Pennsylvania Real Estate Investment Trust (PEI) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust fourth quarter 2007 earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today February the 26th, 2008.

I will now turn the conference to Mr. Garth Russell of KCFA.

Thank you. Before starting the call today I would like to read the forward-looking statements. This conference call will contain certain forward-looking statements within the meaning of the Federal Securities laws.

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 be different materially from those expressed or implied by the forward-looking statements.

PREIT's business might be affected by uncertainties affecting real estate businesses generally, as well as specific factors discussed in documents PREIT has filed with the Securities and Exchange Commission, and in particular PREIT's Annual Report on Form 10-K for the year ended December 31st, 2006. PREIT does not intend to update or revise any forward-looking statements to reflect new information, future events, or otherwise.

Now I would like to turn the call over to Ron Rubin. Ron, the floor is yours.

Thank you very much. Welcome to the Pennsylvania Real Estate Investment Trust's fourth quarter 2007 investor conference call.

Joining me on the call today are Ed Glickman, President, Bob McCadden, CFO, and Joe Coradino, the Executive Vice President 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 fourth quarter and our full year 2007 results, the status of our current projects, and some of our plans for the future. After we conclude our remarks, the call will be opened for your questions.

Our operating performance in 2007, affected by up to 12 ongoing redevelopment projects was in-line with our announced expectations. The five projects completed during the year are producing strong results. We expect the remaining redevelopments will also perform well, and go a long way towards strengthening our overall portfolio. We all understand that the Company is not immune from the economic challenges facing our country. To-date however, we have not been unduly impacted by store closings or bankruptcies. We are monitoring conditions closely, and working with our tenants, to ensure that they and our customers continue to have good experiences at our properties.

As always, we remain focused on maximizing long term returns for our shareholders, and with that, I will turn the call over to Ed Glickman.

Thanks Ron. As Ron mentioned, our Company is not immune from the cycles of the U.S. economy. The retail development and redevelopment cycle is however measured in years, not in months nor days, and in 2008 we expect to bring to fruition a number of projects that were initiated prior to our entry into this period of uncertainty. In 2008, we focused on completing these long term initiatives including Cherry Hill, Plymouth Meeting, and Voorhees Town Center.

In spite of the fourth quarter slowdown in consumer spending, we had an exceptional year. FFO was $3.90 per diluted share, which was above our guidance of $3.82 to $3.87 provided in October. This positive variance was primarily a result of a payment for our management work on Swansea Mall. In 2007 FFO includes $0.32 from the redemption of our 11% preferred stock. Net of this benefit we would have ended the year at $3.57 per share, a $0.04 decrease from 2006.

This result reflects a decline in the amount of land sales year-to-year, and diminished property performance focused on our assets currently under construction. We mitigated these impacts by higher corporate revenue, lower G&A, and the benefits of capital markets transactions, such as the issuance of our 4-for-10 convert, and the call of our 11% preferred. Indicative of a trend we expect to see continue, funds available for distribution for the year were up to $2.31, bringing our dividend pay-out ratio for 2007 below 100%. As Bob will discuss later, we are focused on conserving our capital, to ensure the completion of our work in progress.

Total NOI for the portfolio for 2007 was $303.4 million, down 0.8% from 305.7 million in 2006. The decrease in NOI reflects the sale of Schuylkill Mall in February of 2007. After adjusting for lease termination income, same store NOI is up 0.4% from $299.8 million in '06, to $301.0 million in '07. NOI performance was improved by growth at our redevelopment properties completed in '06, which were up 8.8% year-to-year. Overall same store performance was brought lower by significant operating declines of Plymouth Meeting Mall and Voorhees Town Center, which have been impacted by major construction, which is going on at those sites.

For the fourth quarter funds from operations was $1.12 per diluted share, compared to $1.25 for the fourth quarter of 2006, a decrease of 10.4%. The decrease in fourth quarter FFO is primarily due to $0.13 that we received in the fourth quarter of '06, from the sale of land at Voorhees Town Center.

For the quarter NOI was 84.7 million, flat. Same store NOI was also flat. Improvements in minimum rent will also decline some percentage rents, and diminished tenant expense recoveries. In the fourth quarter, we experienced some softness in tenant sales, that had an impact on our percentage rent.

Funds available for distribution for the quarter were $0.68, against the $0.57 dividend pay-out. Sale productivity at our properties continued to improve in 2007, with sales per square foot at $358, a $4 increase despite the holiday softness. We have 16 of 39 mall properties performing above $350 per square foot. These properties represent approximately 60% of fourth quarter NOI. During 2007 we executed 606 non-anchor leases for 2.1 million square feet. This is against 684 leases for 2.5 million square feet in the same period in 2006.

