Registrant’s telephone number, including area code (215) 875-0700

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of Exchange on which registered
Shares of Beneficial Interest	PEI	New York Stock Exchange
Preferred Shares	PEIPrB	New York Stock Exchange
Preferred Shares	PEIPrC	New York Stock Exchange
Preferred Shares	PEIPrD	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x☒ No o

☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x☒ No o

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x ☒		Accelerated filer	o ☐
Non-accelerated filer	o ☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	o ☐
			Emerging growth company	o ☐

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

☐

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

~~Common~~ On July 29, 2019, 77,549,217 shares of beneficial interest, ~~$1.00~~ par value $1.00 per share, ~~outstanding at~~ ~~July 30, 2018: 70,452,612~~

of the Registrant were outstanding.

Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONTENTS



			Page
	PART I—FINANCIAL INFORMATION

Item 1.		Financial Statements (Unaudited):	1

		Consolidated Balance Sheets—June 30, ~~2018~~2019 and December 31, ~~2017~~2018	1

		Consolidated Statements of Operations—Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	2

		Consolidated Statements of Comprehensive Income—Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	4

		Consolidated ~~Statement~~Statements of Equity—Three and Six Months Ended June 30, 2019 and 2018	5

		Consolidated Statements of Cash Flows—Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	6	7

		Notes to Unaudited Consolidated Financial Statements	7	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	19	21

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	41	42

Item 4.		Controls and Procedures	42	43

		PART II—OTHER INFORMATION

Item 1.		Legal Proceedings	43	44

Item 1A.		Risk Factors	43	44

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	43	45

Item 3.		Not Applicable	—

Item 4.		Not Applicable	—

Item 5.		Not Applicable	—

Item 6.	~~Exhibits~~	44Exhibits	46

Signatures		45	47

Except as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” the “Company” and “PREIT” refer to Pennsylvania Real Estate Investment Trust and its subsidiaries, including our operating partnership, PREIT Associates, L.P. References in this Quarterly Report on Form 10-Q to “PREIT Associates” or the “Operating Partnership” refer to PREIT Associates, L.P.

Table of Contents

Item 1. FINANCIAL STATEMENTS

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018
(in thousands, except per share amounts)	(unaudited)
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties	$	3,069,397		$	3,063,531
Construction in progress		150,808			115,182
Land held for development		5,881			5,881
Total investments in real estate		3,226,086			3,184,594
Accumulated depreciation		(1,177,549	)		(1,118,582	)
Net investments in real estate		2,048,537			2,066,012
INVESTMENTS IN PARTNERSHIPS, at equity:		153,318			131,124
OTHER ASSETS:
Cash and cash equivalents		15,227			18,084
Tenant and other receivables, net		34,151			38,914
Intangible assets (net of accumulated amortization of $17,449 and $15,543 at June 30, 2019 and December 31, 2018, respectively)		15,963			17,868
Deferred costs and other assets, net		98,255			110,805
Assets held for sale		9,482			22,307
Total assets	$	2,374,933		$	2,405,114
LIABILITIES:
Mortgage loans payable, net	$	981,521		$	1,047,906
Term Loans, net		547,643			547,289
Revolving Facilities		182,000			65,000
Tenants’ deposits and deferred rent		9,243			15,400
Distributions in excess of partnership investments		89,652			92,057
Fair value of derivative liabilities		13,577			3,010
Accrued expenses and other liabilities		88,447			87,901
Total liabilities		1,912,083			1,858,563
COMMITMENTS AND CONTINGENCIES (Note 6):
EQUITY:
Series B Preferred Shares, $.01 par value per share; 25,000 shares authorized; 3,450 shares issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $86,250		35			35
Series C Preferred Shares, $.01 par value per share; 25,000 shares authorized; 6,900 shares issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $172,500		69			69
Series D Preferred Shares, $.01 par value per share; 25,000 shares authorized; 5,000 shares issued and outstanding at June 30, 2019 and December 31, 2018; liquidation preference of $125,000		50			50
Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 77,547 shares issued and outstanding at June 30, 2019 and 70,495 shares issued and outstanding at December 31, 2018		77,547			70,495
Capital contributed in excess of par		1,763,798			1,671,042
Accumulated other comprehensive (loss) income		(11,875	)		5,408
Distributions in excess of net income		(1,371,499	)		(1,306,318	)
Total equity—Pennsylvania Real Estate Investment Trust		458,125			440,781
Noncontrolling interest		4,725			105,770
Total equity		462,850			546,551
Total liabilities and equity	$	2,374,933		$	2,405,114

(in thousands, except per share amounts) June 30,
2018 December 31,
2017
(unaudited)
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties $ 3,156,877
$ 3,180,212
Construction in progress 117,503
113,609
Land held for development 5,881
5,881
Total investments in real estate 3,280,261
3,299,702
Accumulated depreciation (1,144,291 ) (1,111,007 )
Net investments in real estate 2,135,970
2,188,695
INVESTMENTS IN PARTNERSHIPS, at equity: 106,945
216,823
OTHER ASSETS:
Cash and cash equivalents 42,198
15,348
Tenant and other receivables (net of allowance for doubtful accounts of $7,491 and $7,248 at June 30, 2018 and December 31, 2017, respectively) 30,708
38,166
Intangible assets (net of accumulated amortization of $14,294 and $13,117 at June 30, 2018 and December 31, 2017, respectively) 17,857
17,693
Deferred costs and other assets, net 122,221
112,046
Assets held for sale 15,874
—
Total assets $ 2,471,773
$ 2,588,771
LIABILITIES:
Mortgage loans payable, net $ 1,056,686
$ 1,056,084
Term Loans, net 546,919
547,758
Revolving Facilities —
53,000
Tenants’ deposits and deferred rent 13,742
11,446
Distributions in excess of partnership investments 94,639
97,868
Fair value of derivative liabilities —
20
Accrued expenses and other liabilities 69,445
61,604
Total liabilities 1,781,431
1,827,780
COMMITMENTS AND CONTINGENCIES (Note 6):

EQUITY:
Series B Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 3,450 Series B Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $86,250 35
35
Series C Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 6,900 Series C Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $172,500 69
69
Series D Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 5,000 Series D Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $125,000 50
50
Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 70,450 and 69,983 issued and outstanding shares at June 30, 2018 and December 31, 2017, respectively 70,450
69,983
Capital contributed in excess of par 1,667,302
1,663,966
Accumulated other comprehensive income 14,642
7,226
Distributions in excess of net income (1,192,770 ) (1,117,290 )
Total equity—Pennsylvania Real Estate Investment Trust 559,778
624,039
Noncontrolling interest 130,564
136,952
Total equity 690,342
760,991
Total liabilities and equity $ 2,471,773
$ 2,588,771

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
REVENUE:
Real estate revenue:
Lease revenue	$	73,744		$	83,453		$	150,358		$	161,451
Expense reimbursements		4,916			5,395			9,978			10,629
Other real estate revenue		2,417			2,274			5,417			4,435
Total real estate revenue		81,077			91,122			165,753			176,515
Other income		315			851			942			1,740
Total revenue		81,392			91,973			166,695			178,255
EXPENSES:
Operating expenses:
Property operating expenses:
CAM and real estate taxes		(28,168	)		(27,347	)		(57,571	)		(56,743	)
Utilities		(3,681	)		(3,804	)		(7,341	)		(7,713	)
Other property operating expenses		(1,913	)		(2,908	)		(3,979	)		(6,308	)
Total property operating expenses		(33,762	)		(34,059	)		(68,891	)		(70,764	)
Depreciation and amortization		(31,946	)		(33,356	)		(66,849	)		(67,386	)
General and administrative expenses		(11,609	)		(9,396	)		(22,814	)		(19,528	)
Provision for employee separation expenses		(141	)		(395	)		(860	)		(395	)
Insurance recoveries, net		1,852			-			1,616			-
Project costs and other expenses		(130	)		(139	)		(187	)		(251	)
Total operating expenses		(75,736	)		(77,345	)		(157,985	)		(158,324	)
Interest expense, net		(15,554	)		(15,982	)		(31,452	)		(30,883	)
Loss on debt extinguishment		-			-			(4,768	)		-
Impairment of assets		-			(34,286	)		-			(34,286	)
Impairment of development land parcel		-			-			(1,464	)		-
Total expenses		(91,290	)		(127,613	)		(195,669	)		(223,493	)
Loss before equity in income of partnerships, gain on sales of real estate by equity method investee, gain on sales of real estate, net, and adjustment to gain on sales of interests in non operating real estate		(9,898	)		(35,640	)		(28,974	)		(45,238	)
Equity in income of partnerships		2,316			2,571			4,605			5,709
Gain (adjustment to gain) on sales of real estate by equity method investee		(11	)		-			553			2,773
Gain on sales of real estate, net		1,513			748			1,513			748
Adjustment to gain on sales of interests in non operating real estate		-			-			-			(25	)
Net loss		(6,080	)		(32,321	)		(22,303	)		(36,033	)
Less: net loss attributable to noncontrolling interest		329			4,119			2,017			5,231
Net loss attributable to PREIT		(5,751	)		(28,202	)		(20,286	)		(30,802	)
Less: preferred share dividends		(6,844	)		(6,844	)		(13,688	)		(13,688	)
Net loss attributable to PREIT common shareholders	$	(12,595	)	$	(35,046	)	$	(33,974	)	$	(44,490	)

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

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
REVENUE:
Real estate revenue:
Base rent $ 55,366
$ 56,769
$ 111,342
$ 114,204
Expense reimbursements 26,231
26,984
53,361
55,081
Percentage rent 161
326
256
630
Lease termination revenue 7,090
1,791
7,121
2,272
Other real estate revenue 2,274
2,540
4,435
4,647
Total real estate revenue 91,122
88,410
176,515
176,834
Other income 851
840
1,740
1,680
Total revenue 91,973
89,250
178,255
178,514
EXPENSES:
Operating expenses:
Property operating expenses:
CAM and real estate taxes (27,347 ) (28,261 ) (56,743 ) (58,213 )
Utilities (3,804 ) (4,140 ) (7,713 ) (7,963 )
Other property operating expenses (2,908 ) (2,825 ) (6,308 ) (6,030 )
Total property operating expenses (34,059 ) (35,226 ) (70,764 ) (72,206 )
Depreciation and amortization (33,356 ) (32,928 ) (67,386 ) (64,686 )
General and administrative expenses (9,396 ) (9,232 ) (19,528 ) (18,273 )
Provision for employee separation expenses (395 ) (1,053 ) (395 ) (1,053 )
Project costs and other expenses (139 ) (85 ) (251 ) (397 )
Total operating expenses (77,345 ) (78,524 ) (158,324 ) (156,615 )
Interest expense, net (15,982 ) (14,418 ) (30,883 ) (29,756 )
Impairment of assets (34,286 ) (53,917 ) (34,286 ) (53,917 )
Total expenses (127,613 ) (146,859 ) (223,493 ) (240,288 )
Loss before equity in income of partnerships, gain on sale of real estate by equity method investee, gains (adjustment to gains) on sales of interests in non operating real estate and gains (losses) on sales of interests in real estate, net (35,640 ) (57,609 ) (45,238 ) (61,774 )
Equity in income of partnerships 2,571
4,154
5,709
7,890
Gain on sale of real estate by equity method investee —
—
2,773
—
Gains (adjustment to gains) on sales of interests in non operating real estate —
486
(25 ) 486
Gains (losses) on sales of interests in real estate, net 748
(308 ) 748
(365 )
Net loss (32,321 ) (53,277 ) (36,033 ) (53,763 )
Less: net loss attributable to noncontrolling interest 3,400
5,669
3,794
5,721
Net loss attributable to PREIT (28,921 ) (47,608 ) (32,239 ) (48,042 )
Less: preferred share dividends (6,844 ) (7,067 ) (13,688 ) (13,272 )
Net loss attributable to PREIT common shareholders $ (35,765 ) $ (54,675 ) $ (45,927 ) $ (61,314 )

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2019			2018			2019			2018
Net loss	$	(6,080	)	$	(32,321	)	$	(22,303	)	$	(36,033	)
Noncontrolling interest		329			4,119			2,017			5,231
Preferred share dividends		(6,844	)		(6,844	)		(13,688	)		(13,688	)
Dividends on unvested restricted shares		(224	)		(138	)		(441	)		(276	)
Net loss used to calculate loss per share—basic and diluted	$	(12,819	)	$	(35,184	)	$	(34,415	)	$	(44,766	)
Basic and diluted loss per share:	$	(0.17	)	$	(0.50	)	$	(0.47	)	$	(0.64	)

(in thousands of shares)
Weighted average shares outstanding—basic		76,405			69,747			73,896			69,675
Effect of common share equivalents⁽¹⁾		—			—			—			—
Weighted average shares outstanding—diluted		76,405			69,747			73,896			69,675

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

(in thousands of dollars, except per share amounts) Three Months Ended
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Net loss $ (32,321 ) $ (53,277 ) $ (36,033 ) $ (53,763 )
Noncontrolling interest 3,400
5,669
3,794
5,721
Preferred share dividends (6,844 ) (7,067 ) (13,688 ) (13,272 )
Dividends on unvested restricted shares (138 ) (88 ) (276 ) (185 )
Net loss used to calculate loss per share—basic and diluted $ (35,903 ) $ (54,763 ) $ (46,203 ) $ (61,499 )

Basic and diluted loss per share: $ (0.51 ) $ (0.79 ) $ (0.66 ) $ (0.89 )

(in thousands of shares)
Weighted average shares outstanding—basic 69,747
69,307
69,675
69,263
Effect of common share equivalents⁽¹⁾
—
—
—
—
Weighted average shares outstanding—diluted 69,747
69,307
69,675
69,263

~~_________________________~~

⁽¹⁾

The Company had net losses used to calculate earnings per share for all periods presented. Therefore, the effects of common share equivalents of 683 and 367 for the three months ended June 30, 2019 and 2018, respectively, and 595 and 340 ~~and 57~~ for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive. ~~There were no common share equivalents for the three months ended June 30, 2017.~~

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
Comprehensive (loss) income:
Net loss	$	(6,080	)	$	(32,321	)	$	(22,303	)	$	(36,033	)
Unrealized (loss) gain on derivatives		(11,723	)		2,929			(18,231	)		7,757
Amortization of settled swaps		76			264			78			539
Total comprehensive (loss) income		(17,727	)		(29,128	)		(40,456	)		(27,737	)
Less: comprehensive loss attributable to noncontrolling interest		634			3,780			2,887			4,350
Comprehensive (loss) income attributable to PREIT	$	(17,093	)	$	(25,348	)	$	(37,569	)	$	(23,387	)

~~(Unaudited)~~

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Comprehensive income:
Net loss $ (32,321 ) $ (53,277 ) $ (36,033 ) $ (53,763 )
Unrealized gain (loss) on derivatives 2,929
(432 ) 7,757
1,278
Amortization of settled swaps 264
213
539
338
Total comprehensive loss (29,128 ) (53,496 ) (27,737 ) (52,147 )
Less: comprehensive loss attributable to noncontrolling interest 3,061
5,693
2,914
5,548
Comprehensive loss attributable to PREIT $ (26,067 ) $ (47,803 ) $ (24,823 ) $ (46,599 )

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENT OF EQUITY

Three and Six Months Ended

June 30, ~~2018~~2019

(Unaudited)

				PREIT Shareholders
				Preferred Shares $.01 par						Shares of Beneficial		Capital Contributed			Accumulated Other			Distributions			Non-
(in thousands of dollars, except per share amounts)	Total Equity			Series B		Series C		Series D		Interest, $1.00 Par		in Excess of Par			Comprehensive Income			in Excess of Net Income			controlling interest
Balance January 1, 2019	$	546,551		$	35	$	69	$	50	$	70,495	$	1,671,042		$	5,408		$	(1,306,318	)	$	105,770
Net loss		(16,223	)		—		—		—		—		—			—			(14,535	)		(1,688	)
Other comprehensive loss		(6,506	)		—		—		—		—		—			(5,941	)		—			(565	)
Shares issued upon redemption of Operating Partnership units		—			—		—		—		6,250		89,736			—			—			(95,986	)
Shares issued under employee compensation plans, net of shares retired		(326	)		—		—		—		638		(964	)		—			—			—
Amortization of deferred compensation		1,922			—		—		—		—		1,922			—			—			—
Dividends paid to common shareholders ($0.21 per share)		(14,930	)		—		—		—		—		—			—			(14,930	)		—
Dividends paid to Series B preferred shareholders ($0.4609 per share)		(1,590	)		—		—		—		—		—			—			(1,590	)		—
Dividends paid to Series C preferred shareholders ($0.45 per share)		(3,105	)		—		—		—		—		—			—			(3,105	)		—
Dividends paid to Series D preferred shareholders ($0.4297 per share)		(2,148	)		—		—		—		—		—			—			(2,148	)		—
Noncontrolling interests:
Distributions paid to Operating Partnership unit holders ($0.21 per unit)		(1,698	)		—		—		—		—		—			—			—			(1,698	)
Balance March 31, 2019	$	501,947		$	35	$	69	$	50	$	77,383	$	1,761,736		$	(533	)	$	(1,342,626	)	$	5,833
Net loss		(6,080	)		—		—		—		—		—			—			(5,751	)		(329	)
Other comprehensive loss		(11,647	)		—		—		—		—		—			(11,342	)		—			(305	)
Shares issued under employee compensation plans, net of shares retired		337			—		—		—		164		173			—			—			—
Amortization of deferred compensation		1,889			—		—		—		—		1,889			—			—			—
Dividends paid to common shareholders ($0.21 per share)		(16,278	)		—		—		—		—		—			—			(16,278	)		—
Dividends paid to Series B preferred shareholders ($0.4609 per share)		(1,591	)		—		—		—		—		—			—			(1,591	)		—
Dividends paid to Series C preferred shareholders ($0.45 per share)		(3,105	)		—		—		—		—		—			—			(3,105	)		—
Dividends paid to Series D preferred shareholders ($0.4297 per share)		(2,148	)		—		—		—		—		—			—			(2,148	)		—
Noncontrolling interests:
Distributions paid to Operating Partnership unit holders ($0.21 per unit)		(464	)		—		—		—		—		—			—			—			(464	)
Other changes in noncontrolling interest, net		(10	)		—		—		—		—		—			—			—			(10	)
Balance June 30, 2019	$	462,850		$	35	$	69	$	50	$	77,547	$	1,763,798		$	(11,875	)	$	(1,371,499	)	$	4,725

~~(Unaudited)~~

PREIT Shareholders
Preferred Shares $.01 par
Shares of
Beneficial
Interest,
$1.00 Par

Capital
Contributed
in Excess of
Par

Accumulated
Other
Comprehensive
Income

Distributions
in Excess of
Net Income

(in thousands of dollars, except per share amounts)
Total
Equity

Series
B

Series
C
Series D
Non-
controlling
interest
Balance December 31, 2017 $ 760,991
$ 35
$ 69
$ 50
$ 69,983
$ 1,663,966
$ 7,226
$ (1,117,290 ) $ 136,952
Net loss (36,033 ) —
—
—
—
—
—
(32,239 ) (3,794 )
Other comprehensive income 8,296
—
—
—
—
—
7,416
—
880
Shares issued under employee compensation plans, net of shares retired 168
—
—
—
467
(299 ) —
—
—
Amortization of deferred compensation 3,635
—
—
—
—
3,635
—
—
—
Distributions paid to common shareholders ($0.42 per share) (29,553 ) —
—
—
—
—
—
(29,553 ) —
Distributions paid to Series B preferred shareholders ($0.9218 per share) (3,180 ) —
—
—
—
—
—
(3,180 ) —
Distributions paid to Series C preferred shareholders ($0.90 per share) (6,210 ) —
—
—
—
—
—
(6,210 ) —
Distributions paid to Series D preferred shareholders ($0.8594 per share) (4,298 ) —
—
—
—
—
—
(4,298 ) —
Noncontrolling interests:
Distributions paid to Operating Partnership unit holders ($0.42 per unit) (3,474 ) —
—
—
—
—
—
—
(3,474 )
Balance June 30, 2018 $ 690,342
$ 35
$ 69
$ 50
$ 70,450
$ 1,667,302
$ 14,642
$ (1,192,770 ) $ 130,564

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENT OF EQUITY

Three and Six Months Ended

June 30, 2018

(Unaudited)

				PREIT Shareholders
				Preferred Shares $.01 par						Shares of Beneficial		Capital Contributed			Accumulated Other		Distributions			Non-
(in thousands of dollars, except per share amounts)	Total Equity			Series B		Series C		Series D		Interest, $1.00 Par		in Excess of Par			Comprehensive Income		in Excess of Net Income			controlling interest
Balance January 1, 2018	$	760,991		$	35	$	69	$	50	$	69,983	$	1,663,966		$	7,226	$	(1,109,469	)	$	129,131
Net loss		(3,712	)		—		—		—		—		—			—		(2,601	)		(1,111	)
Other comprehensive income		5,103			—		—				—		—			4,562		—			541
Shares issued under employee compensation plans, net of shares retired		(195	)		—		—		—		370		(565	)		—		—			—
Amortization of deferred compensation		1,924			—		—		—		—		1,924			—		—			—
Dividends paid to common shareholders ($0.21 per share)		(14,766	)		—		—		—		—		—			—		(14,766	)		—
Dividends paid to Series B preferred shareholders ($0.4609 per share)		(1,590	)		—		—		—		—		—			—		(1,590	)		—
Dividends paid to Series C preferred shareholders ($0.4500 per share)		(3,105	)		—		—		—		—		—			—		(3,105	)		—
Dividends paid to Series D preferred shareholders ($0.4297 per share)		(2,149	)		—		—		—		—		—			—		(2,149	)		—
Noncontrolling interests:
Distributions paid to Operating Partnership unit holders ($0.21 per unit)		(1,737	)		—		—		—		—		—			—		—			(1,737	)
Balance March 31, 2018	$	740,764		$	35	$	69	$	50	$	70,353	$	1,665,325		$	11,788	$	(1,133,680	)	$	126,824
Net loss		(32,321	)		—		—		—		—		—			—		(28,202	)		(4,119	)
Other comprehensive income		3,193			—		—		—		—		—			2,854		—			339
Shares issued under employee compensation plans, net of shares retired		363			—		—		—		97		266			—		—			—
Amortization of deferred compensation		1,711			—		—		—		—		1,711			—		—			—
Dividends paid to common shareholders ($0.21 per share)		(14,787	)		—		—		—		—		—			—		(14,787	)		—
Dividends paid to Series B preferred shareholders ($0.4609 per share)		(1,590	)		—		—		—		—		—			—		(1,590	)		—
Dividends paid to Series C preferred shareholders ($0.4500 per share)		(3,105	)		—		—		—		—		—			—		(3,105	)		—
Dividends paid to Series D preferred shareholders ($0.4297 per share)		(2,149	)		—		—		—		—		—			—		(2,149	)		—
Noncontrolling interests:		—			—		—		—		—		—			—		—			—
Distributions paid to Operating Partnership unit holders ($0.21 per unit)		(1,737	)		—		—		—		—		—			—		—			(1,737	)
Balance June 30, 2018	$	690,342		$	35	$	69	$	50	$	70,450	$	1,667,302		$	14,642	$	(1,183,513	)	$	121,307

