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Glimcher Realty Trust (NYSE:GRT)

Q1 2012 Earnings Call

April 26, 2012 11:00 a.m. ET

Executives

Lisa Indest – SVP, Finance & Accounting

Michael Glimcher – Chairman, CEO

Mark Yale – EVP, CFO

Marshall Loeb – President, COO

Analysts

Ki Bin Kim – Macquarie

Lindsay Schroll – Bank of America/Merill Lynch

Richard Milligan – Raymond James

Quentin Velleley – Citigroup

Benjamin Yang – KBW

Todd Thomas – KeyBanc

Nathan Isbee – Stifel Nicolaus

Cedrik Lachance – Green Street Advisors

Richard Moore – RBC Capital Markets

Carol Kemple – Hilliard Lyons

Operator

Great day, ladies and gentlemen, and welcome to the First Quarter 2012 Glimcher Realty Trust Earnings Conference Call. My name is Katina, 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 presentation. (Operator Instructions) As a reminder, the conference is being recorded for replay purposes.

I would 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 2012 first quarter conference call. Last evening, a copy of our press release was circulated on the newswire, and hopefully, each of you have had the opportunity to review our result. Copies of both the press release and our first quarter supplemental information package are available on our website at glimcher.com.

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

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

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

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

Michael Glimcher

Thank you, Lisa. Good morning everyone and thank you for joining us on today’s call. As we mentioned during our fourth quarter earnings call in February, we are extremely proud of the progress made in the execution of our transformative strategy here at Glimcher. And we are even more excited about how this positions us for 2012 and beyond.

In terms of accomplishments, we are particularly pleased to now have portfolio sales well and excess of $400 per square foot. In fact, sales are up over 25% from 2009. In addition to achieving this significant milestone for the company, total mall occupancy is sitting at approximately 94% as of quarter end and we experienced an acceleration in store leasing over the last 12 months while generating positive re-leasing spreads in the high single digits.

Improvement in real estate quality was not only driven by progress made within our existing portfolio but also through the addition of new properties, like the purchase of Town Center Plaza in Leawood, Kansas during the fourth quarter of 2011.

Leawood sales are well above $400 per square foot. And through the acquisition, we were able to add tenants like Anthropologie and Madewell to our portfolio. We are working hard and being creative in order to find other high quality opportunities similar to Leawood that will enhance the portfolio and meet our acquisition criteria. To date, we have created a nice pipeline of potential deals any of which would represent a great follow-up to pending purchase of Blackstone’s 80% ownership interest in Pearlridge Center which we announced in March.

The purchased price for their interest will be approximately $290 million and including Blackstone’s pro rata share of the $175 million mortgage debt currently encumbering the property resulting on a cash purchase price for Blackstone’s interest of approximately $150 million. The transaction is expected to close during the second quarter of this year and is subject to customary closing conditions. We’re excited to increase our ownership position in Pearlridge, a high quality mall that we currently operate and already know very well. Accordingly, we have a high level of comfort with the property and more importantly with the market.

We are seeing solid leasing momentum at Pearlridge and are extremely energize about where we can take the property going forward. The sales of nearly $500 per square foot and the dynamic growth profile, this strategic investment is consistent with our goal of enhancing the quality of our real estate portfolio. This transaction also highlights our ability to continue to execute off market opportunities at fair pricing that supports our quality strategy.

As we maintain our focus on the quality of our balance sheet we elected to move forward with the common equity offer in March to primarily fund the $150 million acquisitions of Blackstone’s Pearlridge interest. Due to the solid response from the market we were able to upsize the transaction and raise $218 million providing us with ample liquidity to move forward with other potential investments.

We believe the Pearlridge investment represents sound capital allocation and expect the transaction to be neutral to FFO per share other than the initial delusion associated with the timing between the offering and the ultimate closing of the purchase. Additionally, it provide outside growth relative to the rest of our Core Mall portfolio as well as supporting a nice improvement in our fixed charge coverage.

With respect to the other two properties jointly owned with Blackstone, Lloyd Center, and WestShore Plaza, they have now both been formally listed and are being marketed for sale. Depending on the pricing levels for each property, this could represent a great use of capital or by contrast, a great source of capital for the company. We also remain very comfortable with our current 40% ownership so it’s quite possible we could maintain our current interest in each property with a new institutional partner. We are anticipating that the situation will be fluid and we will keep you posted as appropriate.

With the $400 per square foot sales target now achieved, we have quickly turned our attention to a new hurdle of $450 per square foot and portfolio sales. We plan to pursue this through not only strategic acquisitions but also by maximizing sales potential within the existing portfolio. We are looking to improve the quality of our current occupancy and to execute our redevelopment initiatives throughout the portfolio.

In terms of Scottsdale Quarter, we were able to achieve the 80% retail occupancy milestone at the end of the first quarter allowing us to make significant progress in addressing the co-tenancy issues that challenged us from an earnings perspective in 2011. Additionally, we saw another solid quarter of sales performance from our retailers at the quarter and we have a nice pipeline of deals in place as we look to finalize the retail leasing on this project.

From an office standpoint, we now have over 90% of the space occupied. Scottsdale Quarter as presently constituted clearly represents a viable and successful center and is currently generating some of the highest sales per square foot numbers in the state. Accordingly, when thinking about Phase III of the project, it is all about incremental value of creation and how we can make the quarter even stronger. Our goal in 2012 is to not only finalize our plans for Phase III but also to make tangible progress with respect to the execution.

As previously discussed, our top choice is to add a fashion department store to the current mix, and we are pleased with the progress being made to-date in that regard. We are also looking at other options that would involve adding some combination of shop and office space, as well as multifamily and hospitality components to the quarter.

As we have previously discussed, a portion of Phase 3 has formally listed with a broker. Negotiations with several interested parties continue, but at this point, no contract has been fully executed. We will certainly keep you posted on our progress as appropriate.

