PENNSYLVANIA REAL ESTATE INVESTMENT TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

March 16, 2022 Beth McCandry

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

OVERVIEW

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.

We currently own interests in 25 properties, of which 24 are operating
properties and one is a development property. The 24 operating properties
include 20 shopping malls and four other retail properties, have a total of 19.6
million square feet and are located in eight states. We and partnerships in
which we hold an interest own 15.1 million square feet at these properties
(excluding space owned by anchors or third parties).

There are 17 operating retail properties in our portfolio that we consolidate
for financial reporting purposes. These consolidated properties have a total of
14.6 million square feet, of which we own 11.4 million square feet. The seven
operating retail properties that are owned by unconsolidated partnerships with
third parties have a total of 5.0 million square feet of which 3.6 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. Valley View Mall was previously designated as a non-core property. As
discussed further in Note 2 to our consolidated financial statements, a
foreclosure sale judgment was ordered by the court after the property operations
were assumed by a receiver on behalf of the lender under the mortgage loan
secured by Valley View Mall and we no longer operate the property. “Core Malls”
also excludes these properties as well as power centers and Gloucester Premium
Outlets.

We have one property in our portfolio that is classified as under development;
however, we do not currently have any activity occurring at this property.

Fashion District Philadelphia opened on September 19, 2019. Fashion DistrictPhiladelphia is an aggregation of properties spanning three blocks in downtown
Philadelphia that were formerly known as Gallery I, Gallery II and 907 Market
Street. Joining Century 21 (which has since closed in 2020) and Burlington in
2019 were multiple dining and entertainment venues including Market Eats, a
multi offering food court, City Winery, AMC Theatres, and Round 1 Bowling &
Amusement. In addition, Nike Factory Store, Ulta, and H & M have opened
Philadelphia flagship stores at the property since its opening in September
2019.

We are a fully integrated, self-managed and self-administered REIT that has
elected to be treated as a REIT for federal income tax purposes. In general, we
are required each year to distribute to our shareholders at least 90% of our net
taxable income and to meet certain other requirements in order to maintain the
favorable tax treatment associated with qualifying as a REIT.

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 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.

The COVID-19 global pandemic that began in 2020 has adversely impacted and
continues to impact our business, financial condition, liquidity and operating
results, as well as our tenants’ businesses. The prolonged evolution of the
pandemic has also led to periods of unprecedented global economic disruption and
volatility in financial markets. Some of our tenants’ financial health and
business viability have been adversely impacted and their creditworthiness has
deteriorated. We anticipate that our future business, financial condition,
liquidity and results of operations, in 2022 and potentially in future periods,
will continue to be materially impacted by the COVID-19 pandemic. Uncertainty
remains as to how long the global pandemic, economic challenges and various
limitations and disruptions to business operations will last. Given these
factors, so long as the lingering effects of COVID-19 remain, the virus may
continue to impact us or our tenants, or our ability or the ability of our
tenants to resume more normal operations.

COVID-19 closures of our properties began on March 12, 2020 and continued
through the reopening of our last property on July 3, 2020. These closures
impacted most of our properties for the full second quarter of 2020 with traffic
and tenant reopenings increasing through the third and fourth quarters of 2020.
Although many restrictions have been lifted, numerous limitations remain and it
is possible that new or renewed restrictions in the jurisdictions where our
properties are located may be implemented in response to evolving conditions. As
such, as the pandemic continues, intensifies or experiences resurgences, it is
possible that additional closures will occur. During the mall closure period

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in the second quarter of 2020, the Company furloughed a significant portion of
its property and corporate employee base and later made permanent headcount
reductions, which contributed to decreased general and administrative expenses
in the third and fourth quarters of 2020.

All of our properties have remained open since the third quarter of 2020 and are
employing safety and sanitation measures designed to address the risks posed by
COVID-19, with some of our tenants still operating at reduced capacity.
Following the pandemic-related closures, approximately 4% of our tenants failed
to re-open (inclusive of tenants that filed for bankruptcy protection in the
aftermath). As a result of the challenging environment created by COVID-19,
primarily beginning in the second quarter of 2020, many of our tenants have
sought rent relief and deferral and several have failed to pay rent due.
Although we continue to make progress in collecting COVID-19-period rents, we
have also initiated legal proceedings against certain tenants for failure to
pay. Collections improved in 2021 compared to 2020 and, as of December 31, 2021,
we had cash receipts of 92% of billed fourth quarter rents. We believe that our
rent collections are probable, but expect that collections will continue to be
below our tenants’ rent obligations as long as the effects of COVID-19 affect
the financial strength of our tenants. The significance of COVID-19 on our
business, however, will continue to depend on, among other things, the extent
and duration of the pandemic, the severity of the disease and the number of
people infected with the virus, the timing and widespread availability and
acceptance of vaccines, the further effects on the economy of the pandemic and
of the measures taken by governmental authorities and other third parties
restricting daily activities and the length of time that such measures remain in
place or are renewed, and implementation of governmental programs to assist
businesses and consumers impacted by the COVID-19 pandemic.

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

We hold our interest in our portfolio of properties through the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
as of December 31, 2021, held a 98.7% controlling interest in the Operating
Partnership, and consolidated it for reporting purposes. We hold our investments
in seven of the 25 operating retail properties and the one development property
in our portfolio through unconsolidated partnerships with third parties in which
we own a 25% to 50% interest.

Acquisitions and Dispositions

See Note 2 to our consolidated financial statements for a description of our
dispositions and acquisitions in 2021 and 2020.

Current Economic Conditions and Our Near Term Capital Needs

Conditions in the economy have caused fluctuations and variations in business
and consumer confidence, retail sales, and consumer spending on retail goods.
Further, traditional mall tenants, including department store anchors and
smaller format retail tenants face significant challenges resulting from
changing consumer expectations, the convenience of e-commerce shopping,
competition from fast fashion retailers, the expansion of outlet centers, and
declining mall traffic, among other factors. In recent years, there has been an
increased level of tenant bankruptcies and store closings by tenants who have
been significantly impacted by these factors. All of these factors have been
exacerbated by the impact of the COVID-19 pandemic in 2021 and 2020.

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
PREIT’s PREIT’s
Share of Share of
Number of Annualized Number of Annualized
Number of locations Gross Rent (3) locations Gross Rent (3)
Year Tenants (1) impacted GLA (2) (in thousands) closed GLA (2) (in thousands)
2021
Consolidated properties 5 10 331,314 $ 1,589 5 18,344 $ 380
Unconsolidated properties 1 1 4,046 57 1 4,046 57
Total 5 11 335,360 1,646 6 22,390 437

2020
Consolidated properties 17 91 2,068,153 $ 18,604 39 389,696 $ 6,771
Unconsolidated properties 18 31 468,164 3,747 13 162,378 2,093
Total 23 122 2,536,317 22,351 52 552,074 8,864

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(1) Total represents all tenants operating as individual brands that are
consolidated under one parent and includes both tenant-owned and landlord-owned
stores.
(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
December 31, 2021.

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.

During 2019, we re-opened or introduced additional tenants to former anchor
positions at Woodland Mall in Grand Rapids, Michigan, Valley Mall in Hagerstown,
Maryland and Plymouth Meeting Mall, in Plymouth Meeting, Pennsylvania. Dick’s
Sporting Goods at Valley Mall opened in the first quarter of 2020. At Plymouth
Meeting Mall, we opened Michaels in the first quarter of 2020. In 2017, we
purchased the Macy’s location at Moorestown Mall in Moorestown, New Jersey and
opened HomeSense, Sierra Trading, Five Below and Michaels between 2018 and the
first quarter of 2020. During 2021, we opened Power Warehouse at Cumberland Mall
in Vineland, New Jersey.

Construction was completed in the first quarter of 2020 giving way to the
opening of Burlington in place of a former Sears at Dartmouth Mall in Dartmouth,
Massachusetts. Aldi also opened in the space adjacent to Burlington in September
2021. We expect to continue to move forward with several outparcels at Dartmouth
Mall resulting from the Sears recapture and to work with large format prospects
for the additional space adjacent to Burlington, but have experienced delays due
to the impact of the COVID-19 pandemic.

During 2019, an anchor tenant, Sears, closed at Exton Square Mall in Exton,
Pennsylvania. In January 2020, the Lord & Taylor store at Moorestown Mall in
Moorestown, New Jersey closed and we executed a lease with Turn 7, which opened
in the fourth quarter of 2021. Sears closed its stores at Moorestown Mall in
Moorestown, New Jersey and Jacksonville Mall in Jacksonville, North Carolina in
April 2020. Sears continues to be financially obligated pursuant to the lease at
the Jacksonville Mall location. In July 2021, the former Sears site at
Moorestown Mall was sold to Cooper University Health Care. In May 2020, J.C.
Penney filed for bankruptcy and announced the closure of its stores at the Mall
at Prince Georges in Hyattsville, Maryland, and Magnolia Mall in Florence, South
Carolina. The Magnolia Mall location has been leased to Tilt Studio, an
entertainment concept that opened in October 2021.

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. This initiative has slowed down due to the impacts of the COVID-19
pandemic. 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 Credit Agreements (assuming
availability and continued compliance with the financial covenants thereunder),
(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, or (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.

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 $45.8 million as of December 31, 2021.

As of December 31, 2021, we had unaccrued contractual and other commitments
related to our capital improvement projects and development projects at our
consolidated and unconsolidated properties of $4.3 million, including $0.9
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.

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.

In January 2018, we and Macerich entered into a $250.0 million term loan (as
amended in July 2019 to increase the total maximum potential borrowings to
$350.0 million) to fund the ongoing redevelopment of Fashion District
Philadelphia and to repay capital contributions to the

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venture previously made by the partners. A total of $51.0 million was drawn
during the third quarter of 2019 and we received aggregate distributions of
$25.0 million as our share of the draws. On December 10, 2020, PM Gallery LP,
together with certain other subsidiaries owned indirectly by us and Macerich
(including the fee and leasehold owners of the properties that are part of the
Fashion District Philadelphia project), entered into an Amended and Restated
Term Loan Agreement (the “FDP Loan Agreement”). In connection with the execution
of the FDP Loan Agreement, a $100.0 million principal payment was made (and
funded indirectly by Macerich, the “Partnership Loan”) to pay down the existing
loan, reducing the outstanding principal under the FDP Loan Agreement from
$301.0 million to $201.0 million. The joint venture must repay the Partnership
Loan plus 15% accrued interest to the Macerich lender prior to the resumption of
50/50 cash distributions to us and Macerich. In connection with the execution of
the FDP Loan Agreement, the governing structure of PM Gallery LP was modified
such that, effective as of January 1, 2021, Macerich is responsible for the
entity’s operations and, subject to limited exceptions, controls major
decisions. The Company considered the changes to the governing structure of PM
Gallery LP and determined the investment would qualify as a variable interest
entity and would continue to be accounted for under the equity method of
accounting.

