Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common shares of beneficial interest, $1.00 par value per share, outstanding at ~~May 5,~~November 3, 2009: ~~40,199,225~~44,604,442

Except as the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” the “Company” and “PREIT” refer to Pennsylvania Real Estate Investment Trust and its subsidiaries, including our operating partnership, PREIT Associates, L.P. References in this Quarterly Report on Form 10-Q to “PREIT Associates” or the “Operating Partnership” refer to PREIT Associates, L.P. References in this Quarterly Report on Form 10-Q to “PRI” refer to PREIT-RUBIN, Inc.


(in thousands of dollars, except share and per share amounts)	March 31, 2009			(As revised) December 31, 2008			September 30, 2009			(as revised) December 31, 2008
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties	$	3,389,143		$	3,287,232		$	3,507,172		$	3,287,232
Construction in progress		365,163			411,479			275,618			411,479
Land held for development		9,337			9,337			9,337			9,337

Total investments in real estate		3,763,643			3,708,048			3,792,127			3,708,048
Accumulated depreciation		(547,570	)		(516,832	)		(608,605	)		(516,832	)

Net investments in real estate		3,216,073			3,191,216			3,183,522			3,191,216

INVESTMENTS IN PARTNERSHIPS, at equity		35,514			36,164			34,142			36,164
OTHER ASSETS:
Cash and cash equivalents		19,256			9,786			90,248			9,786
Tenant and other receivables (net of allowance for doubtful accounts of $17,332 and $16,865 at March 31, 2009 and December 31, 2008, respectively)		56,321			57,970
Intangible assets (net of accumulated amortization of $176,624 and $169,189 at March 31, 2009 and December 31, 2008, respectively)		60,861			68,296
Tenant and other receivables (net of allowance for doubtful accounts of $19,652 and $16,865 at September 30, 2009 and December 31, 2008, respectively)								47,874			57,970
Intangible assets (net of accumulated amortization of $191,359 and $169,189 at September 30, 2009 and December 31, 2008, respectively)								46,126			68,296
Deferred costs and other assets		82,279			80,845			91,068			80,845

Total assets	$	3,470,304		$	3,444,277		$	3,492,980		$	3,444,277


LIABILITIES:
Mortgage notes payable	$	1,752,869		$	1,756,270		$	1,795,619		$	1,756,270
Debt premium on mortgage notes payable		3,706			4,026			3,039			4,026
Exchangeable notes (net of debt discount of $10,568 and $11,421 at March 31, 2009 and December 31, 2008, respectively)		228,832			230,079
Exchangeable notes (net of debt discount of $7,654 and $11,421 at September 30, 2009 and December 31, 2008, respectively)								194,746			230,079
Credit Facility		447,000			400,000			485,000			400,000
Senior unsecured term loan		170,000			170,000			170,000			170,000
Tenants’ deposits and deferred rent		17,712			13,112			14,964			13,112
Distributions in excess of partnership investments		47,596			48,788			48,004			48,788
Accrued construction expenses		44,642			38,859			17,770			38,859
Fair value of derivative liabilities		23,114			29,169			17,727			29,169
Accrued expenses and other liabilities		51,367			55,711			55,310			55,711

Total liabilities		2,786,838			2,746,014			2,802,179			2,746,014
COMMITMENTS AND CONTINGENCIES (Note 8)

EQUITY:
Shares of beneficial interest, $1.00 par value per share; 100,000,000 shares authorized; issued and outstanding 40,154,961 shares at March 31, 2009 and 39,468,523 shares at December 31, 2008		40,155			39,469
Shares of beneficial interest, $1.00 par value per share; 100,000,000 shares authorized; issued and outstanding 43,302,334 shares at September 30, 2009 and 39,468,523 shares at December 31, 2008								43,302			39,469
Capital contributed in excess of par		855,042			853,281			871,136			853,281
Accumulated other comprehensive loss		(39,017	)		(45,341	)		(33,322	)		(45,341	)
Distributions in excess of net income		(223,498	)		(201,080	)		(249,892	)		(201,080	)

Total equity - PREIT		632,682			646,329
Total equity—PREIT								631,224			646,329
Noncontrolling interest		50,784			51,934			59,577			51,934

Total equity		683,466			698,263			690,801			698,263

Total liabilities and equity	$	3,470,304		$	3,444,277		$	3,492,980		$	3,444,277


	Three Months Ended March 31,						Three months ended September 30,						Nine months ended September 30,
(in thousands of dollars, except share and per share amounts)	2009			(as revised) 2008
(in thousands of dollars)										(as revised)						(as revised)
							2009			2008			2009			2008
REVENUE:
Base rent	$	73,186		$	73,816		$	74,230		$	72,780		$	220,997		$	218,978
Expense reimbursements		34,514			34,428			34,050			35,387			102,357			103,109
Percentage rent		834			1,488			918			1,060			2,378			3,526
Lease termination revenue		398			885			300			320			1,636			2,618
Other real estate revenue		3,278			3,591			3,306			3,719			10,075			10,950
Interest and other income		702			1,142			862			1,470			2,092			3,663

Total revenue		112,912			115,350			113,666			114,736			339,535			342,844


EXPENSES:
Property operating expenses:
CAM and real estate tax		(34,990	)		(32,871	)
Operating expenses:
CAM and real estate taxes								(35,159	)		(33,478	)		(103,814	)		(98,525	)
Utilities		(5,893	)		(5,977	)		(6,774	)		(7,009	)		(18,572	)		(19,283	)
Other operating expenses		(5,764	)		(5,579	)		(6,796	)		(7,153	)		(19,260	)		(18,997	)

Total property operating expenses		(46,647	)		(44,427	)
Total operating expenses								(48,729	)		(47,640	)		(141,646	)		(136,805	)

Depreciation and amortization		(39,396	)		(35,815	)		(41,702	)		(38,270	)		(122,243	)		(110,958	)
Other expenses:
General and administrative expenses		(9,354	)		(10,507	)		(9,583	)		(10,364	)		(28,436	)		(31,777	)
Impairment of assets								—			—			(70	)		—
Abandoned project costs, income taxes and other expenses		(318	)		(1,269	)		(200	)		(311	)		(598	)		(1,815	)

Total other expenses		(9,672	)		(11,776	)		(9,783	)		(10,675	)		(29,104	)		(33,592	)
Interest expense, net		(32,509	)		(27,845	)		(33,589	)		(29,329	)		(99,346	)		(83,413	)
Gain on extinguishment of debt		1,272			—			4,167			—			13,971			—

Total expenses		(126,952	)		(119,863	)		(129,636	)		(125,914	)		(378,368	)		(364,768	)
Loss before equity in income of partnerships		(14,040	)		(4,513	)
Loss before equity in income of partnerships and gains on sales of real estate								(15,970	)		(11,178	)		(38,833	)		(21,924	)
Equity in income of partnerships		2,517			1,462			2,355			2,169			7,531			5,738
Gains on sales of real estate								—			—			1,654			—

Loss from continuing operations								(13,615	)		(9,009	)		(29,648	)		(16,186	)
Discontinued operations:
Operating results from discontinued operations								98			149			390			435
Gain on sale of discontinued operations								3,398			—			3,398			—

Income from discontinued operations								3,496			149			3,788			435

Net loss		(11,523	)		(3,051	)		(10,119	)		(8,860	)		(25,860	)		(15,751	)
Less: net loss attributable to noncontrolling interest		541			115
Less: net loss attributed to noncontrolling interest								477			397			1,215			638

Net loss attributable to PREIT	$	(10,982	)	$	(2,936	)
Net loss attributable to Pennsylvania Real Estate Investment Trust							$	(9,642	)	$	(8,463	)	$	(24,645	)	$	(15,113	)

Basic loss per share	$	(0.28	)	$	(0.08	)

Diluted loss per share	$	(0.28	)	$	(0.08	)


(in thousands of shares)
Weighted average shares outstanding – basic		39,004			38,714
Effect of dilutive common share equivalents⁽¹⁾		—			—

Weighted average shares outstanding – diluted		39,004			38,714


							PREIT Shareholders																				PREIT Shareholders
(in thousands)	Total Equity			Comprehensive Income (Loss)			Shares of Beneficial Interest $1.00 Par		Capital Contributed in Excess of Par			Accumulated Other Comprehensive Loss			Distributions in Excess of Net Income			Non- controlling Interest
(in thousands of dollars, except per share amounts)																					Total Equity			Comprehensive Income (Loss)			Shares of Beneficial Interest $1.00 Par		Capital Contributed in Excess of Par			Accumulated Other Comprehensive Loss			Distributions in Excess of Net Income			Non- controlling Interest
Balance January 1, 2009, revised	$	698,263		$	—		$	39,469	$	853,281		$	(45,341	)	$	(201,080	)	$	51,934		$	698,263		$	—		$	39,469	$	853,281		$	(45,341	)	$	(201,080	)	$	51,934
Comprehensive income (loss):
Net loss		(11,523	)		(11,523	)		—		—			—			(10,982	)		(541	)		(25,860	)		(25,860	)		—		—			—			(24,645	)		(1,215	)
Unrealized gain on derivatives		6,345			6,345			—		—			6,024			—			321			11,739			11,739			—		—			11,117			—			622
Other comprehensive income		316			316			—		—			300			—			16			953			953			—		—			902			—			51

Total comprehensive loss		(4,862	)	$	(4,862	)													(204	)		(13,168	)	$	(13,168	)													(542	)

Shares issued upon redemption of Operating Partnership Units																						—						13		276			—			—			(289	)
Shares issued under distribution reinvestment and share purchase plan																						252						43		209			—			—			—
Shares issued under employee share purchase plans																						409						91		318			—			—			—
Shares issued under equity incentive plans, net of retirements																						(208	)					686		(894	)		—			—			—
Shares issued for repurchase of exchangeable notes																						15,030						3,000		12,030			—			—			—
Amortization of deferred compensation																						5,916						—	��	5,916			—			—			—
Distributions paid to common shareholders ($0.59 per share)																						(24,167	)					—		—			—			(24,167	)		—
Distributions paid to noncontrolling interests:
Operating Partnership unitholders ($0.59 per unit)																						(1,286	)					—		—			—			—			(1,286	)
Other change in noncontrolling interest																						9,760						—		—			—			—			9,760

Shares issued upon redemption of Operating Partnership Units		—						13		276			—			—			(289	)
Shares issued under employee share purchase plans		184						52		132			—			—			—
Shares issued under equity incentive plans, net of retirement		(195	)					621		(816	)		—			—			—
Amortization of deferred compensation		2,169						—		2,169			—			—			—
Distributions paid to common shareholders ($0.29 per share)		(11,436	)					—		—			—			(11,436	)		—
Distributions paid to noncontrolling interests:
Operating Partnership unitholders ($0.29 per unit)		(613	)					—		—			—			—			(613	)
Other		(44	)					—		—			—			—			(44	)
Balance September 30, 2009																					$	690,801					$	43,302	$	871,136		$	(33,322	)	$	(249,892	)	$	59,577

Balance March 31, 2009	$	683,466					$	40,155	$	855,042		$	(39,017	)	$	(223,498	)	$	50,784


	Three Months Ended March 31,						Nine Months Ended September 30,
(in thousands of dollars)	2009			(as revised) 2008			2009			(as revised) 2008
Cash flows from operating activities:
Net loss	$	(11,523	)	$	(3,051	)	$	(25,860	)	$	(15,751	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		31,284			27,381			97,416			86,336
Amortization		10,043			7,094			29,980			19,583
Straight-line rent adjustments		(315	)		(658	)		(1,256	)		(2,265	)
Provision for doubtful accounts		1,279			889			5,807			4,083
Amortization of deferred compensation		2,169			2,214			5,916			7,056
Gain on sales of real estate investments								(5,052	)		(49	)
Net gain on forward starting swap activities								—			(2,002	)
Gain on extinguishment of debt		(1,272	)		—			(13,971	)		—
Change in assets and liabilities:
Net change in other assets		7,105			4,336			(32	)		(7,129	)
Net change in other liabilities		1,251			1,565			4,031			4,905

Net cash provided by operating activities		40,021			39,770			96,979			94,767

Cash flows from investing activities:
Additions to construction in progress								(122,131	)		(225,878	)
Investments in real estate improvements								(15,916	)		(23,743	)
Investments in real estate acquisitions, net of cash acquired		(9	)		(4,043	)		(789	)		(12,709	)
Investments in real estate improvements		(4,236	)		(1,357	)
Additions to construction in progress		(53,108	)		(65,498	)
Additions to leasehold improvements								(257	)		(685	)
Investments in partnerships		(909	)		(1,096	)		(613	)		(3,542	)
(Increase) decrease in cash escrows		(1,779	)		843
Capitalized leasing costs		(1,093	)		(1,286	)		(3,149	)		(3,971	)
Additions to leasehold improvements		(70	)		(307	)
Cash proceeds from sales of real estate investments								20,936			126
Decrease in cash escrows								3,756			9,250
Cash distributions from partnerships in excess of equity in income		440			801			1,884			653
Cash proceeds from sales of real estate investments		45			—

Net cash used in investing activities		(60,719	)		(71,943	)		(116,279	)		(260,499	)

Cash flows from financing activities:
Principal installments on mortgage notes payable		(3,977	)		(5,874	)
Net borrowings from Credit Facility								85,000			50,000
Borrowings from senior unsecured term loan								—			170,000
Proceeds from mortgage notes payable		16,250			55,000			70,143			460,265
Repayment of mortgage notes payable		(15,674	)		—			(18,058	)		(413,617	)
Principal installments on mortgage notes payable								(12,736	)		(17,669	)
Repurchase of exchangeable notes		(693	)		—			(7,893	)		—
Net borrowings from Credit Facility		47,000			—
Net payment from settlement of forward-starting interest swap agreements								—			(16,503	)
Payment of deferred financing costs		(679	)		(556	)		(1,776	)		(6,570	)
Dividends paid to common shareholders								(24,167	)		(67,282	)
Distributions paid to operating partnership unitholders and noncontrolling interest								(1,286	)		(3,729	)
Shares of beneficial interest issued		103			584			561			2,987
Shares of beneficial interest repurchased		(113	)		(619	)		(114	)		(623	)
Dividends paid to common shareholders		(11,436	)		(22,403	)
Distributions paid to operating partnership unitholders and noncontrolling interest		(613	)		(1,234	)
Contributions from investor with noncontrolling interest in project								10,088			—

Net cash provided by financing activities		30,168			24,898			99,762			157,259

Net change in cash and cash equivalents		9,470			(7,275	)		80,462			(8,473	)
Cash and cash equivalents, beginning of period		9,786			27,925			9,786			27,925

Cash and cash equivalents, end of period	$	19,256		$	20,650		$	90,248		$	19,452

Pennsylvania Real Estate Investment Trust (“PREIT” or the “Company”) prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the included disclosures are adequate to make the information presented not misleading. The unaudited consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in PREIT’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2008. In management’s opinion, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company and its subsidiaries and the consolidated results of its operations and its cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

PREIT, a Pennsylvania business trust founded in 1960 and one of the first equity real estate investment trusts (“REITs”) in the United States, has a primary investment focus on retail shopping malls and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. As of ~~March 31,~~September 30, 2009, the Company’s portfolio consisted of a total of 5655 properties in 13 states, including 38 shopping malls, 14 strip and power centers and ~~four~~three properties under development. The ~~ground up~~ development portion of the Company’s portfolio contained ~~four~~three properties in two states, with two classified as “mixed-use” (a combination of retail and other uses)~~, one classified as retail~~ and one classified as “other.”

The Company holds its interest in its portfolio of properties through its operating partnership, PREIT Associates, L.P. (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and, as of ~~March 31,~~September 30, 2009, the Company held a ~~94.8%~~94.9% interest in the Operating Partnership and consolidates it for reporting purposes. The presentation of consolidated financial statements does not itself imply that the assets of any consolidated entity (including any special-purpose entity formed for a particular project) are available to pay the liabilities of any other consolidated entity, or that the liabilities of any consolidated entity (including any special-purpose entity formed for a particular project) are obligations of any other consolidated entity.

Pursuant to the terms of the partnership agreement of the Operating Partnership, each of the limited partners has the right to redeem such partner’s units of limited partnership interest in the Operating Partnership (“OP Units”) for cash or, at the election of the Company, the Company may acquire such OP Units for common shares of the Company on a one-for-one basis. In some cases, the right to tender OP Units for redemption begins one year following the respective issue date of the OP Units, and in other cases immediately.

The Company provides its management, leasing and real estate development services through two companies: PREIT Services, LLC (“PREIT Services”), which generally develops and manages properties that the Company consolidates for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally develops and manages properties that the Company does not consolidate for financial reporting purposes, including properties owned by partnerships in which the Company owns an interest and properties that are owned by third parties in which the Company does not have an interest. PREIT Services and PRI are consolidated. Because PRI is a taxable REIT subsidiary as defined by federal tax laws, it is capable of offering a broad range of services to tenants without jeopardizing the Company’s continued qualification as a real estate investment trust under federal tax law.

As further described in note 2, the Company’s consolidated financial statements presented herein have been revised to reflect the ~~impact~~effect of the Company’s adoption of ~~FASB Staff Position APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled~~new accounting guidance relating to convertible debt instruments that may be settled in ~~Cash Upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”)~~cash upon conversion and ~~Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS No. 160”).~~to noncontrolling interests.

Certain prior period amounts have been reclassified to conform with the current year presentation.

The Company is subject to various risks and uncertainties in the ordinary course of business that could have adverse ~~impacts~~effects on its operating results and financial condition. The most significant external risks facing the Company today stem from the current downturn in the overall economy and challenging conditions in the capital and credit markets.

Substantially all of the Company’s revenue is generated from leases with retail tenants. The reduction in consumer spending as a result of declining consumer confidence and increasing unemployment has negatively affected, and may continue to negatively affect, the operations of many retail companies. Beginning in the second half of 2008 and continuing into 2009, the number of retail bankruptcies and store closings has increased. Retailers also have reduced the number of store openings planned for 2009 and 2010 due to these economic conditions. These conditions have caused and may continue to cause the Company’s occupancy rates, revenue and net income to decline.

The Company has historically used a substantial amount of debt to finance its business, and has relied primarily on new borrowings to fund its redevelopment and development projects. The Company ~~expects to meet certain of its current obligations to fund existing redevelopment and development projects and scheduled debt maturities through a variety of capital sources. The Company~~ estimates that it will ~~require~~incur approximately ~~$90 million to $100~~$20.0 million during the remainder of 2009, and up to an additional $50.0 million, net of expected reimbursements in 2010 and 2011, to fund its current redevelopment and development ~~projects. In addition, $42.6~~projects, including $14.6 million ~~of its existing consolidated debt matures during 2009; however, $8.0 million of its existing consolidated debt agreements contain options~~as to ~~extend~~which the ~~respective maturity dates for a period of one year, provided that there~~Company is no event of default with respect to such loans, and certain other conditions are met. An additional $123.6 million, which represents the Company’s share of debt at partnership properties, matures during 2009; however, $111.2 million of the debt agreements of partnership properties contain options to extend the respective maturity dates for a period of one year, provided that there is no event of default with respect to such loans, and certain other conditions are met. contractually committed.

