Company Quick10K Filing
Quick10K
Pennsylvania Real Estate Investment Trust
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$7.23 77 $559
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-08 Other Events
8-K 2019-05-30 Shareholder Vote
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-05-02 Earnings, Exhibits
8-K 2019-04-09 Officers
8-K 2019-03-12 Sale of Shares
8-K 2019-02-13 Earnings, Exhibits
8-K 2019-02-13 Earnings, Exhibits
8-K 2019-01-29 Officers
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-08-13 Officers
8-K 2018-06-05 Enter Agreement
8-K 2018-05-31 Shareholder Vote, Exhibits
8-K 2018-05-24 Enter Agreement, Off-BS Arrangement
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-23 Officers
8-K 2018-02-26 Officers
8-K 2018-02-14 Earnings, Exhibits
8-K 2018-02-09 Officers
8-K 2018-01-22
8-K 2018-01-19 Officers
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PBY Pep Boys Manny Moe & Jack 1,260
ULH Universal Logistics Holdings 661
GRAM Grana & Montero 619
DCAR Dropcar 6
CFT Campbell Fund Trust 0
MONO Monopar Therapeutics 0
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PEI 2019-03-31
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part Ii-Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-10.1 a2019q1exhibit101.htm
EX-10.2 a2019q1exhibit102.htm
EX-10.3 a2019q1exhibit103.htm
EX-10.4 a2019q1exhibit104.htm
EX-31.1 a2019q1exhibit311.htm
EX-31.2 a2019q1exhibit312.htm
EX-32.1 a2019q1exhibit321.htm
EX-32.2 a2019q1exhibit322.htm

Pennsylvania Real Estate Investment Trust Earnings 2019-03-31

PEI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a2019q110q03-31x19.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2019
or
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 1-6300
  ____________________________________________________
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
(Exact name of Registrant as specified in its charter)
  ____________________________________________________
Pennsylvania
 
23-6216339
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
200 South Broad Street
Philadelphia, PA
 
19102
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code (215) 875-0700
____________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
Accelerated filer
o
Non-accelerated filer
o
 
Smaller reporting company
o
 
 
 
Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  x



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






PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONTENTS
 

 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
 

 
 
 
Item 2.

 
 
 
Item 3.

 
 
 
Item 4.

 
 
 
 
 
 
 
 
Item 1.

 
 
 
Item 1A.

 
 
 
Item 2.

 
 
 
Item 3.
Not Applicable

 
 
 
Item 4.
Not Applicable

 
 
 
Item 5.
Not Applicable

 
 
 
Item 6.

 
 
 
 


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




Item 1. FINANCIAL STATEMENTS
PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
March 31,
2019
 
December 31,
2018
 
(unaudited)
 
 
ASSETS:
 
 
 
INVESTMENTS IN REAL ESTATE, at cost:
 
 
 
Operating properties
$
3,058,422

 
$
3,063,531

Construction in progress
119,873

 
115,182

Land held for development
5,881

 
5,881

Total investments in real estate
3,184,176

 
3,184,594

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

 
2,066,012

INVESTMENTS IN PARTNERSHIPS, at equity:
149,795

 
131,124

OTHER ASSETS:
 
 
 
Cash and cash equivalents
10,416

 
18,084

Tenant and other receivables, net
35,344

 
38,914

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

 
17,868

Deferred costs and other assets, net
107,239

 
110,805

Assets held for sale
35,275

 
22,307

Total assets
$
2,390,471

 
$
2,405,114

LIABILITIES:
 
 
 
Mortgage loans payable, net
$
985,763

 
$
1,047,906

Term Loans, net
547,478

 
547,289

Revolving Facilities
162,000

 
65,000

Tenants’ deposits and deferred rent
10,261

 
15,400

Distributions in excess of partnership investments
91,227

 
92,057

Fair value of derivative liabilities
6,364

 
3,010

Accrued expenses and other liabilities
85,431

 
87,901

Total liabilities
1,888,524

 
1,858,563

COMMITMENTS AND CONTINGENCIES (Note 6):

 

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

 
35

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

 
69

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

 
50

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

 
70,495

Capital contributed in excess of par
1,761,736

 
1,671,042

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

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

 
440,781

Noncontrolling interest
5,833

 
105,770

Total equity
501,947

 
546,551

Total liabilities and equity
$
2,390,471

 
$
2,405,114


See accompanying notes to the unaudited consolidated financial statements.
1



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

 
Three Months Ended 
 March 31,
(in thousands of dollars)
2019
 
2018
REVENUE:
 
 
 
