Glimcher Realty Trust (GRT) CEO Rory Read on Q2 2014 Results - Earnings Call Transcript

Jul.18.14 | About: WP Glimcher (WPG)

Glimcher Realty Trust (GRT) Q2 2014 Earnings Conference Call July 18, 2014 11:00 AM ET

Executives

Lisa Indest - CAO and SVP of Finance

Michael Glimcher - Chairman and CEO

Marshall Loeb - President and COO

Mark Yale - CFO

Analysts

Todd Thomas - KeyBanc Capital Markets

Caitlin Burrows - Goldman Sachs

Christy McElroy - Citi

Craig Schmidt - Bank of America

Jeff Donnelly - Wells Fargo

Tayo Okusanya -Jefferies

R.J. Milligan - Raymond James

Carol Kemple - Hilliard Lyons

Daniel Busch - Greenstreet Advisors

Operator

Good day, ladies and gentlemen. And welcome to the Glimcher Realty Trust Earnings Conference Call. My name is Victory, and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the conference over to, Ms. Lisa Indest, Chief Accounting Officer and Senior VP of Finance. Please proceed.

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2014 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 package are available on our Web site at glimcher.com.

Certain statements made during this conference call, which are not historical, maybe deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

For a more detailed description of the risks and uncertainties that may cause future events to differ from the results discussed in the forward-looking statements, please refer to our earnings release and to our various SEC filings.

Management may also discuss certain non-GAAP financial measures. Reconciliations of each non-GAAP financial 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 thank you everyone for joining us today on our call. The Company’s strategy for 2014 centers around the continuing remixing of our portfolio with a real focus on redevelopment and dispositions all while maximizing the operating results of our existing Core Mall portfolio. As we sit here today at the half way mark of the year we’re quite pleased by the progress made on such execution and optimistic about how it positions us for the remainder of this year and beyond.

To start we were certainly encouraged by the overall strength of our operating metrics within the Mall portfolio. Total occupancy for Core Malls was over 95% as of quarter end, up 60 basis points over the prior year driven primarily by a 150 basis point increase in mall store occupancy. Releasing spreads continue to be solid up 17% (audio gap) occupancy cost ratio at historic lows of just 10%.

While tenant sales did moderate in terms of growth over the prior period, they did increase to a record for our portfolio of $473 per square foot as of quarter end. And we’re pleased to see comp sales for the period turn positive after a difficult first quarter. Most importantly we delivered another quarter of solid NOI growth from our Core Mall portfolio up 4.3%.

As discussed during our last earnings call, we’re continuing to work on the remixing of the portfolio to enhance the overall quality through redevelopment, divestitures and acquisitions, with redevelopment typically being the best use of our capital, we see such activity being consistent an ongoing part of our asset management strategy. While we have been active on the acquisition front over the last couple of years, we have shifted our focus today towards bringing up the bottom through targeted dispositions of our more moderate malls.

With respect to the divestitures the Company continues to move forward with the dispositions of Eastland and Puente Hills. With respect to Eastland we did complete the auction for the property last month with the highest bid coming in $18 million. The bid was not accepted by the special servicer as we believe it fell below the clearing price established prior to the auction. Regardless based upon the prior agreement in place with this special servicer the Company expects to exit the property by the end of the month through a deed in lieu for settlement of the $40 million of mortgage debt currently in place on the property.

As it relates to Puente Hills, we are in the final stages of selecting a buyer from a group of credible offers. We’re expecting pricing to come in above the mall’s current value and loan amount. In terms of the broader initiative commenced at the beginning of the quarter to sell a subset of our 13 or more moderate malls, we’re making solid progress. We have been through several rounds of bids at this point and have various parties focused on certain segments of this offering. Based upon the status of these discussions we are still expecting to raise approximately $200 million to $300 million of capital through these sales.

With no significant changes and previously anticipated pricing. These proceeds will be incremental to the Eastland and Puente Hills disposition activity previously discussed.

The capital raise from these dispositions would primarily be used to reduce overall debt levels moving us closer to our longer term balance sheet targets for debt to EBITDA coverage and the ratio of debt to total asset value and to ensure that we have ample liquidity to fund our current redevelopment pipeline. While there will be inherent solutions associated with these transaction, we believe with an improved balance sheet, a higher quality portfolio, and an enhanced growth profile resulting from these dispositions the company will be worthy of a higher valuation. We do not anticipate disclosing any additional details regarding these dispositions until we have form sales contracts in place with hard money at risk from the buyers.

