UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2009~~2010

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 1-6300

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

(Exact name of Registrant as specified in its charter)

Pennsylvania

23-6216339

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

200 South Broad Street

Philadelphia, PA

19102

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code (215) 875-0700

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 ~~November 3, 2009: 44,604,442~~July 27, 2010: 55,317,892

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONTENTS


		Page

	PART I—FINANCIAL INFORMATION

Item 1 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets – ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008~~2009	1

	Consolidated Statements of Operations – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009	2

	Consolidated Statements of Equity and Comprehensive Income – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2009 and 2008~~2010	4

	Consolidated Statements of Cash Flows – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009	65

	Notes to Unaudited Consolidated Financial Statements	76

Item 2 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2220

Item 3 3.	Quantitative and Qualitative Disclosures About Market Risk	4342

Item 4 4.	Controls and Procedures	44

	PART II—OTHER INFORMATION

Item 1 1.	Legal Proceedings	44

Item 1A 1A.	Risk Factors	44

Item 2	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	45

~~Item 3~~ 2.	Not Applicable

Item 4 3.	Not Applicable

Item 5 4.	Not Applicable

Item 6 5.	Not Applicable

Item 6.	Exhibits	4645

SIGNATURES		4746

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.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands of dollars, except share and per share amounts)	September 30, 2009			(as revised) December 31, 2008			June 30, 2010			December 31, 2009
ASSETS:
INVESTMENTS IN REAL ESTATE, at cost:
Operating properties	$	3,507,172		$	3,287,232		$	3,523,664		$	3,459,745
Construction in progress		275,618			411,479			161,996			215,231
Land held for development		9,337			9,337			9,337			9,337

Total investments in real estate		3,792,127			3,708,048			3,694,997			3,684,313
Accumulated depreciation		(608,605	)		(516,832	)		(690,489	)		(623,309	)

Net investments in real estate		3,183,522			3,191,216			3,004,508			3,061,004

INVESTMENTS IN PARTNERSHIPS, at equity		34,142			36,164
INVESTMENTS IN PARTNERSHIPS, at equity:								29,528			32,694
OTHER ASSETS:
Cash and cash equivalents		90,248			9,786			29,250			74,243
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
Tenant and other receivables (net of allowance for doubtful accounts of $21,163 and $19,981 at June 30, 2010 and December 31, 2009, respectively)								35,169			55,303
Intangible assets (net of accumulated amortization of $212,364 and $198,984 at June 30, 2010 and December 31, 2009, respectively)								25,598			38,978
Deferred costs and other assets		91,068			80,845			91,498			84,358

Total assets	$	3,492,980		$	3,444,277		$	3,215,551		$	3,346,580

LIABILITIES:
Mortgage notes payable	$	1,795,619		$	1,756,270
Debt premium on mortgage notes payable		3,039			4,026
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		485,000			400,000
Senior unsecured term loan		170,000			170,000
Mortgage notes payable (including debt premium of $2,157 and $2,744 at June 30, 2010 and December 31, 2009, respectively)							$	1,798,287		$	1,777,121
Exchangeable notes (net of debt discount of $3,749 and $4,664 at June 30, 2010 and December 31, 2009, respectively)								133,151			132,236
Term loans								413,500			170,000
Revolving Facility								—			486,000
Tenants’ deposits and deferred rent		14,964			13,112			13,827			13,170
Distributions in excess of partnership investments		48,004			48,788			44,199			48,771
Accrued construction expenses		17,770			38,859
Fair value of derivative liabilities		17,727			29,169
Accrued construction costs								3,086			11,778
Fair value of derivative instruments								27,252			14,610
Accrued expenses and other liabilities		55,310			55,711			53,392			58,090

Total liabilities		2,802,179			2,746,014			2,486,694			2,711,776
COMMITMENTS AND CONTINGENCIES (Note 8)
EQUITY:
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
Shares of beneficial interest, $1.00 par value per share; 100,000,000 shares authorized; issued and outstanding 55,317,932 shares at June 30, 2010 and 44,615,647 shares at December 31, 2009								55,318			44,616
Capital contributed in excess of par		871,136			853,281			1,034,998			881,735
Accumulated other comprehensive loss		(33,322	)		(45,341	)		(41,491	)		(30,016	)
Distributions in excess of net income		(249,892	)		(201,080	)		(372,960	)		(317,682	)

Total equity—PREIT		631,224			646,329			675,865			578,653
Noncontrolling interest		59,577			51,934			52,992			56,151

Total equity		690,801			698,263			728,857			634,804

Total liabilities and equity	$	3,492,980		$	3,444,277		$	3,215,551		$	3,346,580

See accompanying notes to the unaudited consolidated financial statements.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)				(as revised)						(as revised)			2010			2009			2010			2009
	2009			2008			2009			2008
REVENUE:
Base rent	$	74,230		$	72,780		$	220,997		$	218,978		$	73,631		$	73,105		$	148,085		$	145,121
Expense reimbursements		34,050			35,387			102,357			103,109			32,709			33,684			67,521			67,859
Percentage rent		918			1,060			2,378			3,526			641			626			1,525			1,461
Lease termination revenue		300			320			1,636			2,618			373			938			2,181			1,336
Other real estate revenue		3,306			3,719			10,075			10,950			3,501			3,463			6,466			6,715
Interest and other income		862			1,470			2,092			3,663			598			528			1,326			1,230

Total revenue		113,666			114,736			339,535			342,844			111,453			112,344			227,104			223,722

EXPENSES:
Operating expenses:
CAM and real estate taxes		(35,159	)		(33,478	)		(103,814	)		(98,525	)		(35,511	)		(33,563	)		(72,813	)		(68,179	)
Utilities		(6,774	)		(7,009	)		(18,572	)		(19,283	)		(6,166	)		(5,913	)		(12,469	)		(11,797	)
Other operating expenses		(6,796	)		(7,153	)		(19,260	)		(18,997	)		(6,373	)		(6,694	)		(12,195	)		(12,460	)

Total operating expenses		(48,729	)		(47,640	)		(141,646	)		(136,805	)		(48,050	)		(46,170	)		(97,477	)		(92,436	)

Depreciation and amortization		(41,702	)		(38,270	)		(122,243	)		(110,958	)		(41,598	)		(41,085	)		(83,605	)		(80,086	)
Other expenses:
General and administrative expenses		(9,583	)		(10,364	)		(28,436	)		(31,777	)		(9,617	)		(9,498	)		(19,303	)		(18,853	)
Impairment of assets		—			—			(70	)		—			—			(70	)		—			(70	)
Abandoned project costs, income taxes and other expenses		(200	)		(311	)		(598	)		(1,815	)		(161	)		(80	)		(455	)		(399	)

Total other expenses		(9,783	)		(10,675	)		(29,104	)		(33,592	)		(9,778	)		(9,648	)		(19,758	)		(19,322	)
Interest expense, net		(33,589	)		(29,329	)		(99,346	)		(83,413	)		(38,625	)		(33,249	)		(73,456	)		(65,758	)
Gain on extinguishment of debt		4,167			—			13,971			—			—			8,532			—			9,804

Total expenses		(129,636	)		(125,914	)		(378,368	)		(364,768	)		(138,051	)		(121,620	)		(274,296	)		(247,798	)
Loss before equity in income of partnerships and gains on sales of real estate		(15,970	)		(11,178	)		(38,833	)		(21,924	)
Loss before equity in income of partnerships, gains on sales of real estate, and discontinued operations														(26,598	)		(9,276	)		(47,192	)		(24,076	)
Equity in income of partnerships		2,355			2,169			7,531			5,738			2,948			2,659			5,038			5,177
Gains on sales of real estate		—			—			1,654			—
Gain on sales of real estate														—			1,654			—			1,654

Loss from continuing operations		(13,615	)		(9,009	)		(29,648	)		(16,186	)		(23,650	)		(4,963	)		(42,154	)		(17,245	)
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			—			745			—			1,504

Net loss		(10,119	)		(8,860	)		(25,860	)		(15,751	)		(23,650	)		(4,218	)		(42,154	)		(15,741	)
Less: net loss attributed to noncontrolling interest		477			397			1,215			638			964			197			1,842			738

Net loss attributable to Pennsylvania Real Estate Investment Trust	$	(9,642	)	$	(8,463	)	$	(24,645	)	$	(15,113	)
Net loss attributable to PREIT													$	(22,686	)	$	(4,021	)	$	(40,312	)	$	(15,003	)

See accompanying notes to the unaudited consolidated financial statements.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF OPERATIONS – (continued)

~~EARNINGS PER SHARE~~Earnings Per Share

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
(in thousands of dollars, except per share amounts)				(as revised)						(as revised)			2010			2009			2010			2009
	2009			2008			2009			2008

Loss from continuing operations	$	(13,615	)	$	(9,009	)	$	(29,648	)	$	(16,186	)	$	(23,650	)	$	(4,963	)	$	(42,154	)	$	(17,245	)
Dividends from unvested restricted shares		(162	)		(304	)		(635	)		(918	)
Noncontrolling interest in continuing operations														964			185			1,842			695
Dividends on unvested restricted shares														(168	)		(378	)		(266	)		(473	)

Loss from continuing operations used to calculate earnings per share - basic and diluted	$	(13,777	)	$	(9,313	)	$	(30,283	)	$	(17,104	)	$	(22,854	)	$	(5,156	)	$	(40,578	)	$	(17,023	)


Income from discontinued operations used to
calculate earnings per share - basic and diluted	$	3,496		$	149		$	3,788		$	435
Income from discontinued operations													$	—		$	745		$	—		$	1,504
Noncontrolling interest in discontinued operations														—			12			—			43

Income from discontinued operations used to calculate earnings per share - basic and diluted													$	—		$	757		$	—		$	1,547


Basic (loss) income per share
Loss from continuing operations	$	(0.32	)	$	(0.24	)	$	(0.75	)	$	(0.44	)	$	(0.45	)	$	(0.13	)	$	(0.86	)	$	(0.44	)
Income from discontinued operations		0.08			—			0.09			0.01			—			0.02			—			0.04

													$	(0.45	)	$	(0.11	)	$	(0.86	)	$	(0.40	)
	$	(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	)	$	(0.45	)	$	(0.13	)	$	(0.86	)	$	(0.44	)
Income from discontinued operations		0.08			—			0.09			0.01			—			0.02			—			0.04

	$	(0.24	)	$	(0.24	)	$	(0.66	)	$	(0.43	)	$	(0.45	)	$	(0.11	)	$	(0.86	)	$	(0.40	)


(in thousands of shares)
Weighted average shares outstanding - basic		42,195			38,840			40,144			38,781
Weighted average shares outstanding – basic														50,317			39,197			47,013			39,101
Effect of common share equivalents⁽¹⁾		—			—			—			—			—			—			—			—

Weighted average shares outstanding - diluted		42,195			38,840			40,144			38,781
Weighted average shares outstanding – diluted														50,317			39,197			47,013			39,101

⁽¹⁾

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 and ~~September~~June 30, ~~2008,~~2009, respectively, the Company had net losses from continuing operations. Therefore, the effect of common share equivalents isof 587 and 0 for the three months ended June 30, 2010 and June 30, 2009, respectively, and 349 and 0 for the six months ended June 30, 2010 and June 30, 2009, respectively, are excluded from the calculation of diluted loss per share for these periods because itthey would be antidilutive.

See accompanying notes to the unaudited consolidated financial statements.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF EQUITY

AND COMPREHENSIVE INCOME

~~For the nine~~Six months ended

~~September~~June 30, ~~2009~~2010

(Unaudited)

   PREIT Shareholders
(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
Comprehensive income (loss):

Net loss
   (25,860 ) (25,860 ) —      —      —      (24,645 ) (1,215 )
Unrealized gain on derivatives
   11,739    11,739    —      —      11,117    —      622
Other comprehensive income
   953    953    —      —      902    —      51

Total comprehensive loss
   (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

Balance September 30, 2009
   $ 690,801    $ 43,302    $ 871,136    $ (33,322 ) $ (249,892 ) $ 59,577

~~See accompanying notes to the unaudited consolidated financial statements.~~

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~CONSOLIDATED STATEMENTS OF EQUITY~~

~~AND COMPREHENSIVE INCOME~~

~~For the nine months ended~~

~~September 30, 2008 (as revised)~~

~~(Unaudited)~~

   PREIT Shareholders
(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, 2008, revised
   $ 829,984    $ —      $ 39,134    $ 838,221    $ (6,968 ) $ (95,569 ) $ 55,166
Comprehensive income (loss):

Net loss
   (15,751 ) (15,751 ) —      —      —      (15,113 ) (638 )
Unrealized gain on derivatives
   10,785    10,785    —      —      10,785    —      —
Other comprehensive loss
   (18,650 ) (18,650 ) —      —      (18,650 ) —      —

Total comprehensive loss
   (23,616 ) $ (23,616 )    (638 )

Shares issued upon redemption of Operating Partnership Units
   —      4    101    —      —      (105 )
Shares issued upon exercise of options
   —      26    583    —      —      (609 )
Shares issued under distribution reinvestment and share purchase plan
   1,229    54    1,175    —      —      —
Shares issued under employee share purchase plans
   589    26    563    —      —      —
Shares issued under equity incentive plans, net of retirements
   (629 ) 153    (782 ) —      —      —
Amortization of deferred compensation
   6,431    —      6,431    —      —      —
Distributions paid to common shareholders ($1.71 per share)
   (67,282 ) —      —      —      (67,282 ) —
Distributions paid to noncontrolling interests:

Operating Partnership unitholders ($1.71 per unit)
   (3,729 ) —      —      —      —      (3,729 )
Other changes in noncontrolling interest
   4,050    —      —      —      —      4,050

Balance September 30, 2008
   $ 747,027    $ 39,397    $ 846,292    $ (14,833 ) $ (177,964 ) $ 54,135


							PREIT Shareholders
(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, 2010	$	634,804		$	—		$	44,616	$	881,735		$	(30,016	)	$	(317,682	)	$	56,151
Comprehensive income (loss):
Net loss		(42,154	)		(42,154	)							—			(40,312	)		(1,842	)
Unrealized loss on derivatives		(12,642	)		(12,642	)							(12,096	)		—			(546	)
Other comprehensive income		650			650								621			—			29

Total comprehensive loss		(54,146	)	$	(54,146	)													(2,359	)

Shares issued in 2010 equity offering, net of expenses		160,716						10,350		150,366			—			—			—
Shares issued under distribution reinvestment and share purchase plan		224						19		205			—			—			—
Shares issued under employee share purchase plan		247						20		227			—			—			—
Shares issued under equity incentive plans, net of retirements		(1,025	)					313		(1,338	)		—			—			—
Amortization of deferred compensation		3,803						—		3,803			—			—			—
Distributions paid to common shareholders ($0.30 per share)		(14,966	)					—		—			—			(14,966	)		—
Distributions paid to noncontrolling interests:
Distributions to Operating Partnership unitholders ($0.30 per unit)		(695	)					—		—			—			—			(695	)
Other distributions to noncontrolling interest, net		(105	)					—		—			—			—			(105	)

Balance June 30, 2010	$	728,857					$	55,318	$	1,034,998		$	(41,491	)	$	(372,960	)	$	52,992

See accompanying notes to the unaudited consolidated financial statements.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~(unaudited)


	Nine Months Ended September 30,						Six months ended June 30,
(in thousands of dollars)	2009			(as revised) 2008			2010			2009
Cash flows from operating activities:
Net loss	$	(25,860	)	$	(15,751	)	$	(42,154	)	$	(15,741	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		97,416			86,336			67,867			64,178
Amortization		29,980			19,583			21,695			20,033
Straight-line rent adjustments		(1,256	)		(2,265	)		(929	)		(753	)
Provision for doubtful accounts		5,807			4,083			3,190			3,414
Amortization of deferred compensation		5,916			7,056			3,803			3,855
Gain on sales of real estate investments		(5,052	)		(49	)
Net gain on forward starting swap activities		—			(2,002	)
Gain on sales of real estate								—			(1,654	)
Gain on extinguishment of debt		(13,971	)		—			—			(9,804	)
Change in assets and liabilities:
Net change in other assets		(32	)		(7,129	)		11,500			14,431
Net change in other liabilities		4,031			4,905			(2,921	)		(1,124	)

Net cash provided by operating activities		96,979			94,767			62,051			76,835

Cash flows from investing activities:
Decrease in note receivable from tenant								10,000			—
Additions to construction in progress		(122,131	)		(225,878	)		(12,943	)		(95,243	)
Investments in real estate improvements		(15,916	)		(23,743	)		(7,178	)		(10,641	)
Investments in real estate acquisitions, net of cash acquired		(789	)		(12,709	)
Additions to leasehold improvements		(257	)		(685	)		(142	)		(144	)
Investments in partnerships		(613	)		(3,542	)		(6,179	)		(724	)
Capitalized leasing costs		(3,149	)		(3,971	)		(2,141	)		(2,150	)
Cash proceeds from sales of real estate investments		20,936			126			—			5,403
Decrease in cash escrows		3,756			9,250
Increase in cash escrows								(1,380	)		(645	)
Cash distributions from partnerships in excess of equity in income		1,884			653			4,893			458

Net cash used in investing activities		(116,279	)		(260,499	)		(15,070	)		(103,686	)

Cash flows from financing activities:
Net borrowings from Credit Facility		85,000			50,000
Borrowings from senior unsecured term loan		—			170,000
Proceeds from mortgage notes payable		70,143			460,265
Repayment of mortgage notes payable		(18,058	)		(413,617	)
Principal installments on mortgage notes payable		(12,736	)		(17,669	)
Net proceeds from 2010 Term Loan and Revolving Facility								590,000			—
Shares of beneficial interest issued								161,188			354
Net (repayment of) borrowing from 2003 Credit Facility								(486,000	)		45,000
Repayment of senior unsecured 2008 Term Loan								(170,000	)		—
Paydown of 2010 Term Loan								(106,500	)		—
Net repayment of Revolving Facility								(70,000	)		—
Proceeds from mortgage loans								32,500			48,686
Repayment of mortgage loans								(750	)		(18,058	)
Principal installments on mortgage loans								(9,998	)		(8,221	)
Repurchase of exchangeable notes		(7,893	)		—			—			(693	)
Net payment from settlement of forward-starting interest swap agreements		—			(16,503	)
Payment of deferred financing costs		(1,776	)		(6,570	)		(15,727	)		(1,319	)
Dividends paid to common shareholders		(24,167	)		(67,282	)		(14,966	)		(17,680	)
Distributions paid to operating partnership unitholders and noncontrolling interest		(1,286	)		(3,729	)
Shares of beneficial interest issued		561			2,987
Shares of beneficial interest repurchased		(114	)		(623	)
Contributions from investor with noncontrolling interest in project		10,088			—
Distributions paid to Operating Partnership unitholders and noncontrolling interest								(695	)		(941	)
Shares of beneficial interest repurchased, other								(1,026	)		(113	)

Net cash provided by financing activities		99,762			157,259
Net cash (used in) provided by financing activities								(91,974	)		47,015

Net change in cash and cash equivalents		80,462			(8,473	)		(44,993	)		20,164
Cash and cash equivalents, beginning of period		9,786			27,925			74,243			9,786

Cash and cash equivalents, end of period	$	90,248		$	19,452		$	29,250		$	29,950

See accompanying notes to the unaudited consolidated financial ~~statements.~~statements

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~September~~June 30, ~~2009~~2010

1. BASIS OF PRESENTATION

Nature of Operations

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.~~2009. 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 strip and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. As of ~~September~~June 30, ~~2009,~~2010, the Company’s portfolio consisted of a total of 5554 properties in 13 states, including 38 shopping malls, 1413 strip and power centers and three development properties, ~~under development. The development portion~~with two of the ~~Company’s portfolio contained three~~development properties ~~in two states, with two~~ classified as ~~“mixed-use”~~“mixed use” (a combination of retail and other uses) and one of the development properties classified as “other.”