Real estate revenue:
 
 
 
Lease revenue
$
76,615

 
$
77,998

Expense reimbursements
5,062

 
5,234

Other real estate revenue
3,001

 
2,161

Total real estate revenue
84,678

 
85,393

Other income
627

 
889

Total revenue
85,305

 
86,282

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

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

Impairment of development land parcel
(1,464
)
 

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

 
3,138

Gain on sale of real estate by equity method investee
563

 
2,773

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

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

 
1,111

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

See accompanying notes to the unaudited consolidated financial statements.
2


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

(in thousands of dollars, except per share amounts)
Three Months Ended 
 March 31,
 
2019
 
2018
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
Noncontrolling interest
1,688

 
1,111

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

 
69,601

 
Effect of common share equivalents (1) 

 

 
Weighted average shares outstanding—diluted
71,358

 
69,601

 
_________________________
(1) 
The Company had net losses used to calculate earnings per share for all periods presented. Therefore, the effects of common share equivalents of 309 and 209 for the three months ended March 31, 2019 and 2018, respectively, are excluded from the calculation of diluted loss per share for these periods because they would be antidilutive.

See accompanying notes to the unaudited consolidated financial statements.
3



PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended 
 March 31,
 
(in thousands of dollars)
2019
 
2018
 
Comprehensive (loss) income:
 
 
 
 
Net loss
$
(16,223
)
 
$
(3,712
)
 
Unrealized (loss) gain on derivatives
(6,508
)
 
4,828

 
Amortization of settled swaps
2

 
275

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

 
Less: comprehensive loss attributable to noncontrolling interest
2,253

 
570

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

 


See accompanying notes to the unaudited consolidated financial statements.
4



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

 
$
35

 
$
69

 
$
50

 
$
70,495

 
$
1,671,042

 
$
5,408

 
$
(1,306,318
)
 
$
105,770

Net loss
(16,223
)
 

 

 

 

 

 

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

 

 

 

 

 
(5,941
)
 

 
(565
)
Shares issued upon redemption of Operating Partnership units

 

 

 

 
6,250

 
89,736

 

 

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

 

 

 
638

 
(964
)
 

 

 

Amortization of deferred compensation
1,922

 

 

 

 

 
1,922

 

 

 

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

 

 

 

 

 

 
(14,930
)
 

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

 

 

 

 

 

 
(1,590
)
 

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

 

 

 

 

 

 
(3,105
)
 

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

 

 

 

 

 

 
(2,148
)
 

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

 

 

 

 

 

 

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

 
$
35

 
$
69

 
$
50

 
$
77,383

 
$
1,761,736

 
$
(533
)
 
$
(1,342,626
)
 
$
5,833

















See accompanying notes to the unaudited consolidated financial statements.
5


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

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

 
$
35

 
$
69

 
$
50

 
$
69,983

 
$
1,663,966

 
$
7,226

 
$
(1,109,469
)
 
$
129,131

Net loss
(3,712
)
 

 

 

 

 

 

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

 

 

 
 
 

 

 
4,562

 

 
541

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

 

 

 
370

 
(565
)
 

 

 

Amortization of deferred compensation
1,924

 

 

 

 

 
1,924

 

 

 

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

 

 

 

 

 

 
(14,766
)
 

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

 

 

 

 

 

 
(1,590
)
 

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

 

 

 

 

 

 
(3,105
)
 

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

 

 

 

 

 

 
(2,149
)
 

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

 

 

 

 

 

 

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

 
$
35

 
$
69

 
$
50

 
$
70,353

 
$
1,665,325

 
$
11,788

 
$
(1,133,680
)
 
$
126,824



See accompanying notes to the unaudited consolidated financial statements.
6


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

 
31,209

Amortization
4,353

 
3,458

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

 
1,075

Amortization of deferred compensation
1,922

 
1,924

Loss on debt extinguishment
4,768

 

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

 
25

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

 
2,742

Impairment of development land parcel
1,464

 

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

 
1,060

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

 
31,026

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

 
123,000

Cash proceeds from sales of real estate
4,823

 

Cash proceeds from sale of mortgage
8,000

 

