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Executives

Lisa Indest - SVP, Finance and Accounting

Michael Glimcher - Chairman and CEO

Marshall Loeb - President and COO

Mark Yale - CFO

Analysts

Quentin Velleley - Citi

Nathan Isbee - Stifel Nicolaus

Fredrick Mckans - Green Street Advisors

Todd Thomas - KeyBanc Capital Markets

Jordan Sadler - KeyBanc Capital Markets

Carol Kemple - Hilliard Lyons

Rich Moore - RBC Capital

Ben Yang - Keefe, Bruyette & Woods

Glimcher Realty Trust (GRT) Q3 2010 Earnings Call October 29, 2010 10:00 AM ET

Operator

Welcome to the Third Quarter 2010 Glimcher Realty Trust Earnings Conference Call. My name is Francine and I am your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session (Operator Instructions)

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

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2010 third quarter conference call. Last evening, a copy of the press release was circulated on the Newswire and hopefully each of you had the opportunity to review our results. Copies of both the press release and the third quarter supplemental information packet are available on our website at glimcher.com.

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

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

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

Now I would like to turn the call over to Michael.

Michael Glimcher

Thank you Lisa, good morning everyone and thank you for joining us on today's call. As we have previously mentioned, we are quite pleased with the recent progress we have made on the liquidity and capital front. The solid financial and operational results delivered so far during 2010 and more importantly how the company is positioned for future growth.

Let me begin with what is currently been the key area focused over the last year or so, the company’s balance sheet and overall liquidity position, our public equity offerings and our Blackstone joint venture transaction, we have successfully raised nearly $350 million of capital over the last year.

Accordingly we have been able to reduce outstanding borrowings under the company’s credit facility from a high of $400 million in 2009 down to approximately $110 million as of the end of the third quarter. Additionally, we fully addressed all of our 2010 debt maturities and we have minimum mortgage maturity risk through 2012.

The progresses on the balance sheet side is certainly been critical, but at the same time it is also been just as important to ensure that we are maximizing property operations within our mall portfolio. In that regard, we have been extremely pleased with how well our portfolio has responded over the last couple of years, as evidenced by strong operating performance so far in 2010.

For the third quarter of 2010, net operating income growth was positive again, up 1% over last year, but total mall and inline occupancy increased sequentially from the second quarter with total portfolio occupancy now exceeding 93% as of September 30, 2010.

Comparable store sales continue to trend positive as well, up 4% over the third quarter of the prior year. We also continue to lease space throughout the entire portfolio, signing leases were approximately 325,000 square feet during the third quarter, while generating positive releasing spreads of 6%.

Retailers remain cautious, but we have sensed positive tone and growing confidence from this group. Accordingly, we are seeing an enhanced openness to focus on new business as evidenced by our new leasing activity year-to-date in 2010, up 30% over the first nine months of 2009. Finally, tenant bankruptcy activity remains muted so far this year.

With the meaningful progress made on the balance sheet, we can now continue to focus on the next phase for the company. As we have previously discussed, our size posses an unique position, with the large enough platform to be in the leasing game, but some enough to be nimble and responsive to our retailers, our partners and the capital markets.

Additionally, with just a handful of strategic asset additions, we can dramatically change the makeup of our portfolio, as we continue to focus on upgrading its quality. We believe the recently announced Pearlridge Center and Scottsdale Quarter acquisitions bid that bill and are clearly inline with our strategy to improve portfolio quality.

Let me first discuss the Pearlridge Center opportunity. During the third quarter, we entered into an agreement along with the Blackstone Group to purchase Pearlridge Center in Honolulu, Hawaii for $245 million resulting in an implied cap rate in about the 8% range.

The center will be acquired by joint venture, which is owned 80% by Blackstone and 20% by Glimcher. We will manage and lease the property on behalf of the venture. The purchase price will be funded by proceeds from a new mortgage loan of approximately $175 million that will be obtained at closing and partner equity contributions with Glimcher putting in approximately $15 million based upon our 20% ownership.

In considering the going in yield mortgage financing at a rate below 5% as well as the fee income earned for managing and leasing the asset, our return on invested capital is comfortably in the double digits. Additionally, with the property well leased and generating inline tenant sales of about $500 per square foot, Pearlridge will go right to the top quartile of our portfolio in terms of asset quality. We are scheduled to close on this acquisition early next week.

Without the emergence of robust acquisition environment, it is extremely important to be able to take advantage of the limited quality opportunities that become available. Accordingly, we are pleased to be directly involved with the acquisition of this high quality mall.

We are also excited to be able to expand our strategic relationship with Blackstone through this investment. We believe this partnership, which is in the bad position to pursue future opportunities that present themselves within the market place.

