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Executives

Lisa Indest - Senior Vice President, Finance and CAO

Michael Glimcher - Chairman and CEO

Marshall Loeb - President and COO

Mark Yale - Chief Financial Officer

Analysts

Christy McElroy - Citigroup

Todd Thomas - KeyBanc

Nathan Isbee - Stifel

Ki Bin Kim - SunTrust

Daniel Busch - Green Street Advisors

Ben Yang - Evercore

Carol Kemple - Hilliard Lyons

David Wigginton - DISCERN securities

Michael Gorman - Janney Capital Markets

Glimcher Realty Trust (GRT) Q4 2013 Results Earnings Conference Call February 14, 2014 11:00 AM ET

Operator

Good day, ladies and gentlemen. And welcome to the Fourth Quarter Glimcher Realty Trust Earnings Conference Call. My name is Stephanie, and I’ll be your coordinator for today. 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 call over to the host of today, Ms. Lisa Indest, Chief Accounting Officer and Senior Vice President of Finance. Please proceed.

Lisa Indest

Good morning and happy Valentines Day everyone. Welcome to the Glimcher Realty Trust 2013 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 the 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 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, and good morning, everyone, and thank you for joining us on today’s call. We have consistently talk about 2013, in the year we turn the corner on delivering tangible results from the execution of our transformative strategy into a Class A mall REIT.

We certainly believe that both our financial and operational results during the fiscal year 2013 are reflective of such progress. In terms of 2013 accomplishments from a financial perspective our $0.71 of adjusted FFO per share for 2013 represented 9% growth over adjusted FFO per share for 2012.

Significant factors in this performance were contributions delivered from our core mall portfolio where operating fundamentals remain robust. We continue to drive growth and productivity within our portfolio with quarter end sales reaching $468 per square foot, representing 8% growth over the prior year.

Total occupancy now sits at 95.6%, which represents a record level for the company and was driven by 150 basis point increase in mall store occupancy over the prior year. Re-leasing spreads continue to be solid, up 15% for the full year, while maintaining a portfolio occupancy cost ratio at near historic lows of less than 10.5%. Even more significant, the company generated core mall NOI growth of 4.5% during fiscal year 2013, providing tangible evidence that our strategy is starting to deliver results.

During the fourth quarter, we also held the grand re-openings of our newly renovated and rebranded Outlet Collection properties in both New Jersey and Seattle. Through these projects, we have created fashion mall environments featuring some of the outlet brands in the world and reposition both centers for future growth.

Additionally, substantial progress has been made pushing the first two phases of Scottsdale Quarter towards stabilization, with occupancy growing to the mid 90% range when including signed leases not yet open. Also, the yield on the property increase to above 4% during the fourth quarter of 2013.

We also made nice progress in terms of enhancing portfolio quality to active asset management of the company portfolio. Accordingly, we are pleased to have started 2013 with the acquisition of University Park Village in Fort Worth, Texas and open-air center generating sales per square foot of approximately $800.

Then during the second quarter regaining full ownership in Westshore Plaza and ending 2013 with the acquisition of Arbor Hills in Ann Arbor, Michigan. These acquisitions were primarily funded with proceeds from the dispositions of our ownership interest in both Lloyd Center and Tulsa Promenade during the year, along with other non-core assets sales and that includes $10 million in proceeds, as well as free cash flow. We view these dispositions to be critical as acquisitions to our portfolio management strategy.

Finally, we are pleased with the progress made with respect to the company’s balance sheet. During the fourth quarter of 2013, the company closed on a $350 million, 3.83% CMBS mortgage refinancing for the Outlet Collection, Jersey Gardens. We move quickly to take advantage of the favorable market conditions which we thought was prudent with the potential for capital markets volatility into fiscal year 2014.

With the closing of the strategic financing, the company over the last 12 months has reduced overall fixed rate borrowing costs by 50 basis points and extended the average maturity of such debt from 3.8 years to 6.2 year.

Well, we are proud of the progress in 2013, we did not see this carryover into the company's common share price performance during the year. While disappointed by such performance, we believe we have the right strategy to create long-term value for our shareholders and we will work hard to generate positive catalyst in 2014.

Our focus on maximizing contributions from our existing portfolio, thoughtful capital allocation and looking for opportunities to improve our balance sheet will continue. With regional mall occupancies generally 90% and above within the industry and virtually no new meaningful retail supply coming online, we believe in the long-term potential for the higher quality mall business.

This believe along with growing evidence at institutional capital is increasingly focused on investing in the so-called B mall segment further reinforces our focus for the year 2014.

First, we take advantage of opportunities already available within our current portfolio. This includes continuing to leverage the low occupancy cost throughout our existing properties by driving positive re-leasing spreads on renewals and enhancing the overall quality of our tenant mix.

We will also continue to reinvest in our top-tier core properties through redevelopment as this strategy still represents the best use of our capital on a risk adjusted basis. We plan to commence projects at University Park Village and Town Center Plaza in 2014 and Polaris during late 2014 or early 2015. Additionally, we viewed Phase III of Scottsdale Quarter as being part of the company’s redevelopment pipeline.

In terms of adding new high quality properties to the portfolio through external growth, we are excited about the pending acquisition of the Oklahoma City property, which is scheduled to close by the end of the first quarter. The acquisition involves approximately 290,000 square feet of existing retail space and approximately 12 acres of development land all located adjacent to Chesapeake Energy’s corporate campus in Oklahoma City.

With the markets of only Whole Foods, Anthropologie and Lululemon already in place, we see an opportunity to create a fully integrated shopping and entertainment district that would not only serve the immediate trade area but all of Oklahoma City. With respect to the development land, we will have the opportunity to add additional retail space along with possible mixed uses including residential, office and hospitality.

Of the $52 million total purchase price, approximately $45 million is allocated to the existing retail space in which we expect to earn 6% plus return in year one. Also with only 75% of the retail space currently occupied, we believe we have a great opportunity to drive the stabilized return to over 8% within the next couple of years. We plan to fund the acquisition, primarily through cash on hand.