Cash distributions from partnerships of proceeds from real estate sold
879

 
19,727

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

 

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

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

Net borrowings (repayments) under revolving facility
97,000

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

 
484

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

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

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

 
33,953

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

 
$
104,323


See accompanying notes to the unaudited consolidated financial statements.
7


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

1. BASIS OF PRESENTATION

Nature of Operations

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

PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region. Our portfolio currently consists of a total of 27 properties operating in nine states, including 21 shopping malls, four other retail properties and two development or redevelopment properties. We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia (“Fashion District Philadelphia”)). One other property in our portfolio is classified as under development; however, we do not currently have any activity occurring at this property. We also have two undeveloped land parcels located in Gainesville, Florida, a portion of which was sold in March 2019, and New Garden Township, Pennsylvania that were classified as held-for-sale as of March 31, 2019. The New Garden parcel was subsequently sold in April 2019. A parcel that includes Whole Foods adjacent to Exton Square Mall was also classified as held-for-sale as of March 31, 2019 and such parcel was sold in April 2019.

We hold our interest in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We are the sole general partner of the Operating Partnership and, as of March 31, 2019, we held a 97.5% controlling interest in the Operating Partnership (after the redemption of 6,250,000 OP Units during the first quarter of 2019, which is discussed in more detail in Note 5 to our unaudited consolidated financial statements), and consolidated it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.

Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at our election, we may acquire such OP Units in exchange for our common shares on a one-for-one basis, in some cases beginning one year following the respective issue dates of the OP Units and in other cases immediately. If all of the outstanding OP Units held by limited partners had been redeemed for cash as of March 31, 2019, the total amount that would have been distributed would have been $12.7 million, which is calculated using our March 29, 2019 (which was the last trading day in the first quarter of 2019) closing price on the New York Stock Exchange of $6.29 per share multiplied by the number of outstanding OP Units held by limited partners, which was 2,022,635 as of March 31, 2019.

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

We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, we have

8


concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we have aggregated our individual properties into one reportable segment. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of our properties are located outside the United States.

Fair Value

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

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

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

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

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

New Leasing Standard

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

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

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

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


9


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

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

New Accounting Developments

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

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

Immaterial error correction

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

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

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


2. REAL ESTATE ACTIVITIES

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

 
$
2,719,400

Land, including land held for development
465,624

 
465,194

Total investments in real estate
3,184,176

 
3,184,594

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

 
$
2,066,012


10



Capitalization of Costs

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

 
$
1,625

 
Compensation, including commissions
352

 
438

 
Real estate taxes
76

 
164

 
 
 
 
 
 
Leasing Activities:
 
 
 
 
Compensation, including commissions(2)
320

 
2,172

 

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


Dispositions

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

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

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




11


3. INVESTMENTS IN PARTNERSHIPS

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

 
$
575,149

Construction in progress
441,678

 
420,771

Total investments in real estate
1,015,617

 
995,920

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

 
783,346

Cash and cash equivalents
34,968

 
20,446

Deferred costs and other assets, net
30,284

 
30,549

Total assets
865,964

 
834,341

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

 
507,090

FDP Term Loan, net
248,030

 
247,901

Other liabilities
31,460

 
34,463

Total liabilities
784,576

 
789,454

Net investment
81,388

 
44,887

Partners’ share
39,296

 
21,583

PREIT’s share
42,092

 
23,304

Excess investment (1)
16,476

 
15,763

Net investments and advances
$
58,568

 
$
39,067

 
 
 
 
 
 
 
 
Investment in partnerships, at equity
$
149,795

 
$
131,124

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

 
$
39,067

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

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


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

 
$
26,088

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

 
6,953

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

 
3,129

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

 
Equity in income of partnerships
$
2,289

 
$
3,138

 


Dispositions

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

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


Significant Unconsolidated Subsidiary

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

 
$
52,255

     Mortgage loan payable, net
 
194,616

 
196,328

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

 
$
9,132

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

 
4,026

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

 
2,013

 


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4. FINANCING ACTIVITY

Credit Agreements

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

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

Amounts borrowed under the Credit Agreements, either under the 2018 Revolving Facility or the Term Loans, which may be either LIBOR Loans or Base Rate Loans, bear interest at the rate specified below per annum, depending on our leverage, unless and until we receive an investment grade credit rating and provide notice to the Administrative Agent, as defined therein (the “Rating Date”), after which alternative rates would apply, as described in the Credit Agreements. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is (a)
6.50% for each Property having an average sales per square foot of more than $500 for the most recent period of 12 consecutive months, and (b) 7.50% for any other Property. The 2018 Revolving Facility is subject to a facility fee, which depends on leverage and was 0.30% as of March 30, 2019, which is recorded in interest expense in the consolidated statements of operations.
 