Now, with respect to Scottsdale Quarter, we have recently acquired through a series of transactions the full ownership of the signature development project for total price of $120 million. This investment includes purchasing the land for all three basis of Scottsdale Quarter.

Additionally, the existing joint venture arrangement has been terminated giving us full control and ownership, overall improvements, as well as the fee interest. Continue to invest in a project of Scottsdale Quarter’s caliber is consistent with our goal of improving overall portfolio quality.

Additionally, having full control both the ground and improvements enhances the overall value of our investment in this premier property. The part of this transaction acquiring the ground for phases 1 and 2 closed in September, primarily financed through a $70 million non-recourse mortgage bearing a rate of approximately 4.9%. The phase 3 land purchase along with the termination of the joint venture closed in mid October.

As it relates to the balance sheet strategy going forward, we do recognize that there is more work to be done on the delivering front but now have more flexibility in time to execute on our strategy. We will also continue to focus on finding additional growth opportunities and would like to be in a position to not only raise capital to continue the delivering process, but to able to pair up with strategic investments in acquisitions as well. Finding the right opportunities that not only make sense from a pricing perspective but which also enhance the overall quality of the portfolio continues to be one of our major areas of focus. We are working hard and being creative in order to make this happen and we are actively in the market today looking for potential opportunities.

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

Mark Yale

Thank you Michael, and good morning to everyone. We reported FFO for common share of $0.16 for the third quarter of 2010 which felt comfortably within our guidance range going into the quarter, better than expected mall and operating income performance helped offset least termination income that came in below expectations.

Focusing on our operating performance, comp mall NOI was up by approximately 1% for the third quarter. Base rents, overage rents and short term specialty revenues all came in ahead of expectations for the quarter driving the net operating income performance. After considering the strong operating performance during the first nine months of 2010, we are now anticipating that mall net operating income will be approximately 150 basis points ahead of our original guidance assumptions going into the year.

Similar to those factor just discussed for the third quarter, this upside in FFO helps offset lower than anticipated least termination income for the second half of 2010. Accordingly in the release we did reaffirm our guidance for fiscal year 2010 and a FFO per share range of $0.72 to $0.77. This guidance continues to include approximately $500,000 of acquisition expenses associated with the Pearlridge and Scottsdale transactions of which around $200,000 was incurred during the third quarter.

We also provided FFO per share guidance for the fourth quarter of 2010 in the range of $0.19 to $0.22. Key assumptions driving the guidance include net fee income of around $750,000, lease termination income of $300,000 to $500,000, growth in core mall NOI of around 1% and the $300,000 of acquisition expenses just discussed.

On the financing front, we did close during the quarter on a $70 million CMBS loan related to our purchase of Scottsdale Quarter ground lease. The loan is non recourse as a 5-year term and bears interest at a rate of 4.9%. We elected to go with the shorter term in order to provide us with greater flexibility as we look to recapitalize the entire project upon stabilization of the improvements.

Additionally, our joint venture with Blackstone will be closing next week on a $175 million CMBS loan for the acquisition of Pearlridge. The loan is non-recourse, has a 5-year term and there is interest at a rate of 4.6%. Our pro rata share of this mortgage depth will be $35 million.

On considering the pending Pearlridge financing we will have closed on five CMBS loan so far this year. This certainly represents strong evidence that the CMBS market is remerging and beginning to stabilize. The industry has a long way to go in terms of the necessary volume to address the upcoming maturities of commercial mortgages but it is still a positive starts for market that was effectively dormant at the beginning of the year. We also believe this activity points to the strong sponsorship of Glimcher and is a testament to the high quality of the assets we are able to refinance so far this year.

Finally, as Michael mentioned, we have addressed all of our 2010 mortgage debt maturities which includes formally extending the credit facility maturity by exercising the first available one-year extension option. A second one-year extension option remains available as well. After applying the $95 million of net proceeds from our July equity offering, as well as a September draw on the line to facilitate the Scottsdale ground purchase, we finished the quarter with approximately $112 million outstanding on our credit facility.

In connection with the July equity offering, the aggregate borrowing availability under the facility was reduced to $200 million. For our credit facility agreement the commitment amount will not be reduced any further.

I would now like to call over to Marshall.

Marshall Loeb

Thanks Mark. As Michael mentioned, we faced economic headwinds since 2008 but thankfully those winds seem to be gradually shifting.

As discussed in our last earnings call, the operating environment has improved significantly from last year. With increased sales, higher profits and minimal bankruptcy activity retailers are beginning to shift from surviving to growing again.

