<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, 1997
Commission file number 1-11656
GENERAL GROWTH PROPERTIES, INC.
-------------------------------
(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
-----------------------------------
(Address of principal executive offices, Zip Code)
(312) 551-5000
--------------
(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
14, 1997 was 35,665,956.
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<PAGE> 2
GENERAL GROWTH PROPERTIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
------
<S> <C> <C>
Item 1: Financial Statements
Consolidated Balance Sheets
as of September 30, 1997 and December 31, 1996 ......................... 3
Consolidated Statements of Operations for the three and
nine months ended September 30, 1997 and 1996........................... 4
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996................... 5
Notes to Consolidated Financial Statements.............................. 6
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 14
Company Portfolio Results and Funds from Operations..................... 16
Reconciliation of Company Net Income to Operating Partnership Funds from
Operations for the three and nine months ended September 30, 1997 and
1996.................................................................... 18
Reconciliation of Net Income to Funds from Operations for the three
months ended September 30, 1997......................................... 19
Reconciliation of Net Income to Funds from Operations for the nine
months ended September 30, 1997......................................... 20
Other Portfolio Data for the nine months ended
September 30, 1997...................................................... 21
Management's Discussion and Analysis of Homart Portfolio Funds from
Operations.............................................................. 22
Reconciliation of GGP/Homart Net Income to GGP/Homart Funds from
Operations for the three and nine months ended
September 30, 1997 and 1996............................................. 24
General Growth Management, Inc. Statement of Operations for the three
and nine months ended September 30, 1997................................ 25
Liquidity and Capital Resources of the Company.......................... 26
PART II OTHER INFORMATION
Item 2: Changes in Securities.......................................... 27
Item 6: Exhibits and Reports on Form 8-K............................... 27
SIGNATURE............................................................... 27
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (UNAUDITED)
(Dollars in thousands, except for share amounts)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- --------------
<S> <C> <C>
Investment in real estate:
Land $ 190,415 $ 173,263
Buildings and equipment 1,551,803 1,337,366
Less accumulated depreciation (221,783) (188,744)
Developments in progress 57,123 44,439
-------------- --------------
Net property and equipment 1,577,558 1,366,324
Investment in CenterMark - 64,769
Investment in GGP/Homart 201,886 193,270
Investment in Property Joint Ventures 88,531 15,077
-------------- --------------
Net investment in real estate 1,867,975 1,639,440
Cash and cash equivalents 6,121 15,947
Tenant accounts receivable, net 29,804 25,384
Deferred expenses, net 34,326 30,078
Investment in and note receivable from General Growth
Management, Inc. 61,575 37,737
Prepaid and other assets 44,589 9,131
-------------- --------------
$ 2,044,390 $ 1,757,717
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $ 1,237,137 $ 1,168,522
Notes and contracts payable 804 971
Distributions payable 24,267 20,744
Accounts payable and accrued expenses 36,017 44,836
-------------- --------------
1,298,225 1,235,073
-------------- --------------
Minority interest in Operating Partnership 252,669 192,377
-------------- --------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $100 par value; 5,000,000 shares authorized;
none issued
Common stock; $.10 par value; 210,000,000 shares authorized;
35,753,708 shares issued and 35,665,956 outstanding
(30,789,185 as of 12/31/96) 3,575 3,079
Additional paid-in capital 762,183 595,628
Retained earnings (deficit) (269,304) (268,440)
Treasury stock; 87,752 shares held (2,958) -
-------------- --------------
Total stockholders' equity 493,496 330,267
-------------- --------------
$ 2,044,390 $ 1,757,717
============== ==============
</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, 1997 AND 1996
(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $ 43,405 $ 33,359 $ 125,068 $ 98,630
Tenant recoveries 25,067 15,353 70,220 46,004
Percentage rents 2,197 1,121 5,855 3,890
Other 1,820 955 4,610 2,889
Fee income 1,710 782 3,468 3,569
------------- ------------- ------------ -------------
Total revenues 74,199 51,570 209,221 154,982
------------- ------------- ------------ -------------
Expenses:
Property operating 25,830 15,114 71,732 49,654
Management fees to affiliate 875 253 2,441 1,578
General and administrative 807 801 2,509 2,294
Depreciation and amortization 12,661 9,728 35,836 28,128
------------- ------------- ------------ -------------
Total expenses 40,173 25,896 112,518 81,654
------------- ------------- ------------ -------------
Operating income 34,026 25,674 96,703 73,328
Interest expense, net (18,318) (15,045) (51,542) (50,137)
Equity in net income/(loss) of unconsolidated
affiliates:
CenterMark - 2,868 - 6,350
Property Joint Ventures 444 - 1,082 -
GGP/Homart 7,272 1,878 12,723 5,765
General Growth Management, Inc. 1,016 (920) 145 566
Net gain on sales - 43,820 58,647 43,820
------------- ------------- ------------ -------------
Income before extraordinary item and
allocation to minority interest 24,440 58,275 117,758 79,692
Income allocated to minority interest (8,458) (21,608) (42,696) (28,754)
------------- ------------- ------------ -------------
Income before extraordinary item 15,982 36,667 75,062 50,938
Extraordinary item (a) (695) - (1,072) (2,291)
------------- ------------- ------------ -------------
Net income $ 15,287 $ 36,667 $ 73,990 $ 48,647
============= ============= ============ =============
Earnings per share before extraordinary item $ .48 $ 1.33 $ 2.37 $ 1.85
Extraordinary item per share (.02) - (.03) (.08)
------------- ------------- ------------ -------------
Net earnings per share $ .46 $ 1.33 $ 2.34 $ 1.77
============= ============= ============ =============
</TABLE>
(a) Charges related to early retirement of debt.
The accompanying notes are an integral part of these consolidated financial
statements.
