Pennsylvania Real Estate Investment Trust (PEI) 2008 Q3 法說會逐字稿

Good afternoon ladies and gentlemen. Thank you for standing by and welcome to the Pennsylvania Real Estate Investment Trust third quarter 2008 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 call is being recorded today, Monday November 3, of 2008. I would now like to turn the conference over to Garth Russell with KCSA Strategic Communications.

Thank you. Before letting management get going with their prepared remarks I'm going 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 relating to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect PREITs current views about future events and are subject to risks, uncertainties and changes in circumstances that might cause future events, achievements or results to differ materially from those expressed or implied by the forward-looking statements. PREITs business might be affected by uncertainties affecting real estate business generally as well as specific factors discussed in the documents PREIT has filed with the Securities and Exchange Commission, and in particular PREITs annual report on Form 10-K for the year ended December 31, 2007. PREIT does not intend to update or revise any forward-looking statements to reflect new information, future events, or otherwise. It is now my pleasure to turn the call over to Ron Rubin, Chairman and CEO of PREIT. Ron, the floor is yours.

Welcome to the Pennsylvania Real Estate Investment Trust third quarter 2008 conference call. Joining me on the call today are Ed Glickman, President; Bob McCadden, CFO; and Joe Coradino, President of our management company and head of our retail operations. Also in the room today are Vice Chairman George Rubin; and General Counsel, Bruce Goldman. Today we will discuss our third quarter 2008 results, the status of our current projects, and some of our plans for the future. After we conclude our remarks the call will be open for your questions. The Company is experiencing the affect of the current economic downturn and its corresponding impact on consumer spending.

Many retailers in our portfolio have been cautious throughout the year, and we have seen a level of concern as the year has progressed. We are not happy with the drop in our share price, to levels which we believe are not consistent with the value of our real estate assets. However, you can rest assured we are focused on a specific plan that addresses liquidity, and capital allocation, and provides for the successful completion of our development and redevelopment projects and which maintains occupancy and generates positive leasing spreads.

As Ed Glickman will discuss in more detail, the Company has closed on an excess of $600 million in financings this year using these proceeds to repay our REMIC and to fund our development and redevelopment programs. In doing so, the Company has reduced its overall borrowing rate. We do however have more work to do. We are working on additional financings, who's terms we will announce upon closing. These financings are part of the strategy of the Company to meet our capital needs in a challenging environment. The (inaudible) bankruptcy process is proceeding with bids having been submitted for the Company. We have 8 (inaudible) in our portfolio and two more under construction. The outcome of the process is not sufficiently clear for us to predict future events. To date we know that no (inaudible) stores in PREIT malls are among those presently being closed. We are in consistent contact with the pertinent individuals and would obviously like to see the Company emerge from bankruptcy in what we consider to be a successful manner.

As I have noted in previous calls, while the economic environment has been changing in the past years, the fundamentals of our business have not. Our management team is focused working to advance our redevelopment and development projects, to place stores in service, increase NOI and occupancy and generate positive leasing spreads. 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.

I would like to review with you our third quarter performance figures. Funds from operations for the quarter of $0.77 was down $0.39 quarter over quarter and funds from operations for the year to date period of $2.49 was down $0.30, for the 9 month comparison. Funds from operations was impacted in both periods by the $0.32 gain from the redemption of the preferred stock which took place last year and in addition by $0.06 of other gains during the 2007, 9 month period. In contrast this years results include $0.05 of swap gains related to the implementation of our capital plan. Net operating income for the quarter was $72.4 million, up slightly quarter over quarter. For the nine months it was at $222.7 million up 2% for the year to date comparison. Same store net operating income which in the case of (inaudible) includes 98% of our total NOI, was down 1.4% quarter to quarter, and up 0.5% for the year to date comparison.

PREIT NOI as well as occupancy was hindered by 10-acres in transition, during September 2008 four of these ten reopened including three new Burlington coat stores and one new JC Penney. The other six vacant spaces have leases in space to new tenants. These transactions are outlined in detail on page 21 of this quarters supplemental. Joe Coradino will discuss them in a few minutes.

