Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Glimcher Realty Trust (NYSE:GRT)

Q2 2012 Earnings Call

July 20, 2012 11:00 a.m. ET

Executives

Lisa Indest - SVP Finance and Accounting

Michael Glimcher - CE

Mark Yale - CFO

Marshall Loeb - President and COO

Analysts

Todd Thomas - KeyBanc

Nathan Isbee - Stifel Nicolaus

RJ Milligan - Raymond James

Jeff Donnelly - Wells Fargo

Ki Bin Kim - Macquarie

Carol Kemple - Hilliard Lyons

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Glimcher Realty Trust Earnings Conference Call. My name is Karris, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to hand the call over to your host for today, Ms. Lisa Indest, Senior Vice President, Finance and Accounting. Please proceed, ma'am.

Lisa Indest

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

Certain statements made during this conference call, which are not historical, may be 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. Reconciliation of each non-GAAP financial measures 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.

Michael Glimcher

Thank you, Lisa. Good morning, everyone, and thank you for joining us on today's call. As we mentioned during our recent investor day, we are extremely proud of the progress made in the execution of our strategy to transform Glimcher into a Class A mall REIT.

In terms of specific progress, we are particularly pleased to now have portfolio sales over $430 per square foot, a significant improvement from the low $300 per square foot generated by our portfolio just a mere five years ago. Balance sheet leverage has decreased from near 80% in late 2008 to around 50% today.

And finally, during this timeframe we have been able to strengthen the quality of our brands offered within the portfolio with the additions of such retailers as Apple, lululemon, H&M, Crate and Barrel, Anthropologie, and Tory Burch.

Our next steps in terms of continuing our quality transformation center around positioning the core mall portfolio for growth more in line with our Class A mall peers. This focus includes reinvesting in our current portfolio through redevelopment, adding quality through acquisition, disposing of lower tier assets, stabilizing the first two phases of Scottsdale Quarter and providing more tangible plans for Phase 3 of Scottsdale Quarter.

We are continuously 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 of the site, and will be enhancing the value of a current asset, we view redevelopment as the best use of our capital on a risk-adjusted basis.

Accordingly, this will continue to be a priority in terms of our capital allocation. In terms of acquisitions, we are please to have added over $0.50 billion of high quality properties to our portfolio over the last six months, which include One Nineteen and Malibu Lumber Yard. These transactions highlight our ability to continue to be creative in finding opportunities at fairer pricing that supports our quality strategy.

While our current focus is clearly on successfully incorporating these acquisitions into the Glimcher platform, we will continue to search for new opportunities that meet our acquisition criteria. Such criteria include, properties with high sales productivity, outside (ph) growth potential, and significant tenant correlation.

But we are comfortable with the issuance of common equity to date we understand the need to be measured with the use of such capital going forward. At this point, we would not anticipate issuing common equity in any significant manner until we have made further progress integrating our recent acquisitions into our platform, demonstrated a more tangible growth trajectory from our core mall portfolio, and are closer to finalizing the plans for Phase 3 of Scottsdale Quarter.

In terms of other capital we are hopeful to have the opportunity to supplement our available sources with the ability to extract capital from our current portfolio through dispositions. If pricing can firm up for the so-called B mall market this could represent attractively priced capital as we look to dispose from the bottom and add high quality properties at the top, accelerating our transformation strategy.

We will certainly be keeping an eye on development and activity within this space. As we previously communicated our two remaining properties jointly owned with Blackstone, Lloyd Center and WestShore Plaza, had been listed and marketed for sale during the second quarter. While the process has not formally concluded it appears at this point there will be no change in ownership in either property. As previously discussed we remain comfortable with our current 40% ownership and are pleased to continue our relationship with Blackstone.

We believe opportunities are present at each property and will work closely with Blackstone to create incremental value going forward. Accordingly, the partnership is currently focused on securing attractive financing to address the upcoming debt maturity at WestShore Plaza.

