Glimcher Realty Trust's CEO Discusses Q4 2012 Results - Earnings Call Transcript

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Glimcher Realty Trust (GRT) Q4 2012 Earnings Conference Call February 15, 2013 11:00 AM ET

Executives

Lisa Indest - Senior Vice President, Finance and Accounting

Michael Glimcher - Chairman and Chief Executive Officer

Marshall Loeb - President and Chief Operating Officer

Mark Yale - Chief Financial Officer

Analysts

Todd Thomas - KeyBanc Capital Markets

RJ Milligan - Raymond James

Nathan Isbee - Stifel & Nicolaus

Ben Yang - Evercore Partners

Carol Kemple - Hilliard Lyons

Daniel Busch - Green Street Advisors

Quentin Velleley - Citigroup

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter Glimcher Realty Trust Earnings Conference Call. At this time, all participants are in listen-only mode. Following the prepared remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the presentation over to Ms. Lisa Indest, Senior Vice President, Finance and Accounting. Please proceed.

Lisa Indest

Good morning, and welcome to the Glimcher Realty Trust 2012 fourth quarter conference call. Last evening, a copy of our press release was circulated on the newswire, and hopefully each of you have the opportunity to review our results. Copies of both the press release and the fourth quarter supplemental information package are available on our website at glimcher.com.

Certain statements made during this conference call, which are not historical maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For a more detailed description of the risks and uncertainties that may cause future events to differ from the results discussed in the forward-looking statements, please refer to our earnings release and to our various SEC filings.

Management may also discuss certain non-GAAP financial measures. Reconciliations of each of the non-GAAP measures to the comparable GAAP measure are included in our earnings release and the financial reports we filed with the Securities and Exchange Commission.

Members of management with us today are Michael Glimcher, Chairman and CEO; Marshall Loeb, President and COO; and Mark Yale, CFO.

And now, I would like to turn the call over to Michael.

Michael Glimcher

Thank you, Lisa. Good morning and thank you everyone for joining us on today’s call. As we reflect on 2012, we are proud of the progress made in the execution of our transformative strategy. While the progress has been substantial, we are even more excited about how this positions us for 2013 and beyond.

In terms of accomplishments, we continue to drive growth and productivity within our portfolio with year end sales reaching a new record level of $435 per square foot. Total occupancy increased to over 95% for the portfolio overall, which included an increase in mall store occupancy of 100 basis points over last year.

Re-leasing spreads were positive again at 10% for the year while maintaining a portfolio occupancy cost ratio at near historical lows below 11%. We also experienced another healthy increase in leasing volume, up 10% from the prior year. Improvement in real estate quality was not only driven by progress made within our existing portfolio, but also through the acquisition of nearly $400 million of high-quality retail properties during fiscal year 2012. Such investments include the acquisition of the remaining 80% joint venture interest in Pearlridge along with two open-air centers, Town Center Crossing in Leawood, Kansas, and Malibu Lumber Yard in Malibu, California. Simply put, we are a better company with these properties being part of the Glimcher portfolio.

We also made tangible progress towards the stabilization of the first two phases of Scottsdale quarter during the year. Total occupied square footage increased from approximately 80% as of December 31, 2011 to almost 90% as of December 31, 2012. Accordingly, we saw nice improvement in NOI contribution from the property, up nearly $5 million from last year. We have also made steady progress with respect to Phase 3 of the project. As previously discussed, we have executed the contract for the sale of the Northeast Parcel to a multi-family developer, who is focused on a plan for 275 for-rent residential unit development.

While some contingencies remain, we now have non-refundable monies on deposit and we are very pleased with the progress made. Additionally, we also believe we are progressing nicely towards finalizing a deal to bring a fashion department store anchor to the site. The desire to proceed on both sides is extremely strong.

Finally, we continued to enhance the company’s liquidity and balance sheet position. During 2012 we closed on the permanent refinancings of Puente, Dayton Mall and WestShore Plaza. Formerly extended the loan on Scottsdale Quarter through 2015 and placed $115 million of Life Company debt on our Town Center Plaza and Town Center Crossing properties.

We issued a non-redeemed $90 million of our preferred stock reducing the borrowing cost on such securities by well over 100 basis points. We also raised an additional $250 million of common equity during 2012. All of this allowed us to finish the year with only $85 million outstanding on our credit facility, giving us ample capacity to take advantage of strategic investment opportunities. With regional mall occupancies generally above 90% industry wide and virtually no new meaningful retail supply coming online, we remain excited about the positive dynamics of the higher quality mall business. With the building blocks now in place we are excited about what we can accomplish in 2013 form both a financial and operational standpoint.

We have been consistently talking about 2013 being the year we turned the corner in terms of delivering growth more in line with our Class A mall peers. We believe this will be an important positive catalyst for the company’s stock price. Accordingly we are pleased to be providing core mall NOI growth guidance in the range of 3.5% to 4.5% for 2013. This represents solid improvement from our approximately 1% delivered in 2012 which was impacted by the significant level of internal investment made during the year throughout the portfolio.

Contributions from Scottsdale Quarter, our redevelopment investment in the company’s outlet collection and major re-tenanting activities completed in 2012 throughout the rest of the portfolio are major drivers of this growth in 2013 and beyond. We also expect to be able to continue to drive positive re-leasing spreads throughout the portfolio while enhancing the overall quality of our tenant mix.

Finally, reinvesting in our core properties through redevelopment will continue to be a priority in terms of capital allocation. In addition to our investment in our outlet collection properties, we see further opportunities throughout the portfolio including Polaris Fashion Place where we are in the initial planning phases for the redevelopment of the former great indoor space.