Occupancy was down 60 basis points in line, primarily reflecting the unanticipated closure of underperforming stores. Including Anchors, occupancy was down 90 basis points, this additional decline reflecting a large number of Anchor spaces still in transition. We did however, have a busy quarter end leasing with 52 new leases for approximately 127,000 square feet and 91 renewals, for approximately 285,000 square feet.

Turnover spreads were strong with releasing spreads on previously leased space up 20.8%, and renewal spreads up approximately 3%. Sales for the period were $351 down 2.8%. This decline impacted the majority of the portfolio crossing both geographic and property quality lines. PREITs performance in the third quarter shows the positive impact of our newly renovated assets against the backdrop of increased retailer and consumer concerns regarding the challenging economic environment. As PREIT brings its newly renovated assets on line, retailer concerns resulted in a higher than anticipated level of store closures and a number of delayed openings, as a result, our overall occupancy is down mitigating the positive contribution from our development and redevelopment work. At a time when we expected to see significant gains from new and redeveloped assets coming onstream, our overall performance has been flat.

The fact that we are able to maintain our equilibrium in the current market demonstrates the resilience of our Company and bodes well for the future of the portfolio. First, we have the diverse portfolio of assets with limited exposure to any one retailer. Second, our development and redevelopment work continues to be well received in the marketplace. Thus, we believe that we are facing timing rather than permanent variances and that our projects will ultimately create significant value for the Company, even in this unique and difficult market. During the third quarter, we completed five new mortgages for total proceeds of $344 million. Completed 2 tranches of a new term loan facility for a total of $170 million, extended over $650 million of existing mortgage and line of credit financing, and paid off $413 million of existing mortgages including the REMIC. By completing these transactions including the refinancing of the REMIC we have lowered our financing costs, given the Company the ability to move forward with our work in progress and have put us in a position to weather this downturn.

As we look forward to 2009 we will remain focused on completing our in process projects Cherry Hill, Plymouth Meeting, Voorhees Towne Center and the Gallery. To accomplish this we have pulled back on our pipeline to focus our available liquidity on these core objectives. In addition, we are currently processing four mortgage transactions that we hope will close prior to year end. We are also in preliminary discussions with other capital providers and potential joint venture partners. Given this market we have no illusions about the challenges involved but our success to date should illustrate the level of commitment that we bring to the task and our determination to bring our project to completion. This work is vital to the long range health and vitality of the Company and even in this difficult market we continue to have success in bringing exceptional projects to market. For example, earlier this month, we held a grand opening for Monroe Marketplace our newly developed power center in Settlings Grove, Pennsylvania. The tenants include Kohls, Target, Dick, Giants, Best Buy, Bed, Bath and Beyond and Red Robin. As e mentioned previously we have been evaluating each new development and redevelopment project.

This quarter we added Pitney Road Plaza and Lancaster, Pennsylvania to our development pipeline. This project, a 230,000 square foot power center will include, Best Buy, Lowes and a 12,000 square foot outparcel. The previously disclosed office space project in the former (inaudible) space at the Gallery at Market has been included in this quarter's redevelopment summary and our supplemental disclosure. This 224,000 square feet has been leased to the Commonwealth of Pennsylvania with an expected occupancy date in the third quarter of 2009. Thank you for your continued interest in PREIT. Now I will turn the call over to Bob McCadden, our CFO.

I will review our financial performance in more detail for the third quarter, state our capital spending plan and provide our guidance for the balance of the year. We reported a net loss for the third quarter of $7.6 million or $0.20 per diluted share. Funds from operation or the third quarter were, $31.8 million, on a per diluted share basis FFO was $0.77.

Let me review some items impacting comparability between years, all the mounts I described will include our -- the results from majority owned properties as well as our percentage ownership interest in our partnership properties. Same store NOI decreased by 1.4% to $71.2 million for the third quarter for the following reasons.

Last year's third quarter included approximately $500,000 of revenue from 5 Value City stores that were closed earlier this year. Burlington Coat Factory, the Replacement Anchor, opened three new placement stores in the third quarter of this year, and four additional Anchors are expected to open between now and the third quarter of next year. Percentage rents earned from tenants during the third quarter of 2008, were lower as compared to last year's comparable quarter, reflecting overall trends in the economy. We had lower lease termination revenue in this quarter as compared to last quarter. And we also had a $1.5 million increase in bad debt expense as a result of bankruptcy filings by (inaudible), Steve & Barry's and other retailers and we had to increase reserves for delinquent accounts related to regional and local tenants.

