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Executives

Heather Crowell - VP, Corporate Communications & IR

Joe Coradino - CEO

Bob McCadden - EVP & CFO

Joe Aristone - SVP, Leasing

Mario Ventresca - SVP, Asset Management

Analysts

Pennsylvania Real Estate Investment Trust (PEI) Investor Day 2012 Conference Call November 8, 2012 8:30 AM ET

Heather Crowell

Good morning everyone. Thanks for joining us on a very important day despite the extremely challenging weather we have had as of late. For those of you that don’t know me, I am Heather Crowell, Vice President of Corporate Communications and Investor Relations, new to this role, but I have been with the company for almost nine years. Many of you know that we recently did a perception study, you may have been contacted, just wanted to take a minute to thank you for your contribution if you were contacted.

We are really excited about today, but before I get started, I need to remind you that during this presentation crew will make certain forward-looking statements within the meaning of Federal Securities Law. These statements relates to expectations, beliefs, projections, trends and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company’s SEC filings, statement that PREIT makes today might be accurate only as of today, November 8, 2012 and PREIT makes no undertaking to update any such statements. Also, certain non-GAAP measures will be discussed. PREIT has included a reconciliation of such measures for the comparable GAAP measures in its earnings release and other documents filed with the SEC.

Onto the agenda; so you just saw a part of a virtual tour of some of the properties that we own in the area that you won’t be seeing today. As soon as I sit down you’ll hear from management about the company, our strategic roadmap, implementing our strategy and how we measure our success and its implementation.

After that, we will open it up for Q&A and watch a brief video tour of two of the properties we will be visiting, but won’t be going into today, Plymouth Meeting and Moorestown Mall. Then we will head out for the rejoining of the property tour; we’ll go to Willow Grove featuring the new Nordstrom Rack and JCPenney and Cherry Hill Mall and do driving tours of the others.

After that we will return to the city and those who are rejoining us for dinner will get a preview of dining at Moorestown Mall next year will be like. We will be eating at Osteria’s. As mentioned on our earnings call, we recently signed a lease with Iron Chef Marc Vetri opened Osteria at the Moorestown Mall. The existing location here in Philadelphia was voted one of the 101 best places to eat in the world by Newsweek.

So with that it’s now my pleasure to turn it over to Joe Coradino, PREIT CEO.

Joe Coradino

Thank you, Heather. Heather, as she said is our new VP of Investor Relations, prior to that she was the Director of Asset Management for the Delaware region, our largest contributor to NOI. She was also responsible for putting this together; she is a real talent and someone I hope you get to know. And again, thanks for braving the weather and good morning; I am Joe Coradino, CEO of Pennsylvania Real Estate Investment Trust. Thank you for attending. Thank those of you who participated in the perception study. It gave us some valuable insight into our investor relations communications effort. And that insight was extremely helpful.

Now let me introduce the rest of the PREIT team over here today. Gail Nixon; Gail, our Manager of Investor Relations; Seth Rappaport, our Marketing Manager; I guess Seth is not here this morning; Monique, my assistant; when you call me, so it will be a good idea for you to meet Monique; is very valuable addition to the team. McCadden, our CFO; many of you know Bob; been with PREIT for eight years and prior to that partner with KPMG and prior to that Arthur Andersen. He is highly capable in is impetuous for our transparency.

Andrew Ioannou; Andrew has been with PREIT for 11 years and for most of that time oversaw our banking relationships and played a major role in our capital markets transactions including the two recent preferred offerings. So be with us for the day, so I encourage you to engage him. Bruce Goldman, our General Counsel; Bruce comes to us from Mirage Resorts; held positions and also positions of bearing responsibility with the State of Massachusetts.

Joe Aristone to my left; Joe is the Senior VP of Leasing. He is got all the qualifications of a great leader of a leasing team. He is smart graduated at Dickinson and a competitor who has been with PREIT for 18 years. Mario Ventresca to my far left; been with PREIT for 18 years as well. He served in several capacities here acquisitions, asset management. He is currently the senior VP of Acquisitions and Dispositions and has been dedicated to the disposition of our non-core assets and you have seen an indication of the success of that effort by our 8-K filing today that we signed an agreement, as agreement of sale for Paxton Towne Centre.

Also, it’s worth noting that in your reports and through the perception study several of you indicated that you didn’t know me very well. That will obviously take some time; I do plan to hold at least one investor conference a year and I also plan at being at NAREIT and all the industry functions and be as accessible as I can be.

But in the end let me tell you a little bit about myself. I grew up not too far from here in South Philadelphia. After the Army, I financed my way through college and graduate school. The day I finished graduate school, I went into the shopping center business. I really had been involved in every phase of this business, every stage of this business. In my 30 years at PREIT, I scaled the operations from a small private company with a handful of properties to what it is today.

And prior to taking over as CEO of PREIT, as President of the Management I oversaw over 600 people. But in addition, to that I served for six years on the Board of A.C. Moore. It gave me an opportunity to really see our business from the retailer perspective. While there I Chaired Nominating Governance, served on the Compensation Committee and some of you may be aware that we ended up selling that company and I was actively evolved in taking it private and selling it. So the point is, all this gave me an even better foundation for running a public company such as PREIT.