The FDP Loan Agreement provides for: (i) a maturity date of January 22, 2023,
with the potential for a one-year extension upon the borrowers’ satisfaction of
certain conditions, (ii) an interest rate at the borrowers’ option for each
advance of either (A) the Base Rate (defined as the highest of (a) the Prime
Rate, (b) the Federal Funds Rate plus 0.50%, and (c) the LIBOR Market Index Rate
plus 1.00%) plus 2.50% or (B) LIBOR for the applicable period plus 3.50%, (iii)
a full recourse guarantee of 50% of the borrowers’ obligations by PREIT
Associates, L.P., on a several basis, (iv) a full recourse guarantee of certain
of the borrowers’ obligations by The Macerich Partnership, L.P., up to a maximum
of $50.0 million, on a several basis, (v) a pledge of the equity interests of
certain indirect subsidiaries of PREIT and Macerich, as well as of PREIT-RUBIN,
Inc. and one of its subsidiaries, that have a direct or indirect ownership
interest in the borrowers, (vi) a non-recourse carve-out guaranty and a
hazardous materials indemnity by each of PREIT Associates, L.P. and The Macerich
Partnership, L.P., and (vii) mortgages of the borrowers’ fee and leasehold
interests in the properties that are part of the Fashion District Philadelphia
project and certain other properties. The FDP Loan Agreement contains certain
covenants typical for loans of its type.

We also own one development property, but we do not expect to make any
significant investment at this property in the short term.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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 2021 and 2020, 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.

Set forth below is a summary of the accounting policy that management believes
is critical to the preparation of the consolidated financial statements. This
summary should be read in conjunction with the more complete discussion of our
accounting policies included in Note 1 to our consolidated financial statements.

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, which is referred to
as a “triggering event.” 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.

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.

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

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and operate our properties long-term, which reduces the likelihood that our
carrying value is not recoverable. A shortened holding period would increase the
likelihood that the carrying value is not recoverable.

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

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

Revenue and Receivables

We derive over 96% of our revenue from tenant rent and other tenant-related
activities. Tenant rent includes base rent, percentage rent, expense
reimbursements (such as reimbursements of costs of common area maintenance
(“CAM”), real estate taxes and utilities), and the amortization of above-market
and below-market lease intangibles.

We accrue revenue under leases, provided that it is probable that we will
collect substantially all of the lease revenue that is due under the terms of
the lease both at inception and on an ongoing basis. When collectability of
lease revenue is not probable, leases are prospectively accounted for on a cash
basis and any difference between the revenue that has been accrued and the cash
collected from the tenant over the life of the lease is recognized as a current
period adjustment to lease revenue. We review the collectability of our tenant
receivables related to tenant rent including base rent, straight-line rent,
expense reimbursements and other revenue or income by specifically analyzing
billed and unbilled revenues, including straight-line rent receivable, and
considering historical collection issues, tenant creditworthiness and current
economic and industry trends. Our revenue recognition and receivables
collectability analysis places particular emphasis on past-due accounts and
considers the nature and age of the receivables, the payment history and
financial condition of the payor, the basis for any disputes or negotiations
with the payor, and other information that could affect collectability.

We record base rent on a straight-line basis, which means that the monthly base
rent revenue according to the terms of our leases with our tenants is adjusted
so that an average monthly rent is recorded for each tenant over the term of its
lease. When tenants vacate prior to the end of their lease, we accelerate
amortization of any related unamortized straight-line rent balances, and
unamortized above-market and below-market intangible balances are amortized as a
decrease or increase to real estate revenue, respectively.

Percentage rent represents rental revenue that the tenant pays based on a
percentage of its sales, either as a percentage of its total sales or as a
percentage of sales over a certain threshold. In the latter case, we do not
record percentage rent until the sales threshold has been reached.

Revenue for rent received from tenants prior to their due dates is deferred
until the period to which the rent applies.

In addition to base rent, certain lease agreements contain provisions that
require tenants to reimburse a fixed or pro rata share of certain CAM costs,
real estate taxes and utilities. Tenants generally make monthly expense
reimbursement payments based on a budgeted amount determined at the beginning of
the year. Effective January 1, 2019, we recognize fixed CAM revenue
prospectively on a straight-line basis.

Certain lease agreements contain co-tenancy clauses that can change the amount
of rent or the type of rent that tenants are required to pay, or, in some cases,
can allow the tenant to terminate their lease, in the event that certain events
take place, such as a decline in property occupancy levels below certain defined
levels or the vacating of an anchor store. Co-tenancy clauses do not generally
have any retroactive effect when they are triggered. The effect of co-tenancy
clauses is applied on a prospective basis to recognize the new rent that is in
effect.

Payments made to tenants as inducements to enter into a lease are treated as
deferred costs that are amortized as a reduction of rental revenue over the term
of the related lease.

Lease termination fee revenue is recognized in the period when a termination
agreement is signed, collectability is assured, and the tenant has vacated the
space. In the event that a tenant is in bankruptcy when the termination
agreement is signed, termination fee income is deferred and recognized when it
is received.

We also generate revenue by providing management services to third parties,
including property management, brokerage, leasing and development. Management
fees generally are a percentage of managed property revenue or cash receipts.
Leasing fees are earned upon the consummation of new leases. Development fees
are earned over the time period of the development activity and are recognized
on the percentage of completion method. These activities are collectively
included in “Other income” in the consolidated statements of operations.

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Revenue from the reimbursement of marketing expenses is generated through tenant
leases that require tenants to reimburse a defined amount of property marketing
expenses. Our contractual performance obligations are fulfilled as marketing
expenditures are made. Tenant payments are received monthly as required by the
respective lease terms. We defer income recognition if the reimbursements exceed
the aggregate marketing expenditures made through that date. Deferred marketing
reimbursement revenue is recorded in tenants’ deposits and deferred rent on the
consolidated balance sheet. The marketing reimbursements are recognized as
revenue at the time that the marketing expenditures occur.

Property management revenue from management and development activities is
generated through 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 statements of operations. In the case of management fees, our
performance obligations are fulfilled over time as the management services are
performed and the associated revenues are recognized on a monthly basis when the
customer is billed. In the case of development fees, our performance obligations
are fulfilled over time as we perform certain stipulated development activities
as set forth in the respective development agreements and the associated
revenues are recognized on a monthly basis when the customer is billed.

New Accounting Developments

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

RESULTS OF OPERATIONS

Overview

Our net loss decreased by $130.8 million to a net loss of $135.9 million for the
year ended December 31, 2021 from a net loss of $266.7 million for the year
ended December 31, 2020. The change in our 2021 results of operations was
primarily due to: (a) an increase in lease revenue of $34.9 million; (b) a loss
on remeasurement of Fashion District Philadelphia’s assets and an other than
temporary impairment on our investment in Fashion District Philadelphia totaling
$148.5 million, which had an unfavorable impact in 2020; (c) a decrease of $8.4
million in depreciation and amortization; (d) an increase of $6.1 million in
gain on debt extinguishment; and (e) a decrease of $3.5 million in
reorganization expenses incurred due to our 2020 financial restructuring;
partially offset by: (a) an increase in interest expense of $43.7 million driven
by higher interest rates on our Credit Agreements and higher overall debt
balances; (b) impairment of assets of $9.9 million in 2021; (c) an $8.1 million
non-recurring gain on derecognition of property in 2020; and (d) a decrease of
$11.3 million in non-recurring gain on sales of real estate.

Occupancy

The tables below set forth certain occupancy statistics for our retail
properties in total and our Core Malls as of December 31, 2021 and 2020:

Occupancy (1) as of December 31,
Consolidated Properties Unconsolidated Properties Combined (2)
2021 2020 2021 2020 2021 2020
Retail portfolio
weighted average:
Total excluding anchors 89.5 % 88.4 % 83.4 % 83.4 % 87.7 % 86.9 %
Total including anchors 91.6 % 88.1 % 86.5 % 83.9 % 90.4 % 87.1 %
Core Malls weighted
average: (3)
Total excluding anchors 91.8 % 90.4 % 79.1 % 81.2 % 89.5 % 89.4 %
Total including anchors 94.8 % 90.7 % 84.7 % 87.1 % 93.2 % 90.3 %

(1) Occupancy for all periods presented includes all tenants irrespective of the
term of their agreement.
(2) Combined occupancy is calculated by using occupied GLA for consolidated and
unconsolidated properties and dividing by total GLA for consolidated and
unconsolidated properties.
(3) Core Malls excludes Exton Square Mall, Valley View Mall, power centers and
Gloucester Premium Outlets.

From 2020 to 2021, total occupancy for our retail portfolio, including
consolidated and unconsolidated properties (and including all tenants
irrespective of the term of their agreement), increased 330 basis points to
90.4%.

From 2020 to 2021, total occupancy for our Core Malls, including consolidated
and unconsolidated properties, increased 290 basis points to 93.2%.

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Leasing Activity

The table below sets forth summary leasing activity information with respect to
our properties for the year ended December 31, 2021, including anchor and
non-anchor space at consolidated and unconsolidated properties:

Annualized
Tenant
Term Initial Previous Initial Gross Rent Avg Rent Improvements
Number GLA (in years) Rent psf Rent psf Spread (1) Spread (2) psf (3)
Non-Anchor $ % %
New Leases
Under 10,000 sf 138 305,375 4.7 $ 42.88 $ – $ – – % – % $ 5.50
Over 10,000 sf 9 256,503 15.7 8.10 – – – % – % 1.08
Total New Leases 147 561,878 9.7 27.00 – – – % – % 2.25
Renewal Leases
Under 10,000 sf 144 280,989 3.5 59.98 66.11 (6.14 ) (9.3 %) (6.2 )% –
Over 10,000 sf 13 507,033 4.4 15.97 14.50 1.47 10.1 % 12.1 % 0
Total Fixed Rent 157 788,022 4.0 31.66 32.90 (1.24 ) (3.8 )% (0.9 )% 0.01
Percentage in Lieu 64 290,096 1.6 22.24 24.73 (2.49 ) (10.1 )% 0.05
Total Renewal Leases 221 1,078,118 3.4 29.13 $ 30.71$ (1.58 ) (5.1 )% $ 0.02
Total Non Anchor (4) 368 1,639,996 5.6 $ 28.40
Anchor
New Leases 4 409,684 6.1 $ 3.40 $ 0.95
Renewal Leases 6 690,850 4.5 5.51 $ 5.61$ (0.10 ) (1.8 )% – % –
Total Anchor 10 1,100,534 5.1 $ 4.72

(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, CAM reimbursements, estimated real estate tax reimbursements and
marketing charges, but excludes percentage rent. In certain cases, a lower rent
amount may be payable for a period of time until specified conditions in the
lease are satisfied.
(2) Average renewal spread is computed by comparing the average rent per square
foot over the new lease term to the final rent per square foot amount in the
expiring lease. For purposes of this computation, the rent amount includes
minimum rent and fixed CAM reimbursements, but excludes pro rata CAM
reimbursements, estimated real estate tax reimbursements, marketing charges and
percentage rent.
(3) These leasing costs are presented as annualized costs per square foot and
are spread uniformly over the initial lease term.
(4) Includes 30 leases and 98,177 square feet of GLA with respect to our
unconsolidated partnerships. 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 “-NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES” for
further details on our ownership interests in our unconsolidated properties.

