Glimcher Realty Trust Q2 2010 Earnings Call Transcript

Jul.22.10 | About: WP Glimcher (WPG)

Glimcher Realty Trust (GRT) Q2 2010 Earnings Conference Call July 22, 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

Quentin Velleley – Citigroup

Todd Thomas – KeyBanc Capital Markets

Ben Yang from Keefe, Bruyette & Woods

Carol Kemple – Hilliard Lyons

Rich Moore – RBC Capital

Cedrik Lachance – Green Street Advisors

Nate Isbee – Stifel Nicolaus

Michael Bilerman – Citi

Operator

Good day, ladies and gentlemen, and welcome to the 2010 Glimcher Realty Trust second quarter analyst earnings conference call. My name is Alicia and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (Operator Instructions).

I would now like to turn the presentation over to your host for today's call, Lisa Indest, Senior Vice President, Finance and Accounting. Please proceed, ma'am.

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2010 Second Quarter Conference call. Last evening, a copy of our press release was circulated on the Newswire and hopefully each of you have had the opportunity to review our results. Copies of both the press release and the second 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 results to differ from the results discussed in our 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 SEC.

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 and thank you for joining us on today's call. We are quite pleased with the recent progress we have made on the liquidity and capital fund. The solid financial and operating results delivered during the first half of 2010 and more importantly how the company is positioned for the future. Let me begin by addressing the accomplishments made over the last several months and enhancing the company's balance sheet.

First, we closed on the credit facility modification providing the company with enhanced flexibility and term through the end of 2012. Next, we closed on the Blackstone joint venture, a transaction that not only generated $60 million of net proceeds that were used to pay down our credit facility, but also aligned us with a world class institutional investor.

Then we refinanced Polaris Towne Center, The Mall at Johnson City and most recently Grand Central Mall all through CMBS execution. The three loans have ten year terms are non-recourse with fixed interest rates in the 6% range. The refinancing also generated over $25 million in aggregate excess proceeds which were applied to our credit facility. Finally, we successfully executed on a $75 million preferred equity offering in April allowing us to secure permanent capital and reduce the balance of our credit facility. The debt was the greatest risk within our capital structure.

When coupled with the September common equity offering, we've been able to reduce the credit facility balance from a high of $400 million in 2009, down to approximately $155 million outstanding today. Additionally, we have fully addressed all of our 2010 debt maturities.

We're excited about the significant progress but do understand that risk continue to remain within the marketplace. We also recognized that there is more work to be down on a de-levering front and even though we now have more flexibility and time to execute on our strategy, we're not going to lose our focus and our sense of urgency in terms of addressing our balance sheet.

We are encouraged by the incremental improvement in both the capital and debt market so far this year and we'll continue to look at a host of options in raising capital. We also are starting to focus on growth opportunities and would like to be in a position not only to raise capital to continue to de-levering process but to be able to pursue strategic investments and acquisitions as well.

We're also pleased with our financial results for the second quarter which felt towards the upper end of our guidance range and we're supported by stronger than expected property fundamentals. Orderly net operating income growth was positive for the first time since 2008 in both mall and inline occupancy increased from the prior year up 20 and 10 basis points respectively.

Comparable store sales moderated a bit from the first quarter but we're still positive around 1% over the second quarter of last year. We also experienced a follow through in the leasing activities from the first quarter, signing leases for another 200,000 square feet during the second quarter, while maintaining positive year-to-date releasing spreads of 3%.

Finally, tenant bankruptcy activity remains muted so far this year. In fact, we lost no national tenants to bankruptcy during the entire first half of 2010. We had a quite successful ICSC RECon Convention where we held over 350 retailer meetings which was up about 20% over the prior year.

During the convention we assessed a positive tone and growing confidence from the retailers. Where new opportunities make sense, we are seeing an enhanced openness to getting something done as evidence by our recent leasing activity. Retailers are certainly pleased with the progress made over the last year but fewer (inaudible) consumers fully recovered.

Additionally, factoring in the macroeconomic concerns that have surfaced over the last 45 days or so, we will need to maintain our sense of urgency as we continue to focus on renewals and new leasing opportunities throughout our portfolio. Finalizing the leasing for Scottsdale Quarter, our only major development or redevelopment project in process is another significant priority for the company.

Recent leasing momentum on the project has really picked up in advance of the Phase 2 opening. Additionally, as it has been publicly reported the ground underneath our Scottsdale Quarter project has been marketed for sale by our joint venture partner, through the supporting ground lease we have a right of first refusal on any potential sale of the land, at an acceptable price and terms we'd be very interested in purchasing the land and consolidating the fee into the project.

The marketing process is controlled by our partner and we have nothing specific to report at this time. We will keep everyone posted on future developments as appropriate. Finally, we will continue to build on our best-in-class operating platform through process improvement and technology which will hopefully enable us to continue attracting additional third-party capital to pursue external growth opportunities. This will be an important way for Glimcher to grow in the future.

With respect to such opportunities, we've yet to see a robust acquisition environment emerge at this point. The good news is that with our smaller base of assets, the company can substantial enhance and transform the quality of our portfolio for just a handful of strategic moves. Finding the right opportunities that not only makes sense from a pricing perspective but which will also enhance the overall quality of our portfolio is one of our major focuses.

We're working hard of being creative in order to make this happen and are actively in the market today looking for potential transactions. We certainly proved our ability to secure new capital of joining a challenging 2009 and are confident that we can duplicate these successes in attracting additional capital and finding attractive growth opportunities.

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 to everyone. As Michael mentioned, we reported FFO per common share of $0.15 for the second quarter of 2010, which felt towards the upper end of our guidance range going into the quarter. Better than expected mall net operating income performance, offset dilution from the April preferred equity offering as well as the $500,000 of non cash write-off of deferred fees relating to the Grand Central Mall refinancing.

