Things Not All That Bad at General Growth Properties

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 |  About: General Growth Properties (GGP)
by: Todd Sullivan

A closer look reveals things are far better than the market assumes and for those who enjoy irony, the "worse case scenario", may actually be the best....

General Growth (GGP) currently has ownership interest in, or management responsibility for, over 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company’s portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide.

Results from the Press Release:


Chicago, Illinois, February 23, 2009 — General Growth Properties, Inc. (NYSE: GGP) (the Company) announced today its results of operations for the fourth quarter of 2008. Core Funds From Operations (Core FFO) per fully diluted share for the fourth quarter of 2008 were $0.72, Funds From Operations (FFO) per fully diluted share were $0.70 and Earnings per share — diluted (NYSEARCA:EPS) were zero. For the full year 2008 Core FFO was $2.83, FFO was $2.72 and EPS was $0.10. Although FFO per fully diluted share for the fourth quarter of 2008 increased from the $0.64 of FFO per fully diluted share for the fourth quarter of 2007, both Core FFO and EPS declined in the fourth quarter of 2008, as compared to the fourth quarter of 2007. Both the quarterly and annual 2008 and 2007 comparable periods had significant items that affected FFO comparability, including provisions for impairment, tax restructuring benefit and strategic review costs. A supplemental schedule showing such items and their impact on 2008 and 2007 FFO is provided with this release.


FINANCIAL AND OPERATIONAL HIGHLIGHTS


• Core FFO is defined as Funds From Operations excluding the Real Estate Property Net Operating Income (NOI) from the Master Planned Communities segment and the (provision for) benefit from income taxes. Core FFO for the fourth quarter of 2008 was $231.0 million, or $0.72 per fully diluted share, as compared to $271.2 million, or $0.92 per fully diluted share, for the fourth quarter of 2007. While the aggregate of minimum rents and tenant recoveries remained essentially flat for the quarter, overall declines in the general economy, and the retail market specifically, impacted our retail properties causing revenue reductions in overage rents, and other income (for items including promotion, sponsorship, and parking income). Cost reductions in marketing, repairs and maintenance, supplies, contracted services, security, landscaping, and personnel costs, did not fully offset our revenue declines.

• FFO was $222.2 million in the fourth quarter of 2008 as compared to $190.4 million in the fourth quarter of 2007, an increase of approximately $31.8 million. FFO was significantly impacted by items as detailed in the attached supplemental schedule. Excluding such items, FFO declined in the fourth quarter of 2008 as compared to the fourth quarter of 2007 as a result of lower comparable NOI in the retail and other segment and higher interest expense.

• EPS were zero in the fourth quarter of 2008 compared to $0.24 in the fourth quarter of 2007, substantially all of which was due to the items listed in the attached supplemental schedule and the matters affecting Core FFO and FFO described above.

2009 Maturing debt and liquidity concerns

We are primarily focused on our near and intermediate term loan maturities. The refinancing market remains at a standstill. We are considering all strategic alternatives and are continuing our discussions with our lenders. In addition, we have suspended our cash dividend, halted or slowed nearly all of our development and redevelopment projects, systematically engaged in certain cost reduction or efficiency programs, reduced our workforce by over 20% and sold certain non-mall assets. We currently have approximately $1.179 billion of past due debt and approximately $4.09 billion of debt that could be accelerated. However, our lenders have not yet exercised any of their remedy rights with respect to such debt. In addition, we have $1.44 billion of consolidated mortgage debt and approximately $595 million of unsecured bonds scheduled to mature in the balance of 2009 that remains to be refinanced, repaid or extended. In the event that we are unable to extend or refinance our near and intermediate term loan maturities, we may be required to seek legal protection from our creditors.


Given the uncertainties concerning our ability to refinance maturing loans and the impact of potential strategic alternatives, we will not provide Core FFO guidance for 2009 at this time.

Here is the debt maturity schedule:

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Debt Covenant Ratios:

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SEGMENT RESULTS


Retail and Other Segment
• NOI declined 2.4% from the $718.9 million reported for the fourth quarter of 2007 to $701.8 million for the fourth quarter of 2008. This reduction in NOI is primarily due to decreased revenue primarily due to declines in overage rents and other income.

• Comparable NOI from consolidated properties decreased 4.1% in the fourth quarter of 2008 versus the fourth quarter of 2007.

• Comparable NOI from unconsolidated properties at the Company’s ownership share for the fourth quarter of 2008 declined by approximately 10.0% compared to the fourth quarter of 2007. Declines in termination income in 2008 (due to certain individually large terminations in 2007) and foreign currency translation rate differences between periods caused the comparable NOI decline for unconsolidated properties to be significantly larger than that of the comparable consolidated properties.

• Revenues from consolidated properties declined approximately 3.2% for the fourth quarter of 2008, or approximately $27.5 million, to $840.5 million as compared to $868.0 million for the same period in 2007 primarily due to declines in overage rent and other income.

• Revenues from unconsolidated properties at the Company’s ownership share declined slightly for the fourth quarter 2008 as compared to the fourth quarter of 2007, to $162.2 million from $163.2 million, as increased minimum rents from certain expansions and renovations opened since late 2007 and certain ownership increases in properties owned through our international joint ventures were more than offset by overage and other income declines across the segment.

• Comparable tenant sales, on a trailing twelve month basis, decreased 3.8% compared to the same period last year.

• Sales per square foot, on a trailing twelve month basis, decreased 4.2% compared to the same period last year.

• Retail Center occupancy decreased to 92.5% at December 31, 2008 from 93.8% at December 31, 2007.

Now much has been said about the property that GGP holds and how it has deteriorated in value. BUT, if we look at recent land sales from its planned communities, we see the opposite is happening:

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Here are the top ten tenants in Retail Operations:

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None of these large tenants are in danger of leaving unless the company is in a Chapter 11 proceeding. GGP derives 60% of rents from anchor stores and 40% from the remainder.

Breakdown by region:

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So, no two ways around it. The debt is crushing the company but operations are performing just fine, very well actually given the current climate. Also, the value of the real estate on the books is clearly below its actual value. The more one looks at it, one has to hope the company files Chapter 11, clear its debt and starts over.

The opportunity here is really impressive...

FULL 8-K


Disclosure: Long GGP