See “Item 2. Properties-Retail Lease Expiration Schedule – Anchors” and “Item 2.
Properties-Retail Lease Expiration Schedule – Non-Anchors” for information
regarding average minimum rent on expiring leases.

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The following table sets forth our results of operations for the years ended
December 31, 2021 and 2020:

For the For the Year
Year Ended Ended
December % Change December 31,
(in thousands of dollars) 31, 2021 2020 to 2021 2020
Results of operations:
Real estate revenue $ 295,869 13 % $ 260,936
Property operating expenses (127,582 ) 1 % (126,898 )
Other income 561 (37 )% 887
Depreciation and amortization (117,986 ) (7 )% (126,362 )
General and administrative expenses (49,570 ) (1 )% (50,272 )
Provision for employee separation expenses (305 ) (75 )% (1,227 )
Insurance recoveries, net 669 14 % 586
Project costs and other expenses (309 ) 5 % (294 )
Interest expense, net (128,031 ) 52 % (84,341 )
Gain (loss) on debt extinguishment, net 4,587 (408 )% (1,487 )
Gain on derecognition of property – (100 )% 8,127
Impairment of assets (9,938 ) N/A –
Reorganization expenses (267 ) (93 )% (3,769 )
Equity in (loss) of partnerships (3,732 ) (33 )% (5,544 )
(Loss) on remeasurement of assets by equity
method investee – (100 )% (148,545 )
Gain on sales of real estate by equity
method investee 1,337 N/A –
Gain on sales of interests in real estate,
net (1,180 ) (110 )% 11,444
Gains on sales of non-operating real estate 10 (81 )% 54
Net loss $ (135,867 ) (49 )% $ (266,706 )

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

Real Estate Revenue

The following table reports the breakdown of real estate revenues based on the
terms of the lease contracts for the years ended December 31, 2021 and 2020:

For the Year Ended December 31,
(in thousands of dollars) 2021 2020
Contractual lease payments:
Base rent $ 195,832$ 186,199
CAM reimbursement income 33,825 38,304
Real estate tax income 28,175 32,542
Percentage rent 7,900 1,204
Lease termination revenue 1,709 2,250
267,441 260,499
Less: credit recoveries (losses) 2,625 (23,358 )
Lease revenue 270,066 237,141
Expense reimbursements 16,514 15,462
Other real estate revenue 9,289 8,333
Total real estate revenue $ 295,869$ 260,936

Real Estate Revenue

Real estate revenue increased by $34.9 million, or 13%, in 2021 as compared to
2020, primarily due to:

•

a decrease of $24.5 million in same store credit losses as compared to 2020 due
to the collection of receivables from the resolution of COVID-19 related issues
with tenants across our portfolio in comparison to substantial credit losses due
to non-payment of charges in 2020;

•

an increase of $12.4 million in same store base rent as compared to 2020 driven
by a $17.6 million increase related to the COVID-19 mall closures and associated
rent abatements and reduced percent of sales revenue in 2020. This was partially
offset by a

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decrease of $3.0 million as compared to 2020 related to tenant bankruptcies in
2020 and 2021, and a decrease of $2.2 million from net new store openings and
lease modifications over the previous twelve months;

•

an increase of $6.7 million in same store percentage rent;

•

an increase of $1.2 million in same store utility reimbursements related to the
increase in same store utility expense (see “-Property Operating Expenses”); and

•

an increase of $0.9 million in same store other real estate revenue due to
promotional revenues in the common areas and parking lots; partially offset by

•

a decrease of $4.2 million in same store real estate tax reimbursements due to
bankruptcy and COVID-related store closings and rental concessions to some
tenants whereby the terms of the leases were modified to no longer require
expense reimbursements, and a decrease in same store real estate tax expense
(see “-Property Operating Expenses”);

•

a decrease of $3.7 million in same store common area expense reimbursements,
including a decrease in same store common area reimbursements of $3.0 million
due to bankruptcy and COVID-related store closings and rental concessions to
some tenants under which the terms of their leases were modified and no longer
need to pay expense reimbursements, as well as a decrease of $0.7 million
associated with the straight lining of fixed common area expense reimbursements;

•

a decrease of $2.2 million as compared to 2020 at non-same store properties
Valley View Mall and Exton Square Mall due to the derecognition of assets at
Valley View Mall during the third quarter of 2020 as a result of a receiver
being assigned to manage the property and the sale of the strip center in the
third quarter of 2021, partially offset by a decrease in credit losses at Exton
Square Mall; and

•

a decrease of $0.7 million in same store lease termination revenue, including
$2.2 million from the termination of leases with eleven tenants during 2020,
partially offset by $1.5 million received from ten tenants during 2021.

Property Operating Expenses

Property operating expenses increased by $0.7 million, or 1%, in 2021 as
compared to 2020, primarily due to:

•

an increase of $3.0 million in same store common area maintenance expense,
including a $0.9 million increase in snow removal expense due to higher snowfall
amounts during 2021 across the Mid-Atlantic States, where many of our properties
are located, a $0.8 million increase in cleaning expense and a $0.7 million
increase in utility expense due to reduced services while properties were closed
and then reopened with reduced operating hours in 2020, and a $0.9 million
increase in insurance expense, partially offset by a $0.6 million decrease in
personnel costs;

•

an increase of $0.9 million in same store tenant utility expense due to higher
electricity usage in comparison to when our properties were closed and then
reopened with reduced operating hours in 2020; and

•

an increase of $0.5 million in same store other property operating expenses
including a $0.3 million increase in property legal expense; partially offset by

•

a decrease of $2.4 million in same store real estate tax expense due to a
decrease in real estate tax assessments at some properties; and

•

a decrease of $1.3 million at non-same store properties Valley View Mall and
Exton Square Mall.

Depreciation and Amortization

Depreciation and amortization expense decreased by $8.4 million, or 7%, in 2021
as compared to 2020, primarily due to:

•

a decrease of $6.7 million resulting from accelerated amortization of capital
improvements associated with store closings during 2020, partially offset by
amortization of capital improvements related to new tenants at our same store
properties; and

•

a decrease of $1.7 million at non-same store properties Exton Square Mall and
Valley View Mall.

General and Administrative Expenses

General and administrative expenses decreased by $0.7 million, or 1%, in 2021 as
compared to 2020. We incurred lower professional fees in 2021, which were a
direct result of our financial restructuring that took place in 2020. Those
lower professional fees were partially offset by higher employee incentive
compensation expenses in 2021.

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Provision for Employee Separation Expenses

During the years ended December 31, 2021 and 2020, we terminated the employment
of certain employees and officers. In connection with the departure of those
employees and officers, we recorded $0.3 million and $1.2 million of employee
separation expenses for the years ended December 31, 2021 and 2020,
respectively.

Insurance Recoveries, net

During the year ended December 31, 2021, we recorded net insurance recoveries of
$0.7 million as a result of recoveries received to repair damages that occurred
in 2020. During the year ended December 31, 2020, we recorded net recoveries of
approximately $0.6 million. These net recoveries primarily relate to remediation
expenses.

Interest Expense

Interest expense increased by $43.7 million, or 52%, in 2021 as compared to 2020
due to higher weighted average effective interest rates (6.10% in 2021 compared
to 5.58% in 2020) and a higher weighted average debt balance ($2,253.7 million
in 2021 compared to $2,236.9 million in 2020). Also included in interest
expense, net for the year ended December 31, 2020 is $2.8 million of expense due
to the accelerated reclassification of other comprehensive (loss) income into
earnings from our derivatives.

(Loss) Gain on Debt Extinguishment

During the second quarter of 2021, we were notified that the full principal
balance and accrued interest on our loan under the Paycheck Protection Program
(PPP) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was
forgiven. As a result of the forgiveness, we recorded a gain on debt
extinguishment of $4.6 million, which is included in our results of operations
for the year ended December 31, 2021.

As a result of our financial restructuring in 2020, we incurred $0.9 million of
lender expenses which were accounted for as a loss on debt extinguishment for
the year ended December 31, 2020. Additionally, as a result of the financial
restructuring, we accelerated the amortization of a portion of our deferred
financing costs under our previously existing credit agreements which resulted
in a loss on debt extinguishment of $0.6 million for the year ended December 31,
2020.

Gain on Derecognition of Property

In August 2020, a court order assigned a receiver to operate Valley View Mall on
behalf of the lender of the mortgage loan secured by the property. We no longer
operate the property as a result of court order assigning the receiver. As a
result, we derecognized the assets associated with Valley View Mall and
recognized a gain on derecognition of property of $8.1 million in the
consolidated statement of operations for the year ended December 31, 2020.

Impairment of Assets

During the year ended December 31, 2021, we recorded impairment of assets of
$9.9 million. We did not record any asset impairments during the year ended
December 31, 2020. The assets that incurred impairments and the amount of such
impairments are as follows:

(in thousands of dollars) December 31, 2021
Exton Square Mall $ 8,374
Valley View Center 1,302
Monroe Marketplace 262
Total impairment of assets $ 9,938

See Note 2 to our consolidated financial statements for a further discussion of
impairment of assets.

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Reorganization Expenses

During the year ended December 31, 2021, we incurred costs of $0.3 million in
connection with our efforts to finalize our financial restructuring that were
directly attributable to our bankruptcy proceedings.

For the period from November 1, 2020 to December 10, 2020, we incurred costs and
fees of $3.8 million in connection with our efforts to effectuate the financial
restructuring that were directly attributable to our bankruptcy proceedings,
which we classified within reorganization expenses in the consolidated statement
of operations.

Equity in Loss of Partnerships

Equity in loss of partnerships decreased by $1.8 million, or 33%, in 2021 as
compared to 2020. This decrease was primarily the result of higher real estate
revenues across all of our partnership properties due to recovery from COVID-19.

Loss on Remeasurement of Assets by Equity Method Investee

Loss on remeasurement of assets by equity method investee in 2020 is comprised
of $145.7 million of our share of the loss on remeasurement on the assets of our
joint venture in Fashion District Philadelphia and $2.8 million of other than
temporary impairment on the fair value of our non-controlling ownership interest
in the joint venture. See Note 3 to the consolidated financial statements for
additional information.

