project with a different or unique aspect, such as a project in a dense city location like the redevelopment of The Gallery, either in a partnership with another developer (like with Macerich for The Gallery) or ourselves, we would be, and are, exposed to the particular risks associated with the unique aspect such as, in the case of dense city projects, differences in the entitlements process, different types of responses by particular stakeholders and different involvement and priorities of local and state government entities. In addition, even if we sell the rights to develop the other component or elect to participate in the development through a partnership, we might be exposed to the risks associated with the failure of the other party to complete the development as expected. These include the risk that the other party would default on its obligations, necessitating that we complete the other component ourselves (including providing any necessary financing). The lack of sufficient management resources, or of the necessary skill sets to execute our plans, or the failure of a partner in connection with a joint, mixed-use or other unique development, could delay or prevent us from realizing our expectations with respect to any such projects and could adversely affect our results of operations and financial condition.
We face competition for the acquisition of properties, development sites and other assets, which might impede our ability to make future acquisitions or might increase the cost of these acquisitions.
We compete with many other entities engaged in real estate investment activities for acquisitions of malls, other retail properties and other prime development sites or sites adjacent to our properties, including institutional pension funds, other REITs and other owner-operators of retail properties. Our efforts to compete for acquisitions are also subject to the terms and conditions of our Credit Agreements. When we seek to make acquisitions, competitors might drive up the price we must pay for properties, parcels, other assets or other companies, or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay a higher price for a property or site, or generate lower cash flow from an acquired property or site than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.


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We might not be successful in identifying suitable acquisitions that meet the criteria we apply, given economic, market or other circumstances, which might impede our growth.
Acquisitions of retail properties have historically been an important component of our growth strategy. Expanding by acquisitions requires us to identify suitable acquisition candidates or investment opportunities that meet the criteria we apply, given economic, market or other circumstances, and that are compatible with our growth strategy We must also typically obtain financing on terms that are acceptable to us. See “Item 1A. Risk Factors—Risks Related to Our Indebtedness and Our Financing.” In 2014, we entered into an agreement to acquire Springfield Town Center. We expect to complete this acquisition on or about March 31, 2015, subject to the seller meeting all closing conditions. We analyze potential acquisitions on a property-by-property and market-by-market basis. We might not be successful in identifying suitable properties or other assets in our existing geographic markets or in markets new to us that meet the acquisition criteria we apply, given economic, market or other circumstances, in financing such properties or other assets or in consummating acquisitions or investments on satisfactory terms. In connection with prospective acquisitions, we generally conduct a due diligence review of the target property or portfolio or investment.  While the process of due diligence is intended to provide us with an independent basis to evaluate a prospective acquisition, in some cases we might be given limited time or be given limited materials to review, or pertinent facts might not be adequately uncovered. In such cases, the decision of whether to pursue acquiring the property or portfolio might be based on insufficient, incomplete or inaccurate information, which might lead us to make acquisitions that might have additional or larger issues than we anticipated. If so, these issues might reduce the returns on our investment and affect our financial condition and results of operations. An inability to successfully identify, consummate or finance acquisitions could reduce the number of acquisitions we complete and impede our growth, which could adversely affect our results of operations.
We might be unable to integrate effectively any additional properties we might acquire, which might result in disruptions to our business and additional expense.
Subject to the terms and conditions of our Credit Agreements, to the extent that we pursue acquisitions of additional properties or portfolios of properties that meet the investment criteria we apply, given economic, market and other circumstances, we might not be able to adapt our management and operational systems to effectively manage any such acquired properties or portfolios.
Specific risks for our ongoing operations posed by acquisitions we have completed or that we might complete in the future, including the pending acquisition of Springfield Town Center, include:

we might not achieve the expected value-creation potential, operating efficiencies, economies of scale or other benefits of such transactions, including effective execution on acquired development rights;
we might not have adequate personnel, personnel with necessary skill sets or financial and other resources to successfully handle our increased operations;
we might not be successful in leasing space in acquired properties or renewing leases of existing tenants after our acquisition of the property;
the combined portfolio might not perform at the level we anticipate;
the additional property or portfolio might require excessive time and financial resources to make necessary improvements or renovations and might divert the attention of management away from our other operations;
we might experience difficulties and incur unforeseen expenses in connection with assimilating and retaining employees working at acquired properties, and in assimilating any acquired properties;
we might experience problems and incur unforeseen expenses in connection with upgrading and expanding our systems and processes to incorporate any such acquisitions; and
we might incur unexpected liabilities in connection with the properties and businesses we acquire.
If we fail to successfully integrate any properties, portfolios, assets or companies we acquire, or fail to effectively handle our increased operations or to realize the intended benefits of any such transactions, our financial condition and results of operations, and our ability to make distributions to shareholders, might be adversely affected.

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Our business could be harmed if members of our senior management team terminate their employment with us or otherwise are unable to continue in their current capacity.
Our future success depends, to a meaningful extent, upon the continued services of Ronald Rubin, our executive chairman, and Joseph F. Coradino, our chief executive officer, and the services of our corporate management team. These executives have substantial experience in managing, developing and acquiring retail real estate. Although we have entered into employment agreements with Joseph F. Coradino and Ronald Rubin and certain other members of our corporate management team, they could elect to terminate those agreements at any time. The loss of services of one or more members of our corporate management team could harm our business and our prospects.

If we suffer losses that are not covered by insurance or that are in excess of our insurance coverage limits, we could lose invested capital and anticipated profits.
There are some types of losses, including those of a catastrophic nature, such as losses due to wars, earthquakes, floods, hurricanes, pollution, environmental matters, information technology system failures and lease and contract claims, that are generally uninsurable or not economically insurable, or might be subject to insurance coverage limitations, including large deductibles or co-payments or caps on coverage amounts. Under federal terrorism risk insurance legislation, the United States government provides reinsurance coverage to insurance companies following a declared terrorism event. The legislation’s intent is to reinsure declared events of terrorism that cause more than $100.0 million in damages or losses. There is a generally similar program relating to flood insurance.  If either or both of these programs were no longer in effect, it might become prohibitively expensive, or impossible, to obtain insurance that covers damages or losses from those types of events.  Tenants might also encounter difficulty obtaining coverage. 
If one of these events occurred to, or caused the destruction of, one or more of our properties, we could lose both our invested capital and anticipated profits from that property. We also might remain obligated for any mortgage loan or other financial obligation related to the property. In addition, if we are unable to obtain insurance in the future at acceptable levels and at a reasonable cost, the possibility of losses in excess of our insurance coverage might increase and we might not be able to comply with covenants under our debt agreements, which could adversely affect our financial condition. If any of our properties were to experience a significant, uninsured loss, it could seriously disrupt our operations, delay our receipt of revenue and result in large expense to repair or rebuild the property. These types of events could adversely affect our cash flow, results of operations and ability to make distributions to shareholders.
We might incur costs to comply with environmental laws, which could have an adverse effect on our results of operations.
Under various federal, state and local laws, ordinances, regulations and case law, an owner, former owner or operator of real estate might be liable for the costs of removal or remediation of hazardous or toxic substances present at, on, under, in or released from its property, regardless of whether the owner, operator or other responsible party knew of or was at fault for the release or presence of hazardous or toxic substances. The responsible party also might be liable to the government or to third parties for substantial property damage and investigation and cleanup costs. Even if more than one person might have been responsible for the contamination, each person covered by the environmental laws might be held responsible for all of the clean-up costs incurred. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs the government incurs in connection with the contamination. Contamination might adversely affect the owner’s ability to sell or lease real estate or borrow with that real estate as collateral. In connection with our ownership, operation, management, development and redevelopment of properties, or any other properties we acquire in the future, we might be liable under these laws and might incur costs in responding to these liabilities.
We are aware of certain environmental matters at some of our properties. We have, in the past, investigated and, where appropriate, performed remediation of such environmental matters, but we might be required in the future to perform testing relating to these matters and further remediation might be required, or we might incur liability as a result of such environmental matters. Environmental matters at our properties include the following:
Asbestos. Asbestos-containing materials are present at a number of our properties, primarily in the form of floor tiles, mastics, roofing materials and adhesives. Fire-proofing material containing asbestos is present at some of our properties in limited concentrations or in limited areas. Under applicable laws and practices, asbestos-containing material in good, non-friable condition are allowed to be present, although removal might be required in certain circumstances. In particular, in the course of any redevelopment, renovation, construction or build out of tenant space, asbestos-containing materials are generally removed.
Underground and Above Ground Storage Tanks. Underground and above ground storage tanks are or were present at some of our properties. These tanks were used to store waste oils or other petroleum products primarily related to the operation of automobile service center establishments at those properties. In some cases, the underground storage tanks have been