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 challenge us from an earnings perspective in the past. Additionally, we saw another solid quarter of sales performance and have received recent commitments from retailers representing strong brands including Restoration Hardware, Sephora, Bath and Body and L'Occitane. From an office standpoint, we now have over 90% of the space occupied and 99% leased. Scottsdale Quarter as presently constituted clearly represents a viable and successful center that is currently generating some of the highest sales per square foot numbers in the entire state.

Accordingly when thinking about Phase 3 of the project it is all about incremental value creation and how we can make the Quarter even stronger. 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 in that regard. In conjunction with the department store, we are also looking at different options that would involve adding some combination of shop and office space as well as multifamily and hospitality components to the Quarter.

As previously disclosed a portion of Phase 3 had been formally listed by a broker. Earlier this month we did execute a contingent contract for the sale of the northern corner parcel with a multifamily developer who is focused on a plan for 250 for-rent residential units with pricing expectations competitive and comparable to the upper tier of the market.

We like this use and the deal gives us ample flexibility to move forward with our plans for the remainder of Phase 3. With the deal subject to full due diligence we do not plan to provide any further details at this time. We will certainly keep you posted on our progress as appropriate.

While not without its challenges we are pleased with the progress and current momentum at the center and see Scottsdale Quarter being an important growth driver and value creator for the company in 2012 and beyond.

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

Mark Yale

Thank you, Michael, and good morning. Our adjusted FFO per share for the first quarter of $0.14 fell solidly within our guidance range going into the period. As expected net operating income performance was muted by the significant amount of redevelopment and (inaudible) going on throughout the portfolio.

With respect to the contribution from Scottsdale Quarter the yield on the project for the second quarter was approximately 3%. G&A expenses were a bit elevated during the quarter as they included approximately $300,000 of acquisition related expenses. Accordingly the appropriate quarterly run rate is closer to $5.7 million.

Excluded from our $0.14 of adjusted FFO per share was a $3.2 million noncash write-off as (inaudible) costs associated with the retail development project in Panama City Beach, Florida that the company will no longer pursue. While we believe the project remains viable we determined it no longer represented a good allocation of the company's capital when considering the lack of strategic synergies and the expect economic return on the development.

Now let's quickly turn our attention to the balance sheet. In terms of 2012 debt maturities and extensions we continued to make solid progress. In May we were able to extend the maturity on the $130 million Scottsdale Quarter construction loan for an additional three years taking us into 2015.

With respect to Puente Hills, we closed last month on a $60 million non-recourse mortgage. The loan is for five years at a rate of 4.5%. In terms of the Dayton Mall maturity we expect to close in the next few weeks on a 10-year $82 million permanent mortgage on the property at an interest rate below 5%. To address the July 11th maturity we did close on a short-term bridge loan, which will be paid off when we execute on the permanent financing for the mall.

Finally we are in the market for long-term financing on our recent One Nineteen acquisition. After closing on the Pearlridge, One Nineteen, and Malibu acquisitions during the quarter we finished the end of June with $133 million outstanding on our credit facility, leaving us with well over $100 million of availability.

We also expect to generate close to $70 million of excess proceeds from our Dayton and One Nineteen financings. Accordingly when considering approximately $25 million of redevelopment investment to be made during the second half of the year, we expect to finish 2012 with somewhere between $75 million to $90 million outstanding on our credit facility.

While Michael mentioned that it would be unlikely for us to move forward with any meaningful common equity issuances today we do anticipate utilizing the company's ATM program to match funding and (inaudible) redevelopment and major re-tenanting throughout the portfolio. We would expect this ATM activity to be no more than $10 million per quarter.

We will also continue to be price sensitive as evidenced by the fact we did not utilize the program during the second quarter of this year. We currently have over $50 million of capacity remaining on our ATM program. Finally we're pleased to be able to absorb the $3.2 million predevelopment charge incurred during the second quarter and reaffirm our FFO guidance for fiscal year 2012 in a range of $0.59 to $0.64 per share.