At year end 2007, overall mall occupancy was at 90.4%, up 320 basis points from 87.2% at year end 2006. Overall average minimum rent for the mall portfolio was also up at $30.53, a 2% increase from $29.93 in 2006. These higher occupancy and rent levels achieved at year end in '07, reflect the progress that we have made on our redevelopment activities. During 2007 we increased our investment in real estate by approximately $252 million, including $183 million on redevelopment, and $68 million on development. Joe Coradino will discuss our redevelopment work in depth with you in a few moments.

On the development side in 2007, we opened the New River Valley Power Center with Best Buy, Bed, Bath & Beyond, PetSmart, Olive Garden, and Panera Bread. We expect that occupancy will be at 100% when Ross Dress for Less opens next month. We are also under construction at Monroe Marketplace in Selinsgrove, PA, where approximately 70% of the space is spoken for with Target, Giants, Michaels, Dick's, and Staples as key merchants. The first group of stores is expected to open for Holiday 2008.

We are also under construction at our Lacey Township New Jersey, now named Sunrise Plaza. Home Depot opened last October, with Kohl's and Staples expected by Spring '09. At this project we are now 90% committed. Including our continued investment in these development properties, we expect to grow our investment in real estate during 2008 by up to $370 million, by renovating, expanding, and constructing new retail space, of this amount up to $180 million will be spend on our 3 largest mall redevelopment projects, again Cherry Hill, Plymouth Meeting, and Voorhees Town Center.

Now Joe Coradino will provide you with detailed information on each of our redevelopment projects, and Bob McCadden will discuss our capital plans.

Thank you Ed. The year 2007 marked an inflection point for our Company. It was the first time since the Crown American Company and Rouse Property acquisitions, that we began to recognize the impact of the transformation of our portfolio. As an illustration, in 2007 we executed leases with 17 new first of the portfolio tenants, including Cheesecake Factory, Dave & Buster's, Eastern Mountain Sports, Maggiano's, Armani Exchange, Books-A-Million, Aerie, Pei Wei Asian Diner, Chipotle, and Crazy City.

We celebrated major notable pennant additions to our portfolio during '07. We opened three Dick's Sporting Goods at Magnolia, Beaver Valley, and North Hanover Malls, and added expanding retailers, such as Barnes & Noble and Regal Cinema. The redevelopment program continues to generate strong performance. Of the Company's 38 malls, eight redevelopments were completed in '06, five in '07, with nine slated for completion in '08 and '09, representing over 50% of our portfolio.

These projects are creating value within our portfolio. For projects completed in '06, NOI has increased by 8.8%, when comparing '07 to '06. During 2007 we completed redevelopment in the secondary market segment of the portfolio at Beaver Valley, Francis Scott Key, Magnolia, and New River Valley Malls. For 2007 sales growth at these properties increased by 1.9%, to $307 per square foot. This is particularly impressive when considering national retail trends, and recognizing that the redevelopments were not complete for the full year.

In 2007 we announced redevelopment plans and commenced construction in North Hanover and Jacksonville Malls. In 2007 we achieved full entitlement, permitting, and commenced construction in five of our Philadelphia metro area properties, Cherry Hill Mall, Plymouth Meeting Mall, Voorhees Town Center, Willow Grove Park, and Morristown Mall. At Cherry Hill Mall, the demolition of the former Strawbridge's is complete, and we are preparing for a March '08 pad delivered in Nordstroms. In November, we opened the first Crate & Barrel and Container Store locations within our portfolio.

During the quarter, we executed a lease with Apple, and opened Armani Exchange and Hollister. Three premier concepts in keeping with our goal of elevating the merchandising in advance of Nordstrom's opening. In addition to signing Maggiano's, we are finalizing leases with several exciting restaurant concepts for Bistro Row, expanding the dining component at the mall. At Voorhees Town Center, the mall interior renovation was complete for Holiday '07, and construction is under way on Town Center Boulevard, with the first phase of the residential component expected to be complete in Fall of '08.

During '07 we executed a lease with Crazy City, a 19,000 square foot indoor theme park targeted towards preteen, as well as The Learning Experience, a 10,000 square foot child day care facility. However of particular note is the execution of a lease for a 50,000 square foot headquarters office for Star Group, South Jersey's largest advertising agency, for occupancy during the third quarter of '08. Of the 225,000 square feet of total gross leasable area of exterior space within the project, we have letters of intent or executed leases for approximately 50% of the space.

