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PHILADELPHIA-The pace of redevelopment at malls that Pennsylvania Real Estate Investment Trust acquired through its merger with Crown a year ago picks up. Capital City Mall, a 609,000-sf center in Camp Hill, PA will undergo $11 million in extensive improvements, and another $8 million will be invested in the 428,000-sf New River Valley Mall in Christiansburg, VA. Restaurants and entertainment are at the heart of both redevelopments, said Joseph Coradino, EVP of the retail division, during the REIT’s third-quarter earnings conference call.

Plans for Capital City include the creation of a new eight-bay food court and two family-themed restaurants, which will take the place of what he described as an undersized theater that is currently operating on a month-to-month basis. The existing food court space will be developed into a lifestyle wing with 30,000 sf of specialty retail space, and about $2 million will be devoted to redesigned entrances and improvements to the existing mall common area.

Construction will begin in first quarter 2005. The new food court and restaurants are scheduled to open in fourth quarter 2005, and the lifestyle wing is expected to open in second quarter 2006. Tenant negotiations are underway, according to Coradino. Hecht’s, JC Penney and Sears are the anchors, and, at the end of this September, the mall was 98.4% occupied. Sales per sf were $345.

At New River Valley, the existing Regal Cinemas’ 31,000-sf, 11-screen theater will relocate to a new 53,000-sf, free-standing location to be built near the mall’s perimeter. The new theater will have 14 screens and stadium seating with seating capacity for more than 2,500. It is scheduled to open in second quarter 2006.

Peebles vacated the mall in January 2004. A portion of its former building will be demolished and the remaining 20,000 sf will redeveloped for additional specialty retail and restaurant tenants. This center is currently 77.5% occupied and generates $256 sales per sf. The changes, Coradino says, will tap its unrealized potential, including attracting a larger clientele from nearby Virginia Tech and Radford University.

Meanwhile, net operating income for PREIT’s retail portfolio increased 10.8% in third-quarter 2004, primarily from improved operating results from the properties it acquired from Rouse Co. in 2003 and subsequently redeveloped. Third-quarter occupancy in PREIT’s same store portfolio was 89.1%, down from 89.6% in the same quarter a year ago. Sales per sf in the same store portfolio rose to $345 for the trailing 12 months ended September 30 this year, up from $342 per sf for the previous comparable period.

Occupancy at enclosed malls was stable at 90.3% occupancy, and sales per sf in those centers rose $5 per sf to $323 per sf. Occupancy in the company’s power centers dropped to 96.8% at the end of this September, compared with 98% for the quarter ended June 30 this year.

During third quarter, PREIT executed 160 leases at an average of $16.60 per sf. The average rental rate on new leases for previously leased space rose $3.48 per sf over the expiration rate to reach an average of $35.34. Renewed leases, which included an anchor lease for 91,164 sf at a base rent of $1.86 per sf, increased, on average, 48 cents per sf, to $15.71 per sf. Rates for 34 formerly vacant spaces averaged $20.97 per sf.

While PREIT’s net income dropped to $10.9 million in third quarter, down from $34.9 million for the same quarter a year ago, it reflected $1.6 million of income from discontinued operations, compared with $25.7 million from discontinued operations in the third quarter of 2003. This third quarter funds from operations rose a whopping 138.7% to $34.6 million, up from $14.5 million in the third quarter of the previous year.

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