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General Growth Properties Inc. (NYSE:GGP)

Q3 2008 Earnings Call

November 5, 2008 9:00 am ET

Executives

Tim Goebel - Director, Investor Relations

Adam Metz - Interim CEO

Tom Nolan - Interim President

Ed Hoyt - SVP and Interim CFO

Bob Michaels - COO

Analysts

Christy McElroy - Banc of America Securities

Jeff Spector - UBS

Lou Taylor - Deutsche Bank

Rich Moore - RBC Capital Markets

Ben Yang - Green Street Advisors

Paul Morgan - FBR

Jeff Donnelly - Wachovia Securities

Michael Bilerman - Citi

Jay Haberman - Goldman Sachs

Steve Sakwa - Merrill Lynch

Fred Taylor - MJX Asset Management

Michael Mueller - JPMorgan

Nate Isbee - Stifel Nicolaus

Evon Cee - Credit Suisse

Ramin Kamali - Credit Suisse

Jeff Miller - JMG Capital

Operator

Good day everyone and welcome to today's General Growth Properties' third quarter 2008 Earnings Call. This call is being recorded.

At this time, I would like to turn the call over to Mr. Tim Goebel. Please go ahead, sir.

Tim Goebel

Thank you, Stacy. Please note that this conference call and webcast will contain forward-looking statements, including guidance for 2008 core FFO. Actual results may differ materially from the future operations suggested by these forward-looking statements due to various risks and uncertainties. Please consult documents General Growth Properties Inc. has filed with the SEC, specifically the most recent Forms 10-K and 10-Q for a detailed discussion of these risks and uncertainties. The company disclaims any obligation to update any forward-looking statements.

Additionally, GGP has furnished its quarterly supplemental information packet to the SEC in an 8-K filed this morning and posted the documents on ggp.com in the Investment section.

During the Q&A, we respectfully request that you limit yourself to a single question with a follow-up and then re-queue if necessary.

Now, I am turning the call over to Adam Metz, our CEO, who will kick things off.

Adam Metz

Thank you, Tim. Good morning, everybody, and thank you for your interest in General Growth. I am here with Tom Nolan, our President; Bob Michaels, our COO; and Ed Hoyt, our CFO. I want to start out and ask for your patience and understanding. Tom and I are not yet 10 days into our new positions.

What I do now is that this is a very good portfolio of assets, operated by an extremely dedicated and talented group of individuals. I also know that we have a significant amount of debt maturities ahead of us and a challenging capital market and what appears to be a rapidly deteriorating retail sales climate.

Let me first say a few words about the credit market. These are the worst credit markets I believe most of us have experienced in our careers. We are currently in a world where even performing assets with strong sponsorship and low loan to values have difficulty refinancing upon loan maturity.

The problem is that the traditional sources of mortgage capital have dried up. CMBS is nonexistent and banks and insurance companies are all stressed to varying degrees. Debt capital is an extraordinarily scarce resource today.

So what are we doing? Our plan is fairly straightforward. Unfortunately in real estate, it is not possible to turn things around immediately. So, you are going to have to bear with us on some of these items.

First, we are trying to reduce our spending and run the business on more of a basis to generate cash. As you know, last month we suspended our dividend. Although we obviously need to meet the minimum payout requirements to retain our REIT status, I do not envision restoring our dividend in the near term. The Board will review this on a periodic basis.

We are drastically reducing our development spending, and have either canceled or postponed projects. As I previously said, most of our development spending in the fourth quarter is already committed. The real impact of our reduction will be felt in 2009. Given the current economic circumstances, this is something we would want to do anyway. We have also been in an ongoing dialogue with our key department stores and tenants, and they are very supportive of this change.

Second, we are reexamining the way we spend money both corporately and at the properties. For example, I anticipate we will reduce the amount of tenant allowances we may give out. Again, because many of our deals are already signed up through '09, it will take some time to feel this impact, but we are changing things here. We also want to be cognizant as we are giving out tenant allowance of the credit quality of our tenant base.

Third, we are going to attempt to negotiate loan extensions where possible. We think this is a practical solution for all parties given the reality of the refinancing market. GGP has historically been a large issuer of CMBS. It is unclear at this time how the traditional process of negotiating extensions with either a bank or insurance company will be altered in the case of CMBS.

Historically, GGP has disclosed very detailed information on each loan, including rate and term. Although we try to be transparent where possible, we balance that against how the public disclosure of information impacts our ability to operate our business effectively.

Going forward in these volatile debt markets, except where specifically required, we do not believe it is in the best interest of the company to make individual loan details available. I liken it to our nondisclosure of lease deals on specific tenant transactions. Obviously, we do not want one tenant to know the terms we gave a competitor and vice versa. We will continue to disclose loan information in the aggregate.

Fourth and most significant, we are going to sell assets or interest in assets. I realize we have been saying this for some time and we have yet to announce any transactions of significance. We realize that we need to generate billions of dollars to de-leverage the company.

Sales transactions are an important part of our plan. Unfortunately, these transactions take time. Until the deals are completed, there is really nothing to announce. We hope to be able to report some transactions prior to yearend.

Finally, we continue to explore some entry-level equity infusion alternatives. Neither Tom nor I take any of the company's problems for granted. We are fully aware of our situation and working hard to execute the company's plan and to enable the company to be de-leveraged and get through our impending loan maturity.

With that, I would like to turn the conference call over to our new President, Tom Nolan.

Tom Nolan

Thank you, Adam, and I join with Adam in welcoming you to our first earnings call.

As Adam noted, we are in unprecedented times. We realize we are not telling you anything you have not already heard or do not already know. We do recognize, however, that in General Growth case; these conditions are more acute, given the substantial debt refinancing challenges that we have ahead of us.

As Adam touched on, we are actively pursuing various types of capital infusions at the corporate level and asset level. Where we thought it was appropriate, we have put sales brochures out into the market, primarily for non-strategic and non-mall assets. For our mall assets, we have established an electronic data room that can be accessed by qualified prospective buyers or potential joint venture partners after they sign the appropriate confidentiality agreements.

Our decision to specifically include the Las Vegas assets in our recent press release was based on our judgment that the potential buying pool for those assets is likely broader than our general mall portfolio. That announcement did generate interest, and we are working with our advisors to move that process forward.

As much as we realize everyone is anxious for a detailed description of our plan for every loan maturity, we simply cannot discuss potential transactions or speculate on which of the different strategic initiatives or capital raising strategies we will pursue.

Now, I will turn the call over to Ed Hoyt who will review our financial performance for the quarter.

Ed Hoyt

Thank you, Tom, and good morning. I would like to provide you with a brief review of our results included in the 8-K filed this morning and available on our website and then focus on some key items this quarter.

Core FFO per share in the quarter was $0.64 per share, down 5.9% year-over-year. For the nine months, Core FFO per share was $2.12, up 3.4% year-over-year.

This quarter's results included an impairment charge related to our retail assets of $15 million or approximately $0.05 per share evenly split between predevelopment write-offs and recognition of an impairment on an operating asset. We have now broken this out as a separate line item on our financials in both periods for comparability. Without these impairments, Core FFO per share would have increased 1.6% in the quarter and 5.7% year-to-date.

Comparable NOI declined 0.5% in the quarter to stand at 2.5% year-to-date, because some of you like to look at it this way: comp NOI, excluding lease termination fees, would have been up fractionally 0.3% and 1.6% respectively.

Average in place rent and recoverable common area costs continue to rise, up 3.9% in the wholly-owned properties, and releasing spreads remained in the low to mid teens.

The majority of our reduction in Core FFO guidance for 2008 consists of four items. We have reduced our NOI expectations for the year by approximately $98 million or $0.31 per share. We expect full year comp NOI increase to be in the 1.5% to 2% range.

Interest expense is expected to be approximately $24 million or $0.08 a share higher than planned. This is driven by higher borrowing costs and lower capitalized interest caused by the reduced development activity. The impairment charge I mentioned will reduce Core FFO by an additional $0.05 per share, and higher professional fees will contribute $0.04 a share to this reduction.

In our master planned communities business, we recorded a $40.3 million charge related to impairment at Nouvelle at Natick luxury condominium project. With the continued slowness in the residential sales market, this project did not pass our impairment review, which we conduct each quarter. Consequently, we recorded an impairment loss based upon the applicable accounting guidelines.

All the loans previously scheduled to mature through today have been refinanced, extended or repaid. As of today, we are current on all of our debt obligations. Additionally, as of quarter-end, we are in compliance with all of our debt covenants.

With that, I will turn the call over to Bob Michaels.

Bob Michaels

Thank you, Ed.

It was a very challenging quarter for our retail partners with the volatility in the markets and the Consumer Confidence Index trending at the lowest point in a number of years. Despite this, our core portfolio performed as well as could be expected with our occupancy at 92.7% for permanent long-term leases versus 93.2% in the third quarter of 2007.

Our comparative sales were plus 0.3% for the quarter, and total sales were minus 0.7%, with our trailing 12-month tenant sales at $463 a square foot. Our overall occupancy cost for our retailers as a percentage of sales was 12.9%, which we believe is very competitive, and when the economy improves, does give us the ability to continue to increase rents over the long-term.

While our third quarter and September in particular were difficult months for our retail partners, I think the challenge will continue during the balance of 2008 and well into 2009. In reviewing our sales, which we have for October, we believe that when the retailers report tomorrow that we will see negative sales that also track the volatility, which we saw in the markets and the overall economy during the month of October.

We are also tracking carefully potential 2009 store closings, based upon our watch list, which we update weekly during this time of the year.

As we look at the all-important holiday season, the National Retail Federation has predicted a small increase in sales, with the average American consumer spending approximately $832 during this holiday season. We see the holiday season as very challenging, very promotional, it will be very value-oriented, a lot of early door buster sales, and gift cards will again play an important role in our overall sales, pushing some typical December sales into January.

We also believe that those retailers who offer value and execute their plans will do well just as they have done during the entire year. One positive is, of course, the price of gas has moderated, which does have an effect on the consumer shopping patterns.

In talking to our retail partners, we find their focus is on their existing stores, getting their renewals done for 2009 and 2010. Based upon our internal forecasts, we have completed almost all of our 2009 renewals and approximately 75% of our overall 2009 leasing.

If there is a good news is I believe that with little new development activity from the next number of years, the well-anchored regional mall will continue to be the venue of choice for retailers to seek out their new locations and where they will plant their flag for the long term.

While the next two quarters will certainly be challenging, we are prepared for it with our high center occupancies, our retailers' confidence in their own long-term strategies and the overall quality of our retailers, the best of any retail format.

I would now like to turn the call back to Adam.

Adam Metz

Thank you very much, Bob. With that, I think we will open it up for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). We'll take our first question from Christy McElroy, Banc of America Securities.

Christy McElroy - Banc of America Securities

Hi. Good morning. Regarding the debt on Fashion Show and Shoppes at The Palazzo, how confident are you given the kind of conversations that you had to date that you'll be able to either sell the assets or extend the debt prior to November 28th?

If neither occurs and you end up defaulting on the debt, what would be the potential implications for your corporate level debt and what would be your options from there?

Adam Metz

Well, in terms of the negotiations relative to the loan extension, I think all we could tell you is we've begun negotiations and we haven't completed them. That’s kind of where we are. The asset is not going to be sold by the 28th of November. That is something that we're working with everybody hard to do both those things, and we are hopeful that we will be able to achieve both those goals.

Christy McElroy - Banc of America Securities

Switching to guidance, you talked about a $0.31 reduction in NOI expected for Q4. Can you provide some additional color on kind of what's driving that? Is it higher store closings and lower occupancy, lower leasing spreads, lower percentage rents or are there other factors?

Ed Hoyt

Our lower guidance in NOI really is a result of having three quarters behind us or a little more than three quarters behind us and looking forward into the fourth quarter. We're better positioned to see exactly what NOI was or is going to be.

Adam Metz

This is a good way of saying it exactly what Ed said. We took a good hard look at where we are and what we are comfortable with projecting forward. The kind of guidance we're giving now is based on all that.

Christy McElroy - Banc of America Securities

Is it being more conservative or do you think that the prior guidance was maybe overly optimistic?

Adam Metz

We are, I would say, not trying to be overly conservative. We're looking at the fourth quarter. But I don't think any of us, as we look at kind of the retail sales trends, is particularly bullish on the fourth quarter. I think our economic view of the fourth quarter is significantly different that it would have been 90 days ago.

Christy McElroy - Banc of America Securities

Sure. Okay. Lastly, can you comment on whether or not your auditors are taking another look at a potential write-down at Summerlin, given the pretty significant deterioration of the Vegas housing market? Would a write-down have any potential implications for the covenants on your Rouse bonds?

Ed Hoyt

We look at the impairments on all of our assets. Those assets in particular are master planned community assets. We don't believe we are in any danger of an impairment.

Christy McElroy - Banc of America Securities

Thank you.

Operator

We'll take our next question from Jeff Spector with UBS.

Jeff Spector - UBS

Good morning. I'd like to focus on the core results for the quarter. I was definitely surprised by the lower number. If you compare this to your peers, it was dramatically lower. I think Bob said, given the current environment, it seemed like in line with maybe what your expectations were. Can you please provide a better explanation of what happened to the core NOI results over the last quarter?

Bob Michaels

Well, for the most part, our core operations were relatively flat. We did not get some of the spec leasing that we thought we might be able to achieve. In addition, our specialty leasing program has not been quite up to what we had hoped earlier in the year.

Jeff Spector - UBS

Basically you are saying those items are what dragged same-center NOIs to negative approximately 2%?

Bob Michaels

Well, those are areas that have typically fueled our growth in NOI. With those areas being a bit more flat, we didn't get the growth.

Adam Metz

Yes, but if you look at it on a combined basis, through the first six months, our combined NOI, and correct me if I am wrong on this, Ed, is about 4.5%.

Bob Michaels

Right. For the quarter, on a combined basis, unconsolidated plus consolidated, our core NOI, same mall NOI growth was about flat. Right? If you combine the 4.5% for the six months with the flat for the quarter and it brought us down to kind of where we are. I don't think we are expecting the fourth quarter to be fantastic either. I don't see the number coming back, but probably more of a continuation of the trend we had in the third quarter.

Ed Hoyt

The other item that impacts our NOI a bit for the quarter is lower termination fees and FAS 141 accretion, which was lower this year than in past years.

Adam Metz

You want to explain to people what that is?

Ed Hoyt

Well, that's really essentially the amortization of above and below market leases that we record in acquisitions which is recorded in NOI. It is a non-cash item.

Jeff Spector - UBS

If I could just ask a follow-up on the '09 leasing progress you discussed, you mentioned obviously a pretty high percentage that's completed. You also said that you plan to reduce TIs, and it's hard to imagine that tenants are not at this point asking GGP for more. Can you please provide a little bit more color on the deals you have completed for '09, TI spreads?

Adam Metz

Right. The deals that are done, we will live up to our commitments obviously to the tenants. Going forward, though, I think we're going to change our approach. It's really, as I said, for two reasons. Obviously, we're concerned about the credit quality and don't want to be as exposed. Secondly, we want to do everything we can to generate as much cash as we could possibly do from all different sources.

That is our approach. People may come back and ask for more, but our approach to the tenant leasing is that we would rather, I guess, take in this world a lower rent than give out TI, if you kind of look at that as a trade-off.

Ed Hoyt

I think the other thing is that with a cutback in the development, that's really where a lot of the TI would go into the new developments and into the expansions of existing centers. Most of the leasing that I mentioned, most of our renewals are done. They are January 31 renewals. For the most part, they are all in place.

We're approximately 75% done on our overall 2009 leasing. Most of the leasing will end up being renewals in place and/or filling in for existing tenants that may vacate during 2009. Typically, those allowances are not anywhere near the amount that would be on a new development or on a redevelopment.

Jeff Spector - UBS

Sorry. Can I just ask one more follow-up? The consolidated versus unconsolidated that you mentioned, can you explain the big difference there?

Ed Hoyt

The difference in NOI?

Jeff Spector - UBS

Correct. From the previous statement. Sorry about that.

Ed Hoyt

I don't really have a detailed analysis of that right now. I can't give you any specifics behind that.

Jeff Spector - UBS

Okay. Thank you.

Operator

We'll go next to Lou Taylor with Deutsche Bank.

Lou Taylor - Deutsche Bank

Thanks. Good morning, guys. Ed, just staying with the NOI theme just for a little bit longer, of that kind of $98 million, how much would you attribute to, say, kind of core run rate items like just like occupancy and rents versus seasonal items, whether it be seasonal leasing or percentage rent?

Ed Hoyt

We haven't broken that number down, because we really took a look going forward on what we thought NOI would be. I would just be guessing. But what we did is we took a look at where NOI was year-to-date and with a very short window to forecast it. That's really how we came up with our NOI projection.

Lou Taylor - Deutsche Bank

Okay. Well, maybe put it another way, is that kind of $0.30 reduction in NOI, is that a good run rate for '09?

Ed Hoyt

I believe it is.

Lou Taylor - Deutsche Bank

Okay. Second question for Adam or Tom, can you guys just give us an update on your liquidity position in terms of cash and credit line availability or for your even construction loan draws that you may have out there?

Adam Metz

Yes, I'm not sure exactly what to tell you on that. There is a bunch of disclosure in the supplemental in regard to our credit line. That can give you some guidance there.

Lou Taylor - Deutsche Bank

Okay. Just in terms of the large-term loan, I think it's about $1.9 billion that's drawn on it, how much availability does that have left in it?

Adam Metz

Yes, it's all in the supplemental, Lou. It is kind of a term of the revolver, and I think the total is about $2.6 billion. There is really not any kind of significant availability.

Lou Taylor - Deutsche Bank

Okay. Thank you.