Accordingly, we remain cautiously optimistic about our near term leasing prospects. The combination of virtually no new retail supply and regional malls remaining to prefer distribution network with occupancies generally in the 90% range is causing a growing concern from retailers as the space they want in the future may not be available.

We are sensing that concern and beginning to see retailers act in response. For example, we signed approximately 400,000 sq ft of new leases during the first nine months of 2010, a 30% increase over the same time last year. During the quarter, we saw meaningful growth in specialty leasing which was the first part of our business impacted by the recession, as well as improved contribution from overage rents.

On the occupancy front, small shop occupancy was up 40 basis points from June 30 finishing the quarter at 90.9%. Additionally, total occupancy including anchors was over 93% in September 30, up 30 basis points from last year. Based upon year-to-date results we expect small shop occupancy of around 92% at the year-end.

We are also encouraged by third quarter portfolio sales trends. Aggregate sales were positive in our portfolio for the second quarter in a row at $354 per sq ft for the 12 months ended September 30 compared to $340 per sq ft for the same time last year. Also quarterly comp sales were positive for the third quarter in a row up 4%. Another encouraging note, quarterly releasing spreads were positive 6%.

Additionally, we still view portfolio occupancy cost as a more accurate predictor of embedded revenue growth. On this point, we are encouraged by our portfolio occupancy cost of 13% which is down 40 basis points year-to-date. Our goal is 14% so this level plus some slight sales growth positions us to drive rents.

Finally, the most encouraging and meaningful of all the metrics is having positive NOI growth for the second straight quarter. Another 2010 priority is completing the initial leasing for Scottsdale Quarter development project. While there is inherent risk in all ground up developments Scottsdale Quarter provides the company with significant upside opportunity upon stabilization. This is especially true that now we that full control over the project including ownership of the underlying ground.

We are also now focused on planning for phase 3. We are excited about the potential and varied options available. Our current plan includes approximately 85,000 sq ft of retail, additional office space and multiple hotel sites. As a reminder, phase 1 opened in 2009 while phase 2 which is anchored by an 18.000 sq ft two-storey Nike flagship store and a 45,000 sq ft IPic movie theatre recently opened its first handful of stores.

Other key retailers include Armani AX and Dominick’s, a new steakhouse concept by Maestros. From a leasing perspective, we have addressed roughly 90% of the phase 1 and 2 retail space and when stabilized this property should perform at the highest level of our portfolio on all metrics.

With respect to office leasing in the project the uniqueness of our offering and location continues to make a difference. We are in active negotiations with a high quality mix of small and large square foot users. In fact over the last 90 days we have signed leases or letters of intent for almost 80.000 sq ft, a strong indication of this positive momentum. What is specially encouraging is this activity came during the typically slow summer months in Phoenix.

As we mentioned, we are pleased with the overall execution on Scottsdale when considering the challenging economic environment we have experienced. The value creation for the company is there but candidly we have been challenged in terms of the time necessary to get the property fully stabilized. Phase 1 and 2 will involve approximately #315 million of hard costs, and we project stabilized returns of 6.5% to 7% in late 2011, early 2012. Accordingly, we would not expect any significant FFO contribution in 2011 and in fact it could be modestly dilutive next year.

Phase 3 should add an additional 35 million of net costs bringing total cost to 350 million while taking the stabilized yield on the project to approximately 8%. We expect phase three to stabilize in 2013.

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

Michael Glimcher

Thank you, Marshall. As I have said before, I am extremely proud of how this organization has responded and performed over the last couple of years. The unprecedented capital markets and the economic environment during this timeframe created many challenges, but we were able to successfully navigate through the turbulence. As proud as I am about these accomplishments, I am even more excited about where we can take this company going forward through our ability to now play offence.

As previously discussed, we believe our size puts us in a unique position in which only a handful of strategic asset additions can dramatically change the makeup of our portfolio as we continue to focus on upgrading its quality. This all bodes well as we put the challenges of 2009 behind us and look forward to improve performance and future growth in 2011 and beyond.

Now, with that said, we would 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 of Citi.

Quentin Velleley - Citi

Michael, I am just curious on the acquisitions front which you seem quite positive on and I guess we're expecting to see something on Scottsdale and Pearlridge may be but probably you sound a little bit more optimistic on other acquisition opportunities. I am wondering if you can talk a little bit about what kind of the number of acquisitions you might be looking at, the size, and potentially the timing, and whether or not you're going to use joint venture capital for those acquisitions.