4 of 27
<PAGE> 5
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 73,990 $ 48,647
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest 42,696 28,754
Net gain on sales (58,647) (43,821)
Extraordinary items - charges related to early retirement of debt 1,072 2,291
Equity in net income of unconsolidated affiliates (13,950) (12,681)
Provision for doubtful accounts 2,357 1,978
Depreciation 33,041 24,885
Amortization 2,795 3,243
Net changes in:
Tenant accounts receivable (6,777) (6,946)
Prepaid and other assets (35,680) (4,207)
Accounts payable and accrued expenses (15,905) 188
------------ ------------
Net cash provided by operating activities 24,992 42,331
------------ ------------
Cash flows from investing activities:
Acquisition/development of real estate and improvements and additions to properties (170,920) (64,730)
Increase in investments in unconsolidated real estate affiliates (83,464) (13,316)
Change in notes receivable from General Growth Management, Inc. (23,796) (2,362)
Proceeds from the sale of CenterMark stock 130,500 87,000
Distributions received from CenterMark Properties, Inc. - 15,616
Distributions received from GGP/Homart, Inc. 15,572 9,037
Increase in deferred expenses (5,764) (8,530)
------------ ------------
Net cash from investing activities (137,872) 22,715
------------ ------------
Cash flows from financing activities:
Cash distributions paid to common stockholders (40,941) (35,182)
Cash distributions paid to minority interest (23,667) (20,770)
Proceeds of common stock issuance 166,293 (30)
Proceeds fromissuance of mortgage and other notes payable 331,526 394,102
Principal payments on mortgage and other notes payable (324,941) (413,978)
Purchase of treasury stock (3,114)
Proceeds from exercised options 249
Retirement of common stock (net of sale proceeds) (63)
Prepayment penalty on early retirement of debt (1,072)
Increase in deferred financing costs (1,279) (2,025)
------------ ------------
Net cash from financing activities 103,054 (77,946)
------------ ------------
Net change in cash and cash equivalents (9,826) (12,900)
Cash and cash equivalents at beginning of period 15,947 18,298
------------ ------------
Cash and cash equivalents at end of period $ 6,121 $ 5,398
============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 60,836 $ 56,154
Interest capitalized 3,883 3,961
Non-cash investing activities
Debt assumed as consideration to seller for purchase of real estate 61,863 19,650
Partnership units and common stock issued as consideration for purchase of real estate
(1997) and General Growth Management, Inc. (1996). 11,490 51,497
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5 of 27
<PAGE> 6
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
General Growth Properties, Inc. (the "Company"), a Delaware
corporation, was formed in 1986 to own and operate enclosed mall
shopping centers. On April 15, 1993, the Company completed its
initial public offering of 18,975,000 shares of common stock and a
business combination involving entities under varying common
ownership. Proceeds from the initial public offering were used to
acquire a majority interest in GGP Limited Partnership (the "Operating
Partnership") which was formed to succeed to substantially all of the
interests in eighteen enclosed mall general partnerships (the
"Property Partnerships") owned and controlled by the Company and its
original stockholders, Martin and Matthew Bucksbaum, and trusts
established for the benefit of the stockholders' families (the
"Bucksbaums"). The proceeds were used to repay existing indebtedness
and acquire three additional centers.
In May of 1995, the Company completed a follow-on stock offering
of 4,500,000 common shares. Net proceeds were used to reduce the
outstanding balance of the Company's credit facility.
In August of 1997, the Company completed a follow-on stock
offering of 4,350 shares of its common stock. Net proceeds of
approximately $147,465 were substantially applied to reduce the
outstanding balance on two development loans totaling approximately
$113,000. The balance of the proceeds were used for general
corporate purposes, including possible future acquisitions and the
development of enclosed mall shopping centers.
OPERATING PARTNERSHIP
The Operating Partnership commenced operations on April 15, 1993 and
as of September 30, 1997, the Company together with the Operating
Partnership owned 100% of thirty-four enclosed regional shopping
centers (the "Original Centers") and 51% of GGP/Ivanhoe, Inc. (see
Note 4), 50% of Quail Springs and Town East, 38.2% of the stock of
GGP/Homart, Inc. and a 95% non-voting preferred stock interest in
General Growth Management, Inc. ("GGMI") (see Note 5). GGP/Homart
owns interests in twenty-five shopping centers (the "Homart
Centers"). GGP/Ivanhoe owns 100% of The Oaks Mall and Westroads. At
September 30, 1997, the Company owned a 66% general partnership
interest in the Operating Partnership. Various minority interests
owned the remaining 34% limited partnership interest.
The minority interest in the Operating Partnership is held
primarily by trusts for the benefit of families of the original
stockholders which initially owned and controlled the Company and is
represented by units of limited partnership interests ("Units"). The
Units can be exchanged, with certain restrictions, for shares of the
Company on a one-for-one basis. The Bucksbaum's Units can be
exchanged for cash, at the Company's election, if the
6 of 27
<PAGE> 7
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
Bucksbaums own 25% or more of the outstanding common stock of
the Company at the time of the exchange. The Unitholders also share
equally with the stockholders on a per share basis in any
distributions by the Operating Partnership.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of the Company and the Operating Partnership consisting of
the thirty-four centers (the "Original Centers") and the
unconsolidated investments in CenterMark Properties, Inc. (through
January 2, 1997), GGP/Homart, Inc., GGMI and GGP/Ivanhoe, Inc.,
Quail Springs Mall and Town East Mall (the "Property Joint
Ventures"). All significant intercompany balances and transactions
have been eliminated.
In the opinion of management, all adjustments, consisting of normal
recurring adjustments necessary to present fairly the financial
position of the Company as of September 30, 1997 and the results of
operations and cash flows for the three and nine months ended
September 30, 1997 and 1996 have been included.
The consolidated statements of operations for prior periods have
been reclassified to conform with current classifications with no
effect on results of operations.
NOTE 2 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. The Company and Westfield
U.S. Investments Pty. Limited each 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 several major regional shopping malls
and power centers.
The Company sold 25% of its interest in CenterMark on December
19, 1995, to Westfield U.S. Investments Pty. Limited for a 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 in two transactions. The first payment in the amount
of $87,000 was received on July 1, 1996, and the second payment in the
amount of $130,500 was received on January 2, 1997. Proceeds from the
first payment 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 3). The proceeds
received from the second payment were primarily used to repay existing
indebtedness (see Note 6).
7 of 27
<PAGE> 8
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 3 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, the 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. All
of the stockholders of GGP/Homart committed to contribute up to
$80,000 of additional capital as required, through the end of 1997.
As of September 30, 1997, the stockholders had contributed $75,000 of
additional capital. During the second quarter of 1997, GGP/Homart
sold its ownership interest in Eden Prairie Mall to the Company (see
Note 4). In September of 1997, GGP/Homart sold its ownership
interest in Meriden Square to its joint venture partner. On September
16, 1997, GGP/Homart opened Brass Mill Center and Commons Mall, a new
development, located in Waterbury, Connecticut. GGP/Homart currently
owns interests in twenty-five regional shopping malls. GGP/Homart
elected real estate investment trust status for income tax purposes.
On the following page is summarized financial information for
GGP/Homart for the three and nine months ended September 30, 1997 and
1996.
