<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 1-11656
GENERAL GROWTH PROPERTIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 42-1283895
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
55 W. Monroe St., Chicago, IL 60603
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(Address of principal executive offices, Zip Code)
(312) 551-5000
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(Registrant's 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 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.
YES X NO
--- ---
The number of shares of Common Stock, $.10 par value, outstanding on
November 13, 1996 was 29,893,257.
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<PAGE> 2
GENERAL GROWTH PROPERTIES, INC.
INDEX
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<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
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<S> <C> <C>
Item 1: Financial Statements
Consolidated Balance Sheets
as of September 30, 1996 and December 31, 1995 ......................... 3
Consolidated Statements of Operations
for the three and nine months ended September 30, 1996 and 1995......... 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and 1995................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 11
Company Portfolio Results and Funds from Operations..................... 14
Reconciliation of Company Funds from Operations to Company Net Income... 15
Breakdown of Company Portfolio Results and Funds from
Operations for the three months ended September 30, 1996................ 16
Breakdown of Company Portfolio Results and Funds from
Operations for the nine months ended September 30, 1996................. 16
Other Portfolio Data for the nine months ended September 30, 1996....... 17
CenterMark Portfolio Results and Funds from Operations.................. 18
Management's Discussion and Analysis of CenterMark Funds from Operations 18
Reconciliation of CenterMark Funds from Operations to CenterMark Net
Income.................................................................. 19
GGP/Homart Portfolio Results and Funds from Operations.................. 20
Reconciliation of GGP/Homart Funds from Operations to GGP/Homart Net
Income.................................................................. 21
General Growth Management, Inc. Statement of Operations for the three
and nine months ended September 30, 1996................................ 22
Liquidity and Capital Resources of the Company.......................... 23
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K............................... 23
SIGNATURE............................................................... 23
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30,
1996 DECEMBER 31,
(UNAUDITED) 1995
--------- ------------
<S> <C> <C>
Investment in real estate:
Land $ 152,339 $ 144,517
Buildings and equipment 1,133,586 1,054,695
Less accumulated depreciation (178,159) (153,275)
Developments in progress 19,448 49,680
----------- -----------
Net property and equipment 1,127,214 1,095,617
Investment in CenterMark 67,687 120,082
Investment in GGP/Homart 188,691 178,647
----------- ---------
Net investment in real estate 1,383,592 1,394,346
Cash and cash equivalents 5,398 18,298
Tenant accounts receivable, net 19,799 14,831
Deferred expenses, net 29,773 24,752
Investment in General Growth Management, Inc. ("GGMI") 12,986 -
Note Receivable - GGMI 42,367 -
Prepaid and other assets 7,036 3,755
----------- -----------
$ 1,500,951 $ 1,455,982
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 998,814 $ 1,025,130
Notes and contracts payable 1,068 2,802
Dividends and distributions payable - 18,650
Accounts payable and accrued expenses 44,764 43,389
Accounts payable and accrued expenses -- affiliates - 1,211
----------- -----------
1,044,646 1,091,182
----------- -----------
Minority interest in Operating Partnership 169,037 135,417
Commitments and contingencies ----------- -----------
Stockholders' equity:
Preferred stock, $100 par value; 5,000,000 shares authorized;
none issued
Common stock; $.10 par value; 70,000,000 shares authorized;
28,888,880 shares issued and outstanding
(27,272,560 as of 12/31/95) 2,889 2,727
Additional paid-in capital 545,727 506,107
Retained earnings (deficit) (261,348) (279,451)
----------- -----------
Total stockholders' equity 287,268 229,383
----------- -----------
$ 1,500,951 $ 1,455,982
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 4
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $33,359 $25,279 $98,630 $74,023
Tenant recoveries 15,353 14,676 46,004 39,416
Percentage rents 1,121 1,218 3,890 3,549
Other 955 1,336 2,889 3,191
Fees 781 - 13,457 -
------- ------- ------- -------
Total revenues 51,569 42,509 164,870 120,179
------- ------- ------- -------
Expenses:
Property operating and management 15,367 14,715 58,310 40,722
Management fees to affiliate - 420 1,325 1,854
Depreciation and amortization 9,728 7,874 28,128 22,504
General and administrative 801 686 2,294 2,101
------- ------- ------- -------
Total expenses 25,896 23,695 90,057 67,181
------- ------- ------- -------
Operating income 25,673 18,814 74,813 52,998
Interest expense, net (15,045) (10,891) (50,137) (34,488)
Equity in net income of unconsolidated
affiliates:
CenterMark 2,868 2,110 6,350 5,602
GGP/Homart 1,878 - 5,765 -
General Growth Management, Inc. (919) - (919) -
Gain on sale of CenterMark stock 43,820 - 43,820 -
------- ------- ------- -------
Income before extraordinary item and
allocation to minority interest 58,275 10,033 79,692 24,112
Income allocated to minority interest (21,608) (3,771) (28,754) (9,281)
------- ------- ------- -------
Income before extraordinary item 36,667 6,262 50,938 14,831
Extraordinary item (a) - - (2,291) -
------- ------- ------- -------
Net income $36,667 $ 6,262 $48,647 $14,831
======= ======= ======= =======
Earnings per share before extraordinary item $ 1.33 $ .23 $ 1.85 $ .59
Extraordinary item per share - - (.08) -
------- ------- ------- -------
Net earnings per share $ 1.33 $ .23 $ 1.77 $ .59
======= ======= ======= =======
</TABLE>
(a) Charges related to early retirement of debt.
