Glimcher Realty Trust CEO Discusses Q2 2011 Results - Earnings Call Transcript

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Glimcher Realty Trust (GRT) Q2 2011 Earnings Call July 22, 2011 10:00 AM ET

Executives

Lisa Indest - SVP, Finance and Accounting

Michael Glimcher - Chairman and CEO

Mark Yale - CFO

Marshall Loeb - President and COO

Analysts

Todd Thomas - KeyBanc Capital Markets

Lindsay Schroll - Bank of America/Merrill Lynch

Quentin Velleley - Citi

Michael Billerman - Citi

Jay Habermann - Goldman Sachs

RJ Milligan - Raymond James

Ben Yang - Keefe, Bruyette & Woods

Carol Kemple - Hilliard Lyons

Cedrik Lachance - Green Street Advisors

Ki Bin Kim - Macquarie Securities

Rich Moore - RBC Capital Markets

Nathan Isbee - Stifel Nicolaus

Operator

Good day, ladies and gentlemen. And welcome to the 2011 Glimcher Realty Trust Earnings Conference Call. My name is Erica, and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator Instructions)

I’d now like to turn the presentation over to your host for today’s call, Ms. Lisa Indest, Senior Vice President of Finance and Accounting. Please proceed.

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2011 second quarter conference call. Last evening a copy of our press release was circulated on the newswire and hopefully each of you have the opportunity to review our results. Copies of both the press release and the second quarter supplemental information package 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 future events to differ from the results discussed in the forward-looking statements please refer to our earnings release and to our various SEC filings.

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

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

And now, I’d like to turn the call over to Michael Glimcher.

Michael Glimcher

Thank you, Lisa Good morning everyone and thank you for joining us on today’s call. Once again it has been another busy quarter here at Glimcher as we continue to aggressively execute our 2011 business plan.

Notwithstanding non-cash impairment charges, we delivered solid financial results for the second quarter supported by down property operating fundamentals. We also continue to make meaningful progress on as in the company’s liquidity and balance sheet finishing the quarter with less than a $100 million and over $150 million of available capacity on our credit facility.

Throughout the year we have been actively evaluating numerous strategic investment opportunities including redevelopment within our portfolio as we as acquisitions and ground up development. Finally we continue to make tangible progress at Scottsdale Quarter as we work towards the stabilization of phases I and II and the finalization of planning for phase III.

To start our adjusted FFO per share of $0.14 for the second quarter came in towards the upper end of our guidance range driven by solid property performance in all of our key operating metrics. Net operating income growth was positive again slightly better than our expectations going into the quarter. Total mall occupancy also increased over the prior year levels up 90 basis points to 93.6% as of quarter-end.

We have more great news on the sales front as productivity continues to increase. Aggregate sales were up over $390 per square foot which was another record for the portfolio and a 15% rise over prior year levels, the third double-digit increase in a row. Additionally, we have experience minimal fallout for tenant bankruptcy activity which has remained near historic lows within our portfolio.

Leasing activity for the first half of the year has been robust with signed leases up 27% over last year's activity and a positive spreads to the previous rates. We do expect the continuation of positive releasing spreads throughout the remainder of the year especially as we make progress at Polaris with this year being the 10 year anniversary of the mall.

With the improving leasing environment, higher sales and lower occupancy costs, we are excited about the potential opportunity associated with addressing these renewals over the coming months at Polaris as well as throughout the rest of the portfolio. We are focused on several significant redevelopment opportunities that will strengthen our ability to deliver future growth from our Core mall portfolio. Within the existing outlet segment of our portfolio, we see the potential to generate high single-digit returns on a total of 40 to $50 million of investment in Jersey Gardens and our SuperMall property. As we have previously discussed there is an opportunity to enhance the current tenant mix at Jersey Gardens by adding higher end luxury to our operating at the center. This push will be coordinated with a major interior and exterior renovation. We are also making an aggressive move on solidifying the outlet component of our SuperMall based upon feedback from retailers we believe there is an opportunity to enhance this asset into a fashion outlet center serving the southern half of the Seattle market.

We believe investing in our core through this type of redevelopment along with smaller opportunities throughout the portfolio represent a great use of capital. In addition to this redevelopment activity we continue to focus on finding the right opportunities to enhance portfolio quality through acquisitions and development of highly productive properties. We are working hard and being creative in order to make this happen and since our last conference call we have been actively looking at many opportunities.

While we are disappointed to pass on several of these opportunities due to pricing levels, we are proud of our disciplined approach to capital allocation. On the other hand we do appreciate with the tightening in cap rate needs to the implied valuation as a company’s Core mall portfolio. We are also excited about the opportunities that remain within the pipeline.

With respect to our balance sheet, we are pleased with the continued progress made during the quarter and enhancing our liquidity. Through the opportunistic use of the company’s ATM program launched in May and the successful refinancing of our Ashland Town Center property, we finished the quarter with substantial capacity on our credit facility giving us the flexibility to pursue the strategic investment opportunities we discussed previously. That being said, we remain committed to continuing solid progress made on the deleveraging front even as we move forward with the funding at potential investment opportunities.

Another key 2011 priority is finalizing phase III planning for Scottsdale Quarter. We are excited about the potential and varied options available. The current plan includes about 85,000 square feet of retail and a hotel as well as (inaudible) multi-family sites. As previously discussed our plan most likely will involve selling a portion of the land to multi-family or hotel developers while retaining a condominium interest in the first four retail. In that regard the two corner parcels have now been formally listed with the broker. We expect the market process to continue through the early fall.

There have been no significant changes regarding our expectations for overall yield or timing on the project. As noted previously we anticipate approaching stabilization of the first two phases sometime in 2012. Accordingly, once we work through the final lease out and co-tenancy issued over the balance of the year, we see Scottsdale Quarter being a solid growth driver for the company next year and beyond.

Additionally, we are looking at a modified plan that would include bringing a luxury department store to the center. This will potentially impact the cost of project but the value creation could be significant especially when looking at the recent sharp contraction cap rates for high quality assets like Scottsdale. We are involved in dialogue on all fronts and expect to have more tangible update regarding plans including timing, costs and returns towards the end of the year.

Now with that said, I’d 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. Our reported FFO per share for the second quarter did reflect approximately $17 million of impairment and loan defeasance charges. Roughly, 9 million of the impairment charges related to development land located in Mason, Ohio. Based on the lack of meaningful leasing prospects or activity throughout 2011, we determine that was unlikely that we would move forward with the retail development as originally planned bringing into question our ability to recover our basis. The remaining $7 million of impairments involved our pro rata share of such charges taken by our Oxford JV relating to the Tulsa Promenade. To the recent modification of the Tulsa loan requiring the venture to market the property for sale, the venture reduced the carrying value on this 2006 acquisition down to its current estimated fair value.

Finally in connection with that the Ashland refinancing in June, the company incurred a charge of $700,000 associated with the fees of the previous mortgage loan. With respect to Scottsdale Quarter the yield on the project was approximately 2% for the second quarter and we still are expecting its growth towards 4% by year-end.