At Plymouth Meeting Mall, tenant construction continues in the out parcels for P.F. Changs and California Pizza Kitchen, both of which are expected to open in April of this year, as well as Redstone Grill and Citibank, which will open in June. Benihana, the last remaining out parcel is expected to open in August. The mall addition including Whole Foods is under construction, and we are working towards a 2008 delivery, most importantly, during the quarter we completed exciting transactions with Dave and Buster's for approximately 30,000 square feet which is under construction, and will open in July, and Crazy City for 23,000 square feet, which is expected to open in the Fall of '08. This will establish the mall as a regional shopping, dining, and entertainment destination.

At Willow Grove Park, Cheesecake Factory opened in the fall of last year, and during the year we opened a 2-level H&M, White House/Black Market, and Sephora in our continuing mall remerchandising efforts. We do expect that Boscov’s here and at North Hanover will open later than previously planned. At Morristown Mall, Lane Furniture opened in September, and construction is under way for turnover to Eastern Mountain Sports during the first quarter.

During the fourth quarter of '07, we opened Hollister, and we are under way with Potbelly Sandwiches on an out parcel location adjacent to Pei Wei Asian Diner, both of which are expected to open in the Summer of '08. All of these additions in conjunction with the facade renovation of the property, will continue to enhance the customer shopping experience, and differentiate the property from nearby Cherry Hill Mall. In 2007, we made great strides in advancing our redevelopment program, developing plans and strategies for two more of our assets, with completion scheduled for '08 and '09.

At Gadsden Mall in Gadsden, Alabama, we are pleased to announce our first new J.C. Penney store in recent history. Construction has commenced on the 85.000 square foot J.C. Penney store, to replace the former 65,000 square foot [dove] store, which relocated into the former McRae's store in August of '07.

The new J.C. Penney store is expected to open in the third quarter of '08. In addition a 15,000 square foot Books-a-Million will be added to the Sears wing of the mall in the fourth quarter of '08. In Wiregrass Commons in Dothan, Alabama, a 24,000 square foot expansion of Belks Department store is under way for completion in the fourth quarter of '08.

Additionally during the fourth quarter, we executed a lease for a new 80,000 square foot Burlington Coat Factory, to replace the vacant McRae's anchor box, which is scheduled to close because of Belk,s acquisition of McRae's. Construction on the Burlington Coat is scheduled to commence in the fourth quarter of '08, and we expect to open the new anchor in the second quarter of '09.

In the first quarter of '08, we executed six new leases representing over 375,000 square feet of space for tenants that will replace Value City anchors, at Chambersburg, Cumberland, Francis Scott Key, Lycoming, and Union Town Malls. At each of these centers, the existing Value City anchors will close by March 31st of '08. At Chambersburg, Lycoming, and Union Town Malls, Burlington Coat Factory will occupy the existing Value City anchor box, and is expected to open in the third quarter of '08.

As Francis Scott Key, Value City Furniture will take approximately 49,000 square feet of the existing Value City anchor, and is expected to open in the third quarter. A new 17,600 square foot DSW will take the remaining square footage from the previous Value City box, and will open in the first quarter of '09. At Cumberland Mall, Burlington Coat Factory will occupy 75,000 square feet of the previous Value City anchor space, and is expected to open in the fourth quarter of '08. We are marketing the remaining 25,000 square feet of space, to potential large format retailers, and projecting an opening in '09.

The total investment for the five mall portfolio of deals executed in the first quarter of '08, including costs associated with the potential large format retailer at Cumberland Mall is $23.9 million, and the initial return on investment is 7.3%. We believe we are well-positioned to continue to grow the Company, in the face of the current retail environment, driven by the success of our redevelopment strategy. We see 2008 as a year of cautious optimism, we plan to capitalize on opportunities from our redevelopments, and look forward to sharing our results with you on future calls.

Now I would like to turn it over to Bob McCadden.

Thanks Joe. For the next few minutes, I will cover our fourth quarter GAAP earnings and operating results, update you on our capital spending and financing plans, and provide our initial FFO guidance and assumptions for calendar year 2008.

Net income available to common shareholders for the fourth quarter of 2007 was $8.7 million, or $0.22 per diluted share. During the fourth quarter of 2006, net income available to common shareholders was $15.6 million, or $0.42 per diluted share. Last year's operating results in the fourth quarter included a $5.1 million land sale gain.

Depreciation and amortization is higher as a result of the additional space commissioned over the past two years. As Ed mentioned, our operating results exceeded the upper end of our guidance range as a result of two events. First, we received a $1.5 million, or $0.04 per share payment, relating to an incentive management fee. We also increased our self-insured general liability reserves as a result of year-end review of our outstanding claims and an estimate of our incurred but not reported incidents.