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abandoned in place, filled in with inert materials or removed and replaced with above ground tanks. Some of these tanks might have leaked into the soil, leading to ground water and soil contamination. Where leakage has occurred, we might incur investigation, remediation and monitoring costs if responsible current or former tenants, or other responsible parties, are unavailable to pay such costs.
Ground Water and Soil Contamination. Ground water contamination has been found at some properties in which we currently or formerly had an interest. At some properties, dry cleaning operations, which might have used solvents, contributed to ground water and soil contamination.
Each of our retail properties has been subjected to a Phase I or similar environmental audit (which involves a visual property inspection and a review of records, but not soil sampling or ground water analysis) by environmental consultants. These audits have not revealed, and we are not aware of, any environmental liability that we believe would have a material adverse effect on our results of operations. It is possible, however, that there are material environmental liabilities of which we are unaware. Also, we cannot assure you that future laws will not impose any material environmental liability, or that the current environmental condition of our properties will not be affected by the operations of our tenants, by the existing condition of the land, by operations in the vicinity of the properties (such as the presence of underground storage tanks) or by the activities of unrelated third parties.
We have environmental liability insurance coverage for the types of environmental liabilities described above, which currently covers liability for pollution and on-site remediation of up to $25.0 million per occurrence and $25.0 million in the aggregate. We cannot assure you that this coverage will be adequate to cover future environmental liabilities. If this environmental coverage were inadequate, we would be obligated to fund those liabilities. We might be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future.
In addition to the costs of remediation, we might incur additional costs to comply with federal, state and local laws relating to environmental protection and human health and safety generally. There are also various federal, state and local fire, health, life-safety and similar regulations that might be applicable to our operations and that might subject us to liability in the form of fines or damages for noncompliance. The cost described above, individually or in the aggregate, could adversely affect our results of operations.
Inflation may adversely affect our financial condition and results of operations.
Inflationary price increases could have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our tenants’ business operations. This could affect the amount of rent these tenants pay, including if their leases provide for percentage rent or percentage of sales rent, and their ability to pay rent. Also, inflation could cause increases in operating expenses, which could increase occupancy costs for tenants and, to the extent that we are unable to recover operating expenses from tenants, could increase operating expenses for us. In addition, if the rate of inflation exceeds the scheduled rent increases included in our leases, then our net operating income and our profitability would decrease. Inflation could also result in increases in market interest rates, which would increase the borrowing costs associated with our existing or any future variable rate debt, to the extent such rates are not effectively hedged or fixed.
RISKS RELATED TO THE REAL ESTATE INDUSTRY
Acts of violence or war or other terrorist activity, including at our properties, could adversely affect our financial condition and results of operations.
Violent activities or terrorist or other attacks could directly affect the value of our properties as a result of casualties or through property damage, destruction or loss, or by making shoppers afraid to patronize such properties. The availability of insurance for such acts, or of insurance generally, might decrease, or cost more, which could increase our operating expenses and adversely affect our financial condition and results of operations. Future acts of violence or terrorist attacks in the United States might result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties, and might adversely affect the value of an investment in our securities. Such a decrease in retail demand could make it difficult for us to renew leases or enter into new leases at our properties at lease rates equal to or above historical rates. To the extent that our tenants are directly or indirectly affected by future attacks, their businesses similarly could be adversely affected, including their ability to continue to meet obligations under their existing leases. Customers of the tenants at an affected property, and at other properties, might be less inclined to shop at an affected location or at a retail property generally. Such acts might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any such acts could decrease demand for retail goods or real estate, decrease or delay the occupancy of our properties, and limit our access to capital or increase our cost of raising capital.

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The illiquidity of real estate investments might delay or prevent us from selling properties that we determine no longer meet the strategic and financial criteria we apply and could significantly affect our ability to respond in a timely manner to adverse changes in the performance of our properties and harm our financial condition.
Substantially all of our assets consist of investments in real properties. We review all of the assets in our portfolio regularly and we make determinations about which assets have growth potential and which properties do not meet the strategic or financial criteria we apply and should thus be divested. We consider a few properties as “non-core” and intend to dispose of them. In 2014, we sold three mall properties and our partnership interest in one other retail property. Because real estate investments are relatively illiquid, our ability to quickly sell one or more properties in our portfolio in response to our evaluation or to changing economic and financial conditions is limited, particularly given current economic and retail industry conditions. The real estate market is affected by many factors that are beyond our control, such as general economic conditions, the availability of financing, interest rates, and the supply and demand for space. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. The number of prospective buyers interested in purchasing malls is limited. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, prospective buyers might experience increased costs of debt financing or other difficulties in obtaining debt financing, which might make it more difficult for us to sell properties or might adversely affect the price we receive for properties that we do sell. There are also limitations under federal income tax laws applicable to REITs that could limit our ability to sell assets. Therefore, if we want to sell one or more of our properties, we might not be able to make such dispositions in the desired time period, or at all, and might receive less consideration than we seek or than we originally invested in the property.

Before a property can be sold, we might be required to make expenditures to correct defects or to make improvements. We cannot assure you that we will have funds available to correct those defects or to make those improvements, and if we cannot do so, we might not be able to sell the property, or might be required to sell the property on unfavorable terms. In acquiring a property, we might agree with the sellers or others to provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as limitations on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly harm our financial condition and results of operations.
We are subject to risks that affect the retail real estate environment generally.
Our business focuses on retail real estate, predominantly malls. As such, we are subject to certain risks that can affect the ability of our retail properties to generate sufficient revenue to meet our operating and other expenses, including debt service, to make capital expenditures and to make distributions to our shareholders, subject to the terms and conditions of our Credit Agreements. We face continuing challenges because the conditions in the economy have affected employment growth and have caused fluctuations and variations in retail sales and in business and consumer confidence and consumer spending on retail goods. In general, a number of factors can negatively affect the income generated by a retail property or the value of a property, including: a downturn in the national, regional or local economy; a decrease in employment or consumer confidence or spending; increases in operating costs, such as common area maintenance, real estate taxes, utility rates and insurance premiums; higher energy or fuel costs resulting from adverse weather conditions, natural disasters, geopolitical concerns, terrorist activities and other factors; changes in interest rate levels and the cost and availability of financing; a weakening of local real estate conditions, such as an oversupply of, or a reduction in demand for, retail space or retail goods, and the availability and creditworthiness of current and prospective tenants; trends in the retail industry; seasonality; changes in perceptions by retailers or shoppers of the safety, convenience and attractiveness of a retail property; perceived changes in the convenience and quality of competing retail properties and other retailing options such as internet retailers or other strategies, such as using smartphones or other technologies to determine where to make and to assist in making purchases; and changes in laws and regulations applicable to real property, including tax and zoning laws. Changes in one or more of these factors can lead to a decrease in the revenue or income generated by our properties and can have a material adverse effect on our financial condition and results of operations.
A significant privacy breach or IT system disruption could adversely affect our business and we might be required to increase our spending on data and system security.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. In addition, our business relationships with our tenants involve the storage and transmission of proprietary information and sensitive or confidential data. Like many businesses today, we have experienced an increase in cyber-threats and intrusions. Breaches in security could expose us, our tenants or employees to a risk of loss or misuse of proprietary information and of sensitive or confidential data. In addition, our information technology systems, some of which are managed or hosted by third-parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, telecommunication failures, user errors or

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catastrophic events, failures during the process of upgrading or replacing software, databases or components thereof, power outages or hardware failures. Any of these occurrences could result in disruptions in our operations, the loss of existing or potential tenants or shoppers, damage to our brand and reputation, and litigation and potential liability. In addition, the cost and operational consequences of implementing further data or system protection measures could be significant.

Our retailer tenants’ businesses require the collection, transmission and retention of large volumes of shopper and employee data, including credit and debit card numbers and other personally identifiable information, in various information technology systems. The integrity and protection of that shopper and employee data is critical.  The information, security and privacy requirements imposed by governmental regulation are increasingly demanding. Retailers’ systems may not be able to satisfy these changing requirements and shopper and employee expectations, or may require significant additional investments or time in order to do so. Efforts to hack or breach security measures, failures of systems or software to operate as designed or intended, viruses, operator error or inadvertent releases of data all threaten retailers’ information systems and records. A breach in the security of retailers’ information technology systems could lead to an interruption in the operation of such systems, resulting in operational inefficiencies and a loss of profits. Shoppers could further lose confidence in a retailer’s ability to protect their information, which could cause them to shop at such retailers’ stores less frequently, or to stop shopping with them altogether. Additionally, a significant theft, loss or misappropriation of, or access to, shoppers’ or other proprietary data or other breach of retailers’ information technology systems could result in fines, legal claims or proceedings, including regulatory investigations and actions, or liability for failure to comply with privacy and information security laws, which could disrupt retailers’ operations, damage their reputations and expose them to claims from shoppers and employees, any of which could have a material adverse effect on their financial condition and results of operations. If our retailer tenants experience any of these events, the business of such retailers might be adversely affected. This could, in turn, have an adverse effect on our financial condition or results of operations.
RISKS RELATING TO OUR ORGANIZATION AND STRUCTURE
Our organizational documents contain provisions that might discourage a takeover of us and depress our share price.
Our organizational documents contain provisions that might have an anti-takeover effect and might inhibit a change in our management and the opportunity to realize a premium over the then-prevailing market price of our securities. These provisions include:

(1)
There are ownership limits and restrictions on transferability in our trust agreement. In order to protect our status as a REIT, no more than 50% of the value of our outstanding shares (after taking into account options to acquire shares) may be owned, directly or constructively, by five or fewer individuals (as defined in the Internal Revenue Code of 1986, as amended), and the shares must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. To assist us in satisfying these tests, subject to some exceptions, our trust agreement prohibits any shareholder from owning more than 9.9% of our outstanding shares of beneficial interest (exclusive of preferred shares) or more than 9.9% of any class or series of preferred shares. The trust agreement also prohibits transfers of shares that would cause a shareholder to exceed the 9.9% limit or cause our shares to be beneficially owned by fewer than 100 persons. Our Board of Trustees may exempt a person from the 9.9% ownership limit if it receives a ruling from the Internal Revenue Service or an opinion of counsel or tax accountants that exceeding the 9.9% ownership limit as to that person would not jeopardize our tax status as a REIT. Our Board has granted such exemptions to Cohen & Steers Capital Management, Inc. and Blackrock, Inc. Absent an exemption, this restriction might:
discourage, delay or prevent a tender offer or other transaction or a change in control of management that might involve a premium price for our shares or otherwise be in the best interests of our shareholders; or
compel a shareholder who had acquired more than 9.9% of our shares to transfer the additional shares to a trust and, as a result, to forfeit the benefits of owning the additional shares.
(2)
Our trust agreement permits our Board of Trustees to issue preferred shares with terms that might discourage a third party from acquiring the Company. Our trust agreement permits our Board of Trustees to create and issue multiple classes and series of preferred shares, and classes and series of preferred shares having preferences to the existing shares on any matter, without a vote of shareholders, including preferences in rights in liquidation or to dividends and option rights, and other securities having conversion or option rights. Also, the Board might authorize the creation and issuance by our subsidiaries and affiliates of securities having conversion and option rights in respect of our shares. Our trust agreement further provides that the terms of such rights or other securities might provide for disparate treatment of certain holders or groups of holders of such rights or other securities. The issuance of such rights or other securities could have the effect of discouraging, delaying or preventing a change in control of us, even if a change in control were in our shareholders’ interest or would give the shareholders the opportunity to realize a premium over the then-prevailing market price of our securities.

