INVESTOR UPDATE Quality Properties in Compelling Markets NOVEMBER 2016 OUR VALUE PROPOSITION Quality Properties in Compelling Markets
Who we are PREIT’s retail portfolio comprises 25 million square feet of carefully curated retail and lifestyle offerings mixed with destination dining and entertainment experiences, located primarily in the eastern U.S. with concentrations in the mid-Atlantic’s top MSAs.
Our progress Since 2012, the company has driven a transformation guided by an emphasis on portfolio quality and balance sheet strength highlighted by disciplined capital expenditures. Where we’re headed Our value-enhancing redevelopment and remerchandising program leads us down a clear path to sales of $500 per square foot and is poised to deliver NOI and NAV growth into the future, leading to continued FFO growth and multiple expansion.
2 OPERATING HIGHLIGHTS Results as of 9.30.16
FFO, as adjusted per share growth (1) 14%
Same Store NOI growth (quarter) 5.2%
Average Quarterly SS NOI growth 4.3%
Average Renewal Spreads YTD 14.8%
Sales PSF/growth $460/+8.5%
Non-Anchor Mall Occupancy % 92.2%
Non-Anchor Mall Leased % 93.7%
(1) Excluding dilution from asset sales
3 STRATEGIC VISION PREIT will continue to enhance its strong platform for growth
$500 psf in sales
More than 60% of NOI generated from top 10 MSAs
Sustained NOI growth greater than 3%
Leverage below 48%
4 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
5 DISPOSITION PROGRAM Overview of impact
$671 million Raised through strategic disposition program since 2012 14 Malls Sold Generating average sales of $274 per square foot
Under Contract Beaver Valley Mall is under Agreement of Sale Listed for Sale Crossroads Mall being marketed for sale as part of ongoing portfolio paring and capital recycling efforts
6 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
7 CYCLE OF IMPROVEMENT
More NOI/Lower Better Portfolio Cap Rate
Value Sales Growth Creation Better Tenants
Improved Shopper Demographics
PREIT currently has $10 million of annualized gross rent in backlog of executed leases 8 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
9 DEPARTMENT STORE EVOLUTION 1985 vs Today
Abraham & Strauss Frederick & Nelson Kaufmann’s Rich’s Bamberger’s Filene’s LS Ayers Robinson-May
Belk Foley’s Lazarus Saks 5th Avenue Bloomingdale’s Gayfer’s Liberty House Sears Bon Marche Gimbel’s Lord & Taylor Sibley’s Boscov’s Goldsmith’s Macy’s Strawbridge & Clothier Boston Store Gottshalks Marshall Field’s The Bon-Ton Bullocks Hechts McRae’s Von Maur Burdines Hess Meier & Frank Wanamaker’s
Carter Hawley Hale Hudson’s Mervyn’s Woodward & Lothorp Caster Knot I. Magnin Neiman Marcus ZCMI Dayton’s JC Penney Nordstrom Dillard’s Jones Store Parisian Famous-Barr Jordan Marsh Pomeroy’s The department store landscape has been evolving continuously for over 30 years
10 DEPARTMENT STORE REPLACEMENTS Opportunity to improve mall traffic
EXPANDING DEPARTMENT STORES
LARGE FORMAT STORES
OFF PRICE MERCHANTS
RESTAURANTS & ENTERTAINMENT
Sales at PREIT’s same store malls have grown by 10% in 3 years, Department stores have declined
11 MACY’S STORE CLOSURES Impact on PREIT
3-5 closures expected as a result of announcement by Macy’s to close 100 stores
OPERATION
Internal task force created with goal of filling boxes in 28 months with following opportunities being pursued: • Off-price luxury retailers and a small format gourmet grocer • Popular Sporting Goods retailer and Outdoor Sportsman shop along with additional specialty retail and restaurant GLA, consistent with existing mall experience • Expanded full-line department store, replacing old location with new in-line space and a fitness facility • Full line department store or large format home furnishings operation • Full line department store moving into new market along with popular off price merchants
12 SUCCESSFUL HISTORY OF REPURPOSING A look at the May Company/Federated (Macy’s Inc) merger
Cherry Hill Mall
Springfield Mall
Willow Grove Park
The Gallery/Fashion Outlets of Philadelphia
13 PROACTIVE SEARS RECAPTURES Methodically reducing exposure
PREIT has methodically reduced exposure to Sears from 29 stores in 2012 to 11 today following 3 additional recaptures
• New-to-portfolio Fashion Department store along with 30,000 sf of space, junior box and polished casual restaurant additions • Popular Sporting Goods retailer long with additional specialty retail GLA • Addition of 2-3 off-price boxes
JUNE 2012 27 Assets Sold (10) Recaptured (6) FUTURE 11
14 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
15 EXPANDING RETAILER RELATIONSHIPS In-demand retailers opting in to PREIT portfolio