8 of 27
<PAGE> 9
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
GGP/HOMART, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues
Minimum rents $27,388 $23,370 $76,577 $ 66,480
Tenant recoveries 9,561 10,395 32,301 29,178
Percentage rents 701 733 1,950 1,928
Other 1,177 1,295 2,740 2,878
------- -------- ------- --------
Total revenues 38,827 35,793 113,568 100,464
Operating expenses (15,988) (15,845) (47,498) (44,545)
Depreciation and amortization (7,034) (6,093) (19,987) (16,176)
------- -------- ------- --------
Net operating income 15,805 13,855 46,083 39,743
Interest expense, net (11,149) (10,666) (31,844) (28,956)
Equity in net income of unconsolidated
real estate affiliates 1,450 1,431 5,573 4,015
Gain on property sales 12,994 330 13,675 330
Income allocated to minority interest (69) (35) (191) (42)
------- ------- ------- --------
Net income $19,031 $ 4,915 $33,296 $ 15,090
======= ======= ======= ========
</TABLE>
9 of 27
<PAGE> 10
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 4 PROPERTY ACQUISITIONS AND DEVELOPMENT
ACQUISITIONS
On March 31, 1997, the Company acquired a 100% ownership interest
in Market Place Mall for a cash purchase price of approximately
$70 million. Market Place Mall is located in Champaign, Illinois.
During the second quarter of 1997, the Company also acquired
100% ownership of three other properties, Century Plaza Shopping
Center, Southlake Mall and Eden Prairie Mall, and a 50% interest in
Town East Mall. Century Plaza Shopping Center located in Birmingham,
Alabama was acquired on May 1, 1997 for $31.8 million in cash.
Southlake Mall was acquired on June 18, 1997, for a purchase price of
$67.0 million. The purchase price consisted of $45.1 million of
mortgage debt assumption, $11.5 million (353,537 units) of newly
issued Operating Partnership Units, and $10.4 million in cash.
Southlake Mall is located in Atlanta, Georgia. The aggregate
consideration paid for Eden Prairie Mall located in Minneapolis,
Minnesota was $19.9 million. It included the assumption of a $16.8
million mortgage, the payment of $2.0 million in cash and the
assumption of $1.1 million of short-term liabilities. On June 11,
1997, the Company acquired a 50% interest in Town East Mall, located
in Mesquite, Texas for $56.5 million. The consideration included
approximately $27.5 million in cash, the assumption of approximately
$27.9 million of mortgage indebtedness and the assumption of $1.1
million in net current liabilities.
On September 17, 1997, GGP/Ivanhoe, Inc. acquired both The Oaks
Mall In Gainesville, Florida and Westroads Mall in Omaha, Nebraska.
The purchase price for the two properties was approximately $206
million. The Company together with the Operating Partnership own 51%
of the ownership interest in GGP/Ivanhoe. Ivanhoe, Inc. of Montreal,
Quebec, Canada owns the remaining 49% ownership interest in
GGP/Ivanhoe.
The Company together with the Operating Partnership acquired a
100% ownership interest in Valley Hills Mall on October 23, 1997.
Valley Hills Mall is located in Hickory, North Carolina and was
acquired for a purchase price of approximately $34.6 million. The
purchase price consisted of approximately $19 million of Operating
Partnership Units and the assumption of approximately $15.6 million
mortgage debt.
The acquisitions were accounted for utilizing the purchase method and
accordingly, the results of operations are included in the Operating
Partnership's results of operations from the date of acquisition.
DEVELOPMENTS
During 1996, the Company acquired two new development sites
located in Iowa City, Iowa, and Grand Rapids, Michigan. The
Iowa City project is currently under development and is scheduled to
open in the summer of 1998.
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<PAGE> 11
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
NOTE 5 ACQUISITION OF GGMI
On December 22, 1995, the Company formed GGP Management, Inc. to
manage, lease, develop and operate enclosed malls. In August 1996,
the Operating Partnership, acting through GGP Management, completed
the acquisition of GGMI for approximately $51,500. The Operating
Partnership issued approximately $11,600 (453,791 Units) of Operating
Partnership Units and sold $39,900 of common stock (1,555,855 shares)
to GGP Management which was used as consideration to acquire GGMI. A
loan of approximately $39,900 from the Operating Partnership to GGP
Management was used to purchase the Company's common stock. The
interest only loan bears interest at 14% and matures in 2016. In
connection with the acquisition, GGP Management was merged into GGMI
at closing. GGMI manages, leases, and performs various other services
for the Original Centers, GGP/Homart and other properties owned by
unaffiliated parties.
On June 16, 1997, GGMI acquired a 220,000 square foot office building
in downtown Chicago, Illinois to be used as the new corporate
headquarters. The office building will be completely upgraded and
retrofitted to create class A office space. GGMI and Company
personnel are expected to initially occupy approximately half of
the building commencing in April of 1998. The balance of the space
will be leased to other tenants.
NOTE 6 MORTGAGE LOANS AND CREDIT FACILITIES
On January 2, 1997, a portion of the proceeds from the sale of
CenterMark were used to repay a $12,597 mortgage on Westwood Mall and
to reduce the balance on a non-recourse bridge loan facility from
$250,000 to $180,000.
In August of 1997 the Company completed a $200,000 unsecured
credit facility to be used for general corporate purposes including
any potential future acquisitions or developments. On September 30,
1997, the credit facility had an outstanding balance of $119,000.
In addition to the $250,000 non-recourse bridge loan that is
collateralized in part by mortgages on seven Original Centers, the
Company obtained additional short term unsecured financing. As part of
the additional financing, the Company agreed not to encumber four
additional Original Centers. As of September 30, 1997 the entire
$250,000 non-recourse loan was outstanding and the entire $116,700 of
proceeds available under the additional unsecured loan was also
outstanding. In September of 1997 the Company arranged a $125,000
unsecured bridge loan, indirectly collateralized by The Oaks Mall and
Westroads Mall. These unsecured bridge loans totaling $491,700 are
currently scheduled to be replaced with long term fixed rate
permanent financing by the end of November 1997.
11 of 27
<PAGE> 12
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
During the third quarter of 1997, the Company repaid two
property level loans totaling approximately $60,500 with a weighted
average interest rate of approximately 8.9%.
NOTE 7 NET GAIN ON SALES
The net gain on sales relates primarily to the gain on the sale
of CenterMark (see Note 2) less additional costs related to prior
acquisitions.
NOTE 8 EXTRAORDINARY ITEMS
The extraordinary items resulted from prepayment costs and
unamortized deferred financing costs related to the early
extinguishment of mortgage notes payable.
NOTE 9 DISTRIBUTIONS PAYABLE
On September 23, 1997, the Company declared a cash distribution
of $.45 per share that was paid on October 31, 1997 to stockholders of
record on October 15, 1997, totaling $16,050. In addition, a
distribution of $8,217 was paid to the limited partners of the
Operating Partnership.
On December 17, 1996, the Company declared a cash distribution
of $.43 per share that was paid on January 31, 1997, to stockholders
of record on December 31, 1996, totaling $13,239. In addition, a
distribution of $7,505 was paid to the limited partners of the
Operating Partnership.
NOTE 10 COMMITMENTS AND CONTINGENCIES
In the normal course of business, from time to time, the Company
is involved in legal actions relating to the ownership and operations
of its properties. In management's opinion, the liabilities, if any,
that may ultimately result from such legal actions are not expected to
have a materially adverse effect on the consolidated financial
position, results of operations or liquidity of the Company.
The Company has entered into contingent agreements for the
acquisition of properties. Each acquisition is subject to satisfactory
completion of due diligence and, in the case of developments,
completion and occupancy of the project.
NOTE 11 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," revises the disclosure requirements and increases the
comparability of EPS data on an international basis by simplifying the
existing computational guidelines in APB Opinion No. 15. The
12 of 27
<PAGE> 13
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
pronouncement will require the Company to present both basic and
diluted EPS for net income on the face of the income statement and is
effective for the Company's fiscal year ending December 31, 1997. The
Company believes SFAS No. 128 will not have a material impact on its
financial statements.
In June of 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income" and Statement No.
131, "Disclosures about Segments of an Enterprise and Related
Information." Under the new reporting and disclosure requirements
promulgated in these statements, the Company will adopt the provisions
beginning in its fiscal 1998 year.
13 of 27
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
As of September 30, 1997, the Company together with the Operating
Partnership owned 100% of thirty-four enclosed regional shopping centers
(the "Original Centers") 51% of the stock of GGP/Ivanhoe, Inc., 50% of
Quail Springs and Town East, 38.2% of the stock of GGP/Homart, Inc. and a
95% interest in GGMI (see Note 5). GGP/Homart owns interests in
twenty-five shopping centers (the "Homart Centers"). GGP/Ivanhoe owns
interests in two shopping centers, The Oaks and Westroads. During 1996
the Company, through the Operating Partnership, owned an interest in
CenterMark Properties, Inc. (the "CenterMark Centers") (see Note 2).
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 equity method to
account for its investments in CenterMark, GGP/Homart, GGP/Ivanhoe, GGMI,
Quail Springs and Town East, 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 Homart Centers, GGMI,
GGP/Ivanhoe, Quail Springs and Town East are collectively known as the
"Company Portfolio". A separate discussion of GGP/Homart's results of
operations is presented below (see "Homart Portfolio Results and Funds
from Operations" on page 22).
Forward-Looking Information
Forward-looking statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations may include certain
forward-looking statements, within the meaning of Section 27a of the Securities
Act of 1933, as amended, and Section 216 of the Securities Exchange Act of
1934, as amended, including (without limitation) statements with respect to
anticipated future operating and financial performance, growth and acquisition
opportunities and other similar forecasts and statements of expectation.
Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates" and "should" and variations of these words and similar
expressions, are intended to identify these forward-looking statements.
Forward-looking statements made by the Company and its management are based on
estimates, projections, beliefs and assumptions of management at the time of
such statements and are not guarantees of future performance. The Company
disclaims any obligation to update or revise any forward-looking statement
based on the occurrence of future events, the receipt of new information of
otherwise.
Actual future performance, outcomes and results may differ materially from
those expressed in forward-looking statements made by the Company and its
management as a result of a number of risks, uncertainties and assumptions.
Representative examples of these factors include (without limitation) general
industry and economic conditions; interest rate trends; cost of capital and
capital requirements, availability of real estate properties; competition from
other companies and venues for the sale/distribution of goods and services;
shifts in customer demands, tenant bankruptcies, changes in operating expenses,
including employee wages, benefits and training; governmental and public policy
changes and the continued availability of financing in the amounts and at the
terms necessary to support the Company's future business.
RESULTS OF OPERATIONS OF THE COMPANY
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenues for the third quarter of 1997 were $74.2 million, which
represents an increase of $22.6 million or approximately 43.9% from $51.6
million in the third quarter of 1996. Approximately $16.7 million or
73.9% of the increase is from acquisitions completed after September 30,
1996. Improved performance of comparable properties (properties owned at
all times during current and prior periods) accounted for the remaining
$5.9 million or 26.1% of the increase. Minimum rent for the third quarter
of 1997 increased by $10.0 million or 30.1% from $33.4 million in 1996 to
$43.4 million. Straight line rents accounted for a $.5 million decrease
from $3.0 million in 1996 to $2.5 million in 1997. The acquisition of
properties generated a $10.0 million increase in minimum rents. Expansion
space, specialty leasing and a combination of occupancy and rental changes
at the comparable centers accounted for the remaining increase in minimum
rents. Tenant charges increased by $9.7 million or 63.3% from $15.4
million to $25.1 million for the third quarter of 1997. Approximately $3.9
million of the increase is attributable to higher recoverable operating
expenses at the comparable malls. The remaining $5.8 million increase was
generated by properties which were recently acquired. For the third
quarter of 1997 overage rents increased to $2.2 million from $1.1 million
in 1996. Acquisitions contributed $.7 million of the $1.1 million
increase. Other revenues increased by approximately $.9 million or 100.0%
to $1.8 million for the third quarter of 1997 from $.9 million in 1996.
Fee income increased by $.9 million primarily due to a nonreccuring
finance fee of $.8 million in connection with the acquisition and
ownership interest in The Oaks and Westroads.
Total expenses, including depreciation and amortization, increased by
approximately $14.3 million, from $25.9 million in the third quarter of
1996 to $40.2 million in the third quarter of 1997. For the period ended
September 30, 1997, property operating expenses increased by
14 of 27
<PAGE> 15
$10.7 million or 70.8% from $15.1 million in 1996 to $25.8 million in
the third quarter of 1997. Of this increase, new acquisitions accounted
for $6.1 million, while higher recoverable operating costs at comparable
centers contributed the remaining $4.6 million. Depreciation and
amortization increased by $2.9 million over the same period in 1996.
Approximately $.6 million of the $2.9 million increase in depreciation and
amortization was generated at comparable centers. The remaining $2.3
million was from newly acquired properties. Management fees to affiliates
and general and administrative expenses together were approximately $.6
million higher than in the third quarter of 1996.
Net interest expense for the third quarter of 1997 was $18.3 million,
an increase of $3.3 million or 22.0% from $15.0 million in the third
quarter of 1996. The acquisition of new properties was responsible for an
increase of approximately a $6.6 million. Interest savings of $3.3
million were generated by lower interest rates as a result of refinancing
activities and from the temporary use of the proceeds from a follow-on
offering to reduce debt.
Equity in net income of unconsolidated affiliates in the third quarter of
1997 increased by approximately $4.9 million to $8.7 million in 1997, from
$3.8 million in the third quarter of 1996. Approximately a $2.9 million
decrease is attributable to the sale of the Company's interest in
CenterMark. The Company's ownership interest in GGMI resulted in an
increase of $1.9 million. Property Joint Ventures (see Note 1) and
GGP/Homart accounted for increases of approximately $.4 million and $5.4
million, respectively. GGP/Homart's increase was primarily caused by a
gain on the sale of a property which accounted for $5.2 million of their
$5.4 million increase. The results of GGP/Homart's operations are also
presented and discussed below (see "Homart Portfolio Results and Funds
from Operations" on page 22).
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenues for the nine months of 1997 were $209.2 million, which
represents an increase of $54.2 million or approximately 35.0% from $155.0
million in the nine months of 1996. Of this increase approximately $39.5
million is from properties acquired after September 30, 1996. Minimum
rent for the first nine months of 1997 increased $26.4 million or 26.8%
from $98.6 million in 1996 to $125.0 million. Acquisitions after September
30, 1996, generated $24.5 million of the increase in minimum rent. Higher
rents at comparable centers accounted for the remaining $1.9 million
increase in minimum rents. Tenant recoveries increased by $24.2 million
or 52.6% from $46.0 million to $70.2 million for the first nine months of
1997. The acquisition of new properties contributed $13.2 million of the
$24.2 million increase. Higher recoverable operating costs at comparable
centers generated the remaining increase of $11.0 million. For the first
nine months of 1997, overage rents increased by $1.9 million or 48.7% from
$3.9 million to $5.8 million in 1997. The increase is primarily due to
the acquisition of new properties. Other revenues increased $1.7 million
or 58.6% from $2.9 million to $4.6 million for the first nine months of
1997. Fee revenue was essentially flat for the first nine months of 1997
compared to 1996.
Total expenses, including depreciation and amortization, increased
$30.8 million or 37.7% from $81.7 million in 1996 to $112.5 in the first
nine months of 1997. For the period ended September 30, 1997, property
operating, general and administrative costs and management expenses
increased $23.1 million. Of this increase $14.2 million is attributable
to the
15 of 27
<PAGE> 16
acquisition of new properties. The remaining $8.9 million is from
higher recoverable operating costs at comparable properties.
Depreciation and amortization increased $7.7 million from $28.1 million in
the first nine months of 1996 to $35.8 million in 1997. Approximately
$5.5 million of this increase is attributable to new acquisitions.
Comparable centers accounted for the remaining $2.2 million increase in
depreciation and amortization.
Interest expense for the first nine months of 1997 was $51.5 million, an
increase of $1.4 million or 2.8% from $50.1 million during the same period
in 1996. The acquisition of new properties was responsible for a $13.1
million increase. Interest savings due to lower interest rates on
refinancing activity and reduced debt levels from the use of the follow-on
sale proceeds accounted for an $11.7 million decrease in
interest expense.
Equity in net income of unconsolidated affiliates in the first nine months
of 1997 increased by approximately $1.3 million to $14.0 million in 1997,
from $12.7 million in the first nine months of 1996. A $6.3 million
decrease is attributable to the sale of the Company's interest in
CenterMark. The Company's ownership in GGMI resulted in a decrease of $.4
million. The Property Joint Ventures (see Note 1) and GGP/Homart
accounted for increases of approximately $1.0 million and $6.9 million,
respectively. The results of GGP/Homart's operations are also presented
and discussed below (see "Homart Portfolio Results and Funds from
Operations" on page 20).
COMPANY PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
In order to portray the various direct and indirect sources of the
Company's Funds from Operations in a similar and useful manner, the
Company Portfolio results and Funds from Operations depicted below reflect
the applicable ownership percentage 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 the applicable ownership
percentage of the revenues and expenses of GGMI and from properties wholly
and/or partially owned by the Operating Partnership. Interest expense and
general and administrative costs that relate to the acquisition,
management and oversight of the Company's ownership of CenterMark and
GGP/Ivanhoe are charged entirely against the Company's direct operations.
These expenses cannot be charged on CenterMark's, GGP/Homart's and
GGP/Ivanhoe's financial statements because the other stockholders in
CenterMark, GGP/Homart and GGP/Ivanhoe are not affiliated with the
Company.
The National Association of Real Estate Investment Trusts ("NAREIT")
defines Funds from Operations as net income (loss) (computed in accordance
with generally accepted accounting principles ("GAAP")), excluding gains
(or losses) from debt restructuring and sales of properties, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures. In calculating its Funds
from Operations, the Company also excludes non-cash straight line rent and
gains on land sales, if any. The NAREIT definition of Funds from
Operations does not exclude the aforementioned items. The Company's Funds
from Operations may not be directly comparable to similarly titled
measures reported by other real estate investment trusts. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income
16 of 27
<PAGE> 17
(determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities
(determined in accordance with GAAP) as a measure of the Company's
liquidity, nor is it indicative of funds available to fund the Company's
cash needs, including its ability to make cash distributions.
The Company's share of GGP/Homart's Funds from Operations does not
represent the net effective incremental contribution to the Company made
by the 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 the
Original Centers and the Homart Centers provides a good 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, 1997 TOTAL SEPTEMBER 30, 1997 TOTAL
- ----------------------------------- ------------------ ------ ------------------ ------
<S> <C> <C> <C> <C>
Original Centers and GGMI $52,137 82.22% $140,926 80.91%
38.2% of GGP/Homart (a) $11,278 17.78% $33,259 19.09%
------------------ ------ ------------------ ------
Company Portfolio Net Operating Income $63,415 100.00% $174,185 100.00%
================== ====== ================== ======
</TABLE>
(a) Reflects the Company's share of GGP/Homart's Net Operating Income,
including GGP/Homart's share of Net Operating Income from joint ventures.
The Company Portfolio results and funds from operations reflected below
for the three and nine months ended September 30, 1997 and 1996 do not
purport to project results for any future period. For 1996, the Company
Portfolio results include the Company's share of the CenterMark Centers
results.