It is important to note that we do not anticipate focusing on any new acquisition opportunities beyond Oklahoma City until we have better visibility to sources of capital. Since we are not interested in issuing common equity based upon our current equity price levels, we believe our best source of capital in today's environment comes from within our own portfolio.

Accordingly we believe monetizing the portion of the bottom half of our portfolio is an important and major focus for the company heading into 2014. In this regard, we are making progress. Last month, we did execute an agreement with the special servicer on the loan for Eastland mall.

The deal closed for a six-month marketing process of the property. If a buyer is not identified during this period then the servicer will expect a deed-in-lieu for settlement of the $40 million of debt currently in place. Additionally, in December, we along with our partner decided to select broker to commence the marketing of Puente Hills in early 2014.

Well, this decision led to a fourth quarter non-cash impairment charge, we believe market conditions are right to take advantage of buyers who are looking to invest capital in the California real estate market. Further we are also exploring broader opportunities to dispose a portion of the bottom half of our portfolio.

With the transaction market for B malls recently accelerating, we're optimistic about the potential for success. Accordingly we're reaching out to a select group of qualified buyers to gauge interest, establish firm pricing expectations and understand opportunities for single and packaged asset deals.

Now with all that said, I’d 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 to everyone. Our adjusted FFO per share for the fourth quarter of $0.20 are right in the middle of our guidance range going into the period. Adjusted FFO per share excludes the tax of $2.4 million defeasance charge incurred in connection with the fourth quarter Jersey Gardens Refinancing.

The biggest driver of this quarterly performance was property operations with core mall net operating income showing solid growth again during the fourth quarter, up 3.4%. Remember this growth was pressured by shift in the timing of certain marketing expenses, in which more expense was recognized in the fourth quarter of 2013 when compared to the prior year.

Neutralizing for this shift, NOI growth would have been close to 5% for the quarter. With respect to the contribution from Scottsdale quarter, the yield on the project during the fourth quarter increased over 4% roughly in line with our forecast.

In terms of the balance sheet, we finished with year with nearly $60 million of cash on hand and a $200 million of capacity on our credit facility, giving us ample flexibility from a liquidity perspective. We're also pleased to announce that we closed yesterday on an amendment to the company's revolving credit facility.

Through the modification, the total capacity of this facility has increased to $300 million. We gain an additional year of term, pricing was enhanced and we’ll see greater flexibility with our covenants going forward.

With the larger credit facility in place, we will have the flexibility to utilize the available capacity to pay off the $95 million mall at Fairfield Commons mortgage during the second half of 2014. Fairfield represents our only significant 2014 debt maturity.

Our plan is to then add Fairfield to unencumbered pool thus provide necessary collaterals for availability under the $300 million dollar revolver. We expect to finish 2014 with $150 million to $175 million remaining capacity on our credit facility.

We are also stating to focus on our nearly $500 million of mortgage maturities that occurred on fiscal year 2013. The good news is that when looking at where we believe NOI will be on these properties in 2015, we've a debt yield of over 11%. So we’re not currently anticipating any issues with our ability to roll over this debt.

And more practical issue involves the 4.7% weighted average interest rate on these mortgages than what interest rate risk we might have upon refinancing. Accordingly, we’ll be looking for ways to minimize this risk as we move through fiscal year 2014.

Due to recent equity pricing levels, we did not issue any common shares under the company's ATM program during the fourth quarter of 2013. Finally, we did introduce our FFO guidance for fiscal year 2014 in the range of $0.74 to $0.78 per share.

At the midpoint, this represents over 13% growth from 2013. The key drivers of the guidance included increase in core mall NOI of 3% to 4% to the year. This growth includes contributions from all of our malls, outlet and open-air centers other than Arbor Hill in the pending Oklahoma property acquisition. The guidance assumes we anticipate increase in G&A from 2013 levels to approximately $29.5 million or approximately 4%, mainly driven by growth in long-term incentive compensation expense.

Other key assumptions that make up the guidance include anticipated lease termination income and outparcel sales gains of approximately $4 million, with net fee income forecast to fall significantly down to approximately $0.5 million for the full year. Other than the pending acquisition of Oklahoma City and the exit from Eastland in July, the guidance does not reflect any other property dispositions, acquisitions or capital raises.

We also provided FFO guidance for the first quarter of 2014 in the range of $0.15 to $0.17 per share. The key assumptions driving the guidance include net fee income of approximately $150,000, lease termination and outparcel sales income of around $500,000 and core mall NOI growth of over 2%.

We’re expecting pressure on our first quarter expenses due to adverse winter weather impacting many of our malls so far in 2014. With that said, I’d now like to turn the call over to Marshall.

Marshall Loeb

Thanks Mark. Although tenant sales and traffic fell short of most expectations for the holiday season, we were pleased to see sequential increase in portfolio sales per square foot from third quarter 2013 and 2.5% comp increase over prior year.

More importantly, we’ve not seen any behavior change from retailers in terms of committing the new space or extending expiring leases. At this point, the deal pipeline remains robust and we are tracking in line with historical trends in terms of addressing our 2014 renewals.

These factors along with portfolio occupancy being well over 95% and tenant cost ratios of approximately 10.5%, have us feeling confident about our ability to drive double-digit positive releasing spreads during 2014, which ultimately will deliver meaningful portfolio growth.

With this backdrop, we remain acutely focused on maximizing the contribution from existing properties. We plan to continue driving growth in executing on redevelopment projects, raising occupancy quality by replacing weaker performers and increasing rents upon lease roll.

As discussed previously, we view redevelopment as one of the best uses of capital. As it relates to near term redevelopment, we are focused on several opportunities. As Michael mentioned, we're excited to complete the redevelopments of our Outlet Collection properties in New Jersey and Seattle, with both grand reopenings occurring fourth quarter last year. Both traffic and sales performance have been strong with continued retailer interest.

