Pennsylvania Real Estate Investment Trust

Pennsylvania Real Estate Investment Trust Reports Third Quarter 2009 Results

Wednesday 28 October 2009

Pennsylvania Real Estate Investment Trust Reports Third Quarter 2009 Results

Philadelphia, PA, October 28, 2009 – Pennsylvania Real Estate Investment Trust (NYSE: PEI) today reported results for the quarter and nine months ended September 30, 2009.

Funds From Operations (“FFO”) for the three months ended September 30, 2009 was $29.8 million, or $0.67 per diluted share, compared to $30.9 million, or $0.75 per diluted share, for the three months ended September 30, 2008. For the nine months ended September 30, 2009, FFO was $96.9 million, or $2.29 per diluted share, compared to $99.7 million, or $2.43 per diluted share, for the nine months ended September 30, 2008. Results for the three and nine months ended September 30, 2009 included gains of $4.2 million and $14.0 million, respectively, on extinguishment of $12.0 million and $39.1 million aggregate principal amount of our exchangeable notes, respectively. A description of each non-GAAP financial measure and the related reconciliation to the comparable GAAP measure are located at the end of this press release.

Net Operating Income (“NOI”) for the three months ended September 30, 2009 was $70.5 million, compared to $72.4 million for the three months ended September 30, 2008. NOI for the nine months ended September 30, 2009 was $215.7 million, compared to $222.7 million for the nine months ended September 30, 2008.

Net loss attributable to PREIT for the three months ended September 30, 2009 was $9.6 million, or $0.24 per diluted share, compared to a net loss of $8.5 million, or $0.24 per diluted share, for the three months ended September 30, 2008. For the nine months ended September 30, 2009, net loss was $24.6 million, or $0.66 per diluted share, compared to a net loss of $15.1 million, or $0.43 per diluted share, for the nine months ended September 30, 2008. See below for a description of the primary factors affecting financial results.

Ronald Rubin, Chairman and Chief Executive Officer of the Company, said, “The Company continues to address its near-term debt maturities and liquidity needs. We have agreed upon a term sheet with Wells Fargo Bank, N.A., the lead bank on our line of credit and our term loan. The proposal is subject to review by the members of our bank group, and we look forward to providing more details after this review when the applicable terms are approved. Also, we have sold non-core assets, reduced capital outlays, placed secured debt on a number of properties, and repurchased exchangeable notes.”

Primary Factors Affecting Financial Results

Results for the three months ended September 30, 2009 included:

A $4.2 million gain on extinguishment of debt resulting from the repurchase of $12.0 million in aggregate principal amount of exchangeable notes;
A $3.4 million gain on the sale of Crest Plaza, a strip center in Allentown, Pennsylvania;
Reduced occupancy at our enclosed malls and power centers because of store closings, primarily from bankruptcies that occurred during 2008 and 2009;
Increased interest expense and higher depreciation and amortization as development and redevelopment assets have been placed in service; and
Increased share count that resulted primarily from the issuance of 3.0 million shares in a June 2009 repurchase of exchangeable notes.

Results for the nine months ended September 30, 2009 also included:

An aggregate $14.0 million gain on extinguishment of debt resulting from repurchasing exchangeable notes.

Results for the nine months ended September 30, 2008 included:

A $2.0 million non-cash gain in connection with forward-starting swaps and the applicable hedge accounting treatment.

Effective January 1, 2009, the application of U.S. generally accepted accounting principles resulted in a change in accounting for the Company’s exchangeable notes. As a result, interest expense for the three and nine months ended September 30, 2009 included $0.7 million and $2.2 million of non-cash interest expense, or $0.02 and $0.05 per diluted share, respectively. Additionally, the change was required to be applied retrospectively. As a result, non-cash interest expense for the three and nine months ended September 30, 2008 was higher than amounts previously reported by $0.9 million and $2.6 million, or $0.02 and $0.07 per diluted share, respectively.

Subsequent Events

In October 2009, the Company repurchased $35.0 million in aggregate principal amount of exchangeable notes using 1.3 million common shares and $13.3 million in cash. The Company will recognize a $9.9 million gain on extinguishment of debt in the fourth quarter of 2009.

