e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2008
or
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o |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from ____________ to ____________
Commission file number 1-11656
GENERAL GROWTH PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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42-1283895 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification Number) |
110 N. Wacker Dr., Chicago, IL 60606
(Address of principal executive offices, including Zip Code)
(312) 960-5000
(Registrants telephone number, including area code)
N / A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the Exchange Act) during the
preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ |
Accelerated filer o |
Non-accelerated filer o
(Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
The number
of shares of Common Stock, $.01 par value, outstanding on
August 5, 2008 was 267,703,684.
GENERAL GROWTH PROPERTIES, INC.
INDEX
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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June 30, |
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December 31, |
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2008 |
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|
2007 |
|
|
|
(Dollars in thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Investment in real estate: |
|
|
|
|
|
|
|
|
Land |
|
$ |
3,311,634 |
|
|
$ |
3,310,634 |
|
Buildings and equipment |
|
|
23,370,856 |
|
|
|
22,653,814 |
|
Less accumulated depreciation |
|
|
(3,909,350 |
) |
|
|
(3,605,199 |
) |
Developments in progress |
|
|
1,196,249 |
|
|
|
987,936 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
23,969,389 |
|
|
|
23,347,185 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
1,872,746 |
|
|
|
1,857,330 |
|
Investment land and land held for development and sale |
|
|
1,678,838 |
|
|
|
1,639,372 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
27,520,973 |
|
|
|
26,843,887 |
|
Cash and cash equivalents |
|
|
87,444 |
|
|
|
99,534 |
|
Accounts and notes receivable, net |
|
|
373,834 |
|
|
|
388,278 |
|
Goodwill |
|
|
385,683 |
|
|
|
385,683 |
|
Deferred expenses, net |
|
|
287,705 |
|
|
|
290,660 |
|
Prepaid expenses and other assets |
|
|
849,950 |
|
|
|
806,277 |
|
|
|
|
|
|
|
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Total assets |
|
$ |
29,505,589 |
|
|
$ |
28,814,319 |
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|
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|
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Liabilities and Stockholders Equity: |
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|
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Mortgages, notes and loans payable |
|
$ |
24,461,117 |
|
|
$ |
24,282,139 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
45,117 |
|
|
|
53,964 |
|
Deferred tax liabilities |
|
|
867,126 |
|
|
|
860,435 |
|
Accounts payable and accrued expenses |
|
|
1,585,110 |
|
|
|
1,688,241 |
|
|
|
|
|
|
|
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Total liabilities |
|
|
26,958,470 |
|
|
|
26,884,779 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Minority interests: |
|
|
|
|
|
|
|
|
Preferred |
|
|
121,482 |
|
|
|
121,482 |
|
Common |
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|
434,636 |
|
|
|
351,362 |
|
|
|
|
|
|
|
|
Total minority interests |
|
|
556,118 |
|
|
|
472,844 |
|
|
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|
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|
|
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Commitments and Contingencies |
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Preferred Stock: $100 par value; 5,000,000 shares authorized; none
issued and outstanding |
|
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|
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|
|
|
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|
|
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Stockholders Equity: |
|
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|
|
|
Common stock: $.01 par value; 875,000,000 shares authorized,
269,124,509 shares issued as of June 30, 2008
and 245,704,746 shares issued as of December 31, 2007 |
|
|
2,691 |
|
|
|
2,457 |
|
Additional paid-in capital |
|
|
3,315,657 |
|
|
|
2,601,296 |
|
Retained earnings (accumulated deficit) |
|
|
(1,302,536 |
) |
|
|
(1,087,080 |
) |
Accumulated other comprehensive income |
|
|
51,941 |
|
|
|
35,658 |
|
Less common stock in treasury, at cost, 1,449,939 shares
as of June 30, 2008 and 1,806,650 shares as of
December 31, 2007 |
|
|
(76,752 |
) |
|
|
(95,635 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,991,001 |
|
|
|
1,456,696 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
29,505,589 |
|
|
$ |
28,814,319 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
|
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|
2008 |
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|
2007 |
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|
2008 |
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|
2007 |
|
|
|
(In thousands, except for per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
507,099 |
|
|
$ |
443,432 |
|
|
$ |
1,032,041 |
|
|
$ |
879,474 |
|
Tenant recoveries |
|
|
231,548 |
|
|
|
195,403 |
|
|
|
463,179 |
|
|
|
394,858 |
|
Overage rents |
|
|
10,892 |
|
|
|
10,876 |
|
|
|
24,410 |
|
|
|
26,456 |
|
Land sales |
|
|
15,855 |
|
|
|
36,130 |
|
|
|
24,921 |
|
|
|
59,923 |
|
Management and other fees |
|
|
21,918 |
|
|
|
26,348 |
|
|
|
42,157 |
|
|
|
53,920 |
|
Other |
|
|
28,306 |
|
|
|
27,893 |
|
|
|
59,232 |
|
|
|
54,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
815,618 |
|
|
|
740,082 |
|
|
|
1,645,940 |
|
|
|
1,468,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
69,004 |
|
|
|
55,089 |
|
|
|
137,653 |
|
|
|
111,949 |
|
Repairs and maintenance |
|
|
56,997 |
|
|
|
47,918 |
|
|
|
119,098 |
|
|
|
98,891 |
|
Marketing |
|
|
8,776 |
|
|
|
10,713 |
|
|
|
21,052 |
|
|
|
23,294 |
|
Other property operating costs |
|
|
104,434 |
|
|
|
97,609 |
|
|
|
216,326 |
|
|
|
197,645 |
|
Land sales operations |
|
|
15,211 |
|
|
|
29,542 |
|
|
|
25,131 |
|
|
|
49,686 |
|
Provision for (recovery of) doubtful accounts |
|
|
6,287 |
|
|
|
(1,701 |
) |
|
|
8,996 |
|
|
|
3,791 |
|
Property management and other costs |
|
|
54,804 |
|
|
|
56,447 |
|
|
|
106,942 |
|
|
|
109,589 |
|
General and administrative |
|
|
4,416 |
|
|
|
4,030 |
|
|
|
12,515 |
|
|
|
16,299 |
|
Depreciation and amortization |
|
|
191,242 |
|
|
|
163,289 |
|
|
|
375,501 |
|
|
|
338,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
511,171 |
|
|
|
462,936 |
|
|
|
1,023,214 |
|
|
|
949,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
304,447 |
|
|
|
277,146 |
|
|
|
622,726 |
|
|
|
519,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
1,449 |
|
|
|
2,944 |
|
|
|
2,006 |
|
|
|
4,977 |
|
Interest expense |
|
|
(312,943 |
) |
|
|
(275,547 |
) |
|
|
(632,337 |
) |
|
|
(543,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes, minority interest
and equity in income of Unconsolidated Real Estate Affiliates |
|
|
(7,047 |
) |
|
|
4,543 |
|
|
|
(7,605 |
) |
|
|
(19,596 |
) |
(Provision for) benefit from income taxes |
|
|
(6,866 |
) |
|
|
(17,647 |
) |
|
|
(16,257 |
) |
|
|
270,744 |
|
Minority interest |
|
|
(3,969 |
) |
|
|
(5,085 |
) |
|
|
(9,290 |
) |
|
|
(59,502 |
) |
Equity in income of Unconsolidated Real Estate Affiliates |
|
|
21,145 |
|
|
|
26,581 |
|
|
|
44,973 |
|
|
|
46,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
3,263 |
|
|
|
8,392 |
|
|
|
11,821 |
|
|
|
238,586 |
|
Discontinued operations, net of minority interest gains on dispositions |
|
|
30,819 |
|
|
|
|
|
|
|
30,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
34,082 |
|
|
$ |
8,392 |
|
|
$ |
42,640 |
|
|
$ |
238,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.01 |
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.98 |
|
Discontinued operations |
|
|
0.12 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total basic earnings per share |
|
$ |
0.13 |
|
|
$ |
0.03 |
|
|
$ |
0.17 |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.01 |
|
|
$ |
0.03 |
|
|
$ |
0.05 |
|
|
$ |
0.97 |
|
Discontinued operations |
|
|
0.12 |
|
|
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total diluted earnings per share |
|
$ |
0.13 |
|
|
$ |
0.03 |
|
|
$ |
0.17 |
|
|
$ |
0.97 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
|
0.50 |
|
|
|
0.45 |
|
|
|
1.00 |
|
|
|
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income, Net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
34,082 |
|
|
$ |
8,392 |
|
|
$ |
42,640 |
|
|
$ |
238,586 |
|
Other comprehensive income, net of minority interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on financial instruments |
|
|
2,170 |
|
|
|
(14 |
) |
|
|
746 |
|
|
|
(1,082 |
) |
Accrued pension adjustment |
|
|
(66 |
) |
|
|
391 |
|
|
|
(359 |
) |
|
|
203 |
|
Foreign currency translation |
|
|
17,168 |
|
|
|
9,470 |
|
|
|
16,008 |
|
|
|
12,343 |
|
Unrealized losses on available-for-sale securities |
|
|
(2 |
) |
|
|
(32 |
) |
|
|
(112 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income, net of minority interest |
|
|
19,270 |
|
|
|
9,815 |
|
|
|
16,283 |
|
|
|
11,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net |
|
$ |
53,352 |
|
|
$ |
18,207 |
|
|
$ |
58,923 |
|
|
$ |
250,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
42,640 |
|
|
$ |
238,586 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Minority interest |
|
|
9,290 |
|
|
|
59,502 |
|
Equity in income of Unconsolidated Real Estate Affiliates |
|
|
(44,973 |
) |
|
|
(46,940 |
) |
Provision for doubtful accounts |
|
|
8,996 |
|
|
|
3,791 |
|
Distributions received from Unconsolidated Real Estate Affiliates |
|
|
26,065 |
|
|
|
36,225 |
|
Depreciation |
|
|
350,452 |
|
|
|
322,096 |
|
Amortization |
|
|
25,049 |
|
|
|
16,312 |
|
Amortization of debt market rate adjustment and other non-cash interest expense |
|
|
4,002 |
|
|
|
(7,354 |
) |
Gains on dispositions, net of minority interest |
|
|
(30,819 |
) |
|
|
|
|
Participation expense pursuant to Contingent Stock Agreement |
|
|
1,252 |
|
|
|
11,736 |
|
Land/residential development and acquisitions expenditures |
|
|
(97,370 |
) |
|
|
(84,001 |
) |
Cost of land sales |
|
|
5,472 |
|
|
|
21,031 |
|
Tax restructuring benefit |
|
|
|
|
|
|
(296,742 |
) |
Straight-line rent amortization |
|
|
(21,903 |
) |
|
|
(17,755 |
) |
Amortization of intangibles other than in-place leases |
|
|
(3,754 |
) |
|
|
(13,342 |
) |
Glendale Matter deposit |
|
|
(67,054 |
) |
|
|
|
|
Net changes: |
|
|
|
|
|
|
|
|
Accounts and notes receivable |
|
|
27,279 |
|
|
|
14,351 |
|
Prepaid expenses and other assets |
|
|
1,027 |
|
|
|
23,126 |
|
Deferred expenses |
|
|
(26,294 |
) |
|
|
(14,410 |
) |
Accounts payable and accrued expenses and deferred tax liabilities |
|
|
(12,477 |
) |
|
|
(37,237 |
) |
Other, net |
|
|
(6,760 |
) |
|
|
8,421 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
190,120 |
|
|
|
237,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Acquisition/development of real estate and property additions/improvements |
|
|
(779,334 |
) |
|
|
(423,068 |
) |
Proceeds from sales of investment properties |
|
|
29,144 |
|
|
|
3,251 |
|
Increase in investments in Unconsolidated Real Estate Affiliates |
|
|
(76,305 |
) |
|
|
(184,278 |
) |
Distributions received from Unconsolidated Real Estate Affiliates in excess of
income |
|
|
44,355 |
|
|
|
45,738 |
|
Loans from (to) Unconsolidated Real Estate Affiliates, net |
|
|
45,980 |
|
|
|
(27,710 |
) |
Decrease (increase) in restricted cash |
|
|
681 |
|
|
|
(8,674 |
) |
Other, net |
|
|
2,999 |
|
|
|
5,289 |
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(732,480 |
) |
|
|
(589,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of mortgages, notes and loans payable |
|
|
1,047,358 |
|
|
|
2,079,700 |
|
Principal payments on mortgages, notes and loans payable |
|
|
(1,030,114 |
) |
|
|
(1,359,799 |
) |
Deferred financing costs |
|
|
(8,311 |
) |
|
|
(23,691 |
) |
Cash distributions paid to common stockholders |
|
|
(255,688 |
) |
|
|
(219,256 |
) |
Cash distributions paid to holders of Common Units |
|
|
(52,035 |
) |
|
|
(47,482 |
) |
Cash distributions paid to holders of perpetual and convertible preferred units |
|
|
(5,806 |
) |
|
|
(8,258 |
) |
Proceeds from issuance of common stock, including from common stock plans |
|
|
828,394 |
|
|
|
56,236 |
|
Redemption of preferred minority interests |
|
|
|
|
|
|
(60,000 |
) |
Purchase of treasury stock |
|
|
|
|
|
|
(95,648 |
) |
Other, net |
|
|
6,472 |
|
|
|
(1,686 |
) |
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
530,270 |
|
|
|
320,116 |
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(12,090 |
) |
|
|
(31,940 |
) |
Cash and cash equivalents at beginning of period |
|
|
99,534 |
|
|
|
97,139 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
87,444 |
|
|
$ |
65,199 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2008 |
|
2007 |
|
|
(In thousands) |
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
656,778 |
|
|
$ |
575,587 |
|
Interest capitalized |
|
|
30,124 |
|
|
|
39,251 |
|
Income taxes paid |
|
|
39,363 |
|
|
|
62,349 |
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions: |
|
|
|
|
|
|
|
|
Common stock issued in exchange for Operating Partnership Units |
|
$ |
123 |
|
|
$ |
7,234 |
|
Common stock issued in exchange for convertible preferred units |
|
|
|
|
|
|
419 |
|
Common stock issued pursuant to Contingent Stock Agreement |
|
|
15,533 |
|
|
|
36,669 |
|
Change in accrued capital expenditures included
in accounts payable and accrued expenses |
|
|
55,286 |
|
|
|
(15,519 |
) |
Non-cash portion of the acquisition of The Palazzo in 2008 |
|
|
200,288 |
|
|
|
|
|
Assumption
of debt by purchaser in conjunction with sale of office buildings |
|
|
84,000 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
GENERAL GROWTH PROPERTIES, INC.
NOTE 1 ORGANIZATION
Readers of this Quarterly Report should refer to the Companys (as defined below) audited
Consolidated Financial Statements for the year ended December 31, 2007 which are included in the
Companys Annual Report on Form 10-K (as amended by Amendment No. 1 to such report filed on Form 10-K/A,
the Annual Report) for the fiscal year ended December 31, 2007 (Commission File No. 1-11656), as certain
footnote disclosures which would substantially duplicate those contained in our Annual Report have been
omitted from this report. Capitalized terms used, but not defined, in this Quarterly Report have
the same meanings as in our Annual Report.
General
General Growth Properties, Inc. (GGP), a Delaware corporation, is a self-administered and
self-managed real estate investment trust, referred to as a REIT. GGP was organized in 1986 and
through its subsidiaries and affiliates operates, develops, acquires and manages retail and other
rental properties, primarily shopping centers, which are located primarily throughout the United
States. GGP also holds assets through its international Unconsolidated Real Estate Affiliates in
Brazil, Turkey and Costa Rica in which GGP has a net investment of $260.5 million at June 30, 2008
and $237.1 million at December 31, 2007. Additionally, GGP develops and sells land for
residential, commercial and other uses primarily in large-scale, long-term master planned community
projects in and around Columbia, Maryland; Summerlin, Nevada; and Houston, Texas. In these notes,
the terms we, us and our refer to GGP and its subsidiaries (the Company).