As of ~~March 31,~~September 30, 2009, ~~$447.0~~$485.0 million was outstanding under the Credit Facility, which matures in March 20, 2010. In addition, the Company has pledged ~~$1.5~~$3.0 million under the Credit Facility as collateral for letters of credit. The unused portion of the Credit Facility that was available to the Company on ~~March 31,~~September 30, 2009 was ~~$51.5~~$12.0 million. The Company has agreed upon a non-binding term sheet with the lead bank in the Credit Facility and the senior unsecured term loan (“Term Loan”) to refinance such debt. The term sheet is subject to review and approval by the members of the Credit Facility bank group, which might or might not be obtained, or which might only be obtained following changes to the term sheet. Even if a term sheet is accepted by all the members of the bank group, the Company might or might not be successful in negotiating satisfactory definitive documents. Management of the Company believes that it will be able to reach an agreement with the bank group with respect to a refinancing of the Credit Facility and Term Loan. This belief is subject to risks and uncertainties that could cause actual events to differ, including: risks arising from a further downturn in economic and retail industry conditions, including unemployment, decreased consumer confidence and consumer spending, which particularly affect retail REITs like the Company; risks arising from disruptions in the capital and credit markets, which might affect the Company’s ability to obtain other debt or equity capital or the banks’ abilities to extend credit; the risk of a real or perceived decline in the value of the Company’s properties; risks arising from the Company’s substantial indebtedness, the level of its cash flows, its ability to comply with debt agreement covenants, and perceptions of its creditworthiness, which might affect the Company’s continuing attractiveness as a borrower and the banks’ willingness to further extend credit; and other risks, including individual bank group members declining to approve a term sheet or definitive documents, which could inhibit the execution of a comprehensive agreement.

The Company expects to satisfy its remaining 2009 capital requirements for redevelopment and development projects and debt maturities ~~in part~~through existing cash balances, as well as through borrowings under its Credit Facility, ~~by refinancing certain mortgage loans and by~~extensions of the maturity dates of existing indebtedness, additional borrowings secured by ~~existing properties. However, given~~certain select properties and operating cash flow. The Company expects to continue to use some or all of these methods to meet its capital requirements in early 2010, assuming the Company refinances its Credit Facility and Term Loan, and subject to any restrictions that it may agree to in connection with any such refinancing. Given the continued weakness of the credit markets and the Company’s current financial position and results of operations, there is no assurance that the Company will be able to refinance its Credit Facility, Term Loan or other existing ~~debt or~~debt. Even if the Company is able to refinance its Credit Facility and Term Loan, it may not be able to obtain the additional capital necessary to satisfy its obligations or ~~requirements. Consequently,~~requirements going forward, and its possible actions to secure additional capital might be subject to restrictions in applicable debt obligations, including restrictions on asset sales or the use of proceeds from other transactions. The Company ~~also plans to~~may seek to raise capital through ~~selective sales~~the public or private issuance of ~~assets, including outparcels, if warranted.~~equity or unsecured debt securities. However, the continued weakness of the credit markets might make it more difficult for the Company to sell such assets or might adversely affect the price the Company receives for properties or parcels that it may sell, as prospective buyers might experience increased costs of debt financing or difficulties in obtaining debt financing. Similarly, while the Company may seek to sell equity or debt securities, continued uncertainty in the capital markets may make it difficult for itthe Company to issue ~~equity~~ securities on terms that are favorable to it, if at all, and any such issuance ~~might~~of equity securities would likely be dilutive to existing shareholders. The Company might also seek, subject to restrictions in applicable debt obligations, to satisfy its long-term capital requirements through the formation of joint ventures with institutional partners, private equity investors or other REITs, or through a combination of some or all of the alternatives that might be available ~~alternatives.~~to the Company. The Company expects that other long-term capital requirements for which commitments have not previously been made, including any future redevelopment and development projects, renovations, expansions, property and portfolio acquisitions and other non-recurring capital improvements, may be deferred until such time as capital or financing can be obtained on terms the Company finds acceptable. A prolonged downturn in the credit markets might cause the Company to seek alternative sources of capital or financing, which could be less attractive and might require it to adjust its business plan accordingly.

Effective January 1, 2009, the Company adopted ~~FSP 14-1, which clarifies~~new accounting requirements that clarify the accounting treatment for convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including partial cash settlement) ~~are not addressed by paragraph 12 of APB Opinion No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants.”~~. The Company’s exchangeable notes are within the scope of ~~FSP 14-1.~~these new accounting requirements. The Company was required to retrospectively ~~applied FSP 14-1~~apply these new accounting requirements to prior periods, and recorded the impact of ~~the~~its adoption of ~~FSP 14-1~~these new accounting requirements as of the issuance date of the exchangeable notes (May 2007). Pursuant to ~~FSP 14-1,~~these new accounting requirements, the value assigned to the debt component is the estimated fair value of a similar bond without the conversion feature, which would result in the debt being recorded at a discount. The Company determined that the fair value of the conversion feature at the date of the issuance was $19.3 million, which was recorded as an increase to capital contributed in excess of par and a decrease to exchangeable notes in the accompanying consolidated balance sheets. The amount that was recorded for the conversion feature is not ~~amortized, and has not changed as of March 31, 2009.~~

amortized. The debt discount is amortized as additional non-cash interest expense over the period during which the debt is expected to be outstanding. The unamortized discount on the exchangeable notes was ~~$10.6~~$7.7 million and $11.4 million as of ~~March 31,~~September 30, 2009 and December 31, 2008, ~~respectively.~~respectively, following repurchases of some outstanding exchangeable notes by the Company in 2009. The implementation of this standard resulted in an increase to interest expense and net loss of $0.9 million and $2.6 million from amounts previously reported for the three and nine months ended ~~March 31, 2008.~~September 30, 2008, respectively.

Effective January 1, 2009, the Company prospectively adopted ~~Statement of Financial Accounting Standards No. 141 (rev. 2007), “Business Combinations (a revision of Statement No. 141)” (“SFAS No. 141 R”), prospectively. This statement applies~~new accounting requirements relating to business combinations. These new accounting requirements apply to all transactions or other events in which an entity obtains control of one or more businesses, including those combinations achieved without the transfer of consideration. ~~SFAS No. 141 R retains~~These new accounting requirements expand the ~~fundamental requirement in SFAS No. 141 that~~scope of the acquisition method of accounting ~~be used for all business combinations. SFAS No. 141 R expands the scope~~ to include all business combinations and ~~requires~~require an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interests in the acquiree at their fair values as of the acquisition date. Additionally, ~~SFAS No. 141 R changes~~these new accounting requirements change the way entities account for business combinations achieved in stages by requiring the identifiable assets and liabilities to be measured at fair value at the acquisition date. ~~SFAS No. 141 R requires~~These new accounting requirements require entities to directly expense transaction costs. The adoption of ~~SFAS No. 141 R~~these new accounting requirements did not have a material effect on the Company’s consolidated financial statements.

Effective January 1, 2009, the Company adopted ~~SFAS No. 160~~new accounting requirements related to the classification and ~~FASB Emerging Issues Task Force Topic No. D-98, “Classification and Measurement~~measurement of ~~Redeemable Securities” (“EITF D-98”).~~redeemable securities. The ownership interests in a subsidiary that are held by owners other than the parent are noncontrolling interests (which were previously reported on the consolidated balance sheet as ~~“minority~~“Minority interest”). Under ~~SFAS 160,~~these new accounting requirements, noncontrolling interest represents the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Under ~~SFAS 160,~~these new accounting requirements, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. ~~For shareholders’ equity noncontrolling interests and total equity consolidated~~Consolidated statements of equity are included for both quarterly and annual financial statements, including beginning balances, activity for the period and ending balances. On the consolidated statements of operations, revenue, expenses and net loss are reported at the consolidated amounts including both the amounts attributable to the Company and to noncontrolling interests.

However, in accordance with ~~EITF D-98~~these new accounting requirements, securities (including those considered to be noncontrolling interests) that are redeemable for cash or other assets at the option of the holder, not solely within the control of the issuer, must be classified outside of permanent equity. The Company makes this determination based on terms in applicable agreements, specifically in relation to redemption provisions. Additionally, with respect to noncontrolling interests for which the Company has a choice to settle the contract by delivery in its own shares, the Company considered the guidance ~~in EITF 00-19, “Accounting~~relating to the accounting for ~~Derivative Financial Instruments Indexed~~derivative financial instruments indexed to, and ~~Potentially Settled~~potentially settled in, a ~~Company’s Own Stock,”~~company’s own stock, to evaluate whether such provisions are solely within the Company’s control. The Company has concluded that for its noncontrolling interests that allow for redemption in either cash or Company shares, all such provisions are solely within its control. As a result of its evaluation, the Company has determined that all of its noncontrolling interests qualify as permanent equity, and therefore are not subject to the classification and measurement provisions of ~~EITF D-98.~~these new accounting requirements.

As of ~~March 31,~~September 30, 2009, the Operating Partnership’s noncontrolling interests have a redemption value of approximately ~~$7.8~~$17.7 million (based on the Company’s closing common share price on the New York Stock Exchange on that date of ~~$3.55)~~$7.61), which represents the amount that would be paid to the Operating Partnership’s ~~outside~~ noncontrolling limited partners.

Also as a result of the adoption of ~~SFAS No. 160,~~these new accounting requirements, the statement of operations captions entitled “Income (loss) before minority interest,” “Minority interest” and “Net income (loss)” are now entitled “Net income (loss),” “Net income (loss) attributable to noncontrolling interest” and “Net income (loss) attributable to PREIT,” respectively.

As of ~~March 31,~~September 30, 2009, the Company has a ~~49.9%~~99.8% interest in Bala Cynwyd Associates, L.P. (“BCA”) and an option to purchase the remaining interests, as described in note 3. BCA owns an office building. The Company has consolidated the assets, liabilities and results of operations of BCA in the Company’s consolidated financial statements. The ~~50.1%~~ interest that iswas not owned by the Company is reflected in noncontrolling interest on the accompanying consolidated balance sheets of ~~$3.8 million~~$15,000 and $3.8 million as of ~~March 31,~~September 30, 2009 and December 31, 2008, respectively.

Effective January 1, 2009, the Company adopted ~~Statement of Financial Accounting Standards No. 161, “Disclosures~~new accounting requirements relating to disclosures about ~~Derivative Instruments~~derivative instruments and ~~Hedging Activities” (“SFAS No. 161”). SFAS No. 161 requires~~hedging activities, which require enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.

3.	~~REAL ESTATE ACTIVITIES~~

Effective June 30, 2009, the Company adopted new accounting requirements relating to subsequent events. These new accounting requirements are modeled after the same principles as the subsequent event guidance in auditing literature, with some terminology changes and additional disclosures. The adoption of these new accounting requirements had no material effect on the Company’s consolidated financial statements. The Company evaluated subsequent events through the date of this filing.

In June 2009, new accounting requirements relating to accounting for transfers of financial assets were issued. These new accounting requirements are effective for annual reporting periods beginning after November 15, 2009. The recognition and measurement provisions of these new accounting requirements are applied to transfers that occur on or after the effective date. The disclosure provisions of these new accounting requirements are applied to transfers that occurred both before and after the effective date of the new accounting requirements. The Company does not expect the adoption of these new accounting requirements to have a material effect on the Company’s financial statements.

In June 2009, new accounting requirements relating to variable interest entities were issued. These new accounting requirements amend the existing accounting guidance as follows: a) to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity, identifying the primary beneficiary of a variable interest entity; b) to require ongoing reassessment of whether an enterprise is the primary beneficiary of a variable interest entity, rather than only when specific events occur; c) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest; d) to amend certain guidance for determining whether an entity is a variable interest entity; e) to add an additional reconsideration event when changes in facts and circumstances pertinent to a variable interest entity occur; f) to eliminate the exception for troubled debt restructuring regarding variable interest entity reconsideration; and g) to require advanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. These new accounting requirements are effective for the first annual reporting period that begins after November 15, 2009. The Company is currently evaluating the effect that the adoption of these new accounting requirements will have on the Company’s consolidated financial statements.

Effective September 30, 2009, the Company adopted the Financial Accounting Standards Board Accounting Standards Codification (“ASC”). The ASC is the sole source of authoritative U.S. GAAP for interim and annual periods ending after September 15, 2009, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. The adoption of the ASC did not have a significant impact on the Company’s consolidated financial statements.

Investments in real estate as of ~~March 31,~~September 30, 2009 and December 31, 2008 were comprised of the following:


(in thousands of dollars)	As of March 31, 2009			As of December 31, 2008			As of September 30, 2009			As of December 31, 2008
Buildings, improvements and construction in progress	$	3,194,506		$	3,140,371		$	3,222,025		$	3,140,371
Land, including land held for development		569,137			567,677			570,102			567,677

Total investments in real estate		3,763,643			3,708,048			3,792,127			3,708,048
Accumulated depreciation		(547,570	)		(516,832	)		(608,605	)		(516,832	)

Net investments in real estate	$	3,216,073		$	3,191,216		$	3,183,522		$	3,191,216

Costs incurred in relation to development and redevelopment projects for interest, property taxes and insurance are capitalized only during periods in which activities necessary to prepare the property for its intended use are in progress. Costs incurred for such items after the property is substantially complete and ready for its intended use are charged to expense as incurred. Capitalized costs, as well as tenant inducement amounts and internal and external commissions, are recorded in construction in progress. The Company capitalizes a portion of development department employees’ compensation and benefits related to time spent involved in development and redevelopment projects.

The Company capitalizes payments made to obtain options to acquire real property. All other related costs that are incurred before acquisition that are expected to have ongoing value to the project are capitalized if the acquisition of the property is probable. If the property is acquired, such costs are included in the amount recorded as the initial value of the asset. Capitalized pre-acquisition costs are charged to abandoned project costs, income taxes and other expenses when it is probable that the property will not be acquired. The Company recorded abandoned project costs of $0.2 million and ~~$1.2~~$0.3 million for the three months ended ~~March 31,~~September 30, 2009, and 2008, respectively, and $0.4 million and $1.6 million for the nine months ended September 30, 2009, and 2008, respectively.

The Company capitalizes salaries, commissions and benefits related to time spent by leasing and legal department personnel involved in originating leases with third-party tenants.

The following table summarizes the Company’s capitalized salaries, commissions and benefits, real estate taxes and interest for the three and nine months ended ~~March 31,~~September 30, 2009 and ~~March 31,~~ 2008, respectively.


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands of dollars)	2009		2008		2009		2008		2009		2008
Development/Redevelopment Activities:
Salaries and benefits	$	753	$	762	$	339	$	770	$	1,715	$	2,416
Real estate taxes	$	788	$	766	$	94	$	666	$	939	$	1,746
Interest	$	1,812	$	3,856	$	1,344	$	4,145	$	4,601	$	11,584
Leasing Activities:
Salaries and benefits	$	1,093	$	1,286
Salaries, commissions and benefits					$	999	$	1,166	$	3,149	$	3,971

Real estate investments and related intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the property might not be recoverable. A property to be held and used is considered impaired only if management’s estimate of the aggregate future cash flows, less estimated capital expenditures, to be generated by the property, undiscounted and without interest charges, are less than the carrying value of the property. The estimate takes into consideration factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other

factors. In addition, these estimates may consider a probability weighted cash flow estimation approach when alternative courses of action to recover the carrying amount of a long-lived asset are under consideration or when a range of possible values is estimated.

and whether the effects could materially impact the Company’s results of operations. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.

The Company tests for impairment in several situations, including when current or projected cash flows from a real estate investment are significantly less than budgeted cash flows, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life, or when other events or changes in circumstances indicate that an asset’s carrying value might not be recoverable. In the evaluation of the impairment of the Company’s assets, the Company makes many assumptions and estimates, including:

As a preliminary indicator to determine if the carrying value of a property might not be recovered by undiscounted cash flows, ~~as of March 31, 2009,~~ the Company ~~utilized~~utilizes a five-year planning model based on existing tenants, expectations about future rental activity and expense levels. For periods beyond the five-year model, the Company ~~assumed~~assumes a 2.0% rate of growth for cash flows over the estimated useful lives of the individual properties, which is lower than the historical assumed growth rate utilized because of the current economic conditions. As ~~a result~~ of ~~this test,~~September 30, 2009, the Company ~~did~~has not ~~identify~~identified any properties that required further consideration of property and market specific conditions or factors to determine if the property was impaired.

In August 2009, the Company sold Crest Plaza in Allentown, Pennsylvania for $15.8 million. The Company recorded a gain of $3.4 million from this sale.

In June 2009, the Company sold a land parcel adjacent to North Hanover Mall in Hanover, Pennsylvania for $2.0 million. The Company recorded a gain of $1.4 million from this sale.

In June 2009, the Company sold a land parcel adjacent to Woodland Mall in Grand Rapids, Michigan for $2.7 million. The parcel contained a department store that was subject to a ground lease. The Company recorded a gain of $0.2 million from this sale.

In May 2009, the Company sold an outparcel and related land improvements containing an operating restaurant at Monroe Marketplace in Selinsgrove, Pennsylvania for $0.9 million. The Company recorded an impairment of $0.1 million immediately prior to this transaction. No gain or loss was recorded from this sale.

In January 2008, the Company entered into an agreement under which it acquired a 0.1% general partnership interest and a 49.8% limited partnership interest in BCA, and an option to purchase the remaining partnership interests in BCA. In June 2009, the Company acquired an additional 49.9% limited partnership interest in BCA ~~in two closings that are~~at a second closing. A third closing is expected to occur in the second quarter of ~~2009 and~~2010 at which time the ~~second quarter of 2010.~~Company will acquire the remaining 0.2% limited partnership interest. BCA is the owner of One Cherry Hill Plaza, an office building located within the boundaries of the Company’s Cherry Hill Mall in Cherry Hill, New Jersey. The Company acquired its interests in BCA for ~~$4.0~~$4.1 million in cash and 140,745 OP Units paid at the first ~~closing in February 2008.~~and second closings. See note 7 for further discussion. The Company has consolidated BCA for financial reporting purposes.

