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Glimcher Realty Trust. (NYSE:GRT)

Q3 2012 Earnings Call

October 26, 2012 11:00 am ET

Executives

Lisa A. Indest - Senior Vice President, Finance and Accounting

Michael P. Glimcher – Chairman of the Board & Chief Executive Officer

Mark E. Yale – Executive Vice President, Chief Financial Officer & Treasurer

Marshall A. Loeb – President & Chief Operating Officer

Analysts

Todd M. Thomas – KeyBanc Capital Markets

Jeffrey J. Donnelly – Wells Fargo Securities, LLC

R.J. Milligan – Raymond James

Gregory B. Smith – Bank of America/Merrill Lynch

Ben Yang – Evercore Partners

Carol L. Kemple – Hilliard Lyons

Quentin Velleley – Citigroup

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Glimcher Realty Trust Earnings Conference Call. My name is [Sab], and I’ll be your operator 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 turn the conference over to your host for today Lisa Indest, Senior Vice President, Finance and Accounting. Please proceed.

Lisa A. Indest

Good morning, and welcome to the Glimcher Realty Trust 2012 third quarter conference call. Last evening, a copy of our press release was circulated on the newswire, and hopefully each of you have the opportunity to review our results.

Copies of both the press release and the third quarter supplemental information package are available on our website at glimcher.com.

Certain statements made during this conference call, which are not historical, 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. Reconciliations of each non-GAAP financial measure to the comparable GAAP measure are included in our earnings release and the financial reports we filed 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 P. Glimcher

Thank you, Lisa. Thank you, everyone, good morning, and thanks for being on our call today. We are all aware there is a bit of uncertainty swirling in the current markets when considering the upcoming presidential election, the impending fiscal cliff, Europe’s well-documented issue, and the prospects for slowing growth in China.

The good news is that we are not seeing any of these macro issues flow down to our business on the ground. And most importantly, we continue, make tangible progress and the execution of our transformer strategy into a Class A mall REIT.

First, from a financial standpoint, our $0.17 of adjusted FFO per share for the third quarter of 2012 represent the 13% increase over adjusted FFP per share for the same period in 2011. Retailers experience a solid back-to-school period, which is encouraging as we start focusing on the holiday session for 2012.

Within our portfolio, property fundamentals were strong for the quarter. Total occupancy increased to close to 95% for the portfolio overall, a 110 basis point increased from the second quarter. This was primarily driven by a nice increase in mall store occupancy, which now fits above 91%.

Re-leasing spreads were positive again at 9% and our portfolio occupancy caused at 11%, we are confident about our ability to push rents in the future. Finally, we experienced another strong quarter in terms of sales throughout the portfolio, and have seen a healthy increase in leasing volume of 15% from the prior year.

The company’s access to attractively price capital continues as well. Over the last six months, we closed on a $162 million of non-recourse mortgage debt at an average rent interest rate of 4.3% or generating over $55 million of excess proceeds. We will also able to issue and then redeemed $90 million of our preferred stock, reducing the borrowing cost on such securities by well over 100 basis points.

Finally, during the quarter, we issued approximately $12 million of common equity through our ATM program at an average cost of just under 10.50 per share. With regional mall occupancies generally above 90% and virtually no new meaningful retail supply coming online, we remain excited about the positive dynamics of the higher quality mall business. In reality, this slow growth, low interest environment goes well for Glimcher.

When looking at the specific progress made in our quality transformation into a Class A Mall REIT, we are pleased with the 8% improvement in portfolio sales from the prior year. The broader strategy continues to have a focus on reinvesting in our current portfolio through redevelopment, adding quality through acquisitions, disposing of lower tier assets, stabilizing the first two phases of Scottsdale Quarter and providing more tangible plans for Phase 3 of Scottsdale Quarter.

When you consider that we already have an intimate knowledge of the property, control the site, and we will be enhancing the value of a current asset, we view redevelopments as one of the best uses of our capital on a risk-adjusted basis.

Accordingly, this will continue to be a priority in terms of our capital allocation. In addition to our investment in our two outlet collection properties, we see further opportunities throughout the portfolio, including Polaris Fashion Place, where we are in the initial planning phase for the redevelopment of the former great indoor space.

As it relates to acquisitions, we are working hard on the integration into the Glimcher platform of over $0.5 billion of high-quality properties recently acquired by the company. These transactions highlight our ability to continue to be creative in finding opportunities at fair pricing that supports our quality strategy. The search for new opportunities continues with a focus on properties with high sales productivity, outsized growth potential and a Rent Roll of tenants that we have or aspire to have relationships with.

In terms of Scottsdale Quarter, we are pleased to have pushed total occupancy for Phases 1 and 2 to approximately 88% driven by an increase in retail occupancy to 83%. Sales performance continues to improve as we now have the critical mass of tendency to drive traffic throughout the center.

In terms of other positive developments at the quarter, Restoration Hardware is scheduled to open their 20,000 square foot flagship store next month and we recently executed a 9,000 square foot lease with Urban Outfitters. Adding addition fashion to the current mix significant positive and we look forward to their opening during the first half of next year. These two tenants of loan represent 8% of the retail square footage at Scottsdale Quarter. And from an office standpoint, we now stand at 100% least as well as occupied.

We are also continuing to make incremental progress on Phase 3. There are many fashion tenants, both very large and small who are looking for to coin Scottsdale Quarter Phase 3 their own. We have been in detail negotiations and look forward to sharing more color at the merchandise mix of ours. In addition to the fashion component, there is interest in a hospitality sector to add boutique hotel to Scottsdale Quarter. We have many interested parties and hope to find the right fit as we move forward with the development of Phase 3.

As we discussed previously, we did execute a contingent contract for the sale of the northern parcel with a multifamily developer who is focused on a plan for 275 unit for-rent residential developments with pricing expectations competitive and comparable to the upper tier of the market.

The deal is still subject to full due diligence, but we were very pleased with the progress, which they have made. Certainly, not without its challenges, we are satisfied with the progress and current momentum with center and see Scottsdale Quarter being an important growth driver and value creator for the company into the future. It is clearly help to enhance Glimcher’s position as a high quality operator of both in close and open our shopping venues with many leading retailers.

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

Mark E. Yale

Thank you, Michael and good morning. Our adjusted FFO per share for the first quarter of $0.17 fell at the upper end of our guidance range going into the period. Excluded from our adjusted FFO per share was a $3.4 million non-cash write-off, regional issuance cost associated with the preferred stock redemption executed last month. As expected net operating income performance was muted by the significant amount of redevelopment and re-tenanting going on throughout the portfolio.

With respect to the contribution from Scottsdale Quarter, the yield on the project for the third quarter was approximately 3%. While the return was consistent with the previous period, we do expect the yield to accelerate through approximately 3.5% to 4% by year-end. G&A expenses were a bit elevated during the quarter, as it included approximately $200,000 of preferred stock redemption and acquisition related cost.

Now let’s quickly turn our attention to the balance sheet. At this point, we’ve address all of our remaining 2012 debt maturities. During the quarter, we successfully refinanced the Dayton Mall and WestShore Plaza mortgages. As Michael mentioned, we experienced great execution in terms of proceeds and rate.

We have also successfully expanded the maturity on the surprise construction loan into 2013 and closed on short-term extension for the Tulsa mortgage through the end of the year. It should hopefully give us a bridge until the property has sold. Tulsa is now under contract with the perspective by our currently engaged in due diligence. We have also agreed to terms on a one year extension of our Scottsdale Quarter Phase 3 loan.

Additionally, yesterday we did close on a $38 million mortgage on a recently acquired 119 center located in Leawood, Kansas. The non-recourse financing has a fixed rate of 4.25% in a term of over 14 years, which will make a coterminous, but the mortgage on Town Center Plaza located across the street. We’ve also commenced the marketing of the Polaris Fashion Place refinancing opportunity.

The open period to repay the mortgage without penalty begins in January. Initial interest has been extremely strong from both the Life Company and CMBS debt providers. We finished the end of September with a $108 million outstanding on our credit facility. Beginning in October, current availability under the credit facility did decrease to $250 million due to tightening of the quarterly advance tests.

This decrease was not a surprise and has been part of our capital planning. Even with this decrease we still have over $100 million of unused capacity on the3 credit facility, and now the option to add Malibu to the collateral pool, which would increase availability overall.

When considering approximately, $15 million of redevelopment investment to be made during the fourth quarter along with the proceeds from the 190 mortgage. We expect to finish 2012 to somewhere between $80 million to $90 million outstanding on our credit facility. As previously discussed, we anticipate utilizing the company’s ATM program to match fund against accretive redevelopment and major retenanting throughout the portfolio.

During the third quarter, we issued approximately $12 million under the program, and would expect a similar level of activity during the fourth quarter. We will also continue to be price sensitive. We currently have approximately $40 million of capacity remaining on our ATM program.

Finally, we did update our FFO guidance for fiscal year 2012, solely to reflect the $3.4 million non-cash write-off a preferred redemption costs incurred during the third quarter. We also tightened the range by a penny on both ends. The new FFO guidance is in the range of $0.57 to $0.60 per share. This guidance is now reflect during the remainder of the year, any other property disposition, acquisitions or capital raises other than modest ATM activity noted earlier.

We also provided FFO guidance for the fourth quarter of 2012 in the range of $0.18 to $0.21 per share. In addition to the 3.5% to 4% yield on Scottsdale, key assumption is driving the fourth quarter guidance, include net fee income of approximately $750,000, lease termination income and net out parcel gains of $500, an increase of over 1% in Core Mall NOI growth for the quarter.

Now I’d like to turn the call over to Marshall.

Marshall A. Loeb

Thanks Mark. As Michael mentioned, we’re integrating our recent acquisition into Glimcher platform. Process is going well and we’re even more excited about the opportunities at each property. We remain focus about what we can accomplish within our existing portfolio with the longer-term goal of delivering growth more closely reassembling our Class A mall peers.

As Michael mentioned our Core Mall of operating fundamentals continuing to improve. Total occupancy increased during the quarter and we expect to finish the year around 95% re-leasing spreads were positive again at 9%. We experienced another strong quarter in terms of sales productivity throughout the portfolio, quarterly comp sales up 5% and we’re encouraged by portfolio occupancy cost at roughly 11%.

We are also excited about leasing velocity we’re seeing 15% increase in lease signing this year versus 2011 with tangible activity throughout the portfolio not just our top property. Solid progress continues in terms of roughly $60 million investment in our two outlet collection centers, Jersey Gardens and Seattle.

At Jersey Gardens, major interior and external renovations are well underway with completion projected mid 2013. Recently, Tommy Hilfiger consolidated their two stores into a 23,000 square foot anchor, making it the largest store globally.

Coach and Coachmen are now under construction, the two former Tommy stores with openings plan for next month. We’re also making progress on solidifying the outlet collection Seattle improving this asset into a fashion outlet center serving the southern portion of the metro area. In conjunction with leasing efforts we’ve begun physical enhancements to the center which included adding a cut through to improve the traffic flow as well as relocating our food court.

From a leasing perspective, we’re targeting to add key retailers in about 100,000 square feet. During the quarter we signed a lease with Coach, a bellwether retailer in the outlook world. They’re under construction and expect to open within the next several weeks, including Coach more than a third of our targeted new square footage is covered through signed, for leases out for signature, we have letters of intent with retailers for the balance of the space.

With the type of tenants we’re looking to add to the center, we see the potential to drive ourselves well above $400 per square feet. The grand reopening is planned for fall 2013. We expect to earn high single-digit return in our outlet investments and again seeing those financial contributions in 2013 and end of 2014.

Our outlet collection investments represent major renovations, we’re moving forward with significant retenanting activity throughout our portfolio. We’re reworking space to accommodate new retailers that upgrade the tenant mix, including the exporting goods, lululemon, Ulta Cosmetics and four H&M stores.

Short-term impact from all these activities, however, is muted growth within 2012 due to downtime, certainly contributed to the modest NOI growth generated during the third quarter, we estimate the negative impact from all the retenanting on overall NOI growth during 2012 to be approximately a 100 basis points.

For some of this retenanting completed by September, we saw nice improvement and mall store occupancy during the quarter, up 260 basis points from June 30. We should see a modest acceleration in NOI growth in the quarter. The work also positions us for 2013 growth as we will receive the full year benefit from the improved tenant mix. While we're not ready to provide formal guidance for next year, we'll be disappointed if projected core mall growth rate was not moving more in line with our expectations for Class A mall peers.

Finally, when we categorize our portfolio, you will see that, 86% of our NOI is comprised of a Tier 1 portfolio, achieving sales of $473 per square foot with an occupancy over 95%. 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 towards meaningful improvement in property fundamentals and growth prospects.

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

Michael P. Glimcher

Thank you, Marshall. Here at Glimcher, we are proud of the progress which we have made. Our balance sheet is far stronger and has ever been historically. Our portfolio has been experiencing historically high sales and industry leading occupancy rates. In the last year alone, we have added over $500 million worth of new high productivity assets to our base.

While we are proud of these accomplishments, we remain acutely focused on improvement. Our focus going forward is a company with lower leverage and more balance sheet flexibility, sales north of $500 per square footing growing, along with an upgraded and enhanced portfolio through the expansion, redevelopment, acquisitions, and dispositions. Yes, we are stronger today than we were yesterday.

However, our goal continued to remain and that is to be stronger tomorrow than we are today.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question will come from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Todd M. Thomas – KeyBanc Capital Markets

Hi, good morning. Apologies if I miss this in the prepared remarks, but can you walk through the timing of the four H&M stores that opened or all opening along with all the mall stores that were displaced from the stores. And I’m just trying to get a feel for how much of the NOI pickup was realized in the third quarter and how much will be realized in the fourth quarter?

Marshall D. Graham

Sure. Todd, good morning, it’s Marshall. The two we’ve open two of them today. We opened in here in Columbus and at Polaris late third quarter. So that one is opened a little bit earlier in the year, I’m doing this for memory, which is I just want to say July. We opened in Lloyd Center out in Portland, and then we have two more that are still under construction, but we’ll get open by the end of the year. So we’ve got two of the four open Puente Hills Mall, in City of Industry, Los Angeles, as well as WestShore down in Tampa, those were still under construction.

And the reason we pointed them out before, remember looking at the one point it’s about each of them averaged about eight small store shops that we close to consolidate to create those anchor stores. And we’re happy to get the H&M’s open. And then I think the benefit we’ll see as we head into 2013, the other retailer feedback we get is, the fashion retailers like being near H&M, so we are seeing nice pickup from the ability to lease of these H&M stores, even though only two of the four open, but we will get the other two open this quarter.

Todd M. Thomas – KeyBanc Capital Markets

And from the two that are open, they are the mall stores that were displaced, are they all open and what about for the two that will open later in the year, when will the, I guess roughly eight mall stores for each of the remaining two open?

Marshall A. Loeb

We’ve relocated as many as we could and some we lost. Yeah, I mean some of the, there were mostly long-term trends there were a few nationals that we’ve relocated. So by and large most of them will be relocated, and we will keep the majority of that income. But we weren’t able to keep a 100% of it.

Michael P. Glimcher

But Todd, it’s Michael, just keep in mind to aggregate this amount of space, you're probably going to be offline for in the neighborhood of almost nine months, because you're moving tenants out of the space then you're combining the space. So obviously, when we said going into this year, we are going to take one step back, we take two steps forward, but this is a tremendous amount of space over 80,000 feet between the four stores. It’s good for occupancy; it’s good for sales, and also as Marshall said, it attracts other retailer.

So we don't look at our business, what does it look like this quarter? How do we create long-term value for shareholders? How do we make each asset more valuable and putting the right tenants in, whether it interrupts income for a quarter or two, if it does the right thing over the long-term visibility kind of decision we are going to make around here.

Todd M. Thomas – KeyBanc Capital Markets

Okay that’s helpful. And then sales comps were up in the quarter, but in terms of the decline in sales productivity for the portfolio from the second quarter, it sound like that’s related to the remerchandising that’s taking place at Jersey Gardens and maybe a couple of other centers, but can you talk about the impact to sales productivity in the quarter? And would you expect to see that number decline again next quarter, when should we begin this to see that move higher again?

Marshall A. Loeb

You’re right. It was Jersey and that’s kind of as we mentioned. I think it’s the right. It was the right moves. There will be more in NOI and that we had a large Jeepers store at Jersey and that’s lets now. The new Tommy Hilfiger had two small shops basis that were highly productive. So we were able to consolidate Tommy Hilfiger and upgrade really in our view that the Jeeper space almost thinking negative about Jeepers. But upgrade Jeepers to Tommy Hilfiger, and then we have taken their two spaces, which are under construction now and there will be Coach, and Coach Men’s store.

And again maybe that’s with the portfolio on our size that was about $6 per square foot. And we knew that going into it that we were going to head ourselves per square foot, but we choose the NOI over the sales per square foot. Coach will open later this quarter. So we’ll have all of that settled heading into 2013. And Coach typically will do over $3,000 of foot is what their average on the outlook. We call them the apple of outlook world. So we’re excited to have those that they were coming and then they decide and call us back and said we want to open two stores there. So Coach Men’s really doing well. We’re excited to add them.

Michael P. Glimcher

What’s really exciting about these moves, but the two Coach stores in jersey and one Coach store in Seattle. As Marshall said, and again we referred them the apple of the outlet world, they’re really one of the at most highly productive tenant. They were in the numbers, Jersey already being incredibly productive, Seattle on its way to being very productive. Those are going to be big movers in those malls.

So it just the ins and outs of what happens in a quarter when you take probably with one of the most top three to five productive Tommy Hilfiger stores, and take it out of your in line and move it into an anchor position, most productive three to five probably in their entire fleet. That can have an impact, but it’s just short-term.

Mark E. Yale

And Todd, it’s Mark. The only other thing I will point out on this topic is if you look at our quarterly comp sales, they actually accelerated from the second quarter and we were right around 4% as Marshall said, for the second quarter, our quarterly comps for the third quarter were at 5%. So we certainly are pleased with the sales trends within our portfolio.

Todd M. Thomas – KeyBanc Capital Markets

Okay, I did notice that. And then just lastly in terms of refinancing Polaris, give a sense for what the terms might look like and maybe a range of excess proceeds that you might say on the refinancing?

Mark E. Yale

Todd, it’s Mark. I mean, we’ve mentioned before at Polaris, we’ve got a high teen type of debt yield. And certainly based upon where the market is and the refinancings, we certainly would anticipate that that deal closer to 10. So there is going to be significant excess proceeds and there is no reason we shouldn’t see execution, very similar to some recent deals you probably have seen in the market for these types of properties.

So we’re excited about the level of excess proceeds, we’re excited about the pricing, and we’re just in the market right now. So probably in the coming months, we will have more information to share on that front.

Todd M. Thomas – KeyBanc Capital Markets

Okay. Thank you.

Operator

Your next question will come from the line of Jeff Donnelly with Wells Fargo.

Jeffrey J. Donnelly – Wells Fargo Securities, LLC

Good morning, guys. First question actually just concerning your sales per square foot, this just might be, I guess the calculation question, but they were down a little bit sequentially, I think from Q2 to Q3. Is that just a function of what’s going in and out of the pool that sort of the numerator and denominator moving around as more square footage I mean came into the pool?

Mark E. Yale

Yeah, Jeff, it’s Mark. It is mix, and I think we just talked about that with Tommy Hilfiger and the moves there.

Jeffrey J. Donnelly – Wells Fargo Securities, LLC

Right.

Mark E. Yale

…the two stores there. We’re in our reporting pool at the end of the second quarter and if they were excluded from that number, it would have impacted our second quarter number by $6 per square foot.

Jeffrey J. Donnelly – Wells Fargo Securities, LLC

Okay.

Mark E. Yale

They’re not in the third quarter, so that’s a big chunk of it right there. And then other odds and ends within the portfolio really is just mix in terms of who is in that reporting pool. But as we talked about, what we are certainly pleased with is the fact that our comp sales did accelerate.

Jeffrey J. Donnelly – Wells Fargo Securities, LLC

Okay, thanks. Sorry, if I missed that. And just trying to understand, I think, Marshall you’re saying that, I guess a good comfort for 2013 NOI growth to be more in line with Class A peers. Let’s just say those peers tend to be delivering growth in the low to mid single-digits.

It’s a little apples and oranges, I know but in your current quarter much of your revenue growth year-over-year came from just acquisitions done in the past year and the opening is some of the development projects are not necessarily from about revenue growth and core assets. So I guess, I’m just trying to understand the source of why you expect NOI growth to pickup those sharply. Is it sort of the measurement issue of how assets come in and out of your pool, I think what’s sort of driving that?

Michael P. Glimcher

Yeah, it’s Michael. We talked a lot about, and I think we've talked about the movement of tenants within the portfolio. And I think when you look at the core portfolio, we've taken a step back and take to steps forward and whether it would be the H&M moves, whether it would be upgrading merchandise mix at a place like Polaris and adding a Lulu Lemon store.

And so a lot of the growth needed in the core portfolio, because we’ve been doing a tremendous amount of retenanting in upgraded to grow sales and obviously to grow NOI over time. Sure the acquisition help, but it’s a combination, but the core portfolio contributing more next year, just in the case of the H&M, you’re going to rollout the whole year of that revenue once the other space at least around it, worse is having nine months for the downtime for a lot of space. And then obviously, we do benefit from the acquisitions, but they’re not part of the portfolio. So we should certainly benefit from them.

Jeffrey Donnelly – Wells Fargo Securities, LLC

Okay, that’s helpful. And just one another question Michael, concerning Tulsa Promenade, are you able to share cap rate on that transaction, where those give us a rough sense. And then I think there is a lot of interest around, how deep the market is for that, I know in the second quarter you guy give us some color on how many people are looking at it those. I guess some interestingly to hearing, as it kind of came down to the wire, how many people kind of ultimately sort of stick in there till the end and how price ultimately sorted out?

Mark E. Yale

Hey, Jeff, it’s Mark. I mean you know Tulsa’s one data point that asset spin on the market for a while. So I’m not sure it’s a real good parameter. They’re certainly was interest and we’re not going to get into specific cap rate. The buyer is still going through due diligence, but certainly it’s going to provide for a very nice return for the buyer.

As far as the broader kind of be markets, we’re certainly keeping our eye on it. We feel what, if you look at some of the recent – that deals that have been done on lower quality, lower sales per square foot properties that is very encouraging. But we still haven’t seen a lot of data points on that front.

Michael P. Glimcher

And Jeff, it’s Michael. You hear a lot people talking about the depth of the buyers. I think when you put an asset like this out there probably 25 to 50 confidentiality agreements gets signed. The reality is probably on a quarter, then we’re qualified buyers, but so there is buyers out there and as far as it’s based on what depths available and as buyers based on what price the assets going to move at. But I think if people broadly talking about the depth, it’s probably all the people who look, but as far as real buyers, it’s probably a quarter of the people that are really looking.

Jeffrey Donnelly – Wells Fargo Securities, LLC

Okay, great. Thanks guys.

Operator

Your next question will come from the line of R.J. Milligan with Raymond James.

R.J. Milligan – Raymond James

Hey, good morning guys. Michael, as you mentioned at the beginning of the call, there is quite a bit of economic sort of macro uncertainty out there. We haven’t really seen it in retail sales, consumer confidence out this morning, it was pretty positive. So I’m just curious what you guys are seeing in terms of retailer demand for space, traffic, anything that give’s you pause over the couple of weeks?

Michael P. Glimcher

It’s interesting and maybe there is a disconnect from when I watched the news to what I see going on with Marshall and TJ are ahead of leasing in the whole leasing function here, the demand is very high, obviously there is very little to know new product coming online. We have a far more productive portfolio than we’ve ever had and we have far less space available. So there is a disconnect from what we see on the TV and what’s happening here on the shop.

And we’re feeling very optimistic about ending the year in the mid 90’s and the progress that we’ve made and we are feeling really good about going into next year and obviously now, the segment, which is very hot, Jersey is really great and getting better and Seattle is good and becoming really great. So the demand and also what the customers doing don’t relate to what you read in paper and see on the TV.

R.J. Milligan – Raymond James

Okay. And we heard from another mall REIT this week that, they were seeing retailer demand start to trickle down into some of the lower productivity assets. Are you seeing an increase in retailer demand in your Tier 2 assets?

Marshall A. Loeb

Yes. I mean I think we’ve been seeing that and I guess one data point I’ll point to. If you look at our Tier 2, which I wouldn't even maybe call those beat some day, but those are under $300 per square foot malls. Occupancy is up year-over-year a 110 basis points, so we’re just below 93%, and we have said if it’s helpful a lot of the tenancy we are talking to, it’s been their traditional mall, the fashion small line shops, buts it’s also been some of the tenancy traditionally could have gone to a power center, but those are not being built, down the street or across the road from the mall, so that’s where we are seeing a lot of that pick up.

R.J. Milligan – Raymond James

And so, obviously I know it’s a mix issue and there is not a lot of data, but if you look at the past three quarters, what are spreads done in Tier 1 versus Tier 2 malls?

Michael P. Glimcher

The re-leasing spreads, how would you break that out. I mean, that are certainly a bit more dynamic at the top, but the rents spreads have been positive throughout the portfolio.

Michael P. Glimcher

And again a lot of this is a product we’ve done. This phase coming online and really the quality of, the bottom has come up quite a bit within our portfolio and probably the bottom has come up quite a bit within other portfolios that you’re referring to.

R.J. Milligan – Raymond James

Okay. And just one last question on Scottsdale Quarter, the 93% of space addressed didn’t really move from second quarter, and I’m curious if there wasn’t a whole lot leasing done in the quarter or somebody was out and you would address that that empty space or just sort of what’s going on with the leasing sort of being stagnant quarter-over-quarter?

Michael P. Glimcher

One data point I can give you on that, which I think it’s helpful is the quality of that 93% is certainly enhanced. We moved from 88% of that 93% being leased to 90%. So that is certainly some progress. And we’ve been kind of around that 93% and 94% and I think that the quality of our discussions and the quality of the retailers and tenants were talking has improved. And I think that’s a number that we certainly anticipate that we will start making progress and migrate and start to moving that number up.

Marshall A. Loeb

And we have changed the rent of the mix, so we’ve upgraded the mix. We talked about that restoration hardware. It’s only the second ground up of this new flagship concept they’ll have. There is one open in Houston and other than a temporary one that they did Beverly Hills or so. This will really be the second that one that build it from the ground up ever that never places an underperforming restaurant. Another underperforming restaurant is being replaced by 9,000 foot Urban Outfitters.

So the quality of the mix, the quality of the NOI and the ability for people to perform keeps on getting better. So there is a little fine-tuning being done to the mix. And so if we stagnated in the mid 90’s, but we have a better quality occupancy at mid 90s that that’s probably really a good thing and it gives us the ability to grow NOI there.

R.J. Milligan – Raymond James

Okay, thank you guys.

Operator

Your next question will come from the line of Greg Smith with Bank of America.

Gregory B. Smith – Bank of America/Merrill Lynch

Thank you. I was noticed in the Outlet Collection Seattle went from about $930,000 to $886,000. Is that the added cut through that’s responsible for that?

Michael P. Glimcher

Greg, certainly it’s taking some space out of service. And then as we reconfigure space. So space is not available and as we move forward and bring it back online prices and square footage get back to where it was historically.

Marshall A. Loeb

Other thing we’re relocating the food court there as well. So it’s a new hallway and moving the food court from one side of the mall to the other, so as you can imagine a lot of moving parts within Seattle, but I think the market will stabilize.

Gregory B. Smith – Bank of America/Merrill Lynch

And when will the food court be opened?

Michael P. Glimcher

And that will be mid next year I believe, the timing to get the food court relocated.

Marshall A. Loeb

And really the goal was is holiday of next year to have this center really up in humming. I mean the exception is this big Coach is going to open up yet in the next couple of weeks. But scheduled Re-Grand Opening is really for holiday of next year and we’ll right on track and tenant mix keeps on getting stronger and stronger. So we’re feeling extremely positive about it.

Gregory B. Smith – Bank of America/Merrill Lynch

Great. And then just in regard to your efforts to continue to pursue some highly productive malls. Did you look at Kings Plaza and the Greenacres?

Michael P. Glimcher

Greg, it’s Michael. We look at everything that there on the market. But we also look at what can we win and what fits best within our portfolio, and also how hard we are. So you look at every opportunity, because you want to understand what’s in the marketplace, but based on the size of those assets and the size of our overall enterprise and the type of assets we’re looking at, we didn’t think it was probably the best place for us to spend a lot of time.

Gregory B. Smith – Bank of America/Merrill Lynch

Okay, thank you.

Michael P. Glimcher

Sure.

Operator

Your next question comes from the line of Ben Yang with Evercore Partners.

Ben Yang – Evercore Partners

Hi, good morning, thanks. Just going back to the Tulsa sale, I’m just curious are the buyers generally planning to keep these has malls or do they intend to have repurpose them into something else. Just kind of wondering if they factoring the mall NOI, and when they make their decision because maybe the cap rate when we start to see these constraints are kind of relevant and don’t really provide much insight. I was wondering if you can maybe comment on that?

Marshall A. Loeb

Hi, Dan good morning, it’s Marshall and welcome back.

Ben Yang – Evercore Partners

Thank you.

Marshall A. Loeb

Sure, sure. A good question and it probably at least in Tulsa’s case, it will remain a mall. I mean our anchors are still open there. So that one is probably its more stable, I’m guessing maybe what you referring to if it’s really a dying mall and you’re going to de-mall and renovate it. There maybe some where the cap rates are relevant and it’s probably more towards land value or development area. But in this case, I can’t speak for our perspective buyer. But I would be shocked that if it doesn’t remain a mall and I will just kind of keep leasing it, and they’re…

Ben Yang – Evercore Partners

And then generally obviously you’ve been marketing it for over a year. Are you seeing a different group of buyers for the mall today then maybe the guys who are looking to buy the B malls the last go-around? Is that the same group of people or is it a different group, I know you probably say entrepreneurial inside, just wondering if the people back up in last time or just maybe looking at other property types that to make that return?

Michael P. Glimcher

Ben, it’s Michael. I think we’re seeing a lot of this same names and maybe there is more people who have access to capital and talked about it if you sign 50 CAs, maybe five were legitimate before and 10 were legitimate now, because they have more access to capital. But it’s usually the same kinds of usual suspects.

Ben Yang – Evercore Partners

Okay. And then just last question going back to the comments on 2013 guidance. I think, Michael, you mentioned the benefit of some of the recent acquisitions. But I want some of these to be out of the same-store pull and maybe the same store NOI guidance that you are providing might still be a little lower than maybe it would otherwise be at these properties were in the pull, is that a fair expectation?

Mark E. Yale

Yeah Ben, it’s Mark. I think so, even though obviously, our core portfolio with the investments we made this year, we’re certainly focusing on growth. In that part of the portfolio, you’ll have the bit of pearl ridge in there, you will have Town Center Plaza get in there, but some of the more recent acquisitions won’t be and certainly the idea of those acquisitions is just to enhance that growth profile. But we think both of those will certainly be a positive. But just looking at the Core Mall portfolio itself, we are expecting solid growth in 2013 as we move more towards that growth profile we are looking for.

Michael P. Glimcher

And that’s probably, it’s Michael speaking. As Marshal talked about we are moving in that direction, so we’ll certainly make progress to that next year and then hopefully, be right into the pack by 2014, which we’re really excited about. And I think we laid out our Investor Day. And certainly on our presentation in our website, we’ll talk about the progress we’ll make in getting there. It’s over the next two years and what are we tooling this year, growth next year and then more growth the following year. So we are very excited about these stores steps in the stable study progress we’ve made in our transformation.

Ben Yang – Evercore Partners

I guess, I’m just wondering mathematically when you provided your guidance and some of these high quality purchases won’t be in the same store pull, is it going to be a big impact kind of a small impact. Do you have any early thoughts on that or is it maybe too early to even say at this point?