The Company holds its interest in its portfolio of properties through its operating partnership, PREIT Associates, L.P. ~~(the~~(“PREIT Associates” or the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership and, as of ~~September~~June 30, ~~2009,~~2010, the Company held a ~~94.9%~~96.0% 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.

The Company evaluates operating results and allocates resources on a property-by-property basis, and does not distinguish or evaluate consolidated operations on a geographic basis. No individual property constitutes 10% or more of 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 the Company’s properties and the nature of the Company’s tenants and operational processes, as well as long-term financial performance. In addition, no single tenant accounts for 10% or more of consolidated revenue, and none of the Company’s properties are located outside the United States.

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~~basis, in some cases ~~the right to tender OP Units for redemption begins~~beginning one year following the respective issue date of the OP Units and in other cases immediately. In the event of the redemption of all of the outstanding OP Units held by limited partners for cash, the total amount that would have been distributed as of June 30, 2010 would have been $28.5 million in cash or the equivalent value of shares of PREIT, which is calculated using the Company’s June 30, 2010 closing share price on the New York Stock Exchange of $12.22 multiplied by the number of outstanding OP Units held by limited partners.

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

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

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, which means that it is ~~capable of offering a broad range~~able to offer an expanded menu of services to tenants without jeopardizing the Company’s ~~continued~~continuing qualification as a ~~real estate investment trust~~REIT under federal tax law.

Fair Value

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability. As ~~further described~~a basis for considering market participant assumptions in ~~note 2, the Company’s consolidated financial statements presented herein have been revised to reflect the effect~~fair value measurements, these accounting requirements establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the ~~Company’s adoption~~reporting entity (observable inputs that are classified within Levels 1 and 2 of ~~new accounting guidance relating to convertible debt instruments~~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 ~~may be settled in cash upon conversion and to noncontrolling interests.~~

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

~~Risks and Uncertainties~~

The Company is subject to various risks and uncertainties in the ordinary course of business that could have adverse effects on its operating results and financial condition. The most significant external risks facing the Company ~~today stem from~~has the ~~current downturn~~ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the ~~overall economy~~asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and ~~challenging conditions~~liabilities in active markets, as well as inputs that are observable for the ~~capital~~asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and ~~credit markets.~~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.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~2010

~~Substantially all~~In instances where the fair value measurement is based on inputs from different levels 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,fair value hierarchy, the ~~operations of many retail companies. Beginning~~level in the ~~second half~~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 ~~2008~~the significance of a particular input to the fair value measurement in its entirety requires judgment, and ~~continuing into 2009,~~considers factors specific to 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.

asset or liability. The Company ~~has historically used a substantial amount~~utilizes the fair value hierarchy in its accounting for derivatives (Level 2), financial instruments (Level 3) and in its impairment reviews of ~~debt to finance its business,~~real estate assets (Level 3) and has relied primarily on new borrowings to fund its redevelopment and development projects. The Company estimates that it will incur approximately $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, including $14.6 million as to which the Company is contractually committed.

As of September 30, 2009, $485.0 million was outstanding under the Credit Facility, which matures March 20, 2010. In addition, the Company has pledged $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 September 30, 2009 was $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 through existing cash balances, as well as through borrowings under its Credit Facility, extensions of the maturity dates of existing indebtedness, additional borrowings secured by 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. 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 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 may seek to raise capital through the public or private issuance of equity or unsecured debt securities. However, while the Company may seek to sell equity or debt securities, continued uncertainty in the capital markets may make it difficult for the Company to issue securities on terms that are favorable to it, if at all, and any such issuance 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 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.goodwill (Level 3).

2. RECENT ACCOUNTING PRONOUNCEMENTS

~~Accounting for Convertible Debt~~

Effective January 1, 2009, the Company adopted 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). The Company’s exchangeable notes are within the scope of these new accounting requirements. The Company was required to retrospectively apply these new accounting requirements to prior periods, and recorded the impact of its adoption of these new accounting requirements as of the issuance date of the exchangeable notes (May 2007). Pursuant to 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

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 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 $7.7 million and $11.4 million as of September 30, 2009 and December 31, 2008, 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 September 30, 2008, respectively.

~~Business Combinations~~

Effective January 1, 2009, the Company prospectively adopted 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. These new accounting requirements expand the scope of the acquisition method of accounting to include all business combinations and 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, 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. These new accounting requirements require entities to directly expense transaction costs. The adoption of these new accounting requirements did not have a material effect on the Company’s consolidated financial statements.

~~Classification and Measurement of Redeemable Securities~~

Effective January 1, 2009, the Company adopted new accounting requirements related to the classification and measurement of 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 interest”). Under these new accounting requirements, noncontrolling interest represents the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. Under these new accounting requirements, such noncontrolling interests are reported on the consolidated balance sheets within equity, separately from the Company’s equity. 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 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 relating to the accounting for derivative financial instruments indexed to, and potentially settled in, a 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 these new accounting requirements.

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

Also as a result of the adoption of 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 September 30, 2009, the Company has a 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 interest that was not owned by the Company is reflected in noncontrolling interest on the accompanying consolidated balance sheets of $15,000 and $3.8 million as of September 30, 2009 and December 31, 2008, respectively.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

~~Disclosures about Derivative Instruments and Hedging Activities~~

Effective January 1, 2009, the Company adopted new accounting requirements relating to disclosures about derivative instruments and hedging activities, which require enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.

~~Subsequent Events~~

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.

Accounting for Transfers of Financial Assets

~~In June 2009,~~On January 1, 2010, the Company adopted 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.~~assets. The recognition and measurement provisions of these new accounting requirements are applied to transfers that occur on or after ~~the effective date.~~January 1, 2010. 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.~~January 1, 2010. The ~~Company does not expect the~~ adoption of these new accounting requirements todid not have ~~a material~~any effect on the Company’s consolidated financial statements.

Variable Interest Entities

~~In June 2009,~~On January 1, 2010, the Company adopted new accounting requirements relating to variable interest ~~entities were issued.~~entities. These new accounting requirements amend the existing accounting ~~guidance as follows:~~guidance: 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~~did not have any effect on the Company’s consolidated financial statements.

~~FASB Accounting Standards Codification~~

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.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

3. REAL ESTATE ACTIVITIES

Investments in real estate as of ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008~~2009 were comprised of the following:


(in thousands of dollars)	As of September 30, 2009			As of December 31, 2008			As of June 30, 2010			As of December 31, 2009
Buildings, improvements and construction in progress	$	3,222,025		$	3,140,371		$	3,143,598		$	3,129,354
Land, including land held for development		570,102			567,677			551,399			554,959

Total investments in real estate		3,792,127			3,708,048			3,694,997			3,684,313
Accumulated depreciation		(608,605	)		(516,832	)		(690,489	)		(623,309	)

Net investments in real estate	$	3,183,522		$	3,191,216		$	3,004,508		$	3,061,004

Capitalization of Costs

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~~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~~expense when it is probable that the property will not be acquired. ~~The Company recorded abandoned project costs of $0.2 million and $0.3 million for the three months ended September~~

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, ~~2009, and 2008, respectively, and $0.4 million and $1.6 million for the nine months ended September 30, 2009, and 2008, respectively.~~2010

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~~six months ended ~~September~~June 30, ~~2009~~2010 and ~~2008, respectively.~~2009:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three months ended June 30,				Six months ended June 30,
(in thousands of dollars)	2009		2008		2009		2008		2010		2009		2010		2009
Development/Redevelopment Activities:
Salaries and benefits	$	339	$	770	$	1,715	$	2,416	$	211	$	623	$	616	$	1,376
Real estate taxes	$	94	$	666	$	939	$	1,746		2		65		331		844
Interest	$	1,344	$	4,145	$	4,601	$	11,584		943		1,466		1,478		3,258
Leasing Activities:
Salaries, commissions and benefits	$	999	$	1,166	$	3,149	$	3,971		1,256		1,051		2,141		2,150

~~Asset Impairment~~Discontinued Operations

~~Real estate investments~~The Company has presented as discontinued operations the operating results of Crest Plaza and ~~related intangible assets are reviewed for impairment whenever events or changes~~Northeast Tower Center, which were operating properties that were sold in ~~circumstances indicate that~~2009. There were no discontinued operations in the ~~carrying amount of the property might not be recoverable. A property to be held~~three 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.six months ended June 30, 2010.

The ~~determination of undiscounted cash flows requires significant estimates by management, including~~following table summarizes revenue and expense information for 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 existsCompany’s discontinued operations:


	Three months ended June 30,			Six months ended June 30,
(in thousands of dollars)	2009			2009
Real estate revenue	$	1,494		$	3,028
Expenses:
Operating expenses		(354	)		(735	)
Depreciation and amortization		(395	)		(789	)

Total expenses		(749	)		(1,524	)

Income from discontinued operations	$	745		$	1,504

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~

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:

~~projected cash flows, both from operations and from a hypothetical disposition;~~

~~expected useful life and holding period;~~

~~future required capital expenditures; and~~

~~fair values, including consideration of capitalization rates, discount rates and comparable selling prices.~~

As a preliminary indicator to determine if the carrying value of a property might not be recovered by undiscounted cash flows, the Company 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 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 of September 30, 2009, the Company has not identified any properties that required further consideration of property and market specific conditions or factors to determine if the property was impaired.

~~Dispositions~~

~~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.

~~Acquisitions~~

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 at a second closing. A third closing is expected to occur in the second quarter of 2010 at which time the 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 $4.1 million in cash and 140,745 OP Units paid at the first and second closings. See note 7 for further discussion. The Company has consolidated BCA for financial reporting purposes.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

4. INVESTMENTS IN PARTNERSHIPS

The following table presents summarized financial information of the equity investments in the Company’s unconsolidated partnerships as of ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008:~~2009:


(in thousands of dollars)	As of September 30, 2009			As of December 31, 2008			As of June 30, 2010			As of December 31, 2009
ASSETS:
Investments in real estate, at cost:
Retail properties	$	391,897		$	390,341		$	398,871		$	393,197
Construction in progress		2,814			4,402			2,564			3,602

Total investments in real estate		394,711			394,743			401,435			396,799
Accumulated depreciation		(112,896	)		(102,804	)		(124,449	)		(116,313	)

Net investments in real estate		281,815			291,939			276,986			280,486
Cash and cash equivalents		8,436			5,887			7,846			5,856
Deferred costs and other assets, net		21,923			22,848			22,047			21,254

Total assets		312,174			320,674			306,879			307,596

LIABILITIES AND PARTNERS’ DEFICIT:
Mortgage notes payable		367,174			370,206			361,256			365,565
Other liabilities		15,928			18,308			12,572			13,858

Total liabilities		383,102			388,514			373,828			379,423

Net deficit		(70,928	)		(67,840	)		(66,949	)		(71,827	)
Partners’ share		(35,329	)		(33,659	)		(34,875	)		(37,382	)

Company’s share		(35,599	)		(34,181	)		(32,074	)		(34,445	)
Excess investment⁽¹⁾		16,889			16,143			13,127			13,733
Advances		4,848			5,414			4,276			4,635

Net investments and advances	$	(13,862	)	$	(12,624	)	$	(14,671	)	$	(16,077	)

Investment in partnerships, at equity	$	34,142		$	36,164		$	29,528		$	32,694
Distributions in excess of partnership investments		(48,004	)		(48,788	)		(44,199	)		(48,771	)

Net investments and advances	$	(13,862	)	$	(12,624	)	$	(14,671	)	$	(16,077	)

⁽¹⁾

Excess investment represents the unamortized difference between the Company’s investment and the Company’s share of the equity in the underlying net investment in the partnerships. The excess investment is amortized over the life of the properties, and the amortization is included in “Equity in income of partnerships” in the consolidated statements of operations.

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

   Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands of dollars)
   2009 2008 2009 2008
Real estate revenue
   $ 18,210    $ 19,143    $ 55,400    $ 56,435
Expenses:

Property operating expenses
   (5,746 ) (6,130 ) (17,460 ) (17,011 )
Interest expense
   (3,867 ) (4,740 ) (10,991 ) (15,912 )
Depreciation and amortization
   (3,863 ) (3,975 ) (11,603 ) (11,799 )

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

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

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

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

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~2010

The following table summarizes the operating results of the unconsolidated partnerships and the Company’s share of equity in income of partnerships for the three and six months ended June 30, 2010 and 2009:


	Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)	2010			2009			2010			2009
Real estate revenue	$	19,596		$	18,524		$	37,748		$	37,190
Expenses:
Operating expenses		(5,815	)		(5,759	)		(12,057	)		(11,713	)
Interest expense		(3,759	)		(3,556	)		(6,943	)		(7,124	)
Depreciation and amortization		(4,111	)		(3,839	)		(7,936	)		(7,740	)

Total expenses		(13,685	)		(13,154	)		(26,936	)		(26,577	)

Net income		5,911			5,370			10,812			10,613
Less: Partners’ share		(2,942	)		(2,671	)		(5,379	)		(5,281	)

Company’s share		2,969			2,699			5,433			5,332
Amortization of excess investment		(21	)		(40	)		(395	)		(155	)

Equity in income of partnerships	$	2,948		$	2,659		$	5,038		$	5,177

~~Significant Subsidiary~~Mortgage Loan Activity

In January 2010, the unconsolidated partnership that owns Springfield Park in Springfield, Pennsylvania repaid a mortgage loan with a balance of $2.8 million. The Company’s share of the mortgage loan payment was $1.4 million. The Company owns ~~an indirect~~a 50% ~~partnership~~ interest in ~~Lehigh Valley Associates which~~this partnership.

In April 2010, the unconsolidated partnerships that own Springfield Park and Springfield East, in Springfield, Pennsylvania, entered into a $10.0 million mortgage loan that is secured by Springfield Park and Springfield East. The Company owns a 50% interest in both entities. The mortgage loan has an initial term of five years and can be extended for an additional five-year term under prescribed conditions. The loan bears interest at LIBOR plus 2.80%, and has been swapped to a fixed rate of 5.39%.

In June 2010, the unconsolidated partnership that 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 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

~~Financing Activity~~

~~In July 2006, Lehigh Valley Associates~~ entered into a ~~$150.0~~$140.0 million mortgage loan that is secured by Lehigh Valley Mall. The Company owns ~~an indirect~~a 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.unconsolidated partnership. The mortgage loan has ~~an initial~~a term of ~~two~~10 years ~~during which monthly payments of interest only are required. The loan~~and bears interest at a ~~variable~~fixed rate of ~~LIBOR plus 4.00%~~5.88%. In connection with ~~a floor of 6.00% per annum. The~~the new mortgage loan financing, the unconsolidated partnership repaid the previous $150.0 million mortgage loan on Lehigh Valley Mall using proceeds from the new 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.~~and available working capital.

Impairment of Investments in Unconsolidated Subsidiaries

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

5. FINANCING ACTIVITY

Amended, Restated and Consolidated Senior Secured Credit ~~Facility~~Agreement

~~As of September 30, 2009, $485.0 million was outstanding under~~On March 11, 2010, PREIT Associates and PRI (collectively, the ~~Credit Facility, which expires March 20, 2010. The Company had pledged $3.0 million under the Credit Facility as collateral for letters of credit,~~“Borrower”), together with PR Gallery I Limited Partnership (“GLP”) and the unused portion of the Credit Facility that was available to the Company was $12.0 million at September 30, 2009. The weighted average effective interest rate based on amounts borrowed was 1.96% and 4.29% for the three months ended September 30, 2009 and 2008, respectively. The weighted average interest rate on outstanding Credit Facility borrowings at September 30, 2009 was 1.65% (LIBOR plus 1.40%Keystone Philadelphia Properties, L.P. (“KPP”). 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~~, two other subsidiaries of the Company, ~~believes that it will be able~~entered into an Amended, Restated and Consolidated Senior Secured Credit Agreement comprised of a) an aggregate $520.0 million term loan made up of a $436.0 million term loan (“Term Loan A”) to ~~reach an agreement~~the Borrower and a separate $84.0 million term loan (“Term Loan B”) to the other two subsidiaries (collectively, the “2010 Term Loan”) and b) a $150.0 million revolving line of credit (the “Revolving Facility,” and, together with the ~~bank group~~2010 Term Loan, the “2010 Credit Facility”) 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 borrowerWells Fargo Bank, National Association, 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 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 yield, interest coverage and fixed charge ratios.institutions signatory thereto.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~2010

~~Compliance with each of these ratios is dependent upon~~The 2010 Credit Facility replaced the ~~Company’s financial performance. The leverage ratio is based, in part,~~previously existing $500.0 million unsecured revolving credit facility, as amended (the “2003 Credit Facility”), and a $170.0 million unsecured term loan (the “2008 Term Loan”) that had been scheduled to mature 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, asMarch 20, 2010. All capitalized terms used and not otherwise defined in the description of the 2010 Credit Facility ~~be greater than 9.75%~~have the meanings ascribed to such terms in the 2010 Credit Facility.

The initial term of the 2010 Credit Facility is three years, and the Borrower has the right to one 12-month extension of the initial maturity date, subject to certain conditions and to the payment of an extension fee of 0.50% of the then outstanding Commitments.

The Company used the initial proceeds from the 2010 Credit Facility to repay outstanding balances under the 2003 Credit Facility and 2008 Term Loan. At closing, the $520.0 million 2010 Term Loan was fully outstanding and $70.0 million was outstanding under the Revolving Facility.

Amounts borrowed under the 2010 Credit Facility bear interest at a rate between 4.00% and 4.90% per annum, depending on the Company’s leverage, in excess of LIBOR, with no floor. The initial rate in effect was 4.90% per annum in excess of LIBOR. In determining the Company’s leverage (the ratio of Total Liabilities to Gross Asset Value), ~~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 capitalization rate used to calculate Gross Asset Value is 8.00%. The ~~minimum debt yield ratio was 9.74%~~unused portion of the Revolving Facility is subject to a fee of 0.40% per annum.