 
Applicable Margin
 
 
 
Level
Ratio of Total Liabilities
to Gross Asset Value
Revolving Loans that are LIBOR Loans
 
Revolving Loans that are Base Rate Loans
 
Term Loans that are LIBOR Loans
 
Term Loans that are Base Rate Loans
 
1
Less than 0.450 to 1.00
1.20%
 
0.20%
 
1.35%
 
0.35%
 
2
Equal to or greater than 0.450 to 1.00 but less than 0.500 to 1.00
1.25%
 
0.25%
 
1.45%
 
0.45%
 
3
Equal to or greater than 0.500 to 1.00 but less than 0.550 to 1.00 (1)
1.30%
 
0.30%
 
1.60%
 
0.60%
 
4
Equal to or greater than 0.550 to 1.00
1.55%
 
0.55%
 
1.90%
 
0.90%
 
(1)The rates in effect under the Credit Agreements were based upon the Level 3 Ratio of Total Liabilities to Gross Asset Value as of March 31, 2019.

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

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

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

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

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

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

 
$
365

 
 
Deferred financing amortization
 
274

 
200

 
 
 
 
 
 
 
 
Term Loans (2)
 
 
 
 
 
 
Interest expense
 
5,138

 
4,286

 
 
Deferred financing amortization
 
189

 
191

 

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


Mortgage Loans

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

 
$
948.0

 
$
1,047.9

 
$
1,002.3

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

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

Mortgage Loan Activity

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

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

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

Interest Rate Risk

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

15



5. CASH FLOW INFORMATION

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

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

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

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

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

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

 
$
89,213

Restricted cash included in other assets
 
12,226

 
15,110

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

 
$
104,323


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


16


6. COMMITMENTS AND CONTINGENCIES

Contractual Obligations

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

Provision for Employee Separation Expense

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

Property Damage from Natural Disaster

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

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



7. DERIVATIVES

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

Cash Flow Hedges of Interest Rate Risk

For derivatives that have been designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in “Accumulated other comprehensive income” and subsequently reclassified into “Interest expense, net” in the same periods during which the hedged transaction affects earnings. As of March 31, 2019, all of our outstanding derivatives are designated as cash flow hedges. We recognize all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets.
 
During the next 12 months, we estimate that $3.8 million will be reclassified as a decrease to interest expense in connection with derivatives. The recognition of these amounts could be accelerated in the event that we repay amounts outstanding on the debt instruments and do not replace them with new borrowings.

Interest Rate Swaps

As of March 31, 2019, we had interest rate swap agreements outstanding with a weighted average base interest rate of 1.84% on a notional amount of $696.9 million, maturing on various dates through May 2023, and forward starting interest rate swap agreements with a weighted average interest rate of 2.75% on a notional amount of $100.0 million, with an effective date in June 2020, and a maturity date in May 2023. We entered into these interest rate swap agreements in order to hedge the interest payments associated with our issuances of variable interest rate long term debt. The interest rate swap agreements are net settled monthly.

The following table summarizes the terms and estimated fair values of our interest rate swap derivative instruments designated as cash flow hedges of interest rate risk at March 31, 2019 and December 31, 2018 based on the year they mature. The notional values provide an indication of the extent of our involvement in these instruments, but do not represent exposure to credit, interest rate or market

17


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

 
$
1.4

 
$
1.9

 
1.23
%
2021
396.9

 
5.1

 
8.1

 
1.57
%
2022

 

 

 
%
2023
200.0

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

 
(1.9
)
 
(1.0
)
 
2.75
%
Total
$
796.9

 
$
0.5

 
$
7.0

 
1.95
%

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

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

 
$
(1.2
)
 
$
(0.1
)
 

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

Credit-Risk-Related Contingent Features

We have agreements with some of our derivative counterparties that contain a provision pursuant to which, if our entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations. As of March 31, 2019, we were not in default on any of our derivative obligations.