This guidance does not reflect during the remainder of the year any other property dispositions, acquisitions, or capital raises other than modest ATM activity noted earlier. We also provided FFO guidance for the third quarter of 2012 in the range of $0.15 to $0.17 per share. Key assumptions driving the guidance include net fee income of approximately $750,000, lease termination income and net out parcel gains of over $1 million, and flat to a modest increase in core mall NOI growth for the quarter.

I'd 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 our existing portfolio with the longer term goal of delivering growth more closely resembling our Class A mall peers.

As Michael mentioned, our core mall operating fundamentals continue improving. Total occupancy remains close to 94% releasing spreads for positive again at 11%, we experienced a strong quarter in terms of sales throughout the portfolio and finally we're encouraged by portfolio occupancy costs falling below 11%.

We're also excited about positive activity at the May Las Vegas Recon Conference. We held 15% more retailer meetings this year and saw tangible leasing activity throughout the portfolio not just the top properties. When coupling increased sales, higher profits, minimal retailer bankruptcies with 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 volume continues at a robust pace up 25% year-to-date. We're continuously focusing on ways to enhance the quality and growth profile of our existing properties through redevelopment. As previously discussed we see the potential to generate high single-digit returns on a roughly $60 million investment in our two outlet collection centers, Jersey Gardens and Seattle.

At 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 in the year with completion projected mid-2013.

We're also making progress on solidifying the outlet component in Seattle, improving this asset into a fashion outlet center serving the southern portion of the metro area. 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 given the fashion outlet focus for both centers.

From a leasing perspective we're targeting to add key retailers in about 100,000 square feet. We currently have leases out on over 20% of the space with letters of intent in place for a majority of the remainder. With the retailers we're looking to add to the center we see the potential to drive sales well above $400 per square foot. The physical renovations will begin this quarter with grand reopening plans for fall 2013.

We expect to earn high single-digit return on our outlet investments and to begin seeing those financial contributions in 2013 and 2014. While our outlet collection investments represent major renovations we're also moving forward with significant re-tenanting activity throughout the portfolio including Polaris Fashion Place, Dayton Mall and the 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 from this activity however has resulted in muted growth within the current year due to downtime and lost rent. This certainly contributed to flat NOI growth generated during the quarter and pressured in line occupancy. We estimate the negative impact on this occupancy to be as much as 150 basis points from all the lease endings (ph).

With the majority of the re-tenanting expected to be completed by October we anticipate the in line occupancy will climb back over 92% by year end 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.

While we're not ready to provide formal guidance for next year we'd be disappointed if the projected core mall growth rate was not more in line with expectations for our Class A mall peers.

Finally we categorized our portfolio based on a minimum sales per square foot number of $300. Using this metric you'll see that 86% of our NOI is comprised of a Tier 1 portfolio achieving sales of $478 per square foot with occupancy of 94%. As previously discussed when considering a full contribution from Scottsdale Quarter, Leewood (ph), One Nineteen, Malibu and Pearlridge by the end of the year we would expect to be approaching almost 90% of our NOI contribution 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 the Tier 2 properties, these may be assets that over time we should opportunistically call if we don't see a clear path toward meaningful improvement in property fundamentals and growth prospects.

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

Michael Glimcher

Thank you, Marshall. Once again we are pleased with the steady and solid progress made as we continue to transform the company, enhancing our balance sheet, strengthening our existing portfolio, and pursing strategic investments through sound capital allocation are at the core of this evolutionary process.

While not without its challenges we are more excited than ever in term of where we can take this company going forward over the long-term.

Now with that said, we'd like to open the call for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your next question comes from the line of Todd Thomas. Please proceed.

Todd Thomas - KeyBanc

Hi. Good morning. I'm on with Jordan Sadler as well. First question for Marshall about leasing, I was just wondering given the moderation in sales comps, I was wondering if there's been any impact in the leasing negotiations around future leasing, say three or four quarters out? Whether that's impacted any of your discussions at all.