Also in October 2009, the Company completed the sale of a controlling interest in Northeast Tower Center, a power center in Philadelphia, Pennsylvania. The Company will recognize a gain from the sale of approximately $6.0 million in the fourth quarter of 2009.

Retail Operations

“In recent months, we replaced vacant anchor space at Springfield Mall and Wiregrass Commons Mall with new stores, and added a major tenant at Woodland Mall,” said Joseph Coradino, President of PREIT Services, LLC and PREIT-RUBIN, Inc. “We believe that our aggressive efforts to fill vacant space as quickly as possible, coupled with our focused marketing campaigns, position us to capture shopper interest and spending, and we are looking forward to the upcoming holiday season.”

The following tables set forth information regarding sales per square foot and occupancy in the Company’s retail portfolio:

	Twelve Months Ended:
	September 30, 2009	September 30, 2008
Sales per square foot (1)	$ 335	$ 351
(1) Includes properties in the Company’s portfolio as of the respective dates. Data based on sales reported by tenants leasing 10,000 square feet or less of non-anchor space for at least 24 months.

	Occupancy (1) as of:
	September 30, 2009	September 30, 2008
Retail portfolio weighted average:
Total including anchors	89.4 %	89.9 %
Total excluding anchors	84.6 %	87.8 %
Enclosed malls weighted average:
Total including anchors	88.9 %	88.8 %
Total excluding anchors	83.8 %	86.5 %
Strip/power centers weighted average:	92.3 %	97.0 %
(1) Includes properties owned by partnerships in which we own a 50% interest.

Same store NOI decreased 3.5% to $69.3 million, including $0.3 million in lease termination revenue, for the third quarter of 2009, compared to $71.9 million, including $0.3 million in lease termination revenue, for the third quarter of 2008. For the first nine months of 2009, same store NOI decreased 4.0% to $212.1 million, including $1.8 million in lease termination revenue, compared to $221.0 million, including $2.6 million in lease termination revenue, for the comparable 2008 period. Same store results represent retail properties that the Company owned for the full periods presented.

2009 Outlook

The Company has updated its estimates of net loss per diluted share and FFO per diluted share to include the effects of the gain on extinguishment of debt and related issuance of common shares, and gain on property sales. The current outlook is as follows:

Estimates Per Diluted Share
Net loss attributable to PREIT	$(0.54) - $(0.46)
Gain on property sales	$(0.25)
Depreciation and amortization (includes Company’s proportionate share of unconsolidated properties), net of other adjustments	$ 3.99
Funds From Operations	$ 3.20 - $ 3.28

Conference Call Information

Management has scheduled a conference call for 3:00 p.m. Eastern Time today to review the Company’s third quarter results, market trends, and future outlook. To listen to the call, please dial (877) 941-4774 (domestic) or (480) 629-9760 (international) at least five minutes before the scheduled start time, and provide conference ID number 4168249. Investors can also access the call in a "listen only" mode via the Internet at the Company website, www.preit.com, or at www.viavid.net. Please allow extra time prior to the call to visit the site and download the necessary software to listen to the Internet broadcast. Financial and statistical information expected to be discussed on the call will also be available on the Company’s website.

For interested individuals unable to join the conference call, a replay of the call will be available through November 11, 2009 at (800) 406-7325 (domestic) or (303) 590-3030 (international) (replay reservation number: 4168249). The online archive of the Internet broadcast will be available for 14 days following the call.

About 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. Currently, the Company's portfolio consists of 54 properties, including 38 shopping malls, 13 strip and power centers, and three properties under development. The operating retail properties have a total of approximately 34 million square feet. 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 is publicly traded on the NYSE under the symbol PEI.

Definitions

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations, which is a non-GAAP measure, as income before gains (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. The Company computes Funds From Operations by taking the amount determined pursuant to the NAREIT definition and subtracting dividends on preferred shares (“FFO”)(for periods during which the Company had preferred shares outstanding).

Funds From Operations is a commonly used measure of operating performance and profitability in the REIT industry and we use FFO as a supplemental non-GAAP measure to compare our Company’s performance to that of our industry peers. Similarly, FFO per diluted share 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 as a performance measure for determining bonus amounts earned under certain of our performance-based executive compensation programs. The Company computes FFO in accordance with standards established by NAREIT, less dividends on preferred shares (for periods during which the Company had preferred shares outstanding), which may not be comparable to Funds From Operations 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 the Company. FFO does not include gains or losses on the sale 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 the Company's financial performance, or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available for the Company's cash needs, including its ability to make cash distributions.

