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Glimcher Realty Trust (GRT)

Q1 2010 Earnings Call Transcript

April 21, 2010 11:00 am ET

Executives

Lisa Indest – VP, Finance and Accounting

Michael Glimcher – Chairman and CEO

Mark Yale – EVP, CFO and Treasurer

Marshall Loeb – President and COO

Analysts

Todd Thomas – KeyBanc Capital Markets

Quentin Velleley – Citi

Ben Yang – Keefe, Bruyette & Woods

Carol Kemple – Hilliard Lyons

Rich Moore – RBC Capital Markets

Operator

Good day, ladies and gentlemen, and welcome to the 2010 Glimcher Realty Trust earnings conference call. My name is Derrick and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today, Ms. Lisa Indest, Vice President of Accounting and Finance. Please proceed, ma'am.

Lisa Indest

(inaudible) Last evening, a copy of our press release was circulated (inaudible). Copies of both the press release and the first quarter supplemental information packet are available on our website at glimcher.com.

Certain statements made during this conference call, which are not historical, may be 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 today, please refer to our various SEC filings.

Management may also discuss certain non-GAAP financial measures. Reconciliations of each non-GAAP measure 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 Glimcher.

Michael Glimcher

Thank you, Lisa. Good morning, everyone, and thank you for joining us on today’s call. Here at Glimcher, we are quite pleased with the start of fiscal year 2010. We have made considerable progress on the liquidity and capital fronts and delivered solid financial results for the first quarter, which were supported by stronger than expected property operating fundamentals.

Let me begin by addressing the accomplishments made over the last several months in enhancing the company's balance sheet. As discussed during our previous earnings call, closing on these important capital transactions was a major focus for us and we are proud of our team's successful execution on all fronts.

First, in early March, we closed on the amended and extended corporate credit facility, providing the company with enhanced flexibility and term through the end of 2012. Later in the month, we closed on the Blackstone joint venture, generating $60 million of net proceeds that were used to reduce borrowings under the credit facility.

Then in late March and early April, we closed on the financings of both Polaris Towne Center and The Mall at Johnson City. Both loans have 10-year terms, are non-recourse, and have a fixed interest rate of 6.76%. We were also able to generate over $20 million of excess proceeds from these loans that were used to reduce borrowings under our credit facility.

These transactions not only represent a positive step for our capital structure, but they are also indicative of notable improvement in the broader capital markets. Through these transactions, we have fully addressed all of our 2010 debt maturities and have reduced outstanding borrowings under our credit facility by approximately $120 million since year-end.

We are excited about the significant progress, but do not – but do understand that risks continue to remain within the marketplace. We also recognize that there is more work to be done on the deleveraging front and even though we have more flexibility and time to execute on our strategy, we are not going to lose our acute focus and intense sense of urgency in terms of addressing our balance sheet.

We are encouraged by the incremental improvement in both the capital and debt markets over the last quarter and will continue to look at a host of options of raising capital. Once again, we don't need to do something immediately, but will be opportunistic as market conditions warrant on a basis which is consistent with the company's long-term objectives.

Mirroring the incremental improvement within the capital markets, we are also seeing positive signs with respect to the operating environment. Following a profitable holiday season for retailers, sales trends for the first quarter were solid. In fact, we saw the first growth in quarter-over-quarter comp store sales in several years within the portfolio. Our retail partner sales were up 4% over the first quarter of last year.

We are also starting to see leasing activity accelerate. We signed over 3,000 square feet during the quarter while generating positive re-leasing spreads for our mall stores of 11%. Additionally, we were also able hold total mall occupancy flat when compared to the prior year.

Finally, tenant bankruptcy activity remains muted so far in 2010. In fact, we lost no national tenants to bankruptcy during the first quarter of this year. This positive momentum in part helped support our reported $0.23 of FFO per share, which was ahead of our initial guidance range going into the quarter.

Retailer confidence is clearly growing. Where new opportunities make sense, we are seeing an enhanced openness to getting something done as evidenced by our first quarter leasing activity. Retailers are certainly pleased with the progress made over the last year, but very few are ready to declare that the consumer has fully recovered. Accordingly, we are still seeing and sensing a cautious approach with respect to allocating capital and business expansion.