Marshall Loeb

Good morning, Todd. Good question and really it's probably not as – it's just not that volatile. We've not (inaudible). Sales have moderated. We've had such a strong run over the last eight, nine quarters. We've not sensed any slowdown from the retailers. They all get their direction from the board kind of on their open to buy. So not saying it won't come down the road, but today it's business as usual. We're staying full and kind of picking and choosing as best we can.

Todd Thomas - KeyBanc

Okay. And so you mentioned that occupancy cost continued to decline. I was just wondering if you had any sense say after some of the quarter's acquisitions that were high sales productivity centers when we might see an inflection in that occupancy cost ratio?

Marshall Loeb

I think probably your – I'll tie it to your first question. If sales continue to moderate – really I view it, I was talking to our head of leasing this morning our turn, our lease roll just hasn't kept pace with the growth in sales. That's a great problem to have the last couple of years. Our occupancy costs are below where we were projecting them probably 18 months ago. And we just haven't been able to roll leases as fast as sales have grown.

I'm happy to see the 11% number for the quarter and 9% year-to-date. We had said 5% to 10% for the year earlier in the year and we're at the high end of that range and feel more comfortable at the high end of that range than lower. But if sales moderate you'll continue – then you'll see occupancy costs turning and rising.

Mark Yale

And, Todd, we are close to that inflection point. If you look we're only down 10 basis points in our occupancy costs and that really had been trending down at a much quicker pace. So I think it's a combination of seeing sales moderate, the 11% releasing spreads, and the impact of some of the higher sales per square foot centers that we added to the portfolio that do have a higher inherent occupancy cost ratio.

Todd Thomas - KeyBanc

Okay. That's helpful. And then just in terms of the discussion about the capital plans going forward. Any thoughts about preferred equity and whether or not you could look to refinance the 8% Series G preferreds today?

Mark Yale

That's certainly on our radar screen. We're keeping an eye on the market. It certainly has been pretty hot the last couple of weeks. So it's something that we'll definitely take a look at. It's probably from our perspective when you factor in everything that's involved, you probably need about 100 basis points from our perspective of arbitrage to make it worth the effort. And that's something we're keeping an eye on and certainly wouldn't be opposed to.

Todd Thomas - KeyBanc

All right. Thank you.

Operator

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

Nathan Isbee - Stifel Nicolaus

Hi. Good morning. Aside from the contingent contract you signed at Scottsdale, can you just provide a little more detail on what happened there during the quarter on the leasing front especially coming out of ICSC? Where there any significant closures that occurred there?

Michael Glimcher

We feel great about Scottsdale Quarter and there's obviously a list of tenants that are in our pipeline that aren't signed but when you think about adding Bath and Body and adding L'Occitane and losing a restaurant, which was – the delta's less than 1,000 feet. I know a number of people wrote about occupancy there but we got two great credit tenants that are highly productive. We took what was a restaurant space, which is now going to be converted into retail space because we think we have probably a good balance of food users and we're able to get a high productivity apparel user to take that space.

That’s all pretty positive. The interest level is extremely high. We're feeling I'd say more optimistic than we were 90 days ago. And the center is going to continue to lease up. There's going to be movement though. We've talked about, we're going to lose one here we're going to add two or three there. It's just a process of continuing to upgrade the asset. But we feel more and more confident with it. Sales are strong. Traffic is very strong. All the trends from our perspective are going in the right direction and I think as you see every name we add are strong national brands. And every name we take out are weaker regionals or locals.

Nathan Isbee - Stifel Nicolaus

Would you say that you're hearing from retailers any sense of we're going to wait and see on how the Phase 3 pans out?

Michael Glimcher

Not at all. I think there's probably a tier of tenants that skew more towards luxury that would tie themselves to a fashion department store. But outside of those users we have a number of well known national tenants that we're – either have leases out to or letters of intent that are saying I want to be a part of this project and I want to make sure I get my hands on some real estate. I know it's not going to always be available so this is a very measured process and like I said, every name you see is better than the name it replaces.

It's a fluid process but it's a process of the center only getting better.

