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, 2019
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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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



Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of Exchange on which registered
Shares of Beneficial Interest
PEI
New York Stock Exchange
Preferred Shares
PEIPrB
New York Stock Exchange
Preferred Shares
PEIPrC
New York Stock Exchange
Preferred Shares
PEIPrD
New York Stock Exchange
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On April 30, 2019 , 77,383,675 shares of beneficial interest, par value $1.00 per share, of the Registrant were outstanding.



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,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS:
 
 
 
INVESTMENTS IN REAL ESTATE, at cost:
 
 
 
Operating properties
$
3,058,422

 
$
3,063,531

Construction in progress
119,873

 
115,182

Land held for development
5,881

 
5,881

Total investments in real estate
3,184,176

 
3,184,594

Accumulated depreciation
(1,148,794
)
 
(1,118,582
)
Net investments in real estate
2,035,382

 
2,066,012

INVESTMENTS IN PARTNERSHIPS, at equity:
149,795

 
131,124

OTHER ASSETS:
 
 
 
Cash and cash equivalents
10,416

 
18,084

Tenant and other receivables, net
35,344

 
38,914

Intangible assets (net of accumulated amortization of $16,391 and $15,543 at March 31, 2019 and December 31, 2018, respectively)
17,020

 
17,868

Deferred costs and other assets, net
107,239

 
110,805

Assets held for sale
35,275

 
22,307

Total assets
$
2,390,471

 
$
2,405,114

LIABILITIES:
 
 
 
Mortgage loans payable, net
$
985,763

 
$
1,047,906

Term Loans, net
547,478

 
547,289

Revolving Facilities
162,000

 
65,000

Tenants’ deposits and deferred rent
10,261

 
15,400

Distributions in excess of partnership investments
91,227

 
92,057

Fair value of derivative liabilities
6,364

 
3,010

Accrued expenses and other liabilities
85,431

 
87,901

Total liabilities
1,888,524

 
1,858,563

COMMITMENTS AND CONTINGENCIES (Note 6):

 

EQUITY:
 
 
 
Series B Preferred Shares, $.01 par value per share; 25,000 shares authorized; 3,450 shares issued and outstanding at March 31, 2019 and December 31, 2018; liquidation preference of $86,250
35

 
35

Series C Preferred Shares, $.01 par value per share; 25,000 shares authorized; 6,900 shares issued and outstanding at March 31, 2019 and December 31, 2018; liquidation preference of $172,500
69

 
69

Series D Preferred Shares, $.01 par value per share; 25,000 shares authorized; 5,000 shares issued and outstanding at March 31, 2019 and December 31, 2018; liquidation preference of $125,000
50

 
50

Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 77,383 shares issued and outstanding at March 31, 2019 and 70,495 shares issued and outstanding at December 31, 2018
77,383

 
70,495

Capital contributed in excess of par
1,761,736

 
1,671,042

Accumulated other comprehensive (loss) income
(533
)
 
5,408

Distributions in excess of net income
(1,342,626
)
 
(1,306,318
)
Total equity—Pennsylvania Real Estate Investment Trust
496,114

 
440,781

Noncontrolling interest
5,833

 
105,770

Total equity
501,947

 
546,551

Total liabilities and equity
$
2,390,471

 
$
2,405,114


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)
2019
 
2018
REVENUE:
 
 
 
Real estate revenue:
 
 
 
Lease revenue
$
76,615

 
$
77,998

Expense reimbursements
5,062

 
5,234

Other real estate revenue
3,001

 
2,161

Total real estate revenue
84,678

 
85,393

Other income
627

 
889

Total revenue
85,305

 
86,282

EXPENSES:
 
 
 
Operating expenses:
 
 
 
 Property operating expenses:
 
 
 
CAM and real estate taxes
(29,403
)
 
(29,396
)
Utilities
(3,660
)
 
(3,909
)
Other property operating expenses
(2,065
)
 
(3,400
)
Total property operating expenses
(35,128
)
 
(36,705
)
 Depreciation and amortization
(34,904
)
 
(34,030
)
 General and administrative expenses
(11,205
)
 
(10,132
)
 Provision for employee separation expenses
(719
)
 
—

 Project costs and other expenses
(294
)
 
(112
)
Total operating expenses
(82,250
)
 
(80,979
)
Interest expense, net
(15,898
)
 
(14,901
)
Loss on debt extinguishment
(4,768
)
 
—

Impairment of development land parcel
(1,464
)
 
—

Total expenses
(104,380
)
 
(95,880
)
Loss before equity in income of partnerships, gain on sale of real estate by equity method investee, and adjustment to gains on sales of interests in non operating real estate
(19,075
)
 
(9,598
)
Equity in income of partnerships
2,289

 
3,138

Gain on sale of real estate by equity method investee
563

 
2,773

Adjustment to gains on sales of interests in non operating real estate
—

 
(25
)
Net loss
(16,223
)
 
(3,712
)
Less: net loss attributable to noncontrolling interest
1,688

 
1,111

Net loss attributable to PREIT
(14,535
)
 
(2,601
)
Less: preferred share dividends
(6,844
)
 
(6,844
)
Net loss attributable to PREIT common shareholders
$
(21,379
)
 
$
(9,445
)

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,
 
2019
 
2018
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
Noncontrolling interest
1,688

 
1,111

 
Preferred share dividends
(6,844
)
 
(6,844
)
 
Dividends on unvested restricted shares
(218
)
 
(138
)
 
Net loss used to calculate loss per share—basic and diluted
$
(21,597
)
 
$
(9,583
)
 
 
 
 
 
 
Basic and diluted loss per share:
$
(0.30
)
 
$
(0.14
)
 
 
 
 
 
 
(in thousands of shares)
 
 
 
 
Weighted average shares outstanding—basic
71,358

 
69,601

 
Effect of common share equivalents  (1)  
—

 
—

 
Weighted average shares outstanding—diluted
71,358

 
69,601

 
_________________________
(1)  
The Company had net losses used to calculate earnings per share for all periods presented. Therefore, the effects of common share equivalents of 309 and 209 for the three months ended March 31, 2019 and 2018, 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
(Unaudited)
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Comprehensive (loss) income:
 
 
 
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
Unrealized (loss) gain on derivatives
(6,508
)
 
4,828

 
Amortization of settled swaps
2

 
275

 
Total comprehensive (loss) income
(22,729
)
 
1,391

 
Less: comprehensive loss attributable to noncontrolling interest
2,253

 
570

 
Comprehensive (loss) income attributable to PREIT
$
(20,476
)
 
$
1,961

 


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


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENT OF EQUITY
Three Months Ended
March 31, 2019
(Unaudited)
 
 
 
 
PREIT Shareholders
 
 
 
 
 
Preferred Shares $.01 par
 
Shares of
Beneficial
Interest,
$1.00 Par
 
Capital
Contributed
in Excess of
Par
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of
Net Income
 
 
(in thousands of dollars, except per share amounts)
Total
Equity
 
Series
B
 
Series
C
 
Series D
 
 
 
 
 
Non-
controlling
interest
Balance January 1, 2019
$
546,551

 
$
35

 
$
69

 
$
50

 
$
70,495

 
$
1,671,042

 
$
5,408

 
$
(1,306,318
)
 
$
105,770

Net loss
(16,223
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(14,535
)
 
(1,688
)
Other comprehensive loss
(6,506
)
 
—

 
—

 
—

 
—

 
—

 
(5,941
)
 
—

 
(565
)
Shares issued upon redemption of Operating Partnership units
—

 
—

 
—

 
—

 
6,250

 
89,736

 
—

 
—

 
(95,986
)
Shares issued under employee compensation plans, net of shares retired
(326
)
 
—

 
—

 
—

 
638

 
(964
)
 
—

 
—

 
—

Amortization of deferred compensation
1,922

 
—

 
—

 
—

 
—

 
1,922

 
—

 
—

 
—

Dividends paid to common shareholders ($0.21 per share)
(14,930
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(14,930
)
 
—

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

 
—

 
—

 
—

 
—

 
—

 
(1,590
)
 
—

Dividends paid to Series C preferred shareholders ($0.45 per share)
(3,105
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,105
)
 
—

Dividends paid to Series D preferred shareholders ($0.4297 per share)
(2,148
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,148
)
 
—

Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions paid to Operating Partnership unit holders ($0.21 per unit)
(1,698
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,698
)
Balance March 31, 2019
$
501,947

 
$
35

 
$
69

 
$
50

 
$
77,383

 
$
1,761,736

 
$
(533
)
 
$
(1,342,626
)
 
$
5,833

















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

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENT OF EQUITY
Three Months Ended
March 31, 2018
(Unaudited)

 
 
 
PREIT Shareholders
 
 
 
 
 
Preferred Shares $.01 par
 
Shares of
Beneficial
Interest,
$1.00 Par
 
Capital
Contributed
in Excess of
Par
 
Accumulated
Other
Comprehensive
Income
 
Distributions
in Excess of
Net Income
 
 
(in thousands of dollars, except per share amounts)
Total
Equity
 
Series
B
 
Series
C
 
Series D
 
 
 
 
 
Non-
controlling
interest
Balance January 1, 2018
$
760,991

 
$
35

 
$
69

 
$
50

 
$
69,983

 
$
1,663,966

 
$
7,226

 
$
(1,109,469
)
 
$
129,131

Net loss
(3,712
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,601
)
 
(1,111
)
Other comprehensive income
5,103

 
—

 
—

 
 
 
—

 
—

 
4,562

 
—

 
541

Shares issued under employee compensation plans, net of shares retired
(195
)
 
—

 
—

 
—

 
370

 
(565
)
 
—

 
—

 
—

Amortization of deferred compensation
1,924

 
—

 
—

 
—

 
—

 
1,924

 
—

 
—

 
—

Dividends paid to common shareholders ($0.21 per share)
(14,766
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(14,766
)
 
—

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

 
—

 
—

 
—

 
—

 
—

 
(1,590
)
 
—

Dividends paid to Series C preferred shareholders ($0.4500 per share)
(3,105
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(3,105
)
 
—

Dividends paid to Series D preferred shareholders ($0.4297 per share)
(2,149
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(2,149
)
 
—

Noncontrolling interests:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Distributions paid to Operating Partnership unit holders ($0.21 per unit)
(1,737
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,737
)
Balance March 31, 2018
$
740,764

 
$
35

 
$
69

 
$
50

 
$
70,353

 
$
1,665,325

 
$
11,788

 
$
(1,133,680
)
 
$
126,824



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

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Three Months Ended 
 March 31,
(in thousands of dollars)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net loss
$
(16,223
)
 
$
(3,712
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation
31,838

 
31,209

Amortization
4,353

 
3,458

Straight-line rent adjustments
(1,517
)
 
(823
)
Provision for doubtful accounts
—

 
1,075

Amortization of deferred compensation
1,922

 
1,924

Loss on debt extinguishment
4,768

 
—

Adjustment to gains on sales of interests in non operating real estate
—

 
25

Equity in income of partnerships
(2,289
)
 
(3,138
)
Gain on sale of real estate by equity method investee
(563
)
 
(2,773
)
Cash distributions from partnerships
2,357

 
2,742

Impairment of development land parcel
1,464

 
—

Change in assets and liabilities:
 
 
 
Net change in other assets
6,961

 
1,060

Net change in other liabilities
(10,055
)
 
(21
)
Net cash provided by operating activities
23,016

 
31,026

Cash flows from investing activities:
 
 
 
Distribution of financing proceeds from equity method investee
—

 
123,000

Cash proceeds from sales of real estate
4,823

 
—

Cash proceeds from sale of mortgage
8,000

 
—

Cash distributions from partnerships of proceeds from real estate sold
879

 
19,727

Proceeds from insurance claims related to damage to real estate assets
2,275

 
—

Investments in partnerships
(19,885
)
 
(13,896
)
Investments in real estate improvements
(6,361
)
 
(13,568
)
Additions to construction in progress
(28,087
)
 
(3,119
)
Capitalized leasing costs
(320
)
 
(2,172
)
Additions to leasehold improvements and corporate fixed assets
(73
)
 
(4
)
Net cash (used in) provided by investing activities
(38,749
)
 
109,968

Cash flows from financing activities:
 
 
 
(Repayments of) proceeds from mortgage loans and finance lease liabilities
(63,442
)
 
10,185

Net borrowings (repayments) under revolving facility
97,000

 
(53,000
)
Dividends paid to common shareholders
(14,930
)
 
(14,766
)
Dividends paid to preferred shareholders
(6,843
)
 
(6,843
)
Distributions paid to Operating Partnership unit holders and noncontrolling interest
(1,698
)
 
(1,737
)
Principal installments on mortgage loans
(3,818
)
 
(3,832
)
Payment of deferred financing costs
(13
)
 
(436
)
Value of shares of beneficial interest issued
306

 
484

Value of shares retired under equity incentive plans, net of shares issued
(632
)
 
(679
)
Net cash provided by (used in) financing activities
5,930

 
(70,624
)
Net change in cash, cash equivalents, and restricted cash
(9,803
)
 
70,370

Cash, cash equivalents, and restricted cash, beginning of period
32,445

 
33,953

Cash, cash equivalents, and restricted cash, end of period
$
22,642

 
$
104,323


See accompanying notes to the unaudited consolidated financial statements.
7
Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2019

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, 2018. 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, 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 27 properties operating in nine states, including 21 shopping malls, four other retail properties and two development or redevelopment properties. We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia (“Fashion District Philadelphia”)). One other property in our portfolio is classified as under development; however, we do not currently have any activity occurring at this property. We also have two undeveloped land parcels located in Gainesville, Florida, a portion of which was sold in March 2019, and New Garden Township, Pennsylvania that were classified as held-for-sale as of March 31, 2019. The New Garden parcel was subsequently sold in April 2019. A parcel that includes Whole Foods adjacent to Exton Square Mall was also classified as held-for-sale as of March 31, 2019 and such parcel was sold in April 2019.

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, 2019 , we held a 97.5% controlling interest in the Operating Partnership (after the redemption of 6,250,000 OP Units during the first quarter of 2019, which is discussed in more detail in Note 5 to our unaudited consolidated financial statements), 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, 2019 , the total amount that would have been distributed would have been $12.7 million , which is calculated using our March 29, 2019 (which was the last trading day in the first quarter of 2019) closing price on the New York Stock Exchange of $6.29 per share multiplied by the number of outstanding OP Units held by limited partners, which was 2,022,635 as of March 31, 2019 .

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

8

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.

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 Leasing Standard

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC 842”) and related guidance using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. Prior period amounts were not restated. We implemented the standard using the following practical expedients:

•
We have elected the package of practical expedients that allows us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases.
•
For leases under which we are the lessor, we also have elected to not separate non-lease components such as common area maintenance (“CAM”) and real estate reimbursements from the associated lease component (minimum rent). Instead, we account for the lease and non-lease components as a single component because such non-lease components would otherwise be accounted for under the new revenue guidance (ASC 606) and both (1) the timing and pattern of transfer are the same for the nonlease components and associated lease component, and (2) the lease component, if accounted for separately, would be classified as an operating lease. Utility reimbursements are presented separately and not in the single component as the pattern of transfer is not aligned with the use of the property and therefore the criteria for use of the practical expedient are not met.

The adoption of this standard had the following effects on our financial statements as of and for the three months ended March 31, 2019:

For leases under which the Company is a lessee, we recorded a right-of-use (“ROU”) asset of $24.6 million and corresponding lease liability for all leases previously accounted for as operating leases under ASC 840. The Company also derecognized an unfavorable ground lease liability of $5.5 million and reduced the corresponding ROU asset by the same amount. As of March 31, 2019, the ROU asset was $18.2 million and is included in deferred costs and other assets, net and the lease liability was $24.1 million and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet.


9

Effective January 1, 2019, we changed our fixed CAM revenue recognition to be recognized prospectively on a straight-line basis. In the quarter ended March 31, 2019, $0.7 million of such revenues were recognized and are included within lease revenue in the accompanying consolidated statements of operations; previously, such amounts were recognized as billed in accordance with the terms of the respective leases.

We review the collectibility of both billed and unbilled lease revenues each reporting period, taking into consideration the tenant’s payment history, credit profile and other factors, including its operating performance. For any tenant receivable balances deemed to be uncollectible, under ASC 842 we record an offset for credit losses directly to Lease revenue in the consolidated statement of operations. Previously, under ASC 840, uncollectible tenants’ receivables were reported in Other property operating expenses in the consolidated statement of operations.
 
For leases under which the Company is a lessor, certain internal leasing and legal costs that were previously capitalized under ASC 840 are now recorded as period costs under ASC 842. For the three months ended March 31, 2018, we capitalized $1.2 million of internal leasing and legal salaries and benefits. No such costs were capitalized for the three months ended March 31, 2019. We will continue to amortize previously capitalized initial direct costs over the remaining terms of the associated leases.