Both these items were not included in the original guidance. Lease termination income came in below expectations as well. Focusing on our mall operating performance top mall NOI was up by approximately 0.4% for the second quarter. Fewer store closings and bankruptcies along with less (inaudible) than anticipated led to the better than expected net operating income performance.

After considering this strong net operating income performance throughout the first half of 2010 we're now anticipating that mall net operating income will come in towards the top end of our range down about 1% for the full-year 2010.

This upside in FFO will help offset the dilution from the key capital and financing transactions that we executed on during the second quarter, including the $2 million of full-year dilution from the preferred equity offering, $600,000 of the fees and charges incurred in connection with the refinancing of the Johnson City mortgage and the $500,000 write-off of deferred fees on the Grand Central Mall refinancing.

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 third quarter of 2010 in the range of $0.15 to $0.18. The assumptions driving the guidance included net fee income around $500,000, lease termination income of $300,000 to $500,000, and a decline in core mall NOI of around 1%.

Turning our attention to the balance sheet, as Michael mentioned we have addressed all of our 2010 mortgage debt maturities which included the successful exercise of the available extension option on the Puente Hills joint venture mortgage that was scheduled to mature in June of this year. As we discussed we also recently refinanced the mortgage on our Grand Central Mall. This financing represents our third CMBS loan since the market reemerged earlier this year.

With all of scheduled 2010 debt maturities already addressed, we view this as an opportunity to secure attractively price capital to replace shorter term recourse financing that was placed on the property in the early 2009. After applying the net proceeds from our preferred equity offering and the recent Grand Central Mall refinancing we finished the quarter with approximately $156 million outstanding on our credit facility. We got a good borrowing availability under the facility was also reduced during the quarter down to $234 million as of June 30, 2010.

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

Marshall Loeb

Thanks Mark. As Michael mentioned we faced economic headwinds since 2008, but thankfully those winds seemed to be gradually shifting. From the leasing front small shop occupancy was consistent with March 31, finishing the quarter at 90.5% up 10 basis points versus prior year. By comparison we were 80 basis points below March 31, 2009 levels at the end of the first quarter and second quarter occupancy is traditionally lower than first quarter so the positive trend is encouraging.

Additionally, total occupancy including anchors was up 10 basis points from March 31 at nearly 93%. Based upon year-to-date results we expect small, year-end small shop occupancy of 92% to 93%. We were also encouraged by second quarter portfolio sales trends. Aggregate sales were positive in our portfolio for the first time in several years at 342 per square foot for the 12 months ended June 30, 2010 compared to 340 per square foot for the same period ended June 30, 2009.

Additionally, quarterly comp sales were positive for the second quarter in a row up about 1%. I mean 9% growth in March sales were down in April, the trended up the last two months of the quarter with June posting a 3% increase over prior year. Re-leasing spreads on a positive year-to-date up 3%. However re-leasing spreads were negative second quarter down 5%.

While we prefer this number to be positive, this calculation is based on a smaller portion of the portfolio, in fact under a 100,000 square feet in second quarter. As an alternative and as we've said in the past, we view portfolio occupancy cost as a more accurate predictor of embedded revenue growth. On this point we're encouraged by the steadiness of our occupancy cost metric, which was slightly north of 13% and down 27 basis points year-to-date.

Our goal is 14%. For this level plus and slight sales growth positions us to drive rents. Accordingly we're still anticipating finishing the year with positive re-leasing spreads. Finally, the most encouraging and meaningful of all these metrics is positive NOI in second quarter.

We're cautiously optimistic on our near term leasing prospects, combination of little to no national retail supply, new supply and regional malls remaining the preferred distribution network with occupancies generally in the 90% plus range is causing a growing concern from retailers that the space they want in the future may not be available. We're hearing that concern and beginning to see retailers act and respond.

As we discussed in our last earnings call, the operating environment has improved significantly from a year ago. Bills (ph) are improving, profitability is up, bankruptcy activity has been minimal and we're beginning to see retailers shift from survival mode to begin focusing on growth again.

As Michael mentioned we created this momentum under the recent ICSC RECon Convention and through the end of second quarter. For example we signed 500,000 square feet of leases during the first six months of 2010 compared to 350,000 square feet over the same time last year or an increase of almost 50%.

Notwithstanding this activity, we've been concerned about the recent market pullback and discussions of possible softness in the economic recovery. The good news is we're not seeing a significant change in retailer behavior within our current pipeline of deals. In short, retailers remain engaged returning that interest and the signed leases can be painfully slow.

Another 2010 priority is completing the initial leasing for our $250 million Scottsdale Quarter development project, while there is inherent risk in all our ground development, Scottsdale Quarter provides the company with significant upside opportunity upon stabilization. Accordingly, Scottsdale will remain a primary area focused until the company completes the initial leasing to this first class asset. As a reminder Phase 1 opened during 2009, while Phase 2 which will be anchored by an 18,000 square foot two storied 90 flagship store and a 45,000 square foot IPic Movie theater will open this year.

Other key retailers include Armani A/X and Dominick's a new steakhouse concept by Mastro's. From a leasing perspective we've addressed roughly 90% of the retail space in Phases 1 and 2. And stabilize this property should perform at the highest level of our portfolio on all metrics and as we mentioned in the last call Scottsdale Quarter has allowed us to add new retailers to the Glimcher platform such as Apple, H&M, and West Elm.

The benefit from these discussions is we've been able to talk to them about other locations within our portfolio. For example Apple opens their Polaris Fashion Place store this weekend. With respect to our office leasing in the project, the uniqueness of our offering continues to make a difference. We're in active negotiations with a high quality mix of smaller and large square foot users with a pipeline totaling almost 100,000 square feet.

As these prospects become signed leases, we'll keep you updated on our progress. 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. As we have previously discussed 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 additions 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 our quality.

We will leverage our base and our premier team will continue to take advantage of the opportunities within the marketplace. This all bodes well as we put the challenges of 2009 behind us and look forward to improving performance and future growth in 2010 and beyond.

Now with all that said, we'd like to open up our call to any questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Quentin Velleley from Citi. Please proceed.