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 5
w
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 48,647 $ 14,831
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary items - charges related to early retirement of debt 2,291
Income allocated to minority interest 28,754 9,281
Gain on sale of CenterMark stock (43,821)
Equity in net income of unconsolidated affiliates (11,1197) (5,602)
Provision for doubtful accounts 1,978 (391)
Depreciation 24,885 19,340
Amortization 3,243 3,164
Net changes in:
Tenant accounts receivable (6,946) (2,998)
Prepaid and other assets (5,691) (3,417)
Accounts payable and accrued expenses 188 1,388
--------- ---------
Net cash provided by operating activities 42,331 35,596
--------- ---------
Cash flows from investing activities:
Acquisition of real estate and improvements and additions to properties (64,730) (74,545)
Deposit for Homart acquisition (40,000)
Increase in investments in unconsolidated real estate affiliates (13,316)
Change in notes receivable affiliates (2,362) 4
Increase in deferred expenses (8,530) (7,941)
Proceeds from the sale of CenterMark stock 87,000
Dividends received from CenterMark Properties, Inc. 15,616 17,611
Dividends received from GGP/Homart, Inc. 9,037 -
--------- ---------
Net cash from investing activities 22,715 (104,871)
--------- ---------
Cash flows from financing activities:
Cash dividends paid to common stockholders (35,182) (29,855)
Cash distributed to operating partnership unitholders (20,770) (18,893)
Gross proceeds from sale of commons stock 93,375
Payment of stock offering costs (30) (5,477)
Proceeds from issuance of mortgage and other notes payable 394,102 146,873
Principal payments on mortgage and other notes payable (413,978) (119,525)
Retirement of common stock (net of sale proceeds) (62)
Increase in deferred financing costs (2,026)
--------- ---------
Net cash from financing activities (77,946) 66,498
--------- ---------
Net change in cash and cash equivalents (12,900) (2,777)
Cash and cash equivalents at beginning of period 18,298 5,617
--------- ---------
Cash and equivalents at end of period $ 5,398 $ 2,840
========= =========
Supplemental disclosure of cash flow information:
Non-Cash investing activities:
Acquisition of GGMI (1996) and real estate (1995) $ 51,497 $ 37,558
Debt assumed as consideration to seller for purchase of real estate $ 19,650
Partnership units and common stock issued as consideration for purchase of
GGMI (1996) and real estate (1995) $ 51,497 $ 17,908
Interest paid $ 56,154 $ 37,688
Interest capitalized $ 3,961 $ 3,270
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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<PAGE> 6
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 1 BASIS OF PRESENTATION
The financial statements include the consolidated accounts of General
Growth Properties, Inc. (the "Company"), and GGP Limited Partnership,
its majority-owned operating partnership, including 100% interests in
twenty-two enclosed mall property partnerships and three directly-owned
enclosed malls, known collectively as the "Original Centers". In
December 1995, the Company formed GGP Management, Inc. ("GGP
Management") which primarily manages the GGP/Homart, Inc.
("GGP/Homart") properties. The Company acquired General Growth
Management, Inc. ("GGMI") in August of 1996. GGP Management was merged
into GGMI as a result of the acquisition.
As required by generally accepted accounting principles ("GAAP"), the
Company accounts for its investments in CenterMark Properties, Inc.
("CenterMark"), GGP/Homart and GGMI under the equity method. The
Company includes its share of CenterMark's, GGP/Homart's and GGMI's net
income in its statements of operations. The Company's investments in
CenterMark, GGP/Homart and GGMI, as reported in its balance sheet, are
increased by the Company's proportionate share of net income and
reduced by dividends that are received. Prior to its merger into GGMI,
effective as of July 1, 1996, GGP Management's results of operations
were consolidated with those of the Company.
The Company incurs significant interest expense attributable to its
investments in CenterMark and GGP/Homart. In addition, a portion of
the Company's general and administrative costs are attributable to the
management and oversight of its investments in CenterMark and
GGP/Homart. Accordingly, CenterMark's and GGP/Homart's funds from
operations do not represent CenterMark's and GGP/Homart's net effective
incremental contribution to the Company's funds from operations.
CenterMark's and GGP/Homart's funds from operations exclude the
aforementioned interest and general and administrative costs that are
accounted for as expenses of the Company.
The accompanying unaudited financial statements have been prepared by
the Company's management, in accordance with generally accepted
accounting principles for interim financial information and in
conjunction with the rules and regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normally recurring
matters) considered necessary for a fair presentation have been
included. The results of operations for the three and nine month
periods ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the full year. These financial
statements should be read in conjunction with the Company's audited
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995. The balance
sheet as of December 31, 1995 was derived from the Company's audited
financial statements.
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<PAGE> 7
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 2 ORGANIZATION AND FORMATION OF THE COMPANY
On April 15, 1993, the Company completed an initial public offering of
18,975,000 shares of its common stock at $22 per share. Net proceeds
to the Company after underwriting discounts and other costs were
approximately $383,000.
The Company used substantially all of the net offering proceeds to
repay existing debt and purchase additional properties. The majority
of the funds remaining were used to pay for a portion of the CenterMark
acquisition (see Note 3).
On May 23, 1995, the Company completed a follow-on stock offering of
4,500,000 shares of its common stock at $20.75 per share. Net proceeds
to the Company after underwriting discounts and other costs were
approximately $87,893. Net proceeds were used to reduce the
outstanding balance of the Company's credit facility (see Note 7). On
December 22, 1995, the Company acquired a 38.2% interest in GGP/Homart,
Inc. (See Note 4.)
NOTE 3 CENTERMARK ACQUISITION AND DISPOSITION
On February 11, 1994, the Company, jointly with two other unaffiliated
parties, acquired 100% of the stock of CenterMark from The Prudential
Insurance Company of America. Each of the Company and Westfield U.S.
Investments Pty. Limited acquired 40% of the stock of CenterMark and
several real estate investment funds sponsored by Goldman Sachs & Co.
acquired the remaining 20%. The Company's portion of the cash purchase
price for the CenterMark stock, including certain transaction costs,
was approximately $182,000. CenterMark elected real estate investment
trust status for income tax purposes. The CenterMark portfolio includes
interests in sixteen major regional shopping malls and three power
centers located in six states.
On December 19, 1995, the Company sold 25% of its interest in
CenterMark to Westfield U.S. Investments Pty. Limited for a purchase
price of $72,500. As a result of the sale, the Company's ownership
was reduced to 30% of the outstanding CenterMark stock. Concurrently
with the sale of the stock, the Company also granted Westfield U.S.
Investments Pty. Limited an option to purchase the remainder of the
Company's CenterMark stock ("Option Stock") for $217,500.
On June 28, 1996, Westfield U.S. Investments, Pty. Limited exercised
its option to acquire the remaining 30% of the outstanding CenterMark
stock. The Option Stock will be purchased in two installments. The
first installment in the amount of $87,000 was paid on July 1, 1996,
and the second installment in the amount of $130,500 million is due in
January 1997. Proceeds from the first installment were used to repay
the remaining balance outstanding on the Company's interim loan
facility that was utilized in connection with the acquisition of
GGP/Homart (See Note 4.)