Michael Glimcher

Sure, Quen. I'd say, are we going to use joint venture capital, absolutely. When you look it Pearlridge which is (inaudible) cap finance it around the 5% range at 70% probably about $15 million of invested capital and then you think about the fee income on top of the return of the asset level that’s a terrific return for the company. In the meantime, we have able to upgrade the overall portfolio quality. So, we have been able to check all the boxes there.

It is very challenging out there to find good acquisition opportunities. There continues to be more and more opportunity in the market, but a lot of the opportunities are in the categories of things that we would say probably shouldn't have been built. So, the amount of acquisitions is probably if I had to guess, going to be not that great but that is alright. When you look at the impact of acquiring half of Scottsdale and 20% of Pearlridge that is going to affect sales in a really positive manner in the portfolio and quality over time.

If we can find a couple of high quality opportunities that would be great for the enterprise. Again, if we do not find the right quality opportunity we have got the discipline here to pass because, as you see, our sales pushing more towards $400 a foot and you see the overall instability of the portfolio at 93% occupied, it is really important that we bring the right type of asset in. so, we are more focused on quality than quantity. That answers your question?

Quentin Velleley - Citi

Yeah. How should we think about funding those acquisitions? I know that you spoke about more work to be done on de-levering and then the last equity raise sort of came in front of your other acquisition so, should we expect the same equity rise before you actually acquire or are you more likely to use in equity rise to 100% fund you equity and use as a delevering method?

Michael Glimcher

We are going to continue to be opportunistic. We have been able to hit the market at some good times over the last 12 months or so, and we'll watch where our share price is. It's really a positive when we can raise equity and take part of that money to de-lever and part of that money for growth opportunities. We really not having the focus on the delusion of just delevering but the growth of the acquisition opportunity. So, in an ideal world, half the money raise would towards delevering and half would go towards the new acquisition opportunity. Obviously, you can't time everything perfectly. So, when do you raise the capital, how much you deliver and what acquisition is available, we will have to smooth that all out, but in an ideal scenario half goes to delevering and half goes to growth.

Marshall Loeb

One other I'd point out, Quen, is once we've gotten the line commitment amount down to the $200 million that gives us flexibility to utilize the available capacity for acquisitions. Now, we have more flexibility with respect of the timing. As Michael said, I mean we are going to be opportunistic on both fronts and ultimately, we know where we want to go, how that impacts the time it remains to be seen, but now we have even more flexibility than we did this summer.

Quentin Velleley - Citi

Michael, (inaudible) speaking, given where you stock is your implied cap rates at [8.7] would you buy your portfolio at [8.7] cap rate?

Michael Glimcher

I would love to buy it, I have done 8.7 cap rate. If there was another portfolio that was identical that would be a wonderful buy for us.

Quentin Velleley - Citi

So then why issue equity at this price to fund deals at lower cap rates? You are just diluting NAV and narrowing that gap even more, and as I understand there is a deleverging aspect to it but, at some point you raise so much equity you sort of erase that discount that you are seeing.

Michael Glimcher

There is an opportunity for multiple expansion as we delever, and again its a balancing act, like I said between delevering and growth. Like I said to Quentin it'd be great if we can do both at the same time and balance the two out. The reality is, we would like to have less leverage on the portfolio. What comes first the delevering or the multiple expansion, it’s a tight wire that we need to walk.

Quentin Velleley - Citi

Lastly on Pearlridge, I am just wondering if you could talk a little bit about CapEx requirements for the asset, whether or not there is a large amount of maintenance or refurbishment CapEx that wouldn’t be incrementally income producing? Maybe also if there is actually some redevelopment CapEx in the asset that brought the income producing?

Marshall Loeb

Quentin, this is Marshall. Thankfully it was a institutional owner previously and it maybe found out that the CapEx -- there's some things we want to do to the property but its been well maintained. So, there is not an inordinate amount of CapEx that we need to put in day one. We do think and we haven’t close yet but as we dig through it there is a fair amount of operational savings we can wring out of the property. So, we can work our default charges down and we are working through that line item by line item.

What is interesting about this property you may have seen an aerial, its multiple buildings running up and down aside of the hill. With the multiple building give us a fair amount of redevelopment opportunity within the project and we had people out there as we start to work on that process of moving tenants around and what can we do to drive sales further.

Michael Glimcher

Quentin, it's Michael speaking as well. This is a great asset about $500 sq ft almost fully occupied. If we just manage it the way we manage an asset put our national leasing platform towards it, we can have a great impact and really grow revenue. Then based on where we bought it, where the financing is and fee income, it’s a great return. We do see that there is additional upside and there is an opportunity to expand and redevelop it and at that point any incremental capital that will be put into the asset would drive a return.

