More is in store for PREIT. 2010 was not without its challenges, but we saw signs of an improved economy, increasing consumer confidence, and growing retail sales. Our path is clear as we strive to deliver more for our shareholders, our tenants and our shoppers.

More positive signs

For PREIT, 2010 was a year of solid improvement on a number of fronts, including higher occupancy rates and reduced debt levels. Over the past year, we increased total portfolio occupancy to 91%, as a result of our emphasis on finding new leasing opportunities. The productivity of our retail space also improved, with comparable-store sales at enclosed malls up 4.8% over the previous year, to $350 per square foot.

We took decisive steps during the year to reduce our financial leverage and increase our liquidity. In March 2010, we completed a $670 million refinancing of our maturing credit facility and term loan. We believe the fact that our existing bank group remained with us in the new facility was a noteworthy vote of confidence.

Our next step, in May, was a successful underwritten public equity offering of 10.3 million common shares that raised $161 million. Proceeds were used to repay debt. Then, in September, we completed the sale of five power centers for $135 million. While these were good properties, they didn't fit our growth strategy and we used the net proceeds to further reduce our leverage.

The combined effect of these transactions was to reduce total debt by 13% from 2009 year-end levels and thereby improve our financial flexibility, allowing us to consider new opportunities as they arise. We will continue working to lower our leverage and extend our maturity schedules.

More at the core

Today, we own 49 properties in 13 states concentrated in the Mid-Atlantic region, one of the most densely populated areas of the country. Because commercial real estate is a relationship business, we have taken the time to develop a deep understanding of our customers. We have become familiar with their needs and desires, making changes and improvements to our properties to keep foot traffic flowing through our doors.

Over the past five years, we have redeveloped, renovated or remerchandised malls containing 64% of our mall gross leasable area. This investment infused a new look and feel to many of our properties, creating an inviting shopping experience. Our completed redevelopment projects continue to contribute to improved portfolio performance.

More to lease

Our leasing focus for 2010 centered on filling properties with retail stores, restaurants and other amenities that would draw a broader base of customers and drive revenue for our tenants. To do this, we pursued multiple paths.

At our major malls, we have been working to expand the type of retailers – from national chains, several of which are extending their brands with new concepts, to key local stores.

Our Specialty Leasing program gives entrepreneurs the opportunity to test out new ideas in carts, kiosks and even in-line stores, with short-term leases. Likewise, seasonal merchants can secure space at some of the most established regional malls. The addition of these specialty tenants adds variety and energy to each property.

Our General Managers Leasing Program has performed well beyond our expectations. In its first full year, this program generated 170,000 square feet of leased space. The fact that we made leasing a priority for our GMs, by providing training and development opportunities, led to excellent productivity.

Cherry Hill Mall continues to attract top-tier names, adding one of the first new Disney prototype stores and one of the first 77kids by American Eagle in 2010. Planning is underway to add fashion-forward retailers in 2011 that will further enhance the position of Cherry Hill Mall as a premier shopping destination.

At Woodland Mall, we added The North Face to our list of featured retailers including, Ann Taylor, J. Crew, Forever 21, Barnes & Noble and Williams-Sonoma. The mall hosts Western Michigan's only Apple store, along with one of the top performing JCPenney locations in the region.

More alternatives for space

We have been broadening the concept of malls to include alternative or non-traditional uses. Beyond promoting the mall location as a retail hub, we are introducing complementary uses that bring more people to our properties, in an effort to maximize the value of our assets.

At Voorhees Town Center, we expanded the traditional mall concept to create what is becoming an authentic downtown for Voorhees, N.J., a suburban community close to Philadelphia. What was once the Echelon Mall is now a true town center that includes a renovated two-level mall, an award-winning office building, luxury residences, street retail, restaurants and municipal offices. Voorhees Town Center has become a regional prototype for a mixed-use center, winning awards from the Delaware Valley Smart Growth Alliance and the Delaware Valley Regional Planning Commission.

Several properties now house educational and career space, such as New River Community College at New River Valley Mall and DCI Career Institute at Beaver Valley Mall. In Spring 2011, the Disney Entrepreneur Center will relocate from downtown Orlando to Orlando Fashion Square, providing resources, technology and research tools to small businesses – and a steady flow of daily traffic to the property.

PREIT also transformed empty junior anchor spaces at certain properties into an award-winning concept called Black Rose Antiques and Collectibles, home to dozens of dealers selling unique wares. Three stores are currently open – in South Mall, North Hanover Mall and Washington Crown Center – with additional locations under consideration at other properties.

We also are in discussions to add health care offices at some properties, which would be both a convenient and complementary use of space for customers.

More green options

The kinds of mixed-use properties we envision provide sustainable "green" benefits, reducing the carbon footprint of shoppers who no longer have to drive all over town. Instead, they can find shopping, dining, work, recreation, residences, education and municipal services all in one place.

We continue to address sustainability features within our portfolio. Our rehabilitation of the historic former Strawbridge & Clothier flagship department store and offices at 801 Market Street in Philadelphia, part of The Gallery at Market East, has earned Gold LEED certification from the U.S. Green Building Council. It was one of the first historic buildings in Philadelphia to attain this internationally recognized green building certification.

More in store

We anticipate that in 2011, we will be able to continue building on the positive trends of 2010, particularly our occupancy rates and our profitability. These are key aspects of generating long-term value for shareholders.

At the same time, we're energizing and contributing to the communities where our properties are located. By investing to revitalize assets and dovetailing improvements with high-impact concepts and amenities, our properties are more attractive to tenants and consumers. In addition, with Voorhees Town Center as a model, we're recreating the very role of a community mall, updating the town center of yesteryear for today's busy culture.

We want to thank our Trustee, Rosemarie Greco, for her years of service, providing her insights and guidance to the Company since 1997. She has decided not to seek re-election to the PREIT Board when her term expires on June 2, 2011. She leaves with our deepest respect and sincerest gratitude for her contributions.

As always, we are grateful to our trustees, employees, partners and shareholders. We value your continuing support.

Ronald Rubin
Chairman and Chief Executive Officer

Edward A. Glickman
President and Chief Operating Officer

April 11, 2011