The leasing environment has improved, but it's far from ideal at this point. Accordingly, we will need to maintain our sense of urgency as we continue to focus on renewals and new leasing opportunities within the portfolio.

Another priority for 2010 is completing the initial leasing for our $250 million Scottsdale Quarter development project. While there is inherent risk with all ground-up development, Scottsdale Quarter provides the company with significant upside opportunity upon stabilization.

Accordingly, Scottsdale will remain a primary area of focus until the company completes the initial leasing for this first class asset. Phase one came online during 2009 and we have now addressed in excess of 80% of the retail leasing for both phases one and phase two. When stabilized, this property should perform at the highest levels of our portfolio on all metrics.

As we mentioned in our last call, Scottsdale Quarter has allowed us to add new retailers to the Glimcher platform including Apple, H&M, and West Elm. An added benefit is that this has led to discussions regarding potential leasing activity with these types of retailers within other Glimcher properties.

Finally, we continue to build on our best-in-class operating platform through process improvement and technology. Leveraging our platform by attracting additional third-party capital will be an important way for Glimcher to grow in the future. We have certainly proved our ability to secure new capital during a challenging 2009 and are confident that we can duplicate these successes in attracting capital for growth and a healthier 2010 and beyond.

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

Mark Yale

Thank you, Michael and good morning. As Michael mentioned, we reported FFO per common share of $0.23 for the first quarter of 2010, which fell above our guidance range going into the quarter. This upside was driven primarily by the later-than-expected closing date of the Blackstone transaction and stronger-than-anticipated mall net operating income. Minimum rents that came in above forecast due to a low level of store closings and bankruptcies led to the strong NOI performance.

The first quarter results also reflected the deconsolidation of our Lloyd and WestShore properties upon closing of Blackstone JV transaction and the consolidation of our Scottsdale Quarter joint venture as of the beginning of the year as required to the implementation of FAS 167. Focusing on our mall operating performance, comp mall NOI was down by approximately 2% for the first quarter, driven primarily by negative trends in percentage rents and tenant recoveries from the first quarter of 2009.

We anticipate that the first quarter upside and FFO per share will be offset by $600,000 that defeasance charges incurred in connection with the refinancing of The Mall at Johnson City and greater than originally expected loan fee amortization involving a recent credit facility modification. Accordingly, in the release, we did reaffirm our guidance for fiscal year 2010 at an FFO per share range of $0.76 to $0.82 per share. There were no other major changes to the guidance assumptions that were previously disclosed.

We also provided FFO per share guidance for the second quarter of 2010 in the range of $0.13 to $0.16. The assumptions driving the guidance include net fee income of $600,000 to $800,000, lease termination income of $300,000 to $500,000, and a decline in core mall NOI of between 2% to 3%. The guidance also includes the $600,000 of defeasance costs on The Mall at Johnson City refinancing previously noted.

Turning our attention to the balance sheet, through the recent refinancings of Polaris Towne Center and the Mall at Johnson City, we have now addressed all of our 2010 mortgage debt maturities. This assumes the exercise of the available extension option on the Puente Hills joint venture mortgages. We have given formal notes to lender of our intent to extend the maturity date to June of 2011 from a traditional maturity in June of this year.

After applying remaining proceeds from September equity offering and net proceeds generated from the Blackstone transaction, we finished the quarter with $226 million outstanding on our credit facility.

That said, I'd now like to turn the call over to Marshall.

Marshall Loeb

Thanks, Mark. As Michael mentioned, we are working through a challenging environment that commenced back in 2008. The good news is we see the wins beginning to shift. From the leasing front, we experienced the typical seasonal decline with respect to in-line occupancy following the 90.5% as of March 31st. This represents an 80-basis point decline from March 31, 2009, but is a significant improvement from under 90-basis point delta that existed on 12/31/2009.

