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Pennsylvania Real Estate Investment Trust (NYSE:PEI)

Q2 2011 Earnings Call

July 28, 2011 11:00 AM ET

Executives

Ron Rubin – Chairman and CEO

Ed Glickman – President

Bob McCadden – Chief Financial Officer

Joe Coradino – VP, Management Company and Head, Retail Operations

George Rubin – Vice Chairman

Bruce Goldman – General Counsel

Analysts

Craig Schmidt – Bank of America/Merrill Lynch

Nathan Isbee – Stifel, Nicolaus

Quentin Velleley – Citi

Ben Yang – Keefe, Bruyette & Woods

Jeff Lau – Sidoti & Company

Cedrik Lachance – Green Street Advisors

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust Second Quarter 2011 Conference Call. During today’s presentation, all parties will be in a listen only mode. Following the presentation the conference will be opened for question. (Operator Instructions)

This conference is being recorded today, Thursday, July 28, 2011. I would now like to turn the conference over to our host, Mr. Garth Russell with KCSA Strategic Communications. Please go ahead, sir.

Garth Russell

Thank you, [Sonia]. Before turning the call over to management for their prepared remarks, I’d like to state that this conference call will contain certain forward looking statements within the meaning of the federal securities laws. Forward look statements relate to expectations, beliefs, projections, future plans strategies and 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 these forward-looking statements.

PREIT’s business might be affected by uncertainties effecting real estate businesses generally, as well as specific factors discussed in PREIT’s press releases, documents PREIT has filed with the Security and Exchange Commission and in particular PREIT’s annual report on Form 10-K. PREIT does not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

It is now my pleasure to turn the call over to Ron Rubin, Chairman and CEO of PREIT. Ron the floor is yours.

Ron Rubin

Thank you very much, Garth. Welcome to the Pennsylvania Real Estate Investment Trust second quarter 2011 conference call. Joining me on the call today are Ed Glickman, President; Bob McCadden, CFO; and Joe Coradino, Vice President of our Management Company and Head of our Retail Operations. Also in the room today are Vice Chairman, George Rubin; and General Counsel, Bruce Goldman.

Today we will discuss our second quarter results, the status of our current projects and our expectations for the balance of 2011. After we conclude our remarks, as usual, the call will be open for your questions.

As noted in our press release, the company’s progress is being recognized by our shoppers, our tenants and our by our banks. The shoppers are returning to our malls as evidenced by our six consecutive quarter of comp store sales growth.

In addition, new and exciting tenants are joining our properties. We are very pleased with the re-tenanting of the former Strawbridge store at Willow Grove Park and by the exciting line up of tenants joining the streetscape at Voorhees Town Center.

These efforts have been acknowledged by the financial institutions who participated with us during the quarter to modify the company’s credit facility and who have worked with us in a number of property financings on what we consider to be favorable terms.

While comfortable with the trends in sales in an occupancy we understand that the recover continues. However concern still exists, with stable performance consistent with our guidance we are making steady progress in our efforts to strengthen our financial position, also to improve our operational performance and maximize the value of our properties.

To do this we are working to improve our balance sheet, place tenants in our properties, to increase NOI, improve occupancy and generate positive leasing spreads, all as part of our strategy to create long-term value to shareholders.

And with that, I’ll turn the call over to Ed Glickman.

Ed Glickman

Thanks, Ron, and thanks to all of you for joining us on this call. In the second quarter, PREIT continued to show steady progress toward returning to growth as the number of our operating metrics continued their positive momentum.

This quarter was our sixth consecutive quarter of comp sales growth with the same store sales now at $359 per foot, up 4.4% from a year ago. The improvement in sales continues to be broad based to 29 of 38 malls showing increases. We have almost fully return our steps to our peak level of $364 per foot in the second quarter of ‘07.

Portfolio occupancy continues to move forward and we are now at 90.8% overall. In addition, to the progress in occupancy there are a number of fundamental leasing achievements at Philadelphia area properties, which are very positive for the portfolio and point to continued momentum. Joe Coradino will give you the details on these important developments.

