Chapter Annual Report

Transcription

1 The Next

2 Chapter 2015 Aual Report

3 The upcomig pages documet the story of a Compay that set out o a jourey ad remaied steadfast ad committed to achievig its objectives despite challeges. They detail PREIT s four year jourey alog a path to redefie itself ad reshape its portfolio of mall properties. I the ed, PREIT emerges as a ower of high-quality malls with growth opportuities that are realizable ad sustaiable. PREIT (NYSE:PEI) is a publicly traded real estate ivestmet trust specializig i the owership ad maagemet of differetiated shoppig malls. Headquartered i Philadelphia, Pesylvaia, the compay ows ad operates over 25 millio square feet of retail space i the easter half of the Uited States with cocetratio i the Mid-Atlatic regio s top MSAs. Sice 2012, the compay has drive a trasformatio guided by a emphasis o balace sheet stregth, high-quality merchadisig ad disciplied capital expeditures. Additioal iformatio is available at preit.com, o Twitter or LikedI. (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 $ 136,246 $ 129,419 $ 121,101 $ 425,411 $ 432,703 $ 438,678 $ (129,567) $ (14,262) $ (20,449) $ (132,531) $ (29,678) $ 20,011) $ (1.93) $ (0.44) $ (0.56) $ (1.93) $ (0.44) $ 0.31 $ 3,367,889) $ 3,285,404) $ 3,527,868) $ 2,806,516) $ 2,539,703) $ 2,718,581) $ 0.84) $ 0.80) $ 0.74) 77,535) 70,923) 70,422) $ 3,950,597) $ 3,593,355) $ 3,368,965) * Recociliatio to GAAP ca be foud o page CHERRY HILL MALL, CHERRY HILL, NJ 3

4 Dear Fellow Shareholders I 2015, we told the story of a ew PREIT, a arrative that spas several years ad highlights our dramatic trasformatio ito a high-quality mall REIT. Today, we preset to you a ew chapter i that story. We ll chroicle our past achievemets ad idetify future goals as we march forward o this progressive path, carvig out a iche for ourselves amog our idustry peers. But before we move ahead, it is critical to uderstad the backgroud of the story so that oe ca appreciate the tremedous progress made thus far. I 2012, we set out o our goal of becomig a ew PREIT by outliig a pla with key objectives: balace sheet improvemet, operatioal excellece, elevatig portfolio quality ad positioig the compay for growth. With those objectives i mid, we idetified the followig goals: Portfolio sales greater tha $400 per square foot, Same Store Net Operatig Icome ( SS NOI ) growth greater tha 3%, teat occupacy costs greater tha 12.5% ad leverage below 55%. As I write this letter today, I am proud to give a overview of our tremedous progress ad achievemets i realizig these goals as we tur the page detailig a ew era of productivity ad our road map for the ext several years. JOSEPH F. CORADINO Chief Executive Officer EXTON SQUARE, EXTON, PA 5

5 01 Results Demostrable ad Sustaiable Early i 2016, we outlied our strategic visio to become a $500 PSF compay that geerates the majority of our NOI from two top 10 MSAs, with SS NOI growig at over 3% aually ad leverage below 47% by the ed of Our strog 2015 results demostrate our ability to achieve this visio. Despite teat bakruptcy-related headwids i 2015, SS NOI grew by 2.6%, with approximately 10% sales growth to $435 per square foot. This was accompaied by a leverage ratio of 49.3%, reewal ret icreases of 6.0% ad the sale of eight additioal o-core assets sice the begiig of 2015, a testamet to our laser focus o executio ad a positive idicator of thigs to come. We expect to see cotiued improvemet i our metrics as the full effect of the ehaced portfolio takes hold. We also outlied a pla to orgaically drive SS NOI results at a rate of over 3% aually through: Cotiued reewal spread improvemet where we mark expirig leases to market; Migratig our portfolio to a higher percetage of teats payig fixed operatig costs wherei we would cotrol the expeses ad improve our margis; Amplifyig our commo area reveue through creative marketig ad advertisig platforms; Drivig occupacy to a stabilized level; Covertig space leased o a temporary basis to permaet leases; ad Buildig ew leasable space that is already etitled at our properties. 7

6 Reewal Spreads 6.0% 3.9% 1.3% MOORESTOWN MALL, MOORESTOWN, NJ Dramatic improvemets i rets achieved upo teat reewal demostrate the leasig stregth of our ew portfolio.

7 02 Quality Proouced ad Acceleratig We made sigificat progress o our portfolio improvemet strategy stregtheig our presece i two Top 10 MSAs. The March 2015 acquisitio of Sprigfield Tow Ceter achored our positio i the powerful DC metro area while we cotiue to be the domiat mall ladlord i the Philadelphia regio. We are pleased that 2015 sales at Sprigfield Tow Ceter were recorded at $507 per square foot, but eve more excited by the leasig opportuities afforded to us by havig a hold o these two major metro markets. First-to-market teats lookig to break ito these sought-after trade areas are more exposed to PREIT tha ever before. O the asset dispositios frot, we cotiue to lead our sector i the sale of low-productivity malls. I additio to Uiotow Mall ad Voorhees Tow Ceter sold i 2015, we have kicked off 2016 with the sale of five additioal malls, marchig ever closer toward completio of our asset dispositio program. Additioally, we have two street retail properties ad a udevelopedlad parcel uder cotract for sale. Whe completed, this is expected to brig the total proceeds from dispositios to over $640 millio sice we iitiated the program at the ed of Further illustratig the improved quality of our portfolio is the marked reductio i properties with sales of less tha $325 per square foot. I 2012 we had 17 such properties; today, followig our successful dispositio efforts, we have just oe. 11

8 SS NOI Distributio 2012 % of SS NOI from properties with sales psf of: >$450 ~$ <$350 other 2015 CHERRY HILL MALL, CHERRY HILL, NJ The quality of our earigs stream has improved with sigificatly more NOI beig derived from top-tier assets.

9 03 Demad Dramatic ad Growig Our improved portfolio has eabled us to ehace our relatioships with i-demad retailers. I recet years, we ve icreased the presece of quality retailers, like H&M, Michael Kors ad ULTA, i our portfolio. We are also seeig a icrease i first-to-portfolio retailers joiig our teat roster, icludig Cetury 21, which opeed its first ad oly store outside of the New York market i 2014 as the lead teat i our Fashio Outlets of Philadelphia. I 2015, we aouced the sigig of the ew LEGOLAND Discovery Ceter at Plymouth Meetig Mall oe of oly ie locatios i the coutry for this etertaimet cocept ad opeed a ew Field & Stream by Dick s Sportig Goods at Capital City Mall outside of Harrisburg, PA. We also celebrated the itroductio of Lululemo, Tumi, Yard House, ad LEGO to the portfolio all strog, ew-to-portfolio retailers who chose PREIT malls to expad their brads. I short, retailers are better appreciatig the power of our portfolio, which has led to a dramatic icrease i demad for space at our properties. 15

10 Sales Per Square Foot Growth $460 $450 $458 $440 $430 $432 $420 $410 $417 $422 $424 $400 $390 $396 $380 $380 $383 $387 $383 $383 $380 $381 $387 $370 $374 $ Excludes properties sold followig ed of the moth. VIEWMONT MALL, SCRANTON, PA Sales growth is a leadig idicator i our busiess, idicative of our ability to drive rets ad et operatig icome i the future.

11 04 Opportu Realizable ad Impactful Our cotiuig strategic remerchadisig efforts are uderway i earest at four projects that are expected to deliver average NOI growth of 18% by the ed of We are seeig results at the projects we have recetly completed, like Viewmot Mall, where we have see a 20% icrease i NOI ad a icrease i sales to a ew high of $445 per square foot. Across our portfolio, these efforts have led to orgaic sales growth of 4.5% i the past year, chagig our dialog with retailers ad settig the stage for cotiued robust NOI growth. It also puts us ities i a positio of stregth for replacig uderperformig teats, for example, with Dick s Sportig Goods replacig JCPeey at Cumberlad Mall. At Exto Square, oe of our redevelopmet properties, we recetly executed a lease with Roud 1 Etertaimet, a rapidly expadig teat that will occupy the lower level of the former JCPeey space. This trasactio represets a uique family etertaimet offerig that, alog with a ew Whole Foods Market opeig i 2017, is expected to draw ew customers. The stregth of our portfolio is shiig through ad our goal of cosistet aual Same Store NOI growth i excess of 3% is i reach. 19

12 Leverage 65% 9 60% 8 55% Bak Leverage 7 Net Debt/EBITDA 50% 6 45% 40% Bak Leverage Net Debt/EBITDA CHERRY HILL MALL, CHERRY HILL, NJ We have made great strides i reducig leverage ad have outlied a pla to cotiue to improve our balace sheet.

13 05 Balace Strog ad Improvig Our Balace Sheet priorities ad capital allocatio strategy cotiue to be top of mid. We have drive our leverage from well over 60% i 2012 to approximately 50% with plas to reduce it further to below 47% by the ed of Our balace sheet is strog ad flexible with ample liquidity ad laddered debt maturities. It is isulated agaist risig iterest rates with miimal exposure to floatig rate debt ad maageable ear term maturities. We bega 2016 with oly two property mortgage loas comig due. We have sice paid off the loa at Valley Mall ad expect Sheet to refiace Woodlad Mall, oe of our premier properties, at a reduced iterest rate. We have aouced a coservative redevelopmet program of five projects totalig $230-$265 millio with targeted returs i excess of 8%. These projects will be completed over the ext three years. At the coclusio of this, ad after executig o our capital pla, we expect to be i a greatly improved leverage positio with sufficiet liquidity. We are focused o our balace sheet metrics ad we are i a much-improved, lower-risk positio tha we were three years ago. We cotiue to explore areas for further improvemet. 23

14 Total Shareholder Retur Performace Idex Value PREIT S&P 500 NAREIT Equity Russell 2000 SPRINGFIELD TOWN CENTER, SPRINGFIELD, VA 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 2009 ad that all divideds were reivested.

15 06 Outlook Visio ad Executio We are deliverig results ad are cofidet that they are sustaiable. Our people are at the core of everythig we do. We have built a foudatio for greatess ad have istilled a culture of accoutability, oe i which we value pride, performace, ad executio. The purpose of our portfolio improvemet udertakig is to remove obstacles i deliverig ehaced performace. That remais frot ad ceter ad is echoed throughout the halls i our offices as we focus o the followig key goals: Drive results to ew heights cosistetly deliverig SS NOI results i excess of 3%; Craft a ideal mix of teats i our portfolio to drive traffic, sales ad rets; Execute o redevelopmet opportuities that drive shareholder value; Proactively replace uderperformig achor teats; ad Create a defesive, strog ad flexible balace sheet. The Compay, as trasformed, possesses the appropriate platform ad executable pla to cotiue to ehace shareholder value. We thak you, our shareholders, as well as our retail parters, shoppers, trustees ad our dedicated team of associates, for supportig us as we tur to the ext chapter i our story. JOSEPH F. CORADINO Chief Executive Officer April 4,

16 Eclosed Malls As of March 31, 2016 BEAVER VALLEY MALL Moaca, PA Owership Iterest 100% Acquired 2002 Square Feet 1 1,154,000 CAPITAL CITY MALL Camp Hill, PA Owership Iterest 100% Acquired 2003 Square Feet 1 619,000 CHERRY HILL MALL Cherry Hill, NJ Owership Iterest 100% Acquired 2003 Square Feet 1 1,305,000 CROSSROADS MALL Beckley, WV Owership Iterest 100% Acquired 2003 Square Feet 1 468,000 CUMBERLAND MALL Vielad, NJ Owership Iterest 100% Acquired 2005 Square Feet 1 946,000 DARTMOUTH MALL Dartmouth, MA Owership Iterest 100% Acquired 1997 Square Feet 1 671,000 EXTON SQUARE Exto, PA Owership Iterest 100% Acquired 2003 Square Feet 1 1,088,000 FRANCIS SCOTT KEY MALL Frederick, MD Owership Iterest 100% Acquired 2003 Square Feet 1 756,000 FASHION OUTLETS OF MARKET EAST Philadelphia, PA Owership Iterest 50% Acquired 2003 Square Feet 1 1,474,000 JACKSONVILLE MALL Jacksoville, NC Owership Iterest 100% Acquired 2003 Square Feet 1 495,000 LEHIGH VALLEY MALL Whitehall, PA Owership Iterest 50% Acquired 1973 Square Feet 1 1,169,000 LOGAN VALLEY MALL Altooa, PA Owership Iterest 100% Acquired 2003 Square Feet 1 782,000 MAGNOLIA MALL Florece, SC Owership Iterest 100% Acquired 1997 Square Feet 1 619,000 MOORESTOWN MALL Moorestow, NJ Owership Iterest 100% Acquired 2003 Square Feet 1 1,070,000 PATRICK HENRY MALL Newport News, VA Owership Iterest 100% Acquired 2003 Square Feet 1 717,000 PLYMOUTH MEETING MALL Plymouth Meetig, PA Owership Iterest 100% Acquired 2003 Square Feet 1 948,000 THE MALL AT PRINCE GEORGES Hyattsville, MD Owership Iterest 100% Acquired 1998 Square Feet 1 916,000 SPRINGFIELD MALL Sprigfield, PA Owership Iterest 50% Acquired 2005 Square Feet 1 611,000 SPRINGFIELD TOWN CENTER Sprigfield, VA Owership Iterest 100% Acquired 2015 Square Feet 1 1,364,000 VALLEY MALL Hagerstow, MD Owership Iterest 100% Acquired 2003 Square Feet 1 916,000 VALLEY VIEW MALL La Crosse, WI Owership Iterest 100% Acquired 2003 Square Feet 1 629,000 VIEWMONT MALL Scrato, PA Owership Iterest 100% Acquired 2003 Square Feet 1 776,000 WASHINGTON CROWN CENTER Washigto, PA Owership Iterest 100% Acquired 2003 Square Feet 1 673,000 WILLOW GROVE PARK Willow Grove, PA Owership Iterest 100% Acquired 2000 / 2003 Square Feet 1 1,179,000 Other Retail Properties As of March 31, 2016 GLOUCESTER PREMIUM OUTLETS Gloucester Towship, NJ Owership Iterest 25% Acquired 2015 Square Feet 370,000 RED ROSE COMMONS Lacaster, PA Owership Iterest 50% Acquired 1998 Square Feet 463,000 STREET LEVEL RETAIL Philadelphia, PA Owership Iterest 100% Acquired 2014 Square Feet 2 69,000 TOTAL MALLS 23,419,000 OTHER RETAIL PROPERTIES TOTAL 2,385,000 TOTAL GLA 25,804,000 WOODLAND MALL Grad Rapids, MI Owership Iterest 100% Acquired 2005 Square Feet 1 1,169,000 WYOMING VALLEY MALL Wilkes-Barre, PA Owership Iterest 100% Acquired 1997 Square Feet 1 910,000 METROPLEX SHOPPING CENTER Plymouth Meetig, PA Owership Iterest 50% Acquired 1997 Square Feet 778,000 THE COURT AT OXFORD VALLEY Laghore, PA Owership Iterest 50% Acquired 1997 Square Feet 705,000 1 Represets total square feet of property. PREIT-owed square footage may be less. 2 Combied total of two properties

17 Fiacial Cotets Selected Fiacial Iformatio 32 Cosolidated Fiacial Statemets 33 Notes to Cosolidated Fiacial Statemets 38 Maagemet s Report o Iteral Cotrol Over Fiacial Reportig 59 Reports of Idepedet Registered Public Accoutig Firm 59 Maagemet s Discussio ad Aalysis 61 Trustees ad Officers 82 Ivestor Iformatio 83 CHERRY HILL MALL, CHERRY HILL, NJ 31