Quentin Velleley – Citigroup

Good morning guys. Just talking a lot about potential for strategic acquisitions and you also talked about the Scottsdale ground lease. Could you just run through what some of your potential funding arrangements monthly for that acquisition in a little bit more detail?

Michael Glimcher

Sure, it's Michael speaking, and a good question. Our line is currently is at about $234 million and once we get below $200 million it creates a lot of flexibility for us to be able to fund acquisition opportunities. So there is a couple of places to look, you could certainly look at taking capital out of the existing portfolio in the term of joined ventures or sales of the assets or you could look at going to the equity market and brining that number down below 200 and creating some flexibility that way.

Quentin Velleley – Citigroup

And obviously if you got the ground leasing and you would also have the building what do you think is a potential outcome with, if you have 50% of the building. Would you be a likely buyer of that if it comes to market or is it something that you prefer to might be joint venture at if you would buy the other half of the building.

Michael Glimcher

Well I think we certainly like to have as much control of this asset as we can if you look at it from an economic standpoint and where our capital position is and preferred return. We have the benefit of most of the economics of the vertical improvement if not all in the near term. So although it's a 50-50 joint venture, the capital – the cash flow is really coming to us and as far as the ground leasing, we would certainly love to own it all, I think upon completion when this asset is stabilized as we said many times if you perform at the highest level on all metrics within our portfolios and frankly within most people's portfolios and it certainly would be something that we could look at as a potential joint venture but I think we're probably looking at 24, 34 months out when it's really a stable asset.

Marshall Loeb

Yes and I think if we do end up with the ground that certainly puts us in a better position in terms of what we ultimately want to do in the forward – in the future if that's brining an institutional investor that certainly would be positive.

Quentin Velleley – Citigroup

And just the last question, there has been a continued divergence between the performance of your market-dominant assets and your trade area-dominant assets. And I know previously you had a looked at selling or joint venturing a lot of those trade area-dominant assets, if you don't come up with any strategic acquisitions and you just look at de-levering the balance sheet. Are you today looking at just selling some of those trade area-dominant assets, so that your portfolio metrics can improve somewhat?

Michael Glimcher

The market for probably, the second category of assets really hasn't come back at this point Quen, I'll tell you what's interesting and we've talked a lot about this. We wanted to bifurcating the portfolio, draw a lot of attention to the strength of the top where a lot of the NOI is coming from but interestingly enough if you look at any one, if you look at the largest players in our sector, look at any one if you drew a line down the middle and they were to separate their NOI out, I don't think you would see a very large difference between their portfolios bifurcated and how ours is. I think it's something that we did more to draw attention to the upper half and maybe perhaps its attention to the lower half.

Having said that and I'll maybe let Marshall comment on some of the performance of the second half of the portfolio. It's been pretty stable.

Marshall Loeb

Yes, I guess I would agree with Michael. I think we should always be reworking our portfolio in an effort to improve it and I think we've been doing that as much as the market will allow. If we look at just sure occupancy and that trade-area dominant, last quarter we were down 110 basis points in first quarter. This quarter, we're down 60 basis points so 2Q09 and year-end we are projecting to be virtually flat, which is around 90% in both categories. And what's interesting really there is one mall that's hurting us more particularly than the others and it's a joint venture, it's our Puente Hills Mall which is, bad news is it Southern California so it was a hot housing market and its seeing that bubble burst.

The good news is we've got high density, high income around it, we lost a number of anchors they're really big box stores. We had Steve & Barry's, Linens 'n Things, the Borders, the CompUSA but we're re-leasing those and have a forever 21 that's opened around one which is a Japanese big box store that opens next month and a couple of more that we're in the lease negotiation stage. So we're refilling that store or that property and we think that will pull us back.

If we took it out our occupancy in the trade-area portfolio is virtually flat with a year ago and the trade-area dominance. So it's not every mall, it's not systemic of the malls, it's really a problem asset that we're working our way through.

Michael Glimcher

And Marshall, had mentioned in the prepared remarks occupancy costs and I just want to emphasize that the trends we're seeing in occupancy cost do not deviate from the top versus the bottom. We're holding at that level, it's been pretty consistent and we certainly think that's an important and an important indicator.

Quentin Velleley – Citigroup

Okay, that's it from me. Thank you.

Michael Glimcher

Quen.

Operator

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

Todd Thomas – KeyBanc Capital Markets

Hi good morning, Jordan Sadler is on with me as well. I just wanted to continue on the capital raising. You've talked also your commitment to continue de-leveraging. And so I was just wondering, you discussed where your credit line is and the availability there, but I was just wondering if you could sort of run through the sources and uses of capital maybe a little more detailed over the next 12 to 24 months and how that would play into your de-leveraging commitment?

Mark Yale

Yes Todd, this is Mark, I mean exclusive of any potential acquisitions things of that sort we're pretty much self funded. We have a little bit of use of capital as it relates to completing the Scottsdale project, I think we're looking at another $25 million to $35 million really through the next 12 to 18 months on that project and from there as we talked about in the last quarter when we executed in our preferred offering we're going to be opportunistic, we would like to de-lever a bit more, we've talked about targeting leverage within the 50 to 60% range roughly 8.5 cap, if you saw our covenant disclosure in the supplemental we're right around 62%. So we've got a little bit more work to do but we're right on the upper end of the range.

We're also looking at debt-to-EBITDA and we're targeting 7 to 8 times and right now we estimate that we're in the low 8. So we're close we have a little bit more work to do but as Michael had mentioned, we're at a point now where we like to continue with the de-levering but if we compare that with some offensive capital and to be able to bring in some strategic acquisition along the way that would be ideal but we're just can't see how things play out.

Todd Thomas – KeyBanc Capital Markets

Okay. And then switching over, looking at your top tenants it looks like GAP's annualized minimum rent declined about $600,000 but you didn't lose any leases, I was just wondering did you renegotiated rents with GAP and if so, was there any other consideration given to either party?