Gain on Sales of Real Estate by Equity Method Investee

In May 2021, PM Gallery LP, a joint venture entity owned directly by us and The
Macerich Company, sold a portion of an asset at Fashion District Philadelphia
for $5.3 million. In connection with the sale, a gain of $2.6 million was
recognized by the joint venture and we recorded a related gain of $1.3 million
at our share of 50%.

Gain (Loss) on Sales of interest in Real Estate, net

In May 2021, we closed on the sale of a parcel of property at Moorestown Mall
for $10.1 million. In connection with the sale, we paid a $9.0 million lease
termination fee for a portion of the property that was under a lease agreement
for net proceeds of $0.8 million. We recorded a loss on sale of real estate of
$1.0 million in connection with the sale. In August 2021, we closed on the sale
of Valley View Center for $3.5 million, and recorded a loss on sale of real
estate of approximately $0.2 million in connection with the transaction.

In January 2020, we completed the sale of an outparcel at Woodland Mall in Grand
Rapids, Michigan for total consideration of $5.2 million. In March 2020, we
completed the sale of two outparcels at Magnolia Mall in Florence, South
Carolina for total consideration of $2.9 million. In connection with the March
sale, we recorded a gain of $1.9 million. In June 2020, we completed the sale of
six outparcels at Magnolia Mall, Jacksonville Mall and Valley Mall for total
consideration of $14.4 million and net gain of $9.3 million. In December 2020,
we sold a land outparcel for $0.6 million in consideration. As a result of the
sale, we recorded a gain on sale of $0.2 million.

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 or under redevelopment 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 loss
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 gain on debt
extinguishment and insurance recoveries.

•

We use NOI, and we have used 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.

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NOI and FFO are commonly used non-GAAP financial measures of operating
performance in the real estate industry, and we use them as supplemental
non-GAAP measures to compare our performance between different periods and to
compare our performance to that of our industry peers. Our computation of NOI,
FFO and other non-GAAP financial measures, such as Same Store NOI, Non Same
Store NOI, NOI attributable to our share of unconsolidated properties, and FFO,
as adjusted, may not be comparable to other similarly titled measures used by
our industry peers. None of these measures are measures of performance in
accordance with GAAP, and they have limitations as analytical tools. They should
not be considered as alternative measures of our net loss, 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.

Unconsolidated Properties and Proportionate Financial Information

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

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

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

•

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

•

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

•

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

•

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

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

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

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 does not represent cash generated from operating activities in
accordance with GAAP and should not be considered to be an alternative to net
loss (determined in accordance with GAAP) as an indication of our financial
performance or to be an alternative to cash flow from operating activities
(determined in accordance with GAAP) as a measure of our liquidity. It is not
indicative of funds available for our cash needs, including our ability to make
cash distributions. We believe NOI is helpful to management and investors as a
measure of operating performance because it is an indicator of the return on
property investment, and provides a method of comparing property performance
over time. We believe that net loss is the most directly comparable GAAP measure
to NOI. NOI excludes other income, general and administrative expenses,
provision for employee separation expenses, interest expense, depreciation and

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amortization, insurance recoveries, gain/loss on debt extinguishment, gain on
derecognition of property, impairment of assets, equity in loss/income of
partnerships, loss on remeasurement of assets by equity method investee, gain on
sale of non operating real estate, gain/loss on sale of real estate, project
costs and other expenses and reorganization expenses.

Same Store NOI is calculated using retail properties owned for the full periods
presented and excludes properties acquired or disposed of, under redevelopment,
or designated as non-core during the periods presented. In 2019, Exton Square
Mall and Valley View Mall were designated as non-core and are excluded from Same
Store NOI. Non Same Store NOI is calculated using the retail properties excluded
from the calculation of Same Store NOI.

The table below reconciles net loss to NOI of our consolidated properties for
the years ended 2021 and 2020:

For the Year Ended December 31,
(in thousands of dollars) 2021 2020
Net loss $ (135,867 )$ (266,706 )
Other income (561 ) (887 )
Depreciation and amortization 117,986

126,362

General and administrative expenses 49,570

50,272

Provision for employee separation expenses 305 1,227
Project costs and other expenses 309 294
Insurance recoveries, net (669 ) (586 )
Interest expense, net 128,031 84,341
(Loss) gain on debt extinguishment (4,587 ) 1,487
Gain on derecognition of property – (8,127 )
Impairment of assets 9,938 –
Reorganization expenses 267 3,769
Equity in loss (income) of partnerships 3,732 5,544
Loss on remeasurement of assets by equity method
investee –

148,545

Gain on sales of real estate by equity method
investee (1,337 ) –
Gain on sales of real estate, net 1,180 (11,444 )
Gain on sales of interests in non operating real
estate (10 ) (54 )

Net operating income from consolidated properties $ 168,287$ 134,038

The table below reconciles equity in (loss) income of partnerships to NOI of our
share of unconsolidated properties for the years ended 2021 and 2020:

For the Year Ended December 31,
(in thousands of dollars) 2021

2020

Equity in (loss) income of partnerships $ (3,732 )$ (5,544 )
Other income $ – (48 )
Depreciation and amortization $ 13,577 16,640
Interest and other expenses $ 265 13,508
Net operating income from equity method investments
at ownership share $ 10,110$ 24,556

The table below presents total NOI and total NOI excluding lease terminations
for the years ended December 31, 2021 and 2020:

Same Store Non Same Store Total (non-GAAP)
(in thousands of dollars) 2021 2020 2021 2020 2021 2020
NOI from consolidated
properties $ 167,694$ 132,264$ 594$ 1,774$ 168,288$ 134,038
NOI from equity method
investments at ownership share 32,178 24,564 (7 ) (7 ) 32,171 24,557
Total NOI 199,872 156,828 587 1,767 200,459 158,595
Less: lease termination revenue 4,491 2,262 138 6 4,629 2,268
Total NOI – excluding lease
termination revenue $ 195,381$ 154,566$ 449$ 1,761$ 195,830$ 156,327

Total NOI increased by $41.9 million, or 26.4%, in 2021 as compared to 2020. NOI
from Non Same Store properties decreased by $2.9 million. This decrease was
primarily due to the operating results at non-core properties. NOI from Same
Store properties increased by $44.7 million primarily due to property results as
discussed in “-Results of Operations-Real Estate Revenue” and “-Property
Operating Expenses.”

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Funds From Operations

The National Association of Real Estate Investment Trusts (“NAREIT”) defines
Funds From Operations (“FFO”), which is a non-GAAP measure commonly used by
REITs, as net income (computed in accordance with GAAP) excluding: (i)
depreciation and amortization of real estate, (ii) gains and losses on sales of
certain real estate assets, (iii) gains and losses from change in control and
(iv) impairment write-downs of certain real estate assets and investments in
entities when the impairment is directly attributable to decreases in the value
of depreciable real estate held by the entity. We compute FFO in accordance with
standards established by NAREIT, which may not be comparable to FFO reported by
other REITs that do not define the term in accordance with the current NAREIT
definition, or that interpret the current NAREIT definition differently than we
do. 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 (“OP Unit”) in measuring our performance
against our peers and as one of the performance measures for determining
incentive compensation amounts earned under certain of our performance-based
executive compensation programs.

FFO does not include gains and losses on sales of operating real estate assets
or impairment write downs of depreciable real estate (including development land
parcels), which are included in the determination of net loss 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 loss and net cash used in 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 loss (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 loss is the most directly comparable GAAP measurement to
FFO.

When applicable, we also present FFO, as adjusted, and FFO per diluted share and
OP Unit, as adjusted, which are non-GAAP measures, for the years ended December
31, 2021 and 2020, respectively, to show the effect of such items as gain or
loss on debt extinguishment (including accelerated amortization of financing
costs), impairment of assets, provision for employee separation expense,
insurance recoveries or losses, net, gain on derecognition of property, loss on
hedge ineffectiveness and reorganization expenses which had an effect on our
results of operations, but are not, in our opinion, indicative of our ongoing
operating performance.

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

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, as
adjusted per diluted share and OP Unit, for the years ended December 31, 2021
and 2020:
For the Year Ended December 31,
% Change
(in thousands, except per share amounts) 2021 2020 to 2021 2020
Net loss $ (135,867 )$ (266,706 )
Depreciation and amortization on real estate:
Consolidated properties 116,646 124,940
PREIT’s share of equity method investments 13,577 16,641
Loss (gain) on sales of real estate, net 1,180 (11,444 )
Impairment of real estate assets 10,202 –
Gain on sales of real estate by equity method
investee (1,337 ) –
Loss on remeasurement of assets by equity method
investee – 148,545
Dividends on preferred shares (1) – (13,687 )
Funds from operations attributable to common
shareholders and OP Unit holders 4,401 357.2% (1,711 )
Provision for employee separation expense 305 1,227
Insurance recoveries, net (669 ) (586 )
Reorganization expenses 267 3,769
(Gain) loss on debt extinguishment (4,587 ) 1,487
Gain on derecognition of property – (8,127 )
(Gain) loss on hedge ineffectiveness (2,735 ) 2,912
Funds from operations attributable to common
shareholders and OP Unit holders, as adjusted $ (3,018 ) (193.3)% $ (1,029 )
Funds from operations attributable to common
shareholders and OP Unit holders per diluted share
and OP Unit $ 0.05 352.6% $ (0.02 )
Funds from operations attributable to common
shareholders and OP Unit holders, as adjusted, per
diluted share and OP Unit $ (0.04 ) (188.1)% $ (0.01 )
Weighted average number of shares outstanding 78,595 77,227
Weighted average effect of full conversion of OP
Units 1,548 2,012
Effect of common share equivalents 943 380
Total weighted average shares outstanding,
including OP Units 81,086 79,619

(1) Does not include the impact of $27.4 million and $13.7 million of accrued,
undeclared and unpaid preferred share dividends for the years ended December 31,
2021 and 2020, respectively. The Company cannot declare and pay cash dividends
on common shares while there exists a preferred dividend arrearage.

FFO was $4.4 million for 2021, an increase of $6.1 million, or 357.2%, compared
to a loss of $1.7 million for 2020. This increase was primarily due to:

•

a $43.0 million increase in Same Store NOI (excluding lease termination revenue)
primarily due to mall openings after closings in 2020 as a result of the
COVID-19 pandemic, offset by:

•

a $43.7 million increase in net interest expense;

•

a $0.9 million decrease in provision for employee separation;

•

a $0.2 million decrease in other income;

•

a $3.5 million decrease in provision for reorganization expenses;

•

a $2.7 million gain on hedge ineffectiveness in 2021 compared to a $2.9 million
loss on hedge ineffectiveness in 2020.