The Company has entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a weighted-average rate of 1.77% for the ~~quarter ended September 30, 2009.~~ three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

The ~~quarter ended September 30, 2009 was~~obligations under Term Loan A are secured by first priority mortgages on 20 of the Company’s properties and a second lien on one property, and the obligations under Term Loan B are secured by first ~~quarter that~~priority leasehold mortgages on the ~~ratio was less than 9.75%~~properties ground leased by GLP and KPP (the “Gallery Properties”).

~~Upon the expiration of any applicable cure period following an event of default, the lenders may declare~~ The foregoing properties constitute substantially all of the Company’s ~~obligations in connection with~~previously unencumbered retail properties.

PREIT and certain of its subsidiaries that are not otherwise prevented from doing so serve as guarantors for funds borrowed under the 2010 Credit Facility.

The aggregate amount of the lender Revolving Commitments and 2010 Term Loan under the 2010 Credit Facility ~~immediately due~~was required to be reduced by $33.0 million by March 11, 2011, by a cumulative total of $66.0 million by March 11, 2012 and ~~payable,~~by a cumulative total of $100.0 million by March 11, 2013 (if the Company exercises its right to extend the Termination Date), including all payments (except payments pertaining to the Release Price of a Collateral Property) resulting in permanent reduction of the aggregate amount of the Revolving Commitments and 2010 Term Loan. The Company used $160.7 million of the proceeds from its May 2010 equity offering to repay borrowings under the 2010 Credit Facility, satisfying all three of these requirements, and no mandatory paydown provisions remain in effect.

As of June 30, 2010, there were no amounts outstanding under the Revolving Facility. The Company had pledged $1.5 million under the Revolving Facility as collateral for letters of credit, and the ~~commitments~~unused portion of the ~~lenders~~Revolving Facility that was available 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.

~~Exchangeable Notes~~

~~The Company’s exchangeable notes had a balance of $202.4~~was $148.5 million ~~and $241.5 million (excluding debt discount of $7.7 million and $11.4 million)~~ as of ~~September~~June 30, 2009 and December 31, 2008, respectively. Interest expense related to the exchangeable notes was $2.8 million and $3.8 million (including non-cash amortization of debt discount of $0.7 million and $0.9 million) for the three months ended 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.2010. The ~~exchangeable notes bear interest at a contractual rate of 4.00% per annum. The exchangeable notes had an~~weighted average effective interest rate ~~of 5.68% for~~based on amounts borrowed under the ~~three months ended September~~Revolving Facility from March 11, 2010 to June 30, ~~2009, 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 respect2010 was 7.56%. The interest rate that would have applied to any ~~excess exchange value above the principal amount~~outstanding Revolving Facility borrowings as 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 repurchasedJune 30, 2010 was LIBOR 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.4.90%.

As of ~~September~~June 30, ~~2009,~~2010, $413.5 million was outstanding under the ~~if-converted value~~2010 Term Loan. The weighted average effective interest rate based on amounts borrowed on the 2010 Term Loan was 6.28% from March 11, 2010 to June 30, 2010. The weighted average interest rate on the 2010 Term Loan borrowings as of June 30, 2010 was 5.55%.

The 2010 Credit Facility contains provisions regarding the application of proceeds from a Capital Event. A Capital Event is any event by which the Borrower raises additional capital, whether through an asset sale, joint venture, additional secured or unsecured debt, issuance of equity, or from excess proceeds after payment of a Release Price. Capital Events do not include Refinance Events or other specified events. After payment of interest and required distributions, the Remaining Capital Event Proceeds will generally be applied in the following order:

If the Facility Debt Yield is less than 11.00% or the Corporate Debt Yield is less than 10.00%, Remaining Capital Event Proceeds will be allocated 25% to pay down the Revolving Facility (repayments of the ~~exchangeable notes did not exceed their principal amounts because~~Revolving Facility generally may be reborrowed) and 75% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the ~~market value~~Revolving Facility balance is or would become $0 as a result 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.such

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~2010

~~In January 2009,~~payment, to pay down the Revolving Facility in full and to use any remainder of that 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full). So long as the Facility Debt Yield is greater than or equal to 11.00% and the Corporate Debt Yield is greater than or equal to 10.00% and each will remain so immediately after the Capital Event, and so long as either the Facility Debt Yield is less than 12.00% or the Corporate Debt Yield is less than 10.25% and will remain so immediately after the Capital Event, the Remaining Capital Event Proceeds will be allocated 75% to pay down the Revolving Facility and 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 75% for general corporate purposes. So long as the Facility Debt Yield is greater than or equal to 12.00% and the Corporate Debt Yield is greater than or equal to 10.25% and each will remain so immediately after the Capital Event, Remaining Capital Event Proceeds will be applied 100% to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinance Event relating to Cherry Hill Mall will be used to pay down the Revolving Facility and may be reborrowed only to repay the Company’s unsecured indebtedness.

The 2010 Credit Facility also contains provisions regarding the application of proceeds from a Refinance Event. A Refinance Event is any event by which the Company ~~repurchased $2.1~~raises additional capital from refinancing of secured debt encumbering an existing asset, not including collateral for the 2010 Credit Facility. The proceeds in excess of the amount required to retire an existing secured debt will be applied, after payment of interest, to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinancing Event relating to the Gallery Properties may only be used to pay down and permanently reduce Term Loan B (or, if the outstanding balance on Term Loan B is or would become $0 as a result such payment, to pay down Term Loan B in full and to pay any remainder in accordance with the preceding paragraph).

A Collateral Property will be released as security upon a sale or refinancing, subject to payment of the Release Price and the absence of any default or Event of Default. If, after release of a Collateral Property (and giving pro forma effect thereto), the Facility Debt Yield will be less than 11.00%, the Release Price will be the Minimum Release Price plus an amount equal to the lesser of (A) the amount that, when paid and applied to the 2010 Term Loan, would result in a Facility Debt Yield equal to 11.00% and (B) the amount by which the greater of (1) 100.0% of net cash proceeds and (2) 90.0% of the gross sales proceeds exceeds the Minimum Release Price. The Minimum Release Price is 110% (120% if, after the Release, there will be fewer than 10 Collateral Properties) multiplied by the proportion that the value of the property to be released bears to the aggregate value of all of the Collateral Properties on the closing date of the 2010 Credit Facility, multiplied by the amount of the then Revolving Commitments plus the aggregate principal amount then outstanding under the 2010 Term Loan. In general, upon release of a Collateral Property, the post-release Facility Debt Yield must be greater than or equal to the pre-release Facility Debt Yield. Release payments must be used to pay down and permanently reduce the amount of the Term Loan.

The 2010 Credit Facility contains affirmative and negative covenants customarily found in facilities of this type, including, without limitation, requirements that the Company maintain, on a consolidated basis: (1) minimum Tangible Net Worth of not less than $483.1 million, minus non-cash impairment charges with respect to the Properties recorded in the quarter ended December 31, 2009, plus 75% of the Net Proceeds of all Equity Issuances effected at any time after September 30, 2009; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.75:1; (3) minimum ratio of EBITDA to Interest Expense of 1.60:1; (4) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.35:1; (5) maximum Investments in unimproved real estate and predevelopment costs not in excess of 3.0% of Gross Asset Value; (6) maximum Investments in Persons other than Subsidiaries, Consolidated Affiliates and Unconsolidated Affiliates not in excess of 1.0% of Gross Asset Value; (7) maximum Investments in Indebtedness secured by Mortgages in favor of the Company, the Borrower or any other Subsidiary not in excess of 1.0% of Gross Asset Value on the basis of cost; (8) the aggregate value of the Investments and the other items subject to the preceding clauses (5) through (7) shall not exceed 5.0% of Gross Asset Value; (9) maximum Investments in Consolidation Exempt Entities not in excess of 20.0% of Gross Asset Value; (10) a maximum Gross Asset Value attributable to any one Property not in excess of 15.0% of Gross Asset Value; (11) maximum Projects Under Development not in excess of 10.0% of Gross Asset Value; (12) maximum Floating Rate Indebtedness in an aggregate outstanding principal amount not in excess of one-third of all Indebtedness of the Company, its Subsidiaries, its Consolidated Affiliates and its Unconsolidated Affiliates; (13) minimum Corporate Debt Yield of

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

9.50%, provided that such Corporate Debt Yield may be less than 9.50% for one period of two consecutive fiscal quarters, but may not be less than 9.25%; and (14) Distributions may not exceed 110% of REIT taxable income for a fiscal year, but if the Corporate Debt Yield exceeds 10.00%, then the aggregate amount of Distributions may not exceed the greater of 75% of FFO and 110% of REIT Taxable Income (unless necessary for the Company to retain its status as a REIT), and if a Facility Debt Yield of 11.00% and a Corporate Debt Yield of 10.00% are achieved and continuing, there are no limits on Distributions under the 2010 Credit Facility, so long as no Default or Event of Default would result from making such Distributions. The Company is required to maintain its status as a REIT at all times. As of June 30, 2010 the Company was in compliance with all of these covenants.

Exchangeable Notes

As of June 30, 2010 and December 31, 2009, $136.9 million and $136.9 million in aggregate principal amount of ~~its exchangeable notes for~~our 4.0% Senior Exchangeable Notes (the”Exchangeable Notes”) (excluding debt discount of $3.7 million and $4.7 million) remained outstanding, respectively.

Interest expense related to the Exchangeable Notes was $1.4 million and $2.4 million (excluding the non-cash amortization of debt discount of $0.5 million and $0.7 million ~~resulting in a gain on extinguishment of debt of $1.3 million. In connection with~~and the ~~repurchase, the Company retired an aggregate of $0.1 million~~non-cash amortization of deferred financing ~~costs~~fees of $0.2 million and $0.3 million) for the three months ended June 30, 2010 and 2009, respectively. Interest expense related to the Exchangeable Notes was $2.7 million and $4.8 million (excluding the non-cash amortization of debt ~~discount.~~

~~Based on the relationship~~discount of ~~the consideration paid to retire the exchangeable notes~~$0.9 million and $1.5 million and the ~~fair value~~non-cash amortization of deferred financing fees of $0.3 million and $0.6 million) for the ~~exchangeable notes on the date~~six months ended June 30, 2010 and 2009, respectively. The Exchangeable Notes have an effective interest rate of ~~retirement, none of the funds utilized in the repurchase were allocated to the retirement of the equity component of the exchangeable notes.~~5.81%.

Mortgage Loan Activity

~~In September 2009,~~The following table presents the mortgage loans that the Company has entered into ~~a $20.0~~or under which it has borrowed additional amounts beginning January 1, 2010:

Financing Date

Property

Amount
Financed
(in millions
of dollars):

Stated Rate

Hedged
Rate

Debt Maturity

January

New River Valley Mall⁽¹⁾⁽²⁾

30.0

LIBOR plus 4.50%

6.33

January 2013

March

Lycoming Mall⁽³⁾

2.5

6.84% fixed

N/A

June 2014

July

Valley View Mall⁽⁴⁾

32.0

5.95% fixed

N/A

June 2020

⁽¹⁾	Interest only.

⁽²⁾	The mortgage loan has a three-year term and one one-year extension option. $25.0 million of the principal amount was swapped to a fixed rate of 6.33%.

⁽³⁾	The mortgage loan agreement initially entered into in June 2009 provides for a maximum loan amount of $38.0 million. The initial amount of the mortgage loan was $28.0 million. The Company took additional draws of $5.0 million in October 2009 and $2.5 million in March 2010.

⁽⁴⁾	In connection with the mortgage loan financing, the Company repaid a $33.8 million mortgage loan on Valley View Mall using proceeds from the new mortgage loan and available working capital.

In March 2010, the Company exercised the first of three one-year extension options on the mortgage loan ~~secured by Northeast Tower~~on Creekview Center in ~~Philadelphia,~~Warrington, Pennsylvania. The mortgage loan ~~provided for~~had a ~~variable interest rate~~balance of ~~2.75% plus the greater~~$19.4 million as 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.June 30, 2010.

In April 2010, the Company exercised a six-month extension option on the construction loan on Pitney Road Plaza in Lancaster, Pennsylvania. The construction loan had a balance of $4.5 million as of June ~~2009,~~30, 2010.

In July 2010, the Company made a principal payment of ~~$2.4~~$0.7 million and exercised ~~its first~~the second of two one-year ~~renewal option~~extension options on the mortgage loan aton 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 Pennsdale, Pennsylvania. The outstanding principal balance on the loan as of September 30, 2009 was $28.0 million. The mortgage loan ~~has~~had a ~~fixed interest rate~~balance 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~~$5.6 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~~June 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~~2010 and $4.9 million after 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.July 2010 repayment.

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 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.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

~~In January 2009, the Company repaid a $15.7 million mortgage loan on Palmer Park Mall in Easton, Pennsylvania.~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

Fair Value of Financial Instruments

~~In June 2009,~~Carrying amounts reported on the ~~Company adopted new accounting guidance~~balance sheet for cash and cash equivalents, tenant and other receivables, accrued expenses, other liabilities and the Revolving Facility approximate fair value due to the short-term nature of these instruments. The majority of the Company’s variable-rate debt is subject to interest rate swaps that ~~require disclosures about~~have effectively fixed the interest rates on the underlying debt. The estimated fair value of ~~financial instruments~~fixed-rate debt, which is calculated 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 aredisclosure purposes, is based on ~~pertinent information~~the borrowing rates available to ~~management as of~~ the ~~valuation date. Considerable judgment is necessary to interpret market data~~Company for fixed-rate mortgage loans 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.corporate notes payable with similar terms and maturities.

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 and by reviewing recent market transactions or credit spreads consistent with the maturity of ~~the~~a debt obligation with similar credit features. Credit spreads take into consideration general market conditions and maturity. As

The carrying value (including debt premium of ~~September~~$2.2 million and $2.7 million as of June 30, 2010 and December 31, 2009, ~~the carrying value~~respectively) and estimated fair ~~value~~values of mortgage loans based on interest rates and market conditions at June 30, 2010 and December 31, 2009 are as follows:

June 30, 2010

December 31, 2009

Carrying Value

Fair Value

Carrying Value

Fair Value

Mortgage loans

1,798.3 million

1,652.7 million

1,777.1 million

1,549.6 million

The mortgage loans contain various affirmative and negative covenants customarily found in loans of that type. As of June 30, 2010, the Company was in compliance with all of these covenants.

6. EQUITY OFFERING

In May 2010, the Company issued 10,350,000 common shares in a public offering at $16.25 per share. The Company received net proceeds from the offering of approximately $160.7 million after deducting payment of the ~~Company’s debt were $2,648.4~~underwriting discount of $0.69 per share and offering expenses. The Company used the net proceeds from this offering to repay borrowings under its 2010 Credit Facility. Specifically, the Company used $106.5 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~~net proceeds to repay a portion of the ~~Company’s other financial instruments approximates fair value due~~2010 Term Loan under the 2010 Credit Facility and $54.2 million to repay a portion of the ~~short-term nature~~outstanding borrowings under the Revolving Facility under the 2010 Credit Facility. As a result of ~~these financial instruments.~~this transaction, the Company satisfied the requirement contained in the 2010 Credit Facility to reduce the aggregate amount of the lender Revolving Commitments and 2010 Term Loan by $100.0 million over the term of the 2010 Credit Facility.

6.7. CASH FLOW INFORMATION

Cash paid for interest was ~~$93.4~~$65.8 million (net of capitalized interest of ~~$4.6~~$1.5 million) and ~~$84.8~~$61.6 million (net of capitalized interest of ~~$11.6~~$3.3 million) for the ~~nine~~six months ended ~~September~~June 30, 2010 and 2009, ~~and 2008,~~ respectively.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

~~Non-Cash Activities~~Non cash transaction

In connection with the ~~acquisition~~$106.5 million paydown of ~~partnership interests~~the 2010 Term Loan in ~~BCA~~May 2010, the Company recorded accelerated amortization expense associated with deferred financing costs in the first quarter of 2008, the Company consolidated an $8.0 million mortgage loan. Accrued construction expenses decreased $21.1 million in the nine months ended 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~~$2.3 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.

~~7. RELATED PARTY TRANSACTIONS~~

~~Bala Cynwyd Associates, L.P.~~

In January 2008, the Operating Partnership and another subsidiary of the Company entered into a Contribution Agreement with 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 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 $3.9 million.

In June 2009, the Company acquired an additional 49.9% of the limited partner interest in BCA from the Individuals for 140,745 OP Units and a nominal cash 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.~~

The Company and the Operating Partnership have agreed to provide tax protection to the Individuals 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.

~~Other~~

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 the three months ended 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 months ended September 30, 2009 and 2008, respectively, and $1.2 million for each of the nine months ended September 30, 2009 and 2008, respectively.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

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 $0.1 million in the three months ended 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.

8. COMMITMENTS AND CONTINGENCIES

~~Development~~Redevelopment Activities and ~~Redevelopment Activities~~Capital Improvements

In connection with its ~~current development~~redevelopment projects and ~~its redevelopment projects,~~capital improvements at certain other properties, 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 ~~September~~June 30, ~~2009,~~2010, the remainder to be paid (excluding amounts already accrued) against such contractual and other commitments was ~~$14.6 million.~~$2.1 million, which is expected to be financed through the Revolving Facility or through various other capital sources.

~~Tax Protection Agreements~~

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.

~~Other~~Legal Actions

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~~resolutions of any such pending legal actions isare not expected to have a material adverse effect on the Company’s consolidated financial position or results of operations.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

Environmental

The Company is aware of certain environmental matters at some of its properties, including ground water contamination and the presence of asbestos containing materials. The Company has, in the past, performed remediation of such environmental matters, and is not aware of any significant remaining potential liability relating to these environmental matters. The Company may be required in the future to perform testing relating to these or other environmental matters. The Company does not expect these matters to have any significant impact on its liquidity or results of operations, however, the Company can provide no assurance that the amounts reserved will be adequate to cover further environmental costs. The Company has insurance coverage for certain environmental claims up to $10.0 million per occurrence and up to $20.0 million in the aggregate.

9. DERIVATIVES

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.

Cash Flow Hedges of Interest Rate Risk

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 under accounting requirements 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 other comprehensive ~~income (loss)”~~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 (expenses) income,~~“Interest expense, 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 value of derivative assets.” The Company’s derivative~~and liabilities are recorded in “Fair value of derivative ~~liabilities.~~instruments.”

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2009,~~2010, the Company’s derivatives were used to hedge the variable cash flows associated with existing variable-rate debt. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2009,~~2010, 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 other comprehensive ~~income (loss)”~~loss” that are related to derivatives will be reclassified to “Interest expense, net” as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates that ~~$15.6~~$15.2 million would be reclassified as an increase to interest expense in connection with derivatives.

Interest Rate Swaps and Cap

As of June 30, 2010, the Company had entered into 11 interest rate swap agreements and one interest rate cap agreement that have a weighted average interest rate of 2.41% (excluding the spread on the related debt) on a notional amount of $732.6 million maturing on various dates through November 2013. Five interest rate swap agreements that were outstanding as of December 31, 2009 were settled in the six months ended June 30, 2010.