We are also seeing consistent improvement in collection trends that started early 2010 and continue throughout this fiscal year throughout our mall portfolio. Accordingly, bad debt expense dropped $500,000 during the quarter, the number that we have historically excluded bad debt expense and calculating NOI growth for our Core Malls, when including this activity we actually generated growth of 2% for the second quarter. We believe this 2% number is more in line with how our peer group is calculating NOI growth.

Turning our attention to the balance sheet, we continue to make solid progress on our upcoming maturities. We successfully refinanced our Ashland Town Center in June locking in a rate of 4.9% over the next 10 years while generating excess proceeds and nearly $20 million. We also formally extended the maturities on our Scottsdale Quarter construction loan through May of 2012 and the Point Hills mortgage loan through June of 2012. With respect to our remaining 2011 maturities a $5 million surprise construction loan matures in October. We have seen a recent surge in leasing activity on this joint venture center and we expect to work out a short-term expansion with the lender on the non-recourse loan.

Finally, the $15 million of loans on the Scottsdale phase III ground mature in November. At this point we would expect to use line capacity to address the maturity. Finally, we did narrow our guidance for fiscal year 2011 adjusted FFO per share to a range of $0.64 to $0.66. Focus on the bottom of the range is driven by several factors including anticipated dilution from the ATM program activity today and a reduction on our full-year assumptions for lease termination (inaudible).

We also provided FFO per share guidance for the third quarter of this year in the range of $0.14 to $0.16 per share. These assumptions driving the guidance include net fee income for approximately $1 million, lease termination income of around $500,000 and Core mall NOI growth of over 1%.

And now I’d like to turn the call over to Marshall.

Marshall Loeb

Thanks Mark. As discussed in our previous earnings call, the operating environment continued improving throughout first quarter with increased sales, higher profits and minimal bankruptcies, retailers continued their shift from stabilization to growth mode. The combination of virtually no new retail supply and regional mall occupancies generally over 90% is imposing a growing sense of urgency on retailers in terms of their appetite for new space. Accordingly, new leasing activity continues accelerating, up 27% year-to-date.

Coming off to successful Las Vegas ReCon Conference in which we held roughly 300 retailer meetings, there was a noticeable return of optimism from the retailers with a focus on new deals. In fact, we are engaged in serious discussions regarding new 2011 deals and more importantly saw a nice strengthening for 2012. We were pleased we discussed our quarter activity as we addressed the remaining 10% of the space left in phases I and II. Even more encouraging was the solid leasing activity being discussed throughout the portfolio not just in our top properties, even with the recent soft patch in the economic recovery, we continue moving the ball forward.

As Michael mentioned our Core mall operating fundamentals continued improving comp mall NOI growth was positive again, total occupancy improved 90 basis points over prior year, re-leasing spreads were positive and for the third quarter in a row we experienced a double-digit sales increase aided by strong sales throughout the portfolio. Re-leasing spreads were positive for the quarter up 4% consistent with our guidance, additionally we still view portfolio occupancy costs is a more accurate predictor of embedded revenue growth.

On this point we are encouraged about portfolio occupancy falling below 12% at quarter end. The sales approaching $400 per square foot a low overall occupancy cost and no new construction were well positioned to drive rents for the next several years. Accordingly, we remained optimistic about our near-term leasing prospects and our ability to drive positive NOI growth from our Core mall portfolio. While our 2011 guidance calls for modest occupancy gains by year-end, we expect to have the opportunity to improve occupancy quality. As we discussed over the last several years, we have executed shorter term under rules and given rent release where required. With the improving leasing environment we have begun to strategically plan, prune, and upgrade these tenancies.

With respect to Scottsdale Quarter, we have addressed roughly 90% of the phase I and II retail and office space through executed leases and or letters of intent. In terms of current occupancy approximately 70% of the retail space for phase I and II is currently open and operating up from 50% at year-end.

Finally, after spending significant time with analyst and investors we realized that people were mistakenly equating our trade-area-dominant portfolio to many of the lower quality assets being marketed by our peers. Well, like everyone we have a bottom to our portfolio, we believe the comparison was simply too broad. We propose a more insightful look at our portfolio occurs when segmented based upon a minimum sales per square foot number of $300 per square foot. Using this metric you will see that 85% of our NOI is comprised of a tier 1 portfolio which achieves sales of $437 per square foot with occupancy just below 95%. The remaining 15% of our NOI is comprised of a tier 2 portfolio with $252 per square foot in sales and a 91% occupancy rate.

We believe this segmentation will allow for more accurate deal with our portfolio going forward. Generally speaking tier 1 properties represent those that are longer term hold due to their stability and growth profile. With respect to the tier 2 properties these maybe assets that overtime we should opportunistically call if we don’t see a clear path towards meaningful improvement and profit fundamentals and growth prospects.

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

Michael Glimcher

Thanks Marshall. With sales quickly approaching our goal $400 per square foot, we are pleased with the progress we made. That being said we are even more committed than ever to executing our strategy focused on quality, whether it's enhancing the balance sheet, strengthening our core or pursuing strategic investments were more excited than ever in terms of where we can take this company going forward. We posted a strong result to-date in 2011 and we will continue working on our key positive momentum going in the second half of the year and beyond.

Now with all that said we would like to open up our call with any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd Thomas - KeyBanc Capital Markets

First question, with regard to some of the higher quality assets that are on the market, Mike you mentioned that you passed on some but we are still hopeful given the existing pipeline. Can you provide some color about what the company is still looking at and then maybe with regard to pricing talk about where you draw the line in the sand?

Michael Glimcher

We have looked at really the high quality opportunities that are been in the market and that we were really currently three that we had focused on. There was the Carlsbad asset and there was the St. Louis asset as well as the Birmingham, Alabama. The Birmingham is still in play, the Carlsbad has been awarded and St. Louis looks like it's been finalized as well. So, on Carlsbad, we believe the cap rate is going to be hovering below a 5 and just got very aggressive at something that we like the asset very much. We saw lot of growth in it, but it just got too expensive from the cost of capital standpoint, but from an asset quality standpoint it's something that would have fit really well with where we are going.

And then the St. Louis (inaudible) asset something we like very much, it's a high quality asset. Again we only have so many bullets to fire and so many opportunities you have to look at what is the market, where do you want to be, where do you want to grow the portfolio and what are the recurrence look like. We continue to have interest in the Summit which is the center of Birmingham it's the high quality, high growth asset and something we certainly continue to be interested in, but rather than looking at everything that’s out there on the market. Looking at the Westfield portfolio for example, that doesn’t fit where we are going. I’m looking at just talking some of the moderate quality assets that are out there but there is still some other properties that come into market and that we understand or come into market are just now with brokers. So, we are going to look at them, we are going to look at them carefully. We are going to likely buy acquisitions and joint ventures probably buying large 50-50. And we are going to be cautious about where we spend capital.

Marshall Loeb

And then also, Michael had mentioned in the prepared remarks the redevelopment front, and we think that’s the great use of capital and we are excited about those opportunities as well and that certainly when you talk about capital allocation, that factors into how we are looking at some of these other opportunities as well?