So you don’t know me, so let me be clear; I am ready willing and able to lead PREIT. I with my colleagues here today have infused a new energy and spirit at PREIT. We want you to leave here feeling that energy and passion and understanding our strategy, that’s our goal for today. So I have been CEO since June 7th, approximately five months. I spent much of that time modifying the company’s capital structure, personnel, systems, properties. We have made a number of significant changes. The organization is different today than it was five months ago. The differences are cultural, structural and operational. We’re addressing leverage, operations and growth. We strongly believe that we have runway in front of us and that we are on the right path.

So given that, we intend to transform PREIT in the next 24 to 36 months to a company that has portfolio of quality A and B malls in the Eastern United States. That can take advantage of opportunities to acquire and develop in our sector; that has leverage below 55%, occupancy at 95% or higher, annual NOI growth of 3$ to 4% and sales north of $400 a square foot. That’s what PREIT will look like; that’s what we intend to have PREIT look like in 24 to 36 months. The company has a long and rich history with a 142 consecutive dividend payments. As only the third CEO, my focus is on continuing that success through improving our balance sheet, operational performance and when appropriate, emphasize when appropriate, growing our platform.

The path forward has been carefully thought through. The focus is to drive NAV and improve shareholder value. There are four pieces to this; balance sheet improvement, operational excellence, elevating portfolio quality, a key piece of this and positioning ourselves for growth.

Much has changed at PREIT since I became CEO. The company has been reorganized. We have reduced staff. We flattened and increased the span of control. We made hires including a 17 year vet, a leasing vet from Simon; (inaudible) leasing VP, former head of partnership marketing at Westfield, so it’s new blood at PREIT. They are transforming to a culture of accountability from a family organization to a performance driven organization. We are focused on driving sales in our portfolio as well as being responsible stewards of capital. We continue to work to rightsizing our G&A in light of the size and scale of the company.

On the operational front, we introduced a new structure that’s designed to increase the accuracy and speed of decision making. The new deal approval process eliminated several layers of decision making is already adding value. You will hear about our portfolio segmentation stratifying our properties and customizing the approach to driving value. Strategic plans for the assets that I have a path to achieve plus $400 of square foot sales will be addressed later today. We believe that’s a significant opportunity for PREIT.

Again, performance driven using ROA as a key metric of success; capital allocation, a controlled process with a thoughtful measured approach. Ancillary revenue opportunities; we think this is an area where we can see significant upside in the near-term. So we completed a SWOT Analysis of PREIT, as you could see on the slide. We looked at our strengths; an overwhelming number of our properties are well located. We have redevelopment expertise from our accomplishments at Cherry Hill Mall to what we have done in some of the secondary markets with Capital City in Harrisburg. Solid demographics with many market dominated assets. We are one of the first to bring Dick’s Whole Foods, etcetera to mature in close mall environment and we do have a regional dominance in Philadelphia; that’s a key aspect of the company’s attraction to retailers.

Our weakness; our leverage is too high, no question. We need to de-risk the company; it’s our high priority and today you saw the first definitive action with Paxton’s agreement of sale. There is more to come. ROA; it’s been going in the wrong direction. We look at every deal based on their contribution to ROA. We intend to reverse the downward trend.

Scale, big is better; that may come later. And finally, we have not done a good job of telling you, our shareholders, our strategy and that changes today. So what are our opportunities, obviously enhanced communication to investors, improve the operation, well underway, you will hear more about that today, drive the core portfolio, so Aristone he is our niche one, he is going to talk about that in detail with you. Dispose of non-core, power centers; again not to be repetitive, but the Paxton announcement is the beginning, more to come.

Challenged assets, Orlando under agreement others in active discussions; driving leverage down, very obvious, the path is clear; we understand and embrace the road to taking this issue off the table. Growing the platform, may take time, but is on our mind. PREIT as upside in front of it; is the message. Certainly, there are threats. The economy, somewhat under control, but currently the economy is moving in the right direction. Delevering; it’s important to be positioned for any downturn which you have heard a number of times as a priority lies.

E-commerce, we have a mall out which is being enhanced to provide an experience similar to online shopping, through a Google search engine. Again, that is an area that requires further and constant monitoring and new ideas which we are focused on. Competition; we are aware and well positioned in our markets. We stay in touch with the retail drivers and tend to be first-to-the-market as opposed to a follower. Department store issues; peers continues to be concern for the industry, every positive sign followed by some kind of a negative sign, so a question mark. JCP, some signs of success, you will see the store later today and get a chance to see the new prototype. I think you will find it interesting. Bon-Ton, I am pleased with the good new leadership there; we are beginning to see some rays of light come out of Bon-Ton and we are optimistic.