As it relates to external growth we are excited to start the year with the acquisition of University Park Village in Fort Worth, Texas. UPV is a highly productive dominant open air property in the vibrant Forth Worth market with sales of over $800 per square foot and an occupancy cost in the single digits even excluding Apple. We are confident regarding the potential of this property going forward. When considering the growth profile, we believe this investment represents a sound allocation of capital for the company. Our initial NOI yield on the property will be at approximately 5%. The search for similar new opportunities will continue in 2013 with the focus on properties with high sales productivity, outsized growth potential and the rent roll of tenants that we have or aspire to have relationships with.

From a capital perspective we will look to – for opportunities to enhance our balance sheet and liquidity in 2013. We are already off to a strong start in this regard with the pending modification of our corporate credit facility. Moving from a secured to an unsecured structure, lowering the pricing on the overall facility, while extending the final maturity to 2018 provides tangible evidence of the progress being made by the company on the balance sheet front. We are also pleased with the terms of the recent refinancing on Polaris Fashion Place. The $225 million 12-year loan with an interest rate of 3.9% replaces the maturing $125 million mortgage on the property. We also anticipate utilizing the company’s ATM program to match fund against accretive redevelopment and major re-tenanting throughout the portfolio. We plan to be measured in the use of this program in 2013 looking to issue approximately $20 million to $40 million of common equity throughout the year.

We are also focused on improving the quality and our growth profile through divestitures. Within the next several weeks we expect Tulsa to be under contract again for sale. We are also working with the lender on a short-term extension of the loan that would take us through the closing of the sale and address an orderly transition of the property from the borrower if the deal would fall through. We have also commenced discussions with the special servicer on the loan for our Eastland property. We believe the mall remains viable, but it’s saddled with an unsustainable debt burden. So, we will be working with the special servicer to understand our options. We will also be keeping an eye in the so-called B mall market. If pricing firms up, this could represent attractively price capital as we continue to execute our transformation.

And finally in terms of Scottsdale Quarter, our focus for 2013 is fairly straightforward. Our goals will be to complete the initial leasing of all the remaining first generation spaces in phases 1 and 2, see commencement of construction by the multi-family developer of the Northern Parcel, and finalize our plans for the remaining land in Phase 3.

Now, with that said, I’d like to turn the call to Mark Yale to provide you with more detail on our financial results.

Mark Yale

Thank you, Michael and good morning to everyone. Our FFO per share for the fourth quarter of $0.20 fell solidly within our guidance range going into the period. The biggest driver of the performance was property operations. As expected, core mall net operating income growth accelerated during the fourth quarter, up 1.8%. With respect to the contribution from Scottsdale Quarter, the yield on the project for the fourth quarter was approximately 3.6%, up from the 3% yields generated during the previous quarter.

Now, let’s our attention to the balance sheet. As Michael mentioned, we are pleased with the progress made on the pending modification of our credit facility. Through the modification, we’ll transition the revolver from a secured to an unsecured structure improved pricing by over 45 basis points on the average along the pricing grid and pushed the final maturity on the revolver into 2018. In conjunction with the revolver modification, we will also close and fully draw on a new $45 million secured facility.

Our longer term goal is to be in a position by the end of next year to exercise the revolvers’ accordion feature increasing the facility’s capacity to approximately $300 million in total. The plan has its paying off the $45 million secured facility with the anticipated excess proceeds from our planned refinancing of the Jersey Gardens mortgage during the first half of 2014. We then anticipate using the remaining excess proceeds from Jersey to retire the maturing mortgage on The Mall at Fairfield Commons in the second half of 2014 allowing us to add the property to the unencumbered pool in enhancing the borrowing base to a level that supports the $300 million target. At closing of the modification, we are anticipating having over $160 million of current unused capacity on the revolver.

In terms of our other 2013 debt maturities, the Colonial Park mortgage will be paid off with excess proceeds from the players refinancing and subsequently added to the unencumbered pool. We are working with our JV partner on the refinancing of the Lloyd Center mortgage and would expect execution similar to WestShore, which was refinanced during the third quarter of 2012. We are also making progress on securing permanent financing for our recent University Park Village acquisition. We are excited to be able to take advantage of attractive terms currently available in the debt markets for quality assets like EPV. Proceeds from the perm mortgage will be used to pay off the bridge financing obtained to acquire the asset.

As previously discussed, we anticipate utilizing the company’s ATM program to match fund against accretive redevelopment and major re-tenanting throughout the portfolio. During the fourth quarter, we issued approximately $10 million under the program. We currently have approximately $30 million of capacity remaining on our ATM program, and accordingly, I would expect to reload the program at some point in 2013.

Finally, we did introduce our FFO guidance for fiscal year 2013, a range of $0.69 to $0.73 per share. At the midpoint, this represents over 20% growth from 2012. The key drivers of the guidance include an increase in core mall NOI of 3.5% to 4.5% for the year. This growth includes contributions from Scottsdale Quarter, where we are assuming an average NOI yield of 4% to 4.25% for the year. In terms of subsequent growth, we would expect to see the yield on phases 1 and 2 of Scottsdale increased approximately 100 basis points in 2014 and then reaching approximate 5.5% to 6% level in subsequent years.

The guidance assumes an anticipated increase in G&A from 2012 levels to approximately $27 million mainly driven by growth in long-term incentive compensation expense. This growth relates to the company’s recent focus on adjusting management compensation to current market standards. Accordingly, we would expect to see G&A growth moderate from 2013 levels in subsequent years.

Other key assumptions to make up the guidance including anticipated lease termination income and outparcel sales gains of approximately $3 million with net fee income forecast between $3 million to $3.5 million for the year. Other than the sale of Tulsa in April, the January acquisition of UPV had approximately $20 million to $40 million of ATM activity throughout 2013. The guidance does not reflect any other property dispositions, acquisitions, or capital rises. We also provided FFO guidance for the first quarter of 2013 in the range of $0.15 to $0.17 per share, key assumptions driving the guidance including net fee income of approximately $750,000, lease termination income of around $500,000 and core mall NOI growth of 2% to 3%.