As of June 30, 2010, the Company had entered into two forward-starting interest rate swap agreements that have a weighted average interest rate of 2.37% on a notional amount of $200.0 million maturing on various dates through March 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 2010 Credit Facility and 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 June 30, 2010 and considered these swap agreements and cap agreement to be highly effective cash flow hedges. The Company’s interest rate swap agreements and cap agreement will be settled in cash.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

~~September~~June 30, ~~2009~~2010

The following table summarizes the terms and estimated fair values of the Company’s interest rate swap, cap and ~~cap~~forward starting swap derivative instruments at ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008.~~2009. 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.

Notional Value

Fair Value at
~~September~~June 30,
~~2009~~2010⁽¹⁾

Fair Value at
December 31,
~~2008~~2009⁽¹⁾

Balance Sheet

Location

Interest
Rate⁽²⁾

Effective
Date

Maturity

Date

Interest Rate Swaps

$25.0 million

~~$25.0 million~~

N/A

~~(0.3)~~ (0.2) million

~~(0.6) million~~

Fair value of derivative ~~liabilities~~instruments

2.86

March 20, 2010

$75.0 ~~million~~

~~(0.9)~~ million

N/A

~~(1.7)~~

(0.4) million

Fair value of derivative ~~liabilities~~instruments

2.83

March 20, 2010

$30.0 ~~million~~

~~(0.4)~~ million

N/A

~~(0.7)~~

(0.2) million

Fair value of derivative ~~liabilities~~instruments

2.79

March 20, 2010

$40.0 ~~million~~

~~(0.4)~~ million

N/A

~~(0.8)~~

(0.2) million

Fair value of derivative ~~liabilities~~instruments

2.65

March 22, 2010

$20.0 ~~million~~

~~(0.4)~~ million

N/A

~~(0.7)~~

(0.2) million

Fair value of derivative ~~liabilities~~instruments

3.41

June 1, 2010

~~$45.0 million~~

~~(2.1)~~ 200.0 million

~~(2.8)~~$ (0.1) million

N/A

Fair value of derivative ~~liabilities~~instruments

0.61

April 1, 2011

45.0 million

(1.5) million

(1.9) million

Fair value of derivative instruments

4.02

June 19, 2011

$54.0 ~~million~~

~~(2.4)~~ million

~~(3.3)~~(1.8) million

(2.2) million

Fair value of derivative ~~liabilities~~instruments

3.84

July 25, 2011

~~$65.0 million~~

~~(2.9)~~ 25.0 million

~~(4.7)~~(0.5) million

N/A

Fair value of derivative ~~liabilities~~instruments

1.83

December 31, 2012

60.0 million

(1.0) million

N/A

Fair value of derivative instruments

1.74

March 11, 2013

40.0 million

(0.7) million

N/A

Fair value of derivative instruments

1.82

March 11, 2013

65.0 million

(4.4) million

(2.5) million

Fair value of derivative instruments

3.60

September 9, 2013

$68.0 ~~million~~

~~(3.2)~~ million

~~(5.2)~~(4.7) million

(2.8) million

Fair value of derivative ~~liabilities~~instruments

3.69

September 9, 2013

$56.3 ~~million~~

~~(2.7)~~ million

~~(4.4)~~(4.0) million

(2.4) million

Fair value of derivative ~~liabilities~~instruments

3.73

September 9, 2013

$55.0 ~~million~~

~~(1.1)~~ million

~~(2.3)~~(2.6) million

(0.9) million

Fair value of derivative ~~liabilities~~instruments

2.90

November 29, 2013

$48.0 ~~million~~

~~(0.9)~~ million

~~(2.0)~~(2.3) million

(0.7) million

Fair value of derivative ~~liabilities~~instruments

2.90

November 29, 2013

Interest Rate Cap

16.3 million

~~$16.3~~(0.1) million

~~0.0 million~~

N/A

Fair value of derivative ~~liabilities~~instruments

2.50

April 2, 2012

Forward Starting Interest Rate Swaps

200.0 million

(1.6) million

N/A

Fair value of derivative instruments

1.78

April 1, 2011

April 2, 2012

200.0 million

(2.0) million

N/A

Fair value of derivative instruments

2.96

April 2, 2012

March 11, 2013

~~(17.7)~~(27.3) million

~~(29.2)~~(14.6) million

⁽¹⁾

As of ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008,~~2009, derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. As of ~~September~~June 30, ~~2009~~2010 and December 31, ~~2008,~~2009, the Company does not have any significant fair value measurements using significant unobservable inputs (Level 3).

⁽²⁾	Interest rate does not include the spread on the designated debt.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

The table below presents the effect of the Company’s derivative financial instruments on the ~~Statement~~statement of ~~Operations~~operations as of ~~September~~June 30, 2010 and 2009.

~~Derivatives in Cash Flow Hedging Relationships~~

Three ~~Months~~
~~Ended~~
~~September 30, 2009~~months ended

Six months ended

~~Nine Months~~Statement of
~~Ended~~Operations
~~September~~location

June 30, ~~2009~~2010

~~Income Statement~~
~~Location~~June 30, 2009

June 30, 2010

June 30, 2009

~~Interest rate products~~Derivatives in cash flow hedging relationships

~~Loss~~Interest Rate Products

(Loss) gain recognized in ~~OCI~~Other Comprehensive Income on derivatives ~~(effective portion)~~

~~(7.3)~~(13.3) million

~~(1.9)~~3.3 million

(21.1) million

5.4 million

N/A

Gain reclassified from ~~Accumulated OCI~~accumulated Other Comprehensive Income (loss) into income (effective portion)

~~4.8~~ 4.3 million

~~13.7~~ 4.6 million

9.1 million

8.9 million

Interest expense

Gain (loss) recognized in income on derivatives (ineffective portion and amount excluded from effectiveness testing)

—

Interest expense

Credit-Risk-Related Contingent Features

The Company has agreements with some of its derivative counterparties that contain a provision pursuant to which, if the 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~~June 30, ~~2009,~~2010, 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 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 ~~September~~June 30, ~~2009,~~2010, 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 ~~$17.7~~$27.3 million. As of ~~September~~June 30, ~~2009,~~2010, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of ~~September~~June 30, ~~2009,~~2010, it would have been required to settle its obligations under the agreements at their termination value (including accrued interest) of ~~$22.3~~$31.0 million. The Company has not breached any of the provisions as of ~~September~~June 30, ~~2009.~~

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

2010.

Fair Value

Fair value measurements 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, 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.

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.

PENNSYLVANIA REAL ESTATE INVESTMENT TRUST

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

June 30, 2010

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 ~~September~~June 30, ~~2009,~~2010, 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.

~~Forward Starting Interest Rate Swaps~~

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 September 30, 2009 includes a net loss of $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.

~~Interest Rate Swaps and Cap~~

As of 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 September 30, 2009 and considered these swap agreements and cap agreement to be highly effective cash flow hedges. The Company’s interest rate swap agreements and cap agreement will be settled in cash.

~~PENNSYLVANIA REAL ESTATE INVESTMENT TRUST~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)~~

~~September 30, 2009~~

10. ~~SUBSEQUENT EVENTS~~TENANT RECEIVABLES

In ~~October 2009,~~March 2010, Boscov’s, Inc. repaid its $10.0 million note payable to 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.~~Company.

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.

OVERVIEW

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 strip and power centers located in the eastern half of the United States, primarily in the Mid-Atlantic region. ~~As of September 30, 2009, our~~Our portfolio ~~consisted~~currently consists of a total of 5554 properties in 13 states, including 38 shopping malls, 1413 strip and power centers and three development properties, ~~under development.~~with two of the development properties classified as “mixed use” (a combination of retail and other uses) and one of the development properties classified as “other.” As of June 30, 2010, the Philadelphia metropolitan area represented approximately 33% of our gross leasable area; other properties in Pennsylvania, Delaware and New Jersey accounted for approximately 38% of our gross leasable area; properties in Maryland and Virginia accounted for approximately 10% of our gross leasable area; and properties in other locations represented the remaining approximately 19% of our gross leasable area. The operating retail properties have a total of ~~34.9~~approximately 34.7 million square feet. The operating retail properties that we consolidate for financial reporting purposes have a total of ~~30.4~~approximately 30.1 million square feet, of which we own ~~24.1~~approximately 23.9 million square feet. The operating retail properties that are owned by unconsolidated partnerships with third parties have a total of ~~4.5~~approximately 4.6 million square feet, of which 2.9 million square feet are owned by such partnerships. The development portion of our portfolio contains three properties in two states, with two classified as “mixed use” (a combination of retail and other uses) 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. Our current strategic initiatives include maintaining a leading position in the Philadelphia metropolitan area, promoting our mall locations as retail hubs in their trade areas, optimizing our portfolio by selling non-core assets as market conditions permit, and reducing our leverage through a variety of means available to us, subject to the terms of the 2010 Credit Facility, as further described below.

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 ~~September~~June 30, ~~2009,~~2010, held a ~~94.9%~~96.0% controlling interest in PREIT Associates. We consolidate PREIT Associates for financial reporting purposes. We hold our investments in seven of the 5251 retail properties and one of the 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:

Except for two properties that we co-manage with our partner, all of the other entities are managed on a day-to-day basis by one of our partners as the managing general partner in each of the respective partnerships. In the case of the co-managed properties, all decisions in the ordinary course of business are made jointly.

The managing general partner of each partnership is responsible for establishing the operating and capital decisions of the partnership, including budgets, in the ordinary course of business.

All major decisions of each partnership, such as the sale, refinancing, expansion or rehabilitation of the property, require the approval of all partners.

Voting rights and the sharing of profits and losses are generally in proportion to the ownership percentages of each partner.

We record the earnings from the unconsolidated partnerships using the equity method of accounting under the statement of operations caption entitled “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 in partnerships, at equity.” In the case of deficit investment balances, such amounts are recorded in “Distributions in excess of partnership investments.”

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~~appear in “Equity in income of partnerships.”

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

We provide our management, leasing and real estate development services through PREIT Services, LLC (“PREIT Services”), which generally ~~manages~~develops and ~~develops~~manages properties that we consolidate for financial reporting purposes, and PREIT-RUBIN, Inc. (“PRI”), which generally ~~manages~~develops and ~~develops~~manages properties that we do not consolidate for financial reporting purposes, including properties in which 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~~PRI is a taxable REIT subsidiary, as defined by federal tax laws, which means that it is able to offer an expanded menu of services to tenants without jeopardizing our ~~long-term objectives is to obtain managerial control of~~continuing qualification 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.~~a REIT under federal tax law.

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~~Our net loss ~~was $10.1~~increased by $26.4 million to a net loss of $42.2 million for the ~~three~~six months ended ~~September~~June 30, ~~2009, compared to $8.9~~2010 from a net loss of $15.7 million for the ~~three~~six months ended ~~September~~June 30, ~~2008. For~~2009. The increase in the ~~three months ended September 30, 2009, net~~ loss was affected by ~~decreased occupancy as a result of tenant bankruptcies~~increased operating expenses 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 gainwell as gains 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 nine months ended 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 onfrom the sales of real estate ~~of $1.7 million. The results of~~and discontinued operations ~~for~~that occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2008 included a gain from hedging activities of $2.0 million.~~

~~CURRENT ECONOMIC DOWNTURN~~

~~We are subject to various risks and uncertainties~~2009 that did not recur in the ~~ordinary course of business that could have adverse effects on our operating results~~six months ended June 30, 2010.

Current Economic Downturn and ~~financial condition.~~ Challenging Capital Market Conditions

The ~~most significant external risks facing us today stem from the current~~ downturn in the overall economy and ~~challenging conditions~~the disruptions 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~~financial markets have reduced consumer confidence and ~~increasing unemployment has~~ negatively affected employment and ~~might~~consumer spending on retail goods. As a result, the sales performance of retailers in general and sales at our properties in particular have decreased from peak levels. We have also experienced delays or deferred decisions regarding the openings of new retail stores and of lease renewals. We have modified and continue to ~~negatively affect,~~modify our plans and actions to take into account the ~~operations of many retail companies. Beginning~~difficult current environment.

In addition, credit markets have experienced significant dislocations and liquidity disruptions. These circumstances have materially affected liquidity in the ~~second half~~debt markets, making financing terms for borrowers less attractive, and in certain cases have resulted in the limited availability or unavailability of ~~2008 and continuing in 2009, the number~~certain types 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 might continue to cause, our occupancy rates, revenue and net income to decline.

~~ACQUISITIONS, DISPOSITIONS, REDEVELOPMENT AND DEVELOPMENT ACTIVITIES~~

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.

~~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.debt financing.

~~Dispositions~~Development and Redevelopment

~~In October 2009,~~We have reached the last phase in our current redevelopment program. Over the past five years, we ~~sold a controlling interest~~have invested approximately $1.0 billion in ~~Northeast Tower~~our portfolio. The current estimated project cost of Voorhees Town Center, ~~a power center located in Philadelphia, Pennsylvania, for $30.4 million. We will record a gain of approximately $6.0~~our only remaining redevelopment property, is $83.0 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.

~~Redevelopment and Development~~

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 September 30, 2009, we had incurred $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 $493.1 million in the aggregate, including amounts invested to date.

~~The following table sets forth the amount of our estimated total cost~~ and the ~~amounts~~amount invested as of ~~September~~June 30, ~~2009 in each~~2010 was $68.8 million.Our projected share of estimated project costs is net of any expected tenant reimbursements, parcel sales, tax credits or other incentives. We may spend additional amounts at our completed redevelopment ~~project:~~


~~Redevelopment Project~~properties for tenant allowances, leasehold improvements and other costs.	~~Estimated Project~~ ~~Cost~~⁽¹⁾		~~Invested as of~~ ~~September 30, 2009~~
~~Cherry Hill Mall~~	$	~~218.0 million~~	$	~~209.9 million~~
~~Plymouth Meeting Mall~~		~~97.7 million~~		~~89.9 million~~
~~The Gallery at Market East~~		~~81.6 million~~		~~79.5 million~~
~~Voorhees Town Center~~		~~83.0 million~~		~~64.0 million~~
~~Wiregrass Commons Mall~~		~~12.8 million~~		~~10.5 million~~

	$	~~493.1 million~~	$	~~453.8 million~~

⁽¹⁾	~~The estimated project cost is net of any expected tenant reimbursements, parcel sales, tax credits or other incentives.~~

We are engaged in the development of three mixed use and other 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 ~~September~~June 30, ~~2009,~~2010, we had incurred ~~$91.2~~$78.1 million of costs related to these ~~development~~three projects. WeThe details of the White Clay Point, Springhills and Pavilion at Market East projects and related costs have not been determined. In each case, we 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~~governed by the partnership agreement or restricted by the covenants contained in our 2010 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. In recent quarters, we generally had several development projects under way at one time. These projects 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 cost and the~~ amounts invested as of ~~September~~June 30, ~~2009~~2010 in each development project:


Development Project	~~Estimated Project~~ ~~Cost~~⁽¹⁾		Invested as of ~~September~~June 30, ~~2009~~2010		~~Actual/Expected~~ ~~Initial Occupancy~~ ~~Date~~
~~Operating Property:~~
~~Pitney Road Plaza~~	$	~~18.8 million~~	$	~~14.1 million~~	~~2009~~
~~Development Properties:~~
White Clay Point⁽¹⁾	$	43.6 million
Springhills⁽²⁾		~~To be determined~~		~~43.5~~33.8 million	~~To be determined~~
~~Springhills~~		~~To be determined~~		~~32.9 million~~	~~To be determined~~
Pavilion at Market East⁽³⁾		~~To be determined~~		0.7 million	~~To be determined~~

			$	~~91.2~~78.1 million

⁽¹⁾⁽	~~The estimated project cost is net of any expected tenant reimbursements, parcel sales, tax credits or other incentives.~~

⁽²⁾¹⁾

Amount invested as of ~~September~~June 30, ~~2009~~2010 does not reflect an $11.8 million impairment charge that we recorded in December 2008. See the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion of this charge.

⁽³⁾⁽²⁾

Amount invested as of June 30, 2010 does not reflect an $11.5 million impairment charge that we recorded in December 2009. See the notes to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2009 for further discussion of this charge.

⁽³⁾	The property is unconsolidated. The amount shown represents our share.

In connection with ~~the~~our redevelopment projects and ~~development projects listed above and other projects ongoing~~capital improvements at ~~our~~certain other properties, we have made contractual and other commitments on these projects in the form of tenant allowances, lease termination ~~amounts~~fees and contracts with general contractors and other professional service providers. ~~We estimate that we will incur approximately $20.0 million during~~As of June 30, 2010, the unaccrued remainder ~~of 2009 and up~~ to an additional $50.0 million, net of expected reimbursements, in 2010 and 2011, to fund our current development and redevelopment projects, including $14.6 million as to which we are contractually committed. While we expect that the expenditures related to our redevelopment and development projects listed in this report will continue 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 projectsbe paid against these contractual and other ~~business initiatives. A continued prolonged downturn in the credit markets might cause us~~commitments was $2.1 million, which is expected to ~~seek alternative sources~~be financed through our Revolving Facility or through various other capital sources. The projects on which these commitments have been made have total expected remaining costs of ~~capital or financing, which could be less attractive and might require us to adjust our business plan accordingly. See “—Liquidity and Capital Resources.”~~$21.8 million.

OFF BALANCE SHEET ARRANGEMENTS

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.

RELATED PARTY TRANSACTIONS

~~Bala Cynwyd Associates, L.P.~~

In January 2008, PREIT Associates 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 $3.9 million.

In June 2009, a second closing occurred in which we acquired an additional 49.9% of the limited partner interest in BCA from the Individuals for 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.

~~The acquisition of the Office Building was financed in part by a mortgage loan with a principal amount of $8.0 million.~~

PREIT and PREIT Associates have agreed to provide tax protection to the Individuals 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.

~~Other~~

PRI provides management, leasing and development services for ~~eight~~nine 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 ~~September~~June 30, ~~2009~~2010 and ~~2008,~~2009, respectively, and ~~$0.6 million and $0.8~~$0.4 million for each of the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 and ~~2008,~~2009, respectively.

We lease our principal executive offices from Bellevue Associates (the “Landlord”)., an entity in which certain of our officers/trustees have an interest. Total rent expense under this lease was $0.4 million for each of the three months ended June 30, 2010 and 2009, respectively, and $0.8 million for each of the six months ended June 30, 2010 and 2009, respectively. 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 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 $0.1 million in the three months ended 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.

CRITICAL ACCOUNTING POLICIES

Critical ~~accounting policies~~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~~might 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~~instruments 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. The estimates and assumptions made by management in applying critical accounting policies have not changed materially during 2010 and 2009, except as otherwise noted, 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.

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:

events and changes in property, market and economic conditions;

estimated future cash flows from property operations; and

the risk of loss on specific accounts or amounts.