So let’s talk about the strategic roadmap, how do we get there? First and foremost again, balance sheet; we are over leveraged, we are determined to enhance the company’s financial position including reducing leverage, extending maturities, exploring the renegotiation of our credit facility. We did complete two preferred offerings in April and October. We are making progress in a non-core asset sales and we are looking at the equity markets and intend to move when the time is right. We intend to move when the time is right. We believe as leverage moves downward, we will see improvements in a number of other areas, including stock price, opportunity for dividend growth and lower average interest rates.

On the operating front, we see continued room for improvement; monetizing our sales growth, driving occupancy course with average sale trending upward of $379 per square foot. Occupancy is moving in a positive direction with progress being made with a goal to achieve 90% in line occupancy by June of 2013; that is an interim goal. Renewal spreads are the same story and you will hear how we are moving in a positive direction as we go through today. I repeat that ancillary income does hold significant opportunity for us and which we have begun to exploit by bringing more new personnel.

Expense recovery is another area focus; Fixed CAM is an initiative that will move to mitigate this problem. And we also continue to emphasize the importance of elevating portfolio quality, as it positively impacts several areas of our business; obviously increases retailer interest and minimizes the need to compromise rents. We are also unique in a number of assets with $400 per square foot potential. You will hear today about portfolio segmentation where we have identified a number of assets that we believe we could drive north of $400 through a remerchandising program. And certainly, we continue to expand our retailer relationships.

Finally, positioning for growth; we have a number of organic opportunities in I’ll be reviewing some specific ones later on in the presentation which are factored into our capital plan. These expenditures are appropriately scaled and add value to the company. We will be cautious and ensure that these decisions are consistent with our overall strategy. Our acquisition program is strategic depending upon investment and scale we may look to JV partners. We continue to believe in the future of a number of our redevelopment assets. Moorestown, Plymouth Meeting, you saw the presentation board, Town Center that continue to have leasing upside.

Regarding our portfolio overview; if one were to look at our geographic footprint our properties are located in solid regional population centers with 76% of our NOI coming from the top MSAs. The portfolio composition again demonstrates the quality of our NOI from an asset quality perspective with 75% of our NOI coming from properties with sales over $300 per square foot. Another factor in the quality of our portfolios is 63% of our assets lie within what we call the Amtrak Corridor, between Connecticut and Richmond. It has a gross regional product of 2.8 trillion which would be equivalent to the fifth largest economy in the world. These are all indicators that demonstrate the strength of the economic environments in which the majority of our properties are located.

But it’s also important to talk about the value of our dominance in Philadelphia to retailers. I think it’s illustrated by the demographics and consumer purchasing that you see on this slide where the Philadelphia region is the sixth highest in apparel spending, the sixth highest in dinning out, the eight highest in total retail spending and it tells the story of how this is a compelling story for retailers who want to come to Philadelphia, who must talk with us. Because we control 45% of the enclosed mall GLA in Philadelphia which has a regional population of over 6 million people. Again, we are a go to for retailers who want to play in the Philadelphia region.

But the mall has evolved; the shoppers time start and time spend in malls continues to decline. The new mall does have not a formulae ex-solution; each one is different and requires a different approach to enhancing the customer appeal; sometimes the combination of shopping, dining and selectively other alternative uses. The creative solutions as you can see from this slide are depended upon the asset.

To be clear, alternative uses is a selective solution involving a small percentage of our assets and comes into play where retail demand is not robust enough to populate the mall particularly in hard-to-lease locations within the mall. This is true for healthcare, office, educational and governmental, not a panacea of selective solution.

Now I would like to turn the dais to over to Bob McCadden to discuss the implementation of our strategy, but I will return later in the presentation.

Bob McCadden

Thanks Joe and I would also like to thank everyone who brave the weather, whatever weather related concerns that you had over the last week or so. And for those, I know we had a number of people who had to cancel it out at the last minute because of those concerns I hope many of them are listening to us on our simulcast.

As Joe said, we are pretty excited about this opportunity to talk to you about the company’s future and to show you some of the great things we have been doing at some of these Philadelphia area properties. The last time many of you visited with us back in 2008, Cherry Hill Mall was in the midst of its redevelopment. The old Strawbridge's store had been demolished; the foundation for the new Nordstrom is put and still is being staged for construction. The common area was ripped apart and it was difficult for many people to visualize what the finished product will look like. Those who haven’t seen, this afternoon we will be visiting the property.

In some respects that redevelopment project is a metaphor for what is happening within the company. With a vision for new PREIT that is in better financial condition, operates more effectively and has a portfolio with better performance metrics than ever before. We have a good foundation upon which to build as Joe mentioned, and getting from here to there we have taken out some old parts, added some new ones, reorganized the decision making and now we are working towards completion. Like any major project, we are likely to experience some change orders as we progress, but in the end I think you will like the finished product.

While a number of you are going to recognize our pace as a public company for a number of years, its worth spending a few minutes reviewing our recent history for those who are new to the story. Start of 2003 the company was a diversified REIT, owning or managing properties in the retail, multi-family and office sectors. In 2003, we made the strategic decision to focus exclusively on the retail sector principally malls and power centers. We acquired a portfolio of middle market malls from Crown American and six Philadelphia area properties from the old Rouse Company prior to its merger with General Growth.