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FFO per diluted share and OP Unit increased $0.08 per share to $0.05 per share
for 2021, compared to $(0.02) per share for 2020 due to the factors noted above.

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 in the
section entitled “Item 1A. Risk Factors.” We do not intend to update or revise
any forward-looking statements about our liquidity and capital resources to
reflect new information, future events or otherwise.

Capital Resources

We currently expect to meet certain of our short-term liquidity requirements,
including operating expenses, recurring capital expenditures, tenant
improvements and leasing commissions, generally through our available working
capital and our First Lien Revolving Facility, subject to the terms and
conditions of our First Lien Credit Agreement. See “Credit Agreements-Similar
terms of the Credit Agreements” below for covenant information. We expect to
spend approximately $4.3 million related to our capital improvements and
development projects in 2022. 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. Our Credit Agreements limit our ability to declare and pay
dividends on our common and preferred shares, subject to certain exceptions. We
have deferred payments on our preferred shares and suspended payments on our
common shares since the third quarter of 2020. Other than as may be required to
maintain our status as a REIT, we do not anticipate that we will pay any cash
dividends to holders of our common or preferred shares for the foreseeable
future.

As a result of the existing cumulative unpaid dividends on our preferred shares
and our bankruptcy filing, we are no longer able to register the offer and sale
of securities on Form S-3. This creates additional limitations on our ability to
raise capital in the capital markets, potentially increasing our costs of
raising capital in the future. Our ability to raise capital in the capital
markets may also be impacted by market fluctuations more generally, including as
a result of the COVID-19 pandemic and related economic downturn.

During 2021, our capital raised includes proceeds of $5.0 million from our share
of asset sales by us and our unconsolidated subsidiaries and through our
operations, we generated $69.0 million for the year ended December 31, 2021.

We have availability under our revolving facility of $75.5 million as of
December 31, 2021. We have been focused on improving operational efficiency and
driving stable and increasing cash flows from operations while advancing our
portfolio, including by undertaking, with the assistance of outside advisors, a
thorough review of our business and capital structure and evaluating a wide
range of opportunities to further strengthen our balance sheet and financial
flexibility. We are actively seeking to raise additional capital, including
through asset dispositions identified through our portfolio property reviews.
Disposing of these properties can enable us to redeploy or recycle our capital
to other uses. In many cases, we are marketing land parcels for development for
a variety of different nontraditional, non-retail uses, including hotel,
multifamily residential and healthcare uses, which we believe can also help
position our portfolio within differentiated mixed-use environments. During
2021, we executed agreements of sale for five land parcels for anticipated
multifamily development and one land parcel for anticipated hotel development
that are expected to provide an aggregate of up to approximately $82.5 million
in gross proceeds. We also closed on the sale of three properties in 2021. The
proceeds from our anticipated property sales will primarily be used to repay
amounts outstanding under our Credit Agreements. These agreements include the
sale of land parcels for multifamily residential development, the sale of
operating outparcels and the sale of land parcels for hotel development. Each of
the transactions is subject to numerous closing conditions, including the
completion of due diligence and securing of entitlements, which in several cases
has been delayed due to the effects of COVID-19 on business operations and
availability of financing. Closing of the transactions cannot be assured or the
timing of their completion yet estimated with certainty.

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, as a
result of the COVID-19 pandemic or otherwise, leading to a reduction in real
estate revenue or cash flows or an increase in expenses;

•

continued deterioration in our tenants’ business operations and financial
stability, particularly in light of the COVID-19 pandemic, 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;

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•

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

•

increases in interest rates, resulting in higher borrowing costs.

In addition, we are continuing to monitor the COVID-19 pandemic and the related
business and travel restrictions and changes to behavior intended to reduce its
spread, and its impact on our tenants, their supply chains and customers and the
retail industry. Thus far, the pandemic and the actions taken to address it and
the related overall worsening of economic conditions have had an adverse effect
on our business, operations, liquidity and financial condition.

As of December 31, 2021, all of our malls had re-opened while adhering to social
distancing and sanitation and safety protocols designed to address the risks
posed by COVID-19, however, many of our tenants continue to operate at reduced
capacity. The pandemic’s effect, primarily beginning in the second quarter of
2020, had a significant impact on our operations, financial condition, liquidity
and results of operations in 2020 and its impact continued into 2021 and is
expected to continue through future periods. Conditions improved in 2021
compared to 2020 and as of December 31, 2021, we had cash receipts of 92% of
billed fourth quarter rents. We believe that our rent collections are probable,
but expect that collections will continue to be below our tenants’ rent
obligations as long as lingering effects of COVID-19, including new or renewed
restrictions and business closures, affect the return of customers to malls and
the financial strength of our tenants. While we continue to record rental
revenue, the reduced collection levels have impacted our liquidity position and
may continue to do so. See “Item 1A. Risk Factors-Risks Related to Our Business
and Properties-The COVID-19 global pandemic and the public health and
governmental response have adversely affected, and will likely continue to
adversely affect, our business, financial condition, liquidity and operating
results. The extent and duration of such effects are uncertain, continuously
changing and difficult to predict. Additionally, the future outbreak of any
other highly infectious or contagious diseases may materially and adversely
affect our business, financial condition, liquidity and operating results.”

We expect to meet certain of our longer-term requirements, such as obligations
to fund redevelopment and development projects, certain capital requirements,
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.

LIBOR Alternative

In July 2017, the Financial Conduct Authority (“FCA”), which is the authority
that regulates LIBOR, announced it would no longer compel banks to submit rates
for the calculation of LIBOR after 2021. The Alternative Reference Rates
Committee (“ARRC”) has identified the Secured Overnight Financing Rate (“SOFR”)
as 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. The FCA no longer publishes one-week and two-month U.S. dollar LIBOR
rates and plans to cease publishing all other LIBOR tenors (overnight,
one-month, three-month, six-month and 12-month) on June 30, 2023. It is not
presently known whether SOFR or any other alternative reference rates will
attain broad market acceptance as replacements of LIBOR. There remains
uncertainty as to how the financial services industry will address the
discontinuance of LIBOR in financial instruments that are indexed to LIBOR.
Further, various financial instruments indexed to LIBOR could experience
different outcomes based on their contractual terms, ability to amend those
terms, market or product type, legal or regulatory jurisdiction, and other
factors. Alternative reference rates that replace LIBOR may not yield the same
or similar economic results over the lives of the financial instruments, which
could adversely affect the value of and return on these instruments.

We have material contracts that are indexed to LIBOR and are monitoring and
evaluating the related risks, which include interest on loans or amounts
received and paid on derivative instruments. These risks arise in connection
with transitioning contracts to a new alternative rate, including any resulting
value transfer that may occur. The value of loans, securities, and derivative
instruments tied to LIBOR could also be affected if LIBOR is limited or
discontinued. For some instruments, the method of transitioning to an
alternative rate may be challenging, as they may require negotiation with the
respective counterparty.

If a contract is not transitioned to an alternative rate and LIBOR is
discontinued, the impact on our contracts is likely to vary by contract. If
LIBOR is phased out and changes are implemented, interest rates on our current
or future indebtedness may be adversely affected.

While we expect LIBOR to be available in substantially its current form until
the end of 2022, it is possible that LIBOR will become unavailable prior to that
point. This could occur, for example, if a requisite number of banks decline to
make submissions to the LIBOR administrator. In that case, the risks associated
with the transition to an alternative reference rate would be accelerated and
magnified.

Credit Agreements

We have entered into two secured credit agreements (collectively, as amended,
the “Credit Agreements”): (a) the First Lien Credit Agreement, which, as
described in more detail below, includes (i) the $130.0 million First Lien
Revolving Facility, and (ii) the $384.5 million First Lien Term Loan Facility,
and (b) the Second Lien Credit Agreement, which, as described in more detail
below, includes the $535.2 Second Lien Term Loan Facility. The First Lien Term
Loan Facility and the Second Lien Term Loan Facility are collectively referred
to as the “Term Loans.” The Credit Agreements refinanced our previously existing
credit agreements in effect prior to the Effective Date, including our secured
term loan under the Credit Agreement dated as of August 11, 2020 (as amended,
the “Bridge Credit Agreement”), our Seven-Year Term Loan Agreement entered into
on January 8, 2014 (as amended, the “7-Year Term Loan”), and our 2018 Amended
and Restated Credit Agreement entered into on May 24, 2018 (as amended, the
“2018 Credit Agreement”). Capitalized terms used in this section and not
otherwise defined in this Annual Report on Form 10-K have the meanings ascribed
to such terms in the applicable Credit Agreement.

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As of December 31, 2021, we had borrowed $965.7 million under the Term Loans and
$54.5 million under the First Lien Revolving Facility. The carrying value of the
Term Loans on our consolidated balance sheet as of December 31, 2021 is net of
$6.5 million of unamortized debt issuance costs. The maximum amount that was
available to be borrowed by us under the First Lien Revolving Facility as of
December 31, 2021 was $75.5 million.

Our obligations under the Credit Agreements are guaranteed by certain of our
subsidiaries. Our obligations under the Credit Agreements and the guaranties are
secured by mortgages and deeds of trust on a portfolio of 12 of our
subsidiaries’ properties, including nine malls and three additional parcels. The
obligations are further secured by a lien on substantially all of our personal
property pursuant to collateral agreements and a pledge of substantially all of
the equity interests held by us and the guarantors, pursuant to pledge
agreements, in each case subject to limited exceptions.

The maturity date of the Credit Agreements is December 10, 2022 (or such earlier
date that the obligations under the applicable Credit Agreement have been
accelerated), unless extended by one year until December 10, 2023 at our option
(the “Maturity Date”). Any such extension would be subject to our fulfillment of
certain conditions including maintaining minimum liquidity of $35.0 million, a
minimum corporate debt yield of 8.0% and a maximum loan-to-value ratio of 105%
for the total first lien and second lien loans and letters of credit and the
Borrowing Base Properties as determined by an appraisal (provided that we may
obtain a second appraisal of each Borrowing Base Property prepared by a
nationally recognized appraisal firm and use the highest appraised value), and
provided that no default or event of default exists and our representations and
warranties are true in all material respects.

First Lien Credit Agreement

On December 10, 2020, we entered into an Amended and Restated First Lien Credit
Agreement (the “First Lien Credit Agreement”) with Wells Fargo Bank, National
Association and the other financial institutions signatory thereto and their
assignees, for secured loan facilities consisting of: (i) a secured first lien
revolving credit facility allowing for borrowings up to $130.0 million,
including a sub-facility for letters of credit to be issued thereunder in an
aggregate stated amount of up to $10.0 million (collectively, the “First Lien
Revolving Facility”), and (ii) a $384.5 million secured first lien term loan
facility (the “First Lien Term Loan Facility”).