As previously mentioned, we are in line with the underwriting on a roughly $60 million investment. In terms of future projects, the one with the greatest 2014 impact involves the re-tenanting of a junior anchor space at University Park Village. Through a $3 million investment, we will configure this space into five different suites, allowing us to bring new retailers to the center, primarily doubling the previous rent.

Based upon tenant demand, we are looking at additional opportunities to densifying this site. We also expect to start on a project at Town Center Plaza where we will ad a pedestrian plaza, allowing us to bring online 8000 square feet of new food and entertainment related space. And as part of the plan, there's the opportunities to add additional outparcel pads.

We have plans to redevelop the Polaris parcel formally occupied by the Great Indoors, and exploring several options that could create more value than originally anticipated. At this time, we would not expect to commence construction activities until the secodnhalf of the year.

Another area of attention this year is the Scottsdale Quarter Phase III. Our multi-family developer program last November on a 275 unit for residential project with construction proceeding as planned. We also may commence construction on the southeast one of the parcel later in the year. We are considering as much as 170,000 square foot building, anchored by ground-floor retail with office space on the upper levels. As a reminder, our existing office space is 100% leased. Finally, we continue to look at ways to take advantage of adding big box retail into the malls throughout our portfolio.

At this time I will turn the call back to Michael.

Michael Glimcher

Thank you, Marshall. There has been a lot of discussion around the future of bricks-and-mortar retail and the impact of ecommerce. To embrace the current omni-channel retail environment, we need to deliver portfolio that meet our shopper at multiple touch points in their life and aperture things to do as well as things to buy.

To reach this shopper, we are doing more business with exciting and highly productive retailers like Apple, Lululemon, H&M and Nike to value the customer experience. We're also expanding relationships with national restaurants tenants like Bravo Brio and True Food as well as highly sought after local and regional food concepts. We believe it’s important to focus on content and context equally to bring people out of their homes.

By establishing a portfolio of high-quality enclosed malls and open-air mixed-use retail properties in larger markets, we are creating a more relevant portfolio that can deliver consistent results and drive long-term growth. Finally, with strong sales, record occupancy above 95% and solid double-digit releasing spreads, we believe in the future of the sector.

Now at this time, I’d like to open up the call to any questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Christy McElroy with Citigroup. Please proceed.

Christy McElroy - Citigroup

Hi. Good morning, guys. Can you disclose the cap rate of Arbor Hills and given that the Oklahoma City acquisition looks like it’s adding about a penny or so to FFO for ’14? Are you planning to put any permanent debt on the assets and is that reflected in your guidance?

Mark Yale

Hi, Christie. It’s Mark. We talked about the yield on Arbor Hills being in the mid-fives, so if that answers your question, at least in 2014. As it relates to the plans for Oklahoma City, right now, as we mentioned, we have some lease up opportunity we are potentially talking about some further expansion there. So our plan is to leave that unencumbered and it will be part of our pool collateral that supports our $300 million credit facility.

Christy McElroy - Citigroup

You talked about getting to the eight on that deal, would you expect to be in there by the end of this year?

Michael Glimcher

Christie, its Michael. I talked about it in over the next couple of years, so I would say in the next 24 months or so the property that presently exists is occupied about 75%. So we see getting there just by leasing up what’s there and that we see another opportunity to develop the undeveloped ground there and add some more density beyond that.

Christy McElroy - Citigroup

Okay. And then sorry if I missed this, on Eastland, how much NOIs associated with that mall and what do you expect for the gain on extinguishment of debt? Do you expect to record that in Q3 and, is that in your guidance range, that gain?

Michael Glimcher

Christie, as fare as the guidance, it’s in our EPS guidance but that will not go through FFO.

Christy McElroy - Citigroup

Okay. Got it.

Michael Glimcher

So it’s not an FFO item. But we have under $3 million of NOI on Eastland. So effectively if you look at the debt being the consideration you are talking about sub-seven kind of cap rate on that.

Christy McElroy - Citigroup

Okay. Great. And then as you think about, non-core asset sales going forward, are you looking more in terms of your sort of your Tier 2 assets or your Tier 1 assets in terms of the source of capital? In regards to the Tier 2 portfolio, can you provide your thoughts on what private market demand currently looks like for assets generating below (inaudible) per square foot and so?

Michael Glimcher

Christie, it is Michael. I would say in our Tier 2, the majority of that revenue is made up by the Outlet Collection, Seattle and that over the course of the next 12 if not 24 months should works its way up into Tier 1 pretty quickly. It’s been very productive and very successful and we are happy with the results. We just need for sale to annualize there. When we look at what we would sell, ideally, it’s in the bottom third to bottom half of the portfolio.

So it’s not so much as looking at Tier 1 and Tier 2. But really if you draw line somewhere through the bottom quartile or bottom half of the portfolio and again, this is a place where we think we can sell our assets, we can redeploy capital. But home is something that we would do only if pricing makes a lot of sense. It’s nothing we have to do. Our business plans I think contemplate us having to sell anything we are selling in the share. But where we see the market being strong, we’ve had a lot of reverse enquiry, people know that we are working on and creating our portfolio.

There is a lot of discussion going on here. And if we could maximize pricing on some of those assets and redeploy it into other assets within the portfolio, we will. But again, it’s something we would like to do if we don’t have to do.

Christy McElroy - Citigroup

Okay. So just to be clear, beyond Eastland there is no dispositions in your guidance right now?

Michael Glimcher

That’s correct.

Christy McElroy - Citigroup

Okay. Thank you.

Michael Glimcher

Thank you.

Operator

Your next question comes from the line of Todd Thomas with KeyBanc. Please proceed.

Todd Thomas - KeyBanc

Hi, thanks. Good morning. Just a quick follow-up. I just want to be sure I understand this. So the yield on the Oklahoma City asset, that goes from 6% to 8%, just from the lease-up and the redevelopment would sort of be additive to that?

