10-Q

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 June 30, 2010

or

¨ 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  ¨

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

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

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

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

Common shares of beneficial interest, $1.00 par value per share, outstanding at July 27, 2010: 55,317,892

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets – June 30, 2010 and December 31, 2009	1
	Consolidated Statements of Operations – Three and Six Months Ended June 30, 2010 and 2009	2
	Consolidated Statements of Equity and Comprehensive Income – Six Months Ended June 30, 2010	4
	Consolidated Statements of Cash Flows – Six Months Ended June 30, 2010 and 2009	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	44
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Not Applicable
Item 3.	Not Applicable
Item 4.	Not Applicable
Item 5.	Not Applicable
Item 6.	Exhibits	45
SIGNATURES		46

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. References in this Quarterly Report on Form 10-Q to “PRI” refer to PREIT-RUBIN, Inc.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands of dollars, except share and per share amounts)	June 30, 2010			December 31, 2009
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties	$	3,523,664		$	3,459,745
Construction in progress		161,996			215,231
Land held for development		9,337			9,337
Total investments in real estate		3,694,997			3,684,313
Accumulated depreciation		(690,489	)		(623,309	)
Net investments in real estate		3,004,508			3,061,004
INVESTMENTS IN PARTNERSHIPS, at equity:		29,528			32,694
OTHER ASSETS:
Cash and cash equivalents		29,250			74,243
Tenant and other receivables (net of allowance for doubtful accounts of $21,163 and $19,981 at June 30, 2010 and December 31, 2009, respectively)		35,169			55,303
Intangible assets (net of accumulated amortization of $212,364 and $198,984 at June 30, 2010 and December 31, 2009, respectively)		25,598			38,978
Deferred costs and other assets		91,498			84,358
Total assets	$	3,215,551		$	3,346,580
LIABILITIES:
Mortgage notes payable (including debt premium of $2,157 and $2,744 at June 30, 2010 and December 31, 2009, respectively)	$	1,798,287		$	1,777,121
Exchangeable notes (net of debt discount of $3,749 and $4,664 at June 30, 2010 and December 31, 2009, respectively)		133,151			132,236
Term loans		413,500			170,000
Revolving Facility		—			486,000
Tenants’ deposits and deferred rent		13,827			13,170
Distributions in excess of partnership investments		44,199			48,771
Accrued construction costs		3,086			11,778
Fair value of derivative instruments		27,252			14,610
Accrued expenses and other liabilities		53,392			58,090
Total liabilities		2,486,694			2,711,776
COMMITMENTS AND CONTINGENCIES (Note 8)
EQUITY:
Shares of beneficial interest, $1.00 par value per share; 100,000,000 shares authorized; issued and outstanding 55,317,932 shares at June 30, 2010 and 44,615,647 shares at December 31, 2009		55,318			44,616
Capital contributed in excess of par		1,034,998			881,735
Accumulated other comprehensive loss		(41,491	)		(30,016	)
Distributions in excess of net income		(372,960	)		(317,682	)
Total equity—PREIT		675,865			578,653
Noncontrolling interest		52,992			56,151
Total equity		728,857			634,804
Total liabilities and equity	$	3,215,551		$	3,346,580

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)	2010			2009			2010			2009
REVENUE:
Base rent	$	73,631		$	73,105		$	148,085		$	145,121
Expense reimbursements		32,709			33,684			67,521			67,859
Percentage rent		641			626			1,525			1,461
Lease termination revenue		373			938			2,181			1,336
Other real estate revenue		3,501			3,463			6,466			6,715
Interest and other income		598			528			1,326			1,230
Total revenue		111,453			112,344			227,104			223,722
EXPENSES:
Operating expenses:
CAM and real estate taxes		(35,511	)		(33,563	)		(72,813	)		(68,179	)
Utilities		(6,166	)		(5,913	)		(12,469	)		(11,797	)
Other operating expenses		(6,373	)		(6,694	)		(12,195	)		(12,460	)
Total operating expenses		(48,050	)		(46,170	)		(97,477	)		(92,436	)
Depreciation and amortization		(41,598	)		(41,085	)		(83,605	)		(80,086	)
Other expenses:
General and administrative expenses		(9,617	)		(9,498	)		(19,303	)		(18,853	)
Impairment of assets		—			(70	)		—			(70	)
Abandoned project costs, income taxes and other expenses		(161	)		(80	)		(455	)		(399	)
Total other expenses		(9,778	)		(9,648	)		(19,758	)		(19,322	)
Interest expense, net		(38,625	)		(33,249	)		(73,456	)		(65,758	)
Gain on extinguishment of debt		—			8,532			—			9,804
Total expenses		(138,051	)		(121,620	)		(274,296	)		(247,798	)
Loss before equity in income of partnerships, gains on sales of real estate, and discontinued operations		(26,598	)		(9,276	)		(47,192	)		(24,076	)
Equity in income of partnerships		2,948			2,659			5,038			5,177
Gain on sales of real estate		—			1,654			—			1,654
Loss from continuing operations		(23,650	)		(4,963	)		(42,154	)		(17,245	)
Income from discontinued operations		—			745			—			1,504
Net loss		(23,650	)		(4,218	)		(42,154	)		(15,741	)
Less: net loss attributed to noncontrolling interest		964			197			1,842			738
Net loss attributable to PREIT	$	(22,686	)	$	(4,021	)	$	(40,312	)	$	(15,003	)

See accompanying notes to the unaudited consolidated financial statements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)

Earnings Per Share

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
(in thousands of dollars, except per share amounts)	2010			2009			2010			2009
Loss from continuing operations	$	(23,650	)	$	(4,963	)	$	(42,154	)	$	(17,245	)
Noncontrolling interest in continuing operations		964			185			1,842			695
Dividends on unvested restricted shares		(168	)		(378	)		(266	)		(473	)
Loss from continuing operations used to calculate earnings per share - basic and diluted	$	(22,854	)	$	(5,156	)	$	(40,578	)	$	(17,023	)
Income from discontinued operations	$	—		$	745		$	—		$	1,504
Noncontrolling interest in discontinued operations		—			12			—			43
Income from discontinued operations used to calculate earnings per share - basic and diluted	$	—		$	757		$	—		$	1,547
Basic (loss) income per share
Loss from continuing operations	$	(0.45	)	$	(0.13	)	$	(0.86	)	$	(0.44	)
Income from discontinued operations		—			0.02			—			0.04
	$	(0.45	)	$	(0.11	)	$	(0.86	)	$	(0.40	)
Diluted (loss) income per share
Loss from continuing operations	$	(0.45	)	$	(0.13	)	$	(0.86	)	$	(0.44	)
Income from discontinued operations		—			0.02			—			0.04
	$	(0.45	)	$	(0.11	)	$	(0.86	)	$	(0.40	)
(in thousands of shares)
Weighted average shares outstanding – basic		50,317			39,197			47,013			39,101
Effect of common share equivalents (1)		—			—			—			—
Weighted average shares outstanding – diluted		50,317			39,197			47,013			39,101

⁽¹⁾ For the three and six months ended June 30, 2010 and June 30, 2009, respectively, the Company had net losses from continuing operations. Therefore, the effect of common share equivalents of 587 and 0 for the three months ended June 30, 2010 and June 30, 2009, respectively, and 349 and 0 for the six months ended June 30, 2010 and June 30, 2009, 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.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF EQUITY

AND COMPREHENSIVE INCOME

Six months ended

June 30, 2010

(Unaudited)

							PREIT Shareholders
(in thousands of dollars, except per share amounts)	Total Equity			Comprehensive Income (Loss)			Shares of Beneficial Interest $1.00 Par		Capital Contributed in Excess of Par			Accumulated Other Comprehensive Loss			Distributions in Excess of Net Income			Non- controlling Interest
Balance January 1, 2010	$	634,804		$	—		$	44,616	$	881,735		$	(30,016	)	$	(317,682	)	$	56,151
Comprehensive income (loss):
Net loss		(42,154	)		(42,154	)							—			(40,312	)		(1,842	)
Unrealized loss on derivatives		(12,642	)		(12,642	)							(12,096	)		—			(546	)
Other comprehensive income		650			650								621			—			29
Total comprehensive loss		(54,146	)	$	(54,146	)													(2,359	)
Shares issued in 2010 equity offering, net of expenses		160,716						10,350		150,366			—			—			—
Shares issued under distribution reinvestment and share purchase plan		224						19		205			—			—			—
Shares issued under employee share purchase plan		247						20		227			—			—			—
Shares issued under equity incentive plans, net of retirements		(1,025	)					313		(1,338	)		—			—			—
Amortization of deferred compensation		3,803						—		3,803			—			—			—
Distributions paid to common shareholders ($0.30 per share)		(14,966	)					—		—			—			(14,966	)		—
Distributions paid to noncontrolling interests:
Distributions to Operating Partnership unitholders ($0.30 per unit)		(695	)					—		—			—			—			(695	)
Other distributions to noncontrolling interest, net		(105	)					—		—			—			—			(105	)
Balance June 30, 2010	$	728,857					$	55,318	$	1,034,998		$	(41,491	)	$	(372,960	)	$	52,992

See accompanying notes to the unaudited consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six months ended June 30,
(in thousands of dollars)	2010			2009
Cash flows from operating activities:
Net loss	$	(42,154	)	$	(15,741	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		67,867			64,178
Amortization		21,695			20,033
Straight-line rent adjustments		(929	)		(753	)
Provision for doubtful accounts		3,190			3,414
Amortization of deferred compensation		3,803			3,855
Gain on sales of real estate		—			(1,654	)
Gain on extinguishment of debt		—			(9,804	)
Change in assets and liabilities:
Net change in other assets		11,500			14,431
Net change in other liabilities		(2,921	)		(1,124	)
Net cash provided by operating activities		62,051			76,835
Cash flows from investing activities:
Decrease in note receivable from tenant		10,000			—
Additions to construction in progress		(12,943	)		(95,243	)
Investments in real estate improvements		(7,178	)		(10,641	)
Additions to leasehold improvements		(142	)		(144	)
Investments in partnerships		(6,179	)		(724	)
Capitalized leasing costs		(2,141	)		(2,150	)
Cash proceeds from sales of real estate investments		—			5,403
Increase in cash escrows		(1,380	)		(645	)
Cash distributions from partnerships in excess of equity in income		4,893			458
Net cash used in investing activities		(15,070	)		(103,686	)
Cash flows from financing activities:
Net proceeds from 2010 Term Loan and Revolving Facility		590,000			—
Shares of beneficial interest issued		161,188			354
Net (repayment of) borrowing from 2003 Credit Facility		(486,000	)		45,000
Repayment of senior unsecured 2008 Term Loan		(170,000	)		—
Paydown of 2010 Term Loan		(106,500	)		—
Net repayment of Revolving Facility		(70,000	)		—
Proceeds from mortgage loans		32,500			48,686
Repayment of mortgage loans		(750	)		(18,058	)
Principal installments on mortgage loans		(9,998	)		(8,221	)
Repurchase of exchangeable notes		—			(693	)
Payment of deferred financing costs		(15,727	)		(1,319	)
Dividends paid to common shareholders		(14,966	)		(17,680	)
Distributions paid to Operating Partnership unitholders and noncontrolling interest		(695	)		(941	)
Shares of beneficial interest repurchased, other		(1,026	)		(113	)
Net cash (used in) provided by financing activities		(91,974	)		47,015
Net change in cash and cash equivalents		(44,993	)		20,164
Cash and cash equivalents, beginning of period		74,243			9,786
Cash and cash equivalents, end of period	$	29,250		$	29,950

See accompanying notes to the unaudited consolidated financial statements

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010

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 the Company believes that the included disclosures are adequate to make the information presented not misleading. The 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, 2009. In management’s opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company and its subsidiaries and the consolidated results of its operations and its 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 and strip and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. As of June 30, 2010, the Company’s portfolio consisted of a total of 54 properties in 13 states, including 38 shopping malls, 13 strip and power centers and three development properties, with two of the development properties classified as “mixed use” (a combination of retail and other uses) and one of the development properties classified as “other.”

The Company holds its interest in its portfolio of properties through its operating partnership, PREIT Associates, L.P. (“PREIT Associates” or the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and, as of June 30, 2010, the Company held a 96.0% interest in the Operating Partnership, and consolidates 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.

The Company evaluates operating results and allocates resources on a property-by-property basis, and does not distinguish or evaluate consolidated operations on a geographic basis. No individual property constitutes 10% or more of consolidated revenue or assets, and thus the individual properties have been aggregated into one reportable segment based upon their similarities with regard to the nature of the Company’s properties and the nature of the Company’s tenants and operational processes, as well as long-term financial performance. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of the Company’s properties are located outside the United States.

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 the election of the Company, the Company may acquire such OP Units for common shares of the Company on a one-for-one basis, in some cases beginning one year following the respective issue date of the OP Units and in other cases immediately. In the event of the redemption of all of the outstanding OP Units held by limited partners for cash, the total amount that would have been distributed as of June 30, 2010 would have been $28.5 million in cash or the equivalent value of shares of PREIT, which is calculated using the Company’s June 30, 2010 closing share price on the New York Stock Exchange of $12.22 multiplied by the number of outstanding OP Units held by limited partners.

The Company provides its management, leasing and real estate development services through two companies: PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that the Company consolidates for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that the Company does not consolidate for financial reporting purposes, including properties

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

owned by partnerships in which the Company owns an interest and properties that are owned by third parties in which the Company does 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 the Company’s continuing qualification as a REIT under federal tax law.

Fair Value

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is 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 the Company has 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 may 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, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

In instances where 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. The Company’s 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. The Company utilizes the fair value hierarchy in its accounting for derivatives (Level 2), financial instruments (Level 3) and in its impairment reviews of real estate assets (Level 3) and goodwill (Level 3).

2. RECENT ACCOUNTING PRONOUNCEMENTS

Accounting for Transfers of Financial Assets

On January 1, 2010, the Company adopted new accounting requirements relating to accounting for transfers of financial assets. The recognition and measurement provisions of these new accounting requirements are applied to transfers that occur on or after January 1, 2010. The disclosure provisions of these new accounting requirements are applied to transfers that occurred both before and after January 1, 2010. The adoption of these new accounting requirements did not have any effect on the Company’s consolidated financial statements.

Variable Interest Entities

On January 1, 2010, the Company adopted new accounting requirements relating to variable interest entities. These new accounting requirements amend the existing accounting guidance: a) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity, identifying the primary beneficiary of a variable interest entity; b) to require ongoing reassessment of whether an enterprise is the primary beneficiary of a variable interest entity, rather than only when specific events occur; c) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest; d) to amend certain guidance for determining whether an entity is a variable interest entity; e) to add an additional reconsideration event when changes in facts and circumstances pertinent to a variable interest entity occur; f) to eliminate the exception for troubled debt restructuring regarding variable interest entity reconsideration; and g) to require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The adoption of these new accounting requirements did not have any effect on the Company’s consolidated financial statements.

3. REAL ESTATE ACTIVITIES

Investments in real estate as of June 30, 2010 and December 31, 2009 were comprised of the following:

(in thousands of dollars)	As of June 30, 2010			As of December 31, 2009
Buildings, improvements and construction in progress	$	3,143,598		$	3,129,354
Land, including land held for development		551,399			554,959
Total investments in real estate		3,694,997			3,684,313
Accumulated depreciation		(690,489	)		(623,309	)
Net investments in real estate	$	3,004,508		$	3,061,004

Capitalization of Costs

Costs incurred in development and redevelopment projects for interest, property taxes and insurance are capitalized only during periods in which activities necessary to prepare the property for its intended use are in progress. Costs incurred for such items after the property is substantially complete and ready for its intended use are charged to expense as incurred. Capitalized costs, as well as tenant inducement amounts and internal and external commissions, are recorded in construction in progress. The Company capitalizes a portion of development department employees’ compensation and benefits related to time spent involved in development and redevelopment projects.

The Company capitalizes payments made to obtain options to acquire real property. Other related costs that are incurred before acquisition that are expected to have ongoing value to the project are capitalized if the acquisition of the property is probable. Capitalized pre-acquisition costs are charged to expense when it is probable that the property will not be acquired.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The Company capitalizes salaries, commissions and benefits related to time spent by leasing and legal department personnel involved in originating leases with third-party tenants.

The following table summarizes the Company’s capitalized salaries, commissions and benefits, real estate taxes and interest for the three and six months ended June 30, 2010 and 2009:

	Three months ended June 30,				Six months ended June 30,
(in thousands of dollars)	2010		2009		2010		2009
Development/Redevelopment Activities:
Salaries and benefits	$	211	$	623	$	616	$	1,376
Real estate taxes		2		65		331		844
Interest		943		1,466		1,478		3,258
Leasing Activities:
Salaries, commissions and benefits		1,256		1,051		2,141		2,150

Discontinued Operations

The Company has presented as discontinued operations the operating results of Crest Plaza and Northeast Tower Center, which were operating properties that were sold in 2009. There were no discontinued operations in the three and six months ended June 30, 2010.

The following table summarizes revenue and expense information for the Company’s discontinued operations:

	Three months ended June 30,			Six months ended June 30,
(in thousands of dollars)	2009			2009
Real estate revenue	$	1,494		$	3,028
Expenses:
Operating expenses		(354	)		(735	)
Depreciation and amortization		(395	)		(789	)
Total expenses		(749	)		(1,524	)
Income from discontinued operations	$	745		$	1,504

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

4. INVESTMENTS IN PARTNERSHIPS

The following table presents summarized financial information of the equity investments in the Company’s unconsolidated partnerships as of June 30, 2010 and December 31, 2009:

(in thousands of dollars)	As of June 30, 2010			As of December 31, 2009
ASSETS:
Investments in real estate, at cost:
Retail properties	$	398,871		$	393,197
Construction in progress		2,564			3,602
Total investments in real estate		401,435			396,799
Accumulated depreciation		(124,449	)		(116,313	)
Net investments in real estate		276,986			280,486
Cash and cash equivalents		7,846			5,856
Deferred costs and other assets, net		22,047			21,254
Total assets		306,879			307,596
LIABILITIES AND PARTNERS’ DEFICIT:
Mortgage notes payable		361,256			365,565
Other liabilities		12,572			13,858
Total liabilities		373,828			379,423
Net deficit		(66,949	)		(71,827	)
Partners’ share		(34,875	)		(37,382	)
Company’s share		(32,074	)		(34,445	)
Excess investment (1)		13,127			13,733
Advances		4,276			4,635
Net investments and advances	$	(14,671	)	$	(16,077	)
Investment in partnerships, at equity	$	29,528		$	32,694
Distributions in excess of partnership investments		(44,199	)		(48,771	)
Net investments and advances	$	(14,671	)	$	(16,077	)

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

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The following table summarizes the operating results of the unconsolidated partnerships and the Company’s share of equity in income of partnerships for the three and six months ended June 30, 2010 and 2009:

	Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)	2010			2009			2010			2009
Real estate revenue	$	19,596		$	18,524		$	37,748		$	37,190
Expenses:
Operating expenses		(5,815	)		(5,759	)		(12,057	)		(11,713	)
Interest expense		(3,759	)		(3,556	)		(6,943	)		(7,124	)
Depreciation and amortization		(4,111	)		(3,839	)		(7,936	)		(7,740	)
Total expenses		(13,685	)		(13,154	)		(26,936	)		(26,577	)
Net income		5,911			5,370			10,812			10,613
Less: Partners’ share		(2,942	)		(2,671	)		(5,379	)		(5,281	)
Company’s share		2,969			2,699			5,433			5,332
Amortization of excess investment		(21	)		(40	)		(395	)		(155	)
Equity in income of partnerships	$	2,948		$	2,659		$	5,038		$	5,177

Mortgage Loan Activity

In January 2010, the unconsolidated partnership that owns Springfield Park in Springfield, Pennsylvania repaid a mortgage loan with a balance of $2.8 million. The Company’s share of the mortgage loan payment was $1.4 million. The Company owns a 50% interest in this partnership.

In April 2010, the unconsolidated partnerships that own Springfield Park and Springfield East, in Springfield, Pennsylvania, entered into a $10.0 million mortgage loan that is secured by Springfield Park and Springfield East. The Company owns a 50% interest in both entities. The mortgage loan has an initial term of five years and can be extended for an additional five-year term under prescribed conditions. The loan bears interest at LIBOR plus 2.80%, and has been swapped to a fixed rate of 5.39%.

In June 2010, the unconsolidated partnership that owns Lehigh Valley Mall in Allentown, Pennsylvania entered into a $140.0 million mortgage loan that is secured by Lehigh Valley Mall. The Company owns a 50% interest in the unconsolidated partnership. The mortgage loan has a term of 10 years and bears interest at a fixed rate of 5.88%. In connection with the new mortgage loan financing, the unconsolidated partnership repaid the previous $150.0 million mortgage loan on Lehigh Valley Mall using proceeds from the new mortgage loan and available working capital.

Impairment of Investments in Unconsolidated Subsidiaries

An other than temporary impairment of an investment in an unconsolidated subsidiary is recognized when the carrying value of the investment is not considered recoverable based on an 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.

5. FINANCING ACTIVITY

Amended, Restated and Consolidated Senior Secured Credit Agreement

On March 11, 2010, PREIT Associates and PRI (collectively, the “Borrower”), together with PR Gallery I Limited Partnership (“GLP”) and Keystone Philadelphia Properties, L.P. (“KPP”), two other subsidiaries of the Company, entered into an Amended, Restated and Consolidated Senior Secured Credit Agreement comprised of a) an aggregate $520.0 million term loan made up of a $436.0 million term loan (“Term Loan A”) to the Borrower and a separate $84.0 million term loan (“Term Loan B”) to the other two subsidiaries (collectively, the “2010 Term Loan”) and b) a $150.0 million revolving line of credit (the “Revolving Facility,” and, together with the 2010 Term Loan, the “2010 Credit Facility”) with Wells Fargo Bank, National Association, and the other financial institutions signatory thereto.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The 2010 Credit Facility replaced the previously existing $500.0 million unsecured revolving credit facility, as amended (the “2003 Credit Facility”), and a $170.0 million unsecured term loan (the “2008 Term Loan”) that had been scheduled to mature on March 20, 2010. All capitalized terms used and not otherwise defined in the description of the 2010 Credit Facility have the meanings ascribed to such terms in the 2010 Credit Facility.