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

As of March 31, 2019, the fair value of derivatives in a liability position, which excludes accrued interest but includes any adjustment for nonperformance risk related to these agreements, was $6.4 million. If we had breached any of the default provisions in these

18


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


8. LEASES

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

As Lessee

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

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

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

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

$

$

$
188

Interest on lease liabilities
76



76

Operating lease costs

439

542

981

Variable lease costs

41

45

86

Total lease costs
$
264

$
480

$
587

$
1,331


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

Operating cash flows from operating leases
$
593

Financing cash flows from finance leases
$
155

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

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

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






19


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

 
$
2,346

 
$
3,040

2020
925

 
1,979

 
2,904

2021
925

 
1,906

 
2,831

2022
925

 
1,625

 
2,550

2023
925

 
1,587

 
2,512

Thereafter
3,923

 
48,437

 
52,360

Total undiscounted lease payments
8,317

 
57,880

 
66,197

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

 
$
24,107

 
$
30,962


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

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

 
$
3,007

 
$
3,932

2020
925

 
1,845

 
2,770

2021
925

 
1,856

 
2,781

2022
925

 
1,673

 
2,598

2023
925

 
1,593

 
2,518

Thereafter
3,923

 
33,959

 
37,882

 
$
8,548

 
$
43,933

 
$
52,481


As Lessor

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

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

2020
207,390

2021
190,026

2022
170,143

2023
150,672

Thereafter
523,579

 
$
1,408,536







20


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

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

OVERVIEW

Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls located in the eastern half of the United States, primarily in the Mid-Atlantic region.
We currently own interests in 27 retail properties, of which 25 are operating properties and two are development or redevelopment properties. The 25 operating properties include 21 shopping malls and four other retail properties, have a total of 20.1 million square feet and are located in nine states. We and partnerships in which we hold an interest own 15.7 million square feet at these properties (excluding space owned by anchors or third parties).
There are 19 operating retail properties in our portfolio that we consolidate for financial reporting purposes. These consolidated properties have a total of 16.0 million square feet, of which we own 12.9 million square feet. The six operating retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.1 million square feet, of which 2.8 million square feet are owned by such partnerships. When we refer to “Same Store” properties, we are referring to properties that have been owned for the full periods presented and exclude properties acquired, disposed of, under redevelopment or designated as a non-core property during the periods presented. Core properties include all operating retail properties except for Exton Square Mall, Wyoming Valley Mall, and Valley View Mall, as well as Fashion District Philadelphia, which is currently under redevelopment. We also have two undeveloped land parcels located in Gainesville, Florida, a portion of which was sold in March 2019, and New Garden Township, Pennsylvania that were classified as held-for-sale as of March 31, 2019. The New Garden parcel was subsequently sold in April 2019. A parcel that includes Whole Foods adjacent to Exton Square Mall was also classified as held-for-sale as of March 31, 2019 and such parcel was sold in April 2019.
We have one property under redevelopment classified as “retail” (redevelopment of The Gallery at Market East into Fashion District Philadelphia).  We have one other property in our portfolio that is classified as under development; however, we do not currently have any activity occurring at this property.
Our primary business is owning and operating retail shopping malls, which we do primarily through our operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). We provide management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that we do not consolidate for financial reporting purposes, including properties owned by partnerships in which we own an interest and properties that are owned by third parties in which we do not have an interest. PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer additional services to tenants without jeopardizing our continuing qualification as a REIT under federal tax law.
Our revenue consists primarily of fixed rental income, additional rent in the form of fixed and variable expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the leases) derived from our income producing properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.

Net loss for the three months ended March 31, 2019 was $16.2 million, an increase of $12.5 million compared to a net loss of $3.7 million for the three months ended March 31, 2018. This increased loss was primarily due to: (a) a loss on debt extinguishment of $4.8 million incurred in connection with the defeasance of a mortgage loan recorded in the first quarter of 2019; (b) an asset impairment of $1.5 million on an undeveloped land parcel recorded in the first quarter of 2019; (c) a $2.2 million decrease in gains on sale of real estate by equity method investees; (d) a $1.2 million decrease in capitalized leasing costs as a result of the adoption of ASC 842 effective January 1, 2019; (e) $0.7 million of employee separation expenses; (f) $0.4 million of dilution from asset sales; (g) a $0.8 million decrease in non-Same Store NOI; and (h) a $1.0 million increase in interest expense, partially offset by a $1.1 million increase in Same Store NOI.
We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. Due to the nature of our operating properties, which involve retail shopping, we have concluded that our individual properties have similar economic characteristics and meet all other aggregation criteria. Accordingly, we