The following table presents summarized financial information of the equity investments in the Company’s unconsolidated partnerships as of ~~March 31,~~September 30, 2009 and December 31, 2008:


(in thousands of dollars)	As of March 31, 2009			As of December 31, 2008			As of September 30, 2009			As of December 31, 2008
ASSETS:
Investments in real estate, at cost:
Retail properties	$	390,584		$	390,341		$	391,897		$	390,341
Construction in progress		3,052			4,402			2,814			4,402

Total investments in real estate		393,636			394,743			394,711			394,743
Accumulated depreciation		(106,246	)		(102,804	)		(112,896	)		(102,804	)

Net investments in real estate		287,390			291,939			281,815			291,939
Cash and cash equivalents		7,858			5,887			8,436			5,887
Deferred costs and other assets, net		22,256			22,848			21,923			22,848

Total assets		317,504			320,674			312,174			320,674

LIABILITIES AND PARTNERS’ DEFICIT:
Mortgage notes payable		369,167			370,206			367,174			370,206
Other liabilities		16,259			18,308			15,928			18,308

Total liabilities		385,426			388,514			383,102			388,514

Net deficit		(67,922	)		(67,840	)		(70,928	)		(67,840	)
Partners’ share		(33,785	)		(33,659	)		(35,329	)		(33,659	)

Company’s share		(34,137	)		(34,181	)		(35,599	)		(34,181	)
Excess investment⁽¹⁾		16,794			16,143			16,889			16,143
Advances		5,261			5,414			4,848			5,414

Net investments and advances	$	(12,082	)	$	(12,624	)	$	(13,862	)	$	(12,624	)

Investment in partnerships, at equity	$	35,514		$	36,164		$	34,142		$	36,164
Distributions in excess of partnership investments		(47,596	)		(48,788	)		(48,004	)		(48,788	)

Net investments and advances	$	(12,082	)	$	(12,624	)	$	(13,862	)	$	(12,624	)

The following table summarizes the Company’s share of equity in income of partnerships for the three and nine months ended ~~March 31,~~September 30, 2009 and 2008:


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands of dollars)	2009			2008			2009			2008			2009			2008
Real estate revenue	$	18,666		$	17,331		$	18,210		$	19,143		$	55,400		$	56,435
Expenses:
Property operating expenses		(5,956	)		(5,213	)		(5,746	)		(6,130	)		(17,460	)		(17,011	)
Interest expense		(3,567	)		(5,342	)		(3,867	)		(4,740	)		(10,991	)		(15,912	)
Depreciation and amortization		(3,901	)		(3,727	)		(3,863	)		(3,975	)		(11,603	)		(11,799	)

Total expenses		(13,424	)		(14,282	)		(13,476	)		(14,845	)		(40,054	)		(44,722	)

Net income		5,242			3,049			4,734			4,298			15,346			11,713
Less: Partners’ share		(2,610	)		(1,524	)		(2,350	)		(2,068	)		(7,630	)		(5,788	)

Company’s share		2,632			1,525			2,384			2,230			7,716			5,925
Amortization of excess investment		(115	)		(63	)		(29	)		(61	)		(185	)		(187	)

Equity in income of partnerships	$	2,517		$	1,462		$	2,355		$	2,169		$	7,531		$	5,738

The Company owns an indirect 50% partnership interest in Lehigh Valley Associates which owns Lehigh Valley Mall, located in Allentown, Pennsylvania, that is included in the amounts above. Summarized financial information for the nine months ended September 30, 2009 and 2008 for this property, which is accounted for by the equity method, is as follows:

In July 2006, Lehigh Valley Associates entered into a $150.0 million mortgage loan that is secured by Lehigh Valley Mall. The Company owns an indirect 50% partnership interest in this entity. The mortgage loan had an initial term of 12 months, during which monthly payments of interest only were required. The loan bears interest at the one month LIBOR rate, reset monthly, plus a spread of 0.56%. There are three separate one-year extension options, provided that there is no event of default, that the borrower buys an interest rate cap for the term of any applicable extension and provided that certain other conditions are met, as required under the loan agreement. In August 2007, June 2008 and July 2009, the partnership that owns the mall exercised the first, second and third one-year extension options, respectively.

In October 2009, Red Rose Commons Associates, LP entered into a $23.9 million mortgage loan that is secured by Red Rose Commons, located in Lancaster, Pennsylvania. The Company owns an indirect 50% partnership interest in this entity. The mortgage loan has an initial term of two years, during which monthly payments of interest only are required. The loan bears interest at a variable rate of LIBOR plus 4.00% with a floor of 6.00% per annum. The proceeds from the mortgage loan were used to repay the previous mortgage, of which the Company’s share was $12.3 million, that was secured by Red Rose Commons.

An other than temporary impairment of an investment in an unconsolidated partnership is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in fair value, including the results of discounted cash flow and other valuation techniques. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

As of ~~March 31,~~September 30, 2009, ~~$447.0~~$485.0 million was outstanding under the Credit Facility, which expires in March 20, 2010. The Company had pledged ~~$1.5~~$3.0 million under the Credit Facility as collateral for letters of credit, and the unused portion of the Credit Facility that was available to the Company was ~~$51.5~~$12.0 million at ~~March 31,~~September 30, 2009. The weighted average effective interest rate based on amounts borrowed was ~~2.23%~~1.96% and ~~5.32%~~4.29% for the three months ended ~~March 31,~~September 30, 2009 and 2008, respectively. The weighted average interest rate on outstanding Credit Facility borrowings at ~~March 31,~~September 30, 2009 was ~~1.93%~~1.65% (LIBOR plus 1.40%). The Company has agreed upon a non-binding term sheet with the lead bank in the Credit Facility and the Term Loan. The term sheet is subject to review and approval by the members of the Credit Facility bank group, which might or might not be obtained, or which might only be obtained following changes to the term sheet. Even if a term sheet is accepted by all of the members of the bank group, the Company might or might not be successful in negotiating satisfactory definitive documents.

Management of the Company believes that it will be able to reach an agreement with the bank group with respect to a refinancing of the Credit Facility and Term Loan. This belief is subject to risks and uncertainties that could cause actual events to differ, including: risks arising from a further downturn in economic and retail industry conditions, including unemployment, decreased consumer confidence and consumer spending, which particularly affect retail REITs like the Company; risks arising from disruptions in the capital and credit markets, which might affect the Company’s ability to obtain other debt or equity capital or the banks’ abilities to extend credit; the risk of a real or perceived decline in the value of the Company’s properties; risks arising from the Company’s substantial indebtedness, the level of its cash flows, its ability to comply with debt agreement covenants, and perceptions of its creditworthiness, which might affect the Company’s continuing attractiveness as a borrower and the banks’ willingness to further extend credit; and other risks, including individual bank group members declining to approve a term sheet or definitive documents, which could inhibit the execution of a comprehensive agreement.

The amounts borrowed under the Company’s Credit Facility bear interest at a rate between 0.95% and 2.00% per annum over LIBOR based on the Company’s leverage. In determining the Company’s leverage, the capitalization rate used to calculate Gross Asset Value, as defined in the Credit Facility agreement, is 7.50%.

The Credit Facility contains affirmative and negative covenants and requirements customarily found in facilities of this type, as detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and which have not changed since that date. As of ~~March 31,~~September 30, 2009, the Company was in compliance with all of these covenants. The financial covenants under the Credit Facility require, among other things, that the Company’s leverage ratio, as defined in the Credit Facility, be less than 65%, provided that this leverage ratio can be exceeded for one period of two consecutive quarters, but may not exceed 70%. The financial covenants also require compliance with other debt ~~covenants.~~yield, interest coverage and fixed charge ratios.

Compliance with each of these ratios is dependent upon the Company’s financial performance. The leverage ratio is based, in part, on applying a capitalization rate to the Company’s net operating income. Based on this calculation method, decreases in net operating income would result in an increased leverage ratio, even if overall debt levels remain constant. The leverage ratio was 66.1% at the end of the quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio exceeded 65%. The financial covenants also require that the minimum debt yield ratio, as defined in the Credit Facility, be greater than 9.75%, provided that this ratio can be less than 9.75% for one period of two consecutive quarters, but may not be below 9.25%. The minimum debt yield ratio was 9.74% for the quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio was less than 9.75%.

Upon the expiration of any applicable cure period following an event of default, the lenders may declare all of the Company’s obligations in connection with the Credit Facility immediately due and payable, and the commitments of the lenders to make further loans under the Credit Facility will terminate. Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of the Company, PREIT Associates, PRI or any material subsidiary, all outstanding amounts will automatically become immediately due and payable and the commitments of the lenders to make further loans will automatically terminate.

The Company’s exchangeable notes had a balance of ~~$228.8~~$202.4 million and ~~$230.1~~$241.5 million ~~(net of~~(excluding debt discount of ~~$10.6~~$7.7 million and $11.4 million) as of ~~March 31,~~September 30, 2009 and December 31, 2008, respectively. Interest expense related to the exchangeable notes was ~~$3.2~~$2.8 million and ~~$3.7~~$3.8 million (including non-cash amortization of debt discount of ~~$0.8~~$0.7 million and $0.9 million) for the three months ended ~~March 31,~~September 30, 2009 and 2008, respectively, and $9.1 million and $11.2 million (including non-cash amortization of debt discount of $2.2 million and $2.6 million) for the nine months ended September 30, 2009 and 2008, respectively. The exchangeable notes bear interest at a contractual rate of 4.00% per annum. The exchangeable notes had an effective interest rate of ~~4.50% and 4.52%~~5.68% for the three months ended ~~March 31,~~September 30, 2009, ~~and 2008, respectively,~~ including the impact of the debt discount amortization.

Pursuant to the exchangeable notes’ exchange settlement feature, upon surrender of the exchangeable notes for exchange, the exchangeable notes will be exchangeable for cash equal to the principal amount of the exchangeable notes and, with respect to any excess exchange value above the principal amount of the exchangeable notes, at the Company’s option, for cash, common shares of the Company or a combination of cash and common shares at an initial exchange rate of 18.303 shares per $1,000 principal amount of exchangeable notes, or $54.64 per share. The exchangeable notes will be exchangeable only under certain circumstances. Prior to maturity, the Operating Partnership may not redeem the exchangeable notes except to preserve the Company’s status as a real estate investment trust. If the Company undergoes certain change of control transactions at any time prior to maturity, holders of the exchangeable notes may require the Operating Partnership to repurchase their exchangeable notes, in whole or in part, for cash equal to 100% of the principal amount of the exchangeable notes to be repurchased plus unpaid interest, if any, accrued to the repurchase date, and there is a mechanism for holders to receive any excess exchange value. The indenture for the exchangeable notes does not contain any financial covenants.

As of ~~March 31,~~September 30, 2009, the ~~exchangeable notes’~~ if-converted value of the exchangeable notes did not exceed their principal amounts because the market value of the Company’s common shares was less than $54.64, and therefore, the conversion feature of the exchangeable notes had no value.

In October 2009, the Company repurchased $35.0 million in aggregate principal amount of its exchangeable notes in exchange for 1.3 million common shares, with a fair market value of $9.9 million, and $13.3 million in cash. The Company will record a gain on extinguishment of debt of $9.9 million in the fourth quarter of 2009. In connection with the repurchase, the Company retired an aggregate of $1.8 million of deferred financing costs and debt discount.

In September 2009, the Company repurchased $12.0 million in aggregate principal amount of its exchangeable notes for $7.2 million in cash. The Company recorded a gain on extinguishment of debt of $4.2 million in the third quarter of 2009. In connection with the repurchase, the Company retired an aggregate of $0.6 million of deferred financing costs and debt discount.

In June 2009, the Company repurchased $25.0 million in aggregate principal amount of its exchangeable notes in exchange for 3.0 million common shares with a fair market value of $15.0 million, resulting in a gain on extinguishment of debt of $8.5 million. In connection with the repurchase, the Company retired an aggregate of $1.4 million of deferred financing costs and debt discount.

In January 2009, the Company repurchased $2.1 million in aggregate principal amount of its exchangeable notes for $0.7 million, resulting in a gain on extinguishment of debt of $1.3 million. In connection with the repurchase, the Company retired an aggregate of $0.1 million of deferred financing costs and debt discount.

Based on the relationship of the consideration paid to retire the exchangeable notes and the fair value of the exchangeable notes on the date of retirement, none of the ~~proceeds~~funds utilized in the repurchase were allocated to the retirement of the equity component of the exchangeable notes.

In ~~January~~September 2009, the Company ~~repaid~~entered into a ~~$15.7~~$20.0 million mortgage loan secured by Northeast Tower Center in Philadelphia, Pennsylvania. The mortgage loan provided for a variable interest rate of 2.75% plus the greater of three-month LIBOR or 4.50% and a term of two years, with two one-year option extensions. This mortgage loan was repaid in October 2009 in connection with the Company’s sale of a controlling interest in Northeast Tower Center.

In June 2009, the Company made a principal payment of $2.4 million and exercised its first one-year renewal option on ~~Palmer Park~~the mortgage loan at the One Cherry Hill Plaza office building in Cherry Hill, New Jersey.

In June 2009, the Company entered into a $38.0 million mortgage loan that is secured by Lycoming Mall in ~~Easton,~~Pennsdale, Pennsylvania. The outstanding principal balance on the loan as of September 30, 2009 was $28.0 million. The mortgage loan has a fixed interest rate of 6.84% and a term of five years. In October 2009, the Company drew an additional $5.0 million.

In June 2009, the Company entered into a $10.0 million construction loan that is secured by Pitney Road Plaza, an operating power center with development activity located in Lancaster, Pennsylvania. The outstanding balance as of September 30, 2009 was $5.9 million. The construction loan has a variable interest rate of 2.50% over three-month LIBOR with a floor of 5.00%, during the construction period and a term of one year with a six-month extension option for the construction period. The Company also has an option to convert the loan to a two-year loan at the end of the construction period. The loan is interest only during the construction period.

In March 2009, the Company entered into a $16.3 million mortgage loan that is secured by New River Valley Center in Christiansburg, Virginia. The mortgage loan has a variable interest rate of 3.25% plus LIBOR with a minimum interest rate of 5.75% and a term of three years ~~and~~ with two one-year extension options. The variable interest rate was capped to a fixed interest rate of 5.75% for the initial three-year term of the loan.

In January 2009, the Company repaid a $15.7 million mortgage loan on Palmer Park Mall in Easton, Pennsylvania.

In June 2009, the Company adopted new accounting guidance that require disclosures about the fair value of financial instruments for interim reporting periods as well as in annual financial statements, and amends previous accounting guidance by requiring disclosures in summarized financial information at interim reporting periods. Disclosures about fair value of financial instruments are based on pertinent information available to management as of the valuation date. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The Company estimates the fair value of its fixed rate debt and the credit spreads over variable market rates on its variable rate debt by discounting the future cash flows of each instrument at estimated market rates, recent market transactions, or credit spreads consistent with the maturity of the debt obligation with similar credit features. Credit spreads take into consideration general market conditions and maturity. As of September 30, 2009, the carrying value and estimated fair value of the Company’s debt were $2,648.4 million and $2,367.0 million, respectively. As of December 31, 2008, the carrying value and estimated fair value of the Company’s debt were $2,560.4 million and $2,304.7 million, respectively. The carrying value of the Company’s other financial instruments approximates fair value due to the short-term nature of these financial instruments.

Cash paid for interest was ~~$30.8~~$93.4 million (net of capitalized interest of ~~$1.8~~$4.6 million) and ~~$24.6~~$84.8 million (net of capitalized interest of ~~$3.9~~$11.6 million) for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 and 2008, respectively.

In connection with the acquisition of partnership interests in BCA in the first quarter of 2008, the Company consolidated an $8.0 million mortgage loan. Accrued construction expenses ~~increased $5.8~~decreased $21.1 million in the ~~three~~nine months ended ~~March 31,~~September 30, 2009, representing a non-cash increase in construction in progress.

In June 2009, the Company repurchased $25.0 million in aggregate principal amount of its exchangeable notes in exchange for 3.0 million common shares with a fair market value of $15.0 million.

In February 2008, the Company acquired a 0.1% general partner interest and a 49.8% limited partner interest in BCA for $3.9 million. In June 2009, the Company acquired an additional 49.9% of the limited partner interest in BCA for 140,745 OP Units with a value of $3.8 million as of the first closing in February 2008 and a nominal cash amount, pursuant to a put/call arrangement.

In January 2008, ~~PREIT Associates, L.P.~~the Operating Partnership and another subsidiary of the Company entered into a Contribution Agreement with BCA, City Line Associates (“~~CLA��~~CLA”), Ronald Rubin, George F. Rubin, Joseph Coradino, and two other individuals to acquire all of the partnership interests in BCA. BCA entered into a tax deferred exchange agreement with the owners of One Cherry Hill Plaza, an office building located within the boundaries of the Company’s Cherry Hill Mall (the “Office Building”), to acquire title to the Office Building in exchange for an office building located in Bala Cynwyd, Pennsylvania owned by BCA.

Ronald Rubin, George F. Rubin, Joseph Coradino and two other individuals (collectively, the “Individuals”) own 100% of CLA, a limited partnership that owned 50% of BCA immediately prior to closing. Each of Ronald Rubin and George F. Rubin owns 40.53% of the partnership interests in CLA, and Joseph Coradino owns 3.16% of the partnership interests. Immediately prior to the closing, BCA redeemed 50% of its partnership interests, which were held by a third party. At the initial closing under the Contribution Agreement and in exchange for a 0.1% general partner interest and 49.8% limited partner interest in BCA, the Company made a capital contribution to BCA of ~~$4.0~~$3.9 million.

In ~~the second quarter of~~June 2009, ~~a second closing is scheduled to occur pursuant to a put/call arrangement, at which time~~ the Company ~~will acquire~~acquired an additional 49.9% of the limited partner interest in BCA from the Individuals for ~~140,746~~140,745 OP Units and a nominal cash ~~amount.~~amount, pursuant to a put/call arrangement. A third closing is expected to occur pursuant to a put/call agreement approximately one year after the second closing, at which time the remaining 0.2% interest in BCA will be acquired by the Company from the Individuals in exchange for 564 OP Units and a nominal cash amount. None of Ronald Rubin, George F. Rubin or Joseph Coradino received any consideration from the Company in connection with the first closing.

The acquisition of the Office Building was financed in part by a mortgage loan with a principal amount of $8.0 million. ~~Approximately $7.4 million of the proceeds from the loan was applied toward the repayment of mortgage debt on the office building transferred by BCA in exchange for the Office Building.~~

The Company and ~~PREIT Associates~~the Operating Partnership have agreed to provide tax protection to the Individuals ~~resulting~~in connection with taxes arising from a sale of the Office Building during the eight years following the initial closing.

In accordance with the Company’s related party transactions policy, a special committee consisting exclusively of independent members of the Company’s Board of Trustees considered and approved the terms of this transaction. The approval was subject to final approval of the Company’s Board of Trustees, and the disinterested members of the Company’s Board of Trustees approved the transaction.

PRI provides management, leasing and development services for eight properties owned by partnerships and other entities in which certain officers or trustees of the Company and of PRI or members of their immediate families and affiliated entities have direct or indirect ownership interests. Total revenue earned by PRI for such services was $0.2 million and $0.3 million for ~~each of~~ the three months ended ~~March 31,~~September 30, 2009 and 2008, respectively, and $0.6 million and $0.8 million for the nine months ended September 30, 2009 and 2008, respectively.

The Company leases its principal executive offices from Bellevue Associates (the “Landlord”). Ronald Rubin and George F. Rubin, collectively with members of their immediate families and affiliated entities, own approximately a 50% interest in the Landlord. The office lease has a 10 year term that commenced on November 1, 2004. The Company’s base rent is $1.4 million per year during the first five years of the office lease and $1.5 million during the second five years. Total rent expense under this lease was $0.4 million for each of the three ~~month periods~~months ended ~~March 31,~~September 30, 2009 and 2008, respectively, and $1.2 million for each of the nine months ended September 30, 2009 and 2008, respectively.

The Company uses an airplane in which Ronald Rubin owns a fractional interest. The Company did not incur any expenses in the first nine months of 2009 for this service. The Company paid ~~$54,000~~$0.1 million in the three months ended ~~March 31,~~September 30, 2008, and $0.2 million in the nine months ended September 30, 2008 for flight time used by employees on Company-related business. ~~The Company did not incur any expenses in 2009 for this service.~~

In connection with its current ~~ground-up~~ development and its redevelopment projects, the Company has made contractual commitments on some of these projects in the form of tenant allowances, lease termination fees and contracts with general contractors and other professional service providers. As of ~~March 31,~~September 30, 2009, the remainder to be paid against such contractual and other commitments was ~~$37.9~~$14.6 million.

