Press Releases

General Growth Properties, Inc. Releases Second Quarter 2008 FFO and Earnings Results

7/30/2008
Tim Goebel
Director
Investor Relations
(312) 960-5199

CHICAGO, July 30, 2008 -- General Growth Properties, Inc. (NYSE: GGP) (the Company) reported today its operating results for the second quarter 2008. Core Funds From Operations (Core FFO) per fully diluted share were $0.72 for the second quarter of 2008. Core FFO per fully diluted share for the comparable period in 2007 was $0.73. Funds From Operations (FFO) per fully diluted share were $0.71 for the second quarter of 2008, equal to the reported FFO per fully diluted share in the comparable period of 2007. Earnings per share – diluted (EPS) were $0.13 and $0.03, respectively, for the second quarters of 2008 and 2007.

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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 second quarter of 2008 was $228.4 million or $0.72 per fully diluted share as compared to $216.6 million or $0.73 per fully diluted share for the second quarter of 2007. Although aggregate Core FFO increased in the second quarter of 2008 by $11.8 million, Core FFO per fully diluted share declined as a result of the issuance of common stock in 2008.

  • FFO was $228.0 million in the second quarter of 2008, an increase of approximately 8.4% or $17.7 million, from $210.3 million in the second quarter of 2007, primarily as a result of higher real estate property net operating income in 2008 in our retail and other operating segment.

  • EPS in the second quarter of 2008 were $0.13, a $0.10 increase from the comparable 2007 quarter. The higher EPS in 2008 is primarily due to the $30.8 million, net of minority interest (or approximately $0.12 per share), in gains recognized on the previously reported sales of certain office buildings in the second quarter of 2008.

  • Development Projects
    The Company, in collaboration with certain retailers, has decided to defer the opening of certain near and intermediate term new development and redevelopment projects. As a result, approximately $500 million of development expenditures will be deferred during the next 18 months. The principal factors for the Company's decision are the current retail and credit market conditions. The Company believes that such deferral will enhance the likelihood that these new development and redevelopment projects will open when general economic conditions are more favorable and when attractive financing is more generally available.

  • Core FFO per share guidance We currently project 2008 Core FFO to be approximately $3.42 per share ($0.77 and $1.17 for the third and fourth quarters of 2008, respectively, in addition to the $1.48 in Core FFO per share already produced), or approximately 15% above the Core FFO per share amount of $2.97 for 2007. The decrease in current 2008 Core FFO guidance from previous amounts is primarily due to lower forecasted NOI in the second half of 2008, due to the likely continuation of the current weak economic conditions.

    SEGMENT RESULTS

    Retail and Other Segment

  • NOI increased to $628.8 million for the second quarter of 2008, 8.4% above the $580.3 million reported for the second quarter of 2007. The majority of this increase is due to the acquisition of our venture partner’s 50% interest in Homart I in July 2007, which resulted in the consolidation of 20 of the 23 properties in that portfolio that were previously reported as unconsolidated in our operating results.

  • Revenues from consolidated properties for the second quarter of 2008 were $775.1 million, an increase of 14.9% compared to $674.6 million for the same period in 2007. This increase is primarily due to the Homart I acquisition, as discussed above. Excluding such acquisition, consolidated revenues would have increased by approximately $11.0 million or 1.6%.

  • Revenues from unconsolidated properties, at the Company’s ownership share, for the quarter declined 16.6% to $153.8 million, compared to $184.4 million in the second quarter of 2007. The decline was primarily due to the acquisition of our venture partner’s interest in the Homart I properties.

  • Comparable tenant sales increased 0.8% in 2008, while total tenant sales were consistent with the same period last year, both on a trailing twelve month basis.

  • Comparable NOI from consolidated properties in the second quarter of 2008 increased by 2.6% compared to the same period last year, and increased by 3.9% for the first half of 2008 compared to the first half of 2007.

  • Comparable NOI from unconsolidated properties at the Company’s ownership share for the quarter increased by approximately 7.9% compared to the second quarter of 2007, and increased by 8.2% for the first half of 2008 compared to the first half of 2007.

  • Retail Center occupancy increased to 93.2% at June 30, 2008 from 92.9% at June 30, 2007.

  • Sales per square foot for the second quarter of 2008 and 2007 (on a trailing twelve month basis) were both $459.

    Master Planned Communities Segment

  • Reflecting a stagnant housing market, NOI from the Master Planned Communities segment for the second quarter of 2008 was $0.6 million for consolidated properties and $6.6 million for unconsolidated properties as compared to $6.6 million and $7.9 million, respectively, in 2007.

  • Land sale revenues for the second quarter of 2008 were $15.9 million for consolidated properties and $17.8 million for unconsolidated properties, compared to $36.1 million and $22.7 million, respectively, for the second quarter of 2007. Such declines in land sale revenues reflect a reduced sales pace for 2008, a trend from the first quarter of 2008 that is expected to continue into 2009.

    CONFERENCE CALL/WEBCAST

    General Growth Properties, Inc. will host a live Webcast of its conference call regarding this announcement on our website, www.ggp.com. This Webcast will take place on Thursday, July 31, 2008, at 9:00 a.m. Eastern Time (8:00 a.m. CDT, 6:00 a.m. PDT). The Webcast can be accessed by selecting the conference call icon on the GGP home page.

    The Company is one of the largest U.S.-based publicly traded Real Estate Investment Trusts (REIT) based upon market capitalization. The Company 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. The Company is listed on the New York Stock Exchange under the symbol GGP.