Marshall Loeb

It is correct.

Todd Thomas - KeyBanc

Okay. And are you able to share with us where your sales per square foot are at that center today?

Marshall Loeb

Based upon the tenancy, for example lululemon has been opened for full year, but we think it’s going to be run around that $500 per square foot, that’s certainly our expectation with the types of conversations in terms of the next round of leasing. It’s going to be $500 per square plus is our expectation.

Todd Thomas - KeyBanc

Okay. And then, I know that you don’t own the property yet, but just in terms of thinking about the 12 acres of land and the potential for development or expansion there, is that something that we might see work start later this year?

Michael Glimcher

Todd, its Michael. You are likely going to see work start next year on that. We have some initial concepts and ideas, but we just obviously have full control of the property now and are improving forward. So it’s a process to get there. I’m very excited. We’ve had a lot of calls from retailers. We’ve had interest from hospitality, even just in the short time that people have heard about it or maybe the news has leaked our there, but we haven’t formally started that process. So we’d probably need a year to get things underway.

Todd Thomas - KeyBanc

Okay. And then regarding some of the anchor retenanting projects that you disclosed on page 21 in the supplement, sorry if I missed some of the commentary on this, but the three H&M stores for example, do you expect any downtime associated with this activity? I guess what’s the configuration there, are they taking vacant space, or are you reshuffling around retailers that might lead to some near-term impact on NOI?

Marshall Loeb

Todd, its Marshall. Yeah, it will be a little bit of vacancy, especially down in Dayton, but it’s a lot of existing tenants we will move around. I mean, the good news is that call it rounding 96%. The bad new is we’ve got them - through Rubik's Cube we got to move some people out of the way to get these H&Ms done. And so we are starting that construction now and it will have some near-term impact on this, but hopefully the long-term value creation. And that’s in Mark’s guidance.

Todd Thomas - KeyBanc

Okay.

Mark Yale

Yeah, I mean, it’s probably net, net a negative in ’14 but certainly will be growth for ’15.

Todd Thomas - KeyBanc

What would you estimate that the NOI drag looks like from all the anchoring, re-anchoring activity that we see listed here?

Mark Yale

It’s probably somewhere 50 to 75 bps.

Michael Glimcher

The flip side of that, Todd, too, I am jumping back, okay. As you know if you remember last year we got pressured when Saks closed and Tampa at WestShore. So while H&M is displacing some tenants, we will pick up DICK'S Sporting Goods in WestShore they open. So that’s kind of one of our current drag, but once that reopens so that’s kind of all mixed into our guidance.

Todd Thomas - KeyBanc

Okay. And then just last question, thinking about the $60 million spend at Jersey Gardens and Seattle Outlet Collection property, I know you are expecting close to a 9% yield there I believe, so about 5.4 million of incremental NOI. How much of that NOI is already online and in the run rate as of the fourth quarter?

Mark Yale

Half of that is Todd, so we have another $2.5 million and I think our guides for ’14 assumes 2 million that will come through with remaining 0.5 million roughly in ’15 and Marshall can certainly update on that, but that really involves finishing up the leasing on Scottsdale which we are making good progress, but it’s just one the -- and on Seattle I am sorry just now when those stores open up.

Marshall Loeb

We’ve opened probably a good anchor amount of tenants, no pun intended, last year and then we are working as Mark kind of mentioned. We have about another 10 stores. We think we will open really this fall for holiday season. Some of those are unsigned. Some of those are lease out kind of to finish the redevelopment work, probably half way through with another half of the tenants coming this year.

Todd Thomas - KeyBanc

Okay, great. Thank you.

Operator

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

Nathan Isbee - Stifel

Hi, good morning. Just following up on that same-store NOI, you have the drag from the retenanting. I am just curious given you have that incremental NOI coming online in Jersey and Seattle, given the NOI that came online in ’13, wasn’t in for a good part of the year. You have the DICK’s coming back in. Anything else in there aside from the snow that perhaps is weighing down on your growth, you did about 4.5% this year and you do have some deceleration heading into ’14. I am just curious if you can give a little bit more detail.

Mark Yale

Nat, its Mark. First of all, we talked about the H&M deals, those are probably negative in ’14. We talked also about the junior anchor at UTV that anchor is closed. So even though we are going to move forward and we are going to ultimately double the contribution from that space, we are not going to see that this year. There’s just the host of things. I mean, we are always making that investment, even though we are seeing investments from prior years come in the numbers. We are now making investments for growth in ’15. And that’s just an ongoing balancing act that we are focused on, but certainly we feel good about the 3% to 4% growth in ’14, but we are also very focused on growth in ’15.

Nathan Isbee - Stifel

Sure. How much would you say Scottsdale is adding to the same-store pool this year?

Mark Yale

I think Nat at this point just another one of our properties, it’s certainly an important part of our growth, but it’s just one of many good properties that we have that’s supporting that. I think we’ve talked about the fact that we did drive the yield just about 4% in the fourth quarter and we talked about hopefully yield getting closer to 5% as we move throughout ’14.

Michael Glimcher

It’s Michael. I think Scottsdale now is looking more like the portfolio average. On occupancy, when you look at the blended occupancy, obviously like the rest of the portfolio, we will manage. We will continue to upgrade stores. We are falling off. Yes, we are going to add some more space there this year. We are going to look at the design and hopefully bring on space that we can add for next year rather in Scottsdale. So we are excited about it, it’s now I think just part of the portfolio.

Nathan Isbee - Stifel

Okay. And then, I mean, the office in the back it seems to be the first time you brought that up. Can you talk about what drove that change and is there any other changes in what you’re planning for the Phase 3?

Michael Glimcher

Well, certainly in Phase 3, there are several exciting parts. Marshall mentioned that the multifamily and that’s well underway with 275 units and it looks like in 2015 people will be living at Scottsdale Quarter. There will be ground for retail that gets delivered with that, that will lease up the southeast corner of the side. We talked about. We have been working on the design and out in the market to look at the pre-leasing of office and retail combination on that corner. And so far, the initial interest has been incredibly strong.