We had higher depreciation and amortization expense as a result of development and redevelopment construction in progress that was placed in service over the last year. Since the end of the third quarter of 2007, we have commissioned approximately $150 million of redevelopment assets, and an additional $48 million related to our development property. Interest expense increased as a result of higher average debt balances primarily due to capital spending, partially offset by lower average interest rates. Average cash interest rate on outstanding debt balances at the ends of the quarter was 5.23%. As compared to 6.02% at the end of the third quarter of 2007. A decrease of 79 basis points. On a GAAP basis, our average rate fell by 34 basis points from 5.4% to 5.10%. G&A expense in the third quarter was $10.4 million, consistent with our recent run rate.

In summary, the positive contribution from our redevelopment properties in the quarter has been largely offset by erosion in earnings at certain of our other properties. Orlando Fashion Square in particular, has been hit this year, has been hit hard this year as a result of the downturn in the Florida economy.

As Ed mentioned during the third quarter of this year the Company closed approximately $340 million in new secured financings and $170 million in unsecured financings. The weighted average catch interest rate on this new debt is approximately 5.72%. During the same period we repaid $413 million, including the $400 million REMIC which had a weighted average cash interest rate of 7.43%, at the end of the quarter we had outstanding debt of $2.7 billion, an increase of $113 million for June 30. Our credit facility leverage covenant is based on the ratio of total liabilities to gross asset value as defined in the loan agreement. At the end of the quarter our leverage ratio was approximately 62.2%. Which is moderately higher than the ratio at the end of the last quarter. Based on our earnings guidance range we anticipate that our leverage covenant will be approximately 62.8% at the end of the year, increased further during 2009.

As a reminder, our credit facility permits leverage up to 70% for two quarters. As previously announced the Company exercised the extension option in our $500 million credit facility which now has a maturity date of March 2010. At the end of the quarter, fixed rate debt comprised 80% of the Company's total indebtedness, including our proportionate share of the debt of our partnerships. At the end of the quarter we had borrowed $380 million under our credit facility. After getting affect of the amounts required to support letters of credit, we had available borrowing capacity of approximately $109 million, at that date.

As previously mentioned, we are currently in the market for additional secured financings to provide the necessary liquidity to fund our capital requirements for 2009. At the end of September we had 24 unencumbered retail properties which represent over 30% of our annual NOI. The debt schedule and our supplemental reflects three mortgage loans for the remaining 2008 maturities. We are currently in discussions with the existing life Company lenders on Exxon Square mall to replace the $93 million maturing obligation with a new fixed rate loan provided by these same lenders. The replacement loan would be subject to new underwriting by the lenders including updated market value appraisal for the property. While we are still in negotiations with the lenders we anticipate that the proceeds from the replacement loan will be less than the existing loan.

Last week we closed on refinancing of the existing loan at White Hall mall, and a joint venture property that we own with Crafter Simon. There were no excess proceeds from this refinancing. The remaining 2008 maturity alone in Springfield mall has two additional one year extensions. Earlier this month we exercised our extension option and anticipate receiving lender approval during the fourth quarter. Our capital spending estimate for the last quarter of 2008 is a range of 80 million to $85 million to fund the capital requirements of the redevelopment projects and developments currently underway. We are adjusting our full year FFO and net income estimates for 2008. We expect GAAP earnings per diluted share to be a net loss between $0.15 and $0.25. We expect FFO per diluted share to be in range of $3.50, and $3.60.

Our guidance range was reduced as a result of the following factors. Additional store closings and delays in leasing at certain of our redevelopment properties impacting minimum rent and expense recoveries, our forecast of specialty leasing revenues was adjusted downward from previous quarters by approximately $0.02 per share, from our earlier expectations. Many of our smaller temporary tenants have not been able to obtain sufficient credit for the rent and merchandise stock for the holiday period. Higher bad debt expense as a result of continued softness in the economy. Also, we expect reduced fees as a result of the amendment to our development agreement with Valley View Downs which was executed in the third quarter. As a result we have seized recording development fees, which were approximately $0.01 per share per quarter over the past four quarters. We expect overall NOI growth excluding lease termination fees to be up between 1 and 2% with same store NOI essentially flat. Now I'll turn the call over to Joe Coradino.

