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Glimcher Realty Trust (NYSE:GRT)

Q3 2011 Earnings Conference Call

October 28, 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

Lindsay Schroll – Bank of America/Merrill Lynch

Todd Thomas – KeyBanc Capital Markets

Ben Yang – KBW

Nathan Isbee – Stifel Nicolaus

Carol Kemple – Hilliard Lyons

Wes Golladay – RBC Capital Markets

RJ Milligan – Raymond James

Quentin Velleley – Citi

Operator

Good day, ladies and gentlemen. And welcome to the third quarter 2011 Glimcher Realty Trust earnings conference call. My name is Santali, and I’ll be your facilitator for today’s call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this 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 Accounting. Please proceed.

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2011 third 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 third 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 measure. 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 we are proud of what we have been able to accomplish in the execution of our business strategy over the last quarter. Especially, when considering the global macroeconomic issues that were in play. First, we delivered solid financial results for the third quarter supported by sound property operating fundamentals.

Our FFO per share of $0.15 for the third quarter came in within our prior guidance range driven by solid property performance in all of our key operating metrics. Net operating income growth was again positive up 3%. Total mall occupancy increased as well over the prior year levels up 110 basis points to 94.3% as of the quarter end. We are also getting close to reaching our goal of $400 per square foot in sales from our mall portfolio.

Aggregate sales were up to $396 per square foot another record for the portfolio and a 12% rise over prior year levels. In fact, sales are now up 20% from the lows of 2009. Additionally, we have experienced minimal fall off from tenant bankruptcy activity, which has remained near historic lows within the portfolio.

Leasing activity continues at a solid pace as well. Up over 30% for in line space on a year-to-date basis compared to 2010. What’s even more encouraging is the acceleration and releasing spread throughout the portfolio, which were positive 12% on leases signed during the third quarter. While we are concerned about the macroeconomic issues and the potential impact on our retail partners we are not seeing any change in behavior on the ground. Arguably the leasing environment today is just as strong if not better than where we stood earlier this year.

As we discussed during our last call, we are also 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 $50 million to $60 million investment in Jersey Gardens and SuperMall.

As we have previously discussed, there is an opportunity to enhance the current tenant mix at Jersey Gardens by adding higher end luxury outlets to our offering at the center. This push will be coordinated with major interior and exterior renovations. In terms of the renovation project we are currently wrapping up to planning Phase, which includes finalizing the scope and supporting architectural drawings. We would expect the bulk of the work to commence early next year with completion occurring in mid 2013.

We are also making aggressive move on solidifying the outlet component of our SuperMall which is located in Metro Seattle area. Based upon feedback from our outlet retailers we believe there is an opportunity to enhance this asset into a fashion outlet center serving the southern half of the Seattle market. In conjunction with the leasing efforts we will be moving forward with physical enhancements to this center as well. We would expect this work to begin next year with the targeted grand reopening in the middle of 2013. We believe investing in our core through this type of redevelopment along with smaller opportunities throughout the portfolio represents the best use of our capital on a risk adjusted return basis.

In addition to this redevelopment activity, we continue to focus on finding the right opportunities to enhance the portfolio quality through acquisitions as well as developments of highly productive properties. In that regard, we are excited about adding Town Center Plaza located in Leawood, Kansas to our core mall portfolio by utilizing capital from one of our non-core assets. This may seize AMC and Dick's Sporting Goods anchored opener center generate sales in excess of $400 per square foot with tenants like Anthropologie, Madewell and William (Inaudible).

With the transaction generating annualized positive FFO per share of over a penny we believe this acquisition checks all of the boxes with respect to our overall strategy. We are continuing to work hard and being creative in order to find other opportunities similar to Leawood. It’s not easy but as we have said before we only need a handful of the right opportunities to make a meaningful difference in transforming the quality of our mall portfolio.

We’ve also passed on several opportunities due to pricing as well as quality levels. And while disappointed not to add some of the higher quality properties to our portfolio we are proud of our disciplined approach to capital allocation. On the other hand we do appreciate what the tightening in cap rate means to the implied valuation of the company’s existing mall portfolio.

From a capital perspective we continue to make meaningful progress on enhancing the company’s liquidity and balance sheet. Within the last couple of weeks we completed our second modification and extension of our credit facility this year. Under the most recent modification we were able to extend our term through October of 2014 with a one year extension option that will take the final maturity to October of 2015.