As we have noticed in the past redevelopment will continue to be a priority in terms of our capital allocation. We believe we have the proven ability to deliver solid return on investment, typically in the higher single digits on our incremental capital while repositioning assets for future growth with the inner markets. We have, or will commence projects, projects at University Park Village in 2014 and Town Center Plaza, Polaris and Fairfield Commons later this year or in early 2015. Additionally, we view Phase III of Scottsdale Quarter as being part of the company’s redevelopment pipeline and are very excited about the recent progress being made on this project as well.

Beyond the multi-family already under construction, we will break ground on the next component of Phase 3 later this month. While tenant sales remain somewhat sluggish nationally, we remain very optimistic about underlying fundamentals of our business going forward. This field was certainly supported by a very successful Las Vegas RECon conference in May. While the energy level was somewhat mute this year, we believe the tone from both landlords and retailers was extremely positive. The bottom line is that the leasing environment remains incredibly solid. Productivity was strong as we held close to 300 retailer meetings in the 2 ½ days of the convention.

Once again, we have not seen any behavioral change from the retailers in terms of committing to a new space or extending expiring leases. New deals of 2014 were identified, but more importantly we saw real strengthening of our 2015 pipeline especially as it related to our key redevelopment projects. With solid leasing momentum, regional model occupancy is generally well above 90% industry wide and virtually no new meaningful retail supply coming online, we have trust in the long term potential for the higher quality mall business. As we enter the second half of the year we believe the continued management of our balance sheet, execution of our asset dispositions and progress on our redevelopment projects will accelerate or transformation.

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

Mark Yale

Thank you, Michael and good morning to everyone. Our reported FFO per share for the first quarter of $0.18 fell in the upper end of our guidance range going into the period. The biggest driver of this quarterly performance was stronger than expected property operations with core mall net operating income growth of 4.3% above the 3% to 4% expected range. Additionally, higher than expected level of lease termination and outburst of sales income contributed to our financial performance during the quarter.

In terms of the balance sheet, we finished the end of June with approximately $21 million of cash on hand and a $175 million of capacity on our credit facility. Exclusive on any impact on the property dispositions Michael mentioned, we expect to finish 2014 with $150 million to $135 million of remaining capacity on our credit facility, giving us ample flexibility from a liquidity perspective.

As mentioned in previous calls we plan to utilize available capacity on a recently amended unsecured credit facility to pay off the $94 million mall at Fairfield Commons mortgage during the second half of 2014. Fairfield represents our only remaining 2014 debt maturity. Our plan is then add Fairfield to our unencumbered pool thus providing the necessary collaterals to support full availability under the $300 million revolver. When including Fairfield Commons, the company will now have 8 unencumbered mall properties with the total value of approximately $500 million.

As discussed previously, we have also been focusing on nearly $500 million of mortgage maturities that occurred during fiscal year 2015. We plan to exercise our extension option on WestShore Plaza, unencumbered Marriot Square for availability under our credit facility and look to place long-term financing on Pearlridge via CMBS or Lifeco execution. We have also been making progress in securing bridge financing for Scottsdale Quarter and Seattle with some combination of our line base. Our goal is to be as proactive as possible in order to take advantage of the low interest rate environment we are experiencing today.

During the second quarter we did not issue any common equity through the company’s ATM program leaving us with over $200 million of remaining capacity. When considering the company’s share price and our current initiative to raise capital through dispositions, we’re not presently focused on utilizing the ATM. Finally, within the earnings release we reaffirmed our FFO guidance for fiscal year 2014 in a range of $0.74 to $0.78 per share.

Key assumptions as detail on our initial guidance remain the same. Due to the uncertainty of scope, mix of assets involved, pricing, and most importantly the ultimate timing, the derivative impact of the potential divestitures previously discussed are not included in our current 2014 outlook other than the disposition of Eastland Mall. We also provided FFO guidance for the third quarter 2014 in the range of $0.17 to $0.19 per share. Key assumptions driving the guidance includes lease termination and outparcel sales income of around $1 million and core mall NOI growth of approximately 3% to 4%. With that said, I’d now like to turn the call over to Marshall.

Marshall Loeb

Thanks Mark. As previously discussed, the redevelopment and reinvestment back into our higher quality properties is one of the best uses of capital. As Michael mentioned, we’re focused on several opportunities in the near term. The redevelopment project with the greatest 2014 impact involves the retaining of the former Barnes and Noble space at University Park building.

There were $3 million investment to reconfigure the store in the five different spaces allowing us to bring first to market retailers to this center; we’re nearly doubling previous rents. So far leases have been executed with Sephora, Athleta, Kendra Scott and Michael Kors. All stores are scheduled to open by end of the year. Based upon continued retailer demand we are planning an additional 30,000 square foot expansion.