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<PAGE> 8
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 4 GGP/HOMART ACQUISITION
On December 22, 1995, the Company jointly with four other investors
acquired 100% of the stock of GGP/Homart, Inc. ("GGP/Homart") from
Sears, Roebuck and Co. The other investors in GGP/Homart are the New
York State Common Retirement Fund, Equitable Life Insurance Company of
Iowa, USG Annuity & Life Company and The Trustees of the University of
Pennsylvania. The Company acquired 38.2% of GGP/Homart for
approximately $179,000 including certain transaction costs. The
stockholders of GGP/Homart have agreed to contribute additional capital
as required through the end of 1997, up to $80,000. GGP/Homart
currently owns interests in twenty-six regional shopping malls and one
property under development. GGP/Homart elected real estate investment
trust status for income tax purposes. The Company arranged a $125,000
interim loan facility in conjunction with the acquisition of
GGP/Homart. On July 1, 1996, the Company retired the interim loan
facility with proceeds from the sale of CenterMark stock. (See Note 3)
GGP/HOMART, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1996
------------- -------------
<S> <C> <C>
Revenues
Minimum rents $ 23,370 $ 66,480
Tenant recoveries 10,395 29,178
Percentage rents 733 1,928
Other 1,295 2,878
-------- --------
Total revenues 35,793 100,464
Operating expenses (15,845) (44,545)
Depreciation and amortization (6,093) (16,176)
-------- --------
Net operating income 13,855 39,743
Interest expense, net (10,666) (28,956)
Equity in net income of unconsolidated
real estate affiliates 1,431 4,015
Gain on land sale 330 330
Income allocated to minority interest (35) (42)
-------- --------
Net income $ 4,915 $ 15,090
</TABLE> ======== ========
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<PAGE> 9
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 5 PROPERTY ACQUISITIONS AND DEVELOPMENT
During 1995, the Company acquired 100% ownership interests in two
enclosed regional malls, Piedmont Mall in Danville, Virginia and Natick
Mall in Natick, Massachusetts. Piedmont Mall was acquired on July 1,
1995, by assuming $19,650 of mortgage debt, issuing $17,908 of
Operating Partnership Units and the payment of approximately $1,700 in
cash. Natick Mall was acquired on December 22, 1995, in conjunction
with the GGP/Homart transaction, for an aggregate purchase price of
approximately $265,000 consisting of $82,000 in cash and a mortgage
loan for $183,000. On October 4, 1996, Park Mall in Tucson, Arizona
was acquired by issuing one million shares of common stock and the
payment of $25,000 in cash. The acquisitions were accounted for by the
purchase method and accordingly, are included in the Company's results
of operations from the dates of acquisition.
The Company had two properties under development during 1995, West
Valley Mall in Tracy, California and Eagle Ridge Mall in Winterhaven,
Florida. West Valley opened during the fourth quarter of 1995 and
Eagle Ridge opened in February of 1996. In September of 1995, the REIT
arranged a $120,000 construction loan facility for both developments,
collateralized in part by mortgages on West Valley and Eagle Ridge. On
October 2, 1996, GGP/Homart opened West Oaks Mall, a new development,
located in Ocoee, (Orlando) Florida. West Oaks was financed with
a $85,000 construction loan.
NOTE 6 ACQUISITION OF GENERAL GROWTH MANAGEMENT, INC.
In August, 1996 the Company, acting through GGP Management, acquired
General Growth Management, Inc, ("GGMI") for approximately $51,500.
The Company issued approximately $11,600 of operating partnership
units and sold $39,900 million of common stock to GGP Management in
order to acquire GGMI. A loan from the Company to GGMI to purchase GGP
stock bears interest and is reflected on the Company's balance sheet.
In connection with the acquisition, GGP Management was merged into GGMI
at closing. The Company uses the equity method to account for its
investment in GGMI. General Growth Management, Inc. currently manages
110 properties containing approximately 83 million square feet for the
Company, GGP/Homart and other unaffiliated owners.
NOTE 7 CREDIT FACILITY
In January, 1994, the Company arranged a $208,500 credit facility
collateralized in part by six Original Centers, with an initial term of
two years and two one-year extension options. Approximately $140,000
was borrowed as the initial draw on this facility to fund a portion of
the cash purchase price paid by the Company for its interest in
CenterMark (See Note 3). In May 1995, the outstanding balance of the
credit facility was reduced with the proceeds of the Company's
follow-on stock offering (See Note 2). The credit
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<PAGE> 10
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
facility was retired on January 31, 1996 with the proceeds from a new
long-term fixed rate loan. (See Note 9).
NOTE 8 CONSTRUCTION LOAN FACILITY
In September, 1995, the Company closed a $120,000 construction loan
facility collateralized in part by two new developments in Winterhaven,
Florida and Tracy, California. It is a variable rate loan with
interest at the rate of 150 basis points over LIBOR. The loan proceeds
will be used to pay for construction and all other development costs of
both projects. The outstanding balance of the construction loan
facility was $111,526 on September 30, 1996.
NOTE 9 PERMANENT MORTGAGE FINANCING
On January 31, 1996 the Company closed a $340,000 multi-property loan
package with Principal Mutual Life Insurance Company. The financing
is nonrecourse and consists of cross collateralized first mortgages on
nine wholly owned Original Centers. To mitigate refinancing risk the
total debt was spread over five, ten and twenty year maturities. All
nine loans are interest only for the first five years. During the
first five years, the weighted average interest rate on the entire
$340,000 loan package is 6.77%. The five year loans can be extended
for five additional years. Proceeds were used to repay $340,000 of
floating rate debt, approximately $290,000 of existing loans on eight
wholly owned malls and $50,000 of interim financing which was used in
connection with the acquisition of GGP/Homart.
NOTE 10 UNSECURED LINE OF CREDIT
In August, 1996 the Company established a short-term revolving line of
credit. The unsecured line of credit was arranged for new
developments, expansions, working capital and potential acquisitions.
The line of credit bears interest at the rate of LIBOR plus 1.50% and
matures in February of 1997. As of September 30, 1996 the line had an
outstanding balance of $23,500.