In this report, we refer to our ownership interests in majority-owned or controlled properties as
Consolidated Properties, to joint ventures in which we own a non-controlling interest as
Unconsolidated Real Estate Affiliates and the properties owned by such joint ventures as the
Unconsolidated Properties. Our Company Portfolio includes both our Consolidated Properties and
our Unconsolidated Properties.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of GGP, our subsidiaries
and joint ventures in which we have a controlling interest. For consolidated joint ventures, the
non-controlling partners share of operations (generally computed as the joint venture partners
ownership percentage) is included in Minority Interest. All significant intercompany balances and
transactions have been eliminated.
In the opinion of management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of operations and cash flows
for the interim periods have been included. The results for the interim periods ended June 30,
2008 are not necessarily indicative of the results to be obtained for the full fiscal year.
Revenue Recognition and Related Matters
Minimum rent revenues are recognized on a straight-line basis over the terms of the related leases.
Minimum rent revenues also include amounts collected from tenants to allow the termination of
their leases prior to their scheduled termination dates and accretion related to above and
below-market tenant leases on acquired properties. Termination income recognized was $6.5 million
for the three months ended June 30, 2008, $25.0 million for the six months ended June 30, 2008,
$3.0 million for the three months ended June 30, 2007 and $5.4 million for the six months ended
June 30, 2007. Accretion related to above and below-market tenant leases was $2.8 million for the
three months ended June 30, 2008, $8.7 million for the six months ended June 30, 2008, $8.5 for the
three months ended June 30, 2007 and $18.1 million for the six months ended June 30, 2007.
Straight-line rent receivables, which represent the current net cumulative rents recognized prior
to when billed and collectible as provided by the terms of the leases, of $222.4 million as of June
30, 2008 and $200.5 million as of December 31, 2007, are included in Accounts and notes receivable,
net in our consolidated financial statements.
Percentage rent in lieu of fixed minimum rent received from tenants was $12.2 million for the three
months ended June 30, 2008, $23.5 million for the six months ended June 30, 2008, $9.4 for the
three months ended June 30, 2007 and $18.8 million for the six months ended June 30, 2007, and is
included in Minimum rents in our consolidated financial statements.
7
GENERAL GROWTH PROPERTIES, INC.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions. These
estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. For example, significant estimates
and assumptions have been made with respect to useful lives of assets, capitalization of
development and leasing costs, provision for income taxes, recoverable amounts of receivables and
deferred taxes, initial valuations and related amortization periods of deferred costs and
intangibles, particularly with respect to acquisitions, and cost ratios and completion percentages
used for land sales. Actual results could differ from these and other estimates.
Reclassifications
Certain amounts in the 2007 Consolidated Financial Statements have been reclassified to conform to
the current period presentation.
Earnings Per Share (EPS)
Information related to our EPS calculations is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
(In thousands) |
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3,263 |
|
|
$ |
3,263 |
|
|
$ |
8,392 |
|
|
$ |
8,392 |
|
Discontinued operations, net of minority
interest gains on dispositions |
|
|
30,819 |
|
|
|
30,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
34,082 |
|
|
$ |
34,082 |
|
|
$ |
8,392 |
|
|
$ |
8,392 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding |
|
|
267,369 |
|
|
|
267,369 |
|
|
|
244,960 |
|
|
|
244,960 |
|
Effect of dilutive securities stock options |
|
|
|
|
|
|
228 |
|
|
|
|
|
|
|
667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding |
|
|
267,369 |
|
|
|
267,597 |
|
|
|
244,960 |
|
|
|
245,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
|
Basic |
|
|
Diluted |
|
|
Basic |
|
|
Diluted |
|
|
|
(In thousands) |
|
Numerators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
11,821 |
|
|
$ |
11,821 |
|
|
$ |
238,586 |
|
|
$ |
238,586 |
|
Discontinued operations, net of minority
interest gains on dispositions |
|
|
30,819 |
|
|
|
30,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
42,640 |
|
|
$ |
42,640 |
|
|
$ |
238,586 |
|
|
$ |
238,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding |
|
|
256,067 |
|
|
|
256,067 |
|
|
|
244,165 |
|
|
|
244,165 |
|
Effect of dilutive securities stock options |
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding |
|
|
256,067 |
|
|
|
256,253 |
|
|
|
244,165 |
|
|
|
244,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2008, we sold 22,829,355 shares of GGP common stock to certain of our largest
shareholders, including M.B. Capital Partners III (2,445,000 shares) and affiliates of FMR LLC
(3,000,000 shares), at $36.00 per share, resulting in total net proceeds of $821.9 million. The
proceeds from the sale of shares were used primarily to pay
8
GENERAL GROWTH PROPERTIES, INC.
approximately $490 million of our variable-rate debt credit facilities and approximately $200
million of our Senior Bridge Facility (Note 4).
Diluted EPS excludes options where the exercise price was higher than the average market price of
our common stock, and therefore would have an anti-dilutive effect, and options for which vesting
requirements were not satisfied. Such options totaled 4,610,297
shares as of June 30, 2008, and 3,835,191 shares as of June 30, 2007.
Outstanding Common Units have also been excluded from the diluted earnings per share calculation
because including such Common Units would also require that the share of GGPLP income attributable
to such Common Units be added back to net income therefore resulting in no effect on EPS. Finally,
the exchangeable senior notes that were issued in April 2007 (Note 4) are also excluded from EPS
because the conditions for exchange were not satisfied as of June 30, 2008.
Transactions With Affiliates
Management and other fees primarily represent management and leasing fees, development fees,
financing fees and fees for other ancillary services performed for the benefit of certain of the
Unconsolidated Real Estate Affiliates and for properties owned by third parties. Fees earned from
the Unconsolidated Properties totaled $17.6 million for the three months ended June 30, 2008, $37.3
million for the six months ended June 30, 2008, $24.8 million for the three months ended June 30,
2007 and $50.7 million for the six months ended June 30, 2007. Such fees are recognized as revenue
when earned.
Impairment
Our real estate assets, including developments in progress and investment land and land held for
development and sale, are reviewed for potential impairment indicators whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. Impairment indicators
for our retail and other segment are assessed separately for each property and include, but are not
limited to, significant decreases in real estate property net operating income and occupancy
percentages. Impairment indicators for our Master Planned Communities segment are assessed
separately for each community and include, but are not limited to, significant decreases in sales
pace or average selling prices, significant increases in expected land development and construction
costs or cancellation rates, and projected losses on expected future land sales. Impairment
indicators for developments in progress or other developments are assessed by project and include,
but are not limited to, significant changes in projected completion dates, development costs and
market factors.
If an indicator of potential impairment exists, the asset would be tested for recoverability by
comparing its carrying value to the estimated future undiscounted operating cash flow. A real
estate asset is considered to be impaired when the estimated future undiscounted operating cash
flow is less than its carrying value. To the extent an impairment has occurred, the excess of the
carrying value of the asset over its estimated fair value will be expensed to operations. No
impairments were recorded for the three or six months ended June 30, 2008 and 2007.
The excess of the cost of an acquired entity over the net of the amounts assigned to assets
acquired (including identified intangible assets) and liabilities assumed is recorded as goodwill.
Goodwill is not amortized but is tested for impairment on an annual basis, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Since each
individual rental property or each operating property is an operating segment, which is each
considered a reporting unit, we perform this test by comparing the fair value of each property with
our book value of the property, including goodwill. If the implied fair value of goodwill is less
than the book value of goodwill, then an impairment charge would be recorded. No impairments were
recorded for the three or six months ended June 30, 2008 and 2007.
Fair Value Measurements
We partially adopted SFAS 157 (Note 9) as of January 1, 2008 for our financial assets and
liabilities and such adoption did not change our valuation methods for such assets and liabilities.
This partial adoption applies primarily to our derivative financial instruments and investments in
marketable securities, which are assets and liabilities carried at fair value (primarily based on
observable market data) on a recurring basis in our consolidated financial statements. We have
determined that additional disclosures under SFAS 157 are not required as of June 30, 2008 as
these assets and liabilities are not material to the overall financial position of the Company
individually or in the aggregate.
9
GENERAL GROWTH PROPERTIES, INC.
Minority Interests
Under certain circumstances, the Common Units can be redeemed at the option of the holders for
shares of GGP common stock on a one-for-one basis or, at our election, cash. The holders of the
Common Units also share equally with our common stockholders on a per share basis in any
distributions by the Operating Partnership on the basis that one Common Unit is equivalent to one
share of GGP common stock. Upon receipt of a request for redemption by a holder of Common Units,
the Company, as general partner of the Operating Partnership, has the option to pay the redemption
price for such Common Units with shares of common stock of the Company, or in cash, on a
one-for-one basis with a cash redemption price equivalent to the market price of one share of
common stock of the Company at the time of redemption. All prior requests for redemption of Common
Units have been fulfilled with shares of the Companys common
stock and we currently expect to continue this
practice. Notwithstanding this historical practice and current
expectation to satisfy requests for
redemption of Common Units in shares of the Companys common stock, the aggregate amount of cash
that would have been paid to the holders of the outstanding Common Units as of June 30, 2008 if
such holders had requested redemption of the Common Units as of June 30, 2008, and all such Common
Units were redeemed for cash, would have been $1.82 billion.
NOTE 2 ACQUISITIONS/DISPOSITIONS AND INTANGIBLES
GGP/Homart I Acquisition
On July 6, 2007, we acquired the fifty percent interest owned by New York State Common Retirement
Fund (NYSCRF) in the GGP/Homart I portfolio (the Homart I acquisition). The aggregate purchase
price was as follows:
|
|
|
|
|
|
|
(In thousands) |
|
Cash paid |
|
$ |
949,090 |
|
Debt assumed |
|
|
1,055,057 |
|
Acquisition and other costs, including deferred purchase price obligation |
|
|
255,536 |
|
|
|
|
|
Total purchase price |
|
$ |
2,259,683 |
|
|
|
|
|
The following table summarizes the allocation of the purchase price to the net assets acquired at
the date of the Homart I acquisition. These allocations were based on the relative fair values of
the assets acquired and liabilities assumed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
Assets |
|
|
|
|
|
|
|
|
Land |
|
|
|
|
|
$ |
250,265 |
|
Buildings and equipment |
|
|
|
|
|
|
1,661,161 |
|
In-place lease value |
|
|
|
|
|
|
44,309 |
|
Developments in progress |
|
|
|
|
|
|
8,477 |
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
137,973 |
|
Cash |
|
|
|
|
|
|
11,240 |
|
Tenant accounts receivable |
|
|
|
|
|
|
5,156 |
|
Prepaid expenses and other assets: |
|
|
|
|
|
|
|
|
Above-market tenant leases |
|
|
43,782 |
|
|
|
|
|
Other |
|
|
178,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Prepaid expenses and other assets |
|
|
|
|
|
|
221,803 |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
2,340,384 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
31,396 |
|
Debt mark-to-market adjustments |
|
|
|
|
|
|
(12,883 |
) |
Below-market tenant leases |
|
|
|
|
|
|
62,188 |
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
80,701 |
|
|
|
|
|
|
|
|
|
|
Total net assets acquired |
|
|
|
|
|
$ |
2,259,683 |
|
|
|
|
|
|
|
|
|
10
GENERAL GROWTH PROPERTIES, INC.
Dispositions
During April 2008, we sold (in two separate transactions) three office buildings (two located in
Maryland and one located in Las Vegas) for a total sales price of approximately $98 million
(including debt assumed of approximately $84 million), resulting in total gains of $30.8 million
(net of $6.2 million of minority interest), which is included in Discontinued operations, net of
minority interest gains on dispositions in our consolidated financial statements for the three
and six months ended June 30, 2008. For Federal Income Tax purposes, the two office buildings
located in Maryland are being used as relinquished property in a like-kind exchange involving The
Palazzo (Note 8).
Intangible Assets and Liabilities
The following table summarizes our intangible assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
Gross Asset |
|
|
(Amortization)/ |
|
|
Net Carrying |
|
|
|
(Liability) |
|
|
Accretion |
|
|
Amount |
|
|
|
(In thousands) |
|
As of June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
656,162 |
|
|
$ |
(363,889 |
) |
|
$ |
292,273 |
|
Above-market |
|
|
132,666 |
|
|
|
(70,438 |
) |
|
|
62,228 |
|
Below-market |
|
|
(233,850 |
) |
|
|
127,263 |
|
|
|
(106,587 |
) |
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(16,968 |
) |
|
|
1,715 |
|
|
|
(15,253 |
) |
Below-market |
|
|
293,277 |
|
|
|
(22,739 |
) |
|
|
270,538 |
|
Real estate tax
stabilization
agreement |
|
|
91,879 |
|
|
|
(14,387 |
) |
|
|
77,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
Tenant leases: |
|
|
|
|
|
|
|
|
|
|
|
|
In-place value |
|
$ |
679,329 |
|
|
$ |
(361,172 |
) |
|
$ |
318,157 |
|
Above-market |
|
|
148,057 |
|
|
|
(72,772 |
) |
|
|
75,285 |
|
Below-market |
|
|
(324,088 |
) |
|
|
196,447 |
|
|
|
(127,641 |
) |
Ground leases: |
|
|
|
|
|
|
|
|
|
|
|
|
Above-market |
|
|
(16,968 |
) |
|
|
1,479 |
|
|
|
(15,489 |
) |
Below-market |
|
|
293,435 |
|
|
|
(19,590 |
) |
|
|
273,845 |
|
Real estate tax
stabilization
agreement |
|
|
91,879 |
|
|
|
(12,425 |
) |
|
|
79,454 |
|
The gross asset balances of the in-place value of tenant leases are included in Buildings and
equipment in our Consolidated Balance Sheets. The above-market and below-market tenant and ground
leases are included in Prepaid expenses and other assets and Accounts payable and accrued expenses
(Note 7).
Amortization/accretion of these intangible assets and liabilities, and similar assets and
liabilities from our Unconsolidated Real Estate Affiliates at our share, decreased our income
(excluding the impact of minority interest and the provision for income taxes) by $16.4 million for
the three months ended June 30, 2008, $34.1 million for the
six months ended June 30, 2008, $26.1 million for the three months ended June 30, 2007 and $55.2
million for the six months ended June 30, 2007.
Future amortization, including our share of such items from Unconsolidated Real Estate Affiliates,
is estimated to decrease income (excluding the impact of minority interest and the provision for
income taxes) by approximately $68.6 million in 2008, $67.9 million in 2009, $60.1 million in 2010,
$47.8 million in 2011 and $39.2 million in 2012.
NOTE 3 UNCONSOLIDATED REAL ESTATE AFFILIATES
The Unconsolidated Real Estate Affiliates include our non-controlling investments in real estate
joint ventures. Generally, we share in the profits and losses, cash flows and other matters
relating to our investments in Unconsolidated Real Estate Affiliates in accordance with our
respective ownership percentages. We manage most of the properties owned by these joint ventures.
We account for these joint ventures using the equity method because we have joint interest and
control of these ventures with our venture partners and they have substantive participating rights
in such ventures. Some of the joint ventures have elected to be taxed as REITs.
11
GENERAL GROWTH PROPERTIES, INC.
In certain circumstances, we have debt obligations in excess of our pro rata share of the debt of
our Unconsolidated Real Estate Affiliates (Retained Debt). This Retained Debt represents
distributed debt proceeds of the Unconsolidated Real Estate Affiliates in excess of our pro rata
share of the non-recourse mortgage indebtedness of such Unconsolidated Real Estate Affiliates. The
proceeds of the Retained Debt which are distributed to us are included as a reduction in our
investment in Unconsolidated Real Estate Affiliates. In the event that the Unconsolidated Real
Estate Affiliates do not generate sufficient cash flow to pay debt service, by agreement with our
partners, our distributions may be reduced or we may be required to contribute funds in an amount
equal to the debt service on Retained Debt. Such Retained Debt totaled $162.1 million as of June
30, 2008 and $163.3 million as of December 31, 2007, and has been reflected as a reduction in our
investment in Unconsolidated Real Estate Affiliates. In certain other circumstances, the Company,
in connection with the debt obligations of certain Unconsolidated Real Estate Affiliates, has
agreed to provide supplemental guarantees or master-lease commitments to provide to the debt
holders additional credit-enhancement or security. We currently do not expect to be required to
perform pursuant to any of such supplemental credit-enhancement provisions for our Unconsolidated
Real Estate Affiliates.
The significant accounting policies used by the Unconsolidated Real Estate Affiliates are the same
as ours.