In the late 1990s PREIT-Rubin was managing same sales equity retail portfolio. During that time and the period that followed the company developed deep capabilities and repositioning and redeveloping malls. As a result, following the 2003 acquisitions, the company has started to deploy a value added retail development strategy to selected asses in those portfolios.

A couple of external forces payment at play; in early 2005, Federated now Macy’s announced its intent to acquire the new company. As a result of that merger, duplicate stores were closed or sold leaving us with a number of vacant anchors. You all remember the so called world of capital looking for income producing properties that we all experienced back in the 2005 to 2007 period, companies such as Quarry, Babcock & and Brown and those who were raising money and searching the globe for yield assets that satisfy the needs of an ageing population. Rising asset prices shield by excessive leverage, easy access to bank credit and private equity capital, ultimately led to our economic collapse.

On the ground, we were addressing these external forces. As we were preparing redevelopment plans for some of the recently acquired properties and we are seeking entitlements, rating agencies were telling us they were concerned about our geographic concentration. So in response, we went out and acquired properties in Florida, Alabama and Michigan among other places. At the same time, we were able to strengthen our presence in the Philadelphia market by acquiring Springfield Mall, with Simon and purchasing Cumberland Mall in South Jersey and another part of the galleries in Downtown Philadelphia.

In 2006, our redevelopment program began in earnest and we had and number of redevelopment projects underway at the same time. The projects ranged in size and scope from interior mall renovations costing $5 million or $6 million to the $220 million plus that we spent on transforming Cherry Hill Mall. During this period, we invested over $800 million in renovating or redeveloping over 20 malls in our portfolio.

Like many others, we were obviously impacted by the economic slowdown, the global credit crisis and the great recession. As you can see from the chart, we were just completing some of the early redevelopments when the slowdown occurred and others were in still process. Working with our bank group, we decided to finish what we started and secure more flexible credit terms to accomplish this objective. Lease up of the newly redeveloped properties took longer than expected as tenants reduced their open to buy closed stores following bankruptcy filings and rationalize their operations and store counts. The revenue that we generated from these redevelopments was slower than anticipated for many of these same reasons.

During this period, our leverage position worsened as we financed our capital spending with debt. Recognizing that our balance sheet was an impediment to attracting new equity investors, we have worked to improve our overall financial health. We didn’t take any dramatic steps, but reduced leverage in a measured thoughtful way. Here is how we approached it. We have been able to reduce leverage by selling assets and raise equity capital to mitigate the near term financial risks for the company. We have refinanced a number of assets reducing interest rates and lengthening the maturities of our mortgages. We have improved our liquidity position by reducing balances on our credit facility.

I will cover this in more detail, but let me first illustrate the path we have taken. In March of 2010, our leverage reached its peak; based on the better growth asset value basis leverage was at 71%. A quarter later, we went out and did our most recent equity offering raising a $150 million on 10.3 million shares and that began the progress down of reducing leverage.

In September that same year, we generated a $135 million from the sale of the power centers, one thing to note is that during our development period the power centers that we sold in 2010 included four that we developed in the 2006 to 2008 time period, so we saw that as an opportunity to recycle capital back into our core businesses and reduce leverage.

Earlier this year, we sold Series A preferred shares at 8.25% and last month we completed the sale of Series B preferred shares at 7.375%. As Joe mentioned and Mario will talk about later, we had the sale of a number of power centers and malls that are in process and pending. As a result of that, on a proforma basis just take into account the post quarter end preferred raise and the pending sales of the power centers we bring our leverage back to that 50%. For those of you who like to look at it on a debt to EBITDA basis, you can see we have taken a round trip from just under 8% in 2007we began this journey and we are back slightly over 8 times on a pro forma basis.

Over the last few years we have been active in the debt capital markets. We have been able to obtain attractive financing terms across our asset base from a diverse group of capital providers including commercial banks, insurance companies and in the CMBS market. In 2011, we completed a $160 million of property level financings, generating proceeds of $74 million and lowered the average interest rate by 232 basis points to 4.9%. These financings reduced interest costs by $1.8 million on the original principal balances. This year we completed almost $500 million of property level financings which generated proceeds of a $103 million and lowered the average interest rate by a 129 basis points to 4.25%. The 2012 refinancings reduced our interest costs by an additional $5 million.

Our 2012 financings also provided the benefit of extended maturities and the average maturities on our mortgage debt increased by 1.8 years to 5.2 years as of September 30th. In the near term, the company faces little refinancing risk. In fact, we faced no mortgage maturities until June of 2013. We are pleased to take advantage of the favorable debt capital markets while refinancing those upcoming maturities. Comp store sales of these four properties averaged $381 per square foot, total occupancy averages 96.7% and the assets are currently producing an 11.8% debt yield on NOI.

After discussions with many of our primary lenders, we feel that there is an opportunity to modify the structure, the tenor and the terms of our senior credit facility. Our wish list includes converting the facility from secured to unsecured, extending the term by three to four years and reducing interest rate spreads. We have very strong relationships with our diversified bank group that has supported the company in the past and we look forward to the opportunity to work with them again. A shift back to an unsecured structure will also help the company begin to re-grow its unencumbered asset pool and open up additional capital sources in the unsecured debt market.