Amounts borrowed under the First Lien Credit Agreement may be either Base Rate
Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of: (a) the
Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index
Rate plus 1.0%, provided that the Base Rate will not be less than 1.50% per
annum, in each case plus (w) for revolving loans, 2.50% per annum, and (x) for
term loans, 4.74% per annum. LIBOR Loans bear interest at LIBOR plus (y) for
revolving loans, 3.50% per annum, and (z) for term loans, 5.74% per annum, in
each case, provided that LIBOR will not be less than 0.50% per annum. Interest
is due to be paid in cash on the last day of each applicable interest period
(with rolling 30-day interest periods) and on the Maturity Date. We must pay
certain fees to the administrative agent for the account of the lenders in
connection with the First Lien Credit Agreement, including an unused fee for the
account of the revolving lenders, which will accrue: (i) 0.35% per annum on the
daily amount of the unused revolving commitments when that amount is greater
than or equal to 50% of the aggregate amount of revolving commitments, and (ii)
0.25% when that amount is less than 50% of the aggregate amount of revolving
commitments. Accrued and unpaid unused fees will be payable quarterly in arrears
during the term of the First Lien Credit Agreement and on the Revolving
Termination Date (or any earlier date of termination of the revolving
commitments or reduction of the revolving commitments to zero).

Letters of credit and the proceeds of revolving loans may be used: (i) to
refinance existing indebtedness under the Bridge Credit Agreement, (ii) for
working capital and general corporate purposes (subject to certain exceptions
set forth in the First Lien Credit Agreement, including limitations on
investments in non-Borrowing Base Properties), and (iii) to fund professional
fee payments and other fees and expenses subject to the provisions of the Plan
and related confirmation order and for other uses permitted by the provisions of
the First Lien Credit Agreement, Plan and confirmation order, in each case
consistent with an approved annual business plan. The proceeds of term loans may
only be used to refinance existing indebtedness under the 2018 Credit Agreement
and the 7-Year Term Loan. We may terminate or reduce the amount of the revolving
commitments at any time and from time to time without penalty or premium,
subject to the terms of the First Lien Credit Agreement.

Second Lien Credit Agreement

On December 10, 2020, we also entered into a Second Lien Credit Agreement (the
“Second Lien Credit Agreement”) with Wells Fargo Bank, National Association and
the other financial institutions signatory thereto and their assignees for a
$535.2 million secured second lien term loan facility (the “Second Lien Term
Loan Facility”).

Amounts borrowed under the Second Lien Credit Agreement may be either Base Rate
Loans or LIBOR Loans. Base Rate Loans bear interest at the highest of: (a) the
Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) the LIBOR Market Index
Rate plus 1.0%, provided that the Base Rate will not be less than 1.50% per
annum, in each case plus 7.00% per annum. LIBOR Loans bear interest at LIBOR
plus 8.00% per annum, provided that LIBOR will not be less than 0.50% per annum.
Interest is due to be paid in kind on the last day of each applicable interest
period (with rolling 30-day interest periods) by adding the accrued and unpaid
amount thereof to the principal balance of the loans under the Second Lien
Credit Agreement and then accruing interest on the increased principal amount
(provided that after the discharge of our Senior Debt Obligations, interest will
be paid in cash). We must pay certain fees to the administrative agent for the
account of the lenders in connection with the Second Lien Credit Agreement.

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The proceeds of loans under the Second Lien Credit Agreement may only be used to
refinance existing indebtedness under the 2018 Credit Agreement and the 7-Year
Term Loan.

On February 8, 2021, the Company entered into the first amendment to the Second
Lien Credit Agreement (“First Amendment”). The First Amendment provided for
elimination of approximately $5.3 million of the disputed default interest that
was capitalized into the principal balance of the Second Lien Term Loan
Facility, reducing the outstanding principal amount of loans outstanding under
the Second Lien Credit Agreement, retroactively as of December 10, 2020, to
$535.2 million. The First Amendment also eliminated the disputed PIK interest
that was capitalized through the date of the amendment.

Similar terms of the Credit Agreements

Each of the Credit Agreements contains certain affirmative and negative
covenants and other provisions, which substantially align with those contained
in the other Credit Agreements, and which are described in detail below.

Covenants

Each of the Credit Agreements contains, among other restrictions, certain
affirmative and negative covenants, including, without limitation, requirements
that we:

•

maintain liquidity of at least $25.0 million, to be comprised of unrestricted
cash held in certain deposit accounts subject to control agreements, up to $5.0
million held in a certain other deposit account excluded from the collateral,
the unused revolving loan commitments under the First Lien Credit Agreement (to
the extent available to be drawn), and amounts on deposit in a designated
collateral proceeds account and amounts on deposit in a cash collateral account;

•

maintain a minimum senior debt yield of 11.35% from and after June 30, 2021;

•

maintain a minimum corporate debt yield of: (a) 6.50% from June 30, 2021 through
and including September 30, 2021 and (b) 7.25% from and after October 1, 2021;

•

provide to the administrative agent, among other things, PREIT and its
subsidiaries’ quarterly and annual financial statements, annual budget, reports
on projected sources and uses of cash, and an updated annual business plan, as
well as quarterly and annual operating statements, rent rolls, and certain other
collections and tenant reports and information as the administrative agent may
reasonably request with respect to each Borrowing Base Property;

•

maintain PREIT’s status as a REIT;

•

use commercially reasonable efforts to obtain subordination, non-disturbance and
attornment agreements from each tenant under certain Major Leases as well as
ground lease estoppel certificates from each ground lessor of a Borrowing Base
Property;

•

comply with the requirements of the various security documents and, at the
administrative agent’s request, promptly notify the administrative agent of any
acquisition of any owned real property that is not subject to a mortgage and
grant liens on such real property to secure our obligations under the applicable
Credit Agreement;

•

not amend any existing sale agreements with respect to Borrowing Base Properties
to result in a reduction of cash consideration by 20% or more; and

•

not retain more than $6.5 million of cash in property-level accounts held by our
subsidiaries that are owners of real property (subject to certain exceptions).

Each of the Credit Agreements also limits our ability, subject to certain
exceptions, to make certain restricted payments (including payments of dividends
and voluntary prepayments of certain indebtedness which includes, with respect
to the First Lien Credit Agreement, voluntary prepayments under the Second Lien
Credit Agreement), make certain types of investments and acquisitions, issue
redeemable securities, incur additional indebtedness, incur liens on our assets,
enter into agreements with a negative pledge, make certain intercompany
transfers, merge, consolidate or sell all or substantially all our assets or the
equity interests of our subsidiaries, amend our organizational documents or
material contracts, enter into transactions with affiliates, or enter into
derivatives contracts. We are also prohibited from selling certain properties
unless certain conditions are satisfied with respect to the terms of the sale
agreement for such property or, in the case of Borrowing Base Properties,
payment of certain release prices.

The First Lien Credit Agreement and, after our Senior Debt Obligations are
discharged, the Second Lien Credit Agreement, each prohibit us from: (i)
entering into Major Leases, (ii) assigning leases, (iii) discounting any rent
under leases where the leased premises is at least 7,500 square feet at a
Borrowing Base Property and the discounted amount is more than $750,000 and more
than 25% of the aggregate contractual base rent payable over the initial term
(not including any extension options), (iv) collecting rent in advance, (v)
terminating or modifying the terms of any Major Lease or releasing or
discharging tenants from any obligations thereunder, (vi) consenting to a
tenant’s assignment or subletting of a Major Lease, or (vii) subordinating any
lease to any other deed of trust, mortgage, deed to secure debt or encumbrance,
other than the mortgages already encumbering the applicable Borrowing Base
Property and the mortgages entered into in connection with the other Credit
Agreement. Under the First Lien Credit Agreement and, under the Second Lien
Credit Agreement after the First Lien Termination Date, any amounts equal to or
greater than $2.5 million but less than $3.5 million received by or on behalf of
a guarantor in consideration of any

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termination or modification of a lease (or the release or discharge of a tenant)
are subject to restrictions on use, and such amounts that are equal to or
greater than $3.5 million must be applied to reduce our outstanding obligations
under the applicable Credit Agreement.

As of December 31, 2021, we were in compliance with all terms under the Credit
Agreements.

Voluntary and Mandatory Prepayments
Subject to certain conditions, we may prepay loans under the First Lien Credit
Agreement, and under the Second Lien Credit Agreement after the First Lien
Termination Date, without premium or penalty. Under the First Lien Credit
Agreement, if at any time the aggregate principal amount of all outstanding
revolving loans, together with the aggregate amount of all letter of credit
liabilities, exceeds the aggregate amount of the revolving commitments, we must
make a payment of that excess amount. Under the First Lien Credit Agreement, at
any time, and under the Second Lien Credit Agreement, at any time after the
First Lien Termination Date, if we receive net cash proceeds from certain
capital events, subject to certain exceptions, we must prepay loans under the
applicable Credit Agreement (and under the First Lien Credit Agreement, we must
either prepay loans or cash collateralize the letter of credit liabilities or
specified derivatives obligations, as applicable) as follows:

•

in the event of any debt issuance, in an amount equal to 100% of net cash
proceeds;

•

in the event of any equity issuance, in an amount equal to 50% of net cash
proceeds (with the other 50% of such net cash proceeds required to prepay the
loans (under the First Lien Credit Agreement, the revolving loans) or be
deposited into a designated collateral proceeds account);

•

in the event of any asset disposition (other than an asset disposition of all or
any portion of a Borrowing Base Property), in an amount equal to 70% of net cash
proceeds (with the other 30% of net cash proceeds required to either prepay the
loans (under the First Lien Credit Agreement, the revolving loans) or be
deposited into a designated collateral proceeds account);

•

in the event of any insurance and condemnation event with respect to collateral
that is not a Borrowing Base Property, 100% of net cash proceeds, except for
such amounts that we have elected to reinvest for reconstruction of property in
accordance with the terms of the applicable Credit Agreement; and

•

in the event of any insurance and condemnation event at a Borrowing Base
Property, all net cash proceeds at the request of the administrative agent,
provided that the administrative agent is required to release all or a portion
of the funds to us for specified uses depending on the amount of net cash
proceeds.

In the event of certain non-guarantor prepayment events resulting in the receipt
of net cash proceeds by a borrower or guarantor from our non-guarantor
subsidiaries or joint ventures, those amounts are required to prepay loans (and
under the First Lien Credit Agreement, prepay loans or be used to cash
collateralize the letter of credit liabilities or specified derivatives
obligations, as applicable) as follows (subject to certain exceptions): (a) 100%
of net cash proceeds received if the event constitutes a debt issuance, (b) 50%
of net cash proceeds received if the event constitutes an equity issuance, (c)
100% of net cash proceeds received if the event constitutes an insurance
condemnation event, and (d) 70% of net cash proceeds received if the event
constitutes an asset disposition, provided, in each case (subject to certain
exceptions), that the net cash proceeds received and not otherwise required to
prepay loans must either prepay loans (under the First Lien Credit Agreement,
the revolving loans) or be deposited into a designated collateral proceeds
account.