The initial term of the 2010 Credit Facility is three years, and the Borrower has the right to one 12-month extension of the initial maturity date, subject to certain conditions and to the payment of an extension fee of 0.50% of the then outstanding Commitments.

The Company used the initial proceeds from the 2010 Credit Facility to repay outstanding balances under the 2003 Credit Facility and 2008 Term Loan. At closing, the $520.0 million 2010 Term Loan was fully outstanding and $70.0 million was outstanding under the Revolving Facility.

Amounts borrowed under the 2010 Credit Facility bear interest at a rate between 4.00% and 4.90% per annum, depending on the Company’s leverage, in excess of LIBOR, with no floor. The initial rate in effect was 4.90% per annum in excess of LIBOR. In determining the Company’s leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is 8.00%. The unused portion of the Revolving Facility is subject to a fee of 0.40% per annum.

The Company has entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a weighted-average rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

The obligations under Term Loan A are secured by first priority mortgages on 20 of the Company’s properties and a second lien on one property, and the obligations under Term Loan B are secured by first priority leasehold mortgages on the properties ground leased by GLP and KPP (the “Gallery Properties”). The foregoing properties constitute substantially all of the Company’s previously unencumbered retail properties.

PREIT and certain of its subsidiaries that are not otherwise prevented from doing so serve as guarantors for funds borrowed under the 2010 Credit Facility.

The aggregate amount of the lender Revolving Commitments and 2010 Term Loan under the 2010 Credit Facility was required to be reduced by $33.0 million by March 11, 2011, by a cumulative total of $66.0 million by March 11, 2012 and by a cumulative total of $100.0 million by March 11, 2013 (if the Company exercises its right to extend the Termination Date), including all payments (except payments pertaining to the Release Price of a Collateral Property) resulting in permanent reduction of the aggregate amount of the Revolving Commitments and 2010 Term Loan. The Company used $160.7 million of the proceeds from its May 2010 equity offering to repay borrowings under the 2010 Credit Facility, satisfying all three of these requirements, and no mandatory paydown provisions remain in effect.

As of June 30, 2010, there were no amounts outstanding under the Revolving Facility. The Company had pledged $1.5 million under the Revolving Facility as collateral for letters of credit, and the unused portion of the Revolving Facility that was available to the Company was $148.5 million as of June 30, 2010. The weighted average effective interest rate based on amounts borrowed under the Revolving Facility from March 11, 2010 to June 30, 2010 was 7.56%. The interest rate that would have applied to any outstanding Revolving Facility borrowings as of June 30, 2010 was LIBOR plus 4.90%.

As of June 30, 2010, $413.5 million was outstanding under the 2010 Term Loan. The weighted average effective interest rate based on amounts borrowed on the 2010 Term Loan was 6.28% from March 11, 2010 to June 30, 2010. The weighted average interest rate on the 2010 Term Loan borrowings as of June 30, 2010 was 5.55%.

The 2010 Credit Facility contains provisions regarding the application of proceeds from a Capital Event. A Capital Event is any event by which the Borrower raises additional capital, whether through an asset sale, joint venture, additional secured or unsecured debt, issuance of equity, or from excess proceeds after payment of a Release Price. Capital Events do not include Refinance Events or other specified events. After payment of interest and required distributions, the Remaining Capital Event Proceeds will generally be applied in the following order:

If the Facility Debt Yield is less than 11.00% or the Corporate Debt Yield is less than 10.00%, Remaining Capital Event Proceeds will be allocated 25% to pay down the Revolving Facility (repayments of the Revolving Facility generally may be reborrowed) and 75% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

payment, to pay down the Revolving Facility in full and to use any remainder of that 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full). So long as the Facility Debt Yield is greater than or equal to 11.00% and the Corporate Debt Yield is greater than or equal to 10.00% and each will remain so immediately after the Capital Event, and so long as either the Facility Debt Yield is less than 12.00% or the Corporate Debt Yield is less than 10.25% and will remain so immediately after the Capital Event, the Remaining Capital Event Proceeds will be allocated 75% to pay down the Revolving Facility and 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 75% for general corporate purposes. So long as the Facility Debt Yield is greater than or equal to 12.00% and the Corporate Debt Yield is greater than or equal to 10.25% and each will remain so immediately after the Capital Event, Remaining Capital Event Proceeds will be applied 100% to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinance Event relating to Cherry Hill Mall will be used to pay down the Revolving Facility and may be reborrowed only to repay the Company’s unsecured indebtedness.

The 2010 Credit Facility also contains provisions regarding the application of proceeds from a Refinance Event. A Refinance Event is any event by which the Company raises additional capital from refinancing of secured debt encumbering an existing asset, not including collateral for the 2010 Credit Facility. The proceeds in excess of the amount required to retire an existing secured debt will be applied, after payment of interest, to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinancing Event relating to the Gallery Properties may only be used to pay down and permanently reduce Term Loan B (or, if the outstanding balance on Term Loan B is or would become $0 as a result such payment, to pay down Term Loan B in full and to pay any remainder in accordance with the preceding paragraph).

A Collateral Property will be released as security upon a sale or refinancing, subject to payment of the Release Price and the absence of any default or Event of Default. If, after release of a Collateral Property (and giving pro forma effect thereto), the Facility Debt Yield will be less than 11.00%, the Release Price will be the Minimum Release Price plus an amount equal to the lesser of (A) the amount that, when paid and applied to the 2010 Term Loan, would result in a Facility Debt Yield equal to 11.00% and (B) the amount by which the greater of (1) 100.0% of net cash proceeds and (2) 90.0% of the gross sales proceeds exceeds the Minimum Release Price. The Minimum Release Price is 110% (120% if, after the Release, there will be fewer than 10 Collateral Properties) multiplied by the proportion that the value of the property to be released bears to the aggregate value of all of the Collateral Properties on the closing date of the 2010 Credit Facility, multiplied by the amount of the then Revolving Commitments plus the aggregate principal amount then outstanding under the 2010 Term Loan. In general, upon release of a Collateral Property, the post-release Facility Debt Yield must be greater than or equal to the pre-release Facility Debt Yield. Release payments must be used to pay down and permanently reduce the amount of the Term Loan.

The 2010 Credit Facility contains affirmative and negative covenants customarily found in facilities of this type, including, without limitation, requirements that the Company maintain, on a consolidated basis: (1) minimum Tangible Net Worth of not less than $483.1 million, minus non-cash impairment charges with respect to the Properties recorded in the quarter ended December 31, 2009, plus 75% of the Net Proceeds of all Equity Issuances effected at any time after September 30, 2009; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.75:1; (3) minimum ratio of EBITDA to Interest Expense of 1.60:1; (4) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.35:1; (5) maximum Investments in unimproved real estate and predevelopment costs not in excess of 3.0% of Gross Asset Value; (6) maximum Investments in Persons other than Subsidiaries, Consolidated Affiliates and Unconsolidated Affiliates not in excess of 1.0% of Gross Asset Value; (7) maximum Investments in Indebtedness secured by Mortgages in favor of the Company, the Borrower or any other Subsidiary not in excess of 1.0% of Gross Asset Value on the basis of cost; (8) the aggregate value of the Investments and the other items subject to the preceding clauses (5) through (7) shall not exceed 5.0% of Gross Asset Value; (9) maximum Investments in Consolidation Exempt Entities not in excess of 20.0% of Gross Asset Value; (10) a maximum Gross Asset Value attributable to any one Property not in excess of 15.0% of Gross Asset Value; (11) maximum Projects Under Development not in excess of 10.0% of Gross Asset Value; (12) maximum Floating Rate Indebtedness in an aggregate outstanding principal amount not in excess of one-third of all Indebtedness of the Company, its Subsidiaries, its Consolidated Affiliates and its Unconsolidated Affiliates; (13) minimum Corporate Debt Yield of

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

9.50%, provided that such Corporate Debt Yield may be less than 9.50% for one period of two consecutive fiscal quarters, but may not be less than 9.25%; and (14) Distributions may not exceed 110% of REIT taxable income for a fiscal year, but if the Corporate Debt Yield exceeds 10.00%, then the aggregate amount of Distributions may not exceed the greater of 75% of FFO and 110% of REIT Taxable Income (unless necessary for the Company to retain its status as a REIT), and if a Facility Debt Yield of 11.00% and a Corporate Debt Yield of 10.00% are achieved and continuing, there are no limits on Distributions under the 2010 Credit Facility, so long as no Default or Event of Default would result from making such Distributions. The Company is required to maintain its status as a REIT at all times. As of June 30, 2010 the Company was in compliance with all of these covenants.

Exchangeable Notes

As of June 30, 2010 and December 31, 2009, $136.9 million and $136.9 million in aggregate principal amount of our 4.0% Senior Exchangeable Notes (the”Exchangeable Notes”) (excluding debt discount of $3.7 million and $4.7 million) remained outstanding, respectively.

Interest expense related to the Exchangeable Notes was $1.4 million and $2.4 million (excluding the non-cash amortization of debt discount of $0.5 million and $0.7 million and the non-cash amortization of deferred financing fees of $0.2 million and $0.3 million) for the three months ended June 30, 2010 and 2009, respectively. Interest expense related to the Exchangeable Notes was $2.7 million and $4.8 million (excluding the non-cash amortization of debt discount of $0.9 million and $1.5 million and the non-cash amortization of deferred financing fees of $0.3 million and $0.6 million) for the six months ended June 30, 2010 and 2009, respectively. The Exchangeable Notes have an effective interest rate of 5.81%.

Mortgage Loan Activity

The following table presents the mortgage loans that the Company has entered into or under which it has borrowed additional amounts beginning January 1, 2010:

Financing Date	Property	Amount Financed (in  millions of dollars):		Stated Rate	Hedged Rate		Debt Maturity
January	New River Valley Mall(1)(2)	$	30.0	LIBOR plus 4.50%	6.33	%	January 2013
March	Lycoming Mall(3)		2.5	6.84% fixed	N/A		June 2014
July	Valley View Mall(4)		32.0	5.95% fixed	N/A		June 2020

⁽¹⁾ Interest only.

⁽²⁾ The mortgage loan has a three-year term and one one-year extension option. $25.0 million of the principal amount was swapped to a fixed rate of 6.33%.

⁽³⁾ The mortgage loan agreement initially entered into in June 2009 provides for a maximum loan amount of $38.0 million. The initial amount of the mortgage loan was $28.0 million. The Company took additional draws of $5.0 million in October 2009 and $2.5 million in March 2010.

⁽⁴⁾ In connection with the mortgage loan financing, the Company repaid a $33.8 million mortgage loan on Valley View Mall using proceeds from the new mortgage loan and available working capital.

In March 2010, the Company exercised the first of three one-year extension options on the mortgage loan on Creekview Center in Warrington, Pennsylvania. The mortgage loan had a balance of $19.4 million as of June 30, 2010.

In April 2010, the Company exercised a six-month extension option on the construction loan on Pitney Road Plaza in Lancaster, Pennsylvania. The construction loan had a balance of $4.5 million as of June 30, 2010.

In July 2010, the Company made a principal payment of $0.7 million and exercised the second of two one-year extension options on the mortgage loan on the One Cherry Hill office building in Cherry Hill, New Jersey. The mortgage loan had a balance of $5.6 million as of June 30, 2010 and $4.9 million after the July 2010 repayment.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

Fair Value of Financial Instruments

Carrying amounts reported on the balance sheet for cash and cash equivalents, tenant and other receivables, accrued expenses, other liabilities and the Revolving Facility approximate fair value due to the short-term nature of these instruments. The majority of the Company’s variable-rate debt is subject to interest rate swaps that have effectively fixed the interest rates on the underlying debt. The estimated fair value of fixed-rate debt, which is calculated for disclosure purposes, is based on the borrowing rates available to the Company for fixed-rate mortgage loans and corporate notes payable with similar terms and maturities.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates and by reviewing recent market transactions or credit spreads consistent with the maturity of a debt obligation with similar credit features. Credit spreads take into consideration general market conditions and maturity.

The carrying value (including debt premium of $2.2 million and $2.7 million as of June 30, 2010 and December 31, 2009, respectively) and estimated fair values of mortgage loans based on interest rates and market conditions at June 30, 2010 and December 31, 2009 are as follows:

	June 30, 2010				December 31, 2009
	Carrying Value		Fair Value		Carrying Value		Fair Value
Mortgage loans	$	1,798.3 million	$	1,652.7 million	$	1,777.1 million	$	1,549.6 million

The mortgage loans contain various affirmative and negative covenants customarily found in loans of that type. As of June 30, 2010, the Company was in compliance with all of these covenants.

6. EQUITY OFFERING

In May 2010, the Company issued 10,350,000 common shares in a public offering at $16.25 per share. The Company received net proceeds from the offering of approximately $160.7 million after deducting payment of the underwriting discount of $0.69 per share and offering expenses. The Company used the net proceeds from this offering to repay borrowings under its 2010 Credit Facility. Specifically, the Company used $106.5 million of the net proceeds to repay a portion of the 2010 Term Loan under the 2010 Credit Facility and $54.2 million to repay a portion of the outstanding borrowings under the Revolving Facility under the 2010 Credit Facility. As a result of this transaction, the Company satisfied the requirement contained in the 2010 Credit Facility to reduce the aggregate amount of the lender Revolving Commitments and 2010 Term Loan by $100.0 million over the term of the 2010 Credit Facility.

7. CASH FLOW INFORMATION

Cash paid for interest was $65.8 million (net of capitalized interest of $1.5 million) and $61.6 million (net of capitalized interest of $3.3 million) for the six months ended June 30, 2010 and 2009, respectively.

Non cash transaction

In connection with the $106.5 million paydown of the 2010 Term Loan in May 2010, the Company recorded accelerated amortization expense associated with deferred financing costs in the amount of $2.3 million.

8. COMMITMENTS AND CONTINGENCIES

Redevelopment Activities and Capital Improvements

In connection with its redevelopment projects and capital improvements at certain other properties, the Company has made contractual commitments on some of these projects in the form of tenant allowances, lease termination fees and contracts with general contractors and other professional service providers. As of June 30, 2010, the remainder to be paid (excluding amounts already accrued) against such contractual and other commitments was $2.1 million, which is expected to be financed through the Revolving Facility or through various other capital sources.

Legal Actions

In the normal course of business, the Company has and may become involved in legal actions relating to the ownership and operation of its properties and the properties it manages for third parties. In management’s opinion, the resolutions of any such pending legal actions are not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

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June 30, 2010

Environmental

The Company is aware of certain environmental matters at some of its properties, including ground water contamination and the presence of asbestos containing materials. The Company has, in the past, performed remediation of such environmental matters, and is not aware of any significant remaining potential liability relating to these environmental matters. The Company may be required in the future to perform testing relating to these or other environmental matters. The Company does not expect these matters to have any significant impact on its liquidity or results of operations, however, the Company can provide no assurance that the amounts reserved will be adequate to cover further environmental costs. The Company has insurance coverage for certain environmental claims up to $10.0 million per occurrence and up to $20.0 million in the aggregate.

9. DERIVATIVES

In the normal course of business, the Company is exposed to financial market risks, including interest rate risk on its interest bearing liabilities. The Company attempts to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments. The Company does not use financial instruments for trading or speculative purposes.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps and caps as part of its interest rate risk management strategy. The Company’s outstanding derivatives have been designated under accounting requirements as cash flow hedges. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in “Accumulated other comprehensive loss” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To the extent these instruments are ineffective as cash flow hedges, changes in the fair value of these instruments are recorded in “Interest expense, net.” The Company recognizes all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. The Company’s derivative assets and liabilities are recorded in “Fair value of derivative instruments.”

During the three and six months ended June 30, 2010, the Company’s derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During the three and six months ended June 30, 2010, the Company recorded no amounts associated with hedge ineffectiveness in earnings.

Amounts reported in “Accumulated other comprehensive loss” that are related to derivatives will be reclassified to “Interest expense, net” as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates that $15.2 million would be reclassified as an increase to interest expense in connection with derivatives.

Interest Rate Swaps and Cap

As of June 30, 2010, the Company had entered into 11 interest rate swap agreements and one interest rate cap agreement that have a weighted average interest rate of 2.41% (excluding the spread on the related debt) on a notional amount of $732.6 million maturing on various dates through November 2013. Five interest rate swap agreements that were outstanding as of December 31, 2009 were settled in the six months ended June 30, 2010.

As of June 30, 2010, the Company had entered into two forward-starting interest rate swap agreements that have a weighted average interest rate of 2.37% on a notional amount of $200.0 million maturing on various dates through March 2013.

The Company entered into these interest rate swap agreements and the cap agreement in order to hedge the interest payments associated with the Company’s 2010 Credit Facility and issuances of variable interest rate long-term debt. The Company assessed the effectiveness of these swap agreements and cap agreement as hedges at inception and on June 30, 2010 and considered these swap agreements and cap agreement to be highly effective cash flow hedges. The Company’s interest rate swap agreements and cap agreement will be settled in cash.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The following table summarizes the terms and estimated fair values of the Company’s interest rate swap, cap and forward starting swap derivative instruments at June 30, 2010 and December 31, 2009. The notional amounts provide an indication of the extent of the Company’s involvement in these instruments, but do not represent exposure to credit, interest rate or market risks.

Notional Value	Fair Value at June  30, 2010(1)	Fair Value at December 31, 2009(1)	Balance Sheet Location	Interest Rate(2)		Effective Date	Maturity Date
Interest Rate Swaps
$25.0 million	N/A	$  (0.2) million	Fair value of derivative instruments	2.86	%		March 20, 2010
75.0 million	N/A	(0.4) million	Fair value of derivative instruments	2.83	%		March 20, 2010
30.0 million	N/A	(0.2) million	Fair value of derivative instruments	2.79	%		March 20, 2010
40.0 million	N/A	(0.2) million	Fair value of derivative instruments	2.65	%		March 22, 2010
20.0 million	N/A	(0.2) million	Fair value of derivative instruments	3.41	%		June 1, 2010
200.0 million	$  (0.1) million	N/A	Fair value of derivative instruments	0.61	%		April 1, 2011
45.0 million	(1.5) million	(1.9) million	Fair value of derivative instruments	4.02	%		June 19, 2011
54.0 million	(1.8) million	(2.2) million	Fair value of derivative instruments	3.84	%		July 25, 2011
25.0 million	(0.5) million	N/A	Fair value of derivative instruments	1.83	%		December 31, 2012
60.0 million	(1.0) million	N/A	Fair value of derivative instruments	1.74	%		March 11, 2013
40.0 million	(0.7) million	N/A	Fair value of derivative instruments	1.82	%		March 11, 2013
65.0 million	(4.4) million	(2.5) million	Fair value of derivative instruments	3.60	%		September 9, 2013
68.0 million	(4.7) million	(2.8) million	Fair value of derivative instruments	3.69	%		September 9, 2013
56.3 million	(4.0) million	(2.4) million	Fair value of derivative instruments	3.73	%		September 9, 2013
55.0 million	(2.6) million	(0.9) million	Fair value of derivative instruments	2.90	%		November 29, 2013
48.0 million	(2.3) million	(0.7) million	Fair value of derivative instruments	2.90	%		November 29, 2013
Interest Rate Cap
16.3 million	(0.1) million	N/A	Fair value of derivative instruments	2.50	%		April 2, 2012
Forward Starting Interest Rate Swaps
200.0 million	(1.6) million	N/A	Fair value of derivative instruments	1.78	%	April 1, 2011	April 2, 2012
200.0 million	(2.0) million	N/A	Fair value of derivative instruments	2.96	%	April 2, 2012	March 11, 2013
	$(27.3) million	$(14.6) million

⁽¹⁾ As of June 30, 2010 and December 31, 2009, derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of June 30, 2010 and December 31, 2009, the Company does not have any significant fair value measurements using significant unobservable inputs (Level 3).

⁽²⁾ Interest rate does not include the spread on the designated debt.

17

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The table below presents the effect of the Company’s derivative financial instruments on the statement of operations as of June 30, 2010 and 2009.

	Three months ended				Six months ended				Statement of Operations location
	June 30, 2010		June 30, 2009		June 30, 2010		June 30, 2009
Derivatives in cash flow hedging relationships
Interest Rate Products
(Loss) gain recognized in Other Comprehensive Income on derivatives	$	(13.3) million	$	3.3 million	$	(21.1) million	$	5.4 million	N/A
Gain reclassified from accumulated Other Comprehensive Income (loss) into income (effective portion)	$	4.3 million	$	4.6 million	$	9.1 million	$	8.9 million	Interest expense
Gain (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)		—		—		—		—	Interest expense

Credit-Risk-Related Contingent Features

The Company has agreements with some of its derivative counterparties that contain a provision pursuant to which, if the 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 the Company could also be declared in default on its derivative obligations. As of June 30, 2010, the Company was not in default on any of its derivative obligations.

The Company has an agreement with a derivative counterparty that incorporates the loan covenant provisions of the Company’s loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of June 30, 2010, the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk, was $27.3 million. As of June 30, 2010, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of June 30, 2010, it would have been required to settle its obligations under the agreements at their termination value (including accrued interest) of $31.0 million. The Company has not breached any of the provisions as of June 30, 2010.

Fair Value

Currently, the Company uses interest rate swaps and caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements.