After giving effect to the portion reimbursable from tenants, FFO was reduced by approximately $0.01 per share due to this event. The fourth quarter also includes a $1.1 million, or $0.03 per share write-off of abandoned projects and bad deal costs, which were contemplated in our earlier guidance. For the full year this amount was $1.5 million, or $0.04 a share. A portion of the additional insurance provision and the other write-offs are included in our G&A expenses in our income statement.

As of December 31st, 2007 we had $2.4 billion of debt outstanding, which represented approximately 60% of our total America capitalization, compared to 50% at September 30. The change results principally from the decline in our share price from September 30, as our debt balance increased by $77 million in the quarter.

We expect our leverage to increase throughout 2008, as we continue to execute our redevelopment plans with high levels of spending on the three large Philadelphia area projects. At December 31st, 2007, fixed rate debt comprised 82% of the Company's indebtedness, including the proportionate share of the debt of our partnerships. Our floating rate debt increased slightly from September 30, 2007, and will vary from period to period, depending upon the timing of our capital spending, and other financing plans.

At the end of 2007 we had borrowed $330 million under our credit facility. After giving effect to amounts required to support letters of credit, we had approximately $153 million of available borrowing capacity. In January of this year, we closed on a $55 million supplemental mortgage loan on Cherry Hill Mall. This 5.51% loan was provided by Prudential and Northwestern Mutual, and will mature in October 2012.

A portion of the proceeds were used to pay down credit facility borrowings, leaving us with $195 million of borrowing capacity as of today. At the end of 2007, our fixed rate debt had an average coupon rate of 5.94%, which represented a 46 basis point reduction, in our average fixed rate debt of 6.38% at the end of last year.

Our press release includes our initial estimate of earnings and FFO for 2008. We expect our net loss per diluted share to be between $0.12 loss and a $0.02 loss. FFO per diluted share is expected to be between $3.60 and $3.70. Key assumptions underlying this guidance includes, excluding lease termination fees in both periods, we expect overall NOI growth of 3 to 4%. This includes the expected full year contribution from our new ground of development projects. Same store NOI growth of 2.5 to 3.5% again excluding lease termination fees.

In 2007 we had lease termination fees of $1.6 million, or approximately $0.04 a share, our 2008 guidance assumes termination fees of 1.5 to $2 million, or $0.04 to $0.05 a share. In 2007 we had gains on sales of nonoperating real estate, including condemnation proceeds totaling $2.5 million, or $0.06 per share. Our 2008 guidance assumes land sales gains of up to $0.01 per share.

Our 2007 bad debt expense was approximately 0.5% of real estate revenues, or $2.6 million on a supplemental basis including our proportionate share of our joint ventures. For 2008, we have increased our estimate by $1 million to 0.7% of real estate revenues, or approximately $3.6 million. Our 2008 guidance also includes approximately $1.1 million, or $0.03 a share of additional development fee revenues associated with the Valley View Downs racing project.

Our assumptions for G&A expenses is that they will average just over $11 million per quarter. As in prior years, we do not expect that these expenses will be incurred ratably during the year, typically our expenses are higher in the second quarter, as a result of the ISCS Convention, and other company sponsored events that are scheduled during that period.

Our guidance assumes that interest rate on new fixed rate long term financings, will be between 5.75 and 6.75%. The actual rates of these planned financings will depend on prevailing market conditions, when these transactions are consummated. Higher depreciation and amortization expense is also expected as a result of the additional assets placed in service.

As Ed mentioned, our capital spending estimate for 2008 includes 250 to $300 million to fund the redevelopment projects currently under way, and several other projects including the Burlington Coat deals, and the Gadsden and Wiregrass project that Joe discussed earlier. In addition we anticipate spending 50 to $70 million during 2008 to complete Sunrise Plaza and New River Valley Center, fund the ongoing development of Monroe Town Center, and other projects in our ground up development pipeline. Recurring capital expenditures including tenant allowances are expected to range from 30 to $35 million next year. PREIT has a total of $625 million of debt, with 2008 maturities including approximately $400 million, under the 15 properties cross collateralized REMICs. This represents about one quarter of our outstanding debt balances.

Most of these loans have scheduled maturities in the second half of this year, I will review each significant maturing loan in more detail. The REMIC which represents 64% of our maturing obligation has a 7.43% stated interest rate, and matures by it's term in 2025. In July 2008, we have an option to repay this loan without penalty. If we elect not to repay the loan, the interest rate will increase by 300 basis points after September of 2008. Anytime thereafter, we have the ability to repay the loan without penalty.