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended June 30,
(in thousands of dollars)	2019			2018
Cash flows from operating activities:
Net loss	$	(22,303	)	$	(36,033	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		60,862			61,606
Amortization		8,558			7,134
Straight-line rent adjustments		(1,551	)		(1,132	)
Provision for doubtful accounts		—			1,747
Non-cash lease termination revenue		—			(4,200	)
Amortization of deferred compensation		3,811			3,635
Loss on debt extinguishment		4,768			—
(Gains) losses on sales of interests in real estate, net		(1,513	)		(748	)
Adjustment to gains on sales of interests in non operating real estate		—			25
Equity in income of partnerships		(4,605	)		(5,709	)
Gain on sale of real estate by equity method investee		(553	)		(2,773	)
Cash distributions from partnerships		14,912			3,815
Impairment of assets		1,464			34,286
Change in assets and liabilities:
Net change in other assets		5,482			9,041
Net change in other liabilities		(6,984	)		4,412
Net cash provided by operating activities		62,348			75,106
Cash flows from investing activities:
Investments in consolidated real estate acquisitions		—			(11,400	)
Distribution of financing proceeds from equity method investee		—			123,000
Cash proceeds from sales of real estate		34,080			1,636
Cash proceeds from sale of mortgage		8,000			—
Cash distributions from partnerships of proceeds from real estate sold		879			19,727
Proceeds from insurance claims related to damage to real estate assets		4,475			—
Investments in partnerships		(35,222	)		(31,411	)
Investments in real estate improvements		(13,913	)		(17,187	)
Additions to construction in progress		(63,831	)		(22,373	)
Capitalized leasing costs		(476	)		(8,941	)
Additions to leasehold improvements and corporate fixed assets		(242	)		(31	)
Net cash (used in) provided by investing activities		(66,250	)		53,020
Cash flows from financing activities:
(Repayments of) proceeds from mortgage loans and finance lease liabilities		(63,599	)		10,185
Net borrowings (repayments) under revolving facility		117,000			(53,000	)
Dividends paid to common shareholders		(31,208	)		(29,553	)
Dividends paid to preferred shareholders		(13,688	)		(13,688	)
Distributions paid to Operating Partnership unit holders and noncontrolling interest		(2,162	)		(3,474	)
Principal installments on mortgage loans		(8,286	)		(9,433	)
Payment of deferred financing costs		(78	)		(6,514	)
Value of shares of beneficial interest issued		642			846
Value of shares retired under equity incentive plans, net of shares issued		(632	)		(678	)
Net cash (used in) financing activities		(2,011	)		(105,309	)
Net change in cash, cash equivalents, and restricted cash		(5,913	)		22,817
Cash, cash equivalents, and restricted cash, beginning of period		32,445			33,953
Cash, cash equivalents, and restricted cash, end of period	$	26,532		$	56,770

Six Months Ended
June 30,
(in thousands of dollars) 2018 2017
Cash flows from operating activities:
Net loss $ (36,033 ) $ (53,763 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 61,606
60,126
Amortization 7,134
5,952
Straight-line rent adjustments (1,132 ) (1,356 )
Provision for doubtful accounts 1,747
854
Non-cash lease termination revenue (4,200 ) —
Amortization of deferred compensation 3,635
3,119
Adjustment to gains (gains) on sales of interests in non operating real estate 25
(486 )
(Gains) losses on sales of interests in real estate, net (748 ) 365
Equity in income of partnerships (5,709 ) (7,890 )
Gain on sale of real estate by equity method investee (2,773 ) —
Cash distributions from partnerships 3,815
6,965
Impairment of assets 34,286
53,917
Change in assets and liabilities:
Net change in other assets 9,041
8,113
Net change in other liabilities 4,412
(4,753 )
Net cash provided by operating activities 75,106
71,163
Cash flows from investing activities:
Investments in consolidated real estate acquisitions (11,400 ) —
Distribution of financing proceeds from equity method investee 123,000
—
Cash proceeds from sales of real estate 1,636
45,922
Cash distributions from partnerships of proceeds from real estate sold 19,727
—
Investments in partnerships (31,411 ) (38,259 )
Investments in real estate improvements (17,187 ) (23,214 )
Additions to construction in progress (22,373 ) (57,389 )
Capitalized leasing costs (8,941 ) (3,090 )
Additions to leasehold improvements and corporate fixed assets (31 ) (471 )
Net cash provided by (used in) investing activities 53,020
(76,501 )
Cash flows from financing activities:
Net proceeds from issuance of preferred shares —
166,310
Borrowing from (repayment of) mortgage loans 10,185
(150,000 )
Net repayments of revolving facility (53,000 ) 55,000
Dividends paid to common shareholders (29,553 ) (29,291 )
Dividends paid to preferred shareholders (13,688 ) (12,687 )
Distributions paid to Operating Partnership unit holders and noncontrolling interest (3,474 ) (3,491 )
Principal installments on mortgage loans (9,433 ) (8,118 )
Payment of deferred financing costs (6,514 ) (71 )
Value of shares of beneficial interest issued 846
1,148
Value of shares retired under equity incentive plans, net of shares issued (678 ) (1,293 )
Net cash (used in) provided by financing activities (105,309 ) 17,507
Net change in cash, cash equivalents, and restricted cash 22,817
12,169
Cash, cash equivalents, and restricted cash, beginning of period 33,953
29,865
Cash, cash equivalents, and restricted cash, end of period $ 56,770
$ 42,034

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, ~~2018~~

2019

1. BASIS OF PRESENTATION

Nature of Operations

Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”) prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. Our unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. In our opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position, the consolidated results of our operations, consolidated statements of other comprehensive income, consolidated statements of equity and our consolidated statements of cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region. Our portfolio currently consists of a total of 2827 properties operating in nine states, including 21 shopping malls, four other retail properties and ~~three~~two development or redevelopment properties. We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia (“Fashion District Philadelphia”)). ~~Two properties~~One other property in our portfolio ~~are~~is classified as under development; however, we do not currently have any activity occurring at ~~these properties.~~this property. We also have one undeveloped land parcel located in Gainesville, Florida, ~~that is~~a portion of which was sold in March 2019 and the remaining portion of which was classified as ~~held-for-sale~~held for sale as of June 30, ~~2018.~~

2019.

We hold our interest in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We are the sole general partner of the Operating Partnership and, as of June 30, ~~2018~~,2019, we held an ~~89.5%~~a 97.5% controlling interest in the Operating Partnership (after the redemption of 6,250,000 OP Units (as defined below) during the first quarter of 2019, which is discussed in more detail in Note 5 to our unaudited consolidated financial statements), and consolidated it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.

Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at our election, we may acquire such OP Units in exchange for our common shares on a one-for-one basis, in some cases beginning one year following the respective issue dates of the OP Units and in other cases immediately. If all of the outstanding OP Units held by limited partners had been redeemed for cash as of June 30, ~~2018~~,2019, the total amount that would have been distributed would have been ~~$90.9~~$13.1 million,, which is calculated using our June ~~29, 2018~~28, 2019 (which was the last trading day in the second quarter of ~~2018)~~2019) closing price on the New York Stock Exchange of ~~$10.99~~$6.50 per share multiplied by the number of outstanding OP Units held by limited partners, which was ~~8,272,636~~2,022,635 as of June 30, ~~2018~~.

2019.

We provide management, leasing and real estate development services through two of our subsidiaries: PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest and properties that are owned by third parties in which we do not have an interest. PREIT Services and PRI are consolidated. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer an expanded menu of services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.

We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of our properties are located outside the United States.

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Fair Value

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

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

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

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

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

New Accounting Developments

~~In May 2014, the Financial Accounting Standards Board ( the “FASB”) issued~~

Lease accounting related

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) ~~2014-09,~~ ~~Revenue from Contracts with Customers~~2016-02, Leases (Topic ~~606). The objective~~842) (“ASC 842”) and related guidance using the optional transition method and elected to apply the provisions of ~~this new~~the standard ~~is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle~~as of ~~this new~~the adoption date rather than the earliest date presented. Prior period amounts were not restated. We implemented the standard ~~is that an entity recognizes revenue to depict~~using the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In March 2016, the FASB issued ASU No 2016-08, which updates Topic 606 to clarify principal versus agent considerations (reporting revenue gross versus net)following practical expedients:

•

We have elected the package of practical expedients that allows us to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases.

•

For leases under which we are the lessor, we also have elected to not separate non-lease components such as common area maintenance (“CAM”) and real estate reimbursements from the associated lease component (minimum rent). Instead, we account for the lease and non-lease components as a single component because such non-lease components would otherwise be accounted for under the new revenue guidance (ASC 606) and both (1) the timing and pattern of transfer are the same for the nonlease components and associated lease component, and (2) the lease component, if accounted for separately, would be classified as an operating lease. Utility reimbursements are presented separately and not in the single component as the pattern of transfer is not aligned with the use of the property and therefore the criteria for use of the practical expedient are not met.

The adoption of this ~~new~~ standard ~~did not have a significant impact~~had the following effects on our ~~consolidated~~ financial ~~statements. We adopted the standard effective January 1, 2018 using the modified retrospective approach, which requires a cumulative adjustment~~statements as of June 30, 2019 and for the ~~date~~three and six months ended June 30, 2019:

As of ~~the adoption, if applicable. We did not record any such cumulative adjustment in connection with the implementation of the new pronouncement.~~

The new revenue recognition standard will not have a material effect on our property revenues, the majority of which are subject to accounting guidance for leases, and will be subject to ASC 2016-02 when we adopt that new standard effective January 1, 2019, ~~(see below). We recognize revenue~~ for ~~property operations when earned. Property~~leases under which the Company is a lessee, we recorded a right-of-use (“ROU”) asset of $24.6 million and corresponding lease liability for all leases previously accounted for as operating ~~revenues are disaggregated on~~leases under ASC 840. The Company also derecognized an unfavorable ground lease liability of $5.5 million and reduced the ~~consolidated statement~~corresponding ROU asset by the same amount. As of ~~operations into~~June 30, 2019, the ~~categories of base rent, expense reimbursements, percentage rent, lease termination revenue~~ROU asset was $17.7 million and is included in deferred costs and other ~~real estate revenue, primarily~~assets, net and the lease liability was $23.7 million and is included in accrued expenses and other liabilities in the accompanying consolidated balance sheet.

Effective January 1, 2019, we changed our fixed CAM revenue recognition to be recognized prospectively on a straight-line basis. In the three and six months ended June 30, 2019, $0.7 million and $1.3 million, respectively, of such revenues were recognized and are included within lease revenue in the accompanying consolidated statements of operations; previously, such amounts ~~that correspond to these different categories~~were recognized as ~~documented~~billed in ~~various tenant leases. The types of our revenues that will be impacted by~~accordance with the new standard include property management revenues for services performed for third-party owned properties and for certain of our joint ventures, and certain billings to tenants for reimbursement of property marketing expenses. We expect that the amount and timingterms of the respective leases.

We review the collectability of both billed and unbilled lease revenues ~~that are impacted by this standard will~~each reporting period, taking into consideration the tenant’s payment history, credit profile and other factors, including its operating performance. For any tenant receivable balances deemed to be ~~generally consistent with our previous measurement methodology and pattern of recognition.~~

~~Revenue from the reimbursement of marketing expenses, which is recorded in other real estate revenues~~uncollectible, under ASC 842 we record an offset for credit losses directly to Lease revenue in the consolidated statement of ~~operations, is generated through tenant leases that require tenants to reimburse a defined amount of~~operations. Previously, under ASC 840, uncollectible tenants’ receivables were reported in Other property marketing expenses. Our contract performance obligations are fulfilled throughout the calendar year when marketing expenditures are made for each property. Payments from the tenants are made on a regular periodic basis (usually monthly) as agreed upon within the respective leases. We aggregate the tenant payments for each property and defer income recognition if the reimbursements are lower than the aggregate marketing expenditures through that date. Deferred marketing reimbursement income is recordedoperating expenses in ~~tenants’ deposits and deferred rent on~~ the consolidated ~~balance sheet,~~statement of operations.

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For leases under which the Company is a lessor, certain internal leasing and ~~was $0.9 million and $0.3 million~~legal costs that were previously capitalized under ASC 840 are now recorded as of June 30, 2018 and December 31, 2017, respectively. The marketing reimbursements are recognized as revenue at the time that the marketing expenditures occur. Marketing reimbursement revenue was $0.6 million and $0.7 million forperiod costs under ASC 842. For the three ~~months ended June 30, 2018~~ and ~~2017, respectively, and $1.2 million and $1.4 million for the~~ six months ended June 30, 2018, we capitalized $1.5 million and ~~2017,~~$2.7 million of internal leasing and legal salaries and benefits, respectively.

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Property management revenue from management and development activities is generated through management contracts with third party owners of real estate properties or with certain of our joint ventures, and is recorded in other income in the consolidated statement of operations. In the case of management fees, our contract performance obligations are fulfilled at the time the management services are performed, which is usually on a monthly basis. Payments from the third party owners or joint ventures are usually made every month and generally not received in advance. Revenue is recognized on a monthly basis. In the case of development fees, these revenues are generated through development agreements with third parties or joint ventures. Our contract performance obligations are fulfilled each month as we perform certain stipulated development activities. Payments are generally made monthly, correspond to the volume of development activity or spending on the respective project and are not usually received in advance. Development fees are recognized as revenue, and are usually based upon spending levels or other activities, as defined in the respective agreements. Property management fee revenue was $0.2 million No such costs were capitalized for ~~each of~~ the three ~~months ended June 30, 2018~~ and ~~2017, and $0.3 million for each of the~~ six months ended June 30, ~~2018 and 2017. Development fee revenue for~~2019. We will continue to amortize previously capitalized initial direct costs over the ~~three months ended June 30, 2018 and 2017 was $0.2 million and $0.3 million, respectively, and was $0.4 million for each~~remaining terms of the ~~six months ended June 30,~~associated leases.

Other accounting

In October 2018, ~~and 2017.~~

~~In February 2017,~~ the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU ~~2017-05,~~ ~~Other Income - Gains~~2018-16, Derivatives and ~~Losses from~~Hedging (Topic 815): Inclusion of the ~~Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying~~Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) as a Benchmark Interest Rate for Hedge Accounting. This ASU adds the ~~Scope of Asset Derecognition Guidance.~~ OIS rate based on SOFR as a U.S. benchmark interest rate to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate hedging strategies for both risk management and hedge accounting purposes. Because we adopted ASU ~~2017-05 focuses on recognizing gains and losses from the transfer of nonfinancial assets with noncustomers. It provides~~2017-12, this guidance ~~as to the definition of an “in substance nonfinancial asset,” and provides guidance for sales of real estate, including partial sales. The Company adopted this new guidance~~became effective January 1, 2018. This new guidance did not have a significant impact on our financial statements because all previous property sales were considered to be complete contracts and the related practical expedient was elected. We expect that future sale transactions will likely meet the criteria for full gain recognition on sale if they are structured similarly to previous sale transactions. This treatment is not different from our historical position when selling our entire interest in real estate properties; however, this historical treatment could be different in future partial sale transactions, should they occur.

~~In August 2017, the FASB issued ASU 2017-12,~~ ~~Derivatives and Hedging:Targeted Improvements to Accounting for Hedging Activities~~. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The Company adopted ASU 2017-12 on January 1, 2018, utilizing a modified retrospective transition method in which the Company recognized the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of January 1, 2018 (the date of adoption).2019. The adoption of this ~~standard~~guidance did not have a material impact on our consolidated financial statements.

~~In November 2016 the FASB issued ASU No. 2016-18,~~ ~~Statement of Cash Flows (Topic 230)~~, which provides guidance on the presentation of restricted cash or restricted cash equivalents within the statement of cash flows. Accordingly, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Company adopted this standard effective January 1, 2018. The adoption of ASU No. 2016-18 changed the presentation of the statement of cash flows for the Company to provide additional details regarding changes in restricted cash and we utilized a retrospective transition method for each period presented within financial statements. In applying the retrospective transition method, net cash used in investing activities for the six months ended June 30, 2017 decreased by $3.0 million as the change in escrow accounts is now included directly in net change in cash, cash equivalents and restricted cash. See note 5 for details regarding cash and restricted cash as presented within the consolidated statement of cash flows.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.~~ ASU 2016-15 is intended to reduce diversity in the practice of how certain transactions are classified in the statement of cash flows, including classification guidance for distributions received from equity method investments. The Company adopted this new standard effective January 1, 2018 using the retrospective transition method. The statement of cash flows for the six months ended June 30, 2017 has been restated to reflect the adoption of ASU 2016-15. Upon adoption, we changed the prior period presentation of the statement of cash flows for $7.0 million of cash distributions from partnerships that was previously presented within net cash used in investing activities to now be reflected within net cash provided by operating activities for the six months ended June 30, 2017 using the nature of the distribution approach.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, ~~which introduces~~and subsequently issued amendments to the initial and transitional guidance within ASU 2018-19, ASU 2019-04 and ASU 2019-05 between November 2018 and May 2019. ASU 2016-13 introduced new guidance for an approach based on expected losses to estimate credit losses on certain types of financial instruments, and will affect our accounting for trade receivables and notes receivable. We will adopt this new standard on January 1, 2020. We are currently evaluating the impact that the adoption of the new standard will have on our consolidated financial statements.

~~Table~~

Immaterial error correction

The Consolidated Statements of ~~Contents~~

~~In February 2016,~~Operations and the ~~FASB issued ASU 2016-02,~~ ~~Leases (Topic 842). ASU 2016-02 will result in lessees recognizing~~

~~most leased assets~~Consolidated Statements of Comprehensive Income for the three and ~~corresponding lease liabilities~~six months ended June 30, 2018 include the impact of correcting a computational error by increasing the net loss (and comprehensive loss) attributable to noncontrolling interest by $0.7 million for the three months ended June 30, 2018 and by $1.4 million for the six months ended June 30, 2018. The adjustments also decreased the amount of loss (and comprehensive loss) attributable to PREIT and PREIT common shareholders by the same amount. The adjustments also decreased the amount of basic and diluted loss per share by $0.01 for the three months ended June 30, 2018 and by $0.02 for the six months ended June 30. 2018.

These corrections had no impact on the ~~balance sheet. Leases~~previously reported amounts of ~~land~~net income (loss), total equity, and ~~other arrangements where we are~~consolidated cash flows from operating, investing or financing activities.

We evaluated these corrections and determined, based on quantitative and qualitative factors, that the ~~lessee will be recognized on our balance sheet. Lessor accounting for us and for our equity method investments will remain substantially similar~~changes were not material to the ~~current accounting. Leasing costs that are eligible to be capitalized~~consolidated financial statements taken as ~~initial direct costs are also limited by ASU 2016-02; such costs totaled approximately $6.1 million~~a whole for each of the years ended December 31, 2017 and 2016, respectively, of which $0.7 million and $1.0 million, for December 31, 2017 and 2016, respectively, represented leasing commissions paid to internal personnel for specific lease transactions, the capitalization of which is expected to continue to be permissible under the updated Topic 842. We will adopt ASU 2016-02 on January 1, 2019 using the modified retrospective approach required by the standard. We are currently evaluating the impact that the adoption of the new standard will have on ourany previously filed consolidated financial statements.

2. REAL ESTATE ACTIVITIES

Investments in real estate as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were comprised of the following:

(in thousands of dollars)	As of June 30, 2019			As of December 31, 2018
Buildings, improvements and construction in progress	$	2,761,444		$	2,719,400
Land, including land held for development		464,642			465,194
Total investments in real estate		3,226,086			3,184,594
Accumulated depreciation		(1,177,549	)		(1,118,582	)
Net investments in real estate	$	2,048,537		$	2,066,012

(in thousands of dollars) As of June 30,
2018 As of December 31,
2017
Buildings, improvements and construction in progress $ 2,801,427
$ 2,808,622
Land, including land held for development 478,834
491,080
Total investments in real estate 3,280,261
3,299,702
Accumulated depreciation (1,144,291 ) (1,111,007 )
Net investments in real estate $ 2,135,970
$ 2,188,695

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Capitalization of Costs

The following table summarizes our capitalized interest, compensation, including commissions, and real estate taxes for the three and six months ~~ended~~ ~~June 30, 2018~~ ~~and~~ ~~2017~~:

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Development/Redevelopment Activities:
Interest $ 1,281
$ 1,538
$ 2,907
$ 2,969
Compensation, including commissions 277
348
715
697
Real estate taxes 216
61
380
154

Leasing Activities:
Compensation, including commissions 1,769
1,423
3,941
3,090

~~Acquisitions~~

~~In June 2018, we purchased certain real estate and related improvements at Valley Mall in Hagerstown, Maryland for $11.4 million.~~

~~Dispositions~~

~~In June 2018, we sold an operating restaurant located on an outparcel at Magnolia Mall in Florence, South Carolina for $1.7 million. We recorded a gain of $0.7 million on this sale.~~

~~Impairment of Assets~~

~~In connection with the preparation of our financial statements as of and for the period~~ ended June 30, ~~2018,~~2019 and 2018:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands of dollars)	2019		2018		2019		2018
Development/Redevelopment Activities:
Interest ⁽¹⁾	$	2,325	$	1,281	$	4,329	$	2,907
Compensation		336		277		688		715
Real estate taxes		345		216		421		380
Leasing Activities:
Compensation, including commissions ⁽²⁾		156		1,769		476		3,941

⁽¹⁾	Includes interest capitalized on investments in partnerships under development.

⁽²⁾

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

Dispositions

In March 2019, we ~~recorded~~entered into an agreement of sale with a ~~loss on impairment of assets on Wyoming Valley Mall, in Wilkes-Barre, Pennsylvania of $32.2 million as we determined that the pending~~

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~~closure of two anchor stores at the property (as further discussed in Note 4) was a triggering event, leading us~~buyer to ~~conduct~~sell an analysis of possible impairment at this property. Based upon our estimates, we determined that the estimated undiscounted cash flows, net of capital expenditures for the property, were less than the carrying value of the property, and recorded a loss on impairment of assets after determining that the fair value was less than the carrying value. Our fair value analysis was based on discounted estimated future cash flows at the property, using a discount rate of 10.5% and a terminal capitalization rate of 9.0% for Wyoming Valley Mall, which was determined using management’s assessment of property operating performance and general market conditions and were classified in Level 3 of the fair value hierarchy.

~~In May 2018, we recorded a loss on impairment of assets on a~~undeveloped land parcel located in Gainesville, Florida for total consideration of ~~$2.1~~$15.0 million and the sale transaction was split into two parcels. The first parcel was sold in ~~connection~~March 2019 for $5.0 million. The transaction with ~~negotiations with~~respect to the ~~potential buyer~~remaining parcel is expected to close in the second half of ~~the property.~~2019. In connection with these ~~negotiations,~~transactions, we determined that the expected proceeds from the sale of the property are expected to be less than the carrying amount, which we concluded was a triggering event, leading us to conduct an analysis of possible impairment at this property. Based upon the negotiations, we determined that the estimated undiscounted cash flows, net of capital expenditures for the property, were less than the carrying value of the property, and recorded ~~a loss~~losses on impairment of ~~assets. This~~assets of $1.5 million. The remaining land parcel iswas classified as ~~held-for-sale~~held for sale in our consolidated balance sheet as of June 30, 2019.

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

In connection with this sale, we recorded a gain of $0.2 million.

In April 2019, we sold a Whole Foods store located on a parcel adjacent to Exton Square Mall for total consideration of $22.1 million. In connection with this sale, we recorded a gain of $1.3 million.

In July 2019, we sold an outparcel located at Valley View Mall in La Crosse, Wisconsin for total consideration of $1.4 million.

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3. INVESTMENTS IN PARTNERSHIPS

The following table presents summarized financial information of the equity investments in our unconsolidated partnerships as of June 30, ~~2018~~2019 and December 31, ~~2017~~:2018:

(in thousands of dollars)	June 30, 2019			December 31, 2018
ASSETS:
Investments in real estate, at cost:
Operating properties	$	587,779		$	575,149
Construction in progress		444,080			420,771
Total investments in real estate		1,031,859			995,920
Accumulated depreciation		(219,159	)		(212,574	)
Net investments in real estate		812,700			783,346
Cash and cash equivalents		29,431			20,446
Deferred costs and other assets, net		33,099			30,549
Total assets		875,230			834,341
LIABILITIES AND PARTNERS’ INVESTMENT:
Mortgage loans payable, net		503,068			507,090
FDP Term Loan, net		248,159			247,901
Other liabilities		34,875			34,463
Total liabilities		786,102			789,454
Net investment	$	89,128		$	44,887
Partners’ share		42,837			21,583
PREIT’s share		46,291			23,304
Excess investment⁽¹⁾		17,375			15,763
Net investments and advances	$	63,666		$	39,067
Reconciliation to comparable GAAP balance sheet item:
Investment in partnerships, at equity	$	153,318		$	131,124
Distributions in excess of partnership investments		(89,652	)		(92,057	)
Net investment	$	63,666		$	39,067

_____________________

(in thousands of dollars) June 30, 2018 December 31, 2017
ASSETS:
Investments in real estate, at cost:
Operating properties $ 565,907
$ 612,689
Construction in progress 370,051
293,102
Total investments in real estate 935,958
905,791
Accumulated depreciation (204,723 ) (202,424 )
Net investments in real estate 731,235
703,367
Cash and cash equivalents 33,017
26,158
Deferred costs and other assets, net 31,950
34,345
Total assets 796,202
763,870
LIABILITIES AND PARTNERS’ INVESTMENT:
Mortgage loans payable, net 510,820
513,139
FDP Term Loan, net 247,645
—
Other liabilities 41,882
37,971
Total liabilities 800,347
551,110
Net investment (4,145 ) 212,760
Partners’ share (2,330 ) 106,886
PREIT’s share (1,815 ) 105,874
Excess investment⁽¹⁾
14,121
13,081
Net investments and advances $ 12,306
$ 118,955

Investment in partnerships, at equity $ 106,945
$ 216,823
Distributions in excess of partnership investments (94,639 ) (97,868 )
Net investments and advances $ 12,306
$ 118,955

~~_________________________~~

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

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We record distributions from our equity investments using the nature of the distribution approach.