Pricing also improved with spreads tightening by over 100 basis points from the prior agreement. The execution of this credit facility modification is yet another positive step in evolution of the company’s balance sheet and improvement of our overall risk profile. It also demonstrates the strength of our landing relationships and the long-term confidence they have in Glimcher. We finished the quarter with nearly $150 million of capacity on our credit facility giving us the flexibility to pursue the strategic investment opportunities I discussed previously.

That being said, we remain committed to continuing the solid progress made on the deleveraging front even as we move forward with funding of potential investment opportunities. Finally, we continue to make tangible progress at Scottsdale Quarter with respect to the stabilization of Phases I and II and finalizing our plans for the development of Phase III. As Mark and Marshall will discuss in a couple of minutes the path towards stabilization and value creation has gotten a bit longer. But we believe it is much more to define from where we stood at the beginning of this year.

As we have said all along we have been more focused and concerned about where the project will be by the end of 2012 and beyond rather than the short-term impact on our current year earnings. We have made the right decisions for the long-term and once we work through 2011 we see Scottsdale Quarter being a solid growth driver for the company as we approach stabilization towards the end of 2012.

With respect to Phase III we are currently looking at a modified plan that would include bringing in a fashion department store to the center. This would potentially impact the cost of the project but the value creation could be significant especially when looking at the sharp contraction in cap rates for high quality properties similar to Scottsdale Quarter.

As we’ve previously discussed, our current plan most likely involve selling a portion of the land to multifamily or hotel developers while retaining a condominium interest in first four retail. In that regard, the two corner parcels have now been formally listed with the broker with extensive marketing occurring throughout the third quarter. At this point we haves seen significant interest on the multifamily for rent front and would expect to go into contract on both parcels with one developer sometime during the fourth quarter. The contract will be subject to a due diligence period so we would not expect any transaction to close until sometime next year.

We’ve made significant progress on all fronts and expect to have more tangible updates regarding plans including timing, cost and returns in connection with yearend earnings and the issuance of 2012 guidance. Now with all that said I would like to turn the call to Mark Yale to provide you with more detail on our financial results.

Mark Yale

Thank you, Michael and good morning. Our reported FFO per share for the third quarter of $0.15 fell solidly within our guidance range going into the period. The biggest driver of the performance was property operations for a stabilized mall portfolio, which were roughly in line with our expectations supported by solid net operating income growth. In fact, when including bad debt expense and calculating NOI growth for core malls we generate growth of 3% to the third quarter. We believe this 3% number is more in line with how our peer group is calculating NOI growth.

With respect to Scottsdale Quarter the yield on the project was approximately 2% for the third quarter and we are expecting it to be around 3% by year end. The third quarter yield did exclude approximately $500,000 of non-cash write-offs some intangibles on several of our original tenants that closed during the quarter.

Now let’s quickly turn our attention to the balance sheet. As Michael mentioned we are comfortable with our current liquidity position on considering our available capacity on the credit facility of $150 million and anticipate the capital needs to the end of 2012 only totaling between $55 million to $75 million. These needs include the purchase of Leawood Town Center, the redevelopment plans for Jersey and SuperMall and the Phase III development at Scottsdale Quarter. With respect to the Leawood acquisition we have netted against our capital needs the we expected permanent financing to be placed on the property. We have currently executed a term sheet with a life company for 15 year $77 million non-recourse mortgage at a rate of 5%.

We also believe that we have substantial liquidity from potential excess proceeds to be generating in connection with the refinance your mortgages that mature over the next couple of years. In fact the debt yield on the roughly $500 million permanent mortgage maturities through 2014 is nearly 20%. If we assume refinancing out of conservative 12% debt yield this would have result in the potential for well over $250 million in excess proceeds.

But clearly we had the flexibility in terms of liquidity to fund our investment opportunities longer term we remain committed to reducing the company’s overall leverage. We currently have approximately $30 million of capacity remaining on our existing at the market continuous equity program and would expect to re up the program upon completion so it remains an available option for us.

Obviously with the recent volatility in the equity markets the utilization of the program was minimal during the quarter. But we believe this is an effective tool that allow us to issue equity efficiently in terms of cost and to do it opportunistically going forward.

With respect to our remaining 2011 maturities the $5 million surprise construction loan make sure earlier this month. We are currently in the process of finalizing the terms with the existing lender for an extension of modification of this non-recourse loan. Additionally, the two loans totaling $50 million on the Scottsdale Phase III ground mature in November. We have currently executed term sheet with another lender provide short-term financing to replace this maturing debt.

Finally, we did update our FFO guidance for fiscal year 2011 to a range of $0.45 to $0.47 per share. This guidance does include the $500,000 of non-cash write-offs of unamortized loan fees incurred in connection with the October credit facility modification. Along with updated assumptions for the financial contribution from Scottsdale Quarter for the year. Revised assumptions for Scottsdale reflect the loss rent and write-off of intangibles from store closing in the third quarter and changes in the anticipated timing of (Inaudible) on many of the existing leases driven by these store closings along with delayed openings of other retailers.

It also provided FFO guidance for the fourth quarter of 2011 in the range of $0.19 to $0.21 per share. Key assumptions driving the guidance include net income of approximately $1 million, lease termination of income of around $500,000 and core mall NOI growth of up to 1%.

With that I would now like to turn the call over to Marshall.

Marshall Loeb

Thanks Mark. Well we are concerned about the macroeconomic issues and potential retailer impact Glimcher’s operating environment has continually improved throughout the year. With increased sales, higher profits and minimal bankruptcies retailers continue their shift from stabilization to growth mode. The combination of virtually no new retail supply and regional mall occupancies generally above 90% we’ve seen a growing sense of urgency from these retailers in terms of their focus on new stores both from big box user and more recently traditional mall specialty tenants.

Accordingly, new leasing activity continues accelerating up 30% year-to-date for in line space. Even more encourage is we are seeing leasing activity throughout the portfolio not in just the top properties. We have a strong pipeline of new deals and renewals and have not seen any meaningful change in the tone or tenure of our retailer discussions.

As Michael mentioned our core mall operating fundamentals continue improving comp mall NOI growth was positive again, total mall occupancy reached over 94% an improvement of 110 basis points over last year, releasing spreads remained positive accelerating to 12% for the quarter. We expensed another double digit sales increase aided by strong sales throughout the portfolio and finally we are encouraged about portfolio occupancy fall into 11.4%. The combination of portfolio sales just under $400 per square foot a low overall occupancy cost and the ability to prune and upgrade tenant fees from short-term renewals and rent release planned over the last several years plus no new competition positions us to drive rents for several years.

As Mark mentioned, we are behind where we hope we would be during the fourth quarter in terms of retail occupancy and addressing opening co-tenant fee discussed the quarter. The good news is we are making progress on the path towards stabilization is more defined than at the beginning of the year. For example we’ve addressed the majority of the spaces that vacated during 2011 and have been able to upgrade the quality of the tenants and the rents. We are close to executing a lease in the former Oakville Grocery space with the national retailer that will house their flagship location in Phoenix.

Calvin Klein will take a portion of the space vacated by our regional retailer and finally (Inaudible) a Mexican restaurant out of Newport will take over space vacated by a local restaurant. In terms to some of these delayed openings we originally anticipated Sephora, Bath and Body and Pandora would all open in 2011. We chose to be patient and make sure we secured the right tenant and have now scheduled openings with each of these retailers in the first half of next year.

When considering the impact of store closing during the third quarter we finished with 72% of the retail space occupied and opened in Phases I and II as of September 30. The good news is we are able to more than offset those closing with new openings during the quarter. We expect occupancy to increase to close to 75% by year end and are approximately 80% by the end of first quarter 2012.

In terms of office space at the quarter we’ve not seen any significant deviations from our original assumptions going into the year. The Starwood Hotels & Resorts opening their 55,000 square foot western headquarters in September we finished with over 90% office occupancy. In total we’ve addressed approximately 93% of the Phase I and II retail and office space through executed leases and or letters of intent.

Finally as discussed in our last call we move forward with what we believe is the more (Inaudible) look at our portfolio when segmenting space to put on minimum sales per square foot number of $300. Using this metric you will see that nearly 85% of our NOI is comprised of the Tier I portfolio achieving sales of $445 per square foot with occupancy over 95%. The remaining 15% of NOI is the Tier II portfolio with sales of $250 a foot and a 91% occupancy rate. We believe this segmentation will allow a more accurate objective portfolio view going forward.

Generally Tier I properties represent those that are longer term holds due to their stability and growth from mall. With respect to our Tier II properties these maybe assets that overtime we should opportunistically call if we can’t find a clear path towards meaningful improvement and property fundamentals and growth prospects.

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

Michael Glimcher

Thank you, Marshall. Once again our core malls have posted strong results to-date in 2011. We are closing in on our goal of generating over $400 per square foot in sales from our portfolio and we’ve made significant progress in clarifying the path for stabilization and value creation from Scottsdale Quarter. While 2011 has not been without its challenges we are certainly pleased with the progress we have made on executing on our business strategy that is focused on quality.

Whether it’s enhancing the balance sheet, strengthening our core or pursing strategic investments we are more excited than ever in terms of where we can take this company going forward. We will continue working hard to keep the positive momentum going as we start focusing on next year and beyond.

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

Question-and-Answer Session

Operator

(Operator Instructions) your first question comes from the line of Lindsay Schroll of Bank of America/Merrill Lynch. Please proceed.

Lindsay Schroll – Bank of America/Merrill Lynch

Good morning.

Michael Glimcher

Good morning Lindsay.

Lindsay Schroll – Bank of America/Merrill Lynch

Just a question and maybe I missed it at Scottsdale I think last quarter you guys were in talks for discussing potentially a luxury department store there. Can you I guess what happened with those plans?

Michael Glimcher

Sure Lindsay, its Michael speaking. Department store deals take a long time to make there has been substantial interest from several luxury fashion department stores and we’ve designed the plan to accommodate one. So I think from a competitive stand point there is probably a lot of interest and it will be a little bit of a horse race again there is more than one discussion going on and there is certainly interest from each party. So hopefully sometime next year we can talk about a name and where we are with that but these are just, these are discussions that take quite a while.

Lindsay Schroll – Bank of America/Merrill Lynch

Okay understood. And then I guess just turning to the B malls that are on the market another mall (Inaudible) it would take a group of opportunity funds or entrepreneurs to sort of step in and acquire those B malls and I guess I’m just wondering if you kind of agree with that statement or you think there are other options out there.

Michael Glimcher

I think from our perspective we think it relates more to the debt markets and where the CMBS market is and if there has been anything available for that type of asset. I don’t see any of the traditional mall REITs taking on those assets and typically the private buyer or other buyers are really going to be looking at the debt market that’s probably going to dictate it more so than the pricing of the assets.

Lindsay Schroll – Bank of America/Merrill Lynch

Okay, thank you.

Operator

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

Unidentified Participant

Hey guys its Manny here with Quentin. Just again on Scottsdale with the higher rents from let’s say some of those tenants decided not to open. Do you have any chance here to yield assumptions?

Michael Glimcher

No, our yield assumptions haven’t really moved Manny and the number of cases that it’s replacing someone who was committed to pay a certain rent with someone who is actually going to pay that rent and we’ve always achieved on fairly high rents at this center and certainly above market rent. So you are replacing one with the, with someone who is paying or at least obligating themselves to paying the same rent.

Unidentified Participant

I think your comment was that you were getting higher rents on some of the spaces there?

Mark Yale

We are on some I mean I guess what I was saying in terms of the overall project with to me it’s just a large denominator so $320 million you know denominator and the good news that we would usually say that to large tenants the Apples the H&M, Nike it’s been small tenants that have really hung us up on occupancy. It hasn’t been major tenants that we’ve lost it’s just been enough to keep us from crossing the code tenancy hurdles on the lease by lease basis. So maybe if the rents are up you are right we did say and that some of the rents are a little bit higher but they are not big enough space to meaningfully move a big needle.

Unidentified Participant

Got it okay. And then in terms of the write-offs you guys aren’t expecting anything else in that perspective in 4Q or next year are you?

Marshall Loeb

Nothing that we are anticipating but I mean it’s stacks and circumstances based upon a particular tenant closing. But at this point we are not anticipating any significant write-off certainly not to the number that we incurred in the third quarter.

Unidentified Participant

And where are those in the income statement the write-offs from 3Q.

Marshall Loeb

They mostly are in revenue in minimum rents.

Unidentified Participant

Okay and then finally on maybe I missed that on GAAP do you have any indication on what stores it might be closing.

Michael Glimcher

It’s Michael speaking Manny we are looking at GAAP and there is not a lot to talk about it. We think that there is really not an issue here. We were three years ago they were 3.1% of our overall minimum rent today they are 2.4% you know roughly 1% is an whole may view of roughly 1% is in GAAP and at various GAAP concepts and then the rest is spread throughout outlet in Banana Republic. But there may be a case here or there where they will hold their vacates to a natural lease expiration but there is nothing any broader going on and frankly they have above average real estate below average rent. So it’s always an opportunity if they did choose to vacate that. I think this is a lot of marketing on their behalf and a non-issue on our side.

Unidentified Participant

Perfect. Thanks guys.

Operator

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

Todd Thomas – KeyBanc Capital Markets

Hi good morning I’m along with Jordan Sandler as well. Just a real quick following up on the yield at Scottsdale I wasn’t sure if that included Phase III can you maybe talk about the expected additional costs than it might take to bring in a fashion retail department store to Scottsdale and whether or not that will impact the overall yield on the project including Phase III.

Michael Glimcher

Sure, it’s Michael and absolutely could affect the overall cost but we think if you think about down the road if we chose to bring a partner in or if you think about how you want to value the asset you would certainly put a lower cap rate on it with the fashion department stores than you would without and we think that would justify the cost. So again we are in the process of working on our anchor deal it’s not finalized. We certainly have a range of where maybe economically what finalizing our agreement with family provider for a sale so they are one of moving piece so that’s why we don’t have as much clarity as maybe everyone would like today. But again each one of these steps certainly enhances the quality of the asset and the overall mix that we are offering to the customer.

Todd Thomas – KeyBanc Capital Markets

Okay, and then with the land sale that you are expecting there that’s currently being marketed. So you had strong interest from the multifamily developers but there was also I think previously some land that was going to be sold potentially to hotel developer is that still part of the long-term plan?

Michael Glimcher

We have in our master plan for Phase III the ability to do a hotel and it would go on top of some of the other programming the financing market obviously is very strong from all that family and that’s probably why we are seeing so much interest there. It’s certainly not so strong for a hotel today. So we would love to have 200 or so room hotel as part of the property but it’s something that’s probably going to evolve overtime. I think you will see the multifamily first and then the ground floor retail probably the department store after that and then down the road would be the hotel that would probably be the sequencing. And again this is all great it’s new activity and new excitement for the property.

Todd Thomas – KeyBanc Capital Markets

Okay and then with regard to the acquisition of Town Center in Kansas can you talk about how you plan to permanently finance that asset. Some portion of that I guess is going to be taken down on the line and I was just wondering how you plan to handle that given your strategy to maintain or even reduced leverage further from here.

Mark Yale

Sure, Todd it’s Mark and we did mention that we have an executed term sheet with a life company for a $77 million 15 year term financing at a rate about 5%. So the delta between that along with our net proceeds from Town Center that we are swapping or selling to ADR will basically require about $25 million withdrawal on the credit facility to round out the funding for that acquisition.

Todd Thomas – KeyBanc Capital Markets

Okay, great. Thank you.

Operator

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

Ben Yang – KBW

Yeah, hi good morning guys. Just another question on Scottsdale Quarter you talked about the modified plan for Phase III obviously adding a department store but it also looks like Phases I and II have been downsized by about 70,000 square feet. You mentioned the yield has come down to 3% from 4% by the end of this year. Well leasing on these spaces has been a bit stagnant so I’m curious if you are, are you guys purposely holding back on leasing these early Phases based on maybe the assumption that the Phase will be more valuable once you have a department store committed to that project and that you can charge higher rents. Or maybe it’s just lower than expected leasing based on just the overall economic environment.

Michael Glimcher

And it’s Michael, you know the 70,000 feet I think that you are thinking about probably relates to Phase III we talked about 70,000 feet of shop space. We’ve built the parking to accommodate that and all the infrastructure is really built into Phase I and II. We are holding back space no but it’s really about making the right deal. We spent about two years making us a poor deal, we thought it would open up here in the fourth quarter; it’s going to open up in January as the tenant that averages $1100 per square foot in sales. We’ve spend a long time making that Pandora deal they probably do north of $1000 to put on average.

So it’s not holding space it’s really wanting to have the right tenants and it hasn’t been maybe another example of the Oakville location we could have leased it as it is or we could modify that parcel and do something really dynamic that’s going to probably you know come online a year later than if we just leased it as is. It’s all about making the right long-term decision so that this asset has as much value as it can overtime and has much growth as it can overtime. So we are really focused on the right tenant and when that right tenant is ready to say yes, we are ready to do the deal. We are fortunate that that last 70,000 feet would come online with the anchor and then we can certainly leverage off the anchor for that last bit of leasing.

Ben Yang – KBW

Okay, totally makes sense. I guess I’m just curious about how the dynamic changes with the department store because you know obviously you create a lot of value by having a department store there. You can use the lower cap rate the entire project but you are charging pretty high rent already before discussion about the department store. Is that you are charging even higher rent tough once that department store is committed to the center.

Michael Glimcher

Again I mean I think what’s great about this center and I think probably a lot of people lose sight of because we get caught up in the core tenancy and all this. The sales are really off the charts and this should be our highest producing asset on sales per square foot basis in the portfolio. Overtime we are going to be able to continue to charge higher rents and certainly as we role leases and having a department store there it would make the asset stronger but we’ve have achieved pretty full rents on the space that we’ve leased so far. So to me it’s just another reason that people come to the center and other thing that makes it stronger. We are fine if we don’t make the department store deal but we think it would certainly enhance the mix.

Ben Yang – KBW

Okay and just final question you mentioned some closures already at Scottsdale Quarter I think you’ve commented on the restaurant a local restaurant was that your choice did you happen to kick of provisions or you could kick those guys out to get a better tenant in there. Are these tenants that had maybe failed after opening so recently?

Marshall Loeb

It was more the later Ben it’s Marshall. It was really again the ones that have failed and I would describe that we as Michael said we tried to put the right type tenants in and in a few other cases it was local and unique guys that we were extremely capitalized and they just didn’t you know the good news there as we’ve got on the restaurant front we’ve got some really strong competition between the Maestros, the ADV’s which was just acquired by Sam Fox we think we’ve got the best some of the best restaurant doors in town and local guy that just got pushed under pretty quickly. And that’s what’s really happened some of that venture capital we are trying to do something unique in an okay market half of them make it and in a bad market through the summer you know it’s we had a pretty bad batting average on some of those local tenants. But the good news is we are back selling on them it just keeps that tenancy right at our finger tips but not within reach has been the frustrating.

Ben Yang – KBW

Are you back filling them with higher rent paying tenants or kind of the same and what type of TIs are you guys offering to those replacement tenants.

Marshall Loeb

The good news is we’ve built the space for the TIs have been much less pretty materially less on the TI, rents flat to slightly up on the space, there is probably a handful of them. And so we are probably been able to pick up rents a little bit TIs materially down because it’s announced unfortunately second generation I guess fortunately in this case so that’s been the case and we’ve released them like the Soul if you’ve been to that restaurant in Newport we will do twice the volume the local guy did and it just doesn’t open until January and that’s when the Maestro’s are involved with as well. So we think it will be a very high performer it’s just it took to that second iteration already to get the right answer in there.

Ben Yang – KBW

Okay, great. Thanks guys I appreciate it.

Marshall Loeb

Welcome.

Operator

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

Nathan Isbee – Stifel Nicolaus

Just going back to Scottsdale once again. Most of the well you just mentioned most of the closures have been local tenants. Can you talk about as you look at the rest of the existing tenant base? How many other tenants would you say are risk of closing over the next few quarters?

Michael Glimcher

Yeah, it is Michael. I mean retail I suppose at some point everyone is at risk of closing but the restaurants that we have are by in large very strong as Marshall mentioned certainly the best in the market Apple, Nike, H&M good strong national, international names. So I would say that the quality and the stability of the mix keeps on getting stronger as Marshall mentioned the one restaurant (Inaudible) which was bought by Darton that was a nice credit enhancement and we had an office tenant crossing that was by First Media. So we’ve had some enhancement to the credit of our tenants and as we weed out these underperformers the average balance sheet continues to get better. There is always turn over in retail but we feel, we feel strong and stronger about the mix as we continue to upgrade it.

Nathan Isbee – Stifel Nicolaus

Great. But are there other underperformers that you see out there right now that could be closing some.

Michael Glimcher

There may soon no their maybe one or two as the mix evolves that we weed out but by in large I think we are pretty stabilized with what we have.

Nathan Isbee – Stifel Nicolaus

Okay and then just turning to Leawood for a minute. There is a number of leases teed up that they were signed by DDR can you just talk about as you approach this property what you would like to do there over the next few years and what type of money you think you are going to end up spending there.

Michael Glimcher

As far as how much money we are going to spend we are just now working on a master plan and part of it as we do want to do some redevelopment and that’s why we thought to wipe company debt with the flexibility is probably the best way to go. DDR did a nice job but it’s not their core business just like power center business is not our core business. We see a lot of upside in the asset there are recent leasing to Anthropologie and Madewell and some of these other first to the market retailers bodes well for the asset it’s arguably if not number one, number two in the market and we think there is going to be quite a bit of releasing and we would like to add some additional space there possibly on the Macy’s are the best performing store in the market with the smallest physical plan.

We would like to see if there is an opportunity to expand the Macy’s as well as add some more shop space. So it is immediately become I think the top five asset for us and has a tremendous growth profile certainly better than a power center within our portfolio. So we are really excited about this acquisition opportunity and to have an off market opportunity for a premier asset that’s north of $400 that has the capacity to go to $450 and beyond we are very excited about it.