18 SELECTED FINANCIAL INFORMATION (UNAUDITED) CONSOLIDATED BALANCE SHEETS (i thousads, except per share amouts) Year Eded December 31, Operatig results Total reveue $ 425,411 $ 432,703 $ 438,678 $ 419,347 $ 419,138 Loss from cotiuig operatios $ (129,567) $ (14,262) $ (20,449) $ (4,419) $ (67,876) Net (loss) icome $ (129,567) $ (14,262) $ 37,213 $ (42,550) $ (93,935) Net (loss) icome attributable to PREIT commo shareholders $ (132,531) $ (29,678) $ 20,011 $ (48,821) $ (90,161) Loss from cotiuig operatios per share basic ad diluted $ (1.93) $ (0.44) $ (0.56) $ (0.92) $ (1.20) Net (loss) earigs per share basic ad diluted $ (1.93) $ (0.44) $ 0.31 $ (0.89) $ (1.66) Cash flows Cash provided by operatig activities $ 135,661 $ 145,075 $ 136,219 $ 120,324 $ 105,262 Cash (used i) provided by ivestig activities $ (379,099) $ 31,650 $ 30,741 $ (88,178) $ (21,772) Cash provided by (used i) fiacig activities $ 225,860 $ (170,522) $ (166,720) $ (19,954) $ (104,019) Cash distributios Cash distributios per share commo shares $ 0.84 $ 0.80 $ 0.74 $ 0.63 $ 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 $ (129,567) $ (14,262) $ 37,213 $ (42,550) $(93,935 ) Divideds o preferred shares (15,848) (15,848) (15,848) (7,984) Gais o sales of iterests i real estate (12,362) (12,699) (740) Gais o sales of discotiued operatios (78,512) (947) Impairmet of assets 140,318 19,695 29,966 3,805 52,336 Depreciatio ad amortizatio of real estate assets: Wholly owed ad cosolidated parterships, et 141, , , , ,119 Ucosolidated parterships 12,563 9,850 7,373 7,396 8,403 Discotiued operatios 1,161 8,877 12,402 Fuds from operatios $ 136,246 $ 129,419 $ 121,101 $ 95,617 $ 105,585 Weighted average umber of shares outstadig 68,740 68,217 63,662 55,122 54,639 Weighted average effect of full coversio OP Uits 6,830 2,128 2,194 2,310 2,329 Effect of commo share equivalets , Total weighted average shares outstadig icludig OP Uits 76,055 71,041 66,732 58,563 57,470 Fuds from operatios per diluted share ad OP Uit $ 1.79 $ 1.82 $ 1.81 $ 1.63 $ 1.84 (i thousads) As of December 31, Balace sheet items Ivestmets i real estate, at cost $ 3,367,889 $ 3,285,404 $3,527,868 $3,477,540 $ 3,576,997 Total assets $ 2,806,516 $2,539,703 $2,718,581 $2,877,624 $ 2,910,254 Log term debt Cosolidated properties: Mortgage loas payable, icludig debt premium $ 1,325,495 $1,407,947 $ 1,502,650 $1,718,052 $ 1,691,381 Revolvig facilities $ 65,000 $ $ 130,000 $ $ 95,000 Exchageable Notes, et of debt discout $ $ $ $ $ 136,051 Term loas $ 400,000 $ 130,000 $ $ 182,000 $ 240,000 Compay s share of parterships: Mortgage loas payable $ 202,074 $ 190,310 $ 198,451 $ 201,717 $ 204,546 December 31, December 31, (i thousads, except per share amouts) Assets: Ivestmets i real estate, at cost: Operatig properties $ 3,297,520 $ 3,216,231 Costructio i progress 64,019 60,452 Lad held for developmet 6,350 8,721 Total ivestmets i real estate 3,367,889 3,285,404 Accumulated depreciatio (1,015,647 ) (1,061,051 ) Net ivestmets i real estate 2,352,242 2,224,353 Ivestmets i Parterships, at equity: 161, ,882 Other Assets: Cash ad cash equivalets 22,855 40,433 Teat ad other receivables (et of allowace for doubtful accouts of $6,417 ad $11,929 at December 31, 2015 ad 2014, respectively) 40,324 40,566 Itagible assets (et of accumulated amortizatio of $13,441 ad $11,873 at December 31, 2015 ad 2014, respectively) 22,248 6,452 Deferred costs ad other assets, et 81,574 87,017 Assets held for sale 126,244 Total assets $ 2,806,516 $ 2,539,703 Liabilities: Mortgage loas payable $ 1,325,495 $ 1,407,947 Term Loas 400, ,000 Revolvig Facility 65,000 Teats deposits ad deferred ret 14,631 15,541 Distributios i excess of partership ivestmets 65,547 65,956 Fair value of derivative istrumets 2,756 2,490 Liabilities o assets held for sale 69,918 Accrued expeses ad other liabilities 78,539 73,032 Total liabilities 2,021,886 1,694,966 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, 2015 ad 2014; 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, 2015 ad 2014; liquidatio preferece of $86, Shares of beeficial iterest, $1.00 par value per share; 200,000 shares authorized; 69,197 issued ad outstadig shares at December 31, 2015 ad 68,801 shares at December 31, ,197 68,801 Capital cotributed i excess of par 1,476,397 1,474,183 Accumulated other comprehesive loss (4,193 ) (6,002 ) Distributios i excess of et icome (912,221 ) (721,605 ) Total equity Pesylvaia Real Estate Ivestmet Trust 629, ,458 Nocotrollig iterest 155,369 29,279 Total equity 784, ,737 Total liabilities ad equity $ 2,806,516 $ 2,539,703 See accompayig otes to cosolidated fiacial statemets. (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, 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. For additioal iformatio about FFO, please refer to page SELECTED FINANCIAL INFORMATION 33

19 CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Eded December 31, (i thousads of dollars) Reveue: Real estate reveue: Base ret $ 271,957 $ 278,896 $ 283,074 Expese reimbursemets 125, , ,909 Percetage ret 5,724 5,124 5,732 Lease termiatio reveue 2,014 2,250 1,565 Other real estate reveue 14,997 13,401 14,448 Total real estate reveue 420, , ,728 Other icome 5,214 6,107 6,950 Total reveue 425, , ,678 Expeses: Operatig expeses: Property operatig expeses: CAM ad real estate taxes (133,912) (140,662) (142,684) Utilities (19,674) (23,993) (22,028) Other (16,461) (15,772) (17,567) Total property operatig expeses (170,047) (180,427) (182,279) Depreciatio ad amortizatio (142,647) (144,304) (140,880) Geeral ad admiistrative expeses (34,836) (35,518) (36,975) Provisio for employee separatio expese (2,087) (4,961) (2,314) Acquisitio costs ad other expeses (6,108) (4,937) (1,422) Total operatig expeses (355,725) (370,147) (363,870) Iterest expese, et (81,096) (82,165) (98,731) Impairmet of assets (140,318) (19,695) (6,304) Total expeses (577,139 ) (472,007 ) (468,905 ) Loss before equity i icome of parterships, gais o sales of real estate ad discotiued operatios (151,728) (39,304) (30,227) Equity i icome of parterships 9,540 10,569 9,778 Gais o sales of iterests i real estate, et 12,362 12,699 Gais o sales of o-operatig real estate 259 1,774 Loss from cotiuig operatios (129,567 ) (14,262 ) (20,449 ) Discotiued operatios: Operatig results from discotiued operatios 2,812 Impairmet of assets of discotiued operatios (23,662) Gais o sales of discotiued operatios 78,512 Icome from discotiued operatios 57,662 Net (loss) icome (129,567) (14,262) 37,213 Less: et loss (icome) attributed to ocotrollig iterest 12, (1,354) Net (loss) icome attributable to PREIT (116,683) (13,830) 35,859 Less: preferred share divideds (15,848) (15,848) (15,848) Net (loss) icome attributable to PREIT commo shareholders $ (132,531 ) $ (29,678 ) $ 20,011 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 $ (129,567) $ (14,262) $ (20,449) Preferred divideds (15,848) (15,848) (15,848) Nocotrollig iterest i cotiuig operatios 12, Divideds o restricted shares (315) (380) (439) Loss from cotiuig operatios used to calculate earigs per share basic ad diluted $ (132,846 ) $ (30,058 ) $ (36,007 ) Icome from discotiued operatios $ $ $ 57,662 Nocotrollig iterest i discotiued operatios (2,083) Icome from discotiued operatios used to calculate earigs per share basic ad diluted $ $ $ 55,579 Basic ad diluted (loss) earigs per share: Loss from cotiuig operatios $ (1.93) $ (0.44) $ (0.56) Icome from discotiued operatios 0.87 Basic ad diluted (loss) earigs per share $ (1.93 ) $ (0.44 ) $ 0.31 (i thousads of shares) Weighted average shares outstadig basic 68,740 68,217 63,662 Effect of dilutive commo share equivalets (1) Weighted average shares outstadig diluted 68,740 68,217 63,662 (1) For the years eded December 31, 2015, 2014 ad 2013, there are et losses allocable to commo shareholders from cotiuig operatios, so the effect of commo share equivalets of 485, 696 ad 876 for the years eded December 31, 2015, 2014 ad 2013, 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 $ (129,567) $ (14,262) $ 37,213 Urealized gai (loss) o derivatives 690 (2,270) 9,647 Amortizatio of losses of settled swaps, et of gais 1,337 2,924 5,069 Total comprehesive (loss) icome (127,540) (13,608) 51,929 Less: Comprehesive loss (icome) attributable to ocotrollig iterest 12, (1,840) Comprehesive (loss) icome attributable to PREIT $ (114,874) $ (13,195) $ 50,089 See accompayig otes to cosolidated fiacial statemets. See accompayig otes to cosolidated fiacial statemets. 34 CONSOLIDATED FINANCIAL STATEMENTS 35

20 CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 & 2013 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, 2013 $ 713, $ 56,331 $ 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 upo redemptio of Operatig Partership Uits 172 2,372 (2,544) Shares issued uder employee compesatio plas, 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) Other distributios to 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 iterest, et (2,080) (2,080) Balace December 31, , ,801 1,474,183 (6,002) (721,605) 29,279 Net loss (129,567) (116,683) (12,884) Other comprehesive icome 2,027 1, Shares issued upo redemptio of Operatig Partership Uits (709) Shares issued uder employee compesatio pla, et of shares retired (4,383) 362 (4,745) Amortizatio of deferred compesatio 6,284 6,284 Divideds paid to commo shareholders ($0.84 per share) (58,085) (58,085) Divideds paid to Series A preferred shareholders ($ 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 ($0.84 per uit) (5,703) (5,703) Operatig partership uits issued i coectio with Sprigfield Tow Ceter 145, ,188 Other distributios to ocotrollig iterest, et (20) (20) Balace December 31, 2015 $ 784,630 $ 46 $ 35 $ 69,197 $1,476,397 $ (4,193) $ (912,221) $ 155,369 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Year Eded December 31, (i thousads of dollars) Cash flows from operatig activities: Net (loss) icome $ (129,567) $ (14,262) $ 37,213 Adjustmets to recocile et (loss) icome to et cash provided by operatig activities: Depreciatio 132, , ,162 Amortizatio 12,907 9,505 12,903 Straight-lie ret adjustmets (1,874) (1,467) (1,425) Provisio for doubtful accouts 2,510 1,566 1,656 Amortizatio of deferred compesatio 6,284 8,455 8,071 Loss o hedge ieffectiveess 512 1,761 3,409 Gai o sales of iterests i real estate, o operatig real estate ad discotiued operatios, et (12,621) (14,473) (78,512) Equity i icome of parterships i excess of distributios (2,312) (1,675) (2,713) Amortizatio of historic tax credits (1,589) (2,508) (2,494) Impairmet of assets ad expesed project costs 140,790 20,187 30,775 Chage i assets ad liabilities: Net chage i other assets 5,337 3,921 (7,779) Net chage i other liabilities (17,063) (1,030) 1,953 Net cash provided by operatig activities 135, , ,219 Cash flows from ivestig activities: Cash proceeds from sales of real estate ivestmets 52, , ,644 Ivestmets i cosolidated real estate acquisitios (319,986) (20,000) (60,879) Additios to costructio i progress (30,684) (41,512) (36,456) Ivestmets i real estate improvemets (52,790) (71,346) (44,785) Additios to leasehold improvemets (486) (1,656) (2,062) Ivestmets i parterships (25,046) (19,184) (250) Capitalized leasig costs (6,255) (5,446) (5,261) Icrease i cash escrows (1,996) (2,369) (2,682) Cash distributios from parterships i excess of equity i icome 5,188 2,721 1,472 Net cash (used i) provided by ivestig activities (379,099 ) 31,650 30,741 Cash flows from fiacig activities: Borrowigs from (repaymets of) term loas 120, ,000 (182,000) Net borrowigs from (repaymets of) revolvig facilities 215,000 (130,000) 130,000 Proceeds from mortgage loas 272, ,692 Repaymet of mortgage loas (272,650) (76,784) (403,691) Pricipal istallmets o mortgage loas (20,761) (17,919) (16,973) Paymet of deferred fiacig costs (3,754) (1,918) (4,035) Net proceeds from issuace of commo shares i public offerig 220,511 Commo shares issued 1,393 3,270 2,983 Divideds paid to commo shareholders (58,085) (54,988) (48,315) Divideds paid to preferred shareholders (15,848) (15,848) (15,849) Distributios paid to Operatig Partership uit holders ad ocotrollig iterest (5,703) (1,703) (1,626) Value of shares issued uder equity icetive plas, et of shares retired (5,776) (4,632) (2,417) Net cash provided by (used i) fiacig activities 225,860 (170,522 ) (166,720 ) Net chage i cash ad cash equivalets (17,578) 6, Cash ad cash equivalets, begiig of year 40,433 34,230 33,990 Cash ad cash equivalets, ed of year $ 22,855 $ 40,433 $ 34,230 See accompayig otes to cosolidated fiacial statemets. See accompayig otes to cosolidated fiacial statemets. 36 CONSOLIDATED NOTES TO CONSOLIDATED FINANCIAL FINANCIAL STATEMENTS STATEMENTS 37

21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Eded December 31, 2015, 2014 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, 2015, our portfolio cosisted of a total of 33 properties located i 11 states ad operatig i 10 states, icludig 25 shoppig malls, four other retail properties ad four developmet or redevelopmet properties. Two of the developmet ad redevelopmet properties are classified as mixed use (a combiatio of retail ad other uses), oe is classified as retail (redevelopmet of The Gallery at Market East (the Gallery ) ito the Fashio Outlets of Philadelphia), ad oe is classified as other. I 2015, we acquired Sprigfield Tow Ceter i Sprigfield, Virgiia ad we sold two of our wholly owed mall properties ad our ivestmet i oe of our parterships that was classified as other retail. The above property couts do ot iclude Gadsde Mall i Gadsde, Alabama, Lycomig Mall i Pesdale, Pesylvaia, New River Valley Mall i Christiasburg, Virgiia, Palmer Park Mall i Easto, Pesylvaia, Wiregrass Commos Mall i Dotha, Alabama ad two street retail properties i Philadelphia, Pesylvaia because these properties have bee classified as held for sale as of December 31, Palmer Park Mall was sold i February 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, 2015, held a 89.2% 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 Operatig Partership s partership agreemet, each of its 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, 2015, the total amout that would have bee distributed would have bee $182.4 millio, which is calculated usig our December 31, 2015 closig share price o the New York Stock Exchage of $21.87 multiplied by the umber of outstadig OP Uits held by limited parters, which was 8,338,299 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, 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. 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. OUT OF PERIOD ADJUSTMENT As further discussed i ote 2, i 2015, we recorded impairmets of assets totalig $63.9 millio o Gadsde Mall, New River Valley Mall ad Wiregrass Commos Mall. Of the total impairmet amout, $36.6 millio was recorded i the fourth quarter of This amout icluded $6.2 millio that we determied should have bee recorded i the secod quarter of 2015, i coectio with the iitial impairmet charge. After evaluatig the quatitative ad qualitative effects of this adjustmet, we have cocluded that there is o material effect o ay period curretly or previously preseted. 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, 2015, 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 two 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. We do ot have a direct legal claim to the assets, liabilities, reveues or expeses of the ucosolidated parterships beyod our rights as a equity ower, i the evet of ay liquidatio of such etity, ad our rights as a teat i commo ower of certai ucosolidated properties. We record the earigs from the ucosolidated parterships usig the equity method of accoutig i the cosolidated statemets of operatios i the 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 cosolidated 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 legal title to properties owed by three of our ucosolidated parterships through teacy i commo arragemets. For each of these properties, such legal title is held by us ad aother perso or persos, ad each has a udivided iterest i title to 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 like our other ucosolidated parterships usig the equity method of accoutig. The balace sheet items arisig from the 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. 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, 2015 ad 2014, cash ad cash equivalets totaled $22.9 millio ad $40.4 millio, respectively, ad icluded teat security deposits of $3.7 millio ad $3.5 millio, respectively. Cash paid for iterest, icludig iterest related to discotiued operatios i 2013, was $76.5 millio, $76.6 millio ad $94.1 millio for the years eded December 31, 2015, 2014 ad 2013, respectively, et of amouts capitalized of $1.9 millio, $0.6 millio ad $0.9 millio, respectively. SIGNIFICANT NON-CASH TRANSACTIONS I coectio with our acquisitio of Sprigfield Tow Ceter i March 2015, we issued 6,250,000 OP Uits with a value of $145.2 millio as partial cosideratio for the purchase. 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 ito the Fashio Outlets of Philadelphia (the Fashio Outlets of Philadelphia ). 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 Fashio Outlets of Philadelphia 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 $310.0 millio, $140.0 millio ad $512.5 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. Aggregate repaymets were $245.0 millio, $270.0 millio ad $382.5 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. Accrued costructio costs decreased by $1.6 millio i the year eded December 31, 2015, decreased by $2.0 millio i the year eded December 31, 2014 ad icreased by $2.4 millio i the year eded December 31, 2013, represetig o-cash chages i costructio i progress. 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 (recorded o a straight-lie basis), percetage ret, expese reimbursemets (such as reimbursemets of costs of commo area maiteace ( CAM ), real estate taxes ad utilities), ad the 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 $2.0 millio, $1.5 millio ad $1.4 millio i the years eded December 31, 2015, 2014 ad 2013, respectively. The straight-lie ret receivable balaces icluded i teat ad other receivables o the accompayig cosolidated balace sheet as of December 31, 2015 ad 2014 were $22.4 millio ad $23.7 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, 2015 ad 2014, our teat accouts receivable icluded accrued icome of $3.2 millio ad $3.4 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. 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 39