12
GENERAL GROWTH PROPERTIES, INC.
Condensed Combined Financial Information of Unconsolidated Real Estate Affiliates
Following is summarized financial information for our Unconsolidated Real Estate Affiliates as of
June 30, 2008 and December 31, 2007 and for the three and six months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
Condensed Combined Balance Sheets Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
901,378 |
|
|
$ |
917,244 |
|
Buildings and equipment |
|
|
7,428,368 |
|
|
|
7,136,053 |
|
Less accumulated depreciation |
|
|
(1,468,088 |
) |
|
|
(1,361,649 |
) |
Developments in progress |
|
|
651,768 |
|
|
|
645,156 |
|
|
|
|
|
|
|
|
Net property and equipment |
|
|
7,513,426 |
|
|
|
7,336,804 |
|
Investment land and land held for development and sale |
|
|
279,075 |
|
|
|
287,962 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
7,792,501 |
|
|
|
7,624,766 |
|
Cash and cash equivalents |
|
|
274,712 |
|
|
|
224,048 |
|
Accounts and notes receivable, net |
|
|
132,755 |
|
|
|
133,747 |
|
Deferred expenses, net |
|
|
170,676 |
|
|
|
166,201 |
|
Prepaid expenses and other assets |
|
|
534,082 |
|
|
|
445,113 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
8,904,726 |
|
|
$ |
8,593,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
6,557,096 |
|
|
$ |
6,215,426 |
|
Accounts payable and accrued expenses |
|
|
659,380 |
|
|
|
715,519 |
|
Owners equity |
|
|
1,688,250 |
|
|
|
1,662,930 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
8,904,726 |
|
|
$ |
8,593,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment In and Loans To/From Unconsolidated Real Estate Affiliates, Net |
|
|
|
|
|
|
|
|
Owners equity |
|
$ |
1,688,250 |
|
|
$ |
1,662,930 |
|
Less joint venture partners equity |
|
|
(869,490 |
) |
|
|
(853,459 |
) |
Capital or basis differences and loans |
|
|
1,008,869 |
|
|
|
993,895 |
|
|
|
|
|
|
|
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net |
|
$ |
1,827,629 |
|
|
$ |
1,803,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation Investment In and Loans To/From Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
Asset Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
$ |
1,872,746 |
|
|
$ |
1,857,330 |
|
Liability Investment in and loans to/from Unconsolidated Real Estate Affiliates |
|
|
(45,117 |
) |
|
|
(53,964 |
) |
|
|
|
|
|
|
|
Investment in and loans to/from Unconsolidated Real Estate Affiliates, net |
|
$ |
1,827,629 |
|
|
$ |
1,803,366 |
|
|
|
|
|
|
|
|
13
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Condensed Combined Statements of Income Unconsolidated Real Estate
Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
193,927 |
|
|
$ |
221,433 |
|
|
$ |
387,986 |
|
|
$ |
442,313 |
|
Tenant recoveries |
|
|
83,751 |
|
|
|
96,159 |
|
|
|
166,493 |
|
|
|
193,521 |
|
Overage rents |
|
|
3,624 |
|
|
|
3,061 |
|
|
|
6,405 |
|
|
|
7,858 |
|
Land sales |
|
|
33,909 |
|
|
|
43,164 |
|
|
|
77,943 |
|
|
|
68,613 |
|
Management and other fees |
|
|
11,355 |
|
|
|
8,521 |
|
|
|
21,778 |
|
|
|
17,002 |
|
Other |
|
|
35,713 |
|
|
|
52,168 |
|
|
|
62,596 |
|
|
|
92,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
362,279 |
|
|
|
424,506 |
|
|
|
723,201 |
|
|
|
821,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
25,027 |
|
|
|
29,397 |
|
|
|
49,024 |
|
|
|
60,061 |
|
Repairs and maintenance |
|
|
18,965 |
|
|
|
21,353 |
|
|
|
38,786 |
|
|
|
43,898 |
|
Marketing |
|
|
3,380 |
|
|
|
5,730 |
|
|
|
8,127 |
|
|
|
12,511 |
|
Other property operating costs |
|
|
63,657 |
|
|
|
80,410 |
|
|
|
123,463 |
|
|
|
159,118 |
|
Land sales operations |
|
|
18,927 |
|
|
|
25,243 |
|
|
|
45,327 |
|
|
|
36,120 |
|
Provision for doubtful accounts |
|
|
1,014 |
|
|
|
816 |
|
|
|
1,629 |
|
|
|
2,608 |
|
Property management and other costs |
|
|
20,959 |
|
|
|
23,744 |
|
|
|
40,981 |
|
|
|
48,024 |
|
General and administrative |
|
|
5,179 |
|
|
|
2,846 |
|
|
|
11,358 |
|
|
|
3,115 |
|
Depreciation and amortization |
|
|
63,542 |
|
|
|
69,699 |
|
|
|
122,063 |
|
|
|
142,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
220,650 |
|
|
|
259,238 |
|
|
|
440,758 |
|
|
|
507,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
141,629 |
|
|
|
165,268 |
|
|
|
282,443 |
|
|
|
313,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
3,175 |
|
|
|
9,493 |
|
|
|
6,606 |
|
|
|
16,533 |
|
Interest expense |
|
|
(86,576 |
) |
|
|
(100,545 |
) |
|
|
(171,149 |
) |
|
|
(200,338 |
) |
Provision for income taxes |
|
|
(1,571 |
) |
|
|
(6,048 |
) |
|
|
(3,331 |
) |
|
|
(6,758 |
) |
Minority interest |
|
|
(195 |
) |
|
|
(271 |
) |
|
|
(442 |
) |
|
|
(306 |
) |
Equity in income of unconsolidated joint ventures |
|
|
|
|
|
|
1,364 |
|
|
|
|
|
|
|
3,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
56,462 |
|
|
|
69,261 |
|
|
|
114,127 |
|
|
|
126,064 |
|
Discontinued operations, including net loss on dispositions |
|
|
|
|
|
|
(6,715 |
) |
|
|
|
|
|
|
(5,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
56,462 |
|
|
$ |
62,546 |
|
|
$ |
114,127 |
|
|
$ |
120,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity In Income of Unconsolidated Real Estate Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
56,462 |
|
|
$ |
62,546 |
|
|
$ |
114,127 |
|
|
$ |
120,788 |
|
Joint venture partners share of income |
|
|
(29,522 |
) |
|
|
(33,359 |
) |
|
|
(59,449 |
) |
|
|
(64,414 |
) |
Amortization of capital or basis differences |
|
|
(5,375 |
) |
|
|
(156 |
) |
|
|
(8,999 |
) |
|
|
(4,709 |
) |
Elimination of Unconsolidated Real Estate Affiliates loan interest |
|
|
(420 |
) |
|
|
(2,450 |
) |
|
|
(706 |
) |
|
|
(4,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of Unconsolidated Real Estate Affiliates |
|
$ |
21,145 |
|
|
$ |
26,581 |
|
|
$ |
44,973 |
|
|
$ |
46,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Financial Information of Individually Significant Unconsolidated Real Estate Affiliates
Following is summarized financial information for GGP/Homart II L.L.C. (GGP/Homart II), GGP-TRS
L.L.C. (GGP/Teachers) and The Woodlands Land Development Holdings, L.P. (The Woodlands
Partnership). We account for these joint ventures using the equity method because we have joint
interest and control of these ventures with our venture partners and they have substantive
participating rights in such ventures. For financial reporting purposes, we consider each of these
joint ventures to be an individually significant Unconsolidated Real Estate Affiliate. Our
investment in such affiliates varies from a strict ownership percentage due to capital or basis
differences or loans and related amortization.
14
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart II |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
241,837 |
|
|
$ |
248,094 |
|
Buildings and equipment |
|
|
2,748,778 |
|
|
|
2,654,780 |
|
Less accumulated depreciation |
|
|
(441,585 |
) |
|
|
(400,078 |
) |
Developments in progress |
|
|
61,469 |
|
|
|
108,078 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
2,610,499 |
|
|
|
2,610,874 |
|
Cash and cash equivalents |
|
|
50,153 |
|
|
|
30,851 |
|
Accounts receivable, net |
|
|
38,923 |
|
|
|
40,319 |
|
Deferred expenses, net |
|
|
85,488 |
|
|
|
76,297 |
|
Prepaid expenses and other assets |
|
|
24,745 |
|
|
|
39,032 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
2,809,808 |
|
|
$ |
2,797,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
2,281,629 |
|
|
$ |
2,110,947 |
|
Accounts payable and accrued expenses |
|
|
205,960 |
|
|
|
237,688 |
|
Owners equity |
|
|
322,219 |
|
|
|
448,738 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
2,809,808 |
|
|
$ |
2,797,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Homart II |
|
|
GGP/Homart II |
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
59,672 |
|
|
$ |
53,379 |
|
|
$ |
120,666 |
|
|
$ |
106,611 |
|
Tenant recoveries |
|
|
27,578 |
|
|
|
24,454 |
|
|
|
55,075 |
|
|
|
49,202 |
|
Overage rents |
|
|
615 |
|
|
|
603 |
|
|
|
928 |
|
|
|
1,870 |
|
Other |
|
|
2,286 |
|
|
|
2,002 |
|
|
|
4,485 |
|
|
|
3,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
90,151 |
|
|
|
80,438 |
|
|
|
181,154 |
|
|
|
161,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
8,278 |
|
|
|
6,886 |
|
|
|
16,412 |
|
|
|
14,966 |
|
Repairs and maintenance |
|
|
6,384 |
|
|
|
4,917 |
|
|
|
12,879 |
|
|
|
9,811 |
|
Marketing |
|
|
1,362 |
|
|
|
1,521 |
|
|
|
2,877 |
|
|
|
3,469 |
|
Other property operating costs |
|
|
10,226 |
|
|
|
9,312 |
|
|
|
21,491 |
|
|
|
19,199 |
|
Provision for doubtful accounts |
|
|
314 |
|
|
|
46 |
|
|
|
292 |
|
|
|
666 |
|
Property management and other costs |
|
|
5,741 |
|
|
|
5,115 |
|
|
|
11,324 |
|
|
|
10,262 |
|
General and administrative |
|
|
212 |
|
|
|
2,625 |
|
|
|
1,871 |
|
|
|
2,757 |
|
Depreciation and amortization |
|
|
23,233 |
|
|
|
19,912 |
|
|
|
45,077 |
|
|
|
39,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
55,750 |
|
|
|
50,334 |
|
|
|
112,223 |
|
|
|
100,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
34,401 |
|
|
|
30,104 |
|
|
|
68,931 |
|
|
|
61,452 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
2,045 |
|
|
|
2,139 |
|
|
|
3,885 |
|
|
|
4,181 |
|
Interest expense |
|
|
(33,092 |
) |
|
|
(27,764 |
) |
|
|
(64,038 |
) |
|
|
(55,452 |
) |
Income allocated to minority interests |
|
|
(1 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
Provision for income taxes |
|
|
(723 |
) |
|
|
(960 |
) |
|
|
(1,770 |
) |
|
|
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,630 |
|
|
$ |
3,519 |
|
|
$ |
7,003 |
|
|
$ |
8,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
GENERAL GROWTH PROPERTIES, INC.
In February, 2004, Caruso Affiliated Holdings, LLC commenced a lawsuit (the Glendale Matter)
involving GGP and GGP/Homart II (collectively, the defendants) in the Los Angeles Superior Court
(the Court) alleging violations of the California antitrust and unfair competition laws and
tortious interference with prospective economic advantage. After the jury trial concluded in the
fall of 2007, the Court entered judgment against defendants in the amount of $74.2 million in
compensatory damages, $15.0 million in punitive damages, and $0.2 million in court costs (the
Judgment Amount). Post-judgment interest began accruing on December 21, 2007 at the statutory
rate of 10%. Defendants appealed the judgment and posted an appellate bond in April 2008 for
$134.1 million, which is equal to 150% of the Judgment Amount. Additionally, in April 2008, GGPLP
supplied cash as collateral to secure the appellate bond in the amount equal to 50% of the total
bond amount or $67.1 million (Note 7).
The Judgment Amount and the related post-judgment interest have been recorded by GGP/Homart II.
However, the GGP/Homart II Operating Agreement gives the non-managing member of GGP/Homart II
rights to indemnification from the Company under certain circumstances. At this time, we are not
aware of any formal assertion of those rights. If these rights are asserted and the indemnity is
found to be applicable and enforceable, the Company may have the obligation to pay the Judgment
Amount. In such event, management of the Company has determined that the Company would pay
directly, or reimburse GGP/Homart II, for 100% of any payments and costs. Accordingly, the Company
has reflected, as provision for litigation and in other general and administrative costs and
interest expense, as applicable, 100% of the judgment and certain related costs, rather than
reflecting such 50% share of such costs in its equity in earnings of GGP/Homart II.