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(3)
Advance Notice Requirements for Shareholder Nominations of Trustees. The Company’s advance notice procedures with regard to shareholder proposals relating to the nomination of candidates for election as trustees, as provided in our amended and restated Trust Agreement, require, among other things, that advance written notice of any such proposals, containing prescribed information, be given to our Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the prior year’s meeting (or within 10 business days of the day notice is given of the annual meeting date, if the annual meeting date is not within 30 days of the anniversary date of the immediately preceding annual meeting).
Limited partners of PREIT Associates may vote on certain fundamental changes we propose, which could inhibit a change in control that might otherwise result in a premium to our shareholders.
Our assets generally are held through our interests in PREIT Associates. We currently hold a majority of the outstanding OP Units. However, PREIT Associates might, from time to time, issue additional OP Units to third parties in exchange for contributions of property to PREIT Associates in amounts that could, individually or in the aggregate, be substantial. In connection with the pending acquisition of Springfield Town Center, we plan to issue 6,250,000 OP Units to the seller. These issuances will dilute our percentage ownership of PREIT Associates. OP Units generally do not carry a right to vote on any matter voted on by our shareholders, although OP Units might, under certain circumstances, be redeemed for our shares. However, before the date on which at least half of the units issued on September 30, 1997 in connection with our acquisition of The Rubin Organization have been redeemed, the holders of units issued on September 30, 1997 are entitled to vote such units together with our shareholders, as a single class, on any proposal to merge, consolidate or sell substantially all of our assets. Ronald Rubin and Joseph F. Coradino are among the holders of these units. 
These existing rights could inhibit a change in control that might otherwise result in a premium to our shareholders. In addition, we cannot assure you that we will not agree to extend comparable rights to other limited partners in PREIT Associates.
We have, in the past, and might again, in the future, enter into tax protection agreements for the benefit of certain former property owners, including some limited partners of PREIT Associates, that might affect our ability to sell or refinance some of our properties that we might otherwise want to sell or refinance, which could harm our financial condition.
As the general partner of PREIT Associates, we have agreed to indemnify certain former property owners, including some who are our officers or trustees or who have become limited partners of PREIT Associates, and including the seller in connection with the pending acquisition of Springfield Town Center, against tax liabilities that they might incur if we sell a property in a taxable transaction or significantly reduce the debt secured by a property acquired from them within a certain number of years after we acquired it, and we might do so again in the future. In some cases, these agreements might make it uneconomical for us to sell or refinance these properties, even in circumstances in which it otherwise would be advantageous to do so, which could interfere with our ability to execute strategic dispositions, harm our ability to address liquidity needs in the future or otherwise harm our financial condition.
Some of our officers and trustees have interests in properties that we manage and therefore might have conflicts of interest that could adversely affect our business.
We provide management, leasing and development services for partnerships and other ventures in which our officers and trustees, including Ronald Rubin, a trustee and our executive chairman, have indirect ownership interests. In addition, we lease substantial office space from an entity in which the Mr. Rubin has an interest. Although we have a related party transaction policy and provision for a Special Committee of the Board of Trustees to review such transactions, our officers or trustees who have interests in the other parties to these transactions have a conflict of interest in deciding to enter into these agreements and in negotiating their terms, which could result in our obtaining terms that are less favorable than we might otherwise obtain, which could adversely affect our business.

RISKS RELATING TO OUR SECURITIES

We could face adverse consequences as a result of the actions of activist shareholders.
In recent years, proxy contests and other forms of shareholder activism have been directed against numerous public companies, including the Company.  Shareholders may engage in proxy solicitations, advance shareholder proposals, or otherwise attempt to effect changes in or acquire control over the Company. Campaigns by shareholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt, special dividends, share repurchases, or sales of assets or the entire Company.  Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of the Company.

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If a shareholder, by itself or in conjunction with other shareholders or as part of a group, engages in activist activities with respect to us, our business could be adversely affected because responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, potentially disrupting operations and diverting the attention of our Board of Trustees, senior management and employees from the execution of business strategies. In addition, perceived uncertainties as to our future direction might result in the loss of potential business opportunities and harm our ability to attract new tenants, customers and  investors. If individuals are elected to our Board of Trustees with a specific agenda, it might adversely affect our ability to effectively and timely implement our strategies and initiatives and to retain and attract experienced executives and employees. Finally, we might experience a significant increase in legal fees and administrative and associated costs incurred in connection with responding to a proxy contest or related action. These actions could also negatively affect our share price.

Holders of our common shares might have their interest in us diluted by actions we take in the future.
We continue to contemplate ways to reduce our leverage through a variety of means available to us, subject to the terms of the Credit Agreements. These means might include obtaining equity capital, including through the issuance of common or preferred equity or equity-related securities if market conditions are favorable. In addition, we might contemplate acquisitions of properties or portfolios, and we might issue equity, in the form of common shares or OP Units in consideration for such acquisitions, potentially in substantial amounts, as in the case of the pending acquisition of Springfield Town Center on or about March 31, 2015, subject to the seller meeting all closing conditions. Any issuance of equity securities might result in substantial dilution in the percentage of our common shares held by our then existing shareholders, and the interest of our shareholders might be materially adversely affected. The market price of our common shares could decline as a result of sales of a large number of shares in the market or the perception that such sales could occur. Additionally, future sales or issuances of substantial amounts of our common shares might be at prices below the then-current market price of our common shares and might adversely affect the market price of our common shares.
Many factors, including changes in interest rates and the negative perceptions of the retail sector generally, can have an adverse effect on the market value of our securities.
As is the case with other publicly traded companies, a number of factors might adversely affect the price of our securities, many of which are beyond our control. These factors include:

Increases in market interest rates, relative to the dividend yield on our shares. If market interest rates increase, prospective purchasers of our securities might require a higher yield. Higher market interest rates would not, however, result in more funds being available for us to distribute to shareholders and, to the contrary, would likely increase our borrowing costs and potentially decrease funds available for distribution to our shareholders. Thus, higher market interest rates could cause the market price of our shares to decrease;
Possible future issuances of equity, equity-related or convertible securities, including securities senior as to distributions or liquidation rights;
A decline in the anticipated benefits of an investment in our securities as compared to an investment in securities of companies in other industries (including benefits associated with the tax treatment of dividends and distributions);
Perception, by market professionals and participants, of REITs generally and REITs in the retail sector, and malls in particular. Our portfolio of properties consists almost entirely of retail properties and we expect to continue to focus primarily on retail properties in the future;
Perception by market participants of our potential for payment of cash distributions and for growth;
Levels of institutional investor and research analyst interest in our securities;
Relatively low trading volumes in securities of REITs;
Our results of operations and financial condition; and
Investor confidence in the stock market or the real estate sector generally.
Any additional issuances of preferred shares in the future might adversely affect the earnings per share available to common shareholders and amounts available to common shareholders for payments of dividends.
We are not restricted by our organizational documents, contractual arrangements or otherwise from issuing additional preferred shares, including any securities that are convertible into or exchangeable or exercisable for, or that represent the right to receive, preferred shares or any substantially similar securities in the future.
The market value of our common shares is based primarily upon the market’s perception of our growth potential and our current and potential future earnings, net operating income, funds from operations, our liquidity and capital resources, and cash distributions. Consequently, our common shares might trade at prices that are higher or lower than our net asset value per common share. If our future earnings, net operating income, funds from operations or cash distributions are less than expected,

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it is likely that the market price of our common shares will decrease. These metrics might be adversely affected by the existence of preferred shares, including our existing preferred shares and additional preferred shares that we might issue.

We might change the dividend policy for our common shares in the future.
In February 2015, our Board of Trustees declared a cash dividend of $0.21 per share, payable in March 2015. Our future payment of distributions will be at the discretion of our Board of Trustees and will depend on numerous factors, including our cash flow, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code, the terms and conditions of our Credit Agreements and other factors that our Board of Trustees deems relevant. Any change in our dividend policy could have a material adverse effect on the market price of our common shares.
In addition, the Credit Agreements provide generally that dividends may not exceed 110% of REIT Taxable Income (as defined in the Credit Agreements) for a fiscal year, or 95% of funds from operations (unless necessary for us to maintain our status as a REIT). We must maintain our status as a REIT at all times.
Some of the distributions we make might be classified as a return of capital.  In general, if the distributions are in excess of our current and accumulated earnings and profits (determined under the Internal Revenue Code of 1986, as amended), then such distributions would be considered a return of capital for federal income tax purposes to the extent of a holder’s adjusted basis in its shares. A return of capital is not taxable, but has the effect of reducing the holder’s adjusted tax basis in the investment.  To the extent that distributions exceed the adjusted tax basis of a holder’s shares, the distributions will be treated as gain from the sale or exchange of such shares.
Individual taxpayers might perceive REIT securities as less desirable relative to the securities of other corporations because of the lower tax rate on certain dividends from such corporations, which might have an adverse effect on the market value of our securities.
Historically, the dividends of corporations other than REITs have been taxed at ordinary income rates, which range as high as 39.6%. In 2003, the maximum tax rate on certain corporate dividends received by individuals was reduced to an historically low maximum rate of 15%. Beginning January 1, 2013, this maximum rate was increased to 23.8% (including the tax on net investment income). However, dividends from REITs do not generally qualify for the lower tax rate on corporate dividends because REITs generally do not pay corporate-level tax on income that they distribute currently to shareholders, and instead are taxed at ordinary income rates. This differing treatment of dividends received from REITs and from corporations that are not REITs might cause individual investors to view an investment in the shares of a non-REIT corporation as more attractive than shares in REITs, which might negatively affect the value of our shares.
TAX RISKS
If we were to fail to qualify as a REIT, our shareholders would be adversely affected.
We believe that we have qualified as a REIT since our inception and intend to continue to qualify as a REIT. To qualify as a REIT, however, we must comply with certain highly technical and complex requirements under the Internal Revenue Code, which is complicated in the case of a REIT such as ours that holds its assets primarily in partnership form. We cannot be certain we have complied with these requirements because there are very limited judicial and administrative interpretations of these provisions, and even a technical or inadvertent mistake could jeopardize our REIT status. In addition, facts and circumstances that might be beyond our control might affect our ability to qualify as a REIT. We cannot assure you that new legislation, regulations, administrative interpretations or court decisions will not change the tax laws significantly with respect to our qualification as a REIT or with respect to the federal income tax consequences of qualification.
If we were to fail to qualify as a REIT, we would be subject to federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Also, unless the Internal Revenue Service granted us relief under statutory provisions, we would remain disqualified from treatment as a REIT for the four taxable years following the year during which we first failed to qualify. The additional tax incurred at regular corporate rates would significantly reduce the cash flow available for distribution to shareholders and for debt service. In addition, we would no longer be required to make any distributions to shareholders and our securities could be delisted from the exchange on which they are listed. If there were a determination that we do not qualify as a REIT, there would be a material adverse effect on our results of operations and there could be a material reduction in the value of our common shares.
Furthermore, as a REIT, we might be subject to a 100% “prohibited transactions” tax on the gain from dispositions of property if we are deemed to hold the property primarily for sale to customers in the ordinary course of business, unless the disposition qualifies under a safe harbor exception for properties that have been held for at least two years and with respect to which certain other requirements are met. The potential application of the prohibited transactions tax could cause us to forego or delay

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potential dispositions of property or other opportunities that might otherwise be attractive to us, or to undertake such dispositions or other opportunities through a taxable REIT subsidiary, which would generally result in income taxes being incurred.