It's exciting asset. If you do nothing more than just lease it and make a part of the portfolio its great. There is also additional opportunity for upside. So, this is it either home run or out of the part home run out, I don’t want to highly talk about it.

Quentin Velleley - Citi

What kind of fees do you get from your joint venture partner on development CapEx?

Mark Yale

We call the market I mean, we have gotten bids. We are looking at the office leasing and that obviously with retail they are consistent with Lloyd and Westshore and it varies from renewals, legal to some property management, so they are kind of market fees.

Operator

Our next question comes from the line of Nathan Isbee from Stifel Nicolaus.

Nathan Isbee - Stifel Nicolaus

Mark, perhaps you can give a little more granularity on your current yield at Scottsdale and how you expect the NOI to come online over the next year or so?

Mark Yale

Marshall, provided some details and our prepared remarks but we did break it up between the phase 1 and phase 2 versus the phase 3. If you look at phase 1, phase 2, once you eliminate the ground lease we are anticipating roughly $22 million of stabilized NOI and yeah, we are looking at about $315 million worth of costs. That is 6.5% to 7% yield.

In terms of when it comes online, we are still working through as we focus on next year’s budget looking at the tenants we have, trying to figure out, when co-tenancies met. It’s a lot of moving pieces and that’s why we are tempering a little bit in terms of when the contribution from Scottsdale’s really going to start appearing in the financial statements and based upon the fact that, we are going to have a handful of tenants open this year in phase II a lot more next year. We are looking at not a significant contribution and it could be a modest delusion in 2011, but certainly as we get to 2012 that’s where we will start seeing some pickup and some benefits from the project

Michael Glimcher

It’s Michael. This is an asset its rather not about, but when, when you look at the type of retailers that are in here, world class retailers like H&M and Apple and Nike that are opened, they’re performing incredibly well. Some of the best restaurant tours in the marketplace are in here that are performing well and that are open should perform incredibly well.

It’s a best restaurant some market in all metro Phoenix. We’re taking our time. We are making leases with the best caliber of tenant that we can find. We had frankly a tough environment that we have leased into, but even being in that tough environment, we have many new to the markets retailers. It’s the fifth largest city in America and you windup with retailers (inaudible) the first and the only store in the city and in the state with us.

It’s a high quality asset and it’s going to continue to be high quality. It’s just taken a lot longer. We lost a lot of time through this environment, but the good new is that people that are open, who are doing well and the people were signing lease with other right people. It’s not a race to the finish to try to lease up space. It’s a deliver it pace and it’s really finding the highest quality retailers to make this bring your asset and everything it can possibly be.

Nathan Isbee - Stifel Nicolaus

Not having the opportunity to, you have (inaudible) over the last few months, could you just talk a little bit about the competitive landscape around that property with, who you are competing against?

Marshall Loeb

It’s Marshall. What was interesting to us, as we started our first property in Hawaii were 8, 9 miles away from Ala Moana, which is the GGP asset that’s north of $1,000 a foot. That’s really the tourist luxury mall. It was surprising was to me about Honolulu was how bad the traffic is. There is only three highways, so that 8 or 9 miles can be a 40-mintue drive and we are the locals malls. Obviously a 500 a foot, we’re capturing that local traffic. We’re also the nearest retail center to Pearl Harbor and Hickam Air Force Base. We have a high team component of military shopper there as well. The competition is to the southeastern side of the island and that’s were the Waikiki and the tourist star, where the moderate locals mall, but because there is such a lack of competition and it’s probably our most underserved retail market that will be in our portfolio is my observation after being out there a couple of times

Michael Glimcher

You are clearly in the number 2 mall, but the number 1 mall is arguably one of the top 5, not be in top mall in all America. It’s pretty healthy competition to be competing with.

Marshall Loeb

Our retailers that we’ve got are in their top five to ten stores they have in their portfolio was interesting to learn it Pearlridge.

Operator

Our next question comes from the line of [Fredrick Mckans] from Green Street Advisors.

Fredrick Mckans - Green Street Advisors

Michael you talked about continuing your goal of de-leveraging, what target you have in mind especially thinking about the debt to EBITDA metrics?

Michael Glimcher

We’ve always said, we would like to be at about 50%, Fredrick and it’s a process. We’ve made a lot of progress. We certainly a lot better off than we were 12 months ago and we are going to continue on.

Fredrick Mckans - Green Street Advisors

In terms from an income stand point, where 50% leverage with this that means in terms of debt to EBITDA form your stand point?

Mark Yale

It’s Mark. Yes, somewhere 50% or 55% leverage in terms of the debt to EBITDA that 70 times migrating close to seven and eight. Where we stand right now, is very upper end of that range. We certainly there on the upper hand and we wanted to be comfortably at the midpoint within that range.

