<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 August 14,
1997 was 34,767,097.
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<PAGE> 2
GENERAL GROWTH PROPERTIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
NUMBER
Item 1: Financial Statements
<S> <C>
Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996 .......................... 3
Consolidated Statements of Operations
for the three and six months ended June 30, 1997 and 1996........... 4
Consolidated Statements of Cash Flows
for the six months ended June 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.............. 13
Liquidity and Capital Resources of the Company...................... 16
PART II OTHER INFORMATION
Item 2: Changes in Securities...................................... 16
Item 4: Submission of Matters to a Vote of Security Holders........ 17
Item 6: Exhibits and Reports on Form 8-K........................... 17
SIGNATURE........................................................... 17
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(Dollars in thousands, except for share amounts)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1997 DECEMBER 31,
(UNAUDITED) 1996
----------- -----------
<S> <C> <C>
Investment in real estate:
Land $ 190,401 $ 173,263
Buildings and equipment 1,534,401 1,337,366
Less accumulated depreciation (210,135) (188,744)
Developments in progress 50,163 44,439
---------- ----------
Net property and equipment 1,564,830 1,366,324
Investment in CenterMark - 64,769
Investment in GGP/Homart 198,377 193,270
Investment in Property Joint Ventures 43,598 15,077
---------- ----------
Net investment in real estate 1,806,805 1,639,440
Cash and cash equivalents 6,489 15,947
Tenant accounts receivable, net 26,760 25,384
Deferred expenses, net 32,091 30,078
Investment in and note receivable from General Growth
Management, Inc. 56,111 37,737
Prepaid and other assets 7,631 9,131
---------- ----------
$1,935,887 $1,757,717
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $1,293,834 $1,168,522
Notes and contracts payable 905 971
Distributions payable 21,969 20,744
Accounts payable and accrued expenses 36,912 44,836
---------- ----------
1,353,620 1,235,073
---------- ----------
Minority interest in Operating Partnership 217,072 192,377
---------- ----------
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;
30,789,949 shares issued and 30,767,097 outstanding
(30,789,185 as of 12/31/96) 3,079 3,079
Additional paid-in capital 595,822 595,628
Retained earnings (deficit) (232,683) (268,440)
Treasury stock; 31,852 shares held (1,023) -
---------- ----------
Total stockholders' equity 365,195 330,267
---------- ----------
$1,935,887 $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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Minimum rents $42,488 $32,927 $81,663 $65,271
Tenant recoveries 23,531 14,513 45,153 30,651
Percentage rents 1,585 1,389 3,658 2,769
Other 1,197 870 2,790 1,934
Fee income 893 1,972 1,758 2,787
------- ------- -------- --------
Total revenues 69,694 51,671 135,022 103,412
------- ------- -------- --------
Expenses:
Property operating 23,735 16,539 45,902 34,540
Management fees to affiliate 816 658 1,566 1,325
General and administrative 862 758 1,702 1,493
Depreciation and amortization 12,013 9,259 23,175 18,400
------- ------- -------- --------
Total expenses 37,426 27,214 72,345 55,758
------- ------- -------- --------
Operating income 32,268 24,457 62,677 47,654
Interest expense, net (17,785) (17,552) (33,224) (35,092)
Equity in net income/(loss) of unconsolidated
affiliates:
CenterMark 1,471 3,482
Property Joint Ventures 311 638
GGP/Homart 3,627 2,196 5,451 3,887
General Growth Management, Inc. (598) 1,035 (871) 1,486
Net gain on sales 58,647
------- ------- -------- --------
Income before extraordinary item and
allocation to minority interest 17,823 11,607 93,318 21,417
Income allocated to minority interest (6,696) (4,332) (34,238) (7,146)
------- ------- -------- --------
Income before extraordinary item 11,127 7,275 59,080 14,271
Extraordinary item (a) (377) (2,291)
------- ------- -------- --------
Net income $11,127 $7,275 $58,703 $11,980
======= ====== ======= =======
Earnings per share before extraordinary item $ .36 $ .27 $ 1.92 $ .52
Extraordinary item per share ( .01) ( .08)
------- ------ ------- -------
Net earnings per share $ .36 $ .27 $ 1.91 $ .44
======= ====== ======= =======
</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