Our liquidity position is stronger than it’s been in the past five years, with our full $250 million of borrowing capacity available to us. Our near term capital requirements are relatively modest and led to recent spending levels. Recurring CapEx and tenant allowances are expected to run $30 million and $40 million per annum. Historically, these expenditures have been funded from our operating cash flows. Our in process development projects will require approximately $20 million or $30 million to complete. As Joe mentioned, any future capital commitments, new projects or acquisitions will be carefully evaluated.

Earlier this year we increased our dividend by 6.7% to $0.15 a quarter reflecting our improved outlook for the company. PREIT continues to maintain conservative payout ratios or we remain cognizant of the need to reduce leverage as we make improvements in the company’s cash flows, we expect to pass on a portion of those cash flows to our shareholders thorough increased common dividend. We recognize that many of our retail shareholders are focused on their dividends. We will carefully assess our ability to increase the quarterly payout while balancing our deleveraging objective and other investment opportunities. Over the long-term, we are targeting an AFFO payout ratio in the 60% to mid 70% range.

Where do we go from here? As Joe mentioned, we are currently marketing three of our wholly owned power centers, Paxton, which we announced today is under agreement, Christiana and the Commons at Magnolia. We also are marketing four non-core mall properties, Orlando Fashion Square, Phillipsburg Mall, North Hanover and Chambersburg Mall. We believe the market has grabbed little value to the long tier of our portfolio due to lack of market comps, to the extent that the market can establish a value for the B minus C class properties investors will be able to more fairly value our portfolio in our view. Mario Ventresca is going to talk to you about our efforts in this area in a few minutes.

We expect that additional delevering can be achieved through organic growth coupled with the natural amortization of debt maturities overtime. Joe Aristone will follow me and present the key initiatives we have to increase NOI in our portfolio. The company also has an opportunity to monetize its non-retail assets by selling a portion of its land holdings. We expect this to be a longer term proposition given the current sales demand for new development parcels. In addition, we expect to issue common equity in the future, ought to focus on taking the necessary steps to maximize value for our existing shareholders.

In summary, we are taking a deliberate and thoughtful approach to delevering the balance sheet. We are opportunistically assessing the capital markets and selling non-core assets where we believe the pricing is the most efficient for us. We are working to see that the share price reflect these efforts ten-fold and we will continue to assess the need for additional equity with respect to our potential growth prospects.

I want to wrap it up and turn the podium over to Joe Aristone, our Senior Vice President of Leasing and Joe’s presentation will provide an overview of initiatives underway to improve our operating performance and key metrics.

Joe Aristone

Thank you, Bob. I am pleased to discuss our operational focus with you today. Comp store sales hit $379 per square foot at the end of the third quarter with six properties reporting sales of over $400 per square foot. Increased sales have led to compressed occupancy cost on a relative basis presenting both an obvious area and need of improvement and an opportunity to increase rental revenue to keep pace with increased sales productivity.

We are deploying a more multi pronged approach to achieving higher occupancy costs. Fundamental improvements in the mall retail sector continues to pave the way for new national tenants to be able to pay higher rents. Disposing the non-core malls with low productivity would allow us for more aggressive portfolio pricing with national tenants as we continue to remove the negative leverage associated with maintaining weaker stores.

Additionally, continued improvement in the mall sector allows for pushing for more rental negotiations, in every instance we are reviewing tenants gross rents, occupancy and sales productivity against peer category and mall performance, outliers and productivity and failure to close bid as rental gap tabs and will continue to result in replacing underperforming tenants. Finally, as I will detail later, expirations of higher productivity malls should result in increased renewal spreads further improving this occupancy cost metric.

Recent progress in non-anchor mall occupancy which increased to 88.5% in the third quarter further bolsters our competitive transactional landscape. We have also recruited and hired a number of new leasing representatives with significant small shop leasing experience. The average years of experience for our group of 17 leasing representative is 16 years and their respective resumes we were like who is who in the shopping center industry.

With an overall increase of national open device, we have capitalized on significant tenant expansions with tenants such as Forever 21, Apple, Pottery Barn, North Face and Crazy 8 to name a few. Further, we have executed a number of first portfolio transactions with both domestic based retailers such as Henri Bendel and Charming Charlie as well as international retailers such as Cotton On. We are currently in negotiations with a number of international retailers as we further enhance the offerings and occupancy in our core portfolio. 55% of near-term expirations are in our premier and core portfolio and we are properly positioned to take advantage of near-term renewals.

With seven consecutive quarters of positive renewal spreads, we have demonstrated consistent positive results in terms of renewal deliverables. The combination of improved market conditions and renewal exposure in better assets provides a platform for continued improvement in this area. Historically, ancillary income which by definition is specialty leasing, sponsorship marketing and commercial income has represented approximately 6.75% of net operating income. We recently hired a former head of sponsorship marketing for major mall which Joe mentioned and believe that we will be able to push this revenue line to 7.5% of NOI overtime resulting in an additional $2.3 million of revenue.

