By Michael Fickes

Six years ago, Pennsylvania Real Estate Investment Trust (NYSE: PEI) was a complacent, old-fashioned outfit with an unwieldy portfolio of multifamily and retail properties. Founded in 1960 and one of the oldest equity REITs, the organization lacked internal property marketing and management skills, making it difficult to compete in the modern REIT world. Analysts didn't understand the diversified company's strategy and rarely recommended its stock. Market capitalization had stagnated at approximately $400 million.

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AGE: 72 FAMILY: Married with two children and a 21-year-old grandson. SPORTS: Golf, jogging, downhill skiing. FAVORITE MOVIES: "As a kid, I worked as an usher at the local theater. Ever since, I've been a movie nut." Five favorite movies: "On The Waterfront," "Godfather," "Godfather II," "Shane," and "Casablanca." BOOKS: A biography fan. VACATIONS: Usually four or five days, seven at most. Most recent vacation: Anguilla in the Caribbean. COMMUNITY ACTIVITIES: Past chairman of the Greater Philadelphia Chamber of Commerce and the Center City District, a Philadelphia organization that works to improve the safety and appeal of downtown. Member of the boards of the Franklin Institute, The Philadelphia Orchestra, Albert Einstein Medical Center, Tel Aviv University, American Friends of the Hebrew University, the United Jewish Appeal, and the Regional Performing Arts Center. Past Chairman of the Center City District, a Philadelphia group that works for a cleaner, safer downtown.

Things began to change in 1997 when Pennsylvania REIT (PREIT) merged with The Rubin Organization, a real estate development, leasing, and management company with a host of operational and strategic capabilities. After the merger, Ronald Rubin took over as chairman and chief executive officer, and laid out a strategy to invigorate the sleepy REIT. The strategy—move out of multifamily apartments and specialize in retail—took shape between 1997 and 2002 with the acquisition of several malls in one-off deals. Last year, Rubin made his big move. He shed PREIT's multifamily properties, acquired nearly three-dozen malls, and inaugurated a new era for PREIT.

Rubin's work has boosted PREIT's equity market capitalization to over $1.28 billion, making PREIT almost 10 times larger than it was six years ago. At the end of 2003, the company's portfolio held 58 properties in 14 states, including 40 malls, 14 strip and power centers, four industrial properties, and no apartments. The company also manages a dozen malls and centers for other owners. Recently, Rubin, a 50-year real estate veteran, spoke with Portfolio about the evolution of PREIT's strategy for moving into retail, the execution of that strategy, a recent regulatory issue, and his long-term vision for the organization.

Portfolio: What drove your decision to exit the multifamily business and focus strictly on retail?
Rubin: As the Rubin Organization, we were always comfortable with retail. Our expertise is in creating value in retail assets. Alternatively, the current pricing of multifamily assets has made that business hard to grow. So we decided to get out of the multifamily business and focus on retail.

Portfolio: Was it difficult to sell the multifamily properties, considering the problems in that sector during 2003?
Rubin: The multifamily business has not been as strong as the retail business, but there is still a market for apartment portfolios, and ours was a good portfolio. It contained 14 multifamily properties valued at about $420 million.

Portfolio: The transition out of multifamily happened quickly. You announced the sale of that portfolio and a major retail acquisition on the same day in March of last year.
Rubin: A substantial portion of the gain on the multifamily properties qualified for a tax deferred 1031 exchange. We used that structure to acquire six Rouse Company (NYSE: RSE) malls worth $548 million. So the transactions occurred more or less at the same time.

Portfolio: How did the cap rates of the apartments compare with the cap rates of the malls?
Rubin: There was an arbitrage element to the transaction. We bought the malls at a cap rate of about 100 basis points higher than the cap rate for which we sold the apartments.

Portfolio: Next, you acquired the Crown American Realty Trust in a stock transaction.
Rubin: That transaction was announced in the same time period as the Rouse transaction was being worked out. Completed in November of last year, it was a stock transaction that merged PREIT and Crown American. Crown had 27 malls that fit well with us geographically. Sixteen of those malls were in Pennsylvania and a number of them were close to our headquarters.

Portfolio: How has the investment community reacted to PREIT's change of character?
Rubin: During 2003, our stock went from $25 to $35 per share, up about 10 points, so the market has been receptive.

Portfolio: Now that you've made the transition to retail, what's next?
Rubin: First, the thrust of our business today involves taking the properties we've acquired and adding value to them. In addition, we're looking for further retail opportunities.

We have a lot of firepower. We raised equity twice in 2003, in August and October. We have also negotiated a $500 million line of credit with a group of banks led by Wells Fargo. That line can be expanded to $650 million. And we've added an enormous amount of revenue through our acquisitions. So we are in a position to close on sizeable transactions.

Portfolio: During a recent stock issue, the failure to file documents related to an ownership interest in a taxable REIT subsidiary raised questions pertaining to the company's REIT status. Have these questions been resolved?
Rubin: The company has resolved all matters pertaining to its REIT status, having received a private letter ruling from the Internal Revenue Service on Feb. 9 allowing PREIT to make a taxable REIT subsidiary election with respect to a company in which PREIT owns more than a 10 percent interest. The matter is resolved and the company's REIT status is not in question.

Portfolio: Having started in the real estate industry in 1953 working at your father's real estate development company, how have you seen the retail sector change?
Rubin: Department stores have stopped building new locations and turned to consolidation as means of expansion. Because anchor tenants such as department stores drive mall development, the consolidation of the department store industry has significantly limited new mall development. At PREIT, we've used this trend to grow, by bringing together the strongest properties in our region through merger and acquisition activity.

We've also seen changes in the types of tenants at traditional malls. For example, big box or discount tenants used to locate only in strip or power centers. Today, these retailers have found that the strength of existing mall locations offers opportunities for swift market entry and expansion.