Additionally, total occupancy including anchors was consistent with occupancy levels from last year. Based upon results through the first quarter, we still expect to finish the year with in-line occupancy between 92% to 93%. We are also encouraged by first quarter portfolio sales trends. As Michael mentioned, we experienced our first positive quarterly comp in years with sales posting a 4% increase including a 9% increase in the month of March. This performance from our portfolio was in line with the monthly sales gains reported nationally by retailers during the quarter.

Additionally, with a total portfolio occupancy cost of 13%, we are well positioned to drive rent if sales continue improving. Certainly, the operating has improved from a year ago. Sales are improving, profitability is up, bankruptcy activity has been minimal, and we are beginning to see retailers shift from a survival mode to start focusing on growth again. This change is evident within the first quarter leasing activity in which we signed over 300,000 square feet of leasing – leases with positive spreads of 11% for in-line stores and 16% for anchors. The 300,000 square feet sign represents an almost 40% improvement from first quarter 2009.

Looking ahead, the number of leases approved by real estate committee, which then move into lease negotiation, rose by over 40% from first quarter 2009. While the quarter does not a trend make, we are pleased with the strong start to 2010. A few notable signings in the first quarter include TJMaxx at Ashland Town Center, Dick's Sporting Goods at River Valley Mall, and VF Outlet at Jersey Gardens.

We've also made good progress on our 2010 renewals with over 70% being addressed. While we are encouraged by the relative improvement from last year, challenges still exist. With unemployment remaining stubbornly high, many retailers remain cautious about allocating new capital and few are showing any real sense of urgency with respect to getting new stores opened.

Additionally, beyond the well capitalized public retailers, the smaller regional retailers still struggle to access capital. Accordingly, we are not taking for granted the progress that's been made and we will maintain the same level of energy and focus as we continue to leverage our retailer relationships.

Michael mentioned we are excited about the progress we are making with respect to Scottsdale Quarter. In fact, we've signed nearly 600,000 square feet of retail and office leases over the past four months. As a reminder, phase one opened in 2009, with phase two grand openings scheduled for fall of this year.

With respect to office in the project, the uniqueness of our offering continues to make a difference. I'm pleased to see our leasing discussions continuing with a nice mix of small and large square foot users with a pipeline totaling almost 90,000 square feet. If these prospects become signed leases, we'll keep you updated on our progress.

Finally, with the little or no retail supply nationally coming out of the ground and with regional malls remaining the preferred distribution network for retailers, we remain optimistic that with well-located assets occupied in the 90-plus-percent range, we are well positioned to take advantage when retailers gain the confidence to begin expanding again.

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

Michael Glimcher

Thank you, Marshall. With the meaningful progress made on the balance sheet, we can now focus on the next phase for the company. We believe our size puts us in a unique position with a large enough platform to be in the leasing game, but small enough to be nimble and responsive to our retailers, our partners, and the market.

Additionally, with our size, a handful of strategic assets can dramatically change the makeup of our portfolio as we continue to focus on upgrading its quality. This organization is poised to capitalize on opportunities to grow the platform and enhance quality.

Operationally, we are best in class. We can have and will deliver solid results in line with and in many cases, would surpass our peer group. We will leverage our base and our premier team and continue to take advantage of opportunities within the marketplace. This all bodes well as we put the challenges of 2009 behind us and look forward to improve performance and future growth in 2010 and beyond.

Now with that said, we'd like to open up our call for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). I have the first question coming from the line of Todd Thomas, KeyBanc Capital Markets. Please proceed.

Todd Thomas – KeyBanc Capital Markets

Hi, good morning. Jordan Sadler is on with me as well. In terms of your balance sheet, you talked about the accomplishments year-to-date and you mentioned that you have a little more time, but continue to focus on deleveraging over the long term. I was just wondering if you could provide some more context around that strategy going forward and where you sort of see the primary focus being.

Michael Glimcher

Good question and thanks. We've made terrific progress so far this year in improving our liquidity position. We just recognize that we still have some work to do to meet our longer-term objectives. We are targeting leverage in the probably 50% to 60% range and debt-to-EBITDA ratio between 7 and 8 times. Again, we can be flexible, but we will be opportunistic in raising capital as market conditions warrant.