The economic backdrop described earlier in the call has influenced consumer spending habits and has impacted our retailers. As compared to the third quarter of last year comp store sales declined from 362 to 351 per square foot. A significant portion of this decline is attributable to the dislocation associated with the redevelopment of Cherry Hill mall. According to National Retail Federation holiday sales will gain only 2.2%. Well below the ten year average of 4.4 and the slowest growth since 2002 when holiday sales rose 1.3%. The decline in occupancy discussed by Ed was driven primarily by the closing of underperforming retailers. We also continue to work through tenant bankruptcies. In addition to Ron's (inaudible) update, Linen's and Things has three stores in our portfolio. One location is closed and expected that the remaining two will close early in '09.

We had 15 locations impact by the White Hole Jewelers bankruptcy and expect that these leases will be rejected and all remaining stores will be closing during the fourth quarter. As Ed mentioned, we achieved an increase of 2.9% over expiring rents on 285,000 square feet of non-Anchor renewals. The compression is a result of several short-term renewals where we've renewed under performing retailers at the current terms with the goal of maintaining occupancy in the near term while providing ourselves the flexibility to release these spaces in a more favorable economic environment. However, despite these economic conditions our leasing momentum has continued as we signed 143 transactions during the quarter. Including J. Crew at cherry Hill, Tivon at Willow Grove, Zunis at Patrick Henry, Trade Home Shoes at Woodland, Ari at Willow Grove, Logan Valley in Nittany malls, and Coach in American Eagle for expansion premises at Cherry Hill.

On the Anchor front we opened four new Anchors and 323,000 square feet during the quarter including the previously announced Burlington Coat Factory stores, at Chambers, Burglike, Homing and Union Town malls. And the 88,000 square foot new prototype JC Penny store at Gadzon mall in Alabama. At Jacksonville mall in Jacksonville, North Carolina, in addition to the Barnes and Noble that opened earlier this year, Red Robin opened during the quarter and Alta Cosmetics opened their 10,000 square foot store today. The exterior renovation work continues and is expected to be completed early next year. Construction progresses on the remaining Burlington Coat Factory locations at Cumberland mall, and Margraves Commons, which are scheduled to be open in the first and second quarters of '09 respectively and the replacement at Value City at Francis Scott Key with Value City Furniture and DSW to be complete when DSW opens for business in the second quarter of '09.

We continue to make significant progress on the construction and leasing on the three major redevelopments in the Philadelphia Metro area. At Cherry Hill mall, the interior renovation is progressing with new ceilings, floorings, skylights redesigned columns, fixtures and architectural enhancements visible throughout the mall. The renovation will be complete along with the opening of a new parking garage prior to Black Friday. The Food Court relocation is complete and expected to be fully occupied for the Holiday shopping season. Construction of the exterior shell in the new Nordstrom building is nearing completion and on schedule for a grand opening on March 27, of '09.

We have made tremendous progress on Bistro Row, we signed leases and are under construction with four notable restaurants, Mangiano's, Seasons 52, Capital Grill and California Pizza Kitchen, which will compliment the existing Bahama Breeze and provide dining opportunities that are unparalleled in the South Jersey market. Seasons 52, a new upscale dining concept from Darden offers a low calorie seasonally modified menu with the first location in northeast United States it's sure to attract new shoppers. The mall addition is progressing with the space being ready for turnover dependents to begin their construction. As we look towards the opening of this new wing we are focused on completing leases and starting tenant construction for store openings in the first quarter of '09. Approximately 86% of the expansion portion of this project was either leased or in active negotiations.

As reflected in our supplemental disclosure we experienced an increase in project costs of approximately $8.8 million driven mostly by expenditures related to securing tenancy at the project. We are confident that upon completion Cherry Hill will take its place as a trophy retail venue in our portfolio, with over 25 first to market retailers. At 4 East Towne Center, the 50,000 square foot headquarters for the Star Group and a 10,000 square foot learning experience daycare facility opened in August we are pleased to announce that we've executed a lease with a (inaudible) Salon and Day Spa for a total of 17,000 square feet for a premier Day Spa training facility and retail outlet.