Operator

We'll go next to Rich Moore with RBC Capital Markets.

Rich Moore - RBC Capital Markets

Hello, good morning, guys. Adam, I am curious, has any entity made an offer for the company in its entirety?

Adam Metz

No. I'm not trying to be evasive, but it just doesn't make sense for us in terms of the process to kind of discuss the details of it.

Rich Moore - RBC Capital Markets

That's fair. But you're basically saying no one has made that kind of offer?

Adam Metz

I'm not saying anything.

Rich Moore - RBC Capital Markets

You're not, okay. I'm sorry. I thought you said no, no one has made that. I got you. Are you looking for any other members of senior management or do you feel like this is the management team that will carry the company forward for say the next year?

Adam Metz

Tom and I are totally focused on trying to solve the company's balance sheet items. There is no current search for a CEO or a President. But let me finish, one second. We've hired an executive search firm, and we are conducting a search for a permanent CFO, although Ed is doing a super job, stepping up here. But that we're doing.

Rich Moore - RBC Capital Markets

Okay. Regarding other levels of management, is there any other kind of active search going on?

Adam Metz

Nothing specific to report.

Rich Moore - RBC Capital Markets

Okay, great, terrific. Thank you, guys.

Operator

We'll go next to Ben Yang with Green Street Advisors.

Ben Yang - Green Street Advisors

Hi, good morning. You guys have taken steps to conserve capital, and you talk about selling certain non-core assets. Is the land business part of the non-core assets sale process, the master planned communities?

Adam Metz

The master planned communities are certainly part of the strategic review that we're conducting for the entire portfolio of assets for the company.

Ben Yang - Green Street Advisors

Are there any obstacles that might prevent you from selling at least the Summerlin piece, given the contingent liability that you have there with the Hughes' heirs?

Adam Metz

I don't think we want to talk about any specifics relative to the different components, the different land parcels we have other than it is part of our entire strategic review.

Ben Yang - Green Street Advisors

Okay. Thank you.

Operator

We'll go next to Paul Morgan with FBR.

Paul Morgan - FBR

Good morning. You mentioned the data room that you have for your malls that you're marketing. I mean how broad is the scope of what's on the table for individual kind of core mall asset sales at this point?

Adam Metz

It's a good question. We're trying to be focused, but we're also trying to understand where there is availability in the marketplace. Maybe that's a good way to say it. It's obviously a very constrained debt capital market. What we're trying to do is focus on more than one option at the same time, because given the world today; you just don't know what deals may make and what deals may not make.

It's important not to kind of put all your eggs in one basket. We're working on, I would say, multiple items, but still trying to retain our focus so that our efforts aren't totally disbursed here. It's kind of more than a plan A. We have a plan B and C too, but it's not just throwing a bowl of spaghetti against the wall and seeing what sticks.

Paul Morgan - FBR

Right. I mean have you identified a set of the portfolio that you really wish to retain beyond this process or is that not really part of the consideration?

Adam Metz

Obviously, we would prefer to sell non-core over the core, but we have a significant amount of loan maturities in the next year, and we're going to have to make tough choices. Fashion Show, Palazzo, Grand Canal Shoppes is one of them. It's a big maturity. It's coming up very soon. We think the best thing to do there is do the sale. It's going to have a broad interest from traditional, I'd say, operating people who look at the business, but also above and beyond that.

In an ideal world, would you prefer not to sell that, yes, but it's kind of one of the hard choices we're going to make. There is also balance in terms of pricing and what kind of pricing you could achieve. We're also looking at whether it makes sense. What are loan maturities on things, do we own 100% or 50%, all those kind of elements factor into what makes the most sense for us to part with.

Paul Morgan - FBR

Okay. My other question was on the TI, the strategy there. I mean is that changed based on your assessment of what the policy had been relative to your peers, and maybe you had been overpaying or more willing to pay up for the TIs or is it related more purely to your capital position and the state of the tenants' credit?

Adam Metz

The latter. We didn't really look at what our peers are doing at all.

Paul Morgan - FBR

It's really a cyclical thing and then specific to your balance sheet right now?

Adam Metz

Well, given where we are with our balance sheet and the state of the markets, it's the right way to run the business.

Paul Morgan - FBR

Okay. Thanks.

Operator

We'll take our next question from Jeff Donnelly with Wachovia Securities.

Jeff Donnelly - Wachovia Securities

Good morning, guys. I guess a two-part question on the lending environment. First, given the pressure lending institutions are under, generally speaking, how amenable are you finding lending communities restructuring loans, because I would assume a few would have an aggressive stance on foreclosure at this time?

I'm not sure this has been contemplated and may well be far-fetched, but in these unprecedented times we are seeing U.S. companies going to direct access to borrowing from the Federal Reserve to address short-term borrowings needs.

Is that an avenue that could be open to General Growth in the event you need just short-term financing to bridge maturing loan proceeds?

Adam Metz

I would say relative to the loan extensions, your first question, you have to kind of divide it up. There is banks, kind of life companies and CMBS. I anticipate kind of based on past historical cycles that there will be kind of a normal process where both parties come to the table and try to figure out what's in their mutual interest in terms of granting loan extensions. There are all sorts of variables that play into it. The rates could change somewhat and all that kind of thing. It's a kind of a negotiation amongst two parties.

The CMBS part of it is, I'd say, relatively new since the last kind of credit crisis in the real estate business in the late '80s, early '90s. It's going to be interesting to see how that comes out. The master servicers and the special servicers will be playing a pretty important role in all this in terms of managing the various bondholder interest.

I'm not sure what to say relative to the Fed, access to Federal funds. I think we're working on the assumption that these challenges that we have talked about, we're going to be working on the context of the general banking economic climate.

Jeff Donnelly - Wachovia Securities

Yes, thanks, guys.

Operator

We'll go next to Michael Bilerman with Citi.

Michael Bilerman - Citi

Hi, good morning. Quentin Velleley is on the phone with me as well. Can you just over on the revolver and the term loan? You've talked about being in line with your covenants. Can you just walk through the key covenants and the ones that you are close to in terms of capacity and how that could trigger those loans coming due earlier than their maturity in 2011?

Tom Nolan

Well, as I have said, we're in compliance with all of our covenants and we really don't wish to discuss detailed calculations or how close we are, because we meet the test and we go forward. We wouldn't want to speculate on what might happen if we weren't to meet those tests.

Michael Bilerman - Citi

How much unencumbered assets do you have today?

Tom Nolan

I don't even know off-hand.

Michael Bilerman - Citi

In terms of the covenants, going back to the Rouse bonds and the term of the revolver, I guess there is some mortgage financing that you are trying to refi. But how are you going to be able to refi the unsecured bonds with enough capital to be able to do that?

Adam Metz

Well, basically, as I kind of pointed out in my remarks, we're doing a number of things. As I said, I don't envision us restoring our dividends in the near term. We're doing everything we can to reduce our development spending, reduce tenant allowance, reduce internal costs. We're doing as much financing, refinancing as we can, given the world. We're looking at these asset sales deals and the corporate level deals to deleverage the company and generate cash that will allow us to pay our debts as they come due.

I don't think we're going to necessarily have one monster transaction that's going to solve all the company's leverage issues, but it's kind of a road that we're marching down, and hopefully we'll make progress each month as we go along. That's kind of the plan.

I understand your frustration, because until we start to announce deals, it's all talk. But we can't tell you something that's not done yet either. We're working very hard to get some of these things done and to ultimately show people that we can do some things and make some progress at deleveraging the balance sheet.

Michael Bilerman - Citi

Specifically regarding the Las Vegas assets, in totality of the three, what's the total current NOI coming off of those assets on an annualized basis?

Adam Metz

Yes, we're not going to disclose that.

Michael Bilerman - Citi

I'm asking for a value.

Adam Metz

I understand. I understand.

Michael Bilerman - Citi

You talked about the secured debt that's rolling next year, about $2.7 billion. You talked about a little over $400 million of NOI. I assume your forecast is much lower for that today than it would be previously?

Adam Metz

Well, I don't have those specific assets at my fingertips. But in general, I'd say our view is cautious of the world. We're not underwriting that the world is going to get a lot better. September and even, I think, October is probably worst in terms of retail sales. We're being cautious.

I have not looked at our specific '09 property-by-property NOI projections. Obviously, it's something we'll continue to refine as we kind of get more information about the economy and where retail sales are going.

Michael Bilerman - Citi

Just one clarification, Adam. You talked about $220 million of the development spend in the fourth quarter that's already been committed. How do you fund that $220 million?

Adam Metz

We fund it through corporate cash flow and cash on hand and potentially some of these asset sales. I guess money is all fungible, right? We kind of have all the sources of cash and we have our uses of cash.

Michael Bilerman - Citi

I just didn't know if there were specific loans you had in place for those specifically that you could draw for all corporate cash. That was the clarification I needed.

Adam Metz

Yes.

Michael Bilerman - Citi

Thank you.

Operator

Next to Jay Haberman with Goldman Sachs.

Jay Haberman - Goldman Sachs

Hey, good morning. Adam, you mentioned not having to pay a dividend for a while. I mean do you expect have to pay any dividend in 2009 or can you get through 2009 without paying the dividend?

Adam Metz

Well, we'll see, and it depends on these asset sales too, how things work out. I don't envision us paying it in the near term. Obviously, the Board determines the dividend and will review it on a periodic basis.

Right now, the most important thing for the company is to fix our balance sheet. We're very focused on deleveraging and fixing the balance sheet and getting to a point where we're in a more stable financial position, given the current state of the credit markets.

Jay Haberman - Goldman Sachs

Right. Just following up on that point in terms of raising capital, can you just mention a bit on the entity level? I know it was point five of you plan. But sort of infusions of capital, how much equity capital is out there? Have you been approached at all? How far along are these discussions at this point? It's really a decision, I guess, in order to raise liquidity more immediately versus, as you said, sort of taking this more step-by-step.

Adam Metz

Yes. Look, our view is that all these avenues that we have talked about are part of the plan, but I don't want to kind of telegraph too much anything that we're doing, because I just don't think it behooves the company when you're in the midst of working through various options to talk about details of them.

I guess I want to give you guys a sense of what we're doing, but really we have nothing to talk about until we have a deal that's done. I don't think it helps us necessarily to kind of add to speculation on all those things. We really don't have anything concrete to tell you.

Jay Haberman - Goldman Sachs

Okay. Thank you.

Operator

We'll go next to Steve Sakwa with Merrill Lynch.

Steve Sakwa - Merrill Lynch

Good morning. I guess I had a question about the Rouse entity and how it fits sort of under General Growth. Are there any, I guess, tax issues or tax complications as a result of the merger and the way maybe the merger was structured and maybe a lack of step-up in basis and assets that make selling assets out of the Rouse LP more complicated or perhaps less?

Adam Metz

Yes, I'll answer the question generically maybe. I wouldn't necessarily isolate Rouse, but depending on how you structure deals, there are tax implications of every deal, and there are ways to better structure deals to try to reduce whatever tax impact there could be. But it's something we're keenly aware of as we work through our various deal structures. Our goal is to maximize cash proceeds to the company.

Tom Nolan

Rouse does have a complex tax situation. There were certainly some holding period concerns that have now past with respect to selling assets or, in some way, some other capital transaction with those assets. But we look at that on an asset-by-asset or deal-by-deal basis, because depending on the structure of any potential deal, the tax implications might be totally different. But it's something we closely monitor.

Adam Metz

One thing I will say, Steve, is our focus is really on kind of net cash generated from any kind of transaction, not so much what's the cap rate, the kind of typical metrics people look at. We're really focused on what's the kind of most efficient way to do a transaction.

Steve Sakwa - Merrill Lynch

Well, I guess I'm asking, because I know earlier this year, the company went through and restructured some TRS. I don't know that if that has any positive or potentially negative implications in terms of selling.

I just didn't remember if when the company bought Rouse, if those assets were not maybe stepped-up in basis, which creates a larger tax burden to the extent that you sell for cash. I just didn't know if that then limited your ability to sell assets out of that pool.

Tom Nolan

No, not really. The restructuring had more to do with making sure that operating assets were sitting in the right structure, being a tax efficient structure rather than a taxable structure. But that should not pose limitations on us.

Steve Sakwa - Merrill Lynch

Okay. Thanks.

Operator

Our next question comes from Fred Taylor with MJX Asset Management.

Fred Taylor - MJX Asset Management

I have a question. Is Deutsche Bank the mortgage holder on Fashion Show?

Adam Metz

There is a syndicated bank.

Fred Taylor - MJX Asset Management

Okay. As I'm sure you know, it takes a lot of time to document things. Have they at least verbally given a nod to the extension and are working on documentation or are they going to wait until the day before?

Adam Metz

I know you guys would love to kind of half-time report on all this stuff, but it doesn't make sense for us do that. All I could tell you is we've started negotiations. We're not completed. We're working hard. I can't give you any kind of interim details and nor make any promises honestly. That's exactly where we are.

Fred Taylor - MJX Asset Management

Thank you.

Operator

We'll go to Michael Mueller with JPMorgan.

Michael Mueller - JPMorgan

Yes, hi. Ed, I know you don't want to get into too much specifics about the covenants. But is there a 1.6 fixed charge coverage covenant, because in the quarter it looks like you were a hair under that at 1.59?

Ed Hoyt

I'm sorry; once again?