Nathan Isbee – Stifel Nicolaus

Do you see adding restaurants there?

Michael Glimcher

I think we would consider on the north side of the center adding some restaurants and there is certainly been demand and there has been new restaurants that have come to the area great and certainly a great density of dating time and heaving population so yes.

Nathan Isbee – Stifel Nicolaus

Okay and then can you just talk about the center across the street there with the Apple how you see that and how the two centers complement each other.

Michael Glimcher

It’s a terrific center there is two Apple’s in the market one is in this center you are referring to as Patty Corner from Leawood Town Center. It’s a smaller center that has Crate & Barrel and it has Apple and it has (Inaudible) the bad news is that those stores are not in our center the good news that they are in the submarket. There are only two Apples in the market one is at Country Club Plaza and one is across the street from our center. There is only one (Inaudible) and it’s across from our center there is only one Crate & Barrel and it’s across from our center. So we think it’s complementary we think it enhances the submarket.

We like it’s a really nicely done center it rather have a connected years but having into the submarket when she is coming to the market to go shopping or she lives in the market because we certainly are sitting in one of the best demographics in the greater metro area we like that that offering is there. Again ideally it would be with you but if its across the street that’s also a positive versus being another market.

Nathan Isbee – Stifel Nicolaus

Sure.

Marshall Loeb

And it’s very little in line space and it’s 100% occupied so.

Nathan Isbee – Stifel Nicolaus

Okay, thanks and Mark just sorry if I missed this. The top line revenue declined about $2 million quarter-over-quarter. Can you just talk about that.

Mark Yale

Top line revenue decline I think it probably had to do with the reclassification of the Town Center I don’t know if you pick that up in terms of classifying that as held for sale.

Nathan Isbee – Stifel Nicolaus

Right, but that was only part of it.

Mark Yale

You said the decline year-over-year.

Nathan Isbee – Stifel Nicolaus

Quarter-over-quarter.

Mark Yale

Quarter-over-quarter from third quarter of last year.

Nathan Isbee – Stifel Nicolaus

No second quarter this year to third quarter I will follow up.

Mark Yale

Alright, let’s follow up on that. We can talk about that offline.

Nathan Isbee – Stifel Nicolaus

Okay, thanks.

Michael Glimcher

Thanks a lot Nath.

Operator

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

Carol Kemple – Hilliard Lyons

Good morning. Can you give an update on the Tulsa asset if you are all marketing that and what’s going on with the loan there.

Mark Yale

Sure this is Mark we do have the property in the market and we have had some property tours first around the bids are due next month. So at that point we will have some tee back and we are cautiously optimistic I guess we would have liked to see some more trades in the B mall space. Just hasn’t been a whole lot of activity and I think Michael already talked about. I think success there is going to be driven by the debt markets and whether debt can be obtained for those properties which we think it can and then the next question is that what pricing and how does that ultimately impact the cap rate and does that tying to a cap rate that will work for us. We are being realistic with the pricing and we are cautiously optimistic that we think it’s a stable center, stable cash flow if you can get to debt pricing that works that you can get a nice yield and a nice return for a right buyer.

Carol Kemple – Hilliard Lyons

Okay and then how seasonal leasing this year compared to last year?

Mark Yale

It’s slightly weird. The good news on our kind of our specialty leasing is that we are ahead year-to-date and are reforecast is actually to be ahead. So we are mid single digits ahead on both budget and reforecast for this year so it seems to be holding in there. Maybe fewer kind of national popup stores we are doing some. Last year we had a lot Toys R Us and (Inaudible) people. So I think overall kind of that Mom and Pop seasonal business is up and if there is any trend it’s been fewer of the national popup stores than we saw a year ago and maybe those, maybe they are moving more than that permanent stores than popup.

Michael Glimcher

I think that the real positive is with our occupancy increasing and hovering right around the mid and high end. We are getting more rent from less space so that certainly a positive.

Carol Kemple – Hilliard Lyons

And then on guidance are you all expecting in guidance to issue any more shares through that ATM program in the fourth quarter.

Michael Glimcher

It’s something that I think will be opportunistic with I would say we do have the capital in place to fund everything that we’ve talked about but we certainly want to continue to delever. So it’s something we are going to be opportunistic about there is about $30 million left in that ATM and we will just watch where the share price goes.

Carol Kemple – Hilliard Lyons

In your guidance number though are you assuming share count where it was at the end of the third quarter, for the fourth quarter.