22 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 cosolidated 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. Most 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. 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 2013 raged from 6.25% to 12.0%, i 2014 raged from 5.25% to 12.5% ad i 2015 raged from 4.5% to 15.5%. As further detailed i ote 2, i 2015, 2014 ad 2013, as a result of our aalysis, we determied that seve, three ad two properties, respectively, had icurred impairmet of assets. 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 qualitative 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 December 31, 2015 ad 2014 icluded $5.2 millio ad $5.7 millio, respectively, (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 Chages i the carryig amout of goodwill for the three years eded December 31, 2015 were as follows: Accumulated (i thousads of dollars) Basis Amortizatio Total Balace, Jauary 1, 2013 $ 8,229 $ (1,073) $ 7,156 Goodwill divested (1,494) (1,494) Balace, December 31, ,735 (1,073) 5,662 Chages to Goodwill Balace, December 31, ,735 (1,073) 5,662 Goodwill divested (137) (137) Goodwill impaired (276) (276) Balace, December 31, 2015 $ 6,332 $ (1,073) $ 5,249 I 2015, we recogized a impairmet loss of goodwill of $0.3 millio i coectio with the impairmet review of Palmer Park Mall, as further described i ote 2. We also divested goodwill of $0.1 millio i coectio with the sale of Sprigfield Park. 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, 2015 ad 2014: As of December 31, (i thousads of dollars) Value of i-place lease itagibles $ 16,788 $ 699 Above-market lease itagibles Subtotal 16, Goodwill 5,249 5,662 Total itagible assets $22,248 $ 6,452 Below-market lease itagibles $ (1,072 ) $ (2,045) Net amortizatio of i-place lease itagibles was $1.9 millio, $1.6 millio ad $1.6 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. Net amortizatio of above-market ad below-market lease itagibles icreased reveue by $0.3 millio, $1.0 millio ad $1.0 millio for the years eded December 31, 2015, 2014 ad 2013, 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 2016 $ 2,129 $ (74 ) ,931 (100 ) ,863 (86) ,825 (105) ,779 (124 ) 2021 ad thereafter 7,261 (372) Total $16,788 $ (861 ) 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. 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41

23 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, other expeses related to the acquisitio are recorded to acquisitio costs ad other expeses. Whe it is probable that the property will ot be acquired, capitalized pre-acquisitio costs are charged to expese. 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, 2015, 2014 ad 2013: For the Year Eded December 31, (i thousads of dollars) Developmet/Redevelopmet: Salaries ad beefits $ 1,001 $ 1,162 $ 1,059 Real estate taxes $ 4 $ 4 $ 4 Iterest $ 1,883 $ 604 $ 874 Leasig: Salaries, commissios ad beefits $ 6,255 $ 5,446 $ 5,261 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 as of December 31, 2015 ad 2014: As of December 31, (i millios of dollars) Aggregate cost basis for federal icome tax purposes $ 3,662.8 $ 3,340.2 Aggregate depreciated basis for federal icome tax purposes $ 2,660.7 $ 2,362.2 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, 2015, 2014 ad 2013, 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, 2015, 2014 ad 2013: For the Year Eded December 31, Ordiary icome $ $ 0.11 $ No-divided distributios $ 0.84 $ 0.80 $ 0.74 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, 2015, 2014 ad 2013: For the Year Eded December 31, Series A Preferred Share Divideds Ordiary icome $ $ 2.06 $ 1.96 No-divided distributios $ 2.06 $ 2.06 $ 2.06 Series B Preferred Share Divideds Ordiary icome $ $ 1.84 $ 1.75 No-divided distributios $ 1.84 $ 1.84 $ 1.84 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 cosolidated 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, 2015, 2014 ad We had et deferred tax assets of $25.6 millio ad $22.7 millio for the years eded December 31, 2015 ad 2014, 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 i a maer that approximates 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 ad Term Loas (see ote 4). 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 cosolidated 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, 2015, 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 March 2015, the Fiacial Accoutig Stadards Board ( FASB ) issued Iterest Imputatio of Iterest (Subtopic ): Simplifyig the Presetatio of Debt Issuace Costs ad Iterest Imputatio of Iterest (Subtopic ): Presetatio ad Subsequet Measuremet of Debt Issuace Costs Associated with Lie-of-Credit Arragemets, which ited to simplify the presetatio of debt issuace costs. The ew guidace is effective for aual periods begiig after December 15, 2015 for public compaies. We have evaluated this ew guidace ad have determied that this stadard will ot have a sigificat impact o our cosolidated fiacial statemets. We will adopt this ew guidace i I May 2014, the FASB 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 that 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, 2017 for public compaies. 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 might have o our cosolidated fiacial statemets, or have we decided upo the method of adoptio. I February 2015, the FASB issued ASU No , Cosolidatio Amedmets to the Cosolidatio Aalysis, which ameds the curret cosolidatio guidace affectig both the variable iterest etity ( VIE ) ad votig iterest etity ( VOE ) cosolidatio models. The stadard does ot add or remove ay of the characteristics i determiig if a etity is a VIE or VOE, but rather ehaces the way we assesses some of these characteristics. The ew stadard is effective o Jauary 1, The adoptio of ASU is ot expected to have a material effect o our cosolidated fiacial statemets. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 43

24 2. Real Estate Activities Ivestmets i real estate as of December 31, 2015 ad 2014 were comprised of the followig: As of December 31, (i thousads of dollars) Buildigs, improvemets ad costructio i progress $ 2,847,986 $ 2,843,326 Lad, icludig lad held for developmet 519, ,078 Total ivestmets i real estate 3,367,889 3,285,404 Accumulated depreciatio (1,015,647) (1,061,051 ) Net ivestmets i real estate $ 2,352,242 $ 2,224,353 IMPAIRMENT OF ASSETS Durig the years eded December 31, 2015, 2014, ad 2013, we recorded asset impairmet losses of $140.3 millio, $19.7 millio ad $30.0 millio, respectively. Such impairmet losses are recorded i Impairmet of assets for the years eded 2015 ad I 2013, such impairmet losses are recorded either to 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) Gadsde Mall, New River Valley Mall ad Wiregrass Commos Mall $ 63,904 $ $ Voorhees Tow Ceter 39,242 Lycomig Mall 28,345 Uiotow Mall 7,394 Palmer Park Mall 1,383 Nittay Mall 15,495 North Haover Mall 2,900 6,304 South Mall 1,300 Chambersburg Mall (1) 23,662 Other 50 Total impairmet of assets $140,318 $19,695 $29,966 (1) Impairmet of assets of this property is recorded i discotiued operatios for GADSDEN MALL, NEW RIVER VALLEY MALL AND WIREGRASS COMMONS MALL I 2015, we recorded aggregate losses o impairmet of assets o Gadsde Mall i Gadsde, Alabama, New River Valley Mall i Christiasburg, Virgiia ad Wiregrass Commos Mall i Dotha, Alabama of $63.9 millio i coectio with egotiatios with a prospective buyer of the properties. The egotiatios with this prospective buyer of the properties are ogoig, ad could result i additioal chages to our uderlyig assumptios. As a result of these egotiatios, we determied that the holdig period for the properties 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 these properties. Based upo the purchase ad sale agreemet with the prospective buyer of the properties ad subsequet further egotiatios, we determied that the estimated aggregate udiscouted cash flows, et of estimated capital expeditures, for Gadsde Mall, New River Valley Mall ad Wiregrass Commos Mall were less tha the aggregate carryig value of the properties, ad recorded a loss o impairmet of assets. VOORHEES TOWN CENTER I 2015, we recorded a loss o impairmet of assets o Voorhees Tow Ceter i Voorhees, New Jersey of $39.2 millio i coectio with egotiatios with the buyer of the property. I coectio with 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 buyer of the property, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Voorhees Tow Ceter were less tha the carryig value of the property, ad recorded a loss o impairmet of assets. We sold this property i October LYCOMING MALL I 2015, we recorded aggregate losses o impairmet of assets o Lycomig Mall i Pesdale, Pesylvaia of $28.3 millio i coectio with egotiatios with a prospective buyer of the property. I coectio with 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 iitial purchase ad sale agreemet with the prospective buyer of the property, which has sice bee termiated, as well as the curret purchase ad sale agreemet, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Lycomig Mall were less tha the carryig value of the property, ad recorded a loss o impairmet of assets. UNIONTOWN MALL I 2015, we recorded aggregate losses o impairmet of assets o Uiotow Mall i Uiotow, Pesylvaia of $7.4 millio. I coectio with egotiatios with the buyer of the property, we had 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 origial purchase ad sale agreemet with the prospective buyer of the property ad subsequet further egotiatios, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Uiotow 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 sold the property i August PALMER PARK MALL I 2015, we recorded a losses o impairmet of assets o Palmer Park Mall i Easto, Pesylvaia of $1.4 millio. I coectio with egotiatios with the prospective buyer of the property, we had 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 prospective buyer of the property ad subsequet further egotiatios, we determied that the estimated udiscouted cash flows, et of estimated capital expeditures, for Palmer Park Mall were less tha the carryig value of the property, ad recorded a loss o impairmet of assets. We sold the property i February 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 a prospective 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 ad subsequet further egotiatios, 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 a prospective 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 ad subsequet further egotiatios, 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 DISCONTINUED OPERATIONS I 2014, we adopted ew accoutig requiremets pertaiig to the reportig of discotiued operatios such that the results of operatios of properties sold are ow recorded i cotiuig operatios. 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 2013, prior to the adoptio of the ew accoutig requiremets. The followig table summarizes reveue ad expese iformatio for the year eded December 31, 2013 for our discotiued operatios: For the Year Eded December 31, (i thousads of dollars) 2013 Real estate reveue $ 10,014 Expeses: Property operatig expeses (4,288) Depreciatio ad amortizatio (1,161 ) Iterest expese (1,753 ) Total expeses (7,202 ) Operatig results from discotiued operatios 2,812 Impairmet of assets of discotiued operatios (23,662) Gais o sales of discotiued operatios 78,512 Icome from discotiued operatios $ 57,662 ACQUISITIONS O March 31, 2015, we acquired Sprigfield Tow Ceter i Sprigfield, Virgiia for aggregate cosideratio of $486.6 millio, cosistig of the followig compoets: (i) the assumptio ad immediate payoff of $263.8 millio of idebtedess owed to affiliates of Vorado Realty L.P.; (ii) 6,250,000 OP Uits valued at $145.2 millio, (iii) liabilities relatig to teat improvemets ad allowaces of $14.8 millio, (iv) the estimated preset value of the Earout (as described below) of $8.6 millio, ad (v) the remaider i cash. The seller is potetially etitled to receive cosideratio (the Earout ) uder the terms of the Cotributio Agreemet which will be calculated as of March 31, The table below sets forth our allocatio of the purchase price: (i thousads of dollars) Lad $ 119,912 Buildig 299,012 Commo area improvemets 16,776 Site improvemets ad teat improvemets 35,565 Itagible assets (liabilities): I-place lease value 18,123 Above market lease value 260 Below market lease value (393) Above market groud lease value (as lessor) (5,882) Deferred ad other assets 3,231 Total $ 486,604 I April 2013, we acquired a buildig located cotiguous to The Gallery at Market East ( The Gallery ) for $59.6 millio, represetig a capitalizatio rate of approximately 5.7%. 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 45

25 DISPOSITIONS The table below presets our dispositios sice Jauary 1, 2013: 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (i millios of dollars) Sale Date Property ad Locatio Descriptio of Real Estate Sold Capitalizatio Rate Sale Price Gai/(Loss) 2016 Activity: February Palmer Park Mall, Mall (1) 13.6 % $ 18.0 $ Easto, PA 2015 Activity: August Uiotow Mall, Mall (1) 17.5 % 23.0 Uiotow, PA October Voorhees Tow Ceter, Mall (1) 10.3 % 13.4 Voorhees, NJ 2014 Activity: Jue South Mall, Mall 10.1 % Alletow, PA July The Gallery at Market East, Mall (50% iterest) (2) 5.1% (0.6) Philadelphia, PA September North Haover Mall, Two malls (sigle combied North Haover Mall 32.3 (0.1) Haover, PA ad trasactio) 11.0% Nittay Mall, Nittay Mall State College, PA 16.2% 2013 Activity: Jauary Phillipsburg Mall, Mall (3) 9.8 % 11.5 Phillipsburg, NJ Paxto Towe Cetre, Power ceter (4)(5) 6.9 % Harrisburg, PA February Orlado Fashio Square, Mall (6) 9.8 % Orlado, FL September Commos at Magolia, Strip ceter (7) 8.9 % Florece, SC Christiaa Ceter, Power ceter (4)(7)(8) 6.5% Newark, DE November Chambersburg Mall, Mall (1) NM (9) 8.5 Chambersburg, PA (1) We used the proceeds from the sale of this property for geeral corporate purposes. (2) We etered ito a 50/50 joit veture with Macerich to redevelop The Gallery ito the Fashio Outlets of Philadelphia. 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. (3) 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 former credit facility. (4) We divested goodwill of $0.7 millio ad $0.8 millio i coectio with the dispositios of Paxto Towe Cetre ad Christiaa Ceter, respectively. (5) We used proceeds from the sale of this property to repay the $50.0 millio mortgage loa secured by the property. (6) 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 former credit facility. (7) 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. (8) The buyer of this property assumed the $49.2 millio mortgage loa secured by this property. (9) The capitalizatio rate was ot meaigful i the cotext of this trasactio. DISPOSITIONS OTHER ACTIVITY I 2016, we sold a outparcel for $2.0 millio. No gai or loss was recorded i coectio with this sale. I 2015, we sold several outparcels for a aggregate sales price of $5.1 millio. We recorded et gais o sales of real estate of $0.6 millio o these trasactios. I 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 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. DEVELOPMENT ACTIVITIES As of December 31, 2015 ad 2014, 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, 2015 ad 2014: As of December 31, (i millios of dollars) Costructio i progress $ 64.0 $ 60.5 Lad held for developmet Deferred costs ad other assets Total capitalized costructio ad developmet activities $ 72.7 $ 70.5 As of December 31, 2015, we had $0.1 millio of refudable deposits o lad ad buildig purchase cotracts. 3. Ivestmets i Parterships The followig table presets summarized fiacial iformatio of our equity ivestmets i ucosolidated parterships as of December 31, 2015 ad 2014: As of December 31, (i thousads of dollars) Assets: Ivestmets i real estate, at cost: Retail properties $ 636,774 $ 654,024 Costructio i progress 126,199 41,919 Total ivestmets i real estate 762, ,943 Accumulated depreciatio (186,580) (190,100 ) Net ivestmets i real estate 576, ,843 Cash ad cash equivalets 37,362 15,229 Deferred costs ad other assets, et 41,770 37,274 Total assets 655, ,346 Liabilities ad Parters Equity: Mortgage loas 442, ,190 Other liabilities 30,425 34,314 Total liabilities 472, ,504 Net equity 182, ,842 Parters share 95,165 74,663 Compay s share 87,605 66,179 Excess ivestmet (1) 7,877 8,747 Net ivestmets ad advaces $ 95,482 $ 74,926 Ivestmet i parterships, at equity $ 161,029 $ 140,882 Distributios i excess of partership ivestmets (65,547) (65,956) Net ivestmets ad advaces $ 95,482 $ 74,926 (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, 2015, 2014 ad 2013: For the Year Eded December 31, (i thousads of dollars) Real estate reveue $105,813 $ 95,643 $ 81,020 Expeses: Property operatig expeses (39,134 ) (32,992) (24,104 ) Iterest expese (21,021 ) (21,805) (22,228) Depreciatio ad amortizatio (25,718 ) (19,521 ) (14,401 ) Total expeses (85,873 ) (74,318 ) (60,733 ) Net icome 19,940 21,325 20,287 Less: Parters share (10,128 ) (10,637 ) (10,096 ) Compay s share 9,812 10,688 10,191 Amortizatio of excess ivestmet (272) (119 ) (413) Equity i icome of parterships $ 9,540 $10,569 $ 9,778 ACQUISITIONS I Jue 2014, we cotributed $3.2 millio, represetig a 25% iterest, to the partership that was developig Gloucester Premium Outlets i Gloucester Towship, New Jersey, which opeed i August The partership used our ad our parters cotributio to purchase the lad o which the property was developed. DISPOSITIONS I July 2015, we sold our etire 50% iterests i the Sprigfield Park shoppig ceter i Sprigfield, Pesylvaia for $20.2 millio, represetig a capitalizatio rate of 7.0%, ad recogized a gai of $12.0 millio. I coectio with our iterest i the property, we had a ogoig obligatio to sublet approximately 10,100 square feet of space of a teat at the property, which we trasferred as part of the trasactio. I coectio with the sale, a mortgage loa of approximately $9.0 millio, of which our share was 50%, was assumed by the buyer of our iterests. We divested $0.1 millio of goodwill i coectio with this trasactio. We used the et proceeds from the trasactio for geeral corporate purposes. See ote 10 regardig the related party aspect of this trasactio. 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. FINANCING ACTIVITY OF UNCONSOLIDATED PROPERTIES Mortgage loas, which are secured by seve of the ucosolidated properties (icludig oe property 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 two 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 4.45% to 5.88% ad had a weighted average iterest rate of 5.32% at December 31, The variable iterest rate mortgage loas have iterest rates that rage from 1.79% to 2.94% ad had a weighted average iterest rate of 1.97% at 47

