Press Releases

General Growth Properties, Inc. Reports Fourth Quarter and Full-Year 2009 Results of Operations

3/1/2010
Jim Graham
Senior Director
Public Affairs
(312) 960-2955

Chicago, March 1, 2010 -- General Growth Properties, Inc. (the Company or GGP) today announced its operating results for the three and 12 months ending December 31, 2009.

“The operating results we reported today demonstrate we are successfully executing our business strategy to create long-term value for our stakeholders,” said Adam Metz, chief executive officer of General Growth Properties. ”Our operational focus continues to be providing the best consumer experience in our malls by investing in a high-quality physical environment and supporting the sales of our tenants. We are very pleased with the success of our merchandising strategy which has enabled the Company to complete significant transactions in 2009 with many of the world’s leading retailers. We have maintained our high occupancy rate in part due to renewal activity and exciting openings like the Macy’s at Visalia Mall and Nordstrom at Fashion Place and Kenwood Towne Centre.

"At the same time, we have made prudent financial decisions to respond to challenging market conditions, including reducing corporate overhead spending by over $48 million in 2009 and renegotiating vendor contracts, further reducing our operating costs. We have reinvested much of those savings to enhance the desirability of our properties to our retailers and our customers. Investment in our properties is critical to our ability to continue building long-term value in our Company. The modest decrease in comparable retail NOI for 2009 (4.4%) is consistent with our expectations, given current market conditions and the temporary impact of our restructuring and Chapter 11 proceedings. We are encouraged by the trends we saw in the second half of 2009, as occupancy rates and retail sales per square foot stabilized and retail sales trends began to recover. The steps we are taking now are building a stronger financial and operational foundation for GGP’s future,” Mr. Metz continued.

A schedule showing adjustments and non-comparable income and expense items and their impact on 2009 and 2008 operating results is provided with this release. Readers of this release should also note, as with GGP’s previous quarterly operational announcements for 2009, the 2008 fourth quarter and annual results have been restated from the amounts originally reported for such periods to reflect the adoption of two accounting pronouncements as of January 1, 2009 that required retrospective application. Concurrent with this release, the Company has also made available on its website its quarterly package of supplemental financial information that provides additional detail on its operational results.

OPERATIONAL HIGHLIGHTS

GGP is focused on strengthening its assets and operational performance in order to maximize value over the long term. GGP invests in its properties to enhance their positions in the market and their appeal to shoppers and tenants and is committed to nurturing strong and long-lasting relationships with its retail partners.

Among the operational highlights of 2009 are:

  • Towson Town Center (Baltimore, MD) – Towson Town Center remains Baltimore’s premiere retail destination. Following a remodel and 110,000 square foot expansion in 2009, the property opened Louis Vuitton, Crate & Barrel and Burberry stores and will be opening a Tiffany’s in 2010.
  • Natick Collection (Natick, MA) – GGP built on Natick Collection’s unique upscale presence in the market by opening a “streetscape” addition and adding new dining options including Cheesecake Factory and California Pizza Kitchen. In addition, the property has attracted exclusive retailers such as a 33,000 square foot Crate & Barrel and New England’s only American Girl store.
  • Christiana Mall (Newark, DE) – GGP embarked on a large-scale renovation of this property, which historically generated one of the highest sales-per-square-foot in the nation. An interior renovation completed in 2009 attracted a significant number of new leases, including such retailers as H&M, Sephora, Urban Outfitters, Barnes & Noble, Forever 21 and Anthropologie. Over the next two years, the property will also finish leasing a new 700-seat food court and add a new Target store and a 122,000-square-foot Nordstrom.

    Reductions in Recoverable Costs

    For the full year 2009, the Company achieved an 8.8% reduction in certain common area recoverable operating costs without reducing service levels by strategically containing costs and proactively managing contracted services. Savings from these cost reductions allowed the Company to increase its investment in property preservation and upkeep by approximately 5.9%, as illustrated in the table below, consistent with the Company’s strategy of managing the business with a long-term outlook.

    STRATEGIC INITIATIVES

    Financial Restructuring
    In April 2009, GGP and certain of its subsidiaries filed for relief under Chapter 11 of the Bankruptcy Code. The Chapter 11 case created the protection necessary for GGP to execute a restructuring to extend mortgage maturities and reduce corporate debt. GGP has pursued a deliberate two-stage strategy to establish a sustainable, long-term capital structure for the Company. The first step was to restructure its property-level secured mortgage debt. The Company believes it has achieved substantial progress with respect to the first phase of its restructuring strategy. As of March 1, 2010, it has restructured $10.65 billion of secured mortgage debt, and the GGP subsidiaries associated with such debt have emerged from bankruptcy. The restructuring of the additional $1.7 billion of secured mortgage debt for which we have filed consensual plans is expected to be completed and the related entities are expected to emerge from bankruptcy in the first quarter of 2010. GGP is continuing to pursue consensual restructurings for the remaining approximately $2.5 billion of secured mortgage debt and is prepared to pursue non-consensual resolution if necessary.