I’d now like to turn the call over to Marshall.

Marshall Loeb

Thanks Mark. While we continue looking at acquisitions, we are more focused on maximizing growth within our existing portfolio through executing on redevelopment projects, raising the quality of occupancy by replacing weaker performers and driving rents upon lease roll. As Michael mentioned we believe an important catalyst for our stock is elevating our growth profile. While we are pleased with the forecasted growth for 2013, it’s ultimately more important that we deliver or exceed such expectations. It’s just not – it’s not just about 2013 but creating a platform that can generate sustained growth on a go forward basis more closely resembling our Class A mall peer.

As we look ahead, we are certainly encouraged by the health of our mall operating fundamentals as we start 2013. Total occupancy increased during the quarter and finished the year about 95%, re-leasing spreads were positive again at 12% during fourth quarter. We experienced another strong quarter in terms of sales productivity throughout the portfolio achieving a record of 435 per square foot in sales, up 7.7% from last year and we are encouraged by portfolio occupancy cost sitting below 11%. We are also excited by leasing velocity where we saw a 12% increase and store lease signings over 2011 with tangible activity throughout the portfolio, not just our top properties.

Pilot progress continues in terms of roughly $60 million investment in our two outlet collection centers, Jersey Gardens and Seattle. A Jersey Gardens were still on target to complete the major interior and exterior renovations by mid 2013. During the fourth quarter, Coach and Coachmen both had successful openings creating further excitement at the center. Additionally, retailer such as Puma, Lego, True Religion, Kipling and Disney recently opened at Jersey Gardens as well.

We are also making progress on solidifying the outlet collection, Seattle, transforming this asset and do a fashion outlet center serving the southern portion of the metro area. In conjunction with leasing efforts, we are moving forward with physical enhancements to the center. Later this month, we’ll open a new cut through to improve traffic flow as well as relocate the food court. From a leasing perspective, we are targeting to add key outlet retailers in about 100,000 square feet.

During fourth quarter, Coach opened at the center a bellwether retailer and the outlet world and while Coach sales are not yet reflected in the numbers we are seeing the positive impact of their presence with increased traffic and tenant sales during fourth quarter. Including Coach, approximately 50% of the new targeted square footage is addressed through sign leases or leases out per signature with letters of intent with retailers for the remainder of the space.

With the type tenants we are working with, we see the potential to drive sales well above $400 per square foot and the grand reopening is scheduled to fall 2013. We expect to earn a high single-digit return on our outlet investments and to begin seeing those financial contributions this year and into 2014. In terms of new 2013 redevelopment opportunities we are focused on the parcel at Polaris formally occupied by the Great Indoors. We have the opportunity to add approximately 125,000 square feet of additional open-air retail, restaurant and entertainment space.

The redevelopment will blend into the existing open-air section of the mall creating greater critical mass and improved traffic flows. Additionally, we continue to looking at ways to take advantage of consolidating big box retail into the mall throughout our portfolio. Finally, when categorizing our portfolio, you will see that nearly 90% of our NOI is comprised of a Tier 1 portfolio achieving sales of 472 per square foot with occupancy at nearly 96%.

During 2012, River Valley moved up into our Tier 1 category. We would next expect to see Seattle move up, raising our Tier 1 NOI contribution to well over 90%. Generally, Tier 1 properties represent those that our longer term holds due to their stability and growth profile. With respect to our Tier 2 properties, these may be assets that over time we should opportunistically call if we don’t see a clear path towards meaningful improvement and property fundamentals and growth prospects.

At this time, I’ll turn the call back to Michael.

Michael Glimcher

Thanks Marshall. Here at Glimcher, we are proud of the progress we have made over the last several years. Both our portfolio and balance sheets are far stronger than they have ever been historically. Occupancy is up, rents are up and sales are at an all-time high. We believe we are now in a position to deliver meaningful and sustained growth in 2013 and beyond. Yes, we are stronger today than we were yesterday. However, our goal continues to remain in order to be stronger tomorrow than we are today.

Now, with all that said, we’d like to open up the call for any questions you may have.

Question-and-Answer Session

Operator

Ladies and gentlemen, we are ready to open the line for your questions. (Operator Instructions) Your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas - KeyBanc Capital Markets

Hi, good morning. Jordan Sadler is here with me as well. First question on acquisitions, when we think about investments going forward some of your latest deals have been sort of smaller these open air high-end centers that generate high sales per square foot not quite in closed malls, not quite lifestyle centers, is this the type of product that we should expect to see Glimcher continue to acquire just sort of a sweet spot for the company?

Michael Glimcher

Todd, it’s Michael. Good question, and certainly there has been a theme of this type of property. For us, we look at high productivity assets that also have an ability to have strong NOI growth. So, an example of Fort Worth, you had a property doing $800 a square foot with the single-digit occupancy cost. You had 24 retailers that were one of one in the Fort Worth market and most of these retailers were one of three in the entire Dallas Metroplex. With strong sales and the type of tenant we like to be around as well as low occupancy costs, we know we can deliver great NOI growth. We know from a sales per square foot standpoint, it moves the portfolio. And we also know that big large and closed A-quality malls aren’t going to become available. And from a cost of capital standpoint, we are probably not going to be competitive. So, for us, we have to find the right opportunities, but this is clearly a theme of a type of property we will be looking for.

Todd Thomas - KeyBanc Capital Markets

Can you just talk about what the pipeline looks like and whether or not what’s the competition like for this type of product what you have seen in the market right now?