Michael Glimcher

I'll let Marshall talk in detail, I'd say the biggest thing that happened with GAP is that we've right sized their stores in a number of malls, an example Marshall mentioned we have a new Apple store opening in our Polaris Center just this weekend we had a 18,000 foot GAP store. We downsized it to about 12,000 feet to accommodate a 6000 foot Apple store, probably a pretty nice net gain for us and frankly rightsizing the store for GAP that was, that type of activity was prevalence throughout the portfolio.

Marshall Loeb

Yes, Michael is right. The other one we did and this was in first quarter. We downsized an Old Navy at Jersey Gardens and VF (ph) outlet that was the nice positive re-leasing spread in the first quarter. Was downsizing GAP and then the last we're working through the GAP kids is going to move into GAP out at Lloyd Center, one of our flagstone assets out in Portland. So that they're on a kind of a one year lease and so they get that coterminous and we'll straighten out the GAP leases in Portland.

So it's really those three as they downsize and rework their plan.

Michael Glimcher

And probably the good news for us with GAP is they typically have better than average real estate within the mall and they typically pay below at mall average in rent. So from a standpoint of keeping them as a strong retailer within the mall but in the smaller format and getting back better in more space that we can put another retailer in is going to lead to increase sales in the malls so these were net positives.

Todd Thomas – KeyBanc Capital Markets

Should we expect more of that from GAP or any of your other top tenants or?

Michael Glimcher

GAP was someone who really took a lot work footage and we've gone through this process with them. There is probably.

Marshall Loeb

Well a couple of – I am going to two or three locations as they were through and again it was even one we felt we were downsizing in California where they decided to keep it with their sales going up, they decided to keep the same amount of square footage but there is probably still a couple of more with GAP that we'll downsize.

Michael Glimcher

If you could imagine with limited branding GAP with some of our larger retailers are ongoing discussions about the portfolio of space and what the right size is for their store and it's something that seems change depending on the environment obviously.

Todd Thomas – KeyBanc Capital Markets

Okay, alright. Great. That's all from me. Thank you.

Michael Glimcher

Thank you.

Operator

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

Ben Yang from Keefe, Bruyette & Woods

Hi good morning. Going back to Scottsdale Quarter, what is your partner marketing ground lease for, and if you were to buy the ground lease at that price, what is that do to your 8% yield assuming you keep that 50-50 ownership despite having the greater economics?

Michael Glimcher

There is really not a price in the offering like one of things that are marketed just here is opportunities and please put in your bid. We're really waiting to see where the pricing comes back as we said we've got a last look at this and so without knowing where the bids have come in or where they will come in it's really hard to speculate Ben.

Ben Yang from Keefe, Bruyette & Woods

Is it fair to assume that, do you think that if you do indeed buy the ground lease that it would improve the 8% yield that you are expecting on your current investment?

Marshall Loeb

It could, and I am not sure we'll necessarily improve it. But I think one of the key factors we would be looking at is what would it do the half way on the entire project if you could consolidate the ground and the project itself.

Ben Yang from Keefe, Bruyette & Woods

Okay and then call you also update us on the equity contributions made by you and your partner at Scottsdale, basically what part of your investment is receiving that 21% preferred returns?

Marshall Loeb

Ben, it's about $65 million.

Ben Yang from Keefe, Bruyette & Woods

Okay and then just final question. Can you elaborate a bit on your decision to refinance the mortgage on Grand Central Mall, I mean on the one hand you got that long-term fixed rate cost, but it came in a price given the defeasance and the write-off, but then that loan doesn't really mature until 2014. So I understand that the prior loan has some recourse and that the refine takes some interest rate risk off the table but was there anything else that was part of the discussion and you expect to do more mortgage refines for further out loans like you did on Grand Central?

Michael Glimcher

I think Ben its Michael, as it relates to Grand Central. We said what the best long-term decision in a year ago had we had the same opportunity available to us we would have a taken 10 year CMBS deal, no recourse, $5 million of additional proceeds. This is a great piece of debt that we put in place on a very solid asset, a year ago you've looked at 50% recourse, lower proceeds in less terms.

So from our viewpoint more term, additional proceeds, no recourse it was – yes there was an expense doing it but it for us it was an easy decision.

Mark Yale

Yes and those fees and those were some (ph) costs we had already paid them so we just kind of put that to beside and look that from a business perspective and Michael touched upon recourse really clean it up our capital structure I think that's very important and we thought that was a big step forward in terms of simplifying our capital structure by taking that recourse off the table extending the debt and thinking we got a pretty good interest rate to do that, so.

Ben Yang from Keefe, Bruyette & Woods

Okay. I think the only thing that struck out but it didn't mature really until 2014 on that, but, and then just I do have a final question. The negative lease termination fee, is that because you received some type of payment in the previous quarter for a store that didn't end up closing, I mean, why would you report a negative fee for the quarter?

Michael Glimcher

The way it works and it just doesn't happen very often but what we call situation that happened in the second quarter was reverse lease termination income and basically what happened is we had a tenant that we wanted to get their space because we had ability to upgrade, bring in a tenant that was more exciting to the center, that would be more productive, that would pay more rent and the prior tenant had controlled the space and then we got them a check. And in that situation that goes through negative lease termination income. We looked from accounting perspective, from a business perspective we look at that cost that we pay to that prior tenants as part of the cost of the next yield and we are very comfortable at that next yield could absorb it and we get an appropriate return and we're going to bring in a better tenant to the center.

So it don't happen very often but that's just a way the accounting works.

Ben Yang from Keefe, Bruyette & Woods

Can you tell us who the better tenant was and which mall was impacted?

Marshall Loeb

Yes, it was out at Weberstown Ben, this is Marshall, we moved out and its (inaudible) which is kind of a coastal mainly West Coast junior retailer and especially for that market and (inaudible) kind of positioning us with that mall that too came in. so they'll definitely aware, who our customers at that mall I know should be above mall average we would project in terms of sales.