~~The estimates and assumptions made by management~~For additional information regarding our Critical Accounting Policies, please refer to the caption “Critical Accounting Policies” in ~~applying critical accounting policies have not changed materially during 2009 and 2008, and none~~Part II, Item 7 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.~~

~~Asset Impairment~~

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.

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:

~~projected cash flows, both from operations and from a hypothetical disposition;~~

~~expected useful life and holding period;~~

~~future required capital expenditures; and~~

~~fair values, including consideration of capitalization rates, discount rates and comparable selling prices.~~

As a preliminary indicator to determine if the carrying value of a property might not be recovered by undiscounted cash flows, 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.

~~Application of New Accounting Standards~~

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:

~~The power to direct the activities of a variable interest entity that most significantly impact the company’s economic performance.~~

The obligation to absorb losses of the company that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity.

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.2009.

RESULTS OF OPERATIONS

Comparison of Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2009~~2010 and ~~2008~~2009

Overview

Our results 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~~loss for the three ~~and nine~~ months ended ~~September~~June 30, ~~2009,~~2010 increased to $23.7 million, a $19.5 million increase from the $4.2 million net loss for the three months ended June 30, 2009. Our net loss increased by $26.4 million to a net loss of $42.2 million for the six months ended June 30, 2010 from a net loss of $15.7 million for the six months ended June 30, 2009. The increase in the loss was affected by ~~decreased occupancy as a result of tenant bankruptcies~~increased operating expenses 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 September 30, 2008. Results for the three and nine months ended September 30, 2009 includedwell as gains on extinguishment of debt and gains onfrom the sales of real estate and ~~a gain on~~discontinued operations that occurred during the ~~sale of discontinued operations.~~three and six months ended June 30, 2009 that did not recur in the three or six months ended June 30, 2010.

The table below sets forth certain occupancy statistics as of ~~September~~June 30, ~~2009~~2010 and ~~2008:~~2009:


	Occupancy as of September 30,								Occupancy as of June 30,
	Consolidated				Partnership⁽¹⁾				Consolidated				Partnership⁽¹⁾
	2009		2008		2009		2008		2010		2009		2010		2009
Retail portfolio weighted average:
Total excluding anchors	84.1	%	87.0	%	87.4	%	92.9	%	84.0	%	83.8	%	92.8	%	87.4	%
Total including anchors	89.2	%	89.2	%	90.8	%	95.0	%	89.4	%	88.5	%	94.6	%	90.8	%
Enclosed malls weighted average:
Total excluding anchors	83.4	%	86.0	%	89.9	%	92.4	%	83.0	%	83.3	%	91.6	%	89.9	%
Total including anchors	88.7	%	88.5	%	92.0	%	94.0	%	88.8	%	88.1	%	93.4	%	92.0	%
Strip and power centers weighted average	94.1	%	98.7	%	90.1	%	95.5	%	96.9	%	93.1	%	95.3	%	90.1	%

⁽¹⁾	Owned by partnerships in which we own a 50% interest.

The following information sets forth our results of operations for the three and six months ended ~~September~~June 30, ~~2009~~2010 and ~~2008:~~2009:


	Three Months Ended September 30,						% Change		Three months ended June 30,						% Change 2009 to 2010			Six months ended June 30,							% Change 2009 to 2010
(in thousands of dollars)	2009			2008			2008 to 2009		2010			2009					2010				2009				% Change 2009 to 2010
Revenue	$	113,666		$	114,736		(1	)%	$	111,453		$	112,344		% Change 2009 to 2010	(1	%)		$	227,104			$	223,722		2	%
Property operating expenses		(48,729	)		(47,640	)	2	%
Operating expenses										(48,050	)		(46,170	)	4	%			(97,477	)			(92,436	)	5	%
Depreciation and amortization		(41,702	)		(38,270	)	9	%		(41,598	)		(41,085	)	1	%			(83,605	)			(80,086	)	4	%
General and administrative expenses, abandoned project costs, income taxes and other expenses		(9,783	)		(10,675	)	(8	)%
General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other										(9,778	)		(9,648	)	1	%			(19,758	)			(19,322	)	2	%
Interest expense, net		(33,589	)		(29,329	)	15	%		(38,625	)		(33,249	)	16	%			(73,456	)			(65,758	)	12	%
Gain on extinguishment of debt		4,167			—		—			—			8,532		(100	%)			—				9,804		(100	%)
Gain on sales of real estate										—			1,654		(100	%)			—				1,654		(100	%)
Equity in income of partnerships		2,355			2,169		9	%		2,948			2,659		11	%			5,038				5,177		(3	%)
Income from discontinued operations		3,496			149		—			—			745		(100	%)			—				1,504		(100	%)

Net loss	$	(10,119	)	$	(8,860	)	14	%	$	(23,650	)	$	(4,218	)	461	%		$	(42,154	)		$	(15,741	)	168	%

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

   Nine Months Ended
September 30, % Change
(in thousands of dollars)
   2009 2008 2008 to 2009
Revenue
   $ 339,535    $ 342,844    (1 )%
Property operating expenses
   (141,646 ) (136,805 ) 4 %
Depreciation and amortization
   (122,243 ) (110,958 ) 10 %
General and administrative expenses, abandoned project costs, income taxes and other expenses
   (29,104 ) (33,592 ) (13 )%
Interest expense, net
   (99,346 ) (83,413 ) 19 %
Gain on extinguishment of debt
   13,971    —      —
Equity in income of partnerships
   7,531    5,738    31 %
Gains on sales of real estate
   1,654    —      —
Income from discontinued operations
   3,788    435 —

Net loss
   $ (25,860 ) $ (15,751 ) 64 %

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

Revenue

~~Real estate revenue~~Revenue decreased by ~~$0.5~~$0.9 million, or 1%, in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008. Real estate revenue increased $1.1 million from two properties under development during 2008 that are now placed in service.~~2009. Real estate revenue from properties that were owned ~~by us prior~~for the entire period from April 1, 2009 to ~~July 1, 2008~~June 30, 2010 (“Second Quarter Same Store Properties”) decreased by ~~$1.6~~$1.2 million, primarily due to decreases of ~~$1.6~~$1.0 million in expense reimbursements ~~$0.4~~and $0.5 million in ~~other revenue and $0.1 million in percentage~~

~~rent.~~lease terminations. These decreases were partially offset by an increase of ~~$0.5~~$0.3 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. These changes in real estate revenue are explained below in further detail. Real estate revenue also increased by $0.2 million from one property under development during 2009 that was placed in service in 2010.

~~Expense reimbursements decreased~~

Base rent for the Second Quarter Same Store Properties increased by ~~$1.6~~$0.3 million in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009. Base rent at three of our recently completed redevelopment projects increased by an aggregate of $1.9 million due to increased occupancy from newly opened tenants. Partially offsetting this increase, base rent decreased by $1.1 million because of increased vacancy and leases that were converted to percentage rent in lieu of base rent. Base rent was also affected by a $0.5 million decrease in above/below market lease amortization from the prior year, when $0.6 million was recognized as revenue in connection with leases that were terminated prior to their expiration.

Expense reimbursements decreased by $1.0 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009. At many of our malls, we have continued to recover a lower proportion of common area maintenance and real estate tax ~~expenses.~~expenses than in prior periods. 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 other rental concessions driven by conditions in the economy.

~~Other revenue~~Lease terminations 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 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 which percentage rent begins.

~~Base rent increased~~ by $0.5 million in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009, primarily due to $0.5 million received from one tenant during the three months ended June 30, 2009.

Revenue increased by $3.4 million, or 2%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Real estate revenue from properties that were owned for the entire period from January 1, 2009 to June 30, 2010 (“Six Month Same Store Properties”) increased by $2.8 million, primarily due to increases of $2.5 million in base rent, a $0.8 million increase in lease terminations and a $0.1 million increase in percentage rent. This increase was partially offset by decreases of $0.4 million in expense reimbursements and $0.2 million in other revenue. Real estate revenue increased $0.5 million from one property under development during 2009 that was placed in service in 2010.

Base rent for the Six Month Same Store Properties increased by $2.5 million in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Base rent at ~~Cherry Hill Mall, Voorhees Town Center and Plymouth Meeting Mall,~~ three of our ~~current~~recently completed redevelopment projects increased by ~~$0.9~~an aggregate of $4.5 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,~~this increase, base rent decreased by ~~$1.3~~$1.5 million ~~due~~because of increased vacancy and leases that were converted to ~~67 store closings and liquidations associated with tenant bankruptcy filings during 2008 and 2009. As~~percentage rent in lieu of ~~September 30, 2009, 13 of~~base rent. Base rent was also affected by a $0.5 million decrease in above/below market lease amortization from the ~~67 stores have been leased to new tenants.~~

~~Interest and other income decreased by~~prior year, when $0.6 million ~~or 41%,~~was recognized as revenue in connection with leases that were terminated prior to their expiration.

Lease terminations increased by $0.8 million in the ~~three~~six months ended ~~September~~June 30, ~~2009~~2010 compared to the ~~three~~six months ended ~~September~~June 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 induring the ~~nine~~three 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.

March 31, 2010.

~~Base rent~~Expense reimbursements decreased by $0.4 million in the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2008. Base rent decreased by $4.4 million~~2009 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,~~factors noted above for the 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.month period.

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.

Operating Expenses

Operating expenses increased by ~~$1.1~~$1.9 million, or 2%4%, in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008. Operating expenses increased $0.3 million from two properties under development during 2008 that are now placed in service.~~2009. Operating expenses from ~~properties that were owned by us prior to July 1, 2008~~Second Quarter Same Store Properties increased by ~~$0.8~~$1.8 million, primarily due to a ~~$1.0~~$1.1 million increase in common area maintenance expense, a $0.8 million increase in real estate ~~tax expense~~taxes and a ~~$0.4~~$0.2 million increase in ~~common area maintenance~~utility expense. These increases were partially offset by a ~~$0.4~~$0.3 million decrease in other operating expenses. Operating expenses ~~and a $0.2 million decrease in non-common area utility expense.~~

~~Real estate tax expense~~ increased by ~~$1.0~~$0.1 million from one property under development during 2009 that was placed in service in 2010.

Common area maintenance expenses increased by $1.1 million in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 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,2009 primarily due to increases of $0.4 million in common area utility expense, $0.2 million in ~~repairs and maintenance~~housekeeping expense, $0.2 million in loss prevention expense and $0.2 million in common area administrative expense. The increase in common area utilities included a $0.2 million increase related to the Commonwealth of Pennsylvania lease at The Gallery at Market East that commenced in August 2009. The increases in housekeeping expense and loss prevention ~~expense. These increases~~expense 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 $3.8 million, primarily due to a $2.5 million increase in real estate tax expense, a $1.8 million increase in common area maintenance expense and a $0.2 million increase in other operating expenses. These increases were partially offset by a $0.7 million decrease in non-common area utility expense.

Real estate tax expense increased by ~~$2.5~~$0.8 million, primarily due to higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Non common area utility expense increased by $0.2 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, including a $0.2 million increase at four of our Pennsylvania properties, where electricity rate caps expired on January 1, 2010.

Other operating expenses decreased by $0.3 million in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, including a $0.4 million decrease in bad debt expense, partially offset by a $0.1 million increase non reimbursable repairs and maintenance expense. Bad debt expense was affected by one tenant bankruptcy with associated bad debt expense of $0.1 million during the three months ended June 30, 2010, compared to four tenant bankruptcies and associated bad debt expense of $0.5 million during the three months ended June 30, 2009.

Operating expenses increased by $5.0 million, or 5%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009. Operating expenses from Six Month Same Store Properties increased by $4.9 million, primarily due to a $3.2 million increase in common area maintenance expense, a $1.3 million increase in real estate taxes and a $0.7 million increase in utility expense. These increases were partially offset by a $0.3 million decrease in other operating expenses. Operating expenses increased by $0.1 million from one property under development during 2009 that was placed in service in 2010.

Common area maintenance expenses increased by ~~$1.8~~$3.2 million in the ~~nine~~six months ended ~~September~~June 30, 2010 compared to the six months ended June 30, 2009 primarily due to increases of ~~$0.9 million in repairs and maintenance, $0.5~~$1.3 million in snow removal expense, ~~and~~$0.7 million in common area utility expense, $0.4 million in housekeeping expense, $0.4 million in loss prevention expense and $0.2 million in common area administrative expense. ~~Snowfall amounts~~Snow removal expenses at our properties located in Pennsylvania and New Jersey increased ~~during~~as a result of two significant snowstorms that affected the ~~nine months ended September 30, 2009 compared~~Mid-Atlantic states in February 2010. The increase in common area utilities included a $0.3 million increase related to the ~~nine months ended September 30, 2008. Repairs and maintenance~~Commonwealth of Pennsylvania lease at The Gallery at Market East that commenced in August 2009. The increases in housekeeping expense and loss prevention expense ~~increased~~were due primarily to stipulated annual contractual increases. ~~Other property operating expenses~~Real estate tax expense increased by ~~$0.2~~$1.3 million, primarily due to ~~a $1.5~~higher tax rates in the jurisdictions where properties are located and increased property assessments at some of our properties. Non common area utility expense increased by $0.7 million ~~increase~~ in ~~bad debt expense, partially offset by~~the six months ended June 30, 2010 compared to the six months ended June 30, 2009, including a $0.6 million ~~decrease~~increase at four of our Pennsylvania properties, where electricity rate caps expired on January 1, 2010.

Other operating expenses decreased by $0.3 million in ~~marketing expense,~~the six months ended June 30, 2010 compared to the six months ended June 30, 2009, including a $0.3 million decrease in ~~non-common area~~bad debt expense and a $0.3 million decrease in

marketing expense. These decreases were partially offset by increases of $0.1 million in non reimbursable repairs and maintenance expense and ~~a $0.2~~$0.1 million ~~decrease~~ in ~~legal fee expense. The increase in bad~~other operating expenses. Bad debt expense was affected by ~~$0.7~~three tenant bankruptcies with associated bad debt expense of $0.1 million ~~associated with ten tenant bankruptcy filings~~ during the ~~nine~~six months ended ~~September~~June 30, 2010, compared to seven tenant bankruptcies and associated bad debt expense of $0.6 million during the six months ended June 30, 2009. ~~Partially offsetting these increases was a $0.7 million~~The decrease in ~~non-common area utility~~marketing expense ~~including~~was offset by a ~~$0.3 million~~corresponding 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.~~in marketing revenue.

Depreciation and Amortization

Depreciation and amortization expense increased by ~~$3.4~~$0.5 million, or 9%1%, in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009. Depreciation and amortization expense from ~~properties that we owned prior to July 1,~~

~~2008~~Second Quarter Same Store Properties increased by ~~$3.0~~$0.4 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~~have been placed in service. We placed assets with an aggregate basis of ~~$317.0~~$197.8 million in service from ~~September~~June 30, ~~2008~~2009 to ~~September~~June 30, ~~2009.~~2010.Partially offsetting this increase, depreciation and amortization expense decreased by $0.9 million due to fully depreciated and amortized lease intangibles at the six properties purchased during the second quarter of 2003. Depreciation and amortization increased ~~$0.4~~by $0.1 million from ~~two properties~~one property under development during ~~2008~~2009 that ~~are now~~was placed in ~~service.~~service in 2010.

Depreciation and amortization expense increased by ~~$11.3~~$3.5 million, or ~~10%~~4%, in the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. Depreciation and amortization expense from ~~properties that we owned prior to January 1, 2008~~Six Month Same Store Properties increased by ~~$10.3~~$3.4 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~~have been placed in service. Partially offsetting this increase, depreciation and amortization expense decreased by $0.9 million due to fully depreciated and amortized lease intangibles at the six properties purchased during the second quarter of 2003. Depreciation and amortization increased ~~$1.2~~by $0.1 million from ~~two properties~~one property under development during ~~2008~~2009 that ~~are now~~was placed in service ~~and decreased $0.2 million from One Cherry Hill Plaza (acquired February 2008).~~in 2010.

General and Administrative Expenses, Impairment of Assets, Abandoned Project Costs, Income Taxes and Other Expenses

General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses ~~decreased~~increased by ~~$0.9~~$0.1 million, or 8%1%, infor the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009. This ~~decrease was~~increase is primarily due ~~in part~~ to a ~~$0.5~~$0.2 million increase in other expenses offset by a $0.1 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.impairment of assets.

General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses ~~decreased~~increased by ~~$4.5~~$0.4 million, or ~~13%~~2%, infor the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. This ~~decrease was~~increase is primarily due ~~in part~~ to a ~~$1.2~~$0.3 million increase in other expenses and a $0.2 million increase in professional fees offset by a $0.1 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 decreased by $1.8 million, primarily due to lower convention expenses, travel costs, and function expenses.impairment of assets.

Interest Expense

Interest expense increased by ~~$4.3~~$5.4 million, or ~~15%~~16%, in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008. This increase resulted~~2009. We recorded accelerated amortization expense of $2.3 million relating to deferred financing costs in ~~part from~~the three months ended June 30, 2010 associated with the repayment of a ~~higher aggregate debt balance. In addition, we~~portion of the 2010 Term Loan and Revolving Facility. We also placed assets with an aggregate cost basis of ~~$317.0~~$197.8 million in service from ~~September~~June 30, ~~2008~~2009 to ~~September~~June 30, ~~2009.~~2010. Interest on these assets was capitalized during construction periods and was expensed during periods after the improvements were placed in service. The increase in interest expense also resulted from higher applicable interest rates on our short-term floating rate debt, even though our weighted average debt balance decreased.

Interest expense increased by ~~$15.9~~$7.7 million, or ~~19%~~12%, in the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. 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~~$2.3 million ~~as a result of a gain from hedging activities.~~

~~Gain on Extinguishment of Debt~~

During the three months ended September 30, 2009, we repurchased 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 millionaccelerated amortization of deferred financing ~~costs~~cost expense, higher applicable interest rates 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 $8.0 million in cash and 3.0 million shares, which resulted in a gain on extinguishment of debt of $14.0 million. In connection with the repurchases, we retired an aggregate of $2.2 million of deferred financing costs and debt discount.

~~Equity in Income of Partnerships~~

Equity in income of partnerships increased by $0.2 million, or 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 mortgagedecreased capitalized 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.~~after assets were placed into service.

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 was primarily due to a $2.5 million decrease in interest expense 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.

Discontinued Operations

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

~~Property operating results, gain on sale of~~ There were no discontinued operations ~~and related noncontrolling interest~~in the six months ended June 30, 2010.

Operating results for Crest Plaza and Northeast Tower Center for the periods presented were as follows:


(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		Three months ended June 30, 2009		Six months ended June 30, 2009
Property operating results of Crest Plaza	$	98	$	149	$	390	$	435
Gain on sale of Crest Plaza		3,398		—		3,398		—
Operating results of Northeast Tower Center									$	589	$	1,213
Operating results of Crest Plaza										156		291

Income from discontinued operations	$	3,496	$	149	$	3,788	$	435	$	745	$	1,504

NET OPERATING INCOME

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~~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~~Operating Income excludes ~~management company revenue,~~ interest and other 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~~discontinued operations, gains on extinguishment of ~~debt.~~debt, impairment losses, abandoned project costs and other expenses.