Nathan Isbee - Stifel Nicolaus

Okay. And then you referenced in the release the 25% higher leasing volumes this quarter. Can you just talk about some of the pockets of strength in the leasing?

Marshall Loeb

Sure, Nate. A lot of that as I go through it, our new leasing is up year-to-date. So that's been a nice trend. And a lot of that is just – we've pushed our team to get out ahead of renewals and things like that. So it's just pure square footage and I guess the better news is it's really not the top tier properties. If you see in our top tier, it's major tier, we're actually down year-to-date or down in the second quarter in occupancy and we're up 110 basis points on the Tier 2.

So it's pretty consistent volume through the portfolio and a lot of that 25% a head is just we're further along with renewals year-to-date and actually our term on the renewals, we'll see if it holds it's a little early, but we're seeing longer terms on the renewals, which ties to more remodels. Some of these as we've remodeled and Mark was talking on the redevelopments, we're pushing for longer term renewals, store remodels, things like that and we're seeing that impact throughout the portfolio.

Nathan Isbee - Stifel Nicolaus

Okay. Thanks. And then, Marshall, you spoke about the accelerating NOI growth in the fourth quarter. How should we think about the third quarter same store NOI?

Mark Yale

I think we talked about in prepared remarks that we're looking at flat to a modest increase in our NOI growth for the third quarter.

Nathan Isbee - Stifel Nicolaus

Okay. Thanks.

Operator

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

RJ Milligan - Raymond James

Good morning, everyone. Marshall or maybe Mark, can you quantify the effect of the re-tenanting and redevelopment in this quarter in terms of same store NOI growth? What would have same store NOI been if those activities weren’t going on?

Mark Yale

I'm not sure specifically in the quarter, RJ, but I would and what we had talked about our guidance for the year was 1% to 2%, which was muted by this activity and we talked about it impacting probably close to 100 basis points on the full year guidance. So certainly second quarter was disproportionately impacted. It certainly had an impact by over 100 basis points in terms of what the growth would have been for the second quarter.

Marshall Loeb

Mark, that's a good – on just a micro level when you think about it if it helps you we've got four H&Ms opening this year. Lloyd, WestShore, Polaris, Puente Hills and on average each of those requires to move about eight or nine tenants around. So when you think of just what you're collecting in rent going to zero for a handful of months plus everything at Jersey Gardens with the largest Tommy Hilfiger taking the cheaper space, things like that. There's a lot – I know that’s not a very quantitative number but it just feels that way. Lululemon coming into Polaris takes out two tenants there.

So all of a sudden we use with our board, it's like a manufacturing company and you're taking a line down to retool it. So it's been pretty impactful. We're excited to see it all come back online but it's painful to have this call and I wish we had better numbers in the second quarter. I'm excited about where we're heading though.

Michael Glimcher

What I'll add, that we're happy that we can hold NOI basically at flat with all this movement within the portfolio. It tells you how dynamic this portfolio has become. It also makes you feel good about what happens in subsequent quarters.

RJ Milligan - Raymond James

Okay. Thank you. And in terms of the Blackstone JV properties can you give any more color as to what or how you reached or how Blackstone reached the decision that more than likely there wouldn't be a sale of the properties? Is it they just couldn't get their own price? Or is that changing assumptions? Any more color on that?

Michael Glimcher

Sure. And again we can only speak for ourselves and we had said that if we push for an answer we thought the most likely outcome is that we would maintain our 40% in the two assets, which we were very comfortable with and we didn't know whether Blackstone would stay a partner or not. I think they weighed their pricing expectations as well as the robust financing market and found that the financing market probably at this inflection point provided a better answer than a sale.

But again we can't speak for them. And we are happy with these assets going forward.

RJ Milligan - Raymond James

Okay. Thank you very much, guys.

Operator

Your next question comes from the line of an Jeff Donnelly. Please proceed.