Ben Yang from Keefe, Bruyette & Woods

Great, thanks guys.

Michael Glimcher

You're welcome.

Operator

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

Carol Kemple – Hilliard Lyons

Good morning, I just had a question on your lease results in the second quarter. It looks like the rates on the prior leases for the lose stores were $31 and it looks like for the rest of the year, they're $24. Why is there such a difference?

Mark Yale

This is Mark, it just happens to be impacted by which stores are going to mature at the time. My guess is as you get into the rest of this year you have some long-term especially probably roll and that probably has the little bit lower rate but that's the number that as Marshall mentioned in the prepared remarks, its small subset of the renewals and it's really just facts and circumstances in terms of what leases are coming up and where it is. So I thing quarter-to-quarter stuff to look at certainly on a more of an annual basis is more indicative of where the rate is.

Carol Kemple – Hilliard Lyons

Okay and then on the Colonial Park Mall, last time I checked I thought that was a 2011 maturity, did you all do something with the mortgage on that?

Mark Yale

We did go ahead and modify that and the pricing went up a little bit, but we were able to go ahead and extend the maturity out 12 months plus we also got in an extension option.

Carol Kemple – Hilliard Lyons

Okay. Thank you.

Operator

Your next question comes from the line of Rich Moore from RBC Capital. Please proceed.

Rich Moore – RBC Capital

Hi good morning guys. CapEx and tenant improvements in the quarter both jumped pretty substantially, anything special there and what would you think as we look down for the rest of the year?

Michael Glimcher

Rich, its Michael, I'll let Mark and Marshall maybe get into little bit more detail but we had really an inordinate amount of activity as it relates to anchor tenants and maybe Mark you can strip out the difference between anchor and inline that would maybe give you a better run rate.

Mark Yale

Yes, I think Rich if you look at the second quarter that really isn't appropriate run rate couple of things, you did see a significant increase in the anchor activity as Michael mentioned. We also had some unusual items, the Jersey and the just the routine CapEx that won't reoccur and if you actually just look at the non-anchor stores we were actually a little bit below where we were last year for the second quarter.

So I would probably look at the six months ended its about $10 million and Rich I think we had given guidance for CapEx and tenant improvements at the beginning of the year 15 to $20 million. So we are probably tracking towards the upper end of that range but that's really indicative of the unusual anchor activity that we're seeing which can be quite some lumpiness and certainly is not a consistent year after year.

Michael Glimcher

I'll pile on and so yes some of the – the good news is we have the CapEx is there is Mark said, but that's part of that increase in leasing when we went from 350,000 to 500,000 square feet in the first half, a lot of that kind of anchors and big boxes we had H&M, renewal and expansion at Jersey Gardens. T.J. Maxx just opened up at our Ashland Town Center, round one will be at Puente Hills we had mentioned them a little bit earlier, again its numbers, for 21 taking some filing basement space at Jersey Gardens, Dick's Sporting Goods, River Valley, so we have another 9 anchors right now in the pipeline set to open that you're not seeing the income on but you are seeing the CapEx.

Our non-anchor CapEx is actually down year-to-date thankfully, although our leasing has been roughly flat, slightly up year-to-date and we've done a lot more new deals than we've done renewals last year that's been the other encouraging trend. And then on the non-operational there was about a million dollar at Jersey Gardens in second quarter, it's a onetime item we invested in at switch gear, some utility equipment that we think we're going to get about a year or year and a half payback on that. So we're really continue to chip away energy cost when we get the opportunity.

Rich Moore – RBC Capital

Okay, all right, good. Thank you. Part of the reason guys I asked the question is if you look at the higher TIs which you've explained and the weaker lease spreads in the quarter which again is just one quarter and allows the economy in the way things are acting at the moment, and yes if you feel pretty comfortable that retailers are still actively engaged in opening new stores. Do you have any other thoughts on why we should be comfortable like as the demand for retail space hasn't slowed here in the second quarter, by the retailers for new space.

Michael Glimcher

Sure Rich, its Michael and we talked about 20% more meetings in the ICSC and frankly I would say there were 100% more productive than they were a year prior. You sit here with occupancy into the 90s, there is no new supply coming online I mean our stocks (ph) just one of probably less than a handful of anything that's coming out of the ground at and as I sensed the mood at ICSC and we heard retailer talking, they were going to get to the point where they want to grow and they're going to have a difficult time finding space. So I think the supply and demand equation is starting to and will continue to work in our favor with no new supply coming online and we'd look at the overall sector being north of 90% and we would look at our portfolio with good health ratios at 13%.

Retailers are making money in the Glimcher portfolio, they're feeling good about doing business with us so we have a got a great opportunity to continue to lease up that space and again Marshall talked about less than a 100,000 feet of space comps so you got one tough quarter but when I see a healthy occupancy costs, NOI growth, I mean we're seeing a lot of good things happening within our portfolio and we're seeing I just see any amount of leasing meetings we're having the amount of deals that are flowing through our system and the deal flows is really strong.

We're going to have – I think we'll finish the year strong as Marshall said north of 92 maybe 93% range and we're seeing good deal flow for next year.

Rich Moore – RBC Capital

Okay. And is that, yes go ahead.

Marshall Loeb

No I'm sorry, I was just kind of one more span to throw at, I mean I think it's a good question what makes me feel better with what Michael said and the fact that we've signed almost 50% more leases and then if we look at our pipeline of deals meaning, we're kind of at the letter of intense stage and we're either working towards sign leases on unopened stores that's up 25% in the first half of the year with the bigger mix of new stores, a pretty material mix of kind of 30 to, up from 30% to 40% of the deals being new stores. So it could change in a moment's notice but based on where we I feel more comfortable certainly about retailers today much more than we did a year ago.

Rich Moore – RBC Capital

Yes and that's second quarter too Marshall not just first quarter I mean you feel like that second, that momentum from the first quarter it was clearly there, has continued in, okay.