Residential construction continues and the mixed use buildings are underway with resident occupancy expected to commence in the first quarter of next year. The delay is a function of our partner's desire to commence marketing of the residential units for a spring occupancy. At Plymouth meeting mall the recently introduced restaurants PF Changs, California Pizza Kitchen, Red Stone Grill and Dave and Busters continue to report great success at the property and we expect the trend to continue when Benihana opens later this month. We will also open a Citibank branch on an out parcel on the north side of the property by month's end. Customers are enjoying a truly unique shopping experience at the center as we move forward with our premier property programs. Which we're introducing at several of our Delaware Valley properties. This program consists of curb side valet parking, enhanced customer service, and a white glove security program implemented by Disney trained instructors. Construction continues on the Whole Foods building and the Lifestyle addition at Plymouth Meeting. The grand opening of the Lifestyle addition will take place in the spring of '09. We're in discussion with Whole Foods after their announcement to delay and reduce '09 store openings to confirm a fourth quarter '09 opening for this location.

At 801 Market Street, a property we own contiguous to the Gallery demolition is complete for the 224,000 square foot Commonwealth of Pennsylvania office space on floors four, five and six, and tenant construction has commenced for an October '09 rent commencement. During the quarter we executed a letter of intent with a large format department store and in discussions with Junior Bosses to occupy the lower levels of the building. While we are aware of the state of the retail environment we maintain that through our major redevelopments we are bringing a differentiated product to market and creating a compelling platform for retailers. As these projects reach stabilization we believe it will be a transforming event for our portfolio with premier properties in one of the largest retail markets in the nation. With that, we are now ready for questions.

Ladies and gentlemen, we will now begin the question and answer session. (OPERATOR INSTRUCTIONS) Michael Bilerman with Citi. Please go ahead.

It's Quentin Velleley here, I'm with Michael. I just, and I apologize if I missed this, I just want to get a clarify with your work outstanding on your current development pipeline versus the credit or the debt that you've got available, what's the difference? How are you looking at refinancing that at the moment?

Well, if you look at the amounts that we have in our supplemental which are the difference between what we've spent to date in total estimated project costs, that's approximately $200 million for our development properties. As we mentioned we have at the end of September $109 million on a credit facility, we're out in the marketplace for additional secured financings on currently unencumbered properties. That would provide the necessary liquidity to fund the completion of the redevelopments.

What's plan B if that gets delayed?

The capital needs really come in 2009, so we are certainly confident in terms of where we are in the process with the transactions that we are negotiating to be able to close out before the end of this year.

Don't your covenants have some restrictions on the amount of secured debt that you can -- that you can have?

It's a secured debt covenant but we get credit to the extent there is excess value in encumbered asset. So we're really not anywhere close to that covenant, almost under no circumstance do we see that covenant coming into play.

What's the amount of NOI on the four unencumbered assets that you're looking to put secured debt on.

Well, we only talk about a specific asset, but in total the NOI from the unencumbered assets is North of 30%.

30% of your assets -- 30% of your NOI?

30% of our NOI is derived from assets that are currently unencumbered.

The four specific ones that you're going after, I'm trying to get a sense of how much financing that's going to get you and we can put our own cap rates on NOIs, I'm not asking you for asset value. I'm just trying to get a sense of how much NOI is targeted.

At this point I guess we'd rather, we typically have not given NOI a specific asset so when we come out with the financings, -- again, from a competitive perspective we would rather not disclose that at this point.

Just on your distribution of payout ratios above IFFO, I wondered if you've investigated potentially pulling back your distribution?

Could you repeat the question, please?

I'm just noticing that your dividend payout ratio is above your IFFO level, so I'm just wondering if you investigated potentially reducing your dividend?

Well, the simple answer is we review almost every quarter with our Board the whole dividend issue. And we certainly recognize the importance of the dividend to our shareholders and we worked towards finding the right balance between the payment and the dividend and our Company's capital needs and we will continue to do so.

When was the last time the Board had the discussion on the dividend?

We have it every quarter.

Two weeks ago we announced the fourth quarter dividend payment.

You don't find any need to use that as a funding source right now?

Not at the moment.

I just wanted to in your press release you commented that your FFO was hit by band and project costs, can you just discuss exactly what that relates to?