The Company has entered into tax protection agreements in connection with certain completed property acquisitions. Under these agreements, the Company has agreed to indemnify the prior owners of the acquired properties for certain tax liabilities resulting from actions taken by the Company with respect to the property, including any sale of the property. In some cases, members of the Company’s senior management and/or Board of Trustees are the beneficiaries of these agreements.

In the normal course of business, the Company has become and may, in the future, become involved in legal actions relating to the ownership and operation of its properties and the properties it manages for third parties. In management’s opinion, the resolution of any such pending legal actions is not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

In the normal course of business, the Company is exposed to financial market risks, including interest rate risk on its interest bearing liabilities. The Company attempts to limit these risks by following established risk management policies, procedures and strategies, including the use of financial instruments. The Company does not use financial instruments for trading or speculative purposes.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps and caps as part of its interest rate risk management strategy. The Company’s outstanding derivatives have been designated as cash flow hedges. The effective portion of changes in the fair value of derivatives designated as, and that qualify as, cash flow hedges is recorded in ~~accumulated~~“Accumulated other comprehensive ~~loss~~income (loss)” and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. To the extent these instruments are ineffective as cash flow hedges, changes in the fair value of these instruments are recorded in ~~other~~“Other (expenses) income, net.” The Company recognizes all derivatives at fair value as either assets or liabilities in the accompanying consolidated balance sheets. The Company’s derivative assets are recorded in ~~fair~~“Fair value of derivative assets.” The Company’s derivative liabilities are recorded in ~~fair~~“Fair value of derivative liabilities.”

During the three and nine months ended ~~March 31,~~September 30, 2009, the Company’s derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During the three and nine months ended ~~March 31,~~September 30, 2009, the Company recorded no amounts associated with hedge ineffectiveness in earnings. During the nine months ended September 30, 2008, the Company recorded a gain due to hedge ineffectiveness of $2.0 million.

Amounts reported in ~~accumulated~~“Accumulated other comprehensive ~~loss~~income (loss)” that are related to derivatives will be reclassified to ~~interest~~“Interest expense, ~~net~~net” as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates that ~~$15.3~~$15.6 million ~~will~~would be reclassified as an increase to interest expense in connection with derivatives.

The following table summarizes the terms and fair values of the Company’s interest rate swap and cap derivative instruments at ~~March 31,~~September 30, 2009 and December 31, 2008. The notional amounts provide an indication of the extent of the Company’s involvement in these instruments, but do not represent exposure to credit, interest rate or market risks.

The table below presents the effect of the Company’s derivative financial instruments on the Statement of Operations as of ~~March 31,~~September 30, 2009.

The Company has agreements with ~~each~~some of its derivative counterparties that contain a provision pursuant to which, if the ~~Company~~entity that originated such derivative instruments defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations. As of September 30, 2009, the Company was not in default on any of its derivative obligations.

The Company has an agreement with a derivative counterparty that incorporates the loan covenant provisions of the ~~Company's~~Company’s loan agreement with a lender affiliated with the derivative counterparty. Failure to comply with the loan covenant provisions would result in the Company being in default on any derivative instrument obligations covered by the agreement.

As of ~~March 31,~~September 30, 2009, the fair value of derivatives in a net liability position, which excludes accrued interest but includes any adjustment for nonperformance risk, related to these agreements was ~~$23.1~~$17.7 million. As of ~~March 31,~~September 30, 2009, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of ~~March 31,~~September 30, 2009, it would have been required to settle its obligations under the agreements at their termination value (including accrued interest) of ~~$30.6~~$22.3 million. The Company has not breached any of the provisions as of ~~March 31,~~September 30, 2009.

On January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; the standard does not require any new fair value measurements ~~of reported balances.~~

~~SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be~~are determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ~~SFAS No. 157~~an entity establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

Currently, the Company uses interest rate swaps and caps to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs.

~~To comply with the provisions of SFAS No. 157, the~~The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective ~~counterparty’s~~counterparty��s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by itself and its counterparties. However, as of ~~March 31,~~September 30, 2009, the Company has assessed the significance of the effect of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

During the year ended December 31, 2008, the Company cash settled all of its forward-starting interest rate swaps with an aggregate notional amount of $400.0 million. The Company paid an aggregate of $16.5 million in cash to settle these swaps. The swaps were settled in anticipation of the Company’s issuance of long term debt. Accumulated other comprehensive loss as of ~~March 31,~~September 30, 2009 includes a net loss of ~~$14.1~~$13.5 million relating to forward-starting swaps that the Company has cash settled that are being amortized over 10 year periods commencing on the closing dates of the debt instruments that are associated with these settled swaps.

As of ~~March 31,~~September 30, 2009, the Company had entered into 12 interest rate swap agreements and one interest rate cap agreement that have a weighted average interest rate of 3.29% on a notional amount of $597.5 million maturing on various dates through November 2013.

The Company entered into these interest rate swap agreements and the cap agreement in order to hedge the interest payments associated with the Company’s 2008 issuances of variable interest rate long-term debt. The Company assessed the effectiveness of these swap agreements and cap agreement as hedges at inception and on ~~March 31,~~September 30, 2009 and considered these swap agreements and cap agreement to be highly effective cash flow ~~hedges under SFAS No. 133.~~hedges. The Company’s interest rate swap agreements and cap agreement will be settled in cash.

In October 2009, the Company sold a controlling interest in Northeast Tower Center, a power center located in Philadelphia, Pennsylvania, for $30.4 million. The Company will record a gain of approximately $6.0 million from this transaction in the fourth quarter of 2009.

In November 2009, the Company entered into a one-year extension of the $34.3 million mortgage loan secured by Valley View Mall in La Crosse, Wisconsin, with two six-month extension options.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following analysis of our consolidated financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included elsewhere in this report.

Pennsylvania Real Estate Investment Trust, a Pennsylvania business trust founded in 1960 and one of the first equity REITs in the United States, has a primary investment focus on retail shopping malls and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. ~~Our~~As of September 30, 2009, our portfolio ~~currently consists~~consisted of a total of 5655 properties in 13 states, including 38 shopping malls, 14 strip and power centers and ~~four~~three properties under development. The retail properties have a total of ~~34.8~~34.9 million square feet. The retail properties we consolidate for financial reporting purposes have a total of ~~30.3~~30.4 million square feet, of which we own ~~23.9~~24.1 million square feet. The retail properties that are owned by unconsolidated partnerships with third parties have a total of 4.5 million square feet, of which 2.9 million square feet are owned by such partnerships. The ~~ground-up~~ development portion of our portfolio contains ~~four~~three properties in two states, with two classified as “mixed use” (a combination of retail and other uses)~~, one classified as retail~~ and one classified as “other.” In October 2009, we sold a controlling interest in Northeast Tower Center, a power center in Philadelphia, Pennsylvania.

Our primary business is owning and operating shopping malls ~~and strip~~ and power centers. We evaluate operating results and allocate resources on a property-by-property basis, and do not distinguish or evaluate our consolidated operations on a geographic basis. No individual property constitutes more than 10% of our consolidated revenue or assets, and thus the individual properties have been aggregated into one reportable segment based upon their similarities with regard to the nature of our properties and the nature of our tenants and operational processes, as well as long-term financial performance. In addition, no single tenant accounts for 10% or more of our consolidated revenue, and none of our properties are located outside the United States.

We hold our interests in our portfolio of properties through our operating partnership, PREIT Associates, L.P. (“PREIT Associates”). We are the sole general partner of PREIT Associates and, as of ~~March 31,~~September 30, 2009, held a ~~94.8%~~94.9% controlling interest in PREIT Associates. We consolidate PREIT Associates for financial reporting purposes. We hold our investments in seven of the 52 retail properties and one of the ~~four ground-up~~three development properties in our portfolio through unconsolidated partnerships or tenancy in common relationships with third parties in which we own a 40% to 50% interest. We hold a noncontrolling interest in each unconsolidated partnership, and account for such partnerships using the equity method of accounting. We do not control any of these equity method investees for the following reasons:

We hold our interest in three of our unconsolidated partnerships through tenancy in common arrangements. For each of these properties, title is held by us and another person or persons, and each has an undivided interest in the property. With respect to each of the three properties, under the applicable agreements between us and the other persons with ownership interests, we and such other persons have joint control because decisions regarding matters such as the sale, refinancing, expansion or rehabilitation of the property require the approval of both us and the other person (or at least one of the other persons) owning an interest in the property. Hence, we account for each of the properties using the equity method of accounting. The balance sheet items arising from these properties appear under the caption “Investments in partnerships, at equity.” The income statement items arising from these properties appears in “Equity in income of partnerships.”

We record the earnings from the unconsolidated partnerships using the equity method of accounting under the statement of operations caption entitled ~~equity~~“Equity in income of partnerships,” rather than consolidating the results of the unconsolidated partnerships with our results. Changes in our investments in these entities are recorded in the balance sheet caption entitled ~~investment~~“Investment in partnerships, at equity.” In the case of deficit investment balances, such amounts are recorded in ~~distributions~~“Distributions in excess of partnership investments.”

For further information regarding our unconsolidated partnerships, see note 4 to our unaudited consolidated financial statements.

We provide our management, leasing and development services through PREIT Services, LLC, which generally manages and develops properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally manages and develops properties that we own interests in through partnerships with third parties and properties that are owned by third parties

in which we do not have an interest. One of our long-term objectives is to obtain managerial control of as many of our assets as possible. Due to the nature of our existing partnership arrangements, we cannot anticipate when this objective will be achieved, if at all.

Our revenue consists primarily of fixed rental income, additional rent in the form of expense reimbursements, and percentage rent (rent that is based on a percentage of our tenants’ sales or a percentage of sales in excess of thresholds that are specified in the applicable leases) derived from our income producing retail properties. We also receive income from our real estate partnership investments and from the management and leasing services PRI provides.

Net loss was ~~$11.5~~$10.1 million for the three months ended ~~March 31,~~September 30, 2009, compared to ~~net loss of $3.1~~$8.9 million for the three months ended ~~March 31,~~September 30, 2008. For the three months ended ~~March 31,~~September 30, 2009, net loss was affected by decreased occupancy as a result of tenant bankruptcies and store closings in 2008 and 2009, increased depreciation and amortization as a result of redevelopment and development assets having been placed in service, increased interest expense as a result of a higher aggregate debt balance and properties placed in service, and increased property operating expenses compared to the three months ended September 30, 2008. The results of operations for the three months ended September 30, 2009 included gain on extinguishment of debt of $4.2 million and a gain on the sale of discontinued operations of $3.4 million.

Net loss was $25.9 million for the nine months ended September 30, 2009, compared to $15.8 million for the nine months ended September 30, 2008. For the nine months ended September 30, 2009, net loss was affected by decreased revenue and occupancy as a result of tenant bankruptcies and store closings in 2008 and 2009, increased depreciation and amortization as a result of redevelopment and development assets having been placed in service, increased interest expense as a result of a higher aggregate debt balance and properties placed in service, and increased property operating expenses compared to the ~~three~~nine months ended ~~March 31,~~September 30, 2008. The results of operations for the nine months ended September 30, 2009 included gain on extinguishment of debt of $14.0 million, a gain on the sale of discontinued operations of $3.4 million, and gains on the sales of real estate of $1.7 million. The results of operations for the nine months ended September 30, 2008 included a gain from hedging activities of $2.0 million.

We are subject to various risks and uncertainties in the ordinary course of business that could have adverse ~~impacts~~effects on our operating results and financial condition. The most significant external risks facing us today stem from the current downturn in the overall economy and challenging conditions in the capital and credit markets.

Substantially all of our revenue is generated from leases with retail tenants. The reduction in consumer spending as a result of declining consumer confidence and increasing unemployment has negatively affected, and ~~may~~might continue to negatively affect, the operations of many retail companies. Beginning in the second half of 2008 and continuing in 2009, the number of retail bankruptcies and store closings has increased. Retailers also have reduced the number of store openings planned for 2009 and 2010 due to these economic conditions. These conditions have caused, and ~~may~~might continue to cause, our occupancy rates, revenue and net income to decline.

We record our acquisitions based on estimates of fair value, as determined by management, based on information available and on assumptions about future performance. These allocations are subject to revisions, in accordance with GAAP, during the twelve month periods following the closings of the respective acquisitions.

In February 2008, we acquired a 49.9% ownership interest in Bala Cynwyd Associates, L.P., which owns One Cherry Hill Plaza, an office building located within the boundaries of our Cherry Hill Mall in Cherry Hill, New Jersey. In June 2009, we acquired an additional 49.9% ownership interest. See “Related Party Transactions” for further information about this transaction.

In October 2009, we sold a controlling interest in Northeast Tower Center, a power center located in Philadelphia, Pennsylvania, for $30.4 million. We will record a gain of approximately $6.0 million from this transaction in the fourth quarter of 2009.

In August 2009, we sold Crest Plaza in Allentown, Pennsylvania for $15.8 million. We recorded a gain of $3.4 million from this sale.

In June 2009, we sold a land parcel adjacent to North Hanover Mall in Hanover, Pennsylvania for $2.0 million. We recorded a gain of $1.4 million from this sale.

In June 2009, we sold a land parcel adjacent to Woodland Mall in Grand Rapids, Michigan for $2.7 million. The parcel contained a department store that was subject to a ground lease. We recorded a gain of $0.2 million from this sale.

In May 2009, we sold an outparcel and related land improvements containing an operating restaurant at Monroe Marketplace in Selinsgrove, Pennsylvania for $0.9 million. We recorded impairment of $0.1 million immediately prior to this transaction. No gain or loss was recorded from this sale.

We are engaged in the redevelopment of five of our consolidated properties. We might undertake redevelopment projects at additional properties in the future. These projects might include the introduction of residential, office or other uses to our properties. As of ~~March 31,~~September 30, 2009, we had incurred ~~$424.1~~$453.8 million of costs related to these five redevelopment properties. The total costs identified to date to complete these projects, net of tenant reimbursement and tax credits, are expected to be approximately ~~$67.9~~$493.1 million in the ~~aggregate.~~aggregate, including amounts invested to date.

The following table sets forth the amount of our estimated total ~~investment~~cost and the amounts invested as of ~~March 31,~~September 30, 2009 in each redevelopment project:

We are engaged in the ~~ground-up~~ development of ~~four retail~~three mixed use and other ~~mixed use~~ projects that we believe meet the financial hurdles that we apply, given economic, market and other circumstances, although we do not expect to make material investments in these projects in the short term. We also own and manage one property that is now operating while some remaining development takes place. As of ~~March 31,~~September 30, 2009, we had incurred ~~$141.8~~$91.2 million of costs related to these ~~ground-up~~development projects. The costs identified to date to complete these ground-up projects are expected to be $13.1 million in the aggregate, excluding the White Clay Point (New Garden Township, Pennsylvania), Springhills (Gainesville, Florida) and Pavilion at Market East (Philadelphia, Pennsylvania) projects, because details of those projects and the related costs have not been determined. In each case, weWe will evaluate the financing opportunities available to us at the time a project requires funding. In cases where the project is undertaken with a partner, our flexibility in funding the project might be restricted by the partnership agreement or the covenants contained in our Credit Facility, which limit our involvement or flexibility in such projects.

We generally seek to develop these projects in areas that we believe evidence the likelihood of supporting additional retail development and have desirable population or income trends, and where we believe the projects have the potential for strong competitive positions. We will consider other uses of a property that would have synergies with our retail development and redevelopment based on several factors, including local demographics, market demand for other uses such as residential and office, and applicable land use regulations. WeIn recent quarters, we generally ~~have~~had several development projects under way at one time. These projects ~~are~~were typically in various stages of the development process. We manage all aspects of these undertakings, including market and trade area research, site selection, acquisition, preliminary development work, construction and leasing. We monitor our developments closely, including costs and tenant interest.

The following table sets forth the amount of our estimated total ~~investment~~cost and the amounts invested as of ~~March 31,~~September 30, 2009 in each ~~ground-up~~ development project:

In connection with the redevelopment and ~~the ground-up~~ development projects listed above and other projects ongoing at our other properties, we have made contractual and other commitments in the form of tenant allowances, lease termination amounts and contracts with general contractors and other professional service providers. AsWe estimate that we will incur approximately $20.0 million during the remainder of ~~March 31,~~ 2009 ~~the unaccrued remainder~~and up to ~~be paid against these contractual~~an additional $50.0 million, net of expected reimbursements, in 2010 and ~~other commitments was $37.9 million. The~~2011, to fund our current development and redevelopment projects, onincluding $14.6 million as to which ~~these commitments have been made have total expected remaining costs of $97.0 million.~~we are contractually committed. While we expect that the expenditures related to our redevelopment and development projects listed in this report will continue ~~over the next several quarters,~~through 2011, we believe that our construction in progress balance has peaked. Construction in progress represents the aggregate expenditures on projects less amounts placed in service. Generally, assets are placed in service upon substantial completion or when tenants begin occupancy and rent payments commence.

Continued uncertainty in the credit markets might negatively affect our ability to access additional debt financing on reasonable terms, or at all, which might negatively affect our ability to fund our redevelopment and development projects and other business initiatives. A continued prolonged downturn in the credit markets might cause us to seek alternative sources of capital or financing, which could be less attractive and might require us to adjust our business plan accordingly. See “—Liquidity and Capital Resources.”

We have no material off-balance sheet items other than the partnerships described in note 4 to the unaudited consolidated financial statements and in the “Overview” section above.

In January 2008, PREIT Associates ~~L.P.~~ and another subsidiary of PREIT entered into a Contribution Agreement with Bala Cynwyd Associates, L.P. (“BCA”), City Line Associates (“CLA”), Ronald Rubin, George F. Rubin, Joseph Coradino, and two other individuals to acquire all of the partnership interests in BCA. BCA entered into a tax deferred exchange agreement with the owners of One Cherry Hill Plaza, an office building located within the boundaries of our Cherry Hill Mall (the “Office Building”), to acquire title to the Office Building in exchange for an office building located in Bala Cynwyd, Pennsylvania owned by BCA.

Ronald Rubin, George F. Rubin, Joseph Coradino and two other individuals (collectively, the “Individuals”) own 100% of CLA, a limited partnership that owned 50% of BCA immediately prior to closing. Each of Ronald Rubin and George F. Rubin owns 40.53% of the partnership interests in CLA, and Joseph Coradino owns 3.16% of the partnership interests. Immediately prior to the closing, BCA redeemed 50% of its partnership interests, which were held by a third party. At the initial closing under the Contribution Agreement and in exchange for a 0.1% general partner interest and 49.8% limited partner interest in BCA, we made a capital contribution to BCA in an approximate amount of ~~$4.0~~$3.9 million.

In ~~the second quarter of~~June 2009, a second closing ~~is scheduled to occur pursuant to a put/call arrangement, at~~occurred in which ~~time~~ we ~~will acquire~~acquired an additional 49.9% of the limited partner interest in BCA from the Individuals for ~~140,746~~140,745 OP Units and a nominal cash amount. A third closing is expected to occur pursuant to a put/call agreement approximately one year after the second closing, at which time we will acquire the remaining interest in BCA from the Individuals in exchange for 564 OP Units and a nominal cash amount. None of Ronald Rubin, George F. Rubin or Joseph Coradino received any consideration from us in connection with the first closing.