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PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2010, the Company has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

10. TENANT RECEIVABLES

In March 2010, Boscov’s, Inc. repaid its $10.0 million note payable to the Company.

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

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

OVERVIEW

Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity REITs in the United States, has a primary investment focus on retail shopping malls and strip and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. Our portfolio currently consists of a total of 54 properties in 13 states, including 38 shopping malls, 13 strip and power centers and three development properties, with two of the development properties classified as “mixed use” (a combination of retail and other uses) and one of the development properties classified as “other.” As of June 30, 2010, the Philadelphia metropolitan area represented approximately 33% of our gross leasable area; other properties in Pennsylvania, Delaware and New Jersey accounted for approximately 38% of our gross leasable area; properties in Maryland and Virginia accounted for approximately 10% of our gross leasable area; and properties in other locations represented the remaining approximately 19% of our gross leasable area. The operating retail properties have a total of approximately 34.7 million square feet. The operating retail properties that we consolidate for financial reporting purposes have a total of approximately 30.1 million square feet, of which we own approximately 23.9 million square feet. The operating retail properties that are owned by unconsolidated partnerships with third parties have a total of approximately 4.6 million square feet, of which 2.9 million square feet are owned by such partnerships.

Our primary business is owning and operating shopping malls and strip and power centers. Our current strategic initiatives include maintaining a leading position in the Philadelphia metropolitan area, promoting our mall locations as retail hubs in their trade areas, optimizing our portfolio by selling non-core assets as market conditions permit, and reducing our leverage through a variety of means available to us, subject to the terms of the 2010 Credit Facility, as further described below.

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. No individual property constitutes more than 10% of our consolidated revenue or assets, and thus the individual properties have been aggregated into one reportable segment based upon their similarities with regard to the nature of our properties and the nature of our tenants and operational processes, as well as long-term financial performance. 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 interests in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates”). We are the sole general partner of PREIT Associates and, as of June 30, 2010, held a 96.0% controlling interest in PREIT Associates. We consolidate PREIT Associates for financial reporting purposes. We hold our investments in seven of the 51 retail properties and one of the three development properties in our portfolio through unconsolidated partnerships with third parties in which we own a 40% to 50% interest. We hold a noncontrolling interest in each unconsolidated partnership, and account for such partnerships using the equity method of accounting. We do not control any of these equity method investees for the following reasons:

• 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 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 of each partnership 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.

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We record the earnings from the unconsolidated partnerships using the equity method of accounting under the statement of operations caption entitled “Equity in income of partnerships,” rather than consolidating the results of the unconsolidated partnerships with our results. Changes in our investments in these entities are recorded in the balance sheet caption entitled “Investment in partnerships, at equity.” In the case of deficit investment balances, such amounts are recorded in “Distributions in excess of partnership investments.”

We hold our interest in three of our unconsolidated partnerships through tenancy in common arrangements. For each of these properties, title is held by us and another person or persons, and each has an undivided interest in the property. With respect to each of the three properties, under the applicable agreements between us and the other persons with ownership interests, we and such other persons 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 person (or at least one of the other persons) owning an interest in the property. Hence, we account for each of the properties using the equity method of accounting. The balance sheet items arising from these properties appear under the caption “Investments in partnerships, at equity.” The income statement items arising from these properties appear in “Equity in income of partnerships.”

For further information regarding our unconsolidated partnerships, see note 4 to our unaudited consolidated financial statements.

We provide our 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 in which we own interests through partnerships with third parties 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 an expanded menu of 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 applicable leases) derived from our income producing retail properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.

Our net loss increased by $26.4 million to a net loss of $42.2 million for the six months ended June 30, 2010 from a net loss of $15.7 million for the six months ended June 30, 2009. The increase in the loss was affected by increased operating expenses and interest expense, as well as gains on extinguishment of debt and gains from the sales of real estate and discontinued operations that occurred during the six months ended June 30, 2009 that did not recur in the six months ended June 30, 2010.

Current Economic Downturn and Challenging Capital Market Conditions

The downturn in the overall economy and the disruptions in the financial markets have reduced consumer confidence and negatively affected employment and consumer spending on retail goods. As a result, the sales performance of retailers in general and sales at our properties in particular have decreased from peak levels. We have also experienced delays or deferred decisions regarding the openings of new retail stores and of lease renewals. We have modified and continue to modify our plans and actions to take into account the difficult current environment.

In addition, credit markets have experienced significant dislocations and liquidity disruptions. These circumstances have materially affected liquidity in the debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the limited availability or unavailability of certain types of debt financing.

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Development and Redevelopment

We have reached the last phase in our current redevelopment program. Over the past five years, we have invested approximately $1.0 billion in our portfolio. The current estimated project cost of Voorhees Town Center, our only remaining redevelopment property, is $83.0 million, and the amount invested as of June 30, 2010 was $68.8 million. Our projected share of estimated project costs is net of any expected tenant reimbursements, parcel sales, tax credits or other incentives. We may spend additional amounts at our completed redevelopment properties for tenant allowances, leasehold improvements and other costs.

We are engaged in the development of three mixed use and other projects, although we do not expect to make material investments in these projects in the short term. As of June 30, 2010, we had incurred $78.1 million of costs related to these three projects. The details of the White Clay Point, Springhills and Pavilion at Market East projects and related costs have not been determined. In each case, we will evaluate the financing opportunities available to us at the time a project requires funding. In cases where the project is undertaken with a partner, our flexibility in funding the project might be governed by the partnership agreement or restricted by the covenants contained in our 2010 Credit Facility, which limit our involvement in such projects.

The following table sets forth the amounts invested as of June 30, 2010 in each development project:

Development Project	Invested as of June 30, 2010
White Clay Point (1)	$	43.6 million
Springhills (2)		33.8 million
Pavilion at Market East(3)		0.7 million
	$	78.1 million

^{(1 )} Amount invested as of June 30, 2010 does not reflect an $11.8 million impairment charge that we recorded in December 2008. See the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion of this charge.

⁽²⁾ Amount invested as of June 30, 2010 does not reflect an $11.5 million impairment charge that we recorded in December 2009. See the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion of this charge.

⁽³⁾ The property is unconsolidated. The amount shown represents our share.

In connection with our redevelopment projects and capital improvements at certain other properties, we have made contractual and other commitments on these projects in the form of tenant allowances, lease termination fees and contracts with general contractors and other professional service providers. As of June 30, 2010, the unaccrued remainder to be paid against these contractual and other commitments was $2.1 million, which is expected to be financed through our Revolving Facility or through various other capital sources. The projects on which these commitments have been made have total expected remaining costs of $21.8 million.

OFF BALANCE SHEET ARRANGEMENTS

We have no material off-balance sheet items other than the partnerships described in note 4 to the unaudited consolidated financial statements and in the “Overview” section above.

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RELATED PARTY TRANSACTIONS

PRI provides management, leasing and development services for nine properties owned by partnerships and other entities in which certain officers or trustees of the Company and of PRI or members of their immediate families and affiliated entities have indirect ownership interests. Total revenue earned by PRI for such services was $0.2 million for each of the three months ended June 30, 2010 and 2009, respectively, and $0.4 million for each of the six months ended June 30, 2010 and 2009, respectively.

We lease our principal executive offices from Bellevue Associates (the “Landlord”), an entity in which certain of our officers/trustees have an interest. Total rent expense under this lease was $0.4 million for each of the three months ended June 30, 2010 and 2009, respectively, and $0.8 million for each of the six months ended June 30, 2010 and 2009, respectively. Ronald Rubin and George F. Rubin, collectively with members of their immediate families and affiliated entities, own approximately a 50% interest in the Landlord.

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 instruments at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the 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. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of companies in similar businesses. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2010 and 2009, 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.

Our management makes complex or subjective assumptions and judgments with respect to applying its critical accounting policies. In making these judgments and assumptions, management considers, among other factors:

• 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.

For additional information regarding our Critical Accounting Policies, please refer to the caption “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2009.

RESULTS OF OPERATIONS

Comparison of Three and Six Months Ended June 30, 2010 and 2009

Overview

Our net loss for the three months ended June 30, 2010 increased to $23.7 million, a $19.5 million increase from the $4.2 million net loss for the three months ended June 30, 2009. Our net loss increased by $26.4 million to a net loss of $42.2 million for the six months ended June 30, 2010 from a net loss of $15.7 million for the six months ended June 30, 2009. The increase in the loss was affected by increased operating expenses and interest expense, as well as gains on extinguishment of debt and gains from the sales of real estate and discontinued operations that occurred during the three and six months ended June 30, 2009 that did not recur in the three or six months ended June 30, 2010.

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The table below sets forth certain occupancy statistics as of June 30, 2010 and 2009:

	Occupancy as of June 30,
	Consolidated				Partnership(1)
	2010		2009		2010		2009
Retail portfolio weighted average:
Total excluding anchors	84.0	%	83.8	%	92.8	%	87.4	%
Total including anchors	89.4	%	88.5	%	94.6	%	90.8	%
Enclosed malls weighted average:
Total excluding anchors	83.0	%	83.3	%	91.6	%	89.9	%
Total including anchors	88.8	%	88.1	%	93.4	%	92.0	%
Strip and power centers weighted average	96.9	%	93.1	%	95.3	%	90.1	%

⁽¹⁾ Owned by partnerships in which we own a 50% interest.

The following information sets forth our results of operations for the three and six months ended June 30, 2010 and 2009:

	Three months ended June 30,						% Change 2009 to 2010		Six months ended June 30,						% Change 2009 to 2010
(in thousands of dollars)	2010			2009					2010			2009
Revenue	$	111,453		$	112,344		(1	%)	$	227,104		$	223,722		2	%
Operating expenses		(48,050	)		(46,170	)	4	%		(97,477	)		(92,436	)	5	%
Depreciation and amortization		(41,598	)		(41,085	)	1	%		(83,605	)		(80,086	)	4	%
General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other		(9,778	)		(9,648	)	1	%		(19,758	)		(19,322	)	2	%
Interest expense, net		(38,625	)		(33,249	)	16	%		(73,456	)		(65,758	)	12	%
Gain on extinguishment of debt		—			8,532		(100	%)		—			9,804		(100	%)
Gain on sales of real estate		—			1,654		(100	%)		—			1,654		(100	%)
Equity in income of partnerships		2,948			2,659		11	%		5,038			5,177		(3	%)
Income from discontinued operations		—			745		(100	%)		—			1,504		(100	%)
Net loss	$	(23,650	)	$	(4,218	)	461	%	$	(42,154	)	$	(15,741	)	168	%

The operating results for our unconsolidated partnerships are presented under the equity method of accounting in the line item “Equity in income of partnerships.”

Revenue

Revenue decreased by $0.9 million, or 1%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Real estate revenue from properties that were owned for the entire period from April 1, 2009 to June 30, 2010 (“Second Quarter Same Store Properties”) decreased by $1.2 million, primarily due to decreases of $1.0 million in expense reimbursements and $0.5 million in lease terminations. These decreases were partially offset by an increase of $0.3 million in base rent, which is comprised of minimum rent, straight line rent and rent from tenants that pay a percentage of sales in lieu of minimum rent. These changes in real estate revenue are explained below in further detail. Real estate revenue also increased by $0.2 million from one property under development during 2009 that was placed in service in 2010.

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Base rent for the Second Quarter Same Store Properties increased by $0.3 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Base rent at three of our recently completed redevelopment projects increased by an aggregate of $1.9 million due to increased occupancy from newly opened tenants. Partially offsetting this increase, base rent decreased by $1.1 million because of increased vacancy and leases that were converted to percentage rent in lieu of base rent. Base rent was also affected by a $0.5 million decrease in above/below market lease amortization from the prior year, when $0.6 million was recognized as revenue in connection with leases that were terminated prior to their expiration.

Expense reimbursements decreased by $1.0 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. At many of our malls, we have continued to recover a lower proportion of common area maintenance and real estate tax expenses than in prior periods. In addition to being affected by store closings, our properties are experiencing a trend towards more gross leases (leases that provide that tenants pay a higher base rent amount in lieu of contributing toward common area maintenance costs and real estate taxes), as well as more leases that provide for the rent amount to be determined on the basis of a percentage of sales in lieu of minimum rent. We are also experiencing rental concessions made to tenants experiencing financial difficulties, as well as other rental concessions driven by conditions in the economy.

Lease terminations decreased by $0.5 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to $0.5 million received from one tenant during the three months ended June 30, 2009.

Revenue increased by $3.4 million, or 2%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Real estate revenue from properties that were owned for the entire period from January 1, 2009 to June 30, 2010 (“Six Month Same Store Properties”) increased by $2.8 million, primarily due to increases of $2.5 million in base rent, a $0.8 million increase in lease terminations and a $0.1 million increase in percentage rent. This increase was partially offset by decreases of $0.4 million in expense reimbursements and $0.2 million in other revenue. Real estate revenue increased $0.5 million from one property under development during 2009 that was placed in service in 2010.

Base rent for the Six Month Same Store Properties increased by $2.5 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Base rent at three of our recently completed redevelopment projects increased by an aggregate of $4.5 million due to increased occupancy from newly opened tenants. Partially offsetting this increase, base rent decreased by $1.5 million because of increased vacancy and leases that were converted to percentage rent in lieu of base rent. Base rent was also affected by a $0.5 million decrease in above/below market lease amortization from the prior year, when $0.6 million was recognized as revenue in connection with leases that were terminated prior to their expiration.

Lease terminations increased by $0.8 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, primarily due to $1.0 million received from one tenant during the three months ended March 31, 2010.

Expense reimbursements decreased by $0.4 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009 due to the factors noted above for the three month period.

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Operating Expenses

Operating expenses increased by $1.9 million, or 4%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Operating expenses from Second Quarter Same Store Properties increased by $1.8 million, primarily due to a $1.1 million increase in common area maintenance expense, a $0.8 million increase in real estate taxes and a $0.2 million increase in utility expense. These increases were partially offset by a $0.3 million decrease in other operating expenses. Operating expenses increased by $0.1 million from one property under development during 2009 that was placed in service in 2010.

Common area maintenance expenses increased by $1.1 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009 primarily due to increases of $0.4 million in common area utility expense, $0.2 million in housekeeping expense, $0.2 million in loss prevention expense and $0.2 million in common area administrative expense. The increase in common area utilities included a $0.2 million increase related to the Commonwealth of Pennsylvania lease at The Gallery at Market East that commenced in August 2009. The increases in housekeeping expense and loss prevention expense were due primarily to stipulated annual contractual increases. Real estate tax expense increased by $0.8 million, primarily due to higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Non common area utility expense increased by $0.2 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, including a $0.2 million increase at four of our Pennsylvania properties, where electricity rate caps expired on January 1, 2010.

Other operating expenses decreased by $0.3 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, including a $0.4 million decrease in bad debt expense, partially offset by a $0.1 million increase non reimbursable repairs and maintenance expense. Bad debt expense was affected by one tenant bankruptcy with associated bad debt expense of $0.1 million during the three months ended June 30, 2010, compared to four tenant bankruptcies and associated bad debt expense of $0.5 million during the three months ended June 30, 2009.

Operating expenses increased by $5.0 million, or 5%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Operating expenses from Six Month Same Store Properties increased by $4.9 million, primarily due to a $3.2 million increase in common area maintenance expense, a $1.3 million increase in real estate taxes and a $0.7 million increase in utility expense. These increases were partially offset by a $0.3 million decrease in other operating expenses. Operating expenses increased by $0.1 million from one property under development during 2009 that was placed in service in 2010.

Common area maintenance expenses increased by $3.2 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009 primarily due to increases of $1.3 million in snow removal expense, $0.7 million in common area utility expense, $0.4 million in housekeeping expense, $0.4 million in loss prevention expense and $0.2 million in common area administrative expense. Snow removal expenses at our properties located in Pennsylvania and New Jersey increased as a result of two significant snowstorms that affected the Mid-Atlantic states in February 2010. The increase in common area utilities included a $0.3 million increase related to the Commonwealth of Pennsylvania lease at The Gallery at Market East that commenced in August 2009. The increases in housekeeping expense and loss prevention expense were due primarily to stipulated annual contractual increases. Real estate tax expense increased by $1.3 million, primarily due to higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Non common area utility expense increased by $0.7 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, including a $0.6 million increase at four of our Pennsylvania properties, where electricity rate caps expired on January 1, 2010.

Other operating expenses decreased by $0.3 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, including a $0.3 million decrease in bad debt expense and a $0.3 million decrease in

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marketing expense. These decreases were partially offset by increases of $0.1 million in non reimbursable repairs and maintenance expense and $0.1 million in other operating expenses. Bad debt expense was affected by three tenant bankruptcies with associated bad debt expense of $0.1 million during the six months ended June 30, 2010, compared to seven tenant bankruptcies and associated bad debt expense of $0.6 million during the six months ended June 30, 2009. The decrease in marketing expense was offset by a corresponding decrease in marketing revenue.

Depreciation and Amortization

Depreciation and amortization expense increased by $0.5 million, or 1%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Depreciation and amortization expense from Second Quarter Same Store Properties increased by $0.4 million, primarily due to a higher asset base resulting from capital improvements at our properties, particularly at properties where we have recently completed redevelopments and that have been placed in service. We placed assets with an aggregate basis of $197.8 million in service from June 30, 2009 to June 30, 2010. Partially offsetting this increase, depreciation and amortization expense decreased by $0.9 million due to fully depreciated and amortized lease intangibles at the six properties purchased during the second quarter of 2003. Depreciation and amortization increased by $0.1 million from one property under development during 2009 that was placed in service in 2010.

Depreciation and amortization expense increased by $3.5 million, or 4%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Depreciation and amortization expense from Six Month Same Store Properties increased by $3.4 million, primarily due to a higher asset base resulting from capital improvements at our properties, particularly at properties where we have recently completed redevelopments and that have been placed in service. Partially offsetting this increase, depreciation and amortization expense decreased by $0.9 million due to fully depreciated and amortized lease intangibles at the six properties purchased during the second quarter of 2003. Depreciation and amortization increased by $0.1 million from one property under development during 2009 that was placed in service in 2010.

General and Administrative Expenses, Impairment of Assets, Abandoned Project Costs, Income Taxes and Other Expenses

General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses increased by $0.1 million, or 1%, for the three months ended June 30, 2010 compared to the three months ended June 30, 2009. This increase is primarily due to a $0.2 million increase in other expenses offset by a $0.1 million decrease in impairment of assets.

General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses increased by $0.4 million, or 2%, for the six months ended June 30, 2010 compared to the six months ended June 30, 2009. This increase is primarily due to a $0.3 million increase in other expenses and a $0.2 million increase in professional fees offset by a $0.1 million decrease in impairment of assets.

Interest Expense

Interest expense increased by $5.4 million, or 16%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. We recorded accelerated amortization expense of $2.3 million relating to deferred financing costs in the three months ended June 30, 2010 associated with the repayment of a portion of the 2010 Term Loan and Revolving Facility. We also placed assets with an aggregate cost basis of $197.8 million in service from June 30, 2009 to June 30, 2010. Interest on these assets was capitalized during construction periods and was expensed during periods after the improvements were placed in service. The increase in interest expense also resulted from higher applicable interest rates on our short-term floating rate debt, even though our weighted average debt balance decreased.

Interest expense increased by $7.7 million, or 12%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. This increase resulted from the $2.3 million accelerated amortization of deferred financing cost expense, higher applicable interest rates and decreased capitalized interest after assets were placed into service.

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Discontinued Operations

We have presented the operating results of Crest Plaza, which was sold in August 2009, and Northeast Tower Center, which was sold in October 2009, as discontinued operations. There were no discontinued operations in the six months ended June 30, 2010.

Operating results for Crest Plaza and Northeast Tower Center for the periods presented were as follows:

(in thousands of dollars)	Three months ended June 30, 2009		Six months ended June 30, 2009
Operating results of Northeast Tower Center	$	589	$	1,213
Operating results of Crest Plaza		156		291
Income from discontinued operations	$	745	$	1,504

NET OPERATING INCOME

Net operating income (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP) minus operating expenses (determined in accordance with GAAP). It does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to net operating income. We believe that Net Operating Income 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.

Net Operating Income excludes interest and other income, general and administrative expenses, interest expense, depreciation and amortization, gains on sales of real estate, gains on sales of discontinued operations, gains on extinguishment of debt, impairment losses, abandoned project costs and other expenses.

The following tables present Net Operating Income results for the three and six months ended June 30, 2010 and 2009. The results are presented using the “proportionate-consolidation method” (a non-GAAP measure), which includes our share of the results of our partnership investments in order to provide more detailed information with respect to the revenue and expenses of the aggregate of our wholly owned properties and our share of partnership properties. Under GAAP, we account for our unconsolidated partnership investments under the equity method of accounting. Operating results for retail properties that we owned for the full periods presented (“Same Store”) exclude properties acquired or disposed of during the periods presented:

	Same Store								Non Same Store								Total
	Three months ended June 30,								Three months ended June 30,								Three months ended June 30,
(in thousands of dollars)	2010			2009			% Change		2010			2009			% Change		2010			2009			% Change
Real estate revenue	$	119,867		$	120,474		(1	)%	$	785		$	2,121		(63	)%	$	120,652		$	122,595		(2	)%
Operating expenses		(50,505	)		(48,581	)	4	%		(439	)		(789	)	(44	)%		(50,944	)		(49,370	)	3	%
Net Operating Income	$	69,362		$	71,893		(4	)%	$	346		$	1,332		(74	)%	$	69,708		$	73,225		(5	)%

Total Net Operating Income decreased by $3.5 million, or 5%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. Same Store Net Operating Income decreased by $2.5 million, or 4%, including $0.6 million in lease termination revenue, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, which included $0.9 million in lease termination revenue. Non Same Store Net Operating Income decreased by $1.0 million, or 74%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to the sales of Crest Plaza and Northeast Tower Center in 2009. See “Results of Operations—Revenue” and “—Operating Expenses” for further discussion of these variances.