The following ~~table presents net operating income~~tables present Net Operating Income results for the three and six months ended ~~September~~June 30, ~~2009~~2010 and ~~2008.~~2009. The results are presented using the “proportionate-consolidation method” (a non-GAAP measure), which ~~presents~~includes our share of the results of our partnership ~~investments.~~investments in order to provide more detailed information with respect to the revenue and expenses of the aggregate of our wholly owned properties and our share of partnership properties. Under GAAP, we account for our ~~noncontrolling~~unconsolidated partnership investments under the equity method of accounting. ~~Property operating~~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
   Three Months Ended
September 30, Three Months Ended
September 30, Three Months Ended
September 30,
(in thousands)
   2009 2008 %
Change 2009 2008 %
Change 2009 2008 %
Change
Real Estate Revenue
   $ 120,105    $ 122,142    (2 )% $ 2,069    $ 1,068    94 % $ 122,174    $ 123,210    (1 )%
Property Operating Expenses
   (50,781 ) (50,270 ) 1 % (859 ) (509 ) 69 % (51,640 ) (50,779 ) 2 %

Net Operating Income
   $ 69,324    $ 71,872    (4 )% $ 1,210    $ 559    116 % $ 70,534    $ 72,431    (3 )%


	Same Store								Non Same Store								Total
	Three months ended June 30,								Three months ended June 30,								Three months ended June 30,
(in thousands of dollars)	2010			2009			% Change		2010			2009			% Change		2010			2009			% Change
Real estate revenue	$	119,867		$	120,474		(1	)%	$	785		$	2,121		(63	)%	$	120,652		$	122,595		(2	)%
Operating expenses		(50,505	)		(48,581	)	4	%		(439	)		(789	)	(44	)%		(50,944	)		(49,370	)	3	%

Net Operating Income	$	69,362		$	71,893		(4	)%	$	346		$	1,332		(74	)%	$	69,708		$	73,225		(5	)%

Total ~~net operating income~~Net Operating Income decreased by ~~$1.9~~$3.5 million, or 5%, in the three months ended ~~September~~June 30, ~~2009~~2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009. Same Store ~~net operating income~~Net Operating Income decreased by $2.5 million, or 4%, including $0.6 million in lease termination revenue, in the three months ended ~~September~~June 30,

~~2009~~ 2010 compared to the three months ended ~~September~~June 30, ~~2008.~~2009, which included $0.9 million in lease termination revenue. Non Same Store ~~net operating income increased~~Net Operating Income decreased by ~~$0.6 million.~~$1.0 million, or 74%, in the three months ended June 30, 2010 compared to the three months ended June 30, 2009, primarily due to the sales of Crest Plaza and Northeast Tower Center in 2009. See “Results of Operations—Revenue” and “—~~Property~~ Operating Expenses” for further discussion of these variances.

~~The following table presents net operating income results for~~
   Same Store Non Same Store Total
   Six months ended
June 30, Six months ended
June 30, Six months ended
June 30,
(in thousands of dollars)
   2010 2009 %
Change 2010 2009 %
Change 2010 2009 %
Change
Real estate revenue
   $ 243,221    $ 239,794    1 % $ 1,592    $ 4,297    (63 )% $ 244,813    $ 244,091    —   %
Operating expenses
   (102,610 ) (97,353 ) 5 % (866 ) (1,609 ) (46 )% (103,476 ) (98,962 ) 5 %

Net Operating Income
   $ 140,611    $ 142,441    (1 )% $ 726    $ 2,688    (73 )% $ 141,337    $ 145,129    (3 )%

Total Net Operating Income decreased by $3.8 million, or 3%, in the ~~nine~~six months ended ~~September~~June 30, 2010 compared to the six months ended June 30, 2009. Same Store Net Operating Income decreased by $1.8 million, or 1%, including $2.5 million in lease termination revenue, in the six months ended June 30, 2010 compared to the six months ended June 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
   Nine Months Ended
September 30, Nine Months Ended
September 30, Nine Months Ended
September 30,
(in thousands)
   2009 2008 %
Change 2009 2008 %
Change 2009 2008 %
Change
Real Estate Revenue
   $ 360,181    $ 365,287    (1 )% $ 6,083    $ 3,228    88 % $ 366,264    $ 368,515    (1 )%
Property Operating Expenses
   (148,089 ) (144,243 ) 3 % (2,513 ) (1,572 ) 60 % (150,602 ) (145,815 ) 3 %

Net Operating Income
   $ 212,092    $ 221,044    (4 )% $ 3,570    $ 1,656    116 % $ 215,662    $ 222,700    (3 )%

~~Total net operating income decreased by $7.0~~included $1.5 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.lease termination revenue. Non Same Store ~~net operating income increased~~Net Operating Income decreased by ~~$1.9 million.~~$2.0 million, or 73%, in the six months ended June 30, 2010 compared to the six months ended June 30, 2009, primarily due to the sales of Crest Plaza and Northeast Tower Center in 2009. 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,						Three months ended June 30,						Six months ended June 30,
(in thousands of dollars)	2009			2008			2009			2008			2010			2009			2010			2009
Net loss	$	(10,119	)	$	(8,860	)	$	(25,860	)	$	(15,751	)	$	(23,650	)	$	(4,218	)	$	(42,154	)	$	(15,741	)
Depreciation and amortization
Wholly owned and consolidated partnerships		41,702			38,270			122,243			110,958			41,598			41,085			83,605			80,086
Unconsolidated partnerships		1,983			1,970			6,056			5,987			2,102			2,018			4,561			4,073
Discontinued operations		105			166			440			497			—			395			—			789
Interest expense, net
Wholly owned and consolidated partnerships		33,589			29,329			99,346			83,413			38,625			33,249			73,456			65,758
Unconsolidated partnerships		1,918			2,351			5,448			7,667			1,853			1,762			3,437			3,530
General and administrative expenses, abandoned project costs, income taxes and other expenses		9,783			10,675			29,104			33,592
General and administrative expenses, impairment of assets, abandoned project costs, income taxes and other expenses														9,778			9,648			19,758			19,322
Gain on sales of real estate														—			(1,654	)		—			(1,654	)
Gain on extinguishment of debt		(4,167	)		—			(13,971	)		—			—			(8,532	)		—			(9,804	)
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	)		(598	)		(528	)		(1,326	)		(1,230	)

Property net operating income	$	70,534		$	72,431		$	215,662		$	222,700
Net Operating Income													$	69,708		$	73,225		$	141,337		$	145,129

FUNDS FROM OPERATIONS

The National Association of Real Estate Investment Trusts (“NAREIT”) defines Funds From Operations (“FFO”), 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~~FFO is a commonly used measure of operating performance and profitability in the real estate ~~industry, and we~~industry. 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 measure that is 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~~FFO 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~~FFO 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 ~~$29.8~~$19.7 million for the three months ended ~~September~~June 30, ~~2009,~~2010, a decrease of ~~$1.1~~$18.1 million, or 4%48%, compared to ~~$30.9~~$37.8 million for the three months ended ~~September~~June 30, ~~2008.~~2009. FFO decreased due to a decrease in net income as a result of increased operating expenses and higher interest expense, as well as gains on sales of non operating real estate that occurred in 2009 that did not recur in 2010. FFO per ~~diluted~~ share decreased ~~$0.08~~$0.54 per ~~diluted~~ share to ~~$0.67~~$0.37 per ~~diluted~~ share for the three months ended ~~September~~June 30, ~~2009,~~2010, compared to ~~$0.75~~$0.91 per ~~diluted~~ share for the three months ended ~~September 30, 2008. The per diluted share amounts reflect the issuance through September~~June 30, 2009, due in part to a higher weighted average number of shares ~~primarily~~following the May 2010 equity offering and equity issuances in ~~connection with the repurchase of exchangeable notes.~~2009.

FFO was ~~$96.9~~$45.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2009,~~2010, a decrease of ~~$2.8~~$21.9 million, or 3%33%, compared to ~~$99.7~~$67.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. FFO decreased due to a decrease in net income as a result of increased operating expenses and interest expense, as well as gains on sales of non operating real estate that occurred in 2009 that did not recur in 2010. FFO per ~~diluted~~ share decreased ~~$0.14~~$0.72 per ~~diluted~~ share to ~~$2.29~~$0.91 per ~~diluted~~ share for the ~~nine~~six months ended ~~September~~June 30, ~~2009,~~2010, compared to ~~$2.43~~$1.63 per ~~diluted~~ share for the ~~nine~~six months ended ~~September 30, 2008. The per diluted share amounts reflect the issuance through September~~June 30, 2009, due in part to a higher weighted average number of shares ~~primarily~~following the May 2010 equity offering and equity issuances in ~~connection with the repurchase of exchangeable notes.~~2009.

The shares used to calculate both FFO per basic share and 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 loss to FFO, and to show the items included in our FFO for the periods indicated:


(in thousands of dollars)	Three Months Ended September 30, 2009			Per share (including OP Units)			Three Months Ended September 30, 2008			Per share (including OP Units)
(in thousands of dollars, except per share amounts)													Three months ended June 30, 2010			Per share (including OP Units)			Three months ended June 30, 2009			Per share (including OP Units)
Net loss	$	(10,119	)	$	(0.22	)	$	(8,860	)	$	(0.22	)	$	(23,650	)	$	(0.44	)	$	(4,218	)	$	(0.10	)
Gain on sale of discontinued operations		(3,398	)		(0.08	)		—			—
Gain on sale of interest in operating real estate														—			—			(923	)		(0.02	)
Depreciation and amortization:
Wholly owned and consolidated partnerships⁽¹⁾		41,220			0.93			37,601			0.92			41,220			0.77			40,539			0.97
Unconsolidated partnerships⁽¹⁾		1,983			0.04			1,970			0.05			2,102			0.04			2,018			0.05
Discontinued operations		105			—			166			—			—			—			395			0.01

Funds from operations⁽²⁾	$	29,791		$	0.67		$	30,877		$	0.75		$	19,672		$	0.37		$	37,811		$	0.91

Accelerated amortization of deferred financing costs in connection with equity offering														2,258			0.04			—			—
Impairment of assets														—			—			70			—
Gain on extinguishment of debt														—			—			(8,532	)		(0.20	)

Funds from operations as adjusted													$	21,930		$	0.41		$	29,349		$	0.71


(in thousands of shares)

Weighted average number of shares outstanding		42,195						38,840						50,317						39,197
Weighted average effect of full conversion of OP Units		2,329						2,238						2,329						2,219
Effect of common share equivalents		—						12						587						—

Total weighted average shares outstanding, including OP Units		44,524						41,090						53,233						41,416

⁽¹⁾	Excludes depreciation of non-real estate assets and amortization of deferred financing costs.

⁽²⁾	Includes the non-cash effect of straight-line rent of ~~$0.5~~$0.4 million ~~and $0.6 million~~ for each of the three months ended ~~September~~June 30, ~~2009~~2010 and ~~2008, respectively.~~June 30, 2009.


(in thousands of dollars)	Nine Months Ended September 30, 2009			Per share (including OP Units)			Nine Months Ended September 30, 2008			Per share (including OP Units)
(in thousands of dollars, except per share amounts)													Six months ended June 30, 2010			Per share (including OP Units)			Six months ended June 30, 2009			Per share (including OP Units)
Net loss	$	(25,860	)	$	(0.61	)	$	(15,751	)	$	(0.38	)	$	(42,154	)	$	(0.85	)	$	(15,741	)	$	(0.38	)
Gain on sale of interest in operating real estate⁽¹⁾		(923	)		(0.02	)		—			—			—			—			(923	)		(0.02	)
Gain on sale of discontinued operations		(3,398	)		(0.08	)		—			—
Depreciation and amortization:
Wholly owned and consolidated partnerships⁽²⁾		120,604			2.85			108,986			2.66
Unconsolidated partnerships⁽²⁾		6,056			0.14			5,987			0.14
Wholly owned and consolidated partnerships⁽¹⁾														82,789			1.67			78,930			1.91
Unconsolidated partnerships⁽¹⁾														4,561			0.09			4,073			0.10
Discontinued operations		440			0.01			497			0.01			—			—			789			0.02

Funds from operations⁽³⁾	$	96,919		$	2.29		$	99,719		$	2.43
Funds from operations⁽²⁾													$	45,196		$	0.91		$	67,128		$	1.63

Accelerated amortization of deferred financing costs in connection with equity offering														2,258			0.04			—			—
Impairment of assets														—			—			70			—
Gain on extinguishment of debt														—			—			(9,804	)		(0.24	)

Funds from operations as adjusted													$	47,454		$	0.95		$	57,394		$	1.39


(in thousands of shares)

Weighted average number of shares outstanding		40,144						38,781						47,013						39,101
Weighted average effect of full conversion of OP Units		2,248						2,239						2,329						2,207
Effect of common share equivalents		—						18						349						—

Total weighted average shares outstanding, including OP Units		42,392						41,038						49,691						41,308

⁽¹⁾	~~Includes $0.2 million from the June 2009 land parcel sale at Woodland Mall and $0.7 million from the operating portion of the June 2009 land parcel sale at North Hanover Mall.~~

⁽²⁾	Excludes depreciation of non-real estate assets and amortization of deferred financing costs.

⁽³⁾⁽²⁾

Includes the non-cash effect of straight-line rent of ~~$1.2~~$0.9 million and ~~$2.3~~$0.8 million for the ~~nine~~six months ended ~~September~~June 30, 2010 and June 30, 2009, ~~and 2008,~~ respectively.

LIQUIDITY AND CAPITAL RESOURCES

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~~2009 filed with the Securities and Exchange ~~Commission and in the section entitled “Item 1A. Risk Factors” in Part II of this report.~~Commission. 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.

Capital Resources

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.~~operations, subject to the terms and conditions of our 2010 Credit Facility. 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~~six months ended ~~September~~June 30, ~~2009~~2010 were ~~$25.5~~$15.7 million, ~~following two reductions in the amount~~based on quarterly distributions of ~~our quarterly dividend.~~$0.15 per share and OP Unit. The following are some of the factors that could affect our cash flows and require the funding of future cash distributions, recurring capital expenditures, tenant improvements or leasing commissions with sources other than operating cash flows:

adverse changes or ~~continued~~ prolonged downturns in general, local or retail industry economic, financial, credit market or competitive conditions, leading to a reduction in real estate revenue or cash flows or an increase in expenses;

continued deterioration in our tenants’ business operations and financial stability, including ~~additional~~ tenant bankruptcies, leasing delays or terminations, or lower sales, causing deferrals or declines in rent, percentage rent and cash flows;

inability to achieve targets for, or decreases in, property occupancy and rental rates, or higher costs or delays in completion of our development ~~and~~or redevelopment projects, resulting in lower or ~~deferred~~delayed real estate revenue and operating income;

increases in interest rates ~~or higher debt balances~~ resulting in higher borrowing costs; and

increases in operating costs that cannot be passed on to tenants, resulting in reduced operating income and cash flows.

We ~~have historically used~~expect to meet certain of our remaining obligations to fund existing development and redevelopment projects and certain capital requirements, including scheduled debt maturities, future property and portfolio acquisitions, expenses associated with acquisitions, renovations, expansions and other non-recurring capital improvements through a ~~substantial amount~~variety of capital sources, subject to the terms and conditions of our 2010 Credit Facility.

The difficult conditions in the market for debt ~~to finance~~capital and commercial mortgage loans, including the commercial mortgage backed securities market, and the downturn in the general economy and its effect on retail sales, as well as our ~~business, and we have relied primarily on new borrowings~~significant leverage resulting from debt incurred to fund our redevelopment projects and other development ~~projects. We estimate~~activity, have combined to necessitate that we ~~will incur approximately $20.0 million during~~vary our approach to obtaining, using and recycling capital. We intend to consider all of our available options for accessing the ~~remainder~~capital markets, given our position and constraints.

The amounts remaining to be invested in the last phase of ~~2009, and up to an additional $50.0 million, net of expected reimbursements, in 2010 and 2011, to fund~~ our current redevelopment program are significantly less than in 2009, and ~~development projects, including $14.6 million as to which~~ we ~~are contractually committed.~~

~~As of September 30, 2009, $485.0 million was outstanding under the Credit Facility, which matures March 20, 2010. In addition,~~believe that we have ~~pledged $3.0 million under~~access to sufficient capital to fund these remaining amounts.

In the ~~Credit Facility as collateral for letters of credit. The unused portion of the Credit Facility that was~~past, one avenue available to us to finance our obligations or new business initiatives has been to obtain unsecured debt, based in part on ~~September 30, 2009 was $12.0 million. We~~the existence of properties in our portfolio that were not subject to mortgage loans. The terms of the 2010 Credit Facility include our grant of a security interest consisting of a first lien on 22 properties and a second lien on one property. As a result, we have ~~agreed upon a non-binding term sheet with the lead bank~~very few remaining assets that we could use to support unsecured debt financing. Our lack of properties 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~~portfolio that could ~~cause actual events~~be used 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 affectsupport unsecured debt limits 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.~~way.

We ~~expect~~are contemplating ways to ~~satisfy~~reduce our ~~remaining 2009 capital requirements for redevelopment and development projects and debt maturities~~leverage through ~~existing cash balances, as well as through borrowings under our Credit Facility, extensions~~a variety of ~~the maturity dates of existing indebtedness, additional borrowings secured by certain select properties and operating cash flow. We expect~~means available 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,~~us, and subject to ~~any restrictions that we may agree to~~and in ~~connection~~accordance with ~~any such refinancing. Given~~ the ~~continued weakness~~terms and conditions 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~~2010 Credit ~~Facility, Term Loan or other existing debt. Even if we are able to refinance our Credit Facility and Term Loan, we may not be able to obtain the~~Facility. These steps might include obtaining additional capital necessary to satisfy our obligations or 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 raiseequity capital through the public or private issuance of equity or debt securities. However, 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 securities on terms that are favorable to us, if at all, and any such issuance of equity securities ~~would likely be dilutive to existing shareholders. We might also seek to satisfy, subject to restrictions~~if market conditions are favorable, as was done in ~~applicable debt obligations, our long-term capital requirements~~May 2010, through ~~the formation of~~ joint ventures or other partnerships or arrangements involving our contribution of assets with institutional ~~partners,~~investors, private equity investors or other REITs, through sales of properties with values in excess of their mortgage loans or allocable debt and application of the excess proceeds to debt reduction, or through ~~a combination of some or all of the alternatives that may be available 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.actions.

We may use our $1.0 billion universal shelf registration statement, which was used for the May 2010 common equity offering, 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.