New Accounting Developments

In October 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) as a Benchmark Interest Rate for Hedge Accounting. This ASU adds the OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate hedging strategies for both risk management and hedge accounting purposes. Because we adopted ASU 2017-12, this guidance became effective January 1, 2019. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses , which introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments, and will affect our accounting for trade receivables and notes receivable. We will adopt this new standard on January 1, 2020. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

Immaterial error correction

The Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Income for the three-month period ended March 31, 2018 include the impact of correcting a computational error by increasing the net loss (and comprehensive loss) attributable to noncontrolling interest by $0.7 million for the three months ended March 31, 2018. The adjustments also decreased the amount of loss (and comprehensive loss) attributable to PREIT and PREIT common shareholders by the same amount. The adjustments also decreased the amount of basic and diluted loss per share by $0.01 for the three months ended March 31, 2018.

These corrections had no impact on the previously reported amounts of net income (loss), total equity, and consolidated cash flows from operating, investing or financing activities.

We evaluated these corrections and determined, based on quantitative and qualitative factors, that the changes were not material to the consolidated financial statements taken as a whole for any previously filed consolidated financial statements.


2. REAL ESTATE ACTIVITIES

Investments in real estate as of March 31, 2019 and December 31, 2018 were comprised of the following:
 
(in thousands of dollars)
As of March 31,
2019
 
As of December 31,
2018
Buildings, improvements and construction in progress
$
2,718,552

 
$
2,719,400

Land, including land held for development
465,624

 
465,194

Total investments in real estate
3,184,176

 
3,184,594

Accumulated depreciation
(1,148,794
)
 
(1,118,582
)
Net investments in real estate
$
2,035,382

 
$
2,066,012


10


Capitalization of Costs

The following table summarizes our capitalized interest, compensation, including commissions, and real estate taxes for the three months ended March 31, 2019 and 2018 :  
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Development/Redevelopment Activities:
 
 
 
 
Interest (1)
$
2,004

 
$
1,625

 
Compensation, including commissions
352

 
438

 
Real estate taxes
76

 
164

 
 
 
 
 
 
Leasing Activities:
 
 
 
 
Compensation, including commissions (2)
320

 
2,172

 

(1) Includes interest capitalized on investments in partnerships under development.
(2) The definition of initial direct costs under ASC 842 includes only those incremental costs of a lease that would not have been incurred if the lease had not been obtained. As discussed above, certain internal leasing and legal costs that were previously capitalized under ASC 840 are now recorded as period costs under ASC 842. Commissions paid for successful leasing transactions will continue to be capitalized.


Dispositions

In March 2019, we entered into an agreement of sale with a buyer to sell an undeveloped land parcel located in Gainesville, Florida for total consideration of $15.0 million and the sale transaction was split into two parcels. The first parcel was sold in March 2019 for $5.0 million . The transaction with respect to the remaining parcel is expected to close in the second half of 2019. In connection with these transactions, we recorded losses on impairment of assets of $1.5 million . The remaining land parcel was classified as held for sale in our consolidated balance sheet as of March 31, 2019.

In April 2019, we sold an undeveloped land parcel located in New Garden Township, Pennsylvania, for total consideration of $11.0 million , consisting of $8.25 million in cash and $2.75 million of preferred stock. We ascribed no accounting consideration value to the preferred shares as they are not tradeable, cannot be transferred or sold and have no redemption feature. Up to $1.25 million of the cash consideration received is subject to claw-back if the buyer does not receive entitlements for a stipulated number of housing units. This land parcel was classified as held for sale in our consolidated balance sheet as of March 31, 2019.

In April 2019, we sold a Whole Foods store located on a parcel adjacent to Exton Square Mall for $22.1 million .  




11

3. INVESTMENTS IN PARTNERSHIPS

The following table presents summarized financial information of the equity investments in our unconsolidated partnerships as of March 31, 2019 and December 31, 2018 :
 
(in thousands of dollars)
March 31, 2019
 
December 31, 2018
ASSETS:
 
 
 
Investments in real estate, at cost:
 
 
 
Operating properties
$
573,939

 
$
575,149

Construction in progress
441,678

 
420,771

Total investments in real estate
1,015,617

 
995,920

Accumulated depreciation
(214,905
)
 
(212,574
)
Net investments in real estate
800,712

 
783,346

Cash and cash equivalents
34,968

 
20,446

Deferred costs and other assets, net
30,284

 
30,549

Total assets
865,964

 
834,341

LIABILITIES AND PARTNERS’ INVESTMENT:
 
 
 
Mortgage loans payable, net
505,086

 
507,090

FDP Term Loan, net
248,030

 
247,901

Other liabilities
31,460

 
34,463

Total liabilities
784,576

 
789,454

Net investment
81,388

 
44,887

Partners’ share
39,296

 
21,583

PREIT’s share
42,092

 
23,304

Excess investment  (1)
16,476

 
15,763

Net investments and advances
$
58,568

 
$
39,067

 
 
 
 
 
 
 
 
Investment in partnerships, at equity
$
149,795

 
$
131,124

Distributions in excess of partnership investments
(91,227
)
 
(92,057
)
Net investments and advances
$
58,568

 
$
39,067

_________________________
(1)  
Excess investment represents the unamortized difference between our investment and our share of the equity in the underlying net investment in the unconsolidated 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 using the nature of the distribution approach.


12

The following table summarizes our share of equity in income of partnerships for the three months ended March 31, 2019 and 2018 :
 
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Real estate revenue
$
23,451

 
$
26,088

 
Operating expenses:
 
 
 
 
Property operating and other expenses
(7,985
)
 
(8,330
)
 
Interest expense
(5,807
)
 
(5,734
)
 
Depreciation and amortization
(4,652
)
 
(5,071
)
 
Total expenses
(18,444
)
 
(19,135
)
 
Net income
5,007

 
6,953

 
Partners’ share
(2,687
)
 
(3,824
)
 
PREIT’s share
2,320

 
3,129

 
Amortization of and adjustments to excess investment, net
(31
)
 
9

 
Equity in income of partnerships
$
2,289

 
$
3,138

 


Dispositions

In March 2019, a partnership in which we hold a 25% interest sold an undeveloped land parcel adjacent to Gloucester Premium Outlets for $3.8 million . The partnership recorded a gain on sale of $2.3 million , of which our share was $0.6 million , which is recorded in gain on sale of real estate by equity method investee in the accompanying consolidated statement of operations.

In February 2018, a partnership in which we hold a 50% ownership share sold its office condominium interest in 907 Market Street in
Philadelphia, Pennsylvania for $41.8 million . The partnership recorded a gain on sale of $5.5 million , of which our share was $2.8 million . The partnership distributed to us proceeds of $19.7 million in connection with this transaction in February 2018.


Significant Unconsolidated Subsidiary

We have a 50% ownership interest in Lehigh Valley Associates L.P. (“LVA”). The financial information of LVA is included in the amounts above. Summarized balance sheet information as of March 31, 2019 and December 31, 2018 , and summarized statement of operations information for the three months ended March 31, 2019 and 2018 for this entity, which is accounted for using the equity method, are as follows:
(in thousands of dollars)
 
March 31, 2019
 
December 31, 2018
Summarized balance sheet information
 
 
 
 
     Total assets
 
$
52,867

 
$
52,255

     Mortgage loan payable, net
 
194,616

 
196,328

 
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
 
2019
 
2018
 
Summarized statement of operations information
 
 
 
 
 
     Revenue
 
$
8,399

 
$
9,132

 
     Property operating expenses
 
(2,326
)
 
(2,405
)
 
     Interest expense
 
(2,009
)
 
(2,045
)
 
     Net income
 
3,238

 
4,026

 
     PREIT’s share of equity in income of partnership
 
1,619

 
2,013

 


13

4. FINANCING ACTIVITY

Credit Agreements

As of March 31, 2019 , we have entered into two credit agreements (collectively, as amended, the “Credit Agreements”): (1) the 2018 Credit Agreement, which, as described in more detail below, includes (a) the $400 million 2018 Revolving Facility, and (b) the $300 million 2018 Term Loan Facility, and (2) the $250 million 2014 7-Year Term Loan. The 2018 Term Loan Facility and the 2014 7-Year Term Loan are collectively referred to as the “Term Loans.”

As of  March 31, 2019 , we had borrowed the full $550.0 million  available under the Term Loans in the aggregate, and  $162.0 million  was borrowed under the 2018 Revolving Facility. The carrying value of the Term Loans on our consolidated balance sheet as of March 31, 2018 is net of $2.5 million of unamortized debt issuance costs. Following recent property sales, the net operating income (“NOI”) from our remaining unencumbered properties is at a level such that pursuant to the Unencumbered Debt Yield covenant (as described below), the maximum unsecured amount that was available for us to borrow under the 2018 Revolving Facility as of March 31, 2019 was  $196.8 million .

Amounts borrowed under the Credit Agreements, either under the 2018 Revolving Facility or the Term Loans, which may be either LIBOR Loans or Base Rate Loans, bear interest at the rate specified below per annum, depending on our leverage, unless and until we receive an investment grade credit rating and provide notice to the Administrative Agent, as defined therein (the “Rating Date”), after which alternative rates would apply, as described in the Credit Agreements. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is (a) 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 2018 Revolving Facility is subject to a facility fee, which depends on leverage and was 0.30% as of March 30, 2019, which is recorded in interest expense in the consolidated statements of operations.
 
 
Applicable Margin
 
 
 
Level
Ratio of Total Liabilities
to Gross Asset Value
Revolving Loans that are LIBOR Loans
 
Revolving Loans that are Base Rate Loans
 
Term Loans that are LIBOR Loans
 
Term Loans that are Base Rate Loans
 
1
Less than 0.450 to 1.00
1.20%
 
0.20%
 
1.35%
 
0.35%
 
2
Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00
1.25%
 
0.25%
 
1.45%
 
0.45%
 
3
Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 (1)
1.30%
 
0.30%
 
1.60%
 
0.60%
 
4
Equal to or greater than 0.550 to 1.00
1.55%
 
0.55%
 
1.90%
 
0.90%
 
(1) The rates in effect under the Credit Agreements were based upon the Level 3 Ratio of Total Liabilities to Gross Asset Value as of March 31, 2019.

The Credit Agreements contain certain affirmative and negative covenants, including, without limitation, requirements that PREIT maintain, on a consolidated basis: (1) Minimum Tangible Net Worth of $1,463.2 million , plus 75% of the Net Proceeds of all Equity Issuances effected at any time after March 31, 2018; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.60 :1, provided that it will not be a Default if the ratio exceeds 0.60 :1 but does not exceed 0.625 :1 for more than two consecutive quarters on more than two occasions during the term; (3) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.50 :1; (4) minimum Unencumbered Debt Yield of (a) 11.0% through and including June 30, 2020, (b) 11.25% any time after June 30, 2020 through and including June 30, 2021, and (c) 11.50% any time thereafter; (5) minimum Unencumbered NOI to Unsecured Interest Expense of 1.75 :1; (6) maximum ratio of Secured Indebtedness to Gross Asset Value of 0.60 :1; and (7) Distributions may not exceed (a) with respect to our preferred shares, the amounts required by the terms of the preferred shares, and (b) with respect to our common shares, the greater of (i) 95.0% of Funds From Operations (FFO) and (ii) 110% of REIT taxable income for a fiscal year. The covenants and restrictions in the Credit Agreements limit our ability to incur additional indebtedness, grant liens on assets and enter into negative pledge agreements, merge, consolidate or sell all or substantially all of its assets, and enter into transactions with affiliates. The Credit Agreements are subject to customary events of default and are cross-defaulted with one another.

As of March 31, 2019, the Borrower was in compliance with all financial covenants in the Credit Agreements.

We may prepay the amounts due under the Credit Agreements at any time without premium or penalty, subject to reimbursement obligations for the lenders’ breakage costs for LIBOR borrowings.

Upon the expiration of any applicable cure period following an event of default (except with respect to bankruptcy as described in the next sentence), the lenders may declare all of the obligations in connection with the Credit Agreements immediately due and payable.

14

Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of PREIT, PALP, PRI, any material subsidiary, any subsidiary that owns or leases an Unencumbered Property or certain other subsidiaries, all outstanding amounts would automatically become immediately due and payable.

Interest expense, deferred financing fee amortization and accelerated financing costs, if any, related to the Credit Agreements for the three months ended March 31, 2019 and 2018  were as follows:
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Revolving Facilities (1)
 
 
 
 
 
 
Interest expense
 
$
1,234

 
$
365

 
 
Deferred financing amortization
 
274

 
200

 
 
 
 
 
 
 
 
Term Loans (2)
 
 
 
 
 
 
Interest expense
 
5,138

 
4,286

 
 
Deferred financing amortization
 
189

 
191

 

(1) Includes the 2018 Revolving Facility and the 2013 Revolving Facility (collectively, the “Revolving Facilities”).
(2) Includes the 2018 Term Loan Facility, the 2014 7-Year Term Loan, the 2014 5-Year Term Loan and the 2015 5-Year Term Loan.


Mortgage Loans

The aggregate carrying values and estimated fair values of mortgage loans based on interest rates and market conditions at March 31, 2019 and December 31, 2018 were as follows:
 
March 31, 2019
 
December 31, 2018
(in millions of dollars)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Mortgage loans (1)
$
985.8

 
$
948.0

 
$
1,047.9

 
$
1,002.3

(1) The carrying value of mortgage loans is net of unamortized debt issuance costs of $2.7 million and $3.4 million as of March 31, 2019 and December 31, 2018 , respectively.

The mortgage loans contain various customary default provisions. As of March 31, 2019 , we were in default on the mortgage loan secured by Wyoming Valley Mall as described below.

Mortgage Loan Activity

In March 2019, we defeased a $58.5 million mortgage loan including accrued interest, secured by Capital City Mall in Camp Hill, Pennsylvania using funds from our 2018 Revolving Facility and the balance from available working capital. We recorded a loss on debt extinguishment of $4.8 million in March 2019 in connection with this defeasance.

We received a notice of transfer of servicing, dated July 9, 2018, from the special servicer for the mortgage loan secured by Wyoming Valley Mall, which had a balance of $73.4 million as of March 31, 2019 . Our subsidiary that is the borrower under the loan also received a notice of default on the loan from the lender, dated December 14, 2018. The loan is subject to a cash sweep arrangement as a result of an anchor tenant trigger event. We have entered into an agreement with the lender to jointly market the property for sale for a stipulated period of time. If the property is not sold, we expect to convey the property to the lender by deed in lieu of foreclosure; however, we make no assurances that such a transaction will be completed.

In April 2019, we received a notice from the servicer of the Cumberland Mall mortgage of a cash sweep event due to the failure of an anchor tenant to renew for a full term.

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.

15


5. CASH FLOW INFORMATION

Cash paid for interest was $14.5 million (net of capitalized interest of $2.0 million ) and $12.2 million (net of capitalized interest of $1.6 million ) for the three months ended March 31, 2019 and 2018 , respectively.

In our statement of cash flows, we show cash flows on our Revolving Facilities on a net basis. Aggregate borrowings on our Revolving Facilities were $107.0 million and $0.0 million for the three months ended March 31, 2019 and 2018 , respectively. Aggregate paydowns were $10.0 million and $53.0 million for the three months ended March 31, 2019 and 2018 , respectively.

Accrued construction costs decreased by $13.9 million in the three months ended March 31, 2019 and decreased by $2.3 million in the
three months ended March 31, 2018, representing non-cash changes in construction in progress.

In the first quarter of 2019, we issued 6,250,000 common shares of beneficial interest in the Company in exchange for a like number of OP Units in our Operating Partnership. The shares were issued to Vornado Investments LLC, an affiliate of Franconia Two, L.P., the holder of the OP Units.

The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of March 31, 2019 and 2018.

 
 
March 31,
(in thousands of dollars)
 
2019
 
2018
Cash and cash equivalents
 
$
10,416

 
$
89,213

Restricted cash included in other assets
 
12,226

 
15,110

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
 
$
22,642

 
$
104,323


Our restricted cash consists of cash held in escrow by banks for real estate taxes and other purposes.


16

6. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

As of March 31, 2019 , we had unaccrued contractual and other commitments related to our capital improvement projects and development projects of $150.6 million , including commitments related to the redevelopment of Fashion District Philadelphia, in the form of tenant allowances and contracts with general service providers and other professional service providers. In addition, our operating partnership, PREIT Associates, has jointly and severally guaranteed the obligations of the joint venture we formed with Macerich to develop Fashion District Philadelphia to commence and complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016. As of March 31, 2019, we expect to meet this obligation.

Provision for Employee Separation Expense

In 2019, we terminated the employment of certain employees and officers. In connection with the departure of those
employees and officers, we recorded $0.7 million of employee separation expense in the three months ended March 31, 2019. No amounts were recorded in the three months ended March 31, 2018. As of March 31, 2019, we had $1.0 million of severance accrued and unpaid related to activities related to the termination of employment of employees.

Property Damage from Natural Disaster

During September 2018, Jacksonville Mall in Jacksonville, North Carolina incurred property damage and an interruption
of business operations as a result of Hurricane Florence. The property was closed for business during and immediately after the
natural disaster, however, significant remediation efforts were quickly undertaken and the mall was reopened shortly thereafter.

During the three months ended March 31, 2019, we recorded losses of approximately $0.2 million . This amount consisted of combined remediation and business interruption expenses.