As we’ve said all along, we have been acutely focused on making the right decisions for the long term with respect to Scottsdale Quarter. This approach won’t change whether we were wrapping up the final leasing or making decisions regarding Phase 3. Regardless, we see Scottsdale Quarter being a solid growth driver and value creator for the company in 2012 beyond.

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

Mark Yale

Thank you, Michael, and good morning to everyone. Our adjusted FFO per share for the first quarter of $0.15 fell solidly within our guidance range going into the period. The biggest driver of the performance was property operations to our stabilized mall portfolio which were modestly above our expectations, supported by solid net operating income growth of approximately 1.1%.

With respect to the contribution from Scottsdale Quarter, the yield on the project for the first quarter was approximately 2.5%. Excluded from our $0.15 of adjusted FFO per share was a $3.3 million write-off of the company’s note receivable from the Tulsa venture. The venture’s Tulsa Promenade has previously been under contract that we sold subject to a financing contingency.

However, during the first quarter, the contract was terminated by the prospective buyer, subsequent to such termination the underlying loan on the property mature. We are currently in discussions with the lenders regarding a six month extension that will allow for the continue marketing of the property. With the property representing our only recourse against the outstanding note and do the uncertainty credit by the contract termination and continued soft market for similar properties, we determine as of quarter end that the write-off for the note receivable was appropriate.

Now let’s quickly turn our attention to the balance sheet with the successful execution of our $280 million equity offering in March. We currently stand undrawn on our $250 million credit facility and have a $135 million of cash on hand as of quarter end. Giving us the flexibility in terms of liquidity to fund our investment opportunities for the longer term we remain committed to a minimum maintaining the company’s current overall leverage levels.

While comfortable with the issuance of common equity today, we understand the need to be measured with the use of such capital going forward. We’re hopeful that the opportunity to supplement are available sources and the ability to extract capital from our current portfolio for disposition. We are modestly encouraged by recent activity in the so-called B Mall space and prices continue to firm up this could represent attractively price capital as we look to dispose from the bottom and add high quality properties at the top.

In terms of our upcoming 2012 debt maturities and extensions, we continue to make solid progress. With respect to Dayton Mall we have a fully executed term sheet for a 10-year $85 million permit mortgage on the property at an interest rate below 5%. As it relates to Puente Hills, we’re in a process of finalizing the terms and a five year financing that we expect to come in at or better than our original projections with respect about pricing and proceeds. We’re able to also modify and extend the surprise $5 million construction loan for an addition year of term and successfully extend the maturity of the Colonial Park mortgage into 2013.

Finally, we have agreed the terms of our bank group to extend the Scottsdale Quarter construction loan for an additional three years into 2015. The deal will involve only a modest reduction of the loan amount to $130 million with pricing remaining attracted at an average of LIBOR plus 275 basis point. We expect to close on the modification during the second quarter.

Finally we will provide an updated adjusted FFO guidance for fiscal year 2012 in a range of $0.61 to $0.66 per share. The key driver to guidance change includes the total dilution of approximately four pennies per share associated with the $280 million equity offering in March net of the contribution from $150 million acquisition of Pearlridge expected to close during the second quarter. Other than moving the disposition of Tulsa towards the end of the third quarter, key assumptions are detailed in our initial guidance remained the same. Additionally, the guidance does not reflect any other property dispositions, acquisitions, or material capital raises during the remainder of the year.

We also provided FFO guidance for the second quarter of 2012 in the range of $0.12 to $0.14 per share. Key assumptions driving the guidance include net fee income of approximately $1 million, lease termination income of over $1 million and flat to a modest decline in Core Mall NOI growth for the quarter.

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

Marshall Loeb

Thanks Mark. As pleased as we are with the execution on the external growth side that Michael discussed, we’re just as energized about what we can accomplish within the existing portfolio. When coupling increased sales, higher profits, minimal retailer bankruptcies within and regional mall occupancies generally above 90% and virtually no new retail supply coming online. We remain excited about the positive dynamics of our business.

Accordingly leasing volumes continues at a robust pace consistent with prior year levels. Even more encouraging is we’re seeing leasing activity throughout the portfolio not just at the top properties and we continue generating solid releasing spreads in the high single-digits.

We have a strong pipeline of new deals heading into the Las Vegas ReCon Conference and 2012 renewals are on pace with historical trend. As Michael mentioned our Core Mall operating fundamentals continue to improve. Top Mall NOI was positive again, total occupancy reached nearly 94%, releasing spreads were positive at 7% for the quarter. We experienced another strong quarter in terms of sales throughout the portfolio, and finally we’re encouraged with our portfolio occupancy cost falling to 11%.

We’re continually focusing on ways to enhance the quality of our existing properties through redevelopment. When you consider that we already have an intimate knowledge of the property, control design and we’ll be enhancing the value of our current asset, we view redevelopment is the best use of our capital on a risk adjusted basis.

As previously discussed, we see the potential to generate high single-digit returns on a roughly $60 million investment in two of our outlet centers. The Jersey Gardens we’re enhancing the existing tenant mix by adding higher-end luxury outlets to the center. This effort is being coordinated with major interior and exterior renovations which commenced earlier this year with completion projected mid-2013.

We’re also making progress on solidifying the outlet component at our Supermall which is located in the Metro Seattle area. Based on outlet retailer feedback we believe the opportunity lies in improving this asset and to a fashion outlet center serving Southern Seattle. In conjunction with the leasing efforts, we’ll be moving forward with physical enhancements to the center. Many of the Jersey Gardens design elements will be incorporated in Seattle, giving a fashion outlet focus for both centers. Leasing efforts are underway with positive retailer feedback to date.

