Early this decade, Glimcher Realty Trust embarked on a tried-and-true real estate strategy to produce greater long-term shareholder value: purge community centers and underperforming assets to emphasize premium, market-dominant malls. Over the past five years, the Columbus, Ohio-based real estate investment trust (REIT) has shredded its real estate holdings from more than 70 assets in 22 states to 27 properties in 14 states.

Glimcher Realty still has three properties it wants to chop from its portfolio, and it anticipates disposing of two by the end of the year. The challenge is that the REIT is exercising the final leg of its strategy amid consumer spending cutbacks, rising retailer bankruptcies and a credit crunch that has knocked Wall Street titans to their knees.

Despite its progress, Glimcher Realty's strategy won't totally insulate it from economic turmoil. In the third quarter, for example, the landlord reported a 6% drop to $181.8 million in funds from operations — a closely watched measure of REIT operating performance — compared with the same quarter last year.

Meanwhile, the occupancy rate among non-anchor tenants in Glimcher Realty's portfolio fell to 92.6% in the third quarter from 93.5% during the same period a year ago. At roughly 22 million sq. ft., the company ranks as one of the smaller U.S. mall REITs, a fact that concerns credit rating agencies given the company's $1.6 billion in debt compared with its $2.2 billion market capitalization as of late October.

Still, executives with the 49-year-old company are wagering that their strategy will pay off in the face of expected weak holiday sales and a prolonged recession. Glimcher Realty's occupancy, for example, is on par with the mall REIT sector, points out Michael Glimcher, chairman and CEO of the company.

Glimcher Realty's re-leasing spreads, which are base rents for new leases and renewals in space that was previously occupied for 24 months, increased 19% in the third quarter. That figure is up from 15% in the second quarter.

“The work we've done has put us in a position to weather a crazy environment that nobody could have predicted,” emphasizes the CEO. “Clearly when you get into awful economic times like this, quality is going to be a differentiating factor.”

Recession on steroids

Whether those moves are enough to generate profits in this volatile climate remains uncertain. National retail sales dropped 1.2% in September compared with the same month in 2007, which represents the largest drop since a 1.4% decrease in August 2005, according to the Commerce Department. The National Retail Federation predicts that holiday sales will only grow 2.2% this year, or half the 10-year average.

As if that's not enough gloom, non-farm payrolls plunged 760,000 in the first three quarters of 2008. Plus, unlike past recessions, a worldwide credit freeze that nobody under the age of 80 has ever experienced could turn conventional downturn wisdom on its head.

“The average person is scared and is thinking, ‘Do I really need to spend $500 this Christmas, or can I spend $250?’” says David Bonser, a partner in the Washington, D.C. law firm of Hogan & Hartson, who represents REITs and other companies in capital raising, mergers and acquisitions, and other transactions. “It will have a direct impact on retailers and eventually will impact mall owners.”