PREIT and PREIT Associates have agreed to provide tax protection to the Individuals ~~resulting~~in connection with taxes arising from a sale of the Office Building during the eight years following the initial closing.

In accordance with our related party transactions policy, a special committee consisting exclusively of independent members of our Board of Trustees considered and approved the terms of this transaction. The approval was subject to final approval of our Board of Trustees, and the disinterested members of our Board of Trustees approved the transaction.

PRI provides management, leasing and development services for eight properties owned by partnerships and other entities in which certain officers or trustees of the Company and of PRI or members of their immediate families and affiliated entities have indirect ownership interests. Total revenue earned by PRI for such services was $0.2 million and $0.3 million for ~~each of~~ the three months ended ~~March 31,~~September 30, 2009 and 2008, respectively, and $0.6 million and $0.8 million for the nine months ended September 30, 2009 and 2008, respectively.

We lease our principal executive offices from Bellevue Associates (the “Landlord”). Ronald Rubin and George F. Rubin, collectively with members of their immediate families and affiliated entities, own approximately a 50% interest in the Landlord. The office lease has a 10 year term that commenced on November 1, 2004. Our base rent is $1.4 million per year during the first five years of the office lease and $1.5 million per year during the second five years. Total rent expense under this lease was $0.4 million for each of the three months ended ~~March 31,~~September 30, 2009 and 2008, and $1.2 million for each of the nine months ended September 30, 2009 and 2008.

We use an airplane in which Ronald Rubin owns a fractional interest. We did not incur any expenses in the first nine months of 2009 for this service. We paid ~~$54,000~~$0.1 million in the three months ended ~~March 31,~~September 30, 2008, and $0.2 million in the nine months ended September 30, 2008 for flight time used by employees on Company-related business. ~~We incurred no expenses in the three months ended March 31, 2009 related to flight time for this service.~~

Critical accounting policies are those that require the application of management’s most difficult, subjective, or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. In preparing the financial statements, management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming its estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses.

Our management makes complex or subjective assumptions and judgments in connection with ~~respect to~~ applying its critical accounting policies. In making these judgments and assumptions, management considers, among other factors:

The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2009 and 2008, and none of these estimates or assumptions have proven to be materially incorrect or resulted in our recording any significant adjustments relating to prior periods. We will continue to monitor the key factors underlying our estimates and judgments, but no change is currently expected. See our Annual Report on Form 10-K for the year ended December 31, 2008 for a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements.

The determination of undiscounted cash flows requires significant estimates by management, including the expected course of action at the balance sheet date that would lead to such cash flows. Subsequent changes in estimated undiscounted cash flows arising from changes in anticipated action to be taken with respect to the property could impact the determination of whether an impairment exists and whether the effects could materially impact our net income. To the extent estimated undiscounted cash flows are less than the carrying value of the property, the loss will be measured as the excess of the carrying amount of the property over the fair value of the property.

We test for impairment in several situations, including when current or projected cash flows from a real estate investment are significantly less than budgeted cash flows, when it becomes more likely than not that a property will be sold before the end of its previously estimated useful life, or when other events or changes in circumstances indicate that an asset’s carrying value might not be recoverable. In the evaluation of the impairment of our assets, we make many assumptions and estimates, including:

As a preliminary indicator to determine if the carrying value of a property might not be recovered by undiscounted cash flows, ~~as of March 31, 2009,~~ we utilized a five-year planning model based on existing tenants, expectations about future rental activity and expense levels. For periods beyond the five-year model, we assumed a 2.0% rate of growth for cash flows over the estimated useful lives of the individual properties, which is lower than the historical assumed growth rate utilized because of the current economic conditions. As a result of this test, we did not identify any properties that required further consideration of property and market specific conditions or factors to determine if the property was impaired.

An other than temporary impairment of an investment in an unconsolidated joint venture is recognized when the carrying value of the investment is not considered recoverable based on evaluation of the severity and duration of the decline in fair value, including the results of discounted cash flow and other valuation techniques. To the extent impairment has occurred, the excess carrying value of the asset over its estimated fair value is charged to income.

The Financial Accounting Standards Board recently amended its guidance surrounding a company’s analysis to determine whether any of its variable interests constitute controlling financial interests in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics:

Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a variable interest entity operates as designed when determining whether it has the power to direct the activities of the variable interest entity that most significantly impact the entity’s economic performance. The new guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The guidance is effective for the first annual reporting period that begins after November 15, 2009 and, accordingly, we will reevaluate our interests in variable interest entities for the period beginning on January 1, 2010 to determine that the entities are reflected properly in the financial statements as investments or consolidated entities. We are currently evaluating the impact that this guidance will have on our financial statements.

Comparison of Three and Nine Months Ended ~~March 31,~~September 30, 2009 and 2008

Our results ~~for the three months ended March 31, 2009 and 2008 were~~in recent periods have been significantly affected by challenging conditions in the economy and by ongoing redevelopment initiatives that were in various stages at several of our consolidated mall properties. While we might undertake a redevelopment project to maximize the long-term performance of the property, in the short term, the operations and performance of the property, as measured by occupancy and net operating income, can be negatively affected by the project. For the three and nine months ended ~~March 31,~~September 30, 2009, net loss was affected by decreased ~~revenue and~~ occupancy as a result of tenant bankruptcies and store closings in 2008 and 2009, increased depreciation and amortization as a result of development and redevelopment assets having been placed in service, increased interest expense primarily as a result of a higher aggregate debt balance and properties placed in service, and increased property operating expenses compared to the three and nine months ended ~~March 31,~~September 30, 2008. Results for the three and nine months ended September 30, 2009 included gains on extinguishment of debt, gains on sales of real estate, and a gain on the sale of discontinued operations.

The table below sets forth certain occupancy statistics as of ~~March 31,~~September 30, 2009 and 2008:


	Occupancy as of March 31,								Occupancy as of September 30,
	Consolidated				Partnership⁽¹⁾				Consolidated				Partnership⁽¹⁾
	2009		2008		2009		2008		2009		2008		2009		2008
Retail portfolio weighted average:
Total excluding anchors	84.2	%	87.6	%	86.1	%	92.8	%	84.1	%	87.0	%	87.4	%	92.9	%
Total including anchors	88.8	%	88.5	%	89.8	%	94.9	%	89.2	%	89.2	%	90.8	%	95.0	%
Enclosed malls weighted average:
Total excluding anchors	83.4	%	86.7	%	88.9	%	91.7	%	83.4	%	86.0	%	89.9	%	92.4	%
Total including anchors	88.3	%	87.8	%	91.2	%	93.5	%	88.7	%	88.5	%	92.0	%	94.0	%
Strip and power centers weighted average	94.1	%	98.4	%	89.1	%	95.7	%	94.1	%	98.7	%	90.1	%	95.5	%

The following information sets forth our results of operations for the three months ended ~~March 31,~~September 30, 2009 and 2008:


	Three Months Ended March 31,						% Change 2008 to 2009		Three Months Ended September 30,						% Change
(in thousands of dollars)	2009			2008			% Change 2008 to 2009		2009			2008			2008 to 2009
Revenue	$	112,912		$	115,350		(2	)%	$	113,666		$	114,736		(1	)%
Property operating expenses		(46,647	)		(44,427	)	5	%		(48,729	)		(47,640	)	2	%
Depreciation and amortization		(39,396	)		(35,815	)	10	%		(41,702	)		(38,270	)	9	%
General and administrative expenses, abandoned project costs, income taxes and other expenses		(9,672	)		(11,776	)	(18	)%		(9,783	)		(10,675	)	(8	)%
Interest expense, net		(32,509	)		(27,845	)	17	%		(33,589	)		(29,329	)	15	%
Gain on extinguishment of debt		1,272			—		—			4,167			—		—
Equity in income of partnerships		2,517			1,462		72	%		2,355			2,169		9	%
Income from discontinued operations										3,496			149		—

Net loss	$	(11,523	)	$	(3,051	)	(278	)%	$	(10,119	)	$	(8,860	)	14	%

The following information sets forth our results of operations for the nine months ended September 30, 2009 and 2008:

The amounts reflected as net loss in the ~~table~~tables above reflect our consolidated properties. Our unconsolidated partnerships are presented under the equity method of accounting in the line item ~~equity~~“Equity in income of partnerships.”

Real estate revenue decreased by ~~$2.0~~$0.5 million ~~or 2%,~~ in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. Real estate revenue increased $1.1 million from two properties under development during 2008 that are now placed in the three months ended March 31, 2009 was significantly affected by tenant bankruptcies and store closings, resulting in lower occupancy and expense reimbursements and higher bad debt expense compared to the three months ended March 31, 2008.service. Real estate revenue from properties that were owned by us prior to ~~January~~July 1, 2008 decreased by ~~$3.0~~$1.6 million, primarily due to ~~lower occupancy. This resulted in~~ decreases of ~~$1.4~~$1.6 million in expense reimbursements, $0.4 million in other revenue and $0.1 million in percentage

rent. These decreases were partially offset by an increase of $0.5 million in base rent, which is comprised of minimum rent, straight line rent and rent from tenants that pay a percentage of sales in lieu of minimum ~~rent, $0.6 million~~rent. These changes in percentage rent, $0.5 million in lease termination revenue, $0.3 million in other revenue and $0.2 million in expense reimbursements. Real estate revenue from one property that was under development during 2008 that is now placed in service increased by $0.9 million and real estate revenue ~~from One Cherry Hill Plaza (office building acquired~~are explained below in ~~February 2008) increased by $0.1 million.~~further detail.

~~Base rent~~Expense reimbursements decreased by ~~$1.4~~$1.6 million in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended March 31, 2008. Base rent decreased by $1.5 million due to 67 store closings and liquidations associated with eleven tenant bankruptcy filings during 2008. Also impacting base rent was a $0.5 million decrease in temporary leasing revenue (leases with a term of less than one year) and a $0.4 million decrease in straight line rent. Partially offsetting these decreases, base rent at Voorhees Town Center and Plymouth Meeting Mall, two of our current redevelopment projects, increased by $0.6 million and $0.5 million, respectively, due to increased occupancy from newly opened tenants. Percentage rent decreased by $0.6 million due to a decrease in tenant sales compared to the three months ended March 31, 2008. This decrease was also partially due to a trend in certain leases toward slightly higher minimum rent and higher thresholds at which percentage rent begins. Lease termination revenue decreased by $0.5 million, primarily due to $0.4 million received from one tenant in the three months ended March 31, 2008 that did not recur. Other revenue decreased by $0.3 million, primarily due to a $0.2 million timing variance in seasonal photo commissions associated with the Easter holiday. Expense reimbursements decreased by $0.2 million in the three months ended March 31, 2009 as compared to the three months ended March 31,September 30, 2008. At many of our malls, we have continued to recover a lower proportion of common area maintenance and real estate tax expenses. In addition to being affected by store closings, our properties are experiencing a trend towards more gross leases (leases that provide that tenants pay a higher base rent amount in lieu of contributing toward common area maintenance costs and real estate taxes), as well as more leases that provide for the rent amount to be determined on the basis of a percentage of sales in lieu of minimum ~~rent, and they~~rent. We are also experiencing rental concessions made to tenants affected by ~~the~~our redevelopment activities, ~~and~~ to tenants experiencing financial difficulties, ~~and~~as well as rental concessions driven by conditions in the economy. ~~We expect~~

Other revenue decreased by $0.4 million, primarily due to a $0.3 million decrease in marketing revenue. The decrease in marketing revenue was offset by a corresponding $0.3 million decrease in marketing expense. Marketing revenue is generally recognized in tandem with marketing expense. Percentage rent decreased by $0.1 million due to a decrease in tenant sales compared to the ~~lower recovery rates~~three months ended September 30, 2008. This decrease was also partially due to a trend in certain leases toward slightly higher minimum rent and higher thresholds at ~~the redevelopment properties to improve as construction is completed, tenants take occupancy and our leasing leverage improves, and as conditions~~which percentage rent begins.

Base rent increased by $0.5 million in the ~~economy improve.~~three months ended September 30, 2009 compared to the three months ended September 30, 2008. Base rent at Cherry Hill Mall, Voorhees Town Center and Plymouth Meeting Mall, three of our current redevelopment projects, increased by $0.9 million, $0.4 million and $0.2 million, respectively, due to increased occupancy from newly opened tenants. Base rent at Sunrise Plaza, a development project that opened in October 2007, increased by $0.2 million due to increased occupancy from tenants that opened new stores. Partially offsetting these increases, base rent decreased by $1.3 million due to 67 store closings and liquidations associated with tenant bankruptcy filings during 2008 and 2009. As of September 30, 2009, 13 of the 67 stores have been leased to new tenants.

Interest and other income decreased by ~~$0.4~~$0.6 million, or ~~39%~~41%, in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008 due to lower interest rates on excess cash investments and non-recurring development fees and leasing commissions recorded in 2008.

Real estate revenue decreased by $1.7 million, or 1%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Real estate revenue in the nine months ended September 30, 2009 was significantly affected by tenant bankruptcies and store closings, resulting in lower occupancy and expense reimbursements and higher bad debt expense compared to the nine months ended September 30, 2008. Real estate revenue from two properties that were under development during 2008 that are now placed in service increased by $3.0 million, and real estate revenue from One Cherry Hill Plaza (office building acquired in February 2008) increased by $0.1 million. Real estate revenue from properties that were owned by us prior to January 1, 2008 decreased by $4.8 million, primarily due to decreases of $1.4 million in expense reimbursements, $1.1 million in percentage rent, $1.0 million in lease termination revenue, $0.9 million in other revenue and $0.4 million in base rent. These changes in real estate revenue are explained below in further detail.

Expense reimbursements decreased by $1.4 million in the nine months ended September 30, 2009 as compared to the nine months ended September 30, 2008. At many of our malls, we have continued to recover a lower proportion of common area maintenance and real estate tax expenses. In addition to being affected by store closings, our properties are experiencing a trend towards more gross leases (leases that provide that tenants pay a higher base rent amount in lieu of contributing toward common area maintenance costs and real estate taxes), as well as more leases that provide for the rent amount to be determined on the basis of a percentage of sales in lieu of minimum rent. We are also experiencing rental concessions made to tenants affected by our redevelopment activities, to tenants experiencing financial difficulties as well as rental concessions driven by conditions in the economy.

Percentage rent decreased by $1.1 million in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 due to a decrease in tenant sales. This decrease was also partially due to a trend in certain leases toward slightly higher minimum rent and higher thresholds at which percentage rent begins. Lease termination revenue decreased by $1.0 million, primarily due to $1.4 million received from one tenant in the nine months ended September 30, 2008. Other revenue decreased by $0.9 million, primarily due to a $0.6 million decrease in marketing revenue. The decrease in marketing revenue was offset by a corresponding $0.6 million decrease in marketing expense. Marketing revenue is generally recognized in tandem with marketing expense.

Base rent decreased by $0.4 million in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Base rent decreased by $4.4 million due to 67 store closings and liquidations associated with tenant bankruptcy filings during 2008 and 2009. As of September 30, 2009, 13 of the 67 stores have been leased to new tenants. Partially offsetting these decreases, base rent at Voorhees Town Center, Cherry Hill Mall and Plymouth Meeting Mall, three of our current redevelopment projects, increased by $1.5 million, $1.0 million and $0.7 million, respectively, due to increased occupancy from newly opened tenants. Base rent at Sunrise Plaza, a development project that opened in October 2007, increased by $0.5 million due to increased occupancy from newly opened tenants.

Interest and other income decreased by $1.6 million, or 43%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 due to lower interest rates on excess cash investments and non-recurring development fees and leasing commissions recorded in 2008.

~~Property operating~~Operating expenses increased by ~~$2.2~~$1.1 million, or 5%2%, in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. ~~Property~~Operating expenses increased $0.3 million from two properties under development during 2008 that are now placed in service. Operating expenses from properties that were owned by us prior to July 1, 2008 increased by $0.8 million, primarily due to a $1.0 million increase in real estate tax expense and a $0.4 million increase in common area maintenance expense. These increases were partially offset by a $0.4 million decrease in other operating expenses and a $0.2 million decrease in non-common area utility expense.

Real estate tax expense increased by $1.0 million in the three months ended September 30, 2009 compared to the three months ended September 30, 2008, primarily due to higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Common area maintenance expenses increased by $0.4 million, primarily due to increases of $0.2 million in repairs and maintenance expense and $0.2 million in loss prevention expense. These increases were due primarily to stipulated annual contractual increases. Partially offsetting these increases were a $0.4 million decrease in other property operating expenses and a $0.2 million decrease in non-common area utility expense. The decrease in other property operating expenses was primarily due to a $0.3 million decrease in marketing expense. The decrease in marketing expense was offset by a corresponding $0.3 million decrease in marketing revenue.

Operating expenses increased by $4.8 million, or 4%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Operating expenses increased $0.8 million from two properties under development during 2008 that are now placed in service and $0.2 million from a property we acquired in February 2008. Operating expenses from properties that were owned by us prior to January 1, 2008 increased by ~~$1.8~~$3.8 million, primarily due to a ~~$1.1~~$2.5 million increase in real estate tax expense, a $1.8 million increase in common area maintenance ~~expense, a $0.6 million increase in real estate tax~~ expense and a $0.2 million increase in other ~~property~~ operating expenses. ~~See “– Revenue.”~~ These increases were partially offset by a ~~$0.1~~$0.7 million decrease in non-common area utility expense. ~~Property operating expenses increased $0.3 million from one property under development during 2008 that is now placed in service and $0.1 million from a property we acquired in February 2008.~~

Common area maintenance expenses increased by $1.1 million in the three months ended March 31, 2009 primarily due to increases of $0.5 million in snow removal expense, $0.2 million in repairs and maintenance expense, $0.1 million in loss prevention expense, $0.1 million in common area utility expense and $0.1 million in insurance expense. Snowfall amounts at our properties located in Pennsylvania and New Jersey increased during the three months ended March 31, 2009 compared to the three months ended March 31, 2008. Repairs and maintenance expense and loss prevention expense increased due primarily to stipulated annual contractual increases. Real estate tax expense increased by ~~$0.6~~$2.5 million primarily due to higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Common area maintenance expenses increased by $1.8 million in the nine months ended September 30, 2009 primarily due to increases of $0.9 million in repairs and maintenance, $0.5 million in snow removal expense and $0.4 million in loss prevention expense. Snowfall amounts at our properties located in Pennsylvania and New Jersey increased during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Repairs and maintenance expense and loss prevention expense increased due primarily to stipulated annual contractual increases. Other property operating expenses increased by $0.2 million, primarily due to a ~~$0.3~~$1.5 million increase in bad debt expense, partially offset by a ~~$0.1~~$0.6 million decrease in marketing expense, a $0.3 million decrease in non-common area maintenance expense and a $0.2 million decrease in legal fee expense. The increase in bad debt expense was affected by $0.7 million associated with ten tenant bankruptcy filings during the nine months ended September 30, 2009. Partially offsetting these increases was a $0.7 million decrease in non-common area utility expense, including a $0.3 million decrease at Cherry Hill Mall and a $0.3 million decrease at Voorhees Town Center due to a combination of lower utility rates and lower consumption resulting from newly installed equipment.