Todd Thomas – KeyBanc Capital Markets

Okay. Do you think that joint ventures continue to play a large role in that process?

Michael Glimcher

I think more on the growth side, joint ventures will be important. That’s clearly a way that we can leverage our platform. We are certainly desirous of growing our joint venture with Blackstone as they are desirous of growing that platform. So I see that more as an opportunity to grow externally.

Todd Thomas – KeyBanc Capital Markets

Okay. And then I think with the leasing pipeline was mentioned talking about the 40% growth I guess year-over-year in the first quarter, but can you just provide a little color around some of the leases that are in that pipeline or sort of the amount and if there is any new relationships that you are working with right now?

Marshall Loeb

Sure, Todd. This is Marshall. There is – as you would imagine, it's a pretty broad – the good news is it's a pretty broad mix and there is some – and really runs through the portfolio. It makes me happy to see. So we are north of 300,000 square feet signed in first quarter and again, that's above 400,000 square feet.

Again, TJMaxx, Old Navy at Ashton Town Center is opening up. Old Navy downsized at Jersey Gardens, VF Outlet came in, a retailer we are talking to, a new relationship with Charming Charlie, we've signed a lease for Polaris and we are talking to them about some other properties of ours.

We are – and then looking ahead at our pipeline, I guess what makes me feel better about just in terms of number of deals and this isn't square footage. So before I'm measuring 40% on square footage, this is just sheer deals that came through our committee and then moved to the lease process, we were up a little over 40% in first quarter and actually, up over 20% over '08. And that totals about 0.5 million square feet, kind of in the pipeline excluding Scottsdale. So that's about 8% of our occupancy.

Michael Glimcher

This is Michael. I would add, as we said earlier in our presentation, what's been really interesting about our Scottsdale development while we are not prepared to announce signed leases or state names, many of the retailers who we have signed leases with or who are part of the Scottsdale project, that opportunity has opened doors for us and we've been able to have portfolio reviews and look at other opportunities within the Glimcher portfolio.

So as we look our over the next 12 to 24 months, I think you'll see a number of stores that are in Scottsdale that aren’t presently in the Glimcher portfolio that will be in the Glimcher portfolio. So that's provided a great opportunity for us.

Mark Yale

Yes. And this is Mark. I would just add as Marshall went through the activity, it was beyond just our top property. That was really throughout the portfolio and that's very encouraging and we are having good dialog across all of our properties at this point.

Todd Thomas – KeyBanc Capital Markets

Okay. And then just lastly, with some of the leases that were signed in the quarter, what were the TI's like with maybe the TJMaxx or the Dick's? Can you talk about some of the costs that were associated with those leases?

Marshall Loeb

I'm trying to remember, Dick's – TJMaxx took an old Goody's space in Ashland Town Center. That one, it's probably not unusual there probably – it's probably something like a 10-year lease and we gave them, it's probably a three-year payback. I'm doing that from memory, something like that, which is dangerous. Dick's Sporting Goods, we'll deliver this space at River Valley Mall. That one, we actually – it's – it was one of the first malls the company developed back in the mid-80s.

So part of our pitch to them was our plans, kind of like in Ashland, what we did a couple of years ago. We will renovate the mall, add new common area flooring, things like that. So we think we are kind of – this is the Phoenix aspect of River Valley Mall, so kind of reborn again with that opportunity. So it's probably a little bit higher, higher TI's when you pull everything in, but that will give us a new flooring and a lot of renovations within the common area.

Michael Glimcher

But I would say by and large, the leasing activity, these are market deals and they are not so far inconsistent with deals that we have made in previous years throughout the portfolio.

Mark Yale

I was mentioning, our CapEx on non-anchor stores was actually down in first quarter compared to prior year. So we signed a lot of leases. Some timing lags and things like that, but the absolute number was down.

Todd Thomas – KeyBanc Capital Markets

Okay. Thank you.

Marshall Loeb

Yes, you're welcome.