And then the central parcel, we have talked about the discussion between hospitality and department store. I would say at this point, we are leaning towards hospitality based on the economics and we are going to where we are. So it’d likely be the central parcel will come last, the two corners will be developed first and we are leaning towards more retail one with some hospitality in that central parcel. So we are really excited about it. We would like to be at the position over next couple of years where this is just finished and there is no land available there.

Nathan Isbee - Stifel

Okay. And then just focusing on the capital allocation side, it’s good to hear that we might get a little bit of breather here on the acquisition side. I am just curious if you can talk about given your cost of capital today, how you are looking at, given the last two acquisitions that you did Arbor and Oklahoma which is pending and just to dig down into those, what do you see in those assets that were, I guess, call it, must haves at this point in your cycle?

Michael Glimcher

First off all, I think, I would like to say, our develop -- our acquisition pipeline rather is empty. I mean, there’s relate -- there is nothing behind Oklahoma. And so, I know lot of people have said that, are you going to continue to buy? And based on where we are in this cycle, our share prices, where our focus is, there is nothing there. Ann Arbor is a dynamic asset. We think that the ramps are significantly below market and they are especially unique to the market tenants.

It’s a kind of retail with the mix of special apparel stores as well as dining establishments and things you can do versus just things you can buy we talk about. And we think it’s a replaceable real estate. It was a small acquisition. These are $50 million type acquisitions. And again, we start looking at these things probably a year out in both that cases as well as Oklahoma City.

So we can’t time everything perfectly. You don’t know when you’re going to have dispositions, you don’t know. You can ideally time an acquisition and disposition to match up. In the case of our Oklahoma City, there is a nice yield going in. I would argue with the Whole Foods-anchored center, which I think Whole Foods is probably as good of an anchor as you could want.

I’d love to have them in every one of our malls. That alone is probably worth a five cap. But there’s vacant space there. It’s a really high quality property, it’s a unique property. I think a lot of the attributes have something smaller like Ann Arbor, and as well as something more complex and mixed-use like Scottsdale come into play in Oklahoma City.

And so we see it as something that can contribute nicely in the short term, there can be a quick lease-up to get to that from 6% to 8% and then you have development ground there where you can have future growth. So we try to think about today, but we also try to be cognizant of tomorrow as we’re thinking of these things.

Nathan Isbee - Stifel

Okay. And then, as you look at the 75% occupancy today, can you give us some color on why it’s so low and why you’re comfortable, whether you will be able to drive it up pretty quickly?

Michael Glimcher

Well, we’re in the business of leasing retail space and leasing shopping centers and you have an energy company that was doing something that was ancillary to their business. So it was not their primary focus and it was probably more of a distraction than anything else. It’s a really unique opportunity. What’s been built, it’s been built with the utmost of quality. The quality of the dirt underneath there, the location is A-plus dirt. I think it's the best dirt in the marketplace.

But again, it’s an issue of what is this company focused on and what do we focus on? It’s what we do. We already have had, like I said earlier calls coming out of the woodwork, and people who want to be in there who just don’t know really how to get something done and know they can get things done with us. So my level of optimism on that is very high.

Nathan Isbee - Stifel

And just looking at the kind of tenant roster, it seems to be a higher level of local and what I would call boutique tenants. Is that something you envision that you will cycle out over the next few years?

Michael Glimcher

It’s a really interesting property and that there are some very highly performing local and regional tenants there, doing $500 plus a foot. So I would say, what makes it special and I think what’s going to draw people our of their houses is having a mix of great national, regional and local tenant. It’s really hard to get great regional and local tenants.

In this case they found them. So I would like to add a lot more nationals to complement the regional and locals. And for the most part, those stores perform exceptionally well. Some of them only have three to five stores. Some of them only have one store. But for the most part, the sales numbers are really high, unlike we normally see in locals and regional.

Nathan Isbee - Stifel

How do you source it?

Michael Glimcher

It’s a market that are ahead of acquisitions, actually it’s from and had local contacts and it was an off-market opportunity. So it’s -- we like -- just like the last -- just like Ann Arbor these are both been off-market opportunities not available to other people. So we’re excited about that.

Nathan Isbee - Stifel

Great, thanks.

Operator

Your next question comes from the line of Ki Bin Kim with SunTrust. Please proceed.

Ki Bin Kim - SunTrust

Thanks. Just a couple of quick follow-up first. On the Oklahoma City 8% projected 2-year yield. Is that yield -- does that include the CapEx that would require you to spend on re-tenanting it?

Michael Glimcher

Yes it does, Ki Bin.

Ki Bin Kim - SunTrust

Okay. And same-store NOI definition, if you have to lease down a certain asset and just you call it redevelopment, does that lease down negatively impact same-store NOI during that quarter?

Michael Glimcher

It does.

Ki Bin Kim - SunTrust

Okay.

Mark Yale

We do not neutralize for the redevelopment.

Ki Bin Kim - SunTrust

Right. And Scottsdale you're almost fully leased, not all open yet. So I would think you have pretty good clarity on exactly what your yield would be by the time everyone opens and if you annualized that. Where would that yield be given where you have leases on project today?

Mark Yale

As I said, we hit the fourth quarter 4% and we expect the yield to approach 5% as we work through the end of ’14. And then we still think we have a lot of runway forward. If you remember, we talked a lot in the last call about reclaiming some space, that’s already been leased and that’s going to be an ongoing process, as we continue to refine the tenant mix.

Ki Bin Kim - SunTrust

Okay. And the 5% yield, I mean I am -- we understand nothing else can change, but I guess is it pretty far off from the initial at the high end, 6.5% yield from 2.5 years ago. Obviously the world has changed and maybe things have been difficult there, but it seems like you had great interest and from the tenant roster standpoint is fully leased. You've done a great job with that. But when you look back a couple years, what is the main reason why the yields have not been achieved? Is it because some of the early leasing was just done too cheaply or is it a lot of it's baked in percent rents or? I was wondering if you could provide a little color.