GENERAL GROWTH PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------- ------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 58,703 $ 11,980
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest 34,238 7,146
Net gain on sales (58,647)
Extraordinary items - charges related to early retirement of debt 377 2,291
Equity in net income of unconsolidated affiliates (5,218) (8,855)
Provision for doubtful accounts 1,562 1,542
Depreciation 21,391 16,444
Amortization 1,784 1,956
Net changes in:
Tenant accounts receivable (2,937) (2,007)
Prepaid and other assets 1,415 (4,122)
Accounts payable and accrued expenses (15,010) (876)
--------- -------
Net cash provided by operating activities 37,658 25,499
--------- -------
Cash flows from investing activities:
Acquisition/development of real estate and improvements and additions to properties (146,543) (32,633)
Increase in investments in unconsolidated real estate affiliates (33,407) (121)
Change in notes receivable from General Growth Management, Inc. (19,348) 61
Proceeds from the sale of CenterMark stock 130,500
Distributions received from CenterMark Properties, Inc. 11,106
Distributions received from GGP/Homart, Inc. 6,077 4,633
Increase in deferred expenses (3,796) (6,112)
--------- -------
Net cash from investing activities (66,517) (23,066)
--------- -------
Cash flows from financing activities:
Cash distributions paid to common stockholders (26,853) (23,455)
Cash distributions paid to minority interest (15,818) (13,846)
Payment of stock offering costs (3)
Proceeds from issuance of mortgage and other notes payable 187,526 367,212
Principal payments on mortgage and other notes payable (124,143) (343,519)
Purchase of treasury stock (1,179)
Proceeds from exercised options 248
Retirement of common stock (net of sale proceeds) (62)
Prepayment penalty on early retirement of debt (377)
Increase in deferred financing costs (1,955)
--------- -------
Net cash from financing activities 19,401 (15,625)
--------- -------
Net change in cash and cash equivalents (9,458) (13,192)
Cash and cash equivalents at beginning of period 15,947 18,298
--------- -------
Cash and equivalents at end of period $ 6,489 $ 5,106
========= =======
Supplemental disclosure of cash flow information:
Non-cash investing activities
Interest paid $43,666 $38,172
Interest capitalized $ 2,718 $ 2,892
Debt assumed as consideration to seller for purchase of real estate $61,863
Partnership units and common stock issued as consideration for purchase of real estate $11,490
</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 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 (the "IBM 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.
On August 8, 1997, the Company completed a follow-on stock offering of
4,000,000 shares of its common stock. The shares were sold through
Lehman Brothers, which has a 30 day option to purchase an additional
600,000 shares to cover over-allotments. Net proceeds of $135,600,000
were substantially applied to reduce the outstanding balance on two
development loans totaling approximately $113,000,000. The balance
of the proceeds will be 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 June 30, 1997, the Company together with the Operating
Partnership owned 100% of thirty-four enclosed regional shopping centers
(the "Original Centers") and 50% of Quail Springs and Town East, 38.2%
of the stock of GGP/Homart, Inc. and a non-voting preferred stock
interest in GGMI (see Note 5). GGP/Homart owns interests in twenty-five
shopping centers (the "Homart Centers") and one center under
development. At June 30, 1997, the Company owned a 63% general
partnership interest in the Operating Partnership. Various minority
interests own the remaining 37% 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
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<PAGE> 7
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
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 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.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements of the Company have been
prepared on a consolidated basis which include the accounts of the
Company, its majority owned Operating Partnerships and its
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
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
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<PAGE> 8
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
primarily used to repay existing indebtedness (see Note 6).
