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GRT > SEC Filings for GRT > Form 10-Q on 23-Jul-2013All Recent SEC Filings

Show all filings for GLIMCHER REALTY TRUST

Form 10-Q for GLIMCHER REALTY TRUST


23-Jul-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the unaudited consolidated financial statements of Glimcher Realty Trust ("GRT" or the "Company") including the respective notes thereto, all of which are included in this Form 10-Q.

This Form 10-Q, together with other statements and information publicly disseminated by GRT, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ from the results discussed in the forward-looking statements. Risks and other factors that might cause differences, some of which could be material, include, but are not limited to, changes in political, economic or market conditions generally and the real estate and capital markets specifically; impact of increased competition; availability of capital and financing; tenant or joint venture partner(s) bankruptcies; failure to increase mall store occupancy and same-mall operating income; rejection of leases by tenants in bankruptcy; financing and development risks; construction and lease-up delays; cost overruns; the level and volatility of interest rates; the rate of revenue increases as compared to expense increases; the financial stability of tenants within the retail industry; the failure of the Company to make additional investments in regional mall properties and to redevelop properties; failure of the Company to comply or remain in compliance with the covenants in our debt instruments, including, but not limited to, the covenants under our corporate credit facility; defaults by the Company under its debt instruments; failure to complete proposed or anticipated acquisitions; the failure to sell properties as anticipated and to obtain estimated sale prices; the failure to upgrade our tenant mix; restrictions in current financing arrangements; the failure to fully recover tenant obligations for common area maintenance, insurance, taxes and other property expenses; the impact of changes to tax legislation and, generally, our tax position; the failure of GRT to qualify as a real estate investment trust ("REIT"); the failure to refinance debt at favorable terms and conditions; inability to exercise available extension options on debt instruments; impairment charges with respect to Properties (defined herein) as well as additional impairment charges with respect to Properties for which there has been a prior impairment charge; loss of key personnel; material changes in GRT's dividend rates on its securities or the ability to pay its dividend on its common shares or other securities; possible restrictions on our ability to operate or dispose of any partially-owned Properties; failure or inability to achieve earnings/funds from operations targets or estimates; conflicts of interest with existing joint venture partners; failure to achieve projected returns on development or investment properties; changes in generally accepted accounting principles ("GAAP") or interpretations thereof; terrorist activities and international hostilities, which may adversely affect the general economy, domestic and global financial and capital markets, specific industries and us; the unfavorable resolution of legal proceedings; the impact of future acquisitions and divestitures; significant costs related to environmental issues; bankruptcies of lending institutions participating in the Company's construction loans and corporate credit facility; as well as other risks listed from time to time in the Company's Form 10-K and in the Company's other reports and statements filed with the Securities and Exchange Commission ("SEC").

Overview

GRT is a fully-integrated, self-administered and self-managed REIT which commenced business operations in January 1994 at the time of its initial public offering. The "Company," "we," "us" and "our" are references to GRT, Glimcher Properties Limited Partnership ("GPLP" or "Operating Partnership"), as well as entities in which the Company has a material ownership or financial interest. We own, lease, manage and develop a portfolio of retail properties ("Properties" or "Property"). The Properties consist of open-air centers, enclosed regional malls, outlet centers and community shopping centers. As of June 30, 2013, we owned material interests in and managed 27 Properties (25 wholly-owned and two partially owned through joint ventures) which are located in 14 states. The Properties contain an aggregate of approximately 19.1 million square feet of gross leasable area ("GLA"), of which approximately 94.7% was occupied at June 30, 2013.

Our primary business objective is to achieve growth in net income and Funds From Operations ("FFO") by developing and acquiring retail properties, by improving the operating performance and value of our existing portfolio through selective expansion and renovation of our Properties, and by maintaining high occupancy rates, increasing minimum rents per square-foot of GLA, and aggressively controlling costs.


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Key elements of our growth strategies and operating policies are to:

Increase Property values by aggressively marketing available GLA and renewing existing leases;

Negotiate and sign leases which provide for regular or fixed contractual increases to minimum rents;

         Capitalize on management's long-standing relationships with national
          and regional retailers and extensive experience in marketing to local
          retailers, as well as exploit the leverage inherent in a larger
          portfolio of properties in order to lease available space;

Establish and capitalize on strategic joint venture relationships to maximize capital resource availability;

Utilize our team-oriented management approach to increase productivity and efficiency;

         Hold Properties for long-term investment and emphasize regular
          maintenance, periodic renovation and capital improvements to preserve
          and maximize value;

Selectively dispose of assets we believe have achieved long-term investment potential and redeploy the proceeds;

Strategic acquisitions of high quality retail properties subject to market conditions and availability of capital;

         Capitalize on opportunities to raise additional capital on terms
          consistent with the Company's long term objectives as market conditions
          may warrant;



         Control operating costs by utilizing our employees to perform
          management, leasing, marketing, finance, accounting, construction
          supervision, legal and information technology services;



         Renovate, reconfigure or expand Properties and utilize existing land
          available for expansion and development of outparcels to meet the needs
          of existing or new tenants; and

Utilize our development capabilities to develop quality properties at low cost.

Our strategy is to be a leading REIT focusing on retail properties such as open-air centers, enclosed regional malls, and outlet properties located primarily in the top 100 metropolitan statistical areas by population. We expect to continue investing in select development opportunities and in strategic acquisitions of quality retail properties that provide growth potential while disposing of non-strategic assets.

Critical Accounting Policies and Estimates

General

Management's Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of the Board of Trustees. Actual results may differ from these estimates under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that are reasonably likely to occur could materially impact the consolidated financial statements. No material changes to our critical accounting policies have occurred since the fiscal year ended December 31, 2012.


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Funds From Operations

Our consolidated financial statements have been prepared in accordance with GAAP. We have indicated that FFO is a key measure of financial performance. FFO is an important and widely used financial measure of operating performance in our industry, which we believe provides important information to investors and a relevant basis for comparison among REITs.

We believe that FFO is an appropriate and valuable non-GAAP measure of our operating performance because real estate generally appreciates over time or maintains a residual value to a much greater extent than personal property and, accordingly, reductions for real estate depreciation and amortization charges are not meaningful in evaluating the operating results of the Properties.

FFO is defined by the National Association of Real Estate Investment Trusts, or "NAREIT," as net income (or loss) available to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of depreciable property, impairment adjustments associated with depreciable real estate, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. The Company's FFO may not be directly comparable to similarly titled measures reported by other real estate investment trusts. FFO does not represent cash flow from operating activities in accordance with GAAP and should not be considered as an alternative to net income (determined in accordance with GAAP), as an indication of our financial performance, or to cash flow from operating activities (determined in accordance with GAAP), as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make cash distributions.

The following tables illustrate the calculation of FFO and the reconciliation of FFO to net income available to common shareholders for the three and six months ended June 30, 2013 and 2012 (in thousands):

                                                             For the Three Months Ended
                                                                      June 30,
                                                               2013               2012
Net income available to common shareholders              $      29,916       $      15,503
Add back (less):
Real estate depreciation and amortization                       26,025              21,855
Pro-rata share of consolidated joint venture
depreciation                                                       (18 )                 -
Pro-rata share of unconsolidated joint venture
depreciation                                                     1,773               2,498
Company's share of unconsolidated joint venture gain on
the sale of assets, net                                         (5,565 )                 -
Pro-rata share of unconsolidated joint venture
impairment loss                                                      -               1,550
Gain on remeasurement of equity investment                     (19,227 )           (25,068 )
Noncontrolling interest in operating partnership                   453                 274
Funds From Operations                                    $      33,357       $      16,612



                                                             For the Six Months Ended
                                                                     June 30,
                                                              2013               2012
Net income available to common shareholders              $     16,005       $      4,147
Add back (less):
Real estate depreciation and amortization                      52,264             40,909
Pro-rata share of consolidated joint venture
depreciation                                                      (76 )                -
Pro-rata share of unconsolidated joint venture
depreciation                                                    4,054              5,604
Company's share of unconsolidated joint venture gain on
the sale of assets, net                                        (5,565 )                -
Pro-rata share of unconsolidated joint venture
impairment loss                                                     -              5,482
Gain on remeasurement of equity investment                    (19,227 )          (25,068 )
Noncontrolling interest in operating partnership                  231                 11
Funds From Operations                                    $     47,686       $     31,085