Michael Glimcher

Well, again I think the pipeline looks fairly good. For us number one, we are going to be investing capital into the core portfolio. We think that’s the number one place we’d like to invest like we are in the outlet collection, and what likely will in Polaris and other existing assets. So, in a competition for capital, existing assets are generally going to win. We are seeing opportunities out there. Like Fort Worth, they are very hard to find. We probably look at 10 or 20 before we find the one that we really like. And most of the competition is coming more from institutional buyers than from operators. We are probably more unique in the - certainly in the mall space, but we are probably more unique as an operator that’s looking at these assets and there is more institutional buyers looking at them that they were coming up against more often.

Todd Thomas - KeyBanc Capital Markets

Okay. And then just moving over to outlets, I was just wondering if you can give us an update on your thoughts about some of the outlet competition in the Columbus market. I know that there was some planning to get involved on your end in that market, and now Simon and Tanger have partnered up, but there is still some additional competition. And you obviously know the market very well, is there room for more than one outlet center and how do you think it impacts some of the existing retail centers in the market like Polaris, for example?

Michael Glimcher

Well, Columbus is obviously near and dear to us. It’s a vibrant market. And we believe most markets have 1.5 million, 2 million people or above are going to get an outlet center. We believe a lot of the outlet centers that are built in between markets are probably going to suffer in ultimately each major cities. Market this size should probably have one outlet center. We think that makes the most sense maybe in a bigger market like Phoenix, you can have two or three or better market like Dallas, Forth Worth you can have two or three. So, ultimately one will likely get built. It doesn’t seem to really have a big bearing on the long-term, on the full price retail. We have talked to lot of our competitors about it and there is a niche customer that wants to shop outlet and it’s a different shopping trip. It probably you could argue where it should land and what’s the best location, but our best guess is that if you look at historical data in other markets, outlet centers open, it has a short-term impact on all the retail. And ultimately, it probably has more impact on the value retail of the discount stores, the Marshall’s, the T.J. Maxx’s, the power centers. And so in our case when you think about something like Polaris, where we have a large investment doing well over $500 a foot and growing, it’s a different type of a shopping trip, it’s complementary, it’s not necessarily competition, it’s probably more competition for discount shopping.

Todd Thomas - KeyBanc Capital Markets

Okay. And then just one last question, sticking with Polaris you talked about the great indoors and redevelopment there a little bit, I noticed that the loan can be increased by $45 million to accommodate some of that redevelopment or expansion. I was just wondering if you could just give a little additional color there in terms of the opportunities and what the timing might look like maybe how far in the planning stage you are?

Michael Glimcher

Yeah. I mean, we are very early on we just really got the opportunity in September. We did carved that parcel out, so that we have the capacity to either increase the loan or to put separate financing on it more likely increase the existing loan. And we are at the very early stages of it. We are planning. It would be a lot of food. It would be a lot of specialty retail. It would be an expansion essentially of the existing outdoor retail, but we are really more on the front end of it. And I know Marshall and his whole team have had a lot of interest in the mall. It’s just about fully occupied. A lot of people want to be in the trade area. There is on that north side of the mall where the land is. There is a brand new Cabela’s which will be the only one in the market, which is certainly a draw and the only Costco in the market and some other things going on in that part of the mall. So, we are really excited about it. It’s just very early on.

Todd Thomas - KeyBanc Capital Markets

Okay. So, it’s not a 2013 event essentially?

Mark Yale

Todd, it’s Mark. I mean, the bulk of our redevelopment investment that we identified in the release is part of our guidance really relates to finishing out the investment in the Outlet Collection, Jersey and Seattle. And then some smaller redevelopments does not contemplate any significant dollars going out on Polaris, that’s really going to be 2014 from a capital planning perspective?

Todd Thomas - KeyBanc Capital Markets

Okay, great. Thank you.

Operator

Your next question comes from the line of RJ Milligan with Raymond James. Please proceed.

RJ Milligan - Raymond James

Hey guys. Good morning.

Michael Glimcher

Good morning

RJ Milligan - Raymond James

I was curious now you took two impairments in the quarter and I was wondering if you thought that there were more impairments coming this year?

Mark Yale

RJ, it’s Mark, I mean that’s one of those things where certainly we took the impairments that were required as of the end of the year. And at this point, we are certainly optimistic as it relates to Tulsa working its way through we’ve had several impairments associated with Tulsa. And then we are just in the early stages of Eastland, but we have written that down to where we believe the fair value for the property is. So, at this point we certainly are comfortable. We have taken the impairments that need to be taken as of year end.

RJ Milligan - Raymond James

Yeah, I guess I am sorry I probably didn’t ask the question correctly. So, just looking what percentages of your assets would you say are being carried at a higher book value?

Mark Yale

Higher book value than the loan amount, fair value?

RJ Milligan - Raymond James

If there were, for some reason a trigger to impair it, and I am just trying to figure out what the magnitude of possible impairments are?

Michael Glimcher

RJ its Michael, maybe a non-accounting person is probably the best answer. I think it’s pretty black or white and the assets either impaired or it’s not. And these were assets that needed to be impaired and if they were cases where that needed to happen going forward we would certainly do it, but you don’t anticipate if you were at the point of anticipating it, you likely would be impairing it.

RJ Milligan - Raymond James

Okay. And then I guess my second question is I know the goal was to sort of get back to where same-store NOI growth back to where your peers sort of the higher quality, higher price per square foot peers are. I just would have thought that given the redevelopment and re-tenanting last year, we would have seen a better pop in same-store NOI growth because you sort have easier compensation. I was just wondering if there was anything that you are looking at this year that might be bringing that down a little bit?