The following table summarizes our share of equity in income of partnerships for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~:2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
Real estate revenue	$	23,443		$	23,890		$	46,894		$	49,901
Operating expenses:
Property operating and other expenses		(7,543	)		(7,524	)		(15,527	)		(15,705	)
Interest expense⁽¹⁾		(5,843	)		(5,834	)		(11,651	)		(11,568	)
Depreciation and amortization		(4,705	)		(4,880	)		(9,358	)		(9,869	)
Total expenses		(18,091	)		(18,238	)		(36,536	)		(37,142	)
Net income		5,352			5,652			10,358			12,759
Partners’ share		(2,900	)		(3,089	)		(5,587	)		(6,991	)
PREIT’s share		2,452			2,563			4,771			5,768
Amortization of and adjustments to excess investment, net		(136	)		8			(166	)		(59	)
Equity in income of partnerships	$	2,316		$	2,571		$	4,605		$	5,709
⁽¹⁾Net of capitalized interest expense of $1,479 and $1,302 for the three months ended June 30, 2019 and 2018, and $2,951 and $1,921 for the six months ended June 30, 2019 and 2018, respectively.

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Real estate revenue $ 23,890
$ 29,526
$ 49,901
$ 57,694
Operating expenses:
Property operating and other expenses (7,524 ) (8,413 ) (15,705 ) (17,115 )
Interest expense (5,834 ) (5,433 ) (11,568 ) (10,806 )
Depreciation and amortization (4,880 ) (6,800 ) (9,869 ) (12,655 )
Total expenses (18,238 ) (20,646 ) (37,142 ) (40,576 )
Net income 5,652
8,880
12,759
17,118
Partners’ share (3,089 ) (4,755 ) (6,991 ) (9,246 )
PREIT’s share 2,563
4,125
5,768
7,872
Amortization of and adjustments to excess investment, net 8
29
(59 ) 18
Equity in income of partnerships $ 2,571
$ 4,154
$ 5,709
$ 7,890

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Dispositions

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

In February 2018, a partnership in which we hold a 50% ownership share sold its office condominium interest in 907 Market Street in Philadelphia, Pennsylvania for $41.8 million. The partnership recorded a gain on sale of $5.5 million, of which our share was $2.8 ~~million, which is recorded in gain on sale of real estate by equity method investee in the accompanying consolidated statement of operations.~~million. The partnership distributed to us proceeds of $19.7 million in connection with this ~~transaction.~~

transaction in February 2018.

Term Loan ~~Activity~~

In January 2018, ~~we along with The Macerich Company (“Macerich”),~~ our ~~partner in the~~ Fashion District Philadelphia redevelopment project joint venture entity entered into a $250.0 million term loan (the “FDP Term Loan”). We and our partner in the project, The Macerich Company (“Macerich”), each own a 50% partnership interest in Fashion District Philadelphia. The FDP Term Loan matures in January 2023, and bears interest at a variable rate of LIBOR plus 2.00%. PREIT and Macerich ~~have~~ secured the FDP Term Loan by pledging their respective equity interests in the entities that own Fashion District Philadelphia. The entire $250.0 million available under the FDP Term Loan was drawn during the first quarter of 2018, and we received an aggregate of $123.0 million as ~~distributions~~a distribution of our share of the ~~draws.~~

~~Mortgage Activity~~

draws in 2018. In ~~February 2018,~~July 2019, the ~~mortgage loan secured by Pavilion at Market East~~FDP Term Loan was modified to increase the total potential borrowings from $250.0 million to $350.0 million. $26.0 million was drawn in ~~Philadelphia, Pennsylvania was amended~~July 2019, and ~~extended to February 2021 and bears interest at~~we received an aggregate $12.5 million as a ~~variable rate~~distribution of ~~LIBOR plus 2.85%. We own a 40% partnership interest in Pavilion at Market East, which owns non-operating land held for development.~~

In March 2018, the unconsolidated partnership that owns Gloucester Premium Outlets in Blackwood, New Jersey, in which we own a 25% partnership interest, entered into a $86.0 million interest only mortgage loan secured by the property, with an interest rate of LIBOR plus 1.50% and a maturity date of March 2022, with one optionour share of the ~~unconsolidated partnership to extend by 12 months. The proceeds were used to repay the existing $84.1 million mortgage loan plus accrued interest.~~

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draw in July 2019.

Significant Unconsolidated Subsidiary

We have a 50% ownership interest in Lehigh Valley Associates L.P. (“LVA”), which met the definition of a significant unconsolidated subsidiary for the year ended December 31, 2016. LVA did not meet the definition of a significant subsidiary as of or for the year ended December 31, 2017.. The financial information of LVA is included in the amounts above. Summarized balance sheet information as of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, and summarized statement of operations information for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 for this entity, which is accounted for using the equity method, are as follows:

(in thousands of dollars)	June 30, 2019		December 31, 2018
Summarized balance sheet information
Total assets	$	53,218	$	52,255
Mortgage loan payable, net		193,717		196,328

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
Summarized statement of operations information
Revenue	$	8,184		$	8,472		$	16,583		$	17,604
Property operating expenses		(1,887	)		(2,124	)		(4,213	)		(4,529	)
Interest expense		(2,019	)		(2,052	)		(4,028	)		(4,097	)
Net income		3,471			3,616			6,709			7,642
PREIT’s share of equity in income of partnership		1,736			1,808			3,355			3,821

As of
(in thousands of dollars) June 30, 2018 December 31, 2017
Summarized balance sheet information
Total assets $ 50,752
$ 43,850

Mortgage loan payable, net 197,139
199,451

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Summarized statement of operations information
     Revenue $ 8,472
$ 8,647
$ 17,604
$ 17,456
     Property operating expenses (2,124 ) (2,582 ) (4,529 ) (4,484 )
     Interest expense (2,052 ) (1,861 ) (4,097 ) (3,731 )
     Net income 3,616
3,059
7,642
7,262
     PREIT’s share of equity in income of partnership 1,808
1,529
3,821
3,631

4. FINANCING ACTIVITY

Credit Agreements

As of June 30, ~~2018,~~2019, we have entered into two credit agreements (collectively, as amended, the “Credit Agreements”): (1) the 2018 Credit Agreement, which, as described in more detail below, includes (a) the $400 million 2018 Revolving Facility, and (b) the $300 million 2018 Term Loan Facility, and (2) the $250 million 2014 7-Year Term Loan. As further discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, as of that date, we had entered into four credit agreements : (1) the 2013 Revolving Facility, (2) the 2014 7-Year Term Loan, (3) the 2014 5-Year Term Loan, and (4) the 2015 5-Year Term Loan. The 2018 Term Loan Facility and the 2014 7-Year Term Loan are collectively referred to as the “Term Loans.”

On May 24, 2018, we entered into an Amended and Restated Credit Agreement (the “2018 Credit Agreement”) with Wells Fargo Bank, National Association, U.S. Bank National Association, Citizens Bank, N.A., and the other financial institutions signatory thereto, for an aggregate $700.0 million senior unsecured facility consisting of (i) a $400 million senior unsecured revolving credit facility (the “2018 Revolving Facility”), which replaced the our previously existing $400 million revolving credit agreement (the “2013 Revolving Facility”), and (ii) a $300 million term loan facility (the “2018 Term Loan Facility”), which was used to pay off a previously existing $150 million five year term loan (the “2014 5-Year Term Loan”),and a second $150 million five year term loan (the “2015 5-Year Term Loan” and, collectively with the 2014 5-Year Term Loan, the “5-Year Term Loans”). The maturity date of the 2018 Revolving Facility is May 23, 2022, subject to two six-month extensions at our election, and the maturity date of the 2018 Term Loan Facility is May 23, 2023. In connection with this activity, we recorded accelerated amortization of financing costs of $0.4 million.

On June 5, 2018, we entered into the Fifth Amendment (the “Amendment”) to the 2014 7-Year Term Loan with Wells Fargo Bank, National Association, and the other financial institutions signatory to the Amendment. The Amendment was entered into to make certain provisions of the 2014 7-Year Term Loan consistent with the 2018 Credit Agreement. Among other things, the Amendment (i) adds and updates certain definitions and provisions, including tax-related provisions, relating to foreign lenders under the 2014 7-Year Term Loan, (ii) updates the definition of “Existing Credit Agreement” to refer to the 2018 Credit Agreement, which updates the cross defaults between the 2014 7-Year Term Loan and the 2018 Credit Agreement (replacing such cross defaults to the agreements the 2018 Credit Agreement replaced), (iii) adds and amends provisions consistent with those provided in the 2018 Credit Agreement for determining an alternative rate of interest to LIBOR, when and if required, and (iv) adjusts or eliminates some of the covenants

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~~applicable to the Borrower, as defined therein. The Amendment does not extend the maturity date of the 2014 7-Year Term Loan or change the amounts that can be borrowed thereunder.~~

As of June 30, ~~2018,~~2019, we had borrowed the full $550.0 million available under the Term Loans in the aggregate, and ~~no amounts were~~$182.0 million was borrowed under the 2018 Revolving ~~Facility (with $14.8 million pledged as collateral for letters of credit at June 30, 2018, reduced to $5.1 million in July 2018).~~Facility. The carrying value of the Term Loans on our consolidated balance sheet as of June 30, 2018 is net of ~~$3.1~~$2.4 million of unamortized debt issuance costs. Following recent property sales, the net operating income (“NOI”) from our remaining unencumbered properties is at a level such that pursuant to the Unencumbered Debt Yield covenant (as described below), the maximum unsecured amount that was available for us to borrow under the 2018 Revolving Facility as of June 30, ~~2018~~2019 was ~~$239.6 million~~.

$123.6 million.

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Amounts borrowed under the Credit Agreements, either under the 2018 Revolving Facility or the Term Loans, which may be either LIBOR Loans or Base Rate Loans, bear interest at the rate specified below per annum, depending on our leverage, unless and until we receive an investment grade credit rating and provide notice to the Administrative Agent, as defined therein (the “Rating Date”), after which alternative rates would apply, as described in the ~~2018~~ Credit ~~Agreement.~~Agreements. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is (a) 6.50% for each ~~Property~~property having an average sales per square foot of more than $500 for the most recent period of 12 consecutive months, and (b) 7.50% for any other ~~Property.~~property. The 2018 Revolving Facility is subject to a facility fee, which depends on leverage and was 0.30% as of June 30, ~~2018, and~~2019, which is recorded in interest expense in the consolidated statements of operations.

		Applicable Margin
Level	Ratio of Total Liabilities to Gross Asset Value	Revolving Loans that are LIBOR Loans			Revolving Loans that are Base Rate Loans			Term Loans that are LIBOR Loans			Term Loans that are Base Rate Loans
1	Less than 0.450 to 1.00		1.20	%		0.20	%		1.35	%		0.35	%
2	Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00		1.25	%		0.25	%		1.45	%		0.45	%
3	Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 ₍₁₎		1.30	%		0.30	%		1.60	%		0.60	%
4	Equal to or greater than 0.550 to 1.00		1.55	%		0.55	%		1.90	%		0.90	%

Applicable Margin
Level Ratio of Total Liabilities
to Gross Asset Value Revolving Loans that are LIBOR Loans Revolving Loans that are Base Rate Loans Term Loans that are LIBOR Loans Term Loans that are Base Rate Loans
1 Less than 0.450 to 1.00 1.20% 0.20% 1.35% 0.35%
2 Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00 1.25% 0.25% 1.45% 0.45%
3
Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 ⁽¹⁾
1.30% 0.30% 1.60% 0.60%
4 Equal to or greater than 0.550 to 1.00 1.55% 0.55% 1.90% 0.90%

⁽¹⁾	The rates in effect under the Credit Agreements were based upon the Level 3 Ratio of Total Liabilities to Gross Asset Value as of June 30, 2019.

⁽¹⁾~~The initial rate in effect under the 2018 Term Loan Facility and as of June 30, 2018 was 1.60% per annum in excess of LIBOR.~~

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

As of June 30, ~~2018,~~2019, the Borrower was in compliance with all financial covenants in the Credit Agreements.

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

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

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

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Interest expense, deferred financing fee amortization and accelerated financing costs, if any, related to the Credit Agreements for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands of dollars)	2019		2018		2019		2018
Revolving Facilities⁽¹⁾
Interest expense	$	1,827	$	248	$	3,061	$	613
Deferred financing amortization		274		304		548		504
Term Loans⁽²⁾
Interest expense		5,127		4,499		10,265		8,785
Deferred financing amortization		190		190		379		381
Accelerated financing costs		-		363		-		363

⁽¹⁾	Includes the 2018 Revolving Facility and the 2013 Revolving Facility (collectively, the “Revolving Facilities”). The 2013 Revolving Facility was replaced by the 2018 Revolving Facility in May 2018.

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⁽²⁾	Includes the 2018 Term Loan Facility, the 2014 7-Year Term Loan, the 2014 5-Year Term Loan and the 2015 5-Year Term Loan. The 2014 5-Year Term Loan and the 2015 5-Year Term Loan were replaced by the 2018 Term Loan Facility in May 2018.

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Revolving Facilities ⁽¹⁾

Interest expense $ 248
$ 645
$ 613
$ 1,409
Deferred financing amortization 304
199
504
398

Term Loans ⁽²⁾

Interest expense 4,499
3,712
8,785
6,547
Deferred financing amortization 190
190
381
377
Accelerated financing costs 363
—
363
—

⁽¹⁾ ~~Includes the 2018 Revolving Facility and the 2013 Revolving Facility (collectively, the “Revolving Facilities”).~~

⁽²⁾ ~~Includes the 2018 Term Loan Facility, the 7-Year Term Loan, the 2014 5-Year Term Loan and the 2015 5-Year Term Loan.~~

~~Mortgage Loans~~

The aggregate carrying values and estimated fair values of mortgage loans based on interest rates and market conditions at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 were as follows:

	June 30, 2019				December 31, 2018
(in millions of dollars)	Carrying Value		Fair Value		Carrying Value		Fair Value
Mortgage loans⁽¹⁾	$	981.5	$	955.8	$	1,047.9	$	1,002.3

⁽¹⁾	The carrying value of mortgage loans is net of unamortized debt issuance costs of $2.5 million and $3.1 million as of June 30, 2019 and December 31, 2018, respectively.

June 30, 2018 December 31, 2017
(in millions of dollars) Carrying Value Fair Value Carrying Value Fair Value
Mortgage loans⁽¹⁾
$ 1,056.7
$ 1,012.8
$ 1,056.1
$ 1,029.7

⁽¹⁾~~The carrying value of mortgage loans is net of unamortized debt issuance costs of $3.5 million and $3.4 million as of June 30, 2018 and December 31, 2017, respectively.~~

The mortgage loans contain various customary default provisions. As of June 30, ~~2018,~~2019, we were ~~not~~ in default ~~on any of the mortgage loans.~~

~~Mortgage Loan Activity~~

In January 2018, we extended the $68.5 million mortgage loan secured by Francis Scott Key Mall in Frederick, Maryland to January 2022, with an additional extension option to January 2023. The rate on the mortgage loan is LIBOR plus 2.60%.

~~In February 2018, we borrowed an additional $10.2 million~~ on the mortgage loan secured by ~~Viewmont Mall in Scranton, Pennsylvania. Following this borrowing, this mortgage loan has $67.2 million outstanding with an interest rate of LIBOR plus 2.35% and a maturity date of March 2021.~~

~~As a result of its Chapter 11 bankruptcy filing, the Bon-Ton anchor store at~~ Wyoming Valley Mall as described below.

Mortgage Loan Activity

In March 2019, we defeased a $58.5 million mortgage loan including accrued interest, secured by Capital City Mall in ~~Wilkes-Barre,~~Camp Hill, Pennsylvania ~~is expected to close no later than August 31, 2018. In addition,~~using funds from our 2018 Revolving Facility and the ~~Sears store at Wyoming Valley Mall ceased operations~~balance from available working capital. We recorded a loss on ~~July 15, 2018 and Sears vacated the premises on August 1, 2018, the date its lease expired.~~ debt extinguishment of $4.8 million in March 2019 in connection with this defeasance.

We received a notice of transfer of servicing, dated July 9, 2018, from the special servicer ~~to the borrower of~~for the mortgage loan secured by Wyoming Valley ~~Mall. We have not~~Mall, which had a balance of $73.1 million as of June 30, 2019. Our subsidiary that is the borrower under the loan also received a notice of default on the loan ~~which had a balance of $74.4 million as of June 30, 2018; however,~~from the lender, dated December 14, 2018. The loan is subject to a cash sweep arrangement as a result of an anchor tenant trigger event.

We have entered into an agreement with the lender to jointly market the property for sale for a stipulated period of time. If the property is not sold, we expect to convey the property to the lender by deed in lieu of foreclosure; however, we make no assurances that such a transaction will be completed.

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

Interest Rate Risk

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

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5. CASH FLOW INFORMATION

Cash paid for interest was ~~$28.9~~$26.9 million (net of capitalized interest of ~~$2.9~~$4.3 million) and $28.9 million~~) and~~ ~~$27.2 million~~ (net of capitalized interest of ~~$3.1 million~~)$2.9 million) for the six months ended June 30, ~~2018~~2019 and ~~2017~~,2018, respectively.

In our statement of cash flows, we show cash flows on our ~~revolving facility~~Revolving Facilities on a net basis. Aggregate borrowings on our Revolving Facilities were ~~$0.0~~$150.0 million and ~~$202.0 million~~ ~~for the six months ended June 30, 2018 and 2017, respectively. Aggregate paydowns were $53.0 million and $297.0~~$0.0 million for the six months ended June 30, 2019 and 2018, respectively. Aggregate paydowns were $33.0 million and ~~2017, respectively.~~

~~During the second quarter of 2018, we received the building and improvements formerly occupied by one of our tenants as part of the consideration~~$53.0 million for the ~~termination of that tenant’s lease. We recorded non-cash lease termination income of $4.2~~six months ended June 30, 2019 and 2018, respectively.

Accrued construction costs decreased by $15.5 million in ~~connection with this transaction, which we determined was~~ the ~~fair value of the building~~six months ended June 30, 2019 and ~~improvements.~~

~~Paydowns of the 2014 5-Year Term Loan and the 2015 5-Year Term Loan of $150.0~~decreased by $4.6 million ~~each were made~~ in the six months ended June 30, 2018, ~~which~~representing non-cash changes in construction in progress.

In the first quarter of 2019, we issued 6,250,000 common shares of beneficial interest in the Company in exchange for a like number of OP Units in our Operating Partnership. The shares were ~~directly paid from~~issued to Vornado Investments LLC, an affiliate of Franconia Two, L.P., the ~~2018 Term Loan Facility borrowing and are considered to be non-cash transactions.~~

holder of the OP Units.

The following table provides a summary of cash, cash equivalents, and restricted cash reported within the statement of cash flows as of June 30, ~~2018~~2019 and ~~June 30, 2017.~~2018.

	June 30,
(in thousands of dollars)	2019		2018
Cash and cash equivalents	$	15,227	$	42,198
Restricted cash included in other assets		11,305		14,572
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	26,532	$	56,770

(in thousands of dollars)
June 30,
2018

June 30,
2017
Cash and cash equivalents $ 42,198
$ 19,021
Restricted cash included in other assets 14,572
23,013
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows $ 56,770
$ 42,034

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

6. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

As of June 30, ~~2018~~,2019, we had unaccrued contractual and other commitments related to our capital improvement projects and development projects of ~~$138.5~~$118.5 million,, including $61.0 million of commitments related to the redevelopment of Fashion District Philadelphia, in the form of tenant allowances and contracts with general service providers and other professional service providers. For purposes of this disclosure, the contractual obligations and other commitments related to Fashion District Philadelphia are included at 100% of the obligation and not at our 50% ownership share. In addition, our operating partnership, PREIT Associates, has jointly and severally guaranteed the obligations of the joint venture we formed with Macerich to develop Fashion District Philadelphia to commence and complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016.

As of June 30, 2019, we expect to meet this obligation.

Provision for Employee Separation ~~Expense~~

Expenses

In ~~2018 and 2017,~~2019, we terminated the employment of certain employees and officers. In connection with the departure of those

employees and officers, we recorded ~~$0.4 million~~$0.1 and ~~$1.1~~$0.9 million of employee separation expense in the three and six months ended June 30, ~~2018 and 2017,~~2019, respectively, compared to $0.4 million and $0.4 million for the three and ~~$1.1 million of employee separation expense in the~~ six months ended June 30, 2018, ~~and 2017,~~ respectively. As of June 30, ~~2018,~~2019, we had ~~$0.7~~$0.8 million of severance accrued and unpaid related to ~~our~~activities related to the termination of employment of employees.

Property Damage from Natural Disaster

During September 2018, Jacksonville Mall in Jacksonville, North Carolina incurred property damage and ~~2017 employee termination related activities.~~

an interruption of business operations as a result of Hurricane Florence. The property was closed for business during and immediately after the natural disaster, however, significant remediation efforts were quickly undertaken and the mall was reopened shortly thereafter.

During the three and six months ended June 30, 2019, we recorded net recoveries of approximately $1.9 million and $1.6 million, respectively. These net recoveries relate to remediation expenses.

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7. DERIVATIVES

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

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Cash Flow Hedges of Interest Rate Risk

For derivatives that have been designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in “Accumulated other comprehensive income” and subsequently reclassified into “Interest expense, net” in the same periods during which the hedged transaction affects earnings. As of June 30, ~~2018,~~2019, all of our outstanding derivatives are designated as cash flow hedges. We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets.

During the next 12 months, we estimate that ~~$5.1~~less than $0.1 million will be reclassified as a decrease to interest expense in connection with derivatives. The recognition of these amounts, however, could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings.

Interest Rate Swaps

As of June 30, ~~2018~~,2019, we had interest rate swap agreements outstanding with a weighted average base interest rate of ~~1.55%~~1.85% on a notional amount of ~~$798.2~~$796.5 million,, maturing on various dates through May 2023, and forward starting interest rate swap agreements with a weighted average interest rate of ~~2.71%~~2.75% on a notional amount of ~~$250.0~~$100.0 million, with an effective ~~dates from January 2019 to~~date in June 2020, and a maturity ~~dates~~date in May 2023. We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. The interest rate swap agreements are net settled monthly.

~~Accumulated other comprehensive income as of~~ ~~June 30, 2018~~ ~~includes a net loss of~~ ~~$0.2 million~~ ~~relating to forward starting swaps that we cash settled in prior years that are being amortized over~~ 10 ~~year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps through August 2018.~~

The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments designated as cash flow hedges of interest rate risk at June 30, ~~2018~~2019 and December 31, ~~2017~~2018 based on the year they mature. The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate or market risks. In the accompanying consolidated balance sheets, the carrying amount of derivative assets is reflected in “Deferred costs and other assets, net” and the carrying amount of derivative liabilities is reflected in “Accrued expenses and other liabilities.”