Using our estimated of 2008 NOI for these properties, and assuming a 7.5 cap rate, the value of these properties is in excess of $1.2 billion. At maturity, the loan to value ratio on these assets would be approximately 33%. For accounting purposes at the time of the Crown acquisition in 2003, this loan was marked to market at an interest rate of 4.99%, while the refinancing of the REMIC will be dilutive from an FFO perspective, we expect that any refinancing transaction will still be accretive to FAD.

During 2005 and 2006 we entered into a total of $400 million of forward starting interest rate agreements, in connection with the redemption of the REMIC. Similar to the transaction that we did to hedge the financings used to call our preferred stock in 2007, we will cash settle these swap transactions. Any gain or loss in this settlement will be reflected as an adjustment to interest expense over a 10-year period.

As of December 31st, 2007, these swaps were out of the money by approximately $9.3 million. Today the out of the money value is approximately $8 million. The final amount will not be determined until the settlement date. Approximately 18%, or $113 million of our scheduled 2008 maturities, are short-term loans that can be extended by their terms until 2010. In both cases, the loans are on joint venture properties that we own with Simon Kravco.

As we have discussed on previous calls, our capital strategy has been to place long term fixed rate debt on our stabilized properties. Today our company is financed with a combination of debt provided by several sources including Light Companies, the CMBS market, and commercial bank lenders. We have utilized our credit facility and banking relationships to finance certain of our acquisitions, and to fund our redevelopment and development spending. We have also maintained unencumbered assets to support our unsecured borrowings.

We expect this course strategy to be an integral part of our 2008 financing plan. Given the turbulence in the debt markets, we will consider all of the options available to us. This may include increased use of bank term debt, shorter loan terms, and variable rate financings, as we have done in the past, we will evaluate the use of interest rate swaps or other hedging instruments when appropriate. We will also consider sales of nonstrategic properties or joint venturing certain properties with institutional investors on reasonable terms.

With that, we will open it up for questions.

Thank you. Ladies and gentlemen, at this time we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) Our first question comes from Ambika Goel, Citi Investment Research. Please go ahead.

Hi. This is Ambika with Michael Bilerman. Could you go through with how the pull-back in the economy is affecting your lease up at your redevelopments, and then also at the redevelopments, what kind of leeway do tenants have to exit the assets, to exit their stores without paying a lease term fee, if you can just walk through the logistics of that?

Hi. This is Joe Coradino. For the most part our redevelopments have been relatively unscathed. If you look at all the activity in terms of store closings and bankruptcies across our portfolio, we only really have only four announced store closings.

And with respect to the redevelopments in particular, again with some of the exciting anchor tenants we have opening, including Nordstrom and Whole Foods and Dave and Buster's, and the first of the market tenants, we believe that we are going to be successful in leasing this space up. There may be somewhat of a delay in certain cases, but generally I think that we will achieve the anticipated lease up.

Okay. And what kind of leeway do retailers, say for example Ann Taylor decides to close stores, and they happen to be at an asset that is being redeveloped, because they might be on a percentage of sales lease, can they exit that lease without paying a lease term fee?

That is an interesting point. I am glad you mentioned Ann Taylor as a matter of fact. We don't have any announced Ann Taylor's closings in our portfolio, and actually we only have one Ann Taylor in a lifestyle addition that we are doing, that may or may not come to fruition, but it is not a transaction that will impact us with any significance, one way or the other.

Okay. Thank you.

Our next question comes from the line of Craig Schmidt with Merrill Lynch. Please go ahead.

Thank you. Looking at your development and redevelopment summaries, it looks like Monroe Marketplace projected costs have gone up, as has Voorhees, and both of the yields on those projects have come down. I was wondering if you can give some color on those projects?

At this point, at Voorhees, the cost increases that we are experiencing at Voorhees are really driven by scope increases, by scope increases, primarily the office building that is going to be fully occupied 100% occupied by The Star Group, and the residential component has experienced a certain delay in startup, but they are right now under construction, foundations are being poured, they are expecting to begin framing in the next couple of weeks.

I think generally in terms of costs, we see a couple of things and it varies by market. One thing we see is in the Philadelphia market, where we have a number of major projects going up. We see a stabilization and material cost, but a scarcity of labor, really driven by the Convention Center construction, and the Casino construction in Atlantic City, but we at this point on our major projects, we believe, particular at Cherry Hill and Plymouth that we will deliver on budget.

Craig, this is Bob McCadden. With respect to Monroe Township, the reason for the cost increase there we originally had contemplated the sale of a parcel to an anchor. That is not going to occur. So rather than sell the parcel and have the anchor build on their account, effectively we are going to be building space for other tenants, so as a result, our costs have gone up. But is really again a scope change, as opposed to necessarily cost by the increased cost.