Marshall Loeb

Hey, RJ its Marshall. Again, I think we are saying kind of that 2% to 3% range, 3.5% to 4.5% which we like that range, it’s Scottsdale in it. And as you would imagine, it’s a number of moving parts I’d love, I hope you are right, I hope you can say I told you so at the end of the year, but we really did not detail kind of space by space budget, that’s where it shakes out where we are in as many of our – your peers have pointed out we are in a transformation phase we are moving from where we were to that Class A mall peer. The acquisitions we made last year are in our comp store numbers just for same store NOI. So, I think we are getting there we have got a number of openings coming this year that we are excited about as we settle in Jersey and Seattle those stores still aren’t opened from the redevelopment. So, I think it’s your – its better than last year but its still part of the progress.

Michael Glimcher

And RJ its Michael, I mean coming off of 1% for last year delivering 3.5% to 4.5%, we are certainly very pleased with that number. And as I said in our prepared remarks, we think that should be an important catalyst for multiple expansion with our stock.

RJ Milligan - Raymond James

Okay. And my last question is given your low occupancy cost even if we were to see sales sort of flatten out here, how much room do you think you have to grow rents?

Michael Glimcher

Our target is 14% of occupancy costs, so that would – I guess that would give you a little over I mean call it roughly 300 basis points just above that so sales flat now it would – as you would know it would take a number of years to all of those leases roll. But now we love where we are on the occupancy cost spectrum within the mall peer group right now. So, that’s I hope sales don’t flatten out. But it gives us a lot of runway to keep pushing rents in the next couple of few years.

RJ Milligan - Raymond James

Okay, great thanks guys.

Michael Glimcher

You’re welcome.

Operator

Your next question comes from the line of Nathan Isbee with Stifel & Nicolaus. Please proceed.

Nathan Isbee - Stifel & Nicolaus

Hi, good morning. Just focusing on Scottsdale for a minute, can you address one, the yield expected – the overall yield expectations tick down to 5.5 to 6, what was driving that? And then if you can give us a better sense of what’s going on at the property retail occupancy is – has not really declined yet your expectations for ’13 have gone down even from the three months ago?

Michael Glimcher

Nate it’s Michael, let me talk about the tenancy and I will let Mark address some where we are with the yield and we continued to be very excited about Scottsdale where we are a little disappointed with the yield. But we are certainly not disappointed with the property with the high sales per square foot and dynamic tenant list with the ability to really for us to make deals from this center. And a lot of retailers that we did business within this property like H&M and like lululemon and like Apple it went subsequent business and really trickled throughout portfolio and we are certainly excited about that.

We still have a few first generation tenants that we are going to cycle through. We are really committed to making this the premier retail asset in the marketplace, it certainly has sales per square foot at the top and the entire state. And there are some tenants that we took early on that would – we are still waiting through and there are still a few of those tenants left and you make the right decision at that time and you probably wouldn’t go back and make it any differently. But probably what slowed us a little bit is there has been more re-tenanting that we expected. The good news is every time you take out for gross rate you put in one of only three big restoration hardware stores in the country, you feel good about that. You take out a restaurant and you put in an Urban Outfitters, you feel good about that. All the moves we are making are positive steps, but they are expensive and they are time consuming. So, again very excited about the project and frankly internally a little disappointed with the yield.

Nathan Isbee - Stifel & Nicolaus

Would you say that churn has accelerated over the last few months?

Michael Glimcher

No, I wouldn’t say that at all, I mean I’d say the assets really stabilized and it’s more us wanting to upgrade the mix and saying we have got interest from a really strong national who would like to be in the space. We have an opportunity – the restoration hardware we could have gone in and leased the existing building. We made the decision to level the building and add an incremental 12,000 feet of space and have one of the premier retail stores in the country. So, we are trying to make good long-term decisions and to make it the premier asset in the market and sometimes it just takes a little bit longer.

Nathan Isbee - Stifel & Nicolaus

Okay. I mean besides the restoration and urban what other types of tenants can we expect to see and what – in which spaces are you looking to put them into?

Michael Glimcher

As you know we only named tenants with signed leases, but I can tell you that there are very strong national tenant names that we’ll look forward to announcing once we put a pen to the paper and turn the LOI into sign the leases. So, we are not prepared to announce names, but all recognizable, national high-quality fashion tenants.

Nathan Isbee - Stifel & Nicolaus

Okay. And then Mark on the overall yield?

Mark Yale

Yeah, I mean, we still are confident, we are going to get the yield of about 6%, but we are really just looking at over the next three years and trying to be realistic based upon what we know today and the timeline it takes and the fact that we are making decisions for the long-term and we’ll continue to do that. We want to give a perspective of what we believe we can deliver what we are confident we can deliver. So, it’s kind of the four in a quarter in 2013. We think that will go up in the low 5s in 2014 and then 2015 we are in the 5.5 to 6 and then ultimately as we really work through and get things and build the momentum, I mean, we are confident longer term that the yield will drive into the 6s, but as we said really trying to give you guys an indication where we think we are going over the next three years and we are confident we are going to be able to deliver on that.

Nathan Isbee - Stifel & Nicolaus

Okay, thanks. And then on the University Park acquisition, the going in yield 5%, it clearly is – if that was staying flat, not something you would do. Can you give us a sense on how quickly you expect to be able to ramp up that yield and where you would expect it to be in and let’s say, two years?