In the event we receive net cash proceeds from an asset disposition of all or
any portion of a Borrowing Base Property in accordance with the terms of the
applicable Credit Agreement (each of which allows for the release of certain
properties from the liens created by the security documents applicable thereto
upon our request and subject to our satisfaction of certain specified conditions
with respect to such property), such net proceeds must prepay the loans as
follows (subject to certain exceptions):

•

in the event a Borrowing Base Property is released, the greater of (x) 110% of
the property’s closing date appraised value, as reduced by any prepayment made
in connection with the release, and (y) 100% of the net cash proceeds received
from the sale of the property;

•

in the event an income producing parcel is released, 100% of net cash proceeds;
and

•

in the event a non-income producing parcel is released, 70% of net cash proceeds
(with the other 30% required to either (i) prepay loans (under the First Lien
Credit Agreement, the revolving loans) or (ii) be deposited into a designated
collateral proceeds account).

Under the Second Lien Credit Agreement, any net cash proceeds applied to the
obligations under the First Lien Credit Agreement or to cash collateralize
certain letter of credit liabilities or specified derivatives obligations under
the First Lien Credit Agreement or deposited into the designated collateral
proceeds account will reduce, on a dollar-for-dollar basis, any net cash
proceeds required to be applied as a principal prepayment of the loans under the
Second Lien Credit Agreement. In the event net cash proceeds are applied under
the First Lien Credit Agreement resulting in its termination and the automatic
release of the security interest in the collateral thereunder, to the extent any
excess net cash proceeds remain, 100% of such remaining proceeds are required to
be applied to the loans under the Second Lien Credit Agreement.

We may request disbursements from the designated collateral proceeds account
subject to the same terms and conditions applicable to a disbursement of loans
(or in the case of the First Lien Credit Agreement, revolving loans), the
proceeds of which must be used in a manner consistent with an approved annual
business plan. Under the First Lien Credit Agreement, no revolving loans will be
disbursed at any time that designated collateral proceeds are on deposit and we
may elect to apply designated collateral proceeds as a principal prepayment of
the

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revolving loans at any time. Under the Second Lien Credit Agreement, amounts in
the designated collateral proceeds account in accordance with the First Lien
Credit Agreement are held by the administrative agent as additional collateral
securing our obligations under the Second Lien Credit Agreement.

Under the First Lien Credit Agreement, we have pledged and granted to the
administrative agent an additional security interest in a letter of credit
collateral account.

Additionally, under the First Lien Credit Agreement, in the event our senior
debt yield is less than 12.06% for the calendar quarter ending June 30, 2021 or
any calendar quarter thereafter, concurrently with the delivery of a compliance
certificate and thereafter once per calendar month until the ratio is equal to
or greater than 12.06% for a subsequent quarter (as shown in a compliance
certificate), we must either make prepayments, or deposits into a cash
collateral account, of all excess cash flow generated during the month preceding
such required deposit date. So long as no default or event of default exists, in
the event the excess cash flow for any given month is negative and would cause
our liquidity to fall below $12.5 million (provided that we deliver evidence of
the operating shortfall deficiency to the administrative agent), we may request
a disbursement of funds on deposit in the cash collateral account to fund or
reimburse us for such deficiency. We may also request disbursement of the funds
in the cash collateral account following the termination of a cash sweep period,
subject to certain conditions.

Under the First Lien Credit Agreement, if at any time, and under the Second Lien
Credit Agreement, if at any time after the First Lien Termination Date, our
unrestricted cash or cash equivalents exceed $40.0 million for five consecutive
days, we must make prepayments of the amount in excess of $40.0 million. Under
the First Lien Credit Agreement, those prepayments will be applied first to the
revolving loans until the principal balance is reduced to zero, then to the term
loans.

Events of Default

In addition to customary events of default including, among other things,
non-payment or non-performance under each of the Credit Agreements, events of
default include: our (i) failure to pay Material Indebtedness (defined as
indebtedness with an aggregate outstanding principal amount of $25.0 million or
more, or $250.0 million in the case of Nonrecourse Indebtedness), and (ii) the
acceleration of such Material Indebtedness (or the occurrence of any event that
would permit the holders of such Material Indebtedness to accelerate such
Material Indebtedness), in each case, provided that no event of default will
result from a default, event of default, acceleration or other action in
connection with a guaranty by a loan party of indebtedness secured by a mortgage
on a non-Borrowing Base Property until the earliest to occur of (x) commencement
of a related court proceeding, (y) in the event such loan party has agreed that
an event permitting acceleration of the guaranty has occurred, 45 days following
the expiration or termination of a related forbearance agreement, subject to
certain conditions, or (z) such loan party makes or agrees to make a payment in
satisfaction of any claim made on the guaranty in connection with the event of
default, acceleration or other action. The First Lien Credit Agreement also
provides that the non-subordination of second priority liens is an event of
default.

Upon the occurrence of 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 applicable Credit Agreement (including an amount equal to
the outstanding letters of credit under the First Lien Credit Agreement)
immediately due and payable and may terminate the lenders’ commitments
thereunder (including the obligation of the issuing banks to issue letters of
credit under the First Lien Credit Agreement). Upon the occurrence of a
voluntary or involuntary bankruptcy proceeding, all outstanding amounts
(including an amount equal to the outstanding letters of credit under the First
Lien Credit Agreement) would automatically become immediately due and payable
and the lenders’ commitments under the applicable Credit Agreement (including
the obligation of the issuing banks to issue letters of credit under the First
Lien Credit Agreement) would automatically terminate. The First Lien Credit
Agreement also provides certain specified derivatives providers with specific
remedies with respect to specified derivatives contracts thereunder.

FDP Loan Agreement

As described in Note 4 of our consolidated financial statements, PM Gallery LP,
a Delaware limited partnership and joint venture entity owned indirectly by us
and The Macerich Company (“Macerich”), previously entered into a $250.0 million
term loan in January 2018 (as amended in July 2019 to increase the total maximum
potential borrowings to $350.0 million) to fund the ongoing redevelopment of
Fashion District Philadelphia and to repay capital contributions to the venture
previously made by the partners. On December 10, 2020, PM Gallery LP, together
with certain other subsidiaries owned indirectly by us and Macerich (including
the fee and leasehold owners of the properties that are part of the Fashion
District Philadelphia project), entered into an Amended and Restated Term Loan
Agreement (the “FDP Loan Agreement”). In connection with the execution of the
FDP Loan Agreement, a $100.0 million principal payment was made (and funded
indirectly by Macerich (the “Partnership Loan”)) to pay down the existing loan,
reducing the outstanding principal under the FDP Loan Agreement from $301.0
million to $201.0 million (the “FDP Term Loan”). The joint venture must repay
the Partnership Loan plus 15% accrued interest to the Macerich lender prior to
the resumption of 50/50 cash distributions to us and Macerich. In connection
with the execution of the FDP Loan Agreement, the governing structure of PM
Gallery LP was modified such that, effective as of January 1, 2021, Macerich is
responsible for the entity’s operations and, subject to limited exceptions,
controls major decisions.

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a several basis, (iv) a full recourse guarantee of certain of the borrowers’
obligations by The Macerich Partnership, L.P., up to a maximum of $50.0 million,
on a several basis, (v) a pledge of the equity interests of certain indirect
subsidiaries of PREIT and Macerich, as well as of PREIT-RUBIN, Inc. and one of
its subsidiaries, that have a direct or indirect ownership interest in the
borrowers, (vi) a non-recourse carve-out guaranty and a hazardous materials
indemnity by each of PREIT Associates, L.P. and The Macerich Partnership, L.P.,
and (vii) mortgages of the borrowers’ fee and leasehold interests in the
properties that are part of the Fashion District Philadelphia project and
certain other properties. The FDP Loan Agreement contains certain covenants
typical for loans of its type. As noted above, PREIT Associates L.P. has
severally guaranteed its 50% share of the FDP Term Loan (see Note 3 to our
consolidated financial statements), which had $194.6 million outstanding as of
December 31, 2021 (our share of which is $97.3 million). The joint venture also
has the outstanding Partnership Loan of $115.5 million outstanding as of
December 31, 2021 (our share of which is $57.8 million) and the proceeds of
which were used to pay down the FDP Term Loan in December 2020. We monitor the
joint venture’s cash flow and its ability to meet its debt service requirements.
If the joint venture were unable to satisfy its obligations under the FDP Term
Loan, and we were required to satisfy the payment obligations under the
guarantee, this could have a material impact on our liquidity and available
capital resources. There are also circumstances in which a default of the FDP
Term Loan could give rise to an event of default under our Credit Agreements.
See Item 1A. Risk Factors “RISKS RELATED TO OUR INDEBTEDNESS AND FINANCING – We
have determined that there is substantial doubt about our ability to continue as
a going concern.”

Preferred Shares

We have 3,450,000 7.375% Series B Cumulative Redeemable Perpetual Preferred
Shares (the “Series B Preferred Shares”) outstanding, 6,900,000 7.20% Series C
Cumulative Redeemable Perpetual Preferred Shares (the “Series C Preferred
Shares”) outstanding and 5,000,000 6.875% Series D Cumulative Redeemable
Perpetual Preferred Shares (the “Series D Preferred Shares”) outstanding. Upon
30 days’ notice, we may redeem any or all of the Series B Preferred Shares or
Series C Preferred Shares at $25.00 per share plus any accrued and unpaid
dividends. We may not redeem the Series D Preferred Shares before September 15,
2022 except to preserve our status as a REIT or upon the occurrence of a Change
of Control, as defined in the Trust Agreement addendums designating the Series D
Preferred Shares, respectively. On and after September 15, 2022, we may redeem
any or all of the Series D Preferred Shares, respectively, at $25.00 per share
plus any accrued and unpaid dividends. In addition, upon the occurrence of a
Change of Control, we may redeem any or all of the Series D Preferred Shares for
cash within 120 days after the first date on which such Change of Control
occurred at $25.00 per share plus any accrued and unpaid dividends. The Series B
Preferred Shares, the Series C Preferred Shares and the Series D Preferred
Shares have no stated maturity, are not subject to any sinking fund or mandatory
redemption and will remain outstanding indefinitely unless we redeem or
otherwise repurchase them or they are converted.

Mortgage Loan Activity-Consolidated Properties

During the year ended December 31, 2021, we executed forbearance and loan
modification agreements for our consolidated properties Francis Scott Key Mall,
Viewmont Mall, and Woodland Mall. These arrangements allowed us to defer
principal payments, and in some cases interest as well. Certain of these
forbearance and loan modification agreements also impose certain additional
informational reporting requirements during the applicable modification periods.