And then the yields falling, because you are not able to get compensated for that expenditure then?

The deal is above what our threshold will be. It has diminished a little bit primarily as a result of an effective sale would result in immediate cash. We are going to be spending some money, and carrying the project for a little bit longer than we would have anticipated, had we done a pad sale.

Okay. And just the shift in same store NOI to the guidance of 2.5 to 3.5%, it seems unlike your peers, who have been peeling back their same store NOI, you are growing yours with a more challenging economy. What is the thinking there?

Well, Craig, our same store portfolio includes the redevelopment projects. So the funds that we are putting into redevelopment are coming through as investments that are yielding, some of them starting in '08, some of them starting in '09, and that is pushing up the same store numbers.

Is it the ones that are completed in '07 that are pushing it up then?

And also as we bring some of the property on board in the latter part of '08.

Okay. And that is enough to mitigate any kind of concerns you have for the more challenging environment?

At this point.

Okay. Thank you.

Our next question comes from the line of Nathan Isbee with Stifel Nicolaus. Please go ahead.

Good afternoon. Just following up on Craig's question. How would you break out the 2.5 to 3.5% same store growth between redevelopment and the existing stabilized portfolio?

We typically don't break that out, but the projects that we completed in '07 will have the type of first year out of the box return as we saw in 2006. Kind of in the mid to high single digits. So that is our expectation. In large part, we have a fairly healthy pipeline of projects that are under really in full construction in 2008.

So like we have had in the past, but now we have more of the assets that are coming out than we have going in. So we have a net positive in NOI projected for '08, as compared to basically being flat this year.

Okay. And how much would you expect the expense reimbursement rate to increase in '08?

Our expectation is that '08 if we can hold our recoveries to where they were in 2007 we would be pleased. Again given the disruption that we have in some of the larger projects, our expectation is that as we complete more of the larger projects that we will start to see some improvement in that. But for 2008 we don't really see much change from this year, positive or negative.

Okay. Last one. Can you talk about the office rent that you signed at Voorhees?

We are not in a position to disclose that.

Okay. Thank you.

Our next question comes from the line of Michael Mueller with JPMorgan. Please go ahead.

Hi. A few questions here. First of all I was wondering with respect to guidance, can you give us an idea what REMIC refinancing scenario that your guidance assumes?

I think we mentioned that for all of our 2008 refinancing we are assuming somewhere in the 5.75 to 6.75 range. The reason we have the range is given the uncertainty of the capital markets, based on what is out there, and timing can be somewhere anywhere in that range.

Okay. Looking going to the development pipeline for a minute, I guess the delay construction completion specifically at Plymouth Meeting and Voorhees, I know you kind of touched on this throughout parts of the call, but can you lay out exactly what was pushing it back for each one of those, and what should we be thinking of in terms of how far into 2009?

I think initially the delays at Plymouth Meeting were by really driven by entitlements by the [lending] entitlement process we had to go through, and at this point I think we are anticipating delivering the restaurants, and Dave and Buster's, and Citibank, and the majority of the property in '08. Some may shift into '09, but it is difficult to pinpoint exactly what might slip into '09 at this point.

Okay. And what about Voorhees then?

Voorhees in terms of the leasing of the retail, it is driven largely by the construction of the residential buildings on the street.

Okay.

And they are under construction and anticipating moving their first tenants in September/October of this year, which will put us in a position to begin tenant construction. So we are really looking in Voorhees for the majority of the tenant moving to occur in spring of '09.

Okay.

Retail.

And sticking with Voorhees I want to confirm you did say that in terms of space, that was under letter of intent or lease it was 50%.

That is correct.

Do you have those numbers as well for Plymouth Meeting and Cherry Hill?

Well, at Cherry Hill, essentially the mall is close to full occupancy at this point, and we are building an addition. We have got very strong lease up. I don't have the specific number, but we can get back to you with that. We have a very strong lease ups. The 2-level addition is not opening up for approximately a year, and again the lease up given the fact that is in front of the Nordstrom store, is not something that we have any level of concern about.

Okay. What about Plymouth Meeting?

Again at Plymouth Meeting there is a lease up program going on. If you look at Dave and Buster's, and Crazy City, and a number of other transactions, about 80,000 square feet that is either, signed leases or about to be leased inside the mall, to take the occupancy level into the mid-80s.

And in terms of the exterior, the lifestyle addition the unleased area of the lifestyle addition is approximately 25,000 square feet, and that area for the most part, with the exception of two spaces, is spoken for.