Marshall Loeb

We feel like it slowed down which is probably good and then we've kind of set a nice slow steady recovery as it feels more sustainable and to probably puts off any new development that much longer. So from a selfish perspective the longer we put off new development and you have that slow steady growth although you would like to see it on the next quarter, it probably works in the long-term more in our favor because.

Rich Moore – RBC Capital

Okay, thank you.

Marshall Loeb

Instruction ones (ph).

Rich Moore – RBC Capital

Good, thank you. And then is that true guys at Scottsdale Quarter as well? I mean it seems like you have bumped to 90% of the leasing address. Is the demand, I mean you're in Phoenix. Is that demand from retailers still strong there as well?

Michael Glimcher

Yes, as plenty of people say you're in Phoenix and people talk about certain markets but we are at the absolute malls, we've got arguably the best day time population and certainly the best evening and weekend population in the marketplace as it relates to demographic. It was really exciting especially at this RECon Convention when you look at the activity on Scottsdale Quarter, you've got people like West Elm and Apple and Oakville Grocery and Brio and others who have already opened within Phase 1 but then you've got great thinks like our Armani A/X and Nike and others that are coming into Phase 2 and I would say, we lost some time with the economy stumbling along.

We probably lost a year where people weren't doing deals but when you look at where we are and you'll get the caliber of the retailer that we're talking to, people are doing one to 5 to 10 stores a year even right now, they're going to Scottsdale Quarter and it's on everybody's radar. People who are open and performing really well and I would say we've got so many new to the market retailers there the first H&M in the state, they would be the only Nike etcetera, it's just a premier location we just got caught with unfortunate timing.

Rich Moore – RBC Capital

Okay and then Mark on the low end on that asset, has that ratcheted up with all this leasing activity, has the more leasing you do the higher the loan potential loan proceeds?

Mark Yale

Yes, I mean we're at a $128 million outstanding on the line. We have initial availability based upon the modification, we execute earlier this year to up to $150 million. We expect to tap into that year in the coming months and then we certainly anticipate that we'll be able to earn out above and beyond that, I will tell you for capital planning purposes just to be conservative we're not assuming that and we have a plan that basically assumes that we have to put equity in around at that project but if you certainly look at the pro forma and the leasing progress we're making, we're going to have an opportunity to tap into more than the $150 million proceeds.

Rich Moore – RBC Capital

Okay but it's still at 150?

Mark Yale

Yes, 100 for the moment. 150 would be initial availability then you have an opportunity depending on occupancy, leasing, coverage ratios, things of that sort to turn out above that up to the full $220 million.

Rich Moore – RBC Capital

Right, and then same thing on the line of credit, is that, I mean it's a 234 you said.

Mark Yale

That's correct.

Rich Moore – RBC Capital

Ultimately that goes down to 200, is that right basically?

Mark Yale

It goes down to 200 at some point if we bring in more capital and then it does not get reduced below that $200 million.

Rich Moore – RBC Capital

Okay, great. And then you guys were having a special meeting I think to increase the number of shares of stock. Should we think in terms of a common equity raise at some point or is that something you're not looking into and by the way did that go through?

Marshall Loeb

That did go through and we just realized we were running out of shares on the show and it's something frankly that that we wanted to have a capacity if and when we're ready to do that and its one of those things that we're going to opportunistic. We clearly want to de-lever but as we've said is when we forward I'd say hopefully the next time when we're issuing equity there is not only defensive but offensive measures at hand.

Rich Moore – RBC Capital

Okay, so you might issue common, but no plans at current I guess.

Michael Glimcher

It's something that we always consider an opportunistic as we look at the marketplace.

Rich Moore – RBC Capital

Okay, got you. And last thing guys, why is your partner putting his land for sale again at Scottsdale?

Michael Glimcher

I couldn't really answer that, it is difficult for us to speak for others perhaps they want to equitize that investment and get some liquidity on, didn't say for sure.

Rich Moore – RBC Capital

Okay, great. Thanks.

Operator

Your next question comes from the line of Cedrik Lachance from Green Street Advisors. Please proceed.

Cedrik Lachance – Green Street Advisors

Thank you, just staying on Scottsdale, could you give us the sense of the yield on Phase 1 of the retail versus which expect on Phase 2 and on the office?

Michael Glimcher

Yes, I'm not sure we've broken it out to that level, you have the infrastructure that's there, and I think what we've talked about though is I think retail makes up what about, 70% of the NOI.

Marshall Loeb

Phase 1 has the two parking deck so we delivered the parking for really all of three Phases in phase 1 so it would by far the lowest yield and it depends on how you allocated everything, honestly office rents won't be as highest some of our retail rents so it's probably a little bit lower there as well and then probably the Phase 2 retail would be the highest of the deck.

Michael Glimcher

But ultimately we've talk about around the 8% range and its fully integrated project so its, I suppose you could probably do some sort of analysis and allocate parking but we really look at is as an overall project.

Cedrik Lachance – Green Street Advisors

Okay and you talked about being 90% addressed on leases with Phase 1 and phase 2. What is the percentage for Phase 1 versus Phase 2?

Marshall Loeb

We're basically full on Phase 1, we're basically (inaudible) we're 100% we've got signed leases in place for almost all of that and one retailer we're negotiating a lease and we're done with that.

Cedrik Lachance – Green Street Advisors

Okay, and going back to leases in general, what's been the average lease length that you've been able to sign over the first six months of this year and how does it compare versus a year ago?

Marshall Loeb

I have to look to see exact tenure of leases, I know it's certainly up, last year we had our number of portfolio meetings with people just wanted to buy time a year to two to see what happened in the market and as people feel more relieved, certainly new leases are back to ten year terms things like that. So I think it has increased, I can't be specific without doing.

Cedrik Lachance – Green Street Advisors

(inaudible) Doing a little more research.