Physical renovations will begin this quarter with grand reopening plan for fall 2013. We expect to earn a high single digit return on the outlet investments and begin seeing these financial contributions in 2013 and into 2014. While Jersey Gardens in Seattle represent our major renovations, we’re also moving forward with major re-tenanting activity throughout the portfolio including Polaris Fashion Place, Dayton Mall and Lloyd Center to name a few. At each, we’re reworking space to accommodate new retailers that upgrade our tenant mix. The short-term impact, however, is that our current year growth is negatively impacted by down time and lost rents.

They will also create noise within our quarterly metrics as it represents a lot of moving pieces within the portfolios are signed. This pressure at our inline occupancy for the Core Mall portfolio which was approximately 90% at the end of the first quarter. We estimate a negative impact to be as much as 150 basis points from all of these re-tenanting, but the majority of the re-tenanting expect to be completed by October.

We anticipate that inline occupancy will climb back over 92% by yearend and forecast accelerated NOI growth in fourth quarter. This work also nicely positions us for 2013 growth as we receive the full-year benefit from the improved tenant mix.

Finally, consistent with prior quarter presentations, we categorized our portfolio based on a minimum sales per square foot number of $300 per square foot. Using this metric, you’ll see that 85% of our NOI is comprised of the Tier I portfolio achieving sales of $460 per square foot with an occupancy of 94%. The remaining 15% of NOI is comprised of a Tier 2 portfolio with sales of $260 per square foot and a 92% occupancy rate. When considering a full contribution from Scottsdale Quarter, Leawood, and Pearlridge by the end of the year, we expect to be approaching almost 90% concentration of our NOI generated from the Tier 1 portfolio. Generally Tier 1 properties represent those that are longer term holds due to their stability and growth profile.

With respect to Tier 2 properties these maybe assets that over time we should opportunistically call if we don’t see a clear path towards meaningful improvement in property fundamentals and growth prospects.

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

Michael Glimcher

Thanks, Marshall. Once again, we are pleased with the steady and solid progress made as we continue to transform the company including enhancing our balance sheet, strengthening our core and pursuing strategic investments. Our Core Mall portfolio now sits at 94% occupancy is generating well over $400 per square foot in sales with an 11% occupancy cost while delivering positive NOI growth during the first quarter. We’ve also made significant progress in clarifying the path for stabilization and value creation from Scottsdale Quarter.

While this evolutionary process is not been without challenges, we are more excited than ever in terms of where we can take this company going forward over the long term, getting full control of Pearlridge represents an additional important step in the overall process. Once again, this investment is consistent with the goal of allocating the majority of our capital to the highest quality real estate possible.

Now with that said, we’d like to open up our call for any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question will come from the line of Ki Bin Kim representing Macquarie. Please proceed.

Ki Bin Kim – Macquarie

Hi, thanks. This is Ki Bin. Could you give an update on the amount of yield you’re capturing on Scottsdale Quarter Phase I and II into the quarter, if you annualize the quarter that is?

Mark Yale

Hi, Ki Bin. It’s Mark. We – as mentioned you may add a yield of 2.5% in the first quarter. I think we talked about an average yield of about 4% for the full year and that’s our plan right now, it’s our expectation that we will build to that as we get through each quarter in 2012 on Scottsdale.

Ki Bin Kim – Macquarie

So with the next I guess major hurdle being 85%, does that get you to the 4% pretty quickly or...

Mark Yale

That’s helpful but we also – we’re 82% occupancy on the retail so getting some more stores and retailers are open will be very important. For example, we have Restoration Hardware which we’re very excited about. It’s a significant amount of rent and that will probably open late in the fourth quarter. So those are some dollars that will come at the end of the year. So that’s really the focus right now. It’s running out those leasing and getting those tenants where we have signed leases open.

Ki Bin Kim – Macquarie

So does it hinge on maybe your later tenants coming in or opening up actually paying a much higher debt average rent for the phase?

Michael Glimcher

Hi. It’s Michael, Ki Bin. It really just have to do with the fact that we have a number of tenants that will open the fall and it will typically be end of the fourth quarter. So the ramp up of the return is just weighted towards the back end of the year and so tenants like Mark mentioned like Restoration Hardware and others that will fill up North Street are primarily going to be opening in the fourth quarter.

Ki Bin Kim – Macquarie

Okay. And on Phase III, I mean, obviously you guys are seeing – you’re making continued progress. I was wondering at least a year ago when you put out your pro forma yield expectation for Phase III, I believe it was heightened with various low double digits. Now, that was before you’re trying to bring an anchor tenant but given the kind of TI package that you might have to give out, could you give a range of expectations for the yield on Scottsdale on Phase III and could they actually be negative given the TI package that might have to go out?

Michael Glimcher

Ki Bin, it’s Michael. It will not be negative. It will certainly be positive. I think the issue is there are so many moving parts at this time and we mentioned there is a discussion going on multi-family presently. There’s obviously discussion going on an anchor department store and there’s interest in other category. So there’s so many different possible outcome it’s hard to say exactly what’s going to happen.

But related to the department store you would typically put money out and not really receive much money back. But we also believe that the value creation if you think about the value of the asset probably gets 50 to 75 basis points better in cap rate. So we think if there is a right department store deal to make which there’s seems to be a high level of interest that that would be additive to the property even though you wouldn’t equate it to a return right away. It would add to the overall value and would also add to the leasing that you would do off of a it.

So, again so many moving parts. It’s really difficult to speculate. All I could say is that there is tremendous amount of interest and momentum and again this is about doing it right and hopefully in our prepared remarks, we emphasize that this is a successful project with or without Phase III. Phase III takes something that’s successful and makes it more successful. And maybe our analogy is this is a homerun of a project; Phase III just gets it out of the park.

So we’re very excited about Scottsdale Quarter and it’s just – it’s not a matter of is it good, it’s a matter of how good is it.

Ki Bin Kim – Macquarie

Okay. End of last question. You’re 2012 leasehold expirations, you do have some anchor space coming due that’s at $14 of square foot which seems pretty – I mean, it’s definitely the highest amongst all your other lease explorations coming. Any insight on what you expect to get on that lease for those leases?