Operator

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

Quentin Velleley – Citi

Good morning, guys. Just looking at leasing spreads which have been pretty strong over the last two quarters, is that thing driven by any assets in particular? If I was to look at it, I would assume that assets like Jersey Gardens or Polaris would be skewing those numbers, so you are getting much stronger leasing spreads out of those assets, which is helping out. Is that the case or is this more across the board?

Michael Glimcher

Quentin, why don't I comment generally and then as Marshall kind of gets into the data here, I'll let him add on. What's been really interesting through this downturn is you look at the performance in our portfolio and our retailers maintain about a 13% occupancy cost portfolio-wide, you look at how properties have operated, in fact, the mall, Marshall mentioned earlier River Valley Mall was one of our best performing properties.

We've had good performance throughout the portfolio and we've had a broad amount of leasing activity. It's not been – maybe like the thesis is specific to a Jersey or a Polaris, it's really been portfolio-wide and it – I wouldn't say that there is – some people will speculate that maybe some of the top-tier assets have performed better from a leasing standpoint or just a performance standpoint. The truth is through this downturn, our smaller market malls performed, if anything, better and more consistently. I don't know, would you want to add to that, Marshall?

Marshall Loeb

Yes, I think I would agree. I think if you probably look at our two re-leasing spreads on the anchor front, there is not that many and it really was Jersey Gardens driving it. The Dick's Sporting Goods have been have been vacant for over two years, so we don't measure the re-leasing spreads there. We just try to be conservative on how we calculate that. And then at Jersey, it was Old Navy downsized, renewed, and VF Outlet, which I mentioned, came in. So there – that was really most of our drive in the re-leasing spread. That was a nice pickup. TJMaxx picked up, but really Jersey drove the 16% and anchors just with a handful of deals.

As Michael mentioned, on the leases, the small line – small shop space, it really is throughout the portfolio. There are some of our small Ohio markets. I'm looking at Johnson City, Tennessee, and there is certainly Polaris and Jersey and some of those in there, but it's too broad of a basket for those to really drive it

I would say, looking ahead, we are pleased with 11%. We are still saying 5% to 10% for the year, we've had a nice pickup over the several quarters in our re-leasing, but it always worries me when I see our peers and some things like that that eventually law of averages – if they're – they've been negative some quarters and things like that. So I keep waiting for the shoe to drop on our end, but I probably over-worry that.

Quentin Velleley – Citi

Yes. So if you look at the trade area dominant assets, which are the lower sales productivity ones, you've not seen flat or negative leasing spreads on that portfolio of assets?

Marshall Loeb

Well, we did. I mean, again, it's really space by space. We see nice gains on those and we see the going negative at our top tier, as well as some of our bottom tier as well. It just depends on really who is coming and going.

Michael Glimcher

I think the big difference you are going to see in the performance of those assets, I think when things get really difficult, they don't drop as much and when things get exceptionally strong, they don't rise as much. Their bandwidth is just a lot narrower than some of the higher productivity malls. But again, these have been stable, steady assets. They've been good contributors to the portfolio from the beginning.

Quentin Velleley – Citi

Yes. And so if we go across and look at the joint ventures and you spoke about doing – potentially doing additional joint ventures, and I've got the feeling that you are not looking at doing JVs of existing assets so much anymore, but it's rather going to be an expansion of the relationship with Blackstone. How do some of the potential outcomes with the general growth situation impact that strategy?

Michael Glimcher

It's such a tough situation to speculate on and I don't know which way the broader deal will go. Clearly, in any situation, there is going to be some amount of de-levering or some amount of asset sales and I would think in an organization like ours that's well positioned to handle those assets, certainly aligned with a strong strategic partner with certainly a lot of know-how and a lot of capital would be in a good position to have the opportunity to pick up some assets, but it's just such broad speculation at this point it's hard to say what the outcome would be.

We are – all I could say is we are well positioned to take on additional assets and we have a high-quality partner that has a desire to take on additional assets.

Quentin Velleley – Citi

All right. Okay, thank you.