Mortgage Loans

Our mortgage loans, which are secured by nine of our consolidated properties,
are due in installments over various terms extending to the year 2025. Our nine
properties include Valley View Mall, which was assigned to a receiver in the
third quarter 2020. Although we have not yet conveyed Valley View Mall because
foreclosure proceedings are ongoing, we no longer control or operate the
property as a result of court order assigning the receiver. The mortgage
principal balance of Valley View Mall was $27.2 million at December 31, 2021,
which we will continue to recognize until the foreclosure process is completed.
Six of these mortgage loans bear interest at fixed interest rates that range
from 3.28% to 5.95% and had a weighted average interest rate of 4.09% at
December 31, 2021. Three of our mortgage loans bear interest at variable rates
and had a weighted average interest rate of 3.72% at December 31, 2021. The
weighted average interest rate of all consolidated mortgage loans was 3.98% at
December 31, 2021. Mortgage loans for properties owned by unconsolidated
partnerships are accounted for in “Investments in partnerships, at equity” and
“Distributions in excess of partnership investments,” and are not included in
the table below.

The following table outlines the timing of principal payments and balloon
payments pursuant to the terms of our mortgage loans on our consolidated
properties as of December 31, 2021:

Payments by Period
(in thousands of dollars) Total 2022 2023 2024 2025-2026 Thereafter
Consolidated mortgage loans
Principal payments $ 31,050$ 13,652$ 6,587$ 6,405$ 4,406 $ –
Balloon payments (1)(2)(3) 821,823 429,493 53,299 127,685 211,346 –
Total consolidated mortgage
loans 852,873 $ 443,145$ 59,886$ 134,090$ 215,752 $ –
Less: Unamortized debt issuance
costs 1,590
Carrying value of mortgage
notes payable $ 851,283

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(1)

Our mortgage secured by Valley View Mall was in default as of December 31, 2021.
The property conveyance process is not complete as of December 31, 2021. The
$27.2 million mortgage balance is included in our 2022 balloon payments.
(2)
On December 10, 2021, we entered into an amendment to extend the maturity of our
mortgage secured by Woodland Mall to December 2022. The $113.0 million mortgage
balance is included in our 2022 balloon payments.
(3)
For secured mortgage loans with balloon payments due in 2022 besides our Valley
View Mall debt, we expect to refinance on similar terms or extend the
maturities.

Contractual Obligations

The following table presents our consolidated aggregate contractual obligations
as of December 31, 2021 for the periods presented:

(in thousands of dollars) Total 2022 2023-2024 2025-2026 Thereafter
Mortgage loans $ 852,873$ 443,145 (1) $ 193,976$ 215,752 $ –
Term Loans 1,015,512 – 1,015,512 (2) – –
First Lien Revolving Facility 54,549 – 54,549 – –
Interest on indebtedness (3) 139,066 62,495 61,248 15,323 –
Operating leases 4,328 688 1,949 1,691 –
Ground leases 53,275 1,735 3,168 3,103 45,269
Development and redevelopment
commitments (4) 4,286 4,286 – – –
Total $ 2,123,889$ 512,349$ 1,330,402$ 235,869$ 45,269

(1)
The 2022 balance includes $27.2 million for our mortgage loan secured by Valley
View Mall, which was in default as of December 31, 2020. We do not expect to pay
the principal balance remaining. Also, included in the 2022 amount is $113.8
million for our mortgage loan secured by Woodland Mall. On December 10, 2021, we
entered into an amendment to extend the maturity of this mortgage loan to
December 2022.
(2)
Includes our First Lien Term Loan of $379.4 million and the anticipated maturity
date balance of our Second Lien Term Loan Facility of $636.1 million, which
includes estimated capitalized PIK interest based on current interest rates.
(3)
Includes interest payments expected to be made on consolidated debt, including
those in connection with interest rate swap agreements.
(4)
The timing of the payments of these amounts is uncertain. We expect that a
significant majority of such payments (of which we include 100% of obligations
related to Fashion District Philadelphia, which opened in September 2019) will
be made prior to December 31, 2022, but cannot provide any assurance that
changed circumstances at these projects will not delay the settlement of these
obligations. 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. We have satisfied this obligation.

Interest Rate Derivative Agreements

As of December 31, 2021, we had interest rate swap agreements designated in
qualifying hedging relationships outstanding with a weighted average base
interest rate of 2.70% on a notional amount of $300.0 million, maturing in May
2023. As of December 31, 2021, we did not hold any non-designated swaps.

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 (loss) income” and subsequently reclassified
into “Interest expense, net” in the same periods during which the hedged
transaction affects earnings. Through December 10, 2020, all of our derivatives
were designated and qualified as cash flow hedges of interest rate risk.

On December 10, 2020 as a result of the Financial Restructuring, we
de-designated seven of our interest rate swaps which were previously designated
cash flow hedges against the 2018 Credit Facility and 7-year Term Loan, as the
hedged forecasted transactions were no longer probable to occur during the
hedged time period due to the financial restructuring as described in Note 1. As
such, the Company accelerated the reclassification of a portion of the amounts
in other comprehensive (loss) income to earnings which resulted in a loss of
$2.8 million that was recorded within interest expense, net in the consolidated
statement of operations. Additionally, on December 10, 2020, the Company
voluntarily de-designated the remaining 13 interest rate swaps that were also
previously designated as cash flow hedges against the 2018 Credit Facility and
7-year Term Loan. Upon de-designation, the accumulated other comprehensive
(loss) income balance of each of these de-designated derivatives will be
separately reclassified to earnings as the originally hedged forecasted
transactions affect earnings. Through December 10, 2020, the changes in fair
value of the derivatives were recorded to accumulated other comprehensive (loss)
income in the consolidated balance sheets.

On December 22, 2020, we re-designated nine interest rate swaps with a notional
amount of $375.0 million as cash flow hedges of interest rate risk against the
First Lien Term Loan Facility. These interest rate swaps qualified for hedge
accounting treatment with changes in the fair value of the derivatives recorded
through accumulated other comprehensive (loss) income.

We recognize all derivatives at fair value as either assets or liabilities in
the accompanying consolidated balance sheets. Our derivative assets are recorded
in “Deferred costs and other assets” and our derivative liabilities are recorded
in “Fair value of derivative instruments.”

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As of December 31, 2021, we had seven total derivatives with a notional amount
of $300.0 million, which were designated as cash flow hedges.

Derivatives not designated as hedges are not speculative and are also used to
manage the Company’s exposure to interest rate movements and other identified
risks but do not meet the strict hedge accounting requirements. For the eleven
remaining interest rate swaps that were not re-designated subsequent to December
10, 2020 and matured during 2021, changes in the fair value of derivatives were
recorded directly in earnings as interest expense in the consolidated statement
of operations.

As of December 31, 2021, the fair value of derivatives in a liability position,
which excludes accrued interest but includes any adjustment for nonperformance
risk related to these agreements, was $8.4 million. If we had breached any of
the default provisions in these agreements as of December 31, 2021, we might
have been required to settle our obligations under the agreements at their
termination value (including accrued interest) of $9.4 million. We had not
breached any of these provisions as of December 31, 2021.

CASH FLOWS

Net cash provided by operating activities totaled $69.0 million for 2021,
compared to $5.9 million for 2020.

This increase in cash provided by operating activities was due to changes in
working capital between periods primarily as a result of strong collection
efforts of our outstanding accounts receivable during the year ended December
31, 2021, which are included in change in other assets in our statement of cash
flows.

Cash flows used in investing activities were $21.7 million for 2021, compared to
$77.3 million for 2020.

Cash flows used in investing activities in 2021 included investment in
construction in progress of $8.2 million, investments in partnerships of $1.7
million and real estate improvements of $16.5 million (primarily related to
capital improvements at our properties, including tenant allowances), partially
offset by proceeds from sales of real estate of $5.0 million.

Investing activities in 2020 included investment in construction in progress of
$22.8 million, investments in partnerships of $34.3 million (primarily at
Fashion District Philadelphia) and real estate improvements of $37.8 million
(primarily related to capital improvements at our properties, including tenant
allowances), partially offset by $22.5 million of proceeds from land and
outparcel sales.

Cash flows used in financing activities were $40.4 million for 2021, compared to
cash flows provided by financing activities of $103.1 million for 2020.

Cash flows used in financing activities for 2021 included repayments of mortgage
loans of $135.1 million, principal installments on mortgage loans of $25.5
million and deferred financing costs of $1.1 million, repayments of first lien
term loan by $4.7 million, offset by $127.7 million of proceeds from mortgage
loans.

Cash flows provided by financing activities for 2020 included payments of
aggregate dividends and distributions of $32.3 million, principal installments
on mortgage loans of $16.1 million and deferred financing costs of $14.1
million, offset by $162.4 million of net new borrowings under our revolving
facility and term loans.

See Note 1 to our consolidated financial statements for details regarding costs
capitalized during 2021 and 2020.

COMMITMENTS

As of December 31, 2021, we had unaccrued contractual and other commitments
related to our capital improvement projects and development projects of $4.3
million in the form of tenant allowances, lease termination fees, and contracts
with general service providers and other professional service providers. In
addition, our operating partnership, PREIT Associates, has jointly and severally
guaranteed the obligations of the joint venture we formed with Macerich to
develop Fashion District Philadelphia to commence and complete a comprehensive
redevelopment of that property costing not less than $300.0 million within 48
months after commencement of construction, which was March 14, 2016. We have
satisfied this obligation.

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
$10.0 million per occurrence and up to $10.0 million in the aggregate over our
two year policy term. See “Item 1A. Risk 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 store and other
tenants. 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, 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.

When we seek to make acquisitions, competitors (such as institutional investors,
other REITs and other owner-operators of retail properties) 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. 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 addition, under many
of our leases, our tenants pay rent based, in whole or in part, on a percentage
of their sales. Accordingly, declines in these tenants’ sales directly affect
our results of operations. Also, if tenants are unable to comply with the terms
of their leases, or otherwise seek changes to the terms, including changes to
the amount of rent, we might modify lease terms in ways that are less favorable
to us. Given current conditions in the economy, certain industries and the
capital markets, in some instances retailers that have sought protection from
creditors under bankruptcy law have had difficulty in obtaining
debtor-in-possession financing, which has decreased the likelihood that such
retailers will emerge from bankruptcy protection and has limited their
alternatives. All of these factors have been exacerbated by the impact of the
COVID-19 pandemic in 2020 and 2021.

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 November/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. Customers might spend less at our retailers,
which might decrease our rent based on a percentage of sales, because of
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.

Real Estate News 24

Real Estate News 24

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)