<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 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.
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<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.
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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.
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 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
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<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.
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.
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).
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<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.
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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 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>
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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% 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, 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.
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.
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<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 18
<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.
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<PAGE> 14
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 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.
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
non-voting preferred stock 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.
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
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<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.
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
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<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.
16 of 18
<PAGE> 17
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.
SUMMARY OF INVESTING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
Net cash used by investing activities during the first nine months of 1997 was
$137.9 million, compared to a source of $22.7 million in 1996. Cash flow from
investing activities was effected by the timing of acquisitions, developments
and improvements to real estate properties, requiring a use of cash during the
first nine months of approximately $170.9 million in 1997 compared to $64.7
million in 1996. The acquisition of 100% of Market Place Mall, Century Plaza,
Southlake Mall, Eden Praire Mall in the first nine months of 1997 used
approximately $114.2 million of cash. The development of the Iowa City
project and renovations and/or expansions accounted for the remaining
expenditures in 1997. The development of Eagle Ridge and West Valley accounted
for a large portion of the expenditures in 1996. Investments in unconsolidated
affiliates during 1997 used $83.5 million of cash flow compared to a $13.3
million use in 1996. The purchase of a 50% interest in Town East Mall and the
acquisition of 51% of GGP/Ivanhoe accounted for approximately $72.1 million of
the activity and additional investments in GGP/Homart accounted for the
remaining $11.4 million in 1997. Advances on notes receivable from GGMI
decreased cash flow from investing activities by $23.8 million in 1997 compared
to $2.4 million in 1996. The advances on the notes receivable from GGMI is
primarily due to the acquisition of an office building by GGMI in 1997. The
sale of portions of CenterMark provided cash flow of $130.5 million in the
first nine months of 1997 compared to $87.0 million in 1996. Distributions
received from unconsolidated affiliates totaled $15.6 million in 1997 and $24.6
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 $5.8 million in 1997 compared to $8.5
million in 1996.
SUMMARY OF FINANCING ACTIVITIES FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
AND 1996
Financing activities in 1997 provided $103.1 million of cash compared to a use
of $77.9 million in 1996. Distributions paid to common shareholders and the
minority interest decreased cash flow by $64.6 million in 1997 compared to
$55.9 million in 1996. The total distributions increased due to an increased
distribution rate and additional shares and Operating Partnership Units
outstanding during 1997. Proceeds from the sale of common stock generated cash
flow of $166.3 million in 1997. Net borrowing activity was a $6.6 million
source of cash flow in 1997 compared to a $19.9 million source of cash flow in
1996. The purchase of treasury stock used $3.1 million of cash flow in 1997.
Prepayment penalties related to the early retirement of debt used $1.1 million
of cash flow in 1997. Deferred financing costs reduced the 1997 cash flow by
approximately $1.3 million compared to a use of $2.0 million in 1996.
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
17 of 18
<PAGE> 18
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: January 15, 1998 /s/: Bernard Freibaum
----------------------------------------------------
Bernard Freibaum
Executive Vice President and Chief Financial Officer
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