Operator

Your next question comes from the line of Ben Yang with Keefe, Bruyette & Woods. Please proceed.

Ben Yang – Keefe, Bruyette & Woods

Hi, good morning. Michael, just looking at your lease expiration schedule, it looks like you are still doing some short-term deals for your mall tenants in that you have to address considerably more expirations in 2011 and 2012 than you showed last quarter, and it's somewhat contrary to the strong re-leasing spreads that you reported during the quarter. Can you help me understand what the dynamic is between you and your tenants as you negotiate leases?

Mark Yale

I'll let Mike get that. This is Mark, let me just comment first. You've got to be careful. You really need to look at a year ago and look at compared to the first quarter and where the expirations are. If you look at it, there have really been no material changes in terms of how our expiration schedules played out. We have and Michael can comment in terms of the fact we have done some shorter-term renewals, but it's really hard to see those kind of numbers bear through in the expiration schedule in any meaningful way.

Ben Yang – Keefe, Bruyette & Woods

Okay. So it sounds like that the request for any type of concessions are slowing from your tenants?

Michael Glimcher

We spoke about this, we recently were on a panel at the Telsey retail conference. And it was really interesting because there were probably, I don't know, 80 different retail CEOs and CFOs presenting and we were part of a landlord panel and one of the questions that was asked actually by one of your former co-workers was while all these retailers are getting these great concessions and all these landlords are saying that that's not the case.

And our response was I looked at what Marshall and our leasing team were able to accomplish last year and we started the year flat as it related to re-leasing spreads, we ended the year with 10% positive in the fourth quarter and 4% positive for the year. We lost about 200 basis points of occupancy and a little over 3% or so of NOI.

So when you look at the correlation there, there were certainly gives and there were certainly concessions that were made. I think the first half of this year, we'll live with the annualized effect of that, but the requests for rental reductions and the amount that were granted versus amount that were asked for were two totally different things. So I think that really has abated significantly.

Ben Yang – Keefe, Bruyette & Woods

Okay. And then just moving on, when I look at your significant tenant list, it looks like you are getting a lot more rent from The Gap than you did – or that you disclosed just last quarter, but it doesn't look like you have any more Gaps in your portfolio. I'm curious why they would necessarily pay more in rent when they probably still have leverage over you guys, given obviously how difficult the consumer spending environment is.

Mark Yale

Yes. Hey Ben, it's Mark. There were some co-tenancy issues and we were probably conservative in terms of where we were at some stores. I think it was the Jersey Gardens that all got worked out and through some of the renewals that Marshall discussed. So that's reflective of getting that booked and we were able to increase kind of the annual rent overall from where we were at the end of the year as getting those leases cleaned up.

Ben Yang – Keefe, Bruyette & Woods

So you expected there to be co-tenancy issues that didn't necessarily surface?

Mark Yale

Well, there were. They were not addressed at the end of the year. So we can't speculate and certainly we were anticipating that it would get addressed, but that's where we were. There was nothing legally addressed as of the end of the year, that got sorted through in the first quarter.

Ben Yang – Keefe, Bruyette & Woods

Okay. And then just final question, going back to the de-leveraging. I'm just curious how you would necessarily rank or prioritize the various capital-raising alternatives. I mean, is it fair to assume that maybe issuing equity is more attractive than doing joint ventures given where your share price is today?

Michael Glimcher

It's tough. We don't want to speculate on any market activity. We said we are going to be opportunistic as the market bears.

Ben Yang – Keefe, Bruyette & Woods

Okay, thank you.

Operator

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

Carol Kemple – Hilliard Lyons

Good morning. At this point, do you all still feel pretty confident in your $0.40 dividend for 2010?

Michael Glimcher

It's Michael speaking. We are certainly comfortable, we are at about 70% payout, very comfortable level. And I would say all else being equal, we like the dividend where it is. It's certainly a Board decision that we'll discuss on a regular basis. But all else being equal, that's the run rate that we have built into our numbers.

Carol Kemple – Hilliard Lyons

Okay. And at this point, are all your malls still cash flow positive?