Marshall Loeb

This is Marshall. Again I think we signed a number of anchors and renewals in the first quarter including (inaudible) and Restoration Hardware. I think we’ll be flat on those to slightly up on that. I think most of those – we’re not expecting any surprises in the anchor category. It’s really re-tenanting within the small shop spaces what’s going on this year, but I think the anchors were – those conversations are going fine.

Ki Bin Kim – Macquarie

Okay. Thank you, guys.

Operator

Your next question comes from the line of Lindsay Schroll representing Bank of America Merrill Lynch. Please proceed.

Lindsay Schroll – Bank of America/Merill Lynch

Good morning. You really had a pretty big tick up in occupancy on your Tier 2 malls and I was just wondering who were kind of the biggest takers of that space or if there’s any way to kind of categorize the tenants coming in?

Marshall Loeb

Sure. This is Marshall. Yeah. We’ve been happy to see the tick up in the Tier 2. A lot of what we said is maybe with the lack of new supply coming online, there are tenants that few years ago could have gone to a power center. We’ve done a lot with a fair amount with exporting goods, Ultra Cosmetics, Morris’s, Justice, which are related entities, Rue 21, Children’s Place, Crazy 8.

It’s been a nice mix and I know even recently as week ago we met with Chico’s. Chico’s, White House Black Market, Soma that group and they are setting their smaller market categories. So we’re seeing DSW. I think it’s so many of the people we work with are public and they’re looking for opportunities. They’re looking at some of the smaller markets and how do they change the stores that may work in Tampa or Columbus and have it work in Parkersburg, West Virginia. So we’re still seeing the opportunity there as well as in the larger markets. It’s been nice over the last year.

Lindsay Schroll – Bank of America/Merill Lynch

Okay, great. And then Michael, are there any acquisition opportunities out there that you are currently evaluating or what’s the market look like for that?

Michael Glimcher

Lindsay thanks for asking. They are absolutely are. I mean obviously something like Pearlridge which we have the best insight into was a great opportunity. But we do have other acquisition opportunities that are in our pipeline. And again with the company of our size, one or two opportunities in the year really moves the deal. So I would hope to be able to tell you that we’re going to get something else done this year and if it was just one another opportunity this year that coupled with Pearlridge I would say would be the very successful year for us.

Lindsay Schroll – Bank of America/Merill Lynch

Great. Thanks very much.

Operator

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

Quentin Velleley – Citigroup

Hi. Good morning. Just speaking on that, just in terms of improving the sales productivity, the portfolio and really targeting acquisitions that would be well above $450 a square foot. Are you sort of comfortable with potentially taking some earnings dilution by funding something that might be around sort of five cap?

Michael Glimcher

Queen, it’s Michael. Obviously, we want to get the best possible pricing we can get and probably more comfortable closer to a six and five and understand that it would come with a little dilution in the short term. I think for us it’s all about NOI growth in and what in this property doing, how does it deliver in year two and year three and so on. If we have to get a little aggressive on pricing but we can get outside this growth relative to portfolio and higher sales per square foot relative to the portfolio. We could start to get some comfort with it.

Quentin Velleley – Citigroup

Okay. and then just I guess the other way of improving that productivity is obviously a sale of some of the weaker assets. I know I asked this question before. But if you look at that lower tier you got Tulsa Promenade will hopefully be gone later this year. Supermall it sounds like you want to keep that one longer term as you transform it into an outlet center but then some of the other weaker ones there. Given some of the transactions we’ve seen recently most of them I guess above $300 of square foot productivity. But are you getting some more certain in your way you think pricing might be a sort of thinking of marketing those assets now?

Michael Glimcher

Its interesting Quentin with the Westfield deal with the KKR deal and just and more buyers in the B mall space. I wouldn’t necessarily categorize some of the moderate performers in our portfolio as weaker because as we talked about earlier we’ve seen great occupancy growth, we’ve seen NOI growth. These are stable steady assets but they’re lower sales productivity and generally in small markets. I think the combination of seeing some trades as well as the financing market really coming back strong would be encouraging to us.

And as Mark said we’re going to be very measured as it relates to equity issue. And so the notion that we could sell out of our bottom third quartile and add assets that would go into our top quartile ever if there is a difference in cap rate from where we’re selling and where we’re buying. That’s absolutely how we’d like to see the year play out in the next 24 months played out. Again, I think our market is starting to be there for these B assets. There are more buyers out there and I think we’re optimistic.

So I think we have a great opportunity to really move the needle and again as I said to Lindsay adding a couple of assets really moves the needle, deleting a couple of assets really moves the needle for us.

Quentin Velleley – Citigroup

Okay. Thanks. And then just in terms of Supermall maybe for Marshall. Could you just give us a little bit more detail on to how much space you are actually trying to lease to outlet tenants and what tenant’s account are you targeting and whether or not there’s any emerging competition from your outlets in the market?

Marshall Loeb

Okay, sure. I mean we’re going to – it will be a pure outlet. It’s been hybrid and that’s really has (inaudible) an ideal strategy. And malls struggled a little bit over the years and we wish the sales were higher. That’s why it’s in our Tier 2. In terms of competition, what’s nice is that we’ve got an existing mall and we’ve got existing outlet tenants there and with a 2013 target date. What’s nice is there is new competition but it’s not in Seattle and it usually is being planned to be delivered in 2014 in St. Louis, in Phoenix, in Houston and all of the centers that you all have seen and written about.

As we chase down, we’re talking the typical, the coaches, Polo, Ralph Lauren, Nike, H&M, Forever 21 and then all of the ones you would typically see in an center is we work through. And then again, we’ve had – every other week we’ve had a different tour through there. What’s been nice about Seattle is just that the existing outlet is no worth over 60 miles away from us, the Chelsea outlet and we’re going to have the southern half of the market.