NOTE 11 NON RECOURSE BRIDGE LOAN FACILITY
On October 15, 1996 the Company arranged a $250,000 one year bridge
loan facility from Goldman Sachs Mortgage Company. The proceeds from
this loan were used to pay off approximately $197,000 of maturing loans
on seven wholly owned properties and to pay down the Company's line of
credit (See Note 10). The bridge loan bears interest at the rate of
LIBOR plus 1.00%. It is secured by non recourse cross collateralized
first mortgages on seven wholly owned Original Centers. The Company is
in the process of arranging a permanent loan to replace the bridge loan
prior to its maturity on October 15, 1997.
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<PAGE> 11
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
NOTE 12 EXTRAORDINARY ITEM
The extraordinary item is the write-off of unamortized deferred
financing costs related to the early extinguishment of the Company's
credit facility and two other project loans.
NOTE 13 STOCK-BASED COMPENSATION
In 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Under
the provisions of SFAS 123, companies can elect to account for
stock-based compensation plans using a fair-value-based method or
continue measuring compensation expense for those plans using the
intrinsic value based method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees". SFAS 123
requires that companies electing to continue using the intrinsic value
based method must make pro-forma disclosures of net income and
earnings per share as if the fair-value-based method of accounting had
been applied.
The Company has elected to continue to account for stock-based
compensation using the intrinsic value method. As such, SFAS 123 did
not have an impact on the Company's third quarter or year to date
results of operations or financial position. The pro-forma
information required by SFAS 123 will be included in the footnotes to
the Company's 1996 year end consolidated financial statements.
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<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is primarily engaged in the ownership, acquisition,
development and operation of enclosed regional shopping centers. It
currently has interests in sixty-seven regional malls and three power
centers located in 18 states. In addition, a new enclosed regional
mall located in Waterbury, Connecticut is currently under development.
The Company will own 38.2% of the new shopping center which is
expected to have a grand opening in late 1997. Revenues are primarily
derived from fixed minimum rents, percentage rents and recoveries of
operating expenses from tenants. Inasmuch as the Company's financial
statements reflect the use of the cost and/or equity methods to
account for its investments in CenterMark, GGP/Homart and GGMI, the
discussion of results of operations below relates primarily to the
revenues and expenses of the Original Centers. The Original Centers,
the CenterMark Centers, the GGP/Homart Centers and GGMI are
collectively known as the "Company Portfolio". A separate discussion
of CenterMark's and GGP/Homart's results of operations is presented
below (see "CenterMark Portfolio Results and Funds from Operations" on
page 18 and "GGP/Homart Portfolio Results and Funds from Operations"
on page 20).
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total revenues for the third quarter of 1996 were $51.6 million,
which represents an increase of $9.1 million or approximately
21.3% from $42.5 million in the third quarter of 1995. Most of
the increase was generated from properties that were acquired or
developed after January 1, 1995. Minimum rent for the third
quarter of 1996 increased by $8.1 million or 31.2% from $25.3
million in 1995 to $33.4 million in 1996. Acquisitions and
development of new properties after January 1, 1995, generated
approximately $6.9 million of the $8.1 million increase in
minimum rents. Specialty leasing increases and a combination of
occupancy and rental changes at the other centers accounted for
the remaining $1.2 million increase in minimum rents. Tenant
recoveries increased by $.7 million or 4.6% from $14.7 million
to $15.4 million for the third quarter of 1996, primarily due to
acquisitions and development of new properties. For the third
quarter of 1996 overage rents decreased by $.1 million to $1.1
million from $1.2 million in 1995. Other revenues decreased by
approximately $.3 million to $1.0 million in the third quarter
of 1996. Fee revenue of $.8 million was generated by the
Company's asset management activities for the GGP/Homart
Portfolio.
Total expenses, including depreciation and amortization,
increased by approximately $2.2 million or 9.3%, from $23.7
million in the third quarter of 1995 to $25.9 million in the
comparable period of 1996. Property operating and management
expenses increased by $.4 million and depreciation and
amortization increased by $1.8 million over the same period in
1995. The increase in property operating and management
expenses, depreciation and amortization is virtually all
attributable to the acquisitions and development of new
properties.
Net interest expense for the third quarter of 1996 was $15.0
million, an increase of approximately $4.1 million, or 38.1%
above the third quarter of 1995. Acquisitions and development
of new properties, net of interest savings due to the use of the
CenterMark sale proceeds were responsible for approximately a
$5.9 million increase. There was also $1.7 million of interest
savings due to lower interest rates, which together with the
aforementioned $5.9 million increase produced the $4.1 million
increase in net interest expense.
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<PAGE> 13
Equity in net income of unconsolidated affiliates in the third
quarter of 1996 increased by approximately $1.7 million or 81.4%
to $3.8 million in 1996, from $2.1 million in the third quarter
of 1995. Approximately $1.9 million of the increase is
attributable to the Company's 38.2% interest in GGP/Homart's net
income. CenterMark accounted for $.8 million of the increase.
CenterMark's increase was generated by a change in accounting
method from the equity method to the cost method due to the
Company's reduced control. GGMI generated the remaining $.9
million decrease. The results of CenterMark's and GGP/Homart's
operations are also presented and discussed below (see
"CenterMark Portfolio Results and Funds from Operations" on Page
17 and "GGP/Homart Portfolio Results and Funds from Operations"
on page 20).
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total revenues for the first nine months of 1996 were $164.9
million, which represents an increase of $44.7 million or
approximately 37.2% from $120.2 million in 1995. Approximately
$24.5 million of the increase is from properties that were
acquired or developed after January 1, 1995. Fee revenue
accounted for $13.5 million of the increase. Minimum rent for
the first nine months of 1996 increased by $24.6 million or 33.2%
from $74.0 million in 1995 to $98.6 million. Acquisitions of
properties after January 1, 1995, and new developments accounted
for approximately $20.8 million of the $24.6 million increase in
minimum rents. Specialty leasing increases and a combination of
occupancy and rental changes at the other centers accounted for
the remaining $3.8 million increase in minimum rents. Tenant
recoveries increased by $6.6 million or 16.8% from $39.4 million
to $46.0 million for the nine months ended September 30, 1996,
primarily due to acquisitions and development of new properties.
During the first nine months of 1996 overage rents increased by
$.4 million or approximately 11.4% from $3.5 million in 1995.
Most of the increase was from the acquisition of additional
centers. Other revenues increased by approximately $.3 million
or 9.5% to $2.9 million for the period ended September 30, 1996.