Maturity Date	Aggregate Notional Value at June 30, 2019 (in millions of dollars)		Aggregate Fair Value at June 30, 2019⁽¹⁾ (in millions of dollars)			Aggregate Fair Value at December 31, 2018 ₍₁₎ (in millions of dollars)			Weighted Average Interest Rate
Interest Rate Swaps
2020	$	100.0	$	0.6		$	1.9			1.23	%
2021		496.5		(0.6	)		8.1			1.65	%
2022		—		—			—			—	%
2023		200.0		(7.9	)		(2.0	)		2.67	%
Forward Starting Swaps
2023		100.0		(3.3	)		(1.0	)		2.75	%
Total	$	896.5	$	(11.2	)	$	7.0			1.95	%

Maturity Date
Aggregate Notional Value at June 30, 2018
(in millions of dollars)

Aggregate Fair Value at
June 30, 2018 ⁽¹⁾
(in millions of dollars)

Aggregate Fair Value at
December 31, 2017 ⁽¹⁾(in millions of dollars)
Weighted Average Interest
Rate
Interest Rate Swaps
2018⁽²⁾
N/A
N/A
$ —

2019 $ 250.0
$ 1.0
0.8
1.44 %
2020 100.0
2.7
1.9
1.23 %
2021 398.2
12.6
7.0
1.57 %
2022 —
—
N/A
— %
2023 50.0
0.3
N/A
2.62 %
Forward Starting Swaps
2023 250.0
0.9
N/A
2.71 %
Total $ 1,048.2
$ 17.5
$ 9.7
1.83 %

~~_________________________~~


⁽¹⁾	As of June 30, ~~2018~~2019 and December 31, ~~2017~~,2018, derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy and we did not have any significant recurring fair value measurements related to derivative instruments using significant unobservable inputs (Level 3).


⁽²⁾	Three swaps matured in the first six months of 2018. As of December 31, 2017, these swaps had a notional value that totaled $110.6 million, had a weighted average interest rate of 1.11% and a de minimus fair value.

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The tables below present the effect of derivative financial instruments on accumulated other comprehensive income and on our consolidated statements of operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017~~:2018:

	Three Months Ended June 30,											Six Months Ended June 30,
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments					Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense						Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments					Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense
(in millions of dollars)	2019			2018		2019			2018			2019			2018		2019			2018
Derivatives in Cash Flow Hedging Relationships
Interest rate products	$	(10.5	)	$	3.8	$	(1.2	)	$	(0.6	)	$	(15.8	)	$	8.9	$	(2.3	)	$	(0.6	)

	Three Months Ended June 30,						Six Months Ended June 30,
(in millions of dollars)	2019			2018			2019			2018
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded	$	(15.6	)	$	(16.0	)	$	(31.5	)	$	(30.9	)
Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense	$	(1.2	)	$	(0.6	)	$	(2.3	)	$	(0.6	)

Three Months Ended June 30, Six Months Ended June 30,
Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense
(in millions of dollars) 2018 2017 2018 2017 2018 2017 2018 2017
Derivatives in Cash Flow Hedging Relationships
Interest rate products $ 3.8
$ (0.9 ) $ (0.6 ) $ 0.7
$ 8.9
$ 0.1
$ (0.6 ) $ 1.5

Three Months Ended
June 30,

Six Months Ended
June 30,
(in millions of dollars) 2018 2017 2018 2017
Total interest expense presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded $ (16.0 ) $ (14.4 ) $ (30.9 ) $ (29.8 )

Amount of gain (loss) reclassified from accumulated other comprehensive income into interest expense $ (0.6 ) $ 0.7
$ (0.6 ) $ 1.5

Credit-Risk-Related Contingent Features

We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of June 30, ~~2018~~,2019, we were not in default on any of our derivative obligations.

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

As of June 30, ~~2018, we did not have any~~2019, the fair value of derivatives in a ~~net~~ liability ~~position.~~

position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $13.6 million. If we had breached any of the default provisions in these agreements as of June 30, 2019, we might have been required to settle our obligations under the agreements at their termination value (including accrued interest) of $14.0 million. We had not breached any of these provisions as of June 30, 2019.

8. LEASES

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

As Lessee

We have entered into ground leases for portions of the land at Springfield Town Center and Plymouth Meeting Mall. We have also entered into an office lease for our headquarters location, as well as vehicle, solar panel and equipment leases as a lessee. The initial terms of these agreements generally range from three to 40 years, with certain agreements containing extension options for up to an additional 60 years. As of June 30, 2019, we included only those renewal options we were reasonably certain of exercising. Upon lease execution, the Company measures a liability for the present value of future lease payments over the noncancellable period of the lease and any renewal option period we are reasonably certain of exercising. Certain agreements require that we pay a portion of reimbursable expenses such as CAM, utilities, insurance and real estate taxes. These payments are not included in the calculation of the lease liability and are presented as variable lease costs.

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

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

	Three Months Ended June 30, 2019								Six Months Ended June 30, 2019
(in thousands of dollars)	Solar Panel Leases		Ground Leases		Office, equipment, and vehicle leases		Total		Solar Panel Leases		Ground Leases		Office, equipment, and vehicle leases		Total
Finance lease cost:
Amortization of right-of-use assets	$	187	$	—	$	—	$	187	$	375	$	—	$	—	$	375
Interest on lease liabilities		74		—		—		74		150		—		—		150
Operating lease costs		—		436		549		985		—		875		1,091		1,966
Variable lease costs		—		41		23		64		—		82		68		150
Total lease costs	$	261	$	477	$	572	$	1,310	$	525	$	957	$	1,159	$	2,641

Other information related to leases as of and for the six months ended June 30, 2019 is as follows:

(in thousands of dollars)
Cash paid for the amounts included in the measurement of lease liabilities
Operating cash flows used for finance leases	$	150
Operating cash flows used for operating leases	$	1,186
Financing cash flows used for finance leases	$	312
Weighted average remaining lease term-finance leases (months)		105
Weighted average remaining lease term-operating leases (months)		346
Weighted average discount rate-finance leases		4.41	%
Weighted average discount rate-operating leases		6.63	%

Future payments against lease liabilities as of June 30, 2019 are as follows:

(in thousands of dollars)	Finance leases			Operating leases			Total
July 1 to December 31, 2019	$	463		$	1,479		$	1,942
2020		925			2,003			2,928
2021		925			1,928			2,853
2022		925			1,646			2,571
2023		925			1,606			2,531
Thereafter		3,923			48,437			52,360
Total undiscounted lease payments		8,086			57,099			65,185
Less imputed interest		(1,386	)		(33,394	)		(34,780	)
Total lease liabilities	$	6,700		$	23,705		$	30,405

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

(in thousands of dollars)	Finance leases		Operating leases		Total
Year ending December 31,
2019	$	925	$	3,007	$	3,932
2020		925		1,845		2,770
2021		925		1,856		2,781
2022		925		1,673		2,598
2023		925		1,593		2,518
Thereafter		3,923		33,959		37,882
	$	8,548	$	43,933	$	52,481

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As Lessor

As of June 30, 2019, the fixed contractual lease payments, including minimum rents and fixed CAM amounts, to be received over the next five years pursuant to the terms of noncancellable operating leases with initial terms greater than one year are included in the table below. The amounts presented assume that no leases are renewed and no renewal options are exercised. Additionally, the table does not include variable lease payments that may be received under certain leases for percentage rents or the reimbursement of operating costs, such as common area expenses, utilities, insurance and real estate taxes. These variable lease payments are recognized in the period when the applicable expenditures are incurred or, in the case of percentage rents, when the sales data is made available.

(in thousands of dollars)
July 1 to December 31, 2019	$	110,415
2020		207,929
2021		191,280
2022		171,463
2023		151,535
Thereafter		513,061
	$	1,345,683

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this report.

The disclosures in this report are complementary to those made in our Annual Report on Form 10-K for the year ended December 31, 2018.

OVERVIEW

Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.

We currently own interests in 2827 retail properties, of which 25 are operating properties and ~~three~~two are development or redevelopment properties. The 25 operating properties include 21 shopping malls and four other retail properties, have a total of 20.0 million square feet and are located in nine states. We and partnerships in which we hold an interest own ~~15.3~~15.6 million square feet at these properties (excluding space owned by anchors or third parties).

There are 19 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 15.9 million square feet, of which we own ~~12.5~~12.9 million square feet. The six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.1 million square feet, of which 2.8 million square feet are owned by such partnerships. When we refer to “Same Store” properties, we are referring to properties that have been owned for the full periods presented and exclude properties acquired, disposed of, under redevelopment or designated as a non-core property during the periods presented. Core properties include all operating retail properties except for Exton Square Mall, Wyoming Valley Mall, and Valley View Mall, and also include Fashion District Philadelphia, which is currently under redevelopment. We also have one undeveloped land parcel located in Gainesville, Florida, ~~that is classified as held-for-sale as~~a portion of ~~June 30, 2018.~~

which was sold in March 2019.

We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia). We have ~~two properties~~one other property in our portfolio that ~~are~~is classified as under development; however, we do not currently have any activity occurring at ~~these properties.~~

this property.

Our primary business is owning and operating retail shopping malls, which we do primarily through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We provide management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest and properties that are owned by third parties in which we do not have an interest. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.

Our revenue consists primarily of fixed rental income, additional rent in the form of fixed and variable expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the leases) derived from our income producing properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.

Net loss for the three months ended June 30, ~~2018~~2019 was ~~$32.3~~$6.1 million, a decreased loss of ~~$21.0~~$26.2 million compared to a net loss of ~~$53.3~~$32.3 million for the three months ended June 30, ~~2017.~~ 2018. This decreased loss primarily reflected an impairment of assets of $34.3 million for the three months ended June 30, 2018, which was not repeated in 2019, and which was partially offset by: (a) a $6.9 million decrease in lease termination revenues; (b) a $1.5 million decrease in capitalized leasing costs as a result of the adoption of ASC 842 effective January 1, 2019; and (c) a $2.0 million decrease in non-Same Store NOI.

Net loss for the six months ended June 30, ~~2018~~2019 was ~~$36.0~~$22.3 million, a decreased loss of ~~$17.7~~$13.7 million compared to a net loss of ~~$53.8~~$36.0 million for the six months ended June 30, ~~2017. These decreases were~~2018. This decreased loss primarily ~~due to lower~~reflected an impairment ~~charges~~of assets of $34.3 million for the six months ended June 30, 2018, which was not repeated in 2019, and which was partially offset by: (a) a $6.7 million decrease in lease termination revenues; (b) a loss on debt extinguishment of $4.8 million incurred in connection with the defeasance of a mortgage loan recorded in the ~~2018 periods.~~

first quarter of 2019; (c) an asset impairment of $1.5 million on an undeveloped land parcel recorded in the first quarter of 2019; (d) a $2.2 million decrease in gains on sale of real estate by equity method investees; (e) a $2.7 million decrease in capitalized leasing costs as a result of the adoption of ASC 842 effective January 1, 2019; (f) a $0.5 million increase in employee separation expenses; (g) $0.4 million of dilution from asset sales; (h) a $3.3 million decrease in non-Same Store NOI; and (i) a $0.6 million increase in interest expense.

See “Non-GAAP Supplemental Financial Measures” below for more information about our use of non-Same Store NOI, a non-GAAP measure.

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We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, wehave aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of our consolidated revenue, and none of our properties are located outside the United States.

Current Economic and Industry Conditions

Conditions in the economy have caused fluctuations and variations in business and consumer confidence, retail sales, and consumer spending on retail goods. Further, traditional mall tenants, including department store anchors and smaller format retail tenants, face

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significant challenges resulting from changing consumer expectations, the convenience of e-commerce shopping, competition from fast fashion retailers, the expansion of outlet centers, and declining mall traffic, among other factors.

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

Though we expect certain redevelopment projects to open in the fall of 2019, we also have tenants who continue to face significant challenges, and we are in active discussions to restructure certain leasing arrangements through, among other things, downsizing and rent relief, which is expected to impact our results.

The table below sets forth information related to our tenants in bankruptcy for our consolidated and unconsolidated properties (excluding tenants in bankruptcy at sold properties):

	Pre-bankruptcy								Units Closed
Year	Number of Tenants⁽¹⁾		Number of locations impacted		GLA⁽²⁾		PREIT’s Share of Annualized Gross Rent⁽³⁾ (in thousands)		Number of locations closed		GLA⁽²⁾		PREIT’s Share of Annualized Gross Rent⁽³⁾ (in thousands)
2019 (Six Months)
Consolidated properties		7		63		217,377	$	8,758		61		200,494	$	8,461
Unconsolidated properties		4		9		29,365		945		7		26,399		840
Total		7		72		246,742	$	9,703		68		226,893	$	9,301
2018 (Full Year)
Consolidated properties		10		43		1,221,433	$	7,072		5		267,715	$	1,601
Unconsolidated properties		3		5		14,977		402		—		—		—
Total		10		48		1,236,410	$	7,474		5		267,715	$	1,601

⁽¹⁾	Totals represent number of unique tenants.

⁽²⁾	Gross Leasable Area (“GLA”) in square feet.

Pre-bankruptcy Units Closed
Year
Number of Tenants ⁽¹⁾
Number of locations impacted
GLA⁽²⁾

PREIT’s Share of Annualized Gross Rent⁽³⁾
(in thousands)
Number of locations closed
GLA⁽²⁾

PREIT’s Share of Annualized Gross Rent ⁽³⁾(in thousands)
2018 (Six Months)
Consolidated properties 5
29
300,374
$ 4,678
1
7,836
$ 356
Unconsolidated properties 2
4
4,352
247
—
—
—
Total 5
33
304,726
$ 4,925
1
7,836
$ 356

2017 (Full Year)
Consolidated properties 16
75
341,701
$ 10,837
27
176,221
$ 4,809
Unconsolidated properties 9
16
191,538
2,103
9
164,228
1,581
Total 18
91
533,239
$ 12,940
36
340,449
$ 6,390

⁽³⁾	Includes our share of tenant gross rent from partnership properties based on PREIT’s ownership percentage in the respective equity method investments as of June 30, 2019.

⁽¹⁾ ~~Totals represent number of unique tenants.~~

⁽²⁾ ~~Gross Leasable Area (“GLA”) in square feet.~~

⁽³⁾ ~~Includes our share of tenant gross rent from partnership properties based on PREIT’s ownership percentage in the respective equity method investments as of June 30, 2018.~~

~~Table of Contents~~

Anchor Replacements

In recent years, through property dispositions, proactive store recaptures, lease terminations and other activities, we have made efforts to reduce our risks associated with certain department store ~~concentrations.~~concentrations and have implemented our ongoing anchor replacement program. In December 2016, we acquired the Sears property at Woodland Mall and in 2017 we recaptured the Sears premises at Capital City Mall and Magnolia Mall (we have since re-leased the Capital City Mall and Magnolia Mall spaces). Also in 2017, we purchased the Macy’s locations at Moorestown Mall, Valley View Mall and Valley Mall ~~locations.~~locations and we re-leased all of these former Macy’s stores. The replacement tenant for Macy’s at Valley View Mall filed for bankruptcy and subsequently closed that store. We terminated the lease of the Sears store at Dartmouth Mall effective in 2019 and have entered into a lease for a replacement tenant. We have entered into a ground lease for the land associated with the Macy’s store located at Plymouth Meeting Mall and ~~are in negotiations~~have executed leases with five replacement tenants for that location.

Table of Contents

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

Property	Former Anchors	GLA (in '000's)	Date Closed	Decommission Date	Replacement Tenant(s)	GLA (in '000's)	Actual/Targeted Occupancy Date
Completed:

Magnolia Mall	Sears	91	Q1 17	Q2 17	Burlington	46	Q3 17
					HomeGoods	22	Q2 18
					Five Below	8	Q2 18
Moorestown Mall	Macy's	200	Q1 17	Q2 17	HomeSense	28	Q3 18
					Five Below	9	Q4 18
					Sierra Trading Post	19	Q1 19
Valley Mall	Macy's	120	Q1 16	Q4 17	Tilt Studio	48	Q3 18
					One Life Fitness	70	Q3 18
	Bon-Ton	123	Q1 18	Q1 18	Belk	123	Q4 18
Woodland Mall	Sears	313	Q2 17	Q2 17	REI	20	Q2 19

In progress:
Plymouth Meeting Mall	Macy's⁽¹⁾	215	Q1 17	Q2 17	Burlington	41	Q4 19
					Dick's Sporting Goods	58	Q4 19
					Edge Fitness	38	Q4 19
					Michael's	26	Q1 20
					Miller's Ale House	7	Q4 19
Valley Mall	Sears	123	Q3 17	Q2 18	Dick's Sporting Goods	57	Q1 20
Moorestown Mall	Macy's	see above			Michael's	25	Q1 20
Woodland Mall	Sears	see above			Von Maur	87	Q4 19
					Urban Outfitters	8	Q4 19
					Black Rock Bar & Grill	9	Q3 19
					Restaurants and small shops	13	Q4 19
Willow Grove Park	JC Penney	125	Q3 17	Q1 18	Studio Movie Grill	51	Q1 20
					Yard House	8	Q4 19
					Restaurant and entertainment space	36	Q4 19
Dartmouth Mall	Sears	108	Q3 19	Q3 19	Burlington	44	Q2 20

Former Anchors Replacement Tenant(s)
Property Name GLA '000's Date Store Closed Decommission Date Name
GLA
'000's
Actual/Targeted Occupancy Date
Completed:
Exton Square Mall Kmart 96 Q1 16
Q2 16 Whole Foods 55 Q1 18
Magnolia Mall Sears 91 Q1 17 Q2 17 Burlington 46 Q3 17
HomeGoods 22 Q2 18
Five Below 8 Q2 18
In process:
Valley Mall
Macy's
120 Q1 16 Q4 17 One Life Fitness 70 Q4 18
Tilt Studio 48 Q3 18
BonTon 123 Q1 18 Q1 18 Belk 123 Q4 18

Moorestown Mall Macy's 200 Q1 17 Q2 17 Sierra Trading Post 19 Q1 19

HomeSense 28 Q3 18
Five Below 9 Q4 18

TBD TBD TBD
Woodland Mall Sears 313 Q2 17 Q2 17 Von Maur 86 Q4 19
REI 20 Q2 19
Restaurants and small shop space TBD Q4 19
Plymouth Meeting Mall
Macy's⁽¹⁾
215 Q1 17 Q2 17 Various large format tenants 153 Q4 19
Willow Grove Park JC Penney 125 Q3 17 Q1 18 Movie theater and entertainment 49 Q3 19
Restaurant and entertainment space 44 Q4 19


⁽¹⁾	~~Building and improvements are now owned by us.~~ Property is subject to a ground ~~lease dated June 23, 2017.~~lease.

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

To fund the capital necessary to replace anchors and to maintain a reasonable level of leverage, we expect to use a variety of means available to us, subject to and in accordance with the terms of our Credit Agreements. These steps might include (i) making additional borrowings under our 2018 Revolving Facility, (ii) obtaining construction loans on specific projects, (iii) selling properties or interests in properties with values in excess of their mortgage loans (if applicable) and applying the excess proceeds to fund capital expenditures or for debt reduction, (iv) obtaining capital from joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors, private equity investors or other REITs, or (v) obtaining equity capital, including through the issuance of common or preferred equity securities if market conditions are favorable, or through other actions.

~~Table of Contents~~

Capital Improvements, Redevelopment and Development Projects

We might engage in various types of capital improvement projects at our operating properties. Such projects vary in cost and complexity, and can include building out new or existing space for individual tenants, upgrading common areas or exterior areas such as parking lots, or redeveloping the entire property, among other projects. Project costs are accumulated in “Construction in progress” on our consolidated balance sheet until the asset is placed into service, and amounted to ~~$117.5~~$150.8 million as of June 30, ~~2018.~~

2019.

Table of Contents

In 2014, we entered into a 50/50 joint venture with The Macerich Company (“Macerich”) to redevelop Fashion District Philadelphia. As we redevelop Fashion District Philadelphia, operating results in the short term, as measured by sales, occupancy, real estate revenue, property operating expenses, Net Operating Income (“NOI”) and depreciation, will continue to be affected until the newly constructed space is completed, leased and occupied. Fashion District Philadelphia is scheduled to open in September 2019.

In January 2018, ~~we along with Macerich,~~our Fashion District Philadelphia redevelopment project joint venture entity entered into a $250.0 million term loan (the “FDP Term Loan”). The initial term of the FDP Term Loan is five years, and bears interest at a variable rate of 2.00% over LIBOR. PREIT and Macerich have secured the FDP Term Loan by pledging their respective equity interests in the entities that own the Fashion District Philadelphia. The entire $250.0 million available under the FDP Term Loan was drawn during the first quarter of 2018, and we received an aggregate of $123.0 million as ~~distributions~~a distribution of our share of the draws.

In July 2019, the FDP Term Loan was modified to increase the total potential borrowings under the FDP Term Loan from $250.0 million to $350.0 million. In July 2019, $26.0 million was drawn and we received an aggregate of $12.5 million as a distribution for our share of the draw in July 2019. As of July 31, 2019, lender commitments have not been received for the remaining $74.0 million available under the FDP Term Loan.

CRITICAL ACCOUNTING POLICIES

Critical Accounting Policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Management has also considered events and changes in property, market and economic conditions, estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may affect comparability of our results of operations to those of companies in a similar business. The estimates and assumptions made by management in applying Critical Accounting Policies have not changed materially during ~~2018~~2019 or ~~2017,~~2018, except as otherwise noted, and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. We will continue to monitor the key factors underlying our estimates and judgments, but no change is currently expected.

For additional information regarding our Critical Accounting Policies, see “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

Asset Impairment

Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable. A property to be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property. This estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors.

The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in the anticipated action to be taken with respect to the property could impact the determination of whether an impairmentexists and whether the effects could materially affect our net income. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the estimated fair value of the property.

Assessment of our ability to recover certain lease related costs must be made when we have a reason to believe that the tenant might not be able to perform under the terms of the lease as originally expected. This requires us to make estimates as to the recoverability of such costs.

~~Table of Contents~~

An other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in value. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

If there is a triggering event in relation to a property to be held and used, we will estimate the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges. In addition, this estimate may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.

~~In determining the estimated undiscounted cash flows~~

Table of the property or properties that are being analyzed for impairment of assets, we take the sum of the estimated undiscounted cash flows, generally assuming a holding period of 10 years, plus a terminal value calculated using the estimated net operating income in the eleventh year and terminal capitalization rates, which through June 30, 2018, ranged from 12.0% to 13.0%.

Contents

New Accounting Developments

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

OFF BALANCE SHEET ARRANGEMENTS

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

~~Table of Contents~~

RESULTS OF OPERATIONS

Occupancy

The table below sets forth certain occupancy statistics for our properties as of June 30, ~~2018~~2019 and ~~2017~~:2018:

	Occupancy⁽¹⁾ at June 30,
	Consolidated Properties						Unconsolidated Properties⁽²⁾						Combined⁽²⁾
	2019			2018			2019			2018			2019			2018
Retail portfolio weighted average:
Total excluding anchors		89.0	%		90.3	%		89.8	%		92.5	%		89.2	%		90.8	%
Total including anchors		90.3	%		92.7	%		91.7	%		93.9	%		90.6	%		92.9	%
Core Malls weighted average:⁽³⁾
Total excluding anchors		90.4	%		91.6	%		86.3	%		92.3	%		89.9	%		91.7	%
Total including anchors		94.0	%		93.5	%		90.6	%		94.8	%		93.7	%		93.7	%

Occupancy ⁽¹⁾ at June 30,

Consolidated
Properties

Unconsolidated
Properties⁽²⁾

Combined⁽²⁾⁽³⁾
2018 2017 2018 2017 2018 2017
Retail portfolio weighted average:
Total excluding anchors 90.3 % 90.1 % 92.5 % 90.3 % 90.8 % 90.1 %
Total including anchors 92.7 % 92.7 % 93.9 % 92.1 % 92.9 % 92.7 %
Malls weighted average:
Total excluding anchors 90.8 % 90.0 % 92.3 % 89.8 % 90.9 % 90.0 %
Total including anchors 93.0 % 92.8 % 94.8 % 93.0 % 93.2 % 92.9 %
Other retail properties 41.9 % N/A
93.2 % 91.4 % 90.8 % 91.4 %

~~_________________________~~


⁽¹⁾	Occupancy for both periods presented includes all tenants irrespective of the term of their agreements. Fashion District Philadelphia is excluded for ~~2017~~2019 and 2018 because the property is currently partially closed and undergoing a major reconstruction.