16
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
GGP/Teachers |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
177,409 |
|
|
$ |
177,356 |
|
Buildings and equipment |
|
|
1,064,628 |
|
|
|
1,039,444 |
|
Less accumulated depreciation |
|
|
(128,647 |
) |
|
|
(112,998 |
) |
Developments in progress |
|
|
53,922 |
|
|
|
65,135 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
1,167,312 |
|
|
|
1,168,937 |
|
Cash and cash equivalents |
|
|
9,516 |
|
|
|
20,423 |
|
Accounts receivable, net |
|
|
14,677 |
|
|
|
13,055 |
|
Deferred expenses, net |
|
|
21,039 |
|
|
|
21,242 |
|
Prepaid expenses and other assets |
|
|
8,621 |
|
|
|
11,138 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,221,165 |
|
|
$ |
1,234,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
1,025,365 |
|
|
$ |
1,029,788 |
|
Accounts payable and accrued expenses |
|
|
61,146 |
|
|
|
92,993 |
|
Owners equity |
|
|
134,654 |
|
|
|
112,014 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
1,221,165 |
|
|
$ |
1,234,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GGP/Teachers |
|
|
GGP/Teachers |
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
28,355 |
|
|
$ |
26,572 |
|
|
$ |
57,434 |
|
|
$ |
54,379 |
|
Tenant recoveries |
|
|
12,891 |
|
|
|
11,289 |
|
|
|
24,793 |
|
|
|
22,542 |
|
Overage rents |
|
|
606 |
|
|
|
677 |
|
|
|
1,315 |
|
|
|
868 |
|
Other |
|
|
592 |
|
|
|
602 |
|
|
|
1,101 |
|
|
|
1,087 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
42,444 |
|
|
|
39,140 |
|
|
|
84,643 |
|
|
|
78,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
3,211 |
|
|
|
2,699 |
|
|
|
5,756 |
|
|
|
5,322 |
|
Repairs and maintenance |
|
|
2,432 |
|
|
|
2,186 |
|
|
|
5,198 |
|
|
|
4,254 |
|
Marketing |
|
|
455 |
|
|
|
917 |
|
|
|
1,282 |
|
|
|
1,843 |
|
Other property operating costs |
|
|
4,979 |
|
|
|
4,788 |
|
|
|
10,199 |
|
|
|
9,551 |
|
Provision for doubtful accounts |
|
|
151 |
|
|
|
194 |
|
|
|
163 |
|
|
|
406 |
|
Property management and other costs |
|
|
2,349 |
|
|
|
2,304 |
|
|
|
4,709 |
|
|
|
4,528 |
|
General and administrative |
|
|
46 |
|
|
|
70 |
|
|
|
106 |
|
|
|
109 |
|
Depreciation and amortization |
|
|
8,615 |
|
|
|
6,955 |
|
|
|
17,100 |
|
|
|
14,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
22,238 |
|
|
|
20,113 |
|
|
|
44,513 |
|
|
|
40,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
20,206 |
|
|
|
19,027 |
|
|
|
40,130 |
|
|
|
38,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
61 |
|
|
|
178 |
|
|
|
169 |
|
|
|
431 |
|
Interest expense |
|
|
(13,811 |
) |
|
|
(11,605 |
) |
|
|
(27,661 |
) |
|
|
(23,307 |
) |
Provision for income taxes |
|
|
(56 |
) |
|
|
(139 |
) |
|
|
(138 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,400 |
|
|
$ |
7,461 |
|
|
$ |
12,500 |
|
|
$ |
15,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
The Woodlands Partnership |
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
14,531 |
|
|
$ |
14,756 |
|
Buildings and equipment |
|
|
93,633 |
|
|
|
48,201 |
|
Less accumulated depreciation |
|
|
(11,941 |
) |
|
|
(10,638 |
) |
Developments in progress |
|
|
45,815 |
|
|
|
52,515 |
|
Investment land and land held for
development and sale |
|
|
279,075 |
|
|
|
287,962 |
|
|
|
|
|
|
|
|
Net investment in real estate |
|
|
421,113 |
|
|
|
392,796 |
|
Cash and cash equivalents |
|
|
8,303 |
|
|
|
27,359 |
|
Deferred expenses, net |
|
|
1,688 |
|
|
|
2,044 |
|
Prepaid expenses and other assets |
|
|
106,115 |
|
|
|
85,331 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
537,219 |
|
|
$ |
507,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Owners Equity: |
|
|
|
|
|
|
|
|
Mortgages, notes and loans payable |
|
$ |
315,194 |
|
|
$ |
286,765 |
|
Accounts payable and accrued expenses |
|
|
52,377 |
|
|
|
75,549 |
|
Owners equity |
|
|
169,648 |
|
|
|
145,216 |
|
|
|
|
|
|
|
|
Total liabilities and owners equity |
|
$ |
537,219 |
|
|
$ |
507,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Woodlands Partnership |
|
|
The Woodlands Partnership |
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
887 |
|
|
$ |
131 |
|
|
$ |
1,135 |
|
|
$ |
451 |
|
Land sales |
|
|
33,909 |
|
|
|
43,164 |
|
|
|
77,943 |
|
|
|
68,613 |
|
Other |
|
|
2,487 |
|
|
|
8,058 |
|
|
|
5,609 |
|
|
|
16,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
37,283 |
|
|
|
51,353 |
|
|
|
84,687 |
|
|
|
85,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
225 |
|
|
|
47 |
|
|
|
407 |
|
|
|
104 |
|
Repairs and maintenance |
|
|
169 |
|
|
|
46 |
|
|
|
244 |
|
|
|
185 |
|
Other property operating costs |
|
|
5,101 |
|
|
|
10,246 |
|
|
|
9,369 |
|
|
|
21,679 |
|
Land sales operations |
|
|
18,927 |
|
|
|
25,243 |
|
|
|
45,327 |
|
|
|
36,120 |
|
Depreciation and amortization |
|
|
576 |
|
|
|
977 |
|
|
|
1,303 |
|
|
|
2,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
24,998 |
|
|
|
36,559 |
|
|
|
56,650 |
|
|
|
60,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
12,285 |
|
|
|
14,794 |
|
|
|
28,037 |
|
|
|
25,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
192 |
|
|
|
114 |
|
|
|
386 |
|
|
|
240 |
|
Interest expense |
|
|
(1,485 |
) |
|
|
(2,442 |
) |
|
|
(2,766 |
) |
|
|
(3,909 |
) |
Provision for income taxes |
|
|
(179 |
) |
|
|
(390 |
) |
|
|
(513 |
) |
|
|
(390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
10,813 |
|
|
|
12,076 |
|
|
|
25,144 |
|
|
|
21,412 |
|
Discontinued operations, including net loss on dispositions |
|
|
|
|
|
|
(6,715 |
) |
|
|
|
|
|
|
(5,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
10,813 |
|
|
$ |
5,361 |
|
|
$ |
25,144 |
|
|
$ |
16,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
GENERAL GROWTH PROPERTIES, INC.
NOTE 4 MORTGAGES, NOTES AND LOANS PAYABLE
Mortgages, notes and loans payable are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Fixed-rate debt: |
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable |
|
$ |
16,579,814 |
|
|
$ |
16,943,760 |
|
Corporate and other unsecured term loans |
|
|
3,862,566 |
|
|
|
3,895,922 |
|
|
|
|
|
|
|
|
Total fixed-rate debt |
|
|
20,442,380 |
|
|
|
20,839,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt: |
|
|
|
|
|
|
|
|
Collateralized mortgages, notes and loans payable |
|
|
1,372,437 |
|
|
|
819,607 |
|
Credit facilities |
|
|
452,600 |
|
|
|
429,150 |
|
Corporate and other unsecured term loans |
|
|
2,193,700 |
|
|
|
2,193,700 |
|
|
|
|
|
|
|
|
Total variable-rate debt |
|
|
4,018,737 |
|
|
|
3,442,457 |
|
|
|
|
|
|
|
|
Total mortgages, notes and loans payable |
|
$ |
24,461,117 |
|
|
$ |
24,282,139 |
|
|
|
|
|
|
|
|
The weighted-average effective annual interest rate (which includes both the effects of swaps and
deferred finance costs) on our mortgages, notes and loans payable was 5.33% at June 30, 2008 and
5.55% at December 31, 2007. Our mortgages, notes and loans payable have various maturities through
2095. The weighted-average remaining term of our mortgages, notes and loans payable was 4.07 years
as of June 30, 2008. At June 30, 2008 the weighted average interest rate on the remaining
corporate unsecured fixed and variable rate debt and the revolving credit facility was 4.60%.
Certain properties are subject to financial performance covenants, primarily debt service coverage
ratios. We are not aware of any instances of non compliance with
financial covenants as of June 30, 2008.
Senior Bridge Facility
On July 6, 2007, we closed on the Senior Bridge Facility that was used to partially fund the Homart
I acquisition (Note 2). The Senior Bridge Facility had an outstanding balance of approximately
$375 million at June 30, 2008 and approximately $722 million at December 31, 2007. The outstanding
Senior Bridge Facility was paid in full in July 2008 with the proceeds from the Secured Portfolio
Facility (see below).
Exchangeable Senior Notes
In April 2007, GGPLP sold $1.55 billion aggregate principal amount of 3.98% Exchangeable Senior
Notes (the Notes) pursuant to Rule 144A under the Securities Act of 1933. Interest on the Notes
is payable semi-annually in arrears on April 15 and October 15 of each year, beginning October 15,
2007. The Notes will mature on April 15, 2027 unless previously redeemed by GGPLP, repurchased by
GGPLP or exchanged in accordance with their terms prior to such date. Prior to April 15, 2012, we
will not have the right to redeem the Notes, except to preserve our status as a REIT. On or after
April 15, 2012, we may redeem for cash all or part of the Notes at any time, at 100% of
the principal amount of the Notes, plus accrued and unpaid interest, if any, to the redemption
date. On each of April 15, 2012, April 15, 2017 and April 15, 2022, holders of the Notes may
require us to repurchase the Notes, in whole or in part, for cash equal to 100% of the principal
amount of Notes to be repurchased, plus accrued and unpaid interest.
The Notes are exchangeable for GGP common stock or a combination of cash and common stock, at our
option, upon the satisfaction of certain conditions, including conditions relating to the market
price of our common stock, the trading price of the Notes, the occurrence of certain corporate
events and transactions, a call for redemption of the Notes and any failure by us to maintain a
listing of our common stock on a national securities exchange. The exchange rate for each $1,000
principal amount of the Notes is 11.27 shares of GGP common stock, which is subject to adjustment
under certain circumstances. We currently intend to settle the principal amount of the Notes in
cash and any premium in cash, shares of our common stock or a combination of both. See Note 9 for
information regarding the expected impact on our comparative consolidated financial statements to
be issued in 2009 as the result of a recently issued FASB staff position relating to certain
convertible debt instruments.
19
GENERAL GROWTH PROPERTIES, INC.
Letters of Credit and Surety Bonds
We had outstanding letters of credit and surety bonds of $491.7 million as of June 30, 2008. These
letters of credit and bonds were issued primarily in connection with the appellate bond described
in Note 3, insurance requirements, special real estate assessments and construction obligations.
Secured Portfolio Facility
In July 2008, certain of our subsidiaries entered into a loan agreement which provides for a
secured term loan of up to $1.75 billion (Secured Portfolio Facility), and we have received
advances of $1.13 billion under such facility. Additional advances of up to $615.0 million may be
made until December 31, 2008, subject to participation by additional lenders and certain other
conditions. The Secured Portfolio Facility has an initial term of three years with two one-year
extension options, which are subject to certain conditions. The interest rate payable on advances
under the Secured Portfolio Facility will be, at our option, (i) 1.25% plus the higher of (A) the
federal funds rate plus 0.5% or (B) the prime rate, or (ii) LIBOR plus 2.25%. The Secured Portfolio
Facility requires that the interest rate payable on a portion of the advances under the facility be
hedged. As a result of these hedging requirements, we entered into interest rate swap transactions
totaling $1.08 billion, which results in a weighted average
fixed rate of 5.67% for the first two
years of the initial term of such advances (without giving effect to the amortization of the fees
and costs associated with the Secured Portfolio Facility). Subject to certain conditions, interest
under the Secured Portfolio Facility is payable monthly in arrears and no principal payments are
due until the initial maturity date of July 11, 2011. Advances of up to $1.20 billion will be
collateralized by first mortgages on 17 properties, while subsequent additional advances will be
collateralized by first mortgages on up to an additional seven properties. The Company and certain
of its subsidiaries have guaranteed a portion of the obligations under the Secured Portfolio
Facility, including a repayment guarantee not to exceed $437.5 million. During the
term of the Secured Portfolio Facility, we are subject to customary affirmative and negative
covenants and events of default. The proceeds from advances under the Secured Portfolio Facility
have been and will be used to repay debt maturing in 2008 and for general corporate purposes.
NOTE 5 INCOME TAXES
We elected to be taxed as a real estate investment (REIT) trust under sections 856-860 of the
Code, commencing with our taxable year beginning January 1, 1993. To qualify as a REIT, we must
meet a number of organizational and operational requirements, including asset and income tests and
requirements to distribute at least 90% of our ordinary taxable income and to distribute to
stockholders or pay tax on 100% of capital gains.
We also have subsidiaries which we have elected to be treated as taxable real estate investment
trust subsidiaries and which are therefore subject to federal and state income taxes.
Unrecognized tax benefits recorded pursuant to FIN 48 were $127.3 million and $127.1 million as of
June 30, 2008 and December 31, 2007, excluding interest, of which $44.9 million would impact our
effective tax rate. Accrued interest related to these unrecognized tax benefits amounted to $23.9
million as of June 30, 2008 and $19.1 million as of December 31, 2007. We recognized interest
expense related to the unrecognized tax benefits of $2.3 million
for the three months ended June 30, 2008, $4.8 million for the six months ended June 30, 2008, $3.9
million for the three months ended June 30, 2007 and $6.2 million for the six months ended June 30,
2007.
Generally, we are currently open to audit under the statute of limitations by the Internal Revenue
Service for the years ending December 31, 2004 through 2007 and are open to audit by state taxing
authorities for years ending December 31, 2003 through 2007. Several of our taxable REIT
subsidiaries are under examination by the Internal Revenue Service for the years 2001 through 2005.
We are unable to determine when these audits will be resolved, however it is reasonable to expect
that this will occur within the next twelve months.
Based on our assessment of the expected outcome of these remaining examinations or examinations
that may commence, or as a result of the expiration of the statute of limitations for specific
jurisdictions, it is reasonably possible that the related unrecognized tax benefits, excluding
accrued interest, for tax positions taken regarding previously filed tax returns will materially
change from those recorded at June 30, 2008. A material change in unrecognized tax benefits could
have a material effect on our statements of income and comprehensive income. As of June 30, 2008,
there are $72.7 million of unrecognized tax benefits, excluding accrued interest, which due to the
reasons above, could significantly increase or decrease during the next twelve months.
20
GENERAL GROWTH PROPERTIES, INC.
Effective March 31, 2007, through a series of transactions, a private REIT owned by GGPLP was
contributed to TRCLP and one of our TRS entities became a qualified REIT subsidiary of that private
REIT. This transaction resulted in the recognition of an approximate $300 million income tax
benefit in the first quarter of 2007 related to the properties now owned by that
private REIT.
We recently identified an issue related to the REIT qualification of one of our subsidiaries. We
have requested a closing agreement from the Internal Revenue Service and we have had discussions
with the IRS regarding this request. We expect to be able to resolve this issue at minimal
cost without affecting our, or the subsidiarys, continued qualification as a REIT.
NOTE 6 STOCK-BASED COMPENSATION PLANS
Incentive Stock Plans
The following tables summarize stock option activity for the 2003 Incentive Stock Plan (the 2003
Incentive Plan) as of and for the six months ended June 30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at January 1 |
|
|
3,053,000 |
|
|
$ |
51.21 |
|
|
|
3,167,348 |
|
|
$ |
38.41 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
1,205,000 |
|
|
|
65.81 |
|
Exercised |
|
|
(23,000 |
) |
|
|
15.24 |
|
|
|
(1,318,748 |
) |
|
|
33.81 |
|
Exchanged for restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at June 30 |
|
|
3,030,000 |
|
|
$ |
51.48 |
|
|
|
3,053,600 |
|
|
$ |
51.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
|
Stock Options Exercisable |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Contractual Term |
|
|
Weighted Average |
|
|
|
|
|
|
Contractual Term |
|
|
Weighted Average |
|
Range of Exercise Prices |
|
Shares |
|
|
(in years) |
|
|
Exercise Price |
|
|
Shares |
|
|
(in years) |
|
|
Exercise Price |
|
$6.5811 $13.1620 |
|
|
4,500 |
|
|
|
1.8 |
|
|
$ |
9.99 |
|
|
|
4,500 |
|
|
|
1.8 |
|
|
$ |
9.99 |
|
$13.1621 $19.7430 |
|
|
50,000 |
|
|
|
4.1 |
|
|
|
15.49 |
|
|
|
50,000 |
|
|
|
4.1 |
|
|
|
15.49 |
|
$26.3241 $32.9050 |
|
|
197,000 |
|
|
|
0.6 |
|
|
|
30.94 |
|
|
|
197,000 |
|
|
|
0.6 |
|
|
|
30.94 |
|
$32.9051 $39.4860 |
|
|
571,000 |
|
|
|
1.7 |
|
|
|
35.71 |
|
|
|
451,000 |
|
|
|
1.7 |
|
|
|
35.62 |
|
$39.4861 $46.067 |
|
|
50,000 |
|
|
|
2.3 |
|
|
|
44.59 |
|
|
|
20,000 |
|
|
|
2.3 |
|
|
|
44.59 |
|
$46.0671 $52.6480 |
|
|
952,500 |
|
|
|
2.7 |
|
|
|
49.52 |
|
|
|
652,500 |
|
|
|
2.7 |
|
|
|
49.83 |
|
$59.2291 $65.8100 |
|
|
1,205,000 |
|
|
|
3.7 |
|
|
|
65.81 |
|
|
|
602,000 |
|
|
|
3.7 |
|
|
|
65.81 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,030,000 |
|
|
|
2.4 |
|
|
$ |
51.48 |
|
|
|
1,977,000 |
|
|
|
2.4 |
|
|
$ |
48.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value (in thousands) |
|
$ |
1,895 |
|
|
|
|
|
|
|
|
|
|
$ |
1,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of outstanding and exercisable stock options as of June 30, 2008 represents the
excess of our closing stock price ($35.03) on that date over the
weighted average exercise price multiplied by the
applicable number of shares that may be acquired upon exercise of stock options. The intrinsic
value of exercised stock options represents the excess of our stock price, at the time the option
was exercised, over the exercise price. The intrinsic value was $0.6 million for options exercised
during the six months ended June 30, 2008 and $39.3 million for options exercised during the six
months ended June 30, 2007.
The weighted-average fair value of stock options as of the grant date was $11.07 for stock options
granted during the six months ended June 30, 2007. There were no stock options granted during the
six months ended June 30, 2008.
Stock options generally vest 20% at the time of the grant and in 20% annual increments thereafter.
In February 2007, however, in lieu of awarding options similar in size to prior years to two of our
senior executives, the
21
GENERAL GROWTH PROPERTIES, INC.