Fee revenue of $9.9 million was generated by GGP Management's
development, management, and leasing services through June 30,
1996, and $3.6 million was from the Company's asset management
and financing activities for the GGP/Homart Portfolio.
Total expenses, including depreciation and amortization,
increased by approximately $22.9 million or 34.1%, from $67.2
million in 1995 to $90.1 million in the first nine months of
1996. Property operating and management expenses increased by
$17.3 million and depreciation and amortization increased by $5.6
million over the same period in 1995. The increase in property
operating and management expenses, depreciation and amortization
is virtually all attributable to acquisitions and development of
new properties and the management expenses incurred to perform
services for GGP/Homart.
Net interest expense increased approximately $15.6 million or
45.4% up from $30.5 million during the first nine months of
1995. Acquisitions and development of new properties, net of
interest savings as a result of the use of the CenterMark sale
proceeds were responsible for a $18.4 million increase. Interest
savings, due to lower interest rates reduced net interest
expense by $2.7 million, for a net increase of $15.6 million.
Equity in net income of unconsolidated affiliates increased by
approximately $5.6 million or 100% to $11.2 million for the
first nine months of 1996, from $5.6 million in the first nine
months of 1995. Approximately $5.8 million of the increase is
attributable to the Company's 38.2% interest in
13 of 23
<PAGE> 14
GGP/Homart's net income determined in accordance with generally
accepted accounting principles. The increase in CenterMark's
net income was due to the change in accounting methods, from the
equity method to the cost method, as a result of the Company's
reduced control. (See Note 3) GGMI accounted for a decrease of
approximately $.9 million. The results of CenterMark's and
GGP/Homart's operations are also presented and discussed below
(see "CenterMark Portfolio Results and Funds from Operations" on
Page 17 and "GGP/Homart Portfolio Results and Funds from
Operations" on page 20).
COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
In order to portray the sources of the Company's funds from operations
in a more meaningful and useful manner, the Company Portfolio results and funds
from operations depicted below reflect 100% of the revenues and expenses of the
Original Centers and GGMI combined with the Company's share of CenterMark's and
GGP/Homart's portfolio results. The Company Portfolio results are a line item
pro rata consolidation of 100% of the revenues and expenses of the Original
Centers and GGMI, with the Company's share of the comparable revenue and
expenses of the wholly owned CenterMark Centers and GGP/Homart Centers and the
Company's share of CenterMark's and GGP/Homart's various percentage interests
of the revenues and expenses of the centers that are owned in part by
unaffiliated joint venture partners. Interest expense and general and
administrative costs that relate to the acquisition, management and oversight
of the Company's ownership of CenterMark and GGP/Homart are charged entirely
against the Company's direct operations. These expenses cannot be charged on
CenterMark's and GGP/Homart's books because the other shareholders in
CenterMark and GGP/Homart are not affiliated with the Company.
The Company's share of CenterMark's and GGP/Homart's funds from
operations does not represent the net effective incremental contribution to the
Company made by the CenterMark and GGP/Homart centers. Accordingly, management
believes the following schedule of the relative share of Company Portfolio net
operating income (funds from operations before interest expense) contributed by
each of the Original Centers, the CenterMark Centers and the GGP/Homart Centers
provides a better indication of the significance of each portfolio to the
Company's overall funds from operations. The net operating income from the
Company's Portfolio is essentially equivalent to earnings before interest,
taxes, depreciation and amortization (EBITDA). EBITDA from the Company's
property management affiliate is included below with the Original Centers.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED % OF ENDED % OF
NET OPERATING INCOME BY PORTFOLIO SEPTEMBER 30, 1996 TOTAL SEPTEMBER 30, 1996 TOTAL
- --------------------------------- ------------------ ----- ------------------ -----
<S> <C> <C> <C> <C>
Original Centers and GGMI $35,789 71% $100,827 67%
CenterMark (a) 4,551 9% 20,455 14%
38.2% of GGP/Homart (b) 10,003 20% 28,954 19%
------- ---- -------- ----
Company Portfolio Net Operating Income $50,343 100% $150,226 100%
======= ==== ======== ====
</TABLE>
(a) Reflects the Company's share of CenterMark's Net Operating Income.
(See Note 3)
(b) Reflects the Company's share of GGP/Homart's Net Operating Income.
(See Note 4)
The Company Portfolio results and funds from operations reflected below
for the three and nine months ended September 30, 1996 and 1995 do not purport
to project results for any future period.
14 of 23
<PAGE> 15
COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Minimum rents (a) $48,279 $34,859 $149,699 $102,235
Tenant recoveries 22,953 19,852 71,796 52,573
Percentage rents 1,514 1,668 5,488 4,451
Other 1,640 1,650 4,347 4,185
Fees 13,606 - 26,327 -
------- ------- -------- --------
Total revenues $87,992 $58,029 $257,657 $163,444
Operating expenses (b) (36,848) (20,948) (105,137) (57,462)
General and administrative (801) (686) (2,294) (2,101)
------- ------- -------- --------
Net operating income 50,343 36,395 150,226 103,881
Interest expense, net (23,184) (14,747) (73,658) (45,949)
------- ------- -------- --------
Operating Partnership funds from operations $27,159 $21,648 $ 76,568 $ 57,932
Less: FFO allocable to Operating
Partnership unitholders $ 9,998 $ 8,097 $ 28,339 $ 22,298
------- ------- -------- --------
Company funds from operations $17,161 $13,551 $ 48,229 $ 35,634
======= ======= ======== ========
FFO per share $ .62 $ .50 $ 1.76 $ 1.43
======= ======= ======== ========
</TABLE>
COMPANY PORTFOLIO
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET INCOME
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Partnership funds from operations (from above) $27,159 $21,648 $76,568 $57,932
Depreciation and amortization of real estate costs (14,300) (12,462) (45,386) (36,172)
Straight-line rent (not included in FFO, so it must be
added in order to reconcile to GAAP net income) 1,543 847 4,562 2,352
Gain on sale of CenterMark stock 43,948 - 43,948 -
Allocations to Operating Partnership unitholders (21,683) (3,771) (28,754) (9,281)
Extraordinary item (c) - - (2,291) -
------- ------- ------- -------
Net income $36,667 $ 6,262 $48,647 $14,831
======= ======= ======= =======
</TABLE>
(a) Excluding straight-line rents for the three and nine months ended September
30, 1996 and 1995, of $1,543 and $4,562 and $847 and $2,352,
respectively.