⁽²⁾	We own a 25% to 50% interest in each of our unconsolidated properties, and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See "—~~Use of Non GAAP~~Non-GAAP Supplemental Financial Measures" for further details on our ownership interests in our unconsolidated properties.


⁽³⁾	~~Combined occupancy is calculated by using occupied gross leasable area (“GLA”) for consolidated~~ Core Malls excludes Fashion District Philadelphia, Exton Square Mall, Valley View Mall, Wyoming Valley Mall, power centers and ~~unconsolidated properties and dividing by total GLA for consolidated and unconsolidated properties.~~Gloucester Premium Outlets.

Table of Contents

Leasing Activity

The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the three months ended June 30, ~~2018~~:2019:

		Number		GLA		Term		Initial Rent per square foot ("psf")		Previous Rent psf		Initial Gross Rent Renewal Spread⁽¹⁾						Average Rent Renewal Spread⁽²⁾			Annualized Tenant Improvements psf⁽³⁾
												$			%			%
Non Anchor
New Leases
Under 10k square feet ("sf")	Consolidated		38		80,837		5.1	$	40.38												$	10.99
	Unconsolidated⁽⁴⁾		4		15,346		3.7		46.19													-
Total Under 10k sf			42		96,183		4.9	$	41.31	n/a		n/a			n/a			n/a			$	9.66

Over 10k sf	Consolidated		1		12,147		10.0	$	38.79	n/a		n/a			n/a			n/a			$	-
Total New Leases			43		108,330		5.4	$	41.02	n/a		n/a			n/a			n/a			$	7.67

Renewal Leases
Under 10k sf	Consolidated		26		51,466		2.8	$	54.23	$	52.16	$	2.07			4.0	%		9.8	%	$	2.76
	Unconsolidated⁽⁴⁾		5		21,576		3.9		58.89		67.58		(8.69	)		(12.9	%)		(1.6	%)		3.34
Total Under 10k sf			31		73,042		3.1	$	55.61	$	56.71	$	(1.11	)		(2.0	%)		5.6	%	$	2.98

Over 10k sf	Consolidated		2		52,012		5.0	$	10.31	$	9.53	$	0.78			8.2	%		9.5	%
Total Fixed Rent			33		125,054		3.9	$	36.77	$	37.09	$	(0.32	)		(0.9	%)		6.1	%	$	1.39
Percentage in Lieu	Consolidated		8		24,855		1.5	$	25.40	$	50.30	$	(24.90	)		(49.5	%)	n/a			$	-
Total Renewal Leases			41		149,909		3.5	$	34.88	$	39.28	$	(4.40	)		(11.2	%)		6.1	%	$	1.29
Total Non Anchor			84		258,239		4.3	$	37.46

Anchor
New Leases			-		-		-	$	-	n/a		n/a			n/a			n/a			n/a
Renewal Leases	Consolidated		-		-		-		-	n/a		n/a			n/a			n/a			n/a
Total			-		-		-	$	-

Annualized Tenant Improvements psf ⁽³⁾
Number
GLA
in square feet (“sf”)
Term (years) Initial Rent per square foot (“psf”) Previous Rent psf
Initial Gross Rent Renewal Spread ⁽¹⁾

Average Rent Renewal Spread ⁽²⁾

$ % %
Non Anchor
New Leases
Under 10k square feet ("sf") Consolidated 30
108,264
6.5
$ 49.97
$ 10.94

Unconsolidated⁽⁴⁾
—
—
—
—
—
Total Under 10k sf 30
108,264
6.5
49.97
n/a n/a n/a n/a 10.94

Over 10k sf Consolidated 6
79,598
10.0
36.72
n/a n/a n/a n/a 6.9
Total New Leases 36
187,862
8.0
$ 44.36
n/a n/a n/a n/a $ 8.80
Renewal Leases
Under 10k sf Consolidated 28
61,585
2.8
$ 53.25
$ 53.10
$ 0.15
0.3 % 7.5 % $ —

Unconsolidated⁽⁴⁾
3
15,718
4.9
39.84
42.86
(3.02 ) (7.0 )% 0.5 % —
Total Under 10k sf 31
77,303
3.2
$ 50.52
$ 51.02
$ (0.49 ) (1.0 )% 6.4 % $ —

Total Fixed Rent 31
77,303
3.2
$ 50.52
$ 51.02
$ (0.49 ) (1.0 )% 6.4 % $ —
Percentage in Lieu Consolidated 16
30,869
1.5
$ 40.28
$ 53.70
$ (13.42 ) (25.0 )% n/a —
Total Renewal Leases⁽⁵⁾
47
108,172
2.7
$ 47.60
$ 51.78
$ (4.19 ) (8.1 )% 6.4 % $ —
Total Non Anchor 83
296,034
6.1
$ 45.54

~~________________________~~

⁽¹⁾

Initial gross rent renewal spread is computed by comparing the initial rent per square foot in the new lease to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent, common area maintenance (“CAM”) charges, estimated real estate tax reimbursements and marketing charges, but excludes percentage rent. In certain cases, a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied.


⁽²⁾	Average rent renewal spread is computed by comparing the average rent per square foot over the new lease term to the final rent per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent and fixed CAM charges, but excludes pro rata CAM charges, estimated real estate tax reimbursements, marketing charges and percentage rent.


⁽³⁾	Tenant improvements and certain other leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term.


⁽⁴⁾	We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See “—~~Use of~~ Non-GAAP Supplemental Financial Measures” for further details on our ownership interests in our unconsolidated properties.


⁽⁵⁾	Total renewal leases includes 2 leases and 2,589 square feet of GLA with respect to tenants whose leases were restructured and extended following a bankruptcy filing. Excluding these leases, the initial gross rent renewal spreads were (1.0%) for leases under 10,000 square feet and (6.9%) for all non-anchor leases.

Table of Contents

The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the six months ended June 30, ~~2018:~~2019:

		Number		GLA		Term		Initial Rent per square foot ("psf")		Previous Rent psf		Initial Gross Rent Renewal Spread⁽¹⁾						Average Rent Renewal Spread⁽²⁾			Annualized Tenant Improvements psf⁽³⁾
												$			%			%
Non Anchor
New Leases
Under 10k square feet ("sf")	Consolidated		57		151,548		7.0	$	41.13												$	13.64
	Unconsolidated⁽⁴⁾		5		20,846		5.7		47.17													12.75
Total Under 10k sf			62		172,394		6.8	$	41.86	n/a		n/a			n/a			n/a			$	13.55

Over 10k sf	Consolidated		2		32,238		9.4		19.73	n/a		n/a			n/a			n/a				-
Total New Leases			64		204,632		7.2	$	38.37	n/a		n/a			n/a			n/a			$	10.81

Renewal Leases
Under 10k sf	Consolidated		52		115,299		3.2	$	57.11	$	54.69	$	2.42			4.4	%		4.7	%	$	2.64
	Unconsolidated⁽⁴⁾		8		25,301		3.6		60.93		67.99		(7.06	)		(10.4	%)		(0.7	%)		3.12
Total Under 10k sf			60		140,600		3.3	$	57.80	$	57.08	$	0.71			1.3	%		3.5	%	$	2.74

Over 10k sf	Consolidated		6		132,171		4.9	$	12.94	$	12.25	$	0.69			5.6	%		6.3	%	$	0.66
Total Fixed Rent			66		272,771		4.0	$	36.06	$	35.36	$	0.70			2.0	%		4.0	%	$	1.52
Percentage in Lieu	Consolidated		40		145,682		1.8	$	29.87	$	44.83	$	(14.96	)		(33.4	%)	n/a			$	-
Total Renewal Leases			106		418,453		3.3	$	33.91	$	38.66	$	(4.75	)		(12.3	%)		4.0	%	$	1.23
Total Non Anchor			170		623,085		4.6	$	35.38

Anchor
New Leases			1		43,840		10.4	$	16.50	n/a		n/a			n/a			n/a			$	11.62
Renewal Leases	Consolidated		6		629,743		3.8		3.48	$	4.26	$	(0.78	)		(18.3	%)	n/a			$	-
Total			7		673,583		4.2	$	4.33

GLA in square feet (“sf”) Term (years) Initial Rent per square foot ("psf")
Initial Gross Rent Renewal Spread⁽¹⁾

Average Rent Renewal Spread ⁽²⁾

Annualized Tenant Improvements psf ⁽³⁾
Number Previous Rent psf $ % %
Non Anchor
New Leases
Under 10k square feet ("sf") Consolidated 48
159,469
6.8
$ 46.96
$ 10.02

Unconsolidated⁽⁴⁾
8
29,429
7.4
39.65
20.94
Total Under 10k sf —
56
188,898
6.9
45.82
n/a
n/a
n/a
n/a
11.85

Over 10k sf Consolidated 8
102,055
10.0
37.12
n/a
n/a
n/a
n/a
7.31
Total New Leases 64
290,953
8.0
$ 42.77
n/a
n/a
n/a
n/a
$ 9.85
Renewal Leases
Under 10k sf Consolidated 53
116,042
3.0
$ 50.33
$ 49.94
$ 0.39
0.8 % 6.4 % $ —

Unconsolidated⁽⁴⁾
24
60,727
3.5
67.58
69.82
(2.24 ) (3.2 )% 1.8 % 0.58
Total Under 10k sf 77
176,769
3.2
$ 56.26
$ 56.77
$ (0.51 ) (0.9 )% 4.5 % $ 0.22

Over 10k sf Consolidated 4
109,647
7.3
$ 23.82
$ 22.68
$ 1.14
5.0 % 23.6 % $ 4.97

Unconsolidated⁽⁴⁾
1
11,306
1.0
14.15
25.72
(11.57 ) (45.0 )% (45.0 )% —
Total Over 10k sf 5
120,953
6.7
$ 22.91
$ 22.96
$ (0.05 ) (0.2 )% 15.8 % $ 4.91
Total Fixed Rent 82
297,722
4.6
$ 42.71
$ 43.03
$ (0.33 ) (0.8 )% 7.0 % $ 2.99
Percentage in Lieu Consolidated 30
83,067
1.5
$ 32.44
$ 42.91
$ (10.47 ) (24.4 )% n/a
$ —
Total Renewal Leases⁽⁵⁾
112
380,789
3.9
$ 40.47
$ 43.01
$ (2.54 ) (5.9 )% 7.0 % $ 2.75
Total Non Anchor 176
671,742
5.7
$ 41.47

Anchor
New Leases —
—
—
$ —
n/a
n/a
n/a
n/a
$ —
Renewal Leases Consolidated 1
102,825
8.0
$ 4.73
$ 5.38
$ (0.65 ) (12.1 )% n/a
$ —
Total 1
102,825
8.0
$ 4.73

~~Table of Contents~~

⁽¹⁾

Initial gross rent renewal spread is computed by comparing the initial rent ~~psf~~per square foot in the new lease to the final rent ~~psf~~per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent, ~~CAM~~common area maintenance (“CAM”) charges, estimated real estate tax reimbursements and marketing charges, but excludes percentage rent. In certain cases, a lower rent amount may be payable for a period of time until specified conditions in the lease are satisfied.


⁽²⁾	Average rent renewal spread is computed by comparing the average rent ~~psf~~per square foot over the new lease term to the final rent ~~psf~~per square foot amount in the expiring lease. For purposes of this computation, the rent amount includes minimum rent and fixed CAM charges, but excludes pro rata CAM charges, estimated real estate tax reimbursements, marketing charges and percentage rent.


⁽³⁾	Tenant improvements and certain other leasing costs are presented as annualized amounts per square foot and are spread uniformly over the initial lease term.


⁽⁴⁾	We own a 25% to 50% interest in each of our unconsolidated properties and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See “—~~Use of~~ Non-GAAP Supplemental Financial Measures” for further details on our ownership interests in our unconsolidated properties.

⁽⁵⁾

Total renewal leases includes 7 leases and 11,102 square feet of GLA with respect to tenants whose leases were restructured and extended following a bankruptcy filing. Excluding these leases, the initial gross rent renewal spreads were 0.8% for leases under 10,000 square feet and (4.6%) for all non anchor leases. Excluding these leases, the average rent renewal spreads were 6.4% for leases under 10,000 square feet and 8.6% for all non anchor leases.

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Overview

Table of Contents

Net loss for the six months ended June 30, ~~2018~~2019 was ~~$36.0~~$22.3 million, a decreased loss of ~~$17.7~~$13.7 million compared to a net loss of ~~$53.8~~$36.0 million for the six months ended June 30, ~~2017. These decreases were~~2018. This decreased loss primarily ~~due to lower~~reflected an impairment ~~charges~~of assets of $34.3 million for the six months ended June 30, 2018, which was not repeated in 2019, and which was partially offset by: (a) a $6.7 million decrease in lease termination revenues (b) a loss on debt extinguishment of $4.8 million incurred in connection with the defeasance of a mortgage loan recorded in the ~~2018 periods.~~

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

The following table sets forth our results of operations for the three and six months ended June 30, ~~2018~~2019 and ~~2017.~~2018.

	Three Months Ended June 30,						% Change 2018 to 2019				Six Months Ended June 30,						% Change 2018 to 2019
(in thousands of dollars)	2019			2018							2019			2018
Real estate revenue	$	81,077		$	91,122			(11	)	%	$	165,753		$	176,515			(6	)	%
Property operating expenses		(33,762	)		(34,059	)		(1	)	%		(68,891	)		(70,764	)		(3	)	%
Other income		315			851			(63	)	%		942			1,740			(46	)	%
Depreciation and amortization		(31,946	)		(33,356	)		(4	)	%		(66,849	)		(67,386	)		(1	)	%
General and administrative expenses		(11,609	)		(9,396	)		24		%		(22,814	)		(19,528	)		17		%
Provision for employee separation expenses		(141	)		(395	)		(64	)	%		(860	)		(395	)		118		%
Insurance recoveries, net		1,852			-			0		%		1,616			-			0		%
Project costs and other expenses		(130	)		(139	)		(6	)	%		(187	)		(251	)		(25	)	%
Interest expense, net		(15,554	)		(15,982	)		(3	)	%		(31,452	)		(30,883	)		2		%
Loss on debt extinguishment		-			-			0		%		(4,768	)		-			0		%
Impairment of assets		-			(34,286	)		(100	)	%		-			(34,286	)		(100	)	%
Impairment of development land parcel		-			-			0		%		(1,464	)		-			0		%
Equity in income of partnerships		2,316			2,571			(10	)	%		4,605			5,709			(19	)	%
Gain (loss) on sales of real estate by equity method investee		(11	)		-			0		%		553			2,773			(80	)	%
Gain on sales of real estate, net		1,513			748			102		%		1,513			748			102		%
Adjustment to gain on sales of interests in non operating real estate		—			—			0		%		—			(25	)		(100	)	%
Net loss	$	(6,080	)	$	(32,321	)		(81	)	%	$	(22,303	)	$	(36,033	)		(38	)	%

Three Months Ended
June 30, % Change
2017 to
2018 Six Months Ended
June 30, % Change
2017 to
2018
(in thousands of dollars) 2018 2017 2018 2017
Real estate revenue $ 91,122
$ 88,410
3 % $ 176,515
$ 176,834
— %
Property operating expenses (34,059 ) (35,226 ) (3 )% (70,764 ) (72,206 ) (2 )%
Other income 851
840
1 % 1,740
1,680
4 %
Depreciation and amortization (33,356 ) (32,928 ) 1 % (67,386 ) (64,686 ) 4 %
General and administrative expenses (9,396 ) (9,232 ) 2 % (19,528 ) (18,273 ) 7 %
Provision for employee separation expense (395 ) (1,053 ) (62 )% (395 ) (1,053 ) (62 )%
Project costs and other expenses (139 ) (85 ) 64 % (251 ) (397 ) (37 )%
Interest expense, net (15,982 ) (14,418 ) 11 % (30,883 ) (29,756 ) 4 %
Impairment of assets (34,286 ) (53,917 ) (36 )% (34,286 ) (53,917 ) (36 )%
Equity in income of partnerships 2,571
4,154
(38 )% 5,709
7,890
(28 )%
Gain on sale of real estate by equity method investee —
—
— % 2,773
—
— %
Gains (adjustment to gains) on sales of interest in non operating real estate —
486
(100 )% (25 ) 486
(105 )%
Gains (losses) on sales of interests in real estate, net 748
(308 ) (343 )% 748
(365 ) (305 )%
Net loss $ (32,321 ) $ (53,277 ) (39 )% $ (36,033 ) $ (53,763 ) (33 )%

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

Real estate revenue

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

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The following table reports the breakdown of real estate revenues based on the terms of the lease contracts for the three and six months ended June 30, 2019 and 2018:

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands of dollars)	2019			2018		2019			2018
Contractual lease payments:
Base rent	$	54,103		$	55,369	$	109,988		$	111,343
CAM reimbursement income		10,873			11,201		22,549			22,802
Real estate tax income		8,871			9,632		18,380			19,929
Percentage rent		156			161		164			256
Lease termination revenue		156			7,090		469			7,121
		74,159			83,453		151,550			161,451
Less: credit losses		(415	)		—		(1,192	)		—
Lease revenue		73,744			83,453		150,358			161,451
Expense reimbursements		4,916			5,395		9,978			10,629
Other real estate revenue		2,417			2,274		5,417			4,435
Total real estate revenue	$	81,077		$	91,122	$	165,753		$	176,515

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

Real estate revenue ~~increased~~decreased by $~~2.7~~$10.0 million,, or 3%11%, in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017~~,2018, primarily due to:

•

a decrease of $6.4 million in same store lease termination revenue, including $6.5 million from the termination of leases with three tenants during the three months ending June 30, 2018;

•

a decrease of $2.5 million in real estate revenue at non-same store properties Wyoming Valley Mall, Valley View Mall and Exton Square Mall due to four anchor store closings during 2018 and associated co-tenancy concessions;

•

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

an increase of $5.3 million in same store lease termination revenue, including $7.1 million from the termination of leases with three tenants during the three months ending June 30, 2018; partially offset by $1.7 million received from two tenants during the three months ending June 30, 2017;

•

a decrease of $0.3 million in same store credit losses as a result of the adoption of ASC 842. Under ASC 840, such amounts were included in other property operating expenses and were $0.5 million in the three months ended June 30, 2018; and

•

a decrease of $0.3 million in same store tenant utility reimbursements due to a combination of lower tenant electric usage and lower occupancy at some properties; partially offset by

~~an increase of $0.6 million in same store base rent due to $1.2~~

•

an increase of $0.1 million in same store base rent due to $0.8 million from net new store openings over the previous twelve months, ~~partially offset by a $0.4 million decrease related to tenant bankruptcies in 2017 and 2018, as well as a $0.2 million decrease related to co-tenancy concessions that resulted from anchor closings;~~ partially offset by a $0.7 million decrease related to tenant bankruptcies in 2018 and 2019; and

•

an increase of $0.1 million in same store other real estate revenue, including $0.2 million in seasonal photo income due to a temporary timing difference resulting from the timing of the Easter holiday.

~~a decrease of $3.1 million in real estate revenue related to properties sold in 2017; and~~

a decrease of $0.3 million in same store common area expense reimbursements, due to a decrease in common area expense (see “—Property Operating Expenses”), as well as lower occupancy at some properties, and rental concessions made to some

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~~tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements.~~

Real estate revenue decreased by ~~$0.3~~$10.8 million, or ~~less than 1%~~6%, in the six months ended June 30, ~~2018~~2019 compared to the six months ended June 30, ~~2017,~~2018, primarily due to:

•

a decrease of $6.1 million in same store lease termination revenue, including $6.5 million from the termination of leases with three tenants during the six months ending June 30, 2018, partially offset by $0.3 million received from two tenants during the six months ended June 30, 2019;

•

a decrease of $3.4 million in real estate revenue at non-same store properties Wyoming Valley Mall, Valley View Mall and Exton Square Mall due to four anchor store closings during 2018 and associated co-tenancy concessions;

•

a decrease of $1.0 million in same store real estate tax reimbursements due to lower occupancy at some properties and rental concessions made to some tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements, partially offset by an increase in real estate tax expense (see “—Property Operating Expenses”);

Table of ~~$6.6 million in real estate revenue related to properties sold in 2017;~~Contents

•

a decrease of $0.9 million in same store credit losses as a result of the adoption of ASC 842. Under ASC 840, such amounts were in included in other property operating expenses and were $1.5 million in the six months ended June 30, 2018; and

•

a decrease of $0.3 million in same store tenant utility reimbursements due to a combination of lower tenant usage and lower occupancy at some properties; partially offset by

a decrease of $0.8 million in same store common area expense reimbursements, due to a decrease in common area expense (see “—Property Operating Expenses”), as well as lower occupancy at some properties and rental concessions made to some tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements;

•

an increase of $1.2 million in same store base rent due to $2.1 million from net new store openings over the previous twelve months, partially offset by a $0.9 million decrease related to tenant bankruptcies in 2018 and 2019; and

•

an increase of $0.1 million in same store common area expense reimbursements, including an increase of $1.2 million associated with the straight lining of fixed common area expense reimbursements effective January 1, 2019 in accordance with ASC 842. Excluding the impact of the straight line adjustment, same store common area reimbursements decreased by $1.1 million due to a decrease in common area expense (see “—Property Operating Expenses”), as well as lower occupancy at some properties and rental concessions made to some tenants under which the terms of their leases were modified such that they no longer pay expense reimbursements.

an increase of $4.9 million in same store lease termination revenue, including $7.1 million from the termination of leases with three tenants during the six months ending June 30, 2018, partially offset by $2.1 million received from three tenants during the six months ending June 30, 2017;

an increase of $1.5 million in same store base rent due to $2.5 million from net new store openings over the previous twelve months, partially offset by a $0.6 million decrease related to tenant bankruptcies in 2017 and 2018, as well as a $0.4 million decrease related to co-tenancy concessions due to anchor closings; and

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

Property operating expenses

Property operating expenses decreased by ~~$1.2 million, or 3%, in the three months ended June 30, 2018 compared to the three months ended June 30, 2017, primarily due to:~~

~~a decrease of $1.0 million in property operating expenses related to properties sold in 2017;~~

a decrease of $0.9 million in same store common area maintenance expense, including a decrease of $0.6 million in housekeeping, maintenance and loss prevention expense due to negotiated rate reductions with the service providers; and

~~a decrease of $0.2 million in same store tenant utility expense due to a combination of lower electric rates and usage compared to the three months ended June 30, 2017; partially offset by~~

~~an increase of $0.9 million in same store real estate tax expense due to a combination of increases in the real estate tax assessment value and the real estate tax rate; and~~

~~an increase of $0.2 million in same store other property expenses, including a $0.4 million increase in bad debt expense, partially offset by a~~ $0.3 ~~million decrease in personnel costs. The increase in bad debt expense was due to increased reserves for tenants in bankruptcy and other troubled tenants.~~

~~Property operating expenses decreased by $1.4 million, or 2%, in the six months ended June 30, 2018 compared to the six months ended June 30, 2017, primarily due to:~~

~~a decrease of $3.0 million in property operating expenses related to properties sold in 2017; and~~

a decrease of $1.0 million in same store common area maintenance expense, including a $0.7 million decrease in personnel costs and an $0.8 million decrease in housekeeping, maintenance and loss prevention expense due to negotiated rate reductions with the service providers, partially offset by a $0.4 million increase in snow removal expense due to higher snow fall amounts across the Mid-Atlantic States, where many of our properties are located; partially offset by

~~an increase of $1.9 million in same store real estate tax expense due to a combination of increases in the real estate tax assessment value and the real estate tax rate; and~~

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an increase of $0.7 million in same store other property expenses, including a $1.0 million increase in bad debt expense, partially offset by a $0.5 million decrease in personnel costs. The increase in bad debt expense was due to increased reserves for tenants in bankruptcy and other troubled tenants.