Jeff Donnelly - Wells Fargo

Good morning, guys. Just a question about the state of market and asset pricing out there. The 10-year certainly compressed quite a bit over the quarter and lenders still seem pretty aggressive at placing capital. Have you seen a shift in the financibility of B assets that might maybe breath a little life into pricing or even the depth of the leverage buyer market for lower productivity (inaudible)?

Mark Yale

Hey, Jack, this is Mark. Yes. We absolutely have. I think the execution on Puente Hills certainly pointed to that. We got five years, took out excess proceeds. Not a real aggressive loan to value but probably somewhere around 55% to 60%. But five-year non-recourse at 4.5% and I think what's encouraging is compared to where we were maybe nine months ago is there is a lot of debt capital that needs to be placed. And there was a group of lenders willing to listen to the story and fortunately we had a story of the great work that Marshall and his leasing team is doing there.

We had a real nice story to present and we've got positive momentum. But certainly able to get that done. If you look at the financing that we're teed up on Dayton. Once again it's a mall doing in the low $300 per square foot and that's attractive financing when you look at it on a historical basis. I think that financings there. I think the only challenge for maybe your historical B type of buyers is they like to leverage and we'll tell you the leverage probably isn't there. It's hard to get much over 60% type of financing on those assets. I think that's where it'll be interesting how the market unfolds and how they try to address where the debt capital is because certainly for that 60% that's very attractive. But making up maybe the difference and where they get their equity from, I think that's what we're waiting the market to adjust to.

Jeff Donnelly - Wells Fargo

You haven't seen the LTV or debt yield change maybe in the last three to six months, so the markets got a little bit more aggressive in the fixed income side.

Mark Yale

I wouldn't necessarily say on the leverage piece, I think the terms have gotten more attractive and more aggressive but I don't think anyone – we're seeing leverage go from 60% to 70% or the yield coming way down on those B assets. Certainly we've seen on the A assets the lenders being more aggressive and that's where you probably have seen some contraction there.

Jeff Donnelly - Wells Fargo

And then if I could just follow-up I think it was on Todd's question concerning the preferred where do you think you guys would price the preferred today if you had to be in the market. I'm just curious how close you are to that 100 basis points delta that you think you need.

Mark Yale

That's something we're certainly keeping an eye on. We think it's somewhere give or take in the 7.5% to 8% range and I guess from our perspective the question, it's already closer to 7.5% versus 8% and that's what we're trying to sort through.

Jeff Donnelly - Wells Fargo

And just one last question. Can you share with us and I apologize if I missed it, where sales per square foot are today at Scottsdale?

Mark Yale

We did not disclose that by property. We disclose sales per square foot by property once a year in connection with our year end earnings. I think what we have talked about is the sales per square foot are going to come down but it will be over a much broader base of stores so it will have a positive impact on sales per square foot for the overall portfolio. And we do expect for it to perform at the highest level of any center within the state. So clearly very successful, clearly one of our highest performing per square foot of assets. But when you spread some of those Apple and lululemon and restaurants and sometimes we feel like we say – we mention half the tenants in the center but when you spread that out over a bigger base the sales per square foot will come down a little bit.

Jeff Donnelly - Wells Fargo

Maybe this is sort of a nitty gritty question but how do you guys average that in to your overall sales productivity. Is it just on the tenants who are reporting or do you kind of take the reporting tenants across the entire GLA of the center?

Mark Yale

Basically you take the amount of sales you have, the square footage associated with those tenants who reported and you add them all together for our entire portfolio and it's a numerator and denominator and you come up with your sales per square foot.

Jeff Donnelly - Wells Fargo

Okay. That's helpful. I just wanted to check. Thanks, guys.

Mark Yale

Welcome, Jeff. Glad to have you on board.

Operator

Your next question comes from the line of Ki Bin Kim. Please proceed.

Ki Bin Kim - Macquarie

Thanks. Just a couple quick follow-ups. First on the sales question, what do you think the sales per square foot would have been for the portfolio without the tenant repositioning?

Mark Yale

The sales per square foot without the tenant repositioning?

Ki Bin Kim - Macquarie

Right. I'm guessing a numerator decrease from moving tenants around.