Todd Thomas - KeyBanc Capital Markets

Okay great. That’s helpful and then a question on the tenant sales, if we think about the second quarter tenant sales and look ahead to (inaudible) coming in at Polaris and if we think about excluding Tulsa Promenade from the numbers, I was wondering where do you think that number today will be $393 for the portfolio.

Mark Yale

Just to clarify the (inaudible) Polaris is in the number, they came in and opened in early July, so it's in the aggregate the 12 months trailing June 30, 2011. So, it's in the 393, but we are encouraged about it if you even eliminate the (inaudible) Polaris out, our sales on aggregate basis was still up 13%. And clearly if you look at where Tulsa is, Tulsa is I think in the 270s when you call that. We are certainly right around $400 per square foot, that’s what we have been targeting. We are certainly very pleased with the rapid progress we make towards that goal.

Todd Thomas - KeyBanc Capital Markets

Okay. And then just lastly, looking at guidance I think earlier you discussed the same-store NOI of around 1 to 2% for the full-year. Is that still consistent with the new range, it sounds like for same-store NOI or tracking a little bit lowering that. I was just wondering what you are expecting I guess in the fourth quarter?

Michael Glimcher

We’re still expecting to be within that range. I think we are for the first six months a little bit below 1%, we talked about the guidance for the third quarter being above one and we would anticipate being above 1% as well in the fourth quarter. You got to remember the fourth quarter it has a bigger ways because of seasonality as well. So, we are still maintaining that guidance for NOI growth for the Core mall that 1 to 2% for the full-year.

Operator

The next question comes from the line of Lindsay Schroll with Bank of America/Merrill Lynch. Please proceed.

Lindsay Schroll - Bank of America/Merrill Lynch

Can you guys discuss some of the trends you are seeing in the trade area dominant assets and maybe distinguish between those that fall into the tier 1 and tier 2 buckets that you talked about earlier?

Marshall Loeb

It's nice and maybe Mark touched on it a little bit in his comment, (inaudible) and they are benefitting our portfolio, but virtually every mall we own had increased sales in second quarter. So, that to us what was encouraging was that increase in sales throughout the portfolio coming off of ICSE and this was the first time we have had this in two or three years, but we have new 2011 openings coming in the trade area dominant portfolio from national retailers. So, that was a nice re-occurrence and that factor as well as the anchors, we are doing several of the exporting goods deals, a number of new tenants also cosmetics things like that. So, we have had pretty good activity within those trade area dominants and what’s nice as well as you factor and maybe the growth may not be quite as strong towards the top end of our portfolio, but part of that I ascribe it too is that those stayed strong during the downturn. They never went backwards and in fact kept going forward in places like Ashland and Parkersburg, West Virginia. So, they never have had the volatility to bounce back off that lower base. So, they continue to move forward and I think it's just the lack of new construction where the retailers are coming back to these properties or seeing the lack of competition. It was interesting we got in conversation this week with the Buckle, they just opened in Morgantown, West Virginia and are thrilled with their performance. I mean it's early in but it's nice to hear that those type comments from people that we think are very good retailers that they are performing in those markets.

Mark Yale

Just contrasting the tier 1 and tier 2, when you look at the tier 2 it's seven properties it's 15% of our NOI, it excludes properties like Morgantown and Ashland and clearly that e are seeing some pressures on NOI and rent growth and things of that sort. But even at (inaudible) we really think we kind of stabilized. Sales as Marshall mentioned are $252 per square foot, but they were up 4% on aggregate basis, but in the second quarter occupancies at 91% and even though we had some challenges in growth in that part of the portfolio we think we are seeing some stabilization as we get half way through 2011.

Lindsay Schroll - Bank of America/Merrill Lynch

Okay, thank you. And then have you come across any opportunities to take over broken development projects or create another Scottsdale type opportunity?

Michael Glimcher

We are certainly looking and finding an opportunity like Scottsdale is few and far between to find such a great Intel opportunity that can perform at the absolute top of your portfolio. So, certainly you kiss a lot of frogs looking for opportunities like that. We have seen a lot of broken developments and they are all broken for a reason. So, we draw our vendor relationships, we in retailer relationships, we looked at a lot of opportunities, most of them are you can know sitting at your desk that they are not going to work in most of those things that didn’t work for a reason, which again it makes us feel so good about Scottsdale developing through such a tough environment having a premium mix of tenants it's a strong sales performance. It's just based to the quality of it when you look at a period where not much was build of any quality and most of what was billed is not about with lender and here is an asset that’s [pulling] your portfolio up and becomes a top tier asset for you.

Operator

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

Quentin Velleley - Citi

Just in terms of occupancy for the [mall stores] occupancy dropped 80 basis points excluding Scottsdale sequentially. Marshall, I’m just wondering if you could just comment on what was driving that decline in occupancy over the quarter?

Marshall Loeb

Certainly, what to backup Scottsdale it was down a little bit. I’m comfortable with our occupancy. The good news we have a couple of 100,000 square feet of new deals coming in the pipeline between now and year-end. And typically we do have a decline from first quarter to second quarter, actually June 30 is usually our low point in occupancy and I think by year-end we will be total occupancy. We should be that 94, 95% small shop, we will be a little bit lower than that. But I think we will be around 92, 93 within small shops. So, it was no one major just a lot of little stores here and there throughout the portfolio, but nothing that feels a typical or worrisome [to it] at this point and we are comfortable that we will be through by year-end and encouraged by our ability to kind of some of our chess moves to start to upgrade that tenancy. As an example one of the malls that are probably lower this year, just there was Jersey Gardens occupancy at year-end it's usually than full will be lower, but we have got a number of tenant moves there that are the right long-term strategy, but in the short-term we are going to take us backwards in occupancy a little bit and a little bit at NOI. And so we can just well we are under construction. So, a good question, but I think we will be okay, and we will be back where you would expect us to be and hopefully top of our peer group at year-end.

Mark Yale

And just to clarify, Quentin. I mean our occupancy was up 40 bips over last year June 30 of 2010. So we were up in line with expectations. So, there was no negative surprises in terms of where our occupancy was.

Quentin Velleley - Citi

And just remind me, I think you got two borders right, are they closed?

Michael Glimcher

Yes, well one is and one is closing. We have two borders one in Dayton and DSW is going to take their space and Dick’s sporting goods will take the former what the DSW space. So, it's in process there. The other borders we have is in Parkersburg, West Virginia, that one is still open but closing and we are encouraged. And again the timing probably through we knew we were getting it back, the timing came back a little bit sooner than later we would have guessed two weeks ago, but we have a good handful of prospects that we have been in discussions with at Parkersburg that we have been working to find the right space there where that was going to be. On an outparcel basis or in the border space and then we have three Waldenbooks basis that we will get back and we are working to fill those for the holidays and those are small or less rents that we will work our way through those. That’s really, you are right, two borders and then three small shops within.

Quentin Velleley - Citi

Okay. And then just in terms of the SuperMall and Mike I think you spoke about moving that mall towards the fashion outlet center. Can you just talk a little bit about some of the competition in that market in the outlet space either existing or anything that’s proposed given what’s going on in the outlet figure at the moment?

Michael Glimcher

Really good question, Seattle you got about 3.5 million people and on the north side of town there is a Chelsea center which is very successful. We are on a very south end of town. You know the geography of Seattle, it's very much a linear market. And when you look at drive times end-to-end you are looking at north of an hour and a half to get from one to the other. So, as we look at SuperMall which was really a hybrid or mills type center, we said there is a market of 3.5 million people and clearly on the north end the Chelsea center is drawing and it is done well. We have a great nucleus of outlet tenants already with Nordstrom (inaudible) and Banana Republic outlet and Tommy Hilfiger, Gap outlet, Levi’s, Ann Taylor, Eddie Bauer, Victoria's Secret etcetera. So, we got a good core group of outlet and we really had treated more as a hybrid traditional mall and outlet mall. Well as you can imagine in the south end we think we draw at least a third if not half of this 3.5 million people in the market are household income is about 75,000 for a trade area. We think there is a great opportunity and with all of the interest in the outlet segment there is a 150, 200 outlet centers out there, there is probably 50 on the books right now. You are probably won’t be that many built. These outlet tenants are very profitable. That’s certainly a favorite sector, it's an area where retailers want to expand. We had great dialogue and great success with these retailers at Jersey Gardens and they are looking for more opportunities with us. So, we said if the outlets really performing well on the traditional retailer it's doing just okay and probably bringing down the mall a little bit why don't we focus this mall more in the pure outlet play. The opportunity here is we have an existing facility we can deliver stores immediately. So, we have been out there, we have been doing leasing and you look over the next 12 to 18 months as far as leasing as far as getting people open in the center, our intent is to put capital into the physical plant to create a new customer in the mall. It's a big race track design and it's a long walk around. So, we are going to do some improvements to the design of the mall, but also just build on the nucleus of outlet tenants we already have. So, we can deliver stores immediately. We already have a core group, we have a defined market. We will take the south end of the market. The other center will take the north end. It seems like a real clear cut strategy in a segment that’s growing. It's not trying to put something into the ground or trying to construct something from scratch. It's a tough market to develop in. So, we are really excited about it. We thought it's been a good center for us, it's frankly an asset that’s probably tier 2 today that can become tier 1 and grow in a very meaningful way. So, we are really excited about Seattle. And in the case of Jersey we are going to do a full cosmetic remodel with a new interior as well as exterior, more upscale, more fashion looking. And we had (inaudible) and we have really brought the mix up there significant. Sales are incredibly high there and as Marshall said occupancy will dip because there were a lot of moves going on. We are not new to the outlet business, we are not jumping on the bandwagon, we are in the business, we have an incredibly successful center, we have moderately successful centers as well, we think we can make very successful in SuperMall and we are excited about the opportunity.

Quentin Velleley - Citi

And just lastly on SuperMall, are you aware of any radius restrictions on the other outlet centers in that market that would impact SuperMall?

Michael Glimcher

There aren’t many markets but there are some that have radius restriction that are in excess of 30 miles, but I’m sure there are some cases where there are radius’ but it's clearly two different markets. I mean if you get in the car and you drive from end-to-end and drive the market like we have many times they may as well be two different cities and two different submarkets, and you're just not drawing the same people. No one drives from the entire northern end or the southern end of Seattle.

Quentin Velleley - Citi

And then just I think Michael had a question as well.

Michael Billerman - Citi

Yes, in terms of the ATM had you used the ATM at all in July?

Mark Yale

We did not, I mean we basically had a quite period for earnings. So, I think what we disclosed in the press releases what has been issued today and then obviously once we get through and filed a Q we could be back in the market, but we are not in the market right now.

Michael Billerman - Citi

And then how did you think about obviously 70 million, 7% (inaudible), arguably you did put the ATM in place to have that access, but clearly the size in that period of time outside the other campuses surprise to the market. How much of that was peak positioning for the deals you didn’t get versus to taking advantage of where your stock was to raise hope just enough capital?

Michael Glimcher

Delevering is really important to us having that $150 million plus of capacity on our line is important to us. So, whether we found an acquisition opportunity or not, we have many uses of capital in the core portfolios as well as externally. We wanted to bring down our borrowings on the credit facility. We did not expect it to go as quickly as it did. I think with the high share price in those several large blocks that traded at market they were clearly several large shareholders that wanted to build bigger positions and just provide an opportunity for them. So, it causes a little dilution, it came on a little bit quicker than we expected it to. But it's important for us to think about where our leverage is and bring leverage down and so I think we feel really good about it, we feel really good about the progress made on the balance sheet and the financial flexibility we have now.

Michael Billerman - Citi

Did you sell any direct to investors in blocks?

Michael Glimcher

We did not, everything was sold at market, it was all sold through the program.

Michael Billerman - Citi

And then you did the equity offering obviously in January, July last year and obviously the first precap trade back in ‘09. Where do you sort of see you said you want to delever. You've got leverage down pretty far which you should be commended on. Where do you want to take it today versus the capital needs that you have going forward? And how should we think about additional equity relative to investment spend from this point forward?

Mark Yale

Certainly we were comfortable with where our leverage is today. I think as it relates to future investments stand, I think our goal right now is that a minimum to do it on a leverage neutral basis. And if we can continue to tip away and enhance that financial flexibility being sensitive to dilution to your point, I think that’s what we are looking at and that’s what’s nice about the ATM. We can be very opportunistic with it. So, I think that’s kind of where the strategy is. We got the flexibility in the balance sheet, we are very pleased with where we are, we are comfortable and had a minimum we like to maintain that as we start playing some offence and start using capital for external growth opportunities.

Michael Billerman - Citi

Right, because to Michael's point, if you think that you're trading at a discount to NAV, selling the amount of equity that you're doing, obviously is dilutive and just narrows that gap. You'd rather be buying back stock if you think it's at a discount than issuing it.

Mark Yale

There is a balance between dilutions and getting our leverage down and it's even much better to be selling at a higher price, but the good news is that every time we have issued it's been at a higher price. So, we are certainly moving in the right direction. And then having us underlying portfolio that’s getting ready to push through $400 of put with below 12% occupancy costs there is so much embedded growth here. We couldn’t be more excited about where the company has from a balance sheet standpoint and opportunity standpoint.

Operator

And our next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.

Jay Habermann - Goldman Sachs

Just following up a bit on Michael’s questions there. On the acquisition strategy, with cap rates where they are, and you're clearly passing on assets that are out of the low 5% cap rate range, can you talk about the types of assets that you look at going forward? And what makes you confident that you're going to be able to find quality assets at reasonable prices?

Michael Glimcher

You look at capital allocation that maybe acquisition or maybe redevelopment, you may find things off market. There are opportunities out there. Good news for us we only need one or two opportunities a year. We don’t need portfolios to really move the needle and that 40, $50 million we are going to spend in the outlet segment within the portfolio, it's going to drive our high single-digit return that’s certainly can enhance our portfolio quality. So, we are going to look at what’s broadly marketed, e are going to look at there is opportunities with joint venture partners. We are going to try to find opportunities off market. But again find that one or two opportunities and it's not having to find 10 to 20 of them.

Jay Habermann - Goldman Sachs

Is there a price that you have in mind or a cap rate which you just won’t go below? Where do you draw the line?

Michael Glimcher

There is multiple factors, how much what’s the growth in the asset for example, that Carlsbad asset had a high sales, it had a very low occupancy costs, single-digit occupancy costs per sales that were extremely high and an opportunity to turn some tenants. We like that asset a lot and we probably could have been more aggressive on cap rate not as aggressive as at when. Being really anchored by an organic food market and a bed, bath and beyond and restaurants versus traditional department stores, we thought it might have traded in a little bit of higher cap rate it didn’t. But we don’t have to look at a lot of factors, we have to look at growth, we have to look at cap rate. It's not just a matter of or just buy this cap rate and draw line in the sand. There is multiple factors that go into it. What ways our partner look like, what percentage do they take, is it an asset we buy 25% of or 50% of. You got away all into the model.

Jay Habermann - Goldman Sachs

Okay. And maybe switching gears a bit to occupancy costs. Can you comment a bit on some the more recent deals where you're seeing occupancy costs trend for more recent leasing?

Marshall Loeb

I think our goal 14%, it probably varies really by retailer and what segment. There is going to be certain retailers bidding on what their margins are that we can push the occupancy cost. On a blended basis our goal (inaudible) still 14% and I hope it's a goal we never achieve. Basically, I think that our $400 of a square foot we think a 14% occupancy costs on a broad-brush basis is reasonable to have that conversation with the lender. I hope next quarter two or three we can tell you we are north of 400 a foot but that we got a new goal out there. So, I think on average at least what we think about it’s I’m surprised or pleasantly surprised how fast our occupancy cost is falling down to 12%. And that I think we will work our way back towards 14 but I hope it's in a goal we are chasing for a long time from that end.

Jay Habermann - Goldman Sachs

Okay. But with the addition of the outlet concept to some of your malls, does that curtail some of that occupancy cost goal?

Marshall Loeb

We have had nice re-leasing spreads and if you say Jersey Gardens is a outlet that it's actually above average in terms of our re-leasing spreads, just again cause the denominator is growing so fast, then you are right. Outlets typically have lower occupancy cost than traditional retail. Jersey is already an outlet, so it's factored in our number. Seattle is outlet but will become more of an outlet so you are right, it could be a little bit of an impact. But I think as we move the portfolio I don’t think it will move the needle on a portfolio basis, but you are right in Seattle it will be harder to hit 14 inarticulately saying we then.

Jay Habermann - Goldman Sachs

Okay. And then lastly, on the luxury department store, I guess you're in talks in terms of Scottsdale. Can you give us some sense of where you are in timing and numbers of retailers you’re speaking to at this point?

Mark Yale

I would just say that we are in discussions and you can probably make a list of what luxury department stores are not in the market or not in the submarket. So, we are in the discussions stages, we have the ability to accommodate one. So, that puts us I think in a great position when you got a center that’s going to perform exceptionally well with Apple, and with Nike, and with Lulu M and etcetera and you can plug a department store and we have laid out what looks like it can be flexible but a two level 120,000 foot store into a preliminary plan. It's a short list of tenant that probably fit that box and good use for us there is room for just one.

Operator

Our next question comes from the line of RJ Milligan with Raymond James. Please proceed.

RJ Milligan - Raymond James

This is just a follow-up on Michael’s question. So given where the stock price is today, would you envision utilizing the remaining $30 million, the capacity on the ATM in the near-term? And would you then consider increasing the capacity, or would that be enough in terms of delevering?

Michael Glimcher

I think we would like to chip away. The leverage where we are now and as we have opportunities Marshall mentioned doing a new DSW index sporting goods at Dayton mall. We invest in the portfolio. If you start looking at opportunities that it's going to be 3, $4 million here $5 million there. And we have opportunities to redeploy that capital and high single-digit to double-digits returns and make the portfolio better. That’s when we are going to utilize it. Again we probably were more aggressive with it due to the fact that the shares traded up and that was incredibly high demand for it and we have a strong desire to delever just factored all came into play, but we probably just got a little more aggressive than we expected to, but again I think that is a big positive.

RJ Milligan - Raymond James

Okay. So as long as there’s a use going forward, is when you tap into the ATM. In terms of general leverage, you guys are pretty comfortable where you are today?

Mark Yale

It's use is also I think we said we are going to opportunistic, so where our price might be. It's another factor and comparing that with other sources of capital and we are always evaluating what our options are and that’s nice to have the ATM program in the bag in terms of being able to have that one delevers.

Marshall Loeb

I like to think of it just think of some of the other retail moves, and Michael mentioned Dayton but we are having a nice conversation with H&M about two to three new stores with them. So, those could be newly created anchors, but if can use the ATM program. So, to fund CapEx cost and the build out and we get that shot in the arm from H&M and some of our top centers, I think those are the right moves and a great use of something like the ATM program.

RJ Milligan - Raymond James

Okay. Then switching topics, on the last call you guys talked about the trends that you were seeing fewer short-term leases and more new leases versus renewals. I was just wondering how that was trending in the second quarter.

Marshall Loeb

Same, I mean the trend of lease I think with the sales the retailers seem to get a little more comfortable each quarter. We said maybe we are in an nice mix where no one really is breathing a sigh of relief on the economy. So, we are still not seeing any new construction anywhere, but sales are trending up nicely and open to buy orders or up not dramatically up enough to make you nervous, but they are climbing up. So, our new deals still in that seven to 10 year range which is probably a normal environment. Renewals typically three to five years and those are probably historic averages and we have seen a nice increase in the number that we signed in the first half in terms of square footage as well as those numbers are up on just an absolute basis not quite as dramatically but we sign more deals and I think our challenge maybe going back to an earlier question isn’t our occupancy because we are comfortable with our occupancy. I think we are relatively full in mid to low 90s. I think it's going to be more how do we, who can we replace and how do we upgrade, because new construction is going to start. So, how much how far can we (inaudible) to make it harder for that new constructions of that new project to feel viable.

Mark Yale

I think when you look at our portfolio at the end of the year and we are going to be occupied in the mid 90s like we were last year, it's going to be a story not at the quantity but the quality of our occupancy and as Marshall said we keep on chipping away the shorter term and stabilizing in the more longer term higher quality tenant. So, you are seeing NOI growing, you are seeing sales grow, you are seeing the quality of this tenancy improve and this is a year of stabilization with some growth. We are really doing a foundation for next year with much more substantial growth.

RJ Milligan - Raymond James

Okay, great. And I guess just a follow-up is when do you foresee new construction coming online?

Mark Yale

For us we didn’t have a pipeline of new construction build so there are opportunities out there I think they are very much in fill and like there would have to be a Scottsdale of an opportunity and opportunity where you can really in fill something and there was clearly a pent up demand for it. I think you are going to search engines very little of it because you are going to see a lot of equity required and I think there is certainly is construction lending that would be available but it would be 50% pre-leasing and that would be substantial equity which is good for a large public operating companies because I think you are not going to see the independent developer that was putting 90% plus (inaudible) and building everywhere and when you think about all of this opportunities like Lindsay mentioned earlier that are out there or maybe broken, that’s why these properties were build when you have strong operating companies and you have substantial pre-leasing and substantial equity like tenant centers are going to get build. So, maybe over the next couple of years, but I do think you are going to see opportunities here and there but it's by and large it's going to be REITs and other large operating entities.

Operator

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

Ben Yang - Keefe, Bruyette & Woods

There have been some reports in the media recently regarding litigation between tenants and their contractors at Scottsdale Quarter. While I know you're not directly involved, can you comment on whether that’s typical for new developments like this? Or is it possibly a signal that maybe some of your tenants are having trouble building out and running their businesses there?

Michael Glimcher

This kind of thing happens all the time. We have a tenant we provide a TI and they contract with their contractor and our shopping center and we are not surprised when some retailers are undercapitalized especially local retailer versus large national operators and sometimes they don’t pay their contract or so. This is not a typical that something that happens unfortunately all the time and I think you are referring to local article on local market and it's nothings at all of concern.

Ben Yang - Keefe, Bruyette & Woods

Just staying on Scottsdale, you continue to open up space this year. Can you maybe provide some indication of what the recent sales productivity is for that center and maybe what the portfolio sales per square foot looks like excluding Scottsdale?

Mark Yale

At this point I think we have three stores that are probably in that number and I’d say that the sales per square foot are very consistent in terms of what we reported at year-end. So, I don’t think the trends are significant that certainly has helped but on an overall basis we still have a lot of opportunity for Scottsdale to really drive our sales per square foot. And I think you are going to start seeing as we get in the second half of the year when there is a larger reporting full and it's just taking time to get those stores and get them in for 12 months from a reporting perspective. So, I think you are seeing the $390 per square foot and certainly piece of that is Scottsdale, but as Marshall mentioned we saw growth throughout the portfolio nearly everyone of our properties and that’s what we are excited about.

Ben Yang - Keefe, Bruyette & Woods

Can you remind us what your stabilized expectation is for Scottsdale? Is it $600 a foot? Has that changed at all?

Mark Yale

I think we talked about 6 to $700 per square foot and certainly when you look at an Apple as a base, we are trying to be more comfortable on a higher end of that$700 per square foot number.

Michael Glimcher

When you look at the mix then having an Apple having a Lulu M and having a concentration of high quality highly productive restaurants, you can [dot up to] a 700 pretty comfortably.

Marshall Loeb

Maybe I guess I will tie to your earlier question. [I may feel] better that’s a large tenant I have said Apple, the H&M, the iPic theater, the restaurants, the big tenants that we need to do well, all are. Unfortunately there is an article on the smaller local guys which like any other certainly development and we have that in our other local malls for people are thinly capitalized and you get some bumps in the roads but the large people that are critical the Nikes does, knock on wood we have been happy. They are all performing well and hanging in there even till (inaudible) even maybe a little better than they expected to.

Ben Yang - Keefe, Bruyette & Woods

Okay, and just final question on the project. Is the potential addition of the luxury department store in any way changing the mix of tenants that you plan to put there? And also, is it impacting maybe current lease negotiations in terms of being able to charge a higher rent for that project?

Mark Yale

I think as it relates to phase 1 and 2 they are what they are, and the mix we are 90% committed so you really know what it looks like and what your economics are. I think what it would do for phase 3 that 85,000 feet will be substantially more up market and start pushing into luxury. I think with a fashion department store you can start pushing into luxury without it. It becomes a little more challenging. So, I think we think about the mix for phase 3 and we think about the retailer we are talking to. A lot of the retailers were talking to we are saying would you be interested with the department store without the department store and there is certainly an incremental group that comes with the department store. And there has been a lot of reverse enquiry I should say from the department stores who see a hole in that Scottsdale market. So, again we are not there yet it’s something we are exploring. Luckily we have the opportunity having purchased at phase 3 ground to accommodate it. It's not something we initially anticipated or need. So, I think we are in a good position where we don’t need if the center is successful with or without it. We think anything you can do enhance your center and make it better, you should do it and if you have that opportunity why not. So, that’s where we working on but we are certainly not there yet.

Operator

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

Carol Kemple - Hilliard Lyons

When do you all expect to start deploying the capital into the outlet centers?

Michael Glimcher

I mean by and large that capital will be spend next year and not this year, as it relates to Jersey Gardens we will be redoing some restaurants and putting some capital into our amuse and that’s what we think it's an operating center, it's incredibly busy, the design is underway on all of it. But most of it will happen next year, next calendar year and it's a little bit tricky because these are operating centers it's going to have to happen at night. So, it will be over the course of next year and into the following year's unfortunately about 18 month of time period when you are doing a renovation like that. And then in the case of SuperMall I probably see because it works in the process of design and truly been through the tenants interest and the tenants really enquiring about wanted to do more business with us and so business for us. In Seattle I see towards the end of next year and then really into the following year's spending more capital there just because it from a planning standpoint just a little behind.

Carol Kemple - Hilliard Lyons

Okay. And then with the Tulsa center and then the land in Mason, Ohio, I know you all aren't actively marketing those properties at this point, but have you seen any interest in either of those?

Mark Yale

(Inaudible) opportunities reinvestment in the core portfolio, and the fact that we are really trying to upgrade the portfolio very aggressively probably in the last data point would be about 30% of our NOIs coming out of Ohio. We said what’s our best use of capital and as we look down the menu this really kept on sliding down further. So, when you think about where do you want to allocate capital this really lost out based on other opportunities. So, we have just now made this decision, we will list the ground we are going in that direction with it. So, it's just wasn’t the right opportunity at this time. When you look at both of these things, they ground in 2005 the acquisition in 2006, probably both good decisions at that time. And where we are today we are making good decision at this time.

Operator

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

Cedrik Lachance - Green Street Advisors

Just going back to the lease line question from earlier. Marshall, are you able to provide us just a few numbers there in terms of what the average duration of the lease signed this quarter versus last quarter?

Marshall Loeb

The jump, let’s see I’m just liking it some of our stats, we were and they varied again this is quarterly sum. I come answering your question but I’d say again the company our size let’s four quarter down we were down by about 10 months in terms of new deals, renewals went up slightly so they were going from just under 4 years to about 3.5 years on renewals. New deals from a little over 8 years to about 7.5 years are new. So, they are both kind of in that range and it just depends on what this is what’s getting approved by our committee not what’s getting signed. So, we think that’s a more real time measure of where the retailer (inaudible). So, that again I think both of those if it helps I think there may be back to where you would expect them to be. I think if you ask retailers what’s the new deal look like, it's probably 7 to 10 year's more often 10. And the renewals are before we had a much bigger mix of those kind of one and two year renewals, where really when people were really nervous not sure what’s going to happen, but now our renewals are back over three years in term and then pushing forward. So, I think that’s about typical.

Cedrik Lachance - Green Street Advisors

Okay. As you look at your ability to improve the quality of the tenant mix, in particular, when you look at retailers that are now benefiting from some form of rent relief. Have you been able to convert some of those retailers that are on rent relief into either higher-paying rent, or have you been able to replace those retailers if you look over the last six months or so?

Marshall Loeb

It's really being more I guess fortunately or unfortunately, it's been more replaced. I mean typically those that were struggling.

Michael Glimcher

Maybe they are doing a little better but still struggling and a lot of times when most cases where we gave rent relief, we would negotiate for an option to re-rent.