Depreciation and amortization expense increased by ~~$3.6~~$3.4 million, or ~~10%~~9%, in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. Depreciation and amortization expense from properties that we owned prior to ~~January~~July 1,

2008 increased by ~~$3.1~~$3.0 million, primarily due to a higher asset base resulting from capital improvements at our properties, particularly at properties where we have recently completed redevelopments and that are now placed in service. We placed assets with an aggregate basis of ~~$269.9~~$317.0 million in service from ~~March 31,~~September 30, 2008 to ~~March 31,~~September 30, 2009. Depreciation and amortization increased ~~$0.3~~$0.4 million from ~~one property~~two properties under development during 2008 that isare now placed in service.

Depreciation and amortization expense increased by $11.3 million, or 10%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. Depreciation and amortization expense from properties that we owned prior to January 1, 2008 increased by $10.3 million, primarily due to a higher asset base resulting from capital improvements at our properties, particularly at properties where we have recently completed redevelopments and that are now placed in service. Depreciation and amortization increased $1.2 million from two properties under development during 2008 that are now placed in service and decreased $0.2 million from One Cherry Hill Plaza (acquired February 2008).

General and Administrative Expenses, Abandoned Project Costs, Income Taxes and Other Expenses

General and administrative expenses, abandoned project costs, income taxes and other expenses decreased by ~~$2.1~~$0.9 million, or ~~18%~~8%, in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. This decrease was due in part to a ~~$1.0~~$0.5 million decrease in compensation costs, due to a reduction in headcount and lower incentive compensation costs. Other general and administrative expenses decreased by $0.4 million, primarily due to lower travel costs, professional fees and other miscellaneous expenses.

General and administrative expenses, abandoned project costs, income taxes and other expenses decreased by $4.5 million, or 13%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This decrease was due in part to a $1.2 million decrease in abandoned project costs. This decrease was also driven by a $1.5 million decrease in compensation costs, due to a reduction in headcount and lower incentive compensation costs. Other general and administrative expenses ~~also~~ decreased by ~~$1.1~~$1.8 million, primarily due to lower ~~incentive compensation costs.~~convention expenses, travel costs, and function expenses.

Interest expense increased ~~$4.7~~by $4.3 million, or ~~17%~~15%, in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. This increase resulted in part from a higher aggregate debt balance. ~~Also,~~In addition, we placed assets with an aggregate cost basis of ~~$269.9~~$317.0 million in service from ~~March 31,~~September 30, 2008 to ~~March 31,~~September 30, 2009. Interest ~~amounts~~ on these assets ~~were~~was capitalized during construction periods and ~~were~~was expensed during periods after ~~they~~the improvements were placed in service.

Interest expense increased by $15.9 million, or 19%, in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. This increase resulted in part from a higher aggregate debt balance and assets placed in service in the past twelve months as stated above. Also, interest expense in the nine months ended September 30, 2008 was reduced by $2.0 million as a result of a gain from hedging activities.

During the three months ended ~~March 31,~~September 30, 2009, we repurchased ~~$2.1~~a total of $12.0 million in aggregate principal amount of our exchangeable notes in a privately negotiated transaction for a purchase price of $7.2 million in cash, which resulted in a gain on extinguishment of debt of $4.2 million. In connection with the repurchase, we retired an aggregate of $0.6 million of deferred financing costs and debt discount.

During the nine months ended September 30, 2009, we repurchased a total of $39.1 million in aggregate principal amount of our exchangeable notes in privately-negotiated transactions for an aggregate purchase price of ~~$0.7~~$8.0 million in cash and 3.0 million shares, which resulted in a gain on extinguishment of debt of ~~$1.3~~$14.0 million. In connection with the repurchases, we retired an aggregate of ~~$0.1~~$2.2 million of deferred financing costs and debt discount.

Equity in income of partnerships increased ~~$1.1~~by $0.2 million, or ~~72%~~9%, for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. The increase was primarily due to a $0.4 million decrease in mortgage interest expense, a $0.2 million decrease in property operating expenses and a $0.1 million decrease in depreciation and amortization expense, offset by a $0.5 million decrease in revenue.

Equity in income of partnerships increased by $1.8 million, or 31%, for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The increase ~~in net operating income at one property, which resulted from new store openings and higher renewal rates on tenant leases, and~~was primarily due to a ~~$0.6~~$2.5 million decrease in interest expense ~~at properties with variable rate mortgages.~~and a $0.1 million decrease in depreciation and amortization expense, offset by a $0.5 million decrease in revenue and a $0.3 million increase in property operating expenses.

We have presented the operating results of Crest Plaza, which was sold in August 2009, as discontinued operations.

Property operating results, gain on sale of discontinued operations and related noncontrolling interest for Crest Plaza for the periods presented were as follows:

Net operating income (a non-GAAP measure) is derived from real estate revenue (determined in accordance with GAAP) minus property operating expenses (determined in accordance with GAAP). It does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity; nor is it indicative of funds available for our cash needs, including our ability to make cash distributions. We believe that net income is the most directly comparable GAAP measurement to net operating income. We believe that net operating income is helpful to management and investors as a measure of operating performance because it is an indicator of the return on property investment, and provides a method of comparing property performance over time. Net operating income excludes management company revenue, interest income, general and administrative expenses, abandoned project costs, income taxes and other expenses, interest expense, depreciation and amortization, gains on sales of interests in real estate, gains on sales of non-operating real estate and gain on extinguishment of debt.

The following table presents net operating income results for the three months ended ~~March 31,~~September 30, 2009 and 2008. The results are presented using the “proportionate-consolidation method” (a non-GAAP measure), which presents our share of the results of our partnership investments. Under GAAP, we account for our noncontrolling partnership investments under the equity method of accounting. Property operating results for retail properties that we owned for the full periods presented (“Same Store”) exclude properties acquired or disposed of or that were placed into service during the periods presented:


	Same Store								Non Same Store								Total								Same Store								Non Same Store								Total
	Three Months Ended March 31,								Three Months Ended March 31,								Three Months Ended March 31,								Three Months Ended September 30,								Three Months Ended September 30,								Three Months Ended September 30,
	2009			2008			% Change		2009			2008			% Change		2009			2008			% Change
(in thousands)																									2009			2008			% Change		2009			2008			% Change		2009			2008			% Change
Real Estate Revenue	$	119,966		$	122,554		(2.1	)%	$	1,529		$	320		377.8	%	$	121,495		$	122,874		(1.1	)%	$	120,105		$	122,142		(2	)%	$	2,069		$	1,068		94	%	$	122,174		$	123,210		(1	)%
Property Operating Expenses		(48,826	)		(46,838	)	4.2	%		(765	)		(195	)	292.3	%		(49,591	)		(47,033	)	5.4	%		(50,781	)		(50,270	)	1	%		(859	)		(509	)	69	%		(51,640	)		(50,779	)	2	%

Net Operating Income	$	71,140		$	75,716		(6.0	)%	$	764		$	125		511.2	%	$	71,904		$	75,841		(5.2	)%	$	69,324		$	71,872		(4	)%	$	1,210		$	559		116	%	$	70,534		$	72,431		(3	)%

Total net operating income decreased by ~~$3.9~~$1.9 million in the three months ended ~~March 31,~~September 30, 2009 compared to the three months ended ~~March 31,~~September 30, 2008. Same Store net operating income decreased by ~~$4.6~~$2.5 million in the three months ended ~~March 31,~~ September 30,

2009 compared to the three months ended ~~March 31,~~September 30, 2008. Non Same Store net operating income increased by $0.6 million. See “Results of Operations—Revenue” and “—Property Operating Expenses” for further discussion of these variances.

The following table presents net operating income results for the nine months ended September 30, 2009 and 2008. The results are presented using the “proportionate-consolidation method” (a non-GAAP measure), which presents our share of the results of our partnership investments. Under GAAP, we account for our noncontrolling partnership investments under the equity method of accounting. Property operating results for retail properties that we owned for the full periods presented (“Same Store”) exclude properties acquired or disposed of or that were placed into service during the periods presented:

Total net operating income decreased by $7.0 million in the nine months ended September 30, 2009 compared to nine months ended September 30, 2008. Same Store net operating income decreased by $8.9 million in nine months ended September 30, 2009 compared to nine months ended September 30, 2008. Non Same Store net operating income increased by $1.9 million. See “Results of Operations—Revenue” and “—Property Operating Expenses” for further discussion of these variances.

The following information is provided to reconcile net loss to net operating income:


	Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands of dollars)	2009			2008			2009			2008
Net loss	$	(10,119	)	$	(8,860	)	$	(25,860	)	$	(15,751	)
Depreciation and amortization
Wholly owned and consolidated partnerships		41,702			38,270			122,243			110,958
Unconsolidated partnerships		1,983			1,970			6,056			5,987
Discontinued operations		105			166			440			497
Interest expense, net
Wholly owned and consolidated partnerships		33,589			29,329			99,346			83,413
Unconsolidated partnerships		1,918			2,351			5,448			7,667
General and administrative expenses, abandoned project costs, income taxes and other expenses		9,783			10,675			29,104			33,592
Gain on extinguishment of debt		(4,167	)		—			(13,971	)		—
Gains on sales of real estate		—			—			(1,654	)		—
Gain on sale of discontinued operations		(3,398	)		—			(3,398	)		—
Interest and other income		(862	)		(1,470	)		(2,092	)		(3,663	)

Property net operating income	$	70,534		$	72,431		$	215,662		$	222,700

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations, which is a non-GAAP measure, as income before gains and losses on sales of operating properties and extraordinary items (computed in accordance with GAAP); plus real estate depreciation; plus or minus adjustments for unconsolidated partnerships to reflect funds from operations on the same basis. We compute Funds From Operations by taking the amount determined pursuant to the NAREIT definition and subtracting dividends on preferred shares (“FFO”) (for periods during which we had preferred shares outstanding).

Funds From Operations is a commonly used measure of operating performance and profitability in the real estate industry, and we use FFO and FFO per diluted share and OP Unit as supplemental non-GAAP measures to compare our Company’s performance for different periods to that of our industry peers. Similarly, FFO per diluted share and OP Unit is a useful measure because it reflects the dilutive impact of outstanding convertible securities. In addition, we use FFO and FFO per diluted share and OP Unit as one of the performance measures for determining incentive compensation amounts earned under certain of our performance-based executive compensation programs. We compute Funds From Operations in accordance with standards established by NAREIT, less dividends on preferred shares (for periods during which we had preferred shares outstanding), which may not be comparable to Funds From Operations reported by other REITs that do not define the term in accordance with the current NAREIT definition, or that interpret the current NAREIT definition differently than we do.

FFO does not include gains and losses on sales of operating real estate assets, which are included in the determination of net income in accordance with GAAP. Accordingly, FFO is not a comprehensive measure of our operating cash flows. In addition, since FFO does not include depreciation on real estate assets, FFO may not be a useful performance measure when comparing our operating performance to that of other non-real estate commercial enterprises. We compensate for these limitations by using FFO in conjunction with other GAAP financial performance measures, such as net income and net cash provided by operating activities, and other non-GAAP financial performance measures, such as net operating income. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered to be an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or to be an alternative to cash flow from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available for our cash needs, including our ability to make cash distributions.

We believe that net income is the most directly comparable GAAP measurement to FFO. We believe that FFO is helpful to management and investors as a measure of operating performance because it excludes various items included in net income that do not relate to or are not indicative of operating performance, such as various non-recurring items that are considered extraordinary under GAAP, gains on sales of operating real estate and depreciation and amortization of real estate.

FFO was ~~$29.3~~$29.8 million for the three months ended ~~March 31,~~September 30, 2009, a decrease of ~~$4.8~~$1.1 million, or ~~14%~~4%, compared to ~~$34.1~~$30.9 million for the three months ended ~~March 31,~~September 30, 2008. FFO per diluted share decreased $0.08 per diluted share to $0.67 per diluted share for the three months ended September 30, 2009, compared to $0.75 per diluted share for the three months ended September 30, 2008. The per diluted share amounts reflect the issuance through September 30, 2009 of shares primarily in connection with the repurchase of exchangeable notes.

FFO was $96.9 million for the nine months ended September 30, 2009, a decrease of $2.8 million, or 3%, compared to $99.7 million for the nine months ended September 30, 2008. FFO per diluted share decreased $0.14 per diluted share to $2.29 per diluted share for the nine months ended September 30, 2009, compared to $2.43 per diluted share for the nine months ended September 30, 2008. The per diluted share amounts reflect the issuance through September 30, 2009 of shares primarily in connection with the repurchase of exchangeable notes.

The shares used to calculate FFO per diluted share include common shares and OP Units not held by us. FFO per diluted share also includes the effect of common share equivalents.

The following information is provided to reconcile net ~~income~~loss to FFO, and to show the items included in our FFO for the periods indicated:


(in thousands of dollars)	Three Months Ended March 31, 2009			Per share (including OP Units)			Three Months Ended March 31, 2008			Per share (including OP Units)			Three Months Ended September 30, 2009			Per share (including OP Units)			Three Months Ended September 30, 2008			Per share (including OP Units)
Net loss	$	(11,523	)	$	(0.28	)	$	(3,051	)	$	(0.07	)	$	(10,119	)	$	(0.22	)	$	(8,860	)	$	(0.22	)

Gain on sale of discontinued operations														(3,398	)		(0.08	)		—			—
Depreciation and amortization:
Wholly owned and consolidated partnerships⁽¹⁾		38,786			0.94			35,176			0.86			41,220			0.93			37,601			0.92
Unconsolidated partnerships⁽¹⁾		2,054			0.05			1,926			0.04			1,983			0.04			1,970			0.05
Discontinued operations														105			—			166			—

Funds from operations⁽²⁾	$	29,317		$	0.71		$	34,051		$	0.83		$	29,791		$	0.67		$	30,877		$	0.75


Weighted average number of shares outstanding		39,004						38,714						42,195						38,840
Weighted average effect of full conversion of OP Units		2,195						2,240						2,329						2,238
Effect of common share equivalents		—						7						—						12

Total weighted average shares outstanding, including OP Units		41,199						40,961						44,524						41,090

This “Liquidity and Capital Resources” section contains certain “forward-looking statements” that relate to expectations and projections that are not historical facts. These forward-looking statements reflect our current views about our future liquidity and capital resources, and are subject to risks and uncertainties that might cause our actual liquidity and capital resources to differ materially from the forward-looking statements. Additional factors that might affect our liquidity and capital resources include those discussed in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange ~~Commission.~~Commission and in the section entitled “Item 1A. Risk Factors” in Part II of this report. We do not intend to update or revise any forward-looking statements about our liquidity and capital resources to reflect new information, future events or otherwise.

We expect to meet our short-term liquidity requirements, including distributions to shareholders, recurring capital expenditures, tenant improvements and leasing commissions, but excluding development and redevelopment projects, generally through our available working capital and net cash provided by operations. We believe that our net cash provided by operations will be sufficient to allow us to make any distributions necessary to enable us to continue to qualify as a REIT under the Internal Revenue Code of 1986, as amended. The aggregate distributions made to common shareholders and OP Unitholders in the three months ended ~~March 31,~~September 30, 2009 were ~~$12.0~~$25.5 million, following ~~a reduction~~two reductions in the amount of ~~the~~our quarterly dividend. The following are some of the factors that could affect our cash flows and require the funding of future distributions, recurring capital expenditures, tenant improvements or leasing commissions with sources other than operating cash flows:

We have historically used a substantial amount of debt to finance our business, and we have relied primarily on new borrowings to fund our redevelopment and development projects. We ~~expect to meet certain of our current obligations to fund existing redevelopment and development projects and scheduled debt maturities through a variety of capital sources. We~~ estimate that we will ~~require~~incur approximately ~~$90 million to $100~~$20.0 million during the remainder of 2009, and up to an additional $50.0 million, net of expected reimbursements, in 2010 and 2011, to fund our current redevelopment and development ~~projects. In addition, $42.6~~projects, including $14.6 million ~~of our existing consolidated debt matures during 2009; however, $8.0 million of our existing consolidated debt agreements contain options~~as to ~~extend the respective maturity dates for a period of one year, provided that there is no event of default with respect to such loans, and certain other conditions~~which we are met. An additional $123.6 million, which represents our share of debt at partnership properties, matures during 2009; however, $111.2 million of the debt agreements at partnership properties contain options to extend the respective maturity dates for a period of one year, provided that there is no event of default with respect to such loans, and certain other conditions are met. contractually committed.

As of ~~March 31,~~September 30, 2009, ~~$447.0~~$485.0 million was outstanding under the Credit Facility, which matures in March 20, 2010. In addition, we have pledged ~~$1.5~~$3.0 million under the Credit Facility as collateral for letters of credit. The unused portion of the Credit Facility that was available to us on ~~March 31,~~September 30, 2009 was ~~$51.5~~$12.0 million. We have agreed upon a non-binding term sheet with the lead bank in the Credit Facility and the senior unsecured term loan (“Term Loan”) to refinance such debt. The term sheet is subject to review and approval by the members of the Credit Facility bank group, which might or might not be obtained, or which might only be obtained following changes to the term sheet. Even if a term sheet is accepted by all of the members of the bank group, we might or might not be successful in negotiating satisfactory definitive documents.

Management believes that it will be able to reach an agreement with the bank group with respect to a refinancing of the Credit Facility and Term Loan. This belief is subject to risks and uncertainties that could cause actual events to differ, including: risks arising from a further downturn in economic or retail industry conditions, including unemployment, decreased consumer confidence and consumer spending, which particularly affect retail REITs like us; risks arising from disruptions in the capital and credit markets, which might affect our ability to obtain other debt or equity capital or the banks’ abilities to extend credit; the risk of a real or perceived decline in the value of our properties; risks arising from our substantial indebtedness, the level of our cash flows, our ability to comply with debt agreement covenants, and perceptions of our creditworthiness, which might affect our continuing attractiveness as a borrower and the banks’ willingness to further extend credit; and other risks, including individual bank group members declining to approve a term sheet or definitive documents, which could inhibit the execution of a comprehensive agreement. In addition, see those risks discussed in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2008, in the section entitled “Item 1A. Risk Factors” in Part II of this report, and our other filings with the Securities and Exchange Commission.