Most of our property level expenses are fixed with contracted rate increases. We have outsourced housekeeping and maintenance, security and landscaping and are contracted with a single provider for trash hauling. Two major areas of focus on cost cutting are being pursued in realty taxes and electricity procurement. We review our assets annually for tax appeal opportunities and currently have three major appeals underway. We have taken advantage of buying opportunities for electricity in 60 regulated markets where we own properties. In 2012, our purchasing initiative reduced operating cost by approximately $2 million.

On the revenue side, we implemented Fixed CAM earlier this year. Fixed CAM provides many benefits that stand to enhance our competitive edge, some of the benefits include simple buying lease negotiations and consequently decrease the negotiating time, establishing certainty around tenant annual CAM contributions and improving collection efforts by eliminating access CAM billings. Normally reducing times also reducing time setting up complex billing formulas and establishing predictable increases. Our target annual increase is 5% and we have already converted several major retailers to Fixed CAM.

This is how we think about our portfolio. We view our portfolio in four distinct categories based on existing performance, asset quality and potential for future growth. Premier; these are the properties which have already undergone a major expansion of redevelopment. The upside in these properties will be harvested through higher renewal spreads and through optimization of merchant nexus. The fixed assets in this category include Cherry Hill, Lehigh, Woodland, Jacksonville, Dartmouth and Willow Grove Park. Scales productivity ranges from $415 per square foot to just under $640 per square foot. Later, I will be further discussing three of the malls in this segmentation Cherry Hill, Woodland and Jacksonville.

Core growth; this category of properties is comprised of dominant properties located in secondary markets and regional malls in major markets that can be benefit from targeted remerchandising strategies focused on increasing national brands. Opportunistic, these properties will be elevated, evaluated for opportunities to create value similar to the core growth properties, and will reposition as sale candidates to the extent that we cannot secure tenant interest. Non-core, these are the assets that we are currently marketing for sale that do not fit in with our portfolio standards.

Drilling down further into the premier segment, combined these six assets contribute $87.4 million of our total NOI or approximately 30%. Comp sales for the six assets are impressive $538 per square foot. Sales growth has outpaced growth rent increases providing a significant opportunity to increase NOI through tenant upgrades and real estates.

I will now dwell deeper into the few of the premier properties. By all accounts, Cherry Hill is one of the dominant super regional malls in the Philadelphia trade area. Located eight miles east of downtown Philadelphia, this 1.3 million square foot property gross sales of $639 per square foot with aggregate sales approaching $500 million, including the highest volume Macy’s department store in the entire Philadelphia Metro area.

Nordstrom which opened in 2009 as part of a $220 million transformation had one of the top five sales numbers of all Nordstrom openings in the last decade. This award winning redevelopment included the addition of Bistro Row. The mall continues to pull from a densely populated fashion oriented demographic and has clearly has become the premier fashion destination for South Jersey. I hope you will all agree when you visit this mall today, that not only have we created a retail powerhouse, but it is statically gorgeous and it really speaks to Joe’s vision and execution.

Cherry Hill Mall lays claim to over 30 first to market retailers such as Nordstrom, Michael Kors, Forever 21, Urban Outfitters and North Face as well as a number of first to Philadelphia area tenants, including Grand Lux, Essensuals London, Seasons 52 and Henri Bendel. To give you some sense of the magnitude of this retail powerhouse, there are over 17 non-anchor small shop stores that do over $4 million per year in sales. We continue to push compelling retailer at Cherry Hill and have a number of new market and destination retail stores that are under construction and/or in negotiation. We have been and we will continue to be selective about our tenant choice and merchandising for this premier asset.

Woodland Mall in Grand Rapids, Western Michigan is located in the regions premier retail hub and one of the busiest intersections in the state with daily traffic counts of over 85,000 cars. With approximately 600,000 people and an average household income of 60,000, Grand Rapids benefits from the growing healthcare, technology and pharmaceutical industries translating into a growth economy with lower unemployment rate. The mall enjoy sales of $529 per square foot; it’s 98% occupied with many exclusive to market retailers such as Apple, J. Crew, Pottery Barn, Barnes & Noble, Forever 21, The North Face and Williams-Sonoma to name a few. Clearly established at the dominant fashion destination in the trade area this is another asset where we have been and will continue to demonstrate a heightened degree of scrutiny in terms of merchandising and tenant retail mix.

Jacksonville Mall which is located in the Eastern part of North Carolina is the only close regional mall within a 50 mile radius. It benefits from the impact of the U.S. Marine Camp Lejeune which has over a 145,000 active and retired military personnel. The economic impact of the camp that deliver $3.5 billion to the region which contributes to Jacksonville’s ranking as 32nd, out of 300 and 66th U.S. metros on per capita income. The mall enjoys sales of $504 per square foot and is 99.6% occupied.

Appropriately merchandized to its core demographics Victoria’s Secret, ULTA, Barnes & Noble and Kay are top performing stores in their respective peer groups with Kay positioned in the top 10% of stores in their entire chain. With a 99% leased center space is at a premium allowing us to now capitalize by maximizing market value for any location at this mall.