And so, we’re not running in to any of the retailer distribution issues that Jersey Gardens can come up from time to time as people have stores in the New York area that we don’t see that and Southern Seattle. So it’s the early end of the pipeline is fall. We just need to follow through and turn the LOIs in the leases now and get the renovations so that it looks like a pure outlet center and it will look a lot like New Jersey at the end of the day.

Quentin Velleley – Citigroup

Okay. Thank you.

Michael Glimcher

Yeah, it’s probably half of the mall. Does that helped you in terms if I didn’t answer your square footage but we’re about halfway there and we just need to rework and put a comment all the way through and some things like that. So that’s where the $26 million is going.

Quentin Velleley – Citigroup

Thanks.

Michael Glimcher

Sure.

Operator

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

Richard Milligan – Raymond James

Hi. Good morning. For the WestShore and Lloyd Center sale, are those assets being marketed together or could they be sold separately?

Michael Glimcher

It’s Michael, R.J. There’s to be sold as a package or separately.

Richard Milligan – Raymond James

Okay. And then, Mark, in your guidance, I believe you said for next quarter you expect same store NOI to be either flat or modest decline. What would drive that decline?

Mark Yale

Hi, R.J. It really comes down to what Marshall was talking about and a lot of this re-tenanting and redevelopment through our portfolio. And I think we see that kind of hit a high in the second quarter as we’re really moving tenants through. We get control of the space and then we start seeing things build up in the third, fourth quarter. So that’s a big driver. I think we talked about it when we present our initial guides, so that was going to put some pressure on our overall growth and we’ll probably see that kind of hit the highest level in the second quarter in terms of that negative impact.

Richard Milligan – Raymond James

Okay. Great. That’s all I got. Thanks, guys.

Operator

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

Benjamin Yang – KBW

Yeah. Hi. Thanks. I’m not sure if I got this right, but Marshall, did you say that the non-anchor occupancy was 90% and that this drop was primarily due to re-tenanting activities, because if you just look at the performance of different tiers, it looks like that would mean it’s primarily Jersey Gardens and maybe also adding Scottsdale Quarter, so I was wondering, is that right or is there anything else that can explain the pretty sizeable small shop occupancy reported in this past quarter?

Marshall Loeb

Yeah. It’s generally right. I mean what’s interesting – or I guess potentially as dig into it the Tier 2 small shop occupancy is up, so it’s all within Tier 1 that’s down. It is and I think you even put in your piece that we closed three GAAPs the first of the year, Victoria’s Secret, Bath & Body going into Pearlridge. We’re retaining Fairfield Commons and Weberstown backfilling their space.

Again, we can walk through some of them in detail. We had three H&Ms going in to the portfolio and on average those are about eight small shop spaces that we’re combining. So that gives you about two dozen small shop spaces. Johnson City, the same thing. It’s down but Ann Taylor Loft and an Apple distributor, MacAuthority is going in but those are replacing Go! The Game Store and a famous footwear. So we’re excited about where it takes us sales wise but in the short term, it’s – the good news is our NOI was up first quarter even though occupancy was down. It’s hammering our occupancy as we really – and then maybe our NOI next quarter and the third, as Mark mentioned, as we – as you kind of retool the line and get it back up and running full speed for holiday season.

Benjamin Yang – KBW

So it sounds like it wasn’t anything unusual or unexpected. What you got is just kind of the normal course of doing business.

Michael Glimcher

Ben, this is Michael, it’s interesting. If you look at Tier 2 being up, there were more space available. Tier 1 which was kind of covering above 95%, if you want to re-tenant, if you want to upgrade, if you want to grow sales per square foot, you have to take one step back and take two steps forward. So we’re sitting here with such high occupancy at the end of the year at almost 95% and we want to upgrade mix. It means you’re taking the space out service generally for about six months. So as Marshall said earlier, it can be a cycle. It can be a quarter or two that we’re off. But then you’re going to end the year with around the same occupancy that you had. And the Tier 2 assets, there’s a lot more renewals and less moving space around and taking tenants out.

So it just weighted that way and so I think there’s probably a lot of noise as Marshall said around it, but when you end the year, you end the year with a much better quality of occupancy and again the theme for us this year is not necessarily quantity of occupancy, but let’s improved the quality of our 95% occupancy.

Benjamin Yang – KBW

Okay, fair enough. And then on the property disposition, can you just talked about why the buyer terminated the contract. Was it that they couldn’t get financing or maybe something else that led them to back out?

Mark Yale

Hey, Ben it’s Mark. It’s hard to speak for the buyer, but our sense was it had to do with either difficulty in nailing down the debt financing or even potentially the equity financing. I don’t think there was anything that came across in terms of a surprise as related to their due diligence. We said like to a broke record that NOIs been very stable and continues to be stable.

Benjamin Yang – KBW

And then why do you think disposition will close in September. I think you had commented that it’s a pretty soft market with a lot these. You’re talking about September is the date that you’ll finally get rid of this asset.

Michael Glimcher

Ben, it’s Michael. Earlier, the market was softer. We think it strengthened as we said earlier as we said for B malls. I think the pricing expectation has probably come in a little bit. There’s clearly been a higher level of interest in that and as Mark said before we can’t speak for the buyer but it seemed to be more of an equity issue than a debt issue. So, if a buyer comes o the market with the equity that debt market have certainly gotten better.

Mark Yale

And we’re getting a six-month extension so we just tied that in. It’s a more conservative assumption for us because there is some dilution associate with Tulsa. So we just want to make sure we got it covered.

Benjamin Yang – KBW

Okay. And can you remind us why you made that $5 million loan to the joint venture in the first place.

Michael Glimcher

That had to do with probably three years ago at the time trying to deal with the refinance on that mall. Can’t remember if it was 2009, but a challenging time. We obviously thought there was value in the center and we went ahead and made that payment which allowed us to resize the loan.