    The Company is now in the midst of the second phase: deleveraging its corporate capital structure and resolving its $6.5 billion of unsecured corporate debt. GGP has commenced a process to explore all potential alternatives for emergence from bankruptcy. As part of that process, GGP has announced an agreement in principle with Brookfield Asset Management Inc. (“Brookfield”), one of the world’s largest real estate investors and asset managers, to invest $2.625 billion pursuant to a proposed recapitalization of GGP at a plan value of $15.00 per share with full recovery at par plus accrued interest to unsecured creditors. The proposed equity commitment from Brookfield is not subject to due diligence or any financing condition and is expected to create a floor value for the purpose of raising additional equity for the Company.

    The process to seek emergence alternatives is designed to maximize value for all GGP stakeholders. The Brookfield equity commitment, if consummated, would enable a restructured GGP to emerge from bankruptcy with a diverse portfolio of high-quality income-producing assets, strong cash flow and a solid balance sheet capitalized principally with long-term non-recourse debt.

    The agreement in principle with Brookfield is subject to definitive documentation, approval of the Bankruptcy Court and higher and better offers pursuant to a bidding process that GGP will request the Bankruptcy Court to approve.

    Operational Restructuring
    Along with the financial restructuring, GGP’s management has initiated a significant operational restructuring to ensure the Company will be well-positioned to succeed following its emergence from bankruptcy. In 2009, the Company launched a corporate reengineering program, commenced a strategic planning process and executed an aggressive marketing strategy. These steps will ensure the Company remains focused on operational excellence and has an enhanced organizational structure to match the enhanced capital structure expected following emergence from bankruptcy.

  • Corporate Reengineering Program – GGP’s corporate reengineering program created significant overhead cost savings in 2009 and is expected to generate additional material reductions in corporate overhead in 2010 and beyond. The program increases efficiency and allows individual properties to more quickly respond to and take advantage of evolving local market conditions.
  • Strategic Planning – GGP’s Strategic Planning process ensures each center is well-positioned in its respective market by identifying specific key issues and developing customized strategic and tactical plans that encompass leasing, development, operations, marketing, and alternative revenue.
  • Marketing Strategies – Also in 2009, GGP implemented a reengineered marketing structure designed to meet the current and future needs of our Company, consumers and retailers. GGP unveiled the industry’s most advanced integrated marketing program, combining traditional marketing with an aggressive online strategy including social and online media. This has created substantial efficiencies, further solidifying GGP’s position as the industry leader in consumer engagement.

    SEGMENT RESULTS

    Retail and Other Segment

  • NOI in this segment decreased to $606.9 million for the fourth quarter of 2009 from the $701.8 million reported for the fourth quarter of 2008 and was impacted by several one-time nonrecurring items. One-time items include $24.9 million of additional costs or reduced revenue related to bankruptcy-related claims and $15.5 million in additional property upkeep costs. These one-time items were partially offset by reductions in certain other common area recoverable costs. In addition, 2008 fourth quarter NOI included an insurance settlement of $11.9 million related to business interruption caused by hurricane Katrina in 2007. Excluding these items and other non-comparable items, NOI for 2009 declined 4.4% from 2008. GGP believes that NOI was further impacted by reduced leasing activity as a result of the Company’s bankruptcy. See table below.



  • Revenues from consolidated properties, excluding the hurricane Katrina settlement, declined $59.8 million, or approximately 7.5%, for the fourth quarter of 2009 to $768.8 million, primarily due to declines in tenant recoveries, overage rents and minimum rents, the latter as a result of declines in specialty leasing.
  • Revenues from unconsolidated properties at the Company’s ownership share were $161.9 million for the fourth quarter 2009, roughly flat from $162.2 million in the fourth quarter of 2008, reflecting continued solid performance and as a result of their isolation from the effects of GGP’s bankruptcy filing.
  • Comparable tenant sales, on a trailing 12 month basis, decreased 7.4% compared to the same period last year.
  • Tenant sales per square foot, on a trailing 12 month basis, decreased 7.2% compared to the same period last year.
  • Retail Center occupancy decreased to 91.6% at December 31, 2009 from 92.5% at December 31, 2008. Occupancy rates stabilized in the last four months of 2009, rising from 91.3% at the end of the third quarter to 91.6% at the end of the fourth quarter.