(b) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
(c) Charges related to early retirement of debt.
15 of 23
<PAGE> 16
BREAKDOWN OF COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Original GGP/
Centers Homart CenterMark GGMI Total
-------- ------ ---------- ---- -----
<S> <C> <C> <C> <C> <C>
Revenues
Minimum rents (a) $32,216 $11,346 $4,717 $ - $48,279
Tenant recoveries 15,352 5,410 2,191 - 22,953
Percentage rents 1,122 333 59 - 1,514
Other 955 650 35 - 1,640
Fees 780 - 77 12,749 13,606
------- ------- ------ ------- -------
Total revenues 50,425 17,739 7,079 12,749 87,992
Operating expenses (b) (15,684) (7,736) (2,528) (10,900) (36,848)
General and administrative (801) - - - (801)
------- ------- ------ ------- -------
Net operating income 33,940 10,003 4,551 1,849 50,343
Interest expense, net (15,045) (5,116) (1,683) (1,340) (23,184)
------- ------- ------ ------- -------
Operating Partnership funds from operations $18,895 $ 4,887 $2,868 $ 509 $27,159
======= ======= ====== ======= =======
Funds from operations per share/unit $ 0.62
=======
</TABLE>
BREAKDOWN OF COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Original GGP/
Centers Homart CenterMark GGMI Total
-------- ------ ---------- ---- -----
<S> <C> <C> <C> <C> <C>
Revenues
Minimum rents (a) $ 95,611 $ 33,345 $20,743 $ - $149,699
Tenant recoveries 46,004 16,053 9,739 - 71,796
Percentage rents 3,891 923 674 - 5,488
Other 2,889 1,413 45 - 4,347
3,568 - 616 22,143 26,327
Fees -------- --------- ------- -------- --------
Total revenues 151,963 51,734 31,817 22,143 257,657
Operating expenses (b) (52,102) (22,780) (11,372) (18,883) (105,137)
(2,294) - - (2,294)
General and administrative -------- --------- ------- -------- --------
Net operating income 97,567 28,954 20,445 3,260 150,226
(50,137) (14,609) (7,572) (1,340) (73,658)
Interest expense, net -------- --------- ------- -------- --------
Operating Partnership funds from operations $ 47,430 $ 14,345 $12,873 $ 1,920 $ 76,568
======== ========= ======= ======== ========
Funds from operations per share/unit $ 1.76
========
</TABLE>
(a) Excluding straight-line rent of $1,543 and $4,562 for the three and nine
months ended September 30, 1996.
(b) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
16 of 23
<PAGE> 17
OTHER COMPANY PORTFOLIO DATA
AS OF AND/OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(In thousands, except for per square foot amounts)
<TABLE>
<CAPTION>
Original GGP/ Total or
Centers Homart(a) CenterMark(a) Average
------- -------- ------------ --------
<S> <C> <C> <C> <C>
Occupancy of centers not
under redevelopment 84.7% 82.7% 88.4% 84.8%
Tenant allowances 6,699 6,982 2,702 16,383
Annualized sales per sq. ft. $ 246 $ 288 $ 268 $ 267
Average rent per sq. ft.
of new/renewal leases $20.36 $ 25.35 $26.99 $ 23.88
Average rent per sq. ft.
of expiring leases $18.70 $ 21.61 $16.15 $ 18.79
% change in total sales 5.4% 8.2% 5.3% 6.3%
</TABLE>
(a) Data is for 100% of the non-anchor GLA in each portfolio, including those
centers that are owned in joint ventures with others.
TOTAL PORTFOLIO DEBT MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY
AS OF SEPTEMBER 30, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Original Centers GGP/Homart(a) Total Portfolio Debt
----------------- ------------- --------------------
Current Current Current
Maturing Average Maturing Average Maturing Average
Year Amount Rate Amount Rate Amount Rate
- ------- ------ ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
1996 $195,791 8.38% $ - - $ 195,791 8.38%
1997 23,500 6.88% - - 23,500 6.88%
1998 111,526 6.88% 34,380 6.56% 145,906 6.80%
1999 112,180 8.75% 131,659 7.08% 243,839 7.85%
2000 - - 11,460 7.15% 11,460 7.15%
Subsequent 555,817 6.64% 141,304 7.42% 697,121 6.80%
-------- ----- -------- ----- ---------- -----
Totals $998,814 7.25% $318,803 7.17% $1,317,617 7.23%
======== ===== ======== ===== ========== =====
Floating Rate $135,026 6.88% $116,672 7.01% $251,698 6.94%
Fixed Rate 863,788 7.31% 202,131 (b) 7.27% 1,065,919 7.30%
-------- ----- -------- ----- ---------- -----
Totals $998,814 7.25% $318,803 7.17% $1,317,617 7.23%
======== ===== ======== ===== ========== =====
</TABLE>
(a) GGP/Homart debt reflects the Operating Partnership's share of its
total portfolio debt.
(b) Includes $34,381 of floating rate debt with a 9% cap on the all-in rate
through maturity in December 1998.
17 of 23
<PAGE> 18
CENTERMARK PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
CenterMark owns 100% of 11 retail properties and has various percentage
interests in 8 other retail properties. It also owns 14 department
stores that are net leased to the May Company and a 116-unit apartment
project. As required by generally accepted accounting principles,
CenterMark uses the equity method to account for investments in joint
venture properties that are not eligible for consolidation. The Company
Portfolio results and funds from operations reflected above include the
Company's share of CenterMark's funds from operations. In order to
portray the sources of CenterMark's funds from operations in a more
meaningful and useful manner, the "CenterMark Portfolio" results
presented below comprise 100% of the revenues and expenses of the wholly
owned CenterMark Centers and CenterMark's various percentage interests
of the revenues and expenses of CenterMark Centers that are owned in
part by unaffiliated joint venture partners.
