Press Releases

General Growth Properties, Inc. Reports Operating Results for Third Quarter 2008

11/5/2008
Timothy Goebel
Director
Investor Relations
(312) 960-5199

Chicago, Illinois, November 5, 2008 -- General Growth Properties, Inc. (NYSE: GGP) (the Company) released its third quarter 2008 results of operations today. For the third quarter of 2008, Core Funds From Operations (Core FFO) per fully diluted share were $0.64, Funds From Operations (FFO) per fully diluted share were $0.58 and Earnings per share – diluted (EPS) were a loss of $0.06. Although retail property revenue has remained relatively stable, Core FFO and FFO per fully diluted share have both declined from the comparable amounts reported for the third quarter of 2007 primarily due to provisions for impairment recognized in the third quarter 2008, as described below. For EPS purposes, such provisions for impairment were partially offset by gains on sales of non-core assets.

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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 benefit from (provision for) income taxes. Core FFO for the third quarter of 2008 was $205.7 million or $0.64 per fully diluted share as compared to $200.7 million or $0.68 per fully diluted share for the third quarter of 2007. The $5.0 million, or 2.5%, increase in Core FFO compared to the third quarter of 2007 was primarily due to the recognition of our share of the Glendale Galleria litigation cost of approximately $37.1 million in the third quarter of 2007. Core FFO for the third quarter of 2008 includes provisions for impairment of $7.8 million at one of our core operating properties and an aggregate of $7.4 million of non-recoverable development costs (approximately $0.05 per fully diluted share in the aggregate). Core FFO per fully diluted share declined relative to the third quarter of 2007 due to the dilutive affect of the issuance of 22.8 million shares of GGP common stock in March 2008.

  • FFO was $185.4 million in the third quarter of 2008, a decline of approximately 11.0% or $23.0 million, from $208.4 million in the third quarter of 2007. The decline in FFO was due to significantly lower NOI at certain of our communities within the master planned community operating segment in 2008, as well as a provision for impairment of $40.3 million (or approximately $0.13 per fully diluted share) for Nouvelle at Natick (a residential condominium project that is classified as property held for development and sale) as a result of non-recoverable development costs at September 30, 2008. The remaining Nouvelle carrying value, including estimated costs to complete, is currently estimated to be fully recoverable through unit sales which commenced in October 2008.

  • EPS were a loss of $0.06 in the third quarter of 2008 compared to a loss of $0.04 in the third quarter of 2007. The decrease in EPS was primarily due to lower land sales and provisions for impairment and is partially offset by the $15.1 million, net of minority interest (or approximately $0.06 per fully diluted share), recognized on the previously reported sales of certain office parks in the third quarter of 2008.

    Strategic, development and financing update

    The Company’s Board of Directors and management team, together with their financial and legal advisors, continue to comprehensively examine all financial and strategic alternatives for the Company, including, but not limited to, sales of both core and non-core assets, sales of joint venture interests, corporate level capital infusions and broader strategic business combinations.

    The Company has deferred the development, construction or opening of certain near and intermediate term new development and redevelopment projects. As a result, all future development expenditures other than expenditures for projects that are near completion and approved projects at our jointly owned properties have been deferred. The regularly scheduled quarterly dividend for the third quarter of 2008 was suspended and, since June 30, 2008, approximately $47 million of non-core asset sales have been completed.

    In addition, as of today, approximately $1.74 billion of new and/or replacement financing has funded since June 30, 2008, consisting of the July 2008, $1.51 billion secured portfolio facility and a new $225 million short term secured loan. As a result, all loans previously scheduled to mature in 2008 through the date of this release have been refinanced, continued or repaid. The Company has approximately $900 million of property secured debt and approximately $58 million of corporate debt that is scheduled to mature by December 1, 2008 that remains to be refinanced and extended. As previously announced, the Company is working with its syndicate of lenders for the property secured debt (for Fashion Show and The Shoppes at The Palazzo, two of our premier Las Vegas properties) to extend the November 28, 2008 maturity dates and is marketing these properties for sale.

  • Core FFO per share guidance
    We currently project 2008 Core FFO to be in the range of $2.85 to $2.95 per share. The 2008 Core FFO guidance has been reduced as a result of lower expected NOI growth, the provisions for impairment discussed above and increases in amortization of refinancing costs. The 2008 Core FFO guidance does not include the impact of implementing our strategic alternatives or any future provisions for impairment.

    SEGMENT RESULTS

    Retail and Other Segment

  • NOI increased to $622.5 million for the third quarter of 2008, 1.0% above the $616.3 million reported for the third quarter of 2007. This increase is due to the opening of expansions and renovations at certain operating properties and, in March of 2008, the acquisition of The Shoppes at The Palazzo.

  • Comparable NOI from consolidated properties in the third quarter of 2008 decreased by 1.8% compared to the same period last year, and increased by 1.8% for third quarter year-to-date 2008 compared to third quarter year-to-date 2007.

  • Comparable NOI from unconsolidated properties at the Company’s ownership share for the quarter increased by approximately 8.0% compared to the third quarter of 2007 and increased by 7.1% for third quarter year-to-date 2008 compared to third quarter year-to-date 2007.

  • Revenues from consolidated properties for the third quarter of 2008 were $784.3 million, an increase of 0.4% compared to $781.1 million for the same period in 2007. Increases were substantially offset by declines in SFAS 141 rents, termination income and overage rent.

  • Revenues from unconsolidated properties, at the Company’s ownership share, for the third quarter increased 3.8% to $151.4 million, compared to $145.8 million in the third quarter of 2007. The increase was primarily due to increased minimum rents from certain expansions and renovations opened since mid 2007 and certain ownership increases in properties owned through our international joint ventures.

  • Comparable tenant sales, on a trailing twelve month basis, increased 0.3% compared to the same period last year.

  • Sales per square foot, on a trailing twelve month basis, decreased 0.7% compared to the same period last year.

  • Retail Center occupancy decreased slightly to 92.7% at September 30, 2008 from 93.2% at September 30, 2007.

    Master Planned Communities Segment

  • NOI from the Master Planned Communities segment for the third quarter of 2008 was a loss of $42.7 million for consolidated properties and income of $3.6 million for unconsolidated properties as compared to income of $11.0 million and $11.5 million, respectively, in 2007. In addition to the provision from impairment that resulted from the non-recoverable development costs for Nouvelle as described above, the change in 2008 NOI compared to 2007 NOI reflects the continuing adverse effect of the credit market on new home sales and the resulting reduction in demand for residential lots.

  • Land sale revenues for the third quarter of 2008 were $6.2 million for consolidated properties and $13.1 million for unconsolidated properties, compared to $54.2 million and $33.5 million, respectively, for the third quarter of 2007. Such declines in land sale revenues reflect a continuation of the 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 Wednesday, November 5, 2008, at 9:00 a.m. Eastern Time (8:00 a.m. CST, 6:00 a.m. PST). The Webcast can be accessed by selecting the conference call icon on the GGP home page.

    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. For more information, please visit the Company website at http://www.ggp.com.

    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 Real Estate Investment Trust (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 benefit from (provision for) 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 benefit from (provision for) 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, retail investment property impairment or other non-recoverable development costs, 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 (with respect to the Master Planned Communities) 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.

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    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 the Company’s strategic and financing review. 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, impairments, land sales in the Master Planned Communities segment, the cost and success of development and re-development projects and our ability to successfully manage our strategic and financial review and our liquidity and refinancing demands. Readers are referred to the documents filed by General Growth Properties, Inc. with the SEC, 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.



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