As Michael said, we got a little bit more work to do, but we certainly have time and flexibility in terms of how we ultimately get there.

Fredrick Mckans - Green Street Advisors

As far as putting a timeline that I know you said, you don’t feel pressed anymore, which I think is more for liquidity issue or anything if you have to put a timeframe to get around seven, when do you think you might accomplish that?

Michael Glimcher

It’s really difficult to say. It’s Michael speaking, because we would like to continue de-lever, we also want to balance with growth opportunity. That we set up we can far invest and spend dollar per dollar, the same amount of money de-levering as we are spending growing that be a great way to do it.

Again there’s not a lot of near-term pressure on. We’re going to opportunistic and looking at capital raise we are going to be opportunistic because we look at the acquisition opportunities and try to balance it also. With so many variable it’s really to difficult to say, its specific timeline, just started. We have been pretty consistent with, it’s important to us. We are going to continue de-lever when we look what we have done over the last 12 to 18 months. We have taken advantage of opportunities.

Fredrick Mckans - Green Street Advisors

Just going back to Scottsdale, you still forecast an 8% yield, but when I think about the ground lease this was probably a 5.5 size cap rate on the acquisition. How can you still have an 8% expected return on the project, because some of the economics with improvement on the leasing front?

Mark Yale

It really has to do with phase III and getting control of that ground and being able to move forward with the project and Marshall had touched upon that’s more favorable for us and I’m really leveraging of the infrastructure we have already have in place.

For example, the retail that we are talking about in phase 3 already parts with what we have in phase I and phase II. We already had the infrastructure of the people on the ground. The return is much higher and we were also talking about is the fact that we are going be able to probably and it depends on what ultimate work set.

For right now what we are planning on doing, is probably selling two hotel sites and that reduces our basis as well. You really are able to drive the return, when you at phase 3 and that was the big part of the strategic reasoning and driver for having the comprehensive solutions on Scottsdale, not only in the ground for phase I and phase II, but getting control over phase III.

Fredrick Mckans - Green Street Advisors

Have you been in negotiations already for selling the two hotel band?

Michael Glimcher

It’s Michael speaking. We are in the marketplace, we are clearly in a strong hotel submarket and obviously based on the men of these having 8 or 10 different restaurants and movie theatres and contiguous office space. There is a high level of interest in hotel sites. We are in active discussions with hotel companies.

Operator

Our next question comes from the line of Todd Thomas from KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

I’m on with Jordan Sadler as well. You didn’t mention anything this quarter about dispositions, but in the past you seemed focused on sort of turning your portfolio on selling some assets. Can you give us an update there and maybe tell us what you think of pricing for some of your trade area, dominant malls?

Michael Glimcher

Sure, Todd, its Michael speaking. As we said, there is not that many opportunities are in the marketplace, when you look at more its sort of the B or the C opportunities they aren’t a lot of buyers that are out there. They really just doesn’t appear to be a market today for that.

I don’t know what cap rates would be or what pricing would be because you really haven’t seen anything trade. You’ve really seen [affected] quality and better quality asset or completely distressed asset trade. You haven’t seen anything in the middle trade

We were watching for that market. Every time we establish a [new four] we want to bring the bottom up and part of getting to $400 a foot is adding quality asset right for origin like all of Scottsdale, but it is also bringing the bottom up and it’s a good point we probably didn’t mention it, because we don’t see opportunities today. We think there is opportunities will emerge, but there is certainly not there. We don’t believe today.

Todd Thomas - KeyBanc Capital Markets

Switching gears, looking at fourth quarter guidance that you provided, I was just wondering what some of the moving parts are that would get you to either the lower or the higher end of that range?

Michael Glimcher

Well, certainly we are going to bring online Pearlridge. We are expecting close on that next week so two months and it’s a big property around 21% ownership interest. Trying to really figure out exactly, where we are jumping in and what fee potential there could be, that’s the driver.

There is some volatility in lease termination income. There are discussions that some things we thought was going to be more significant midway for the year and all of the sudden we got tenants, who want to stay and trying to sort through that. You do have at this point we really understanding where overage rent might come in our short term specially, we are still leasing there so those could be drivers as well. It's still within fairly tight range but those are probably the biggest drivers.

Todd Thomas - KeyBanc Capital Markets

How is the seasonal leasing, the specialty leasing for the season in comparison to last year?