New-to-portfolio tenants 5 new locations OPEN 70K sf new prototype stores OPEN signed 1 under construction
Joining Dick’s and Field & New leases executed as New anchors OPEN Stream to replace Sears at part of remerchandising Viewmont Mall Mall at PG
New-to-portfolio dining and entertainment additions
Dining and Entertainment tenants now account for 15% of non-anchor space with room to grow
16 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
17 ACTIVE REDEVELOPMENT PROJECTS Summary
Cost Targeted Stabilized (in millions) Return Year
Fashion Outlets of Philadelphia $152.5-$182.5(1) 8% - 9% 2020
Exton Square Mall $30-$33 9% - 10% 2018
Plymouth Meeting Mall $6.6 - $7.3 8% - 9% 2018
Cumberland Mall $7.5 - $8.3 9% - 10% 2017
Mall at Prince Georges $29.3 8% - 9% 2018
Viewmont Mall $15.8 8% - 9% 2018
(1) PREIT Share of Cost before public financing
18 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA
THE STORY: Spanning three city blocks, the Fashion Outlets of Philadelphia will offer a fusion of outlet retail taking the form of luxury and moderate brands, traditional mall retail, popular flagship retail, destination dining experiences and entertainment offerings. Opening in 2018 with bright, contemporary spaces that will welcome shoppers and reconnect to Market Street with accessible storefronts, sidewalk cafés, a new streetscape, digital signage and graphics, all complementing the existing office space.
THE MARKET: Population 6,302,012 Average HHI $86,507 Average Home Value $288,340 Daytime Population 6,693,353
PROJECT DETAILS Cost $365 million (1) Net Cost $336 million (2) Targeted Return 8%-9% Stabilized Year 2020
(1) JV Cost (2) Net of Grants 19 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA
Federal / City Building
Parking (3150 spaces)
Tourist Attractions
Hospitals
Hotels & Convention Center
Other
FOP & PREIT Offices
20 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA Spring 2018 Grand Re-opening
21 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA
22 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA
23 FASHION OUTLETS OF PHILADELPHIA Philadelphia, PA
24 PHILADELPHIA RISING
% Increase in Millennial Population since 2005
The largest percentage increase in Millennial population among the 10 largest cities in America, according to the Philadelphia Inquirer
Bon Appetit touted Philadelphia as one of ‘America’s Greatest Eating Cities,’ 2016
CBRE reports that there has been a 288% increase in HH making more than $500K in 15 years
Philadelphia ranked #1 among Top 10 Cities Leading the Way in Walkable New Construction, according to Redfin
National Feature Events: Pope’s visit (2015), Democratic National Convention (2016), NFL Draft (2017)
25 PLYMOUTH MEETING MALL Plymouth Meeting, PA THE STORY: Capitalizing on the over 90 million cars passing the center every year and expanding the mall’s trade area to a 2-hour drive time, Plymouth Meeting will become a true destination for visitors. The the addition of LEGOLAND Discovery Center will complement an already unique experience that combines great shopping with destination entertainment, high quality dining and a gourmet grocer. THE MARKET: PROJECT DETAILS Population 1,008,315 Cost $6.6 - $7.3 million Average HHI $92,967 Targeted Return 8%-9% Daytime Population 1,116,568 Stabilized Year 2018
26 FUTURE DENSIFICATION OPPORTUNITY Plymouth Meeting Mall – Plymouth Meeting, PA
27 EXTON SQUARE Exton, PA THE STORY : Located in Chester County, the wealthiest and fastest growing in PA, Exton Square Mall sits at the heart of the area’s retail hub. Noted for its strong line-up of national retailers in a convenient, easy-to-shop setting, the property will see an increase in traffic with the addition of a Whole Foods Market, opening in 2017, and family entertainment destination, Round 1 in December 2016. THE MARKET: Population 522,688 PROJECT DETAILS Average HHI $109,631 Cost $30-$33 million Average Home Value $369,499 Targeted Return 9%-10% Daytime Population 544,048 Stabilized Year 2018
28 CONSTRUCTION STATUS Exton Square – Phase I
29 CUMBERLAND MALL Vineland, NJ
THE STORY: The spring 2015 closure of JC Penney presented the opportunity to upgrade Cumberland Mall. The former anchor box sits at the most visible corner of the property and immediately attracted the attention of retailers looking to relocate to the mall. Dick’s Sporting Goods replaced JC Penney in October 2016. As the only Dick’s Sporting Goods for over 20 miles, the store will drive incremental traffic to the center and solidify its position in the market.