Marshall Loeb

To regain the space, so (inaudible) examples and things like that, I don’t want to pick on any retailers, but it is by and large been where either rent relief has burned off but there again I still think we can do better on the rents. It's been more we are taking this we are downsizing this retailer we are moving them out and here is the new tenant that’s coming in behind. I mean a couple of those has been portfolio case where even gets a little bit trickier where that retailer doesn’t want to leave them all, but I think if one and it's within our trade area dominant it's not one of our top tier malls but we are basically building a retailer out for another new national retailers. So, those are more difficult conversations but we know it's the right long-term decision for that space.

Michael Glimcher

I’d say when things were tough we have one option that was make the best deal with the retailer that was there, and today there is a competition for space, with high occupancy, increasing sales and low occupancy costs, Marshall and TJ and their team, they have the opportunity to choose the tenant they want versus make the deal they have to make with the tenant that was in place in tough times. So, the dynamic has changed considerably.

Marshall Loeb

I’d step in if it's helpful. Our borders in Parkersburg and high list of prospects are all prospects that maybe a few years ago you could have not all but most of the handful of people you could have seen and a big box or power center that would have been built, but with that lack of new construction the handful of people we are talking to, that’s not happening in Parkersburg and they are all tenants that would be interested in coming, it's outward facing there, it's a mall and things like that that come into location like that.

Cedrik Lachance - Green Street Advisors

And maybe just one final question. Marshall, you did talk about earlier some of the national retailers looking at some of your trade area dominant properties and seeing that as a relatively new trend. Are you thinking primarily about retailers that are taking large spaces, so called junior anchors? Or are those really retailers that are looking at some of the inline space?

Marshall Loeb

We have seen maybe even earlier we saw the large retailers taking the big boxes and again let’s think about Borders. There's Ulta Cosmetics and HH Gregg and PetSmart and some of those names, really what I was thinking coming onto specifics it's part of Gymboree, it's Crazy A, it's Wet Seal, It's Route 21, It's Justice. It's a number of those tenants that really the speed of when they want it's based between ICSE and by this holiday season was a nice thing. So, it's small shop space, it's a little bit of both I’d say the bigger spaces was there already last year because they were typically maybe would have looked into the new power center. Now it's been more in line retailers and then even on some of the out parcels we have had. We were just recently with one of the large restaurant chains and they were saying they were looking further ahead on their timeline because they are not seeing the new, they are always an out parcel, but they are not seeing the new opportunities. So, they were asking us where do you have the weaker restaurants on pads that we can start looking into 2013 and ’14 and maybe during a (inaudible) and lower grade do not renew that weaker restaurant and bring one of their concepts in. So, that’s all kind of what the things that make us feel a little more bullish about, where we are heading.

Operator

Our next question comes from the line of Ki Bin Kim with Macquarie Securities. Please proceed.

Ki Bin Kim - Macquarie Securities

Just to clarify on getting that luxury department anchor in Scottsdale, if I'm correct, isn't it more so that it's a certainty and you're just kind of negotiating the enticement fee to pay to the retailers? So is it safe to assume you're pretty much locking up somebody very soon?

Michael Glimcher

There is actually more than one candidate for the once base so there is interest from more than one and we are in negotiations and we are in a process where they did a market research, where they understand this submarket and it's certainly have to look at north Scottsdale there are several department stores that had committed to being a north Scottsdale. There were other developments that didn’t happen. So, now it's really adjusting those projections for this site and then also working through economics. So, again we are in the process we are not in the point of finalizing anything. We are really marketing it to multiple department stores.

Ki Bin Kim - Macquarie Securities

And in your initial projections for phase 3, 14 or 15% stabilized yield, did that assume you had a luxury anchor coming into that phase 3? And if not, how does that change that implication?

Mark Yale

It does not, so it obviously could put pressure on our cost, on our yield, but I think as we inferred we think bringing a luxury department store and the retailer will go along with it. When you start looking at what that could mean to the implied valuation of the project there would be a more than fair trade off. But that’s something we have to look at in terms of what the deal ultimately is going be with the luxury department store and as Michael mentioned it's not something we need to do. We have already got the project that we have got the critical mass. So, it's going to have to be something that’s going to make sense, but it's going to put pressure on the yield, but if we move forward we think it's going to be more than made up in terms of what the valuation of the center not only for phase 3 but for phase 1 and 2 will be enhanced.

Ki Bin Kim - Macquarie Securities

Okay. And on your same-store NOI of positive 0.3%, could you walk through why that seems a little low, especially when your lease spreads are up 4%?

Mark Yale

Well I think part of we talked about in the prepared remarks if you include bad debt for whatever reason historically, we have excluded the impact of bad debt in our same-store growth calculation. We would be closer to 2% and I think as we look at growth, I mean we are still being impacted by some of the challenging leasing environment that we saw in 2010 and things have improved but they have improved much more in 2011 and I think some of that is still working through it. It is a process and I think one of the things to understand is if you go back to the toughest year in 2009 we were only down 4% and we are still kind of working through some of that, but I’m little bit excited about it, it's a potential growth prospects for 2012 because as we look at 2011 especially half way through the year, we really feel like we are starting to see stabilization even at the bottom of our portfolio. But we are still working through some of the tough leasing that we had to get done in 2010, and I think that has pressured our growth in the first half of the year.

Ki Bin Kim - Macquarie Securities

And on leverage, it looks like once you, roughly speaking, if you get Scottsdale Quarter leased up, and with the equity issuance you did recently, that you'll probably be approaching a two times fixed coverage ratio by 2013. Are you comfortable with that type of coverage, or would you still work at chipping that or improving that via equity issuance?

Mark Yale

I think it's somewhere we are going to be evaluating as we talk about more comfortable with where our leverage is right now. I think in a minimum, as we move forward with capital and strategic investments we are going to do that on a lease per leverage mutual basis. And then we hope overtime that will continue to enhance our balance sheet and again the best answer would be that we were able to enhance it because we have a portfolio that is growing and is growing at a really good rate and we are driving EBITDA growth and our coverage has been enhanced that way.

Ki Bin Kim - Macquarie Securities

Last quick question. Does your guidance include any additional ATM usage for the rest of the year?

Mark Yale

It does not, but with what we are talking about with 30 million, if we get that issued, we are already going to be in the August. I mean it's going to have a minimal impact if we would have any issuances in the last five months of the year. So, I think the bulk of the any dilution is factored into 70 million that’s already been issued through the end of June.

Operator

Our next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Rich Moore - RBC Capital Markets

Question for you on the breakout of the tenants. Is it time, you think, to add a third category to the; I'm sorry, breakout on the malls, is it time to add a third category, because you mentioned 15%. You have 41% of NOI in the trade area dominance. Should you break out the 7 and the 15% into a separate category, you think?