Page 17 of 27
<PAGE> 18
RECONCILIATION OF COMPANY NET INCOME TO OPERATING PARTNERSHIP FUNDS
FROM OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
GAAP Net income (see page 4) $15,287 $36,667 $ 73,990 $48,647
Extraordinary item (a) 695 - 1,072 2,291
Allocations to Operating Partnership unitholders 8,458 21,683 42,696 28,754
Net gain on sales (4,968) (43,948) (63,875) (43,948)
Straight-line rent (included in GAAP net income, so
it must be deducted in order to reconcile to FFO) (801) (1,543) (3,293) (4,562)
Depreciation and amortization of real estate costs 18,280 14,300 50,636 45,386
------- ------- -------- -------
Operating Partnership Funds From Operations (see below) $36,951 $27,159 $101,226 $76,568
======= ======= ======== =======
Weighted average number of shares outstanding assuming
full conversion of Operating Partnership Units 51,503 44,050 49,672 43,600
======= ======= ======== =======
</TABLE>
Company Portfolio Results
(In thousands, except for per share amounts - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues
Minimum rents (b) $ 57,943 $48,279 $163,882 $149,699
Tenant recoveries 32,162 22,953 89,625 71,796
Percentage rents 2,587 1,514 6,926 5,488
Other 1,911 1,640 5,733 4,347
Fees 19,344 13,606 50,175 26,327
-------- ------- -------- --------
Total revenues $113,947 $87,992 $316,341 $257,657
Operating expenses (c) (49,724) (36,848) (139,647) (105,137)
General and administrative (808) (801) (2,509) (2,294)
-------- ------- -------- --------
Net operating income 63,415 50,343 174,185 150,226
Interest expense, net (26,464) (23,184) (72,959) (73,658)
-------- ------- -------- --------
Operating Partnership Funds From Operations $ 36,951 $27,159 $101,226 $ 76,568
(see above)
Less: FFO allocable to Operating
Partnership unitholders $ 13,138 $ 9,998 $ 36,816 $ 28,339
-------- ------- -------- --------
Company Funds From Operations $ 23,813 $17,161 $ 64,410 $ 48,229
======== ======= ======== ========
Weighted average number of Company shares
outstanding 33,219 27,551 31,606 27,461
======== ======= ======== ========
</TABLE>
(a) Charges related to early retirement of debt.
(b) Excluding straight-line rents for the three and nine months ended September
30, 1997 and 1996 of $801, $1,543 and $3,293 and $4,562, respectively.
(c) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
18 of 27
<PAGE> 19
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Original GGP/
Centers Homart GGMI Total
--------- -------- ------- --------
<S> <C> <C> <C> <C>
GAAP Net income (see page 4) $ 9,993 $ 4,653 $ 641 $15,287
Extraordinary Item 695 - $ - $ 695
Allocations to Operating Partnership unitholders 5,464 2,619 375 8,458
Net gain on sales - (4,968) - (4,968)
Straight-line rent (included in GAAP net income, so
it must be deducted in order to reconcile to FFO) (598) (203) - (801)
Depreciation and amortization of real estate costs 13,199 3,821 1,260 18,280
------- ------ ------- -------
Operating Partnership Funds From Operations $28,753 $ 5,922 $ 2,276 $36,951
======= ======= ======= =======
(see below)
</TABLE>
Breakdown of Company Portfolio Results
(In thousands, except for per share amounts - Unaudited)
<TABLE>
<CAPTION>
Original GGP/
Centers Homart GGMI Total
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Minimum rents (b) $45,165 $12,778 $ - $57,943
Tenant recoveries 26,377 5,785 - 32,162
Percentage rents 2,260 327 - 2,587
Other 1,657 254 - 1,911
Fees 1,710 - 17,634 19,344
------- ------- ------- -------
Total revenues 77,169 19,144 17,634 113,947
Operating expenses (c) (28,240) (7,866) (13,618) (49,724)
General and administrative (808) - - (808)
------- ------- ------- -------
Net operating income 48,121 11,278 4,016 63,415
Interest expense, net (19,368) (5,356) (1,740) (26,464)
------- ------- ------- -------
Operating Partnership Funds From Operations $28,753 $ 5,922 $ 2,276 $36,951
======= ======= ======= =======
(see above)
</TABLE>
(a) Charges related to early retirement of debt.
(b) Excluding straight-line rent for the three months ended September 30, 1997
of $801.
(c) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
19 of 27
<PAGE> 20
RECONCILIATION OF NET INCOME TO FUNDS FROM OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Original GGP/
Centers Homart GGMI Total
--------- --------- ----------- ----------
<S> <C> <C> <C> <C>
GAAP Net income (see page 4) $ 65,802 $ 8,096 $ 92 $ 73,990
Extraordinary item (a) 1,072 - - 1,072
Allocations to Operating Partnership unitholders 38,016 4,627 53 42,696
Net gain on sales (58,647) (5,228) - (63,875)
Straight-line rent (included in GAAP net income, so -
it must be deducted in order to reconcile to FFO) (2,550) (743) - (3,293)
Depreciation and amortization of real estate costs 36,626 11,041 2,969 50,636
--------- --------- ----------- ----------
Operating Partnership Funds From Operations $ 80,319 $ 17,793 $ 3,114 $ 101,226
(see below) ========= ========= =========== ==========
BREAKDOWN OF COMPANY PORTFOLIO RESULTS
(In thousands, except for per share amounts - Unaudited)
Original GGP/
Centers Homart GGMI Total
Revenues --------- --------- ----------- ----------
Minimum rents (b) $ 126,284 $ 37,598 $ - $ 163,882
Tenant recoveries 72,503 17,122 - 89,625
Percentage rents 6,004 922 - 6,926
Other 4,778 955 - 5,733
Fees 3,468 - 46,707 50,175
--------- --------- ----------- ----------
Total revenues 213,037 56,597 46,707 316,341
Operating expenses (c) (77,158) (23,338) (39,151) (139,647)
General and administrative (2,509) - - (2,509)
--------- --------- ----------- ----------
Net operating income 133,370 33,259 7,556 174,185
Interest expense, net (53,051) (15,466) (4,442) (72,959)
--------- --------- ----------- ----------
Operating Partnership Funds From Operations $ 80,319 $ 17,793 $ 3,114 $ 101,226
========= ========= =========== ==========
</TABLE>
(see above)
(a) Charges related to early retirement of debt.
(b) Excluding straight-line rent for the nine months ended September 30, 1997
of $3,293.