Mark Yale

Probably a significant impact and I would tell you if anything it helped out a little bit because you took some tenants – I mean typically we were taking tenants that we had control of their space, they probably weren't the strongest performers. But I would say in the overall number I don't think it would have a material impact one way or the other.

Ki Bin Kim - Macquarie

Okay. And on Scottsdale Quarter, it looks like your, just the lease percentage around 93% has been pretty stable right around there for the past two or three quarters. I was wondering what is the hurdle for a lot of tenants in that market to actually move in? Is it getting the last piece of (inaudible) in or is it until the physical options get higher? What are the couple of hurdles that are keeping tenants at bay?

Michael Glimcher

I don't think anything is keeping tenants at bay. I think for us it's about putting the right tenants in. We tore down a building and we're going to have a signature Restoration Hardware. We waited and kept the space off the market for over a year that we could have leased and put Sephora in. We're trying to find the highest quality most productive tenant. So I don't think there's anything that's holding tenants back.

I do think that the seasonal cycle is a little bit different in Arizona with the hot summer months where everyone wants to open in the fall and in most markets you have fall and spring openings. And I think being an outdoor center in Arizona you really don't get that big influx. We've seen this over the last few years in the spring because people get open and then you go into the summer months where it slows quite a bit.

So it's even more seasonal there as far as openings. Obviously once they're open they're there for 10 years or so. It doesn't really matter. But I think people like to open up strong and so we expect the third and fourth quarter to get more ramp up. But there's nothing holding anyone back from the center. It's just a matter of us wanting to have the right tenant.

Ki Bin Kim - Macquarie

Okay. And then just last question. What is the current yield from the Scottsdale Quarter for modeling purposes?

Mark Yale

It was 3% for the second quarter.

Ki Bin Kim - Macquarie

Okay. And that some of the tenants are losing there and getting new ones, the ones that you're losing are these if you had to categorize them, are these the early mover tenants that moved in at the beginning of the center's opening where they probably weren't paying that much rent and the ones that are moving in today are just probably a lot more upside? And is that fair to say it that way.

Michael Glimcher

That’s a fair way to say it.

Ki Bin Kim - Macquarie

All right. Thanks.

Operator

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

Carol Kemple - Hilliard Lyons

Good morning. You all have any updates on Tulsa?

Mark Yale

We do. It's back in the market listed by CB Richard Ellis. We have received I think over 20 confidentiality agreements at this point. So at this point we've as we said before we're cautiously optimistic that something is going to happen there and time table is probably somewhere early fourth quarter. So we're certainly keeping an eye on it and encouraged by the initial interest as the asset's been reintroduced to the market.

Carol Kemple - Hilliard Lyons

And then you all talked about how leasing was up at the B mall. What new tenants are moving in there? Or what tenants are increasing their store count at B malls.

Marshall Loeb

Kind of the list we've worked with within the B malls a lot of them are – kind of some of the bigger boxes. Dick's Sporting Goods, we've done a number of those. Also cosmetics. It's just a nice mix. Route 21. Justice. Maurice's Dress Barn. Francesco's Collection. G by Guess. We've done some things. So it's a pretty broad brush of those tenants. I'll say Halta Cosmetics (inaudible) we were meeting with them. They opened 100 stores last year. It'll be over 100 this year. So there's some that are still pretty aggressively moving their store count.

Carol Kemple - Hilliard Lyons

And I saw the article in The New York Times about how you're trying to get some of your malls to where they're more of an entertainment destination to fight against the online retail sales. Is that something that you're looking to do in the B mall space as well or is that more successful in the A mall space?

Michael Glimcher

It's really something we're looking at portfolio-wide. Whether it's increasing the amount of food we have within the mall or service uses. Whether it's hair care. Whether it's a yoga studio. There are all sorts of uses that make the experience more interesting and it's something that is done differently in each mall. But it's something that we can absolutely do in every property within the portfolio.

Carol Kemple - Hilliard Lyons

Okay. Thank you.