~~Depreciation and amortization~~

~~Depreciation and amortization expense increased by $0.4~~ million, or 1%, in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017,~~2018, primarily due to:

•

a decrease of $0.5 million in same store credit losses as a result of the adoption of ASC 842. Under ASC 840, such amounts were included in other property operating expenses and were $0.5 million in the three months ended June 30, 2018;

•

a decrease of $0.4 million in real estate tax expense at non-same store properties Wyoming Valley Mall, Valley View Mall and Exton Square Mall primarily due to a lower tax assessment;

•

a decrease of $0.2 million in same store marketing expense; and

•

a decrease of $0.1 million in same store property legal expense; partially offset by

•

an increase of $0.8 million in same store common area maintenance expense, including increases of $0.2 million in repairs and maintenance expense, $0.1 million in housekeeping expense, $0.1 million in loss prevention expense and $0.1 million in insurance expense; and

•

an increase of $0.3 million in same store real estate tax expense due to a combination of increases in the real estate tax assessment value and the real estate tax rate.

Property operating expenses decreased by $1.9 million, or 3%, in the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to:

•

a decrease of $1.5 million in same store credit losses as a result of the adoption of ASC 842. Under ASC 840, such amounts were included in other property operating expenses and were $1.5 million in the six months ended June 30, 2018;

•

a decrease of $0.6 million in property operating expenses at non-same store properties Wyoming Valley Mall, Valley View Mall and Exton Square Mall primarily due to a lower tax assessment and lower tenant utility expense;

•

a decrease of $0.3 million in same store marketing expense; and

•

a decrease of $0.2 million in same store property legal expense; partially offset by

•

an increase of $0.7 million in same store real estate tax expense due to a combination of increases in the real estate tax assessment value and the real estate tax rate; and

•

an increase of $0.4 million in same store common area maintenance expense, including increases of $0.2 million in loss prevention expense, $0.1 million in repairs and maintenance expense and $0.1 million in insurance expense.

Depreciation and amortization

Depreciation and amortization expense decreased by $1.4 million, or 4%, in the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to a decrease of $1.8 million at three properties that have a lower asset base resulting from impairment charges during 2018; partially offset by an increase of ~~$1.1~~$0.4 million due to a higher asset base resulting from capital improvements related to new tenants at our same store properties, as well as accelerated amortization of capital improvements associated with store ~~closings; partially offset by~~

~~a decrease~~closings.

Table of ~~$0.7 million related to properties sold in 2017.~~

Contents

Depreciation and amortization expense ~~increased~~decreased by ~~$2.7~~$0.5 million, or 4%1%, in the six months ended June 30, ~~2018~~2019 compared to the ~~three~~six months ended June 30, ~~2017,~~2018, primarily due ~~to:~~

to a decrease of $2.7 million at three properties that have a lower asset base resulting from impairment charges during 2018; partially offset by an increase of ~~$4.2~~$2.2 million due to a higher asset base resulting from capital improvements related to new tenants at our same store properties, as well as accelerated amortization of capital improvements associated with store ~~closings; partially offset by~~

~~a decrease of $1.5 million related to properties sold in 2017.~~

closings.

General and administrative expenses

General and administrative expenses increased by ~~$0.2~~$2.2 million,, or 2%24%, in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017~~,2018 primarily due to certain internal leasing and legal costs that were previously capitalized under ASC 840 now being recorded as period costs under ASC 842 and included in general and administrative expenses. For the three months ended June 30, 2018, we capitalized $1.6 million of internal leasing and legal salaries and benefits. No such costs were capitalized for the three months ended June 30, 2019. Incentive compensation expenses also increased by ~~$1.3~~$0.4 million, primarily due to higher costs related to equity compensation plans.

General and administrative expenses increased by $3.3 million, or 7%17%, in the six months ended June 30, ~~2018~~2019 compared to the six months ended June 30, ~~2017,~~2018 primarily due to ~~increases~~certain internal leasing and legal costs that were previously capitalized under ASC 840 now being recorded as period costs under ASC 842 and included in ~~short-term incentive~~general and administrative expenses. For the six months ended June 30, 2018, we capitalized $2.7 million of internal leasing and legal salaries and benefits. No such costs were capitalized for the six months ended June 30, 2019. Incentive compensation ~~expense and long-term deferred~~expenses also increased by $0.5 million, primarily due to higher costs related to equity compensation ~~amortization, as well as an increase in professional fee expense.~~

plans.

Interest expense

Interest expense ~~increased~~decreased by ~~$1.6~~$0.4 million, or ~~11%~~3%, in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017.~~2018. This ~~increase~~decrease was primarily due to ~~the accelerated financing fees of $0.4 million recorded June 2018 in connection with the 2018 Credit Agreement and a higher weighted average interest rate, partially offset by~~ greater amounts of capitalized interest in ~~2018~~2019, partially offset by higher weighted average interest rates and ~~lower~~higher weighted average debt balances. Our weighted average effective borrowing rate was 4.23% for the three months ended June 30, 2019 compared to 4.21% for the three months ended June 30, ~~2018 compared to 3.97%~~2018. Our weighted average debt balance was $1,690.4 million for the three months ended June 30, ~~2017. Our weighted average debt balance was~~2019, compared to $1,606.3 million for the three months ended June 30, ~~2018, compared to $1,627.5 million for the three months ended June 30, 2017.~~

2018.

Interest expense increased by ~~$1.1~~$0.6 million, or 4%2%, in the six months ended June 30, ~~2018~~2019 compared to the six months ended June 30, ~~2017.~~2018. This increase was primarily due to higher weighted average interest rates and ~~the accelerated amortization of deferred financing fees of $0.4 million recorded in June 2018 in connection with the 2018 Credit Agreement,~~higher weighted average debt balances, partially offset by greater amounts of capitalized interest in ~~2018 and lower weighted average debt balances.~~2019. Our weighted average effective borrowing rate was 4.25% for the six months ended June 30, 2019 compared to 4.14% for the six months ended June 30, ~~2018 compared to 4.00% for the six months ended June 30, 2017.~~2018. Our weighted average debt balance was ~~$1,613.7~~$1,683.7 million for the six months ended June 30, ~~2018,~~2019, compared to ~~$1,644.9~~$1,613.8 million for the six months ended June 30, ~~2017.~~

2018.

Impairment of Assets

Impairment of development land parcel for the six months ended June 30, 2019 was $1.5 million in connection with the sale of a land parcel in Gainesville, Florida.

Impairment of assets for the three and six months ended June 30, 2018 consisted of $32.2 million in connection with Wyoming Valley Mall, Wilkes-Barre, Pennsylvania and $2.1 million in connection with sale negotiations with a prospective buyer of ~~an undeveloped~~a land parcel ~~located~~ in Gainesville, Florida.

~~Impairment of assets for the three and six months ended June 30, 2017 consisted of $38.4 million in connection with sale~~

~~negotiations with a prospective buyer of Logan Valley Mall in Altoona, Pennsylvania and $15.5 million in connection with the~~

~~marketing for sale of Valley View Mall in La Crosse, Wisconsin.~~

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Equity in income of partnerships

Equity in income of partnerships decreased by ~~$1.6~~$0.3 million, or ~~38%~~10%, in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017, and~~2018, primarily due to lower lease revenue in 2019 due to a decrease in lease revenue at Same Store properties.

Equity in income of partnerships decreased by ~~$2.2~~$1.1 million, or ~~28%~~19%, in the six months ended June 30, ~~2018~~2019 compared to the three months ended June 30, 2018, primarily due to lower lease revenue in 2019 following the sale of an office condominium unit at Fashion District Philadelphia in the first quarter of 2018 and higher lease termination revenue in the six months ended June 30, ~~2017, primarily due~~2018.

Gain (loss) on sales of real estate by equity method investee

In March 2019, a partnership in which we hold a 25% interest share sold an undeveloped land parcel adjacent to ~~lower rent resulting from the~~Gloucester Premium Outlets for $3.8 million. The partnership recorded a gain on sale of ~~the 801 Market and 907 Market office condominium interests.~~

~~Gain~~$2.3 million, of which our share was $0.6 million, which is recorded in gain on sale of real estate by equity method investee

in the accompanying consolidated statement of operations.

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Gain on sale of real estate by equity method investee was $2.8 million in the six months ended June 30, 2018, resulting from our 50% share of a $5.5 million gain on the sale of a condominium interest in 907 Market Street in Philadelphia, Pennsylvania by a partnership in which we hold a 50% ownership interest.

Gain on sales of real estate

In April 2019, we sold an undeveloped land parcel located in New Garden Township, Pennsylvania, for total consideration of $11.0 million, consisting of $8.25 million in cash and $2.75 million of preferred stock. We ascribed no value for accounting purposes to the preferred shares as they are not tradeable, cannot be transferred or sold and have no redemption feature. Up to $1.25 million of the cash consideration received is subject to claw-back if the buyer does not receive entitlements for a stipulated number of housing units. In connection with this sale, we recorded a gain of $0.2 million.

Gain on sales of real estate was $0.7 million in the six months ended June 30, 2018, resulting from the sale of an outparcel at Magnolia Mall in Florence, South Carolina.

NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES

Overview

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

•

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

•

We believe that FFO is also helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as gains on sales of operating real estate and depreciation and amortization of real estate, among others. In addition to FFO and FFO per diluted share and OP Unit, when applicable, we also present FFO, as adjusted and FFO per diluted share and OP Unit, as adjusted, which we believe is helpful to management and investors because they adjust FFO to exclude items that management does not believe are indicative of operating performance, such as provision for employee separation expense and accelerated amortization of financing costs.

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

•

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

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

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Unconsolidated Properties and Proportionate Financial Information

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

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

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

•

Except for two properties that we co-manage with our partner, all of the other entities are managed on a day-to-day basis by one of our other partners as the managing general partner in each of the respective partnerships. In the case of the co-managed properties, all decisions in the ordinary course of business are made jointly.

•

The managing general partner is responsible for establishing the operating and capital decisions of the partnership, including budgets, in the ordinary course of business.

•

All major decisions of each partnership, such as the sale, refinancing, expansion or rehabilitation of the property, require the approval of all partners.

•

Voting rights and the sharing of profits and losses are generally in proportion to the ownership percentages of each partner.

~~The managing general partner is responsible for establishing the operating and capital decisions of the partnership, including budgets, in the ordinary course of business.~~

~~All major decisions of each partnership, such as the sale, refinancing, expansion or rehabilitation of the property, require the approval of all partners.~~

~~Voting rights and the sharing of profits and losses are generally in proportion to the ownership percentages of each partner.~~

We hold legal title to a property owned by one of our unconsolidated partnerships through a tenancy in common arrangement. For this property, such legal title is held by us and another entity, and each has an undivided interest in title to the property. With respect to this property, under the applicable agreements between us and the entity with ownership interests, we and such other entity have joint control because decisions regarding matters such as the sale, refinancing, expansion or rehabilitation of the property require the approval of both us and the other entity owning an interest in the property. Hence, we account for this property like our other unconsolidated partnerships using the equity method of accounting. The balance sheet items arising from this property appear under the caption “Investments in partnerships, at equity.”

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

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Net Operating Income (“NOI”)

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

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

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The table below reconciles net loss to NOI of our consolidated properties for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
Net loss	$	(6,080	)	$	(32,321	)	$	(22,303	)	$	(36,033	)
Other income		(315	)		(851	)		(942	)		(1,740	)
Depreciation and amortization		31,946			33,356			66,849			67,386
General and administrative expenses		11,609			9,396			22,814			19,528
Insurance recoveries, net		(1,852	)		-			(1,616	)		-
Provision for employee separation expense		141			395			860			395
Project costs and other expenses		129			139			188			251
Interest expense, net		15,554			15,982			31,452			30,883
Impairment of assets		-			34,286			-			34,286
Impairment of development land parcel		-			-			1,464			-
Equity in income of partnerships		(2,316	)		(2,571	)		(4,605	)		(5,709	)
Loss on debt extinguishment		-			-			4,768			-
Adjustment to gain on sales of real estate by equity method investee		11			-			(553	)		(2,773	)
Adjustment to gain on sales of interests in non operating real estate		—			—			—			25
(Gain) on sales of interests in real estate, net		(1,513	)		(748	)		(1,513	)		(748	)
NOI from consolidated properties	$	47,314		$	57,063		$	96,863		$	105,751

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Net loss $ (32,321 ) $ (53,277 ) $ (36,033 ) $ (53,763 )
Other income (851 ) (840 ) (1,740 ) (1,680 )
Depreciation and amortization 33,356
32,928
67,386
64,686
General and administrative expenses 9,396
9,232
19,528
18,273
Employee separation expenses 395
1,053
395
1,053
Project costs and other expenses 139
85
251
397
Interest expense, net 15,982
14,418
30,883
29,756
Impairment of assets 34,286
53,917
34,286
53,917
Equity in income of partnerships (2,571 ) (4,154 ) (5,709 ) (7,890 )
Gain on sale of real estate by equity method investee —
—
(2,773 ) —
(Gains) adjustment to gains on sales of interest in non operating real estate —
(486 ) 25
(486 )
(Gains) losses on sales of interests in real estate, net (748 ) 308
(748 ) 365
NOI from consolidated properties $ 57,063
$ 53,184
$ 105,751
$ 104,628

The table below reconciles equity in income of partnerships to NOI of our share of unconsolidated properties for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands of dollars)	2019			2018			2019			2018
Equity in income of partnerships	$	2,316		$	2,571		$	4,605		$	5,709
Other income		(11	)		(12	)		(23	)		(23	)
Depreciation and amortization		2,082			2,145			4,051			4,385
Interest and other expenses		2,815			2,706			5,591			5,378
NOI from equity method investments at ownership share	$	7,202		$	7,410		$	14,224		$	15,449

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands of dollars) 2018 2017 2018 2017
Equity in income of partnerships $ 2,571
$ 4,154
$ 5,709
$ 7,890
Other income (12 ) —
(23 ) —
Depreciation and amortization 2,145
3,026
4,385
5,592
Interest and other expenses 2,706
2,566
5,378
5,116
NOI from equity method investments at ownership share $ 7,410
$ 9,746
$ 15,449
$ 18,598

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The table below presents total NOI and total NOI excluding lease termination revenue for the three months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

	Same Store				Non Same Store				Total (non-GAAP)
(in thousands of dollars)	2019		2018		2019		2018		2019		2018
NOI from consolidated properties	$	44,082	$	51,741	$	3,232	$	5,322	$	47,314	$	57,063
NOI from equity method investments at ownership share		7,067		7,354		135		56		7,202		7,410
Total NOI		51,149		59,095		3,367		5,378		54,516		64,473
Less: lease termination revenue		159		6,553		1		542		160		7,095
Total NOI excluding lease termination revenue	$	50,990	$	52,542	$	3,366	$	4,836	$	54,356	$	57,378

Same Store Non Same Store Total (non GAAP)
(in thousands of dollars) 2018 2017 2018 2017 2018 2017
NOI from consolidated properties $ 55,417
$ 49,544
$ 1,646
$ 3,640
$ 57,063
$ 53,184
NOI from equity method investments at ownership share 7,354
7,173
56
2,573
7,410
9,746
Total NOI 62,771
56,717
1,702
6,213
64,473
62,930
Less: lease termination revenue 7,095
1,827
—
35
7,095
1,862
Total NOI excluding lease termination revenue $ 55,676
$ 54,890
$ 1,702
$ 6,178
$ 57,378
$ 61,068

Total NOI ~~increased~~decreased by ~~$1.5~~$10.0 million in the three months ended June 30, ~~2018~~2019 compared to the three months ended June 30, ~~2017~~2018, primarily due to ~~an increase of $6.1~~a $6.9 million ~~from Same Store Properties offset by~~decrease in lease termination revenue and a ~~decrease of $4.5~~$1.6 million ~~in NOI from Non Same Store properties. The increase~~decrease in Same Store ~~properties is primarily due to an increase of~~NOI excluding lease termination revenue. The decrease in Non Same Store properties is primarily due lower NOI contributions from Valley View and Wyoming Valley Malls, due to ~~properties sold in 2017.~~anchor closings and related co-tenancy revenue adjustments. See “—Real Estate Revenue” and “—Property Operating Expenses” above for further information about the factors affecting NOI from our consolidated properties.

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The table below presents total NOI and total NOI excluding lease termination revenue for the six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

	Same Store				Non Same Store				Total (non-GAAP)
(in thousands of dollars)	2019		2018		2019		2018		2019		2018
NOI from consolidated properties	$	89,353	$	95,348	$	7,510	$	10,403	$	96,863	$	105,751
NOI from equity method investments at ownership share		14,119		14,929		105		520		14,224		15,449
Total NOI		103,472		110,277		7,615		10,923		111,087		121,200
Less: lease termination revenue		458		6,814		17		563		475		7,377
Total NOI excluding lease termination revenue	$	103,014	$	103,463	$	7,598	$	10,360	$	110,612	$	113,823

Same Store Non Same Store Total (non GAAP)
(in thousands of dollars) 2018 2017 2018 2017 2018 2017
NOI from consolidated properties $ 102,405
$ 97,733
$ 3,346
$ 6,895
$ 105,751
$ 104,628
NOI from equity method investments at ownership share 14,929
14,736
520
3,862
15,449
18,598
Total NOI 117,334
112,469
3,866
10,757
121,200
123,226
Less: lease termination revenue 7,356
2,346
21
71
7,377
2,417
Total NOI excluding lease termination revenue $ 109,978
$ 110,123
$ 3,845
$ 10,686
$ 113,823
$ 120,809

Total NOI decreased by ~~$2.0~~$10.1 million in the six months ended June 30, ~~2018~~2019 compared to the six months ended June 30, ~~2017~~2018, primarily due to a $6.7 million decrease ~~of $6.9~~in lease termination revenue and a $2.8 million decrease in non-Same Store NOI ~~from Non Same Store properties, partially offset by an increase of $4.9 million from Same Store properties.~~excluding lease termination revenue. The decrease in Non Same Store properties is primarily due to ~~properties sold~~the sale of an office property by an equity method investee in ~~2017. The increase in Same Store properties is primarily~~February 2018, and lower NOI contributions from Valley View and Wyoming Valley Malls, due to ~~lease termination~~anchor closings and related co-tenancy revenue ~~as well as the factors discussed in~~adjustments. See “—Real Estate Revenue” and “—Property Operating Expenses” above ~~which provide~~for further information about the factors affecting NOI from our consolidated properties.

Funds From Operations (“FFO”)

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

FFO is a commonly used measure of operating performance and profitability among REITs. We use FFO and FFO per diluted share and unit of limited partnership interest in our ~~Operating Partnership~~operating partnership (“OP Unit”) and, when applicable, related measures such as Funds From Operations, as adjusted, in measuring our performance against our ~~peers.~~

peers and as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs.

FFO does not include gains and losses on sales of operating real estate assets or impairment write downs of depreciable real estate, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income

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and net cash provided by operating activities, and other non-GAAP financial performance measures, such as NOI. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to FFO.

We also present Funds From Operations, as adjusted, and Funds From Operations per diluted share and OP Unit, as adjusted, which are non-GAAP measures, for the three ~~and six~~ months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively, to show the effect of such items as loss on debt extinguishment, impairment of assets, provision for employee separation expense and ~~accelerated amortization of financing costs,~~insurance losses, net, which affected our results of operations, but are not, in our opinion, indicative of our operating performance.

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The following table presents a reconciliation of net loss determined in accordance with GAAP to FFO attributable to common shareholders and OP Unit holders, FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, FFO attributable to common shareholders and OP Unit holders, as adjusted, and FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit, as adjusted for the three and six months ended June 30, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2019			2018			2019			2018
Net loss	$	(6,080	)	$	(32,321	)	$	(22,303	)	$	(36,033	)
Depreciation and amortization on real estate:
Consolidated properties		31,612			33,002			66,178			66,664
PREIT’s share of equity method investments		2,081			2,145			4,051			4,385
Gain on sales of real estate by equity method investee		—			—			—			(2,773	)
Gain on sales of interest in real estate, net		(1,513	)		(748	)		(1,513	)		(748	)
Impairment of assets		—			34,286			—			34,286
Preferred share dividends		(6,844	)		(6,844	)		(13,688	)		(13,688	)
Funds from operations attributable to common shareholders and OP Unit holders		19,256			29,520			32,725			52,093
Loss on debt extinguishment		-			-			4,768			-
Accelerated amortization of financing costs		-			363			-			363
Impairment of development land parcel		-			-			1,464			-
Provision for employee separation expense		141			395			860			395
Insurance losses, net		(1,852	)		-			(1,616	)		-
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders	$	17,545		$	30,278		$	38,201		$	52,851
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit	$	0.24		$	0.38		$	0.41		$	0.67
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit	$	0.22		$	0.39		$	0.48		$	0.68
Weighted average number of shares outstanding		76,405			69,747			73,896			69,675
Weighted average effect of full conversion of OP Units		2,023			8,273			4,440			8,273
Effect of common share equivalents		683			367			595			340
Total weighted average shares outstanding, including OP Units		79,111			78,387			78,931			78,288

Three Months Ended
June 30, Six Months Ended
June 30,
(in thousands, except per share amounts) 2018 2017 2018 2017
Net loss $ (32,321 ) $ (53,277 ) $ (36,033 ) $ (53,763 )
     Depreciation and amortization on real estate:
    Consolidated properties 33,002
32,506
66,664
63,940
    PREIT’s share of equity method investments 2,145
3,026
4,385
5,592
     Gain on sale of real estate by equity method investee —
—
(2,773 ) —
     (Gains) losses on sales of interests in real estate, net (748 ) 308
(748 ) 365
     Impairment of assets 34,286
53,917
34,286
53,917
     Preferred share dividends (6,844 ) (7,067 ) (13,688 ) (13,272 )
Funds from operations attributable to common shareholders and OP Unit holders 29,520
29,413
52,093
56,779
Accelerated amortization of financing costs 363
—
363
—
Provision for employee separation expense 395
1,053
395
1,053
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders $ 30,278
$ 30,466
$ 52,851
$ 57,832
Funds from operations attributable to common shareholders and OP Unit holders per diluted share and OP Unit $ 0.38
$ 0.38
$ 0.67
$ 0.73
Funds from operations, as adjusted, attributable to common shareholders and OP Unit holders per diluted share and OP Unit $ 0.39
$ 0.39
$ 0.68
$ 0.74

Weighted average number of shares outstanding 69,747
69,307
69,675
69,263
Weighted average effect of full conversion of OP Units 8,273
8,313
8,273
8,313
Effect of common share equivalents 367
—
340
57
Total weighted average shares outstanding, including OP Units 78,387
77,620
78,288
77,633

FFO attributable to common shareholders and OP Unit holders was $19.3 million for the three months ended June 30, 2019, a decrease of $10.3 million, or 34.8%, compared to $29.5 million for the three months ended June 30, ~~2018, an increase of $0.1 million, or 0.4%, compared to $29.4 million for the three months ended June 30, 2017.~~

2018.

FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was $0.24 and $0.38 for ~~each of~~ the three months ended June 30, 2019 and 2018, ~~and 2017.~~

respectively.

FFO attributable to common shareholders and OP Unit holders was $32.7 million for the six months ended June 30, 2019, a decrease of $19.4 million or 37.2%, compared to $52.1 million for the six months ended June 30, ~~2018, a decrease of $4.7 million, or 8.3%, compared to $56.8 million for the six months ended June 30, 2017. This decrease is primarily due to properties sold in 2017.~~

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2018.

FFO attributable to common shareholders and OP Unit holders per diluted share and OP Unit was ~~$0.67~~$0.41 and ~~$0.73~~$0.67 for the six months ended June 30, 2019 and 2018, ~~and 2017,~~ respectively.