Michael Glimcher

Yes, they are.

Carol Kemple – Hilliard Lyons

Okay, thank you.

Operator

(Operator Instructions). Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Rich Moore – RBC Capital Markets

Hello, good morning, guys. As far as raising capital, is the sale of – the outright sale of assets on the table?

Michael Glimcher

I think – Rich, it's Michael speaking. We are always opportunistic. We like the size we are, we'd like to incrementally grow our size from here. We certainly have sold off some of our lower-tier assets, probably with some really nice timing. But all else being equal, we prefer to grow the platform and move forward and look at external JVs and that sort of thing versus selling assets.

Rich Moore – RBC Capital Markets

Okay, I got you. And then, flipping that around on the acquisition front, obviously general growth is, as you pointed out, a potential possibility. Is there anything else out there that is of interest, I mean – and could that go beyond straight typical regional mall product?

Michael Glimcher

I think it's important for us that we have a universe of retailers we work with. If you look at our Scottsdale opportunity, it's open air, but the retailers that are in there, like an Apple and a Nike and an H&M and others, are mall tenants and they are also open-air tenants. I think if – whether it has a lid on it or not is probably not what's most important. It's really the universe of retailers and what else is interesting for us is one to five assets really move the needles – the needle for us based on our size.

So they are still not a huge amount, but there are a number of assets that are in private hands or a number of one-off assets. So I think for us, it doesn't take a lot to move the needle, another positive of our size. So we are certainly out there looking for opportunities as we de-lever and play defense, we are also looking at the offensive side of the ball and saying, how do we grow this business.

Rich Moore – RBC Capital Markets

Okay. Is it fair to say, Michael, that you are looking at some things at this point or is it still a bit early as far as specific opportunities?

Michael Glimcher

I'd say we are starting to look at opportunities and we have been all along and certainly as we've aligned ourselves with a strong partner, it's really opened the door to look at more opportunities.

Rich Moore – RBC Capital Markets

Okay, good. Thanks. And then on the big-box front, I think you said you replaced a Goody's with a TJMaxx. What other – I'm trying to figure out, I guess, whether the big-box interest from new big-box space – retailers wanting to put in new big-box space is beginning to dwindle because the good spaces are gone? Or do you still see the TJMaxx-es of the world looking for more of these spaces? And I guess as part of that, how many more of these do you guys have that you are trying to address?

Marshall Loeb

Yes. Rich, this is Marshall. I think that a couple of things on the broad picture, I think the mall, since the construction stopped and there is no new strip center development and some of those strip centers are the ones that have really been hit hardest on the big-box vacancies. The malls are probably relatively better positioned to pick up activity is kind of how we look at it. And then just if this helps, it's just pure numbers, if I – last year, we opened eight anchors. Only one of those was at Scottsdale, that was about 300,000 square feet and this year – which is a lot for us.

And then this year, we have 10 anchors really in the pipeline and only one of those is at Scottsdale Quarter. So it's a variety of different – some of the names we mentioned, the Forever 21s, Belk, LA Fitness, H&M, all the names you would expect. Round one is an interesting one coming out to our Puente Hills mall in Los Angeles.

So it's a pretty diverse list of retailers and for us, we've really had a pickup, thankfully, in kind of big-box activity over the last year or two. And we are viewing it as some of these strip centers have failed and the malls have hung in there. Our traffic was – still been virtually flat through this downturn. And even the pickup in first quarter, it was still flat traffic basically.

Mark Yale

Yes. But you are seeing discussions with PetSmart, Toys R Us, HHGregg, Best Buy and interested in the mall. So – I mean, that’s something that probably has picked up significantly from where we were a year ago and probably Michael, you would agree, historically.

Michael Glimcher

It certainly has and I think as Marshall said, there is just very little ground-up activity and the mall has proven itself to be a resilient asset class. The whole peer group is operating at 90% or north on average and generating traffic as we've said and it's been consistent through the downturn. So I think a lot of these big-box retailers are realizing that they want the benefit of their outside door, but also the opportunity to be connected with that mall traffic.