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FFO increased by $16.6 million, or 53.4%, for the six months ended June 30, 2013, as compared to the six months ended June 30, 2012. We experienced an increase in operating income as adjusted for real estate depreciation and general and administrative expenses ("Property Operating Income") as well as a reduction in the provision for doubtful accounts. Acquisitions we made during 2012 and 2013, which include Pearlridge Center ("Pearlridge"), a regional mall located in Aiea, Hawaii that we purchased during May 2012 (the "Pearlridge Acquisition"), Town Center Crossing, an open air center located in Leawood, Kansas that we purchased during May 2012, Malibu Lumber Yard ("Malibu"), an open air center located in Malibu, California that we purchased in June 2012, and University Park Village ("University Park"), an open-air center located in Fort Worth, Texas that we purchased in January 2013, (collectively the "Acquisitions") contributed $13.0 million in Property Operating Income. Also, Scottsdale Quarter, located in Scottsdale, Arizona, and The Outlet Collection TM | Jersey Gardens ("Jersey Gardens"), located in Elizabeth, New Jersey, contributed an additional $4.5 million in Property Operating Income. We also recorded an additional $2.2 million in termination income. During the six months ended June 30, 2012, we reduced the carrying amount of a note receivable from Tulsa Promenade REIT, LLC ("Tulsa REIT"), an affiliate of the joint venture (the "ORC Venture") that owned Tulsa Promenade ("Tulsa"), located in Tulsa, Oklahoma, by $3.3 million that was recorded as a provision for doubtful accounts after we determined that the estimated proceeds from the sale of Tulsa would not be sufficient to pay the Tulsa REIT note receivable. Lastly, our FFO from our unconsolidated entities was $5.3 million more for the six months ended June 30, 2013 compared to the same period in 2012. This increase can be attributed to our pro-rata share of the gain on extinguishment of debt as it relates to the Tulsa mortgage.

Offsetting these increases to FFO, we redeemed 3.6 million shares of our 8.125% Series G Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series G Preferred Shares") during the six months ended June 30, 2013. In connection with this redemption, we wrote off the issuance costs and related discount of the Series G Preferred Shares, resulting in a charge of $9.4 million. Also, we incurred $3.2 million more in interest expense. This increase in interest expense can be primarily attributed to Pearlridge and University Park. General and administrative expenses were $2.3 million higher for the six months ended June 30, 2013 as compared to the same period in 2012. The increase in general and administrative expenses can be attributed to increased costs relating to share-based executive compensation, increased travel, and information technology related expenses.


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Comparable Net Operating Income (NOI)

Management considers comparable NOI to be a relevant indicator of property performance, and NOI is also used by industry analysts and investors. A core Property is considered comparable if held in each period being compared. A Property may be included whether or not it is reported in discontinued operations. For the three and six months ended June 30, 2013, there were no discontinued operations that were comparable. NOI represents total property revenues less property operating and maintenance expenses. Accordingly, NOI excludes certain expenses included in the determination of net income such as corporate general and administrative expenses and other indirect operating expenses, interest expense, impairment charges, depreciation and amortization expense. These items are excluded from NOI in order to provide results that are more closely related to a property's results of operations. In addition, the Company's computation of same mall NOI excludes property straight-line adjustments of minimum rents, amortization of above/below-market intangibles, termination income, and income from outparcel sales. The Company also adjusts for other miscellaneous items in order to enhance the comparability of results from one period to another. The reconciliation of the Company's NOI to GAAP operating income is provided in the table below (in thousands):

                           Net Operating Income Growth for Comparable Properties
                   (including pro-rata share of unconsolidated joint venture properties)

                                    For the Three Months Ended               For the Six Months Ended
                                             June 30,                                June 30,
                                 2013          2012       Variance        2013          2012       Variance
Operating income
(continuing operations)       $  23,151     $ 15,174     $   7,977     $  42,885     $ 29,839     $ 13,046

Depreciation and
amortization                     26,588       22,362         4,226        53,376       41,918       11,458
General and administrative        6,943        6,032           911        13,793       11,529        2,264
Proportionate share of
unconsolidated joint
venture comparable NOI            2,119        7,273        (5,154 )       5,690       16,224      (10,534 )
Non-comparable Properties
(1)                              (2,625 )     (3,135 )         510        (5,595 )     (3,583 )     (2,012 )
Termination and outparcel
net income                       (2,943 )       (521 )      (2,422 )      (3,478 )       (996 )     (2,482 )
Straight-line rents                (868 )       (790 )         (78 )      (2,045 )     (1,389 )       (656 )
Non-cash ground lease
adjustments                         934            -           934         1,867            -        1,867
Non-recurring, non-cash
items (2)                             -            -             -             -        3,322       (3,322 )
Above/below-market lease
amortization                     (1,501 )       (849 )        (652 )      (2,838 )       (993 )     (1,845 )
Fee income                         (973 )     (1,152 )         179        (1,878 )     (2,400 )        522
Other (3)                           (52 )      3,692        (3,744 )         450        4,119       (3,669 )
Comparable NOI                $  50,773     $ 48,086     $   2,687     $ 102,227     $ 97,590     $  4,637

Comparable NOI percentage
change                                                         5.6 %                                   4.8 %

(1) Amounts include Community Centers and non-comparable mall properties.

(2) Amount includes write down of Tulsa note receivable.

(3) Other adjustments include discontinued developments costs, non-property income and expenses, and other non-recurring income or expenses.