LIQUIDITY AND CAPITAL RESOURCES

This “Liquidity and Capital Resources” section contains certain “forward-looking statements” that relate to expectations and projections that are not historical facts. These forward-looking statements reflect our current views about our future liquidity and capital resources, and are subject to risks and uncertainties that might cause our actual liquidity and capital resources to differ materially from the forward-looking statements. Additional factors that might affect our liquidity and capital resources include those discussed herein and in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 filed with the Securities and Exchange Commission. We do not intend to update or revise any forward-looking statements about our liquidity and capital resources to reflect new information, future events or otherwise.

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Capital Resources

We expect to meet our short-term liquidity requirements, including distributions to shareholders, recurring capital expenditures, tenant improvements and leasing commissions, but excluding acquisitions and redevelopment and development projects, generally through our available working capital, ~~and~~ net cash provided by operations, ~~and~~borrowings under our 2018 Revolving Facility, subject to the terms and conditions of our 2018 Revolving ~~Facility.~~Facility, and asset sales, including the sale of land parcels to third parties for multifamily and hotel developments. We believe that our net cash provided by operations will be sufficient to allow us to make any distributions necessary to enable us to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The aggregate distributions made to preferred shareholders, common shareholders and OP Unit holders for the six months endedJune 30, ~~2018~~2019 were ~~$46.7~~$47.1 million, based on distributions of $0.9218 per Series B Preferred Share, $0.9000 per Series C Preferred Share, $0.8594 per Series D Share, and $0.42 per common share and OP Unit.

In December 2017, our universal shelf registration statement was filed with the SEC and became effective. We may use the availability under our shelf registration statement to offer and sell common shares of beneficial interest, preferred shares and various types of debt securities, among other types of securities, to the public.

The following are some of the factors that could affect our cash flows and require the funding of future cash distributions, recurring capital expenditures, tenant improvements or leasing commissions with sources other than operating cash flows:

•

adverse changes or prolonged downturns in general, local or retail industry economic, financial, credit or capital market or competitive conditions, leading to a reduction in real estate revenue or cash flows or an increase in expenses;

•

deterioration in our tenants’ business operations and financial stability, including anchor or non-anchor tenant bankruptcies, leasing delays or terminations, or lower sales, causing deferrals or declines in rent, percentage rent and cash flows;

•

inability to achieve targets for, or decreases in, property occupancy and rental rates, resulting in lower or delayed real estate revenue and operating income;

~~inability to achieve targets for, or decreases in, property occupancy and rental rates, resulting in lower or delayed real estate revenue and operating income;~~

•

increases in operating costs, including increases that cannot be passed on to tenants, resulting in reduced operating income and cash flows; and

~~increases in operating costs, including increases that cannot be passed on to tenants, resulting in reduced operating income and cash flows; and~~

•

increases in interest rates, including potentially as a result of the expected phase out of LIBOR, resulting in higher borrowing costs.

~~increases in interest rates, resulting in higher borrowing costs.~~

We expect to meet certain of our longer-term requirements, such as obligations to fund redevelopment and development projects, certain capital requirements (including scheduled debt maturities), future property and portfolio acquisitions, renovations, expansions and other non-recurring capital improvements, through a variety of capital sources, subject to the terms and conditions of our Credit Agreements, as further described below.

The capital and credit markets fluctuate and, at times, limit access to debt and equity financing for companies. While we expect to continue to be able to access capital, there is no assurance we will be able to do so in the future or on similar terms and conditions.

LIBOR Alternative

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Financing Rate ("SOFR") is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks. To the extent that our contracts that rely on the LIBOR benchmark do not provide for replacement rates, we may seek to amend such contracts.

Credit Agreements

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

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

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As of June 30, ~~2018,~~2019, we had borrowed $550.0 million under the Term Loans ~~no amounts were~~and $182.0 million was outstanding under our 2018 Revolving ~~Facility, and $14.8 million was pledged under the 2018 Revolving Facility as collateral for letters of credit.~~Facility. Pursuant to certain covenants in the 2018 Revolving Facility, the unused portion of the 2018 Revolving Facility that was available to us as of June 30, ~~2018~~2019 was ~~$239.6~~$123.6 million.

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Interest Rate Derivative Agreements

As of June 30, ~~2018,~~2019, we had interest rate swap agreements outstanding with a weighted average base interest rate of ~~1.55%~~1.85% on a notional amount of ~~$798.2~~$796.5 million, maturing on various dates through May 2023 and a forward starting interest

rate swap ~~agreements~~agreement with a weighted average interest rate of ~~2.71%~~2.75% on a notional amount of ~~$250.0~~$100.0 million, with an effective ~~dates from January 2019 to~~date of June 2020 ~~and maturity dates in May 2023.~~

~~Mortgage Loan Activity~~

In February 2018, we borrowed an additional $10.2 million on the mortgage loan secured by Viewmont Mall in Scranton, Pennsylvania. Following this borrowing, this mortgage loan has $67.2 million outstanding with an interest rate of LIBOR plus 2.35% and a maturity date of ~~March 2021.~~

As a result of its Chapter 11 bankruptcy filing, the Bon-Ton anchor store at Wyoming Valley Mall, in Wilkes-Barre, Pennsylvania is expected to close no later than August 31, 2018. In addition, the Sears store at Wyoming Valley Mall ceased operations on July 15, 2018 and Sears vacated the premises on August 1, 2018, the date its lease expired. May 2023.

Mortgage Loan Activity

We received a notice of transfer of servicing, dated July 9, 2018, from the special servicer ~~to the borrower of~~for the mortgage loan secured by Wyoming Valley ~~Mall. We have not~~Mall, which had a balance of $73.4 million as of June 30, 2019 . Our subsidiary that is the borrower under the loan also received a notice of default on the loan ~~which had a balance of $74.4 million as of June 30, 2018; however,~~from the lender, dated December 14, 2018. The loan is subject to a cash sweep arrangement as a result of an anchor tenant trigger event.

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

Mortgage Loans

As of June 30, ~~2018,~~2019, our mortgage loans, which are secured by 1110 of our consolidated properties, are due in installments over various terms extending to October 2025. ~~Eight~~Seven of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95% and had a weighted average interest rate of ~~4.28%~~4.19% at June 30, ~~2018.~~2019. Three of our mortgage loans bear interest at variable rates and had a weighted average interest rate of ~~4.23%~~4.74% at June 30, ~~2018.~~2019. The weighted average interest rate of all consolidated mortgage loans was ~~4.26%~~4.34% at June 30, ~~2018.~~2019. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.

The following table outlines the timing of principal payments related to our consolidated mortgage loans as of June 30, ~~2018:~~2019:

(in thousands of dollars)	Total		Remainder of 2019		2020-2021		2022-2023		Thereafter
Principal payments	$	80,664	$	9,121	$	37,735	$	22,997	$	10,811
Balloon payments		903,327		—		215,946		476,035		211,346
Total	$	983,991	$	9,121	$	253,681	$	499,032	$	222,157
Less: unamortized debt issuance costs		2,470
Carrying value of mortgage notes payable	$	981,521

(in thousands of dollars) Total Remainder of 2018 2019-2020 2021-2022 Thereafter
Principal payments $ 102,150
$ 9,054
$ 39,308
$ 35,082
$ 18,706
Balloon payments 958,042
—
27,161
599,489
331,392
Total $ 1,060,192
$ 9,054
$ 66,469
$ 634,571
$ 350,098
Less: unamortized debt issuance costs 3,506

Carrying value of mortgage notes payable $ 1,056,686

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Contractual Obligations

The following table presents our aggregate contractual obligations as of June 30, ~~2018~~2019 for the periods presented:

(in thousands of dollars)	Total		Remainder of 2019		2020-2021		2022-2023		Thereafter
Mortgage loan principal payments	$	983,991	$	9,121	$	253,681	$	499,032	$	222,157
Term Loans		550,000		—		250,000		—		300,000
2018 Revolving Facility		182,000		—		—		—		182,000
Interest on indebtedness⁽¹⁾⁽²⁾		234,821		33,747		127,655		58,096		15,323
Operating leases		1,534		804		646		84		-
Ground leases		55,565		675		3,285		3,168		48,437
Development and redevelopment commitments⁽³⁾		118,527		106,043		12,484		—		—
Total	$	2,126,438	$	150,390	$	647,751	$	560,380	$	767,917

⁽¹⁾	Includes payments expected to be made in connection with interest rate swaps.

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⁽²⁾	For interest payments associated with variable rate debt, these amounts are based on the rates in effect on June 30, 2019.

⁽³⁾

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

(in thousands of dollars) Total Remainder of 2018 2019-2020 2021-2022 Thereafter
Mortgage loan principal payments $ 1,060,192
$ 9,054
$ 66,469
$ 634,571
$ 350,098
Term Loans 550,000
—
—
250,000
300,000
2018 Revolving Facility⁽¹⁾
—
—
—
—
—
Interest on indebtedness ^{(2) (3)}
283,725
46,086
124,196
84,867
28,576
Operating leases 3,310
1,032
2,111
167
—
Ground leases 42,071
792
2,568
3,168
35,543
Development and redevelopment commitments ⁽⁴⁾
138,453
118,500
19,953
—
—
Total $ 2,077,751
$ 175,464
$ 215,297
$ 972,773
$ 714,217

~~_________________________~~

⁽¹⁾~~As of June 30, 2018, no amounts were outstanding under the 2018 Revolving Facility, which has an initial maturity date of May 23, 2022.~~

⁽²⁾~~Includes payments expected to be made in connection with interest rate swaps.~~

⁽³⁾ ~~For interest payments associated with variable rate debt, these amounts are based on the rates in effect on June 30, 2018.~~

⁽⁴⁾The timing of the payments of these amounts is uncertain. We expect that these payments will be made during the remainder of 2018 and in 2019, but cannot provide any assurance that changed circumstances at these projects will not delay the settlement of these obligations. In addition, we included 100% of the obligations of the FDP redevelopment project because our Operating Partnership, PREIT Associates, and Macerich, have jointly and severally guaranteed the obligations of the joint venture we formed with Macerich to develop Fashion District Philadelphia to commence and complete a comprehensive redevelopment of that property costing not less than $300.0 million within 48 months after commencement of construction, which was March 14, 2016.

Preferred Share Dividends

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

CASH FLOWS

Net cash provided by operating activities totaled $62.3 million for the six months ended June 30, 2019 compared to $75.1 million for the six months ended June 30, 2018. This decrease was due to changes in working capital between periods, higher interest payments made during the six months ended June 30, 2019, dilution from assets sold in the first six months of June 30, 2018, ~~compared~~and the impact of changes from the new lease accounting standard which requires the expensing of certain leasing costs that were permitted to ~~$71.2~~be capitalized under the previous standard, among other factors.

Cash flows used in investing activities were $66.3 million for the six months ended June 30, ~~2017. This increase reflects nominal increases in~~2019 compared to cash ~~provided from changes in working capital, partially offset by lower distributions from equity method investees.~~

~~Cash~~ flows provided by investing activities ~~were~~of $53.0 million for the six months ended June 30, ~~2018 compared to cash~~2018. Cash flows ~~used in~~provided by investing activities ~~of $76.5 million~~ for the six months ended June 30, ~~2017.~~ 2019 included $42.1 million of proceeds from the sale of two land parcels and a Whole Foods store, the sale of a mortgage loan and cash distributions of proceeds from real estate sold by an equity method investee, as well as $4.5 million of insurance proceeds. Cash flows used in investing activities included additions to construction in progress of $63.8 million, investments in partnerships of $35.2 million (primarily at Fashion District Philadelphia), and real estate improvements of $13.9 million (primarily related to ongoing improvements at our properties).

Cash flows provided by investing activities for the six months ended June 30, 2018 included $123.0 million of distributions from our new Fashion District Philadelphia term loan and $19.7 million of proceeds from our share of the sale of the condominium space at 907 Market Street, partially offset by additions to construction in progress of $22.4 million, investments in partnerships of $31.4 million (primarily at Fashion District Philadelphia), and real estate improvements of $17.2 million (primarily related to ongoing improvements at our properties). Investing activities for the first six months of 2017 included additions to construction in progress of $57.4 million, investments in partnerships of $38.3 million (primarily at Fashion District Philadelphia), and real estate improvements of $23.2 million, primarily related to ongoing improvements at our properties, partially offset by $45.9 million in proceeds from the sale of two operating properties.

Cash flows used in financing activities were $2.0 million for the six months ended June 30, 2019 compared to cash flows used in financing activities of $105.3 million for the six months ended June 30, ~~2018 compared to cash~~2018. Cash flows ~~provided by~~used in financing activities ~~of $17.5 million~~ for the first six months ~~ended June 30, 2017.~~ of 2019 included aggregate dividends and distributions of $47.1 million, principal installments on mortgage loans of $8.3 million, and $63.3 million used to defease the mortgage secured by Capital City Mall partially offset by $117.0 million of net borrowings under our 2018 Revolving Facility.

Cash flows used in financing activities for the first six months of 2018 included $53.0 million of net repayments on our 2013 Revolving Facility, aggregate dividends and distributions of $46.7 million, and principal installments on mortgage loans of $9.4 million, partially offset by $10.2 million of borrowing ~~on our~~secured by Viewmont ~~Mall mortgage loan. Cash flows provided by financing activities for the six months ended June 30, 2017 included $166.3~~

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million of net proceeds from our issuance of our Series C preferred shares and $55.0 million of net 2013 Revolving Facility borrowings, partially offset by mortgage loan repayments of $150.0 million, dividends and distributions of $45.5 million, and principal installments on mortgage loans of $8.1 million.

Mall.

ENVIRONMENTAL

We are aware of certain environmental matters at some of our properties. We have, in the past, performed remediation of such environmental matters, and we are not aware of any significant remaining potential liability relating to these environmental matters or of any obligation to satisfy requirements for further remediation. We may be required in the future to perform testing relating to these matters. We have insurance coverage for certain environmental claims up to $25.0 million per occurrence and up to $25.0 million in the aggregate. See our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, in the section entitled “Item 1A. Risk ~~Factors —We~~Factors—We might incur costs to comply with environmental laws, which could have an adverse effect on our results of operations.”

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COMPETITION AND TENANT CREDIT RISK

Competition in the retail real estate market is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, power centers, strip centers, lifestyle centers, factory outlet centers, theme/festival centers and community centers, as well as other commercial real estate developers and real estate owners, particularly those with properties near our properties, on the basis of several factors, including location and rent charged. We compete with these companies to attract customers to our properties, as well as to attract anchor and non-anchor stores and other tenants. We also compete to acquire land for new site development or to acquire parcels or properties to add to our existing properties. Our malls and our other operating properties face competition from similar retail centers, including more recently developed or renovated centers that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs, and telemarketers. Our tenants face competition from companies at the same and other properties and from other retail formats as well, including internet retailers. This competition could have a material adverse effect on our ability to lease space and on the amount of rent and expense reimbursements that we receive.

The existence or development of competing retail properties and the related increased competition for tenants might, subject to the terms and conditions of the Credit Agreements, require us to make capital improvements to properties that we would have deferred or would not have otherwise planned to make and might also affect the total sales, sales per square foot, occupancy and net operating income of such properties. Any such capital improvements, undertaken individually or collectively, would involve costs and expenses that could adversely affect our results of operations.

We compete with many other entities engaged in real estate investment activities for acquisitions of malls, other retail properties and prime development sites or sites adjacent to our properties, including institutional pension funds, other REITs and other owner-operators of retail properties. When we seek to make acquisitions, competitors might drive up the price we must pay for properties, parcels, other assets or other companies or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, better cash flow and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay a higher price for a property and/or generate lower cash flow from an acquired property than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.

We receive a substantial portion of our operating income as rent under leases with tenants. At any time, any tenant having space in one or more of our properties could experience a downturn in its business that might weaken its financial condition. Such tenants might enter into or renew leases with relatively shorter terms. Such tenants might also defer or fail to make rental payments when due, delay or defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which could result in the termination of the tenant’s lease or preclude the collection of rent in connection with the space for a period of time, and could result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants and we might incur costs to remove such tenants. Some of our tenants occupy stores at multiple locations in our portfolio, and so the effect of any bankruptcy or store closings of those tenants might be more significant to us than the bankruptcy or store closings of other tenants. See “Item 2. Properties—Major Tenants” in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. In addition, under many of our leases, our tenants pay rent based, in whole or in part, on a percentage of their sales. Accordingly, declines in these tenants’ sales directly affect our results of operations. Also, if tenants are unable to comply with the terms of their leases, or otherwise seek changes to the terms, including changes to the amount of rent, we might modify lease terms in ways that are less favorable to us. Given current conditions in the economy, certain industries and the capital markets, in some instances retailers that

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have sought protection from creditors under bankruptcy law have had difficulty in obtaining debtor-in-possession financing, which has decreased the likelihood that such retailers will emerge from bankruptcy protection and has limited their alternatives.

SEASONALITY

There is seasonality in the retail real estate industry. Retail property leases often provide for the payment of all or a portion of rent based on a percentage of a tenant’s sales revenue, or sales revenue over certain levels. Income from such rent is recorded only after the minimum sales levels have been met. The sales levels are often met in the fourth quarter, during the December holiday season. Also, many new and temporary leases are entered into later in the year in anticipation of the holiday season and a higher number of tenants vacate their space early in the year. As a result, our occupancy and cash flows are generally higher in the fourth quarter and lower in the first and second quarters. Our concentration in the retail sector increases our exposure to seasonality and has resulted, and is expected to continue to result, in a greater percentage of our cash flows being received in the fourth quarter.

INFLATION

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

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FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2018,~~2019 , together with other statements and information publicly disseminated by us, contain certain forward-looking statements that can be identified by the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “project,” “intend,” “may” or similar expressions. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events, achievements or results and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by the following:

•

changes in the retail and real estate industries, including consolidation and store closings, particularly among anchor tenants;

•

current economic conditions and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions;

~~changes in the retail and real estate industries, including consolidation and store closings, particularly among anchor tenants;~~

•

our inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise;

~~current economic conditions and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions;~~

•

our ability to maintain and increase property occupancy, sales and rental rates;

~~our inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise;~~

•

increases in operating costs that cannot be passed on to tenants;

~~our ability to maintain and increase property occupancy, sales and rental rates;~~

•

the effects of online shopping and other uses of technology on our retail tenants;

~~increases in operating costs that cannot be passed on to tenants;~~

•

risks related to our development and redevelopment activities, including delays, cost overruns and our inability to reach projected occupancy or rental rates;

~~the effects of online shopping and other uses of technology on our retail tenants;~~

•

acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales;

~~risks related to our development and redevelopment activities, including delays, cost overruns and our inability to reach projected occupancy or rental rates;~~

•

our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek;

~~acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales;~~

•

potential losses on impairment of certain long-lived assets, such as real estate, including losses that we might be required to record in connection with any disposition of assets;

~~our ability to sell properties that we seek to dispose of or our ability to obtain prices we seek;~~

•

our substantial debt and the liquidation preference of our preferred shares and our high leverage ratio;

~~our substantial debt and the liquidation preference of our preferred shares and our high leverage ratio;~~

•

our ability to refinance our existing indebtedness when it matures, on favorable terms or at all;

~~our ability to refinance our existing indebtedness when it matures, on favorable terms or at all;~~

•

our ability to raise capital, including through sales of properties or interests in properties and through the issuance of equity or equity-related securities if market conditions are favorable; and

~~our ability to raise capital, including through sales of properties or interests in properties and through the issuance of equity or equity-related securities if market conditions are favorable; and~~

•

potential dilution from any capital raising transactions or other equity issuances.

~~potential dilution from any capital raising transactions or other equity issuances.~~

Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed herein and in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 in the section entitled “Item 1A. Risk ~~Factors.”~~Factors” and any subsequent reports we file with the SEC. We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of June 30, ~~2018~~,2019, our consolidated debt portfolio consisted of ~~$1,056.7~~$984.0 million of fixed and variable rate mortgage loans (net of debt issuance costs), $300.0 million borrowed under our 2018 Term Loan Facility, which bore interest at a rate of ~~3.58%~~4.04% and $250.0 million borrowed under our 2014 7-Year Term Loan, which bore interest at a rate of ~~3.58%~~4.04%. As of June 30, ~~2018, no amounts were~~2019, $182.0 million was outstanding under our 2018 Revolving ~~Facility.~~

Facility, which bore interest at a rate of 3.70%.

Our mortgage loans, which are secured by 1110 of our consolidated properties, are due in installments over various terms extending to October ~~2025. Eight~~2025. Seven of these mortgage loans bear interest at fixed interest rates that range from 3.88% to 5.95%, and had a weighted average interest rate of ~~4.28%~~4.19% at June 30, ~~2018~~. 2019. Three of our mortgage loans bear interest at variable rates and had a weighted average interest rate of ~~4.23%~~4.74% at June 30, ~~2018~~.2019. The weighted average interest rate of all consolidated mortgage loans was ~~4.26%~~4.34% at June 30, ~~2018~~.2019. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.

Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts of the expected annual maturities due in the respective years and the weighted average interest rates for the principal payments in the specified periods:

	Fixed Rate Debt					Variable Rate Debt
(in thousands of dollars) For the Year Ending December 31,	Principal Payments		Weighted Average Interest Rate⁽¹⁾			Principal Payments			Weighted Average Interest Rate⁽¹⁾
2019	$	8,281		4.17	%	$	840			4.40	%
2020		43,926		5.02	%		1,680	₍₂₎		4.40	%
2021		17,173		4.11	%		440,902	₍₂₎		4.13	%
2022		304,044		3.97	%		248,912	₍₂₎		3.79	%
2023 and thereafter		350,233		4.24	%		300,000			4.04	%

Fixed Rate Debt Variable Rate Debt
(in thousands of dollars)
For the Year Ending December 31,
Principal
Payments

Weighted
Average
Interest Rate ⁽¹⁾

Principal
Payments

Weighted
Average
Interest Rate⁽¹⁾
2018 $ 8,214
4.24 % $ 840
3.98 %
2019 17,837
4.25 % 1,680
⁽²⁾
3.98 %
2020 45,272
5.03 % 1,680
⁽²⁾
3.98 %
2021 18,602
4.20 % 440,902
⁽²⁾
3.68 %
2022 and thereafter 708,253
4.21 % 366,912
3.60 %

~~_________________________~~


⁽¹⁾	Based on the weighted average interest rates in effect as of June 30, ~~2018~~. 2019.


⁽²⁾	Includes Term Loan debt balance of $550.0 million with a weighted average interest rate of ~~3.58%~~4.04% as of June 30, ~~2018~~. 2019.

As of June 30, ~~2018~~,2019, we had ~~$812.0~~$992.3 million of variable rate debt. Also, as of June 30, ~~2018~~,2019, we had entered into interest rate swap agreements outstanding with an aggregate weighted average interest rate of ~~1.55%~~1.85% on a notional amount of ~~$798.2~~$796.5 million maturing on various dates through May 2023 and forward starting interest rate swap agreements with a weighted average interest rate of ~~2.71%~~2.75% on a notional amount of ~~$250.0~~$100.0 million, with an effective ~~dates from January 2019 to~~date in June 2020 and a maturity ~~dates~~date in May 2023.

Changes in market interest rates have different effects on the fixed and variable rate portions of our debt portfolio. A change in market interest rates applicable to the fixed portion of the debt portfolio affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of the debt portfolio affects the interest incurred and cash flows, but does not affect the fair value. The following sensitivity analysis related to our debt portfolio, which includes the effects of our interest rate swap agreements, assumes an immediate 100 basis point change in interest rates from their actual June 30, ~~2018~~2019 levels, with all other variables held constant.

A 100 basis point increase in market interest rates would have resulted in a decrease in our net financial instrument position of ~~$55.5~~$45.9 million at June 30, ~~2018~~.2019. A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of ~~$58.4~~$47.9 million at June 30, ~~2018~~.2019. Based on the variable rate debt included in our debt portfolio at June 30, ~~2018,~~2019, a 100 basis point increase in interest rates would have resulted in an additional ~~$0.1~~$2.0 million in interest expense annually. A 100 basis point decrease would have reduced interest incurred by ~~$0.1~~$2.0 million annually.

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

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Because the information presented above includes only those exposures that existed as of June 30, ~~2018~~,2019, it does not consider changes, exposures or positions which have arisen or could arise after that date. The information presented herein has limited predictive value. As a result, the ultimate realized gain or loss or expense with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time and interest rates.