Michael Glimcher

We'd have to calculate it but I mean on a new lease it's almost always 10 years people want to amortize, the improvement cost within the space. I think the big difference is a year ago, a year and a half ago renewals were really short and I think we're seeing renewals that were one and two years going back to closer to the typical three or five years and beyond, that's probably the big positive trend that we're seeing, but again we would have to calculate exact number and we haven't done that.

Cedrik Lachance – Green Street Advisors

Can you give us the sense of the percentage of all leases that are ten year terms which is the short terms?

Marshall Loeb

Certainly all new ones would be as Michael said just about that 10 year terms are longer, I can say of the ones we've worked through again, our new leases or percentage of leases have gone from about 30% a year ago first half of the year to 40%. And our number of new leases that were kind of come through the deal committee is up by about a third year-to-date.

Cedrik Lachance – Green Street Advisors

Okay, thank you.

Michael Glimcher

Welcome.

Operator

Your next question comes from the line of Nate Isbee from Stifel Nicolaus. Please proceed.

Nate IsbeeStifel Nicolaus

Good morning. Just following up on Scottsdale, can you give just a little detail on the rents you've been able to demand as you've moved towards the latter parts of Phase 2 and how that has trended from Phase 1 into Phase 2 and where you stand today?

Michael Glimcher

Nate, its Michael. I would say we've held up really well on the rents and I don't think rents have been an issue, I think you're talking about a property where people are projecting very high sales per square foot. I think probably where it's been a little more difficult as on the TI side, if you remember I think we've talked about the little bit. When we built Phase 2, we built in a very tough economy. We were able to save substantial on the shell building cost which gave us quite a bit of mind that we could use really for TI. So I paid a total cost between Shell and TIs is about the same it was going to be the big difference was we were able to save so much on the shell cost we were able to get larger TIs to the tenants and by doing that we've really been able to preserve the pro forma rent.

So rents are still holding up, I think there is just a greater desire to get help on the front end and TIs.

Nate IsbeeStifel Nicolaus

So what is the I mean the absolute rent levels you are seeing now, I mean your portfolio averages 26, 27?

Michael Glimcher

I would say you're seeing on the retail rents on average in $50 range.

Marshall Loeb

Rents built and almost all these fields as well. So if they perform again with a new projects I think it makes sense. And I know you're probably thinking on retail but at least on the office what I am excited about is we finished a construction and we did sign an office lease about 11,000 plus square foot in second quarter in Phase 2 but it's a construction site and when you're showing space and people have to wear hard hats and we have to move it channel expense to get people in and out of the space, I think you should hopefully see our activity pick up in Phase 2 just because it's been a difficult showing up until about now.

Nate IsbeeStifel Nicolaus

And what type of users are you seeing in this office space?

Marshall Loeb

It's been a mix of every type, a couple of publishing companies Hearst Media, publisher of Phoenix Magazine Cities West is their names and technology companies, financial services, what's been interesting last year we had, we got a lot of fair amount of leasing done but it was mostly privately, it was all privately held companies.

This year we've seen public companies come back to the market. So we've had some activity there and if we look at our pipeline almost 70% of it in terms of square footage is public companies relocating and I think again last year in the environment all the public companies had just we're sitting tight. Now they're back out looking at the market and again we're the only but virtually the only mixed use projects out there in the market. So when we have our tours, you kind of know in the first 10 minutes, people either love it or they hate it and where they've loved it, we've been able to have pricing power more so over a competition.

Nate IsbeeStifel Nicolaus

Okay. In your discussions with your department store anchors, what are you hearing from them just in terms of your near-term renewals and the possibility that they might look possibly to close and we've been hearing from some of the department stores, given that they are not doing wholesale closures, they are looking selectively, again any whispers that some of your malls might be at risk here?

Marshall Loeb

We meet quarterly with just about every major department store within our portfolio if not, a couple of time a year and do a portfolio of review it. I can't really think of one location where that would be the case. Renewals become frankly routine with these traditional department stores and we're about 93% occupied on anchor so I don't see that as an issue at all in our portfolio.

Nate Isbee – Stifel Nicolaus

Okay thanks. And just the final question, as your Blackstone JV, I mean clearly you've recently closed it and, it's probably too early to expect any activity. But have you seen any high quality malls that might be in your sites that are being marketed for sale today?

Michael Glimcher

Yes there are opportunities in the marketplace and we're actively looking at them and we've looked at number of things some that we're interested in, some that we want but along with flag store. So we'll continue to look at those opportunities and I think as I said a little bit earlier there haven't been this flood of properties coming on the market but again when you have a base of 20 some assets, two three, four assets can make a big difference and so if we pick up an asset or two I think you could see a substantial shift in our portfolio.

So we're excited about it, we're continuing to look at it but nothing to announce today.

Nate Isbee – Stifel Nicolaus

Well as you look at what are the types of properties you would want to acquire just in terms of the sales per square foot. Can you give just a sort of target productivity level?

Michael Glimcher

Well a fair minimum we draw our line through the middle of the portfolio. So if doesn't fit in the upper half of the portfolio, it's probably not the right type of asset for us. And so if you look at the assets that we have in the sort of the top half that are more in the $400 foot range with occupancy up in the 90s, that would be a great type of asset and that would certainly be added into the portfolio.

Nate Isbee – Stifel Nicolaus

Okay, thanks.

Operator

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

Michael Bilerman – Citi. Yes, it Michael Bilerman speaking. Going back to Scottsdale, so you have the ground lease rent of $5.5 million and pretty sure Wolff (ph) has got somewhere north of a $70 million loan which is probably driving his desire to sell with that maturity coming up. And I am just curious because you've talked a lot about that you still believe your leverage is too high and that equity would be a component of funding any acquisition. And I guess looking at the stock today, you've got an FFO yield north of 13%, the stock is probably trading in the mid 8, high 8 implied cap rate with a loan of call it north of $70 million and a $5.5 million ground lease payment. So call it about an 8 yield. How do you make something like that accretive to the bottom line?