~~Credit Facility~~Equity Offering

In May 2010, we issued 10,350,000 common shares in a public offering at $16.25 per share. We received net proceeds from the offering of approximately $160.7 million after deducting payment of the underwriting discount of $0.69 per share and offering expenses. We used the net proceeds from this offering to repay borrowings under our 2010 Credit Facility. Specifically, we used $106.5 million of the net proceeds to repay a portion of the 2010 Term Loan under the 2010 Credit Facility and $54.2 million to repay a portion of the outstanding borrowings under the Revolving Facility under the 2010 Credit Facility. As a result of this transaction, we satisfied the requirement contained in the 2010 Credit Facility to reduce the aggregate amount of the lender Revolving Commitments and 2010 Term Loan by $100.0 million over the term of the 2010 Credit Facility.

Amended, Restated and Consolidated Senior Secured Credit Agreement (2010 Credit Facility)

On March 11, 2010, PREIT Associates and PRI (collectively, the “Borrower”), together with PR Gallery I Limited Partnership (“GLP”) and Keystone Philadelphia Properties, L.P. (“KPP”), two of our other subsidiaries, entered into an Amended, Restated and Consolidated Senior Secured Credit Agreement comprised of (a) an aggregate $520.0 million term loan made up of a $436.0 million term loan (“Term Loan A”) to the Borrower and a separate $84.0 million term loan (“Term Loan B”) to the other two subsidiaries (collectively, the “2010 Term Loan”) and (b) a $150.0 million revolving line of credit (the “Revolving Facility,” and, together with the 2010 Term Loan, the “2010 Credit Facility”) with Wells Fargo Bank, National Association, and the other financial institutions signatory thereto.

The ~~amounts~~2010 Credit Facility replaced the previously existing $500.0 million unsecured revolving credit facility, as amended (the “2003 Credit Facility”), and a $170.0 million unsecured term loan (the “2008 Term Loan”) that had been scheduled to mature on March 20, 2010. All capitalized terms used and not otherwise defined in the description of the 2010 Credit Facility have the meanings ascribed to such terms in the 2010 Credit Facility.

The initial term of the 2010 Credit Facility is three years, and we have the right to one 12-month extension of the initial maturity date, subject to certain conditions and to the payment of an extension fee of 0.50% of the then outstanding Commitments.

We used the initial proceeds from the 2010 Credit Facility to repay outstanding balances under the 2003 Credit Facility and 2008 Term Loan. At closing, the $520.0 million 2010 Term Loan was fully outstanding and $70.0 million was outstanding under the Revolving Facility.

Amounts borrowed under ~~our $500.0 million~~the 2010 Credit Facility bear interest at a rate between ~~0.95%~~4.00% and ~~2.00%~~4.90% per annum, ~~over LIBOR based~~depending on our ~~leverage.~~leverage, in excess of LIBOR, with no floor. The initial rate in effect was 4.90% per annum in excess of LIBOR. In determining our leverage (the ratio of Total Liabilities to Gross Asset Value), the capitalization rate used to calculate Gross Asset Value is ~~7.50%~~8.00%. ~~In the determination~~The unused portion 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~~Revolving Facility is subject to a fee of 0.40% per annum.

We have entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a weighted-average rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

The obligations under Term Loan A are secured by first priority mortgages on 20 of our ~~compliance with financial~~properties and ~~other covenants~~a second lien on one property, and ~~agreements. In October 2008,~~the obligations under Term Loan B are secured by first priority leasehold mortgages on the properties ground leased by GLP and KPP (the “Gallery Properties”). The foregoing properties constitute substantially all of our previously unencumbered retail properties.

We and certain of our subsidiaries that are not otherwise prevented from doing so serve as guarantors for funds borrowed under the 2010 Credit Facility.

The aggregate amount of the lender Revolving Commitments and 2010 Term Loan under the 2010 Credit Facility was required to be reduced by $33.0 million by March 11, 2011, by a cumulative total of $66.0 million by March 11, 2012 and by a cumulative total of $100.0 million by March 11, 2013 (if we ~~exercised an option~~exercise our right to extend the ~~term~~Termination Date), including all payments (except payments pertaining to the Release Price of a Collateral Property) resulting in permanent reduction of the aggregate amount of the Revolving Commitments and 2010 Term Loan. We used $160.7 million of the proceeds from our May 2010 equity offering to repay borrowings under the 2010 Credit Facility, ~~to March 2010.~~satisfying all three of these paydown requirements, and no mandatory paydown provisions remain in effect.

~~The following are some~~As of June 30, 2010, there were no amounts outstanding under the Revolving Facility. We pledged $1.5 million under the Revolving Facility as collateral for letters of credit, and the unused portion of the ~~potential impediments~~Revolving Facility that was available to ~~accessing additional funds under the Credit Facility:~~

~~constraining leverage, interest and fixed charge coverage and debt yield covenants under the Credit Facility;~~

~~reduction in our net operating income or increased indebtedness affecting leverage ratios.~~

~~increased interest rates affecting coverage ratios; and~~

~~reduction in our consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) affecting coverage ratios.~~

us was $148.5 million at June 30, 2010. The weighted average effective interest rate based on amounts borrowed from March 11, 2010 to June 30, 2010 was ~~1.96% for~~7.56%. The interest rate that would have applied to any outstanding Revolving Facility borrowings as of June 30, 2010 was LIBOR plus 4.90%.

As of June 30, 2010, $413.5 million was outstanding under the ~~three months ended September~~2010 Term Loan. The weighted average effective interest rate based on amounts borrowed on the 2010 Term Loan was 6.28% from March 11, 2010 to June 30, ~~2009.~~2010. The weighted average interest rate on ~~outstanding~~the 2010 Term Loan borrowings at June 30, 2010 was 5.55%.

The 2010 Credit Facility ~~borrowings~~contains provisions regarding the application of proceeds from a Capital Event. A Capital Event is any event by which we raise additional capital, whether through an asset sale, joint venture, additional secured or unsecured debt, issuance of equity, or from excess proceeds after payment of a Release Price. Capital Events do not include Refinance Events or other specified events. After payment of interest and required distributions, the Remaining Capital Event Proceeds will generally be applied in the following order:

If the Facility Debt Yield is less than 11.00% or the Corporate Debt Yield is less than 10.00%, Remaining Capital Event Proceeds will be allocated 25% to pay down the Revolving Facility (repayments of the Revolving Facility generally may be reborrowed) and 75% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full). So long as the Facility Debt Yield is greater than or equal to 11.00% and the Corporate Debt Yield is greater than or equal to 10.00% and each will remain so immediately after the Capital Event, and so long as either the Facility Debt Yield is less than 12.00% or the Corporate Debt Yield is less than 10.25% and will remain so immediately after the Capital Event, the Remaining Capital Event Proceeds will be allocated 75% to pay down the Revolving Facility and 25% to pay down and permanently reduce Term Loan A (or Term Loan B if Term Loan A is repaid in full) or, if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder of that 75% for general corporate purposes. So long as the Facility Debt Yield is greater than or equal to 12.00% and the Corporate Debt Yield is greater than or equal to 10.25% and each will remain so immediately after the Capital Event, Remaining Capital Event Proceeds will be applied 100% to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinance Event relating to Cherry Hill Mall will be used to pay down the Revolving Facility and may be reborrowed only to repay our unsecured indebtedness.

The 2010 Credit Facility also contains provisions regarding the application of proceeds from a Refinance Event. A Refinance Event is any event by which we raise additional capital from refinancing of secured debt encumbering an existing asset, not including collateral for the 2010 Credit Facility. The proceeds in excess of the amount required to retire an existing secured debt will be applied, after payment of interest, to pay down the Revolving Facility, or if the Revolving Facility balance is or would become $0 as a result of such payment, to pay down the Revolving Facility in full and to use any remainder for general corporate purposes. Remaining proceeds from a Capital Event or Refinancing Event relating to the Gallery Properties may only be used to pay down and permanently reduce Term Loan B (or, if the outstanding balance on Term Loan B is or would become $0 as a result such payment, to pay down Term Loan B in full and to pay any remainder in accordance with the preceding paragraph).

The 2010 Credit Facility contains affirmative and negative covenants customarily found in facilities of this type, including, without limitation, requirements that we maintain, on a consolidated basis: (1) minimum Tangible Net Worth of not less than $483.1 million, minus non-cash impairment charges with respect to the Properties recorded in the quarter ended December 31, 2009, plus 75% of the Net Proceeds of all Equity Issuances effected at any time

after September 30, ~~2009 was 1.65% (LIBOR plus 1.40%).~~2009; (2) maximum ratio of Total Liabilities to Gross Asset Value of 0.75:1; (3) minimum ratio of EBITDA to Interest Expense of 1.60:1; (4) minimum ratio of Adjusted EBITDA to Fixed Charges of 1.35:1; (5) maximum Investments in unimproved real estate and predevelopment costs not in excess of 3.0% of Gross Asset Value; (6) maximum Investments in Persons other than Subsidiaries, Consolidated Affiliates and Unconsolidated Affiliates not in excess of 1.0% of Gross Asset Value; (7) maximum Investments in Indebtedness secured by Mortgages in favor of the Company, the Borrower or any other Subsidiary not in excess of 1.0% of Gross Asset Value on the basis of cost; (8) the aggregate value of the Investments and the other items subject to the preceding clauses (5) through (7) shall not exceed 5.0% of Gross Asset Value; (9) maximum Investments in Consolidation Exempt Entities not in excess of 20.0% of Gross Asset Value; (10) a maximum Gross Asset Value attributable to any one Property not in excess of 15.0% of Gross Asset Value; (11) maximum Projects Under Development not in excess of 10.0% of Gross Asset Value; (12) maximum Floating Rate Indebtedness in an aggregate outstanding principal amount not in excess of one-third of all Indebtedness of the Company, its Subsidiaries, its Consolidated Affiliates and its Unconsolidated Affiliates; (13) minimum Corporate Debt Yield of 9.50%, provided that such Corporate Debt Yield may be less than 9.50% for one period of two consecutive fiscal quarters, but may not be less than 9.25%; and (14) Distributions may not exceed 110% of REIT taxable income for a fiscal year, but if the Corporate Debt Yield exceeds 10.00%, then the aggregate amount of Distributions may not exceed the greater of 75% of FFO and 110% of REIT Taxable Income (unless necessary for the Company to retain its status as a REIT), and if a Facility Debt Yield of 11.00% and a Corporate Debt Yield of 10.00% are achieved and continuing, there are no limits on Distributions under the 2010 Credit Facility, so long as no Default or Event of Default would result from making such Distributions. We are required to maintain our status as a REIT at all times. As of June 30, 2010, we were in compliance with all of these covenants.

We may prepay the any borrowings under Revolving Facility at any time without premium or penalty. We must repay the entire principal amount outstanding under the 2010 Credit Facility at the end of its ~~term. We~~term, as the term 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 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. 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%been extended.

Upon the expiration of any applicable cure period following an event of default, the lenders may declare all of ~~our~~the obligations in connection with the 2010 Credit Facility immediately due and payable, and the ~~commitments~~Commitments of the lenders to make further loans under the 2010 Credit Facility will terminate. Upon the occurrence of a voluntary or involuntary bankruptcy proceeding of the Company, PREIT Associates, PRI, any owner of a Collateral Property or any ~~material subsidiary,~~Material Subsidiary, all outstanding amounts will automatically become immediately due and payable and the ~~commitments~~Commitments of the lenders to make further loans will automatically terminate.

~~Senior Unsecured Term Loan~~

In September 2008, we borrowed an aggregate of $170.0 million under our 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 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 balance to a fixed rate of 5.15%. The weighted average effective interest rate for the three months ended September 30, 2009 based on amounts borrowed was 5.92%. The weighted average interest rate on amounts outstanding at September 30, 2009 was 5.29%.

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

~~Exchangeable Notes~~

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. Through September 30, 2009 we repurchased $85.1 million in aggregate principal amount of the Exchangeable Notes, and there was $202.4 million outstanding as of 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.

Mortgage Loan Finance Activity

~~In November 2009, we entered into a one-year extension of a $34.3 million mortgage loan secured by Valley View Mall in 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~~presents the ~~nine months ended September 30, 2009:~~mortgage loans we or partnerships in which we own interests entered into or under which we borrowed additional amounts since January 1, 2010:

(in thousands of dollars)
   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
Repayment of Palmer Park mortgage
   (15,674 ) —      —      —
Principal payment on One Cherry Hill Plaza mortgage
   (2,384 ) —      —      —
New River Valley Center mortgage
   16,250    —      —      —
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
   (12,736 ) —      —      —
Credit Facility borrowings, net
   —      85,000    —      —

Balance at September 30, 2009
   $ 1,795,619    $ 485,000    $ 202,400    $ 170,000

Financing
Date

Property

Amount
Financed
(in millions
of dollars):

Stated Rate

Hedged
Rate

Maturity

January

New River Valley Mall⁽¹⁾⁽²⁾

30.0

LIBOR plus 4.50

6.33

January 2013

March

Lycoming Mall⁽³⁾

2.5

6.84% fixed

N/A

June 2014

April

Springfield Park/Springfield East⁽⁴⁾

10.0

LIBOR plus 2.80

5.39

March 2015

June

Lehigh Valley Mall⁽⁵⁾⁽⁶⁾

140.0

5.88% fixed

N/A

July 2020

July

Valley View Mall⁽⁷⁾

32.0

5.95% fixed

N/A

June 2020

⁽¹⁾	~~This~~Interest only.

⁽²⁾	The mortgage loan has a three year term and one one-year extension option. $25.0 million of the principal amount was swapped to a fixed rate of 6.33%.

⁽³⁾	The mortgage loan agreement initially entered into in June 2009 provides for a maximum loan amount of $38.0 million. The initial amount of the mortgage loan was ~~repaid~~$28.0 million. We took additional draws of $5.0 million in October 2009 and $2.5 million in March 2010.

⁽⁴⁾	The mortgage loan has an initial term of five years and can be extended for an additional five-year term under prescribed conditions. Our interest in the unconsolidated partnerships is 50%.

⁽⁵⁾	Our interest in the unconsolidated partnership is 50%.

⁽⁶⁾	In connection with the ~~sale of Northeast Town Center.~~new mortgage loan financing, the unconsolidated partnership repaid a $150.0 million mortgage loan on Lehigh Valley Mall using proceeds from the new mortgage loan and available working capital.

⁽⁷⁾	In connection with the new mortgage loan financing, we repaid a $33.8 million mortgage loan using proceeds from the new mortgage loan and available working capital.

In March 2010, we exercised the first of three one-year options on the mortgage loan on Creekview Center in Warrington, Pennsylvania. The mortgage loan had a balance of $19.4 million as of June 30, 2010.

In April 2010, we exercised a six-month extension option on the construction loan on Pitney Road Plaza in Lancaster, Pennsylvania. The construction loan had a balance of $4.5 million as of June 30, 2010.

In July 2010, we made a principal payment of $0.7 million and exercised the second of two one-year extension options on the mortgage loan on the One Cherry Hill office building in Cherry Hill, New Jersey. The mortgage loan had a balance of $5.6 million as of June 30, 2010 and $4.9 million after the July 2010 repayment.

~~Derivatives~~Interest Rate Derivative Agreements

As of ~~September~~June 30, ~~2009,~~2010, we had ~~a total of 12~~entered into 11 interest rate swap agreements and one ~~interest rate~~ cap agreement ~~as described in note 9 to our unaudited consolidated financial statements. The interest~~that have a weighted average rate ~~swap and cap agreements have an aggregate~~of 2.41% (excluding the spread on the related debt) on a notional ~~value~~amount of ~~$597.5~~$732.6 million ~~and mature~~maturing on various dates through November 2013. Additionally, as of June 30, 2010, we had entered into two forward-starting interest rate swap agreements that have a weighted average interest rate 2.37% (excluding the spread on the related debt) on a notional amount of $200.0 million maturing on various dates through March 2013.

We entered into these interest rate derivatives in order to hedge the interest payments associated with our 2010 Credit Facility and our issuances of variable interest rate long-term debt. We assessed the effectiveness of these swaps ~~and cap~~ as hedges at inception and on ~~September~~June 30, ~~2009~~2010 and considered these swaps ~~and cap~~ to be highly effective cash flow hedges. Our interest rate swaps are net settled monthly.

As of ~~September~~June 30, ~~2009,~~2010, the aggregate estimated unrealized net loss attributed to these interest rate ~~swaps~~derivatives was ~~$17.7~~$27.3 million. The carrying amount of the derivative assets is reflected in ~~“Fair value of derivative~~“Deferred costs and other assets,” the associated ~~liabilities~~instruments are reflected in “Fair value of derivative ~~liabilities,”~~instruments” and the net unrealized ~~gain or~~ loss is reflected in “Accumulated other comprehensive ~~income (loss)”~~loss” in the accompanying balance sheets.

Mortgage ~~Notes~~Loans

~~Mortgage notes payable,~~Twenty-nine mortgage loans, which are secured by 27 of our consolidated properties, are due in installments over various terms extending to the year ~~2017. Fifteen~~2018. Seventeen of the mortgage ~~notes~~loans bear interest at a fixed rate, ~~and nine~~eight of the mortgage ~~notes~~loans bear interest at variable rates that have been swapped to or capped at a fixed ~~rate. These 24~~rate, three of the mortgage ~~notes~~loans bear interest at a variable interest rate, and one mortgage loan that has been partially swapped to a fixed rate and partially bears interest at a variable rate.

The fixed mortgage loan balances, including mortgage loans that have been swapped to a fixed interest rate, have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of ~~5.71% at September 30, 2009. We also~~5.77%. The variable rate mortgage loans have ~~three properties with variable interest rate mortgages that had~~ a weighted average interest rate of ~~5.81%~~2.95% (excluding the spread on the related debt). The weighted average interest rate of all consolidated mortgage loans was 5.76% at ~~September~~June 30, ~~2009.~~2010. Mortgage ~~notes payable~~loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership 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~~loans as of ~~September~~June 30, ~~2009.~~2010.


	Payments by Period										Payments by Period
(in thousands of dollars)	Total		Through December 31, 2009		2010-2011		2012-2013		2014 and later		Total		2010⁽²⁾		2011-2012		2013-2014		Thereafter
Principal payments	$	101,808	$	4,627	$	40,560	$	32,143	$	24,478	$	87,825	$	10,233	$	39,740	$	25,243	$	12,609
Balloon payments(1)		1,693,811		34,335		149,346		777,694		732,436		1,708,305		43,717		493,132		531,175		640,281

Total	$	1,795,619	$	38,962	$	189,906	$	809,837	$	756,914	$	1,796,130	$	53,950	$	532,872	$	556,418	$	652,890

⁽¹⁾	Due dates for certain of the balloon payments set forth in this table may be extended pursuant to the terms of the respective loan agreements.

⁽²⁾	In connection with the Valley View Mall new mortgage loan financing, we repaid a $33.8 million mortgage loan balance using proceeds from the new mortgage loan and available working capital. This $33.8 million mortgage loan balance is included in the amounts presented as of June 30, 2010.