7. DERIVATIVES

In the normal course of business, we are exposed to financial market risks, including interest rate risk on our interest bearing liabilities. We attempt to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments such as derivatives. We do not use financial instruments for trading or speculative purposes.

Cash Flow Hedges of Interest Rate Risk

For derivatives that have been designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in “Accumulated other comprehensive income” and subsequently reclassified into “Interest expense, net” in the same periods during which the hedged transaction affects earnings. As of March 31, 2019, all of our outstanding derivatives are designated as cash flow hedges. We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets.
 
During the next 12 months, we estimate that $3.8 million will be reclassified as a decrease to interest expense in connection with derivatives. The recognition 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, 2019 , we had interest rate swap agreements outstanding with a weighted average base interest rate of 1.84% on a notional amount of $696.9 million , maturing on various dates through May 2023 , and forward starting interest rate swap agreements with a weighted average interest rate of 2.75% on a notional amount of $100.0 million , with an effective date in June 2020, and a maturity date in May 2023. 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. The interest rate swap agreements are net settled monthly.

The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments designated as cash flow hedges of interest rate risk at March 31, 2019 and December 31, 2018 based on the year they mature. 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

17

risks. In the accompanying consolidated balance sheets, the carrying amount of derivative assets is reflected in “Deferred costs and other assets, net” and the carrying amount of derivative liabilities is reflected in “Accrued expenses and other liabilities.”
Maturity Date
Aggregate Notional Value at March 31, 2019
(in millions of dollars)
 
Aggregate Fair Value at
March 31, 2019 (1)
(in millions of dollars)
 
Aggregate Fair Value at
December 31, 2018 (1) (in millions of dollars)
 
Weighted Average Interest
Rate
Interest Rate Swaps
 
 
 
 
 
 
 
2020
$
100.0

 
$
1.4

 
$
1.9

 
1.23
%
2021
396.9

 
5.1

 
8.1

 
1.57
%
2022
—

 
—

 
—

 
—
%
2023
200.0

 
(4.1
)
 
(2.0
)
 
2.67
%
Forward Starting Swaps
 
 
 
 
 
 
 
2023
100.0

 
(1.9
)
 
(1.0
)
 
2.75
%
Total
$
796.9

 
$
0.5

 
$
7.0

 
1.95
%

_________________________
(1)  
As of March 31, 2019 and December 31, 2018 , 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).

The tables below present the effect of derivative financial instruments on accumulated other comprehensive income and on our consolidated statements of operations for the three months ended March 31, 2019 and 2018 :
 
 
Three Months Ended March 31,
 
 
 
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments
 
Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense
 
(in millions of dollars)
 
2019
 
2018
 
2019
 
2018
 
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
Interest rate products
 
$
(5.3
)
 
$
5.2

 
$
(1.2
)
 
$
(0.1
)
 

 
 
Three Months Ended March 31,
 
(in millions of dollars)
 
2019
 
2018
 
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded
 
$
(15.9
)
 
$
(14.9
)
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense
 
$
(1.2
)
 
$
(0.1
)
 
 
 
 
 
 
 

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, 2019 , 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, 2019, the fair value of derivatives in a liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was  $6.4 million . If we had breached any of the default provisions in these

18

agreements as of March 31, 2019, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of  $6.6 million . We had not breached any of these provisions as of March 31, 2019.


8. LEASES

As discussed in Note 1, we adopted the new lease accounting standard effective January 1, 2019.

As Lessee

We have entered into ground leases for portions of the land at Springfield Town Center and at Plymouth Meeting Mall. We have also entered into an office lease for our headquarters location, as well as into vehicle and equipment leases as a lessee. The initial terms of these agreements generally range from three to 40 years, with certain agreements containing extension options for up to an additional 60 years. As of March 31, 2019, we included only those renewal options we were reasonably certain of exercising. Upon lease execution, the Company measures a liability for the present value of future lease payments over the noncancellable period of the lease and any renewal option period we are reasonably certain of exercising. Certain agreements require that we pay a portion of reimbursable expenses such as CAM, utilities, insurance and real estate taxes. These payments are not included in the calculation of the lease liability and are presented as variable lease costs.

We applied judgments related to the determination of the discount rates used to calculate the lease liability upon adoption at January 1, 2019. In order to calculate our incremental borrowing rate under ASC 842, we utilized judgments and estimates regarding our implied credit rating using market data and made other adjustments to determine an appropriate incremental borrowing rate as of January 1, 2019.

The following table presents additional information pertaining to the Company’s leases:

 
Three Months Ended March 31, 2019
(in thousands of dollars)
Solar Panel Leases
Ground Leases
Office, equipment,
and vehicle leases
Total
Finance lease cost:
 
 
 
 
Amortization of right-of-use assets
$
188

$
—

$
—

$
188

Interest on lease liabilities
76

—

—

76

Operating lease costs
—

439

542

981

Variable lease costs
—

41

45

86

Total lease costs
$
264

$
480

$
587

$
1,331


Other information related to leases as of and for the three months ended March 31, 2019 is as follows:
(in thousands of dollars)
 
Cash paid for the amounts included in the measurement of lease liabilities
 
Operating cash flows from finance leases
$
76

Operating cash flows from operating leases
$
593

Financing cash flows from finance leases
$
155

 
 
Weighted average remaining lease term-finance leases (months)
108

Weighted average remaining lease term-operating leases (months)
342

Weighted average discount rate-finance leases
4.41
%
Weighted average discount rate-operating leases
6.63
%






19

Future payments against lease liabilities as of March 31, 2019 are as follows:
(in thousands of dollars)
Finance leases
 
Operating leases
 
Total
April 1 to December 31, 2019
$
694

 
$
2,346

 
$
3,040

2020
925

 
1,979

 
2,904

2021
925

 
1,906

 
2,831

2022
925

 
1,625

 
2,550

2023
925

 
1,587

 
2,512

Thereafter
3,923

 
48,437

 
52,360

Total undiscounted lease payments
8,317

 
57,880

 
66,197

Less imputed interest
(1,462
)
 
(33,773
)
 
(35,235
)
Total lease liabilities
$
6,855

 
$
24,107

 
$
30,962


Future minimum lease payments under these agreements as of December 31, 2018 were as follows:

Year Ending December 31,
Finance leases
 
Operating leases
 
Total
2019
$
925

 
$
3,007

 
$
3,932

2020
925

 
1,845

 
2,770

2021
925

 
1,856

 
2,781

2022
925

 
1,673

 
2,598

2023
925

 
1,593

 
2,518

Thereafter
3,923

 
33,959

 
37,882

 
$
8,548

 
$
43,933

 
$
52,481


As Lessor

As of March 31, 2019, the fixed contractual lease payments, including minimum rents and fixed CAM amounts, to be received over the next five years pursuant to the terms of noncancellable operating leases with initial terms greater than one year are included in the table below. The amounts presented assume that no leases are renewed and no renewal options are exercised. Additionally, the table does not include variable lease payments that may be received under certain leases for percentage rents or the reimbursement of operating costs, such as common area expenses, utilities, insurance and real estate taxes. These variable lease payments are recognized in the period when the applicable expenditures are incurred or in the case of percentage rents when the sales data is made available.

(in thousands of dollars)
 
April 1 to December 31, 2019
$
166,726

2020
207,390

2021
190,026

2022
170,143

2023
150,672

Thereafter
523,579

 
$
1,408,536







20

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 27 retail properties, of which 25 are operating properties and two are development or redevelopment properties. The 25 operating properties include 21 shopping malls and four other retail properties, have a total of 20.1 million square feet and are located in nine states. We and partnerships in which we hold an interest own 15.7 million square feet at these properties (excluding space owned by anchors or third parties).
There are 19 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 16.0 million square feet, of which we own 12.9 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. When we refer to “Same Store” properties, we are referring to properties that have been owned for the full periods presented and exclude properties acquired, disposed of, under redevelopment or designated as a non-core property during the periods presented. Core properties include all operating retail properties except for Exton Square Mall, Wyoming Valley Mall, and Valley View Mall, as well as Fashion District Philadelphia, which is currently under redevelopment. We also have two undeveloped land parcels located in Gainesville, Florida, a portion of which was sold in March 2019, and New Garden Township, Pennsylvania that were classified as held-for-sale as of March 31, 2019. The New Garden parcel was subsequently sold in April 2019. A parcel that includes Whole Foods adjacent to Exton Square Mall was also classified as held-for-sale as of March 31, 2019 and such parcel was sold in April 2019.
We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia).  We have one other property in our portfolio that is classified as under development; however, we do not currently have any activity occurring at this property.
Our primary business is owning and operating retail shopping malls, which we do primarily through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We provide management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties 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. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.
Our revenue consists primarily of fixed rental income, additional rent in the form of fixed and variable expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the leases) derived from our income producing properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.

Net loss for the three months ended March 31, 2019 was $16.2 million , an increase of $12.5 million compared to a net loss of $3.7 million for the three months ended March 31, 2018 . This increased loss was primarily due to: (a) a loss on debt extinguishment of $4.8 million incurred in connection with the defeasance of a mortgage loan recorded in the first quarter of 2019; (b) an asset impairment of $1.5 million on an undeveloped land parcel recorded in the first quarter of 2019; (c) a $2.2 million decrease in gains on sale of real estate by equity method investees; (d) a $1.2 million decrease in capitalized leasing costs as a result of the adoption of ASC 842 effective January 1, 2019; (e) $0.7 million of employee separation expenses; (f) $0.4 million of dilution from asset sales; (g) a $0.8 million decrease in non-Same Store NOI; and (h) a $1.0 million increase in interest expense, partially offset by a $1.1 million increase in Same Store NOI.
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

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have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of our consolidated revenue, and none of our properties are located outside the United States.

Current Economic and Industry Conditions

Conditions in the economy have caused fluctuations and variations in business and consumer confidence, retail sales, and consumer spending on retail goods. Further, traditional mall tenants, including department store anchors and smaller format retail tenants, face significant challenges resulting from changing consumer expectations, the convenience of e-commerce shopping, competition from fast fashion retailers, the expansion of outlet centers, and declining mall traffic, among other factors.

In recent years, there has been an increased level of tenant bankruptcies and store closings by tenants who have been significantly impacted by these factors.

The table below sets forth information related to our tenants in bankruptcy for our consolidated and unconsolidated properties (excluding tenants in bankruptcy at sold properties):
 
 
Pre-bankruptcy
 
Units Closed
Year
 
Number of Tenants (1)
 
Number of locations impacted
 
GLA (2)
 
PREIT’s Share of Annualized Gross Rent (3)  
(in thousands)
 
Number of locations closed
 
GLA (2)
 
PREIT’s Share of Annualized Gross Rent (3) (in thousands)
2019 (Three Months)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
4

 
59

 
191,791

 
$
8,106

 
46

 
144,244

 
$
6,348

Unconsolidated properties
 
4

 
9

 
29,365

 
945

 
6

 
22,356

 
725

Total
 
4

 
68

 
221,156

 
$
9,051

 
52

 
166,600

 
$
7,073

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 (Full Year)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
10

 
43

 
1,221,433

 
$
7,072

 
5

 
267,715

 
$
1,601

Unconsolidated properties
 
3

 
5

 
14,977

 
402

 
—

 
—

 
—

Total
 
10

 
48

 
1,236,410

 
$
7,474

 
5

 
267,715

 
$
1,601

(1) Totals represent number of unique tenants.
(2) Gross Leasable Area (“GLA”) in square feet.
(3) Includes our share of tenant gross rent from partnership properties based on PREIT’s ownership percentage in the respective equity method investments as of March 31, 2019.




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Anchor Replacements

In recent years, through property dispositions, proactive store recaptures, lease terminations and other activities, we have made efforts to reduce our risks associated with certain department store concentrations. In December 2016, we acquired the Sears property at Woodland Mall and in 2017 we recaptured the Sears premises at Capital City Mall and Magnolia Mall (we have since re-leased the Capital City Mall and Magnolia Mall spaces). Also in 2017, we purchased the Macy’s locations at Moorestown Mall, Valley View Mall and Valley Mall locations. We have entered into a ground lease for the land associated with the Macy’s store located at Plymouth Meeting Mall and have executed leases with five replacement tenants for that location.

The table below sets forth information related to our anchor replacement program:

 
 
Former Anchors
 
 
Replacement Tenant(s)
Property
Name
GLA '000's
Date Store Closed
 
Decommission Date
Name
GLA
'000's
Actual/Targeted Occupancy Date
Completed:
 
 
 
 
 
 
 
 
 
Exton Square Mall
Kmart
96
Q1 16

Q2 16
Whole Foods
55
Q1 18
 
Magnolia Mall
Sears
91
Q1 17
 
Q2 17
Burlington
46
Q3 17
 
 
HomeGoods
22
Q2 18
 
 
Five Below
8
Q2 18
 
Moorestown Mall
Macy's
200
Q1 17
 
Q2 17
HomeSense
28
Q3 18
 
 
Five Below
9
Q4 18
 
 
Sierra Trading Post
19
Q1 19
 
Valley Mall
Macy's
120
Q1 16
 
Q4 17
Tilt Studio
48
Q3 18
 
 
One Life Fitness
70
Q3 18
 
 
Bon-Ton
123
Q1 18
 
Q1 18
Belk
123
Q4 18
In process:
 
 
 
 
 
 
 
 
 
Plymouth Meeting Mall
Macy's (1)
215
Q1 17
 
Q2 17
Burlington
41
Q4 19
 
Dick's Sporting Goods
58
Q4 19
 
Edge Fitness
38
Q4 19
 
Miller's Ale House
7
Q4 19
 
Michael's
26
Q4 19
 
Valley Mall
Sears
123
Q3 17
 
Q2 18
Dick's Sporting Goods
57
Q2 20
 
Moorestown Mall
Macy's
see above
Michael's
25
Q1 20
 
Woodland Mall
Sears
313
Q2 17
 
Q2 17
Von Maur
87
Q4 19
 
 
REI
20
Q2 19
 
 
Urban Outfitters
8
Q4 19
 
 
Black Rock Bar & Grill
9
Q4 19
 
 
Restaurants and small shops
13
Q4 19
 
Willow Grove Park
JC Penney
125
Q3 17
 
Q1 18
Studio Movie Grill
49
Q1 20
 
 
Yard House
8
Q2 20
 
 
Restaurant and entertainment space
36
Q4 19
(1) Property is subject to a ground lease.


In response to anchor store closings and other trends in the retail space, we have been changing the mix of tenants at our properties. We have been reducing the percentage of traditional mall tenants and increasing the share of space dedicated to dining, entertainment, fast fashion, off price, and large format box tenants. Some of these changes may result in the redevelopment of all or a portion of our properties. See “—Capital Improvements, Redevelopment and Development Projects.”

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To fund the capital necessary to replace anchors and to maintain a reasonable level of leverage, we expect to use a variety of means available to us, subject to and in accordance with the terms of our Credit Agreements. These steps might include (i) making additional borrowings under our 2018 Revolving Facility, (ii) obtaining construction loans on specific projects, (iii) selling properties or interests in properties with values in excess of their mortgage loans (if applicable) and applying the excess proceeds to fund capital expenditures or for debt reduction, (iv) 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 (v) 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

We might engage in various types of capital improvement projects at our operating properties. 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 $119.9 million as of March 31, 2019 .

In 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop Fashion District Philadelphia. As we redevelop Fashion District Philadelphia, operating results in the short term, as measured by sales, occupancy, real estate revenue, property operating expenses, Net Operating Income (“NOI”) and depreciation, will continue to be affected until the newly constructed space is completed, leased and occupied. Fashion District Philadelphia is scheduled to open in September 2019.
In January 2018, we along with Macerich, entered into a $250.0 million term loan (the “FDP Term Loan”). The initial term of the FDP Term Loan is five years, and bears interest at a variable rate of 2.00% over LIBOR. PREIT and Macerich have secured the FDP Term Loan by pledging their respective equity interests in the entities that own the Fashion District Philadelphia. The entire $250.0 million available under the FDP Term Loan was drawn during the first quarter of 2018, and we received an aggregate of $123.0 million as a distribution of our share of the draws.


CRITICAL ACCOUNTING POLICIES

Critical Accounting Policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Management has also considered events and changes in property, market and economic conditions, estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may affect comparability of our results of operations to those of companies in a similar business. The estimates and assumptions made by management in applying Critical Accounting Policies have not changed materially during 2019 or 2018, 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, 2018.

Asset Impairment

Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable. A property to be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property. This estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.
The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairment

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Table of Contents

exists and whether the effects could materially affect our net income. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property.
Assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.
An other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.
If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.

New Accounting Developments

See note 1 to our unaudited consolidated financial statements for descriptions of new accounting developments.

OFF BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet items other than the unconsolidated 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, 2019 and 2018 :
 
 
Occupancy (1)  at March 31,
 
Consolidated
Properties
 
Unconsolidated
Properties (2)
 
Combined (2)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Retail portfolio weighted average:
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
90.6
%
 
90.5
%
 
90.7
%
 
92.7
%
 
90.7
%
 
91.0
%
Total including anchors
91.3
%
 
92.9
%
 
92.4
%
 
94.0
%
 
91.5
%
 
93.1
%
Core Malls weighted average: (3)
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
91.9
%
 
91.7
%
 
88.9
%
 
92.5
%
 
91.5
%
 
91.8
%
Total including anchors
95.0
%
 
93.6
%
 
92.4
%
 
94.9
%
 
94.7
%
 
93.7
%
_________________________
(1)  
Occupancy for both periods presented includes all tenants irrespective of the term of their agreements. Fashion District Philadelphia is excluded for 2019 and 2018 because the property is currently partially closed and undergoing major reconstruction.
(2)  
We own a 25% to 50% interest in each of our unconsolidated properties, and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See "—Use of Non GAAP Measures" for further details on our ownership interests in our unconsolidated properties.
(3)  
Core Malls excludes Fashion District Philadelphia, Exton Square Mall, Valley View Mall, Wyoming Valley Mall, power centers and Gloucester Premium Outlets.



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Table of Contents

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, 2019 :
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Tenant Improvements psf (3)
 
 
 
 
Number
 
GLA
in square feet (“sf”)
 
Term (years)
 
Initial Rent per square foot (“psf”)
 
Previous Rent psf
 
Initial Gross Rent Renewal Spread (1)
 
Average Rent Renewal Spread (2)
 
 
 
 
 
 
 
 
$
 
%
 
%
 
Non Anchor
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under 10k square feet ("sf")
 
Consolidated
 
19

 
70,711

 
10.3

 
$
39.91

 
 
 
 
 
 
 
 
 
$
13.80

 
 
Unconsolidated (4)
 
1

 
5,500

 
10.0

 
39.09

 
 
 
 
 
 
 
 
 
26.19

Total Under 10k sf
 
20

 
76,211

 
10.3

 
39.85

 
n/a
 
n/a
 
n/a
 
n/a
 
14.67

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over 10k sf
 
Consolidated
 
1

 
20,091

 
9.6

 
8.21

 
n/a
 
n/a
 
n/a
 
n/a
 
17.01

Total New Leases
 
21

 
96,302

 
10.1

 
$
33.25

 
n/a
 
n/a
 
n/a
 
n/a
 
$
15.13

Renewal Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under 10k sf
 
Consolidated
 
26

 
63,833

 
3.5

 
$
58.84

 
$
56.72

 
$
2.12

 
3.7
 %
 
1.2
%
 
$
2.56

 
 
Unconsolidated (4)
 
3

 
3,725

 
1.6

 
72.75

 
70.38

 
2.37

 
3.4
 %
 
4.2
%
 
—

Total Under 10k sf
 
29

 
67,558

 
3.4

 
$
59.61

 
$
57.47

 
$
2.13

 
3.7
 %
 
1.4
%
 
$
2.49

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Over 10k sf
 
Consolidated
 
4

 
80,159

 
4.8

 
$
14.65

 
$
14.02

 
$
0.63

 
4.5
 %
 
5.6
%
 
$
1.11

Total Fixed Rent
 
33

 
147,717

 
4.1

 
$
35.21

 
$
33.89

 
$
1.32

 
3.9
 %
 
2.5
%
 
$
1.63

Percentage in Lieu
 
Consolidated
 
32

 
120,827

 
1.9

 
$
30.82

 
$
43.71

 
$
(12.89
)
 
(29.5
)%
 
n/a
 
—

Total Renewal Leases
 
65

 
268,544

 
3.1

 
$
33.24

 
$
38.31

 
$
(5.07
)
 
(13.2
)%
 
2.4
%
 
$
1.19

Total Non Anchor
 
86

 
364,846

 
5.0

 
$
33.24

 
 
 
 
 
 
 
 
 
 
Anchor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
1

 
43,840

 
10.4

 
$
16.50

 
n/a
 
n/a
 
n/a
 
n/a
 
$
11.62

Renewal Leases
 
Consolidated
 
6

 
629,743

 
3.8

 
$
3.48

 
$
4.25

 
(0.77
)
 
(18.1
)%
 
n/a
 
$
—

Total
 
 
 
7

 
673,583

 
4.7

 
$
4.33

 
 
 
 
 
 
 
 
 
 
________________________
(1)  
Initial gross rent 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 rent 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)  
Tenant improvements and certain other leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term.
(4)  
We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See “—Use of Non-GAAP Measures” for further details on our ownership interests in our unconsolidated properties.




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Table of Contents

Overview

Net loss for the three months ended March 31, 2019 was $16.2 million , an increased loss of $12.5 million compared to a net loss of $3.7 million for the three months ended March 31, 2018 . This increased loss was primarily due to: (a) a loss on debt extinguishment of $4.8 million incurred in connection with the defeasance of a mortgage loan recorded in the first quarter of 2019; (b) an asset impairment of $1.5 million on an undeveloped land parcel recorded in the first quarter of 2019; (c) a $2.2 million decrease in gains on sale of real estate by equity method investees; (d) a $1.2 million decrease in capitalized leasing costs as a result of the adoption of ASC 842 effective January 1, 2019; (e) $0.7 million of employee separation expenses; (f) $0.4 million of dilution from asset sales; (g) a $0.8 million decrease in non-Same Store NOI; and (h) a $1.0 million increase in interest expense, partially offset by a $1.1 million increase in Same Store NOI.

See “Use of Non-GAAP Measures—Net Operating Income” for the definition and additional discussion about Net Operating Income, a non-GAAP measure.

The following table sets forth our results of operations for the three months ended March 31, 2019 and 2018 .
 
 
Three Months Ended 
 March 31,
 
% Change
2018 to
2019
 
(in thousands of dollars)
 
2019
 
2018
 
 
Real estate revenue
 
$
84,678

 
$
85,393

 
(1
)%
 
Property operating expenses
 
(35,128
)
 
(36,705
)
 
(4
)%
 
Other income
 
627

 
889

 
(29
)%
 
Depreciation and amortization
 
(34,904
)
 
(34,030
)
 
3
 %
 
General and administrative expenses
 
(11,205
)
 
(10,132
)
 
11
 %
 
Provision for employee separation expense
 
(719
)
 
—

 
—
 %
 
Project costs and other expenses
 
(294
)
 
(112
)
 
163
 %
 
Interest expense, net
 
(15,898
)
 
(14,901
)
 
7
 %
 
Loss on debt extinguishment
 
(4,768
)
 
—

 
—
 %
 
Impairment of development land parcel
 
(1,464
)
 
—

 
—
 %
 
Equity in income of partnerships
 
2,289

 
3,138

 
(27
)%
 
Gain on sale of real estate by equity method investee
 
563

 
2,773

 
(80
)%
 
Adjustment to gains on sales of interests in non operating real estate
 
—

 
(25
)
 
—
 %
 
Net loss
 
$
(16,223
)
 
$
(3,712
)
 
337
 %
 

The amounts in the preceding tables 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

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and related guidance using the optional transition method and elected to apply the provisions of the standard as of the adoption date rather than the earliest date presented. Prior period amounts were not restated. Since we adopted the practical expedient in Topic 842, which allows us to avoid separating lease (minimum rent) and non-lease rental income (common area maintenance and real estate tax reimbursements), all rental income earned pursuant to tenant leases is reflected as one line, “Lease revenue,” in the consolidated statement of operations. Utility reimbursements are presented separately in “Expense reimbursements.” We review the collectibility of both billed and unbilled lease revenues each reporting period, taking into consideration the tenant’s payment history, credit profile and other factors, including its operating performance. For any tenant receivable balances deemed to be uncollectible, under ASC 842 we record an offset for credit losses directly to Lease revenue in the consolidated statement of operations. Previously, under ASC 840, uncollectible tenants’ receivables were reported in Other property operating expenses in the consolidated statement of operations.

The following table reports the breakdown of real estate revenues based on the terms of the lease contracts for the three months ended March 31, 2019 and 2018:


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Three Months Ended
March 31,
(in thousands of dollars)
 
2019
 
2018
Contractual lease payments:
 
 
 
 
 
Base rent
 
$
55,885

 
$
55,976

 
CAM reimbursement income
 
11,645

 
11,569

 
Real estate tax income
 
9,540

 
10,327

 
Percentage rent
 
9

 
95

 
Lease termination revenue
 
313

 
31

 
 
 
 
77,392

 
77,998

 
Less: credit losses
 
(777
)
 
—

 
Lease revenue
 
76,615

 
77,998

 
Expense reimbursements
 
5,062

 
5,234

 
Other real estate revenue
 
3,001

 
2,161

 
 
Total real estate revenue
 
$
84,678

 
$
85,393




The Company has presented the above information to provide additional detail about the components of lease revenue based on the terms of the underlying lease contracts. The presentation of contractual lease payments is not, and is not intended to be, a presentation in accordance with GAAP. The Company believes this information is useful to investors, securities analysts and other interested parties to evaluate the Company’s performance.

Real estate revenue decreased by $0.7 million, or less than 1%, in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 , primarily due to:

•
A decrease of $0.8 million due to the financial statement presentation of credit losses under ASC 842. Under ASC 840, such amounts were in included in other property operating expenses and were $1.1 million in the three months ended March 31, 2018;

•
a decrease of $0.8 million at non-same store properties Wyoming Valley Mall, Valley View Mall and Exton Square Mall due to four anchor store closings during 2018 and associated co-tenancy concessions;

•
a decrease of $0.5 million in same store real estate tax reimbursements due to lower occupancy at some properties and rental concessions made to some tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements, partially offset by an increase in real estate tax expense (see “—Property Operating Expenses”); and

•
a decrease of $0.2 million in same store seasonal photo income due to the timing of the Easter holiday; partially offset by

•
an increase of $1.1 million in same store base rent due to $1.4 million from net new store openings over the previous twelve months, partially offset by a $0.3 million decrease related to tenant bankruptcies in 2018 and 2019;

•
an increase of $0.3 million in same store common area maintenance (“CAM”) reimbursements, including an increase of $0.6 million associated with the straight lining of fixed common area expense reimbursements effective January 1, 2019 in accordance with ASC 842. Excluding the impact of the straight line adjustment, same store common area reimbursements decreased by $0.3 million due to a decrease in common area expense (see “—Property Operating Expenses”), as well as lower occupancy at some properties and rental concessions made to some tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements; and

•
an increase of $0.3 million in same store lease termination revenue, including $0.2 million received from one tenant during the three months ending March 31, 2019.




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Property operating expenses

Property operating expenses decreased by $1.6 million, or 4%, in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 , primarily due to:

•
A decrease of $1.1 million in credit losses as a result of the adoption of ASC 842. Under ASC 840, such amounts were in included in other property operating expenses and were $1.1 million in the three months ended March 31, 2018;

•
a decrease of $0.4 million in same store common area maintenance expense, including a $0.3 million decrease in snow removal expense due to lower snow fall amounts during the three months ending March 31, 2019 across the Mid-Atlantic States, where many of our properties are located;

•
a decrease of $0.1 million in same store tenant utility expense due to lower electricity usage, partially offset by higher electricity rates;

•
a decrease of $0.1 million in same store marketing expense; and

•
a decrease of $0.1 million at non-same store properties including Wyoming Valley Mall, Valley View Mall and Exton Square Mall due to lower tenant utility expense; partially offset by

•
an increase of $0.4 million in same store real estate tax expense due to a combination of increases in the real estate tax assessment value and the real estate tax rate.


Depreciation and amortization

Depreciation and amortization expense increased by $ 0.9 million , or 3% , in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 , primarily due to:

•
an increase of $1.8 million due to a higher asset base resulting from capital improvements related to new tenants at our same store properties, as well as accelerated amortization of capital improvements associated with store closings; partially offset by

•
a decrease of $0.9 million at three properties that have a lower asset base resulting from impairment charges during 2018.


General and administrative expenses

General and administrative expenses increased by $1.1 million , or 11% , in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 primarily due to certain internal leasing and legal costs that were previously capitalized under ASC 840 are now being recorded as period costs under ASC 842 and included in general and administrative expenses. For the three months ended March 31, 2018, we capitalized $1.2 million of internal leasing and legal salaries and benefits. No such costs were capitalized for the three months ended March 31, 2019.

Interest expense

Interest expense increased by $1.0 million , or 7% , in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 . This increase was primarily due to higher weighted average interest rates, partially offset by greater amounts of capitalized interest in 2018 and lower weighted average debt balances. Our weighted average effective borrowing rate was 4.30% for the three months ended March 31, 2019 compared to 4.08% for the three months ended March 31, 2018 . Our weighted average debt balance was $1,679.8 million  for the three months ended March 31, 2019 , compared to $1,620.4 million for the three months ended March 31, 2018 .


Impairment of Assets

Impairment of assets for the three months ended March 31, 2019 was $1.5 million in connection with the sale of a land parcel in Gainesville, Florida.

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Equity in income of partnerships

Equity in income of partnerships decreased by $0.8 million , or 27% , in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 , primarily due to lower lease revenue in 2019 following the sale of an office condominium unit at Fashion District Philadelphia in the first quarter of 2018 and higher lease termination revenue in the 2018 quarter.

Gain on sale of real estate by equity method investee

In March 2019, a partnership in which we hold a 25% interest share sold an undeveloped land parcel adjacent to Gloucester Premium Outlets for $3.8 million . The partnership recorded a gain on sale of $2.3 million , of which our share was $0.6 million , which is recorded in gain on sale of real estate by equity method investee in the accompanying consolidated statement of operations.

NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES

Overview

The preceding discussion analyzes our financial condition and results of operations in accordance with generally accepted accounting principles, or GAAP, for the periods presented. We also use Net Operating Income (“NOI”) and Funds from Operations (“FFO”), which are non-GAAP financial measures, to supplement our analysis and discussion of our operating performance:

•
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. When we use and present NOI, we also do so on a same store (“Same Store NOI”) and non-same store (“Non Same Store NOI”) basis to differentiate between properties that we have owned for the full periods presented and properties acquired, sold, under redevelopment or designated as non-core during those periods. Furthermore, our use and presentation of NOI combines NOI from our consolidated properties and NOI attributable to our share of unconsolidated properties in order to arrive at total NOI. We believe that this is also helpful information because it reflects the pro rata contribution from our unconsolidated properties that are owned through investments accounted for under GAAP as equity in income of partnerships. See “Unconsolidated Properties and Proportionate Financial Information” below.

•
We believe that FFO is also 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. In addition to FFO and FFO per diluted share and OP Unit, when applicable, we also present FFO, as adjusted and FFO per diluted share and OP Unit, as adjusted, which we believe is helpful to management and investors because they adjust FFO to exclude items that management does not believe are indicative of operating performance, such as provision for employee separation expense and accelerated amortization of financing costs.

•
We use both NOI and FFO, or related terms like Same Store NOI and, when applicable, Funds From Operations, as adjusted, for determining incentive compensation amounts under certain of our performance-based executive compensation programs.

NOI and FFO are commonly used non-GAAP financial measures of operating performance in the real estate industry, and we use them as supplemental non-GAAP measures to compare our performance between different periods and to compare our performance to that of our industry peers. Our computation of NOI, FFO and other non-GAAP financial measures, such as Same Store NOI, Non Same Store NOI, NOI attributable to our share of unconsolidated properties, and FFO, as adjusted, may not be comparable to other similarly titled measures used by our industry peers. None of these measures are measures of performance in accordance with GAAP, and they have limitations as analytical tools. They should not be considered as alternative measures of our net income, operating performance, cash flow or liquidity. They are not indicative of funds available for our cash needs, including our ability to make cash distributions. Please see below for a discussion of these non-GAAP measures and their respective reconciliation to the most directly comparable GAAP measure.



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Unconsolidated Properties and Proportionate Financial Information

The non-GAAP financial measures presented below incorporate financial information attributable to our share of unconsolidated properties. This proportionate financial information is non-GAAP financial information, but we believe that it is helpful information because it reflects the pro rata contribution from our unconsolidated properties that are owned through investments accounted for under GAAP using the equity method of accounting. Under such method, earnings from these unconsolidated partnerships are recorded in our statements of operations prepared in accordance with GAAP under the caption entitled “Equity in income of partnerships.”

To derive the proportionate financial information reflected in the tables below as “unconsolidated,” we multiplied the percentage of our economic interest in each partnership on a property-by-property basis by each line item. Under the partnership agreements relating to our current unconsolidated partnerships with third parties, we own a 25% to 50% economic interest in such partnerships, and there are generally no provisions in such partnership agreements relating to special non-pro rata allocations of income or loss, and there are no preferred or priority returns of capital or other similar provisions. While this method approximates our indirect economic interest in our pro rata share of the revenue and expenses of our unconsolidated partnerships, 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. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. Accordingly, NOI and FFO results based on our share of the results of unconsolidated partnerships do not represent cash generated from our investments in these partnerships.

We have determined that we hold a noncontrolling interest in each of our unconsolidated partnerships, and account for such partnerships using the equity method of accounting, because:

•
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 hold legal title to a property owned by one of our unconsolidated partnerships through a tenancy in common arrangement. For this property, such legal title is held by us and another entity, and each has an undivided interest in title to the property. With respect to this property, under the applicable agreements between us and the entity with ownership interests, we and such other entity 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 entity owning an interest in the property. Hence, we account for this property like our other unconsolidated partnerships using the equity method of accounting. The balance sheet items arising from this property 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.



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Net Operating Income (“NOI”)

NOI (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP, including lease termination revenue), minus property operating expenses (determined in accordance with GAAP), plus our pro rata share of revenue and property operating expenses of our unconsolidated partnership investments. NOI excludes other income, general and administrative expenses, employee separation expenses, interest expense, depreciation and amortization, impairment of assets, gains/ adjustment to gains on sale of interest in non operating real estate, gain on sale of interest in real estate by equity method investee, gains/ losses on sales of interests in real estate, net, and project costs and other expenses. We believe that net income is the most directly comparable GAAP measure to NOI.

Same Store NOI is calculated using retail properties owned for the full periods presented and excludes properties acquired, disposed, under redevelopment or designated as non-core during the periods presented. Non Same Store NOI is calculated using the properties excluded from the calculation of Same Store NOI.

The table below reconciles net loss to NOI of our consolidated properties for the three months ended March 31, 2019 and 2018 :
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
Other income
(628
)
 
(889
)
 
Depreciation and amortization
34,904

 
34,030

 
General and administrative expenses
11,205

 
10,132

 
Provision for employee separation expense
719

 
—

 
Project costs and other expenses
294

 
112

 
Interest expense, net
15,898

 
14,901

 
Impairment of development land parcel
1,464

 
—

 
Equity in income of partnerships
(2,289
)
 
(3,138
)
 
Loss on debt extinguishment
4,768

 
—

 
Gain on sale of real estate by equity method investee
(563
)
 
(2,773
)
 
Adjustment to gains on sales of interest in non operating real estate
—

 
25

 
NOI from consolidated properties
$
49,549

 
$
48,688

 

The table below reconciles equity in income of partnerships to NOI of our share of unconsolidated properties for the three months ended March 31, 2019 and 2018 :
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Equity in income of partnerships
$
2,289

 
$
3,138

 
Other income
(12
)
 
(12
)
 
Depreciation and amortization
1,970

 
2,241

 
Interest and other expenses
2,776

 
2,671

 
NOI from equity method investments at ownership share
$
7,023

 
$
8,038

 



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The table below presents total NOI and total NOI excluding lease termination revenue for the three months ended March 31, 2019 and 2018:
 
 
Same Store
 
Non Same Store
 
Total (non GAAP)
(in thousands of dollars)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
NOI from consolidated properties
 
$
45,271

 
$
43,607

 
$
4,278

 
$
5,081

 
$
49,549

 
$
48,688

NOI from equity method investments at ownership share
 
7,052

 
7,575

 
(29
)
 
463

 
7,023

 
8,038

Total NOI
 
52,323

 
51,182

 
4,249

 
5,544

 
56,572

 
56,726

Less: lease termination revenue
 
300

 
261

 
16

 
21

 
316

 
282

Total NOI excluding lease termination revenue
 
$
52,023

 
$
50,921

 
$
4,233

 
$
5,523

 
$
56,256

 
$
56,444


Total NOI decreased by $0.2 million in the three months ended March 31, 2019 compared to the three months ended March 31, 2018 , primarily due to an increase of $1.1 million from Same Store Properties and a decrease of $1.3 million in NOI from Non Same Store properties. The decrease in Non Same Store properties is primarily due to the sale of an office property by an equity method investee in February 2018, and lower NOI contributions from Valley View and Wyoming Valley Malls, due to anchor closings and related co-tenancy revenue adjustments. See “— Real Estate Revenue ” and “— Property Operating Expenses ” above for further information about the factors affecting NOI from our consolidated properties.


Funds From Operations (“FFO”)

The National Association of Real Estate Investment Trusts (“NAREIT”) defines FFO, which is a non-GAAP measure commonly used by REITs, as net income (computed in accordance with GAAP) excluding (i) depreciation and amortization related to real estate, (ii) gains and losses from the sale of certain real estate assets, (iii) gains and losses from change in control, and (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. 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.

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”) and, when applicable, related measures such as Funds From Operations, as adjusted, 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, 2019 and 2018 , respectively, to show the effect of such items as loss on debt extinguishment, impairment of assets, provision for employee separation expense and insurance losses, net , which affected our results of operations, but are not, in our opinion, indicative of our operating performance.



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The following table presents a reconciliation of net loss determined in accordance with GAAP to FFO attributable to common shareholders and OP Unit holders, FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, 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, 2019 and 2018 :  
 
Three Months Ended 
 March 31,
 
(in thousands, except per share amounts)
2019
 
2018
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
     Depreciation and amortization on real estate:
 
 
 
 
    Consolidated properties
34,565

 
33,663

 
    PREIT’s share of equity method investments
1,970

 
2,241

 
     Gain on sale of real estate by equity method investee
—

 
(2,773
)
 
     Preferred share dividends
(6,844
)
 
(6,844
)
 
Funds from operations attributable to common shareholders and OP Unit holders
13,468

 
22,575

 
Loss on debt extinguishment
4,768

 
—

 
Impairment of development land parcel
1,464

 
—

 
Provision for employee separation expense
719

 
—

 
Insurance losses, net
236

 
—

 
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders
$
20,655

 
$
22,575

 
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit
$
0.17

 
$
0.29

 
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit
$
0.26

 
$
0.29

 
 
 
 
 
 
Weighted average number of shares outstanding
71,358

 
69,601

 
Weighted average effect of full conversion of OP Units
6,884

 
8,274

 
Effect of common share equivalents
309

 
209

 
Total weighted average shares outstanding, including OP Units
78,551

 
78,084

 

FFO attributable to common shareholders and OP Unit holders was $13.5 million for the three months ended March 31, 2019 , a decrease of $9.1 million , or 40.3% , compared to $22.6 million for the three months ended March 31, 2018 .

FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.17 and $0.29 for the three months ended March 31, 2019 and 2018, respectively.

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 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, 2018 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 shareholders, recurring capital expenditures, tenant improvements and leasing commissions, but excluding acquisitions and redevelopment and development projects, generally through our available working capital and net cash provided by operations and our 2018 Revolving Facility, subject to the terms and conditions of our 2018 Revolving Facility. 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

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March 31, 2019 were $23.5 million , based on distributions of $0.4609 per Series B Preferred Share, $0.4500 per Series C Preferred Share, $0.4297 per Series D Share, and $0.21 per common share and OP Unit.

In December 2017, 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.

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, 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, as further described below.

Credit Agreements

We have entered into two credit agreements (collectively, as amended, the “Credit Agreements”): (1) the 2018 Credit Agreement, which includes (a) the $400 million 2018 Revolving Facility and (b) the $300 million 2018 Term Loan Facility and (2) the $250 million 2014 7-Year Term Loan. The 2018 Term Loan Facility and the 2014 7-Year Term Loan are collectively referred to as the “Term Loans.”

See note 4 in the notes to our unaudited consolidated financial statements in this Quarterly Report on Form 10-Q for a description of the identical covenants and common provisions contained in the Credit Agreements.

As of March 31, 2019 , we had borrowed $550.0 million under the Term Loans and $162.0 million was outstanding under our 2018 Revolving Facility. Pursuant to certain covenants in the 2018 Revolving Facility, the unused portion of the 2018 Revolving Facility that was available to us as of March 31, 2018 was $196.8 million .

Interest Rate Derivative Agreements

As of March 31, 2019 , we had interest rate swap agreements outstanding with a weighted average base interest rate of 1.84% on a notional amount of $696.9 million , maturing on various dates through May 2023 and a forward starting interest rate swap agreement with a weighted average interest rate of 2.75% on a notional amount of $100.0 million , with an effective date of June 2020, and a maturity date of May 2023.
 
Mortgage Loan Activity

We received a notice of transfer of servicing, dated July 9, 2018, from the special servicer for the mortgage loan secured by Wyoming Valley Mall, which had a balance of $73.4 million as of March 31, 2019 . Our subsidiary that is the borrower under the loan also received a notice of default on the loan from the lender, dated December 14, 2018. The loan is subject to a cash sweep arrangement as a result of an anchor tenant trigger event. We have entered into an agreement with the lender to jointly market the property for sale for a stipulated period of time. If the property is not sold, we expect to convey the property to the lender by deed in lieu of foreclosure; however, we make no assurances that such a transaction will be completed.

In April 2019, we received a notice from the servicer of the Cumberland Mall mortgage of a cash sweep event due to the failure of an anchor tenant to renew for a full term. We expect the cash sweep period to terminate before the end of 2019.



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Mortgage Loans

As of March 31, 2019 , our mortgage loans, which are secured by 10 of our consolidated properties, are due in installments over various terms extending to October 2025 . Seven 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 4.19% at March 31, 2019 . Three of our mortgage loans bear interest at variable rates and had a weighted average interest rate of 4.74% at March 31, 2019 . The weighted average interest rate of all consolidated mortgage loans was 4.34% at March 31, 2019 . 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.

The following table outlines the timing of principal payments related to our consolidated mortgage loans as of March 31, 2019 :
 
(in thousands of dollars)
Total
 
Remainder of 2019
 
2020-2021
 
2022-2023
 
Thereafter
Principal payments
$
85,141

 
$
13,598

 
$
37,735

 
$
22,997

 
$
10,811

Balloon payments
903,327

 
—

 
215,946

 
476,035

 
211,346

Total
$
988,468

 
$
13,598

 
$
253,681

 
$
499,032

 
$
222,157

Less: unamortized debt issuance costs
2,705

 
 
 
 
 
 
 
 
Carrying value of mortgage notes payable
$
985,763

 
 
 
 
 
 
 
 


Contractual Obligations

The following table presents our aggregate contractual obligations as of March 31, 2019 for the periods presented:
(in thousands of dollars)
Total
 
Remainder of 2019
 
2020-2021
 
2022-2023
 
Thereafter
Mortgage loan principal payments
$
988,468

 
$
13,598

 
$
253,681

 
$
499,032

 
$
222,157

Term Loans
550,000

 
—

 
—

 
250,000

 
300,000

2018 Revolving Facility
162,000

 
—

 
—

 
—

 
162,000

Interest on indebtedness (1) (2)
236,134

 
50,065

 
126,005

 
44,741

 
15,323

Operating leases
57,668

 
2,716

 
4,392

 
3,608

 
46,952

Ground leases
40,460

 
365

 
2,968

 
3,168

 
33,959

Development and redevelopment commitments (3)
150,600

 
138,136

 
12,464

 
—

 
—

Total
$
2,185,330

 
$
204,880

 
$
399,510

 
$
800,549

 
$
780,391

_________________________

(1) Includes payments expected to be made in connection with interest rate swaps.
(2) For interest payments associated with variable rate debt, these amounts are based on the rates in effect on March 31, 2019.
(3) The timing of the payments of these amounts is uncertain. We expect that these payments will be made during the remainder of 2019 and in 2020, but cannot provide any assurance that changed circumstances at these projects will not delay the settlement of these obligations. In addition, we included 100% of the obligations of the Fashion District Philadelphia redevelopment project because our Operating Partnership, PREIT Associates, and Macerich, have jointly and severally guaranteed the obligations of the joint venture we formed with Macerich to develop Fashion District Philadelphia to commence and complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016.

Preferred Share Dividends
Annual dividends on our 3,450,000 7.375% Series B Preferred Shares ($25.00 liquidation preference), our 6,900,000 7.20% Series C Preferred Shares ($25.00 liquidation preference) and our 5,000,000 6.875% Series D Preferred Shares ($25.00 liquidation preference) are expected to be $6.4 million, $12.4 million and $8.6 million, respectively, in the aggregate.


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CASH FLOWS

Net cash provided by operating activities totaled $23.0 million for the three months ended March 31, 2019 compared to $31.0 million for the three months ended March 31, 2018 . This decrease was due to changes in working capital between periods, higher interest payments made during the quarter ended March 31, 2019, dilution from assets sold in the quarter ended March 31, 2018, and the impact of changes from the new lease accounting standard which requires the expensing of certain leasing costs that were permitted to be capitalized under the previous standard, among other factors.

Cash flows used in investing activities were $38.7 million for the three months ended March 31, 2019 compared to cash flows provided by investing activities of $110.0 million for the three months ended March 31, 2018 . Cash flows provided by investing activities for the three months ended March 31, 2019 included $13.7 million of proceeds from the sale of a land parcel, sale of a mortgage loan and cash distributions of proceeds from real estate sold by an equity method investee, as well as $2.3 million of insurance proceeds. Cash flows used in investing activities included additions to construction in progress of $28.1 million , investments in partnerships of $19.9 million (primarily at Fashion District Philadelphia), and real estate improvements of $6.4 million (primarily related to ongoing improvements at our properties).

Investing activities for the first three months of 2018 included $123.0 million of distributions of financing proceeds from a term loan at Fashion District Philadelphia and a $19.7 million distribution of sale proceeds from the sale of an office condominium at 907 Market Street, which is part of Fashion District Philadelphia. Investing outflows included additions to construction in progress of $3.1 million , investments in partnerships of $13.9 million (primarily at Fashion District Philadelphia), real estate improvements of $13.6 million (primarily related to ongoing improvements at our properties) and capitalized leasing costs of $2.2 million.

Cash flows provided by financing activities were $5.9 million for the three months ended March 31, 2019 compared to cash flows used in financing activities of $70.6 million for the three months ended March 31, 2018 . Cash flows provided by financing activities for the first three months of 2019 included $97.0 million of net borrowings under our 2018 Revolving Facility, partially offset by aggregate dividends and distributions of $23.5 million , principal installments on mortgage loans of $3.8 million , and $63.3 million used to defease the mortgage secured by Capital City Mall.

Cash flows used in financing activities for the three months ended March 31, 2018 included $53.0 million of net 2013 Revolving Facility repayments, dividends and distributions of $23.3 million , and principal installments on mortgage loans of $3.8 million , partially offset by a $10.2 million mortgage loan borrowing secured by Viewmont 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, 2018, 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 non-anchor 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 operating properties face competition from similar retail centers, including more recently developed or renovated centers that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs, and telemarketers. Our tenants face competition from companies at the same and other properties and from other retail formats as well, including 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 the Credit Agreements, require us to make capital improvements to properties that we would have deferred or

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would not have otherwise planned to make and might also affect the total sales, sales per square foot, 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 and/or generate lower cash flow from an acquired property 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. Such tenants might enter into or renew leases with relatively shorter terms. Such tenants might also defer or fail to make rental payments when due, delay or defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which could result in the termination of the tenant’s lease or preclude the collection of rent in connection with the space for a period of time, and could result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants and we might incur costs to remove such tenants. Some of our tenants occupy stores at multiple locations in our portfolio, and so the effect of any bankruptcy or store closings of those tenants might be more significant to us than the bankruptcy or store closings of other tenants. See “Item 2. Properties—Major Tenants” in our Annual Report on Form 10-K for the year ended December 31, 2018. 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 their 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. Given current conditions in the economy, certain industries and the capital markets, in some instances retailers that have sought protection from creditors under bankruptcy law have had difficulty in obtaining debtor-in-possession financing, which has decreased the likelihood that such retailers will emerge from bankruptcy protection and has limited their alternatives.

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 might 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, 2019 , together with other statements and information publicly disseminated by us, contain certain forward-looking statements that can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “intend,” “may” or similar expressions. 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 the following:


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Table of Contents

•
changes in the retail and real estate industries, including consolidation and store closings, particularly among anchor tenants;
•
current economic conditions and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions;
•
our inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise;
•
our ability to maintain and increase property occupancy, sales and rental rates;
•
increases in operating costs that cannot be passed on to tenants;
•
the effects of online shopping and other uses of technology on our retail tenants;
•
risks related to our development and redevelopment activities, including delays, cost overruns and our inability to reach projected occupancy or rental rates;
•
acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales;
•
our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek;
•
potential losses on impairment of certain long-lived assets, such as real estate, including losses that we might be required to record in connection with any disposition of assets;
•
our substantial debt and the liquidation preference of our preferred shares and our high leverage ratio;
•
our ability to refinance our existing indebtedness when it matures, on favorable terms or at all;
•
our ability to raise capital, including through sales of properties or interests in properties and through the issuance of equity or equity-related securities if market conditions are favorable; and
•
potential dilution from any capital raising transactions or other equity issuances.

Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, 2018 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.



40
Table of Contents

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, 2019 , our consolidated debt portfolio consisted of $985.8 million of fixed and variable rate mortgage loans (net of debt issuance costs), $300.0 million borrowed under our 2018 Term Loan Facility, which bore interest at a rate of 4.09% and $250.0 million borrowed under our 2014 7-Year Term Loan, which bore interest at a rate of 4.09% . As of March 31, 2019 , $162.0 million was outstanding under our 2018 Revolving Facility, which bore interest at a rate of 3.79% .

Our mortgage loans, which are secured by 10 of our consolidated properties, are due in installments over various terms extending to October 2025 . Seven 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 4.19% at March 31, 2019 . Three of our mortgage loans bear interest at variable rates and had a weighted average interest rate of 4.74% at March 31, 2019 . The weighted average interest rate of all consolidated mortgage loans was 4.34% at March 31, 2019 . 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)
2019
$
12,338

 
4.17
%
 
$
1,260

 
4.49
%
2020
43,926

 
5.02
%
 
1,680

(2)  
4.49
%
2021
17,173

 
4.11
%
 
440,902

(2)  
4.19
%
2022
304,044

 
3.97
%
 
228,912

(2)  
3.89
%
2023 and thereafter
350,233

 
4.24
%
 
300,000

 
4.09
%
_________________________
(1)  
Based on the weighted average interest rates in effect as of March 31, 2019 .
(2)  
Includes Term Loan debt balance of $550.0 million with a weighted average interest rate of 4.09% as of March 31, 2019 .

As of March 31, 2019 , we had $972.8 million of variable rate debt. Also, as of March 31, 2019 , we had entered into interest rate swap agreements with an aggregate weighted average interest rate of 1.84% on a notional amount of $696.9 million maturing on various dates through May 2023 and forward starting interest rate swap agreements with a weighted average interest rate of 2.75% on a notional amount of $100.0 million , with effective dates from January 2019 to June 2020, and maturity dates in May 2023.

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, 2019 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 $46.2 million at March 31, 2019 . A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of $47.2 million at March 31, 2019 . Based on the variable rate debt included in our debt portfolio at March 31, 2019 , a 100 basis point increase in interest rates would have resulted in an additional $2.8 million in interest expense annually. A 100 basis point decrease would have reduced interest incurred by $2.8 million annually.

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.


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Because the information presented above includes only those exposures that existed as of March 31, 2019 , 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, 2019 , 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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Table of Contents

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, 2018.

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, 2019 and the average price paid per share (in thousands of shares).
 
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, 2019
—

 
$
—

 
—

 
$
—

February 1 - February 28, 2019
85,839

 
6.81

 
—

 
—

March 1 - March 31, 2019
8,164

 
5.88

 
—

 
—

Total
94,003

 
$
6.73

 
—

 
$
—




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Table of Contents

ITEM 6.   EXHIBITS.
 
 
10.1*+
 
 
10.2*+
 
 
10.3*+
 
 
10.4*+
 
 
31.1*
 
 
31.2*
 
 
32.1**
 
 
32.2**
 
 
101*
The following financial information from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 is formatted in XBRL interactive data files: (i) Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018; (ii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018; (iii) Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018; (iv) Consolidated Statements of Equity for the three months ended March 31, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018; and (vi) Notes to Unaudited Consolidated Financial Statements.

* Filed herewith

** Furnished herewith

+ Management contract, compensatory plan or arrangement

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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:
May 7, 2019
 
 
 
 
By:
/s/ Joseph F. Coradino
 
 
 
Joseph F. Coradino
 
 
 
Chairman and Chief Executive Officer
 
 
 
 
 
 
By:
/s/ Robert F. McCadden
 
 
 
Robert F. McCadden
 
 
 
Executive Vice President and Chief Financial Officer


45
Exhibit 10.1


        





        








PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)



D- 1
Exhibit 10.1

TABLE OF CONTENTS


 
 
Page
1.
PURPOSES
1
2.
DEFINITIONS
1
3.
AWARD AGREEMENT
4
4.
PREFORMANCE GOALS FOR BASE UNITS; DELIVERY OF SHARES
4
5.
RESTRICTED SHARES
8
6.
PERFORMANCE GOALS FOR OPUS; PAYMENT OF OPU AWARDS
9
7.
DERS
11
8.
HOLDING PERIOD
12
9.
BENEFICIARY DESIGNATION
12
10.
DELIVERY TO GUARDIAN
12
11.
SOURCE OF SHARES
12
12.
CAPITAL ADJUSTMENTS
13
13.
TAX WITHOLDING
13
14.
ADMINISTRATION
13
15.
AMENDMENT AND TERMINATION
13
16.
HEADINGS
13
17.
INCORPORATION OF PLAN BY REFERENCE
13
18.
SUBSTITUTION FOR LTIP UNITS
13
APPENDIX A
A-1
APPENDIX B
B-1
APPENDIX C
C-1
APPENDIX D
D-1
APPENDIX E
D-1


D- i
Exhibit 10.1

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)


PREAMBLE

WHEREAS , Pennsylvania Real Estate Investment Trust (the “Trust”) established, and its shareholders approved, the Pennsylvania Real Estate Investment Trust 2018 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 , 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 2019 through 2021 period under the Plan for the benefit of certain officers and other key employees of the Trust and PREIT Services, LLC (the “Program”), whereby such officers and key employees would receive time-based Restricted Shares under the Plan;

WHEREAS , in addition to the grant of time-based Restricted Shares, the Committee desires to award Restricted Share Units or RSUs under the Plan, subject to the Performance Goals set forth in the Program;

WHEREAS , in conjunction with the grant of time-based Restricted Shares and Restricted Share Units under the Program, the Committee desires to grant certain officers additional performance-based Restricted Shares referred to as Outperformance Units or OPUs; and

NOW, THEREFORE , effective as of January 1, 2019, the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award Program is hereby adopted under the Plan by the Committee, with the following terms and conditions:

1. Purposes . The purposes of this Program are to motivate certain officers and key employees of the Trust and its Related Corporations to reach and exceed challenging performance goals, and to focus the attention of the eligible officers and key employees on the critical financial indicators 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, Restricted Shares or Outperformance Units to a Participant.

- 1 -
Exhibit 10.1

(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 7 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” in the Plan.

(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;

(2) Theft, misappropriation or embezzlement of funds of the Trust or its affiliates or of a successor company or affiliate thereof by the Participant;

(3) The Participant’s act resulting in termination pursuant to the provisions of the Trust’s Code of Business Conduct and Ethics for Employees and Officers (as modified, amended or supplemented from time to time) or of any similar code maintained by a successor company;

(4) Indictment of the Participant for a crime involving moral turpitude;

(5) The Participant’s breach of his or her obligations under a confidentiality agreement or non-competition agreement entered into with the Trust or an Affiliate or with a successor company or an affiliate thereof;

(6) 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

(7) 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, or any successor statute, as applicable.

(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 14 hereof.

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Exhibit 10.1

(j) “ DER ” means “DER” (dividend equivalent right) as such term is defined in the Plan.

(k) “ Disability Termination ” means the termination of a Participant’s employment under the disability provisions of the Participant’s Employment Agreement or, if the Participant is not a party to an Employment Agreement, then as a result of a “Disability” as defined in the Plan.

(l) “ Effective Date ” means January 1, 2019.

(m) “ Employer ” means, collectively and individually (as applicable), the Trust and PREIT Services, LLC, 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.

(n) “ 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.

(o) “ 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 to a new principal business office that is more than 50 miles from the Participant’s primary residence and at least 20 miles further from such residence that the Participant’s current principal business office, without the consent of the Participant.

(p) “ Measurement Period ” means the period beginning on the Effective Date and ending on the earlier of December 31, 2021, 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).

(q) “ Outperformance Unit ” or “ OPU ” means a performance-based Restricted Share that may be granted pursuant to the Plan based on the achievement of designated Performance Goals and the application of a Performance Modifier.

(r) “ Participant ” means each individual who has received an Award under the Program.

(s) “ Performance Goals ” means “Performance Goals” as such term is defined in the Plan.

(t) “ Performance Modifier ” means, with respect to a Participant who has been awarded OPUs, a multiple of the Restricted Shares also awarded to such Participant which is used to determine the number of OPUs that have been earned based on the level of achievement of Performance Goals, as described in Section 6(c).

(u) “ Plan ” means the Pennsylvania Real Estate Investment Trust 2018 Equity Incentive Plan, as it may be amended from time to time.

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Exhibit 10.1

(v) “ Program ” means the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award Program (established under the Plan), as it may be amended from time to time.

(w) “ Restricted Share ” means a restricted share issued under the Plan.

(x) “ Restricted Share Unit ” or “ RSU ” means a restricted share unit issued under the Plan.

(y) “ Retirement ” or “ Retire ” means the Participant’s termination of employment with all Employers, other than for Cause, following the date on which (i) the sum of the following equals or exceeds 65 years: (A) the number of years of the Participant’s employment with all Employers, and (B) the Participant’s age on the date of termination of employment, (ii) the Participant has attained the age of 55 years, and (iii) the number of years of the Participant’s employment with the Employers is at least five.  Notwithstanding the foregoing, “Retirement” shall not include a Participant’s resignation from the Employer when such resignation is given in connection with the Participant’s prior acceptance (or planned acceptance) of an employment or consulting position with another person or company.

(z) “ Shares ” means “Shares” as such term is defined in the Plan.

(aa) “ 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 or notional shares upon the payment of a dividend by the Trust). In the event of a Business Combination approved by the shareholders of the Trust on or prior to December 31, 2021, Share Value upon the closing of such Business Combination shall mean the final price per Share agreed upon by the parties to the Business Combination.

(ab) “ Trust ” means Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust.

(ac) “ Trustee ” means a member of the Board.

3. Award Agreement . Each Participant shall be issued an Award Agreement setting forth the initial number of Base Units, Restricted Shares and, if applicable, OPUs, awarded to the Participant. 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 Goals for Base Units; Delivery of Shares .

(a) Base Units . The Base Units awarded to each Participant shall be split into two equal portions, the first half to be subject to the Relative TRS Award Program as described in Section 4(a)(1) below, and the remaining half to be subject to the Absolute TRS Award Program as described in Section 4(a)(2) below.

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Exhibit 10.1

(1) Relative TRS Award Program . If, for the Measurement Period, the Trust’s performance, based on its “TRS” (as defined below), equals or exceeds the “Relative 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 based on 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 “FTSE Retail REIT Index” (as defined below) for the Measurement Period, each ranked pursuant to such TRS. Once the Trust’s percentile position within the FTSE Retail REIT Index is determined, an award multiplier, expressed as a percentage, shall be determined as follows:

•
if the Trust’s TRS is below the 25th percentile on the FTSE Retail REIT Index, the award multiplier shall be 0%;
•
if the Trust’s TRS is equal to the 25th percentile on the FTSE Retail REIT Index, the award multiplier shall be 50%;
•
if the Trust’s TRS is above the 25th percentile but less than the 50th percentile on the FTSE Retail REIT Index, the award multiplier shall be twice such percentile, expressed as a percentage;
•
if the Trust’s TRS is equal to the 50th percentile on the FTSE Retail REIT Index, the award multiplier shall be 100%;
•
if the Trust’s TRS is above the 50th percentile and below the 75th percentile on the FTSE Retail REIT Index, the award multiplier shall be determined by linear interpolation between 100% at the 50th percentile (as set forth in the prior bullet), and 200% at the 75th percentile (as set forth in the subsequent bullet); and
•
if the Trust’s TRS is equal to or above the 75th percentile on the FTSE Retail REIT Index, the award multiplier shall be 200%.

Once the applicable award multiplier is determined, it is multiplied by the number of a Participant’s Base Units subject to the Relative TRS Award Program at the end of the Measurement Period, with the product being the number of Shares awarded. The number of Shares that may be delivered shall not exceed 200% of the Participant’s Base Units subject to the Relative TRS Award Program. 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 Relative Threshold, the Trust shall not deliver any Shares to the Participants under the Relative TRS Award Program. 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 the Relative TRS Award Program. See Appendix A attached hereto for examples illustrating the operation of this Subsection.
(2) Absolute TRS Award Program . If, for the Measurement Period, the Trust’s performance, based on its “TRS” (as defined below), equals or exceeds the “Absolute 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 based on the Trust’s

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Exhibit 10.1

TRS. Once the Trust’s TRS is determined, an award multiplier, expressed as a percentage shall be determined as follows:

•
if the TRS over the Measurement Period shall reflect a TRS below 20%, the award multiplier shall be 0%;
•
if the TRS over the Measurement Period shall reflect a TRS equal to 20%, the award multiplier shall be 50%,
•
if the TRS over the Measurement Period shall reflect a TRS equal to 35%, the award multiplier shall be 100%;
•
if the TRS over the Measurement Period shall reflect a TRS equal to 50% or more, the award multiplier shall be 200%; and
•
if the TRS is between 20% and 35%, or between 35% and 50%, the award multiplier shall be determined by linear interpolation between the applicable endpoints set forth in the prior bullets.

Once the applicable award multiplier is determined, it is multiplied by the number of a Participant’s Base Units subject to the Absolute TRS Award Program at the end of the Measurement Period, with the product being the number of Shares awarded. The number of Shares that may be delivered shall not exceed 200% of the Participant’s Base Units subject to the Absolute TRS Award Program. 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 Absolute Threshold, the Trust shall not deliver any Shares to the Participants under the Absolute TRS Award Program. 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 the Absolute TRS Award Program. See Appendix A attached hereto for examples illustrating the operation of this Subsection.
(b) Definitions for this Section . The following terms shall be defined as set forth below:
(1) “ Absolute Threshold ” means TRS for the Trust equal to 20% for the Measurement Period.
(2) “ FTSE Retail REIT Index ” means the FTSE NAREIT US ALL Equity REIT Index - Retail Subset 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.
(3) “ Relative Threshold ” means the 25 th percentile among the component members (including the Trust) of the FTSE Retail 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 for the Measurement Period for the Trust and for the other component members of the FTSE Retail REIT Index. TRS is calculated by (i) adding ending Share Value to value of dividends paid during the

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Exhibit 10.1

Measurement Period, assuming for purposes of the calculation that such dividends were reinvested, (ii) dividing the result by the beginning Share Value and (iii) subtracting one from such quotient. “Component members” of the FTSE Retail REIT Index means those entities used for purposes of compiling the FTSE Retail REIT Index as of the first day of the Measurement Period, which are listed in Appendix E attached hereto, and that remain publicly held companies as of the last day of the Measurement Period, whether or not they are still included in the FTSE Retail 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 in respect of the Participant’s RSUs 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 Performance Goals for the Measurement Period (and, if applicable, the extent to which each Performance Goal was attained) and the calculations used to make such determination. If Shares are to be delivered in respect of a Participant’s RSUs 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) Elective Deferrals . Except in the event of delivery on account of a Change in Control, if Shares are to be delivered in respect of a Participant’s RSUs 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

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Exhibit 10.1

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, 2021 in order to be effective; otherwise, Shares (and cash attributable to DERs) deliverable to the Participant in respect of his or her RSUs, if any, will be delivered on March 1, 2022. 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 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 C attached hereto.
The Committee intends to administer the Program, including the delivery of Shares under an election made pursuant to this subsection (e) 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. Restricted Shares .

(a) Vestin g. Restricted Shares (other than OPUs) awarded to each Participant shall vest in three equal annual installments as set forth in the Award Agreement. The Committee may at any time accelerate the time at which the restrictions on all or any part of the Restricted Shares will lapse. All unvested Restricted Shares awarded to a Participant shall become fully vested upon a Change in Control.
 
(b) Recordkeeping . The Trust’s transfer agent shall register a Participant’s Restricted Shares in a book entry in the Participant’s name, and shall include provisions in its records noting the restrictions on transfer on such Restricted Shares. The Restricted Shares shall remain subject to such restrictions until the Participant becomes vested in the Restricted Shares. The Trust shall be entitled to direct the transfer agent to transfer to the Trust any Restricted Shares that are forfeited by a Participant and any Shares used to satisfy the tax withholding requirements applicable to the Trust and its affiliates. As soon as practicable after the Restricted Shares become vested, such restriction provisions shall be removed, and the Shares (net of any Shares used to satisfy tax withholding requirements) shall be delivered to the Participant in the form of certificates or in any other form permitted by the Trust.

(c) Voting; Dividends . The Participant shall have voting rights and the right to receive dividends on non-vested Restricted Shares.

(d) Termination of Employment . If the Participant’s employment terminates on account of his or her death or Disability, any otherwise unvested Restricted Shares that are held by the Participant at the time of such a termination of service shall then become fully vested and will be released from any otherwise applicable transfer restrictions. However, if the Participant’s employment is terminated for any reason other than death or Disability, all unvested Restricted Shares held by the Participant at the time of such termination of service shall be forfeited and transferred to the Trust.


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Exhibit 10.1

6. Performance Goals for OPUs; Payment of OPU Awards

(a) Eligibility . OPUs may be awarded to the Trust’s Chief Executive Officer, Executive Vice Presidents, Senior Vice Presidents, First Vice Presidents and up to nine other employees.

(b) Performance Goals . The following Threshold, Target, Above Target and Outperformance metrics have been established for the OPUs by the Committee for the Measurement Period:*
 
Threshold
Target
Above Target
Outperformance
Same Store Sales
$524/sf
$536/sf
$542/sf
$548/sf
Leased Department Store Boxes
85%
90%
92.5%
95%
Cumulative FFO per Share (“FFO”) **
FFO amount per 2019-2021 Business Plan approved by the Board of Trustees
Business Plan FFO +2.5%
Business Plan FFO +3.75%
Business Plan FFO +5%
  *Each of the above metrics will be equally weighed with straight-line interpolation between achievement levels.
**FFO per share may be adjusted by the Committee as appropriate and customary to address any unusual items included in FFO per share that are not indicative of the Trust’s true operating performance.

(c) Determination of Number of Earned OPUs . As of the last day of the Measurement Period, a Participant will be deemed to have earned the number of OPUs determined under this Section 6(c) (“ Earned OPUs ”).

The total number of Earned OPUs shall be calculated by the Committee and shall be equal to the product of (A) the sum of (i) the number of time-based Restricted Shares awarded to the Participant in connection with awards under this Program plus (ii) any additional OPUs “purchased” with DERs pursuant to Section 7, multiplied by (B) the applicable Performance Modifier. The Performance Modifier shall be based on the level of achievement of the applicable Performance Goals set forth in Section 6(b), in accordance with the following chart:
Level of Achievement of Performance Goals
Performance Modifier
Threshold
.50
Target
1.0
Above Target
1.5 or 2.0 as determined by the Committee for each Participant
Outperformance
2.0 or 3.0 as determined by the Committee for each Participant
Within 75 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 Performance Goals for the Measurement Period (and, if applicable, the extent to which each Performance Goal was obtained) and the calculations used to make such determination. Each Participant’s performance multiplier shall equal the arithmetic average of the multiplier achieved for each Performance Goal.

Within 90 days following the end of the Measurement Period, subject to Sections 6(d) and 6(e), the Trust shall issue to each Participant a number of Shares equal to 50% of the number of Earned OPUs and a number of Restricted Shares equal to 50% of the number of Earned OPUs, provided that if the Measurement Period ends as a result of a Change of Control,

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Exhibit 10.1

such Shares shall be issued within five days following the end of the Measurement Period. Subject to the provisions of Sections 6(d) and 6(e), 50% of such Restricted Shares shall vest on December 31, 2022 and 50% shall vest on December 31, 2023. In the event the Trust’s performance does not meet the Threshold level of achievement, no OPUs will be deemed earned.

(d) Limitation . If the total number of Shares to be delivered pursuant to the OPUs 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 OPUs as compared to the total of all Participants’ OPUs, each determined as of the last day of the Measurement Period, provided that all Shares issuable in respect of the RSU issued under the Program shall be paid in full before any Shares are issued in respect of the OPUs.

(e) Termination of Employment . Upon a Participant’s termination of employment before becoming fully vested in his or her Earned OPUs or Restricted Shares issued in respect of any Earned OPUs, the Participant’s vested status in such Earned OPUs or Restricted Shares shall be determined in accordance with the following:

(1) Retirement . If Participant Retires prior to the end of the Measurement Period, the Participant shall be deemed to have earned the number of OPUs issuable based on the level of the Performance Goals achieved as of the calendar quarter end prior to the calendar quarter in which the Participant Retires, prorated for the number of days in the Measurement Period prior to his or her Retirement, and such OPUs shall be fully vested and the Participant shall be issued a number of Shares equal to the number of such vested OPUs. If a Participant Retires at or after the end of the Measurement Period, the Participant shall become fully vested in any Restricted Shares issued in respect of any earned OPUs that are not already vested.

(2) Termination without Cause, for Good Reason or on Account of Disability or Death . If, on or prior to the end 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 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 deemed to have earned the number of OPUs issuable based on the level of the Performance Goals achieved as of the calendar quarter end prior to the calendar quarter in which such termination occurs, prorated for the number of days in the Measurement Period prior to the end of his or her employment, and such OPUs shall be fully vested and the Participant shall be issued a number of Shares equal to the number of such vested OPUs. If such a termination event occurs at or after the end of the Measurement Period, the Participant shall become fully vested in any Restricted Shares issued in respect of any earned OPUs that are not already vested.

(3) Change in Control . If a Change of Control causes the Measurement Period to end prior to December 31, 2021, the Participant shall be deemed to have earned the number of OPUs based on the level of the Performance Goals achieved as of the calendar quarter end prior to the calendar quarter in which the Change of Control occurs, prorated for the number of days in the Measurement Period prior to the Change of Control, and such OPUs shall be fully vested and the Participant shall be issued a number of Shares equal to the number of such vested OPUs. If a Change of Control occurs at or after the end of the

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Exhibit 10.1

Measurement Period, the Participant shall become fully vested in any Restricted Shares issued in respect of any earned OPUs that are not already vested.

(4) Termination for Any Other Reason . If, on or prior to December 31, 2023, the Participant’s employment with the Employer terminates for any reason other than a reason described in paragraph (1) or (2) above, the Participant shall forfeit all of his or her unearned OPUs and any unvested Restricted Shares issued in respect of any Earned OPUs.

(5) Measurement of FFO Per Share . In the event that FFO per share is required to be measured as of a calendar quarter end prior to December 31, 2021 for any purpose under this Section 6(e), FFO per share shall be measured with reference to the corresponding calendar quarter FFO per share set forth in the Trust’s business plan.

7. DERs . Participants shall be awarded DERs with respect to their number of Base Units and OPUs. 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 and OPUs. Until the end of the Measurement Period, the Committee will apply the Dollar Amount to “purchase” a number of additional RSUs and OPUs, respectively, equal to the Dollar Amount divided by the Share Value. The delivery of Shares in respect of such additional RSUs and OPUs shall also be subject to the attainment of the Performance Goals set forth in Sections 4 and 6 above. DERs shall also be awarded on such additional RSUs and OPUs and applied in the same manner (thereby increasing the Participant’s Base Units and OPUs on a cumulative basis). RSUs and OPUs deemed purchased with DERs hereunder may be whole or fractional units. The “purchase price” of the additional RSUs and OPUs credited pursuant to the terms of the Program shall equal the Share Value as defined herein.

Participants who make a deferral election under Section 4(e) 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). Notional shares deemed purchased with DERs hereunder may be whole or fractional share. 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, OPUs and notional shares deemed purchased with the Dollar Amounts. The Participant’s additional RSUs, OPUs and notional shares shall be subject to the adjustments described in Section 12 hereof. All whole additional RSUs and OPUs (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 Section 4(d) or Section 6(c), as applicable, and the fractional additional RSUs or OPUs (for which Shares become deliverable under this Section) and fractional notional shares credited to a Participant’s

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Exhibit 10.1

DER Account shall be aggregated and replaced by issued Shares on a one-for-one basis (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.

8. Holding Period . The Chief Executive Officer of the Trust and each Executive Vice President and Senior Vice President who receives Shares pursuant to RSUs or OPUs granted under this Program shall hold such Shares for a minimum of one year from the date such Shares are received. Similarly, the Chief Executive Officer of the Trust and each Executive Vice President and Senior Vice President who receives any time-based Restricted Shares in connection with this Program, shall hold such time-based Restricted Shares for a minimum of one year from the date such time-based Restricted Shares vest.

9. 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 D 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.

10. 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.

11. 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 applicable Performance Goal is met as applicable. Except as expressly provided herein, no person shall be entitled to the privileges of ownership in respect of Shares that are subject to Awards hereunder until such Shares have been issued to that person.


- 12 -
Exhibit 10.1

12. Capital Adjustments . Calculations required under the Program, the number of Base Units and OPUs awarded under the Program, and the number of Shares that may be delivered under the Program in respect of such Base Units and OPUs shall be adjusted to reflect any increase or decrease in the number of issued Shares 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.

13. 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.

14. Administration . This Program shall be administered by the Committee pursuant to the powers granted to it in Section 3 of the Plan.

15. 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).

16. 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.

17. 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.

18. Substitution for LTIP Units . The Committee hereby acknowledges that it is considering the issuance of LTIP Units by PREIT Associates, L.P. in lieu of the Awards contemplated by this Program. Accordingly, the Trust and the Committee reserve the right to substitute any Award hereunder for an award of LTIP Units instead and/or to provide that the RSUs and OPUs issued hereunder may be settled through the issuance of LTIP Units in lieu of Shares. Such LTIP Units would be a newly-created class of partnership units in PREIT Associates, L.P. that would be intended to qualify as “profits interests” under applicable U.S. federal tax laws. Any such substitution or change in the Awards hereunder would be affected on or prior to December 31, 2019 and be subject to the consent of any effected Participant.


- 13 -
Exhibit 10.1

APPENDIX A

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)

EXAMPLE OF BASE UNIT AWARDS


“A” is a participant in the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award Program (the “Program”).
The Share Value of a beneficial interest (a “Share”) in the “Trust” (as defined in the Program) on January 1, 2019 is $11, and the Share Value of a Share on December 31, 2021 is $16. For the three-year period beginning January 1, 2019 and ending December 31, 2021 (the “Measurement Period”), dividends total $2.52 per Share (and are paid in an equal amount on a quarterly basis - i.e., $.21 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  
1/1/19
250.0
—
—
—
3/15/19
250.0
$52.50
$11
4.8
6/15/19
254.8
$53.51
$11
4.9
9/15/19
259.7
$54.54
$12
4.5
12/15/19
264.2
$55.48
$12
4.6
3/15/20
268.8
$56.45
$13
4.3
6/15/20
273.1
$57.35
$13
4.4
9/15/20
277.5
$58.28
$14
4.2
12/15/20
281.7
$59.16
$14
4.2

* The example set forth in this Appendix A is illustrative only and is not intended to be precise or definitive.

A- 1
Exhibit 10.1

Date

Aggregate
Base Units  

Deemed
Dividend

20-Day
Average Share Price

Additional
RSUs Credited  
3/15/2021
285.9
$60.04
$15
4.0
6/15/2021
289.9
$60.88
$15
4.1
9/15/2021
294.0
$61.74
$16
3.9
12/15/2021
297.9
$62.56
$16
3.9
12/31/2021
301.8
—
—
—


Delivery of Shares
Relative TRS Award Program
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 “FTSE Retail 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 20%. If, as of December 31, 2021, 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 150.9 (the half of the total 301.8 Base Units the Participant holds as of December 31, 2021 that are subject to the Relative TRS Award Program).
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 (subject to the Relative TRS Award Program) Deliverable in Shares
EVPs and SVPs
Below 25 th
0%
25 th
50%
40 th
80%
50 th
100%
65 th
160%
75 th  or above
200%

For example, if the Trust’s TRS places the Trust at the 50 th percentile on the Index, Participant A would receive 150 Shares (and cash for the 0.9 Share). If the Trust’s TRS places

A- 2
Exhibit 10.1

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 301 Shares (and cash for the 0.8 Share).
Absolute TRS Award Program
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”).
Assume the TRS for the Measurement Period is determined to be 20%. If so, 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 150.9 (the half of the total 301.8 Base Units the Participant holds as of December 31, 2021 that are subject to the Absolute TRS Award Program).
The following chart illustrates the number of Shares deliverable as a percent of Base Units, based on the Trust’s TRS:
TRS
Percent of Base Units (subject to the Absolute TRS Award Program) Deliverable in Shares
EVPs and SVPs
Below 20%
0%
20%
50%
27.5%
75%
35%
100%
42.5%
150%
50% or above
200%

For example, if the Trust’s TRS is 35%, Participant A would receive 150 Shares (and cash for the 0.9 Share). If the Trust’s TRS is 17.5%, Participant A would receive 0 Shares, and if the Trust’s TRS is 42.5%, Participant A would receive 226 Share (and cash for the 0.35 Share).


A- 3
Exhibit 10.1

APPENDIX B

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)


EXAMPLE OF OUTPERFORMANCE AWARD
Participant “A” received a time-based restricted share award of 25,000 shares. A’s OPU performance modifiers were set at 0.5, 1.0, 2.0 and 3.0 at the threshold, target, above target and outperformance levels, respectively. If the Company performed at target on two of the Performance Goals and at the outperformance level on the third Performance Goal, A’s performance modifier would be 1.667 (calculated as (1.0 +1.0 +3.0)/3), entitling A to 41,675 shares (25,000 times 1.667). Of those shares, 20,837 (50% of the total) would be issued without further vesting conditions, 10,419 (25% of the total) would be subject to a one-year time-based vesting requirement and 10,419 (25% of the total) would be subject to a two-year time-based vesting requirement.



B- 1
Exhibit 10.1

APPENDIX C

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)

DEFERRAL ELECTION AGREEMENT

The Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award Program, effective as of January 1, 2019 (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 issuable in respect of the Restricted Share Units issued to you under the Program 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, 2021. 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 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 in respect of my Restricted Share Units 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.

C- 1
Exhibit 10.1

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 in respect of my Restricted Share Units 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, 2022] .

¨
(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, 2022] .

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 2018 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.

* * * * *

C- 2
Exhibit 10.1

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: ________________________             


C- 3
Exhibit 10.1


APPENDIX D

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)

BENEFICIARY DESIGNATION FORM

This Form is for your use under the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award 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:_______________________________                         


D- 1
Exhibit 10.1

APPENDIX E

FTSE Retail REIT Index
(FTSE NAREIT US All Equity REIT Index - Retail Subset)

(Component Members as of January 1, 2019)

1.
Acadia Realty Trust
2.
Agree Realty Corporation
3.
Brixmor Property Group Inc.
4.
Brookfield Property REIT
5.
CBL & Associates Properties, Inc.
6.
Cedar Realty Trust, Inc.
7.
Essential Properties Realty Trust
8.
Federal Realty Investment Trust
9.
Four Corners Property Trust, Inc.
10.
Getty Realty Corp
11.
Kimco Realty Corporation
12.
Kite Realty Group Trust
13.
Macerich Company
14.
National Retail Properties, Inc.
15.
Pennsylvania Real Estate Investment Trust
16.
Realty Income Corporation
17.
Regency Centers Corporation
18.
Retail Opportunity Investments Corp.
19.
Retail Properties of America, Inc.
20.
Retail Value, Inc.
21.
RPT Realty
22.
Saul Centers, Inc.
23.
Seritage Growth Properties
24.
Simon Property Group, Inc.
25.
SITE Centers Corp.
26.
Spirit Mta Reit
27.
Spirit Realty Capital, Inc.
28.
STORE Capital Corporation
29.
Tanger Factory Outlet Centers, Inc.
30.
Taubman Centers, Inc.
31.
Urban Edge Properties
32.
Urstadt Biddle Properties Inc.
33.
Urstadt Biddle Properties Inc. Class A
34.
Washington Prime Group Inc.
35.
Weingarten Realty Investors
36.
Wheeler Real Estate Investment Trust, Inc.



E- 1
Exhibit 10.2


PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2018 EQUITY INCENTIVE PLAN
RESTRICTED SHARE UNIT AND DIVIDEND EQUIVALENT RIGHTS
AWARD AGREEMENT
ISSUED PURSUANT TO THE
2019-2021 EQUITY AWARD PROGRAM
This RESTRICTED SHARE UNIT AND DIVIDEND EQUIVALENT RIGHTS AWARD AGREEMENT (the “Award Agreement”), dated as of the ______ day of _________, 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 2018 Equity Incentive Plan (the “Plan”).
WHEREAS, the Trust’s Executive Compensation and Human Resources Committee established the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award Program (the “Program”) under the Plan for specified Key Employees;
WHEREAS, the Program provides for the award of Restricted Share Units, as well as dividend equivalent rights or “DERs” with respect to such Restricted Share Units;
WHEREAS, the Program designates corporate performance goals that determine 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. Restricted Stock Units .

(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.


1
Exhibit 10.2


(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(e) 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(e) 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 Grantee 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 this Award Agreement without the written consent of the Grantee.

(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 subject to the RSUs the Grantee was granted 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 Grantee 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 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,

2
Exhibit 10.2

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 set forth in Section X of the Trust’s Corporate Governance Guidelines (the “Share Retention Requirements”), the Shares issued to the Grantee under the Program shall be treated as though they were restricted shares that became vested upon issuance. If the Grantee has not met the Share Retention Requirements 1 when the Shares are issued, the Grantee shall be required to retain 100% of such Shares until such Share Retention Requirements have been satisfied. However, any share retention requirement that results from this provision shall immediately lapse upon the Participant’s termination of employment with the Employer.

6. Additional Holding Period . In addition to any restrictions imposed pursuant to Section 5, if the Grantee is the CEO of the Trust, an Executive Vice President or a Senior Vice President, the Grantee hereby agrees that he or she shall hold any Shares received pursuant to RSUs granted under this Award for a minimum of one year from the date such Shares are received, even if the Grantee is otherwise in compliance with the Share Retention Requirements.

7. 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.

8. 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).
___________________
1 The Trust’s Corporate Governance Guidelines require certain officers to maintain ownership of PREIT securities having an aggregate value equal to a multiple of the officer’s salary. That multiple is: five times for the Chief Executive Officer, two times for Executive Vice Presidents, and one time for Senior Vice Presidents.

3
Exhibit 10.2


9. Controlling Documents . 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.

10. Electronic Delivery of Documents . The Grantee hereby authorizes the Trust to deliver electronically any prospectuses or other documentation related to this Award, the Plan and any other compensation or benefit plan or arrangement in effect from time to time (including, without limitation, reports, proxy statements or other documents that are required to be delivered to participants in such plans or arrangements pursuant to federal or state laws, rules or regulations). For this purpose, electronic delivery will include, without limitation, delivery by means of e-mail or e-mail notification that such documentation is available on the Trust’s Intranet site. Upon written request, the Trust will provide to the Grantee a paper copy of any document also delivered to the Grantee electronically. The authorization described in this paragraph may be revoked by the Grantee at any time by written notice to the Trust.