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ITEM 4. CONTROLS AND PROCEDURES.

We are committed to providing accurate and timely disclosure in satisfaction of our SEC reporting obligations. In 2002, we established a Disclosure Committee to formalize our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2018~~,2019, and have concluded as follows:

•

Our disclosure controls and procedures are designed to ensure that the information that we are required to disclose in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

•

Our disclosure controls and procedures are effective to ensure that information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

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

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of ~~operations, which are discussed~~operations. The following is an update to the Company’s risk factors and should be read in conjunction with the risk factors previously disclosed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~

2018.

We face risks associated with, and have experienced, security breaches through cyber attacks. A significant privacy breach or IT system disruption could adversely affect our business and we might be required to increase our spending on data and system security, which could adversely affect our financial condition.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. In addition, our business relationships with our tenants and vendors involve the storage and transmission of proprietary information and sensitive or confidential data. Like many businesses today, we have experienced an increase in cyber-threats and attempted intrusions. Our systems are subject to a variety of forms of cyber attacks with the objective of gaining unauthorized access to our systems or data or disrupting our operations. Security breaches have, from time to time, occurred and may occur in the future. Due to the nature of these attacks, there is a risk that an attack or intrusion remains undetected for a period of time. Though the cyber attacks we have experienced have not had a material impact on our financial results to date, and we maintain cyber liability insurance coverage, there remains a risk that breaches in security could expose us, our tenants or our employees to a risk of loss, misappropriation of assets that cannot be recovered, or misuse of proprietary information and of sensitive or confidential data. In addition, our information technology systems, some of which are managed or hosted by third-parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events, failures during the process of upgrading or replacing software, databases or components thereof, power outages or hardware failures. Any of these occurrences could result in disruptions in our operations, the loss of existing or potential tenants or shoppers, damage to our brand and reputation, regulatory compliance efforts and costs, remediation costs, and litigation and potential liability. Even the most well-protected information remains potentially vulnerable, because the techniques and sophistication used to conduct cyber attacks and breaches of IT systems, as well as the sources of these attacks, change frequently and are often not recognized until they are launched and have been put in place for a period of time. Although we make substantial efforts to maintain the security of our networks and related systems, there can be no assurance that our security efforts will be effective or that attempted security breaches would not be successful or damaging. Our efforts include conducting periodic assessments of internal and external threats to and vulnerabilities of our information and technology systems, security controls and processes in place and the effectiveness of our management of cybersecurity risk. The results of these assessments are used to create and implement strategies designed to prevent, detect and respond to cybersecurity threats, and we expect to continue to employ cybersecurity risk mitigation measures, as well as seek to improve and expand such measures. We may incur increasing costs to deploy additional personnel and protection technologies, to train employees and engage third-party experts and consultants, or to notify employees, suppliers or the general public as part our notification obligations. The cost and operational consequences of implementing further data or system protection measures or remediation efforts could be significant. Our processes, procedures and controls to reduce these risks, our increased awareness of the risk of a cyber incident, and our insurance coverage, however, do not guarantee that our financial results would not be materially impacted by a cyber incident.

Our retailer tenants’ businesses also require the collection, transmission and retention of large volumes of shopper and employee data, including credit and debit card numbers and other personally identifiable information, in various information technology systems. The consequences of cyber attacks perpetrated against our retailer tenants, which may include the misappropriation of assets or sensitive information or an operational disruption, could diminish consumer confidence and spending, result in fines, legal claims or proceedings or other liability, as well as significant remediation costs, any of which could have a material and adverse effect on their financial condition and results of operations and business generally. This could, in turn, have an adverse effect on our financial condition or results of operations.

We are subject to risks associated with increases in interest rates, including in connection with our variable interest rate debt.

As of June 30, 2019, we had $992.3 million of indebtedness with variable interest rates, although we have fixed the interest rates on an aggregate of $796.5 million of this variable rate debt by using derivative instruments. In addition, our unconsolidated partnerships have $149.7 million, at our proportionate share, of indebtedness with variable rates. We might incur additional variable rate debt in the future, and, if we do so, the proportion of our debt with variable interest rates might increase. See “Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk.”

Table of Contents

An increase in market interest rates applicable to the variable portion of the debt portfolio would increase the interest incurred and cash flows necessary to service such debt, subject to our hedging arrangements on such debt. This has and could, in the future, adversely affect our results of operations and our ability to make distributions to shareholders. Also, in coming years, as our current mortgage loans mature, if these mortgage loans are refinanced at higher interest rates than the rates in effect at the time of the prior loans, our interest expense in connection with debt secured by our properties will increase, and could adversely affect our results of operations and ability to make distributions to shareholders.

Furthermore, the expected discontinuation of the London Inter-Bank Offered Rate (LIBOR) after 2021 and the transition away from LIBOR presents various risks and challenges, including with respect to our borrowings and hedging arrangements that rely on the LIBOR benchmark. Various parties are working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts indexed to USD-LIBOR and are monitoring this activity and evaluating the related risk. To the extent that our contracts that rely on the LIBOR benchmark do not provide for replacement rates, we may seek to amend such contracts. While we are focused on effective planning for the phase-out of LIBOR, the transition may divert management attention and could have other adverse consequences for us, including by requiring us to pay higher interest on our obligations.

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

Issuer Purchases of Equity Securities

The following table shows the total number of shares that we acquired in the three months ended June 30, ~~2018~~2019 and the average price paid per share (in thousands of shares).

Period

~~Period~~

Total Number

of Shares

Purchased

Average Price

Paid per

Total Number of

Shares Purchased

as part of Publicly

Announced Plans

or Programs

Maximum Number

(or Approximate

Dollar

Value) of

Shares that

May

Yet Be Purchased

Under the Plans or

Programs

April 1 - April 30, ~~2018~~2019

—

May 1 - May 31, ~~2018~~2019

—

June 1 - June 30, ~~2018~~2019

—

Total

—

Table of Contents

ITEM 6.EXHIBITS.



31.1*
10.1*	~~Amended and Restated Credit Agreement dated as of May 24, 2018 by and among PREIT Associates, L.P., PREIT-RUBIN, Inc., PREIT and the financial institutions party thereto.~~

10.2*	~~Amended and Restated Guaranty dated as of May 24, 2018 in favor of Wells Fargo Bank, National Association, executed by certain direct and indirect subsidiaries of PREIT Associates, L.P.~~

10.3*	~~Fifth Amendment to Seven-Year Term Loan Agreement dated as of June 5, 2018 by and among PREIT Associates, L.P., PREIT-RUBIN, Inc., PREIT and the financial institutions party thereto.~~

31.1*	Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101* 101.INS*	~~Pursuant to Rule 405 of Regulation S-T,~~ Inline XBRL Instance Document – the ~~following financial information from~~instance document does not appear in the ~~Company’s Quarterly Report on Form 10-Q for~~Interactive Data File because its XBRL tags are embedded within the ~~period ended June 30, 2018 is formatted in~~Inline XBRL interactive data files: (i) Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017; (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017; (iii) Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017; (iv) Consolidated Statement of Equity for the six months ended June 30, 2018; (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017; and (vi) Notes to Unaudited Consolidated Financial Statements. document.

101.SCH*	Inline XBRL Taxonomy Extension Schema Document.

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.


104*	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS).

*	Filed herewith

**	Furnished herewith

** Furnished herewith

Table of Contents

SIGNATURE OF REGISTRANT

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date:	August ~~3, 2018~~2, 2019
		By:	/s/ Joseph F. Coradino
			Joseph F. Coradino
			Chairman and Chief Executive Officer

		By:	/s/ Robert F. McCadden
			Robert F. McCadden
			Executive Vice President and Chief Financial Officer

		~~By:~~	~~/s/ Jonathen Bell~~
			~~Jonathen Bell~~
			~~Senior Vice President and Chief Accounting Officer~~
			~~(Principal Accounting Officer)~~



Pennsylvania		23-6216339
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 South Broad Street Philadelphia, PA		19102
(Address of principal executive offices)		(Zip Code)


☒
x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934


☐
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934



(in thousands, except per share amounts)	June 30, 2018			December 31, 2017
	(unaudited)
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties	$	3,156,877		$	3,180,212
Construction in progress	117,503			113,609
Land held for development	5,881			5,881
Total investments in real estate	3,280,261			3,299,702
Accumulated depreciation	(1,144,291		)	(1,111,007		)
Net investments in real estate	2,135,970			2,188,695
INVESTMENTS IN PARTNERSHIPS, at equity:	106,945			216,823
OTHER ASSETS:
Cash and cash equivalents	42,198			15,348
Tenant and other receivables (net of allowance for doubtful accounts of $7,491 and $7,248 at June 30, 2018 and December 31, 2017, respectively)	30,708			38,166
Intangible assets (net of accumulated amortization of $14,294 and $13,117 at June 30, 2018 and December 31, 2017, respectively)	17,857			17,693
Deferred costs and other assets, net	122,221			112,046
Assets held for sale	15,874			—
Total assets	$	2,471,773		$	2,588,771
LIABILITIES:
Mortgage loans payable, net	$	1,056,686		$	1,056,084
Term Loans, net	546,919			547,758
Revolving Facilities	—			53,000
Tenants’ deposits and deferred rent	13,742			11,446
Distributions in excess of partnership investments	94,639			97,868
Fair value of derivative liabilities	—			20
Accrued expenses and other liabilities	69,445			61,604
Total liabilities	1,781,431			1,827,780
COMMITMENTS AND CONTINGENCIES (Note 6):
EQUITY:
Series B Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 3,450 Series B Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $86,250	35			35
Series C Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 6,900 Series C Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $172,500	69			69
Series D Preferred Shares, $.01 par value per share; 25,000 preferred shares authorized; 5,000 Series D Preferred Shares issued and outstanding at each of June 30, 2018 and December 31, 2017; liquidation preference of $125,000	50			50
Shares of beneficial interest, $1.00 par value per share; 200,000 shares authorized; 70,450 and 69,983 issued and outstanding shares at June 30, 2018 and December 31, 2017, respectively	70,450			69,983
Capital contributed in excess of par	1,667,302			1,663,966
Accumulated other comprehensive income	14,642			7,226
Distributions in excess of net income	(1,192,770		)	(1,117,290		)
Total equity—Pennsylvania Real Estate Investment Trust	559,778			624,039
Noncontrolling interest	130,564			136,952
Total equity	690,342			760,991
Total liabilities and equity	$	2,471,773		$	2,588,771



				PREIT Shareholders
				Preferred Shares $.01 par						Shares of Beneficial Interest, $1.00 Par		Capital Contributed in Excess of Par			Accumulated Other Comprehensive Income		Distributions in Excess of Net Income
(in thousands of dollars, except per share amounts)	Total Equity			Series B		Series C		Series D		Shares of Beneficial Interest, $1.00 Par		Capital Contributed in Excess of Par			Accumulated Other Comprehensive Income		Distributions in Excess of Net Income			Non- controlling interest
Balance December 31, 2017	$	760,991		$	35	$	69	$	50	$	69,983	$	1,663,966		$	7,226	$	(1,117,290	)	$	136,952
Net loss	(36,033		)	—		—		—		—		—			—		(32,239		)	(3,794		)
Other comprehensive income	8,296			—		—		—		—		—			7,416		—			880
Shares issued under employee compensation plans, net of shares retired	168			—		—		—		467		(299		)	—		—			—
Amortization of deferred compensation	3,635			—		—		—		—		3,635			—		—			—
Distributions paid to common shareholders ($0.42 per share)	(29,553		)	—		—		—		—		—			—		(29,553		)	—
Distributions paid to Series B preferred shareholders ($0.9218 per share)	(3,180		)	—		—		—		—		—			—		(3,180		)	—
Distributions paid to Series C preferred shareholders ($0.90 per share)	(6,210		)	—		—		—		—		—			—		(6,210		)	—
Distributions paid to Series D preferred shareholders ($0.8594 per share)	(4,298		)	—		—		—		—		—			—		(4,298		)	—
Noncontrolling interests:
Distributions paid to Operating Partnership unit holders ($0.42 per unit)	(3,474		)	—		—		—		—		—			—		—			(3,474		)
Balance June 30, 2018	$	690,342		$	35	$	69	$	50	$	70,450	$	1,667,302		$	14,642	$	(1,192,770	)	$	130,564



(in thousands of dollars)	As of June 30, 2018			As of December 31, 2017
Buildings, improvements and construction in progress	$	2,801,427		$	2,808,622
Land, including land held for development	478,834			491,080
Total investments in real estate	3,280,261			3,299,702
Accumulated depreciation	(1,144,291		)	(1,111,007		)
Net investments in real estate	$	2,135,970		$	2,188,695



(in thousands of dollars)	June 30, 2018			December 31, 2017
ASSETS:
Investments in real estate, at cost:
Operating properties	$	565,907		$	612,689
Construction in progress	370,051			293,102
Total investments in real estate	935,958			905,791
Accumulated depreciation	(204,723		)	(202,424		)
Net investments in real estate	731,235			703,367
Cash and cash equivalents	33,017			26,158
Deferred costs and other assets, net	31,950			34,345
Total assets	796,202			763,870
LIABILITIES AND PARTNERS’ INVESTMENT:
Mortgage loans payable, net	510,820			513,139
FDP Term Loan, net	247,645			—
Other liabilities	41,882			37,971
Total liabilities	800,347			551,110
Net investment	(4,145		)	212,760
Partners’ share	(2,330		)	106,886
PREIT’s share	(1,815		)	105,874
Excess investment⁽¹⁾	14,121			13,081
Net investments and advances	$	12,306		$	118,955


Investment in partnerships, at equity	$	106,945		$	216,823
Distributions in excess of partnership investments	(94,639		)	(97,868		)
Net investments and advances	$	12,306		$	118,955



	As of
(in thousands of dollars)	June 30, 2018		December 31, 2017
Summarized balance sheet information
Total assets	$	50,752	$	43,850
Mortgage loan payable, net	197,139		199,451



		Applicable Margin
Level	Ratio of Total Liabilities to Gross Asset Value	Revolving Loans that are LIBOR Loans	Revolving Loans that are Base Rate Loans	Term Loans that are LIBOR Loans	Term Loans that are Base Rate Loans
1	Less than 0.450 to 1.00	1.20%	0.20%	1.35%	0.35%
2	Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00	1.25%	0.25%	1.45%	0.45%
3	Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 ⁽¹⁾	1.30%	0.30%	1.60%	0.60%
4	Equal to or greater than 0.550 to 1.00	1.55%	0.55%	1.90%	0.90%



(in thousands of dollars)	June 30, 2018		June 30, 2017
Cash and cash equivalents	$	42,198	$	19,021
Restricted cash included in other assets	14,572		23,013
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	56,770	$	42,034



Maturity Date	Aggregate Notional Value at June 30, 2018 (in millions of dollars)		Aggregate Fair Value at June 30, 2018 ⁽¹⁾ (in millions of dollars)		Aggregate Fair Value at December 31, 2017 ⁽¹⁾(in millions of dollars)		Weighted Average Interest Rate
Interest Rate Swaps
2018⁽²⁾	N/A		N/A		$	—
2019	$	250.0	$	1.0	0.8		1.44	%
2020	100.0		2.7		1.9		1.23	%
2021	398.2		12.6		7.0		1.57	%
2022	—		—		N/A		—	%
2023	50.0		0.3		N/A		2.62	%
Forward Starting Swaps
2023	250.0		0.9		N/A		2.71	%
Total	$	1,048.2	$	17.5	$	9.7	1.83	%



	Three Months Ended June 30,										Six Months Ended June 30,
	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments					Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense					Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative Instruments				Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Interest Expense
(in millions of dollars)	2018		2017			2018			2017		2018		2017		2018			2017
Derivatives in Cash Flow Hedging Relationships
Interest rate products	$	3.8	$	(0.9	)	$	(0.6	)	$	0.7	$	8.9	$	0.1	$	(0.6	)	$	1.5



	Occupancy ⁽¹⁾ at June 30,
	Consolidated Properties				Unconsolidated Properties⁽²⁾				Combined⁽²⁾⁽³⁾
	2018		2017		2018		2017		2018		2017
Retail portfolio weighted average:
Total excluding anchors	90.3	%	90.1	%	92.5	%	90.3	%	90.8	%	90.1	%
Total including anchors	92.7	%	92.7	%	93.9	%	92.1	%	92.9	%	92.7	%
Malls weighted average:
Total excluding anchors	90.8	%	90.0	%	92.3	%	89.8	%	90.9	%	90.0	%
Total including anchors	93.0	%	92.8	%	94.8	%	93.0	%	93.2	%	92.9	%
Other retail properties	41.9	%	N/A		93.2	%	91.4	%	90.8	%	91.4	%



																Annualized Tenant Improvements psf ⁽³⁾
		Number	GLA in square feet (“sf”)	Term (years)	Initial Rent per square foot (“psf”)		Previous Rent psf		Initial Gross Rent Renewal Spread ⁽¹⁾					Average Rent Renewal Spread ⁽²⁾
		Number	GLA in square feet (“sf”)	Term (years)	Initial Rent per square foot (“psf”)		Previous Rent psf		$			%		%
Non Anchor
New Leases
Under 10k square feet ("sf")	Consolidated	30	108,264	6.5	$	49.97										$	10.94
	Unconsolidated⁽⁴⁾	—	—	—	—											—
Total Under 10k sf		30	108,264	6.5	49.97		n/a		n/a			n/a		n/a		10.94

Over 10k sf	Consolidated	6	79,598	10.0	36.72		n/a		n/a			n/a		n/a		6.9
Total New Leases		36	187,862	8.0	$	44.36	n/a		n/a			n/a		n/a		$	8.80
Renewal Leases
Under 10k sf	Consolidated	28	61,585	2.8	$	53.25	$	53.10	$	0.15		0.3	%	7.5	%	$	—
	Unconsolidated⁽⁴⁾	3	15,718	4.9	39.84		42.86		(3.02		)	(7.0	)%	0.5	%	—
Total Under 10k sf		31	77,303	3.2	$	50.52	$	51.02	$	(0.49	)	(1.0	)%	6.4	%	$	—

Total Fixed Rent		31	77,303	3.2	$	50.52	$	51.02	$	(0.49	)	(1.0	)%	6.4	%	$	—
Percentage in Lieu	Consolidated	16	30,869	1.5	$	40.28	$	53.70	$	(13.42	)	(25.0	)%	n/a		—
Total Renewal Leases⁽⁵⁾		47	108,172	2.7	$	47.60	$	51.78	$	(4.19	)	(8.1	)%	6.4	%	$	—
Total Non Anchor		83	296,034	6.1	$	45.54



				GLA in square feet (“sf”)	Term (years)	Initial Rent per square foot ("psf")				Initial Gross Rent Renewal Spread⁽¹⁾					Average Rent Renewal Spread ⁽²⁾		Annualized Tenant Improvements psf ⁽³⁾
			Number	GLA in square feet (“sf”)	Term (years)	Initial Rent per square foot ("psf")		Previous Rent psf		$			%		%		Annualized Tenant Improvements psf ⁽³⁾
Non Anchor
New Leases
Under 10k square feet ("sf")	Consolidated		48	159,469	6.8	$	46.96										$	10.02
	Unconsolidated⁽⁴⁾		8	29,429	7.4	39.65											20.94
Total Under 10k sf		—	56	188,898	6.9	45.82		n/a		n/a			n/a		n/a		11.85

Over 10k sf	Consolidated		8	102,055	10.0	37.12		n/a		n/a			n/a		n/a		7.31
Total New Leases			64	290,953	8.0	$	42.77	n/a		n/a			n/a		n/a		$	9.85
Renewal Leases
Under 10k sf	Consolidated		53	116,042	3.0	$	50.33	$	49.94	$	0.39		0.8	%	6.4	%	$	—
	Unconsolidated⁽⁴⁾		24	60,727	3.5	67.58		69.82		(2.24		)	(3.2	)%	1.8	%	0.58
Total Under 10k sf			77	176,769	3.2	$	56.26	$	56.77	$	(0.51	)	(0.9	)%	4.5	%	$	0.22

Over 10k sf	Consolidated		4	109,647	7.3	$	23.82	$	22.68	$	1.14		5.0	%	23.6	%	$	4.97
	Unconsolidated⁽⁴⁾		1	11,306	1.0	14.15		25.72		(11.57		)	(45.0	)%	(45.0	)%	—
Total Over 10k sf			5	120,953	6.7	$	22.91	$	22.96	$	(0.05	)	(0.2	)%	15.8	%	$	4.91
Total Fixed Rent			82	297,722	4.6	$	42.71	$	43.03	$	(0.33	)	(0.8	)%	7.0	%	$	2.99
Percentage in Lieu	Consolidated		30	83,067	1.5	$	32.44	$	42.91	$	(10.47	)	(24.4	)%	n/a		$	—
Total Renewal Leases⁽⁵⁾			112	380,789	3.9	$	40.47	$	43.01	$	(2.54	)	(5.9	)%	7.0	%	$	2.75
Total Non Anchor			176	671,742	5.7	$	41.47
Anchor
New Leases			—	—	—	$	—	n/a		n/a			n/a		n/a		$	—
Renewal Leases	Consolidated		1	102,825	8.0	$	4.73	$	5.38	$	(0.65	)	(12.1	)%	n/a		$	—
Total			1	102,825	8.0	$	4.73



	Three Months Ended June 30,						% Change 2017 to 2018		Six Months Ended June 30,						% Change 2017 to 2018
(in thousands of dollars)	2018			2017			% Change 2017 to 2018		2018			2017			% Change 2017 to 2018
Real estate revenue	$	91,122		$	88,410		3	%	$	176,515		$	176,834		—	%
Property operating expenses	(34,059		)	(35,226		)	(3	)%	(70,764		)	(72,206		)	(2	)%
Other income	851			840			1	%	1,740			1,680			4	%
Depreciation and amortization	(33,356		)	(32,928		)	1	%	(67,386		)	(64,686		)	4	%
General and administrative expenses	(9,396		)	(9,232		)	2	%	(19,528		)	(18,273		)	7	%
Provision for employee separation expense	(395		)	(1,053		)	(62	)%	(395		)	(1,053		)	(62	)%
Project costs and other expenses	(139		)	(85		)	64	%	(251		)	(397		)	(37	)%
Interest expense, net	(15,982		)	(14,418		)	11	%	(30,883		)	(29,756		)	4	%
Impairment of assets	(34,286		)	(53,917		)	(36	)%	(34,286		)	(53,917		)	(36	)%
Equity in income of partnerships	2,571			4,154			(38	)%	5,709			7,890			(28	)%
Gain on sale of real estate by equity method investee	—			—			—	%	2,773			—			—	%
Gains (adjustment to gains) on sales of interest in non operating real estate	—			486			(100	)%	(25		)	486			(105	)%
Gains (losses) on sales of interests in real estate, net	748			(308		)	(343	)%	748			(365		)	(305	)%
Net loss	$	(32,321	)	$	(53,277	)	(39	)%	$	(36,033	)	$	(53,763	)	(33	)%



	Same Store				Non Same Store				Total (non GAAP)
(in thousands of dollars)	2018		2017		2018		2017		2018		2017
NOI from consolidated properties	$	55,417	$	49,544	$	1,646	$	3,640	$	57,063	$	53,184
NOI from equity method investments at ownership share	7,354		7,173		56		2,573		7,410		9,746
Total NOI	62,771		56,717		1,702		6,213		64,473		62,930
Less: lease termination revenue	7,095		1,827		—		35		7,095		1,862
Total NOI excluding lease termination revenue	$	55,676	$	54,890	$	1,702	$	6,178	$	57,378	$	61,068



(in thousands of dollars)	Total		Remainder of 2018		2019-2020		2021-2022		Thereafter
Principal payments	$	102,150	$	9,054	$	39,308	$	35,082	$	18,706
Balloon payments	958,042		—		27,161		599,489		331,392
Total	$	1,060,192	$	9,054	$	66,469	$	634,571	$	350,098
Less: unamortized debt issuance costs	3,506
Carrying value of mortgage notes payable	$	1,056,686