Operator

Your next question comes from the line of an Unidentified Analyst. Please proceed.

Unidentified Analyst

Hi, everyone. Just to follow-up on the occupancy cost question from earlier. What do you think is your sustainable occupancy cost and when do you think you'll be able to achieve that?

Marshall Loeb

Let's see, sustainable we think today 14% is our target and I hope as our sales grow we would raise that 14% commensurately, 15%. I hope we're chasing it for an awful long time, which means our sales are growing. So we really don't have a year or timeframe when we say we hit this goal because I think when we hit that goal that you – another way of saying that the good news is you hit your goal. The bad news is you've eaten through your embedded growth. So I hope it's a number we're chasing for an awful long time.

Unidentified Analyst

Okay. Great. Thanks.

Operator

You have a question from the line of Nathan Isbee. Please proceed.

Nathan Isbee - Stifel Nicolaus

Yes, just a quick follow-up. I hate to belabor the preferred issue but was wondering about your 100 basis point savings target and given the 10-year is close to all time lows, are you being a little too fine here and perhaps running the risk of missing the boat on this preferred savings?

Michael Glimcher

We could obviously redo the preferred. We also would have an opportunity with some refinancing activity in the next 24 months with additional proceeds where we could pay off some preferred and maybe clean up our capital stack a little bit that way as well. So it's not one lever we can pull. It's certainly an opportunity today that maybe it's – I don't know if it's quite 100 basis points today. I think that’s probably what you heard Mark saying is it 50 or is it 100. That’s a pretty significant difference.

But we have a lot of ways to deal with it besides just refinancing it.

Nathan Isbee - Stifel Nicolaus

I know but given your desire to grow – you gave some pretty lofty growth targets over the next few years at the recent investor day. You are going to need multiple capital sources I would assume to get there.

Michael Glimcher

We will and we're hopeful that the B market comes back. We have a number of assets that we would be willing to part with and we'd like to recycle that capital. We do have extra proceeds from refinancing activity. Certainly as we deliver more growth and we see multiple expansion we will get to the point where it will make sense to issue more common. There are multiple levers to pull.

Nathan Isbee - Stifel Nicolaus

All right. Thank you.

Operator

You have a question from the line of Todd Thomas. Please proceed.

Todd Thomas - KeyBanc

Hi. Thanks. Just a question now that Blackstone is staying in Lloyd and WestShore I was just wondering if you had any thoughts about either redeveloping or investing in either or both of those centers or just any thoughts about the new long-term plan for those assets.

Michael Glimcher

We have a consistent long-term plan for both assets. I think things probably were a little bit on hold because of the fact that we may or may not have had a new partner. So I think we'll continue to do the things that we were going to do. There's a number of tenant repositioning activity. Like Marshall talked about, the two (inaudible). There's some restaurant activity. We are bringing some new uses to both properties and we're also looking at opportunities within the anchors at those centers.

So I think you will see a lot of activity at those properties and then I'm sure down the road in the next couple of years there'll be another inflection point that Blackstone will look at and then either will continue on with someone else or we'll exit them and that could be another capital source to buy new assets.

Todd Thomas - KeyBanc

Okay. And then in terms of the in place financing today, you gave some color around Dayton and One Nineteen, any thoughts about WestShore, the mortgage comes up in September?

Mark Yale

We're in the market right now. We would probably do something thinking about Blackstone's investment horizon on a shorter term basis. And think it would be certainly very attractive but my guess is you're looking at a three to five-year type of term. Probably opportunity to get some excess proceeds but also have the flexibility as we continue to address opportunities there, if redevelopment and things of that sort present themselves.

So I think that was probably as Michael said a big part of their decision was where the financing market was and I think that became very attractive to them.

Todd Thomas - KeyBanc

Okay. Great. Thanks.

Operator

And at this time there are no further questions in queue and I would now like to hand the call back over to Ms. Lisa Indest.

Lisa Indest

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

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Glimcher Realty Trust CEO Discusses Q2 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts