Annual Report 2007 Pennsylvania Real Estate Investment Trust Pennsylvania Real Estate Investment Trust, founded in 1960 and one of the first equity REITs in the U.S., has a primary investment focus on retail shopping malls and power centers. The Company’s retail portfolio is approximately 34 million square feet and consists of 55 properties, including 38 shopping malls, 13 strip and power centers, and four properties under development. The Company’s properties are located in 13 states in the eastern half of the United States, primarily in the Mid-Atlantic region. PREIT is headquartered in Philadelphia, Pennsylvania. The Company’s website can be found at www.preit.com. PREIT’s shares are publicly traded on the NYSE under the symbol PEI. PENNSYLVANIA REAL ESTATE INVESTMENT TRUST FINANCIAL HIGHLIGHTS (in thousands, except per share amounts) Year Ended December 31, 2007 2006 Funds from operations* $ 160,663 $ 148,260 Total real estate revenue $ 459,596 $ 454,878 Income from continuing operations $ 17,283 $ 28,729 Net income $ 23,161 $ 28,021 Net income available to common shareholders $ 28,567 $ 14,408 Income from continuing operations per share–diluted $ 0.57 $ 0.39 Net income per share–diluted $ 0.73 $ 0.37 Investment in real estate, at cost $ 3,367,294 $ 3,132,370 Total assets $ 3,264,074 $ 3,145,609 Distributions paid to common shareholders/unitholders $ 94,057 $ 92,577 Distributions paid per common share $ 2.28 $ 2.28 Number of common shares and OP Units outstanding 41,348 41,244 Total market capitalization $ 3,675,927 $ 3,870,634 * Reconciliation to GAAP can be found on page 14. Cherry Hill Mall Cherry Hill, NJ Redevelopment projects completed in 2006 and 2007 BEAVER VALLEY MALL CAPITAL CITY MALL CUMBERLAND MALL COMPLETED 2007 COMPLETED 2006 COMPLETED 2006 FRANCIS SCOTT KEY MALL LEHIGH VALLEY MALL LYCOMING MALL COMPLETED 2007 COMPLETED 2007 COMPLETED 2006 MAGNOLIA MALL NEW RIVER VALLEY MALL PATRICK HENRY MALL COMPLETED 2007 COMPLETED 2007 COMPLETED 2006 THE MALL AT PRINCE GEORGES VALLEY VIEW MALL VIEWMONT MALL COMPLETED 2006 COMPLETED 2006 COMPLETED 2006 WYOMING VALLEY MALL COMPLETED 2006 From left: Ronald Rubin Chairman and Chief Executive Officer Edward A. Glickman President and Chief Operating Officer To Our Fellow Shareholders, At PREIT, 2007 was a year of great progress. It was a time In particular, we made substantial progress on our three of ribbon cuttings and store openings. Since PREIT’s 2003 largest redevelopment projects at Cherry Hill Mall, Plymouth merger with Crown American and acquisition of the Rouse Meeting Mall, and Voorhees Town Center: properties, our strategy has been to unlock the potential of s !T #HERRY (ILL -ALL WE DELIVERED THE PAD FOR THE NEW our expanded portfolio through creative redevelopment. Our Nordstrom, which is under construction. We added Crate & strategy is proving successful and remains on track. We have Barrel and The Container Store in time for the 2007 holiday already seen the early returns in new tenants, increased traffic, season and signed many other top-tier tenants, including and rising sales at our redeveloped properties. Apple, Armani Exchange, and Hollister Co. These changes The economy entered uncertain times as 2007 came to a are consistent with our goal of elevating the merchandising close. The Company and its shares are not immune from today’s at the South Jersey area’s top shopping destination. economic challenges, but despite these market cycles, PREIT s !T0LYMOUTH-EETING-ALL WESIGNEDLEASESWITH$AVE continues to build value by creating exciting retail destinations. Buster’s and Krazy City, and we are welcoming an out- Transforming Our Portfolio standing group of restaurants, including P.F. Chang’s Across 2006 and 2007, on average, PREIT opened a newly China Bistro, Redstone American Grill, California Pizza redeveloped property every other month. In 2007, redevelop- Kitchen, and Benihana. In May, we broke ground for the ment was completed at five malls and we opened three new centerpiece of the project, a 65,000 square foot Whole power centers. When added to the eight redevelopment proj- Foods Market and 40,000 square feet of lifestyle retail. ects we finished in 2006, we have now completed 13 of the 22 We believe these changes will make this mall the premier properties selected for redevelopment. entertainment destination in an area with very attractive While our accomplishments of 2007 are noteworthy, we demographics. remain focused on the years ahead, the redevelopment projects s !T6OORHEES4OWN#ENTER WECOMPLETEDINTERIORRENOVA- currently underway, and the continued successful transfor- tions of the mall in time for the 2007 holiday shopping mation of our portfolio. We now have nine redevelopment season. We signed leases with Krazy City and The Learn- projects slated for completion in 2008 and 2009, which are ing Experience, a child day care facility. We also executed well underway. a lease with Star Group, an