We might be unable to comply with the strict income distribution requirements applicable to REITs, or compliance with such requirements could adversely affect our financial condition or cause us to forego otherwise attractive opportunities.
To obtain the favorable tax treatment associated with qualifying as a REIT, in general, we are required each year to distribute to our shareholders at least 90% of our net taxable income. In addition, we are subject to a tax on any undistributed portion of our income at regular corporate rates and might also be subject to a 4% excise tax on this undistributed income. We could be required to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT, even if conditions are not favorable for borrowing, which could adversely affect our financial condition and results of operations. In addition, compliance with these REIT requirements might cause us to forego opportunities we would otherwise pursue.
We could face possible adverse changes in state and local tax laws, which might result in an increase in our tax liability.
From time to time, changes in state and local tax laws or regulations are enacted, which might result in an increase in our tax liability. The shortfall in tax revenue for states and municipalities in recent years might lead to an increase in the frequency and size of such changes. If such changes occur, we might be required to pay additional taxes on our assets, including our properties, or income. These increased tax costs could adversely affect our financial condition and results of operations and our ability to make distributions to shareholders.


ITEM 1B.    UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2.    PROPERTIES.

RETAIL PROPERTIES
We currently own interests in 42 retail properties, of which 38 are operating properties and four are development properties. The 38 operating properties include 32 shopping malls and six other retail properties, have a total of 28.6 million square feet and are located in 11 states. We and partnerships in which we own an interest own 21.9 million square feet at these properties (excluding space owned by anchors).
There are 31 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 23.2 million square feet, of which we own 17.9 million square feet. The seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 5.4 million square feet, of which 4.0 million square feet are owned by such partnerships.
The development portion of our portfolio contains four properties in three states, with two classified as “mixed use” (a combination of retail and other uses), one classified as “retail” (outlet) and one classified as “other.”
In general, we own the land underlying our properties in fee or, in the case of our properties held by partnerships with others, ownership by the partnership entity is in fee. At certain properties, however, the underlying land is owned by third parties and leased to us or the partnership in which we hold an interest pursuant to long-term ground leases. In a ground lease, the building owner pays rent for the use of the land and is responsible for all costs and expenses related to the building and improvements.
See financial statement Schedule III for financial statement information regarding the consolidated properties.
The following tables present information regarding our retail properties. We refer to the total retail space of these properties, including anchors and non anchor stores, as “total square feet,” and the portion that we own as “owned square feet.”

Consolidated Retail Properties
 
Property/Location(1)
Ownership
Interest
 
Total
 Square Feet(2)
 
Owned
Square Feet(3)
 
Year Built /
Last
Renovated
 
Occupancy%(4)
 
Anchors/Major Tenants(5)
MALLS
 
 
 
 
 
 
 
 
 
 
 
Beaver Valley Mall,
Monaca, PA
100
%
 
1,153,797

 
949,027

 
1970/1991
 
96.5
%
 
Boscov’s, JC Penney, Macy’s and Sears
Capital City Mall,
Camp Hill, PA
100
%
 
614,471

 
494,471

 
1974/2005
 
98.6
%
 
JC Penney, Macy’s and Sears
Cherry Hill Mall,
Cherry Hill, NJ
100
%
 
1,306,367

 
827,482

 
1961/2009
 
97.2
%
 
Apple, The Container Store, Crate and Barrel, JC Penney, Macy’s and Nordstrom
Crossroads Mall,
Beckley, WV(6) 
100
%
 
468,214

 
468,214

 
1981
 
97.6
%
 
Belk, Dick’s Sporting Goods, JC Penney and Sears
Cumberland Mall,
Vineland, NJ
100
%
 
941,684

 
668,454

 
1973/2003
 
93.1
%
 
Best Buy, BJ’s Wholesale Club, Boscov’s, Burlington Coat Factory, Home Depot and JC Penney(7)
Dartmouth Mall,
Dartmouth, MA
100
%
 
670,504

 
530,504

 
1971/2000
 
99.0
%
 
JC Penney, Macy’s and Sears
Exton Square Mall,
Exton, PA(6) 
100
%
 
1,087,728

 
810,260

 
1973/2000
 
97.4
%
 
Boscov’s, K-Mart, Macy’s and Sears
Francis Scott Key Mall,
Frederick, MD
100
%
 
755,766

 
616,433

 
1978/1991
 
99.5
%
 
Barnes & Noble, JC Penney, Macy’s, Sears and Value City Furniture
Gadsden Mall,
Gadsden, AL
100
%
 
506,461

 
506,461

 
1974/1990
 
98.1
%
 
Belk, JC Penney and Sears

31



Property/Location(1)
Ownership
Interest
 
Total
 Square Feet(2)
 
Owned
Square Feet(3)
 
Year Built /
Last
Renovated
 
Occupancy%(4)
 
Anchors/Major Tenants(5)
Jacksonville Mall,
Jacksonville, NC
100
%
 
494,472

 
494,472

 
1981/2008
 
99.6
%
 
Barnes & Noble, Belk, JC Penney and Sears
Logan Valley Mall,
Altoona, PA
100
%
 
782,945

 
782,945

 
1960/1997
 
98.4
%
 
JC Penney, Macy’s and Sears
Lycoming Mall,
Pennsdale, PA
100
%
 
806,788

 
687,050

 
1978/2007
 
98.7
%
 
Best Buy, Bon-Ton, Burlington Coat Factory, Dick’s Sporting Goods, JC Penney, Macy’s(8) and Sears
Magnolia Mall,
Florence, SC
100
%
 
619,448

 
619,448

 
1979/2007
 
99.8
%
 
Barnes & Noble, Belk, Best Buy, Dick’s Sporting Goods, JC Penney and Sears
Moorestown Mall,
Moorestown, NJ
100
%
 
1,064,083

 
742,883

 
1963/2008
 
95.3
%
 
Boscov’s, Lord & Taylor, Macy’s, Regal Cinema RPX and Sears
New River Valley Mall,
Christiansburg, VA
100
%
 
463,596

 
463,596

 
1988/2007
 
89.0
%
 
Belk, Dick’s Sporting Goods, JC Penney, Regal Cinemas and Sears
Palmer Park Mall,
Easton, PA
100
%
 
457,981

 
457,981

 
1972
 
96.2
%
 
Bon-Ton and Boscov’s
Patrick Henry Mall,
Newport News, VA
100
%
 
716,498

 
432,341

 
1988/2005
 
97.4
%
 
Dick’s Sporting Goods, Dillard’s, JC Penney and Macy’s
Plymouth Meeting
Mall,
Plymouth Meeting, PA
100
%
 
947,428

 
732,793

 
1966/2009
 
93.6
%
 
AMC Theater, Boscov’s, Macy’s and Whole Foods
The Mall at Prince Georges,
Hyattsville, MD
100
%
 
916,117

 
916,117

 
1959/2004
 
99.8
%
 
JC Penney, Macy’s, Marshalls, Ross Dress for Less and Target
Uniontown Mall,
Uniontown, PA(6) 
100
%
 
700,012

 
700,012

 
1972/1990
 
94.4
%
 
Bon-Ton, Burlington Coat Factory, JC Penney, Sears and Teletech Customer Care
Valley Mall,
Hagerstown, MD
100
%
 
912,744

 
669,344

 
1974/1999
 
97.0
%
 
Bon-Ton, JC Penney, Macy’s and Sears
Valley View Mall,
La Crosse, WI
100
%
 
629,344

 
374,748

 
1980/2001
 
98.9
%
 
Barnes & Noble, Herberger’s, JC Penney, Macy’s and Sears
Viewmont Mall,
Scranton, PA
100
%
 
767,760

 
627,959

 
1968/2006
 
97.6
%
 
JC Penney, Macy’s and Sears
Voorhees Town Center,
Voorhees, NJ
100
%
 
732,035

 
311,197

 
1970/2007
 
76.1
%
 
Boscov’s, Macy’s, The Star Group and Voorhees Town Hall
Washington Crown Center,
Washington, PA
100
%
 
673,283

 
533,188

 
1969/1999
 
95.7
%
 
Bon-Ton, Gander Mountain Sports, Macy’s and Sears

32



Property/Location(1)
Ownership
Interest
 
Total
 Square Feet(2)
 
Owned
Square Feet(3)
 
Year Built /
Last
Renovated
 
Occupancy%(4)
 
Anchors/Major Tenants(5)
Willow Grove Park,
Willow Grove, PA
100
%
 
1,179,314

 
766,193

 
1982/2001
 
98.4
%
 
Apple, Bloomingdale’s, Macy’s, Nordstrom Rack and Sears
Wiregrass Commons,
Dothan, AL
100
%
 
634,561

 
302,409

 
1986/2008
 
94.6
%
 
Belk, Burlington Coat Factory and JC Penney
Woodland Mall,
Grand Rapids, MI
100
%
 
1,169,271

 
444,084

 
1968/1998
 
99.6
%
 
Apple, Barnes & Noble, JC Penney, Kohl’s, Macy’s and Sears
Wyoming Valley Mall,
Wilkes-Barre, PA
100
%
 
910,297

 
910,297

 
1971/2006
 
96.4
%
 
Bon-Ton, JC Penney, Macy’s and Sears
Total consolidated mall properties
 
23,082,969

 
17,840,363

 
 
 
96.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OTHER RETAIL
 
 
 
 
 
 
 
 
 
 
 
Walnut/Chestnut Street,
Philadelphia, Pennsylvania
100
%
 
73,497

 
73,497

 
1910/1960
 
99.5
%
 
 
Total consolidated retail properties
 
23,156,466

 
17,913,860

 
 
 
96.7
%
 
 
(1) 
The location stated is the major city or town nearest to the property and is not necessarily the local jurisdiction in which the property is located.
(2) 
Total square feet includes space owned by us and space owned by tenants or other lessors.
(3) 
Owned square feet includes only space owned by us and excludes space owned by tenants or other lessors.
(4) 
Occupancy is calculated based on space owned by us, excludes space owned by tenants or other lessors and includes space occupied by both anchor and non anchor tenants, irrespective of the term of their agreements.
(5) 
Includes anchors/major tenants that own their space or lease from lessors other than us and do not pay rent to us.
(6) 
A portion of the underlying land at this property is subject to a ground lease.
(7) 
Includes a landlord owned store located at Cumberland Mall that the tenant has announced that it intends to close in April 2015.
(8) 
Tenant currently holds a long-term ground lease with an option to purchase the related store and parking area at a nominal purchase price. These locations are deemed owned by their anchor occupants as they only pay a nominal rent.






33



Unconsolidated Operating Properties
 
Property/Location(1)
Ownership
Interest
 
Total
Square Feet(2)
 
Owned
Square Feet(3)
 
Year Built /
Last
Renovated
 
Occupancy%(4)
 
Anchors/Major Tenants(5)
MALLS
 
 
 
 
 
 
 
 
 
 
 
The Gallery at Market East,
Philadelphia, PA(6)(7) 
50
%
 
1,473,688

 
1,473,688

 
1977/1990
 
74.4
%
 
Burlington Coat Factory, Century 21, Commonwealth of Pennsylvania, Health Partners, and Interstate General Media
Lehigh Valley Mall,
Allentown, PA
50
%
 
1,169,409

 
962,117

 
1960/2008
 
97.2
%
 
Barnes & Noble, Boscov’s, JC Penney and Macy’s
Springfield Mall,
Springfield, PA
50
%
 
611,671

 
223,772

 
1974/1997
 
95.2
%
 
Macy’s and Target
POWER CENTERS
 
 
 
 
 
 
 
 
 
 
 
Metroplex Shopping Center,
Plymouth Meeting, PA
50
%
 
778,190

 
477,461

 
2001
 
100.0
%
 
Giant Food Store, Lowe’s and Target
The Court at Oxford Valley,
Langhorne, PA
50
%
 
704,526

 
456,903

 
1996
 
99.9
%
 
Best Buy, BJ’s Wholesale Club, Dick’s Sporting Goods and Home Depot
Red Rose Commons,
Lancaster, PA
50
%
 
462,881

 
263,291

 
1998
 
100.0
%
 
Home Depot and Weis Markets
STRIP CENTER
 
 
 
 
 
 
 
 
 
 
 
Springfield Park,
Springfield, PA
50
%
 
287,237

 
141,568

 
1997/1998
 
100.0
%
 
Bed, Bath & Beyond, LA Fitness and Target
Total unconsolidated retail properties
 
5,487,602

 
3,998,800

 
 
 
89.6
%
 
 
 

(1) 
The location stated is the major city or town nearest to the property and is not necessarily the local jurisdiction in which the property is located.
(2) 
Total square feet includes space owned by the unconsolidated partnership and space owned by tenants or other lessors.
(3) 
Owned square feet includes only space owned by the unconsolidated partnership and excludes space owned by tenants or other lessors.
(4) 
Occupancy is calculated based on space owned by the unconsolidated partnership that is occupied, includes space occupied by both anchor and non anchor tenants and includes all tenants irrespective of the term of their agreements.
(5) 
Includes anchors that own their space or lease from lessors other than us and do not pay rent to us.
(6) 
A portion of the underlying land at this property is subject to a ground lease. 
(7) 
The owned square feet for The Gallery includes the former Strawbridge’s department store building that is currently partially vacant. The vacant portion of the department store represents 15.9% of the owned square feet for The Gallery.

 


34



The following table sets forth our gross rent per square foot (for consolidated, unconsolidated and discontinued properties) for the five years ended December 31, 2014:
 
Year
Anchor Stores
Non Anchor Stores
2010(1)
$4.12
$31.72
2011(1)
4.12
31.45
2012
4.83
32.03
2013
5.36
33.02
2014
5.69
34.64
 
(1) 
Prior periods reflect the exclusion of tenants that have vacated their space and are not paying rent.
LARGE FORMAT RETAILERS AND ANCHORS
Historically, large format retailers and anchors have been an important element of attracting customers to a mall, and they have generally been department stores whose merchandise appeals to a broad range of customers, although in recent years we have attracted some non-traditional large format retailers. These large format retailers and anchors either own their stores, the land under them and adjacent parking areas, or enter into long-term leases at rent that is generally lower than the rent charged to in-line tenants. Well-known, large format retailers and anchors continue to play an important role in generating customer traffic and making malls desirable locations for in-line store tenants, even though the market share of traditional department store anchors has been declining and such companies have experienced significant changes. See “Item 1A. Risk Factors—Risks Related to Our Business and Our Properties.” The following table indicates the parent company of each of our large format retailers and anchors and sets forth the number of stores and square feet owned or leased by each at our retail properties, including consolidated and unconsolidated properties, as of December 31, 2014:
 
Tenant Name(1)
Number
      of Stores(2)
 
GLA(2)
 
Percent of
Total GLA(3)
Bed Bath & Beyond Inc.
3

 
112,190

 
0.4
%
Belk, Inc.
6

 
540,718

 
1.9
%
Best Buy Co., Inc.
 
 
 
 
 
Best Buy
5

 
177,857

 
 
Best Buy Mobile
17

 
27,020

 
 
Total Best Buy Co., Inc.
22

 
204,877

 
0.7
%
BJ’s Wholesale Club, Inc.
2

 
234,761

 
0.8
%
The Bon-Ton Stores, Inc.
 
 
 
 
 
Bon-Ton
6

 
618,630

 
 
Herberger’s
1

 
41,344

 
 
Total Bon-Ton Stores, Inc.
7

 
659,974

 
2.3
%
Boscov’s Department Store
8

 
1,453,574

 
5.1
%
Burlington Coat Factory
5

 
467,916

 
1.6
%
Carmike Cinemas, Inc.
 
 
 
 
 
Carmike Cinemas
3

 
104,321

 
 
Valley Square Theater
1

 
20,780

 
 
Total Carmike Cinemas, Inc.
4

 
125,101

 
0.4
%
Dick’s Sporting Goods, Inc.
10

 
461,825

 
1.6
%
Dillard’s, Inc.
2

 
307,204

 
1.1
%
Gander Mountain Co.
1

 
83,835

 
0.3
%
Giant Food Stores, LLC
1

 
67,185

 
0.2
%
Hollywood Theaters, Inc.
1

 
54,073

 
0.2
%
The Home Depot, Inc.
3

 
397,322

 
1.4
%

35



Tenant Name(1)
Number
      of Stores(2)
 
GLA(2)
 
Percent of
Total GLA(3)
J.C. Penney Company, Inc. (4)(5)
25

 
2,952,830

 
10.3
%
Lord & Taylor
1

 
121,200

 
0.4
%
Lowes, Inc.
1

 
163,215

 
0.6
%
Macy’s, Inc.
 
 
 
 
 
Macy’s
22

 
3,774,640

 
 
Bloomingdale’s
1

 
237,537

 
 
Total Macy’s, Inc.
23

 
4,012,177

 
14.0
%
Nordstrom, Inc.
 
 
 
 
 
Nordstrom
1

 
138,000

 
 
Nordstrom Rack
1

 
40,332

 
 
Total Nordstrom, Inc.
2

 
178,332

 
0.6
%
Premier Cinema Corporation
1

 
51,412

 
0.2
%
Regal Cinemas
4

 
208,173

 
0.7
%
Sears Holdings Corporation
 
 
 
 
 
Sears
20

 
2,787,353

 
 
K-Mart
1

 
96,268

 
 
Total Sears Holdings Corporation
21

 
2,883,621

 
10.1
%
Target Corporation
4

 
620,880

 
2.2
%
Teletech Customer Care Management
1

 
64,964

 
0.2
%
Weis Markets, Inc.
1

 
65,032

 
0.2
%
Whole Foods, Inc.
1

 
65,155

 
0.2
%
 
160

 
16,557,546

 
57.8
%

 
(1) 
To qualify as a large format retailer or an anchor for inclusion in this table, a tenant must occupy at least 50,000 square feet or be part of a chain that has stores in our portfolio occupying at least 50,000 square feet. This table lists all stores from such chains, regardless of the size of the individual stores.
(2) 
Number of stores and gross leasable area (“GLA”) include anchors that own their own space or lease from lessors other than us and do not pay rent to us.
(3) 
Percent of Total GLA is calculated based on the total GLA of all properties.
(4) 
Includes a landlord owned store located at Cumberland Mall that the tenant has announced that it intends to close in April 2015.
(5) 
Includes a landlord owned store at Exton Square Mall which the tenant closed in May 2014. The tenant is obligated to pay rent through the end of the lease in May 2020.


36



MAJOR TENANTS
The following table presents information regarding the top 20 tenants at our retail properties, including consolidated and unconsolidated properties, by gross rent as of December 31, 2014:
 
Primary Tenant(1)
Total
Stores
 
Annual
Gross Rent(2)
 
Percent  of
PREIT’s
Annual
Gross  Rent
L Brands, Inc.
65

 
$
13,370

 
3.5
%
Signet Jewelers Limited
96

 
11,871

 
3.1
%
Gap, Inc.
36

 
11,228

 
2.9
%
Foot Locker, Inc.
56

 
11,147

 
2.9
%
J.C. Penney Company, Inc. (3) (4)
25

 
9,916

 
2.6
%
American Eagle Outfitters, Inc.
33

 
9,285

 
2.4
%
Sears Holding Corporation
21

 
6,021

 
1.6
%
Dick's Sporting Goods, Inc.
10

 
5,517

 
1.4
%
Luxottica Group S.p.A.
43

 
5,477

 
1.4
%
Genesco, Inc.
57

 
5,371

 
1.4
%
Ascena Retail Group, Inc.
39

 
5,322

 
1.4
%
Macy's, Inc.
23

 
5,305

 
1.4
%
Abercrombie & Fitch Co.
18

 
5,230

 
1.4
%
Boscov's Department Store
8

 
4,719

 
1.2
%
Aeropostale, Inc.
32

 
4,509

 
1.2
%
The Children's Place Retail Stores, Inc.
27

 
4,456

 
1.2
%
Regal Entertainment Group
4

 
4,422

 
1.1
%
The Finish Line, Inc.
22

 
4,150

 
1.1
%
Shoe Show, Inc.
23

 
4,064

 
1.1
%
Advent CR Holdings, Inc.
16

 
3,950

 
1.0
%
Total
654

 
$
135,330

 
35.1
%
 
(1) 
Tenant includes all brands and concepts of the tenant.
(2) 
In thousands of dollars. Includes our proportionate share of tenant rent from partnership properties that are not consolidated by us, based on our ownership percentage in the respective partnerships. Annualized gross rent is calculated based on gross monthly rent as of December 31, 2014.
(3) 
Includes a landlord owned store located at Exton Square Mall which the tenant closed in May 2014. The tenant is obligated to pay rent through the end of the lease in May 2020.
(4) 
Includes a landlord owned store located at Cumberland Mall which the tenant announced it will close in April 2015.


37



RETAIL LEASE EXPIRATION SCHEDULE—NON ANCHORS
The following table presents scheduled lease expirations of non anchor tenants as of December 31, 2014:
 
 
All Tenants
 
Tenants in Bankruptcy(1)
For the Year Ended December 31,
Number
of
Leases
Expiring
 
GLA of
Expiring
Leases
 
PREIT’s
Share of
Gross
Rent in
Expiring Year(2)
 
Average
Expiring
Gross
Rent psf
 
Percent of
PREIT’s
Total
Gross
Rent
 
GLA of
Expiring
Leases
 
PREIT’s
Share of
Gross
Rent in
Expiring
Year(2)
 
Average
Expiring
Gross
Rent psf
 
Percent of
PREIT’s
Share of
Gross
Rent in
Expiring
Year
2014 and Prior(3) 
211

 
524,416

 
$
15,797

 
$
30.12

 
4.6
%
 
3,606

 
$
126

 
$
34.94

 
4.3
%
2015
400

 
1,347,128

 
43,062

 
31.97

 
12.7
%
 
28,994

 
647

 
22.31

 
22.2
%
2016
438

 
1,629,483

 
52,502

 
32.22

 
15.4
%
 
51,992

 
1,491

 
28.68

 
51.3
%
2017
380

 
1,211,148

 
42,061

 
34.73

 
12.4
%
 
13,343

 
524

 
39.27

 
18.0
%
2018
260

 
1,181,478

 
36,879

 
31.21

 
10.9
%
 
2,449

 
55

 
22.46

 
1.9
%
2019
221

 
992,659

 
30,826

 
31.05

 
9.1
%
 
837

 
43

 
51.37

 
1.5
%
2020
123

 
866,470

 
20,649

 
23.83

 
6.1
%
 

 

 

 
%
2021
111

 
472,433

 
15,521

 
32.85

 
4.6
%
 

 

 

 
%
2022
118

 
549,580

 
18,458

 
33.59

 
5.4
%
 

 

 

 
%
2023
146

 
818,224

 
25,397

 
31.04

 
7.5
%
 
1,713

 
23

 
13.43

 
0.8
%
2024
126

 
589,492

 
21,954

 
37.24

 
6.5
%
 

 

 

 
%
Thereafter
68

 
704,690

 
16,375

 
23.24

 
4.8
%
 

 

 

 
%
Total/Average
2,602

 
10,887,201

 
$
339,481

 
$
31.18

 
100.0
%
 
102,934

 
$
2,909

 
$
31.86

 
100.0
%
 
(1) 
As described above under “Item 1A. Risk Factors,” if a tenant files for bankruptcy, the tenant might have the right to reject and terminate its leases, and we cannot be sure that it will affirm its leases and continue to make rental payments in a timely manner. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages in connection with such balances.
(2) 
In thousands of dollars. Includes our proportionate share of tenant rent from partnership properties that are not consolidated by us, based on our ownership percentage in the respective partnerships. Annualized gross rent is calculated based only on gross monthly rent as of December 31, 2014.
(3) 
Includes all tenant leases that had expired and were on a month to month basis as of December 31, 2014.
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Leasing Activity” for information regarding rent for leases signed in 2014.


38



RETAIL LEASE EXPIRATION SCHEDULE—ANCHORS
The following table presents scheduled lease expirations of anchor tenants as of December 31, 2014 (includes leases with tenants that have filed for bankruptcy protection, depending on the current status of the lease):
 
For the Year Ending December 31,
Number
of Leases
Expiring
 
GLA of
Expiring
Leases
 
PREIT’s
Share of
Gross
Rent in
Expiring Year(1)(2)
 
Average
Expiring
Gross
Rent psf
 
Percent
of
PREIT’s
Total
2015 (3)
7

 
750,037

 
$
3,387

 
$
4.52

 
7.4
%
2016
17

 
1,732,683

 
6,728

 
3.88

 
14.7
%
2017
9

 
1,319,105

 
4,235

 
3.21

 
9.3
%
2018
11

 
1,163,222

 
5,105

 
4.39

 
11.2
%
2019
18

 
1,857,420

 
6,702

 
3.61

 
14.7
%
2020 (4)
7

 
801,161

 
3,650

 
4.56

 
8.0
%
2021
2

 
126,805

 
1,182

 
9.32

 
2.6
%
2022
4

 
521,173

 
2,646

 
5.08

 
5.8
%
2023

 

 

 
N/A

 
%
2024
2

 
123,225

 
1,158

 
9.40

 
2.5
%
Thereafter
9

 
1,119,664

 
10,865

 
9.70

 
23.8
%
Total/Average
86

 
9,514,495

 
$
45,658

 
$
4.80

 
100.0
%
 
(1) 
In thousands of dollars. Includes our proportionate share of tenant rent from partnership properties that are not consolidated by us, based on our ownership percentage in the respective partnerships. Annualized gross rent is calculated based only on gross monthly rent as of December 31, 2014.
(2) 
None of the amounts shown in this column are associated with tenants that have filed for bankruptcy protection.
(3) 
Includes a landlord owned store located at Cumberland Mall that the tenant has announced that it intends to close in 2015.
(4) 
Includes a landlord owned store located at Exton Square Mall which the tenant closed in May 2014. The tenant is obligated to pay rent through the end of the lease in May 2020.


See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Leasing Activity” for information regarding rent in leases signed in 2014.
DEVELOPMENT PROPERTIES
The development portion of our portfolio contains four properties in three states, with two classified as “mixed use” (a combination of retail and other uses), one classified as “retail” (outlet) and one classified as “other.”
OFFICE SPACE
We lease our principal executive offices from Bellevue Associates, an entity in which our Executive Chairman, Ronald Rubin, has an interest. Collectively with members of his immediate family and affiliated entities, Ronald Rubin owns approximately a 50% interest. Total rent expense under this lease was $1.2 million, $1.4 million and $1.5 million for the years ended December 31, 2014, 2013 and 2012, respectively.

 


39



ITEM 3.    LEGAL PROCEEDINGS.

In the normal course of business, we have become, and might in the future become, involved in legal actions relating to the ownership and operation of our properties and the properties we manage for third parties. In management’s opinion, the resolutions of any such pending legal actions are not expected to have a material adverse effect on our consolidated financial condition or results of operations.
 

ITEM 4.    MINE SAFETY DISCLOSURES.

Not applicable.

40



PART II
 

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Common Shares
Our common shares of beneficial interest are listed on the New York Stock Exchange under the symbol “PEI.”
The following table presents the high and low sales prices for our common shares of beneficial interest, as reported by the New York Stock Exchange, and cash distributions paid per share for the periods indicated:
 
 
High
 
Low
 
Dividend
Paid
Quarter ended March 31, 2014
$
20.05

 
$
17.14

 
$
0.20

Quarter ended June 30, 2014
$
18.83

 
$
16.35

 
0.20

Quarter ended September 30, 2014
$
21.14

 
$
18.65

 
0.20

Quarter ended December 31, 2014
$
24.35

 
$
18.90

 
0.20

 
 
 
 
 
$
0.80

 
 
High
 
Low
 
Dividend
Paid
Quarter ended March 31, 2013
$
19.86

 
$
17.77

 
$
0.18

Quarter ended June 30, 2013
$
22.54

 
$
14.20

 
0.18

Quarter ended September 30, 2013
$
22.19

 
$
17.71

 
0.18

Quarter ended December 31, 2013
$
19.58

 
$
16.61

 
0.20

 
 
 
 
 
$
0.74

As of December 31, 2014, there were approximately 2,800 holders of record of our common shares and approximately 12,700 beneficial holders of our common shares.
We currently anticipate that cash distributions will continue to be paid in March, June, September and December. In February 2015, our Board of Trustees declared a cash dividend of $0.21 per share payable in March 2015. Our future payment of distributions will be at the discretion of our Board of Trustees and will depend upon numerous factors, including our cash flow, financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code, the terms and conditions of our Credit Agreements, and other factors that our Board of Trustees deems relevant.
The Credit Agreements provide generally that dividends may not exceed 110% of REIT Taxable Income for a fiscal year, or 95% of FFO (unless necessary for us to maintain our status as a REIT). All capitalized terms used in this section and not otherwise defined have the meanings ascribed to such terms in the Credit Agreements. We must maintain our status as a REIT at all times.
Units
Class A and Class B Units of PREIT Associates (“OP Units”) are redeemable by PREIT Associates at the election of the limited partner holding the OP Units at the time and for the consideration set forth in PREIT Associates’ partnership agreement. In general, and subject to exceptions and limitations, beginning one year following the respective issue dates, “qualifying parties” may give one or more notices of redemption with respect to all or any part of the Class A Units then held by that party. Class B Units are redeemable at the option of the holder at any time after issuance.
If a notice of redemption is given, we have the right to elect to acquire the OP Units tendered for redemption for our own account, either in exchange for the issuance of a like number of our common shares, subject to adjustments for stock splits, recapitalizations and like events, or a cash payment equal to the average of the closing prices of our shares on the ten consecutive trading days immediately before our receipt, in our capacity as general partner of PREIT Associates, of the notice of redemption. If we decline to exercise this right, then PREIT Associates will pay a cash amount equal to the number of OP Units tendered multiplied by such average closing price.

41




Issuer Purchases of Equity Securities

There were no issuer purchased of securities in the three months ended December 31, 2014.




42




ITEM 6.    SELECTED FINANCIAL DATA.

The following table sets forth Selected Financial Data for the Company as of and for the years ended December 31, 2014, 2013, 2012, 2011 and 2010. The information set forth below should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current year presentation.
 
 
For the Year Ended December 31,
(in thousands, except per share amounts)
2014
 
2013
 
2012
 
2011
 
2010
Operating results:
 
 
 
 
 
 
 
 
 
Total revenue
$
432,703

 
$
438,678

 
$
419,347

 
$
419,138

 
$
418,163

Impairment of assets
$
(19,695
)
 
$
(6,304
)
 
$

 
$
(24,359
)
 
$

Gains on sales of real estate – continuing operations
$
12,699

 
$

 
$

 
$
1,590

 
$

Loss from continuing operations
$
(14,262
)
 
$
(20,449
)
 
$
(44,319
)
 
$
(67,876
)
 
$
(75,529
)
Gains on sales of discontinued operations
$

 
$
78,512

 
$
947

 
$

 
$
19,094

Net (loss) income
$
(14,262
)
 
$
37,213

 
$
(42,550
)
 
$
(93,935
)
 
$
(54,363
)
Dividends on preferred shares
$
(15,848
)
 
$
(15,848
)
 
$
(7,984
)
 
$

 
$

Net (loss) income attributable to PREIT common shareholders
$
(29,678
)
 
$
20,011

 
$
(48,821
)
 
$
(90,161
)
 
$
(51,927
)
Loss from continuing operations per share – basic and diluted
$
(0.44
)
 
$
(0.56
)
 
$
(0.92
)
 
$
(1.20
)
 
$
(1.44
)
Net (loss) income per share – basic and diluted
$
(0.44
)
 
$
0.31

 
$
(0.89
)
 
$
(1.66
)
 
$
(1.04
)
Impairment of assets of discontinued operations
$

 
$
(23,662
)
 
$
(3,805
)
 
$
(27,977
)
 
$

Weighted Average Common Shares Outstanding-basic and diluted
68,217

 
63,662

 
55,122

 
54,639

 
50,642

 
As of December 31,
(in thousands)
2014
 
2013
 
2012
 
2011
 
2010
Balance sheet data:
 
 
 
 
 
 
 
 
 
Investments in real estate, at cost
$
3,285,404

 
$
3,527,868

 
$
3,477,540

 
$
3,576,997

 
$
3,587,468

Intangible assets, net
$
6,452

 
$
9,075

 
$
8,673

 
$
9,921

 
$
15,787

Total assets
$
2,539,703

 
$
2,718,581

 
$
2,877,624

 
$
2,910,254

 
$
3,080,117

Total debt, including debt premium and discount
$
1,537,947

 
$
1,632,650

 
$
1,900,052

 
$
2,162,432

 
$
2,225,539

Noncontrolling interest
$
29,279

 
$
34,194

 
$
38,588

 
$
43,711

 
$
50,257

Total equity – PREIT
$
844,737

 
$
926,452

 
$
713,229

 
$
544,327

 
$
654,273

 
 
 
 
 
 
 
 
 
 
 
For the Year Ended December 31,
(in thousands, except per share amounts)
2014
 
2013
 
2012
 
2011
 
2010
Cash flow data:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
145,075

 
$
136,219

 
$
120,324

 
$
105,262

 
$
116,791

Cash provided by (used in) investing activities
$
31,650

 
$
30,741

 
$
(88,178
)
 
$
(21,772
)
 
$
81,029

Cash used in financing activities
$
(170,522
)
 
$
(166,720
)
 
$
(19,954
)
 
$
(104,019
)
 
$
(229,736
)
Cash distributions per share – common
$
0.80

 
$
0.74

 
$
0.63

 
$
0.60

 
$
0.60


43



ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following analysis of our consolidated financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this report.
OVERVIEW
Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.
We currently own interests in 42 retail properties, of which 38 are operating properties and four are development properties. The 38 operating properties include 32 shopping malls and six other retail properties, have a total of 28.6 million square feet and are located in 11 states. We and partnerships in which we own an interest own 21.9 million square feet at these properties (excluding space owned by anchors).
There are 31 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 23.2 million square feet, of which we own 17.9 million square feet. The seven operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 5.4 million square feet, of which 4.0 million square feet are owned by such partnerships.
The development portion of our portfolio contains four properties in three states, with two classified as “mixed use” (a combination of retail and other uses), one classified as “retail” (outlet) and one classified as “other.”
Our primary business is owning and operating retail shopping malls, which we do primarily through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We provide management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties we own interests in through partnerships with third parties and properties that are owned by third parties in which we do not have an interest. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.
Our revenue consists primarily of fixed rental income, additional rent in the form of expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the leases) derived from our income producing properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.
Our net income decreased by $51.5 million to a net loss of $14.3 million for 2014 from net income of $37.2 million for the year ended December 31, 2013. The change in our 2014 results of operations from the prior year was primarily due to $78.5 million of gains on sales of discontinued operations recorded in 2013, compared to aggregate gains on sales on interests in real estate and gains on sales of non operating real estate of $14.5 million in 2014.
We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of our consolidated revenue, and none of our properties are located outside the United States.
We hold our interest in our portfolio of properties through the Operating Partnership. We are the sole general partner of the Operating Partnership and, as of December 31, 2014, held a 97.0% controlling interest in the Operating Partnership, and consolidated it for reporting purposes. We hold our investments in seven of the 38 operating retail properties and two of the four development properties in our portfolio through unconsolidated partnerships with third parties in which we own a 25% to 50% interest. We hold a non-controlling interest in each unconsolidated partnership, and account for such partnerships using the equity method of accounting. We do not control any of these equity method investees for the following reasons:
Except for three properties that we co-manage with our partner, all of the other entities are managed on a day-to-day basis by one of our other partners as the managing general partner in each of the respective partnerships. In the case of the co-managed properties, all decisions in the ordinary course of business are made jointly.
The managing general partner is responsible for establishing the operating and capital decisions of the partnership, including budgets, in the ordinary course of business.

44



All major decisions of each partnership, such as the sale, refinancing, expansion or rehabilitation of the property, require the approval of all partners.
Voting rights and the sharing of profits and losses are generally in proportion to the ownership percentages of each partner.
We record the earnings from the unconsolidated partnerships using the equity method of accounting under the statements of operations caption entitled “Equity in income of partnerships,” rather than consolidating the results of the unconsolidated partnerships with our results. Changes in our investments in these entities are recorded in the balance sheet caption entitled “Investment in partnerships, at equity.” In the case of deficit investment balances, such amounts are recorded in “Distributions in excess of partnership investments.”
We hold our interests in three of our unconsolidated partnerships through tenancy in common arrangements. For each of these properties, title is held by us and another person or persons, and each has an undivided interest in the property. With respect to each of the three properties, under the applicable agreements between us and the other persons with ownership interests, we and such other persons have joint control because decisions regarding matters such as the sale, refinancing, expansion or rehabilitation of the property require the approval of both us and the other person (or at least one of the other persons) owning an interest in the property. Hence, we account for each of the properties using the equity method of accounting. The balance sheet items arising from these properties appear under the caption “Investments in partnerships, at equity.”
For further information regarding our unconsolidated partnerships, see note 3 to our consolidated financial statements.

The Gallery Joint Venture

In July 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop The Gallery at Market East in Philadelphia, Pennsylvania (“The Gallery”). In connection therewith, we contributed and sold real estate assets to the venture, and Macerich acquired its interest in the venture and real estate from us for $106.8 million in cash. It is expected that both parties will make additional investments in the project. Net proceeds after closing costs from the sale of the interests were $104.0 million. We used $25.8 million of such proceeds to repay a mortgage loan secured by 801 Market Street, Philadelphia, Pennsylvania, a property that is part of The Gallery, $50.0 million to repay the outstanding balance on our 2013 Revolving Facility, and the remaining proceeds for general corporate purposes.

Prior to July 29, 2014, while it was still a consolidated property, we included the assets, liabilities and operating results of The
Gallery in their respective line items of our consolidated financial statements in accordance with GAAP. On and after July 29, 2014, we account for The Gallery under the equity method of accounting. Under the equity method, we report our net investment in The Gallery in the balance sheet line item entitled “Investments in partnerships, at equity,” and we report our share of the operations of the property in the line item entitled “Equity in income of partnerships.” With respect to FFO, we now calculate FFO from The Gallery in the same manner as we do for all of our unconsolidated properties. We determine our share of the property’s FFO, which is calculated by making the same adjustments to net income (determined in accordance with GAAP) as we make for our consolidated operations. As we redevelop The Gallery, operating results in the short term, as measured by sales, occupancy and net operating income, will likely be negatively affected until the newly constructed space is completed, leased and occupied.