Michael Glimcher

Nathan, it’s Mike Glimcher, the next two, three years, we hope to get north of 6.5, 7, it’s really 2014 and 2015 when leases start rolling and the recent activity with a new Madewell and a new lululemon and some of the other high quality tenants that are coming to the centers, there is a lot of momentum, we’re just – we’re going to – it’s going to be 18 months, it’s going to be 24 months what we are really turning space. So, we are chomping at the bit, you’ve got low occupancy cost, high sales per square foot and our phone we take in so many inbound calls from retails who want to be a part of this property. When you look at the whole Dallas-Fort Worth Metroplex, a lot of the high quality retailers that have anywhere from just call it two to four stores. They have chosen on the Fort Worth side of things to operate the one store and University Park Village. So, it’s clearly an important number two or number three entry point in the Dallas-Fort Worth market in the number one entry point so, specifically in the Forth Worth market and as long as we are talking about it Forth Worth is the 16th largest MSA in the country, a lot of people got confused we have some calls and people say why you are entering Dallas which is really crowed, Fort Worth is it’s own market, it certainly part of the Metroplex. It’s a premier asset in Fort Worth and one of the top handful of assets in the entire Metroplex. So, we again feel really good better about the asset today after requiring it.

Marshall Loeb

Nat, this is Marshal. I agree with Michael and the only other caller I would add, we could ramp that yield up more quickly that really the bottleneck is the project is full and it’s really how fast some of the tenants that have higher occupancy cost that we’d like to migrate out and replace it’s how fast can we get some of those spaces back. If you look down the rent roll, it’s got the great list, the Apple’s, the Madewell’s, the lululemon’s within there is a few names that we jump out either which of these is not like the other and it’s how fast can we get those spaces back and get tenants that are more suitable in and they’ve got high occupancy cost, but some of them still have lease terms so that’s what we are – that’s our task.

Nathan Isbee - Stifel & Nicolaus

Okay. And then can you just address your financing strategy for acquisitions, I guess specifically University Park, unlike the Pearlridge where – you did not issue equity here, and instead you’re choosing to I guess finance it with the ATM over the course of 2013. Why not just go out, finance it and get it done with rather than take the market risk?

Michael Glimcher

When you say finance that and we are working on placing permanent.

Nathan Isbee - Stifel & Nicolaus

I’m talking about equity.

Marshall Loeb

Yeah, equity, I mean, I think it’s certainly we’ve talked about longer term, we want to continue to do leverage of balance sheet, we are still going to move forward it, but at certain times when we look at our liquidity situation we the mature – we had the refinancing of players which obviously generated an excess of $100 million of proceeds so, we have liquidity at the point, we look out we have the significant refinancing opportunity at Jersey so, we kind of balance all that together and felt at the time at least is related to the Fort Worth acquisition that we did not have to match fund that with equity and common equity. But certainly overtime, we are going to continue to chip away our de-leveraging and we want to continue to make progress in terms of our balance sheet and our balance sheet position.

Michael Glimcher

Nat, it’s Michael. I think on an overall basis, it’s real clear we want to bring portfolio leverage down if may not happen on an asset by asset case, it’s really more of a look at the total portfolio.

Nathan Isbee - Stifel & Nicolaus

Alright, thanks.

Operator

Your next question comes from the line of Ben Yang with Evercore Partners. Please proceed.

Ben Yang - Evercore Partners

Hi, good morning. Just a few more questions on Scottsdale, I read recently that the original multi-family developer actually bowed out of the project. So, first why did that original deal fall out? And maybe what were the terms of the new apartment deal that you just did, maybe the price that you sold the land for?

Michael Glimcher

Ben, it’s Micheal. I want to say we ran a process. We talked to a number of parties. We had one party who we were working with, who we really were not fully committed to, who decided to run their mouth off in the press. We’ve got a high quality group who has the site under contract who has non-refundable dollars at risk, who is in process. Marshall could certainly comment on where they are, they are in with the city. And we feel really confident about them. So, we are feeling really good about that and from a projection standpoint just like our office was at the top of market than our retail is, they believe it they will be at top of market as far as pricing side.

Marshall Loeb

Now – and Ben, I guess my color commentary I hate to disclose their price until we have closed, but as Michael said we had – we ran a process with CD, Richard Ellis as our broker. We had multiple bids, hotel and multi-family. Multi-family seem to be where that capital was. It’s a national group a name most of you would probably recognize, they have funds at risk, but are still working through the design review board process with the City of Scottsdale, which should be in the next call it 60, 75 days, they expect to come out. I guess the good news is there with 275 units, what’s taken it a little bit longer is there is more density. And so they are in the city for review and a little more high for us in Phase 3 which remains more people, more bodies all the things like that, but it’s going according to plan. It’s just a process and we feel comfortable with the pricing and their capability and knock on wood we will get there.

Michael Glimcher

Very excited. We have a lot of people knocking on the door of the management office wondering when they can live at Scottsdale Quarter.

Mark Yale

And I can’t say on the pricing front that the pricing does support what we paid for all of Phase 3. So, from that perspective it’s certainly in line and pretty consistent with that type of pricing.

Ben Yang - Evercore Partners

So, I understand that it’s a process, but I am just curious, was it their decision to get out of the deal? And do they express anything to you as the developer, something that gave them caution they decided not to move forward with it?

Michael Glimcher

No, Ben, I think there is a little confusion. We were working with someone who they opted – we opted not to work with them. And we found what we thought was a much more credible alternative and we found someone who wanted to add more density in a higher quality product. So, you had people out who didn’t have the site under control talking about the site. So, that we can’t control what other people say, but the party we are with, we have the contract with and we feel very comfortable with.

Ben Yang - Evercore Partners

Yeah, maybe the…

Marshall Loeb

Technically the first group we were never under contract, they have announced it. They made a public announcement while they are under letter of intent and have made comments even this year and for us. Again I think maybe I’d like to think it’s because of association with Scottsdale Quarter, which is unfortunate. This is the first contract we have had though in spite of what you may get Google alerts for.