While space productivity has improved and demand has stabilized at our middle market assets we’re still in a buyers market, even though our base rent level is up overall, we’re gaining pricing power at these properties remains challenging and restoring our expense recovery margin continues to be our priority. This has slowed our progress towards generating positive same store NOI growth.

With greater clarity in the economic forecast we expect to see additional tenants out for longer lease terms and accept a more traditional expense price model. As our comp store sales and occupancy continue to improve, we have become increasingly reluctant to compromise on economics.

At the same time, we have an above average number of tenants with short-term leases. Many of these tenants are benefited from rent reductions provided during the down turn. This embedded optionality in our portfolio gives us the ability to excel in true recovery but hinders us when many of our tenants are still not in a growth mode.

Below the NOI line we continue to focus on controlling G&A and reducing interest costs. We have reached the point of stability, while we are not there yet the company is in a position to see accelerated growth in a recovering market.

In addition to stability in our operations, our asset base has also remained stable during the quarter. With the exception of a few parcel transactions, we have not sold or acquired assets.

We are watching with interest the developments around the mall portfolios that are in the market. The outcome of these activities will inform our thinking regarding the options that we might have for certain of our own assets.

As we have mentioned previous, there are non-strategic assets that we would like to sell. We continue to expend capital on existing redevelopment activities but we have not launched any additional projects. At the moment, our primary focus continues to be improving the ROI on our in place asset base.

On the right side of the balance sheet we have significantly benefited from the improved climate in the capital market. Closing a very passive, I’m sorry, very positive modification of our credit facility in a number of new mortgages.

Within our credit facility we shifted balances from our term loan to our revolver in order to give us additional financial flexibility. We then used cash on hand and mortgage proceeds to reduce our line of credit improving the efficiency of our balance sheet. Bob McCadden will give you details on these transactions.

Next year we face the maturity of our exchangeable notes and the maturity of our financing on Cherry Hill Mall. We believe that Cherry Hill’s performance has been exceptional and that a refinancing will generate excess proceeds, between these excess proceeds and our line of credit we more than cover the outstanding convertible note balance.

As we have stated previously, our overall objective is to reduce leverage. As we have demonstrated in the past we intend to accomplish this organically through the sale of non-strategic assets and through the capital markets.

We are glad to be in a position where our choice of venue and timing can be solely dependant on the opportunities that we see, so that we can execute the most advantageous transactions possible for our shareholders.

With that, I will turn the call over to Bob McCadden.

Bob McCadden

Thanks Ed. FFO for the quarter was $19 million or $0.33 per diluted share, compared to $19.7 million or $0.37 per diluted share at a comparable prior year period. Last year’s results included $2.6 million of NOI generated by the power centers that were sold in September of 2010 and $2.3 million of write-offs were added to deferred financing costs in connection with the equity offering completed in May of last year. FFO on a per share basis also reflects the additional shares issued in the offering.

Same store NOI excluding lease termination revenues was $65.6 million, down $800,000 from a year ago. NOI in the second quarter was negatively impacted by $600,000 a straight line receivable write-offs related to the Borders planned liquidation, excluding the impact of Borders same store NOI was essentially flat.

As Ed mentioned, we amended our credit facility during the quarter. Changes to the facility include increasing the revolving portion by $100 million, while at the same time reducing the term loan portion by the same amount. We lowered the interest rate on the current basis by 90 basis points and extended the term of the loan by one year.

In the quarter we also refinanced loans on two joint venture power centers, Red Rose and Oxford Valley and extended the maturity date of the loan on Christiana Center by an additional year. Refinancing has lowered the effected of interest rate on the JV financings by an average of 174 basis points and generated excess proceeds of approximately $17 million.

Earlier this month we close the five year $27.7 million loan on 801 Market Street adjacent to the Gallery in Philadelphia and extended by one-year the maturity date of the loan on Paxton Towne Center. We have now addressed all but one of our 2011 loan maturities and we are currently in negotiations for that remaining loan.

Outstanding debt for the quarter, including our share of Parks debt averaged $2.39 billion this year compared to $2.60 billion at last years second quarter, a decrease of $211 million.