Strong progress is being made in terms of pre-leasing along with the approvals and consents necessary to move forward with the expansion. Our plans are progressing with the respect to redevelopment activity of Polaris. We’re negotiating letters of intent with Big Box tenants to take over the entire former grade and door space. The retailers would be a great complement to the mall and we’re currently working on finalizing leases for holiday 2015 openings.

At Fairfield Commons, Elder-Beerman is in the process of consolidating their two locations at the mall and one fully renovated store under a new long-term lease. This leaves a 130,000 square foot for her space available for redevelopment.

We’re focused on a plan that would call for demo of the building allowing us to bring four to five new restaurants to the center where demand is high. We also expect to start on a project at Town Center Plaza within the next 12 months or add an additional -- add a pedestrian plaza allowing us to bring online additional new food and entertainment related space.

As part of the plan, there is also an opportunity to add new outparcel plans. Leasing is progressing well as we continue to work through the approval and entitlement processes.

Another 2014 area of concentration is Scottsdale Quarter phase three. We continue making steady progress on the project. We recently executed a lease with American Girl which we will service the retail anchor for the 140,000 square foot south parcel building. Above the ground floor, retail would be five floors of office space. In terms of the office, we have a lease up for Signature with a four floor user representing 20% of the total office space coming online and continued discussions with other prospects. We will commence construction on the building within the next 30 days, with space coming online second half of 2015.

In terms of the rest of the project construction of the 275 luxury for-rent residential units being developed by our multifamily partner is progressing on schedule and on budget. We expect that the leasing activities will begin in earnest by year end with the first units coming online early spring of 2015.

Primary discussions are well underway with several credible four star hotel operators to incorporate on approximately 150 room boutique hotel to round out the mix in phase 3 on the central parcel.

Also during the May ICSC leasing convention, we initiated marketing of the retail component on the central parcel that will complement the hotel. The initial response from retailers was very encouraging with our plans on underwriting, now finalized for Phase III; we’re expecting a 7% plus yield on an incremental investment of approximately a 130 million to a 140 million. At this time, I will turn the call back to Michael.

Michael Glimcher

Thanks, Marshall. In closing, we’re very pleased with the continued execution of our business plan so far this year. Bringing us closer to delivering on our longer-term objectives of having a mall portfolio averaging over $500 per square foot in sales and is able to consistently generate $3 to 5% NOI growth and is supported class A balance sheet. Our progress can be attributed to a team that understands the changing dynamics of today’s resale environment and a focus on creating and owning high quality properties that connect the highest performing brands with interesting new restaurant, entertainment concepts and first class amenities with our open air, in close or mix use, we believe in the future of bricks-on-mortar retail. Now with that said, we’d like to open up our calls for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas - KeyBanc Capital Markets

I was just wondering, first question, just based on your comments about the Company's asset sale initiatives, it seems demand is pretty strong. I was just wondering, have you reconsidered plans to sell more than the initially stated three or four properties? I know you reiterated plans to raise $200 million to $300 million of proceeds, but with the 13 malls in the market, it seems that the door is still open. So just curious whether you see an opportunity that might make sense to dispose of a few more properties, perhaps?

Michael Glimcher

Hey, Todd, it’s Michael and really good question. In the short-term what I would say is we’re very comfortable with the plan, we will implement the plan and we’re making progress and right on target for the 200 to 300 and that excludes Eastland and Puente like we talked about, which will also get done.

As we see indications of interest on other assets I think it lays a plan for what’s next. And so I think in the short-term we’re very focused on what our current capital needs are and the work we want to do on the balance sheet but we also know that this is a lever we can pull for future capital needs and there seems to be a high level of interest. I think for us we forget about, we don’t have to do more and so I think it puts us in a nice negotiating position with the buyers knowing that there are multiple buyers for multiple packages and one falls through we can always go with another one. So I think it’s really focusing on something small right now with the ability to do more later on an as needed basis.

Todd Thomas - KeyBanc Capital Markets

Okay. If we think about the 4.3% comp center growth in the quarter, what was the breakout like between the 13 properties, Mark, for sale on the balance of the portfolio? Are you able to share that with us or just give us some color there?

Marshall Loeb

I think the only color I would say is that’s certainly the properties outside of those 13 have and certainly this quarter and we expect we’ll have a higher growth profile. There is certainly growth in those 13 properties.

Michael Glimcher

And I would add Todd it’s Michael that those are not growth properties, they are just lower growth properties and when you think about us wanting to deliver 3% to 5% consistently and deliver the nice kind of NOI growth like we did this quarter. Perhaps that goes little harder to lever at this level over the long-term.

Todd Thomas - KeyBanc Capital Markets

Okay and then just one operational question. It looks like occupancy increased pretty nicely from the first quarter. If we think about seasonal occupancy trends, there is generally a really nice pickup, primarily in the third and fourth quarter. Should we still expect to see that, or did this quarter's occupancy increase, pull forward some demand that we might otherwise have seen later in the year?

Marshall Loeb

Todd its Marshall, you’re probably a little bit the later. I mean our occupancy should knock on woods, still climb between now and year-end. But probably not as much historically and we’ve gotten it done earlier. I think more importantly we’re more excited about it and it’s really as full as we can get. It’s the quality of the occupancy as we kind of replaced those local regional tenants that are on the 15 and the 20 yard line with more permanent tenants and upgrade within our niche. We’re seeing that on our releasing spreads and some of our NOI growth. So I think we’re about as full as we’ll get, we’ll pick up a little more occupancy but not a tremendous amount on and it’s really I think the next couple of years it’s all going to be about tenant quality more than filling up.

Todd Thomas - KeyBanc Capital Markets

Okay. And then just one last one for Mark, you mentioned -- you ran through the 2015 debt maturities and I don't know if I missed it or not. I didn't catch plans on Outlet Collection Seattle. What's the plan there for that, the $50 million mortgage at 7.5%?

Marshall Loeb

The plan is to do something shorter-term probably three to four years of maturity give us the chance to continue to drive stabilization. Again we make great progress but we probably need some seasoning and to try to firm that out right now we’d be leaving some dollars on the table. So we’re in discussions right now with our bank group about doing something on balance sheet, three to four years of term really good pricing and then full flexibility in terms of prepaying or we’d have the ability to either unencumbered it. If we want to go that direction we’ll be in a position to place firm financing on it. And that’s really the same strategy with Scottsdale as well.

Operator

Your next question comes from Caitlin Burrows with Goldman Sachs. Please proceed.

Caitlin Burrows - Goldman Sachs

Not including Puente Hills Mall, since you plan to sell it later in the year, you have four centers in your Tier 2 category of moderately productive sales. Do you think those properties have the potential to make it to the Tier 1 category?

Michael Glimcher

Probably most specifically Seattle which is growing, sales are growing really nicely and that should move on to the Tier 1 category here. We think next year is probably the timing but we’re feeling really good about it. We’re seeing great sales, increased traffic, increase another wave of tenants that will open up, here before year-end it’s been a really tremendous success story.

Caitlin Burrows - Goldman Sachs

Any comments on the other three? Do you think they will stay there?

Michael Glimcher

New Towne is one that has a chance just it’s a strong local economy and our team has done a good job. We’ve gotten a handful of new tenants that have opened recently. It won’t be up $600 a foot mall but just as we measured it $300 a foot, I mean we’re right there on the cost of that, it’s made some nice steps in the right direction.

Caitlin Burrows - Goldman Sachs

Okay, and then in terms of your sales per square foot metric, I know it normally only includes stores under 10,000 square feet. Could you comment on how sales growth is doing including the larger-format stores?

Michael Glimcher

We look at that from time to time and I don’t think it changes the trends significantly. Certainly there are some concepts that help but you also get over 10,000 and there is some that offset that as well. So the forward fashion Forever 21, H&Ms those are positive but there is others that offset that and it certainly impacts the level and the amount of our sales per square foot but I don’t think it changes the trends significantly.

Caitlin Burrows - Goldman Sachs

Okay, and then lastly, as Sears represents almost 12% of your mall GLA and JCPenney another 9%, what have your discussions with those anchors in particularly been like recently?

Michael Glimcher

Kevin, its Michael. We have, as we’ve said previously, we have probably quarterly if not monthly falls with these retailers. And I view both of those as being upside opportunities upside and either they perform or they don’t perform and the stores that aren’t there we can do a lot with them when we’re suppose we are and we’re getting the substantial rent increases that we’re getting on the space that’s turning the opportunity to get out more space is pretty exciting. So, I think we have offered on the table probably more so on the Sears side and is really focus on upgrading our business and operating. Sears is more open mind of the selling locations and when we can, when the bid and the ask match they will create redevelopment opportunities and if they don’t ask or they don’t match well then they will continue on as they are. So again we look at all of this as upside and when we’re supposed we are giving space back as a win.

Caitlin Burrows - Goldman Sachs

Okay, great. Thanks.

Operator

Your next question comes from Christy McElroy with Citi. Please proceed.

Christy McElroy - Citi

Michael, I understand your reluctance to provide details on the process since it's still ongoing, but you are pretty far along the process at this point, so maybe a little bit of color. You seem pretty comfortable with an ability to sell at least $200 million to $300 million of assets this year. Can you talk about where along the quality spectrum of assets that you're marketing do you see the sales occurring? Can you provide any sort of insight for us around the differences and demand that may exist in the market today between B and C malls?

Michael Glimcher

Christy, it’s a good question. It’s really a blend, I mean, I think if you look at the 13 and rank them from one to 13, we’ll probably sell some from throughout from the top to the bottom of the list. So we’ll probably have a blend. We’ll get to a good blended cap rate. We’ll get to the proceeds we want to get to. And it just depends with some very aggressive opportunistic buyers at the very bottom. There are some people who are willing to pay up a little bit more at the top of that list. And the higher we get on the list the more institutional and sort of traditional you were to think of the lower you get the more opportunistic and maybe names that you don’t know as much.

So our goal has been to have a nice blend of quality and get to a good blended cap rate. And we’re feeling really good about the progress. And like I said, once we have hard dollars at risk, we’ll announce it and we expect a lot more color by the next class perhaps lot of more color before the next call. But we’re feeling really good about the process. And there has been a tremendous amount of interest.

Christy McElroy - Citi

And just to follow up on Todd's question, once this process is through, say you only do the $200 million to $300 million, is there a possibility that we could continue to see additional meaningful sales volume going into 2015? Is this an ongoing process?

Michael Glimcher

Yes, I think I made a comment on the last call that in a normalized environment right now we’re very focused on dispositions and we’re not focused on acquisitions we’re focused on dispositions and we’re focused on improving the balance sheet we’re focused on reinvesting in the core. But in a normalized environment we’re always going to sell off to bottom, we’re always going to invest in the core and we’re always going to look for new opportunities.

So I would say this is just going to become always business as usual for us and always looking upfront and upgrade the portfolio. So, yes, and the short answer is yes.

Christy McElroy - Citi

Have there been any buyers that have expressed interest in all 13? I know that you have been marketing it as a portfolio.

Michael Glimcher

There is disparate it’s just such as a different last and as I said earlier that they’re very opportunistic people looking at the most moderate are looking for a deal and an opportunity and maybe a repositioning whereas at top of the list people looking at more stable assets than they can even randomly improve. So if you really look at them its different profiles of buyers. And so it’s not -- there is such a broad deviation from the main as Marshall Loeb said that there is probably not one buyer that they fit right for.

Christy McElroy - Citi

Okay, and then just lastly, Mark, in your discussion about 2015 refinancing, you mentioned a long-term refi. Would you expect any excess proceeds on something like that?

Mark Yale

On Pearlridge?

Christy McElroy - Citi

Yes.

Mark Yale

Yes, we do. We certainly have an opportunity in terms of being able to generate excess proceeds. So we’re going to push the leverage when we originally put that in place so improve the NOI growth so that should be a nice opportunity for us.

Operator

Your next question comes from Craig Schmidt with Bank of America. Please proceed.

Craig Schmidt - Bank of America

I am wondering what's driving the sequential slowing of the average sales per square foot trend. At least nationally, it seemed like the consumer more stabilized in the second quarter than the first, so I just wondered if there's something happened at the back end of that 12-month look back that is slowing it down?

Michael Glimcher

Craig, its Michael and I’ll speak then any-one else chime in who wants to. I mean part of it is you have these junior tenants that we have a lot of exposure to that have gotten here pretty hard. It’s across when we look at our sales it’s not only everyone doesn’t did a sales and same sales number, there is a lot of tenants your sales are really kind of recovering going in the right direction. We feel like that the fall off in the juniors have generally stabilized it looks like within our portfolio. And I think our portfolio kind of being right down the middle is a good parameter for what’s happening and actually I know when we look at the sales and we look at ups and downs relative to national numbers that get reported on a monthly basis, we’re usually right it in line with averages.

So it’s just such a broad mix of thousands of tenants. Some are up some are down some are flat. But the thing I’m excited about is Marshall and his team, they pushed rents 17% releasing spread, they pushed occupancy and we’ve been able to deliver 4.3% NOI growth, all while maintaining a very low occupancy cost ratio. We’ve got a lot of runway. Even if sales were to stay flat, we’ve got a lot of runway to continue get these nice double-digit increases quarter-after-quarter and that's probably the part that we’re most focused on. I’d love to see sales increase. We want to get over $500 a foot. We’d like for it to all happen organically. But the thing that I’m most happy about is the things within our control. We feel very comfortable that we’re doing it in a positive manner.

Marshall Loeb

And we were certainly encouraged that our quarterly comp sales were positive for the second quarter and that was a nice change in the trend from where we were in the first quarter. But I think once again similar to the commentary from retailers; the quarter got off to a really good start and then kind of hit the wall as we got into the later part of the second quarter end of June. So we’ll see how things play out, but certainly we’re well positioned.

Craig Schmidt - Bank of America

Okay. And then I guess on a related note, given the modest flip in sales per square foot, why has occupancy cost dropped from 10.4 to 10.0?

Marshall Loeb

Craig its Marshall. There is -- again modest sales are still, but within our portfolio if you say where we had nice sales increases per square foot, it’s the mix, Seattle, as you would expect, some of our acquisitions on purpose. If I look at University Park Village, Town Centre Plaza and Scottsdale, we have low occupancy cost there and as those centres kind of fill out and we round out the tenant mix, the sales there are rising faster than the leases are rolling. So that's again -- the outlet -- both of the outlet malls, Jersey continues to perform. We are getting nice re-leasing spreads there, but we only get so many bites at the apple every once in a while there and really the same thing in Seattle. So as Michael mentioned, we’ve got a lot of runway there and then you mix it in with the rest of the portfolio, it’s been a little more flat.

Michael Glimcher

And again to chime in with our smaller portfolio, with the tremendous amount of lease-up that the team did in Seattle and typically all that occupancy being a little bit lower, that has a little bit of an impact on it. But again, I don’t view lower occupancy as negative. I view it as a huge upside opportunity.

Craig Schmidt - Bank of America

Yes. So I guess what you’re saying is new tenants are rolling into this, are rolling at lower occupancy rates, bringing it down?

Marshall Loeb

It’s always harder when you bring someone new to the centre. It’s really where do their projections roll in and a lot of them are exceeding their projections with some of it. So this about the time they are up and running and then really you got a year of stabilized when we throw in their full year sales.

Michael Glimcher

Specific to outlet, new outlet -- no other new outlet leasing and then as Marshall said, some of these acquisitions have the lower occupancy cost and guess what, sales have increased, more selling those properties than maybe other properties.

Operator

Your next question comes from Jeff Donnelly with Wells Fargo. Please proceed.

Jeff Donnelly - Wells Fargo

I think you previously gave a range of about 7% and 9% for the disposition cap rates and it feels like the market has been stronger or strengthening I should say in the first part of the year. Are you guys comfortable narrowing that range of expected rates you gave earlier or maybe more comfortable at one of the spectrum versus the other?

Michael Glimcher

Jeff, its Michael. I think we’re still real comfortable with that range and you just have to look at mix of what we’re selling and look at some of the other portfolios that sold. So I think that's a real good range. And remember the range of the three to four to five assets. So you can have assets maybe that sell below that. You could certainly have some assets that are going to sell individually above the high-end of that range in terms of the 9%. So it’s an aggregate, it’s a composite of that portfolio that we think we can execute on.

Jeff Donnelly - Wells Fargo

Okay. (Indiscernible) how the investors who have bid on these assets are (indiscernible) how they are looking at them? (Indiscernible) stable asset that they can lever up or is there another turnaround story? I’m just curious if you’re able to sort of segment private equity investor interest here and maybe what sort of returns they are looking for in those different types of?

Marshall Loeb

Jeff it’s really all the above. Like I was saying earlier, the stuff that goes top of the list is probably just incrementally how do we make the asset better and we can put some good financing on it. It’s a bottom of the list, it’s can we do something different with the asset if we’re more focused on it, if it was asset number 20 something for Glimcher versus in the top five. Maybe we’ll focus on it differently, maybe we’ll provide more capital to it and win the capital battle better there. So it’s such a different a variety of group of buyers with different interest that I can’t really say it’s one or other, which I think is great because we’ve got a variety types of assets.

Jeff Donnelly - Wells Fargo

One just one last question. I was just curious about the change in the scope (indiscernible) seem to be a little bit above previous estimates for calling it? Thank you.

Marshall Loeb

The scope of the amount?

Jeff Donnelly - Wells Fargo

The scope of (indiscernible) I think the incremental investment you had (indiscernible) little larger.

Marshall Loeb

Jeff, we had talked about the investment being $100 million plus. So we always anticipate it would be above that. The other final piece of the puzzle and reason why we did not more specifically lay out the parameters on the underwriting was finalizing the hotel. So exactly how that was going to be structured, what kind of parking we’re going to need to lever and now that we have a better sense of what the economics are, that was factored into our overall investment and that’s how we arrived at the $130 million and $140 million. But obviously for that incremental investment, there was appropriate return on that as well.

Operator

Your next question comes from Tayo Okusanya with Jefferies. Please proceed.

Tayo Okusanya - Jefferies

Just two quick questions. The first one is just reading from local media in Columbus that the Simon-Tanger outlet is definitely going to be a go. And again just kind of wondering how that’s potentially changing your view of how you compete in that market, whether it’s the new outlet you guys were considering, whether you are still looking at that, potential things you could also be kind of doing at some of your malls that are within the market as well?

Michael Glimcher

Tayo, good question, it’s Michael. First of all, with existing assets, all we do is try to make them better all the time and we’ve got some great activity that we’re working on Polaris and enhancing that asset considerably and investing back into it. Eastland, obviously at the end of the month, we won’t own anymore. And as it relates to the market, we still have a site under contract. We don’t have any land that we own. That project does seem to be getting some traction. And for us, we don’t view an outlet centre in Columbus as mission critical. It was something that’s interesting. I’d say today, we’re so focused on depositions, reinvestment into the assets that we have and then bettering the balance sheet that those are probably much bigger priorities today for us. So I think the idea of something here in Columbus is interesting to us. But again, we never have viewed it as mission critical.

Tayo Okusanya -Jefferies

And then just a second thing again as you did make some positive commentary about how you felt coming out of ICSC. But again you also -- just kind of curious on the juniors category in particular, what you are kind of seeing out of that space. We’ve kind of seen the Love Culture just file bankruptcy? And again just kind of when -- if you were to kind of project out a year from now, do you think you’d kind of seeing more store closures coming out of that particular category and how do you kind of see things shaking out

Marshall Loeb

It’s Marshall. We have one Love Culture store in the portfolio and again it’s kind of winners and losers within that category. It is, frankly the Love Culture we’ve got is out in Leawood, in our Town Centre Crossing. So it is a good centre, where we have been scrambling really to find space. So again kind of a little uncertain what will happen there but if we got that back, it’s kind of like the Coldwater Creek when they file it again, not the junior category, but it was Polaris and Fort Worth and some markets where we were anxious to get the space back, same thing in Leawood. We are watching the Juniors, the Abercrombies, American Eagles, Aéropostale. They stabilized as Michael mentioned earlier but they lost business. That’s partially why we’re opening three more H&Ms in our portfolio this year. We think that is winning in that category or captured some of the market share. Same thing with Dick Sporting Goods. We’ve just opened one in WestShore. It’s really kind of the nature of our business inherently, I think as there is always a fight over market share and we’ve had probably -- we’ve had historically low bankruptcies in the last few years. This year it seems to be moving a little more towards a normalized pace. But even out of the bankruptcies, there’s been a lot where we’ve been able to keep the stores and are working on options to re-let and things like that as they come back to us. So that’s what we like about the stronger we can make our portfolio, you really -- we won’t say you’re hoping they go bankrupt but you’re -- we need space back here and there within the portfolio at 95% leased.

Operator

Your next question comes from R.J. Milligan with Raymond James. Please proceed.

R.J. Milligan - Raymond James

Just a quick question on the leasing spreads, pretty good growth over the first quarter, second quarter and positive spreads over the past several quarters. When do you expect to see that translate or do you expect to see that translate into average base rents and when do you expect that to start to happen?

Michael Glimcher

Hey, R.J. We obviously -- we did have growth if you look at rent per square foot on a comp basis, about 1%. And I think the other thing that’s impacting, we talked about in last couple of calls and maybe a bit of a disconnect between the re-leasing spreads and rent per square foot. As Marshall mentioned, we have been driving significant occupancy gains and typically that is not spaced on the 50 yard line. That’s of lower quality.

So when we bring that on, it’s typically at a lower rent per square foot. So that does impact that metric. A good example of that is what’s going on in Seattle where we brought in a tremendous amount of space, but just due to the nature of that centre, that’s below our average and what actually impacted our growth, as it relates to rent per square foot but was additive to our NOI, which is obviously our most important metric.

So we certainly are paying attention to it. We think as we continue to focus and make the right decisions, these things will take care of itself and we would expect to see rent per square foot start trending in that direction and ultimately you’ll start seeing a catch up with the growth as you see in re-leasing spreads over time.

R.J. Milligan - Raymond James

Okay, and so is that space, for example in Seattle not included in the rent spreads?

Michael Glimcher

It would be. I think what’s happening is, you’re taking space and maybe you’re getting a 20% - 30% re-releasing spread but the rent still comes in below what the average is for the portfolio overall. So once again, we have a nice positive re-leasing spread. It’s added with NOI, but it impacts your rent per square foot, still the right decision for us.

Operator

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

Carol Kemple - Hilliard Lyons

On your preferred shares, how likely do you think it is that you will call some of them if you complete your $200 million to 300 million of acquisitions this year, I mean dispositions?

Mark Yale

It’s hard to say, Carol. It’s Mark. I think it really depends on the profile, which properties we sell, what kind of debt’s in place and where we are in some of the redevelopment. It’s certainly one of the levers and one of the options that’s on the table, but I guess it’s going to be predicated ultimately on the execution itself and how much excess proceeds there are after the debt that would be in place on those specific properties sold.

Carol Kemple - Hilliard Lyons

And then there’s been a lot of news, slightly about the Yoga retailers. Have you all seen any impact on your malls, where the sales in that category’s been impacted or you’ve been more likely to put a couple of the retailers in the same mall?

Mark Yale

Are you referencing to the Yoga apparel?

Carol Kemple - Hilliard Lyons

Yes Lululemon woman, yes, the Lucy’s.

Mark Yale

Yes, Lulu has been a little bit off but they were at the summit. So their sales per square foot are still some of the highest in all of retail and we’ve been doing some stuff with Athleta. We mentioned we’re going to Athleta and UPV, down in Fort Worth, which we’re excited about. We’ve got very little Lucy exposure. That category’s become very broad and it’s become more than just Yoga. Its work out, it’s also apparel that people wear. So there’s probably more people getting into the category and there’s a lot of better players but we see that as a very strong category with a lot of runway ahead of it. So we feel good about that category and as evidenced by just doing the new Athleta deal, we think that category is going to grow quite a bit.

Carol Kemple - Hilliard Lyons

Do you see category moving more into the B-mall space as they sell out the A-malls, or do you think it’ll only be an A-mall category?

Mark Yale

I think there’s a lot more room for them in A-malls and they’re not everywhere. So I think it’s going to be a while before they start going to Bs.

Carol Kemple - Hilliard Lyons

Okay.

Michael Glimcher

The only category Carol -- I won’t say only but one within L brands, Victoria Secrets with Victoria Secret Sport, they’ve been happy with that. That’s been performing and really a trend within our portfolio really everywhere for them has been expanding their stores with pink storefront with Victoria Secrets and they’ll probably carry more of the VSX and that may be the Yoga wear. So Yoga wear at a lower price point than Lulu and Athleta is probably where it’ll go into the B and C-malls.

Operator

Your next question comes from Daniel Busch with Greenstreet Advisors. Please proceed.

Daniel Busch - Greenstreet Advisors

You talked a little about the performance at Jersey Garden in Seattle. How is that performance compared or what’s the run rate there compared to your 7% to 9% return expectations.

Michael Glimcher

DJ I’m not sure the connection of the…

Daniel Busch - Greenstreet Advisors

I’m just saying that you were expecting 7% to 9% yield on those redevelopments. How’s that trending thus far at Jersey Gardens and Seattle.

Michael Glimcher

Wwe’re very comfortable we’re going to certainly meet those expectations. A lot of it’s already in the bank in terms of looking at signed leases and we feel very good about that and what wasn’t factored in that return is where we can go after and certainly in Seattle there is a lot of runway there in terms of who we’ve added and additional space to lease and that’s where the real upside is and that was not factored into our 7% to 9% expectation. So we feel good about certainly delivering. I think we talked about it before, roughly $5 million on that $60 million investment with a chunk of that in by the end of this year, a little bit falling into ’15. And then we got two malls where we think we can continue to drive really nice growth, especially Seattle.

Daniel Busch - Greenstreet Advisors

Okay, and then Michael I know you’re focused on the disposition strategy right now, but just curious as to the scope of opportunity like a Town Center Plaza or University Park Village, those higher end lifestyle centers. How many are those out there and is that where your focus is going to be once you kind of turn the switch back on to being more acquisitive?

Michael Glimcher

Look, how many opportunities? I think, there’s probably enough to satisfy our appetite and have a nice rate of growth here at Glimcher and I think what’s great is we can play in enclosed or open air. We can play in full price or in outlet and then when you think about Scottsdale, mixed used. So and really what we’re probably doing with Oklahoma City mixed use. So I think there’s enough opportunity out there to satisfy our appetite but right now, head down, we’re really focused on getting through this disposition process and we’ve got some great opportunities to invest back in the core and upgrading existing assets but our eyes are open. We know what’s out there. We track both assets that are for sale and those and aren’t for sale and we have ongoing dialogues with private owners as well. And so hopefully once we get through cycle and then we are back into the gross cycle, we can act on some of those opportunities that work. We have a pretty deep list of assets that we track and there’s people depending on the point in the cycle that are sellers. We feel pretty good about it.

Operator

There are no further questions. I would now like to turn the call back over to Ms. Lisa Indest.

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, thank you for your participation. This concludes today’s conference. You may now disconnect. Have a great day.

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