(c) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
20 of 27
<PAGE> 21
OTHER COMPANY PORTFOLIO DATA
AS OF AND/OR FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In thousands, except for per square foot amounts, unaudited)
<TABLE>
<CAPTION>
Original GGP/ Total or
Centers(a) Homart(a) Average
---------- --------- --------
<S> <C> <C> <C>
Occupancy of centers not
under redevelopment 82.9% 87.0% 84.5%
Tenant allowances $ 7,031 $7,336 $14,367
Annualized sales per sq. ft. $ 252 $ 291 $ 272
Average rent per sq. ft.
for new/renewal leases $ 21.54 $30.60 $ 27.43
Average rent per sq. ft.
for expiring leases $ 16.68 $24.94 $1 9.46
% change in total sales 3.3% 11.1% 7.1%
</TABLE>
(a) Data is for 100% of the non-anchor GLA in each portfolio, including those
centers that are owned in part by unaffiliated joint venture partners.
COMPANY PORTFOLIO DEBT
MATURITY AND CURRENT AVERAGE INTEREST RATE SUMMARY
AS OF SEPTEMBER 30, 1997
(Dollars in Thousands, unaudited)
<TABLE>
<CAPTION>
Company
Original Centers GGP/Homart(a) Portfolio Debt
------------------------- ---------------------- -------------------------
Current Current Current
Maturing Average Maturing Average Maturing Average
Year Amount Rate Amount Rate Amount Rate
- ------------------- ----------- --------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 441,891 6.70% - - $ 441,891 6.70%
1998 16,743 6.93% 27,984 6.83% 44,727 6.86%
1999 229,998 7.66% 117,879 7.39% 347,877 7.57%
2000 - - 44,951 7.34% 44,951 7.34%
Subsequent 648,430 7.05% 153,026 7.46% 801,456 7.13%
---------- ---------- -------- -------- ---------- ---------
Totals $1,337,062 7.04% $343,840 7.37% $1,680,902 7.10%
========== ========== ======== ======== ========== =========
Floating Rate $ 549,450 6.65% $136,570 7.37% $ 686,020 6.79%
Fixed Rate 787,612 7.31% 207,270(b) 7.37% 994,882 7.32%
---------- ---------- -------- -------- ---------- ---------
Totals $1,337,062 7.04% $343,840 7.37% $1,680,902 7.10%
========== ========== ======== ======== ========== =========
</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.
21 of 27
<PAGE> 22
HOMART PORTFOLIO RESULTS AND FUNDS FROM OPERATIONS
GGP/Homart owns 100% of 14 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 similar and useful manner, the "Homart Portfolio" results
presented below comprise 100% of the revenues and expenses of the wholly
owned Homart Centers and GGP/Homart's various percentage interests of the
revenues and expenses of 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 $29 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 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 the Original Centers and
the Homart Centers. Management believes that contributions to Company
Portfolio net operating income is a good indication of the relative
significance to the Company of the Original Centers and the Homart Centers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE HOMART PORTFOLIO'S FUNDS FROM
OPERATIONS (Dollars in thousands)
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenue for the third quarter of 1997 increased $3.6 million or
7.7% to $50.1 million from $46.5 million in 1996. Minimum rents accounted
for $3.7 million of the $3.6 million increase in total revenues. Minimum
rent increased 9.9% or $3.7 million to $33.4 million for the quarter ended
September 30, 1997. The development of West Oaks and Brass Mill accounted
for approximately $2.6 million of the $3.7 million increase in minimum
rents. The sale of Eden Prairie accounted for a $.7 million decrease in
minimum rent, while, the improved performance of comparable properties
accounted for the remaining increase in minimum rent of $1.8 million.
Tenant recoveries increased 6.3% from $14.2 million in 1996 to $15.1
million in 1997. New developments generated $1.4 million of the increase
in tenant recoveries. The sale of Eden Prairie accounted for an $.8
million decrease and comparable centers accounted for the remaining
increase in tenant recoveries. Percentage rents were essentially flat in
1997 compared to 1996. Other revenue decreased $1.0 million from $1.7
million in 1996 to $.7 million in 1997. This was primarily due to a tax
abatement in 1996.
22 of 27
<PAGE> 23
Operating expenses were $20.6 million for the third quarter of 1997 up
from $20.3 million in 1996, an increase of 1.5% or $.3 million. The
development and increased ownership of properties accounted for $2.6
million of the increase, and the sale of Eden Prairie contributed a $1.3
million decrease in operating expenses. Lower operating costs at
comparable centers accounted for the remaining $1.0 million decrease in
operating expenses.
Net interest expense increased $.6 million or 4.5% from $13.4 million in
the third quarter of 1996 to $14.0 million. Approximately $1.3 million of
the increase is attributable to the development of a new property. The $.7
million in interest savings was due to lower floating interest rates, the
refinancing of floating rate loans to fixed rate loans on several
properties and the sale of Eden Prairie.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenues for the first half of 1997 increased $12.7 million or
9.4% from $135.4 million to $148.1 million. Approximately $11.5 million of
the increase is from the opening of West Oaks Mall and Brass Mill.
Also contributing is an increased ownership in Vista Ridge Mall. Improved
performance of comparable centers accounted for the remaining increase of
$1.2 million. Minimum rent increased 12.7% or $11.1 million from $87.3
million to $98.4 million for the nine month period. Of the $11.1 million
increase, development and increased ownership of properties contributed
$7.5 million, while the comparable centers accounted for the remaining
$3.6 million or 32.4% of the increase. Tenant recoveries increased $2.8
million or 6.7% to $44.8 million from $42.0 million for the nine month
period. Other revenues decreased $1.2 million or 32.4% from $3.7 to $2.5
million for the first nine months of 1997.
Operating expenses were $61.0 million, an increase of $1.5 million from
$59.5 million in 1996. This increase is primarily the result of the new
development and increased ownership of properties.
Net interest expense increased $2.3 million from $38.2 million for the
nine months of 1996 to $40.5 million. Approximately $3.5 million is
attributable to the new development and increased ownership of properties.
The $1.2 million interest savings is from lower floating interest rates and
the refinancing of loans on several properties and the sale of Eden
Prairie.