It is my pleasure at this time to turn this presentation over to my colleague, Mario Ventresca, who will continue the portfolio segmentation discussion.

Mario Ventresca

Thank you, Joe. The core growth category of assets as Joe had mentioned is comprised of dominant properties located in secondary markets and regional malls in major markets that we believe can benefit from a holistic remerchandising strategy; 18 of our 38 malls or 44% of our NOI falls into this category. Sales productivity is solid at $362 per square foot. These properties are performing well having delivered same-store NOI growth of 2.5% on a rolling 12 basis. Nine of these assets or 50% are currently being evaluated as parts of our strategic planning initiative for remerchandising opportunities.

I would like to highlight some of the core growth assets that have a particularly promising future and should be indicative of what we can deliver in terms of value creation at the balance of this core growth property subset of the portfolio. Capital City Mall is located in the MSA of Pennsylvania State capital of Harrisburg. The asset is positioned outside of the city, outside of the city limits in the affluent west shore suburb of Camp Hill. It’s a large trade area with about 565,000 people having an average household income of nearly $71,000, obviously this compares very favorably to Pennsylvania averages.

This center has historically maintained occupancy rates in the high 90% range and was repositioned in 2006 with the relocation of a food court into an undersized, underperforming theater space, a cosmetic renovation and the addition of some key merchants. The sales volume of $372 per square foot places the asset in the top half of our portfolio and the annual sales growth of 5.7% outpaces our portfolio by an impressive 100 basis points.

Since completing the repositioning, we have successfully expanded the national tenant base that includes the names that you see on the slide Men’s Wear House, Hollister, American Eagle Outfitters, Victoria’s Secret, just to name a few. Currently, we have under construction a 17,000 square foot DSW with an expected opening in the second quarter of 2013. This will be DSW’s only store in the Harrisburg market and will definitely expand our trade area and reach.

The strategy going forward for this center is to capitalize on the relatively high income levels in the surrounding areas by introducing more nationally recognized higher end retailers, higher price points. We believe we can draw the stronger tenant mix with the opening of the DSW who was the mall’s most desired new store and that’s really a regional draw as I mentioned. For up to next several years we intend to replace underperforming tenants that do not fit into the vision of creating the region’s fashion destination with more desirable retailers that can bring in targeted shoppers that are currently leading the market to shopping competition.

Viewmont Mall; we own three market dominant properties in markets to the north of the Philadelphia MSA along Pennsylvania’s northeast extension. Viewmont is a regional enclosed mall in a traditional suburban location outside of Scranton Pennsylvania. While the population is cited, it’s having little to no growth. The growth story with this property is one that is driven by an opportunity to out position the competition. The competitive mall in the market has been struggling to retain tenants in light of the historical underperformance and overweighed lease expiration schedule. This presents an opportunity to bring in additional national retail to our property.

This mall has also maintained historically high occupancy in the upper 90% range and generates comp sales just under $380 per square foot. It is always been a place to shop in the Scranton market and is a stable property that does not need to change its identity. Viewmont’s existing tenant roaster includes a list of merchants typically located in highly productive malls throughout the country. A few merchant categories are under represented at the asset including children’s, better women’s ready to wear, women shoes and sit down dining.

As far as the strategy is concerned, we anticipate that the value to be created in this asset can come from the relocation and right sizing of several existing tenants and adding new retailers in the currently under represented category. We are currently working to bring in a large format first to market tenant that will appeal to the fashion and value conscious shoppers in the region. We believe that the downsizing existing tenants will drive sales per square foot at the center and the replacement of a well located writing where traditional mall retail tenants should create and enhance shopping environment and drive NOI. The addition of another full service sit down dining restaurant is being actively pursued in the currently oversized food court.

Valley Mall, Valley is in Hagerstown, Maryland located in Interstate 81 just South of the Pennsylvania border. The mall serves a dense trade area of almost 500,000, people with an average household income of nearly $64,000. A portion of the population commutes the hour and a half into Washington DC and the extension of the Western Edge of the DC Metro is driving population growth which is forecasted at 5%. The property is performing well currently producing sales of $368 per square foot and has total occupancy of just under 95%. There is an opportunity to significantly improve merchandise at the center as we chose not to renew three underperforming retailers and downsize Old Navy recapturing square footage from remerchandising.

By 2013 we intend to have back build these closings and recaptured Old Navy space by adding new national retail brands to the mall, Body Central, Men’s Wear House and Strawberry to name a few. This will compliment other national retailers listed on the slide and play the large part in the 8.3% NOI improvement we have registered as compared to last year.

As far as the strategy for Valley is concerned, we have recently added two new restaurants Tilted Kilt Café Rio and are negotiating a lease to replace an underperforming regional restaurant with a nationally recognized operator. The strategy calls for the addition of another restaurant at the front of the mall to complete an exterior restaurant plaza. Capitalizing on the recent leasing momentum of the asset, we are working to further improve the tenant mix by releasing a number of key vacancies with fashion merchants and expanding the shoe offerings at the property. There also exists an opportunity to replace merchants that are underperforming mall averages in terms of rents and sales, as their leases expire in 2013.