Higher interest rates largely offset the favorable benefits from lower average outstanding borrowings. The effective rate on borrowings during 2011’s second quarter was 6.38%, a 36 basis points increase over last year’s rate of 6.03%.

At the end of the quarter 97.3% of our debt was either fixed or swapped to fix. Our bank leverage ratio was 67.55%, a 19 basis point reduction from last year’s ratio.

We’ve reduced debt by over $150 million by June of last year and at the same time improved our liquidity position by $27 million. At the end of June we had $29 million of cash on hand and $179 million available under the revolving portion of our credit facility. We believe that our liquidity position is sufficient to meet all of our near-term capital needs.

Regarding Borders, we started the year with 11 stores in 144,000 square feet. These stores generated annual revenues of $2.1 million. Three stores closed in the first quarter that generated annualized rent of $600,000. We write-off $300,000 of receivables in the first quarter, accelerated the amortization of tenant allowances and leasing commissions totaling $600,000.

As of today, we have eight Borders locations in 94,000 square feet. These stores generate annualized revenues of $1.5 million. In the second quarter we wrote off an additional $600,000 as previously mentioned and accelerated the amortization of another $1 million of unamortized tenant allowances and leasing commissions.

Beside from the lost revenues that will result from the closing in the second half of the year of the remaining Borders stores we don’t expect any further impact from the Border’s liquidation on our financial results.

PREIT’S net loss for the quarter was $18.2 million or $0.34 per share. Regarding our outlook for the balance of 2011, we are revising our expectations for 2011’s operating results. We expect that earnings per diluted share will be a net loss between $0.92 and $0.98. We expect FFO per share to be in the range of $1.59 to $1.65.

As a reminder, during the third quarter of 2011, we anticipate recording $1.7 million of income (inaudible) historical tax credits. We anticipate recording a similar amount in the third quarter of each year through 2014. Our guidance does not contemplate any acquisitions, property sales or capital market transactions other than property financing.

With that, I’ll turn the call over to Joe Coradino.

Joe Coradino

Thanks Bob. In spite of the still unpredictable economic climate, during the second quarter we continue to gain momentum in our portfolio. Several key metrics including occupancy sales and renewal spreads are improving. However, most noteworthy is the execution of several transformative transactions at our redevelopment properties.

During the quarter we opened 231,000 square feet of space with non-anchor occupancy, increasing by 20 basis points over last year to 87.1% and total occupancy remaining flat at 90.8%. We also executed 192,000 square feet of new leases of which 82,000 square feet was previously leased.

We were successful in generating rent increases over prior tenants of 2.2%, despite being impacted by a number of store closings. We were able to drive occupancy and are forecasting another year of positive absorption. We also executed over 90 renewals for 322,000 square feet and increased minimum rent by 2.3% over expiring rent.

On a gross basis rents were down 2.3%, which represents an improvement over last quarters negative 6%. We continue to drive rents on long-term renewals. For renewals executed with terms greater than or equal to five year, renewal spreads were positive 11.8% on a minimum rent basis and positive 6% on a gross rent basis.

We continue to maintain flexibility by renewing selected retailers on a short-term basis until suitable replacements are identified. Renewal leases executed with terms less than five years accounted for a majority of the renewal activity.

Sales in our portfolio continue to improve. Comp sales for the quarter ended at $359 per square foot an increase of 4.4% over the second quarter of 2010 and registering the sixth consecutive quarter of growth.

Sales increased across several sectors, including women’s ready-to-wear jewelry, shoes, discount stores and home furnishing. Retailers leading the back in our portfolio include Victoria’s Secret, Ann Taylor, Abercrombie, Kay Jewelers and Foot Locker. Recently we announced several new and exciting tenant leases that were executed since our last call.

At Willow Grove Park we completed several transactions that will serve to re-merchandise the former Strawbridge’s department store. We signed 180,000 square feet of leases with jcpenney, Nordstrom Rack, Bravo, Forever 21, who will accompany Cheesecake Factory in the former department store box. These additions will continue to draw a broad range of customers, solidify the properties dominance in the trade area and drive revenue and overall occupancy to over 90%.