Michael Glimcher

What we were suggesting by the tier 1 and tier 2 is a different way to break it out and a different way to look at it. And when you look at our current breakout now which was really designed so that people could understand the quality from the top tier assets and where the NOI was coming from. I think as we got feedback over the course of going to (inaudible) road talking to investors there was a perception that bottom 40% or so was more like the second tier asset that are available on the market. And the idea of resorting it was to say no, but if you look at 85% of it doing in the mid 400s with 95%-ish occupancy. It's really only about 15% that either needs some movements in a second tier which we call it up or out. And it will move up, or need to move out of the portfolio. You are really only looking about 15% of the portfolios or so, the discussion and why we wanted to raise the issue on this call was so that people would not focus on the 40% that we have today, but really the 15% that either needs to be enhanced or exceeded. And so it's maybe a way to relook at it versus adding a category.

Rich Moore - RBC Capital Markets

Okay, I got you. You guys, as you know, pioneered that whole tiering of assets, so it wouldn't hurt in my opinion to have that third category, but I leave that up to you. Second thing, on the land sales that you're anticipating for phase 3 at Scottsdale, what would be the gains on that, on that kind of volume that you have in there? You have a range of 20 to 25 million. What should we anticipate for gains?

Michael Glimcher

I don’t see us really having any substantial gain that was more about controlling a ground. We paid fairly full price for that ground, it was more of controlling the ground so that we can get the retail and we could control what would go on there and really simplifying the project. The interest level is incredibly high. It is maybe even arguably the best multi-family site in the entire state and the quality of potential bidders and the length of the list is incredibly high. So, we are excited about the interest level, but we did pay a pretty full price for it.

Rich Moore - RBC Capital Markets

Okay. All right. Good. Thank you. And then another quickie on some of the metrics. Looking at the recovery ratio for the first half of 2011 it's been below 2010 levels for the most part throughout the year. Is there any chance that begins to tick back up, or have we sort of set a new, slightly lower level of recovery ratio?

Mark Yale

I think driver of that is Scottsdale quarter, obviously we have got all the expenses as you know we are working through co-tenancies especially the first half of the year. We had minimal tenants who are paying any type of recoveries. So, that is the primary driver of the drop in the recovery rate. I think we are going to see that pressure on the recovery rate through this year but when we get Scottsdale stabilized and if their recovery rate goes up I think you will see an opportunity for the recovery rate for a company overall to start moving again and narrowing that gap.

Rich Moore - RBC Capital Markets

Okay. All right. Good. Thanks, Mark. And then I want to ask you guys real quick on the lease expiration schedule. As you look out to next year, 23.86 for non-anchor average rents, $5 for anchor average rents, and then 2013 is fairly good rates as well. And I realize these are mall-specific or property-specific, but is there any reason to us to think that as those lower numbers, they're clearly much lower than what we had this year with Polaris in there, we could get some bigger than usual spreads in 2012 and ‘13?

Marshall Loeb

Maybe coming out from a different angle I think our re-leasing spreads will tick up you never know what’s comparable or not, I don’t see you never know but its sometimes not every lease that we renew or a renew lease falls in the comparable bucket, but you are right our leasing spreads will tick up really coming out from a different advantage point because our occupancy calls just fall in and got in so large. So, I do think you will see the absolute number come up and you will see our re-leasing spreads tick up given (inaudible) stay flat much less I’m more encouraged by the moves we are making that (inaudible) keep ourselves driving higher and so I think we will be able to continue to push rents through that. So you are right.

Rich Moore - RBC Capital Markets

Okay. All right. That's fair. Thank you, Marshall. And then the last thing I have is it seems like last year and into the early part of this year, there was a resurgence in tenant demand, if you will kind of an excitement among the tenants. Has that dissipated with the flatness in the economy and the disappointment that I think everybody has in where the economy is at this point? Or do you think the retailers are equally as enthused about driving more store openings as we head into next year?

Michael Glimcher

This last May, the ICSE was as positive (inaudible) and we saw more retailers competing for space and even with some bumps along the way here in the economy we haven’t seen that change, Marshall and team filled up the pipeline with deals, deals have not fallen out I think if he mentions we had a number of retailers who added who added store count and again maybe I went from 5 to 20 stores it wasn’t a huge amount, but we had a number of retailers who said I want to get something over in 2011. So, the (inaudible) economy have not impacted that excitement at all. And there is a competition for space and again seeing activity from the top to the bottom of the portfolio is probably what is most encouraging. Scottsdale is a good of an asset (inaudible) Polaris and Jersey and all these assets are great, but from top to bottom we are seeing activity in our portfolio.

Rich Moore - RBC Capital Markets

Okay. And how would you characterize, overall, the Phoenix excitement? Is that improving from a retailer standpoint in particular?

Mark Yale

I mean as it relates to the entire market of Phoenix.

Rich Moore - RBC Capital Markets

Yes, just what you're hearing when you talk to retailers about Phoenix in general. I realize you guys have a single asset there, but just how their approach and thought process toward a market that's obviously had a tough time.

Mark Yale

I think it's about the half and has not so I give it like it is the most market I think being the tough to [top] assets are continuing to do well and we are recovering a lot faster in the fringe assets are weaker and weaker and there is a just a bigger separation. And where we are and obviously some of the other dominant assets are which are in the middle of the bulls eye they are continuing to do well. The stuff is out on the fringe is probably what’s tougher.

Operator

And our last question comes from the line of Nathan Isbee with Stifel Nicolaus. Please proceed.

Nathan Isbee - Stifel Nicolaus

Sorry if I missed it. Have you clarified what you expect to spend at Great Mall in Jersey Gardens and what type of returns you're expecting on that?

Michael Glimcher

Yes, our Jersey Gardens and then our SuperMall in Seattle we talked about spending between 40 and $50 million at a high single-digit return.

Nathan Isbee - Stifel Nicolaus

Okay. And just two quick questions on Scottsdale. Can you give a little more detail on the key hurdles that you need to hit to cure some of the co-tenancy problems over the few quarters?

Mark Yale

Probably the next most significant one is reaching 75% occupancy. And then the other couple main tenants that we need to get open and we continue to make progress and we think we are getting a lot of that addressed as we get through the end of the year and hopefully hit the ground running as we get into 2012 having majority of our retailers and the full rent.

Nathan Isbee - Stifel Nicolaus

So when you get to 75%, can you give any like how much more NOI all of a sudden comes online at that point?

Mark Yale

I don’t have that, it's top off my head. But what I can tell you is what we talked about is we had NOI yield was about 2% for the second quarter and we expect to be approaching 4% by the end of the year month of December.

Nathan Isbee - Stifel Nicolaus

Okay. Is there any progress with placing Oakfield?

Mark Yale

We don’t have a signed lease but we have a lease out for signature with a very exciting tenant for that location there has been, there were probably a dozen different tenants that wanted to be there and that wanted to pay significant rent for that premier corner and it was a matter of really working to a process and finding the best possible tenant for the location. So, we put a lease out we are under negotiations, we are working on the deal but it's not signed but as soon as it is I will call you.

Nathan Isbee - Stifel Nicolaus

All right. Thanks. What type of user is it?

Mark Yale

I don’t want to say, I give it away.

Operator

We have no further audio questions at this time, I’d now turn the call back over to Lisa Indest for any closing remarks.

Lisa Indest

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

Operator

Thank you for your participation in today’s conference. This concludes the presentation, everyone may now disconnect and have a great day.

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