The Company believes that net income is the most directly comparable GAAP measurement to FFO. The Company believes 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.

Net operating income ("NOI"), which is a non-GAAP measure, is derived from real estate revenues (determined in accordance with GAAP) minus property operating expenses (determined in accordance with GAAP). Net operating income is a non-GAAP measure. 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 the Company's financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity; nor is it indicative of funds available for the Company's cash needs, including its ability to make cash distributions. The Company believes that net income is the most directly comparable GAAP measurement to net operating income.

The Company believes 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 general and administrative expenses, management company revenues, interest income, interest expense, depreciation and amortization, gains on sales of interests in real estate, other expenses and gain on extinguishment of debt.

Forward Looking Statements

This press release contains 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 PREIT’s 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. More specifically, PREIT’s business might be affected by uncertainties affecting real estate businesses generally as well as the following, among other factors: general economic, financial and political conditions, including credit market conditions, changes in interest rates or the possibility of war or terrorist attacks; the current economic downturn and its effect on PREIT’s existing and potential tenants and their ability to make and meet their obligations to PREIT; PREIT’s continued compliance with the terms of its Credit Facility, and its ability to repay, extend or replace its debt when it matures, including its Credit Facility, which matures in March 2010; changes in local market conditions or other competitive or retail industry factors in the regions where our properties are concentrated; PREIT’s ability to maintain and increase property occupancy and rental rates, and risks relating to development or redevelopment activities, including construction, obtaining entitlements and managing multiple projects simultaneously. Additionally, there can be no assurance that PREIT’s actual results will not differ significantly from the estimates set forth in press releases or other disclosures, or that PREIT’s returns on its developments, redevelopments or acquisitions will be consistent with the estimates outlined in press releases or other disclosures. Investors are also directed to consider the risks and uncertainties discussed in documents PREIT has filed with the Securities and Exchange Commission and, in particular, PREIT's Annual Report on Form 10-K, as amended, for the year ended December 31, 2008. PREIT does not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

** Quarterly supplemental financial and operating **
** information will be available on www.preit.com **

CONTACT:

Robert McCadden

EVP & CFO

(215) 875-0735

Nurit Yaron

VP, Investor Relations

(215) 875-0735

# # #

CONSOLIDATED BALANCE SHEET

September 30, 2008

December 31, 2007

(In thousands, except share and per share amounts)

ASSETS:

INVESTMENTS IN REAL ESTATE, at cost:

Operating properties

$ 3,215,570

$ 3,074,562

Construction in progress

419,533

287,116

Land held for development

5,616

Total investments in real estate

3,640,719

3,367,294

Accumulated depreciation

(486,076)

(401,502)

Net investments in real estate

3,154,643

2,965,792

INVESTMENTS IN PARTNERSHIPS, at equity:

36,130

36,424

OTHER ASSETS:

Cash and cash equivalents

19,452

27,925

Tenant and other receivables (net of allowance for doubtful accounts

of $13,963 and $11,424 at September 30, 2008

and December 31, 2007, respectively)

44,393

49,094

Intangible assets (net of accumulated amortization of $161,863 and

$137,809 at September 30, 2008 and December 31, 2007, respectively)

80,748

104,136

Deferred costs and other assets, net

87,945

80,703

Total assets

$ 3,423,311

$ 3,264,074

LIABILITIES:

Mortgage notes payable

$ 1,680,101

$ 1,643,122

Debt premium on mortgage notes payable

4,623

13,820

Senior Exchangeable notes

287,500

Senior unsecured Credit Facility

380,000

330,000

Senior unsecured term loan

170,000

Distributions in excess of partnership investments

45,982

49,166

Tenants' deposits and deferred rents

17,532

16,213

Accrued expenses and other liabilities

105,058

111,378

Total liabilities

2,690,796

2,451,199

MINORITY INTEREST: (Redemption value $42,193 and $66,560 at September 30, 2008

and December 31, 2007, respectively)

54,366

55,256

SHAREHOLDERS' EQUITY:

Shares of beneficial interest, $1.00 par value per share; 100,000,000 shares

authorized; issued and outstanding 39,397,000 shares at September 30, 2008

and 39,134,000 shares at December 31, 2007

39,397

39,134

Capital contributed in excess of par

827,037

818,966

Accumulated other comprehensive loss

(14,833)

(6,968)

Distributions in excess of net income

(173,452)

(93,513)

Total shareholders' equity

678,149

757,619

Total liabilities, minority interest and shareholders' equity

$ 3,423,311

$ 3,264,074

FUNDS FROM OPERATIONS			Three Months Ended			Nine Months Ended
(In thousands, except per share amounts)			September 30, 2008		September 30, 2007	September 30, 2008	September 30, 2007
Net (loss) income			$ (7,631)	$ 1,499	$ (12,657)	$ 14,458
Adjustments:
Minority interest		(349)	104	(499)	1,575
Dividends on preferred shares		-	(1,134)	-	(7,941)
Redemption of preferred shares		-	13,347	-	13,347
Gain on sales of interests in real estate		-	-	-	(579)
Gain on sale of discontinued operations		-	-	-	(6,699)
Depreciation and amortization:
Wholly owned & consolidated partnerships^(a)	37,766	32,178	109,484	95,275
Unconsolidated partnerships^(a)	1,970	1,714	5,987	5,127
Discontinued operations	-	-	-	215
FUNDS FROM OPERATIONS^(b)			$ 31,756	$ 47,708	$ 102,315	$ 114,778
FUNDS FROM OPERATIONS PER DILUTED SHARE AND OP UNIT			$ 0.77	$ 1.16	$ 2.49	$ 2.79
Weighted average number of shares outstanding			38,840	38,181	38,781	37,219
Weighted average effect of full conversion of OP Units			2,238	2,694	2,239	3,610
Effect of common share equivalents			12	295	18	363
Total weighted average shares outstanding, including OP Units			41,090	41,170	41,038	41,192
a)	Excludes depreciation of non-real estate assets and amortization of deferred financing costs.
b)	Includes the non-cash effect of straight-line rents of $575 and $584 for the third quarter 2008 and 2007, respectively, and
the non-cash effect of straight-line rents of $2,334 and $1,539 for the nine months ended September 30, 2008 and 2007, respectively.
STATEMENTS OF INCOME			Three Months Ended			Nine Months Ended
(In thousands, except per share amounts)			September 30, 2008		September 30, 2007	September 30, 2008	September 30, 2007
REVENUE:
Real estate revenue:
Base rent		$ 73,110	$ 71,547	$ 219,951	$ 213,300
Expense reimbursements		35,477	33,369	103,417	101,028
Percentage rent		1,060	1,289	3,526	4,922
Lease termination revenue		320	690	2,618	1,408
Other real estate revenue		3,718	3,902	10,951	11,330
Total real estate revenue	113,685	110,797	340,463	331,988
Management company revenue		1,181	854	2,992	1,827
Interest and other income		240	535	622	2,323
Total revenue	115,106	112,186	344,077	336,138
EXPENSES:
Property operating expenses:
CAM and real estate tax		(33,577)	(31,620)	(98,846)	(95,116)
Utilities		(7,019)	(6,886)	(19,308)	(19,055)
Other property operating expenses		(7,148)	(5,885)	(19,002)	(16,955)
Total property operating expenses	(47,744)	(44,391)	(137,156)	(131,126)
Depreciation and amortization		(38,435)	(32,743)	(111,455)	(96,970)
Other expenses:
General and administrative expenses		(10,364)	(9,801)	(31,777)	(30,969)
Abandoned project costs, income taxes and other expenses		(311)	(196)	(1,815)	(865)
Total other expenses	(10,675)	(9,997)	(33,592)	(31,834)
Interest expense, net		(28,450)	(24,866)	(80,817)	(72,338)
Total expenses	(125,304)	(111,997)	(363,020)	(332,268)
(Loss) income before equity in income of partnerships,
gains on sales of interests in real estate, minority
interest and discontinued operations		(10,198)	189	(18,943)	3,870
Equity in income of partnerships		2,169	1,148	5,738	3,272
Gain on sales of interests in real estate		-	-	-	579
Gain on sales of non-operating real estate		49	247	49	1,731
(Loss) income before minority interest and discontinued operations			(7,980)	1,584	(13,156)	9,452
Minority interest		349	(103)	499	(884)
(Loss) income from continuing operations			(7,631)	1,481	(12,657)	8,568
Discontinued operations:
Operating results from discontinued operations		-	19	-	(118)
Gain on sale of discontinued operations		-	-	-	6,699
Minority interest		-	(1)	-	(691)
Income from discontinued operations			-	18	-	5,890
Net income			(7,631)	1,499	(12,657)	14,458
Redemption of preferred shares		-	13,347	-	13,347
Dividends on preferred shares		-	(1,134)	-	(7,941)
Net (loss allocable) income available to common shareholders			$ (7,631)	$ 13,712	$ (12,657)	$ 19,864
BASIC (LOSS) EARNINGS PER SHARE
From continuing operations available to common shareholders		$ (0.20)	$ 0.35	$ (0.35)	$ 0.35
From discontinued operations		-	-	-	0.16
TOTAL BASIC (LOSS) EARNINGS PER SHARE			$ (0.20)	$ 0.35	$ (0.35)	$ 0.51
DILUTED (LOSS) EARNINGS PER SHARE
From continuing operations available to common shareholders		$ (0.20)	$ 0.35	$ (0.35)	$ 0.35
From discontinued operations		-	-	-	0.16
TOTAL DILUTED (LOSS) EARNINGS PER SHARE			$ (0.20)	$ 0.35	$ (0.35)	$ 0.51
Weighted average number of shares outstanding for diluted EPS ⁽¹⁾			38,840	38,476	38,781	37,582
⁽¹⁾ For the three and nine month periods ended September 30, 2008, there are net losses allocable to common shareholders from continuing operations, so the effect of common share equivalents is excluded from the calculation of diluted loss per share for these periods.