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	Same Store								Non Same Store								Total
	Six months ended June 30,								Six months ended June 30,								Six months ended June 30,
(in thousands of dollars)	2010			2009			% Change		2010			2009			% Change		2010			2009			% Change
Real estate revenue	$	243,221		$	239,794		1	%	$	1,592		$	4,297		(63	)%	$	244,813		$	244,091		—	%
Operating expenses		(102,610	)		(97,353	)	5	%		(866	)		(1,609	)	(46	)%		(103,476	)		(98,962	)	5	%
Net Operating Income	$	140,611		$	142,441		(1	)%	$	726		$	2,688		(73	)%	$	141,337		$	145,129		(3	)%

Total Net Operating Income decreased by $3.8 million, or 3%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Same Store Net Operating Income decreased by $1.8 million, or 1%, including $2.5 million in lease termination revenue, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, which included $1.5 million in lease termination revenue. Non Same Store Net Operating Income decreased by $2.0 million, or 73%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, primarily due to the sales of Crest Plaza and Northeast Tower Center in 2009. See “Results of Operations—Revenue” and “—Operating Expenses” for further discussion of these variances.

The following information is provided to reconcile net loss to net operating income:

	Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)	2010			2009			2010			2009
Net loss	$	(23,650	)	$	(4,218	)	$	(42,154	)	$	(15,741	)
Depreciation and amortization
Wholly owned and consolidated partnerships		41,598			41,085			83,605			80,086
Unconsolidated partnerships		2,102			2,018			4,561			4,073
Discontinued operations		—			395			—			789
Interest expense, net
Wholly owned and consolidated partnerships		38,625			33,249			73,456			65,758
Unconsolidated partnerships		1,853			1,762			3,437			3,530
General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses		9,778			9,648			19,758			19,322
Gain on sales of real estate		—			(1,654	)		—			(1,654	)
Gain on extinguishment of debt		—			(8,532	)		—			(9,804	)
Interest and other income		(598	)		(528	)		(1,326	)		(1,230	)
Net Operating Income	$	69,708		$	73,225		$	141,337		$	145,129

FUNDS FROM OPERATIONS

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), which is a non-GAAP measure, as income before gains and losses on sales of operating properties and extraordinary items (computed in accordance with GAAP); plus real estate depreciation; plus or minus adjustments for unconsolidated partnerships to reflect funds from operations on the same basis.

FFO is a commonly used measure of operating performance and profitability in the real estate industry. We use FFO and FFO per diluted share and OP Unit as supplemental non-GAAP measures to compare our Company’s performance for different periods to that of our industry peers. Similarly, FFO per diluted share and OP Unit is a measure that is useful because it reflects the dilutive impact of outstanding convertible securities. In addition, we use FFO and FFO per diluted share and OP Unit as one of the performance measures for determining

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incentive compensation amounts earned under certain of our performance-based executive compensation programs. 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.

FFO does not include gains and losses on sales of operating real estate assets, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as net operating income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions.

We believe that net income is the most directly comparable GAAP measurement to FFO. We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as various non-recurring items that are considered extraordinary under GAAP, gains on sales of operating real estate and depreciation and amortization of real estate.

FFO was $19.7 million for the three months ended June 30, 2010, a decrease of $18.1 million, or 48%, compared to $37.8 million for the three months ended June 30, 2009. FFO decreased due to a decrease in net income as a result of increased operating expenses and higher interest expense, as well as gains on sales of non operating real estate that occurred in 2009 that did not recur in 2010. FFO per share decreased $0.54 per share to $0.37 per share for the three months ended June 30, 2010, compared to $0.91 per share for the three months ended June 30, 2009, due in part to a higher weighted average number of shares following the May 2010 equity offering and equity issuances in 2009.

FFO was $45.2 million for the six months ended June 30, 2010, a decrease of $21.9 million, or 33%, compared to $67.1 million for the six months ended June 30, 2009. FFO decreased due to a decrease in net income as a result of increased operating expenses and interest expense, as well as gains on sales of non operating real estate that occurred in 2009 that did not recur in 2010. FFO per share decreased $0.72 per share to $0.91 per share for the six months ended June 30, 2010, compared to $1.63 per share for the six months ended June 30, 2009, due in part to a higher weighted average number of shares following the May 2010 equity offering and equity issuances in 2009.

The shares used to calculate both FFO per basic share and FFO per diluted share include common shares and OP Units not held by us. FFO per diluted share also includes the effect of common share equivalents.

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The following information is provided to reconcile net loss to FFO, and to show the items included in our FFO for the periods indicated:

(in thousands of dollars, except per share amounts)	Three months ended June 30, 2010			Per share (including OP Units)			Three months ended June 30, 2009			Per share (including OP Units)
Net loss	$	(23,650	)	$	(0.44	)	$	(4,218	)	$	(0.10	)
Gain on sale of interest in operating real estate		—			—			(923	)		(0.02	)
Depreciation and amortization:
Wholly owned and consolidated partnerships (1)		41,220			0.77			40,539			0.97
Unconsolidated partnerships (1)		2,102			0.04			2,018			0.05
Discontinued operations		—			—			395			0.01
Funds from operations (2)	$	19,672		$	0.37		$	37,811		$	0.91
Accelerated amortization of deferred financing costs in connection with equity offering		2,258			0.04			—			—
Impairment of assets		—			—			70			—
Gain on extinguishment of debt		—			—			(8,532	)		(0.20	)
Funds from operations as adjusted	$	21,930		$	0.41		$	29,349		$	0.71
(in thousands of shares)
Weighted average number of shares outstanding		50,317						39,197
Weighted average effect of full conversion of OP Units		2,329						2,219
Effect of common share equivalents		587						—
Total weighted average shares outstanding, including OP Units		53,233						41,416

⁽¹⁾ Excludes depreciation of non-real estate assets and amortization of deferred financing costs.

⁽²⁾ Includes the non-cash effect of straight-line rent of $0.4 million for each of the three months ended June 30, 2010 and June 30, 2009.

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(in thousands of dollars, except per share amounts)	Six months ended June 30, 2010			Per share (including OP Units)			Six months ended June 30, 2009			Per share (including OP Units)
Net loss	$	(42,154	)	$	(0.85	)	$	(15,741	)	$	(0.38	)
Gain on sale of interest in operating real estate		—			—			(923	)		(0.02	)
Depreciation and amortization:
Wholly owned and consolidated partnerships (1)		82,789			1.67			78,930			1.91
Unconsolidated partnerships (1)		4,561			0.09			4,073			0.10
Discontinued operations		—			—			789			0.02
Funds from operations (2)	$	45,196		$	0.91		$	67,128		$	1.63
Accelerated amortization of deferred financing costs in connection with equity offering		2,258			0.04			—			—
Impairment of assets		—			—			70			—
Gain on extinguishment of debt		—			—			(9,804	)		(0.24	)
Funds from operations as adjusted	$	47,454		$	0.95		$	57,394		$	1.39
(in thousands of shares)
Weighted average number of shares outstanding		47,013						39,101
Weighted average effect of full conversion of OP Units		2,329						2,207
Effect of common share equivalents		349						—
Total weighted average shares outstanding, including OP Units		49,691						41,308

⁽¹⁾ Excludes depreciation of non-real estate assets and amortization of deferred financing costs.

⁽²⁾ Includes the non-cash effect of straight-line rent of $0.9 million and $0.8 million for the six months ended June 30, 2010 and June 30, 2009, respectively.

LIQUIDITY AND CAPITAL RESOURCES

This “Liquidity and Capital Resources” section contains certain “forward-looking statements” that relate to expectations and projections that are not historical facts. These forward-looking statements reflect our current views about our future liquidity and capital resources, and are subject to risks and uncertainties that might cause our actual liquidity and capital resources to differ materially from the forward-looking statements. Additional factors that might affect our liquidity and capital resources include those discussed in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission. We do not intend to update or revise any forward-looking statements about our liquidity and capital resources to reflect new information, future events or otherwise.

Capital Resources

We expect to meet our short-term liquidity requirements, including distributions to shareholders, recurring capital expenditures, tenant improvements and leasing commissions, but excluding development and redevelopment projects, generally through our available working capital and net cash provided by operations, subject to the terms and conditions of our 2010 Credit Facility. We believe that our net cash provided by operations will be sufficient to allow us to make any distributions necessary to enable us to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The aggregate distributions made to common shareholders and OP Unitholders in the six months ended June 30, 2010 were $15.7 million, based on quarterly distributions of $0.15 per share and OP Unit. 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 market or competitive conditions, leading to a reduction in real estate revenue or cash flows or an increase in expenses;

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• continued deterioration in our tenants’ business operations and financial stability, including 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, or higher costs or delays in completion of our development or redevelopment projects, resulting in lower or delayed real estate revenue and operating income;

• increases in interest rates resulting in higher borrowing costs; and

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

We expect to meet certain of our remaining obligations to fund existing development and redevelopment projects and certain capital requirements, including scheduled debt maturities, future property and portfolio acquisitions, expenses associated with acquisitions, renovations, expansions and other non-recurring capital improvements through a variety of capital sources, subject to the terms and conditions of our 2010 Credit Facility.

The difficult conditions in the market for debt capital and commercial mortgage loans, including the commercial mortgage backed securities market, and the downturn in the general economy and its effect on retail sales, as well as our significant leverage resulting from debt incurred to fund our redevelopment projects and other development activity, have combined to necessitate that we vary our approach to obtaining, using and recycling capital. We intend to consider all of our available options for accessing the capital markets, given our position and constraints.

The amounts remaining to be invested in the last phase of our current redevelopment program are significantly less than in 2009, and we believe that we have access to sufficient capital to fund these remaining amounts.

In the past, one avenue available to us to finance our obligations or new business initiatives has been to obtain unsecured debt, based in part on the existence of properties in our portfolio that were not subject to mortgage loans. The terms of the 2010 Credit Facility include our grant of a security interest consisting of a first lien on 22 properties and a second lien on one property. As a result, we have very few remaining assets that we could use to support unsecured debt financing. Our lack of properties in the portfolio that could be used to support unsecured debt limits our ability to obtain capital in this way.

We are contemplating ways to reduce our leverage through a variety of means available to us, and subject to and in accordance with the terms and conditions of the 2010 Credit Facility. These steps might include obtaining additional equity capital through the issuance of equity securities if market conditions are favorable, as was done in May 2010, through joint ventures or other partnerships or arrangements involving our contribution of assets with institutional investors, private equity investors or other REITs, through sales of properties with values in excess of their mortgage loans or allocable debt and application of the excess proceeds to debt reduction, or through other actions.

We may use our $1.0 billion universal shelf registration statement, which was used for the May 2010 common equity offering, to offer and sell common shares of beneficial interest, preferred shares and various types of debt securities, among other types of securities, to the public. However, we may be unable to issue securities under the shelf registration statement, or otherwise, on terms that are favorable to us, if at all.

Equity Offering

In May 2010, we issued 10,350,000 common shares in a public offering at $16.25 per share. We received net proceeds from the offering of approximately $160.7 million after deducting payment of the underwriting discount of $0.69 per share and offering expenses. We used the net proceeds from this offering to repay borrowings under our 2010 Credit Facility. Specifically, we used $106.5 million of the net proceeds to repay a portion of the 2010 Term Loan under the 2010 Credit Facility and $54.2 million to repay a portion of the outstanding borrowings under the Revolving Facility under the 2010 Credit Facility. As a result of this transaction, we satisfied the requirement contained in the 2010 Credit Facility to reduce the aggregate amount of the lender Revolving Commitments and 2010 Term Loan by $100.0 million over the term of the 2010 Credit Facility.

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Amended, Restated and Consolidated Senior Secured Credit Agreement (2010 Credit Facility)

On March 11, 2010, PREIT Associates and PRI (collectively, the “Borrower”), together with PR Gallery I Limited Partnership (“GLP”) and Keystone Philadelphia Properties, L.P. (“KPP”), two of our other subsidiaries, entered into an Amended, Restated and Consolidated Senior Secured Credit Agreement comprised of (a) an aggregate $520.0 million term loan made up of a $436.0 million term loan (“Term Loan A”) to the Borrower and a separate $84.0 million term loan (“Term Loan B”) to the other two subsidiaries (collectively, the “2010 Term Loan”) and (b) a $150.0 million revolving line of credit (the “Revolving Facility,” and, together with the 2010 Term Loan, the “2010 Credit Facility”) with Wells Fargo Bank, National Association, and the other financial institutions signatory thereto.

The 2010 Credit Facility replaced the previously existing $500.0 million unsecured revolving credit facility, as amended (the “2003 Credit Facility”), and a $170.0 million unsecured term loan (the “2008 Term Loan”) that had been scheduled to mature on March 20, 2010. All capitalized terms used and not otherwise defined in the description of the 2010 Credit Facility have the meanings ascribed to such terms in the 2010 Credit Facility.

The initial term of the 2010 Credit Facility is three years, and we have the right to one 12-month extension of the initial maturity date, subject to certain conditions and to the payment of an extension fee of 0.50% of the then outstanding Commitments.

We used the initial proceeds from the 2010 Credit Facility to repay outstanding balances under the 2003 Credit Facility and 2008 Term Loan. At closing, the $520.0 million 2010 Term Loan was fully outstanding and $70.0 million was outstanding under the Revolving Facility.

Amounts borrowed under the 2010 Credit Facility bear interest at a rate between 4.00% and 4.90% per annum, depending on our leverage, in excess of LIBOR, with no floor. The initial rate in effect was 4.90% per annum in excess of LIBOR. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is 8.00%. The unused portion of the Revolving Facility is subject to a fee of 0.40% per annum.

We have entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a weighted-average rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

The obligations under Term Loan A are secured by first priority mortgages on 20 of our properties and a second lien on one property, and the obligations under Term Loan B are secured by first priority leasehold mortgages on the properties ground leased by GLP and KPP (the “Gallery Properties”). The foregoing properties constitute substantially all of our previously unencumbered retail properties.

We and certain of our subsidiaries that are not otherwise prevented from doing so serve as guarantors for funds borrowed under the 2010 Credit Facility.

The aggregate amount of the lender Revolving Commitments and 2010 Term Loan under the 2010 Credit Facility was required to be reduced by $33.0 million by March 11, 2011, by a cumulative total of $66.0 million by March 11, 2012 and by a cumulative total of $100.0 million by March 11, 2013 (if we exercise our right to extend the Termination Date), including all payments (except payments pertaining to the Release Price of a Collateral Property) resulting in permanent reduction of the aggregate amount of the Revolving Commitments and 2010 Term Loan. We used $160.7 million of the proceeds from our May 2010 equity offering to repay borrowings under the 2010 Credit Facility, satisfying all three of these paydown requirements, and no mandatory paydown provisions remain in effect.

As of June 30, 2010, there were no amounts outstanding under the Revolving Facility. We pledged $1.5 million under the Revolving Facility as collateral for letters of credit, and the unused portion of the Revolving Facility that was available to us was $148.5 million at June 30, 2010. The weighted average effective interest rate based on amounts borrowed from March 11, 2010 to June 30, 2010 was 7.56%. The interest rate that would have applied to any outstanding Revolving Facility borrowings as of June 30, 2010 was LIBOR plus 4.90%.

As of June 30, 2010, $413.5 million was outstanding under the 2010 Term Loan. The weighted average effective interest rate based on amounts borrowed on the 2010 Term Loan was 6.28% from March 11, 2010 to June 30, 2010. The weighted average interest rate on the 2010 Term Loan borrowings at June 30, 2010 was 5.55%.

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The 2010 Credit Facility contains provisions regarding the application of proceeds from a Capital Event. A Capital Event is any event by which we raise additional capital, whether through an asset sale, joint venture, additional secured or unsecured debt, issuance of equity, or from excess proceeds after payment of a Release Price. Capital Events do not include Refinance Events or other specified events. After payment of interest and required distributions, the Remaining Capital Event Proceeds will generally be applied in the following order:

If the Facility Debt Yield is less than 11.00% or the Corporate Debt Yield is less than 10.00%, Remaining Capital Event Proceeds will be allocated 25% to pay down the Revolving Facility (repayments of the Revolving Facility generally may be reborrowed) and 75% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full). So long as the Facility Debt Yield is greater than or equal to 11.00% and the Corporate Debt Yield is greater than or equal to 10.00% and each will remain so immediately after the Capital Event, and so long as either the Facility Debt Yield is less than 12.00% or the Corporate Debt Yield is less than 10.25% and will remain so immediately after the Capital Event, the Remaining Capital Event Proceeds will be allocated 75% to pay down the Revolving Facility and 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 75% for general corporate purposes. So long as the Facility Debt Yield is greater than or equal to 12.00% and the Corporate Debt Yield is greater than or equal to 10.25% and each will remain so immediately after the Capital Event, Remaining Capital Event Proceeds will be applied 100% to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinance Event relating to Cherry Hill Mall will be used to pay down the Revolving Facility and may be reborrowed only to repay our unsecured indebtedness.

The 2010 Credit Facility also contains provisions regarding the application of proceeds from a Refinance Event. A Refinance Event is any event by which we raise additional capital from refinancing of secured debt encumbering an existing asset, not including collateral for the 2010 Credit Facility. The proceeds in excess of the amount required to retire an existing secured debt will be applied, after payment of interest, to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinancing Event relating to the Gallery Properties may only be used to pay down and permanently reduce Term Loan B (or, if the outstanding balance on Term Loan B is or would become $0 as a result such payment, to pay down Term Loan B in full and to pay any remainder in accordance with the preceding paragraph).

A Collateral Property will be released as security upon a sale or refinancing, subject to payment of the Release Price and the absence of any default or Event of Default. If, after release of a Collateral Property (and giving pro forma effect thereto), the Facility Debt Yield will be less than 11.00%, the Release Price will be the Minimum Release Price plus an amount equal to the lesser of (A) the amount that, when paid and applied to the 2010 Term Loan, would result in a Facility Debt Yield equal to 11.00% and (B) the amount by which the greater of (1) 100.0% of net cash proceeds and (2) 90.0% of the gross sales proceeds exceeds the Minimum Release Price. The Minimum Release Price is 110% (120% if, after the Release, there will be fewer than 10 Collateral Properties) multiplied by the proportion that the value of the property to be released bears to the aggregate value of all of the Collateral Properties on the closing date of the 2010 Credit Facility, multiplied by the amount of the then Revolving Commitments plus the aggregate principal amount then outstanding under the 2010 Term Loan. In general, upon release of a Collateral Property, the post-release Facility Debt Yield must be greater than or equal to the pre-release Facility Debt Yield. Release payments must be used to pay down and permanently reduce the amount of the Term Loan.

The 2010 Credit Facility contains affirmative and negative covenants customarily found in facilities of this type, including, without limitation, requirements that we maintain, on a consolidated basis: (1) minimum Tangible Net Worth of not less than $483.1 million, minus non-cash impairment charges with respect to the Properties recorded in the quarter ended December 31, 2009, plus 75% of the Net Proceeds of all Equity Issuances effected at any time

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after September 30, 2009; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.75:1; (3) minimum ratio of EBITDA to Interest Expense of 1.60:1; (4) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.35:1; (5) maximum Investments in unimproved real estate and predevelopment costs not in excess of 3.0% of Gross Asset Value; (6) maximum Investments in Persons other than Subsidiaries, Consolidated Affiliates and Unconsolidated Affiliates not in excess of 1.0% of Gross Asset Value; (7) maximum Investments in Indebtedness secured by Mortgages in favor of the Company, the Borrower or any other Subsidiary not in excess of 1.0% of Gross Asset Value on the basis of cost; (8) the aggregate value of the Investments and the other items subject to the preceding clauses (5) through (7) shall not exceed 5.0% of Gross Asset Value; (9) maximum Investments in Consolidation Exempt Entities not in excess of 20.0% of Gross Asset Value; (10) a maximum Gross Asset Value attributable to any one Property not in excess of 15.0% of Gross Asset Value; (11) maximum Projects Under Development not in excess of 10.0% of Gross Asset Value; (12) maximum Floating Rate Indebtedness in an aggregate outstanding principal amount not in excess of one-third of all Indebtedness of the Company, its Subsidiaries, its Consolidated Affiliates and its Unconsolidated Affiliates; (13) minimum Corporate Debt Yield of 9.50%, provided that such Corporate Debt Yield may be less than 9.50% for one period of two consecutive fiscal quarters, but may not be less than 9.25%; and (14) Distributions may not exceed 110% of REIT taxable income for a fiscal year, but if the Corporate Debt Yield exceeds 10.00%, then the aggregate amount of Distributions may not exceed the greater of 75% of FFO and 110% of REIT Taxable Income (unless necessary for the Company to retain its status as a REIT), and if a Facility Debt Yield of 11.00% and a Corporate Debt Yield of 10.00% are achieved and continuing, there are no limits on Distributions under the 2010 Credit Facility, so long as no Default or Event of Default would result from making such Distributions. We are required to maintain our status as a REIT at all times. As of June 30, 2010, we were in compliance with all of these covenants.

We may prepay the any borrowings under Revolving Facility at any time without premium or penalty. We must repay the entire principal amount outstanding under the 2010 Credit Facility at the end of its term, as the term may have been extended.

Upon the expiration of any applicable cure period following an event of default, the lenders may declare all of the obligations in connection with the 2010 Credit Facility immediately due and payable, and the Commitments of the lenders to make further loans under the 2010 Credit Facility will terminate. Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of the Company, PREIT Associates, PRI, any owner of a Collateral Property or any Material Subsidiary, all outstanding amounts will automatically become immediately due and payable and the Commitments of the lenders to make further loans will automatically terminate.