Mark E. Yale

Ben, it’s Mark. I think the biggest impact is going to be from Scottsdale coming into the pool, we do plan to add that. We’ll probably provide guidance with and without, so everyone can understand. And from there, I think the core of our growth is going to come from that existing core portfolio. It’s the Polaris, it’s the Jersey’s, it’s Seattle, that’s going to be in the numbers. And I think as we add these acquisitions, it’s only going to supplement a pretty strong base.

Ben Yang – Evercore Partners

Okay, great. Thanks, guys.

Operator

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

Carol L. Kemple – Hilliard Lyons

Good morning. Why did town square at surprise moved to the consolidated portfolio this quarter?

Mark Yale

Carol, it’s Mark. It really just has to do with some accounting. We actually move forward with a pay down on the existing construction loan. And we did that outside of our partner and based upon that, we reevaluated who really had control of the venture and determine that we do, so from that perspective we moved it from a JV to a consolidated entity. But we still have a partner that owns 50% of the property. It has a very minimal impact on our numbers; it’s really a pretty small part of our overall portfolio.

Carol L. Kemple – Hilliard Lyons

Okay. And I know in the past you all talked about getting a fashion department store in Scottsdale. Is that still a focus; are there any updates on that?

Michael Glimcher

Carol, it’s Michael. We spoke earlier and I tried to allude to there, there are retailers but large and small in the fashion mix, and the interest level is extremely high. We don’t have a deal inked and we don’t announce deals until they’re inked. But the interest level remains very high from the anchor world as well as the specialty store world, as far as fashion tenants. And we’re excited about the progress we’ve made, but really don’t have a lot of more detail than that until we put a pen to the paper on it.

Carol L. Kemple – Hilliard Lyons

Okay, thanks.

Operator

Your next question will come from the line of Quentin Velleley with Citi.

Quentin Velleley – Citigroup

Hey, it’s Quentin. Just in terms of this quarter, I think you said that the current yield is about 3% and by year-end you’re expecting 3.5% to 4%, I think your initial guidance at the start of the year was 4.5% to 5% by year end. Is that reduction of a 100 basis points, is that just a reflection of these co-tenancy leases that haven’t started paying rent yet, or has the stabilized yield expectation Phase I and Phase II actually come down?

Michael P. Glimcher

Quentin, it’s Michael. There is a couple of factors, certainly we are in the process of making sure, we had every lost co-tenancy, probably another issue is just the expense of operating the centre. So we are not a 100% open and occupied, but this is the first class high-quality property and we only have one standard, which is A plus.

So we are subsidizing the cost of operating in it in the first class high-quality manner, which means it’s clean, it’s safe, and the flowers are changed out all the time, it looks right, the experience is an A plus experience, and so the retailers that are there, while they are paying their fair share, there is not someone, they are paying that last 20% or so and ultimately that becomes us.

So we only own and operate it one way like I said earlier with all of our properties taking a long-term view towards quality and long-term NOI growth. And so there is a little bit of investment on the front-end to turn this into what’s going to be one of our priority is, that will be one of our most premier assets.

Quentin Velleley – Citigroup

Yeah.

Michael P. Glimcher

So I mean, yeah, on a full year we are looking at probably a return on Scottsdale in the low 3’s, you’re right our guidance had us for the overall year being in the high 3’s. So it’s certainly what Michael talked about, Michael also talked about tweaking the mix and replacing some underperforming tenants, some of the first generating space. So that certainly has impacted yield and ultimately one (inaudible) comes online, somewhere in the first half of 2013. We’re going to ultimately give that income, but that income was not there for the balance of 2012.

Quentin Velleley – Citigroup

Okay. Can you maybe give us a sense of what the stabilized yields likely to look like on Phase I and II and when you think you’re going to hit it?

Michael P. Glimcher

At this point, we’ve talked about a stabilized yield being somewhere 6% to 6.5% on Phase I and II. We think we’ll get there. I think the big question is when and I think we’ll certainly be in a position of providing more insights on that as we work through a detailed 2013 budget as part of our comprehensive guidance overall that we’ll release beginning of next year. But I think it’s more not a matter of efforts, it is a timing issue that we’re still working through, because as Michael said and we’re focused on making the right long-term news and not focused necessarily on a yield today, or maximizing yield today.

Marshall A. Loeb

Quentin, I think we can all agree, this is an A plus property just taking a lot longer than we expected to get there and opening up in 2008 probably wasn’t ideal. But we love the property and honestly if we had two or three properties with the same issues and opportunities, I take that opportunity all day long.

Quentin Velleley – Citigroup

Thanks, guys. Thank you.

Operator

And there are no further questions in the queue. I would now like to turn the call back over to Lisa Indest for closing remarks.

Lisa A. Indest

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

Operator

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

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