That actually occurred in the first half of the year. Related to a project that we had. It was a development project outside of Chicago that we had invested some money in in terms of land deposits and predevelopment costs that earlier in the year when we saw what was happening in the retail environment decided to pull back from that, but that was a first half and not a third quarter event.

Great, thank you.

Thank you, our next question comes from the line of Nathan Isbee with Stifel Nicolaus

Just getting back to that dividend question, CapEx and the TAs both increased dramatically this quarter. Can you give us detail what caused that and is that a good run rate now?

No, I think that's more of a just a function of seasonality. Obviously the returning CapEx would do most of the work in the third quarter. It depends on what we are doing where, but we would expect that the numbers that are in the third quarter would not be representative of an annual run rate. Likewise for a number of tenants that we're opening for holiday and back to school, '08, so we had large tenant allowance payments in this quarter. We would expect to see both those numbers down substantially in the fourth quarter.

Okay. And just getting back to the financings, Exxon Town Center what's the expected size on that new loan.

At this point, since we're still in discussion with the lender, it would be premature for us to talk about that.

Okay. What is currently the total recourse that you have in your portfolio?

In terms of the bank covenants or, I'm not sure of the question?

Total recourse you have on any secured debt?

Total recourse is, I don't have the number but it's relatively modest. Most of the mortgage lines tha we have have no recourse back to the Company. It's probably under $100 million. Probably even under $50 million.

Then you spoke about $80 million of development spending through year end. Given all the movement and your completion dates, can you just update where you expect your spending to be in '09? First six months and then full year?

If we look at total projects that we have under development, are roughly $200 million, a little bit less than that, if you figure $80 million in the fourth quarter, you have that $120 million give or take in all of 2009. Most of that coming in the first three quarters of the year. It's related if you think about the projects we have, Cherry Hill I think has about 77 million, 75 million, $77 million to go, and that will be spent largely between now and middle of the first -- middle of the second quarter of next year.

Thank you very much.

Our next question comes from the line of Michael Mueller, with JPMorgan.

First of all, following-up on the prior question, Bob, can you give us an idea of what you guys think the full year current CapEx will be in terms of tenant improvement leasing commissions?

Yes, let me.

Do you see your dividend as being covered on that basis?

Yes, I think through the end of 12 month basis we were slightly over 100% payout ratio. We expect our fourth quarter this year to be greater than our fourth quarter of last year in terms of coverage. We should be at or around full coverage at that point. Bear with me on the other question. We probably have, total for the year between recurring CapEx and TAs for this year is probably around 32 million to $33 million.

Okay. That doesn't include the development. That's just operating portfolio?

Operating.

Okay. What is the current fixed charge coverage?

Fixed charge coverage is -- turn the page for that. Do you have another question while I'm looking for that?

Yes. Thinking more on the operating side, given what you were talking about in terms of store closing, et cetera, where occupancy will pencil out on a full year basis this year, where do you think it moves to in 2009?

I don't think we've -- we haven't provided any '09 information yet. Obviously at the next call we will provide guidance for '09 as well as tenant view of occupancy.

In terms of the, can you give us range in terms of cap rate where you see lenders where they're underwriting the real estate to today when they are taking a look at the assets. What's a ballpark range?

I think we're finding is that most lenders are underwriting on a coverage basis and not a cap rate basis.

Okay. What's that range?

125, minimum.

Okay. Then I guess lastly while you're looking that data point up. I think Ed you mentioned working on a joint venture, it sounded like maybe potentially asset sales as well, one, do you think there is a likelihood something closes by the end of the fourth quarter and then can you just give us a rough, rough idea in terms of magnitude, how much you are talking about here, is it 20 million, $30 million or 100 million, $200 million?

We have been having a number of discussions. I don't know at this point we could handicap any of them, especially not before the end of the year.

Okay.

Mike the fixed charge coverage ratio is about 162.

Okay.

At the end of this quarter.

Okay. okay. Thank you.

Our next question comes from the line of (inaudible) with Green Street Advisors.

Good afternoon. Q quick question on the line of credit, was it the same bank group involved in the recent extension, and are there any more extension options on that?

This was the same bank group involved on the extension -- I think maybe you're asking about the term facility which was a different bank group, but your question regarding the line of credit was the same group they did extend and there are no more extensions on those original agreement.

Is it too early to put a game plan together today for how you might address your term loan and the unsecured credit line?