    Master Planned Communities Segment
    GGP’s premier master planned community segment includes The Woodlands and Bridgeland, both in the Houston metropolitan area, Summerlin in Las Vegas and Columbia and Emerson in Maryland. On February 1, 2010, following a five-year coordinated community effort, local government authorities approved the Company’s 30-year master plan for the town center at its Columbia, MD, master planned community, clearing a path to 13 million square feet of retail, commercial, residential, hotel and cultural development.

  • Land sale revenues for the fourth quarter of 2009 were $7.2 million for consolidated properties and $11.7 million for unconsolidated properties, compared to $35.5 million and $18.1 million, respectively, for the fourth quarter of 2008. Decreases in land sale revenues reflect continued weak overall demand for individual lots. GGP believes conditions in this market are improving and expects 2010 sales to improve.
  • NOI from the Master Planned Communities segment for the fourth quarter of 2009 was a loss of $1.6 million for consolidated properties and a positive $0.1 million for unconsolidated properties, compared to $5.7 million and $7.9 million, respectively, in the fourth quarter of 2008. Individual lot sales in 2009 were below 2008 levels and, together with 2009 bulk sales, did not exceed selling and community-specific general and administrative costs, which are largely fixed.

    CORE FFO, FFO AND EPS HIGHLIGHTS

  • Core FFO for the fourth quarter of 2009 was a loss of $416.9 million, or a loss of $1.30 per fully diluted share, compared to a positive $224.4 million, or $0.70 per fully diluted share, for the fourth quarter of 2008. FFO was a loss of $413.9 million in the fourth quarter of 2009 compared to a positive $215.6 million in the fourth quarter of 2008, a decrease of approximately $629.5 million. The primary driver for these losses in 2009 were aggregate provisions for impairment of $793.9 million in the three months ended December 31, 2009 compared to $60.8 million for the comparable quarter in 2008, reflecting reduced holding periods for non-strategic operating assets and indefinite delays in major development projects. Partially offsetting the impairment amounts were gains of approximately $342.2 million (included as a component of reorganization items) recorded in the fourth quarter of 2009 related to estimated (as required under GAAP and solely for such accounting purposes) fair value adjustments of the secured debt of the subsidiary debtors that emerged from bankruptcy in December 2009. In addition, there were $148.5 million, net, of other reorganization items incurred in the fourth quarter of 2009 arising from the Company’s bankruptcy proceedings, as detailed in the supplemental schedule. Similar costs incurred in the fourth quarter of 2008 (recorded as strategic initiative costs as these costs were incurred prior to GGP’s petitions for bankruptcy protection in April 2009) were $18.7 million. Given the uncertainties concerning GGP’s capital structure and the timing of the conclusion of its exit from bankruptcy, GGP will not provide FFO guidance for 2010 at this time.
  • EPS were a loss of $1.96 in the fourth quarter of 2009 compared to a loss $0.02 in the fourth quarter of 2008, substantially all of which was due to the items listed in the attached supplemental schedule and the matters affecting NOI, Core FFO and FFO described above.

    GGP INFORMATION
    The Company currently has ownership interest in, or management responsibility for, over 200 regional shopping malls in 43 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’s common stock is currently traded in the over-the-counter securities market operated by Pink OTC Markets Inc. under the symbol GGWPQ.

    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) attributable to controlling interests (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 (provision for) benefit from 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 (loss), a reconciliation of Core FFO and FFO to GAAP net income attributable to controlling interests 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 (loss) attributable to controlling interests 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, allocations to non-controlling interests, reorganization items, 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 attributable to controlling interests. 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. Actual results may differ materially from the results suggested by these forward-looking statements, for a number of reasons, including, but not limited to, the bankruptcy filings of the debtors not currently emerging from bankruptcy, our ability to refinance, extend, restructure or repay our near and intermediate term debt, our substantial level of indebtedness, our ability to implement a plan or plans of reorganization for the remaining debtors to emerge from bankruptcy, our ability to raise capital through equity issuances, asset sales or the incurrence of new debt, retail and credit market conditions, impairments, land sales in the Master Planned Communities segment, and our liquidity demands. Readers are referred to the documents filed by General Growth Properties, Inc. with the Securities and Exchange Commission, 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.

    View financial tables here.



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