Mark Yale

Yeah, it’s going to be the combination of tenant allowance, probably more than we thought we would provide. And then rents are bit lower than when we provided the original pro forma. I think you mentioned the world has changed, I think what's important to point out is what cap rates would be for that property when we originally came out with that kind of 6.5% yield and what cap rates are today.

Michael Glimcher

And I would also say, it’s Michael, a lot of what was built in that timeframe was a disaster and it is no longer owned by the companies that developed it. This is a property that has a reason to exist. It’s very successful, the sales are high. You just had a cycle through multiple generations of tenants and you had a cycle through a pretty turbulent storm to get to where we are.

So if we look at it now, we say it’s baked in, it’s part of the portfolio, it’s a very successful property, much of what was built at that time doesn’t exist. Certainly, other things in market even that failed. This is successful property that’s only going to get better. It’s going to provide us growth from less than 10 years from now and 20 years from now.

Ki Bin Kim - SunTrust

Okay. And just last question. We’re appreciative like some of the deals you’ve done early on to improve the quality of portfolio. You've certainly transformed Glimcher from a sales per square foot productivity standpoint over the past four years and it's definitely not in a B-Class bucket anymore. But it’s come at, of course, at a certain cost. And if you look at, just based on your conversation and my conversations with investors and if I look at your stock price performance, I would say it's definitely underperformed just in the past 12 months versus your A quality peers and B quality peers. And it seems like the overwhelming message is that your stock is already cheap. I will consider that the best opportunity from a capital allocation standpoint, not only to buy back shares but trading it at an implied 6.5%. It was higher at certain points in time.

Stand up rate seems like that's a much better source of capital or use of capital I should say than buying an asset like Ann Arbor at a mid 5% cap rate. And thank you for some of the comments you made earlier in the call regarding no more acquisitions, but is it no more acquisitions because your stock price is $9.50 and it's really expensive if you buy a deal? And does that change when your stock price, as I said, goes to $10.50 or $11 or acquisitions are back on the pipeline now?

Michael Glimcher

Is the question when we ever acquire properties?

Ki Bin Kim - SunTrust

Not ever, but…

Michael Glimcher

We initially know where we are today. We certainly have the inward focus and we have a clear focus on redevelopment. We have a focus on getting capital out of the bottom half to quartile of the portfolio. And even I can't say what’s going to happen in a year or two years, but we’re certainly not in the business of issuing equity today based on where things are. We are certainly not in the business of acquiring additional assets.

But I also will say that going back to Pearlridge and thinking about the Leawood assets and UPV, we’ve transformed the portfolio. We have assets that can deliver meaningful growth and we did deliver meaningful growth this year. And we feel really good about that and we are going to continue on 2014 to deliver meaningful growth. So part of it is building a portfolio that has a capacity to deliver that kind of results that we've put up last year and we'll continue to put up.

Ki Bin Kim - SunTrust

Is there -- just type of question but is there a certain price that you wouldn’t issue equity at all?

Michael Glimcher

I’m not going to get into theoretical philosophical debates. I think every time we’ll sell assets, every time we’ll buy asset, the portfolio will be fluid and in certain times, there maybe a time where it makes sense to issue equity that's not today.

Ki Bin Kim - SunTrust

Okay. Thank you.

Operator

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

Daniel Busch - Green Street Advisors

Thank you. Just following up on the last question, Michael, given the current discounting what appears your stock is trading. Now at what point do you get interested in buying back shares?

Michael Glimcher

Great question. [DJ]. One other think I'm really focused on is delevering and when Marshall, Mark and I were talking about what our goals are, it's not just about sales per square foot but it’s for our balance sheet. So it's hard to talk in this winter, say lets go buyback shares because effectively we’re delevering up the company.

So maybe say we sell two or three assets and we have extra proceeds and we can buyback shares. And they have some debt in a commensurate manner, there’s things out there. There’s 8 plus percent preferred out there probably be the first thing that I would go after but don’t have the proceeds to do that today but we're certainly not going to do at the expense of leveling up the company.

Daniel Busch - Green Street Advisors

That made sense. Well thanks for that. Just thinking about Puente and the potential of selling that asset, I would essentially leave you at just one venture, the one, I guess, with Arbot that you just acquired. How do you think about joint ventures going forward and is there an opportunity or would you consider raising capital through joint ventures in the future? Excuse me.

Michael Glimcher

For us, joint ventures have been great. We had a great local partners. In Scottsdale, we had a great joint venture relationship with Blackstone that really yielded us Pearlridge opportunity. We’ve got a great local partner in Arbor. It just depends on the facts and circumstances and any individual deal. So we are not opposed to joint venture. It’s a way for us to leverage our capital. We like working with good partners. We think they make us better.

Daniel Busch - Green Street Advisors

Is it something, you talked a lot about point in the bottom of portfolio at the right price, it’s a near higher quality assets. Would you consider a really capital for joint venture?

Michael Glimcher

I think owning the majority of our higher quality assets is a great place to be. If was going to joint venture anything, it would be in the bottom half not in the top half.

Daniel Busch - Green Street Advisors

Okay. One final question on Jersey Gardens, obviously the sales was pretty impressive on a year-on-year basis. How much of that 15% sales growth was through same retailer growth versus the upgrading of the merchandising next to the redevelopment?

Michael Glimcher

Repond after the report had come…

Lisa Indest

Hang on.

Michael Glimcher

Yeah, we certainly -- we’d look at close to half of that related to just peer comp increases versus the other half being upgrade in the tenancy and new tenants coming into the more productive.

Daniel Busch - Green Street Advisors

Okay. Great. Thanks guys.

Michael Glimcher

Thank you.