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 June 30,
1997, the stockholders had contributed $60,000 of additional capital.
GGP/Homart currently owns interests in twenty-five regional shopping
malls and one property under development. GGP/Homart elected real estate
investment trust status for income tax purposes.
On October 2, 1996, GGP/Homart opened West Oaks Mall, a new
development, located in Ocoee, (Orlando) Florida. GGP/Homart currently
has one property under development, Brass Mill Center and Commons.
Brass Mill Center and Commons is located in Waterbury, Connecticut, and
is scheduled to open on September 17, 1997.
During the second quarter of 1997, GGP/Homart sold its ownership
interest in Eden Prairie Mall to the Company (see Note 4).
On the following page is summarized financial information for
GGP/Homart for the three and six months ended June 30, 1997 and 1996.
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<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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Minimum rents $24,349 $21,901 $49,189 $43,110
Tenant recoveries 12,005 9,546 22,740 18,783
Percentage rents 615 838 1,249 1,195
Other 856 1,139 1,563 1,583
--------- -------- -------- --------
Total revenues 37,825 33,424 74,741 64,671
Operating expenses (15,475) (14,346) (31,510) (28,700)
Depreciation and amortization (6,447) (5,346) (12,953) (10,083)
--------- -------- -------- --------
Net operating income 15,903 13,732 30,278 25,888
Interest expense, net (9,867) (9,380) (20,695) (18,290)
Equity in net income of unconsolidated
real estate affiliates 2,785 1,404 4,123 2,584
Gain/(loss) on land sale 735 681
Income allocated to minority interest (66) (7) (122) (7)
--------- -------- -------- --------
Net income $9,490 $5,749 $14,265 $10,175
========= ======== ======== ========
</TABLE>
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<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% interest in Market Place
Mall for a cash purchase price of approximately $70,000. 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.
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 site is
currently under development and is scheduled to open in the summer of
1998.
NOTE 5 ACQUISITION OF GGMI
On December 22, 1995, GGP Management, Inc. was formed to manage, lease,
develop and operate enclosed malls. The Operating Partnership owned
100% of the non-voting preferred stock ownership interest in GGP
Management, Inc. representing 95% of the equity interest. Key
employees of the Company held the remaining 5% ownership interest
therein, which interest was in the form of common stock which was
entitled to all of the voting rights in GGP Management, Inc. In August
1996, GGP Management, Inc. acquired General Growth Management, Inc.
("GGMI") through arm's length negotiations for approximately $51,500,
which was accounted for as a purchase by completing the following
steps: GGP Management, Inc. borrowed approximately $39,900 from the
Operating Partnership, and used the loan proceeds to acquire 1,555,855
newly-issued common shares of the Company from the Company. GGP
Management, Inc. then exchanged the 1,555,855 common shares and 453,791
Operating Partnership Units (contributed by the Operating Partnership)
for 100% of the outstanding shares in GGMI. GGP Management, Inc. was
then merged into GGMI with GGMI as the surviving entity.
The Operating Partnership currently holds all of the non-voting
preferred stock ownership interest in GGMI representing 95% of the
equity interest. Five key employees of the Company hold the remaining
5% equity interest through ownership of 100% of the common stock which
is entitled to all voting rights in GGMI. GGMI can not distribute
funds until its available cash flow exceeds all accumulated preferred
dividends owed to the preferred stockholders. Any dividends in excess
of the preferred cumulative dividend are allocated 95% to the preferred
stockholders and 5% to the common stockholders. The interest only loan
from the Operating Partnership to GGMI bears interest at 14% and
matures in 2016. GGMI may make principal payments on the loan if it
has sufficient cash flow. GGMI manages, leases, and performs various
other services for the Original Centers, GGP/Homart and other
properties owned by unaffiliated parties.
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<PAGE> 11
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
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 will initially
occupy approximately half of the building 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 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 June 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.
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 June 24, 1997, the Company declared a cash distribution of $.45 per
share that was paid on July 31, 1997, to stockholders of record on July
15, 1997, totaling $13,856. In addition, a distribution of $8,124 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.
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<PAGE> 12
GENERAL GROWTH PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share amounts)
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
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.
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<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 information statements, within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E 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 or 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
or 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 the terms
necessary to support the Company's future business.
As of June 30, 1997, the Company together with the Operating Partnership
owned 100% of thirty-four enclosed regional shopping centers (the
"Original Centers") and 50% of Quail Springs and Town East, 38.2% of
the stock of GGP/Homart, Inc. and a non-voting preferred stock interest in
GGMI (see Note 5). GGP/Homart owns interests in twenty-five shopping
centers (the "Homart Centers") and one center under development. 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, GGMI, Quail Springs
and Town East, the discussion of results of operations below relates
primarily to the revenues and expenses of the Original Centers.
RESULTS OF OPERATIONS OF THE COMPANY
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Total revenues for the second quarter of 1997 were $69.7 million, which
represents an increase of $18.1 million or approximately 35.1% from $51.6
million in the second quarter of 1996. Approximately $13.2 million or
72.9% of the increase is from acquisitions completed after June 30, 1996.
Improved performance of comparable properties (properties owned at all
times during current and prior periods) accounted for the remaining $4.9
million or 27.1% of the increase. Minimum rent for the second quarter of
1997 increased by $9.6 million or 29.2% from $32.9 million in 1996 to $42.5
million. The acquisition of properties generated $8.9 million of the $9.6
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 of $.7 million in minimum rents.
Tenant charges increased by $9.0 million or 62.1% from $14.5 million to
$23.5 million for the second quarter of 1997. Approximately $5.2 million
of the increase is attributable to higher recoverable operating expenses at
the comparable malls. The remaining $3.8 million increase was generated by
properties which were recently acquired. For the second quarter of 1997
overage rents increased by $.2 million or approximately 14.2% from $1.4
million in 1996. Other revenues increased by approximately $.3 million or
33.3% to $1.2 million for the second quarter of 1997 from $.9 million in
1996. Fee income decreased by $1.2 million due to a non-recurring finance
fee in the second quarter of 1996.
Total expenses, including depreciation and amortization, increased by
approximately $10.2 million, from $27.2 million in the second quarter of
1996 to $37.4 million in the second quarter of 1997. For the period ended
June 30, 1997, property operating expenses increased by $7.2 million or
43.6% from $16.5 million in 1996 to $23.7 million for the second quarter
of 1997. Of this increase new acquisitions accounted for $4.3 million,
while comparable centers contributed the remaining $2.9 million.
Depreciation and amortization increased by $2.8 million over the same
period in 1996. Approximately $.8 million of the $2.8 million increase in
depreciation and amortization was generated at comparable centers. The
remaining $2.0
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<PAGE> 14
million was from newly acquired properties. Management fees to affiliates
and general and administrative expenses together were approximately $.2
million higher than in the second quarter of 1996.
Net interest expense for the second quarter of 1997 was $17.8 million, an
increase of $.2 million or 1.1% from $17.6 million in the second quarter of
1996. The acquisition of new properties was responsible for an increase of
approximately a $4.7 million. Interest savings of $4.5 million were
generated by lower interest rates as a result of refinancing activities and
from the temporary use of the proceeds from the sale of CenterMark to
reduce debt.
