Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
Form 10-Q
____________________________________________________  
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2016
or
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 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)
 
(I.R.S. Employer
Identification No.)
 
 
 
200 South Broad Street
Philadelphia, PA
 
19102
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (215) 875-0700
____________________________________________________
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 for 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   x     No   o
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 (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o
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
x
 
Accelerated filer
o
Non-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
o
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes   o    No   x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common shares of beneficial interest, $1.00 par value per share, outstanding at April 22, 2016 : 69,470,731
 


Table of Contents


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONTENTS
 

 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.

 
 
 
 
 
 
 
 
Item 1.

 
 
 
Item 1A.

 
 
 
Item 2.

 
 
 
Item 3.
Not Applicable
—

 
 
 
Item 4.
Not Applicable
—

 
 
 
Item 5.
Not Applicable
—

 
 
 
Item 6.

 
 
 
 


Except as the context otherwise requires, references in this Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q to “PREIT Associates” or the “Operating Partnership” refer to PREIT Associates, L.P.


Table of Contents

Item 1. FINANCIAL STATEMENTS
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31,
2016
 
December 31,
2015
 
(unaudited)
 
 
ASSETS:
 
 
 
INVESTMENTS IN REAL ESTATE, at cost:
 
 
 
Operating properties
$
3,305,542

 
$
3,297,520

Construction in progress
66,497

 
64,019

Land held for development
5,906

 
6,350

Total investments in real estate
3,377,945

 
3,367,889

Accumulated depreciation
(1,046,632
)
 
(1,015,647
)
Net investments in real estate
2,331,313

 
2,352,242

INVESTMENTS IN PARTNERSHIPS, at equity:
157,995

 
161,029

OTHER ASSETS:
 
 
 
Cash and cash equivalents
30,453

 
22,855

Tenant and other receivables (net of allowance for doubtful accounts of $7,216 and $6,417 at March 31, 2016 and December 31, 2015, respectively)
32,562

 
40,324

Intangible assets (net of accumulated amortization of $13,972 and $13,441 at March 31, 2016 and December 31, 2015, respectively)
21,717

 
22,248

Deferred costs and other assets, net
89,974

 
75,450

Assets held for sale
23,371

 
126,244

Total assets
$
2,687,385

 
$
2,800,392

LIABILITIES:
 
 
 
Mortgage loans payable
$
1,247,173

 
$
1,321,331

Term Loans
398,160

 
398,040

Revolving Facility
115,000

 
65,000

Tenants’ deposits and deferred rent
17,741

 
14,631

Distributions in excess of partnership investments
64,712

 
65,547

Fair value of derivative liabilities
7,248

 
2,756

Liabilities related to assets held for sale
—

 
69,918

Accrued expenses and other liabilities
76,679

 
78,539

Total liabilities
1,926,713

 
2,015,762

COMMITMENTS AND CONTINGENCIES (Note 6):

 

EQUITY:
 
 
 
Series A Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 4,600 shares of Series A Preferred Shares issued and outstanding at each of March 31, 2016 and December 31, 2015; liquidation preference of $115,000
46

 
46

Series B Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 3,450 shares of Series B Preferred Shares issued and outstanding at each of March 31, 2016 and December 31, 2015; liquidation preference of $86,250
35

 
35

Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; issued and outstanding 69,459 shares at March 31, 2016 and 69,197 shares at December 31, 2015
69,459

 
69,197

Capital contributed in excess of par
1,475,992

 
1,476,397

Accumulated other comprehensive loss
(9,052
)
 
(4,193
)
Distributions in excess of net income
(929,046
)
 
(912,221
)
Total equity—Pennsylvania Real Estate Investment Trust
607,434

 
629,261

Noncontrolling interest
153,238

 
155,369

Total equity
760,672

 
784,630

Total liabilities and equity
$
2,687,385

 
$
2,800,392


See accompanying notes to the unaudited consolidated financial statements.
1
Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2016
 
2015
 
REVENUE:
 
 
 
 
Real estate revenue:
 
 
 
 
Base rent
$
66,993

 
$
64,273

 
Expense reimbursements
31,134

 
31,510

 
Percentage rent
451

 
524

 
Lease termination revenue
235

 
441

 
Other real estate revenue
2,643

 
2,035

 
Total real estate revenue
101,456

 
98,783

 
Other income
516

 
1,274

 
Total revenue
101,972

 
100,057

 
EXPENSES:
 
 
 
 
Operating expenses:
 
 
 
 
 Property operating expenses:
 
 
 
 
CAM and real estate taxes
(34,189
)
 
(33,807
)
 
Utilities
(4,326
)
 
(5,149
)
 
Other property operating expenses
(4,596
)
 
(4,196
)
 
Total property operating expenses
(43,111
)
 
(43,152
)
 
 Depreciation and amortization
(33,735
)
 
(33,189
)
 
 General and administrative expenses
(8,586
)
 
(8,943
)
 
 Provision for employee separation expenses
(535
)
 
—

 
 Acquisition costs and other expenses
(51
)
 
(4,451
)
 
Total operating expenses
(86,018
)
 
(89,735
)
 
Interest expense, net
(19,346
)
 
(20,145
)
 
Impairment of assets
(606
)
 
(6,240
)
 
Total expenses
(105,970
)
 
(116,120
)
 
Loss before equity in income of partnerships, gains on sales of interests in non operating real estate and gains on sales of real estate
(3,998
)
 
(16,063
)
 
Equity in income of partnerships
3,883

 
2,083

 
Gains on sales of interests in non operating real estate
9

 
43

 
Gain on sale of interests in real estate
2,035

 
—

 
Net income (loss)
1,929

 
(13,937
)
 
Less: net (income) loss attributable to noncontrolling interest
(208
)
 
429

 
Net income (loss) attributable to PREIT
1,721

 
(13,508
)
 
Less: preferred share dividends
(3,962
)
 
(3,962
)
 
Net loss attributable to PREIT common shareholders
$
(2,241
)
 
$
(17,470
)
 


See accompanying notes to the unaudited consolidated financial statements.
2
Table of Contents

 
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

(in thousands of dollars, except per share amounts)
Three Months Ended 
 March 31,
2016
 
2015
Net income (loss)
$
1,929

 
$
(13,937
)
Noncontrolling interest
(208
)
 
429

Dividends on preferred shares
(3,962
)
 
(3,962
)
Dividends on unvested restricted shares
(84
)
 
(86
)
Net loss used to calculate loss per share—basic and diluted
$
(2,325
)
 
$
(17,556
)
 
 
 
 
Basic and diluted loss per share:
$
(0.03
)
 
$
(0.26
)
 
 
 
 
(in thousands of shares)
 
 
 
Weighted average shares outstanding—basic
68,973

 
68,566

Effect of common share equivalents  (1)  
—

 
—

Weighted average shares outstanding—diluted
68,973

 
68,566

_________________________
(1)  
The Company had net losses used to calculate earnings per share for all periods presented. Therefore, the effects of common share equivalents of 298 and 432 for the three months ended March 31, 2016 and 2015 , respectively, are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive.



See accompanying notes to the unaudited consolidated financial statements.
3
Table of Contents


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2016
 
2015
 
Comprehensive loss:
 
 
 
 
Net income (loss)
$
1,929

 
$
(13,937
)
 
Unrealized loss on derivatives
(5,572
)
 
(2,011
)
 
Amortization of losses on settled swaps, net of gains
126

 
772

 
Total comprehensive loss
(3,517
)
 
(15,176
)
 
Less: comprehensive loss attributable to noncontrolling interest
379

 
466

 
Comprehensive loss attributable to PREIT
$
(3,138
)
 
$
(14,710
)
 


See accompanying notes to the unaudited consolidated financial statements.
4
Table of Contents


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF EQUITY
Three Months Ended
March 31, 2016
(Unaudited)
 
 
 
 
PREIT Shareholders
 
 
(in thousands of dollars, except per share amounts)
Total
Equity
 
Series A
Preferred
Shares,
$.01 par
 
Series B
Preferred
Shares,
$.01 par
 
Shares of
Beneficial
Interest,
$1.00 Par
 
Capital
Contributed
in Excess of
Par
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Distributions
in Excess of
Net Income
 
Non-
controlling
interest
Balance December 31, 2015
$
784,630

 
$
46

 
$
35

 
$
69,197

 
$
1,476,397

 
$
(4,193
)
 
$
(912,221
)
 
$
155,369

Net income
1,929

 
—

 
—

 
—

 
—

 
—

 
1,721

 
208

Other comprehensive loss
(5,446
)
 
—

 
—

 
—

 
—

 
(4,859
)
 
—

 
(587
)
Shares issued under employee compensation plans, net of shares retired
(1,716
)
 
—

 
—

 
262

 
(1,978
)
 
—

 
—

 
—

Amortization of deferred compensation
1,573

 
—

 
—

 
—

 
1,573

 
—

 
—

 
—

Distributions paid to common shareholders ($0.21 per share)
(14,584
)
 
—

 
—

 
—

 
—

 
—

 
(14,584
)
 
—

Distributions paid to Series A preferred shareholders ($0.5156 per share)
(2,372
)
 
—

 
—

 
—

 
—

 
—

 
(2,372
)
 
—

Distributions paid to Series B preferred shareholders ($0.4609 per share)
(1,590
)
 
—

 
—

 
—

 
—

 
—

 
(1,590
)
 
—

Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions paid to Operating Partnership unit holders ($0.21 per unit)
(1,752
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(1,752
)
Balance March 31, 2016
$
760,672

 
$
46

 
$
35

 
$
69,459

 
$
1,475,992

 
$
(9,052
)
 
$
(929,046
)
 
$
153,238



See accompanying notes to the unaudited consolidated financial statements.
5
Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended 
 March 31,
(in thousands of dollars)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income (loss)
$
1,929

 
$
(13,937
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation
31,400

 
31,364

Amortization
2,991

 
2,450

Straight-line rent adjustments
(618
)
 
(272
)
Provision for doubtful accounts
918

 
1,259

Amortization of deferred compensation
1,573

 
1,803

Loss on hedge ineffectiveness
143

 
512

Gains on sales of interests in real estate and non operating real estate, net
(2,044
)
 
(43
)
Equity in income of partnerships in excess of distributions
(1,346
)
 
(748
)
Impairment of assets and expensed project costs
631

 
6,332

Change in assets and liabilities:
 
 
 
Net change in other assets
9,938

 
4,530

Net change in other liabilities
(1,032
)
 
(6,332
)
Net cash provided by operating activities
44,483

 
26,918

Cash flows from investing activities:
 
 
 
Investments in consolidated real estate acquisitions
—

 
(319,986
)
Additions to construction in progress
(11,839
)
 
(3,211
)
Investments in real estate improvements
(5,921
)
 
(6,426
)
Cash proceeds from sales of real estate
84,765

 
—

Additions to leasehold improvements
(141
)
 
(288
)
Investments in partnerships
(919
)
 
(7,708
)
Capitalized leasing costs
(1,737
)
 
(1,655
)
Decrease in cash escrows
2,085

 
981

Cash distributions from partnerships in excess of equity in income
4,463

 
1,323

Net cash provided by (used in) investing activities
70,756

 
(336,970
)
Cash flows from financing activities:
 
 
 
Borrowings from term loans
—

 
120,000

Net borrowings from revolving facility
50,000

 
210,000

Proceeds from mortgage loans
9,000

 
5,844

Principal installments on mortgage loans
(4,263
)
 
(4,742
)
Repayments of mortgage loans
(139,843
)
 
—

Payment of deferred financing costs
(521
)
 
(130
)
Dividends paid to common shareholders
(14,584
)
 
(14,510
)
Dividends paid to preferred shareholders
(3,962
)
 
(3,962
)
Distributions paid to Operating Partnership unit holders and non controlling interest
(1,752
)
 
(446
)
Value of shares of beneficial interest issued
324

 
337

Value of shares retired under equity incentive plans, net of shares issued
(2,040
)
 
(5,292
)
Net cash (used in) provided by financing activities
(107,641
)
 
307,099

Net change in cash and cash equivalents
7,598

 
(2,953
)
Cash and cash equivalents, beginning of period
22,855

 
40,433

Cash and cash equivalents, end of period
$
30,453

 
$
37,480


See accompanying notes to the unaudited consolidated financial statements.
6
Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016

1. BASIS OF PRESENTATION

Nature of Operations

Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”) prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. Our unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT’s Annual Report on Form 10-K for the year ended December 31, 2015. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, the consolidated results of our operations, consolidated statements of other comprehensive income (loss), consolidated statements of equity and our consolidated statements of cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

PREIT, 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. Our portfolio currently consists of a total of 33 properties in 11 states, including 25 operating shopping malls, four other retail properties and four development or redevelopment properties. Two of the development and redevelopment properties are classified as “mixed use” (a combination of retail and other uses), one is classified as “retail” (redevelopment of The Gallery at Market East (the “Gallery”) into the Fashion Outlets of Philadelphia), and one is classified as “other.” The above property counts do not include two street retail properties in Philadelphia, Pennsylvania, because these properties have been classified as “held for sale” as of March 31, 2016.

We hold our interest in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We are the sole general partner of the Operating Partnership and, as of March 31, 2016 , we held an 89.3% controlling interest in the Operating Partnership, and consolidated it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.

Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at our election, we may acquire such OP Units in exchange for our common shares on a one-for-one basis, in some cases beginning one year following the respective issue dates of the OP Units and in other cases immediately. If all of the outstanding OP Units held by limited partners had been redeemed for cash as of March 31, 2016 , the total amount that would have been distributed would have been $182.2 million , which is calculated using our March 31, 2016 closing price on the New York Stock Exchange of $21.85 per share multiplied by the number of outstanding OP Units held by limited partners, which was 8,338,299 as of March 31, 2016 .

We provide management, leasing and real estate development services through two of 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 owned by partnerships in which we own an interest and properties that are owned by third parties in which we do not have an interest. PREIT Services and PRI are consolidated. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer an expanded menu of services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.

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 consolidated revenue, and none of our properties are located outside the United States.

7


Fair Value

Fair value accounting applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, these accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs might include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability, and are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. We utilize the fair value hierarchy in our accounting for derivatives (Level 2) and financial instruments (Level 2) and in our reviews for impairment of real estate assets (Level 3) and goodwill (Level 3).

New Accounting Developments
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is in the process of evaluating the impact of this new guidance.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not initial direct leasing costs. This standard will be effective for the first annual reporting period beginning after December 15, 2018. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures.
 
In 2016, the Company adopted Accounting Standards Update (“ASU”) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . The Company evaluated the application of ASU No. 2015-02 and concluded that no change was required to its accounting of its interests in less than wholly owned joint ventures, however, the Operating Partnership now meets the criteria as a variable interest entity. The Company’s significant asset is its investment in the Operating Partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Company’s debt is also an obligation of the Operating Partnership.
 
In March 2015, the FASB issued “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” and “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which intend to simplify the presentation of debt issuance costs. This guidance provides an amendment to the accounting guidance related to the presentation of debt issuance costs and is effective for fiscal years beginning after December 15, 2015, and we have adopted this guidance as of January 1, 2016.  This

8

guidance is applied retrospectively to all prior periods.  Under the new guidance, debt issuance costs related to a note shall be reported in the Consolidated Balance Sheets as a direct deduction from the face amount of that note.  In this regard, debt issuance costs shall not be classified separately from related debt obligations as a deferred charge.  Therefore, as a result of adopting this guidance, the Company reclassified in its Consolidated Balance Sheets $4.2 million of debt issuance costs, net of accumulated amortization, at December 31, 2015, from “Deferred costs and other assets, net” to “Mortgage loans payable,” and $2.0 million of debt issuance costs at December 31, 2015, from “Deferred costs and other assets, net” to “Term loans,” thereby decreasing the carrying value of our recognized debt obligations for presentational purposes.
 
2. REAL ESTATE ACTIVITIES

Investments in real estate as of March 31, 2016 and December 31, 2015 were comprised of the following:
 
(in thousands of dollars)
As of March 31,
2016
 
As of December 31,
2015
Buildings, improvements and construction in progress
$
2,855,977

 
$
2,847,986

Land, including land held for development
521,968

 
519,903

Total investments in real estate
3,377,945

 
3,367,889

Accumulated depreciation
(1,046,632
)
 
(1,015,647
)
Net investments in real estate
$
2,331,313

 
$
2,352,242


Capitalization of Costs

The following table summarizes our capitalized salaries, commissions, benefits, real estate taxes and interest for the three months ended March 31, 2016 and 2015 :
 
 
Three Months Ended 
 March 31,
(in thousands of dollars)
2016
 
2015
Development/Redevelopment Activities:
 
 
 
Salaries and benefits
$
274

 
$
154

Real estate taxes
19

 
—

Interest
703

 
35

Leasing Activities:
 
 
 
Salaries, commissions and benefits
1,737

 
1,655


Dispositions

The following table presents our dispositions for the three months ended March 31, 2016 :
Sale Date
 
Property and Location
 
Description of Real Estate Sold
 
Capitalization Rate
 
Sale Price
 
Gain
 
 
 
 
(in millions)
2016 Activity:
 
 
 
 
 
 
 
 
 
 
March 2016
 
Lycoming Mall
Pennsdale, Pennsylvania
 
Mall
 
18.0
%
 
$
26.4

 
$
0.3

March 2016
 
Gadsden Mall,
Gadsden, Alabama,
New River Valley Mall,
Christiansburg, Virginia, and
Wiregrass Commons Mall, Dothan, Alabama (1)
 
Three Malls (single combined transaction)
 
17.4
%
 
66.0

 
1.6

February 2016
 
Palmer Park Mall,
Easton, Pennsylvania
 
Mall
 
13.6
%
 
18.0

 
0.1

_________________________
(1) In connection with this transaction, we issued a mortgage loan to the buyer for $17.0 million , which is recorded in “Deferred

9

costs and other assets, net” on our consolidated balance sheet. The mortgage loan is secured by Wiregrass Commons Mall, bears interest at the rate of 6.00% per annum and has a maturity date of April 2026.