Operator

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

Ben Yang - Evercore

Hi. Good morning. Thank you. Michael I definitely appreciate your details on the disposition but I understand that you have three more malls currently listed for sale beyond Eastland and Puente. So I’m just wondering if you could identify which assets are for sale and up some thing without fully showing your cards offer up a cap rate range on the assets you'd like to sell this year?

Michael Glimcher

We don’t have anything specifically listed for sales outside of there. We had discussions about different individual as well as pulls of assets. And they are not all the same with different potential buyer. So we don’t in fact having anything formally listed. We just have the rest of the discussions going on. And so, without knowing which assets and which buyer and not having any other contract, I really don’t have the cap rate.

Ben Yang - Evercore

Okay. And maybe -- I missed this but why exactly is the line balance qualify going up by much as $170 million this year?

Mark Yale

Hey Ben, this is Mark. Good question, I think it’s really two things. We do have guidance for $50 million to $55 million of redevelopments spend which we would anticipate using from the line. And then also we are going to unencumber Fairfield Commons as the $95 million mortgage. So between those two that takes roughly to $140 to $150 million of line usage and ultimately when we have encumber Fairfield, our availability will be around that $300 million market.

Ben Yang - Evercore

Got it. And then maybe just final question. You might have answered part of this earlier with Christy’s question but why it is that your view that B mall sales market is accelerating and getting more versus this year? What is that based off exactly?

Michael Glimcher

I think you’ve seen some transaction take place and you've also from our view, we've had a lot of reversing for lot of people who know that we're interested in selling assets call us. So it appears to whether is more capital and interested in that segment and working for that yield.

Ben Yang - Evercore

And this is making these reverse inquiries to you guys exactly?

Michael Glimcher

Again, I think when we have a sale to announce, we will probably announce it. In the meantime, there is just a lot of discussion going on that we are really not in a position to disclose.

Ben Yang - Evercore

Great. Thanks guys.

Michael Glimcher

Thanks a lot.

Operator

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

Carol Kemple - Hilliard Lyons

Good morning. It looks like you all escaped the J.C. Penney’s closings announced recently. How have your conversations been with J.C. Penney and Sears as far as productivity and their thoughts on selling any boxes back to you all?

Marshall Loeb

Sure, Carol. Good morning, it's Marshall. We are in, really contact with all of our anchors and certainly specifically those too. With Penney’s, we thankfully weren’t on the closing list. And my understanding, there is a warning list kind of, as they call it and we weren’t on the warring list with Penney’s. We have spoken to them. There is a few locations we would be interested in reacquiring for redevelopment. But they really aren’t in a position. But all of their stores are profitable, they are telling us and aren’t in a position to give us back any of the J.C. Penney locations.

Sear seems to have a little more interest and disposing off some of the real state, although there is not a whole lot of empirical data. It’s not like they’ve had a ton of transactions, but we are having ongoing dialog with Sears on two to five locations that I think if they could -- if we could hear their numbers and which is a hard number to solve, of course we look at our redevelopment. I’d like to think we could get a Sears location or two back in the next 12 to 18 months. But it really -- it's much up to them. We are anxious and we're waiting on them a lot of times.

Carol Kemple - Hilliard Lyons

How far apart is the pricing, do you think, between what Sears wants and what you all would give? Is it 25% or 40%, or just how far do you think it is?

Michael Glimcher

It’s kind of vague right now. I mean, we offered a firm number and we got -- it is ongoing. It is a descent size delta and it’s not as quantifiable as we’d like today.

Carol Kemple - Hilliard Lyons

And then just, when you look at the small shop space, is there any area that maybe is getting too crowded? I just think that the yoga space with Lululemon and Athleta and Lucy and Sweaty Betty, are you all concerned about that space, or is there any other space that you think there's just too many new concepts coming in for the malls to succeed?

Michael Glimcher

No, I mean I don’t pay attention on the Yoga. Certainly, Lululemon does -- great retailers had great volumes and we like Athleta and we have Victoria’s Secret Sport and any numbers just like you said Sweaty Betty, so that's getting more crowded and anytime someone successful, it seems like people will imitate them. An area that has been more concerning of late, it’s not like they are new retailers, it’s just the whole juniors’ category, has got hit through to holidays and continues to be beaten up on that, especially probably Polaris which is one of our better malls.

We were disappointed with a little bit with the sales per square foot and then digging in it, a lot of what drove that. We have lot of those junior tenants that are, the Abercrombies, the Aeropostale, all of those that have struggled with their comps versus prior years. Someone says kids don’t like wearing shirts with logos these days.

Carol Kemple - Hilliard Lyons

Makes sense. Thanks.

Michael Glimcher

You're welcome.

Operator

Your next question comes from the line of David Wigginton with DISCERN Securities. Please proceed.

David Wigginton - DISCERN securities

Thanks, good morning. I was wondering if you might be able to break out for us the components of your same-store NOI growth that are maybe attributable to revenue growth, in particular rent growth and occupancy gains and then what's attributable to maybe expense growth or reductions?

Mark Yale

Hey, David, it's Mark. I think the bulk of the growth really is on the revenue side. We are not seeing any significant changes and expenses. I think our recovery ratio is staying relatively flat. So, we are keeping pace with the anticipated expense growth. Other than the caveats that certainly I mentioned in the prepared remarks that first quarter could be a little bit challenge with the significant winter weather and just dealing with snow renewal costs and things of that sort.

But hopefully, we can find a way to make that up in the last three quarters. So, it’s really once again topline that’s driving it, its additional leasing. And really what we've seen, it’s not so much occupancy gain but it will be enhancing the quality of that occupancy, taking out underperforming tenants especially tenants and bringing in firm tenant.