26 December 31, The weighted average iterest rate of all partership mortgage loas was 4.96% 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, 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, Amortizatio Paymets Total Total 2016 $ 3,313 $ $ 3,313 $ 6, ,461 3,283 6,744 15, ,591 18,232 21,823 80, ,789 3,789 7, ,212 58,519 61, , ad thereafter 6,713 97, , ,349 $24,079 $177,995 $202,074 $442,330 We have a 50% partership iterest i Lehigh Valley Associates LP, the ower of Lehigh Valley Mall, which met the defiitio of a sigificat ucosolidated subsidiary i the years eded December 31, 2014 ad The mortgage loa associated with the property 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 Reveue 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 the ucosolidated properties etered ito sice Jauary 1, 2014: Amout Fiaced or Exteded Fiacig Date Property (i millios of dollars) Stated Iterest Rate Maturity 2015 Activity: September Sprigfield Mall (1) $ 65.0 Fixed 4.45% September Activity: December Gloucester Premium Outlets (2) 72.9 LIBOR plus 1.50% Jue 2018 (1) The proceeds were used to repay the existig $61.7 millio mortgage loa plus accrued iterest. We received $1.0 millio of proceeds as a distributio i coectio with the fiacig. (2) The ucosolidated etity that ows Gloucester Premium Outlets etered ito this costructio mortgage loa ad completed the project i The costructio mortgage loa has a maximum availability of $90.0 millio, of which $71.3 millio ad $1.6 millio was borrowed durig 2015 ad 2014, respectively, ad $17.1 millio was available as of December 31, 2015 (subject to submissio of required documetatio). Our iterest i the ucosolidated etity is 25%. 4. FINANCING ACTIVITY CREDIT AGREEMENTS We have etered ito four credit agreemets (collectively, the Credit Agreemets ), as further discussed ad defied below: (1) the 2013 Revolvig Facility, (2) the Year Term Loa, (3) the Year Term Loa, ad (4) the Year Term Loa. The Year Term Loa, the Year Term Loa ad the Year Term Loa are collectively referred to as the Term Loas. As of December 31, 2015, the Compay had borrowed $400.0 millio uder the Term Loas ad $65.0 millio uder the 2013 Revolvig Facility (with $7.9 millio pledged as collateral for a letter of credit at December 31, 2015; the Compay pledged a additioal letter of credit for $7.4 millio i Jauary 2016). Followig recet property sales, the et operatig icome ( NOI ) from the Compay s remaiig uecumbered properties is at a level such that withi the Uecumbered Debt Yield coveat (as described below) uder the Credit Agreemets, the maximum usecured amout that was available to the Compay as of December 31, 2015 was $301.0 millio. Iterest expese ad the deferred fiacig fee amortizatio related to the Credit Agreemets for the years eded December 31, 2015, 2014 ad 2013 was as follows: For the Year Eded December 31, (i thousads of dollars) Revolvig Facility: Iterest expese $ 2,914 $ 1,523 $ 2,506 Deferred fiacig amortizatio 1,187 1,430 1,113 Accelerated fiacig fee 193 Term Loas: Iterest expese 8,965 4,681 N/A Deferred fiacig amortizatio N/A 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. 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). I Jue 2015, we further ameded the 2013 Revolvig Facility to lower the iterest rates i the applicable pricig grid, modify oe coveat ad to exted the Termiatio Date to Jue 26, 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. Pursuat to the Jue 2015 amedmet, the iitial maturity of the 2013 Revolvig Facility is Jue 26, 2018, 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. The 2013 Revolvig Facility cotais certai affirmative ad egative coveats, which are idetical to those cotaied i the other Credit Agreemets ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets. TERM LOANS YEAR TERM LOAN I Jue 2015, the Borrower etered ito a five year term loa agreemet (the Year Term Loa ) with Wells Fargo Bak, Natioal Associatio, PNC Bak, Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $150.0 millio seior usecured five year term loa facility. The maturity date of the Year Term Loa is Jue At closig, the Borrower borrowed the etire $150.0 millio uder the Year Term Loa, ad used the proceeds to repay $150.0 millio of the the outstadig balace uder the Borrower s 2013 Revolvig Facility. The Year Term Loa cotais certai affirmative ad egative coveats ad other provisios, which are idetical to those cotaied i the other Credit Agreemets, ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets TERM LOANS I Jauary 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 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 Year Term Loa ad, together with the 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. I Jue 2015, the Borrower etered ito a amedmet to each of the 2014 Term Loas uder which PREIT is required to maitai, o a cosolidated basis, miimum Uecumbered Debt Yield of 11.0%, versus 12.0% previously, cosistet with the amedmet to the coveat i the 2013 Revolvig Facility, ad the provisio of the Year Term Loa. The cross-default provisios i the 2014 Term Loas were also ameded to add the ew Year Term Loa. Subject to the terms of the Credit Agreemets, the Borrower has the optio to icrease the maximum amout available uder the 2014 Term Loas, through a accordio optio (subject to certai coditios), 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 Year Term Loa may be icreased from $150.0 millio to as much as $300.0 millio, ad the Year Term Loa may be icreased from $100.0 millio to as much as $200.0 millio. The 2014 Term Loas cotai certai affirmative ad egative coveats ad other provisios, which are idetical to those cotaied i the other Credit Agreemets, ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets. IDENTICAL COVENANTS AND COMMON PROVISIONS CONTAINED IN THE CREDIT AGREEMENTS Amouts borrowed uder the Credit Agreemets bear iterest at the rate specified below per aum, depedig o PREIT s leverage, i excess of LIBOR, uless ad util the Borrower receives a ivestmet grade credit ratig ad provides otice to the Admiistrative Aget (the Ratig Date ), after which alterative rates would apply. I determiig PREIT s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is 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. The 2013 Revolvig Facility is subject to a facility fee, which is curretly 0.25%, depedig o leverage, ad is recorded i iterest expese i the cosolidated statemets of operatios. I the evet that we seek ad obtai a ivestmet grade credit ratig, alterative iterest rates ad facility fees would apply. Applicable Margi Year Year Year Level Ratio of Total Liabilities to Gross Asset Value Revolvig Facility Term Loa Term Loa Term Loa 1 Less tha to % 1.80% 1.35% 1.35% 2 Equal to or greater tha to 1.00 but less tha to % 1.95% 1.45% 1.45% 3 Equal to or greater tha to 1.00 but less tha to % (1) 2.15% (1) 1.60% (1) 1.60% (1) 4 Equal to or greater tha to % 2.35% 1.90% 1.90% (1) The rate i effect at December 31, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 49

27 The Borrower may prepay ay of the Credit Agreemets 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. The paymet of the 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% from oe year after closig to two years after closig, to 1% from two years after closig to three years after closig, ad without pealty thereafter. The Credit Agreemets cotai certai affirmative ad egative coveats that 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 11.0%; (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 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, 2015, the Borrower was i compliace with all such fiacial coveats. 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 (2), or (4) with respect to the Term Loas, are guarators uder the 2013 Revolvig Facility, as ameded, will serve as guarators for fuds borrowed uder the Credit Agreemets. I the evet that we seek ad obtai a ivestmet grade credit ratig, if ay, PREIT 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. 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 Credit Agreemets immediately due ad payable, ad the Commitmets of the leders to make further loas uder the 2013 Revolvig Facility ad the 2014 Term Loas 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. MORTGAGE LOANS Our mortgage loas, which are secured by 15 of our cosolidated ad held for sale properties, are due i istallmets over various terms extedig to the year Eleve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.88% to 5.95% ad had a weighted average iterest rate of 4.66% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.94% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.44% 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, 2015: (i thousads of dollars) Pricipal Balloo For the Year Edig December 31, Amortizatio Paymets Total 2016 $ 15,989 $ 219,480 $ 235, , , , , , , ,692 17, ,090 27,161 45, ad thereafter 52, , ,418 $ 137,001 $1,188,494 $1,325,495 The estimated fair values of our cosolidated mortgage loas (excludig mortgage loas o held for sale properties) based o year-ed iterest rates ad market coditios at December 31, 2015 ad 2014 are as follows: Carryig Fair Carryig Fair (i millios of dollars) Value Value Value Value Mortgage loas $ 1,325.5 $ 1,323.3 $ 1,407.9 $ 1,415.5 The mortgage loas cotai various customary default provisios. As of December 31, 2015, 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 2015 Activity: March Fracis Scott Key Mall (1)(2) $ 5.8 LIBOR plus 2.60% March 2018 Jue Patrick Hery Mall (3) % fixed July 2025 September Willow Grove Park Mall (4) % fixed October Activity: February Fracis Scott Key Mall (1)(2) $ 62.6 LIBOR plus 2.60% March 2018 February Lycomig Mall (5) 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 (6) 51.0 LIBOR plus 2.10% September 2014 December Wyomig Valley Mall % fixed December 2023 (1) Iterest oly paymets. (2) The mortgage loa was icreased by $5.8 millio i (3) We used the proceeds of the mortgage loa to repay the $83.8 millio mortgage loa plus accrued iterest ad icurred a $0.8 millio prepaymet pealty. The balace of the proceeds were used for geeral corporate purposes. (4) We used the proceeds of the mortgage loa to repay the $133.6 millio mortgage loa plus accrued iterest. The balace of the proceeds were used for geeral corporate purposes. (5) 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. (6) 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 mortgage loa i July OTHER MORTGAGE LOAN ACTIVITY I April 2015, we repaid a $55.3 millio mortgage loa plus accrued iterest secured by Magolia Mall i Florece, South Carolia usig $40.0 millio from our 2013 Revolvig Facility ad the balace from available workig capital. 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. 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 Offerig 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. 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 $3.6 millio will be reclassified as a icrease to iterest expese i coectio with derivatives. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 51

28 INTEREST RATE SWAPS As of December 31, 2015, we had etered ito 21 iterest rate swap agreemets with a weighted average iterest swap rate of 1.49% o a otioal amout of $521.7 millio maturig o various dates through Jue 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. As of December 31, 2015, 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 years eded December 31, 2015, 2014 ad 2013, we recorded et losses o hedge ieffectiveess of $0.5 millio, $1.8 millio ad $3.4 millio, respectively. Followig 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 2015, whe we plaed to icur variable rate debt as part of the cosideratio for Sprigfield Tow Ceter. These swaps, with a aggregate otioal amout of $40.0 millio, did ot qualify for ogoig hedge accoutig for the period from July 2014 to March 2015 as a result of the urealized forecasted trasactios. We recogized mark-to-market iterest expese o these two swaps of $0.5 millio for the period from Jauary 2015 to March 31, 2015 ad $0.5 millio for the period from July 2014 to December Also, 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 The followig table summarizes the terms ad estimated fair values of our iterest rate swap derivative istrumets at December 31, 2015 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, 2015 (1) December 31, 2014 (1) Iterest Rate Maturity Date Iterest Rate Swaps $ 25.0 $ (0.1) $ (0.2) 1.10 % July 31, (0.2) (0.4) 1.38% Jauary 2, % December 1, % Jauary 1, (0.1) 1.12 % Jauary 1, (0.1) 1.12 % Jauary 1, (0.5) (0.4) 1.78 % Jauary 2, (0.4) (0.3) 1.78 % Jauary 2, (0.3) (0.3) 1.78 % Jauary 2, (0.3) (0.3) 1.79 % Jauary 2, (0.3) (0.3) 1.79 % Jauary 2, (0.3) (0.3) 1.79 % Jauary 2, N/A 1.16 % Jauary 2, N/A 1.16% Jauary 2, N/A 1.16% Jauary 2, N/A 1.16% Jauary 2, N/A 1.23 % Jue 26, N/A 1.23 % Jue 26, N/A 1.23 % Jue 26, N/A 1.23 % Jue 26, N/A 1.24 % Jue 26, 2020 $ (1.7 ) $ (2.4 ) rate swaps were reclassified ito iterest expese i These swaps are scheduled to expire by their terms i Jauary Also, i the year eded December 31, 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, 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 $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. Accumulated other comprehesive icome (loss) as of December 31, 2015 icludes a et loss of $2.0 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. (1) As of December 31, 2015 ad December 31, 2014, 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, 2015, 2014 ad 2013: For the Year Eded December 31, Cosolidated Statemets of (i millios of dollars) Operatios Locatio Derivatives i cash flow hedgig relatioships: Iterest rate products (Loss) gai recogized i Other Comprehesive Icome (Loss) o derivatives $ (2.4) $ (1.9) $ 8.2 N/A Loss reclassified from Accumulated Other Comprehesive Icome (Loss) ito icome (effective portio) Iterest expese Loss recogized i icome o derivatives (ieffective portio ad amout excluded from effectiveess testig) (0.5) (1.8) (3.4) Iterest expese 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, 2015, 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, 2015, 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 $1.7 millio. If we had breached ay of the default provisios i these agreemets as of December 31, 2015, we might have bee required to settle our obligatios uder the agreemets at their termiatio value (icludig accrued iterest) of $2.1 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 each of the years eded December 31, 2015 ad 2014, ad $1.0 millio for the year eded December 31, 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, $0.4 millio ad $0.5 millio for the years eded December 31, 2015, 2014 ad 2013, 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, 2015, 2014 ad 2013, approximately 25,000, 30,000 ad 29,000 shares, respectively, were purchased for total cosideratio of $0.5 millio, $0.5 millio ad $0.4 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. We recorded expese of $0.1 millio i each of the years eded December 31, 2015, 2014 ad 2013, related to the share purchase pla. 8. Share Based Compesatio SHARE BASED COMPENSATION PLANS As of December 31, 2015, 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 2012 (the 2003 Equity Icetive Pla ). 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, 2015, 2014 ad 2013, we recorded aggregate compesatio expese for share based awards of $6.3 millio (icludig $0.2 millio of accelerated amortizatio relatig to employee separatio), $8.5 millio (icludig $1.5 millio of accelerated amortizatio relatig to employee separatio) ad $7.3 millio, (icludig $0.7 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, 2015, 2014 ad 2013, we capitalized compesatio costs related to share based awards of $0.2 millio, $0.1 millio, ad $0.1 millio, respectively 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 2003 Equity Icetive Pla (pursuat to optios, restricted shares, shares issuable pursuat to curret or future RSU Programs, or otherwise) was 1,158,149 as of December 31, The share based awards described i this footote 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 2015, 2014 ad 2013 was $4.0 millio, $4.3 millio ad $4.1 millio, respectively. As of December 31, 2015, there was $7.9 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, 2015, 2014 ad 2013 was $3.7 millio, $6.0 millio ad $5.4 millio, respectively. 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53