At Cherry Hill Mall were sales have continued to improve since the redevelopment was completed. We continue to elevate the merchandise offerings to get to a more upscale customer. We executed leases with True Religion and Michael Kors to accompany the new Hugo Boss that opened in April.

We also enhanced the dining options at the property, signing leases for Cheesecake Factory’s Grande Lux Café, which currently has 13 locations nationwide and Bobby Flay’s fast casual burger concept, Bobby’s Burger Palace. These new additions will complement the existing restaurants, Capital Grille, Seasons 52, Maggiano’s, Bahama Breeze and California Pizza Kitchen.

At Voorhees Town Center, we executed new leases for the mixed use streetscape portion of the project with a number of regional tenants. Most notable is Catelli Restaurant Group’s new concept Osteria Duo, featuring Italian-American inspired dishes that have earned Catelli the distinction of being South Jersey’s most award winning restaurant.

We also executed leases with *Spoon Me, Rizzieri Institute for wellness and It’s A Doggie Dog World. In the mall we executed a lease with the fast casual Mexican chain Qdoba. All of these new tenants will be open for business this calendar year and will join Fire Creek Grill and Doghouse Burgers.

We also executed leases with some other exciting retailers including Apricot Lane, Cotton On and Charleston Chocolates at Patrick Henry Mall, Crazy 8 and Texas Roadhouse at Valley View Mall and Body Central at Valley Mall and Bahama Breeze at Christiana Power Center.

We also wanted to address the recent announcement of the Border’s liquidation. Since 2007 we have significantly mitigated our exposure to Borders from 30 stores to 11 stores at the start of this year. Currently, we have eight active stores with two super stores and one small store having closed earlier this year.

One of the locations operations Border’s under a ground lease that was assigned to another developer. We are in discussions for the balance of the locations and we believe that we will mitigate the impact of this bankruptcy.

We are also moving forward on several operational initiatives to control our operating expenses. In addition to actively managing our controllable cap expenses and continuing our real estate tax appeal program. We continue to pursue several energy saving initiatives, including negotiating contracts to procure energy at reduced rates in deregulated states, enrolling our properties in demand response program, seeking rebates where applicable for energy conservation, evaluating the installation of new equipment including LED lighting and co-generation and continuing our efforts to bring solar energy to our New Jersey properties.

We believe all of these initiatives when coupled with the results of our operational platform are positioning us for growth.

With that we are ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Craig Schmidt with Bank of America/Merrill Lynch. Please go ahead.

Craig Schmidt – Bank of America/Merrill Lynch

Thanks. Good morning. I’m looking at the lease rollover schedule and I guess, the heaviest year is 2012, with 522 leases. Is that number higher because of some of the circulation you did in the previous years or does that just happen to fall in that way?

Ron Rubin

No. I think it’s a combination of natural expirations on long-term leases, as well as you mentioned, the result of number of short-term leases.

Craig Schmidt – Bank of America/Merrill Lynch

And does it make any sense try to tackle some of those leases this year or is it more prudent?

Ron Rubin

No. We are in a number of discussions right now with national account portfolios and looking at both ‘11 and ‘12 expirations. Yeah, it does make sense where applicable. But at the same time we’re gauging the improvement in the economy and the improvement in sales is part of this. On retailers where there is significant lift it makes sense to the extent there are ones where there are not significant lift it probably makes sense for us to play the waiting game a little bit.

Craig Schmidt – Bank of America/Merrill Lynch

Okay. Thank you.

Ron Rubin

Thank you.

Operator

Thank you. And our next question is from the line of Nathan Isbee with Stifel, Nicolaus. Please go ahead.

Nathan Isbee – Stifel, Nicolaus

Hi. Good morning. Ed you talked about the lack of pricing power in the middle market malls. Can you talk a little bit more about those malls in general the national retailer’s willingness to lease space in those malls? Last quarter you had mentioned that there was an improvement and but yet looking at your occupancy numbers, especially in the lower tier, you number then lost occupancy year-over-year?