21


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

Current Economic and Industry Conditions

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

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

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

 
59

 
191,791

 
$
8,106

 
46

 
144,244

 
$
6,348

Unconsolidated properties
 
4

 
9

 
29,365

 
945

 
6

 
22,356

 
725

Total
 
4

 
68

 
221,156

 
$
9,051

 
52

 
166,600

 
$
7,073

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018 (Full Year)
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated properties
 
10

 
43

 
1,221,433

 
$
7,072

 
5

 
267,715

 
$
1,601

Unconsolidated properties
 
3

 
5

 
14,977

 
402

 

 

 

Total
 
10

 
48

 
1,236,410

 
$
7,474

 
5

 
267,715

 
$
1,601

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




22


Anchor Replacements

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

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

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

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


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

23


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

We might engage in various types of capital improvement projects at our operating properties. Such projects vary in cost and complexity, and can include building out new or existing space for individual tenants, upgrading common areas or exterior areas such as parking lots, or redeveloping the entire property, among other projects. Project costs are accumulated in “Construction in progress” on our consolidated balance sheet until the asset is placed into service, and amounted to $119.9 million as of March 31, 2019.

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


CRITICAL ACCOUNTING POLICIES

Critical Accounting Policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that might change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the consolidated financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Management has also considered events and changes in property, market and economic conditions, estimated future cash flows from property operations and the risk of loss on specific accounts or amounts in determining its estimates and judgments. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may affect comparability of our results of operations to those of companies in a similar business. The estimates and assumptions made by management in applying Critical Accounting Policies have not changed materially during 2019 or 2018, except as otherwise noted, and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. We will continue to monitor the key factors underlying our estimates and judgments, but no change is currently expected.
For additional information regarding our Critical Accounting Policies, see “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.

Asset Impairment

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

24


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

New Accounting Developments

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

OFF BALANCE SHEET ARRANGEMENTS

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


25




RESULTS OF OPERATIONS

Occupancy

The table below sets forth certain occupancy statistics for our properties as of March 31, 2019 and 2018:
 
 
Occupancy (1) at March 31,
 
Consolidated
Properties
 
Unconsolidated
Properties(2)
 
Combined(2)
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
Retail portfolio weighted average:
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
90.6
%
 
90.5
%
 
90.7
%
 
92.7
%
 
90.7
%
 
91.0
%
Total including anchors
91.3
%
 
92.9
%
 
92.4
%
 
94.0
%
 
91.5
%
 
93.1
%
Core Malls weighted average:(3)
 
 
 
 
 
 
 
 
 
 
 
Total excluding anchors
91.9
%
 
91.7
%
 
88.9
%
 
92.5
%
 
91.5
%
 
91.8
%
Total including anchors
95.0
%
 
93.6
%
 
92.4
%
 
94.9
%
 
94.7
%
 
93.7
%
_________________________
(1) 
Occupancy for both periods presented includes all tenants irrespective of the term of their agreements. Fashion District Philadelphia is excluded for 2019 and 2018 because the property is currently partially closed and undergoing major reconstruction.
(2) 
We own a 25% to 50% interest in each of our unconsolidated properties, and do not control such properties. Our percentage ownership is not necessarily indicative of the legal and economic implications of our ownership interest. See "—Use of Non GAAP Measures" for further details on our ownership interests in our unconsolidated properties.
(3) 
Core Malls excludes Fashion District Philadelphia, Exton Square Mall, Valley View Mall, Wyoming Valley Mall, power centers and Gloucester Premium Outlets.



26


Leasing Activity

The table below sets forth summary leasing activity information with respect to our consolidated and unconsolidated properties for the three months ended March 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Tenant Improvements psf (3)
 
 
 
 
Number
 
GLA
in square feet (“sf”)
 
Term (years)
 
Initial Rent per square foot (“psf”)
 
Previous Rent psf
 
Initial Gross Rent Renewal Spread (1)
 
Average Rent Renewal Spread (2)
 
 
 
 
 
 
 
 
$
 
%
 
%
 
Non Anchor
New Leases
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 </