Marshall Loeb

Todd, it is Marshall. When you were here in Columbus and thanks again in going down the Dayton and hopefully you saw that first five months of the year we were flat with last year in line, and then it has really been a nice pick up. Our team has worked really hard and we in the last handful of months have all been ahead of last year and we are hoping that bellwether showing that the economy is picking up. So, we are heading into the holidays. The fourth quarter represents about 35% of our annual income in specialty leasing but it's looking pretty strong so far and ahead of last year. Hopefully then the national tenants reset will follow where the mom-and-pop real entrepreneurial tenants. So it is nice to see that pick up.

Operator

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

Carol Kemple - Hilliard Lyons

On page 15 of your supplement when I look at the mall anchor leasing activity, it looks like some of the [retentative] space but new lease was at a much lower rate. What was going on there?

Marshall Loeb

Carol, it's Marshall. It is just goes anchor by anchor, a number of those were Steve & Barry's which were to fairly high rent but probably a higher tenant improvement allowance going in than the TJ Maxx, the Dex Sporting Goods, a number of those that we have replaced them with really this year. That’s probably the ins and outs. Also Steve & Barry's had some higher rents when we were amortizing tenant improvements over the term.

Carol Kemple - Hilliard Lyons

When you look at the Scottsdale quarter project how much do you think you could possibly do in 2011 in out partial sales and pad sales there?

Marshall Loeb

They really aren’t pad parcels or pads there in Scottsdale Quarter. We really won't be able to do any there. The overall market for the out parcel has been little bit soft. Some of our assets we have some deals in the words like Puente Hills terrific freeway frontage and there is a high level of interest there, but there has been a pretty heated amount of out parcel activity this year.

Carol Kemple - Hilliard Lyons

Some of your competitors have been recently taking their malls and reformatting them and calling them outlet centers and then one of your competitors entered into developmental agreement JV outlets based. Are you all thinking about reformatting any of your malls and outlets, or is that an area you would like to explore with the Blackstone Group or another partner?

Marshall Loeb

We don’t probably put monitors on things, one of our strongest asset Jersey Gardens is primarily outlet and it's maybe if more like a new type asset but its incredibly strong asset. Another good property for us is our Super Mall in Seattle and its more of a hybrid type center so it’s outlet and full price retail.

We are not looking in any ground up opportunities. That type of hybrid asset has been good for us as our two solid assets for us. It is interesting. A lot of people are looking at that space and it seems to be, of interest right now. We have been in the outlet business now for about 10 years with Jersey and Seattle. I don’t see us converting anything we have in to outlets. It's something people talk a lot about but it's frankly not something that has been done too often ever.

Operator

Our next question comes from the line of Rich Moore from RBC Capital.

Rich Moore - RBC Capital

Pearl closes next week, is that right?

Marshall Loeb

Yes right.

Rich Moore - RBC Capital

Scottsdale Quarter that activity, the recent activity, when is the actual closing of that so its all consolidated?

Mark Yale

Rich, it's Mark. So we close on the ground in September in phase 1 and phase 2 and then middle of this month October we closed on the phase 3 ground, as well as terminate the joint ventures. So as of mid October we have full control over the project and we are also not involved going forward.

Rich Moore - RBC Capital

When you look at the fee and service income component of revenue, which was about $1.8 million for the quarter where does that go from here? Do those two kind of offset each other a bit, Pearl and Scottsdale or (inaudible)?

Mark Yale

You are probably looking at a decent run rate. I'd have to go back, but I am not sure Scottsdale was a huge contribution to that line item in the third quarter. A lot of what we are getting from Scottsdale was development fees and that was on dollars spent in line with that had already hit previously. You also have to make sure you are looking at the cost of providing services, which is also growing proportionately and make sure you are really looking at that on a net basis to fully understand the contribution from the fees because, as I said, the cost of providing services has gone up as well.

Rich Moore - RBC Capital

As we look at that line item, Mark, the $1.8 million you think is reasonable in there?

Mark Yale

We talked about probably $750,000 give or take our net fee income. It would be probably $750,000 of expense in the fourth quarter and maybe $1.5 million to $2 million of fee income. You just got to make sure you are factoring in the expenses as well.

Rich Moore - RBC Capital

On the tenant side of things maybe you guys could give us some thoughts on what you are hearing recently from tenants including what maybe they are thinking about planned store openings for next year and in the holiday season this year?

Marshall Loeb

We've seen again they, I would not say robust or sea change, but what is nice and nice or long term is people are talking about more and more stores. Obviously, you are seeing it with our new store activity up 30% year-to-date. So it feels like it is got a growing momentum. What I liked about the slow and steady growth is that it keeps any new construction. There is still nothing going on in that front. It's been nice.