Benjamin Yang – KBW

And then just final question. I know in the past you talked about the balancing act, issuing equity versus buying assets, managing that solutions but can you also maybe talk about how you can maybe better time these events. I mean is it possible going forward to have the timing of the equity better coincide with the closing date of future acquisitions?

Michael Glimcher

Ben, it’s Michael and I’ll tell you, I don’t know if you can use the word positive dilution but our timing on our equity issuance, frankly, when you look what’s happened since then couldn’t have been better. We had a great window in the market. We have tremendous support from all of our large institutional shareholders and it match up really well with Pearlridge. I’d certainly rather be sitting here in a position where we had the capital and took some dilution on it when we are ready to close versus it was time to close and we had it gone to our head and we didn’t have the capital. So these are calculated risk, I think we played it conservatively and I think, frankly we hit what could have been one of the best windows to issue that we’ve seen so far this year.

Mark Yale

Yeah, and also the way we look at the lease as it relates to the Pearlridge and the timing issue with Pearlridge, yes, it creates some dilution in 2012 but that’s it, it doesn’t carry over into the future. It’s not permanent dilution.

Benjamin Yang – KBW

Okay. Thanks, guys.

Operator

The next question comes from the line of Todd Thomas representing KeyBanc. Please proceed.

Todd Thomas – KeyBanc

Hi, good morning, regarding the marketing of Lloyd Center and WestShore Plaza can you just give us an idea as to what we should expect with the timing at this point?

Michael Glimcher

Sure, it’s Michael. I think we should expect probably sometime this summer to know who the buyer is and probably in the fall to look for a closing. And again there are so many possible outcomes. It’s hard to speculate down what we said previously about what will happen

Todd Thomas – KeyBanc

Okay. And then can you comment a bit sort of where you stand on these centers from quality standpoint. Are these centers that you would want to increase you ownership interest in? Is there any upside at these centers?

Michael Glimcher

Well, these are both great centers and as we said earlier, we’d be very comfortable to maintain our current position. I think why do we do Pearlridge versus WestShore and Lloyd, I think our pricing expectations as related to Pearlridge were similar to Blackstone. As related to Lloyd and WestShore, I think we have different expectations. So, yeah there’s a price at which we’re a buyer and there’s a price at which we’re a seller. These are good assets. We know them well. We have a strategy for each of them and we’d welcome a new partner. We also could increase our position or decrease it depending on pricing. The whole conversation is not do we like the assets, or not we like them very much. It’s all about pricing.

Todd Thomas – KeyBanc

Okay. And then just back to Scottsdale and sort of following up on an earlier question may be asking a little bit of a different way, in terms of the opening co-tenant fees that starting to burn off. I mean, can you quantify I guess to what opening co-tenant fees are still in place, but maybe how much of – what the quarter rent commencements look like that weren’t recognized on the income statement. Is there anything there that’s meaningful?

Mark Yale

What I can tell you is that I think our yield for the fourth quarter was 2%, it’s up to 2.5% in the first quarter and we expect that to continue to move forward and I would say that the majority of that increase from year end probably related to addressing co-tenants fees, but we also did have some tenants open, but that was – that mid quarter. So, it’s really a combination of two. There’s a lot of moving pieces that makes that up but we are making progress and then we’re moving in the right direction.

Todd Thomas – KeyBanc

Okay, great. Thank you.

Operator

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

Nathan Isbee – Stifel Nicolaus

Hi, good morning. Marshall, as you look at the re-tenanting activity in the portfolio, how much would you say is on a full year basis and also in 1Q? Would you say that it’s weighing on your same-store growth?

Marshall Loeb

On a full year basis, I’m trying to answer your question. I would say if you take fourth quarter last year to fourth quarter this year, we think we’re going to be in a 2% to 3-plus percent. It’s probably 100 basis point that takes our same-store growth down because really you’re taking space that’s paying something to zero while we do the landlord work and then we turn it over to tenant.

And then maybe 90 days later, as Michael said. So it’s several months and a quarter plus that it’s out of commission. But in a lot of these cases where we get excited as we think the sales are up, 50% to 100% higher than the previous tenants. But it just – again, it maybe helps to – another way of kind of sound bite that I’ll tell you the environment, we looked back over the last two years on a quarterly basis.

We’ve had more leasing activity in fourth quarter last year and first quarter this year in terms of either square footage or deals that we’ve gotten through the system that are approved by real estate committees. So there’s a lot of activity and as you can imagine, a lot of that is in Tier 1 because that’s almost all of our – 85% of our portfolio.

The bad news is it’s really falling down our growth and kind of first, second and third quarter and that’s probably we’ll keep – hopefully we’ll have this base but as I’m looking to 2013, I hope we have the same type of activity going as we constantly – and before we’ve been filling up vacant space now, it’s improving space and that takes it totally out of commission for a quarter or two.

Nathan Isbee – Stifel Nicolaus

So you think you could have some more of this type of...

Marshall Loeb

I hope we’re always improving our quality, our tenant mix. I mean that’s a yeah I guess so – I mean, we’ll have a better base to build from them so we’ll have this growth in place. But I’m hoping next year, we had the top 10 tenant list for each properties. So every year, I hope we have a new top 10 list that we’re trying to take someone that’s scares us out and someone that’s going to perform better.

Michael Glimcher

It is Michael. I mean, clearly, it’ll be less in future years. This happen to be a year where you are doing a lot of these big H&M spaces and you’re bringing in (inaudible) leasing it up and we’re doing a re-tenanting at Town Center Plaza. There’s a lot of – there’s more big moves this year than any other year. But when you’re sitting with a very full portfolio, you got to take a step back to take two forward every time.

Nathan Isbee – Stifel Nicolaus

Sure. Okay. And then on Pearland, you’ve own the asset for a while now, at least a part of it and you’ve clearly felt comfortable doubling down. As you look at what can be done at the property, where would you say NOI goes over the next three years there?