Impairment of Assets

In March 2016 we recorded a loss on impairment of assets on an office building located in Voorhees, New Jersey of $0.6 million in connection with negotiations with a prospective buyer of the property. In connection with these negotiations, we determined that the holding period of the property was less than previously estimated, which we concluded was a triggering event, leading us to conduct an analysis of possible impairment at this property. Based upon the negotiations, we determined that the estimated undiscounted cash flows, net of capital expenditures for the property, were less than the carrying value of the property, and recorded a loss on impairment of assets.

3. INVESTMENTS IN PARTNERSHIPS

The following table presents summarized financial information of the equity investments in our unconsolidated partnerships as of March 31, 2016 and December 31, 2015 :
 
(in thousands of dollars)
As of March 31, 2016
 
As of December 31, 2015
ASSETS:
 
 
 
Investments in real estate, at cost:
 
 
 
Operating properties
$
639,874

 
$
636,774

Construction in progress
128,479

 
126,199

Total investments in real estate
768,353

 
762,973

Accumulated depreciation
(191,450
)
 
(186,580
)
Net investments in real estate
576,903

 
576,393

Cash and cash equivalents
29,711

 
37,362

Deferred costs and other assets, net
37,999

 
39,890

Total assets
644,613

 
653,645

LIABILITIES AND PARTNERS’ INVESTMENT:
 
 
 
Mortgage loans payable
444,599

 
440,450

Other liabilities
22,853

 
30,425

Total liabilities
467,452

 
470,875

Net investment
177,161

 
182,770

Partners’ share
91,516

 
95,165

PREIT’s share
85,645

 
87,605

Excess investment  (1)
7,638

 
7,877

Net investments and advances
$
93,283

 
$
95,482

 
 
 
 
Investment in partnerships, at equity
$
157,995

 
$
161,029

Distributions in excess of partnership investments
(64,712
)
 
(65,547
)
Net investments and advances
$
93,283

 
$
95,482

_________________________
(1)  
Excess investment represents the unamortized difference between our investment and our share of the equity in the underlying net investment in the partnerships. The excess investment is amortized over the life of the properties, and the amortization is included in “Equity in income of partnerships.”

We record distributions from our equity investments as cash from operating activities up to an amount equal to the equity in income of partnerships. Amounts in excess of our share of the income in the equity investments are treated as a return of partnership capital and recorded as cash from investing activities.


10

The following table summarizes our share of equity in income of partnerships for the three months ended March 31, 2016 and 2015 :
 
 
Three Months Ended 
 March 31,
(in thousands of dollars)
2016
 
2015
Real estate revenue
$
29,191

 
$
26,497

Operating expenses:
 
 
 
Property operating expenses
(10,212
)
 
(10,706
)
Interest expense
(5,392
)
 
(5,350
)
Depreciation and amortization
(5,722
)
 
(6,370
)
Total expenses
(21,326
)
 
(22,426
)
Net income
7,865

 
4,071

Less: Partners’ share
(4,216
)
 
(2,036
)
PREIT’s share
3,649

 
2,035

Amortization of excess investment
234

 
48

Equity in income of partnerships
$
3,883

 
$
2,083


Significant Unconsolidated Subsidiaries

Two of our unconsolidated subsidiaries, in each of which we have a 50% partnership interest, (i) Lehigh Valley Associates LP, the owner of the substantial majority of Lehigh Valley Mall, and (ii) Metroplex West Associates, LP, the owner of the substantial majority of Metroplex Shopping Center, met the conditions of significant unconsolidated subsidiaries as of March 31, 2016 . The financial information of these entities are included in the amounts above. Summarized balance sheet information as of March 31, 2016 and December 31, 2015 and summarized statement of operations information for the three months ended March 31, 2016 and 2015 for these entities, which are accounted for using the equity method, are as follows:
 
 
Lehigh Valley Associates LP
 
Metroplex West Associates, LP
 
 
As of
 
As of
(in thousands of dollars)
 
March 31, 2016
 
December 31, 2015
 
March 31, 2016
 
December 31, 2015
Summarized balance sheet information
 
 
 
 
 
 
 
 
     Total assets
 
$
47,580

 
$
48,352

 
$
36,230

 
$
36,164

     Mortgage loan payable
 
128,305

 
128,883

 
81,121

 
81,505


 
 
Three Months Ended 
 March 31,
 
Three Months Ended 
 March 31,
(in thousands of dollars)
 
2016
 
2015
 
2016
 
2015
Summarized statement of operations information
 
 
 
 
 
 
 
 
     Revenue
 
$
9,048

 
$
8,944

 
$
2,868

 
$
2,884

     Property operating expenses
 
(2,226
)
 
(2,480
)
 
(748
)
 
(637
)
     Interest expense
 
(1,906
)
 
(1,940
)
 
(1,024
)
 
(1,044
)
     Net income
 
4,083

 
3,461

 
763

 
358

     PREIT’s share of equity in income
 
 
 
 
 
 
 
 
          of partnership
 
2,042

 
1,730

 
381

 
179






11

4. FINANCING ACTIVITY

Credit Agreements

We have entered into four credit agreements (collectively, the “Credit Agreements”), as further discussed in our Annual Report on Form 10-K for the year ended December 31, 2015: (1) the 2013 Revolving Facility, (2) the 2014 7-Year Term Loan, (3) the 2014 5-Year Term Loan, and (4) the 2015 5-Year Term Loan. The 2014 7-Year Term Loan, the 2014 5-Year Term Loan and the 2015 5-Year Term Loan are collectively referred to as the “Term Loans.”

As of  March 31, 2016 , we had borrowed  $400.0 million  under the Term Loans and $ 115.0 million  under the 2013 Revolving Facility (with  $15.3 million pledged as collateral for a letter of credit at March 31, 2016 .
Interest expense and the deferred financing fee amortization related to the Credit Agreements for the three months ended March 31, 2016 and 2015  was as follows:

 
Three Months Ended March 31,
(in thousands of dollars)
2016
 
2015
2013 Revolving Facility
 
 
 
 
 
Interest expense
 
$
690.1

 
$
380.9

 
Deferred financing amortization
 
198.7

 
358.0

 
 
 
 
 
 
Term Loans
 
 
 
 
 
Interest expense
 
2,991.9

 
1,257.2

 
Deferred financing amortization
 
119.9

 
76.4


Each of the Credit Agreements contain certain affirmative and negative covenants, which are identical to those contained in the other Credit Agreements and which are described in detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. As of March 31, 2016, we were in compliance with all financial covenants in the Credit Agreements. Following recent property sales, the net operating income (“NOI”) from our remaining unencumbered properties is at a level such that within the Unencumbered Debt Yield covenant (as described in our Annual Report on Form 10-K for the year ended December 31, 2015), the maximum unsecured amount that was available for us to borrow under the 2013 Revolving Facility as of March 31, 2016 was  $209.6 million .


Amounts borrowed under the Credit Agreements bear interest at the rate specified below per annum, depending on our leverage, in excess of LIBOR, unless and until we receive an investment grade credit rating and provide notice to the administrative agent (the “Rating Date”), after which alternative rates would apply. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is 6.50% for each property having an average sales per square foot of more than $500 for the most recent period of 12 consecutive months, and (b) 7.50% for any other property. The 2013 Revolving Facility is subject to a facility fee, which is currently 0.25% , depending on leverage, and is recorded in interest expense in the consolidated statements of operations.

 
 
Applicable Margin
Level


Ratio of Total Liabilities
to Gross Asset Value
2013 Revolving Facility
 
2014 7-Year Term Loan
 
2014 5-Year Term Loan
 
2015 5-Year Term Loan
 
1
Less than 0.450 to 1.00
1.20%
 
1.80%
 
1.35%
 
1.35%
 
2
Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00
1.25%
(1)  
1.95%
(1)  
1.45%
(1)  
1.45%
(1)  
3
Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00
1.30%
 
2.15%
 
1.60%
 
1.60%
 
4
Equal to or greater than 0.550 to 1.00
1.55%
 
2.35%
 
1.90%
 
1.90%
 

(1) The rate in effect at March 31, 2016.

12


Mortgage Loans

The carrying values and estimated fair values of mortgage loans based on interest rates and market conditions at March 31, 2016 and December 31, 2015 were as follows:
 
March 31, 2016
 
December 31, 2015
(in millions of dollars)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Mortgage loans
$
1,247.2

 
$
1,267.1

 
$
1,321.3

 
$
1,323.3


The mortgage loans contain various customary default provisions. As of March 31, 2016 , we were not in default on any of the mortgage loans.

Mortgage Loan Activity

In April 2016, we entered into a $130.0 million mortgage loan secured by Woodland Mall in Grand Rapids, Michigan. The new mortgage loan bears interest at the rate of 2.00% plus LIBOR, and has a maturity date of April 2021 .

In March 2016, we borrowed an additional $9.0 million , lowered the interest rate to 2.35% plus LIBOR, and extended the maturity date to March 2021 on the mortgage loan secured by Viewmont Mall in Scranton, Pennsylvania.

In March 2016, we repaid a $79.3 million mortgage loan plus accrued interest secured by Valley Mall in Hagerstown, Maryland using $50.0 million from our 2013 Revolving Facility and the balance from available working capital.

In March 2016, we repaid a $32.8 million mortgage loan plus accrued interest secured by Lycoming Mall in Pennsdale, Pennsylvania in connection with the March 2016 sale of the property using proceeds from the sale and available working capital.

In March 2016, we repaid a $28.1 million mortgage loan plus accrued interest secured by New River Valley Mall in Christiansburg, Virginia in connection with the March 2016 sale of the property using proceeds from the sale.

Interest Rate Risk

We follow established risk management policies designed to limit our interest rate risk on our interest bearing liabilities, as further discussed in note 7 to our unaudited consolidated financial statements.

5. CASH FLOW INFORMATION

Cash paid for interest was $17.3 million (net of capitalized interest of $0.7 million ) and $17.0 million (net of capitalized interest of less than $0.1 million ) for the three months ended March 31, 2016 and 2015 , respectively.

In our statement of cash flows, we show cash flows on our revolving facility on a net basis. Aggregate borrowings on our 2013 Revolving Facility were $70.0 million and $210.0 million for the three months ended March 31, 2016 and 2015 , respectively. Aggregate paydowns were $20.0 million for the three months ended March 31, 2016 .

In connection with the sale of Gadsden Mall, New River Valley Mall and Wiregrass Commons, we issued a mortgage note to the buyer in the amount of $17.0 million that is secured by Wiregrass Commons Mall.

6. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

As of March 31, 2016 , we had unaccrued contractual and other commitments related to our capital improvement projects and development projects of $72.6 million in the form of tenant allowances and contracts with general service providers and other professional service providers.

7. DERIVATIVES

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest bearing

13

liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments such as derivatives. We do not use financial instruments for trading or speculative purposes.

Cash Flow Hedges of Interest Rate Risk

Our outstanding derivatives have been designated under applicable accounting authority as cash flow hedges. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in “Accumulated other comprehensive income (loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To the extent these instruments are ineffective as cash flow hedges, changes in the fair value of these instruments are recorded in “Interest expense, net.” We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. The carrying amount of the derivative assets is reflected in “Deferred costs and other assets, net,” the amount of the associated liabilities is reflected in “Accrued expenses and other liabilities” and the amount of the net unrealized income or loss is reflected in “Accumulated other comprehensive income (loss)” in the accompanying balance sheets.

Amounts reported in “Accumulated other comprehensive income (loss)” that are related to derivatives will be reclassified to “Interest expense, net” as interest payments are made on our corresponding debt. During the next 12 months, we estimate that $4.0 million will be reclassified as an increase to interest expense in connection with derivatives. The amortization of these amounts could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings.

Interest Rate Swaps

As of March 31, 2016 , we had entered into 21 interest rate swap agreements with a weighted average interest rate of 1.34% on a notional amount of $497.7 million maturing on various dates through February 2021 , and one forward starting interest rate swap agreement with an interest rate of 1.42% on a notional amount of $48.0 million , which will be effective starting January 2018 and maturing in February 2021.

In April 2016, we entered into five additional interest rate swap agreements with a weighted average interest rate of 1.02% on an aggregate notional amounts of $130.0 million .

We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. We have assessed the effectiveness of these interest rate swap agreements as hedges at inception and on a quarterly basis. As of March 31, 2016 , except as set forth below, we considered these interest rate swap agreements to be highly effective as cash flow hedges. The interest rate swap agreements are net settled monthly.

In March 2016, in connection with the sale of, and repayment of, the mortgage loan secured by Lycoming Mall, we recorded a loss on hedge ineffectiveness of $0.1 million .

Accumulated other comprehensive loss as of March 31, 2016 includes a net loss of $1.9 million relating to forward starting swaps that we cash settled in prior years that are being amortized over 10 year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps.



14

The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments at March 31, 2016 and December 31, 2015 . The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate or market risks.
(in millions of dollars)
Notional Value
 
Fair Value at
March 31, 2016 (1)
 
Fair Value at
December 31, 2015 (1)
 
Interest
Rate
 
Effective Date
 
Maturity Date
Interest Rate Swaps
 
 
 
 
 
 
 
 
 
 
$25.0
 
$
—

 
$
(0.1
)
 
1.10
%
 
 
 
July 31, 2016
28.1
 
(0.2
)
 
(0.2
)
 
1.38
%
 
 
 
January 2, 2017
33.0
 
N/A

 
—

 
3.72
%
 
 
 
December 1, 2017
48.0
 
(0.4
)
 
(0.1
)
 
1.12
%
 
 
 
January 1, 2018
7.6
 
—

 
—

 
1.00
%
 
 
 
January 1, 2018
55.0
 
(0.4
)
 
(0.1
)
 
1.12
%
 
 
 
January 1, 2018
30.0
 
(0.8
)
 
(0.5
)
 
1.78
%
 
 
 
January 2, 2019
20.0
 
(0.6
)
 
(0.4
)
 
1.78
%
 
 
 
January 2, 2019
20.0
 
(0.6
)
 
(0.3
)
 
1.78
%
 
 
 
January 2, 2019
20.0
 
(0.6
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
20.0
 
(0.6
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
20.0
 
(0.6
)
 
(0.3
)
 
1.79
%
 
 
 
January 2, 2019
25.0
 
(0.3
)
 
—

 
1.16
%
 
 
 
January 2, 2019
25.0
 
(0.3
)
 
—

 
1.16
%
 
 
 
January 2, 2019
25.0
 
(0.3
)
 
—

 
1.16
%
 
 
 
January 2, 2019
20.0
 
(0.2
)
 
—

 
1.16
%
 
 
 
January 2, 2019
20.0
 
(0.2
)
 
0.1

 
1.23
%
 
 
 
June 26, 2020
20.0
 
(0.2
)
 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
 
(0.2
)
 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
 
(0.2
)
 
0.2

 
1.23
%
 
 
 
June 26, 2020
20.0
 
(0.2
)
 
0.2

 
1.24
%
 
 
 
June 26, 2020
9.0
 
(0.1
)
 
N/A

 
1.19
%
 
 
 
February 1, 2021
48.0
 
(0.2
)
 
N/A

 
1.42
%
 
January 2, 2018
 
February 1, 2021
 
 
$
(7.2
)
 
$
(1.7
)
 
 
 
 
 
 
_________________________
(1)  
As of March 31, 2016 and December 31, 2015 , derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy and we did not have any significant recurring fair value measurements related to derivative instruments using significant unobservable inputs (Level 3).



15

The table below presents the effect of derivative financial instruments on our consolidated statements of operations and on our share of our partnerships’ statements of operations for the three months ended March 31, 2016 and 2015 :
 
 
 
Three Months Ended 
 March 31,
 
Consolidated
Statements of
Operations 
Location
(in millions of dollars)
 
2016
 
2015
 
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
Interest rate products
 
 
 
 
 
 
Gain (loss) recognized in Other Comprehensive Income (Loss) on derivatives
 
$
(6.7
)
 
$
(1.7
)
 
N/A
Loss reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion)
 
$
1.4

 
$
1.0

 
Interest expense
Loss recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)
 
$
(0.1
)
 
$
(0.5
)
 
Interest expense

Credit-Risk-Related Contingent Features

We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of March 31, 2016 , we were not in default on any of our derivative obligations.