Results of Operations - Three Months Ended June 30, 2013 Compared to Three Months Ended June 30, 2012

Revenues

Total revenues increased 25.4%, or $19.6 million, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Of this amount, minimum rents increased $11.4 million, percentage rents increased $328,000, tenant reimbursements increased $4.1 million, and other revenues increased $3.8 million.


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Minimum Rents

Minimum rents increased 24.2%, or $11.4 million, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. During the three months ended June 30, 2013, we experienced an increase in minimum rents of $6.2 million as a result of the Acquisitions. We also received a $2.6 million increase in minimum rents from WestShore Plaza ("WestShore"), located in Tampa, Florida. During June 2013, we purchased the remaining 60% interest in this asset from our joint venture partner (the "WestShore Acquisition"). The increase in rents from WestShore was primarily driven by $2.4 million of termination income we received from a vacating anchor. The remaining increase of $2.6 million can be attributed to the remaining portfolio.

Percentage Rents

Percentage rents increased by 18.5%, or $328,000, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. This increase is primarily the result of increased sales productivity from certain tenants whose sales exceeded their respective lease breakpoints.

Tenant Reimbursements

Tenant reimbursements increased 18.1%, or $4.1 million, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Of this increase, $3.3 million can be attributed to the Acquisitions.

Other Revenues

Other revenues increased 66.6%, or $3.8 million, for the three months ended June
30, 2013 compared to the three months ended June 30, 2012. The components of
other revenues are shown below (in thousands):

                                For the Three Months Ended June 30,
                                    2013                 2012       Inc.
License agreement income $      1,966                  $ 1,861    $   105
Outparcel sale                  4,435                      545      3,890
Sponsorship income                466                      414         52
Fee and service income          1,893                    2,075       (182 )
Other                             774                      826        (52 )
Total                    $      9,534                  $ 5,721    $ 3,813

License agreement income relates to our tenants with rental agreement terms of less than thirteen months. During the three months ended June 30, 2013, we sold approximately sixty-nine acres of undeveloped land near Cincinnati, Ohio, for $4.4 million. During the three months ended June 30, 2012, we sold an outparcel at Grand Central Mall, located in City of Vienna, West Virginia, for $545,000. Fee and service income primarily relates to fee and service income earned from our joint ventures. These fees are calculated in accordance with each specific joint venture arrangement.

Expenses

Total expenses increased 18.8%, or $11.6 million, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Property operating expenses increased $2.4 million, real estate taxes increased $2.1 million, the provision for doubtful accounts increased $178,000, other operating expenses increased $1.8 million, depreciation and amortization increased $4.2 million, and general and administrative costs increased $911,000.

Property Operating Expenses

Property operating expenses are expenses directly related to the operations of the Properties. The expenses include, but are not limited to: wages and benefits for Property personnel, utilities, marketing, and insurance. Numerous leases with our tenants contain provisions that permit the Company to be reimbursed for these expenses.

Property operating expenses increased $2.4 million, or 14.3%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Of this increase, $2.2 million was attributable to the Acquisitions.


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Real Estate Taxes

Real estate taxes increased $2.1 million, or 22.2%, for the three months ended June 30, 2013 compared to the three months ended June 30, 2012. Of this increase, $1.7 million was attributable to the Acquisitions.

Provision for Doubtful Accounts

The provision for doubtful accounts was $742,000 for the three months ended June 30, 2013 compared to $564,000 for the three months ended June 30, 2012. The provision represented 0.8% and 0.7% of revenue for the three months ended June 30, 2013 and 2012, respectively, and the increase primarily relates to the Acquisitions.

Other Operating Expenses

Other operating expenses are expenses that relate indirectly to the operations of the Properties. These expenses include, but are not limited to, costs related to providing services to our unconsolidated real estate entities, expenses incurred by the Company for vacant spaces, legal fees related to tenant collection matters or other tenant related litigation, and costs associated with wages and benefits related to short-term leasing. These expenses may also include costs associated with discontinued projects or sale of outparcels, as applicable.

Other operating expenses increased $1.8 million, or 26.9%, for the three months ended June 30, 2013, as compared to the three months ended June 30, 2012. During the three months ended June 30, 2013, we recognized $4.1 million in costs related to the sale of approximately sixty-nine acres of undeveloped land located near Cincinnati, Ohio. We also incurred an additional $1.0 million in ground lease expenses associated with Pearlridge and Malibu for the three months ended June 30, 2013, compared to the same period in the previous year. During the three months ended June 30, 2012, we incurred $3.2 million in discontinued development costs associated with a potential development in Panama City, Florida that we no longer intend to pursue. We did not experience any discontinued development write-offs during the three months ended June 30, 2013.

Depreciation and Amortization

Depreciation and amortization expense increased by $4.2 million, or 18.9%, for . . .

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