Rich Moore – RBC Capital Markets

Okay, good. Thank you. And Marshall, remind me, how many of those empty anchor boxes do you have still that you are working on?

Marshall Loeb

Rich, I'd have to get back to you.

Rich Moore – RBC Capital Markets

Okay, that's fine. Thank you.

Marshall Loeb

Yes, I think – yes, it's probably a handful. And some, we are talking to if it helps. There is one and this is a middle-tier asset. They are looking at going on the front of the mall and if you looked at the plan, you wouldn't call it a vacant anchor. We'll have to create – move some small shops around creating some space for them is what we are working through with them, but probably a handful exist today and we may create a few more to this list.

Rich Moore – RBC Capital Markets

Okay. And then on the occupancy front, what is the – what would you say the target for small shop occupancy at year-end '10 is?

Michael Glimcher

We've said that we are going to be north of 93% by year-end.

Rich Moore – RBC Capital Markets

Is that – that's overall, though, right, Michael?

Michael Glimcher

Yes, overall, right around 93%. I think in line somewhere between 92% to 93%.

Rich Moore – RBC Capital Markets

Got you. Okay. And then last thing, Mark, is when exactly did the Blackstone venture close in the quarter?

Mark Yale

There were six days of activity reflected in the income statement in the month of March.

Rich Moore – RBC Capital Markets

Okay, terrific. Thank you, guys.

Operator

Your next question is a follow-up question from the line of Quentin Velleley with Citi. Please proceed.

Quentin Velleley – Citi

Hi, just curious on The Mall at Johnson City and Polaris in terms of the refinancings that you've done and what the underwriting standards were, whether you can disclose on a loan-to-value basis or maybe a debt yield basis, what kind of ballpark ratios those mortgages were done at?

Mark Yale

Yes. Quentin, this is Mark. I think if you look at loan-to-value, probably 60% to 65%. We would probably argue on a very conservative appraisal basis because you are talking about appraisals today, and I think debt yield is somewhere between 11%, 12%, 13%, 14%.

I would comment as it relates to underwriting and contrasting this process with the last time we did CMBS in the heyday that it was a thorough underwriting and they were underwriting as if they were going to hold the assets and it was a very detailed process, which hopefully will continue because I think that's the way it needs to be. We need the CMBS market, but it needs to be done right and I think it was a real good balance in terms of what we went through in terms of those two loans.

Michael Glimcher

I do think debt yield is a good way to look at it because when you look at the appraisals, probably the loan-to-value that Mark was quoting are probably 10% or so or more higher than where they really would be if you think of what any reasonable long-term value would be on the assets.

I think also the important thing to point out is even if those – at that pricing, with those proceeds, we were able to pull an additional $20 million out of those two assets, really shining a light on the fact that our leverage was really at the corporate level that we've aggressively gone after $120 million or so this year. But it's really not an issue at the asset level on average. And when you can pull $20 million out in an environment like this, I think that speaks really positively to where we are levered at the asset level.

Quentin Velleley – Citi

And if you look at that debt yield ratio or the loan-to-value ratio, how did that change from when you raised the equity, because I assume you were actively – you had started looking to lock these mortgages away when you raised the equity. So how did those standards change over that time? I assume that the ratios were more advantageous to you.

Michael Glimcher

Absolutely. I think our expectation in terms of proceeds and the type of execution changed dramatically probably from even December to January and I think at that point we were anticipating probably doing very similar deals to what we have gotten done over the last 12 to 18 months with commercial banks, recourse and lower loan-to-value.

So the market really did turn dramatically really from December into January and that's why we were so aggressive in getting to the market and these locked out and we are – we viewed it as a window. Hopefully, it's going to stay open because I think it's a good answer for our industry. But we are glad we got it behind us.

Quentin Velleley – Citi

Very good. Thank you.

Operator

At this time, I'm showing no further questions in the queue. I would like to turn the call back over to Ms. Lisa Indest for any closing remarks.

Lisa Indest

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

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: Glimcher Realty Trust Q1 2010 Earnings Call Transcript
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