Mark Yale

Yeah. Hey, Nate. It’s Mark. I mean, clearly we think we can drive that. It’s going to be – we would be disappointed if it’s not well above our average of our portfolio, so I think on average and certainly 3% and could have inflow year-to-year but certainly over five-year period. I think we’d be disappointed if we weren’t somewhere north of 3% growth.

Nathan Isbee – Stifel Nicolaus

Okay, thanks. And then can you just give us an update on any recent leasing at Puente Hills?

Mark Yale

Sure. I’m trying to think of what are the latest. We’re not finished but Toys R Us just opened. We had good activity with Sports Authority there. G by GUESS is coming in and there’s one, there is another material, LOI but I won’t name but it’s a nice name that we could get open this year as well. So that one has some nice activity. We just opened a Buffalo Wild Wings at the very end of the year on an outparcel that we’re able to create there and we think we’ve got an opportunity to create a second outparcel there as well. So we see it’s starting to fill in so G by GUESS, Sports Authority, Toys R Us is under a year open. It’s picking up in sales and we think that should kind of continue that way.

Michael Glimcher

And Nate, this is Michael what’s exciting there is we’ve addressed the majority of the anchor and box space there, so at this point (inaudible) there’s more attention focused on the end line and with the strong performance of the box and junior anchor space there. It’s starting to attract a lot more end line intensity.

Nathan Isbee – Stifel Nicolaus

All right. Great. Thank you.

Operator

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

Cedrik Lachance – Green Street Advisors

Thank you. Maybe a question for Marshall to start. On page 15, you lift your, I mean, all your re-leasing and leasing activity on the mall anchor you got 42,000 square feet of mall space that was leased for about $48 a foot. Can you give us a little bit of details on that?

Marshall Loeb

Sure. It’s, I guess, a good pick up and that’s a high number. There’s two leases that make up that 48,000 – or 43,000 feet. It’s Restoration Hardware at Scottsdale, so that’s a 20,000-foot building with – it’s under construction now. And then we’re replacing Jeepers at Jersey Gardens, again, kind of broken record but that moves, but Tommy Hilfiger who’s been in the center he’s going to consolidate into a lot of the Jeepers space so those were the two that were high rents for anchor space.

Cedrik Lachance – Green Street Advisors

Okay. Great. And then in regards to maybe a question for Mark. In terms of your fixed charge coverage ratio on the line of credit as listed on page 10. And you’ve always been I guess over the last few quarters been pretty close to the covenant and despite equity issuances hasn’t moved a whole lot and the fixed charge ratio hasn’t moved the whole lot.

Mark Yale

It’s Mark. I think it is improving. It’s moving in the right direction. We’re at 1. – over 1.5 times. The thing to keep in mind that is a trailing 12 calculation. So, for example the large equity offering we move forward late in the first quarter, we’re not getting any credit for that. So, we raised some equity last year. We got the equity to move forward within the first quarter. So, we’ll get the benefit of that as we move forward. So, I think kind of each quarter you should see some nice improvement in that fixed charge.

Cedrik Lachance – Green Street Advisors

Okay. Where do you think it would be if you could calculate it us of today?

Michael Glimcher

I think it’s closer to 1.6 times.

Cedrik Lachance – Green Street Advisors

Okay. And where would you like it to be over time?

Mark Yale

We want to continue to drive improvement certainly. I mean, we also look at the debt to EBITDA which with the equity offering. I mean we’re somewhere between 7 to 7.5 times or moving the right direction. We’d also – when you start looking at the fixed charge certainly driving EBITDA growth and the moves we’re making increased our ownership at Pearlridge, the Leawood transaction all that’s about enhancing our growth profile. So hopefully that will be a part of it and our goal is to continue to make sure we have ample flexibility and I think certainly we want to continue to drive improvement.

Cedrik Lachance – Green Street Advisors

Okay. And then just on (inaudible) other than the note, did you further impaired the asset in the quarter.

Mark Yale

Yes, there was an impairment taken at a JV level. It does not go through FFO anymore and I think it was about $7 million to $8 million impairment gross at the JV level and picked up our pro rata share of that.

Cedrik Lachance – Green Street Advisors

Okay. At this point, the impairment number on the asset, is that below the loan value on the asset?

Mark Yale

It’s right around the loan amount.

Cedrik Lachance – Green Street Advisors

Okay. All right, thank you.

Operator

The next question comes from the line of Rich Moore representing RBC Capital Markets. Please proceed.

Richard Moore – RBC Capital Markets

Hello. Good morning, guys. Mark, as far as cash goes in, you have $135 million on the balance sheet right now. After you do the purchase of Pearl or the purchase of the 80% portion of Pearl, how much – will that use all of that cash or you have some leftover?

Mark Yale

Yeah. I mean, it’s a $150 million purchase. I think we do have $14 million up as a deposit. So we will use some of that cash. We also have the Dayton (inaudible) that’s going to happen here in the next couple of months. I think when the dust settles from those transactions, we’ll be still undrawn on our credit facility. And then really the second half of the year assuming everything else is constant, we do have a redevelopment that Marshall talked about at Jersey and SuperMall so we would anticipate finishing the year with somewhere around $30 million to $40 million outstanding on the credit facility assuming that there are no other major activity.

Richard Moore – RBC Capital Markets

Okay, good. Thanks. And then I just had a chance to be in Honolulu and see Pearlridge and I’m curious, is there anything big you guys are planning for that? I mean, there’s obviously some interesting things like the vacant Borders that someone else owns that kind of anything. Is there anything large that might happen at the center?

Michael Glimcher

Sure, Rich. It’s Michael. I think the answer is yes and over time. In the short term, we’re aggressively re-tenanting the mall and we’re trying to turn as much space as possible and get that $500 number closer to $600 a foot roughly and the right tenant in that mall and it can take some time to turn space.