NET OPERATING INCOME		Three Months Ended			Nine Months Ended
		September 30, 2008		September 30, 2007	September 30, 2008	September 30, 2007
(In thousands)
Net income		$ (7,631)	$ 1,499	$ (12,657)	$ 14,458
Adjustments:
Depreciation and amortization
Wholly owned and consolidated partnerships	38,435	32,743	111,455	96,970
Unconsolidated partnerships	1,970	1,714	5,987	5,127
Discontinued operations	-	-	-	215
Interest expense, net
Wholly owned and consolidated partnerships	28,450	24,866	80,817	72,338
Unconsolidated partnerships	2,351	3,028	7,668	9,208
Discontinued operations	-	-	-	136
Minority interest		(349)	104	(499)	1,575
Gain on sales of interests in real estate		-	-	-	(579)
Gain on sales of non-operating real estate		(49)	(247)	(49)	(1,731)
Gain on sale of discontinued operations		-	-	-	(6,699)
Other expenses		10,675	9,997	33,592	31,834
Management company revenue		(1,181)	(854)	(2,992)	(1,827)
Interest and other income		(240)	(535)	(622)	(2,323)
Property net operating income	$ 72,431	$ 72,315	$ 222,700	$ 218,702
Same store retail properties		$ 71,227	$ 72,255	$ 219,340	$ 218,345
Non-same store properties		1,204	60	3,360	357
Property net operating income	$ 72,431	$ 72,315	$ 222,700	$ 218,702
EQUITY IN INCOME OF PARTNERSHIPS		Three Months Ended			Nine Months Ended
		September 30, 2008		September 30, 2007	September 30, 2008	September 30, 2007
(In thousands)
Gross revenue from real estate		$ 19,143	$ 16,977	$ 56,435	$ 50,542
Expenses:
Property operating expenses	(6,130)	(5,097)	(17,011)	(15,225)
Mortgage interest expense	(4,740)	(6,053)	(15,912)	(18,406)
Depreciation and amortization	(3,975)	(3,303)	(11,799)	(9,881)
Total expenses		(14,845)	(14,453)	(44,722)	(43,512)
Net income from real estate		4,298	2,524	11,713	7,030
Partners' share		(2,068)	(1,262)	(5,788)	(3,515)
Company's share		2,230	1,262	5,925	3,515
Amortization of excess investment		(61)	(114)	(187)	(243)
EQUITY IN INCOME OF PARTNERSHIPS		$ 2,169	$ 1,148	$ 5,738	$ 3,272