Michael Glimcher

Look Michael there is going in yield and then there is also considering, if there is increase in the ground lease payments if time goes on, so you have to look at that and then you have to look at what is the overall value of the asset with the ground lease versus if it's on own ground and they are certainly difference in cap rate and its evidence by assets is it trading out or have historically traded in the marketplace. So again I don't know exactly what the price is, I don't know if the asset will trade, they don't get pricing that works for them, the asset may not trade what I do know is we ultimately have a last look and if it doesn't trade or if we choose not to buy it our position is no worse than today and frankly our position today is very good, if it trades or there is opportunity for us to buy at a price that we think is prudent then I think at that point when we know what the number is and we know how we were funded then we can lay everything out for you but at this point, we certainly don't want to negotiate with our partner in public and there is really not an update to make a decision today.

Michael Bilerman – Citi

I guess as you think about joint ventures, here you have joint venture partner where you are 50-50 on the asset but the joint venture partner has got 100% of the land. Would you ever put yourself back in this position where, you're not sort of toe-to-toe and you get into these conflicts?

Michael Glimcher

Look every deal is different and you have to judge everything from at what time did you get involved in the opportunity, and what were the facts and circumstances and I think going into this opportunity we said this is the type of asset that should probably be valued and if you look at other assets that performed like this in good environment at worst case probably at a six cap that's not the kind of asset that we could afford to purchase, it's a kind of asset that we can afford to manufacture. And so for us we said this is a great opportunity to get involved in what's going to be an A quality asset and when you're leasing it to people, like Apple and Brio and Williams-Sonoma and others when the world's coming apart and they're still signing leases and they're still wanting to be a part of the property that says a lot and so this is going to be a great asset, going forward, you learned from every deal that you do and hopefully you put yourself in a better position but it's just it was a unique set of facts and circumstances are related to this specific deal.

Michael Bilerman – Citi

Maybe Mark you can just clarify a little bit better resources and news and also de-leveraging targets arguably the line has a little bit more capacity today but you also have a eventually pay down going into 2012. You have got to get it down to $200 million. So there is not a ton of capacity as you think about your sort of longer term capital needs especially if you start thinking about wanting to buyout this ground lease which obviously would cost a lot of money and you think about the other opportunities that you are pursuing, I guess just help us narrow that gap a little bit.

Mark Yale

Well one you've already got the commitment level down to $234 million as Michael mentioned we had a $156 million outstanding on the line at the end of the quarter. So I mean we've already made great progress, I think though as we talked about for us to move forward in a meaningful way with any strategic acquisitions, it's going to take capital. We're going to need to create some more capacity. But just require the way the line works is once we can get to that $200 million commitment level it is does not reduce below that, so we can get the line paid down and then we have some flexibility for use of proceeds and being able to move forward with acquisitions once we get below that level.

So we think we're very close. I think other thing I should point out is that part of our utilization of that line involves the letter of credit on Scottsdale for about $20 million and we're in the process of addressing, I think we satisfied the requirements and we anticipate here in the near future that we'll get that back so that's going to create some capacity. But at the end of the day, if there are opportunities for us that are strategic in nature, we're going to have to look to opportunistically raise capital and whether that's divesting from existing assets or raising capital we'll just have to wait and see the facts and circumstances and as Michael mentioned we're going to continue to be opportunistic.

Michael Bilerman – Citi

Have you had any discussions, I guess as you evaluate the ground lease acquisition. Have you had any discussions with the banks in terms of thinking about the construction loan that's on the books right now? What sort of financing you would be able to replace both the current loan and then if you were able to get the ground, what sort of, do you think there is capacity for a new loan and whether you would have to be able to pull out equity or you would have to contribute more?

Michael Glimcher

Look, we've analyzed that we certainly talked to our lenders and there is a number of ways to do it. One is to just separately finance the ground lease and one is to roll the two in together and what we certainly have looked at and continue to look at both options again. We don't have a deal on the table today. We do have a last look, we really, what we're doing right now is really speculating on what if basis, so we've done a lot of analysis. We have – certainly our thoughts about how we're going to play it out, like I said we don't want to negotiate in public but we certainly have thought this thing out every which way.

Michael Bilerman – Citi

All right, just a question for Marshall as you, the lease rollover, when you are pushing stuff out one year that's not in your renewal stat, is it?

Marshall Loeb

Yes that was a one year renewal, yes that would included, I mean that was in the middle of the lease term but when someone has expiring and that was probably more typical in '09 when retailers were expiring they didn't know what they want to do, so we would renew a whole portfolio for a year.

Michael Bilerman – Citi

But and I guess and maybe this is with the joint ventures but when you look at your, you did about 100,000 square feet of mall store leasing in the second quarter between your new and renewal?

Marshall Loeb

True.

Michael Bilerman – Citi

And then when you look at your lease expiration schedule, the 2010 lease expirations went down by 243,000 and your 2011 went up by 119,000. So it just, I would have thought that if you did 100,000 square feet of leasing in your 2010 roll would go down by because your occupancy was flat.

Michael Glimcher

Go ahead Mark.

Mark Yale

I was going to say part of it just has to with you're looking at what's comparable and that's because in that, there is all sorts of situations where it's not comparable and you just can't look at the spread that's not appropriate. So that's going to be a piece of it.

Michael Glimcher

For example we think we're that, everybody calculates it a little bit differently but we have a tenant expand in to vacant space. We don't count the zero rent when we recalculate our releasing spreads.

Michael Bilerman – Citi

But the vacant space wouldn't be in the rollover page because there is no one in there?

Michael Glimcher

True but again I'm kind of reconciling your numbers, but if the 100,000 feet that's a fraction of the leasing we did in second quarter and as Mark said it's the fraction that's comparable space to comparable occupied space. This is not, okay.

Michael Bilerman – Citi

Okay we can follow up off-line.

Michael Glimcher

Sure.

Operator

There are no further questions at this time. This concludes the question and answer portion of the call. I will now turn the call back over the Lisa for closing remarks.

Lisa Indest

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

Operator

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

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