The opportunistic properties, these opportunistic properties will be evaluated for prospects to create value similar to the core growth properties and we may consider positioning one or more of them for sale if we do not secure tenant interest; 10 properties are currently viewed as opportunistic in nature with sales averaging $269 per square foot. These properties contribute less than 14% of the Trust’s NOI, less than 14%, if you base and evaluation of this category on sales in a vacuum, you may miss an opportunity to create value.

As an example, at a point in 2010 Crossroads Mall in Beckley, West Virginia would have been in this category with sales of $299 per square foot. Since that time, we have increased sales by $67 per square foot or 22% to $366 per square foot by replacing underperforming merchants and capitalizing on the additional customer traffic resulting from our addition of Dick’s sporting goods, PetSmart and Encore shoes.

Voorhees Town Center in and New River Valley are represented in this category based on sales volumes. We believe that they will make the transition into the core properties group with the opening of three new restaurants at Voorhees and the anchor replacements intended to drive productivity at New River Valley.

In certain circumstances, we incorporated non-traditional uses into our mall assets. These were done as Joe said on a targeted basis focusing on assets that were overbuild in nature and focusing on spaces that lend themselves to a non-retail use. Government, education, healthcare and community agencies are uses that we have successfully introduced to the mall environment.

Alternative uses including the office component of market represents only 852,000 square feet of a portfolio that’s north of 33 million square feet, the relatively immaterial 2.6% of our gross leasable area. Couple of examples, Voorhees Town Center, at Voorhees in Southern New Jersey, we sold the condo interest to the township who relocated the municipal building including the township port, zoning, tax collection, construction and permits and records offices with a new facility at our property creating a true downtown environment. The 24,000 square foot new municipal building draws over 100,000 visitors annually bolstering daytime traffic.

At our property in Christiansburg, Virginia we added a 23,000 square foot Community College in space that was formally occupied by a Regal Cinema which we relocated and expanded on a newly created out-parcel of the property. The daytime traffic generated by the educational facility, provided the platform for adding a four unit food court. The college far exceeded their expectation for enrollment. They anticipated 400 full-time students and currently have 1,300 full-time students enrolled. You should note that location of the real estate in the back of the mall in an unanchored corridor would likely remain vacant in the absence of this creative solution.

At Beaver Valley Mall in Monaco, Pennsylvania, we incorporated 48,000 square feet of non-traditional usage. The non-traditional use concept was put in place to address areas of chronic vacancy that you can see on the top side of this plan, in an arguably oversized property. Three of these agencies chose to relocate and expanded the mall versus competing sites, because of the regional accessibility and the amenities offered by the mall such as free parking, security, dining, shopping, DCI Career Institute selected the mall for their only campus in Beaver County with the exact same amenities.

Non-core properties which has been the focus of earlier discussions; we are looking to dispose four non-core mall properties. We announced in our third quarter conference call that we are under contract to fill Orlando Fashion Square. The buyer has posted a non-refundable deposit that’s currently underway with efforts to secure financing and we are working toward a year-end closing. We are in discussions with several perspective buyers for Phillipsburg, North Hanover and Chambersburg Mall.

As Joe mentioned, we executed a purchase and sale agreement on November 6th for Paxton Towne Center, a non-core power center in Harrisburg. We are targeting a year-end closing for that asset well. We are negotiating a contract with the same buyer for Christiana Center in Newark, Delaware and in early 2013 closing on that sale is targeted.

The improvement in metrics from selling the four non-core mall assets is significant. Mall sale per square foot would improve by $10 per square foot to $389 per square foot as a result of the sale. Occupancy for the inline mall space in our portfolio would increase by a full 100 basis points to 89.5%. Total occupancy including the anchors after the sale of the four malls and the power centers would improve by 30 basis points to 93.2%.

I will take off the discussion on the fourth prong of our strategy then turn it over to Joe Coradino who will conclude the presentation. The acquisition of mall assets is an important component of our growth and portfolio improvement strategies. We are focused on the addition of trade area dominant assets located in markets with solid and positively trending demographics. Acquisition candidates could have operating metrics including occupancy and sales performance that are accretive to our portfolio averages.

Near-term opportunities to enhance value through the use of our retailer relationships to facilitate our merchandising are obviously a plus. Acquisition candidates will be trade area dominant, located at retail hubs, provides superior regional acceptability and demonstrates strong anchor performance. We will consider any malls, but we will also pursue opportunities to acquire the dominant assets in the secondary market.

I will now turn the presentation back to our CEO, Joe Coradino to share with you our plans for further positioning the company for growth.

Joe Coradino

Thank you, Mario and Joe and Bob, I appreciate your presentations. In positioning the company for growth, there are several noteworthy organic growth opportunities that we would like to cover with you today. First off, Moorestown Mall for questions. Thank you for listening to our presentation.

Question-and-Answer Session

[No Question-and-Answer Session for this event]

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