Okay. One last question for Bob. In terms of the guidance the 2.5 to 3.5% statement store versus I think the 3.5 to 4.5 overall, what is the difference, what is not in the same store bucket?

It is basically the new development system like the Town Centers, Sunrise Plaza, and New River Valley Center that opened up in the fourth quarter of 2007. We mentioned earlier in the call that we have a Ross opening up at a complete New River Valley Center in the fourth quarter, and then we expect on Sunrise Plaza, Kohl's and some other stores to open up later in 2008. It is ground up development is the difference.

Ground up. Great. Thank you.

Our next question comes from the line of Matt Ostrower, Morgan Stanley. Please go ahead.

Good afternoon. I guess you have given some general guidance about the refinancing side of the equation, and the range is useful. Can you just talk more specifically I'm assuming you are out there talking to potential lenders already. Can you talk about what type of lender is involved here, and are these going to be individual mortgages that you are going to refinancing this with, what is the appetite for B and C quality mortgages versus on a higher the quality malls? Can you give us more color on the overall environment as it stands today, as opposed to what might happen in the next six months?

I can't tell you about the B quality malls. Our job here is to have A and B quality malls. We are in the marketplace talking to a number of lenders of different types, actually probably a wider range of lenders than we have spoken to recently. Everything from commercial banks, foreign commercial banks, investment banks, insurance companies. So we have been out, and have had a lot of conversations.

We are looking for financing some time over the summer, because we have a window between when we can pay off the REMIC, and the outside date which would be September, and obviously there is a lot of logistics involved in trying to refinance that many properties at once, even in a market that would be much more let's say accommodating than the one we are in now. But so far we have met with a good reception. The REMIC is probably somewhere about a 33 to 40% loan to value ratio, and so we have plenty of room on that financing. And our view would be that we will have some support from our existing bank groups, which we have had a number of conversations with, as well as a group of lenders that we have had a longstanding relationship with over the years of different sorts.

And just to be more specific, I assume that the 7.5% cap rate that you threw out in talking about the potential leverage levels, and the amount that you can get, that is a number that is stemming from the conversations that you have had so you feel pretty confident as of today with that kind of a number?

I didn't ,I don't believe I threw out a 7.5%. I think Bob did. (laughter) Bob is comfortable with that number. At this stage what we have done is we've gone out and discussed the properties with the lenders. We have started to introduce the properties into the market. We don't need to refinance all the property to come out of the REMIC, and the range I think of cap rate is going to be fairly wide on that portfolio, because the property productivity level are fairly wide on the portfolio.

So what I believe is after we are through going into the marketplace and the lenders have look at the properties, they will pick assets that they intend to lend on, and then we will negotiate ranges and values. I think there is a broad enough range between 30 to 40% range and in today's marketplace that we think we have abundant collateral.

One other point relative to the cap rate and the property. The 15 properties in the REMIC, about half of them have been through the redevelopment process, and are in ideal shape from a lending standpoint. From an underwriting perspective, the sales productivity is improving, lease up is strong, the malls looks good.

If anything the properties that we would actually look to finance on average probably have a lower cap rate we believe than the 7.5 average, because that 7.5 does include some lower quality assets, but they tend to be smaller in size than some of the better properties, including properties like Patrick Henry Mall.

Just to be clear that 7.5, the context for that number is market context that you are having today, talking to people who will actually underwrite these things, that you feel some confidence that everything can change overnight in these kind of market, but as of today that number seems a conservative number to you based on that kind of feedback?

We would say it is a reasonable number. I don't know what a qualifier in terms of conservative. We have different views on that.

But it is coming from the market. And the other thing you alluded again to this joint venture, not again, but for some effort you talked about it on the conference call?

Before you give assumptions, I think it is unfair to put words into our mouth. We have not gone out. We haven't gotten appraisals. We haven't done the underwriting. The values are described. We are using sources like new sources to come with that value. Just don't make any assumptions beyond what we want to represent as being the facts.

So it is an informal. This is not a formal number obviously.

And then the JV reference that you made, are you talking about that in the context of if theoretically we have a lot of options here, or are you talking about that in the context of gosh we really do think, even though the market may not believe this, we really do think that there is a fairly decent appetite out there for JV interests in the assets that you own, and if that is true, can you characterize that a little bit again, we are trying to get a sense of what is in the marketplace?

This is Ron. We all know that the debt market are chaotic right now, and that every single transaction is an adventure. We can't predict what is going to happen in the next week, let alone over the next few months. But clearly we are a resourceful company, and we do have a lot of relationships, and we are exploring those relationships to determine whether there are opportunities for us to consider possible joint venture arrangements, and possible debt scenarios.