advertising agency, for a 50,000 square foot headquarters office. New construction is underway for 130,000 square feet of street retail space along a new, landscaped boulevard. At the same time, our residential partner has started construction on 425 luxury residential units. Giving Back Grove Park, we added a new Cheesecake Factory along with PREIT’s malls are more than centers of commerce; they White House/Black Market, Sephora, and a two-level H&M. We brought to Moorestown Mall a Hollister Co. and Lane Fur- are centers of community. We take our responsibility niture store, completed the construction of Eastern Mountain to our communities to heart. Across our company and Sports, and started construction on Pei Wei Asian Diner and across our properties, PREIT employees contribute Potbelly Sandwich Works. We also began construction on a countless hours and resources to area charities. They new JCPenney store at Gadsden Mall and a Belk department volunteer for service projects, serve on boards, and store at Wiregrass Commons Mall. lead fundraisers. A Virtuous Circle: Profiting from Redevelopment We recognize that our business is not only built upon Redevelopments attract great tenants. Great tenants bring in more bricks and mortar. We never forget that people are shoppers. This attracts new tenants, creating increased sales the foundation of our success. Commerce happens in and increased rents. This is a virtuous circle of redevelopment. the context of communities. As we open stores in our Our redevelopment projects have helped us attract an out- standing group of top-ranked retailers and restaurants, including malls, we also open our hearts to our communities. 17 first-to-the-portfolio tenants. We signed leases with a long While we are building dynamic retail destinations, list of outstanding brands this year, including aerie, Books- we give back to strengthen the neighborhoods that A-Million, Burlington Coat Factory, Charlotte Russe, Chipotle sustain them. Mexican Grill, David’s Bridal, Garage, Maggiano’s Little Italy, and Pei Wei Asian Diner. The payoffs of this virtuous circle are demonstrable. In 2007, same-store net operating income for the eight properties For a Greener Future redeveloped in 2006 increased by 8.8 percent over the prior In 2007, we formally launched our Green Enterprise year. We already are seeing the positive impact of our 2007 improvements in higher base rent, occupancy, and sales per Initiative to reduce our environmental impact. Towards square foot. this goal, we are focusing our efforts to make changes at our properties, in our business processes and in our Creating New Strategic Options personal lives that encourage environmental sustain- Successful redevelopment often creates new opportunities. For example, PREIT acquired The Mall at Prince Georges for $65 ability. The overall long-term objective of the initiative million in 1998 and invested an additional $35 million to improve is to help create and maintain eco-friendly environ- the merchandise mix in 2000, renovate and add Target in 2004, ments for our shoppers, tenants and employees. and expand in 2006, adding Ross Dress for Less and Marshalls. We began by assessing the Company’s environ- In the decade that we have owned the mall, sales per square mental impact and identifying possible impact-reduc- foot rose from $273 to $422 and in-line occupancy rose from tion measures and their related costs. Our first focus 84 percent to 95 percent. Our enhancements clearly increased the value of the property. As a result, in 2007, we were able to is on finding those areas where we can implement complete a $150 million financing of the property. rapid change with low capital requirements. While During the redevelopment of New River Valley Mall, we we implement these changes, we are analyzing and acquired an adjacent parcel for a new retail power center. We planning for long-term projects requiring more signifi- completed the development of the 164,000 square foot New cant capital investments. River Valley Center to complement the merchandising at our One small step we have taken was to print this mall. Together, this new retail hub delivers a unique mix of retail, education, entertainment and dining with a new Dick’s Sport- Annual Report on recycled paper that is certified by the ing Goods, 14-screen Regal movie theater, Best Buy, Old Navy, Forest Stewardship Council. The environment is in our hands. We believe that together we can make a difference. Aggregate Net Operating Income from thirteen redevelopments $100 $99.5 completed in 2006 and 2007 $93.4 (in millions) $89.3 $ 75 30% $ 50 2005 2006 2007 Panera Bread, Red Robin, and a 23,000 square foot New River Cautious Optimism Valley Community College. The mall’s food court has become As one of the first U.S. equity REITs, PREIT has succeeded in the de facto student center, contributing to its success as well growing its business over nearly half a century.