Ed Glickman

Yeah. That is true. As Joe just mentioned we are in the middle of a significant amount of portfolio deals with national tenants. So I think they will some would be determinant of how we do in those properties. We had a lot of short-term leasing coming into this year almost 2 million feet of the portfolio had to be released, had come to term and we’ll likely have another large year next year.

Typically on our plus or minus 14 million feet we would have had about 1.4 million but average to that was stepped up because we had done some short-term leasing. So we have a lot at space in the next six to 12 months in terms of determining in the future of that part of the portfolio.

And I think we have been making a fairly good bet on the recovery of the economy. We’ve been holding out and we’ve been looking for improvement in the deals that we did. Joe why don’t you describe?

Joe Coradino

Nathan there are couple of things. One is there we’re are seeing seasonality involved in that dip but the other thing is that we’re gauging each portfolio transaction based on what the best set of circumstances for us and in some cases we do not want to bargain away the upside for some of our better properties.

You’re seeing a reduction in occupancy because we’re letting tenants close because we anticipate that we can fill them either with specialty leasing tenants or with local and regional tenants at similar kinds of rates and at the same time not bargain away upside. You’ll notice that there is improvement in our better properties, much more lift and so that is part of what is going on. It is a little pragmatic if you will.

Nathan Isbee – Stifel, Nicolaus

Got you. Okay. And what are you going to spend in terms of pre-capital for these Willow Grove deals?

Joe Coradino

Actually, we’re spending just north of $11 million on the total package and it has a double-digit return.

Nathan Isbee – Stifel, Nicolaus

Okay. Thank you.

Operator

Thank you. And our next question is from the line of Quentin Velleley with Citi. Please go ahead.

Quentin Velleley – Citi

Good Morning. And just following on that question on Willow Grove, can you give us the sense that so you are going to spend $11 million. Can you give us the sense of what the incremental NOI would be that you get and sort of what the timing is likely to be for the commencement of the leases?

Ron Rubin

Joe will take.

Joe Coradino

Yeah. In terms of the timing, first off, we do think this is a great transaction for Willow Grove both in terms of the merchandise mix, as well as the fact that it will also drive rents and eliminate a lot of co-tenancy problems in the mall promenade adjacent to the vacant box.

We are expecting that Bravo will open up this year. Nordstrom Rack will open up in April of ‘12 and jcpenney will open up in October of ‘12. Forever 21, we are expecting them to open up prior to holiday this year as well.

So we’ll begin populating that box to a certain extent this year and first quarter. We’ll have to wait for penney’s is taking the lower two levels until ‘12. But in terms of a NOI lift, not something we are prepared to provide at this point.

Ron Rubin

I think we should also point out though, that on top of what Joe just mentioned we had a part of the mall that has been suffering for some time that has been a benefit from the increase in activity and we are hopeful that the mall can start performing more in line with its performance of years ago where it was at the top of our portfolio.

Joe Coradino

If you look at, yeah, if you look at this property historically, it was well above $450 a square foot, going back to its peak in ‘06 when the Strawbridge’s, well, when May Company was acquired by Federated. It started its decline and this month it is about $398. We think the property has the opportunity to be carried among that $500 square foot assets the several that we have in our portfolio.

Quentin Velleley – Citi

Right. And the Forever 21, which is moving from an existing box, if you’ve got another tenant for that space?

Joe Coradino

Not at this time but we’re highly optimistic. It is a great location. It is a second floor space in a relatively good location.

Quentin Velleley – Citi

Okay. And then just lastly, G&A for the quarter was -- the run rate was higher than what we were expecting. I’m just wondering if there was anything one-off in the quarters G&A or whether that is the run rate going forward?

Ed Glickman

Yeah. I think the run rate will be, yeah, a little bit above in our initial earnings guidance we said it will be slightly above where we were in 2010. So you have a little bit of seasonality that takes place. We have ICSE convention at our shareholders meeting.

We also have one of our long-term incentive compensation plans has variable accounting, so depending upon the company’s stock price you do get a little bit of volatility in this case resulting in an increase in the accrual for the incentive compensation because of the stock price performance for the quarter. But we still think that at the end of the year, we will be slightly above where we ended last year.