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Mortgage Loan Finance Activity

The following table presents the mortgage loans we or partnerships in which we own interests entered into or under which we borrowed additional amounts since January 1, 2010:

Financing Date	Property	Amount Financed (in millions of dollars):		Stated Rate		Hedged Rate		Maturity
January	New River Valley Mall( 1) (2 )	$	30.0	LIBOR plus 4.50	%	6.33	%	January 2013
March	Lycoming Mall(3)		2.5	6.84% fixed		N/A		June 2014
April	Springfield Park/Springfield East(4 )		10.0	LIBOR plus 2.80	%	5.39	%	March 2015
June	Lehigh Valley Mall( 5)(6 )		140.0	5.88% fixed		N/A		July 2020
July	Valley View Mall(7)		32.0	5.95% fixed		N/A		June 2020

⁽¹⁾ Interest only.

⁽²⁾ The mortgage loan has a three year term and one one-year extension option. $25.0 million of the principal amount was swapped to a fixed rate of 6.33%.

⁽³⁾ The mortgage loan agreement initially entered into in June 2009 provides for a maximum loan amount of $38.0 million. The initial amount of the mortgage loan was $28.0 million. We took additional draws of $5.0 million in October 2009 and $2.5 million in March 2010.

⁽⁴⁾ The mortgage loan has an initial term of five years and can be extended for an additional five-year term under prescribed conditions. Our interest in the unconsolidated partnerships is 50%.

⁽⁵⁾ Our interest in the unconsolidated partnership is 50%.

⁽⁶⁾ In connection with the new mortgage loan financing, the unconsolidated partnership repaid a $150.0 million mortgage loan on Lehigh Valley Mall using proceeds from the new mortgage loan and available working capital.

⁽⁷⁾ In connection with the new mortgage loan financing, we repaid a $33.8 million mortgage loan using proceeds from the new mortgage loan and available working capital.

In March 2010, we exercised the first of three one-year options on the mortgage loan on Creekview Center in Warrington, Pennsylvania. The mortgage loan had a balance of $19.4 million as of June 30, 2010.

In April 2010, we exercised a six-month extension option on the construction loan on Pitney Road Plaza in Lancaster, Pennsylvania. The construction loan had a balance of $4.5 million as of June 30, 2010.

In July 2010, we made a principal payment of $0.7 million and exercised the second of two one-year extension options on the mortgage loan on the One Cherry Hill office building in Cherry Hill, New Jersey. The mortgage loan had a balance of $5.6 million as of June 30, 2010 and $4.9 million after the July 2010 repayment.

Interest Rate Derivative Agreements

As of June 30, 2010, we had entered into 11 interest rate swap agreements and one cap agreement that have a weighted average rate of 2.41% (excluding the spread on the related debt) on a notional amount of $732.6 million maturing on various dates through November 2013. Additionally, as of June 30, 2010, we had entered into two forward-starting interest rate swap agreements that have a weighted average interest rate 2.37% (excluding the spread on the related debt) on a notional amount of $200.0 million maturing on various dates through March 2013.

We entered into these interest rate derivatives in order to hedge the interest payments associated with our 2010 Credit Facility and our issuances of variable interest rate long-term debt. We assessed the effectiveness of these swaps as hedges at inception and on June 30, 2010 and considered these swaps to be highly effective cash flow hedges. Our interest rate swaps are net settled monthly.

As of June 30, 2010, the aggregate estimated unrealized net loss attributed to these interest rate derivatives was $27.3 million. The carrying amount of the derivative assets is reflected in “Deferred costs and other assets,” the associated instruments are reflected in “Fair value of derivative instruments” and the net unrealized loss is reflected in “Accumulated other comprehensive loss” in the accompanying balance sheets.

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Mortgage Loans

Twenty-nine mortgage loans, which are secured by 27 of our consolidated properties, are due in installments over various terms extending to the year 2018. Seventeen of the mortgage loans bear interest at a fixed rate, eight of the mortgage loans bear interest at variable rates that have been swapped to or capped at a fixed rate, three of the mortgage loans bear interest at a variable interest rate, and one mortgage loan that has been partially swapped to a fixed rate and partially bears interest at a variable rate.

The fixed mortgage loan balances, including mortgage loans that have been swapped to a fixed interest rate, have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of 5.77%. The variable rate mortgage loans have a weighted average interest rate of 2.95% (excluding the spread on the related debt). The weighted average interest rate of all consolidated mortgage loans was 5.76% at June 30, 2010. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.

The following table outlines the timing of principal payments related to our mortgage loans as of June 30, 2010.

	Payments by Period
(in thousands of dollars)	Total		2010(2)		2011-2012		2013-2014		Thereafter
Principal payments	$	87,825	$	10,233	$	39,740	$	25,243	$	12,609
Balloon payments (1)		1,708,305		43,717		493,132		531,175		640,281
Total	$	1,796,130	$	53,950	$	532,872	$	556,418	$	652,890

⁽¹⁾ Due dates for certain of the balloon payments set forth in this table may be extended pursuant to the terms of the respective loan agreements.

⁽²⁾ In connection with the Valley View Mall new mortgage loan financing, we repaid a $33.8 million mortgage loan balance using proceeds from the new mortgage loan and available working capital. This $33.8 million mortgage loan balance is included in the amounts presented as of June 30, 2010.

Contractual Obligations

The following table presents our aggregate contractual obligations as of June 30, 2010 for the periods presented.

(in thousands of dollars)	Total		Remainder of 2010		2011-2012		2013-2014		Thereafter
Mortgage loans	$	1,796,130	$	53,950	$	532,872	$	556,418	$	652,890
Interest on mortgage loans		400,407		51,724		181,236		117,413		50,034
Exchangeable Notes		136,900		—		136,900		—		—
Interest on Exchangeable Notes		10,496		2,738		7,758		—		—
2010 Term Loan(1)		413,500		—		—		413,500		—
Interest on 2010 Term Loan		72,173		11,842		53,235		7,096		—
Operating leases		8,298		1,142		4,121		3,031		4
Ground leases		52,947		496		1,845		1,460		49,146
Development and redevelopment commitments (3)		2,139		2,139		—		—		—
Total	$	2,892,990	$	124,031	$	917,967	$	1,098,918	$	752,074

⁽¹⁾ The 2010 Term Loan has a variable interest rate that is between 4.00% and 4.90% plus LIBOR, depending on our leverage. We have entered into interest rate swap agreements to fix $100.0 million of the underlying LIBOR associated with the term loans at a rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

⁽²⁾ The Revolving Facility has a variable interest rate that is between 4.00% and 4.90% plus LIBOR, depending on our leverage.

⁽³⁾ The timing of the payments of these amounts is uncertain. We estimate that such payments will be made in the upcoming year, but situations could arise at these development and redevelopment projects that could delay the settlement of these obligations.

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CASH FLOWS

Net cash provided by operating activities totaled $62.1 million for the six months ended June 30, 2010 compared to $76.8 million for the six months ended June 30, 2009. The decrease in cash from operating activities in the six months ended June 30, 2010 compared to the six months ended June 30, 2009 is partially attributed to the sale of two operating properties in 2009 (which had contributed $2.3 million in net operating income in the first six months of 2009) and a $7.7 million increase in interest expense. The decrease in cash flows from operating results were also affected by changes in working capital, primarily due to an increase in prepaid expenses, tenants’ deposits and deferred rent in the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

Cash flows used for investing activities were $15.1 million for the six months ended June 30, 2010 compared to $103.7 million for the six months ended June 30, 2009. Investing activities for 2010 reflect investment in construction in progress of $12.9 million and real estate improvements of $7.2 million, all of which primarily relate to our development and redevelopment activities. Investing activities also reflect $6.2 million paid to acquire partnership interests. Cash flows used in investing activities also includes a $10.0 million decrease in the note receivable from Boscov’s, Inc. Cash flows from investing activities for the six months ended June 30, 2009 reflect investment in construction in progress of $95.2 million, and real estate improvements of $10.6 million.

Cash flows used in financing activities were $92.0 million for the six months ended June 30, 2010 compared to cash flows provided by financing activities of $47.0 million for the six months ended June 30, 2009. Cash flows used in financing activities for the six months ended June 30, 2010 were primarily affected by the refinancing of the 2003 Credit Facility and the 2008 Term Loan and the May 2010 equity offering. We replaced the $486.0 million outstanding on the 2003 Credit Facility and the $170.0 million 2008 Term Loan with $590.0 million in proceeds from the 2010 Credit Facility. We paid $15.7 million in deferred financing costs in the six months ended June 30, 2010, primarily relating to this refinancing. In May 2010, we raised $160.7 million in an equity offering. These proceeds were used as the primary funding source of a $106.5 million paydown of the 2010 Term Loan and a $70.0 million repayment of the Revolving Facility. We also received $32.5 million in proceeds from a $30.0 million mortgage loan on New River Valley Mall and an additional $2.5 million draw from the mortgage loan at Lycoming Mall. Cash flows from financing activities for the six months ended June 30, 2010 were also affected by dividends and distributions of $15.7 million and principal installments on mortgage notes payable of $10.0 million.

COMMITMENTS

At June 30, 2010, we had $2.1 million of unaccrued contractual obligations to complete current redevelopment projects and capital improvements at certain other properties. Total remaining costs for the particular projects with such commitments are $21.8 million. We expect to finance these amounts through borrowings under the Revolving Facility or through various other capital sources. See “—Liquidity and Capital Resources—Capital Resources.”

ENVIRONMENTAL

We are aware of certain environmental matters at some of our properties, including ground water contamination and the presence of asbestos containing materials. 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. We may be required in the future to perform testing relating to these matters. Subject to certain exclusions, we have environmental liability insurance coverage, which currently covers liability for pollution and on-site remediation of up to $10.0 million per occurrence and $20.0 million in the aggregate. There can be no assurance that this coverage will be adequate to cover future environmental liabilities. If this environmental coverage were inadequate, we would be obligated to fund those liabilities. We might be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future.

COMPETITION AND TENANT CREDIT RISK

Competition in the retail real estate industry is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, strip centers, power 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 in-line store tenants. We also compete to acquire land for new site development, during more

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favorable economic conditions. Our malls and our strip and power centers 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. This competition could have a material adverse effect on our ability to lease space and on the amount of rent that we receive. Our tenants face competition from companies at the same and other properties and from other retail formats as well.

The development of competing retail properties and the related increased competition for tenants might 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 occupancy and net operating income of such properties. Any such capital improvements, undertaken individually or collectively, would be subject to the terms and conditions of the 2010 Credit Facility and involve costs and expenses that could adversely affect our results of operations.

We compete with many other entities engaged in real estate investment activities for acquisitions of malls, other retail properties and other prime development sites, including institutional pension funds, other REITs and other owner-operators of retail properties.

Many of our efforts to compete are also subject to the terms and conditions of our 2010 Credit Facility. Given current economic, capital market and retail industry conditions, however, there has been substantially less competition with respect to acquisition activity in recent quarters. When we seek to make acquisitions, these competitors might drive up the price we must pay for properties, parcels, other assets or other companies or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay a higher price for a property and/or generate lower cash flow from an acquired property than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.

We receive a substantial portion of our operating income as rent under long-term 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. These tenants have, and in the future might, defer or fail to make rental payments when due, delay or defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which has resulted, and in the future could result, in the termination of the tenant’s lease, 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 of those tenants might be more significant to us than the bankruptcy of other tenants. In addition, under many of our leases, our tenants pay rent based on a percentage of their sales. Accordingly, declines in these tenants’ sales directly and negatively affect our results of operations. Also, if tenants are unable to comply with the terms of their leases, we have modified, and might in the future modify, lease terms in ways that are less favorable to us.

SEASONALITY

There is seasonality in the retail real estate industry. Retail property leases often provide for the payment of a portion of rent based on a percentage of a tenant’s sales revenue over certain levels. Income from such rent is recorded only after the minimum sales levels have been met. The sales levels are often met in the fourth quarter, during the December holiday season. Also, many new and temporary leases are entered into later in the year in anticipation of the holiday season and there is a higher concentration of tenants vacating 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 quarter, excluding the effect of ongoing redevelopment projects. Our concentration in the retail sector increases our exposure to seasonality and is expected to continue to result in a greater percentage of our cash flows being received in the fourth quarter.

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INFLATION

Inflation can have many effects on our financial performance. Retail property leases often provide for the payment of rent based on a percentage of sales, which may increase with inflation. Leases may also provide for tenants to bear all or a portion of operating expenses, which may 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 operating expenses, we might bear more costs if such expenses increase because of inflation.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be affected by uncertainties affecting real estate businesses generally as well as the following, among other factors:

• our substantial debt and our high leverage ratio;

• constraining leverage, interest and tangible net worth covenants under our 2010 Credit Facility, as well as capital application provisions;

• our ability to refinance our existing indebtedness when it matures;

• our ability to raise capital, including through the issuance of equity securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties, or through other actions;

• our short- and long-term liquidity position;

• the effects on us of dislocations and liquidity disruptions in the capital and credit markets;

• the current economic downturn and its effect on consumer confidence and consumer spending, tenant business and leasing decisions and the value and potential impairment of our properties;

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

• our ability to maintain and increase property occupancy, sales and rental rates, including at our recently redeveloped properties;

• risks relating to development and redevelopment activities;

• changes in the retail industry, including consolidation and store closings;

• general economic, financial and political conditions, including credit market conditions, changes in interest rates or unemployment;

• concentration of our properties in the Mid-Atlantic region;

• changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors;

• potential dilution from any capital raising transactions;

• possible environmental liabilities;

• our ability to obtain insurance at a reasonable cost; and

• existence of complex regulations, including those relating to our status as a REIT, and the adverse consequences if we were to fail to qualify as a REIT.

Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009. We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of June 30, 2010, our consolidated debt portfolio consisted primarily of $413.5 million borrowed under our 2010 Term Loan which bore interest at a weighed average rate of 5.55% at June 30, 2010, $136.9 million of Exchangeable Notes, which bear interest at 4.00%, excluding debt discount of $3.7 million, and $1,798.3 million in fixed and variable rate mortgage loans, including $2.2 million of mortgage debt premium.

Twenty-nine mortgage loans, which are secured by 27 of our consolidated properties, are due in installments over various terms extending to the year 2018. Seventeen of the mortgage loans bear interest at a fixed rate, eight of the mortgage loans bear interest at variable rates that have been swapped to or capped at a fixed rate, three of the mortgage loans bear interest at a variable interest rate, and one mortgage loan that has been partially swapped to a fixed rate and partially bears interest at a variable rate.

The fixed mortgage loan balances, including mortgage loans that have been swapped to a fixed interest rate, have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of 5.77%. The variable rate mortgage loans have a weighted average interest rate of 2.95% (excluding the spread on the related debt). The weighted average interest rate of all consolidated mortgage loans was 5.76% at June 30, 2010. Mortgage loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership investments” on the consolidated balance sheets and are not included in the table below.

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

	Fixed Rate Debt					Variable Rate Debt
(in thousands of dollars) Year Ended December 31,	Principal Payments			Weighted Average Interest Rate		Principal Payments			Weighted Average Interest  Rate(1)
2010	$	43,714		6.06	%	$	10,236		3.42	%
2011		119,739		5.84	%		19,280		2.43	%
2012		530,753	(2)	5.46	%		—		—	%
2013		741,185	(3)	5.56	%		117,750	(4)	5.28	%
2014		110,983		6.58	%		—		—	%
2015 and thereafter		652,889		5.60	%		—		—	%

⁽¹⁾ Based on the weighted average interest rate in effect as of June 30, 2010.

⁽²⁾ Includes Exchangeable Notes of $136.9 million with a fixed interest rate of 4.00%.

⁽³⁾ Includes the 2010 Term Loan of $300.0 million. We have entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

⁽⁴⁾ Includes the 2010 Term Loan amount of $113.5 million that has not been swapped to a fixed interest rate.

Changes in market interest rates have different effects on the fixed and variable portions of our debt portfolio. A change in market interest rates applicable to the fixed portion of the debt portfolio affects the fair value, but it has no effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of the debt portfolio affects the interest incurred and cash flows, but does not affect the fair value. The following sensitivity analysis related to the fixed debt portfolio, which includes the effects of our interest rate hedging agreements, assumes an immediate 100 basis point change in interest rates from their actual June 30, 2010 levels, with all other variables held constant. A 100 basis point increase in market interest rates would have resulted in a decrease in our net financial instrument position of $79.4 million at June 30, 2010. A 100 basis point decrease in market interest rates would have resulted in an increase in our net financial instrument position of $82.3 million at June 30, 2010. Based on the variable-rate debt included in our debt portfolio as of June 30, 2010, a 100 basis point increase in interest rates would have resulted in an additional $1.5 million in interest annually. A 100 basis point decrease would have reduced interest incurred by $1.5 million annually.

To manage interest rate risk and limit overall interest cost, we may employ interest rate swaps, options, forwards, caps and floors or a combination thereof, depending on the underlying exposure. Interest rate differentials that arise

42

under swap contracts are recognized in interest expense over the life of the contracts. If interest rates rise, the resulting cost of funds is expected to be lower than that which would have been available if debt with matching characteristics were issued directly. Conversely, if interest rates fall, the resulting costs would be expected to be higher. We may also employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. See note 9 of the notes to our consolidated financial statements.

We have an aggregate $732.6 million in notional amount of current swap and cap agreements and $200.0 million of forward-starting swap agreements that are expected to settle on various dates through November 2013.

Because the information presented above includes only those exposures that existed as of June 30, 2010, it does not consider changes, exposures or positions which could arise after that date. The information presented herein has limited predictive value. As a result, the ultimate realized gain or loss or expense with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time and interest rates.

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ITEM 4. CONTROLS AND PROCEDURES.

We are committed to providing accurate and timely disclosure in satisfaction of our SEC reporting obligations. In 2002, we established a Disclosure Committee to formalize our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2010, and have concluded as follows:

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

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

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

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

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

ITEM 1A. RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations, which are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

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ITEM 6. EXHIBITS.

10.1	Promissory Note dated June 8, 2010 in the principal amount of $140.0 million issued by Mall at Lehigh Valley, L.P., in favor of The Prudential Insurance Company of America, filed as Exhibit 10.1 to PREIT’s Current Report on Form 8-K dated June 14, 2010.
10.2	Pennsylvania Real Estate Investment Trust Amended and Restated 2003 Equity Incentive Plan, filed as Appendix A to PREIT’s definitive proxy statement for the Annual Meeting of Shareholders on June 3, 2010, filed on April 29, 2010.
10.3	Amended and Restated Pennsylvania Real Estate Investment Trust Employee Share Purchase Plan, (amended and restated on June 3, 2010) filed as Appendix B to PREIT’s definitive proxy statement for the Annual Meeting of Shareholders on June 3, 2010, filed on April 29, 2010.
31.1	Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE OF REGISTRANT

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

	PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date: August 6, 2010	By:	/s/    Ronald Rubin
		Ronald Rubin
		Chief Executive Officer
	By:	/s/    Robert F. McCadden
		Robert F. McCadden
		Executive Vice President and Chief Financial Officer
	By:	/s/    Jonathen Bell
		Jonathen Bell
		Senior Vice President - Chief Accounting Officer (Principal Accounting Officer)

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EX-10.2

Exhibit 10.2

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN

TABLE OF CONTENTS

	Page
1.         PURPOSE	A-1
2.         DEFINITIONS	A-1
3.         ADMINISTRATION	A-5
4.         EFFECTIVE DATE AND TERM OF PLAN	A-5
5.         SHARES SUBJECT TO THE PLAN	A-5
6.         ELIGIBILITY	A-6
7.         TYPES OF AWARDS	A-6
7.1.          Options	A-6
7.2.          Share Appreciation Rights	A-7
7.3.          Restricted Shares	A-8
7.4.          Performance Shares; Performance Goals	A-9
7.5.          Contract Shares	A-9
7.6.          Bonus Shares	A-9
7.7.          Dividend Equivalent Rights	A-10
8.        EVENTS AFFECTING OUTSTANDING AWARDS	A-10
8.1.           Termination of Service (Other Than by Death or Disability)	A-10
8.2.          Death or Disability	A-10
8.3.          Capital Adjustments	A-11
8.4.          Certain Corporate Transactions	A-11
9.        SUSPENSION, AMENDMENT OR TERMINATION OF THE PLAN	A-11
10.        MISCELLANEOUS	A-12
10.1.        Documentation of Awards	A-12
10.2.        Rights as a Shareholder	A-12
10.3.        Conditions on Delivery of Shares	A-12
10.4.        Registration and Listing of Shares	A-12
10.5.        Compliance with Rule 16b–3	A-12
10.6.        Tax Withholding	A-13
10.7.        Transferability of Awards	A-13
10.8.        Registration.	A-13
10.9.        Acquisitions	A-13
10.10.      Replacement of Outstanding Options.	A-13
10.11.      Employment Rights	A-14
10.12.      Indemnification of Board and Committee.	A-14
10.13.      Application of Funds	A-14
10.14.      Governing Law	A-14

A-i

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

AMENDED AND RESTATED 2003 EQUITY INCENTIVE PLAN

Preamble

WHEREAS, Pennsylvania Real Estate Investment Trust (the “Trust”) desires to continue to have the ability to award certain equity-based benefits to certain of the non-employee trustees and officers and other key employees of the Trust and its “Related Corporations” and “Subsidiary Entities” (both as defined below);

WHEREAS, the Trust maintains the Plan (as defined below), and the Trust desires to amend and restate the Plan, as hereinafter provided.