Marshall Loeb

Correct, we are assuming a constant best share count.

Carol Kemple – Hilliard Lyons

Okay great. Thank you.

Operator

Your next question comes from the line of Wes Golladay of RBC Capital Markets. Please proceed.

Wes Golladay – RBC Capital Markets

Good morning everyone. Looking at Phase III at Scottsdale are the apartment developers now more open to take in the corners and having the department store in the middle?

Marshall Loeb

Yes the ideal think would have been one more larger contagious side that’s kind of what we learned about multifamily layout but really are and we pushed back on them we lost a couple of developers through the process. One or two names we had a mix of kind of regional local, international guys a couple of people said if you change it we will come back and we want to participate. The good news is we ended up with a handful of names that we are comfortable with that some of which certainly that you would recognize and know the names that we are willing to treat it like an urban setting and work with the city blocks that we laid out. But you are right if we had given them a blank sheet of paper they may have designed it differently but at the end of the day it didn’t harm us, we don’t feel like.

Wes Golladay – RBC Capital Markets

Okay and one quick (Inaudible) question I noticed the D&A and the JVs had a about $500,000 drop in this quarter from last quarter is there anything special going on there?

Mark Yale

That can evolve and relate to potentially write-offs at least all improvements for tenants that have closed and things of that sort so there could be some volatility there. But I don’t think anything beyond that type of normal activity which can impact the volatility quarter to quarter in that number.

Wes Golladay – RBC Capital Markets

Okay, so I guess would this quarter be a good run rate or wish I go back to the 2Q or.

Michael Glimcher

I think this quarter is probably a good run rate.

Wes Golladay – RBC Capital Markets

Okay, thanks a lot guys.

Operator

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

RJ Milligan – Raymond James

Good morning. I’m just curious if you are seeing any trends for more of a macro view seeing any trends in October what you are expecting for the holiday shopping season and I guess looking into 2012. We have seen sales from most of the mall rates here pretty strong over the third quarter despite some of the macro headwinds and with yesterday’s positive news I was just wondering what more of your macro outlook is for this quarter and going into 2012. Do you think we are going to see sales growth moderate or do you expect that to continue to grow pretty strong.

Michael Glimcher

RJ, it’s Michael. We are not economist here but we look at what all the economist have to say and consensus seems to be around 3% for the fourth quarter. I look at more at how profitable the retailers will be I think they’ve done a much better job of controlling inventory levels and creating demand and hopefully holding margins up. We certainly want to see sales increases and we would love to see it greater than what the consensus is from the economist but we also have to look at what’s the bottom line for these retailers and are they becoming more profitable as well.

RJ Milligan – Raymond James

Okay, thank you guys.

Operator

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

Quentin Velleley – Citi

Hey guys just one other quick question. There is some news report that you are looking to buy a site near Chicago. I’m wondering if you could give any more details or potential uses you guys are looking at it.

Michael Glimcher

It’s Michael we are not looking into anything in Chicago and that was inaccurate.

Quentin Velleley – Citi

Thank you.

Operator

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

Todd Thomas – KeyBanc Capital Markets

Hi just a quick follow up on the leasing. Marshall I was wondering if you know what the average lease term was for the non-anchor leasing. I’m trying to get a sense of how much of that was temporary leasing.

Marshall Loeb

When you say lease term you mean by the deals we signed.

Todd Thomas – KeyBanc Capital Markets

Yes.

Marshall Loeb

It’s all small shop I don’t think we signed there were anchors last quarter we signed some year-to-date I guess the good news is that anchors are about 96% and we just opened a new Dick’s Sporting Good they are grand opening today.

Michael Glimcher

The majority of what we signed were five, seven, ten year deals typically.

Marshall Loeb

Yeah, new leases and not sure I can find that sheet of paper. Yeah, it’s actually picked up it’s pretty flat year-to-date but our leasing term is pretty consistent. New deals are seven to ten years, renewals are in that three to five year range.

Michael Glimcher

But we are back in the group of more consistent doing longer permanent deals versus short-term renewals.

Todd Thomas – KeyBanc Capital Markets

Okay got you and then to the comparable leasing spreads that you report, which include spaces that are occupied in the previous 24 months does that include any temporary tenants or popup or anything like that.

Michael Glimcher

It’s for perm deals that we signed during the quarter.

Todd Thomas – KeyBanc Capital Markets

Okay, alright great. Thank you.

Operator

At this time I would like to turn the conference back over to Lisa Indest for closing remarks. Please proceed.

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

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a wonderful day.

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