But as we sit here today, and you are aware of the chaos in the debt market, and in our entire sector. So we are continuing to look, we are continuing to explore. But as we sit here today, we obviously can't commit to anything, other than just the fact that we have been having meaningful conversations, with people who we have done business with in the past.

Okay. And just to confirm my sense is that there is a few if any sort of B mall transactions that have taken place over the last three or so months. Is that also your observation?

Yes.

Okay. Great. Thank you.

Our next question comes from the line of Ryan Bennett, Lehman Brothers. Please go ahead.

Sorry, not to the harp on the JV comments, but would you be willing to be a contributing stabilized asset going forward, or would you be able to contribute to some of your redevelopment as well do you think?

At this point we have mentioned a number of possible sources of financing, and obviously we are having discussions with a number of people, but we are not prepared to get into detail on this conversation. It is too premature in the process for us to comment.

All right. Fair enough. Thanks a lot.

This isn't new. We do this all of the time.

Our next question comes from the line of Martin Roher, MSR Capital Management.

Another financial question. The first is approximately what level do you think your debt leverage, or your aggregate debt, approximately when I should say do you think your aggregate debts will peak out based on your current capital spending plan, and following up on that, what if anything can you tell us about your intentions on your share repurchase authorization, which I know you have? It looks like it has been pretty dormant for the last year.

Given the amount of capital spending that we are doing this year, and also the schedule of bringing properties into service, or bringing the new investment into service is likely sometime at the end of 2008. The Company is at least near term leverage reaches a maximum, and that is dependent on a large number of factors including the schedules of many projects. So that is about as definitive as we can be.

And in terms of the application and rationing of capital our #1 priority as a number of us have said in the conference call, is to complete the three major projects that we have been focused on as well as the Company's in-process ground up development work. Beyond that should we be the beneficiary of additional capital we will have to look at what opportunities present themselves at the time, including as always the utilization of that capital to buy back stock, the utilization for the dividends, the utilization of the capital for additional real estate investments.

It is really too early to tell. We have to be a lot further along in the significant amount of financing that we need to do this year to make an educated comment.

Thank you very much and good luck.

Thanks.

Our next question comes from Ben Yang, Green Street Advisors. Please go ahead.

Thanks. You guys have been pretty open about the fact that you had to offer lease and rent concessions to some of your tenants impacted by your pretty sizable redevelopment activities, but if you do a look through of your portfolio, it looks like the average rent at a number of malls not in redevelopment but actually follow it in '07. And it seems kind of unusual that you would see that fall for that metric during the course of the year. Are you in any way offering some kind of rent concessions throughout your entire portfolio?

No, not at this time.

Is there any reason that some of the average rents throughout your malls are actually falling?

I don't know what specific properties you are talking about but in a number of our properties, you will see average rents fall because big boxes have been introduced.

So it is more of a factor of a change in mix?

Yes. In Magnolia where you are adding both a Barnes & Noble and a Dick's Sporting Goods, and in taking up in-line space at Lycoming Mall, where we are doing a similar kind of thing, but keep in mind that in most cases, in many cases, we are occupying previously vacant space with those boxes, and relocating existing tenants, and driving occupancy significantly.

Okay. And then you previously talked about trying to convert some of your percentage of sales deals back to minimum rent. Is that a process that is automatic, or do you have to hit some sort of sale bogeys in these redevelopments for that to occur?

Typically they are short-term amendments to an existing lease, so it might be one or two years, and they automatically convert back.

Typically in a redevelopment environment you want to keep your options open, so you can keep tenants in place until you can complete the redevelopment, and drive sales. So it is clearly temporary and something that we will turn around. You are seeing probably a good deal of it at Voorhees right now, Plymouth Meeting, centers like that. That will turn around as the redevelopments come on-line later this year, and into '09.

All right. Thank you.

(OPERATOR INSTRUCTIONS) At this time, we do not have any further questions. I will turn the conference back to management for any closing remarks.

I want to thank all of you for your participation. This has been an extremely large group on the phone for this session, and we appreciate it very much. We are very pleased, and that is not self-serving.

We are very pleased with the results of our redevelopment so far. That is our strategic bet for this Company, and we are going to continue with that process. Hopefully as successfully as the ones that we have done so far, and we will continue to keep you informed. Thank you very much.

Ladies and gentlemen, this concludes the Pennsylvania Real Estate Investment Trust fourth quarter 2007 earnings conference call. We would like to thank you for your participation. Have a pleasant day. You may now disconnect.