NOW, THEREFORE, the Plan is hereby amended and restated (subject to the approval of the shareholders of the Trust) under the following terms and conditions:

Plan

1. Purpose. The Plan is intended to provide a means whereby the Trust may grant ISOs, NQSOs, Restricted Shares, SARs, Performance Shares, Contract Shares, Bonus Shares and/or DERs to Key Employees and Non–Employee Trustees. Thereby, the Trust expects to attract and retain such Key Employees and Non–Employee Trustees and to motivate them to exercise their best efforts on behalf of the Trust and its Subsidiary Entities.

2. Definitions

(a) “Annual Grant” shall have the meaning set forth in Section 7.3(c).

(b) “Award” shall mean ISOs, NQSOs, Restricted Shares, SARs, Performance Shares, Contract Shares, Bonus Shares and/or DERs awarded by the Committee to a Participant.

(c) “Award Agreement” shall mean a written document evidencing the grant of an Award, as described in Section 10.1.

(d) “Board” shall mean the Board of Trustees of the Trust.

(e) “Bonus Shares” shall mean an Award that entitles the recipient to receive Shares without payment, as a bonus.

(f) “Change in Control” shall mean:

(1) The acquisition by an individual, entity, or group (within the meaning of section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d–3 promulgated under the Exchange Act) of 30 percent or more of the combined voting power of the then outstanding voting securities of the Trust entitled to vote generally in the election of trustees (the “Outstanding Shares”); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Trust unless, in connection therewith, a majority of the individuals who constitute the Board as of the date immediately preceding such transaction cease to constitute at least a majority of the Board; (ii) any acquisition by the Trust; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Trust or any entity controlled by the Trust; (iv) any acquisition by any individual, entity, or group in connection with a “Business Combination” (as defined in paragraph (3) below) that fails to qualify as a Change in Control pursuant to paragraphs (3) or (4) below; or (v) any acquisition by any Person entitled to file Form 13G under the Exchange Act with respect to such acquisition; or

(2) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual

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becoming a trustee subsequent to the date hereof whose appointment, election, or nomination for election by the Trust’s shareholders was approved by a vote of at least a majority of the trustees then comprising the Incumbent Board (other than an appointment, election, or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the trustees of the Trust) shall be, for purposes of this Plan, considered as though such person were a member of the Incumbent Board; or

(3) The consummation of a reorganization, merger, or consolidation, or sale or other disposition of all or substantially all of the assets of the Trust (a “Business Combination”), in each case, if, following such Business Combination all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Shares immediately prior to such Business Combination beneficially own, directly or indirectly, less than 40 percent of, respectively, the then outstanding shares of equity securities and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of trustees or directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Trust or all or substantially all of the Trust’s assets either directly or through one or more subsidiaries) in substantially the same proportions as such beneficial owners held their ownership, immediately prior to such Business Combination of the Outstanding Shares; or

(4) The consummation of a Business Combination, if, following such Business Combination all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Shares immediately prior to such Business Combination beneficially own, directly or indirectly, 40 percent or more but less than 60 percent of, respectively, the then outstanding shares of equity securities and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of trustees or directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns the Trust or all or substantially all of the Trust’s assets either directly or through one or more subsidiaries) in substantially the same proportions as such beneficial owners held their ownership, immediately prior to such Business Combination, of the Outstanding Shares, and (i) any Person (excluding any employee benefit plan (or related trust) of the Trust or such entity resulting from such Business Combination) beneficially owns, directly or indirectly, 30 percent or more of, respectively, the then outstanding shares of equity securities of the entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such entity except to the extent that such ownership existed prior to the Business Combination, or (ii) at least a majority of the members of the board of trustees or directors of the entity resulting from such Business Combination were not members of the Incumbent Board at the time of the execution of the initial agreement or of the action of the Board providing for such Business Combination, or (iii) the Chief Executive Officer of the Trust at the time of the execution of the initial agreement providing for such Business Combination is not appointed or elected to a comparable or higher position with the entity resulting from such Business Combination, or (iv) the executive officers of the Trust holding the title of Executive Vice President or higher at the time of the execution of the initial agreement for such Business Combination constitute less than a majority of the executive officers holding comparable or higher titles of the entity resulting from such Business Combination; or

(5) A complete liquidation or dissolution of the Trust. The consummation of a Business Combination, following which all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Shares immediately prior to such Business Combination beneficially own, directly or indirectly, 60 percent or more of, respectively, the then outstanding shares of equity securities and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of trustees or directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which, as a result of such transaction, owns the Trust or all or substantially all of the Trust’s assets either directly or through one

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or more subsidiaries) shall not constitute a “Change in Control” unless following such transaction the provisions of paragraphs (1) or (2) are independently satisfied.

(g) “Code” shall mean the Internal Revenue Code of 1986, as amended.

(h) “Committee” shall mean the Trust’s Executive Compensation and Human Resources Committee, which shall consist solely of not fewer than two trustees of the Trust who shall be appointed by, and serve at the pleasure of, the Board (taking into consideration the rules under section 16(b) of the Exchange Act and the requirements of section 162(m) of the Code).

(i) “Contract Date” shall mean the date specified in the Award Agreement on which a Participant is entitled to receive Contract Shares, provided he or she is still providing services to the Trust or one of its Subsidiary Entities on each date.

(j) “Contract Shares” shall mean an Award that entitles the recipient to receive unrestricted Shares, without payment, if the recipient is still providing services to the Trust or one of its Subsidiary Entities as of the future date specified in the Award Agreement.

(k) “Disability” shall mean a Participant’s “permanent and total disability,” as defined in section 22(e)(3) of the Code.

(l) “DER” shall mean a dividend equivalent right—i.e., an Award that entitles the recipient to receive a benefit in lieu of cash dividends that would be payable on any or all Shares subject to another Award granted to the Participant, or that would be payable on a number of notional Shares unrelated to any other Award, in either case had such Shares been outstanding.

(m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(n) “Fair Market Value” shall mean the following, arrived at by a good faith determination of the Committee:

(1) if there are sales of Shares on a national securities exchange or in an over–the–counter market on the date of grant (or on such other date as value must be determined), then the mean between the highest and lowest quoted selling price on such date; or

(2) if there are no such sales of Shares on the date of grant (or on such other date as value must be determined) but there are such sales on dates within a reasonable period both before and after such date, the weighted average of the means between the highest and lowest selling price on the nearest date before and the nearest date after such date on which there were such sales; or

(3) if paragraphs (1) and (2) above are not applicable, then such other method of determining fair market value as shall be adopted by the Committee.

Where the Fair Market Value of Shares is determined under (2) above, the average shall be weighed inversely by the respective numbers of trading days between the dates of reported sales and the specified valuation date, in accordance with Treas. Reg. §20.2031–2(b)(1) or any successor thereto.

(o) “ISO” shall mean an incentive stock option—i.e., an Option which, at the time such Option is granted under the Plan, qualifies as an incentive stock option within the meaning of section 422 of the Code, unless the Award Agreement states that the Option will not be treated as an ISO.

(p) “Key Employee” shall mean an officer or other key employee of the Trust or one of its Subsidiary Entities, as determined by the Committee in its sole discretion.

(q) “More–Than–10–Percent Shareholder” shall mean any person who at the time of grant owns, directly or indirectly, or is deemed to own by reason of the attribution rules of section 424(d) of the Code, Shares possessing more than 10 percent of the total combined voting power of all classes of Shares of the Trust or of a Related Corporation.

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(r) “Non–Employee Trustee” shall mean a trustee of the Trust who is not an employee of the Trust or of a Related Corporation or Subsidiary Entity.

(s) “NQSO” shall mean a nonqualified stock option—i.e., an Option that, at the time such Option is granted to a Participant, does not meet the definition of an ISO, whether or not it is designated as a nonqualified stock option in the Award Agreement.

(t) “Option” is an Award entitling the Participant on exercise thereof to purchase Shares at a specified exercise price.

(u) “Participant” shall mean an individual who has been granted an Award under the Plan.

(v) “Performance Shares” shall mean an Award that entitles the recipient to receive Shares, without payment, following the attainment of designated individual or Corporate Performance Goals.

(w) “Performance Goals” shall mean goals deemed by the Committee to be important to the success of the Trust or any of its Subsidiary Entities. The Committee shall establish the specific measures for each such goal at the time an Award is granted, if the Committee desires to condition the Award on the achievement of Performance Goals. In creating these measures, the Committee shall use one or more of the following business criteria: funds from operations, return on assets, return on net assets, asset turnover, return on equity, return on capital, market price appreciation of Shares, economic value added, total shareholder return, net income, pre–tax income, earnings per Share, operating profit margin, net income margin, sales margin, cash flow, market share, inventory turnover, sales growth, capacity utilization, increase in customer base, environmental health and safety, diversity, and/or quality. The business criteria may be expressed in absolute terms or relative to the performance of other individuals or companies or an index.

(x) “Plan” shall mean this Amended and Restated Pennsylvania Real Estate Investment Trust 2003 Equity Incentive Plan, as set forth herein and as it may be amended from time to time.

(y) “Related Corporation” shall mean either a “subsidiary corporation” of the Trust (if any), as defined in section 424(f) of the Code, or the “parent corporation” of the Trust (if any), as defined in section 424(e) of the Code.

(z) “Restricted Shares” shall mean an Award that grants the recipient Shares at no cost, subject to whatever restrictions are determined by the Committee.

(aa) “SAR” shall mean a share appreciation right—i.e., an Award entitling the recipient on exercise to receive an amount, in cash or Shares or a combination thereof (such form to be determined by the Committee), determined in whole or in part by reference to appreciation in Share value.

(bb) “Securities Act” shall mean the Securities Act of 1933, as amended.

(cc) “Shares” shall mean shares of beneficial interest in the Trust, par value $1.00 per share.

(dd) “Short-Term Deferral Period” shall mean, with respect to an amount (including Shares) payable pursuant to an Award, the 2  ¹/2-month period beginning on the day immediately following the last day of the Participant’s first taxable year in which the amount is no longer subject to a substantial risk of forfeiture. In no event shall interest be payable to reflect a payment date after the first day of the Short-Term Deferral Period.

(ee) “Subsidiary Entity” shall mean an affiliate of the Trust that is controlled by the Trust, directly or indirectly, through one or more intermediaries.

(ff) “Trust” shall mean Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust.

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3. Administration

(a) The Plan shall be administered by the Committee; provided, however, that the Board reserves the right to exercise from time to time the authority and discretion otherwise reserved herein to the Committee, and, in that case, the authority and discretion of the Board will be coextensive with that of the Committee. Each member of the Committee, while serving as such, shall be deemed to be acting in his or her capacity as a trustee of the Trust. Acts approved by a majority of the members of the Committee at which a quorum is present, or acts without a meeting reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. Any authority of the Committee (except for the authority described in subsection (b)(1)–(4) below) may be delegated to a plan administrator.

(b) The Committee shall have the authority:

(1) to select the Key Employees and Non–Employee Trustees to be granted Awards under the Plan, and to grant such Awards at such time or times as it may choose;

(2) to determine the type and size of each Award, including the number of Shares subject to the Award;

(3) to determine the terms and conditions of each Award;

(4) to amend an existing Award in whole or in part (including the extension of the exercise period for any NQSO), except that the Committee may not (i) lower the exercise price of any Option, or (ii) without the consent of the Participant holding the Award, take any action under this clause if such action would adversely affect the rights of such Participant with respect to such Award;

(5) to adopt, amend, and rescind rules and regulations for the administration of the Plan; and

(6) to interpret the Plan and decide any questions and settle any controversies that may arise in connection with it.

Such determinations and actions of the Committee (or its delegate), and all other determinations and actions of the Committee (or its delegate) made or taken under authority granted by any provision of the Plan, shall be conclusive and shall bind all parties. Nothing in this subsection (b) shall be construed as limiting the power of the Board or the Committee to make the adjustments described in Sections 8.3 and 8.4.

4. Effective Date and Term of Plan

(a) Effective Date. The Plan was adopted by the Board and became effective on July 24, 2003, was approved by the shareholders of the Trust pursuant to Section 9(b) on November 11, 2003 and was amended and restated and reapproved by shareholders effective June 3, 2010.

(b) Term of Plan for ISOs. No ISO may be granted under the Plan after the tenth anniversary of the most recent date the Plan is approved by the shareholders of the Trust, but ISOs previously granted may extend beyond that date. Awards other than ISOs may be granted after that date.

5. Shares Subject to the Plan. The aggregate number of Shares that may be delivered under the Plan (pursuant to Options, SARs or otherwise) is 3,400,000 Shares (which number includes the Shares that were available under the Pennsylvania Real Estate Investment Trust 1999 Equity Incentive Plan). Further, no Key Employee shall receive Options and/or SARs for more than 250,000 Shares during any calendar year under the Plan. However, the limits in the preceding two sentences shall be subject to the adjustment described in Section 8.3. Shares delivered under the Plan may be authorized but unissued Shares or reacquired Shares, and the

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Trust may purchase Shares required for this purpose, from time to time, if it deems such purchase to be advisable. Any Shares subject to an Option which expires or otherwise terminates for any reason whatever (including, without limitation, the surrender thereof without having been exercised), any Shares that are subject to an Award that are forfeited, any Shares not delivered to the Participant because they are withheld for the payment of taxes with respect to an Award or in satisfaction of the exercise price of an Option, and any Shares subject to an Award which is payable in Shares or cash and that is satisfied in cash rather than in Shares, shall continue to be available for Awards under the Plan. However, if an Option is cancelled, the Shares covered by the cancelled Option shall be counted against the maximum number of Shares specified above for which Options may be granted to a single Key Employee.

6. Eligibility. The class of employees who shall be eligible to receive Awards (including ISOs) under the Plan shall be the Key Employees (including any trustees of the Trust who are also Key Employees). The class of individuals who shall be eligible to receive Awards (other than ISOs) under the Plan shall be the Non–Employee Trustees. More than one Award may be granted to a Participant under the Plan.

7. Types of Awards

7.1. Options

(a) Kinds of Options. Both ISOs and NQSOs may be granted by the Committee under the Plan; however, ISOs may only be granted to Key Employees of the Trust or of a Related Corporation. Once an ISO has been granted, no action by the Committee that would cause the Option to lose its status as an ISO under the Code will be effective without the consent of the Participant holding the Option.

(b) $100,000 Limit. The aggregate Fair Market Value of the Shares with respect to which ISOs are exercisable for the first time by a Key Employee during any calendar year (counting ISOs under this Plan and under any other stock option plan of the Trust or a Related Corporation) shall not exceed $100,000. If an Option intended as an ISO is granted to a Key Employee and the Option may not be treated in whole or in part as an ISO pursuant to such $100,000 limit, the Option shall be treated as an ISO to the extent it may be so treated under the limit and as an NQSO as to the remainder. For purposes of determining whether an ISO would cause the limit to be exceeded, ISOs shall be taken into account in the order granted. The annual limits set forth above for ISOs shall not apply to NQSOs.

(c) Exercise Price. Except as provided in Section 10.10, the exercise price of an Option shall be determined by the Committee, subject to the following:

(1) The exercise price of an ISO shall not be less than the greater of (i) 100 percent (110 percent in the case of an ISO granted to a More–Than–10–Percent Shareholder) of the Fair Market Value of the Shares subject to the Option, determined as of the time the Option is granted, or (ii) the par value per Share.

(2) The exercise price of an NQSO shall not be less than the greater of (i) 100% percent of the Fair Market Value of the Shares subject to the Option, determined as of the time the Option is granted, or (ii) the par value per Share.

(d) Term of Options. The term of each Option may not be more than 10 years (five years, in the case of an ISO granted to a More–Than–10–Percent Shareholder) from the date the Option was granted, or such earlier date as may be specified in the Award Agreement.

(e) Exercise of Options. An Option shall become exercisable at such time or times, and on such conditions, as the Committee may specify. The Committee may at any time and from time to time accelerate the time at which all or any part of the Option may be exercised. Any exercise of an Option must be in writing, signed by the proper person, and delivered or mailed to the Trust, accompanied by (i) any other documents required by the Committee and (ii) payment in full in accordance with

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subsection (f) below for the number of Shares for which the Option is exercised (except that, in the case of an exercise arrangement approved by the Committee and described in subsection (f)(3) below, payment may be made as soon as practicable after the exercise). Only full Shares shall be issued under the Plan, and any fractional Share that might otherwise be issuable upon exercise of an Option granted hereunder shall be forfeited.

(f) Payment for Shares. The Award Agreement shall set forth, from among the following alternatives, how the exercise price is to be paid:

(1) in cash or by check (acceptable to the Committee), bank draft, or money order payable to the order of the Trust;

(2) in Shares previously acquired by the Participant; provided, however, that such Shares have been held by the Participant for such period of time as required to be considered “mature” Shares for purposes of accounting treatment;

(3) by delivering a properly executed notice of exercise of the Option to the Trust and a broker, with irrevocable instructions to the broker promptly to deliver to the Trust the amount of sale or loan proceeds necessary to pay the exercise price of the Option; or

(4) by any combination of the above–listed forms of payment or such other means as the Committee may approve.

In the event the Option price is paid, in whole or in part, with Shares, the portion of the Option price so paid shall be equal to the Fair Market Value on the date of exercise of the Option of the Shares surrendered in payment of such Option price.

(g) No Repricing. Repricing of Options shall not be permitted without the approval of the shareholders of the Trust. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Option to lower its exercise price (other than on account of capital adjustments resulting from share splits, etc., as described in Section 8.3); (ii) any other action that is treated as a “repricing” under generally accepted accounting principles; and (iii) repurchasing for cash or canceling an Option in exchange for another Award at a time when its exercise price is greater than the Fair Market Value of the underlying Shares, unless the cancellation and exchange occurs in connection with an event set forth in Section 8.4 (involving certain corporate transactions). Such cancellation and exchange will be considered a “repricing” regardless of whether it would be treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

7.2. Share Appreciation Rights

(a) Grant of Share Appreciation Rights. SARs may be granted to a Key Employee or a Non–Employee Trustee by the Committee. SARs may be granted in tandem with, or independently of, Options granted under the Plan. An SAR granted in tandem with an Option that is not an ISO may be granted either at or after the time the Option is granted. An SAR granted in tandem with an ISO may be granted only at the time the ISO is granted.

(b) Nature of Share Appreciation Rights. An SAR entitles the Participant to receive, with respect to each Share as to which the SAR is exercised, the excess of the Share’s Fair Market Value on the date of exercise over its Fair Market Value on the date the SAR was granted. Such excess shall be paid in cash, Shares, or a combination thereof, as determined by the Committee. With respect to an SAR paid in Shares, the total number of Shares actually issued to a Participant with respect to such SAR, rather than the number of Shares subject to such SAR, shall reduce the number of Shares available for issuance under the Plan.

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(c) Rules Applicable to Tandem Awards. When SARs are granted in tandem with Options, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of Shares that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SAR relating to the Shares covered by such Option will terminate. Upon the exercise of an SAR, the related Option will terminate to the extent of an equal number of Shares. The SAR will be exercisable only at such time or times, and to the extent, that the related Option is exercisable and will be exercisable in accordance with the procedure required for exercise of the related Option. The SAR will be transferable only when the related Option is transferable, and under the same conditions. An SAR granted in tandem with an ISO may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the exercise price of such ISO.

(d) Exercise of Independent Share Appreciation Rights. An SAR not granted in tandem with an Option shall become exercisable at such time or times, and on such conditions, as the Committee may specify in the Award Agreement. The Committee may at any time accelerate the time at which all or any part of the SAR may be exercised. Any exercise of an independent SAR must be in writing, signed by the proper person, and delivered or mailed to the Trust, accompanied by any other documents required by the Committee.

(e) No Repricing. Repricing of SARs shall not be permitted without the approval of the shareholders of the Trust. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an SAR to lower its exercise price (i.e., its starting value) (other than on account of capital adjustments resulting from share splits, etc., as described in Section 8.3); (ii) any other action that is treated as a “repricing” under generally accepted accounting principles; and (iii) repurchasing for cash or canceling an SAR in exchange for another Award at a time when its exercise price (i.e., its starting value) is greater than the Fair Market Value of the underlying Shares, unless the cancellation and exchange occurs in connection with an event set forth in Section 8.4 (involving certain corporate transactions). Such cancellation and exchange will be considered a “repricing” regardless of whether it would be treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

7.3. Restricted Shares

(a) General Requirements. Restricted Shares may be issued or transferred to a Key Employee or a Non–Employee Trustee for no consideration.

(b) Restrictions. Except as otherwise specifically provided by the Plan, Restricted Shares may not be sold, assigned, transferred, pledged, or otherwise encumbered or disposed of, and if the Participant ceases to be an employee or a Non–Employee Trustee of any of the Trust or its Subsidiary Entities or any reason, shall be forfeited to the Trust. These restrictions will lapse at such time or times, and on such conditions, as the Committee may specify in the Award Agreement. Upon the lapse of all restrictions, the Shares will cease to be Restricted Shares for purposes of the Plan. The Committee may at any time accelerate the time at which the restrictions on all or any part of the Shares will lapse.

(c) Annual Grant to Non-Employee Trustees. As of the first business day following each Annual Meeting of Shareholders of the Trust (or, if the Shares do not trade on such business day, then as of the first trading day thereafter), such number of Restricted Shares as determined by the Board in its sole discretion shall be issued automatically for no consideration to each Non-Employee Trustee then in service with the Trust. The automatic grant of Restricted Shares to each Non-Employee Trustee pursuant to the preceding sentence shall be referred to herein as the “Annual Grant.” Restrictions with respect to Restricted Shares underlying Annual Grants will generally lapse with respect to one-third of the Restricted Shares on May 1 of each year following the applicable grant date (or, if such May 1 is not a trading day, the trading day next preceding such May 1); provided, that such restrictions will

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immediately lapse in full upon the Participant’s death or Disability or upon the occurrence of a Change in Control. If, as of the grant date of any Annual Grant, the number of Shares available for issuance under the Plan is insufficient to make all the Annual Grants then due to be issued pursuant to this Section 7.3(c), no Annual Grants will then be made and the operation of this Section 7.3(c) will then be automatically suspended.