Compensation Committee of our Board of Directors accelerated the vesting of options held by these
executives so that all such options became immediately vested and exercisable. As a result, the
vesting of 705,000 options was accelerated and compensation expense of $4.1 million which would
have been recognized in 2007 through 2010 was recognized in the first quarter of 2007. The 2003
Incentive Plan provides for the issuance of 9,000,000 shares, of
which 5,555,232 shares (4,878,500 stock options and 676,732 restricted shares) have been granted as of June 30, 2008,
subject to certain customary adjustments to prevent dilution.
Threshold-Vesting Stock Options
Under the 1998 Incentive Stock Plan (the 1998 Incentive Plan), stock incentive awards to
employees in the form of threshold-vesting stock options (TSOs) have been granted. The exercise
price of the TSO is the Current Market Price (CMP) as defined in the 1998 Incentive Plan of our
common stock on the date the TSO is granted. In order for the TSOs to vest, our common stock must
achieve and sustain the applicable threshold price for at least 20 consecutive trading days at any
time during the five years following the date of grant. Participating employees must remain
employed until vesting occurs in order to exercise the options. The threshold price is determined
by multiplying the CMP on the date of grant by an Estimated Annual Growth Rate (currently 7%) and
compounding the product over a five-year period. TSOs granted in 2004 and thereafter must be
exercised within 30 days of the vesting date. TSOs granted prior to 2004, all of which have
vested, have a term of up to 10 years. Under the 1998 Incentive Plan, 8,163,995 options have been
granted as of June 30, 2008, subject to certain customary adjustments to prevent dilution.
The 1998 Incentive Plan will terminate December 31, 2008. No TSOs have been issued in 2008 and no
further awards are expected to be made under this plan.
The following table summarizes TSO activity as of June 30, 2008 by grant year.
|
|
|
|
|
|
|
|
|
|
|
TSO Grant Year |
|
|
|
2007 |
|
|
2006 |
|
TSOs outstanding at January 1, 2008 |
|
|
1,313,890 |
|
|
|
1,235,568 |
|
Forfeited (1) |
|
|
(73,364 |
) |
|
|
(73,297 |
) |
Vested and exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSOs outstanding at June 30, 2008 (2) |
|
|
1,240,526 |
|
|
|
1,162,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value (3) |
|
$ |
|
|
|
$ |
|
|
Intrinsic value options exercised |
|
|
|
|
|
|
|
|
Fair value options exercised |
|
|
|
|
|
|
|
|
Cash received options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price (4) |
|
$ |
65.81 |
|
|
$ |
50.47 |
|
Threshold price |
|
|
92.30 |
|
|
|
70.79 |
|
Fair value of options on grant date |
|
|
9.54 |
|
|
|
6.51 |
|
Remaining contractual term (in years) |
|
|
3.6 |
|
|
|
2.6 |
|
|
|
|
(1) |
|
No TSO expirations for years presented. |
|
(2) |
|
TSOs outstanding at June 30, 2008 for the years 2005 and prior were 127,071. |
|
(3) |
|
Intrinsic value is not presented if result is a negative number. |
|
(4) |
|
A weighted average exercise price is not applicable as there is only one grant date and issuance per year. |
The Company has a $200 million per fiscal year common stock repurchase program which gives us the
ability to acquire some or all of the shares of common stock to be issued upon the exercise of the
TSOs.
Restricted Stock
Pursuant to the 2003 Stock Incentive Plan, we make restricted stock grants to certain employees and
non-employee directors. The vesting terms of these grants are specific to the individual grant.
The vesting terms vary in that a portion of the shares vest either immediately or on the first
anniversary and the remainder vest in equal annual amounts over the next two to five years.
Participating employees must remain employed for vesting to occur (subject to certain exceptions in
the case of retirement). Shares that do not vest are forfeited. Dividends are paid on
22
GENERAL GROWTH PROPERTIES, INC.
stock subject to restricted stock grants and are not returnable, even if the related stock does not
ultimately vest. The following table summarizes restricted stock activity for the respective grant
years as of and for the six months ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
2007 |
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Grant Date Fair |
|
|
|
|
|
|
Grant Date Fair |
|
|
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Value |
|
Nonvested restricted stock grants outstanding as of January 1 |
|
|
136,498 |
|
|
$ |
59.75 |
|
|
|
72,666 |
|
|
$ |
47.62 |
|
Granted |
|
|
360,232 |
|
|
|
35.69 |
|
|
|
96,500 |
|
|
|
65.29 |
|
Vested and exercised |
|
|
(53,164 |
) |
|
|
51.84 |
|
|
|
(32,670 |
) |
|
|
49.11 |
|
Canceled |
|
|
(5,852 |
) |
|
|
35.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested restricted stock grants outstanding as of June 30 |
|
|
437,714 |
|
|
|
40.94 |
|
|
|
136,496 |
|
|
|
59.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining contractual term (in years)
of nonvested awards as of June 30, 2008 was 3.4 years.
The total fair value of restricted stock grants which vested during the six months ended June 30,
2008 and during the six months ended June 30, 2007 was $2.0 million.
Other Required Disclosures
Historical data, such as the past performance of our common stock and the length of service by
employees, was used to estimate expected life of the stock options, TSOs and our restricted stock
and represents the period of time the options or grants are expected to be outstanding. The
weighted average estimated value of stock options and TSOs granted during the six months ended June
30, 2007 were based on the following assumptions (there were no stock options or TSOs granted for
the six months ended June 30, 2008):
|
|
|
|
|
|
|
2007 |
Risk-free interest rate |
|
|
4.7 |
% |
Dividend yield |
|
|
4.0 |
% |
Expected volatility |
|
|
24.72 |
|
Expected life (in years) |
|
|
5 |
|
Compensation expense related to the Incentive Stock Plans, TSOs and restricted stock was $2.6
million for the three months ended June 30, 2008, $5.0 million for the six months ended June 30,
2008, $2.4 million for the three months ended June 30, 2007 and $13.7 million for the six months
ended June 30, 2007.
As of June 30, 2008, total compensation expense which had not yet been recognized related to
nonvested options, TSOs and restricted stock grants was $9.4 million. Of this total, $1.4 million
is expected to be recognized in the remaining months of 2008, $2.9 million in 2009, $2.9 million in
2010, $2.0 million in 2011 and $0.2 million in 2012. These amounts may be impacted by future
grants, changes in forfeiture estimates or vesting terms, actual forfeiture rates which differ from
estimated forfeitures and/or timing of TSO vesting.
23
GENERAL GROWTH PROPERTIES, INC.
NOTE 7 OTHER ASSETS AND LIABILITIES
The following table summarizes the significant components of Prepaid expenses and other assets.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Below-market ground leases (Note 2) |
|
$ |
270,538 |
|
|
$ |
273,845 |
|
Receivables finance leases and bonds |
|
|
109,215 |
|
|
|
114,979 |
|
Real estate tax stabilization agreement (Note 2) |
|
|
77,492 |
|
|
|
79,454 |
|
Security and escrow deposits |
|
|
75,455 |
|
|
|
83,638 |
|
Glendale Matter deposit (Note 3) |
|
|
67,054 |
|
|
|
|
|
Prepaid expenses |
|
|
63,321 |
|
|
|
56,540 |
|
Above-market tenant leases (Note 2) |
|
|
62,228 |
|
|
|
75,285 |
|
Special Improvement District receivable |
|
|
56,150 |
|
|
|
58,200 |
|
Deferred income tax |
|
|
29,892 |
|
|
|
24,088 |
|
Funded defined contribution plan assets |
|
|
10,614 |
|
|
|
14,616 |
|
Other |
|
|
27,991 |
|
|
|
25,632 |
|
|
|
|
|
|
|
|
Total prepaid expenses and other assets |
|
$ |
849,950 |
|
|
$ |
806,277 |
|
|
|
|
|
|
|
|
The following table summarizes the significant components of Accounts payable and accrued expenses.
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Construction payables |
|
$ |
254,521 |
|
|
$ |
206,044 |
|
Accounts payable and accrued expenses |
|
|
252,044 |
|
|
|
302,719 |
|
Additional Palazzo purchase price (Note 8) |
|
|
195,702 |
|
|
|
|
|
FIN 48 liability |
|
|
151,163 |
|
|
|
146,201 |
|
Accrued interest |
|
|
123,989 |
|
|
|
122,406 |
|
Below-market tenant leases (Note 2) |
|
|
106,587 |
|
|
|
127,641 |
|
Accrued real estate taxes |
|
|
92,973 |
|
|
|
84,327 |
|
Deferred income |
|
|
92,172 |
|
|
|
79,479 |
|
Hughes participation payable |
|
|
71,727 |
|
|
|
86,008 |
|
Accrued payroll and other employee liabilities |
|
|
62,948 |
|
|
|
71,191 |
|
Tenant and other deposits |
|
|
28,414 |
|
|
|
28,212 |
|
FIN 47 liability |
|
|
21,536 |
|
|
|
14,321 |
|
Insurance reserve |
|
|
15,784 |
|
|
|
19,407 |
|
Above-market ground leases (Note 2) |
|
|
15,253 |
|
|
|
15,489 |
|
Capital lease obligations |
|
|
14,098 |
|
|
|
14,390 |
|
Funded defined contribution plan liabilities |
|
|
10,614 |
|
|
|
14,616 |
|
Oakwood Center insurance settlement advanced
payments |
|
|
8,750 |
|
|
|
|
|
Homart I purchase price obligation * |
|
|
|
|
|
|
254,000 |
|
Other |
|
|
66,835 |
|
|
|
101,790 |
|
|
|
|
|
|
|
|
Total accounts payable and accrued expenses |
|
$ |
1,585,110 |
|
|
$ |
1,688,241 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Converted to a secured note in first quarter 2008 |
NOTE 8 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, we are involved in legal proceedings relating
to the ownership and operations of our properties. In managements opinion, the liabilities, if
any, that may ultimately result from such legal actions are not expected to have a material adverse
effect on our consolidated financial position, results of operations or liquidity.
We lease land or buildings at certain properties from third parties. The leases generally provide
us with a right of first refusal in the event of a proposed sale of the property by the landlord.
Rental payments are expensed as incurred
24
GENERAL GROWTH PROPERTIES, INC.
and have, to the extent applicable, been straight-lined over the term of the lease. Contractual
rental expense, including participation rent, was $5.2 million for the three months ended June 30,
2008, $9.6 million for the six months ended June 30, 2008, $2.3 million for the three months ended
June 30, 2007 and $7.3 million for the six months ended June 30, 2007 while the same rent expense
excluding amortization of above and below-market ground leases and straight-line rents, as
presented in our consolidated financial statements, was $3.4 million for the three months ended
June 30, 2008, $6.0 million for the six months ended June 30, 2008, $0.7 million for the three
months ended June 30, 2007 and $4.1 million for the six months ended June 30, 2007.
We periodically enter into contingent agreements for the acquisition of properties. Each
acquisition is subject to satisfactory completion of due diligence and, in the case of property
acquired under development, completion of the project. In conjunction with the acquisition of The
Grand Canal Shoppes in 2004, we entered into an agreement (the Phase II Agreement) to acquire the
multi-level retail space that is part of The Palazzo in Las Vegas, Nevada (The Phase II
Acquisition) which is connected to the existing Venetian and the Sands Expo and Convention Center
facilities and The Grand Canal Shoppes. The project opened on January 18, 2008. The acquisition
closed on February 29, 2008 for an initial purchase price of $290.8 million, which was primarily
funded with $250.0 million of new variable-rate short-term debt collateralized by the property and
for Federal Income Tax purposes is being used as replacement property in a like-kind exchange.
Additional purchase price payments based on net operating income of the Phase II retail space,
which are currently estimated at approximately $196 million and presented in Accounts payable and
accrued expenses in our consolidated financial statements (Note 7), will be made during the 30
months after closing with the final payment being subject to re-adjustment 48 months after closing.
The actual additional amounts paid over the next four years could be more or less than the current
estimate.
See Note 5 for our obligations related to FIN 48 and Note 3 for disclosure of additional
contingencies.
Contingent Stock Agreement
In conjunction with the TRC Merger, we assumed TRCs obligations under a Contingent Stock Agreement
(CSA). TRC entered into the CSA in 1996 when it acquired The Hughes Corporation (Hughes).
This acquisition included various assets, including Summerlin (the CSA Assets), a development in
our Master Planned Communities segment. We agreed that the TRC Merger would not have a prejudicial
effect on the former Hughes owners or their successors (the Beneficiaries) with respect to their
receipt of securities pursuant to the CSA. We further agreed to indemnify and hold harmless the
Beneficiaries against losses arising out of any breach by us of these covenants.
Under the CSA, we are required to issue shares of our common stock semi-annually (February and
August) to the Beneficiaries. The number of shares to be issued is based on cash flows from the
development and/or sale of the CSA Assets and our stock price. We account for the Beneficiaries
share of earnings from the CSA Assets as an operating expense. We issued 356,661 shares of our
common stock, all from treasury shares, to the Beneficiaries for the six months ended June 30, 2008
and 699,000 (including 147,000 treasury shares) for the six months ended June 30, 2007.
Under the CSA, we are also required to make a final stock distribution to the Beneficiaries in
2010, following a final valuation at the end of 2009. The amount of this distribution will be
based on the appraised values of CSA Assets at such time and is expected to be significant. We
will account for this distribution as additional investments in the related assets (that is,
contingent consideration).
Oakwood Center Damages
Our Oakwood Center retail property located in Gretna, Louisiana incurred hurricane and/or vandalism
damage in September 2005. After extensive repair and replacements, the property re-opened in
October 2007. We have maintained multiple layers of comprehensive insurance coverage for the
property damage and business interruption costs that were incurred and, therefore, recorded
insurance recovery receivables for both such coverages. During 2007, we reached final settlements
with all of the insurance carriers for our first two layers of insurance coverage pursuant to which
we have received a cumulative total to date of approximately $50 million. As of December 31, 2007,
all of the insurance recovery proceeds from the insurance carriers with respect to such first two
layers of coverage have been applied against the initial estimated property damage with the
remainder recorded as recovery of operating costs and repairs, minimum rents and provision for
doubtful accounts. As a result, all of the previously recorded insurance recovery receivables were
collected as of December 31, 2007.
25
GENERAL GROWTH PROPERTIES, INC.
Currently, litigation that commenced in 2006 continues with our remaining insurance carriers
regarding additional unresolved and disputed claims with respect to deductibles, exclusions,
additional business interruption coverage and the scope and cost of repair, cleaning, and
replacement required at the property. As of June 30, 2008, we have received approximately $8.8
million of additional payments from certain of the remaining insurance carriers, which is included
in Accounts payable and accrued expenses in our consolidated financial statements as these
collections are not settlements but rather advance payments which are subject to final settlement.
While we believe that our remaining claims are valid, there can be no assurance that any additional
amounts will be collected.
NOTE 9 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2008, the FASB finalized Staff Position (FSP) No. EITF 03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating Securities. The FSP
affects entities that accrue cash dividends on share-based payment awards during the awards
service period when dividends do not need to be returned if the employees forfeit the awards. The
transition guidance in the FSP requires an entity to retroactively adjust all prior-period
earnings-per-share computations to reflect the FSPs provisions. The FSP is effective for fiscal
years beginning after December 15, 2008, and interim periods within those fiscal years. Early
adoption of the FSP is not permitted. We are currently evaluating the impact of this new standard
on our consolidated financial statements, particularly with respect to our grants of restricted
stock to employees (Note 6).
In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash Upon Conversion (including Partial Cash Settlement) (FSP
14-1). FSP 14-1 requires companies to separately account for the liability and equity components
of applicable debt instruments in a manner that will reflect the nonconvertible debt borrowing rate
when interest cost is recognized in subsequent periods. FSP 14-1 will be retrospectively applied
and effective for financial statements issued for fiscal years beginning after December 15, 2008.
The impact of the retrospective application of FSP 14-1 on our consolidated financial statements,
particularly with respect to our Exchangeable Senior Notes (Note 4), is expected to be additional
non-cash interest expense of $16.3 million for the year ended December 31, 2007 and $25.7 million
for the year ended December 31, 2008.
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determining the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 was designed to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets, and the period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007), Business Combinations, and other guidance under GAAP. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those years. Early adoption is prohibited. We are currently evaluating the
impact of this new standard on our consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161), which amends SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities by requiring expanded disclosures about an entitys derivative instruments and
hedging activities, but does not change SFAS 133s scope or accounting. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after November 15, 2008,
with early adoption permitted. Management has elected not to early adopt SFAS 161 for its
derivative instruments on January 1, 2008. We are currently evaluating the impact of this new
statement on our consolidated financial statements.
In February 2008, the FASB issued two Staff Positions on SFAS 157: (1) FASB Staff Position No. FAS
157-1 (FSP 157-1), Application of FASB Statement No. 157 to FASB Statement No. 13 and Other
Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification
or Measurement Under Statement 13, and (2) FASB Staff Position No. FAS 157-2 (FSP 157-2),
Effective Date of FASB Statement No. 157. FSP 157-1 excludes FASB Statement No. 13, Accounting
for Leases, as well as other accounting pronouncements that address fair value measurements on
lease classification or measurement under Statement 13, from SFAS 157s scope. FSP 157-2 partially
defers SFAS 157s effective date to January 1, 2009 for all non financial assets and non financial liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis.
26
GENERAL GROWTH PROPERTIES, INC.
In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations (SFAS 141 (R)), and
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS
141 (R) will change how business acquisitions are accounted for and will impact the financial
statements both on the acquisition date and in subsequent periods. SFAS 160 will change the
accounting and reporting for minority interests, which will be re-characterized as non-controlling
interests and classified as a component of equity. SFAS 141 (R) and SFAS 160 are effective for
periods beginning on or after December 15, 2008. Early adoption is not permitted. We are
currently evaluating the impact of these new statements on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS 159) which provides companies with an option to report selected
financial assets and liabilities at fair value. The standards objective is to reduce both
complexity in accounting for financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. SFAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies that choose different
measurement attributes for similar types of assets and liabilities. SFAS 159 was effective as of
the beginning of an entitys first fiscal year beginning after November 15, 2007. With certain
limitations, early adoption was permitted. Although SFAS 159 is effective for the year ending
December 31, 2008, as permitted, management has elected not to adopt SFAS 159 for its existing
financial assets and liabilities on January 1, 2008.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157) which
provides enhanced guidance for using fair value to measure assets and liabilities. SFAS 157 also
requires expanded disclosures about the extent to which companies measure assets and liabilities at
fair value, the information used to measure fair value, and the effect of fair value measurements
on earnings. The standard applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. The standard does not expand the use of fair value in any
new circumstances. SFAS 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal years. We have adopted
SFAS 157 except as it applies to those non financial assets and non financial liabilities as noted
below. The partial adoption of SFAS 157 did not have a material impact on our consolidated
financial statements.
NOTE 10 SEGMENTS
We have two business segments which offer different products and services. Our segments are managed
separately because each requires different operating strategies or management expertise. We do not
distinguish or group our consolidated operations on a geographic basis. Further, all material
operations are within the United States and no customer or tenant comprises more than 10% of
consolidated revenues. Our reportable segments are as follows:
|
|
|
Retail and Other includes the operation, development and management of retail and
other rental property, primarily shopping centers |
|
|
|
|
Master Planned Communities includes the development and sale of land, primarily in
large-scale, long-term community development projects in and around Columbia, Maryland;
Summerlin, Nevada; and Houston, Texas, and our one residential condominium project |
The operating measure used to assess operating results for the business segments is Real Estate
Property Net Operating Income (NOI) which represents the operating revenues of the properties
less property operating expenses, exclusive of depreciation and amortization. Management believes
that NOI provides useful information about a propertys operating performance.
The accounting policies of the segments are the same as those of the Company, except that we report
unconsolidated real estate ventures using the proportionate share method rather than the equity
method. Under the proportionate share method, our share of the revenues and expenses of the
Unconsolidated Properties are combined with the revenues and expenses of the Consolidated
Properties. Under the equity method, our share of the net revenues and expenses of the
Unconsolidated Properties are reported as a single line item, Equity in income of Unconsolidated
Real Estate Affiliates, in our Consolidated Statements of Income and Comprehensive Income. This
difference affects only the reported revenues and operating expenses of the segments and has no effect on our
reported net earnings. In addition, other revenues include the NOI of discontinued operations and
is reduced by the NOI attributable to our minority interest partners in consolidated joint
ventures.
27
GENERAL GROWTH PROPERTIES, INC.
The total expenditures for additions to long-lived assets for the Master Planned Communities
segment were $97.4 million for the six months ended June 30, 2008 and $84.0 million for the six
months ended June 30, 2007. The total expenditures for additions to long-lived assets for the
Retail and Other segment were $779.3 million for the six months ended June 30, 2008 and $423.1
million for the six months ended June 30, 2007. Such amounts for the Master Planned Communities
segment and the Retail and Other segment are included in the amounts listed as Land/residential
development and acquisitions expenditures and Acquisition/development of real estate and property
additions/improvements, respectively, in our Consolidated Statements of Cash Flows.
The total amount of goodwill, as presented on our Consolidated Balance Sheet, is included in our
Retail and Other segment.
Segment operating results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
|
|
Properties |
|
|
Properties |
|
|
Basis |
|
|
|
(In thousands) |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
507,099 |
|
|
$ |
94,544 |
|
|
$ |
601,643 |
|
Tenant recoveries |
|
|
231,548 |
|
|
|
39,522 |
|
|
|
271,070 |
|
Overage rents |
|
|
10,892 |
|
|
|
1,723 |
|
|
|
12,615 |
|
Other, including minority interest |
|
|
25,539 |
|
|
|
18,012 |
|
|
|
43,551 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
775,078 |
|
|
|
153,801 |
|
|
|
928,879 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
69,004 |
|
|
|
11,990 |
|
|
|
80,994 |
|
Repairs and maintenance |
|
|
56,997 |
|
|
|
8,945 |
|
|
|
65,942 |
|
Marketing |
|
|
8,776 |
|
|
|
1,590 |
|
|
|
10,366 |
|
Other property operating costs |
|
|
104,434 |
|
|
|
31,534 |
|
|
|
135,968 |
|
Provision for doubtful accounts |
|
|
6,287 |
|
|
|
488 |
|
|
|
6,775 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
245,498 |
|
|
|
54,547 |
|
|
|
300,045 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
529,580 |
|
|
|
99,254 |
|
|
|
628,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
15,855 |
|
|
|
17,802 |
|
|
|
33,657 |
|
Land sales operations |
|
|
(15,211 |
) |
|
|
(11,196 |
) |
|
|
(26,407 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
644 |
|
|
|
6,606 |
|
|
|
7,250 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
530,224 |
|
|
$ |
105,860 |
|
|
$ |
636,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2007 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
|
|
Properties |
|
|
Properties |
|
|
Basis |
|
|
|
(In thousands) |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
443,432 |
|
|
$ |
112,053 |
|
|
$ |
555,485 |
|
Tenant recoveries |
|
|
195,403 |
|
|
|
47,684 |
|
|
|
243,087 |
|
Overage rents |
|
|
10,876 |
|
|
|
1,467 |
|
|
|
12,343 |
|
Other, including minority interest |
|
|
24,897 |
|
|
|
23,197 |
|
|
|
48,094 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
674,608 |
|
|
|
184,401 |
|
|
|
859,009 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
55,089 |
|
|
|
14,392 |
|
|
|
69,481 |
|
Repairs and maintenance |
|
|
47,918 |
|
|
|
10,640 |
|
|
|
58,558 |
|
Marketing |
|
|
10,713 |
|
|
|
2,874 |
|
|
|
13,587 |
|
Other property operating costs |
|
|
97,609 |
|
|
|
40,796 |
|
|
|
138,405 |
|
(Recovery of) provision for doubtful accounts |
|
|
(1,701 |
) |
|
|
397 |
|
|
|
(1,304 |
) |
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
209,628 |
|
|
|
69,099 |
|
|
|
278,727 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
464,980 |
|
|
|
115,302 |
|
|
|
580,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
36,130 |
|
|
|
22,661 |
|
|
|
58,791 |
|
Land sales operations |
|
|
(29,542 |
) |
|
|
(14,766 |
) |
|
|
(44,308 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
6,588 |
|
|
|
7,895 |
|
|
|
14,483 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
471,568 |
|
|
$ |
123,197 |
|
|
$ |
594,765 |
|
|
|
|
|
|
|
|
|
|
|
28
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
|
|
Properties |
|
|
Properties |
|
|
Basis |
|
|
|
(In thousands) |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,032,041 |
|
|
$ |
187,236 |
|
|
$ |
1,219,277 |
|
Tenant recoveries |
|
|
463,179 |
|
|
|
78,613 |
|
|
|
541,792 |
|
Overage rents |
|
|
24,410 |
|
|
|
3,035 |
|
|
|
27,445 |
|
Other, including minority interest |
|
|
53,731 |
|
|
|
31,552 |
|
|
|
85,283 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,573,361 |
|
|
|
300,436 |
|
|
|
1,873,797 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
137,653 |
|
|
|
23,581 |
|
|
|
161,234 |
|
Repairs and maintenance |
|
|
119,098 |
|
|
|
18,246 |
|
|
|
137,344 |
|
Marketing |
|
|
21,052 |
|
|
|
3,778 |
|
|
|
24,830 |
|
Other property operating costs |
|
|
216,326 |
|
|
|
61,387 |
|
|
|
277,713 |
|
Provision for doubtful accounts |
|
|
8,996 |
|
|
|
783 |
|
|
|
9,779 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
503,125 |
|
|
|
107,775 |
|
|
|
610,900 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
1,070,236 |
|
|
|
192,661 |
|
|
|
1,262,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
24,921 |
|
|
|
40,920 |
|
|
|
65,841 |
|
Land sales operations |
|
|
(25,131 |
) |
|
|
(26,602 |
) |
|
|
(51,733 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating (loss) income |
|
|
(210 |
) |
|
|
14,318 |
|
|
|
14,108 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,070,026 |
|
|
$ |
206,979 |
|
|
$ |
1,277,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
|
Consolidated |
|
|
Unconsolidated |
|
|
Segment |
|
|
|
Properties |
|
|
Properties |
|
|
Basis |
|
|
|
(In thousands) |
|
Retail and Other |
|
|
|
|
|
|
|
|
|
|
|
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
879,474 |
|
|
$ |
221,219 |
|
|
$ |
1,100,693 |
|
Tenant recoveries |
|
|
394,858 |
|
|
|
95,944 |
|
|
|
490,802 |
|
Overage rents |
|
|
26,456 |
|
|
|
3,934 |
|
|
|
30,390 |
|
Other, including minority interest |
|
|
48,446 |
|
|
|
44,655 |
|
|
|
93,101 |
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,349,234 |
|
|
|
365,752 |
|
|
|
1,714,986 |
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
111,949 |
|
|
|
29,521 |
|
|
|
141,470 |
|
Repairs and maintenance |
|
|
98,891 |
|
|
|
21,761 |
|
|
|
120,652 |
|
Marketing |
|
|
23,294 |
|
|
|
6,246 |
|
|
|
29,540 |
|
Other property operating costs |
|
|
197,645 |
|
|
|
81,643 |
|
|
|
279,288 |
|
Provision for doubtful accounts |
|
|
3,791 |
|
|
|
1,248 |
|
|
|
5,039 |
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
435,570 |
|
|
|
140,419 |
|
|
|
575,989 |
|
|
|
|
|
|
|
|
|
|
|
Retail and other net operating income |
|
|
913,664 |
|
|
|
225,333 |
|
|
|
1,138,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Planned Communities |
|
|
|
|
|
|
|
|
|
|
|
|
Land sales |
|
|
59,923 |
|
|
|
36,022 |
|
|
|
95,945 |
|
Land sales operations |
|
|
(49,686 |
) |
|
|
(22,461 |
) |
|
|
(72,147 |
) |
|
|
|
|
|
|
|
|
|
|
Master Planned Communities net operating income |
|
|
10,237 |
|
|
|
13,561 |
|
|
|
23,798 |
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
923,901 |
|
|
$ |
238,894 |
|
|
$ |
1,162,795 |
|
|
|
|
|
|
|
|
|
|
|
29
GENERAL GROWTH PROPERTIES, INC.
The following reconciles real estate property net operating income (NOI) to GAAP-basis operating
income and income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Real estate property net operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment basis |
|
$ |
636,084 |
|
|
$ |
594,765 |
|
|
$ |
1,277,005 |
|
|
$ |
1,162,795 |
|
Unconsolidated Properties |
|
|
(105,860 |
) |
|
|
(123,197 |
) |
|
|
(206,979 |
) |
|
|
(238,894 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties |
|
|
530,224 |
|
|
|
471,568 |
|
|
|
1,070,026 |
|
|
|
923,901 |
|
Management and other fees |
|
|
21,918 |
|
|
|
26,348 |
|
|
|
42,157 |
|
|
|
53,920 |
|
Property management and other costs |
|
|
(54,804 |
) |
|
|
(56,447 |
) |
|
|
(106,942 |
) |
|
|
(109,589 |
) |
General and administrative |
|
|
(4,416 |
) |
|
|
(4,030 |
) |
|
|
(12,515 |
) |
|
|
(16,299 |
) |
Depreciation and amortization |
|
|
(191,242 |
) |
|
|
(163,289 |
) |
|
|
(375,501 |
) |
|
|
(338,408 |
) |
Minority interest in NOI of Consolidated Properties and other |
|
|
2,767 |
|
|
|
2,996 |
|
|
|
5,501 |
|
|
|
5,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
304,447 |
|
|
|
277,146 |
|
|
|
622,726 |
|
|
|
519,323 |
|
Interest income |
|
|
1,449 |
|
|
|
2,944 |
|
|
|
2,006 |
|
|
|
4,977 |
|
Interest expense |
|
|
(312,943 |
) |
|
|
(275,547 |
) |
|
|
(632,337 |
) |
|
|
(543,896 |
) |
(Provision for) benefit from income taxes |
|
|
(6,866 |
) |
|
|
(17,647 |
) |
|
|
(16,257 |
) |
|
|
270,744 |
|
Minority interest |
|
|
(3,969 |
) |
|
|
(5,085 |
) |
|
|
(9,290 |
) |
|
|
(59,502 |
) |
Equity in income of Unconsolidated Real Estate Affiliates |
|
|
21,145 |
|
|
|
26,581 |
|
|
|
44,973 |
|
|
|
46,940 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3,263 |
|
|
$ |
8,392 |
|
|
$ |
11,821 |
|
|
$ |
238,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following reconciles segment revenues to GAAP-basis consolidated revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
|
2008 |
|
|
2007 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
|
(In thousands) |
|
Segment basis total property revenues |
|
$ |
928,879 |
|
|
$ |
859,009 |
|
|
$ |
1,873,797 |
|
|
$ |
1,714,986 |
|
Unconsolidated segment revenues |
|
|
(153,801 |
) |
|
|
(184,401 |
) |
|
|
(300,436 |
) |
|
|
(365,752 |
) |
Consolidated land sales |
|
|
15,855 |
|
|
|
36,130 |
|
|
|
24,921 |
|
|
|
59,923 |
|
Management and other fees |
|
|
21,918 |
|
|
|
26,348 |
|
|
|
42,157 |
|
|
|
53,920 |
|
Minority interest in NOI of
Consolidated Properties and other |
|
|
2,767 |
|
|
|
2,996 |
|
|
|
5,501 |
|
|
|
5,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP-basis consolidated total revenues |
|
$ |
815,618 |
|
|
$ |
740,082 |
|
|
$ |
1,645,940 |
|
|
$ |
1,468,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All references to numbered Notes are to specific footnotes to our Consolidated Financial Statements
included in this Quarterly Report and which descriptions are incorporated into the applicable
response by reference. The following discussion should be read in conjunction with such
Consolidated Financial Statements and related Notes. Capitalized terms used, but not defined, in
this Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
have the same meanings as in such Notes or in our Annual Report.
FORWARD-LOOKING INFORMATION
We may make forward-looking statements in this Quarterly Report and in other reports that we file
with the SEC. In addition, our senior management may make forward-looking statements orally to
analysts, investors, the media and others.
Forward-looking statements include:
|
|
Projections of our revenues, income, earnings per share, Funds From Operations (FFO),
Core FFO, capital expenditures, income tax or other contingent liabilities, dividends,
leverage, capital structure or other financial items |
|
|
|
Descriptions of plans or objectives of our management for future operations, including
pending capital, development, re-development or refinancing activities |
|
|
|
Forecasts of our future economic performance |
|
|
|
Descriptions of assumptions underlying or relating to any of the foregoing |
30
GENERAL GROWTH PROPERTIES, INC.
In this Quarterly Report, for example, we make forward-looking statements discussing our
expectations about:
|
|
Expected sales in our Master Planned Communities segment |
|
|
|
Future financings, repayment of debt and interest rates |
|
|
|
Development and re-development projects |
|
|
|
Distributions pursuant to the Contingent Stock Agreement |
|
|
|
Future joint ventures and sales of non-core assets |
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as anticipate,
believe, estimate, expect, intend, plan, project, target, can, could, may,
should, will, would or similar expressions. Forward-looking statements should not be unduly
relied upon. They give our expectations about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made and we might not update them to reflect changes
that occur after the date they are made.
There are several factors, many beyond our control, which could cause results to differ materially
from our expectations. Some of these factors are described in our Annual Report, which factors are
incorporated herein by reference. Any factor could by itself, or together with one or more other
factors, adversely affect our business, results of operations or financial condition. There are
also other factors that we have not described in this Quarterly Report or in our Annual Report that
could cause results to differ from our expectations.
Overview
Our primary business is acquiring, owning, managing, leasing and developing retail rental property,
primarily shopping centers. Substantially all of our properties are located in the United States,
but we also have retail rental property operations and property management activities (through
unconsolidated joint ventures) in Brazil and Turkey. Our Master Planned Communities segment
includes the development and sale of residential and commercial land, primarily in large-scale
projects in and around Columbia, Maryland; Houston, Texas; and Summerlin, Nevada.
Prior to the acquisition of The Rouse Company in November 2004, acquisitions had been a key
contributor to our growth. Since 2005, with the exception of the Homart I acquisition,
acquisitions have been minimal and we have focused on development and re-development projects,
increasing NOI at existing retail operations, increasing our international focus and managing and
refinancing our debt. As a result of the current uncertainties in the retail market, the Company
expects reduced NOI growth at existing retail operations for the remainder of 2008. This change in
expected NOI and the continued weakness of the credit market has caused the Company to take several
steps to further manage its cash needs and access to capital, including additional capital raising
activities, the deferral of certain development and re-development projects and the sale of certain
non-core assets. Continued economic weakness, including in the retail, credit and housing markets,
could further effect the Companys expected operating results and access to capital, and could also
affect the carrying value and market valuation of its properties.
In March 2008, we sold 22,829,355 shares of GGP common stock at $36.00 per share, resulting in net
proceeds of $821.9 million. These proceeds were used primarily to pay approximately $490 million
of our variable-rate debt credit facilities and approximately $200 million of our Senior Bridge
Facility.
During April 2008, we sold (in two separate transactions) three office buildings (two located in
Maryland and one located in Las Vegas) for a total sales price of approximately $98 million
(including debt assumed of approximately $84 million) resulting in total gains of $30.8 million
(net of $6.2 million of minority interest) (Note 2). For Federal Income Tax purposes, the two
office buildings located in Maryland are being used as relinquished property in a like-kind
exchange involving The Palazzo (Note 8).
In July 2008, we closed on the $1.75 billion Secured Portfolio Facility and received advances of
$1.13 billion under such facility (Note 4). The proceeds from this facility have been and will be
used to repay debt maturing in 2008 and for general corporate purposes.
Real estate property net operating income for the three months ended June 30, 2008 increased $41.3
million, which was attributable to a $48.6 million increase in our NOI from our Retail and Other
segment and was partially offset by a $7.2 million decrease in our NOI from our Master Planned
Communities segment. This reduction in Master
31
GENERAL GROWTH PROPERTIES, INC.
Planned Community segment NOI is the result of the
significant reduction in sales volume at our Maryland and Summerlin communities, which we expect to
continue for the balance of 2008 and into 2009.
Retail operating metrics continued to remain strong during the quarter. Sales per square foot (on
a trailing twelve month basis) for our Retail Company Portfolio were $459 for the second quarter of
both 2008 and 2007. Occupancy in our Retail Company Portfolio increased slightly to 93.2% at June
30, 2008, compared to 92.9% at June 30, 2007.
During the third quarter 2007, we completed the Homart I acquisition (Note 2) for an aggregate
purchase price, including our share of debt and liabilities assumed, of $2.26 billion. Discussions
of the results of operations below have been limited to only those elements of operating trends
that were not a function of the Homart I acquisition.
Seasonality
Although we have a year-long temporary leasing program, occupancies for short-term tenants and,
therefore, rental income recognized, are higher during the second half of the year. Typically,
tenant vacancies are experienced in the first half of the year and space is re-leased in the second
half of the year which also generates higher rental income. In addition, the majority of our
tenants have December or January lease years for purposes of calculating annual overage rent
amounts. Accordingly, overage rent thresholds are most commonly achieved in the fourth quarter.
As a result, revenue production is generally highest in the fourth quarter of each year.
Critical Accounting Policies
Critical accounting policies are those that are both significant to the overall presentation of our
financial condition and results of operations and require management to make difficult, complex or
subjective judgments. Our critical accounting policies as discussed in our 2007 Annual Report have
not changed during 2008 and such policies, and the discussion of such policies, are incorporated
herein by reference.
Results of Operations
We have presented the following discussion of our results of operations on a segment basis under
the proportionate share method. Under the proportionate share method, our share of the revenues
and expenses of the Unconsolidated Properties are combined with the revenues and expenses of the
Consolidated Properties. Other revenues are increased by the real estate net operating income of
discontinued operations, if applicable, and are reduced by our consolidated minority interest
venturers share of real estate net operating income. See Note 10 for additional information
including reconciliations of our segment basis results to GAAP basis results.
Three Months Ended June 30, 2008 and 2007
Retail and Other Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
601,643 |
|
|
$ |
555,485 |
|
|
$ |
46,158 |
|
|
|
8.3 |
% |
Tenant recoveries |
|
|
271,070 |
|
|
|
243,087 |
|
|
|
27,983 |
|
|
|
11.5 |
|
Overage rents |
|
|
12,615 |
|
|
|
12,343 |
|
|
|
272 |
|
|
|
2.2 |
|
Other, including minority interest |
|
|
43,551 |
|
|
|
48,094 |
|
|
|
(4,543 |
) |
|
|
(9.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
928,879 |
|
|
|
859,009 |
|
|
|
69,870 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
80,994 |
|
|
|
69,481 |
|
|
|
11,513 |
|
|
|
16.6 |
|
Repairs and maintenance |
|
|
65,942 |
|
|
|
58,558 |
|
|
|
7,384 |
|
|
|
12.6 |
|
Marketing |
|
|
10,366 |
|
|
|
13,587 |
|
|
|
(3,221 |
) |
|
|
(23.7 |
) |
Other property operating costs |
|
|
135,968 |
|
|
|
138,405 |
|
|
|
(2,437 |
) |
|
|
(1.8 |
) |
Provision for (recovery of) doubtful accounts |
|
|
6,775 |
|
|
|
(1,304 |
) |
|
|
8,079 |
|
|
|
(619.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
300,045 |
|
|
|
278,727 |
|
|
|
21,318 |
|
|
|
7.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
628,834 |
|
|
$ |
580,282 |
|
|
$ |
48,552 |
|
|
|
8.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Higher effective rents and leased area across the Company Portfolio contributed to the increase in
minimum rents for the three months ended June 30, 2008 as compared to the three months ended June
30, 2007 primarily as the result of the March 2008 acquisition of The Palazzo (Note 8) and the
completion of development and/or
32
GENERAL GROWTH PROPERTIES, INC.
redevelopment projects at The Shops at Fallen Timbers, Gateway
Overlook, Oakwood Center and Natick Collection. The weighted average mall and freestanding GLA for
retail properties, excluding community centers, international properties and properties in
redevelopment, increased to 63,331,096 square feet at June 30, 2008 compared to 61,679,179 square
feet at June 30, 2007. Retail center occupancy increased slightly to 93.2% at June 30, 2008 as
discussed above. In addition, termination income increased to $7.5 million for the three months
ended June 30, 2008 compared to $3.5 million for the three months ended June 30, 2007.
Certain of our leases include both a base rent component and a component which requires tenants to
pay amounts related to all, or substantially all, of their share of real estate taxes and certain
property operating expenses, including common area maintenance and insurance. The portion of the
tenant rent from these leases attributable to real estate tax and operating expense recoveries are
recorded as tenant recoveries. The increase in tenant recoveries for the three months ended June
30, 2008 compared to the three months ended June 30, 2007 is primarily attributable to the
increased leased area in 2008 as a result of the acquisition of The Palazzo (Note 8) and completion
of redevelopment projects at Natick Collection, Oakwood Center and Ala Moana Center.
Other revenues include all other property revenues including vending, parking, sponsorship and
advertising revenues, less NOI of minority interests in consolidated joint ventures. The decrease
in other income is primarily attributable to The Woodlands Partnership which sold various office
buildings and other properties during 2007 and therefore recorded lower amounts of other revenues
for the three months ended June 30, 2008 compared to the three months ended June 30, 2007.
Real estate taxes increased for the three months ended June 30, 2008 compared to the three months
ended June 30, 2007 due to the completion of development projects and / or higher tax assessments
at Ala Moana Center, Glenbrook Square, Mall of Louisiana, River Falls and The Shops at Fallen
Timbers.
Repairs and maintenance increased for the three months ended June 30, 2008 compared to the three
months ended June 30, 2007 across the Company Portfolio due to higher contracted services for
cleaning, primarily resulting from higher costs of benefits. The acquisition of The Palazzo (Note
8), the completion of the redevelopment at Natick Collection and the development of The Shops at
Fallen Timbers also contributed to the increase.
Marketing expenses for the three months ended June 30, 2008 compared to the three months ended June
30, 2007 decreased across the Company Portfolio as the result of a strategic realignment of our
marketing function.
Other property operating costs decreased for the three months ended June 30, 2008 compared to the
three months ended June 30, 2007 primarily due to decreased property insurance costs across the
Company Portfolio.
The provision for doubtful accounts increased for the three months ended June 30, 2008 compared to
the three months ended June 30, 2007 primarily due to adjustments to reverse amounts previously
reserved at two of our properties. In 2007, the provision for
doubtful accounts was reduced to include insurance recoveries
collected for Oakwood Center and
Riverwalk Marketplace, which offset reserved tenant rents.
Master Planned Communities Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
Land sales |
|
$ |
33,657 |
|
|
$ |
58,791 |
|
|
$ |
(25,134 |
) |
|
|
(42.8) |
% |
Less Land sales operations |
|
|
26,407 |
|
|
|
44,308 |
|
|
|
(17,901 |
) |
|
|
(40.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
7,250 |
|
|
$ |
14,483 |
|
|
$ |
(7,233 |
) |
|
|
(49.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in NOI for the Master Planned Communities segment for the three months ended June 30,
2008 is primarily the result of a significant reduction in sales volume at our Maryland Properties
and Summerlin communities, while sales at the Bridgeland and The Woodlands communities only
declined slightly and produced essentially all of the NOI for the segment.
As of June 30, 2008, the master planned communities have 18,525 remaining saleable acres.
33
GENERAL GROWTH PROPERTIES, INC.
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
$ Increase |
|
% Increase |
|
|
2008 |
|
2007 |
|
(Decrease) |
|
(Decrease) |
|
|
|
|
|
|
(Dollars in thousands) |
|
|
|
|
Tenant rents |
|
$ |
749,539 |
|
|
$ |
649,711 |
|
|
$ |
99,828 |
|
|
|
15.4 |
% |
Land sales |
|
|
15,855 |
|
|
|
36,130 |
|
|
|
(20,275 |
) |
|
|
(56.1 |
) |
Property operating expenses |
|
|
245,498 |
|
|
|
209,628 |
|
|
|
35,870 |
|
|
|
17.1 |
|
Land sales operations |
|
|
15,211 |
|
|
|
29,542 |
|
|
|
(14,331 |
) |
|
|
(48.5 |
) |
Management and other fees |
|
|
21,918 |
|
|
|
26,348 |
|
|
|
(4,430 |
) |
|
|
(16.8 |
) |
Property management and other costs |
|
|
54,804 |
|
|
|
56,447 |
|
|
|
(1,643 |
) |
|
|
(2.9 |
) |
General and administrative |
|
|
4,416 |
|
|
|
4,030 |
|
|
|
386 |
|
|
|
9.6 |
|
Depreciation and amortization |
|
|
191,242 |
|
|
|
163,289 |
|
|
|
27,953 |
|
|
|
17.1 |
|
Interest expense |
|
|
312,943 |
|
|
|
275,547 |
|
|
|
37,396 |
|
|
|
13.6 |
|
Provision for income taxes |
|
|
6,866 |
|
|
|
17,647 |
|
|
|
(10,781 |
) |
|
|
(61.1 |
) |
Equity in income of Unconsolidated
Real Estate Affiliates |
|
|
21,145 |
|
|
|
26,581 |
|
|
|
(5,436 |
) |
|
|
(20.5 |
) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and overage
rents), land sales, property operating expenses (which includes real estate taxes, repairs and
maintenance, marketing, other property operating costs and provision for doubtful accounts) and
land sales operations were attributable to the same items discussed above in our segment basis
results, excluding those items related to our Unconsolidated Properties.
Management and other fees, property management and other costs and general and administrative in
the aggregate represent our costs of doing business and are generally not direct property-related
costs. The decrease in management and other fees was primarily due to the loss of revenues as the
result of the Homart I acquisition. The increase in general and administrative is primarily due to
increased legal fees in the three months ended June 30, 2008 compared to the three months ended
June 30, 2007.
The increase in interest expense is primarily due to higher debt balances as of June 30, 2008
compared to June 30, 2007, which was primarily the result of the funding of the Homart I
acquisition, the assumption of debt related to the Homart I acquisition, the acquisition of The
Palazzo (Note 8) and refinancing of Fashion Show and White Marsh Mall. The increase in interest
expense was due to a decrease in capitalized interest as a result of decreased development spending
in the three months ended June 30, 2008 compared to the three months ended June 30, 2007.
The decrease in provision for income taxes was primarily due to the decrease in taxable income from
our Master Planned Community segment as a result of lower land sales as discussed above.
Six Months Ended June 30, 2008 and 2007
Retail and Other Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
Property revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum rents |
|
$ |
1,219,277 |
|
|
$ |
1,100,693 |
|
|
$ |
118,584 |
|
|
|
10.8 |
% |
Tenant recoveries |
|
|
541,792 |
|
|
|
490,802 |
|
|
|
50,990 |
|
|
|
10.4 |
|
Overage rents |
|
|
27,445 |
|
|
|
30,390 |
|
|
|
(2,945 |
) |
|
|
(9.7 |
) |
Other, including minority interest |
|
|
85,283 |
|
|
|
93,101 |
|
|
|
(7,818 |
) |
|
|
(8.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property revenues |
|
|
1,873,797 |
|
|
|
1,714,986 |
|
|
|
158,811 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes |
|
|
161,234 |
|
|
|
141,470 |
|
|
|
19,764 |
|
|
|
14.0 |
|
Repairs and maintenance |
|
|
137,344 |
|
|
|
120,652 |
|
|
|
16,692 |
|
|
|
13.8 |
|
Marketing |
|
|
24,830 |
|
|
|
29,540 |
|
|
|
(4,710 |
) |
|
|
(15.9 |
) |
Other property operating costs |
|
|
277,713 |
|
|
|
279,288 |
|
|
|
(1,575 |
) |
|
|
(0.6 |
) |
Provision for doubtful accounts |
|
|
9,779 |
|
|
|
5,039 |
|
|
|
4,740 |
|
|
|
94.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total property operating expenses |
|
|
610,900 |
|
|
|
575,989 |
|
|
|
34,911 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
1,262,897 |
|
|
$ |
1,138,997 |
|
|
$ |
123,900 |
|
|
|
10.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Higher effective rents and leased area across the Company Portfolio contributed to the increase in
minimum rents for the six months ended June 30, 2008 primarily as the result of the acquisition of
The Palazzo (Note 8) and the completion of the development and / or redevelopment projects at The
Shops at Fallen Timbers, Gateway Overlook,
34
GENERAL GROWTH PROPERTIES, INC.
Oakwood Center and Natick Collection. Termination income increased to $28.5 million for the six
months ended June 30, 2008 compared to $7.3 million for the six months ended June 30, 2007,
primarily due to a few large tenant termination agreements in the first quarter of 2008.
Certain of our leases include both a base rent component and a component which requires tenants to
pay amounts related to all, or substantially all, of their share of real estate taxes and certain
property operating expenses, including common area maintenance and insurance. The portion of the
tenant rent from these leases attributable to real estate tax and operating expense recoveries are
recorded as tenant recoveries. The increase in tenant recoveries for the six months ended June 30,
2008 compared to the six months ended June 30, 2007 is primarily attributable to the increased
leased area in 2008.
Other revenues include all other property revenues including vending, parking, sponsorship and
advertising revenues, less NOI of minority interests in consolidated joint ventures. The decrease
in other revenues is primarily attributable to The Woodlands Partnership which sold various office
buildings and other properties during 2007 and therefore recorded lower amounts of other revenues
for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.
Real estate taxes increased for the six months ended June 30, 2008 compared to the six months ended
June 30, 2007 due to the completion of development projects and / or higher tax assessments at Ala
Moana Center, Glenbrook Square, Mall of Louisiana, River Falls and The Shops at Fallen Timbers.
Repairs and maintenance increased across the Company Portfolio for the six months ended June 30,
2008 compared to the six months ended June 30, 2007 across the Company Portfolio due to higher
contracted services for cleaning, primarily resulting from higher costs of benefits. The
acquisition of The Palazzo (Note 8), the completion of the redevelopments at Ala Moana Center and
Natick Collection and the development of The Shops at Fallen Timbers.
Marketing expenses decreased across the Company Portfolio as the result of a strategic realignment
of our marketing function in 2008.
The provision for doubtful accounts increased for the six months ended June 30, 2008 compared to
the six months ended June 30, 2007 primarily due to adjustments to reverse amounts previously
reserved at two of our properties. In 2007, the provision for
doubtful accounts was reduced to include insurance recoveries
collected for Oakwood Center and
Riverwalk Marketplace, which offset reserved tenant rents. The increases were partially offset by
decreases in the provision for doubtful accounts at Otay Ranch Town
Center and South Street Seaport
for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.
Master Planned Communities Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
$ Increase |
|
|
% Increase |
|
|
|
2008 |
|
|
2007 |
|
|
(Decrease) |
|
|
(Decrease) |
|
|
|
(Dollars in thousands) |
|
Land sales |
|
$ |
65,841 |
|
|
$ |
95,945 |
|
|
$ |
(30,104 |
) |
|
|
(31.4 |
)% |
Less Land sales operations |
|
|
51,733 |
|
|
|
72,147 |
|
|
|
(20,414 |
) |
|
|
(28.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate property net operating income |
|
$ |
14,108 |
|
|
$ |
23,798 |
|
|
$ |
(9,690 |
) |
|
|
(40.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in NOI for the Master Planned Communities segment for the six months ended June 30,
2008 is primarily the result of a significant reduction in sales at our Maryland Properties,
Summerlin and Bridgeland communities. The decreases in total segment sales and NOI were partially
offset by higher sales at The Woodlands community. Land sales at The Woodlands community were
$40.9 million for the six months ended June 30, 2008 compared to $36.0 million for the six months
ended June 30, 2007, which was primarily due to a change in the mix of lots sold during the period
which includes more premium commercial lots and a higher average price per acre for residential and
commercial lots. The average price per acre at The Woodlands community for residential sales
increased to approximately $382,000 for the six months ended June 30, 2008 compared to $374,000 for
the six months ended June 30, 2007, while price per acre for the commercial sales increased to
approximately $588,000 for the six months ended June 30, 2008 compared to $387,000 for the six
months ended June 30, 2007.
35
GENERAL GROWTH PROPERTIES, INC.
Certain Significant Consolidated Revenues and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
$ Increase |
|
% Increase |
|
|
2008 |
|
2007 |
|
(Decrease) |
|
(Decrease) |
|
|
(Dollars in thousands) |
|
Tenant rents |
|
$ |
1,519,630 |
|
|
$ |
1,300,788 |
|
|
$ |
218,842 |
|
|
|
16.8 |
% |
Land sales |
|
|
24,921 |
|
|
|
59,923 |
|
|
|
(35,002 |
) |
|
|
(58.4 |
) |
Property operating expenses |
|
|
503,125 |
|
|
|
435,570 |
|
|
|
67,555 |
|
|
|
15.5 |
|
Land sales operations |
|
|
25,131 |
|
|
|
49,686 |
|
|
|
(24,555 |
) |
|
|
(49.4 |
) |
Management and other fees |
|
|
42,157 |
|
|
|
53,920 |
|
|
|
(11,763 |
) |
|
|
(21.8 |
) |
Property management and other costs |
|
|
106,942 |
|
|
|
109,589 |
|
|
|
(2,647 |
) |
|
|
(2.4 |
) |
General and administrative |
|
|
12,515 |
|
|
|
16,299 |
|
|
|
(3,784 |
) |
|
|
(23.2 |
) |
Depreciation and amortization |
|
|
375,501 |
|
|
|
338,408 |
|
|
|
37,093 |
|
|
|
11.0 |
|
Interest expense |
|
|
632,337 |
|
|
|
543,896 |
|
|
|
88,441 |
|
|
|
16.3 |
|
Provision for (benefit from) income taxes |
|
|
16,257 |
|
|
|
(270,744 |
) |
|
|
287,001 |
|
|
|
(106.0 |
) |
Equity in income of Unconsolidated Real
Estate Affiliates |
|
|
44,973 |
|
|
|
46,940 |
|
|
|
(1,967 |
) |
|
|
(4.2 |
) |
Changes in consolidated tenant rents (which includes minimum rents, tenant recoveries and overage
rents), land sales, property operating expenses (which includes real estate taxes, repairs and
maintenance, marketing, other property operating costs and provision for doubtful accounts) and
land sales operations were attributable to the same items discussed above in our segment basis
results, excluding those items related to our Unconsolidated Properties.
Management and other fees, property management and other costs and general and administrative in
the aggregate represent our costs of doing business and are generally not direct property-related
costs. The decrease in management and other fees was primarily due to the loss of revenues as the
result of the Homart I acquisition. The decrease in general and administrative is primarily due to
lower senior management compensation expense, as such costs were higher for the six months ended
June 30, 2007 due to higher stock option expense resulting from the acceleration of the vesting
period for certain stock options. The decrease was partially offset by higher legal fees incurred
for the six months ended June 30, 2008 compared to the six months ended June 30, 2007.
The increase in interest expense is primarily due to higher debt balances as of June 30, 2008
compared to June 30, 2007, which was primarily the result of the Exchangeable Senior Notes (Note
4), funding of the Homart I acquisition, the assumption of debt related to the Homart I
acquisition, the acquisition of The Palazzo (Note 8) and the refinancing of Fashion Show and White
Marsh Mall. The increase in interest expense was due to a decrease in capitalized interest as a
result of decreased development spending in the six months ended June 30, 2008 compared to the six
months ended June 30, 2007.
The increase in provision for (benefit from) income taxes was primarily due to the approximately
$300 million total tax benefit recognized for the six months ended June 30, 2007 attributable to
the tax restructuring of certain of our operating subsidiaries (Note 5).
Liquidity and Capital Resources
As of June 30, 2008, we have approximately $2.42 billion and $3.08 billion in debt maturing in 2008
and 2009, respectively (see also Note 4). Approximately $837 million of such debt was refinanced
in July 2008 and we are currently considering various types and forms of transactions to refinance
the remaining debt, including mortgage financings, construction financings, other debt and
preferred equity financings, venture partner equity capital and sales of non-core assets. In light
of current retail and credit market conditions, we have also elected to defer for eighteen months
approximately $500 million of development and redevelopment
expenditures. We believe that such deferral will enhance the
likelihood that these deferred development and redevelopment projects
will open when general economic conditions are more favorable and
when attractive financing is more generally available. Although such
deferral reduces our current approved future development spending to
approximately $1.03 billion, such amount is less than the
aggregate costs necessary to complete all currently planned projects.
We currently anticipate that we will be able to repay or refinance all of our debt on a timely
basis, and believe we have adequate sources of funds to meet our short term cash needs. However,
given the continued weakness of the retail and credit markets, there can be no assurance that we
can obtain such refinancing or additional capital on satisfactory terms. In the event that we are
unable to refinance our debt on a timely basis and on acceptable terms, we will be required to take
further steps to acquire the funds necessary to satisfy our short term cash needs,
36
GENERAL GROWTH PROPERTIES, INC.
including
additional asset or equity sales, further deferring or curtailing of planned expenditures, or
considering less attractive sources of capital for refinancing.
Cash Flows from Operating Activities
Net cash provided by operating activities was $190.1 million for the six months ended June 30, 2008
and $237.4 million for the six months ended June 30, 2007.
In April 2008, in conjunction with the Glendale Matter (Note 3), $67.1 million in cash was paid as
cash collateral for the appellate bond of $134.1 million.
Net cash used in working capital needs totaled $10.5 million in 2008 and $14.2 million in 2007.
The increase was due to increased NOI from our Retail and Other segment which is primarily due to
the Homart I acquisition in July 2007 (Note 2) and increased termination income for the six months
ended June 30, 2008.
Cash Flows from Investing Activities
Net cash used in investing activities was $732.5 million for the six months ended June 30, 2008 and
$589.5 million for the six months ended June 30, 2007. Included in these amounts is cash received
from the sale of three office buildings in April 2008 (Note 2), some of which may not be used until
completion of the like-kind exchange.
Net investing cash used in our Unconsolidated Real Estate Affiliates was $14.0 million in 2008 and
$166.3 million in 2007. The decrease in cash used in 2008 was primarily attributed to higher
capital contributions in 2007 to GGP/Homart II and international joint ventures.
Cash used for acquisition/development of real estate and property additions/improvements was $779.3
million for the six months ended June 30, 2008 from $423.1 million for the six months ended June
30, 2007. Approximately $292.4 was used for acquisition activity (primarily the Palazzo). The
moderate increase in additions for 2008 is primarily attributable to definitive and planned
development projects currently underway.
Cash Flows from Financing Activities
Net cash provided by financing activities was $530.3 million for the six months ended June 30, 2008
and $320.1 million for the six months ended June 30, 2007.
New financings exceeded principal payments by $17.2 million in 2008 and $719.9 million in 2007. The
financing activity in 2008 reflects the proceeds from the sale of GGP common stock of approximately
$821 million (Note 1), the Senior Bridge Facility and other new financings and refinancings,
partially offset by the repayment of the revolving credit facility and other debt. The financing
activity in 2007 reflects draws and repayments on the revolving credit facility as well as the
issuance of the $1.55 billion Notes offering. Financing costs associated with new financings were
$8.3 million in 2008 and $23.7 million in 2007.
In July 2008, we closed on the $1.75 billion Secured Portfolio Facility and received advances of
$1.13 billion under such facility (Note 4). In the event we have
not received aggregate advances under the Secured Portfolio Facility
of at least $1.50 billion by the earlier of the date the
co-arrangers determine we will not receive any additional advances or
December 31, 2008, we will be
required to pay to each arranger an amount equal to the excess of (i) the outstanding loan amount
held by such arranger over (ii) 16.67% of the final loan amount. We are required to deposit a
portion of each advance received under the Secured Portfolio Facility into a reserve account to
fund such potential payments, and have currently deposited
approximately $113.8 million into such
account. Proceeds from the Secured Portfolio Facility have been and will be used to repay debt
maturing in 2008 and for general corporate purposes.
Distributions to common stockholders, holders of Common Units and holders of perpetual and
convertible preferred units totaled $313.5 million for the six months ended June 30, 2008 and
$275.0 million for the six months ended
37
GENERAL GROWTH PROPERTIES, INC.
June 30, 2007. Dividends paid per common share were $1.00
for the six months ended June 30, 2008 and $0.90 for the six months ended June 30, 2007.
REIT Requirements
In order to remain qualified as a real estate investment trust for federal income tax purposes
(Note 5), we must distribute at least 90% of our ordinary taxable income to stockholders and either
distribute or pay tax on our capital gains. In determining distributions, the Board of Directors
considers operating cash flow.
Recently Issued Accounting Pronouncements
As described in Note 9, new accounting pronouncements have been issued which impact or could impact
the prior, current, or subsequent years.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no significant changes in the market risks described in our Annual Report.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under the
Securities Exchange Act of 1934, as amended, (the Exchange Act)). Based on that evaluation, the
CEO and the CFO have concluded that our disclosure controls and procedures are effective.
Internal Controls over Financial Reporting
There have been no changes in our internal controls during our most recently completed fiscal
quarter that have materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described in Note 3, neither the Company nor any of the Unconsolidated Real Estate
Affiliates is currently involved in any material pending legal proceedings nor, to our knowledge,
is any material legal proceeding currently threatened against the Company or any of the
Unconsolidated Real Estate Affiliates.
ITEM 1A. RISK FACTORS
There have been no material changes in the Risk Factors previously disclosed in our Annual Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Companys Annual Meeting of Stockholders held on May 14, 2008, the stockholders voted on the
matters listed below.
38
GENERAL GROWTH PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Matter |
|
Shares For |
|
Withheld |
|
1. (a) Election of Matthew Bucksbaum |
|
|
160,844,230 |
|
|
|
64,458,233 |
|
|
|
|
|
|
|
|
|
|
(b) Election of Bernard Freibaum |
|
|
152,738,357 |
|
|
|
72,564,106 |
|
|
|
|
|
|
|
|
|
|
(c) Election of Beth Stewart |
|
|
146,698,612 |
|
|
|
78,603,852 |
|
John Bucksbaum, Alan Cohen, Anthony Downs, Adam Metz, Robert Michaels, Thomas Nolan and John Riordan all continue as directors of the
Company.
On
June 12, 2008, Matthew Bucksbaum resigned as director of the
Company as reported on Form 8-K filed June 13, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
Number of |
|
Number of |
|
of Shares |
|
Broker Non- |
Matter |
|
Shares For |
|
Shares Against |
|
Abstain |
|
Votes |
|
2. Ratification of the selection of
Deloitte & Touche LLP as the
Companys independent public
accountants for the year ending
December 31, 2008. |
|
|
223,540,168 |
|
|
|
187,201 |
|
|
|
1,575,092 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
|
|
Number of |
|
Number of |
|
of Shares |
|
Broker Non- |
Matter |
|
Shares For |
|
Shares Against |
|
Abstain |
|
Votes |
|
3. Stockholder proposal regarding
declassification of the Board of
Directors. |
|
|
157,333,576 |
|
|
|
49,209,470 |
|
|
|
1,719,498 |
|
|
|
17,039,920 |
|
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
|
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
99.1
|
|
Consolidated Financial Statements of The Rouse Company LP, a subsidiary of General Growth
Properties, Inc. |
Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments
relating to long-term debt that is not registered and for which the total amount of securities
authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on
a consolidated basis as of June 30, 2008. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
GENERAL GROWTH PROPERTIES, INC.
(Registrant)
|
|
Date: August 7, 2008 |
by: |
/s/ Bernard Freibaum
|
|
|
|
Bernard Freibaum |
|
|
|
Executive Vice President and Chief Financial Officer
(On behalf of the Registrant and as Principal Accounting Officer) |
|
40
EXHIBIT INDEX
|
|
|
31.1
|
|
Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
31.2
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.1
|
|
Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
32.2
|
|
Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
|
|
99.1
|
|
Consolidated Financial Statements of The Rouse Company LP, a subsidiary of
General Growth Properties, Inc. |
Pursuant to Item 601(b)(4)(v) of Regulation S-K, the registrant has not filed debt instruments
relating to long-term debt that is not registered and for which the total amount of securities
authorized thereunder does not exceed 10% of total assets of the registrant and its subsidiaries on
a consolidated basis as of June 30, 2008. The registrant agrees to furnish a copy of such
agreements to the SEC upon request.
41