THE MARKET: Population 920,251 Average HHI $79,272 Daytime Population 881,662 PROJECT DETAILS Cost $7.5 - $8.3 million Targeted Return 9% - 10% Stabilized Year 2017
30 MALL AT PRINCE GEORGES Hyattsville, MD
THE STORY Just 2 miles from the University of Maryland and minutes from Washington DC, the Mall at Prince Georges’ position in the market is strengthened by the volume of development immediately surrounding the property – over $1 billion in recent development has occurred in the trade area. A remerchandising program, highlighted by H&M, DSW, ULTA. 73% of the non-anchor space will be updated with new tenants or new store prototypes.
The addition of fast casual restaurants along the exterior of the mall will add to the curb appeal of the property and increase mall traffic.
THE MARKET: Population 1,514,259 Average HHI $86,108 Daytime Population 1,516,634 PROJECT DETAILS Cost $29.3million Targeted Return 8%-9% Stabilized Year 2018
31 MALL AT PRINCE GEORGES Hyattsville, MD
1. Belcrest Plaza: 25 acre redevelopment, 2,675 residential units, multi family/town homes; 2. 3350 at Alterra 283 multi-family units 3. Post Park: $87M mixed use project. 396 high-end apartment homes 4. Kiplinger Property: $73M, 452-unit with 34,200 sf of retail space. 5. The Gateway at University Town Center: $7M addition completed in 2015. 6. Mosaic at Metro: 260 luxury apartments 7. College Park Place: $20M, 156-room Courtyard by Marriot, with retail and apartments 8. University of Maryland Conference Hotel: $150M facility with 300 hotel rooms and 43,000 SF of conference space. 9. Terrapin Row: $8M student housing complex with 1,575+ beds. 10. Landmark College Park: Student housing with 850 beds and 11. The Reserve at College Heights: Single-family luxury homes. 12. M-Square: Largest research park in MD ($500M+ invested). 6,500+ employees. 13. Riverdale Park Station: $250M mixed-use project including county’s first Whole Foods. 14. Arts District at Hyattsville: $213M, award-winning mixed use
32 MALL AT PRINCE GEORGES Hyattsville, MD
Enlivened façade
33 VIEWMONT MALL Scranton, PA
THE STORY : Viewmont Mall has recently been a focus in PREIT's remerchandising strategy. Viewmont's tenancy upgrade, which include the recent addition of Ulta, Buffalo Wild Wings, Forever 21 and Yankee Candle along with new prototypes for several key retailers, set the stage for a second phase of redevelopment.
With property sales soaring, a proactive recapture of the Sears anchor has paved the way for a new combination Dick’s Sporting Goods / Field & Stream store accompanied by a recenltly executed HomeGoods, which will open in Holiday 2017, adding to the mall’s impressive line up of destination, traffic driving tenants.