Contractual Obligations

The following table presents our aggregate contractual obligations as of ~~September~~June 30, ~~2009~~2010 for the periods ~~presented:~~presented.

(in thousands of dollars)
   Total    Through
December 31,
2009    2010-2011    2012-2013    2014 and
later
Mortgages⁽¹⁾⁽²⁾
   $ 1,795,619    $ 38,962    $ 189,906    $ 809,837    $ 756,914
Interest on mortgages
   496,054    51,548    196,986    153,639    93,881
Credit Facility⁽³⁾
   485,000    —      485,000    —      —
Exchangeable notes
   202,400    —      —      202,400    —
Interest on exchangeable notes
   21,589    2,024    16,192    3,373    —
Senior unsecured term loan
   170,000    —      170,000    —      —
Interest on term loan
   4,566    2,283    2,283    —      —
Capital leases⁽⁴⁾
   45    45    —      —      —
Operating leases
   9,431    574    4,226    3,392    1,239
Ground leases
   51,931    264    1,984    1,576    48,107
Redevelopment and development commitments⁽⁵⁾
   14,571    14,145    426    —      —

Total
   $ 3,251,206    $ 109,845    $ 1,067,003    $ 1,174,217    $ 900,141


(in thousands of dollars)	Total		Remainder of 2010		2011-2012		2013-2014		Thereafter
Mortgage loans	$	1,796,130	$	53,950	$	532,872	$	556,418	$	652,890
Interest on mortgage loans		400,407		51,724		181,236		117,413		50,034
Exchangeable Notes		136,900		—		136,900		—		—
Interest on Exchangeable Notes		10,496		2,738		7,758		—		—
2010 Term Loan⁽¹⁾		413,500		—		—		413,500		—
Interest on 2010 Term Loan		72,173		11,842		53,235		7,096		—
Operating leases		8,298		1,142		4,121		3,031		4
Ground leases		52,947		496		1,845		1,460		49,146
Development and redevelopment commitments⁽³⁾		2,139		2,139		—		—		—

Total	$	2,892,990	$	124,031	$	917,967	$	1,098,918	$	752,074

⁽¹⁾

~~Includes amounts reflected in~~The 2010 Term Loan has a variable interest rate that is between 4.00% and 4.90% plus LIBOR, depending on our leverage. We have entered into interest rate swap agreements to fix $100.0 million of the ~~Mortgage Notes table above. Excludes~~underlying LIBOR associated with the ~~indebtedness~~term loans at a rate of ~~our unconsolidated partnerships.~~1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of the initial term.

⁽²⁾	~~Excludes debt premiums~~The Revolving Facility has a variable interest rate that is between 4.00% and 4.90% plus LIBOR, depending on ~~mortgages and debt discount on Exchangeable Notes.~~our leverage.

⁽³⁾	~~Excludes interest.~~

⁽⁴⁾	~~Includes interest.~~

⁽⁵⁾⁽³⁾

The timing of the ~~payment~~payments of these amounts is uncertain. We estimate that ~~a significant portion of these amounts~~such payments will be ~~paid~~made in the ~~remainder of 2009,~~upcoming year, but situations could arise at these ~~redevelopment~~development and ~~development~~redevelopment projects that could delay the settlement of these obligations.

CASH FLOWS

Net cash provided by operating activities totaled ~~$97.0~~$62.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to ~~$94.8~~$76.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. The decrease in cash from operating activities in the six months ended June 30, 2010 compared to the six months ended June 30, 2009 is partially attributed to the sale of two operating properties in 2009 (which had contributed $2.3 million in net operating income in the first six months of 2009) and a $7.7 million increase in interest expense. The decrease in cash flows from operating results were also affected by changes in working capital, primarily due to an increase in prepaid expenses, tenants’ deposits and deferred rent in the six months ended June 30, 2010 compared to the six months ended June 30, 2009.

Cash flows used for investing activities were ~~$116.3~~$15.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 compared to ~~$260.5~~$103.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2008.~~2009. Investing activities for ~~2009~~2010 reflect investment in construction in progress of ~~$122.1~~$12.9 million and real estate improvements of ~~$15.9~~$7.2 million, all of which primarily relate to our development and redevelopment activities. Investing activities ~~for 2009~~ also reflect ~~proceeds of $20.9~~$6.2 million paid to acquire partnership interests. Cash flows used in investing activities also includes a $10.0 million decrease in the note receivable from ~~the sale of real estate investments.~~Boscov’s, Inc. Cash flows from investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2008~~2009 reflect investment in construction in progress of ~~$225.9~~$95.2 million, and real estate improvements of ~~$23.7 million and real estate acquisitions of $12.7~~$10.6 million.

Cash flows used in financing activities were $92.0 million for the six months ended June 30, 2010 compared to cash flows provided by financing activities ~~were $99.8~~of $47.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2009 compared to $157.3 million for the nine months ended September 30, 2008.~~2009. Cash flows ~~provided by~~used in financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 were primarily affected by ~~$70.1~~the refinancing of the 2003 Credit Facility and the 2008 Term Loan and the May 2010 equity offering. We replaced the $486.0 million ofoutstanding on the 2003 Credit Facility and the $170.0 million 2008 Term Loan with $590.0 million in proceeds from the 2010 Credit Facility. We paid $15.7 million in deferred financing costs in the six months ended June 30, 2010, primarily relating to this refinancing. In May 2010, we raised $160.7 million in an equity offering. These proceeds were used as the primary funding source of a $106.5 million paydown of the 2010 Term Loan and a $70.0 million repayment of the Revolving Facility. We also received $32.5 million in proceeds from a $30.0 million mortgage ~~loans~~loan on New River Valley ~~Center, Pitney Road Plaza, Lycoming~~ Mall and ~~Northeast Tower Center, as well as $85.0~~an additional $2.5 million ~~in borrowings~~draw from the Credit 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 and to make a $2.4 million payment on the mortgage loan ~~on One Cherry Hill Plaza.~~at Lycoming Mall. Cash flows from financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2009~~2010 were also affected by dividends and distributions of ~~$25.5~~$15.7 million and principal installments on mortgage notes payable of ~~$12.7 million, and payments of $7.9 million for the repurchase of exchangeable notes.~~$10.0 million.

COMMITMENTS

At ~~September~~June 30, ~~2009,~~2010, we had ~~$14.6~~$2.1 million of unaccrued contractual obligations to complete current ~~development~~redevelopment projects and ~~redevelopment projects.~~capital improvements at certain other properties. Total remaining costs for the particular projects with such commitments are ~~$50.2~~$21.8 million. We expect to finance these amounts through borrowings under the Revolving Facility or through various other capital sources. See “– “—Liquidity and Capital ~~Resources –~~ Resources—Capital Resources.”

~~CONTINGENT LIABILITIES~~ENVIRONMENTAL

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. WeSubject to certain exclusions, we have environmental liability insurance coverage, which currently covers liability for ~~certain environmental claims~~pollution and on-site remediation of up to $10.0 million per occurrence and ~~up to $10.0~~$20.0 million in the aggregate. There can be no assurance that this coverage will be adequate to cover future environmental liabilities. If this environmental coverage were inadequate, we would be obligated to fund those liabilities. We might be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future.

COMPETITION AND TENANT CREDIT RISK

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, strip centers, 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 and rent ~~charged and occupancy costs.~~charged. 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.~~development, during more

favorable economic conditions. 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,~~capital improvements, undertaken individually or collectively, would be subject to the terms and conditions of the 2010 Credit Facility and 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.

Many of our efforts to compete are also subject to the terms and conditions of our 2010 Credit Facility. 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 a higher ~~prices~~price for ~~properties,~~ a property and/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~~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~~defer lease commencement, voluntarily vacate the premises or declare bankruptcy, which has resulted, and ~~might~~ in the future could result, in the termination of the tenant’s lease, and could 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~~directly 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 modified, and might in the future modify, lease terms in ways that are less favorable to us.

SEASONALITY

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 revenue 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

Inflation can have many effects on ~~the~~our financial ~~performance of our tenants and us.~~performance. Retail property leases often provide for the payment of rent based on a percentage of sales, which may increase with inflation. Leases may also provide for tenants to bear all or ~~decrease as~~ a ~~result~~portion 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~~may reduce the ~~extent~~impact of such increases on us. However, rent increases might not keep up with inflation, or if we ~~are unable to~~ recover ~~property expenses from tenants, could increase property~~a smaller proportion of operating expenses, ~~for us. In addition,~~we might bear more costs if ~~the rate~~such expenses increase because of ~~inflation exceeds the scheduled rate increases included in our leases, then our net operating income and our profitability would decrease.~~inflation.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2009,~~2010, 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:

our substantial debt and our high leverage ratio;

constraining leverage, interest and tangible net worth covenants under our 2010 Credit Facility, as well as capital application provisions;

our ability to refinance our existing indebtedness when it matures;

our ability to raise capital, including through the issuance of equity securities if market conditions are favorable, through joint ventures or other partnerships, through sales of properties, or through other actions;

our short- and long-term liquidity position;

the effects on us of dislocations and liquidity disruptions in the capital and credit markets;

the current economic downturn and its effect on ~~our existing~~consumer confidence and consumer spending, tenant business and leasing decisions and the value and potential ~~tenants and their ability~~impairment of our properties;

increases in operating costs that cannot be passed on to ~~make and meet their obligations to us;~~tenants;

our ability to ~~continue~~maintain and increase property occupancy, sales and rental rates, including at our recently redeveloped properties;

risks relating to ~~comply with~~development and redevelopment activities;

changes in the ~~requirements of our Credit Facility,~~retail industry, including consolidation and ~~to renew or replace the full amount of our secured and unsecured indebtedness when it matures, including the Credit Facility and the Term Loan;~~store closings;

general economic, financial and political conditions, including credit market conditions, changes in interest rates or unemployment;

concentration of our properties in the ~~possibility of war or terrorist attacks;~~Mid-Atlantic region;

changes in local market conditions, such as the supply of or demand for retail space, or other competitive factors;

~~changes in the retail industry, including consolidation and store closings;~~potential dilution from any capital raising transactions;

~~concentration of our properties in the Mid-Atlantic region;~~

~~risks relating to development and redevelopment activities, including risks associated with construction and receipt of governmental and tenant approvals;~~

~~our ability to raise capital through public and private offerings of debt or equity securities and other financing risks, including the availability of adequate funds at a reasonable cost;~~

~~our ability to simultaneously manage several redevelopment and development projects, including projects involving mixed use;~~

~~our ability to maintain and increase property occupancy and rental rates;~~

~~our dependence on our tenants’ business operations and their financial stability, including anchor tenants;~~

~~increases in operating costs that cannot be passed on to tenants;~~

~~our ability to acquire additional properties and our ability to integrate acquired properties into our existing portfolio;~~

~~our short- and long-term liquidity position;~~

possible environmental liabilities;

our ability to obtain insurance at a reasonable cost; and

existence of complex regulations, including those relating to our status as a REIT, and the adverse consequences if we were to fail to qualify as a REIT.

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 report.~~2009. We do not intend to update or revise any forward-looking statements to reflect new information, future events or otherwise.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates. As of ~~September~~June 30, ~~2009,~~2010, our consolidated debt portfolio consisted primarily of ~~$1,795.6~~$413.5 million borrowed under our 2010 Term Loan which bore interest at a weighed average rate of 5.55% at June 30, 2010, $136.9 million of Exchangeable Notes, which bear interest at 4.00%, excluding debt discount of $3.7 million, and $1,798.3 million in fixed and variable rate mortgage ~~notes, excluding $3.0~~loans, including $2.2 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 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%, and exchangeable notes of $202.4 million, which bear interest at a fixed rate of 4.00%, excluding debt discount of $7.7 million.premium.

The fixed mortgage loan balances, including mortgage loans that have been swapped to a fixed interest rate, have interest rates that range from 4.95% to 7.61% and had a weighted average interest rate of ~~5.80% at September 30, 2009. We also~~5.77%. The variable rate mortgage loans have ~~three properties with variable interest rate mortgages that had~~ a weighted average interest rate of ~~5.81%~~2.95% (excluding the spread on the related debt). The weighted average interest rate of all consolidated mortgage loans was 5.76% at ~~September~~June 30, ~~2009.~~2010. Mortgage ~~notes payable~~loans for properties owned by unconsolidated partnerships are accounted for in “Investments in partnerships, at equity” and “Distributions in excess of partnership 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	$	38,914		6.09	%	$	48		7.25	%
2010	$	214,741	⁽²⁾	5.43	%	$	496,807	⁽³⁾	1.73	%	$	43,714		6.06	%	$	10,236		3.42	%
2011	$	119,597		5.82	%	$	19,654		7.25	%		119,739		5.84	%		19,280		2.43	%
2012	$	596,175	⁽⁴⁾	5.69	%	$	—		—			530,753	⁽²⁾	5.46	%		—		—	%
2013	$	416,062		5.48	%	$	—		—			741,185	⁽³⁾	5.56	%		117,750	⁽⁴⁾	5.28	%
2014 and thereafter	$	756,914		5.64	%	$	—		—
2014												110,983		6.58	%		—		—	%
2015 and thereafter												652,889		5.60	%		—		—	%

⁽¹⁾	Based on the weighted average interest rate in effect as of ~~September~~June 30, ~~2009.~~2010.

⁽²⁾	Includes ~~the Term Loan~~Exchangeable Notes of ~~$170.0~~$136.9 million ~~that was swapped to~~with a ~~weighted average~~ fixed interest rate of ~~5.29% effective in the fourth quarter of 2008.~~4.00%.

⁽³⁾

~~Our Credit Facility, which has an outstanding~~Includes the 2010 Term Loan of $300.0 million. We have entered into interest rate swap agreements to effectively fix $100.0 million of the underlying LIBOR associated with the 2010 Term Loan at a rate of 1.77% for the three-year initial term. An additional $200.0 million of the underlying LIBOR was swapped to a fixed rate at a rate of 0.61% for year one, 1.78% for year two and 2.96% for the balance of ~~$485.0 million, has a term that expires March 20, 2010.~~the initial term.

⁽⁴⁾	Includes ~~exchangeable notes~~the 2010 Term Loan amount of ~~$202.4~~$113.5 million ~~with an~~that has not been swapped to a fixed interest ~~rate of 4.00%.~~rate.

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~~affects the fair value, but it has no ~~impact~~effect on interest incurred or cash flows. A change in market interest rates applicable to the variable portion of the debt portfolio ~~impacts~~affects the interest incurred and cash flows, but does not ~~impact~~affect the fair value. The following sensitivity analysis ~~relates~~related to the fixed debt portfolio, which includes the effects of ~~the~~our interest rate ~~swap and cap~~hedging agreements, ~~described below,~~ assumes an immediate 100 basis point change in interest rates from their actual ~~September~~June 30, ~~2009~~2010 levels, with all other variables held constant. A 100 basis point increase in market interest rates would ~~result~~have resulted in a decrease in ~~the fair value~~our net financial instrument position of ~~our debt of $47.3~~$79.4 million at ~~September~~June 30, ~~2009.~~2010. A 100 basis point decrease in market interest rates would ~~result~~have resulted in an increase in ~~the fair value~~our net financial instrument position of ~~our debt of $50.2~~$82.3 million at ~~September~~June 30, ~~2009.~~2010. Based on the ~~variable rate~~variable-rate debt included in our debt portfolio as of ~~September~~June 30, ~~2009,~~2010, a 100 basis point increase in interest rates would ~~result~~have resulted in an additional ~~$5.0~~$1.5 million in interest ~~annually, and a~~annually. A 100 basis point decrease would ~~reduce~~have reduced interest incurred by ~~$5.0~~$1.5 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 of the notes to our ~~unaudited~~ consolidated financial statements.

We ~~currently~~ have ~~$597.5~~an aggregate $732.6 million in notional amount of ~~interest rate~~current swap and cap agreements and $200.0 million of forward-starting swap agreements that ~~have a weighted average interest rate of 3.29% maturing~~are expected to settle on various dates through November 2013. ~~We assessed the effectiveness of these swaps and cap as hedges at inception and on September 30, 2009 and considered these swaps and cap to be highly effective cash flow hedges.~~

Because the information presented above includes only those exposures that ~~exist~~existed as of ~~September~~June 30, ~~2009,~~2010, 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~~with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at the time and ~~the hedging arrangements we have in place.~~interest rates.

ITEM 4.

CONTROLS AND PROCEDURES.

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 ~~September~~June 30, ~~2009,~~2010, and have concluded as follows:

Our disclosure controls and procedures are designed to ensure that the information that we are required to disclose in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported ~~accurately~~within the time periods specified in the SEC’s rules and ~~on a timely basis.~~forms.

Our disclosure controls and procedures are effective to ensure that information that we are required to disclose in our Exchange Act reports is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

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.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

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.

ITEM 1A.

RISK FACTORS.

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, 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.

~~The covenants in our Credit Facility might adversely affect us.~~

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%.

~~ITEM 2.~~ ~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.~~

~~Issuer Purchases of Equity Securities~~

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

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

⁽¹⁾	~~The common shares listed in this column represent shares withheld from shares otherwise issuable to employees to pay withholding taxes incurred in connection with the issuances.~~

⁽²⁾	On December 27, 2007 we announced that our Board of Trustees authorized a program to repurchase up to $100.0 million of our common shares in the open market or in privately negotiated or other transactions from January 1, 2008 until December 31, 2009.

ITEM 6. ~~EXHIBITS~~EXHIBITS.



10.1		Promissory Note dated June 8, 2010 in the principal amount of $140.0 million issued by Mall at Lehigh Valley, L.P., in favor of The Prudential Insurance Company of America, filed as Exhibit 10.1 to PREIT’s Current Report on Form 8-K dated June 14, 2010.

10.2		Pennsylvania Real Estate Investment Trust Amended and Restated 2003 Equity Incentive Plan, filed as Appendix A to PREIT’s definitive proxy statement for the Annual Meeting of Shareholders on June 3, 2010, filed on April 29, 2010.

10.3		Amended and Restated Pennsylvania Real Estate Investment Trust Employee Share Purchase Plan, (amended and restated on June 3, 2010) filed as Appendix B to PREIT’s definitive proxy statement for the Annual Meeting of Shareholders on June 3, 2010, filed on April 29, 2010.

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.

SIGNATURE OF REGISTRANT

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.


	PENNSYLVANIA REAL ESTATE INVESTMENT TRUST
~~Date: November 9, 2009~~
Date: August 6, 2010	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~~ (Principal Accounting Officer)

4746


(in thousands of dollars)	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
Repayment of Palmer Park mortgage		(15,674	)		—		—			—
Principal payment on One Cherry Hill Plaza mortgage		(2,384	)		—		—			—
New River Valley Center mortgage		16,250			—		—			—
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		(12,736	)		—		—			—
Credit Facility borrowings, net		—			85,000		—			—

Balance at September 30, 2009	$	1,795,619		$	485,000	$	202,400		$	170,000


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

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company