I think over time, we’d see an opportunity to add space, we’d see an opportunity to renovate the mall, the process is slow there and it’s probably like in a developing in a resort town. So, it’s going take some time from approvals in that standpoint. So, I think the nice thing about that asset, we’ve cut operating costs aggressively, we’re going to grow NOI aggressively over the course of the year.

We’ll see some nice growth just within the existing four walls. Today, but we also think over the next five years it provides an opportunity for substantial redevelopment and a great place for us to spend capital. So, this is one over the next five years plus that we can see a lot of activity and as you saw there’s a lot of opportunity and it performs really well. Today, it can only get better.

Richard Moore – RBC Capital Markets

Okay, great. Thank you, guys.

Operator

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

Carol Kemple – Hilliard Lyons

Good morning. After all the renovations that are done at Supermall, do you all think it’s likely that could become a Tier I asset the next few years?

Mark Yale

Yes. If we can land the names that we have in the pipeline, we should easily clear the $300 a foot kind of metric. So that’s why we’re excited about Supermall and where we’re heading with it. We just need to finish what we started.

Michael Glimcher

Carol, it’s Michael and we look at Tier I and Tier II. Tier II, we either need to move it up into Tier I or move it out over time and that’s one that we feel very comfortable with, the progress Marshall and his whole team have made can very clearly move up there.

Carol Kemple – Hilliard Lyons

Okay. And then have you had any talk with (inaudible) about buying boxes entirely or buying pieces of boxes and re-tenanting part of that space to a more highly productive tenant.

Michael Glimcher

We have ongoing and regular discussions with Sears as we do with all the anchor stores within the portfolio and certainly those types of discussions have gone on, yes.

Carol Kemple – Hilliard Lyons

Anything that you all can discuss at this point?

Michael Glimcher

There’s nothing that were ready to announce today.

Carol Kemple – Hilliard Lyons

Okay. Thank you.

Operator

Your next question comes as a follow-up from the line of Ki Bin Kim representing Macquarie. Please proceed.

Ki Bin Kim – Macquarie

Thanks. Just a couple quick questions. The yield on – what the yield will be on the (inaudible) at loan value?

Mark Yale

Ki Bin, it’s Mark. I think we’ve talked about that being on 2011 and 2012 type of yield.

Ki Bin Kim – Macquarie

Okay. So net debt – okay, I got you. And in the Scottsdale quarter, I know you guys are saying 94% is leased or under LOI. If you had to break that out between what’s under hard contract versus letters of intent? What would that percentage look like?

Marshall Loeb

Okay, sure. Ki Bin, it’s Marshall. I would say retail were open and it’s about – this is just retail opened about 85%. You get to 94%, it gets you that combination of leases that we’re negotiating and LOIs and so that jumps you up there. Office, we’re probably 93% open. We have a signed lease that’s under construction and an LOI there. So we’re feeling that. So that’s probably – again we’re probably below 90s on office open, mid 80s retail signed and open and then another that gets you to 94% of some combination of signed leases and letters of intent.

Ki Bin Kim – Macquarie

And I guess my question was more on along the lines of our letters of intent. Is the conversion rate almost 100% to hard contracts or do you actually – can tenants pull back or have a pull back?

Michael Glimcher

We (inaudible) listen, in some cases, we pull back, even. There was still – usually that conversion rate, the batting average is pretty high. I mean once you gotten through all the economics and they decided they want to be in Scottsdale Quarter rather than another market or elsewhere in Phoenix. But we still have the least to negotiate the credit underwriting and things like that. But sometimes, we pull back and sometimes, they pull back.

Mark Yale

And if you want to be conservative, you get to 80% of the make. I think that’d probably be comfortable number but we think it’s substantially higher than that.

Ki Bin Kim – Macquarie

Okay. And I don’t want to (inaudible) the point on equity issuances and timing. I know I talked to you guys about it quite often. But in terms of the redevelopment active cities and Supermall and Jersey Gardens and timing of the equity insurances, would there have been detriment to you guys if you guys just waited a little bit and given that you didn’t have the capital right away and maybe just wait a couple of years until your stock price is higher or just retain the earnings to better time cost of capital and the use of capital or does it mean that you had to do sooner rather than later because maybe those assets will becomes less competitive in those respective markets?

Michael Glimcher

Well, it’s Michael again. As it relates to Supermall, there’s very clearly a need to move that and then move it up so it’s something that’s timely and time is of the essence we want to get after it and as Marshall said, there’s a window in 2013 where our retailers want to expand. We have an existing facility. We’re not competing with multiple other projects that have to put the steel up and put the building up for a 2014 opening. So the timing works out really nice on that asset.

As it relates to Jersey Gardens, again, we’re turning a tremendous amount of space. We’re aggressively working to upgrade the merchandised mix. If we have to do it today? No. I think we’re being proactive with it but we have a lot of better quality retailers that like the asset that thought it looked a little bit tired and we think it’s probably to push the number of these deals over. So I think it’s approaching $700 a foot. We think it’s going to grow from there substantially. So having the right plan and attracting the retail or is that going to help us to grow our sales there, it’s really important. So I guess the long-awaited answer is we think now is the time and we’d like to be proactive.

Again, we would have rather issued at a higher share price but we also – we hit a good window and with the tremendous institutional support we had with the offering, it was very clear that our investors wanted to get behind it.

Ki Bin Kim – Macquarie

And was the re-tenanting forces behind Jersey Gardens, was that more – were they actually pushed from tenants?

Michael Glimcher

No. I mean with the center successful as it is today. We didn’t have to do anything. We have desire to always get better and we – it was something that we undertook and clearly there’s demand and better retailers but it’s something that we’ve created.

Ki Bin Kim – Macquarie

Okay. Well, thank you. That’s helpful.

Operator

We’ve no further questions at this time. I would now like to turn the call back to Ms. Lisa Indest for closing remarks.

Lisa Indest

Thank you, everyone for participating in the Glimcher 2012 Conference Call. You may contact us directly with any additional questions or access our filings through glimcher.com.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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