Glimcher Realty Trust Q2 2008 Earnings Call Transcript

Jul.27.08 | About: WP Glimcher (WPG)

Glimcher Realty Trust (GRT) Q2 2008 Earnings Call Transcript July 24, 2008 11:00 AM ET

Executives

Lisa Indest – Vice President, Finance & Accounting

Michael Glimcher – Chairman & CEO

Mark Yale – EVP, CFO & Treasurer

Marshall Loeb – President & COO

Analysts

Michael Bilerman – Citigroup

Ambika Goel – Citigroup

Christine McElroy – Banc of America Securities

David Fick – Stifel Nicolaus

Lou Taylor – Deutsche Bank

Ben Yang – Green Street Advisors

Rich Moore – RBC Capital Markets

Nathan Isbee – Stifel Nicolaus

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 Glimcher Realty Trust earnings conference call. My name is Lacy and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If at any time during the call you require assistance, please press star followed by zero and a coordinator will be happy to assist you. As a remainder, this conference is recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Miss Lisa Indest, Vice President of Finance & Accounting. Please proceed.

Lisa Indest

Good morning and welcome to the Glimcher Realty Trust 2008 second quarter conference call. Last evening a copy of the press release was circulated on the newsletter and hopefully each of you have had the opportunity to review our results. Copies of both the press release and the second quarter supplemental information packet are available on our Web site 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 these forward-looking statements please refer to our earnings release and our various SEC filings. Management may also discuss certain non-GAAP financial measures. Reconciliation of each of these measures to the comparable GAAP measure is 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 & CEO; Marshall Loeb, President & COO; and Mark Yale, CFO.

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

Michael Glimcher

Thank you, Lisa. Good morning everyone and thank you for joining us on today’s call. As we continue to face challenges created by the uncertainty in the capital markets and the overall U.S. economy, we are encouraged by what we have been able to accomplish thus far to date in 2008. During our last call we outlined a straightforward short-term plan that focuses on liquidity and capital allocation maintaining occupancy and generating positive releasing spreads and the successful completion of our strategic redevelopment and development pipeline, all while delivering consistent and reliable earnings results throughout the year. The good news is that we have made more tangible progress during the quarter on all fronts.

First of all, we delivered another solid quarter from a financial standpoint with our $0.50 of reported FFO per share for the second quarter falling slightly above the upper end of our guidance range going into the period. Fee income from our joint ventures along with a lower-than-anticipated LIBOR rate were the key factors that drove these results. The 2.3% comp NOI growth for our wholly owned mall portfolio was consistent with our expectations. Mark will provide further details on our financial performance later on in the call.

On the liquidity front, we have contracts in place for nearly $30 million of asset sales. Due diligence continues on both the company’s Great Mall property and the last remaining outparcel at Jersey Gardens. With money at risk by the perspective buyers on both assets, we remain cautiously optimistic that they will close. We are also making progress with our financing plans for 2008. During the second quarter we closed on a $90 million refinancing of our Puente Hills joint venture asset. Additionally, we have a non-binding $90 million financing commitment which can effectively address our remaining significant debt maturities going into 2010. Addressing liquidity is certainly difficult in today’s capital market environment however we believe our current capital plans are quite manageable.

With respect to leasing activity for the quarter, we were able to increase mall store occupancy for the Core Mall portfolio by 40 basis points over last year’s levels. The 15% positive releasing spreads for the quarter more than met our expectations and we anticipate the trend of double-digit spreads to continue during the second half of the year. Even though aggregate in-line sales year over year were down by approximately 2%, we did see stabilization in terms of our mall store sales which were consistent with the first quarter 2008 levels of $362 per square foot for the Core Mall portfolio and quarterly same store sales were actually up 1.4%. Today confirmed store closings within our portfolio remain manageable and we have not experienced any significant change in our deal pipeline for 2009. However the recent increase in bankruptcies going into the summer months is concerning and we remain cautious as we start thinking about the possibility of additional store closing and the potential impact it may cause on ’09 results. Marshall will provide further details and thoughts on this later on in the call.

From a redevelopment perspective, we continue with construction on our $50 million lifestyle addition at our Polaris Fashion Place. Late in the second quarter our first anchor for this project, the cheesecake factory opened. The remainder of the project will come on line throughout the fourth quarter of this year and into the first quarter of 2009. We have approximately 90% of the space addressed of which 70% are fully-executed leases an additional 20% are under letters of intent. Additionally, solid progress is being made on other projects at our Ashland Town Center in Ashland, Kentucky, Northtown Mall in the Minneapolis market, and our Mall at Johnson City in Johnson City, Tennessee.

On the ground-up development side, we continue to make progress on both the construction and the leasing fronts for Scottsdale Quarter. We have nearly 100% of the retail space for phase I addressed of which 70% involves fully-executed leases and leases out for signature and another 30% under letters of intent. Construction is moving along according to plan on budget and on time as we work towards a Phase I opening during the first quarter of 2009. We are extremely excited about the tenant mix in overall leasing progress being made especially when considering the current challenging economic environment.

We also continue to analyze future development opportunities beyond Scottsdale. While we do not intend to move forward in the short term with any additional development, we believe it is critical to maintain opportunities without obligating the company. There will be a time when the company creates additional liquidity and we cannot simply turn on or off the development valve. It is our intent to limit the amount of R&D dollars as much as possible but we do not plan to stand idle with respect to looking for new opportunities for the future.

As we have previously discussed, the company would be interested in opportunities to joint venture or sell a portion of its trade area dominant portfolio. At appropriate pricing levels such a transaction would be accretive to NAV and provide a capital source to fund our pipeline of redevelopment and development opportunities and perhaps even a stock buyback. However, with the uncertainty created by the current capital markets it is difficult to forecast the timing, specific pricing and the size of any opportunity or whether such opportunities may be realized in the near term.

Now with all 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. As Michael discussed, we reported FFO per share of $0.50 for the second quarter of 2008. This fell slightly above the upper end of our guidance range going into the quarter primarily driven by joint venture fees and lower-than-expected short-term interest rates. The comp NOI growth for our wholly-owned mall portfolio was 2.3% for the second quarter and factoring in our joint venture properties the growth was somewhat muted down to 1.3% quarter over quarter. Improved rents, growth in specialty leasing, and better recovery rates drove the NOI increase. These numbers do exclude the impact of prior year CAM billing throughout. Approximately 60 basis points of the growth relates to contributions from redevelopment.

I would now like to review our guidance for the remainder of the year. In our earnings release we reaffirmed our previous 2008 FFO guidance at a range of $2.02 to $2.10. Our strong performance during the second quarter along with lower forecasted short-term borrowing rates and higher joint venture fees should help offset the downside risk associated with potential lost rent from Steve & Barry's during the second half of the year. Under the worst case scenario of total liquidation, the risk includes $1.5 million of base rent and $1 million of write-offs associated with unamortized lease inducement. $400,000 of outstanding receivables from Steve & Barry’s as of June 30, 2008 has been fully reserved for us as of quarter end.

We are now forecasting an average LIBOR rate of just under 3% for the remainder of the year and net fee income of $3 million for the last six months of 2008. To boost up the Steve & Barry’s lost rent we are anticipating Core Mall NOI growth of approximately 1.5 to 2.5% for the full year. Forecasted growth assumes approximately 75 basis points of contribution from redevelopment. Other key assumptions which are effectively unchanged from prior guidance include lease termination and outparcel sales income of approximately $2.5 million, G&A expense of approximately $18 million, and property bad debt expense including discontinued operations of approximately $7 million for the full year.

We also introduced third quarter 2008 FFO guidance at a range of $0.41 to $0.46. The assumption supporting the third quarter range includes flat NOI growth; exclude any loss of Steve & Barry’s base rent. Third quarter guidance also provides an accommodation for the potential million dollar non-cash write-off of rent inducements associated with several of the Steve & Barry’s leases any charge that would go against minimum rents.

From a balance sheet perspective, overall leverage as of June 30, 2008 including our pro rata share of joint venture debt was approximately 70% and the fixed rate portion of our debt equaled 90%. Decline in our share price since last quarter primarily drove the increase in our debt-to-market cap. As we discussed previously, none of our bank line covenants are based upon public market capitalization but rather upon a gross asset value as defined in the loan agreement. We finished the quarter with $298 million outstanding on our $470 million line of credit and are well within the line of credit leverage limitation.

As Michael discussed, we believe our remaining 2008 loan maturities are manageable. Just as a remainder, in April we closed on attractive financing for our Colonial Park Mall $42.3 million of proceeds and in all a rate of 5% which has been fixed through an interest rate slot for the first two years. In June we closed a $90 million financing for our Puente Hills Mall. The loan has a two-year term with pricing and LIBOR plus 235 basis points. We are currently working with a lead bank on the syndication of 50% of this loan. Over the past several quarters we have been engaged in discussions with the special servicer on our Eastland Charlotte Mall regarding the underlying mortgage and its effective upcoming maturity in September. We have recently communicated to them that we do not intend upon any further cash deficit at the property or make any additional capital investment. In addition, our operating partnership has followed a legal action seeking the appointment of a receiver for Eastland Charlotte Mall and the liquidation of the property.

We now also have a $90 million non-binding financing commitment that would be secured by Morgantown and Northtown Malls and are currently working on the syndication facility with the lead bank. The proceeds will be used to pay off the existing $50 million loan on our Morgantown Mall and the related common, which matures in the beginning of September and had temporarily paid down our credit facility since Northtown is currently unencumbered. We would (inaudible) using the excess capacity on our line to pay off the existing $46 million loan on our Grand Central Mall upon its maturity during the first quarter of next year. That would leave us with only one other mortgage debt maturity through 2010 that would need to be addressed, the $35 million mortgage on the Oxford JV property Tulsa Promenade. We are currently working with the lender regarding an extension on that current loan.

Finally, we will be looking at placing mortgage debt on the unencumbered Polaris lifestyle expansion sometime during the second half of this year. With the leasing momentum that Michael discussed, we are optimistic that we will be able to secure attractive financing on the project.

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

Marshall Loeb

As Michael mentioned, store closing within the portfolio has been manageable today with the total store count of around 20. In terms of new leasing opportunities including Scottsdale and Polaris, we have seen minimal fallout other than some deferral deals. Retailers are more cautious than in years past but continue leasing space. On a positive note, new competitive developments even co-tenancy requirements are down dramatically in our markets which brings good news for 2009 and beyond.

With respect to the renewal pipeline we continue making progress. Year to date re-leasing spreads are 14%, slightly ahead 13% achieved in ’07, both of which would demonstrate the embedded growth within our portfolio and with occupancy cost below 13%, we expect the trend to continue. However we have seen an extension of bankruptcies creep in the summer months which is atypical. This unusual trend creates concerns as we start thinking about store closings in the second half of the year and their ultimate impact on 2009 rents and occupancy.

Our most significant concern is Steve and Barry’s. Over the past few years we identified Steve & Barry’s concentration as a risk and divested three locations through mall dispositions. We also focused on leveling leasing to spaces under 25,000 square feet which meant we deferred moving forward with four additional opportunities. Overall our relationship has been a profitable one with rents collected on the current portfolio exceeding $14 million versus a tenant allowance below $10 million or roughly $20 per square foot. Obviously maintaining any other locations or obtaining bankruptcy proceeds only enhances our return. Excluding the Great Mall location which is under contract to be sold with funds at risk, we have 10 stores within the portfolio representing 1.5% or $3.3 million in minimum rents. Additionally, there are no material co-tenancy issues within the portfolio based upon Steve & Barry’s.

Going forward, we have a two-step strategy to replace Steve & Barry’s if it becomes necessary. First replace rents. After reviewing strategies for each location, we project that the re-leasing six locations we can replace the existing gross rents for all 10 stores. Next replacing occupancy will take longer the three stores involve larger anchor spaces in the back of trade area dominant malls. That said these three malls have traditional anchors so while the Steve & Barry space may suffer, the overall property will be less affected. All but one Steve & Barry store is accounted for within our anchor occupancy. Fortunately anchor occupancy currently stands at over 97%, so even in the worst case, assuming we lose all locations, anchor occupancy only falls to 94%. At this point however, we don’t know what will happen with their stores. We do know perspective buyers of (inaudible) stores and expect to know more about mid August at which time we will be happy to provide more detail.

On the redevelopment front, we continue making progress. In addition to Polaris lifestyle expansion that Michael discussed, we have three other projects underway. At Ashland Town Center, JCPenney store construction is wrapping up for a grand opening this weekend. We also have a signed lease with Belk for the majority of the former Penney space and Chang’s restaurant opened during the quarter and is performing ahead of expectation. Construction on the JCPenney expansion at the Mall at Johnson City continues moving forward towards the September opening. Additionally, construction began on the conversion of the former Goody’s junior anchor space into approximately 30,000 square feet of additional retail. Forever 21’s first store in the market along with a new Victoria’s Secret store will anchor in the expansion.

Finally at Northtown Mall L.A. Fitness opened this month. Additionally work continues progressing well with the new Herberger’s fashion anchor targeting a September grand opening.

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

Michael Glimcher

Thank you, Marshall. Finally, I would like to address the quality of the Glimcher portfolio. We derive almost 60% of our net operating income from our market dominant portfolio, which has sales close to $450 per square foot and in-line occupancy of 95% as of June 30, 2008. By anyone’s definition, this is a strong portfolio of properties. It is also evident that the market is undervaluing our trade area dominant portfolio. These assets have long-term stability, solid in-line occupancy of over 90% as of June 30, 2008 which is up over 170 basis points from the prior year and generates sales per square foot of about $300. With an increase in overall occupancy of 40 basis points, positive re-leasing spreads are 15% for the quarter and solid NOI growth our portfolio once again posted solid operating metrics for the quarter demonstrating its resiliency in this challenging market environment.

The current market creates some short-term hurdles for our industry but it also creates opportunities. With the right team in place and a clear focus on where we are headed, we remain optimistic about what we can accomplish as an organization both presently and into the future.

With that said, I would like to open up the call for any questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question will come from the line of Michael Bilerman with Citigroup. Please proceed.

Michael Bilerman – Citigroup

Good morning, Ambika Goel is here with me as well. Michael, just on your last comment on looking at the market dominant versus the trade dominant, if you were out in the market today and you had an acquisition of a market dominant or a trade dominant, what would the spread be in terms of yield or price per foot?

Michael Glimcher

As far as cap rate, is that the question?

Michael Bilerman – Citigroup

Yes.

Michael Glimcher

It is really hard to say because there aren’t comps within the marketplace. My guess is that it is probably a couple of hundred basis points.

Michael Bilerman – Citigroup

And that is effectively the way you look at it in your own portfolio if you had to value the two buckets they will probably be 250 basis points between the two.

Michael Glimcher

I think that’s a fair number.

Michael Bilerman – Citigroup

And then, thinking about the trade area dominant, obviously you have gone down the road a little bit in exploring that sale, how did that value stack up to when you last went down the road to where you think it would be today?

Michael Glimcher

I think that the margin between the two categories is probably a bit wider today than it was historically and maybe 100 basis points different today than it was at that point. But even having said that, when you look at the strong performance within the market dominant portfolio and quite honestly in this volatile environment how resilient the portfolio has been the top tier assets more than make up for the value of where we are trading today and clearly the trade area dominant assets have been stable and steady up 170 basis points year over year. So, these are not assets that are going backwards, these are assets that are holding up well in this environment.

Michael Bilerman – Citigroup

Do you think the spread has – you said the spread widened you think relative to where you were before?

Michael Glimcher

I guess in the last year or so it has probably widened 100 basis points.

Michael Bilerman – Citigroup

Okay.

Michael Glimcher

Again there really are no comps in the marketplace but I think that is probably a fair number.

Michael Bilerman – Citigroup

And is there a bigger CapEx spend that you are having on the trade area dominant versus the market dominant that would make the economic cap rate even wider?

Michael Glimcher

There really isn’t. That is not the case.

Michael Bilerman – Citigroup

But it sounds like you are not even exploring the trade dominant sale today or joint venture.

Michael Glimcher

As you know, the capital market environment is volatile at best and again we have been quite far down the road on doing something and it is something we would like to do to the point that there is financing available, I think it is something that can happen but where the financing market is today, I think it would be really difficult to think that anything would happen. As you see, what progress we have made here, or quite frankly anyone across sector, there is just not a lot of activity.

Michael Bilerman – Citigroup

Just looking on the debt side for a moment, the Great Mall of the Great Plains, you are going to sell that for below the mortgage given the fact that the mortgage is recourse to Glimcher, what other mortgage loans do you have that are recourse to the parent?

Mark Yale

Michael, this is Mark Yale. We have two other loans where there is recourse, our Colonial Park recent financing that we closed in April had 20% recourse involved with that and then there is also recourse that is within our joint venture on our Scottsdale project but we are providing recourse on that financing as well but we are being compensated for the partner for (inaudible) balance sheet on that.

Michael Bilerman – Citigroup

And is there a recourse on the new loan that you just created on Morgan and the other asset?

Mark Yale

Northtown and Morgantown we are in the market right now, we would anticipate there would be recourse probably about 30% and then Puente Hills, we did close on that with non-recourse but we are still working through the syndication at 50% of that and there is a possibility that we might need to put some recourse, some small recourse into the deal there to get that over the finish line.

Michael Glimcher

That is the biggest thing that change even from the beginning of this year Michael from where we are right now it is near impossible unless you have A quality type of asset that really attracts the attention of life insurance market it is very difficult to get anything done without any recourse.

Ambika Goel – Citigroup

This is Ambika with Michael, just on the tenant front, you talked a lot about Steve & Barry's but excluding Steve & Barry's can you talk about the overall tenant profile and like what percentage of rents you think are at risk at this point if we exclude Steve & Barry's, and then how does the fact that some are leasing and that these bankruptcies and vacancies are occurring later in the year, how do you think about re-leasing the space and could there be longer downtime given that it is later in the year?

Michael Glimcher

Ambika, it’s Michael, I am going to talk about this one and as a percentage it is really hard to gauge. What I would say is we are very comfortable with our leasing inflows. Our deal pipeline has remained strong. As we mentioned year to date, our re-leasing spreads are 14%. Additionally, three quarters of our present revenues represent our retailers to whom we have less than 1% exposure. For us the area of concern is it is fallout and bankruptcy, it is not a new deal flow, our new deal flow has been strong. For us an area that we watch closely is the underperforming retailers owned by Venture Capital with their leverage balance sheets, it allows very little margin for error in this environment. But if you really think about it, we have accounted for the largest exposure here in our portfolio which would be Steve & Barry’s and then I would also say Linens'N Things, and if you would look at how we have talked about Steve & Barry’s specifically and how we have addressed it, we have assumed worst case scenario on total liquidation, anything better than that provides upside. Another comment I would make, the big difference today versus prior years is retailer balance sheets, even with softer sales most of our major retail partners have far stronger balance sheets than they have had historically. So, when you look at the fact that debtor in possession financing is difficult, bankruptcy is a difficult road, more difficult than it has ever been for retailers, if a retailer is somewhat stable and they think they can weather the storm, they are not going to go that route. So, again, I can tell you how much new activity we have and progress that is being made, if there would be categorically 5, 10% occupancy that left retail malls, they would be across the board. When I look at balance sheets of the retailers and I look at occupancy cost and where we see profitability, we just don’t see that happening. Again, our occupancy is up year over year in this volatile environment. As Marshall said, there are very little if any new products coming on line. Lifestyle centers just really by and large aren’t being built, we are enhancing our portfolio and now you are at the point of taking it from the load of mid-‘90s and pushing it up. So, less inventory coming on line even with retailers doing fewer deals, as long as we can solidly hold on to what we have and again I can’t put a percentage to it, we are feeling cautiously optimistic going into this environment with a strong portfolio.

Ambika Goel – Citigroup

Okay, great. Just one last question, can you comment on the level of pre-leasing for 2009, where it is this year relative to last year?

Marshall Loeb

Sure, this is Marshall. We are about on pace, we are probably in, I thought, in the mid 20% and that is consistent – we have really not seen a slowdown in renewal leasing and as we get into ’09 where we are seeing some slowdown it just takes longer to get new leases done typically just because retailers are nervous but we are probably on pace for ’09 similar to where we were for ’08, which is about a quarter of the way through it and maybe a little bit ahead of that.

Ambika Goel – Citigroup

Okay, great, thank you.

Marshall Loeb

Welcome.

Operator

Our next question will come from the line of Christine McElroy with Banc of America Securities. Please proceed.

Christine McElroy – Banc of America Securities

Hi, good morning guys. Given what occurred with Steve & Barry’s and the leasing inducements that you paid kind of above and beyond the tenant improving cost, does this change your strategy going forward with regard to those types of lease inducements in your leasing? Are you finding in this environment that potential tenants are pushing for more of these types of non-TI inducements?

Michael Glimcher

Firstly, I am going to comment on it then let Mark possibly add to it. As Marshall said in our prepared remarks, we invested under $10 million in Steve & Barry’s and we received over $14 million in rental. So when you look at the occupancy we had over that time period and when you look at the return on capital, even if you knew the outcome today and by the way we don’t know the outcome today, they may go on, they may go on to the small company, we have assumed the worst case scenario, it has been a profitable relationship for Glimcher. We obviously are always careful with credit and I am going to let Mark add to this as well.

Mark Yale

Yes, I was just going to say this lease inducement is the exception it is not the norm and the Steve & Barry lease inducements are the only material ones we have in the portfolio. It’s an issue that we are aware, a re-lease that we sign, we look at what kind of improvement is going to be made, make sure that matches up the dollars that we address the accounting issue and just with the unusual circumstances Steve & Barry’s are once again looking at the full package and what it brought to the table we felt comfortable making that decision but it clearly is the exception and not the norm.

Christine McElroy – Banc of America Securities

So, as we look forward as potential, you know, incremental bankruptcies in the portfolio and stock closing, there is no other major tenants where you have these types of lease inducements in our leases?

Mark Yale

That is correct.

Christine McElroy – Banc of America Securities

Then just touching on your fee income in the quarter, can you break that out between kind of regular management fees, development fees and loan fees, how long should we expect the development fees associated with Scottsdale Quarter to run through that line and can you just kind of walk us through what the impact of fee income would be when the project is ultimately completed?

Mark Yale

As relates to the second quarter, if you look at the fee then you net out the expenses, then there are some expenses associated with the development services about $1.2 million worth of net fees half of that related to just the routine ongoing management fees primarily being driven by our Oxford relationship. The other half related to fees associated with Scottsdale in terms of our role as the developer as well as a loan guarantee stake. As it relates to the second half of the year, we are talking about roughly $3 million of fees, we mean third and fourth quarter, $1.2 million of that is going to relate to management fees well associated with the Oxford properties and they are really split ones pretty evenly between the loan guarantee fee and the development fee for Scottsdale, that is going to be another $1.5, $1.6, $1.7 million worth of fees between those two. As it relates to 2009, we will be moving into phase II, I think a good portion of those fees will continue into next year and then also we will be going into a phase where we will be managing the property so we will receive the management fees. I think it will be fairly well balanced between 2008 and 2009 and then there will be a drop-off into 2010 as we just kind of roll into a straight management fee.

Christine McElroy – Banc of America Securities

What kind of drop-off are you referring to?

Mark Yale

Looking at that, it would probably be – it would probably need to look a little bit closer in terms of the exact timing but I would imagine it would be somewhere in the magnitude of probably $1 million to $2 million somewhere in that ballpark.

Christine McElroy – Banc of America Securities

Then just lastly, with regard to your Core Malls sales which were down 2% to 362 per square foot I think in the quarter, can you give us what the year-over-year growth number would be if small shops in kind of 10,000 square foot to 25,000 square foot range were included, just trying to get a sense of what kind of trends you are seeing in sales, you know, if some of the larger often times home related retailers were included?

Michael Glimcher

One thing I can say is we really don’t have a lot of depth in home furnishings. When we talk about larger tenants, they are really more junior anchors, I don’t know that we have that specifically broken out but Marshall maybe could speak to a couple of categories.

Marshall Loeb

Yes, also as Michael said, we don’t have a lot of home furnishings but that was one of our – we look at our sales by category and that was really right at the top of our list in terms of weakness from the second quarter ’08 to second quarter ’07 and then it was down low-double digits so I think that was about the weakest category we saw.

Christine McElroy – Banc of America Securities

Thank you.

Marshall Loeb

Yes, you are welcome.

Operator

Our next question will come from the line of David Fick with Stifel Nicolaus. Please proceed.

David Fick – Stifel Nicolaus

Good morning, just a couple of details on Steve & Barry, are they currently [ph] on rent?

Mark Yale

We have fully reserved for the rent they have not paid through June 30. My understanding is that the terms of their bankruptcy, they are required to pay July rent.

Michael Glimcher

We have not accounted for anything beyond July based on the remarks we made in our prepared comments.

David Fick – Stifel Nicolaus

So, you have not received July rent in cash yet?

Michael Glimcher

No.

Marshall Loeb

They were always historically a good rent payer really until June say of this year.

David Fick – Stifel Nicolaus

Okay. You gave some nice detail on alternates, how about co-tenancy, I won’t assume there will be a lot given the nature of how these things were leased, but is there any?

Michael Glimcher

It is nominal, probably inside of $100,000 of an issue. It is just a non-issue. Most retailers did not ask for co-tenant of Steve & Barry’s, it was obviously more the Macy’s, the Sears and the Nordstrom and so forth within the portfolio and these – I think we talked about it, in most malls they were in, they were an additional anchor they weren’t necessarily the key anchor.

David Fick – Stifel Nicolaus

Okay. The Great Mall and Steve & Barry's, you had that under contract, is that impacting pricing any kind of re-trading going on there or an out [ph] they might have due to an anchor tenant like this?

Michael Glimcher

It would not create an out, we do have significant dollars that are hard and non-refundable. That purchase is really being contemplated on find the building and the land and with the improvements there it is really not a cap rate-type purchase. Clearly losing a large tenant, even if someone is not buying based on cap rate they could use as an opportunity but there is nothing contractual that allows them to do so. So, as we said, we remain cautiously optimistic that we’ll move forward with that if not we are not going to pick up some non-refundable dollars but again we don’t like to move that asset out of that portfolio and move away from it.

David Fick – Stifel Nicolaus

What’s the drop dead date on it?

Marshall Loeb

August, mid August and they can extend for another 90 days with another $0.5 million of that risk owners’ money. We have got about three weeks roughly left.

David Fick – Stifel Nicolaus

All right. Have you got your leasing hurdles at Scottsdale yet for the construction loan you took on?

Michael Glimcher

Yes, we have David. We actually funded the first draw during the second quarter for just over $30 million.

David Fick – Stifel Nicolaus

Second tranche of the Puente Hills loan and what is the status there? You may have mentioned that I just was not clear.

Michael Glimcher

Yes, we are working through the syndication, the lead banks up to $490 million with the circulation that we would need to syndicate 50% of that, that is in progress, same pricing but as I mentioned I think to a previous question, we will try and going to have to put a little bit of recourse on the table to get this across the finish line, we are working on that and we are really have until August to get that done.

David Fick – Stifel Nicolaus

But you are pretty comfortable there?

Michael Glimcher

With the lease now at this point (inaudible).

David Fick – Stifel Nicolaus

Finally, Puente and Tulsa Promenade seems your NOI growth was weaker than your wholly-owned stuff, is that just a function of age, timing, roll-over schedule there or is it something else?

Michael Glimcher

It is not the house, the biggest factor had to do with reimbursement rates. If you went back to last year and when we did the true-ups for 2006, we had a significant increase in the rates on those properties that we booked in ’07, now the true-ups are excluded from that calculation but what is not is the fact that even though the rates jump up for ’06, we actually in the second quarter last year booked a pretty significant adjustment for jumping the rates up and increasing the rates in the first half of ’07. So this year the true-ups were basically flat so we did not have that part of adjustment and that is really the majority of the change, just involves the rates and the one-time catch-ups. So, it is an issue in the second quarter, you won’t necessarily see it in the third and fourth quarters.

David Fick – Stifel Nicolaus

Right, thanks guys.

Operator

Our next question will come from the line of Lou Taylor with Deutsche Bank. Please proceed.

Lou Taylor – Deutsche Bank

Hi, thanks, good morning guys. Michael and Marshall can you talk to me maybe just about traffic at the malls in June and July and maybe any progress or update on the seasonal leasing for the first quarter?

Marshall Loeb

Okay, sure I will start on that. Our traffic was actually up in the second quarter compared to last year. So, the sales were down slightly, they were up from the first quarter, and traffic it wasn’t up much, it was under 1% but it was nice to see traffic up at the malls. Seasonal leasing here as Mark mentioned one of the things that helps us with our specialty leasing in second quarter and we are seeing that that’s an area that really worried us through the year and still does until we get into the holidays, but it is – we were actually ahead of budget in June on our specialty leasing is where we thought we would be, so knock on wood, it is holding up well to date.

Lou Taylor – Deutsche Bank

Second question, it is for Mark, in terms of bad debt outlook second-half of the year beyond Steve & Barry’s now what is your scent to that trend?

Mark Yale

I think if you look at our guidance it basically implies run rate of probably $1.4, $1.5 million per quarter. I think it is going to be at a higher rate than where we were last year in terms of the core portfolio somewhere probably 1.50 to 1.75 times total revenue.

Lou Taylor – Deutsche Bank

Okay. Then in terms of both Eastland and Great Mall any risk of any further impairment on either of those two assets?

Mark Yale

As it relates to Eastland, we have a floor with respect to the loan value, that is all been taken care of and we are not anticipating any impairment on Great Mall.

Lou Taylor – Deutsche Bank

Okay. Then last question, just to clarify on your ’08 guidance in the second half, you have got Steve & Barry’s kind of out of the numbers but in terms of your reference to that $1.5 million of base rent, that’s really just the second half of the year’s base rent, that is not some –?

Mark Yale

That is correct, it is August through December. Yes, once again, worst case, total liquidation we are not able to release any of the space even to a special tenant in the second-half of the year that is the $1.5 million.

Lou Taylor – Deutsche Bank

Great, thank you.

Operator

The next question will come from the line of Ben Yang with Green Street Advisors. Please proceed.

Ben Yang – Green Street Advisors

Hi, good morning. Hi Mark, you talked about having to offer recourse on the financing that you are doing for some of these less productive malls, can you talk also about your decision to place short-term financing on a deal like that and is that the only type of loan that you can get in today’s market?

Michael Glimcher

It is Michael, I would like to address it for a moment. As Mark said, if you are talking about probably our market dominant portfolio and you are talking about doing a life deal that would probably be a five-year term or so, that’s out there on really select assets. We happen to have debt in place on all those assets so those are not properties that we are looking to refinance. When you are looking at the kind of debt that’s being done on these assets it is primarily commercial banks that we are dealing with and the term loans or shorter loans are on average of about three years and because their inventory level of capital is so low and they are really only working with I think who are the best customers, I think terms continue to be squeezed, in other words, Oracle and the Journal about the (inaudible) recourse coming back, and again this is partial recourse, these are very much low loan to value. So, I think that these are assets obviously that we are going to own for a long time, we are going to continue to earn. Another thing is quite frankly on the large asset of Puente, that mall has gone through a renovation, that mall is going through a re-leasing process and we anticipate some very significant NOI growth over the next couple of years. It would be clearly in a position to put some long-term debt on in the next 24-36 months whereas today we would not really get the probable sizing of the loan.

Mark Yale

Yes, and everything just in terms of the term and kind of pushing this out, it really looks like it is all pretty much two, three-year type maturities, if you look at Colonial Park and Puente in Northtown and Morgantown if we can get that facility done, you are really talking about pushing the maturities down to 2011, we would love to get more churn but one of the things I got is comfortable with is if you look at our debt maturity schedule, we have one loan maturing for $22 million in 2011. So, it is not ideal, but it is not creating a huge bubble that we are not going to able to manage in 2011.

Ben Yang – Green Street Advisors

Okay, and then Michael you mentioned lower loan-to-term values there, can you talk about what those numbers are and maybe if there are any other type of concessions that you are giving to get this financing deals done?

Mark Yale

Yes, it’s Mark again, I think you are really talking about instead of being a fixed (inaudible) before you really had 50% to 60%. That’s really the biggest concession and the fact that you put recourse and also will tell you getting extension options, so if you have a three-year term and you want to get two one-year extension options, those extension options either aren’t available to you or if you do put them into the deal, they can be pretty expensive in terms of the pricing.

Michael Glimcher

Again, going into 2010, we have less than $150 million of refinancing activity while the market is volatile and in everyone it’s more difficult than it has been historically. It is quite manageable amount of debt to get refinanced through 2010 and we really addressing everything to (inaudible) presently.

Ben Yang – Green Street Advisors

Then finally, what kind of upfront fees are you paying to the lenders?

Mark Yale

It all depends, I will tell you it was more than a year ago.

Ben Yang – Green Street Advisors

Okay, thank you.

Michael Glimcher

Thanks Ben.

Operator

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

Rich Moore – RBC Capital Markets

Hi, good morning guys. Remind me if you would on Puente, I think you have got Steve & Barry’s, Linens'N Things a Circuit City what is happening with all of those obviously? Steve & Barry’s we don’t know yet and why the feeling I guess Michael that NOI is going to pick up nicely there?

Michael Glimcher

Well, I can tell you presently there are deals in the pipeline, we have a junior anchor that we are just getting ready to wrap up and add to the center. We also have with the remodel of the center and quite honestly the increase in traffic that we have seen, I think roughly 10% year over year, we are certainly excited about the progress that we are making and if you see the center versus how it looked two years ago, we spent over $16 million on the center, it’s been remodeled, it is very much current, and when you look at the anchors that do perform really well, they are like the AMC which I believe is one of the top ten theatres, a strong Macy’s there. We think the turnover in the anchor space is actually a positive because we are able to get better quality retailers into the center today than we were maybe perhaps before the renovation and before we had it as part of our platform.

Mark Yale

Yes, I think it is – I mean your Puente [ph] is going to hurt us in the short term and that has been certainly part of the discussions on the loan but in the long term when we talk about the junior anchor we are going to have, there is probably ten other tenants that are really excited about the co-tenancy and they are looking at the property and we have had three or four other big box retailers into the center now we have some inventories. There is some short-term paying but in the long term we think it is going to be an opportunity, and we love the mall and we love the market.

Rich Moore – RBC Capital Markets

Okay, good, thank you guys. Then in general it seemed like leasing was pretty good for the quarter and I am wondering, inducements aside, are there other concessions of any kind that you are having to offer to get tenants into spaces or is it as healthy as it looked when you were in the numbers.

Michael Glimcher

Again Rich, one comment I will make is, if you look at the re-leasing spreads 15% for the quarter I think Marshall as well as TJ and the leasing team did a tremendous job, 14% year to date. Our deals are very much consistent with where they have been historically and our portfolio is better occupied and sales stronger. So, it is clearly there is not a change deal by deal, year over year, it is consistent.

Rich Moore – RBC Capital Markets

Okay so no real concessionary environment Michael.

Michael Glimcher

No the idea that we would possibly be losing occupancy or having to make very aggressive deals just isn’t the case. Occupancy is holding up strong and again with Marshall’s leadership the deal flow has been incredibly strong.

Rich Moore – RBC Capital Markets

Okay, good, thank you. Then on tenant reimbursement same sort of thing, that was strong in the quarter, stronger than usual is that something you think that continues for the rest of the year?

Marshall Loeb

We are working hard on, you know, kind of lease by lease on our reimbursement so a lot of that – it’s about a 400 basis point swing and about three-quarters of that really was related to true-ups kind of billing second quarter truing up the ’07 numbers. So a lot of that is you are going to think one time in the quarter. We did actually move at about 100 basis points. So, it is something we are very aware of and include accounting, Lisa and Mark and our deal approval committee to make sure we are allocating the rent dollars where we should. So, hopefully you will continue to see improvement although the second quarter was a little bit of an anomaly because of the true-ups.

Rich Moore – RBC Capital Markets

Okay, I got you. The gross book value of Olathe is what right now Mark?

Mark Yale

We have it on the books for $20 million, Rich.

Rich Moore – RBC Capital Markets

Okay. And that is including depreciation, I mean that is with depreciation added back.

Mark Yale

Are you talking about gross?

Rich Moore – RBC Capital Markets

Yes.

Mark Yale

I mean, we have written it down, are you talking about what our original cost was in the project or –?

Rich Moore – RBC Capital Markets

No, I was thinking of net of depreciation.

Mark Yale

No, we don’t – once you take the impairment charge and you classify it as held for sale you seize depreciation.

Rich Moore – RBC Capital Markets

Good point. Okay, so $20 million is the number.

Mark Yale

Yes.

Rich Moore – RBC Capital Markets

Okay, good. Then the last thing for me is, I think you guys mentioned last quarter that you were doing some work on corporate governance and I was curious of what is happening, if there is any progress, anything to report on that?

Michael Glimcher

Rich, probably not a lot to report presently. Our board is sensitive to the current perception regarding our governance. We really can’t get into any specifics today. We are in the process of evaluating it and we are certainly going to focus on any changes that would benefit all shareholders. I can tell you personally as Chairman of the Board it is an important issue to me and we’ll keep you posted on the progress into the subsequent quarters as it will be appropriate.

Rich Moore – RBC Capital Markets

Okay, thank you guys.

Operator

(Operator instructions) Our next question is a follow-up question from the line of Michael Bilerman with Citigroup. Please proceed.

Michael Bilerman – Citigroup

How much owner’s money is at risk on The Great Mall, $400,000?

Mark Yale

Yes.

Michael Bilerman – Citigroup

And then they were asked to pay another $500,000 to extend through November?

Mark Yale

Yes, it is up to 90 days for another $0.5 million at risk.

Michael Bilerman – Citigroup

Then what is the contract price, is $20 million at book?

Michael Glimcher

We have not announced a contract price, we have just said that it is above book value.

Michael Bilerman – Citigroup

Above book but below the debt balance, so somewhere between $20 million and $30 million?

Michael Glimcher

That’s a fair number, Michael, yes.

Michael Bilerman – Citigroup

Okay, thank you.

Michael Glimcher

Sure.

Operator

The next question will come from the line of Nathan Isbee with Stifel Nicolaus. Please proceed.

Nathan Isbee – Stifel Nicolaus

You had mentioned that you could take six of those locations just to maintain the rent, it seems pretty obvious that you feel comfortable that you can get the Puente Hills space still, what are the other five, is it Jersey Gardens?

Marshall Loeb

Yes, you are right. Jersey, this is Marshall, it is actually on a month to month lease, we have done that some time ago really thinking we could turn this space into small shop space and we are fairly far down the road say like a (inaudible) where they will take a small portion of the space and we would actually get more than we are collecting from Steve & Barry’s today. Merritt Square is another one where it is a big box but we can cover it up into small shop space and improve the tenancy there. Morgantown Mall, it is a box at the end of a wing when we look at kind of market value there, it is upside. Given the rehab in our Northtown Mall in Minneapolis with Herberger’s and L.A. Fitness we think there is kind of market value of that box but two weeks earning in the smaller shop space will be Jersey and Merritt. The other four are Morgantown, Northtown, Puente and our SuperMall out in Seattle area, we think there is upside on that rent as well.

Nathan Isbee – Stifel Nicolaus

Okay, thank you. When can we expect to see a tenant list for Scottsdale?

Michael Glimcher

Hi, this is Michael speaking. You know, we had talked about getting a list out and we would like to get a list out shortly. I will tell you that by and large it may be half the tenants or new retailers to the Glimcher portfolio or new restaurateurs. It happens to be a very competitive market so as much as we would like to publicly talk about the names our strategy there is going to be very quiet. We are well under construction as I talked about, the project is significantly leased, we have got all of the phase I space spoken for as far as retail. Again, because of the competitive nature in the marketplace and not wanting to necessarily tip our hand to others we thought it was best to be very quiet and move forward. I would tell you that I would hope sometime before our next quarter call, we will be putting some names out because we will be in a position that we’ll have turned space over. I also mentioned to you because we didn’t say this out but H&M [ph] put a press release out saying that the first lease they sign in the state of Arizona was with Glimcher. Williams-Sonoma announced a West Elm store and they did it independently of us. Those are obviously two great names, trendy retailers, hot retail concepts, we are excited about them being in the project and I think that level of retailer as well as retailers of even higher quality are going to be the kind of retail and as well as some really terrific restaurant users and entertainment but we are being very much cautious in this competitive environment and as Mark talked about and as we talked about the project, we are right on target with our turn, on time, on budget and rents holding up. So, again, it is going tremendously well, don’t mean to be secretive but we don’t want our competitors to know everything we are doing.

Nathan Isbee – Stifel Nicolaus

Okay, thank you, that’s helpful.

Operator

At this time, we have no questions in queue, I would now like to turn the call back over to Lisa Indest for closing remarks.

Lisa Indest

Thank you everyone for participating in the Glimcher Realty Trust second quarter 2008 conference call. You may contact us directly with any additional questions or access our filings at glimcher.com.

Operator

Thank you for your participation in today’s conference. This concludes your presentation, you may now disconnect.

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