4 4 26,250,900 26,250, ANNUAL REPORT

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1 2014 ANNUAL REPORT

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3 At the ed of 2012, PREIT properties ecompassed 30,647,000 square feet. At the ed of 2014, that umber had bee reduced to 28,644,000. But we are strog ad growig. I 2012, PREIT laid out a pla to ehace shareholder value by focusig o four key strategic objectives: balace sheet improvemet, operatioal excellece, elevatig portfolio quality ad positioig for growth. As a result, we are reshapig our portfolio, sellig lower-productivity properties ad reducig our footprit while providig stability ad opportuity to grow to grow same store Net Operatig Icome (NOI), sales, occupacy, reewal spreads, our tradig multiple, our divided ad our retailer ad commuity relatioships. Ad we cotiue to explore opportuities to grow by selectively addig properties to our portfolio ad reivestig i our best assets. PREIT is a real estate ivestmet trust specializig i the owership ad maagemet of differetiated retail shoppig malls desiged to fit the dyamic commuities they serve. Fouded i 1960 as Pesylvaia Real Estate Ivestmet Trust, the Compay ows ad operates approximately 29 millio square feet of space i properties i 12 states i the easter half of the Uited States with cocetratio i the Mid-Atlatic regio ad Greater Philadelphia. PREIT is headquartered i Philadelphia, Pesylvaia, ad is publicly traded o the NYSE uder the symbol PEI. Iformatio about the Compay ca be foud at preit.com PENNSYLVANIA REAL ESTATE INVESTMENT TRUST (i thousads, except per share amouts) Year eded December 31, Fuds from operatios* Total reveue Loss from cotiuig operatios Net (loss) icome attributable to commo shareholders Loss from cotiuig operatios per share basic ad diluted Net (loss) icome per share basic ad diluted Ivestmet i real estate, at cost Total assets Distributios paid per commo share Number of commo shares ad OP Uits outstadig Total market capitalizatio $ 129,419 $ 121,101 $ 95,617 $ 432,703 $ 438,678 $ 419,347 $ (14,262) $$ (20,449) $ (44,319) $ (29,678) $ 20,011) $ (48,821) $ (0.44) $ (0.56) $ (0.92) $ (0.44) $ 0.31) $ (0.89) $ 3,285,404) $ 3,527,868) $ 3,477,540) $ 2,539,703) $ 2,718,581) $ 2,877,624) $ 0.80) $ 0.74) $ 0.63) 70,923) 70,422) 58,632) $ 3,593,355) $ 3,368,965) $ 3,337,292) * Recociliatio to GAAP ca be foud o page ANNUAL REPORT

4 Dear Fellow Shareholders 2014 was a strog year for PREIT as we cotiued to reshape our portfolio ad improve our performace. Our achievemets prove that we are movig from a compay challeged by lower quality assets to oe drive by its higherquality assets idicated by record comp store sales, occupacy ad same store NOI growth. We cotiue to focus o the same strategic objectives we itroduced i 2012 they are our foudatioal pillars. Our efforts to deliver cosistetly strog operatig results were evidet i our 2014 results. We geerated 3.1% same store NOI growth ad the proportio of NOI from our premier assets has grow from 30.9% at the ed of 2012 to 34.3% at the ed of 2014, a 11% icrease resultig from our ogoig portfolio trasformatio. We hit record occupacy levels at the ed of the year at 96.7% for our same store malls, geerated 4.0% improvemet i rets o executed reewal leases ad siged ew leases for 51% more space i 2014 tha we did i With stability i our occupacy, we have the opportuity to replace uder-performig teats with higher-productivity merchats who have a stroger ret-payig ability. Objectives Realized Our efforts to improve the quality of our portfolio have really take ceter stage ad we have made oteworthy progress sales i our portfolio exceeded $400 per square foot for the rollig 12 moths eded Jauary 31, 2015, a importat Joseph F. Coradio Chief Executive Officer goal that we laid out i 2012 ad a historic high for PREIT. Sice outliig these objectives, we have sold six lower-productivity malls ad the process of parig our portfolio cotiues with five additioal properties curretly o the market. I aother move to drive quality, we recetly completed the previously-aouced acquisitio of Sprigfield Tow Ceter i Fairfax Couty, Virgiia. Whe we aouced our plas to acquire the property, it was uder costructio as part of a multi-year comprehesive recofigura ANNUAL REPORT 3

5 ANNUAL REPORT

6 SPRINGFIELD TOWN CENTER, SPRINGFIELD, VA 2014 ANNUAL REPORT 5

7 AVERAGE COMP SALES dollars per square foot Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Dec 31 Jauary Rollig 12 moth tio ad remerchadisig process. I October 2014, it opeed to the public to great fafare. The architecture is breathtakig ad the desig is as coducive to shoppig as imagied. Retailers are exceedig expectatios ad leasig is progressig with a pipelie of teats that will complemet the extraordiary lieup that already exists. We have more tha 80% of the space committed ad expect to exceed our iitial uderwritig for the project. As it stabilizes, we expect this property will take its place amog PREIT s premier assets. Durig the year, we also etered ito a joit veture with The Macerich Compay to redevelop The Gallery, where we have a irreplaceable opportuity to trasform three city blocks i dowtow Philadelphia ito the ext great urba marketplace takig advatage of its strategic locatio atop oe of the city s hubs for mass trasit ad adjacet to its tourist destiatios ad burgeoig residetial populatio. Through this mutually beeficial partership, the redevelopmet is expected to build upo the offerigs of the recetly opeed Cetury 21 Departmet Store ad realize our visio to create Philadelphia s oly trasit-orieted, retail achored multi-use property offerig accessible luxury retailig ad artisa food experieces. Upo its re-opeig, The Gallery will be re-braded Fashio Outlets of Market East. Whe Sprigfield Tow Ceter stabilizes ad The Gallery is redeveloped, we expect that over 90% of our NOI will be geerated from premier ad core growth assets, exemplifyig the trasformatio of our portfolio. Shorig Up The Eds We had a stellar year of improvig ad replacig achor positios at our properties. We opeed Cetury 21 Departmet Store at The Gallery this year. Not oly was this trasactio first-tomarket, but it was the first store that this premier retailer opeed outside of the New York Metro area. This was a sigificat accomplishmet toward our redevelopmet efforts ad fillig a vacat achor positio. We also executed a lease with Kohl s at New River Valley Mall i Christiasburg, Virgiia to replace a former Sears locatio. This is clearly a ehacemet to the fashio offerigs at this ceter located just 3 miles from Virgiia Tech s 31,000 studets. At Willow Grove Park, oe of our premier assets i ANNUAL REPORT

8 the Philadelphia market, Sears has subleased a portio of their space to Primark. We are excited to be part of the early rollout i the U.S. for this retailer ad view this as aother idicatio of retailer perceptio of the high quality of our portfolio. We have also bee successfully itroducig first-to-portfolio ad first-to-market expadig, ew retailers to our portfolio. Last year, we siged leases with excitig retailers like UNIQLO, lululemo, Vera Bradley, Tumi, Garage, Flip Flop Shops, Field & Stream ad e.l.f. to ame a few. Shufflig The Deck Remerchadisig of our core growth assets cotiues havig made tremedous progress at Moorestow Mall sigig best of breed local boutiques alog with two ew restaurats to complemet the existig offerigs. The result has bee a 590 basis poit improvemet i o-achor occupacy ad a substatial improvemet i NOI at the property. At Viewmot Mall, a comprehesive program of right-sizig ad relocatig existig teats to make way for Forever 21, ULTA ad Buffalo Wild Wigs is similarly expected to result i a projected 15% growth i NOI at this property i These remerchadisig ad redevelopmet efforts are ot just geared toward improvig quality but are also mechaisms to grow NOI at paces that are expected to exceed ormalized growth rates while compressig capitalizatio rates ad improvig asset valuatios. Beyod those uderway, we have a meaigful pipelie SAME STORE NOI GROWTH percetage of NOI growth December of redevelopmet ad remerchadisig opportuities at other key properties icludig Exto Square Mall i Chester Couty, Pesylvaia, the highest icome ad fastest growig couty i the state; Mall at Price Georges just outside of Washigto, D.C., where over $1 billio i developmet is plaed or uderway i the immediately surroudig eighborhoods; Woodlad Mall i Grad Rapids, Michiga, where we will look to upgrade merchadise offerigs at this high-performig mall; ad Plymouth Meetig Mall, where we will look to capitalize o oe of the best locatios i the Philadelphia suburbs through the additio of a mix of uses i a desificatio ad upgradig project ANNUAL REPORT 7

9 Maitaiig Balace All the while, our balace sheet remais strog ad cotiues to be a area of focus. We were pleased to share our successes with our ivestors by icreasig our divided by 31% over the last two years. As of the ed of 2014, leverage was at a historic low of 47.6% but still above our log term goal. Durig the year, we cotiued to opportuistically uecumber assets ad, i 2015, we have several fiacig opportuities for expirig mortgage loas, may of which repre- set opportuities to extract proceeds ad reduce our iterest rates goig forward. TOTAL RETURN PERFORMANCE idex value DEBT/EBITDA PREIT S&P 500 NAREIT Equity Russell 2000 The five-year performace graph above compares our cumulative total shareholder retur with the S&P 500 Idex, the NAREIT Equity Idex ad the Russell 2000 Idex. Equity real estate ivestmet trusts are defied as those which derive more tha 75% of their icome from equity ivestmets i real estate assets. The graph assumes that the value of the ivestmet i each of the four was $100 o the last tradig day of 2008 ad that all divideds were reivested. percet ratio We are proud of what we have accomplished alog the path of trasformatio ad have a tremedous opportuity to deliver strog returs for our shareholders through cotiued performace ad value-creatig edeavors We are thakful to our parters ad various stakeholders our shareholders, our retailers, 45 7 our shoppers, our trustees ad especially the PREIT team! Thak you all for your cotiuig 40 6 support o this jourey with us Leverage DEBT/EBITDA Ratios are calculated based o defiitios i the Compay s 2010 ad 2013 Credit Facilities, as applicable. Joseph F. Coradio Chief Executive Officer April 6, ANNUAL REPORT

10 FASHION OUTLETS OF MARKET EAST, PHILADELPHIA, PA PROPOSED 2014 ANNUAL REPORT 9

11 A N N U A L R E P O R T

12 P LY M O U T H M E E T I N G M A L L, P LY M O U T H M E E T I N G, P A PROPOSED A N N U A L R E P O R T 11

13 Properties As of December 31, 2014 ENCLOSED MALLS CITY STATE OWNERSHIP ACQUIRED SQUARE INTEREST FEET 1 Beaver Valley Mall Moaca PA 100% ,153,000 Capital City Mall Camp Hill PA 100% ,000 Cherry Hill Mall Cherry Hill NJ 100% ,306,000 Crossroads Mall Beckley WV 100% ,000 Cumberlad Mall Vielad NJ 100% ,000 Dartmouth Mall Dartmouth MA 100% ,000 Exto Square Mall Exto PA 100% ,088,000 Fracis Scott Key Mall Frederick MD 100% ,000 Gadsde Mall Gadsde AL 100% ,000 The Gallery at Market East Philadelphia PA 50% ,474,000 Jacksoville Mall Jacksoville NC 100% ,000 Lehigh Valley Mall Whitehall PA 50% ,170,000 Loga Valley Mall Altooa PA 100% ,000 Lycomig Mall Pesdale PA 100% ,000 Magolia Mall Florece SC 100% ,000 Moorestow Mall Moorestow NJ 100% ,065,000 New River Valley Mall Christiasburg VA 100% ,000 Palmer Park Mall Easto PA 100% 1972/ ,000 Patrick Hery Mall Newport News VA 100% ,000 Plymouth Meetig Mall Plymouth Meetig PA 100% ,000 The Mall at Price Georges Hyattsville MD 100% ,000 Sprigfield Mall Sprigfield PA 50% ,000 Uiotow Mall Uiotow PA 100% ,000 Valley Mall Hagerstow MD 100% ,000 Valley View Mall La Crosse WI 100% ,000 Viewmot Mall Scrato PA 100% ,000 Voorhees Tow Ceter Voorhees NJ 100% ,000 Washigto Crow Ceter Washigto PA 100% ,000 Willow Grove Park Willow Grove PA 100% 2000/2003 1,179,000 Wiregrass Commos Mall Dotha AL 100% ,000 Woodlad Mall Grad Rapids MI 100% ,169,000 Wyomig Valley Mall Wilkes-Barre PA 100% ,000 TOTAL MALLS 26,337,000 1 Represets total square feet of property. PREIT-owed square footage may be less ANNUAL REPORT

14 Properties As of December 31, 2014 OTHER RETAIL CITY STATE OWNERSHIP ACQUIRED SQUARE PROPERTIES INTEREST FEET Metroplex Shoppig Ceter Plymouth Meetig PA 50% ,000 The Court at Oxford Valley Laghore PA 50% ,000 Red Rose Commos Lacaster PA 50% ,000 Sprigfield Park Sprigfield PA 50% 1997/ ,000 Street Level Retail (2 properties) Philadelphia PA 100% ,000 OTHER RETAIL PROPERTIES TOTAL 2,307,000 TOTAL PROPERTIES 28,644,000 MI WI NY MA MI PA NJ WV VA MD NC PREIT PROPERTY MAP Regioal Shoppig Ceters Owed ad Maaged Properties Maaged Properties AL SC Commuity ad Power Ceters Owed ad Maaged Properties Maaged Properties Street Retail Developmet Properties Joit Vetures FL 2014 ANNUAL REPORT 13

15 ANNUAL REPORT WOODLAND MALL, GRAND RAPIDS, MI

16 Fiacial Cotets Selected Fiacial Iformatio 16 Cosolidated Fiacial Statemets 17 Notes to Cosolidated Fiacial Statemets 22 Maagemet s Report o Iteral Cotrol Over Fiacial Reportig 43 Reports of Idepedet Registered Public Accoutig Firm 43 Maagemet s Discussio ad Aalysis 45 Trustees ad Officers 66 Ivestor Iformatio 67 PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 15

17 SELECTED FINANCIAL INFORMATION (UNAUDITED) (i thousads, except per share amouts) Year Eded December 31, Operatig results Total reveue $ 432,703 $ 438,678 $ 419,347 $ 419,138 $ 418,163 Loss from cotiuig operatios $ (14,262) $ (20,449) $ (44,319) $ (67,876) $ (75,529) Net (loss) icome $ (14,262) $ 37,213 $ (42,550) $ (93,935) $ (54,363) Net (loss) icome attributable to PREIT commo shareholders $ (29,678) $ 20,011 $ (48,821) $ (90,161) $ (51,927) Loss from cotiuig operatios per share basic ad diluted $ (0.44) $ (0.56) $ (0.92) $ (1.20) $ (1.44) Net (loss) earigs per share basic ad diluted $ (0.44) $ 0.31 $ (0.89) $ (1.66) $ (1.04) Cash flows Cash provided by operatig activities $ 145,075 $ 136,219 $ 120,324 $ 105,262 $ 116,791 Cash provided by (used i) ivestig activities $ 31,650 $ 30,741 $ (88,178) $ (21,772) $ 81,029 Cash used i fiacig activities $ (170,522) $ (166,720) $ (19,954) $ (104,019) $ (229,736) Cash distributios Cash distributios per share commo shares $ 0.80 $ 0.74 $ 0.63 $ 0.60 $ 0.60 Cash distributios per share Series A Preferred shares $ $ $ $ $ Cash distributios per share Series B Preferred shares $ $ $ $ $ Fuds From Operatios (1) Net (loss) icome $ (14,262) $ 37,213 $ (42,550) $ (93,935) $(54,363 ) Divideds o preferred shares (15,848) (15,848) (7,984) Gais o sales of iterests i real estate (12,699) (740) Gais o sales of discotiued operatios (78,512) (947) (19,094) Impairmet of assets 19,695 29,966 3,805 52,336 Depreciatio ad amortizatio of real estate assets: Wholly owed ad cosolidated parterships, et 142, , , , ,081 Ucosolidated parterships 9,850 7,373 7,396 8,403 8,656 Discotiued operatios 1,161 8,877 12,402 16,934 Fuds from operatios $ 129,419 $ 121,101 $ 95,617 $ 105,585 $ 99,214 Weighted average umber of shares outstadig 68,217 63,662 55,122 54,639 50,642 Weighted average effect of full coversio OP Uits 2,128 2,194 2,310 2,329 2,329 Effect of commo share equivalets , Total weighted average shares outstadig icludig OP Uits 71,041 66,732 58,563 57,470 53,473 Fuds from operatios per diluted share ad OP Uit $ 1.82 $ 1.81 $ 1.63 $ 1.84 $ 1.86 (i thousads) As of December 31, Balace sheet items Ivestmets i real estate, at cost $ 3,285,404 $ 3,527,868 $3,477,540 $ 3,576,997 $ 3,587,468 Total assets $ 2,539,703 $2,718,581 $2,877,624 $ 2,910,254 $ 3,080,117 Log term debt Cosolidated properties: Mortgage loas payable, icludig debt premium $ 1,407,947 $1,502,650 $ 1,718,052 $1,691,381 $ 1,744,248 Revolvig facilities $ $ 130,000 $ $ 95,000 $ Exchageable Notes, et of debt discout $ $ $ $ 136,051 $ 134,091 Term loas $ 130,000 $ $ 182,000 $ 240,000 $ 347,200 Compay s share of parterships: Mortgage loas payable $ 190,310 $ 198,451 $ 201,717 $ 204,546 $ 175,693 (1) The Natioal Associatio of Real Estate Ivestmet Trusts ( NAREIT ) defies Fuds From Operatios ( FFO ), which is a o-gaap measure commoly used by REITs, as et icome excludig gais ad losses o sales of operatig properties, extraordiary items (computed i accordace with GAAP) ad sigificat o-recurrig evets that materially distort the comparative measuremet of compay performace over time; plus real estate depreciatio ad amortizatio; ad after adjustmets for ucosolidated parterships ad joit vetures to reflect fuds from operatios o the same basis. We compute FFO i accordace with stadards established by NAREIT, which may ot be comparable to FFO reported by other REITs that do ot defie the term i accordace with the curret NAREIT defiitio, or that iterpret the curret NAREIT defiitio differetly tha we do. NAREIT s established guidace provides that excludig impairmet write dows of depreciable real estate is cosistet with the NAREIT defiitio. For additioal iformatio about FFO, please refer to page SELECTED FINANCIAL INFORMATION

18 CONSOLIDATED BALANCE SHEETS December 31, December 31, (i thousads, except per share amouts) Assets: Ivestmets i real estate, at cost: Operatig properties $ 3,216,231 $ 3,450,317 Costructio i progress 60,452 68,835 Lad held for developmet 8,721 8,716 Total ivestmets i real estate 3,285,404 3,527,868 Accumulated depreciatio (1,061,051 ) (1,012,746 ) Net ivestmets i real estate 2,224,353 2,515,122 Ivestmets i Parterships, at equity: 140,882 15,963 Other Assets: Cash ad cash equivalets 40,433 34,230 Teat ad other receivables (et of allowace for doubtful accouts of $11,929 ad $13,123 at December 31, 2014 ad 2013, respectively) 40,566 46,439 Itagible assets (et of accumulated amortizatio of $11,873 ad $14,506 December 31, 2014 ad 2013, respectively) 6,452 9,075 Deferred costs ad other assets 87,017 97,752 Total assets $ 2,539,703 $ 2,718,581 Liabilities: Mortgage loas payable $ 1,407,947 $ 1,502,650 Term Loas 130,000 Revolvig Facility 130,000 Teats deposits ad deferred ret 15,541 17,896 Distributios i excess of partership ivestmets 65,956 64,491 Fair value of derivative istrumets 2, Accrued expeses ad other liabilities 73,032 76,248 Total liabilities 1,694,966 1,792,129 Commitmets ad Cotigecies (Note 11) Equity: Series A Preferred Shares, $.01 par value per share; 25,000 shares authorized; 4,600 shares issued ad outstadig at December 31, 2014 ad 2013; liquidatio preferece of $115, Series B Preferred Shares, $.01 par value per share; 25,000 shares authorized; 3,450 shares issued ad outstadig at December 31, 2014 ad 2013; liquidatio preferece of $86, Shares of beeficial iterest, $1.00 par value per share; 200,000 shares authorized; issued ad outstadig 68,801 shares at December 31, 2014 ad 68,293 shares at December 31, ,801 68,293 Capital cotributed i excess of par 1,474,183 1,467,460 Accumulated other comprehesive loss (6,002 ) (6,637 ) Distributios i excess of et icome (721,605 ) (636,939 ) Total equity Pesylvaia Real Estate Ivestmet Trust 815, ,258 Nocotrollig iterest 29,279 34,194 Total equity 844, ,452 Total liabilities ad equity $ 2,539,703 $ 2,718,581 See accompayig otes to cosolidated fiacial statemets. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 17

19 CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Eded December 31, (i thousads of dollars) Reveue: Real estate reveue: Base ret $ 278,896 $ 283,074 $ 272,036 Expese reimbursemets 126, , ,993 Percetage ret 5,124 5,732 5,713 Lease termiatio reveue 2,250 1,565 1,753 Other real estate reveue 13,401 14,448 14,318 Total real estate reveue 426, , ,813 Other icome 6,107 6,950 5,534 Total reveue 432, , ,347 Expeses: Operatig expeses: Property operatig expeses: CAM ad real estate taxes (140,662) (142,684) (132,901) Utilities (23,993) (22,028) (21,838) Other (15,772) (17,567) (18,391) Total property operatig expeses (180,427) (182,279) (173,130) Depreciatio ad amortizatio (144,304) (140,880) (127,845) Geeral ad admiistrative expeses (35,518) (36,975) (37,538) Provisio for employee separatio expese (4,961) (2,314) (9,437) Acquisitio costs ad other expeses (4,937) (1,422) (1,936) Total operatig expeses (370,147) (363,870) (349,886) Iterest expese, et (82,165) (98,731) (122,118) Impairmet of assets (19,695) (6,304) Total expeses (472,007 ) (468,905 ) (472,004 ) Loss before equity i icome of parterships, gais o sales of real estate ad discotiued operatios (39,304) (30,227) (52,657) Equity i icome of parterships 10,569 9,778 8,338 Gais o sales of iterests i real estate, et 12,699 Gais o sales of o-operatig real estate 1,774 Loss from cotiuig operatios (14,262 ) (20,449 ) (44,319 ) Discotiued operatios: Operatig results from discotiued operatios 2,812 4,627 Impairmet of assets of discotiued operatios (23,662) (3,805) Gais o sales of discotiued operatios 78, Icome from discotiued operatios 57,662 1,769 Net (loss) icome (14,262) 37,213 (42,550) Less: et loss (icome) attributed to ocotrollig iterest 432 (1,354) 1,713 Net (loss) icome attributable to PREIT (13,830) 35,859 (40,837) Less: preferred share divideds (15,848) (15,848) (7,984) Net (loss) icome attributable to PREIT commo shareholders $ (29,678 ) $ 20,011 $ (48,821 ) See accompayig otes to cosolidated fiacial statemets. 18 CONSOLIDATED FINANCIAL STATEMENTS

20 CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) EARNINGS PER SHARE For the Year Eded December 31, (i thousads of dollars, except per share amouts) Loss from cotiuig operatios $ (14,262) $ (20,449) $ (44,319) Preferred divideds (15,848) (15,848) (7,984) Nocotrollig iterest i cotiuig operatios ,778 Divideds o restricted shares (380) (439) (442) Loss from cotiuig operatios used to calculate earigs per share basic ad diluted $ (30,058 ) $ (36,007 ) $ (50,967 ) Icome from discotiued operatios $ $ 57,662 $ 1,769 Nocotrollig iterest i discotiued operatios (2,083) (65) Icome from discotiued operatios used to calculate earigs per share basic ad diluted $ $ 55,579 $ 1,704 Basic ad diluted (loss) earigs per share: Loss from cotiuig operatios $ (0.44) $ (0.56) $ (0.92) Icome from discotiued operatios Basic ad diluted (loss) earigs per share $ (0.44 ) $ 0.31 $ (0.89 ) (i thousads of shares) Weighted average shares outstadig basic 68,217 63,662 55,122 Effect of dilutive commo share equivalets (1) Weighted average shares outstadig diluted 68,217 63,662 55,122 (1) For the years eded December 31, 2014, 2013 ad 2012, there are et losses allocable to commo shareholders from cotiuig operatios, so the effect of commo share equivalets of 696, 876 ad 1,131 for the years eded December 31, 2014, 2013 ad 2012, respectively, is excluded from the calculatio of diluted (loss) earigs per share, as their iclusio would be ati-dilutive. See accompayig otes to cosolidated fiacial statemets. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Year Eded December 31, (i thousads of dollars) Comprehesive (loss) icome: Net (loss) icome $ (14,262) $ 37,213 $ (42,550) Urealized (loss) gai o derivatives (2,270) 9,647 11,370 Amortizatio of losses of settled swaps, et of gais 2,924 5,069 2,419 Total comprehesive (loss) icome (13,608) 51,929 (28,761) Less: Comprehesive loss (icome) attributable to ocotrollig iterest 413 (1,840) 1,156 Comprehesive (loss) icome attributable to PREIT $ (13,195 ) $ 50,089 $ (27,605 ) See accompayig otes to cosolidated fiacial statemets. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 19

21 CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014, 2013 & NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PREIT Shareholders Series A Series B Shares of Capital Accumulated Preferred Preferred Beeficial Cotributed Other Distributios No- (i thousads of dollars, Shares, Shares, Iterest, i Excess Comprehesive i Excess of cotrollig except per share amouts) Total Equity $.01 Par $.01 Par $1.00 Par of Par (Icome) Loss Net Icome Iterest Jauary 1, 2012 $ 588,038 $ 55,677 $1,047,487 $ (34,099) $ (524,738) $ 43,711 Net loss (42,550) (40,837) (1,713) Other comprehesive icome 13,789 13, Shares issued uder redemptio of Operatig Partership Uits (441) Shares issued uder employee ad trustee compesatio plas, et of shares retired (4,722) 626 (5,348) Amortizatio of deferred compesatio 11,028 11,028 Preferred Share offerigs 194, ,150 Divideds paid to commo shareholders ($0.63 per share) (35,735) (35,735) Divideds paid to Series A preferred shareholders ($ per share) (6,193) (6,193) Divideds paid to Series B preferred shareholders ($ per share) (1,131) (1,131) Nocotrollig iterests: Distributios paid to Operatig Partership uit holders ($0.63 per uit) (1,459) (1,459) Amortizatio of historic tax credit (1,810) (1,810) Cotributios from ocotrollig iterest, et (257) (257) Balace December 31, , ,331 1,247,730 (20,867 ) (608,634 ) 38,588 Net icome 37,213 35,859 1,354 Other comprehesive icome 14,716 14, Shares issued i 2013 public commo offerig, et 220,511 11, ,011 Shares issued uder redemptio of Operatig Partership Uits 172 2,372 (2,544) Shares issued uder employee compesatio pla, et of shares retired Amortizatio of deferred compesatio 8,071 8,071 Divideds paid to commo shareholders ($0.74 per share) (48,315) (48,315) Divideds paid to Series A preferred shareholders ($ per share) (9,488) (9,488) Divideds paid to Series B preferred shareholders ($ per share) (6,361) (6,361) Nocotrollig iterests: Distributios paid to Operatig Partership uit holders ($0.74 per uit) (1,626) (1,626) Amortizatio of historic tax credit (1,810) (1,810) Cotributios from ocotrollig iterest, et (254) (254) Balace December 31, , ,293 1,467,460 (6,637 ) (636,939 ) 34,194 Net loss (14,262) (13,830) (432) Other comprehesive icome Shares issued upo redemptio of Operatig Partership Uits (138) Shares issued uder employee compesatio pla, et of shares retired (1,362) 501 (1,863) Amortizatio of deferred compesatio 8,455 8,455 Divideds paid to commo shareholders ($0.80 per share) (54,988) (54,988) Divideds paid to Series A preferred shareholders ($ per share) (9,487) (9,487) Divideds paid to Series B preferred shareholders ($ per share) (6,361) (6,361) Nocotrollig iterests: Distributios paid to Operatig Partership uit holders ($0.80 per uit) (1,703) (1,703) Amortizatio of historic tax credit (581) (581) Other distributios to ocotrollig iterests, et (2,080) (2,080) Balace December 31, 2014 $ 844,737 $ 46 $ 35 $ 68,801 $1,474,183 $ (6,002 ) $ (721,605 ) $ 29,279 See accompayig otes to cosolidated fiacial statemets.

22 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Eded December 31, (i thousads of dollars) Cash flows from operatig activities: Net (loss) icome $ (14,262) $ 37,213 $ (42,550) Adjustmets to recocile et (loss) icome to et cash provided by operatig activities: Depreciatio 135, , ,204 Amortizatio 9,505 12,903 15,951 Straight-lie ret adjustmets (1,467) (1,425) (2,234) Provisio for doubtful accouts 1,566 1,656 1,861 Amortizatio of deferred compesatio 8,455 8,071 11,028 Loss o hedge ieffectiveess 1,761 3,409 Gai o sales of real estate ad discotiued operatios (14,473) (78,512) (947) Equity i icome of parterships i excess of distributios (1,675) (2,713) Amortizatio of historic tax credits (2,508) (2,494) (1,810) Impairmet of assets ad expesed project costs 20,187 30,775 5,057 Chage i assets ad liabilities: Net chage i other assets 3,921 (7,779) (15,167) Net chage i other liabilities (1,030) 1,953 20,931 Net cash provided by operatig activities 145, , ,324 Cash flows from ivestig activities: Cash proceeds from sales of real estate ivestmets 190, ,644 Ivestmets i cosolidated real estate acquisitios (20,000) (60,879) Additios to costructio i progress (41,512) (36,456) (38,104) Ivestmets i real estate improvemets (71,346) (44,785) (43,543) Additios to leasehold improvemets (1,656) (2,062) (881) Ivestmets i parterships (19,184) (250) (3,682) Capitalized leasig costs (5,446) (5,261) (5,336) Icrease i cash escrows (2,369) (2,682) (1,404) Cash distributios from parterships i excess of equity i icome 2,721 1,472 4,772 Net cash provided by (used i) ivestig activities 31,650 30,741 (88,178 ) Cash flows from fiacig activities: Borrowigs from (repaymets of) term loas 130,000 (182,000) (58,000) Net (repaymets of) borrowigs from revolvig facilities (130,000) 130,000 (95,000) Proceeds from mortgage loas 154, ,750 Repaymet of mortgage loas (76,784) (403,691) (320,731) Pricipal istallmets o mortgage loas (17,919) (16,973) (20,311) Paymet of deferred fiacig costs (1,918) (4,035) (1,753) Net proceeds from issuace of commo shares i public offerig 220,511 Commo shares issued 3,270 2,983 1,788 Net proceeds from issuace of Series A preferred shares 110,896 Net proceeds from issuace of Series B preferred shares 83,335 Repaymet of Exchageable Notes (136,900) Divideds paid to commo shareholders (54,988) (48,315) (35,735) Divideds paid to preferred shareholders (15,848) (15,849) (7,324) Distributios paid to Operatig Partership uit holders ad ocotrollig iterest (1,703) (1,626) (1,459) Value of shares issued uder equity icetive plas, et of shares retired (4,632) (2,417) (6,510) Net cash used i fiacig activities (170,522 ) (166,720 ) (19,954 ) Net chage i cash ad cash equivalets 6, ,192 Cash ad cash equivalets, begiig of year 34,230 33,990 21,798 Cash ad cash equivalets, ed of year $ 40,433 $ 34,230 $ 33,990 See accompayig otes to cosolidated fiacial statemets. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 21

23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Eded December 31, 2014, 2013 ad Orgaizatio ad Summary of Sigificat Accoutig Policies NATURE OF OPERATIONS Pesylvaia Real Estate Ivestmet Trust ( PREIT ), a Pesylvaia busiess trust fouded i 1960 ad oe of the first equity real estate ivestmet trusts ( REITs ) i the Uited States, has a primary ivestmet focus o retail shoppig malls located i the easter half of the Uited States, primarily i the Mid-Atlatic regio. As of December 31, 2014, our portfolio cosisted of a total of 42 properties located i 12 states ad operatig i 11 states, icludig 32 shoppig malls, six other retail properties ad four developmet properties. Two of the developmet properties are classified as mixed use (a combiatio of retail ad other uses), oe is classified as retail (outlet), ad oe is classified as other. I 2014, we sold three of our wholly owed mall properties, 50% of our iterest i a mall property that was previously wholly owed, ad our partership iterests i oe other retail property. We hold our iterest i our portfolio of properties through our operatig partership, PREIT Associates, L.P. ( PREIT Associates or the Operatig Partership ). We are the sole geeral parter of the Operatig Partership ad, as of December 31, 2014, held a 97.0% cotrollig iterest i the Operatig Partership, ad cosolidated it for reportig purposes. The presetatio of cosolidated fiacial statemets does ot itself imply that the assets of ay cosolidated etity (icludig ay special-purpose etity formed for a particular project) are available to pay the liabilities of ay other cosolidated etity, or that the liabilities of ay cosolidated etity (icludig ay special-purpose etity formed for a particular project) are obligatios of ay other cosolidated etity. Pursuat to the terms of the partership agreemet of the Operatig Partership, each of the limited parters has the right to redeem such parter s uits of limited partership iterest i the Operatig Partership ( OP Uits ) for cash or, at our electio, we may acquire such OP Uits i exchage for our commo shares o a oe-for-oe basis, i some cases begiig oe year followig the respective issue date of the OP Uits ad i other cases immediately. If all of the outstadig OP Uits held by limited parters had bee redeemed for cash as of December 31, 2014, the total amout that would have bee distributed would have bee $49.8 millio, which is calculated usig our December 31, 2014 closig share price o the New York Stock Exchage of $23.46 multiplied by the umber of outstadig OP Uits held by limited parters, which was 2,122,215 as of December 31, We provide maagemet, leasig ad real estate developmet services through two of our subsidiaries: PREIT Services, LLC ( PREIT Services ), which geerally develops ad maages properties that we cosolidate for fiacial reportig purposes, ad PREIT-RUBIN, Ic. ( PRI ), which geerally develops ad maages properties that we do ot cosolidate for fiacial reportig purposes, icludig properties owed by parterships i which we ow a iterest ad properties that are owed by third parties i which we do ot have a iterest. PREIT Services ad PRI are cosolidated. PRI is a taxable REIT subsidiary, as defied by federal tax laws, which meas that it is able to offer additioal services to teats without jeopardizig our cotiuig qualificatio as a REIT uder federal tax law. We evaluate operatig results ad allocate resources o a property-by-property basis, ad do ot distiguish or evaluate our cosolidated operatios o a geographic basis. Due to the ature of our operatig properties, which ivolve retail shoppig, we have cocluded that our idividual properties have similar ecoomic characteristics ad meet all other aggregatio criteria. Accordigly, have aggregated our idividual properties ito oe reportable segmet. I additio, o sigle teat accouts for 10% or more of our cosolidated reveue, ad oe of our properties are located outside the Uited States. CONSOLIDATION We cosolidate our accouts ad the accouts of the Operatig Partership ad other cotrolled subsidiaries, ad we reflect the remaiig iterest i such etities as ocotrollig iterest. All sigificat itercompay accouts ad trasactios have bee elimiated i cosolidatio. PARTNERSHIP INVESTMENTS We accout for our ivestmets i parterships that we do ot cotrol usig the equity method of accoutig. These ivestmets, each of which represets a 25% to 50% ocotrollig owership iterest at December 31, 2014, are recorded iitially at our cost ad subsequetly adjusted for our share of et equity i icome ad cash cotributios ad distributios. We do ot cotrol ay of these equity method ivestees for the followig reasos: Except for three properties that we co-maage with our parter, the other etities are maaged o a day-to-day basis by oe of our other parters as the maagig geeral parter i each of the respective parterships. I the case of the co-maaged properties, all decisios i the ordiary course of busiess are made joitly. The maagig geeral parter is resposible for establishig the operatig ad capital decisios of the partership, icludig budgets, i the ordiary course of busiess. All major decisios of each partership, such as the sale, refiacig, expasio or rehabilitatio of the property, require the approval of all parters. Votig rights ad the sharig of profits ad losses are i proportio to the owership percetages of each parter. STATEMENTS OF CASH FLOWS We cosider all highly liquid short-term ivestmets with a origial maturity of three moths or less to be cash equivalets. At December 31, 2014 ad 2013, cash ad cash equivalets totaled $40.4 millio ad $34.2 millio, respectively, ad icluded teat security deposits of $3.5 millio ad $3.8 millio, respectively. Cash paid for iterest, icludig iterest related to discotiued operatios i 2013 ad 2012, was $76.6 millio, $94.1 millio ad $116.4 millio for the years eded December 31, 2014, 2013 ad 2012, respectively, et of amouts capitalized of $0.6 millio, $0.9 millio ad $1.5 millio, respectively. SIGNIFICANT NON-CASH TRANSACTIONS I July 2014, we etered ito a 50/50 joit veture with The Macerich Compay ( Macerich ) to redevelop The Gallery at Market East i Philadelphia, Pesylvaia ( The Gallery ). We cotributed ad sold real estate assets to the veture, ad Macerich acquired its iterest i the veture ad real estate from us. I coectio with the trasactio, we reclassified the retaied assets of The Gallery of approximately $106.9 millio from Operatig Properties to the lie item Ivestmets i parterships, at equity. I our statemet of cash flows, we show cash flows o our revolvig facilities o a et basis. Aggregate borrowigs o our revolvig facilities were $140.0 millio, $512.5 millio ad $215.0 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. Aggregate repaymets were $270.0 millio, $382.5 millio ad $310.0 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. I December 2012, we sold our remaiig iterest i Northeast Tower Ceter i exchage for the cacellatio of a $3.8 millio ote payable to the buyer. We recorded a gai of $0.9 millio from this sale i Accrued costructio costs decreased by $2.0 millio i the year eded December 31, 2014, icreased by $2.4 millio i the year eded December 31, 2013 ad decreased by $0.3 millio i the year eded December 31, 2012, represetig o-cash chages i costructio i progress. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24 ACCOUNTING POLICIES USE OF ESTIMATES The preparatio of fiacial statemets i coformity with accoutig priciples geerally accepted i the Uited States of America requires our maagemet to make estimates ad assumptios that affect the reported amouts of assets ad liabilities ad disclosure of cotiget assets ad liabilities at the date of the cosolidated fiacial statemets, ad the reported amouts of reveue ad expese durig the reportig periods. Actual results could differ from those estimates. We believe that our most sigificat ad subjective accoutig estimates ad assumptios are those relatig to asset impairmet, fair value ad accouts receivable reserves. Our maagemet makes complex or subjective assumptios ad judgmets i applyig its critical accoutig policies. I makig these judgmets ad assumptios, our maagemet cosiders, amog other factors, evets ad chages i property, market ad ecoomic coditios, estimated future cash flows from property operatios, ad the risk of loss o specific accouts or amouts. REVENUE RECOGNITION We derive over 95% of our reveue from teat ret ad other teat-related activities. Teat ret icludes base ret, percetage ret, expese reimbursemets (such as reimbursemets of costs of commo area maiteace ( CAM ), real estate taxes ad utilities), amortizatio of above-market ad below-market lease itagibles (as described below uder Itagible Assets ) ad straight-lie ret. We record base ret o a straight-lie basis, which meas that the mothly base ret reveue accordig to the terms of our leases with our teats is adjusted so that a average mothly ret is recorded for each teat over the term of its lease. Whe teats vacate prior to the ed of their lease, we accelerate amortizatio of ay related uamortized straight-lie ret balaces, ad uamortized above-market ad below-market itagible balaces are amortized as a decrease or icrease to real estate reveue, respectively. The straight-lie ret adjustmet icreased reveue by $1.5 millio, $1.4 millio ad $2.2 millio i the years eded December 31, 2014, 2013 ad 2012, respectively. The straight-lie ret receivable balaces icluded i teat ad other receivables o the accompayig balace sheet as of December 31, 2014 ad 2013 were $23.7 millio ad $26.5 millio, respectively. Percetage ret represets retal reveue that the teat pays based o a percetage of its sales, either as a percetage of its total sales or as a percetage of sales over a certai threshold. I the latter case, we do ot record percetage ret util the sales threshold has bee reached. Reveue for ret received from teats prior to their due dates is deferred util the period to which the ret applies. I additio to base ret, certai lease agreemets cotai provisios that require teats to reimburse a fixed or pro rata share of certai CAM costs, real estate taxes ad utilities. Teats geerally make mothly expese reimbursemet paymets based o a budgeted amout determied at the begiig of the year. Durig the year, our icome icreases or decreases based o actual expese levels ad chages i other factors that ifluece the reimbursemet amouts, such as occupacy levels. As of December 31, 2014 ad 2013, our accouts receivable icluded accrued icome of $3.4 millio ad $7.7 millio, respectively, because actual reimbursable expese amouts eligible to be billed to teats uder applicable cotracts exceeded amouts actually billed. Certai lease agreemets cotai coteacy clauses that ca chage the amout of ret or the type of ret that teats are required to pay, or, i some cases, ca allow a teat to termiate their lease, i the evet that certai evets take place, such as a declie i property occupacy levels below certai defied levels or the vacatig of a achor store. Coteacy clauses do ot geerally have ay retroactive effect whe they are triggered. The effect of coteacy clauses is applied o a prospective basis to recogize the ew ret that is i effect. Paymets made to teats as iducemets to eter ito a lease are treated as deferred costs that are amortized as a reductio of retal reveue over the term of the related lease. Lease termiatio fee reveue is recogized i the period whe a termiatio agreemet is siged, collectibility is assured ad we are o loger obligated to provide space to the teat. I the evet that a teat is i bakruptcy whe the termiatio agreemet is siged, termiatio fee icome is deferred ad recogized whe it is received. We also geerate reveue by providig maagemet services to third parties, icludig property maagemet, brokerage, leasig ad developmet. Maagemet fees geerally are a percetage of maaged property reveue or cash receipts. Leasig fees are eared upo the cosummatio of ew leases. Developmet fees are eared over the time period of the developmet activity ad are recogized o the percetage of completio method. These activities are collectively icluded i Other icome i the cosolidated statemets of operatios. FAIR VALUE Fair value accoutig applies to reported balaces that are required or permitted to be measured at fair value uder relevat accoutig authority. Fair value measuremets are determied based o the assumptios that market participats would use i pricig the asset or liability. As a basis for cosiderig market participat assumptios i fair value measuremets, these accoutig requiremets establish a fair value hierarchy that distiguishes betwee market participat assumptios based o market data obtaied from sources idepedet of the reportig etity (observable iputs that are classified withi Levels 1 ad 2 of the hierarchy) ad the reportig etity s ow assumptios about market participat assumptios (uobservable iputs classified withi Level 3 of the hierarchy). Level 1 iputs utilize quoted prices (uadjusted) i active markets for idetical assets or liabilities that we have the ability to access. Level 2 iputs are iputs other tha quoted prices icluded i Level 1 that are observable for the asset or liability, either directly or idirectly. Level 2 iputs might iclude quoted prices for similar assets ad liabilities i active markets, as well as iputs that are observable for the asset or liability (other tha quoted prices), such as iterest rates, foreig exchage rates ad yield curves that are observable at commoly quoted itervals. Level 3 iputs are uobservable iputs for the asset or liability ad are typically based o a etity s ow assumptios, as there is little, if ay, related market activity. I istaces where the determiatio of the fair value measuremet is based o iputs from differet levels of the fair value hierarchy, the level i the fair value hierarchy withi which the etire fair value measuremet falls is based o the lowest level iput that is sigificat to the fair value measuremet i its etirety. Our assessmet of the sigificace of a particular iput to the fair value measuremet i its etirety requires judgmet, ad cosiders factors specific to the asset or liability. We utilize the fair value hierarchy i our accoutig for derivatives (Level 2) ad fiacial istrumets (Level 2) ad i our reviews for impairmet of real estate assets (Level 3) ad goodwill (Level 3). FINANCIAL INSTRUMENTS Carryig amouts reported o the balace sheet for cash ad cash equivalets, teat ad other receivables, accrued expeses, other liabilities ad the 2013 Revolvig Facility approximate fair value due to the short-term ature of these istrumets. All of our variable rate debt is subject to iterest rate derivative istrumets that have effectively fixed the iterest rates o the uderlyig debt. The estimated fair value for fixed rate debt, which is calculated for disclosure purposes, is based o the borrowig rates available to us for fixed rate mortgage loas with similar terms ad maturities. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 23

25 IMPAIRMENT OF ASSETS Real estate ivestmets ad related itagible assets are reviewed for impairmet wheever evets or chages i circumstaces idicate that the carryig amout of the property might ot be recoverable, which is referred to as a triggerig evet. I coectio with our review of our log-lived assets for impairmet, we utilize qualitative ad quatitative factors i order to estimate fair value. The sigificat qualitative factors that we use iclude age ad coditio of the property, market coditios i the property s trade area, competitio with other shoppig ceters withi the property s trade area ad the creditworthiess ad performace of the property s teats. The sigificat quatitative factors that we use iclude historical ad forecasted fiacial ad operatig iformatio relatig to the property, such as et operatig icome, occupacy statistics, vacacy projectios ad teats sales levels. Our fair value assumptios relatig to real estate assets are withi Level 3 of the fair value hierarchy. If there is a triggerig evet i relatio to a property to be held ad used, we will estimate the aggregate future cash flows, less estimated capital expeditures, to be geerated by the property, udiscouted ad without iterest charges. I additio, this estimate may cosider a probability weighted cash flow estimatio approach whe alterative courses of actio to recover the carryig amout of a log-lived asset are uder cosideratio or whe a rage of possible values is estimated. The determiatio of udiscouted cash flows requires sigificat estimates by our maagemet, icludig the expected course of actio at the balace sheet date that would lead to such cash flows. Subsequet chages i estimated udiscouted cash flows arisig from chages i the aticipated actio to be take with respect to the property could affect the determiatio of whether a impairmet exists, ad the effects of such chages could materially affect our et icome. If the estimated udiscouted cash flows are less tha the carryig value of the property, the carryig value is writte dow to its fair value. I determiig the estimated udiscouted cash flows of the properties that are beig aalyzed for impairmet of assets, we take the sum of the estimated udiscouted cash flows, geerally assumig a holdig period of 10 years, plus a termial value calculated usig the estimated et operatig icome i the eleveth year ad termial capitalizatio rates, which i 2012 ad 2013 raged from 6.25% to 12.0% ad i 2014 raged from 5.25% to 12.5%. I 2014, three properties had triggerig evets that required further review for impairmet. The fair values of the properties (Nittay Mall, North Haover Mall ad South Mall) were determied based o egotiated sale prices of the properties as discussed further i ote 2. I 2013, two properties had triggerig evets that required further review for impairmet. The fair values of the properties (Chambersburg Mall ad North Haover Mall) were determied based o egotiated sale prices of the properties as discussed further i ote 2. I 2012, oe property had a triggerig evet that required further review for impairmet. The fair value of the property (Phillipsburg Mall) was determied based o the sale price of the property as further discussed i ote 2. Assessmet of our ability to recover certai lease related costs must be made whe we have a reaso to believe that a teat might ot be able to perform uder the terms of the lease as origially expected. This requires us to make estimates as to the recoverability of such costs. A other tha temporary impairmet of a ivestmet i a ucosolidated joit veture is recogized whe the carryig value of the ivestmet is ot cosidered recoverable based o evaluatio of the severity ad duratio of the declie i value. To the extet impairmet has occurred, the excess carryig value of the asset over its estimated fair value is recorded as a reductio to icome. We coduct a aual review of our goodwill balaces for impairmet to determie whether a adjustmet to the carryig value of goodwill is required. We have determied the fair value of our properties ad the amout of goodwill that is associated with certai of our properties, ad we have cocluded that goodwill was ot impaired as of December 31, Fair value is determied by applyig a capitalizatio rate to our estimate of projected icome at those properties. We also cosider factors such as property sales performace, market positio ad curret ad future operatig results. This amout is compared to the aggregate of the property basis ad the goodwill that has bee assiged to that property. If the fair value is less tha the property basis ad the goodwill, we evaluate whether impairmet has occurred. REAL ESTATE Lad, buildigs, fixtures ad teat improvemets are recorded at cost ad stated at cost less accumulated depreciatio. Expeditures for maiteace ad repairs are charged to operatios as icurred. Reovatios or replacemets, which improve or exted the life of a asset, are capitalized ad depreciated over their estimated useful lives. For fiacial reportig purposes, properties are depreciated usig the straight-lie method over the estimated useful lives of the assets. The estimated useful lives are as follows: Buildigs Lad improvemets Furiture/fixtures Teat improvemets years 15 years 3-10 years Lease term We are required to make subjective assessmets as to the useful lives of our real estate assets for purposes of determiig the amout of depreciatio to reflect o a aual basis with respect to those assets based o various factors, icludig idustry stadards, historical experiece ad the coditio of the asset at the time of acquisitio. These assessmets affect our aual et icome. If we were to determie that a differet estimated useful life was appropriate for a particular asset, it would be depreciated over the ewly estimated useful life, ad, other thigs beig equal, result i chages i aual depreciatio expese ad aual et icome. Gais from sales of real estate properties ad iterests i parterships geerally are recogized usig the full accrual method, provided that various criteria are met relatig to the terms of sale ad ay subsequet ivolvemet by us with the properties sold. REAL ESTATE ACQUISITIONS We accout for our property acquisitios by allocatig the purchase price of a property to the property s assets based o maagemet s estimates of their fair value. Debt assumed i coectio with property acquisitios is recorded at fair value at the acquisitio date, ad the resultig premium or discout is amortized through iterest expese over the remaiig term of the debt, resultig i a o-cash decrease (i the case of a premium) or icrease (i the case of a discout) i iterest expese. The determiatio of the fair value of itagible assets requires sigificat estimates by maagemet ad cosiders may factors, icludig our expectatios about the uderlyig property, the geeral market coditios i which the property operates ad coditios i the ecoomy. The judgmet ad subjectivity iheret i such assumptios ca have a sigificat effect o the magitude of the itagible assets or the chages to such assets that we record. INTANGIBLE ASSETS Our itagible assets o the accompayig cosolidated balace sheets as of both December 31, 2014 ad 2013 icluded $5.7 millio (i each case, et of $1.1 millio of amortizatio expese recogized prior to Jauary 1, 2002) of goodwill recogized i coectio with the acquisitio of The Rubi Orgaizatio i NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

26 Chages i the carryig amout of goodwill for the three years eded December 31, 2014 were as follows: Accumulated Impairmet (i thousads of dollars) Basis Amortizatio Write-Offs Divestitures Total Balace, Jauary 1, 2012 $12,877 $(1,073 ) $(4,648 ) $ $7,156 Chages i Goodwill Balace, December 31, ,877 (1,073 ) (4,648) 7,156 Chages i Goodwill (1,494 ) (1,494 ) Balace, December 31, ,877 (1,073 ) (4,648) (1,494 ) 5,662 Chages i Goodwill Balace, December 31, 2014 $12,877 $(1,073 ) $(4,648 ) $(1,494 ) $5,662 I 2013, we divested goodwill of $0.7 millio ad $0.8 millio i coectio with the sales of Paxto Towe Cetre ad Christiaa Ceter, respectively (see ote 2). We allocate a portio of the purchase price of a property to itagible assets. Our methodology for this allocatio icludes estimatig a as-if vacat fair value of the physical property, which is allocated to lad, buildig ad improvemets. The differece betwee the purchase price ad the as-if vacat fair value is allocated to itagible assets. There are three categories of itagible assets to be cosidered: (i) value of i-place leases, (ii) above- ad belowmarket value of i-place leases ad (iii) customer relatioship value. The value of i-place leases is estimated based o the value associated with the costs avoided i origiatig leases comparable to the acquired i-place leases, as well as the value associated with lost retal reveue durig the assumed lease-up period. The value of i-place leases is amortized as real estate amortizatio over the remaiig lease term. Above-market ad below-market i-place lease values for acquired properties are recorded based o the preset value of the differece betwee (i) the cotractual amouts to be paid pursuat to the i-place leases ad (ii) maagemet s estimates of fair market lease rates for comparable i-place leases, based o factors such as historical experiece, recetly executed trasactios ad specific property issues, measured over a period equal to the remaiig o-cacelable term of the lease. Above-market lease values are amortized as a reductio of retal icome over the remaiig terms of the respective leases. Below-market lease values are amortized as a icrease to retal icome over the remaiig terms of the respective leases, icludig ay below-market optioal reewal periods, ad are icluded i Accrued expeses ad other liabilities i the cosolidated balace sheets. We allocate purchase price to customer relatioship itagibles based o maagemet s assessmet of the value of such relatioships. The followig table presets our itagible assets ad liabilities, et of accumulated amortizatio, as of December 31, 2014 ad 2013: As of December 31, (i thousads of dollars) Value of i-place lease itagibles $ 699 $ 3,151 Above-market lease itagibles Subtotal 790 3,413 Goodwill 5,662 5,662 Total itagible assets $ 6,452 $ 9,075 Below-market lease itagibles $ (2,045 ) $ (4,815 ) Net amortizatio of i-place lease itagibles was $1.6 millio, $1.6 millio ad $0.8 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. Amortizatio of above-market ad below-market lease itagibles icreased reveue by $1.0 millio, $1.0 millio ad $0.3 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. I the ormal course of busiess, our itagible assets will amortize i the ext five years ad thereafter as follows: (i thousads of dollars) Value of I-Place Above/(Below ) For the Year Edig December 31, Lease Itagibles Market Leases, et 2015 $ 285 $ (291 ) (246) (155) (153) (137 ) 2020 ad thereafter 38 (972) Total $ 699 $ (1,954 ) ASSETS CLASSIFIED AS HELD FOR SALE The determiatio to classify a asset as held for sale requires sigificat estimates by us about the property ad the expected market for the property, which are based o factors icludig recet sales of comparable properties, recet expressios of iterest i the property, fiacial metrics of the property ad the physical coditio of the property. We must also determie if it will be possible uder those market coditios to sell the property for a acceptable price withi oe year. Whe assets are idetified by our maagemet as held for sale, we discotiue depreciatig the assets ad estimate the sales price, et of sellig costs, of such assets. We geerally cosider operatig properties to be held for sale whe they meet criteria such as whether the sale trasactio has bee approved by the appropriate level of maagemet ad there are o kow material cotigecies relatig to the sale such that the sale is probable ad is expected to qualify for recogitio as a completed sale withi oe year. If, i maagemet s opiio, the expected et sales price of the asset that has bee idetified as held for sale is less tha the et book value of the asset, the asset is writte dow to fair value less the cost to sell. Assets ad liabilities related to assets classified as held for sale are preseted separately i the cosolidated balace sheet. CAPITALIZATION OF COSTS Costs icurred i relatio to developmet ad redevelopmet projects for iterest, property taxes ad isurace are capitalized oly durig periods i which activities ecessary to prepare the property for its iteded use are i progress. Costs icurred for such items after the property is substatially complete ad ready for its iteded use are charged to expese as icurred. Capitalized costs, as well as teat iducemet amouts ad iteral ad exteral commissios, are recorded i costructio i progress. We capitalize a portio of developmet departmet employees compesatio ad beefits related to time spet ivolved i developmet ad redevelopmet projects. We capitalize paymets made to obtai optios to acquire real property. Other related costs that are icurred before acquisitio that are expected to have ogoig value to the project are capitalized if the acquisitio of the property is probable. If the property is acquired, such costs are icluded i the amout recorded as the iitial value of the asset. Whe it is probable that the property will ot be acquired, capitalized pre-acquisitio costs are charged to expese. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 25

27 We capitalize salaries, commissios ad beefits related to time spet by leasig ad legal departmet persoel ivolved i origiatig leases with third-party teats. The followig table summarizes our capitalized salaries, commissios ad beefits, real estate taxes ad iterest for the years eded December 31, 2014, 2013 ad 2012: For the Year Eded December 31, (i thousads of dollars) Developmet/Redevelopmet: Salaries ad beefits $ 1,162 $ 1,059 $ 805 Real estate taxes $ 4 $ 4 $ 277 Iterest $ 604 $ 874 $ 1,549 Leasig: Salaries, commissios ad beefits $ 5,446 $ 5,261 $ 5,336 TENANT RECEIVABLES We make estimates of the collectibility of our teat receivables related to teat ret icludig base ret, straight-lie ret, expese reimbursemets ad other reveue or icome. We specifically aalyze accouts receivable, icludig straight-lie ret receivable, historical bad debts, customer creditworthiess ad curret ecoomic ad idustry treds, whe evaluatig the adequacy of the allowace for doubtful accouts. The receivables aalysis places particular emphasis o past-due accouts ad cosiders the ature ad age of the receivables, the paymet history ad fiacial coditio of the payor, the basis for ay disputes or egotiatios with the payor, ad other iformatio that could affect collectibility. I additio, with respect to teats i bakruptcy, we make estimates of the expected recovery of pre-petitio ad post-petitio claims i assessig the estimated collectibility of the related receivable. I some cases, the time required to reach a ultimate resolutio of these claims ca exceed oe year. For straight-lie ret, the collectibility aalysis cosiders the probability of collectio of the ubilled deferred ret receivable, give our experiece regardig such amouts. INCOME TAXES We have elected to qualify as a real estate ivestmet trust, or REIT, uder Sectios of the Iteral Reveue Code of 1986, as ameded, ad ited to remai so qualified. I some istaces, we follow methods of accoutig for icome tax purposes that differ from geerally accepted accoutig priciples. Earigs ad profits, which determie the taxability of distributios to shareholders, will differ from et icome or loss reported for fiacial reportig purposes due to differeces i cost basis, differeces i the estimated useful lives used to compute depreciatio, ad differeces betwee the allocatio of our et icome or loss for fiacial reportig purposes ad for tax reportig purposes. The followig table summarizes the aggregate cost basis ad depreciated basis for federal icome tax purposes of our ivestmet i real estate for the years eded December 31, 2014 ad 2013: As of December 31, (i millios of dollars) Aggregate cost basis for federal icome tax purposes $ 3,340.2 $ 3,710.1 Aggregate depreciated basis for federal icome tax purposes $ 2,362.2 $ 2,692.9 We could be subject to a federal excise tax computed o a caledar year basis if we were ot i compliace with the distributio provisios of the Iteral Reveue Code. We have, i the past, distributed a substatial portio of our taxable icome i the subsequet fiscal year ad might also follow this policy i the future. No provisio for excise tax was made for the years eded December 31, 2014, 2013 ad 2012, as o excise tax was due i those years. The per share distributios paid to commo shareholders had the followig compoets for the years eded December 31, 2014, 2013 ad 2012: For the Year Eded December 31, Ordiary icome $ 0.11 $ $ No-divided distributios $ 0.80 $ 0.74 $ 0.63 The per share distributios paid to Series A preferred shareholders ad Series B preferred shareholders had the followig compoets for the years eded December 31, 2014, 2013 ad 2012: For the Year Eded December 31, Series A Preferred Share Divideds Ordiary icome $ 2.06 $ 1.96 $ No-divided distributios $ 2.06 $ 2.06 $ 1.35 Series B Preferred Share Divideds Ordiary icome $ 1.84 $ 1.75 $ No-divided distributios $ 1.84 $ 1.84 $ 0.33 We follow accoutig requiremets that prescribe a recogitio threshold ad measuremet attribute for the fiacial statemet recogitio ad measuremet of a tax positio take i a tax retur. We must determie whether it is more likely tha ot that a tax positio will be sustaied upo examiatio, icludig resolutio of ay related appeals or litigatio processes, based o the techical merits of the positio. Oce it is determied that a positio meets the more likely tha ot recogitio threshold, the positio is measured at the largest amout of beefit that is greater tha 50% likely to be realized upo settlemet to determie the amout of beefit to recogize i the fiacial statemets. PRI is subject to federal, state ad local icome taxes. We had o provisio or beefit for federal or state icome taxes i the years eded December 31, 2014, 2013 ad We had et deferred tax assets of $22.7 millio ad $8.7 millio for the years eded December 31, 2014 ad 2013, respectively. The deferred tax assets are primarily the result of et operatig losses. A valuatio allowace has bee established for the full amout of the et deferred tax assets, sice it is more likely tha ot that these assets will ot be realized because we aticipate that the et operatig losses that we have historically experieced at our taxable REIT subsidiaries will cotiue to occur. DEFERRED FINANCING COSTS Deferred fiacig costs iclude fees ad costs icurred to obtai fiacig. Such costs are amortized to iterest expese over the terms of the related idebtedess. Iterest expese is determied usig the effective iterest method i the case of costs associated with mortgage loas, or o a straight lie basis i the case of costs associated with our 2013 Revolvig Facility, 2014 Term Loas ad Letter of Credit (see ote 4). 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

28 DERIVATIVES I the ormal course of busiess, we are exposed to fiacial market risks, icludig iterest rate risk o our iterest-bearig liabilities. We attempt to limit these risks by followig established risk maagemet policies, procedures ad strategies, icludig the use of derivative fiacial istrumets. We do ot use derivative fiacial istrumets for tradig or speculative purposes. Curretly, we use iterest rate swaps to maage our iterest rate risk. The valuatio of these istrumets is determied usig widely accepted valuatio techiques, icludig discouted cash flow aalysis o the expected cash flows of each derivative. This aalysis reflects the cotractual terms of the derivatives, icludig the period to maturity, ad uses observable market-based iputs. Derivative fiacial istrumets are recorded o the balace sheet as assets or liabilities based o the fair value of the istrumet. Chages i the fair value of derivative fiacial istrumets are recogized curretly i earigs, uless the derivative fiacial istrumet meets the criteria for hedge accoutig. If the derivative fiacial istrumets meet the criteria for a cash flow hedge, the gais ad losses i the fair value of the istrumet are deferred i other comprehesive icome. Gais ad losses o a cash flow hedge are reclassified ito earigs whe the forecasted trasactio affects earigs. A cotract that is desigated as a hedge of a aticipated trasactio that is o loger likely to occur is immediately recogized i earigs. The aticipated trasactio to be hedged must expose us to iterest rate risk, ad the hedgig istrumet must reduce the exposure ad meet the requiremets for hedge accoutig. We must formally desigate the istrumet as a hedge ad documet ad assess the effectiveess of the hedge at iceptio ad o a quarterly basis. Iterest rate hedges that are desigated as cash flow hedges are desiged to mitigate the risks associated with future cash outflows o debt. We icorporate credit valuatio adjustmets to appropriately reflect both our ow operformace risk ad the respective couterparty s operformace risk i the fair value measuremets. I adjustig the fair value of our derivative cotracts for the effect of operformace risk, we have cosidered the impact of ettig ad ay applicable credit ehacemets. Although we have determied that the majority of the iputs used to value our derivatives fall withi Level 2 of the fair value hierarchy, the credit valuatio adjustmets associated with our derivatives utilize Level 3 iputs, such as estimates of curret credit spreads, to evaluate the likelihood of default by us ad our couterparties. As of December 31, 2014, we have assessed the sigificace of the effect of the credit valuatio adjustmets o the overall valuatio of our derivative positios ad have determied that the credit valuatio adjustmets are ot sigificat to the overall valuatio of our derivatives. As a result, we have determied that our derivative valuatios i their etirety are classified i Level 2 of the fair value hierarchy. OPERATING PARTNERSHIP UNIT REDEMPTIONS Shares issued upo redemptio of OP Uits are recorded at the book value of the OP Uits surredered. SHARE-BASED COMPENSATION EXPENSE Share based paymets to employees ad o-employee trustees, icludig grats of restricted shares ad share optios, are valued at fair value o the date of grat, ad are expesed over the applicable vestig period. EARNINGS PER SHARE The differece betwee basic weighted average shares outstadig ad diluted weighted average shares outstadig is the dilutive effect of commo share equivalets. Commo share equivalets cosist primarily of shares that are issued uder employee share compesatio programs ad outstadig share optios whose exercise price is less tha the average market price of our commo shares durig these periods. NEW ACCOUNTING DEVELOPMENTS I 2014, we adopted ew accoutig requiremets pertaiig to the reportig of discotiued operatios. Uder these ew accoutig requiremets, oly dispositios represetig a strategic shift i operatios will be preseted as discotiued operatios. Previously, uder U.S. geerally accepted accoutig priciples, compaies that sold a sigle ivestmet property were geerally required to report the sale as a discotiued operatio, which required the compaies to reclassify earigs from cotiuig operatios for all periods preseted. These ew accoutig requiremets require expaded disclosures about discotiued operatios that will provide fiacial statemet users with more iformatio about the assets, liabilities, icome ad expeses of discotiued operatios. I 2014, we sold South Mall i Alletow, Pesylvaia ( South Mall ), Nittay Mall i State College, Pesylvaia ( Nittay Mall ), ad North Haover Mall i Haover, Pesylvaia ( North Haover Mall ). We applied these ew accoutig requiremets by reportig the results of operatios of these sold properties i the cotiuig operatios sectio of our cosolidated statemets of operatios. I May 2014, the Fiacial Accoutig Stadards Board issued Reveue from Cotracts with Customers. The objective of this ew stadard is to establish a sigle comprehesive model for etities to use i accoutig for reveue arisig from cotracts with customers. The core priciple of this ew stadard is that a etity recogizes reveue to depict the trasfer of promised goods or services to customers i a amout that reflects the cosideratio to which the etity expects to receive i exchage for those goods or services. The ew guidace is effective for aual reportig periods begiig after December 15, 2016 for public compaies. Early adoptio is ot permitted. Etities have the optio of usig either a full retrospective or modified approach to adopt this stadard. We are curretly evaluatig the ew guidace ad have ot determied the impact this stadard may have o our cosolidated fiacial statemets, or have we decided upo the method of adoptio. 2. Real Estate Activities Ivestmets i real estate as of December 31, 2014 ad 2013 were comprised of the followig: As of December 31, (i thousads of dollars) Buildigs, improvemets ad costructio i progress $ 2,843,326 $ 3,049,758 Lad, icludig lad held for developmet 442, ,110 Total ivestmets i real estate 3,285,404 3,527,868 Accumulated depreciatio (1,061,051 ) (1,012,746 ) Net ivestmets i real estate $ 2,224,353 $ 2,515,122 PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 27

29 IMPAIRMENT OF ASSETS Durig the years eded December 31, 2014, 2013, ad 2012, we recorded asset impairmet losses of $19.7 millio, $30.0 millio ad $3.8 millio, respectively. Such impairmet losses are recorded i either Impairmet of assets or Impairmet of assets of discotiued operatios based upo the classificatio of the property i the cosolidated statemets of operatios. The assets that icurred impairmet losses ad the amout of such losses are as follows: For the Year Eded December 31, (i thousads of dollars) Nittay Mall (1) $ 15,495 $ $ North Haover Mall (1) 2,900 6,304 South Mall (1) 1,300 Chambersburg Mall (2) 23,662 Phillipsburg Mall (2) 3,805 Total Impairmet of Assets $ 19,695 $ 29,966 $ 3,805 (1) Impairmet of assets of this property is recorded i cotiuig operatios. (2) Impairmet of assets of this property is recorded i discotiued operatios. NITTANY MALL I 2014, we recorded a aggregate loss o impairmet of assets at Nittay Mall of $15.5 millio after eterig ito egotiatios with the buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Based upo the purchase ad sale agreemet with the the-prospective buyer of the property, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Nittay Mall were less tha the carryig value of the property, ad recorded both a iitial loss o impairmet of assets ad a subsequet additioal loss o impairmet of assets whe we sold the property i September NORTH HANOVER MALL I 2014, we recorded a aggregate loss o impairmet of assets at North Haover Mall of $2.9 millio after eterig ito egotiatios with the buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Based upo the purchase ad sale agreemet with the the-prospective buyer of the property, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for North Haover Mall were less tha the carryig value of the property, ad recorded both a iitial loss o impairmet of assets ad a subsequet additioal loss o impairmet of assets. We previously recogized losses o impairmet of assets o North Haover Mall of $6.3 millio i 2013 ad $24.1 millio i We sold the property i September SOUTH MALL I 2014, we recorded a loss o impairmet of assets at South Mall of $1.3 millio after eterig ito egotiatios with the buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Usig updated assumptios, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for South Mall were less tha the carryig value of the property, ad recorded a loss o impairmet of assets. We sold the property i Jue CHAMBERSBURG MALL I 2013, we recorded a loss o impairmet of assets at Chambersburg Mall i Chambersburg, Pesylvaia of $23.7 millio. Durig the third quarter of 2013, we etered ito egotiatios with a potetial buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded to be a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Usig updated assumptios, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Chambersburg Mall were less tha the carryig value of the property, ad recorded a impairmet loss. We recorded the loss o impairmet of assets i discotiued operatios i the third quarter of 2013 ad sold this property i the fourth quarter of PHILLIPSBURG MALL I 2012, we recorded a loss o impairmet of assets o Phillipsburg Mall i Phillipsburg, New Jersey of $3.8 millio. The amout of the impairmet loss was determied based o the sale price of the property. We previously recogized a loss o impairmet of assets o Phillipsburg Mall of $28.0 millio i We sold this property i the first quarter of DISCONTINUED OPERATIONS We have preseted as discotiued operatios the operatig results of Phillipsburg Mall, Orlado Fashio Square, Chambersburg Mall, Paxto Towe Cetre, Christiaa Ceter ad Commos at Magolia, which are properties that were sold i I 2014, we adopted ew accoutig requiremets pertaiig to the reportig of discotiued operatios. We applied these ew accoutig requiremets by reportig the results of operatios of the properties that we sold i 2014 i the cotiuig operatios sectio of our cosolidated statemets of operatios i The properties that we sold i 2014 were South Mall, Nittay Mall, ad North Haover Mall, ad the results of operatios of these properties are recorded i cotiuig operatios. The followig table summarizes reveue ad expese iformatio for the years eded December 31, 2013 ad 2012 for our discotiued operatios: For the Year Eded December 31, (i thousads of dollars) Real estate reveue $ 10,014 $ 33,046 Expeses: Operatig expeses (4,288) (15,340) Depreciatio ad amortizatio (1,161 ) (8,877) Iterest expese (1,753 ) (4,202) Total expeses (7,202 ) (28,419 ) Operatig results from discotiued operatios 2,812 4,627 Impairmet of assets of discotiued operatios (23,662) (3,805) Gais o sales of discotiued operatios 78, Icome from discotiued operatios $ 57,662 $ 1,769 ACQUISITIONS I April 2013, we acquired a buildig located cotiguous to The Gallery for $59.6 millio, represetig a capitalizatio rate of approximately 5.7%. 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

30 DISPOSITIONS The table below presets our dispositios sice Jauary 1, 2013: (i millios of dollars) Sale Date Property ad Locatio Descriptio of Real Estate Sold Capitalizatio Rate Sale Price Gai/(Loss) 2014 Activity: Jue South Mall, Mall 10.1 % $ 23.6 $ 0.2 Alletow, Pesylvaia July The Gallery at Market East, Mall (50% iterest) (1) 5.1 % (0.6) Philadelphia, PA September North Haover Mall, Two malls (sigle combied North Haover Mall 32.3 (0.1) Haover, Pesylvaia trasactio) 11.0% Nittay Mall, Nittay Mall State College, Pesylvaia 16.2% 2013 Activity: Jauary Phillipsburg Mall, Mall (2) 9.8 % 11.5 Phillipsburg, New Jersey Paxto Towe Cetre, Power ceter (3)(4) 6.9 % Harrisburg, Pesylvaia February Orlado Fashio Square, Mall (5) 9.8 % Orlado, Florida September Commos at Magolia, Strip ceter (6) 8.9 % Florece, South Carolia Christiaa Ceter, Power ceter (3)(6)(7) 6.5 % Newark, Delaware November Chambersburg Mall, Mall (8) NM (9) 8.5 Chambersburg, Pesylvaia (1) We etered ito a 50/50 joit veture with Macerich to redevelop The Gallery. I coectio therewith, we cotributed ad sold real estate assets to the veture ad Macerich acquired its iterest i the veture ad real estate from us for $106.8 millio i cash. Net proceeds after closig costs from the sale of the iterests were $104.0 millio. We used $25.8 millio of such proceeds to repay a mortgage loa secured by 801 Market Street, Philadelphia, Pesylvaia, a property that is part of The Gallery, $50.0 millio to repay the outstadig balace o our 2013 Revolvig Facility, ad the remaiig proceeds for geeral corporate purposes. (2) We used proceeds of $11.5 millio plus $4.5 millio of available workig capital to pay for the release of the lie o this property, which secured a portio of our 2010 Credit Facility (as defied i ote 4). (3) We divested goodwill of $0.7 millio ad $0.8 millio i coectio with the dispositios of Paxto Towe Cetre ad Christiaa Ceter, respectively. (4) We used proceeds from the sale of this property to repay the $50.0 millio mortgage loa secured by the property. (5) We used proceeds of $35.0 millio plus a omial amout of available workig capital to pay for the release of the lie o this property, which secured a portio of our 2010 Credit Facility. (6) We used combied proceeds from the sales of these properties to repay $35.0 millio of amouts outstadig uder our 2013 Revolvig Facility ad we used the remaiig proceeds for geeral corporate purposes. (7) The buyer of this property assumed the $49.2 millio mortgage loa secured by this property. (8) We used proceeds from the sale of this property for geeral corporate purposes. (9) The capitalizatio rate was ot meaigful i the cotext of this trasactio. DISPOSITIONS OTHER ACTIVITY I the fourth quarter of 2014, we sold a achor pad, outparcels ad udeveloped lad for a aggregate sales price of $9.9 millio. We recorded et gais o sales of iterests i real estate of $0.7 millio ad a et gai o sales o o operatig real estate of $1.8 millio o these trasactios. I September 2013, we sold a codomiium iterest i coectio with a groud lease located at Voorhees Tow Ceter i Voorhees, New Jersey for $10.5 millio. No gai or loss was recorded i coectio with this sale. I December 2012, we sold our remaiig iterest i Northeast Tower Ceter i Philadelphia, Pesylvaia i exchage for cacellatio of a $3.8 millio ote payable to the buyer. We recorded a gai of $0.9 millio from this sale i DEVELOPMENT ACTIVITIES As of December 31, 2014 ad 2013, we had capitalized amouts related to costructio ad developmet activities. The followig table summarizes certai capitalized costructio ad developmet iformatio for our cosolidated properties as of December 31, 2014 ad 2013: As of December 31, (i millios of dollars) Costructio i progress $ 60.5 $ 68.8 Lad held for developmet Deferred costs ad other assets Total capitalized costructio ad developmet activities $ 70.5 $ 78.6 As of December 31, 2014, we had $0.1 millio of refudable deposits o lad ad buildig purchase cotracts. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 29

31 3. Ivestmets i Parterships The followig table presets summarized fiacial iformatio of our equity ivestmets i ucosolidated parterships as of December 31, 2014 ad 2013: As of December 31, (i thousads of dollars) Assets: Ivestmets i real estate, at cost: Retail properties $ 654,024 $ 416,964 Costructio i progress 41,919 2,298 Total ivestmets i real estate 695, ,262 Accumulated depreciatio (190,100 ) (169,369 ) Net ivestmets i real estate 505, ,893 Cash ad cash equivalets 15,229 15,327 Deferred costs ad other assets, et 37,274 19,474 Total assets 558, ,694 Liabilities ad Parters Equity (Deficit): Mortgage loas 383, ,717 Other liabilities 34,314 9,667 Total liabilities 417, ,384 Net equity (deficit) 140,842 (123,690 ) Parters share 74,663 (66,325) Compay s share 66,179 (57,365 ) Excess ivestmet (1) 8,747 8,837 Net ivestmets ad advaces $ 74,926 $ (48,528 ) Ivestmet i parterships, at equity $ 140,882 $ 15,963 Distributios i excess of partership ivestmets (65,956) (64,491 ) Net ivestmets ad advaces $ 74,926 $ (48,528 ) (1) Excess ivestmet represets the uamortized differece betwee our ivestmet ad our share of the equity i the uderlyig et ivestmet i the parterships. The excess ivestmet is amortized over the life of the properties, ad the amortizatio is icluded i Equity i icome of parterships. We record distributios from our equity ivestmets up to a amout equal to the equity i icome of parterships as cash from operatig activities. Amouts i excess of our share of the icome i the equity ivestmets are treated as a retur of partership capital ad recorded as cash from ivestig activities. The followig table summarizes our share of equity i icome of parterships for the years eded December 31, 2014, 2013 ad 2012: For the Year Eded December 31, (i thousads of dollars) Real estate reveue $ 95,643 $ 81,020 $ 77,533 Expeses: Operatig expeses (32,992) (24,104 ) (23,023) Iterest expese (21,805) (22,228) (22,573) Depreciatio ad amortizatio (19,521 ) (14,401 ) (14,447 ) Total expeses (74,318 ) (60,733 ) (60,043 ) Net icome 21,325 20,287 17,490 Less: Parters share (10,637 ) (10,096 ) (8,738 ) Compay s share 10,688 10,191 8,752 Amortizatio of excess ivestmet (119 ) (413 ) (414 ) Equity i icome of parterships $ 10,569 $ 9,778 $ 8,338 ACQUISITIONS I Jue 2014, we cotributed $3.2 millio, represetig a 25% iterest, to the partership that is developig Gloucester Premium Outlets i Gloucester Towship, New Jersey. The partership used our ad our parters cotributio to purchase the lad o which the property will be developed. DISPOSITIONS I December 2014, we sold our 50% iterest i Whitehall Mall i Alletow, Pesylvaia for $14.9 millio represetig a capitalizatio rate of 7.0%, ad we recorded a gai o sale of iterests i real estate of $12.4 millio. I coectio with the sale of Whitehall Mall, our share of the mortgage loa secured by the property had a balace of $5.1 millio that was assumed by the buyer at closig. I July 2014, we etered ito a 50/50 joit veture with Macerich to redevelop The Gallery. The results of operatios of The Gallery have bee recorded as a equity method ivestmet after the July 29, 2014 trasactio with Macerich (as further described i ote 2). FINANCING ACTIVITY OF UNCONSOLIDATED PROPERTIES Mortgage loas, which are secured by eight of the partership properties (icludig two properties uder developmet), are due i istallmets over various terms extedig to the year Five of the mortgage loas bear iterest at a fixed iterest rate ad three of the mortgage loas bear iterest at a variable iterest rate. The balaces of the fixed iterest rate mortgage loas have iterest rates that rage from 5.00% to 5.88% ad had a weighted average iterest rate of 5.51% at December 31, The variable iterest rate mortgage loas have iterest rates that rage from 1.66% to 3.26% ad had a weighted average iterest rate of 3.18% at December 31, The weighted average iterest rate of all partership mortgage loas was 5.08% at December 31, The liability uder each mortgage loa is limited to the partership that ows the particular property. Our proportioate share, based o our respective partership iterest, 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

32 of pricipal paymets due i the ext five years ad thereafter is as follows: Compay s Proportioate Share (i thousads of dollars) For the Year Edig Pricipal Balloo Property December 31, Amorizatio Paymets Total Total 2015 $ 3,263 $ 35,221 $ 38,484 $ 77, ,805 2,805 5, ,925 3,283 6,208 14, , ,432 7, ,202 3,202 6, ad thereafter 5, , , ,359 $21,223 $169,087 $190,310 $383,190 We have a 50% partership iterest i Lehigh Valley Associates LP, the ower of Lehigh Valley Mall, which is a sigificat ucosolidated subsidiary, ad that is icluded i the amouts above. Summarized fiacial iformatio as of or for the years eded December 31, 2014 ad 2013 for this property, which is accouted for by the equity method, is as follows: As of or for the Year Eded December 31, (i thousads of dollars) Total assets $ 51,703 $ 55,592 Mortgage payable 131, ,542 Reveues 36,605 35,628 Property operatig expeses 10,027 9,817 Iterest expese 7,839 7,962 Net icome 14,932 14,515 PREIT s share of equity i icome of partership 7,466 7,258 MORTGAGE LOAN ACTIVITY UNCONSOLIDATED PROPERTIES The followig table presets the mortgage loas secured by our ucosolidated properties etered ito sice Jauary 1, 2013: Amout Fiaced or Exteded Fiacig Date Property (i millios of dollars) Stated Iterest Rate Maturity 2014 Activity: December Gloucester Premium Outlets (1) $ 1.6 LIBOR plus 1.50% Jue 2018 (1) The ucosolidated etity that ows Gloucester Premium Outlets etered ito this costructio mortgage loa. The costructio mortgage loa has a maximum availability of $90.0 millio, of which $88.4 millio is available as of December 31, 2014 (after miimum costructio thresholds are achieved). Our iterest i the ucosolidated etity is 25%. 4. Fiacig Activity 2013 REVOLVING FACILITY, AS AMENDED I April 2013, PREIT, PREIT Associates ad PRI (collectively, the Borrower or we ) etered ito a Credit Agreemet (as ameded, the 2013 Revolvig Facility ) with Wells Fargo Bak, Natioal Associatio, ad the other fiacial istitutios sigatory thereto, for a $400.0 millio seior usecured revolvig credit facility. The 2013 Revolvig Facility replaced the previously existig 2010 Credit Facility. I December 2013, we ameded the 2013 Revolvig Facility to make certai terms of the 2013 Revolvig Facility cosistet with the terms of the 2014 Term Loas (as defied below). These same terms also appear i the Letter of Credit (as defied below). The 2013 Revolvig Facility, 2014 Term Loas ad Letter of Credit are collectively referred to as the Credit Agreemets. All capitalized terms used i this ote 4 ad ot otherwise defied herei have the meaigs ascribed to such terms i the 2013 Revolvig Facility. As of December 31, 2014, there were o amouts outstadig uder our 2013 Revolvig Facility, $7.1 millio was pledged as collateral for a letter of credit, ad we etered ito a secod letter of credit i Jauary 2015 i the amout of $7.9 millio. Because of certai coveat restrictios, the etire borrowig capacity is ot available to us. We curretly have a aggregate of $416.1 millio available uder the 2013 Revolvig Facility ad 2014 Term Loas. Iterest expese related to the 2013 Revolvig Facility was $1.5 millio ad $2.5 millio for the years eded December 31, 2014 ad 2013, respectively. Deferred fiacig fee amortizatio associated with the 2013 Revolvig Facility was $1.4 millio ad $1.1 millio for the years eded December 31, 2014 ad 2013, respectively. The iitial maturity of the 2013 Revolvig Facility is April 17, 2016, ad the Borrower has optios for two oe-year extesios of the iitial maturity date, subject to certai coditios ad to the paymet of extesio fees of 0.15% ad 0.20% of the Facility Amout for the first ad secod optios, respectively. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 2013 Revolvig Facility, through a accordio optio, from $400.0 millio to as much as $600.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i Revolvig Commitmets from the curret leders or Revolvig Commitmets from ew leders. No icrease to the maximum amout available uder the 2013 Revolvig Facility has bee exercised by the Borrower. Amouts borrowed uder the 2013 Revolvig Facility bear iterest at a rate betwee 1.50% ad 2.05% per aum, depedig o PREIT s leverage, i excess of LIBOR, with o floor, as set forth i the table below. The rate i effect at December 31, 2014 was 1.70% per aum i excess of LIBOR. I determiig PREIT s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is (a) 6.50% for each Property havig a average sales per square foot of more tha $500 for the most recet period of 12 cosecutive moths, ad (b) 7.50% for ay other Property. Level Ratio of Total Liabilities to Gross Asset Value Applicable Margi 1 Less tha to % 2 Equal to or greater tha to 1.00 but less tha to % 3 Equal to or greater tha to 1.00 but less tha to % 4 Equal to or greater tha to % The uused portio of the 2013 Revolvig Facility is subject to a facility fee of 0.30% per aum. I the evet that we seek ad obtai a ivestmet grade credit ratig, alterative iterest rates ad facility fees would apply. PREIT ad the subsidiaries of PREIT that either (1) accout for more tha 2.5% of adjusted Gross Asset Value (other tha a Excluded Subsidiary), PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 31

33 (2) ow or lease a Uecumbered Property, or (3) ow, directly or idirectly, a subsidiary described i clause (2) will serve as guarators for fuds borrowed uder the 2013 Credit Facility. I the evet that we seek ad obtai a ivestmet grade credit ratig, we may request that a subsidiary guarator be released, uless such guarator becomes obligated i respect of the debt of the Borrower or aother subsidiary or ows Uecumbered Property or icurs recourse debt. The Credit Agreemets are cross-defaulted with oe aother. The Credit Agreemets cotai certai affirmative ad egative coveats which are idetical ad which are described i detail below i the sectio etitled Idetical coveats cotaied i the 2013 Revolvig Facility, 2014 Term Loas ad Letter of Credit. As of December 31, 2014, the Borrower was i compliace with all such fiacial coveats. The Borrower may prepay the 2013 Revolvig Facility at ay time without premium or pealty, subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs. The Borrower must repay the etire pricipal amout outstadig uder the 2013 Revolvig Facility at the ed of its term, as the term may be exteded. Upo the expiratio of ay applicable cure period followig a evet of default, the leders may declare all of the obligatios i coectio with the 2013 Revolvig Facility immediately due ad payable, ad the Commitmets of the leders to make further loas uder the 2013 Revolvig Facility will termiate. Upo the occurrece of a volutary or ivolutary bakruptcy proceedig of PREIT, PREIT Associates, PRI, ay Material Subsidiary, ay subsidiary that ows or leases a Uecumbered Property or certai other subsidiaries, all outstadig amouts will automatically become immediately due ad payable ad the Commitmets of the leders to make further loas will automatically termiate. The Borrower used the iitial proceeds from the 2013 Revolvig Facility to repay $97.5 millio outstadig uder the 2010 Term Loa ad $95.0 millio outstadig uder the 2010 Revolvig Facility (as these terms are defied below i this ote 4) TERM LOANS, AS AMENDED O Jauary 8, 2014, the Borrower etered ito two usecured term loas i the iitial aggregate amout of $250.0 millio, comprised of: (1) a 5 Year Term Loa Agreemet (the 5 Year Term Loa ) with Wells Fargo Bak, Natioal Associatio, U.S. Bak Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $150.0 millio seior usecured 5 year term loa facility; ad (2) a 7 Year Term Loa Agreemet (the 7 Year Term Loa ad, together with the 5 Year Term Loa, the 2014 Term Loas ) with Wells Fargo Bak, Natioal Associatio, Capital Oe, Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $100.0 millio seior usecured 7 year term loa facility. Amouts borrowed uder the 2014 Term Loas bear iterest at the rate specified below per aum, depedig o PREIT s leverage, i excess of LIBOR, with o floor. I determiig PREIT s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is (a) 6.50% for each Property havig a average sales per square foot of more tha $500 for the most recet period of 12 cosecutive moths, ad (b) 7.50% for ay other Property. 5 Year 7 Year Term Loa Term Loa Applicable Applicable Level Ratio of Total Liabilities to Gross Asset Value Margi Margi 1 Less tha to % 1.80 % 2 Equal to or greater tha to % 1.95 % but less tha to Equal to or greater tha to % 2.15 % but less tha to Equal to or greater tha to % 2.35 % The iitial rate i effect uder the 5 Year Term Loa was 1.45% per aum i excess of LIBOR. The iitial rate i effect uder the 7 Year Term Loa was 1.95% per aum i excess of LIBOR. If PREIT seeks ad obtais a ivestmet grade credit ratig ad so otifies the leders uder the respective 2014 Term Loas, alterative iterest rates would apply. The table set forth below presets the amout outstadig, iterest rate (iclusive of the LIBOR spread) i effect ad the maturity dates of the 2014 Term Loas as of December 31, 2014: (i millios of dollars) 5 Year Term Loa 7 Year Term Loa Total facility $ $ Amout outstadig $ $ 30.0 Iterest rate 1.61 % 2.11 % Maturity date Jauary 2019 Jauary 2021 Iterest expese related to the 2014 Term Loas was $4.7 millio for the year eded December 31, Deferred fiacig fee amortizatio was $0.3 millio for the year eded December 31, Uder the 2014 Term Loas, there is a deferred draw feature that eables PREIT to borrow the amouts specified i each of the term loas util April 8, From the effective date util April 8, 2015 or util the maximum amout uder the respective loa is borrowed (or util the leders commitmets are otherwise termiated), the uused portio of the 2014 Term Loas is subject to a fee of 0.20%, i the case of the 5 year Term Loa, ad 0.35%, i the case of the 7 Year Term Loa, per aum. There is a additioal commitmet termiatio fee uder the 7 Year Term Loa if the maximum amout is ot borrowed before April 8, PREIT ad the subsidiaries of PREIT that either (1) accout for more tha 2.5% of adjusted Gross Asset Value (other tha a Excluded Subsidiary), (2) ow or lease a Uecumbered Property, (3) ow, directly or idirectly, a subsidiary described i clause (2), or (4) are guarators uder the 2013 Revolvig Facility will serve as guarators for fuds borrowed uder the 2014 Term Loas. I the evet that we seek ad obtai a ivestmet grade credit ratig, we may request that a subsidiary guarator be released, uless such guarator becomes obligated i respect of the debt of the Borrower or aother subsidiary, or ows Uecumbered Property ad icurs recourse debt. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 5 Year Term Loa, through a accordio optio (subject to certai coditios), from 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

34 $150.0 millio to as much as $300.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i commitmets from the curret leders or from ew leders. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 7 Year Term Loa, through a accordio optio (subject to certai coditios), from $100.0 millio to as much as $200.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i commitmets from the curret leders or from ew leders. The Credit Agreemets cotai certai affirmative ad egative coveats which are idetical ad are described i detail below i the sectio Idetical coveats cotaied i the 2013 Revolvig Facility, 2014 Term Loas ad Letter of Credit. The Borrower may prepay the 5 Year Term Loa at ay time without premium or pealty, subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs. The paymet of the 7 Year Term Loa prior to its maturity is subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs ad a decliig prepaymet pealty ragig from 3% from closig to oe year after closig, to 2% after two years, to 1% after three years ad without pealty thereafter. Upo the expiratio of ay applicable cure period followig a evet of default, the leders may declare all of the obligatios i coectio with the 2014 Term Loas immediately due ad payable, ad before the oe year aiversary of the effective date, the commitmets of the leders to make further loas, if ay, uder the 2014 Term Loas would termiate. Upo the occurrece of a volutary or ivolutary bakruptcy proceedig of PREIT, PREIT Associates, PRI, ay material subsidiary, ay subsidiary that ows or leases a Uecumbered Property or certai other subsidiaries, all outstadig amouts would automatically become immediately due ad payable ad, before April 8, 2015, the commitmets of the leders to make further loas will automatically termiate. PREIT has used ad may use the proceeds of the 2014 Term Loas for the repaymet of debt, for the paymet of developmet or redevelopmet costs ad for workig capital ad geeral corporate purposes. LETTER OF CREDIT FOR SPRINGFIELD TOWN CENTER ACQUISITION I coectio with the Cotributio Agreemet (see ote 11) to acquire Sprigfield Tow Ceter, i March 2014, we obtaied a $46.5 millio letter of credit from Wells Fargo Bak, Natioal Associatio (the Letter of Credit ). Amouts secured uder the Letter of Credit are subject to a fee per aum, depedig o PREIT s leverage. The iitial fee i effect is 1.15% per aum. The Letter of Credit iitially expires i July 2015 ad may be exteded up to oe year. The Letter of Credit is subject to coveats that are idetical to those cotaied i the 2013 Revolvig Facility ad the 2014 Term Loas. We expect that the Letter of Credit will be termiated i coectio with the closig of the Sprigfield Tow Ceter acquisitio, which we expect to occur o or about March 31, 2015, subject to the seller meetig all closig coditios. IDENTICAL COVENANTS CONTAINED IN THE 2013 REVOLVING FACILITY, 2014 TERM LOANS AND LETTER OF CREDIT The Credit Agreemets cotai certai affirmative ad egative coveats which are idetical, icludig, without limitatio, requiremets that PREIT maitai, o a cosolidated basis: (1) miimum Tagible Net Worth of ot less tha 75% of the Compay s tagible et worth o December 31, 2012, plus 75% of the Net Proceeds of all Equity Issuaces effected at ay time after December 31, 2012; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.60:1, provided that it will ot be a Default if the ratio exceeds 0.60:1 but does ot exceed 0.625:1 for more tha two cosecutive quarters o more tha two occasios durig the term; (3) miimum ratio of Adjusted EBITDA to Fixed Charges of 1.50:1; (4) miimum Uecumbered Debt Yield of 12.0%; (5) miimum Uecumbered NOI to Usecured Iterest Expese of 1.75:1; (6) maximum ratio of Secured Idebtedess to Gross Asset Value of 0.60:1; (7) maximum Ivestmets i uimproved real estate ad predevelopmet costs ot i excess of 5.0% of Gross Asset Value; (8) maximum Ivestmets i Persos other tha Subsidiaries, Cosolidated Affiliates ad Ucosolidated Affiliates ot i excess of 5.0% of Gross Asset Value; (9) maximum Mortgages i favor of the Borrower or ay other Subsidiary ot i excess of 5.0% of Gross Asset Value; (10) the aggregate value of the Ivestmets ad the other items subject to the precedig clauses (7) through (9) ot i excess of 10.0% of Gross Asset Value; (11) maximum Ivestmets i Cosolidatio Exempt Etities ot i excess of 25.0% of Gross Asset Value; (12) maximum Projects Uder Developmet ot i excess of 15.0% of Gross Asset Value; (13) the aggregate value of the Ivestmets ad the other items subject to the precedig clauses (7) through (9) ad (11) ad (12) ot i excess of 35.0% of Gross Asset Value; (14) Distributios may ot exceed (A) with respect to our preferred shares, the amouts required by the terms of the preferred shares, ad (B) with respect to our commo shares, the greater of (i) 95.0% of Fuds From Operatios (FFO) ad (ii) 110% of REIT taxable icome for a fiscal year; ad (15) PREIT may ot permit the amout of the Gross Asset Value attributable to assets directly owed by PREIT, PREIT Associates, PRI ad the guarators to be less tha 95% of Gross Asset Value excludig assets owed by Excluded Subsidiaries or Ucosolidated Affiliates. These coveats ad restrictios limit PREIT s ability to icur additioal idebtedess, grat lies o assets ad eter ito egative pledge agreemets, merge, cosolidate or sell all or substatially all of its assets ad eter ito certai trasactios with affiliates. The Credit Agreemets are subject to customary evets of default ad are cross-defaulted with oe aother. As of December 31, 2014, the Borrower was i compliace with all such fiacial coveats. Followig recet property sales, the NOI from the Compay s remaiig uecumbered properties is at a level such that the maximum usecured amout that the Compay may curretly borrow withi the Uecumbered Debt Yield coveat uder the $400.0 millio 2013 Revolvig Facility ad the $250.0 millio aggregate 2014 Term Loas, is a aggregate of $561.1 millio. As of December 31, 2014, the Compay had borrowed $130.0 millio uder the 2014 Term Loas ad there were o amouts outstadig uder the 2013 Revolvig Facility (with $7.1 millio pledged as collateral for letters of credit) CREDIT FACILITY Prior to the 2013 Revolvig Facility, which became effective i April 2013, we had a secured credit facility cosistig of a revolvig lie of credit with a capacity of $250.0 millio (the 2010 Revolvig Facility ) ad term loas with a aggregate balace prior to repaymet of $97.5 millio (collectively, the 2010 Term Loa ad, together with the 2010 Revolvig Facility, the 2010 Credit Facility ). PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 33

35 Iterest expese related to the 2010 Revolvig Facility was $0.4 millio ad $2.6 millio for the years eded December 31, 2013, ad 2012, respectively, excludig o-cash amortizatio of deferred fiacig fees. The weighted average effective iterest rates based o amouts borrowed uder the 2010 Term Loa for 2013 ad 2012 were 3.95% ad 4.82%, respectively. Iterest expese excludig o-cash amortizatio ad accelerated amortizatio of deferred fiacig fees related to the 2010 Term Loa was $2.4 millio ad $14.4 millio 2013 ad 2012, respectively. Deferred fiacig fee amortizatio associated with the 2010 Credit Facility for the years eded December 31, 2013 ad 2012 was $0.8 millio ad $3.5 millio, respectively. Accelerated deferred fiacig fee amortizatio associated with the 2010 Credit Facility for the years eded December 31, 2013 ad 2012 was $0.9 millio ad $0.7 millio, respectively, i coectio with permaet paydows of the 2010 Term Loa of $182.0 millio ad $58.0 millio for the years eded December 31, 2013 ad 2012, respectively. MORTGAGE LOANS Our mortgage loas, which are secured by 16 of our cosolidated properties, are due i istallmets over various terms extedig to the year Twelve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.90% to 6.34% ad had a weighted average iterest rate of 5.05% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.86% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.78% at December 31, Mortgage loas for properties owed by ucosolidated parterships are accouted for i Ivestmets i parterships, at equity ad Distributios i excess of partership ivestmets, ad are ot icluded i the table below. The followig table outlies the timig of pricipal paymets ad balloo paymets pursuat to the terms of our mortgage loas of our cosolidated properties as of December 31, 2014: (i thousads of dollars) Pricipal Balloo For the Year Edig December 31, Amorizatio Paymets Total 2015 $ 20,923 $ 270,799 $ 291, , , , , , , , , , ,450 28,050 40, ad thereafter 34, , ,387 $ 105,491 $1,302,456 $1,407,947 The estimated fair values of mortgage loas based o year-ed iterest rates ad market coditios at December 31, 2014 ad 2013 are as follows: Carryig Fair Carryig Fair (i millios of dollars) Value Value Value Value Mortgage loas $ 1,407.9 $ 1,415.5 $ 1,502.7 $ 1,467.9 The mortgage loas cotai various customary default provisios. As of December 31, 2014, we were ot i default o ay of the mortgage loas. MORTGAGE LOAN ACTIVITY The followig table presets the mortgage loas we have etered ito or exteded sice Jauary 1, 2013 relatig to our cosolidated properties: Amout Fiaced or Exteded Fiacig Date Property (i millios of dollars) Stated Iterest Rate Maturity 2013 Activity: February Fracis Scott Key Mall (1)(2) $ 62.6 LIBOR plus 2.60% March 2018 February Lycomig Mall (3) 35.5 LIBOR plus 2.75% March 2018 February Viewmot Mall (1) 48.0 LIBOR plus 2.60% March 2018 March Dartmouth Mall % fixed April 2018 September Loga Valley Mall (4) 51.0 LIBOR plus 2.10% September 2014 December Wyomig Valley Mall (5) % fixed December 2023 (1) Iterest oly paymets. (2) The mortgage loa may be icreased by $5.8 millio subject to certai prescribed coditios. (3) The iitial amout of the mortgage loa was $28.0 millio. We took additioal draws of $5.0 millio i October 2009 ad $2.5 millio i March The mortgage loa was ameded i February 2013 to lower the iterest rate to LIBOR plus 2.75% ad to exted the maturity date to March I February 2013, the uamortized balace of the mortgage loa was $33.4 millio before we borrowed a additioal $2.1 millio to brig the total amout fiaced to $35.5 millio. (4) The iitial amout of the mortgage loa was $68.0 millio. We repaid $5.0 millio i September 2011 ad $12.0 millio i September We exercised our right uder the loa i September 2013 to exted the maturity date to September We repaid the loa i July (5) Iterest oly paymets util March Pricipal ad iterest paymets commecig i April OTHER MORTGAGE LOAN ACTIVITY I July 2014, we repaid a $25.8 millio mortgage loa plus accrued iterest secured by 801 Market Street, Philadelphia, Pesylvaia, a property that is part of The Gallery, usig proceeds from the trasactio relatig to The Gallery with Macerich. Also i July 2014, we repaid a $51.0 millio mortgage loa plus accrued iterest secured by Loga Valley Mall i Altooa, Pesylvaia usig $50.0 millio from our 2013 Revolvig Facility ad $1.0 millio from available workig capital. The $50.0 millio borrowed from the 2013 Revolvig Facility was subsequetly repaid i July 2014 usig proceeds from the trasactio relatig to The Gallery with Macerich. I February 2013, we repaid a $53.2 millio mortgage loa o Moorestow Mall i Moorestow, New Jersey usig $50.0 millio from our 2010 Revolvig Facility ad $3.2 millio from available workig capital. I May 2013, we repaid a $56.3 millio mortgage loa o Jacksoville Mall i Jacksoville, North Carolia usig $35.0 millio from our 2013 Revolvig Facility ad $21.3 millio from available workig capital. See ote 6 for additioal iformatio o the $2.9 millio loss o hedge ieffectiveess that was recorded durig the three moths eded Jue 30, 2013 i coectio with this trasactio. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

36 I September 2013, we repaid a $65.0 millio mortgage loa o Wyomig Valley Mall i Wilkes-Barre, Pesylvaia usig $65.0 millio from our 2013 Revolvig Facility. I October 2013, we repaid a $66.9 millio mortgage loa o Exto Square Mall i Exto, Pesylvaia usig $60.0 millio from our 2013 Revolvig Facility ad $6.9 millio from available workig capital. I December 2013, we repaid a $42.2 millio mortgage loa o Beaver Valley Mall i Moaca, Pesylvaia usig proceeds from the December 2013 fiacig of Wyomig Valley Mall. 5. Equity Offerigs 2013 COMMON SHARE OFFERING I May 2013, we issued 11,500,000 commo shares i a public offerig at $20.00 per share. We received et proceeds from the offerig of $220.5 millio after deductig paymet of the uderwritig discout of $0.80 per share ad offerig expeses. We used a portio of the et proceeds from this offerig to repay all $192.5 millio of the-outstadig borrowigs uder the 2013 Revolvig Facility PREFERRED SHARE OFFERINGS I April 2012, we issued 4,600, % Series A Cumulative Redeemable Perpetual Preferred Shares (the Series A Preferred Shares ) i a public offerig at $25.00 per share. We received et proceeds from the offerig of $110.9 millio after deductig paymet of the uderwritig discout of $3.6 millio ($ per Series A Preferred Share) ad estimated offerig expeses of $0.5 millio. We used a portio of the et proceeds from this offerig to repay all $30.0 millio of the-outstadig borrowigs uder the 2010 Revolvig Facility. I October 2012, we issued 3,450, % Series B Cumulative Redeemable Perpetual Preferred Shares (the Series B Preferred Shares ) i a public offerig at $25.00 per share. We received et proceeds from the offerig of $83.3 millio after deductig paymet of the uderwritig discout of $2.7 millio ($ per Series B Preferred Share) ad estimated offerig expeses of $0.3 millio. We used a portio of the et proceeds from this offerig to repay all $15.0 millio of the-outstadig borrowigs uder the 2010 Revolvig Facility ad $58.0 millio of borrowigs uder the 2010 Term Loa. We may ot redeem the Series A Preferred Shares or the Series B Preferred Shares before April 20, 2017 ad October 11, 2017, respectively, except to preserve our status as a REIT or upo the occurrece of a Chage of Cotrol, as defied i the Trust Agreemet addedums desigatig the Series A ad Series B Preferred Shares, respectively. O ad after April 20, 2017 ad October 11, 2017, we may redeem ay or all of the Series A Preferred Shares or the Series B Preferred Shares, respectively, at $25.00 per share plus ay accrued ad upaid divideds. I additio, upo the occurrece of a Chage of Cotrol, we may redeem ay or all of the Series A Preferred Shares or the Series B Preferred Shares for cash withi 120 days after the first date o which such Chage of Cotrol occurred at $25.00 per share plus ay accrued ad upaid divideds. The Series A Preferred Shares ad the Series B Preferred Shares have o stated maturity, are ot subject to ay sikig fud or madatory redemptio ad will remai outstadig idefiitely uless we redeem or otherwise repurchase them or they are coverted. As of December 31, 2012, there was $0.7 millio i accumulated but upaid divideds relatig to the Series A ad Series B Preferred Shares. This amout was deducted from et loss to determie et loss attributable to commo shareholders. 6. Derivatives I the ormal course of busiess, we are exposed to fiacial market risks, icludig iterest rate risk o our iterest bearig liabilities. We attempt to limit these risks by followig established risk maagemet policies, procedures ad strategies, icludig the use of fiacial istrumets such as derivatives. We do ot use fiacial istrumets for tradig or speculative purposes. CASH FLOW HEDGES OF INTEREST RATE RISK Our outstadig derivatives have bee desigated uder applicable accoutig authority as cash flow hedges. The effective portio of chages i the fair value of derivatives desigated as, ad that qualify as, cash flow hedges is recorded i Accumulated other comprehesive icome (loss) ad is subsequetly reclassified ito earigs i the period that the hedged forecasted trasactio affects earigs. To the extet these istrumets are ieffective as cash flow hedges, chages i the fair value of these istrumets are recorded i Iterest expese, et. We recogize all derivatives at fair value as either assets or liabilities i the accompayig cosolidated balace sheets. Our derivative assets are recorded i Deferred costs ad other assets ad our derivative liabilities are recorded i Fair value of derivative istrumets. Amouts reported i Accumulated other comprehesive icome (loss) that are related to derivatives will be reclassified to Iterest expese, et as iterest paymets are made o our correspodig debt. Durig the ext twelve moths, we estimate that $3.4 millio will be reclassified as a icrease to iterest expese i coectio with derivatives. INTEREST RATE SWAPS As of December 31, 2014, we had etered ito 12 iterest rate swap agreemets with a weighted average iterest swap rate of 1.67% o a otioal amout of $327.7 millio maturig o various dates through Jauary 1, We etered ito these iterest rate swap agreemets i order to hedge the iterest paymets associated with our issuaces of variable iterest rate log term debt. We have assessed the effectiveess of these iterest rate swap agreemets as hedges at iceptio ad do so o a quarterly basis. O December 31, 2014, except as set forth below, we cosidered these iterest rate swap agreemets to be highly effective as cash flow hedges. The iterest rate swap agreemets are et settled mothly. I the year eded December 31, 2014, we recorded et losses o hedge ieffectiveess of $1.8 millio. As a result of our July 2014 repaymet of the $25.8 millio mortgage loa secured by 801 Market Street, Philadelphia, Pesylvaia, we aticipated that we would ot have sufficiet 1-moth LIBOR based iterest paymets to meet the etire swap otioal amout related to two of our swaps, ad we estimated that this coditio would exist util approximately March As such, previously deferred losses i other comprehesive icome for the period from July 2014 to March 2015 i the amout of $0.1 millio related to these iterest rate swaps were reclassified ito iterest expese durig the three moths eded September 30, These swaps, with a aggregate otioal amout of $40.0 millio, do ot qualify for ogoig hedge accoutig after July 2014 as a result of the urealized forecasted trasactios. We also recogized mark-to-market iterest expese o these two swaps of $0.5 millio for the period from July 2014 to December These swaps are scheduled to expire by their terms i Jauary Also, i Jue 2014, we gave otice to the mortgage leder that we iteded to repay the mortgage loa secured by Loga Valley Mall prior to its maturity, ad i coectio therewith, we recorded hedge ieffectiveess of $1.2 millio i the three moths eded Jue 30, The otice of our PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 35

37 itetio to repay the mortgage loa made it probable that the hedged trasactio idetified i our origial hedge documetatio would ot occur, ad i Jue 2014, we reclassified $1.2 millio from accumulated other comprehesive loss to iterest expese. We repaid the mortgage loa secured by Loga Valley Mall i July I the year eded December 31, 2013, we recorded et losses o hedge ieffectiveess of $3.4 millio. We recorded $2.9 millio i et losses o hedge ieffectiveess relatig to a forward startig swap that was cash settled i 2008 i coectio with the May 2013 Jacksoville Mall mortgage loa repaymet. The mortgage loa repaymet made it probable that the hedged trasactio idetified i our origial hedge documetatio would ot occur, ad we therefore reclassified $2.9 millio from Accumulated other comprehesive icome (loss) to Iterest expese, et. We also recorded $0.5 millio i et losses o hedge ieffectiveess due to the accelerated amortizatio of $0.5 millio i coectio with the partial mortgage loa repaymets at Loga Valley Mall. I the year eded December 31, 2012, we recorded et losses o hedge ieffectiveess of $1.2 millio. As the result of our permaet paydow of a portio of our 2010 Credit Facility i 2012 ad expected repaymets of mortgage loas secured by properties expected to be sold i 2013, we aticipated that we would ot have sufficiet 1-moth LIBOR based iterest paymets to meet the etire swap otioal amout related to three of our swaps. Therefore, it was probable that a portio of the hedged forecasted trasactios (1-moth LIBOR iterest paymets) associated with the three swaps would ot occur by the ed of the origially specified time period as documeted at the iceptio of the hedgig relatioships. As such, previously deferred losses i other comprehesive icome i the amout of $0.6 millio related to these three iterest rate swaps were reclassified ito iterest expese durig Oe of those swaps with a otioal amout of $40.0 millio o loger qualified for hedge accoutig as a result of the missed forecasted trasactios ad was marked to market through earigs prospectively. These swaps expired by their terms i March Additioally, certai of the properties that were uder cotract to be sold as of December 31, 2012 served as security for mortgage loas that were previously hedged. Sice it was probable because of the pedig sales that the hedged trasactios as idetified i our origial hedge documetatio would ot occur, we reclassified $0.6 millio from other comprehesive icome to iterest expese. Accumulated other comprehesive icome (loss) as of December 31, 2014 icludes a et loss of $2.5 millio relatig to forward-startig swaps that we cash settled i prior years that are beig amortized over 10 year periods commecig o the closig dates of the debt istrumets that are associated with these settled swaps. The followig table summarizes the terms ad estimated fair values of our iterest rate swap derivative istrumets at December 31, 2014 ad The otioal values provide a idicatio of the extet of our ivolvemet i these istrumets, but do ot represet exposure to credit, iterest rate or market risks. (i millios of dollars) Fair Value at Fair Value at Notioal Value December 31, 2014 (1) December 31, 2013 (1) Iterest Rate Maturity Date Iterest Rate Swaps $ 25.0 $ (0.2) $ (0.3) 1.10 % July 31, (0.4) (0.5) 1.38% Jauary 2, % December 1, % Jauary 1, % Jauary 1, % Jauary 1, (0.4) N/A 1.78 % Jauary 2, (0.3) N/A 1.78 % Jauary 2, (0.3) N/A 1.78 % Jauary 2, (0.3) N/A 1.79 % Jauary 2, (0.3) N/A 1.79 % Jauary 2, (0.3) N/A 1.79 % Jauary 1, 2019 $ (2.4 ) $ (0.1 ) (1) As of December 31, 2014 ad December 31, 2013, derivative valuatios i their etirety are classified i Level 2 of the fair value hierarchy ad we do ot have ay sigificat recurrig fair value measuremets related to derivative istrumets usig sigificat uobservable iputs (Level 3). The table below presets the effect of our derivative fiacial istrumets o our cosolidated statemets of operatios for the years eded December 31, 2014, 2013 ad 2012: Derivatives i cash flow hedgig relatioships: Iterest rate products For the Year Eded December 31, Cosolidated Statemets of Operatios Locatio Gai (loss) recogized i Other Comprehesive Icome (Loss) o derivatives $ (1.9 ) $ 8.2 $ (3.8) N/A Loss reclassified from Accumulated Other Comprehesive Icome (Loss) ito icome (effective portio) Iterest expese Gai (loss) recogized i icome o derivatives (ieffective portio ad amout excluded from effectiveess testig) (1.8) (3.4) (1.2) Iterest expese 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

38 CREDIT-RISK-RELATED CONTINGENT FEATURES We have agreemets with some of our derivative couterparties that cotai a provisio pursuat to which, if our etity that origiated such derivative istrumets defaults o ay of its idebtedess, icludig default where repaymet of the idebtedess has ot bee accelerated by the leder, the we could also be declared i default o our derivative obligatios. As of December 31, 2014, we were ot i default o ay of our derivative obligatios. We have a agreemet with a derivative couterparty that icorporates the loa coveat provisios of our loa agreemet with a leder affiliated with the derivative couterparty. Failure to comply with the loa coveat provisios would result i our beig i default o ay derivative istrumet obligatios covered by the agreemet. As of December 31, 2014, the fair value of derivatives i a et liability positio, which excludes accrued iterest but icludes ay adjustmet for operformace risk related to these agreemets, was $2.4 millio. If we had breached ay of the default provisios i these agreemets as of December 31, 2014, we might have bee required to settle our obligatios uder the agreemets at their termiatio value (icludig accrued iterest) of $2.8 millio. We had ot breached ay of these provisios as of December 31, Beefit Plas 401(k) PLAN We maitai a 401(k) Pla (the 401(k) Pla ) i which substatially all of our employees are eligible to participate. The 401(k) Pla permits eligible participats, as defied i the 401(k) Pla agreemet, to defer up to 30% of their compesatio, ad we, at our discretio, may match a specified percetage of the employees cotributios. Our ad our employees cotributios are fully vested, as defied i the 401(k) Pla agreemet. Our cotributios to the 401(k) Pla were $1.1 millio for the year eded December 31, 2014, ad $1.0 millio for each of the years eded December 31, 2013 ad SUPPLEMENTAL RETIREMENT PLANS We maitai Supplemetal Retiremet Plas (the Supplemetal Plas ) coverig certai seior maagemet employees. Expeses uder the provisios of the Supplemetal Plas were $0.4 millio, $0.5 millio ad $0.7 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. EMPLOYEE SHARE PURCHASE PLAN We maitai a share purchase pla through which our employees may purchase commo shares at a 15% discout to the fair market value (as defied therei). I the years eded December 31, 2014, 2013 ad 2012, approximately 30,000, 29,000 ad 44,000 shares, respectively, were purchased for total cosideratio of $0.5 millio for the year eded December 31, 2014 ad $0.4 millio for each of the years eded December 31, 2013 ad We recorded expese of $0.1 millio, $0.1 millio ad $0.3 millio i the years eded December 31, 2014, 2013 ad 2012, respectively, related to the share purchase pla. 8. Share Based Compesatio SHARE BASED COMPENSATION PLANS As of December 31, 2014, we make share based compesatio awards usig our Secod Ameded ad Restated 2003 Equity Icetive Pla, which is a share based compesatio pla that was approved by our shareholders i Previously, we maitaied five other plas pursuat to which we grated equity awards i various forms. Certai restricted shares ad certai optios grated uder these previous plas remai subject to restrictios or remai outstadig ad exercisable, respectively. I additio, we previously maitaied two plas pursuat to which we grated optios to our o-employee trustees. We recogize expese i coectio with share based awards to employees ad trustees by valuig all share based awards at their fair value o the date of grat, ad the expesig them over the applicable vestig period. For the years eded December 31, 2014, 2013 ad 2012, we recorded aggregate compesatio expese for share based awards of $8.5 millio (icludig $1.5 millio of accelerated amortizatio relatig to employee separatio), $7.3 millio (icludig $0.7 millio of accelerated amortizatio relatig to employee separatio) ad $11.1 millio, (icludig $2.1 millio of accelerated amortizatio related to employee separatio), respectively, i coectio with the equity icetive programs described below. There was o icome tax beefit recogized i the icome statemet for share based compesatio arragemets. For each of the years eded December 31, 2014, 2013 ad 2012, we capitalized compesatio costs related to share based awards of $0.1 millio EQUITY INCENTIVE PLAN Subject to ay future adjustmets for share splits ad similar evets, the total remaiig umber of commo shares that may be issued to employees or trustees uder our Secod Ameded ad Restated 2003 Equity Icetive Pla (the 2003 Equity Icetive Pla ) (pursuat to optios, restricted shares, shares issuable pursuat to curret or future RSU Programs, or otherwise) was 1,454,626 as of December 31, Other tha a portio of the 2012 aual awards to trustees, the share based awards described below i this sectio were all made uder the 2003 Equity Icetive Pla. RESTRICTED SHARES The aggregate fair value of the restricted shares that we grated to our employees i 2014, 2013 ad 2012 was $4.3 millio, $4.1 millio ad $6.2 millio, respectively. As of December 31, 2014, there was $3.7 millio of total urecogized compesatio cost related to uvested share based compesatio arragemets grated uder the 2003 Equity Icetive Pla. The cost is expected to be recogized over a weighted average period of 0.8 years. The total fair value of shares vested durig the years eded December 31, 2014, 2013 ad 2012 was $6.0 millio, $5.4 millio ad $7.5 millio, respectively. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 37

39 A summary of the status of our uvested restricted shares as of December 31, 2014 ad chages durig the years eded December 31, 2014, 2013 ad 2012 is preseted below: Shares Weighted Average Grat Date Fair Value Uvested at Jauary 1, ,226 $ Shares grated 459, Shares vested (664,574 ) Shares forfeited (20,442) Uvested at December 31, , Shares grated 253, Shares vested (392,917 ) Shares forfeited (2,300) Uvested at December 31, , Shares grated 253, Shares vested (374,213 ) Shares forfeited (25,099) Uvested at December 31, ,049 $ RESTRICTED SHARES SUBJECT TO TIME BASED VESTING I 2014, 2013 ad 2012, we made grats of restricted shares subject to time based vestig. The awarded shares vest over periods of oe to three years, typically i equal aual istallmets, provided the recipiet is our employee o the vestig date. For all gratees, the shares geerally vest immediately upo death or disability. Recipiets are etitled to receive a amout equal to the divideds o the shares prior to vestig. We grated a total of 225,978, 222,664 ad 425,462 restricted shares subject to time based vestig to our employees i 2014, 2013 ad 2012, respectively. The weighted average grat date fair values of time based restricted shares, which were determied based o the average of the high ad low sales price of a commo share o the date of grat, was $19.23 per share i 2014, $18.29 per share i 2013 ad $14.57 per share i Compesatio cost relatig to time based restricted share awards is recorded ratably over the respective vestig periods. We recorded $4.9 millio (icludig $0.8 millio of accelerated amortizatio relatig to employee separatio), $4.3 millio (icludig $0.5 millio of accelerated amortizatio relatig to employee separatio) ad $6.0 millio (icludig $1.0 millio of accelerated amortizatio relatig to employee separatio) of compesatio expese related to time based restricted shares for the years eded December 31, 2014, 2013 ad 2012, respectively. We will record future compesatio expese i coectio with the vestig of existig time based restricted share awards as follows: (i thousads of dollars) For the Year Edig December 31, Future Compesatio Expese 2015 $ 2, , Total $ 3,695 RESTRICTED SHARE UNIT PROGRAMS I 2014, 2013, 2012, 2011 ad 2010, our Board of Trustees established the RSU Program, the RSU Program, the RSU Program, the RSU Program ad the Program, respectively (the RSU Programs ). Uder the RSU Programs, we may make awards i the form of market based performace-cotiget restricted share uits, or RSUs. The RSUs represet the right to ear commo shares i the future depedig o our performace i terms of total retur to shareholders (as defied i the RSU Programs) for the three year periods edig December 31, 2016, 2015 ad 2014 or a shorter period edig upo the date of a chage i cotrol of the Compay (each, a Measuremet Period ) relative to the total retur to shareholders, as defied, for the applicable Measuremet Period of compaies comprisig a idex of real estate ivestmet trusts (the Idex REITs ). Divideds are deemed credited to the participats RSU accouts ad are applied to acquire more RSUs for the accout of the participats at the 20-day average price per commo share edig o the divided paymet date. If eared, awards will be paid i commo shares i a amout equal to the applicable percetage of the umber of RSUs i the participat s accout at the ed of the applicable Measuremet Period. The aggregate fair values of the RSU awards i 2014, 2013 ad 2012 were determied usig a Mote Carlo simulatio probabilistic valuatio model ad were $2.2 millio (a weighted average of $17.56 per share), $2.0 millio ($17.40 per share) ad $4.0 millio ($18.41 per share), respectively. The table below sets forth the assumptios used i the Mote Carlo simulatios used to determie the aggregate fair values of the RSU awards i 2014, 2013 ad 2012 by grat date: RSUs ad assumptios by Grat Date February 26, February 27, April 23, April 9, RSUs grated 127, ,898 80, ,761 Volatility 37.7 % 44.7 % 57.2 % 61.5 % Risk free iterest rate 0.68 % 0.36 % 0.39 % 0.46 % PREIT Stock Beta compared to Dow Joes US Real Estate Idex Compesatio cost relatig to the RSU awards is expesed ratably over the applicable three year vestig period. We recorded $2.8 millio (icludig $0.7 millio of accelerated amortizatio relatig to employee separatio), $2.3 millio (icludig $0.2 millio of accelerated amortizatio relatig to employee separatio) ad $4.5 millio of compesatio expese related to the RSU Programs for the years eded December 31, 2014, 2013 ad 2012, respectively. We will record future aggregate compesatio expese of $1.6 millio related to the existig awards uder the RSU Programs. For the years eded December 31, 2014, 2013, ad 2012, the umber of shares issued to employees resultig from the measuremet of the RSU program, RSU Program, ad the RSU program were 345,344, 341,710, ad 525,822, respectively. SERVICE AWARDS I 2012, we issued 1,875 shares without restrictios to o-officer employees as service awards. The aggregate fair value of the awards of $29,000 i the year eded December 31, 2012 was determied based o the average of the high ad low share price o the grat date ad recorded as compesatio expese. Begiig i 2013, we coverted our service awards to a cash based program. RESTRICTED SHARES AWARDED TO NON-EMPLOYEE TRUSTEES As part of the compesatio we pay to our o-employee trustees for their service, we grat restricted shares subject to time based vestig. The 2003 Equity Icetive Pla provides for the gratig of restricted share awards to our o-employee trustees. The 2008 Restricted Share Pla for No- Employee Trustees previously provided for the gratig of restricted share awards to our o-employee trustees. I 2014 ad 2013, all of these 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

40 aual awards were made uder the 2003 Equity Icetive Pla. I 2012, a portio of these aual awards was made uder the 2008 Restricted Share Pla for No-Employee Trustees, ad a portio was made uder the 2003 Equity Icetive Pla. The aggregate fair value of the restricted shares that we grated uder both plas to our o-employee trustees i 2014, 2013 ad 2012 was $0.5 millio, $0.6 millio ad $0.4 millio, respectively. We recorded $0.8 millio, $0.8 millio ad $0.5 millio of compesatio expese related to time based vestig of o-employee trustee restricted share awards i 2014, 2013 ad 2012, respectively. As of December 31, 2014, there was $0.3 millio of total urecogized compesatio expese related to uvested restricted share grats to o-employee trustees. Compesatio expese will be recogized over a weighted average period of 0.2 years. The total fair value of shares grated to o-employee trustees that vested was $0.9 millio, $0.5 millio, ad $0.1 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. I 2015, we will record compesatio expese of $0.3 millio i coectio with the vestig of existig o-employee trustee restricted share awards. OPTIONS OUTSTANDING Optios, whe grated, are typically grated with a exercise price equal to the fair market value of the uderlyig shares o the date of the grat. The optios vest ad are exercisable over periods determied by us, but i o evet later tha te years from the grat date. We have six plas uder which we have historically grated optios. We have ot grated ay optios to our employees sice 2003, ad, sice that date, have oly made optio grats to o-employee trustees o the date they became trustees i accordace with past practice. No optios were grated to o-employee trustees i I each of 2013 ad 2012, 5,000 optios were grated to a ewly-elected, o-employee trustee. I 2013, the Board of Trustees determied that it would o loger grat optios to ew o-employee trustees. I 2012, 5,000 optios were exercised. The followig table presets the chages i the umber of optios outstadig from Jauary 1, 2012 through December 31, 2014: Weighted 1990 Average Exercise 2003 Equity No-Employee Price/Total Icetive Pla Trustee Pla Optios outstadig at Jauary 1, ,932 15,932 15,000 Optios forfeited $ (932) Optios grated $ ,000 Optios exercised $ 5.41 (5,000) Optios outstadig at December 31, ,000 15,000 15,000 Optios forfeited $ (15,000) Optios grated $ ,000 Optios outstadig at December 31, ,000 20,000 Optios forfeited $ (5,000) Optios outstadig at December 31, 2014 (1) 15,000 15,000 Outstadig exercisable ad uexercisable optios Average exercise price per share $ $ $ Aggregate exercise price (2) $ 357 $ 357 $ Itrisic value of optios outstadig (2) $ 31 $ 31 $ Outstadig exercisable optios at December 31, 2014 Optios 8,750 8,750 Average exercise price per share $ $ $ Aggregate exercise price (2) $ 248 $ 248 $ Itrisic value of optios outstadig (2) $ 15 $ 15 $ (1) The weighted average remaiig cotractual life of these outstadig optios is 5.53 years (weighted average exercise price of $23.67 per share ad a aggregate exercise price of $0.4 millio). (2) Amouts i thousads of dollars. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 39

41 The followig table summarizes iformatio relatig to all optios outstadig as of December 31, 2014: Optios Outstadig as of December 31, 2014 Optios Exercisable as of December 31, 2014 Weighted Average Weighted Average Weighted Average Rage of Exercise Number of Exercise Price Number of Exercise Price Remaiig Prices (Per Share) Shares (Per Share ) Shares (Per Share ) Life (Years ) $12.87-$ ,000 $ ,500 $ $19.00-$ ,000 $ ,250 $ $29.00-$ ,000 $ ,000 $ Leases AS LESSOR Our retail properties are leased to teats uder operatig leases with various expiratio dates ragig through Future miimum ret uder ocacelable operatig leases with terms greater tha oe year is as follows: (i thousads of dollars) For the Year Edig December 31, 2015 $ 239, , , , , ad thereafter 399,892 $ 1,269,122 The total future miimum ret as preseted does ot iclude amouts that may be received as teat reimbursemets for certai operatig costs or cotiget amouts that may be received as percetage ret. AS LESSEE We have operatig leases for our corporate office space (see ote 10) ad for various computer, office ad mall equipmet. Furthermore, we are the lessee uder third-party groud leases for portios of the lad at four of our properties (Crossroads Mall, Exto Square Mall, Plymouth Meetig Mall ad Uiotow Mall). Total amouts expesed relatig to such leases were $2.3 millio, $2.5 millio ad $3.2 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. We accout for groud ret ad capital lease expese o a straight lie basis. Miimum future lease paymets due i each of the ext five years ad thereafter are as follows: (i thousads of dollars) Operatig Groud For the Year Edig December 31, Leases Leases 2015 $ 2,089 $ , , , , ad thereafter 1, Related Party Trasactios $ 8,345 $ 2,227 GENERAL We curretly provide maagemet, leasig ad developmet services for seve properties owed by parterships ad other etities i which certai of our officers or curret or former trustees or members of their immediate family ad affiliated etities have idirect owership iterests. Total reveue eared by PRI for such services was $0.6 millio, $1.0 millio ad $1.0 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. OFFICE LEASE We lease our pricipal executive offices from Bellevue Associates, a etity i which our Executive Chairma, Roald Rubi, has a iterest. Collectively with members of his immediate family ad affiliated etities, Roald Rubi ows approximately a 50% iterest. Total ret expese uder this lease was $1.2 millio, $1.4 millio ad $1.5 millio for the years eded December 31, 2014, 2013 ad 2012, respectively. 11. Commitmets ad Cotigecies CONTRACTUAL OBLIGATIONS As of December 31, 2014, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects of $11.0 millio i the form of teat allowaces ad cotracts with geeral service providers ad other professioal service providers. SPRINGFIELD TOWN CENTER I March 2014, we etered ito a Cotributio Agreemet (the Cotributio Agreemet ) to acquire Sprigfield Tow Ceter i Sprigfield, Virgiia ( Sprigfield Tow Ceter ) for total cosideratio of: (i) a aggregate of $340.0 millio (subject to customary closig proratio adjustmets), i the form of cash ad the assumptio ad payoff of certai seller debt, ad (ii) 6,250,000 OP Uits, ad, if the 30-day average share price is less tha $20.00 at closig, a umber of preferred uits of limited partership iterest. We expect to provide the cash amout by borrowig from the amouts available uder our existig credit agreemets. I additio, the seller of Sprigfield Tow Ceter may be etitled to certai additioal cosideratio based o the value of Sprigfield Tow Ceter three years after the closig date. The closig is subject to the substatial completio of the redevelopmet of Sprigfield Tow Ceter i accordace with plas ad specificatios for such redevelopmet, as well as certai other customary closig coditios. We curretly expect this trasactio to close o or about March 31, 2015, subject to the seller meetig all closig coditios. Pursuat to the Cotributio Agreemet, closig will occur after all of the coditios to closig have bee satisfied or waived, o the date that is the earlier of (i) fiftee days after the later of the date o which Regal Ciemas, Dick s Sportig Goods ad at least sevety-five percet (75%) of the aggregate square footage of the i-lie space of Sprigfield Tow Ceter are occupied, certificates of occupacy have bee issued with respect to all of the commo areas of the Property ad the grad opeig of Sprigfield Tow Ceter has occurred, ad (ii) March 31, 2015 (which date may be exteded i certai circumstaces). The grad opeig took place o October 17, I coectio with this Cotributio Agreemet, we have obtaied a $46.5 millio letter of credit (see ote 4) ad have icurred $2.7 millio of acquisitio related expeses as of December 31, These expeses are icluded i Acquisitio costs ad other expeses o the cosolidated statemets of operatios for the year eded December 31, EMPLOYMENT AGREEMENTS As of December 31, 2014, four officers of the Compay had employmet agreemets with iitial terms that rage from oe year to three years ad that reew automatically for additioal oe-year terms. These employmet agreemets provided for aggregatebase compesatio for the year eded December 31, 2014 of $1.7 millio, 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

42 subject to icreases as approved by the Executive Compesatio ad Huma Resources Committee of our Board of Trustees i future years, as well as additioal icetive compesatio. PROVISION FOR EMPLOYEE SEPARATION EXPENSE GEORGE RUBIN, FORMER VICE CHAIRMAN I May 2014, George F. Rubi separated from his positio as Vice Chairma of PREIT. Uder the terms of Mr. Rubi s separatio agreemet from the Compay, which became effective i Jue 2014, we recorded employee separatio expese of $4.1 millio i the secod quarter of I August 2014, Mr. Rubi received a paymet of approximately $2.6 millio, which amout is i additio to the paymet of the amouts accrued uder Mr. Rubi s supplemetal retiremet pla. All of Mr. Rubi s outstadig uvested restricted shares became vested i coectio with his separatio ad he remais eligible to receive shares uder the Compay s Restricted Share Uit Programs based o the achievemet of the performace metrics established by those programs as if his employmet had ot termiated. Mr. Rubi s term as a member of the Compay s board of trustees expired at the Compay s Aual Meetig held o May 30, RONALD RUBIN, EXECUTIVE CHAIRMAN I coectio with the terms of the ameded employmet agreemet with Roald Rubi, our Executive Chairma, we recorded a total provisio for employee separatio expese of $4.5 millio. We recorded employee separatio expese of $2.6 millio through December 31, 2012 ad $1.9 millio through Jue 30, I February 2013, uder our Secod Ameded ad Restated 2003 Equity Icetive Pla, Mr. Rubi received 16,000 restricted shares that had a fair value of $0.3 millio based o the grat date fair value of $18.28 per share ad a vestig period through December 31, This award was amortized through Jue 7, 2013, the date o which Mr. Rubi became eligible to volutarily termiate his employmet agreemet ad receive his fouder s retiremet paymet of $3.5 millio, at which time such restricted shares would vest. EDWARD A. GLICKMAN, FORMER PRESIDENT AND CHIEF OPERATING OFFICER I coectio with the appoitmet of Joseph F. Coradio as Chief Executive Officer i Jue 2012, coditios i our former Presidet ad Chief Operatig Officer Edward A. Glickma s employmet agreemet were triggered that caused us to record a provisio for employee separatio expese of $4.1 millio i Mr. Glickma left his positio as the Compay s Presidet ad Chief Operatig Officer effective August 31, Uder the Compay s employmet agreemet with Mr. Glickma, i coectio with his departure, he was etitled (i) to receive a cash paymet of approximately $2.7 millio, (ii) to receive additioal amouts accrued uder his supplemetal retiremet pla, (iii) to have his outstadig uvested restricted shares become vested, ad (iv) to remai eligible to receive shares uder the Compay s Restricted Share Uit programs based o the Compay s achievemet of the performace metrics established by those programs as if his employmet had ot termiated. I October 2012, Mr. Glickma resiged from his positio as a trustee of the Compay. To formally recogize ad memorialize the terms of his departure from the Compay as both a trustee ad as a officer, the Compay ad Mr. Glickma etered ito a separatio agreemet which icluded a mutual stadard geeral release of all claims. Uder the separatio agreemet, Mr. Glickma was etitled to a total cash separatio paymet of $2.8 millio (icludig the above-described $2.7 millio to which he would have bee etitled uder his employmet agreemet). OTHER I 2014 ad 2012, we termiated the employmet of certai employees. I coectio with the departure of those employees, we recorded $0.9 millio ad $2.7 millio of employee separatio expese i 2014 ad 2012, respectively. LEGAL ACTIONS I the ormal course of busiess, we have ad might become ivolved i legal actios relatig to the owership ad operatio of our properties ad the properties we maage for third parties. I maagemet s opiio, the resolutios of ay such pedig legal actios are ot expected to have a material adverse effect o our cosolidated fiacial positio or results of operatios. ENVIRONMENTAL We are aware of certai evirometal matters at some of our properties. We have, i the past, performed remediatio of such evirometal matters, ad are ot aware of ay sigificat remaiig potetial liability relatig to these evirometal matters. We might be required i the future to perform testig relatig to these matters. We do ot expect these matters to have ay sigificat impact o our liquidity or results of operatios. However, we ca provide o assurace that the amouts reserved will be adequate to cover further evirometal costs. We have isurace coverage for certai evirometal claims up to $25.0 millio per occurrece ad up to $25.0 millio i the aggregate. TAX PROTECTION AGREEMENTS O Jauary 22, 2008, PREIT, PREIT Associates, L.P., ad aother subsidiary of PREIT etered ito a Cotributio Agreemet with Bala Cywyd Associates, L.P., City Lie Associates, Roald Rubi, Joseph Coradio ad three other idividuals regardig the acquisitio of a office buildig located withi the boudaries of PREIT s Cherry Hill Mall. I coectio with that agreemet, PREIT ad PREIT Associates agreed to provide tax protectio to Roald Rubi, Joseph Coradio ad two other idividuals resultig from the sale of the office buildig durig the eight years followig the iitial closig. There were o other tax protectio agreemets i effect as of December 31, Historic Tax Credits PHASE I I the third quarter of 2009, we closed a trasactio with a couterparty (the Phase I Couterparty ) related to the historic rehabilitatio of a office buildig located at 801 Market Street i Philadelphia, Pesylvaia (the Phase I Project ). The Phase I Couterparty cotributed a total of $10.6 millio of equity to the Phase I Project ad we recorded this cotributio i Nocotrollig iterest. I exchage for its cotributios ito the Phase I Project, the Phase I Couterparty received substatially all of the historic rehabilitatio tax credits associated with the Phase I Project as a distributio. The Phase I Couterparty does ot have a material iterest i the uderlyig ecoomics of the Phase I Project. The trasactio also icludes a put/call optio whereby we might be obligated or etitled to repurchase the Phase I Couterparty s owership iterest i the Phase I Project at a stated value of $1.6 millio. The Phase I Couterparty may exercise the put optio through Jue 2015, ad a amout attributed to that optio is icluded i the recorded balace of Nocotrollig iterest. Based o the cotractual arragemets that obligate us to deliver tax credits ad provide other guaratees to the Phase I Couterparty ad that etitle us, through fee arragemets, to receive substatially all available cash flow from the Phase I Project, we cocluded that the Phase I Project should be cosolidated. We also cocluded that capital cotributios received from the Phase I Couterparty are, i substace, cosideratio that we received i exchage for the put optio ad our obligatio to deliver tax credits to the Phase I Couterparty. The Phase I Couterparty s cotributios, other tha the amouts allocated to the put optio, are classified as Nocotrollig iterest ad recogized as Other icome i the cosolidated fiacial statemets as our obligatio to deliver tax credits is relieved. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 41

43 The tax credits were subject to a five year credit recapture period, as defied i the Iteral Reveue Code of 1986, as ameded, begiig oe year after the completio of the Phase I Project, which was completed i the third quarter of Our obligatio to the Phase I Couterparty with respect to the tax credits is ratably relieved aually i the third quarter of each year, upo the expiratio of each portio of the recapture period ad the satisfactio of other reveue criteria. We recorded $1.8 millio of the cotributio received from the Phase I Couterparty as Other icome i the cosolidated statemets of operatios i each of the third quarters of 2012, 2013 ad 2014 represetig the expiratio of the third, fourth ad fifth ad fial recapture periods, respectively. We also recorded $1.2 millio of priority returs eared by the Phase I Couterparty durig the third quarter of Of this amout, $1.0 millio relates to priority returs from prior periods that were paid but were ot expesed i the period i which they were eared. PHASE II I the secod quarter of 2012, we closed a trasactio with a Phase II Couterparty (the Phase II Couterparty ) related to the historic rehabilitatio of a office buildig located at 801 Market Street i Philadelphia, Pesylvaia (the Phase II Project ). The Phase II Project has two stages of developmet, Phase II(i) ad Phase II(ii). The Phase II Couterparty cotributed a total of $5.5 millio of equity to the Phase II(i) project through December 31, 2013 ad $5.8 millio to the Phase II(ii) project through September 30, 2014, ad we recorded this cotributio i Accrued expeses ad other liabilities as of December 31, I exchage for its cotributios ito the Phase II Project, the Phase II Couterparty received substatially all of the historic rehabilitatio tax credits associated with the Phase II Project as a distributio. The Phase II Couterparty does ot have a material iterest i the uderlyig ecoomics of the Phase II Project. The trasactio also icludes a put/call optio whereby we might be obligated or etitled to repurchase the Phase II Couterparty s owership iterest i the Phase II Project at a stated value of $1.7 millio. We believe that the put optio will be exercised by the Phase II Couterparty, ad a amout attributed to that optio is icluded i the recorded balace of Accrued expeses ad other liabilities. Based o the cotractual arragemets that obligate us to deliver tax credits ad provide other guaratees to the Phase II Couterparty ad that etitle us, through fee arragemets, to receive substatially all available cash flow from the Phase II Project, we cocluded that the Phase II Project should be cosolidated. We also cocluded that capital cotributios received from the Phase II Couterparty are, i substace, cosideratio that we received i exchage for the put optio ad our obligatio to deliver tax credits to the Phase II Couterparty. The Phase II Couterparty s cotributios, other tha the amouts allocated to the put optio, are classified as Accrued expeses ad other liabilities ad recogized as Other icome i the cosolidated fiacial statemets as our obligatio to deliver tax credits is relieved. The tax credits are subject to a five year credit recapture period, as defied i the Iteral Reveue Code of 1986, as ameded, begiig oe year after the completio of the Phase II Project,of which Phase II(i) was completed i the secod quarter of 2012, ad Phase II(ii) was completed i the secod quarter of Our obligatio to the Phase II Couterparty with respect to the tax credits is ratably relieved aually i the third quarter of each year, upo the expiratio of each portio of the recapture period ad the satisfactio of other reveue recogitio criteria. I the third quarter of 2014, we recogized $1.2 millio related to the secod recapture period of Phase II(i) ad $1.0 millio related to the first recapture period of Phase II(ii) of the cotributio received from the Phase II Couterparty as Other icome i the cosolidated statemets of operatios. We also recorded $0.3 millio of priority returs eared by the Phase II Couterparty durig the third quarter Of this amout, $0.1 millio relates to priority returs from prior periods that were paid but were ot expesed i the period i which they were eared. I aggregate, we recorded et icome of $1.9 millio ad $0.7 millio to Other icome i the cosolidated statemets of operatios i coectio with Phase II i 2014 ad 2013, respectively. Pursuat to terms customarily foud i such agreemets, we have agreed to idemify the Phase I ad Phase II Couterparties for their cotributios, pealties ad iterest i the evet all or a portio of the historic tax credits are disallowed. 13. Summary of Quarterly Results (Uaudited) The followig presets a summary of the uaudited quarterly fiacial iformatio for the years eded December 31, 2014 ad 2013: (i thousads of dollars, except per share amouts) For the Year Eded December 31, st Quarter 2d Quarter 3rd Quarter 4th Quarter (1) Total Reveue from cotiuig operatios $ 109,386 $ 106,825 $ 105,137 $ 111,355 $ 432,703 Net (loss) icome (2)(3) (8,356) (24,050) (886) 19,030 (14,262 ) Net (loss) icome attributable to PREIT (2)(3) (8,104 ) (23,325) (859) 18,458 (13,830 ) Net (loss) icome per share basic (0.18 ) (0.40) (0.07) 0.21 (0.44) Net (loss) icome per share diluted (0.18 ) (0.40) (0.07) 0.21 (0.44) (i thousads of dollars, except per share amouts) For the Year Eded December 31, st Quarte r 2d Quarter 3rd Quarter 4th Quarter (1) Total Reveue from cotiuig operatios $ 104,065 $ 104,943 $ 110,274 $ 119,396 $ 438,678 Reveue from discotiued operatios 4,143 2,746 2, ,014 Icome from discotiued operatios (2) 34,276 1,000 21, ,662 Net icome (loss) (2)(3) 25,807 (9,009) 12,584 7,831 37,213 Net icome (loss) attributable to PREIT (3) 24,802 (8,695) 12,202 7,550 35,859 Icome from discotiued operatios per share basic ad diluted Net icome (loss) per share basic ad diluted 0.37 (0.20) (1) Fourth Quarter reveue icludes a sigificat portio of aual percetage ret as most percetage ret miimum sales levels are met i the fourth quarter. (2) Icludes impairmet losses of $1.3 millio (1st Quarter 2014), $16.1 millio (2d Quarter 2014) ad $2.3 millio (3rd Quarter 2014). Icludes impairmet losses o discotiued operatios of $23.7 millio (3rd Quarter 2013). (3) Icludes gais o sales of iterests i real estate of $13.1 millio (4th Quarter 2014) ad gais o sales of o operatig real estate of $1.8 millio (4th Quarter 2014). Icludes gais o sales of discotiued operatios (before o cotrollig iterest) of $33.4 millio (1st Quarter 2013), $45.1 millio (3rd Quarter 2013). 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

44 MANAGEMENT S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Maagemet of Pesylvaia Real Estate Ivestmet Trust ( us or the Compay ) is resposible for establishig ad maitaiig adequate iteral cotrol over fiacial reportig. As defied i the rules of the Securities ad Exchage Commissio, iteral cotrol over fiacial reportig is a process desiged by, or uder the supervisio of, our pricipal executive ad pricipal fiacial officers ad effected by our Board of Trustees, maagemet ad other persoel, to provide reasoable assurace regardig the reliability of fiacial reportig ad the preparatio of cosolidated fiacial statemets for exteral purposes i accordace with U.S. geerally accepted accoutig priciples. Our iteral cotrol over fiacial reportig icludes those policies ad procedures that: (1) Pertai to the maiteace of records that, i reasoable detail, accurately ad fairly reflect the Compay s trasactios ad the dispositios of assets of the Compay; (2) Provide reasoable assurace that trasactios are recorded as ecessary to permit preparatio of cosolidated fiacial statemets i accordace with geerally accepted accoutig priciples, ad that receipts ad expeditures of the Compay are beig made oly i accordace with authorizatios of the Compay s maagemet ad trustees; ad (3) Provide reasoable assurace regardig prevetio or timely detectio of uauthorized acquisitio, use or dispositio of the Compay s assets that could have a material effect o the fiacial statemets. Because of its iheret limitatios, a system of iteral cotrol over fiacial reportig ca provide oly reasoable assurace with respect to fiacial statemet preparatio ad presetatio ad may ot prevet or detect misstatemets. Also, projectios of ay evaluatio of effectiveess to future periods are subject to the risk that cotrols may become iadequate because of chages i coditios, or that the degree of compliace with the policies or procedures may deteriorate. I coectio with the preparatio of the Compay s aual cosolidated fiacial statemets, maagemet has coducted a assessmet of the effectiveess of our iteral cotrol over fiacial reportig based o the framework set forth i Iteral Cotrol Itegrated Framework (2013) issued by the Committee of Sposorig Orgaizatios of the Treadway Commissio (COSO). Maagemet s assessmet icluded a evaluatio of the desig of the Compay s iteral cotrol over fiacial reportig ad testig of the operatioal effectiveess of those cotrols. Based o this evaluatio, we have cocluded that, as of December 31, 2014, our iteral cotrol over fiacial reportig was effective to provide reasoable assurace regardig the reliability of fiacial reportig ad the preparatio of fiacial statemets for exteral purposes i accordace with U.S. geerally accepted accoutig priciples. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees ad Shareholders Pesylvaia Real Estate Ivestmet Trust: We have audited the accompayig cosolidated balace sheets of Pesylvaia Real Estate Ivestmet Trust (a Pesylvaia busiess trust) ad subsidiaries (the Compay) as of December 31, 2014 ad 2013, ad the related cosolidated statemets of operatios, comprehesive icome, equity, ad cash flows for each of the years i the three-year period eded December 31, These cosolidated fiacial statemets are the resposibility of the Compay s maagemet. Our resposibility is to express a opiio o these cosolidated fiacial statemets based o our audits. We coducted our audits i accordace with the stadards of the Public Compay Accoutig Oversight Board (Uited States). Those stadards require that we pla ad perform the audit to obtai reasoable assurace about whether the fiacial statemets are free of material misstatemet. A audit icludes examiig, o a test basis, evidece supportig the amouts ad disclosures i the fiacial statemets. A audit also icludes assessig the accoutig priciples used ad sigificat estimates made by maagemet, as well as evaluatig the overall fiacial statemet presetatio. We believe that our audits provide a reasoable basis for our opiio. I our opiio, the cosolidated fiacial statemets referred to above preset fairly, i all material respects, the fiacial positio of Pesylvaia Real Estate Ivestmet Trust ad subsidiaries as of December 31, 2014 ad 2013, ad the results of their operatios ad their cash flows for each of the years i the three-year period eded December 31, 2014, i coformity with U.S. geerally accepted accoutig priciples. As discussed i ote 1 to the cosolidated fiacial statemets, the Compay has chaged its accoutig for discotiued operatios as of Jauary 1, We also have audited, i accordace with the stadards of the Public Compay Accoutig Oversight Board (Uited States), Pesylvaia Real Estate Ivestmet Trust s iteral cotrol over fiacial reportig as of December 31, 2014, based o criteria established i Iteral Cotrol Itegrated Framework (2013) issued by the Committee of Sposorig Orgaizatios of the Treadway Commissio (COSO), ad our report dated February 23, 2015 expressed a uqualified opiio o the effectiveess of Pesylvaia Real Estate Ivestmet Trust s iteral cotrol over fiacial reportig. KPMG LLP Philadelphia, Pesylvaia February 23, 2015 Our idepedet registered public accoutig firm, KPMG LLP, idepedetly assessed the effectiveess of the Compay s iteral cotrol over fiacial reportig. KPMG LLP has issued a report o the effectiveess of iteral cotrol over fiacial reportig that is icluded o page 44 i this report. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 43

45 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Trustees ad Shareholders Pesylvaia Real Estate Ivestmet Trust: We have audited Pesylvaia Real Estate Ivestmet Trust s iteral cotrol over fiacial reportig as of December 31, 2014, based o criteria established i Iteral Cotrol - Itegrated Framework (2013) issued by the Committee of Sposorig Orgaizatios of the Treadway Commissio (COSO). Pesylvaia Real Estate Ivestmet Trust s maagemet is resposible for maitaiig effective iteral cotrol over fiacial reportig ad for its assessmet of the effectiveess of iteral cotrol over fiacial reportig, icluded i the accompayig Maagemet s Report o Iteral Cotrol Over Fiacial Reportig. Our resposibility is to express a opiio o Pesylvaia Real Estate Ivestmet Trust s iteral cotrol over fiacial reportig based o our audit. We coducted our audit i accordace with the stadards of the Public Compay Accoutig Oversight Board (Uited States). Those stadards require that we pla ad perform the audit to obtai reasoable assurace about whether effective iteral cotrol over fiacial reportig was maitaied i all material respects. Our audit icluded obtaiig a uderstadig of iteral cotrol over fiacial reportig, assessig the risk that a material weakess exists, ad testig ad evaluatig the desig ad operatig effectiveess of iteral cotrol based o the assessed risk. Our audit also icluded performig such other procedures as we cosidered ecessary i the circumstaces. We believe that our audit provides a reasoable basis for our opiio. I our opiio, Pesylvaia Real Estate Ivestmet Trust maitaied, i all material respects, effective iteral cotrol over fiacial reportig as of December 31, 2014, based o criteria established i Iteral Cotrol - Itegrated Framework (2013) issued by the Committee of Sposorig Orgaizatios of the Treadway Commissio (COSO). We also have audited, i accordace with the stadards of the Public Compay Accoutig Oversight Board (Uited States), the cosolidated balace sheets of Pesylvaia Real Estate Ivestmet Trust ad subsidiaries as of December 31, 2014 ad 2013, ad the related cosolidated statemets of operatios, comprehesive icome, equity, ad cash flows for each of the years i the three-year period eded December 31, 2014, ad our report dated February 23, 2015 expressed a uqualified opiio o those cosolidated fiacial statemets. KPMG LLP Philadelphia, Pesylvaia February 23, 2015 A compay s iteral cotrol over fiacial reportig is a process desiged to provide reasoable assurace regardig the reliability of fiacial reportig ad the preparatio of fiacial statemets for exteral purposes i accordace with geerally accepted accoutig priciples. A compay s iteral cotrol over fiacial reportig icludes those policies ad procedures that (1) pertai to the maiteace of records that, i reasoable detail, accurately ad fairly reflect the trasactios ad dispositios of the assets of the compay; (2) provide reasoable assurace that trasactios are recorded as ecessary to permit preparatio of fiacial statemets i accordace with geerally accepted accoutig priciples, ad that receipts ad expeditures of the compay are beig made oly i accordace with authorizatios of maagemet ad directors of the compay; ad (3) provide reasoable assurace regardig prevetio or timely detectio of uauthorized acquisitio, use, or dispositio of the compay s assets that could have a material effect o the fiacial statemets. Because of its iheret limitatios, iteral cotrol over fiacial reportig may ot prevet or detect misstatemets. Also, projectios of ay evaluatio of effectiveess to future periods are subject to the risk that cotrols may become iadequate because of chages i coditios, or that the degree of compliace with the policies or procedures may deteriorate. 44 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

46 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The followig aalysis of our cosolidated fiacial coditio ad results of operatios should be read i cojuctio with our cosolidated fiacial statemets ad the otes thereto icluded elsewhere i this report. Overview Pesylvaia Real Estate Ivestmet Trust, a Pesylvaia busiess trust fouded i 1960 ad oe of the first equity real estate ivestmet trusts ( REITs ) i the Uited States, has a primary ivestmet focus o retail shoppig malls located i the easter half of the Uited States, primarily i the Mid-Atlatic regio. We curretly ow iterests i 42 retail properties, of which 38 are operatig properties ad four are developmet properties. The 38 operatig properties iclude 32 shoppig malls ad six other retail properties, have a total of 28.6 millio square feet ad are located i 11 states. We ad parterships i which we ow a iterest ow 21.9 millio square feet at these properties (excludig space owed by achors). There are 31 operatig retail properties i our portfolio that we cosolidate for fiacial reportig purposes. These cosolidated properties have a total of 23.2 millio square feet, of which we ow 17.9 millio square feet. The seve operatig retail properties that are owed by ucosolidated parterships with third parties have a total of 5.4 millio square feet, of which 4.0 millio square feet are owed by such parterships. The developmet portio of our portfolio cotais four properties i three states, with two classified as mixed use (a combiatio of retail ad other uses), oe classified as retail (outlet) ad oe classified as other. Our primary busiess is owig ad operatig retail shoppig malls, which we do primarily through our operatig partership, PREIT Associates, L.P. ( PREIT Associates or the Operatig Partership ). We provide maagemet, leasig ad real estate developmet services through PREIT Services, LLC ( PREIT Services ), which geerally develops ad maages properties that we cosolidate for fiacial reportig purposes, ad PREIT- RUBIN, Ic. ( PRI ), which geerally develops ad maages properties that we do ot cosolidate for fiacial reportig purposes, icludig properties we ow iterests i through parterships with third parties ad properties that are owed by third parties i which we do ot have a iterest. PRI is a taxable REIT subsidiary, as defied by federal tax laws, which meas that it is able to offer additioal services to teats without jeopardizig our cotiuig qualificatio as a REIT uder federal tax law. Our reveue cosists primarily of fixed retal icome, additioal ret i the form of expese reimbursemets, ad percetage ret (ret that is based o a percetage of our teats sales or a percetage of sales i excess of thresholds that are specified i the leases) derived from our icome producig properties. We also receive icome from our real estate partership ivestmets ad from the maagemet ad leasig services PRI provides. Our et icome decreased by $51.5 millio to a et loss of $14.3 millio for 2014 from et icome of $37.2 millio for the year eded December 31, The chage i our 2014 results of operatios from the prior year was primarily due to $78.5 millio of gais o sales of discotiued operatios recorded i 2013, compared to aggregate gais o sales o iterests i real estate ad gais o sales of o operatig real estate of $14.5 millio i We evaluate operatig results ad allocate resources o a property-by-property basis, ad do ot distiguish or evaluate our cosolidated operatios o a geographic basis. Due to the ature of our operatig properties, which ivolve retail shoppig, we have cocluded that our idividual properties have similar ecoomic characteristics ad meet all other aggregatio criteria. Accordigly, we have aggregated our idividual properties ito oe reportable segmet. I additio, o sigle teat accouts for 10% or more of our cosolidated reveue, ad oe of our properties are located outside the Uited States. We hold our iterest i our portfolio of properties through the Operatig Partership. We are the sole geeral parter of the Operatig Partership ad, as of December 31, 2014, held a 97.0% cotrollig iterest i the Operatig Partership, ad cosolidated it for reportig purposes. We hold our ivestmets i seve of the 38 operatig retail properties ad two of the four developmet properties i our portfolio through ucosolidated parterships with third parties i which we ow a 25% to 50% iterest. We hold a o-cotrollig iterest i each ucosolidated partership, ad accout for such parterships usig the equity method of accoutig. We do ot cotrol ay of these equity method ivestees for the followig reasos: Except for three properties that we co-maage with our parter, all of the other etities are maaged o a day-to-day basis by oe of our other parters as the maagig geeral parter i each of the respective parterships. I the case of the co-maaged properties, all decisios i the ordiary course of busiess are made joitly. The maagig geeral parter is resposible for establishig the operatig ad capital decisios of the partership, icludig budgets, i the ordiary course of busiess. All major decisios of each partership, such as the sale, refiacig, expasio or rehabilitatio of the property, require the approval of all parters. Votig rights ad the sharig of profits ad losses are geerally i proportio to the owership percetages of each parter. We record the earigs from the ucosolidated parterships usig the equity method of accoutig uder the statemets of operatios captio etitled Equity i icome of parterships, rather tha cosolidatig the results of the ucosolidated parterships with our results. Chages i our ivestmets i these etities are recorded i the balace sheet captio etitled Ivestmet i parterships, at equity. I the case of deficit ivestmet balaces, such amouts are recorded i Distributios i excess of partership ivestmets. We hold our iterests i three of our ucosolidated parterships through teacy i commo arragemets. For each of these properties, title is held by us ad aother perso or persos, ad each has a udivided iterest i the property. With respect to each of the three properties, uder the applicable agreemets betwee us ad the other persos with owership iterests, we ad such other persos have joit cotrol because decisios regardig matters such as the sale, refiacig, expasio or rehabilitatio of the property require the approval of both us ad the other perso (or at least oe of the other persos) owig a iterest i the property. Hece, we accout for each of the properties usig the equity method of accoutig. The balace sheet items arisig from these properties appear uder the captio Ivestmets i parterships, at equity. For further iformatio regardig our ucosolidated parterships, see ote 3 to our cosolidated fiacial statemets. THE GALLERY JOINT VENTURE I July 2014, we etered ito a 50/50 joit veture with The Macerich Compay ( Macerich ) to redevelop The Gallery at Market East i Philadelphia, Pesylvaia ( The Gallery ). I coectio therewith, we cotributed ad sold real estate assets to the veture, ad Macerich acquired its iterest i the veture ad real estate from us for $106.8 millio i cash. It is expected that both parties will PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 45

47 make additioal ivestmets i the project. Net proceeds after closig costs from the sale of the iterests were $104.0 millio. We used $25.8 millio of such proceeds to repay a mortgage loa secured by 801 Market Street, Philadelphia, Pesylvaia, a property that is part of The Gallery, $50.0 millio to repay the outstadig balace o our 2013 Revolvig Facility, ad the remaiig proceeds for geeral corporate purposes. Prior to July 29, 2014, while it was still a cosolidated property, we icluded the assets, liabilities ad operatig results of The Gallery i their respective lie items of our cosolidated fiacial statemets i accordace with GAAP. O ad after July 29, 2014, we accout for The Gallery uder the equity method of accoutig. Uder the equity method, we report our et ivestmet i The Gallery i the balace sheet lie item etitled Ivestmets i parterships, at equity, ad we report our share of the operatios of the property i the lie item etitled Equity i icome of parterships. With respect to FFO, we ow calculate FFO from The Gallery i the same maer as we do for all of our ucosolidated properties. We determie our share of the property s FFO, which is calculated by makig the same adjustmets to et icome (determied i accordace with GAAP) as we make for our cosolidated operatios. As we redevelop The Gallery, operatig results i the short term, as measured by sales, occupacy ad et operatig icome, will likely be egatively affected util the ewly costructed space is completed, leased ad occupied. SPRINGFIELD TOWN CENTER I March 2014, we etered ito a Cotributio Agreemet (the Cotributio Agreemet ) to acquire Sprigfield Tow Ceter i Sprigfield, Virgiia ( Sprigfield Tow Ceter ) for total cosideratio of: (i) a aggregate of $340.0 millio (subject to customary closig proratio adjustmets), i the form of cash ad the assumptio ad payoff of certai seller debt,, ad (ii) 6,250,000 commo uits of limited partership iterest ( OP Uits ) of PREIT Associates L.P., our operatig partership (the Operatig Partership ), ad, if our average share price is less tha $20.00 at closig, a umber of preferred uits of limited partership iterest. We expect to provide the cash amout by borrowig from the amouts available uder our existig Credit Agreemets. I additio, the seller of Sprigfield Tow Ceter may be etitled to certai additioal cosideratio based o the value of Sprigfield Tow Ceter three years after the closig date. The closig is subject to the substatial completio of the redevelopmet of Sprigfield Tow Ceter i accordace with plas ad specificatios for such redevelopmet, as well as certai other customary closig coditios. We curretly expect this trasactio to close o or about March 31, 2015, subject to the seller meetig all closig coditios. Pursuat to the Cotributio Agreemet, closig will occur after all of the coditios to closig have bee satisfied or waived, o the date that is the earlier of (i) fiftee days after the later of the date o which Regal Ciemas, Dick s Sportig Goods ad at least sevety-five percet (75%) of the aggregate square footage of the i-lie space of Sprigfield Tow Ceter are occupied, certificates of occupacy have bee issued with respect to all of the commo areas of Sprigfield Tow Ceter ad the grad opeig of Sprigfield Tow Ceter has occurred, ad (ii) March 31, 2015 (which date may be exteded i certai circumstaces). The grad opeig took place o October 17, Despite the sigificace of the acquisitio of Sprigfield Tow Ceter, we have ot icluded separate fiacial statemets related to Sprigfield Tow Ceter i our Aual Report o Form 10-K for the year eded December 31, 2014 because Sprigfield Tow Ceter has bee udergoig a multiyear redevelopmet, durig which the etire mall was demolished ad rebuilt, with the exceptio of certai achor stores. Accordigly, the fiacial statemets for Sprigfield Tow Ceter durig the period of reovatio are ot reflective of Sprigfield Tow Ceter s historical or expected future performace. CURRENT ECONOMIC CONDITIONS AND OUR NEAR TERM CAPITAL NEEDS The coditios i the ecoomy have caused relatively slow job growth ad have caused fluctuatios ad variatios i retail sales, busiess ad cosumer cofidece ad cosumer spedig o retail goods. As a result, the sales ad profit performace of certai retailers has fluctuated, ad i some cases, has led to bakruptcy filigs. We cotiue to adjust our plas ad actios to take ito accout the curret eviromet. I particular, we cotiue to cotemplate ways to maitai or reduce our leverage through a variety of meas available to us, subject to ad i accordace with the terms of our Credit Agreemets. These steps might iclude (i) obtaiig capital from joit vetures or other parterships or arragemets ivolvig our cotributio of assets with istitutioal ivestors, private equity ivestors or other REITs, or through sales of properties or iterests i properties with values i excess of their mortgage loas ad applicatio of the excess proceeds to debt reductio, ad (ii) obtaiig equity capital, icludig through the issuace of commo or preferred equity securities if market coditios are favorable, or through other actios. CAPITAL IMPROVEMENT PROJECTS AND DEVELOPMENT At our operatig properties, we might egage i various types of capital improvemet projects. Such projects vary i cost ad complexity, ad ca iclude buildig out ew or existig space for idividual teats, upgradig commo areas or exterior areas such as parkig lots, or redevelopig the etire property, amog other projects. Project costs are accumulated i Costructio i progress o our cosolidated balace sheet util the asset is placed ito service, ad amouted to $60.5 millio as of December 31, At our developmet properties, we are also egaged i several types of projects. However, we do ot expect to make ay sigificat ivestmet i these projects i the short term. As of December 31, 2014, we had icurred $54.0 millio of costs, et of impairmet charges recorded i prior years, related to our activity at our cosolidated developmet properties. As of December 31, 2014, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects at our cosolidated properties of $11.0 millio i the form of teat allowaces ad cotracts with geeral service providers ad other professioal service providers. ACQUISITIONS AND DISPOSITIONS See ote 2 to our cosolidated fiacial statemets for a descriptio of our dispositios ad acquisitio i 2014, 2013 ad Critical Accoutig Policies Critical Accoutig Policies are those that require the applicatio of maagemet s most difficult, subjective, or complex judgmets, ofte because of the eed to make estimates about the effect of matters that are iheretly ucertai ad that might chage i subsequet periods. I preparig the cosolidated fiacial statemets, maagemet has made estimates ad assumptios that affect the reported amouts of assets ad liabilities at the date of the cosolidated fiacial statemets, ad the reported amouts of reveue ad expeses durig the reportig periods. I preparig the cosolidated fiacial statemets, maagemet has utilized available iformatio, icludig our past history, idustry stadards ad the curret ecoomic eviromet, amog other factors, i formig its estimates ad judgmets, givig due cosideratio to materiality. Maagemet has also cosidered evets ad chages i property, market ad ecoomic coditios, estimated future cash flows from property operatios ad the risk of loss o specific accouts or amouts i determiig its estimates ad judgmets. Actual results may differ from these estimates. I additio, other compaies may utilize differet estimates, which 46 MANAGEMENT S DISCUSSION AND ANALYSIS

48 may affect comparability of our results of operatios to those of compaies i a similar busiess. The estimates ad assumptios made by maagemet i applyig critical accoutig policies have ot chaged materially durig 2014, 2013 ad 2012, except as otherwise oted, ad oe of these estimates or assumptios have prove to be materially icorrect or resulted i our recordig ay sigificat adjustmets relatig to prior periods. We will cotiue to moitor the key factors uderlyig our estimates ad judgmets, but o chage is curretly expected. Set forth below is a summary of the accoutig policy that maagemet believes is critical to the preparatio of the cosolidated fiacial statemets. This summary should be read i cojuctio with the more complete discussio of our accoutig policies icluded i ote 1 to our cosolidated fiacial statemets. ASSET IMPAIRMENT Real estate ivestmets ad related itagible assets are reviewed for impairmet wheever evets or chages i circumstaces idicate that the carryig amout of the property might ot be recoverable. A property to be held ad used is cosidered impaired oly if maagemet s estimate of the aggregate future cash flows, less estimated capital expeditures, to be geerated by the property, udiscouted ad without iterest charges, are less tha the carryig value of the property. This estimate takes ito cosideratio factors such as expected future operatig icome, treds ad prospects, as well as the effects of demad, competitio ad other factors. The determiatio of udiscouted cash flows requires sigificat estimates by maagemet, icludig the expected course of actio at the balace sheet date that would lead to such cash flows. Subsequet chages i estimated udiscouted cash flows arisig from chages i the aticipated actio to be take with respect to the property could impact the determiatio of whether a impairmet exists ad whether the effects could materially affect our et icome. To the extet estimated udiscouted cash flows are less tha the carryig value of the property, the loss will be measured as the excess of the carryig amout of the property over the estimated fair value of the property. Assessmet of our ability to recover certai lease related costs must be made whe we have a reaso to believe that the teat might ot be able to perform uder the terms of the lease as origially expected. This requires us to make estimates as to the recoverability of such costs. A other tha temporary impairmet of a ivestmet i a ucosolidated joit veture is recogized whe the carryig value of the ivestmet is ot cosidered recoverable based o evaluatio of the severity ad duratio of the declie i value. To the extet impairmet has occurred, the excess carryig value of the asset over its estimated fair value is charged to icome. If there is a triggerig evet i relatio to a property to be held ad used, we will estimate the aggregate future cash flows, less estimated capital expeditures, to be geerated by the property, udiscouted ad without iterest charges. I additio, this estimate may cosider a probability weighted cash flow estimatio approach whe alterative courses of actio to recover the carryig amout of a log-lived asset are uder cosideratio or whe a rage of possible values is estimated. I determiig the estimated udiscouted cash flows of the property or properties that are beig aalyzed for impairmet of assets, we take the sum of the estimated udiscouted cash flows, geerally assumig a holdig period of 10 years, plus a termial value calculated usig the estimated et operatig icome i the eleveth year ad termial capitalizatio rates, which i 2012 ad 2013 raged from 6.25% to 12.0% ad i 2014 raged from 5.25% to 12.5%. I 2014, as a result of our aalysis, we determied that three properties had icurred impairmet of assets. The fair values of the properties (Nittay Mall, North Haover Mall ad South Mall) were determied based o egotiated sale prices of the properties as discussed further i ote 2 to our cosolidated fiacial statemets. I 2013, two properties had impairmet of assets. The fair values of the properties (Chambersburg Mall ad North Haover Mall) were determied based o egotiated sale prices of the properties as discussed further i ote 2 to our cosolidated fiacial statemets. I 2012, oe property had a impairmet of assets. The fair value of the property (Phillipsburg Mall) was determied based o the sale price of the property as further discussed i ote 2 to our cosolidated fiacial statemets. NITTANY MALL I 2014, we recorded a aggregate loss o impairmet of assets at Nittay Mall i State College, Pesylvaia ( Nittay Mall ) of $15.5 millio after eterig ito egotiatios with the buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Based upo the purchase ad sale agreemet with the the-prospective buyer of the property, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Nittay Mall were less tha the carryig value of the property, ad recorded both a iitial loss o impairmet of assets ad a subsequet additioal loss o impairmet of assets whe we sold the property i September NORTH HANOVER MALL I 2014, we recorded a aggregate loss o impairmet of assets at North Haover Mall i Haover, Pesylvaia ( North Haover Mall ) of $2.9 millio after eterig ito egotiatios with the buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Based upo the purchase ad sale agreemet with the the-prospective buyer of the property, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for North Haover Mall were less tha the carryig value of the property, ad recorded both a iitial loss o impairmet of assets ad a subsequet additioal loss o impairmet of assets. We previously recogized losses o impairmet of assets o North Haover Mall of $6.3 millio i 2013 ad $24.1 millio i We sold the property i September SOUTH MALL I 2014, we recorded a loss o impairmet of assets at South Mall i Alletow, Pesylvaia ( South Mall ) of $1.3 millio after eterig ito egotiatios with a potetial buyer of the property. As a result of these egotiatios, we determied that the holdig period for the property was less tha had bee previously estimated, which we cocluded was a triggerig evet, leadig us to coduct a aalysis of possible asset impairmet at this property. Usig updated assumptios, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for South Mall were less tha the carryig value of the property, ad recorded a loss o impairmet of assets. We sold the property i Jue NEW ACCOUNTING DEVELOPMENTS I 2014, we adopted ew accoutig requiremets pertaiig to the reportig of discotiued operatios. Uder these ew accoutig requiremets, oly dispositios represetig a strategic shift i operatios will be preseted as discotiued operatios. Previously, uder U.S. geerally accepted accoutig priciples, compaies that sold a sigle ivestmet property were geerally required to report the sale as a discotiued operatio, which required the compaies to reclassify earigs from cotiuig operatios for all periods preseted. These ew accoutig requiremets require expaded PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 47

49 disclosures about discotiued operatios that will provide fiacial statemet users with more iformatio about the assets, liabilities, icome ad expeses of discotiued operatios. We adopted these ew accoutig requiremets prospectively. We cotiue to report the operatios of properties sold prior to Jauary 1, 2014 i discotiued operatios. I 2014, we sold South Mall, Nittay Mall ad North Haover Mall. We applied these ew accoutig requiremets by reportig the results of operatios of these sold properties i the cotiuig operatios sectio of our cosolidated statemets of operatios. I May 2014, the Fiacial Accoutig Stadards Board issued Reveue from Cotracts with Customers. The objective of this ew stadard is to establish a sigle comprehesive model for etities to use i accoutig for reveue arisig from cotracts with customers. The core priciple of this ew stadard is that a etity recogizes reveue to depict the trasfer of promised goods or services to customers i a amout that reflects the cosideratio to which the etity expects to be etitled i exchage for those goods or services. The ew guidace is effective for aual reportig periods begiig after December 15, 2016 for public compaies. Early adoptio is ot permitted. Etities have the optio of usig either a full retrospective or modified approach to adopt this stadard. We are curretly evaluatig the ew guidace ad have ot determied the impact this stadard may have o our cosolidated fiacial statemets, or have we decided upo the method of adoptio. Off-Balace Sheet Arragemets We have o material off-balace sheet items other tha the parterships described i ote 3 to our cosolidated fiacial statemets ad i the Overview sectio above. Results of Operatios OVERVIEW Net loss for the year eded December 31, 2014 was $14.3 millio, compared to et icome for the year eded December 31, 2013 of $37.2 millio. Our 2014 ad 2013 results of operatios were primarily affected by the followig: gais o sales of discotiued operatios of $78.5 millio i 2013 resultig from our sales of Christiaa Ceter, Paxto Towe Cetre, Commos at Magolia ad Orlado Fashio Square; a decrease i No Same Store NOI (preseted usig the proportioate cosolidatio method; See Net Operatig Icome ) of $13.4 millio primarily due to properties or iterests i properties sold i 2014; partially offset by gais o sales of iterests i real estate of $12.4 millio i 2014 resultig from the sale of our iterest i Whitehall Mall i Alletow, Pesylvaia ( Whitehall Mall ); impairmet of assets of $19.7 millio i 2014 compared to impairmet of assets of $30.0 millio i 2013; a decrease of $16.6 millio i iterest expese (icludig the effects of loss o hedge ieffectiveess) primarily due to lower overall debt balaces ad lower average iterest rates; ad a icrease of $7.8 millio i Same Store NOI. Net icome for the year eded December 31, 2013 was $37.2 millio, compared to a et loss for the year eded December 31, 2012 of $42.6 millio. Our 2013 ad 2012 results of operatios were primarily affected by the followig: gais o sales of discotiued operatios of $78.5 millio i 2013 resultig from our sales of Christiaa Ceter, Paxto Towe Cetre, Commos at Magolia ad Orlado Fashio Square; a decrease i iterest expese of $26.8 millio (icludig the effects of loss o hedge ieffectiveess of $3.4 millio ad accelerated amortizatio of deferred fiacig costs of $1.1 millio related to the repaymet of the 2010 Term Loa ad two other mortgage loas) primarily due to lower overall debt balaces ad lower average iterest rates; a decrease of $7.1 millio i provisio for employee separatio expese; a icrease of $6.4 millio i Same Store NOI (preseted usig the proportioate cosolidatio method; See Net Operatig Icome ); ad a icrease of $3.3 millio i et operatig icome from 907 Market Street, which was acquired i April 2013; partially offset by impairmet of assets i 2013 of $23.7 millio related to Chambersburg Mall ad $6.3 millio related to North Haover Mall; ad a icrease of $13.0 millio i depreciatio ad amortizatio expese. OCCUPANCY The tables below set forth certai occupacy statistics for our retail properties as of December 31, 2014, 2013 ad 2012: 48 MANAGEMENT S DISCUSSION AND ANALYSIS Occupacy (1) as of December 31, Cosolidated Properties Ucosolidated Properties Combied (2) Retail portfolio weighted average: Total excludig achors 94.5 % 94.1 % 92.1 % 92.4 % 93.1 % 92.6 % 94.0 % 93.8 % 92.2 % Total icludig achors 96.7 % 96.4 % 95.8 % 89.6 % 90.7 % 89.7 % 95.4% 95.3 % 94.6 % Malls weighted average: Total excludig achors 94.4 % 94.1 % 92.1 % 85.7 % 91.4% 91.4 % 93.4% 93.7 % 92.0 % Total icludig achors 96.7 % 96.4 % 95.8 % 84.4 % 88.4 % 87.1 % 95.1% 95.2 % 94.6 % Power ad Strip Ceter weighted average: 99.9 % N/A N/A % 96.1 % 95.1 % 99.9% 96.1 % 95.1 % (1) Occupacy for all periods preseted icludes all teats irrespective of the term of their agreemet. (2) Combied occupacy is calculated by usig occupied gross leasable area ( GLA ) for cosolidated ad ucosolidated properties ad dividig by total GLA for cosolidated ad ucosolidated properties. From 2013 to 2014, total occupacy for our retail portfolio icreased 10 basis poits to 95.4%, ad mall occupacy decreased 10 basis poits to 95.1%, icludig cosolidated ad ucosolidated properties (ad icludig all teats irrespective of the term of their agreemet).

50 LEASING ACTIVITY The table below sets forth summary leasig activity iformatio with respect to our properties for the year eded December 31, 2014, icludig achor ad o achor space at cosolidated ad ucosolidated properties: Icrease (decrease) Aualized Average Gross Ret psf i Gross Ret psf Teat Gross Leasable Area Improvemets Number ( GLA ) Previous New (1) Dollar % psf (2) New Leases No achor teats less tha 10,000 square feet: (3) 1st Quarter 39 81,690 N/A $ $ N/A $ d Quarter ,596 N/A N/A rd Quarter ,791 N/A N/A th Quarter 23 43,782 N/A N/A 5.06 Total/Average ,859 N/A $ $ N/A $ 6.55 New Leases No achor teats 10,000 square feet or greater: (3) 1st Quarter 2 25,971 N/A $ $ N/A $ d Quarter ,206 N/A N/A rd Quarter 4 93,568 N/A N/A th Quarter 2 33,622 N/A N/A 8.83 Total/Average ,367 N/A $ $ N/A $ 5.81 Reewal No achor teats less tha 10,000 square feet: (4) 1st Quarter ,510 $ $ $ % $ 2d Quarter , % 3rd Quarter , % th Quarter , % 1.91 Total/Average ,970 $ $ $ % $ 0.69 Reewal No achor teats 10,000 square feet or greater: (4) 1st Quarter 6 107,781 $ $ $ % $ 2d Quarter 4 124, % 3rd Quarter 3 63, (1.54 ) (9.0)% 4th Quarter 4 122, % Total/Average ,226 $ $ $ % $ New Leases Achor Teats: (3) 1st Quarter 1 52,055 N/A $ 7.50 $ 7.50 N/A $ d Quarter 1 98,391 N/A N/A rd Quarter 1 71,888 N/A N/A th Quarter 0 N/A N/A Total/Average 3 222,334 N/A $ $ N/A $ 5.81 Reewal Leases Achor Teats: (4) 1st Quarter 1 101,476 $ 2.79 $ 2.80 $ % $ 2d Quarter 1 77, % 3rd Quarter 1 96, % 4th Quarter 2 254, % Total/Average 5 530,098 $ 5.40 $ 5.42 $ % $ (1) New ret is the iitial amout payable upo ret commecemet. I certai cases, a lower ret may be payable util certai coditios i the lease are satisfied. (2) These leasig costs are preseted as aualized costs per square foot ad are spread uiformly over the iitial lease term. (3) This category icludes ewly costructed ad recommissioed space. (4) This category icludes leases for recofigured spaces ad lease extesios. See our Aual Report o Form 10-K for the year eded December 31, 2014 i the sectio etitled Item 2. Properties Retail Lease Expiratio Schedule for iformatio regardig average miimum ret o expirig leases. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 49

51 The followig table sets forth our results of operatios for the years eded December 31, 2014, 2013 ad 2012: For the Year Eded % Chage For the Year Eded % Chage For the Year Eded (i thousads of dollars) December 31, to 2014 December 31, to 2013 December 31, 2012 Results of operatios: Real estate reveue $ 426,596 (1)% $ 431,728 4 % $ 413,813 Other icome 6,107 (12)% 6, % 5,534 Property operatig expeses (180,427 ) (1)% (182,279 ) 5 % (173,130 ) Geeral ad admiistrative expeses (35,518) (4)% (36,975) (1)% (37,538 ) Provisio for employee separatio expese (4,961) 114 % (2,314 ) (75)% (9,437) Acquisitio costs ad other expeses (4,937) 247 % (1,422 ) (27)% (1,936 ) Iterest expese, et (82,165 ) (17)% (98,731) (19)% (122,118 ) Depreciatio ad amortizatio (144,304 ) 2 % (140,880 ) 10 % (127,845 ) Impairmet of assets (19,695 ) 212 % (6,304) N/A Equity i icome of parterships 10,569 8 % 9, % 8,338 Gai o sales of iterests i real estate, et 12,699 N/A N/A Gai o sales of o operatig real estate 1,774 N/A N/A Loss from cotiuig operatios (14,262 ) (30)% (20,449 ) (54)% (44,319 ) Operatig results from discotiued operatios (100)% 2,812 (39)% 4,627 Impairmet of assets of discotiued operatios (100)% (23,662) NM (3,805) Gais o sales of discotiued operatios (100)% 78,512 NM 947 Icome from discotiued operatios (100 )% 57,662 NM 1,769 Net (loss) icome $ (14,262 ) (138 )% $ 37, % $ (42,550 ) The amouts i the precedig table reflect our cosolidated properties, with the exceptio of properties that are classified as discotiued operatios, which are preseted i the lie items Operatig results from discotiued operatios, Impairmet of assets of discotiued operatios ad Gais o sales of discotiued operatios, ad ucosolidated properties, which are preseted uder the equity method of accoutig i the lie item Equity i icome of parterships. REAL ESTATE REVENUE Real estate reveue decreased by $5.1 millio, or 1%, i 2014 as compared to 2013, primarily due to: a decrease of $10.4 millio i real estate reveue related to the July 2014 sale of a 50% partership iterest i The Gallery; a decrease of $6.4 millio i real estate reveue related to properties sold i 2013 ad 2014; ad a decrease of $0.5 millio i same store percetage ret, primarily due to lower sales from some teats that paid percetage ret i 2013; partially offset by a icrease of $6.9 millio i same store base ret due to ew store opeigs ad lease reewals with higher base ret, with otable icreases at Moorestow Mall, Cherry Hill Mall, Woodlad Mall ad Exto Square Mall; a icrease of $3.8 millio i same store expese reimbursemets, followig icreases i sow removal expese, real estate taxes ad utility expeses (see Property Operatig Expeses ); ad a icrease of $1.3 millio i real estate reveue related to properties acquired i Real estate reveue icreased by $17.9 millio, or 4%, i 2013 as compared to 2012, primarily due to: a icrease of $11.0 millio i base ret, icludig $4.0 millio related to the April 2013 acquisitio of 907 Market Street, Philadelphia, Pesylvaia ad $1.3 millio associated with the July 2012 lease commecemet date of the Philadelphia Media Network at The Gallery. Base ret also icreased due to ew store opeigs ad lease reewals with higher base ret, with otable icreases at Willow Grove Park, Cherry Hill Mall ad Plymouth Meetig Mall; ad a icrease of $6.9 millio i expese reimbursemets, followig icreases i real estate tax ad commo area maiteace expeses (see Property Operatig Expeses ). I additio, utility reimbursemets icreased by $1.4 millio, due primarily to a icrease i teat utility billig rates at Cherry Hill Mall. 50 MANAGEMENT S DISCUSSION AND ANALYSIS

52 PROPERTY OPERATING EXPENSES Property operatig expeses decreased by $1.9 millio, or 1%, i 2014 as compared to 2013, primarily due to: a decrease of $4.9 millio i property operatig expeses related to the July 2014 sale of a 50% partership iterest i The Gallery; a decrease of $2.4 millio i property operatig expeses related to properties sold i 2013 ad 2014; ad a decrease of $1.0 millio i same store marketig expeses; partially offset by a icrease of $2.4 millio i same store o-commo area utility expese as a result of a sigificat icrease i electric rates at may of our properties i the early part of the year. The extreme cold weather durig the witer of , ad the resultig atural gas supply costraits, led to a historic spike i wholesale electricity rates that particularly affected our properties located i Pesylvaia, New Jersey ad Marylad; a icrease of $2.0 millio i same store real estate tax expese, icludig a $1.2 millio icrease at two of our New Jersey properties due to a combiatio of icreases i the real estate tax assessmet value ad the real estate tax rate; a icrease of $1.2 millio i same store commo area maiteace expese, icludig a icrease of $1.3 millio i sow removal expese. Sow removal expese i 2014 at our properties located i the Mid- Atlatic States, particularly Pesylvaia ad New Jersey, was affected by a severe witer with umerous sowfalls with sigificat accumulatio durig the three moths eded March 31, 2014; ad a icrease of $0.5 millio i property operatig expeses related to properties acquired i Property operatig expeses icreased by $9.1 millio, or 5%, i 2013 as compared to 2012, primarily due to: a icrease of $7.4 millio i real estate tax expese, icludig a $6.4 millio icrease at our four properties located i New Jersey, due to a combiatio of icreases i the real estate tax assessmet values ad real estate tax rates; ad a icrease of $2.4 millio i commo area maiteace expeses, icludig icreases of $0.7 millio related to the April 2013 acquisitio of 907 Market Street, $1.0 millio i sow removal expese ad $0.5 millio i isurace expese. Sow removal expese was higher durig 2013 followig a mild ad dry witer durig 2012 across the Mid-Atlatic states where may of our properties are located; partially offset by a decrease of $0.6 millio i groud ret expese, icludig a $0.4 millio decrease at The Gallery due to the April 2013 acquisitio of 907 Market Street. The acquisitio of 907 Market Street icluded the purchase of the lad uder The Gallery food court which was leased from the previous ower prior to the acquisitio. NET OPERATING INCOME ( NOI ) NOI (a o-gaap measure) is derived from real estate reveue (determied i accordace with geerally accepted accoutig priciples, or GAAP, icludig lease termiatio reveue), mius property operatig expeses (determied i accordace with GAAP), plus our share of reveue ad property operatig expeses of our partership ivestmets as described below, ad icludes real estate reveue ad property operatig expeses from properties icluded i discotiued operatios, if ay. It does ot represet cash geerated from operatig activities i accordace with GAAP ad should ot be cosidered to be a alterative to et icome (determied i accordace with GAAP) as a idicatio of our fiacial performace or to be a alterative to cash flow from operatig activities (determied i accordace with GAAP) as a measure of our liquidity. It is ot idicative of fuds available for our cash eeds, icludig our ability to make cash distributios. We believe that NOI is helpful to maagemet ad ivestors as a measure of operatig performace because it is a idicator of the retur o property ivestmet, ad provides a method of comparig property performace over time. We believe that et icome is the most directly comparable GAAP measuremet to NOI. NOI excludes other icome, geeral ad admiistrative expeses, provisio for employee separatio expese, iterest expese, depreciatio ad amortizatio, gais o sales of iterests i real estate, gais o sales of o-operatig real estate, gais o sales of discotiued operatios, impairmet losses, acquisitio costs ad other expeses. The followig table presets NOI for the years eded December 31, 2014, 2013 ad The results are preseted usig the proportioate-cosolidatio method (a o-gaap measure), which icludes our share of the results of our partership ivestmets. Uder GAAP, we accout for our partership ivestmets uder the equity method of accoutig. Operatig results for retail properties that we owed for the full periods preseted ( Same Store ) exclude properties acquired or disposed of durig the periods preseted. A recociliatio of NOI to et icome (loss) calculated i accordace with GAAP appears uder the headig Recociliatio of GAAP Net Icome (Loss) to No-GAAP Measures. For the Year Eded For the Year Eded For the Year Eded December 31, 2014 December 31, 2013 December 31, 2012 Real Property Net Real Property Net Real Property Net Estate Operatig Operatig Estate Operatig Operatig Estate Operatig Operatig (i thousads of dollars) Reveue Expeses Icome Reveue Expeses Icome Reveue Expeses Icome Same Store $ 433,084 $ (173,299 ) $ 259,785 $ 419,855 $ (167,877 ) $ 251,978 $ 405,403 $ (159,821 ) $ 245,582 No Same Store 41,016 (22,943 ) 18,073 62,082 (30,650 ) 31,432 79,908 (40,107 ) 39,801 Total $474,100 $ (196,242 ) $ 277,858 $481,937 $ (198,527 ) $283,410 $485,311 $ (199,928 ) $285,383 % Chage % Chage 2013 to to 2013 Same Store Total Same Store Total Real estate reveue 3.2 % (1.6)% 3.6 % (0.7)% Property operatig expeses 3.2 % (1.2)% 5.0 % (0.7)% NOI 3.1 % (2.0)% 2.6 % (0.7)% PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 51

53 Total NOI decreased by $5.6 millio, or 2.0%, i 2014 as compared to NOI from No Same Store properties decreased $13.4 millio. This decrease was primarily due to the properties sold i 2014 which cosisted of Nittay Mall, North Haover Mall, South Mall ad our 50% share of The Gallery. See the Results of Operatios Real Estate Reveue ad Property Operatig Expeses discussios above for further iformatio about property results. Same Store NOI icreased $7.8 millio. Lease termiatio reveue was $2.3 millio i 2014 ad $1.8 millio i Total NOI decreased by $2.0 millio, or 0.7%, i 2013 as compared to Same Store NOI icreased $6.4 millio, offset by a $8.4 millio decrease i No Same Store NOI which was primarily due to properties sold i 2013 which cosisted of Phillipsburg Mall, Paxto Towe Cetre, Orlado Fashio Square, Commos at Magolia, Christiaa Ceter ad Chambersburg Mall. Lease termiatio reveue was $1.8 millio i 2013 ad $1.9 millio ad OTHER INCOME Other icome decreased by $0.8 millio, or 12%, i 2014 as compared to 2013 primarily due to a decrease i third-party maagemet ad leasig fees. Other icome icreased by $1.4 millio, or 26%, i 2013 as compared to 2012 primarily due to a icrease of $0.7 millio from historic tax credits ad a icrease of $0.6 millio i third-party maagemet ad leasig fees. GENERAL AND ADMINISTRATIVE EXPENSES Geeral ad admiistrative expeses decreased by $1.5 millio, or 4%, i 2014 as compared to This decrease was primarily due to a reductio of costs associated with our reduced umber of employees i 2014 as compared to Geeral ad admiistrative expeses decreased by $0.6 millio, or 1%, i 2013 as compared to This decrease was primarily due to a decrease of $1.1 millio i executive compesatio ad beefit costs, partially offset by a $0.5 millio icrease i other geeral ad admiistrative expeses. PROVISION FOR EMPLOYEE SEPARATION EXPENSE Provisio for employee separatio expese was $5.0 millio i I May 2014, George F. Rubi separated from his positio as Vice Chairma of PREIT. Uder the terms of Mr. Rubi s separatio agreemet, which became effective i Jue 2014, we recorded employee separatio expese of $4.1 millio i I additio, we termiated the employmet of certai other employees ad recorded a employee separatio expese of $0.9 millio i coectio with such termiatios. Provisio for employee separatio expese was $2.3 millio i We recorded expese of $1.9 millio i coectio with the terms of the ameded employmet agreemet with Roald Rubi, our Executive Chairma. We also recorded $0.3 millio i coectio with Mr. Rubi s 2013 restricted share award, which was amortized through Jue 7, 2013, the date o which Mr. Rubi became eligible to volutarily termiate his employmet agreemet ad receive his fouder s retiremet paymet, at which time such restricted shares would vest. Provisio for employee separatio expese was $9.4 millio i IMPAIRMENT OF ASSETS As further described i the Overview sectio ad i ote 2 to our cosolidated fiacial statemets, we recorded impairmet of assets of $15.5 millio, $2.9 millio ad $1.3 millio o Nittay Mall, North Haover Mall ad South Mall, respectively, i I 2013, we recorded impairmet of assets of $6.3 millio o North Haover Mall. See also Discotiued Operatios for a discussio of impairmet charges related to Phillipsburg Mall i Phillipsburg, New Jersey ad Chambersburg Mall i Chambersburg, Pesylvaia. ACQUISITION COSTS AND OTHER EXPENSES Acquisitio costs ad other expeses icreased by $3.5 millio i 2014 as compared to 2013 due to $3.0 millio of acquisitio costs primarily related to our eterig ito a agreemet to acquire Sprigfield Tow Ceter ad $0.5 millio of professioal service fees icurred i Acquisitio costs ad other expeses decreased by $0.5 millio i 2013 as compared to 2012 primarily due to higher project costs i INTEREST EXPENSE Iterest expese decreased by $16.6 millio, or 17%, i 2014 as compared to The decrease was primarily due to a $14.8 millio decrease resultig from a lower overall debt balace (a average of $1,597.0 millio i 2014 compared to $1,727.8 millio i 2013) ad a lower weighted average effective borrowig rate (5.15% for 2014 as compared to 5.57% for 2013). There was also $1.8 millio of et losses o hedge ieffectiveess recorded i 2014, icludig $1.2 millio from the early Loga Valley Mall mortgage loa repaymet ad $0.6 millio from the early mortgage loa repaymet o the loa secured by 801 Market Street, Philadelphia, Pesylvaia. 801 Market Street is part of The Gallery, ad the mortgage loa was repaid i coectio with the sale of a 50% iterest i The Gallery. We recorded a aggregate et loss of $3.4 millio o hedge ieffectiveess i Iterest expese decreased by $23.4 millio, or 19%, i 2013 as compared to The decrease was primarily due to a $26.0 millio decrease resultig from a lower overall debt balace (a average of $1,727.8 millio i 2013 compared to $1,995.4 millio i 2012) ad a lower weighted average effective borrowig rate (5.57% for 2013 as compared to 6.17% for 2012). This decrease was offset by a loss o hedge ieffectiveess of $2.9 millio related to a forward startig swap o the mortgage loa that had bee secured by Jacksoville Mall, accelerated amortizatio of deferred fiacig costs of $1.1 millio related to the repaymet of our 2010 term loa ad et losses o hedge ieffectiveess of $0.5 millio due to the accelerated amortizatio i coectio with the partial mortgage loa repaymets at Loga Valley Mall. DEPRECIATION AND AMORTIZATION Depreciatio ad amortizatio expese icreased by $3.4 millio, or 2%, i 2014 as compared to 2013, primarily because of: a icrease of $8.9 millio primarily due to a higher asset base resultig from capital improvemets related to ew teats at our properties; ad a icrease of $1.1 millio associated with properties acquired i 2014; partially offset by a decrease of $4.7 millio related to the July 2014 sale of a 50% partership iterest i The Gallery; ad a decrease of $1.9 millio related to properties sold i Depreciatio ad amortizatio expese icreased by $13.0 millio, or 10%, i 2013 as compared to 2012, primarily because of: a icrease of $10.1 millio primarily due to a higher asset base resultig from capital improvemets related to ew teats at our properties; ad a icrease of $3.3 millio associated with the April 2013 acquisitio of 907 Market Street; partially offset by a decrease of $0.3 millio because certai lease itagibles at two properties purchased durig 2005 became fully amortized durig MANAGEMENT S DISCUSSION AND ANALYSIS

54 EQUITY IN INCOME OF PARTNERSHIPS Equity i icome of parterships icreased by $0.8 millio, or 8%, for 2014 compared to 2013 primarily due to icreased reveues of $1.3 millio at our partership properties owed durig both periods, partially offset by a et loss of $0.7 millio from The Gallery, which became a 50% equity method ivestmet as a result of the trasactio with Macerich i July Equity i icome of parterships icreased by $1.4 millio, or 17%, for 2013 compared to 2012 primarily due to a icrease i partership reveue of $1.7 millio ad a decrease of $0.2 millio i partership mortgage iterest, partially offset by a icrease of $0.5 millio i partership property operatig expeses. GAIN ON SALES OF INTERESTS IN REAL ESTATE, NET Gai o sales of iterests of real estate, et was $12.7 millio i 2014, as a result of the followig trasactios: a $12.4 millio gai from the sale of our 50% iterest i Whitehall Mall; et gais of $0.8 millio o sales of various completed developmet projects ad a achor pad durig 2014; ad a $0.2 millio gai o the sale of South Mall; offset by a $0.6 millio loss from the sale of a 50% iterest i The Gallery; ad a $0.1 millio loss from the combied sale of Nittay Mall ad North Haover Mall. There was o gai o sales of iterests i real estate i 2013 or See Results of Operatios Discotiued Operatios for a discussio of gais o sales of discotiued operatios. GAIN ON SALES OF NON OPERATING REAL ESTATE, NET Gai o sales of o operatig real estate were $1.8 millio from the sale of several o operatig parcels i There were o gais o sales of o operatig real estate i 2013 or DISCONTINUED OPERATIONS We have preseted as discotiued operatios the operatig results of Orlado Fashio Square, Phillipsburg Mall, Chambersburg Mall, Paxto Towe Cetre, Christiaa Ceter ad Commos at Magolia, which are properties that were sold i As described i ote 2 to our cosolidated fiacial statemets, i 2014, we adopted ew accoutig requiremets pertaiig to the reportig of discotiued operatios. I accordace with these ew accoutig requiremets, we reported the results of operatios of the properties that we sold i 2014 i the cotiuig operatios sectio of our cosolidated statemets of operatios i The properties that we sold i 2014 were South Mall i Alletow, Pesylvaia, Nittay Mall i State College, Pesylvaia ad North Haover Mall i Haover, Pesylvaia, ad the results of operatios of these properties are recorded i cotiuig operatios. Operatig results, gais o sales of discotiued operatios ad impairmet of assets for the properties i discotiued operatios for 2013 ad 2012 were as follows: For the year eded December 31, (i thousads of dollars) Operatig results of: Orlado Fashio Square $ 330 $ 627 Phillipsburg Mall (66) (116 ) Chambersburg Mall Paxto Towe Cetre (101 ) 1,132 Christiaa Ceter 1,633 1,557 Commos at Magolia Operatig results from discotiued operatios 2,812 4,627 Impairmet of assets of discotiued operatios (23,662 ) (3,805) Gais o sales of discotiued operatios 78, Icome from discotiued operatios $ 57,662 $ 1,769 As further described i the Overview sectio ad ote 2 to our cosolidated fiacial statemets, we recorded $23.7 millio ad $3.8 millio of impairmet of assets o discotiued operatios for 2013 ad 2012, respectively. GAINS ON SALES OF DISCONTINUED OPERATIONS As oted above, pursuat to ew accoutig requiremets we adopted, properties sold i 2014 are icluded i cotiuig operatios. Gais o sales of discotiued operatios were $78.5 millio i 2013 from: a $40.8 millio gai o sale of Christiaa Ceter; a $32.7 millio gai o sale of Paxto Towe Cetre; a $4.3 millio gai o sale of Commos at Magolia; ad a $0.7 millio gai o sale of Orlado Fashio Square. Gais o sales of discotiued operatios were $0.9 millio i 2012 from the sale of our remaiig iterest i Northeast Tower Ceter. FUNDS FROM OPERATIONS The Natioal Associatio of Real Estate Ivestmet Trusts ( NAREIT ) defies Fuds From Operatios ( FFO ), which is a o-gaap measure commoly used by REITs, as et icome excludig gais ad losses o sales of operatig properties, extraordiary items (computed i accordace with GAAP) ad sigificat o-recurrig evets that materially distort the comparative measuremet of compay performace over time; plus real estate depreciatio ad amortizatio; ad after adjustmets for ucosolidated parterships ad joit vetures to reflect fuds from operatios o the same basis. We compute FFO i accordace with stadards established by NAREIT, which may ot be comparable to FFO reported by other REITs that do ot defie the term i accordace with the curret NAREIT defiitio, or that iterpret the curret NAREIT defiitio differetly tha we do. NAREIT s established guidace provides that excludig impairmet write dows of depreciable real estate is cosistet with the NAREIT defiitio. FFO is a commoly used measure of operatig performace ad profitability amog REITs. We use FFO ad FFO per diluted share ad uit of limited partership iterest i our operatig partership ( OP Uit ) i PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 53

55 measurig our performace agaist our peers ad as oe of the performace measures for determiig icetive compesatio amouts eared uder certai of our performace-based executive compesatio programs. FFO does ot iclude gais ad losses o sales of operatig real estate assets or impairmet write-dows of depreciable real estate, which are icluded i the determiatio of et icome i accordace with GAAP. Accordigly, FFO is ot a comprehesive measure of our operatig cash flows. I additio, sice FFO does ot iclude depreciatio o real estate assets, FFO may ot be a useful performace measure whe comparig our operatig performace to that of other o-real estate commercial eterprises. We compesate for these limitatios by usig FFO i cojuctio with other GAAP fiacial performace measures, such as et icome ad et cash provided by operatig activities, ad other o-gaap fiacial performace measures, such as NOI. FFO does ot represet cash geerated from operatig activities i accordace with GAAP ad should ot be cosidered to be a alterative to et icome (determied i accordace with GAAP) as a idicatio of our fiacial performace or to be a alterative to cash flow from operatig activities (determied i accordace with GAAP) as a measure of our liquidity, or is it idicative of fuds available for our cash eeds, icludig our ability to make cash distributios. We believe that et icome is the most directly comparable GAAP measuremet to FFO. We also preset Fuds From Operatios, as adjusted, ad Fuds From Operatios per diluted share ad OP Uit, as adjusted, which are o-gaap measures, to show the effect of acquisitio costs, provisio for employee separatio expese, accelerated amortizatio of deferred fiacig costs ad gai or loss o hedge ieffectiveess, which had a sigificat effect o our results of operatios, but are ot, i our opiio, idicative of our operatig performace. We believe that FFO is helpful to maagemet ad ivestors as a measure of operatig performace because it excludes various items icluded i et icome that do ot relate to or are ot idicative of operatig performace, such as gais o sales of operatig real estate ad depreciatio ad amortizatio of real estate, amog others. We believe that Fuds From Operatios, as adjusted, is helpful to maagemet ad ivestors as a measure of operatig performace because it adjusts FFO to exclude items that maagemet does ot believe are idicative of our operatig performace, such as acquisitio costs, provisio for employee separatio expese, accelerated amortizatio of deferred fiacig costs ad gai or loss o hedge ieffectiveess. The followig table presets FFO ad FFO per diluted share ad OP Uit, ad Fuds From Operatios, as adjusted, ad Fuds From Operatios per diluted share ad OP Uit, as adjusted, for the years eded December 31, 2014, 2013 ad 2012: (i thousads of dollars, For the Year Eded % Chage For the Year Eded % Chage For the Year Eded except per share amouts) December 31, to 2014 December 31, to 2013 December 31, 2012 Fuds from operatios (1) $ 129, % $ 121, % $ 95,617 Provisio for employee separatio expese 4,961 2,314 9,437 Acquisitio costs 3,441 Loss o hedge ieffectiveess 1,761 3,409 1,162 Accelerated amortizatio of deferred fiacig costs (2) 1, Fuds from operatios, as adjusted (1) $ 139, % $ 127, % $ 106,906 Fuds from operatios per diluted share ad OP Uit (1) $ % $ % $ 1.63 Fuds from operatios per diluted share ad OP Uit, as adjusted (1) $ % $ % $ 1.83 Weighted average umber of shares outstadig 68,217 63,662 55,122 Weighted average effect of full coversio of OP Uits 2,128 2,194 2,310 Effect of commo share equivalets ,131 Total weighted average shares outstadig, icludig OP Uits 71,041 66,732 58,563 (1) I accordace with NAREIT guidace regardig the defiitio of FFO, impairmet losses of depreciable real estate are excluded from FFO. FFO, Fuds From Operatios, as adjusted, FFO per diluted share ad OP Uit ad Fuds From Operatios per diluted share ad OP Uit, as adjusted, for all periods preseted reflect this NAREIT guidace. (2) I 2013, accelerated amortizatio of deferred fiacig costs icludes $0.9 millio from 2010 Term Loa repaymets ad $0.2 millio from mortgage loa repaymets. I 2012, accelerated amortizatio of deferred fiacig costs icludes $0.7 millio from a 2010 Term Loa repaymet. 54 MANAGEMENT S DISCUSSION AND ANALYSIS

56 FFO was $129.4 millio for 2014, a icrease of $8.3 millio, or 6.9%, compared to $121.1 millio for This icrease was primarily due to: a decrease of $18.5 millio i iterest expese (icludig our proportioate share of iterest expese of our partership properties ad the effects of loss o hedge ieffectiveess) resultig from lower overall debt balaces ad lower average iterest rates; ad a $7.8 millio icrease i Same Store NOI (preseted usig the proportioate-cosolidatio method; See Net Operatig Icome ); partially offset by a $13.4 millio decrease i No Same Store NOI primarily related to sold properties; a $3.4 millio icrease i acquisitio costs; ad a $2.6 millio icrease i provisio for employee separatio expese. FFO per diluted share icreased $0.01 per share to $1.82 per share for 2014, compared to $1.81 per share for FFO per diluted share icreased due to the $8.3 millio icrease i FFO, offset by the weighted average effect of the 11,500,000 commo shares issued i May 2013 ad other commo share issuaces sice Jauary 1, FFO was $121.1 millio for 2013, a icrease of $25.5 millio, or 26.7%, compared to $95.6 millio for This icrease was primarily due to: RECONCILIATION OF GAAP NET INCOME (LOSS) TO NON-GAAP MEASURES The precedig discussios compare our Cosolidated Statemets of Operatios results for differet periods based o GAAP. Also, the o-gaap measures of NOI ad FFO have bee discussed. We believe that NOI is helpful to maagemet ad ivestors as a measure of operatig performace because it is a idicator of the retur o property ivestmet, ad provides a method of comparig property performace over time. We believe that FFO is helpful to maagemet ad ivestors as a measure of operatig performace because it excludes various items icluded i et icome that do ot relate to or are ot idicative of operatig performace, such as gais o sales of operatig real estate ad depreciatio ad amortizatio of real estate, amog others. We believe that Fuds From Operatios as adjusted is helpful to maagemet ad ivestors as a measure of operatig performace because it adjusts FFO to exclude items that maagemet does ot believe are idicative of its ogoig operatios, specifically acquisitio costs, provisio for employee separatio expese, loss o hedge ieffectiveess ad accelerated amortizatio of deferred fiacig costs. FFO is a commoly used measure of operatig performace ad profitability amog REITs, ad we use FFO, FFO per diluted share ad OP Uit, Fuds From Operatios, as adjusted, ad Fuds From Operatios per diluted share ad OP Uit, as adjusted, as supplemetal o-gaap measures to compare our performace for differet periods to that of our idustry peers. a decrease of $26.0 millio i iterest expese (icludig our proportioate share of iterest expese of our partership properties ad the effects of loss o hedge ieffectiveess ad accelerated amortizatio of deferred fiacig costs) resultig from lower overall average debt balaces ad lower average iterest rates; a icrease of $6.4 millio i Same Store NOI (preseted usig the proportioate-cosolidatio method; See Net Operatig Icome ); a decrease of $7.1 millio i provisio for employee separatio expese; partially offset by a decrease of $8.4 millio i No Same Store NOI primarily related to sold properties; a icrease of $7.9 millio i preferred share divideds resultig from the Series A Preferred Shares issued i April 2012 ad the Series B Preferred Shares issued o October FFO per diluted share icreased $0.18 per share to $1.81 per share for 2013, compared to $1.63 per share for FFO per diluted share icreased by $0.43 per share due to the $25.5 millio icrease i FFO, partially offset by a decrease of $0.25 per share primarily due to the weighted average effect of the 11,500,000 commo shares issued i May 2013 ad other commo share issuaces sice Jauary 1, PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 55

57 The followig iformatio is provided to recocile NOI ad FFO, which are o-gaap measures, to et icome (loss), a GAAP measure: For the Year Eded December 31, 2014 Share of Ucosolidated (i thousads of dollars) Cosolidated Parterships Total Real estate reveue $ 426,596 $ 47,504 $ 474,100 Property operatig expeses (180,427 ) (15,815) (196,242 ) Net operatig icome 246,169 31, ,858 Geeral ad admiistrative expeses (35,518 ) (35,518) Provisio for employee separatio expese (4,961) (4,961) Other icome 6,107 6,107 Acquisitio costs ad other expeses (4,937) (397) (5,334) Iterest expese, et (82,165 ) (10,873) (93,038) Depreciatio of o real estate assets (1,621 ) (1,621 ) Gais o sales of o operatig real estate 1,774 1,774 Preferred share divideds (15,848) (15,848) Fuds from operatios 109,000 20, ,419 Depreciatio of real estate assets (142,683 ) (9,850) (152,533 ) Impairmet of assets (19,695 ) (19,695) Net gai o sales of iterests i real estate 12,699 12,699 Equity i icome of parterships 10,569 (10,569) Preferred share divideds 15,848 15,848 Net loss $ (14,262 ) $ $ (14,262 ) Cotiuig Operatios For the Year Eded December 31, 2013 Share of Ucosolidated Discotiued (i thousads of dollars) Cosolidated Parterships Operatios Total Real estate reveue $ 431,728 $ 40,195 $ 10,014 $ 481,937 Property operatig expeses (182,279 ) (11,960 ) (4,288) (198,527 ) Net operatig icome 249,449 28,235 5, ,410 Geeral ad admiistrative expeses (36,975) (36,975) Provisio for employee separatio expese (2,314 ) (2,314 ) Other icome 6,950 6,950 Acquisitio costs ad other expeses (1,422 ) (1,422 ) Iterest expese, et (98,731 ) (11,084 ) (1,753 ) (111,568 ) Depreciatio o o real estate assets (1,132 ) (1,132 ) Preferred share divideds (15,848) (15,848) Fuds from operatios 99,977 17,151 3, ,101 Depreciatio of real estate assets (139,748 ) (7,373 ) (1,161 ) (148,282 ) Impairmet of assets (6,304) (6,304) Equity i icome of parterships 9,778 (9,778 ) Operatig results from discotiued operatios 2,812 (2,812 ) Impairmet of assets of discotiued operatios (23,662) (23,662) Gais o sales of discotiued operatios 78,512 78,512 Preferred share divideds 15,848 15,848 Net icome $ 37,213 $ $ $ 37, MANAGEMENT S DISCUSSION AND ANALYSIS

58 Cotiuig Operatios For the Year Eded December 31, 2012 Share of Ucosolidated Discotiued (i thousads of dollars) Cosolidated Parterships Operatios Total Real estate reveue $ 413,813 $ 38,452 $ 33,046 $ 485,311 Property operatig expeses (173,130 ) (11,458 ) (15,340) (199,928 ) Net operatig icome 240,683 26,994 17, ,383 Geeral ad admiistrative expeses (37,538 ) (37,538 ) Provisio for employee separatio expese (9,437) (9,437) Other icome 5,534 5,534 Acquisitio costs other expeses (1,936 ) (2) (1,938 ) Iterest expese, et (122,118 ) (11,258 ) (4,202) (137,578 ) Depreciatio of o real estate assets (825) (825) Preferred share divideds (7,984 ) (7,984 ) Fuds from operatios 66,379 15,734 13,504 95,617 Depreciatio of real estate assets (127,020 ) (7,396 ) (8,877) (143,293 ) Equity i icome of parterships 8,338 (8,338) Operatig results from discotiued operatios 4,627 (4,627) Impairmet of assets of discotiued operatios (3,805) (3,805) Gai o sale of discotiued operatios Preferred share divideds 7,984 7,984 Net loss $ (42,550 ) $ $ $ (42,550 ) Liquidity ad Capital Resources This Liquidity ad Capital Resources sectio cotais certai forward-lookig statemets that relate to expectatios ad projectios that are ot historical facts. These forward-lookig statemets reflect our curret views about our future liquidity ad capital resources, ad are subject to risks ad ucertaities that might cause our actual liquidity ad capital resources to differ materially from the forward-lookig statemets. Additioal factors that might affect our liquidity ad capital resources iclude those discussed i our Aual Report o Form 10-K for the year eded December 31, 2014 i the sectio etitled Item 1A. Risk Factors. We do ot ited to update or revise ay forward-lookig statemets about our liquidity ad capital resources to reflect ew iformatio, future evets or otherwise. CAPITAL RESOURCES We expect to meet our short-term liquidity requiremets, icludig distributios to shareholders, recurrig capital expeditures, teat improvemets ad leasig commissios, but excludig acquisitios ad redevelopmet ad developmet projects, geerally through our available workig capital ad et cash provided by operatios, ad subject to the terms ad coditios of our 2013 Revolvig Facility, our 2014 Term Loas ad our Letter of Credit (all as defied below ad collectively, the Credit Agreemets ). We believe that our et cash provided by operatios will be sufficiet to allow us to make ay distributios ecessary to eable us to cotiue to qualify as a REIT uder the Iteral Reveue Code of 1986, as ameded. The aggregate distributios made to preferred shareholders, commo shareholders ad OP Uit holders for 2014 were $72.5 millio, based o distributios of $ per Series A Preferred Share, distributios of $ per Series B Preferred Share ad $0.80 per commo share ad OP Uit. For the first quarter of 2015, we have aouced a distributio of $0.21 per commo share ad OP Uit. The followig are some of the factors that could affect our cash flows ad require the fudig of future cash distributios, recurrig capital expeditures, teat improvemets or leasig commissios with sources other tha operatig cash flows: adverse chages or prologed dowturs i geeral, local or retail idustry ecoomic, fiacial, credit or capital market or competitive coditios, leadig to a reductio i real estate reveue or cash flows or a icrease i expeses; deterioratio i our teats busiess operatios ad fiacial stability, icludig achor or o achor teat bakruptcies, leasig delays or termiatios, or lower sales, causig deferrals or declies i ret, percetage ret ad cash flows; iability to achieve targets for, or decreases i, property occupacy ad retal rates, resultig i lower or delayed real estate reveue ad operatig icome; icreases i operatig costs, icludig icreases that caot be passed o to teats, resultig i reduced operatig icome ad cash flows; ad icreases i iterest rates, resultig i higher borrowig costs. We expect to meet certai of our loger-term requiremets, such as obligatios to fud redevelopmet ad developmet projects, certai capital requiremets (icludig scheduled debt maturities), future property ad portfolio acquisitios, reovatios, expasios ad other o-recurrig capital improvemets, through a variety of capital sources, subject to the terms ad coditios of our Credit Agreemets. I December 2014, our uiversal shelf registratio statemet was filed with the SEC ad became effective. We may use the availability uder our shelf registratio statemet to offer ad sell commo shares of beeficial iterest, preferred shares ad various types of debt securities, amog other types of securities, to the public. I April 2012, we issued $115.0 millio of Series A Preferred Shares ad i October 2012, we issued $86.3 millio of Series B Preferred Shares i uderwritte public offerigs uder our prior uiversal shelf registratio statemet. I May 2013, we issued 11,500,000 commo shares i a uderwritte public offerig at $20.00 per share. However, i the future, we may be uable to issue securities uder our shelf registratio statemet, or otherwise, o terms that are favorable to us, or at all. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 57

59 2013 REVOLVING FACILITY, AS AMENDED I April 2013, PREIT, PREIT Associates ad PRI (collectively, the Borrower or we ) etered ito a Credit Agreemet (as ameded, the 2013 Revolvig Facility ) with Wells Fargo Bak, Natioal Associatio, ad the other fiacial istitutios sigatory thereto, for a $400.0 millio seior usecured revolvig credit facility. The 2013 Revolvig Facility replaced the previously existig 2010 Credit Facility. I December 2013, we ameded the 2013 Revolvig Facility to make certai terms of the 2013 Revolvig Facility cosistet with the terms of the 2014 Term Loas (discussed below). These terms also appear i the Letter of Credit (defied below). The 2013 Revolvig Facility, 2014 Term Loas (defied below) ad Letter of Credit (defied below) are collectively referred to as the Credit Agreemets ). All capitalized terms used i this Liquidity ad Capital Resources sectio ad ot otherwise defied herei have the meaigs ascribed to such terms i the 2013 Revolvig Facility, as ameded. As of December 31, 2014, there were o amouts outstadig uder our 2013 Revolvig Facility, $7.1 millio was pledged as collateral for a letter of credit, ad we etered ito a secod letter of credit i Jauary 2015 i the amout of $7.9 millio. Because of certai coveat restrictios, the etire borrowig capacity is ot available to us. We curretly have a aggregate of $416.1 millio available uder the 2013 Revolvig Facility ad the 2014 Term Loas. Iterest expese related to the 2013 Revolvig Facility was $1.5 millio ad $2.5 millio for the years eded December 31, 2014 ad 2013, respectively. Deferred fiacig fee amortizatio associated with the 2013 Revolvig Facility was $1.4 millio ad $1.1 millio for the years eded December 31, 2014 ad 2013, respectively. The iitial maturity of the 2013 Revolvig Facility is April 17, 2016, ad the Borrower has optios for two oe-year extesios of the iitial maturity date, subject to certai coditios ad to the paymet of extesio fees of 0.15% ad 0.20% of the Facility Amout for the first ad secod optios, respectively. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 2013 Revolvig Facility, through a accordio optio, from $400.0 millio to as much as $600.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i Revolvig Commitmets from the curret leders or Revolvig Commitmets from ew leders. No icrease to the maximum amout available uder the 2013 Revolvig Facility has bee exercised by the Borrower. Amouts borrowed uder the 2013 Revolvig Facility bear iterest at a rate betwee 1.50% ad 2.05% per aum, depedig o PREIT s leverage, i excess of LIBOR, with o floor, as set forth i the table below. The rate i effect at December 31, 2014 was 1.70% per aum i excess of LIBOR. I determiig PREIT s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is (a) 6.50% for each Property havig a average sales per square foot of more tha $500 for the most recet period of 12 cosecutive moths, ad (b) 7.50% for ay other Property. Level Ratio of Total Liabilities to Gross Asset Value Applicable Margi 1 Less tha to % 2 Equal to or greater tha to 1.00 but less tha to % 3 Equal to or greater tha to 1.00 but less tha to % 4 Equal to or greater tha to % The uused portio of the 2013 Revolvig Facility is subject to a facility fee of 0.30% per aum. I the evet that we seek ad obtai a ivestmet grade credit ratig, alterative iterest rates ad facility fees would apply. PREIT ad the subsidiaries of PREIT that either (1) accout for more tha 2.5% of adjusted Gross Asset Value (other tha a Excluded Subsidiary), (2) ow or lease a Uecumbered Property, or (3) ow, directly or idirectly, a subsidiary described i clause (2) will serve as guarators for fuds borrowed uder the 2013 Credit Facility. I the evet that we seek ad obtai a ivestmet grade credit ratig, we may request that a subsidiary guarator be released, uless such guarator becomes obligated i respect of the debt of the Borrower or aother subsidiary or ows Uecumbered Property or icurs recourse debt. The Credit Agreemets are cross-defaulted with oe aother. The Credit Agreemets cotai certai affirmative ad egative coveats which are idetical ad which are described i detail below i the sectio etitled Idetical coveats cotaied i the 2013 Revolvig Facility ad 2014 Term Loas ad Letter of Credit. As of December 31, 2014, the Borrower was i compliace with all such fiacial coveats. The Borrower may prepay the 2013 Revolvig Facility at ay time without premium or pealty, subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs. The Borrower must repay the etire pricipal amout outstadig uder the 2013 Revolvig Facility at the ed of its term, as the term may be exteded. Upo the expiratio of ay applicable cure period followig a evet of default, the leders may declare all of the obligatios i coectio with the 2013 Revolvig Facility immediately due ad payable, ad the Commitmets of the leders to make further loas uder the 2013 Revolvig Facility will termiate. Upo the occurrece of a volutary or ivolutary bakruptcy proceedig of PREIT, PREIT Associates, PRI, ay Material Subsidiary, ay subsidiary that ows or leases a Uecumbered Property or certai other subsidiaries, all outstadig amouts will automatically become immediately due ad payable ad the Commitmets of the leders to make further loas will automatically termiate. The Borrower used the iitial proceeds from the 2013 Revolvig Facility to repay $97.5 millio outstadig uder the 2010 Term Loa ad $95.0 millio outstadig uder the 2010 Revolvig Facility (as those terms are defied i ote 4 to our cosolidated fiacial statemets) TERM LOANS, AS AMENDED O Jauary 8, 2014, the Borrower etered ito two usecured term loas i the iitial aggregate amout of $250.0 millio, comprised of: (1) a 5 Year Term Loa Agreemet (the 5 Year Term Loa ) with Wells Fargo Bak, Natioal Associatio, U.S. Bak Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $150.0 millio seior usecured 5 year term loa facility; ad (2) a 7 Year Term Loa Agreemet (the 7 Year Term Loa ad, together with the 5 Year Term Loa, the 2014 Term Loas ) with Wells Fargo Bak, Natioal Associatio, Capital Oe, Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $100.0 millio seior usecured 7 year term loa facility. Amouts borrowed uder the 2014 Term Loas bear iterest at the rate specified below per aum, depedig o PREIT s leverage, i excess of LIBOR, with o floor. I determiig PREIT s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is (a) 6.50% for each Property havig a average sales per square foot of more tha $500 for the most recet period of 12 cosecutive moths, ad (b) 7.50% for ay other Property. 58 MANAGEMENT S DISCUSSION AND ANALYSIS

60 5 Year 7 Year Term Loa Term Loa Applicable Applicable Level Ratio of Total Liabilities to Gross Asset Value Margi Margi 1 Less tha to % 1.80 % 2 Equal to or greater tha to 1.00 but less tha to % 1.95 % 3 Equal to or greater tha to 1.00 but less tha to % 2.15 % 4 Equal to or greater tha to % 2.35 % The iitial rate i effect uder the 5 Year Term Loa was 1.45% per aum i excess of LIBOR. The iitial rate i effect uder the 7 Year Term Loa was 1.95% per aum i excess of LIBOR. If PREIT seeks ad obtais a ivestmet grade credit ratig ad so otifies the leders uder the respective 2014 Term Loas, alterative iterest rates would apply. The table set forth below presets the amout outstadig, iterest rate (iclusive of the LIBOR spread) i effect ad the maturity dates of the 2014 Term Loas as of December 31, 2014: (i millios of dollars) 5 Year Term Loa 7 Year Term Loa Total facility $ $ Amout outstadig $ $ 30.0 Iterest rate 1.61 % 2.11 % Maturity date Jauary 2019 Jauary 2021 Iterest expese related to the 2014 Term Loas was $4.7 millio for the year eded December 31, Deferred fiacig fee amortizatio was $0.3 millio for the year eded December 31, Uder the 2014 Term Loas, there is a deferred draw feature that eables PREIT to borrow the amouts specified i each of the term loas util April 8, From the effective date util either April 8, 2015 or util the maximum amout uder the respective loa is borrowed (or util the leders commitmets are otherwise termiated), the uused portio of the 2014 Term Loas is subject to a fee of 0.20%, i the case of the 5 Year Term Loa, ad 0.35%, i the case of the 7 Year Term Loa, per aum. There is a additioal commitmet termiatio fee uder the 7 Year Term Loa if the maximum amout is ot borrowed before April 8, PREIT ad the subsidiaries of PREIT that either (1) accout for more tha 2.5% of adjusted Gross Asset Value (other tha a Excluded Subsidiary), (2) ow or lease a Uecumbered Property, (3) ow, directly or idirectly, a subsidiary described i clause (2), or (4) are guarators uder the 2013 Revolvig Facility will serve as guarators for fuds borrowed uder the 2014 Term Loas. I the evet that we seek ad obtai a ivestmet grade credit ratig, we may request that a subsidiary guarator be released, uless such guarator becomes obligated i respect of the debt of the Borrower or aother subsidiary or ows Uecumbered Property or icurs recourse debt. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 5 Year Term Loa, through a accordio optio (subject to certai coditios), from $150.0 millio to as much as $300.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i commitmets from the curret leders or from ew leders. The Borrower has the optio to icrease the maximum amout available uder the 7 Year Term Loa, through a accordio optio (subject to certai coditios), from $100.0 millio to as much as $200.0 millio, i icremets of $5.0 millio (with a miimum icrease of $25.0 millio), based o Wells Fargo Bak s ability to obtai icreases i commitmets from the curret leders or from ew leders. The Credit Agreemets cotai certai affirmative ad egative coveats which are idetical ad which are described i detail below i the sectio etitled Idetical coveats cotaied i the 2013 Revolvig Facility ad 2014 Term Loas ad Letter of Credit. The Borrower may prepay the 5 Year Term Loa at ay time without premium or pealty, subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs. The paymet of the 7 Year Term Loa prior to its maturity is subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs ad a decliig prepaymet pealty ragig from 3% from closig to oe year after closig, to 2% after two years, to 1% after three years ad without pealty thereafter. Upo the expiratio of ay applicable cure period followig a evet of default, the leders may declare all of the obligatios i coectio with the 2014 Term Loas immediately due ad payable, ad before April 8, 2015, the commitmets of the leders to make further loas, if ay, uder the 2014 Term Loas would termiate. Upo the occurrece of a volutary or ivolutary bakruptcy proceedig of PREIT, PREIT Associates, PRI, ay material subsidiary, ay subsidiary that ows or leases a Uecumbered Property or certai other subsidiaries, all outstadig amouts would automatically become immediately due ad payable ad, before April 8, 2015, the commitmets of the leders to make further loas will automatically termiate. PREIT has used ad may use the proceeds of the 2014 Term Loas for the repaymet of debt, for property acquisitios, for the paymet of developmet or redevelopmet costs ad for workig capital ad geeral corporate purposes. LETTER OF CREDIT FOR SPRINGFIELD TOWN CENTER ACQUISITION I coectio with the agreemet to acquire Sprigfield Tow Ceter i March 2014, we obtaied a $46.5 millio letter of credit from Wells Fargo Bak, Natioal Associatio (the Letter of Credit ). Amouts secured uder the Letter of Credit are subject to a fee per aum, depedig o PREIT s leverage. The iitial fee i effect is 1.15% per aum. The Letter of Credit iitially expires i July 2015 ad may be exteded up to oe year. The Letter of Credit is subject to coveats that are idetical to those cotaied i the 2013 Revolvig Facility ad the 2014 Term Loas. We expect that the Letter of Credit will be termiated i coectio with the closig of the Sprigfield Tow Ceter acquisitio, which we expect to occur o or about March 31, 2015, subject to the seller meetig all closig coditios. IDENTICAL COVENANTS CONTAINED IN THE 2013 REVOLVING FACILITY, 2014 TERM LOANS AND LETTER OF CREDIT The 2013 Revolvig Facility, 2014 Term Loas ad the Letter of Credit cotai certai affirmative ad egative coveats which are idetical, icludig, without limitatio, requiremets that PREIT maitai, o a cosolidated basis: (1) miimum Tagible Net Worth of ot less tha 75% of the Compay s tagible et worth o December 31, 2012, plus 75% of the Net Proceeds of all Equity Issuaces effected at ay time after December 31, 2012; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.60:1, provided that it will ot be a Default if the ratio exceeds 0.60:1 but does ot exceed 0.625:1 for more tha two cosecutive quarters o more tha two occasios durig the term; (3) miimum ratio of Adjusted EBITDA PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 59