Quentin Velleley – Citi

Okay. Thank you.

Operator

Thank you. And our next question is from the line of Ben Yang with Keefe, Bruyette & Woods. Please go ahead.

Ben Yang – Keefe, Bruyette & Woods

Yeah. Hi. Good morning. Thanks. You guys have taken some meaningful steps to transform Voorhees Town Center, obviously, including the mixed use and adding some non-traditional tenants. And it is kind of interesting to see that the average rent there is among the highest in the portfolio while the average sales is at the very bottom of the portfolio.

Is this maybe a signal that mixed use can support higher rents than the sales would suggest or is it just a factor of some of the older in place rents being based on higher sales and that maybe the average rents are going to fall as those leases roll?

Ron Rubin

Well, we are certainly optimistic that mixed use will ultimately drive rent levels for retail and we’re seeing, certainly, a significant level of interest in retailers at Voorhees at this point as the residential has come on stream and has achieved occupancy. In terms of what will happen on the rollover, I mean, we’re obviously optimistic on the roll over that we will continue to grow rents.

Our strategy for Voorhees if you will recall with respect to the mall we have concentrated the national retailers on the first level between Boscov’s and Macy’s and brought the Town Hall and we have other royalty users for the second level and the street retail is going to be best-of-breed local. We think that combination with the residential is a combination that is going to be successful at that location.

Ben Yang – Keefe, Bruyette & Woods

Okay. Because it is interesting, you show an occupancy cost of 12.5% there, but if you do the math it looks like on a base rent basis it’s higher than that which kind of is opposite of what I would expected there. Something, I mean, are you including rents kind of non-retail rents in that number? Is there something kind of weird going on there, where is it is not comparable to how you would typically calculate it?

Ed Glickman

Ben we probably have a greater percentage of gross rents at Voorhees, compared to some of the other properties. So it would in fact we didn’t embed the tenant tax component. It is just the form of lease that it is.

Ben Yang – Keefe, Bruyette & Woods

Okay.

Ed Glickman

Yeah. I think the appropriate measure to look at is the occupancy costs that would normalized for all the elements of rent. So you look at an occupancy cost that’s slightly below the company average.

Ben Yang – Keefe, Bruyette & Woods

Okay. I still don’t quite get it, because if you just do the 32, 67of rent divided by the $212 in sales you don’t quite get to something -- you get to something like 15%. But you said 12.5% on the supplemental. So it just seems like there is something kind of odd going on?

Ed Glickman

You have some tenants may not report.

Ben Yang – Keefe, Bruyette & Woods

Okay.

Ed Glickman

You may not have reporting sales.

Ben Yang – Keefe, Bruyette & Woods

Okay. So that’s probably the reason why it doesn’t quite drive with what you would typically expect.

Ed Glickman

That’s true.

Ben Yang – Keefe, Bruyette & Woods

Okay. And then, can you just briefly comment on what is happening in the power and strip center portfolio, basically why the same store and why it fell so much in the quarter because it took looks like average rent actually increased while the total occupancy only fell about 100 basis points.

Ed Glickman

Yeah. That was essentially the impact of Borders…

Ben Yang – Keefe, Bruyette & Woods

Okay.

Ed Glickman

… at Paxton Towne Center.

Ben Yang – Keefe, Bruyette & Woods

Okay.

Ed Glickman

You had to take the hit. It is basically where we took all the hit, substantially all the hit on the quarter, so $600,000 of write-offs at Paxton.

Ben Yang – Keefe, Bruyette & Woods

Okay. Great. Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Jeff Lau with Sidoti & Company. Please go ahead.

Jeff Lau – Sidoti & Company

Good morning. In terms of Nordstrom’s Rack, could you remind me if that’s the first off-retailer kind of discount type tenant you have and if so, are you in any talks with any other types of similar tenants for other assets or locations?

Joe Coradino

Yeah. We think the incorporating off price into a traditional more environment is something we’re looking at across the portfolio. Not prepared to talk about specifics at this point though.

Jeff Lau – Sidoti & Company

Okay. And I guess, in terms of Willow Grove as well, with the addition of the two taking place at Strawbridge’s. How does occupancy look at this -- with the addition of those guys?

Ron Rubin

Well, you take overall occupancy in the property based on there being fully occupied over 90% from around 70%.

Jeff Lau – Sidoti & Company

Okay. Thanks.

Operator

Thank you. And our next question is from the line of Cedrik Lachance with Green Street Advisors. Please go ahead.

Cedrik Lachance – Green Street Advisors

Thanks. And Bob in regards to financing for next year, when you look at Cumberland and Beaver Valley, those are CMBS loans. Do you think that you will be able to use the CMBS market again for these properties?

Bob McCadden

Yeah. I think they (inaudible) CMBS financed properties, obviously it is a very fluid market. We haven’t quite seen the market move down to that level of sales productivity yet, if we did we’d likely have to reduce the amount borrowed under -- on each of those properties.

Cedrik Lachance – Green Street Advisors

Okay. And do you have the financial flexibility at this point to actually reduce the amount borrowed if you were going to use your line of credit to retire some of the converts next year?

Bob McCadden

Yeah. I think as Ed mentioned and I had mentioned that we had done a lot with repositioning in the credit facility to increase our revolving portion. Our current outstanding balance on the credit facility as of today is about $45 million.

So that would leave a significant part available in between the Cherry Hill refinancing that we expect, we’re also expecting some proceeds from the financing we do later this year. I think we’re reasonably well-positioned if we choose to go in that direction.

Cedrik Lachance – Green Street Advisors

Okay. In terms of making use of the equity markets, where are you at in that regard? Do you still contemplate eventually adding to the equity base or is it something that’s really pushed to a much more distant future now?

Ed Glickman

I think our thoughts about the equity market, we’re focused on what is going on with the world economic situation in a more foreign equity market we would like to reduce our leverage as I said before. We are also looking with great interest, what is going on with the sales of some of the malls that are being offered because we would expect to find some liquidity there these sales go well.

And also we are focused on again using excess cash flow from the company we have been watching our capital funding. So we are focused on using our excess cash flow to pay that down as well. So we are totally focused here on the reduction of leverage but we’re going to be opportunistic in viewing what options we have in the market to do that.

Cedrik Lachance – Green Street Advisors

Okay. And then, just a final question. In regards to some of the large capital commitments in the last few years. If you look at Cherry Hill or Plymouth Meeting or Voorhees, what were the returns achieved in these capital deployments. Is it something you’ve been tracking or something you would be able to share, in terms of the yields achieved so far or the IR’s that have been achieved?

Ed Glickman

Sure. We track each one obviously, we don’t publish our individual property level NOI performance but internally we track that NOI and we look at the capital we’re spending and we – it’s very instructive as to what we will spend money on in the future. We’ve learned a number of lessons from the different projects that we have run in the past.

So, yeah, we do track that all the time and we look at our ROI and really focused at this point, given that we’re not as active as we were with deploying new capital, we’re looking at trying to raise that ROI on existing assets.

Cedrik Lachance – Green Street Advisors

Yeah. So in regards to the three properties, I mentioned is there any possibility for you to share some of that ROI?

Ed Glickman

To share it, great, we only hope (inaudible). The ROI data.

Cedrik Lachance – Green Street Advisors

Yeah.

Ed Glickman

Well, that is – that would mean we would start publishing our NOI on individual properties, which we are not intending on doing at this time.

Cedrik Lachance – Green Street Advisors

All right. Okay. Thank you.

Operator

Thank you. There are no further questions at this time. I would now like to turn this call over to Mr. Rubin for closing remarks.

Ron Rubin

Okay. Thank you. Thank you very much all of you for joining us today and for your continued interest in the company. Our next earnings conference call will be in October for our third quarter results. So, thank you again. Have a good day and a good weekend.

Operator

Ladies and gentlemen, this concludes the Pennsylvania Real Estate Investment Trust second quarter 2011 conference call. Thank you for your participation. You may now disconnect.

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