    NON-GAAP SUPPLEMENTAL FINANCIAL MEASURES AND DEFINITIONS

    FUNDS FROM OPERATIONS AND CORE FFO

    The Company, consistent with real estate industry and investment community preferences, uses FFO as a supplemental measure of operating performance for a REIT. The National Association of Real Estate Investment Trusts (NAREIT) defines FFO as net income (loss) (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from cumulative effects of accounting changes, extraordinary items and sales of properties, plus real estate related depreciation and amortization and including adjustments for unconsolidated partnerships and joint ventures.

    The Company considers FFO a supplemental measure for equity REITs and a complement to GAAP measures because it facilitates an understanding of the operating performance of the Company’s properties. FFO does not give effect to real estate depreciation and amortization since these amounts are computed to allocate the cost of a property over its useful life. Since values for well-maintained real estate assets have historically increased or decreased based upon prevailing market conditions, the Company believes that FFO provides investors with a clearer view of the Company’s operating performance. However, we believe that FFO is a less meaningful supplemental measure for the Master Planned Communities segment of our business. FFO does not facilitate an understanding of the operating performance of the Master Planned Communities segment of our business as our primary strategy in this segment is to develop and sell land in a manner that increases the value of the remaining land. In addition, the Master Planned Communities segment of our business is operated within taxable REIT subsidiaries and therefore our income tax expense is largely attributable to this segment of the business. To isolate these parts of the Company from the Retail and Other segment, for which FFO is a relevant measure of operating performance, the Company also uses Core FFO as an operating measure. Core FFO is defined as FFO excluding the NOI from the Master Planned Communities segment and the (provision for) benefit from income taxes.

    In order to provide a better understanding of the relationship between Core FFO, FFO and GAAP net income, a reconciliation of Core FFO and FFO to GAAP net income has been provided. Neither Core FFO nor FFO represent cash flow from operating activities in accordance with GAAP, neither should be considered as an alternative to GAAP net income and neither is necessarily indicative of cash available to fund cash needs. In addition, the Company has presented FFO on a consolidated and unconsolidated basis (at the Company’s ownership share) as the Company believes that given the significance of the Company’s operations that are owned through investments accounted for on the equity method of accounting, the detail of the operations of the Company’s unconsolidated properties provides important insights into the income and FFO produced by such investments for the Company as a whole.

    REAL ESTATE PROPERTY NET OPERATING INCOME (NOI) AND COMPARABLE NOI

    The Company believes that NOI is a useful supplemental measure of the Company’s operating performance. The Company defines NOI as operating revenues (rental income, land sales, tenant recoveries and other income) less property and related expenses (real estate taxes, land sales operating costs, repairs and maintenance, marketing and other property expenses). As with FFO described above, NOI has been reflected on a consolidated and unconsolidated basis (at the Company’s ownership share). Other REITs may use different methodologies for calculating NOI, and accordingly, the Company’s NOI may not be comparable to other REITs.

    Because NOI excludes general and administrative expenses, interest expense, depreciation and amortization, gains and losses from property dispositions, minority interest in consolidated joint ventures, and extraordinary items, it provides a performance measure that, when compared year over year, reflects the revenues and expenses directly associated with owning and operating commercial real estate properties and the impact on operations from trends in occupancy rates, rental rates, land values and operating costs. This measure thereby provides an operating perspective not immediately apparent from GAAP operating or net income. The Company uses NOI to evaluate its operating performance on a property-by-property basis because NOI allows the Company to evaluate the impact that factors such as lease structure, lease rates and tenant base, which vary by property, have on the Company’s operating results, gross margins and investment returns.

    In addition, management believes that NOI provides useful information to the investment community about the Company’s operating performance. However, due to the exclusions noted above, NOI should only be used as an alternative measure of the Company’s financial performance. For reference, and as an aid in understanding management’s computation of NOI, a reconciliation of NOI to consolidated operating income as computed in accordance with GAAP has been presented.

    Comparable NOI excludes from both years the NOI of properties with significant physical or merchandising changes and those properties acquired or opened during the relevant comparative accounting periods.

    PROPERTY INFORMATION

    The Company has presented information on its consolidated and unconsolidated properties separately in the accompanying financial schedules. As a significant portion of the Company’s total operations are structured as joint venture arrangements which are unconsolidated, management of the Company believes that operating data with respect to all properties owned provides important insights into the income produced by such investments for the Company as a whole. In addition, the individual items of revenue and expense for the unconsolidated properties have been presented at the Company’s ownership share of such unconsolidated ventures. As substantially all of the management operating philosophies and strategies are the same regardless of ownership structure, an aggregate presentation of NOI and other operating statistics yields a more accurate representation of the relative size and significance of such elements of the Company’s overall operations.

    FORWARD LOOKING STATEMENTS

    This press release contains forward-looking statements, including full year 2008 Core FFO per share guidance and expected sales trends in the Master Planned Communities segment. Actual results may differ materially from the results suggested by these forward-looking statements, for a number of reasons, including, but not limited to, tenant occupancy and tenant bankruptcies, the level of indebtedness and interest rates, retail and credit market conditions, land sales in the Master Planned Communities segment, the cost and success of development and re-development projects and our ability to successfully manage growth. Readers are referred to the documents filed by General Growth Properties, Inc. with the SEC, specifically the most recent report on Form 10-K (as amended by Amendment No.1 to such report filed on Form 10-K/A), which further identify the important risk factors which could cause actual results to differ materially from the forward-looking statements in this release. The Company disclaims any obligation to update any forward-looking statements.

    Click here to view financial tables.



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