29 A summary of the status of our uvested restricted shares as of December 31, 2015 ad chages durig the years eded December 31, 2015, 2014 ad 2013 is preseted below: Shares Weighted Average Grat Date Fair Value Uvested at Jauary 1, ,736 $ Shares grated 253, Shares vested (392,917 ) Shares forfeited (2,300) December 31, , Shares grated 253, Shares vested (374,213 ) Shares forfeited (25,099) December 31, , Shares grated 195, Shares vested (282,125 ) Shares forfeited (8,849) December 31, ,330 $ RESTRICTED SHARES SUBJECT TO TIME BASED VESTING I 2015, 2014 ad 2013, 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 169,131, 225,978 ad 222,664 restricted shares subject to time based vestig to our employees i 2015, 2014 ad 2013, 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 $23.55 per share i 2015, $19.23 per share i 2014 ad $18.29 per share i Compesatio cost relatig to time based restricted share awards is recorded ratably over the respective vestig periods. We recorded $3.9 millio (icludig $0.2 millio of accelerated amortizatio relatig to employee separatio), $4.9 millio (icludig $0.8 millio of accelerated amortizatio relatig to employee separatio) ad $4.3 millio (icludig $0.5 millio of accelerated amortizatio relatig to employee separatio) of compesatio expese related to time based restricted shares for the years eded December 31, 2015, 2014 ad 2013, respectively. O February 23, 2016, the Compay grated 226,521 time-based restricted shares to employees with a grat date fair value of $4.2 millio that vest over periods of two to three years i aual istallmets. We will record future compesatio expese i coectio with the vestig of existig time based restricted share awards as follows (icludig restricted shares issued i 2016): (i thousads of dollars) For the Year Edig December 31, Future Compesatio Expese 2016 $ 3, , , Total $ 7,886 RESTRICTED SHARE UNIT PROGRAMS I 2015, 2014, 2013, 2012 ad 2011, our Board of Trustees established the RSU program, RSU Program, the RSU Program, the RSU Program ad the RSU 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 applicable three year periods 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 2015, 2014 ad 2013 were determied usig a Mote Carlo simulatio probabilistic valuatio model, ad are preseted i the table below. The table also sets forth the assumptios used i the Mote Carlo simulatios used to determie the aggregate fair values of the RSU awards i 2015, 2014 ad 2013 by grat date: RSUs ad assumptios by Grat Date February 24, February 26, February 27, RSUs grated 94, , ,898 Aggregate fair value of shares grated i millios of dollars $ 2.1 $ 2.2 $ 2.0 Weighted average fair value per share $ $ $ Volatility 25.3 % 37.7% 44.7 % Risk free iterest rate 0.97 % 0.68% 0.36 % 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 $1.8 millio (icludig $0.2 millio of accelerated amortizatio relatig to employee separatio), $2.8 millio (icludig $0.7 millio of accelerated amortizatio relatig to employee separatio) ad $2.3 millio of compesatio expese related to the RSU Programs for the years eded December 31, 2015, 2014 ad 2013, respectively. We will record future aggregate compesatio expese of $1.8 millio related to the existig awards uder the RSU Programs (ot icludig the effect of the 2016 RSUs described below, the valuatio for which has ot yet bee determied). For the years eded December 31, 2015, 2014, ad 2013, the umber of shares issued to employees resultig from the measuremet of the RSU program, RSU Program, ad the RSU program were 134,733, 345,344, ad 341,710, respectively. O February 23, 2016, the Board of Trustees established the RSU program, ad the Compay grated 125,447 RSUs to employees (the 2016 RSUs ). The 2016 RSUs have a three-year measuremet period that eds o December 31, 2018 or a shorter period edig upo the chage i cotrol of the Compay. The aggregate fair value of the 2016 RSUs will be determied durig the first quarter of 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. These aual awards are made uder the 2003 Equity Icetive Pla. The aggregate fair value of the restricted shares that we grated to our o-employee trustees i 2015, 2014 ad 2013 was $0.6 millio, $0.5 millio ad $0.6 millio, respectively. We recorded $0.6 millio, $0.8 millio ad $0.8 millio of compesatio expese related to time based vestig of o-employee trustee restricted share awards i 2015, 2014 ad 2013, respectively. As of December 31, 2015, there was $0.2 millio of total urecogized compesatio expese related to uvested restricted share grats to o-employee trustees. This future 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 $1.1 millio, $0.9 millio, ad $0.5 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. I 2016, we will record compesatio expese of $0.2 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 2015 or I 2013, 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. The followig table presets the chages i the umber of optios outstadig from Jauary 1, 2013 through December 31, 2015: Weighted 1990 Average Exercise 2003 Equity No-Employee Price/Total Icetive Pla Trustee Pla Optios outstadig at Jauary 1, ,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, ,000 15,000 Optios forfeited $ (5,000) Optios outstadig at December 31, 2015 (1) 10,000 10,000 Outstadig exercisable ad uexercisable optios Average exercise price per share $ $ $ Aggregate exercise price (2) $ 166 $ 166 $ Itrisic value of optios outstadig (2) $ 52 $ 52 $ Outstadig exercisable optios at December 31, 2015 Optios 6,250 6,250 Average exercise price per share $ $ $ Aggregate exercise price (2) $ 99 $ 99 $ Itrisic value of optios outstadig (2) $ 37 $ 37 $ (1) The weighted average remaiig cotractual life of these outstadig optios is 6.73 years (weighted average exercise price of $16.63 per share ad a aggregate exercise price of $0.2 millio). (2) Amouts i thousads of dollars. The followig table summarizes iformatio relatig to all optios outstadig as of December 31, 2015: Optios Outstadig as of December 31, 2015 Optios Exercisable as of December 31, 2015 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 $ ,750 $ $19.00-$ ,000 $ ,500 $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 55

30 9. 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, 2016 $ 213, , , , , ad thereafter 340,020 $ 1,128,516 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 three of our properties (Crossroads Mall, Exto Square Mall ad Sprigfield Tow Ceter). Total amouts expesed relatig to such leases were $2.5 millio, $2.3 millio ad $2.5 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. We accout for groud ret ad operatig 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 2016 $ 2,123 $ , , , ad thereafter Related Party Trasactios $ 7,211 $ 843 GENERAL I 2015, 2014 ad 2013, we provided maagemet, leasig ad developmet services for eight 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. Effective December 31, 2015, our maagemet services were termiated for five of these properties, ad the services for oe other property are expected to be termiated i Total reveue eared by PRI for such services was $0.8 millio, $0.6 millio ad $1.0 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. OFFICE LEASE We lease our pricipal executive offices from Bellevue Associates, a etity i which our Executive Chairma, Roald Rubi, collectively with members of his immediate family ad affiliated etities, ows approximately a 50% iterest. Total ret expese uder this lease was $1.3 millio, $1.2 millio ad $1.4 millio for the years eded December 31, 2015, 2014 ad 2013, respectively. SPRINGFIELD PARK DISPOSITION As disclosed i ote 3, we sold our etire 50% iterests i Sprigfield Park shoppig ceter i Sprigfield, Pesylvaia i July The buyer, Rubi Retail Acquisitios, L.P., is a etity cotrolled by Roald Rubi, Executive Chairma ad a Trustee of PREIT, ad his brother, George Rubi, a former Vice Chairma ad a former Trustee of PREIT. I accordace with PREIT s Related Party Trasactios Policy, a Special Committee cosistig exclusively of idepedet members of PREIT s Board of Trustees cosidered ad approved the terms of the trasactio. The disiterested members of PREIT s Board of Trustees also approved the trasactio. 11. Commitmets ad Cotigecies CONTRACTUAL OBLIGATIONS As of December 31, 2015, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects of $31.8 millio i the form of teat allowaces ad cotracts with geeral service providers ad other professioal service providers. I additio, our operatig partership, PREIT Associates, has joitly ad severally guarateed the obligatios of the joit veture we formed with Macerich to develop the Fashio Outlets of Philadelphia to commece ad complete a comprehesive redevelopmet of that property costig ot less tha $300.0 millio withi 48 moths after commecemet of costructio. EMPLOYMENT AGREEMENTS As of December 31, 2015, 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 aggregate base compesatio for the year eded December 31, 2015 of $1.7 millio, 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. Roald Rubi s employmet will expire pursuat to its terms o Jue 7, 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, OTHER I 2015 ad 2014, we termiated the employmet of certai employees. I coectio with the departure of those employees, we recorded $2.1 millio ad $0.9 millio of employee separatio expese i 2015 ad 2014, 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, which was i February I coectio with the acquisitio of Sprigfield Tow Ceter o March 31, 2015, PREIT Associates, L.P. agreed to provide tax protectio to Vorado Realty, L.P. ( VRLP ) i the evet of the future taxable sale or dispositio of the property. The tax protectio is i a amout equal to VRLP s pre-existig tax protectio to Meshulam Riklis ( MR ), the origial cotributor of the property, plus documeted out-of-pocket reasoable costs ad expeses. Tax protectio eds whe VRLP s liability uder the MR tax protectio agreemet ceases, which will be either (a) upo the death of MR or (b) upo the executio of a amedmet releasig VRLP from ay liability to MR i the evet of a sale or dispositio of the property. 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. Durig 2015, the couterparty elected to exercise its put optio, ad i October 2015, we paid $1.8 millio to the Phase I Couterparty to repurchase its owership iterest i the Phase I Project. 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. 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 2013 ad 2014 represetig the expiratio of the 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 these cotributios 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 quarters of 2015, 2014 ad 2013, we recogized $0.9 millio, $1.2 millio ad $0.7 millio, respectively, related to the third, secod ad first recapture periods of Phase II(i) ad $1.2 millio ad $1.0 millio, 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 57

31 respectively, related to the secod ad first recapture periods 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 each of the third quarters 2015 ad 2014, respectively. Of the 2014 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. 13. Summary of Quarterly Results (Uaudited) I aggregate, we recorded et icome of $1.8 millio, $1.9 millio ad $0.7 millio to Other icome i the cosolidated statemets of operatios i coectio with Phase II i 2015, 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. The followig presets a summary of the uaudited quarterly fiacial iformatio for the years eded December 31, 2015 ad 2014: (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 $ 100,058 $ 101,693 $ 107,036 $ 116,624 $ 425,411 Net loss (2)(3) (13,939 ) (34,666) (36,241 ) (44,721 ) (129,567 ) Net loss attributable to PREIT (2)(3) (13,509 ) (30,924) (32,340) (39,910 ) (116,683 ) Basic ad diluted loss per share (0.26) (0.51) (0.53) (0.64) (1.93 ) (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 $ 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 (3) (8,104 ) (23,325) (859) 18,458 (13,830 ) Basic ad diluted (loss) earigs per share (0.18 ) (0.40) (0.07) 0.21 (0.44) (1) 4th Quarter reveue icludes a sigificat portio of aual percetage ret as most percetage ret miimum sales levels are met i the 4th quarter. (2) Icludes impairmet losses of $6.2 millio (1st Quarter 2015), $28.7 millio (2d Quarter 2015), $51.4 millio (3rd Quarter 2015), $54.0 millio (4th Quarter 2015), $1.3 millio (1st Quarter 2014), $16.1 millio (2d Quarter 2014) ad $2.3 millio (3rd Quarter 2014). (3) Icludes gais o sales of iterests i real estate of $12.4 millio (3rd Quarter 2015), $13.1 millio (4th Quarter 2014) ad gais o sales of o operatig real estate of $1.8 millio (4th Quarter 2014). 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 cosolidated 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, 2015, 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. 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 60 i this report. 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, 2015 ad 2014, 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, 2015 ad 2014, ad the results of their operatios ad their cash flows for each of the years i the three year period eded December 31, 2015, i coformity with U.S. geerally accepted accoutig priciples. As discussed i ote 2 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, 2015, 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 26, 2016 expressed a uqualified opiio o the effectiveess of Pesylvaia Real Estate Ivestmet Trust s iteral cotrol over fiacial reportig. KPMG LLP Philadelphia, Pesylvaia February 26, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 59

32 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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, 2015, 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. 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. I our opiio, Pesylvaia Real Estate Ivestmet Trust maitaied, i all material respects, effective iteral cotrol over fiacial reportig as of December 31, 2015, 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, 2015 ad 2014, 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, 2015, ad our report dated February 26, 2016 expressed a uqualified opiio o those cosolidated fiacial statemets. KPMG LLP Philadelphia, Pesylvaia February 26, 2016 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 33 retail properties, of which 29 are operatig properties ad four are developmet or redevelopmet properties. The 29 operatig properties iclude 25 shoppig malls ad four other retail properties, have a total of 24.3 millio square feet ad are located i 10 states. We ad parterships i which we ow a iterest ow 18.2 millio square feet at these properties (excludig space owed by achors). There are 23 operatig retail properties i our portfolio that we cosolidate for fiacial reportig purposes. These cosolidated properties have a total of 20.2 millio square feet, of which we ow 15.4 millio square feet. The six operatig retail properties that are owed by ucosolidated parterships with third parties have a total of 4.1 millio square feet, of which 2.8 millio square feet are owed by such parterships. Same Store properties are properties that have bee owed for the full periods preseted ad exclude properties acquired or disposed of or uder redevelopmet durig the periods preseted. The developmet ad redevelopmet 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 (redevelopmet of The Gallery at Market East ito the Fashio Outlets of Philadelphia), ad oe classified as other. The above property couts do ot iclude Gadsde Mall i Gadsde, Alabama, Lycomig Mall i Pesdale, Pesylvaia, New River Valley Mall i Christiasburg, Virgiia, Palmer Park Mall i Easto, Pesylvaia, Wiregrass Commos Mall i Dotha, Alabama ad two street retail properties i Philadelphia, Pesylvaia because these properties have bee classified as held for sale as of December 31, Palmer Park Mall was sold i February 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 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. 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 $115.3 millio to a et loss of $129.6 millio for 2015 from a et loss of $14.3 millio for the year eded December 31, The chage i our 2015 results of operatios from the prior year was primarily due to impairmet of assets of $140.3 millio i 2015 compared to $19.7 millio i 2014, partially offset by a icrease i Same Store NOI (preseted usig the proportioate cosolidatio method ), of $6.6 millio. 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, 2015, held a 89.2% cotrollig iterest i the Operatig Partership, ad cosolidated it for reportig purposes. We hold our ivestmets i six of the 29 operatig retail properties ad two of the four developmet ad redevelopmet properties i our portfolio through ucosolidated parterships with third parties i which we ow a 25% to 50% iterest. SPRINGFIELD TOWN CENTER O March 31, 2015, we acquired Sprigfield Tow Ceter i Sprigfield, Virgiia for aggregate cosideratio of $486.6 millio, cosistig of the followig compoets: (i) the assumptio ad immediate payoff of $263.8 millio of idebtedess owed to affiliates of Vorado Realty L.P.; (ii) 6,250,000 OP Uits valued at $145.2 millio, (iii) liabilities relatig to teat improvemets ad allowaces of $14.8 millio, (iv) the estimated preset value of the Earout (as described below) of $8.6 millio, ad (v) the remaider i cash. The seller is potetially etitled to receive cosideratio (the Earout ) uder the terms of the Cotributio Agreemet which will be calculated as of March 31, The acquisitio of Sprigfield Tow Ceter affects the comparability of our occupacy, real estate reveue, property operatig expeses ad depreciatio ad amortizatio to prior periods. I additio, the debt icurred to fiace a portio of the purchase price will cause us to icur iterest expese. The impact of the acquisitio o our et icome, et operatig icome ad Fuds From Operatios will deped o retal rates, occupacy ad the overall performace of the property. Despite the sigificace of the acquisitio of Sprigfield Tow Ceter, we have ot icluded separate fiacial statemets related to Sprigfield Tow Ceter i this Aual Report because Sprigfield Tow Ceter has bee udergoig a multi-year 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. THE FASHION OUTLETS OF PHILADELPHIA 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 ito the Fashio Outlets of Philadelphia (the Fashio Outlets of Philadelphia ). 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 make additioal ivestmets i the project. 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 61

33 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 Fashio Outlets of Philadelphia, $50.0 millio to repay the outstadig balace o our 2013 Revolvig Facility, ad the remaiig proceeds for geeral corporate purposes. As we redevelop the Fashio Outlets of Philadelphia, 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. ACQUISITIONS AND DISPOSITIONS See ote 2 to our cosolidated fiacial statemets for a descriptio of our dispositios ad acquisitio i 2015, 2014 ad CURRENT ECONOMIC CONDITIONS AND OUR NEAR TERM CAPITAL NEEDS The coditios i the ecoomy 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) sales of properties or iterests i properties with values i excess of their mortgage loas (if applicable) ad applicatio of the excess proceeds to debt reductio, or by obtaiig capital from joit vetures or other parterships or arragemets ivolvig our cotributio of assets with istitutioal ivestors, private equity ivestors or other REITs, 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 We might egage i various types of capital improvemet projects at our operatig properties. 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 $64.0 millio as of December 31, We are also egaged i several types of projects at our developmet properties. However, we do ot expect to make ay sigificat ivestmet i these projects i the short term other tha the Fashio Outlets of Philadelphia. The joit veture we formed with Macerich to develop the Fashio Outlets of Philadelphia has committed to commece ad complete a comprehesive redevelopmet of that property costig ot less tha $300.0 millio withi 48 moths after commecemet of costructio. Our operatig partership, PREIT Associates, ad Macerich have joitly ad severally guarateed this obligatio. We have also committed to sigificat redevelopmet projects at Exto Square Mall, Plymouth Meetig Mall ad Cumberlad Mall. The followig table sets forth key iformatio regardig our largest curret developmet ad redevelopmet projects. PREIT s Expected Projected Total PREIT s Retur o Expected (i millios of dollars) Share of Project Ivestmet Icremetal Costructio Completio Year of Name of Project Locatio Cost Cost to Date Ivestmet Start Date Date Stabilizatio Fashio Outlets of Philadelphia, Philadelphia, PA $160.0-$190.0 $320.0-$380.0 $ % Complete overhaul of the former Gallery at Market East, spaig three city blocks i dowtow Philadelphia. Project will offer a fusio of luxury ad moderate outlet shops, flagship retail ad destiatio diig ad etertaimet experieces. Exto Square Mall - Phase I, Exto, PA $30.0-$33.0 $30.0-$33.0 $ % ,000 square foot Whole Foods to ope o site of K-Mart i 2017; Additio of first to market etertaimet complex, Roud 1, i the former JCPeey achor store locatio. Plymouth Meetig Mall, Plymouth Meetig, PA $ 6.6-$7.3 $6.6-$7.3 $ % Additio of 33,000 square foot Legolad Discovery Ceter, oe of ie i the Uited States. Cumberlad Mall, Vielad, NJ $7.5-$8.3 $7.5-$8.3 $ % Opeig a Dick s Sportig Goods i the former JCPeey achor store locatio i early As of December 31, 2015, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects at our cosolidated properties of $31.8 millio i the form of teat allowaces ad cotracts with geeral service providers ad other professioal service providers. 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 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 2015, 2014 ad 2013, 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 2013 raged from 6.25% to 12.0% ad i 2014 raged from 5.25% to 12.5% ad i 2015 raged from 4.5% to 15.5%. I 2015, as a result of our aalysis, we determied that seve properties had icurred impairmet of assets. The fair values of the properties (Gadsde Mall, New River Valley Mall, Wiregrass Commos Mall, Voorhees Tow Ceter, Lycomig Mall, Uiotow Mall ad Palmer Park Mall) were determied based o egotiated sale prices of the properties as discussed further i ote 2 to our cosolidated fiacial statemets. 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. NEW ACCOUNTING DEVELOPMENTS I March 2015, the Fiacial Accoutig Stadards Board ( FASB ) issued Iterest Imputatio of Iterest (Subtopic ): Simplifyig the Presetatio of Debt Issuace Costs ad Iterest Imputatio of Iterest (Subtopic ): Presetatio ad Subsequet Measuremet of Debt Issuace Costs Associated with Lie-of-Credit Arragemets, which ited to simplify the presetatio of debt issuace costs. The ew guidace is effective for aual periods begiig after December 15, 2015 for public compaies. We have evaluated this ew guidace ad have determied that this stadard will ot have a sigificat impact o our cosolidated fiacial statemets. We will adopt this ew guidace i I May 2014, the FASB 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 that 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, 2017 for public compaies. 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 might have o our cosolidated fiacial statemets, or have we decided upo the method of adoptio. I February 2015, the FASB issued ASU No , Cosolidatio Amedmets to the Cosolidatio Aalysis, which ameds the curret cosolidatio guidace affectig both the variable iterest etity ( VIE ) ad votig iterest etity ( VOE ) cosolidatio models. The stadard does ot add or remove ay of the characteristics i determiig if a etity is a VIE or VOE, but rather ehaces the way we assesses some of these characteristics. The ew stadard is effective o Jauary 1, The adoptio of ASU is ot expected to have a material effect o our cosolidated fiacial statemets. 62 MANAGEMENT S DISCUSSION AND ANALYSIS 63

34 Off-Balace Sheet Arragemets We have o material off-balace sheet items other tha (i) the parterships described i ote 3 to our cosolidated fiacial statemets ad i the Overview sectio above ad (ii) specifically with respect to our joit veture formed with Macerich to develop the Fashio Outlets of Philadelphia, our operatig partership, PREIT Associates, has joitly ad severally guarateed the obligatios of the joit veture to commece ad complete a comprehesive redevelopmet of that property costig ot less tha $300.0 millio withi 48 moths after commecemet of costructio. Results of Operatios OVERVIEW Net loss for the year eded December 31, 2015 was $129.6 millio, compared to a et loss for the year eded December 31, 2014 of $14.3 millio. Our 2015 ad 2014 results of operatios were primarily affected by the followig: impairmet of assets of $140.3 millio i 2015 compared to $19.7 mil lio i 2014; partially offset by a icrease i Same Store NOI of $6.6 millio (preseted usig the proportioate cosolidatio method; See Net Operatig Icome ). 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 of $12.7 millio (preseted usig the proportioate cosolidatio method; See Net Operatig Icome ) primarily due to properties or iterests i properties sold i 2014; partially offset by gais o sales of iterests i real estate of $12.7 millio i 2014 resultig from the sale of our iterest i Whitehall Mall i Alletow, Pesylvaia; 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 $7.1 millio i Same Store NOI. OCCUPANCY The tables below set forth certai occupacy statistics for our retail properties, icludig properties held for sale, as of December 31, 2015, 2014 ad 2013: Occupacy (1) as of December 31, Cosolidated Properties Ucosolidated Properties Combied (2) Retail portfolio weighted average: Total excludig achors 92.6 % 95.3 % 94.8 % 96.1 % 98.0 % 98.8 % 93.3 % 95.8 % 95.5 % Total icludig achors 94.7 % 97.2 % 96.9 % 96.8 % 98.4% 99.1 % 95.0% 97.3 % 97.1 % Malls weighted average: Total excludig achors 93.5 % 95.3 % 94.8 % 95.8 % 95.3% 97.3 % 92.9% 95.3 % 95.0 % Total icludig achors 95.2 % 97.2 % 96.9 % 97.1 % 96.8 % 98.1 % 94.9% 97.2 % 96.9 % Other Retail Properties weighted average: % 99.5 % 99.5 % 96.6 % 99.9% 99.9 % 96.7% 99.9 % 99.9 % (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 2014 to 2015, total occupacy for our retail portfolio decreased 230 basis poits to 95.0%, ad mall occupacy decreased 230 basis poits to 94.9%, icludig cosolidated ad ucosolidated properties (ad icludig all teats irrespective of the term of their agreemet). Same Store occupacy for our retail portfolio decreased 160 basis poits to 95.7% ad Same Store mall occupacy decreased 180 basis poits to 95.4%, icludig cosolidated ad ucosolidated properties (ad icludig all teats irrespective of the term of their agreemet). Durig 2015, we experieced closigs related to teat bakruptcies ad achor store closigs amoutig to 404,764 square feet, or 2.1% of our Same Store portfolio. LEASING ACTIVITY The table below sets forth summary leasig activity iformatio with respect to our properties for the year eded December 31, 2015, icludig achor ad o achor space at cosolidated, ucosolidated ad held for sale 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 23 43,481 N/A $ $ N/A $ d Quarter 44 94,220 N/A N/A rd Quarter 40 73,446 N/A N/A th Quarter 31 74,358 N/A N/A 7.33 Total/Average ,505 N/A $ $ N/A $ 7.78 New Leases No achor teats 10,000 square feet or greater: (3) 1st Quarter 1 13,000 N/A $ $ N/A $ d Quarter 2 23,785 N/A N/A rd Quarter 5 99,332 N/A N/A th Quarter 3 71,469 N/A N/A Total/Average ,586 N/A $ $ N/A $12.26 Reewal No achor teats less tha 10,000 square feet: (4) 1st Quarter ,227 $ $ $ % $ d Quarter , % 3rd Quarter , % th Quarter , % 0.13 Total/Average ,178 $ $ $ % $ 0.07 Reewal No achor teats 10,000 square feet or greater: (4) 1st Quarter 1 12,608 $ $ $ % $ 2d Quarter 9 253, % 3rd Quarter 2 26, % 4th Quarter , % 0.31 Total/Average ,438 $ $ $ % $ 0.13 New Leases Achor Teats: (3) 1st Quarter N/A $ $ N/A $ 2d Quarter 1 48,208 N/A N/A 3rd Quarter N/A N/A 4th Quarter 2 105,000 N/A N/A 1.66 Total/Average 3 153,208 N/A $ $ N/A $ 1.14 Reewal Leases Achor Teats: (4) 1st Quarter $ $ $ % $ 2d Quarter 8 963, % 3rd Quarter 2 286, % 4th Quarter % Total/Average 10 1,249,549 $ 4.31 $ 4.31 $ % $ (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. 64 MANAGEMENT S DISCUSSION AND ANALYSIS 65

35 The followig table sets forth our results of operatios for the years eded December 31, 2015, 2014 ad 2013: For the Year Eded % Chage For the Year Eded % Chage For the Year Eded (i thousads of dollars) December 31, to 2015 December 31, to 2014 December 31, 2013 Results of operatios: Total real estate reveue $ 420,197 (2)% $ 426,596 (1)% $ 431,728 Other icome 5,214 (15)% 6,107 (12)% 6,950 Total property operatig expeses (170,047 ) (6)% (180,427 ) (1)% (182,279 ) Geeral ad admiistrative expeses (34,836) (2)% (35,518) (4)% (36,975) Provisio for employee separatio expese (2,087) (58)% (4,961) 114 % (2,314 ) Acquisitio costs ad other expeses (6,108 ) 24 % (4,937) 247 % (1,422 ) Iterest expese, et (81,096) (1)% (82,165 ) (17)% (98,731) Depreciatio ad amortizatio (142,647 ) (1)% (144,304 ) 2 % (140,880 ) Impairmet of assets (140,318 ) 612 % (19,695 ) 212 % (6,304) Equity i icome of parterships 9,540 (10)% 10,569 8 % 9,778 Gai o sales of iterests i real estate, et 12,362 (3)% 12,699 N/A Gai o sales of o-operatig real estate 259 (85)% 1,774 N/A Loss from cotiuig operatios $ (129,567 ) 808 % $ (14,262 ) (30 )% $ (20,449 ) The amouts i the precedig table reflect our cosolidated properties, with the exceptio of properties that are classified as discotiued operatios i 2013, which are preseted i the cosolidated statemets of operatios 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 cosolidated statemets of operatios i the lie item Equity i icome of parterships. REAL ESTATE REVENUE Real estate reveue decreased by $6.4 millio, or 2%, i 2015 as compared to 2014, primarily due to: a decrease of $30.5 millio i real estate reveue related to properties sold i 2014 ad 2015, ad the July 2014 sale of a 50% partership iterest i The Gallery at Market East ( The Gallery ); ad a $0.8 millio decrease due to the busiess failure of a office teat at Voorhees Tow Ceter; partially offset by a icrease of $20.2 millio i real estate reveue from the acquisitio of Sprigfield Tow Ceter i March 2015; a icrease of $3.0 millio i Same Store base ret due to icreases of $7.3 millio from ew store opeigs ad lease reewals with higher base retal amouts, with otable icreases at Cherry Hill Mall, Viewmot Mall, Fracis Scott Key Mall ad Willow Grove Park, partially offset by troubled teat closigs affectig 71 stores across our portfolio, icludig Deb Shops, Wet Seal, Body Cetral, Cache ad Radio Shack, with a aggregate impact of $4.3 millio; a icrease of $1.3 millio i Same Store real estate tax reimbursemets, offset by a correspodig icrease i real estate tax expese; ad a icrease of $0.8 millio i Same Store percetage ret, primarily due to higher sales i 2015 from teats that paid percetage ret i 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 Operatig Expeses ); ad a icrease of $1.3 millio i real estate reveue related to properties acquired i PROPERTY OPERATING EXPENSES Property operatig expeses decreased by $10.4 millio, or 6%, i 2015 as compared to 2014, primarily due to: a decrease of $18.3 millio i property operatig expeses related to properties sold i 2014 ad 2015, ad the July 2014 sale of a 50% partership iterest i The Gallery; a decrease of $2.9 millio i Same Store o-commo area utility expese. I the three moths eded March 31, 2014, there was a sigificat icrease i electric rates at may of our properties. The extreme cold weather i 2014, 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, which was ot repeated i 2015; ad a decrease of $1.8 millio i Same Store commo area maiteace expese, icludig decreases of $0.8 millio i commo area utilities ad $0.6 millio i sow removal expese. Sow removal expese at our properties located i the Mid-Atlatic States, particularly Pesylvaia ad New Jersey, was affected by a severe witer with umerous sowfalls durig 2014, which was ot repeated i 2015; partially offset by a icrease of $9.6 millio i property operatig expeses from the acquisitio of Sprigfield Tow Ceter i March 2015; a icrease of $1.6 millio i Same Store real estate tax expese due to a combiatio of icreases i the real estate tax assessmet value ad the real estate tax rate; ad a icrease of $1.4 millio i Same Store bad debt expese. Durig 2014, we reduced our bad debt expese whe we decreased our estimated reserve related to straight lie ret receivables, due to improved historical results i recet periods. 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 2014 ad 2013; 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 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. I 2014, sow removal expese at our properties located i the Mid- Atlatic States, particularly Pesylvaia ad New Jersey, was affected by a severe witer with umerous sow evets; ad a icrease of $0.5 millio i property operatig expeses related to properties acquired i 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, 2015, 2014 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 Same Store properties 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, 2015 December 31, 2014 December 31, 2013 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 $ 422,190 $ (162,380 ) $ 259,810 $ 417,282 $ (164,030 ) $253,252 $ 404,859 $(158,721 ) $ 246,138 No Same Store 49,018 (26,160 ) 22,858 56,818 (32,212 ) 24,606 77,078 (39,806) 37,272 Total $471,208 $ (188,540 ) $ 282,668 $474,100 $(196,242 ) $277,858 $481,937 $ (198,527) $283,410 % Chage % Chage 2014 to to 2014 Same Store Total Same Store Total Real estate reveue 1.2 % (0.6)% 3.1 % (1.6)% Property operatig expeses (1.0)% (3.9)% 3.3 % (1.2)% NOI 2.6 % 1.7 % 2.9 % (2.0)% 66 MANAGEMENT S DISCUSSION AND ANALYSIS 67

36 Total NOI icreased by $4.8 millio, or 1.7%, i 2015 as compared to Same Store NOI icreased $6.6 millio primarily due to icreases i ret ad improvemets i CAM ad utility margis partially offset by teat bakruptcies. NOI from No Same Store properties decreased $1.7 millio. This decrease was primarily due to the properties sold i 2014 ad 2015 which cosisted of Nittay Mall, North Haover Mall, South Mall, Uiotow Mall, Voorhees Tow Ceter ad the sale of a 50% share of The Gallery, partially offset by NOI from Sprigfield Tow Ceter, which was acquired i March See the Results of Operatios Real Estate Reveue ad Property Operatig Expeses discussios above for further iformatio about property results. Lease termiatio reveue was $2.1 millio i 2015 ad $2.3 millio i Total NOI decreased by $5.6 millio, or 2.0%, i 2014 as compared to No-Same Store NOI decreased by $12.7 millio primarily due to properties sold i 2013 ad 2014, which cosisted of Phillipsburg Mall, Paxto Towe Cetre, Orlado Fashio Square, Commos at Magolia, Christiaa Ceter, Chambersburg Mall, Nittay Mall, North Haover Mall, South Mall ad the sale of a 50% share i The Gallery. Same Store NOI icreased $7.1 millio. Lease termiatio reveue was $2.3 millio i 2014 ad $1.8 millio ad OTHER INCOME Other icome decreased by $0.9 millio, or 15%, i 2015 as compared to 2014 primarily due to a $0.9 millio decrease i icome related to historical tax credits. 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. GENERAL AND ADMINISTRATIVE EXPENSES Geeral ad admiistrative expeses decreased by $0.7 millio, or 2%, i 2015 as compared to This decrease was primarily due to a reductio of costs associated with our reduced umber of employees i 2015 as compared to 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 PROVISION FOR EMPLOYEE SEPARATION EXPENSE Provisio for employee separatio expese was $2.1 millio i 2015 due to the termiatio of employmet of eleve employees i the fourth quarter. 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. IMPAIRMENT OF ASSETS Durig the years eded December 31, 2015, 2014, ad 2013, we recorded asset impairmet losses of $140.3 millio, $19.7 millio ad $30.0 millio, respectively. Such impairmet losses are recorded to Impairmet of assets for the years eded 2015 ad I 2013, such impairmet losses are recorded either to 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) Gadsde Mall, New River Valley Mall ad Wiregrass Commos Mall $ 63,904 $ $ Voorhees Tow Ceter 39,242 Lycomig Mall 28,345 Uiotow Mall 7,394 Palmer Park Mall 1,383 Nittay Mall 15,495 North Haover Mall 2,900 6,304 South Mall 1,300 Chambersburg Mall (1) 23,662 Other 50 Total Impairmet of Assets $140,318 $19,695 $29,966 (1) Impairmet of assets of this property is recorded i discotiued operatios for See ote 2 to our cosolidated fiacial statemets for a further discussio of such impairmets. ACQUISITION COSTS AND OTHER EXPENSES Acquisitio costs ad other expeses icreased by $1.2 millio i 2015 as compared to 2014 due to a icrease of $1.4 millio of professioal fees ad a icrease of $0.4 millio of acquisitio costs, both primarily related to our acquisitio of Sprigfield Tow Ceter, partially offset by a decrease of $0.3 millio related to project costs. 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 the acquisitio of Sprigfield Tow Ceter, ad $0.5 millio of professioal service fees icurred i INTEREST EXPENSE Iterest expese decreased by $1.1 millio, or 1%, i 2015 as compared to The decrease was primarily due to a lower weighted average effective borrowig rate (4.63% for 2015 as compared to 5.15% for 2014) offset by a higher overall debt balace (a average of $1,780.8 millio i 2015 compared to $1,597.0 millio i 2014). I 2015, we also recorded a loss o hedge ieffectiveess of $0.5 millio, a $0.8 millio prepaymet pealty ad $0.2 millio of accelerated amortizatio of fiacig costs. 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). Iterest expese for 2014 also icluded $1.8 millio of et losses o hedge ieffectiveess, 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 DEPRECIATION AND AMORTIZATION Depreciatio ad amortizatio expese decreased by $1.7 millio, or 1%, i 2015 as compared to 2014, primarily because of: a decrease of $12.9 millio related to properties sold i 2015 ad 2014, ad the July 2014 sale of a 50% partership iterest i The Gallery; partially offset by a icrease of $11.5 millio related to the March 2015 acquisitio of Sprigfield Tow Ceter. 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 2014 ad EQUITY IN INCOME OF PARTNERSHIPS Equity i icome of parterships decreased by $1.0 millio, or 10%, for 2015 compared to 2014 primarily due to a decrease of $1.9 millio related to de-teatig of The Gallery i aticipatio of the costructio phase of the Fashio Outlets of Philadelphia redevelopmet, a decrease of $0.7 millio due to the sale of Whitehall Mall ad Sprigfield Park properties offset by favorable results of $1.2 millio from the Same Store partership properties ad $0.4 millio from Gloucester Premium Outlets which opeed durig the secod quarter of 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 $0.7 millio decrease relatig to The Gallery, which became a 50% equity method ivestmet as a result of the trasactio with Macerich i July GAIN ON SALES OF INTERESTS IN REAL ESTATE, NET Gai o sales of iterests of real estate, et was $12.4 millio i 2015, as a result of the followig trasactios: a $12.0 millio gai o the sale of our 50% iterest i Sprigfield Park; ad a $0.4 millio gai o the sale of a outparcel at Pitey Road Plaza. 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 i State College, Pesylvaia ad North Haover Mall i Haover, Pesylvaia. DISCONTINUED OPERATIONS For 2013, 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 2015 ad 2014 i the cotiuig operatios sectio of our cosolidated statemets of operatios i 2015 ad The properties that we sold i 2015 were Uiotow Mall i Uiotow, Pesylvaia ad Voorhees Tow Ceter i Voorhees, New Jersey, ad 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 were as follows: (i thousads of dollars) For the year eded December 31, 2013 Operatig results of: Orlado Fashio Square $ 330 Phillipsburg Mall (66) Chambersburg Mall 536 Paxto Towe Cetre (101 ) Christiaa Ceter 1,633 Commos at Magolia 480 Operatig results from discotiued operatios 2,812 Impairmet of assets of discotiued operatios (23,662 ) Gais o sales of discotiued operatios 78,512 Icome from discotiued operatios $ 57,662 As further described i the Overview sectio ad ote 2 to our cosolidated fiacial statemets, we recorded $23.7 millio of impairmet of assets o discotiued operatios for 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. 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 (computed i accordace with GAAP) excludig gais ad losses o sales of operatig properties, 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. 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 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. 68 MANAGEMENT S DISCUSSION AND ANALYSIS 69

