"While the economic environment has changed substantially in thepast year, the fundamentals of our business have not," PREIT CEORonald Rubin said during the earnings call. "Despite thechallenging economy, we're working to advance our redevelopment anddevelopment projects to place stores in service, increase netoperating income and occupancy and to generate positive leasingspreads."

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Net loss allocable to common shareholders for the quarter wasreported to be $2.9 million compared with a net income available tocommon shareholders of $500,000 in Q2 2007. Net loss for the firstsix months of 2008 was $5 million versus an income of $6.2 millionin the first six months of 2007.

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According to Robert McCadden, PREIT's CFO, several factors havecontributed to the loss, most notably the closing of departmentstores at six PREIT-owned malls to facilitate the addition of newanchors. Former Value City locations in Chambersburg, Lycoming,Cumberland and Uniontown are being replaced with Burlington CoatFactory stores, most of which will open at the end of the month. Inaddition, two Duff stores were closed to make way for an 85,000-sfJCPenney and space was taken at the Wiregrass Mall in Dothan, AL toaccommodate a new, larger Duff's.

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McCadden reports that 1.2 million sf of owned anchor spacecurrently is vacant and an additional 120,000 sf has beendecommissioned when the stores were demolished to make way for newconstruction. Replacement tenants have signed leases for almost allof the vacant spaces, according to McCadden. The closures resultedin a reduction in net operating income of $0.6 million.

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McCadden also revealed that expenses have risen by $0.7 milliondue to the bankruptcies of Whitehall Jewelers, Steve &Barry's and Goody's Family Clothing. The company hasexperienced a higher depreciation and amortization expense due toseveral development and redevelopment projects for theportfolio.

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Despite the downturn, officers remain optimistic and credit thecompany's diverse tenant base and primary locations in thestill-strong mid-Atlantic region as factors that will help PREITride out the downturn.

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"Overall, we had a solid quarter given the environment in whichwe're operating," said PREIT president Edward Glickman. He reported97,000 sf in 51 new leases and 246,000 sf in 97 renewals weresigned in the second quarter. "We believe that our recentlycompleted redevelopment work has strengthened many of our assetsand has given us the positive momentum to mitigate the negativeimpact of declining consumer sentiment," he continued. "We have,however, given up some of our expected growth conditions in theretail market."

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PREIT's team is confident enough to move forward with repaymentof a $400-million balance on its real estate mortgage investmentconduit, which was assumed in connection with PREIT's merger withCrown American Realty Trust. In order to repay the loan by Sept.10, PREIT has refinanced three power centers, Creekview inWarrington and Paxton in Harrisburg, both in PA, and Christiana inNewark, DE for $119 million. The proceeds will be used to repayPREIT's credit line to create liquidity ahead of the payoff.

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PREIT also has secured commitments from financial institutionsfor almost $300 million in new mortgages for four properties tiedto the conduit financing: Jacksonville Mall in Jacksonville, NC,Logan Valley Mall in Altoona and Wyoming Valley Mall inWilkes-Barre, both in PA, and Patrick Henry Mall in Newport News,VA. Proceeds from the refinancing and the availability on thecompany's credit line will be used to repay the conduit and leavePREIT's net operating income 25% unencumbered. Today, theunencumbered NOI is 15%. Remaining liquidity will go towarddevelopment and redevelopment of some assets.

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The officers assured investors that the latest rash of retailbankruptcies is unlikely to negatively affect the company.According to Joseph Coradino, president of PREIT Services LLC andPREIT-RUBIN Inc., the portfolio includes only one Goody's, twoSteve & Barry's and three Linens 'n Things. The REIT's largestexposure is Boscov's,which recently filed for Chapter 11 protection. PREIT has eightBoscov's locations in its portfolio and an additional two underconstruction, but none of its locations are among those that theretailer plans to close.

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PREIT's officers noted some retailers are using the downturn andthe bankruptcies as opportunities for expansion. According toCoradino, American Eagle Outfitters, Abercrombie & Fitch,Charlotte Russe, Forever 21, Sephora and Apple are taking advantageof vacancies in prime locations.

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"We have seen continued leasing momentum during the secondquarter," Coradino said. "We remain confident that our strategy ofredevelopment, remerchandising and renovating our portfolio willallow us to successfully weather the economic storm."

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