We expect to satisfy our remaining 2009 capital requirements for redevelopment and development projects and debt maturities ~~in part~~through existing cash balances, as well as through borrowings under our Credit Facility, ~~by refinancing certain mortgage loans and by~~extensions of the maturity dates of existing indebtedness, additional borrowings secured by ~~existing properties. However, given~~certain select properties and operating cash flow. We expect to continue to use some or all of these methods to meet our capital requirements in early 2010, assuming we refinance our Credit facility and Term Loan, and subject to any restrictions that we may agree to in connection with any such refinancing. Given the continued weakness of the credit markets and our current financial position and results of operations, there is no assurance that we will be able to refinance our Credit Facility, Term Loan or other existing ~~debt or~~debt. Even if we are able to refinance our Credit Facility and Term Loan, we may not be able to obtain the additional capital necessary to satisfy our obligations or ~~requirements. Consequently, we also plan~~requirements going forward, and our possible actions to secure additional capital might be subject to restrictions in applicable debt obligations, including restrictions on asset sales or the use of proceeds from other transactions. We may seek to raise capital through ~~selective sales~~the public or private issuance of ~~assets, including outparcels, if warranted.~~equity or debt securities. However, the continued weakness of the credit markets might make it more difficult for us to sell such assets or might adversely affect the price we receive for properties or parcels that we may sell, as prospective buyers might experience increased costs of debt financing or difficulties in obtaining debt financing. Similarly, while we may seek to sell equity or unsecured debt securities, continued uncertainty in the capital markets may make it difficult for us to issue ~~equity~~ securities on terms that are favorable to us, if at all, and any such issuance ~~might~~of equity securities would likely be dilutive to existing shareholders. We might also seek to satisfy, subject to restrictions in applicable debt obligations, our long-term capital requirements through the formation of joint ventures with institutional partners, private equity investors or other REITs, or through a combination of some or all of the alternatives that may be available ~~alternatives.~~to us. We expect that other long-term capital requirements for which commitments have not previously been made, including any future redevelopment and development projects, renovations, expansions, property and portfolio acquisitions and other non-recurring capital improvements, may be deferred until such time as capital or financing can be obtained on terms we find acceptable. ~~A prolonged downturn in the credit markets might cause us to seek alternative sources of capital or financing, which could be less attractive and might require us to adjust~~

~~In March 2009, the SEC declared effective a~~ $1.0 billion universal ~~shelf registration statement. Currently, we may use our~~ shelf registration statement to offer and sell common shares of beneficial interest, preferred shares and various types of debt securities, among other types of securities, to the public. However, we may be unable to issue securities under the shelf registration statement, or otherwise, on terms that are favorable to us, if at all.

The amounts borrowed under our $500.0 million Credit Facility bear interest at a rate between 0.95% and 2.00% per annum over LIBOR based on our leverage. In determining our leverage, the capitalization rate used to calculate Gross Asset Value is 7.50%. In the determination of the Company’s Gross Asset Value, when we complete the redevelopment or development of a property and it is Placed in Service, the amount of Construction in Progress of such property included in Gross Asset Value is gradually reduced over a four quarter period.

The availability of funds under the Credit Facility is subject to our compliance with financial and other covenants and agreements. In October 2008, we exercised an option to extend the term of the Credit Facility to March 2010.

The following are some of the potential impediments to accessing additional funds under the Credit Facility:

As of March 31, 2009, $447.0 million was outstanding under the Credit Facility. In addition, we pledged $1.5 million under the Credit Facility as collateral for letters of credit. The unused portion of the Credit Facility that was available to us was $51.5 million. The weighted average effective interest rate based on amounts borrowed was ~~2.23%~~1.96% for the three months ended ~~March 31,~~September 30, 2009. The weighted average interest rate on outstanding Credit Facility borrowings at ~~March 31,~~September 30, 2009 was ~~1.93%~~1.65% (LIBOR plus 1.40%).

We must repay the entire principal amount outstanding under the Credit Facility at the end of its term. We may prepay any revolving loan at any time without premium or penalty. Accrued and unpaid interest on the outstanding principal amount under the Credit Facility is payable monthly, and any unpaid amount is payable at the end of the term. The Credit Facility has a facility fee of 0.15% to 0.25% per annum of the total commitments, depending on our leverage and without regard to usage. The Credit Facility contains lender yield protection provisions related to LIBOR loans. We and certain of our subsidiaries are guarantors of the obligations arising under the Credit Facility.

The Credit Facility contains affirmative and negative covenants and requirements customarily found in facilities of this type, as detailed in our Annual Report on Form 10-K for the year ended December 31, 2008, and which have not changed since that date. As of ~~March 31,~~September 30, 2009, we were in compliance with all of these covenants. The financial covenants under the Credit Facility require, among other things, that our leverage ratio, as defined in the Credit Facility, be less than 65%, provided that this leverage ratio can be exceeded for one period of two consecutive quarters, but may not exceed 70%, and that we meet certain other debt yield, interest coverage and fixed charge ratios. Compliance with each of these ratios is dependent upon our financial performance. The leverage ratio is based, in part, on applying a capitalization rate to our net operating income. Based on this calculation method, decreases in net operating income would result in an increased leverage ratio, even if overall debt levels remain constant. ~~We expect our~~The leverage ratio ~~will approach 65% by or shortly after~~was 66.1% at the end of the ~~second quarter. To avoid a breach~~quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio exceeded 65%. The financial covenants also require that the minimum debt yield ratio, as defined in the Credit Facility, be

greater than 9.75%, provided that this ratio can be less than 9.75% for one period of two consecutive quarters, but may not be below 9.25%. The minimum debt yield ratio was 9.74% for the ~~leverage~~quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio ~~or other covenants, we might be required to curtail our capital spending, sell assets, further reduce our cash dividend, reduce debt levels or seek to raise additional equity capital.~~was less than 9.75%

Upon the expiration of any applicable cure period following an event of default, the lenders may declare all of our obligations in connection with the Credit Facility immediately due and payable, and the commitments of the lenders to make further loans under the Credit Facility will terminate. Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of the Company, PREIT Associates, PRI or any material subsidiary, all outstanding amounts will automatically become immediately due and payable and the commitments of the lenders to make further loans will automatically terminate.

~~We are engaged in preliminary discussions with our lead bank to address the upcoming maturity of our Credit Facility.~~

In September 2008, we borrowed an aggregate of $170.0 million under our ~~senior unsecured term loan~~Term Loan agreement with a stated interest rate of 2.50% above LIBOR. Also in September 2008, we swapped the floating interest rate on $130.0 million of the ~~term loan~~Term Loan balance to a fixed rate of 5.33%, effective October 1, 2008. In October 2008, we swapped the floating interest rate on the remaining $40.0 million of the ~~term loan~~Term Loan balance to a fixed rate of 5.15%. We may increase the outstanding amount of the term loan, subject to certain conditions and to the participation of additional lenders, on one additional occasion before the initial maturity date of March 20, 2010. We may extend the maturity date of the term loan, subject to certain conditions, on one occasion for a period of one year. If we choose to exercise this right, we would pay an extension fee of 0.25% of the then-outstanding principal. The weighted average effective interest rate for the three months ended ~~March 31,~~September 30, 2009 based on amounts borrowed was ~~5.85%~~5.92%. The weighted average interest rate on amounts outstanding at ~~March 31,~~September 30, 2009 was 5.29%.

The Term Loan contains the same covenants as those contained in our Credit Facility.

In May 2007, we, through PREIT Associates, completed the sale of $287.5 million aggregate principal amount of exchangeable notes due 2012 (“Exchangeable Notes”). The net proceeds from the offering of $281.0 million were used for the repayment of indebtedness under our Credit Facility, the cost of the related capped call transactions, and for other general corporate purposes. The Exchangeable Notes are general unsecured senior obligations of PREIT Associates and rank equally in right of payment with all other senior unsecured indebtedness of PREIT Associates. PREIT Associates’ obligations under the Exchangeable Notes are fully and unconditionally guaranteed by the Company. ~~We have~~Through September 30, 2009 we repurchased ~~$48.1~~$85.1 million in aggregate principal amount of the Exchangeable Notes, and there was ~~$239.4~~$202.4 million outstanding as of ~~March 31,~~September 30, 2009. In October 2009, we exchanged 1.3 million common shares and $13.3 million in cash for $35.0 million in Exchangeable Notes, leaving $167.4 million outstanding.

In ~~January~~November 2009, we ~~repaid~~entered into a ~~$15.7~~one-year extension of a $34.3 million mortgage loan ~~on Palmer Park~~secured by Valley View Mall in ~~Easton,~~La Crosse, Wisconsin, with two six-month extension options.

In October 2009, Red Rose Commons Associates, LP entered into a $23.9 million mortgage loan that is secured by Red Rose Commons, located in Lancaster, Pennsylvania. We own an indirect 50% partnership interest in this entity. The mortgage loan has an initial term of two years, during which monthly payments of interest only are required. The loan bears interest at a variable rate of LIBOR plus 4.00% with a floor of 6.00% per annum. The proceeds from the mortgage loan were used to repay the previous mortgage, of which our share was $12.3 million, that was secured by Red Rose Commons.

In September 2009, we entered into a $20.0 million mortgage loan secured by Northeast Tower Center in Philadelphia, Pennsylvania. The mortgage loan had a variable interest rate of 2.75% plus the greater of 3-month LIBOR or 4.50% and a term of two years, with two one-year extension options. This loan was repaid in October 2009 in connection with the sale of a controlling interest in Northeast Tower Center.

In June 2009, we made a principal payment of $2.4 million and exercised the first one-year renewal option on the mortgage at the One Cherry Hill Plaza office building in Cherry Hill, New Jersey.

In June 2009, we entered into a $38.0 million mortgage loan that is secured by Lycoming Mall in Pennsdale, Pennsylvania. The outstanding principal balance on the loan as of September 30, 2009 was $28.0 million. The mortgage loan has a fixed interest rate of 6.84% and a term of five years. In October 2009, we drew an additional $5.0 million.

In June 2009, we entered into a $10.0 million construction loan that is secured by Pitney Road Plaza, a power center under development in Lancaster, Pennsylvania. The balance as of September 30, 2009 was $5.9 million. The construction loan has a variable interest rate of 2.5% over three-month LIBOR with a floor of 5.0% during the construction period and a term of one year with a six-month extension option for the construction loan period and an option to convert the loan to a two-year loan at the end of the construction period. The loan is interest only during the construction period.

In March 2009, we entered into a $16.3 million mortgage loan that is secured by New River Valley Center in Christiansburg, Virginia. The mortgage loan has a variable interest rate of LIBOR plus 3.25% with a minimum interest rate of 5.75%, and a term of three years and with two one-year extension options. The variable interest rate was capped to a fixed interest rate of 5.75% for the initial three year term of the loan.

In January 2009, we repaid a $15.7 million mortgage loan on Palmer Park Mall in Easton, Pennsylvania.

The following table summarizes our financing activity for the nine months ended September 30, 2009:


(in thousands of dollars)	Mortgage Notes Payable			Credit Facility		Exchangeable Notes			Senior Unsecured Term Loan		Mortgage Notes Payable			Credit Facility		Exchangeable Notes			Senior Unsecured Term Loan
Balance at January 1, 2009	$	1,756,270		$	400,000	$	241,500		$	170,000	$	1,756,270		$	400,000	$	241,500		$	170,000
Repayment of Palmer Park mortgage		(15,674	)		—		—			—		(15,674	)		—		—			—
Principal payment on One Cherry Hill Plaza mortgage												(2,384	)		—		—			—
New River Valley Center mortgage		16,250			—		—			—		16,250			—		—			—
Purchase of exchangeable notes		—			—		(2,100	)		—
Northeast Tower Center mortgage⁽¹⁾												20,000
Pitney Road Plaza construction financing												5,893			—		—			—
Lycoming Mall mortgage												28,000			—		—			—
Repurchase of exchangeable notes												—			—		(39,100	)		—
Principal amortization		(3,977	)		—		—			—		(12,736	)		—		—			—
Credit Facility borrowings, net		—			47,000		—			—		—			85,000		—			—

Balance at March 31, 2009	$	1,752,869		$	447,000	$	239,400		$	170,000
Balance at September 30, 2009											$	1,795,619		$	485,000	$	202,400		$	170,000

As of ~~March 31,~~September 30, 2009, we had a total of 12 interest rate swap agreements and one interest rate cap agreement, as described in note 9 to our unaudited consolidated financial statements. The interest rate swap and cap agreements have an aggregate notional value of $597.5 million and mature on various dates through November 2013. We assessed the effectiveness of these swaps and cap as hedges at inception and on ~~March 31,~~September 30, 2009 and considered these swaps and cap to be highly effective cash flow ~~hedges under SFAS No. 133.~~hedges. Our interest rate swaps are net settled monthly.

As of ~~March 31,~~September 30, 2009, the aggregate estimated unrealized net loss attributed to these interest rate swaps was ~~$23.1~~$17.7 million. The carrying amount of the derivative assets is reflected in ~~fair~~“Fair value of derivative assets,” the associated liabilities are reflected in ~~fair~~“Fair value of derivative liabilities,” and the net unrealized gain or loss is reflected in ~~accumulated~~“Accumulated other comprehensive ~~loss~~income (loss)” in the accompanying balance sheets.

Mortgage notes payable, which are secured by 2427 of our consolidated properties, are due in installments over various terms extending to the year 2017. ~~Fourteen~~Fifteen of the mortgage notes bear interest at a fixed rate and nine of the mortgage notes bear interest at variable rates that have been swapped to or capped at a fixed rate. These 2324 mortgage notes have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of ~~5.78%~~5.71% at ~~March 31,~~September 30, 2009. We also have ~~one property~~three properties with a variable interest rate ~~mortgage~~mortgages that had ana weighted average interest rate of ~~1.86%~~5.81% at ~~March 31,~~September 30, 2009. Mortgage notes payable for properties owned by unconsolidated partnerships are accounted for in ~~investments~~“Investments in partnerships, at ~~equity~~equity” and ~~distributions~~“Distributions in excess of partnership ~~investments~~investments” on the consolidated balance sheets and are not included in the table below.

The following table outlines the timing of principal payments related to our mortgage notes associated with our consolidated properties as of ~~March 31,~~September 30, 2009.


	Payments by Period										Payments by Period
(in thousands of dollars)	Total		Through December 31, 2009		2010-2011		2012-2013		2014 and later		Total		Through December 31, 2009		2010-2011		2012-2013		2014 and later
Principal payments	$	107,541	$	13,204	$	39,069	$	31,089	$	24,179	$	101,808	$	4,627	$	40,560	$	32,143	$	24,478
Balloon payments		1,645,328		42,335		118,448		777,694		706,851		1,693,811		34,335		149,346		777,694		732,436

Total	$	1,752,869	$	55,539	$	157,517	$	808,783	$	731,030	$	1,795,619	$	38,962	$	189,906	$	809,837	$	756,914

The following table presents our aggregate contractual obligations as of ~~March 31,~~September 30, 2009 for the periods presented:


(in thousands of dollars)	Total		Through December 31, 2009		2010-2011		2012-2013		2014 and later		Total		Through December 31, 2009		2010-2011		2012-2013		2014 and later
Mortgages⁽¹⁾	$	1,752,869	$	55,539	$	157,517	$	808,783	$	731,030
Mortgages⁽¹⁾⁽²⁾											$	1,795,619	$	38,962	$	189,906	$	809,837	$	756,914
Interest on mortgages		507,146		75,116		189,444		149,730		92,856		496,054		51,548		196,986		153,639		93,881
Credit Facility⁽²⁾⁽³⁾		447,000		—		447,000		—		—		485,000		—		485,000		—		—
Exchangeable notes		239,400		—		—		239,400		—		202,400		—		—		202,400		—
Interest on exchangeable notes		30,324		7,182		19,152		3,990		—		21,589		2,024		16,192		3,373		—
Senior unsecured term loan		170,000		—		170,000		—		—		170,000		—		170,000		—		—
Interest on term loan		8,993		6,745		2,248		—				4,566		2,283		2,283		—		—
Capital leases⁽³⁾⁽⁴⁾		132		132		—		—		—		45		45		—		—		—
Operating leases		11,140		2,123		4,435		3,348		1,234		9,431		574		4,226		3,392		1,239
Ground leases		52,250		740		1,974		1,565		47,971		51,931		264		1,984		1,576		48,107
Redevelopment and development commitments⁽⁴⁾⁽⁵⁾		37,934		37,934		—		—		—		14,571		14,145		426		—		—

Total	$	3,257,188	$	185,511	$	991,770	$	1,206,816	$	873,091	$	3,251,206	$	109,845	$	1,067,003	$	1,174,217	$	900,141

Net cash provided by operating activities totaled ~~$40.0~~$97.0 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 compared to ~~$39.8~~$94.8 million for the ~~three~~nine months ended March 31, 2008. The increase in 2009 as compared to 2008 was primarily due to changes in working capital, as $3.9 million of incentive compensation was paid in the three months ended March 31, 2009 compared to $6.0 million paid in the three months ended March 31,September 30, 2008.

Cash flows used for investing activities were ~~$60.7~~$116.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 compared to ~~$71.9~~$260.5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2008. Investing activities for 2009 reflect investment in construction in progress of ~~$53.1~~$122.1 million and real estate improvements of ~~$4.2~~$15.9 million, all of which primarily relate to our development and redevelopment activities. Investing activities for 2009 also reflect ~~$0.9~~proceeds of $20.9 million ~~paid to acquire partnership interests.~~from the sale of real estate investments. Cash flows from investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2008 reflect investment in construction in progress of ~~$65.5~~$225.9 million, real estate improvements of ~~$1.4~~$23.7 million and real estate acquisitions of ~~$4.0~~$12.7 million.

Cash flows provided by financing activities were ~~$30.2~~$99.8 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 compared to ~~$24.9~~$157.3 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2008. Cash flows provided by financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 were primarily affected by ~~$16.3~~$70.1 million of proceeds from the mortgage ~~loan~~loans on New River Valley Center, Pitney Road Plaza, Lycoming Mall, and Northeast Tower Center, as well as ~~$47.0~~$85.0 million in borrowings from the Credit ~~Facility.~~Facility and $10.1 million of contributions from noncontrolling interest. We used some of these proceeds to repay the $15.7 million mortgage note on Palmer Park ~~Mall.~~Mall and to make a $2.4 million payment on the mortgage loan on One Cherry Hill Plaza. Cash flows from financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2009 were also affected by dividends and distributions of ~~$12.0~~$25.5 million, principal installments on mortgage notes payable of ~~$4.0~~$12.7 million, and payments of ~~$0.7~~$7.9 million for the repurchase of exchangeable notes.

At ~~March 31,~~September 30, 2009, we had ~~$37.9~~$14.6 million of unaccrued contractual obligations to complete current development and redevelopment projects. Total remaining costs for the particular projects with such commitments are ~~$97.0~~$50.2 million. See “– Liquidity and Capital Resources – Capital Resources.”

We are aware of certain environmental matters at some of our properties, including ground water contamination and the presence of asbestos containing materials. We have, in the past, performed remediation of such environmental matters, and we are not aware of any significant remaining potential liability relating to these environmental matters. We may be required in the future to perform testing relating to these matters. We have insurance coverage for certain environmental claims up to $10.0 million per occurrence and up to $10.0 million in the aggregate.

Competition in the retail real estate industry is intense. We compete with other public and private retail real estate companies, including companies that own or manage malls, power centers, lifestyle centers, strip centers, factory outlet centers, theme/festival centers and community centers, as well as other commercial real estate developers and real estate owners, particularly those with properties near our properties, on the basis of several factors, including location, rent charged and ~~rent charged.~~occupancy costs. We compete with these companies to attract customers to our properties, as well as to attract anchor and in-line store tenants. We also compete to acquire land for new site development. Our malls and our strip and power centers face competition from similar retail centers, including more recently developed or renovated centers, that are near our retail properties. We also face competition from a variety of different retail formats, including internet retailers, discount or value retailers, home shopping networks, mail order operators, catalogs and telemarketers. This competition could have a material adverse effect on our ability to lease space and on the amount of rent that we receive. Our tenants face competition from companies at the same and other properties and from other retail formats as well.

The development of competing retail properties and the related increased competition for tenants might require us to make capital improvements to properties that we would have deferred or would not have otherwise planned to make, assuming that acceptable financing is available, and might also affect the occupancy and net operating income of such properties. Any such redevelopments, undertaken individually or collectively, involve costs and expenses that could adversely affect our results of operations.