Some of the what were traditionally permanent tenants, it is just the number of pop up stores we have done, Toys R Us, Burlington Coat, so this holiday season we have done a number of pop up stores. Fingers crossed at the holidays and we will keep or convert a number of those in a hope post the holiday season, and really kind of continuing to hear that in the next year.

We touched on earlier if our specialty leasing business and if our mall sales keep going up 3% or 4% then eventually what I am picturing is the board of directors will fill the leasing team to up the new store count next year by 10 or 12 stores and that is when things really start to pick up and we're optimistic that we need to be more and more strategic about how what tenants we move in because before we have been hanging on to tenants the last two years. Now, it is going to be fine and we are going to be strategic of who is the next tenant to replace someone and how do we drive sales. So, that is kind of how we are looking at it and we are seeing that pipeline build a little bit each quarter.

Rich Moore - RBC Capital

Are there any new concepts, Marshall, that you are seeing for this holiday season that you think are promising?

Marshall Loeb

Yeah, a couple of three that we have seen of late. We were out in Denver and Sports Authority has their SA Elite which is a 12 to 15,000 foot higher end sporting goods concept. They just opened store number one and their target is 200 stores of those if it goes well. We just opened in our portfolio a company Round 1 out at Puente Hills Mall. Dave & Busters with bowling. It is a public company in Japan. They have over a 100 locations, have saturated that market, their opening has been strong, and they want to grow to multiple locations within the US. This was their first US store was at Puente Hills Mall. We are hearing Justice is looking maybe at a dual gender store here in Columbus. Could be their first store there. The PS by Aeropostale, Crazy8 those continue to kind of be rolled out

It is not overwhelming but a few new concepts here and there. Gilly Hicks, we are hearing may come back to life and look at some locations.

Operator

(Operator instructions). We have a question from the line of Ben Yang from Keefe, Bruyette & Woods

Ben Yang - Keefe, Bruyette & Woods

Sorry they beat a dead horse a bit on Scottsdale Quarter, but the original investment was $250 million, you invested a $120 million last month, cost of phase 3 is $35 million, which takes you to over $400 million, but your cost is only going to be about $350 million in the entire project, does that mean that you are trying to sell those hotel pads for about $50 million better located in phase 3 or is there anything else that kind of explaining that big delta?

Mark Yale

Ben, I will just go through the numbers that $250 million included about $20 million for phase 3 so you cannot take that out and you start with $230 million for the first 2 phases. Get the $95 million of land that we purchased and then we also are factoring in that the $10 million that our partner has put in the project towards the overall cost, so that gets us to $350 million, which is our estimated basis for phase 1 and phase 2.

We think to round up phase 3 at the $25 million in the land acquisition I would think to build that roughly 100,000 square feet that is going to be another $30 million and then we are looking $20 million in terms of being able to potentially sell those to parcels that we think are available on the phase 3.

Ben Yang - Keefe, Bruyette & Woods

You said 15 to 20 million for the two hotel sites?

Mark Yale

Yeah 15 to 25 million and we are still trying to sort through and really understand that market and demand.

Ben Yang - Keefe, Bruyette & Woods

Also some really basic math, given that your yield is still at 8% that means that phase 3 investment is going to return to you guys about 20% on your cost? Does that sound about right to you?

Mark Yale

Maybe another way to look at it is we are estimating over $22 million of stabilized NOI for phase 1 and phase 2. We think there is a potential for about $5 million for NOI delivered from phase 3 and I think that gets you to a roughly an 8% yield on the $315 million.

Michael Glimcher

Just to clarify a couple of things. As Mark mentioned earlier, we put in 2,800 cars worth of parking in phases 1 and 2 the retailers already fully parked so if we can think about parking to support, you could support all that phase 3 retail. In addition to the hotel site there is third site that could possibly be for sale and it could be office it could be all (inaudible) for some more families.

The plan is a little bit fluid we are in discussions with other developers that really plan as basis and so without us necessarily telling others what our pricing is there are probably three different opportunities to sell some parcels and a lot of the sunk costs as it relates to infrastructure are already built in, so that is that return was so staggering and it is certainly achievable in phase 3.

Ben Yang - Keefe, Bruyette & Woods

Mark, you said your same store guidance for the full year was a 150 basis points ahead of your original, does that mean that you are now expecting down 1.5% as a possibly above, positive 50 basis point as a new guidance?

Mark Yale

Our regional guides were down one to three sector mid point sound 2%, so 150 basis points would have you in that flattish to down your half a percent for the full year.

Operator

That concludes Q&A portion of our presentation. 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 third quarter conference call. You may contact us directly with any additional questions or access our filings through glimcher.com.

Operator

Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes the presentation you may now disconnect. Have a great day.

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