THE MARKET: Population 380,826 Average HHI $63,020 Daytime Population 381,426 PROJECT DETAILS Cost $15.8 million Targeted Return 8%-9% Stabilized Year 2018
34 ACTIVE REDEVELOPMENT Viewmont Mall – Scranton, PA
35 AN OPTIMISTIC OUTLOOK
1 We’re in the 9th inning of our disposition program
2 We are in the midst of a continuous cycle of improvement
3 Exciting prospects in process for pending Macy’s closures and proactively recaptured Sears boxes
4 Expanding relationships with in-demand retailers
5 Value-creating redevelopments coming to bear in next 18 months
6 A strong, diverse retail environment is emerging
36 INCREASINGLY OMNICHANNEL WORLD
E-tailers are increasingly opening physical stores • Customer acquisition cost savings • Cost effective distribution channel
It was a really humbling discovery to learn that retail stores were going to be one of the core parts of what was originally conceived as a digital-only brand. - Andy Dunn, CEO, Bonobos
Continued emergence of BOPIS (Buy Online, Pick Up in Store) • 61% of retailers worldwide offer the service and 45% of customers have used it. • instant gratification for consumers AND they don’t have to waste time searching for product. • Ancillary purchases
37 EXPANDING RETAILERS Performing retailers are still expanding
38 CAPITAL ALLOCATION PROTOCOL Careful, measured approach
Priority given to A malls and high-quality B’s that are cap rate transformative
Priority given to value enhancing (offensive) projects vs. maintaining (defensive)
Limit number and scope of projects being pursued at any given point
Timing of outlay & balance sheet impact modeled to ensure internal targets are achieved
Predevelopment costs capped
Targeted returns of 200-300 bps over trading cap rate
Minimum leasing thresholds required before commitment is finalized
39 BALANCE SHEET PILLARS Focus on continued improvement
We will continue to reduce leverage through asset sales and NOI growth
We have ample liquidity to complete projects underway and protect us in the event of a downturn
Our debt maturity schedule protects us from disruptions in credit markets
We have limited exposure to variable interest rates
40 CAPITAL SOURCES Options
• Asset Sales
• Power Center JV sale
• Mall JVs
• Recapitalize Preferred
• Construction Loans
41 VALUE CREATION FRAMEWORK Pathway to Driving Shareholder Value
Continue to evaluate all properties and divest when necessary or Portfolio Optimization invest when the opportunity presents itself.
Myopic focus on delivering results that rival the high quality peer set, Performance Priority namely 3%+ SS NOI growth.
The scale of our portfolio provides an opportunity to impact the Executing Growth platform through well - executed Initiatives repositioning projects
Attention to balance sheet is a Measured Capital must with a focus on timing of Allocation spend and risk-adjusted returns.
42 FORWARD LOOKING STATEMENT
This presentation contains certain "forward-looking statements" within the meaning of the federal securities laws. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our current views about future events, achievements or results and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. In particular, our business might be materially and adversely affected by uncertainties affecting real estate businesses generally as well as the following, among other factors: our substantial debt, stated value of preferred shares and our high leverage ratio; constraining leverage, interest and tangible net worth covenants under our 2013 Revolving Facility, our 2014 Term Loans and our 2015 Term Loan; potential losses on impairment of certain long-lived assets, such as real estate, or of intangible assets, such as goodwill, including such losses that we might be required to record in connection with any dispositions of assets; changes to our corporate management team and any resulting modifications to our business strategies; our ability to refinance our existing indebtedness when it matures, on favorable terms or at all; our ability to raise capital, including through the issuance of equity or equity-related securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties or interests in properties, or through other actions; our ability to identify and execute on suitable acquisition opportunities and to integrate acquired properties into our portfolio; our partnerships and joint ventures with third parties to acquire or develop properties; our short- and long-term liquidity position; current economic conditions and their effect on employment, consumer confidence and spending and the corresponding effects on tenant business performance, prospects, solvency and leasing decisions and on our cash flows, and the value and potential impairment of our properties; general economic, financial and political conditions, including credit market conditions, changes in interest rates or unemployment; changes in the retail industry, including consolidation and store closings, particularly among anchor tenants; the effects of online shopping and other uses of technology on our retail tenants; our ability to sell properties that we seek to dispose of or our ability to obtain estimated sale prices; our ability to maintain and increase property occupancy, sales and rental rates, in light of the relatively high number of leases that have expired or are expiring in the next two years; acts of violence at malls, including our properties, or at other similar spaces, and the potential effect on traffic and sales; increases in operating costs that cannot be passed on to tenants; risks relating to development and redevelopment activities which could be subject to delays or other risks and might not yield the returns we anticipate; 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; and potential dilution from any capital raising transactions. 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 our most recent Annual Report on Form 10-K and in any subsequent Quarterly Report on Form 10-Q in the section entitled "Item 1A. Risk Factors." We do not intend to update or revise any forward- looking statements to reflect new information, future events or otherwise.
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