In December 1995, the Company sold 25% of its interest in CenterMark
to Westfield U.S. Investments Pty. Limited. As a result of the sale,
the Company's ownership was reduced to 30% of the then outstanding
CenterMark stock. Concurrently with the sale of the stock, the Company
also granted Westfield U.S. Investments Pty. Limited an option to
purchase the remainder of the Company's CenterMark stock ("Option
Stock") for $217,500. On June 28, 1996, Westfield U.S. Investments,
Pty. Limited exercised its option to acquire the remaining 30% of the
outstanding CenterMark stock. The Option Stock will be purchased in
two installments. The first installment was purchased on July 1, 1996,
and the final installment is due in January 1997.
The Company's share of CenterMark funds from operations does not take
into account interest expense paid on debt that was incurred to fund a
majority of the original $182 million cash purchase price for
CenterMark's stock. Also not charged against CenterMark's funds from
operations are certain general and administrative costs incurred by the
Company that are attributable to the management and oversight of its
investment in CenterMark. Accordingly, the net effective incremental
contribution to the Company's funds from operations generated by the
CenterMark Centers is substantially less than the amounts reflected
below. See the discussion above regarding the relative contributions to
net operating income (similar to EBITDA) made by each of the Original
Centers, the CenterMark Centers and the GGP/Homart Centers. Management
believes that contributions to Company Portfolio net operating income is
the best indication of the relative significance to the Company of each
of the Original Centers, the CenterMark Centers and the GGP/Homart
Centers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CENTERMARK'S FUNDS FROM
OPERATIONS (Dollars in thousands)
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
CenterMark's funds from operations during the third quarter of 1996
increased by $4.2 million or 25.8% from $16.2 million in 1995 to $20.5
million. The addition of three properties to the portfolio accounted
for $3.1 million or 19.0% of the increase in funds from operations.
Improved performance by the comparable properties generated the
remaining $1.1 million increase over 1995. Total revenues increased
25.1% or $10.2 million to $50.6 million from $40.4 million in the third
quarter of 1995. Total revenues at comparable centers decreased by $.7
million from the combination of a $1.6 million or 6.3% increase in
minimum rents and a $2.3 million decrease in recovery revenues, due to
reduced
18 of 23
<PAGE> 19
recoverable operating costs. The three additional centers contributed
a $10.9 million or 26.9% increase in total revenues. Operating expenses
increased by $4.8 million or 33.0% from the addition of properties offset by a
savings of $1.2 million or 8.3% at the comparable centers for net increase of
$3.6 million. Interest expense for the quarter increased $2.4 million or 24.6%
from $9.6 million to $12.0 million in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total revenues for the first nine months of 1996 increased by $20.4
million or 18.2% to $133.0 million. Minimum rents increased by $12.2 million or
16.3% from $74.9 million in 1995. Rental increases coupled with increased
leasing activity, including the addition of an AMC Theater at Mission Valley
accounted for $5.6 million of the increase in minimum rents. The remaining
$6.6 million or 8.8% increase was attributable to new properties. Tenant
recoveries increased from $32.9 million in the first three quarters of 1995 to
$40.8 million for the comparable period in 1996, due to higher recoverable
operating costs and additional properties. Percentage rents and other revenues
increased by $.4 million to $5.1 million for the nine months ended September
30, 1996. Operating expenses for 1996 increased by $10.3 million or 27.7% from
$37.2 million to $47.5 million. Net interest expense increased by 10.5% or $3.0
million from $28.6 million in 1995 to $31.6 million for the nine months ended
September 30, 1996. Interest expense increased primarily due to the three
additional properties. CenterMark's funds from operations increased by $7.1
million or 15.3% from $46.7 million in 1995 to $53.8 million in 1996.
CENTERMARK PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Minimum rents (a) $ 33,693 $ 25,577 $ 87,112 $ 74,937
Tenant recoveries 15,650 12,940 40,808 32,893
Percentage rents 421 1,126 2,472 2,256
Other 802 785 2,633 2,485
---------- ---------- ----------- -------
Total revenues $ 50,566 $ 40,428 $ 133,025 112,571
Operating expenses (b) (18,057) (14,530) (47,536) (37,215)
---------- ---------- ----------- -------
Net operating income 32,509 25,898 85,489 75,356
Interest expense, net (12,021) (9,644) (31,651) (28,654)
---------- ---------- ----------- -------
CenterMark funds from operations $ 20,488 $ 16,254 $ 53,838 $ 46,702
========== ========== =========== =========
Operating Partnership's share of CenterMark FFO (c) $ 2,868 $ 6,502 $ 12,873 $ 18,681
========== ========== =========== =========
</TABLE>
(a) Excludes straight-line rent.
(b) Excluding depreciation and amortization of capitalized real
estate costs other than financing fees/costs.
(c) On December 19, 1995, the Company sold 25% of its 40% interest and on
July 1, 1996, the Company sold an additional 30% of its original
investment in CenterMark.
19 of 23
<PAGE> 20
GGP/HOMART PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
GGP/Homart owns 100% of 15 retail properties and has various percentage
interests in 11 other retail properties. As required by generally
accepted accounting principles, GGP/Homart uses the equity method to
account for its investments in joint venture properties that are not
eligible for consolidation. The Company Portfolio results and funds from
operations reflected above include the Company's share of GGP/Homart's
funds from operations. In order to portray the sources of GGP/Homart's
funds from operations in a more meaningful and useful manner, the
"GGP/Homart Portfolio" results presented below comprise 100% of the
revenues and expenses of the wholly owned GGP/Homart Centers and
GGP/Homart's various percentage interests of the revenues and expenses
of GGP/Homart centers that are owned in part by unaffiliated joint
venture partners.
The Company's share of GGP/Homart's funds from operations does not take
into account interest expense paid on debt incurred to fund a majority
of the $179 million initial cash purchase price and $23 million of
subsequent investments, for 38.2% of GGP/Homart's stock. Also not
charged against GGP/Homart's funds from operations are certain general
and administrative costs incurred by the Company that are attributable
to the management and oversight of its investment in GGP/Homart.
Accordingly, the net effective incremental contribution to the Company's
funds from operations generated by the GGP/Homart Centers is
substantially less than the amounts reflected below. See the discussion
above regarding the relative contributions to net operating income
(similar to EBITDA) made by each of the Original Centers, the CenterMark
Centers and the GGP/Homart Centers. Management believes that
contributions to Company Portfolio net operating income is the best
indication of the relative significance to the Company of each of the
Original Centers, the CenterMark Centers and the GGP/Homart Centers.