David Wigginton - DISCERN Securities

Okay. So, as I kind of look at your rent growth for the year, I think I was a little surprised to see it I guess as modest as it was. If I kind of looked at your past, call it, two years of lease spreads, just looking at a high level, I think the average lease spread was about 12%. And I would like to assume you touch 20% your portfolio over that time period. I recon at starting of ’13 may be doesn’t open until ’14? But what, I mean, when do we start to see that rent -- the average portfolio, rent start to pick up a little bit more in line with sort of your A mall peers aspiring to be like and I mean, are we going to start to see that ramp up in 2014 or is it still going to be another sort of lackluster growth year for that? And anything in particular that might be holding that back and countering the lease spread that you are generating with the new leases that you are signing?

Michael Glimcher

Dave, good question, I am glad you brought it up. We did include some new disclosure. What we have been disclosing has been our 10,000 square feet and less firm tenant and you are right we have not seen real strong growth there 0.4% year-over-year, but when you include all of our spaces, 20,000 square feet and last, our average rent per square foot year-over-year is up 2.7% and we touch upon this in the past, it really is reflective us driving and enhancing the quality of the occupancy.

So, one, we are leasing space and maybe other than lease and once again that’s typical on the 10, 20, 30 odd lines, so its below the average for the center, but it has been leased, so we drive that or converting specialty tenant to pay a lot lower to a firm deal.

So once again we might go from $10 per square foot. We released to somebody paying $25, the average for the center might be $50, so it drives it down, but obviously, we are driving the rent per square foot up.

So we think that 2.7% when you look at all the space is really indicative of the releasing spreads you have seen the fact that we have driven NOI growth which huge part of that has been from minimum risk.

David Wigginton - DISCERN Securities

Okay. And do you, I mean, is your expectation this year, does that number accelerate, I mean, seem like it might just given the things you mentioned as far as the lease spreads and the improvement of the tenant base and what not?

Michael Glimcher

Yes. It should, Dave, I mean, we’ll have -- we hope to have similar releasing spread this year and call it that mid-teen range, when our occupancy cost even sales stacking or stagnate, we think we have a got a lot of runway to continue to push our occupancy costs in those releasing spread.

And as Mark said, our other goal is to reduce our specialty leasing component kind of that local regional by about, call it 15% to 20% this year. Some of that may get driven by dispositions a little bit, but if we can keep reducing that within our portfolio than our average rent per square foot should grow.

It’s improving the quality. It’s kind of hurt us on the absolute rent number and I would say look at same story NOI, it’s probably, if I had one dashboard versus several dials that’s probably a better metric than just absolute rent per square foot because we can be doing the right thing, as Mark said, but it really doesn’t show up in that single metric.

David Wigginton - DISCERN Securities

Okay. And then, I guess, last question talking about your occupancy cost ratio? I mean you guys did well and your sale has been growing very nicely on a year-over-year basis? I mean, are you anticipating being able to catch up at any point here to your sales growth or I mean, you are getting push back with, what’s holding you back from getting that occupancy cost ratio up higher?

Michael Glimcher

It’s a process, you are only turning 5% or 10% of your space every year and Marshal and TJ and the team have done an exceptional job of getting strong double-digit increases. So it just a matter of how much space do you get at and for us we say the goal that we always aspire to hit and hope we never hit because that means we have healthy tenants that are doing good business and that are paying good rents and all are getting more rent. So it’s -- its going to push up. It pushed up a little bit, it’s going to push up more but you don’t turn all of your space at once which is a good thing.

David Wigginton - DISCERN Securities

Got it.

Mark Yale

And I would -- I agree with Michael’s comment, the other thing which is on purposely acquisitions we have made again with our smaller fluid portfolio, we specifically target like University Park Village low occupancy rates and so we have got embedded growth there. We are waiting for those leases to role but that kind of continues to hold at back a little bit as well.

David Wigginton - DISCERN Securities

Okay. Thanks.

Mark Yale

Sure.

Operator

And the final question will come from the line of Michael Gorman with Janney Capital Markets. Please proceed.

Michael Gorman - Janney Capital Markets

Yeah. Thanks. Good morning. If I could just follow up on the prior question, I am sorry if missed it? But can you just give us a range of the occupancy cost that you are generating on your new and renewal leases as oppose to what’s in place for the portfolio?

Mark Yale

We target at our sales per square foot, our target is about 14%, that will vary by retailer and what type of retail, Apple doesn’t go and give us 14%, for example, as much as we’ve love to get it. But they will say market or they will say probably average for the property, so our target is 14%, so if you wondered just really quick back of the envelop we are 10.5% and we would like to be at 14% and as Michael said, I hope we never make it. I hope we keep driving the denominator and never quite make it.

Michael Gorman - Janney Capital Markets

Got you. Great. And then, if we can spend a minute, Michael, I was intrigued by your comments on Oklahoma City and specifically the importance of the role that local regional tenants can play in making the center more unique and driving people out of their homes? I am just curious the opportunity you have in some of your other centers, not necessarily on specialty leasing which you are trying to bring down? But may be adding that local flavor that can make an asset more unique and generate more traffic and kind of how you are thinking about that as competition from e-commerce maybe expands.

Michael Glimcher

Sure. It’s a great question. We have been able to do it well in Scottsdale, we have a great mix up, there is some really good retailers there and we have been able, obviously Oklahoma City is coming with it and are working with team with the couple of kind of regional. It’s really hard to do because it’s very difficult for the local and regional to compete and every market is different, some market seems to be stronger than others, but we think it create a point of difference for the property.

We think it draws people out of the house, in Oklahoma City a lot of it is in food, as well as apparel and there is some experience people who have the background of being with the large chains and then have opened up restaurants and they have experience and they also the financial fortitude to get it done.

But it’s really challenging thing for our leasing team. It takes a lot more work. We also think it makes the property a lot more interesting and it draws you out of the house more often. So it’s something we are probably more focused on than ever but equally as difficult as it’s been.

Michael Gorman - Janney Capital Markets

Great. Thank you.

Michael Glimcher

Thank you.

Operator

With no further question in queue, I will turn the call back over to Ms. Lisa Indest for closing remark. 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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