Ben Yang - Evercore Partners

Got it. And then just also I think Michael you mentioned that there was a strong desire by you and the potential fashion anchor to do a deal. So, I am just curious what’s holding up the deal at this point? Do you think you could announce something maybe later this year? And is this the reason why the opening date got pushed back a bit from your schedule?

Michael Glimcher

It is. These deals take a long time. These fashion department stores do maybe a deal a year on average. There is obviously economic negotiations, there is first you create the desire for them to be at the site and then there is the economic side of things. So, again the desire is certainly there, the ability for us to deliver, and for the anchor to deliver is there, and now there is a lot of planning. And these things just they take a long time. I wish it would happen faster. I wish it was up and running. I am sure they do as well. They would be doing a lot of business, but everything is taking a little bit longer than we expected.

Ben Yang - Evercore Partners

You think you could announce something this year along those lines?

Marshall Loeb

It’s just speculation. I mean, based on where we are today if everyone is in agreement I would have a high level of confidence that we would be able to, but I don’t control what other people do. So, again I don’t want to be in a position to make promises that we don’t keep. We are very confident and the desire is very strong on both sides.

Ben Yang - Evercore Partners

Okay. And then just final question, it looks like the debt markets are getting pretty aggressive for say the B and even the C mall category. One of your peers just refinanced $270 per square foot mall that about 3.7% rate, does that surprise you at all and is there any way for you guys to take advantage of this agreement aggressive lending environment?

Mark Yale

Hey, Ben, it’s Mark, I mean we are certainly seeing that take advantage, I mean, what we are hopeful is that – that is going to spur some movement and start seeing some transactions in the B and C mall space and we said all along we let that to be a source of capital for us at the right pricing and we did take advantage of it at least earlier in 2012 at Puente Hills Mall, where we got non-recourse financing of 4.5% on Puente Hills so, if it certainly encouraging to see that market and for the assets that we have it gives us opportunity but hopefully more importantly we will start to seeing some transactions well because that would be certainly nice to have that as a source of capital down the road.

Ben Yang - Evercore Partners

Got it, alright, thanks guys.

Operator

Your next question comes from the line of Carol Kemple with Hilliard Lyons. Please proceed.

Carol Kemple - Hilliard Lyons

Good morning. Are you all looking at ground-up outlet development anywhere besides the Columbus market?

Michael Glimcher

Carol, it’s Michael, we haven’t announced any ground-up development outlet or otherwise I think from our perspective reinvestment in the course very important, acquisitions, very important to us that we take on a risk-adjusted basis, really the right place for us to spend money. We would certainly if we get mitigate a substantial amount of the risk, we look at ground-up opportunities, but when we look at priorities for us it probably – that probably falls down the risk quite a bit.

Carol Kemple - Hilliard Lyons

Okay. And then, have you all had any talk with your anchor retailers lately about buying the boxes and how are the Sears and JCPenney’s of the world feeling about selling their space?

Michael Glimcher

We meet with them quarterly, we meet with all of our anchor tenants quarterly, we have discussions with them, we know what we would like to own and so are there any current discussions going on, nothing that broad with those two tenants, no, would we desire to get some of the real-estate back overtime sure, we’d also desire for them to succeed as retailers as well.

Carol Kemple - Hilliard Lyons

And on the leasing side, do you see a preference for the small shop retailers? Would they rather go into a mall with 3 or 4 anchors or a mall with 2 anchors and 1 redevelop anchor space with maybe a nice restaurant and several shops? Is there a difference between the number of anchors or they just really care about the overall sales of the mall?

Marshall Loeb

Carol, it’s Marshall, I think the care about, well, I’d say a little bit more of the overall sales in the mall and really through depending on the retailers who they are specific pears, I mean, we give them aggregate sales for the mall and sales per square foot, but then in those negotiations if it’s junior fashion, they will ask about The Buckle and American Eagle and Aeropostale and Hollister and how their performance is and if you got above average store for their pears that’s usually what they like to see and on anchors they’d like to see the anchors, I think what’s interesting and may be you touched on it, was Sears and Penney’s, and a little bit with our acquisition in Fort Worth, it’s really what is an anchor now that it’s organic grocers and the apple stores and lululemon and people like that they really function as well as an anchor to attract that net retailer as much as kind of the former traditional anchors here. I think we’ll do better at Polaris with the lineup talking to then we did with great endowers, which was an anchor. We’ll have more sales volume draw more shoppers, once we make that transformation.

Carol Kemple - Hilliard Lyons

Okay, thank you.

Marshall Loeb

You’re welcome.

Operator

Your next question comes from the line of Daniel Busch with Green Street Advisors. Please proceed.

Daniel Busch - Green Street Advisors

Thank you. You guys have talked about University Park being a single-digit OCR. What would you say that normalized OCR is for that lifestyle-type University Park, Town Center Plaza type center?

Michael Glimcher

Probably – probably at about six, is that – our occupancy cost, what is the normal occupancy cost?

Daniel Busch - Green Street Advisors

Yeah.

Michael Glimcher

Look I’m sorry (indiscernible), I think it’s probably 15% you could probably go to.

Daniel Busch - Green Street Advisors

Okay so not much different from the – I guess your enclosed malls.

Michael Glimcher

Yeah, when you are performing at $800 per square foot and may be 100 to so off with Apple out of the number, you can push rents up pretty high, centers that do over $500, $600 a foot could comfortably afford a 15% occupancy cost whether it’s in closed mall or open-air center, I think like in the last question when Marshall talked about it just all about performance at the performances there and the like tenants are performing, people could pay a pretty high occupancy cost.