The GGP/Homart Centers are located primarily in major metropolitan
areas, including suburbs of San Diego and San Francisco, California;
Phoenix, Arizona; Atlanta, Georgia; Houston and Dallas - Fort Worth,
Texas; Philadelphia, Pennsylvania; Miami/Ft. Lauderdale and Orlando,
Florida; and Washington, D.C. The GGP/Homart Centers contain
approximately 21.8 million square feet of total GLA and approximately
7.8 million square feet of Mall Stores. There are 108 Anchors and more
than 2,500 Mall Stores in the GGP/Homart Centers.
On April 30, 1996, GGP/Homart acquired an additional 31% ownership
interest in Vista Ridge, increasing GGP/Homart's ownership interest to
80%. Due to the acquisition of the additional interest in Vista Ridge,
GGP/Homart now consolidates Vista Ridge into its GAAP basis financial
statements. Vista Ridge is located in Lewisville, Texas and has
approximately one million square feet of total GLA including Sears,
Dillard's, Foley's and JC Penney as anchors.
During the first nine months of 1996 GGP/Homart refinanced approximately
$330 million of property level mortgage debt on five operating
properties. The refinancings converted approximately $182 million of
floating rate loans into fixed rate loans. As a result of these
refinancing activities the average interest rate on the five properties
was reduced by approximately 15 basis points.
20 of 23
<PAGE> 21
GGP/HOMART PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(In thousands, except for per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, Setember 30,
1996 1996
------------------ -----------------
<S> <C> <C>
Revenues
Minimum rents (a) $29,716 $ 87,291
Tenant recoveries 14,171 42,024
Percentage rents 872 2,415
Other 1,702 3,700
------- --------
Total revenues 46,461 135,430
Operating expenses (b) (20,262) (59,636)
------- --------
Net operating income 26,199 75,794
Interest expense, net (13,399) (38,242)
------- --------
GGP/Homart funds from operations $12,800 37,552
======= ========
Operating Partnership's share (38.2%) of GGP/Homart FFO $ 4,887 $ 14,345
======= ========
</TABLE>
GGP/HOMART PORTFOLIO
RECONCILIATION OF FUNDS FROM OPERATIONS TO NET INCOME
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
GGP/Homart funds from operations (from above) $12,800 $37,552
Less: Depreciation and amortization - real estate (9,263) (26,151)
Add: Straight-line rent not included in FFO 1,061 3,357
Gain on land sale 330 330
------- -------
GGP/Homart net income $ 4,928 $15,088
======= =======
Operating Partnership's share of GGP/Homart net income (c) $ 1,878 $ 5,765
======= =======
</TABLE>
(a) Excluding straight-line rents for the three and nine months ended
September 30, 1996 of $1,061 and $3,357, respectively.
(b) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
(c) GGP/Homart's net income is reflected as equity in net income of
unconsolidated real estate affiliates on the Company's Consolidated
Statements of Operations (see Page 4 above).
21 of 23
<PAGE> 22
GENERAL GROWTH MANAGEMENT, INC.
In December 1995, the Company formed GGP Management, Inc. to manage,
lease, develop and operate enclosed regional malls. In August 1996 the
Company acquired General Growth Mangement, Inc. ("GGMI") for approximately
$51.5 million in common stock and operating partnership units. GGP
Management was merged into GGMI as a result of the acquisition. As
required by generally accepted accounting principles, the Company accounts
for its ownership interest in GGMI using the equity method. The Company
effectively owns 95% of GGMI through non-voting preferred stock. The 5%
minority interest is owned by five key employees who hold common stock
with voting rights. Due to the currently unpaid and accrued preferences
on the preferred stock, the Company effectively earned 100% of the
economic interest in GGMI. The operating results of GGMI are included in
the Company Portfolio Results. GGMI manages, leases, and performs various
other services for the Original Centers, the GGP/Homart Centers and other
properties owned by unaffiliated parties. The following schedule reflects
the revenues and expenses related to the operations of GGMI for the three
and nine months ended September 30, 1996.
GENERAL GROWTH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1996 September 30, 1996(a)
------------------ ---------------------
<S> <C> <C>
Revenues
Management, leasing and development services $12,749 $22,143
Expenses
Operating expense (10,900) (18,883)
------- -------
Net operating income 1,849 3,260
Interest expense, net (1,340) (1,340)
------- -------
GGMI Funds from Operations $ 509 $ 1,920
======= =======
</TABLE>
(a) For the six months ended June 30, 1996, only GGP Management, Inc. revenues
and expenses are included. As of July 1, 1996, GGP Management, Inc. was
merged into GGMI. For three months ended September 30, 1996, the combined
revenues and expenses of GGMI and the former GGP Management, Inc. are
reflected.
22 of 23
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Company uses undistributed funds from operations as the principal source
of funding for recurring capital expenditures such as tenant construction
allowances and minor improvements made to individual properties that are not
recoverable through common area maintenance charges to tenants. Funding
alternatives for acquisitions, new development, expansions and major
renovation programs at individual centers include construction loans,
mini-permanent loans, long-term project financing, additional property level
or Company level equity investments, unsecured Company level debt or secured
loans collateralized by individual shopping centers.
The following factors, among others, will affect funds from operations and,
accordingly, influence the decisions of the Board of Directors regarding
distributions: (i) scheduled increases in base rents of existing leases; (ii)
changes in minimum base rents and/or percentage rents attributable to
replacement of existing leases with new or renewal leases; (iii) changes in
occupancy rates at existing centers and procurement of leases for newly
developed centers; and (iv) the Company's share of funds from operations
generated by GGMI, CenterMark and GGP/Homart and dividend distributions
therefrom, less oversight costs and debt service on additional loans that were
incurred to finance a portion of the cash purchase price for CenterMark's and
GGP/Homart's stock. The Company anticipates that its funds from operations,
and potential new debt or equity from future new financings or refinancings
will provide adequate liquidity to conduct its operations, fund general and
administrative expenses, operating costs and interest payments and allow
distributions to the Company's stockholders in accordance with the
requirements of the Internal Revenue Code of 1986, as amended, for continued
qualification as a real estate investment trust and to avoid any Company level
federal income or excise tax.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K - Not applicable
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.
Date: November 13, 1996
/s/ Bernard Freibaum
---------------------------
Bernard Freibaum
Executive Vice President and Chief Financial
Officer
23 of 23
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