Equity in net income of unconsolidated affiliates in the second quarter
of 1997 decreased by approximately $1.4 million to $3.3 million in 1997,
from $4.7 million in the second quarter of 1996. Approximately $1.5
million of the decrease is attributable to the sale of the Company's
interest in CenterMark. The Company's ownership interest in GGMI
resulted in a decrease of $1.6 million. Property Joint Ventures (see
Note 1) and GGP/Homart accounted for increases of $.3 million and $1.4
million, respectively.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Total revenues for the first half of 1997 were $135.0 million, which
represents an increase of $31.6 million or approximately 30.6% from
$103.4 million in the first half of 1996. Of this increase approximately
$23.1 million is from properties acquired after June 30, 1996. Minimum
rent for the first six months of 1997 increased $16.4 million or 25.1%
from $65.3 million in 1996 to $81.7 million. Acquisitions after June 30,
1996, generated $15.2 million of the increase. Higher rents at
comparable centers accounted for the remaining $1.2 million increase in
minimum rents. Tenant recoveries increased by $14.5 million or 47.2%
from $30.7 million to $45.2 million for the first six months of 1997.
Acquisitions of new properties contributed $7.4 million of the $14.5
million increase. Higher recoverable operating costs at comparable
centers generated the remaining $6.6 million of the increase. For the
first six months of 1997, overage rents increased by $.9 million or 32.1%
from $2.8 million to $3.7 million in 1997. The increase is primarily due
to the acquisition of new properties. Other revenues increased $.9
million or 47.4% from $1.9 million to $2.7 million for the first six
months of 1997. Fee revenue decreased by $1.0 million due to a $1.2
million non-recurring finance fee in 1996 net of higher fee revenue of
$.2 million.
Total expenses, including depreciation and amortization, increased $16.6
million or 29.6% from $55.7 million in 1996 to $72.3 in the first six
months of 1997. For the period ended June 30, 1997, property operating,
general and administrative costs and management expenses increased $11.8
million. Of this increase $7.8 million is attributable to the
acquisition of new properties. The remaining $4.0 million is from higher
operating expenses at comparable properties. Depreciation and
amortization increased $4.8 million from $18.4 million in the first six
months of 1996 to $23.2 million in 1997. Of this increase $3.1 million
is attributable to new acquisitions. Comparable centers accounted for
the remaining $1.7 million increase in depreciation and amortization.
14 of 17
<PAGE> 15
Interest expense for the first six months of 1997 was $33.2 million, a
decrease of $1.9 million or 5.4% from $35.1 million during the same
period in 1996. The acquisition and development of new properties was
responsible for a $7.2 million increase. Interest savings due to lower
interest rates on refinancing activity and reduced debt levels from the
use of the CenterMark sale proceeds accounted for a $9.1 million decrease
in interest expense.
Equity in net income of unconsolidated affiliates in the first six months
of 1997 decreased by approximately $3.6 million to $5.2 million in 1997,
from $8.8 million in the first six months of 1996. Approximately $3.5
million of the decrease is attributable to the sale of the Company's
interest in CenterMark. The Company's ownership in GGMI resulted in a
decrease of $2.4 million. The Property Joint Ventures (see Note 1)
and GGP/Homart accounted for increases of $.6 million and $1.7 million,
respectively.
15 of 17
<PAGE> 16
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 expects to
close on a new $200 million unsecured credit facility prior to August 31,
1997. Said facility will 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.
SUMMARY OF INVESTING ACTIVITIES FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net cash used by investing activities during the first six months of 1997 was
$66.5 million, compared to a use of $23.1 million in 1996. Cash flow from
investing activities was effected by the timing of acquisitions, development and
improvements to real estate properties, requiring a use of cash during the
first six months of approximately $146.5 million in 1997 compared to $32.6
million in 1996. The acquisition of 100% of Market Place Mall, Century Plaza,
Southlake Mall, and Eden Prairie Mall in the first six months of 1997 used
approximately $114.2 million of cash. Investments in unconsolidated affiliates
during 1997 used $33.4 million. The purchase of a 50% interest in Town East
Mall accounted for approximately $27.7 million of the activity and additional
investments in GGP/Homart accounted for the remaining activity in 1997.
Advances on notes receivable from GGMI decreased cash flow from investing
activities by $19.3 million in 1997. The advances on the notes receivable from
GGMI is primarily due to the acquisition of an office building by GGMI. The
sale of the final portion of CenterMark provided cash flow of $130.5 million in
the first six months of 1997. Distributions received from unconsolidated
affiliates totaled $6.1 million in 1997 and $15.7 million in 1996. The sale of
portions of CenterMark during 1996 and 1997 accounted for the reduced
distributions from unconsolidated affiliates. Deferred expenses decreased cash
flow $3.8 million in 1997 compared to $6.1 million in 1996.
SUMMARY OF FINANCING ACTIVITIES FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Financing activities in 1997 provided $19.4 million of cash compared to a use
of $15.6 million in 1996. Distributions paid to common shareholders and the
minority interest decreased cash flow by $42.7 million in 1997 compared to
$37.3 million in 1996. The total distributions increased due to an increased
distribution rate and additional shares and Operating Partnership Units
outstanding during 1997. Net borrowing activity was a $63.4 million source of
cash flow in 1997 compared to a $23.7 million source of cash flow in 1996. The
purchase of treasury stock used $1.2 million of cash flow in 1997. Deferred
financing costs reduced the 1996 cash flow by approximately $2.0 million.
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 Funds From Operations
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 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, 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 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
(c) On June 19, 1997, the Operating Partnership acquired in a negotiated
non-underwritten transaction, Southlake Mall, located in Morrow
(Atlanta), Georgia from CA Southlake Investors, Ltd., a Georgia limited
partnership, and Metropolitan Life Insurance Company. The consideration
consisted of approximately $10.4 million in cash, 353,537 redeemable
units of limited partnership interest in the Operating Partnership and
the assumption of approximately $45.1 million of mortgage debt. The
units of limited partnership interest were issued solely to CA Southlake
Investors, Ltd., in a private placement transaction which is exempt from
registration under Section 4 (2) of the Securities Act of 1933, as
amended (the "Act"), and the rules promulgated thereunder, including,
without limitation, Rule 506 of the Act. The holder of the units of
limited partnership interest sold by the Operating Partnership have the
right, any time after June 19, 1998, to require that the Operating
Partnership redeem such units for cash; provided, however, that the
Company may assume the Operating Partnership's obligations and redeem
the units for cash or shares of the Company's Common Stock on a
one-for-one basis.
16 of 17
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At its Annual Meeting of Stockholders held on May 15, 1997, the Company
presented to the stockholders the re-election of Morris Mark and Robert
Michaels as Directors, the approval of an amendment to the Company's Amended and
Restated Certificate of Incorporation, as amended, to increase the number of
authorized shares of Common Stock from 70,000,000 to 210,000,000, the approval
of an amendment to the Company's 1993 Stock Incentive Plan to increase the
nuber of shares available for issuance thereunder to 3,000,000 and the
ratification of the reappointment of Coopers & Lybrand L.L.P. as Independent
Auditors. A total of 30,791,185 shares were eligible to vote on each matter
presented at the Annual Meeting, all of which were approved by the following
votes of stockholders:
<TABLE>
<CAPTION>
Number
of Shares
Matter For Against Abstain
<S> <C> <C> <C>
1. (a) Re-elect Morris Mark 21,622,340 121,080
(b) Re-elect Robert Michaels 21,622,340 121,080
2. Amendment to Certificate of Incorporation 17,925,554 3,788,713 29,153
3. Amendment to 1993 Stock Incentive Plan 14,539,568 7,164,622 39,230
4. Reappointment of Coopers & Lybrand L.L.P.
as Independent Auditors 21,690,011 39,375 14,035
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Not applicable
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated June 19, 1997. The 8-K
reported item 2 - acquisition or disposition of assets and item 5 - other
events.
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: January 15, 1998 /s/: Bernard Freibaum
-----------------------------------------------------
Bernard Freibaum
Executive Vice President and Chief Financial Officer
17 of 17
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