Michael Mueller - JPMorgan

Is there a covenant that is around 1.6 times fixed charge coverage, because in Q3, it looks like you were 1.59? Because I know in your opening comments, you said you were fine with respect to covenants.

Ed Hoyt

We have been through them, and I don't have the calculations in front of me. I don't want to guess at it, but I know that we were in compliance with all of them.

Michael Mueller - JPMorgan

Okay. There is not a covenant where you need to be 1.6 or above?

Ed Hoyt

Again, I don't have that in front of me. I don't want to answer specifically about the covenant, but I know that we're in compliance with them.

Michael Mueller - JPMorgan

Okay. Other question has been answered. Thanks.

Operator

We'll go to David Fick with Stifel Nicolaus.

Nate Isbee - Stifel Nicolaus

Hi, good morning. It's Nate Isbee here with David Fick. Has there been any indication that your auditors might issue a going concern opinion?

Ed Hoyt

No.

Nate Isbee - Stifel Nicolaus

Okay. I figured that was the case. But would such an opinion affect any of your covenants?

Ed Hoyt

Well, the auditors' opinion will really be on full year financials. That's really not until February that we talk about an audit opinion.

Nate Isbee - Stifel Nicolaus

Okay. But would there be issues, assuming it was less than perfect?

Ed Hoyt

That I can't answer.

Nate Isbee - Stifel Nicolaus

Okay. Thank you.

Operator

We'll go to [Evon Cee] with Credit Suisse.

Evon Cee - Credit Suisse

Hi. Good morning. Is there any recourse to GGP on either the Fashion Show or The Shoppes at Palazzo, meaning if you need to, can you just choose to turn the keys over on these two properties without hurting the rest of the company?

Adam Metz

Look, our plan is to negotiate a loan extension and sell those assets. That's really what we're totally focused on.

Evon Cee - Credit Suisse

But is there recourse to GGP on either of the assets on the mortgages?

Adam Metz

Yes, they are recourse.

Evon Cee - Credit Suisse

On both of them?

Adam Metz

Both of them.

Evon Cee - Credit Suisse

Okay. I know you don't want to talk about covenants right now, but is there any chance that going forward you could show us your covenant ratio calculations, because I know you guys say that you are in compliance, but it would give investors a lot more comfort to see how much room you have? It would prevent speculation that you might break them, if you would just show us how you calculate it.

Adam Metz

Right, we'll take that under consideration.

Evon Cee - Credit Suisse

Okay. Thank you. That's all.

Operator

We'll go to Ramin Kamali with Credit Suisse.

Ramin Kamali - Credit Suisse

Hi, guys. I have two questions. The first is what was the Rouse's NOI for the quarter?

Adam Metz

I don't know. We don't really think about it that way to be honest with you. We kind of think about the whole company.

Ed Hoyt

The Rouse's financials will be in the Q, but we don't break out Rouse's NOIs specifically.

Ramin Kamali - Credit Suisse

With respect to mortgages on properties, do most of the mortgages have a change of control? Like could a buyer, if you were able to find a buyer, could they basically step into the existing financing?

Adam Metz

No, a technical mortgage has what's called permitted transferee language, and every deal is slightly different.

Ramin Kamali - Credit Suisse

Generally, would a buyer be able to or not be able to step into it?

Adam Metz

Every deal is a little different. But just generically on a CMBS deal, I'd say a large institutional buyer would be able to step into the shoes on generic CMBS deals.

Ramin Kamali - Credit Suisse

Okay. Thank you.

Operator

We'll go to Jeff Miller with JMG Capital.

Jeff Miller - JMG Capital

Hi. This is just me putting in my two cents here. At this stage of the game, you guys are stepping into a situation that's extremely difficult. But giving more information other than less would be helpful to bondholders and equity holders that have taken a lot of pain.

Not having information about your covenant ratios or your debt levels, what needs to be done, I think you should have that at a minimum. It's frustrating when you're not being as open as I think you should be to help out investors get more comfortable about what's going on with the company going forward. I just wanted to give you my two cents. Thanks.

Adam Metz

All right.

Jeff Miller - JMG Capital

Thank you.

Operator

This concludes our question-and-answer session. At this time, I would like to turn the conference back over to Mr. Adam Metz for any additional or closing comments.

Adam Metz

I just want to kind of reiterate that we understand the situation we're in. We're all working very hard to get some transactions done to fix the balance sheet we have and put us in a better position going forward. Thank you for your continued interest in GGP.

Operator

This concludes today's conference. We thank you for your participation. Have a nice day.

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Source: General Growth Properties Inc. Q3 2008 Earnings Call Transcript
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