We have an agreement with a derivative counterparty that incorporates the loan covenant provisions of our loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in our being in default on any derivative instrument obligations covered by the agreement.

As of March 31, 2016 , the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $7.2 million . If we had breached any of the default provisions in these agreements as of March 31, 2016 , we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $7.8 million . We had not breached any of these provisions as of March 31, 2016 .


16

Item 2. 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 unaudited 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 33 retail properties in 11 states, of which 29 are operating properties, three are development properties, and one is under redevelopment. The 29 operating properties include 25 shopping malls and four other retail properties, have a total of 24.2  million square feet and are located in 10 states. We and partnerships in which we own an interest own 18.1  million square feet at these properties (excluding space owned by anchors). The above property and square footage counts do not include two street retail properties in Philadelphia, Pennsylvania, because these properties have been classified as “held for sale” as of March 31, 2016.

There are 23 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated operating properties have a total of 20.1  million square feet, of which we own 15.3  million square feet. The six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.1  million square feet, of which 2.8  million square feet are owned by such partnerships.

The development and redevelopment portion of our portfolio contains four properties in two states, with two classified as “mixed use” (a combination of retail and other uses), one is classified as “retail” (redevelopment of The Gallery at Market East (the “Gallery”) into the Fashion Outlets of Philadelphia), and one classified as “other.”

Our primary business is owning and operating retail shopping malls, which we primarily do through our operating partnership, PREIT Associates, L.P. (“PREIT Associates”). 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 in which we own interests 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.

Net income for the three months ended March 31, 2016 was $1.9 million, an increase of $15.9 million compared to net loss of $13.9 million for the three months ended March 31, 2015 . This increase was primarily due to a decrease in impairment of assets of $5.6 million, $3.5 million in acquisition costs related to Springfield Town Center in 2015 that did not recur in 2016, a $3.7 million increase in Net Operating Income (“NOI”), and a $2.0 million gain on sale of interests in real estate.

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 consolidated revenue, and none of our properties are located outside the United States.

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 by them. We continue to adjust our plans and actions to take into account the current environment as it evolves. 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,

17
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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 Improvements, Redevelopment and Development Projects

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 $66.5 million as of March 31, 2016 .

In 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop the Gallery. As we redevelop the Gallery, operating results in the short term, as measured by sales, occupancy, real estate revenue, property operating expenses, NOI and depreciation, will likely be negatively affected until the newly constructed space is completed, leased and occupied.

We are also engaged in several types of development projects. However, we do not expect to make any significant investment in these projects in the short term.

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 unaudited consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including historical experience, 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 similar businesses. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2016 or 2015 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.
For additional information regarding our Critical Accounting Policies, see “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015.
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. In addition, these estimates 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.
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.

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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.

New Accounting Developments

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. The new guidance allows for entities to make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. In addition, the guidance allows employers to withhold shares to satisfy minimum statutory tax withholding requirements up to the employees’ maximum individual tax rate without causing the award to be classified as a liability. The guidance also stipulates that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. Early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. The Company is in the process of evaluating the impact of this new guidance.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to record operating and financing leases as assets and liabilities on the balance sheet and lessors to expense costs that are not initial direct leasing costs. This standard will be effective for the first annual reporting period beginning after December 15, 2018. The Company is evaluating the effect that ASU No. 2016-02 will have on its consolidated financial statements and related disclosures.
 
In 2016, the Company adopted Accounting Standards Update (“ASU”) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis . The Company evaluated the application of ASU No. 2015-02 and concluded that no change was required to its accounting of its interests in less than wholly owned joint ventures, however, the Operating Partnership now meets the criteria as a variable interest entity. The Company’s significant asset is its investment in the Operating Partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership. All of the Company’s debt is also an obligation of the Operating Partnership.
 
In March 2015, the FASB issued “Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” and “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which intend to simplify the presentation of debt issuance costs. This guidance provides an amendment to the accounting guidance related to the presentation of debt issuance costs and is effective for fiscal years beginning after December 15, 2015, and we have adopted this guidance as of January 1, 2016.  This guidance is applied retrospectively to all prior periods.  Under the new guidance, debt issuance costs related to a note shall be reported in the Consolidated Balance Sheets as a direct deduction from the face amount of that note.  In this regard, debt issuance costs shall not be classified separately from related debt obligations as a deferred charge.  Therefore, as a result of adopting this guidance, the Company reclassified in its Consolidated Balance Sheets $4.2 million of debt issuance costs, net of accumulated amortization, at December 31, 2015, from “Deferred costs and other assets, net” to “Mortgage loans payable,” and $2.0 million of debt issuance costs at December 31, 2015, from “Deferred costs and other assets, net” to “Term loans,” thereby decreasing the carrying value of our recognized debt obligations for presentational purposes.
 

See “Results of Operations” for a description of the losses on impairment of assets recorded during the three months ended March 31, 2016 and 2015.


OFF BALANCE SHEET ARRANGEMENTS

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


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RESULTS OF OPERATIONS

Occupancy

The table below sets forth certain occupancy statistics for our properties as of March 31, 2016 and 2015 :
 
 
Occupancy (1)  as March 31,
 
Consolidated
Properties
 
Unconsolidated
Properties
 
Combined (2)
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
Retail portfolio weighted average:
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
90.0
%
 
91.5
%
 
95.2
%
 
97.0
%
 
91.0
%
 
92.5
%
Total including anchors
93.6
%
 
95.4
%
 
96.1
%
 
97.6
%
 
94.0
%
 
95.7
%
Malls weighted average:
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
90.0
%
 
91.5
%
 
95.5
%
 
93.0
%
 
90.4
%
 
91.6
%
Total including anchors
93.6
%
 
95.4
%
 
96.9
%
 
95.3
%
 
93.9
%
 
95.3
%
Other retail properties
N/A

 
N/A

 
95.4
%
 
99.9
%
 
95.4
%
 
99.9
%
_________________________
(1)  
Occupancy for both periods presented includes all tenants irrespective of the term of their agreements. Retail portfolio and mall occupancy for all periods presented excludes properties sold or classified as held for sale in 2016 and 2015 and the Gallery because the property is under redevelopment.
(2)  
Combined occupancy is calculated by using occupied gross leasable area (“GLA”) for consolidated and unconsolidated properties and dividing by total GLA for consolidated and unconsolidated properties.



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Leasing Activity

The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the three months ended March 31, 2016 :
 
 
 
Initial Gross Rent Spread (1)
 
Avg Rent Spread (2)
 
Annualized Tenant Improvements psf (3)
 
 
Number
 
GLA
 
Term
 
Initial Rent psf
 
Previous Rent psf
 
$
 
%
 
%
 
Non Anchor
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under 10,000 sf
 
21

 
52,773

 
7.5

 
$
44.48

 
 N/A
 
N/A
 
N/A
 
N/A
 
$
8.82

Over 10,000 sf
 
2

 
88,278

 
10.0

 
17.22

 
 N/A
 
N/A
 
N/A
 
N/A
 
10.89

Total New Leases
 
23

 
141,051

 
7.7

 
$
27.42

 
 N/A
 
 N/A
 
 N/A
 
 N/A
 
$
10.12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under 10,000 sf
 
51

 
132,725

 
3.9

 
$
58.37

 
$
52.61

 
$
5.76

 
10.9%
 
17.2%
 
$
0.33

Over 10,000 sf
 
1

 
10,377

 
5.0

 
26.51

 
23.51

 
3.00

 
12.8%
 
15.8%
 
—

Total Fixed Rent
 
52

 
143,102

 
3.9

 
$
56.06

 
$
50.50

 
$
5.56

 
11.0%
 
17.1%
 
$
0.31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Percentage in Lieu
 
6

 
30,663

 
1.8
 
$
14.09

 
$
16.06

 
$
(1.97
)
 
(12.3)%
 
N/A
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Renewal Leases
 
58

 
173,765

 
3.7

 
$
48.65

 
$
44.42

 
$
4.23

 
9.5%
 
N/A
 
$
0.26

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Non Anchor
 
81

 
314,816

 
4.8

 
$
39.14

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Anchor
New Leases
 
1

 
90,000

 
10.0

 
$
16.60

 
N/A
 
N/A
 
N/A
 
N/A
 
3.68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
6

 
644,843

 
3.3

 
$
3.53

 
$
3.53

 
$
—

 
—%
 
N/A
 
$
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
7

 
734,843

 
4.3

 
$
5.13

 
 
 
 
 
 
 
 
 
 
 _________________________
(1)  
Initial renewal spread is computed by comparing the initial rent per square foot in the new lease to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent, common area maintenance (“CAM”) charges, estimated real estate tax reimbursements and marketing charges, but excludes percentage rent. In certain cases, a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied.
(2)  
Average renewal spread is computed by comparing the average rent per square foot over the new lease term to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent and fixed CAM charges, but excludes pro rata CAM charges, estimated real estate tax reimbursements, marketing charges and percentage rent.
(3)  
These leasing costs are presented as annualized costs per square foot and are spread uniformly over the initial lease term.

As of March 31, 2016 , for non anchor leases, the average gross rent per square foot as of the expiration date was $45.35 for the renewing leases in “Holdover” status and $41.49 for leases expiring in 2016.

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Overview

Net income for the three months ended March 31, 2016 was $1.9 million , an increase of $15.9 million compared to net loss of $13.9 million for the three months ended March 31, 2015 . This increase was primarily due to a decrease in impairment of assets of $5.6 million, $3.5 million in acquisition costs related to Springfield Town Center in 2015 that did not recur in 2016, a $3.7 million increase in Net Operating Income (“NOI”), and a $2.0 million gain on sale of interests in real estate.

The following table sets forth our results of operations for the three months ended March 31, 2016 and 2015 .
 
Three Months Ended 
 March 31,
 
% Change
2015 to
2016
 
(in thousands of dollars)
2016
 
2015
 
 
Real estate revenue
$
101,456

 
$
98,783

 
3
 %
 
Other income
516

 
1,274

 
(59
)%
 
Property operating expenses
(43,111
)
 
(43,152
)
 
—
 %
 
Depreciation and amortization
(33,735
)
 
(33,189
)
 
2
 %
 
General and administrative expenses
(8,586
)
 
(8,943
)
 
(4
)%
 
Provision for employee separation expense
(535
)
 
—

 
—
 %
 
Acquisition costs and other expenses
(51
)
 
(4,451
)
 
(99
)%
 
Interest expense, net
(19,346
)
 
(20,145
)
 
(4
)%
 
Impairment of assets
(606
)
 
(6,240
)
 
(90
)%
 
Equity in income of partnerships
3,883

 
2,083

 
86
 %
 
Gains on sales of interests in real estate
2,035

 
—

 
—
 %
 
Gain on sales of interests in non operating real estate
9

 
43

 
(79
)%
 
Net income (loss)
$
1,929

 
$
(13,937
)
 
114
 %
 

The amounts in the preceding table reflect our consolidated properties and our unconsolidated properties. Our unconsolidated properties are presented under the equity method of accounting in the line item “Equity in income of partnerships.”

Real Estate Revenue

Real estate revenue increased by $ 2.7 million , or 3% , in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 , primarily due to:

•
an increase of $7.7 million in real estate revenue from the acquisition of Springfield Town Center in March 2015;

•
an increase of $1.4 million in Same Store (as defined below) base rent due to increases from new store openings and lease renewals with higher base rental amounts, with notable increases at Cherry Hill Mall and Moorestown Mall; and
  
•
an increase of $0.5 million in other Same Store revenue, including a $0.3 million timing difference in seasonal photo income resulting from the Easter holiday occurring in the first quarter of 2016 and in the second quarter of 2015; partially offset by

•
a decrease of $5.0 million in real estate revenue related to properties sold in 2015 and 2016;

•
a decrease of $1.3 million in Same Store expense reimbursements, following decreases in snow removal expense and utility expenses (see “—Operating Expenses”); and

•
a decrease of $0.4 million due to the business failure of an office tenant at Voorhees Town Center.

Property Operating Expenses

Property operating expenses were unchanged in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 , primarily due to:

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•
a decrease of $2.0 million in property operating expenses related to properties sold in 2015 and 2016;

•
a decrease of $1.3 million in Same Store common area maintenance expense, including decreases of $0.9 million in snow removal expense and $0.2 million in common area utilities. During the three months ended March 31, 2016, weather across the Mid-Atlantic States, where many of our properties are located, was milder and drier compared to the three months ended March 31, 2015; and

•
a decrease of $0.8 million in Same Store non-common area utility expense. Temperatures across the Mid-Atlantic States, where many of our properties are located, were well above average during the three months ended March 31, 2016, resulting in lower electricity usage compared to the three months ended March 31, 2015. In addition, there was a significant increase in electric rates during February 2015 due to extreme cold weather that particularly affected our properties located in Pennsylvania, New Jersey and Maryland; offset by

•
an increase of $3.6 million in property operating expenses from the acquisition of Springfield Town Center in March 2015; and

•
an increase of $0.6 million in Same Store real estate tax expense due to a combination of increases in real estate tax assessment values and real estate tax rates.


Net Operating Income (“NOI”)

NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with generally accepted accounting principles, or GAAP, including lease termination revenue), minus property operating expenses (determined in accordance with GAAP), plus our share of revenue and property operating expenses of our partnership investments. It does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity. It is not indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We believe that net income is the most directly comparable GAAP measurement to NOI.

NOI excludes other income, general and administrative expenses, provision for employee separation expenses, interest expense, depreciation and amortization, gain on sale of interest in non operating real estate, gain on sale of interest in real estate, impairment of assets, acquisition costs and other expenses.

The following tables present NOI for the three months ended March 31, 2016 and 2015 . The results are presented using the “proportionate-consolidation method” (a non-GAAP measure), which includes our share of the results of our partnership investments. Under GAAP, we account for our partnership investments under the equity method of accounting. Operating results for retail properties that we owned for the full periods presented (“Same Store”) exclude properties acquired or disposed of or reclassified as held for sale during the periods presented. A reconciliation of NOI to net income (loss) determined in accordance with GAAP appears under the heading “Reconciliation of GAAP Net Income (Loss) to Non-GAAP Measures.”

Three months ended March 31, 2016:
 
Same Store
 
Non Same Store
 
Total
(in thousands of dollars)
2016
 
2015
 
%
Change
 
2016
 
2015
 
%
Change
 
2016
 
2015
 
%
Change
Real estate revenue
$
95,754

 
$
95,143

 
0.6
 %
 
$
19,093

 
$
16,803

 
13.6
%
 
$
114,847

 
$
111,946

 
2.6
 %
Property operating expenses
(37,885
)
 
(39,381
)
 
(3.8
)%
 
(9,719
)
 
(8,972
)
 
8.3
%
 
(47,604
)
 
(48,353
)
 
(1.5
)%
Net Operating Income
$
57,869

 
$
55,762

 
3.8
 %
 
$
9,374

 
$
7,831

 
19.7
%
 
$
67,243

 
$
63,593

 
5.7
 %


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Total NOI increased by $3.7 million , or 5.7% , in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily due to an increase of $2.1 million in NOI from Same Store properties. This increase in NOI from Same Store properties was primarily due to increases in rent. Non Same Store NOI increased by $1.5 million . Lease terminations were $0.2 million and $0.4 million for the three months ended March 31, 2016 and 2015 , respectively. See “—Real Estate Revenue” and “—Property Operating Expenses” above for further information about the factors affecting NOI from our consolidated properties.

Depreciation and Amortization

Depreciation and amortization expense increased by $ 0.5 million , or 2% , in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 , primarily due to:

•
an increase of $3.8 million related to the March 2015 acquisition of Springfield Town Center; and

•
an increase of $0.9 million due to accelerated amortization of capital improvements associated with store closings in the three months ended March 31, 2016; partially offset by

•
a decrease of $4.6 million related to properties sold in 2015 and 2016.

Impairment of Assets

Impairment of assets for the three months ended March 31, 2016 consisted of $0.6 million associated with an office building located in Voorhees, New Jersey, and for the three months ended March 31, 2015 consisted of $6.2 million associated with Uniontown Mall in Uniontown, Pennsylvania, which has since been sold.

Acquisition Costs and Other Expenses

Acquisition costs and other expenses decreased by $4.4 million during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 , primarily due to acquisition costs incurred in the three months ended March 31, 2015 related to our acquisition of Springfield Town Center in March 2015.

Interest Expense

Interest expense decreased by $0.8 million , or 4% , in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 . Our weighted average effective borrowing rate was 4.33% for the three months ended March 31, 2016 compared to 4.86% for the three months ended March 31, 2015 . Our weighted average debt balance was $1,836.9 million  for the three months ended March 31, 2016 compared to $1,619.0 million for the three months ended March 31, 2015 . This increase is largely due to amounts borrowed to fund the cash portion of the purchase consideration for Springfield Town Center, partially offset by application of proceeds from asset sales that were used to repay debt.

Equity in Income of Partnerships

Equity in income of partnerships increased by $1.8 million , or 86% , for the three months ended March 31, 2016 compared to the three months ended March 31, 2015 . This increase was primarily due to an increase in equity in income from the Gallery due to decreased operating expenses and also due to Gloucester Premium Outlets, which opened in 2015.


Funds From Operations

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP) excluding gains and losses on sales of operating properties, plus real estate depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures to reflect funds from operations on the same basis. We compute FFO in accordance with standards established by NAREIT, which may not be comparable to FFO reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do. NAREIT’s established guidance provides that excluding impairment write downs of depreciable real estate is consistent with the NAREIT definition.


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FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our operating partnership (“OP Unit”) in measuring our performance against our peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs.

FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to FFO.

We also present Funds From Operations, as adjusted, and Funds From Operations per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three months ended March 31, 2016 and 2015 , respectively, to show the effect of such items as acquisition costs, provision for employee separation expense, and loss on hedge ineffectiveness, which had a significant effect on our results of operations, but are not, in our opinion, indicative of our operating performance.

We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. We believe that Funds From Operations, as adjusted, is helpful to management and investors as a measure of operating performance because it adjusts FFO to exclude items that management does not believe are indicative of our operating performance, such as acquisition costs, provision for employee separation expense, accelerated amortization of deferred financing costs and gain and loss on hedge ineffectiveness.

The following table presents FFO attributable to common shareholders and OP Unit holders and FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, and FFO attributable to common shareholders and OP Unit holders, as adjusted, and FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, as adjusted, for the three months ended March 31, 2016 and 2015 :  
(in thousands, except per share amounts)
Three Months Ended 
 March 31, 2016
 
% Change
2015 to 2016
 
Three Months Ended 
 March 31, 2015
Funds from operations attributable to common shareholders and OP Unit holders
$
32,338

 
32.7%
 
$
24,364

Acquisition costs
—

 
 
 
3,330

Provision for employee separation expense
535

 
 
 
—

Loss on hedge ineffectiveness
142

 
 
 
512

Funds from operations attributable to common shareholders and OP Unit holders, as adjusted
$
33,015

 
17.0%
 
$
28,206

Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit
$
0.42

 
23.5%
 
$
0.34

Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit, as adjusted
$
0.43

 
7.5%
 
$
0.40

 
 
 
 
 
 
Weighted average number of shares outstanding
68,973

 
 
 
68,566

Weighted average effect of full conversion of OP Units
8,338

 
 
 
2,192

Effect of common share equivalents
298

 
 
 
432

Total weighted average shares outstanding, including OP Units
77,609

 
 
 
71,190



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FFO attributable to common shareholders and OP Unit holders was $32.3 million for the three months ended March 31, 2016 , an increase of $8.0 million , or 32.7% , compared to $24.4 million for the three months ended March 31, 2015 . This increase is primarily due to the $3.7 million increase in NOI and a decrease of $4.4 million of acquisition and other expenses.

FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit increased by $0.08 to $0.42 per share for the three months ended March 31, 2016 , compared to $0.34 for the three months ended March 31, 2015 .

Reconciliation of GAAP Net Income (Loss) to Non-GAAP Measures

The preceding discussion compares our unaudited Consolidated Statements of Operations results for different periods based on GAAP. Also, the non-GAAP measures of NOI and FFO have been discussed. We believe that NOI is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. FFO is a commonly used measure of operating performance and profitability among REITs, and we use FFO attributable to common shareholders and OP Unit holders and FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit as supplemental non-GAAP measures to compare our performance for different periods to that of our industry peers. The amounts presented in the “Share of Unconsolidated Partnerships” column are derived using the “proportionate consolidation method” (a non-GAAP measure), which includes our share of the results of our unconsolidated partnerships based on our ownership percentage in each such uncontrolled partnership. We believe that this presentation is helpful to management and investors because it provides comparable information about the operating results of our unconsolidated partnerships and is thus indicative of the return on property investment and of operating performance over time. Results based on our share of the results of unconsolidated partnerships do not represent cash generated from operating activities of our unconsolidated partnerships and should not be considered to be an alternative to cash flow from unconsolidated properties’ operating activities as a measure of our liquidity, because we do not have a direct legal claim to the revenues or expenses of the unconsolidated partnerships beyond our rights as an equity owner or tenant in common owner.

Under the partnership agreements relating to our current unconsolidated partnerships with third parties, we own a 25% to 50% economic interest in such partnerships. As such, in general, we have an indirect economic interest in our proportionate share of the revenue and expenses of the unconsolidated partnership, and, if there were to be some type of distribution of the assets and liabilities of the partnership, our proportionate share of those items. There are generally no provisions in such partnership agreements relating to special non-proportionate allocations of income or loss, and there are no preferred or priority returns of capital or other similar provisions. Thus, we believe that the proportionate-consolidation method represents a valuable means of showing the share of the operating results of our unconsolidated partnership properties that would be allocated to us based on our economic interest under the partnership agreement.

We hold a noncontrolling interest in each of our unconsolidated partnerships, 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 two 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.
•
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 do not have a direct legal claim to the assets, liabilities, revenues or expenses of the unconsolidated partnerships beyond our rights as an equity owner, in the event of any liquidation of such entity, and our rights as a tenant in common owner of certain unconsolidated properties.

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.”


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We hold legal title to properties owned by three of our unconsolidated partnerships through tenancy in common arrangements. For each of these this properties, such legal title is held by us and another person or persons, and each has an undivided interest in title to 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 like our other unconsolidated partnerships using the equity method of accounting. The balance sheet items arising from the properties appear under the caption “Investments in partnerships, at equity.”

For further information regarding our unconsolidated partnerships, see note 3 to our unaudited consolidated financial statements.

The following information is provided to reconcile NOI and FFO attributable to common shareholders and OP Unit holders, which are non-GAAP measures, to net loss, a GAAP measure.

 
Three Months Ended March 31, 2016
 
Three Months Ended March 31, 2015
(in thousands of dollars)
Consolidated
 
Share of
Unconsolidated
Partnerships
 
Total (a non-GAAP measure)
 
Consolidated
 
Share of
Unconsolidated
Partnerships
 
Total (a non-
GAAP measure)
Real estate revenue
$
101,456

 
$
13,391

 
$
114,847

 
$
98,783

 
$
13,163

 
$
111,946

Property operating expenses
(43,111
)
 
(4,493
)
 
(47,604
)
 
(43,152
)
 
(5,201
)
 
(48,353
)
Net operating income (NOI)
58,345

 
8,898

 
67,243

 
55,631

 
7,962

 
63,593

General and administrative expenses
(8,586
)
 
—

 
(8,586
)
 
(8,943
)
 
—

 
(8,943
)
Provision for employee separation expense
(535
)
 
—

 
(535
)
 
—

 
—

 
—

Other income
516

 
—

 
516

 
1,274

 
—

 
1,274

Acquisition costs and other expenses
(51
)
 
—

 
(51
)
 
(4,451
)
 
(27
)
 
(4,478
)
Interest expense, net
(19,346
)
 
(2,581
)
 
(21,927
)
 
(20,145
)
 
(2,640
)
 
(22,785
)
Depreciation of non real estate assets
(369
)
 
—

 
(369
)
 
(378
)
 
—

 
(378
)
Gains on sales of interests in non operating real estate
9

 
—

 
9

 
43

 
—

 
43

Preferred share dividends
(3,962
)
 
—

 
(3,962
)
 
(3,962
)
 
—

 
(3,962
)
Funds from operations attributable to common shareholders and OP Unit holders (FFO)
26,021

 
6,317

 
32,338

 
19,069

 
5,295

 
24,364

Depreciation of real estate assets
(33,366
)
 
(2,434
)
 
(35,800
)
 
(32,811
)
 
(3,212
)
 
(36,023
)
Equity in income of partnerships
3,883

 
(3,883
)
 
—

 
2,083

 
(2,083
)
 
—

Impairment of assets
(606
)
 
—

 
(606
)
 
(6,240
)
 
—

 
(6,240
)
Gains on sales of interests in real estate
2,035

 
—

 
2,035

 
—

 
—

 
—

Preferred share dividends
3,962

 
—

 
3,962

 
3,962

 
—

 
3,962

     Net income (loss)
$
1,929

 
$
—

 
$
1,929

 
$
(13,937
)
 
$
—

 
$
(13,937
)



LIQUIDITY AND CAPITAL RESOURCES

This “Liquidity and Capital Resources” section contains certain “forward-looking statements” that relate to expectations and projections that are not historical facts. These forward-looking statements reflect our current views about our future liquidity and capital resources, and are subject to risks and uncertainties that might cause our actual liquidity and capital resources to

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differ materially from the forward-looking statements. Additional factors that might affect our liquidity and capital resources include those discussed herein and in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission. We do not intend to update or revise any forward-looking statements about our liquidity and capital resources to reflect new information, future events or otherwise.

Capital Resources

We expect to meet our short-term liquidity requirements, including distributions to common and preferred shareholders, recurring capital expenditures, tenant improvements and leasing commissions, but excluding acquisitions and development and redevelopment projects, generally through our available working capital and net cash provided by operations, subject to the terms and conditions of our 2013 Revolving Facility and our 2014 Term Loans and 2015 Term Loan (collectively, the “Credit Agreements”). We believe that our net cash provided by operations will be sufficient to allow us to make any distributions necessary to enable us to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The aggregate distributions made to preferred shareholders, common shareholders and OP Unit holders for the three months ended March 31, 2016 were $20.3 million , based on distributions of $0.5156 per Series A Preferred Share, $0.4609 per Series B Preferred Share and $0.21 per common share and OP Unit. The following are some of the factors that could affect our cash flows and require the funding of future cash distributions, recurring capital expenditures, tenant improvements or leasing commissions with sources other than operating cash flows:

•
adverse changes or prolonged downturns in general, local or retail industry economic, financial, credit or capital market or competitive conditions, leading to a reduction in real estate revenue or cash flows or an increase in expenses;
•
deterioration in our tenants’ business operations and financial stability, including anchor or non anchor tenant bankruptcies, leasing delays or terminations, or lower sales, causing deferrals or declines in rent, percentage rent and cash flows;
•
inability to achieve targets for, or decreases in, property occupancy and rental rates, resulting in lower or delayed real estate revenue and operating income;
•
increases in operating costs, including increases that cannot be passed on to tenants, resulting in reduced operating income and cash flows; and
•
increases in interest rates resulting in higher borrowing costs.

We expect to meet certain of our longer-term requirements, such as obligations to fund redevelopment and development projects and certain capital requirements (including scheduled debt maturities), future property and portfolio acquisitions, renovations, expansions and other non-recurring capital improvements, through a variety of capital sources, subject to the terms and conditions of our Credit Agreements.
In December 2014, our universal shelf registration statement was filed with the SEC and became effective. We may use the availability under our shelf registration statement to offer and sell common shares of beneficial interest, preferred shares and various types of debt securities, among other types of securities, to the public.


Credit Agreements

We have entered into four credit agreements (collectively, the “Credit Agreements”): (1) the 2013 Revolving Facility, (2) the 2014 7-Year Term Loan, (3) the 2014 5-Year Term Loan, and (4) the 2015 5-Year Term Loan.

See note 4 in the notes to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015 for a description of the identical covenants and common provisions contained in the Credit Agreements.

As of March 31, 2016 , we had borrowed $400.0 million under the Term Loans, and $115.0 million was outstanding under our 2013 Revolving Facility, $15.3 million was pledged as collateral for letters of credit, and the unused portion of the 2013 Revolving Facility that was available to us was $209.6 million .


Interest Rate Derivative Agreements

As of March 31, 2016 , we had entered into 21 interest rate swap agreements with a weighted average interest rate of 1.34% on a notional amount of $497.7 million maturing on various dates through February 2021 and one forward starting interest rate

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swap agreement with an interest rate of 1.42% on a notional amount of $48.0 million , which will be effective starting January 2018 and maturing in February 2021.
 
In April 2016, we entered into five additional interest rate swap agreements with a weighted average interest rate of 1.02% on an aggregate notional amount of $130.0 million maturing in March 2021 .

We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. We have assessed the effectiveness of these interest rate swap agreements as hedges at inception and on a quarterly basis. As of March 31, 2016 , except as set forth below, we considered these interest rate swap agreements to be highly effective as cash flow hedges. The interest rate swap agreements are net settled monthly.

Accumulated other comprehensive loss as of March 31, 2016 includes a net loss of $1.9 million relating to forward starting swaps that we cash settled in prior years that are being amortized over 10 year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps.

As of March 31, 2016 , the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $7.2 million . If we had breached any of the default provisions in these agreements as of March 31, 2016 , we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $7.8 million . We had not breached any of these provisions as of March 31, 2016 .

Mortgage Loan Activity

In April 2016, we entered into a $130.0 million mortgage loan secured by Woodland Mall in Grand Rapids, Michigan. The new mortgage loan bears interest at the rate of 2.00% plus LIBOR and has a maturity date of April 2021.

In March 2016, we borrowed an additional $9.0 million , lowered the interest rate to 2.35% plus LIBOR and extended the maturity date to March 2021 on the mortgage loan secured by Viewmont Mall in Scranton, Pennsylvania.

In March 2016, we repaid a $79.3 million mortgage loan plus accrued interest secured by Valley Mall in Hagerstown, Maryland using $50.0 million from our 2013 Revolving Facility and the balance from available working capital.

In March 2016, we repaid a $32.8 million mortgage loan plus accrued interest secured by Lycoming Mall in Pennsdale, Pennsylvania in connection with the March 2016 sale of the property using proceeds from the sale and available working capital.

In March 2016, we repaid a $28.1 million mortgage loan plus accrued interest secured by New River Valley Mall in Christiansburg, Virginia in connection with the March 2016 sale of the property using proceeds from the sale.

Mortgage Loans

As of March 31, 2016 , our mortgage loans, which are secured by 12 of our consolidated properties, are due in installments over various terms extending to October 2025 . Ten of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95% and had a weighted average interest rate of 4.60% at March 31, 2016 . Two of our mortgage loans bear interest at variable rates and had a weighted average interest rate of 2.90% at March 31, 2016 . The weighted average interest rate of all consolidated mortgage loans was 4.43% at March 31, 2016 . Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.


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The following table outlines the timing of principal payments related to our consolidated mortgage loans as of March 31, 2016 :
 
(in thousands of dollars)
Total
 
Remainder of 2016
 
2017-2018
 
2019-2020
 
Thereafter
Principal payments
$
132,976

 
$
11,964

 
$
33,196

 
$
35,782

 
$
52,034

Balloon payments (1)
1,118,498

 
140,484

 
218,469

 
27,161

 
732,384

Total
$
1,251,474

 
$
152,448

 
$
251,665

 
$
62,943

 
$
784,418

(1) In connection with the April 2016 Woodland Mall refinancing, we repaid the remaining 2016 $140.5 million balloon payment, and a $121.6 million balloon payment is due in 2021 resulting from the new mortgage loan.

Contractual Obligations

The following table presents our aggregate contractual obligations as of March 31, 2016 for the periods presented:
(in thousands of dollars)
Total
 
Remainder of 2016
 
2017-2018
 
2019-2020
 
Thereafter
Mortgage loan principal payments
$
1,251,474

 
$
152,448

 
$
251,665

 
$
62,943

 
$
784,418

Term Loans
400,000

 
—

 
—

 
300,000

 
100,000

2013 Revolving Facility
115,000

 
—

 
115,000

 
—

 
—

Interest on indebtedness (1)
330,321

 
49,330

 
112,528

 
84,002

 
84,461

Operating leases
6,823

 
1,564

 
3,809

 
1,446

 
4

Ground leases
455

 
422

 
6

 
6

 
21

Development and redevelopment commitments (2)
72,623

 
56,893

 
12,730

 
3,000

 
—

Total
$
2,176,696

 
$
260,657

 
$
495,738

 
$
451,397

 
$
968,904

_________________________
(1) Includes payments expected to be made in connection with interest rate swaps and forward starting interest rate swap agreements.
(2) The timing of the payments of these amounts is uncertain. We expect that the majority of such payments will be made prior to December 31, 2016, but cannot provide any assurance that changed circumstances at these projects will not delay the settlement of these obligations.

Preferred Share Dividends

Annual dividends on our 4,600,000 8.25% Series A Preferred Shares ($25.00 liquidation preference) and our 3,450,000 7.375% Series B Preferred Shares ($25.00 liquidation preference) are expected to be $9.5 million and $6.4 million, respectively.

CASH FLOWS

Net cash provided by operating activities totaled $44.5 million for the three months ended March 31, 2016 compared to $26.9 million for the three months ended March 31, 2015 . The increase in 2016 is primarily due to a $4.4 million decrease in acquisition costs and other expenses, a $9.9 million decrease in accounts receivable, a $3.7 million increase in NOI, and a $0.8 million decrease in interest expense, offset by a $0.5 million increase in employee separation expense.

Cash flows provided by investing activities were $70.8 million for the three months ended March 31, 2016 compared to cash flows used in investing activities of $337.0 million for the three months ended March 31, 2015 . Cash flows provided by investing activities for the three months ended March 31, 2016 included $84.8 million in proceeds from the sale of five operating properties and one outparcel, investment in construction in progress of $11.8 million and real estate improvements of $5.9 million , primarily related to ongoing improvements at our properties. Investing activities for the first three months of 2015 included $320.0 million used in acquiring Springfield Town Center in Springfield, Virginia, investment in construction in progress of $3.2 million and real estate improvements of $6.4 million , primarily related to ongoing improvements at our properties.


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Cash flows used in financing activities were $107.6 million for the three months ended March 31, 2016 compared to cash flows provided by financing activities of $307.1 million for the three months ended March 31, 2015 . Cash flows used in financing activities for the first three months of 2016 included mortgage loan repayments of $139.8 million , dividends and distributions of $20.3 million , and principal installments on mortgage loans of $4.3 million , offset by $50.0 million of 2013 Revolving Facility borrowings and additional borrowing of $9.0 million from the mortgage loan secured by Viewmont Mall. Cash flows provided by financing activities for the three months ended March 31, 2015 included $210.0 million of net borrowings from the 2013 Revolving Facility, $120.0 million in net borrowings from the 2014 Term Loans, dividends and distributions of $18.9 million , and principal installment payments of $4.7 million , offset by $5.8 million of additional borrowings on the mortgage loan secured by Francis Scott Key Mall.

ENVIRONMENTAL

We are aware of certain environmental matters at some of our properties. We have, in the past, performed remediation of such environmental matters, and we are not aware of any significant remaining potential liability relating to these environmental matters or of any obligation to satisfy requirements for further remediation. We may be required in the future to perform testing relating to these matters. We have insurance coverage for certain environmental claims up to $25.0 million per occurrence and up to $25.0 million in the aggregate. See our Annual Report on Form 10-K for the year ended December 31, 2015, in the section entitled “Item 1A. Risk Factors —We might incur costs to comply with environmental laws, which could have an adverse effect on our results of operations.”

COMPETITION AND TENANT CREDIT RISK

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.

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, as was the case for a few of our tenants in recent periods. 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

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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. In addition, under many of our leases, our tenants pay rent based, in whole or in part, on a percentage of their sales. 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.

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.

INFLATION

Inflation can have many effects on financial performance. Retail property leases often provide for the payment of rent based on a percentage of sales, which might increase with inflation. Leases may also provide for tenants to bear all or a portion of operating expenses, which might reduce the impact of such increases on us. However, rent increases might not keep up with inflation, or if we recover a smaller proportion of property operating expenses, we might bear more costs if such expenses increase because of inflation.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 , 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:

•
changes in the retail industry, including consolidation and store closings, particularly among anchor tenants;
•
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;
•
increases in operating costs that cannot be passed on to tenants;
•
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 sell properties that we seek to dispose of or our ability to obtain estimated sale prices;
•
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;
•
risks relating to development and redevelopment activities;
•
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;
•
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;

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•
changes to our corporate management team and any resulting modifications to our business strategies;
•
the effects of online shopping and other uses of technology on our retail tenants;
•
acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and
sales;
•
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 Credit Agreements;
•
our ability to refinance our existing indebtedness when it matures, on favorable terms or at all;
•
our ability to raise capital, including through the issuance of equity or equity-related securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties or interests in properties, or through other actions;
•
our short and long-term liquidity position;
•
potential dilution from any capital raising transactions or other equity issuances; and
•
general economic, financial and political conditions, including credit and capital market conditions, changes in interest rates or unemployment.

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 herein and in our Annual Report on Form 10-K for the year ended December 31, 2015 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.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of March 31, 2016 , our consolidated debt portfolio consisted primarily of $1,247.2 million of fixed and variable rate mortgage loans, $115.0 million borrowed under our 2013 Revolving Facility which bore interest at a rate of 1.69% , $150.0 million borrowed under our 2014 5-Year Term Loan which bore interest at a rate of 1.89% , $150.0 million borrowed under our 2015 5-Year Term Loan which bore interest at a rate of 1.89% and $100.0 million borrowed under our 2014 7-Year Term Loan which bore interest at a rate of 2.39% .

Our mortgage loans, which are secured by 12 of our consolidated properties, are due in installments over various terms extending to October 2025 . Ten of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95% and had a weighted average interest rate of 4.60% at March 31, 2016 . Two of our mortgage loans bear interest at variable rates and had a weighted average interest rate of 2.90% at March 31, 2016 . The weighted average interest rate of all consolidated mortgage loans was 4.43% at March 31, 2016 . Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.

Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts of the expected annual maturities due in the respective years and the weighted average interest rates for the principal payments in the specified periods:
 
 
Fixed Rate Debt
 
Variable Rate Debt
(in thousands of dollars)
For the Year Ending December 31,
Principal
Payments
 
Weighted
Average
Interest Rate  (1)
 
Principal
Payments
 
Weighted
Average
Interest Rate  (1)
2016
$
152,448

 
5.31
%
 
$
—

 


2017
166,244

 
5.29
%
 
—

 


2018
16,952

 
4.25
%
 
183,469

(2)  
2.14
%
2019
17,692

 
4.25
%
 
150,000

(3)  
1.89
%
2020 and thereafter
772,669

 
4.22
%
 
307,000

(4)  
2.34
%
_________________________
(1)  
Based on the weighted average interest rates in effect as of March 31, 2016 .
(2)  
Includes 2013 Revolving Facility borrowings of $ 115.0 million with an interest rate of 1.69% as of March 31, 2016 .
(3)  
Includes Term Loan debt balance of $150.0 million with a weighted average interest rate of 1.89% as of March 31, 2016 .
(4)  
Includes Term Loan debt balance of $250.0 million with a weighted average interest rate of 2.09% as of March 31, 2016 .

As of March 31, 2016 , we had $640.5 million of variable rate debt. Also, as of March 31, 2016 , we had entered into 21 interest rate swap agreements with an aggregate weighted average interest rate of 1.34% on a notional amount of $497.7 million maturing on various dates through February 2021 and one forward starting interest rate swap agreement with an interest rate of 1.42% on a notional amount of $48.0 million , which will be effective starting January 2018 and maturing in February 2021.

In April 2016, we entered into five additional interest rate swap agreements with a weighted average interest rate of 1.02% on a notional amount of $130.0 million maturing in March 2021 . We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long-term debt.

Changes in market interest rates have different effects on the fixed and variable rate portions of our debt portfolio. A change in market interest rates applicable to the fixed portion of the debt portfolio affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of the debt portfolio affects the interest incurred and cash flows, but does not affect the fair value. The following sensitivity analysis related to our debt portfolio, which includes the effects of our interest rate swap agreements, assumes an immediate 100 basis point change in interest rates from their actual March 31, 2016 levels, with all other variables held constant.

A 100 basis point increase in market interest rates would have resulted in a decrease in our net financial instrument position of $64.3 million at March 31, 2016 . A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of $66.1 million at March 31, 2016 . Based on the variable rate debt included in our debt
portfolio at March 31, 2016 , a 100 basis point increase in interest rates would have resulted in an additional $1.4 million in interest expense annually. A 100 basis point decrease would have reduced interest incurred by $1.4 million annually.

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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 the underlying exposure. Interest rate differentials that arise under swap contracts are recognized in interest expense over the life of the contracts. If interest rates rise, the resulting cost of funds is expected to be lower than that which would have been available if debt with matching characteristics was issued directly. Conversely, if interest rates fall, the resulting costs would be expected to be, and in some cases have been, higher. We may also employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. See note 7 of the notes to our unaudited consolidated financial statements.

Because the information presented above includes only those exposures that existed as of March 31, 2016 , it does not consider changes, exposures or positions which have arisen or could arise after that date. The information presented herein has limited predictive value. As a result, the ultimate realized gain or loss or expense with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time and interest rates.

ITEM 4. CONTROLS AND PROCEDURES.

We are committed to providing accurate and timely disclosure in satisfaction of our SEC reporting obligations. In 2002, we established a Disclosure Committee to formalize our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2016 , and have concluded as follows:

•
Our disclosure controls and procedures are designed to ensure that the information that we are required to disclose in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
•
Our disclosure controls and procedures are effective to ensure that information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

There was no change in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


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PART II—OTHER INFORMATION
 
ITEM 1. 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 that we manage for third parties. In management’s opinion, the resolution of any such pending legal actions is not expected to have a material adverse effect on our consolidated financial position or results of operations.

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations, which are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2014.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Issuer Purchases of Equity Securities

The following table shows the total number of shares that we acquired in the three months ended March 31, 2016 and the average price paid per share. The January 2016 and February 2016 activity represents shares that were purchased from employees in connection with the payment of taxes due upon restricted share vesting.
 
Period
Total Number
of Shares
Purchased
 
Average Price
Paid  per
Share
 
Total Number of
Shares  Purchased
as part of Publicly
Announced Plans
or Programs
 
Maximum Number
(or  Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs
January 1 - January 31, 2016
48,991

 
$
19.74

 
—

 
$
—

February 1 - February 29, 2016
60,918

 
17.63

 
—

 
—

March 1 - March 31, 2016
—

 
—

 
—

 
—

Total
109,909

 
$
18.57

 
—

 
$
—




36
Table of Contents

ITEM 6.   EXHIBITS.

 
 
10.1
2016-2018 Restricted Share Unit Program
 
 
10.2
Form of Restricted Share Unit and Dividend Equivalent Rights Award Agreement
 
 
10.3
Separation of Employment Agreement dated April 15, 2016 by and between Pennsylvania Real Estate Investment Trust, PREIT Associates L.P., PREIT Services, LLC and Ronald Rubin.
 
 
31.1
Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2
Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101
Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2016 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015; (ii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015; (iii) Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (iv) Consolidated Statements of Equity for the three months ended March 31, 2016; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (vi) Notes to Unaudited Consolidated Financial Statements.




37
Table of Contents

SIGNATURE OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date:
April 29, 2016
 
 
 
 
By:
/s/ Joseph F. Coradino
 
 
 
Joseph F. Coradino
 
 
 
Chief Executive Officer
 
 
 
 
 
 
By:
/s/ Robert F. McCadden
 
 
 
Robert F. McCadden
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
 
 
By:
/s/ Jonathen Bell
 
 
 
Jonathen Bell
 
 
 
Senior Vice President and Chief Accounting Officer
 
 
 
(Principal Accounting Officer)


38
Table of Contents

Exhibit Index
 
 
 
10.1*
2016-2018 Restricted Share Unit Program
 
 
10.2*
Form of Restricted Share Unit and Dividend Equivalent Rights Award Agreement
 
 
10.3*
Separation of Employment Agreement dated April 15, 2016 by and between Pennsylvania Real Estate Investment Trust, PREIT Associates L.P., PREIT Services, LLC and Ronald Rubin.
 
 
31.1*
Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
31.2*
Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
32.1**
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
32.2**
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
101*
Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2016 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015; (ii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015; (iii) Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (iv) Consolidated Statements of Equity for the three months ended March 31, 2016; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (vi) Notes to Unaudited Consolidated Financial Statements.


_______________________
*
filed herewith
**
furnished herewith


39
Exhibit 10.1













PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2016-2018 RESTRICTED SHARE UNIT PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
Second Amended and Restated 2003 Equity Incentive Plan)






TABLE OF CONTENTS


 
 
Page
1.
PURPOSES
1
2.
DEFINITIONS
1
3.
AWARD AGREEMENT
4
4.
PREFORMANCE GOAL; DELIVERY OF SHARES
4
5.
BENEFICIARY DESIGNATIONS
7
6.
DELIVERY TO GUARDIAN
7
7.
SOURCE OF SHARES
7
8.
CAPITAL ADJUSTMENTS
7
9.
TAX WITHOLDING
8
10.
ADMINISTRATION
8
11.
AMENDMENT AND TERMINATION
8
12.
HEADINGS
8
13.
INCORPORATION OF PLAN BY REFERENCE
8
APPENDIX A
A-1
APPENDIX B
B-1
APPENDIX C
C-1
 
 
 
 
 
 

























- i -


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2016-2018 RESTRICTED SHARE UNIT PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
Second Amended and Restated 2003 Equity Incentive Plan)


PREAMBLE

WHEREAS, Pennsylvania Real Estate Investment Trust (the “Trust”) established, and its shareholders approved, the Pennsylvania Real Estate Investment Trust Second Amended and Restated 2003 Equity Incentive Plan (the “Plan”), primarily in order to award equity-based benefits to certain officers and other key employees of the Trust and its “Related Corporations” and “Subsidiary Entities” (both as defined in the Plan);

WHEREAS, one kind of an equity-based benefit that can be awarded under the Plan is a “Performance Share,” defined in the Plan as “an Award that entitles the recipient to receive Shares, without payment, following the attainment of designated individual or Corporate Performance Goals;”

WHEREAS, the Trust’s Executive Compensation and Human Resources Committee (the “Committee”) is responsible for the administration of the Plan and may, pursuant to the powers granted to it thereunder, adopt rules and regulations for the administration of the Plan and determine the terms and conditions of each award granted thereunder;

WHEREAS, the Committee desires to establish a program for the 2016 through 2018 period under the Plan for the benefit of certain officers of the Trust and PREIT Services, LLC (one of the Trust’s Subsidiary Entities), whereby such officers would receive Performance Shares under the Plan, based on the extent to which the Trust attains the corporate goal set forth in the program; and

WHEREAS, the Committee established in writing the objective performance goals for use under the program, within the meaning of Treas. Reg. §1.162-27(e)(2)(i), in its February 23, 2016 meeting;

NOW, THEREFORE, effective as of January 1, 2016, the Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program is hereby adopted (under the Plan) by the Committee, with the following terms and conditions:

1. Purposes . The purposes of the Program are to motivate certain officers of the Employer to reach and exceed challenging goals for the Trust of profitability and growth, and to focus the attention of the eligible officers on a critical financial indicator used to measure the success of the Trust and of other companies in the same business as the Trust.
2. Definitions .
(a) “ Award ” means an award of Restricted Share Units to a Participant.

- 1 -


(b) “ Award Agreement ” means a written document evidencing the grant to a Participant of an Award, as described in Section 10.1 of the Plan.
(c) “ Base Units ” means the number of Restricted Share Units set forth in the Award Agreement (increased by any additional Restricted Share Units “purchased” pursuant to Section 4(e) hereof) by which the number of Shares that may be delivered to a Participant is measured.
(d) “ Board ” means the Board of Trustees of the Trust.
(e) “ Business Combination ” means “Business Combination” as such term is defined in the definition of “Change in Control.”
(f) “ Cause ” means “Cause” as such term is defined in a Participant’s Employment Agreement or, if the Participant is not a party to an Employment Agreement, then (solely for purposes of this Program) as set forth below -
(1) Fraud in connection with the Participant’s employment; theft, misappropriation or embezzlement of funds of the Trust or its affiliates; or a willful violation of the provisions of the Trust’s Code of Business Conduct with respect to the purchase or sale of securities of the Trust;
(2) Indictment of the Participant for a crime involving moral turpitude;
(3) Failure of the Participant to perform his or her duties to the Employer (other than on account of illness, accident, vacation or leave of absence) that persists - after written demand for substantial performance which specifically identifies the manner in which the Participant has failed to perform - for more than 30 calendar days after such notice to him or her; or
(4) The Participant’s repeated abuse of alcohol or drugs.
(g) “ Change in Control ” means “Change in Control” as such term is defined in the Plan.
(h) “ Code ” means the Internal Revenue Code of 1986, as amended.
(i) “ Committee ” means the Executive Compensation and Human Resources Committee of the Board, which Committee has developed the Program and has the responsibility to administer the Program under Section 3 of the Plan and Section 10 hereof.
(j) “ Corporate Goal ” means the specific performance goal, set forth in Section 4(a) hereof, which must be achieved in order for a Participant to receive Shares under an Award.
(k) “ DER ” means “DER” (dividend equivalent right) as such term is defined in the Plan.
(l) “ Disability Termination ” means the termination of a Participant’s employment under the disability provisions of the Participant’s Employment Agreement or, if

- 2 -


the Participant is not a party to an Employment Agreement, then as a result of a “Disability” as defined in the Plan.
(m) “ Effective Date ” means January 1, 2016.
(n) “ Employer ” means, collectively and individually (as applicable), the Trust and Services, and any other “Related Corporation” or “Subsidiary Entity” (both as defined in the Plan) that becomes an Employer under the Plan with the consent of the Trust.
(o) “ Employment Agreement ” means the written agreement entered into by a Participant and an Employer (if any) setting forth the terms and conditions of the Participant’s employment, as amended at any applicable time.
(p) “ Good Reason ” means “Good Reason” as such term is defined in a Participant’s Employment Agreement or, if the Participant is not a party to an Employment Agreement, then the relocation of the Participant’s principal business office outside the metropolitan Philadelphia area without the consent of the Participant.
(q) “ Measurement Period ” means the period beginning on the Effective Date and ending on the earlier of December 31, 2018, such earlier date declared by the Committee in connection with a termination of the Program or the date of a Change in Control (provided that, if the Change in Control arises from a Business Combination, the Measurement Period shall end on the date of the closing or effectiveness of the Business Combination, as applicable).
(r) “ Participant ” means each individual who has received an Award under the Program.
(s) “ Plan ” means the Pennsylvania Real Estate Investment Trust Second Amended and Restated 2003 Equity Incentive Plan, as it may be amended from time to time.
(t) “ Program ” means the Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program (established under the Plan), as it may be amended from time to time.
(u) “ Restricted Share Unit ” or “ RSU ” means an Award of a “Performance Share,” as such term is defined in the Plan.
(v) “ Services ” means PREIT Services, LLC, a Delaware limited liability company.
(w) “ Shares ” means “Shares” as such term is defined in the Plan.
(x) “ Subsidiary Entity ” means “Subsidiary Entity” as defined in the Plan.
(y) “ Trust ” means Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust.
(z) “ Trustee ” means a member of the Board.

- 3 -



3. Award Agreement . Each Participant shall be issued an Award Agreement setting forth the initial number of Base Units awarded to the Participant and entitling the Participant to receive the number of Shares determined under Section 4 hereof, based on the extent to which the Corporate Goal is achieved. Such Base Units shall be subject to the adjustments described in Section 8 hereof. Each Award Agreement, and the Shares which may be delivered thereunder, are subject to the terms of this Program and the terms of the Plan.
4. Performance Goal; Delivery of Shares
(a) If, for the Measurement Period, the Trust’s performance, based on its “TRS” (as defined below), equals or exceeds the “Threshold” (as defined below), then the Trust shall deliver to each Participant the number of Shares (rounded down to the nearest whole number of Shares) determined by first multiplying the whole percentile (expressed as a percentage equal to the percentile rounded up for fractions of one-half or greater) at which the Trust’s TRS for the Measurement Period places the Trust among the component members of the “MSCI US REIT Index” (as defined below) for the Measurement Period, each ranked pursuant to such TRS, by two, and then multiplying that product by the Participant’s Base Units; provided, however, that the number of Shares that may be delivered shall not exceed 150% of the Participant’s Base Units. Shares will be delivered under the Program to the extent that Shares remain available under the Plan. If the total number of Shares to be delivered exceeds the number of Shares available under the Plan, then the number of Shares for each Participant will be reduced on a pro rata basis based on each individual Participant’s Base Units as compared to the total of all Participants’ Base Units, each determined as of the last day of the Measurement Period. If, for the Measurement Period, the Trust’s performance, based on its TRS, does not equal or exceed the Threshold, the Trust shall not deliver any Shares to the Participants. Also, except as provided in subsection (c) below, a Participant must be employed by an Employer on the last day of the Measurement Period in order to receive any Shares under this Program. See Appendix A attached hereto for examples illustrating the operation of this Section.
(b) Definitions for this Section . The following terms shall be defined as set forth below:
(1) “ MSCI US REIT Index ” means the MSCI US REIT Index’s gross index (as it may be renamed from time to time) or, in the event such index shall cease to be published, such other index as the Committee shall determine to be comparable thereto.
(2) “ Share Value ” means, as applicable and except as provided in the following sentence, the average of the closing prices of one Share on the New York Stock Exchange (the “NYSE”) (or, if not then listed on the NYSE, on the principal market or quotation system on which then traded) for: (i) the 20 days on which Shares were traded prior to the Effective Date (for the value of a Share on the Effective Date); (ii) the 20 days on which Shares were traded prior to and including the last day of the Measurement Period (for the value of a Share on the last day of the Measurement Period); or (iii) the 20 days on which the Shares were traded prior to and including the applicable dividend payment date (for the “purchase” of additional RSUs under subsection (e) below). In the event of a Business Combination approved by the shareholders of the Trust on or prior to December 31, 2018, Share Value shall mean the final price per Share agreed upon by the parties to the Business Combination.

- 4 -



(3) “ Threshold ” means the 25 th percentile among the component members (including the Trust) of the MSCI US REIT Index at the end of the Measurement Period (ranked based upon each such member’s TRS for the Measurement Period).
(4) “ TRS ” means total return to shareholders, as calculated by the Committee or its designee, for the Measurement Period for the Trust and for the other component members of the MSCI US REIT Index. “Component members” means those entities used for purposes of compiling the MSCI US REIT Index as of the first day of the Measurement Period and that remain publicly held companies as of the last day of the Measurement Period, whether or not they are still included in the MSCI US REIT Index on such last day.
(c) Termination of Employment . Upon a Participant’s termination of employment on or prior to the last day of the Measurement Period, the following shall occur:
(1) Termination without Cause, for Good Reason, or on Account of Disability or Death . If, on or prior to the last day of the Measurement Period, (i) the Participant terminates his or her employment with the Employer for Good Reason, (ii) the Employer terminates the Participant’s employment for reasons other than for Cause, (iii) the Participant incurs a Disability Termination, or (iv) the Participant dies, the Participant (or the Participant’s beneficiary(ies), if applicable) shall be eligible to receive Shares under the Program (or not) as though the Participant had remained employed by the Employer through the end of the Measurement Period.
(2) Termination for Any Other Reason . If, on or prior to the last day of the Measurement Period, the Participant’s employment with the Employer terminates for any reason other than a reason described in paragraph (1) above, the Participant shall forfeit all of the Base Units (and all of the Shares that may have become deliverable with respect to such Base Units) subject to the RSUs the Participant was granted under the Program.
(d) Determination of Performance; Share Delivery . Within 30 days after the end of the Measurement Period, the Committee shall provide each Participant with a written determination of whether the Trust did or did not attain the Corporate Goal for the Measurement Period (and, if applicable, the extent to which the Corporate Goal was attained) and the calculations used to make such determination. If Shares are to be delivered under the Program, they shall be delivered to Participants within 60 days following the end of the Measurement Period, unless the Measurement Period ends as a result of a Change in Control, in which case the Shares will be delivered to the Participants within five days following the end of the Measurement Period.
(e) DERs . Participants shall be awarded DERs with respect to their number of Base Units. Each DER will be expressed as a specific dollar amount (the “Dollar Amount”) equal to the dollar amount of the dividend paid on an actual Share on a specific date (the “Dividend Date”) multiplied by the Participant’s number of Base Units. Until the end of the Measurement Period, the Committee will apply the Dollar Amount to “purchase” a number of additional RSUs equal to the Dollar Amount divided by the Share Value. The delivery of Shares in respect of such additional RSUs shall also be subject to the attainment of the Corporate Goal set forth in subsection (a) above. DERs shall also be awarded on such additional RSUs and applied in the same manner (thereby increasing the Participant’s Base Units on a cumulative basis). RSUs deemed purchased with DERs hereunder may be whole or fractional units.

- 5 -



Participants who make a deferral election under subsection (f) below shall also be awarded DERs under the Plan with respect to their deferred Shares. Each such DER will be expressed as a Dollar Amount equal to the dollar amount of the dividend paid on an actual Share on a Dividend Date during the deferral period multiplied by the number of Shares still deferred by the Participant as of the Dividend Date. The Committee will apply the Dollar Amount to “purchase” notional shares (on which DERs thereafter will also be awarded and applied in the same manner) at the closing price of a Share on the Dividend Date. Notional shares deemed purchased with DERs hereunder may be whole or fractional shares. DERs expressed as a Dollar Amount will continue to be applied to “purchase” notional shares on Dividend Dates until all of the Participant’s deferred Shares are delivered to the Participant (or to his or her beneficiary(ies), if applicable), as elected in his or her deferral election agreement. A Participant’s notional shares “purchased” with DERs awarded with respect to his or her deferred Shares shall be 100% vested at all times.
The Trust shall establish a bookkeeping account (the “DER Account”) for each such Participant and credit to such account the number of whole and fractional additional RSUs and notional shares deemed purchased with the Dollar Amounts. The Participant’s additional RSUs and notional shares shall be subject to the adjustments described in Section 8 hereof. All whole additional RSUs (for which Shares become deliverable under this Section) and whole notional shares credited to a Participant’s DER Account shall be replaced by issued Shares on a one-to-one basis on the delivery date referred to in subsection (d) above, and the fractional additional RSUs (for which Shares become deliverable under this Section) and fractional notional shares credited to a Participant’s DER Account shall be aggregated and replaced by issued Shares (and with cash in lieu of a fractional Share) based on the closing price of a Share on the replacement date, and delivered to the Participant (or to his or her beneficiary(ies), if applicable) on the date the associated Shares are delivered to the Participant.
(f) Elective Deferrals . Except in the event of delivery on account of a Change in Control, if Shares are to be delivered under the Program, a Participant may elect to defer delivery (and the Trust shall defer issuance) of all or a portion of the Shares until, as specified in the Participant’s deferral election agreement, (i) the Participant’s separation from service from the Trust’s controlled group of entities and/or (ii) a date chosen by the Participant. The Participant may also elect in the deferral election agreement to receive Shares upon the occurrence of an “unforeseeable emergency,” as defined in section 409A(a)(2)(B)(ii) of the Code, to the extent not prohibited by that section of the Code and regulations issued thereunder. If a Change in Control or the Participant’s death occurs during the deferral period, the Participant’s Shares (and cash attributable to DERs) shall be delivered in a single sum to the Participant or to the Participant’s beneficiary(ies) (as applicable) on the 30 th day after the Change in Control (provided that, if the Change in Control arises from a Business Combination, the Change in Control shall be deemed to occur on the date of the closing or effectiveness of the Business Combination, as applicable) or the Participant’s death (as applicable).
A Participant’s deferral election agreement must be submitted to the Committee no later than June 30, 2018 in order to be effective; otherwise, Shares (and cash attributable to DERs) deliverable to the Participant, if any, will be delivered on March 1, 2019. Unless the delivery of deferred Shares is occasioned by either of the events described in the last sentence of the preceding paragraph, if deferred Shares are to be delivered to a Participant who is a “specified employee,” as defined in section 409A(a)(2)(B)(i) of the Code, upon his or her separation from service from the Trust’s controlled group of entities, the Trust shall issue and

- 6 -


deliver such deferred Shares (and cash attributable to DERs) on the date that is six months after the date of his or her separation from service. A deferral election agreement shall be substantially in the form set forth in Appendix B attached hereto.
The Committee intends to administer the Program, including the delivery of Shares under an election made pursuant to this subsection (f) and the underlying deferral election agreement, in accordance with section 409A of the Code and regulations and other guidance issued thereunder, but makes no representation with respect to the qualification of the Program or the Awards granted hereunder.
5. Beneficiary Designation
(a) Each Participant shall designate the person(s) as the beneficiary(ies) to whom the Participant’s Shares shall be delivered in the event of the Participant’s death prior to the delivery of the Shares to him or her. Each beneficiary designation shall be substantially in the form set forth in Appendix C attached hereto and shall be effective only when filed with the Committee during the Participant’s lifetime.
(b) Any beneficiary designation may be changed by a Participant without the consent of any previously designated beneficiary or any other person by the filing of a new beneficiary designation with the Committee. The filing of a new beneficiary designation shall cancel all beneficiary designations previously filed.
(c) If any Participant fails to designate a beneficiary in the manner provided above, or if the beneficiary designated by a Participant predeceases the Participant, the Committee shall direct such Participant’s Shares to be delivered to the Participant’s surviving spouse or, if the Participant has no surviving spouse, then to the Participant’s estate.
6. Delivery to Guardian . If Shares are issuable under this Program to a minor, a person declared incompetent, or a person incapable of handling the disposition of property, the Committee may direct the delivery of the Shares to the guardian, legal representative, or person having the care and custody of the minor, incompetent or incapable person. The Committee may require proof of incompetence, minority, incapacity or guardianship as the Committee may deem appropriate prior to the delivery. The delivery shall completely discharge the Committee, the Trustees and the Employer from all liability with respect to the Shares delivered.
7. Source of Shares . This Program shall be unfunded, and the delivery of Shares shall be pursuant to the Plan. Each Participant and beneficiary shall be a general and unsecured creditor of the Employer to the extent of the Shares determined hereunder, and the Participant shall have no right, title or interest in any specific asset that the Employer may set aside, earmark or identify as reserved for the delivery of Shares under the Program. The Employer’s obligation under the Program shall be merely that of an unfunded and unsecured promise to deliver Shares in the future, provided the Corporate Goal is met. No person shall be entitled to the privileges of ownership in respect of Shares which are subject to Awards hereunder until such Shares have been issued to that person.
8. Capital Adjustments . Calculations required under the Program, the number of Base Units awarded under the Program, and the number of Shares that may be delivered under the Program shall be adjusted to reflect any increase or decrease in the number of issued Shares

- 7 -


resulting from a subdivision (share-split), consolidation (reverse split), share dividend, merger, spinoff or other similar event or transaction affecting the Trust during the Measurement Period.
9. Tax Withholding . The delivery of Shares (and cash, if applicable) to a Participant or beneficiary under this Program shall be subject to applicable tax withholding pursuant to Section 10.6 of the Plan.
10. Administration. This Program shall be administered by the Committee pursuant to the powers granted to it in Section 3 of the Plan.
11. Amendment and Termination . The Committee reserves the right to amend the Program, by written resolution, at any time and from time to time in any fashion, provided any such amendment does not conflict with the terms of the Plan, and to terminate it at will. However, no amendment or termination of the Program shall adversely affect any Award Agreement already issued under the Program without the written consent of the affected Participant(s).
12. Headings . The headings of the Sections and subsections of the Program are for reference only. In the event of a conflict between a heading and the content of a Section or subsection, the content of the Section or subsection shall control.
13. Incorporation of Plan by Reference . Because the Program is established under the Plan in order to provide for, and determine the terms and conditions of, the granting of certain Awards thereunder, the terms and conditions of the Plan are hereby incorporated by reference and made a part of this Program. If any terms of the Program conflict with the terms of the Plan, the terms of the Plan shall control.


- 8 -


APPENDIX A

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2016-2018 RESTRICTED SHARE UNIT PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
Second Amended and Restated 2003 Equity Incentive Plan)

EXAMPLE *
A is a participant in the Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program (the “Program”).
The price of a beneficial interest (a “Share”) in the “Trust” (as defined in the Program) on January 1, 2016 is $15, and the price of a Share on December 31, 2018 is $25. For the three-year period beginning January 1, 2016 and ending December 31, 2018 (the “Measurement Period”), dividends total $1.80 per Share (and are paid in an equal amount on a quarterly basis - i.e., $.15 dividend per Share per quarter).
Dividends and Crediting Additional RSUs
Participant A receives a Restricted Share Unit award for 250 “Base Units” (as defined in the Program). Additional Restricted Share Units are deemed purchased and credited on a quarterly basis using dividends deemed to be paid on the units. The purchase price of the additional Restricted Share Units credited pursuant to the terms of the Program is the 20-day average share price prior to and including the date of the dividend.
The following table illustrates how dividends are deemed to be paid on the Base Units and how additional Restricted Share Units are credited and added to the aggregate number of Base Units held by Participant A:
Date

Aggregate
Base Units  

Deemed
Dividend

20-Day
Average Share Price

Additional
RSUs Credited  
1/1/16
250
—
—
—
3/15/16
250
$37.50
$16
2.3
6/15/16
252.3
$37.85
$16
2.4
9/15/16
254.7
$38.21
$18
2.1
12/15/16
256.8
$38.52
$19
2
3/15/17
258.8
$38.82
$19
2
6/15/17
260.8
$39.12
$20
2
9/15/17
262.8
$39.42
$21
1.9
12/15/17
264.7
$39.71
$21
1.9
_________________________
*The example set forth in this Appendix A is illustrative only and is not intended to be precise or definitive.

A- 1


Date

Aggregate
Base Units

Deemed
Dividend

20-Day
Average Share Price

Additional
RSUs Credited
3/15/2018
266.6
$39.99
$22
1.8
6/15/2018
268.4
$40.26
$23
1.8
9/15/2018
270.2
$40.53
$23
1.8
12/15/2018
272
$40.80
$24
1.7
12/31/2018
273.7
—
—
—
Delivery of Shares
Following the expiration of the Measurement Period, the Committee (as defined in the Program) determines where the Trust’s performance, based on its total return to shareholders (“TRS”), places the Trust among the component members of the “MSCI US REIT Index” (as defined in the Program) (the “Index”), ranked pursuant to each member’s TRS over the Measurement Period, as calculated by the Trust or by a third party selected by the Committee.
Assume the TRS for the Measurement Period is determined to be 160%. If, as of December 31, 2018, the Trust’s TRS places the Trust above the 25 th percentile on the Index, Participant A would receive Shares (with fractional Shares settled in cash), with the number of Shares deliverable to the Participant determined as a percentage of 273.7 (the number of Base Units the Participant holds as of December 31, 2018).
The following chart illustrates the number of Shares deliverable as a percent of Base Units, based on the Trust’s percentile on the Index:
Percentile
Percent of Base Units Deliverable in Shares
Below 25th
0%
25 th
50%
40th
80%
50th
100%
65th
130%
75 th  or above
150%

For example, if the Trust’s TRS places the Trust at the 50 th percentile on the Index, Participant A would receive 273 Shares (and cash for the 0.7 Share). If the Trust’s TRS places the Trust at the 24 th percentile, Participant A would receive 0 Shares, and if the Trust’s TRS places the Trust at the 80 th percentile, Participant A would receive 410 Shares (and cash for the 0.55 Share).


A- 2


APPENDIX B

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2016-2018 RESTRICTED SHARE UNIT PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
Second Amended and Restated 2003 Equity Incentive Plan)

DEFERRAL ELECTION AGREEMENT *  

The Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program, effective as of January 1, 2016 (the “Program”), provides a select group of management or highly compensated employees with the ability to defer a portion of their compensation earned under the Program. The purpose of this Deferral Election Agreement is to allow you to defer the delivery of all or a portion of the Shares that are otherwise deliverable to you under the Program until one of the events selected below occurs.
AFTER YOU SIGN THIS DEFERRAL ELECTION AGREEMENT AND IT IS ACCEPTED BY PENNSYLVANIA REAL ESTATE INVESTMENT TRUST (THE “TRUST”), YOU MAY NOT REVOKE IT AFTER JUNE 30, 2018. IF YOU DECIDE SUBSEQUENTLY TO CHOOSE A LATER DELIVERY DATE, YOU MUST SUBMIT A NEW DEFERRAL ELECTION AGREEMENT AT LEAST 12 MONTHS PRIOR TO YOUR ORIGINAL DELIVERY DATE AND YOUR NEW DELIVERY DATE MUST BE AT LEAST FIVE YEARS AFTER YOUR ORIGINAL DELIVERY DATE. YOU MAY NOT, UNDER ANY CIRCUMSTANCES, ACCELERATE THE DELIVERY OF YOUR PERFORMANCE SHARES AFTER THIS DEFERRAL ELECTION AGREEMENT HAS BECOME EFFECTIVE (OTHER THAN AS A RESULT OF AN UNFORESEEABLE EMERGENCY, IF ELECTED BELOW).
You need only complete this Deferral Election Agreement if you wish to defer the delivery of Shares that become deliverable to you under the Program. Capitalized terms in this Deferral Election Agreement are defined in the Program.
1.      Participation Election
¨ I hereby elect to defer under the terms of the Program the delivery of ______% [insert any whole percentage from one to 100 percent, inclusive] of the Shares that may become deliverable to me under the Program, less any Shares necessary to satisfy any applicable FICA and/or FUTA tax withholding obligations.








_________________________
* Because of the complexities involved in the application of federal, state and local tax laws to specific circumstances and the uncertainties as to possible future changes in the tax laws, you should consult your personal tax advisor regarding your own situation before completing this Deferral Election Agreement.

B- 1



2.      Delivery Date Election
I hereby elect to have the Trust deliver the percentage set forth above of the Shares that may become deliverable to me under the Program upon the following event [check only one box] :

¨ (A)      On the 10 th calendar day after my separation from service from the Trust’s controlled group of entities (the date which is six months after such separation from service if I am a “specified employee” at that time - see Section 4(f) of the Program).

¨ (B)      On the following date: ___________ __, 20__ [must be after December 31, 2019] .

¨ (C)      Upon the earlier of the 10 th calendar day after my separation from service (as described in event (A) above) or the following date: ___________ __, 20__ [must be after December 31, 2019] .

3.      Acceleration in the Event of an Unforeseeable Emergency

In addition to the election I made in 2 above, if I check the following box, I also elect to have the Trust deliver Shares, to the extent permitted by applicable law, to me:

¨      Upon an “Unforeseeable Emergency,” as defined in Section 4(f) of the Program. (This term is defined quite restrictively in the Internal Revenue Code. See the footnote on the previous page regarding consulting with your own tax advisor before completing this Deferral Election Agreement.)

4.      Change in Control or Death

If a Change in Control or my death occurs before all of the Shares are delivered to me, such Shares shall be delivered in a single distribution to me or to my beneficiary(ies) designated in my Beneficiary Designation Form (as applicable) on the 30 th day after such Change in Control (provided that, if the Change in Control arises from a Business Combination, the Change in Control shall be deemed to occur on the date of the closing or effectiveness of the Business Combination, as applicable) or death (as applicable). In addition, the Company may distribute the Shares to me prior to the date selected under Section 2 above to the extent such delivery is consistent with Section 409A of the Internal Revenue Code.

5.      Insufficient Share Possibility

Because of the finite number of Shares available under the Pennsylvania Real Estate Investment Trust Second Amended and Restated 2003 Equity Incentive Plan, I understand that it is possible that not enough Shares will be available under the Plan to deliver all of the Shares otherwise required to be delivered to me (or to my beneficiary(ies)) on the deferral date(s) chosen in 2 and 3 above. I acknowledge and agree that in the event that an insufficient number of Shares are available under the Plan, cash will be delivered to me in lieu of Shares.

* * * * *

B- 2


By signing this Deferral Election Agreement, I agree to the terms and conditions of the Program as the Program now exists, and as it may be amended from time to time (provided that no amendment of the Program will adversely affect my rights under the Program without my written consent).


_______________________________    ________________________________                
Signature of Participant          Date

ACCEPTED:

Executive Compensation and Human Resources Committee
of Pennsylvania Real Estate Investment Trust
    

By: _______________________________________                         

Date: ______________________________________                         


B- 3


APPENDIX C

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2016-2018 RESTRICTED SHARE UNIT PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
Second Amended and Restated 2003 Equity Incentive Plan)

BENEFICIARY DESIGNATION FORM

This Form is for your use under the Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program (the “Program”) to name a beneficiary for the Shares that may be deliverable to you from the Program. You should complete the Form, sign it, have it signed by your Employer, and date it.

* * * *

I understand that in the event of my death before I receive Shares that may be deliverable to me under the Program, the Shares will be delivered to the beneficiary designated by me below or, if none or if my designated beneficiary predeceases me, to my surviving spouse or, if none, to my estate. I further understand that the last beneficiary designation filed by me during my lifetime and accepted by my Employer cancels all prior beneficiary designations previously filed by me under the Program.

I hereby state that ____________________________ [insert name] , residing at ________________________________________________________________ [insert address] , whose Social Security number is __________________, is designated as my beneficiary.



________________________________            _______________________________                 Signature of Participant                  Date

ACCEPTED:

_________________________________                                             [insert name of Employer]
By:     __________________________                    
Date:     __________________________                    



C- 1
Exhibit 10.2
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

SECOND AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN
RESTRICTED SHARE UNIT AND DIVIDEND EQUIVALENT RIGHTS
AWARD AGREEMENT
ISSUED PURSUANT TO THE
2016-2018 RESTRICTED SHARE UNIT PROGRAM
This RESTRICTED SHARE UNIT AND DIVIDEND EQUIVALENT RIGHTS AWARD AGREEMENT (the “Award Agreement”), dated on the 23rd day of February, 2016, is between Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust (the “Trust”), and _________________________________ (the “Grantee”), a “Key Employee” under the Pennsylvania Real Estate Investment Trust Second Amended and Restated 2003 Equity Incentive Plan (the “Plan”).
WHEREAS, the Trust’s Executive Compensation and Human Resources Committee established the Pennsylvania Real Estate Investment Trust 2016-2018 Restricted Share Unit Program (the “Program”) under the Plan for specified Key Employees under the Plan;
WHEREAS, the Plan provides for the award of “Performance Shares” (as defined in the Plan) (which award is referred to as a “Restricted Share Unit” or an “RSU” in the Program and herein) to participants following the attainment of a designated corporate performance goal, and of dividend equivalent rights (“DERs,” as defined in the Plan) with respect to such Restricted Share Units;
WHEREAS, the Program designates a corporate performance goal that determines if and the extent to which Shares will become deliverable to a participant in the Program based on his or her Restricted Share Units;
WHEREAS, the Grantee may defer delivery of his or her Shares (if deliverable) until a later date and, if so deferred, the Grantee will be awarded additional DERs with respect to such Shares; and
WHEREAS, DERs awarded with respect to Restricted Share Units and deferred Shares will be expressed as a dollar amount, which will be applied to “purchase” additional Restricted Share Units and notional shares of the Trust, as applicable (on which DERs will also be awarded), and will be settled in actual shares of the Trust (and in cash to the extent the Grantee’s account holds a fractional Restricted Share Unit or notional share);
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the legal sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:




1. Potential Award of Shares .
(a) The Grantee is hereby awarded a number of “Base Units” equal to ______ Restricted Share Units. The Grantee’s Base Units will increase in number pursuant to the “purchase” of additional Restricted Share Units with DERs, as described in subsections (b) and (e) below.
(b) The Grantee is hereby awarded a DER with respect to each of his or her Base Units, as such number of units may be adjusted from time to time in accordance with the Program. If the Grantee makes a deferral election under Section 4(f) of the Program, the Grantee shall also be awarded DERs with respect to each deferred Share.
(c) The Trust hereby promises to deliver to the Grantee the number of Shares that Grantee becomes entitled to under Section 4 of the Program (if any). Unless the Grantee elects to make a deferral election pursuant to Section 4(f) of the Program, in which case Shares will be delivered in accordance with such election, the Shares shall be delivered within 60 days following the end of the “Measurement Period” (as defined in the Program), unless the Measurement Period ends as a result of a “Change in Control” (as defined in the Program), in which case the Shares will be delivered to the Participants within five days following the end of the Measurement Period (the “Delivery Date”). This Award Agreement is in all respects limited and conditioned as hereinafter provided, and is subject in all respects to the terms and conditions of the Program and the Plan now in effect and as they may be amended from time to time; provided, that no amendment may adversely affect an issued Award Agreement without the written consent of the affected Grantee. The terms and conditions of the Program and the Plan are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of the Award Agreement.
(d) Pursuant to Section 4(c) of the Program, if the Grantee’s employment with the “Employer” (as defined in the Program) (i) is terminated by the Employer for reasons other than for “Cause” (as defined in the Program), (ii) is terminated by the Grantee for “Good Reason” (as defined in the Program), (iii) terminates on account of the Grantee’s death, or (iv) terminates as a “Disability Termination” (as defined in the Program), in each case on or before the last day of the Measurement Period, the Grantee shall nevertheless be eligible to receive Shares under the Program (or not) as though the Grantee had remained employed by the Employer through the end of the Measurement Period. If the Grantee’s employment with the Employer terminates for any other reason, the Grantee shall forfeit all of the Base Units (and all of the Shares that may have become deliverable with respect to such Base Units) subject to the RSUs the Participant was granted under the Program.
(e) DERs awarded with respect to Restricted Share Units will be expressed as a specific dollar amount equal in value to the amount of dividends paid on an actual Share on a specific date (the “Dividend Date”) during the Measurement Period, multiplied by the Grantee’s Base Units as of the Dividend Date. The Committee will apply the dollar amount to “purchase” full and fractional Restricted Share Units at “Share Value” (as defined in the Program), which will be subject to Section 4(a) of the Program, and on which DERs thereafter will also be awarded. The Grantee’s additional Restricted Share Units will be replaced by issued








-2-




Shares (and by cash, to the extent the Grantee has a right to receive a fractional Share) and delivered to the Grantee (if at all) in accordance with Section 4 of the Program.
DERs awarded with respect to deferred Shares will also be expressed as a specific dollar amount equal in value to the amount of dividends paid on an actual Share on a Dividend Date during the deferral period, multiplied by the number of Shares still deferred by the Grantee as of the Dividend Date. The Committee will apply the dollar amount to “purchase” full and fractional notional shares at the closing price on the Dividend Date, on which DERs thereafter will also be awarded. The Grantee’s notional shares will be recorded in a bookkeeping account, and will be 100% vested. The Grantee’s notional shares will be replaced by issued Shares (and by cash, to the extent the Grantee holds a fractional notional share) and delivered to the Grantee (if at all) in accordance with Section 4 of the Program.
2. Share Delivery . Shares delivered pursuant to the Program shall be registered in the Grantee’s name (or, if the Grantee so requests, in the name of the Grantee and the Grantee’s spouse, jointly with right of survivorship).
3. Transferability . The Grantee may not, except by will or by the laws of descent and distribution, assign or transfer his or her Restricted Share Units or notional Shares. The Grantee may assign or transfer, in whole or in part, Shares delivered hereunder pursuant to the Program, subject to any restrictions imposed by applicable law or the Trust’s insider trading policies.
4. Withholding of Taxes . Payments made with respect to this Award will be subject to tax withholding to the extent required by law and in accordance with the terms of the Plan.
5. Share Retention Requirements . For purposes of the share retention requirements of the Trust’s governance guidelines, the Shares issued to the Grantee under the Program shall be treated as though they were restricted shares that became vested upon issuance. However, any share retention requirement that results from this provision shall immediately lapse upon the Participant’s termination of employment with the Employer.
6. Recoupment Policy . The Grantee hereby agrees that any Shares delivered under this Award Agreement shall be subject to the Trust’s “Recoupment Policy” (if applicable to the Grantee) as in effect on the date the Restricted Share Units are granted under this Award Agreement, and as subsequently amended.
7. Governing Law . This Award Agreement shall be construed in accordance with, and its interpretation shall be governed by, applicable federal law and otherwise by the laws of the Commonwealth of Pennsylvania (without reference to the principles of the conflict of laws).
















-3-




    
IN WITNESS WHEREOF, the Trust has caused this Award Agreement to be duly executed by its duly authorized officer and the Grantee has hereunto set his or her hand and seal, all on this ___ day of April, 2016.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST


By:     ______________________________                    



                        
Grantee_________________________







Exhibit 10.3
SEPARATION OF EMPLOYMENT AGREEMENT
This SEPARATION OF EMPLOYMENT AGREEMENT (the “ Agreement ”) is made this 15 th day of April 2016, by and between PENNSYLVANIA REAL ESTATE INVESTMENT TRUST, a Pennsylvania business trust (“ PREIT ”), PREIT ASSOCIATES, LP., a Pennsylvania limited partnership (“ Associates ”), PREIT SERVICES, LLC, a Pennsylvania limited liability company (“ Services ”) and, together with PREIT and Associates, “ Company ”), and RONALD RUBIN (“ Executive ”). PREIT, Associates, Services, and Executive shall be referred to herein as the “ Parties ” or each separately as a “ Party .”
WHEREAS , Executive is employed as the Executive Chairman of PREIT, pursuant to the Amended and Restated Employment Agreement between PREIT and Executive, effective as of June 7, 2012 (the “ Employment Agreement ”). The Employment Agreement includes a Joinder under which Associates and Services each join in the Employment Agreement to confirm their respective obligations under an Assignment and Assumption Agreement of even date with the Employment Agreement;
WHEREAS, on December 21, 2015, Company gave Executive notice of non-renewal of the Employment Agreement pursuant to Section 2.1 thereof;
WHEREAS , Executive and Company have agreed that Executive shall continue to serve as Chairman of the Board of Trustees of PREIT (“ Board of Trustees ”) following the conclusion of his employment, subject to the Board’s continued approval and Executive’s election to the Board;
WHEREAS, the Parties desire to set forth the terms and conditions related to the termination of their employment relationship and the continuation of Executive’s role as non-executive chairman of the Board of Trustees thereafter.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties, intending to be legally bound, agree as follows:
1. Continued Employment . The Parties agree and acknowledge that, under Section 2.1 of the Employment Agreement, Executive’s employment shall continue until the last calendar day of the current term, which is June 7, 2016 (the “Separation Date”).
2. Resignation . Effective on the Separation Date, Executive hereby resigns from his position as Executive Chairman and all other positions with the Company, Associates, any other Company Affiliates, or with any other entity with respect to which Company has requested Executive to perform services, with the exception of Executive’s position as a Trustee and as non-Executive Chairman of the Board of Trustees. Upon request by Company, Executive shall execute all additional documents and take all additional actions necessary to effectuate or memorialize such resignations. The Parties agree that, on the Separation Date, Executive shall experience a separation from service as such term is described in the Internal Revenue Code Section 409A and the Treasury regulations thereunder.

1



3. Continued Access to Office Space and Secretarial Support . After the Separation Date, Executive may continue to use his current company office, email, work computer and the services of his current assistant or, upon her separation from the Company, another qualified assistant of the Company’s selection for Executive’s personal business, until the sooner of the following occur: (i) a Change of Control as defined in Section 4.5(d) of the Employment Agreement, provided that the term “Incumbent Board” as used in the Change of Control definition shall be interpreted to mean, for purposes of this Agreement, the Board as it is constituted on the effective date of this Agreement; (ii) the last day in which the Company maintains leased premises, including Executive's current office space, in its current location; or (iii) the Executive notifies the Company that he no longer requires use of the office space or secretarial support services described herein.
4. Continued Medical Benefits.
(a) Provision of Medical Benefits . As set forth in Section 4.4(a)(2) of the Employment Agreement, the Company shall pay the cost of continued health insurance benefits for Executive and his spouse (or, in the event of the death of one of them, the survivor of them), for a period of three (3) years after the Separation Date. Following June 7, 2019, Executive and his spouse may continue to participate in any group health plan of the Company which shall be treated as the continuation coverage that is required to be offered under applicable federal and state law (sometimes referred to as “ COBRA ”) for the period during which COBRA is required to be so offered, and Executive and his spouse may continue such participation, at their own expense, for the remainder of the COBRA period (if any). In the event Company cannot provide such continuation coverage under such plans, programs and/or arrangements, either directly or through COBRA, at any time on or prior to June 7, 2019, Company shall reimburse Executive for any premiums he pays to obtain equivalent coverage (or if equivalent coverage is not available, substantially equivalent or comparable coverage) through June 7, 2019, provided that (a) the premiums paid are competitive with premiums that would be charged by other providers for equivalent coverage (or if equivalent coverage is not available, substantially equivalent or comparable coverage), and (b) Executive submits proof of payment of such premiums no later than 120 days from the date he makes such payments. If the Company’s group health plan (in which Executive and his spouse are enrolled as of the Separation Date) is self-insured, then any payments extending beyond eighteen (18) months from the Separation Date will be subject to the provisions of Section 409A of the Code and Treasury Regulations and other guidance thereunder.
(b) Medical Benefit Equivalent . In the event Company's provision of post-separation medical benefit coverage (to Executive and/or his spouse) would cause Company or Executive to experience adverse tax consequences, Company, at either Party's option, but after first seeking a negotiated resolution, may provide Executive with the after-tax economic equivalent of such benefit for any designated period (the "Medical Benefit Equivalent"). The economic equivalent of any benefit forgone shall be deemed to be the cost that would be incurred by Executive in obtaining competitively-priced coverage from a reputable insurance provider equivalent to the coverage that otherwise would be provided to Executive and his spouse, as applicable, by Company under this Agreement.

2



5. Trusteeship . After the Separation Date, Executive shall continue to serve as non-Executive Chairman of the Board of Trustees in a non-employee capacity, subject to his continued election to the Board of Trustees by the shareholders and his continued election or appointment by the Board of Trustees to the role of non-Executive Chairman. Beginning on July 8, 2016 and for as long as Executive serves as non-Executive Chairman of the Board of Trustees, Executive shall receive an annual retainer fee of $100,000 for his service in that role and be eligible for any other compensatory benefits generally available to Trustees. In the event Executive is elected to serve as a Trustee, but not as non-Executive Chairman, he shall be entitled to the compensation and benefits generally available to Trustees.
6. Code of Business Conduct . Executive acknowledges and confirms that as a Trustee, he is, and shall continue to be, subject to the Company’s Code of Business Conduct and Ethics for Non-Employee Trustees, as may be updated from time to time, including Section I (governing Conflicts of Interest) and Section II (governing Corporate Opportunities) thereof.
7. Release and Waiver of Claims . As provided in Section 4.4(c) of the Employment Agreement, Executive is required to execute an agreement providing for a release and other requirements in order to receive the Founder’s Retirement Payment (as that term is defined in the Employment Agreement). Attached hereto, as Exhibit A, is a copy of the Release and Waiver of Claims that Executive is required to sign on or about the Separation Date and which Executive agrees he will sign in exchange for payment of the Founder’s Retirement Payment.
8. Confidentiality; Required Disclosure . Executive understands that Company shall disclose the nature and terms of this Agreement in satisfaction of its disclosure requirements under applicable securities laws. In further consideration of the agreements of the Parties as set forth herein, neither Company nor Executive shall, prior to the date of such public disclosure by Company, communicate or disclose the terms of this Agreement to any persons with the exception of their attorneys, and accountants and/or tax advisors, or members of Executive’s immediate family, each of whom shall be informed of this confidentiality obligation and shall agree to be bound by its terms.
9. Non-Disparagement . Neither Company nor Executive shall disparage each other to any third party, including internally within Company by general or mass communication, regarding the professional or personal reputation or character of the other, including the disparagement by Executive of any of Company’s Affiliates and any of the Company’s or its Affiliates’ respective officers, trustees, partners, directors, managers, shareholders, employees, attorneys, other agents or representatives. Moreover, Executive shall not disparage or comment unfavorably upon the business properties, policies or prospects of Company or its Affiliates. For purposes of the restriction applicable to Company, the restriction shall only apply to officers of PREIT at or above the level of Senior Vice President, for only so long as each is employed by PREIT, it being understood that Company cannot control statements of other PREIT employees or of any former employee. Notwithstanding the foregoing, nothing in this Section shall be deemed to prohibit Company or Executive from providing truthful testimony in response to any valid subpoena or as otherwise ordered by a court or required applicable law.
10. Indemnification . Executive shall indemnify and hold harmless Company from and against all claims, losses, damages, liabilities, costs and other expenses incurred by or

3


asserted against Company by reason of or resulting from a breach of this Agreement by Executive. Company shall indemnify and hold harmless Executive from and against all claims, losses, damages, liabilities, costs and other expenses incurred by or asserted against Executive by reason of or resulting from a breach of this Agreement by Company.
11. Governing Law . This Agreement will be governed by and construed according to the laws of the Commonwealth of Pennsylvania. The Parties irrevocably hereby submit to the exclusive jurisdiction and venue of the United States federal courts in the Eastern District of Pennsylvania or the courts of Philadelphia County of the Commonwealth of Pennsylvania in any action or proceeding brought with respect to or in connection with this Agreement. Each Party hereby waives any objection based on forum non conveniens and waives any objection to venue of any action instituted hereunder in such courts.
12. Severability . In case any one or more of the provisions contained of this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, which shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. No waiver by either Party of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by either Party of any right under this Agreement shall be construed as a waiver of any other right.
13. No Admission of Liability . This Agreement is not and shall not be construed to be an admission of any violation of any federal, state or local statute or regulation or of any duty (contractual or otherwise) owed by any Party to another, and this Agreement is made voluntarily to provide an amicable conclusion of Executive’s employment with Company. This Agreement shall not be construed strictly for or against any of the Parties.
14. Attorney Consultation . Executive hereby certifies that the Company has advised him to review this document with an attorney of his choosing, and that he has done so or freely chosen not to do so.
15. Assignment . This Agreement shall not be assignable by Executive, and shall be assignable by Company only to an Affiliate or to any person or entity that becomes a successor in interest (by purchase of assets or shares, or by merger or otherwise) to Company; provided, however, that such assignment to an Affiliate (a) shall not release Company from its obligations to Executive under this Agreement unless such assignment is part of a merger or other transaction pursuant to which Company ceases to exist, and (b) shall be subject to and conditioned upon the assignee of this Agreement agreeing to assume and be bound by the provisions of this Agreement and the obligations of Company under this Agreement. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the Parties and each of their permitted successors, assigns, heirs, executors and administrators. In the event of Executive’s death, (x) any and all payments and compensation to be provided to Executive and (y) his wife’s entitlements to medical and life insurance under this Agreement shall continue notwithstanding such death in accordance with the terms of this Agreement, and such payments and compensation, to the extent to be paid or provided to Executive, shall be paid or provided to his estate or any beneficiary named by Executive.

4



16. Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand- delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested, or by telegram, fax, or telecopy (confirmed by U.S. mail), receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any Party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suit, or proceeding shall be effective against any Party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any Party to serve process in any other manner permitted by law.
(a) If to Company:
Pennsylvania Real Estate Investment Trust
200 South Broad Street, Third Floor
Philadelphia, PA 19102
Tel: (215) 875-0700
Fax: (215) 547-7311
Attention: General Counsel
With a copy to:
Dilworth Paxson LLP
1500 Market Street
Suite 3500E
Philadelphia, PA 19103
Tel: (215) 575-7090
Fax: (215) 575-7200
Attention: Joseph H. Jacovini, Esquire

(b) If to Executive:
Ronald Rubin
243 Conshohocken State Road
Narberth, PA 19072
With a copy to:
Cozen O’Connor
1650 Market Street
Philadelphia, PA 19103
Tel: (215) 665-4159
Fax: (215) 665-2013
Attention: E. Gerald Riesenbach, Esquire

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17. Entire Agreement . This Agreement, together with the Employment Agreement and the Release and Waiver attached hereto, constitute the entire agreement of the Parties with respect to Executive’s termination of employment.
18. Amendments . Amendments and modifications to this Agreement shall not be effective unless they are in writing signed by Executive or a representative of Executive’s estate and a duly authorized representative of Company.
19. Payment Method . Whenever any payment shall be made by Company under this Agreement, such payment shall be made by check payable to Executive at the address provided in in the Notices paragraph of this Agreement or by wire transfer to an account identified by Executive at least 10 days before such payment is due. Executive shall be responsible for all income and related taxes resulting from his receipt of the payments, shares, assets of PREIT and other benefits provided under this Agreement, except for any amounts withheld by Company.
20. 409A Compliance . It is intended that this Agreement comply with the applicable provisions of Section 409A of the Code and the applicable Treasury regulations and related guidance with respect thereto. To the extent that any payment under this Agreement is deemed to be deferred compensation subject to the requirements of Section 409A of the Code, this Agreement shall be interpreted and administered in a manner that complies with Section 409A of the Code and this Agreement shall be amended so that such payments shall be made in accordance with the requirements of Section 409A of the Code to the extent necessary to avoid noncompliance therewith.
21. Legal Fees .  Company agrees to pay all reasonable legal fees and expenses that Executive has incurred in the preparation and negotiation of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY BLANK]



6


IN WITNESS WHEREOF, and intending to be legally bound hereby, the Parties have executed the foregoing Agreement as of the date first written above.
 
 
 
WITNESS: /s/ Gerald Riesenbach
 
/s/ Ronald Rubin
 
 
Ronald Rubin
 
 
 
 
 
PENNSYLVANIA REAL ESTATE
 
 
INVESTMENT TRUST
WITNESS: /s/ Joseph H. Jacovini
 
By: /s/ Joseph Coradino
 
 
Name: Joseph Coradino
 
 
Title: CEO
 
 
 
 
 
PREIT ASSOCIATES, LP
WITNESS: /s/ Joseph H. Jacovini
 
By: /s/ Joseph Coradino
 
 
Name: Joseph Coradino
 
 
Title: CEO
 
 
 
 
 
PREIT SERVICES LLC
WITNESS: /s/ Joseph H. Jacovini
 
By: /s/ Bruce Goldman
 
 
Name: Bruce Goldman
 
 
Title: CEO
 
 
 

[Signature Page for Separation of Employment Agreement]


7


RELEASE AND WAIVER OF CLAIMS
This RELEASE AND WAIVER OF CLAIMS (“Release”) is entered into by Ronald Rubin (“Executive”) in connection with the termination of his employment relationship with PENNSYLVANIA REAL ESTATE INVESTMENT TRUST , a Pennsylvania business trust (“ PREIT ”), PREIT ASSOCIATES, LP., a Pennsylvania limited partnership (“ Associates ”), and PREIT SERVICES, LLC, a Pennsylvania limited liability company (“ Services ”) (collectively, “ Company ”).
1.      Release of Claims . Executive, for and in consideration of the payment to him of the Founder’s Retirement Payment provided in Section 4.4(a)(1) of the Amended and Restated Employment Agreement effective as of June 7, 2012 (the “Employment Agreement”), does hereby confirm the severance of his employment with Company and its Affiliates (as defined in the Employment Agreement) effective on June 7, 2016 (the “Separation Date”), and Executive does hereby remise, release, waive, and forever discharge Company, and its Affiliates, and each of their respective current and former officers, trustees, partners, directors, managers, shareholders, employees, attorneys, and other agents, and all such entities’ and individuals’ respective successors and assigns, heirs, executors, administrators and representatives (hereinafter referred to collectively as the “ Released Parties ”) of and from any and all rights, obligations, promises, agreements, losses, controversies, claims, actions, causes of action, suits, debts, claims and demands, of any nature whatsoever, in law or in equity, whether known or unknown, asserted or unasserted, which Executive ever had, now has, or hereafter may have against any or all of the Released Parties relating to or arising out of Executive’s service as an officer, employee or manager of Company or any Affiliate, Executive’s employment and any other business relationships with Company or any Affiliate, the Employment Agreement, the Assignment, and/or Executive’s separation from employment with the Company or any Affiliate, except for obligations of the Company, including payments, due to Executive under the Employment Agreement and/or the Separation of Employment Agreement but which have not been paid or completed on the date of this Release. This Release includes, but is not limited to, any such claims arising under any federal, state or local statutes, ordinances or common law principles governing employment relations or regulating terms and conditions of employment, including, without limitation, the National Labor Relations Act of 1947, the Civil Rights Acts of 1866, 1871, 1964, and 1991, the Equal Pay Act, the Age Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the Bankruptcy Code, the Fair Credit Reporting Act, the Worker Adjustment and Retraining Notification Act, the Employee Retirement Income Security Act of 1974 (except as to vested benefits, which are expressly exempted from this release), the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Health Insurance Portability and Accountability Act of 1996, the Sarbanes-Oxley Act of 2002, the Pennsylvania Human Relations Act, the Pennsylvania Wage Payment and Collection Law, the Philadelphia Fair Practices Ordinance, and any other employee-protective law of any jurisdiction that may apply to the employment relationship between Executive and the Company, each as they may have been amended, as well as any claim for wrongful discharge, breach of contract or implied contact, breach of covenant of good faith and fair dealing, intentional or negligent infliction of emotional distress, negligence, misrepresentation, fraud, detrimental reliance, promissory estoppel, defamation, invasion of privacy, breach of laws governing safety in the workplace, loss of consortium, or tortious interference with business relations.
2.      Exceptions to Release of Claims . Notwithstanding the foregoing, Executive does not release Company or its Affiliates from any obligations that it may have, or any rights or claims that Executive may have, arising (i) under the Separation of Employment Agreement, (ii) from events occurring after the Separation Date or the date on which Executive executes this Release, whichever is later, (iii) with respect to any continuing obligations of the Company or rights of the Executive under the Employment Agreement that survive the termination of his employment, (iv) with respect to

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unemployment compensation benefits which Executive may seek after the Separation Date (and Company agrees that it will not contest a claim by Executive for such unemployment compensation benefits), or (v) other claims which may not be waived by law. In addition, the foregoing Release of Claims is not intended to release, and shall not release, any rights that Executive may continue to have as a Trustee or under any shareholder agreement, partnership agreement, limited liability company operating agreement or other governing documents with respect to any entity.
3.      Confidentiality . Executive agrees to maintain the confidentiality of this Release and shall not communicate or disclose its terms, except to satisfy any disclosure requirements under applicable securities laws.
4.      Indemnification . Executive shall indemnify and hold harmless Company from any and all claims, losses, damages, liabilities, costs and other expenses incurred by Company resulting from a breach by Executive of the Separation of Employment Agreement and/or this Release.
5.      Review Period . By signing below, Executive certifies that he has had a period of not less than twenty-one (21) calendar days to review this Release prior to signing it. Executive has been permitted to use as much or as little of this twenty-one day period as he desires. Any negotiations between counsel for the Parties as to the terms hereof shall not restart this period.
6.      Revocation Period . Even if Executive enters into this Release, he shall have a period of seven (7) calendar days thereafter in which he may revoke it. If he revokes it, this Release shall become null and void and have no legal effect and Executive shall not receive the Founder’s Payment described in the Employment Agreement. In order to timely revoke this Release, Executive must deliver notice to the Company, to the attention of Bruce Goldman, by hand delivery or facsimile, such that Mr. Goldman receives such notice not later than 5:00 pm on the close of business on the seventh business day after Executive has signed this Release.

IN WITNESS WHEREOF, and intending to be legally bound, the undersigned has executed this Release and Waiver of Claims on the 7 th day of June, 2016.
WITNESS:______________________________         ______________________________( SEAL)
Ronald Rubin







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Exhibit 31.1
CERTIFICATION

I, Joseph F. Coradino, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2016
 
 
 
/s/ Joseph F. Coradino
 
 
 
Name:
 
Joseph F. Coradino
 
 
 
Title:
 
Chief Executive Officer




Exhibit 31.2
CERTIFICATION

I, Robert F. McCadden, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 29, 2016
 
 
/s/ Robert F. McCadden
 
 
Name:
Robert F. McCadden
 
 
Title:
Chief Financial Officer




Exhibit 32.1

Certification of Chief Executive Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

I, Joseph F. Coradino, the Chief Executive Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Form 10-Q of the Company for the quarter ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 29, 2016
 
 
/s/ Joseph F. Coradino
 
 
Name:
Joseph F. Coradino
 
 
Title:
Chief Executive Officer




Exhibit 32.2

Certification of Chief Financial Officer
Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

I, Robert F. McCadden, the Executive Vice President and Chief Financial Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Form 10-Q of the Company for the quarter ended March 31, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 29, 2016
 
 
/s/ Robert F. McCadden
 
 
Name:
Robert F. McCadden
 
 
Title:
Chief Financial Officer