We compete with many other entities engaged in real estate investment activities for acquisitions of malls, other retail properties and other prime development sites, including institutional pension funds, other REITs and other owner-operators of retail properties. Given current economic, capital market and retail industry conditions, however, there has been substantially less competition with respect to acquisition activity in recent quarters. When we seek to make acquisitions, these competitors might drive up the price we must pay for properties, parcels, other assets or other companies we seek to acquire, or might themselves succeed in acquiring those properties, parcels, assets or companies. In addition, our potential acquisition targets might find our competitors to be more attractive suitors if they have greater resources, are willing to pay more, or have a more compatible operating philosophy. In particular, larger REITs might enjoy significant competitive advantages that result from, among other things, a lower cost of capital, a better ability to raise capital, a better ability to finance an acquisition, and enhanced operating efficiencies. We might not succeed in acquiring retail properties or development sites that we seek, or, if we pay higher prices for properties, or generate lower cash flow from an acquired property than we expect, our investment returns will be reduced, which will adversely affect the value of our securities.

We receive a substantial portion of our operating income as rent under long-term leases with tenants. As is currently the case, at any time, any tenant having space in one or more of our properties could experience a downturn in its business that might weaken its financial condition. These tenants have, and other tenants in the future might, defer or fail to make rental payments when due, delay or cancel lease commencement, voluntarily vacate the premises or declare bankruptcy, which has and might in the future result in the termination of the tenant’s lease, and result in material losses to us and harm to our results of operations. Also, it might take time to terminate leases of underperforming or nonperforming tenants and we might incur costs to remove such tenants. Some of our tenants occupy stores at multiple locations in our portfolio, and so the effect of any bankruptcy of those tenants has and might in the future be more significant to us than the bankruptcy of other tenants. In addition, under many of our leases, our tenants pay rent based on a percentage of their sales. Accordingly, declines in these tenants’ sales has and might in the future negatively affect our results of operations. Also, if tenants are unable to comply with the terms of their leases, we have and might in the future modify lease terms in ways that are less favorable to us.

There is seasonality in the retail real estate industry. Retail property leases often provide for the payment of a portion of rent based on a percentage of a tenant’s sales over certain levels. Income from such rent is recorded only after the minimum sales levels have been met. The sales levels are often met in the fourth quarter, during the December holiday season. Also, many new and temporary leases are entered into later in the year in anticipation of the holiday season and there is a higher concentration of tenants vacating their space early in the year. As a result, our occupancy and cash flows are generally higher in the fourth quarter and lower in the first quarter, excluding the effect of ongoing redevelopment projects. Our concentration in the retail sector increases our exposure to seasonality and is expected to continue to result in a greater percentage of our cash flows being received in the fourth quarter.

Inflation can have many effects on the financial performance of our tenants and us. Retail property leases often provide for the payment of rent based on a percentage of sales, which may increase or decrease as a result of inflationary prices and their effect on consumer spending. Also, inflation could cause increases in property operating expenses, which could increase occupancy costs for tenants and, to the extent we are unable to recover property expenses from tenants, could increase property operating expenses for us. In addition, if the rate of inflation exceeds the scheduled rate increases included in our leases, then our net operating income and our profitability would decrease.

This Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2009, together with other statements and information publicly disseminated by us, contain certain “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements relate to expectations, beliefs, projections, future plans, strategies, anticipated events, trends and other matters that are not historical facts. These forward-looking statements reflect our 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. In particular, our business might be affected by uncertainties affecting real estate businesses generally as well as the following, among other factors:

Additional factors that might cause future events, achievements or results to differ materially from those expressed or implied by our forward-looking statements include those discussed in the section entitled “Item 1A. Risk Factors” in our Annual Report on Form
10-K for the year ended December 31, 2008 and in the section entitled “Item 1A. Risk Factors” in Part II of this ~~Quarterly Report on Form 10-Q.~~report. We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of ~~March 31,~~September 30, 2009, our consolidated debt portfolio consisted primarily of ~~$447.0~~$1,795.6 million in fixed and variable rate mortgage notes, excluding $3.0 million of mortgage debt premium, $485.0 million borrowed under our senior unsecured Credit Facility, which bears interest at a LIBOR rate plus an applicable margin, $170.0 million borrowed under our ~~senior unsecured term loan,~~Term Loan, of which $130.0 million has been swapped to a fixed interest rate of 5.33% and the remaining $40.0 million has been swapped to a fixed interest rate of 5.15%, ~~$1,752.9 million in fixed and variable rate mortgage notes, excluding $3.7 million of mortgage debt premium,~~ and exchangeable notes of ~~$239.4~~$202.4 million, which bear interest at a fixed rate of 4.00%, excluding debt discount of $7.7 million.

Mortgage notes payable, which are secured by 2427 of our consolidated properties, are due in installments over various terms extending to the year 2017. ~~Fourteen~~Fifteen of the mortgage notes bear interest at a fixed rate and nine of the mortgage notes bear interest at variable rates that have been swapped to or capped at a fixed rate. These 2324 mortgage notes have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of ~~5.78%~~5.80% at ~~March 31,~~September 30, 2009. We also have ~~one property~~three properties with a variable interest rate ~~mortgage~~mortgages that had ana weighted average interest rate of ~~1.86%~~5.81% at ~~March 31,~~September 30, 2009. Mortgage notes payable for properties owned by unconsolidated partnerships are accounted for in ~~investments~~“Investments in partnerships, at ~~equity~~equity” and ~~distributions~~“Distributions in excess of partnership ~~investments~~investments” on the consolidated balance sheets and are not included in the table below.

Our interest rate risk is monitored using a variety of techniques. The table below presents the principal amounts of the expected annual maturities and the weighted average interest rates for the principal payments in the specified periods:


	Fixed Rate Debt					Variable Rate Debt					Fixed Rate Debt					Variable Rate Debt
(in thousands of dollars) Year Ended December 31,	Principal Payments			Weighted Average Interest Rate		Principal Payments			Weighted Average Interest Rate⁽¹⁾		Principal Payments			Weighted Average Interest Rate		Principal Payments			Weighted Average Interest Rate⁽¹⁾
2009	$	47,539		6.03	%	$	8,000		1.86	%	$	38,914		6.09	%	$	48		7.25	%
2010	$	208,400	⁽²⁾	5.45	%	$	447,000	⁽³⁾	1.93	%	$	214,741	⁽²⁾	5.43	%	$	496,807	⁽³⁾	1.73	%
2011	$	119,117		5.83	%	$	—		—		$	119,597		5.82	%	$	19,654		7.25	%
2012	$	632,695	⁽⁴⁾	5.63	%	$	—		—		$	596,175	⁽⁴⁾	5.69	%	$	—		—
2013	$	415,488		5.48	%	$	—		—		$	416,062		5.48	%	$	—		—
2014 and thereafter	$	731,030		5.68	%	$	—		—		$	756,914		5.64	%	$	—		—

Changes in market interest rates have different effects on the fixed and variable portions of our debt portfolio. A change in market interest rates applicable to the fixed portion of the debt portfolio impacts the fair value, but it has no impact on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of the debt portfolio impacts the interest incurred and cash flows, but does not impact the fair value. The following sensitivity analysis ~~related~~relates to the fixed debt portfolio, which includes the effects of the interest rate swap and cap agreements described below, assumes an immediate 100 basis point change in interest rates from their actual ~~March 31,~~September 30, 2009 levels, with all other variables held constant. A 100 basis point increase in market interest rates would result in a decrease in the fair value of our debt of ~~$49.9~~$47.3 million at ~~March 31,~~September 30, 2009. A 100 basis point decrease in market interest rates would result in an increase in the fair value of our debt of ~~$52.5~~$50.2 million at ~~March 31,~~September 30, 2009. Based on the variable rate debt included in our debt portfolio, as of ~~March 31,~~September 30, 2009, a 100 basis point increase in interest rates would result in an additional ~~$4.6~~$5.0 million in interest annually, and a 100 basis point decrease would reduce interest incurred by ~~$4.6~~$5.0 million annually.

To manage interest rate risk and limit overall interest cost, we may employ interest rate swaps, options, forwards, caps and floors, or a combination thereof, depending on the underlying exposure. Interest rate differentials that arise under swap and cap contracts are recognized in interest expense over the life of the contracts. If interest rates rise, the resulting cost of funds is expected to be lower than that which would have been available if debt with matching characteristics were issued directly. Conversely, if interest rates fall, the

resulting costs would be expected to be higher. We may also employ forwards or purchased options to hedge qualifying anticipated transactions. Gains and losses are deferred and recognized in net income in the same period that the underlying transaction occurs, expires or is otherwise terminated. See note 9 to our unaudited consolidated financial statements.

We currently have $597.5 million notional amount of interest rate swap and cap agreements that have a weighted average interest rate of 3.29% maturing on various dates through November 2013. We assessed the effectiveness of these swaps and cap as hedges at inception and on ~~March 31,~~September 30, 2009 and considered these swaps and cap to be highly effective cash flow ~~hedges under SFAS No. 133.~~hedges.

Because the information presented above includes only those exposures that exist as of ~~March 31,~~September 30, 2009, it does not consider changes, exposures or positions which could arise after that date. The information presented herein has limited predictive value. As a result, the ultimate realized gain or loss or expense as a result of interest rate fluctuations will depend on the exposures that arise during the period, and the hedging arrangements we have in place.

We are committed to providing accurate and timely disclosure in satisfaction of our SEC reporting obligations. In 2002, we established a Disclosure Committee to formalize our disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~September 30, 2009, and have concluded as follows:

There was no change in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

In the normal course of business, we have become and might in the future become involved in legal actions relating to the ownership and operation of our properties and the properties that we manage for third parties. In management’s opinion, the resolution of any such pending legal actions are not expected to have a material adverse effect on our consolidated financial position or results of operations.

In addition to the other information set forth in this report, you should carefully consider the risks that could materially affect our business, financial condition or results of operations, which are discussed under the caption “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2008.~~2008, as well as the following:

We might not be able to replace or extend our Credit Facility when it matures in March 2010.

Our Credit Facility has a term that expires March 20, 2010. We also have a $170.0 million Term Loan that expires on March 20, 2010. We have agreed upon a non-binding term sheet with the lead bank in the Credit Facility and the Term Loan. The term sheet is subject to review and approval by the members of the Credit Facility bank group, which might or might not be obtained, or which might only be obtained following changes to the term sheet. Even if a term sheet is accepted by all of the members of the bank group, we may or may not be successful in negotiating satisfactory definitive documents. If, because of our substantial indebtedness, the level of our cash flows, lenders’ perceptions of our creditworthiness, or for other reasons, we are unable to renew, replace or extend our Credit Facility and Term Loan, or arrange for alternative financing, we might be required to dispose of one or more assets on unfavorable terms, further reduce or eliminate future cash dividends, or take other, more severe actions.

Our $500.0 million Credit Facility requires us to satisfy certain affirmative and negative covenants and to meet numerous financial tests. Our Term Loan contains identical covenants. The financial covenants under the Credit Facility require, among other things, that our leverage ratio, as defined in the Credit Facility, be less than 65%, provided that this leverage ratio can be exceeded for one period of two consecutive quarters, but may not exceed 70%, and that we meet certain other debt yield, interest coverage and fixed charge ratios. Compliance with each of these ratios is dependent upon our financial performance. The leverage ratio is based, in part, on applying a capitalization rate to our net operating income. Based on this calculation method, decreases in net operating income would result in an increased leverage ratio, even if overall debt levels remain constant. The leverage ratio was 66.1% at the end of the quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio exceeded 65%. The financial covenants also require that the minimum debt yield ratio, as defined in the Credit Facility, be greater than 9.75%, provided that this ratio can be less than 9.75% for one period of two consecutive quarters, but may not be below 9.25%. The minimum debt yield ratio was less than 9.75%, but was not less than 9.25% for the quarter ended September 30, 2009. The quarter ended September 30, 2009 was the first quarter that the ratio was less than 9.75%.

On or about February 20, 2009, we issued 13,117 common shares in return for an equal amount of Class A Units tendered for redemption by a limited partner of PREIT Associates. The shares were issued under exemptions provided by Section 4(2) of the Securities Act of 1933 as transactions not involving a public offering.

The following table shows the total number of shares that we acquired in the three months ended ~~March 31,~~September 30, 2009 and the average price paid per share.

Period
   Total
Number
of Shares
Purchased    Average
Price
Paid per
Share    Total
Number of
Shares
Purchased
as part of
Publicly
Announced
Plans or
Programs    Maximum
Number (or
Approximate
Dollar Value)
of Shares that
May Yet Be
Purchased
Under the
Plans or
Programs⁽¹⁾
January 1 – January 31, 2009
   —      $ —      —      $ 100,000,000
February 1 – February 28, 2009
   26,067    4.355    —      100,000,000
March 1 – March 31, 2009
   —      —      —      100,000,000

Total
   26,067    $ 4.355    —      $ 100,000,000


Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
July 1 – July 31, 2009	219	$	4.55	—	$	100,000,000
August 1 – August 31, 2009	216		5.95	—		100,000,000
September 1 – September 30, 2009	—		—	—		100,000,000

Total	435	$	5.25	—	$	100,000,000

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Page

	PART ~~I –~~ I—FINANCIAL INFORMATION

Item 1	Financial Statements (Unaudited):

	Consolidated Balance Sheets – ~~March 31,~~September 30, 2009 and December 31, 2008	1
	Consolidated Statements of Operations – Three and Nine Months Ended ~~March 31,~~September 30, 2009 and 2008	2
	Consolidated Statements of Equity and Comprehensive Income – ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2009 and 2008	34
	Consolidated Statements of Cash Flows – ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2009 and 2008	56
	Notes to Unaudited Consolidated Financial Statements	67

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1722

Item 3	Quantitative and Qualitative Disclosures About Market Risk	3443

Item 4	Controls and Procedures	3644

	PART ~~II –~~ II—OTHER INFORMATION

Item 1	Legal Proceedings	3644

Item 1A	Risk Factors	3644

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3645

Item 3	Not Applicable

Item 4	Not Applicable

Item 5	Not Applicable

Item 6	Exhibits	3846

SIGNATURES		3947


	Three months ended September 30,						Nine months ended September 30,
(in thousands of dollars, except per share amounts)				(as revised)						(as revised)
	2009			2008			2009			2008

Loss from continuing operations	$	(13,615	)	$	(9,009	)	$	(29,648	)	$	(16,186	)
Dividends from unvested restricted shares		(162	)		(304	)		(635	)		(918	)

Loss from continuing operations used to calculate earnings per share - basic and diluted	$	(13,777	)	$	(9,313	)	$	(30,283	)	$	(17,104	)


Income from discontinued operations used to
calculate earnings per share - basic and diluted	$	3,496		$	149		$	3,788		$	435


Basic (loss) income per share
Loss from continuing operations	$	(0.32	)	$	(0.24	)	$	(0.75	)	$	(0.44	)
Income from discontinued operations		0.08			—			0.09			0.01

	$	(0.24	)	$	(0.24	)	$	(0.66	)	$	(0.43	)

Diluted (loss) income per share
Loss from continuing operations	$	(0.32	)	$	(0.24	)	$	(0.75	)	$	(0.44	)
Income from discontinued operations		0.08			—			0.09			0.01

	$	(0.24	)	$	(0.24	)	$	(0.66	)	$	(0.43	)

(in thousands of shares)
Weighted average shares outstanding - basic		42,195			38,840			40,144			38,781
Effect of common share equivalents⁽¹⁾		—			—			—			—

Weighted average shares outstanding - diluted		42,195			38,840			40,144			38,781


(in thousands of dollars)	Nine Months Ended September 30, 2009			Nine Months Ended September 30, 2008
Total assets	$	62,039		$	67,407
Mortgage payable	$	150,000		$	150,000
Revenue	$	22,568		$	21,388
Property operating expenses	$	(6,067	)	$	(6,438	)
Interest expense	$	(1,186	)	$	(4,551	)
Net income	$	12,390		$	7,494
Company’s share of equity in income of partnership	$	6,195		$	3,747


Redevelopment Project	Estimated Project Cost⁽¹⁾		Invested as of ~~March 31,~~September 30, 2009
Cherry Hill Mall	$	218.0 million	$	~~196.8~~209.9 million
Plymouth Meeting Mall		~~96.6~~97.7 million		~~83.7~~89.9 million
The Gallery at Market East		81.6 million		~~78.3~~79.5 million
Voorhees Town Center		83.0 million		~~56.1~~64.0 million
Wiregrass Commons Mall		12.8 million		~~9.2~~10.5 million

	$	~~492.0~~493.1 million	$	~~424.1~~453.8 million


Development Project	Estimated Project Cost⁽¹⁾		Invested as of ~~March 31,~~September 30, 2009		Actual/Expected Initial Occupancy Date
Operating ~~Property with Development Activity:~~
~~Monroe Marketplace~~	$	~~58.9 million~~	$	~~56.9 million~~	~~2008~~
~~Development Properties:~~Property:
Pitney Road Plaza	$	~~20.3~~18.8 million	$	~~9.2~~14.1 million	2009
Development Properties:
White Clay Point⁽²⁾		To be determined		~~42.9~~43.5 million	To be determined
Springhills		To be determined		~~32.1~~32.9 million	To be determined
Pavilion at Market East⁽³⁾		To be determined		0.7 million	To be determined

			$	~~141.8~~91.2 million


(in thousands of dollars)	Three Months Ended September 30, 2009		Three Months Ended September 30, 2008		Nine Months Ended September 30, 2009		Nine Months Ended September 30, 2008
Property operating results of Crest Plaza	$	98	$	149	$	390	$	435
Gain on sale of Crest Plaza		3,398		—		3,398		—

Income from discontinued operations	$	3,496	$	149	$	3,788	$	435


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
January 1 – January 31, 2009	—	$	—	—	$	100,000,000
February 1 – February 28, 2009	26,067		4.355	—		100,000,000
March 1 – March 31, 2009	—		—	—		100,000,000

Total	26,067	$	4.355	—	$	100,000,000


~~+10.1~~		~~Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 6, 2009, between PREIT and Robert F. McCadden.~~

~~+10.2~~		~~Amendment No. 1 to Amended and Restated Employment Agreement, dated as of May 1, 2009, between PREIT and Jeffrey Linn.~~

~~+10.3~~		~~2009-2011 Performance Incentive Unit Program.~~

~~+10.4~~		~~Form of Annual Incentive Compensation Opportunity Award for Executive Vice Presidents other than the Chief Financial Officer.~~

~~+10.5~~		~~Form of Annual Incentive Compensation Opportunity Award for Members of the Office of the Chair and the Chief Financial Officer.~~

~~+10.6~~		~~Form of Annual Incentive Compensation Opportunity Award for Jonathen Bell, Senior Vice President.~~

~~+10.7~~		~~Form of Performance Incentive Unit Award Agreement under PREITs 2009-2011 Performance Incentive Unit Program.~~

31.1		Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
Date: ~~May 11,~~November 9, 2009
	By:	/s/ Ronald Rubin
		Ronald Rubin
		Chief Executive Officer

	By:	/s/ Robert F. McCadden
		Robert F. McCadden
		Executive Vice President and Chief Financial Officer

	By:	/s/ Jonathen Bell
		Jonathen Bell
		Senior Vice President - Chief Accounting Officer (Principal Accounting Officer)

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