Well, the term loan has a buy rate extension at the end of this first period. And no, it's never too early to start a discussion regarding the line of credit, but we thought that particularly last month wasn't a great time for us to be going out and having that discussion. I think we would like to see some stability in the capital markets.

Switching gears a bit, regarding percentage of sales, it looks like you had to offer a number of more deals recently, have you had to offer percentage of sales to tenants taking space in your recently redeveloped space as well?

No, that's not been -- that's not where that's coming from. In the newly redeveloped assets.

Then I know you had previously talked about those deals burning off, probably by 2009 and 2010. Given that you've essentially ramped up offering those type of deals, is it fair to say that we can see these in place as long as 2012 or 2013?

A lot of that's a function of, if your balancing maintaining occupancy and maximizing the current income on the space. So clearly we do these on a very selective basis where we think it gives us an opportunity to keep a tenant in place while we book the backfill with the replacement tenants. Typically the tenants who are getting this are oftentimes maybe more challenged in terms of their business models, and so what it does is gives us the additional time to find a replacement tenant.

Are you going to offer more than, say one year deals under these type of extensions or offers?

They're typically kind of one year at a time if we extend. What you'll find is if you were to look at the roster of tenants who are percentage sales, to a minimum rent, it's not consistent from year to year. You typically see tenants moving out of that status so if you were to look at that from this time now to a year ago you would find a different mix of tenants in that group of tenants receiving that rent break.

That's helpful, thank you.

Just another point we typically negotiate recapture rates. So to the extent that we find a replacement tenant we can affect move the other existing tenant out and let's say agree to stay on a full rent.

Thanks.

Thank you your next question from the line of Craig Schmidt with Merrill Lynch.

In the lower guidance for FFO for the year, I was wondering what do you assume for same store NOI and sales for the last three months of the year.

I think we said we expect same store NOI to be roughly flat for the full year excluding lease termination.

So the '05 through the nine month was flat? Is that the way to look at it?

I think we are I think we are flat for the entire year.

Okay. Then sales trends? I understand the last ten days of September were particularly worse, I'm just wondering what you have seen for the next three months?

I think we are expecting, I think I mentioned it in my remarks, this is Joe Coradino, I think we're expecting it to be a difficult holiday season. I mean I'm in agreement with the estimates of around 2% same store sales growth. Which is pretty difficult, it's the worst in the past six years.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) Next question from the line of [Martin Roher] with (inaudible) Capital Management.

Thank you, I actually have two questions, the second one is a little longer term oriented than what we have been talking about. In terms of where you see your debt levels peaking, given the redevelopment capital that we discussed and absent any joint venture or asset sales is it unreasonable to expect that the early part of 2009 will be the peak of your absolute debt level?

I think it probably not to the early part but the end of 2009 and maybe in to 2010. There are some, we are essentially finding our, in the absence of joint ventures we're funding all of our development ground up as well as redevelopment with debt capital. As we continue to spend dollar for dollar the absolute value of our debt will continue to increase.

The second question I have is, you have done a very good job on the improvement in base rents year to date through the third quarter. When I look at the schedule in your supplemental disclosure in 2009, and 2010, it looks like your expiring rents are well under what you have been currently leasing most of your space at. Is it unreasonable to expect significant bump up over those couple of years in terms of rent rate growth?

I think it's -- I think it's all too early to answer that question. We are in the midst of going through our leasing game plan process right now. Looking at '09 and '10 particularly as it relates to our three major redevelopments in the Philadelphia area.

Okay. Thank you very much, thanks for the call.

Thank you. Management I'm showing there are no further questions, I will turn it back to you for closing comments.

Thank you very much. Let me just say that in our nearly 50 years in business, the Company has continued to implement its plans in different markets cycles, this is another one. Throughout, the Company has completed it's projects and repaid its loans. While the world today has certainly changed it's not the first time we have again through a cycle. We will continue to draw on our experience and on our approach to business. This approach which has allowed us to grow and to continue to operate as a stable and profitable Company. Hopefully, our experience will give us the ability to meet the challenges ahead. I want to thank you for joining with us today.

Thank you. Ladies and gentlemen, that will conclude today's teleconference. We do thank you again for your participation, at this time you may disconnect, have a nice day.