(d) Rights as a Shareholder. Unless the Committee determines otherwise, a Participant who receives Restricted Shares shall have certain rights of a shareholder with respect to the Restricted Shares, including voting and dividend rights, subject to the restrictions described in subsection (b) above and any other conditions imposed by the Committee at the time of grant. Unless the Committee determines otherwise, certificates evidencing Restricted Shares will remain in the possession of the Trust until such Shares are free of all restrictions under the Plan.

(e) Notice of Tax Election. Any Participant making an election under section 83(b) of the Code for the immediate recognition of income attributable to an Award of Restricted Shares must provide a copy thereof to the Trust within 10 days of the filing of such election with the Internal Revenue Service.

7.4. Performance Shares; Performance Goals

(a) Grant. The Committee may grant Performance Shares to any Key Employee or Non–Employee Trustee, conditioned upon the meeting of designated Performance Goals. The Committee shall determine the number of Performance Shares to be granted.

(b) Performance Period and Performance Goals. When Performance Shares are granted, the Committee shall establish the performance period during which performance shall be measured, the Performance Goals, and such other conditions of the Award as the Committee deems appropriate.

(c) Delivery of Performance Shares. At the end of each performance period, the Committee shall determine to what extent the Performance Goals and other conditions of the Award have been met and the number of Shares, if any, to be delivered with respect to the Award. Any Shares deliverable pursuant to this subsection (c) shall be delivered no later than the end of the Short-Term Deferral Period, except to the extent such delivery is deferred pursuant to a deferral arrangement that complies with Section 409A of the Code and the final regulations issued thereunder or any amendment thereof or successor thereto.

7.5. Contract Shares

(a) Grant. The Committee may grant Contract Shares to any Key Employee or Non–Employee Trustee, conditioned upon the Participant’s continued provision of services to the Trust or one of its Subsidiary Entities through the date(s) specified in the Award Agreement. The Committee shall determine the number of Contract Shares to be granted.

(b) Contract Dates. When Contract Shares are granted, the Committee shall establish the Contract Date(s) on which the Contract Shares shall be delivered to the Participant, provided the Participant is still providing services to the Trust or one of its Subsidiary Entities on such date(s).

(c) Delivery of Contract Shares. If the Participant is still providing services to the Trust or to one or more of its Subsidiary Entities as of the Contract Date(s), the Committee shall cause the Contract Shares to be delivered to the Participant in accordance with the terms of the Award Agreement.

7.6. Bonus Shares. The Committee may grant Bonus Shares to any Key Employee or Non–Employee Trustee as a bonus to the Key Employee or Non–Employee Trustee for services to the Trust or to one or more of its Subsidiary Entries. The Committee shall determine the number of Bonus Shares to be granted.

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7.7. Dividend Equivalent Rights. The Committee may provide for payment to a Key Employee or Non–Employee Trustee of DERs, either currently or in the future, or for the investment of such DERs on behalf of the Participant. Events Affecting Outstanding Awards

8. Events Affecting Outstanding Awards

8.1. Termination of Service (Other Than by Death or Disability) If a Participant ceases to be an employee or trustee of any of the Trust and its Subsidiary Entities for any reason other than death or Disability, the following shall apply:

(a) Except as otherwise stated in the Award Agreement, all Options and SARs held by the Participant that were not exercisable immediately prior to the Participant’s termination of service shall terminate at that time. Any Options or SARs that were exercisable immediately prior to the termination of service will continue to be exercisable for three months (or for such longer period as the Award Agreement states), and shall thereupon terminate, unless the Award Agreement provides by its terms for immediate termination or for termination in less than three months in the event of termination of service in specific circumstances. In no event, however, shall an Option or SAR remain exercisable beyond the latest date on which it could have been exercised without regard to this Section. For purposes of this subsection (a), a termination of service shall not be deemed to have resulted by reason of a sick leave or other bona fide leave of absence approved for purposes of the Plan by the Committee.

(b) Except as otherwise stated in the Award Agreement, all Restricted Shares held by the Participant at the time of termination of service must be transferred to the Trust (and, in the event the certificates representing such Restricted Shares are held by the Trust, such Restricted Shares shall be so transferred without any further action by the Participant), in accordance with Section 7.3.

(c) Except as otherwise stated in the Award Agreement, all Performance Shares, Contract Shares and DERs to which the Participant was not irrevocably entitled prior to the termination of service shall be forfeited and the Award canceled as of the date of such termination of service.

8.2. Death or Disability. If a Participant dies or terminates his or her services on account of a Disability, the following shall apply:

(a) Except as otherwise stated in the Award Agreement, all Options and SARs held by a Participant that were not exercisable immediately prior to the Participant’s death or termination of service on account of Disability shall terminate at the date of death or termination of service on account of Disability. Any Options or SARs that were exercisable immediately prior to death or termination of service on account of Disability, as the case may be, will continue to be exercisable by the Participant or by the Participant’s legal representative (in the case of Disability), or by the Participant’s executor or administrator or by the person or persons to whom the Option or SAR is transferred by will or the laws of descent and distribution (in the case of death), for the one–year period ending with the first anniversary of the Participant’s death or termination of service on account of Disability (or for such shorter or longer period as may be provided in the Award Agreement), and shall thereupon terminate. In no event, however, shall an Option or SAR remain exercisable beyond the latest date on which it could have been exercised without regard to this Section.

(b) Except as otherwise stated in the Award Agreement, all Restricted Shares held by the Participant at the date of death or termination of service on account of Disability, as the case may be, must be transferred to the Trust (and, in the event the certificates representing such Restricted Shares are held by the Trust, such Restricted Shares shall be so transferred without any further action by the Participant), in accordance with Section 7.3.

(c) Except as otherwise stated in the Award Agreement, all Performance Shares, Contract Shares and DERs to which the Participant was not irrevocably entitled prior to death or termination of service on account of Disability, as the case may be, shall be forfeited and the Award canceled as of the date of death or termination of service on account of Disability.

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8.3. Capital Adjustments. The maximum number of Shares that may be delivered under the Plan, the maximum number of SARs not in tandem with Options, the maximum number of DERs payable in notional Shares that may be granted, and the maximum number of Shares with respect to which Options or SARs may be granted to any Key Employee under the Plan, all as stated in Section 5, and the number of Shares issuable upon the exercise or vesting of outstanding Awards under the Plan (as well as the exercise price per Share under outstanding Options) shall be proportionately adjusted, as may be deemed appropriate by the Committee, to reflect any increase or decrease in the number of issued Shares resulting from a subdivision (share–split), consolidation (reverse split), share dividend, or similar change in the capitalization of the Trust. No adjustment under this Section shall be made (i) to an outstanding ISO if such adjustment would constitute a modification under section 424(h) of the Code, unless the Participant consents to such adjustment, and (ii) to an outstanding NQSO or SAR if such adjustment would constitute a modification under Treas. Reg. §1.409A-1(b)(5)(v) or any amendment thereof or successor thereto unless the Participant consents to such adjustment.

8.4. Certain Corporate Transactions

(a) In the event of a corporate transaction (as, for example, a merger, consolidation, acquisition of property or shares, separation, reorganization, or liquidation), each outstanding Award shall be assumed by the surviving or successor entity; provided, however, that in the event of a proposed corporate transaction, the Committee may terminate all or a portion of any outstanding Award, effective upon the closing of the corporate transaction, if it determines that such termination is in the best interests of the Trust. If the Committee decides to terminate outstanding Options or SARs, the Committee shall give each Participant holding an Option or SAR to be terminated not less than seven days’ notice prior to any such termination, and any Option or SAR that is to be so terminated may be exercised (if and only to the extent that it is then exercisable) up to, and including the date immediately preceding such termination. Further, the Committee, in its discretion, may (i) accelerate, in whole or in part, the date on which any or all Options and SARs become exercisable, (ii) remove the restrictions from the outstanding Restricted Shares, (iii) cause the delivery of any Performance Shares, even if the associated Performance Goals have not been met, (iv) cause the delivery of any Contract Shares, even if the Contract Date(s) have not been reached, and/or (v) cause the payment of any DERs. The Committee also may, in its discretion, change the terms of any outstanding Award to reflect any such corporate transaction; provided that, (i) in the case of ISOs, such change would not constitute a “modification” under section 424(h) of the Code unless the Participant consents to the change, and (ii) in the case of NQSOs and SARs, such change would not constitute a modification under Treas. Reg. §1.409A-1(b)(5)(v) or any amendment thereof or successor thereto unless the Participant consents to the change.

(b) In lieu of the action described in subsection (a) above, the Committee may, in its discretion, arrange to have the surviving or acquiring entity or affiliate grant to each Participant a replacement award which, in the judgment of the Committee, is substantially equivalent to the Award.

9. Suspension, Amendment or Termination of the Plan

(a) In General. The Board, pursuant to a written resolution, may from time to time suspend or terminate the Plan or amend the Plan and any outstanding Award Agreement evidencing Annual Grants, and, except as provided in Sections 3(b)(4), 7.1(a), 7.1(g), 7.1(e) and 8.4(a), the Committee may amend any outstanding Awards (other than Awards of Annual Grants) in any respect whatsoever; except that, without the approval of the shareholders (given in the manner set forth in subsection (b) below)—

(1) no amendment may be made that would—

(A) change the class of employees eligible to participate in the Plan with respect to ISOs;

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(B) except as permitted under Section 8.3, increase the maximum number of Shares with respect to which ISOs may be granted under the Plan; or

(C) extend the duration of the Plan under Section 4(b) with respect to any ISOs granted hereunder;

(2) no amendment may be made that would constitute a modification of the material terms of the “performance goal” within the meaning of Treas. Reg. § 1.162–27(e)(4)(vi) or any successor thereto (to the extent compliance with section 162(m) of the Code is desired); and

(3) no amendment may be made that would require shareholder approval under the applicable rules of the New York Stock Exchange or as required under any other applicable law, rule or regulation.

Notwithstanding the foregoing, no such suspension, termination, or amendment shall materially impair the rights of any Participant holding an outstanding Award without the consent of such Participant.

(b) Manner of Shareholder Approval. The approval of shareholders must be effected by a majority of the votes cast (including abstentions, to the extent abstentions are counted as voting under applicable state law), in a separate vote at a duly held shareholders’ meeting at which a quorum representing a majority of all outstanding voting Shares is, either in person or by proxy, present and voting on the Plan.

10. Miscellaneous

10.1. Documentation of Awards. Awards shall be evidenced by such written Award Agreements as may be prescribed by the Committee from time to time. Such instruments may be in the form of agreements to be executed by both the Participant and the Trust, or certificates, letters, or similar instruments, which need not be executed by the Participant but acceptance of which by the Participant will evidence agreement by the Participant to the terms thereof.

10.2. Rights as a Shareholder. Except as specifically provided by the Plan or an Award Agreement, the receipt of an Award shall not give a Participant rights as a shareholder; instead, the Participant shall obtain such rights, subject to any limitations imposed by the Plan or the Award Agreement, upon the actual receipt of Shares.

10.3. Conditions on Delivery of Shares. The Trust shall not deliver any Shares pursuant to the Plan or remove restrictions from Shares previously delivered under the Plan (i) until all conditions of the Award have been satisfied or removed, (ii) until all applicable Federal and state laws and regulations have been complied with, and (iii) if the outstanding Shares are at the time of such delivery listed on any stock exchange, until the Shares to be delivered have been listed or authorized to be listed on such exchange. If an Award is exercised by the Participant’s legal representative, the Trust will be under no obligation to deliver Shares pursuant to such exercise until the Trust is satisfied as to the authority of such representative.

10.4. Registration and Listing of Shares. If the Trust shall deem it necessary to register under the Securities Act or any other applicable statute any Shares purchased or otherwise delivered under this Plan, or to qualify any such Shares for an exemption from any such statutes, the Trust shall take such action at its own expense. Purchases and grants of Shares hereunder shall be postponed as necessary pending any such action.

10.5. Compliance with Rule 16b–3. All elections and transactions under this Plan by persons subject to Rule 16b–3, promulgated under section 16(b) of the Exchange Act, or any successor to such Rule, are

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intended to comply with at least one of the exemptive conditions under such Rule. The Committee shall establish such administrative guidelines to facilitate compliance with at least one such exemptive condition under Rule 16b–3 as the Committee may deem necessary or appropriate.

10.6. Tax Withholding

(a) Obligation to Withhold. The Trust shall withhold from any cash payment made pursuant to an Award an amount sufficient to satisfy all Federal, state, and local withholding tax requirements (the “withholding requirements”). In the case of an Award pursuant to which Shares may be delivered, the Committee may require that the Participant or other appropriate person remit to the Trust an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Committee with regard to such requirements, prior to the delivery of any Shares.

(b) Election to Withhold Shares. The Committee, in its discretion, may permit or require the Participant to satisfy the withholding requirements, in whole or in part, by electing to have the Trust withhold Shares (or by returning previously acquired Shares to the Trust); provided, however, that the Trust may limit the number of Shares withheld to satisfy the tax withholding requirements to the extent necessary to avoid adverse accounting consequences. Shares shall be valued, for purposes of this subsection (b), at their Fair Market Value (determined as of the date an amount is includible in income by the Participant (the “Determination Date”), rather than the date of grant). The Committee shall adopt such withholding rules as it deems necessary to carry out the provisions of this Section.

10.7. Transferability of Awards. No ISO may be transferred other than by will or by the laws of descent and distribution. No other Award may be transferred, except to the extent permitted in the applicable Award Agreement or by will or the laws of descent and distribution. During a Participant’s lifetime, an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant’s incapacity, by the person or persons legally appointed to act on the Participant’s behalf).

10.8. Registration. If the Participant is married at the time Shares are delivered and if the Participant so requests at such time, the certificate or certificates for such Shares shall be registered in the name of the Participant and the Participant’s spouse, jointly, with right of survivorship.

10.9. Acquisitions. Notwithstanding any other provision of this Plan, Awards may be granted hereunder in substitution for awards held by directors, trustees and key employees of another entity that engages in a merger, consolidation, acquisition of assets, or similar transaction with the Trust or a Related Corporation, provided the terms of the substitute Awards so granted conform to the terms set forth in this Plan (except that the exercise price of any substituted Option—whether an ISO or an NQSO—may be adjusted according to the provisions of section 424(a) of the Code, if the grant of such substituted Option is pursuant to a transaction described in such section of the Code).

10.10. Replacement of Outstanding Options. The Committee shall have the authority to cancel, at any time and from time to time, with the consent of the affected Participant(s), any or all outstanding Options under the Plan and to grant in substitution therefor, but not within six months before or after such cancellation, new Options under the Plan covering the same or a different number of Shares but having a per–Share purchase price not less than the greater of par value or 100 percent of the Fair Market Value of a Share on the new date of the grant. The Committee may permit the voluntary surrender of all or a portion of any Option to be conditioned upon the granting to the Participant under the Plan of a new Option for the same or a different number of Shares as the Option surrendered, or may require such voluntary surrender as a condition precedent to a grant of a new Option to such Participant. Any new Option (i) shall not be granted within six months before or after such voluntary surrender, and (ii) shall be exercisable at the price, during the period, and in accordance with any other terms and conditions specified by the Committee at the time the new Option is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, and any other terms or conditions of the Option surrendered.

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10.11. Employment Rights. Neither the adoption of the Plan nor the grant of Awards will confer on any person any right to continued employment by the Trust or any of its Subsidiary Entities or affect in any way the right of any of the foregoing to terminate an employment relationship at any time.

10.12. Indemnification of Board and Committee. Without limiting any other rights of indemnification that they may have from the Trust or any of its Subsidiary Entities, the members of the Board and the members of the Committee shall be indemnified by the Trust against all costs and expenses reasonably incurred by them in connection with any claim, action, suit, or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under, or in connection with, the Plan or any Award granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Trust) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of willful misconduct or recklessness on their part. Upon the making or institution of any such claim, action, suit, or proceeding, the Board or Committee member shall notify the Trust in writing, giving the Trust an opportunity, at its own expense, to handle and defend the same before such Board or Committee member undertakes to handle it on his or her own behalf. The provisions of this Section shall not give members of the Board or the Committee greater rights than they would have under the Trust’s by–laws or Pennsylvania law.

10.13. Application of Funds. Any cash proceeds received by the Trust from the sale of Shares pursuant to Awards granted under the Plan shall be added to the general funds of the Trust. Any Shares received in payment for additional Shares upon exercise of an Option shall become treasury shares.

10.14. Governing Law. The Plan shall be governed by the applicable Code provisions to the maximum extent possible. Otherwise, the laws of the Commonwealth of Pennsylvania (without reference to the principles of conflict of laws) shall govern the operation of, and the rights of Key Employees or Non–Employee Trustees under, the Plan and Awards granted hereunder.

IN WITNESS WHEREOF, Pennsylvania Real Estate Investment Trust has caused this Plan to be duly executed this 19^th day of April, 2010.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
By:	/s/ Bruce Goldman
Title:	Executive Vice President and General Counsel

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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED PENNSYLVANIA REAL ESTATE INVESTMENT TRUST EMPLOYEE SHARE PURCHASE PLAN

(Effective as of April 1, 1999, Amended and Restated as of June 3, 2010)

AMENDED AND RESTATED PENNSYLVANIA REAL ESTATE INVESTMENT

TRUST EMPLOYEE SHARE PURCHASE PLAN

(Effective as of April 1, 1999, Amended and Restated as of June 3, 2010)

TABLE OF CONTENTS

	PAGE
1.      PURPOSE	B-1
2.      ADMINISTRATION	B-1
3.      ELIGIBILITY	B-1
(a)  General Rule	B-1
(b)  Exceptions	B-1
4.      SHARES	B-2
5.      GRANT OF OPTION	B-2
(a)  Grant of Option	B-2
(b)  Purchase Periods	B-2
(c)  Number of Shares Purchasable Under Option	B-2
(d)  Limitation on Aggregate Number of Shares Purchasable Under Option	B-2
6.      PARTICIPATION	B-3
(a)  Payroll Deductions	B-3
(b)  Maximum Payroll Deduction	B-3
(c)  General Assets; Taxes; No Interest	B-3
(d)  Automatic Refund	B-3
(e)  Participation after Surrender	B-3
(f)  No Contract to Purchase	B-3
(g)  Waiver of Rights	B-3
7.      EXERCISE OF OPTION	B-3
(a)  Method of Exercise	B-3
(b)  Tax Withholding	B-3
(c)  Return of Excess Payroll Deductions	B-4
8.      EMPLOYEE’S RIGHT TO SURRENDER OPTION	B-4
(a)  Surrender of Option	B-4
(b)  Effect on Later Participation	B-4
9.      TERMS AND CONDITIONS OF OPTIONS	B-4
(a)  Employee Notification and Agreement	B-4
(b)  Option Price	B-4
(c)  Medium and Time of Payment	B-4
(d)  Term of Option	B-4
(e)  Termination of Employment; Change in Status	B-4
(f)  Designation of Beneficiary	B-5
(g)  Nontransferability	B-5

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	PAGE
(h)  Changes In Capital Structure	B-5
(i)  Rights as a Shareholder	B-6
(j)  Investment Purpose	B-6
(k)  Adjustment in Number of Shares Exercisable	B-6
(l)  Delivery	B-6
(m)  Registration and Listing of Shares	B-6
(n)  Other Provisions	B-6
10.      COMPLIANCE WITH RULE 16B-3	B-7
11.      INDEMNIFICATION OF COMMITTEE	B-7
12.      AMENDMENT OR TERMINATION OF PLAN	B-7
13.      EFFECTIVE DATE OF PLAN	B-7
14.      ABSENCE OF RIGHTS	B-7
15.      APPLICATION OF FUNDS	B-8
16.      MISCELLANEOUS	B-8
(a)  Provisions of Plan Binding	B-8
(b)  Employment	B-8
(c)  Applicable Law	B-8

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AMENDED AND RESTATED PENNSYLVANIA REAL ESTATE INVESTMENT

TRUST EMPLOYEE SHARE PURCHASE PLAN

(EFFECTIVE AS OF APRIL 1, 1999,

AMENDED AND RESTATED AS OF JUNE 3, 2010)

1. PURPOSE

The Pennsylvania Real Estate Investment Trust (the “Trust”) adopted this Amended and Restated Employee Share Purchase Plan (the “Plan”) in order to encourage share ownership by all eligible employees by providing them the opportunity to acquire a proprietary interest (or increase their proprietary interest) in the Trust. Prior to the effective date of Amendment No. 2 to the Plan, it was intended that options issued pursuant to the Plan would constitute options issued pursuant to an “employee stock purchase plan,” within the meaning of ss.423 of the Internal Revenue Code of 1986, as amended (the “Code”). Immediately prior to the effectiveness of Amendment No. 2, there were only three employees eligible to participate in the Plan (each of whom has consented to Amendment No. 2) and there were more than 120 participants in the Pennsylvania Real Estate Investment Trust Non-Qualified Employee Stock Purchase Plan (the “Non-Qualified Plan”). No shares remain available under the Non-Qualified Plan and more than 50,000 shares are currently available under the Plan. In order to afford employees of PREIT Services, LLC (“Services”) an opportunity to continue to purchase Shares (as hereinafter defined) at the option price determined under Section 9(b), the Plan is amended to eliminate the requirement that participants be employees of either the Trust or a subsidiary corporation, thereby permitting employees of Services and any other designated entity to participate. It is recognized that, prospectively from the effective date of Amendment No. 2, the Plan will cease to be an “employee stock purchase plan” within the meaning of ss. 423 of the Code. The Executive Compensation and Human Resources Committee of the Board of Trustees of the Trust (the “Committee”) may, from time to time, approve participation in the Plan by employees of any designated entity controlled, directly or indirectly, by the Trust.