Springfield Town Center

In March 2014, we entered into a Contribution Agreement (the “Contribution Agreement”) to acquire Springfield Town Center in Springfield, Virginia (“Springfield Town Center”) for total consideration of: (i) an aggregate of $340.0 million (subject to customary closing proration adjustments), in the form of cash and the assumption and payoff of certain seller debt,, and (ii) 6,250,000 common units of limited partnership interest (“OP Units”) of PREIT Associates L.P., our operating partnership (the “Operating Partnership”), and, if our average share price is less than $20.00 at closing , a number of preferred units of limited partnership interest. We expect to provide the cash amount by borrowing from the amounts available under our existing Credit Agreements. In addition, the seller of Springfield Town Center may be entitled to certain additional consideration based on the value of Springfield Town Center three years after the closing date. The closing is subject to the substantial completion of the redevelopment of Springfield Town Center in accordance with plans and specifications for such redevelopment, as well as certain other customary closing conditions. We currently expect this transaction to close on or about March 31, 2015, subject to the seller meeting all closing conditions.
Pursuant to the Contribution Agreement, closing will occur after all of the conditions to closing have been satisfied or waived,
on the date that is the earlier of (i) fifteen days after the later of the date on which Regal Cinemas, Dick’s Sporting Goods and
at least seventy-five percent (75%) of the aggregate square footage of the in-line space of Springfield Town Center are occupied, certificates of occupancy have been issued with respect to all of the common areas of Springfield Town Center and

45



the “grand opening” of Springfield Town Center has occurred, and (ii) March 31, 2015 (which date may be extended in certain circumstances). The “grand opening” took place on October 17, 2014.

Despite the significance of the acquisition of Springfield Town Center, we have not included separate financial statements related to Springfield Town Center in this Annual Report on Form 10-K because Springfield Town Center has been undergoing a multi-year redevelopment, during which the entire mall was demolished and rebuilt, with the exception of certain anchor stores. Accordingly, the financial statements for Springfield Town Center during the period of renovation are not reflective of Springfield Town Center’s historical or expected future performance.

Current Economic Conditions and Our Near Term Capital Needs

The conditions in the economy have caused relatively slow job growth and have caused fluctuations and variations in retail sales, business and consumer confidence and consumer spending on retail goods. As a result, the sales and profit performance of certain retailers has fluctuated, and in some cases, has led to bankruptcy filings. We continue to adjust our plans and actions to take into account the current environment. In particular, we continue to contemplate ways to maintain or reduce our leverage through a variety of means available to us, subject to and in accordance with the terms of our Credit Agreements. These steps might include (i) obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors, private equity investors or other REITs, or through sales of properties or interests in properties with values in excess of their mortgage loans and application of the excess proceeds to debt reduction, and (ii) obtaining equity capital, including through the issuance of common or preferred equity securities if market conditions are favorable, or through other actions.

Capital Improvement Projects and Development

At our operating properties, we might engage in various types of capital improvement projects. Such projects vary in cost and complexity, and can include building out new or existing space for individual tenants, upgrading common areas or exterior areas such as parking lots, or redeveloping the entire property, among other projects. Project costs are accumulated in “Construction in progress” on our consolidated balance sheet until the asset is placed into service, and amounted to $60.5 million as of December 31, 2014.

At our development properties, we are also engaged in several types of projects. However, we do not expect to make any significant investment in these projects in the short term. As of December 31, 2014, we had incurred $54.0 million of costs, net of impairment charges recorded in prior years, related to our activity at our consolidated development properties.
As of December 31, 2014, we had unaccrued contractual and other commitments related to our capital improvement projects and development projects at our consolidated properties of $11.0 million in the form of tenant allowances and contracts with general service providers and other professional service providers.
Acquisitions and Dispositions
See note 2 to our consolidated financial statements for a description of our dispositions and acquisition in 2014, 2013 and 2012.
CRITICAL ACCOUNTING POLICIES
Critical Accounting Policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Management has also considered events and changes in property, market and economic conditions, estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may affect comparability of our results of operations to those of companies in a similar business. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2014, 2013 and 2012, except as otherwise noted, and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. We will continue to monitor the key factors underlying our estimates and judgments, but no change is currently expected.

46



Set forth below is a summary of the accounting policy that management believes is critical to the preparation of the consolidated financial statements. This summary should be read in conjunction with the more complete discussion of our accounting policies included in note 1 to our consolidated financial statements.

Asset Impairment
Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable. A property to be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property. This estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.
The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially affect our net income. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property.
Assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.
An other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.
If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.
In determining the estimated undiscounted cash flows of the property or properties that are being analyzed for impairment of assets, we take the sum of the estimated undiscounted cash flows, generally assuming a holding period of 10 years, plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates, which in 2012 and 2013 ranged from 6.25% to 12.0% and in 2014 ranged from 5.25% to 12.5%. In 2014, as a result of our analysis, we determined that three properties had incurred impairment of assets. The fair values of the properties (Nittany Mall, North Hanover Mall and South Mall) were determined based on negotiated sale prices of the properties as discussed further in note 2 to our consolidated financial statements. In 2013, two properties had impairment of assets. The fair values of the properties (Chambersburg Mall and North Hanover Mall) were determined based on negotiated sale prices of the properties as discussed further in note 2 to our consolidated financial statements. In 2012, one property had an impairment of assets. The fair value of the property (Phillipsburg Mall) was determined based on the sale price of the property as further discussed in note 2 to our consolidated financial statements.

Nittany Mall

In 2014, we recorded an aggregate loss on impairment of assets at Nittany Mall in State College, Pennsylvania (“Nittany Mall”) of $15.5 million after entering into negotiations with the buyer of the property. As a result of these negotiations, we determined that the holding period for the property was less than had been previously estimated, which we concluded was a triggering event, leading us to conduct an analysis of possible asset impairment at this property. Based upon the purchase and sale agreement with the then-prospective buyer of the property, we determined that the estimated undiscounted cash flows, net of estimated capital expenditures, for Nittany Mall were less than the carrying value of the property, and recorded both an initial loss on impairment of assets and a subsequent additional loss on impairment of assets when we sold the property in September 2014.
North Hanover Mall

In 2014, we recorded an aggregate loss on impairment of assets at North Hanover Mall in Hanover, Pennsylvania (“North Hanover Mall”) of $2.9 million after entering into negotiations with the buyer of the property. As a result of these negotiations,

47



we determined that the holding period for the property was less than had been previously estimated, which we concluded was a triggering event, leading us to conduct an analysis of possible asset impairment at this property. Based upon the purchase and sale agreement with the then-prospective buyer of the property, we determined that the estimated undiscounted cash flows, net of estimated capital expenditures, for North Hanover Mall were less than the carrying value of the property, and recorded both an initial loss on impairment of assets and a subsequent additional loss on impairment of assets. We previously recognized losses on impairment of assets on North Hanover Mall of $6.3 million in 2013 and $24.1 million in 2011. We sold the property in September 2014.

South Mall

In 2014, we recorded a loss on impairment of assets at South Mall in Allentown, Pennsylvania (“South Mall”) of $1.3 million after entering into negotiations with a potential buyer of the property. As a result of these negotiations, we determined that the holding period for the property was less than had been previously estimated, which we concluded was a triggering event, leading us to conduct an analysis of possible asset impairment at this property. Using updated assumptions, we determined that the estimated undiscounted cash flows, net of estimated capital expenditures, for South Mall were less than the carrying value of the property, and recorded a loss on impairment of assets. We sold the property in June 2014.
New Accounting Developments
In 2014, we adopted new accounting requirements pertaining to the reporting of discontinued operations. Under these new accounting requirements, only dispositions representing a strategic shift in operations will be presented as discontinued operations. Previously, under U.S. generally accepted accounting principles, companies that sold a single investment property were generally required to report the sale as a discontinued operation, which required the companies to reclassify earnings from continuing operations for all periods presented. These new accounting requirements require expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income and expenses of discontinued operations. We adopted these new accounting requirements prospectively. We continue to report the operations of properties sold prior to January 1, 2014 in discontinued operations.
In 2014, we sold South Mall, Nittany Mall and North Hanover Mall. We applied these new accounting requirements by reporting the results of operations of these sold properties in the continuing operations section of our consolidated statements of operations.

In May 2014, the Financial Accounting Standards Board issued “Revenue from Contracts with Customers.” The objective of this new standard is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of this new standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance is effective for annual reporting periods beginning after December 15, 2016 for public companies. Early adoption is not permitted. Entities have the option of using either a full retrospective or modified approach to adopt this standard. We are currently evaluating the new guidance and have not determined the impact this standard may have on our consolidated financial statements, nor have we decided upon the method of adoption.


OFF BALANCE SHEET ARRANGEMENTS
We have no material off-balance sheet items other than the partnerships described in note 3 to our consolidated financial statements and in the “Overview” section above.

RESULTS OF OPERATIONS
Overview
Net loss for the year ended December 31, 2014 was $14.3 million, compared to net income for the year ended December 31, 2013 of $37.2 million. Our 2014 and 2013 results of operations were primarily affected by the following:
gains on sales of discontinued operations of $78.5 million in 2013 resulting from our sales of Christiana Center, Paxton Towne Centre, Commons at Magnolia and Orlando Fashion Square;
a decrease in Non Same Store NOI (presented using the “proportionate consolidation method;” See “—Net Operating Income”) of $13.4 million primarily due to properties or interests in properties sold in 2014; partially offset by
gains on sales of interests in real estate of $12.4 million in 2014 resulting from the sale of our interest in Whitehall Mall in Allentown, Pennsylvania (“Whitehall Mall”);
impairment of assets of $19.7 million in 2014 compared to impairment of assets of $30.0 million in 2013;

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a decrease of $16.6 million in interest expense (including the effects of loss on hedge ineffectiveness) primarily due to lower overall debt balances and lower average interest rates; and
an increase of $7.8 million in Same Store NOI.

Net income for the year ended December 31, 2013 was $37.2 million, compared to a net loss for the year ended December 31, 2012 of $42.6 million. Our 2013 and 2012 results of operations were primarily affected by the following:
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