    


    


4
Exhibit 10.2

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 as of this _____ day of _________ 2019.
PENNSYLVANIA REAL ESTATE
INVESTMENT TRUST


By:_________________________
Name:
Title:
                            



__________________________________                            
Grantee
Name:
Title:




Exhibit 10.2

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2019-2021 EQUITY AWARD PROGRAM

(Established under the Pennsylvania Real Estate Investment Trust
2018 Equity Incentive Plan)

BENEFICIARY DESIGNATION FORM

This Form is for your use under the Pennsylvania Real Estate Investment Trust 2019-2021 Equity Award 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:_______________________________                         


Exhibit 10.3



PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2018 EQUITY INCENTIVE PLAN
RESTRICTED SHARE AND OUTPERFORMANCE UNIT
AWARD AGREEMENT

This RESTRICTED SHARE AND OUTPERFORMANCE UNIT AWARD AGREEMENT (the “Award Agreement”) is effective on the _____ day of _______________ (the “Award Date”) and is made between Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust (the “Trust”), and ____________________ (the “Grantee”), a “Key Employee,” as defined in the Pennsylvania Real Estate Investment Trust 2018 Equity Incentive Plan (the “Plan”).
WHEREAS, the Trust desires to award the Grantee shares of beneficial interest in the Trust (“Shares”) subject to certain restrictions as hereinafter provided, in accordance with the provisions of the Plan and the Trust’s 2019-2021 Equity Award Program (the “Program”), copies of which are attached hereto (if not previously provided to the Grantee);
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.
Award.

(a) Restricted Shares . The Trust hereby awards to the Grantee as of the Award Date _____________ Shares subject to the restrictions set forth in Paragraph 2 (“Base Restricted Shares”). This grant is in all respects limited and conditioned as hereinafter provided, and is subject in all respects to the terms and conditions of the Plan and the Program now in effect and as they may be amended from time to time (but only to the extent that such amendments apply to outstanding grants of Restricted Shares). Such terms and conditions are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of this Award Agreement.

(b) Outperformance Units . Upon the achievement of the Performance Goals set forth in Section 6(b) of the Program, the Grantee shall be entitled to receive additional Shares subject to the restriction set forth in Paragraph 2 (as applicable) based on the following performance multipliers applied to the number of Base Restricted Shares granted under Paragraph 1(a), as calculated in accordance with Section 6(c) of the Program:

Threshold          0.5
Target              1.0
Above Target          [1.5/2.0]
Outperform          [2.0/3.0]


Exhibit 10.3

This additional grant of Outperformance Units (as defined in the Program) is in all respects limited and conditioned as hereinafter provided, and is subject in all respects to the terms and conditions of the Plan and the Program now in effect and as they may be amended from time to time (but only to the extent that such amendments apply to outstanding grants of Outperformance Units). Such terms and conditions are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of this Award Agreement
2.
Vesting .

(a) Vesting of Restricted Shares . The Grantee shall vest in ( i.e. , have the right to sell, assign, transfer, pledge or otherwise encumber or dispose of) the Base Restricted Shares granted under the Award Agreement as indicated in the schedule below. The “Committee” (as defined in the Plan) may at any time accelerate the time at which the restrictions on all or any part of the Base Restricted Shares will lapse.
Date Base Restricted
Shares Become Vested
Number of Base Restricted Shares
_______________
___________ Base Restricted Shares
_______________
an additional ___________ Base Restricted Shares
_______________
an additional ___________ Base Restricted Shares

(b) Vesting of Outperformance Units . If any Shares are issued in respect of the Outperformance Units upon the achievement of the Performance Goals set forth in Section 6(b) of the Program, 50% of such Shares shall be issued without being subject to any further vesting conditions, 25% of such Shares shall vest on December 31, 2022 and 25% of such Shares shall vest on December 31, 2023. Any such Shares issued subject to such vesting conditions are hereinafter referred to as “OPU Restricted Shares” and, together with the Base Restricted Shares, the “Restricted Shares.”

(c) Accelerated Vesting Upon Change in Control . All unvested Restricted Shares awarded to the Grantee shall become fully vested upon a “Change in Control” (as defined in the Plan).

(d) Additional Holding Period . In addition to any restrictions imposed pursuant to this Paragraph 2, if the Grantee is the CEO of the Trust, an Executive Vice President or a Senior Vice President, the Grantee hereby agrees that he or she shall hold the Restricted Shares received under this Award Agreement for a minimum of one year from the date such Restricted Shares vest.

3. Restriction Provisions; Share Certificates . The Trust’s transfer agent shall register the Grantee’s Base Restricted Shares, and any additional OPU Restricted Shares if and when issued, in a book entry in the Grantee’s name, and shall include provisions in its records noting the restrictions on transfer on such Restricted Shares that are set forth in this Award Agreement. The Restricted Shares shall remain subject to such restrictions until the Grantee becomes vested in


Exhibit 10.3

the Restricted Shares. The Grantee, by executing this Agreement, irrevocably grants to the Trust a power of attorney to direct the Trust’s transfer agent to transfer to the Trust any Restricted Shares that are forfeited pursuant to Paragraph 5 and any Shares used to satisfy the withholding requirements set forth in Paragraph 8. The Grantee also agrees to execute any documents requested by the Trust in connection with such transfer to the Trust. As soon as practicable after the Restricted Shares become vested under Paragraph 2, such restriction provisions shall be removed, and the Shares (net of any Shares used to satisfy the withholding requirements of Paragraph 8) shall be delivered to the Grantee in the form of certificates or in any other form permitted by the Trust.

4. Voting and Dividend Rights .

(a) Restricted Shares . The Grantee shall have voting rights and the right to receive dividends on non-vested Restricted Shares. The character of those dividends for tax purposes and whether those amounts are subject to tax withholding will depend on whether the Grantee has made the election described in Paragraph 6.

(b) Outperformance Units . The Grantee shall not have any voting rights or the right to receive cash dividends on the Outperformance Units, but the Grantee shall be entitled to a “dividend equivalent right” on his or her Outperformance Units as specified in Section 7 of the Program.

5. Termination of Service . If the Grantee’s service with the Trust and all of its “Subsidiary Entities” (as defined in the Plan) terminates on account of his or her death or “Disability” (as defined in the Plan), any otherwise unvested Restricted Shares that are held by the Grantee at the time of such a termination of service shall then become fully vested and will be released from any otherwise applicable transfer restrictions in the same manner described in the last sentence of Paragraph 3. However, if the Grantee’s service with the Trust and all of its Subsidiary Entities is terminated for any reason other than death or Disability, all unvested Restricted Shares held by the Grantee at the time of such termination of service shall be transferred to the Trust pursuant to the power described in Paragraph 3, except to the extent such Restricted Shares were issued in respect of Outperformance Units and the Program provides for accelerated vesting. The vesting of the Grantee’s Outperformance Units upon the termination of his or her employment with the Trust and all of its “Subsidiary Entities” shall be in accordance with Section 6(e) of the Program.

6. Notice of Tax Election . If the Grantee makes an election under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), for the immediate recognition of income attributable to the award of Restricted Shares, the Grantee shall inform the Trust in writing of such election within 10 days of the filing of such election. The amount includible in the Grantee’s income as a result of an election under section 83(b) of the Code shall be subject to applicable federal, state and local tax withholding requirements and to such additional withholding rules (the “Withholding Rules”) as may be applicable. Dividends paid on Restricted Shares for which the Grantee has made such an election shall not be treated as compensation subject to withholding, but rather as dividends on shares of a real estate investment trust.


Exhibit 10.3


7. Transferability . The Grantee may not assign or transfer, in whole or in part, Restricted Shares or Outperformance Units subject to the Award Agreement in which the Grantee is not vested.

8. Withholding of Taxes . The release of Shares upon vesting (or, if a Section 83(b) election is made with respect to this Award, the effectiveness of the Award itself) will be conditioned on the Grantee making arrangements reasonably satisfactory to the Trust for the delivery of amounts necessary to timely satisfy all applicable federal, state and local tax withholding requirements. If the amount includible in the Grantee’s income as a result of the vesting of Restricted Shares is subject to the withholding requirements of applicable tax law, the Grantee, subject to the provisions of the Plan and the Withholding Rules, may satisfy the withholding tax, in whole or in part, by electing to have the Trust withhold Shares (or by returning Shares to the Trust) pursuant to the Withholding Rules. Such Shares shall be valued, for this purpose, at their “Fair Market Value” (as defined in the Plan) on the date the amount attributable to the vesting of the Restricted Shares is includible in income by the Grantee under section 83 of the Code. Such election must be made in compliance with and subject to the Withholding Rules, and the Trust may not withhold Shares in excess of the maximum statutory tax rate permitted without affecting the equity classification of the award. Notwithstanding the foregoing, the Trust may limit the number of Shares withheld to the extent necessary to avoid adverse accounting consequences.

9. 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).

10. Electronic Delivery of Documents . The Grantee hereby authorizes the Trust to deliver electronically any prospectuses or other documentation related to this Award, the Plan and any other compensation or benefit plan or arrangement in effect from time to time (including, without limitation, reports, proxy statements or other documents that are required to be delivered to participants in such plans or arrangements pursuant to federal or state laws, rules or regulations). For this purpose, electronic delivery will include, without limitation, delivery by means of e-mail or e-mail notification that such documentation is available on the Trust’s Intranet site. Upon written request, the Trust will provide to the Grantee a paper copy of any document also delivered to the Grantee electronically. The authorization described in this paragraph may be revoked by the Grantee at any time by written notice to the Trust.

[signature page follows]

    


Exhibit 10.3

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 as of this _____ day of _______________.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST


By:_____________________________________________
Name:
Title:


GRANTEE


________________________________________________
Name:
Title:






Exhibit 10.4



PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
2018 EQUITY INCENTIVE PLAN
RESTRICTED SHARE AWARD AGREEMENT

This RESTRICTED SHARE AWARD AGREEMENT (the “Award Agreement”) is effective on the _____ day of _______________ (the “Award Date”) and is made between Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust (the “Trust”), and ____________________ (the “Grantee”), a “Key Employee,” as defined in the Pennsylvania Real Estate Investment Trust 2018 Equity Incentive Plan (the “Plan”).
WHEREAS, the Trust desires to award the Grantee shares of beneficial interest in the Trust (“Shares”) subject to certain restrictions as hereinafter provided, in accordance with the provisions of the Plan, a copy of which is attached hereto (if not previously provided to the Grantee);
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.
Award of Restricted Shares . The Trust hereby awards to the Grantee as of the Award Date _____________ Shares subject to the restrictions set forth in Paragraph 2 (“Restricted Shares”). This grant is in all respects limited and conditioned as hereinafter provided, and is subject in all respects to the terms and conditions of the Plan now in effect and as it may be amended from time to time (but only to the extent that such amendments apply to outstanding grants of Restricted Shares). Such terms and conditions are incorporated herein by reference, made a part hereof, and shall control in the event of any conflict with any other terms of this Award Agreement.

2. Vesting .

(a) Regular Vesting . The Grantee shall vest in ( i.e. , have the right to sell, assign, transfer, pledge or otherwise encumber or dispose of) the Restricted Shares granted under the Award Agreement as indicated in the schedule below. The “Committee” (as defined in the Plan) may at any time accelerate the time at which the restrictions on all or any part of the Restricted Shares will lapse.

Date Restricted Shares
Become Vested
Number of Restricted Shares
_______________
___________ Restricted Shares
_______________
an additional ___________ Restricted Shares
_______________
an additional ___________ Restricted Shares


Exhibit 10.4



(b) Accelerated Vesting Upon Change in Control . All unvested Restricted Shares awarded to the Grantee shall become fully vested upon a “Change in Control” (as defined in the Plan).

(c) Additional Holding Period . In addition to any restrictions imposed pursuant to this Paragraph 2, if the Grantee is the CEO of the Trust, an Executive Vice President or a Senior Vice President, the Grantee hereby agrees that he or she shall hold the Restricted Shares received under this Award Agreement for a minimum of one year from the date such Restricted Shares vest.

3. Restriction Provisions; Share Certificates . The Trust’s transfer agent shall register the Grantee’s Restricted Shares in a book entry in the Grantee’s name, and shall include provisions in its records noting the restrictions on transfer on such Restricted Shares that are set forth in this Award Agreement. The Restricted Shares shall remain subject to such restrictions until the Grantee becomes vested in the Restricted Shares. The Grantee, by executing this Agreement, irrevocably grants to the Trust a power of attorney to direct the Trust’s transfer agent to transfer to the Trust any Restricted Shares that are forfeited pursuant to Paragraph 5 and any Shares used to satisfy the withholding requirements set forth in Paragraph 8. The Grantee also agrees to execute any documents requested by the Trust in connection with such transfer to the Trust. As soon as practicable after the Restricted Shares become vested under Paragraph 2, such restriction provisions shall be removed, and the Shares (net of any Shares used to satisfy the withholding requirements of Paragraph 8) shall be delivered to the Grantee in the form of certificates or in any other form permitted by the Trust.

4. Voting and Dividend Rights . The Grantee shall have voting rights and the right to receive dividends on non-vested Restricted Shares. The character of those dividends for tax purposes and whether those amounts are subject to tax withholding will depend on whether the Grantee has made the election described in Paragraph 6.

5. Termination of Service . If the Grantee’s service with the Trust and all of its “Subsidiary Entities” (as defined in the Plan) terminates on account of his or her death or “Disability” (as defined in the Plan), any otherwise unvested Restricted Shares that are held by the Grantee at the time of such a termination of service shall then become fully vested and will be released from any otherwise applicable transfer restrictions in the same manner described in the last sentence of Paragraph 3. However, if the Grantee’s service with the Trust and all of its Subsidiary Entities is terminated for any reason other than death or Disability, all unvested Restricted Shares held by the Grantee at the time of such termination of service shall be transferred to the Trust pursuant to the power described in Paragraph 3.

6. Notice of Tax Election . If the Grantee makes an election under section 83(b) of the Internal Revenue Code of 1986, as amended (the “Code”), for the immediate recognition of income attributable to the award of Restricted Shares, the Grantee shall inform the Trust in writing of such election within 10 days of the filing of such election. The amount includible in the Grantee’s income as a result of an election under section 83(b) of the Code shall be subject to applicable federal, state and local tax withholding requirements and to such additional


Exhibit 10.4

withholding rules (the “Withholding Rules”) as may be applicable. Dividends paid on Restricted Shares for which the Grantee has made such an election shall not be treated as compensation subject to withholding, but rather as dividends on shares of a real estate investment trust.

7. Transferability . The Grantee may not assign or transfer, in whole or in part, Restricted Shares subject to the Award Agreement in which the Grantee is not vested.

8. Withholding of Taxes . The release of Shares upon vesting (or, if a Section 83(b) election is made with respect to this Award, the effectiveness of the Award itself) will be conditioned on the Grantee making arrangements reasonably satisfactory to the Trust for the delivery of amounts necessary to timely satisfy all applicable federal, state and local tax withholding requirements. If the amount includible in the Grantee’s income as a result of the vesting of Restricted Shares is subject to the withholding requirements of applicable tax law, the Grantee, subject to the provisions of the Plan and the Withholding Rules, may satisfy the withholding tax, in whole or in part, by electing to have the Trust withhold Shares (or by returning Shares to the Trust) pursuant to the Withholding Rules. Such Shares shall be valued, for this purpose, at their “Fair Market Value” (as defined in the Plan) on the date the amount attributable to the vesting of the Restricted Shares is includible in income by the Grantee under section 83 of the Code. Such election must be made in compliance with and subject to the Withholding Rules, and the Trust may not withhold Shares in excess of the maximum statutory tax rate permitted without affecting the equity classification of the award. Notwithstanding the foregoing, the Trust may limit the number of Shares withheld to the extent necessary to avoid adverse accounting consequences.

9. 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).

10. Electronic Delivery of Documents . The Grantee hereby authorizes the Trust to deliver electronically any prospectuses or other documentation related to this Award, the Plan and any other compensation or benefit plan or arrangement in effect from time to time (including, without limitation, reports, proxy statements or other documents that are required to be delivered to participants in such plans or arrangements pursuant to federal or state laws, rules or regulations). For this purpose, electronic delivery will include, without limitation, delivery by means of e-mail or e-mail notification that such documentation is available on the Trust’s Intranet site. Upon written request, the Trust will provide to the Grantee a paper copy of any document also delivered to the Grantee electronically. The authorization described in this paragraph may be revoked by the Grantee at any time by written notice to the Trust.

[signature page follows]

    



Exhibit 10.4

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 as of this _____ day of _______________.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST


By:_____________________________________________
Name:
Title:


GRANTEE


________________________________________________
Name:
Title:








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: May 7, 2019
 
 
 
/s/ Joseph F. Coradino
 
 
 
Name:
 
Joseph F. Coradino
 
 
 
Title:
 
Chairman and 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: May 7, 2019  
 
/s/ Robert F. McCadden
 
 
Name:
Robert F. McCadden
Title:
Executive Vice President and
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, 2019 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: May 7, 2019
 
 
/s/ Joseph F. Coradino
 
 
Name:
Joseph F. Coradino
 
 
Title:
Chairman and 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, 2019 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: May 7, 2019
 
 
/s/ Robert F. McCadden
 
 
Name:
Robert F. McCadden
 
 
Title:
Executive Vice President and
Chief Financial Officer