2. ADMINISTRATION

The Plan shall be administered by the Committee. Acts approved by a majority of the Committee at which a quorum is present, or acts without a meeting reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee. Each member of the Committee, while serving as such, shall be deemed to be acting in his or her capacity as a trustee of the Trust.

The Committee shall have full and final authority, in its discretion but subject to the express provisions of the Plan: (i) to interpret the Plan; (ii) to make, amend, and rescind rules and regulations relating to the Plan; (iii) to determine the terms and provisions of the instruments by which options shall be evidenced; and (iv) to make all other determinations necessary or advisable for the administration of the Plan. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted hereunder. Any and all authority of the Committee may be delegated by the Committee to a plan administrator.

3. ELIGIBILITY

(a) General Rule. Except as provided in paragraph (b)  below and subject to ss. 9(e), each employee of the Trust, Services or a designated entity who has been employed by the Trust, Services or a designated entity for at least six months shall be eligible for option grants described in ss. 5.

(b) Exceptions. An employee will not be eligible to participate in the Plan if he or she is customarily employed by the Trust or a designated subsidiary corporation for 20 hours or less per week or if he or she is customarily employed by the Trust or a designated subsidiary corporation for not more than five months in any calendar year. In addition, in no event may an employee be granted an option if such employee, immediately after the options granted, would own shares possessing five percent or more of the total combined voting power or value of all classes of shares of the Trust or its parent corporation (if any) or of a subsidiary corporation (if

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any) then outstanding. For purposes of determining share ownership under this paragraph(b), the rules of ss.424(d) of the Code (relating to attribution of share ownership) shall apply, and shares which the employee may purchase under outstanding options shall be treated as shares owned by the employee.

4. SHARES

The shares subject to the options as provided herein shall be shares of beneficial interest in the Trust, par value $1.00 per share (“Shares”). The aggregate number of Shares that may be issued under options shall not exceed 332,000; provided that such number shall be adjusted if required by ss.9(h). Shares issuable under the Plan may be authorized but unissued shares or reacquired shares, and the Trust may purchase shares required for this purpose, from time to time, if it deems such purchase to be advisable.

5. GRANT OF OPTION

(a) Grant of Option. Employees shall have the right to purchase Shares under options granted as of January  1, 1999 (or, in the Committee’s discretion, as soon as administratively practicable thereafter) and as of each subsequent January  1 (the “Grant Dates”). Each employee who meets the eligibility requirements of ss.3 shall be granted an option on the first Grant Date coinciding with or immediately following the date he or she becomes an eligible employee, and on each succeeding Grant Date, provided he or she continues to meet the eligibility requirements of ss.3. The term of the options (the “Option Term”) shall be 12 calendar months (from January 1 to December  31). Commencing on the effective date of Amendment No. 2, options granted as of January 1, 2009 under the Non-Qualified Plan shall be deemed to have been granted hereunder.

(b) Purchase Periods. Each Option Term shall contain four three-month Purchase Periods (January-March, April-June, July-September, and October-December).

(c) Number of Shares Purchasable Under Option. Subject to the limitation in paragraph (d) below, at the beginning of each Option Term each eligible employee shall be granted an option, exercisable in installments at the end of each Purchase Period during such Option Term, to purchase up to a number of Shares equal to the total of the number of Shares purchasable by the employee for each Purchase Period in the Option Term. The number of Shares purchasable for a Purchase Period shall be determined by dividing the employee’s accumulated payroll deductions (as described in ss.6) for the Purchase Period by the per-share exercise price (determined in accordance with ss.9(b)) of the option installment for such Purchase Period. For example, if an employee makes payroll deductions of $6,000 for a 12-month Option Term ($1,500 for each Purchase Period in the Option Term) and the per-share exercise price for each Purchase Period is $19.55, $20.40, $21.25, and $22.10, respectively, then the number of Shares purchasable by the employee for the Option Term is 286, determined as follows:

$1,500	$1,500	$1,500	$1,500	= 76 + 73 + 70 + 67 = 286
$19.55 +	$20.40 +	$21.25 +	$22.10

Full and fractional Shares shall be purchasable under the Plan. However, in accordance with ss.9(l), no fractional Share certificates shall be issued.

(d) Limitation on Aggregate Number of Shares Purchasable Under Option. Subject to the limitations described in ss.9(m), the aggregate number of full Shares purchasable under an option for an Option Term shall not exceed the lesser of (i) 2,000 (subject to adjustment under ss.9(h)), or (ii) the number determined by dividing $25,000 by the fair market value of a share (as described in ss.9(b)) on the most recent business day before the Grant Date for such Option Term. Further, if the total number of Shares to be purchased on any date in accordance with ss.7(a) exceeds the Shares then available under the Plan (after deduction of all Shares that have been purchased under ss.7(a)), the Committee shall make a pro rata allocation of the Shares remaining available in as nearly a uniform manner as shall be practical and as it shall determine to be equitable.

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6. PARTICIPATION

(a) Payroll Deductions. Subject to rules established by the Committee from time to time, an eligible employee may elect to participate in the Plan by making payroll deductions (as a whole percentage of the employee’s compensation, subject to the limits set forth in paragraph (b)  below) for each Option Term in which the employee is eligible to participate. For purposes of this Plan, “compensation” shall mean the total salary or wages paid to an employee during an Option Term, excluding any commissions, bonuses, overtime, or other extra or incentive pay. Commencing on the effective date of Amendment No. 2, elections made under paragraph (a) of ss. 6 of the Non-Qualified Plan in respect of the Option Term which commenced January  1, 2009 shall be deemed to have been made under paragraph (a) of ss. 6 of the Plan.

(b) Maximum Payroll Deduction. The maximum total payroll deductions for any employee for an Option Term may not exceed 10 percent of the employee’s compensation for the Option Term.

(c) General Assets; Taxes; No Interest. All payroll deductions made for an employee shall be credited to his or her account as of the payday as of which the deduction is made. All payroll deductions shall be held by the Trust (or by a designated subsidiary corporation as agent for the Trust). All such contributions shall be held as part of the general assets of the Trust , and shall not be held in trust or otherwise segregated from the Trust’s general assets. No interest shall be paid or accrued on any such contributions. Each employee’s right to the contributions credited to his or her account shall be that of a general and unsecured creditor of the Trust.

(d) Automatic Refund. The balance credited to the account of an employee automatically shall be refunded in full (without interest) if his or her status as an employee of the Trust and all designated subsidiary corporations terminates for any reason whatsoever during a Purchase Period. Such refunds shall be made as soon as practicable after the Committee has actual notice of any such termination.

(e) Participation after Surrender. Each employee who has satisfied the eligibility requirements of ss.3 but who has elected to surrender all or a portion of his or her option in accordance with ss.8 (or, as described in paragraph (g) below, is deemed to have surrendered his or her option) for an Option Term, shall be granted an option in accordance with ss.5 in subsequent Option Terms, provided the employee continues to meet the eligibility requirements of ss.3. However, such employee must submit a new payroll deduction agreement under paragraph (a) above in order to begin payroll deductions for a subsequent Option Term.

(f) No Contract to Purchase. Electing to make payroll deductions for any Option Term will not constitute a contract to purchase any of the Shares purchasable under an option.

(g) Waiver of Rights. An employee who fails to elect to participate in the Plan for an Option Term in the manner and within the time provided under paragraph (a)  above shall be deemed to have surrendered the option granted to the employee for such Option Term and shall have no further rights under the Plan with respect to such surrendered option.

7. EXERCISE OF OPTION

(a) Method of Exercise. Unless the employee has surrendered his or her option in accordance with ss.8(a) (or is deemed to have surrendered his or her option under ss.6(g)) before the end of a Purchase Period, as of the last business day of the Purchase Period (the “Exercise Date”), the employee will be credited for such number of whole Shares and any fraction of a whole share (computed to the number of decimal places set by the Committee) as his or her accumulated payroll deductions shall be sufficient to pay for, subject to the limitations of ss.5(d).

(b) Tax Withholding. The Trust and each designated subsidiary corporation shall have the right to make such provisions as it deems necessary or appropriate to satisfy any tax laws with respect to purchases of Shares made under this Plan, including (without limitation) by withholding tax amounts from other amounts then payable to an employee.

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(c) Return of Excess Payroll Deductions. Any payroll deductions remaining after the employee exercises an option for an Option Term shall be refunded to the employee.

8. EMPLOYEE’S RIGHT TO SURRENDER OPTION

(a) Surrender of Option. An employee may elect to surrender his or her option during any Purchase Period of an Option Term and withdraw any payroll deductions already made for such Purchase Period under the Plan by giving written notice to the Trust. However, in order for such surrender to be effective for the Purchase Period, the employee’s written notice must be received by the Trust on or before thirty calendar days prior to the end of the Purchase Period. All of such employee’s payroll deductions will be refunded to him or her as soon as practicable after the Trust receives the employee’s notice of withdrawal, and no further payroll deductions will be made from the employee’s pay until the employee completes a new payroll deduction agreement in accordance with ss.6(a) for a subsequent Option Term. As to any option so surrendered, the employee shall have no further right of any nature at any subsequent time.

(b) Effect on Later Participation. An election to surrender an option during a Purchase Period of an Option Term shall preclude the employee from participating in any remaining Purchase Periods of such Option Term, but will not have any effect upon his or her eligibility to participate in the Plan for subsequent Option Terms.

9. TERMS AND CONDITIONS OF OPTIONS

Options granted pursuant to the Plan shall be evidenced by agreements in such form as the Committee shall prescribe, provided that all employees granted such options shall have the same rights and privileges (except as otherwise required by ss.5), and provided further that such options and option agreements shall comply with and be subject to the terms and conditions set forth below.

(a) Employee Notification and Agreement. Employees shall be notified (i) of the requirements they must meet to be granted options under the Plan, (ii) about the terms and conditions of such options, and (iii) that any employee eligible to be granted options under the Plan may request a copy of the Plan. An employee’s agreement to the terms of an option will be evidenced by his or her payroll deduction agreement with the Trust or a subsidiary corporation for an Option Term.

(b) Option Price. The per-share exercise price of an option for each Purchase Period of an Option Term shall be the lesser of (i) 85% of the fair market value of a Share as of the most recent business day before the Grant Date for such Option Term, or (ii) 85% of the fair market value of a Share as of the applicable Exercise Date. In making such determination for a Purchase Period, during such time as the Shares are listed upon an established stock exchange or exchanges, the per share “fair market value” shall be deemed to be the mean between the highest and lowest quoted selling prices on the relevant date. During such time as the Shares are not listed upon an established stock exchange, the per-share fair market value shall be determined by the Committee by a method sanctioned by the Code, or rules and regulations thereunder. The fair market value per share is to be determined in accordance with Treas. Reg. ss.ss.1.421-7 (e) and 20.2031-2. Subject to the foregoing, the Committee in fixing the exercise price shall have full authority and be fully protected in doing so.

(c) Medium and Time of Payment. The exercise price of an option for a Purchase Period shall be payable in United States dollars upon the exercise of the option for such Purchase Period, and shall be payable only by accumulated payroll deductions made in accordance with ss.6.

(d) Term of Option. No option may be exercised after the end of the Option Term in which the option was granted.

(e) Termination of Employment; Change in Status. In the event that an employee ceases to be employed by the Trust and all designated subsidiary corporations as an eligible employee for any reason during the employee’s participation in an Option Term, he or she will be deemed to have surrendered his or her option and his or her

B-4

accumulated payroll deductions shall be refunded in accordance with ss.6(d). Whether an authorized leave of absence for military or governmental service shall constitute termination of employment for the purposes of the Plan shall be determined by the Committee in accordance with applicable law, which determination, unless modified by the Board (in accordance with applicable law), shall be final and conclusive.

(f) Designation of Beneficiary. An eligible employee may designate a beneficiary (i) who shall receive the balance credited to his or her account if the employee dies before the end of a Purchase Period and (ii) who shall receive the Shares, if any, purchased for the employee under this Plan if the employee dies after the end of a Purchase Period but before either the certificate representing such Shares has been delivered to the employee or before such Shares have been credited to a brokerage account maintained for the employee. Such designation may be revised in writing at any time by the employee by filing an amended designation, and his or her revised designation shall be effective at such time as the Committee receives such amended designation. If a deceased employee failed to designate a beneficiary or, if no person so designated survives an employee or, if after checking his or her last known mailing address, the whereabouts of the person so designated are unknown, then the employee’s estate shall be treated as his or her designated beneficiary under this paragraph (g).

(g) Nontransferability. Except as provided in paragraph (g) above, neither payroll deductions made by an employee, nor any rights with regard to the exercise of an option or to receive Shares, nor any rights to a return of payroll deductions under the Plan may be assigned, transferred, pledged, or otherwise disposed of in any way by the employee or by his or her beneficiary. Any such attempted assignment, transfer, pledge, or other disposition shall be without effect. An option may be exercised only by the employee.

(h) Changes In Capital Structure. Subject to any required action by the shareholders, the number of Shares designated in ss.4 and ss.5(d)(i), the number of Shares covered by each outstanding option, and the price per share of each such option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares of the Trust resulting from a subdivision (share-split) or consolidation (reverse-split) of shares or the payment of a share dividend (but only on the Shares) or any other similar change in the capitalization of the Trust, without receipt of consideration by the Trust.

Subject to any required action by the shareholders, if the Trust is not the surviving entity in any merger or consolidation, the Committee, in its discretion may either (i) cause each outstanding option to apply to the securities to which a holder of the number of Shares subject to the option would have been entitled, or (ii) cause each outstanding option to terminate, provided that each employee then holding an option under this Plan shall, in such event, have the right immediately prior to such merger or consolidation, to exercise his or her option to the extent of his or her accumulated payroll deductions. In the event of the dissolution or liquidation of the Trust, the Committee shall cause each outstanding option to terminate, provided that each employee then holding an option under this Plan shall, in such event, have the right immediately prior to such dissolution or liquidation, to exercise his or her option to the extent of his or her accumulated payroll deductions.

In the event of a change in the Shares of the Trust as presently constituted which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be Shares within the meaning of the Plan.

To the extent that the foregoing adjustments relate to shares or securities of the Trust, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.

Except as expressly provided in this paragraph (i), an employee shall have no rights by reason of any subdivision or consolidation of shares of any class, the payment of any share dividend, any other increase or decrease in the number of shares of any class, or any dissolution, liquidation, merger, or consolidation or spin-off of assets or shares of another corporation; and any issue by the Trust of shares of any class, or securities convertible into shares of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the option.

B-5

The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Trust to make adjustments, reclassification, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.

(i) Rights as a Shareholder. An employee shall have no rights as a shareholder with respect to any Shares covered by his or her option until the date the option is exercised in accordance with the terms of the Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities, or other property) or distributions or other rights for which the record date is prior to the date such share have been reflected in the book-entry record maintained by the Share transfer agent or the certificate for such Shares has been delivered, except as provided in paragraph (i) above.

(j) Investment Purpose. Each option under the Plan shall be granted on the condition that the purchases of Shares thereunder shall be for investment purposes and not with a view to resale or distribution, except that in the event the Shares subject to such option are registered under the Securities Act of 1933, as amended (the “Securities Act”), or in the event a resale of such Shares without such registration would otherwise be permissible, such condition shall be inoperative if in the opinion of counsel for the Trust such condition is not required under the Securities Act or any other applicable law, regulation or rule of any governmental agency.

(k) Adjustment in Number of Shares Exercisable. If the aggregate number of Shares to be purchased under options granted under the Plan exceeds the aggregate number of Shares specified in ss.4, the Trust shall make a pro rata allocation of the Shares available for distribution so that the limit of ss.4 is not exceeded, and the balance of payroll deductions made by each participating employee shall be returned to him or her as promptly as possible.

(l) Delivery. A book-entry record of the Shares purchased by each employee shall be maintained by the Trust’s Share transfer agent. Notwithstanding the foregoing, when a refund is made to an employee pursuant to ss.6(d), the employee may leave the Shares in the Plan or may direct that all Shares then held for the employee under the Plan be delivered to him or her. However, (i)  no Share certificate representing a fractional Share shall be delivered to an employee or to an employee and any other person, (ii)  cash equal to the fair market value of an employee’s fractional share shall be distributed (when an employee requests a distribution of certificates for all of the Shares held for him or her) in lieu of such fractional share unless an employee in light of Rule 16b-3 (as described in ss.10) waives his or her right to such cash payment, and (iii)  the Committee shall have the right to charge an employee for registering Shares in the name of the employee and any other person. No employee (or any person who makes a claim for, on behalf of, or in place of an employee) shall have any interest in any Shares under this Plan until they have been reflected in the book-entry record maintained by the Share transfer agent or the certificate for such Shares has been delivered to such person.

(m) Registration and Listing of Shares. If the Trust shall deem it necessary to register under the Securities Act or any other applicable statutes any Shares purchased under this Plan, or to qualify any such Shares for an exemption from any such statutes, the Trust shall take such action at its own expense. If Shares are listed on any national securities exchange at the time any Shares are purchased hereunder, the Trust shall make prompt application for the listing on such national share exchange of such Shares, at its own expense. Purchases of Shares hereunder shall be postponed as necessary pending any such action.

(n) Other Provisions. The option agreements authorized under the Plan shall contain such other provisions as the Committee shall deem advisable, provided that no such provision may in any way be in conflict with the terms of the Plan.

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10. COMPLIANCE WITH RULE 16B-3

All elections and transactions under this Plan by persons subject to Rule 16b-3, promulgated under ss.16(b) of the Securities Exchange Act of 1934, as amended, or any successor to such Rule, are intended to comply with at least one of the exemptive conditions under such Rule. The Committee shall establish such administrative guidelines to facilitate compliance with at least one such exemptive condition under Rule 16b-3 as the Committee may deem necessary or appropriate. If any provision of this Plan, any administrative guideline, or any act or omission with respect to this Plan (including any act or omission by an employee) fails to satisfy such exemptive condition under Rule 16b-3 or otherwise is inconsistent with such condition, such provision, guideline, or act or omission shall be deemed null and void.

11. INDEMNIFICATION OF COMMITTEE

In addition to such other rights of indemnification as they may have as trustees or as members of the Committee, the members of the Committee shall be indemnified by the Trust against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Trust) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that within 60 days after institution of any such action, suit or proceeding a Committee member shall in writing offer the Trust the opportunity, at its own expense, to handle and defend the same.

12. AMENDMENT OR TERMINATION OF PLAN

The Committee may, to the extent permitted by law, from time to time, with respect to any Shares, including those Shares subject to options that may be exercised in the Purchase Period in which the action occurs, suspend, discontinue, revise, or amend the Plan in any respect whatsoever. Notwithstanding any other provision of this Plan, the Committee may terminate this Plan at any time after January 1, 2011, upon 10 days notice to employees, by declaring an early end to the Option Term then in effect. In that event, the end of the Purchase Period then in effect will be accelerated to the date designated by the Committee, and all accumulated payroll deductions will be used to purchase Shares in accordance with ss. 7. Furthermore, the Plan may not, without the approval of a majority of the votes cast at a duly held shareholders meeting at which a quorum representing a majority of all shares is, either in person or by proxy, present and voting on the Plan, be amended in any manner that will increase the number of shares subject to the Plan or change the class of employees eligible to receive options under the Plan.

13. EFFECTIVE DATE OF PLAN

In the discretion of the Committee, the Plan was approved by the Board and became effective as of April 1, 1999, was approved by the holders of at least a majority of the Shares present or represented, and entitled to vote, on April 29, 1999, and was amended and restated and approved by shareholders effective June 3, 2010.

14. ABSENCE OF RIGHTS

The granting of an option to a person shall not entitle that person to continued employment by the Trust or a subsidiary corporation or affect the terms and conditions of such employment. The Trust or any subsidiary corporation shall have the absolute right, in its discretion, to terminate an employee’s employment, whether or not such termination may result in a partial or total termination of his or her option under this Plan.

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15. APPLICATION OF FUNDS

The proceeds received by the Trust from the sale of Shares pursuant to options will be used for general corporate purposes.

16. MISCELLANEOUS

(a) Provisions of Plan Binding. The provisions of the Plan shall, in accordance with its terms, be binding upon, and inure to the benefit of, all successors of each employee participating in the Plan, including, without limitation, such employee’s estate and the executors, administrator or trustees thereof, heirs and legatees, and any receiver, trustee in bankruptcy or representative of creditors of such employee.

(b) Employment. The right to participate in this Plan shall not constitute an offer of employment and no election to participate in this Plan shall constitute an employment agreement for an employee. Any such right or election shall have no bearing whatsoever on the employment relationship between an employee and any other person. Finally, no employee shall be induced to participate in this Plan, or shall participate in this Plan, with the expectation that such participation will lead to continued employment.

(c) Applicable Law. Pennsylvania law shall govern all matters relating to this Plan except to the extent it is superseded by federal law.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Ronald Rubin, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2010		/s/ Ronald Rubin
	Name:	Ronald Rubin
	Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Robert F. McCadden, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Pennsylvania Real Estate Investment Trust;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of trustees (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2010		/s/ Robert F. McCadden
	Name:	Robert F. McCadden
	Title:	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

I, Ronald Rubin, the Chief Executive Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Form 10-Q of the Company for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2010		/s/ Ronald Rubin
	Name:	Ronald Rubin
	Title:	Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

I, Robert F. McCadden, the Executive Vice President and Chief Financial Officer of Pennsylvania Real Estate Investment Trust (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) the Form 10-Q of the Company for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Form 10-Q”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2010		/s/ Robert F. McCadden
	Name:	Robert F. McCadden
	Title:	Executive Vice President and Chief Financial Officer