23 of 27
<PAGE> 24
RECONCILIATION OF GGP/HOMART NET INCOME TO GGP/HOMART FUNDS FROM
OPERATIONS FOR THE THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
GGP/Homart GAAP net income (a) $19,031 $ 4,928 $33,296 $15,088
Gain on land sale (13,001) (330) (13,682) (330)
Straight-line rent not included in FFO (530) (1,061) (1,943) (3,357)
Depreciation and amortization -
real estate 10,001 9,263 28,895 26,151
------- ------- ------- -------
GGP/Homart Funds From Operations $15,501 $12,800 $46,566 $37,552
(see below) ======= ======= ======= =======
Operating Partnership's share (38.2%) of $ 5,922 $ 4,887 $17,793 $14,345
GGP/Homart FFO (see below) ======= ======= ======= =======
</TABLE>
GGP/HOMART PORTFOLIO RESULTS
(In thousands, except for per share amounts - Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Minimum rents (b) $33,443 $29,716 $98,399 $87,291
Tenant recoveries 15,139 14,171 44,810 42,024
Percentage rents 855 872 2,413 2,415
Other 663 1,702 2,499 3,700
------- ------- ------- -------
Total revenues 50,100 46,461 148,121 135,430
Operating expenses (c) (20,582) (20,262) (61,079) (59,636)
------- ------- ------- -------
Net operating income 29,518 26,199 87,042 75,794
Interest expense, net (14,017) (13,399) (40,476) (38,242)
------- ------- ------- -------
GGP/Homart Funds From Operations $15,501 $12,800 46,566 37,552
======= ======= ======= =======
(see above)
Operating Partnership's share (38.2%)
of GGP/Homart FFO (see above) $ 5,922 $ 4,887 $17,793 $14,345
======= ======= ======= =======
</TABLE>
(a) The Operating Partnership's share (38.2%) of 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).
(b) Excluding straight-line rents for the three and nine months ended September
30, 1997 and 1996 of $530 and $1,943, $1,061 and $3,357, respectively.
(c) Excluding depreciation and amortization of capitalized real estate costs
other than financing fees/costs.
24 of 27
<PAGE> 25
GGMI
In December 1995, the Company formed GGP Management, Inc. to manage, lease,
develop and operate enclosed regional malls. In August 1996 the Company
acquired 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 as
the Company owns 95% of GGMI through non-voting preferred stock. The 5%
minority interest is owned by five key employees who hold 100% of the common
stock with voting rights. Due to the currently unpaid and accrued preferences
on the preferred stock, the Company effectively earned 100% of the income
generated by GGMI from the date of acquisition through September 30, 1997. 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 Homart Centers and other properties owned by unaffiliated parties. The
following schedule reflects the revenues and expenses related to the operations
of GGP Management, Inc., through June 30, 1996 and the combined management
company for all subsequent periods.
GENERAL GROWTH MANAGEMENT, INC.
STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues
Management, leasing and development service $17,634 $12,749 $46,707 $ 22,143
Expenses
Operating expense (13,618) (10,900) (39,151) (18,883)
------- ------- ------- --------
Net operating income 4,016 1,849 7,556 3,260
Interest expense, net (on loan from the Company) (1,740) (1,340) (4,442) (1,340)
------- ------- ------- --------
GGMI Funds From Operations $ 2,276 $ 509 $ 3,114 $ 1,920
======= ======= ======= ========
</TABLE>
25 of 27
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
The Company uses operating cash flow 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 Company closed on a new $200 million
unsecured credit facility during August of 1997. Said facility is expected to
provide all of the funds necessary to complete the development of Coralville
Mall in Iowa City, Iowa and to fund all other non-recurring capital
expenditures that are currently being contemplated and/or evaluated. In August
of 1997, the Company raised net proceeds of $147,465 in a follow-on offering of
4,350,000 common shares.
Net cash provided by operating activities was $25.0 million in 1997, a
decrease of $17.3 million from $42.3 million in 1996. The increase in prepaid
and other assets of $31.5 million was primarily related to a receivable
accrued as part of the acquisition of The Oaks and Westroads which resulted in
a decrease in cash flow from operations. The receivable was collected in
October of 1997. Net income before allocations to the minority interest
increased $39.3 million which was partially offset by a $14.8 million
reduction generated by a larger gain on the partial sale of CenterMark.
The other significant change was a $16.1 million decrease in accounts payable
and accrued expenses.
Net cash used by investing activities was $137.9 million in 1997
compared to 22.7 million of cash provided in 1996. Cash flow from investing
activities was impacted by acquisitions, development and improvements to real
estate properties, which caused a decrease in cash of approximately $197.9
million greater than the decrease in 1996. This decrease was primarily
attrituable to new acquisitions. The sale proceeds from the sale of CenterMark
provided an increase of $43.5 million compared to the $87.0 million received in
1996. Distributions from joint ventures decreased by approximately $9 million
during 1997 due to the final sale of CenterMark on January 2, 1997.
Financing activities contributed cash of $103.0 million in 1997, compared to a
use of cash of $77.9 million in 1996. The increase was created by the
issuance of common stock which produced net proceeds of $166.2 million. The
other contributing factor of cash from financing activity is net financing from
mortgages had a positive impact of $6.6 million in 1997 versus a decrease of
$19.9 million in 1996. The additional financing was used to fund the
acquisitions and redevelopment of real estate that was discussed above. The
remaining use of cash was accounted for by increased distributions paid during
1997.
The following factors, among others, will affect operating cash flow 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 operating cash flow
generated by GGMI, GGP/Homart and distributions therefrom, less oversight costs
and debt service on additional loans that were incurred to finance a portion of
the cash purchase price for GGP/Homart's stock. The Company anticipates that
its operating cash flow, and potential new debt or equity from future
offerings, new financings or refinancings will provide adequate liquidity to
conduct its operations, fund general and administrative expenses, fund
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
26 of 27
<PAGE> 27
continued qualification as a real estate investment trust and to avoid any
Company level federal income or excise tax.
PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On August 4, 1997, the Company entered into a Pricing Agreement with Lehman
Brothers Inc. (the "Underwriter") pursuant to which on August 8, 1997 the
Company sold the Underwriter 4,000,000 shares of its Common Stock for an
aggregate purchase price of $135.6 million, or $33.90 per share. In addition,
the Underwriter purchased 350,000 additional shares of Common Stock under a 30
day option granted to the Underwriter.
On September 16, 1997, the Company sold 577,680 shares of Common Stock to Smith
Barney Inc. at a purchase price of approximately $32.60 per share. The shares
were sold in reliance on the exemption from registration contained in Section 4
(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K
The Company filed a Form 8-K dated August 8, 1997. The 8-K reported Item 5 -
other events. The event was the sale of common stock as described in Part II
Item 2 above. The Company also filed a Form 8-K/A dated June 19, 1997. The
8-K/A reported Item 7 - financial statements and exhibits. The financial
statements relate to the acquisitions previously reported on Form 8-K.
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 14, 1997 /s/: Bernard Freibaum
----------------------------------------------------
Bernard Freibaum
Executive Vice President and Chief Financial Officer
27 of 27
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<CIK> 0000895648
<NAME> GENERAL GROWTH PROPERTIES, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
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