37 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 a mortgage prepaymet pealty, accelerated amortizatio of deferred fiacig costs, acquisitio costs, loss o hedge ieffectiveess ad provisio for employee separatio expese 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, a mortgage prepaymet pealty, accelerated amortizatio of deferred fiacig costs, acquisitio costs, loss o hedge ieffectiveess ad provisio for employee separatio expese. The followig table presets (a) FFO attributable to commo shareholders ad OP Uit holders, (b) FFO attributable to commo shareholders ad OP Uit holders per diluted share ad OP Uit, (c) FFO attributable to commo shareholders ad OP Uit holders, as adjusted, ad (d) FFO attributable to commo shareholders ad OP Uit holders per diluted share ad OP Uit, as adjusted, for the years eded December 31, 2015, 2014 ad 2013: For the Year Eded % Chage For the Year Eded % Chage For the Year Eded (i thousads, except per share amouts) December 31, to 2015 December 31, to 2014 December 31, 2013 Fuds from operatios attributable to commo shareholders ad OP Uit holders $ 136, % $ 129, % $ 121,101 Provisio for employee separatio expese 2,087 4,961 2,314 Acquisitio costs 3,470 3,441 Loss o hedge ieffectiveess 512 1,761 3,409 Accelerated amortizatio of deferred fiacig costs ad mortgage prepaymet pealty 1,071 1,076 Fuds from operatios attributable to commo shareholders ad OP Uit holders, as adjusted $ 143, % $ 139, % $ 127,900 Fuds from operatios attributable to commo shareholders ad OP Uit holders per diluted share ad OP Uit $ 1.79 (1.6)% $ % $ 1.81 Fuds from operatios attributable to commo shareholders ad OP Uit holders, as adjusted, per diluted share ad OP Uit $ 1.89 (3.6)% $ % $ 1.92 Weighted average umber of shares outstadig 68,740 68,217 63,662 Weighted average effect of full coversio of OP Uits 6,830 2,128 2,194 Effect of commo share equivalets Total weighted average shares outstadig, icludig OP Uits 76,055 71,041 66,732 FFO was $136.2 millio for 2015, a icrease of $6.8 millio, or 5.3%, compared to $129.4 millio for This icrease was primarily due to: a $6.6 millio icrease i Same Store NOI (preseted usig the proportioate-cosolidatio method; See Net Operatig Icome ); a $2.9 millio decrease i provisio for employee separatio expese; ad a decrease of $1.6 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 average iterest rates offset by higher overall debt balaces; partially offset by a $1.7 millio decrease i No Same Store NOI resultig from properties sold i 2014 ad the de-teatig of The Gallery; ad a decrease of $1.5 millio i gais from o operatig real estate. FFO per diluted share ad OP Uit decreased $0.03 per share to $1.79 per share for 2015, compared to $1.82 per share for 2014, primarily due to the impact of the 6,250,000 OP Uits issued i coectio with the March 2015 acquisitio of Sprigfield Tow Ceter. 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 average debt balaces ad lower average iterest rates; a icrease of $7.1 millio i Same Store NOI (preseted usig the proportioate-cosolidatio method; See Net Operatig Icome ); partially offset by a decrease of $12.7 millio 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 ad OP Uit icreased due to the $8.3 millio icrease i FFO, offset by the full year effect of the 11,500,000 commo shares issued i May 2013 ad other commo issuaces sice Jauary 1, 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. The amouts preseted below i the Share of Ucosolidated Parterships colum are derived usig the proportioate cosolidatio method (a o-gaap measure), which icludes our share of the results of our ucosolidated parterships based o our owership percetage i each such ucotrolled partership. We believe that this presetatio is helpful to maagemet ad ivestors because it provides comparable iformatio about the operatig results of our ucosolidated parterships ad is thus idicative of the retur o property ivestmet ad of operatig performace over time. Results based o our share of the results of ucosolidated parterships do ot represet cash geerated from operatig activities of our ucosolidated parterships ad should ot be cosidered to be a alterative to cash flow from ucosolidated properties operatig activities as a measure of our liquidity, because we do ot have a direct legal claim to the reveues or expeses of the ucosolidated parterships beyod our rights as a equity ower or teat i commo ower. Uder the partership agreemets relatig to our curret ucosolidated parterships with third parties, we ow a 25% to 50% ecoomic iterest i such parterships. As such, i geeral, we have a idirect ecoomic iterest i our proportioate share of the reveue ad expeses of the ucosolidated partership, ad, if there were to be some type of distributio of the assets ad liabilities of the partership, our proportioate share of those items. There are geerally o provisios i such partership agreemets relatig to special o-proportioate allocatios of icome or loss, ad there are o preferred or priority returs of capital or other similar provisios. Thus, we believe that the proportioate-cosolidatio method represets a valuable meas of showig the share of the operatig results of our ucosolidated partership properties that would be allocated to us based o our ecoomic iterest uder the partership agreemet. 70 MANAGEMENT S DISCUSSION AND ANALYSIS 71

38 We hold a ocotrollig iterest i each of our ucosolidated parterships, 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 two 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 do ot have a direct legal claim to the assets, liabilities, reveues or expeses of the ucosolidated parterships beyod our rights as a equity ower, i the evet of ay liquidatio of such etity, ad our rights as a teat i commo ower of certai ucosolidated properties. We record the earigs from the ucosolidated parterships usig the equity method of accoutig uder the cosolidated 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 cosolidated 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 legal title to properties owed by three of our ucosolidated parterships through teacy i commo arragemets. For each of these this properties, such legal title is held by us ad aother perso or persos, ad each has a udivided iterest i title to 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 like our other ucosolidated parterships usig the equity method of accoutig. The balace sheet items arisig from the properties appear uder the captio Ivestmets i parterships, at equity. For further iformatio regardig our ucosolidated parterships, see ote 3 to our uaudited cosolidated fiacial statemets. For the Year Eded December 31, 2014 Share of Total Ucosolidated (a o-gaap (i thousads of dollars) Cosolidated Parterships measure) 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 attributable to commo shareholders ad OP Uit holders (FFO) 109,000 20, ,419 Depreciatio of real estate assets (142,683 ) (9,850) (152,533 ) Impairmet of assets (19,695 ) (19,695 ) Equity i icome of parterships 10,569 (10,569) Net gais o sales of iterests i real estate 12,699 12,699 Preferred share divideds 15,848 15,848 Net loss $ (14,262 ) $ $(14,262 ) 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, 2015 Share of Total Ucosolidated (a o-gaap (i thousads of dollars) Cosolidated Parterships measure) Real estate reveue $ 420,197 $ 51,011 $ 471,208 Property operatig expeses (170,047 ) (18,493) (188,540) Net operatig icome 250,150 32, ,668 Geeral ad admiistrative expeses (34,836) (34,836) Provisio for employee separatio expese (2,087) (2,087) Other icome 5,214 5,214 Acquisitio costs ad other expeses (6,108 ) (62) (6,170 ) Iterest expese, et (81,096 ) (10,353) (91,449 ) Depreciatio of o real estate assets (1,505) (1,505) Gais o sales of o-operatig real estate Preferred share divideds (15,848) (15,848) Fuds from operatios attributable to commo shareholders ad OP Uit holders (FFO) 114,143 22, ,246 Depreciatio of real estate assets (141,142 ) (12,563) (153,705) Impairmet of assets (140,318 ) (140,318) Net gais o sales of iterests i real estate 12,362 12,362 Equity i icome of parterships 9,540 (9,540) Preferred share divideds 15,848 15,848 Net loss $ (129,567 ) $ $ (129,567 ) For the Year Eded December 31, 2013 Cotiuig Operatios Share of Total Ucosolidated Discotiued (a o-gaap (i thousads of dollars) Cosolidated Parterships Operatios measure) 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 attributable to commo shareholders ad OP Uit holders (FFO) 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 73

39 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, 2015 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 our 2013 Revolvig Facility, subject to the terms ad coditios of our 2013 Revolvig Facility. 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 2015 were $79.6 millio, based o distributios of $ per Series A Preferred Share, distributios of $ per Series B Preferred Share ad $0.84 per commo share ad OP Uit. For the first quarter of 2016, 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 2013 Revolvig Facility ad our Term Loas, as further described below. 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. CREDIT AGREEMENTS We have etered ito four credit agreemets (collectively, the Credit Agreemets ), as further discussed ad defied below: (1) the 2013 Revolvig Facility, (2) the Year Term Loa, (3) the Year Term Loa, ad (4) the Year Term Loa. The Year Term Loa, the Year Term Loa ad the Year Term Loa are collectively referred to as the Term Loas. As of December 31, 2015, the Compay had borrowed $400.0 millio uder the Term Loas ad $65.0 millio uder the 2013 Revolvig Facility (with $7.9 millio pledged as collateral for a letter of credit at December 31, 2015; the Compay pledged $7.4 millio for a additioal letter of credit i Jauary 2016). Followig recet property sales, the et operatig icome ( NOI ) from the Compay s remaiig uecumbered properties is at a level such that withi the Uecumbered Debt Yield coveat (as described below) uder the Credit Agreemets, the maximum amout that was available to be borrowed by the Compay uder the 2013 Revolvig Facility as of December 31, 2015 was $301.0 millio 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. 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). I Jue 2015, we further ameded the 2013 Revolvig Facility to lower the iterest rates i the applicable pricig grid, modify oe coveat ad to exted the Termiatio Date to Jue 26, 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. Pursuat to the Jue 2015 amedmet, the iitial maturity of the 2013 Revolvig Facility is Jue 26, 2018, 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, we have 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. The 2013 Revolvig Facility cotais certai affirmative ad egative coveats which are idetical to those cotaied i the other Credit Agreemets ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets. TERM LOANS YEAR TERM LOAN I Jue 2015, we etered ito a five year term loa agreemet (the Year Term Loa ) with Wells Fargo Bak, Natioal Associatio, PNC Bak, Natioal Associatio ad the other fiacial istitutios sigatory thereto, for a $150.0 millio seior usecured five year term loa facility. The maturity date of the Year Term Loa is Jue At closig, we borrowed the etire $150.0 millio uder the Year Term Loa, ad used the proceeds to repay $150.0 millio of the the outstadig balace uder the 2013 Revolvig Facility. The Year Term Loa cotais certai affirmative ad egative coveats ad other provisios, which are idetical to those cotaied i the other Credit Agreemets, ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets. The Year Term Loa also cotais a additioal coveat that prohibits us prior to receivig a ivestmet grade credit ratig, if ay, from allowig 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 TERM LOANS I Jauary 2014, we 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 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 Year Term Loa ad, together with the 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. I Jue 2015, we etered ito a amedmet to each of the 2014 Term Loas uder which we are required to maitai, o a cosolidated basis, miimum Uecumbered Debt Yield of 11.0%, versus 12.0% previously, cosistet with the amedmet to the coveat i the 2013 Revolvig Facility, ad the provisio of the Year Term Loa. The cross-default provisios i the 2014 Term Loas were also ameded to add the ew Year Term Loa. Subject to the terms of the Credit Agreemets, we have the optio to icrease the maximum amout available uder the 2014 Term Loas, through a accordio optio (subject to certai coditios), 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 Year Term Loa may be icreased from $150.0 millio to as much as $300.0 millio, ad the Year Term Loa may be icreased from $100.0 millio to as much as $200.0 millio. The 2014 Term Loas cotai certai affirmative ad egative coveats ad other provisios, which are idetical to those cotaied i the other Credit Agreemets, ad which are described i detail below i the sectio etitled Idetical coveats ad commo provisios cotaied i the Credit Agreemets. IDENTICAL COVENANTS AND COMMON PROVISIONS CONTAINED IN THE CREDIT AGREEMENTS Amouts borrowed uder the Credit Agreemets bear iterest at the rate specified below per aum, depedig o our leverage, plus LIBOR, uless ad util the Borrower receives a ivestmet grade credit ratig ad provides otice to the Admiistrative Aget (the Ratig Date ), after which alterative rates would apply. I determiig our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalizatio rate used to calculate Gross Asset Value is 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. The 2013 Revolvig Facility is subject to a facility fee, which is curretly 0.25%, depedig o leverage, ad is recorded i iterest expese i the cosolidated statemets of operatios. I the evet that we seek ad obtai a ivestmet grade credit ratig, alterative iterest rates ad facility fees would apply. Applicable Margi Year Year Year Level Ratio of Total Liabilities to Gross Asset Value Revolvig Facility Term Loa Term Loa Term Loa 1 Less tha to % 1.80% 1.35% 1.35% 2 Equal to or greater tha to 1.00 but less tha to % 1.95% 1.45% 1.45% 3 Equal to or greater tha to 1.00 but less tha to % (1) 2.15% (1) 1.60% (1) 1.60% (1) 4 Equal to or greater tha to % 2.35% 1.90% 1.90% (1) The rate i effect at December 31, We may prepay ay of the Credit Agreemets (other tha the Year Term Loa) at ay time without premium or pealty, subject to reimbursemet obligatios for the leders breakage costs for LIBOR borrowigs. We must repay the etire pricipal amout outstadig uder the 2013 Revolvig Facility at the ed of its term, as the term may be exteded. The paymet of the 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% from oe year after closig to two years after closig, to 1% from two years after closig to three years after closig, ad without pealty thereafter. The Credit Agreemets cotai certai affirmative ad egative coveats that are idetical, icludig, without limitatio, requiremets that we maitai, o a cosolidated basis: (1) miimum Tagible Net Worth of ot less tha 75% of our 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 11.0%; (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 74 MANAGEMENT S DISCUSSION AND ANALYSIS 75