Daniel Busch - Green Street Advisors

Right. I guess, when I think about your goal of 14% and with maybe the lifestyle centers becoming a bigger part of the business and then the outlets becoming a bigger part of your business just with the two redevelopments and those OCRs being probably closer to 8% to 10%, how do you see – is 14% still the appropriate kind of benchmark for you guys or is it something maybe a little bit lower now that the portfolio of mix is changing?

Michael Glimcher

Well, as it relates to the open air versus the closed mall, I don’t think it changes, Ed. Certainly, on outlet you would expect it to be a little bit lower, but I think on a weighted average, I mean, what’s it going to be a 100 basis points at the most that our outlets going to affect the full price. So, we have got a lot of runway. I mean if we never hit the 14%, if we get a 12% or 13% or 13.5%, you are going to have major NOI growth within the portfolio. So, we have got a lot of room to move. And then a lot of cases, I wish we are realizing the revenue now, but I like the opportunity for the upside and I think whether you compare us to people performing above us or below us, we have got a lot more runway to most.

Daniel Busch - Green Street Advisors

Okay. And then I guess one question on River Valley, sales were down slightly, what makes you guys decide to move that into, I guess, your Tier 1 pool, I guess what changed I guess in your minds on that property to make the change?

Michael Glimcher

We have sales thresholds. We drew a line and we have a $300 plus sales threshold, I mean, but you look at the category for us, it’s more like a $475 average, but it broke the threshold that we have put in place.

Daniel Busch - Green Street Advisors

Okay, alright. Thanks.

Michael Glimcher

Thanks a lot, DJ.

Operator

Your next question comes from the line of Quentin Velleley with Citigroup. Please proceed.

Quentin Velleley - Citigroup

Good morning. Just in terms, can you just give us some more detail in terms of what’s happening in the Eastland mall, I know occupancies dip below 75%, I think you’ve got a vacant anchor in there. And yet the implied sales productivity is actually held up and grown this year, so can you just sort of give us a little bit more detail as to what’s going on in the asset?

Mark Yale

Quentin, it’s Mark. I mean, that has been interesting in line sales have continued to track well and not just on an aggregate basis, but also on a comp basis. So, we talked about Eastland being a viable center. We think it is viable. We have had a vacant anchor for quite a number of years, but we do have three anchors that are performing right now. And it’s just a situation where we have too much data on the property, and we have commenced discussions with special servicer to see what our options are. At this point, it’s just would be speculative to comment on the timing and an outcome, but if you want to emphasize, I mean the percentage of Eastland of our NOI is less than 2%. So, it’s a very small piece of our portfolio, but it is interesting how sales have actually tracked very favorably over last couple of years, and actually said that’s why we believe it is a viable center and does serve its trade area.

Quentin Velleley - Citigroup

Can you give us maybe a sense of what the debt yield is on that mortgage?

Mark Yale

You are probably looking at somewhere in the high single digits, 7%, 8% kind of debt yield.

Quentin Velleley - Citigroup

Okay. So, it’s cash flow positive after interest expense. And then in terms of the timing with the special service provider, can you give us a sense on how you expect the timing to play out?

Michael Glimcher

Quentin, I wish I could tell you, we never know these special servicers tend to not move all that quickly. So, we have engaged we are in the process. We are talking about it. There is clearly more debt on the asset and there should be, but as you noted, it’s probably a viable asset for someone.

Quentin Velleley - Citigroup

Okay. Just lastly, Tulsa starting in contracts the sale, what’s the rough cap rate on that?

Mark Yale

Yeah, until we get under contract, I mean we are not going to get into speculation on that, but I think as we said in the last call, I mean it is a – it will be a double-digit cap rate.

Quentin Velleley - Citigroup

Okay, thank you.

Michael Glimcher

Thank you.

Operator

The follow-up and final question will come from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas - KeyBanc Capital Markets

Hi, thanks. Just wanted to follow-up on RJ’s question a bit regarding same-store NOI, I am just wondering how we should think about the mix within the year, I mean, does it seem right to think that it would sort of be a slower ramp earlier in the year with an acceleration taking place later on. Also at that point, I guess the outlook question redevelopments are both completed in the second half. And so I know you are not giving guidance for 2014 obviously, but would it be sort of fair to think that between the comps you are cycling and the timing of the commencements that maybe the four quarters standing second half of ‘13 and the first half of ‘14 would sort of be at the higher end of the range just trying to get a sense of what we might expect over the coming quarters here?

Mark Yale

Hey Todd its Mark. I can speak to 2013. I mean, I think you will see the weakest growth in the first quarter and then really things pick up in the second and third if you think about a lot of our re-tenanting activities, that’s when we had the downtime was the second and third quarter. We’ll still see strong fourth growth, but the second and third quarters were actually the highest growth. And then we certainly are anticipating a nice growth profile in the 2014 and you are right certainly Seattle and what we are doing at Jersey, you will see a lot of the benefits in the first couple of quarters first really three quarters as we get into 2014.

Michael Glimcher

And we will still, I guess I would add, I mean where we did an abnormally large amount of re-tenanting last year, but I think over 95% with no new development we shouldn’t rest on our laurels and we need to keep re-tenanting this year. So, we’ll have new space that goes offline this year and we will retain it, but we’ll be building from a stronger higher base. And then we will hopefully do that. I think that’s what will play out the next three, four years if you really guess for us and our peers. Everybody is pretty full. It will take years to deliver new supply and we should just keep rolling better tenants in.

Todd Thomas - KeyBanc Capital Markets

Okay, thank you.

Michael Glimcher

Welcome.

Operator

With no further questions in queue, I will turn the call back over to Ms. Lisa Indest for closing remarks. Please proceed.

Lisa Indest

Thank you, everyone for participating in the Glimcher Realty Trust fourth quarter conference call. You may contact us directly with any additional questions or access our filings through glimcher.com.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.

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