61 to Fixed Charges of 1.50:1 (4) miimum Uecumbered Debt Yield of 12.0%; (5) miimum Uecumbered NOI to Usecured Iterest Expese of 1.75:1; (6) maximum ratio of Secured Idebtedess to Gross Asset Value of 0.60:1; (7) maximum Ivestmets i uimproved real estate ad predevelopmet costs ot i excess of 5.0% of Gross Asset Value; (8) maximum Ivestmets i Persos other tha Subsidiaries, Cosolidated Affiliates ad Ucosolidated Affiliates ot i excess of 5.0% of Gross Asset Value; (9) maximum Mortgages i favor of the Borrower or ay other Subsidiary ot i excess of 5.0% of Gross Asset Value; (10) the aggregate value of the Ivestmets ad the other items subject to the precedig clauses (7) through (9) ot i excess of 10.0% of Gross Asset Value; (11) maximum Ivestmets i Cosolidatio Exempt Etities ot i excess of 25.0% of Gross Asset Value; (12) maximum Projects Uder Developmet ot i excess of 15.0% of Gross Asset Value; (13) the aggregate value of the Ivestmets ad the other items subject to the precedig clauses (7) through (9) ad (11) ad (12) ot i excess of 35.0% of Gross Asset Value; (14) Distributios may ot exceed (A) with respect to our preferred shares, the amouts required by the terms of the preferred shares, ad (B) with respect to our commo shares, the greater of (i) 95.0% of Fuds From Operatios (FFO) ad (ii) 110% of REIT taxable icome for a fiscal year; ad (15) PREIT may ot permit the amout of the Gross Asset Value attributable to assets directly owed by PREIT, PREIT Associates, PRI ad the guarators to be less tha 95% of Gross Asset Value excludig assets owed by Excluded Subsidiaries or Ucosolidated Affiliates. These coveats ad restrictios limit PREIT s ability to icur additioal idebtedess, grat lies o assets ad eter ito egative pledge agreemets, merge, cosolidate or sell all or substatially all of its assets ad eter ito certai trasactios with affiliates. The Credit Agreemets are subject to customary evets of default ad are cross-defaulted with oe aother. COMMON SHARE OFFERING I May 2013, we issued 11,500,000 commo shares i a public offerig at $20.00 per share. We received et proceeds from the offerig of $220.5 millio after deductig paymet of the uderwritig discout of $0.80 per share ad offerig expeses. We used a portio of the et proceeds from this offerig to repay all $192.5 millio of the-outstadig borrowigs uder the 2013 Revolvig Facility. PREFERRED SHARE OFFERINGS We have 4,600, % Series A Cumulative Redeemable Perpetual Preferred Shares (the Series A Preferred Shares ) outstadig ad 3,450, % Series B Cumulative Redeemable Perpetual Preferred Shares (the Series B Preferred Shares ) outstadig. We may ot redeem the Series A Preferred Shares or the Series B Preferred Shares before April 20, 2017 ad October 11, 2017, respectively, except to preserve our status as a REIT or upo the occurrece of a Chage of Cotrol, as defied i the Trust Agreemet addedums desigatig the Series A ad Series B Preferred Shares, respectively. O ad after April 20, 2017 ad October 11, 2017, we may redeem ay or all of the Series A Preferred Shares or the Series B Preferred Shares, respectively, at $25.00 per share plus ay accrued ad upaid divideds. I additio, upo the occurrece of a Chage of Cotrol, we may redeem ay or all of the Series A Preferred Shares or the Series B Preferred Shares for cash withi 120 days after the first date o which such Chage of Cotrol occurred at $25.00 per share plus ay accrued ad upaid divideds. The Series A Preferred Shares ad the Series B Preferred Shares have o stated maturity, are ot subject to ay sikig fud or madatory redemptio ad will remai outstadig idefiitely uless we redeem or otherwise repurchase them or they are coverted. As of December 31, 2014, the Borrower was i compliace with all such fiacial coveats. Followig recet property sales, the NOI from the Compay s remaiig uecumbered properties is at a level such that the maximum usecured amout that the Compay may curretly borrow withi the Uecumbered Debt Yield coveat, uder the $400.0 millio 2013 Revolvig Facility ad the $250.0 millio aggregate 2014 Term Loas is a aggregate of $561.1 millio. As of December 31, 2014, the Compay had borrowed $130.0 millio uder the 2014 Term Loas, ad there were o amouts outstadig uder the 2013 Revolvig Facility (with $7.1 millio pledged as collateral for letters of credit). 60 MANAGEMENT S DISCUSSION AND ANALYSIS

62 MORTGAGE LOAN ACTIVITY CONSOLIDATED PROPERTIES The followig table presets the mortgage loas we have etered ito or exteded sice Jauary 1, 2013 related to our cosolidated properties: Amout Fiaced or Exteded Fiacig Date Property (i millios of dollars) Stated Iterest Rate Maturity 2013 Activity: February Fracis Scott Key Mall (1)(2) $ 62.6 LIBOR plus 2.60% March 2018 February Lycomig Mall (3) 35.5 LIBOR plus 2.75% March 2018 February Viewmot Mall (1) 48.0 LIBOR plus 2.60% March 2018 March Dartmouth Mall % fixed April 2018 September Loga Valley Mall (4) 51.0 LIBOR plus 2.10% September 2014 December Wyomig Valley Mall (5) % fixed December 2023 (1) Iterest oly paymets. (2) The mortgage loa may be icreased by $5.8 millio subject to certai prescribed coditios. (3) The iitial amout of the mortgage loa was $28.0 millio. We took additioal draws of $5.0 millio i October 2009 ad $2.5 millio i March The mortgage loa was ameded i February 2013 to lower the iterest rate to LIBOR plus 2.75% ad to exted the maturity date to March I February 2013, the uamortized balace of the mortgage loa was $33.4 millio before we borrowed a additioal $2.1 millio to brig the total amout fiaced to $35.5 millio. (4) The iitial amout of the mortgage loa was $68.0 millio. We repaid $5.0 millio i September 2011 ad $12.0 millio i September We exercised our right uder the loa i September 2013 to exted the maturity date to September We repaid the loa i July (5) Iterest oly paymets util March Pricipal ad iterest paymets commecig i April OTHER MORTGAGE LOAN ACTIVITY I July 2014, we repaid a $25.8 millio mortgage loa plus accrued iterest secured by 801 Market Street, Philadelphia, Pesylvaia, a property that is part of The Gallery, usig proceeds from the trasactio relatig to The Gallery with Macerich. Also, i July 2014, we repaid a $51.0 millio mortgage loa plus accrued iterest secured by Loga Valley Mall i Altooa, Pesylvaia usig $50.0 millio from our 2013 Revolvig Facility ad $1.0 millio from available workig capital. The $50.0 millio borrowed from the 2013 Revolvig Facility was subsequetly repaid i July 2014 usig proceeds from the trasactio relatig to The Gallery with Macerich. I February 2013, we repaid a $53.2 millio mortgage loa o Moorestow Mall i Moorestow, New Jersey usig $50.0 millio from our 2010 Revolvig Facility ad $3.2 millio from available workig capital. I May 2013, we repaid a $56.3 millio mortgage loa o Jacksoville Mall i Jacksoville, North Carolia usig $35.0 millio from our 2013 Revolvig Facility ad $21.3 millio from available workig capital. See ote 6 to our cosolidated fiacial statemets for additioal iformatio o the $2.9 millio loss o hedge ieffectiveess that was recorded durig the three moths eded Jue 30, 2013 i coectio with this trasactio. I September 2013, we repaid a $65.0 millio mortgage loa o Wyomig Valley Mall i Wilkes-Barre, Pesylvaia usig $65.0 millio from our 2013 Revolvig Facility. I October 2013, we repaid a $66.9 millio mortgage loa o Exto Square Mall i Exto, Pesylvaia usig $60.0 millio from our 2013 Revolvig Facility ad $6.9 millio from available workig capital. I December 2013, we repaid a $42.2 millio mortgage loa o Beaver Valley Mall i Moaca, Pesylvaia usig proceeds from the December 2013 fiacig of Wyomig Valley Mall. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 61

63 MORTGAGE LOANS Our mortgage loas, which are secured by 16 of our cosolidated properties, are due i istallmets over various terms extedig to the year Twelve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.90% to 6.34% ad had a weighted average iterest rate of 5.05% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.86% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.78% at December 31, Mortgage loas for properties owed by ucosolidated parterships are accouted for i Ivestmets i parterships, at equity ad Distributios i excess of partership ivestmets, ad are ot icluded i the table below. The followig table outlies the timig of pricipal paymets ad balloo paymets pursuat to the terms of our mortgage loas o our cosolidated properties as of December 31, 2014: Paymets by Period (i thousads of dollars) Total Thereafter Pricipal paymets $ 105,491 $ 20,923 $ 12,830 $ 12,411 $ 24,535 $ 34,792 Balloo paymets 1,302, , , , , ,595 Total $ 1,407,947 $ 291,722 $ 232,310 $ 162,411 $ 194,117 $ 527,387 CONTRACTUAL OBLIGATIONS The followig table presets our cosolidated aggregate cotractual obligatios as of December 31, 2014 for the periods preseted: (i thousads of dollars) Total Thereafter Mortgage loas $ 1,407,947 $ 291,722 $ 232,310 $ 162,411 $ 194,117 $ 527,387 Term Loas 130, ,000 30,000 Letter of Credit 46,500 46,500 Iterest o idebtedess (1) 274,434 70,576 44,832 39,362 55,502 64,162 Operatig leases 8,345 2,089 1,861 1,680 2,715 Groud leases 2, ,497 Sprigfield Tow Ceter Cotributio Agreemet (2) 340, ,000 Developmet ad redevelopmet commitmets (3) 11,019 11,019 Total $ 2,220,472 $ 762,073 $ 279,170 $ 203,620 $ 352,563 $ 623,046 (1) Icludes paymets expected to be made, icludig those i coectio with iterest rate swap agreemets. (2) We expect to use a aggregate of $340.0 millio (subject to customary closig proratio adjustmets), i the form of cash ad the assumptio ad payoff of certai seller debt plus 6,250,000 OP Uits, ad, if our average share price is less tha $20.00 at closig, a umber of preferred uits of limited partership iterest. The Sprigfield Tow Ceter closig is expected to occur o or about March 31, 2015, subject to the seller meetig all closig coditios. (3) The timig of the paymets of these amouts is ucertai. We expect that the majority of such paymets will be made prior to December 31, 2015, but caot provide ay assurace that chaged circumstaces at these projects will ot delay the settlemet of these obligatios. MORTGAGE LOAN ACTIVITY UNCONSOLIDATED PROPERTIES The followig table presets the mortgage loas secured by our ucosolidated properties etered ito sice Jauary 1, 2013: Amout Fiaced or Exteded Fiacig Date Property (i millios of dollars) Stated Iterest Rate Maturity 2014 Activity: December Gloucester Premium Outlets (1) $ 1.6 LIBOR plus 1.50% Jue 2018 (1) The ucosolidated etity that ows Gloucester Premium Outlets etered ito this costructio mortgage loa. The costructio mortgage loa has a maximum availability of $90.0 millio, of which $88.4 millio is available as of December 31, 2014 (after miimum costructio thresholds are achieved). Our iterest i the ucosolidated etity is 25%. I coectio with the December 2014 sale of Whitehall Mall, our share of the mortgage loa secured by the property had a balace of $5.1 millio that was assumed by the buyer at closig. INTEREST RATE DERIVATIVE AGREEMENTS As of December 31, 2014, we had etered ito 12 iterest rate swap agreemets with a weighted average iterest swap rate of 1.67% o a otioal amout of $327.7 millio maturig o various dates through Jauary 1, We etered ito these iterest rate swap agreemets i order to hedge the iterest paymets associated with our issuaces of variable rate log term debt. We assessed the effectiveess of these swap agreemets as hedges at iceptio ad do so o a quarterly basis. O December 31, 2014, except as set forth below, we cosidered these iterest rate swap agreemets to be highly effective as cash flow hedges. The iterest rate swap agreemets are et settled mothly. I the year eded December 31, 2014, we recorded et losses o hedge ieffectiveess of $1.8 millio. As a result of our July 2014 repaymet of the $25.8 millio mortgage loa secured by 801 Market Street, Philadelphia, Pesylvaia, we aticipated that we would ot have sufficiet 1-moth LIBOR based iterest paymets to meet the etire swap otioal amout related to two of our swaps, ad we estimated that this coditio would exist util approximately March As such, previously deferred losses i other comprehesive icome for the period from July 2014 to March 2015 i the amout of $0.1 millio related to these iterest rate swaps were reclassified ito iterest expese durig the three moths eded 62 MANAGEMENT S DISCUSSION AND ANALYSIS

64 September 30, These swaps, with a aggregate otioal amout of $40.0 millio, do ot qualify for ogoig hedge accoutig afterjuly 2014 as a result of the urealized forecasted trasactios. We also recogized mark-to-market iterest expese o these two swaps of $0.5 millio for the period from July 2014 to December These swaps are scheduled to expire by their terms i Jauary Also, i Jue 2014, we gave otice to the mortgage leder that we iteded to repay the mortgage loa secured by Loga Valley Mall prior to its maturity, ad i coectio therewith, we recorded hedge ieffectiveess of $1.2 millio. The otice of our itetio to repay the mortgage loa made it probable that the hedged trasactio idetified i our origial hedge documetatio would ot occur, ad i Jue 2014, we reclassified $1.2 millio from accumulated other comprehesive loss to iterest expese. We repaid the mortgage loa secured by Loga Valley Mall i July I the year eded December 31, 2013, we recorded et losses o hedge ieffectiveess of $3.4 millio. We recorded $2.9 millio i et losses o hedge ieffectiveess relatig to a forward startig swap that was cash settled i 2008 i coectio with the May 2013 Jacksoville Mall mortgage loa repaymet. The mortgage loa repaymet made it probable that the hedged trasactio idetified i our origial hedge documetatio would ot occur, ad we therefore reclassified $2.9 millio from Accumulated other comprehesive icome (loss) to Iterest expese, et. We also recorded $0.5 millio i et losses o hedge ieffectiveess due to the accelerated amortizatio of $0.5 millio i coectio with the partial mortgage loa repaymets at Loga Valley Mall. As of December 31, 2014, the fair value of derivatives i a et liability positio, which excludes accrued iterest but icludes ay adjustmet for operformace risk related to these agreemets, was $2.4 millio i the aggregate. The carryig amout of the associated assets are recorded i Deferred costs ad other assets, liabilities are reflected i Fair value of derivative istrumets ad the et urealized loss is reflected i Accumulated other comprehesive loss i the accompayig cosolidated balace sheets ad cosolidated statemets of comprehesive icome. Cash Flows Net cash provided by operatig activities totaled $145.1 millio for 2014 compared to $136.2 millio for 2013 ad $120.3 millio for This icrease i cash from operatig activities was primarily due to the reductio i cash paid for iterest ad other workig capital chages. Cash flows provided by ivestig activities were $31.7 millio for 2014 compared to cash flows used i ivestig activities of $30.7 millio for 2013 ad cash flows used i ivestig activities of $88.2 millio for Ivestig activities for 2014 icluded $20.0 millio used i acquirig street retail properties i Philadelphia, Pesylvaia, ivestmet i costructio i progress of $41.5 millio ad real estate improvemets of $71.3 millio, primarily related to teat allowaces, recurrig capital expeditures ad ogoig improvemets at our properties, offset by proceeds of $190.4 millio from the sale of South Mall i Jue 2014, the sale of a 50% iterest i The Gallery i July 2014, the sale of Nittay Mall ad North Haover Mall i September 2014 ad various sales of o-operatig real estate ad lad parcels i the fourth quarter of Ivestig activities for 2013 reflected acquisitios of $60.9 millio, ivestmet i costructio i progress of $36.5 millio ad real estate improvemets of $44.8 millio, primarily related to ogoig improvemets at our properties. Cash flows used i fiacig activities were $170.5 millio for 2014 compared to cash flows used i fiacig activities of $166.7 millio for 2013 ad $20.0 millio for Cash flows used i fiacig activities for 2014 icluded $130.0 millio of et repaymets of the 2013 Revolvig Facility, the $51.0 millio repaymet of the mortgage loa o Loga Valley Mall ad the $25.8 millio repaymet of the mortgage loa o 801 Market Street, divideds ad distributios of $72.5 millio, ad pricipal istallmets o mortgage loas of $17.9 millio. Cash flows used i fiacig activities for 2013 icluded a $182.0 millio repaymet of the 2010 Term Loa, ad the repaymet or paydow of $403.7 millio of mortgage loas. See ote 1 to our cosolidated fiacial statemets for details regardig costs capitalized durig 2014 ad Commitmets As of December 31, 2014, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects of $11.0 millio i the form of teat allowaces, lease termiatio fees, ad cotracts with geeral service providers ad other professioal service providers. Evirometal We are aware of certai evirometal matters at some of our properties. We have, i the past, performed remediatio of such evirometal matters, ad we are ot aware of ay sigificat remaiig potetial liability relatig to these evirometal matters or of ay obligatio to satisfy requiremets for further remediatio. We may be required i the future to perform testig relatig to these matters. We have isurace coverage for certai evirometal claims up to $25.0 millio per occurrece ad up to $25.0 millio i the aggregate. See our Aual Report o Form 10-K for the year eded December 31, 2014 i the sectio etitled Item 1A. Risk Factors We might icur costs to comply with evirometal laws, which could have a adverse effect o our results of operatios. Competitio ad Teat Credit Risk Competitio i the retail real estate market is itese. We compete with other public ad private retail real estate compaies, icludig compaies that ow or maage malls, power ceters, strip ceters, lifestyle ceters, factory outlet ceters, theme/festival ceters ad commuity ceters, as well as other commercial real estate developers ad real estate owers, particularly those with properties ear our properties, o the basis of several factors, icludig locatio ad ret charged. We compete with these compaies to attract customers to our properties, as well as to attract achor ad o achor store ad other teats. We also compete to acquire lad for ew site developmet or to acquire parcels or properties to add to our existig properties. Our malls ad our other operatig properties face competitio from similar retail ceters, icludig more recetly developed or reovated ceters that are ear our retail properties. We also face competitio from a variety of differet retail formats, icludig iteret retailers, discout or value retailers, home shoppig etworks, mail order operators, catalogs, ad telemarketers. Our teats face competitio from compaies at the same ad other properties ad from other retail formats as well, icludig iteret retailers. This competitio could have a material adverse effect o our ability to lease space ad o the amout of ret ad expese reimbursemets that we receive. The existece or developmet of competig retail properties ad the related icreased competitio for teats might, subject to the terms ad coditios of the Credit Agreemets, require us to make capital improvemets to properties that we would have deferred or would ot have otherwise plaed to make ad might also affect the total sales, sales per square foot, occupacy ad et operatig icome of such properties. Ay such capital improvemets, udertake idividually or collectively, would ivolve costs ad expeses that could adversely affect our results of operatios. We compete with may other etities egaged i real estate ivestmet activities for acquisitios of malls, other retail properties ad prime PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 63

65 developmet sites or sites adjacet to our properties, icludig istitutioal pesio fuds, other REITs ad other ower-operators of retail properties. Whe we seek to make acquisitios, competitors might drive up the price we must pay for properties, parcels, other assets or other compaies or might themselves succeed i acquirig those properties, parcels, assets or compaies. I additio, our potetial acquisitio targets might fid our competitors to be more attractive suitors if they have greater resources, are willig to pay more, or have a more compatible operatig philosophy. I particular, larger REITs might ejoy sigificat competitive advatages that result from, amog other thigs, a lower cost of capital, a better ability to raise capital, a better ability to fiace a acquisitio, better cash flow ad ehaced operatig efficiecies. We might ot succeed i acquirig retail properties or developmet sites that we seek, or, if we pay a higher price for a property ad/or geerate lower cash flow from a acquired property tha we expect, our ivestmet returs will be reduced, which will adversely affect the value of our securities. We receive a substatial portio of our operatig icome as ret uder leases with teats. At ay time, ay teat havig space i oe or more of our properties could experiece a dowtur i its busiess that might weake its fiacial coditio. Such teats might eter ito or reew leases with relatively shorter terms. Such teats might also defer or fail to make retal paymets whe due, delay or defer lease commecemet, volutarily vacate the premises or declare bakruptcy, which could result i the termiatio of the teat s lease or preclude the collectio of ret i coectio with the space for a period of time, ad could result i material losses to us ad harm to our results of operatios. Also, it might take time to termiate leases of uderperformig or operformig teats ad we might icur costs to remove such teats. Some of our teats occupy stores at multiple locatios i our portfolio, ad so the effect of ay bakruptcy or store closigs of those teats might be more sigificat to us tha the bakruptcy or store closigs of other teats. See our Aual Report o Form 10-K for the year eded December 31, 2014 i the sectio etitled Item 2. Properties Major Teats. I additio, uder may of our leases, our teats pay ret based, i whole or i part, o a percetage of their sales. Accordigly, declies i these teats sales directly affect our results of operatios. Also, if teats are uable to comply with the terms of their leases, or otherwise seek chages to the terms, icludig chages to the amout of ret, we might modify lease terms i ways that are less favorable to us. Give curret coditios i the ecoomy, certai idustries ad the capital markets, i some istaces retailers that have sought protectio from creditors uder bakruptcy law have had difficulty i obtaiig debtor-i-possessio fiacig, which has decreased the likelihood that such retailers will emerge from bakruptcy protectio ad has limited their alteratives. Seasoality There is seasoality i the retail real estate idustry. Retail property leases ofte provide for the paymet of all or a portio of ret based o a percetage of a teat s sales reveue, or sales reveue over certai levels. Icome from such ret is recorded oly after the miimum sales levels have bee met. The sales levels are ofte met i the fourth quarter, durig the December holiday seaso. Also, may ew ad temporary leases are etered ito later i the year i aticipatio of the holiday seaso ad a higher umber of teats vacate their space early i the year. As a result, our occupacy ad cash flows are geerally higher i the fourth quarter ad lower i the first ad secod quarters. Our cocetratio i the retail sector icreases our exposure to seasoality ad has resulted, ad is expected to cotiue to result, i a greater percetage of our cash flows beig received i the fourth quarter. Iflatio Iflatio ca have may effects o fiacial performace. Retail property leases ofte provide for the paymet of ret based o a percetage of sales, which might icrease with iflatio. Leases might also provide for teats to bear all or a portio of operatig expeses, which might reduce the impact of such icreases o us. However, ret icreases might ot keep up with iflatio, or if we recover a smaller proportio of property operatig expeses, we might bear more costs if such expeses icrease because of iflatio. Forward Lookig Statemets This Aual Report for the year eded December 31, 2014, together with other statemets ad iformatio publicly dissemiated by us, cotai certai forward-lookig statemets withi the meaig of the federal securities laws. Forward-lookig statemets relate to expectatios, beliefs, projectios, future plas, strategies, aticipated evets, treds ad other matters that are ot historical facts. These forward-lookig statemets reflect our curret views about future evets, achievemets or results ad are subject to risks, ucertaities ad chages i circumstaces that might cause future evets, achievemets or results to differ materially from those expressed or implied by the forward-lookig statemets. I particular, our busiess might be materially ad adversely affected by ucertaities affectig real estate busiesses geerally as well as the followig, amog other factors: our substatial debt ad stated value of preferred shares ad our high leverage ratio; costraiig leverage, uecumbered debt yield, iterest ad tagible et worth coveats uder our 2013 Revolvig Facility, our 2014 Term Loas ad Letter of Credit; potetial losses o impairmet of certai log-lived assets, such as real estate, or of itagible assets, such as goodwill, icludig such losses that we might be required to record i coectio with ay dispositios of assets; chages i the retail idustry, icludig cosolidatio ad store closigs, particularly amog achor teats; our ability to sell properties that we seek to dispose of or our ability to obtai prices we seek; the effects of olie shoppig ad other uses of techology o our retail teats; risks related to developmet ad redevelopmet activities; curret ecoomic coditios ad the state of employmet growth ad cosumer cofidece ad spedig, ad the correspodig effects o teat busiess performace, prospects, solvecy ad leasig decisios ad o our cash flows, ad the value ad potetial impairmet of our properties; our ability to refiace our existig idebtedess whe it matures, o favorable terms or at all; our ability to raise capital, icludig through joit vetures or other parterships, through sales of properties or iterests i properties, through the issuace of equity or equity-related securities if market coditios are favorable, or through other actios; our ability to idetify ad execute o suitable acquisitio opportuities ad to itegrate acquired properties ito our portfolio; our parterships ad joit vetures with third parties to acquire or develop properties; our short- ad log-term liquidity positio; geeral ecoomic, fiacial ad political coditios, icludig credit ad capital market coditios, chages i iterest rates or uemploymet; 64 MANAGEMENT S DISCUSSION AND ANALYSIS

66 our ability to maitai ad icrease property occupacy, sales ad retal rates, i light of the relatively high umber of leases that have expired or are expirig i the ext two years; acts of violece at malls, icludig our properties, or at other similar spaces, ad the potetial effect o traffic ad sales; chages to our corporate maagemet team ad ay resultig modificatios to our busiess strategies; icreases i operatig costs that caot be passed o to teats; cocetratio of our properties i the Mid-Atlatic regio; chages i local market coditios, such as the supply of or demad for retail space, or other competitive factors; ad potetial dilutio from ay capital raisig trasactios or other equity issuaces. Additioal factors that might cause future evets, achievemets or results to differ materially from those expressed or implied by our forward-lookig statemets iclude those discussed i our Aual Report o Form 10-K for the year eded December 31, 2014 i the sectio etitled Item 1A. Risk Factors. We do ot ited to update or revise ay forward-lookig statemets to reflect ew iformatio, future evets or otherwise. Quatitative ad Qualitative Disclosures About Market Risk The aalysis below presets the sesitivity of the market value of our fiacial istrumets to selected chages i market iterest rates. As of December 31, 2014, our cosolidated debt portfolio cosisted primarily of $1,407.9 millio of fixed ad variable rate mortgage loas, $100.0 millio borrowed uder our 5 Year Term Loa which bore iterest at a rate of 1.61%, ad $30.0 millio borrowed uder our 7 Year Term Loa which bore iterest at a rate of 2.11%. Our mortgage loas, which are secured by 16 of our cosolidated properties, are due i istallmets over various terms extedig to the year Twelve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.90% to 6.34% ad had a weighted average iterest rate of 5.05% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.86% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.78% at December 31, Mortgage loas for properties owed by ucosolidated parterships are accouted for i Ivestmets i parterships, at equity ad Distributios i excess of partership ivestmets, ad are ot icluded i the table below. Our iterest rate risk is moitored usig a variety of techiques. The table below presets the pricipal amouts, icludig balloo paymets, of the expected aual maturities ad the weighted average iterest rates for the pricipal paymets i the specified periods: Fixed Rate Debt Variable Rate Debt (i thousads of dollars) Weighted Weighted For the Year Edig Pricipal Average Pricipal Average December 31, Paymets Iterest Rate Paymets Iterest Rate At December 31, 2014, we had $302.6 millio of variable rate debt. To maage iterest rate risk ad limit overall iterest cost, we may employ iterest rate swaps, optios, forwards, caps ad floors, or a combiatio thereof, depedig o the uderlyig exposure. Iterest rate differetials that arise uder swap cotracts are recogized i iterest expese over the life of the cotracts. If iterest rates rise, the resultig cost of fuds is expected to be lower tha that which would have bee available if debt with matchig characteristics was issued directly. Coversely, if iterest rates fall, the resultig costs would be expected to be higher. We may also employ forwards or purchased optios to hedge qualifyig aticipated trasactios. Gais ad losses are deferred ad recogized i et icome i the same period that the uderlyig trasactio occurs, expires or is otherwise termiated. See ote 6 to our cosolidated fiacial statemets. As of December 31, 2014, we had etered ito 12 iterest rate swap agreemets with a weighted average iterest rate of 1.67% o a otioal amout of $327.7 millio maturig o various dates through Jauary We etered ito these iterest rate swap agreemets i order to hedge the iterest paymets associated with our issuaces of variable iterest rate log-term debt. Chages i market iterest rates have differet effects o the fixed ad variable portios of our debt portfolio. A chage i market iterest rates applicable to the fixed portio of the debt portfolio affects the fair value, but it has o effect o iterest icurred or cash flows. A chage i market iterest rates applicable to the variable portio of the debt portfolio affects the iterest icurred ad cash flows, but does ot affect the fair value. The followig sesitivity aalysis related to the fixed debt portfolio, which icludes the effects of our iterest rate swap agreemets, assumes a immediate 100 basis poit chage i iterest rates from their actual December 31, 2014 levels, with all other variables held costat. A 100 basis poit icrease i market iterest rates would have resulted i a decrease i our et fiacial istrumet positio of $38.1 millio at December 31, A 100 basis poit decrease i market iterest rates would have resulted i a icrease i our et fiacial istrumet positio of $55.2 millio at December 31, As of December 31, 2014, all of our variable rate debt iterest paymets icluded i our debt portfolio were swapped to fixed iterest rates. Therefore, a 100 basis poit icrease or decrease i iterest rates would have resulted i o icrease or reductio i aual iterest. Because the iformatio preseted above icludes oly those exposures that existed as of December 31, 2014, it does ot cosider chages, exposures or positios which could arise after that date. The iformatio preseted herei has limited predictive value. As a result, the ultimate realized gai or loss or expese with respect to iterest rate fluctuatios will deped o the exposures that arise durig the period, our hedgig strategies at the time ad iterest rates $ 290, % $ % (1) 2016 $ 231, % $ % (1) 2017 $ 161, % $ 1, % (1) 2018 $ 11, % $ 141, % (1) 2019 ad thereafter $ 539, % $ 158,050 (2) 2.08% (1) (1) Based o the weighted average iterest rate i effect as of December 31, (2) Icludes 2014 Term Loa borrowigs of $130.0 millio with a weighted average iterest rate of 1.72% as of December 31, PENNSYLVANIA REAL ESTATE INVESTMENT TRUST 2014 ANNUAL REPORT 65

67 TRUSTEES UPPER ROW (FROM LEFT TO RIGHT) JOSEPH F. CORADINO Trustee Sice 2006 Chief Executive Officer Pesylvaia Real Estate Ivestmet Trust M. WALTER D ALESSIO (1)(2) Trustee Sice 2005 Pricipal NorthMarq Advisors, LLC ROSEMARIE B. GRECO (1)(3) Trustee Sice 2012 ad from Foudig Pricipal GRECOvetures, Ltd LEONARD I. KORMAN (1)(2) Trustee Sice 1996 Chairma ad Chief Executive Officer Korma Commercial Properties, Ic. DONALD F. MAZZIOTTI (1)(3) Trustee Sice 2003 Maagig Parter Developmet Equities & Advisories, LLC OFFICERS JOSEPH F. CORADINO Chief Executive Officer RONALD RUBIN Executive Chairma BRUCE GOLDMAN Executive Vice Presidet Geeral Cousel ad Secretary ROBERT F. MCCADDEN Executive Vice Presidet ad Chief Fiacial Officer ANDREW M. IOANNOU Executive Vice Presidet Fiace ad Acquisitios MARIO C. VENTRESCA, JR. Executive Vice Presidet Operatios JOSEPH J. ARISTONE Seior Vice Presidet Leasig JONATHEN BELL Seior Vice Presidet ad Chief Accoutig Officer ELAINE BERGER Seior Vice Presidet Specialty Leasig DANIEL M. HERMAN Seior Vice Presidet Developmet DEBRA L. LAMBERT Seior Vice Presidet Legal ANDREW H. BOTTARO Vice Presidet Developmet HEATHER CROWELL Vice Presidet Corporate Commuicatios ad Ivestor Relatios BETH DESISTA Vice Presidet Specialty Leasig ANTHONY DILORETO Vice Presidet Leasig MICHAEL A. FENCHAK Vice Presidet Asset Maagemet WILLIAM INGRAHAM Vice Presidet Property ad Partership Marketig DAVID MARSHALL Vice Presidet Fiacial Services GILEAD MORSE Vice Presidet Leasig LISA M. MOST Vice Presidet Legal LOWER ROW (FROM LEFT TO RIGHT) MARK PASQUERILLA (1) Trustee Sice 2003 Presidet Pasquerilla Eterprises, LP Former Chairma ad Chief Executive Officer Crow America Realty Trust CHARLES P. PIZZI (2)(3) Trustee Sice 2013 Former Presidet ad Chief Executive Officer ad Director Tasty Bakig Compay JOHN J. ROBERTS (2)(3) Trustee Sice 2003 Former Global Maagig Parter PricewaterhouseCoopers LLP RONALD RUBIN Trustee Sice 1997 Executive Chairma Pesylvaia Real Estate Ivestmet Trust (1) Member of Nomiatig ad Goverace Committee (2) Member of Executive Compesatio ad Huma Resources Committee (3) Member of Audit Committee CHRISTOPHER MROZINSKI Vice Presidet Developmet SEAN MULROY Vice Presidet Busiess Aalytics R. SCOTT PETRIE Vice Presidet Retail Maagemet DAN RUBIN Vice Presidet Achor ad Outparcel Leasig M. DANIEL SCOTT Vice Presidet Achor ad Outparcel Leasig HELANE G. STEIN Vice Presidet Iformatio Techology JOSHUA SCHRIER Vice Presidet Acquisitios JEFFREY SNEDDON Vice Presidet Leasig TIMOTHY M. TREMEL Vice Presidet Costructio ad Desig Services VINCE VIZZA Regioal Vice Presidet Leasig 66