40 Fuds From Operatios 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 our ability to icur additioal idebtedess, grat lies o assets ad eter ito egative pledge agreemets, merge, cosolidate or sell all or substatially all of our 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, 2015, we were i compliace with all such fiacial coveats. 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 (2), or (4) with respect to the Term Loas, are guarators uder the 2013 Revolvig Facility, as ameded, will serve as guarators for fuds borrowed uder the Credit Agreemets. I the evet that we seek ad obtai a ivestmet grade credit ratig, if ay, 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. 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 Credit Agreemets immediately due ad payable, ad the Commitmets of the leders to make further loas uder the 2013 Revolvig Facility ad the 2014 Term Loas, or with respect to the accordios uder the 2013 Revolvig Facility ad the 2014 Term Loas, 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. As of December 31, 2015, we were i compliace with all such fiacial coveats. 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 SHARES 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. 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 2015 Activity: March Fracis Scott Key Mall (1)(2) $ 5.8 LIBOR plus 2.60% March 2018 Jue Patrick Hery Mall (3) % fixed July 2025 September Willow Grove Park Mall (4) % fixed October Activity: February Fracis Scott Key Mall (1)(2) $ 62.6 LIBOR plus 2.60% March 2018 February Lycomig Mall (5) 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 (6) 51.0 LIBOR plus 2.10% September 2014 December Wyomig Valley Mall % fixed December 2023 (1) Iterest oly paymets. (2) The mortgage loa was icreased by $5.8 millio i (3) We used the proceeds of the mortgage loa to repay the $83.8 millio mortgage loa plus accrued iterest ad icurred a $0.8 millio prepaymet pealty. The balace of the proceeds were used for geeral corporate purposes. (4) We used the proceeds of the mortgage loa to repay the $133.6 millio mortgage loa plus accrued iterest. The balace of the proceeds were used for geeral corporate purposes. (5) 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. (6) 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 OTHER MORTGAGE LOAN ACTIVITY I April 2015, we repaid a $55.3 millio mortgage loa plus accrued iterest secured by Magolia Mall i Florece, South Carolia usig $40.0 millio from our 2013 Revolvig Facility ad the balace from available workig capital. 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 Fashio Outlets of Philadelphia, usig proceeds from the trasactio relatig to the Fashio Outlets of Philadelphia 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 Fashio Outlets of Philadelphia 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. MORTGAGE LOANS Our mortgage loas, which are secured by 15 of our cosolidated ad held for sale properties, are due i istallmets over various terms extedig to the year Eleve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.88% to 5.95% ad had a weighted average iterest rate of 4.66% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.94% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.44% 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, 2015: Paymets by Period (i thousads of dollars) Total Thereafter Cosolidated mortgage loas: Pricipal paymets $ 137,001 $ 15,989 $ 16,244 $ 16,952 $ 35,782 $ 52,034 Balloo paymets 1,188, , , ,469 27, ,384 Total cosolidated mortgage loas $ 1,325,495 $ 235,469 $ 166,244 $ 133,421 $ 62,943 $ 727,418 Held for sale mortgage loas: Held for sale pricipal paymets $ 2,128 $ 960 $ 1,001 $ 167 $ $ Held for sale balloo paymets (1) 58,957 30,907 28,050 Total held for sale mortgage loas $ 61,085 $ 960 $ 1,001 $ 31,074 $ 28,050 $ Total mortgage loas $ 1,386,580 $ 236,429 $ 167,245 $ 164,495 $ 90,993 $ 727,418 (1) Lycomig Mall has a balloo paymet of $30.9 millio due i March 2018 ad New River Valley Mall has a balloo paymet of $28.1 millio due i Jauary CONTRACTUAL OBLIGATIONS The followig table presets our cosolidated aggregate cotractual obligatios as of December 31, 2015 for the periods preseted: (i thousads of dollars) Total Thereafter Mortgage loas $ 1,325,495 $ 235,469 $ 166,244 $ 133,421 $ 62,943 $ 727,418 Mortgage loas - held for sale 61, ,001 31,074 28,050 Term Loas 400, , , Revolvig Facility 65,000 65,000 Iterest o idebtedess (1) 335,313 64,404 58,731 49,182 78,712 84,284 Operatig leases 7,211 2,123 1,960 1,785 1,343 Groud leases Developmet ad redevelopmet commitmets (2) 31,757 27,091 1,666 3,000 Total $2,226,704 $ 330,698 $229,693 $280,536 $ 474,054 $ 911,723 (1) Icludes paymets expected to be made o cosolidated ad held for sale debt, icludig those i coectio with iterest rate swap agreemets. (2) 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, 2016, but caot provide ay assurace that chaged circumstaces at these projects will ot delay the settlemet of these obligatios. I additio, our operatig partership, PREIT Associates, has joitly ad severally guarateed the obligatios of the joit veture we formed with Macerich to develop the Fashio Outlets of Philadelphia to commece ad complete a comprehesive redevelopmet of that property costig ot less tha $300.0 millio withi 48 moths after commecemet of costructio. 76 MANAGEMENT S DISCUSSION AND ANALYSIS 77

41 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 2015 Activity: September Sprigfield Mall $ 65.0 Fixed 4.45% September Activity: December Gloucester Premium Outlets (1) $ 72.9 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 $71.3 millio ad $1.6 millio was borrowed durig 2015 ad 2014, respectively, ad $17.1 millio was available as of December 31, 2015 (subject to submissio of required documetatio). Our iterest i the ucosolidated etity is 25%. INTEREST RATE DERIVATIVE AGREEMENTS As of December 31, 2015, we had etered ito 21 iterest rate swap agreemets with a weighted average iterest swap rate of 1.49% o a otioal amout of $521.7 millio maturig o various dates through Jue 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, 2015, 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 years eded December 31, 2015, 2014 ad 2013, we recorded et losses o hedge ieffectiveess of $0.5 millio ad $1.8 millio ad $3.4 millio, respectively. Followig 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 2015, whe we plaed to icur variable rate debt as part of the cosideratio for Sprigfield Tow Ceter. These swaps, with a aggregate otioal amout of $40.0 millio, did ot qualify for ogoig hedge accoutig from July 2014 to March 2015 as a result of the urealized forecasted trasactios. We recogized mark-to-market iterest expese o these two swaps of $0.5 millio for the period from Jauary 2015 to March 31, 2015 ad $0.5 millio for the period from July 2014 to December Also, 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 i These swaps are scheduled to expire by their terms i Jauary Also, i the year eded December 31, 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 accordigly, 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 $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, 2015, 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 $1.7 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 $135.7 millio for 2015 compared to $145.1 millio for 2014 ad $136.2 millio for This decrease i cash from operatig activities was primarily due to the sales of properties i 2015 ad 2014 ad other workig capital chages, offset by operatig cash flows from Sprigfield Tow Ceter. Cash flows used i ivestig activities were $379.1 millio for 2015 compared to cash flows provided by ivestig activities of $31.7 millio for 2014 ad cash flows provided by ivestig activities of $30.7 millio for Ivestig activities for 2015 icluded $320.0 millio used i acquirig Sprigfield Tow Ceter i Sprigfield, Virgiia, ivestmet i costructio i progress of $30.7 millio ad real estate improvemets of $52.8 millio, primarily related to teat allowaces, recurrig capital expeditures ad ogoig improvemets at our properties, offset by proceeds totalig $53.0 millio from the sale of a 50% iterest i Sprigfield Park i July 2015, the sale of Uiotow Mall i August 2015, the sale of Voorhees Tow Ceter i October 2015 ad various sales of o-operatig real estate ad lad parcels i the fourth quarter of Ivestig activities for 2014 reflected dispositios of $190.4 millio, acquisitios of $20.0 millio, ivestmet i costructio i progress of $41.5 millio ad real estate improvemets of $71.3 millio, primarily related to ogoig improvemets at our properties. Cash flows provided by fiacig activities were $225.9 millio for 2015 compared to cash flows used i fiacig activities of $170.5 millio for 2014 ad $166.7 millio for Cash flows provided by fiacig activities i 2015 icluded et borrowig of $215.0 millio from our 2013 Revolvig Facility, $120.0 millio of et borrowigs from our Term Loas, $170.0 millio from the mortgage loa o Willow Grove Park, $96.2 millio from the mortgage loa o Patrick Hery Mall ad $5.8 millio additio draw borrowed o the mortgage loa secured by Fracis Scott Key Mall, partially offset by the mortgage loa repaymet of $133.5 millio o Willow Grove Park, the mortgage loa repaymet of $83.8 millio o Patrick Hery Mall ad the $55.3 millio repaymet of the mortgage loa o Magolia Mall, divideds ad distributios of $79.6 millio, ad pricipal istallmets o mortgage loas of $20.8 millio. Cash flows used i fiacig activities for 2014 icluded $130.0 millio of et repaymets of the 2013 Revolvig Facility, $130.0 millio of et borrowigs from our Term Loas, 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. See ote 1 to our cosolidated fiacial statemets for details regardig costs capitalized durig 2015 ad Commitmets As of December 31, 2015, we had uaccrued cotractual ad other commitmets related to our capital improvemet projects ad developmet projects of $31.8 millio i the form of teat allowaces, lease termiatio fees, ad cotracts with geeral service providers ad other professioal service providers. I additio, our operatig partership, PREIT Associates, has joitly ad severally guarateed the obligatios of the joit veture we formed with Macerich to develop the Fashio Outlets of Philadelphia to commece ad complete a comprehesive redevelopmet of that property costig ot less tha $300.0 millio withi 48 moths after commecemet of costructio. 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 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 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 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. 78 MANAGEMENT S DISCUSSION AND ANALYSIS 79

42 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, 2015, 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: chages i the retail idustry, icludig cosolidatio ad store closigs, particularly amog achor teats; 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; icreases i operatig costs that caot be passed o to teats; 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; 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; chages to our corporate maagemet team ad ay resultig modificatios to our busiess strategies; the effects of olie shoppig ad other uses of techology o our retail teats; acts of violece at malls, icludig our properties, or at other similar spaces, ad the potetial effect o traffic ad sales; our substatial debt ad the stated value of our preferred shares ad our high leverage ratio; costraiig leverage, uecumbered debt yield, iterest ad tagible et worth coveats uder our pricipal credit agreemets; 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 short- ad log-term liquidity positio; potetial dilutio from ay capital raisig trasactios or other equity issuaces; ad geeral ecoomic, fiacial ad political coditios, icludig credit ad capital market coditios, chages i iterest rates or uemploymet. 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 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, 2015, our cosolidated debt portfolio cosisted primarily of $1,325.5 millio of fixed ad variable rate mortgage loas, $150.0 millio borrowed uder our Year Term Loa, which bore iterest at 1.84%, $150.0 millio borrowed uder our Year Term Loa, which bore iterest at a rate of 1.84%, $100.0 millio borrowed uder our Year Term Loa, which bore iterest at a rate of 2.39% ad $65.0 millio borrowed uder our 2013 Revolvig Facility, which bore iterest at a rate of 1.60%. Our mortgage loas, which are secured by 15 of our cosolidated properties, are due i istallmets over various terms extedig to the year Eleve of these mortgage loas bear iterest at fixed iterest rates that rage from 3.88% to 5.95% ad had a weighted average iterest rate of 4.66% at December 31, Four of our mortgage loas bear iterest at variable rates ad had a weighted average iterest rate of 2.94% at December 31, The weighted average iterest rate of all cosolidated mortgage loas was 4.44% 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 2016 $ 235, % $ % (1) 2017 $ 166, % $ 1, % (1) 2018 $ 16, % $ 212, % (1) 2019 $ 17, % $ 178, % (1) 2020 ad thereafter $ 772, % $ 250, % (1) (1) Based o the weighted average iterest rate i effect as of December 31, At December 31, 2015, we had $642.6 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, 2015, we had etered ito 21 iterest rate swap agreemets with a weighted average iterest swap rate of 1.49% o a otioal amout of $521.7 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 logterm 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, 2015 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 $64.8 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 $68.4 millio at December 31, Based o the variable rate debt icluded i our debt portfolio at December 31, 2015 a 100 basis poit icrease i iterest rates would have resulted i a additioal $1.2 millio millio i iterest expese aually. A 100 basis poit decrease would have reduced iterest icurred by $1.2 millio aually. Because the iformatio preseted above icludes oly those exposures that existed as of December 31, 2015, 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. our ability to sell properties that we seek to dispose of or our ability to obtai prices we seek; 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; risks related to our developmet ad redevelopmet activities; 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 80 MANAGEMENT S DISCUSSION AND ANALYSIS 81

43 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 MICHAEL J. DEMARCO (3) Trustee Sice 2015 Presidet ad Cheif Operatig Officer Mack-Cali Realty Corp 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. OFFICERS JOSEPH F. CORADINO Chief Executive Officer 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 HEATHER CROWELL Seior Vice Presidet Corporate Commuicatios ad Ivestor Relatios DANIEL M. HERMAN Seior Vice Presidet Developmet DEBRA L. LAMBERT Seior Vice Presidet Legal RUDOLPH ALBERTS, JR. Vice Presidet Asset Maagemet BRUCE AUERBACH Vice Presidet Plaig ad Costructio BETH DESISTA Vice Presidet Specialty Leasig ANTHONY DILORETO Vice Presidet Leasig MICHAEL A. FENCHAK Vice Presidet Asset Maagemet BRADFORD HUGHART Vice Presidet Iformatio Techology WILLIAM INGRAHAM Vice Presidet Partership ad Property Marketig MICHAEL A. KHOURI Vice Presidet Leasig DAVID MARSHALL Vice Presidet Fiacial Services 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 GILEAD MORSE Vice Presidet Leasig LISA M. MOST Vice Presidet Legal 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 JOSHUA SCHRIER Vice Presidet Acquisitios JEFFREY SNEDDON Vice Presidet Leasig VINCE VIZZA Regioal Vice Presidet Leasig Ivestor Iformatio HEADQUARTERS 200 South Broad Street, Third Floor Philadelphia, PA Fax Toll Free preit.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM KPMG LLP 1601 Market Street Philadelphia, PA LEGAL COUNSEL Driker Biddle & Reath LLP Oe Loga Square 18th & Cherry Streets Philadelphia, PA TRANSFER AGENT AND REGISTRAR For chage of address, lost divided checks, shareholder records ad other shareholder matters, cotact: Mailig Address Wells Fargo Shareower Services P.O. Box St. Paul, MN (outside the Uited States) Fax Toll Free shareowerolie.com Street or Courier Address 1110 Cetre Poite Curve, Suite 101 MAC N Medota Heights, MN DISTRIBUTION REINVESTMENT AND SHARE PURCHASE PLAN The Compay has a Distributio Reivestmet ad Share Purchase Pla for commo shares (NYSE:PEI) that allows ivestors to ivest directly i shares of the Compay at a 1% discout with o trasactio fee, ad to reivest their divideds at o cost to the shareholder. The miimum iitial ivestmet is $250, the miimum subsequet ivestmet is $50, ad the maximum mothly amout is $5,000, without a waiver. Further iformatio ad forms are available o our web site at preit.com uder Ivestor Relatios, DRIP/Stock Purchase. You may also cotact the Pla Admiistrator, Wells Fargo Shareower Services, at or INVESTOR INQUIRIES Shareholders, prospective ivestors ad aalysts seekig iformatio about the Compay should direct their iquiries to: Ivestor Relatios Pesylvaia Real Estate Ivestmet Trust 200 South Broad Street, Third Floor Philadelphia, PA Fax ext Toll Free ivestorifo@preit.com preit.com FORMS 10-K AND 10-Q; CEO AND CFO CERTIFICATIONS The Compay s Aual Report o Form 10-K, icludig fiacial statemets ad a schedule, ad Quarterly Reports o Form 10-Q, which are filed with the Securities ad Exchage Commissio, may be obtaied without charge from the Compay. The Compay s chief executive officer certified to the New York Stock Exchage (NYSE) that, as of Jue 30, 2015, he was ot aware of ay violatio by the Compay of the NYSE s corporate goverace listig stadards. The certificatios of our chief executive officer ad chief fiacial officer required uder Sectio 302 of the Sarbaes-Oxley Act of 2002 were filed as Exhibits 31.1 ad 31.2, respectively, to our Aual Report o Form 10-K for the year eded December 31, NYSE MARKET PRICE AND DISTRIBUTION RECORD The followig table shows the high ad low prices for the Compay s commo shares ad cash distributios paid for the periods idicated. Distributios Paid per Quarter Eded Commo Caledar Year 2015 High Low Share March 31 $25.34 $21.20 $0.21 Jue 30 $23.55 $ September 30 $23.27 $ December 31 $23.37 $ $0.84 Distributios Paid per Quarter Eded Commo Caledar Year 2014 High Low Share March 31 $ $ $0.20 Jue 30 $18.83 $ September 30 $ $ December 31 $24.35 $ $0.80 I February 2016, our Board of Trustees declared a cash divided of $0.21 per share payable i March Our future paymet of distributios will be at the discretio of our Board of Trustees ad will deped o umerous factors, icludig our cash flow, fiacial coditio, capital requiremets, aual distributio requiremets uder the REIT provisios of the Iteral Reveue Code ad other factors that our Board of Trustees deems relevat. As of December 31, 2015, there were approximately 2,600 registered shareholders ad 12,700 beeficial holders of record of the Compay s commo shares of beeficial iterest. The Compay had a aggregate of approximately 409 employees as of December 31, STOCK MARKET New York Stock Exchage Commo Ticker Symbol: PEI ANNUAL MEETING The Aual Meetig of Shareholders is scheduled for 11AM o Thursday, Jue 2, 2016 at the Uio League, 140 South Broad Street, Philadelphia, Pesylvaia. PREIT IS A MEMBER OF Natioal Associatio of Real Estate Ivestmet Trusts Iteratioal Coucil of Shoppig Ceters Pesio Real Estate Associatio Urba Lad Istitute FPO The paper used i this report cotais 10% recycled postcosumer waste. The use of this recycled paper is cosistet with PREIT s Gree Eterprise Iitiative